UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From _____ to _____
------------------------
Commission File Number 000-22973
CTB INTERNATIONAL CORP.
(Exact name of registrant as specified in the charter)
Indiana 35-1970751
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
State Road 15 North, P.O. Box 2000, Milford, IN 46542-2000
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (219)-658-4191
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [ X ] No [ ]
At September 30, 2000, approximately 10,904,360 shares, par value $.01 per
share, of common stock of the Registrant were outstanding.
<PAGE>
CTB INTERNATIONAL CORP. AND SUBSIDIARIES
INDEX
<TABLE>
<S> <C>
Page
Part I
Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets at September 30, 2000 and
December 31, 1999 1
Condensed Consolidated Income Statements for the Three Months
and Nine Months Ended September 30, 2000 and 1999 2
Condensed Consolidated Statements of Cash Flows for the Nine
Months Ended September 30, 2000 and 1999 3
Notes to Condensed Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk 13
Part II
Other Information
Item 1. II-1
Item 6. II-1
Signature II-2
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CTB International Corp. and Subsidiaries
Condensed Consolidated Balance Sheets
(In thousands, except share and per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
-------------- --------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,808 $ 2,439
Accounts receivable - Net 38,104 29,787
Inventories 28,250 29,695
Deferred income taxes 945 900
Prepaid expenses and other current assets 3,105 2,811
-------------- --------------
Total current assets 72,212 65,632
PROPERTY, PLANT AND EQUIPMENT - Net 50,943 55,515
INTANGIBLES - Net 80,213 86,157
OTHER ASSETS 250 258
-------------- --------------
TOTAL ASSETS $ 203,618 $ 207,562
============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 14,754 $ 13,564
Current portion of long-term debt 556 795
Accrued Earn-Out - 1,809
Accrued liabilities 26,036 17,076
Deferred revenue 1,450 2,618
-------------- --------------
Total current liabilities 42,796 35,862
LONG-TERM DEBT 60,430 77,060
DEFERRED INCOME TAXES 9,075 9,449
ACCRUED POSTRETIREMENT BENEFIT COST AND OTHER 4,452 4,437
COMMITMENTS AND CONTINGENCIES (See Note 7)
SHAREHOLDERS' EQUITY:
Common stock, $.01 par value; 40,000,000 shares authorized;
12,924,990 shares issued 129 129
Preferred stock - 6% cumulative, $.01 par value; 4,000,000
shares authorized; 0 shares issued and outstanding - -
Additional paid-in capital 76,562 76,818
Treasury stock, at cost; 2000 - 2,020,630 shares, 1999-1,257,113
shares (14,339) (9,251)
Reduction for carryover of predecessor cost basis (26,964) (26,964)
Accumulated other comprehensive (loss):
Foreign currency translation adjustment (3,464) (1,791)
Retained earnings 54,941 41,813
-------------- --------------
Total shareholders' equity 86,865 80,754
-------------- --------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 203,618 207,562
============== ==============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
CTB International Corp. and Subsidiaries
Condensed Consolidated Income Statements
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
------------------------------------ ---------------------------------------
2000 1999 2000 1999
----------------- ---------------- ------------------ ------------------
<S> <C> <C> <C> <C>
NET SALES $ 81,551 $ 84,088 $ 213,596 $ 220,253
COST OF SALES 57,760 61,586 153,560 163,395
----------------- ---------------- ------------------ ------------------
Gross profit 23,791 22,502 60,036 56,858
OTHER OPERATING EXPENSE:
Selling, general, and 11,454 11,329 32,902 33,281
administrative expenses
Amortization of goodwill 590 640 1,791 1,918
----------------- ---------------- ------------------ ------------------
Operating income 11,747 10,533 25,343 21,659
INTEREST EXPENSE - Net (1,059) (1,596) (3,520) (4,875)
OTHER INCOME (EXPENSE) - Net 105 (831) 60 (1,834)
----------------- ---------------- ------------------ ------------------
INCOME BEFORE INCOME TAXES 10,793 8,106 21,883 14,950
INCOME TAXES 4,318 3,223 8,754 5,936
----------------- ---------------- ------------------ ------------------
NET INCOME $ 6,475 $ 4,883 $ 13,129 $ 9,014
================= ================ ================== ==================
EARNINGS PER SHARE:
Basic: Earnings per share $ 0.59 $ 0.41 $ 1.19 $ 0.75
================= ================ ================== ==================
Weighted average shares 10,930 12,022 11,054 12,050
================= ================ ================== ==================
Diluted: Earnings per share $ 0.58 $ 0.40 $ 1.17 $ 0.73
================= ================ ================== ==================
Weighted average shares 11,139 12,282 11,266 12,296
================= ================ ================== ==================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
CTB International Corp. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
For the Nine Months Ended
September 30,
--------------------------------
2000 1999
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 13,129 $ 9,014
Adjustments to reconcile net income to net cash flows
from operating activities:
Depreciation 5,734 5,509
Amortization 2,165 2,241
Foreign exchange loss 244 -
Equity in joint venture (6) (10)
Loss on sale of assets 40 -
Changes in operating assets and liabilities:
Accounts receivable (9,946) 3,694
Construction costs and estimated earnings in excess of billings - 5,036
Inventories 683 2,741
Prepaid expenses and other assets 465 416
Accounts payable, accruals and other liabilities 8,651 (2,765)
------------ ------------
Net cash flows from operating activities 21,159 25,876
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property, plant and equipment (2,492) (5,903)
Acquisitions, net of cash acquired - (33,884)
Proceeds from sale of assets 126 26
------------ ------------
Net cash flows from investing activities (2,366) (39,761)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of treasury stock (5,374) (1,684)
Stock option exercise 30 -
Proceeds from long-term debt 196,022 300,696
Payments on long-term debt (208,970) (280,474)
------------ ------------
Net cash flows from financing activities (18,292) 18,538
------------ ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 501 4,653
NET EFFECT OF TRANSLATION ADJUSTMENT (1,132) 404
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 2,439 608
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,808 $ 5,665
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
CTB International Corp. and Subsidiaries
Notes To Condensed Consolidated Financial Statements
(Unaudited)
Note 1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three months and nine months ended
September 30, 2000, are not necessarily indicative of the results that may be
expected for the year ending December 31, 2000. For further information, refer
to the Company's Form 10-K for the fiscal year ended December 31, 1999 which
includes the Company's annual audited financial statements.
Note 2. Inventories
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------- -------------
<S> <C> <C>
Raw material $ 8,159 $ 7,937
Work in process 1,970 2,025
Finished goods 18,121 19,733
------------- -------------
28,250 29,695
LIFO valuation allowance - -
------------- -------------
Total $ 28,250 $ 29,695
============= =============
</TABLE>
Note 3. Contracts In Process
Construction contracts in process consist of the following (in thousands):
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------- -------------
<S> <C> <C>
Costs incurred on uncompleted contracts $ - $ 306
Estimated profit (loss) - -
------------- -------------
- 306
Less: Billings to date - 470
------------- -------------
Billings in excess of costs on uncompleted
contracts $ - $ (164)
============= =============
</TABLE>
Billings in excess of costs on uncompleted contracts are reported in other
accrued liabilities.
<PAGE>
Note 4. Property, Plant and Equipment
Property, plant and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------- -------------
<S> <C> <C>
Land and improvements $ 3,442 $ 3,674
Buildings and improvements 22,572 22,958
Machinery and equipment 50,574 48,217
Construction in progress 537 1,596
------------- -------------
77,125 76,445
Less accumulated depreciation (26,182) (20,930)
------------- -------------
Total $ 50,943 $ 55,515
============= =============
</TABLE>
Note 5. Intangibles
Intangibles consist of the following (in thousands):
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------- -------------
<S> <C> <C>
Goodwill $ 87,596 $ 91,607
Accumulated amortization (8,049) (6,490)
------------- -------------
Goodwill - Net 79,547 85,117
------------- -------------
Deferred finance costs 2,821 2,821
Accumulated amortization (2,155) (1,781)
------------- -------------
Deferred finance costs - Net 666 1,040
------------- -------------
Total $ 80,213 $ 86,157
============= =============
</TABLE>
Note 6. Business Combinations
On January 12, 1999, the Company acquired substantially all of the assets of
Roxell N.V. (Roxell). Based in Maldegem, Belgium, Roxell is a leading global
manufacturer and marketer of automated feeding and watering systems, as well as
feed storage bins for the poultry and swine production markets. The purchase
price of $33.9 million, net of cash acquired and including expenses, was
financed through German Mark denominated borrowings under the Company's amended
credit facility.
The acquisition was accounted for under the purchase method of accounting.
Accordingly, the purchase price has been allocated to the acquired assets and
liabilities based on their fair market values as of the date of acquisition with
the remainder charged to goodwill which is being amortized on a straight-line
basis over 40 years. The purchase price has been allocated as follows:
(In thousands)
--------------
Current assets $ 10,508
Property, plant and equipment 7,175
Intangibles and other assets 27,849
Long-term debt assumed (740)
Liabilities assumed (10,908)
--------------
Total purchase price $ 33,884
==============
<PAGE>
Note 7. Commitments and Contingencies
There are various claims and pending legal proceedings against the Company
involving matters arising out of the ordinary conduct of business. While the
Company is unable to predict with certainty the outcome of current proceedings,
based upon the facts currently known to it, the Company does not believe that
resolution of any of these proceedings will have a material adverse effect on
its financial statements.
Pursuant to the Stock Purchase Agreement dated November 1995, the Company agreed
to make certain contingent payments to the Predecessor Company shareholders (the
"Earn-Out") 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 was determined based on cumulative
EBITDA for the three-year period ended December 31, 1998.
The Earn-Out amount recorded under the terms of the Stock Purchase Agreement as
amended was calculated as $7,040,000.
The Company was obligated to pay the Earn-Out in three installments beginning on
April 5, 1999. Two installments totaling $5,280,000 were made during 1999. The
third and final installment of $1,760,000 was paid on January 3, 2000.
Portions of the Earn-Out were paid to certain current directors and officers of
the Company.
Note 8. Treasury Stock
At September 30, 2000, treasury stock consisted of 2,021,000 shares
acquired, 800,000 of which were purchased at a cost of $5,374,000 during the
nine month period ending September 30, 2000. To date, 2,365,000 of the 2,500,000
shares authorized have been repurchased, with 345,000 being reissued. The shares
repurchased are accounted for under the cost method and reported as "Treasury
Stock" and result in a reduction of "Shareholders' Equity." When treasury shares
are reissued, the Company uses a first-in, first-out method, and the difference
between repurchase cost and the reissuance price is treated as an adjustment to
"Additional Paid-in Capital."
Note 9. Comprehensive Income
Comprehensive income for the three and nine months ended September 30, 2000
was $5.5 and $11.5 million compared to $5.7 and $7.9 million in the
corresponding periods of 1999. Net income was adjusted by the change in the
cumulative translation adjustment to arrive at comprehensive income.
Note 10. Segments
Statement of Financial Accounting Standards No. 131, "Disclosures about Segments
of an Enterprise and Related Information" (SFAS 131) requires companies to
provide certain information about their operating segments. The Company has
aggregated its operating segments in accordance with SFAS 131. Due to the
restructuring of the Company's operations, effective January 1, 2000, it is
impracticable to obtain comparable data for prior year segment information.
<PAGE>
The Company's products for the Protein Group Segment consist of systems which
deliver feed and water, and provide a comfortable climate for poultry and hogs,
thereby creating an optimum growing environment for efficient production of meat
and eggs. Protein Group Segment sales are primarily in the U.S. and Canada. The
Grain Segment manufactures a wide variety of models of grain storage bins for
on-farm and commercial grain storage. The Grain Segment also manufactures and
markets a line of industrial bulk storage bins and conveying equipment and
markets various related accessory items. Grain Segment sales are primarily to
customers in the U.S. and Canada. The International Segment manufactures and
markets products similar to those of the Protein Group and Grain Segments. Sales
in the International Segment, however, are generally to customers outside the
U.S. and Canada. Inter-segment sales are recorded at standard cost plus five
percent.
Management evaluates performance based upon operating earnings before interest
and income taxes. The Company does not maintain for each of its operating
segments separate stand-alone financial statements prepared in accordance with
generally accepted accounting principles. In accordance with SFAS 131, the
following table contains information related to each operating segment that is
consistent with internal management reports.
For the Three Months Ended September 30, 2000
<TABLE>
<CAPTION>
Segment Protein Group Grain International Other Consolidated
--------------- --------- --------------- -------- --------------
<S> <C> <C> <C> <C> <C>
Sales to third parties $ 24,181 $ 37,289 $ 20,081 $ - $ 81,551
Inter-segment sales 3,196 898 171 (4,265) -
Operating profit 5,213 11,050 2,750 (7,266) 11,747
</TABLE>
For the Nine Months Ended September 30, 2000
<TABLE>
<CAPTION>
Segment Protein Group Grain International Other Consolidated
--------------- --------- --------------- -------- --------------
<S> <C> <C> <C> <C> <C>
Sales to third parties $ 73,515 $ 78,563 $ 61,518 $ - $ 213,596
Inter-segment sales 9,415 7,393 975 (17,783) -
Operating profit 16,059 20,118 7,684 (18,518) 25,343
Total assets 35,814 54,812 63,452 49,540 203,618
</TABLE>
"Other" consists primarily of eliminations for inter-segment sales and
corporate-related assets. Additionally, "Other" includes the costs for shared
services functions, such as Finance, Information Systems and Administration and
for shared manufacturing cost centers for the Milford, Indiana, operations.
Note 11. New Accounting Pronouncement
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" (SFAS 133). In June, 2000, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 138, "Accounting for
Certain Derivative Instruments and Certain Hedging Activities an Amendment of
FASB Statement No. 133" (SFAS 138). The statements establish accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts (collectively referred to as
derivatives), and for hedging activities. These statements require that an
entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value.
These statements are effective for the Company's fiscal year beginning 2001. The
Company is evaluating SFAS 133 and SFAS 138 to determine their impact on the
consolidated financial statements.
On December 3, 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin 101 (SAB 101), Revenue Recognition in Financial Statements.
SAB 101 summarizes the SEC's interpretations of the application of generally
accepted accounting principles to revenue recognition. The Company believes that
its revenue recognition practices are in compliance with SAB 101.
<PAGE>
Note 12. Restructuring
A corporate restructuring program was announced in late September 1999. The
Company eliminated approximately 12% of the positions in its Milford, Indiana,
operations support, sales and administrative functions. The action resulted in a
pre-tax charge of $0.9 million, of which $0.6 million was recorded in cost of
sales and $0.3 million was charged against selling, general and administrative
expenses. During the fourth quarter of 1999, an additional accrual of $0.2
million was recorded in selling, general and administrative expenses upon the
elimination of positions in the Company's Milford, Indiana, and Brazilian sales
and administrative functions. Payments made for restructuring expenses during
the fourth quarter of 1999 were $0.4 million. Payments made for restructuring
expenses during the first, second and third quarters of 2000 were $0.3 million,
$0.2 million and $0.1 million respectively. The $0.1 million balance at
September 30, 2000, to be paid in future periods, is reported in accrued
liabilities.
<PAGE>
Item 2.
CTB International Corp. and Subsidiaries
Management's Discussion and Analysis
of Financial Condition and Results of Operations
For a full understanding of the Company's financial condition, results of
operations, and cash flows, this commentary should be read in conjunction with
the Company's Securities and Exchange Commission filings, including, but not
limited to the Company's Form 10-K for the fiscal year ended December 31, 1999.
Results of Operations
CTB International Corp. ("CTB" or the "Company") is a leading designer,
manufacturer and marketer of systems used in the grain industry and in the
production of poultry meat, pork and eggs. It serves the poultry, hog, egg
production and grain industries. The Company believes that it is the largest
global supplier of poultry production systems and grain storage bins and one of
the largest global providers of hog and egg production systems.
CTB operates from facilities in the U.S.A., Europe and Latin America as
well as through a worldwide distribution network. It markets its agricultural
products on a worldwide basis primarily under the CHORE-TIME(R), BROCK(R),
FANCOM(R), ROXELL(R), SIBLEY(R) and STACO(R) brand names.
Three Months Ended September 30, 2000 Compared with Three Months Ended
September 30, 1999
Net sales decreased 3.0% to $81.6 million in the three months ended
September 30, 2000 compared to $84.1 million in the corresponding period of
1999. The decline in sales is attributed to a combination of market softness and
currency weakness in western Europe offset somewhat by strong grain segment
sales.
Gross profit increased 5.7% to $23.8 million in the three months ended
September 30, 2000 or 29.2% of net sales compared to $22.5 million in the
corresponding period of 1999 or 26.8% of net sales. The gross profit margin
increase was attributable to continuing operational improvements offset somewhat
by an additional accrued warranty charge estimated at $0.4 million for repairs
expected to be made over the next three years. A $0.6 million charge for
restructuring costs recorded in 1999 also impacts the comparison with the
current quarter.
Selling, general and administrative expenses increased 1.1% or $0.2 million
to $11.5 million in the three months ended September 30, 2000 from $11.3 million
in the corresponding period of 1999. As a percent of net sales, selling, general
and administrative expenses were 14.0% in the three months ended September 30,
2000 and 13.5% in the corresponding period of 1999. The dollar increase is
primarily attributable to increased profit sharing costs resulting from improved
earnings and additions to the allowance for doubtful accounts in light of
general agriculture market weakness largely offset by reductions through
restructuring and cost savings efforts. A $0.3 million charge for restructuring
costs in 1999 also impacts the comparison with the current quarter. The increase
in selling, general and administrative costs as a percent of sales was due
primarily to the factors noted above compounded by lower sales volumes.
Amortization of goodwill remained at $0.6 million in the three months ended
September 30, 2000 compared to the corresponding period for 1999.
<PAGE>
Operating income increased 11.5% or $1.2 million to $11.7 million in the
three months ended September 30, 2000 compared to $10.5 million in the
corresponding period of 1999. Operating income margins increased to 14.4% of net
sales in the three months ended September 30, 2000 from 12.5% of net sales in
the corresponding period of 1999. The improvement in operating income was a
result of improved gross profit margins offset somewhat by a slight increase in
selling, general and administrative expenses and a decline in gross profit
dollars from lower sales volumes. The increase in operating income margins is
due to the improvement in gross profit margins offset slightly by the increase
in selling, general and administrative expenses as a percent of sales, as
discussed above.
Interest expense decreased to $1.1 million in the three months ended
September 30, 2000 compared to $1.6 million in the corresponding period for
1999. Lower interest expense resulted from lower average borrowings and lower
average all-in borrowing costs as financial measurements have improved,
resulting in lower borrowing rates on fixed rate debt.
Other income/expense increased to income of $0.1 million in the three months
ended September 30, 2000 compared to $0.8 million of expense in the three months
ended September 30, 1999. The change is due primarily to the reduction in 2000
of non-cash foreign exchange losses from U.S. dollar-denominated intercompany
balances.
Net income increased 32.6% or $1.6 million to $6.5 million in the three
months ended September 30, 2000 from $4.9 million for the corresponding period
of 1999. The increase was due to improved operating income, lower interest
expense, and foreign currency income as discussed above. Net income of $6.5
million is a record for any quarter.
Nine Months Ended September 30, 2000 Compared with Nine Months Ended
September 30, 1999
Net sales decreased 3.0% to $213.6 million in the nine months ended
September 30, 2000 compared to $220.3 million in the corresponding period of
1999. The decline in sales is attributed to a combination of continued market
softness and currency weakness in western Europe in 2000, and to the completion
of the poultry-building sales in 1999, which contributed $5.2 million of revenue
from buildings in the first three quarters of 1999. These factors were offset
somewhat by strong Grain Segment sales.
Gross profit increased 5.6% to $60.0 million in the nine months ended
September 30, 2000 or 28.1% of net sales compared to $56.9 million in the
corresponding period of 1999 or 25.8% of net sales. The gross profit margin
increase of 2.3 percentage points was attributable to operational improvements
as well as to the completion of the poultry-building sales in 1999, which
represented $5.2 million in buildings sales at essentially no margin, a
restructuring charge of $0.6 million in 1999 and a one-time non-cash purchase
accounting charge of $0.4 million in 1999 related to the Roxell N.V.
acquisition. These improvements were offset somewhat by a $1.0 million warranty
charge for repairs expected to be made over the next three years.
Selling, general and administrative expenses decreased 1.1% or $0.4 million
to $32.9 million in the nine months ended September 30, 2000 from $33.3 million
in the corresponding period of 1999. As a percent of net sales, selling, general
and administrative expenses were 15.4% in the nine months ended September 30,
2000 and 15.1% in the corresponding period of 1999. The dollar decrease is
primarily attributable to reductions through restructuring, cost savings efforts
and a 1999 restructuring charge of $0.3 million offset somewhat by increased
profit sharing costs resulting from improved earnings. The slight increase in
selling, general and administrative costs as a percent of sales was due to lower
sales volumes.
Amortization of goodwill decreased to $1.8 million in the nine months ended
September 30, 2000 or 6.6% from $1.9 million in the corresponding period for
1999, primarily from changes in foreign exchange rates.
Operating income increased 17.0% or $3.7 million to $25.3 million in the
nine months ended September 30, 2000 compared to $21.7 million in the
corresponding period of 1999. Operating income margins increased to 11.9% of net
sales in the nine months ended September 30, 2000 from 9.8% of net sales in the
corresponding period of 1999. The improvement in operating income was a result
of additional gross profit, and decreased selling, general and administrative
expenses. The increase in operating income margins is due to the improvement in
gross profit margins offset somewhat by the slight increase in selling, general
and administrative expenses as a percent of sales, as discussed above.
Interest expense decreased to $3.5 million in the nine months ended
September 30, 2000 or 27.8% from $4.9 million in the corresponding period in
1999. The decrease is due primarily to lower average borrowings and lower
average all-in borrowing costs as financial measurements have improved,
resulting in lower borrowing rates on fixed rate debt.
<PAGE>
Other income/expense improved by $1.9 million from 1999. The improvement is due
primarily to the 1999 impact of a non-cash foreign exchange loss from U.S.
dollar-denominated intercompany debt. This charge was primarily a result of the
devaluation of the Brazilian currency versus the U.S. dollar.
Net income increased 45.7% or $4.1 million to $13.1 million in the nine
months ended September 30, 2000 from $9.0 million for the corresponding period
of 1999. The increase was due to improvement in operating income, lower interest
expense, and reduction of foreign currency losses, as discussed above. Net
income of $13.1 million year to date, is a record for any year.
Financial Position
Changes in the financial position of the Company from December 31, 1999 to
September 30, 2000 were due primarily to operating activities.
Total assets decreased from $207.6 million at December 31, 1999 to $203.6
million at September 30, 2000. Accounts receivable increased by $8.3 million
from December 31, 1999 to September 30, 2000. Inventories decreased by $1.4
million from December 31, 1999. Inventories declined in spite of seasonal
increases in volume due to improved management and net changes in foreign
exchange rates. Accounts receivable was driven up by seasonal increases in sales
volume offset somewhat by net changes in foreign exchange rates. Net property,
plant and equipment decreased $4.6 million from December 31, 1999 to September
30, 2000, primarily due to depreciation and foreign exchange changes offset
somewhat by capital outlays that were low relative to depreciation charges.
Total liabilities decreased $10.0 million from $126.8 million at December 31,
1999 to $116.8 at September 30, 2000. Accounts payable and accrued liabilities
increased to $40.8 million from $30.6 million at December 31, 1999, primarily
from seasonal increases in volume and higher profit sharing, income tax and
warranty accruals. Long-term debt decreased $16.6 million from $77.1 million at
December 31, 1999 to $60.4 million at September 30, 2000 due to payments for
reduction of debt and changes in exchange rates on foreign denominated debt,
offset by borrowing to fund the purchase of treasury stock. Additionally, the
Accrued Earn-Out was paid during the first quarter of 2000.
Total shareholders' equity increased $6.1 million due primarily to the
increase of net income, offset somewhat by treasury stock purchases and changes
in cumulative translation adjustment.
Liquidity and Capital Resources
As of September 30, 2000, the Company had $29.4 million of working capital,
a decrease of $0.4 million from working capital of $29.8 million as of December
31, 1999. Net cash provided from operating activities for the nine months ended
September 30, 2000 was $21.2 million. Cash flows provided from operations were
primarily the result of net income, increases in accounts payable, accruals and
other liabilities and non-cash depreciation and amortization, offset by seasonal
increases in accounts receivable. Cash flows provided from operations in 1999
were $25.9 million, primarily provided by net income and changes in working
capital.
For the nine months ended September 30, 2000, cash used in investing
activities was $2.4 million, which was used primarily for acquisition of
property, plant and equipment. For the nine months ended September 30, 1999,
cash used in investing activities was $39.8 million, which was used primarily
for the acquisition of Roxell N.V. and acquisition of property, plant and
equipment.
For the nine months ended September 30, 2000, net cash used in financing
activities was $18.3 million. During this period there was a net $12.9 million
repayment on revolver borrowing and $5.4 million use of cash for treasury stock
purchases. For the nine months ended September 30, 1999, cash provided from
financing activities was $18.5 million. During this period there was a $20.2
million net borrowing on the revolving line of credit offset by $1.7 million of
cash used for treasury stock purchases.
<PAGE>
The Company believes that existing cash, cash flows from operations, and
available borrowings will be sufficient to support its working capital, capital
expenditures and debt service requirements for the foreseeable future.
Seasonality
Sales of agricultural equipment are seasonal, with poultry, hog and egg
producers purchasing equipment during prime construction periods in the spring,
summer and fall, and farmers and commercial storage installations traditionally
purchasing grain storage bins in the late spring and summer in order for them to
be constructed and ready for use in conjunction with the fall harvesting season.
The Company's net sales and net income have historically been lower during the
first and fourth fiscal quarters as compared to the second and third quarters
when distributors and dealers increase purchases to meet the seasonal demand of
end users.
The following table presents unaudited interim operating results of the
Company. The Company believes that the following information includes all
adjustments (consisting only of normal, recurring adjustments) that the Company
considers necessary for a fair presentation for the respective periods. The
operating results for any interim period are not necessarily indicative of
results for this or any other interim period or the entire fiscal year.
<TABLE>
<CAPTION>
(In thousands, except per share amounts) Three Months Ended
---------------------------------------------------------------------------------------------------------------------------
September 30, September 30, December 31, March 31, June 30,
2000 1999 1999 2000 2000
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Sales $ 81,551 $ 84,088 $ 52,350 $ 57,752 $ 74,294
Gross profit 23,791 22,502 13,211 16,132 20,113
Gross margin 29.2% 26.8% 25.2% 27.9% 27.1%
Operating income $ 11,747 $ 10,533 $ 3,566 $ 4,835 $ 8,761
Operating income margin 14.4% 12.5% 6.8% 8.4% 11.8%
Net income $ 6,475 $ 4,883 $ 1,202 $ 2,248 $ 4,406
Basic earnings per share $ 0.59 $ 0.41 $ 0.10 $ 0.20 $ 0.40
Basic weighted average common
shares outstanding 10,930 12,022 11,998 11,263 10,970
Diluted earnings per share $ 0.58 $ 0.40 $ 0.10 $ 0.20 $ 0.39
Diluted weighted average common
Shares outstanding 11,139 12,282 12,206 11,479 11,182
</TABLE>
Forward-Looking Statements
Certain statements contained herein including, without limitation, those
regarding (i) estimate of warranty costs and related repair period, (ii) ability
to support future working capital, capital expenditures and debt service
requirements, (iii) seasonality of the Company's business and (iv) market risk
associated with changes in interest and foreign exchange rates, contain certain
forward-looking statements concerning the Company's operations, economic
performance and financial condition. Because such statements involve risks and
uncertainties regarding the Company's business and operations and the
agriculture industry, actual results may differ materially from those expressed
or implied by such forward-looking statements. Please refer to the Company's
Securities and Exchange Commission filings, including, but not limited to, the
Company's Form 10-K filing, where specific risk factors that could cause actual
results to differ materially from the forward-looking statements made in this
document are identified.
<PAGE>
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company is subject to market risk associated with adverse changes in
interest rates and foreign currency exchange rates, but does not hold any market
risk sensitive instruments for trading purposes. Principal exposed to interest
rate risk at September 30, 2000 is $13.9 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 September 30, 2000, the
estimated reduction in future earnings, net of tax, is expected to be
approximately $0.2 million.
The Company utilizes foreign exchange contracts to minimize its exposure to
currency risk for the payment of its interest obligations on non-U.S. dollar
denominated debt. Foreign currency payments are received periodically from its
foreign subsidiaries to permit repayment of non-U.S. dollar denominated debt
owed by the parent company. Upon receipt, forward contracts may be purchased as
a hedge against exchange rate fluctuations that may occur between the receipt
date and the interest payment due date.
The Company mitigates its foreign currency exchange rate risk principally
by establishing local production facilities in the markets it serves and by
invoicing customers in the same currency as the source of the products. The
Company also monitors its foreign currency exposure in each country and
implements strategies to respond to changing economic and political
environments. The Company's exposure to foreign currency exchange rate risk
relates primarily to U.S. dollar-denominated inter-company loans and other
intercompany transactions. The Company's exposure related to such transactions
is not material to cash flows. However, exposure to the Company's financial
position and results of operations related to such transactions is anticipated
to be an adverse impact of approximately $25,000, net of tax, for every 10%
devaluation of the Brazilian Real per U.S. dollar and less than $10,000, net of
tax for every 10% appreciation of the Euro and its legacy currencies arising
from multiple intercompany transactions among the Company and its European
subsidiaries. These amounts are estimates only and are difficult to accurately
project due to factors such as the inherent fluctuation of intercompany account
balances and the existing economic uncertainty and unpredictable future economic
conditions in the international marketplace.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
See Note 7 to the financial statements
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
3.1 Form of Restated Certificate of Incorporation of the Company
filed as Exhibit 3.1 to the Company's Registration Statement
on Form S-1 (Registration No. 333-29873) (the "Company's
Registration Statement") and incorporated herein by
reference.
3.2 Form of By-laws of the Company filed as Exhibit 3.2 to the
Company Registration Statement and incorporated herein by
reference.
4.1 Specimen Certificate of Common Stock of the Company filed as
Exhibit 4.1 to the Company Registration Statement and
incorporated herein by reference.
10.1 Commitment Letter, dated as of March 21, 1997, by and among
CTB, Inc. and KeyBank National Association filed as Exhibit
10.1 to the Company Registration Statement and incorporated
herein by reference.
10.2 Asset Purchase Agreement, dated as of March 31, 1997, by and
between Butler Manufacturing Company and CTB, Inc. filed as
Exhibit 10.2 to the Company Registration Statement and
incorporated herein by reference.
10.3 Share Purchase Agreement, dated as of May 1, 1997, by and
among Chore-Time Brock Holding B.V. and Halder Investments
III B.V., Halder Investment III C.V., Stichting Fondshebeer
Fincon, Beldor B.V., V. Berger, A. Faber, J. Paquet, J.H.M.
Cremers and H.W. Gootzen and Fancom Holding B.V. filed as
Exhibit 10.3 to the Company Registration Statement and
incorporated herein by reference.
10.4 Asset Purchase Agreement, dated as of May 29, 1997, by and
between CTB, Inc., and Royal Crown Limited filed as Exhibit
10.4 to the Company Registration Statement and incorporated
herein by reference.
10.5 Stock Purchase Agreement, dated as of November 29, 1995, by
and among the Company, CTB Ventures, Inc., CTB, Inc. and the
selling shareholders party thereto filed as Exhibit 10.5 to
the Company Registration Statement and incorporated herein
by reference.
10.6 Shareholders Agreement, dated as of January 4, 1996, by and
among the Company and the Individual Shareholders party
thereto filed as Exhibit 10.6 to the Company Registration
Statement and incorporated herein by reference.
10.7 Board Representation Agreement, dated as of January 4, 1996,
by and among American Securities Capital Partners, L.P., J.
Christopher Chocola, Caryl Chocola and the Company filed as
Exhibit 10.7 to the Company Registration Statement and
incorporated herein by reference.
10.8 Form of Non-Qualified Stock Option Agreement filed as
Exhibit 10.8 to the Company Registration Statement and
incorporated herein by reference.
10.9 Profit Sharing Plan filed as Exhibit 10.9 to the Company
Registration Statement and incorporated herein by reference.
10.10 Management Incentive Compensation Plan filed as Exhibit
10.10 to the Company Registration Statement and incorporated
herein by reference.
10.11 Escrow Agreement, dated as of November 29, 1995, by and
among CTB Ventures, Inc., the shareholders party thereto and
NBD Bank, N.A., filed as Exhibit 10.11 to the Company
Registration Statement and incorporated herein by reference.
10.12 Management Consulting Agreement, dated as of January 4,
1996, by and among CTB, Inc. and American Securities Capital
Partners, L.P. filed as Exhibit 10.12 to the Company
Registration Statement and incorporated herein by reference.
10.13 Agreement for Partial Release of Escrowed Funds, dated as of
March 1, 1997, by and among CTB, Inc. and each of the
shareholders party thereto filed as Exhibit 10.13 to the
Company Registration Statement and incorporated herein by
reference.
10.14 Transaction Consulting Agreement, dated as of April 30,
1997, by and among the Company and American Securities
Capital Partners, L.P. filed as Exhibit 10.14 to the Company
Registration Statement and incorporated herein by reference.
10.15 Transaction Consulting Agreement, dated as of April 30,
1997, by and among CTB, Inc., and American Securities
Capital Partners, L.P. filed as Exhibit 10.15 to the Company
Registration Statement and incorporated herein by reference.
10.16 Acquisition Agreement of all shares of Roxell N.V., dated
November 30, 1998, filed as Exhibit 99.2 to the Company's
February 10, 1999 Form 8-K filing and incorporated herein by
reference.
10.17 Representations and Warranties of Sellers, filed as Exhibit
99.3 to the Company's February 10, 1999 Form 8-K filing and
incorporated herein by reference.
10.18 Amendment No. 3 dated as of November 19, 1998 to Credit
Agreement dated as of August 15, 1997 and incorporated
herein by reference.
10.19 1999 CTB International Corp. Stock Incentive Plan and
incorporated herein by reference.
11. Computation of Earnings Per Share.
22. Plan of merger and reincorporation on Definitive 14C dated
November 12, 1999 incorporated herein by reference.
27. Financial Data Schedule.
b) Reports on Form 8-K.
CTB International Corp. Adds Depth to Management Team With New Position
and New CFO.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CTB International Corp.
Dated: October 26, 2000 By /s/ Richard J. Freeman
---------------------------
Richard J. Freeman
Vice President and Chief Financial Officer
