<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From _____ to _____
------------------------
Commission File Number 000-22973
CTB INTERNATIONAL CORP.
(Exact name of registrant as specified in the charter)
Delaware 35-1970751
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
State Road 15 North, P.O. Box 2000, Milford, IN 46542-2000
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (219)-658-4191
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [ X ] No [ ]
At September 30, 1998, approximately 12,328,951 shares, par value $.01 per
share, of common stock of the Registrant were outstanding.
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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, 1997 and
September 30, 1998 1
Condensed Consolidated Income Statements for the Three Months and
Nine Months Ended September 30, 1997 and 1998 2
Condensed Consolidated Statements of Cash Flows for the Nine
Months Ended September 30, 1997 and 1998 3
Notes to Condensed Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 9
Part II
Other Information
Item 1. II-1
Item 5. II-1
Item 6. II-1
Signature II-1
</TABLE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CTB International Corp. and Subsidiaries
Condensed Consolidated Balance Sheets
(In thousands, except share data)
(Unaudited)
<TABLE>
<CAPTION>
December 31 September 30,
1997 1998
----------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,161 $ 416
Accounts receivable - Net 23,875 49,702
Construction costs and estimated earnings in excess of billings on
uncompleted contracts - 5,816
Inventories 25,352 32,037
Deferred income taxes 1,912 1,912
Prepaid expenses and other current assets 3,222 1,571
-------- --------
Total current assets 55,522 91,454
PROPERTY, PLANT AND EQUIPMENT - Net 46,407 50,265
INTANGIBLES - Net 65,328 66,271
OTHER ASSETS 384 3,203
-------- --------
TOTAL ASSETS $167,641 $211,193
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 10,598 $ 18,699
Current portion of long-term debt 1,245 1,708
Current portion of accrued Earn-Out 1,688 5,062
Accrued liabilities 11,810 19,890
Deferred revenue 3,863 1,602
-------- --------
Total current liabilities 29,204 46,961
LONG-TERM DEBT 47,919 70,973
DEFERRED INCOME TAXES 9,369 9,101
ACCRUED POSTRETIREMENT BENEFIT COST 2,435 2,803
ACCRUED EARN-OUT 5,062 1,688
COMMITMENTS AND CONTINGENCIES (See Note 8)
MINORITY INTEREST 106 121
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value; 40,000,000 shares authorized; 12,924,990
shares issued 129 129
Preferred stock - 6% cumulative, $.01 par value; 4,000,000
shares authorized; 0 shares issued and outstanding - -
Additional paid-in capital 78,440 78,098
Reduction for carryover of predecessor cost basis (26,871) (26,871)
Retained earnings 22,401 32,310
Treasury stock, at cost; 1997-0 shares, 1998-596,039 shares - (4,712)
Accumulated other comprehensive income: (See Note 10)
Cumulative translation adjustment (553) 592
-------- --------
Total stockholders' equity 73,546 79,546
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $167,641 $211,193
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE> 4
CTB International Corp. and Subsidiaries
Condensed Consolidated Income Statements
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
-------------------------- --------------------------
1997 1998 1997 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
NET SALES $ 71,740 $ 91,138 $ 153,904 $ 208,380
COST OF SALES 51,150 70,053 112,009 161,752
---------- --------- ----------- ---------
Gross profit 20,590 21,085 41,895 46,628
OTHER OPERATING EXPENSE:
Selling, general, and
administrative 7,974 9,926 18,965 25,552
Amortization of goodwill 430 446 973 1,335
---------- --------- ----------- ---------
OPERATING INCOME 12,186 10,713 21,957 19,741
OTHER EXPENSE - Net (1,607) (1,474) (822) (3,412)
---------- --------- ----------- ---------
INCOME BEFORE INCOME TAXES 10,579 9,239 21,135 16,329
INCOME TAXES 4,204 3,628 9,193 6,420
---------- --------- ----------- ---------
NET INCOME $ 6,375 $ 5,611 $ 11,942 $ 9,909
========== ========= =========== =========
EARNINGS PER SHARE:
Basic: Earnings per common share $ 0.65 $ 0.45 $ 1.48 $ 0.78
========== ========= =========== =========
Weighted average common shares outstanding (a) 9,733 12,607 8,092 12,746
========== ========= =========== =========
Diluted: Earnings per common share $ 0.63 $ 0.43 $ 1.41 $ 0.76
========== ========= =========== =========
Weighted average common shares outstanding (a) 10,149 12,950 8,488 13,115
========== ========= =========== =========
</TABLE>
(a) Average number of common shares outstanding varies between periods
presented principally due to five million shares issued in the
Company's initial public offering, the exchange of all outstanding
preferred stock for 648 thousand shares of common stock on August 21,
1997 and 596 thousand net treasury shares repurchased by the Company in
1998.
See accompanying notes to condensed consolidated financial statements.
<PAGE> 5
CTB International Corp. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
For the Nine Months Ended
September 30,
--------------------------
1997 1998
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 11,942 $ 9,909
Adjustments to reconcile net income to net cash flows
from operating activities:
Depreciation 3,956 4,262
Amortization 1,177 1,747
Equity in loss from joint ventures - 461
Gain on sale of assets (47) (254)
Gain on sales of Vinyl Division (3,562) -
Changes in operating assets and liabilities:
Accounts receivable (7,250) (24,381)
Construction costs and estimated earnings in excess of billings - (5,816)
Inventories (719) (3,573)
Prepaid expenses and other assets (846) 1,255
Accounts payable, accruals and other liabilities 7,424 12,414
-------- ---------
Net cash flows from operating activities 12,075 (3,976)
-------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property, plant and equipment (2,601) (4,288)
Acquisitions, net of cash acquired (45,704) (1,364)
Investment in joint venture - (3,075)
Proceeds from sale of Vinyl Division 8,158 -
Proceeds from sale of assets 88 504
-------- ---------
Net cash flows from investing activities (40,059) (8,223)
-------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of treasury stock - (6,580)
Sale of treasury stock - 12
Issuance of common stock 64,363 -
Issuance of preferred stock 69 -
Redemption of preferred stock (15,000) -
Proceeds from long-term debt 113,748 67,788
Payments on long-term debt (134,671) (50,323)
-------- ---------
Net cash flows from financing activities 28,509 10,897
-------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS 525 (1,302)
NET EFFECT OF TRANSLATION ADJUSTMENT (100) 557
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 258 1,161
-------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 683 $ 416
======== =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE> 6
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 complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three months and nine months ended
September 30, 1998, are not necessarily indicative of the results that may be
expected for the year ending December 31, 1998. For further information, refer
to the Company's Form 10-K for the fiscal year ended December 31, 1997 which
includes the Company's annual audited financial statements.
NOTE 2. INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
December 31, September 30,
1997 1998
---- ----
<S> <C> <C>
Raw material $ 7,878 $ 8,027
Work in process
3,872 3,787
Finished goods
13,602 20,323
-------- --------
25,352 32,137
LIFO valuation allowance
-- (100)
-------- --------
Total $ 25,352 $ 32,037
======== ========
</TABLE>
NOTE 3. CONTRACTS IN PROCESS
Construction contracts in process consist of the following (in thousands):
<TABLE>
<CAPTION>
December 31, September 30,
1997 1998
---- ----
<S> <C> <C>
Costs incurred on uncompleted contracts $ 3,486 $10,076
Estimated earnings
148 703
------- -------
3,634 10,779
Less billings to date
3,634 4,963
------- -------
Costs and estimated earnings in excess
of billings on uncompleted contracts $ -- $ 5,816
======= =======
</TABLE>
<PAGE> 7
NOTE 4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
December 31, September 30,
1997 1998
---- ----
<S> <C> <C>
Land and improvements $ 2,576 $ 2,725
Buildings and improvements 18,853 20,811
Machinery and equipment 31,322 37,515
Construction in progress 2,405 2,253
-------- --------
55,156 63,304
Less accumulated depreciation (8,749) (13,039)
-------- --------
Total $ 46,407 $ 50,265
======== ========
</TABLE>
NOTE 5. INTANGIBLES
Intangibles consist of the following (in thousands):
<TABLE>
<CAPTION>
December 31, September 30,
1997 1998
---- ----
<S> <C> <C>
Goodwill $ 66,099 $ 68,827
Accumulated amortization (2,251) (3,714)
-------- --------
Goodwill - Net 63,848 65,113
-------- --------
Deferred finance costs 2,105 2,117
Accumulated amortization (625) (959)
-------- --------
Deferred finance costs - Net 1,480 1,158
-------- --------
Total $ 65,328 $ 66,271
======== ========
</TABLE>
NOTE 6. GAIN ON SALE OF VINYL DIVISION
On May 29, 1997 the Company sold substantially all assets (other than
accounts receivable) relating to its PVC deck, dock and fence business for
approximately $8.2 million to a subsidiary of Royal Group Technologies Limited.
The sale resulted in an approximate $3.6 million pre-tax gain with a related tax
expense of approximately $2.5 million. In conjunction with the sale, the Company
entered into a joint venture with the acquirer to produce certain extruded PVC
agricultural equipment component parts for the Company for a period of five
years.
NOTE 7. BUSINESS COMBINATIONS AND JOINT VENTURES
On May 1, 1997, the Company acquired all the capital stock of Fancom Holding
B.V. ("Fancom Acquisition"). Based in The Netherlands, Fancom is a manufacturer
and marketer of climate control systems and software applications for the
agricultural equipment industry. The purchase price of $12.6 million, net of
cash acquired and including expenses, was financed through borrowings.
On June 23, 1997, the Company acquired substantially all of the assets of
Butler Manufacturing Company's Grain Systems Division ("Kansas City Grain
Systems Division Acquisition"). Based in Kansas City, Missouri, Kansas City
Grain Systems Division manufactures grain storage bins and markets grain
storage, conditioning and handling systems for grain producers and processors
throughout the world. The
<PAGE> 8
purchase price of $33.3 million, net of cash acquired and including expenses,
was financed through borrowings.
Both transactions were accounted for under the purchase method of accounting.
Accordingly, the purchase prices have been allocated to the acquired assets and
liabilities based on their fair market values as of the dates of acquisition
with the remainder charged to goodwill which will be amortized on a
straight-line basis over 25 years for Fancom and over 40 years for Kansas City
Grain Systems Division. Fancom's and Kansas City Grain Systems Division's
financial statements subsequent to the acquisitions are consolidated and
included in the Company's Consolidated Balance Sheets, Consolidated Statements
of Income, and Consolidated Statements of Cash Flows. The purchase prices have
been allocated as follows:
<TABLE>
<CAPTION>
(In thousands)
--------------
<S> <C>
Current assets $ 23,779
Property, plant and equipment 12,927
Intangibles and other assets 25,651
Long-term debt assumed (5,854)
Liabilities assumed (10,590)
--------
Total purchase price $ 45,913
========
</TABLE>
On May 29, 1998, the formation of Rota Brock Ltda. was completed. The company
is a 50/50 joint venture between CTB, Inc. and Rota Industria de Maquinas
Agricolas, Brazil, pursuant to the joint venture agreement entered into February
9, 1998. The joint venture will produce commercial grain storage silos and feed
bins in addition to seed storage and grain and seed handling equipment in
Brazil. The Company has contributed $3.1 million of its required $3.6 million to
the joint venture in 1998. The Company accounts for its interest in Rota Brock
Ltda. on the equity basis.
On July 7, 1998, CTB International Corp. acquired Sibley Industries, Inc. of
Anderson, Missouri. Sibley Industries is a leading manufacturer of poultry
brooders, units that provide warmth to enhance the growing environment of young
birds, as well as heaters and handling equipment for livestock. The purchase
price of 1.8 million, net of cash acquired and including expenses, was financed
through the issuance of 81,696 shares of the Company's treasury stock and cash
installments of $0.3 million per year for four years beginning March 31, 1999.
There is an Earn-Out provision which would require the Company to pay up to an
additional $1.2 million over four years should certain sales targets be met.
On September 25, 1998, CTB International Corp. acquired STACO, Inc. of
Schaefferstown, Pennsylvania. STACO, Inc. is a leading manufacturer of feeders
and other equipment for the swine raising industry. The purchase price of $2.0
million, net of cash acquired and including expenses, was financed through
borrowings and the issuance of 45,671 shares of the Company's treasury stock.
The Sibley Industries, Inc. and STACO, Inc. transactions were accounted for
under the purchase method of accounting. Accordingly, the purchase prices have
been allocated to the acquired assets and liabilities based on their fair market
values as of the dates of acquisition with the remainder charged to goodwill
which will be amortized on a straight-line basis over 40 years. The financial
statements subsequent to the acquisitions are consolidated and included in the
Company's Consolidated Balance Sheet as of September 30, 1998 and the
Consolidated Statements of Income and Consolidated Statements of Cash Flows for
the period ended September 30, 1998. The purchase prices have been allocated as
follows:
<PAGE> 9
<TABLE>
<CAPTION>
(In thousands)
--------------
<S> <C>
Current assets $ 4,309
Property, plant and equipment 2,785
Intangibles and other assets 2,359
Long-term debt assumed (4,561)
Liabilities assumed (1,106)
--------
Total purchase price 3,786
--------
Note due sellers (1,012)
Value of stock issued (1,410)
--------
Cash paid for acquisitions $ 1,364
========
</TABLE>
On August 12, 1998, the Company announced it had signed a letter of intent to
acquire Roxell N.V. (Roxell) of Maldegem Belgium. Roxell is a leading
manufacturer of automated feeding and watering systems as well as feed storage
bins for the poultry and swine production industries.
The announced purchase price of 1.43 billion Belgian francs, or approximately
$41 million at current exchange rates, will be paid in cash and will be financed
through additional borrowings. The acquisition and its final terms are subject
to completion of a definitive agreement and other customary conditions,
including approval of CTB's Board of Directors and Roxell's shareholders, and is
expected to close in January 1999.
NOTE 8. COMMITMENTS AND CONTINGENCIES
There are various claims and pending legal proceedings against the Company
involving matters arising out of the ordinary conduct of business. While the
Company is unable to predict with certainty the outcome of current proceedings,
based upon the facts currently known to it, the Company does not believe that
resolution of these proceedings will have a material adverse effect on its
financial condition and results of operations.
Pursuant to the Stock Purchase Agreement, the Company has agreed to make
certain contingent payments to the Predecessor Company stockholders (the
"Earn-Out Amount") based on a calculation of cumulative Earnings Before
Interest, Taxes, Depreciation and Amortization ("EBITDA") calculated in
accordance with the Stock Purchase Agreement. The Earn-Out Amount is determined
based on cumulative EBITDA for the three-year period ended December 31, 1998.
The cumulative EBITDA target is subject to adjustment in the event of any
merger, acquisition, divestiture or other extraordinary transaction. An
amendment to the Stock Purchase Agreement to give effect to the Kansas City
Grain Systems Division Acquisition, the Fancom Acquisition and the Vinyl
Division Divestiture revised the EBITDA target from $89.5 million to $103.4
million.
The Company could be liable to pay the Predecessor Company stockholders up to
a maximum amount equal to $13.5 million, which would be recorded as an
adjustment to the purchase price for the Acquisition. Fifty percent of the
maximum Earn-out Amount is to be paid at the attainment of 85% of the cumulative
EBITDA target, with payment increasing on a linear scale up to the target
amount. No payment is required unless 85% of the cumulative EBITDA target is
attained. At December 31, 1997, the Company recorded a $6.75 million liability
with the expectation of attaining, at a minimum, 85% of the cumulative EBITDA
target.
An estimated installment of the Earn-Out was to be paid August 31, 1998. Due
to the uncertainty of the Earn-Out amount at August 31, 1998, the first Earn-Out
installment payment has been rescheduled to January 15, 1999 to allow a more
accurate estimate of the obligation. The remaining three semi-annual
installments will continue on February 28, 1999. 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.
<PAGE> 10
NOTE 9. TREASURY STOCK
At September 30, 1998, treasury stock consisted of 596,039 shares of common
stock. The Company issued 127,367 shares of treasury stock in the third quarter
in conjunction with its purchase of Sibley Industries, Inc. and STACO, Inc. The
shares repurchased are accounted for under the cost method and reported as
"Treasury Stock" and result in a reduction of "Stockholders' Equity." When
treasury shares are reissued, the Company uses a first-in, first-out method and
the difference in repurchase cost and the reissuance price is treated as an
adjustment to "Additional Paid-in Capital."
NOTE 10. NEW ACCOUNTING PRONOUNCEMENTS
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No 130, "Reporting Comprehensive Income" (SFAS 130). This
statement establishes standards for reporting and display of comprehensive
income and its components. This standard expands disclosures and, accordingly,
has no impact on the Company's reported financial position, results of
operations and cash flows. Comprehensive income for the three months ended
September 30, 1997 and 1998 was $6.2 million and $7.9 million, respectively,
while comprehensive income for the nine months ended September 30, 1997 and 1998
was $11.8 million and $12.0 million, respectively. Net income was adjusted by
the change in the cumulative translation adjustment to arrive at comprehensive
income.
Effective June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (SFAS 133). This statement establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts (collectively referred to as
derivatives), and for hedging activities. It requires that an entity recognize
all derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. This statement is
effective for the Company's fiscal year beginning 2000. The Company is
evaluating SFAS 133 to determine its impact on the consolidated financial
statements.
<PAGE> 11
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 Securities
and Exchange Commission filings, including, but not limited, to the Company's
Form 10-K for the fiscal year ended December 31, 1997 which includes the
Company's annual audited financial statements 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, heating
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, 1998 COMPARED WITH THREE MONTHS ENDED SEPTEMBER
30, 1997
Net sales increased 27.0% to $91.1 million for the three months ended
September 30, 1998 compared to $71.7 million in the corresponding period of
1997. The increase is attributable to the success in the Company's bundled
package of products strategy which has led to domestic poultry market share
gains and higher sales of commercial egg laying and handling equipment due to
higher levels of profitability for egg producers, and revenues of $14.0 million
from the Charoen Pokphand (C.P.) project buildings. Also contributing to the
increase is strong demand for domestic farm grain storage bins. The weak
overseas economies, particularly in Asia and Brazil, continued to have a
negative effect on revenues.
Gross profit increased 2.4% to $21.1 million in the three months ended
September 30, 1998 or 23.1% of net sales compared to $20.6 million in the
corresponding period of 1997 or 28.7% of net sales. Gross profit dollars
increased due to higher sales levels in 1998. The gross profit margin decrease
of 5.6% was largely attributable to lower margins relating to the sales of
poultry buildings under projects expected to last into the second quarter of
1999. Also contributing to the decrease were sales increases in lower margin
products and the continued weakness in Asia which has reduced our exports of
higher margin products to customers in the region.
Selling, general and administrative expenses increased 24.5% or $1.9
million to $9.9 million in the three months ended September 30, 1998 from $8.0
million in the corresponding period of 1997. As a percent of net sales, selling,
general and administrative expenses were 10.9% in the three months ended
September 30, 1998 and 11.1% in the corresponding period of 1997. The dollar
increase is primarily attributable to assigning resources to address issues
associated with the implementation of the fully-integrated enterprise resource
planning system, the Sibley Industries Inc. acquisition, and targeted
investments in certain key areas within the Company. The decrease as a
percentage of net sales was primarily attributed to the increase in sales.
Operating income decreased 12.1% or $1.5 million to $10.7 million in the
three months ended September 30, 1998 compared to $12.2 million in the
corresponding period of 1997. Operating income margins decreased to 11.8% of net
sales in the three months ended September 30, 1998 from 17.0% of net sales in
the corresponding period of 1997. The decrease in operating income was
attributable to higher selling, general and administrative expenses offset
somewhat by higher gross profit dollars.
Other income and expense decreased $0.1 million to $1.5 million of expense
in the three months ended September 30, 1998 from $1.6 million of expense in the
three months ended September 30, 1997. Other expense for 1998 includes a $0.6
million expense for joint venture losses in addition to interest on
<PAGE> 12
additional borrowings incurred to support the poultry building project
activities and to purchase treasury stock which was more than offset by reduced
interest costs after the 1997 IPO.
Net income decreased 12.0% or $0.8 million to $5.6 million in the three
months ended September 30, 1998 from $6.4 million for the corresponding period
of 1997. The decrease was due to lower operating income in 1998 offset somewhat
by lower interest expense and a lower effective tax rate in the current period
due primarily to a higher proportion of pre-tax income coming from a subsidiary
with a lower marginal tax rate.
NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED WITH NINE MONTHS ENDED SEPTEMBER
30, 1997
Net sales increased 35.4% to $208.4 million for the nine months ended
September 30, 1998 compared to $153.9 million in the corresponding period of
1997. The increase reflects the Fancom Acquisition, the Kansas City Grain
Systems Division Acquisition, and the Sibley Industries Inc. acquisition that
were completed in May 1997, June 1997, and July 1998 respectively. The increase
also reflects success in the Company's bundled package of products strategy
which has led to domestic poultry market share gains as well as Mexican poultry
market strength and revenues of $26.0 million from the C.P. project poultry
buildings. The continued weakness in the overseas economies, particularly in
Asia and Brazil, all contributed negatively to the revenue line during the nine
month period.
Gross profit increased 11.3% to $46.6 million in the nine months ended
September 30, 1998 or 22.4% of net sales compared to $41.9 million in the
corresponding period of 1997 or 27.2% of net sales. Gross profit dollars
increased due to higher sales levels in 1998. The gross profit margin decrease
of 4.8% was attributable to lower margins relating to the sales of poultry
buildings under projects expected to last into the second quarter of 1999, sales
increases in lower margin products, and the continued weakness in the overseas
economies, particularly in Asia, which has reduced our exports of higher margin
products to customers in the region. Manufacturing inefficiencies associated
with the implementation of the fully-integrated enterprise resource
planning system has also negatively affected margins.
Selling, general and administrative expenses increased 34.7% or $6.6 million
to $25.6 million in the nine months ended September 30, 1998 from $19.0 million
in the corresponding period of 1997. As a percent of net sales, selling, general
and administrative expenses were 12.3% in the nine months ended September 30,
1998 and 12.3% in the corresponding period of 1997. The dollar increase is
primarily attributable to the Kansas City Grain Systems Division Acquisition,
the Fancom Acquisition, and the Sibley Industries, Inc. acquisition, targeted
investments in certain key areas within the Company, and the effect of our
implementation of the fully-integrated enterprise resource planning system
partially offset by lower bonuses and profit sharing expense due to lower than
expected performance.
Amortization of goodwill increased to $1.3 million in the nine months ended
September 30, 1998 or 37.2% from $1.0 million in the corresponding period for
1997. The increase is attributable to the amortization of goodwill purchased in
the Fancom Acquisition, the Kansas City Grain Systems Division Acquisition
offset by the goodwill sold in the Vinyl Division Divestiture, all of which
occurred in the second quarter of 1997.
Operating income decreased 10.1% or $2.2 million to $19.7 million in the
nine months ended September 30, 1998 compared to $22.0 million in the
corresponding period of 1997. Operating income margins decreased to 9.5% of net
sales in the nine months ended September 30, 1998 from 14.3% of net sales in the
corresponding period of 1997. The decrease in operating income was attributable
to higher selling, general and administrative expenses offset somewhat by higher
gross profit dollars.
Other income and expense decreased $2.6 million to $3.4 million of expense
in the nine months ended September 30, 1998 from $0.8 million of expense in the
nine months ended September 30, 1997. Other income for 1997 included a pre-tax
gain of $3.6 million for the sale of the Vinyl Division offset somewhat by
increased costs to finance the Fancom Acquisition and the Kansas City Grain
Systems Division
<PAGE> 13
Acquisition. Other expense for 1998 includes a $0.5 million expense for joint
venture losses in addition to interest on additional borrowings incurred to
finance seasonal working capital needs, to support the poultry building project
activities, and to purchase treasury stock which was more than offset by reduced
interest costs after the 1997 IPO.
Net income decreased 17.0% or $2.0 million to $9.9 million in the nine
months ended September 30, 1998 from $11.9 million for the corresponding period
of 1997. The decrease was due to lower operating income in 1998 and the $1.1
million after-tax gain on sale related to the divestiture of the Company's Vinyl
Division offset somewhat by lower interest expense and a lower effective tax
rate in the current period due to a higher proportion of pre-tax income coming
from a subsidiary with a lower marginal tax rate.
FINANCIAL POSITION
Changes in the financial position of the Company from December 31, 1997 to
September 30, 1998 were due to operational changes.
Total assets increased $43.6 million from $167.6 million at December 31,
1997 to $211.2 million at September 30, 1998. Accounts receivable increased by
$25.8 million from December 31, 1997 to September 30, 1998 due to the seasonal
increase in sales volumes, the closing of the Sibley Industries, Inc. and STACO,
Inc. acquisitions and an increase in days sales outstanding due, in part, to
temporary operational inefficiencies from the integrated resource planning
system implementation. At September 30, 1998, construction costs in excess of
billings for the poultry project buildings were $5.8 million. Inventories at
September 30, 1998 increased by $6.7 million from December 31, 1997. The
increase was due to higher inventory levels to support higher order levels for
the harvest season and $2.8 million due to the Sibley Industries, Inc. and
STACO, Inc. acquisitions. Net property, plant and equipment increased from $46.4
million at December 31, 1997 to $50.3 million at September 30, 1998.
Approximately $2.8 million of the increase is attributed to the purchase of
assets in the acquisition of Sibley Industries, Inc. and STACO, Inc. The
remainder of the increase is due to additions of operational assets offset
somewhat by additional accumulated depreciation for the period. Intangibles
increased by $1.9 million from December 31, 1997 to September 30, 1998 due to
the purchased goodwill in the acquisition of Sibley Industries, Inc. and STACO,
Inc., offset somewhat by current period amortization of goodwill and loan costs.
Total liabilities increased $37.5 million from $94.0 million at December 31,
1997 to $131.5 at September 30, 1998. Accounts payable and accrued liabilities
increased $16.2 million due to the seasonal increase in sales and order volumes.
Long-term debt increased $23.5 million from $49.2 million at December 31, 1997
to $72.7 million at September 30, 1998 due to revolver borrowings to support
seasonal working capital changes, for treasury stock purchases, the Sibley
Industries, Inc. and STACO, Inc. acquisitions, and other working capital needs.
The current portion of the Accrued Earn-Out increased by $1.7 million while the
long-term portion of the Accrued Earn-Out decreased by the same amount as the
third installment due on July 1, 1999 was recognized as a current liability.
Total stockholders' equity increased $7.0 million due to net income for the
period offset by net treasury stock transactions and changes in cumulative
translation adjustment.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1998, the Company had $44.5 million of working capital,
an increase of $18.2 million from working capital as of December 31, 1997. Net
cash used for operating activities for the nine months ended September 30, 1998
was $4.0 million. Net cash provided by operating activities for the nine months
ended September 30, 1997 was $12.1 million. The change was primarily due to the
increases in accounts receivable, construction costs incurred in excess of
billings and inventories, offset to some extent by increases in accounts
payable, accruals and other liabilities.
For the nine months ended September 30, 1998, cash used in investing
activities was $8.2 million which
<PAGE> 14
was used for the acquisition of Sibley Industries, Inc. and STACO, Inc., the
Rota Brock Ltda. joint venture investment, and the acquisition of fixed assets
offset slightly by the sale of assets. For the nine months ended September 30,
1997, cash used in investing activities was $40.1 million, which was used
primarily for the Fancom and Kansas City Grain Systems Division acquisitions
offset by the sale of the Vinyl Division.
For the nine months ended September 30, 1998, net cash provided by
financing activities was $10.9 million. During this period there was a net $17.5
million increase in cash flows from debt activity offset by a net $6.6 million
use of cash for treasury stock activities. For the nine months ended September
30, 1997, net cash provided by financing activities was $28.5 million. Issuance
of common stock provided $64.4 million while the redemption of preferred stock
used $15.0 million. Proceeds of debt provided $113.8 million for use in
acquisition financing and working capital needs while payments on debts totaled
$134.7 million.
The Company believes that existing cash, cash flows from operations and
available borrowings will be sufficient to support its working capital, capital
expenditures and debt service requirements for the foreseeable future. The
pending acquisition of Roxell N.V. will require an amendment to the existing
credit facility which the Company is currently negotiating and which the Company
believes will not only be sufficient to fund the acquisition but, also, support
its working capital, capital expenditure 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>
(In thousands, except per share amounts) Three Months Ended
- --------------------------------------------------------------------------------------------------------------------
September 30, | September 30, December 31, March 31, June 30,
1998 | 1997 1997 1998 1998
---- | ---- ---- ---- ----
<S> <C> | <C> <C> <C> <C>
Sales $91,138 | $71,740 $48,159 $46,778 $ 70,464
Gross profit $21,085 | $20,590 $11,823 $11,045 $ 14,498
Gross margin 23.1% | 28.7% 24.5% 23.6% 20.6%
Operating income $10,713 | $12,186 $ 3,882 $ 3,095 $ 5,933
Operating income margin 11.8% | 17.0% 8.1% 6.6% 8.4%
Net income $ 5,611 | $ 6,375 $ 1,957 $ 1,387 $ 2,911
Basic earnings per share $ 0.45 | $ 0.65 $ 0.15 $ 0.11 $ 0.23
Basic weighted average common |
shares outstanding 12,607 | 9,733 12,925 12,837 12,797
Diluted earnings per share $ 0.43 | $ 0.63 $ 0.15 $ 0.11 $ 0.22
Diluted weighted average common |
shares outstanding |
12,950 | 10,149 13,360 13,208 13,184
</TABLE>
<PAGE> 15
YEAR 2000 READINESS DISCLOSURE
YEAR 2000 ISSUE
The "Year 2000 ("Y2K") Issue" refers to the inability of certain computers,
information systems and microprocessors to recognize and process the century
designation in data fields causing potential improper information processing,
invalid calculations, erroneous reporting, or at worst, system or equipment
failures which could have a materially adverse impact on the Company.
STATE OF READINESS
The Company is assessing the impact of the Year 2000 with respect to its
information technology ("IT") systems and non-IT systems and equipment as well
as its potential exposure to significant third party risks. The Company's
methodology includes; (i) the identification of systems, equipment and third
party relationships; (ii) assessment of Y2K compliance issues related to the
systems, equipment and third parties; (iii) correction and testing; (iv)
documentation of findings/corrective actions; and (v) contingency planning.
Accordingly, the Company has initiated a plan to confirm Y2K compliance or
replace/modify existing systems and equipment as required and to assure itself
that critical third parties are also addressing the issue.
With respect to IT systems, the Company has completed a preliminary assessment
of its major systems and determined that they will not present significant
problems in Y2K compliance. The major systems have all been installed within the
past 36 months (two of the systems in 1998) and been certified as substantially
Y2K compliant or the software developers are in the process of certifying Y2K
compliance. These systems were installed in response to the need for integrated
systems providing improved management information and not for compliance with
Y2K. Testing has commenced and will continue with completion expected by March
31, 1999. Documentation is also expected to be completed by this date.
Non-major IT systems and equipment are still being assessed including equipment
and related software. The assessment should be completed by February 15, 1999
while correction, testing and documentation are expected to be completed by May
31, 1999.
Major Non-IT equipment, which is primarily manufacturing equipment, has been
identified, assessed and tested in the United States with the determination that
the equipment does not generally employ microprocessors with date sensitive
operations and thus does not pose a significant Y2K issue. Major Non-
<PAGE> 16
IT equipment outside the United States will be assessed and tested with
completion expected by April 30, 1999. Other Non-IT equipment is also expected
to be assessed and tested by April 30, 1999.
The Company has identified major and/or critical third party relationships and
expects to complete a survey and assessment of third party readiness by February
15, 1999. Based upon the responses received, additional follow up and third
party testing will be performed as necessary. The results of this assessment and
testing will be a major factor in the eventual contingency plans developed.
However, there can be no guarantee that the systems of other companies on which
the Company's systems rely will be converted in a timely manner or that the
failure to convert by another company would not have a materially adverse effect
on the Company.
COST OF YEAR 2000 ISSUE
As of September 30, 1998, the Company has incurred costs of less than $50,000 in
year 2000 compliance. The Company is currently in the process of estimating the
future cost of Y2K. The cost is not expected to be material.
RISKS OF YEAR 2000 ISSUE
The Company has not completed its assessment of the most reasonably likely worst
case Y2K scenario. However, given the Company's efforts to minimize the Y2K
failure of its internal systems and the limited concern of its non-IT equipment,
the Company believes the worst case scenario would occur if its primary raw
material suppliers or its electricity suppliers experience a Y2K failure which
results in the Company's inability to receive critical raw material or suffer a
power outage.
While contingency plans have not yet been prepared, the identification and
development of an expanded supplier base may be necessary depending upon the
responses to the Company's third party survey. A power outage would require the
Company to assess the likely duration of the failure and the availability of
possible alternative power sources to enable the continuation of production.
CONTINGENCY PLANS
Because not all occurrences of Y2K failure can be projected, anticipated or
controlled, the Company will develop contingency plans that will enable
production to continue. Contingency plans are expected to be completed by June
30, 1999. As the Company develops its contingency plans, the costs associated
with those plans (i.e. significant inventory stock piling or the arrangement of
alternative power sources) - will be assessed vis-a-vis the cost of the most
reasonably likely worst case scenario. Consequently, the contingency plan costs
and certain mitigating factors, including seasonally lower first quarter
business sales and production levels, may not warrant the full implementation of
the plans.
NOTE TO COMPANY'S YEAR 2000 READINESS DISCLOSURE
The costs and the dates on which the Company intends to complete its Y2K
analysis and correction are based on management's best estimates. These
estimates were derived utilizing numerous assumptions of future events and the
availability of resources. However, there can be no guarantee that these
estimates will be achieved, and actual results could differ materially from
those plans. Factors that might cause such material differences include, but are
not limited to, the availability and cost of alternative suppliers should they
be required, the retention of personnel or the availability of new personnel
competent with Y2K issues, the ability to locate and correct all relevant
computer codes, and similar uncertainties.
It is currently unknown which problems the Company will face for partial or
complete non-compliance because it will depend on numerous factors (such as the
nature of the problem and how quickly it could be corrected). At worst, such
problems could have a materially adverse impact on the Company.
<PAGE> 17
FORWARD LOOKING STATEMENTS
Certain statements made herein contain forward-looking statements
relating to 1998 financial performance and financial condition. Forward-looking
statements are not guarantees of future performance and involve risks and
uncertainties including (i) the ability to support future working capital needs,
and/or obtain funding for the pending Roxell acquisition, (ii) seasonality of
the Company's business, (iii) construction progress and the timing of completion
and impact on gross margin of building construction projects, (iv) the
successful and timely resolution of the enterprise resource system
implementation issues and the related costs, and (v) costs and dates the Company
intends to complete its Year 2000 analysis. For a more complete presentation of
risks and uncertainties, see the Company's filings with the Securities and
Exchange Commission, including the Company's report on Form 10-K.
<PAGE> 18
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
See Note 8 to the financial statements
Item 5. Other Information
See Note 9 to the financial statements
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
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.
11. Computation of Earnings Per Share.
27 Financial Data Schedule.
b) Reports on Form 8-K.
CTB INTERNATIONAL CORP. TO ACQUIRE ROXELL N.V. filed on August 19,
1998.
Items 2, 3, and 4 are not applicable and have been omitted.
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 16, 1998 By /s/ Don J. Steinhilber
- ------------------------------ ----------------------------------
Don J. Steinhilber
Vice President and Chief Financial Officer
<PAGE> 1
EXHIBIT 11
CTB International Corp. and Subsidiaries
Diluted Earnings Per Common and Common Equivalent Share
Three and Nine Months Ended September 30, 1997 and 1998
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------- -------------------
1997 1998 1997 1998
---------- ------- -------- --------
<S> <C> <C> <C> <C>
ACTUAL
Net Income $6,375 $5,611 $11,942 $9,909
========== ======= ======== ========
Average number of common shares outstanding 9,733 12,607 8,092 12,746
Common equivalent shares
Stock Options 416 343 396 369
---------- ------- -------- --------
Total average common and common
equivalent shares outstanding 10,149 12,950 8,488 13,115
========== ======= ======== ========
Earnings per common and common equivalent share $0.63 $0.43 $1.41 $0.76
========== ======= ======== ========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 416
<SECURITIES> 0
<RECEIVABLES> 50,667
<ALLOWANCES> 965
<INVENTORY> 32,037
<CURRENT-ASSETS> 91,454
<PP&E> 63,304
<DEPRECIATION> 13,039
<TOTAL-ASSETS> 211,193
<CURRENT-LIABILITIES> 46,961
<BONDS> 0
0
0
<COMMON> 129
<OTHER-SE> 79,417
<TOTAL-LIABILITY-AND-EQUITY> 211,193
<SALES> 91,138
<TOTAL-REVENUES> 91,138
<CGS> 70,053
<TOTAL-COSTS> 70,053
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 406
<INCOME-PRETAX> 9,239
<INCOME-TAX> 3,628
<INCOME-CONTINUING> 5,611
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,611
<EPS-PRIMARY> 0.45
<EPS-DILUTED> 0.43
</TABLE>
