<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 12, 1998
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
GENCOR INDUSTRIES, INC.
(Exact name of Registrant as specified in its charter)
---------------------
<TABLE>
<S> <C>
DELAWARE 59-0933147
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
</TABLE>
5201 N. ORANGE BLOSSOM TRAIL
ORLANDO, FLORIDA 32810
(407) 290-6000
(Address, including zip code, and telephone number,
including area code, or registrant's principal executive offices)
---------------------
E.J. ELLIOTT
PRESIDENT AND CHAIRMAN OF THE BOARD
GENCOR INDUSTRIES, INC.
5201 N. ORANGE BLOSSOM TRAIL
ORLANDO, FLORIDA 32810
(407) 290-6000
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
---------------------
WITH COPIES TO:
<TABLE>
<S> <C>
RANDOLPH H. FIELDS, ESQ. BART FRIEDMAN, ESQ.
GREENBERG TRAURIG HOFFMAN LIPOFF CAHILL GORDON & REINDEL
ROSEN & QUENTEL, P.A. 80 PINE STREET
111 NORTH ORANGE AVENUE, SUITE 2000 NEW YORK, NY 10005
ORLANDO, FLORIDA 32801 (212) 701-3000
(407) 420-1000
</TABLE>
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
---------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
===============================================================================================================================
PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM AMOUNT OF
TITLE OF SECURITIES TO BE OFFERING PRICE AGGREGATE REGISTRATION
TO BE REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE FEE
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value $.10 per share....... 4,140,000 $24.3125 $100,653,750 $29,692.87
===============================================================================================================================
</TABLE>
(1) Includes shares that may be sold to cover over-allotments.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c), based upon the average of the high and low prices
reported on the American Stock Exchange Composite Tape on June 10, 1998.
---------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED JUNE 12, 1998
3,600,000 SHARES
[LOGO] GENCOR INDUSTRIES, INC.
COMMON STOCK
($.10 PAR VALUE)
Of the 3,600,000 shares of Common Stock offered hereby (the "Offering"),
3,000,000 shares are being offered by Gencor Industries, Inc., a Delaware
corporation (the "Company" or "Gencor"), and 600,000 shares are being offered by
certain stockholders of the Company (the "Selling Stockholders"). See "Principal
and Selling Stockholders." The Company will not receive any of the proceeds from
the sale of the shares by the Selling Stockholders.
The capital stock of the Company consists of Common Stock and Class B
Stock. Each share of Common Stock and Class B Stock is entitled to one vote per
share on all matters, except that, with respect to the election of directors,
holders of Class B Stock, voting separately as a class, may elect 75% of the
members of the board of directors, and holders of Common Stock, voting
separately as a class, may elect the remaining 25% of the members of the board
of directors.
The Company's Common Stock is listed on the American Stock Exchange
("AMEX") under the symbol "GX." On June 10, 1998, the last reported sale price
of the Common Stock on the AMEX Composite Tape was $24.25 per share.
SEE "RISK FACTORS" BEGINNING ON PAGE 8 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
============================================================================================================
UNDERWRITING PROCEEDS
PRICE TO DISCOUNTS AND PROCEEDS TO TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) STOCKHOLDERS
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share................. $ $ $ $
- ------------------------------------------------------------------------------------------------------------
Total(3).................. $ $ $ $
============================================================================================================
</TABLE>
(1) The Company and the Selling Stockholders have agreed to indemnify the
several Underwriters against certain liabilities, including liabilities
under the Securities Act of 1933, as amended (the "Securities Act"). See
"Underwriting."
(2) Before deducting expenses payable by the Company estimated at $350,000.
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to 540,000 additional shares of Common Stock solely to cover
over-allotments. If this option is exercised in full, the total Price to
Public, Underwriting Discounts and Commissions, and Proceeds to Company will
be $ , $ , and $ , respectively. See "Underwriting."
The shares of Common Stock offered hereby are being offered by the several
Underwriters, subject to prior sale, when, as and if accepted by them and
subject to certain prior conditions including the right of the Underwriters to
reject any order in whole or in part. It is expected that the Common Stock will
be available for delivery on or about , 1998 at the offices of
Schroder & Co. Inc., New York, New York.
SCHRODER & CO. INC.
MCDONALD & COMPANY
SECURITIES, INC.
CREDIT LYONNAIS SECURITIES (USA) INC.
BLUESTONE CAPITAL PARTNERS, L.P.
, 1998
<PAGE> 3
ARTWORK -- WORLD MAP,
NOTING LOCATIONS OF FACILITIES
OF THE COMPANY
[INSIDE FRONT COVER]
[FOLD OUT -- PHOTOGRAPHS OF COMPANY PRODUCTS]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING OVERALLOTMENT, STABILIZING BIDS, SYNDICATE COVERING TRANSACTIONS AND
THE IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING."
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the consolidated financial statements and notes thereto
appearing elsewhere, or incorporated by reference, in this Prospectus. As used
in this Prospectus, unless the context indicates otherwise, the terms "Company"
and "Gencor" refer to Gencor Industries, Inc. and its subsidiaries. Unless
otherwise indicated, or the context otherwise requires, all information in this
Prospectus (i) is based on the assumption that the Underwriters' over-allotment
option is not exercised and (ii) gives retroactive effect to the two-for-one
split of the Common Stock in May 1998 and the two-for-one split of the Common
Stock in May 1997 (the "Stock Splits").
THE COMPANY
OVERVIEW
The Company is a leading manufacturer of process machinery for a wide
variety of end-markets. Products include machinery used in the production of
highway construction materials such as hot-mix asphalt, and machinery used to
produce food products such as pelletized animal feeds, edible oils, sugar and
citrus juices. The Company believes it has significant market share positions in
its principal product lines. The Company's products are manufactured in 13
plants in the United States, Asia, Australia, Europe and South America and are
sold through a combination of Company sales representatives, independent dealers
and agents located throughout the world. The Company operates in two business
groups: the Construction Equipment Group ("CEG") and the Consolidated Process
Machinery Group ("CPM"). The core product in each group is "process machinery,"
designed to process and transform bulk materials into end products. As a result
of the similar technologies shared by both business groups, the Company believes
it is realizing operational synergies.
CEG, which accounted for 46.2% of the Company's total consolidated revenue
for the six month period ended March 31, 1998, designs and manufactures
machinery and related equipment used for the production of asphalt and highway
construction materials. CEG's principal products include asphalt plants,
combustion systems and fluid heat transfer systems. CEG's technical and design
capabilities, environmentally friendly process technology and wide range of
products have enabled it to become a leading producer of asphalt production
equipment worldwide. The Company believes CEG has the largest installed base of
asphalt production plants in the United States.
CEG's products are sold primarily to the highway construction industry. The
principal factors driving demand for CEG's products are the level of government
funding for domestic highway construction and repair, infrastructure development
in emerging economies, the need for spare parts and a trend towards larger
plants (e.g. drum mix asphalt production) resulting from asphalt production
plant consolidation. On June 9, 1998, President Clinton signed the
Transportation Equity Act for the 21st Century into law (the "Transportation
Act"). The Transportation Act significantly increases authorized funding levels
for transportation infrastructure and services. The Transportation Act, which is
part of an overall effort to rebuild and repair aging interstate roads and
highways, raised highway funding levels to approximately $28 billion per year
over the next six years (compared to the approximately $20 billion that was
authorized for 1997). The Company believes that this legislation will lead to an
increase in demand for CEG's products.
CPM, which accounted for 53.8% of the Company's total consolidated revenue
for the six month period ended March 31, 1998, designs and manufactures process
machinery used in the production of scientifically compounded animal feeds,
edible oils, sugar and fruit juice concentrates. CPM's products include pellet
mills, crushers, flakers, grinders, crystallizers, centrifuges and equipment
used to concentrate juices, including presses, evaporators, heat exchangers and
dryers. The Company believes CPM has the largest installed base of pelleting and
grinding equipment in the world and that CPM's customers recognize its products
for their reliability and technology. The
3
<PAGE> 5
Company believes that its large installed base provides it with an advantage
relative to its competition in continuing to grow its aftermarket sales.
CPM's products are sold primarily to commercial agricultural companies,
integrated food producers, feed mills and food processing companies. CPM's
machinery enables its customers to manufacture food products more efficiently
and is a widely accepted method of scientifically processing animal feed. Over
the past several years, the domestic food processing machinery industry has
experienced strong growth, partly as a result of rising demand from overseas
markets which are increasingly adopting U.S. food production technologies. The
Company believes that as living standards continue to improve worldwide,
particularly in emerging economies, and the fragmented food processing industry
continues to consolidate, demand will continue to grow for CPM's products.
The Company generated sales for the six month period ended March 31, 1998
of $117.7 million, compared to sales of $83.9 million for the six month period
ended March 31, 1997. Of the increase of $33.8 million, approximately $8.9
million is attributable to organic growth in the Company's continuing
operations, while approximately $24.9 million resulted from the inclusion, in
the most recent period, of Gumaco Industria E Comercio Limitada and other
related companies ("Gumaco"), which the Company acquired effective July 1, 1997
and ACP Holdings PLC ("ACP"), which the Company acquired effective October 1,
1997. Operating income for the six month period ended March 31, 1998 was $14.6
million compared to operating income of $6.2 million for the six month period
ended March 31, 1997. Approximately 35% of sales for the six months ended March
31, 1998 were generated outside of North America.
BUSINESS STRATEGY
The Company's goal is to continue to improve its position as a technology
and industry leader in markets driven by the essential needs and demands of a
growing world population. Beginning in 1996, the Company undertook certain
strategic initiatives designed to facilitate growth and further increase
shareholder value.
Capitalize on Product and Market Synergies. The Company believes that it
can realize significant synergies by sharing technologies across its different
product lines. For example, while CPM currently supplies centrifuges and
crystallization towers which are used in the crystallization phase of sugar
processing, management believes that by incorporating technology from its other
business groups, the Company can develop new products such as dryers, conveyors
and thermal fluid heat transfer systems to expand its presence in the entire
sugar production process. The Company also recently developed synthetic fuel
production plants which utilize components from both its CEG and CPM product
lines and which created an additional market for the Company's products.
Expand International Markets and Sales. In the six month period ended
March 31, 1998, international sales constituted approximately 35% of total
revenues. The Company has manufacturing facilities in eight countries and
believes that international demand for its products is growing at a faster rate
than domestic demand. The Company intends to expand its independent sales
representative network outside North America in order to strengthen its market
share in Latin America and the Pacific Rim. The Company also intends to utilize
its substantial Brazilian manufacturing capacity to produce other CEG and CPM
products in order to further penetrate South American markets.
Grow Aftermarket Sales. The Company intends to utilize its installed base
of asphalt and food processing equipment to expand its aftermarket sales. In
addition, the Company has recently committed to make significant capital
expenditures to further improve the profitability of the replacement parts
portion of its pelleting business. The Company plans to purchase equipment that
will enable the Company to manufacture replacement parts at less cost than it
currently incurs. The Company also recently initiated restructuring in its parts
sales operations to intensify telemarketing and to expand aftermarket sales in
all of its business groups.
4
<PAGE> 6
Develop New Technological Innovations and Product Applications. The
Company continually works with its customers to develop new and more efficient
products to meet their needs. The Company intends to continue to focus on
research and development so that it remains the leading technological innovator
in its industry. The Company utilizes technologies involving advanced concepts
and disciplines in environmental regulatory compliance, fuel efficiency, energy
conservation, heat release and recovery, and noise attenuation and environmental
compatibility in manufacturing machinery and plants. For example, one of the
Company's subsidiaries developed the counterflow technology in asphalt plants,
which recaptures and burns emissions and vapors resulting in a cleaner and more
efficient manufacturing process.
Emphasize Operating Efficiencies. The Company continually seeks to improve
the profitability of its operations by maximizing the efficiency of its
facilities while tightening controls on its operating and administrative costs.
The Company believes that such efforts have resulted in higher marginal returns
due to substantial improvements in throughput, capacity utilization and
organizational efficiency.
Pursue Strategic Acquisitions. A key component of the Company's growth
strategy is the acquisition of complementary businesses that can effectively
increase the Company's market share and operating efficiencies, while
simultaneously expanding the Company's customer base and international presence.
Some of the Company's businesses operate in fragmented industries which present
consolidation opportunities. The Company will typically target acquisition
candidates with (i) earnings accretion potential, (ii) complementary product
lines and technologies, (iii) established technological and market leadership,
(iv) opportunities for economies of scale and synergies with the Company, (v)
solid growth potential, and (vi) international exposure. The Company believes
that its experience in identifying, completing, integrating and managing
acquisitions, as well as its reduced debt level, pro forma for the Offering,
position the Company favorably to execute this strategy.
The following table summarizes the Company's history of principal
acquisitions:
<TABLE>
<CAPTION>
YEAR ACQUISITION PRINCIPAL PRODUCTS
- ---- ------------------------------------- -------------------------------------
<S> <C> <C>
1985 Beverley Group Ltd. Thermal fluid heaters and industrial
incinerators
1986 Hy-Way Heat Company, Inc. Fluid heat transfer systems and
specialty tanks
1986 Bituma-Stor, Inc. and its wholly Asphalt plants and hot mix asphalt
owned subsidiary, Bituma Corporation storage silos
1988 The Davis Line and its wholly owned Batch mix asphalt plants, specialty
subsidiary, Midwest Tank and tanks and other products
Construction Holding Corporation
1996 Process Equipment Division of Pelleting, grinding, flaking, sugar
Ingersoll-Rand Company ("PED") processing and filtration equipment
1997 Gumaco Industria E Comercio Limitada Citrus processing machinery and
and other South American companies equipment
1997 ACP Holdings PLC and subsidiaries Road construction and crushing
machinery
</TABLE>
5
<PAGE> 7
RECENT DEVELOPMENTS
Following its business strategy to capitalize on product and market
synergies, the Company recently developed synthetic fuel production plants which
utilize components from both its CEG and CPM product lines and which created an
additional market for the Company's products. In June 1998, the Company
finalized agreements with Carbontronics, LLC ("Carbontronics") pursuant to which
Gencor is obligated to manufacture and install four synthetic fuel production
plants ("Fuel Plants") at three separate sites. Pursuant to agreements with
Carbontronics, Gencor will receive a 40% equity interest in Carbontronics and is
to receive a total of approximately $26 million for its machinery and
technology. The economic benefits realizable by the Company on its equity
interests depend, among other factors, on the plants being able to qualify for
tax credits under Section 29 of the Internal Revenue Code of 1986 (the "Code"),
and on the ability to produce and successfully market synthetic fuel, if any,
produced by the Fuel Plants. Each Fuel Plant must be placed in service before
July 1, 1998 in order for tax credits to be available on the output of the
plant. See "Risk Factors -- Synthetic Fuel Investment."
* * *
The Company's executive offices are located at 5201 North Orange Blossom
Trail, Orlando, Florida 32810, telephone (407) 290-6000.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by:
The Company................................ 3,000,000 shares(1)
The Selling Stockholders................... 600,000 shares
------------
Total.............................. 3,600,000 shares
============
Common Stock outstanding after the Offering.. 10,045,740 shares(1)(2)
Class B Stock outstanding after the
Offering................................... 1,766,128(3)
------------
Total common stock outstanding
after the Offering............... 11,811,868(4)
============
Use of proceeds.............................. For repayment of debt and general corporate
purposes
AMEX symbol.................................. GX
</TABLE>
- ---------------
(1) Does not include up to 540,000 shares of Common Stock to be sold by the
Company if the Underwriters' over-allotment option is exercised in full.
(2) Does not include 350,000 shares of Common Stock issuable upon the exercise
of stock options outstanding as of April 30, 1998.
(3) Shares of Class B Stock may be converted into shares of Common Stock on a
share for share basis. Does not include 1,616,000 shares of Class B Stock
issuable upon the exercise of stock options outstanding as of April 30,
1998. See "Description of Capital Stock -- Conversion Rights Applicable to
Class B Stock."
(4) Assumes conversion of the Class B Stock into shares of Common Stock. See
"Description of Capital Stock -- Conversion Rights Applicable to Class B
Stock."
6
<PAGE> 8
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(in thousands, except per share amounts and percentages)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED SEPTEMBER 30, MARCH 31,
---------------------------- ------------------
1995 1996 1997 1997 1998
------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net revenue...................................... $58,944 $60,208 $195,313 $83,936 $117,667
Gross profit(1).................................. 16,181 15,674 52,435 23,275 38,395
Operating income................................. 3,871 5,240 18,206 6,168 14,566
Income before income taxes....................... 3,125 3,951 11,021 3,341 9,504
Net income....................................... 2,537 2,756 6,896 2,143 5,893
Diluted income per share(2)...................... $ 0.36 $ 0.38 $ 0.74 $ 0.24 $ 0.60
Weighted average shares outstanding.............. 7,047 7,163 9,326 8,826 9,883
Dividends paid per share......................... $ -- $0.0125 $ 0.0125 $0.0125 $ 0.0250
AS ADJUSTED FOR THE OFFERING(3):
Net income....................................... $ 10,616 $ 7,753
Diluted income per share......................... 0.86 0.60
Weighted average shares outstanding.............. 12,326 12,883
OTHER FINANCIAL DATA:
Depreciation and amortization.................... $ 757 $ 695 $ 4,445 $ 2,659 $ 3,190
Capital expenditures............................. 454 1,397 1,580 1,259 2,230
Gross margin..................................... 27.4% 26.0% 26.8% 27.7% 32.6%
Operating margin................................. 6.6% 8.7% 9.3% 7.3% 12.4%
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 31, 1998
-------------------------
ACTUAL AS ADJUSTED(3)
-------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital............................................. $ 42,178 $ 42,178
Total assets................................................ 182,508 182,508
Total debt.................................................. 91,205 22,624
Shareholders' equity........................................ 26,802 95,383
Total debt to total capitalization(4)....................... 77.3% 19.2%
</TABLE>
- ---------------
(1) Equals Net Revenue less Production costs.
(2) Retroactively restated to effect the adoption of SFAS 128, "Earnings Per
Share."
(3) As adjusted to reflect the sale by the Company of 3,000,000 shares of Common
Stock at an assumed offering price of $24.25 per share and the application
of net proceeds therefrom as set forth under "Use of Proceeds."
(4) Total capitalization reflects the total of long-term debt and stockholders'
equity.
7
<PAGE> 9
RISK FACTORS
This Prospectus and certain of the documents incorporated herein by
reference contain forward-looking statements that involve risks and
uncertainties. Statements in this Prospectus regarding future financial
performance and other statements containing the words "expect," "believe,"
"anticipate," "project," "estimate," "predict," "intend" and similar expressions
are forward-looking statements. The Company's actual results could differ
materially from those anticipated in such forward-looking statements as a result
of a variety of factors, including those set forth in the following risk factors
and elsewhere in this Prospectus. Prospective investors should consider
carefully the following factors, in addition to other information contained in
this Prospectus, prior to making an investment in the Common Stock.
INTERNATIONAL EXPOSURE
In the first six months of fiscal 1998, international sales represented
approximately 35% of the Company's total revenues. The Company anticipates that
international operations will continue to account for a significant portion of
its business for the foreseeable future. As a result, the Company may be subject
to certain risks, including difficulty in staffing and managing foreign
subsidiary operations, difficulty in managing distributors and dealers, adverse
tax consequences, political and economic instability of governments, and
difficulty in accounts receivable collection. The Company is subject to the
risks associated with the imposition of protective legislation and regulations,
including those relating to import or export or otherwise resulting from trade
or foreign policy, in the nations in which it now or in the future will conduct
business. The Company cannot predict whether quotas, duties, taxes or other
charges or restrictions will be implemented by the U.S. or any other country
upon the import or export of the Company's products. There can be no assurance
that any of these factors, or the adoption of restrictive policies, will not
have a material adverse effect on the Company's business, financial condition
and results of operations. In addition, the Company denominates some sales by
foreign subsidiaries in local currency, and an increase in the relative value of
the dollar against such currencies may lead to a reduction in sales and
earnings. The Company's foreign currency exposures generally are not hedged and
there can be no assurance that the Company's future results of operations and
investments will not be adversely affected by currency fluctuations.
ACQUISITION STRATEGY; INTEGRATION OF ACQUIRED BUSINESSES
As part of its growth strategy, the Company intends to evaluate the
acquisitions of other companies, assets or product lines that would complement
or expand its existing businesses or broaden its customer relationships.
Although the Company conducts due diligence reviews of potential acquisition
candidates, the Company may not be able to identify all material liabilities or
risks related to potential acquisition candidates. There can be no assurance
that the Company will be able to locate and acquire any business, retain key
personnel and customers of an acquired business or integrate any acquired
business successfully, including the recent acquisitions of PED, Gumaco and ACP.
Additionally, there can be no assurance that financing for any acquisition, if
necessary, will be available on acceptable terms, if at all, or that the Company
will be able to accomplish its strategic objectives in connection with any
acquisition. Although the Company periodically considers possible acquisitions,
no specific acquisitions are probable as of the date of this Prospectus. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," and "Business -- Business Strategy."
INDEBTEDNESS; FINANCIAL COVENANTS
Upon completion of the Offering, the Company will have outstanding debt of
approximately $22.6 million, representing 19.2% of its total capitalization. The
Company's strategy contemplates continued strategic acquisitions, and a portion
of the cost of such acquisitions may be financed through additional
indebtedness. There can be no assurance that financing will continue to be
8
<PAGE> 10
available on terms acceptable to the Company or at all. In the absence of such
financing, the Company's ability to respond to changing business and economic
conditions, to fund scheduled investments and capital expenditures, to make
future acquisitions and to absorb adverse operating results may be adversely
affected. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources."
The Senior Secured Credit Agreement dated December 10, 1996, as amended to
date (the "Credit Facility") between the Company and the lenders party thereto
imposes certain financial and operating covenants upon the Company, including,
among others, restrictions on the ability of the Company to incur debt, or take
certain other corporate actions. The Credit Facility also limits the amount of
cash dividends that the Company may pay to a maximum of $250,000 per year,
subject to compliance with other loan covenants. The Company was in compliance
with these covenants as of March 31, 1998. In addition, the Credit Facility
requires that the Company maintain certain financial ratios and provides for
limitations on capital expenditures. The foregoing covenants may restrict the
Company's ability to obtain additional funds, dispose of assets, or otherwise
pursue its business strategies, and may impair the Company's ability to obtain
additional financing to fund future working capital requirements, capital
expenditures, acquisitions and other general corporate purposes. Changes in
economic or business conditions, results of operations or other factors could in
the future cause a violation of one or more covenants in the Credit Facility.
CYCLICALITY OF DEMAND FOR COMPANY PRODUCTS
Demand for the Company's products depends in part upon the level of capital
and maintenance expenditures by its industrial customers, in particular those by
the highway construction industry, commercial agricultural companies, integrated
food producers, feed mills and food processing and production companies. These
industries historically have been cyclical in nature and vulnerable to general
downturns in the economy. Decreases in industry spending could have a material
adverse effect upon demand for the Company's products and the Company's
business, financial condition and results of operations.
The agricultural industry serviced by the Company is susceptible to
fluctuations caused by adverse weather, natural disasters, disease, governmental
policies and similar adversities and factors beyond the Company's control. For
example, as a result of the slaughter of animals caused by Mad Cow Disease and
Swine Flu, there was a reduction of shipments of pelleting equipment to Europe
by the Company's food processing division in the first six months of fiscal
1998. In addition, the effect on the Brazilian orange crop of adverse weather
during the 1997 growing season may impact demand for the Company's products by
the Brazilian citrus industry. General downturns in the agricultural sector, as
well as the highway construction industry, could have a material adverse effect
on the Company's business, financial condition and results of operations. See
also "-- Quarterly Variations of Operating Results."
QUARTERLY VARIATIONS OF OPERATING RESULTS
The Company's operating results historically have fluctuated from quarter
to quarter as a result of a number of factors, including the value, timing and
shipment of individual orders and the mix of products sold. Moreover, although
revenues from certain large system contracts are recognized using the percentage
of completion method of accounting, the Company generally recognizes product
revenues upon shipment of its products. Accordingly, revenue in any quarter is
primarily dependent on product shipment.
The Company's asphalt production equipment operations are subject to
seasonal fluctuation, which may lower sales and result in possible losses in the
first and fourth fiscal quarters of each year. Traditionally, asphalt producers
do not purchase new equipment for shipment during the summer and fall months to
avoid disruption of their activities during peak periods of highway
construction. Pelleting and other food production equipment products are less
seasonal, but may
9
<PAGE> 11
result in lower demand in the second and third fiscal quarters. The Company
expects seasonality to have less of an influence on future results of operations
as it continues to add new companies and products and to grow in international
markets. However, there can be no assurance that such additions and growth will
reduce the seasonality of its product lines. See "Management's Discussion and
Analysis of Financial Condition and Operations -- Overview."
COMPETITION
The highway construction machinery and food process machinery industries
are highly competitive. In each of the lines of business in which the Company
provides goods and services, it competes with a variety of companies, many of
which have greater financial and other resources than the Company, or are
subsidiaries or divisions of larger organizations. In addition, the Company may
encounter competition from new market entrants. There can be no assurance that
competitors will not take actions, including developing new products, which
could adversely affect the Company's sales and operating results. See
"Business -- Industry Overview" and "Business -- Competition."
DEPENDENCE ON KEY PERSONNEL
The success of the Company's business will continue to depend substantially
upon the efforts, abilities and services of its executive officers and certain
other key employees. The loss of one or more key employees could adversely
affect the Company's operations. The Company's ability to attract and retain
qualified engineers and other professionals, either through direct hiring, or
acquisition of other businesses employing such professionals, will also be an
important factor in determining the Company's future success.
INTELLECTUAL PROPERTY MATTERS
The Company holds numerous patents covering technology and applications
related to various products, equipment and systems, and numerous trademarks and
trade names registered with the U.S. Patent and Trademark Office and in various
foreign countries. There can be no assurance as to the breadth or degree of
protection that existing or future patents or trademarks may afford the Company,
or that any pending patent or trademark applications will result in issued
patents or trademarks, or that the Company's patents, registered trademarks or
patent applications, if any, will be upheld if challenged, or that competitors
will not develop similar or superior methods or products outside the protection
of any patents issued, licensed or sublicensed to the Company. Although the
Company believes that none of its patents, technologies, products or trademarks
infringe upon the patents, technologies, products or trademarks of others, it is
possible that its existing patent, trademark or other rights may not be valid or
that infringement of existing or future patents, trademarks or proprietary
rights may occur. In the event that the Company's products are deemed to
infringe upon the patent or proprietary rights of others, the Company could be
required to modify the design of its products, change the name of its products
or obtain a license for the use of certain technologies incorporated into its
products. There can be no assurance that the Company would be able to do any of
the foregoing in a timely manner, upon acceptable terms and conditions, or at
all, and the failure to do so could have a material adverse effect on the
Company. In addition, there can be no assurance that the Company will have the
financial or other resources necessary to enforce or defend a patent, registered
trademark or other proprietary right, and, if the Company's products are deemed
to infringe upon the patents, trademarks or other proprietary rights of others,
the Company could become liable for damages, which could also have a material
adverse effect on the Company. See "Business -- Licenses, Patents and
Trademarks."
PRODUCT LIABILITY
The Company is engaged in a business that could expose it to possible
liability claims for personal injury or property damage due to alleged design or
manufacturing defects in the Com-
10
<PAGE> 12
pany's products. The Company believes that it meets existing professional
specification standards recognized or required in the industries in which it
operates, and has had no material product liability claims brought against it as
of the date hereof. Although the Company currently maintains product liability
coverage which it believes is adequate for the continued operation of its
business, such insurance may prove inadequate or become difficult to obtain or
unobtainable in the future on terms acceptable to the Company.
ENVIRONMENTAL MATTERS
The Company's operations are subject to federal, state, local and foreign
laws and regulations relating to the protection of the environment. Sanctions
for noncompliance may include revocation of permits, corrective action orders,
administrative or civil penalties and criminal prosecution. The Company's
business involves environmental management and issues typically associated with
historical manufacturing operations. To date, the Company's cost of complying
with environmental laws and regulations has not been material, but the fact that
such laws or regulations are changed frequently makes predicting the cost or
impact of such laws and regulations on its future operations uncertain. See
"-- Government Regulations" and "Business -- Environmental Matters."
SUPPLY AND PRICE OF RAW MATERIALS
The principal raw materials used by the Company are steel and related
products. The Company has no long-term supply agreements with any of its major
suppliers. However, the Company has generally been able to obtain sufficient
supplies of raw materials for its operations, and changes in prices of such
materials historically have not had a significant effect on its operations.
Although the Company believes that such raw materials are readily available from
alternate sources, an interruption in the Company's supply of steel and related
products or a substantial increase in the price of any of these raw materials
could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Business -- Sources of Supply and
Manufacturing."
SYNTHETIC FUEL INVESTMENT
Whether or not the Company will realize economic benefits from its equity
interest in Carbontronics will depend, among other factors, on the Fuel Plants
being able to qualify for tax credits under Section 29 of the Code and on the
ability to produce and successfully market synthetic fuel, if any, produced by
the Fuel Plants. Qualification for tax credits with regard to the synthetic fuel
projects requires satisfying a number of statutory criteria, and there can be no
guarantee that all of these criteria will be met. Section 29 of the Code imposes
a requirement that a qualified project must be placed in service before July 1,
1998. Failure to meet this and other statutory requirements for any project
could lead to the disqualification for tax credits. Tax credits are based on the
heating value of the synthetic fuel produced and sold to unrelated parties. See
"Prospectus Summary -- Recent Developments."
Construction of each Fuel Plant and its related feed stock preparation
facility involves a substantial number of risks, including shortages of
equipment, material and labor, work stoppages, labor disputes, weather
interference, unforeseen engineering, environmental and geological problems and
unanticipated cost increases. Difficulties in obtaining any requisite licenses
or permits could adversely affect the design, cost, completion or operation of a
Fuel Plant. The Fuel Plant technology and equipment manufactured by the Company
has only recently been developed and there can be no assurance that any of the
Fuel Plants will operate as intended or that the technology to be employed in
the projects will result in commercially viable synthetic fuel products.
Operation of the Fuel Plants involves various risks, including the potential for
breakdown or failure of equipment, the inability to obtain adequate supplies of
suitable feed stock or binder material, or performance of the equipment below
expected levels of output or efficiency, failure to keep on hand adequate
supplies of spare parts or other raw materials, operator error, utility
unavailability and catastrophic
11
<PAGE> 13
events such as fires, floods and earthquakes. There is no assurance that the
synthetic fuel to be produced by the Fuel Plants can be marketed at prices and
on terms that are financially advantageous.
The synthetic fuel projects will be required to comply with a number of
statutes and regulations relating to the health and safety of personnel and the
public, including the identification, generation, storage, handling,
transportation, disposal, record keeping, relating and reporting of and
emergency response in connection with materials relating to the facility that
may be hazardous or toxic, safety and health standards, practices and procedures
applicable to construction and operation of the facility, and environmental
protection requirements including standards and limitations relating to the
discharge of air and water pollutants and discharge of solid waste. See
"Risks -- Environmental Matters."
GOVERNMENT REGULATIONS
The Company is subject to a variety of governmental regulations relating to
the manufacturing of the Company's products. Any failure by the Company to
comply with present or future regulations could subject it to future
liabilities, or the suspension of production that could have a material adverse
effect on the Company's results of operations. Such regulations could also
restrict the Company's ability to expand its facilities, or could require the
Company to acquire costly equipment or to incur other expenses to comply with
such regulations. Although the Company believes it has the design and
manufacturing capability to meet all industry or governmental agency standards
that may apply to its product lines, including all domestic and foreign
environmental, structural, electrical and safety codes, there can be no
assurance that governmental laws and regulations will not become more stringent
over time, imposing greater compliance costs and increasing risks and penalties
associated with a violation. The cost to the Company of such compliance to date
has not materially affected the Company's business, financial condition or
results of operations. There can be no assurance, however, that violations will
not occur in the future as a result of human error, equipment failure or other
causes. The Company's customers are also subject to extensive regulations,
including those related to the workplace. The Company cannot predict the nature,
scope or effect of governmental legislation, or regulatory requirements that
could be imposed or how existing or future laws or regulations will be
administered, or interpreted. Compliance with more stringent laws or
regulations, as well as more vigorous enforcement policies of regulatory
agencies, could require substantial expenditures by the Company and could
adversely affect the Company's business, financial condition and results of
operations.
YEAR 2000 COMPLIANCE
Many existing computer systems and applications, and other control devices
use only two digits to identify a year in the date field, without considering
the impact of the upcoming change in the century. As a result, such systems and
applications could fail or create erroneous results unless corrected so that
they can process data related to the year 2000. The Company relies on its
computer systems, applications and devices in operating and monitoring all major
aspects of its business, including financial systems, customer services,
infrastructure, embedded computer chips, networks and telecommunications
equipment and end products. The Company is in the process of upgrading its
software to address the year 2000 issue. The Company currently estimates that
the costs associated with the year 2000 issue, and the consequences of
incomplete or untimely resolution of the year 2000 issue, will not have a
material adverse effect on the results of operations or financial position of
the Company.
EFFECTIVE VOTING CONTROL BY PRINCIPAL STOCKHOLDERS
The Company's executive officers and directors will beneficially own an
aggregate of approximately 16.8% of the outstanding shares of Common Stock after
this Offering (approximately 15.9% if the Underwriters' over-allotment option is
exercised in full). Moreover, the Company's executive
12
<PAGE> 14
officers and directors beneficially own an aggregate of approximately 96.0% of
the outstanding shares of the Company's $.10 par value Class B Stock ("Class B
Stock"). The Class B Stock is entitled to elect 75% (calculated to the nearest
whole number, rounding five-tenths to next highest whole number) of the members
of the board of directors of the Company. As a result, these stockholders can
elect more than a majority of the board of directors of the Company and exercise
significant influence over most matters requiring approval by the Company's
stockholders. This concentration of control may also have the effect of delaying
or preventing a change in control of the Company. See "Description of Capital
Stock -- Antitakeover Effects of the Provisions of the Charter and By-Laws and
of Delaware Law."
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering, the Company will have 10,045,740 shares
of Common Stock outstanding (10,585,740 shares if the Underwriters'
over-allotment option is exercised in full), substantially all of which will be
freely tradeable without restriction or further registration under the
Securities Act other than shares held by "affiliates" of the Company, as that
term is defined in Rule 144 under the Securities Act. The Company, together with
its executive officers and directors and the Selling Stockholders, who in the
aggregate will own or have the right to acquire 1,914,000 shares of Common Stock
upon completion of the Offering, have agreed that they will not directly or
indirectly offer, sell or otherwise dispose of any shares of Common Stock, or
other securities convertible into, or exercisable or exchangeable for, any
shares of Common Stock of the Company without the prior written consent of the
Underwriters for a period of 180 days from the date of this Prospectus, with the
exception of shares of Common Stock that the Company may issue in connection
with acquisitions that may be made in the future or pursuant to the exercise of
stock options. From time to time the Company may issue shares of Common Stock in
acquisition transactions and in respect thereof, may be required to register the
sale of such shares under the Securities Act. In such event, such shares would
be freely tradeable during the effectiveness of any such registration unless
subject to other restrictions. Sales of a substantial number of shares of Common
Stock in the public market following this Offering, or the perception that such
sales might occur after the applicable restrictions thereupon lapse could have a
material adverse effect on the market price of the Common Stock.
13
<PAGE> 15
USE OF PROCEEDS
The net proceeds from the sale of the 3,000,000 shares (3,540,000 shares if
the Underwriters' over-allotment option is exercised in full) of Common Stock
offered by the Company hereby (at an assumed public offering price of $24.25 per
share and after deducting the underwriting discount and estimated offering
expenses payable by the Company) are estimated to be approximately $68.6 million
($81.0 million if the Underwriters' over-allotment option is exercised in full).
The Company intends to use net proceeds from the sale of the shares offered by
it hereby to repay outstanding term loans under its Credit Facility, thereby
improving the Company's capital structure and enabling it to continue to pursue
its acquisition strategy.
The Company entered into the Credit Facility on December 10, 1996 in
conjunction with its acquisition of CPM and has amended such Credit Facility to
provide for, among other things, the Gumaco and ACP acquisitions during the
second half of calendar 1997. Pursuant to the Credit Facility at April 30, 1998,
the Company had $63.7 million in the aggregate outstanding under three term
loans, and, may borrow up to $48 million under its revolving credit facility.
The term loans amortize to maturity at various dates commencing December 2001
through December 2004, respectively. The revolving credit facility matures
December 2001. At April 30, 1998 the Company had an aggregate of $30 million in
borrowings outstanding under its revolving credit facility. The weighted average
interest rate for all borrowings under these credit facilities was 8.6% for
fiscal 1997. The indebtedness incurred under the Credit Facility was used to
finance working capital needs, capital expenditures and recent acquisitions.
The Company will not receive any of the proceeds from the sale of 600,000
shares by the Selling Stockholders.
14
<PAGE> 16
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
The Company's Common Stock is traded on the AMEX under the symbol "GX." The
following table sets forth, for the quarterly periods indicated, the high and
low sale prices of the Common Stock, as reported on the American Stock Exchange,
and the cash dividends paid on the Common Stock.
<TABLE>
<CAPTION>
DIVIDENDS PAID
HIGH LOW PER SHARE
------- ------- --------------
<S> <C> <C> <C>
FISCAL 1996
First Quarter............................................. $ 2.750 $ 1.875
Second Quarter............................................ 2.312 1.875 $0.0125
Third Quarter............................................. 2.656 2.875
Fourth Quarter............................................ 4.250 1.875
FISCAL 1997
First Quarter............................................. 4.625 3.250 0.0125
Second Quarter............................................ 5.187 3.687
Third Quarter............................................. 7.500 3.656
Fourth Quarter............................................ 8.093 5.687
FISCAL 1998
First Quarter............................................. 10.312 5.812 0.0250
Second Quarter............................................ 15.906 9.718
Third Quarter (through June 10, 1998)..................... 27.500 13.563
</TABLE>
On June 10, 1998, the last sale price of the Common Stock as reported on
the AMEX Composite Tape was $24.25 per share. As of May 6, 1998, there were 430
holders of record of the Common Stock. The Company estimates that approximately
2,560 additional stockholders own Common Stock held for their accounts at
brokerage firms and financial institutions.
The payment of cash dividends by the Company has been and will continue to
be at the discretion of the board of directors and will depend upon, among other
factors, the capital requirements, operating results, financial condition and
restrictions imposed by financing arrangements of the Company from time to time.
The Credit Facility allows the Company to pay cash dividends not to exceed
$250,000 in the aggregate in any fiscal year, subject to compliance with other
loan covenants.
15
<PAGE> 17
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company at March 31, 1998, as adjusted to reflect the sale of 3,000,000 shares
of Common Stock offered by the Company hereby (at an assumed public offering
price of $24.25 per share) and the application of the net proceeds therefrom as
described under "Use of Proceeds." This table should be read in conjunction with
the historical consolidated financial statements of the Company and related
notes, included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1998
----------------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS, EXCEPT
PERCENTAGES)
<S> <C> <C>
Long-term debt, including current maturities:
Revolving Credit Facility................................. $ 25,000 --
Term Loan Facility........................................ 63,699 $ 20,118
Other obligations......................................... 2,506 2,506
-------- --------
Total long term debt.............................. $ 91,205 $ 22,624
======== ========
Shareholders' Equity:
Preferred stock, par value $0.10 per share; 300,000 shares
authorized; none issued................................
Common stock, par value $0.10 per share; 15,000,000 shares
authorized; 6,545,740 shares issued (9,545,740, as
adjusted)(1)........................................... $ 654 $ 954
Class B stock, par value $0.10 per share; 6,000,000 shares
authorized; 1,766,128 shares issued(2)................. 177 177
Capital in excess of par value.............................. 9,356 77,637
Retained earnings........................................... 17,478 17,478
Cumulative translation adjustment........................... (768) (768)
Subscription receivable from officer........................ (95) (95)
-------- --------
Total shareholders' equity........................ 26,802 95,383
-------- --------
Total capitalization(3)........................... $118,007 $118,007
======== ========
Total debt to total capitalization.......................... 77.3% 19.2%
</TABLE>
- ---------------
(1) Does not include 350,000 shares of Common Stock issuable upon exercise of
stock options with a weighted average exercise price of $1.96 per share
outstanding as of April 30, 1998.
(2) Does not include 1,616,000 shares of Class B Stock issuable upon exercise of
stock options with a weighted average exercise price of $2.15 per share
outstanding as of April 30, 1998.
(3) Total capitalization reflects the total of long-term debt and shareholders'
equity.
16
<PAGE> 18
SELECTED CONSOLIDATED FINANCIAL DATA
(in thousands, except per share amounts)
The following selected financial data with respect to the Company's Income
Statements for the nine months ended September 30, 1993 and the years ended
September 30, 1994, 1995, 1996 and 1997, and the Company's Balance Sheet Data as
of September 30, 1993, 1994, 1995, 1996 and 1997, are derived from the Financial
Statements of the Company which have been audited by Deloitte & Touche LLP,
independent auditors. The selected financial data presented below for the six
months ended March 31, 1997 and 1998 are unaudited and were prepared by
management of the Company on the same basis as the audited Financial Statements
included elsewhere herein and, in the opinion of management of the Company,
include all adjustments necessary to present fairly the information set forth
therein. The results for the six months ended March 31, 1998 are not necessarily
indicative of the results to be expected for the full year ending September 30,
1998 or future periods. The following data should be read in conjunction with
the Financial Statements of the Company and the related notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," and "Business" included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS SIX MONTHS ENDED
ENDED YEARS ENDED SEPTEMBER 30, MARCH 31,
SEPTEMBER 30, -------------------------------------- --------------------
1993 1994 1995 1996 1997 1997 1998
------------- ------- ------- ------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net revenue................. $43,642 $57,732 $58,994 $60,208 $195,313 $83,936 $117,667
Operating income............ 2,072 3,560 3,871 5,240 18,206 6,168 14,566
Income before extraordinary
gain...................... 955 1,631 2,039 2,756 6,896 2,143 5,893
Extraordinary gain.......... -- -- 498 -- -- -- --
------- ------- ------- ------- -------- -------- --------
Net Income......... $ 955 $ 1,631 $ 2,537 $ 2,756 $ 6,896 $ 2,143 $ 5,893
======= ======= ======= ======= ======== ======== ========
PER SHARE DATA:
Basic(1)
Income before
extraordinary gain...... $ 0.15 $ 0.26 $ 0.29 $ 0.39 $ 0.85 $ 0.27 $ 0.71
Extraordinary gain........ -- -- 0.07 -- -- -- --
------- ------- ------- ------- -------- -------- --------
Net income......... $ 0.15 $ 0.26 $ 0.36 $ 0.39 $ 0.85 $ 0.27 $ 0.71
======= ======= ======= ======= ======== ======== ========
Diluted(1)
Income before
extraordinary gain...... $ 0.15 $ 0.26 $ 0.29 $ 0.38 $ 0.74 $ 0.24 $ 0.60
Extraordinary gain........ -- -- 0.07 -- -- -- --
------- ------- ------- ------- -------- -------- --------
Net income......... $ 0.15 $ 0.26 $ 0.36 $ 0.38 $ 0.74 $ 0.24 $ 0.60
======= ======= ======= ======= ======== ======== ========
Cash dividends declared per
common share.............. $ -- $ -- $ -- $0.0125 $ 0.0125 $0.0125 $ 0.0250
======= ======= ======= ======= ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, AS OF
------------------------------------------------------ MARCH 31,
1993 1994 1995 1996(2) 1997 1998
------------- ------- ------- ------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Current assets.............. $21,200 $23,437 $24,005 $69,813 $ 95,393 $105,191
Current liabilities......... 16,046 15,172 12,958 29,952 49,666 63,013
Total assets................ 35,138 34,538 34,819 119,061 163,152 182,508
Long-term debt, excluding
current maturities........ 12,388 11,263 11,708 73,746 86,489 85,145
Shareholders' equity........ 5,417 7,100 9,642 12,399 21,212 26,802
</TABLE>
- ---------------
(1) Applicable amounts have been restated to give retroactive effect to the
adoption of SFAS 128, "Earnings Per Share".
(2) Includes the Company's acquisition of CPM, effective as of September 30,
1996.
17
<PAGE> 19
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company achieved record sales and earnings in fiscal 1997, driven by
the acquisitions of PED and Gumaco as well as continued strong demand for
process machinery for highway construction materials. These record levels of
operating results have continued in the first half of fiscal 1998, driven by the
acquisition of ACP and synergistic benefits resulting from recent acquisitions.
Through fiscal 1996, the Company operated primarily as a manufacturer of
process machinery for the highway construction industry. In September 1996, the
Company made a strategic decision to diversify into machinery for the food
processing industry and acquired PED from Ingersoll-Rand (currently part of
CPM). With this acquisition, the Company combined its leading process machinery
technology with CPM's installed customer base and generated significant
operational and marketing synergies. The Company's acquisition of Gumaco further
expanded its food processing capabilities into new niche market areas while its
acquisition of ACP broadened its highway construction material processing
capabilities and provided CEG with greater access to international markets.
Currently, CPM is the larger of the two business groups, contributing 53.8% of
Company revenue and 49.8% of Company gross profit for the six month period ended
March 31, 1998.
The Company traditionally has experienced seasonality in its sales and
earnings. Asphalt producers typically do not purchase new equipment for shipment
during summer and fall months to avoid disruption of their activities during
peak periods of highway construction and repair. This has often resulted in
lower sales and earnings in the first and fourth fiscal quarters of each year.
The Company's newer business line, food process machinery, is less seasonal, but
does experience lower demand in the second and third fiscal quarters. The
Company expects seasonality to have less of an influence on future results as
CPM will help counteract CEG seasonality and as international diversification
helps to counteract domestic trends. In addition, the agricultural industry
serviced by the Company is susceptible to fluctuations caused by adverse
weather, natural disasters, disease, governmental policies and similar
adversities and factors beyond the Company's control.
Revenues from contracts for the design and manufacture of certain custom
equipment are recognized under the percentage-of-completion method. Revenue from
all other sales are recorded as the products are shipped. The
percentage-of-completion method of accounting for long term contracts recognizes
revenue in proportion to actual labor costs incurred as compared with total
estimated labor costs expected to be incurred during the entire contract. All
selling, general and administrative expenses are charged to income as incurred.
Provision is made for any anticipated contract losses in the period that the
loss becomes evident.
CONSOLIDATED RESULTS OF OPERATIONS
The consolidated statements of income, shareholders' equity and cash flows
are presented for the years ended September 30, 1995, 1996 and 1997 and for the
six months ended March 31, 1997 and 1998.
18
<PAGE> 20
The following table sets forth for the periods indicated, the Company's
sales, gross profit and gross profit margin by the two principal markets and by
international and domestic sales.
MARKET SECTOR ANALYSIS
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED SEPTEMBER 30, ENDED MARCH 31,
---------------------------- ------------------
1995 1996 1997 1997 1998
------- ------- -------- ------- --------
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C>
SALES
Transportation........................ $58,944 $60,208 $ 64,928 $29,389 $ 54,331
Food.................................. -- -- 130,385 54,547 63,336
------- ------- -------- ------- --------
Total....................... $58,944 $60,208 $195,313 $83,936 $117,667
======= ======= ======== ======= ========
GROSS PROFIT
Transportation........................ $16,181 $15,674 $ 19,125 $ 6,535 $ 19,260
Food.................................. -- -- 38,230 16,740 19,135
------- ------- -------- ------- --------
Total....................... $16,181 $15,674 $ 57,355 $23,275 $ 38,395
======= ======= ======== ======= ========
GROSS PROFIT MARGIN
Transportation........................ 27.5% 26.0% 29.5% 22.2% 35.4%
Food.................................. -- -- 29.3% 30.7% 30.2%
Total....................... 27.5% 26.0% 29.4% 27.7% 32.6%
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED SEPTEMBER 30, ENDED MARCH 31,
---------------------------- ------------------
1995 1996 1997 1997 1998
------- ------- -------- ------- --------
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C>
SALES
International......................... $ 2,517 $ 2,812 $ 61,209 $24,257 $ 40,680
Domestic.............................. 56,427 57,396 134,104 59,679 76,987
------- ------- -------- ------- --------
Total....................... $58,944 $60,208 $195,313 $83,936 $117,667
======= ======= ======== ======= ========
GROSS PROFIT
International......................... $ 796 $ 804 $ 14,588 $ 5,580 $ 10,645
Domestic.............................. 15,385 14,870 42,767 17,695 27,750
------- ------- -------- ------- --------
Total....................... $16,181 $15,674 $ 57,355 $23,275 $ 38,395
======= ======= ======== ======= ========
GROSS PROFIT MARGIN
International......................... 31.6% 28.6% 23.8% 23.0% 26.2%
Domestic.............................. 27.3% 25.9% 31.9% 29.7% 36.0%
Total....................... 27.5% 26.0% 29.4% 27.7% 32.6%
</TABLE>
Six months ended March 31, 1997 compared with the six months ended March 31,
1998
Net revenue for the six months ended March 31, 1998 increased by $33.8
million, or 40.2%, to $117.7 million from $83.9 million in the same period last
year. The transportation group contributed $25.0 million and food processing
equipment product lines added $8.8 million to the increase in net revenues. The
increase in sales as a result of the recent acquisitions of ACP and Gumaco was
$24.9 million. International sales, excluding the recent acquisitions, decreased
by $8.5 million to $15.8 million, or 17% of net sales, principally as a result
of an unusually high level of shipments during the first quarter of fiscal 1997
in Europe for the food processing division and the reduction of shipments to
Europe in the first six months of fiscal 1998 related to the slaughter of
animals caused by Mad Cow Disease and Swine Flu.
19
<PAGE> 21
Gross profit increased 65.0% to $38.4 million in the six months ended March
31, 1998 from $23.2 million in the same period of fiscal 1997. The
transportation group contributed $12.7 million and food processing equipment
product lines added $2.5 million to the increase in gross profit. The increase
in gross profit as a result of the recent acquisitions was $6.2 million. Gross
profit from international sales, excluding the recent acquisitions, decreased by
$1.1 million to $4.4 million in the six months ended March 31, 1998. Gross
profit as a percentage of sales increased to 32.6% in the six months ended March
31, 1998 from 27.7% in the prior period as a result of a more favorable product
mix.
Selling, general and administrative expenses increased to $22.5 million in
the first six months of fiscal 1998 from $15.9 million in the same period of
fiscal 1997 due primarily to the acquisitions of Gumaco and ACP. The
transportation group selling, general and administrative expenses increased by
$4.0 million and the food processing equipment selling, general and
administrative expenses increased by $2.6 million.
As a result of the above factors, operating income increased by $8.4
million to $14.6 million in the first six months of fiscal 1998 from $6.2
million in the first six months of fiscal 1997. The transportation group
contributed $8.6 million of this increase, which was offset by a reduction in
operating income of $0.2 million in the food processing equipment product lines.
The increase in operating income as a result of the recent acquisitions of ACP
and Gumaco was $0.3 million. Operating results from international activities,
excluding the recent acquisitions, decreased by $1.0 million to produce a loss
of $0.2 million in the first six months of 1998.
Year ended September 30, 1997 compared with the year ended September 30, 1996
Net sales for the twelve months ended September 30, 1997 were $195.3
million versus $60.2 million for the same period of 1996, an increase of $135.1
million or 224.4%. The increase resulted primarily from the inclusion of sales
from the acquisition of CPM.
Production costs were $142.9 million or 73.2% of net sales in fiscal 1997
versus $44.5 million or 74.0% of net sales in fiscal 1996. This increase in
production costs is a result of the CPM acquisition.
Selling, general, and administrative expenses increased in fiscal 1997 to
$31.4 million from $8.2 million in fiscal 1996, due primarily to the CPM
acquisition, including the related amortization of goodwill.
The increase in interest expense reflects higher average borrowing,
primarily as a result of financing the CPM acquisition.
Net income increased in fiscal 1997 to $6.9 million from $2.8 million in
fiscal 1996 as a result of the above factors.
Year ended September 30, 1996 compared with the year ended September 30, 1995
Net sales and revenue increased to $60.2 million in the twelve months ended
September 30, 1996 as compared to $58.9 million in the twelve months ended
September 30, 1995. Income before the extraordinary gain increased 35.2% from
$2.0 million in the twelve months ended September 30, 1995 to $2.8 million in
the 1996 period.
Sales in the U.S. increased slightly from $56.4 million in 1995's twelve
months to $57.4 million in the 1996 period. Production costs as a percentage of
sales also increased slightly between the two periods. Operating expenses in the
U.S. decreased $1.9 million in the twelve months ended September 30, 1996 from
20.9% of sales to 17.3% of sales. This increase resulted from a decrease in bad
debt expense and outside service costs.
Operating income in the U.S. increased from $3.7 million in the twelve
months ended September 30, 1995 to $5.1 million in 1996, as a result of the
higher sales volume and lower operating expenses.
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The Company's U.K. subsidiary's sales increased from $2.5 million in the
twelve months ended September 30, 1995 to $2.8 million in fiscal 1996. Operating
income in the U.K. decreased 19.2% from $.21 million in 1995 to $.17 million in
1996, as a result of sales of lower margin products.
Consolidated non-operating income and expense increased from a net expense
of $.7 million in the twelve months ended September 30, 1995 to $1.3 million in
fiscal 1996, as a result of higher interest expense due to higher average
outstanding debt balances combined with the loss of non-recurring equipment
rental income in fiscal 1995.
LIQUIDITY AND CAPITAL RESOURCES
For the six months ended March 31, 1998, cash provided by operations was
$9.9 million, an increase of $5.6 million, compared to fiscal 1997. This
increase was due primarily to an increase in net income and collections of
accounts receivable.
Working capital decreased by $3.5 million to $42.2 million at March 31,
1998, principally as a result of an increase in short-term notes payable related
to the credit facilities established by Gumaco and an increase in customer
deposits and accrued expenses.
Investing activities used $16.7 million in fiscal 1998 compared to $3.3
million in fiscal 1997, a change of $13.4 million, resulting primarily from the
acquisition of ACP.
Cash provided by financing activities was $6.2 million in fiscal 1998,
primarily as a result of an increase in borrowings related to the new credit
facilities established by Gumaco.
As of March 31, 1998, the Company had a revolving credit facility providing
a total of $48 million, of which $10 million remained unused. Interest rates
vary at the Company's option, based on a factor applied to the prime rate or
LIBOR. The weighted average interest rate for the borrowings under the revolving
credit facility at March 31, 1998 was 8.33%. The revolving credit facility is
payable through December 2001. Under the terms of its senior secured credit
agreement, the Company is required to maintain compliance with certain financial
and other covenants.
Under the Company's Credit Facility, the Company has $63.7 million in the
aggregate outstanding under three term loans which amortize to maturity at
various dates beginning December 2001 through December 2004. The weighted
average interest rate for these borrowings at March 31, 1998 was 8.46%.
The Company's asphalt production equipment operations are subject to
seasonal fluctuation, often resulting in lower sales in the first and fourth
fiscal quarters of each period and much lower earnings or losses during such
quarters. Traditionally, asphalt producers do not purchase new equipment for
shipment during the summer and fall months to avoid disruption of their
activities during peak periods of highway construction and repair. Pelleting and
processing equipment products are much less seasonal, resulting in lower demand
in the second and third fiscal quarters. The Company expects seasonality to have
less of an influence on future results of operations as it continues to grow in
international markets.
Based upon its present plans, the Company believes that its working
capital, operating cash flow and available credit resources will be adequate to
repay current portions of long-term debt, to finance currently planned capital
expenditures, and to meet the currently foreseeable liquidity needs of the
Company.
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BUSINESS
OVERVIEW
The Company is a leading manufacturer of process machinery for a wide
variety of end-markets. Products include machinery used in the production of
highway construction materials such as hot-mix asphalt and machinery used to
produce food products such as pelletized animal feeds, edible oils, sugar and
citrus juices. The Company believes it has significant market share positions in
its principal product lines. The Company's products are manufactured in 13
plants in the United States, Asia, Australia, Europe and South America and are
sold through a combination of Company sales representatives, independent dealers
and agents located throughout the world. The Company operates in two business
groups: CEG and CPM. The core product in each group is "process machinery,"
designed to process and transform bulk materials into end products. As a result
of the similar technologies shared by both business groups, the Company believes
it is realizing operational synergies.
CEG, which accounted for 46.2% of the Company's total consolidated revenue
for the six month period ended March 31, 1998, designs and manufactures
machinery and related equipment used for the production of asphalt and highway
construction materials. CEG's principal products include asphalt plants,
combustion systems and fluid heat transfer systems. CEG's technical and design
capabilities, environmentally friendly process technology and wide range of
products have enabled it to become a leading producer of asphalt production
equipment worldwide. The Company believes CEG has the largest installed base of
asphalt production plants in the United States.
CEG's products are sold primarily to the highway construction industry. The
principal factors driving demand for CEG's products are the level of government
funding for domestic highway construction and repair, infrastructure development
in emerging economies, the need for spare parts and a trend towards larger
plants (e.g. drum mix asphalt production) resulting from asphalt production
plant consolidation. On June 9, 1998, President Clinton signed the
Transportation Act into law. The Transportation Act significantly increases
authorized funding levels for transportation infrastructure and services. The
Transportation Act, which is part of an overall effort to rebuild and repair
aging interstate roads and highways, raised highway funding levels to
approximately $28 billion per year over the next six years (compared to
approximately $20 billion that was authorized for 1997). The Company believes
that this legislation will lead to an increase in demand for CEG's products.
CPM, which accounted for 53.8% of the Company's total consolidated revenue
for the six month period ended March 31, 1998, designs and manufactures process
machinery used in the production of scientifically compounded animal feeds,
edible oils, sugar and fruit juice concentrates. CPM's products include pellet
mills, crushers, flakers, grinders, crystallizers, centrifuges and equipment
used to concentrate juices, including presses, evaporators, heat exchangers and
dryers. The Company believes CPM has the largest installed base of pelleting and
grinding equipment in the world and that CPM's customers recognize its products
for their reliability and technology. The Company believes that its large
installed base provides it with an advantage relative to its competition in
continuing to grow its aftermarket sales.
CPM's products are sold primarily to commercial agricultural companies,
integrated food producers, feed mills and food processing companies. CPM's
machinery enables its customers to manufacture food products more efficiently
and is a widely accepted method of scientifically processing animal feed. Over
the past several years, the domestic food processing machinery industry has
experienced strong growth, partly as a result of rising demand from overseas
markets which are increasingly adopting U.S. food production technologies. The
Company believes that as living standards continue to improve worldwide,
particularly in emerging economies, and the fragmented food processing industry
continues to consolidate, demand will continue to grow for CPM's products.
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The Company generated sales for the six month period ended March 31, 1998
of $117.7 million, compared to sales of $83.9 million for the six month period
ended March 31, 1997. Of the increase of $33.8 million, approximately $8.9
million is attributable to organic growth in the Company's continuing
operations, while approximately $24.9 million resulted from the inclusion, in
the most recent period, of Gumaco and ACP. Operating income for the six month
period ended March 31, 1998 was $14.6 million compared to operating income of
$6.2 million for the six month period ended March 31, 1997. Approximately 35% of
sales for the six months ended March 31, 1998 were generated outside of North
America.
INDUSTRY OVERVIEW
The Company competes principally in selected markets of the highway
construction and food processing machinery industries.
Highway Construction Industry -- Construction Equipment Group
The road construction industry involves the building and maintenance of
highways, roads and bridges. The process of building and maintaining roads
includes materials production and application. The Company manufactures
equipment primarily for the materials production phase of road construction. The
principal material produced by the Company's equipment is a bituminous material
known as hot-mix asphalt ("HMA"), which is 95% aggregate, reprocessed asphalt
paving and mineral filler and 5% asphalt cement. HMA is the predominant material
used in paving roads and is produced in continuous and batch type asphalt
plants. Approximately 60% of the 3.9 million miles of roads in the U.S. are
paved, of which 55% are paved with "high type" materials. Approximately 90% of
the "high type" paved roads utilize HMA. The remaining 10% of "high type" roads
are paved with concrete. HMA is the preferred paving material because it is more
durable, economical, easily maintained, 100% recyclable, smoother and quieter to
drive on. The United States and Europe are the largest producers of HMA,
producing approximately 500 million tons and 269 million tons of HMA,
respectively, in 1996.
There are currently 4,000 to 5,000 asphalt production plants operating in
the United States and 4,000 mixing plants operating in Europe. In 1997, the
Company estimates approximately 100 asphalt plants were installed in the United
States and approximately 400 asphalt plants were installed internationally. The
Company's principal competitors in asphalt production plants include Ammann
Group, Astec Industries, Benninghoven GmbH, CMI Corporation, Marini SpA, Parker
International Ltd. and Teltomat Maschinen GmbH.
During the construction of the Interstate Highway System, which began in
1953 and was completed in the mid-1970's, HMA production in the U.S. had a
compounded annual growth rate of approximately 7.5%. The growth rate declined
from the 1970's to the present due to the fact that HMA was required primarily
for road maintenance and not new construction. However, the Company anticipates
accelerated growth in the future, which will be driven by the need to rebuild
and repair the aging interstate roads and highways in the U.S. and Europe as
well as the development of road infrastructure projects in developing countries.
Roads and bridges in the United States have deteriorated and continue to
deteriorate at a faster rate than improvements are made. Sixty percent of the
major roads are in poor to fair condition, and one-third of bridges are rated
structurally deficient or functionally obsolete. The U.S. Department of
Transportation has estimated that $357 billion is needed to improve the highway
system to optimum levels over the next five years, while $264 billion is needed
to maintain current conditions over the same period. On June 9, 1998, President
Clinton signed into law a $203 billion Transportation Act which authorizes $167
billion for highway funding and $36 billion for mass transit funding over the
next six years. The new highway funding levels are significantly greater than
previous levels, increasing to $28 billion per year (up from approximately $20
billion in 1997), and are part of an overall effort to rebuild and repair aging
interstate roads and highways. The highway construction industry is expected to
benefit from this legislation. There is also a consolidation trend in the U.S.
toward larger asphalt
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plants that meet stringent environmental requirements. The Company specializes
in manufacturing large asphalt plants consistent with that trend. The
international highway construction market is fragmented and also dependent upon
government funding of infrastructure projects. Development varies from region to
region, ranging from a very developed European infrastructure system to regions
that are in the process of development to regions which have not yet started any
infrastructure projects. Therefore, as these regions initiate and continue
progress on road construction, international demand is expected to grow for
asphalt production plants.
Food Processing Machinery -- Consolidated Process Machinery Group
The pelleting and particle size reduction equipment industry primarily
serves the feed processing and oilseed extraction industries. In feed
processing, pellet mills and particle size reduction equipment are used in the
production of scientifically compounded animal and aquaculture feeds used by
commercial feed companies and integrated food producers. Other uses for pellet
machinery include bio-mass and synthetic fuels production, waste processing, as
well as chemical and plastics manufacturing. Particle size reduction equipment
and flaking mills are utilized in the preparation of oil-bearing grains for the
extraction of vegetable oil. Particle size reduction equipment is also used in
the pharmaceutical and dry chemical industries. In addition to the Company,
major manufacturers include Andritz AG (Sprout-Matador A/S), Buhler Ltd,
Dorsser, Jacobson LLC, Kahl, Landers and UMT. The Company estimates that in
1997, worldwide sales of pelleting equipment were approximately $150 million,
and particle reduction equipment sales were approximately $60 million worldwide.
The world's food output is increasingly dependent upon improved management
and technology. Manufactured feed is necessary to produce high quality animal
products efficiently. The pellet mill is the only widely accepted process which
can scientifically process grain and compound the mineral concentrations, thus
increasing the grain-to-meat conversion ratio, improving palatibility,
eliminating selectivity and reducing waste and handling problems. This
translates into savings via faster growing and higher yielding livestock as well
as reduced production costs. Pellet feeds also allow livestock producers to
custom blend feeds to meet specific needs. Approximately 600 million tons of
feed are produced each year with the United States/Canada and Asia as the
largest producers. Manufactured feed production has been increasing in Asian and
Latin American countries at a much faster rate than in the United States and
Europe. Globally, approximately 45% of all manufactured feed is pelleted.
Although feed is produced by 25,000 companies around the world, 25% of feed
mills produce about 75% of the world's feed. Growth in the feed processing
industry is driven primarily by the increased consumption of meat. Worldwide
consumption of intensively farmed poultry, pork, finfish, shellfish and milk
products continues to rise. Other sources of the rising worldwide demand for
feed products are: the expanding population, the general expansion of global
trade and the dramatic increase in personal income in key developing countries,
particularly in Asia and Latin America. There is also a general trend toward
increased meat consumption per capita in countries and regions with improving
economic conditions. Approximately 247 million metric tons of oilseed crush are
produced annually, primarily in the United States/Canada, Asia and Latin
America. Trends in the oilseed market are similar to those in the feed industry.
Growth in the oilseed processing market is driven primarily by demand from the
feed industry for high protein soybean meal and demand for vegetable oils and
margarine for human consumption.
The sugar processing industry produces sugar from extracted sugar cane and
sugar beet juices. In the final stages of processing, sugar crystals are
extracted with crystallization towers and centrifuges. The Company manufactures
equipment specifically for the crystallization phase of the sugar production
process and manufactures both batch and continuous centrifuges as well as
crystallization towers. The batch centrifuge produces the highest quality of
sugar crystals and is used in the final stage of the sugar refinement process.
The continuous centrifuge is lower in cost but provides more output as it
processes in a "continuous" mode. Continuous centrifuges are used in the
preliminary stages of the crystallization process.
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The Company estimates that the annual worldwide market for equipment in the
crystallization phase of sugar production is approximately $75 to $100 million.
In addition to the Company, major producers of crystallization equipment include
Braunschweigische Maschinen GmbH, Dorr-Oliver Inc., Fives Cail Babcock,
Tsukishima Kikai Ltd. and The Western States Machine Company. Approximately 117
million tons of sugar are produced each year. Major production regions are
Asia/Australia, India, and Latin America. Sugar production growth typically
follows population trends and increases about two to three percent each year.
The United States is a relatively small sugar producer relative to the total
market, and the high per capita consumption of artificial sweeteners impacts
sugar usage in the United States. Growth in the market for crystallization
equipment is driven by modernization requirements, including mill expansions,
consolidations and upgrades for both increased volume and increased efficiency
to lower production costs. Worldwide, the industry trend is moving towards
larger mills with larger equipment, greater capacity, and longer production runs
to increase efficiency from higher production volume.
The citrus processing equipment industry manufactures plants to extract,
concentrate and freeze citrus fruit juices. In processing, juice is extracted
and then polished with a finisher which removes pulp and seeds. The juice may
then be pasteurized and packed as Not From Concentrate ("NFC") juice or it may
be concentrated in evaporators, standardized and stored as Frozen Concentrated
Orange Juice ("FCOJ") at temperatures below 20 degreesF. Most large processors
also dry the citrus waste which is then used to produce cattle feed as well as
produce essences and peel oil which is either centrifuged or steam distilled.
The Company manufactures most of the equipment in the processing plant except
for the extractors, cold pressed oil recovery equipment and finishers.
The orange is the most widely processed fruit with orange juice accounting
for 65% of all juice sales during the 1996-97 season. In the 1996-97 season,
approximately 56 million metric tons of oranges were produced, of which Brazil
produced 29% and the United States produced 23%. Brazil and the United States
processed approximately 88% of the 22,475,000 metric tons of oranges processed
worldwide. Other top orange-growing countries include Mexico, Spain, Egypt,
China and Italy. Brazil has been the top producer of oranges in the world since
the 1980s. The Brazilian citrus industry began as a result of the freeze that
destroyed Florida orange groves in 1962. In Brazil, nearly 100% of the oranges
processed are used to produce FCOJ. In Florida, approximately 71% of the oranges
are processed for FCOJ and 29% are processed for NFC. Worldwide, citrus
processing machinery sales in 1997 are estimated at approximately $60 million.
Very few competitors exist in the industry as the Company holds an 85% market
share in the FCOJ market. Most competitors are international companies with
niche markets in citrus and other fruits in certain geographic regions and, in
addition to the Company, include APV (a Siebe Group Company), FMC Corporation,
GEA AG, Schmidt-Bretten GmbH, and Unipektin AG. Growth in the market for citrus
processing machinery is driven by increased worldwide demand for high quality
premium juice products, the start up of production and processing of oranges and
other fruits in other countries, and new product applications for non-citrus
fruits as well as non-fruit products.
BUSINESS STRATEGY
Beginning in 1996, the Company undertook certain strategic initiatives
designed to facilitate growth and further increase shareholder value. The
Company's goal is to continue to improve its position as a technology and
industry leader in markets driven by the essential needs of a growing world
population.
Capitalize on Product and Market Synergies. The Company's core product is
process machinery. As a result of similar technologies shared by both of its
business groups, the Company believes that it can realize significant synergies
by sharing technologies across its different product lines and cross-selling
products in different geographical markets. Furthermore, by leveraging on the
wide range of products and services offered through both of its business groups,
the Company believes that it can better serve the needs of domestic and
international customers and markets. For example, while the Company currently
supplies centrifuges and crystallization towers which are
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used in the crystallization phase of sugar processing, management believes that
by incorporating technology from other business groups, the Company can develop
new products such as dryers, conveyors and thermal fluid heat transfer systems
to expand its presence in the entire sugar production process. The Company also
has recently developed synthetic fuel production plants which utilize components
from both its CEG and CPM product lines and which have created an additional
market for the Company's products.
Expand International Markets and Sales. In the six month period ended
March 31, 1998, international sales constituted approximately 35% of total
sales. The Company has manufacturing facilities in eight countries and believes
that international demand for its products is growing at a faster rate than
domestic demand. The Company believes that its ability to grow internationally
through its worldwide sales and manufacturing facilities is central to
maintaining and expanding its market position. The Company intends to expand its
independent sales representative network outside North America in order to
strengthen its market share in Latin America and the Pacific Rim. The Company
also intends to utilize its substantial Brazilian manufacturing capacity to
produce other CEG and CPM products in order to further penetrate South American
markets. Furthermore, as a result of its recent acquisitions, the Company
believes it is already well positioned in many international markets including
Europe, the Far East, Australia and Latin America where the Company believes
there is significant potential for its products. The ACP acquisition has also
added a complementary line of construction equipment machinery which is ideally
suited for developing economies which demand smaller batch type asphalt plants
and equipment.
Grow Aftermarket Sales. The Company intends to utilize its installed base
of asphalt and food processing equipment to expand its aftermarket sales. In
addition, the Company has recently committed to making significant capital
expenditures to further improve the profitability of the replacement parts
portion of its pelleting business. The Company plans to purchase equipment that
will enable it to manufacture replacement parts at a lower cost than it
currently incurs. The Company also recently initiated restructuring in its parts
sales operations to intensify telemarketing and to expand aftermarket sales in
all of its business groups.
Develop New Technological Innovations and Product Applications. The
Company continually works with its customers to develop new and more efficient
products to meet their needs. The Company intends to continue to focus on
research and development so that it remains the leading technological innovator
in its industry. The Company utilizes technologies involving advanced concepts
and disciplines in environmental regulatory compliance, fuel efficiency, energy
conservation, heat release and recovery and noise attenuation and environmental
comparability in manufacturing machinery and plants. For example, one of the
Company's subsidiaries developed the counterflow technology in asphalt plants,
which recaptures and burns emissions and vapors, resulting in a cleaner and more
efficient manufacturing process. The Company also recently developed new
applications for its products in other industries such as the pharmaceutical,
waste treatment, chemical and petrochemical industries.
Emphasize Operating Efficiencies. The Company continually seeks to improve
the profitability of its operations by maximizing the efficiency of its
facilities while tightening controls on its operating and administrative costs.
The Company believes that such efforts have resulted in higher marginal returns
due to substantial improvements in throughput, capacity utilization and
organizational efficiency. The Company also expects to achieve significant
economies of scale in conjunction with it acquisition strategy. The Company
expects to (i) consolidate facilities and reduce duplicative functions of newly
acquired businesses; (ii) emphasize products that yield higher margins,
including replacement parts; (iii) leverage purchasing power with suppliers; and
(iv) take advantage of cross-selling opportunities.
Pursue Strategic Acquisitions. A key component of the Company's growth
strategy is the acquisition of complementary businesses that can effectively
increase the Company's market share and operating efficiencies, while
simultaneously expanding the Company's customer base and
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international presence. Some of the Company's businesses operate in fragmented
industries which present consolidation opportunities. The Company will typically
target acquisition candidates with (i) earnings accretion potential, (ii)
complementary product lines and technologies, (iii) established technological
and market leadership, (iv) opportunities for economies of scale and synergies
with the Company, (v) solid growth potential, and (vi) international exposure.
The Company believes that its experience in identifying, completing, integrating
and managing acquisitions, as well as the Company's reduced debt level, pro
forma for the Offering, position the Company favorably to execute this strategy.
ACQUISITION HISTORY
The Company believes that its management team has demonstrated the ability
to identify, complete and integrate strategic acquisitions. In 1968, the
foundation of the Company was formed by the merger of Mechtron Corporation with
General Combustion, Inc. and Genco Manufacturing, Inc. The new entity
reincorporated in Delaware in 1969 and adopted the name Mechtron International
Corporation in 1970. In 1985, the Company began a series of acquisitions into
related fields starting with the Beverley Group Ltd. in the United Kingdom.
Hy-Way Heat Company, Inc. and the Bituma Group were acquired in 1986. In 1987,
the Company changed its name to Gencor Industries, Inc. and acquired the Davis
Line and its subsidiaries in 1988.
Beginning in 1996, the Company sought to diversify and expand its "process
machinery" product lines and markets in order to facilitate more opportunities
for growth and reduce seasonality in quarterly earnings. At the end of fiscal
1996, the Company embarked on its new strategy with the opportunistic
acquisition of PED (now CPM). CPM shared complementary technologies with the
Company's existing highway construction equipment business and enabled the
Company to enter a new industry, food processing machinery, as well as new
international markets. Less than a year later, the Company furthered its
expansion into the food processing machinery industry with the acquisition of
Gumaco in Brazil. The Company then continued to expand its penetration in the
highway construction industry with the acquisition of ACP in 1997.
Acquisitions
Building on the base of its combustion and asphalt machinery business, the
Company has successfully made the following acquisitions in process machinery:
- Process Equipment Division of Ingersoll-Rand Company. Effective
September 30, 1996, the PED acquisition (which subsequently became the
basis of the Company's CPM business), initiated the Company's strategy
of acquiring complementary process machinery businesses. The
acquisition nearly tripled the Company's revenues and provided it with
significant market share positions in new niche markets which
manufacture equipment to process food products such as pelletized
animal feeds, sugar and edible oils. Furthermore, the expansion into
the food machinery industry reduced the seasonality in the Company's
quarterly earnings since the slower quarters for construction
equipment are typically the strongest quarters for food processing
machinery and vice versa. The Company believes that CPM has the
largest installed base of pelleting and grinding equipment in the
world, which provides the Company with a competitive advantage in
growing its aftermarket sales. In addition, the acquisition provided
the Company with strategic access into international markets through
CPM's manufacturing facilities in Sweden, the Netherlands and
Singapore as well as created the opportunity for cross-selling with
CEG.
- Gumaco Industria E Comercio Limitada. Effective July 1, 1997 the
Company acquired Gumaco and certain other South American companies
with worldwide technology and substantial manufacturing capacity in
Brazil. These companies produce heavy machinery for the production and
processing of fruit juices. Gumaco is the world leader in the
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industry of manufacturing plants which extract, concentrate and freeze
juices. The Gumaco acquisition furthered the Company's expansion into
the food process machinery industry and provided the Company with
access to Latin American markets where the Company believes
significant opportunities exist for its other product lines. The
Company intends to start manufacturing these product lines in the
Brazilian manufacturing facility.
- ACP Holdings PLC. Effective October 1, 1997, the ACP acquisition
expanded Gencor's construction equipment product line as ACP is a
leading manufacturer of portable batch asphalt plants. These plants
are more suitable for international markets since capacity and
production needs are different and much lower in foreign markets than
in the United States. ACP is one of the largest exporters in the
United Kingdom for its type of construction equipment and products and
sells to developed markets all over the world including Australia,
China, Thailand, Malaysia, Southern Europe, Africa, the Middle East
and the Mediterranean. ACP has manufacturing facilities in the United
Kingdom and Australia and is an ideal complement to the Company's
Bituma and Davis product lines. The Company believes that it has a
competitive advantage in its ability to meet customer needs by
offering large and small as well as batch and continuous asphalt
plants and construction machinery.
PRODUCTS
Construction Equipment Group
Asphalt Plants. The Company's subsidiaries, Hetherington and Berner,
Bituma, and Gencor ACP manufacture plants which produce hot-mix asphalt, a
bituminous mixture comprised of 5% asphalt cement and 95% aggregate, reprocessed
asphalt paving and mineral filler. The Company also manufactures related asphalt
plant equipment including hot mix storage silos, fabric filtration systems, cold
feed bins and other plant components. Hetherington and Berner built the first
asphalt batch plant in 1894 and is the world's oldest asphalt plant
manufacturer. Bituma, formerly known as Boeing Construction Company, developed
the continuous process for asphalt production, which has been adopted worldwide
as the industry's standard technology, as well as the counterflow technology
which recaptures and burns emissions and vapors, resulting in a cleaner and more
efficient process. Gencor ACP manufactures the most comprehensive range of fully
mobile batch plants in the world and is a leading exporter of its type of
construction machinery.
Combustion Systems and Industrial Incinerators. The Company manufactures
combustion systems, which are large burners that can transform most solid,
liquid or gaseous fuels into usable energy or burn multiple fuels
simultaneously. Through its subsidiary, General Combustion, the Company has been
a significant source of combustion systems for the asphalt and aggregate drying
industries since the 1950's. The Company also manufactures combustion systems
for rotary dryers, kilns, fume and liquid incinerators, boilers and tank
heaters. The Company believes maintenance and fuel costs are lower for its
burners because of their efficient design.
Fluid Heat Transfer Systems. The Company's General Combustion subsidiary
manufactures the Hy-Way heat and Beverley lines of thermal fluid heat transfer
systems and specialty storage tanks for a wide array of industry uses. Thermal
fluid heat transfer systems are similar to boilers but use a high temperature
fluid instead of water. Thermal fluid heaters have been replacing steam pressure
boilers as the best method of heat transfer for storage, heating and pumping
viscous materials (i.e., asphalt, heavy fuels, etc.) systems in many industrial
applications worldwide. The high efficiency design of the Company's thermal
fluid heaters can outperform competitive units in many types of process
applications. Heaters are available for vertical, horizontal and underground
tanks in steel, stainless steel, nickel and other materials designed to meet
large or small specific job requirements.
28
<PAGE> 30
Consolidated Process Machinery Group
Pelleting Equipment. California Pellet Mill Company, a subsidiary of the
Company, manufactures pelleting equipment which is primarily used in the
production of scientifically compounded animal and aquaculture feed. The
equipment is also used for biomass and synthetic fuel production. Pellet mills
are the only widely accepted processes which can scientifically process grain
and compound mineral concentrations to achieve a highly efficient grain-to-meat
conversion ratio as well as improve palatibility to animals, lower production
costs and increase efficiency. The pelleting process compresses materials
ranging from fine powders to small granules into pellets of increased bulk
density. Pellets are durable, stable and highly resistant to disintegration and
breakage.
Grinding and Flaking Equipment. Under the names Roskamp and Champion, the
Company manufactures grinding and flaking equipment designed to grind and
process various grains, including wheat, soybeans and corn, which are used for
the production of pelletized animal feeds, grinding of mash feed and the
processing of seeds for edible oil production. The equipment is also used in the
pharmaceutical and dry chemical industries.
Sugar Processing Equipment. Under the name Silver-Weibull, the Company
designs and manufactures some of the largest continuous and batch centrifuges
and crystallization towers used in the processing of sugar from beets and sugar
cane. The batch centrifuge produces the highest quality of sugar crystals and is
used in the final stage of the sugar refinement process. The lower cost
continuous centrifuge is used in the preliminary stages of the crystallization
process and provides more output as it processes in a continuous mode.
Silver-Weibull's designed flexibility allows continuous monitoring of incoming
product consistency to assure the highest quality and production rates in the
industry.
Citrus Processing Machinery. Gumaco manufactures equipment including
presses, evaporators, heat exchangers and dryers which concentrate fruit juices.
Gumaco is the innovator of the patented T.A.S.T.E. (Thermally Accelerated
Short-Term Evaporator) which revolutionized the process of concentrating citrus
juices. This process results in less waste and energy consumption and commands
the majority of the world's market share for frozen concentrated orange juice.
Gumaco's T.A.S.T.E. efficiency and reliability has enabled the Company to expand
into the chemical, petrochemical, pharmaceutical and waste treatment industries.
PRODUCT ENGINEERING AND DEVELOPMENT
The Company is engaged in continuing worldwide product engineering and
development efforts to expand its product lines and to further develop more
energy efficient and environmentally compatible systems.
Significant developments include the use of cost effective, non-fossil
fuels, biomass (bagasse, municipal solid waste, sludge and wood waste),
refuse-derived fuel, coal and coal mixtures, the economical recycling of old
asphalt, new designs of environmentally compatible asphalt plants and
development of advanced designs of machinery for the remediation of contaminated
soil. In addition, product engineering and development activities are directed
toward more efficient methods of producing asphalt through a continuous effort
to improve the quality of the asphalt plants manufactured and the methods by
which asphalt is produced by the plants. Product engineering and development has
also focused on the development of combustion systems that operate at higher
temperatures and with higher levels of environmental compatibility, as well as
more efficient and lower cost fluid heat transfer systems.
29
<PAGE> 31
Product engineering and development efforts in the Company's pelleting,
grinding and flaking product lines are directed toward new mill design features,
such as quick change rollers and long-wearing dies, and developing testing
facilities to expand product uses to include pharmaceutical and scientific
applications. Product engineering and development expenses were approximately
$1.2 million and $1.3 million for the six month periods ended March 31, 1997 and
1998, respectively, and approximately $1.9 million, $2.2 million, and $2.8
million in the fiscal years ended September 30, 1995, 1996 and 1997,
respectively.
SOURCES OF SUPPLY AND MANUFACTURING
Substantially all products sold by the Company and its subsidiaries are
manufactured or assembled by the Company, except for procured raw materials and
hardware. The Company purchases a large quantity of steel used in the
manufacture of many of its products and various raw materials and hardware from
hundreds of suppliers. The Company does not believe it is dependent on any
single supplier for major raw materials or components. The Company reviews the
cost effectiveness of internal manufacturing versus subcontracting the assembly
of its product lines and currently believes it has the internal capability to
produce the lowest cost, highest quality products.
COMPETITION
The markets for the Company's products are highly competitive. Within a
given product line, the industry remains fairly concentrated, with typically a
small number of competitors accounting for the bulk of a product line's industry
sales. The principal competitive factors include product reliability and
performance, brand recognition, price, distribution, design features and
after-sale service. Management believes that its ability to compete depends on
exceptional product performance, innovative technologies, competitive pricing
and superior customer service support. In the international markets, the Company
competes with U.S. manufacturers and numerous global and local competitors.
Management believes that the Company's international manufacturing facilities
and distribution capabilities position it to provide value-added products and
services to the U.S. and international markets. See "Industry -- Overview."
SALES AND MARKETING
The Company's products and services are marketed internationally through a
combination of Company-employed sales representatives, independent dealers and
agents located throughout the world. The Company believes that it has developed
the largest and most comprehensive marketing and sales organization in its
industries, enabling it to focus on common end-markets and customers for all of
the Company's product lines throughout the world. Each of the Company's business
groups is responsible for the marketing of its products and services. Each
business division manages its own sales, promotion and marketing programs with
coordination and support provided by corporate sales and marketing functions.
CUSTOMERS
The Company's products are sold primarily through Company-employed sales
representatives, independent dealers and agents to large highway construction
companies, producers of materials used in highway construction, commercial
agricultural companies, integrated food producers, feed mills and food
processing companies. Some of the Company's major customers include:
Construction Equipment Group........ ARC Limited, Boral Limited (Boral
Asphalt), Cemex S.A., Diamond Shamrock
Corporation, Granite Construction,
Hanson PLC, Hoechst-Celanese
Corporation, Lafarge Corporation, Shell
Oil Corporation, Vulcan Materials
Company, and Wimpey Minerals.
30
<PAGE> 32
Consolidated Process Machinery
Group............................... Archer Daniels Midland Co., Cargill
Inc., Citrovita S.A., Dole Foods
Company, Louis Dreyfus Citrus S.A.,
Perdue Farms Inc., Spreckles Sugar Co.,
Sucorricos S.A., Sucocitrico Cutrale
S.A., TicoFrut S.A., Tropicana
Products, Inc., Tyson Foods, Inc. and
Western Sugar Company.
The Company's ten largest customers accounted for 21% of revenues in fiscal
1997, with no single customer accounting for more than 7% of revenues.
SALES BACKLOG
The nature of the Company's business is such as to require a relatively
short turnaround from order to shipment, usually less than ninety (90) days.
Therefore, the size of the Company's backlog should not be viewed as an
indicator of the Company's future financial results. The Company's backlog was
approximately $50 million on March 31, 1998. The Company believes that all of
this backlog will be delivered in fiscal 1998.
LICENSES, PATENTS AND TRADEMARKS
The Company holds numerous patents covering technology and applications
related to various products, equipment and systems, and numerous trademarks and
trade names registered with the U.S. Patent and Trademark Office and in various
foreign countries. In general, the Company depends upon technological
capabilities, manufacturing quality control and application know-how, rather
than patents or other proprietary rights in the conduct of its business. The
Company believes the expiration of any one of these patents or a group of
related patents would not have a material adverse effect on the overall
operations of the Company.
GOVERNMENT REGULATIONS
The Company believes its design and manufacturing processes meet all
industry and governmental agency standards that may apply to its entire line of
products, including all domestic and foreign environmental, structural,
electrical and safety codes. The Company's products are designed and
manufactured to comply with Environmental Protection Agency regulations. Certain
state and local regulatory authorities have strong environmental impact
regulations. While the Company believes such regulations have helped, rather
than restricted, its marketing efforts and sales results, there is no assurance
that changes to federal, state, local, or foreign laws and regulations will not
have a material adverse effect on the Company's products and earnings in the
future.
ENVIRONMENTAL MATTERS
The Company is subject to various federal, state, local and foreign laws
and regulations relating to the protection of the environment. The Company is
also subject to the federal Occupational Safety and Health Act and similar state
statutes. The Company believes it is in material compliance with all applicable
environmental laws and regulations. The Company does not expect any material
impact on future operating costs as a result of compliance with currently
enacted environmental regulations.
The Company also regularly conducts an environmental assessment consistent
with recognized standards of due diligence on properties and businesses which it
acquires. To date, these assessments have not identified contamination resulting
from acquired properties that would be reasonably likely to result in a material
adverse effect on the Company's business, results of operations or financial
condition.
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<PAGE> 33
LEGAL PROCEEDINGS
In the normal course of business, the Company has various lawsuits and
claims pending, which may be covered in whole or in part by insurance, and
which, in any event, if found against the Company, will not have a material
effect on the Company's results of operations. Management has reviewed all
litigation matters and, upon advice of counsel, has made provisions for any
estimable losses and expenses of litigation.
PROPERTIES
Set forth below are the properties of the Company:
<TABLE>
<CAPTION>
OWNED SQUARE
LOCATION ACREAGE FOOTAGE PRINCIPAL FUNCTION
- -------- ------- -------- ------------------
<S> <C> <C> <C>
Amsterdam, Netherlands(1)................ 1.2 64,000 Offices and manufacturing
Araraquara, Brazil(1).................... 29.2 295,000 Offices and manufacturing
Aurora, Colorado(1)...................... 16.8 117,000 Offices and manufacturing
Billingshurst, West Sussex England(1).... 1.2 5,000 Offices
Brisbane, Australia(2)................... N/A 15,000 Offices and manufacturing
Wuxi, Jiangsu, China(2).................. N/A 11,000 Offices and warehouse
Crawfordsville, Indiana(1)............... 2.7 62,000 Offices and manufacturing
Daventry, England(2)..................... N/A 3,000 Office and warehouse
Hasselholm, Sweden(2).................... N/A 10,000 Offices and manufacturing
Leicester, England(1).................... 6.0 97,000 Offices and manufacturing
Marquette, Iowa(1)....................... 72.0 137,000 Offices and manufacturing
Merrimack, New Hampshire(2)(3)........... N/A 37,000 Offices and manufacturing
Orlando, Florida(1)...................... 27.0 171,000 Principal offices and manufacturing
Rueil Malmaison, France(1)............... 0.2 4,000 Offices
Sao Paulo, Brazil(1)..................... 0.4 38,000 Offices
Singapore, Republic of Singapore(2)...... N/A 40,000 Offices and manufacturing
Waterloo, Iowa(1)........................ 11.5 55,000 Offices and manufacturing
Wexford, Ireland(1)...................... 5.6 60,000 Offices and manufacturing
</TABLE>
- ---------------
(1) Owned
(2) Leased
(3) The Company will be occupying this leased space commencing June 1998 and
closing its leased facilities in Nashua, New Hampshire and other leased
facilities in Merrimack, New Hampshire.
In addition, the Company owns properties in Youngstown, Ohio (5.5 acres;
45,000 square feet), Indianapolis, Indiana (11.3 acres; 79,000 square feet) and
North Kansas City, Missouri (0.7 acres; 6,000 square feet), which have been used
by the Company as offices, manufacturing and warehouse facilities, and which are
currently in the process of being sold by the Company.
EMPLOYEES
As of May 1, 1998, the Company employed 1,599 persons, including 147 in
sales and marketing, 108 in product development and engineering, 194 in
administration and 1,150 in manufacturing. The Company negotiated a collective
bargaining agreement as of June 25, 1996 effective through June 27, 1998,
covering production and maintenance employees at its Marquette, Iowa facility.
In addition, the Company has a collective bargaining agreement in place covering
production employees at its Crawfordsville, Indiana facility until April 1,
2000. None of the Company's remaining employees is represented by a labor union
or is subject to a collective bargaining agreement. The Company believes that
its relations with its employees are good. See "Risk Factors -- Dependence on
Key Personnel."
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<PAGE> 34
MANAGEMENT
The following table lists each director and executive officer of the
Company as of June 10, 1998. The table also includes the principal occupation
and business experience for the past five years, positions and offices held with
the Company, and period of service as a director or executive officer.
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION AND BUSINESS
NAME AND POSITIONS HELD WITH THE COMPANY AGE EXPERIENCE DURING THE PAST FIVE YEARS
- ---------------------------------------- --- -------------------------------------
<S> <C> <C>
E. J. Elliott.............................. 69 Chairman of the Board and President of the
Chairman of the Board and President; Company
Director(1)(4)(5)(6)(9)
Constantine L. Corpas...................... 68 Attorney, Corpas & Pahys
Director(1)(2)(3)(6)
John E. Elliott............................ 37 Executive Vice President of the Company
Executive Vice President, since 1989
Director(4)(7)(10)
Peter Kourmolis............................ 80 Investor
Director(2)(3)(6)
Glenn B. Dalby............................. 41 President, ACP Holdings PLC since 1985
Director(8)
David F. Brashears......................... 51 Senior Vice President, Technology, since
1993; Vice President of Engineering,
1978-1993
Marc G. Elliott(4)......................... 33 Vice President, Marketing since 1993;
previously served in various marketing
positions since joining the Company in
1988
D. William Garrett......................... 49 Vice President, Sales since 1991;
previously held various top management
positions in the Company or its
subsidiaries since 1984
Russell R. Lee, III........................ 48 Treasurer of the Company since 1995;
Corporate Controller, 1990-1995
</TABLE>
- ---------------
(1) Member of the Executive Committee.
(2) Member of the Audit Committee.
(3) Member of the Compensation Committee.
(4) E.J. Elliott is the father of John E. Elliott and Marc G. Elliott.
(5) Each executive officer holds office until his successor has been elected
and qualified, or until his earlier resignation or removal.
(6) Director of Company since 1968.
(7) Director of Company since 1985.
(8) Director of Company since 1998.
(9) Officer of Company since 1968.
(10) Officer of Company since 1985.
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<PAGE> 35
PRINCIPAL AND SELLING STOCKHOLDERS
The Selling Stockholders have advised the Company that they are selling
their shares hereunder in order to exercise and pay for Company stock options,
and to otherwise recoup a portion of certain amounts invested by the Selling
Stockholders as a condition to the financing of the acquisition of the PED
Division of Ingersoll-Rand pursuant to the Credit Facility. The following table
sets forth certain information regarding beneficial ownership of the Common
Stock and Class B Stock as of May 5, 1998, with respect to (i) each Selling
Stockholder, (ii) each person known by the Company to be the beneficial owner of
more than 5% of the Company's Common Stock or Class B Stock, (iii) each director
and executive officer of the Company, and (iv) the directors and executive
officers of the Company as a group. Except as otherwise noted, each named
beneficial owner has sole voting and investment power over the shares shown.
<TABLE>
<CAPTION>
SHARES
BEING
SHARES BENEFICIALLY OFFERED SHARES BENEFICIALLY
OWNED PRIOR TO OFFERING(1) ------- OWNED AFTER OFFERING
--------------------------------------------------- COMMON ---------------------
COMMON STOCK CLASS B STOCK STOCK COMMON STOCK
------------------------ ------------------------ ------- ---------------------
NUMBER PERCENT NUMBER PERCENT NUMBER NUMBER PERCENT
--------- ------- --------- ------- ------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
NAME
E. J. Elliott..................... 971,080(2) 13.8% 2,177,296(3) 85.5% 441,000 530,080 5.3%
Constantine L. Corpas............. 100,000(4) 1.4 110,000 6.2 0 100,000 1.0
John E. Elliott................... 468,096(5) 6.6 495,520(6) 22.7 70,000 398,096 4.0
Peter Kourmolis................... 77,566(7) 1.1 * * 0 77,566 *
David F. Brashears................ 129,824(8) 1.8 * * 29,000 100,824 1.0
D. William Garrett................ 100,456(9) 1.4 * * 0 100,456 1.0
Russell R. Lee, III............... 80,000(10) 1.1 * * 0 80,000 *
Marc G. Elliott................... 120,000(5) 1.7 465,520(6) 21.3 60,000 60,000 *
Wingspan Enterprises, Ltd......... 480,000(11) 6.8 * * 0 480,000 4.8
Harvey Houtkin.................... 634,952(12) 9.0 * * 0 634,952 6.3
All Directors and Executive
Officers as a Group (9
persons)........................ 2,287,022(13) 31.1 3,248,336(14) 96.0 600,000 1,687,022 16.8
</TABLE>
- ---------------
* Percentage ownership is less than 1%
(1) In accordance with Rule 13d-3 of the Securities Exchange Act of 1934, as
amended, shares that are not outstanding, but that are subject to option,
warrants, rights or conversion privileges exercisable within 60 days have
been deemed to be outstanding for the purpose of computing the percentage
of outstanding shares owned by the individual having such right but have
not been deemed outstanding for the purpose of computing the percentage for
any other person.
(2) Includes 120,000 shares owned jointly with John Elliott and 120,000 shares
owned jointly with Marc Elliott.
(3) Includes options to purchase 780,000 shares of Class B Stock.
(4) Includes options to purchase 60,000 shares of Common Stock.
(5) Includes 120,000 shares owned jointly with E.J. Elliott.
(6) Includes options to purchase 418,000 shares of Class B Stock.
(7) Includes options to purchase 58,000 shares of Common Stock.
(8) Includes options to purchase 60,000 shares of Common Stock.
(9) Includes options to purchase 40,000 shares of Common Stock.
(10) Includes options to purchase 80,000 shares of Common Stock.
(11) A corporation in which Glenn B. Dalby, a director of the Company, is a
principal shareholder.
(12) Based on a Schedule 13D dated July 17, 1997 filed by Harvey Houtkin with
the Securities and Exchange Commission. Includes 115,139 shares
individually owned by Mr. Houtkin and subject to sole voting and
dispositive power. Includes the following shares with Mr. Houtkin as
control person subject to shared voting and dispositive power: 518 shares
owned by Mark Shefts, who is Mr. Houtkin's brother-in-law. Also includes
128,489 shares held by Sherry Houtkin, wife of Mr. Houtkin; and 73,330
shares held by Wanda Shefts, wife of Mr. Shefts; as to which in the
aggregate, Mr. Houtkin disclaims beneficial ownership.
(13) Includes options to purchase 298,000 shares of Common Stock.
(14) Includes options to purchase 1,616,000 shares of Class B Stock.
34
<PAGE> 36
DESCRIPTION OF CAPITAL STOCK
The following summarizes the material terms of the capital stock of the
Company.
GENERAL
The authorized capital stock of the Company consists of 15,000,000 shares
of Common Stock, par value $.10 per share, 10,045,740 shares of which will be
issued and outstanding upon the consummation of this Offering (10,585,740 if the
Underwriters' over-allotment option is exercised in full); 6,000,000 shares of
Class B Stock, par value $.10 per share, 1,766,128 shares of which will be
issued and outstanding upon consummation of this Offering; and 300,000 shares of
Preferred Stock, par value $.10 per share, none of which will be outstanding
upon consummation of this Offering. As of May 15, 1998 there were 7,045,740
shares of Common Stock outstanding, 1,766,128 shares of Class B stock
outstanding and no shares of Preferred Stock outstanding.
RIGHTS OF THE COMMON STOCK AND CLASS B STOCK
Voting Rights
Each share of Class B Stock entitles the holder thereof to one vote on all
matters submitted to shareholders, except that holders of Common Stock shall
have the right, voting as a class, to elect approximately 25 percent of the
Board of Directors and the holders of Class B Stock shall have the right, voting
as a class, to elect approximately 75 percent of the Board of Directors. Where
adjustment is required, the holders of Class B Stock are entitled to elect 75
percent of the Board of Directors calculated to the nearest whole number
rounding any fractional number of five-tenths or more to the next highest whole
number, and the holders of Common Stock will be entitled to elect the balance of
the directors.
The Certificate of Incorporation provides that holders of Common Stock and
Class B Stock vote separately as a class on (i) any merger or consolidation of
the Company with or into any other corporation; or any sale, lease, exchange, or
other disposition of all or substantially all of the Company's assets to or with
any other person except where such merger or transaction is with a
majority-owned subsidiary of the Company; or any dissolution of the Company;
(ii) any additional issuance of shares of Class B Stock other than in connection
with stock splits and stock dividends on shares of Class B Stock or the exercise
of stock options by holders of Class B Stock; (iii) any modification, alteration
or amendment to the Certificate of Incorporation; and (iv) on any other matters
requiring a separate vote by classes provided for under the Delaware Corporation
Law.
Any action that can be taken at a meeting of the stockholders may be taken
by written consent in lieu of the meeting if the Company receives consents
signed by stockholders having the minimum number of votes that would be
necessary to approve the action at a meeting at which all shares entitled to
vote on the matter were present.
Dividends and Distributions (Including Distributions Upon Liquidation of the
Company)
Holders of Common Stock and Class B Stock are entitled to receive cash
dividends at the same rate if and when declared by the board of directors out of
funds legally available therefor, subject to the dividend and liquidation rights
of any Preferred Stock that may be issued and outstanding. With respect to
distributions other than cash dividends, all other distributions, including
stock dividends and all other distributions and rights including distributions
upon liquidation, the Common Stock and Class B Stock will rank equally and have
the same rights, except that stock dividends and stock splits of the Common
Stock and the Class B Stock will be payable or made to the holders of each such
class only in the shares of such class.
35
<PAGE> 37
Restrictions on Transfers of Class B Stock (Conversion of Class B Stock into
Common Stock)
As more fully described below, the Class B Stock is not transferable as
Class B Stock except to certain eligible transferees including such holder's
spouse, certain of such holder's relatives, certain trusts established for their
benefit, corporations and partnerships principally owned by such holders, their
relatives and such trusts, charitable organizations and such holder's estate.
Accordingly, there is no trading market for shares of Class B Stock.
Other than pursuant to conversions into Common Stock as described below,
the holder of shares of Class B Stock may transfer such shares (whether by sale,
assignment, gift, bequest, appointment, or otherwise) only to a permitted
transferee (a "Permitted Transferee") defined generally as follows:
(i) The spouse of the holder of such Class B Stock;
(ii) Any lineal descendant of a grandparent of such holder of Class B
Stock, including adopted children, and any spouse of such lineal descendant
(said descendants, together with such shareholder and such shareholder's
spouse, being hereinafter referred to as "such Class B Shareholder's Family
Members");
(iii) A trust principally for the benefit of such Class B
Shareholder's Family Members and charitable organizations;
(iv) Any charitable organization;
(v) A partnership or corporation, a majority of the beneficial
ownership of which is owned by such holder of Class B Stock and/or one or
more of his or her Permitted Transferees; and
(vi) The estate of such holder of Class B Stock.
Shares of Class B Stock held by a partnership or corporation may be
transferred to a person who transferred such shares to such partnership or
corporation (and to such person's Permitted Transferees). Shares of Class B
Stock may, upon certain circumstances, also be transferred by a corporation or
by a partnership to its successor. Shares held by trusts which are irrevocable
at the time of issuance of the Class B Stock may be transferred to any person to
whom or for whose benefit principal may be distributed under the terms of the
trust and such person's Permitted Transferees. Shares held by all other trusts
may be transferred to the person who established such trust and such person's
Permitted Transferees. Shares held by estates of Class B shareholders may be
transferred to Permitted Transferees of such Class B shareholders.
Any transfer of shares of Class B Stock not permitted under the Restated
Certificate of Incorporation shall result in the conversion of the transferee's
shares of Class B stock into shares of Common Stock, effective as of the day on
which certificates representing such shares are presented for transfer on the
books of the Company.
Conversion Rights Applicable to Class B Stock
The Class B Stock will be convertible on a share for share basis at all
times other than while the stock transfer books of the Company are closed for
any purpose. Any shares surrendered for conversion while the stock transfer
books are closed shall be converted immediately upon reopening the stock
transfer books as of the day such shares were surrendered for conversion.
Holders of Common Stock are not entitled to exchange or otherwise convert shares
of Common Stock into shares of Class B Stock. Shares of Class B stock are also
subject to conversion in the event of presentation for transfer to other than a
Permitted Transferee, as outlined above, and automatic conversion as outlined
below.
36
<PAGE> 38
Automatic Conversion of Class B Stock
All shares of outstanding Class B Stock will be converted into shares of
Common Stock on a share for share basis automatically and without further action
of the board of directors or the holders thereof if at any time (i) the number
of outstanding shares of Class B Stock as reflected on the stock transfer books
of the Company falls below 100,000 shares, or (ii) the board of directors and
the holders of a majority of the outstanding shares of the Class B Stock approve
the conversion of all of the outstanding shares of the Class B Stock into Common
Stock. In the event of such conversion, certificates formerly representing
outstanding shares of Class B Stock will thereafter be deemed to represent a
like number of shares of Common Stock.
Other
The currently outstanding Common Stock does not carry any preemptive rights
enabling a holder to subscribe for or receive shares of stock of the Company of
any class or any other securities convertible into shares of stock of the
Company. The Company delivers to the holders of Class B Stock the same
information and reports which it delivers to holders of Common Stock. The
Company expects the Common Stock to remain registered under the Securities
Exchange Act of 1934 but does not intend to register the Class B Stock under the
Act unless such registration is required by law.
PREFERRED STOCK
The Board of Directors may, without further action by the Company's
stockholders, from time to time, direct the issuance of shares of Preferred
Stock in series and may, at the time of issuance, determine the rights,
preferences and limitations of each series. Satisfaction of any dividend
preferences of outstanding shares of Preferred Stock would reduce the amount of
funds available for the payment of dividends on shares of Common Stock. Holders
of shares of Preferred Stock may be entitled to receive a preference payment in
the event of any liquidation, dissolution or winding-up of the Company before
any payment is made to the holders of shares of Common Stock. Under certain
circumstances, the issuance of shares of Preferred Stock may render more
difficult or tend to discourage a merger, tender offer or proxy contest, the
assumption of control by a holder of a large block of the Company's securities
or the removal of incumbent management. The Board of Directors, without
stockholder approval, may issue shares of Preferred Stock with voting and
conversion rights which could adversely affect holders of shares of Common
Stock. Upon consummation of the Offering, there will be no shares of Preferred
Stock outstanding, and the Company has no present intention to issue any shares
of Preferred Stock.
ANTI-TAKEOVER EFFECTS OF PROVISIONS OF THE CHARTER AND BY-LAWS AND OF DELAWARE
LAW
Charter and By-Laws
The Certificate of Incorporation authorizes the directors to issue, without
stockholder approval, shares of Preferred Stock in one or more series and to fix
the voting powers, designations, preferences and relative, participating,
optional or other special rights (and the qualifications, limitations or
restrictions of such preferences and rights) of the shares of each such series.
The Certificate of Incorporation and By-laws provide that special meetings of
the Company's stockholders may be called only by the President, and shall be
called by the President or Secretary at the request of a majority of the
directors or at the request in writing of the holder of a majority of the shares
of stock of the Company issued and outstanding and entitled to vote at any
meeting at which the directors of the Company are elected. The By-laws also
require a stockholder to provide to the Secretary of the Company advance notice
of business to be brought by such stockholder before any annual or special
meeting of stockholders as well as certain information regarding such
stockholder and others known to support such proposal and any material interest
they may have in the proposed
37
<PAGE> 39
business. These provisions could delay stockholder actions that are favored by
the holders of a majority of the outstanding stock of the Company until the next
stockholders' meeting.
The rights of the holders of Class B Stock to elect approximately 75
percent of the directors and the requirement that certain mergers,
consolidations, sales of assets, and other matters be approved by the
affirmative vote of a majority of the outstanding Common Stock and the
affirmative vote of a majority of the outstanding Class B Stock, in each case
voting separately as a class, may have a deterrent effect on takeover attempts.
Delaware Anti-Takeover Statute
The Company is subject to Section 203 of the Delaware General Corporation
Law which, subject to certain exceptions, prohibits a Delaware corporation from
engaging in any business combination with any interested stockholder for a
period of three years following the time that such stockholder became an
interested stockholder, unless: (i) prior to such time, the board of directors
of the corporation approved either the business combination or the transaction
which resulted in the stockholder becoming an interested stockholder, (ii) upon
consummation of the transaction which resulted in the stockholder becoming an
interested stockholder, the interested stockholder owned at least 85% of the
voting stock of the corporation outstanding at the time the transaction
commenced, excluding for purposes of determining the number of shares
outstanding those shares owned (x) by persons who are directors and also
officers and (y) by employee stock plans in which employee participants do not
have the right to determine confidentially whether shares held subject to the
plan will be tendered in a tender or exchange offer; or (iii) at or subsequent
to such time, the business combination is approved by the board of directors and
authorized at an annual or special meeting of stockholders, and not by written
consent, by the affirmative vote of at least two-thirds of the outstanding
voting stock which is not owned by the interested stockholder. The application
of Section 203 may limit the ability of stockholders to approve a transaction
that they may deem to be in their best interests.
In general, Section 203 defines "business combination" to include: (i) any
merger or consolidation involving the corporation and the interested
stockholder; (ii) any sale, transfer, pledge or other disposition of 10% or more
of the assets of the corporation to or with the interested stockholder; (iii)
subject to certain exceptions, any transaction which results in the issuance or
transfer by the corporation of any stock of the corporation to the interested
stockholder; (iv) any transaction involving the corporation which has the effect
of increasing the proportionate share of the stock of any class or series of the
corporation beneficially owned by the interested stockholder; or (v) the receipt
by the interested stockholder of the benefit of any loans, advances, guarantees,
pledges or other financial benefits provided by or through the corporation. In
general, Section 203 defines an "interested stockholder" as any entity or person
beneficially owning 15% or more of the outstanding voting stock of the
corporation and any entity or person associated with, affiliated with or
controlling or controlled by such entity or person.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is Firstar Trust
Company, 1555 North River Center Drive, Suite 301, Milwaukee, Wisconsin 53212.
38
<PAGE> 40
UNDERWRITING
The Underwriters named below (the "Underwriters") for whom Schroder & Co.
Inc., McDonald & Company Securities, Inc., Credit Lyonnais Securities (USA) Inc.
and BlueStone Capital Partners, L.P. are acting as representatives (the
"Representatives"), have severally agreed, subject to the terms and conditions
of the Underwriting Agreement, to purchase from the Company and the Selling
Stockholders, and the Company and the Selling Stockholders have agreed to sell
to the Underwriters, the aggregate number of shares of Common Stock set forth
opposite their respective names.
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
- ----------- ----------------
<S> <C>
Schroder & Co. Inc..........................................
McDonald & Company Securities, Inc..........................
Credit Lyonnais Securities (USA) Inc........................
BlueStone Capital Partners, L.P.............................
----------
Total............................................. 3,600,000
==========
</TABLE>
The Underwriting Agreement provides that the Underwriters are obligated to
purchase all of the shares of Common Stock offered hereby, if any such shares
are purchased.
The Representatives have advised the Company and the Selling Stockholders
that the Underwriters propose to offer the shares of Common Stock directly to
the public, initially at the public offering price set forth on the cover page
of this Prospectus; that the Underwriters propose initially to allow a
concession not in excess of $ per share to certain dealers and that the
Underwriters and such dealers may initially allow a concession not in excess of
$ per share to other dealers. After the initial offering of the shares of
Common Stock, the public offering price and stock concessions may be changed.
The Company has granted the Underwriters an option exercisable for 30 days
from the date of the Underwriting Agreement, to purchase up to an additional
540,000 shares of Common Stock at the public offering price less underwriting
discounts and commissions, all as set forth on the cover page of this
Prospectus. The Underwriters may exercise the option, in whole or in part, only
to cover over-allotments, if any, in connection with the sale of shares of
Common Stock offered hereby.
The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act.
The Company, its directors and executive officers, and the Selling
Stockholders have agreed not to offer, sell, contract to sell, grant an option
to purchase or otherwise dispose (or announce any offer, sale, grant of any
option or other distribution) of any shares of Common Stock or any securities
convertible into or exchangeable for shares of common stock for a period of 180
days following the Offering without the prior written consent of Schroder & Co.
Inc.
The Underwriters may engage in over-allotment, stabilizing transactions,
syndicate covering transactions, and penalty bids in accordance with Regulation
M under the Securities Exchange Act of 1934 (the "Exchange Act"). Over-allotment
involves syndicate sales in excess of the offering size, which creates a
syndicate short position. Stabilizing transactions permit bids to purchase the
39
<PAGE> 41
underlying security so long as the stabilizing bids do not exceed a specific
maximum. Syndicate covering transactions involve purchases of the securities in
the open market after the distribution has been completed in order to cover
syndicate short positions. Penalty bids permit the Underwriters to reclaim a
selling concession from a syndicate member when the securities originally sold
by such syndicate member are purchased in a syndicate covering transaction to
cover syndicate short positions. Such stabilizing transactions, syndicate
covering transactions and penalty bids may cause the price of the securities to
be higher than it would otherwise be in the absence of such transactions. These
transactions may be effected on the AMEX or otherwise and, if commenced, may be
discontinued at any time.
Credit Lyonnais New York Branch, an affiliate of Credit Lyonnais Securities
(USA), Inc., an underwriter for this Offering, is the agent bank and a lender
under the Credit Facility, and will receive its pro rata share relative to all
lenders under the Credit Facility of the proceeds of the Offering. See "Use of
Proceeds." Accordingly, the Offering is being conducted in accordance with the
requirements of Rule 2720 of the Conduct Rules of the National Association of
Securities Dealers, Inc.
40
<PAGE> 42
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents heretofore filed by the Company with the Commission
(File No. 1-11703) pursuant to the Exchange Act are incorporated by reference in
this Prospectus and shall be deemed to be a part hereof:
1. The Company's Annual Report on Form 10-K for the year ended
September 30, 1997 and Form 10-K/A (Amendment No. 1) to said Form 10-K
filed January 20, 1998.
2. The Company's Quarterly Reports on Form 10-Q for the periods ended
December 31, 1997 and March 31, 1998; and
3. The Company's Current Reports on Form 8-K dated October 27, 1997
and November 20, 1997.
All documents filed by the Company with the Commission pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this Prospectus
and prior to the termination of the Offering shall be deemed to be incorporated
by reference in this Prospectus and to be a part hereof from their respective
dates of filing. Any statement contained herein or in any document incorporated
or deemed to be incorporated shall be deemed to be modified or superseded for
all purposes of this Prospectus to the extent that a statement contained in this
Prospectus or in any subsequently filed document which also is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus. The making of a
modifying or superseding statement shall not be deemed an admission for any
purposes that the modified or superseded statement, when made, constituted a
misrepresentation, an untrue statement of a material fact or an omission to
state a material fact that is required to be stated or that is necessary to make
a statement not misleading in light of the circumstances in which it was made.
The Company hereby undertakes to provide without charge to each person to
whom a copy of this Prospectus has been delivered, upon written or oral request
of such person, a copy of any and all of the information that has been
incorporated by reference in the Prospectus (other than exhibits to the
information that is incorporated by reference unless such exhibits are
specifically incorporated by reference into the information that this Prospectus
incorporates). Requests should be directed to Secretary, Gencor Industries,
Inc., at the Company's principal executive offices, 5201 N. Orange Blossom
Trail, Orlando, Florida 32810, telephone number (407) 290-6000. Persons
requesting copies of exhibits to such documents that were not specifically
incorporated by reference in such documents will be charged the costs of
reproduction and mailing.
This Prospectus includes trade names and trademarks of companies other than
Gencor. The use of any such third party trade name or trademark herein is an
editorial fashion only, and to the benefit of the owner thereof, with no
intention of commercial use or infringement of such trade name or trademark.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company and the Selling Stockholders by Greenberg Traurig Hoffman Lipoff Rosen &
Quentel, P.A., 111 North Orange Avenue, Orlando, Florida 32801. Certain matters
will be passed upon for the Underwriters by Cahill Gordon & Reindel (a
partnership including a professional corporation), 80 Pine Street, New York, New
York 10005.
EXPERTS
The consolidated financial statements of the Company at September 30, 1997
and 1996, and for each of the three years within the period ended September 30,
1997, appearing in this Prospectus
41
<PAGE> 43
and Registration Statement have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their report thereon appearing elsewhere
herein, and are included in reliance upon the report of such firm given upon
their authority as experts in accounting and auditing.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Exchange
Act, and in accordance therewith files reports, proxy statements and other
information with the Securities and Exchange Commission (the "Commission"). Such
reports, proxy statements and other information can be inspected and copied at
the public reference facilities maintained by the Commission at Room 1024, 450
Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's regional
offices located at Seven World Trade Center, 13th Floor, New York, New York
10048 and 500 West Madison Street, Suite 1400, Chicago, Illinois 60061. Copies
of such material can also be obtained at prescribed rates by writing the
Commission, Pubic Reference Section, 450 Fifth Street, N.W., Washington, D.C.
20549. The Commission maintains a Web site, the address of which is
http://www.sec.gov, that contains reports, proxy and information statements and
other information regarding registrants, including the Company, that file
electronically with the Commission. The Company's Common stock is listed on the
American Stock Exchange, and reports, proxy statements and other information
concerning the Company may also be inspected at the offices of the American
Stock Exchange, Inc., 86 Trinity Place, New York, New York 10006-1881.
The Company has filed with the Commission a registration statement (the
"Registration Statement," which term shall include any amendments thereto) on
Form S-3 under the Securities Act, with respect to the shares of Common Stock
offered hereby. This Prospectus does not contain all the information set forth
in the Registration Statement and the exhibits and schedules thereto, certain
parts of which are committed in accordance with the rules and regulations of the
Commission, and to which reference is hereby made. For further information,
reference is hereby made to the Registration Statement and the exhibits and
schedules thereto.
42
<PAGE> 44
GENCOR INDUSTRIES, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Certified Public Accountants.......... F-2
Consolidated Balance Sheets at September 30, 1996 and 1997
and March 31, 1998 (Unaudited)............................ F-3
Consolidated Statements of Income for the Years ended
September 30, 1995, 1996 and 1997 and the Six Months Ended
March 31, 1997 and 1998 (Unaudited)....................... F-4
Consolidated Statements of Shareholders' Equity for the
Years Ended September 30, 1995, 1996 and 1997 and the Six
Months Ended March 31, 1998 (Unaudited)................... F-5
Consolidated Statements of Cash Flows for the Years Ended
September 30, 1995, 1996 and 1997 and the Six Months Ended
March 31, 1997 and 1998 (Unaudited)....................... F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
F-1
<PAGE> 45
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of
Gencor Industries, Inc.:
We have audited the accompanying consolidated balance sheets of Gencor
Industries, Inc. and subsidiaries (the "Company") as of September 30, 1996 and
1997, and the related consolidated statements of income, shareholders' equity
and cash flows for each of the three years in the period ended September 30,
1997. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on the
financial statements 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 consolidated financial statements present fairly, in
all material respects, the financial position of Gencor Industries, Inc. and
subsidiaries at September 30, 1996 and 1997, and the results of their operations
and their cash flows for each of the three years in the period ended September
30, 1997, in conformity with generally accepted accounting principles.
/s/ DELOITTE & TOUCHE LLP
November 11, 1997
(April 9, 1998 as to the effects of the stock split described in Note 1)
Orlando, Florida
F-2
<PAGE> 46
GENCOR INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(All Dollar Amounts in Thousands except for Share Amounts)
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------- MARCH 31,
1996 1997 1998
-------- -------- ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents............................... $ 1,501 $ 10,287 $ 9,744
Accounts receivable, less allowance for doubtful
accounts of $2,859, $3,412, $3,818 (unaudited),
respectively......................................... 24,646 36,465 39,188
Inventories............................................. 41,537 46,175 53,888
Prepaid expenses, including deferred income taxes of
$612, $419, $0 (unaudited), respectively............. 2,129 2,466 2,371
-------- -------- --------
Total current assets............................ 69,813 95,393 105,191
Property and Equipment -- Net............................. 36,795 38,414 42,753
Goodwill.................................................. 9,107 16,119 18,600
Other Assets.............................................. 3,346 13,226 15,964
-------- -------- --------
$119,061 $163,152 $182,508
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Notes payable........................................... $ 1,699 $ 44 $ 6,276
Current portion of long-term debt....................... 2,528 4,798 6,060
Accounts payable........................................ 13,368 15,825 14,381
Customer deposits....................................... 3,242 12,218 15,991
Income taxes payable.................................... 285 701 2,065
Accrued expenses........................................ 8,830 16,080 18,240
-------- -------- --------
Total current liabilities....................... 29,952 49,666 63,013
Post-Retirement Benefits.................................. 1,526 1,958 2,155
Deferred Income Taxes..................................... 1,438 738 2,061
Other Liabilities......................................... -- 3,089 3,332
Long-Term Debt............................................ 73,746 86,489 85,145
Contingencies and Commitments
Shareholders' Equity:
Preferred stock, par value $.10 per share; 300,000
shares authorized; none issued....................... -- -- --
Common stock, par value $.10 per share; 15,000,000
shares authorized (5,000,000 in 1996); 6,545,740
shares issued (6,481,068 shares in 1996)............. 648 654 654
Class B stock, par value $.10 per share; 6,000,000
shares authorized (3,000,000 in 1996); 1,766,128
shares issued........................................ 177 177 177
Capital in excess of par value.......................... 7,217 9,356 9,356
Retained earnings....................................... 4,998 11,804 17,478
Cumulative translation adjustment....................... 309 (684) (768)
Subscription receivable from officer.................... (95) (95) (95)
Common stock in treasury, 1,065,740 shares at cost...... (855) -- --
-------- -------- --------
12,399 21,212 26,802
-------- -------- --------
$119,061 $163,152 $182,508
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 47
GENCOR INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(All Dollar Amounts in Thousands, except per Share Amounts)
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED SEPTEMBER 30, ENDED MARCH 31,
---------------------------- ------------------
1995 1996 1997 1997 1998
------- ------- -------- ------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net Revenue.............................. $58,944 $60,208 $195,313 $83,936 $117,667
Costs And Expenses:
Production costs....................... 42,763 44,534 142,878 60,661 79,272
Product engineering and development.... 1,920 2,208 2,824 1,167 1,289
Selling, general and administration
expenses............................ 10,390 8,226 31,405 15,940 22,540
------- ------- -------- ------- --------
55,073 54,968 177,107 77,768 103,101
------- ------- -------- ------- --------
Operating Income......................... 3,871 5,240 18,206 6,168 14,566
Other Income (Expense):
Interest income........................ 17 -- 363 5 675
Interest expense....................... (1,055) (1,357) (7,170) (3,177) (5,377)
Miscellaneous.......................... 292 68 (378) 345 (360)
------- ------- -------- ------- --------
(746) (1,289) (7,185) (2,827) (5,062)
------- ------- -------- ------- --------
Income Before Income Taxes and
Extraordinary Gain..................... 3,125 3,951 11,021 3,341 9,504
Provision For Income Taxes............... 1,086 1,195 4,125 1,198 3,611
------- ------- -------- ------- --------
Income Before Extraordinary Gain....... 2,039 2,756 6,896 2,143 5,893
Extraordinary Gain From The Retirement Of
Debt -- Net of income taxes of
$312,000............................... 498 -- -- -- --
------- ------- -------- ------- --------
Net Income..................... $ 2,537 $ 2,756 $ 6,896 $ 2,143 $ 5,893
======= ======= ======== ======= ========
Net Income Per Share:
Basic:
Income before extraordinary gain.... $ 0.29 0.39 $ 0.85 $ 0.27 $ 0.71
Extraordinary gain 0.07 -- -- -- --
------- ------- -------- ------- --------
Net Income..................... $ 0.36 $ 0.39 $ 0.85 $ 0.27 $ 0.71
======= ======= ======== ======= ========
Diluted:
Income before extraordinary gain.... $ 0.29 $ 0.38 $ 0.74 $ 0.24 $ 0.60
Extraordinary gain.................. 0.07 -- -- -- --
------- ------- -------- ------- --------
Net Income..................... $ 0.36 $ 0.38 $ 0.74 $ 0.24 $ 0.60
======= ======= ======== ======= ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 48
GENCOR INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED SEPTEMBER 30, 1995, 1996, AND 1997 AND SIX MONTHS ENDED MARCH 31,
1998 (UNAUDITED)
(All Dollar Amounts in Thousands)
<TABLE>
<CAPTION>
CAPITAL IN
COMMON STOCK CLASS B STOCK EXCESS CUMULATIVE
------------------- ------------------ OF RETAINED TRANSLATION SUBSCRIPTION
SHARES AMOUNT SHARES AMOUNT PAR VALUE EARNINGS ADJUSTMENT RECEIVABLE
---------- ------ --------- ------ ---------- -------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
September 30, 1994... 5,838,028 $584 1,578,300 $159 $6,250 $ 744 $ 316 $(100)
10% stock
dividend......... 583,040 58 157,828 16 878 (952) -- --
Net income......... -- -- -- -- -- 2,537 -- --
Translation
adjustment....... -- -- -- -- -- -- 3 --
Reductions in
subscription
receivable....... -- -- -- -- -- -- -- 5
---------- ---- --------- ---- ------ -------- ----- -----
September 30, 1995... 6,421,068 642 1,736,128 175 7,128 2,329 319 (95)
Stock options
exercised........ 60,000 6 30,000 2 89 -- -- --
Cash dividend...... -- -- -- -- -- (87) -- --
Net income......... -- -- -- -- -- 2,756 -- --
Translation
adjustment....... -- -- -- -- -- -- (10) --
---------- ---- --------- ---- ------ -------- ----- -----
September 30, 1996... 6,481,068 648 1,766,128 177 7,217 4,998 309 (95)
Sale of stock...... 1,130,412 112 -- -- 2,888 -- -- --
Retirement of
treasury stock... (1,065,740) (106) -- -- (749) -- -- --
Cash dividend...... -- -- -- -- -- (90) -- --
Net income......... -- -- -- -- -- 6,896 -- --
Translation
adjustment....... -- -- -- -- -- -- (993) --
---------- ---- --------- ---- ------ -------- ----- -----
September 30, 1997... 6,545,740 654 1,766,128 177 9,356 11,804 (684) (95)
Cash dividend...... -- -- -- -- -- (219) -- --
Net income......... -- -- -- -- -- 5,893 -- --
Translation
adjustment....... -- -- -- -- -- -- (84) --
---------- ---- --------- ---- ------ -------- ----- -----
March 31, 1998
(Unaudited)........ 6,545,740 $654 1,766,128 $177 $9,356 $17,478 $(768) $ (95)
========== ==== ========= ==== ====== ======== ===== =====
<CAPTION>
TOTAL
TREASURY STOCK SHAREHOLDERS'
SHARES COST EQUITY
-------------- ----- -------------
<S> <C> <C> <C>
September 30, 1994... 968,856 $(853) $ 7,100
10% stock
dividend......... 96,884 (2) (2)
Net income......... -- -- 2,537
Translation
adjustment....... -- -- 3
Reductions in
subscription
receivable....... -- -- 5
---------- ----- --------
September 30, 1995... 1,065,740 (855) 9,643
Stock options
exercised........ -- -- 97
Cash dividend...... -- -- (87)
Net income......... -- -- 2,756
Translation
adjustment....... -- -- (10)
---------- ----- --------
September 30, 1996... 1,065,740 (855) 12,399
Sale of stock...... -- -- 3,000
Retirement of
treasury stock... (1,065,740) 855 --
Cash dividend...... -- -- (90)
Net income......... -- -- 6,896
Translation
adjustment....... -- -- (993)
---------- ----- --------
September 30, 1997... -- -- 21,212
Cash dividend...... -- -- (219)
Net income......... -- -- 5,893
Translation
adjustment....... -- -- (84)
---------- ----- --------
March 31, 1998
(Unaudited)........ -- $ -- $ 26,802
========== ===== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 49
GENCOR INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(All Dollar Amounts in Thousands)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED SEPTEMBER 30, MARCH 31,
---------------------------- ------------------
1995 1996 1997 1997 1998
------- ------- -------- -------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash Flows From Operations:
Net income......................................... $ 2,537 $ 2,756 $ 6,896 $ 2,143 $ 5,893
Adjustments to reconcile net income to cash
provided by (used for) operations:
Extraordinary gain............................... (499) -- -- -- --
Imputed interest................................. -- -- 1,070 -- --
Depreciation and amortization.................... 757 695 4,445 2,659 3,190
Loss on equipment disposal....................... -- -- -- -- 531
Postretirement benefits.......................... -- -- 432 -- 197
Change in assets and liabilities -- net of
businesses acquired:
(Increase) decrease in accounts receivable..... (1,650) (362) (12,609) (10,663) 7,392
(Increase) decrease in inventories............. (2,604) (5,913) 10,208 (1,073) (4,400)
(Increase) decrease in prepaid expenses........ (131) 767 (1,619) 1,117 (109)
(Increase) decrease in other assets............ -- -- (3,253) 797 (1,523)
(Increase) decrease in deferred income taxes... (133) (182) 4,316 (497) 315
Increase (decrease) in accounts payable and
customer deposits........................... 2,401 (41) (7,993) 6,684 (1,039)
Increase (decrease) in income tax
liabilities................................. (879) (455) 416 58 1,036
Increase (decrease) in accrued expenses........ (1,719) (157) 3,379 3,083 (1,555)
------- ------- -------- -------- -------
Total adjustments........................... (4,457) (5,648) (1,208) 2,165 4,035
------- ------- -------- -------- -------
Cash provided by (used for) operations...... (1,920) (2,892) 5,688 4,308 9,928
Cash Flow From Investing Activities:
Cash acquired from CPM............................. -- 1,219 -- -- --
Cash acquired from Gumaco.......................... -- -- 3,973 -- --
Cash paid for business acquired.................... -- -- (2,000) -- (11,634)
Capital expenditures -- net........................ (454) (1,397) (1,580) (1,259) (2,230)
Proceeds from sale of property and equipment....... -- 434 -- -- --
Insurance proceeds from property theft............. -- 400 -- -- --
Acquisition costs.................................. -- (312) (1,977) (1,993) (2,849)
Other -- net....................................... 19 (160) -- -- --
------- ------- -------- -------- -------
Cash provided by (used for) investing
activities (435) 184 (1,584) (3,252) (16,713)
Cash Flows From Financing Activities:
Net (reduction) increase in notes payable.......... 599 2,292 (331) (12,256) 6,233
Payment to Ingersoll-Rand.......................... -- -- (60,869) (61,011) --
Repayment of existing debt......................... (4,210) (1,375) (14,978) -- --
Borrowings......................................... 2,484 2,867 80,719 79,672 (82)
Cash dividends paid................................ -- (87) (90) (89) (219)
Issuance of common stock........................... -- -- 1,675 1,611 --
Other -- net....................................... (27) 97 (1,247) (1,247) 242
------- ------- -------- -------- -------
Cash provided by (used for) financing
activities................................ (1,154) 3,794 4,879 6,680 6,174
Effect of Exchange Rate Changes on Cash.............. -- -- (197) (86) 68
------- ------- -------- -------- -------
Net Increase (Decrease) in Cash...................... (3,509) 1,086 8,786 7,650 (543)
CASH AND CASH EQUIVALENTS AT:
Beginning of period................................ 3,924 415 1,501 1,501 10,287
------- ------- -------- -------- -------
End of period...................................... $ 415 $ 1,501 $ 10,287 $ 9,151 $ 9,744
======= ======= ======== ======== =======
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the year for:
Interest......................................... $ 1,288 $ 1,381 $ 5,175 $ 2,100 $ 4,491
======= ======= ======== ======== =======
Income taxes..................................... $ 2,179 $ 1,571 $ 2,220 $ 769 $ 1,975
======= ======= ======== ======== =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 50
GENCOR INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(SIX MONTHS ENDED MARCH 31, 1998 AND 1997 -- UNAUDITED)
(All Dollar Amounts in Thousands, Except Per Share Amounts)
1. SIGNIFICANT ACCOUNTING POLICIES
General -- Gencor Industries, Inc. and its subsidiaries (the "Company")
designs and manufactures process equipment primarily utilized in the asphalt,
agricultural and food industries.
On April 9, 1998, the Board of Directors authorized a 2-for-1 stock split
to shareholders of record as of April 22, 1998, effective May 4, 1998. As a
result of the split, 3,272,870 additional common shares and 883,094 additional
Class B shares were issued and paid-in-capital was reduced by $415. On May 7,
1997, the Board of Directors authorized a 2-for-1 stock split to shareholders of
record as of May 19, 1997, effective May 30, 1997. As a result of the split,
1,636,435 additional common shares and 441,532 additional Class B shares were
issued, and paid-in capital was reduced by $208. Shareholders' equity has been
restated for all periods presented to give retroactive recognition to the stock
splits. In addition, for all periods presented, all references in the
consolidated financial statements and footnotes thereto to number of shares, per
share amounts, weighted average shares outstanding, as well as stock options and
related price information have been restated to give retroactive effect to the
splits.
All material intercompany accounts and transactions are eliminated in
consolidation. In conformity with generally accepted accounting principles,
management has used estimates in preparing its consolidated financial
statements. Actual results could differ from these estimates.
Net Income per share -- The Company adopted SFAS 128, "Earnings per share"
as of October 1, 1997. The prior year earnings per share amounts have been
restated to conform with this standard. Under SFAS 128, basic net income per
share is computed based on the weighted average shares outstanding during the
period. Diluted net income per share includes the dilutive effect of potential
common stock using the treasury stock method.
The following reconciles basic income per share to diluted income per share
for the years ended September 30, 1995, 1996 and 1997:
<TABLE>
<CAPTION>
1995 1996 1997
-------------------------------------- -------------------------------------- -------------------------
INCOME BEFORE INCOME BEFORE INCOME BEFORE
EXTRAORDINARY PER SHARE EXTRAORDINARY PER SHARE EXTRAORDINARY
GAIN SHARES AMOUNT GAIN SHARES AMOUNT GAIN SHARES
------------- --------- ------- ------------ --------- -------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Basic EPS............ $2,039 6,930,900 $0.29 $2,756 7,120,636 $0.39 $6,896 8,094,268
Effect of Dilutive
Securities:
Options............ 115,656 42,446 1,232,058
--------- --------- ---------
Diluted EPS.......... $2,039 7,046,566 $0.29 $2,756 7,163,082 $0.38 $6,896 9,326,326
========= ========= =========
<CAPTION>
1997
----------
PER SHARE
AMOUNT
----------
<S> <C>
Basic EPS............ $0.85
Effect of Dilutive
Securities:
Options............
Diluted EPS.......... $0.74
</TABLE>
Cash Equivalents -- Cash equivalents, which consist of short-term
certificates of deposit and deposits in money market accounts with original
maturities of three months or less, are carried at cost, which approximates
their market value.
Fair Value of Financial Instruments -- The carrying amounts of cash,
accounts receivable, accounts payable, and notes payable to banks approximate
fair value because of the short-term nature of these items. The carrying amount
of substantially all of the Company's long-term debt approximates fair value due
to the variable nature of the interest rates on the debt.
Foreign Currency Translation -- Assets and liabilities of the Company's
foreign subsidiaries are translated into U.S. dollars at the applicable rate of
exchange in effect at the end of the fiscal year. Revenue and expense accounts
are translated at the average rate of exchange during the period and equity
accounts are translated at the rate in effect when the transactions giving rise
to the
F-7
<PAGE> 51
GENCOR INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
balances took place. Gains and losses resulting from translation are accumulated
in a separate component of shareholders' equity. Gains and losses resulting from
foreign currency transactions are included in income.
Foreign Exchange Risk Management -- The Company enters into foreign
currency forward exchange contracts with major financial institutions to hedge
certain loans and trade accounts receivables against adverse fluctuations in
exchange rates. At September 30, 1997, the Company had forward exchange
contracts totaling $5,801. These contracts mature at various dates in the first
quarter of fiscal 1998. The Company expects to continue to utilize foreign
currency exchange contracts to manage its exposure, although there can be no
assurance the Company's efforts in this regard will be successful.
Inventories -- Inventories are stated at the lower of cost or market. The
Company uses the last-in, first-out (LIFO) method of determining cost for
substantially all inventories in the United States. All other inventories are
accounted for using the first-in, first-out (FIFO) method.
Property and Equipment -- Property and equipment are stated at cost.
Depreciation of property and equipment, including depreciation on assets
acquired under capital leases, is computed using straight-line and accelerated
methods over the estimated useful lives of the related assets. Maintenance and
repairs are expensed as incurred. Expenditures which significantly increase
asset values or extend useful lives are capitalized.
Assets held for resale are stated at lower of depreciated cost or net
realizable value and are no longer depreciated.
Goodwill -- Goodwill, the excess of the purchase price over the fair value
of net assets of businesses acquired, is being amortized over 25 years using the
straight-line method. Management evaluates the recoverability of intangible
assets periodically based on current operating trends.
Revenues -- Revenues from contracts for the design and manufacture of
certain custom equipment are recognized under the percentage-of-completion
method. Revenue from all other sales are recorded as the products are shipped.
The percentage-of-completion method of accounting for long term contracts
recognizes revenue in proportion to actual labor costs incurred as compared with
total estimated labor costs expected to be incurred during the entire contract.
All selling, general and administrative expenses are charged to income as
incurred. Provision is made for any anticipated contract losses in the period
that the loss becomes evident.
The estimated costs of product warranties are charged to production costs
as revenue is recognized.
Income Taxes -- The Company recognizes deferred tax liabilities and assets
for the expected future tax consequences of events that have been included in
the financial statements or tax returns using current tax rates. The Company and
its domestic subsidiaries file a consolidated federal income tax return. The
foreign subsidiaries provide income taxes based on the tax regulations of the
countries in which they operate. Undistributed earnings of the Company's foreign
subsidiaries are indefinitely reinvested. No deferred taxes have been provided
on these earnings.
Stock Options -- The Company discloses stock-based compensation at fair
value.
Reclassification -- Certain prior year amounts in the consolidated
financial statements have been reclassified to conform with the current year
presentation.
F-8
<PAGE> 52
GENCOR INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Interim Information -- The accompanying unaudited interim consolidated
financial statements have been prepared pursuant to the rules and regulations of
the Securities and Exchange Commission. Accordingly, certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been omitted
pursuant to such rules and regulations. The accompanying unaudited interim
consolidated financial statements and related notes should be read in
conjunction with the financial statements and related notes included in the
Company's 1997 Annual Report on Form 10-K. In the opinion of management, all
material adjustments, consisting of normal recurring adjustments, considered
necessary for a fair presentation have been included in the accompanying
unaudited interim consolidated financial statements. Operating results for the
six months ended March 31, 1998, are not necessarily indicative of the results
that may be expected for the year ending September 30, 1998.
2. ACQUISITIONS
Effective July 1, 1997, the Company purchased the stock of Gumaco Industria
E Comercio Limitada of Sao Paulo, Brazil ("Gumaco") and other South American
companies for $12,730, net of imputed interest. Gumaco and the other companies
are engaged in the design and manufacture of process equipment. The acquisitions
were financed under a new $12 million credit facility (see Note 9).
The transactions were accounted for as a purchase and the assets have been
included in the accompanying balance sheet at their fair value. Total assets
acquired approximated $32,780, liabilities assumed approximated $23,288, and the
excess of the amount paid over the fair value of the assets acquired was
approximately $3,238. Further adjustments may be made to the accompanying
balance sheet as a result of finalization of acquisition costs and fair value
adjustments.
The results of operations of these acquired companies have been included in
the results of the Company from July 1, 1997. Assuming these acquisitions and
the acquisition of CPM, referred to below, had occurred on October 1, 1995 and
1996, the Company's unaudited proforma net sales, net income, and diluted
earnings per share would have been approximately $183,901, $3,869, and $.54 and
$210,381, $7,881, and $.85, respectively, for the years ended September 30, 1996
and 1997.
Effective September 30, 1996, the Company purchased the stock of Process
Equipment Division of Ingersoll-Rand Company ("CPM") for $60,869. CPM, a
multi-national entity, is also engaged in the design and manufacture of process
equipment. The acquisition was financed under a new $95 million credit facility
(see Note 9).
3. INVENTORIES
Inventories at September 30, 1996 and 1997 consist of the following:
<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
Raw materials............................................... $14,390 $12,109
Work in process............................................. 10,340 8,915
Finished goods.............................................. 16,807 25,151
------- -------
$41,537 $46,175
======= =======
</TABLE>
At September 30, 1996, accumulated costs of approximately $4,102 on major
contracts, net of progress payments of approximately $1,068, and estimated
earnings of approximately $2,437 amount to approximately $5,471, and are
included in work-in-process inventory.
F-9
<PAGE> 53
GENCOR INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At September 30, 1997, accumulated costs of approximately $3,855 on major
contracts, net of progress payments of approximately $2,772, and estimated
earnings of approximately $4,075 amount to approximately $5,158 and are included
in work-in-process inventory.
At September 30, 1996 and 1997, cost is determined by the last-in,
first-out (LIFO) method for 69% and 60%, respectively, of total inventories,
exclusive of progress payments, and the first-in, first-out (FIFO) method for
all other inventories. At September 30, 1996 and 1997, the estimated current
cost of inventories exceeded their LIFO basis by approximately $2,468 and
$2,575, respectively.
4. PROPERTY AND EQUIPMENT
Property and equipment at September 30, 1996 and 1997, consist of the
following:
<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
Land and improvements....................................... $ 6,072 $ 6,251
Building and improvements................................... 17,825 14,511
Machinery and equipment..................................... 17,969 23,804
Tools, jigs and dies........................................ 119 120
Furniture and equipment..................................... 2,986 3,135
Automobiles................................................. 362 586
Construction in progress.................................... 369 488
------- -------
45,702 48,895
Less: Accumulated depreciation.............................. (8,907) (10,481)
------- -------
$36,795 $38,414
======= =======
</TABLE>
Substantially all of the Company's property and equipment is pledged as
collateral for the Company's debt.
Depreciation expense for the years ended September 30, 1995, 1996, and 1997
was approximately $675, $641 and $3,641, respectively. There was no interest
capitalized during 1995, 1996, or 1997.
5. OTHER ASSETS
Other assets at September 30, 1996 and 1997 consist of the following:
<TABLE>
<CAPTION>
1996 1997
------ -------
<S> <C> <C>
Deposits.................................................... $ -- $ 3,498
Deferred acquisition costs, net............................. -- 1,976
Deferred loan costs, net.................................... 147 1,836
Other....................................................... 3,199 5,916
------ -------
$3,346 $13,226
====== =======
</TABLE>
F-10
<PAGE> 54
GENCOR INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. ACCRUED EXPENSES
Accrued expenses consist of the following at September 30, 1996 and 1997:
<TABLE>
<CAPTION>
1996 1997
------ -------
<S> <C> <C>
Payroll and related accruals................................ $5,004 $ 6,705
Warranty and related accruals............................... 2,049 1,751
Acquisition costs........................................... 662 2,723
Professional fees........................................... 130 1,117
Interest.................................................... 274 904
Sales and property taxes.................................... 603 540
Other....................................................... 108 2,340
------ -------
Total............................................. $8,830 $16,080
====== =======
</TABLE>
7. INCOME TAXES
The provision for income taxes consists of:
<TABLE>
<CAPTION>
1995 1996 1997
------ ------ ------
<S> <C> <C> <C>
Current:
Federal.................................................. $1,301 $ 872 $1,697
State.................................................... 170 (33) 210
Foreign.................................................. -- -- 1,400
------ ------ ------
Total currently payable.......................... 1,471 839 3,307
Deferred:
Federal.................................................. (341) 370 731
State.................................................... (44) (14) 87
Foreign.................................................. -- -- --
------ ------ ------
Total deferred tax expense (benefit)............. (385) 356 818
------ ------ ------
Provision for income taxes............................... $1,086 $1,195 $4,125
====== ====== ======
</TABLE>
The difference between the U.S. federal income tax rate and the Company's
effective income tax rate is as follows:
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Federal income tax rate..................................... 34.0% 34.0% 34.0%
State income taxes, net of federal income tax benefit....... 2.9 (0.5) 1.3
Internal revenue service examination and other prior period
adjustments and refunds................................... -- (2.0) --
Difference arising from transactions with, and profit and
loss of, foreign subsidiary not deductible or includable
for U.S. federal income tax purposes...................... (1.3) (2.3) 0.2
Other-net................................................... (0.9) 1.0 1.9
---- ---- ----
34.7% 30.2% 37.4%
==== ==== ====
</TABLE>
F-11
<PAGE> 55
GENCOR INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Deferred taxes and balance sheet classifications are recorded as follows:
<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
Deferred tax assets (liabilities):
Differences in basis of acquired assets................... $(1,109) $ --
Depreciation and amortization............................. (329) (738)
Inventory cost adjustments................................ (720) (1,582)
------- -------
Gross deferred tax liability................................ (2,158) (2,320)
Allowance for doubtful accounts........................... 480 700
Accrued expenses.......................................... 852 1,301
------- -------
Gross deferred tax asset.................................... 1,332 2,001
------- -------
$ (826) $ (319)
======= =======
Balance sheet classification:
Allowance for doubtful accounts........................... $ 480 $ 700
Inventory................................................. (720) (1,582)
Accrued expenses.......................................... 852 1,301
------- -------
Current deferred tax assets................................. $ 612 $ 419
======= =======
Difference on basis of acquired assets.................... $(1,109) $ --
Depreciation and amortization............................. (329) (738)
------- -------
Noncurrent deferred tax liabilities......................... $(1,438) $ (738)
======= =======
</TABLE>
8. RETIREMENT BENEFITS
Retirement Benefits Other than Pensions -- The Company sponsors a
postretirement plan (the "Plan") that covers certain domestic employees. The
Plan provides for healthcare benefits and, in some instances, life insurance
benefits and is contributory with amounts adjusted annually. When full-time
employees retire from CPM between age 55 and age 65 with 15 years of service,
most will be eligible to receive, at a cost to the retiree, certain healthcare
benefits identical to those available to active employees. After attaining age
65, an eligible retiree's healthcare benefit coverage will become coordinated
with Medicare.
At September 30, 1996 and 1997, respectively, the actuarial and recorded
liabilities for these post-retirement benefits, none of which have been funded,
are as follows:
<TABLE>
<CAPTION>
1996 1997
------ ------
<S> <C> <C>
Accumulated post-retirement benefit obligation:
Retirees.................................................. $ -- $ --
Active employees.......................................... 1,526 1,794
------ ------
Unfunded accumulated post-retirement benefit obligation..... 1,526 1,794
Unrecognized net gain....................................... -- 164
Unrecognized prior service benefits......................... -- --
------ ------
Accrued post-retirement benefit cost........................ $1,526 $1,958
====== ======
</TABLE>
F-12
<PAGE> 56
GENCOR INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The components of net periodic post-retirement benefits cost for the year
ended September 30, 1997 are as follows:
<TABLE>
<S> <C>
Service costs............................................... $229
Interest costs.............................................. 158
Net amortization and deferred amounts....................... 44
----
Total............................................. $431
====
</TABLE>
The discount rate used in determining the accumulated postretirement
benefit obligation was 7.25% at September 30, 1997. The assumed healthcare cost
trend rates used in measuring the accumulated post-retirement benefit obligation
was 8.55% in 1997, declining each year to an ultimate rate by 2003 of 4.75% in
1997. An increase of one percentage point in the assumed healthcare cost trend
rates for each future year would have increased the aggregate of the service and
interest cost components of the 1997 net periodic postretirement benefit cost by
$52 and would have increased the accumulated postretirement benefit obligation
as of September 30, 1997 by $93.
401(k) Plan -- The Company has voluntary 401(k) employee benefit plans
("401(k) Plans") which covers all eligible employees. The Company makes
discretionary matching contributions subject to a maximum level, in accordance
with the terms of the respective 401(k) Plans. The Company charged approximately
$113, $127, and $390 to operating expense under the provisions of the 401(k)
Plan in the years ended September 30, 1995, 1996, and 1997, respectively.
Pension Plan -- The Company provides pension benefits covering certain
domestic employees. Benefits under the plan are based upon an employee's
compensation and years of service. It is the Company's policy to make
contributions to the plan sufficient to meet the minimum funding requirements of
applicable laws and regulations plus such additional amounts, if any, as the
Company's actuarial consultants advise to be appropriate.
The following table sets forth the plan's funded status and amounts
recognized in the Company's balance sheet at September 30, 1996 and 1997:
<TABLE>
<CAPTION>
1996 1997
----- -----
<S> <C> <C>
Actuarial present value of accumulated benefit obligations:
Vested.................................................... $ 43 $ 201
Nonvested................................................. 15 60
----- -----
Accumulated benefit obligation.............................. $ 58 $ 261
----- -----
Projected benefit obligation................................ $ 75 $ 329
Plan assets at fair value................................... -- --
----- -----
Projected benefit obligation in excess of plan assets....... 75 329
Unrecognized prior service cost............................. (75) (70)
Adjustment required to recognize minimum liability.......... -- 2
----- -----
Accrued pension costs....................................... $ -- $ 261
===== =====
</TABLE>
F-13
<PAGE> 57
GENCOR INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Net periodic pension cost includes the following components:
<TABLE>
<CAPTION>
1996 1997
---- ----
<S> <C> <C>
Service cost -- benefits earned during the year............. $ -- $247
Interest cost on projected benefit obligation............... -- 6
Actual return on plan assets................................ -- --
Net amortization and deferral............................... -- 5
---- ----
$ -- $258
==== ====
</TABLE>
To determine the actuarial present value of the projected benefit
obligation, the following rates were used:
<TABLE>
<CAPTION>
1996 1997
---- ----
<S> <C> <C>
Discount rate............................................... N/A 7.5%
Rate of increase in future compensation levels.............. N/A 5.0%
</TABLE>
9. LONG-TERM DEBT
Long-term debt at September 30, 1996 and 1997 consists of the following:
<TABLE>
<CAPTION>
1996 1997
---- ----
<S> <C> <C>
Line of credit facility..................................... $ 9,072 $ 19,860
Senior secured credit agreement............................. -- 57,750
Term loan payable to bank................................... 3,365 --
Industrial revenue bonds payable to bank.................... 2,969 2,677
Acquisition payable (see below)............................. 60,868 11,000
-------- --------
76,274 91,287
Less current maturities..................................... (2,528) (4,798)
-------- --------
$ 73,746 $ 86,489
======== ========
</TABLE>
The industrial revenue bonds are payable in monthly installments of
principal and interest (6.851% at September 30, 1997) at a varying percentage
(82% at September 30, 1997) of the bank's prime rate through December 2004.
Under the terms of the industrial revenue bond indenture, the Company is
required to maintain compliance with certain financial and other covenants. The
Company was in compliance with the covenants at September 30, 1997.
In conjunction with the acquisition of CPM, the Company entered into a
Senior Secured Credit Agreement with a bank whereby the Company retired its
existing line of credit facilities, including its foreign line of credit and
term loan payable to another bank. Under the terms of the agreement, the Company
borrowed $60 million under two term loans and, in connection therewith, was
granted a $35 million revolving credit facility to facilitate the acquisition.
Interest rates on these loans vary, at the Company's option, based upon a factor
applied to the prime rate or LIBOR. The weighted average interest rate for these
borrowings was 8.6% for fiscal 1997. The revolving credit facility and $30
million of the term notes are payable through December 2001 with the remaining
term note payable through December 2003. Under the terms of the senior secured
credit agreement, the Company is required to maintain compliance with certain
financial and other covenants. The Company was in compliance with the covenants
at September 30, 1997.
The Company has entered into both an interest rate swap and an interest
rate collar with a major financial institution to reduce exposure to interest
rate fluctuations. Under the rate swap, the Company agrees with other parties to
exchange, at specified intervals, the difference between fixed-rate and
floating-rate interest amounts calculated by reference to an agreed notional
principal amount. Under the interest rate collar, the Company has effectively
limited its interest rate to a maximum of 7.0%. The notional amounts of each of
the interest rate swap and the interest rate collar
F-14
<PAGE> 58
GENCOR INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
outstanding at September 30, 1997 are $40,000 and expire in February 1999 and
2000, respectively. At September 30, 1997, the Company owed $27 and $26 under
the terms of the interest rate swap and interest rate collar, respectively.
In conjunction with the acquisition of Gumaco and the other South American
companies, the Company amended its existing Senior Secured Credit Agreement to
provide an additional $12 million term loan. Interest on this loan is based on a
factor applied to the prime rate or LIBOR. The loan is payable in equal
quarterly installments through December 2004.
Substantially all of the Company's assets are pledged as security under the
various credit agreements.
Aggregate maturities of long-term debt under the existing agreement and the
industrial revenue bonds for each of the five years in the period ending
September 30, 2002 are as follows:
<TABLE>
<S> <C>
1998........................................................ $ 4,798
1999........................................................ 7,569
2000........................................................ 9,841
2001........................................................ 12,614
2002........................................................ 32,624
Thereafter.................................................. 23,841
-------
$91,287
=======
</TABLE>
10. COMMITMENTS AND CONTINGENCIES
The Company leases certain equipment under noncancelable operating leases.
Future minimum rental commitments under noncancelable leases in effect at
September 30, 1997 are as follows:
<TABLE>
<S> <C>
1998........................................................ $ 792
1999........................................................ 432
2000........................................................ 333
2001........................................................ 42
2002........................................................ 20
-------
$ 1,619
=======
</TABLE>
Total rental expense for the years ended September 30, 1995, 1996, and 1997
was $415, $374 and $658, respectively.
The Company is involved in various litigation matters arising in the
ordinary course of business. Management has reviewed all claims and lawsuits
and, upon the advice of counsel, has made provision for estimable losses and
expenses of litigation relating to claims against the Company.
11. SHAREHOLDERS' EQUITY
On May 7, 1997, the Board of Directors authorized a 2-for-1 stock split to
shareholders of record as of May 19, 1997, effective May 30, 1997. As a result
of the split, 1,636,435 additional common shares and 441,532 additional Class B
shares were issued, and paid-in capital was reduced by $208. Shareholders'
equity has been restated for all period presented to give retroactive
recognition to the stock split. In addition, for all periods presented, all
references in the consolidated financial statements and footnotes thereto to
number of shares, per share amounts, weighted average shares outstanding, as
well as stock option and related price information have been restated to give
retroactive effect to the split.
F-15
<PAGE> 59
GENCOR INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On November 21, 1996 the Company declared a cash dividend of $0.0125 per
share payable on January 4, 1997, to shareholders of record as of December 18,
1996.
Under the Company's amended Certificate of Incorporation, certain of the
rights of the holders of the Company's Common Stock are modified during any
period when shares of Class B Stock are outstanding. During such periods,
holders of Common Stock will have the right to elect approximately 25% of the
Company's Board of Directors, and conversely, Class B Stock will be entitled to
elect approximately 75%. During any period when Common Stock and Class B Stock
are outstanding, certain matters submitted to a vote of shareholders will also
require approval of the holders of Common Stock and Class B Stock, each voting
separately as a class.
Under the terms of the Senior Secured Credit Agreement, as amended, the
Company may declare and pay cash dividends up to $250,000 annually.
12. STOCK OPTIONS
The Company maintains two stock option plans which provide for the issuance
of nonqualified or incentive stock options to certain directors, officers and
key employees.
The 1992 Stock Option Plan (the "1992 Plan") authorizes the granting of
options to purchase up to 400,000 shares of the Company's Common Stock, 400,000
shares of the Company's Class B Stock and fifteen percent (15%) of the
authorized Common Stock of any Company subsidiary. Shares are no longer
available for grant under the 1992 Plan since all options authorized under the
Plan have been granted.
The 1997 Stock Option Plan (the "1997 Plan") provides for the issuance of
incentive stock options and nonqualified stock options to purchase up to
1,200,000 shares of the Company's Common Stock, 1,200,000 shares of the
Company's Class B Stock and up to fifteen percent (15%) of the authorized Common
Stock of any subsidiary.
Options become exercisable in a manner and on such dates and times as
determined by a committee of the Board of Directors. Options expire not more
than ten years from the date of grant.
The following table summarizes option activity under the plans:
<TABLE>
<CAPTION>
EXERCISE PRICE
SHARES PER SHARE
--------- --------------
<S> <C> <C>
Outstanding at September 30, 1994.......................... 60,000 $0.69
Granted.................................................. 800,000 2.38
Exercised................................................ -- --
--------- -----
Outstanding at September 30, 1995.......................... 860,000 2.28
Granted.................................................. 1,186,000 1.94
Exercised................................................ (60,000) 0.69
--------- -----
Outstanding at September 30, 1996.......................... 1,986,000 2.11
Granted.................................................. -- --
Exercised................................................ -- --
--------- -----
Outstanding at September 30, 1997.......................... 1,986,000 $2.11
========= =====
</TABLE>
No compensation cost has been recognized for stock options granted in 1995
or 1996. If the Company had recognized compensation cost based on the fair value
of the options granted at grant date amortized to expense, net income and
earnings per share for the years ended September 30, 1995 and 1996 would have
been reduced by, on a proforma basis, $841 and $2,017 and $.12 and $.28,
respectively. The estimated weighted average fair value at grant date for the
options granted
F-16
<PAGE> 60
GENCOR INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
during 1995 and 1996 was $1.05 and $.92, respectively, per option. The fair
value of options at date of grant was estimated using the Black-Scholes
option-pricing model with the following assumptions:
<TABLE>
<S> <C>
Expected dividend yield..................................... 0%
Expected stock price volatility............................. 55%
Risk-free interest rate..................................... 6.65%
Expected life of options.................................... 3 years
</TABLE>
13. QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is a summary of the quarterly results of operations for the
years ended September 30, 1996 and 1997:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
--------------------------------------
FIRST SECOND THIRD FOURTH
------- ------- ------- --------
<S> <C> <C> <C> <C>
Net revenue.................................. $ 8,261 $17,433 $21,722 $ 12,792
Cost and expenses............................ 9,384 15,445 19,118 12,309
Income tax expense........................... (450) 738 1,025 (118)
------- ------- ------- --------
Net income................................... $ (673) $ 1,250 $ 1,579 $ 601
======= ======= ======= ========
EPS:
Basic...................................... $ (.09) $ .18 $ .22 $ .08
Diluted.................................... $ (.09) $ .17 $ .22 $ .08
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
-------------------------------------
FIRST SECOND THIRD FOURTH
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net revenue................................... $35,219 $48,717 $51,079 $60,298
Cost and expenses............................. 34,785 45,810 47,242 56,455
Income tax expense............................ 152 1,046 1,501 1,426
------- ------- ------- -------
Net income.................................... $ 282 $ 1,861 $ 2,336 $ 2,417
======= ======= ======= =======
EPS:
Basic....................................... $ .04 $ .22 $ .28 $ .29
Diluted..................................... $ .03 $ .20 $ .24 $ .25
</TABLE>
14. SEGMENT AND GEOGRAPHIC INFORMATION
The Company operates in one industry segment consisting of the design,
manufacture, and marketing of products and services for process machinery
equipment used for the production of highway construction materials and related
equipment, and machinery for the production of pelleting, grinding, flaking,
sugar processing, citrus juice, and filtration equipment.
F-17
<PAGE> 61
GENCOR INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Information about the Company's identifiable assets as of September 30,
1995, 1996, and 1997 and operations for the years ended September 30, 1995,
1996, and 1997, in these geographic areas is as follows:
<TABLE>
<CAPTION>
1995 1996 1997
------- -------- --------
<S> <C> <C> <C>
Net sales to unaffiliated customers
United States....................................... $56,427 $ 57,396 $134,104
Europe.............................................. 2,517 2,812 39,128
South America....................................... -- -- 15,337
Other............................................... -- -- 6,744
------- -------- --------
Total consolidated.......................... $58,944 $ 60,208 $195,313
======= ======== ========
Net sales or transfers between
geographic areas
United States....................................... $ -- $ -- $ 5,944
Europe.............................................. 144 109 8,345
South America -- -- --
Other............................................... -- -- 9
------- -------- --------
Total....................................... $ 144 $ 109 $ 14,298
======= ======== ========
Operating profit:
United States....................................... $ 3,657 $ 5,067 $ 13,667
Europe.............................................. 214 173 1,539
South America....................................... -- -- 2,697
Other............................................... -- -- 303
------- -------- --------
Total....................................... $ 3,871 $ 5,240 $ 18,206
======= ======== ========
Identifiable assets at year-end:
United States....................................... $32,984 $ 98,170 $114,424
Europe.............................................. 1,835 13,915 19,734
South America....................................... -- -- 27,139
Other............................................... -- 6,976 1,855
------- -------- --------
Total....................................... $34,819 $119,061 $163,152
======= ======== ========
</TABLE>
The Company's intercompany policy is to transfer product at estimated
market prices. Identifiable assets are those assets of the Company that are
identifiable with the operations in each geographic area. Export sales for the
years ended September 30, 1995, 1996, and 1997, were approximately $4,828,
$1,846, and $19,994, respectively.
15. SUBSEQUENT EVENT
Effective October 1997, the Company acquired ACP Holdings PLC, a United
Kingdom based designer and manufacturer of heavy machinery for the road
construction and quarrying industries for approximately $3.0 million in cash.
The acquisition was financed using the Company's existing revolving line of
credit. In addition, the Company may pay additional payments of the Company's
common stock contingent upon achieving specified earning levels in future
periods. These contingent payments, if any, will be reflected as acquisition
costs when the contingencies are resolved.
F-18
<PAGE> 62
======================================================
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH
OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY, THE SELLING STOCKHOLDERS OR THE UNDERWRITERS. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER
TO BUY, ANY SECURITY OTHER THAN THE COMMON STOCK, NOR DOES IT CONSTITUTE AN
OFFER OR SOLICITATION IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION, OR AN OFFER OR SOLICITATION BY
ANYONE IN ANY JURISDICTION IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION
IS NOT QUALIFIED TO DO SO. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE
MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE
HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
The Company........................... 3
The Offering.......................... 6
Risk Factors.......................... 8
Use of Proceeds....................... 14
Price Range of Common Stock and
Dividend Policy..................... 15
Capitalization........................ 16
Selected Consolidated Financial
Data................................ 17
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 18
Business.............................. 22
Management............................ 33
Principal and Selling Stockholders.... 34
Description of Capital Stock.......... 35
Underwriting.......................... 39
Incorporation of Certain Documents by
Reference........................... 41
Legal Matters......................... 41
Experts............................... 41
Available Information................. 42
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>
======================================================
======================================================
3,600,000 SHARES
[LOGO]
GENCOR INDUSTRIES, INC.
COMMON STOCK
($.10 PAR VALUE)
SCHRODER & CO. INC.
MCDONALD & COMPANY
SECURITIES, INC.
CREDIT LYONNAIS SECURITIES
(USA) INC.
BLUESTONE CAPITAL PARTNERS, L.P.
, 1998
======================================================
<PAGE> 63
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following is a list of the expenses to be incurred by the Company in
connection with the distribution of the Common Stock being registered hereby.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee......... $ 29,693
National Association of Securities Dealers, Inc. filing
fee....................................................... 10,566
American Stock Exchange listing fee......................... 17,500
Printing costs.............................................. 80,000*
Accounting fees and expenses................................ 80,000*
Legal fees and expenses (not including Blue Sky)............ 80,000*
Miscellaneous............................................... 52,241*
--------
Total............................................. $350,000*
========
</TABLE>
- ---------------
* Estimated
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law of the State of
Delaware sets forth the conditions and limitations governing the
indemnifications of officers, directors and other parties.
Article VI of the Company's By-Laws (the "By-Laws") provides in part that
the Company shall indemnify any director or officer who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative, by
reason of the fact that he or she is or was a director, officer, employee or
agent of the Company, or is or was serving at the request of the Company, as a
director, officer, employee or agent of certain other entities, against all
expense, liability and loss reasonably incurred or suffered by such person in
connection with such action, suit or proceeding, and under certain
circumstances, whether or not the indemnified liability arises or arose from any
threatened, pending or completed action by or in the right of the Company.
Responsibility for determinations with respect to such indemnifications shall be
made by the Board of Directors, by independent legal counsel or by the
stockholders of the Company.
The Company has also entered into indemnity agreements (the "Indemnity
Agreements") with its Directors and officers that expend the protection provided
to the Company's directors and officers and are based upon sections of the
General Corporation Law of the State of Delaware and Article VI, subsection 1(f)
of the Company's By-Laws which recognize the validity of additional indemnity
rights granted by agreement. The substantive content of the Indemnity Agreements
and Article VI of the By-Laws is substantially the same except that, pursuant to
the Indemnity Agreements, indemnity is expressly provided for settlements in
derivative actions, and partial indemnification is permitted in the event that
the director or officer is not entitled to full indemnification.
Both the General Corporation Law of the State of Delaware and Article VI,
Section 2 of the Company's By-Laws provide that the Company may maintain
insurance to cover loss incurred pursuant to liability to directors and officers
of the Company arising under the Securities Act of 1933, as amended (the
"Securities Act").
Reference is made to Section of the Underwriting Agreement (Exhibit
1.1 to this Registration Statement) which provides for indemnification of the
Registrant's officers, directors and controlling persons by the Underwriters
against certain civil liabilities, including liabilities under the Securities
Act.
II-1
<PAGE> 64
ITEM 16. EXHIBITS
See the Exhibit Index at page II-4 of this Registration Statement
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes that, for purpose of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall be
deemed to be anew registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such abilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action ,suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issues.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and obtained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be anew registration statement relating to
the securities offered therein, and the offer in of such securities at the
time shall be deemed to be the initial bona fide public offering thereof.
II-2
<PAGE> 65
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Orlando, State of Florida, on June 12, 1998.
GENCOR INDUSTRIES, INC.
By: /s/ E.J. ELLIOTT
------------------------------------
E.J. Elliott
President and
Chairman of the Board
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned, being a
Director and/or officer of Gencor Industries, Inc., a Delaware corporation,
hereby constitutes and appoints E.J. Elliott and Russell R. Lee, III, and each
of them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and to file the same, with all
exhibits hereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite, necessary or advisable to be done, as fully to
all intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, or their
or his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below on June 12, 1998, by the following
persons in the capacities indicated:
<TABLE>
<CAPTION>
SIGNATURES TITLE
---------- -----
<C> <S>
/s/ E.J. ELLIOTT President, Chairman of the Board (Principal
- ----------------------------------------------------- Executive Officer)
E.J. Elliott
/s/ RUSSELL R. LEE, III Treasurer (Principal Financial and
- ----------------------------------------------------- Accounting Officer)
Russell R. Lee, III
/s/ JOHN E. ELLIOTT Executive Vice President, Director
- -----------------------------------------------------
John E. Elliott
/s/ CONSTANTINE L. CORPAS Director
- -----------------------------------------------------
Constantine L. Corpas
/s/ PETER KOURMOLIS Director
- -----------------------------------------------------
Peter Kourmolis
/s/ GLENN B. DALBY Director
- -----------------------------------------------------
Glenn B. Dalby
</TABLE>
II-3
<PAGE> 66
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<C> <C> <S>
1.1 -- Form of Underwriting Agreement*
5.1 -- Opinion of Greenberg Traurig Hoffman Lipoff Rosen & Quentel,
P.A.
23.1 -- Consent of Deloitte & Touche LLP
23.2 -- Consent of Greenberg Traurig Hoffman Lipoff Rosen & Quentel,
P.A. (contained in Exhibit 5.1)
24 -- Power of Attorney (contained in Signature Page)
27 -- Financial Data Schedule (electronic filing only)
</TABLE>
- ---------------
* To be added by amendment.
II-4
<PAGE> 1
GREENBERG
ATTORNEYS AT LAW
TRAURIG
EXHIBIT 5.1
June 12, 1998
Gencor Industries, Inc.
5201 N. Orange Blossom Trail
Orlando, FL 32810
Gentlemen:
You have requested our opinion in connection with the Registration
Statement on Form S-3 (the "Registration Statement") of Gencor Industries, Inc.
(the "Company") relating to the Company's Common Stock, $.10 par value (the
"Common Stock") to be issued and sold pursuant to a secondary offering as set
forth therein:
(a) 3,540,000 shares of the Company's Common Stock (including 540,000
shares which the Underwriters have the option to purchase to cover
over-allotments);
(b) 600,000 shares of the Company's Common Stock held by certain
Selling Shareholders (as defined in the Registration Statement).
We have made such examination of the corporate records and proceedings of
the Company and have taken such further action as we deemed necessary or
appropriate to the rendering of our opinion herein.
Based on the foregoing, we are of the opinion that the 3,540,000 shares of
Common Stock when issued as contemplated by the Registration Statement, will be
legally issued, fully paid and non-assessable. Further, we are of the opinion
that the 600,000 shares of Common Stock referenced above were legally issued,
fully paid and non-assessable.
We hereby consent to the filing of this opinion with the Securities and
Exchange Commission as an exhibit to the Registration Statement and to the
reference to our firm under the heading "Legal Matters" therein.
Sincerely,
/s/ GREENBERG TRAURIG HOFFMAN LIPOFF
ROSEN & QUENTEL, P.A.
GREENBERG TRAURIG HOFFMAN LIPOFF ROSEN & QUENTEL, P.A.
P.O. BOX 4923 ORLANDO, FLORIDA 32802-4923
407-420-1000 FAX 407-420-5909
111 NORTH ORANGE AVENUE 20TH FLOOR ORLANDO, FLORIDA 32801
MIAMI NEW YORK WASHINGTON, D.C. PHILADELPHIA SAO PAULO
FORT LAUDERDALE WEST PALM BEACH ORLANDO TALLAHASSEE
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT AND REPORT ON SCHEDULE
To the Board of Directors and Stockholders of
Gencor Industries, Inc.:
We consent to the use in this Registration Statement relating to 3,600,000
shares of Common Stock of Gencor Industries, Inc. (the "Company") on Form S-3 of
our report dated November 11, 1997 (April 9, 1998 as to the effects of the stock
split described in Note 1), appearing in the Prospectus, which is a part of this
Registration Statement, and to the references to us under the headings "Selected
Consolidated Financial Data" and "Experts" in such Prospectus.
Our audits of the financial statements included in the Annual Report on
Form 10K for the year ended September 30, 1997, which is incorporated by
reference in this Registration Statement, also included the financial statement
schedule of the Company, listed in Item 8. Such financial statement schedule is
the responsibility of the Company's management. Our responsibility is to express
an opinion on such schedule based on our audits. In our opinion, such financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
/s/ DELOITTE & TOUCHE LLP
June 12, 1998
Orlando, Florida
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF GENCOR INDUSTRIES FOR THE TWELVE MONTHS ENDED SEPTEMBER
30, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> SEP-30-1997
<CASH> 10,287
<SECURITIES> 0
<RECEIVABLES> 39,877
<ALLOWANCES> (3,412)
<INVENTORY> 46,175
<CURRENT-ASSETS> 95,393
<PP&E> 60,006
<DEPRECIATION> (21,592)
<TOTAL-ASSETS> 163,152
<CURRENT-LIABILITIES> 49,666
<BONDS> 0
0
0
<COMMON> 831
<OTHER-SE> 20,381
<TOTAL-LIABILITY-AND-EQUITY> 163,152
<SALES> 195,313
<TOTAL-REVENUES> 195,313
<CGS> 142,878
<TOTAL-COSTS> 177,107
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,170
<INCOME-PRETAX> 11,021
<INCOME-TAX> 4,125
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,896
<EPS-PRIMARY> 0.85<F1>
<EPS-DILUTED> 0.74
<FN>
<F1>BASIC
</FN>
</TABLE>
