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, 2000
[ ] 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)
Indiana 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, 2000, approximately 10,937,384 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, 2000 and
December 31, 1999 1
Condensed Consolidated Income Statements for the Three Months
and Six Months Ended June 30, 2000 and 1999 2
Condensed Consolidated Statements of Cash Flows for the Six
Months Ended June 30, 2000 and 1999 3
Notes to Condensed Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk 13
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>
June 30, December 31,
2000 1999
-------------- --------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,563 $ 2,439
Accounts receivable - Net 35,179 29,787
Inventories 32,797 29,695
Deferred income taxes 902 900
Prepaid expenses and other current assets 3,087 2,811
-------------- --------------
Total current assets 73,528 65,632
PROPERTY, PLANT AND EQUIPMENT - Net 52,723 55,515
INTANGIBLES - Net 82,944 86,157
OTHER ASSETS 254 258
-------------- --------------
TOTAL ASSETS $ 209,449 $ 207,562
============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 16,748 $ 13,564
Current portion of long-term debt 621 795
Accrued Earn-Out - 1,809
Accrued liabilities 22,762 17,076
Deferred revenue 1,622 2,618
-------------- --------------
Total current liabilities 41,753 35,862
LONG-TERM DEBT 72,634 77,060
DEFERRED INCOME TAXES 9,139 9,449
ACCRUED POSTRETIREMENT BENEFIT COST AND OTHER 4,308 4,437
COMMITMENTS AND CONTINGENCIES (See Note 7)
SHAREHOLDERS' EQUITY:
Common stock, $.01 par value; 40,000,000 shares authorized;
12,924,990 shares issued 129 129
Preferred stock - 6% cumulative, $.01 par value; 4,000,000
shares authorized; 0 shares issued and outstanding - -
Additional paid-in capital 76,562 76,818
Treasury stock, at cost; 2000-1,987,606 shares,
1999-1,257,113 shares (14,094) (9,251)
Reduction for carryover of predecessor cost basis (26,964) (26,964)
Accumulated other comprehensive income:
Foreign currency translation adjustment (2,484) (1,791)
Retained earnings 48,466 41,813
-------------- --------------
Total shareholders' equity 81,615 80,754
-------------- --------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 209,449 $ 207,562
============== ==============
</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 Six Months Ended
June 30, June 30,
------------------------------------ ------------------------------------
2000 1999 2000 1999
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
NET SALES $ 74,294 $ 76,260 $ 132,045 $ 136,165
COST OF SALES 54,181 55,822 95,801 101,809
-------------- -------------- -------------- --------------
Gross profit 20,113 20,438 36,244 34,356
OTHER OPERATING EXPENSE:
Selling, general, and 10,756 11,697 21,448 21,952
administrative expenses
Amortization of goodwill 596 631 1,201 1,278
-------------- -------------- -------------- --------------
Operating income 8,761 8,110 13,595 11,126
INTEREST EXPENSE - Net (1,219) (1,819) (2,461) (3,279)
OTHER INCOME (EXPENSE) - Net (198) 10 (44) (1,003)
-------------- -------------- -------------- --------------
INCOME BEFORE INCOME TAXES 7,344 6,301 11,090 6,844
INCOME TAXES 2,938 2,499 4,436 2,713
-------------- -------------- -------------- --------------
NET INCOME $ 4,406 $ 3,802 $ 6,654 $ 4,131
============== ============== ============== ==============
EARNINGS PER SHARE:
Basic: Earnings per share $ 0.40 $ 0.32 $ 0.60 $ 0.34
============== ============== ============== ==============
Weighted average shares 10,970 12,022 11,117 12,064
============== ============== ============== ==============
Diluted: Earnings per share $ 0.39 $ 0.31 $ 0.59 $ 0.34
============== ============== ============== ==============
Weighted average shares 11,182 12,277 11,330 12,303
============== ============== ============== ==============
</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,
--------------------------------
2000 1999
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 6,654 $ 4,131
Adjustments to reconcile net income to net cash flows
from operating activities:
Depreciation 3,739 3,513
Amortization 1,441 1,508
Foreign exchange loss 61 -
Equity in joint venture (9) (10)
Loss on sale of assets 42 -
Changes in operating assets and liabilities:
Accounts receivable (4,135) (4,589)
Construction costs and estimated earnings in excess of billings - 4,913
Inventories (3,396) (2,489)
Prepaid expenses and other assets (1,777) 236
Accounts payable, accruals and other liabilities 6,781 (833)
-------------- --------------
Net cash flows from operating activities 9,401 6,380
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property, plant and equipment (1,584) (5,214)
Acquisitions, net of cash acquired - (33,884)
Proceeds from sale of assets 120 10
-------------- --------------
Net cash flows from investing activities (1,464) (39,088)
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of treasury stock (5,129) (1,684)
Stock option exercise 30 -
Proceeds from long-term debt 143,618 212,255
Payments on long-term debt (146,535) (173,704)
-------------- --------------
Net cash flows from financing activities (8,016) 36,867
-------------- --------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (79) 4,159
NET EFFECT OF TRANSLATION ADJUSTMENT (797) (154)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 2,439 608
-------------- --------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,563 $ 4,613
============== ==============
</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, 2000, are not necessarily indicative of the results that may be expected for
the year ending December 31, 2000. For further information, refer to the
Company's Form 10-K for the fiscal year ended December 31, 1999 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,
2000 1999
--------------- ---------------
<S> <C> <C>
Raw material $ 8,097 $ 7,937
Work in process 2,265 2,025
Finished goods 22,435 19,733
--------------- ---------------
32,797 29,695
LIFO valuation allowance - -
--------------- ---------------
Total $ 32,797 $ 29,695
=============== ===============
</TABLE>
Note 3. Contracts In Process
Construction contracts in process consist of the following (in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
----------------- ---------------
<S> <C> <C>
Costs incurred on uncompleted contracts $ - $ 306
Estimated profit (loss) - -
----------------- ---------------
- 306
Less: Billings to date - 470
----------------- ---------------
Billings in excess of costs on uncompleted
contracts $ - $ (164)
================= ===============
</TABLE>
Billings in excess of costs on uncompleted contracts are reported in other
accrued liabilities.
<PAGE>
Note 4. Property, Plant and Equipment
Property, plant and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
---------------- ---------------
<S> <C> <C>
Land and improvements $ 3,502 $ 3,674
Buildings and improvements 22,753 22,958
Machinery and equipment 49,447 48,217
Construction in progress 1,368 1,596
---------------- ---------------
77,070 76,445
Less accumulated depreciation (24,347) (20,930)
---------------- ---------------
Total $ 52,723 $ 55,515
================ ===============
</TABLE>
Note 5. Intangibles
Intangibles consist of the following (in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
---------------- ---------------
<S> <C> <C>
Goodwill $ 89,339 $ 91,607
Accumulated amortization (7,186) (6,490)
---------------- ---------------
Goodwill - Net 82,153 85,117
---------------- ---------------
Deferred finance costs 2,821 2,821
Accumulated amortization (2,030) (1,781)
---------------- ---------------
Deferred finance costs - Net 791 1,040
---------------- ---------------
Total $ 82,944 $ 86,157
================ ===============
</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. The purchase price has been allocated as follows:
(In thousands)
----------------
Current assets $ 10,508
Property, plant and equipment 7,175
Intangibles and other assets 27,849
Long-term debt assumed (740)
Liabilities assumed (10,908)
----------------
Total purchase price $ 33,884
================
<PAGE>
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 any of these proceedings will have a material adverse effect on
its financial statements.
Pursuant to the Stock Purchase Agreement dated November 1995, the Company agreed
to make certain contingent payments to the Predecessor Company shareholders (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 was calculated as $7,040,000.
The Company was obligated to pay the Earn-Out Amount in three installments
beginning on April 5, 1999. Two installments totaling $5,280,000 were made
during 1998. The third and final installment of $1,760,000 was paid on January
3, 2000.
Portions of the Earn-Out Amount were paid to certain current directors and
officers of the Company.
Note 8. Treasury Stock
At June 30, 2000, treasury stock consisted of 1,988,000 shares acquired,
767,000 of which were purchased at a cost of $5,129,000 during the six month
period ending June 30, 2000. To date, 2,332,000 of the 2,500,000 shares
authorized have been repurchased, with 345,000 being reissued. The shares
repurchased are accounted for under the cost method and reported as "Treasury
Stock" and result in a reduction of "Shareholders' 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 June 30, 2000 was
$4.4 and $6.0 million compared to $3.1 and $2.2 million in the corresponding
periods of 1999. Net income was adjusted by the change in the cumulative
translation adjustment to arrive at comprehensive income.
Note 10. Segments
Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information" (SFAS 131) requires companies
to provide certain information about their operating segments.
The Company has aggregated its operating segments in accordance with SFAS 131.
Due to the restructuring of the Company's operations, effective January 1, 2000,
it is impracticable to obtain comparable data for prior year segment
information.
<PAGE>
The Company's products for the Protein Group Segment consist of systems which
deliver feed and water, and provide a comfortable climate for poultry and hogs,
thereby creating an optimum growing environment for efficient production of meat
and eggs. Protein Group Segment sales are primarily in the U.S. and Canada. The
Grain Segment manufactures a wide variety of models of grain storage bins for
on-farm and commercial grain storage. The Grain Segment also manufactures and
markets a line of industrial bulk storage bins and conveying equipment and
markets various related accessory items. Grain Segment sales are primarily to
customers in the U.S. and Canada. The International Segment manufactures and
markets products similar to those of the Protein Group and Grain Segments. Sales
in the International Segment, however, are generally to customers outside the
U.S. and Canada. Inter-segment sales are recorded at standard cost plus five
percent.
Management evaluates performance based upon operating earnings before interest
and income taxes. The Company does not maintain for each of its operating
segments separate stand-alone financial statements prepared in accordance with
generally accepted accounting principles. In accordance with SFAS 131, the
following table contains information related to each operating segment that is
consistent with internal management reports.
For the Three Months Ended June 30, 2000
<TABLE>
<CAPTION>
Segment Protein Group Grain International Other Consolidated
------------- --------- ------------- --------- ------------
<S> <C> <C> <C> <C> <C>
Sales to third parties $ 25,676 $ 27,817 $ 20,801 $ - $ 74,294
Inter-segment sales 3,799 2,901 93 (6,793) -
Operating profit 5,562 6,611 2,323 (5,735) 8,761
</TABLE>
For the Six Months Ended June 30, 2000
<TABLE>
<CAPTION>
Segment Protein Group Grain International Other Consolidated
------------- --------- ------------- --------- ------------
<S> <C> <C> <C> <C> <C>
Sales to third parties $ 49,333 $ 41,274 $ 41,438 $ - $ 132,045
Inter-segment sales 6,219 6,495 804 (13,518) -
Operating profit 10,846 9,068 4,934 (11,253) 13,595
Total assets 34,683 49,401 65,767 59,598 209,449
</TABLE>
"Other" consists primarily of eliminations for inter-segment sales and
corporate-related assets. Additionally, "Other" includes the costs for shared
services functions, such as Finance, Information Systems and Administration and
for shared manufacturing cost centers for the Milford, Indiana, operations.
Note 11. New Accounting Pronouncement
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" (SFAS 133). In June, 2000, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 138, "Accounting for
Certain Derivative Instruments and Certain Hedging Activities an Amendment of
FASB Statement No. 133" (SFAS 138). The statements establish accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts (collectively referred to as
derivatives), and for hedging activities. These statements require that an
entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value.
These statements are effective for the Company's fiscal year beginning 2001. The
Company is evaluating SFAS 133 and SFAS 138 to determine their impact on the
consolidated financial statements.
On December 3, 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin 101 (SAB 101), Revenue Recognition in Financial Statements.
SAB 101 summarizes the SEC's interpretations of the application of generally
accepted accounting principles to revenue recognition. The Company believes that
its revenue recognition practices are in compliance with SAB 101.
<PAGE>
Note 12. Restructuring
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. During the fourth quarter of 1999, an additional accrual of $0.2
million was recorded in selling, general and administrative expenses upon the
elimination of positions in the Company's Milford, Indiana, and Brazilian sales
and administrative functions. Payments made for restructuring expenses during
the fourth quarter of 1999 were $0.4 million. Payments made for restructuring
expenses during the first and second quarters of 2000 were $0.3 million and $0.2
million, respectively. The $0.2 million balance at June 30, 2000, to be paid in
future periods, is reported in accrued liabilities.
<PAGE>
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, 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, 1999.
Results of Operations
CTB International Corp. ("CTB" or the "Company") is a leading designer,
manufacturer and marketer of systems used in the grain industry and in the
production of poultry meat, pork and eggs. It serves the poultry, hog, egg
production and grain industries. The Company believes that it is the largest
global supplier of poultry production systems and grain storage bins and one of
the largest global providers of hog and egg production systems.
CTB operates from facilities in the U.S.A., Europe and Latin America as
well as through a worldwide distribution network. It markets its agricultural
products on a worldwide basis primarily under the CHORE-TIME(R), BROCK(R),
FANCOM(R), ROXELL(R), SIBLEY(R) and STACO(R) brand names.
Three Months Ended June 30, 2000 Compared with Three Months Ended June 30, 1999
Net sales decreased 2.6% to $74.3 million in the three months ended June
30, 2000 compared to $76.3 million in the corresponding period of 1999. The
decline in sales is attributed to a combination of market softness and currency
weakness in western Europe and to the completion of the poultry-building sales
in 1999, which contributed $1.6 million of revenue from building sales in the
second quarter of 1999. These factors were offset somewhat by continued strength
in the Grain Segment.
Gross profit decreased 1.6% to $20.1 million in the three months ended June
30, 2000 or 27.1% of net sales compared to $20.4 million in the corresponding
period of 1999 or 26.8% of net sales. The gross profit margin increase was
attributable to continuing operational improvements, as well as the completion
of the poultry-building sales in 1999, which represented $1.6 million in
building sales at essentially no margin, offset somewhat by an accrued warranty
charge estimated at $0.6 million for repairs expected to be made over the next
three years.
Selling, general and administrative expenses decreased 8.0% or $0.9 million
to $10.8 million in the three months ended June 30, 2000 from $11.7 million in
the corresponding period of 1999. As a percent of net sales, selling, general
and administrative expenses were 14.5% in the three months ended June 30, 2000
and 15.3% in the corresponding period of 1999. The dollar decrease is primarily
attributable to reductions through restructuring and cost savings efforts offset
somewhat by increased profit sharing costs resulting from improved earnings. The
decrease in selling, general and administrative costs as a percent of sales was
due primarily to the factors noted above offset somewhat by lower sales volumes.
Amortization of goodwill remained at $0.6 million in the three months ended
June 30, 2000 compared to the corresponding period for 1999.
<PAGE>
Operating income increased 8.0% or $0.7 million to $8.8 million in the
three months ended June 30, 2000 compared to $8.1 million in the corresponding
period of 1999. Operating income margins increased to 11.8% of net sales in the
three months ended June 30, 2000 from 10.6% of net sales in the corresponding
period of 1999. The improvement in operating income was a result of improved
gross profit margins and a decrease in selling, general and administrative
expenses offset somewhat by a decline in gross profit dollars from lower sales
volumes. The increase in operating income margins is due to the improvement in
gross profit margins and to a decrease in selling, general and administrative
expenses as a percent of sales, as discussed above.
Interest expense decreased to $1.2 million in the three months ended June
30, 2000 compared to $1.8 million in the corresponding period for 1999. Lower
interest expense resulted from lower average borrowings offset slightly by
higher average interest rates.
Other income/expense increased to an expense of $0.2 million in the three
months ended June 30, 2000. The change is due primarily to the 2000 impact of
non-cash foreign exchange losses from U.S. dollar-denominated intercompany
balances.
Net income increased 15.9% or $0.6 million to $4.4 million in the three
months ended June 30, 2000 from $3.8 million for the corresponding period of
1999. The increase was due to improved operating income and lower interest
expense, offset somewhat by foreign currency losses, as discussed above.
Six Months Ended June 30, 2000 Compared with Six Months Ended June 30, 1999
Net sales decreased 3.0% to $132.0 million in the six months ended June 30,
2000 compared to $136.2 million in the corresponding period of 1999. The decline
in sales is attributed to a combination of continued market softness and
currency weakness in western Europe in 2000, and to the completion of the
poultry-building sales in 1999, which contributed $5.0 million of revenue from
buildings in the first and second quarters of 1999. These factors were offset
somewhat by strong Grain Segment sales.
Gross profit increased 5.5% to $36.2 million in the six months ended June
30, 2000 or 27.4% of net sales compared to $34.4 million in the corresponding
period of 1999 or 25.2% of net sales. The gross profit margin increase of 2.2
percentage points was attributable to operational improvements in the first half
of 2000 as well as to the completion of the poultry-building sales in 1999,
which represented $5.0 million in buildings sales at essentially no margin and a
one-time non-cash purchase accounting charge of $0.4 million in 1999 related to
the Roxell N.V. acquisition.
Selling, general and administrative expenses decreased 2.3% or $0.5 million
to $21.4 million in the six months ended June 30, 2000 from $22.0 million in the
corresponding period of 1999. As a percent of net sales, selling, general and
administrative expenses were 16.2% in the six months ended June 30, 2000 and
16.1% in the corresponding period of 1999. The dollar decrease is primarily
attributable to reductions through restructuring and cost savings efforts offset
somewhat by increased profit sharing costs resulting from improved earnings. The
slight increase in selling, general and administrative costs as a percent of
sales was due primarily to lower sales volumes.
Amortization of goodwill decreased to $1.2 million in the six months ended
June 30, 2000 or 6.0% from $1.3 million in the corresponding period for 1999.
Operating income increased 22.2% or $2.5 million to $13.6 million in the
six months ended June 30, 2000 compared to $11.1 million in the corresponding
period of 1999. Operating income margins increased to 10.3% of net sales in the
six months ended June 30, 2000 from 8.2% of net sales in the corresponding
period of 1999. The improvement in operating income was a result of additional
gross profit, and decreased selling, general and administrative expenses. The
increase in operating income margins is due to the improvement in gross profit
margins offset somewhat by the slight increase in selling, general and
administrative expenses as a percent of sales, as discussed above.
Interest expense decreased to $2.5 million in the six months ended June 30,
2000 or 24.9% from $3.3 million in the corresponding period in 1999. The
decrease is due primarily to lower average borrowings in 2000 offset somewhat by
higher average interest rates.
<PAGE>
Other income/expense improved by $1.0 million from 1999. The improvement is due
primarily to the 1999 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.
Net income increased 61.1% or $2.5 million to $6.7 million in the six
months ended June 30, 2000 from $4.1 million for the corresponding period of
1999. The increase was due to record first quarter operating income and near
record second quarter operating income, lower interest expense, and reduction of
foreign currency losses, as discussed above.
Financial Position
Changes in the financial position of the Company from December 31, 1999 to
June 30, 2000 were due primarily to operating activities.
Total assets increased from $207.6 million at December 31, 1999 to $209.4
million at June 30, 2000. Accounts receivable increased by $5.4 million from
December 31, 1999 to June 30, 2000. Inventories increased by $3.1 million from
December 31, 1999. Both accounts receivable and inventories increased due to
seasonal increases in sales volume offset somewhat by improved management of
these items and net changes in foreign exchange rates. Net property, plant and
equipment decreased $2.8 million from December 31, 1999 to June 30, 2000,
primarily due to depreciation and foreign exchange changes offset somewhat by
low capital outlays, relative to depreciation charges.
Total liabilities increased $1.0 million from $126.8 million at December 31,
1999 to $127.8 at June 30, 2000. Accounts payable and accrued liabilities
increased to $39.5 million from $30.6 million at December 31, 1999, primarily
from seasonal increases in volume and higher profit sharing. Long-term debt
decreased $4.4 million from $77.1 million at December 31, 1999 to $72.6 million
at June 30, 2000 due to payments for reduction of debt and a favorable
cumulative translation on foreign debt, offset by borrowing to fund the purchase
of treasury stock. Additionally, the Accrued Earn-Out was paid during the first
quarter of 2000.
Total shareholders' equity increased $0.9 million due to the increase of net
income, offset somewhat by treasury stock purchases and changes in cumulative
translation adjustment.
Liquidity and Capital Resources
As of June 30, 2000, the Company had $31.8 million of working capital, an
increase of $2.0 million from working capital of $29.8 million as of December
31, 1999. Net cash provided from operating activities for the six months ended
June 30, 2000 was $9.4 million. Cash flows provided from operations were
primarily the result of increases in accounts payable, accruals and other
liabilities, net income and non-cash depreciation, offset by seasonal increases
in accounts receivable and inventories. Cash flows provided from operations in
1999 were $6.4 million, primarily provided by operating activities, offset
somewhat by working capital changes.
For the six months ended June 30, 2000, cash used in investing activities
was $1.5 million, which was used primarily for acquisition of property, plant
and equipment. For the six months ended June 30, 1999, cash used in investing
activities was $39.1 million, which was used primarily for the acquisition of
Roxell N.V. and acquisition of property, plant and equipment.
For the six months ended June 30, 2000, net cash used in financing
activities was $8.0 million. During this period there was a net $2.9 million
decrease in cash flows from revolver borrowing activity and $5.1 million use of
cash for treasury stock purchases. For the six months ended June 30, 1999, 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
$1.7 million of cash used for treasury stock purchases.
<PAGE>
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, hog and egg
producers purchasing equipment during prime construction periods in the spring,
summer and fall, and farmers and commercial storage installations traditionally
purchasing grain storage bins in the late spring and summer in order for them to
be constructed and ready for use in conjunction with the fall 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
when distributors and dealers increase purchases to meet the seasonal demand of
end users.
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,
2000 1999 1999 1999 2000
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Sales $ 74,294 $ 76,260 $ 84,088 $ 52,350 $ 57,752
Gross profit 20,113 20,438 22,502 13,211 16,132
Gross margin 27.1% 26.8% 26.8% 25.2% 27.9%
Operating income $ 8,761 $ 8,110 $ 10,533 $ 3,566 $ 4,835
Operating income margin 11.8% 10.6% 12.5% 6.8% 8.4%
Net income $ 4,406 $ 3,802 $ 4,883 $ 1,202 $ 2,248
Basic earnings per share $ 0.40 $ 0.32 $ 0.41 $ 0.10 $ 0.20
Basic weighted average common
shares outstanding 10,970 12,022 12,022 11,998 11,263
Diluted earnings per share $ 0.39 $ 0.31 $ 0.40 $ 0.10 $ 0.20
Diluted weighted average common
Shares outstanding 11,182 12,277 12,282 12,206 11,479
</TABLE>
Forward-Looking Statements
Certain statements contained herein including, without limitation, those
regarding (i) estimate of warranty costs and related repair period, (ii) ability
to support future working capital, capital expenditures and debt service
requirements, (iii) seasonality of the Company's business 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 regarding the Company's business and operations and the
agriculture industry, actual results may differ materially from those expressed
or implied by such forward-looking statements. Please refer to the Company's
Securities and Exchange Commission filings, including, but not limited to, the
Company's Form 10-K filing, where specific risk factors that could cause actual
results to differ materially from the forward-looking statements made in this
document are identified.
<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 at June 30, 2000 is $21.6 million in variable rate debt exclusive of
amounts covered by interest rate swap agreements. 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, 2000, the estimated
reduction in future earnings, net of tax, is expected to be approximately $0.2
million.
The Company utilizes foreign exchange contracts to minimize its exposure to
currency risk for the payment of its interest obligations on non-U.S. dollar
denominated debt. Foreign currency payments are received periodically from its
foreign subsidiaries to permit repayment of non-U.S. dollar denominated debt
owed by the parent company. Upon receipt, forward contracts may be purchased as
a hedge against exchange rate fluctuations that may occur between the receipt
date and the interest payment due date.
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 and other
intercompany transactions. The Company's exposure related to such transactions
is not material to cash flows. However, exposure to the Company's financial
position and results of operations related to such transactions is anticipated
to be an adverse impact of approximately $10,000, net of tax, for every 10%
devaluation of the Brazilian Real per U.S. dollar and approximately $30,000, net
of tax for every 10% appreciation of the Euro and its legacy currencies arising
from multiple intercompany transactions among the Company and its European
subsidiaries. These amounts are estimates only and are difficult to accurately
project due to factors such as the inherent fluctuation of intercompany account
balances and the existing economic uncertainty and unpredictable 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
between 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, by and
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 Shareholders 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.
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 and incorporated herein by
reference.
10.17 Representations and Warranties of Sellers, filed as Exhibit
99.3 to the Company's February 10, 1999 Form 8-K filing and
incorporated herein by reference.
10.18 Amendment No. 3 dated as of November 19, 1998 to Credit
Agreement dated as of August 15, 1997 and incorporated
herein by reference.
10.19 1999 CTB International Corp. Stock Incentive Plan and
incorporated herein by reference.
11. Computation of Earnings Per Share.
22. Plan of merger and reincorporation on Definitive 14C dated
November 12, 1999 incorporated herein by reference.
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, 2000.
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 15, 2000 By /s/ Don J. Steinhilber
----------------------------
Don J. Steinhilber
Vice President and Chief Financial Officer
