<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 September 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 September 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
September 30, 1999 and December 31, 1998 1
Condensed Consolidated Income Statements
for the Three Months and Nine Months Ended
September 30, 1999 and 1998 2
Condensed Consolidated Statements of Cash
Flows for the Nine Months Ended
September 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 7
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 12
Part II
Other Information
Item 1. II-1
Item 6. II-1
Signature II-2
</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>
September 30, December 31,
1999 1998
--------------- ---------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $5,665 $608
Accounts receivable - Net 40,769 38,368
Construction costs in excess of
billings on uncompleted contracts 84 5,120
Inventories 30,983 29,657
Deferred income taxes 1,786 1,743
Prepaid expenses and other current
assets 964 1,509
--------------- ---------------
Total current assets 80,251 77,005
PROPERTY, PLANT AND EQUIPMENT - Net 57,238 50,974
INTANGIBLES - Net 88,202 66,715
OTHER ASSETS 235 432
--------------- ---------------
TOTAL ASSETS $225,926 $195,126
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $14,217 $10,711
Current portion of long-term debt 806 1,646
Current portion of accrued Earn-Out 1,760 5,554
Accrued liabilities 21,304 14,542
Deferred revenue 2,125 3,642
--------------- ---------------
Total current liabilities 40,212 36,095
LONG-TERM DEBT 88,798 69,719
DEFERRED INCOME TAXES 9,021 7,889
ACCRUED POSTRETIREMENT BENEFIT COST
AND OTHER 4,810 2,740
ACCRUED EARN-OUT ----- 1,760
COMMITMENTS AND CONTINGENCIES (SEE NOTE 7)
MINORITY INTEREST 55 98
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value;
40,000,000 shares authorized:
12,924,990 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 (569) 556
Retained earnings 40,611 31,597
--------------- ---------------
Total stockholders' equity 83,030 76,825
--------------- ---------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $225,926 $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 Ended For the Nine Months Ended
September 30, September 30,
-------------------------- ---------------------------
1999 1998 1999 1998
--------- --------- -------- ---------
<S> <C> <C> <C> <C>
NET SALES $84,088 $91,138 $220,253 $208,380
COST OF SALES 61,586 70,053 163,395 161,752
--------- --------- --------- ---------
Gross profit 22,502 21,085 56,858 46,628
OTHER OPERATING EXPENSE:
Selling, general, and
administrative expenses 11,329 9,926 33,281 25,552
Amortization of goodwill 640 446 1,918 1,335
--------- --------- --------- ---------
Operating income 10,533 10,713 21,659 19,741
INTEREST EXPENSE - Net (1,596) (1,098) (4,875) (2,947)
OTHER INCOME (EXPENSE) - Net (831) (376) (1,834) (465)
--------- --------- --------- ---------
INCOME BEFORE INCOME TAXES 8,106 9,239 14,950 16,329
INCOME TAXES 3,223 3,628 5,936 6,420
--------- --------- --------- ---------
NET INCOME $4,883 $5,611 $9,014 $9,909
========= ========= ========= =========
EARNINGS PER SHARE:
Basic: Earnings per share $0.41 $0.45 $0.75 $0.78
========= ========= ======== ========
Weighted average shares 12,022 12,607 12,050 12,746
========= ========= ======== ========
Diluted: Earnings per share $0.40 $0.43 $0.73 $0.76
========= ========= ======== ========
Weighted average shares 12,282 12,950 12,296 13,115
========= ========= ======== ========
</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 Nine Months Ended
September 30,
----------------------------
1999 1998
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $9,014 $9,909
Adjustments to reconcile net income
to net cash flows from operating
activities:
Depreciation 5,509 4,262
Amortization 2,241 1,747
Equity (income) loss from joint venture (10) 461
Gain on sale of assets --- (254)
Changes in operating assets and liabilities:
Accounts receivable 3,694 (24,381)
Construction costs and estimated
earnings in excess of billings 5,036 (5,816)
Inventories 2,741 (3,573)
Prepaid expenses and other assets 416 1,255
Accounts payable, accruals and
other liabilities (2,795) 12,414
--------- ---------
Net cash flows from operating activities 25,846 (3,976)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property, plant and equipment (5,903) (4,288)
Acquisitions of businesses, net of cash acquired (33,854) (1,364)
Investment in joint venture --- (3,075)
Proceeds from sale of assets 26 504
--------- ---------
Net cash flows from investing activities (39,731) (8,223)
--------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of treasury stock (1,684) (6,568)
Proceeds from long-term debt 300,696 67,788
Payments on long-term debt (280,474) (50,323)
--------- ---------
Net cash flows from financing activities 18,538 10,897
--------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 4,653 (1,302)
NET EFFECT OF TRANSLATION ADJUSTMENT 404 557
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 608 1,161
--------- ---------
CASH EQUIVALENTS, END OF PERIOD $5,665 $416
========= =========
</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 nine months ended
September 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>
September 30, December 31,
1999 1998
---------- ----------
<S> <C> <C>
Raw material $7,023 $7,941
Work in process 2,299 2,829
Finished goods 21,761 18,987
---------- ----------
31,083 29,757
LIFO valuation allowance (100) (100)
---------- ----------
Total $30,983 $29,657
========== ==========
</TABLE>
Note 3. Contracts In Process
Construction contracts in process consist of the following (in thousands):
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
---------- ----------
<S> <C> <C>
Costs incurred on uncompleted contracts $83 $31,536
Estimated profit (loss) 1 (455)
---------- ----------
84 31,081
Less: Billings to date -- 25,961
Costs in excess of billings on uncompleted contracts $84 $5,120
========== ==========
</TABLE>
Note 4. Property, Plant and Equipment
Property, plant and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
---------- ----------
<S> <C> <C>
Land and improvements $3,650 $2,725
Buildings and improvements 23,210 20,869
Machinery and equipment 45,157 39,022
Construction in progress 4,602 2,829
---------- ----------
76,619 65,445
Less accumulated depreciation (19,381) (14,471)
----------- -----------
Total $57,238 $50,974
=========== ==========
</TABLE>
<PAGE>
Note 5. Intangibles
Intangibles consist of the following (in thousands):
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
---------- ----------
<S> <C> <C>
Goodwill $93,218 $69,997
Accumulated amortization (6,094) (4,197)
---------- ----------
Goodwill - Net 87,124 65,800
---------- ----------
Deferred finance costs and other 2,701 2,105
Accumulated amortization (1,623) (1,190)
---------- ----------
Deferred finance costs and other - Net 1,078 915
---------- ----------
Total $88,202 $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
September 30, 1999 and the Consolidated Statement of Income for the three months
and nine months ended September 30, 1999 and Consolidated Statement of Cash
Flows for the nine months ended September 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:
<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.
<PAGE>
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 of $1,760, equal to 25.0% of
the actual Earn-Out Amount , was paid in July 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 and 8.25% on August 25, 1999 from 7.75% at December 31, 1998.
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 September 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 nine month
period ending September 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 nine months ended September 30, 1999 was
$5.7 million and $7.9 million, respectively. Net income was adjusted by the
change in the cumulative translation adjustment to arrive at comprehensive
income.
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.
Note 11. Restructuring Charge
A corporate restructuring program was announced in late September 1999. The
Company eliminated approximately 12% of the positions in its Milford, Indiana,
operations support, sales and administrative functions. The action resulted in a
pre-tax charge of $0.9 million, of which $0.6 million was recorded in cost of
sales and $0.3 million was charged against selling, general and administrative
expenses.
Note 12. Subsequent Event
In October 1999, the Company's stock repurchase program was expanded by 1.0
million shares of common stock. The Board of Directors authorized the repurchase
of up to a total of 2.5 million shares compared to the 1.5 million total shares
announced previously. The Company plans to buy shares on the open market over an
indefinite period.
<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 September 30, 1999 Compared with Three Months Ended
September 30, 1998
Net sales decreased 7.7% to $84.1 million for the three months ended
September 30, 1999 compared to $91.1 million in the corresponding period of
1998. The decline in sales was primarily from $13.8 million lower revenues from
the poultry buildings project, continued weakness in the swine business
worldwide, and softness in various international markets as well as weakness in
the domestic poultry and egg production industries. This was offset somewhat by
strength in the domestic grain storage market as well as from sales resulting
from Roxell N.V. and STACO, Inc. which were acquired in January 1999 and
September 1998, respectively.
Gross profit increased 6.7% to $22.5 million in the three months ended
September 30, 1999 or 26.8% of net sales compared to $21.1 million in the
corresponding period of 1998 or 23.1% of net sales. The gross profit margin
increase of 3.7 percentage points was largely attributable to much lower levels
of sales on essentially no margin poultry buildings, which are now substantially
completed, and improvements in operational efficiency made in 1999, offset by
$0.6 million of the previously announced restructuring charge and to a lesser
extent by further weakening in the worldwide hog market in which the Company has
traditionally sold higher margin products.
Selling, general and administrative expenses increased 14.1% or $1.4
million to $11.3 million in the three months ended September 30, 1999 from $9.9
million in the corresponding period of 1998. As a percent of net sales, selling,
general and administrative expenses were 13.5% in the three months ended
September 30, 1999 and 10.9% in the corresponding period of 1998. The dollar
increase is primarily attributable to the acquisitions of Roxell N.V. and STACO,
Inc., a restructuring charge of $0.3 million, and targeted investments in
certain key areas within the Company. The increase as a percentage of net sales
was primarily attributed to the previously discussed acquisitions which have
historically had higher selling, general and administrative costs as a
percentage of sales than the Company. This was offset somewhat by reduction in
costs of resources assigned to address issues related to the implementation of a
fully integrated resource planning system.
A corporate restructuring program was announced in late September 1999. The
program is designed to realign CTB's cost structure for current market
conditions and to position the Company for accelerated profit growth when
conditions improve. The Company eliminated approximately 12% of the positions in
its Milford, Indiana, operations support, sales and administrative functions.
The action resulted in a pre-tax charge of $0.9 million, of which $0.6 million
was recorded in cost of sales and $0.3 million was charged against selling,
general and administrative expenses. Management believes that the restructuring
will reduce the Company's annual operating costs by approximately $2.1 million.
Amortization of goodwill increased to $0.6 million in the three months
ended September 30, 1999 or 43.5% 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. and STACO, Inc.
Operating income decreased 1.7% or $0.2 million to $10.5 million in the
three months ended September 30, 1999 compared to $10.7 million in the
corresponding period of 1998. Operating income margins increased to 12.5% of net
sales in the three months ended September 30, 1999 from 11.8% of net sales in
the corresponding period of 1998. The decrease in operating income was a result
of increased selling, general and administrative expenses and amortization of
goodwill offset somewhat by increased gross profit. Excluding the impact of the
$0.9 million restructuring charge, operating income was up $0.7 million. 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.
<PAGE>
Interest expense increased to $1.6 million in the three months ended
September 30, 1999 or 45.4% from $1.1 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. and STACO, Inc.
Other expense increased by $0.4 million or 121% from $0.4 million to $0.8
million primarily from the impact of non-cash foreign exchange losses on U.S.
dollar denominated intercompany debt offset by reduction of losses in joint
ventures.
Net income decreased 13.0% or $0.7 million to $4.9 million in the three
months ended September 30, 1999 from $5.6 million for the corresponding period
of 1998. The decrease was primarily due to increased interest costs and other
expenses offset somewhat by related income tax effects.
Nine Months Ended September 30, 1999 Compared with Nine Months Ended
September 30, 1998
Net sales increased 5.7% to $220.3 million for the nine months ended
September 30, 1999 compared to $208.4 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 grain production market as well as first and
second quarter strength in the egg market. These factors were offset by $20.8
million lower revenues from the poultry buildings project, as well as weakness
in the swine business worldwide and softness in various international markets.
Gross profit increased 21.9% to $56.9 million in the nine months ended
September 30, 1999 or 25.8% of net sales compared to $46.6 million in the
corresponding period of 1998 or 22.4% of net sales. The gross profit margin
increase of 3.4 percentage points was largely attributable to reduced sales on
essentially no margin poultry buildings, which are substantially completed, and
recovery of manufacturing efficiencies as the issues related to the 1998
implementation of the fully integrated enterprise resource system have been
substantially resolved as well as improvements in operational efficiency made in
1999. These factors have been offset somewhat by further weakening in the
worldwide hog market in which the Company has traditionally sold higher margin
products, a restructuring charge of $0.6 million, and a purchase accounting
charge of $0.4 million in the first quarter.
Selling, general and administrative expenses increased 30.2% or $7.7
million to $33.3 million in the nine months ended September 30, 1999 from $25.6
million in the corresponding period of 1998. As a percent of net sales, selling,
general and administrative expenses were 15.1% in the nine months ended
September 30, 1999 and 12.3% 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., targeted investments in certain key areas
within the Company and a restructuring charge of $0.3 million offset somewhat by
reduction in costs of resources assigned to address issues related to the
implementation of a fully integrated resource planning system. 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 than the Company.
Amortization of goodwill increased to $1.9 million in the nine months ended
September 30, 1999 or 43.7% from $1.3 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 increased 9.7% or $2.0 million to $21.7 million in the
nine months ended September 30, 1999 compared to $19.7 million in the
corresponding period of 1998. Operating income margins increased to 9.8% of net
sales in the nine months ended September 30, 1999 from 9.5% of net sales in the
corresponding period of 1998. The increase in operating income was a result of
additional gross profit that 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 $4.9 million in the nine months ended
September 30, 1999 or 65.4% from $2.9 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
poultry buildings project.
<PAGE>
Other expense increased by $1.4 million from 1998 levels primarily from the
impact of a $1.9 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 9.0% or $0.9 million to $9.0 million in the nine
months ended September 30, 1999 from $9.9 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 offset somewhat
by related income tax effects.
Financial Position
Changes in the financial position of the Company from December 31, 1998 to
September 30, 1999 were due primarily to business acquisitions and operational
changes.
Total assets increased from $195.1 million at December 31, 1998 to $225.9
million at September 30, 1999 due in large part to the acquisition of Roxell
N.V. Accounts receivable increased by $2.4 million from December 31, 1998 to
September 30, 1999 with $6.1 million of receivables being purchased in the
Roxell N.V. acquisition. This was largely offset by improved collection activity
despite seasonally higher business levels. At September 30, 1999, construction
costs in excess of billings were $0.1 million, down by $5.0 million from year
end, as the poultry buildings project nears completion. Inventories at September
30, 1999 increased by $1.3 million from December 31, 1998. The increase was
primarily due to $3.6 million from the Roxell N.V. acquisition offset by a
managed reduction in inventory levels. Net property, plant and equipment
increased $6.3 million from December 31, 1998 to September 30, 1999. The net
increase was due primarily to the Roxell N.V. acquisition and recent capital
expenditures, net of depreciation. Intangibles increased by $21.5 million from
December 31, 1998 to September 30, 1999 due to the addition of goodwill
resulting from the preliminary purchase price allocation of the Roxell N.V.
acquisition.
Total liabilities increased $24.5 million from $118.3 million at December
31, 1998 to $142.8 at September 30, 1999. Accounts payable and accrued
liabilities increased $10.3 million during this period, primarily from the
acquisition of Roxell N.V., seasonal increases, and the accrual of a $0.9
million restructuring charge late in the third quarter. Long-term debt increased
$19.1 million from $69.7 million at December 31, 1998 to $88.8 million at
September 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 in the first quarter of 1999.
Total stockholders' equity increased $6.2 million due to net income for the
period partially offset by treasury stock purchases and changes in cumulative
translation adjustment.
Liquidity and Capital Resources
As of September 30, 1999, the Company had $40.0 million of working capital,
a decrease of $0.9 million from working capital of $40.9 million as of December
31, 1998. Net cash provided from operating activities for the nine months ended
September 30, 1999 was $25.8 million. Cash flow from operations was provided by
net income and working capital changes. Net cash used for operating activities
for the nine months ended September 30, 1998 was $4.0 million, driven primarily
by working capital changes.
For the nine months ended September 30, 1999, cash used in investing
activities was $39.7 million, which was used primarily for purchase of assets
and the acquisition of Roxell N.V. For the nine months ended September 30, 1998,
cash used in investing activities was $8.2 million, which was used for
acquisitions of assets and an investment in a joint venture, somewhat offset by
the sale of assets.
For the nine months ended September 30, 1999, net cash provided from
financing activities was $18.5 million. During this period there was a net $20.2
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 nine months ended September 30, 1998 was $10.9 million resulting from
$17.5 million in net cash from revolver activity offset by a $6.6 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.
<PAGE>
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) (unaudited) Three Months Ended
- -------------------------------------------------------------------------------------------------------------------------------
September 30, September 30, December 31, March 31, June 30,
1999 1998 1998 1999 1999
---------- ----------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Sales $84,088 $91,138 $63,800 $59,905 $76,260
Gross Profit 22,502 21,085 14,056 13,918 20,438
Gross margin 26.8% 23.1% 22.0% 23.2% 26.8%
Operating income $10,533 $10,713 $3,461 $3,016 $8,110
Operating income margin 12.5% 11.7% 5.4% 5.0% 10.6%
Net Income $4,883 $5,611 ($713) $329 $3,802
Basic earnings per share $0.41 $0.45 ($0.06) $0.03 $0.32
Basic weighted average shares 12,022 12,607 12,384 12,106 12,022
Diluted earnings per share $0.40 $0.43 ($0.06) $0.03 $0.31
Diluted weighted average shares 12,282 12,950 12,658 12,330 12,277
</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.
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 have also been
substantially completed. 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.
<PAGE>
The Company has identified major and/or critical third-party relationships
and has completed a survey and assessment of third-party readiness. 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 September 30, 1999, the Company has incurred costs of approximately
$350,000 in year 2000 compliance. The Company estimates the future cost of Y2K
to be minimal.
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.
Contingency Plans
Because not all occurrences of Y2K failure can be projected, anticipated or
controlled, the Company has developed contingency plans that could enable
production to continue. These plans continue to be reviewed and refined. The
plans include, but are not limited to, the reallocation of internal resources,
deployment of alternative processes, addition to stock of certain components
prior to year end, and the use of alternative suppliers.
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, (iv) future growth prospects, (v)
impact of the Company's restructuring program, and (vi) 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 $23.6 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 September 30, 1999, the
estimated reduction in earnings, net of tax, is expected to be approximately
$0.2 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 intercompany loans. The Company's
exposure related to such transactions is not material to cash flows. However,
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 intercompany 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.
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.
<PAGE>
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 September 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: November 12, 1999 By /s/ Don J. Steinhilber
------------------------------------------
Don J. Steinhilber
Vice President and Chief Financial Officer
CTB International Corp. and Subsidiaries
Diluted Net Income Per Common and Common Equivalent Share
Three and Nine Months Ended September 30, 1999
and 1998 (In thousands, except per share amounts)
Exhibit 11
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------- -----------------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
ACTUAL
Net Income $4,883 $5,611 $9,014 $9,909
========== ========== ========== ==========
Average number of common
shares outstanding 12,022 12,607 12,050 12,746
Common equivalent shares
stock options 260 343 246 369
---------- ---------- ---------- ----------
Total average common and
common equivalent shares
outstanding 12,282 12,950 12,296 13,115
========== ========== ========== ==========
Net income per common and
common equivalent share $0.40 $0.43 $0.73 $0.76
========== ========== ========== ==========
</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> 9-MOS
<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-START> Jan-01-1999
<PERIOD-END> Sep-30-1999
<CASH> 5,665
<SECURITIES> 0
<RECEIVABLES> 42,286
<ALLOWANCES> 1,517
<INVENTORY> 30,983
<CURRENT-ASSETS> 80,251
<PP&E> 76,619
<DEPRECIATION> 19,381
<TOTAL-ASSETS> 225,926
<CURRENT-LIABILITIES> 40,212
<BONDS> 0
0
0
<COMMON> 129
<OTHER-SE> 82,901
<TOTAL-LIABILITY-AND-EQUITY> 225,926
<SALES> 220,253
<TOTAL-REVENUES> 220,253
<CGS> 163,395
<TOTAL-COSTS> 163,395
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 781
<INTEREST-EXPENSE> 4,875
<INCOME-PRETAX> 14,950
<INCOME-TAX> 5,936
<INCOME-CONTINUING> 9,014
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,014
<EPS-BASIC> 0.75
<EPS-DILUTED> 0.73
</TABLE>
