<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------
FORM 10-Q
[ X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 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 March 31, 1999, approximately 12,022,177 shares, par value $.01 per share, of
common stock of the Registrant were outstanding.
<PAGE> 2
CTB INTERNATIONAL CORP. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
<S> <C>
Page
Part I
Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets at March 31, 1999 and
December 31, 1998 1
Condensed Consolidated Income Statements for the Three Months
Ended March 31, 1999 and 1998 2
Condensed Consolidated Statements of Cash Flows for the Three
Months Ended March 31, 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 7
Item 3. Quantitative and Qualitative Disclosures About Market Risk 11
Part II
Other Information
Item 1. II-1
Item 4. II-1
Item 6. II-1
Signature II-3
</TABLE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CTB International Corp. and Subsidiaries
Condensed Consolidated Balance Sheets
(In thousands, except share and per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
-------------- --------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $3,793 $608
Accounts receivable - Net 43,877 38,368
Construction costs in excess of billings on
uncompleted contracts 2,422 5,120
Inventories 35,554 29,657
Deferred income taxes 1,579 1,743
Prepaid expenses and other current assets 1,310 1,509
-------------- --------------
Total current assets 88,535 77,005
PROPERTY, PLANT AND EQUIPMENT - Net 57,945 50,974
INTANGIBLES - Net 90,109 66,715
OTHER ASSETS 222 432
-------------- --------------
TOTAL ASSETS $236,811 $195,126
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $14,649 $10,711
Current portion of long-term debt 1,735 1,646
Current portion of accrued Earn-Out 7,314 5,554
Accrued liabilities 18,026 14,542
Deferred revenue 3,042 3,642
-------------- --------------
Total current liabilities 44,766 36,095
LONG-TERM DEBT 104,983 69,719
DEFERRED INCOME TAXES 8,968 7,889
ACCRUED POSTRETIREMENT BENEFIT COST AND OTHER 3,790 2,740
ACCRUED EARN-OUT - 1,760
COMMITMENTS AND CONTINGENCIES (See Note 7)
MINORITY INTEREST 81 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)
Retained earnings 31,926 31,597
Accumulated other comprehensive income:
Cumulative translation adjustment (691) 556
-------------- --------------
Total stockholders' equity 74,223 76,825
-------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $236,811 $195,126
============== ==============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE> 4
CTB International Corp. and Subsidiaries
Condensed Consolidated Income Statements
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended
March 31,
--------------------------------
1999 1998
-------------- --------------
<S> <C> <C>
NET SALES $59,905 $46,778
COST OF SALES 45,987 35,733
-------------- --------------
Gross profit 13,918 11,045
OTHER OPERATING EXPENSE:
Selling, general, and 10,255 7,506
administrative expenses
Amortization of goodwill 647 444
-------------- --------------
Operating income 3,016 3,095
INTEREST EXPENSE - Net (1,460) (875)
OTHER INCOME (EXPENSE) - Net (1,013) 30
-------------- --------------
INCOME BEFORE INCOME TAXES 543 2,250
INCOME TAXES 214 863
-------------- --------------
NET INCOME $329 $1,387
============== ==============
EARNINGS PER SHARE:
Basic: Earnings per share $0.03 $0.11
============== ==============
Weighted average shares 12,106 12,837
============== ==============
Diluted: Earnings per share $0.03 $0.11
============== ==============
Weighted average shares 12,330 13,208
============== ==============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE> 5
CTB International Corp. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended
March 31,
--------------------------
1999 1998
---------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 329 $ 1,387
Adjustments to reconcile net income to net cash flows
from operating activities:
Depreciation 1,702 1,506
Amortization 791 585
Gain on sale of assets - (241)
Deferred income taxes (155) -
Changes in operating assets and liabilities:
Accounts receivable 586 (944)
Construction costs and estimated earnings in excess of
billings 2,698 (1,436)
Inventories (1,830) (1,336)
Prepaid expenses and other assets 551 1,628
Accounts payable, accruals and other liabilities (686) 1,102
---------- ---------
Net cash flows from operating activities 3,986 2,251
---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property, plant and equipment (2,306) (1,455)
Acquisitions, net of cash acquired (33,854) -
Proceeds from sale of assets 10 504
---------- ---------
Net cash flows from investing activities (36,150) (951)
---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of treasury stock (1,684) (1,877)
Proceeds from long-term debt 124,764 8,398
Payments on long-term debt (87,557) (7,700)
---------- ---------
Net cash flows from financing activities 35,523 (1,179)
---------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS 3,359 121
NET EFFECT OF TRANSLATION ADJUSTMENT (174) (163)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 608 1,161
---------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 3,793 $ 1,119
========== =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE> 6
CTB INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three month period ended March 31,
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>
March 31, December 31,
1999 1998
--------------- ---------------
<S> <C> <C>
Raw material $ 9,577 $ 7,941
Work in process 2,731 2,829
Finished goods 23,346 18,987
--------------- ---------------
35,654 29,757
LIFO valuation allowance (100) (100)
--------------- ---------------
Total $ 35,554 $ 29,657
=============== ===============
</TABLE>
NOTE 3. CONTRACTS IN PROCESS
Construction contracts in process consist of the following (in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
----------------- ----------------
<S> <C> <C>
Costs incurred on uncompleted contracts $ 29,449 $ 31,536
Estimated profit (loss) 150 (455)
----------------- ----------------
29,599 31,081
Less: Billings to date 27,177 25,961
----------------- ----------------
Costs in excess of billings on uncompleted
contracts $ 2,422 $ 5,120
================= ================
</TABLE>
<PAGE> 7
NOTE 4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following (in thousands):
March 31, December 31,
1999 1998
----------------- ----------------
Land and improvements $ 3,688 $ 2,725
Buildings and improvements 23,544 20,869
Machinery and equipment 42,965 39,022
Construction in progress 4,953 2,829
----------------- ----------------
75,150 65,445
Less accumulated depreciation (17,205) (14,471)
----------------- ----------------
Total $ 57,945 $ 50,974
================= ================
NOTE 5. INTANGIBLES
Intangibles consist of the following (in thousands):
March 31, December 31,
1999 1998
----------------- ----------------
Goodwill $ 93,783 $ 69,997
Accumulated amortization (4,929) (4,197)
----------------- ----------------
Goodwill - Net 88,854 65,800
----------------- ----------------
Deferred finance costs 2,650 2,105
Accumulated amortization (1,395) (1,190)
----------------- ----------------
Deferred finance costs - Net 1,255 915
----------------- ----------------
Total $ 90,109 $ 66,715
================= ================
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 will be 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
March 31, 1999 and the Consolidated Statements of Income and of Cash Flows for
the three months ended March 31, 1999. The purchase price has been allocated on
a preliminary basis, as follows:
<PAGE> 8
(In thousands)
--------------
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
==============
Unaudited pro forma net sales for 1998 would have been approximately $55.5
million assuming the acquisition of Roxell N.V. had occurred on January 1, 1998.
Unaudited pro forma net income would have been approximately $1.9 million and
basic and diluted pro forma earnings per share would have been approximately
$0.15 per share.
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 Earn-Out amount recorded under the terms of the Stock Purchase Agreement
as amended has been calculated as $7,040,000.
The Company is obligated to pay the Earn-Out Amount in three installments,
which will begin on April 5, 1999. The first installment is equal to 50.0% of
the actual Earn-Out Amount, and the second and third installments are each equal
to 25.0% of the actual Earn-Out Amount which are payable July 1, 1999 and
January 1, 2000. Interest will accrue at the prime rate as of December 31, 1998,
which was 7.75%.
NOTE 8. TREASURY STOCK
At March 31, 1999 treasury stock consisted of 902,813 shares acquired,
225,000 of which were purchased at a cost of $1,694,000 during the three month
period ending March 31, 1999. To date, 1,211,068 of the 1,500,000 shares
authorized 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. 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
<PAGE> 9
derivatives), and for hedging activities. It requires that an entity recognize
all derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. This statement is
effective for the Company's fiscal year beginning 2000. The Company is
evaluating SFAS 133 to determine its impact on the consolidated financial
statements.
<PAGE> 10
Item 2.
CTB INTERNATIONAL CORP. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
For a full understanding of the Company's financial condition and results
of operations, this commentary should be read in conjunction with the Company's
Securities and Exchange Commission filings, including, but not limited to the
Company's Form 10-K for the fiscal year ended December 31, 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 MARCH 31, 1999 COMPARED WITH THREE MONTHS ENDED MARCH 31,
1998
Net sales increased 28.1% to $59.9 million for the three months ended March
31, 1999 compared to $46.8 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 domestic poultry and egg
production markets. These strengths helped to offset weakness in sales resulting
from the Asian economy and the current situation in the swine industry.
Gross profit increased 26.0% to $13.9 million in the three months ended
March 31, 1999 or 23.2% of net sales compared to $11.0 million in the
corresponding period of 1998 or 23.6% of net sales. The gross profit margin
decrease of 0.4% was attributable to sales increases in lower margin ventilation
products, reduced volumes of swine related products which carry higher margins
as well as a one time non-cash purchase accounting charge related to the Roxell
N.V. acquisition.
Selling, general and administrative expenses increased 36.6% or $2.8
million to $10.3 million in the three months ended March 31, 1999 from $7.5
million in the corresponding period of 1998. As a percent of net sales, selling,
general and administrative expenses were 17.1% in the three months ended March
31, 1999 and 16.0% 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 $0.6 million in the three months
ended March 31, 1999 or 45.7% 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.
Operating income decreased 2.6% or $0.1 million to $3.0 million in the
three months ended March 31, 1999 compared to $3.1 million in the corresponding
period of 1998. Operating income margins decreased to 5.0% of net sales in the
three months ended March 31, 1999 from 6.6% of net sales in the corresponding
period of 1998. The decline in operating income was a result of additional gross
profit which was slightly more than offset by increased selling, general and
administrative expenses and amortization of goodwill. The decrease in operating
income margins is due to the decline in gross
<PAGE> 11
profit margins, 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 $1.5 million in the three months ended March
31, 1999 or 66.9% from $0.9 million in the corresponding period in 1998. The
increase is due to additional debt as a result of the borrowings incurred to
finance the acquisitions of Roxell N.V., Sibley Industries, Inc. and STACO,
Inc., and the purchases of treasury stock during 1998 and carrying costs related
to the C.P. project.
Other expense increased by $1.0 million from 1998 levels primarily from the
impact of a 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, as previously announced in Company
press releases and 1998 Form 10-K.
Net income decreased 76.3% or $1.1 million to $0.3 million in the three
months ended March 31, 1999 from $1.4 million for the corresponding period of
1998. The decrease was due to lower operating income, higher interest expense,
and foreign currency losses as discussed above.
FINANCIAL POSITION
Changes in the financial position of the Company from December 31, 1998 to
March 31, 1999 were due primarily to business acquisitions and operational
changes.
Total assets increased from $195.1 million at December 31, 1998 to $236.8
million at March 31, 1999 due in large part to the acquisition of Roxell N.V.
Accounts receivable increased by $5.5 million from December 31, 1998 to March
31, 1999 with $6.1 million of receivables being purchased in the Roxell N.V.
acquisition. At March 31, 1999, construction costs in excess of billings were
$2.4 million down by $2.7 million from year end as the poultry building projects
begin to wind down. Inventories at March 31, 1999 increased by $5.9 million from
December 31, 1998. The increase was due to higher inventory levels in
anticipation of higher order levels for the spring season and $3.6 million from
the Roxell N.V. acquisition. Net property, plant and equipment increased $7.0
million from December 31, 1998 to March 31, 1999. The net increase was due
primarily to the Roxell N.V. acquisition and purchases of equipment. Intangibles
increased by $23.4 million from December 31, 1998 to March 31, 1999 due to
recognition of goodwill from the preliminary purchase price allocation from the
Roxell N.V. acquisition.
Total liabilities increased $44.3 million from $118.3 million at December 31,
1998 to $162.6 at March 31, 1999. Accounts payable and accrued liabilities
increased $7.4 million during this period, primarily from the acquisition of
Roxell N.V. Long-term debt increased $35.3 million from $69.7 million at
December 31, 1998 to $105.0 million at March 31, 1999 due to revolver borrowings
to support seasonal operational changes and borrowings incurred to finance the
Roxell N.V. acquisition. The Accrued Earn-Out as of March 31, 1999 has been
classified as current.
Total stockholders' equity decreased $2.6 million due to treasury stock
purchases and changes in cumulative translation adjustment partially offset by
net income for the period.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1999, the Company had $43.8 million of working capital, an
increase of $2.9 million from working capital of $40.9 million as of December
31, 1998. Net cash provided from operating activities for the three months ended
March 31, 1999 was $4.0 million. Cash flows from operations was primarily
provided by changes in working capital.
<PAGE> 12
For the three months ended March 31, 1999, cash used in investing
activities was $36.2 million, which was used for acquisitions of assets and the
acquisition of Roxell N.V. For the three months ended March 31, 1998, cash used
in investing activities was $1.0 million, which was used for acquisitions of
assets partially offset by the sale of assets.
For the three months ended March 31, 1999, net cash provided from financing
activities was $35.5 million. During this period there was a net $37.2 million
increase in cash flows from revolver activity offset by a $1.7 million use of
cash for treasury stock purchases.
The Company believes that existing cash, cash flows from operations and
available borrowings under the New Credit Agreement will be sufficient to
support its working capital, capital expenditures and debt service requirements
for the foreseeable future.
SEASONALITY
Sales of agricultural equipment are seasonal, with poultry, swine and egg
producers purchasing equipment during prime construction periods in the spring,
summer and fall and farmers traditionally purchasing grain storage bins in the
summer and fall in conjunction with the harvesting season. The Company's net
sales and net income have historically been lower during the first and fourth
fiscal quarters as compared to the second and third quarters as distributors and
dealers increase inventory in anticipation of seasonal demand.
The following table presents unaudited interim operating results of the
Company. The Company believes that the following information includes all
adjustments (consisting only of normal, recurring adjustments) that the Company
considers necessary for a fair presentation for the respective periods. The
operating results for any interim period are not necessarily indicative of
results for this or any other interim period or the entire fiscal year.
<TABLE>
<CAPTION>
March 31, March 31, June 30, September 30, December 31,
1999 1998 1998 1998 1998
--------- --------- --------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Sales $ 59,905 $ 46,778 $ 70,464 $ 91,138 $ 63,800
Gross profit 13,918 11,045 14,498 21,085 14,056
Gross margin 23.2% 23.6% 20.5% 23.1% 22.0%
Operating income $ 3,016 $ 3,095 $ 5,933 $ 10,713 $ 3,461
Operating income margin 5.0% 6.6% 8.4% 11.7% 5.4%
Net income $ 329 $ 1,387 $ 2,911 $ 5,611 $ (713)
Basic earnings per share $ 0.03 $ 0.11 $ 0.23 $ 0.45 $ (0.06)
Basic weighted average common
shares outstanding 12,106 12,837 12,797 12,607 12,384
Diluted earnings per share $ 0.03 $ 0.11 $ 0.22 $ 0.43 $ (0.06)
Diluted weighted average common
shares outstanding 12,330 13,208 13,184 12,950 12,658
</TABLE>
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.
<PAGE> 13
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, or the software
developers are in the process of certifying Y2K compliance. These systems were
installed in response to the need for integrated systems providing improved
management information and not for compliance with Y2K. Testing has commenced
and will continue with completion expected by May 31, 1999 (previously projected
completion date of April 30, 1999). Documentation is also expected to be
completed by this date.
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 June 30, 1999 (previously projected completion
date of May 31, 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 as
necessary. The results of this assessment will be a major factor in the eventual
contingency plans developed. However, there can be no guarantee that the systems
of other companies on which the Company's systems rely will be converted in a
timely manner or that the failure to convert by another company would not have a
materially adverse effect on the Company.
COST OF YEAR 2000 ISSUE
As of March 31, 1999, the Company has incurred costs of less than $50,000
in year 2000 compliance. The Company is currently in the process of estimating
the future cost of Y2K. It is not expected to exceed $250,000.
RISKS OF YEAR 2000 ISSUE
The Company has not completed its assessment of the most reasonably likely
worst case Y2K scenario. However, given the Company's efforts to minimize the
Y2K failure of its internal systems and the limited concern of its non-IT
equipment, the Company believes the worst case scenario would occur if its
primary raw material suppliers or its electricity suppliers experience a Y2K
failure which results in the Company's inability to receive critical raw
material or to suffer a power outage.
While contingency plans have not yet been prepared, the identification and
development of an expanded supplier base and procurement of some safety stock
may be necessary. A power outage would require the Company to assess the likely
duration of the failure and the availability of possible alternative power
sources to enable the continuation of production.
<PAGE> 14
CONTINGENCY PLANS
Because not all occurrences of Y2K failure can be projected, anticipated or
controlled, the Company will develop contingency plans that will enable
production to continue. Contingency plans are expected to be completed by June
30, 1999. As the Company develops its contingency plans, the costs associated
with those plans (i.e. significant inventory 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) construction progress, timing of completion and
impact on gross margin of building construction 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.
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 $36.0 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 March 31, 1999, the estimated
reduction in future 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-
<PAGE> 15
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 $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> 16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
See Note 7 to the financial statements
Item 4. Submission of Matters to a Vote of Security Holders
At the Annual Meeting of Stockholders held on May 4, 1999, the
following proposals were adopted by the margins indicated.
1. To elect a Board of Directors for a term of one (1) year.
Number of Shares
------------------------------------
For Percent (of votes cast)
---------- -----------------------
Gerard van Rooijen 11,380,190 99.607
Caryl M. Chocola 11,380,965 99.614
J. Christopher Chocola 11,378,865 99.594
Michael G. Fisch 11,241,690 98.245
Larry D. Greene 11,380,940 99.619
Frank S. Hermance 11,380,740 99.617
David L. Horing 11,380,940 99.619
Charles D. Klein 11,241,490 98.243
Victor A. Mancinelli 11,382,140 99.626
2. To ratify the 1999 CTB International Corp. Stock Incentive Plan.
For 9,553,254
Against 1,862,560
Abstain 4,385
3. To ratify the selection by the Board of Directors of Deloitte
& Touche LLP as independent auditors for the Company for the
year ending December 31, 1999.
For 11,275,383
Against 141,113
Abstain 3,703
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.
<PAGE> 17
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.
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.
<PAGE> 18
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 incorporated by reference.
27. Financial Data Schedule incorporated by reference.
b) Reports on Form 8-K.
CTB INTERNATIONAL CORP. COMPLETES PURCHASE OF ROXELL N.V.
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: May 14, 1999 By /s/ DON J. STEINHILBER
----------------------------
Don J. Steinhilber
Vice President and Chief Financial Officer
<PAGE> 1
EXHIBIT 11
CTB International Corp. and Subsidiaries
Diluted Net Income Per Common and Common Equivalent Share
Three Months Ended March 31, 1999 and 1998 (In thousands,
except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------------------------------
1999 1998
-------------- --------------
<S> <C> <C>
ACTUAL
- ----------------------------------------------------------------
Net Income $329 $1,387
============== ==============
Average number of common shares outstanding 12,106 12,837
Common equivalent shares
Stock Options 224 371
-------------- --------------
Total average common and common
equivalent shares outstanding 12,330 13,208
============== ==============
Net income per common and common equivalent share $0.03 $0.11
============== ==============
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 3,793
<SECURITIES> 0
<RECEIVABLES> 45,363
<ALLOWANCES> 1,486
<INVENTORY> 35,554
<CURRENT-ASSETS> 88,535
<PP&E> 75,150
<DEPRECIATION> 17,205
<TOTAL-ASSETS> 236,811
<CURRENT-LIABILITIES> 44,766
<BONDS> 0
0
0
<COMMON> 129
<OTHER-SE> 74,094
<TOTAL-LIABILITY-AND-EQUITY> 236,811
<SALES> 59,905
<TOTAL-REVENUES> 59,905
<CGS> 45,987
<TOTAL-COSTS> 45,987
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 63
<INTEREST-EXPENSE> 1,460
<INCOME-PRETAX> 543
<INCOME-TAX> 214
<INCOME-CONTINUING> 329
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 329
<EPS-PRIMARY> 0.03
<EPS-DILUTED> 0.03
</TABLE>
