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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ________________ TO ________________
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COMMISSION FILE NUMBER 000-22973
CTB INTERNATIONAL CORP.
(Exact name of registrant as specified in the charter)
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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, 46542-2000
IN (Zip Code)
(Address of principal executive offices)
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Registrant's telephone number, including area code: (219)-658-4191
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. Yes [X] No [ ]
The aggregate market value of common stock held by non-affiliates of the
registrant as of March 25, 1998 was approximately $80,978,968.
The number of shares outstanding of the registrant's common stock as of
March 25, 1998 was 12,782,490.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the 1997 Annual Report to Stockholders are incorporated by
reference into Parts I, II, and IV.
Portions of the definitive Proxy Statement dated March 31, 1998 to be
delivered to stockholders in connection with the Annual Meeting of Stockholders
to be held May 5, 1998 are incorporated by reference into Part III.
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CTB INTERNATIONAL CORP.
FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
INDEX
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PAGE
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Part I
Item 1. Business.................................................... 1
Item 2. Properties.................................................. 7
Item 3. Legal Proceedings........................................... 7
Item 4. Submission of Matters to a Vote of Security Holders......... 7
Part II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters......................................... 9
Item 6. Selected Financial Data..................................... 9
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operation.................................... 9
Item 7a. Quantitative and Qualitative Disclosures about Market
Risk........................................................ 9
Item 8. Financial Statements and Supplementary Data................. 10
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosures................................... 10
Part III
Item 10. Directors and Executive Officers of the Registrant.......... 10
Item 11. Executive Compensation...................................... 10
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 10
Item 13. Certain Relationships and Related Transactions.............. 10
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K......................................................... 11
Signatures............................................................ 15
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PART I
ITEM 1. BUSINESS
(A) GENERAL DEVELOPMENT OF BUSINESS
CTB International Corp. (the "Company") is a designer, manufacturer and
marketer of agricultural equipment comprised of automated feeding, watering and
ventilation systems, feed bins, controls, integrated commercial egg laying and
handling systems, and grain storage systems for the poultry, swine, egg
production markets and grain storage and handling systems for the grain systems
market. The Company markets its agricultural products on a worldwide basis
primarily under the CHORE-TIME(R), BROCK(R), FANCOM(R), and BUTLER(R) brand
names.
CTB International Corp.'s initial predecessor, Chore-Time Equipment Inc.
("Chore-Time Equipment"), was founded in 1952 by Howard S. Brembeck who also
established Brock Manufacturing Inc. ("Brock") in 1957. In 1976, Chore-Time
Equipment and Brock came under common ownership and in 1985 were merged into a
single corporation (the "Predecessor Company").
The Company and its wholly owned subsidiary, CTB Ventures, Inc., an Indiana
corporation ("CTB Ventures"), were formed by affiliates of American Securities
Capital Partners, L.P. ("ASCP"). Pursuant to the Stock Purchase Agreement among
CTB Ventures, the Predecessor Company and the selling stockholders parties
thereto, which included certain members of senior management (the "Predecessor
Company Stockholders"), on January 4, 1996, CTB Ventures purchased all of the
outstanding capital stock of the Predecessor Company (the "Acquisition").
Concurrent with the Acquisition, the Predecessor Company merged into CTB
Ventures and CTB Ventures changed its name to CTB, Inc. ("CTB").
On May 1, 1997, the Company acquired all of the capital stock of Fancom
Holding B.V. ("Fancom Acquisition"). Fancom Holding B.V. is based in The
Netherlands and is a manufacturer of climate control systems and software
applications for the agricultural industry. These systems permit the
simultaneous remote monitoring and operation of multiple poultry and swine
locations and the complete control of all critical processes within facilities
where poultry and swine are raised and eggs are produced, including climate,
feeding, watering, weighing and storage. The Fancom Acquisition strengthens the
Company's ability to offer integrated equipment solutions and to further access
the European market where 90% of Fancom's sales are currently made through
approximately 100 distributors and dealers.
On May 29, 1997, the Company sold substantially all assets (other than
accounts receivable) relating to its PVC deck, dock and fence business to a
subsidiary of Royal Group Technologies Limited ("Vinyl Division Divestiture").
In conjunction with the sale, the Company entered into a joint venture with the
acquiror to produce certain extruded PVC agricultural equipment component parts
for the Company for a period of five years.
On June 23, 1997, the Company acquired substantially all of the assets and
certain specified ordinary course liabilities of the Grain Systems Division of
Butler Manufacturing Company ("Kansas City Grain Systems Division Acquisition").
Based in Kansas City, Missouri, the 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
Kansas City Grain Systems Division Acquisition contributes to the Company's
competitive position in grain storage markets by greatly increasing the scope of
its current distribution network, enhancing the Company's grain storage bin
manufacturing capability and adding an additional range of on-farm and
commercial grain storage bins to its existing product. The acquisition expands
the Company's grain bin distribution base by an additional 300 dealers,
expanding dealership coverage in key grain producing states. The Company has the
right to use the Butler logo for two years after the closing date of the Kansas
City Grain Systems Division Acquisition and the trademark and tradename for
three years after such closing date.
On August 26, 1997, the Company completed the initial public offering of
its common stock.
On February 12, 1998, the Company announced it entered into a joint venture
with Rota Industria de Maquinas Agricolas, Brazil, to produce commercial grain
storage silos and feed bins in Brazil. The joint
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venture will also produce seed storage and grain and seed handling equipment.
The joint venture is a 50/50 joint venture and will operate under the name Rota
Brock Ltda. The agreement calls for the Company to contribute approximately $3.0
million to the joint venture during 1998.
(B) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
The Company operates in primarily one industry segment which includes the
design, manufacture and sale of agricultural equipment.
(C) NARRATIVE DESCRIPTION OF BUSINESS
MARKET OVERVIEW
The Company serves the agricultural market. Demand for the Company's
products is driven by the overall worldwide level of poultry, swine, egg and
grain production as well as the increasing focus both domestically and
internationally on improving productivity in these markets. These markets are
driven by a number of factors including consumption trends, which are affected
by both the level of economic and population growth and the impact of
governmental policies which can affect both the level of local production and
import/export production levels. Because the U.S. is a net exporter of all of
these products, both the Company's domestic and international sales benefit from
positive worldwide trends in these markets. Additionally, other factors such as
weather conditions, can have a major influence on local and worldwide demand for
the Company's products.
A primary driver currently impacting demand for the Company's products is
the significant economic and population growth occurring in the Company's
international markets, including Asia, Latin America and to a lesser extent,
Eastern Europe and Russia. As a result of increasing disposable income in these
international markets, consumers are devoting larger portions of their income to
improved and higher protein-based diets. This has meant stronger demand for
meat, specifically poultry and pork, as these meats provide a more cost-
effective source of animal protein than beef.
Demand for grain and the required infrastructure for grain storage,
conditioning and handling, is driven by several factors, including additional
grain to feed the increased international production of poultry, swine and other
meats discussed above. The U.S. Federal Agricultural Improvement and Reform
(FAIR) Act of 1996 and continued crop yield enhancements are expected to lead to
increased worldwide grain production. Additionally, increased demand for
worldwide grain production is supporting increased values for grain products.
Furthermore, the less functionally sophisticated and efficient grain storage
facilities outside the U.S. and Western Europe, which experience higher levels
of grain spoilage and loss, are increasingly likely to be replaced by more
modern equipment. These dynamics will continue to support rising domestic and
international demand for the Company's grain storage and handling systems.
COMPANY PRODUCTS
The Company has historically been primarily a producer of feeding systems,
commercial egg laying and handling systems and grain storage. More recently the
Company increased its emphasis on its watering and ventilation system products
by introducing more advanced poultry watering systems and poultry and swine
ventilation systems. These product offerings are part of the Company's strategy
to offer complete, integrated feeding, watering and ventilation systems for
poultry and egg production and feeding and ventilation systems for swine
production. The Company believes that its ability to offer integrated systems to
poultry, egg and swine producers provides it with an advantage over its
competitors enabling producers to purchase complete, integrated production
systems from a single distributor who can offer high quality installation and
service. The Company is also a manufacturer of grain storage bins and worldwide
marketer of grain storage and handling systems for farm and commercial storage.
The Company believes its systems offer the highest quality in grain storage
exhibiting strength and durability, facilitating efficient handling and
minimizing spoilage and loss.
The Company manufactures and sells its agricultural equipment, which
includes feeding, watering, ventilation, egg laying/handling, and controls under
the CHORE-TIME(R) brand name and its complete line of
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grain storage bins made of galvanized steel under the BROCK(R) and BUTLER(R)
brand names. In conjunction with the Kansas City Grain Systems Division
Acquisition, the Company has the right to use the Butler logo through June of
1999 and the trademark and tradename through June of 2000. In conjunction with
the Fancom Acquisition, the Company manufactures its own line of computer-based
control systems under the FANCOM(R) brand name.
Feeding Systems
The Company manufactures feeding systems for the buildings in which
broilers, turkeys and breeders (chickens and turkeys raised to produce hatching
eggs) are raised. Broilers and turkeys are raised in grow-out houses and
breeders are raised in breeder houses. The Company also manufactures swine
feeding systems for all stages of swine production, including feed storage bins,
feed delivery systems, and volumetric feeders.
In addition to the individual product features outlined below, the Company
believes that its poultry and swine feeding systems are distinguished by
non-corrosive plastic and galvanized steel parts, specially engineered for
durability and reliable operation, the FLEX-AUGER(R) system which allows feed to
be conveyed up, down and around corners and automated controls which coordinate
feeding, watering, ventilation and lighting schedules. Additionally, the
Company's feed storage bins, used for bulk feed storage, are distinguished by a
number of patented features that are designed to maximize capacity, permit easy
cleaning and ensure proper feed flow, including the "All-Out(TM) System" which
is designed to manage the quality of stored feed, and features designs which
prevent rain and condensation from entering feed storage bins and provide
first-in, first-out material flow keeping feed fresh to prevent spoilage and
blended to provide uniform quality rations to the poultry and swine as bins
fill.
Poultry. The Company believes that feed accounts for 60% - 70% of the total
cost of raising poultry. The profitability of growers of broilers and turkeys is
largely dependent on the efficiency with which they convert feed to meat
("feed-to-meat ratio"). The profitability of growers of breeders is largely
dependent upon the total amount of feed required to maximize egg production. The
Company's feeding systems for broilers and turkeys are designed to maximize the
feed-to-meat ratio by making feed attractive and easily accessible to broilers
and turkeys at all stages of growth while simultaneously limiting feed waste.
The Company's feeding systems for breeders are designed to maximize egg
production by delivering appropriate diets at scheduled times, by reducing
competition for feed among breeders and by separately feeding hens and roosters
thereby reducing stress and enhancing productivity of the hens and roosters. The
Company also manufactures and markets a feeding system that is mounted on its
egg layer cages.
The Company's poultry feeding systems consist of feed storage bins located
outside the grow-out or breeder houses, a feed delivery system which delivers
the feed from the feed storage bin into the house and an internal feed
distribution system which delivers the feed to the birds. The feed delivery and
distribution systems include the Company's FLEX-AUGER(R) conveying products
which convey the feed through an enclosed pipe from the feed storage bin to the
house and then to feeding pans. These feeding pans are suspended throughout the
grow-out and breeder houses with suspension apparatus and other components
allowing direct feed delivery to each bird. The suspension apparatus for
grow-out houses raises and lowers the pans according to the size of the birds.
In addition, these patented feed pans automatically adjust from flood feeding
for young chicks to regulated feed levels for older birds. Automatic timers are
also available to allow for automated periodic feeding. Feed storage bins
manufactured by the Company are sold as an integrated component of the Company's
feeding systems.
Swine. The profitability of swine producers depends largely on the
feed-to-meat ratio and the number of pounds of lean meat of swine produced for
meat, and for sows (swine produced for breeding purposes), the size and number
of litters per sow per year. The Company's feeding systems for swine are
designed to maximize the feed-to-meat ratio of swine by delivering appropriate
diets at scheduled times to prevent swine from eating continuously, thus
reducing feed waste and improving feed conversion and utilization. The Company's
feeding systems for sows are designed to maximize the production of piglets by
lowering animal stress and reducing the associated costs by limiting feed waste
and minimizing labor costs.
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The Company's swine feed delivery systems are similar in concept to those
designed for poultry, consisting of a feed storage bin outside of the swine
building, a FLEX-AUGER(R) feed delivery system which conveys the feed to and
through the building to feed dispensers suspended within the building which
provide individualized feeding. Automatic timers are available to allow for
automated periodic feeding.
Watering Systems
The Company produces nipple watering systems for breeder, layer and broiler
houses. The ability of each bird to obtain water easily and immediately is an
essential factor in facilitating weight gain. The Company's watering system
consists of a water pipe system which distributes water throughout the house to
drinking units supported by winches, cables and other components. The water is
delivered to the system through a regulator designed to provide differential
water pressure according to demand. For grow-out houses, the watering system
delivers water through a patented button nipple drinker that produces a large
bead of water allowing young birds to find the water quickly and easily,
facilitating weight gain.
The Company believes that its watering systems are further distinguished by
water pressure and height adjustments which allow the delivery of appropriate
flow rates to birds of all ages, corrosion resistant parts, easy installation,
maintenance and self-cleaning features.
In addition, the Company's watering systems, together with the Company's
poultry feeding and ventilation systems, allow the Company to offer poultry
growers a complete integrated production system controlled by its automated
controls.
Ventilation Systems
The Company manufactures and supplies ventilation systems for breeder,
layer and broiler grow-out houses and swine buildings. The systems consist of
fans, shutters, evaporative cooling systems, winches, inlets and other
accessories to regulate temperature and air flow. The acquisition of Fancom
complements the Company's product line of ventilation systems with state of the
art climate control and software applications which permit the remote control
and monitoring of the climates of multiple poultry and swine locations. Proper
ventilation systems are crucial for maximizing feed-to-meat ratios by reducing
stress caused by extreme temperature fluctuation, allowing for higher density
production and providing for optimum bird and swine health through disease
prevention.
The Company believes that its ventilation systems are distinguished by ease
of assembly in the field, energy-efficient airflow management, a unique design
ideal for international sales which ships compactly and inexpensively and
assembles with little hardware and few tools, a reliable system of environmental
controls and non-corrosive line of fans designed for layer and swine buildings.
In addition, the Company's ventilation systems may be marketed with the
Company's feeding and watering systems to poultry growers and with the Company's
feeding systems to swine growers to offer integrated production systems which
can be controlled by the Company's automated controls.
Egg Laying/Handling Systems
The Company is a leading U.S. manufacturer of egg laying and handling
systems. Its integrated system approach includes layered galvanized wire mesh
cages, feed storage bins, a feed delivery system, cage mounted feeders, an egg
collection system, ventilation, waste removal and watering equipment. The
feeding, watering and ventilation components of each system are similar to those
described above.
The profitability of poultry egg producers is determined by the number and
size of eggs produced by each bird, the cleanliness of the eggs and the length
of each bird's laying cycle. Egg production is optimized by factors similar to
those maximizing feed-to-meat ratios for broilers and therefore product features
such as periodic individualized feeding, easy access to water and adequate
ventilation distinguish the Company's egg laying systems. In addition,
profitability depends upon the gentle handling of eggs to minimize breakage. The
Company's egg handling system is distinguished by a patented egg collection
system, designed to handle eggs more gently, resulting in fewer cracked or
broken eggs. In addition, because the Company manufactures all
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the necessary production systems for an egg house, it can offer fully integrated
egg laying and handling systems monitored and operated locally or remotely by
the Company's automated controls.
Automated Controls
In conjunction with sales of automated poultry, swine and egg laying and
handling systems, the Company sells a full range of systems controls ranging
from timers and thermostats to complex whole-house PC based control systems.
Controls are available within the breeder, grow-out and egg laying houses and
the swine buildings to operate automatically the feeding, watering, ventilation
and lighting operations, either individually or as fully integrated systems.
In the U.S., the egg industry has led the advancement in automation by
utilizing PC based control systems to coordinate the feeding, watering,
ventilation and lighting schedules in the house(s) on an integrated basis. The
coordination of these functions has resulted in increased operating
efficiencies. The Company anticipates similar advancements in the broiler,
turkey and swine industries from existing standards of independent controls to
integrated systems similar to the egg industry.
With the acquisition of Fancom, the Company now manufactures its own line
of control products which includes a broad range of sophisticated, whole-house
personal computer-based control systems and increases the Company's flexibility
in offering fully integrated systems. Fancom offers the only computerized
agricultural control systems whose products are ISO 9001 certified, with systems
ranging from individual climate, liquid and dry feeding, and weighing controls
to PC based systems allowing for simultaneous remote monitoring and control of
multiple poultry and swine locations.
Grain Storage Bins
The Company manufactures over 300 models of grain storage bins for on-farm
and commercial grain storage in diameters ranging from 15 to 105 feet with
capacities to over 680,000 bushels. The Company also manufactures and markets a
line of industrial bulk storage bins and conveying equipment. In addition to the
products marketed under the BROCK(R) and BUTLER(R) brand names, the Company
produces grain storage bins on a private label basis.
The Company's grain storage bins are distinguished by an aeration floor
which helps preserve grain condition, patented corrosion resistant bolts and
certain additional patented features which prevent clumps of grain from blocking
bin unloading wells. The Company believes its grain storage bins are further
distinguished by superior roof strength, ease of installation, special
engineering for durability and reliable operation and superior cosmetic
appearance.
With the acquisition of the Kansas City Grain Systems Division, the Company
has enhanced its grain storage bin manufacturing capability and has added an
additional range of on-farm and commercial grain storage bins to its existing
product line. The Kansas City Grain Systems Division acquisition has expanded
the Company's grain bin distribution base, expanding dealership coverage in key
grain producing states.
PRODUCT DISTRIBUTION
The Company sells its agricultural products primarily through a network of
U.S. and international independent distributors and dealers who offer targeted
geographic coverage in key poultry, swine, egg and grain producing markets
throughout the world. The Company's distributors and dealers sell products to
poultry, egg, swine and grain producers, agricultural companies and other end
users. These independent distributors and dealers install and service the
Company's products, many of whom also offer additional technical support and
service to the end user. Some of the Company's distributors sell products
directly to end users and others sell products through their own dealer
networks. The Company provides training to its distributors and dealers at its
technical training center, qualifying distributors and dealers to install and
service the Company's products and systems. The Company believes that its
distribution network is the strongest in the industry, providing its customers
with high levels of service. The Company maintains long-standing relationships
with its distribution network.
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SOURCES AND AVAILABILITY OF RAW MATERIALS
The Company manufactures its products primarily with galvanized steel,
steel wire and polymer materials, including PVC pipe, polypropylene and
polyethylene. In addition, it purchases certain components including electric
motors for incorporation in certain of its products. It also purchases grain
handling systems which it sells together with grain storage bins outside of the
U.S. The PVC pipe is purchased from a company formed in conjunction with the
Vinyl Division Divestiture in which CTB has a 50% ownership interest. The
Company is not dependent on any one of its suppliers and has not experienced
difficulty in obtaining any parts or materials. The Company purchases galvanized
steel from a variety of integrated mills and galvanizing processors. In
addition, the components or substitute components, materials and parts purchased
by the Company are readily available from alternative suppliers.
PATENTS AND TRADEMARKS
The Company has numerous patents covering innovations in poultry and
livestock feeding and other agricultural equipment. The Company aggressively
seeks patent protection for its technological developments. The Company also has
numerous trademarks and has submitted applications for additional trademarks.
While the Company believes its patents and trademarks have significant value,
the Company does not believe that its competitive position is dependent on
patent protection or that its operations are dependent on any individual patent
or group of related patents. No significant patents will expire prior to
December 31, 2001.
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 major harvesting season. The Company's
net sales and net income have historically been lower during the first and
fourth quarters as compared to the second and third quarters.
BACKLOG
Backlog is not a significant factor in the Company's business taken as a
whole, because most of the Company's products are delivered within a few weeks
of their order. The Company's backlog at March 25, 1998 and 1997, was $33.8
million and $27.9 million, respectively. In addition, at March 25, 1998, there
was approximately $31.9 million in backlog remaining on the 64-house poultry
breeder project and the 360-house poultry broiler project.
COMPETITION
The market for the Company's products is competitive. Domestically and
internationally, the Company competes with a variety of manufacturers and
suppliers, many of which offer only a limited number of the products offered by
the Company and two of which offer products across most of the Company's product
lines.
Competition is based on the price, value, reputation, quality and design of
the products offered and the customer service provided by distributors, dealers
and manufacturers of the products. The Company believes that its leading brand
names, strong distribution network, diversified product line, product support
and high quality products enable it to compete effectively. The Company further
believes that its ability to offer integrated systems to poultry, egg and swine
producers, which significantly lower total production costs and help producers
achieve further productivity gains, provide it with a competitive advantage. The
Company also believes that integrated equipment systems offer significant
benefits to distributors, including lower administrative and shipping costs and
the ease of dealing with a single supplier for all of their customer needs. In
addition, the Company's distributors and dealers provide producers with high
quality service, installation and repair.
RESEARCH AND DEVELOPMENT ACTIVITIES
The Company has product development and design engineering located in
Milford, Indiana. With the Fancom Acquisition, the Company enhanced its research
and development activities by adding a staff of
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research and development specialists who, together with the product development
specialists, are dedicated to product innovation and development in automated
controls in Fancom's core markets. Expenditures by the Company for product
research and development amounted to approximately $4.4 million, $3.6 million
and $3.8 million for the years ended December 31, 1997, 1996 and 1995,
respectively.
EMPLOYEES
As of March 25, 1998, the Company had approximately 1,200 employees. The
Kansas City Grain Systems Division's 109 hourly employees are currently subject
to a collective bargaining agreement which expires January 31, 2000. Management
believes that its relationships with the Company's employees are good.
(D) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES
The response to this Item is incorporated by reference to the information
under the caption "Foreign Operations and Export Sales" on page 35 of the
Company's Consolidated Financial Statements contained in the 1997 Annual Report
which is incorporated herein by reference.
ITEM 2. PROPERTIES
The following table sets forth information regarding the principal
properties of the Company:
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LOCATION FACILITY DESCRIPTION SQUARE FEET LEASED/OWNED
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Milford, Indiana............... Plant, corporate headquarters 611,000 Owned
and miscellaneous areas
Kansas City, Missouri.......... Plant and office 396,000 Owned
Decatur, Alabama............... Plant and office 120,000 Owned
Panningen, The Netherlands..... Plant and office 43,600 Owned
Wierden, The Netherlands....... Plant and office 25,800 Leased
Deurne, The Netherlands........ Warehouse and office 8,300 Leased
Londrina, Brazil............... Warehouse and office 5,000 Leased
Vitre, France.................. Warehouse and office 15,000 Owned
Vitre, France.................. Warehouse and office 3,900 Owned
Vitre, France.................. Warehouse 2,900 Leased
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Management believes that its facilities and equipment are generally well
maintained and are in good operating condition and that its capacity for the
manufacture of its products is adequate to satisfy anticipated demands for the
foreseeable future.
ITEM 3. LEGAL PROCEEDINGS
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, results of operations, or cash flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to the vote of security holders.
EXECUTIVE OFFICERS OF THE COMPANY
J. Christopher Chocola -- President of the Company since February 1996 and
Chief Executive Officer of the Company since April 1997. Mr. Chocola has served
as Chief Executive Officer of CTB (prior to January 1996, the Predecessor
Company) since March 1994. From July 1993 to February 1994, Mr. Chocola served
as Executive Vice President of the Predecessor Company. From November 1993 to
July 1996, Mr. Chocola
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served as the General Manager of the Chore-Time division. From October 1991 to
November 1993, Mr. Chocola served as the General Manager of the Brock division.
Mr. Chocola joined the Predecessor Company 1988. Mr. Chocola was elected to the
Board of Directors of the Predecessor Company in February 1991 and of the
Company in February 1996.
Brian D. Dawes -- Vice President and General Manager-Floor Systems of CTB
since May 1997. Mr. Dawes was Vice President of the Vinyl Products Division of
CTB (prior to January 1996, the Predecessor Company) from July 1994 until May
1997. Mr. Dawes served as Manager of National Contract Sales at Zimmer, Inc., an
orthopedics product division of Bristol-Myers Squibb, from 1992 until July 1994.
Mr. Dawes rejoined the Predecessor Company in 1994, having served in management
positions at the Predecessor Company from 1981 until 1986.
Michael J. Kissane -- General Counsel and Secretary of the Company since
April 1997 and Vice President of the Company since December 1995. Mr. Kissane
has been a Vice President of CTB (prior to January 1996, the Predecessor
Company) since July 1993, the Secretary of CTB (prior to January 1996, the
Predecessor Company) since March 1994 and has served as General Counsel of CTB
(prior to January 1996, the Predecessor Company) since joining the Company in
January 1992. Prior to joining the Company, Mr. Kissane was a member of the law
firm of Strauss & Kissane in San Diego, California.
Mark A. Lantz -- Vice President and General Manager -- Cage Systems of CTB
since May 1997. Mr. Lantz served as Vice President -- Operations of CTB from
February 1996 until May 1997. Mr. Lantz served as Operations Manager of CTB
(prior to January 1996, the Predecessor Company) from November 1993 until
February 1996, as Vice President-Manufacturing of the Predecessor Company from
July 1993 until November 1993 and as Plant Manager of the Predecessor Company
from October 1991 until July 1993. Mr. Lantz joined the Predecessor Company in
1989.
George W. Murdoch -- Executive Vice President, Chore-Time International
since January 1998. Mr. Murdoch served as Vice President of International
Marketing from September 1996 to January 1998, as European Sales Manager from
August 1994 to September 1996, as Sales Manager-Latin America from January 1994
to August 1994, and Regional Sales Manager from January 1991 to January 1994.
Gregory J. Scharnott -- Vice President, Manufacturing since joining the
Company in September 1997. Prior to joining the Company, Mr. Scharnott was Vice
President of Corporate Operations for Universal Instruments, a manufacturer of
printed circuit board assembly equipment, from 1994 to 1997 and Manager of
Sourcing Materials and Programs for General Electric Medical Systems, a
manufacturer of diagnostic equipment from 1974 until 1994.
Don J. Steinhilber -- Vice President, Chief Financial Officer and Treasurer
of the Company since April 1997. Mr. Steinhilber served as Vice President and
Assistant Treasurer of the Company from December 1995 until April 1997. Since
December 1996, Mr. Steinhilber has served as Vice President, Chief Financial
Officer and Treasurer of CTB. From July 1993 to December 1996, Mr. Steinhilber
served as Vice President and Treasurer of CTB (prior to January 1996, the
Predecessor Company). From July 1991 to July 1993, Mr. Steinhilber served as
International Controller of the Predecessor Company. Mr. Steinhilber joined the
Company in July 1991.
Roger W. Townsend -- Executive Vice President of CTB since April 1996 and
General Manager-Grain Systems of CTB since May 1997. Mr. Townsend was Chief
Operating Officer of CTB (prior to January 1996, the Predecessor Company) from
March 1994 until May 1997. From November 1993 to July 1996, Mr. Townsend served
as General Manager of the Brock division. From July 1993 to November 1993, Mr.
Townsend served as Vice President of Engineering of the Predecessor Company.
From October 1991 to July 1993, Mr. Townsend served as Assistant General Manager
of the Brock division. Mr. Townsend joined the Company in 1977.
8
<PAGE> 11
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
CTB International Corp. common stock began trading on the NASDAQ Stock
Market(SM) under the symbol "CTBC" on August 21, 1997. As of March 25, 1998
there were approximately 126 stockholders of record.
The following table sets forth the high and low sales prices for the third
and fourth quarters of 1997:
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C> <C> <C>
Third Quarter 1997........................................ $17 3/4 $13 63/64
Fourth Quarter 1997....................................... $19 1/4 $14 1/4
</TABLE>
Note: Data compiled from the NASDAQ Stock Market monthly Summary of Activity
report.
The Company does not anticipate paying any dividends on the common stock in
the foreseeable future, and intends to retain all earnings, if any, for general
corporate purposes. The declaration and payment of dividends, if any, by the
Company will be dependent upon the Company's results of operations, financial
condition, cash requirements and other relevant factors, subject to the
discretion of the Board of Directors. The Company's credit agreement contains
certain restrictions on CTB's ability to pay dividends or make other
distributions to the Company.
ITEM 6. SELECTED FINANCIAL DATA
The response to this Item is included under the caption "Summary Financial
Information" on page 15 of the Company's Consolidated Financial Statements
contained in the 1997 Annual Report which is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
The response to this Item is included under the caption "Management's
Discussion and Analysis of Financial Condition and Results of Operations" on
pages 16-20 of the Company's Consolidated Financial Statements contained in the
1997 Annual Report which is incorporated herein by reference.
CONCERNING FORWARD LOOKING STATEMENTS -- This Report on Form 10-K,
including the Management's Discussion and Analysis of Financial Condition and
Results of Operations and other sections, contain forward looking statements
that are subject to risks and uncertainties and which reflect management's
current beliefs and estimates of future economic circumstances, industry
conditions, Company performance and financial results. Forward looking
statements include the information concerning possible or assumed future results
of operations of the Company and those statements preceded by, followed by or
include the words "future," "anticipate(s)," "expect," "believe(s)," "plan,"
"outlook," "should," or similar expressions. For these statements, the Company
claims the protection of the safe harbor for forward looking statements
contained in the Private Securities Litigation Reform Act of 1995. Readers of
this Report should understand that the following important factors, in addition
to those discussed elsewhere in this document, could affect the future results
of the Company and could cause those results to differ materially from those
expressed in these forward looking statements: availability of and price of raw
material, product pricing, competitive environment and related domestic and
international market conditions, operating efficiencies and actions of domestic
and foreign governments. Any changes in such factors could result in
significantly different results.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
None
9
<PAGE> 12
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response to this item is included under the captions "Summary Financial
Information," "Independent Auditors' Report," "Consolidated Statements of
Income," "Consolidated Balance Sheets," "Consolidated Statements of
Stockholders' Equity," "Consolidated Statements of Cash Flows," and "Notes to
Consolidated Financial Statements," on pages 15 and 21-36 of the Company's
Consolidated Financial Statements contained in the 1997 Annual Report which is
incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The response to this Item is included under the caption "Election of
Directors" on CTB International Corp.'s Proxy Statement for the 1998 Annual
Meeting of Stockholders which is incorporated herein by reference and to the
information contained as a separate item in PART I hereof under the caption
"Executive Officers of the Company."
ITEM 11. EXECUTIVE COMPENSATION
The response to this Item is included under the caption "Executive
Compensation," and "Report of the Compensation Committee on Executive
Compensation" on CTB International Corp.'s Proxy Statement for the 1998 Annual
Meeting of Stockholders, which is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The response to this Item is included under the caption "Principal
Stockholders" on CTB International Corp.'s Proxy Statement for the 1998 Annual
Meeting of Stockholders, which is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
STOCK PURCHASE AGREEMENT
Pursuant to the Stock Purchase Agreement, the Company has agreed to make
certain contingent payments (the "Earn-Out Amount") to the Predecessor Company
stockholders based on a calculation of cumulative Earnings before Interest,
Taxes, Depreciation and Amortization ("EBITDA") calculated in accordance with
the Stock Purchase Agreement for the three-year period ended December 31, 1998.
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 CTB Acquisition. Fifty percent of the
maximum Earn-out Amount is to be paid at the attainment of 85% of the cumulative
EBITDA target of $103.4 million (which was amended from $89.5 million to give
effect to the Kansas City Grain Systems Division Acquisition, the Fancom
Acquisition and the Vinyl Division Divestiture), 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.
If an Earn-Out Amount is payable, the Company is obligated to pay the
Earn-Out Amount in four semi-annual 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.
As of December 31, 1997 the cumulative EBITDA for purposes of calculating
the Earn-Out Amount is $58.1 million. The cumulative EBITDA for the two years
ended December 31, 1997 is not representative of
10
<PAGE> 13
possible 1998 performance due to the Kansas City Grain Systems Division
Acquisition, the Fancom Acquisition and the Vinyl Division Divestiture occurring
in 1997.
At December 31, 1997, the Company recorded a $6,750,000 liability in
anticipation of attaining, at a minimum, 85% of the cumulative EBITDA target.
Under the terms of an agreement with ASCP, the Company is required to pay
annual management fees of $300,000 plus expenses to ASCP. Additionally, other
fees paid by the Company to ASCP include $750,000 in connection with the
Acquisition on January 4, 1996; $503,000 in connection with the acquisitions of
Fancom and the Kansas City Grain Systems Division; and $350,000 in connection
with the Offering.
In conjunction with the Offering, certain stockholders (including American
Securities Partners, L.P., ASP/CTB, L.P., J. Christopher Chocola and Caryl
Chocola) redeemed 15,000 shares of Preferred Stock and exchanged 9,069 shares of
Preferred Stock for 647,786 shares of Common Stock.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
<TABLE>
<S> <C> <C> <C>
(A) 1. Consolidated Financial Statements
The following financial statements as set forth under PART
II, Item 8 of this report are contained in the Company's
1997 Annual Report and are herein incorporated by reference.
Consolidated Statements of Income
Consolidated Balance Sheets
Consolidated Statements of Stockholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Independent Auditors' Report -- Deloitte & Touche LLP
</TABLE>
<TABLE>
<CAPTION>
1997 FORM 10-K
PAGE
--------------
<S> <C> <C> <C>
Report of Independent Accountants -- Price Waterhouse LLP... 12
Independent Auditors' Report -- Deloitte & Touche LLP....... 12
Report of Independent Accountants -- Price Waterhouse LLP... 13
2. Financial Statement Schedules
Schedule I -- Parent Company Financial Statements........... 13
Schedule II -- Valuation and Qualifying Accounts............ 14
All other schedules are omitted because they are not
applicable, or not required, or because the required
information is included in the Consolidated Financial
Statements of CTB International Corp. and the Notes thereto.
3. Exhibits
The exhibits filed with this report are listed on the
"Exhibit Index"
(B) Reports on Form 8-K
None filed in the fourth quarter 1997.
</TABLE>
11
<PAGE> 14
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and
Board of Directors of CTB, Inc.
In our opinion, the consolidated statements of income, stockholders' equity
and of cash flows for the year ended December 31, 1995 (appearing in the CTB
International Corp. 1997 Annual Report to Shareholders which has been
incorporated by reference in this Form 10-K Annual Report) present fairly, in
all material respects, the results of operations and cash flows of CTB, Inc. and
its subsidiaries (the "Predecessor Company") for the year ended December 31,
1995, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Predecessor Company's
management; our responsibility is to express an opinion on these financial
statements based on our audit. We conducted our audit of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for the opinion expressed
above. We have not audited the consolidated financial statements of CTB
International Corp. or the Predecessor Company for any period subsequent to
December 31, 1995.
PRICE WATERHOUSE LLP
Indianapolis, Indiana
February 16, 1996
INDEPENDENT AUDITORS' REPORT
To the Stockholders and
Board of Directors of CTB International Corp.:
We have audited the financial statements of CTB International Corp. as of
December 31, 1997 and 1996, and for the years then ended, and have issued our
report thereon dated February 20, 1998; such financial statements and report are
included in your 1997 Annual Report to Shareholders and are incorporated herein
by reference. Our audits also included the financial statement schedules of CTB
International Corp., as of December 31, 1997 and 1996, and for the years then
ended, listed in Item 14. These financial statement schedules are the
responsibility of the Company's management. Our responsibility is to express an
opinion based on our audits. In our opinion, such financial statement schedules,
when considered in relation to the basic 1997 and 1996 financial statements
taken as a whole, present fairly in all material respects the information set
forth therein.
Deloitte & Touche LLP
Chicago, Illinois
February 20, 1998
12
<PAGE> 15
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To the Board of Directors
of CTB, Inc.
Our audit of the consolidated statements of income, stockholders' equity
and of cash flows for the year ended December 31, 1995 referred to in our report
dated February 16, 1996 appearing in this Form 10-K Annual Report also included
an audit of Financial Statement Schedule II, as to information set forth therein
for the year ended December 31, 1995, listed in Item 14(a)(2) of this Form 10-K.
In our opinion, this Financial Statement Schedule presents fairly, in all
material respects, the information set forth therein for the year ended December
31, 1995 when read in conjunction with the related consolidated statements of
income, stockholders' equity and of cash flows.
PRICE WATERHOUSE LLP
Indianapolis, Indiana
February 16, 1996
SCHEDULE I
PARENT COMPANY FINANCIAL STATEMENTS
As discussed in Note 9 to the Consolidated Financial Statements of the
Company in the 1997 Annual Report to Shareholders, under the terms of the New
Credit Agreement, CTB, Inc., the Company's wholly owned subsidiary, is limited
in the dividends it may distribute to the Company, subject to meeting certain
financial goals and requirements. Accordingly, the following parent company only
financial statements are presented since the distribution of the net assets of
CTB, Inc. is restricted.
CONDENSED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
ASSETS
Equity investment in subsidiaries......................... $73,546 $13,741
------- -------
Total Assets........................................... $73,546 $13,741
======= =======
LIABILITIES AND STOCKHOLDER'S EQUITY
Stockholder's Equity...................................... $73,546 $13,741
------- -------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY............. $73,546 $13,741
======= =======
</TABLE>
CONDENSED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1997 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Equity in undistributed net income of subsidiaries.......... $13,899 $8,502
------- ------
NET INCOME................................................ $13,899 $8,502
======= ======
</TABLE>
13
<PAGE> 16
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income................................................ $13,899 $ 8,502
Adjustments to reconcile net income to net cash provided
by operating activities:
Equity in undistributed net income of subsidiaries..... (13,899) (8,502)
------- -------
Net cash provided by operating activities................. -- --
------- -------
Net increase in cash........................................ -- --
Cash at beginning of period................................. -- --
CASH AT END OF PERIOD....................................... $ -- $ --
======= =======
Note 1 -- The Company uses the equity method of accounting
for its investment in subsidiaries.
Note 2 -- See the Notes to the Company's 1997 and 1996
Consolidated Financial Statements for a complete
description of the Company's accounting policies.
</TABLE>
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
-----------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COSTS & OTHER END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
----------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Company:
1997
Allowance for doubtful accounts
receivable........................... $449 $362 -- $154(1) $657
Inventory obsolescence reserve.......... 214 372 -- 32 554
1996
Allowance for doubtful accounts
receivable........................... $435 $325 -- $311(1) $449
Inventory obsolescence reserve.......... 190 24 -- 0 214
Predecessor Company:
1995
Allowance for doubtful accounts
receivable........................... $486 $ 41 -- $ 92(1) $435
Inventory obsolescence reserve.......... 150 40 -- -- 190
</TABLE>
- -------------------------
(1) Uncollectible accounts receivable written off
14
<PAGE> 17
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the registrant has duly caused this report to the sign on
its behalf by the undersigned, thereunto duly authorized.
CTB International Corp.
By:
------------------------------------
J. Christopher Chocola
Chief Executive Officer
March 31, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of CTB
International Corp. and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ J. CHRISTOPHER CHOCOLA Director and Principal Executive March 31, 1998
- --------------------------------------------- Officer
J. Christopher Chocola
/s/ DON J. STEINHILBER Principal Finance Officer and March 31, 1998
- --------------------------------------------- Principal Accounting Officer
Don J. Steinhilber
/s/ CARYL M. CHOCOLA Director March 31, 1998
- ---------------------------------------------
Caryl M. Chocola
/s/ MICHAEL G. FISCH Director March 31, 1998
- ---------------------------------------------
Michael G. Fisch
/s/ LARRY D. GREENE Director March 31, 1998
- ---------------------------------------------
Larry D. Greene
/s/ FRANK S. HERMANCE Director March 31, 1998
- ---------------------------------------------
Frank S. Hermance
/s/ DAVID L. HORING Director March 31, 1998
- ---------------------------------------------
David L. Horing
/s/ CHARLES D. KLEIN Director March 31, 1998
- ---------------------------------------------
Charles D. Klein
</TABLE>
15
<PAGE> 18
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
-------
<S> <C>
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.
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.
</TABLE>
16
<PAGE> 19
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
-------
<S> <C>
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 herein by
reference from the Company's Annual Report.
13 1997 Annual Report to Shareholders of CTB International
Corp.
21 Subsidiaries of CTB International Corp. filed as Exhibit 21
to the Company Registration Statement and incorporated
herein by reference.
27 Financial Data Schedule incorporated by reference.
</TABLE>
17
<PAGE> 1
EXHIBIT 13
SUMMARY FINANCIAL INFORMATION
<TABLE>
<CAPTION>
(in thousands, except per share amountCompany Predecessor Company
Year Ended December 31, Year Ended December 31,
1997 1996 1995 1994 1993 1992
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales $202,063 $148,853 $138,119 $140,505 $113,538 $105,509
Cost of sales 148,345 110,303 105,578 103,491 84,110 77,725
Gross profit 53,718 38,550 32,541 37,014 29,428 27,784
Selling, general and
administrative
expenses 26,506 18,257 20,606 20,069 19,310 18,345
Amortization of
goodwill 1,373 959 - - - -
Operating income 25,839 19,334 11,935 16,945 10,118 9,439
Interest income
(expense)--net (5,003) (5,332) 721 489 313 268
Gain on sale of Vinyl
Division 3,562 - - - - -
Other non-recurring
expenses - - 1,396(1) - - -
Income before income
taxes 24,398 14,002 11,260 17,434 10,431 9,707
Income tax expense 10,499 5,500 4,730 6,665 3,961 3,303
- --------------------------------------------------------------------------------------------------------------------
NET INCOME $ 13,899 $ 8,502 $ 6,530 $ 10,769 $ 6,681(2) $ 6,404
- --------------------------------------------------------------------------------------------------------------------
Basic earnings per
share $ 1.49 $ 1.17 (3) (3) (3) (3)
Basic weighted average
common shares
outstanding 9,310 7,256 (3) (3) (3) (3)
Diluted earnings per
share $ 1.43 $ 1.12 (3) (3) (3) (3)
Diluted weighted
average common
shares outstanding 9,716 7,569 (3) (3) (3) (3)
OTHER FINANCIAL DATA:
EBITDA(4) $ 32,085(5) $ 24,902 $ 14,166(6) $ 20,062 $ 12,866 $ 12,262
Depreciation 4,873 4,609 3,627 3,117 2,748 2,823
Amortization(7) 1,706 1,251 - - - -
Capital expenditures 4,437 3,402 4,698 5,335 2,867 1,980
Gross profit margin 26.6% 25.9% 23.6% 26.3% 25.9% 26.3%
EBITDA margin 15.9% 16.7% 10.3%(8) 14.3% 11.3% 11.6%
CASH FLOW DATA:
Net cash flows from
operating activities $ 17,412 $ 11,714 $ 11,263 $ 12,730 $ 5,496 $ 9,884
Net cash flows from
investing activities (42,104) (106,606) (4,646) (5,278) (2,773) (1,958)
Net cash flows from
financing activities 25,670 95,150 (3,354) (4,757) (4,445) (5,497)
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
At December 31, At December 31,
1997 1996 1995 1994 1993 1992
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital $ 26,318 $ 10,773 $ 22,150 $ 18,891 $ 15,072 $ 14,294
Total assets 167,641 103,351 58,045 54,355 44,651 41,386
Long-term debt 49,164 65,150 - - 40 344
Total stockholders'
equity 73,546 13,741 40,841 37,202 30,902 29,059
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Non-recurring costs related to the CTB Acquisition.
(2) Includes increase in net income of $211 for cumulative effect of change in
accounting method for adopting SFAS No. 109, "Accounting for Income Taxes."
(3) Due to changes in the Company's capital structure resulting from the CTB
Acquisition, historical net income per share or dividends per share is not
meaningful and therefore is not presented.
(4) EBITDA represents earnings before interest, income taxes, depreciation and
amortization.
(5) EBITDA for the year ended December 31, 1997 excludes the gain on sale in the
amount of $3,562 related to the Vinyl Division.
(6) EBITDA for the year ended December 31, 1995, excluding non-recurring costs
in the amount of $1,396 related to the CTB Acquisition, was $15,562.
(7) With respect to the year ended December 31, 1997, comprised of amortization
of goodwill of $1,373 and amortization of deferred financing costs of $333.
With respect to the year ended December 31, 1996, comprised of amortization
of goodwill of $959 and amortization of deferred financing costs of $292.
(8) EBITDA margin for the year ended December 31, 1995, excluding non-recurring
costs related to the CTB Acquisition, was 11.3%.
CTB 1997 Annual Report 15
<PAGE> 2
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table shows the percentage relationship to net sales of items
derived from the Consolidated Statements of Income and the percentage change
from year to year.
<TABLE>
<CAPTION>
Percentage of Net Sales Percentage
Predecessor Increase (Decrease)
Company Company 1997 1996
1997 1996 1995 vs. 1996 vs. 1995
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 36% 8%
Cost of sales 73.4 74.1 76.4 34 4
Gross profit 26.6 25.9 23.6 39 18
Selling, general and administrative
expense 13.1 12.3 15.0 45 (11)
Amortization of goodwill 0.7 0.6 - 43 -
Operating income 12.8 13.0 8.6 34 62
Interest income (expense), net (2.5) (3.6) 0.5 (6) -
Gain on sale of Vinyl Division 1.8 - - - -
Other non-recurring expenses - - 1.0 - (100)
Income before income taxes 12.1 9.4 8.1 74 24
Income taxes 5.2 3.7 3.4 91 16
Net income 6.9 5.7 4.7 63 30
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
The capitalized terms are defined in the notes to consolidated financial
statements.
1997 COMPARED TO 1996
Net sales increased 36% to $202.1 million in 1997 compared to $148.9 million
in 1996. Revenues grew due to the Fancom Acquisition and the Kansas City Grain
Systems Division Acquisition, as well as through strength in the Company's core
feeding products and successful market penetration of its watering and
ventilation products. Strength in the domestic hog sector more than offset the
continued softness in the domestic poultry market. Heavy demand for both
commercial and farm grain storage also contributed to the increase in net sales.
Approximately $1.9 million of the increase was generated from the sale of
poultry buildings the Company had built by a subcontractor as part of a large
project for which the Company is also supplying complete systems. The Vinyl
Division Divestiture was responsible for a $4.3 million decrease in revenues in
1997 as compared to 1996. Sales of the Company's products to markets outside the
U.S. and Canada were $65.7 million in 1997, an increase of $27.1 million or 70%.
Gross profit increased to $53.7 million in 1997 or 26.6% of net sales
compared to $38.6 million in 1996 or 25.9% of sales. The increase in gross
profit margin was attributable to improvements in manufacturing and procurement
costs and the higher-margin products obtained in the Fancom Acquisition offset
somewhat by sales increases in lower margin watering and ventilation products.
Also negatively affecting the gross profit margin were sales of products into
Brazil through the Company's sales and distribution facility opened in February
1997 as well as the sale of poultry buildings under projects expected to last
into the fourth quarter of 1999.
Selling, general and administrative expenses increased 45% or $8.2 million to
$26.5 million in 1997 from $18.3 million in 1996. As a percent of net sales,
selling, general and administrative expenses increased to 13.1% in 1997 from
12.3% in 1996. The dollar increase is attributable to the Kansas City Grain
Systems Division Acquisition and the Fancom Acquisition and targeted investments
in certain key areas within the Company. The increase as a percent of sales is
due primarily to Fancom's higher level of selling, general and administrative
expenses as a percent of sales compared to other areas of the Company. In
addition, the 1996 expenses are net of a $0.6 million gain on sale of an asset.
Amortization of goodwill increased 43% or $0.4 million to $1.4 million in
1997 from the
16 CTB 1997 Annual Report
<PAGE> 3
$1.0 million in 1996. The increase is attributable to the goodwill associated
with the Fancom Acquisition and Kansas City Grain Systems Division Acquisition
offset somewhat by the goodwill sold in the Vinyl Division Divestiture.
Operating income increased 34% or $6.5 million to $25.8 million in 1997
compared to $19.3 million in 1996. Operating income margins decreased to 12.8%
of net sales in 1997 from 13.0% of net sales in 1996. The increase in operating
income and decrease in operating income margins is attributable to the changes
in gross margins as well as selling, general and administrative expenses and
amortization of goodwill.
Net interest expense decreased to $5.0 million in 1997 or 6% from $5.3
million in 1996. The decrease is due to the decrease in debt as a result of cash
flow provided by operations, the Vinyl Division Divestiture and net proceeds of
the Offering offset by debt incurred to finance the Fancom Acquisition and the
Kansas City Grain Systems Division Acquisition.
Income taxes increased to $10.5 million in 1997 as compared to $5.5 million
in 1996, primarily as a result of increased income before taxes. The effective
tax rate for 1997 is 43.0% up from 39.3% in 1996. The increase is primarily due
to non-deductible goodwill related to the Vinyl Division Divestiture in addition
to non-deductible goodwill from the Fancom Acquisition.
Net income increased 63% or $5.4 million to $13.9 million in 1997 from $8.5
million in 1996. The increase was due to higher operating income, gain from the
Vinyl Division Divestiture and lower interest expense offset by higher taxes.
The weighted average common shares outstanding on a diluted basis during 1997
was 9.7 million shares compared to 7.6 million shares in 1996, an increase of
28%. The diluted shares outstanding at December 31, 1997 was 13.3 million
shares, an increase of 5.7 million shares or 74% compared to 7.6 million shares
outstanding at December 31, 1996. The increase in shares outstanding is
primarily attributable to the Company's initial public offering of 5.0 million
shares of common stock and the exchange of all outstanding preferred stock for
0.6 million common shares, both of which occurred August 21, 1997.
The above factors caused diluted earnings per share to increase 27% to $1.43
in 1997 from $1.12 in 1996.
1996 COMPARED TO 1995
Net sales increased 8% or $10.8 million to $148.9 million in 1996 compared to
$138.1 million in 1995. An increase in sales of domestic grain storage products
resulted primarily from historically high domestic grain prices. These high
grain prices, however, combined with a threatened Russian embargo of U.S.
produced chicken, affected the sales of poultry-raising systems by causing a
delay in the 1996 expansion plans of many U.S. poultry integrators, resulting in
an offsetting reduction in domestic sales of the Company's feeding products.
Sales of the Company's watering products, however, were not affected to the same
extent due primarily to the Company's increased emphasis in 1996 on expanding
its share of this market. Ventilation product sales increased $3.3 million
during 1996 primarily due to the introduction of a new line of ventilation
products during the year. Sales of egg production systems increased $5.3 million
during 1996, benefiting from shipments which were delayed or postponed during
1995 due to severe weather which interrupted the 1995 construction season. Sales
of the Company's products to markets outside the U.S. and Canada increased $2.6
million to $38.6 million during 1996.
Gross profit increased to $38.6 million in 1996 or 25.9% of net sales
compared to $32.5 million in 1995 or 23.6% of net sales. The increase in gross
profit reflected the impact of increased sales, as well as the benefit of price
increases in certain product lines, together with operating efficiencies and the
return of certain raw material prices to levels more consistent with recent
historical levels. The positive impacts of the above items were partially offset
by a change in sales mix toward lower-margin products due to the increase in
grain prices discussed above.
Selling, general and administrative expenses decreased 11% or $2.3 million to
$18.3 million in 1996 from $20.6 million in 1995. As a percentage of net sales,
selling, general and administrative expenses decreased to 12.3% in 1996 from
15.0% in 1995. This improvement resulted primarily from the elimination of costs
and expenses related to certain non-essential functions of approximately $1.7
million, a refocus of the Company's advertising program which resulted in $0.8
million of cost savings, and a non-recurring gain of $0.6 million from an asset
sale. These favorable results were partially offset by increases in incentive
bonuses paid as a result of improved operating performance.
Operating income increased 62% or $7.4 million to $19.3 million for 1996
compared to $11.9 million for 1995. Operating income margins increased to 13.0%
of net sales in 1996 from 8.6% in 1995. This increase in operating income and
operating income margin was attributable to the 8% increase in sales, improved
gross
CTB 1997 Annual Report 17
<PAGE> 4
margins and lower selling, general and administrative expenses.
Interest expense increased $5.5 million for 1996, reflecting borrowings used
to fund the CTB Acquisition. Interest income decreased to $0.2 million for 1996
compared to $0.7 million in 1995, reflecting lower average cash balances due to
the CTB Acquisition.
The effective income tax rate for 1996 was 39.3% as compared to 42.0% in
1995. The decrease in the effective tax rate was attributable to the inclusion
in 1995 results of $1.4 million of non-deductible expenses related to the CTB
Acquisition.
Net income increased 30% or $2.0 million to $8.5 million in 1996 compared to
$6.5 million in 1995. This increase was due to increased operating income, $1.4
million of non-recurring transaction costs relating to the CTB Acquisition that
negatively impacted 1995 and a lower effective tax rate, partially offset by
higher interest costs related to the CTB Acquisition.
The weighted average common shares outstanding on a diluted basis during 1996
was 7.6 million shares. The diluted shares outstanding at December 31, 1996 was
7.6 million. Comparisons to shares outstanding during 1995 and at December 31,
1995 are not meaningful since the capital structure of the Predecessor Company
was substantially different.
PRO FORMA RESULTS OF OPERATIONS
The following summarizes certain operating results of the Company for 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 Kansas City Grain Systems Division
Acquisition, (ii) the Fancom Acquisition, (iii) the Vinyl Division Divestiture,
(iv) the repayment of amounts outstanding under the Old Credit Agreement with
the proceeds of borrowings under the New Credit Agreement and a portion of the
net proceeds of the Offering, (v) the Preferred Stock Exchange, (vi) the
Preferred Stock Redemption, and (vii) the Offering.
For 1997, net sales increased approximately 8% to approximately $226.2
million compared to approximately $208.5 million in 1996. Operating income
increased approximately 14% to approximately $29.2 million compared to
approximately $25.5 million in 1996. Net income increased approximately 22% to
approximately $15.7 million compared to approximately $12.9 million in 1996. Pro
forma diluted earnings per share were approximately $1.17 in 1997 and
approximately $0.97 in 1996, an increase of approximately 22% on pro forma
weighted average shares outstanding of 13.3 million shares in both years.
FINANCIAL POSITION
Changes in the financial position of the Company from 1996 to 1997 include
the effects of both operational changes and the Fancom Acquisition, Kansas City
Grain Systems Division Acquisition, Vinyl Division Divestiture, Preferred Stock
Redemption and the Offering.
Total assets increased from $103.4 million at December 31, 1996 to $167.6
million at December 31, 1997. Accounts receivable increased by $12.2 million
from December 31, 1996 to December 31, 1997. Approximately $6.7 million was due
to the Fancom Acquisition and the Kansas City Grain Systems Division
Acquisition. The remaining $5.5 million increase is due primarily to an increase
in days sales outstanding on export sales which are covered under an export
credit insurance policy that became effective in late 1996. Inventories at
December 31, 1997 increased by $11.2 million from December 31, 1996. The Fancom
Acquisition and the Kansas City Grain Systems Division Acquisition are
responsible for a $13.0 million increase offset in part by a $1.8 million
reduction in inventory through continuous improvement initiatives launched in
1997. Net property, plant and equipment increased $10.8 million from December
31, 1996 to December 31, 1997. This increase is due to the acquisitions and
capital expenditures offset by the Vinyl Division Divestiture and depreciation
during the year. Intangibles increased by $26.9 million primarily due to the
goodwill associated with the Fancom Acquisition and the Kansas City Grain
Systems Division Acquisition offset somewhat by the goodwill sold in the Vinyl
Division Divestiture in addition to the Earn-Out recognized at December 31,
1997.
Total liabilities increased from $89.6 million at December 31, 1996 to $94.1
million at December 31, 1997. Accounts payable and accrued liabilities increased
$11.1 million during this period, of which $7.9 million was due to the
acquisitions. Long-term debt decreased from $65.2 million at December 31, 1996
to $49.2 million at December 31, 1997. This $16.0 million decrease was a net
result of additional borrowings to fund the acquisitions offset by the net
proceeds of the Offering and cash provided by operations.
18 CTB 1997 Annual Report
<PAGE> 5
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1997, the Company had $26.3 million of working capital, an
increase of $15.5 million from working capital as of December 31, 1996. The
acquisitions contributed $11.4 million to the increase, while $5.5 million was
added by replacing the Old Credit Agreement with the New Credit Agreement,
eliminating the current portion of amounts due under the credit agreements. Net
cash provided from operating activities for 1997 was $17.4 million. Cash flows
from operations were primarily provided by net income.
For 1997, cash used in investing activities was $42.1 million, which was
primarily used for the Kansas City Grain Systems Division Acquisition and the
Fancom Acquisition, partially offset by the Vinyl Division Divestiture. For
1996, cash used in investing activity was $106.6 million, which was primarily
used for the CTB Acquisition. The CTB Acquisition was financed through debt and
the issuance of common stock and preferred stock.
For 1997, net cash provided by financing activities was $25.7 million. During
this period approximately $105.4 million of existing debt was repaid using
proceeds of $49.5 million from the New Credit Agreement and $49.4 million from
the Offering, net of expenses and the Preferred Stock Redemption.
At December 31, 1997, the Company had $45.7 million outstanding under the New
Credit Agreement and $44.3 million of unused availability to borrow.
At December 31, 1997, the Company had $3.5 million of long-term debt
outstanding under various terms payable in Dutch guilders. The total payments
due in the next year are $1.2 million.
The Company has recorded a liability of $6.75 million for the payment of an
Earn-Out Amount relative to the CTB Acquisition. The first installment is due on
August 31, 1998. Also see Note 10 to the consolidated financial statements.
In October 1997, the Company's Board of Directors authorized the repurchase
of up to 500,000 shares of Company stock. As of December 31, 1997, no shares had
been repurchased. In February 1998, the Company repurchased 142,500 shares of
its common stock for approximately $1.9 million.
In February 1998, the Company entered into a joint venture agreement with
Rota Industria de Maquinas Agricolas to manufacture grain and feed bins, grain
handling and seed processing equipment in Brazil. The agreement calls for the
Company to contribute approximately $3.0 million to the joint venture during
1998.
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, debt service requirements and
other commitments 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 grain producers and processors traditionally purchasing
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.
IMPACT OF INFLATION
The Company attempts to minimize the impact of inflation through cost
reductions and by improving productivity. In addition, the Company principally
uses the last-in, first-out (LIFO) method of accounting for inventories (whereby
the cost of products sold approximates current costs), which substantially
includes the impact of inflation in costs of sales. The Company does not believe
that inflation has had a material effect on its results of operations for the
periods presented.
YEAR 2000 COMPLIANCE
The inability of computers, software and other equipment utilizing
microprocessors to recognize and properly process data fields containing a
two-digit year is commonly referred to as the Year 2000 Compliance issue. As the
year 2000 approaches, such systems may be unable to accurately process certain
date-based information.
The Company has made and will continue to make certain investments in its
software systems and applications to ensure that the Company is Year 2000
Compliant. The modification process of most significant applications is
substantially complete. The Company plans on having all significant applications
completed by December 31, 1998.
In addition, the Company is communicating with those with whom it does
significant business to
CTB 1997 Annual Report 19
<PAGE> 6
determine their Year 2000 Compliance readiness and the extent to which the
Company is vulnerable to any third-party Year 2000 issues. 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 a failure to convert by
another company, or a conversion that is incompatible with the Company's
systems, would not have a material adverse effect on the Company.
The total cost to the Company of these Year 2000 Compliance activities has
not been and is not anticipated to be material to its financial position or
results of operations in any given year. These costs and the date on which the
Company plans to complete the Year 2000 modification and testing processes are
based on management's best estimates, which were derived utilizing numerous
assumptions of future events including the continued availability of certain
resources, third-party modification plans and other factors. However, there can
be no guarantee that these estimates will be achieved and actual results could
differ from those plans.
NEW ACCOUNTING PRONOUNCEMENTS
In 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income," and SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information" and, in 1998 they issued SFAS No. 132,
"Employers' Disclosures about Pensions and Other Postretirement Benefits." SFAS
No. 130 establishes standards for reporting and display of comprehensive income
and its components. SFAS No. 131 establishes standards for reporting information
about operating segments and related disclosures about products and services,
geographic areas and major customers. SFAS No. 132 revises current disclosure
requirements for employers' pensions and other retiree benefits. These standards
are effective for years beginning after December 15, 1997. These standards
expand or modify current disclosures and, accordingly, will have no impact on
the Company's reported financial position, results of operations and cash flows.
FORWARD-LOOKING STATEMENTS
In addition to historical information, this report contains "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Such forward-looking statements include discussion of sales growth,
market share gains, ability to leverage distribution capabilities and brand
names, rising demand for and production of meat protein, eggs and grain,
increased demand for the Company's equipment that produces such products,
operating margin improvement, strategies for serving markets outside of the
United States, timing of start-up of joint venture operations, the ability to
grow through acquisitions, and the adequacy and availability of liquidity and
capital resources to meet the Company's needs. These forward-looking statements
involve factors, risks and uncertainties which may cause actual results to
differ materially from those expressed or implied. The factors that could cause
actual results to differ materially include, but are not limited to, the
following: (1) risks associated with the agricultural industry such as feed and
grain price fluctuation, crop yields, demand, weather conditions, and outbreaks
of disease; (2) risks associated with acquisitions such as incurring
significantly higher-than-anticipated capital expenditures and operating
expenses, failing to assimilate the operations and personnel of acquired
businesses, losing customers, entering markets in which the Company has no or
limited experience, disrupting the Company's ongoing business, dissipating the
Company's management resources and the possibility the Company will not complete
contemplated acquisitions; (3) risks common to international operations
including unexpected changes in tariffs and other trade barriers, difficulties
in staffing and managing foreign operations, political and economic instability,
and fluctuations in currency exchange rates; and (4) other risks including, but
not limited to, those detailed in the Company's prospectus filed with its
registration statement with the Securities and Exchange Commission (SEC) on
August 20, 1997, as well as periodic reports filed with the SEC.
20 CTB 1997 Annual Report
<PAGE> 7
INDEPENDENT AUDITORS' REPORT
TO THE STOCKHOLDERS AND BOARD OF DIRECTORS OF CTB INTERNATIONAL CORP.:
We have audited the accompanying consolidated balance sheets of CTB
International Corp. and its subsidiaries as of December 31, 1997 and 1996, and
the related consolidated statements of income, stockholders' equity and cash
flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits. The financial
statements of the Predecessor Company for the year ended December 31, 1995 were
audited by other auditors whose report, dated February 16, 1996, expressed an
unqualified opinion on those statements.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such 1997 and 1996 consolidated financial statements
present fairly, in all material respects, the financial position of the Company
and its subsidiaries at December 31, 1997 and 1996, and the results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles.
Deloitte & Touche LLP
Chicago, Illinois
February 20, 1998
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
PREDECESSOR
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 Company Company
(in thousands, except per share amounts) 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES $202,063 $148,853 $138,119
COST OF SALES 148,345 110,303 105,578
- ----------------------------------------------------------------------------------------------------------------
Gross profit 53,718 38,550 32,541
OTHER OPERATING EXPENSE:
Selling, general and administrative expenses 26,506 18,257 20,606
Amortization of goodwill 1,373 959 -
- ----------------------------------------------------------------------------------------------------------------
OPERATING INCOME 25,839 19,334 11,935
OTHER INCOME (EXPENSE):
Interest income 279 168 721
Interest expense (5,282) (5,500) -
Gain on sale of Vinyl Division 3,562 - -
Expenses associated with the sale of the
Predecessor Company - - (1,396)
- ----------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 24,398 14,002 11,260
INCOME TAXES 10,499 5,500 4,730
- ----------------------------------------------------------------------------------------------------------------
NET INCOME $ 13,899 $ 8,502 $ 6,530
- ----------------------------------------------------------------------------------------------------------------
EARNINGS PER SHARE:
Basic: Earnings per common share $ 1.49 $ 1.17 (1)
- ----------------------------------------------------------------------------------------------------------------
Weighted average common shares
outstanding 9,310 7,256 (1)
- ----------------------------------------------------------------------------------------------------------------
Diluted: Earnings per common share $ 1.43 $ 1.12 (1)
- ----------------------------------------------------------------------------------------------------------------
Weighted average common shares
outstanding 9,716 7,569 (1)
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Due to changes in the Company's capital structure resulting from the CTB
Acquisition, historical net income per share is not meaningful and therefore
is not presented.
See notes to consolidated financial statements.
CTB 1997 Annual Report 21
<PAGE> 8
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, 1997 AND 1996
(IN THOUSANDS, EXCEPT SHARE AMOUNTS) 1997 1996
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,161 $ 258
Accounts receivable, less allowance for
doubtful accounts of $657 and $449, respectively 23,875 11,694
Inventories 25,352 14,153
Deferred income taxes 1,912 1,863
Prepaid expenses and other current assets 3,222 1,206
- -------------------------------------------------------------------------------------------------------
Total current assets 55,522 29,174
PROPERTY, PLANT AND EQUIPMENT - Net 46,407 35,644
INTANGIBLES - Net 65,328 38,453
OTHER ASSETS 384 80
- -------------------------------------------------------------------------------------------------------
TOTAL ASSETS $167,641 $103,351
- -------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 10,598 $ 4,481
Current portion of long-term debt 1,245 5,500
Current portion of accrued Earn-Out 1,688 -
Accrued liabilities 11,810 6,802
Deferred revenue 3,863 1,618
- -------------------------------------------------------------------------------------------------------
Total current liabilities 29,204 18,401
LONG-TERM DEBT 47,919 59,650
DEFERRED INCOME TAXES 9,369 9,593
ACCRUED POSTRETIREMENT BENEFIT COST 2,435 1,966
ACCRUED EARN-OUT 5,062
COMMITMENTS AND CONTINGENCIES (See Note 10)
MINORITY INTEREST 106 -
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value
1997 - 40,000,000 shares authorized; 12,924,990 shares
issued and outstanding 129
1996 - 11,488,635 shares authorized; 7,255,980 shares
issued and outstanding 73
Preferred stock - 6% cumulative, $.01 par value
1997 - 4,000,000 shares authorized; 0 shares issued
and outstanding -
1996 - 50,000 shares authorized; 24,000 shares issued
and outstanding, liquidation preference $24,000 -
Additional paid-in capital 78,440 29,927
Reduction for carryover of predecessor cost basis (26,871) (24,704)
Retained earnings 22,401 8,502
Cumulative translation adjustment (553) (57)
- -------------------------------------------------------------------------------------------------------
Total stockholders' equity 73,546 13,741
- -------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $167,641 $103,351
- -------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
22 CTB 1997 Annual Report
<PAGE> 9
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(in thousands, except share amounts) Company
Reduction for
Additional Carryover of Cumulative
Common Stock Preferred Stock Paid-in Predecessor Translation Retained
1997 Shares Amount Shares Amount Capital Cost Basis Adjustment Earnings
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1997 7,255,980 $73 24,000 $ - $29,927 ($24,704) ($57) $8,502
ISSUANCE OF COMMON STOCK 21,224 - 231
ISSUANCE OF PREFERRED STOCK 69 - 69
EFFECTS OF THE OFFERING:
Redemption of 15,000 shares of
preferred stock (15,000) - (15,000)
Exchange of preferred stock for
common stock 647,786 6 (9,069) - (6)
Issuance of common stock - net of
expenses 5,000,000 50 63,219
REDUCTION FOR CARRYOVER OF
PREDECESSOR COST BASIS (2,167)
NET INCOME 13,899
CUMULATIVE TRANSLATION ADJUSTMENT - (496)
- -----------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1997 12,924,990 $129 - $ - $78,440 ($26,871) ($553) $22,401
- -----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
YEARS ENDED DECEMBER 31, 1997,
(in thousands, except share amounts) Company
1997 Total
- ------------------------------------ ---------
<S> <C>
BALANCE, JANUARY 1, 1997 $13,741
ISSUANCE OF COMMON STOCK 231
ISSUANCE OF PREFERRED STOCK 69
EFFECTS OF THE OFFERING:
Redemption of 15,000 shares of
preferred stock (15,000)
Exchange of preferred stock for
common stock -
Issuance of common stock - net of
expenses 63,269
REDUCTION FOR CARRYOVER OF
PREDECESSOR COST BASIS (2,167)
NET INCOME 13,899
CUMULATIVE TRANSLATION ADJUSTMENT (496)
- ----------------------------------------------
BALANCE, DECEMBER 31, 1997 $73,546
- ----------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Company
Reduction for
Additional Carryover of Cumulative
Common Stock Preferred Stock Paid-in Predecessor Translation Retained
1996 Shares Amount Shares Amount Capital Cost Basis Adjustment Earnings Total
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INITIAL CAPITALIZATION,
JANUARY 1, 1996 600,000 $ 6 24,000 $ - $29,994 $ - $ - $ - $30,000
EFFECTS OF 12.0933-FOR-ONE
STOCK SPLIT (See Note 2) 6,655,980 67 (67) -
REDUCTION FOR CARRYOVER OF
PREDECESSOR COST BASIS (24,704) (24,704)
NET INCOME 8,502 8,502
CUMULATIVE TRANSLATION
ADJUSTMENT (57) (57)
- --------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1996 7,255,980 $73 24,000 $ - $29,927 ($24,704) ($57) $8,502 $13,741
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Predecessor Company
Treasury Stock Common Stock Additional
Common Stock (at cost) Subscribed Subscribed Subscriptions Paid-in
1995 Shares Amount Shares Amount Shares Amount Receivable Capital
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1995 63,839 $1,247 - $ - 151 $108 ($65) $2,248
NET INCOME
PURCHASE OF TREASURY STOCK 1,500 (1,430)
RETIREMENT OF TREASURY
STOCK (1,500) (20) (1,500) 1,430
CASH DIVIDENDS DECLARED
SETTLEMENT OF COMMON STOCK
SUBSCRIPTIONS 72 53 (72) (53) 43
CUMULATIVE TRANSLATION
ADJUSTMENT
- ------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31,
1995 62,411 $1,280 - $ - 79 $55 ($22) $2,248
- ------------------------------------------------------------------------------------------------------------------
<CAPTION>
Predecessor Company
Cumulative
Translation Retained
1995 Adjustment Earnings Total
- -------------------------- -------------------------------
<S> <C> <C> <C>
BALANCE, JANUARY 1, 1995 $21 $33,643 $37,202
NET INCOME 6,530 6,530
PURCHASE OF TREASURY STOCK (1,430)
RETIREMENT OF TREASURY
STOCK (1,410) -
CASH DIVIDENDS DECLARED (1,519) (1,519)
SETTLEMENT OF COMMON STOCK
SUBSCRIPTIONS 43
CUMULATIVE TRANSLATION
ADJUSTMENT 15 15
- ----------------------------------------------------------
BALANCE, DECEMBER 31,
1995 $36 $37,244 $40,841
- ----------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
CTB 1997 Annual Report 23
<PAGE> 10
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Predecessor
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 Company Company
(in thousands) 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 13,899 $ 8,502 $ 6,530
Adjustments to reconcile net income to net
cash flows from operating activities:
Depreciation 4,873 4,609 3,627
Amortization 1,706 1,251 -
Gain on sale of property, plant and
equipment (46) (574) (35)
Gain on sale of Vinyl Division (3,562) - -
Deferred income taxes (441) (63) (487)
Changes in operating assets and
liabilities:
Accounts receivable (4,345) 2,226 (1,750)
Inventories 3,108 (967) 2,103
Prepaid expenses and other assets (1,636) 1,381 761
Accounts payable, accruals and other
liabilities 3,856 (4,651) 514
- ----------------------------------------------------------------------------------------------------------------
NET CASH FLOWS FROM OPERATING
ACTIVITIES 17,412 11,714 11,263
- ----------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of CTB, Inc., net of cash acquired - (104,741) -
Acquisitions, net of cash acquired (45,913) - -
Proceeds from sale of Vinyl Division 8,158 - -
Acquisition of property, plant and equipment (4,437) (3,402) (4,698)
Proceeds from sale of property, plant and
equipment 88 1,537 52
- ----------------------------------------------------------------------------------------------------------------
NET CASH FLOWS FROM INVESTING
ACTIVITIES (42,104) (106,606) (4,646)
- ----------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Acquisition debt:
Revolving credit - 24,000 -
Term loans - 65,000 -
Issuance of common stock 63,532 6,000 43
Treasury stock acquisitions - - (1,430)
Issuance of preferred stock 69 24,000 -
Redemption of preferred stock (15,000) - -
Proceeds from long-term debt 130,348 20,400 -
Principal payments on long-term debt (153,279) (44,250) -
Dividends paid - - (1,967)
- ----------------------------------------------------------------------------------------------------------------
NET CASH FLOWS FROM FINANCING
ACTIVITIES 25,670 95,150 (3,354)
- ----------------------------------------------------------------------------------------------------------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 978 258 3,263
NET EFFECT OF TRANSLATION ADJUSTMENT (75) - -
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 258 - 9,840
- ----------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,161 $ 258 $13,103
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Non-cash investing and financing activities:
In December 1997, the Company recorded a liability of $6,750,000 pursuant
to the Stock Purchase Agreement entered into in conjunction with the
Acquisition.
See notes to consolidated financial statements.
24 CTB 1997 Annual Report
<PAGE> 11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
On January 4, 1996, CTB International Corp. (the "Company"), formerly CTB
Holdings, Inc., through its wholly owned subsidiary, CTB Ventures, Inc. ("CTB
Ventures"), corporations formed by affiliates of American Securities Capital
Partners, L.P. ("ASCP"), acquired all of the outstanding stock of CTB, Inc. (the
"Predecessor Company") in a leveraged buyout transaction for an aggregate
purchase price of approximately $117.8 million, including acquisition costs of
approximately $2.3 million and cash acquired of approximately $13.1 million (the
"Acquisition"). At December 31, 1997, the purchase price was adjusted from
$117.8 million up to $124.6 million to recognize an accrued liability for the
estimated Earn-Out Amount as discussed in Note 10 to the consolidated financial
statements. The Acquisition was funded by the issuance of $6 million in common
stock, $24 million of preferred stock, bank term loans of $65 million and
revolving credit loans of $24 million. Concurrent with the Acquisition, the
Predecessor Company merged into CTB Ventures and CTB Ventures changed its name
to CTB, Inc. For convenience, the Acquisition was accounted for as if it had
occurred on January 1, 1996.
In connection with the Acquisition, shareholders of the Predecessor Company
exchanged $9.9 million in shares of stock of the Predecessor Company for an
equal value of shares of common and preferred stock of the Company. Accordingly,
at the date of the Acquisition, the Company was owned 67.9% by affiliates of
ASCP and certain new management investors, with the remaining 32.1% owned by
former stockholders of the Predecessor Company. The Acquisition has been
accounted for using the purchase method of accounting to the extent of 67.9%
change in ownership with the remaining 32.1% valued at historical book value. To
the extent of the change in ownership, the purchase price has been allocated to
the assets and liabilities of the Predecessor Company based on their fair values
as of the Acquisition date. The fair values of assets and liabilities were based
on independent appraisals and estimates by management. The Company has recorded
an adjustment ("reduction for carryover of predecessor cost basis") to reduce
the Predecessor Company shareholders' investment in the Company to the
historical cost basis of their investment in the Predecessor Company.
The following summarizes the purchase price allocation:
<TABLE>
<CAPTION>
(in thousands)
- -----------------------------------------------------
<S> <C>
Current assets $ 32,380
Property, plant and equipment 37,814
Intangibles and other assets 44,467
Liabilities assumed (30,041)
- -----------------------------------------------------
Total 84,620
Reduction for carryover of predecessor
cost basis 26,871
- -----------------------------------------------------
TOTAL PURCHASE PRICE $111,491
- -----------------------------------------------------
</TABLE>
The 1995 consolidated financial statements of the Predecessor Company have
been prepared on the historical cost basis. Accordingly, the financial
statements of the Company are not directly comparable to those of the
Predecessor Company. The following summarized unaudited pro forma income
statement for the year ended December 31, 1995 assumes that the Acquisition had
occurred on January 1, 1995 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
Acquisition had actually occurred on January 1, 1995 or to project future
results.
<TABLE>
<CAPTION>
(in thousands)
- ---------------------------------------------------
<S> <C>
Net sales $138,119
Cost of sales 106,514
- ---------------------------------------------------
Gross profit 31,605
Other operating expenses:
Selling, general, and
administrative expenses 20,771
Amortization of goodwill 1,080
- ---------------------------------------------------
Operating income 9,754
Other income (expense):
Interest income 721
Interest expense (5,500)
- ---------------------------------------------------
Income before income taxes 4,975
Income taxes 2,251
- ---------------------------------------------------
NET INCOME $ 2,724
- ---------------------------------------------------
</TABLE>
CTB 1997 Annual Report 25
<PAGE> 12
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS - The Company is a designer, manufacturer and marketer of
agricultural equipment comprised of automated feeding, watering, ventilation,
feed bins, controls and integrated commercial egg laying and handling systems
for the poultry, swine and egg production markets and grain storage and handling
systems for the grain systems market. The company markets its products on a
worldwide basis primarily under the CHORE-TIME(R), BROCK(R), FANCOM(R) and
BUTLER(R) brand names.
PRINCIPLES OF CONSOLIDATION 1997 AND 1996 - The consolidated financial
statements include the accounts of CTB International Corp. and its wholly owned
and majority owned subsidiaries. All intercompany accounts and transactions have
been eliminated.
PRINCIPLES OF CONSOLIDATION 1995 - The consolidated financial statements include
the accounts of CTB, Inc. and its wholly owned subsidiaries. All intercompany
accounts and transactions have been eliminated.
USE OF ESTIMATES - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CASH EQUIVALENTS - The Company considers all highly liquid investments purchased
with a maturity of three months or less to be cash equivalents.
INVENTORIES - Inventories are stated at the lower of cost or market using the
last-in, first-out ("LIFO") method, except for the inventories of Fancom Holding
B.V. and its consolidated subsidiaries, which are stated at the lower of cost or
market using the first-in, first-out ("FIFO") method.
PROPERTY, PLANT AND EQUIPMENT - Property, plant and equipment is stated at cost.
Maintenance and repairs are charged to expense as incurred. Depreciation is
provided using straight-line and accelerated methods over the estimated useful
lives of individual assets. The estimated useful lives range from 10 to 40
years, or the life of the lease if shorter, for buildings and improvements, and
from three to 10 years for machinery and equipment.
GOODWILL - Goodwill represents costs in excess of the fair value of net assets
acquired and is amortized using the straight-line method over 40 years, except
for Fancom Holding B.V. and its consolidated subsidiaries which is over 25
years.
The Company periodically assesses the recoverability of intangibles based on
its expectations of future profitability and undiscounted cash flow of the
related operations. These factors, along with management's plans with respect to
the operations are considered in assessing the recoverability of goodwill and
other purchased intangibles. If the Company determines, based on such measures,
that the carrying amount is impaired, the goodwill will be written down to its
recoverable value with a corresponding charge to earnings. Recoverable value is
calculated as the amount of estimated future cash flows for the remaining
amortization period. During the periods presented no such impairment was
incurred.
DEFERRED FINANCE COSTS - Costs associated with the issuance of debt are being
amortized using the straight-line method over the life of the related debt.
Amortization expense is included in interest expense.
INCOME TAXES - The Company provides for income taxes under the asset and
liability method of accounting for deferred income taxes. Deferred tax assets
and liabilities are recorded based on the expected tax effects of future taxable
income or deductions resulting from differences in the financial statement and
tax bases of assets and liabilities. An allowance is provided whenever
management believes it is more likely than not that tax benefits will not be
utilized.
REVENUE RECOGNITION OF DEFERRED REVENUE AND PRODUCT WARRANTIES - Sales of
products and services are recorded based upon shipment of product and
performance of services. Egg laying and handling system projects, which
generally do not exceed one year, require predetermined payment intervals and,
in some instances, customer prepayments. Such revenue is deferred and recognized
at the date that the product is shipped or the service is performed.
The Company recognizes revenue on construction contracts using the
percentage-of-completion accounting method determined in each case by the
26 CTB 1997 Annual Report
<PAGE> 13
ratio of cost incurred to date on the contract to management's estimate of the
contract's total cost. Contract cost includes all direct material, subcontract
and labor costs and those indirect costs related to contract performance.
Provisions for estimated losses on incomplete contracts are recorded in the
period in which such losses are determined. Changes in estimated revenues and
costs are recognized in the periods in which such estimates are revised. There
is no significant difference in the costs in excess of billings or the billings
in excess of costs for the periods presented.
Depending on the product, the Company provides its customers with a one- to
five-year warranty, from the date of purchase, or longer for certain components.
Estimated warranty costs are accrued at the time of sale and do not differ
materially from actual product warranty costs. Warranty expenses for the years
ended December 31, 1997, 1996 and 1995 were approximately $1,583,000; $1,171,000
and $1,312,000, respectively.
CONCENTRATION OF CREDIT RISK - Financial instruments which potentially subject
the Company to concentration of credit risk consist principally of trade
receivables. The Company's customers are not concentrated in any specific
geographic region, but are concentrated in the agricultural industry. No single
customer accounted for a significant amount of the Company's sales in 1997 or
1996 or the Predecessor Company's sales in 1995, and there were no significant
accounts receivable from a single customer at December 31, 1997 or 1996. The
Company reviews a customer's credit history before extending credit. The Company
establishes an allowance for doubtful accounts based upon factors surrounding
the credit risk of specific customers, historical trends and other information.
To reduce credit risk, the Company generally receives down payments on large
orders.
RESEARCH AND DEVELOPMENT - Research and development expenditures are charged to
operations as incurred. Total research and development expenses for 1997, 1996
and 1995 were approximately $4,377,000; $3,555,000 and $3,830,000, respectively.
FOREIGN CURRENCY TRANSLATION - The Company has determined the local currency to
be the functional currency of all foreign subsidiaries. Assets and liabilities
of non-U.S. subsidiaries are translated at current exchange rates, and related
revenues and expenses are translated at average exchange rates in effect during
the period. Resulting translation adjustments are recorded as a currency
component in stockholders' equity.
INTEREST RATE SWAP AGREEMENTS - The Company enters into interest rate swaps in
managing its interest rate risk and holds such instruments for purposes other
than trading. In these swaps, the Company agrees with other parties to exchange,
at specific intervals, the difference between fixed and floating interest
amounts calculated on an agreed-upon notional principal amount. Because some of
the Company's interest-bearing liabilities are floating rate obligations,
interest rate swaps in which the Company pays the fixed rate and receives the
floating rate are used to reduce the impact of market interest rate fluctuation
on the Company's net income. The differential to be paid or received on interest
rate swap agreements entered into to reduce the impact of changes in interest
rates is recognized as an adjustment to interest income or expense related to
the hedged liability over the life of the agreement. In the event of early
extinguishment of a designated debt obligation, any realized or unrealized gain
or loss from the swap would be recognized in income, coincident with the
extinguishment.
FORWARD EXCHANGE CONTRACTS - The Company enters into foreign currency forward
exchange contracts on a limited basis. Contracts entered are for significant
outstanding accounts receivable in currencies other than the U.S. dollar for
which timing of the receipt of payment can be reasonably estimated. The purpose
of the Company's hedging activities is to protect the Company from the risk that
the eventual dollar net inflows resulting from the sale of products to foreign
customers will be adversely affected by changes in foreign currency exchange
rates. Option contracts that are designated as hedges are marked to market with
realized and unrealized gains and losses deferred and recognized in earnings as
an adjustment to the assets and liabilities being hedged. The Company's foreign
exchange contracts do not subject the Company's results of operations to risk
due to exchange rate movements because gains and losses on the contracts
generally offset gains and losses on the assets and liabilities being hedged.
There were no contracts outstanding at December 31, 1997. All contracts
outstanding at December 31, 1996 and 1995 had a term of three months or less.
Differences between the contract rate and the fair value for contracts
outstanding at December 31, 1996 and 1995 were insignificant.
CTB 1997 Annual Report 27
<PAGE> 14
IMPAIRMENT OF LONG-LIVED ASSETS - Management reviews long-lived assets and the
related intangible assets for impairment of value whenever events or changes in
circumstances indicate the carrying amount of such assets may not be
recoverable. If the Company determines it is unable to recover the carrying
value of the assets, the assets will be written down using an appropriate
method. Management does not believe current events or circumstances provide
evidence that suggest asset values have been impaired.
EARNINGS PER COMMON SHARE - On December 31, 1997, the Company adopted Statement
of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share," which
requires the disclosure of two earnings per common share computations; basic and
diluted. Earnings per common share ("EPS") are computed by dividing net income
by the weighted average number of shares of common stock (basic) plus common
stock equivalents (diluted) outstanding during the year. Common stock
equivalents consist of stock options and have been included in the calculation
of weighted average shares outstanding using the treasury stock method. EPS
computations for prior years have been restated to reflect this new standard.
The basic weighted average common shares outstanding reconciles to diluted
weighted average common shares outstanding as follows:
<TABLE>
<CAPTION>
(in thousands) 1997 1996
- -----------------------------------------------------
<S> <C> <C>
Basic weighted average common
shares outstanding 9,310 7,256
Dilutive effect of stock
options 406 313
- -----------------------------------------------------
DILUTED WEIGHTED AVERAGE
COMMON SHARES OUTSTANDING 9,716 7,569
- -----------------------------------------------------
</TABLE>
In conjunction with the Offering, the Company's Board of Directors approved a
12.0933-for-one common stock split effective August 21, 1997. All agreements
concerning stock options and other commitments payable in shares of the
Company's common stock provide for the issuance of additional shares due to the
stock split. An amount equal to the par value of the common shares issued was
transferred from additional paid-in capital to the common stock account. This
transfer has been reflected in the Consolidated Statements of Stockholders'
Equity for the year ended December 31, 1996. All references to number of shares
and per share information in the Company's consolidated financial statements
have been adjusted to reflect the stock split on a retroactive basis.
NEW ACCOUNTING PRONOUNCEMENTS - In 1997, the Financial Accounting Standards
Board issued SFAS No. 130, "Reporting Comprehensive Income," and SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information" and, in
1998 they issued SFAS No. 132, "Employers' Disclosures about Pensions and Other
Postretirement Benefits." SFAS No. 130 establishes standards for reporting and
display of comprehensive income and its components. SFAS No. 131 establishes
standards for reporting information about operating segments and related
disclosures about products and services, geographic areas and major customers.
SFAS No. 132 revises current disclosure requirements for employers' pensions and
other retiree benefits. These standards are effective for years beginning after
December 15, 1997. These standards expand or modify current disclosures and,
accordingly, will have no impact on the Company's reported financial position,
results of operations and cash flows.
RECLASSIFICATIONS -- Certain reclassifications have been made to conform the
prior years' financial statements with the current year presentation.
3. BUSINESS COMBINATIONS
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 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
28 CTB 1997 Annual Report
<PAGE> 15
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 Sheet as of
December 31, 1997 and the Consolidated Statements of Income and Consolidated
Statements of Cash Flows for the year ended December 31, 1997. 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>
The following summarizes the unaudited pro forma consolidated operating
results for the years ended December 31, 1997 and 1996 reflecting the allocation
of the purchase price and related financing of the acquisitions, assuming the
acquisitions had occurred at January 1, 1996. Net sales for 1997 and 1996 were
approximately $230.8 million and $217.4 million, respectively. Operating income
for 1997 and 1996 would be approximately $29.6 million and $26.8 million,
respectively. Net income for 1997 and 1996 would be approximately $15.1 million
and $10.0 million, respectively. Pro forma basic earnings per share for 1997 and
1996 would be approximately $1.62 and $1.38, respectively. Pro forma diluted
earnings per share for 1997 and 1996 would be approximately $1.55 and $1.32,
respectively.
4. BUSINESS DISPOSITION
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.
5. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
(in thousands) 1997 1996
- ------------------------------------------------------
<S> <C> <C>
Raw material $ 7,878 $ 3,384
Work in process 3,872 2,503
Finished goods 13,602 8,266
- ------------------------------------------------------
25,352 14,153
LIFO valuation allowance - -
- ------------------------------------------------------
TOTAL $25,352 $14,153
- ------------------------------------------------------
</TABLE>
Approximately 81% and 100% of the Company's inventories are stated on the
LIFO basis at December 31, 1997 and 1996, respectively.
6. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
(in thousands) 1997 1996
- ------------------------------------------------------
<S> <C> <C>
Land and improvements $ 2,576 $ 1,161
Buildings and improvements 18,853 15,062
Machinery and equipment 31,322 22,783
Construction in progress 2,405 1,220
- ------------------------------------------------------
55,156 40,226
Less accumulated
depreciation (8,749) (4,582)
- ------------------------------------------------------
TOTAL $46,407 $35,644
- ------------------------------------------------------
</TABLE>
7. INTANGIBLES
Intangibles consist of the following:
<TABLE>
<CAPTION>
(in thousands) 1997 1996
- ------------------------------------------------------
<S> <C> <C>
Goodwill $66,099 $38,351
Accumulated amortization (2,251) (959)
- ------------------------------------------------------
Goodwill - net 63,848 37,392
- ------------------------------------------------------
Deferred finance costs 2,105 1,353
Accumulated amortization (625) (292)
- ------------------------------------------------------
Deferred finance costs -
net 1,480 1,061
- ------------------------------------------------------
TOTAL $65,328 $38,453
- ------------------------------------------------------
</TABLE>
8. ACCRUED LIABILITIES
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
(in thousands) 1997 1996
- ------------------------------------------------------
<S> <C> <C>
Salaries, wages, and
benefits $ 4,843 $ 3,605
Warranty 1,484 1,050
Income taxes 1,804 -
Other 3,679 2,147
- ------------------------------------------------------
TOTAL $11,810 $ 6,802
- ------------------------------------------------------
</TABLE>
CTB 1997 Annual Report 29
<PAGE> 16
9. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
(in thousands) 1997 1996
- -----------------------------------------------------
<S> <C> <C>
Revolving line of credit $45,700 $ 4,900
Term loans payable to bank 3,464 60,250
- -----------------------------------------------------
49,164 65,150
Less current portion 1,245 5,500
- -----------------------------------------------------
TOTAL $47,919 $59,650
- -----------------------------------------------------
</TABLE>
Effective August 21, 1997, in conjunction with the Offering, the Company
entered into a revolving credit facility totaling $90,000,000 which includes a
$5,000,000 swingline facility and a $10,000,000 sublimit for trade and standby
letters of credit ("New Credit Agreement"). The New Credit Agreement replaced
the Old Credit Agreement. 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 December
31, 1997, the Company had approximately $44,300,000 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. At December 31, 1997, the rates range from 6.18% to 6.528%.
Under the New Credit Agreement, CTB is required to maintain a minimum net
worth of not less than 90% of the sum of its net worth at June 30, 1997 and the
net proceeds of 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. The Company was in compliance with all debt
covenants at December 31, 1997.
On January 4, 1996, the Company entered into a senior credit facility
totaling $90,000,000 ("Old Credit Agreement"). The facility, secured by 100% of
the Company's assets, consisted of a $25,000,000 revolving line of credit, a
$45,000,000 term loan and a $20,000,000 term loan. The Company was in compliance
with all debt covenants at December 31, 1996.
The term loans bear interest at rates ranging from 4.1% to 9.0% and are
secured by named assets of Fancom.
Interest paid was approximately $4,936,000; $5,080,000 and $0 in 1997, 1996,
and 1995, respectively.
In conjunction with the debt agreements, the Company maintains an interest
rate swap agreement which effectively converts $44.5 million of the revolver
debt into approximately 6.0% fixed rate debt. A total of $15.0 million of the
swap agreement expires on December 31, 1998, and the remaining $29.5 million
expires on June 30, 2001.
The carrying value of debt approximates fair value because the floating
interest rates reflect market rates. The fair value of interest rate swaps was
$208,000 and $626,000 at December 31, 1997 and 1996, respectively.
The aggregate maturities of long-term debt at December 31, 1997 are as
follows:
<TABLE>
<CAPTION>
(in thousands) Term Loans Revolver Total
- --------------------------------------------------------------
<S> <C> <C> <C>
1998 $1,245 $ - $ 1,245
1999 1,116 - 1,116
2000 605 - 605
2001 102 - 102
2002 396 45,700 46,096
- --------------------------------------------------------------
TOTAL $3,464 $ 45,700 $49,164
- --------------------------------------------------------------
</TABLE>
10. 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. A recent
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 has revised the EBITDA target from $89.5 million to $103.4
million.
30 CTB 1997 Annual Report
<PAGE> 17
The Company could be liable to pay the Predecessor Company stockholders up to
a maximum amount equal to $13,500,000, 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.
If an Earn-Out Amount is payable, the Company is obligated to pay the
Earn-Out Amount in four semi-annual 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.
As of December 31, 1997 the cumulative EBITDA for purposes of calculating the
Earn-Out Amount is $58,100,000. The cumulative EBITDA for the two years ended
December 31, 1997 is not representative of possible 1998 performance primarily
due to the Kansas City Grain Systems Division Acquisition, the Fancom
Acquisition and the Vinyl Division Divestiture occurring in 1997.
At December 31, 1997, the Company recorded a $6,750,000 liability with the
expectation of attaining, at a minimum, 85% of the cumulative EBITDA target.
The Company has a Management Incentive Compensation Plan whereby certain
employees receive annual bonuses based upon achievement of certain financial
goals, including EBITDA targets.
11. PROFIT SHARING
The Company has a qualified defined contribution profit-sharing retirement
plan that covers substantially all employees who are not participants in certain
defined benefit plans. The agreement provides that Company contributions to the
profit-sharing trust be made in amounts as determined by the Company's Board of
Directors. Contributions are allocated to participants on the basis of
proportionate compensation at the close of each fiscal year. Benefits to
participants are limited to funds in their individual accounts. The Company and
the Predecessor Company recorded expenses of approximately $1,334,000;
$1,403,000 and $1,160,000 in 1997, 1996, and 1995, respectively.
The profit-sharing plan has a 401(k) provision which allows participants to
contribute a percentage of their pre-tax compensation to the plan within
Internal Revenue Code limits. Upon authorization of the Board of Directors, the
Company may make matching contributions. Matching contributions made by the
Company and the Predecessor Company approximated $370,000; $337,000 and $334,000
in 1997, 1996, and 1995, respectively.
12. PENSION PLANS
The Company has defined benefit pension plans covering certain employees at
specified business units acquired in 1997 as a result of the Fancom Acquisition
and the Kansas City Grain Systems Division Acquisition. The benefits for these
plans are based primarily on years of service and stated amounts for each year
of service or compensation levels for the covered employees. Net pension expense
includes the following components:
<TABLE>
<CAPTION>
(in thousands) 1997
- ----------------------------------------------------
<S> <C>
Service cost $27
Interest cost 30
Net amortization and deferral 29
- ----------------------------------------------------
NET PERIODIC PENSION COST $86
- ----------------------------------------------------
</TABLE>
The amounts included in the accompanying consolidated balance sheet were
based on the funded status of the plans as follows:
<TABLE>
<CAPTION>
(in thousands) 1997
- ----------------------------------------------------
<S> <C>
Actuarial present value of benefit
obligations:
Vested benefit obligations $ 14
- ----------------------------------------------------
Accumulated benefit obligations 21
- ----------------------------------------------------
Projected benefit obligations 979
Plan assets at fair value -
- ----------------------------------------------------
Projected benefit obligations in excess of
plan assets 979
Unrecognized loss (46)
Prior service cost not yet recognized in
net periodic pension cost (754)
- ----------------------------------------------------
ACCRUED PENSION COST RECOGNIZED IN
FINANCIAL STATEMENTS $ 179
- ----------------------------------------------------
</TABLE>
The projected benefit obligation for the domestic plan was determined using a
weighted average discount rate of 7.25%. The benefit multiplier increase
CTB 1997 Annual Report 31
<PAGE> 18
was increased $1.00 per year until the participant's normal retirement date. The
expected rate of return on plan assets was 9.00%. The major part of the foreign
pension obligations is covered by a mandatory pension plan which is a
multiemployer plan as defined in SFAS No. 87, "Employers' Accounting for
Pension."
The Company's policy for funded plans is to make contributions equal to or
greater than the requirements prescribed by the Employee Retirement Income
Security Act or the respective government law.
13. POSTRETIREMENT HEALTH CARE BENEFIT PLANS
The Company provides medical and dental benefit programs for retired
employees. Substantially all of the Company's U.S. employees become eligible for
these benefits upon retirement.
The Company has unfunded postretirement plans and uses the minimum
amortization method for recognizing gains and losses for postretirement benefits
as prescribed by SFAS No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions."
Summary information of the Company's plan is as follows:
<TABLE>
<CAPTION>
(in thousands) 1997 1996
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Accumulated postretirement benefit obligations:
Retirees $ 148 $ 263
Fully eligible active employees 259 322
Other active employees 1,300 1,299
- ----------------------------------------------------------------------------------------------------
1,707 1,884
Unrecognized net gain 557 82
Unrecognized transition obligation (8) -
- ----------------------------------------------------------------------------------------------------
ACCRUED POSTRETIREMENT BENEFIT COST $2,256 $1,966
- ----------------------------------------------------------------------------------------------------
</TABLE>
The accumulated postretirement benefit obligation was determined using
relevant actuarial assumptions and the timing of the Company's medical and
dental plans. The effect of a 1% annual increase in the assumed medical
inflation rate on the accumulated postretirement benefit obligation and the
related expense would be insignificant.
Measurement of the accumulated postretirement obligation was based on a 7.25%
discount rate at December 31, 1997 and 7.5% at December 31, 1996. Medical trend
rates were assumed at 12% (under age 65) and 8% (over age 65) which trend down
to 6%.
The Company funds medical and dental costs as incurred. The components of net
periodic postretirement benefit expense are as follows:
<TABLE>
<CAPTION>
Predecessor
Company Company
(in thousands) 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost $161 $158 $40
Interest cost 134 109 15
Other - - 8
- ----------------------------------------------------------------------------------------------------------------
TOTAL $295 $267 $63
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
14. STOCKHOLDERS' EQUITY
In August 1997, the Company completed an initial public offering of 5,000,000
shares of its common stock at an offering price of $14.00 per share (the
"Offering"). The net proceeds of the Offering were used to repay debt incurred
in connection with the Fancom Acquisition and the Kansas City Grain Systems
Division Acquisition, redeem 15,000 shares of preferred stock, and repay a
portion of the Company's outstanding debt. Immediately prior to the Offering, a
12.0933-for-one stock split of the Company's common shares was effected.
Concurrent with the Offering, 9,069 outstanding shares of existing preferred
stock were exchanged for 647,786 shares of common stock.
15. STOCK REDEMPTION AGREEMENT
During 1995, the Predecessor Company purchased 1,500 shares of treasury stock
for a total cost of
32 CTB 1997 Annual Report
<PAGE> 19
$1,430,000 under the terms of a stock redemption agreement which was terminated
in conjunction with the sale of the Predecessor Company.
16. STOCK OPTION PLANS
Executives and other key employees have been granted options to purchase
common shares of the Company. In each case, the option price equals the fair
market value of the common shares on the day of the grant and an option's
maximum term is ten years. Options granted vest (i) in seven years or over an
accelerated period of five to six years should certain annual or cumulative
earnings targets be met, or (ii) over an elapsed time of three years to six
years from the grant date.
In accordance with the provisions of SFAS No. 123, "Accounting for
Stock-Based Compensation," the Company has elected to apply the accounting
prescribed by APB Opinion No. 25 and related interpretations in accounting for
its stock option plan. If the Company had elected to recognize compensation cost
based on the fair value of the options granted at grant date as prescribed by
SFAS No. 123, net income and earnings per share for the years ended December 31,
1997 and 1996 would have been reduced to the pro forma amounts indicated in the
table below:
<TABLE>
<CAPTION>
(in thousands) 1997 1996
- ---------------------------------------------------
<S> <C> <C>
Net income:
As reported $13,899 $8,502
Pro forma 13,798 8,477
Net income per
share - basic:
As reported $ 1.49 $ 1.17
Pro forma 1.48 1.17
Net income per
share - diluted:
As reported 1.43 1.12
Pro forma 1.42 1.12
- ---------------------------------------------------
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black Scholes option-pricing model with the following assumptions:
<TABLE>
<CAPTION>
1997 1996
- ----------------------------------------------------
<S> <C> <C>
Volatility 30% 0%
Expected dividend
yield 0% 0%
Risk-free interest
rate 5.73%-6.51% 5.36%-6.00%
Expected life of
options 5.33-6 years 5 years
- ----------------------------------------------------
</TABLE>
The weighted average fair value of options granted during 1997 and 1996 is
$3.75 and $.30 per share, respectively.
- --------------------------------------------------------------------------------
Changes in shares under option are summarized below:
<TABLE>
<CAPTION>
(in thousands) 1997 1996
Weighted Weighted
Number Average Number Average
of Exercise of Exercise
Shares Price Shares Price
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Outstanding beginning of year 725,600 $ 1.24 - -
Granted 203,025 12.00 761,880 $1.22
Exercised - - - -
Forfeited (91,909) 4.77 (36,280) .83
- ---------------------------------------------------------------------------------------------------------------
OUTSTANDING END OF YEAR 836,716 3.46 725,600 1.24
- ---------------------------------------------------------------------------------------------------------------
EXERCISABLE END OF YEAR 293,822 $ 1.72 130,608 $ .83
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
CTB 1997 Annual Report 33
<PAGE> 20
Options outstanding and exercisable at December 31, 1997 are summarized
below:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
Exercise Number Remaining Weighted Avg. Number Weighted Avg.
Prices Outstanding Contractual Life Exercise Price Exercisable Exercise Price
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$0.83-$4.96 645,784 8.1 $ 0.95 275,728 $ 1.04
$10.92-$14.25 190,932 9.5 $12.06 18,093 $11.94
- -------------------------------------------------------------------------------------------------------------------------
836,716 293,822
------------------- -------------------
</TABLE>
On January 1, 1998, options to purchase common shares were granted to certain
executives and other key employees. The total number of shares available for
purchase under these individual grants is 340,000. In each case, the option
price equals the fair market value of the common shares on the day of the grant.
17. INCOME TAXES
The elements of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
Predecessor
Company Company
(in thousands) 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Current:
U.S. federal $ 8,492 $4,628 $4,389
State 1,521 909 792
Foreign 927 26 36
- -------------------------------------------------------------------------------------------------------------------
Total current 10,940 5,563 5,217
- -------------------------------------------------------------------------------------------------------------------
Deferred:
U.S. federal (404) (55) (426)
State (58) (8) (61)
Foreign 21 - -
- -------------------------------------------------------------------------------------------------------------------
Total deferred (441) (63) (487)
- -------------------------------------------------------------------------------------------------------------------
PROVISION FOR INCOME TAXES $10,499 $5,500 $4,730
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
Income taxes paid were approximately $11,069,000; $6,055,000 and $6,379,000
in 1997, 1996, and 1995 respectively.
A reconciliation of the net effective tax for consolidated operations to
the U.S. statutory federal income tax is as follows:
<TABLE>
<CAPTION>
Predecessor
Company Company
(in thousands) 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. tax at federal statutory rate $ 8,539 $4,901 $3,828
Increase (decrease) in tax resulting from:
State income taxes, net of U.S. tax benefit 930 591 482
FSC benefit (468) (316) (234)
Goodwill 473 336 -
Gain on sale of Vinyl Division 769 - -
Non-deductible expenses associated with the
sale of CTB, Inc. - - 475
Other, net 256 (12) 179
- -------------------------------------------------------------------------------------------------------------------
PROVISION FOR INCOME TAXES $10,499 $5,500 $4,730
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
34 CTB 1997 Annual Report
<PAGE> 21
Deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
(in thousands) 1997 1996
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets - current:
Accrued liabilities $ 1,244 $ 1,151
Inventories 459 507
Allowance for doubtful accounts receivable 209 180
Other 25
- ----------------------------------------------------------------------------------------------------
Total current $ 1,912 $ 1,863
- ----------------------------------------------------------------------------------------------------
Deferred tax assets (liabilities) - non-current:
Property, plant and equipment $ (8,220) $(8,577)
Inventories (1,830) (1,770)
Goodwill (141) -
Accrued postretirement benefit cost 822 754
- ----------------------------------------------------------------------------------------------------
Total non-current $ (9,369) $(9,593)
- ----------------------------------------------------------------------------------------------------
TOTAL DEFERRED INCOME TAX $ (7,457) $(7,730)
- ----------------------------------------------------------------------------------------------------
</TABLE>
18. FOREIGN OPERATIONS AND EXPORT SALES
United States and foreign operations, which include subsidiaries in The
Netherlands and Brazil are as follows:
<TABLE>
<CAPTION>
Predecessor
Company Company
(in thousands) 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales:
United States $177,439 $148,089 $136,246
Latin America 3,519 718 1,180
Europe/Middle East 21,105 46 693
Operating income (loss):
United States 23,836 19,290 11,703
Latin America (525) (12) (35)
Europe/Middle East 2,528 56 267
Identifiable assets:
United States 142,794 102,897 56,462
Latin America 1,863 336 1,139
Europe/Middle East 22,984 118 444
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
Net sales (based on destination) were as follows:
<TABLE>
<CAPTION>
Predecessor
Company Company
(in thousands) 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
United States $128,480 $105,962 $ 97,378
Latin America 18,734 14,129 11,146
Europe/Middle East 31,133 10,334 10,941
Asia 15,869 14,174 13,919
Canada 7,847 4,254 4,735
- ----------------------------------------------------------------------------------------------------------------
TOTAL $202,063 $148,853 $138,119
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
CTB 1997 Annual Report 35
<PAGE> 22
19. QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
(in thousands, except per share amounts) Three Months Ended
1997 March 31 June 30 September 30 December 31
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales $31,520 $50,644 $71,740 $48,159
Gross profit 7,604 13,701 20,590 11,823
Gross margin 24.1% 27.1% 28.7% 24.5%
Operating income $ 2,815 $ 6,956 $12,186 $ 3,882
Operating income margin 8.9% 13.7% 17.0% 8.1%
Net income $ 918 $ 4,649 $ 6,375 $ 1,957
Basic earnings per share $ 0.13 $ 0.64 $ 0.65 $ 0.15
Basic weighted average common shares
outstanding 7,256 7,259 9,733 12,925
Diluted earnings per share $ 0.12 $ 0.61 $ 0.63 $ 0.15
Diluted weighted average common shares
outstanding 7,636 7,652 10,149 13,360
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
(in thousands, except per share amounts) Three Months Ended
1996 March 31 June 30 September 30 December 31
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales $31,552 $38,056 $44,506 $34,739
Gross profit 6,936 9,946 12,800 8,867
Gross margin 22.0% 26.1% 28.8% 25.5%
Operating income $ 1,964 $ 5,710 $ 7,764 $ 3,896
Operating income margin 6.2% 15.0% 17.4% 11.2%
Net income $ 356 $ 2,683 $ 3,901 $ 1,562
Basic earnings per share $ 0.05 $ 0.37 $ 0.54 $ 0.22
Basic weighted average common shares
outstanding 7,256 7,256 7,256 7,256
Diluted earnings per share $ 0.05 $ 0.35 $ 0.51 $ 0.21
Diluted weighted average common shares
outstanding 7,522 7,564 7,587 7,601
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
The total quarterly income per common share may not equal the annual amount
because net income per common share is calculated independently for each
quarter.
20. RELATED PARTY TRANSACTIONS
Under the terms of the purchase agreement, the Company is required to pay
annual management fees of $300,000 plus expenses to ASCP. Such expense has been
charged to operations during 1997 and 1996. Additionally, other fees paid by the
Company to ASCP include $750,000 in connection with the Acquisition on January
4, 1996; $503,000 in connection with the acquisitions of Fancom and the Kansas
City Grain Systems Division; and $350,000 in connection with the Offering.
21. SUBSEQUENT EVENTS
On February 12, 1998, CTB International Corp. entered into a joint venture
with Rota Industria de Maquinas Agricolas, Brazil, to produce commercial grain
storage silos and feed bins in Brazil. The joint venture will also produce seed
storage and grain and seed handling equipment. The joint venture is a 50/50
joint venture and will operate under the name Rota Brock Ltda. The agreement
calls for the Company to contribute approximately $3.0 million to the joint
venture during 1998.
In February 1998, the Company repurchased 142,500 shares of its common stock
in accordance with an authorization to repurchase up to 500,000 common shares
approved by the Board of Directors in October 1997.
36 CTB 1997 Annual Report
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 1,161
<SECURITIES> 0
<RECEIVABLES> 24,532
<ALLOWANCES> 657
<INVENTORY> 25,352
<CURRENT-ASSETS> 55,522
<PP&E> 46,407
<DEPRECIATION> 8,749
<TOTAL-ASSETS> 167,641
<CURRENT-LIABILITIES> 29,204
<BONDS> 0
0
0
<COMMON> 129
<OTHER-SE> 73,417
<TOTAL-LIABILITY-AND-EQUITY> 167,641
<SALES> 202,063
<TOTAL-REVENUES> 202,063
<CGS> 148,345
<TOTAL-COSTS> 148,345
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,282
<INCOME-PRETAX> 24,398
<INCOME-TAX> 10,499
<INCOME-CONTINUING> 13,899
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,899
<EPS-PRIMARY> 1.49
<EPS-DILUTED> 1.43
</TABLE>
