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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 For the Fiscal Year Ended December 31, 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)
INDIANA 35-1970751
(State or other jurisdiction (I.R.S. Employer
of 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
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, par
value $.01 per share
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. Yes [X] No [ ]
The aggregate market value of common stock held by non-affiliates of the
registrant as of February 29, 2000 was approximately $27,877,073
The number of shares outstanding of the registrant's common stock as of February
29, 2000 was 10,984,690
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement to be delivered to shareholders in
connection with the Annual Meeting of Shareholders to be held May 5, 2000 are
incorporated by reference into Part III.
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CTB INTERNATIONAL CORP.
FORM 10-K
For the Fiscal Year Ended December 31, 1999
INDEX
ITEM DESCRIPTION PAGE
PART I
1. Business..............................................................2
Forward-Looking Statements ...........................................2
a. General Development of Business .................................2
- Recent Developments ......................................3
b. Financial Information About Industry Segments ...................3
c. Narrative Description Of Business ...............................4
- Market Overview .............................................4
- Business Strategy ...........................................4
- Company Strengths ...........................................5
- Company Products ............................................6
- Product Distribution ........................................8
- Sources and Availability of Raw Materials ...................9
- Patents and Trademarks ......................................9
- Seasonality .................................................9
- Backlog .....................................................9
- Competition .................................................9
- Research and Development Activities ........................10
- Employees ..................................................10
d. Financial Information about Foreign and Domestic
Operations and Export Sales ....................................10
2. Properties ..........................................................10
3. Legal Proceedings ...................................................11
4. Submission of Matters to a Vote of Security Holders .................11
PART II
5. Market for Registrant's Common Equity and Related
Shareholder Matters .................................................11
6. Selected Financial Data .............................................12
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations .................................13
7A. Quantitative and Qualitative Disclosures About Market Risk ..........18
8. Financial Statements and Supplementary Data .........................19
- Notes to Consolidated Financial Statements ........................24
9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure ............................................38
PART III
10. Directors and Executive Officers of the Registrant ..................38
11. Executive Compensation ..............................................40
12. Security Ownership of Certain Beneficial Owners and Management ......40
13. Certain Relationships and Related Transactions ......................40
PART IV
14. Exhibits, Financial Statement Schedules and Reports on Form 8-K .....41
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PART I
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ITEM 1. BUSINESS
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Forward-Looking Statements
In addition to historical information, this report contains "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Such forward-looking statements include, but are not limited to,
discussion of sales growth, market outlook, market trends, expected results,
industry actions, market share gains, ability to leverage distribution
capabilities and brand names, rising demand for and production of meat protein,
eggs and grain, increased demand for the Company's equipment used in the
production of such products, improvement in operational efficiency, operating
margin improvement, resolution of certain claims and legal proceedings,
strategies for serving markets outside of the United States, efforts to lower
shipping costs and reduce import duties to make pricing more competitive, the
ability to grow through acquisitions, anticipated stock repurchases, the
adequacy and availability of liquidity and capital resources to meet the
Company's needs, seasonality of the Company's business, construction progress,
the successful and timely resolution of the enterprise resource planning system,
implementation issues and related costs and dates related to the Company's Euro
conversion. These forward-looking statements involve factors, risks and
uncertainties which may cause actual results to differ materially from those
expressed or implied. The factors that could cause actual results to differ
materially include, but are not limited to, the following: (1) risks associated
with the agricultural industry such as feed, grain and animal price fluctuation,
crop yields, demand, weather conditions, and outbreaks of disease; (2) risks
associated with acquisitions such as incurring significantly
higher-than-anticipated capital expenditures and operating expenses, failing to
assimilate the operations and personnel of acquired businesses, losing
customers, entering markets in which the Company has no or limited experience,
disrupting the Company's ongoing business, dissipating the Company's management
resources and the possibility the Company will not complete contemplated
acquisitions; (3) risks common to international operations including unexpected
changes in tariffs and other trade barriers, difficulties in staffing and
managing foreign operations, political and economic instability, and
fluctuations in currency exchange rates; and (4) other risks including, but not
limited to, those detailed in the Company's prospectus filed with its
registration statement with the Securities and Exchange Commission (SEC) on
August 20, 1997, as well as periodic reports filed with the SEC.
(a) General Development Of Business
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 animal agriculture
(poultry and hog), egg, and grain industries. The Company believes that it is
the largest global supplier of poultry and egg production systems and grain
storage bins and one of the largest global providers of hog production systems.
The Company's animal agriculture equipment consists of feeders, drinkers,
environmental systems (heating, cooling and ventilation), feeding and
environmental system controls, and poultry nests used primarily by growers that
raise poultry and hogs commercially. CTB's egg production systems consist of
feeders, drinkers, environmental systems, controls, cages, egg handling systems
and manure handling equipment used primarily by commercial producers of eggs.
The Company's grain systems include commercial and on-farm storage and holding
bins as well as conveying systems for feed and grain. These are used primarily
by farmers and by commercial businesses such as feed mills, grain elevators,
port storage facilities and commercial grain processing facilities.
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.
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CTB International Corp.'s initial predecessor, Chore-Time Equipment, Inc.
("Chore-Time Equipment"), was founded in 1952 by Howard S. Brembeck who also
established Brock Manufacturing, Inc. ("Brock") in 1957. In 1976, Chore-Time
Equipment and Brock came under common ownership and in 1985 were merged into a
single corporation, CTB, Inc. (the "Predecessor Company").
The Predecessor Company was acquired by affiliates of American Securities
Capital Partners L.P. ("ASCP") and certain members of its senior management on
January 4, 1996.
In August 1997, the Company completed the initial public offering of its common
stock.
Additionally, the Company made two acquisitions and a divestiture in 1997. In
May, it acquired all of the capital stock of Fancom Holding B.V., a
Netherlands-based manufacturer of agricultural climate control systems and
software applications. In June, the Company acquired substantially all of the
assets and certain specified ordinary course liabilities of the Kansas City
Grain Systems Division of Butler Manufacturing Company, ("Kansas City Grain
Systems Division") a Missouri-based manufacturer of grain storage bins. The
Company divested substantially all assets (other than accounts receivable) of
its vinyl products division to a subsidiary of Royal Group Technologies Limited
in May. In conjunction with the sale, the Company entered into a five-year joint
venture with the acquirer to produce certain extruded PVC agricultural equipment
component parts for the Company.
In 1998, the Company made two acquisitions. In July, it acquired Sibley
Industries, Inc., a Missouri-based manufacturer of animal brooders and heaters.
In September, it acquired STACO, Inc., a Pennsylvania-based manufacturer of hog
feeders and other related equipment. Also in 1998, the Company established a
Brazilian joint venture and subsequently recognized a $3.1 million charge for
impairment in value of the investment.
Recent Developments
On January 12, 1999, the Company acquired Roxell N.V. ("Roxell") of Maldegem,
Belgium. Roxell is a leading manufacturer of automated feeding and watering
systems as well as feed storage bins for the poultry and hog production markets.
On April 12, 1999, Chris Chocola, former president and chief executive officer,
became chairman of the board of the Company. Victor A. Mancinelli was named
president and chief executive officer.
On September 24, 1999, CTB announced a corporate restructuring program to
realign the Company's cost structure with the then current market conditions and
to position the Company for accelerated profit growth as conditions improve. The
initiative began the process of organizing the Company around a business unit
structure with focused factories and the adoption of lean manufacturing
techniques with goals of greater accountability and rapid customer response.
By agreement dated September 30, 1999, CTB and Rota Industria de Maquinas
Agricolas dissolved the Brazilian joint venture.
On December 21, 1999, CTB completed its reincorporation in Indiana from Delaware
for the purpose of realizing franchise tax savings.
(b) Financial Information about Industry Segments
The Company's internal financial reporting is organized primarily on the basis
of legal entities while the management of operations is based on a combination
of geographic locations and functional lines of manufacturing, sales and
marketing. The Company believes its operating segments have similar economic
characteristics and meet the aggregation criteria of SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information." Accordingly, the
Company is reporting only one operating segment.
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(c) Narrative Description of Business
MARKET OVERVIEW
The Company serves the global agricultural market. Demand for the Company's
products is driven primarily by the overall worldwide levels of poultry, hog,
egg and grain production as well as by the increasing global focus on improving
productivity in these industries.
The poultry, hog, egg and grain production industries themselves are driven by a
number of factors including worldwide consumption trends, economic and
population growth, and the impact of government policies on local production and
import/export levels. Other factors such as weather conditions can also have a
major influence on local and worldwide demand for the Company's products.
Demand for meat, eggs and grain tends to increase in developing countries as
consumers experience increasing levels of income. In various parts of the world,
history has shown that as their level of affluence has increased, consumers have
devoted a larger portion of their income to improved and higher protein diets.
Poultry meat and pork are frequently the beneficiaries of this trend as these
meats are more cost-effective sources of animal protein than beef. Consequently,
a primary driver expected to impact demand for the Company's products is
economic and population growth in developing areas of the world including parts
of Asia, Latin America, Central Europe and Eastern Europe.
Another factor expected to affect demand for the Company's products is the
increasing need for more efficient production of animal protein. This demand is
anticipated to be particularly concentrated in developing countries where much
production is still accomplished manually. In such areas, the use of automated
equipment will become increasingly important for more efficient use of resources
such as feed grains and the land on which they are grown.
Demand for grain and the required infrastructure for grain storage, conditioning
and handling is driven by several factors, including grain that is used as feed
to support meat and egg production. The Company believes production levels in
these markets are likely to have some impact on future levels of grain
production and the resultant need for storage facilities. Demand for new storage
facilities could also be impacted by the acceptability of genetically modified
grain and the need for identity preservation in storage.
The Company's grain business was strong in 1999 due primarily to low U.S. grain
commodity prices and high grain inventory levels. Demand for the Company's other
products was negatively impacted in 1999 by the continued effects of the Asian
economic crisis which began in 1997, ongoing weakness in the worldwide pork
industry, and a second-half downturn in the domestic egg production industry in
response to egg pricing pressure. While there was a decline in export demand for
U.S.-produced poultry meat during 1999, the Company's poultry business was
relatively unchanged for the year.
The Company expects the demand for grain storage to return to somewhat lower
levels in 2000 comparable to 1998's performance. It expects expansion in the
market for poultry meat comparable to 1999 levels while the industry attempts to
keep supplies in balance with demand. The Company believes that the egg
production and hog industries are taking appropriate actions to reduce the
oversupply of hens and hogs and that these markets will rebound in mid-to-late
2000 or in 2001. The Company further anticipates recovery in some Latin American
and Asian countries during 2000, and stronger sales in certain other regions.
The Company believes that the diversity of its end users in the agricultural
market, coupled with its international focus, will usually help to mitigate the
impact of any reduction in demand within any of the individual markets or
geographic regions it serves.
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BUSINESS STRATEGY
The Company's business strategy is to:
Maximize Growth in Core (Poultry, Hog, Egg Production and Grain) Markets through
Product Innovation and System Solutions - CTB is focused on leveraging the
strength of its existing market shares, its powerful, independent
distributor/dealer network, its significant brand name recognition, and its
heritage of developing innovative solutions to industry challenges. The Company
seeks to continue introducing innovative products and providing its customers
with the most complete, highest-value product offering available. Because feed
costs are the greatest portion (60 to 70%) of the costs for raising animals,
growers and integrators have an ongoing need for productivity-enhancing products
and integrated systems like CTB's which help convert feed into animal protein
efficiently.
Leverage Distribution Network through Expanded Agricultural Product Offerings -
CTB is able to use its strong core market shares and its global distribution
channels to boost its shares for additional equipment going to the same
facilities as core products such as feeding systems. There are substantial
opportunities for sales growth of these complementary products, which, together
with CTB's core products, create integrated product packages and, in some cases,
complete integrated systems. Offering high-value packages and systems leverages
the Company's strong distribution and leading market positions and helps to grow
market shares in additional product lines.
Enhance Product Offerings and System Solutions through Strategic Approaches to
the Market - CTB sees additional growth opportunities through accretive product
line extensions, acquisitions, marketing agreements and other business
arrangements. Many of CTB's markets include niche manufacturers who lack the
ability to offer the highest value package of goods. These present opportunities
for growing CTB's package offering as well as for possible acquisitions or
alliances. CTB's acquisitions and current business partnerships have helped the
Company to broaden the scope of both its package of products and its global
distribution network. They have also helped CTB's customers to achieve greater
efficiency through single-source supply of needed systems. CTB continues to
strategically evaluate the companies in its markets in order to develop select
relationships that will strengthen its global market position and its ability to
better serve its customers.
Drive Operational Excellence in All Aspects of the Business - CTB is dedicated
to its long-standing goal of "Excellence in All Things" and has undertaken both
short-term and longer-term actions to improve its operational efficiency. It has
restructured its operations into business units which each focus on serving a
particular customer group. The Company also reduced employment levels during
1999 to better align human resources with market conditions and its new
operational structure. Further, CTB has initiated what it terms its "Rapid
Customer Response" program. The program, which is a custom blend of internal
initiatives with principles from lean manufacturing and the Toyota production
system, has goals of increasing productivity, speed and accountability on a
long-term basis.
Pursue Selective Global Opportunities - CTB recognizes that much of the growth
in demand for its products will continue to be in the developing nations of the
world. History has demonstrated that consumers in such areas, as they gain more
income, devote larger portions of their incomes to improved and higher protein
diets. Additionally, poultry- and hog-raising processes are substantially less
automated in many growing countries today than they are in areas such as the
United States, Canada and Western Europe. Increases in automation will help
these countries gain production efficiency to help meet the increasing demand
for protein they will face. CTB's pursuit of strategically beneficial business
relationships extends to the international marketplace as well where the
Company intends to pursue those opportunities with the greatest chance of
enhancing shareholder value. The Company already has products in use in more
than 100 countries, and its strong global distribution network has been
strengthened through its acquisitions. It is well-positioned to serve the world
market.
COMPANY STRENGTHS
CTB is well-known in the markets it serves through its leading brand names:
CHORE-TIME(R), BROCK(R), FANCOM(R), ROXELL(R), SIBLEY(R) and STACO(R). These
names are synonymous with quality, durability and performance. The Company's
staff includes many of the world's most experienced designers of equipment for
the production of meat and eggs and for grain storage and handling. These
designers work to develop innovative systems which solve industry problems as
well as to improve upon existing equipment and industry methodology. The
Company's design expertise, use of corrosion-resistant materials, ease of system
use and installation, and a variety of patented features further differentiate
its products from similar competitive units.
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CTB's products are also distinguished by generous warranties and
industry-leading backing through well-trained technical service professionals in
both its corporate and distributor organizations. Its distribution network is
known to be among the strongest in the industries the Company serves. Its
various distribution channels provide local contact points for the Company's
customers and a high degree of responsiveness to customer needs.
CTB is a diverse company with multiple locations. Its acquisitions have provided
it with significant purchasing power and the ability to source materials and
implement manufacturing processes and improvements globally. In addition, the
diversity of CTB's end users in the agricultural market, together with its
international focus, will usually help to mitigate the impact of any reduction
in demand within any of the individual markets or geographic regions it serves.
CTB is one of just two or three industry suppliers able to provide
fully-integrated systems and the increased operating efficiencies such systems
provide. These integrated systems furnish many management options to producers
such as the capability for systems either to respond to animal demand or to be
programmed to meet certain production standards. They also provide the producer
with the ease of single-source supply and support. The Company's acquisitions
and business partnerships give it many options in how it approaches its markets
and a variety of distinctive product package combinations to offer.
COMPANY PRODUCTS
CTB designs, manufactures and markets systems used in the grain industry and in
the production of poultry meat, pork and eggs. It serves the animal agriculture
(poultry and hogs), egg and grain industries.
The Company's animal agriculture equipment consists of feeders, drinkers,
environmental systems (heating, cooling and ventilation), feeding and
environmental system controls and poultry nests. CTB's egg production systems
consist of feeders, drinkers, environmental systems, controls, cages, egg
handling systems and manure handling equipment. The Company's grain systems
include commercial and on-farm storage and holding bins as well as conveying
systems for feed and grain.
The Company manufactures and sells its animal agriculture equipment under the
CHORE-TIME(R), FANCOM(R), ROXELL(R), SIBLEY(R) and STACO(R) brand names and its
complete line of galvanized steel grain storage bins and handling and
conditioning systems under the BROCK(R) brand name.
Animal Agriculture
The Company's products for animal agriculture consist of complete systems which
deliver feed and water, and provide a comfortable in-house climate for poultry
and hogs, thereby creating the optimum growing environment for efficient
production.
The feeding process starts with feed storage bins which hold several days'
rations of feed and are located outside the animal or poultry buildings or
houses. Feed is transported via an enclosed auger system which conveys the feed
from the feed storage bin to an internal feed distribution network inside the
house. The internal feeding system, in turn, delivers the feed to feeders
conveniently located near the birds or hogs. The feeding process is a "closed"
system which protects the feed from exposure to weather and other detrimental
influences from the time it is delivered to the feed storage bin until it
appears in front of the animals for consumption. Feeders are adjustable so that
the optimum amount of feed can be provided based on the age and size of the
poultry or hogs.
The poultry or hog building may also be equipped with the Company's enclosed
water delivery systems, environmental systems for complete control of the
internal house climate, computer-based feeding and climate control devices, and
other items needed to achieve top production levels. The Company also offers
mechanical nest systems through an exclusive marketing arrangement. Nests are
used in poultry breeder operations for the purpose of efficiently gathering and
handling fertile eggs.
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The Company believes that feed accounts for 60 to 70 percent of the total cost
of raising poultry and hogs. The profitability of growers of broiler chickens
and turkeys (both raised for meat) is largely dependent on the efficiency with
which they convert feed to meat ("feed-to-meat ratio"). The profitability of
growers of breeder chickens (raised to produce fertile hatching eggs) is
dependent in great part upon the total amount of feed required to maximize egg
production.
The Company's integrated production systems for broilers and turkeys are
designed to maximize the feed-to-meat ratio by making feed and water attractive
and easily accessible, by limiting feed waste, and by keeping birds comfortable.
The ability of each bird to obtain water easily and immediately is an essential
factor in facilitating weight gain. Proper ventilation systems are crucial for
maximizing feed-to-meat ratios by reducing stress caused by extreme temperature
fluctuation. Proper ventilation also allows for higher density production and
creates an environment conducive to optimum bird health. Birds that are too hot,
too cold, or that have too much airflow over them do not convert feed to meat as
efficiently.
Similarly, CTB's integrated systems for breeder chickens are designed to
maximize fertile egg production by delivering appropriate diets at scheduled
times, by reducing competition for feed among breeders, by separately feeding
hens and roosters (thereby reducing stress and enhancing the productivity of
both) and by providing ample water and a comfortable environment.
The profitability of hog producers also depends largely on the feed-to-meat
ratio as well as on the number of pounds of lean pork produced. For sow
operations (hogs produced for breeding purposes), profitability is determined by
the size and number of litters per sow per year.
The Company's integrated systems for hogs are designed to maximize the
feed-to-meat ratio of hogs by delivering appropriate diets at scheduled times.
This prevents hogs from eating continuously, thus reducing feed waste and
improving feed conversion and utilization. The Company's feeding systems for
sows are designed to maximize the production of piglets by lowering animal
stress, limiting feed waste and minimizing farm labor costs. The Company also
manufactures watering attachments for some models of hog feeders which minimize
feed and water waste by keeping hogs at the feeders while drinking. Adequate
water and a comfortable environment provide similar improvements in the
efficiency of feed-to-meat conversion for hogs as they do for poultry.
The Company believes its products for animal agriculture are further
distinguished by a number of unique, patented features designed for optimum
productivity and easy management. These products for animal agriculture are
provided to the end users through members of the Company's independent
distributor/dealer networks who sell, install and service the equipment.
Egg Production Systems
The Company's products for egg production consist of complete systems which
deliver feed and water and provide a comfortable in-house climate for poultry.
These systems create the optimum growing environment for egg producing birds,
both when they are young as well as after they begin laying eggs.
The egg production process begins with feed storage bins holding several days'
ration of feed and located outside the poultry buildings or houses. Feed is
transported via an enclosed auger system which conveys the feed from the feed
storage bin to an internal feed distribution network inside the house. The
internal feeding system, in turn, delivers the feed to feeders which are
conveniently located in front of the multi-tiered galvanized wire mesh cages
housing the birds. The feeding process is a "closed" system which protects the
feed from exposure to weather and other detrimental influences from the time it
is delivered to the feed storage bin until it appears in front of the birds for
consumption.
The cage system housing the birds may also be equipped with the Company's
enclosed water delivery systems while the production building may be equipped
with environmental systems for complete control of the internal house climate;
computer-based feeding, climate control and egg-counting devices; waste removal
systems and other items needed to achieve top production levels.
The profitability of egg producers is determined in large part by feed use
efficiency as well as by the number and size of eggs produced by each bird, the
shell quality of the eggs and the length of each bird's laying cycle. Egg
production is optimized by product features such as periodic customized feeding,
easy access to water and adequate ventilation which distinguish the Company's
egg production systems.
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In addition, egg producer profitability also depends on the gentle handling of
eggs to minimize breakage. The Company's patented egg collection and handling
system is distinguished by its design which handles eggs more gently, resulting
in fewer cracked or broken eggs. In addition, because the Company manufactures
all the necessary equipment for an egg production house, it can offer
fully-integrated egg production systems which can be monitored and operated
locally or remotely using the Company's automated controls.
The Company believes its products for egg production are further distinguished
by a number of unique, patented features designed for optimum productivity and
easy management. These products for egg production are provided to end users
directly, or through members of the Company's independent dealer network
depending on which organization is in the best position to provide installation
and service.
Grain Storage and Handling Systems
The Company manufactures a wide variety of models of grain storage bins for
on-farm and commercial grain storage in diameters ranging from 12 to 105 feet
(3.7 to 32 meters) with capacities up to 680,000 bushels (22,700 cubic meters).
The Company also manufactures and markets a line of industrial bulk storage bins
and conveying equipment and markets various related accessory items. In addition
to the products marketed under the BROCK(R) brand name, the Company produces
grain storage bins on a private-label basis.
The Company's grain storage bins are distinguished by the availability of a wide
variety of bin models designed to meet diverse farm and commercial storage needs
and configurations. In addition, the Company has developed a reputation in the
marketplace as the grain industry leader in producing storage bins known for
superior roof strength, ease of installation, special engineering for
durability, reliable operation and superior cosmetic appearance.
The Company also manufactures an enclosed roller belt conveyor system. Belt
conveyors convey grain over long distances gently and efficiently and have
relatively low installation, maintenance and operation costs. The Company, as
part of its Grain Systems package of products, also sells grain-conditioning
equipment used to maintain the quality and enhance the marketability of stored
grain.
Grain producers are subject to many input costs over which they have little
control. The aspects of their profitability which they can control include the
ability to condition grain appropriately for long-term storage, the ability to
maintain the grain at a high level of quality throughout the time it is stored
and the flexibility to determine their own time to market.
Through conditioning and protecting the grain and by facilitating the ability to
time the sale of grain to achieve a more advantageous price, the Company's grain
storage systems help grain producers maximize their income when they sell their
grain.
The Company believes its grain storage and handling products are further
distinguished by a number of unique, patented features designed to make storage
and handling more manageable and trouble-free. These products for grain storage
and handling are sometimes provided to commercial users directly, but most often
through members of the Company's independent dealer network.
PRODUCT DISTRIBUTION
The Company sells its agricultural products primarily through a global network
of independent distributors/dealers who offer targeted geographic coverage in
key poultry, hog, egg and grain-producing markets throughout the world. The
Company's distributors or dealers, and in some cases their sub-agents, sell
products to poultry, egg, hog and grain producers as well as to agricultural
companies and other end users.
These independent distributors and dealers install and service the Company's
products. Many also offer additional technical support and service to the end
user as well as maintaining warehouse facilities for systems and spare parts.
Some of the Company's distributors sell products directly to end users and
others sell products through their own dealer networks.
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The Company provides training to its distributors and dealers, qualifying
distributors and dealers to install and service the Company's products and
systems. The Company believes that its distribution network is the strongest in
the industry, providing its customers with a high level of top quality-service.
The Company has maintained long-standing relationships with much of its
distribution network.
SOURCES AND AVAILABILITY OF RAW MATERIALS
The Company manufactures its products primarily from galvanized steel, steel
wire, stainless steel and polymer materials, including polyvinylchloride (PVC),
polypropylene and polyethylene. In addition, it purchases certain components
including electric motors and PVC pipe for incorporation in some of its
products. It also purchases grain-conditioning systems that it sells together
with its grain storage bins and grain handling systems outside of the U.S.
The Company is not dependent on any one of its suppliers and has not experienced
difficulty in obtaining any parts or materials. The Company purchases galvanized
steel from a variety of integrated mills and galvanizing processors. In
addition, the components or substitute components, materials and parts purchased
by the Company are readily available from alternative suppliers.
PATENTS AND TRADEMARKS
The Company has numerous patents covering innovations in poultry and livestock
feeding and other agricultural equipment and has applied for additional patents.
The Company aggressively seeks patent protection for its technological
developments. The Company also has numerous trademarks and has submitted
applications for additional trademarks. While the Company believes its patents
and trademarks have significant value, the Company does not believe that its
competitive position is dependent on patent protection or that its operations
are dependent on any individual patent or group of related patents. No
significant patents will expire prior to September 30, 2002.
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.
BACKLOG
Backlog is not a significant factor in the Company's business taken as a whole,
because most of the Company's products are delivered within a few weeks of being
ordered. The Company's backlog on or about January 31, 2000 was $32.0 million
and $39.3 million at March 24, 1999.
COMPETITION
The market for the Company's products is competitive. Domestically and
internationally, the Company competes with a variety of manufacturers and
suppliers, many of which offer only a limited number of the products offered by
the Company and two of which offer products across most of the Company's product
lines.
Competition is based on the price, value, reputation, quality and design of the
products offered and the customer service provided by distributors, dealers and
manufacturers of the products. The Company believes that its leading brand
names, strong distribution network, diversified product line, product support
and high-quality products enable it to compete effectively.
<PAGE>
The Company further believes that its ability to offer poultry, egg and hog
producers integrated systems, which lower total production costs and help
producers achieve further productivity gains and profitability, provide it with
an additional competitive advantage. The Company has expanded its package
offering for grain producers through both acquisition and business alliances. It
believes that the existing package is competitive and is easily supplemented
with additional complementary systems when desired.
The Company also believes that integrated equipment systems offer significant
benefits to distributors/dealers, including lower administrative and shipping
costs and the ease of dealing with a single supplier for all of their customers'
needs. In addition, the Company believes its distributors and dealers provide
producers with high-quality service, installation and repair.
RESEARCH AND DEVELOPMENT ACTIVITIES
The Company has research and product development and design engineering located
in Milford, Indiana; Panningen, the Netherlands; Maldegem, Belgium; and to a
lesser extent, certain of its other locations. Expenditures by the Company for
product research and development amounted to approximately $5.6 million, $5.8
million and $4.4 million for the years ended December 31, 1999, 1998, and 1997,
respectively.
EMPLOYEES
As of December 31, 1999, the Company had approximately 1,300 employees. The
Kansas City Grain Systems Division's approximate 80 hourly employees are
currently subject to a collective bargaining agreement, which expires February
11, 2004. Management believes that its relationships with the Company's
employees are good.
(d) Financial Information about Foreign and Domestic Operations and Export Sales
United States and foreign operations, which currently include subsidiaries in
Belgium, Brazil and the Netherlands, are presented in Note 17 to the
Consolidated Financial Statements included in Item 8.
ITEM 2. PROPERTIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
The following table sets forth information regarding the principal properties of the Company as of December 31, 1999:
Location Facility Description Square Feet Owned/Leased
- --------------------------- ------------------------------ ----------- -------------
<S> <C> <C> <C>
Milford, Indiana Plant, corporate headquarters 611,000 Owned
and miscellaneous areas
Kansas City, Missouri Plant and office 396,000 Owned
Maldegem, Belgium Plant and office 161,400 Owned
Decatur, Alabama Plant and office 120,000 Owned
Panningen, The Netherlands Plant and office 88,000 Owned
Anderson, Missouri Plant and office 66,000 Owned
Schaefferstown, Pennsylvania Plant and office 29,000 Leased
Wierden, The Netherlands Plant and office 25,800 Leased
Springdale, Arkansas Plant and office 15,000 Leased
Vitre, France Warehouse and office 15,000 Owned
Londrina, Brazil Plant and office 14,000 Leased
Deurne, The Netherlands Warehouse and office 8,300 Leased
</TABLE>
Management believes that its facilities and equipment are generally well
maintained and are in good operating condition and that its capacity for the
manufacture of its products is adequate to satisfy anticipated demands for the
foreseeable future.
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
- --------------------------------------------------------------------------------
There are various claims and pending legal proceedings against the Company
involving matters arising out of the ordinary conduct of business. While the
Company is unable to predict with certainty the outcome of current proceedings,
based upon the facts currently known to it, the Company does not believe that
resolution of any such proceeding will have a material adverse effect on its
financial statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- --------------------------------------------------------------------------------
The reincorporation of the Company in Indiana from Delaware was submitted to and
approved by written consent of a majority of shareholders as provided by
Delaware law.
================================================================================
PART II
- --------------------------------------------------------------------------------
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
SHAREHOLDER MATTERS
- --------------------------------------------------------------------------------
CTB International Corp. common stock began trading on the Nasdaq Stock Market(R)
under the symbol "CTBC" on August 21, 1997. As of February 8, 2000, there were
approximately 130 shareholders of record.
The following table sets forth the quarterly high and low sales prices for the
Company's common stock as reported by the Nasdaq Stock Market(R).
<TABLE>
<CAPTION>
1998 High Low
------------------ ----------------- ----------------
<S> <C> <C>
First $17 1/4 $12 3/4
------------------ ----------------- ----------------
Second $17 3/16 $13 9/16
------------------ ----------------- ----------------
Third $14 $6
------------------ ----------------- ----------------
Fourth $9 $5 7/8
------------------ ----------------- ----------------
</TABLE>
<TABLE>
<CAPTION>
1999 High Low
------------------ ----------------- ----------------
<S> <C> <C>
First $8 1/4 $6 1/8
------------------ ----------------- ----------------
Second $8 7/8 $6 7/16
------------------ ----------------- ----------------
Third $9 5/16 $6 5/8
------------------ ----------------- ----------------
Fourth $7 1/4 $5 13/16
------------------ ----------------- ----------------
</TABLE>
The Company has not paid any dividends on its common stock over the past two
years. The Company does not anticipate paying any dividends in the foreseeable
future, and intends to retain all earnings, if any, for general corporate
purposes. The declaration and payment of dividends, if any, by the Company will
be dependent upon the Company's results of operations, financial condition, cash
requirements and other relevant factors, subject to the discretion of the Board
of Directors. The Company's credit agreement contains certain restrictions on
CTB's ability to pay dividends or make other distributions. (See Note 9 of the
Consolidated Financial Statements under Item 8.)
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Company Predecessor Company
(in thousand, except per share amounts) Year Ended December 31, Year Ended December 31,
--------------------------------------------- ----------------------------------------------------
1999 1998 1997 1996 1995 1994 1993 1992
- -------------------------- --------------------------------------------- ----------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data:
Net sales $272,603 $272,180 $202,063 $148,853 $138,119 $140,505 $113,538 $105,509
Cost of sales 202,534 211,496 148,345 110,303 105,578 103,491 84,110 77,725
Gross profit 70,069 60,684 53,718 38,550 32,541 37,014 29,428 27,784
Selling, general and
administrative expenses 42,331 35,315 26,420 18,257 20,606 20,069 19,310 18,345
Amortization of goodwill 2,513 1,837 1,373 959 -- -- -- --
Operating income 25,225 23,532 25,925 19,334 11,935 16,945 10,118 9,439
Interest (expense) income,
net (6,205) (4,153) (5,003) (5,332) 721 489 313 268
Foreign exchange loss (1,858) (330) (86) -- -- -- -- --
Gain on sale of Vinyl
Division -- -- 3,562 -- -- -- -- --
Joint venture loss (126) (3,673) -- -- -- -- -- --
Other non-recurring
expenses -- -- -- -- (1,396)(1) -- -- --
Income before income taxes 17,036 15,376 24,398 14,002 11,260 17,434 10,431 9,707
Income taxes 6,820 6,180 10,499 5,500 4,730 6,665 3,961 3,303
- ---------------------------------------------------------------------------- ---------------------------------------------------
Net income $10,216 $9,196 $13,899 $ 8,502 $ 6,530 $10,769 $6,681(2) $ 6,404
- ---------------------------------------------------------------------------- ---------------------------------------------------
Basic earnings per share $0.85 $0.73 $1.49 $1.17 (3) (3) (3) (3)
Basic weighted average
shares 12,037 12,655 9,310 7,256 (3) (3) (3) (3)
Diluted earnings per share $0.83 $0.71 $1.43 $1.12 (3) (3) (3) (3)
Diluted weighted average
shares 12,273 12,999 9,716 7,569 (3) (3) (3) (3)
Other Financial Data:
EBITDA (4) $33,235 $30,718(5) $32,085(5) $24,902 $15,562(5) $20,062 $12,866 $12,262
Depreciation 7,481 5,739 4,873 4,609 3,627 3,117 2,748 2,823
Capital expenditures 6,759 7,004 4,437 3,402 4,698 5,335 2,867 1,980
Gross profit margin 25.7% 22.3% 26.6% 25.9% 23.6% 26.3% 25.9% 26.3%
EBITDA margin 12.2% 11.3% 15.9% 16.7% 11.3% 14.3% 11.3% 11.6%
Cash Flow Data:
Net cash flows from:
Operating activities $37,106 $2,805 $17,498 $11,714 $11,263 $12,730 $5,496 $9,884
Investing activities (40,397) (11,565) (42,104) (106,606) (4,646) (5,278) (2,773) (1,958)
Financing activities 6,731 8,284 25,670 95,150 (3,354) (4,757) (4,445) (5,497)
- ---------------------------------------------------------------------------- ---------------------------------------------------
At December 31, At December 31,
1999 1998 1997 1996 1995 1994 1993 1992
- ---------------------------------------------------------------------------- ---------------------------------------------------
Balance Sheet Data:
Working capital $29,770 $ 40,910 $ 26,318 $10,773 $22,150 $18,891 $15,072 $14,294
Total assets 207,562 195,126 167,641 103,351 58,045 54,355 44,651 41,386
Debt 77,855 71,365 49,164 65,150 -- -- 40 344
Total shareholders' equity 80,754 76,825 73,546 13,741 40,841 37,202 30,902 29,059
- ------------------------------------------------------------------------------------------------------------------------------------
(1) Non-recurring costs related to the CTB acquisition.
(2) Includes increase in net income of $211 for cumulative effect of change in accounting method for adopting SFAS No. 109,
"Accounting for Income Taxes."
(3) Due to changes in the Company's capital structure resulting from the CTB acquisition, historical net income per share
or dividends per share is not meaningful and therefore is not presented.
(4) EBITDA represents earnings before interest, income taxes, depreciation and amortization of goodwill.
(5) EBITDA for the years ending December 31, 1998, 1997 and 1995 excludes a non-recurring charge for write-down and losses
on a joint venture investment of $3,613; the gain on sale of the Vinyl Division of $3,562 and non-recurring costs
related to the CTB acquisition of $1,396, respectively.
</TABLE>
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
- --------------------------------------------------------------------------------
OVERVIEW
Overall, 1999 was again a challenging year. Poor conditions continued in several
of the markets the Company serves. Low hog prices and resulting loss in producer
profitability adversely affected demand for the Company's products to a greater
extent than in 1998 when the market downturn began, while slowness in Asia, due
to economic conditions that developed in late 1997, continued to suppress the
Company's export sales to Asia and also contributed to slowness in other
international markets in 1999. Conversely, sales of products to the domestic
grain market were especially strong in 1999 in large part due to a strong
harvest and low grain prices. In the egg production market, demand for the
Company's products was strong in the first half of 1999, but high egg supplies
forced low egg prices to develop in the second quarter which served to slow
Company sales late in the year.
The Company expects the demand for grain storage to return to somewhat lower
levels in 2000 comparable to 1998's performance. It expects expansion in the
market for poultry meat comparable to 1999 levels while the industry attempts to
keep supplies in balance with demand. The Company believes that the egg
production and hog industries are taking appropriate actions to reduce the
oversupply of hens and hogs and that these markets will rebound in mid-to-late
2000 or in 2001. The Company further anticipates recovery in some Latin American
and Asian countries during 2000, and stronger sales in certain other regions.
In response to the market conditions we have restructured the Company to provide
greater focus and accountability throughout the organization. We have reduced
employment levels by over 200 to better align the cost structure with current
conditions.
Other notable accomplishments in 1999 include:
o The acquisition of Roxell N.V. in January 1999 to enhance the Company's
global position in poultry and hog feeding equipment.
o Improved working capital management resulting in a reduction of accounts
receivable and inventory allowing the Company to significantly reduce debt.
o Reduction of exposure to foreign exchange rate fluctuations in the
Brazilian currency, which created a significant negative earnings impact in
1999, by restructuring of intercompany debt late in the year.
RESULTS OF OPERATIONS
The following table shows the percentage relationship to net sales of items
derived from the Consolidated Statements of Income and the percentage change
from year to year.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Percentage
Increase (Decrease)
Percentage of Net Sales -------------------------
----------------------- 1999 1998
1999 1998 1997 vs. 1998 vs. 1997
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% --% 35%
Cost of sales 74.3 77.7 73.4 (4) 43
Gross profit 25.7 22.3 26.6 15 13
Selling, general and 15.5 13.0 13.1 20 34
administrative expenses
Amortization of goodwill 0.9 0.7 0.7 37 34
Operating income 9.3 8.6 12.8 7 (9)
Interest expense, net (2.3) (1.5) (2.5) 49 (17)
Gain on sale of Vinyl Division -- -- 1.8 -- (100)
Joint venture loss -- (1.3) -- (97) 100
Other (0.8) (0.1) -- 463 284
Income before income taxes 6.2 5.7 12.1 11 (37)
Income taxes 2.5 2.4 5.2 10 (41)
Net income 3.7 3.3 6.9 11 (34)
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
1999 Compared to 1998
Net sales increased 0.2% to $272.6 million in 1999 compared to $272.2 million in
1998. The nominal sales growth resulted from a combination of factors. Increased
sales in 1999 were primarily from the acquisitions of Roxell N.V. in January
1999 and Sibley Industries, Inc. and STACO, Inc. in the second half of 1998 and
from strength in the grain production market. These factors were offset
primarily by $25.9 million in lower revenues from poultry buildings as well as
by weakness in the hog business worldwide and softness in various international
markets. Sales of the Company's products to markets outside the U.S. and Canada
were $85.9 million in 1999, an increase of $17.2 million or 25.0%.
Gross profit increased 15.5% to $70.1 million in 1999 or 25.7% of net sales
compared to $60.7 million in 1998 or 22.3% 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
to recovery of manufacturing efficiencies as the issues related to the 1998
implementation of an integrated enterprise resource planning system have been
substantially resolved, as well as to 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 1999 restructuring charge of $0.6 million and a 1999 purchase
accounting charge of $0.4 million.
Selling, general and administrative expenses increased 19.9% or $7.0 million to
$42.3 million in 1999 from $35.3 million in 1998. As a percent of net sales,
selling, general and administrative expenses were 15.5% in 1999 and 13.0% in
1998. The dollar increase is primarily attributable to the acquisitions of
Roxell N.V., Sibley Industries, Inc. and STACO, Inc., and a restructuring charge
of $0.5 million offset somewhat by savings from restructuring actions taken in
1999 and reduction in costs of resources assigned to address issues related to
the implementation of an integrated enterprise 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 $2.5 million in 1999 or 36.8% from $1.8
million in 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 7.2% or $1.7 million to $25.2 million in 1999
compared to $23.5 million in 1998. Operating income margins increased to 9.3% of
net sales in 1999 from 8.6% of net sales in 1998. The increase in operating
income was a result of additional gross profit that was offset somewhat 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 a percent of sales, as discussed above.
Interest expense increased to $6.2 million in 1999 or 49.4% from $4.2 million 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., and purchases of treasury stock.
Other expense includes foreign exchange and joint venture losses. Foreign
exchange loss increased by $1.5 million to $1.8 million from $0.3 million in
1998 primarily from the impact of 1999 non-cash foreign exchange losses 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. Joint venture
losses decreased $3.5 million to $0.1 million in 1999 from $3.7 million in 1998.
The decrease in joint venture losses is primarily a result of the 1998 write-off
of the impaired investment in the Rota Brock joint venture.
Net income increased 11.1% or $1.0 million to $10.2 million ($0.83 per weighted
average diluted share) in 1999 from $9.2 million ($0.71 per weighted average
diluted share) in 1998. The increase was attributable to improved operating
income and lower joint venture losses, offset by increased interest expense and
foreign exchange losses as discussed above, net of related income tax effects.
<PAGE>
Diluted weighted average common and common equivalent shares outstanding during
1999 were 12.3 million shares compared to 13.0 million shares in 1998, a
decrease of 5.6%. The diluted shares outstanding at December 31, 1999 were 11.9
million shares, a decrease of 0.6 million shares or 4.8% compared to 12.5
million diluted shares outstanding at December 31, 1998. The decrease in shares
outstanding is attributable to the repurchase of 0.6 million shares of common
stock during 1999.
1998 Compared to 1997
Net sales increased 34.7% to $272.2 million in 1998 compared to $202.1 million
in 1997. The increase reflects the Fancom acquisition, the Kansas City Grain
Systems Division acquisition, the Sibley Industries, Inc. acquisition and the
STACO, Inc. acquisition that were completed in May 1997, June 1997, July 1998,
and September 1998, respectively. The increase also reflects a strong domestic
market for egg production equipment and success in the Company's bundled package
of products strategy which has led to domestic market share gains in the poultry
sector. Further gains can be attributed to Mexican poultry market strength and
revenues of $31.7 million from poultry buildings. The continued weakness in
overseas economies, particularly in Asia and Brazil, along with global weakness
in the hog market, all contributed negatively to the revenue line during 1998.
Sales of the Company's products to markets outside the U.S. and Canada were
$68.7 million in 1998, an increase of $3.0 million or 4.5%.
Gross profit increased 13.0% to $60.7 million in 1998 or 22.3% of net sales
compared to $53.7 million in 1997 or 26.6% of net sales. Gross profit dollars
increased due to higher sales levels in 1998. The gross profit margin decrease
of 4.3 percentage points was partly attributable to lower margins relating to
the sales of poultry buildings at essentially no margin under projects expected
to last into the second quarter of 1999, sales declines in higher-margin hog
sector products, sales increases in lower-margin products, and the continued
weakness in overseas economies, particularly in Asia, which has reduced the
Company's exports of higher-margin products to customers in the region and to
customers that supply the region. Manufacturing inefficiencies associated with
the implementation of an integrated enterprise resource planning system
negatively affected dollars and margins.
Selling, general and administrative expenses increased 33.7% or $8.9 million to
$35.3 million in 1998 from $26.4 million in 1997. As a percent of net sales,
selling, general and administrative expenses were 13.0% in 1998 and 13.1% in
1997. The dollar increase is primarily attributable to the increased size of the
Company resulting from the Kansas City Grain Systems Division acquisition, the
Fancom acquisition, the Sibley Industries, Inc. acquisition and the STACO, Inc.
acquisition; targeted investments in certain key areas within the Company; and
the effect of our implementation of an integrated enterprise resource planning
system partially offset by lower bonuses and profit sharing expense due to
lower-than-expected performance.
Amortization of goodwill increased to $1.8 million in 1998 or 33.8% from $1.4
million in 1997. The increase is attributable to the amortization of goodwill
purchased in the Fancom acquisition, the Kansas City Grain Systems Division
acquisition, the Sibley Industries, Inc. acquisition and the STACO, Inc.
acquisition, offset by the goodwill sold in the Vinyl Division divestiture.
Operating income decreased 9.2% or $2.4 million to $23.5 million in 1998
compared to $25.9 million in 1997. Operating income margins decreased to 8.6% of
net sales in 1998 from 12.8% of net sales in 1997. The decrease in operating
income was attributable to higher selling, general and administrative expenses
offset somewhat by higher gross profit dollars.
Net interest expense decreased to $4.2 million in 1998 or 17.0% from $5.0
million in 1997. The decrease is due to the full impact in 1998 of the decrease
in debt from the net proceeds of the Company's initial public offering
("Offering") offset somewhat by $8.5 million of purchases of treasury stock,
$6.9 million of debt related to the Sibley, Inc. and STACO, Inc. acquisitions
and $3.6 million invested in the Rota Brock joint venture, among other factors.
Other expense in 1998 includes a $0.5 million expense for joint venture losses
and a $3.1 million write-off of an impaired joint venture investment. Other
income in 1997 included a pre-tax gain of $3.6 million for the sale of the Vinyl
Division and a $0.1 million foreign exchange loss.
<PAGE>
Net income decreased 33.8% or $4.7 million to $9.2 million in 1998 from $13.9
million in 1997. The decrease was due to lower operating income and joint
venture related charges in 1998 and the $1.1 million after-tax gain on sale
related to the divestiture of the Company's Vinyl Division in 1997 offset
somewhat by lower interest expense and a lower effective tax rate, primarily a
result of non-deductible goodwill in 1997 related to the Vinyl Division
divestiture.
Diluted weighted average common and common equivalent shares outstanding during
1998 were 13.0 million shares compared to 9.7 million shares in 1997, an
increase of 33.8%. The diluted shares outstanding at December 31, 1998 were 12.5
million shares, a decrease of 0.8 million shares or 6.3% compared to 13.3
million diluted shares outstanding at December 31, 1997. The decrease in diluted
shares outstanding at year end is primarily attributable to the repurchase of
1.0 million shares of common stock during 1998 offset somewhat by the issuance
of 0.1 million shares in partial payment of the Sibley Industries, Inc. and
STACO, Inc. acquisitions.
The above factors caused diluted earnings per share to decrease 50.3% to $0.71
from $1.43 in 1997.
Financial Position
Changes in the financial position of the Company from 1998 to 1999 were due
primarily to a business acquisition and operational changes.
Total assets increased from $195.1 million at December 31, 1998 to $207.6
million at December 31, 1999 due in large part to the acquisition of Roxell N.V.
offset by a reduction in working capital. Accounts receivable decreased by $8.6
million from December 31, 1998 to December 31, 1999. The increase of $6.1
million of receivables purchased in the Roxell N.V. acquisition was more than
offset by improved collection activity and lower sales volume. At December 31,
1999, poultry building construction costs in excess of billings were down by
$5.1 million from the prior year end. Inventories at December 31, 1999 increased
negligibly from December 31, 1998. The slight change was primarily due to an
increase of $4.1 million from the Roxell N.V. acquisition almost completely
offset by a managed reduction in inventory levels. Prepaid expenses and other
assets increased $1.3 million primarily due to income tax overpayments and
refund claims. Net property, plant and equipment increased $4.5 million from
December 31, 1998 to December 31, 1999. The net increase was due primarily to
the Roxell N.V. acquisition and to recent capital expenditures, net of
depreciation. Intangibles increased by $19.4 million from December 31, 1998 to
December 31, 1999 due primarily to the addition of goodwill resulting from the
purchase price allocation of the Roxell N.V. acquisition.
Total liabilities increased $8.5 million from $118.3 million at December 31,
1998 to $126.8 at December 31, 1999. Accounts payable and accrued liabilities
increased $5.4 million during this period, primarily from the acquisition of
Roxell N.V. and a restructuring accrual. Deferred revenue decreased $1.0 million
to $2.6 million at December 31, 1999. The total Accrued Earn-out decreased $5.5
million from $7.3 million at December 31, 1998 to $1.8 million at December 31,
1999 as scheduled payments were made in 1999. Total debt increased $6.5 million
from $71.4 million at December 31, 1998 to $77.9 million at December 31, 1999
primarily due to borrowings incurred to finance the Roxell N.V. acquisition and
treasury stock purchases offset by payments made from available cash flow.
Total shareholders' equity increased $3.9 million due to net income for the
period offset by treasury stock purchases and changes in cumulative translation
adjustment.
Liquidity and Capital Resources
As of December 31, 1999, the Company had $29.8 million of working capital, a
decrease of $11.1 million from working capital of $40.9 million as of December
31, 1998. Net cash provided from operating activities in 1999 was $37.1 million.
Cash flow from operations was provided by net income and working capital
changes. Net cash provided by operating activities in 1998 was $2.8 million,
driven primarily by income and working capital changes.
<PAGE>
In 1999, cash used in investing activities was $40.4 million, which was used
primarily for purchase of assets and the acquisition of Roxell N.V. In 1998,
cash used in investing activities was $11.6 million, which was used for
acquisitions of assets, an investment in a joint venture, the acquisitions of
Sibley Industries, Inc. and STACO, Inc. offset somewhat by the sale of assets.
In 1999, net cash provided from financing activities was $6.7 million. During
1999, there was a net $10.7 million increase in cash flows from revolver
activity offset by a $4.0 million use of cash for treasury stock purchases. Cash
provided by financing activities in 1998 was $8.3 million resulting from $16.6
million in net cash from revolver activity offset by $8.5 million use of cash
for treasury stock purchases.
During 1999 the Company's Board of Directors increased the share repurchase
authorization by 1,000,000 shares to a total of 2,500,000 shares. As of December
31, 1999, the Company has repurchased 1,565,368 shares for approximately $12.4
million, an increase of 574,750 shares in 1999 at a cost of approximately $4.0
million. The Company anticipates additional share repurchases in 2000 under the
current authorization. During 1999, stock option holders exercised options to
purchase 11,256 shares for $9,342.
The Company believes that existing cash, cash flows from operations and
available borrowings will be sufficient to support its working capital, capital
expenditures, debt service requirements and stock repurchases 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.
Impact of Inflation
The Company attempts to minimize the impact of inflation through cost reductions
and by improving productivity. In addition, the Company principally uses the
last-in, first-out (LIFO) method of accounting for inventories (whereby the cost
of products sold approximates current costs), which substantially includes the
impact of inflation in cost of sales. The Company does not believe that
inflation has had a material effect on its results of operations for the periods
presented.
Year 2000 Compliance
The Company is not aware of any significant disruption in its business as a
result of the Year 2000 issue. The Company incurred approximately $300,000 of
cost in implementing its Year 2000 readiness plan.
Euro Conversion
The Company has European-based operations that will be required to transact
business in the Euro currency no later than January 1, 2002. This will require
implementation of changes to systems to accommodate Euro transactions. The
Company is currently assessing the anticipated impact of Euro conversion on its
operations. A preliminary assessment indicates that the cost of implementation
will not be significant and will be accomplished prior to the required date.
<PAGE>
New Accounting Pronouncements
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, as amended, is effective for
the Company's fiscal year beginning January 1, 2001. The Company is evaluating
SFAS 133 to determine its impact on the consolidated financial statements.
ITEM 7A. 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 December 31, 1999, is $19.4 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 December 31, 1999, the
estimated reduction in 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 are 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 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
$40,000, net of tax, for every 10% devaluation of the Brazilian Real per U.S.
dollar and approximately $40,000 net of tax, for every 10% depreciation of the
Euro and its fixed legacy currencies arising from multiple intercompany loans
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>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors of CTB International Corp.:
We have audited the accompanying consolidated balance sheets of CTB
International Corp. and its subsidiaries (the "Company") as of December 31, 1999
and 1998, and the related consolidated statements of income, shareholders'
equity, and cash flows for each of the three years in the period ended December
31, 1999. Our audits also included the financial statements schedules listed in
the Index at Item 14. These financial statements and financial statement
schedules are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and financial statement
schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company and its subsidiaries at December
31, 1999 and 1998, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 1999 in conformity with
generally accepted accounting principles. Also, in our opinion, such financial
statement schedules, when considered in relation to the basic consolidated
financial statements taken as a whole, present fairly in all material respects
the information set forth therein.
DELOITTE & TOUCHE LLP
Chicago, Illinois
February 22, 2000
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31, 1999, 1998 and 1997
(in thousands, except per share amounts) 1999 1998 1997
- ---------------------------------------------------- ---------------- ----------------- ------------------
<S> <C> <C> <C>
NET SALES $ 272,603 $ 272,180 $202,063
COST OF SALES 202,534 211,496 148,345
- ---------------------------------------------------- ---------------- ----------------- ------------------
Gross profit 70,069 60,684 53,718
OTHER OPERATING EXPENSE:
Selling, general and administrative expenses 42,331 35,315 26,420
Amortization of goodwill 2,513 1,837 1,373
- ---------------------------------------------------- ---------------- ----------------- ------------------
OPERATING INCOME 25,225 23,532 25,925
OTHER INCOME (EXPENSE):
Interest expense, net (6,205) (4,153) (5,003)
Joint venture loss (126) (3,673) --
Foreign exchange loss (1,858) (330) (86)
Gain on sale of Vinyl Division -- -- 3,562
- ---------------------------------------------------- ---------------- ----------------- ------------------
INCOME BEFORE INCOME TAXES 17,036 15,376 24,398
INCOME TAXES 6,820 6,180 10,499
- ---------------------------------------------------- ---------------- ----------------- ------------------
NET INCOME $10,216 $9,196 $13,899
- ---------------------------------------------------- ---------------- ----------------- ------------------
EARNINGS PER SHARE:
Basic: Earnings per share $0.85 $0.73 $1.49
Weighted average shares 12,037 12,655 9,310
- ---------------------------------------------------- ---------------- ----------------- ------------------
Diluted: Earnings per share $0.83 $0.71 $1.43
Weighted average shares 12,273 12,999 9,716
- ----------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
DECEMBER 31, 1999 and 1998
(in thousands, except share and per share amounts) 1999 1998
- ------------------------------------------------------------------------------------ ---------------- ----------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 2,439 $ 608
Accounts receivable, less allowance for
doubtful accounts of $1,086 and $1,122 respectively 29,787 38,368
Construction costs in excess of billings on
uncompleted contracts -- 5,120
Inventories 29,695 29,657
Deferred income taxes 900 1,743
Prepaid expenses and other current assets 2,811 1,509
- ------------------------------------------------------------------------------------ ---------------- ----------------
Total current assets 65,632 77,005
PROPERTY, PLANT AND EQUIPMENT - Net 55,515 50,974
INTANGIBLES - Net 86,157 66,715
OTHER ASSETS 258 432
- ------------------------------------------------------------------------------------ ---------------- ----------------
TOTAL ASSETS $207,562 $195,126
- ------------------------------------------------------------------------------------ ---------------- ----------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 13,564 $ 10,711
Current portion of long-term debt 795 1,646
Current portion of accrued Earn-Out 1,809 5,554
Accrued liabilities 17,076 14,542
Deferred revenue 2,618 3,642
- ------------------------------------------------------------------------------------ ---------------- ----------------
Total current liabilities 35,862 36,095
LONG-TERM DEBT 77,060 69,719
DEFERRED INCOME TAXES 9,449 7,889
ACCRUED POSTRETIREMENT BENEFIT COST AND OTHER 4,437 2,740
ACCRUED EARN-OUT -- 1,760
COMMITMENTS AND CONTINGENCIES (See Note 10)
MINORITY INTEREST -- 98
SHAREHOLDERS' EQUITY:
Common stock, $0.01 par value;
40,000,000 shares authorized; 12,924,990 shares issued 129 129
Preferred stock - 6.0% cumulative, $0.01 par value;
4,000,000 shares authorized; 0 shares issued and outstanding
Additional paid-in capital 76,818 76,897
Treasury stock, at cost; 1999 - 1,257,113 shares;
1998 - 688,619 shares (9,251) (5,390)
Reduction for carryover of predecessor cost basis (26,964) (26,964)
Accumulated other comprehensive income (loss):
Foreign currency translation adjustment (1,791) 556
Retained earnings 41,813 31,597
- ------------------------------------------------------------------------------------ ---------------- ----------------
Total shareholders' equity 80,754 76,825
- ------------------------------------------------------------------------------------ ---------------- ----------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $207,562 $ 195,126
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997, 1998 and 1999 (In thousands except share amounts)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Reduction for Accumulated
Additional Carryover of Other
Comprehensive Common Preferred Paid-In Treasury Predecessor Comprehensive Retained
Income Stock Stock Capital Stock Cost Basis Income Earnings Total
- ------------------------- --------- --------- -------- --------- --------- ----------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1997 $73 $-- $29,927 $-- ($24,704) ($57) $8,502 $13,741
ISSUANCE OF COMMON STOCK 231 231
ISSUANCE OF PREFERRED
STOCK 69 69
EFFECTS OF THE INITIAL
PUBLIC OFFERING:
Redemption of 15,000
shares of
preferred stock (15,000) (15,000)
Exchange of
preferred stock for
common stock 6 (6) --
Issuance of common
stock - net of
expenses 50 63,219 63,269
REDUCTION FOR CARRYOVER
OF PREDECESSOR COST
BASIS (2,167) (2,167)
COMPREHENSIVE INCOME:
NET INCOME $13,899 13,899 13,899
FOREIGN CURRENCY
TRANSLATION
ADJUSTMENT (496) (496) (496)
---------
COMPREHENSIVE INCOME $13,403
=========
BALANCE, DECEMBER 31,
1997 $129 $-- $78,440 $-- ($26,871) ($553) $22,401 $73,546
--------- --------- -------- --------- --------- ----------- ---------- ----------
TREASURY STOCK:
Purchased ($8,484) (8,484)
Stock Options
Exercised (1,275) 1,415 140
Acquisitions (268) 1,679 1,411
REDUCTION FOR CARRYOVER
OF PREDECESSOR COST
BASIS (93) (93)
COMPREHENSIVE INCOME:
NET INCOME $9,196 9,196 9,196
FOREIGN CURRENCY
TRANSLATION
ADJUSTMENT 1,109 1,109 1,109
---------
COMPREHENSIVE INCOME $10,305
=========
BALANCE, DECEMBER 31,
1998 $129 $-- $76,897 ($5,390) ($26,964) $556 $31,597 $76,825
--------- --------- -------- --------- --------- ----------- ---------- ----------
TREASURY STOCK:
Purchased ($3,950) ($3,950)
Stock Options (79) 89 10
Exercised
COMPREHENSIVE INCOME:
NET INCOME $10,216 10,216 10,216
FOREIGN CURRENCY
TRANSLATION
ADJUSTMENT (2,347) (2,347) (2,347)
---------
COMPREHENSIVE INCOME $7,869
=========
BALANCE, DECEMBER 31,
1999 $129 $-- $76,818 ($9,251) ($26,964) ($1,791) $41,813 $80,754
========= ========= ======== ========= ========= =========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
(in thousands) 1999 1998 1997
- -------------------------------------------------------------------- ------------- -------------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $10,216 $ 9,196 $ 13,899
Adjustments to reconcile net income to net cash flows
from operating activities:
Depreciation 7,481 5,739 4,873
Amortization 2,961 2,443 1,706
Foreign exchange loss 1,858 330 86
Equity in loss from joint venture 126 3,673 --
Gain (loss) on sale of assets 10 (232) (46)
Gain on sale of Vinyl Division -- -- (3,562)
Deferred income taxes 763 (1,794) (441)
Changes in operating assets and liabilities
(net of effects from acquisitions):
Accounts receivable 11,732 (13,199) (4,345)
Construction costs in excess of billings 5,120 (5,120) --
Inventories 2,635 (1,318) 3,108
Prepaid expenses and other assets 305 1,741 (1,636)
Accounts payable, accruals and other liabilities (6,101) 1,346 3,856
- -------------------------------------------------------------------- ------------- -------------- -------------
Net cash flows from operating activities 37,106 2,805 17,498
- -------------------------------------------------------------------- ------------- -------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property, plant and equipment (6,759) (7,004) (4,437)
Acquisitions, net of cash acquired (33,884) (1,452) (45,913)
Investment in joint venture -- (3,613) --
Proceeds from sale of Vinyl Division -- -- 8,158
Proceeds from sale of assets 246 504 88
- -------------------------------------------------------------------- ------------- -------------- -------------
Net cash flows from investing activities (40,397) (11,565) (42,104)
- -------------------------------------------------------------------- ------------- -------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of treasury stock (3,950) (8,484) --
Issuance of common stock and exercise of stock options 10 140 63,532
Issuance of preferred stock -- -- 69
Redemption of preferred stock -- -- (15,000)
Proceeds from long-term debt 388,108 90,878 130,348
Payments on long-term debt (377,437) (74,250) (153,279)
- -------------------------------------------------------------------- ------------- -------------- -------------
Net cash flows from financing activities 6,731 8,284 25,670
- -------------------------------------------------------------------- ------------- -------------- -------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS 3,440 (476) 1,064
NET EFFECT OF TRANSLATION ADJUSTMENT (1,609) (77) (161)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 608 1,161 258
- -------------------------------------------------------------------- ------------- -------------- -------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 2,439 $ 608 $ 1,161
- -------------------------------------------------------------------- ------------- -------------- -------------
</TABLE>
Supplemental Disclosures of Cash Flow information Non-cash investing and
financing activities:
In 1999, 1998 and 1997, the Company recorded liabilities pursuant to
acquisition agreements of $49,000, $564,000 and $6,750,000, respectively.
The Company also issued common stock with a fair value of $1,411,000 and a
note payable of $1,012,000 in 1998 in connection with certain acquisitions.
- --------------------------------------------------------------------------------
See notes to consolidated financial statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Nature of Business - The Company is a designer, manufacturer and marketer of
agricultural equipment for the poultry, hog and egg production markets and for
the 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(R), STACO(R) and ROXELL(R) names.
Principles of Consolidation - The consolidated financial statements include the
accounts of CTB International Corp. and its wholly-owned and majority-owned
subsidiaries. All intercompany accounts and transactions have been eliminated.
Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash Equivalents - The Company considers all highly liquid investments purchased
with a maturity of three months or less to be cash equivalents.
Inventories - Inventories are stated at the lower of cost or market using the
last-in, first-out (LIFO) method for domestic entities and the lower of cost or
market using the first-in, first-out (FIFO) and weighted average method for
foreign entities.
Property, Plant and Equipment - Property, plant and equipment is stated at cost.
Depreciation is provided using accelerated and straight-line methods over the
estimated useful lives of individual assets. The estimated useful lives range
from 10 to 40 years, or the life of the lease if shorter, for buildings and
improvements, and from three to 10 years for machinery and equipment.
Goodwill - Goodwill represents costs in excess of the fair value of net assets
acquired and is amortized using the straight-line method over 40 years, except
for Fancom Holding B.V. and its consolidated subsidiaries which is amortized
over 25 years. The Company periodically assesses the recoverability of goodwill
based on its expectations of future profitability and undiscounted cash flow of
the related operations. These factors, along with management's plans with
respect to the operations, are considered in assessing the recoverability of
goodwill. If the Company determines, based on such measures, that the carrying
amount is impaired, the goodwill will be written down to its recoverable value
with a corresponding charge to earnings. During the periods presented no such
impairment was incurred.
Deferred Finance Costs - Costs associated with the issuance of debt are being
amortized over the life of the related debt. Amortization costs are included in
interest expense.
Income Taxes - The Company provides for income taxes under the asset and
liability method of accounting for deferred income taxes. Deferred tax assets
and liabilities are recorded based on the expected tax effects of future taxable
income or deductions resulting from differences in the financial statement and
tax bases of assets and liabilities. An allowance is provided whenever
management believes it is more likely than not that tax benefits will not be
utilized.
Revenue Recognition of Deferred Revenue and Product Warranties - Sales of
products and services are recorded based upon shipment of product and
performance of services. Egg production system projects, which generally do not
exceed one year, require predetermined payment intervals and, in some instances,
customer prepayments. Such revenue is deferred and recognized at the date that
the product is shipped or the service is performed.
<PAGE>
The Company recognizes revenue on construction contracts using the
percentage-of-completion accounting method determined in each case by the ratio
of cost incurred to date on the contract to management's estimate of the
contract's total cost. Contract cost includes all direct material, subcontract
and labor costs and those indirect costs related to contract performance.
Provisions for estimated losses on incomplete contracts are recorded in the
period in which such losses are determined. Changes in estimated revenues and
costs are recognized in the periods in which such estimates are revised.
Depending on the product, the Company provides its customers with a one-to-five
year warranty, from the date of purchase, or longer for certain components.
Estimated warranty costs are accrued at the time of sale and have not differed
materially from actual product warranty costs. Warranty expense for the years
ended December 31, 1999, 1998, and 1997 was approximately $1,627,000; $1,635,000
and $1,583,000, respectively.
Concentration of Credit Risk - Financial instruments which potentially subject
the Company to concentration of credit risk consist principally of trade
receivables. The Company's customers are not concentrated in any specific
geographic region, but are concentrated in the agriculture industry. No single
customer accounted for a significant amount of the Company's sales in 1999, 1998
or 1997, and there were no significant accounts receivable from a single
customer at December 31, 1999, 1998 or 1997. The Company reviews a customer's
credit history before extending credit. The Company establishes an allowance for
doubtful accounts based upon factors surrounding the credit risk of specific
customers, historical trends and other information. To reduce credit risk, the
Company generally receives down payments on large orders. In order to minimize
the risk of loss on export sales, the Company insures certain foreign trade
receivables.
Research and Development - Research and development expenditures are charged to
operations as incurred. Total research and development expenses for 1999, 1998
and 1997 were approximately $5,579,000; $5,785,000 and $4,377,000, respectively.
Foreign Currency Translation - The Company has determined the local currency to
be the functional currency of all foreign subsidiaries. Assets and liabilities
of non-U.S. subsidiaries are translated at current exchange rates, and related
revenues and expenses are translated at average exchange rates in effect during
the period. Resulting translation adjustments are recorded without tax effects
as a component of shareholders' equity. Transaction gains and losses on
intercompany receivables and payables that are due currently are recorded in
earnings.
Forward Exchange Contracts - The Company enters into foreign currency forward
exchange contracts on a limited basis. Contracts entered into are for
significant outstanding interest payment obligations and limited purchases of
foreign inventory components in currencies other than U.S. dollars for which
timing of the payment can be reasonably ascertained. The purpose of the
Company's hedging activities is to both protect the Company from the risk that
the periodic foreign currency flows (dividends) from foreign subsidiaries will
not match future foreign currency interest payments and to limit the effect of
foreign currency fluctuations on purchases of foreign components for eventual
sale in the U.S. Options contracts that are designated as hedges are marked to
market with realized and unrealized gains and losses deferred and recognized in
earnings and as an adjustment to the assets and liabilities being hedged. The
Company's foreign exchange contracts do not subject the Company's results of
operations to risk due to exchange rate movements because gains and losses on
the contracts generally offset gains and losses on the assets and liabilities
being hedged.
Approximately $2.0 million in contracts were entered into during 1999. No
contracts were entered into during the years ended December 31, 1998 and 1997.
All contracts outstanding at December 31, 1999 had a remaining term of four
months or less. The notional and fair value of contracts at December 31, 1999
were $801,000 and $762,000, respectively.
<PAGE>
Interest Rate Swap Agreements - The Company enters into interest rate swaps in
managing its interest rate risk and holds such instruments for purposes other
than trading. In these swaps, the Company agrees with other parties to exchange,
at specific intervals, the difference between fixed and floating interest
amounts calculated on an agreed-upon notional principal amount. Because some of
the Company's interest-bearing liabilities are floating rate obligations,
interest rate swaps in which the Company pays the fixed rate and receives the
floating rate are used to reduce the impact of market interest rate fluctuation
on the Company's net income. The differential to be paid or received on interest
rate swap agreements entered into to reduce the impact of changes in interest
rates is recognized as an adjustment to interest expense related to the hedged
liability over the life of the agreement. In the event of early extinguishment
of a designated debt obligation, any realized or unrealized gain or loss from
the swap would be recognized in income, coincident with the extinguishment.
Impairment of Long-Lived Assets - Management reviews long-lived assets and the
related intangible assets for impairment of value whenever events or changes in
circumstances indicate the carrying amount of such assets may not be
recoverable. If the Company determines it is unable to recover the carrying
value of the assets, the assets will be written down using an appropriate
method. Management does not believe current events or circumstances provide
evidence that suggest asset values have been impaired during the periods
presented, except for the impairment charge recorded in 1998 related to a joint
venture investment. (See Note 2)
Earnings Per Common Share - Earnings per common share ("EPS") are computed by
dividing net income by the weighted average number of shares of common stock
(basic) plus common stock equivalents (diluted) outstanding during the year.
Common stock equivalents consist of stock options and have been included in the
calculation of weighted average shares outstanding using the treasury stock
method.
The basic weighted average common shares outstanding reconciles to diluted
weighted average common shares outstanding as follows:
<TABLE>
<CAPTION>
(in thousands)
- ------------------------------------------------------------------------------------
1999 1998 1997
- ----------------------------------------- ------------- -------------- -------------
<S> <C> <C> <C>
Basic weighted average shares 12,037 12,655 9,310
Dilutive effect of stock options 236 344 406
Diluted weighted average shares 12,273 12,999 9,716
- ------------------------------------------------------------------------------------
</TABLE>
New Accounting Pronouncements - 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 balance sheet and measure
those instruments at fair value. This statement, as amended, is effective for
the Company's fiscal year beginning January 1, 2001. The Company is evaluating
SFAS 133 to determine its impact on the consolidated financial statements.
Reclassifications - Certain reclassifications have been made to conform prior
years' financial statements with the current year presentation.
2. Business Combinations
In 1997, the Company acquired Fancom Holding B.V. and Kansas City Grain Systems
Division. The purchase prices of $12.6 million and $33.3 million respectively,
net of cash acquired and including expenses, were financed through borrowings.
Both transactions were accounted for under the purchase method of accounting.
The following summarizes the unaudited pro forma consolidated operating results
for the year ended December 31, 1997 reflecting the allocation of the purchase
price and related financing of the acquisitions of Fancom and Kansas City Grain
Systems Division, assuming the acquisitions had occurred at January 1, 1997. Net
sales for 1997 would have been approximately $230.8 million. Operating income
would have been approximately $29.6 million. Net income would have been
approximately $15.1 million. Pro forma basic earnings per share would have been
approximately $1.62. Pro forma diluted earnings per share would have been
approximately $1.55.
<PAGE>
In 1998, the Company formed Rota Brock Ltda. Rota Brock Ltda. was a 50/50 joint
venture between the Company's wholly-owned subsidiary, CTB, Inc. and Rota
Industria de Maquinas Agricolas, Brazil. The Company contributed $3.6 million to
the joint venture in 1998. In early 1999, the parties agreed to terminate and
liquidate the joint venture due to business and general economic conditions in
Brazil. The Company recognized $0.5 million as its share of operating losses in
1998 and wrote off its remaining investment of $3.1 million in the joint venture
in the fourth quarter of 1998 as a result of the impairment in value of the
investment. The Company incurred an additional $0.4 million in costs related to
the termination of the joint venture during 1999 which are recorded in selling,
general and administrative expenses.
In 1998, the Company acquired Sibley Industries, Inc. and STACO, Inc. The
purchase price of Sibley Industries, Inc. of $1.8 million, net of cash acquired
and including expenses, was financed through the issuance of 81,696 shares of
the Company's treasury stock and cash installments of $0.3 million per year for
four years beginning March 31, 1999. The purchase agreement included 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. During 1998, $274,000 of
the contingent purchase price was earned and was paid on March 31, 1999. During
1999, $49,000 of the contingent purchase price was earned and is payable March
31, 2000. The purchase price of STACO, Inc. of $2.0 million, net of cash
acquired and including expenses, was financed through borrowings and the
issuance of 45,671 shares of the Company's treasury stock. Both transactions
were accounted for under the purchase method of accounting. The purchase prices
were allocated as follows:
(in thousands)
- -------------------------------------------------------------------------
Current assets $4,309
Property, plant and equipment 3,145
Intangibles and other assets 2,909
Long-term debt assumed (4,561)
Liabilities assumed (1,927)
- -------------------------------------------------------------------------
Total purchase price $3,875
- -------------------------------------------------------------------------
Note due sellers (1,012)
Value of stock issued (1,411)
- -------------------------------------------------------------------------
Cash paid for acquisitions $1,452
- -------------------------------------------------------------------------
Unaudited pro forma net sales for 1998 and 1997 would have been approximately
$280.8 million and $215.2 million assuming the acquisitions of Sibley
Industries, Inc. and STACO, Inc. had occurred on January 1, 1997. Unaudited pro
forma net income and basic and diluted pro forma earnings per share would not
have been materially different from amounts reported.
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 hog 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>
Unaudited pro forma net sales for 1998 would have been approximately $312.2
million assuming the acquisition of Roxell had occurred on January 1, 1998.
Unaudited pro forma net income would have been approximately $9.5 million and
basic and diluted pro forma earnings per share would have been approximately
$0.75 and $0.73 per share. The acquisition was accounted for as if Roxell was
purchased as of January 1, 1999. The 1999 Consolidated Statement of Income would
not have been materially different if the acquisition had been accounted for as
of the January 12, 1999 date of purchase.
3. Business Disposition
In 1997, the Company sold substantially all assets (other than accounts
receivable) relating to its PVC deck, dock and fence business for approximately
$8.2 million to a subsidiary of Royal Group Technologies Limited. The sale
resulted in an approximate $3.6 million pre-tax gain with a related tax expense
of approximately $2.5 million.
4. Contracts In Process
Contracts for domestic poultry buildings in process consist of the following:
<TABLE>
<CAPTION>
(in thousands) 1999 1998
- ------------------------------------------------------------- ----------------- ----------------
<S> <C> <C>
Costs incurred on uncompleted contracts $ 306 $ 31,536
Estimated profit (loss) -- (455)
- ------------------------------------------------------------- ----------------- ----------------
306 31,081
Less billings to date 470 25,961
- ------------------------------------------------------------- ----------------- ----------------
Costs in excess of billings on uncompleted contracts $ -- $ 5,120
- ------------------------------------------------------------- ----------------- ----------------
Billings in excess of costs on uncompleted contracts $ (164) $ --
- ------------------------------------------------------------- ----------------- ----------------
</TABLE>
The above costs relate to the portion of the contracts for sale of poultry
buildings and exclude amounts related to the sale of the Company's equipment.
Revenue recognized on the building portion of the contracts was $5.8 million and
$31.7 million in 1999 and 1998. Billings in excess of costs on uncompleted
contracts are reported in other accrued liabilities.
5. Inventories
Inventories consist of the following:
(in thousands) 1999 1998
- -------------------------------------- ------------------ -------------------
Raw material $ 7,937 $ 7,941
Work in process 2,025 2,829
Finished goods 19,733 18,987
- -------------------------------------- ------------------ -------------------
29,695 29,757
LIFO valuation allowance - (100)
- -------------------------------------- ------------------ -------------------
Total $ 29,695 $ 29,657
- -------------------------------------- ------------------ -------------------
Approximately 79.0% and 83.0% of the Company's inventories are stated on the
LIFO basis at December 31, 1999 and 1998, respectively.
<PAGE>
6. Property, Plant And Equipment
Property, plant and equipment consist of the following:
(in thousands) 1999 1998
- --------------------------------------- ------------------ -------------------
Land and improvements $ 3,674 $ 2,725
Buildings and improvements 22,958 20,869
Machinery and equipment 48,217 39,022
Construction in progress 1,596 2,829
- --------------------------------------- ------------------ -------------------
76,445 65,445
Less accumulated depreciation (20,930) (14,471)
- --------------------------------------- ------------------ -------------------
Total $ 55,515 $ 50,974
- --------------------------------------- ------------------ -------------------
7. Intangibles
Intangibles consist of the following:
(in thousands) 1999 1998
- --------------------------------------- ------------------- -----------------
Goodwill $ 91,607 $ 69,997
Accumulated amortization (6,490) (4,197)
- --------------------------------------- ------------------- -----------------
Goodwill - net 85,117 65,800
- --------------------------------------- ------------------- -----------------
Deferred finance costs and other 2,821 2,105
Accumulated amortization (1,781) (1,190)
- --------------------------------------- ------------------- -----------------
Deferred finance costs and other - net 1,040 915
- --------------------------------------- ------------------- -----------------
Total $ 86,157 $ 66,715
- --------------------------------------- ------------------- -----------------
8. Accrued Liabilities
Accrued liabilities consist of the following:
(in thousands) 1999 1998
- --------------------------------------- ------------------ -------------------
Salaries, wages and benefits $ 6,269 $ 5,300
Warranty 2,380 1,986
Income taxes 858 1,019
Other 7,569 6,237
- --------------------------------------- ------------------ -------------------
Total $ 17,076 $ 14,542
- --------------------------------------- ------------------ -------------------
9. Long-Term Debt
Long-term debt consists of the following:
(in thousands) 1999 1998
- --------------------------------------- ------------------- -----------------
Revolving line of credit
U.S. dollar $ 43,375 $ 65,695
Foreign currency (German
Mark) 29,245 -
Term loans payable to bank
and other 5,235 5,670
- --------------------------------------- ------------------- -----------------
Total debt 77,855 71,365
Less current portion 795 1,646
- --------------------------------------- ------------------- -----------------
Total $ 77,060 $ 69,719
- --------------------------------------- ------------------- -----------------
<PAGE>
In 1997, the Company entered into a revolving credit facility totaling
$90,000,000 which includes a $5,000,000 swingline facility and a $10,000,000
sublimit for trade and standby letters of credit ("Credit Agreement"). The
Credit Agreement replaced a previous credit agreement.
In conjunction with the 1999 closing of the Roxell acquisition, the Company
entered into an amendment to its existing credit facility. The facility as
amended provides the Company $135,000,000 in borrowing capability. There is no
mandatory principal amortization prior to maturity in 2004; however, the Company
remains subject to certain financial and business covenants customary for credit
facilities of this type. The credit facility allows for borrowings in certain
foreign currencies up to the U.S. dollar equivalent of $50,000,000. Borrowings
in U.S. dollars or other currencies under the amended agreement bear interest at
rates ranging from 0.55% to 1.225% over the applicable currency rate (LIBOR,
EURIBOR, etc.) depending upon certain financial ratios. At December 31, 1999,
the rates on the revolving line of credit ranged from 3.76% to 7.09%. At
December 31, 1999, the Company had approximately $44,929,000 of availability
under the Credit Agreement.
Under the Credit Agreement, CTB, Inc., a wholly-owned subsidiary of the Company,
is required to maintain a minimum net worth, which increases quarterly by an
amount equal to 50.0% of the quarterly earnings of CTB, Inc. This covenant
limits the dividends CTB, Inc. can pay to the Company and, therefore, the
dividends the Company can pay to its shareholders. The Company was in compliance
with all debt covenants at December 31, 1999.
Term loans bear interest at rates ranging from 3.27% to 6.70% and certain
amounts are collateralized by named assets of Fancom and Sibley.
Interest paid was approximately $5,735,000; $3,387,000 and $4,936,000 in 1999,
1998, and 1997, respectively.
In conjunction with the debt agreements, the Company maintains various interest
rate swap agreements which effectively convert the equivalent of $53,200,000 of
the revolver debt at December 31, 1999 into approximately 5.27% fixed rate debt
on a weighted average basis. The swaps have variable maturity dates, the latest
expiring January 12, 2004.
The weighted average interest on total debt outstanding at December 31, 1999 and
1998, after considering the effect of interest rate swaps was 5.64% and 5.91%,
respectively.
The carrying value of debt approximates fair value because the floating interest
rates reflect market rates. The fair value of interest rate swaps was
$1,912,000; ($191,000) and $208,000 at December 31, 1999, 1998 and 1997,
respectively.
Foreign currency debt has been incurred to finance a foreign acquisition and
provides a natural hedge of debt service with the commensurate cash flows of the
acquired entity. The use of foreign currency debt to finance a foreign
acquisition may result in certain foreign exchange fluctuations that are
accounted for as foreign currency translation adjustment in shareholders'
equity.
The aggregate maturities of long-term debt at December 31, 1999 are as follows:
(in thousands)
- -------------------------------------------------------------------
Term Loans Revolver Total
2000 $ 795 $ -- $ 795
2001 697 -- 697
2002 694 -- 694
2003 469 -- 469
2004 329 72,620 72,949
Thereafter 2,251 -- 2,251
- ----------------- ---------------- --------------- ----------------
Total $ 5,235 $ 72,620 $ 77,855
- -------------------------------------------------------------------
<PAGE>
10. Commitments And Contingencies
There are various claims and pending legal proceedings against the Company
involving matters arising out of the ordinary conduct of business. While the
Company is unable to predict with certainty the outcome of current proceedings,
based upon the facts currently known to it, the Company does not believe that
resolution of any such proceeding will have a material adverse effect on its
financial statements.
The Company has a Management Incentive Compensation Plan whereby certain
employees receive annual bonuses based upon achievement of certain financial
goals, including diluted earnings per share targets.
The Company has contracts that commit it to purchase fixed quantities of certain
raw materials and semi-finished products. The contracts, which are generally of
one year or less in duration, require the Company to purchase approximately $3.9
million at December 31, 1999.
The Company leases certain property and equipment including some plant
facilities, property, warehouses, vehicles and manufacturing equipment, under
operating leases which expire over the next 30 years. Some of these operating
leases provide the Company with the option to purchase the property or renew the
lease, generally at current market rates. Management expects that leases will be
renewed or replaced by other leases in the normal course of business.
Minimum payments for operating leases having non-cancelable terms in excess of
one year are as follows:
(in thousands)
--------------------------------------------------------
2000 $ 735
2001 563
2002 457
2003 335
2004 262
Thereafter 814
--------------------------------------------------------
Total minimum lease payments $3,166
--------------------------------------------------------
Rent expense under operating leases amounted to $643,000; $261,000 and $194,000
in 1999, 1998 and 1997, respectively.
11. Profit Sharing
The Company has three qualified defined contribution profit-sharing retirement
plans that cover substantially all employees who are not participants in certain
defined benefit plans. The plans provide that Company contributions be made in
amounts as determined by the Company's Board of Directors. Contributions are
allocated to participants on the basis of proportionate compensation at the
close of each fiscal year. Benefits to participants are limited to funds in
their individual accounts which may be held in Company stock in one of these
plans. The Company recorded expenses related to these plans of approximately
$988,000, $927,000 and $1,334,000 in 1999, 1998 and 1997, respectively.
The profit-sharing plans, plus an additional plan at one U.S. subsidiary, have
401(k) provisions which allow participants to contribute a percentage of their
pre-tax compensation to the plans within Internal Revenue Code limits. Upon
authorization of the Board of Directors, the Company may make matching
contributions. Matching contributions made by the Company to these plans
approximated $472,000; $420,000 and $370,000 in 1999, 1998 and 1997,
respectively.
<PAGE>
12. Pension Plans
The Company has a defined benefit pension plan covering certain employees at a
specified domestic business unit. The benefits for this plan are based on years
of service and stated amounts for each year of service. Additionally, the
Company has foreign pension obligations covered by mandatory pension plans,
which are multi-employer plans as defined in SFAS No. 87, "Employers' Accounting
for Pensions." The benefits for foreign pension plans are based on years of
service and compensation levels for the covered employees. Net pension expense
for these domestic and foreign plans includes the following components:
<TABLE>
<CAPTION>
(in thousands) 1999 1998
- ------------------------------------------------------------ ------------------ -------------------
<S> <C> <C>
Service cost $ 203 $ 110
Interest cost 162 92
Expected return on assets (53) --
Net amortization and deferral 77 58
- ------------------------------------------------------------ ------------------ -------------------
Net periodic pension cost $ 389 $ 260
- ------------------------------------------------------------ ------------------ -------------------
Summary information of the Company's plans are as follows:
(in thousands) 1999 1998
- ------------------------------------------------------------ ------------------ -------------------
Change in benefit obligation:
Benefit obligation at beginning of year $ 1,548 $ 1,312
Acquisition of Roxell 1,221
Service cost 203 110
Interest cost 162 92
Actuarial (gain) loss (148) 34
- ------------------------------------------------------------ ------------------ -------------------
Benefit obligation at end of year 2,986 1,548
- ------------------------------------------------------------ ------------------ -------------------
Change in plan assets:
Fair value of plan assets at beginning of year 83 --
Acquisition of Roxell 790 --
Contributions 122 86
Actual return on plan assets 51 (3)
- ------------------------------------------------------------ ------------------ -------------------
Fair value of plan assets at end of year 1,046 83
- ------------------------------------------------------------ ------------------ -------------------
Funded status (1,940) (1,465)
Unrecognized net actuarial (gain) loss (26) 83
Unrecognized prior service cost 1,047 1,039
- ------------------------------------------------------------ ------------------ -------------------
Accrued benefit cost $ (919) $ (343)
- ------------------------------------------------------------ ------------------ -------------------
</TABLE>
The projected benefit obligation for the domestic plan was determined using a
weighted average discount rate of 7.5% and 6.75% in 1999 and 1998. The benefit
multiplier was increased $1.00 per year until the participant's normal
retirement date. The expected rate of return on plan assets was 9.00%.
The projected benefit obligation for the foreign plans was determined using a
weighted average discount rate of 5.5% and expected rate of return on plan
assets of 5.5%.
The Company's policy for funded plans is to make contributions equal to or
greater than the requirements prescribed by the Employee Retirement Income
Security Act (ERISA) or the respective foreign government law.
13. Postretirement Health Care Benefit Plans
The Company provides medical and dental benefit programs for retired employees.
Substantially all of the Company's U.S. employees become eligible for these
benefits upon retirement.
The Company has unfunded postretirement plans and uses the minimum amortization
method for recognizing gains and losses for postretirement benefits as
prescribed by SFAS No. 106, "Employers' Accounting for Postretirement Benefits
Other Than Pensions."
<PAGE>
Summary information of the Company's plan is as follows:
<TABLE>
<CAPTION>
(in thousands) 1999 1998
- ------------------------------------------------ ------------------ ------------------
<S> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year $ 2,561 $ 1,706
Service cost 221 154
Interest cost 167 124
Plan participants' contributions 108 85
Actuarial (gain) loss 69 616
Benefits paid (447) (124)
- ------------------------------------------------ ------------------ ------------------
Benefit obligation at end of year 2,679 2,561
- ------------------------------------------------ ------------------ ------------------
Fair value of plan assets at end of year -- --
- ------------------------------------------------ ------------------ ------------------
Funded status (2,679) (2,561)
Unrecognized net actuarial (gain) (177) (73)
Unrecognized prior service cost 331 166
- ------------------------------------------------ ------------------ ------------------
Accrued benefit cost $ (2,525) $ (2,468)
- ------------------------------------------------ ------------------ ------------------
</TABLE>
The accumulated postretirement benefit obligation was determined using relevant
actuarial assumptions and the timing of the Company's medical and dental plans.
The effect of a 1.0% annual increase in the assumed medical inflation rate on
the accumulated postretirement benefit obligation and the related expense would
be insignificant.
Measurement of the accumulated postretirement obligation was based on a 7.5%
discount rate at December 31, 1999 and 6.75% at December 31, 1998. Medical trend
rates were assumed at 12.0% (under age 65) and 8.0% (over age 65) which trend
down to 6.0%.
The Company funds medical and dental costs as incurred. The components of net
periodic postretirement benefit expense are as follows:
<TABLE>
<CAPTION>
(in thousands) 1999 1998 1997
- ------------------------------------- --------------- --------------- ---------------
<S> <C> <C> <C>
Service cost $ 221 $ 154 $ 161
Interest cost 167 118 134
Net amortization and deferral 7 (22) --
- ------------------------------------- --------------- --------------- ---------------
Total $ 395 $ 250 $ 295
- ------------------------------------- --------------- --------------- ---------------
</TABLE>
14. Shareholders' Equity
The Company was purchased in a leveraged buyout transaction in 1996. The buyout
was accounted for using the purchase method of accounting to the extent of the
67.9% change in ownership with the remaining 32.1% valued at historical book
value. To the extent of the change in ownership, the purchase price was
allocated to assets and liabilities based on their fair values. The Company has
recorded an adjustment ("reduction for carryover of predecessor cost basis") to
reduce the former shareholders' investment in the Company to the historical cost
basis of their investment.
In 1997, the Company completed an initial public offering ("Offering") of
5,000,000 shares of its common stock at an offering price of $14.00 per share.
The net proceeds of the Offering were used to repay debt incurred in connection
with the Fancom acquisition and the Kansas City Grain Systems Division
acquisition, to redeem 15,000 shares of preferred stock, and to repay a portion
of the Company's outstanding debt. Immediately prior to the Offering, a
12.0933-for-one stock split of the Company's common shares was effected.
Concurrent with the Offering, 9,069 outstanding shares of existing preferred
stock were exchanged for 647,786 shares of common stock.
<PAGE>
15. Stock Option Plans
Executives and other key employees have been granted options to purchase common
shares of the Company. In each case, the option price equals or exceeds the fair
market value of the common shares on the day of the grant. An option's maximum
term is ten years. Options granted vest (i) in seven years or over an
accelerated period of five-to-six years should certain annual or cumulative
earnings targets be met, or (ii) over an elapsed time of three-to-six years from
the grant date.
In accordance with the provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation," the Company has elected to apply the accounting prescribed by
Accounting Principles Board Opinion No. 25 and related interpretations in
accounting for its stock option plan. If the Company had elected to recognize
compensation cost based on the fair value of the options granted at grant date
as prescribed by SFAS No. 123, net income and earnings per share for the years
ended December 31, 1999, 1998 and 1997 would have been reduced to the pro forma
amounts indicated in the table below:
(in thousands) 1999 1998 1997
- --------------------------------------- ------------- ------------- ------------
Net income:
As reported $10,216 $ 9,196 $ 13,899
Pro forma 9,738 8,964 13,798
Net income per share - basic:
As reported $ 0.85 $ 0.73 $ 1.49
Pro forma 0.81 0.71 1.48
Net income per share - diluted:
As reported 0.83 0.71 1.43
Pro forma 0.79 0.69 1.42
- --------------------------------------- ------------- ------------- ------------
The fair value of each option grant is estimated on the date of grant using the
Black Scholes option-pricing model with the following assumptions:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
1999 1998 1997
<S> <C> <C> <C>
Volatility 35% 30-35% 30%
Expected dividend yield 0% 0% 0%
Risk-free interest rate 4.95-4.98% 4.31-5.73% 5.73-6.51%
Expected life of options 5 years 6 years 5.33-6 years
- -----------------------------------------------------------------------------------------------
</TABLE>
The weighted average fair value of options granted during 1999, 1998 and 1997
was $2.12, $5.72, and $3.75 per share, respectively.
Changes in shares under option are summarized below:
<TABLE>
<CAPTION>
(in thousands) 1999 1998 1997
- ----------------------------- --------------------------- --------------------------- ---------------------------
Weighted Weighted Weighted
Average Average Average
Number of Exercise Number of Exercise Number of Exercise
Shares Price Shares Price Shares Price
- ----------------------------- ------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding beginning
of year 928,758 $ 6.90 836,716 $ 3.46 725,600 $ 1.24
Granted 300,000 9.17 350,000 13.81 203,025 12.00
Exercised (11,256) 0.83 (169,632) 0.83 -- --
Forfeited (63,862) 2.89 (88,326) 13.46 (91,909) 4.77
- ----------------------------- ------------- ------------- ------------- ------------- ------------- -------------
Outstanding end of year 1,153,640 $ 7.77 928,758 $ 6.90 836,716 $ 3.46
- ----------------------------- ------------- ------------- ------------- ------------- ------------- -------------
Exercisable end of year 269,356 $ 2.52 285,868 $ 2.28 293,822 $ 1.72
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Options outstanding and exercisable at December 31, 1999 are summarized below:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Options Outstanding Options Exercisable
Number Remaining Weighted Avg. Number Weighted Avg.
Exercise Prices Outstanding Contractual Life Exercise Price Exercisable Exercise Price
<S> <C> <C> <C> <C> <C>
$0.83-$4.96 406,848 6.0 $0.83 225,448 $0.83
$6.38-$7.63 220,000 9.3 $6.75 -- --
$10.92-$14.25 526,792 8.1 $13.55 43,908 $11.22
1,153,640 269,356
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
16. Income Taxes
The elements of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
(in thousands) 1999 1998 1997
- ---------------------------------------- -------------- -------------- --------------
<S> <C> <C> <C>
Current:
U.S. federal $ 3,078 $ 5,965 $ 8,492
State 680 1,019 1,521
Foreign 2,299 990 927
- ---------------------------------------- -------------- -------------- --------------
Total current 6,057 7,974 10,940
- ---------------------------------------- -------------- -------------- --------------
Deferred:
U.S. federal 1,266 (1,613) (404)
State 181 (230) (58)
Foreign (684) 49 21
- ---------------------------------------- -------------- -------------- --------------
Total deferred 763 (1,794) (441)
- ---------------------------------------- -------------- -------------- --------------
Provision for income taxes $ 6,820 $ 6,180 $ 10,499
- ---------------------------------------- -------------- -------------- --------------
</TABLE>
Income taxes paid were approximately $8,829,000; $8,778,000 and $11,069,000 in
1999, 1998 and 1997, respectively. At December 31, 1999, the Company has
recorded in prepaid expenses income tax overpayments and refund claims of
$1,771,000.
A reconciliation of the net effective tax for consolidated operations to the
U.S. statutory federal income tax is as follows:
<TABLE>
<CAPTION>
(in thousands) 1999 1998 1997
- --------------------------------------------------------- ----------------- ------------------ ------------------
<S> <C> <C> <C>
U.S. tax at federal statutory rate $ 5,963 $ 5,376 $ 8,539
Increase (decrease) in tax resulting from:
State income taxes, net of U.S. tax benefit 559 512 930
FSC benefit (240) (228) (468)
Goodwill 389 361 473
Gain on sale of Vinyl Division -- -- 769
Other, net 149 159 256
- --------------------------------------------------------- ----------------- ------------------ ------------------
Provision for income taxes $ 6,820 $ 6,180 $ 10,499
- --------------------------------------------------------- ----------------- ------------------ ------------------
</TABLE>
<PAGE>
Deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
(in thousands) 1999 1998
- ------------------------------------------------------- --------------- --------------
<S> <C> <C>
Deferred tax assets - current:
Accrued liabilities $2,058 $ 1,654
Inventories (1,439) (1,760)
Allowance for doubtful accounts receivable 281 375
Foreign joint venture losses -- 1,474
- ------------------------------------------------------- --------------- --------------
Total current $ 900 $ 1,743
- ------------------------------------------------------- --------------- --------------
Deferred tax assets (liabilities) - non-current:
Property, plant and equipment $(9,888) $ (8,619)
Goodwill (704) (422)
Foreign losses -- 696
Accrued postretirement benefit cost 1,631 1,087
Other (488) (631)
- ------------------------------------------------------- --------------- --------------
Total non-current $(9,449) $ (7,889)
- ------------------------------------------------------- --------------- --------------
Total deferred income tax $(8,549) $ (6,146)
- ------------------------------------------------------- --------------- --------------
</TABLE>
17. Segments
The Company's internal financial reporting is organized primarily on the basis
of legal entities while the management of operations is based on a combination
of geographic locations and functional lines of manufacturing, sales and
marketing. The Company believes its operating segments have similar economic
characteristics and meet the aggregation criteria of SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information." Accordingly, the
Company is reporting only one operating segment.
United States and foreign operations, which include subsidiaries in Belgium, the
Netherlands, and Brazil, are shown below. Net sales amounts are based on the
location of the selling entity.
<TABLE>
<CAPTION>
(in thousands) 1999 1998 1997
- --------------------------------------- ---------------------- ---------------------- ----------------------
<S> <C> <C> <C>
Net sales:
United States $ 211,594 $ 240,348 $ 177,439
Belgium 36,120 -- --
The Netherlands 20,724 29,987 21,105
Brazil 4,165 1,845 3,519
- --------------------------------------- ---------------------- ---------------------- ----------------------
Total $272,603 $272,180 $202,063
- --------------------------------------- ---------------------- ---------------------- ----------------------
Long-lived assets:
United States 101,508 104,340 99,694
Belgium 28,820 -- --
The Netherlands 10,959 13,542 12,212
Brazil 643 239 213
- --------------------------------------- ---------------------- ---------------------- ----------------------
Total $141,930 $118,121 $112,119
- --------------------------------------- ---------------------- ---------------------- ----------------------
</TABLE>
Net sales (based on destination) were as follows:
<TABLE>
<CAPTION>
- --------------------------------------- ---------------------- ---------------------- ----------------------
(in thousands) 1999 1998 1997
- --------------------------------------- ---------------------- ---------------------- ----------------------
<S> <C> <C> <C>
United States $ 176,157 $ 193,534 $ 128,480
Latin America 20,813 21,497 18,734
Europe/Middle East 54,600 39,310 31,133
Asia 10,461 7,881 15,869
Canada 10,572 9,958 7,847
- --------------------------------------- ---------------------- ---------------------- ----------------------
Total $ 272,603 $ 272,180 $202,063
- --------------------------------------- ---------------------- ---------------------- ----------------------
</TABLE>
<PAGE>
Sales by product line are as follows:
<TABLE>
<CAPTION>
(in thousands) 1999 1998 1997
- --------------------------------------- ---------------------- ---------------------- ----------------------
<S> <C> <C> <C>
Animal agriculture $153,150 $134,444 $113,625
Egg production 37,214 36,429 31,280
Grain systems 76,425 69,602 50,651
Poultry buildings 5,814 31,705 1,902
Other -- -- 4,605
- --------------------------------------- ---------------------- ---------------------- ----------------------
Total $272,603 $272,180 $202,063
- --------------------------------------- ---------------------- ---------------------- ----------------------
</TABLE>
18. Quarterly Financial Data (Unaudited)
<TABLE>
<CAPTION>
(in thousands, except per share amounts)
- ----------------------------------------- --------------------------------------------------------------------------
Three months ended
1999 March 31 June 30 September 30 December 31
- ----------------------------------------- ------------------ ------------------ ----------------- ------------------
<S> <C> <C> <C> <C>
Sales $59,905 $76,260 $84,088 $52,350
Gross profit $13,918 $20,438 $22,502 $13,211
Gross margin 23.2% 26.8% 26.8% 25.2%
Operating income $ 3,016 $ 8,110 $10,533 $3 ,566
Operating income margin 5.0% 10.6% 12.5% 6.8%
Net income $329 $ 3,802 $ 4,883 $ 1,202
Basic earnings per share $ 0.03 $ 0.32 $ 0.41 $ 0.10
Basic weighted average shares 12,106 12,022 12,022 11,998
Diluted earnings per share $ 0.03 $ 0.31 $ 0.40 $ 0.10
Diluted weighted average shares 12,330 12,277 12,282 12,206
- ----------------------------------------- ------------------ ------------------ ----------------- ------------------
</TABLE>
<TABLE>
<CAPTION>
(in thousands, except per share amounts)
- ----------------------------------------- --------------------------------------------------------------------------
Three months ended
1998 March 31 June 30 September 30 December 31
- ----------------------------------------- ------------------ ------------------ ----------------- ------------------
<S> <C> <C> <C> <C>
Sales $46,778 $70,464 $91,138 $63,800
Gross profit $11,045 $14,498 $21,085 $14,056
Gross margin 23.6% 20.5% 23.1% 22.0%
Operating income $ 3,138 $ 5,981 $10,741 $ 3,672
Operating income margin 6.7% 8.5% 11.8% 5.8%
Net income $ 1,387 $ 2,911 $ 5,611 $ (713)
Basic earnings per share $ 0.11 $ 0.23 $ 0.45 $ (0.06)
Basic weighted average shares 12,837 12,797 12,607 12,384
Diluted earnings per share $ 0.11 $ 0.22 $ 0.43 $ (0.06)
Diluted weighted average shares 13,208 13,184 12,950 12,658
- ----------------------------------------- ------------------ ------------------ ----------------- ------------------
</TABLE>
The total quarterly income per common share may not equal the annual amount
because net income per common share is calculated independently for each
quarter.
19. Related Party Transactions
The Company is required to pay annual management fees of $300,000 plus expenses
to American Securities Capital Partners, L.P. (ASCP), a related party through
stock ownership. These expenses have been charged to operations during 1999,
1998 and 1997. Additionally, other 1997 fees paid by the Company to ASCP include
$503,000 in connection with the acquisitions of Fancom and the Kansas City Grain
Systems Division and $350,000 in connection with the Company's initial public
offering.
Of the current and long-term portion of Accrued Earn-Out, $1,760,000 and
$7,040,000 at December 31, 1999 and 1998, respectively, are related to the 1996
acquisition of the Company in a leveraged buyout transaction. These amounts are
being paid in installments to Predecessor Company shareholders, certain of whom
are current directors and officers of the Company.
<PAGE>
20. 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 were $0.4 million. The $0.7 million balance at December 31,
1999, to be paid in future periods, is reported in accrued liabilities.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
- --------------------------------------------------------------------------------
None
================================================================================
PART III
- --------------------------------------------------------------------------------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- --------------------------------------------------------------------------------
Directors and Executive Officers of the Company
<TABLE>
<CAPTION>
Director/
Name Age Position with Company Officer Since
<S> <C> <C> <C>
J. Christopher Chocola 38 Chairman of the Board 1991
Victor A. Mancinelli 56 President and Chief Executive Officer, Director 1999
Caryl M. Chocola 61 Director 1976
Michael G. Fisch 37 Director 1995
Larry D. Greene 42 Director 1997
Frank S. Hermance 51 Director 1997
David L. Horing 37 Director 1995
Charles D. Klein 61 Director 1995
Gerard van Rooijen 57 Director; Managing Director, Roxell N.V. 1999
Brian D. Dawes 41 Vice President & General Manager, CTB, Inc. 1997
Randy S. Eveler 35 Vice President & Corporate Controller, CTB, Inc. 1999
Michael J. Kissane 42 Vice President, General Counsel & Secretary 1993
Mark A. Lantz 39 Vice President & General Manager, CTB, Inc. 1996
George W. Murdoch 40 Executive Vice President & General Manager, CTB, Inc. 1998
Don J. Steinhilber 42 Vice President & Chief Financial Officer 1994
Roger W. Townsend 44 Executive Vice President & General Manager, CTB, Inc. 1993
</TABLE>
J. Christopher Chocola - Chairman of the Board since April 1999. Mr. Chocola
served as President of the Company from February 1996 to April 1999 and Chief
Executive Officer of the Company from April 1997 to April 1999. Mr. Chocola has
served as Chief Executive Officer of CTB (prior to January 1996, the Predecessor
Company) since March 1994. From July 1993 to February 1994, Mr. Chocola served
as Executive Vice President of the Predecessor Company. From November 1993 to
July 1996, Mr. Chocola served as the General Manager of the Chore-Time division.
From October 1991 to November 1993, Mr. Chocola served as the General Manager of
the Brock division. Mr. Chocola joined the Predecessor Company in 1988. Mr.
Chocola was elected to the Board of Directors of the Predecessor Company in
February 1991 and of the Company in February 1996.
<PAGE>
Victor A. Mancinelli - President and Chief Executive Officer of the Company
since April 1999. Prior to joining the Company, Mr. Mancinelli was Chief
Operating Officer of Gehl Company from November 1992. From 1990 to 1992, Mr.
Mancinelli served as Group Vice President of W.H. Brady Co. From 1987 to 1990,
Mr. Mancinelli served as President and Chief Operating Officer of Syracuse China
Corp., a subsidiary of Canadian Pacific Ltd. From 1985 to 1987, Mr. Mancinelli
served as Vice President International Business for Simplex Time Record Co.
Prior to 1985, Mr. Mancinelli served in a variety of management positions with
Cummins Engine Company, Inc.
Gerard van Rooijen - Managing Director of Roxell N.V., Maldegem, Belgium since
1971 and Managing Director of Stevens Plastics Technology since 1989. Member of
the Board of Directors of Fedagrim (Belgian trade organization of manufacturers
and importers of agricultural machinery) since 1992.
Brian D. Dawes - Vice President and General Manager-Poultry Production Systems
of CTB since May 1997. Mr. Dawes was Vice President of the Vinyl Products
Division of CTB (prior to January 1996, the Predecessor Company) from July 1994
until May 1997. Mr. Dawes served as Manager of National Contract Sales at
Zimmer, Inc., an orthopedics product division of Bristol-Myers Squibb, from 1992
until July 1994. Mr. Dawes rejoined the Predecessor Company in 1994, having
served in management positions at the Predecessor Company from 1981 until 1986.
Randy Eveler - Vice President and Corporate Controller of CTB since October
1998. Mr. Eveler served as Division Controller of CTB from August 1998 until
October 1998. Prior to joining the Company, Mr. Eveler was Finance Manager of
Accra Pac, Inc. from October 1993.
Michael J. Kissane - General Counsel and Secretary of the Company since April
1997 and Vice President of the Company since December 1995. Mr. Kissane has been
a Vice President of CTB (prior to January 1996, the Predecessor Company) since
July 1993, the Secretary of CTB (prior to January 1996, the Predecessor Company)
since March 1994 and has served as General Counsel of CTB (prior to January
1996, the Predecessor Company) since joining the Predecessor Company in January
1992. Prior to joining the Predecessor Company, Mr. Kissane was a member of the
law firm of Strauss & Kissane in San Diego, California.
Mark A. Lantz - Vice President and General Manager - Egg Production Systems of
CTB since May 1997. Mr. Lantz served as Vice President-Operations of CTB from
February 1996 until May 1997. Mr. Lantz served as Operations Manager of CTB
(prior to January 1996, the Predecessor Company) from November 1993 until
February 1996, as Vice President-Manufacturing of the Predecessor Company from
July 1993 until November 1993 and as Plant Manager of CTB (prior to January
1996, the Predecessor Company) from October 1991 until July 1993. Mr. Lantz
joined the Predecessor Company in 1989.
George W. Murdoch - Executive Vice President and General Manager, International
Business since January 1998. Mr. Murdoch served as Vice President of
International Marketing from September 1996 to January 1998, as European Sales
Manager from August 1994 to September 1996, as Sales Manager-Latin America from
January 1994 to August 1994, and Regional Sales Manager from January 1991 to
January 1994.
Don J. Steinhilber - Vice President, Chief Financial Officer and Treasurer of
the Company since April 1997. Mr. Steinhilber served as Vice President and
Assistant Treasurer of the Company from December 1995 until April 1997. Since
December 1996, Mr. Steinhilber has served as Vice President, Chief Financial
Officer and Treasurer of CTB. From July 1993 to December 1996, Mr. Steinhilber
served as Vice President and Treasurer of CTB (prior to January 1996, the
Predecessor Company). From July 1991 to July 1993, Mr. Steinhilber served as
International Controller of the Predecessor Company. Mr. Steinhilber joined the
Predecessor Company in July 1991.
Roger W. Townsend - Executive Vice President of CTB since April 1996 and General
Manager, Grain Systems Business since May 1997. Mr. Townsend was Chief Operating
Officer of CTB (prior to January 1996, the Predecessor Company) from March 1994
until May 1997. From November 1993 to July 1996, Mr. Townsend served as General
Manager of the Brock division. From July 1993 to November 1993, Mr. Townsend
served as Vice President of Engineering of the Predecessor Company. From October
1991 to July 1993, Mr. Townsend served as Assistant General Manager of the Brock
division. Mr. Townsend joined the Predecessor Company in 1977.
In response to this Item, reference is made to the information under the caption
"Election of Directors" on CTB International Corp.'s Proxy Statement for the
2000 annual meeting of shareholders which is incorporated herein by reference.
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
- --------------------------------------------------------------------------------
In response to this Item, reference is made to the information under the caption
"Executive Compensation," and "Report of the Compensation Committee on Executive
Compensation" on CTB International Corp.'s Proxy Statement for the 2000 annual
meeting of shareholders, which is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- --------------------------------------------------------------------------------
In response to this Item, reference is made to the information under the caption
"Principal Shareholders" on CTB International Corp.'s Proxy Statement for the
2000 annual meeting of shareholders, which is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- --------------------------------------------------------------------------------
Stock Purchase Agreement
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 cumulative EBIDTA target was subject to adjustment in the event of any
merger, acquisition, divestiture or other extraordinary transaction. An
amendment to the Stock Purchase Agreement to give effect to the Kansas City
Grain Systems Division Acquisition, the Fancom Acquisition and the Vinyl
Division Divestiture revised the EBITDA target from $89.5 million to $103.4
million.
The Earn-Out amount recorded under the terms of the Stock Purchase Agreement as
amended was calculated as $7,040,000.
<PAGE>
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 are payable to certain current directors and
officers of the Company.
Other
Under the terms of a management consulting agreement dated January 4, 1996, the
Company is required to pay annual management fees of $300,000 plus expenses to
ASCP. Additionally, in 1997, other fees paid by the Company to ASCP included
$503,000 in connection with the acquisitions of Fancom and the Kansas City Grain
Systems Division and $350,000 in connection with the Company's initial public
offering.
In conjunction with the Company's initial public offering, certain shareholders
(including affiliates of ASCP, J. Christopher Chocola and Caryl Chocola)
redeemed 15,000 shares of Preferred Stock and exchanged 9,069 shares of
Preferred Stock for 647,786 shares of Common Stock.
<PAGE>
================================================================================
PART IV
- --------------------------------------------------------------------------------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
- --------------------------------------------------------------------------------
(a.)1. Financial Statements and Independent Auditors' Report Page 19
(a.)2. Financial Statement Schedule
Schedule I - Parent Company Financial Statements Page 42
Schedule II - Valuation and Qualifying Accounts Page 43
All other schedules are omitted because they are not applicable, or not
required, or because the required information is included in the Consolidated
Financial Statements of CTB International Corp. or the Notes thereto.
(a.)3. Exhibits
The exhibits filed with this report are listed on the "Exhibit Index" on page 46
and 47.
(b.)Reports on Form 8-K
CTB International Corp. Announces Its Reincorporation in Indiana - Report filed
December 21, 1999.
<PAGE>
SCHEDULE I
PARENT COMPANY FINANCIAL STATEMENTS
As discussed in Note 9, under the terms of the Credit Agreement, CTB,
Inc., the Company's wholly-owned subsidiary, is limited in the dividends
it may distribute to the Company, subject to meeting certain financial
goals and requirements. Accordingly, the following parent-company-only
financial statements are presented because the distribution of the net
assets of CTB, Inc. is restricted.
<TABLE>
<CAPTION>
Condensed Balance Sheets
December 31, 1999 and 1998
(in thousands)
1999 1998
<S> <C> <C>
Assets
Equity investment in subsidiaries $80,754 $76,825
------------ ------------
Total Assets $80,754 $76,825
============ ============
Liabilities and Shareholders' Equity
Shareholders' Equity $80,754 $76,825
------------ ------------
Total Liabilities and Shareholders' Equity $80,754 $76,825
============ ============
</TABLE>
<TABLE>
<CAPTION>
Condensed Statements of Income
Years Ended December 31, 1999, 1998 and 1997
(in thousands)
1999 1998 1997
<S> <C> <C> <C>
Equity in undistributed net income of subsidiaries $10,216 $9,196 $13,899
------------ ------------ ------------
Net Income $10,216 $9,196 $13,899
============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
Condensed Statements of Cash Flows
For the Years Ended December 31, 1999, 1998 and 1997
(in thousands)
1999 1998 1997
<S> <C> <C> <C>
Cash flows from operating activities
Net income $10,216 $9,196 $13,899
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in undistributed net income of (10,216) (9,196) (13,899)
subsidiaries
------------ ------------ ------------
Net cash provided by operating activities -- -- --
------------ ------------ ------------
Net increase in cash -- -- --
Cash at beginning of period -- -- --
------------ ------------ ------------
Cash at end of the period $ -- $ -- $ --
============ ============ ============
</TABLE>
Note 1 - The Company uses the equity method of accounting for its investment in
subsidiaries.
Note 2 - See the Notes to the Company's 1999 Consolidated Financial Statements
for a complete description of the Company's accounting policies.
<PAGE>
SCHEDULE II
<TABLE>
<CAPTION>
VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 1999, 1998 and 1997
(in thousands)
Column A Column B Column C Column D Column E
---------------------------- ------------- --------------------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Additions
---------------------------
Balance at Charged to Charged to Balance at
beginning costs & other end of
of period expenses accounts Deductions period
------------- ------------- ------------- ------------ -------------
1999
Allowance for doubtful accounts . . . $1,122 $499 $240 $775(1) $1,086
Inventory obsolescence reserve . . . 634 488 251 302 $1,071
1998
Allowance for doubtful accounts . . . $ 657 $568 $ - $103(1) $1,122
Inventory obsolescence reserve. . . . 554 188 - 108 634
1997
Allowance for doubtful accounts . . . $ 449 $362 $ - $ 32(1) $ 657
Inventory obsolescence reserve. . . . 214 372 - 32 554
(1) Uncollectible accounts written off
</TABLE>
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
CTB International Corp.
By: _________________________________
Victor A. Mancinelli
Director, President and
Chief Executive Officer
March 3, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of CTB International
Corp. and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
----------- ------- -------
<S> <C> <C>
/s/ J. Christopher Chocola Director, Chairman of the Board 3/7/00
- ---------------------------------------
J. Christopher Chocola
/s/ Victor A. Mancinelli Director, President and Chief Executive 3/7/00
- ------------------------------------------
Victor A. Mancinelli Officer (Principal Executive Officer)
/s/ Don J. Steinhilber Vice President and Chief Financial Officer 3/7/00
- ------------------------------------
Don J. Steinhilber (Principal Financial and Accounting Officer)
/s/ Caryl M. Chocola Director 3/7/00
- ------------------------------------
Caryl M. Chocola
/s/ Michael G. Fisch Director 3/7/00
- -------------------------------------
Michael G. Fisch
/s/ Larry D. Greene Director 3/7/00
- -------------------------------------
Larry D. Greene
/s/ Frank S. Hermance Director 3/7/00
- ------------------------------------
Frank S. Hermance
/s/ David L. Horing Director 3/7/00
- ------------------------------------
David L. Horing
/s/ Charles D. Klein Director 3/7/00
- -----------------------------------
Charles D. Klein
/s/ Gerard van Rooijen Director; Managing Director, Roxell N.V. 3/7/00
- -----------------------------------
Gerard van Rooijen
</TABLE>
<PAGE>
EXHIBIT INDEX
Exhibit
Number
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.,
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 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.,
file 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 Compan 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 is presented in Note 1 to the
Consolidated Financial Statements included in Item 8.
13 1999 Annual Report to Shareholders of CTB International Corp. is
presented in Item 8.
21 Subsidiaries of CTB International Corp. filed as Exhibit 21 to the
Company Registration Statement and incorporated herein by reference.
22 Plan of merger and reincorporation on Definitive 14C dated November
12, 1999 incorporated herein by reference.
23.1 Consent of Deloitte & Touche LLP.
27 Financial Data Schedule.
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement No.
333-95843 of CTB International Corp. on Form S-8 of our report dated February
22, 2000, appearing in this Annual Report on Form 10-K of CTB International
Corp. for the year ended December 31, 1999.
DELOITTE & TOUCHE LLP
Chicago, Illinois
March 1, 2000
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> 12-MOS
<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-START> Jan-01-1999
<PERIOD-END> Dec-31-1999
<CASH> 2,439
<SECURITIES> 0
<RECEIVABLES> 29,787
<ALLOWANCES> 1,086
<INVENTORY> 29,695
<CURRENT-ASSETS> 65,632
<PP&E> 76,445
<DEPRECIATION> 20,930
<TOTAL-ASSETS> 207,562
<CURRENT-LIABILITIES> 35,862
<BONDS> 0
0
0
<COMMON> 129
<OTHER-SE> 80,625
<TOTAL-LIABILITY-AND-EQUITY> 207,562
<SALES> 272,603
<TOTAL-REVENUES> 272,603
<CGS> 202,534
<TOTAL-COSTS> 202,534
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 499
<INTEREST-EXPENSE> 6,205
<INCOME-PRETAX> 17,036
<INCOME-TAX> 6,820
<INCOME-CONTINUING> 10,216
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,216
<EPS-BASIC> 0.85
<EPS-DILUTED> 0.83
</TABLE>
