<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_________________________
FORM 10-Q
[ X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From _____ to _____
________________________
Commission File Number 000-22973
CTB INTERNATIONAL CORP.
(Exact name of registrant as specified in the charter)
Delaware 35-1970751
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
State Road 15 North, P.O. Box 2000, Milford, IN 46542-2000
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (219)-658-4191
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [ X ] No [ ]
At June 30, 1999, approximately 12,022,177 shares, par value $.01 per share, of
common stock of the Registrant were outstanding.
<PAGE>
CTB INTERNATIONAL CORP. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
<S> <C>
Page
Part I
Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets at
June 30, 1999 and December 31, 1998 1
Condensed Consolidated Income Statements for
the Three Months and Six Months Ended
June 30, 1999 and 1998 2
Condensed Consolidated Statements of Cash
Flows for the Six Months Ended
June 30, 1999 and 1998 3
Notes to Condensed Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 14
Part II
Other Information
Item 1. II-1
Item 6. II-1
Signature II-3
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CTB International Corp. and Subsidiaries
Condensed Consolidated Balance Sheets
(In thousands, except share and per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
-------------- --------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $4,613 $608
Accounts receivable - Net 49,052 38,368
Construction costs in excess of billings on
uncompleted contracts 207 5,120
Inventories 36,213 29,657
Deferred income taxes 1,743 1,743
Prepaid expenses and other current assets 1,163 1,509
-------------- --------------
Total current assets 92,991 77,005
PROPERTY, PLANT AND EQUIPMENT - Net 58,313 50,974
INTANGIBLES - Net 87,876 66,715
OTHER ASSETS 226 432
-------------- --------------
TOTAL ASSETS $239,406 $195,126
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $17,209 $10,711
Current portion of long-term debt 822 1,646
Current portion of accrued Earn-Out 2,882 5,554
Accrued liabilities 20,097 14,542
Deferred revenue 2,377 3,642
-------------- --------------
Total current liabilities 43,387 36,095
LONG-TERM DEBT 105,860 69,719
DEFERRED INCOME TAXES 8,939 7,889
ACCRUED POSTRETIREMENT BENEFIT COST AND OTHER 3,849 2,740
ACCRUED EARN-OUT - 1,760
COMMITMENTS AND CONTINGENCIES (See Note 7)
MINORITY INTEREST 65 98
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value; 40,000,000 shares authorized; 12,924,990
shares issued 129 129
Preferred stock - 6% cumulative, $.01 par value; 4,000,000
shares authorized; 0 shares issued and outstanding - -
Treasury stock, at cost; 1999-902,813 shares, 1998-688,619 shares (6,995) (5,390)
Additional paid-in capital 76,818 76,897
Reduction for carryover of predecessor cost basis (26,964) (26,964)
Accumulated other comprehensive income:
Cumulative translation adjustment (1,410) 556
Retained earnings 35,728 31,597
-------------- --------------
Total stockholders' equity 77,306 76,825
-------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $239,406 $195,126
============== ==============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
CTB International Corp. and Subsidiaries
Condensed Consolidated Income Statements
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months For the Six Months Ended
June 30, June 30,
--------------------------- ---------------------------
1999 1998 1999 1998
------------ ----------- ------------ ------------
<S> <C> <C> <C> <C>
NET SALES $76,260 $70,464 $136,165 $117,242
COST OF SALES 55,822 55,966 101,809 91,699
------------ ----------- ------------ ------------
Gross profit 20,438 14,498 34,356 25,543
OTHER OPERATING EXPENSE:
Selling, general, and 11,697 8,120 21,952 15,626
administrative expenses
Amortization of goodwill 631 445 1,278 889
------------ ----------- ------------ ------------
Operating income 8,110 5,933 11,126 9,028
INTEREST EXPENSE - Net (1,819) (978) (3,279) (1,853)
OTHER INCOME (EXPENSE) - Net 10 (115) (1,003) (85)
------------ ----------- ------------ ------------
INCOME BEFORE INCOME TAXES 6,301 4,840 6,844 7,090
INCOME TAXES 2,499 1,929 2,713 2,792
------------ ----------- ------------ ------------
NET INCOME $3,802 $2,911 $4,131 $4,298
============ =========== ============ ============
EARNINGS PER SHARE:
Basic: Earnings per share $0.32 $0.23 $0.34 $0.34
============ =========== ============ ============
Weighted average shares 12,022 12,797 12,064 12,817
============ =========== ============ ============
Diluted: Earnings per share $0.31 $0.22 $0.34 $0.33
============ =========== ============ ============
Weighted average shares 12,277 13,184 12,303 13,204
============ =========== ============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
CTB International Corp. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
For the Six Months Ended
June 30,
---------------------------
1999 1998
------------ -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $4,131 $4,298
Adjustments to reconcile net income to net cash flows
from operating activities:
Depreciation 3,513 2,964
Amortization 1,508 1,171
Equity (income) loss from joint venture (10) 115
Gain on sale of assets - (254)
Changes in operating assets and liabilities:
Accounts receivable (4,589) (15,560)
Construction costs and estimated earnings in excess of
billings 4,913 (5,730)
Inventories (2,489) (3,223)
Prepaid expenses and other assets 236 1,688
Accounts payable, accruals and other liabilities (863) 4,902
---------- -----------
Net cash flows from operating activities 6,350 (9,629)
---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property, plant and equipment (5,214) (2,984)
Acquisitions, net of cash acquired (33,854) -
Investment in joint venture - (1,200)
Proceeds from sale of assets 10 504
---------- -----------
Net cash flows from investing activities (39,058) (3,680)
---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of treasury stock (1,684) (1,865)
Proceeds from long-term debt 212,255 34,900
Payments on long-term debt (173,704) (19,830)
---------- -----------
Net cash flows from financing activities 36,867 13,205
---------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 4,159 (104)
NET EFFECT OF TRANSLATION ADJUSTMENT (154) (158)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 608 1,161
---------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $4,613 $899
========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
CTB International Corp. and Subsidiaries
Notes To Condensed Consolidated Financial Statements
(Unaudited)
Note 1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three months and six months ended June
30, 1999, are not necessarily indicative of the results that may be expected for
the year ending December 31, 1999. For further information, refer to the
Company's Form 10-K for the fiscal year ended December 31, 1998 which includes
the Company's annual audited financial statements.
Note 2. Inventories
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
-------------- --------------
<S> <C> <C>
Raw material $ 7,778 $ 7,941
Work in process 2,658 2,829
Finished goods 25,877 18,987
-------------- --------------
36,313 29,757
LIFO valuation allowance (100) (100)
-------------- --------------
Total $ 36,213 $ 29,657
============== ==============
</TABLE>
Note 3. Contracts In Process
Construction contracts in process consist of the following (in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
-------------- --------------
<S> <C> <C>
Costs incurred on uncompleted contracts $ 2,731 $ 31,536
Estimated profit (loss) 53 (455)
-------------- --------------
2,784 31,081
Less: Billings to date 2,577 25,961
-------------- --------------
Costs in excess of billings on uncompleted contracts $ 207 $ 5,120
============== ==============
</TABLE>
<PAGE>
Note 4. Property, Plant and Equipment
Property, plant and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
-------------- --------------
<S> <C> <C>
Land and improvements $ 3,613 $ 2,725
Buildings and improvements 23,020 20,869
Machinery and equipment 43,729 39,022
Construction in progress 5,648 2,829
-------------- --------------
76,010 65,445
Less accumulated depreciation (17,697) (14,471)
-------------- --------------
Total $ 58,313 $ 50,974
============== ==============
</TABLE>
Note 5. Intangibles
Intangibles consist of the following (in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
-------------- --------------
<S> <C> <C>
Goodwill $ 92,166 $ 69,997
Accumulated amortization (5,436) (4,197)
-------------- --------------
Goodwill - Net 86,730 65,800
-------------- --------------
Deferred finance costs 2,651 2,105
Accumulated amortization (1,505) (1,190)
-------------- --------------
Deferred finance costs - Net 1,146 915
-------------- --------------
Total $ 87,876 $ 66,715
============== ==============
</TABLE>
Note 6. Business Combinations
On January 12, 1999, the Company acquired substantially all of the assets of
Roxell N.V. (Roxell). Based in Maldegem, Belgium, Roxell is a leading global
manufacturer and marketer of automated feeding and watering systems, as well as
feed storage bins for the poultry and swine production markets. The purchase
price of $33.9 million, net of cash acquired and including expenses, was
financed through German Mark denominated borrowings under the Company's amended
credit facility.
The acquisition was accounted for under the purchase method of accounting.
Accordingly, the purchase price has been allocated to the acquired assets and
liabilities based on their fair market values as of the date of acquisition with
the remainder charged to goodwill which is being amortized on a straight-line
basis over 40 years. Roxell's financial statements subsequent to the acquisition
are consolidated and included in the Company's Consolidated Balance Sheet as of
June 30, 1999 and the Consolidated Statement of Income for the three months and
six months ended June 30, 1999 and Consolidated Statement of Cash Flows for the
six months ended June 30, 1999. The purchase price has been allocated on a
preliminary basis, pending final determination of the valuation of certain
acquired assets and liabilities, as follows:
<PAGE>
<TABLE>
<CAPTION>
(In thousands)
--------------
<S> <C>
Current assets $ 15,532
Property, plant and equipment 7,175
Intangibles and other assets 26,942
Long-term debt assumed (740)
Liabilities assumed (10,031)
--------------
Total purchase price $ 38,878
==============
</TABLE>
Note 7. 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 statements.
Pursuant to the Stock Purchase Agreement, the Company 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 was determined based on cumulative
EBITDA for the three-year period ended December 31, 1998.
The Company is obligated to pay the Earn-Out Amount in three installments. The
first installment of $3,520, which was equal to 50.0% of the actual Earn-Out
Amount was paid in April. The second installment, equal to 25.0% of the actual
Earn-Out Amount , was completed on July 1, 1999. The third and final
installment, equal to 25.0% of the actual Earn-Out Amount is payable on January
1, 2000. Interest accrues at the prime rate, which increased to 8.0% effective
July 1, 1999 from 7.75%.
The Sibley purchase agreement includes an Earn-Out provision which requires the
Company to pay up to an additional $1.2 million over four years should certain
sales targets be met. On March 31, 1999, $274,000 of the contingent purchase
price was paid for amounts earned for 1998.
Note 8. Treasury Stock
At June 30, 1999 treasury stock consisted of 902,813 shares acquired, 225,000 of
which were purchased at a cost of $1,684,000 during the six month period ending
June 30, 1999. To date, 1,211,068 of the 1,500,000 shares authorized in 1997 and
1998 have been repurchased, with 308,255 being reissued. The shares repurchased
are accounted for under the cost method and reported as "Treasury Stock" and
result in a reduction of "Stockholders' Equity." When treasury shares are
reissued, the Company uses a first-in, first-out method and the difference
between repurchase cost and the reissuance price is treated as an adjustment to
"Additional Paid-in Capital."
Note 9. Comprehensive Income
Comprehensive income for the three and six months ended March 31, 1999 and June
30, 1999 was $3.1 million and $2.2 million. Net income was adjusted by the
change in the cumulative translation adjustment to arrive at comprehensive
income.
<PAGE>
Note 10. New Accounting Pronouncement
Effective June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (SFAS 133). This statement establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts (collectively referred to as
derivatives), and for hedging activities. It requires that an entity recognize
all derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. This statement is
effective for the Company's fiscal year beginning 2001. The Company is
evaluating SFAS 133 to determine its impact on the consolidated financial
statements.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
For a full understanding of the Company's financial condition, results of
operations, and cash flows, this commentary should be read in conjunction with
the Company's Securities and Exchange Commission filings, including, but not
limited to the Company's Form 10-K for the fiscal year ended December 31, 1998
which includes the Company's annual audited financial statements.
Results of Operations
The Company is a designer, manufacturer and marketer of agricultural equipment
for the poultry, swine and egg production markets and grain storage and handling
market. The Company markets its products on a worldwide basis primarily under
the CHORE-TIME(R), BROCK(R), FANCOM(R), SIBLEY(TM), STACO(R) and ROXELL(R)
names.
Three Months Ended June 30, 1999 Compared with Three Months Ended June 30, 1998
Net sales increased 8.2% to $76.3 million for the three months ended June 30,
1999 compared to $70.5 million in the corresponding period of 1998. The sales
growth resulted primarily from the acquisitions of Roxell N.V. in early January
1999 and Sibley Industries, Inc. and STACO, Inc. in the second half of 1998.
Additionally, there was ongoing strength in the egg production and grain
markets. These factors were offset somewhat by $8.0 million lower revenues from
the C.P. project poultry buildings, year over year, continued weakness in the
swine business worldwide, and softness in various international markets as well
as a slight weakening in the domestic poultry business.
Gross profit increased 41.0% to $20.4 million in the three months ended June 30,
1999 or 26.8% of net sales compared to $14.5 million in the corresponding period
of 1998 or 20.6% of net sales. The gross profit margin increase of 6.2
percentage points was attributable to reduced sales on essentially no margin
poultry buildings, which are now substantially completed, recovery of
manufacturing efficiencies as the majority of issues related to the 1998
implementation of the fully integrated enterprise resource system have been
resolved as well as improvements in operational efficiency made in 1999, offset
slightly by further weakening in the worldwide hog market in which the Company
has traditionally sold higher margin products.
Selling, general and administrative expenses increased 44.1% or $3.6 million to
$11.7 million in the three months ended June 30, 1999 from $8.1 million in the
corresponding period of 1998. As a percent of net sales, selling, general and
administrative expenses were 15.3% in the three months ended June 30, 1999 and
11.5% in the corresponding period of 1998. The dollar increase is primarily
attributable to the acquisitions of Roxell N.V., Sibley Industries, Inc. and
STACO, Inc., increased profit sharing and bonus expenses as a result of the
improved performance in the three months ended June 30, 1999 and targeted
investments in certain key areas within the Company. The increase as a
percentage of net sales was primarily attributed to the accrual for
performance-based payments and the acquisitions. The acquired companies have
historically had higher selling, general and administrative costs as a
percentage of sales.
Amortization of goodwill increased to $0.6 million in the three months ended
June 30, 1999 or 41.8% from $0.4 million in the corresponding period for 1998.
The increase is attributable to the amortization of goodwill related to the
acquisitions of Roxell N.V., Sibley Industries, Inc. and STACO, Inc.
<PAGE>
Operating income increased 36.7% or $2.2 million to $8.1 million in the three
months ended June 30, 1999 compared to $5.9 million in the corresponding period
of 1998. Operating income margins increased to 10.6% of net sales in the three
months ended June 30, 1999 from 8.4% of net sales in the corresponding period of
1998. The increase in operating income was a result of additional gross profit
which was offset somewhat by increased selling, general and administrative
expenses and amortization of goodwill. The increase in operating income margins
is due to the improvement in gross profit margins, offset to some extent by the
increase in selling, general and administrative expenses as a percent of sales
and the increase in amortization expense, as discussed above.
Interest expense increased to $1.8 million in the three months ended June 30,
1999 or 86.0% from $1.0 million in the corresponding period in 1998. The
increase is due primarily to additional debt as a result of the borrowings
incurred to finance the acquisitions of Roxell N.V., Sibley Industries, Inc. and
STACO, Inc., purchases of treasury stock during the second half of 1998 and
first quarter of 1999 and carrying costs related to the C.P. project.
Other expense in 1998 included a loss from a joint venture which did not occur
in 1999, decreasing this item by $0.1 million.
Net income increased 30.6% or $0.9 million to $3.8 million in the three months
ended June 30, 1999 from $2.9 million for the corresponding period of 1998. The
increase was primarily due to higher operating income, offset to some extent by
increased interest costs and income taxes.
Six Months Ended June 30, 1999 Compared with Six Months Ended June 30, 1998
Net sales increased 16.1% to $136.2 million for the six months ended June 30,
1999 compared to $117.2 million in the corresponding period of 1998. The sales
growth resulted primarily from the acquisitions of Roxell N.V. in early January
1999 and Sibley Industries, Inc. and STACO, Inc. in the second half of 1998 and
strength in the egg and grain production markets. These factors were offset
somewhat by $7.0 million lower revenues from the C.P. project poultry buildings,
as well as weakness in the swine business worldwide, and softness in various
international markets.
Gross profit increased 34.5% to $34.4 million in the six months ended June 30,
1999 or 25.2% of net sales compared to $25.5 million in the corresponding period
of 1998 or 21.8% of net sales. The gross profit margin increase of 3.4
percentage points was attributable to reduced sales on essentially no margin
poultry buildings, which are substantially completed, recovery of manufacturing
efficiencies as the majority of the issues related to the 1998 implementation of
the fully integrated enterprise resource system have been resolved as well as
improvements in operational efficiency made in 1999, offset slightly by further
weakening in the worldwide hog market in which the Company has traditionally
sold higher margin products.
Selling, general and administrative expenses increased 40.5% or $6.3 million to
$22.0 million in the six months ended June 30, 1999 from $15.6 million in the
corresponding period of 1998. As a percent of net sales, selling, general and
administrative expenses were 16.1% in the six months ended June 30, 1999 and
13.3% in the corresponding period of 1998. The dollar increase is primarily
attributable to the acquisitions of Roxell N.V., Sibley Industries, Inc. and
STACO, Inc. and targeted investments in certain key areas within the Company.
The increase as a percentage of net sales was primarily attributed to the
acquisitions. The acquired companies have historically had higher selling,
general and administrative costs as a percentage of sales.
Amortization of goodwill increased to $1.3 million in the six months ended June
30, 1999 or 43.8% from $0.9 million in the corresponding period for 1998. The
increase is attributable to the amortization of goodwill related to the
acquisitions of Roxell N.V., Sibley Industries, Inc. and STACO, Inc.
<PAGE>
Operating income increased 23.2% or $2.1 million to $11.1 million in the six
months ended June 30, 1999 compared to $9.0 million in the corresponding period
of 1998. Operating income margins increased to 8.2% of net sales in the six
months ended June 30, 1999 from 7.7% of net sales in the corresponding period of
1998. The increase in operating income was a result of additional gross profit
which was somewhat offset by increased selling, general and administrative
expenses and amortization of goodwill. The increase in operating income margins
is due to the improved gross profit margins offset to some extent by increases
in selling, general and administrative expenses as a percent of sales and the
increase in amortization expense, as discussed above.
Interest expense increased to $3.3 million in the six months ended June 30, 1999
or 77.0% from $1.9 million in the corresponding period in 1998. The increase is
due primarily to additional debt as a result of the borrowings incurred to
finance the acquisitions of Roxell N.V., Sibley Industries, Inc. and STACO,
Inc., purchases of treasury stock during the second half of 1998 and first
quarter of 1999, and carrying costs related to the C.P. project.
Other expense increased by $0.9 million from 1998 levels primarily from the
impact of a $1.0 million non-cash foreign exchange loss from U.S.
dollar-denominated intercompany debt. This charge was primarily a result of the
devaluation of the Brazilian currency versus the U.S. dollar.
Net income decreased 3.9% or $0.2 million to $4.1 million in the six months
ended June 30, 1999 from $4.3 million for the corresponding period of 1998. The
decrease was attributable to improved operating income, offset by increased
interest expense and other expense as discussed above.
Financial Position
Changes in the financial position of the Company from December 31, 1998 to June
30, 1999 were due primarily to business acquisitions and operational changes.
Total assets increased from $195.1 million at December 31, 1998 to $239.4
million at June 30, 1999 due in large part to the acquisition of Roxell N.V.
Accounts receivable increased by $10.7 million from December 31, 1998 to June
30, 1999 with $6.1 million of receivables being purchased in the Roxell N.V.
acquisition and seasonal business activity adding to the increased levels. At
June 30, 1999, construction costs in excess of billings were $0.2 million, down
by $4.9 million from year end as the poultry building projects near completion.
Inventories at June 30, 1999 increased by $6.6 million from December 31, 1998.
The increase was primarily due to seasonally higher business levels and $3.6
million from the Roxell N.V. acquisition. Net property, plant and equipment
increased $7.3 million from December 31, 1998 to June 30, 1999. The net increase
was due primarily to the Roxell N.V. acquisition and recent capital expenditures
net of depreciation. Intangibles increased by $21.2 million from December 31,
1998 to June 30, 1999 due to the addition of goodwill resulting from the
preliminary purchase price allocation from the Roxell N.V. acquisition.
Total liabilities increased $43.8 million from $118.3 million at December 31,
1998 to $162.1 at June 30, 1999. Accounts payable and accrued liabilities
increased $12.1 million during this period, primarily from the acquisition of
Roxell N.V. Long-term debt increased $36.2 million from $69.7 million at
December 31, 1998 to $105.9 million at June 30, 1999 primarily due to borrowings
incurred to finance the Roxell N.V. acquisition, revolver borrowings to support
seasonal operational needs and treasury stock purchases. The Accrued Earn-Out as
of June 30, 1999 has been classified as current.
Total stockholders' equity increased $0.5 million due to net income for the
period partially offset by treasury stock purchases and changes in cumulative
translation adjustment.
<PAGE>
Liquidity and Capital Resources
As of June 30, 1999, the Company had $49.6 million of working capital, an
increase of $8.7 million from working capital of $40.9 million as of December
31, 1998. Net cash provided from operating activities for the six months ended
June 30, 1999 was $6.4 million. Cash flows from operations was primarily
provided by operating activities, offset somewhat by working capital changes.
Net cash used for operating activities for the six months ended June 30, 1998
was $9.6 million, driven primarily by working capital changes.
For the six months ended June 30, 1999, cash used in investing activities was
$39.1 million, which was used primarily for purchase of assets and the
acquisition of Roxell N.V. For the six months ended June 30, 1998, cash used in
investing activities was $3.7 million, which was used for acquisitions of assets
and an investment in a joint venture, partially offset by the sale of assets.
For the six months ended June 30, 1999, net cash provided from financing
activities was $36.9 million. During this period there was a net $38.6 million
increase in cash flows from revolver activity offset by a $1.7 million use of
cash for treasury stock purchases. Cash provided by financing activities for the
six months ended June 30, 1998 was $13.2 million resulting from $15.1 million in
net cash from revolver activity offset by a $1.9 million use of cash for
treasury stock purchases.
The Company believes that existing cash, cash flows from operations and
available borrowings will be sufficient to support its working capital, capital
expenditures and debt service requirements for the foreseeable future.
Seasonality
Sales of agricultural equipment are seasonal, with poultry, swine and egg
producers purchasing equipment during prime construction periods in the spring,
summer and fall and farmers traditionally purchasing grain storage bins in the
summer and fall in conjunction with the harvesting season. The Company's net
sales and net income have historically been lower during the first and fourth
fiscal quarters as compared to the second and third quarters as distributors and
dealers increase inventory in anticipation of seasonal demand.
The following table presents unaudited interim operating results of the Company.
The Company believes that the following information includes all adjustments
(consisting only of normal, recurring adjustments) that the Company considers
necessary for a fair presentation for the respective periods. The operating
results for any interim period are not necessarily indicative of results for
this or any other interim period or the entire fiscal year.
<TABLE>
<CAPTION>
(In thousands, except per share amounts) Three Months Ended
- ------------------------------------------------------------------------------------------------------------------
June 30, June 30, September 30, December 31, March 31,
1999 1998 1998 1998 1999
----------- ----------- -------------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Sales $ 76,260 $70,464 $ 91,138 $ 63,800 $ 59,905
Gross profit 20,438 14,498 21,085 14,056 13,918
Gross margin 26.8% 20.5% 23.1% 22.0% 23.2%
Operating income $ 8,110 $ 5,933 $ 10,713 $ 3,461 $ 3,016
Operating income margin 10.6% 8.4% 11.7% 5.4% 5.0%
Net income $ 3,802 $ 2,911 $ 5,611 $ (713) $ 329
Basic earnings per share $ 0.32 $ 0.23 $ 0.45 $ (0.06) $ 0.03
Basic weighted average shares 12,022 12,797 12,607 12,384 12,106
Diluted earnings per share $ 0.31 $ 0.22 $ 0.43 $ (0.06) $ 0.03
Diluted weighted average shares 12,277 13,184 12,950 12,658 12,330
</TABLE>
<PAGE>
Year 2000 Compliance
The "Year 2000 (Y2K) Issue" refers to the inability of certain computers,
information systems and microprocessors to recognize and process the century
designation in data fields causing potential improper information processing,
invalid calculations, erroneous reporting, or at worst, system or equipment
failures which could have a materially adverse impact on the Company. This is a
Year 2000 Readiness Disclosure under the Year 2000 Information and Readiness
Disclosure Act.
State of Readiness
The Company has assessed the impact of the Year 2000 with respect to its
information technology (IT) systems and non-IT systems and equipment as well as
its potential exposure to significant third-party risks. The Company's
methodology includes; (i) the identification of systems, equipment and
third-party relationships; (ii) assessment of Y2K compliance issues related to
systems, equipment and third parties; (iii) correction and testing; (iv)
documentation of findings/corrective actions; and (v) contingency planning.
Accordingly, the Company has initiated a plan to confirm Y2K compliance or
replace/modify existing systems and equipment as required and to assure itself
that critical third parties are also addressing the issue.
With respect to IT systems, the Company has completed an assessment of its four
major systems (including the business system at Roxell N.V.) and determined that
they will not present significant problems in Y2K compliance. The major systems
have all been installed within the past 36 months (three of the systems in 1998)
and have been certified as substantially Y2K compliant. These systems were
installed in response to the need for integrated systems providing improved
management information and not for compliance with Y2K. Testing and
documentation have been completed.
Assessment of non-major IT systems and equipment, including related software,
has been completed. Correction, testing and documentation are expected to be
substantially completed by September 30, 1999 (previously June 30, 1999). The
Company will continue to test and correct as necessary the Company's individual
personal computers for Y2K compliance throughout the remainder of 1999.
Major non-IT equipment, which is primarily manufacturing equipment, has been
identified, assessed and tested in the United States with the determination that
the equipment does not employ microprocessors with date sensitive operations,
and thus does not pose a Y2K issue. Non-IT equipment outside the United States
was also assessed, tested and completed.
The Company has identified major and/or critical third-party relationships and
has substantially completed a survey and assessment of third-party readiness.
Based upon the responses, additional follow up will be performed. The results of
this assessment are a major factor considered in the contingency plans being
developed. However, there can be no guarantee that the systems of other
companies on which the Company's systems rely will be converted in a timely
manner or that the failure to convert by another company would not have a
materially adverse effect on the Company.
Cost of Year 2000 Issue
As of June 30, 1999, the Company has incurred costs of approximately $ 150,000
in year 2000 compliance. The Company estimates the future cost of Y2K not to
exceed $200,000.
<PAGE>
Risks of Year 2000 Issue
The Company has substantially completed its assessment of the most reasonably
likely worst case Y2K scenario. Given the Company's efforts to minimize the Y2K
failure of its internal systems and the limited concern of its non-IT equipment,
the Company believes the worst case scenario would occur if its primary raw
material suppliers or its electricity suppliers experience a Y2K failure which
results in the Company's inability to receive critical raw material or to suffer
a power outage.
While contingency plans have not yet been finalized, the identification and
development of an expanded supplier base and procurement of some safety stock is
under review. A power outage requires the Company to assess the likely duration
of the failure and the availability of possible alternative power sources to
enable the continuation of production.
Contingency Plans
Because not all occurrences of Y2K failure can be projected, anticipated or
controlled, the Company is developing contingency plans that will enable
production to continue. Contingency plans are expected to be completed by
September 30, 1999 (previously, June 30, 1999). As the Company develops its
contingency plans, the costs associated with those plans (i.e. significant
inventory stockpiling or the arrangement of alternative power sources) will be
assessed vis-a-vis the cost of the most reasonably likely worst case scenario.
Consequently, the contingency plan costs and certain mitigating factors,
including seasonally lower first quarter business sales and production levels,
may not warrant the full implementation of the plans.
Note to Company's Year 2000 Readiness Disclosure
The costs and dates on which the Company intends to complete its Y2K analysis
and correction are based on management's best estimates. These estimates were
derived utilizing numerous assumptions of future events and the availability of
resources. However, there can be no guarantee that these estimates will be
achieved, and actual results could differ materially from those plans. Factors
that might cause such material differences include, but are not limited to, the
availability and cost of alternative suppliers should they be required, the
retention of personnel or the availability of new personnel competent with Y2K
issues, the ability to locate and correct all relevant computer codes, and
similar uncertainties.
It is currently unknown which problems the Company will face for partial or
complete non-compliance because it could depend on numerous factors (such as the
nature of the problem and how quickly it could be corrected). At worst, such
problems could have a materially adverse impact on the Company.
Forward Looking Statements
Certain statements contained herein including, without limitation, those
regarding (i) ability to support future working capital needs, (ii) seasonality
of the Company's business (iii) progress, timing of completion and impact on
gross margin of poultry facility projects and (iv) market risk associated with
changes in interest and foreign exchange rates, contain certain forward-looking
statements concerning the Company's operations, economic performance and
financial condition. Because such statements involve risks and uncertainties,
actual results may differ materially from those expressed or implied by such
forward-looking statements.
<PAGE>
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company is subject to market risk associated with adverse changes in
interest rates and foreign currency exchange rates, but does not hold any market
risk sensitive instruments for trading purposes. Principal exposed to interest
rate risk is limited to $39.6 million in variable rate debt. The Company
measures its interest rate risk by estimating the net amount by which potential
future net earnings would be impacted by hypothetical changes in market interest
rates related to all interest rate sensitive assets and liabilities. Assuming a
hypothetical 20% increase in interest rates as of June 30, 1999, the estimated
reduction in earnings, net of tax, is expected to be approximately $0.3 million.
The Company mitigates its foreign currency exchange rate risk principally by
establishing local production facilities in the markets it serves and by
invoicing customers in the same currency as the source of the products. The
Company also monitors its foreign currency exposure in each country and
implements strategies to respond to changing economic and political
environments. The Company's exposure to foreign currency exchange rate risk
relates primarily to U.S. dollar-denominated inter-company loans. The Company's
exposure related to such transactions is not material to cash flows. However,
the Company's exposure related to such transactions to the Company's financial
position and results of operations is anticipated to be adversely impacted by
approximately $165,000, net of tax, for every 10% devaluation of the Brazilian
Real per U.S. dollar and approximately $75,000, net of tax, for every 5%
depreciation of the Dutch Guilder per U.S. dollar. These amounts are estimates
only and are difficult to accurately estimate due to factors such as the
inherent fluctuation of inter-company account balances and the existing economic
uncertainty and future economic conditions in the international marketplace.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
See Note 7 to the financial statements
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
3.1 Form of Restated Certificate of Incorporation of the Company
filed as Exhibit 3.1 to the Company's Registration Statement
on Form S-1 (Registration No. 333-29873) (the "Company's
Registration Statement") and incorporated herein by
reference.
3.2 Form of By-laws of the Company filed as Exhibit 3.2 to the
Company Registration Statement and incorporated herein by
reference.
4.1 Specimen Certificate of Common Stock of the Company filed as
Exhibit 4.1 to the Company Registration Statement and
incorporated herein by reference.
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 Investment 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.
<PAGE>
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.
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.
10.16 Acquisition Agreement of all shares of Roxell N.V., dated
November 30, 1998, filed as Exhibit 99.2 to the Company's
February 10, 1999 Form 8-K filing.
10.17 Representations and Warranties of Sellers, filed as Exhibit
99.3 to the Company's February 10, 1999 Form 8-K filing.
10.18 Amendment No. 3 dated as of November 19, 1998 to Credit
Agreement dated as of August 15, 1997.
11. Computation of Earnings Per Share.
27. Financial Data Schedule.
b) Reports on Form 8-K.
No reports on Form 8-K were filed by the Company during the quarter
ended June 30, 1999.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CTB International Corp.
Dated: August 13, 1999 By /s/ Don J. Steinhilber
------------------------------------
Don J. Steinhilber
Vice President and Chief Financial Officer
Exhibit 11
CTB International Corp. and Subsidiaries
Diluted Net Income Per Common and Common Equivalent Share
Three and Six Months Ended June 30, 1999 and 1998
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
----------------------------- -----------------------------
1999 1998 1999 1998
------------ ------------ ------------- ------------
<S> <C> <C> <C> <C>
ACTUAL
- ----------------------------------------------------------------
Net Income $3,802 $2,911 $4,131 $4,298
============ ============ ============= ============
Average number of common shares outstanding 12,022 12,797 12,064 12,817
Common equivalent shares
Stock Options 255 387 239 387
------------ ------------ ------------- ------------
Total average common and common
equivalent shares outstanding 12,277 13,184 12,303 13,204
============ ============ ============= ============
Net income per common and common equivalent share $0.31 $0.22 $0.34 $0.33
============ ============ ============= ============
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
CTB INTERNATIONAL CORP. Exhibit 27
FINANCIAL DATA SCHEDULE
Item Description
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 4,613
<SECURITIES> 0
<RECEIVABLES> 50,527
<ALLOWANCES> 1,475
<INVENTORY> 36,213
<CURRENT-ASSETS> 92,991
<PP&E> 76,010
<DEPRECIATION> 17,697
<TOTAL-ASSETS> 239,406
<CURRENT-LIABILITIES> 43,387
<BONDS> 0
0
0
<COMMON> 129
<OTHER-SE> 77,177
<TOTAL-LIABILITY-AND-EQUITY> 239,406
<SALES> 136,165
<TOTAL-REVENUES> 136,165
<CGS> 101,809
<TOTAL-COSTS> 101,809
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 197
<INTEREST-EXPENSE> 3,279
<INCOME-PRETAX> 6,844
<INCOME-TAX> 2,713
<INCOME-CONTINUING> 4,131
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,131
<EPS-BASIC> 0.34
<EPS-DILUTED> 0.34
</TABLE>
