As filed with the Securities and Exchange Commission on October 28, 1996
Registration No. 333-____________
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------
FORM S-3
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
------------------------
DT INDUSTRIES, INC.
(Exact name of Registrant as specified in its charter)
Delaware Corporate Centre, Suite 2-300 44-0537828
(State or other 1949 E. Sunshine (I.R.S. Employer
jurisdiction of Springfield, Missouri 65804 Identification No.)
incorporation or (417) 890-0102
organization) (Address, including zip code, and
telephone number, including area code,
of Registrant's principal executive offices)
------------------------
STEPHEN J. GORE
President and Chief Executive Officer
DT Industries, Inc.
Corporate Centre, Suite 2-300
1949 E. Sunshine
Springfield, Missouri 65804
(417) 890-0102
(Name, address, including zip code, and telephone number, including
area code, of agent for service)
------------------------
Copies to:
MATTHEW G. MALONEY, ESQ. LAWRENCE D. LEVIN, ESQ.
Dickstein Shapiro Morin & Oshinsky LLP MARK D. WOOD, ESQ.
2101 L Street, N.W. Katten Muchin & Zavis
Washington, D.C. 20037 525 West Monroe Street, Suite 1600
(202) 785-9700 Chicago, Illinois 60661-3693
(312) 902-5200
------------------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
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 Maximum Proposed Maximum Amount of
Title of Each Class of Amount to be Offering Price Aggregate Registration
Securities to be Registered Registered (1) Per Share(2) Offering Price(2) Fee
<C> <C> <C> <C> <C>
Common Stock,
$0.01 par value 5,462,500 $38.125 $208,257,813 $63,109
</TABLE>
(1) Includes 712,500 shares subject to the Underwriters' over-allotment option.
(2) Calculated pursuant to Rule 457(c) based on the average of the high and low
prices reported on the Nasdaq National Market on October 24, 1996.
The Registrant hereby amends this Registration Statement on such date 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 Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
================================================================================
<PAGE>
EXPLANATORY NOTE
This registration statement contains two forms of prospectus: one to be
used in connection with a United States offering (the "U.S. Prospectus") and one
to be used in connection with a concurrent international offering (the
"International Prospectus"). The U.S. Prospectus and the International
Prospectus are identical except that the International Prospectus contains (i) a
different front cover page, (ii) a different inside front cover page and (iii) a
Subscription and Sale Section in lieu of an Underwriting Section. In addition,
the International Prospectus omits the Notice to Canadian Residents section
contained in the U.S. Prospectus. The form of U.S. Prospectus is included herein
and the different pages discussed above for the International Prospectus which
are labelled "Alternate Pages for International Prospectus" follow the U.S.
Prospectus.
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+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 BY 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 OCTOBER 28, 1996
4,750,000 Shares
[DT Industries Logo]
Common Stock
($0.01 par value)
----------
Of the shares of common stock, $0.01 par value per share (the "Common Stock")
offered hereby by the Underwriters (the "Offering"), 2,250,000 shares are being
sold by DT Industries, Inc. ("DTI" or the "Company") and 2,500,000 shares are
being sold by the Selling Stockholders named herein. See "Principal and
Selling Stockholders." Of the 4,750,000 shares of Common Stock being
offered, 3,800,000 shares are initially being offered in the Unit-
ed States and Canada (the "U.S. Shares") by the U.S. Under-
writers (the "U.S. Offering") and 950,000 shares are ini-
tially being concurrently offered outside the United
States and Canada (the "International Shares") by
the Managers (the "International Offering" and,
together with the U.S. Offering, the "Offer-
ing"). The offering price and underwriting
discounts and commissions of the U.S.
Offering and the International Offer-
ing are identical. On October 23,
1996, the reported last sale
price of the Common Stock on
the Nasdaq Stock Market's
National Market ("NNM")
was $38 3/8 per share.
----------
For a discussion of certain factors that should be considered in connection
with an investment in the Common Stock, see "Risk Factors" on page 6 herein.
----------
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 AD-
EQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
Underwriting
Price to Discounts and Proceeds to Proceeds to
Public Commissions Company (1) Selling Stockholders
--------------- --------------- --------------- ---------------------
<S> <C> <C> <C> <C>
Per Share $ $ $ $
Total (2) $ $ $ $
</TABLE>
(1) Before deduction of expenses payable by the Company, estimated at $500,000.
(2) The Company and the Selling Stockholders have granted the U.S. Underwriters
and the Managers an option, exercisable by CS First Boston Corporation for
30 days from the date of this Prospectus, to purchase a maximum of 312,500
additional shares of Common Stock from the Company and a maximum of 400,000
additional outstanding shares from the Selling Stockholders to cover
over-allotments of shares, if any. If the option is exercised in full, the
total Price to Public will be $ , Underwriting Discounts and
Commissions will be $ , Proceeds to Company will be $ and
Proceeds to Selling Stockholders will be $ .
----------
The U.S. Shares are offered by the several U.S. Underwriters when, as and
if delivered to and accepted by the U.S. Underwriters, and subject to their
right to reject orders in whole or in part. It is expected that the U.S. Shares
will be ready for delivery on or about , 1996, against payment
in immediately available funds.
CS First Boston
Morgan Stanley & Co.
Incorporated
Schroder Wertheim & Co.
The date of this Prospectus is , 1996
<PAGE>
IN CONNECTION WITH THIS OFFERING CS FIRST BOSTON ON BEHALF OF THE U.S.
UNDERWRITERS AND THE MANAGERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH
STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT A LEVEL ABOVE THAT
WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE
EFFECTED ON THE NNM OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
IN CONNECTION WITH THIS OFFERING, CERTAIN U.S. UNDERWRITERS (AND SELLING
GROUP MEMBERS, IF ANY) AND THEIR RESPECTIVE AFFILIATES MAY ENGAGE IN PASSIVE
MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON THE NNM IN ACCORDANCE WITH
RULE 10b-6A UNDER THE SECURITIES EXCHANGE ACT OF 1934 (SEE "UNDERWRITING").
DURING THIS OFFERING, CERTAIN PERSONS AFFILIATED WITH PERSONS PARTICIPATING
IN THE DISTRIBUTION MAY ENGAGE IN TRANSACTIONS FOR THEIR OWN ACCOUNTS OR FOR THE
ACCOUNTS OF OTHERS IN THE COMMON STOCK PURSUANT TO EXEMPTIONS FROM RULES 10b-6,
10b-7 AND 10b-8 UNDER THE SECURITIES EXCHANGE ACT OF 1934.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents or portions of documents filed by the Company (File
No. 0-23400) with the Securities and Exchange Commission (the "Commission") are
incorporated herein by reference:
(1) Annual Report on Form 10-K for the fiscal year ended June 30, 1996, filed
with the Commission on September 30, 1996, as amended by Amendment No. 1 to
Annual Report on Form 10-K/A, filed with the Commission on October 10,
1996.
(2) Current Report on Form 8-K, filed with the Commission on August 5, 1996, as
amended by Amendment No. 1 to Current Report on Form 8-K/A, filed with the
Commission on September 23, 1996.
(3) The description of the Company's Common Stock which is contained in the
Company's Registration Statement on Form 8-A, filed with the Commission on
February 11, 1994, including any amendment or reports filed for the purpose
of updating such description.
All reports and other documents filed by the Company pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), subsequent to the date of this Prospectus and prior to the
termination of this Offering shall be deemed to be incorporated by reference
herein and to be a part hereof from the date of filing such reports and
documents. Any statement contained in a document, all or a portion of which is
incorporated by reference herein, shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained or
incorporated by reference herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
Upon oral or written request, the Company will provide without charge to
each person to whom this Prospectus is delivered a copy of any or all of such
documents which are incorporated herein by reference (other than exhibits to
such documents unless such exhibits are specifically incorporated by reference
into the documents that this Prospectus incorporates). Requests for such copies
should be directed to the attention of Bruce P. Erdel, Vice President--Finance
and Chief Financial Officer, DT Industries, Inc., Corporate Centre, Suite 2-300,
1949 E. Sunshine, Springfield, Missouri 65804, telephone: (417) 890-0102.
Unless the context otherwise requires, "DTI" or the "Company" refers to DT
Industries, Inc. and its subsidiaries. Unless otherwise indicated, all
references to any "fiscal" year shall mean the fiscal year of the Company which
is a 52 - 53 week period that ends on the last Sunday in June.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary information is qualified in its entirety by reference
to the more detailed information and financial data appearing elsewhere or
incorporated by reference into this Prospectus. Except as otherwise indicated,
all information contained in this Prospectus assumes no exercise of the
over-allotment option of the U.S. Underwriters and the Managers. Investors
should carefully consider the information set forth under the heading "Risk
Factors."
The Company
DTI is an engineering-driven designer, manufacturer and integrator of
automated production equipment and systems used to manufacture, test or package
a variety of industrial and consumer products. The Company believes it is the
largest manufacturer of integrated assembly and test systems in North America.
Substantial growth opportunities are believed to be provided by certain trends
among the Company's customers, including increased emphasis on productivity,
quality, flexibility, globalization, outsourcing, downsizing and vendor
rationalization. To capitalize on these trends, DTI has implemented a business
strategy to provide, develop and acquire complementary technologies and
capabilities to supply customers with integrated processing, assembly, testing
and packaging systems for their products. As part of this strategy, the Company
seeks to cross-sell the products produced by acquired companies through its
larger company-wide sales force, thus providing for greater geographic and
customer coverage. The Company operates in two business segments: Special
Machines and Components. Through acquisitions and product development, the
Company's Special Machines business has grown from historical consolidated net
sales of $28.5 million in fiscal 1993 to historical consolidated net sales of
$193.9 million in fiscal 1996. The Company's Components business, which produces
precision metal components and wear parts for a broad range of industrial
applications, has grown from historical consolidated net sales of $22.1 million
in fiscal 1993 to historical consolidated net sales of $42.1 million in fiscal
1996, primarily as a result of internal growth.
Special Machines Segment. The Special Machines segment's products are used
principally in the electronics, automotive, pharmaceutical, nutritional and food
processing, consumer products, appliance and tire industries. Sales of these
products also produce a stream of recurring revenues from replacement parts and
service as the Company's substantial installed base of equipment is maintained
and upgraded over time. The Special Machines segment, which accounted for
approximately 87% of the Company's pro forma consolidated fiscal 1996 net sales,
after giving effect to the acquisition of Mid-West Automation Enterprises, Inc.
("Mid-West") described below, consists of two groups: DTI Automation and DTI
Packaging. Each group offers a class of products and services that complement
one another in terms of markets, engineering requirements, product needs and
systems capabilities.
DTI Automation. DTI Automation designs and builds a complete line of
integrated automated assembly and testing systems. Integrated systems combine a
variety of manufacturing technologies into a complete automated manufacturing
system. Core capabilities of DTI Automation include the design and manufacture
of small to large automated assembly systems, high-speed precision assembly
systems, flexible assembly systems, automated resistance and arc welding systems
and large thermoforming systems. The Company believes it is the largest
manufacturer of integrated assembly and test systems in North America.
DTI Packaging. DTI Packaging designs and builds proprietary machines and
integrated systems used to perform processing and packaging tasks. Core
capabilities of DTI Packaging include the design and manufacture of
thermoforming, blister packaging and foam extrusion systems, and a complete line
of tablet processing and packaging systems. The Company believes it is the
largest manufacturer of tablet packaging equipment in North America.
Components Segment. The Components segment, which accounted for
approximately 13% of pro forma consolidated fiscal 1996 net sales, stamps and
fabricates a range of standard and custom metal components for the
transportation, appliance, heavy equipment, agricultural equipment and
electrical industries as well as wear parts for the textile industry.
The Company's principal executive offices are located at Corporate Centre,
Suite 2-300, 1949 E. Sunshine, Springfield, Missouri 65804, and its telephone
number is (417) 890-0102.
3
<PAGE>
Recent Acquisitions
On July 19, 1996, the Company acquired the stock of Mid-West, a designer
and manufacturer of integrated precision assembly systems. Mid-West's revenues
for its fiscal year ended May 25, 1996 were approximately $88.2 million and its
operating income, before certain nonrecurring charges, was approximately $18.4
million. Mid-West's customers are major U.S. corporations serving the
electronics industry. The results of Mid-West are included with those of the
Company for periods subsequent to the date of acquisition.
On September 30, 1996, the Company acquired the stock of Hansford
Manufacturing Corporation ("Hansford"), a designer and manufacturer of automated
assembly systems. For the first eight months of calendar year 1996, Hansford
recorded net sales of $33 million and an operating profit of $2.3 million. The
results of Hansford will be included with those of the Company for periods
subsequent to the quarter ended September 29, 1996.
The Offering
Common Stock offered by:
the Company 2,250,000 shares
the Selling Stockholders 2,500,000 shares
----------------
4,750,000 shares
================
Common Stock offered for sale in:
U.S. Offering 3,800,000 shares
International Offering 950,000 shares
Common Stock to be outstanding
after the Offering 11,261,375 shares (a)
Use of proceeds The net proceeds to the Company will be
used to reduce indebtedness. See "Use
of Proceeds."
Dividend policy The Company expects to continue to pay
quarterly cash dividends of $0.02 per
share.
NNM symbol DTII
- ---------------
(a) Does not include 951,575 shares as of October 15, 1996 issuable upon
exercise of stock options granted, or 637,050 additional shares available
for issuance, under the Company's employee benefit plans.
4
<PAGE>
Summary Historical and Pro Forma Consolidated Financial Data
<TABLE>
<CAPTION>
Pro
Forma(1) Pro
Three Forma (1)
Months Three Months Ended Year Fiscal Year Ended
Ended ---------------------- Ended -----------------------------------
Sept. 29, Sept. 29, Sept. 24, June 30, June 30, June 25, June 26,
1996 1996 1995 1996 1996 1995 1994
---------- --------- --------- ---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
(Dollars in thousands, except per share data)
Statement of Operations Data:
Net sales $ 89,807 $ 82,635 $ 44,788 $ 324,098 $ 235,946 $ 147,369 $ 107,499
Gross profit 24,666 22,765 11,241 92,422 63,378 37,691 27,944
Operating income 12,221 11,177 4,616 43,865 27,933 16,263 14,069
Income before income
taxes and extraordinary
loss 10,641 8,462 3,855 39,144 23,134 14,414 10,563
Income before
extraordinary loss 6,132 4,873 2,226 22,503 13,491 8,450 5,993
Net income 5,808 4,549 2,226 22,503 13,491 8,450 5,814
Earnings per share before
extraordinary loss $ 0.53 $ 0.52 $ 0.25 $ 2.00 $ 1.50 $ 0.94 $ 1.10
Earnings per share 0.53 0.48 0.25 2.00 1.50 0.94 1.07
Weighted average common
shares outstanding 11,665,738 9,415,738 9,000,000 11,250,257 9,000,257 9,000,000 5,458,337
Other Data:
Depreciation and
amortization $ 2,644 $ 2,394 $ 1,441 $ 9,563 $ 6,116 $ 4,561 $ 3,357
Capital expenditures 2,417 2,417 2,070 11,998 10,249 7,718 2,272
</TABLE>
September 29, 1996
------------------------------
Balance Sheet Data: Actual As Adjusted(2)
--------- --------------
(Dollars in thousands)
Cash $ 2,653 $ 2,653
Working capital 48,870 61,164
Total assets 346,962 346,962
Short-term debt 15,922 3,628
Long-term debt (net of current portion) 153,695 84,031
Stockholders' equity 92,365 174,323
Ratio Analysis:
Ratio of total debt to total capitalization 64.7% 33.5%
- ---------------
(1) The pro forma consolidated statement of operations amounts illustrate the
estimated effects of (i) the acquisition of Mid-West and the financing
thereof and (ii) the Offering contemplated hereby and the application of
the estimated net proceeds to the Company therefrom to reduce indebtedness.
See "Pro Forma Financial Information."
(2) The as adjusted consolidated balance sheet data amounts illustrate the
effects of the Offering as described above. See "Pro Forma Financial
Information."
5
<PAGE>
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Statements contained in this Prospectus, and in the documents incorporated
by reference herein, that are not historical facts are forward-looking
statements that are subject to the safe harbor created by the Private Securities
Litigation Reform Act of 1995. When used in this Prospectus the words
"anticipate," "believe," "estimate," "expect" and similar expressions are
intended to identify such forward-looking statements. A number of important
factors could cause the Company's actual results for fiscal 1997 and beyond to
differ materially from those expressed in, or implied by, such forward-looking
statements. These factors include, without limitation, those listed below in
"Risk Factors."
RISK FACTORS
In addition to the other information in this Prospectus, the following risk
factors should be carefully considered in evaluating the Company and its
business before purchasing shares of Common Stock offered hereby:
Rapid Growth; Integration of Recently-Acquired Operations. The Company has
made 14 acquisitions since its formation in 1992, including four acquisitions in
fiscal 1996 and two acquisitions, Mid-West and Hansford, subsequent to June 30,
1996. Primarily as a result of these acquisitions, the Company's historical
consolidated net sales have increased from $50.6 million for fiscal 1993 to
$235.9 million for fiscal 1996. There can be no assurance that the Company will
continue to experience such rapid growth, that the Company will be successful in
integrating these operations or that such rapid growth and integration will not
divert management resources, cause temporary disruptions in the management of
the business or otherwise have a material adverse effect on the Company's
business, financial condition or results of operations. See "Business."
Acquisition Strategy. The Company expects to continue a strategy of
identifying and acquiring companies with complementary products and services
which could be expected to enhance the Company's operations and profitability.
There can be no assurance that the Company will continue to identify suitable
new acquisition candidates, obtain financing necessary to complete such
acquisitions or acquire businesses on satisfactory terms or that any business
acquired by the Company will be integrated successfully into the Company's
operations or prove to be profitable. In addition, although the proceeds of the
Offering will be used to reduce indebtedness, the Company will continue to have
a leveraged capital structure and any future acquisitions made by the Company
are likely to be financed with additional indebtedness which, in turn, may
result in a highly-leveraged capital structure. See "Use of Proceeds,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business."
Dependence on Significant Customers. The Company's sales are concentrated.
After giving effect to the acquisition of Mid-West, on a pro forma basis, sales
to a significant customer in the electronics industry accounted for 22.7% of pro
forma consolidated net sales for fiscal 1996 and the Company's top five
customers in fiscal 1996 accounted for 44.3% of the Company's pro forma
consolidated net sales. The loss of, or reduced demand for products from, one or
more of the Company's significant customers could have a material adverse effect
on the Company's business, financial condition or results of operations. See
"Business--Customers."
Fluctuations in Quarterly Results; Profitability of Fixed Price Contracts.
Because orders for certain of the Company's products can be several million
dollars or more, a relatively limited number of orders can constitute a
meaningful percentage of the Company's revenue in any one quarterly period. As a
result, a relatively small reduction or delay in the number of orders can have a
material impact on the timing of recognition of the Company's revenues. Certain
of the Company's revenues are derived from fixed price contracts. To the extent
that original cost estimates prove to be inaccurate, profitability from a
particular contract may be adversely affected. Gross margins in the Special
Machines segment may also vary between comparable periods as a result of the
variations in product mix between the various types of custom and proprietary
equipment manufactured by the Company. Accordingly, results of operations of the
Company for any particular quarter are not necessarily indicative of results
that may be expected for any subsequent quarter or related fiscal year. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Seasonality and Fluctuations in Quarterly Results."
Surrender of Voting Control by Controlling Stockholders. As of October 25,
1996, Peer Investors L.P. ("Peer L.P."), Harbour Group Investments II, L.P.
("Investments L.P."), Harbour Group II Management Co. ("Harbour Group") and Peer
Investors II L.P. ("Peer II L.P."), all of whom are under the common
control of Sam Fox, together with Mr. Fox, collectively owned approximately
35.5% of the outstanding Common Stock of the
6
<PAGE>
Company and, as a result, have been able, as a practical matter, to elect all of
the directors of the Company and to exercise control over the management and
policies of the Company. As a result of the Offering, these entities, together
with Mr. Fox, collectively will own 6.2% of the shares outstanding (2.6% if the
over-allotment option is exercised in full) and may no longer be able to
exercise practical control over the Company. The Company is unaware of any
current intent of these entities or their affiliates to reacquire such control
in the future. In addition, as a result of the Offering, it is likely that there
will be a greater number of beneficial owners of Common Stock and a larger
number of shares outstanding available for resale in the secondary market.
Affiliates of Harbour Group have entered into certain agreements with the
Company whereby such entities provide the Company with operations consulting and
corporate development services as requested from time to time by the Company.
See "Certain Transactions--Related Party Transactions." Such affiliates have had
a significant role in assisting the Company in its pursuit of its acquisition
strategy. In addition, four individuals who are affiliates of Harbour Group
serve as directors of the Company and are expected to continue to serve as
directors following the Offering. Harbour Group and its affiliates have advised
the Company that, as a result of the Offering and the surrender of practical
control over the Company, it is likely that Harbour Group and its affiliates
will diminish their involvement with the Company over an as yet undetermined
period of time. There can be no assurance that the surrender of practical
control or the diminution in involvement in the Company's affairs will not have
a material adverse effect on the Company.
Susceptibility to General Economic Conditions. The Company's revenues and
results of operations will be subject to fluctuations based upon general
economic conditions. If there were to be a general economic downturn or a
recession in the United States or certain other markets, the Company believes
that certain of its customers may reduce or delay their demand for the Company's
products, leading to a reduction in the Company's revenues and/or backlog. Most
of the factors that might influence customers and prospective customers to
reduce their capital budgets under these circumstances are beyond the Company's
control. In the event of such an economic downturn, the Company's business,
financial condition and operating results could be materially and adversely
affected. There can be no assurance that growth in the markets for the Company's
products will occur or that such growth will result in increased demand for the
Company's products. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business."
Anti-Takeover Provisions. The existence of authorized but unissued capital
stock may have the effect of making more difficult or discouraging an
acquisition of the Company deemed undesirable by its Board of Directors. In
addition, the issuance of authorized but unissued preferred stock, which can be
effected by the Company's Board of Directors without stockholder approval, may
adversely affect the market price of, and voting and other rights attributable
to, the Common Stock. Provisions in the Company's Restated Certificate of
Incorporation permitting the Board to amend the Bylaws without stockholder vote
and provisions in the Bylaws permitting the Board to increase or decrease the
size of the Board could, alone or in combination with the authorized but
unissued capital stock, also deter or discourage acquisitions deemed undesirable
by the Board. Furthermore, the Board has approved and submitted for adoption by
the Company's stockholders at the annual meeting to be held on November 11,
1996, an amendment to the Restated Certificate of Incorporation dividing the
Company's Board of Directors into three classes with staggered terms, which if
adopted could have the effect of making more difficult or discouraging an
acquisition of the Company deemed undesirable by the Board. In addition, certain
provisions of Delaware law applicable to the Company, including Section 203 of
the Delaware General Corporation Law, could have the effect of delaying,
deferring or preventing a change of control of the Company.
Stock Price Volatility. The market price of the Common Stock could continue
to fluctuate substantially due to a variety of factors, including quarterly
fluctuations in results of operations, the impact of acquisitions, adverse
circumstances affecting the introduction or market acceptance of new products
and services offered by the Company or its customers, changes in the general
economic environment, changes in earnings estimates by analysts, changes in
accounting principles, sales of Common Stock by existing holders, loss of key
personnel and other factors. The market price for the Company's Common Stock may
also be affected by the Company's ability to meet analysts' expectations, and
any failure to meet such expectations, even if minor, could have a material
adverse effect on the market price of the Company's Common Stock. In addition,
the stock market is subject to extreme price and volume fluctuations. This
volatility has had a significant effect on the market prices of securities
issued by many companies for reasons unrelated to the operating performance of
these companies. In the past, following periods of volatility in the market
price of a company's securities, securities class action litigation has often
been instituted
7
<PAGE>
against such a company. Any such litigation instigated against the Company could
result in substantial costs and a diversion of management's attention and
resources, which could have a material adverse effect on the Company's business,
operating results and financial condition. See "Price Range of Common Stock and
Dividend Information."
RECENT DEVELOPMENTS
On September 30, 1996, the Company acquired the stock of Hansford, a
designer and manufacturer of automated assembly systems. For the first eight
months of calendar year 1996, Hansford recorded net sales of $33 million and
operating profit of $2.3 million. At September 30, 1996 Hansford's backlog was
$21.1 million. The Company paid $8.9 million of the $17.4 million cash purchase
price at the closing and agreed to pay the $8.5 million balance on June 30,
1997. The Company also agreed, subject to achieving a minimum level of future
earnings attributable to the Hansford business, to make additional cash payments
payable over a two-year period beginning after the end of fiscal 1999. The
actual amount of such additional payments, if any, will be determined by a
formula based on the earnings of Hansford and will not exceed $20 million. The
acquisition will be accounted for under the purchase method of accounting, with
the purchase price allocated to the estimated fair market value of the assets
acquired and liabilities assumed, with the excess allocated to goodwill. The
results of Hansford will be included with those of the Company subsequent to the
quarter ended September 29, 1996.
The Company believes that Hansford's advanced engineering and technological
expertise adds a valued new dimension to DTI Automation. Among other
innovations, Hansford has developed a reusable and flexible light modular
assembly system, which is expected to address many of the Company's customers'
requests for greater flexibility in assembly systems. This recently-introduced
product is also expected to open new markets for DTI, particularly among
lower-volume electronic and medical device manufacturers who could not
previously justify product-specific automation systems.
Hansford's manufacturing operations are conducted in two leased facilities
in Rochester, New York consisting of approximately 139,000 square feet in the
aggregate. At the time of acquisition, Hansford had approximately 250 employees.
Concurrent with the acquisition of Hansford, the Company amended its Second
Amended and Restated Credit Facilities Agreement (the "Amended Facility"),
increasing the total amount of the facility from $200 million to $210 million.
See Note 4 to the Consolidated Financial Statements.
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of shares of
Common Stock in the Offering (after deduction of estimated Underwriters'
discounts and commissions and expenses payable by the Company in connection with
the Offering) are estimated to be approximately $82.0 million. Such proceeds are
expected to be used to reduce indebtedness, bearing interest at a weighted
average rate of approximately 7.5% and maturing on July 23, 2001, incurred in
connection with (i) the acquisitions of Advanced Assembly Automation, Inc.
("AAA"), the Lakso division of Package Machinery Company ("Lakso"), the business
and assets of Armac Industries, Ltd. ("Armac"), the business and assets of H.G.
Kalish, Inc. ("Kalish"), the business and assets of Arrow Precision Elements,
Inc. ("Arrow"), Assembly Machines, Inc. ("AMI"), Mid-West and Hansford and (ii)
capital improvements. Under the terms of the Amended Facility, the effects of
the prepayment of indebtedness through the application of the proceeds of the
Offering is expected to result in a reduction in interest rates of 0.75% per
annum on borrowings outstanding under the Amended Facility. In addition, under
the terms of the Company's Amended Facility, the prepayment of indebtedness
through application of the proceeds of the Offering will establish a loan
commitment equal to the amount of the reduction in indebtedness, which
commitment will be available for use by the Company to finance future
acquisitions for up to two years following the consummation of the Offering,
subject to the provisions of the Amended Facility. The Company has from time to
time engaged, and expects to engage in the future, in discussions relating to
potential complementary acquisitions. There are no material business
acquisitions that are currently proposed or probable.
The Company will not receive any of the proceeds from the sale of Common
Stock by the Selling Stockholders.
8
<PAGE>
PRICE RANGE OF COMMON STOCK AND DIVIDEND INFORMATION
The Company's Common Stock is quoted on the NNM under the symbol "DTII."
The following table sets forth, for the fiscal quarters indicated, the high and
low closing sales prices for the Common Stock as reported by the NNM and the
cash dividends per share declared during such periods.
Closing Sales Price
------------------------
Quarterly Cash
High Low Dividends
---------- ---------- --------------
Fiscal 1995
- -----------
First Quarter $ 17 1/2 $ 14 3/4 $ 0.02
Second Quarter 15 1/2 10 7/8 0.02
Third Quarter 11 1/2 8 9/16 0.02
Fourth Quarter 12 1/4 10 1/4 0.02
Fiscal 1996
- -----------
First Quarter 14 10 1/2 0.02
Second Quarter 14 12 3/4 0.02
Third Quarter 19 13 0.02
Fourth Quarter 23 1/4 18 1/4 0.02
Fiscal 1997
- -----------
First Quarter 34 1/2 17 3/4 0.02
Second Quarter
(through October 23, 1996) 38 3/4 33 3/4
On October 23, 1996, the closing sales price for the Common Stock as
reported by the NNM was $38 3/8. As of October 23, there were 75 record owners
of DTI's Common Stock.
The Company currently intends to continue to declare and pay cash dividends
on its Common Stock on a quarterly basis. However, all dividend payments are
subject to the Company's earnings, financial condition and capital requirements
at the time of declaration and will be paid only if, as and to the extent
declared by the Company's Board of Directors.
9
<PAGE>
CAPITALIZATION
The following table sets forth the short-term debt and capitalization of
the Company (i) at September 29, 1996 and (ii) as adjusted to reflect the sale
by the Company of 2,250,000 shares of Common Stock offered hereby at an assumed
offering price of $38 3/8 (and after deducting estimated underwriting discounts
and commissions and expenses of the Offering) and the application of such
estimated net proceeds therefrom as described under "Use of Proceeds." This
table should be read in conjunction with "Selected Historical Consolidated
Financial Data," "Pro Forma Financial Information" and the Consolidated
Financial Statements and related notes of the Company included elsewhere herein.
September 29, 1996
------------------------------
Actual As Adjusted(2)
--------- --------------
(Dollars in thousands)
Short-term debt $ 15,922 $ 3,628
Long-term debt (net of current portion) 153,695 84,031
--------- ---------
Total debt 169,617 87,659
Stockholders' equity:
Preferred stock, $.01 par value;
authorized: 1,500,000 shares; issued
and outstanding: none -- --
Common stock, $.01 par value; authorized:
100,000,000 shares; issued and outstanding:
9,009,375 shares outstanding and 11,261,375
shares outstanding as adjusted (a) 90 113
Additional paid-in capital 61,367 143,302
Retained earnings 30,908 30,908
--------- ---------
Total stockholders' equity 92,365 174,323
--------- ---------
Total capitalization $ 261,982 $ 261,982
========= =========
Total debt to total capitalization 64.7% 33.5%
========= =========
- ---------------
(a) Does not include 951,575 shares as of October 15, 1996 issuable upon
exercise of stock options granted, or 637,050 additional shares available
for issuance, under the Company's employee benefit plans.
10
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The following table sets forth selected consolidated financial data for the
Company and its subsidiaries and Detroit Tool Group, Inc. ("DTG"), as
predecessor to the Company, for each of the fiscal years in the five year period
ended June 30, 1996 and for the three months ended September 29, 1996 and the
three months ended September 24, 1995. The data for the fiscal years ended June
30, 1996, June 25, 1995 and June 26, 1994 have been derived from the
Consolidated Financial Statements of the Company included herein which have been
audited by Price Waterhouse LLP, independent accountants. The data for the
fiscal years ended June 30, 1993 and 1992 have been derived from Consolidated
Financial Statements of the Company and DTG, as predecessor to the Company,
which have been audited by Price Waterhouse LLP, which are not included herein.
The data for the three months ended September 29, 1996 and the three months
ended September 24, 1995 have been derived from the unaudited consolidated
financial statements of the Company, which, in the opinion of management, have
been prepared on the same basis as the audited financial statements and include
all adjustments which are of a normal recurring nature necessary for a fair
presentation.
The data set forth below should be read in conjunction with the report of
the independent accountants, the Consolidated Financial Statements and related
notes of the Company included elsewhere herein and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere
herein.
<TABLE>
<CAPTION>
Predecessor(1)
Company Company(1) Fiscal Year
Three Months Ended Fiscal Year Ended Ended
---------------------- ---------------------------------------------- --------------
Sept. 29, Sept. 24, June 30, June 25, June 26, June 30, June 30,
1996 1995 1996 1995 1994 1993 1992
----------- ---------- ---------- ----------- ----------- ----------- --------------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Net sales $82,635 $ 44,788 $235,946 $ 147,369 $ 107,499 $ 50,628 $ 59,130
Cost of sales 59,870 33,547 172,568 109,678 79,555 40,066 46,018
----------- ---------- ---------- ----------- ----------- ----------- --------------
Gross profit 22,765 11,241 63,378 37,691 27,944 10,562 13,112
Selling, general and
administrative expenses 11,588 6,625 35,445 21,428 13,875 6,147 8,758
----------- ---------- ---------- ----------- ----------- ----------- --------------
Operating income 11,177 4,616 27,933 16,263 14,069 4,415 4,354
Interest expense, net 2,715 761 4,799 1,849 3,506 2,583 3,295
----------- ---------- ---------- ----------- ----------- ----------- --------------
Income before income
taxes and extraordinary
loss 8,462 3,855 23,134 14,414 10,563 1,832 1,059
Provision for income taxes 3,589 1,629 9,643 5,964 4,570 1,000 611
----------- ---------- ---------- ----------- ----------- ----------- --------------
Income before
extraordinary loss 4,873 2,226 13,491 8,450 5,993 832 448
Extraordinary loss,
net(2) (324) (179) (428)
----------- ---------- ---------- ----------- ----------- ----------- --------------
Net income $ 4,549 $ 2,226 $ 13,491 $ 8,450 $ 5,814 404 $ 448
=========== ========== ========== =========== =========== =========== ==============
Earnings per share before
extraordinary loss $ 0.52 $ 0.25 $ 1.50 $ 0.94 $ 1.10 $ 0.19 --(3)
Earnings per share $ 0.48 $ 0.25 $ 1.50 $ 0.94 $ 1.07 $ 0.09 --(3)
Weighted average
common shares
outstanding 9,415,738 9,000,000 9,000,257 9,000,000 5,458,337 4,481,167 --(3)
Balance Sheet Data:
Working capital (deficit) $48,870 $ 15,545 $ 26,161 $ 16,791 $ 8,846 $ 464 $ (8,219)
Total assets 346,962 183,239 233,843 159,263 97,628 62,779 44,032
Short-term debt 15,922 6,174 8,481 6,448 206 2,271 2,490
Long-term debt 153,695 41,441 70,846 30,905 226 28,776 21,125
Stockholders' equity
(deficit) 92,365 77,066 87,884 75,020 67,234 6,054 (2,834)
</TABLE>
11
<PAGE>
- ---------------
(1) The Company was organized in July 1992 for the purpose of acquiring DTG,
the predecessor company to DTI, in August 1992 and the Peer Division of
Teledyne, Inc. ("Peer") in July 1992.
(2) Reflects costs incurred by the Company of $540 and $684, less applicable
income tax benefits of $216 and $256, in the periods ended September 29,
1996 and June 30, 1993, respectively, related to the refinancing of debt
and costs of $314, less applicable income tax benefits of $135, in fiscal
1994 related to the extinguishment of debt.
(3) Given the historical organization and capital structure of the predecessor,
share and earnings per share information is not considered meaningful for
the predecessor.
PRO FORMA FINANCIAL INFORMATION
The following pro forma unaudited consolidated statements of operations of
DTI for the year ended June 30, 1996 and for the three months ended September
29, 1996, respectively, were prepared to illustrate the estimated effects of (i)
the acquisition of Mid-West (as described further below) and the financing
thereof and (ii) the Offering contemplated hereby at an assumed public offering
price of $38 3/8 (and after deducting estimated underwriting discounts and
commissions and expenses of the Offering) and the application of the estimated
net proceeds to the Company therefrom to prepay outstanding indebtedness
(collectively, the "Pro Forma Transactions"), as if the Pro Forma Transactions
had occurred at the beginning of each respective period. The following pro forma
unaudited consolidated balance sheet of DTI at September 29, 1996 was prepared
to illustrate the estimated effects of the Offering contemplated hereby and the
application of the estimated net proceeds to the Company therefrom to prepay
outstanding indebtedness. Neither the pro forma unaudited consolidated
statements of operations nor the pro forma unaudited consolidated balance sheet
of DTI include the effects of the acquisition of Hansford which was completed on
September 30, 1996.
On July 19, 1996, the Company completed the acquisition of the stock of
Mid-West in a transaction accounted for under the purchase method of accounting.
The aggregate purchase price approximated $75.2 million, plus assumed
liabilities of approximately $15.9 million. The acquisition was financed through
additional borrowings under the Company's Second Amended and Restated Credit
Facilities Agreement, which replaced the Company's existing credit facility.
The purchase price for Mid-West was assigned to the assets acquired and
liabilities assumed based on their estimated fair values at the acquisition
date. Based on such allocations, the aggregate purchase price exceeded the
estimated fair value of the net assets acquired (goodwill) by approximately
$56.2 million, which is being amortized over 40 years and will result in an
annual amortization charge of $1.4 million.
The pro forma unaudited consolidated statements of operations and the pro
forma unaudited consolidated balance sheet do not purport to represent (i) the
actual results of operations or financial condition of the Company, had the Pro
Forma Transactions occurred on the dates assumed, or (ii) the results of
operations or financial position to be expected in the future. They do not
reflect any estimate of cost savings or other efficiencies that may be achieved
from the integration of Mid-West. Management believes that the assumptions used
in preparing the pro forma unaudited consolidated statements of operations and
the pro forma unaudited consolidated balance sheet provide a reasonable basis
for presenting all of the significant effects of the Pro Forma Transactions,
that the pro forma adjustments give appropriate effect to those assumptions, and
that the pro forma adjustments are properly applied in the pro forma unaudited
consolidated statements of operations and the pro forma unaudited consolidated
balance sheet.
The pro forma unaudited consolidated statements of operations and the pro
forma unaudited consolidated balance sheet and accompanying notes should be read
in conjunction with the historical financial statements of the Company and
Mid-West, including the notes thereto, and the other financial information
pertaining to the Company and Mid-West, including the information set forth
under "Capitalization," "Selected Historical Consolidated Financial Data," and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," included elsewhere, or incorporated by reference, herein.
12
<PAGE>
PRO FORMA UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
Mid-West
Consolidated
Balances
for the Pro Forma
Fiscal Year Pro Forma for the
Ended May 26, Purchase Acquisition Offering Pro Forma
DTI 1996 As Accounting of Adjustments As Adjusted
As Reported Reported Adjustments Mid-West
------------- ------------- ------------- ------------ ------------- -------------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
Net sales $ 235,946 $ 88,152 $ 324,098 $ 324,098
Cost of sales 172,568 58,053 $ 1,055 (1) 231,676 231,676
------------- ------------- ------------- ------------ ------------- -------------
Gross profit 63,378 30,099 92,422 92,422
(1,055)
Selling, general and
administrative expenses 35,445 15,214 (2,102)(2) 48,557 48,557
------------- ------------- ------------- ------------ ------------- -------------
Operating income 27,933 14,885 1,047 43,865 43,865
Interest expense (income), net 4,799 (65) 6,605 (3) 11,339 $ (6,618)(5) 4,721
------------- ------------- ------------- ------------ ------------- -------------
Income before provision for
income taxes 23,134 14,950 (5,558) 32,526 6,618 39,144
Provision for income taxes 9,643 5,994 (1,643)(4) 13,994 2,647 (4) 16,641
------------- ------------- ------------- ------------ ------------- -------------
Income before extraordinary
item $ 13,491 $ 8,956 $ (3,915) $ 18,532 $ 3,971 $ 22,503
============= ============= ============= ============ ============= =============
Earnings per common share
before extraordinary item $ 1.50 $ 2.06 $ 2.00
Weighted average number of
common shares 9,000,257 9,000,257 11,250,257
</TABLE>
- ---------------
<TABLE>
<CAPTION>
<C> <C> <C>
(1) Cost of sales has been increased (reduced) for the following:
Elimination of capitalized building lease depreciation $ (303)
Increase in operating lease expense related to the building 1,358
----------
$ 1,055
Prior to its acquisition by the Company, Mid-West leased its primary
manufacturing facility under a lease treated as a capital lease for
financial reporting purposes. The Company has entered into a new lease
for the facility, concurrent with the acquisition, that will be treated as
an operating lease for financial reporting purposes.
(2) Selling, general and administrative expenses have been increased (reduced)
for the following:
Elimination of sales commissions paid to a company related $ (3,522)
to Mid-West via common ownership (32)
Elimination of capitalized building lease depreciation 1,452
----------
Increase in goodwill amortization $ (2,102)
==========
13
<PAGE>
(3) Interest expense has been increased for the following:
Financing of purchase, including acquisition costs and deferred
financing costs, net of cash acquired $ 80,800
Weighted average DTI interest rate for 1996 7.50%
----------
6,060
Additional amortization related to deferred financing fees (five year
amortization period) 480
Elimination of historical Mid-West interest income, net 65
----------
$ 6,605
==========
The adjustment does not reflect the effect of the writeoff of deferred
financing fees related to the Company's existing credit facility, which
was replaced with the Second Amended and Restated Credit Facilities
Agreement. Such writeoff, net of related tax benefits, of approximately
$324 will be is presented as an extraordinary item in the historical
consolidated statement of operations for the three months ended September
29, 1996.
(4) Amount reflects the estimated income tax effect of pro forma adjustments
(excluding non-deductible goodwill amortization).
(5) The reduction in interest expense reflects the application of the net
proceeds from the Offering to repay approximately $82,000 of the
outstanding indebtedness of the Company. Further, the reduction reflects
the terms of the Amended Facility which are expected to result in a
reduction in interest rates of 0.75% per annum on borrowings outstanding
under the Amended Facility upon prepayment of indebtedness with net
proceeds from the Offering.
</TABLE>
14
<PAGE>
PRO FORMA UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 29, 1996
<TABLE>
<CAPTION>
Mid-West
Consolidated
Balances
for the
Period from
July 1,
1996 to Pro Forma Pro Forma
July 18, Purchase for the
DTI As 1996 Accounting Acquisition Offering Pro Forma
Reported As Reported Adjustments of Mid-West Adjustments As Adjusted
----------- ------------- ------------ ------------ ------------- ------------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
Net sales $ 82,635 $ 7,172 $ 89,807 $ 89,807
Cost of sales 59,870 5,183 $ 88 (1) 65,141 65,141
----------- ------------- ------------ ------------ ------------- ------------
Gross profit 22,765 1,989 (88) 24,666 24,666
Selling, general and
administrative expenses 11,588 739 118 (2) 12,445 12,445
----------- ------------- ------------ ------------ ------------- ------------
Operating income 11,177 1,250 (206) 12,221 12,221
Interest expense (income), net 2,715 19 545 (3) 3,279 $ (1,699)(5) 1,580
----------- ------------- ------------ ------------ ------------- ------------
Income before provision for
income taxes 8,462 1,231 (751) 8,942 1,699 10,641
Provision for income taxes 3,589 492 (252)(4) 3,829 680 (4) 4,509
----------- ------------- ------------ ------------ ------------- ------------
Income before extraordinary
item $ 4,873 $ 739 $ (499) $ 5,113 $ 1,019 $ 6,132
=========== ============= ============ ============ ============= ============
Earnings per common share
before extraordinary item $ 0.52 $ 0.54 $ 0.53
Weighted average number of
common shares 9,415,738 9,415,738 11,665,738
</TABLE>
- ---------------
<TABLE>
<CAPTION>
<C> <C> <C>
(1) Cost of sales has been increased (reduced) for the following:
Elimination of capitalized building lease depreciation $ (25)
Increase in operating lease expense related to the building 113
----------
$ 88
==========
(2) Selling, general and administrative expenses have been increased
(reduced) for the following:
Elimination of capitalized building lease depreciation $ (3)
Increase in goodwill amortization 121
----------
$ 118
==========
(3) Interest expense has been increased for the following:
Financing of purchase, including acquisition costs and deferred
financing costs, net of cash acquired $ 505
Additional amortization related to deferred financing fees (five
year amortization life) 40
----------
$ 545
==========
15
<PAGE>
The adjustment does not reflect the effect of the writeoff of deferred
financing fees related to the Company's existing credit facility, which
was replaced with the Second Amended and Restated Credit Facilities
Agreement. Such writeoff, net of related tax benefits, of approximately
$324 is presented as an extraordinary item in the historical consolidated
statement of operations for the three months ended September 29, 1996.
(4) Amount reflects the estimated income tax effect of pro forma adjustments
(excluding non-deductible goodwill amortization).
(5) The reduction in interest expense reflects the application of the net
proceeds from the Offering to repay approximately $82,000 of the
outstanding indedtedness of the Company. Further, the reduction reflects
the terms of the Amended Facility which are expected to result in a
reduction in interest rates of 0.75% per annum on borrowings outstanding
under the Amended Facility upon prepayment of indebtedness with net
proceeds from the Offering.
</TABLE>
16
<PAGE>
PRO FORMA UNAUDITED CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 29, 1996
<TABLE>
<CAPTION>
DTI Offering Pro Forma
As Reported Adjustments As Adjusted
------------- ------------- -------------
(Dollars in thousands, except per share data)
<S> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 2,653 $ 2,653
Accounts receivable, net 34,940 34,940
Costs and estimated earnings
in excess of amounts billed 58,088 58,088
Inventories, net 38,636 38,636
Prepaid expenses and other 6,699 6,699
------------- -------------
Total current assets 141,016 141,016
Property, plant & equipment,
net 44,204 44,204
Goodwill, net 157,753 157,753
Other assets, net 3,989 3,989
------------- -------------
$ 346,962 $ 346,962
============= =============
Liabilities and stockholders' equity
Current liabilities:
Current portion of long term debt $ 15,922 $(12,294)(a) $ 3,628
Accounts payable 34,627 34,627
Customer advances 17,534 17,534
Accrued liabilities 24,063 24,063
------------- ------------- -------------
Total current liabilities 92,146 (12,294) 79,852
Long-term debt 153,695 (69,664)(a) 84,031
Deferred income taxes 5,261 5,261
Other long-term liabilities 3,495 3,495
Stockholders' equity 92,365 81,958 (a) 174,323
------------- ------------- -------------
$ 346,962 $ 0 $ 346,962
============= ============= =============
</TABLE>
- ---------------
(a) Amounts reflect the application of the net proceeds from the Offering to
repay approximately $82,000 of the outstanding debt of the Company.
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Overview
The Company was formed through a series of acquisitions beginning with the
initial acquisitions of DTG and Peer in 1992. Subsequent to those transactions,
the Company made a number of acquisitions for the Special Machines and
Components segments. The acquisitions are elements of a strategy to acquire
companies with proprietary products and manufacturing capabilities which have
strong market and technological positions in the niche markets they serve and to
accelerate the Company's goal of providing customers with a full range of
integrated automated systems. The Company believes that emphasis on
complementary acquisitions of companies serving target markets allows it to
broaden its product offerings and to provide customers with a single source for
complete integrated automation systems. The acquisitions also expand the
Company's base of customers, creating greater opportunities for cross-selling
among the various divisions of the Company.
During fiscal 1994, the Company completed the acquisitions of Sencorp
Systems, Inc. ("Sencorp") in August 1993 and the business and assets of
Stokes-Merrill, Inc. ("Stokes-Merrill") in December 1993. During fiscal 1995,
the Company completed the acquisitions of AAA in August 1994 and Lakso and Armac
in February 1995. During fiscal 1996, the Company completed the acquisitions of
Kalish in August 1995, Arrow in September 1995, Swiftpack Automation Limited
("Swiftpack") in November 1995 and AMI in January 1996.
On July 19, 1996, the Company acquired the issued and outstanding stock of
Mid-West for approximately $75.2 million, net of cash acquired. Mid-West is a
designer and manufacturer of integrated precision assembly systems. For its
fiscal year ended May 26, 1996, Mid-West had net sales of $88.2 million and its
operating income, before certain nonrecurring charges, was approximately $18.4
million. The results of operations of Mid-West are included with those of the
Company for periods subsequent to the date of acquisition.
All of the acquisitions were accounted for under the purchase method of
accounting, with the purchase prices allocated to the estimated fair market
value of the assets acquired and liabilities assumed. In each of the
acquisitions, the excess purchase price paid over the estimated fair value of
the net assets acquired was allocated to goodwill. Goodwill approximated $157.8
million at September 29, 1996. The amortization of goodwill recorded will result
in a non-cash charge to future operations of approximately $4.2 million per
year, including the effect of the Mid-West acquisition. The following discussion
of the consolidated financial statements includes the results of operations from
the acquisition date of each acquired company.
The Company operates in two business segments: Special Machines, including
DTI Automation and DTI Packaging, and Components. The Special Machines segment
designs and builds custom equipment, proprietary machines and integrated
systems. The Components segment stamps and fabricates a wide range of standard
and custom metal components.
18
<PAGE>
Set forth below is certain financial data relating to each business
segment.
<TABLE>
<CAPTION>
Three Months Ended Fiscal Year Ended
-------------------------- ----------------------------------------
Sept. 29, Sept. 24, June 30, June 25, June 26,
1996 1995 1996 1995 1994
------------ ------------ ------------ ------------ ------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Net Sales
Special Machines(1)
DTI Automation $ 50,507 $ 21,906 $ 106,217 $ 67,119 $ 51,112
DTI Packaging 22,019 13,819 87,667 45,051 25,666
------------ ------------ ------------ ------------ ------------
Total Special Machines 72,526 35,725 193,884 112,170 76,778
Components 10,109 9,063 42,062 35,199 30,721
------------ ------------ ------------ ------------ ------------
Total $ 82,635 $ 44,788 $ 235,946 $ 147,369 $ 107,499
============ ============ ============ ============ ============
Gross Profit
Special Machines(1) $ 20,392 $ 9,401 $ 53,299 $ 29,015 $ 20,293
Gross margin 28.1% 26.3% 27.5% 25.9% 26.4%
Components $ 2,373 $ 1,840 $ 10,079 $ 8,676 $ 7,651
Gross margin 23.5% 20.3% 24.0% 24.6% 24.9%
------------ ------------ ------------ ------------ ------------
Total gross profit $ 22,765 $ 11,241 $ 63,378 $ 37,691 $ 27,944
Total gross margin 27.5% 25.1% 26.9% 25.6% 26.0%
============ ============ ============ ============ ============
Operating income
Special Machines(1) $ 11,372 $ 4,556 $ 26,557 $ 13,857 $ 11,506
Operating margin 15.7% 12.8% 13.7% 12.4% 15.0%
Components $ 1,411 $ 1,322 $ 6,934 $ 6,676 $ 5,789
Operating margin 14.0% 14.6% 16.5% 19.0% 18.8%
Corporate $ (1,606) $ (1,262) $ (5,558) $ (4,270) $ (3,226)
------------ ------------ ------------ ------------ ------------
Total operating income $ 11,177 $ 4,616 $ 27,933 $ 16,263 $ 14,069
13.5% 10.3% 11.8% 11.0% 13.1%
============ ============ ============ ============ ============
Depreciation and amortization expense
Special Machines(1) $ 1,879 $ 1,072 $ 4,683 $ 3,452 $ 2,299
Components 319 251 1,038 837 771
Corporate 196 118 39 272 287
------------ ------------ ------------ ------------ ------------
Total $ 2,394 $ 1,441 $ 6,116 $ 4,561 $ 3,357
============ ============ ============ ============ ============
Capital expenditures
Special Machines(1) $ 1,751 $ 1,440 $ 6,145 $ 4,127 $ 750
Components 318 341 2,138 3,043 1,392
Corporate 348 289 1,966 548 130
------------ ------------ ------------ ------------ ------------
Total $ 2,417 $ 2,070 $ 10,249 $ 7,718 $ 2,272
============ ============ ============ ============ ============
Identifiable assets
Special Machines(1) $ 313,944 $ 158,424 $ 203,210 $ 135,328 $ 74,376
Components 29,546 23,247 28,528 23,061 22,251
Corporate 3,472 1,568 2,105 874 1,001
------------ ------------ ------------ ------------ ------------
Total $ 346,962 $ 183,239 $ 233,843 $ 159,263 $ 97,628
============ ============ ============ ============ ============
</TABLE>
- ---------------
(1) Excludes operations data for acquired businesses prior to their respective
dates of acquisition.
19
<PAGE>
Gross margins of the Special Machines segment may vary from period to
period as a result of the variations in profitability of contracts for large
orders of special machines. In addition, changes in the product mix in a given
period affect gross margins for the Special Machines segment. Historically,
gross margins for the Components segment have not fluctuated significantly
between periods.
Operating margins for the Special Machines segment differ from the
Components segment. Higher operating expenses for the Special Machines segment
result from the following: additional staffing required for sales and
engineering support; research and development activities; higher levels of
goodwill amortization and greater investment in sales and marketing programs.
The percentage of completion method of accounting is used by the Company's
Special Machines segment to recognize revenues and related costs. Under the
percentage of completion method, revenues for customer contracts are measured
based on the ratio of engineering and manufacturing labor hours incurred to date
compared to total estimated engineering and manufacturing labor hours or, for
certain customer contracts, the ratio of total costs incurred to date to total
estimated costs. Any revisions in the estimated total costs or values of the
contracts during the course of the work are reflected when the facts that
require the revisions become known. Revenue from the sale of products
manufactured by the Company's Components segment is recognized upon shipment to
the customer.
Prior to June 26, 1995, revenues from certain customer contracts of the
Special Machines segment were recognized upon shipment, utilizing the "units of
delivery" modification of the percentage of completion method. The change in
accounting method in fiscal 1996 reflects the trend in the Company's Special
Machines business for increasing engineering services provided on customer
contracts and did not have a material impact on the Company's financial position
and results of operations.
Costs and related expenses to manufacture the products are recorded as cost
of sales when the related revenue is recognized. Provisions for estimated losses
on uncompleted contracts are made in the period in which such losses are
determined.
Certain statements contained herein are forward-looking statements subject
to risks and uncertainties. The Company's actual results could differ materially
from the results expressed in, or implied by, such forward-looking statements if
the Company experiences delays or cancellations of customer orders, delays in
shipping dates of products, cost overruns on certain projects or currency
exchange fluctuations. The Company may also be adversely affected by downturns
in the economy in general or in markets served by substantial customers. See
"Cautionary Statement Regarding Forward-Looking Statements" and "Risk Factors."
Results of Operations
The following table sets forth, for the periods indicated, the percentage
of net sales represented by certain items reflected in the Company's
consolidated statement of operations.
<TABLE>
<CAPTION>
Three Months Ended Fiscal Year Ended
-------------------------- ----------------------------------------
Sept. 29, Sept. 24, June 30, June 25, June 26,
1996 1995 1996 1995 1994
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales 72.5 74.9 73.1 74.4 74.0
------------ ------------ ------------ ------------ ------------
Gross profit 27.5 25.1 26.9 25.6 26.0
Selling, general and administrative expenses 14.0 14.8 15.1 14.6 12.9
------------ ------------ ------------ ------------ ------------
Operating income 13.5 10.3 11.8 11.0 13.1
Interest expense 3.3 1.7 2.0 1.2 3.3
------------ ------------ ------------ ------------ ------------
Income before provision for income
taxes and extraordinary loss 10.2 8.6 9.8 9.8 9.8
Provision for income taxes 4.3 3.6 4.1 4.1 4.2
------------ ------------ ------------ ------------ ------------
Income before extraordinary loss 5.9 5.0 5.7 5.7 5.6
Extraordinary loss on debt refinancing 0.4 0.2
------------ ------------ ------------ ------------ ------------
Net income 5.5% 5.0% 5.7% 5.7% 5.4%
============ ============ ============ ============ ============
</TABLE>
20
<PAGE>
Three Months Ended September 29, 1996 Compared to Three Months Ended September
24, 1995
Net Sales
Consolidated net sales increased $37.8 million, or 84.5%, to $82.6 million
for the three months ended September 29, 1996 from $44.8 million for the three
months ended September 24, 1995. Of the $37.8 million increase in sales, $32.2
million was due to the incremental sales of recently acquired businesses, with
the remaining $5.6 million increase relating to increased sales from existing
businesses. Recently acquired businesses include Kalish in August 1995, Arrow in
September 1995, Swiftpack in November 1995, AMI in January 1996 and Mid-West in
July 1996.
Sales by the Special Machines segment increased $36.8 million and sales by
the Components segment increased $1.0 million. The increase in sales by the
Special Machines segment was due to an increase in sales from existing
businesses of $5.8 million, or 16.2%, over the first quarter of fiscal 1996 and
$31.0 million in incremental sales from recently-acquired businesses. Sales from
existing businesses were up $2.9 million primarily due to substantially larger
projects with existing assembly systems customers. These increases reflected
international expansion by certain customers and increased penetration into new
markets. The remaining increase of $2.9 million primarily resulted from an
increase in sales of proprietary branded plastics packaging equipment and
welding equipment. The increase in sales by the Components segment of $1.0
million was substantially due to incremental sales arising from the Arrow
acquisition. Sales from existing components businesses were steady despite a
reduction in demand for products from customers in the transportation industry.
The reduced sales to customers in the transportation industry were offset by the
substantial increase in sales to a customer outside the transportation industry.
Gross Profit
Gross profit increased $11.6 million, or 102.5%, to $22.8 million for the
three months ended September 29, 1996 from $11.2 million for the three months
ended September 24, 1995, as a result of the sales increases discussed above and
gross margin improvements. The gross margin increased to 27.5% from 25.1%. Gross
margin exclusive of acquired operations increased to 26.3%, reflecting general
gross margin improvement in the Special Machines segment, particularly on
welding equipment contracts, and gross margin improvement in the Components
segment as a result of production efficiencies on new parts business.
Selling, General and Administrative ("SG&A") Expenses
SG&A expenses increased $5.0 million, or 74.9%, to $11.6 million for the
three months ended September 29, 1996 from $6.6 million for the three months
ended September 24, 1995. Approximately $3.8 million of the increase was due to
recently acquired businesses, with the remaining increase the result of
personnel additions, increased travel costs, increased investment in marketing
activities, higher compensation expense and increased professional and banking
fees, most of which related to the overall growth of the Company. As a
percentage of consolidated net sales, SG&A expenses decreased to 14.0% from
14.8%. The percentage decrease resulted primarily from lower SG&A expenses
associated with acquired businesses.
Operating Income
Operating income increased $6.6 million, or 142.1%, to $11.2 million for
the three months ended September 29, 1996 from $4.6 million for the three months
ended September 24, 1995, as a result of the factors noted above. The operating
margin increased to 13.5% from 10.3% in the prior year.
Interest Expense
Interest expense increased to $2.7 million for the three months ended
September 29, 1996 from $0.8 million for the three months ended September 24,
1995. The increase in interest expense resulted primarily from the increase in
the debt level of the Company to finance recent acquisitions.
21
<PAGE>
Income Taxes
Provision for income taxes increased to $3.6 million for the three months
ended September 29, 1996 from $1.6 million for the three months ended September
24, 1995, reflecting an effective tax rate of approximately 42.4% and 42.2% for
each period, respectively. This rate differed from statutory rates due to
permanent differences primarily related to non-deductible goodwill amortization
on certain acquisitions.
Net Income
Income before extraordinary loss increased to $4.9 million for the three
months ended September 29, 1996 from $2.2 million for the three months ended
September 24, 1995 as a result of the factors noted above. The Company
recognized an extraordinary loss in July 1996 of $0.3 million, or $0.04 per
share, attributable to the write-off of $0.5 million unamortized deferred
financing fees, net of a related $0.2 million tax benefit. As a result, net
income was $4.5 million, or $0.48 per share. Primary earnings per share before
the extraordinary loss were $0.52 for the three months ended September 29, 1996
versus $0.25 for the three months ended September 24, 1995. The weighted average
common shares outstanding for the three months ended September 29, 1996 were
9,415,738 versus 9,000,000 for the three months ended September 24, 1995. The
increase pertained to common stock equivalents, including stock options and the
estimated maximum contingent shares which may be issuable in conjunction with
the Kalish acquisition, which are dilutive in the current fiscal year.
Fiscal 1996 Compared to Fiscal 1995
Net Sales
Consolidated net sales increased $88.5 million, or 60.1%, to $235.9 million
for the year ended June 30, 1996 from $147.4 million for the year ended June 25,
1995. The increase in consolidated net sales was a result of a $81.7 million, or
72.8%, increase in sales by the Special Machines segment and a $6.8 million, or
19.5%, increase in sales by the Components segment.
The increase in sales by the Special Machines segment resulted from the
incremental effects of the acquisitions of AAA in August 1994, Armac and Lakso
in February 1995, Kalish in August 1995, Swiftpack in November 1995 and AMI in
January 1996, totalling $46.5 million, with the remaining $35.2 million, or
31.4%, increase relating to sales from existing businesses. Sales from existing
businesses were up substantially, primarily due to increased sales of custom
automated production equipment and packaging equipment. Approximately one-half
of this increase can be attributed to the increase in machine sales to a
significant customer. The remaining increase is a result of several new
substantial projects with customers for integrated production systems. These
increases reflect international expansion projects by certain customers,
increased penetration into new markets and benefits achieved from the Company's
cross-selling program.
The increase in sales by the Components segment was due to an increase in
sales from existing businesses of $4.4 million, or 12.5%, over the year ended
June 25, 1995 and $2.4 million in sales from the Arrow acquisition. The increase
in sales by Components was primarily the result of a new customer outside the
transportation industry obtained in the latter part of fiscal 1995. The new
business has offset the recent reduction in sales resulting from a slowdown in
demand for products provided to the transportation industry. This new business
was made possible through capital investments to expand stamping capacity and
capabilities.
Gross Profit
Gross profit increased $25.7 million, or 68.2%, to $63.4 million for the
year ended June 30, 1996 from $37.7 million for the year ended June 25, 1995, as
a result of the sales increases discussed above and gross margin improvement.
Gross profit increased $16.2 million as a result of acquisitions. Excluding the
effect of acquisitions, gross profit increased $9.5 million, or 25.2%. The gross
margin increased to 26.9% from 25.6%. The improvement in gross margin was due to
the higher margins obtained by the acquired businesses. Gross margin exclusive
of acquired operations decreased to 25.2% due primarily to gross margin declines
in the Components segment. Gross margins exclusive of acquired operations for
the Components segment were down from the prior year as a result of start-up
costs on new parts business, although such gross margins improved during fiscal
1996 as production efficiencies were realized.
22
<PAGE>
SG&A Expenses
SG&A expenses increased $14.0 million, or 65.4%, to $35.4 million for the
year ended June 30, 1996 from $21.4 million for the year ended June 25, 1995.
Approximately $10.9 million of the increase was due to the acquisitions
discussed above. The remaining increase of $3.1 million was the result of
personnel additions and related recruiting and relocation fees, increased costs
associated with compensation and incentive programs, increased investment in
marketing activities and increased professional and banking fees.
Operating Income
Operating income increased $11.6 million, or 71.8%, to $27.9 million for
the year ended June 30, 1996 from $16.3 million for the year ended June 25,
1995, as a result of the factors noted above. As a percentage of consolidated
net sales, operating income increased to 11.8% from 11.0%.
Interest Expense
Interest expense increased to $4.8 million for the year ended June 30, 1996
from $1.8 million for the year ended June 25, 1995. The increase in interest
expense resulted primarily from the increase in the debt level of the Company to
finance the recent acquisitions.
Income Taxes
Provision for income taxes increased to $9.6 million for the year ended
June 30, 1996 from $6.0 million for the year ended June 25, 1995, reflecting
effective tax rates of 41.7% and 41.4%, respectively. These rates differed from
statutory rates due to permanent differences primarily related to non-deductible
goodwill amortization arising from certain acquisitions.
Net Income
Net income increased to $13.5 million for the year ended June 30, 1996, an
increase of $5.0 million, or 59.7%, over the prior year as a result of the
factors noted above. Earnings per share increased to $1.50 from $0.94 in the
prior year.
Fiscal 1995 Compared to Fiscal 1994
Net Sales
Consolidated net sales increased $39.9 million, or 37.1%, to $147.4 million
for the year ended June 25, 1995 from $107.5 million for the year ended June 26,
1994. The increase in consolidated net sales was a result of a $35.4 million, or
46.1%, increase in sales by the Special Machines segment and a $4.5 million, or
14.6%, increase in sales by the Components segment.
The increase in sales by the Special Machines segment resulted from the
incremental effect of the acquisitions of Sencorp in August 1993, Stokes-Merrill
in December 1993, AAA in August 1994, and Lakso and Armac in February 1995,
totaling $33.9 million, plus a $1.5 million, or 2.0%, increase in other special
machines sales. Excluding the effect of acquisitions, sales of proprietary
products increased significantly during the year. Sales related to large
thermoforming systems and strong demand for the Company's line of proprietary
equipment accounted for the increase. These increases were offset by a decrease
in the sale of custom machinery, as sales to a significant customer decreased
$16.2 million in fiscal 1995. The customer placed significant orders for
equipment which were included in the backlog at June 25, 1995.
The increase in sales by the Components segment resulted from the addition
of new parts supplied to existing customers, continued strength in the markets
served by those customers and the broadening of the customer base through the
addition of new customers. Increased capacity and new capabilities resulted from
capital investments made during the latter part of fiscal 1994. Additional
capital expenditures have been made during the latter part of fiscal 1995 to
further increase capacity.
23
<PAGE>
Gross Profit
Gross profit increased $9.8 million, or 34.9%, to $37.7 million for the
year ended June 25, 1995 from $27.9 million for the prior year. Gross profit
increased $11.4 million as a result of the acquisitions discussed above.
Excluding the effect of acquisitions, gross profit decreased $1.6 million.
The gross margin decreased to 25.6% from 26.0%. Gross margin exclusive of
acquired operations decreased to 23.1%, reflecting lower custom equipment
margins, product development costs on large thermoforming systems and cost
overruns on welding equipment contracts.
SG&A Expenses
SG&A expenses increased $7.5 million, or 54.4%, to $21.4 million for fiscal
1995 from $13.9 million for fiscal 1994. Approximately $6.0 million of the
increase is due to the acquisitions discussed above. The remaining increase of
$1.5 million is primarily the result of the incremental costs of being a public
company and increased investment in sales and marketing activities, including
the addition of sales people. As a percentage of consolidated net sales, SG&A
increased to 14.6% from 12.9%, reflecting a higher level of SG&A expenses to net
sales associated with recently acquired operations and the increased SG&A
expenses discussed above.
Operating Income
Operating income increased $2.2 million, or 15.6%, to $16.3 million for
fiscal 1995 from $14.1 million for fiscal 1994 as a result of the factors noted
above. As a percentage of consolidated net sales, operating income decreased to
11.0% from 13.1%.
Interest Expense
Interest expense decreased to $1.8 million for fiscal 1995 from $3.5
million for fiscal 1994. The decrease was a result of the Company's initial
public offering in April 1994, the proceeds of which were used to repay
substantially all outstanding indebtedness. This decrease was partially offset
by interest expense resulting from additional borrowings to finance acquisitions
and capital expenditures.
Income Taxes
Provision for income taxes increased to $6.0 million for fiscal 1995 from
$4.6 million for fiscal 1994, reflecting effective tax rates of 41.4% and 43.3%,
respectively. These rates differed from statutory rates primarily due to
permanent differences related to non-deductible goodwill amortization arising
from certain acquisitions.
Net Income
Net income increased to $8.5 million for fiscal 1995 from $5.8 million for
fiscal 1994 as a result of the factors noted above and a $0.2 million decrease
in extraordinary losses. In fiscal 1994, net income was affected by
extraordinary losses incurred resulting from the extinguishment of long-term
debt. The loss represented the write-off of deferred financing costs net of
related tax benefit.
Liquidity and Capital Resources
Net income plus non-cash operating charges provided $7.2 million of
operating cash flow for the quarter ended September 29, 1996. Net increases in
working capital balances used operating cash of $15.8 million, resulting in net
cash used by operating activities of $8.6 million for the quarter ended
September 29, 1996. The net increase in working capital reflected the increased
level of manufacturing activity occurring at the Company, particularly in the
Special Machines segment. Additionally, the Special Machines segment has been
working on several significant individual contracts which do not provide for
advance payments. These factors resulted in a $16.5 million increase in costs
and earnings in excess of amounts billed and a $4.8 million increase in
inventory, partially offset by an $8.2 million increase in accounts payable.
During the three months ended September 24, 1995, net cash provided by
operating activities was $8.7 million. Net decreases in working capital balances
resulted in net cash provided of $5.3 million, primarily as a result of a
decrease in accounts receivable and inventories and an increase in accounts
payable and customer advances. These effects were partially offset by an
increase in costs and earnings in excess of amounts billed. The decrease in
24
<PAGE>
accounts receivable was due primarily to cash received during the quarter
related to significant fourth quarter fiscal 1995 shipments.
During fiscal 1996, 1995 and 1994, net cash provided by operating
activities was approximately $15.1 million, $1.6 million and $3.7 million,
respectively. Net income plus non-cash operating charges provided $20.7 million,
$17.0 million and $10.3 million of operating cash flow in fiscal 1996, 1995 and
1994, respectively. In fiscal 1996, working capital balances increased $5.6
million primarily due to the increased investment in current assets as a result
of the increased sales and backlog, a decrease in customer advances due to
unusually large advances at June 25, 1995 and large deposits to certain
suppliers at June 30, 1996.
In fiscal 1995, cash provided by operating activities was reduced by a
$15.4 million increase in net working capital. Strong year-end sales, orders and
backlog resulted in a significant increase in accounts receivable and
inventories at June 25, 1995. An increase in customer advances and accounts
payable partially offset the increases in working capital assets. Accrued
liabilities decreased during the year reflecting reductions in the income tax
payable balance and accrued acquisition costs.
In fiscal 1994, cash provided by operating activities was reduced by a $6.6
million increase in working capital largely resulting from high sales activity
at the end of the year thereby resulting in an increased accounts receivable
balance.
Working capital balances can fluctuate significantly between periods as a
result of the significant costs incurred on individual contracts and the
relatively large amount invoiced and collected by the Company for a number of
large contracts.
During the three months ended September 29, 1996, financing activities
raised $87.8 million, net of $2.4 million of financing costs and $0.2 million in
dividends, primarily to fund the acquisition of Mid-West for $75.2 million, net
of cash acquired. The net cash provided by financing activities was also used to
finance capital expenditures of $2.4 million and fund working capital
requirements. During the three months ended September 24, 1995, cash provided by
operating activities was used to finance capital expenditures of approximately
$2.1 million and to pay dividends of $0.2 million. Net borrowings of the Company
increased by approximately $10.3 million in the three months ended September 24,
1995, primarily due to the acquisition of Kalish for $16.4 million, which was
partially offset by the cash generated from operating activities in excess of
capital expenditures and dividends.
During the fiscal year ended June 30, 1996, cash provided by operating
activities was used to finance capital expenditures of approximately $10.2
million, pay dividends of $0.7 million and provide funding towards four
acquisitions. Net borrowings of the Company increased by approximately $42.0
million during fiscal 1996, primarily due to the acquisitions of Kalish for
$16.4 million, Arrow for $3.0 million, Swiftpack for $18.4 million and AMI for
$6.7 million.
On July 19, 1996, the Company acquired the issued and outstanding stock of
Mid-West in a transaction accounted for under the purchase method of accounting.
The purchase price paid by the Company of approximately $75.2 million, net of
cash acquired, was obtained by the Company pursuant to the Company's Second
Amended and Restated Credit Facilities Agreement, which replaced the the
Company's previous credit agreement. The facility of $200 million provided by
two institutions included a $55 million revolving credit facility, a $104
million term loan, a $20 million acquisition facility and a $21 million foreign
currency denominated letter of credit. This facility was amended in September
1996 as described below. The term loan requires quarterly principal payments
ranging from $4.8 million to $5.5 million commencing in January 1997 with final
maturity on July 23, 2001. Borrowings under the agreement bear interest at prime
or LIBOR (at the option of DTI) plus a specified percentage based on the ratio
of funded debt to operating cash flow. At September 29, 1996, interest rates on
these facilities ranged from 7.2% to 8.5%. Borrowing availability for the
revolver is based on percentages of the Company's eligible accounts receivable,
eligible inventory and outstanding letters of credit. The Company had excess
borrowing availability of $8.8 million relating to the revolving credit facility
at September 29, 1996. The credit facility is secured by substantially all of
the assets of the Company and contains certain financial and other covenants and
restrictions. In conjunction with entering into this credit facility, the
Company recognized an extraordinary loss in July 1996 of $0.3 million
attributable to the write-off of $0.5 million unamortized deferred financing
fees, net of related $0.2 million tax benefit.
On November 23, 1995, the Company, through its wholly-owned subsidiary, DT
Industries (UK) Limited ("DTUK"), acquired ninety-five percent (95%) of the
issued and outstanding stock of Swiftpack and an option (the
25
<PAGE>
"Option") to acquire the remaining five percent (5%) of Swiftpack stock. The
acquisition was financed by entering into a Credit Agreement, Specific
Counter-Indemnity and Debenture (collectively, the "Foreign Credit Agreements")
with a foreign bank which provided approximately $5.3 million in cash and will
provide funding of the principal amount of $14.0 million in notes ("Loan Notes")
upon their maturity. The Loan Notes issued by DTUK directly to certain of the
prior shareholders bear interest at 5.3% and mature the earlier of November 25,
1996, at the holder's option, or December 23, 1996. The Foreign Credit
Agreements provided funding of approximately $0.9 million upon the exercise of
the Option in July 1996. The Foreign Credit Agreements are denominated in a
foreign currency and bear interest at a variable rate based upon LIBOR
(approximately 7.9% including letter of credit fees at September 29, 1996).
Principal payments are due quarterly with the remaining principal balance due on
August 16, 2000. Principal payments range from approximately $155,000 to
$400,000. The Foreign Credit Agreements are secured by the letter of credit
facility provided through the Amended Credit Agreement.
To manage its exposure to fluctuations in interest rates the Company
entered into an interest rate swap agreement in June 1995 for a notional
principal amount of $30 million, maturing June 29, 1998. Swap agreements involve
the exchange of interest obligations on fixed and floating interest-rate debt
without the exchange of the underlying principal amount. The differential paid
or received on the swap agreement is recognized as an adjustment to interest
expense. The swap agreement requires the Company to pay a fixed rate of 6.06% in
exchange for a floating rate payment equal to the three month LIBOR determined
on a quarterly basis with settlement occurring on specific dates.
The Company also maintains revolving credit facilities of approximately
$3.0 million through its foreign subsidiaries. At September 29, 1996, total
outstanding indebtdeness under such facilities was $1.5 million.
On September 30, 1996, the Company completed the acquisition of Hansford, a
designer and manufacturer of automated assembly systems, for a cash purchase
price of approximately $17.4 million, of which $8.5 million will be paid on June
30, 1997. The purchase price was financed under the acquisition facility of the
Company's Second Amended and Restated Credit Facilities Agreement. Additionally,
the Company amended the credit facility to increase the total facility to $210
million from $200 million with the revolving credit facility increasing to $65
million from $55 million.
The Company made capital expenditures of $10.2 million in fiscal 1996. Such
capital expenditures in fiscal 1996 included a total of approximately $3.8
million related to the completion of building expansions for the Company's
manufacturing facilities in Lebanon, Missouri and Benton Harbor, Michigan as
well as the expansion in progress at the facility in Erie, Pennsylvania. The
building expansions reflect the growth occurring at these locations.
Additionally, due to significant internal growth being experienced by AAA, the
Company is currently expanding its leased facility in Dayton, OH. The addition
is not expected to result in significant capital expenditures by the Company,
but will result in an increase in annual lease costs. Subsequent to the
completion of the current building expansion programs, the Company believes that
its principal manufacturing facilities will have sufficient capacity to
accommodate future internal growth without major additional capital
improvements.
Management anticipates that capital expenditures in future years will
include recurring replacement or refurbishment of machinery and equipment, which
will approximate depreciation expense, and purchases to improve production
methods or processes or to expand manufacturing capabilities.
The Company paid quarterly cash dividends of $0.02 per share on September
15, 1995, December 15, 1995, March 15, 1996, June 15, 1996 and September 13,
1996 to stockholders of record on August 31, 1995, November 30, 1995, February
29, 1996, May 31, 1996 and August 30, 1996, respectively.
Based on its ability to generate funds from operations and the availability
of funds under its current credit facilities, the Company believes that it will
have sufficient funds available to meet its currently anticipated operating and
capital expenditure requirements.
Tax Matters
The Company files a consolidated federal income tax return. The fiscal
1990, 1991, 1992 and 1993 federal income tax returns for DTI and its predecessor
company, DTG, have been audited by the Internal Revenue Service (the "IRS").
During the fourth quarter of fiscal 1996, the Company reached an agreement in
principle to settle with the IRS. The additional taxes due under the agreement
are not material to the Company's financial position, results
26
<PAGE>
of operations or liquidity and are expected to be paid prior to December 31,
1996. There are no other material audits underway or notification of audits for
DTI or any of its subsidiaries.
Backlog
The Company's backlog is based upon customer purchase orders that the
Company believes are firm. As of September 29, 1996, the Company had $179.1
million of orders in backlog, which compares to a backlog of approximately $98.0
million as of September 24, 1995. Of the $81.1 million increase, $79.9 million
is due to the acquisitions of Mid-West, AMI and Swiftpack.
The backlog for the Special Machines segment at September 29, 1996 was
$168.5 million, which increased $76.1 million from a year ago. Backlog for the
Components segment increased $5.0 million to $10.6 million from $5.6 million.
The level of backlog at any particular time is not necessarily indicative of the
future operating performance of the Company. Additionally, certain purchase
orders are subject to cancellation by the customer upon notification. Certain
orders are also subject to delays in completion and shipment at the request of
the customer. The Company believes most of the orders in the backlog will be
recognized as sales during fiscal 1997.
Seasonality and Fluctuations in Quarterly Results
In general, the Company's business is not subject to seasonal variations in
demand for its products. However, because orders for certain of the Company's
products can be several million dollars or more, a relatively limited number of
orders can constitute a meaningful percentage of the Company's revenue in any
one quarterly period. As a result, a relatively small reduction or delay in the
number of orders can have a material impact on the timing of recognition of the
Company's revenues. Certain of the Company's revenues are derived from fixed
price contracts. To the extent that original cost estimates prove to be
inaccurate, profitability from a particular contract may be adversely affected.
Gross margins in the Special Machines segment may also vary between comparable
periods as a result of the variations in profitability of contracts for large
orders of special machines as well as product mix between the various types of
custom and proprietary equipment manufactured by the Company. Accordingly,
results of operations of the Company for any particular quarter are not
necessarily indicative of results that may be expected for any subsequent
quarter or related fiscal year.
27
<PAGE>
BUSINESS
General
DTI is an engineering-driven designer, manufacturer and integrator of
automated production equipment and systems used to manufacture, test or package
a variety of industrial and consumer products. The Company believes it is the
largest manufacturer of integrated assembly and test systems in North America.
Substantial growth opportunities are believed to be provided by certain trends
among its customers, including increased emphasis on productivity, quality,
flexibility, globalization, outsourcing, downsizing and vendor rationalization.
To capitalize on these trends, DTI has implemented a business strategy to
provide, develop and acquire complementary technologies and capabilities to
supply customers with integrated processing, assembly, testing and packaging
systems for their products. As part of this strategy, the Company seeks to cross
sell the products produced by acquired companies through its larger company-wide
sales force providing for greater geographic and customer coverage. The Company
operates in two business segments: Special Machines and Components. Through
acquisitions and product development, the Company's Special Machines business
has grown from historical consolidated net sales of $28.5 million in the fiscal
year ended June 30, 1993 to fiscal 1996 historical consolidated net sales of
$193.9 million. In addition, the Company's Components business, which produces
precision metal components and wear parts for a broad range of industrial
applications, has grown from historical consolidated net sales of $22.1 million
in fiscal 1993 to historical consolidated net sales of $42.1 million in fiscal
1996, primarily as a result of internal growth.
Special Machines Segment. The Special Machines segment's products are used
principally in the electronics, automotive, pharmaceutical, nutritional and food
processing, consumer products, appliance and tire industries. Sales of these
products also produce a stream of recurring revenues from replacement parts and
service as the Company's substantial installed base of equipment is maintained
and upgraded over time. The Special Machines segment, which accounted for
approximately 87% of the Company's pro forma consolidated fiscal 1996 net sales,
after giving effect to the acquisition of Mid-West, consists of two groups: DTI
Automation and DTI Packaging. Each group offers a class of products and services
that complement one another in terms of markets, engineering requirements,
product needs and systems capabilities.
DTI Automation. DTI Automation designs and builds a complete line of
integrated automated assembly and testing systems. Integrated systems combine a
variety of manufacturing technologies into a complete automated manufacturing
system. Core capabilities of DTI Automation include the design and manufacture
of small to large automated assembly systems, high-speed precision assembly
systems, flexible assembly systems, automated resistance and arc welding systems
and large thermoforming systems. The Company believes DTI is the largest
manufacturer of integrated assembly and test systems in North America.
DTI Packaging. DTI Packaging designs and builds proprietary machines and
integrated systems used to perform processing and packaging tasks. Core
capabilities of DTI Packaging include the design and manufacture of
thermoforming, blister packaging and foam extrusion systems, and a complete line
of tablet processing and packaging systems. The Company believes it is the
largest manufacturer of tablet packaging equipment in North America.
Components Segment. The Components segment, which accounted for
approximately 13% of pro forma consolidated fiscal 1996 net sales, stamps and
fabricates a range of standard and custom metal components for the
transportation, appliance, heavy equipment, agricultural equipment and
electrical industries as well as wear parts for the textile industry.
The Company is a Delaware corporation organized in January 1993 and the
successor to Peer Corporation, DTG and Detroit Tool and Engineering Company
("DTE"). Peer Corporation was organized in June 1992 to acquire Peer and the
stock of DTG, the sole stockholder of DTE and Detroit Tool Metal Products Co.
("DTMP"). Through acquisitions and product development, the Company has grown
from historical consolidated net sales of $50.6 million in fiscal 1993 to $235.9
million in fiscal 1996.
On July 19, 1996, following the end of the Company's fiscal year, the
Company acquired the issued and outstanding stock of Mid-West, a designer and
manufacturer of integrated precision assembly systems. Mid-West's revenues for
its fiscal year ended May 26, 1996 were approximately $88.2 million and its
operating income, before certain nonrecurring charges, was approximately $18.4
million.
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Business Strategy
The business strategy of DTI is to provide, develop and acquire
complementary technologies and capabilities to supply customers with integrated
assembly, testing and packaging systems for their products. Key elements of the
Company's strategy include the following:
Acquisitions. The assembly, testing and packaging equipment markets are
highly fragmented. Special machines, for example, are characterized by a number
of industry niches in which few manufacturers compete. The Special Machines
segment has established its presence in particular niches through acquisitions,
and the Company intends to pursue additional acquisitions, or strategic
alliances, with companies which are established technical and market leaders.
The Company can provide its customers more complete integrated automation
systems by continuing to expand the breadth of its products and engineering
expertise, a capability the Company believes will enable it to benefit from its
customers' increasing demand for complete systems. Additionally, the Company
will continue to pursue acquisitions, or strategic alliances, with companies
which provide significant potential for cross-selling among the various product
lines, margin improvement through greater use of in-house manufacturing and cost
savings through more efficient utilization of manufacturing and engineering
capacity.
Product Line Expansion. Through acquisitions, product license arrangements
and strategic alliances, the Company has increased, and plans to continue to
increase, its engineering capabilities and product offerings. DTI Packaging now
has the capability to provide customers with fully integrated tablet processing
and packaging systems. DTI Automation has increased its assembly systems
capabilities as more fully described in "Markets and Products" below. The
Company's objective is to provide customers with integrated automation solutions
rather than single use equipment. The Company also uses its engineering
expertise and manufacturing capability to develop new products and technology
for markets the Company currently serves and to provide entree into new markets.
Cross-Selling. The Company believes substantial cross-selling opportunities
exist across the product lines of the Special Machines segment. As the Company
implements its acquisition strategy and integrates acquired operations, it is
able to expand its product offering and customer base. For example, the combined
marketing efforts and engineering capabilities of AAA and AMI were successful in
obtaining from a significant customer an $8 million project that otherwise would
have been awarded to a competitor. While AAA had established a strong customer
relationship, the project required certain technologies provided by AMI.
Engineering Expertise. The Company's engineering strategy is to satisfy the
growing demand for small, medium and large complex, integrated automation
solutions by utilizing the versatile engineering expertise of its Special
Machines businesses. Additionally, the custom tool and die engineering expertise
of the Company's Special Machines segment provides the Components segment with
the ability to offer customers complex precision stamping solutions. The Company
expects to continue to acquire engineering and design expertise through
acquisitions and licensing arrangements.
Manufacturing Synergies. As a result of its acquisition program, the
Company has a number of machine building facilities, each with its own specific
engineering expertise and manufacturing capabilities. By coordinating with each
customer, the Company intends to optimize its manufacturing capacity by
directing work to that facility which best meets the manufacturing and
engineering needs of the project as well as the Company's own capacity
availability.
International. The Company seeks to increase its international sales
through strategic alliances, international agents, foreign offices and
acquisitions. The Company acquired Canadian-based Kalish and the U.K.-based
Swiftpack during fiscal 1996, significantly enhancing its international
packaging presence. Also, continued international sales growth by DTI Packaging
has resulted from the strategic alliance with Davis Standard Corporation for the
sales of foam extrusion systems. DTI Automation continued to expand its
international presence by forming an alliance with a subsidiary of Claas KGaA to
open a sales and service office in Beelen, Germany. This alliance also allows
the Company to market Claas KGaA's highly regarded automation systems to the
Company's existing customer base. For fiscal 1996, international sales accounted
for less than 25% of the Company's historical consolidated net sales
Markets and Products
Special Machines. The Special Machines segment designs and builds a
complete line of automated production systems used to manufacture, test and/or
package products for a range of industries, including electronics,
29
<PAGE>
automotive, pharmaceutical, nutritional and food processing, consumer products,
appliances and tires. The Company also manufactures custom production equipment
for specific customer applications, proprietary machines for specific industrial
applications and integrated systems which may combine features of custom and
proprietary equipment. The Special Machines segment consists of two core
business groups: DTI Automation and DTI Packaging.
DTI Automation. DTI Automation designs and builds a complete line of
automated assembly and test systems, special machines and large complex dies.
DTI Automation is ideally suited for time-sensitive, concurrent engineering
projects where changes in tooling and processes can occur in an advanced stage
of system design. Sales from DTI Automation accounted for approximately 61% of
historical consolidated net sales for the quarter ended September 29, 1996, and
45%, 45% and 47% of historical consolidated net sales for fiscal 1996, 1995 and
1994, respectively.
Integrated Systems. Integrated systems combine a wide variety of
manufacturing technologies into a complete automated manufacturing system.
Utilizing advanced computers, robotics, vision systems and other technologies,
the Company provides small to large automated assembly systems, high-speed
precision assembly systems, flexible assembly systems and automated resistance
and arc welding systems for the electronics, automotive, appliance, electrical
and hardware industries. The Company's expansion in providing a full range of
integrated, automated systems has been enhanced by the acquisition of AMI during
fiscal 1996 and has been further accelerated with the recent acquisition of
Mid-West. Mid-West offers a variety of precision assembly equipment to industry,
utilizing proprietary modular building blocks which facilitate time-sensitive,
concurrent engineering projects where changes in tooling and processes can occur
in an advanced stage of system design and standardized components in carousel,
in-line and rotary assembly systems.
Custom Machines. The Company's custom machine building capabilities
include: engineering, project management, machining and fabrication of
components, installation of electrical controls, final assembly and testing. A
customer will usually approach the Company with a manufacturing objective, and
DTI will work with the customer to design, engineer, assemble, test and install
a machine to meet the objective. The customer often retains rights to the design
after delivery of the machine since the purchase contract typically includes the
design of the machine; however, the engineering and manufacturing expertise
gained in designing and building the machine is often reapplied by the Company
in projects for other customers.
RIGO Thermoformers. Under a license agreement with RIGO Group, S.r.l., COMI
S.r.l. and PMM S.r.l., the Company has the rights to use certain deep-draw
thermoforming ("RIGO") technology. The Company is utilizing the RIGO technology
in a line of machines designed to produce the inner liners for refrigerators.
The Company believes the RIGO technology provides significant advantages over
competing technology, such as quicker changeover of tooling, lower material
costs, higher productivity and greater end product efficiency. The license
agreement continues until terminated in accordance with its provisions and may
be terminated by either party upon 90 days' notice to the other.
Automated Resistance and Arc Welding Systems. The Company manufactures and
sells a line of standard resistance welding equipment as well as special
automated welding systems designed and built for specific applications. Marketed
under the brand name Peer(TM), the Company's products are used in the
automotive, appliance and electrical industries to fabricate and assemble
components and subassemblies. The Company's resistance welding equipment is also
used in the manufacture of file cabinets, school and athletic lockers, store
display shelves, metal furniture and material storage products.
Tooling and Dies. The Company possesses considerable expertise in the
design, engineering and production of precision tools and dies. In addition,
personnel trained as tool and die makers often apply their skills to the
manufacture of the Company's special machines.
DTI Packaging. The DTI Packaging group designs and builds proprietary
machines and integrated systems which are marketed under individual brand names
and manufactured for specific industrial applications using designs owned or
licensed by the Company. Although these machines are generally cataloged as
specific models, they are usually modified for specific customer requirements
and often combined with other machines into integrated systems. Many customers
also request additional accessories and features which typically generate higher
revenues and enhanced profit opportunities. DTI Packaging products include
thermoformers, blister packaging systems, extrusion systems, rotary presses and
complete packaging systems. Packaging systems include: bottle
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<PAGE>
unscrambling, tablet counting, filling, cottoning, capping, labeling, collating,
cartoning and liquid filling, electronic filling and tube filling, many of which
have been added during fiscal 1996. The Company believes this equipment
maintains a strong reputation among its customers for quality, reliability and
ease of operation and maintenance. The Company also sells replacement parts and
accessories for its substantial installed base of machines. Sales from DTI
Packaging accounted for approximately 27% of historical consolidated net sales
for the quarter ended September 29, 1996, and 37%, 31% and 24% of historical
consolidated net sales for fiscal 1996, 1995 and 1994, respectively.
Thermoformers. A thermoformer heats plastic material and uses pressure
and/or a vacuum to mold it into a product. Marketed under the brand names
Sencorp(R) and Armac(TM), the Company's thermoformers are used by customers in
North America, Europe and Asia to form a variety of products including:
specialized cups, plates and food containers, trays for food and medical
products and other plastics applications.
The Company's thermoformers are sold primarily to custom formers who use
the machines to create thermoformed items which are sold to a variety of end
users. The Company also sells thermoformers directly to end users, including
large producers of electrical and healthcare products, cosmetics, hardware and
other consumer products.
The Company produces a line of thermoformers of different sizes, heating
ovens, maximum draw depths and press capacities. Certain thermoformers produced
by the Company feature a fully integrated process control system to regulate the
thermoformer's functions. Depending upon the customer's requirements, the
control system is capable of networking with, or downloading to, the customer's
computers or other equipment and the Company's service center. This on-line
diagnostic capability allows the Company to provide real-time service and
support to its customers. The Company believes it is the only thermoformer
manufacturer offering such a service.
Blister Packaging Systems. Blister packaging is an increasingly common
method of displaying consumer products for sale in hardware stores, convenience
stores, warehouse stores, drug stores and similar retail outlets. Batteries,
cosmetics, hardware items, electrical components, razor blades and toys are
among the large variety of products sold in a clear plastic blister or two-sided
package. The Company designs and manufactures machinery marketed under the brand
names Sencorp(R) and Armac(TM), which performs blister packaging by heat-sealing
a clear plastic bubble, or blister, onto coated paperboard, or by sealing
two-sided packages using heat or microwave technology.
The Company's blister packaging systems are primarily sold to manufacturers
of the end products. These customers, with higher volume production
requirements, may use a thermoformer in-line with a blister sealer to form
blisters, insert their product and seal the package in one continuous process,
referred to as a form/fill/seal configuration. Customers having relatively low
volume production often use a stand-alone blister sealing machine to seal
products in a package using blisters purchased from a custom former.
Extruders. An extrusion process is used to convert plastic resin and
additives into a continuous melt and force such melt through a die to produce a
desired shape that is then cooled. Marketed under the brand name Sencorp(R), the
Company's foam extruders are used to produce products such as building
insulation, display board, meat trays, bottle wrap protection labels and egg
cartons. The Company's foam extruders are primarily sold to large plastics
companies that use the machines to create end products and sheet products. The
Company also manufactures reclaim extruders which process a variety of plastic
materials from ground form to finished pellet form.
Rotary Presses. The Company believes it is the largest U.S. designer and
manufacturer of rotary presses. The Company designs and manufactures rotary
presses used by customers in the airbag, candy, food supplement, ceramic,
ordnance, specialty chemical and pharmaceutical industries to produce tablets.
Marketed under the brand name Stokes(TM), the Company's line of rotary presses
includes machines capable of producing 17,000 tablets per minute and other
machines capable of applying up to 40 tons of pressure. Products produced on the
Company's rotary presses include Lifesavers(R) and Breathsavers(R) brand mints,
Centrum(R) brand vitamins and inflation pellets for automotive airbags.
During fiscal 1996, the Company entered into an agreement with Horn & Noack
Pharmatechnik GmbH for the purpose of licensing German rotary press technology
designed primarily for the pharmaceutical and nutritional markets. The agreement
gives the Company the exclusive right to manufacture and market this press
technology under the Stokes(TM) brand in North and Central America and
non-exclusively in the rest of the world excluding Europe.
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<PAGE>
Packaging Systems. The Company designs, manufactures or distributes a
complete line of products utilized for packaging, liquid filling or tube filling
applications. The Company's expansion in providing integrated packaging lines
was accelerated by the acquisition of Kalish in August 1995 and Swiftpack in
November 1995. The equipment manufactured by the Company, which includes bottle
unscramblers, slat tablet counters, electronic counters, liquid fillers,
cottoners, cappers and labelers, collators and cartoners, can be sold as an
integrated system or individual units. These machines are marketed under the
brand names of Kalish(TM), Lakso(R), Merrill(R) and Swiftpack and are primarily
delivered to customers in the pharmaceutical, nutritional, food, cosmetic, toy
and chemical industries.
The Company benefits from a substantial installed base of Lakso(R) and
Merrill(R) slat counters in the aftermarket sale of slats. Slat counting
machines use a set of slats to meter the number of tablets or capsules to be
inserted into bottles. Each size or shape of tablet or capsule requires a
different set of slats. In addition, the practice in the pharmaceutical industry
is to use a different set of slats for each product, even if the tablets are the
same size.
Laboratory Machines, Tooling, Parts and Accessories. The Company produces a
line of small scale blister sealers and a line of tablet pressing equipment used
to test new materials and techniques, for quality control, laboratory or other
small run uses. The Company also sells parts and accessories for its proprietary
machines. In addition, the Company designs and builds special tools and dies
used in custom applications of its thermoforming systems, rotary presses and
slat counters.
Components. The Company's Components segment produces custom and precision
components for the transportation, agricultural equipment, appliance, heavy
equipment and electrical industries, as well as wear parts for the textile
industry. Sales from Components accounted for approximately 12% of historical
consolidated net sales for the quarter ended September 29, 1996, and 18%, 24%
and 29% of historical consolidated net sales for fiscal 1996, 1995 and 1994,
respectively.
Custom Stamping and Fabrication. The Company produces precision-stamped
steel and aluminum components through its stamping and fabrication operations.
The Company's stamping presses range in size from 32 tons to 1,500 tons, giving
the Company the flexibility to stamp flat rolled metal ranging in thickness from
.015 inches to .750 inches. Certain of the Company's presses can accommodate
dies up to 190 inches in length to perform several stamping functions in a
single press.
Through its Special Machines segment, the Company possesses considerable
expertise in the design, engineering and production of precision tools and dies.
The Company produces tools and dies for use in its own blanking and stamping
operations as well as for sale to other industrial customers. The Company
believes its tool and die design and engineering capabilities give it an
important competitive advantage in its Components segment.
Wear Parts. The Company is the only full-line U.S. manufacturer of
precision wear parts for industrial knitting machines. Marketed under the brand
names Potter(TM), Arrow(R), S&W(TM) and DURA-TECH(TM), these products are
components of circular knitting machines which produce tee shirts, socks,
pantyhose and other knit fabrics. The Company's branded products, which are
included as original equipment in certain circular industrial knitting machines
sold in the United States, are consumed in use and must be regularly replaced.
The Company believes that its Potter(TM), Arrow(R), S&W(TM) and DURA-TECH(TM)
products have a reputation for high quality.
Marketing and Distribution
Special Machines. The Company's special machines and systems are sold
primarily through the Company's approximately 60 person direct sales force and
to a lesser extent through manufacturers' representatives and agents. Sales of
special machines and integrated systems require the Company's sales personnel to
have a high degree of technical expertise and extensive knowledge of the
industry served. The Company's sales force consists of specialists in each
primary market in which the Company's special machines are sold. Each of DTE,
Peer, Sencorp, Stokes-Merrill, AAA, Lakso, Armac, Kalish, AMI, Swiftpack and
Mid-West has a sales force experienced in the marketing of the equipment
historically produced by each respective business. The Company believes that
cross-selling among the members of the Special Machines segment and integration
of proprietary technology and custom equipment into total production automation
systems for selected industries provide the Company with expanded sales
opportunities.
The Company's special machines are sold throughout the world by more than
60 manufacturers' representatives and sales agents in nearly 50 countries. The
Company has sales and service offices in China and in fiscal 1996
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<PAGE>
added offices in Canada, England and Germany. International sales continue to
grow as the business grows and more resources are focused in the international
arena. International sales were approximately 22% of historical consolidated net
sales for fiscal 1996 compared to 10% and 8% of historical consolidated net
sales in fiscal 1995 and fiscal 1994, respectively.
Components. The Company's custom stamping products are sold by the
Company's direct sales force. The Company's wear parts are sold to original
equipment manufacturers directly and to the textile industry directly and
through independent domestic distributors.
Facilities
The Company's administrative headquarters are located in Springfield,
Missouri. Set forth below is certain information with respect to the Company's
significant manufacturing facilities as of September 29, 1996.
<TABLE>
<CAPTION>
Square
Footage
Location (approximate) Owned/Leased Lease Expiration Products
-------- ------------- ------------ ------------------ --------
<S> <C> <C> <C> <C> <C>
Special Machines Segment
DTI Automation:
Lebanon, Missouri 300,000 Owned Special machines,
integrated systems,
tools and dies
Dayton, Ohio 160,000 Leased July 1, 2016 (2) Integrated systems,
special machines
Benton Harbor, Michigan 43,000 Owned Resistance arc
welding equipment
and systems
Erie, Pennsylvania 56,000 Owned High-speed
assembly systems
Buffalo Grove, Illinois 260,000 Leased July 31, 2003 (3) Integrated precision
assembly systems
DTI Packaging:
Montreal, Quebec 66,000 (1) Leased Jan. 31, 1997 (4) Tablet packaging,
and liquid filling and
July 31, 1997 (4) tube filling
equipment and
systems
Leominster, Massachusetts 60,000 Owned Tablet packaging
equipment
Niles, Illinois 30,000 Leased July 15, 1997 (2) Tablet counters
Bristol, Pennsylvania 43,000 Leased April 30, 2000 (3) Rotary presses
Hyannis, Massachusetts 98,000 Leased Dec. 31, 1997 (3) Plastics processing
and packaging
equipment
Fall River, Massachusetts 37,000 Leased Jan. 31, 2000 (3) Plastics processing
and packaging
equipment
Alcester, United Kingdom 22,000 Owned Electronic counters
33
<PAGE>
Components Segment
Lebanon, Missouri 171,000 Owned Metal products
Winsted, Connecticut 28,000 Leased Dec. 31, 1997 (3) Wear parts
Asheboro, North Carolina 15,000 Leased Sept. 26, 2000 (5) Wear parts
</TABLE>
- ---------------
(1) Two adjacent buildings of approximately 40,000 square feet and 26,000
square feet, respectively.
(2) The Company has an option to renew such lease for two additional terms of
five years.
(3) The Company has an option to renew such lease for one additional five year
term.
(4) The Company has an option to renew such lease for one additional one year
term.
(5) The Company has an option to renew such lease for three additional five
year terms.
The Company also leases other office, warehouse and service facilities in
Missouri, New Jersey, Canada, the United Kingdom and China. The Company
anticipates no significant difficulty in leasing alternate space at reasonable
rates in the event of the expiration, cancellation or termination of a lease
relating to any of the Company's leased properties.
Expansion projects begun in fiscal 1995 and 1996 have been substantially
completed at several of the Company's owned and leased facilities. The expansion
projects increased manufacturing and office space for the Special Machines and
Components segments by approximately 200,000 square feet and 54,000 square feet,
respectively. The building expansions reflect the growth occurring at these
locations. Subsequent to the completion of the building expansion programs, the
Company believes that its principal manufacturing facilities will have
sufficient capacity to accommodate anticipated internal growth.
Manufacturing and Raw Materials
Special Machines segment. The principal raw materials and components used
in the manufacturing of the Company's special machines include carbon steel,
stainless steel, aluminum, electronic components, pumps and compressors,
programmable logic controls, hydraulic components, conveyor systems, visual and
mechanical sensors, precision bearings and lasers. The Company is not dependent
upon any one supplier for raw materials or components used in the manufacture of
special machines. Certain customers specify sole source suppliers for components
of custom machines or systems. The Company believes there are adequate
alternative sources of raw materials and components of sufficient quantity and
quality.
DTI Automation. Recent building expansions have been made to increase
manufacturing capacity at the Company's owned facilities in Missouri, Michigan
and Pennsylvania and the Company's leased facility in Ohio. Integrated systems
to assemble and test various products are designed and manufactured at the
Company's facilities in Illinois, Ohio and Pennsylvania where manufacturing
activity primarily consists of fabrication and assembly and, to a lesser extent,
machining. The facilities in Missouri house the machining, assembly and test
operations primarily used in the manufacture of tools and dies, custom special
machines, RIGO systems and certain other integrated systems. The facility in
Michigan houses the machining, assembly and test operations used in the
manufacture of resistance welding equipment and systems. A number of
manufacturing technologies are employed at these facilities including:
fabrication of stainless steel, direct numerically controlled machinery,
computer generated surface modeling of contoured components and fully networked
CAD/CAM capabilities.
DTI Packaging. Special machines, integrated systems and related parts for
the Company's tablet packaging and liquid-filling equipment are designed and
assembled at the Company's facilities in Canada, Massachusetts, Illinois and the
United Kingdom from components made to the Company's specifications by
unaffiliated vendors. Rotary presses are assembled at the Company's leased
facility in Pennsylvania. Special machines and integrated systems for the
plastics packaging industry are primarily manufactured at the two Company
manufacturing facilities in Massachusetts which include machining, fabrication
and assembly.
Components segment. The principal raw materials used in the Company's
components manufacturing processes include carbon steel, aluminum, stainless
steel, copper and other metals in coil or sheet form. The Company is not
dependent upon any one supplier for raw materials used in the manufacture of its
metal products. The Company believes there are adequate alternative sources of
raw materials of sufficient quantity and quality.
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<PAGE>
The Company's components manufacturing operations are primarily located at
the Company's recently expanded facilities in Missouri. Operations conducted at
that facility include blanking, heavy and precision stamping using precision
single stage, progressive and transfer dies, cutting, punching, forming,
welding, cleaning, bonderizing and painting. With the addition in fiscal 1996 of
a Metalsoft(R) FabriVision optical scanning system, the Company's quality focus
and prototyping capabilities were greatly enhanced. At the Company's Connecticut
and North Carolina facilities, manufacturing processes include precision
stamping of wear parts, heat treating, drawing, tumbling, casting, straightening
and grinding.
Financial Information Relating to Business Segments, Foreign and Domestic
Operations and Export Sales
The Company operates predominantly in the business segments classified as
Special Machines and Components. The Company's principal foreign operations
consist of manufacturing, sales and service operations in Canada and the United
Kingdom. For certain other financial information concerning the Company's
business segments, foreign and domestic operations and export sales, see Note 15
of the Notes to Consolidated Financial Statements of the Company. Customers
The majority of the Company's sales is attributable to repeat customers,
some of which have been customers of the Company or its acquired businesses for
over twenty years. The Company believes such repeat business is indicative of
the Company's engineering capabilities, the quality of its products and overall
customer satisfaction.
The Goodyear Tire & Rubber Company, a customer of the Company's Special
Machines segment, accounted for over 10% of the Company's consolidated net sales
in fiscal 1996 and 1994. PACCAR, Inc., a customer of the Company's Components
segment, accounted for over 10% of the Company's consolidated net sales in
fiscal 1995 and 1994. The Company's five largest customers during fiscal 1996
accounted for 32% of the Company's consolidated net sales. For additional
information regarding dependence on a significant customer in the electronics
industry on a pro forma basis, after giving effect to the acquisition of
Mid-West, see "Risk Factors -- Dependence on Significant Customers."
Purchasers of the Company's special machines typically make advance and
progress payments to the Company in connection with the manufacture of the
equipment. Sales of the Company's components are typically made without advance
or progress payments.
Competition
The market for the Company's special machines is highly competitive, with a
large number of companies advertising the sale of production machines. However,
the market for special machines is fragmented and characterized by a number of
industry niches in which few manufacturers compete. The market for products
produced by the Components segment is also highly regionally competitive and
fragmented. The Company's competitors vary in size and resources; most are
smaller privately held companies or subsidiaries of larger companies, some of
which are larger than the Company; and none competes with the Company in all
product lines. In addition, the Company may encounter competition from new
market entrants. The Company believes that the principal competitive factors in
the sale of the Company's special machines are quality, technology, on-time
delivery, price and service. The Company believes that the principal competitive
factors in the sale of the Company's components are price, technical capability,
quality and on-time delivery. The Company believes that it competes favorably
with respect to each of these factors.
Engineering; Research and Development
The Company maintains research and engineering departments at all of its
manufacturing locations. The Company employs more than 350 people with
experience in the design of production equipment. In addition to design work
relating to specific customer projects, the Company's engineers develop new
products and product improvements designed to address the needs of the Company's
target market niches and to enhance the reliability, efficiency, ease of
operation and safety of its proprietary machines.
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<PAGE>
Trademarks and Patents
The Company owns and maintains the registered trademarks Sencorp(R),
Merrill(R) and Lakso(R). The Company's use of the registered trademark Arrow(R)
is under a license and the licensor has agreed to assign ownership of the mark
for such use to the Company. Registrations for Company trademarks are also owned
and maintained in countries where such products are sold and such registrations
are considered necessary to preserve the Company's proprietary rights therein.
The Company also has the rights to use the unregistered trademarks
Swiftpack(TM), Kalish(TM), Armac(TM), Stokes(TM), Potter(TM) and Peer(TM). The
trademarks Kalish(TM), Armac(TM), Sencorp(R), Merrill(R), Peer(TM), Lakso(R) and
Stokes(TM) are used in connection with the machines and systems marketed by the
Special Machines segment. The trademarks Arrow(R) and Potter(TM) are used in
connection with the products of the Components segment.
The Company applies for and maintains patents where the Company believes
such patents are necessary to maintain the Company's interest in its inventions.
The Company does not believe that any single patent or group of patents is
material to either its Special Machines business or its Components business, nor
does it believe that the expiration of any one or a group of its patents would
have a material adverse effect upon its business or ability to compete in either
line of business. The Company believes that its existing patent and trademark
protection, however, provides it with a modest competitive advantage in the
marketing and sale of its proprietary products.
Environmental and Safety Regulation
The Company is subject to federal, state and local environmental laws and
regulations that impose limitations on the discharge of pollutants into the
environment and establish standards for the treatment, storage and disposal of
toxic and hazardous wastes. The Company is also subject to the federal
Occupational Safety and Health Act and other state statutes. Except for costs
incurred in connection with the environmental cleanup of its property in
Lebanon, Missouri, which was completed in October 1995, costs of compliance with
environmental, health and safety requirements have not been material to the
Company.
The Company believes it is in material compliance with all applicable
environmental laws and regulations.
Employees
At September 29, 1996, the Company had approximately 2,200 employees. None
of the Company's employees are covered under collective bargaining agreements.
The Company has not experienced any work stoppages in the last five years and
considers its relations with employees to be good.
Legal Proceedings
Product liability claims are asserted against the Company from time to time
for various injuries alleged to have resulted from defects in the manufacture
and/or design of the Company's products. At September 29, 1996, there were 24
such claims pending. The Company does not believe that the resolution of such
suits, either individually or in the aggregate, will have a material adverse
effect on the Company's results of operations or financial condition. Product
liability claims are covered by the Company's comprehensive general liability
policies, subject to certain deductible amounts. The Company has established
reserves for such deductible amounts, which it believes to be adequate based on
its previous claims experience. However, there can be no assurance that
resolution of product liability claims in the future will not have a material
adverse effect on the Company.
In addition to product liability claims, from time to time, the Company is
the subject of legal proceedings, including claims involving employee matters,
commercial matters and similar claims. There are no material claims currently
pending. The Company maintains comprehensive general liability insurance which
it believes to be adequate for the continued operation of its business.
36
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth, as of October 25, 1996 and as adjusted to
reflect the Offering, certain information concerning the beneficial ownership of
Common Stock by (a) each stockholder who is known by the Company to own
beneficially in excess of 5% of the outstanding Common Stock, (b) each director
and executive officer, (c) each Selling Stockholder and (d) all directors and
executive officers as a group. Except as otherwise indicated, all persons listed
below have sole voting and investment power with respect to their shares of
Common Stock. The Common Stock constitutes the only class of equity securities
outstanding.
<TABLE>
<CAPTION>
Shares Beneficially Owned Number of Shares Beneficially Owned
Prior to the Offering Shares After the Offering
-------------------------- Being -------------------------
Name of Beneficial Owner Number Percent Offered Number Percent
- ------------------------ ----------- ------------ ------------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Peer L.P. (1) 2,258,360 25.1% 1,940,612 317,748 2.8%
Peer II L.P. (2) 394,203 4.4 338,740 55,463 *
Harbour Group (3) 202,837 2.3 174,298 28,539 *
Investments L.P. (4) 46,350 * 46,350 -- --
Sam Fox (5) 300,000 3.3 -- 300,000 2.7
First Chicago NBD Corporation (6) 686,000 7.6 -- 686,000 6.1
Dimensional Fund Advisors (7) 474,000 5.3 -- 474,000 4.2
Stephen J. Gore (8) 82,287 * -- 82,287 *
James C. Janning (9)(10) 93,750 1.0 -- 93,750 *
Gregory A. Fox (9)(11) 50,000 * -- 50.000 *
Samuel A. Hamacher (9)(12) 3,500 * -- 3,500 *
James J. Kerley (12) 7,500 * -- 7,500 *
Donald E. Nickelson (9)(12) 2,500 * -- 2,500 *
Lee M. Liberman (12)(13) 5,000 * -- 5,000 *
Charles Pollnow (14) 1,000 * -- 1,000 *
William H.T. Bush (14) 2,000 * -- 2,000 *
Bruce P. Erdel (15) 30,612 * -- 30,612 *
-------------
Total 2,500,000
=============
All directors and executive officers
as a group (10 persons) 278,149 3.1% 278,149 2.5%
=========== ============ =========== ==========
</TABLE>
- ---------------
* Less than 1.0%
(1) Assumes no exercise of the over-allotment option. If the over-allotment
option is exercised in full, the total shares of Common Stock to be sold by
Peer L.P. would be 2,256,976, and its ownership interest after the Offering
would be 1,384 shares of Common Stock, or less than 1.0% of the outstanding
Common Stock. Peer L.P. is a Delaware limited partnership whose address is
7701 Forsyth Boulevard, St. Louis, Missouri 63105. Its general partner is
Fox HG II Companies Investments L.P., a Delaware limited partnership ("Fox
HGII") of which Sam Fox is the general partner.
(2) Assumes no exercise of the over-allotment option. If the over-allotment
option is exercised in full, the total shares of Common Stock to be sold by
Peer II L.P. would be 393,962, and its ownership interest after the
Offering would be 241 shares of Common Stock.
(3) Assumes no exercise of the over-allotment option. If the over-allotment
option is exercised in full, the total shares of Common Stock to be sold by
Harbour Group would be 202,712, and its ownership interest after the
Offering would be 125 shares of Common Stock, or less than 1.0% of the
outstanding Common Stock. Excludes shares owned by Investments L.P. Harbour
Group is a Missouri corporation which serves as the general partner of
Investments L.P.
(4) Investments L.P. is a Delaware limited partnership. Its general partner is
Harbour Group, a Missouri corporation controlled by Sam Fox. Harbour Group
has a 1% interest in Investments L.P. Investments L.P. was organized to
make subordinated debt and equity investments in certain operating
companies controlled by Harbour Group and its affiliates. Its limited
partners consist mainly of institutional investors.
(5) Represents 300,000 shares owned directly by Sam Fox, Marilyn Fox (spouse of
Sam Fox) and trusts for the benefit of Sam and/or Marilyn Fox. Excludes
shares owned directly by Peer L.P., Harbour Group, Investments L.P. and
Peer II L.P., all of which are under the common control of Sam Fox. Also
excludes 90,000 shares owned by the Fox Family Foundation, a charitable
foundation of which Sam Fox is a trustee. Based upon the holdings of all
such entities, Sam Fox may be deemed
37
<PAGE>
to be the beneficial owner of 3,236,975 shares (or 36.0% of the outstanding
shares prior to the Offering). Subsequent to the Offering, and assuming no
exercise of the over-allotment option, Sam Fox may be construed to be the
beneficial owner of 791,750 shares, or 7.0% of the shares to be outstanding
after the Offering. If the over-allotment option is exercised in full, Sam
Fox may be construed to be the beneficial owner of 391,750 shares, or 3.4%
of the shares to be outstanding after the Offering.
(6) Based on a filing of Form 13G filed in February 1996, these shares were
held in a fiduciary capacity by First Chicago NBD Corporation. The Form 13G
filed in February 1996 reports that of the shares beneficially owned, this
stockholder has the sole power to vote 669,400 shares, the sole power to
dispose of 667,000 shares and shared power to dispose of 19,000 shares. Its
address is One First National Plaza, Chicago, Illinois 60670.
(7) Based on a filing of Form 13F filed in August 1996, this stockholder has
the sole power to dispose of all of these shares and the sole power to vote
342,000 of these shares. Its address is 1299 Ocean Avenue, Santa Monica,
California 90401.
(8) Includes 14,687 shares issuable pursuant to options granted under the 1994
Employee Stock Option Plan which have become exercisable and excludes
110,313 shares issuable pursuant to such options which are not currently
exercisable.
(9) Excludes shares owned by Peer L.P., Peer II L.P., Harbour Group and
Investments L.P. Each of these individuals is an officer and/or director of
affiliates of Peer L.P., Peer II L.P., Harbour Group and/or Investments
L.P. and each such person disclaims beneficial ownership of shares
beneficially owned by Peer L.P., Peer II L.P., Harbour Group and
Investments L.P.
(10) Excludes 1,000 shares owned by Mr. Janning's spouse, as to which Mr.
Janning disclaims beneficial ownership. Includes 3,750 shares issuable
pursuant to options granted under the 1994 Directors Nonqualified Stock
Option Plan which have become exercisable and excludes 11,250 shares
issuable pursuant to such options which are not currently exercisable.
(11) Includes 5,000 shares issuable pursuant to options granted under the 1994
Employee Stock Option Plan which have become exercisable and excludes
15,000 shares issuable pursuant to such options which are not currently
exercisable.
(12) Includes 2,500 shares issuable pursuant to options granted under the 1994
Directors Nonqualified Stock Option Plan which have become exercisable and
excludes 7,500 shares issuable pursuant to such options which are not
currently exercisable.
(13) Excludes 1,500 shares owned by J&L Investments, a partnership in which Mr.
Liberman holds a 50% interest, as to which shares Mr. Liberman disclaims
beneficial ownership.
(14) Excludes 10,000 shares issuable pursuant to options granted under the 1994
Directors Nonqualified Stock Option Plan which are not currently
exercisable.
(15) Includes 7,312 shares issuable pursuant to options granted under the 1994
Employee Stock Option Plan which have become exercisable and excludes
46,788 shares issuable pursuant to such options which are not currently
exercisable.
38
<PAGE>
CERTAIN TRANSACTIONS
Related Party Transactions
The Company is party to an Operations Consulting and Advisory Services
Agreement dated February 10, 1994, as amended (the "HGL Services Agreement")
with Harbour Group Ltd. ("HGL"), pursuant to which HGL provides management
consulting services to the Company for a one-year term, which term automatically
renews from year to year until terminated by the Company or HGL upon 30 days'
written notice. HGL is an affiliate of Peer L.P., Investments L.P. and Harbour
Group. Under the HGL Services Agreement, the Company compensates HGL for
management consulting services at HGL's approximate costs incurred in performing
such services. The Company is also party to a Corporate Development Consulting
and Advisory Services Agreement (the "HGI Services Agreement") dated February
10, 1994 with Harbour Group Industries, Inc. ("HGI") pursuant to which HGI
provides corporate development services to the Company for a one-year term,
which term automatically renews from year to year until terminated by the
Company or HGI upon 30 days' written notice. HGI is an affiliate of Peer L.P.,
Investments L.P. and Harbour Group. Under the HGI Services Agreement, the
Company compensates HGI for corporate development services by paying an annual
fee equal to the greater of $100,000 or HGI's approximate costs incurred in
performing such services, plus a transaction fee equal to an amount which ranges
from 2.5% of the first $1 million of the purchase price to 0.5% of the portion
of the purchase price in excess of $4 million for each completed acquisition or
disposition by the Company in which HGI performs services during the term of the
HGI Services Agreement, subject to a minimum fee per transaction of $125,000.
The terms of the HGL Services Agreement were determined by HGL and the
Company to preserve the historical arrangement between the Company and HGL
whereby HGL provided the Company with management consulting and advisory
services at approximate cost. The terms of the HGI Services Agreement were
determined in part to reimburse HGI for the estimated approximate annual cost of
HGI personnel engaged in performing services for the Company thereunder and in
part with reference to customary formulas utilized by financial advisors for
providing acquisition and/or divestiture-related services. The Company believes
that the rate agreed to by the Company and HGI is less than the rate customarily
charged by other financial advisory service providers. Charges totaling $285,000
and $783,000 were paid by the Company to HGL and HGI, respectively, during the
fiscal year ended June 30, 1996.
Until April 1994, the Company had been included in an insurance program
maintained by HGL providing workers compensation and employer's liability,
general liability and automobile liability and physical damage insurance
coverage for all companies controlled by Harbour Group or its affiliates. The
insurance program utilized a retrospective rating plan and automatic premium
adjustment plan, which provide for calculations of the premiums for the
insurance program based on the application of rating formulae to actual incurred
losses and reserves for future losses which required adjustment of the premiums
retrospectively. In connection with this program, the Company entered into an
Insurance Agreement with HGL pursuant to which it agreed to reimburse HGL, and
HGL agreed to reimburse the Company, for their respective pro rata shares of any
retrospective premium adjustment. The Company continues to participate in an
insurance program providing umbrella and excess coverages to the Company and
certain other companies controlled or advised by HGL.
The Company believes that each of the related party transactions described
herein was on terms no less favorable to the Company than could have been
obtained from unaffiliated third parties.
Agreements with Certain Stockholders
Prior to 1994, Stephen J. Gore, Bruce P. Erdel, Gregory Fox and James C.
Janning, together with certain other members of the management of the Company,
acquired shares of Common Stock at prices determined by the Board of Directors
of the Company, and the purchase price therefor was paid partly in cash and
partly by delivery of promissory notes payable to the Company secured by all or
some portion of the purchased shares. Such notes have a ten-year maturity, bear
interest at fixed rates of interest from 5.84% to 6.28% per annum and are
payable interest only annually, with one principal payment at maturity. In
connection with such promissory notes, the Company agreed to pay annual bonuses
to such stockholders in amounts equal to the annual interest payments on the
notes plus all federal and state income taxes applicable to such payments. In
connection with the purchase of his shares of the Common Stock, each such
stockholder entered into an agreement with the Company and Peer L.P., which
agreements were amended in connection with the Company's initial public offering
(as amended, the "Stockholder
39
<PAGE>
Agreements"). The Stockholder Agreements provide for, among other things,
restrictions on transfer of shares of the Common Stock owned by such
stockholder, a right to acquire additional securities of the Company in order to
maintain the stockholder's percentage of equity interest in the Company in
certain circumstances and "tag-along" and "drag-along" rights in the event of
certain sales of the Common Stock by Peer L.P. The transfer restrictions of the
Stockholder Agreements, which are subject to modification or waiver by the
Company, generally prohibited the sale of 50% of such shares of Common Stock
until April 15, 1996, and an aggregate 65% of such shares until October 15,
1995. A pro rata portion of the indebtedness originally incurred to purchase
such shares must be repaid in connection with any permitted sale of such Common
Stock by such stockholder. The transfer restrictions of the Stockholder
Agreements are in addition to any other restrictions on the sale or transfer of
such shares imposed under applicable law. Certain of the Stockholder Agreements,
including the Stockholder Agreements of Messrs. Gore, Erdel and Fox, also
contain provisions concerning noncompetition and confidentiality applicable to
such stockholders and provisions for payments to such stockholders, under
certain circumstances, following the termination of their employment with the
Company. In the event of a termination of any such stockholder's employment by
the Company without cause or his voluntary resignation within 60 days of a
substantial reduction in his duties, responsibilities or compensation, the
Stockholder Agreements provide for payment of up to one year's base salary to
such executive.
During the fiscal year ended June 30, 1996, the following executive
officers and directors had promissory notes in excess of $60,000 outstanding to
the Company:
<TABLE>
<CAPTION>
Balance Outstanding
-------------------------------
Highest During At June 30, Interest
Shareholder Position Fiscal 1996 1996 Rate Due Date
- ----------- -------- -------------- ----------- -------- --------
<S> <C> <C> <C> <C> <C>
Stephen J. Gore President & Chief Executive
Officer, Director $ 84,600 $ 84,600 6.28% 9/30/03
James C. Janning Director 112,800 112,800 6.28 9/30/03
Gregory A. Fox Director 66,600 66,600 5.84 11/30/03
</TABLE>
Registration Rights
Pursuant to a registration rights agreement between the Company and Peer
L.P., Investments L.P. and Harbour Group (the "Registration Rights Agreement"),
Peer L.P., Investments L.P., Harbour Group and such of their respective
permitted transferees as may be deemed to be affiliates of the Company have
rights to demand registration under the Securities Act of 1933, as amended (the
"Securities Act"), of its or their shares of the Company's Common Stock. In
addition, in the event the Company proposes to register any of its securities
under the Securities Act, such persons (or their permitted transferees) will
have rights, subject to certain exceptions and limitations, to have the shares
of the Company's capital stock then owned by them included in such registration
statement. The Company has agreed that, in the event of any registration of
securities owned by such person (or a permitted transferee) in accordance with
the provisions thereof, it will indemnify such person, and certain related
persons, against liabilities incurred in connection with such registration,
including liabilities arising under the Securities Act.
The registration rights described above are subject to certain limitations
intended to prevent undue interference with the Company's ability to distribute
securities, including the provision that demand registration rights may not be
exercised within 90 days after the effective date of the Company's most recent
registration statement. As a result of the Offering, the Registration Rights
Agreement will terminate in accordance with its terms.
40
<PAGE>
CERTAIN UNITED STATES TAX CONSEQUENCES TO NON-UNITED STATES HOLDERS
The following is a general discussion of certain material United States
Federal income and estate tax consequences of the ownership and disposition of
Common Stock by a holder that, for United States Federal income tax purposes, is
not a "United States person" (a "Non-United States Holder"). This discussion is
not intended to be exhaustive and is based on statutes, regulations, rulings and
court decisions as currently in effect all of which may be changed either
retroactively or prospectively. Treasury Regulations were recently proposed that
would, if adopted in their present form, revise in certain respects the rules
applicable to Non-United States Holders of Common Stock governing information
reporting and withholding (the "Proposed Regulations"). The Proposed Regulations
are generally proposed to be effective with respect to payments made after
December 31, 1997. This discussion does not consider any specific facts or
circumstances that may apply to a particular Non-United States Holder and
applies only to Non-United States Holders that hold Common Stock as a capital
asset. Prospective investors are strongly urged to consult their tax advisors
regarding the United States Federal tax consequences of acquiring, holding and
disposing of Common Stock (including such investor's status as a United States
person or Non-United States Holder) as well as any tax consequences that may
arise under the laws of any state, municipality or other taxing jurisdiction.
For purposes of this discussion, "United States person" means a citizen or
resident of the United States, a corporation or partnership created or organized
in the United States or under the laws of the United States or of any state, or
an estate or trust whose income is includible in gross income for United States
Federal income tax purposes regardless of its source. Generally for taxable
years beginning after December 31, 1996, a trust will be treated as a U.S.
person if a court within the United States is able to exercise primary
supervision over the administration of the trust and one or more United States
fiduciaries have the authority to control all substantial decisions of the
trust.
Dividends
Dividends paid to a Non-United States Holder generally will be subject to
withholding of United States Federal income tax at the rate of 30%, unless the
withholding rate is reduced under an applicable income tax treaty between the
United States and the country of tax residence of the Non-United States Holder.
No U.S. withholding will apply if the dividend is effectively connected with a
trade or business conducted or deemed to be conducted within the United States
by the Non-United States Holder (or, alternatively, where an income tax treaty
applies, if the dividend is attributable to a permanent establishment maintained
or deemed to be maintained within the United States by the Non-United States
Holder), but, instead, the dividend will be subject to the United States Federal
income tax on net income that applies to United States persons. With respect to
corporate holders, the dividend may also be subject to the branch profits tax of
30% (or if applicable, a lower treaty rate) imposed on "effectively connected
earnings and profits" as defined for purposes of the United States Federal
income tax. A Non-United States Holder may be required to satisfy certain
certification requirements (which may change prospectively if the Proposed
Regulations are adopted in their present form) in order to claim treaty benefits
or to otherwise claim a reduction of or exemption from withholding under the
foregoing rules. A Non-United States Holder that is eligible for a reduced rate
of U.S. withholding tax pursuant to a tax treaty may obtain a refund of any
excess amounts currently withheld by filing an appropriate claim for refund with
the United States Internal Revenue Service (the "Service").
Gain on Disposition
Subject to special rules described below, a Non-United States Holder will
generally not be subject to United States Federal income tax on gain recognized
on a sale or other disposition of Common Stock unless the gain is effectively
connected with a trade or business conducted or deemed to be conducted within
the United States by the Non-United States Holder (or, alternatively, where an
income tax treaty applies, unless the gain is attributable to a permanent
establishment maintained or deemed to be maintained within the United States by
the Non-United States Holder). Any such effectively connected gain would be
subject to the United States Federal income tax on net income that applies to
United States persons (and, with respect to corporate holders, may also be
subject to the branch profits tax). Such tax is not collected by withholding.
In addition, an individual Non-United States Holder who holds Common Stock
would generally be subject to tax at a 30% rate on any gain recognized on the
disposition of such Common Stock (which may be offset by capital losses
allocable to U.S. sources) if such individual is present in the United States
for 183 days or more in the taxable year of disposition and certain other
conditions are met. Individual Non-United States Holders may also be subject
41
<PAGE>
to tax pursuant to provisions of United States Federal income tax law applicable
to certain former citizens and long-term residents of the United States.
Non-United States Holders should consult applicable income tax treaties, which
may provide for different rules.
Also, special rules apply to Non-United States Holders if the Company is or
becomes a "United States real property holding corporation" for United States
Federal income tax purposes. The Company believes that it has not been, is not
currently, and is not likely to become, a United States real property holding
corporation. If the Company were a United States real property holding
corporation, gain or loss on a sale of the Common Stock by any Non-United States
Holder (other than, in most cases, a Non-United States Holder that owns or owned
(directly or constructively) 5% or less of the Common Stock during the five-year
period ending on the date of such sale) would be treated as income effectively
connected with the conduct of a trade or business within the United States by
the holder and subject to the net income tax described above.
United States Federal Estate Taxes
Common Stock owned or treated as owned by an individual who is not a
citizen or resident (as specially defined for United States Federal estate tax
purposes) of the United States at the date of death, or Common Stock subject to
certain lifetime transfers made by such an individual, will be included in such
individual's estate for United States Federal estate tax purposes and may be
subject to United States Federal estate tax, unless an applicable estate tax
treaty provides otherwise. Estates of nonresident aliens are generally allowed a
credit that is equivalent to an exclusion of $60,000 of assets from the estate
for United States Federal estate tax purposes, however, applicable estate tax
treaties may provide for a different credit.
Legislative Developments
Legislation has been proposed from time to time that, if enacted, would
result, under certain circumstances, in the imposition of United States Federal
income tax on gain realized from the disposition of Common Stock by certain
Non-U.S. Holders who own or owned 10% or more of the Common Stock.
It is impossible to predict whether or in what form any such legislation or
other legislation might be enacted and what the scope or effective date of any
such legislation might be.
Information Reporting and Backup Withholding
The Company must report annually to the Service and to each Non-United
States Holder the amount of dividends paid to, and any tax withheld with respect
to, such holder, regardless of whether any tax was actually withheld. That
information may also be made available to the tax authorities of the country in
which a Non-United States Holder resides.
United States Federal backup withholding tax (which, generally, is imposed
at the rate of 31% on certain payments to persons not otherwise exempt who fail
to furnish information required under United States information reporting
requirements) generally will not apply to dividends paid to a Non-United States
Holder either at an address outside the United States (provided that the payor
does not have actual knowledge that the payee is a United States person) or if
the dividends are subject to withholding at the 30% rate (or lower treaty rate).
As a general matter, information reporting and backup withholding also will not
apply to a payment of the proceeds of a sale of Common Stock through a foreign
office of a broker. However, information reporting requirements (but not backup
withholding) will apply to a payment of the proceeds of a sale of Common Stock
by or through a foreign office of a broker that is a (i) United States person or
(ii) foreign broker that derives 50% or more of its gross income for certain
periods from the conduct of a trade or business in the United States, or that is
a "controlled foreign corporation" for United States Federal income tax
purposes, unless the broker has documentary evidence in its records that the
holder is a Non-United States Holder and certain conditions are met, or the
holder otherwise establishes an exemption. Payment by a United States office of
a United States or foreign broker of the proceeds of a sale of Common Stock of a
Non-United States Holder is subject to both backup withholding and information
reporting unless the holder certifies as to its name, address and non-United
States status under penalties of perjury or otherwise establishes an exemption
(and the broker has no actual knowledge to the contrary.) The backup withholding
tax is not an additional tax and may be credited against the Non-United States
Holder's United States Federal income tax liability or refunded to the extent
excess amounts are withheld, provided that the required information is supplied
to the Service.
42
<PAGE>
The backup withholding and information reporting rules are currently under
review by the United States Treasury Department and their application to the
receipt of payments attributable to the Common Stock is subject to change,
including by application of the Proposed Regulations if they are adopted in
their present form.
43
<PAGE>
UNDERWRITING
Under the terms and subject to the conditions contained in an Underwriting
Agreement dated , 1996 (the "U.S. Underwriting Agreement"),
the underwriters named below (the "U.S. Underwriters"), for whom CS First Boston
Corporation, Morgan Stanley & Co. Incorporated and Schroder Wertheim & Co.
Incorporated are acting as representatives (the "Representatives") have
severally but not jointly agreed to purchase from the Company and the Selling
Stockholders, the following respective number of shares of Common Stock:
Number of
U.S. Underwriter U.S. Shares
---------------- -----------
CS First Boston Corporation
Morgan Stanley & Co. Incorporated.
Schroder Wertheim & Co. Incorporated
-----------
Total 3,800,000
===========
The U.S. Underwriting Agreement provides that the obligations of the U.S.
Underwriters are subject to certain conditions precedent and that the U.S.
Underwriters will be obligated to purchase all of the shares of Common Stock
offered hereby (other than those shares covered by the over-allotment option
described below) if any are purchased. The U.S. Underwriting Agreement provides
that, in the event of a default by a U.S. Underwriter, in certain circumstances
the purchase commitments of non-defaulting U.S. Underwriters may be increased or
the U.S. Underwriting Agreement may be terminated.
The Company has entered into a Subscription Agreement (the "Subscription
Agreement") with the managers of the International Offering (the "Managers")
providing for the concurrent offer and sale of the International Shares outside
the United States and Canada. The closing of the U.S. Offering is a condition to
the closing of the International Offering and vice versa.
The Company and the Selling Stockholders have granted to the U.S.
Underwriters and the Managers an option, exercisable by CS First Boston
Corporation, expiring at the close of business on the 30th day after the date of
this Prospectus, to purchase, first, up to 312,500 additional shares from the
Company and then an aggregate of 400,000 additional outstanding shares from the
Selling Stockholders at the initial public offering price less the underwriting
discounts and commissions, all as set forth on the cover page of this
Prospectus. Such option may be exercised only to cover over-allotments in the
sale of the shares of Common Stock offered hereby. To the extent such option is
exercised, each U.S. Underwriter and each Manager will become obligated, subject
to certain conditions, to purchase approximately the same percentage of such
additional shares being sold to the U.S. Underwriters and the Managers as the
number of U.S. Shares set forth next to such U.S. Underwriter's name in the
preceding table and as the number set forth next to such Manager's name in the
corresponding table in the prospectus relating to the International Offering
bears to the sum of the total number of shares Common Stock in such tables.
The Company has been advised by the Representatives that the U.S.
Underwriters propose to offer the U.S. Shares in the United States and Canada to
the public initially at the public offering price set forth on the cover page of
this Prospectus and, through the Representatives, to certain dealers at such
price less a concession of $ per Share, and the U.S. Underwriters and such
dealers may allow a discount of $ per Share on sales to certain other dealers.
After the initial public offering, the public offering price and concession and
discount to dealers may be changed by the Representatives.
The public offering price, the aggregate underwriting discounts and
commissions per share and per share concession and discount to dealers for the
U.S. Offering and the concurrent International Offering will be identical.
Pursuant to an Agreement between the U.S. Underwriters and the Managers (the
"Intersyndicate Agreement") relating to the Offering, changes in the public
offering price, concession and discount to dealers will be made only
44
<PAGE>
upon the mutual agreement of CS First Boston Corporation, as representative of
the U.S. Underwriters, and CS First Boston Limited ("CSFBL"), on behalf of the
Managers.
Pursuant to the Intersyndicate Agreement, each of the U.S. Underwriters has
agreed that, as part of the distribution of the U.S. Shares and subject to
certain exceptions, it has not offered or sold, and will not offer or sell,
directly or indirectly, any shares of Common Stock or distribute any prospectus
relating to the Common Stock to any person outside the United States or Canada
or to any other dealer who does not so agree. Each of the Managers has agreed or
will agree that, as part of the distribution of the International Shares and
subject to certain exceptions, it has not offered or sold, and will not offer or
sell, directly or indirectly, any shares of Common Stock or distribute any
prospectus relating to the Common Stock in the United States or Canada or to any
other dealer who does not so agree. The foregoing limitations do not apply to
stabilization transactions or to transactions between the U.S. Underwriters and
the Managers pursuant to the Intersyndicate Agreement. As used herein, "United
States" means the United States of America (including the States and the
District of Columbia), its territories, possessions and other areas subject to
its jurisdiction, "Canada" means Canada, its provinces, territories, possessions
and other areas subject to its jurisdiction, and an offer or sale shall be in
the United States or Canada if it is made to (i) any individual resident in the
United States or Canada or (ii) any corporation, partnership, pension,
profit-sharing or other trust or other entity (including any such entity acting
as an investment adviser with discretionary authority) whose office most
directly involved with the purchase is located in the United States or Canada.
Pursuant to the Intersyndicate Agreement, sales may be made between the
U.S. Underwriters and the Managers of such number of shares of Common Stock as
may be mutually agreed upon. The price of any shares so sold shall be the public
offering price, less such amount as may be mutually agreed upon by CS First
Boston Corporation, as representative of the U.S. Underwriters, and CSFBL, on
behalf of the Managers, but not exceeding the selling concession applicable to
such shares. To the extent there are sales between the U.S. Underwriters and the
Managers pursuant to the Intersyndicate Agreement, the number of shares of
Common Stock initially available for sale by the U.S. Underwriters or by the
Managers may be more or less than the amount appearing on the cover page of the
Prospectus. Neither the U.S. Underwriters nor the Managers are obligated to
purchase from the other any unsold shares of Common Stock.
The Company and its directors, executive officers and certain affiliated
stockholders have agreed that, for a period of 90 days after the date of this
Prospectus, they will not, without the prior written consent of CS First Boston
Corporation, offer, sell, contract to sell, announce its intention to sell,
pledge or otherwise dispose of directly or indirectly, or file with the
Securities and Exchange Commission a registration statement under the Securities
Act of 1933, as amended, (the "Securities Act") relating to, any shares of
Common Stock or any securities convertible into, or exchangeable for, or
warrants to purchase, any additional shares of Common Stock, or grant any option
to purchase or right to acquire or acquire any option to dispose of any shares
of Common Stock except, in the case of the Company, in certain limited
circumstances.
The Company and the Selling Stockholders have agreed to indemnify the U.S.
Underwriters and the Managers against certain liabilities, including civil
liabilities under the Securities Act, or to contribute to payments that the U.S.
Underwriters and the Managers may be required to make in respect thereof. The
U.S. Underwriters and the Managers have agreed to indemnify the Company and the
Selling Stockholders against certain liabilities, including civil liabilities
under the Securities Act, or to contribute to payments that the Company and the
Selling Stockholders may be required to make in respect thereof.
Certain of the U.S. Underwriters and their affiliates have from time to
time performed, and continue to perform, various investment banking services for
the Company, for which customary compensation has been received.
45
<PAGE>
NOTICE TO CANADIAN RESIDENTS
Resale Restrictions
The distribution of the Common Stock in Canada is being made only on a
private placement basis exempt from the requirement that the Company prepare and
file a prospectus with the securities regulatory authorities in each province
where trades of Common Stock are effected. Accordingly, any resale of the Common
Stock in Canada must be made in accordance with applicable securities laws which
will vary depending on the relevant jurisdiction, and which may require resales
to be made in accordance with available statutory exemptions or pursuant to a
discretionary exemption granted by the applicable Canadian securities regulatory
authority. Purchasers are advised to seek legal advice prior to any resale of
the Common Stock.
Representations of Purchasers
Each purchaser of Common Stock in Canada who receives a purchase
confirmation will be deemed to represent to the Company and the dealer from whom
such purchase confirmation is received that (i) such purchaser is entitled under
applicable provincial securities laws to purchase such Common Stock without the
benefit of a prospectus qualified under such securities laws, (ii) where
required by law, that such purchaser is purchasing as principal and not as
agent, and (iii) such purchaser has reviewed the text above under "Resale
Restrictions".
Rights of Action and Enforcement
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
section 32 of the Regulation under the Securities Act (Ontario). As a result,
Ontario purchasers must rely on other remedies that may be available, including
common law rights of action for damages or rescission or rights of action under
the civil liability provisions of the U.S. federal securities laws.
All of the issuer's directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be possible
for Ontario purchasers to effect service of process within Canada upon the
issuer or such persons. All or a substantial portion of the assets of the issuer
and such persons may be located outside of Canada and, as a result, it may not
be possible to satisfy a judgment against the issuer or such persons in Canada
or to enforce a judgment obtained in Canadian courts against such issuer or
persons outside of Canada.
Notice to British Columbia Residents
A purchaser of Common Stock to whom the Securities Act (British Columbia)
applies is advised that such purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any
Common Stock acquired by such purchaser pursuant to this offering. Such report
must be in the form attached to British Columbia Securities Commission Blanket
Order BOR #95/17, a copy of which may be obtained from the Company. Only one
such report must be filed in respect of Common Stock acquired on the same date
and under the same prospectus exemption.
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 Commission. Such reports, proxy statements and other
information filed by the Company pursuant to the Exchange Act may be inspected
and copied at the public reference facilities maintained by the Commission at
Room 1024, 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549 and
at the Commission's regional offices located at 7 World Trade Center, 13th
Floor, New York, New York 10048 and Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. Copies of such material can be obtained
from the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Judiciary Plaza, Washington, D.C. 20549 at prescribed rates. The Commission
maintains a web site (http:\www.sec.gov) that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission. Copies of such information may also be
inspected at the reading room of the library of the National Association of
Securities Dealers, Inc., 1735 K Street N.W., 2nd Floor, Washington, D.C. 20006.
The Company has filed with the Commission a Registration Statement on Form
S-3 under the Securities Act with respect to the Common Stock offered hereby.
This Prospectus, which constitutes part of the Registration
46
<PAGE>
Statement, omits certain of the information contained in the Registration
Statement and the exhibits and schedules thereto on file with the Commission
pursuant to the Securities Act and the rules and regulations of the Commission
thereunder. Statements contained in this Prospectus as to the contents of any
contract or other document referred to are not necessarily complete and in each
instance reference is made to the copy of such contract or other document filed
as an exhibit to the Registration Statement, or incorporated by reference
therein, each such statement being qualified in all respects by such reference.
LEGAL MATTERS
Certain legal matters with respect to the validity of the issuance of the
Common Stock offered hereby will be passed upon for the Company by Dickstein
Shapiro Morin & Oshinsky LLP, Washington, D.C. Dickstein Shapiro Morin &
Oshinsky LLP has in the past represented, and continues to represent, Peer L.P.,
Peer II L.P., Investments L.P., Harbour Group, the Fox Family Foundation and
their respective affiliates with respect to various matters unrelated to the
Company as well as in connection with their ownership of capital stock of the
Company. Certain legal matters in connection with the Offering will be passed
upon for the U.S. Underwriters and the Managers by Katten Muchin & Zavis,
Chicago, Illinois.
EXPERTS
The Consolidated Financial Statements of the Company included in this
Prospectus as of June 30, 1996 and June 25, 1995 and for each of the three years
in the period ended June 30, 1996, have been so included in reliance on the
reports of Price Waterhouse LLP, independent accountants, given on the authority
of said firm as experts in auditing and accounting.
The consolidated financial statements of Mid-West, incorporated by
reference in this Prospectus as of May 26, 1996 and May 28, 1995 and for each of
the three years in the period ended May 26, 1996, have been so incorporated by
reference in reliance on the reports of Altschuler, Melvoin and Glasser LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
47
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Financial Statements Page
- --------------------------------- ----
Consolidated Balance Sheets at September 29, 1996
(unaudited) and June 30, 1996 F-2
Consolidated Statement of Operations for the three months
ended September 29, 1996 unaudited) and
September 24, 1995 (unaudited) F-3
Consolidated Statement of Changes in Stockholders' Equity
for the three months ended September 29, 1996 (unaudited) F-4
Consolidated Statement of Cash Flows for the three months
ended September 29, 1996 (unaudited) and September 24,
1995 (unaudited) F-5
Notes to Unaudited Consolidated Financial Statements F-7
Report of Independent Accountants F-12
Consolidated Balance Sheets at June 30, 1996 and June 25, 1995 F-13
Consolidated Statement of Operations for the fiscal years
ended June 30, 1996, June 25, 1995 and June 26, 1994 F-14
Consolidated Statement of Changes in Stockholders' Equity
for the fiscal years ended June 30, 1996, June 25, 1995
and June 26, 1994 F-15
Consolidated Statement of Cash Flows for the fiscal years
ended June 30, 1996, June 25, 1995 and June 26, 1994 F-16
Notes to Consolidated Financial Statements F-18
F-1
<PAGE>
(Dollars in thousands, except per share data)
_______________________________________________________________________________
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
September 29, June 30,
1996 1996
--------------- ---------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,653 $ 1,210
Accounts receivable, net 34,940 32,092
Costs and estimated earnings in excess
of amounts billed on uncompleted contracts 58,088 19,130
Inventories, net 38,636 31,403
Prepaid expenses and other 6,699 10,153
--------------- ---------------
Total current assets 141,016 93,988
Property, plant and equipment, net 44,204 36,713
Goodwill, net 157,753 101,187
Other assets, net 3,989 1,955
--------------- ---------------
$ 346,962 $ 233,843
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 15,922 $ 8,481
Accounts payable 34,627 19,621
Customer advances 17,534 17,201
Accrued liabilities 24,063 22,524
--------------- ---------------
Total current liabilities 92,146 67,827
--------------- ---------------
Long-term debt 153,695 70,846
Deferred income taxes 5,261 4,756
Other long-term liabilities 3,495 2,530
--------------- ---------------
Total long-term obligations 162,451 78,132
--------------- ---------------
Commitments and contingencies (See notes 10 and 11)
Stockholders' equity:
Preferred stock, $0.01 par value; 1,500,000 shares
authorized; no shares issued and outstanding
Common stock, $0.01 par value; 100,000,000 shares
authorized; 9,009,375 and 9,001,250 shared
issued and outstanding at September 29, 1996
and June 30, 1996, respectively 90 90
Additional paid-in capital 61,367 61,255
Retained earnings 30,908 26,539
--------------- ---------------
Total stockholders' equity 92,365 87,884
--------------- ---------------
$ 346,962 $ 233,843
=============== ===============
</TABLE>
See accompanying Notes to Unaudited Consolidated Financial Statements.
F-2
<PAGE>
(Dollars in thousands, except per share data)
_______________________________________________________________________________
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended
-----------------------------------
September 29, September 24,
1996 1995
--------------- ---------------
<S> <C> <C>
Net sales $ 82,635 $ 44,788
Cost of sales 59,870 33,547
--------------- ---------------
Gross profit 22,765 11,241
Selling, general and
administrative expenses 11,588 6,625
--------------- ---------------
Operating income 11,177 4,616
Interest expense 2,715 761
--------------- ---------------
Income before provision for
income taxes and extraordinary loss 8,462 3,855
Provision for income taxes 3,589 1,629
--------------- ---------------
Income before extraordinary loss
4,873 2,226
Extraordinary loss on debt refinancing less
applicable income tax benefits of $216 324
--------------- ---------------
Net income $ 4,549 $ 2,226
=============== ===============
Primary earnings per common share:
Income before extraordinary loss $ 0.52 $ 0.25
Extraordinary loss 0.04
--------------- ---------------
Net income $ 0.48 $ 0.25
=============== ===============
Weighted average common shares 9,415,738 9,000,000
=============== ===============
</TABLE>
See accompanying Notes to Unaudited Consolidated Financial Statements.
F-3
<PAGE>
(Dollars in thousands, except per share data)
_______________________________________________________________________________
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE THREE MONTHS
ENDED SEPTEMBER 29, 1996
<TABLE>
<CAPTION>
Additional
Common paid-in Retained
stock capital earnings Total
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Balance, June 30, 1996 $ 90 $ 61,255 $ 26,539 $ 87,884
Exercise of stock options (unaudited) 112 112
Net income for the three months ended
September 29, 1996 (unaudited) 4,549 4,549
Cash dividend at $0.02 per common
share (unaudited) (180) (180)
------------ ------------ ------------ ------------
Balance, September 29, 1996
(unaudited) $ 90 $ 61,367 $ 30,908 $ 92,365
============ ============ ============ ============
</TABLE>
See accompanying Notes to Unaudited Consolidated Financial Statements.
F-4
<PAGE>
(Dollars in thousands, except per share data)
_______________________________________________________________________________
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Three months ended
September 29, 1996 September 24, 1995
-------------------- --------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 4,549 $ 2,226
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation 1,307 884
Amortization 1,087 557
Deferred income tax provision 200 (194)
Other 12
(Increase) decrease in current assets, excluding
the effect of acquisitions:
Accounts receivable (1,072) 4,602
Costs and earnings in excess of amounts billed (16,512) (3,601)
Inventories (4,801) 2,077
Prepaid expenses and other 2,787 (915)
Increase (decrease) in current liabilities,
excluding the effect of acquisitions:
Accounts payable 8,214 1,304
Accrued liabilities (3,701) 349
Customer advances (678) 1,424
Other 16 18
-------------------- --------------------
Net cash provided (used) by operating activities (8,592) 8,731
-------------------- --------------------
Cash flows from investing activities:
Capital expenditures (2,417) (2,070)
Acquisition of Mid-West Automation Enterprises, (75,179)
Inc. stock, net of cash acquired of $21,572
Acquisition of H.G. Kalish Inc. net assets, net of
cash acquired of $709 (16,424)
Other (200)
-------------------- --------------------
Net cash used by investing activities (77,796) (18,494)
-------------------- --------------------
</TABLE>
(Continued)
See accompanying Notes to Unaudited Consolidated Financial Statements.
F-5
<PAGE>
(Dollars in thousands, except per share data)
_______________________________________________________________________________
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(Continued)
<TABLE>
<CAPTION>
Three months ended Three months ended
September 29, 1996 September 24, 1995
-------------------- --------------------
<S> <C> <C>
Cash flows from financing activities:
Proceeds from issuance of debt 62,450 22,239
Repayments of term loans (155) (11,750)
Net borrowings (repayments) on revolving loans 28,009 (173)
Repayments of capital leases and other long-
term obligations (42) (54)
Financing costs (2,363)
Exercise of stock options 112
Dividends (180) (180)
-------------------- --------------------
Net cash provided by financing activities 87,831 10,082
-------------------- --------------------
Net increase in cash 1,443 319
Cash and cash equivalents at beginning of period 1,210 646
-------------------- --------------------
Cash and cash equivalents at end of period $ 2,653 $ 965
==================== ====================
</TABLE>
See accompanying Notes to Unaudited Consolidated Financial Statements.
F-6
<PAGE>
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
_______________________________________________________________________________
NOTE 1 UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The accompanying unaudited consolidated financial statements of DT
Industries, Inc. (DTI or the Company) have been prepared in accordance with the
instructions for Form 10-Q and do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. However, in the opinion of management, such information
includes all adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation of the results of operations for the periods
presented. Operating results for any quarter are not necessarily indicative of
the results for any other quarter or for the full year. These statements should
be read in conjunction with the consolidated financial statements and notes to
the consolidated financial statements thereto for the fiscal year ended June 30,
1996 included elsewhere herein.
_______________________________________________________________________________
NOTE 2 PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany transactions and
balances have been eliminated.
_______________________________________________________________________________
NOTE 3 ACQUISITIONS
On July 19, 1996, DTI purchased the outstanding stock of Mid-West
Automation Enterprises, Inc. (Mid-West), a designer and manufacturer of
integrated precision assembly systems, in a transaction accounted for under the
purchase method of accounting. The purchase price of approximately $75,179, net
of cash acquired, was financed by borrowings under the Second Amended and
Restated Credit Facilities Agreement. The purchase price has been preliminarily
allocated to the acquired assets and assumed liabilities based on their
estimated fair value at the date of acquisition. The excess of purchase price
over the estimated fair value of net assets acquired has been recorded as
goodwill. The accompanying consolidated financial statements include the results
of Mid-West from the date of acquisition.
In August 1995 and September 1995, respectively, the Company acquired
certain assets of and assumed certain liabilities of H.G. Kalish Inc. (Kalish)
and Arrow Precision Elements, Inc. (Arrow). The Company also acquired the stock
of Swiftpack Automation Limited (Swiftpack) in November 1995 and Assembly
Machines, Inc. (AMI) in January 1996. See the consolidated financial statements
and notes thereto for the fiscal year ended June 30, 1996 included elsewhere
herein for additional information relating to these acquisitions.
The following table sets forth pro forma information for DTI as if the
acquisitions of Kalish, Arrow, Swiftpack, AMI and Mid-West had taken place on
July 1, 1996 and June 26, 1995, respectively. This information is unaudited and
does not purport to represent actual net sales, income before extraordinary loss
and earnings per share before extraordinary loss had the acquisitions actually
occurred on July 1, 1996 and June 26, 1995:
Pro forma information
for the periods (unaudited)
-------------------------------------------
July 1, 1996 June 26, 1995
to to
September 29, 1996 September 24, 1995
-------------------- --------------------
Net sales $ 89,807 $ 78,538
Income before extraordinary loss $5,112 $4,263
Earnings per share
before extraordinary loss $0.54 $0.47
Weighted average
shares outstanding 9,415,738 9,000,000
F-7
<PAGE>
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
_______________________________________________________________________________
NOTE 4 REVENUE RECOGNITION
The percentage of completion method of accounting is used by the Company's
Special Machines segment to recognize revenues and related costs. Under the
percentage of completion method, revenues for customer contracts are measured
based on the ratio of engineering and manufacturing labor hours incurred to date
compared to total estimated engineering and manufacturing labor hours or, for
certain customer contracts, the ratio of total costs incurred to date to total
estimated costs. Any revisions in the estimated total labor hours, total costs
or values of the contracts during the course of the work are reflected when the
facts that require the revisions become known. Revenue from the sale of products
manufactured by the Company's Components segment is recognized upon shipment to
the customer.
Costs and related expenses to manufacture the products are recorded as cost
of sales when the related revenue is recognized. Provisions for estimated losses
on uncompleted contracts are made in the period in which such losses are
determined.
_______________________________________________________________________________
NOTE 5 FOREIGN CURRENCY TRANSLATION
The accounts of the Company's foreign subsidiaries are maintained in their
local currency. Assets and liabilities are translated into U.S. dollars using
period-end exchange rates, and statement of operations items are translated
using weighted average exchange rates for the period. Adjustments resulting from
the process of translating the accounts into U.S. dollars are accumulated in a
separate translation account, included in stockholders' equity. Foreign currency
transaction gains and losses are included in current earnings. The cumulative
translation adjustment account and foreign currency transaction gains and losses
are not considered material.
_______________________________________________________________________________
NOTE 6 EARNINGS PER SHARE
The computation of primary earnings per share was based on the weighted
average number of outstanding common shares during the period plus, when the
effect was dilutive, common stock equivalents consisting of certain shares
subject to stock options and contingent purchase price payable in common stock
related to an acquired business. The common equivalent shares arising from the
effect of outstanding stock options was computed using the treasury stock
method, if dilutive. The number of contingent shares used in the primary
calculation was based on the average stock price for the prior fiscal year and
the end of the period stock price assuming maintenance of current earnings. As
all potentially dilutive securities are considered common stock equivalents,
there was not a material difference between primary and fully diluted earnings
per share.
_______________________________________________________________________________
NOTE 7 SUPPLEMENTAL BALANCE SHEET INFORMATION
September 29, 1996 June 30, 1996
-------------------- --------------------
(Unaudited)
Inventories, net:
Raw materials $ 15,581 $ 14,814
Work in process 18,357 12,145
Finished goods 4,698 4,444
-------------------- --------------------
$ 38,636 $ 31,403
==================== ====================
F-8
<PAGE>
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
_______________________________________________________________________________
September 29, 1996 June 30, 1996
-------------------- --------------------
(Unaudited)
Accrued liabilities:
Accrued employee
compensation and benefits $ 8,245 $ 6,030
Taxes payable and related
reserves 6,107 5,120
Product liability 1,773 1,711
Other 7,938 9,663
-------------------- --------------------
$ 24,063 $ 22,524
==================== ====================
_______________________________________________________________________________
NOTE 8 FINANCING
As of September 29, 1996 and June 30, 1996, long-term debt consisted of the
following:
September 29, 1996 June 30, 1996
-------------------- --------------------
(Unaudited)
Term loans to banks $ 110,239 $ 47,917
Loan Notes 13,974 13,974
Revolving loans to banks 44,759 16,749
Capital lease obligations and
other long-term debt 645 687
-------------------- --------------------
169,617 79,327
Less - current portion of
long-term debt (15,922) (8,481)
-------------------- --------------------
$ 153,695 $ 70,846
==================== ====================
During July 1996, the Company entered into a Second Amended and Restated
Credit Facilities Agreement for $200,000 provided by two institutions. The
agreement provides for a $55,000 revolving credit facility, a $104,000 term
loan, a $20,000 acquisition facility and a $21,000 foreign currency denominated
letter of credit. The term loan requires quarterly principal payments ranging
from $4,750 to $5,500 commencing in January 1997 with final maturity on July 23,
2001. Borrowings under the agreement bear interest at prime or LIBOR (at the
option of DTI) plus a specified percentage based on the ratio of funded debt to
operating cash flow. At September 29, 1996, interest rates on these facilities
ranged from 7.2 percent to 8.5 percent. Borrowing availability for the revolver
is based on percentages of the Company's eligible accounts receivable, eligible
inventory and outstanding letters of credit. The Company had excess borrowing
availability of $8,817 relating to the revolving credit facility at September
29, 1996. The credit facility is secured by substantially all of the assets of
DTI and its subsidiaries and contains certain financial and other covenants and
restrictions. In conjunction with entering into the new credit facility, the
Company recognized an extraordinary loss in July 1996 of $324 attributable to
the write-off of $540 unamortized deferred financing fees, net of related $216
tax benefit.
In connection with the acquisition of Swiftpack on November 23, 1995, DT
Industries (UK) Limited (DTUK), a wholly-owned subsidiary, entered into the
Credit Agreement, Specific Counter-Indemnity and Debenture with a foreign bank.
The foreign credit facility was used for the cash portion of the purchase price
of Swiftpack and will be used for funding the redemption of five fixed rate
guaranteed promissory notes (Loan Notes) entered into with certain of the prior
shareholders. The aggregate principal amount of the Loan Notes is $13,974. The
Loan Notes bear interest at 5.3%, are redeemable by the noteholders between
November 25, 1996 and December 23, 1996 and are guaranteed by the foreign credit
facility. The aggregate principal amount of the foreign credit facility is
approximately $21,000. The foreign credit facility bears interest at LIBOR plus
a specified percentage. Principal
F-9
<PAGE>
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
_______________________________________________________________________________
payments thereunder ranging from $155 to $400 are due quarterly with the
remaining principal due August 16, 2000.
In connection with the issuance of the Loan Notes, the Company entered into
a foreign exchange forward contract to offset exchange gains and losses related
to the Loan Notes recorded by the foreign subsidiary. The contract matures
November 26, 1996 and provides the purchase of the equivalent of $13,974 of
Pounds Sterling at a rate of $1.5457 per Pound Sterling.
The Company has revolving credit facilities through its foreign
subsidiaries of approximately $3,000, of which $1,467 was outstanding at
September 29, 1996.
To manage its exposure to fluctuations in interest rates, the Company
entered into an interest rate swap agreement in June 1995 for a notional
principal amount of $30 million, maturing June 29, 1998. Swap agreements involve
the exchange of interest obligations on fixed and floating interest-rate debt
without the exchange of the underlying principal amount. The differential paid
or received on the swap agreement is recognized as an adjustment to interest
expense. The swap agreement requires the Company to pay a fixed rate of 6.06% in
exchange for a floating rate payment equal to the three month LIBOR determined
on a quarterly basis with settlement occurring on specific dates. Amounts
accruing under the swap agreement did not result in a material amount of
additional interest expense for the three months ended September 29, 1996.
_______________________________________________________________________________
NOTE 9 STOCK OPTION PLANS
A summary of stock option transactions pursuant to the 1994 Employee Stock
Option Plan and the 1994 Directors Non-Qualified Stock Option Plan follows:
Shares subject
Average price to option
--------------- ----------------
Summary of Stock Options
Beginning of period, June 30, 1996 $ 13.86 662,250
Options granted 18.44 260,950
Options exercised 13.78 (8,125)
Options cancelled 18.25 (1,000)
----------------
End of period, September 29, 1996 15.18 914,075
================
Exercisable at September 29, 1996 86,224
================
On September 18, 1996, the Board of Directors of the Company adopted the
Long-Term Incentive Plan (the Plan), subject to stockholder approval prior to
June 29, 1997. The Plan will become effective on the date of its approval by the
stockholders. The Plan provides for the granting of four types of awards on a
stand alone, combination, or a tandem basis, specifically, nonqualified stock
options, incentive stock options, restricted shares and performance stock
awards. The Plan provides for the granting of up to a total of 600,000 shares of
common stock, provided that the total number of shares with respect to which
awards are granted in any one year may not exceed 100,000 shares to any
individual employee and 200,000 shares in the aggregate, and the total number of
shares with respect to which grants of restricted and performance stock awards
are made in any year shall not exceed 50,000 shares to any individual employee
and 100,000 shares in the aggregate.
_______________________________________________________________________________
NOTE 10 COMMITMENTS AND CONTINGENCIES
The Company is a party to certain lawsuits involving employee matters,
product liability and other matters. Management and legal counsel do not expect
the outcome of any litigation to have a material adverse effect on the Company's
financial position, results of operations or liquidity.
F-10
<PAGE>
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
_______________________________________________________________________________
The fiscal 1990, 1991, 1992 and 1993 federal income tax returns for DTG and
DTI have been audited by the Internal Revenue Service (the IRS). During the
fourth quarter of fiscal 1996, the Company reached an agreement in principle to
settle these periods with the IRS. The additional taxes due under the agreement
are not material to the Company's financial position, results of operations or
liquidity. The Company expects the matter to be settled during the fiscal year.
There are no other material audits underway or notification of audits for DTI or
any of its subsidiaries.
_______________________________________________________________________________
NOTE 11 SUBSEQUENT EVENT
On September 30, 1996, DTI completed the acquisition of Hansford
Manufacturing Corporation (Hansford), a privately held designer and manufacturer
of automated assembly systems, in a transaction accounted for under the purchase
method of accounting. The purchase price of approximately $17,400 was financed
under the Company's credit facility, which was increased concurrent with the
acquisition to $210,000 from $200,000. DTI also agreed to make additional cash
payments totaling up to $20,000, payable over a two-year period beginning in
approximately three years. The amount, if any, will be determined by a formula
based on the earnings of the acquired business. Any additional purchase price
paid is expected to result in additional goodwill. As the transaction occurred
subsequent to the end of the first quarter, Hansford's balance sheet and results
of operations are excluded from the historical consolidated balance sheet and
results of operations of DTI.
F-11
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of DT Industries, Inc.
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, of changes in stockholders'
equity and of cash flows present fairly, in all material respects, the financial
position of DT Industries, Inc. and its subsidiaries at June 30, 1996 and June
25, 1995, and the results of their operations and their cash flows for each of
the three fiscal years in the period ended June 30, 1996, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audits 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
St. Louis, Missouri
August 9, 1996
F-12
<PAGE>
(Dollars in thousands, except per share data)
_______________________________________________________________________________
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, June 25,
1996 1995
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 1,210 $ 646
Accounts receivable, net 32,092 28,936
Costs and estimated earnings in excess of amounts billed
($15,640 and $8,654, respectively) on uncompleted contracts 19,130 7,788
Inventories, net 31,403 23,822
Prepaid expenses and other 10,153 2,589
---------- ----------
Total current assets 93,988 63,781
Property, plant and equipment, net 36,713 27,056
Goodwill, net 101,187 67,445
Other assets, net 1,955 981
---------- ----------
$ 233,843 $ 159,263
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 8,481 $ 6,448
Accounts payable 19,621 12,773
Customer advances 13,850 12,581
Billings in excess of costs and earnings
($14,097) on uncompleted contracts 3,351
Accrued liabilities 22,524 15,188
---------- ----------
Total current liabilities 67,827 46,990
---------- ----------
Long-term debt 70,846 30,905
Deferred income taxes 4,756 3,756
Other long-term liabilities 2,530 2,592
---------- ----------
78,132 37,253
---------- ----------
Commitments and contingencies (Notes 2 and 11)
Stockholders' equity:
Preferred stock, $.01 par value; 1,500,000 shares
authorized; no shares issued and outstanding
Common stock, $.01 par value; 100,000,000 shares
authorized; 9,001,250 and 9,000,000 shares issued
and outstanding, respectively 90 90
Additional paid-in capital 61,255 61,162
Retained earnings 26,539 13,768
---------- ----------
Total stockholders' equity 87,884 75,020
---------- ----------
$ 233,843 $ 159,263
========== ==========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-13
<PAGE>
(Dollars in thousands, except per share data)
_______________________________________________________________________________
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Fiscal year ended
---------------------------------------
June 30, June 25, June 26,
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Net sales $ 235,946 $ 147,369 $ 107,499
Cost of sales 172,568 109,678 79,555
--------- --------- ---------
Gross profit 63,378 37,691 27,944
Selling, general and administrative expenses 35,445 21,428 13,875
--------- --------- ---------
Operating income 27,933 16,263 14,069
Interest expense 4,799 1,849 3,506
--------- --------- ---------
Income before provision for income taxes
and extraordinary loss 23,134 14,414 10,563
Provision for income taxes 9,643 5,964 4,570
--------- --------- ---------
Income before extraordinary loss 13,491 8,450 5,993
Extraordinary loss on early extinguishment of
debt, net of income tax benefit of $135 (179)
--------- --------- ---------
Net income $ 13,491 $ 8,450 $ 5,814
========= ========= =========
Earnings per share:
Income before extraordinary loss $ 1.50 $ .94 $ 1.10
Extraordinary loss (.03)
--------- --------- ---------
Net income $ 1.50 $ .94 $ 1.07
========= ========= =========
Weighted average number of common shares 9,000,257 9,000,000 5,458,337
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-14
<PAGE>
(Dollars in thousands, except per share data)
_______________________________________________________________________________
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Additional
Common paid-in Retained
Stock capital earnings Total
------- ---------- --------- ---------
<S> <C> <C> <C> <C>
BALANCE, JUNE 30, 1993 $ 43 $ 5,607 $ 404 $ 6,054
Issuance of common stock to
management 4 162 166
Contribution of common stock by
existing stockholders (2) 2
Issuance of common stock in initial
public offering on April 22, 1994 45 55,335 55,380
Cash dividend at $0.02 per
common share (180) (180)
Net income 5,814 5,814
------- ---------- --------- ---------
BALANCE, JUNE 26, 1994 90 61,106 6,038 67,234
Payments on stock
subscriptions receivable 56 56
Cash dividend at $0.08
per common share (720) (720)
Net income 8,450 8,450
------- ---------- --------- ---------
BALANCE, JUNE 25, 1995 90 61,162 13,768 75,020
Exercise of stock options 17 17
Payments on stock
subscriptions receivable 76 76
Cash dividend at $0.08
per common share (720) (720)
Net income 13,491 13,491
------- ---------- --------- ---------
BALANCE, JUNE 30, 1996 $ 90 $ 61,255 $ 26,539 $ 87,884
======= ========== ========= =========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-15
<PAGE>
(Dollars in thousands, except per share data)
_______________________________________________________________________________
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Fiscal year ended
---------------------------------------
June 30, June 25, June 26,
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 13,491 $ 8,450 $ 5,814
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 3,411 2,738 2,271
Amortization 2,705 1,823 1,086
Deferred income tax provision 981 3,921 826
Loss on refinancing of long-term debt 314
Other 116 36 16
(Increase) decrease in current assets, excluding
the effects of acquisitions:
Accounts receivable 4,274 (13,503) (4,328)
Costs and earnings in excess of amounts billed (8,520) (2,593)
Inventories 3,873 (3,937) 5,959
Prepaid expenses and other (5,797) (634) (499)
Increase (decrease) in current liabilities,
excluding the effect of acquisitions:
Accounts payable 838 2,444 1,619
Accrued liabilities 189 (3,068) (681)
Customer advances (3,765) 5,816 (8,751)
Billings in excess of costs and earnings
on uncompleted contracts 3,351
Other (62) 61 87
--------- --------- ---------
Net cash provided by operating activities 15,085 1,554 3,733
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (10,249) (7,718) (2,272)
Acquisition of Sencorp stock and Stokes net assets,
net of cash acquired of $359 (26,397)
Acquisition of AAA stock and net assets,
net of cash acquired of $530 (29,181)
Acquisition of Kalish net assets, Arrow net assets,
Swiftpack stock and AMI stock, net of cash
acquired of $2,484 (29,614)
Other 113 44
--------- --------- ---------
Net cash used in investing activities (39,863) (36,786) (28,625)
--------- --------- ---------
</TABLE>
(Continued)
See accompanying Notes to Consolidated Financial Statements.
F-16
<PAGE>
(Dollars in thousands, except per share data)
_______________________________________________________________________________
CONSOLIDATED STATEMENT OF CASH FLOWS (Continued)
<TABLE>
<CAPTION>
Fiscal year ended
---------------------------------------
June 30, June 25, June 26,
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of debt $ 37,031 $ 25,000 $ 21,752
Repayment of debt (13,854) (1,250) (29,334)
Net borrowings from (repayment of) revolving loans 3,633 13,116 (181)
Repayment of subordinated debt - related party (22,600)
Repayment of capital leases and other (209) (243) (252)
Debt issuance costs (632)
Net proceeds from issuance of common stock in
initial public offering 55,380
Dividends (720) (900)
Other 93 56 166
--------- --------- ---------
Net cash provided by financing activities 25,342 35,779 24,931
--------- --------- ---------
Net increase in cash 564 547 39
Cash at beginning of period 646 99 60
--------- --------- ---------
Cash at end of period $ 1,210 $ 646 $ 99
========= ========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest $ 4,280 $ 1,618 $ 4,054
Income taxes $ 6,369 $ 3,282 $ 2,453
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
In fiscal 1994, a total of 443,250 shares of common stock were issued to
members of management in exchange for capital contributions of $166 and notes
receivable totaling $575.
The Company purchased H. G. Kalish Inc., Arrow Precision Elements, Inc.,
Swiftpack Automation Limited and Assembly Machines, Inc. in fiscal 1996;
Advanced Assembly Automation, Inc., Lakso Division of Package Machinery Company
and Armac Industries, Ltd. in fiscal 1995; and Sencorp Systems, Inc. and
Stokes-Merrill, Inc. in fiscal 1994. In conjunction with the acquisition of
Swiftpack, the Company issued Loan Notes totaling approximately $13,974. See
Note 4. The following table represents summary information with respect to these
acquisitions:
<TABLE>
<CAPTION>
Fiscal year
---------------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Fair value of assets acquired $ 25,447 $ 17,271 $ 14,137
Fair value assigned to goodwill 36,071 25,255 23,516
Cash paid (29,614) (29,181) (26,397)
--------- --------- ---------
Liabilities assumed and seller financing (See Note 4) $ 31,904 $ 13,345 $ 11,256
========= ========= =========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-17
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
_______________________________________________________________________________
NOTE 1 ORGANIZATION
DT Industries, Inc. (DTI or the Company) was organized to acquire the
operations of Detroit Tool Group, Inc. (DTG), the predecessor company to DTI, in
August 1992 and the Peer Division of Teledyne, Inc. in July 1992. Manufacturing
operations are principally based in the U.S. with the exception of two foreign
entities acquired in fiscal 1996. Recent acquisitions including the foreign
acquisitions are described in Note 2. The Company and its subsidiaries operate
in two business segments, the Special Machines segment (including the Automation
Group and the Packaging Group) and the Components segment.
The Special Machines segment designs and builds custom equipment,
proprietary machines and integrated systems. The Components segment stamps and
fabricates a range of standard and custom metal components for the
transportation, appliance, heavy equipment, agricultural equipment and
electrical industries as well as wear parts for the textile industry.
On February 9, 1994, the Company split its shares of common stock at a rate
of 4.5 for 1, and increased authorized shares to 100,000,000. All share and per
share data in the consolidated financial statements have been adjusted to
reflect the stock split for all periods presented.
On April 22, 1994, an initial public offering (Offering) of DTI's common
stock was completed. The Company sold 4,500,000 shares of common stock at an
offering price of $13.50 per share. The net proceeds to the Company of $55,380
were used to repay substantially all indebtedness. In addition, Harbour Group
Investments II, L.P. (Investments L.P.), a significant stockholder of the
Company, under an option granted to the underwriters pursuant to the Offering
for the purpose of covering over-allotments, sold an additional 675,000 shares
at $13.50 per share less underwriting discounts and commissions. The net
proceeds of approximately $8,500 therefrom were paid directly to Investments
L.P.
_______________________________________________________________________________
NOTE 2 ACQUISITIONS
The following table summarizes certain information regarding the Company's
acquisitions during the past three years.
Net cash
purchase
Date Business price
- ---- -------- ---------
August 1993 Sencorp Systems, Inc. (Sencorp) $ 15,300
December 1993 Stokes-Merrill, Inc. (Stokes) 11,100
August 1994 Advanced Assembly Automation, Inc. (AAA) 22,100
February 1995 Lakso Division of Package Machinery Company (Lakso) 7,000
February 1995 Armac Industries, Ltd. (Armac) --
August 1995 H.G. Kalish Inc. (Kalish) 16,400
September 1995 Arrow Precision Elements Inc. (Arrow) 3,000
November 1995 Swiftpack Automation Limited (Swiftpack) 18,400*
January 1996 Assembly Machines Inc. (AMI) 6,700
*Includes issuance of Loan Notes of $13,974 and approximately $930 related to
the exercise of the option to purchase the remaining 5% interest in Swiftpack.
See Note 4.
During the past three fiscal years, the Company made nine acquisitions
which have significantly expanded its product lines. These acquisitions were
each accounted for under the purchase method of accounting and financed
primarily through bank borrowings, resulting in an increase in the Company's
debt. Results of operations of each acquired company have been included in the
Company's statement of operations from the date of acquisition. The purchase
price of each acquisition was allocated to the assets acquired and liabilities
assumed, based on their estimated fair value
F-18
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
_______________________________________________________________________________
at the date of acquisition. The excess of purchase price over the estimated fair
value of net assets acquired was, in each instance, recorded as goodwill.
As part of the Kalish and Swiftpack acquisitions, DTI has agreed to make
additional payments of up to $3,000 and approximately $4,700, respectively, to
the sellers. The amount of the additional purchase prices will be determined by
a formula based on the earnings of the acquired businesses. The additional
purchase price specified within the Kalish purchase agreement, which is based on
earnings for the three years after closing of the acquisition, may be paid in
DTI stock at the Company's option. The additional purchase price specified
within the Swiftpack purchase agreement, which is based on earnings for the
three or four years after closing of the acquisition, is payable in cash. No
amount has been accrued to date for any additional purchase price. Any
additional purchase price paid is expected to result in additional goodwill
related to these acquisitions.
The following table sets forth pro forma information for DTI as if all of
the previously discussed acquisitions, excluding Armac and Arrow, had taken
place on June 26, 1995 and June 27, 1994, respectively. The pro forma effect of
Armac and Arrow is immaterial. This information is unaudited and does not
purport to represent actual revenue, net income and earnings per share had the
acquisitions actually occurred on June 26, 1995, and June 27, 1994,
respectively.
Pro Forma Information (unaudited)
June 30, June 25,
Fiscal year ended 1996 1995
- ----------------- -------- --------
Net sales $ 253,757 $ 209,793
Net income 14,021 10,866
Net income per share $ 1.56 $ 1.21
Weighted average shares outstanding 9,000,257 9,000,000
See Note 16 for the acquisition of Mid-West Automation Enterprises, Inc. in July
1996.
_______________________________________________________________________________
NOTE 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting policies utilized by the Company in the preparation of the
financial statements conform to generally accepted accounting principles, and
require that management make estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual amounts could differ from these estimates.
The significant accounting policies followed by the Company are described
below.
REVENUE RECOGNITION
The percentage of completion method of accounting is used by the Company's
Special Machines segment to recognize revenues and related costs. Under the
percentage of completion method, revenues are measured based on the ratio of
engineering and manufacturing labor hours incurred to date compared to total
estimated engineering and manufacturing labor hours for each customer contract.
Any revisions in the estimated total costs or values of the contracts during the
course of the work are reflected when the facts that require the revisions
become known. Revenue from the sale of products manufactured by the Company's
Components segment is recognized upon shipment to the customer.
Prior to June 26, 1995, revenues from certain customer contracts of the
Special Machines segment were recognized upon shipment, utilizing the "units of
delivery" modification of the percentage of completion method. The change in
accounting method in fiscal 1996 reflects the trend in the Company's Special
Machines business for increasing engineering services provided on customer
contracts and did not have a material impact on the Company's financial position
and results of operations.
F-19
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
_______________________________________________________________________________
Costs and related expenses to manufacture the products are recorded as cost
of sales when the related revenue is recognized. Provisions for estimated losses
on uncompleted contracts are made in the period in which such losses are
determined.
Cash deposits received from customers on contracts in progress are
reflected as customer advances in the consolidated balance sheet until the
related revenue is recognized in accordance with the procedures described above.
Costs and estimated earnings in excess of amounts billed on percentage of
completion contracts represents costs incurred and earnings recognized in excess
of customer advances received. Billings in excess of costs incurred and
estimated earnings on uncompleted contracts represents customer advances
received in excess of costs incurred and earnings recognized.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany transactions and
balances have been eliminated.
FOREIGN CURRENCY TRANSLATION
The accounts of the Company's foreign subsidiaries are maintained in their
respective local currencies. The accompanying consolidated financial statements
have been translated and adjusted to reflect U.S. dollars on the basis presented
below.
Assets and liabilities are translated into U.S. dollars at year-end
exchange rates. Income and expense items are translated at average rates of
exchange prevailing during the year. Adjustments resulting from the process of
translating the consolidated amounts into U.S. dollars are accumulated in a
separate translation adjustment account included in stockholders' equity. Common
stock and additional paid-in capital are translated at historical U.S. dollar
equivalents in effect at the date of acquisition. Foreign currency transaction
gains and losses are included in earnings currently. The cumulative translation
adjustment account balance and foreign currency transaction gains and losses are
not considered material.
CASH AND CASH EQUIVALENTS
Book cash overdrafts on the Company's disbursement accounts totaling $6,478
and $4,022 at June 30, 1996 and June 25, 1995, respectively, are included in
accounts payable. All highly liquid debt instruments purchased with original
maturities of three months or less are classified as cash equivalents.
CONCENTRATIONS OF CREDIT RISK
The Company sells a majority of its special machines to a wide range of
manufacturing companies. Products from the Components segments are sold to
customers primarily in the transportation, agricultural equipment and textile
industries. The Company performs ongoing credit evaluations of its customers and
generally does not require collateral, although many customers of the Special
Machines segment pay deposits to the Company prior to shipment of its products.
The Company maintains reserves for potential credit losses and historically such
losses have been within management's expectations. At June 30, 1996, the Company
had no significant concentration of credit risk.
FAIR VALUE OF FINANCIAL INSTRUMENTS
For purposes of financial reporting, the Company has determined that the
fair value of financial instruments approximates book value at June 30, 1996,
based on terms currently available to the Company in financial markets.
INVENTORIES
Domestic inventories are stated at the lower of cost, determined using the
last-in, first-out (LIFO) method, or market, with the exception of raw material
inventories and the material component of work in process inventories at Detroit
Tool and Engineering, Inc. (DTE), Sencorp, Stokes, Peer, Lakso, Armac and AMI
totaling approximately $13,620, which are accounted for using the first-in,
first-out method (FIFO). For various tax and statutory reasons, inventories of
the Company's foreign subsidiaries are stated at FIFO costs. The effects on
financial position and results of operations from applying the FIFO method for
such material inventories and inventories of foreign
F-20
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
_______________________________________________________________________________
subsidiaries are immaterial. For other inventories maintained on a LIFO basis,
cost under the LIFO method approximates the FIFO method. Inventories include the
cost of materials, direct labor and manufacturing overhead.
Obsolete or unsalable inventories are reflected at their estimated
realizable values.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is recorded at cost and is depreciated using
the straight-line method over the estimated useful lives of the assets which
range from 3 to 39.5 years. Properties held under capital leases are recorded at
the present value of the non-cancelable lease payments over the term of the
lease and are amortized over the shorter of the lease term or the estimated
useful lives of the assets.
Expenditures for repairs, maintenance and renewals are charged to income as
incurred. Expenditures which improve an asset or extend its estimated useful
life are capitalized. When properties are retired or otherwise disposed of, the
related cost and accumulated depreciation are removed from the accounts and any
gain or loss is included in income.
GOODWILL
The excess of the purchase price over the fair value of net assets acquired
in business combinations (goodwill) is capitalized and amortized on a
straight-line basis over periods ranging from 15 to 40 years. Goodwill
amortization charged to income for the years ended June 30, 1996, June 25, 1995
and June 26, 1994 was approximately $2,386, $1,660 and $1,008 respectively.
Accumulated amortization at June 30, 1996, and June 25, 1995 was approximately
$5,574 and $3,188, respectively. Including the full year effect of the
acquisitions of Kalish, Arrow, Swiftpack and AMI, the Company estimates annual
amortization of goodwill to be approximately $2,733.
The carrying value of goodwill is assessed for recoverability by management
based on an analysis of future expected cash flows from the underlying
operations of the Company. Management believes that there has been no impairment
at June 30, 1996.
ENVIRONMENTAL LIABILITIES
Environmental expenditures that relate to current operations are expensed
or capitalized as appropriate. Expenditures that relate to an existing condition
caused by past operations, and that do not contribute to current or future
revenue generation, are expensed. Liabilities are recorded when environmental
assessments and/or remedial efforts are probable, and the costs can be
reasonably estimated. Generally, the timing of these accruals coincides with
completion of a feasibility study or the Company's commitment to a formal plan
of action.
POSTRETIREMENT BENEFITS
The Company has adopted the provisions of Statement of Financial Accounting
Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions" (OPEB or SFAS 106). This standard requires recognition of the cost of
providing postretirement benefits during an employee's period of service. As
part of adopting the standard as of the acquisition of DTG, the Company recorded
an accrual of approximately $1,584 in other long-term liabilities in its balance
sheet representing the discounted present value of expected future retiree
benefits attributed to employees' service rendered in periods prior to DTI's
acquisition (see Note 9).
INCOME TAXES
The Company files a consolidated federal income tax return which includes
its subsidiaries. The Company has adopted Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" (SFAS 109). Under SFAS 109, the
current or deferred tax consequences of a transaction are measured by applying
the provisions of enacted laws to determine the amount of taxes payable
currently or in future years. Deferred income taxes are provided for temporary
differences between the income tax bases of assets and liabilities, and their
carrying amounts for financial reporting purposes.
F-21
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
_______________________________________________________________________________
EARNINGS PER SHARE
Earnings per share is based upon the weighted average number of common
shares outstanding during the period, after giving effect to the stock split
described in Note 1.
Options under the Company's Employee Stock Option Plan and the Director's
Non-Qualified Stock Option Plan are not included as common stock equivalents for
earnings per share purposes since they do not have a material dilutive effect.
STOCK-BASED COMPENSATION
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (SFAS 123), which addresses accounting for stock option, purchase
and award plans. SFAS 123 specifies that companies utilize either the "fair
value based method" or the "intrinsic value based method" for valuing stock
options granted. The Company will adopt SFAS 123 in fiscal 1997 and expects to
utilize the "intrinsic value based method" for valuing stock options granted.
The Company anticipates that, when adopted, SFAS 123 will have no material
effect on its financial position or results of operations.
INTEREST RATE SWAP AGREEMENT
The Company is a party to an interest rate swap agreement used to hedge
interest rate fluctuations on a portion of its floating rate revolving credit
facility and term loans. This agreement is accounted for on the accrual basis of
accounting. Net cash payments or receipts under the agreement are recorded as an
adjustment to interest expense when such amounts become due or receivable.
FISCAL YEAR
Beginning with fiscal 1994, the Company implemented a 52-53 week fiscal
year that ends on the last Sunday in June. Fiscal 1996 and 1995 included 53 and
52 weeks, respectively.
________________________________________________________________________________
NOTE 4 FINANCING
Long-term debt consists of the following:
<TABLE>
<CAPTION>
June 30, June 25,
1996 1995
--------- ----------
<S> <C> <C>
Notes payable to bank under a term loan and
revolving credit facility agreement,
as amended November 22, 1995, secured by
virtually all assets:
Term loan - Principal due in quarterly installments $ 41,550 $ 23,750
Revolving credit facility - Principal due in full
on August 16, 2000 14,983 13,116
Loan Notes 13,974
Sterling pound denominated facility, payable
in quarterly installments 6,367
Foreign currency denominated revolving loans to banks 1,766
Capital lease obligations 88 218
Other long-term debt 599 269
--------- ----------
79,327 37,353
(Less) current portion of long-term debt,
including $88 and $164, respectively, of
capital lease obligations (8,481) (6,448)
--------- ----------
$ 70,846 $ 30,905
========= ==========
</TABLE>
F-22
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
_______________________________________________________________________________
On November 22, 1995 the Company entered into an amendment to the Amended
and Restated Credit Facilities Agreement (Amended Credit Agreement) which
expires August 16, 2000. The amended facility of $90,000 is provided by six
institutions. The Amended Credit Agreement provides for a $25,000 revolving
credit facility, a $43,500 term loan and a letter of credit denominated in a
foreign currency of approximately $21,500 to secure loans to finance the
Swiftpack acquisition. Borrowings under the Amended Credit Agreement bear
interest at the bank's base rate or LIBOR (at the option of DTI) plus a
specified percentage based on the ratio of funded debt to operating cash flow.
At June 30, 1996, interest rates on these facilities ranged from 6.9% to 8.25%.
Borrowing availability for the revolver is based on percentages of the Company's
eligible accounts receivable, eligible inventory and outstanding letters of
credit. The Company had excess borrowing availability of $7,241 relating to the
revolving credit facility at June 30, 1996. The term loan requires quarterly
principal payments with the remaining balance due on August 16, 2000. The
principal payments range from $1,700 to $2,500. Borrowings under the Amended
Credit Agreement are secured by substantially all of the assets of DTI and its
subsidiaries. The Amended Credit Agreement contains certain financial and other
covenants and restrictions for which the Company was in compliance with such
covenants and restrictions at June 30, 1996.
In connection with the acquisition of Swiftpack on November 23, 1995, DT
Industries (UK) Limited (DTUK) issued five fixed rate guaranteed promissory
notes (Loan Notes) with certain of the prior shareholders. The aggregate
principal amount of the Loan Notes is $13,974. The Loan Notes bear interest at
5.3%, are redeemable by the noteholders between November 25, 1996 and December
23, 1996 and are guaranteed by a credit agreement with a foreign bank (Foreign
Credit Agreements). The Foreign Credit Agreements, entered into on November 23,
1995, provide the guarantee of the Loan Notes and provide a loan facility
denominated in a foreign currency in the aggregate principal amount of
approximately $21,000. The facility was used for the cash portion of the
purchase price of Swiftpack and will be used for funding the redemption of the
Loan Notes. As such, the Loan Notes are presented as long term debt on the
consolidated balance sheet. The Foreign Credit Agreements bear interest at LIBOR
plus a specified percentage (approximately 8.0% including letter of credit fees
at June 30, 1996). Principal payments thereunder ranging from $155 to $400 are
due quarterly with the remaining principal due August 16, 2000.
In connection with the issuance of the Loan Notes, the Company entered into
a foreign exchange forward contract to offset exchange gains and losses related
to the Loan Notes recorded by the foreign subsidiary. The contract matures
November 26, 1996 and provides the purchase of the equivalent of $13,974 of
Pounds Sterling at a rate of $1.5457 per Pound Sterling.
In addition, the Company has revolving credit facilities through its
foreign subsidiaries of approximately $3,000, of which approximately $1,766 was
outstanding at June 30, 1996.
To manage its exposure to fluctuations in interest rates, the Company
entered into an interest rate swap agreement in June 1995 for a notional
principal amount of $30,000, maturing June 29, 1998. Swap agreements involve the
exchange of interest obligations on fixed and floating interest-rate debt
without the exchange of the underlying principal amount. The differential paid
or received on the swap agreement is recognized as an adjustment to interest
expense when such amount becomes payable or receivable. The swap agreement
requires the Company to pay a fixed rate of 6.06% in exchange for a floating
rate payment equal to the three month LIBOR determined on a quarterly basis with
settlement occurring on specific dates. Amounts accruing under the swap
agreement did not result in a material amount of additional interest expense for
fiscal 1996. Management believes that the Company's exposure to credit loss in
the event of nonperformance by the counterparty to this agreement is not
material.
In conjunction with the repayment of a term loan from the net proceeds of
the Offering as described in Note 1, the Company recognized a loss of $179
attributable to the write-off of $314 unamortized deferred financing fees, net
of related $135 tax benefit, which is reported as an extraordinary item in the
Consolidated Statement of Operations in fiscal 1994.
At June 30, 1996, the minimum principal payments of long-term debt,
excluding capital lease obligations, for the five subsequent fiscal years are as
follows:
F-23
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
_______________________________________________________________________________
<TABLE>
<CAPTION>
Foreign Revolving
credit credit
Term loan facility facilities Other debt Total
--------- --------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
1997 $ 7,050 $ 1,319 $ -- $ 24 $ 8,393
1998 8,600 1,319 104 10,023
1999 9,800 1,242 113 11,155
2000 10,000 1,474 115 11,589
2001 and thereafter 6,100 14,987 16,749 243 38,079
--------- --------- ---------- ---------- ---------
$ 41,550 $ 20,341 $ 16,749 $ 599 $ 79,239
========= ========= ========== ========== =========
</TABLE>
See Note 16 for further amendment to the Amended Credit Agreement pursuant to
the acquisition of Mid-West Automation Enterprises Inc. in July 1996.
_______________________________________________________________________________
NOTE 5 LEASE OBLIGATIONS
The Company leases certain of its machinery, equipment, computer systems
and related software under noncancelable lease agreements that extend for terms
of up to five years. The leases are reflected in the financial statements as
capitalized leases in accordance with the requirements of Statement of Financial
Accounting Standards No. 13, "Accounting for Leases". In addition, certain
facilities and equipment are leased under noncancelable operating leases having
terms up to 20 years.
Minimum lease payments under noncancelable leases at June 30, 1996 are as
follows:
Fiscal year Capital Operating
- ----------- ------- ----------
1997 $ 95 $ 3,322
1998 2,296
1999 1,656
2000 1,395
2001 and thereafter 13,142
------- ----------
Total minimum lease payments 95 $ 21,811
==========
Less amount representing interest (7)
-------
Present value of net minimum lease payments $ 88
=======
Rental expense for operating leases for the fiscal years ended June 30,
1996, June 25, 1995, and June 26, 1994, was approximately $3,103, $2,098 and
$1,288, respectively.
_______________________________________________________________________________
NOTE 6 INCOME TAXES
Income before provision for income taxes and extraordinary loss was taxed
under the following jurisdictions:
F-24
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
_______________________________________________________________________________
Fiscal year ended
-----------------------------------------
June 30, June 25, June 26,
1996 1995 1994
---------- ---------- -----------
Domestic $ 20,539 $ 14,414 $ 10,563
Foreign 2,595
---------- ---------- -----------
$ 23,134 $ 14,414 $ 10,563
========== ========== ===========
The provision for income taxes charged to operations was as follows:
Fiscal year ended
----------------------------------------
June 30, June 25, June 26,
1996 1995 1994
---------- ---------- ----------
CURRENT
U.S. Federal $ 6,474 $ 1,641 $ 3,074
State 1,373 402 535
Foreign 815
---------- ---------- ----------
Total current 8,662 2,043 3,609
---------- ---------- ----------
DEFERRED
U.S. Federal 734 3,203 727
State 125 718 99
Foreign 122
---------- ---------- ----------
Total deferred 981 3,921 826
---------- ---------- ----------
Total provision $ 9,643 $ 5,964 $ 4,435
========== ========== ==========
The provision for income taxes for the fiscal year ended June 26, 1994 is
net of income tax benefits of $135 related to the extraordinary loss as
described in Note 4 and $565 related to the utilization of an operating loss
carryforward.
Deferred tax liabilities (assets) are comprised of the following:
June 30, June 25,
1996 1995
---------- ----------
DEFERRED TAX LIABILITIES
Depreciation $ 3,995 $ 3,606
LIFO inventory and costing capitalization, net 759 862
Earnings recognized under percentage of completion 1,249 754
Goodwill and intangibles amortization 1,440 656
Other 347 154
---------- ----------
Total deferred tax liabilities 7,790 6,032
========== ==========
(continued)
F-25
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
_______________________________________________________________________________
June 30, June 25,
1996 1995
---------- ----------
DEFERRED TAX ASSETS
Postretirement benefit accrual (701) (666)
Inventory reserves (795) (658)
Product liability reserves (750) (881)
Bad debt reserves (521) (328)
Other accruals (2,863) (1,272)
Other (1,394) (1,056)
---------- ----------
Total deferred tax assets (7,024) (4,861)
---------- ----------
Deferred tax assets valuation allowance 1,029 1,029
---------- ----------
Total net deferred tax liability 1,795 2,200
Less: current portion included in prepaid
expenses and other 2,961 1,556
---------- ----------
Long-term deferred tax liability $ 4,756 $ 3,756
========== ==========
The deferred tax assets valuation allowance has been recorded to reflect
the potential non-realization of certain deductible temporary differences.
The provision for income taxes differs from the amount of income tax
determined by applying the applicable U.S. statutory federal income tax rate to
pre-tax income as a result of the following differences.
Fiscal year ended
----------------------------------------
June 30, June 25, June 26,
1996 1995 1994
---------- ---------- ----------
U.S. statutory rate $ 8,097 $ 4,901 $ 3,485
Increase in rate resulting from:
Non-deductible goodwill amortization 410 304 240
State taxes, net 974 739 418
Other 162 20 292
---------- ---------- ----------
$ 9,643 $ 5,964 $ 4,435
========== ========== ==========
_______________________________________________________________________________
NOTE 7 RETIREMENT PLANS
The Company offers substantially all of its domestic employees a retirement
savings plan under Section 401(k) of the Internal Revenue Code. Each employee
may elect to enter a written salary deferral agreement under which a maximum of
15% of their salary, subject to aggregate limits required under the Internal
Revenue Code, may be contributed to the plan. The Company will match a
percentage of the employee's contribution up to a specified maximum percentage
of their salary. In addition, the Company generally is required to make a
mandatory contribution and may make a discretionary contribution from profits.
During the fiscal years ended June 30, 1996, June 25, 1995 and June 26, 1994,
the Company made contributions of approximately $1,596, $1,224 and $906,
respectively.
_______________________________________________________________________________
NOTE 8 RELATED PARTIES
Under the terms of a management consulting and advisory services agreement,
the Company paid affiliates of Investments, L.P. fees totaling $783, $459 and
$500 in fiscal 1996, 1995 and 1994, respectively, related to corporate
F-26
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
_______________________________________________________________________________
development services provided in identifying, negotiating and consummating the
Company's acquisitions. Fees paid to affiliates of Investments, L.P. related to
corporate development services were included in the costs of the related
acquisitions.
Under terms of management consulting and advisory services agreements,
Harbour Group Ltd. and Harbour Group Industries, Inc., charge the Company for
direct management and administrative services provided to the Company based on
actual, direct costs of such services. The charges, which are included in
selling, general and administrative expenses in the financial statements,
totaled approximately $285, $372 and $466 for the fiscal years ended June 30,
1996, June 25, 1995 and June 26, 1994, respectively.
Interest expense incurred with respect to a subordinated note payable to
Investments L.P. was $1,908 for the fiscal year ended June 26, 1994. The note
was repaid in full in April 1994 with proceeds from the Offering.
The Company issued 443,250 shares of the Company's common stock at prices
which approximated estimated fair value ranging from $1.26 to $2.57 per share to
members of management under agreements which allow management to pay for the
stock with cash and/or recourse notes receivable to the Company. The recourse
notes receivable were issued with interest rates ranging from 5.84% to 6.28% and
become due between September 2003 and January 2004. The notes are reflected as a
reduction to additional paid-in capital in the accompanying consolidated
financial statements.
_______________________________________________________________________________
NOTE 9 POSTRETIREMENT BENEFITS
DTI provides health care and life insurance benefits for former DTG
employees who retired prior to September 1, 1992 (less than 100 retirees at June
30, 1996). Management plans to fund the premiums as incurred, net of
reimbursements received by plan participants.
The following table sets forth the status of the postretirement plans,
reconciled to the postretirement benefit obligation included in the accompanying
consolidated balance sheets:
June 30, June 25,
1996 1995
---------- ----------
Accrued postretirement benefit obligation $ 1,025 $ 1,097
Unrecognized net gain from changes in past
experience and assumptions 639 523
---------- ----------
Accrued postretirement benefit obligation recognized
in the consolidated balance sheet $ 1,664 $ 1,620
========== ==========
For measurement purposes, an 11% annual rate of increase in health care
premiums was assumed for 1997; this rate was assumed to decrease 1% per year to
6% by 2002 and remain at that level thereafter. An increase in the assumed
health care cost trend rates of 1% in each year would increase the accumulated
postretirement benefit obligations as of June 30, 1996, by approximately $58 and
the interest cost comprising the periodic postretirement benefit cost for the
period then ended by approximately $5.
The weighted average discount rate used to determine the accumulated
postretirement benefit obligation was 8% at June 30, 1996 and June 25, 1995.
The periodic postretirement benefit cost for fiscal 1996, 1995 and 1994
charged to income was approximately $41, $41 and $65, respectively.
F-27
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
_______________________________________________________________________________
NOTE 10 STOCK OPTION PLANS
In conjunction with the Offering, the Company adopted the 1994 Executive
Stock Option Plan (Executive Plan) pursuant to which non-qualified stock options
were granted to certain existing shareholders as of the date the registration
statement relating to the Offering became effective to acquire an aggregate
379,134 shares of the Company's common stock, subject to adjustment, by
tendering existing common stock in payment therefor. The options were exercised
immediately after the Offering. The exercise price of all options was the
current market price on the date of exercise and all options were exercised by
exchanging shares of previously owned common stock. The grant and exercise of
options under the Executive Plan did not result in any increase in the
beneficial ownership of common stock by the plan participants from the number of
shares owned at the time of the Offering. Under the terms of the Executive Plan,
the shares of common stock issued pursuant to the exercise of the options became
freely transferable, subject to the restrictions of the Stockholder Agreements
with each of the Executive Stockholders, on the last day of the sixth full month
following the date of exercise of such options. The provisions of the
Stockholder Agreements, which are subject to modification or waiver by the
Company, generally prohibited the sale of 157,500 of such shares for a period of
two years after exercise of the options, an aggregate 223,997 of such shares for
a period of eighteen months after exercise and an aggregate 268,322 of such
shares for a period of one year after exercise of the options. The shares
tendered in exercise of options granted under the Executive Plan were issued
under promissory notes due in September 2003 through January 2004 as discussed
in Note 8.
In connection with the Offering, the Company established a 1994 Employee
Stock Option Plan (Employee Plan). The Employee Plan provides for the granting
of options to the Company's executive officers and key employees to purchase
shares of common stock at prices equal to the fair market value of the stock on
the date of grant. Options to purchase up to 900,000 shares of common stock may
be granted under the Employee Plan. Options outstanding at June 30, 1996 entitle
the holders to purchase common stock at prices ranging between $10.25 and
$20.75. Options shall become exercisable with respect to one-fourth of the
shares covered thereby on each anniversary of the date of grant, commencing on
the second anniversary of the date granted. The right to exercise the options
expires ten years from the date of grant or earlier if an option holder ceases
to be employed by the Company.
Also in connection with the Offering, the Company established a 1994
Directors Non-Qualified Stock Option Plan (Directors Plan) which provides for
the granting of options to the Company's directors, who are not employees of the
Company, to purchase shares of common stock at prices equal to the fair market
value of the stock on the date of grant. Options to purchase up to 100,000
shares of common stock may be granted under the Directors Plan. Options
aggregating 75,000 shares currently outstanding entitle the holders to purchase
common stock at prices ranging between $13.50 and $16.00 per share. Options
shall become exercisable with respect to one-fourth of the shares covered,
thereby on each anniversary of the date of grant, commencing on the second
anniversary of such date. All options granted under the Directors Plan expire
ten years from the date of grant.
A summary of stock option transactions pursuant to the Employee Plan and
Directors Plan follows.
Shares
Average subject
price to option
---------- ---------
SUMMARY OF STOCK OPTIONS
Beginning of year $ 13.71 465,750
Options granted 14.06 239,000
Options exercised 13.50 (1,250)
Options canceled 13.36 (41,250)
---------
End of year 13.86 662,250
=========
Exercisable at June 30, 1996 88,250
=========
F-28
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
_______________________________________________________________________________
NOTE 11 COMMITMENTS AND CONTINGENCIES
The Company is a party to certain lawsuits. Management and legal counsel do
not expect the outcome of any litigation to have a material adverse effect on
the Company's financial position, results of operations or liquidity.
The fiscal 1990, 1991, 1992 and 1993 federal income tax returns for DTG and
DTI have been audited by the Internal Revenue Service (the IRS). During the
fourth quarter of fiscal 1996, the Company reached an agreement in principle to
settle with the IRS. The additional taxes due under the agreement are not
material to the Company's financial position, results of operations or
liquidity. There are no other material audits underway or notification of audits
for DTI or any of its subsidiaries.
_______________________________________________________________________________
NOTE 12 DEPENDENCE ON SIGNIFICANT CUSTOMERS
Total net sales to a customer in the tire industry were $23,653 in fiscal
1996 and $26,829 in fiscal 1994 from the Special Machines segment. Total net
sales to a customer in the transportation industry were $14,754 and $12,172 in
fiscal 1995 and 1994, respectively, from the Components segment. Trade
receivables recorded for significant customers at June 30, 1996 and June 25,
1995 were $381 and $1,909, respectively. No other customers accounted for 10% or
more of consolidated sales in fiscal 1996, 1995 and 1994.
_______________________________________________________________________________
NOTE 13 SUPPLEMENTAL BALANCE SHEET INFORMATION
June 30, June 25,
1996 1995
---------- ----------
ACCOUNTS RECEIVABLE
Trade receivables $ 33,336 $ 29,687
(Less) allowance for doubtful accounts (1,244) (751)
---------- ----------
$ 32,092 $ 28,936
========== ==========
INVENTORIES, NET
Raw materials $ 14,814 $ 6,419
Work in process 12,145 15,546
Finished goods 4,444 1,857
---------- ----------
$ 31,403 $ 23,822
========== ==========
PROPERTY, PLANT AND EQUIPMENT
Machinery and equipment $ 26,963 $ 18,145
Buildings and improvements 14,282 7,029
Land and improvements 2,147 1,849
Property held under capital lease 1,270 1,270
Construction-in-progress 1,759 5,169
---------- ----------
46,421 33,462
---------- ----------
(Less) accumulated depreciation (including
$497 and $405, respectively, related to
property held under capital leases) (9,708) (6,406)
---------- ----------
$ 36,713 $ 27,056
========== ==========
F-29
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
_______________________________________________________________________________
June 30, June 25,
1996 1995
---------- ----------
ACCRUED LIABILITIES
Accrued employee compensation and benefits $ 6,030 $ 5,160
Taxes payable and related reserves 5,120 2,827
Product liability 1,711 1,725
Other 9,663 5,476
---------- ----------
$ 22,524 $ 15,188
========== ==========
_______________________________________________________________________________
NOTE 14 QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data for fiscal 1996, 1995 and 1994 appears
below.
<TABLE>
<CAPTION>
Net sales Gross profit
---------------------------------------- ----------------------------------
1996 1995 1994 1996 1995 1994
---------- ---------- ---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
First quarter $ 44,788 $ 25,054 $ 17,196 $11,241 $ 6,733 $ 3,796
Second quarter 60,143 34,470 26,939 15,157 8,937 6,199
Third quarter 59,866 40,461 31,361 16,434 9,351 8,022
Fourth quarter 71,149 47,384 32,003 20,546 12,670 9,927
---------- ---------- ---------- --------- --------- ---------
$235,946 $147,369 $107,499 $63,378 $37,691 $27,944
========== ========== ========== ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
Net income Earnings per share
---------------------------------------- ----------------------------------
1996 1995 1994 1996 1995 1994
---------- ---------- ---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
First quarter $ 2,226 $ 1,263 $ 406 $ .25 $ .14 $ .09
Second quarter 3,072 1,590 1,117 .34 .18 .24
Third quarter 3,396 1,977 1,690 .38 .22 .36
Fourth quarter 4,797 3,620 2,601 .53 .40 .32
-------- -------- ---------
$13,491 $ 8,450 $ 5,814
======== ======== =========
</TABLE>
The net income and earnings per share for the fourth quarters of fiscal 1994
includes the effect of the extraordinary loss on the early extinguishment of
debt as described in Note 4.
_______________________________________________________________________________
NOTE 15 SEGMENT INFORMATION
Worldwide operations data, as required by Statement of Financial Accounting
Standards No. 14, "Financial Reporting for Segments of a Business Enterprise,"
are listed below. Profitability of the Company's foreign operations by
geographic area was determined based on ultimate sales to unaffiliated
customers. Total Company profit was included in the geographic area of the
entity transacting the final sale. Transfers between geographic areas are at
prices established by agreement between the affected parties. The Company's
foreign operations, as discussed in Notes 1 and 2, were acquired in fiscal 1996
and are located in Canada and the United Kingdom.
F-30
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
_______________________________________________________________________________
<TABLE>
<CAPTION>
Domestic Foreign Eliminations Consolidated
----------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
Sales to unaffiliated customers $ 217,380 $ 18,566 $ -- $ 235,946
Transfers between
geographic areas 10,723 (10,723)
----------- ---------- ---------- ------------
Total revenue $ 217,380 $ 29,289 $(10,723) $ 235,946
=========== ========== ========== ============
Earnings from operations $ 24,327 $ 3,819 $ (213) $ 27,933
=========== ========== ========== ============
Identifiable assets $ 192,383 $ 41,673 $ (213) $ 233,843
=========== ========== ========== ============
</TABLE>
The Company operates in two business segments, Special Machines (including
the Automation Group and the Packaging Group) and Components. The Special
Machines segment designs and builds custom equipment, proprietary machines and
integrated systems. The Components segment stamps and fabricates a range of
standard and custom metal components.
Financial information by business segment is as follows:
<TABLE>
<CAPTION>
Net Depreciation
revenues Earnings and
unaffiliated from Identifiable Capital amortization
customers operations assets expenditures expense
------------ ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
FISCAL YEAR ENDED JUNE 30, 1996
Special machines $ 193,884 $ 26,557 $ 203,210 $ 6,145 $ 4,683
Components 42,062 6,934 28,528 2,138 1,038
Corporate (5,558) 2,105 1,966 395
------------ ----------- ------------ ------------ ------------
$ 235,946 $ 27,933 $ 233,843 $ 10,249 $ 6,116
============ =========== ============ ============ ============
FISCAL YEAR ENDED JUNE 25, 1995
Special machines $ 112,170 $ 13,857 $ 135,328 $ 4,127 $ 3,452
Components 35,199 6,676 23,061 3,043 837
Corporate (4,270) 874 548 272
------------ ----------- ------------ ------------ ------------
$ 147,369 $ 16,263 $ 159,263 $ 7,718 $ 4,561
============ =========== ============ ============ ============
FISCAL YEAR ENDED JUNE 26, 1994
Special machines $ 76,778 $ 11,506 $ 74,376 $ 750 $ 2,299
Components 30,721 5,789 22,251 1,392 771
Corporate (3,226) 1,001 130 287
------------ ----------- ------------ ------------ ------------
$ 107,499 $ 14,069 $ 97,628 $ 2,272 $ 3,357
============ =========== ============ ============ ============
</TABLE>
Export revenues included in domestic net revenues to unaffiliated customers
were approximately $34,083, $14,905 and $8,562 in fiscal 1996, 1995 and 1994,
respectively.
_______________________________________________________________________________
NOTE 16 SUBSEQUENT EVENTS
During July 1996, the Company entered into a Second Amended and Restated
Credit Facilities Agreement which replaced the Amended Credit Agreement. The
amended facility of $200,000 is provided by two institutions. The agreement
provides for a $55,000 revolving credit facility, a $104,000 term loan, a
$20,000 acquisition facility and a $21,000 foreign currency denominated letter
of credit. The term loan requires quarterly principal payments ranging from
$4,750 to $5,500 commencing in January 1997 with final maturity on July 23,
2001. Borrowings
F-31
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
_______________________________________________________________________________
under the agreement bear interest at prime or LIBOR (at the option of DTI) plus
a specified percentage based on the ratio of funded debt to operating cash flow.
In conjunction with entering into the new credit facility, the Company
recognized an extraordinary loss in July 1996 of $324 attributable to the
write-off of $540 unamortized deferred financing fees, net of related $216 tax
benefit.
On July 19, 1996, DTI purchased the outstanding stock of Mid-West
Automation Enterprises Inc. (Mid-West), a Chicago-area designer and manufacturer
of integrated precision assembly systems, in a transaction accounted for under
the purchase method of accounting. The purchase price of approximately $75,000,
net of cash acquired, was financed by borrowings under the Second Amended and
Restated Credit Facilities Agreement. As the transaction occurred subsequent to
the end of fiscal 1996, Mid-West's balance sheet and results of operations are
excluded from the consolidated balance sheet and results of operations of DTI.
The unaudited pro forma combined condensed balance sheet of the Company and
Mid-West as of June 30, 1996 after giving effect to certain pro forma
adjustments is as follows:
ASSETS
Current assets $ 124,599
Property, plant and equipment, net 43,086
Goodwill, net 159,249
Other assets, net 4,366
-----------
$ 331,300
===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities $ 88,038
Long-term debt 147,246
Other long-term liabilities 8,132
Shareholders' equity 87,884
-----------
$ 331,300
===========
The pro forma combined results of operations of the Company and Mid-West
for the fiscal year ended June 30, 1996 after giving effect to certain pro forma
adjustments is shown below. This information is unaudited and does not purport
to represent actual revenue, net income and earnings per share had the
acquisition occurred on June 26, 1995.
Net Sales $ 324,098
Income before extraordinary items $ 18,532
Earnings per common share
before extraordinary items $ 2.06
F-32
<PAGE>
==================================== ====================================
No dealer, salesperson or other
person has been authorized to give
any information or to make any [DT INDUSTRIES LOGO]
representation not contained in this
Prospectus and, if given or made,
such information or representation
must not be relied upon as having
been authorized by the Company, any
Selling Stockholder or any Under- 4,750,000 Shares
writer. This Prospectus does not
constitute an offer to sell or a
solicitation of an offer to buy any
of the securities offered hereby in
any jurisdiction to any person to
whom it is unlawful to make such
offer in such jurisdiction. Neither
the delivery of this Prospectus nor
any sale made hereunder shall, under
any circumstances, create any impli- Common Stock
cation that the information herein ($0.01 par value)
is correct as of any time subsequent
to the date hereof or that there has
been no change in the affairs of the
Company since such date.
---------------
TABLE OF CONTENTS
Page
Incorporation of Certain
Documents by Reference 2
Prospectus Summary 3
Cautionary Statement
Regarding Forward-Looking
Statements 6
Risk Factors 6
Recent Developments 8
Use of Proceeds 8 PROSPECTUS
Price Range of Common
Stock and Dividend
Information 9
Capitalization 10
Selected Historical
Consolidated Financial
Data 11
Pro Forma Financial
Information 12
Management's Discussion
and Analysis of Financial
Condition and Results of
Operations 18 CS First Boston
Business 28
Principal and Selling Morgan Stanley & Co.
Stockholders 37 Incorporated
Certain Transactions 39
Certain United States Tax Schroder Wertheim & Co.
Consequences to Non-United
States Holders 41
Underwriting 44
Notice to Canadian Residents 46
Available Information 46
Legal Matters 47
Experts 47
Index to Consolidated
Financial Statements F-1
==================================== ====================================
<PAGE>
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+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 BY 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. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS (SUBJECT TO COMPLETION) DATED OCTOBER 28, 1996
4,750,000 Shares
[DT Industries Logo]
Common Stock
($0.01 par value)
----------
Of the shares of common stock, $0.01 par value (the "Common Stock"), of DT
Industries, Inc. ("DTI" or the "Company") offered hereby (the "Offering"),
2,250,000 shares are being sold by the Company and 2,500,000 shares are being
sold by the Selling Stockholders named herein. See "Principal and Selling
Stockholders." Of the 4,750,000 shares of Common Stock being offered,
950,000 shares are initially being offered outside the United States
Canada (the "International Shares") by the Managers (the "Inter-
national Offering") and 3,800,000 shares are initially being
concurrently offered in the United States and Canada (the
"U.S. Shares") by the U.S. Underwriters (the "U.S. Of-
fering" and, together with the International Offer-
ing, the "Offering"). The offering price and
underwriting discounts and commissions of the
International Offering and the U.S. Offer-
ing are identical. On October 23, 1996, the
reported last sale price of the Common Stock
on the Nasdaq Stock Market's National
Market ("NNM") was $38 3/8 per share.
----------
For a discussion of certain factors that should be considered in connection with
an investment in the Common Stock, see "Risk Factors" on page 6 herein.
----------
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 AD-
EQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
Underwriting
Price to Discounts and Proceeds to Proceeds to
Public Commissions Company (1) Selling Stockholders
--------------- --------------- --------------- ---------------------
<S> <C> <C> <C> <C>
Per Share $ $ $ $
Total (2) $ $ $ $
</TABLE>
(1) Before deduction of expenses payable by the Company estimated at $500,000.
(2) The Company and the Selling Stockholders have granted the Managers and the
U.S. Underwriters an option, exercisable for 30 days from the date of this
Prospectus, to purchase a maximum of 312,500 additional shares of Common
Stock from the Company and a maximum of 400,000 additional outstanding
shares from the Selling Stockholders to cover over-allotments of shares. If
the option is exercised in full, the total Price to Public will be $ ,
Underwriting Discounts and Commissions will be $ , Proceeds to Company
will be $ and Proceeds to Selling Stockholders will be $ .
----------
The International Shares are offered by the several Managers when, as and
if delivered to and accepted by the Managers, and subject to their right to
reject orders in whole or in part. It is expected that the International Shares
will be ready for delivery on or about , 1996, against payment in immediately
available funds.
CS First Boston
Morgan Stanley & Co.
International
Schroders
The date of this Prospectus is , 1996.
<PAGE>
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
No dealer, salesperson or other person has been authorized to give any
information or to make any representation not contained in this Prospectus and,
if given or made, such information or representation must not be relied upon as
having been authorized by the Company or any Manager. This Prospectus does not
constitute an offer to sell or a solicitation of an offer to buy any of the
securities offered hereby in any jurisdiction to any person to whom it is
unlawful to make such offer in such jurisdiction. Neither the delivery of this
Prospectus nor any sale made hereunder shall, under any circumstances, create
any implication that the information herein is correct as of any time subsequent
to the date hereof or that there has been no change in the affairs of the
Company since such date.
In this Prospectus, references to "$" and "dollars" are to United States
dollars.
IN CONNECTION WITH THIS OFFERING, CS FIRST BOSTON CORPORATION ON BEHALF OF
THE MANAGERS AND THE U.S. UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS
WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF THE COMPANY
AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NNM OR OTHERWISE. SUCH STABILIZING, IF
COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
IN CONNECTION WITH THIS OFFERING, CERTAIN MANAGERS AND U.S. UNDERWRITERS
(AND SELLING GROUP MEMBERS) AND THEIR RESPECTIVE AFFILIATES MAY ENGAGE IN
PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON THE NNM IN ACCORDANCE
WITH RULE 10b-6A UNDER THE SECURITIES EXCHANGE ACT OF 1934. SEE "UNDERWRITING."
-----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page Page
<C> <C> <C> <C>
PROSPECTUS SUMMARY 3 BUSINESS 28
CAUTIONARY STATEMENT REGARDING PRINCIPAL AND SELLING STOCKHOLDERS 37
FORWARD-LOOKING STATEMENTS 6 CERTAIN TRANSACTIONS 39
RISK FACTORS 6 CERTAIN UNITED STATES TAX CONSEQUENCES
RECENT DEVELOPMENTS 8 TO NON-UNITED STATES HOLDERS 41
USE OF PROCEEDS 8 SUBSCRIPTION AND SALE 44
PRICE RANGE OF COMMON STOCK AND INCORPORATION OF CERTAIN DOCUMENTS BY
DIVIDEND INFORMATION 9 REFERENCE 46
CAPITALIZATION 10 AVAILABLE INFORMATION 46
SELECTED HISTORICAL CONSOLIDATED LEGAL MATTERS 47
FINANCIAL DATA 11 EXPERTS 47
PRO FORMA FINANCIAL INFORMATION 12 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS F-1
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS 18
</TABLE>
-----------------
2
<PAGE>
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
SUBSCRIPTION AND SALE
The institutions named below (the "Managers") have, pursuant to a
Subscription Agreement dated , 1996 (the "Subscription Agreement"),
severally and not jointly, agreed with the Company to subscribe and pay for the
following respective numbers of International Shares as set forth opposite their
names:
Number of
Manager International Shares
CS First Boston Limited
Morgan Stanley & Co. International Limited
J. Henry Schroder & Co. Limited
--------------------
Total 950,000
====================
The Subscription Agreement provides that the obligations of the Managers
are subject to certain conditions precedent and the Managers will be obligated
to purchase all of the International Shares offered hereby (other than those
shares covered by the over-allotment option described below) if any are
purchased. The Subscription Agreement provides that, in the event of a default
by a Manager, in certain circumstances the purchase commitments of
non-defaulting Managers may be increased or the Subscription Agreement may be
terminated.
The Company has entered into an Underwriting Agreement with the U.S.
Underwriters of the U.S. Offering (the "U.S. Underwriters") providing for the
concurrent offer and sale of the U.S. Shares in the United States and Canada.
The closing of the U.S. Offering is a condition to the closing of the
International Offering and vice versa.
The Company and the Selling Stockholders have granted to the Managers and
the U.S. Underwriters an option, exercisable by CS First Boston Corporation, the
representative of the U.S. Underwriters, expiring at the close of business on
the 30th day after the date of this Prospectus to purchase, first, up to a
maximum of 312,500 additional shares from the Company and then a maximum of
400,000 additional outstanding shares from the Selling Stockholders at the
initial public offering price, less the underwriting discounts and commissions,
all as set forth on the cover page of this Prospectus. Such option may be
exercised only to cover over-allotments in the sale of the shares of Common
Stock offered hereby. To the extent that this option to purchase is exercised,
each Manager and each U.S. Underwriter will become obligated, subject to certain
conditions, to purchase approximately the same percentage of additional shares
being sold to the Managers and the U.S. Underwriters as the number of
International Shares set forth next to such Manager's name in the preceding
table and as the number set forth next to such U.S. Underwriter's name in the
corresponding table in the prospectus relating to the U.S. Offering bears to the
sum of the total number of shares of Common Stock in such tables.
The Company has been advised by CS First Boston Limited, on behalf of the
Managers, that the Managers propose to offer the International Shares outside
the United States and Canada initially at the public offering price set forth on
the cover page of this Prospectus and, through the Managers, to certain dealers
at such price less a commission of $ per share and that the Managers and
such dealers may reallow a commission of $ per share on sales to certain
other dealers. After the initial public offering, the public offering price and
commission and reallowance may be changed by the Managers.
The offering price and the aggregate underwriting discounts and commissions
per share and per share commission and reallowance to dealers for the
International Offering and the concurrent U.S. Offering will be identical.
Pursuant to an Agreement between the U.S. Underwriters and Managers (the
"Intersyndicate Agreement") relating to the Offering, changes in the offering
price, the aggregate underwriting discounts and commissions per share and per
share commission and reallowance to dealers will be made only upon the mutual
agreement of CS First Boston Limited, on behalf of the Managers, and CS First
Boston Corporation, as representative of the U.S.
Underwriters.
Pursuant to the Intersyndicate Agreement, each of the Managers has agreed
that, as part of the distribution of International Shares and subject to certain
exceptions, it has not offered or sold, and will not offer or sell, directly or
44
<PAGE>
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
indirectly, any shares of Common Stock or distribute any prospectus relating to
the Common Stock in the United States or Canada or to any other dealer who does
not so agree. Each of the U.S. Underwriters has agreed that, as part of the
distribution of the U.S. Shares and subject to certain exceptions, it has not
offered or sold and will not offer or sell, directly or indirectly, any shares
of Common Stock or distribute any prospectus relating to the Common Stock to any
person outside the United States and Canada or to any other dealer who does not
so agree. The foregoing limitations do not apply to stabilization transactions
or to transactions between the Managers and the U.S. Underwriters pursuant to
the Intersyndicate Agreement. As used herein "United States" means the United
States of America (including the States and the District of Columbia), its
territories, possessions and other areas subject to its jurisdiction, "Canada"
means Canada, its provinces, territories, possessions and other areas subject to
its jurisdiction, and an offer or sale shall be in the United States or Canada
if it is made to (i) any individual resident in the United States or Canada or
(ii) any corporation, partnership, pension, profit-sharing or other trust or
other entity (including any such entity acting as an investment adviser with
discretionary authority) whose office most directly involved with the purchase
is located in the United States or Canada.
Pursuant to the Intersyndicate Agreement, sales may be made between the
Managers and the U.S. Underwriters of such number of shares of Common Stock as
may be mutually agreed upon. The price of any shares so sold will be the public
offering price less such amount agreed upon by CS First Boston Limited, on
behalf of the Managers, and CS First Boston Corporation, as representative of
the U.S. Underwriters, but not exceeding the selling concession applicable to
such shares. To the extent that there are sales between the Managers and the
U.S. Underwriters pursuant to the Intersyndicate Agreement, the number of shares
of Common Stock initially available for sale by the Managers or by the U.S.
Underwriters may be more or less than the amount appearing on the cover page of
this Prospectus. Neither the Managers nor the U.S. Underwriters are obligated to
purchase from the other any unsold shares of Common Stock.
Each of the Managers and the U.S. Underwriters severally represents and
agrees that: (i) it has not offered or sold and prior to the date six months
after the date of issue of the Common Stock will not offer or sell any Common
Stock to persons in the United Kingdom except to persons whose ordinary
activities involve them in acquiring, holding, managing or disposing of
investments (as principal or agent) for the purposes of their businesses or
otherwise in circumstances which have not resulted and will not result in an
offer to the public in the United Kingdom within the meaning of the Public
Offers of Securities Regulations 1995; (ii) it has complied and will comply with
all applicable provisions of the Financial Services Act 1986 with respect to
anything done by it in relation to any shares of Common Stock in, from or
otherwise involving the United Kingdom; and (iii) it has only issued or passed
on and will only issue or pass on in the United Kingdom any document received by
it in connection with the issue of any shares of Common Stock to a person who is
of a kind described in Article 11(3) of the Financial Services Act 1986
(Investment Advertisements) (Exemptions) Order 1996 or is a person to whom such
document may otherwise lawfully be issued or passed on.
The Company and its directors, executive officers and certain affiliated
stockholders have agreed that, for a period of 90 days after the date of this
Prospectus, they will not offer, sell, contract to sell, pledge or otherwise
dispose of, directly or indirectly, or file with the Securities and Exchange
Commission a registration statement under the Securities Act of 1933 (the
"Securities Act") relating to any additional shares of its Common Stock or any
securities convertible into, or exchangeable or exercisable for, any shares of
its Common Stock without the prior written consent of CS First Boston
Corporation, except, in the case of the Company, in certain limited
circumstances.
The Company and the Selling Stockholders have agreed to indemnify the
Managers and the U.S. Underwriters against certain liabilities, including civil
liabilities under the Securities Act, or to contribute to payments that the
Managers and U.S. Underwriters may be required to make in respect thereof. The
Managers and the U.S. Underwriters have agreed to indemnify the Company and the
Selling Stockholders against certain liabilities, including civil liabilities
under the Securities Act, or to contribute to payments the Company and the
Selling Stockholders may be required to make in respect thereof.
Certain of the U.S. Underwriters and Managers and their affiliates have
from time to time performed, and continue to perform, various investment banking
and commercial banking services for the Company, for which customary
compensation has been received.
45
<PAGE>
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents or portions of documents filed by the Company (File
No. 0-23400) with the Securities and Exchange Commission (the "Commission") are
incorporated herein by reference:
(1) Annual Report on Form 10-K for the fiscal year ended June 30, 1996, filed
with the Commission on September 30, 1996, as amended by Amendment No. 1 to
Annual Report on Form 10-K/A, filed with the Commission on October 10,
1996.
(2) Current Report on Form 8-K, filed with the Commission on August 5, 1996, as
amended by Amendment No. 1 to Current Report on Form 8-K/A, filed with the
Commission on September 23, 1996.
(3) The description of the Company's Common Stock which is contained in the
Company's Registration Statement on Form 8-A, filed with the Commission on
February 11, 1994, including any amendment or reports filed for the purpose
of updating such description.
All reports and other documents filed by the Company pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), subsequent to the date of this Prospectus and prior to the
termination of this Offering shall be deemed to be incorporated by reference
herein and to be a part hereof from the date of filing such reports and
documents. Any statement contained in a document, all or a portion of which is
incorporated by reference herein, shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained or
incorporated by reference herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
Upon oral or written request, the Company will provide without charge to
each person to whom this Prospectus is delivered a copy of any or all of such
documents which are incorporated herein by reference (other than exhibits to
such documents unless such exhibits are specifically incorporated by reference
into the documents that this Prospectus incorporates). Requests for such copies
should be directed to the attention of Bruce P. Erdel, Vice President--Finance
and Chief Financial Officer, DT Industries, Inc., Corporate Centre, Suite 2-300,
1949 E. Sunshine, Springfield, Missouri 65804, telephone: (417) 890-0102.
Unless the context otherwise requires, "DTI" or the "Company" refers to DT
Industries, Inc. and its subsidiaries. Unless otherwise indicated, all
references to any "fiscal year" shall mean the fiscal year of the Company which
is a 52 - 53 week period that ends on the last Sunday in June.
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 Commission. Such reports, proxy statements and other
information filed by the Company pursuant to the Exchange Act may be inspected
and copied at the public reference facilities maintained by the Commission at
Room 1024, 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549 and
at the Commission's regional offices located at 7 World Trade Center, 13th
Floor, New York, New York 10048 and Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. Copies of such material can be obtained
from the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Judiciary Plaza, Washington, D.C. 20549 at prescribed rates. The Commission
maintains a web site (http:\www.sec.gov) that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission. Copies of such information may also be
inspected at the reading room of the library of the National Association of
Securities Dealers, Inc., 1735 K Street N.W., 2nd Floor, Washington, D.C. 20006.
The Company has filed with the Commission a Registration Statement on Form
S-3 under the Securities Act with respect to the Common Stock offered hereby.
This Prospectus, which constitutes part of the Registration
46
<PAGE>
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
[BACK COVER PAGE OF INTERNATIONAL PROSPECTUS]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The estimated expenses payable by the Company in connection with the
Offering (other than underwriting discounts) are set forth in the following
table (all amounts except the Commission registration fee, the NASD filing fee
and the Nasdaq listing fee are estimated):
Securities and Exchange Commission registration fee $ 63,109
NASD filing fee 21,326
Nasdaq listing fees 17,500
Accounting fees and expenses 75,000
Legal fees and expenses 150,000
Printing 100,000
Miscellaneous 73,065
----------
Total $ 500,000
==========
Item 15. Indemnification of Directors and Officers.
Section 145 of the General Corporation Law of the State of Delaware permits
the Company, subject to the standards set forth therein, to indemnify any person
in connection with any action, suit or proceeding brought or threatened by
reason of the fact that such person is or was a director, officer, employee or
agent of the Company or is or was serving as such with respect to another
corporation or entity at the request of the Company. Article VII, Section 8 of
the Company's By-laws provides for full indemnification of its officers,
directors and employees to the extent permitted by the General Corporation Law
of the State of Delaware.
Pursuant to the Underwriting Agreement and the Subscription Agreement filed
hereto as Exhibits No. 1.1 and 1.2, respectively, the U.S. Underwriters and the
Managers will agree to indemnify the Company's officers, directors and
controlling persons against, or contribute to, certain liabilities which might
arise under the Securities Act of 1933, as amended.
Pursuant to an Indemnification Agreement among the Company and Peer
Investors L.P., Peer Investors II L.P., Harbour Group Investments II, L.P. and
Harbour Group II Management Co. (the "Selling Stockholders"), the Company and
the Selling Stockholders will agree to indemnify each other against, or
contribute to, certain liabilities which might arise under the Securities Act of
1933, as amended.
Directors and officers of the Company are insured against certain
liabilities including liabilities arising under the Securities Act of 1933, as
amended.
Item 16. Exhibits.
1.1 Form of Underwriting Agreement*
1.2 Form of Subscription Agreement*
5 Opinion of Dickstein Shapiro Morin & Oshinsky LLP, regarding
legality of Common Stock being registered
23.1 Consent of Dickstein Shapiro Morin & Oshinsky LLP (included in
Exhibit 5)
23.2 Consent of Price Waterhouse LLP
23.3 Consent of Altschuler, Melvoin & Glasser LLP
24 Powers of Attorney
27 Financial Data Schedule
- -------------------
* To be filed by amendment.
II-1
<PAGE>
Item 17. Undertakings.
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
of 1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (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 Securities
Act of 1933 and will be governed by the final adjudication of such issue.
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 contained 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 a new 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.
The undersigned Registrant hereby undertakes that, for purposes 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 a new 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.
II-2
<PAGE>
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 Springfield, State of Missouri, on October 28, 1996.
DT INDUSTRIES, INC.
(Registrant)
By: /s/ Bruce P. Erdel
-----------------------------------------
Bruce P. Erdel
Vice President - Finance, Treasurer and Secretary
Pursuant to the requirements of the Securities Act of 1933, this report has
been signed below by the following persons on behalf of the registrant and in
the capacities indicated on October 28, 1996.
* President, Chief Executive Officer and Director
- ------------------------ (Principal Executive Officer)
Stephen J. Gore
/s/ Bruce P. Erdel Vice President - Finance, Treasurer and Secretary
- ------------------------ (Principal Financial Officer and Principal Accounting)
Bruce P. Erdel
* Chairman of the Board
- ------------------------
James C. Janning
* Director
- ------------------------
William H.T. Bush
* Director
- ------------------------
Gregory A. Fox
* Director
- ------------------------
Samuel A. Hamacher
* Director
- ------------------------
James J. Kerley
* Director
- ------------------------
Lee M. Liberman
* Director
- ------------------------
Donald E. Nickelson
* Director
- ------------------------
Charles F. Pollnow
*By: /s/ Bruce P. Erdel
------------------------
Bruce P. Erdel
Attorney-In-Fact
- ------------
* Such signature has been affixed pursuant to the following Power of Attorney:
II-3
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each officer or director of DT
Industries, Inc. (the "Corporation") whose signature appears below constitutes
and appoints Stephen J. Gore and Bruce P. Erdel, and each of them, his true and
lawful attorney-in-fact and agent, with full power of substitution, for him and
in his name, place and stead, in any and all capacities, to sign the
Corporation's Registration Statement on Form S-3 relating to the proposed public
offering of the Corporation's Common Stock and to sign any and all amendments
(including post-effective amendments and any registration statement or
amendments thereto filed pursuant to Rule 462 as promulgated under the
Securities Act of 1933, as amended) and supplements thereto, and to file the
same, with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said attorney-in-fact
and agent full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, as fully to
all intents and purposes as such attorney-in-fact might or could do in person,
hereby ratifying and confirming all that said attorney-in-fact and agent or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
II-4
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
- ----------- -----------
1.1 Form of Underwriting Agreement*
1.2 Form of Subscription Agreement*
5 Opinion of Dickstein Shapiro Morin & Oshinsky LLP, regarding
legality of Common Stock being registered
23.1 Consent of Dickstein Shapiro Morin & Oshinsky LLP (included in
Exhibit 5)
23.2 Consent of Price Waterhouse LLP
23.3 Consent of Altschuler, Melvoin & Glasser LLP
24 Powers of Attorney
27 Financial Data Schedule
- -------------------
* To be filed by amendment.
DICKSTEIN SHAPIRO MORIN & OSHINSKY LLP
2101 L Street, N.W. - Washington, DC 20037-1526
Tel (202) 785-9700 -- Fax (202) 887-0689
October 28, 1996
DT Industries, Inc.
Corporate Centre, Suite 2-300
1949 E. Sunshine
Springfield, MO 65804
Re: DT Industries, Inc.
Registration Statement on Form S-3
Ladies and Gentlemen:
We have acted as counsel to DT Industries, Inc., a Delaware corporation
(the "Company"), in connection with the Company's Registration Statement on Form
S-3 (the "Registration Statement") filed with the Securities and Exchange
Commission under the Securities Act of 1933, as amended, pertaining to the
registration of the sale of 5,462,500 shares of the Company's common stock,
$0.01 par value per share (the Common Stock"), in an underwritten public
offering which includes 2,250,000 shares to be sold by the Company (the "Company
Firm Shares"), 2,500,000 shares to be sold by certain Selling Stockholders named
in the Registration Statement (the "Selling Stockholder Firm Shares") 312,500
shares to be sold by the Company if the U.S. Underwriters and Managers exercise
their over-allotment option (the "Additional Company Shares") and up to an
additional 400,000 shares to be sold by the Selling Stockholders if the U.S.
Underwriters and Managers exercise their over-allotment option in full (the
"Additional Selling Stockholder Shares"). As of the date hereof, the Company is
authorized to issue 100,000,000 shares of Common Stock, of which 9,011,375
shares are issued and outstanding and of which 1,588,625 shares are issuable
pursuant to the Company's stock option and employee benefit plans (including
600,000 shares issuable pursuant to the Company's 1996 Long-Term Incentive Plan
approved by the Board of Directors of the Company, subject to stockholder
approval). The Company Firm Shares and the Additional Company Shares are
hereinafter referred to as the "New Shares" and the Selling Stockholder Firm
Shares and the Additional Selling Stockholder Shares are hereinafter referred to
as the "Outstanding Shares."
<PAGE>
DT Industries, Inc.
October 28, 1996
Page 2
We have examined and are familiar with originals or copies, certified or
otherwise identified to our satisfaction, of such documents, corporate records
and other instruments as we have deemed necessary or appropriate for purposes of
this opinion.
On the basis of the foregoing, we are of the opinion that:
(i) the Outstanding Shares have been duly authorized, and are validly
issued, fully paid and non-assessable;
(ii) the Company has taken all necessary corporate action to authorize
the issuance and sale of the New Shares;
(iii) when issued and delivered to and paid for by the U.S. Underwriters
and the Managers pursuant to the U.S. Underwriting Agreement and the
Subscription Agreement, respectively, the New Shares will be duly
authorized, validly issued, fully paid and non-assessable.
No opinion is expressed herein as to the laws of any jurisdiction other
than the federal laws of the United States of America and, to the extent
required by the foregoing opinion, the General Corporation Law of the State of
Delaware.
Capitalized terms used in this opinion and not otherwise defined herein
shall have the meanings ascribed to them in the Registration Statement.
The foregoing opinion is delivered to you in connection with the
Registration Statement, and may not be relied upon by any other person or for
any other purpose.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement. We also consent to the reference to this firm under the
caption "Legal Matters" in the Prospectus contained in the Registration
Statement.
Very truly yours,
/s/ Dickstein Shapiro Morin & Oshinsky LLP
MGM/kld
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the inclusion and incorporation by reference in the
Prospectus constituting part of this Registration Statement on Form S-3 of our
report dated August 9, 1996, which appears on page 24 of the 1996 Annual Report
to Stockholders of DT Industries, Inc., which is incorporated by reference in DT
Industries, Inc.'s Annual Report on Form 10-K for the year ended June 30, 1996.
We also consent to the incorporation by reference of our report on the Financial
Statement Schedule, which appears on page S-1 of such Annual Report on Form
10-K. We also consent to the references to us under the headings "Experts" and
"Selected Consolidated Financial Data" in such Prospectus. However, it should be
noted that Price Waterhouse LLP has not prepared or certified such "Selected
Consolidated Financial Data."
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
St. Louis, Missouri
October 25, 1996
Altschuler, Melvoin and Glasser LLP
Certified Public Accountants and Consultants
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of the DT Industries, Inc. Registration Statement on Form S-3
(No. _____) of our report dated August 20, 1996, related to the consolidated
financial statements of Mid-West Automation Enterprises, Inc. as of May 26, 1996
and May 28, 1995 and for each of the three fiscal years in the period ended May
26, 1996, which appears on page 3 of the DT Industries, Inc. Current Report on
Form 8-K/A dated August 5,1996. Such Current Report on Form 8-K/A is
incorporated by reference in the Prospectus constituting part of the DT
Industries, Inc. Registration Statement on Form S-3 (No. _____). We also consent
to the reference to us under the heading "Experts" in such Prospectus.
/s/ Altschuler, Melvoin and Glasser LLP
Chicago, Illinois
October 24, 1996
30 South Wacker Drive, Suite 2600, Chicago, Illinois 60606-7494
312.207.2800 Fax 312.207.2954 http://www.amgnet.com
Associated Worldwide With Summit International Associates, Inc.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each officer or director of DT
Industries, Inc. (the "Corporation") whose signature appears below constitutes
and appoints Stephen J. Gore and Bruce P. Erdel, and each of them, his true and
lawful attorney-in-fact and agent, with full power of substitution, for him and
in his name, place and stead, in any and all capacities, to sign the
Corporation's Registration Statement on Form S-3 relating to the proposed public
offering of the Corporation's Common Stock and to sign any and all amendments
(including post-effective amendments and any registration statement or
amendments thereto filed pursuant to Rule 462 as promulgated under the
Securities Act of 1933, as amended) and supplements thereto, and to file the
same, with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said attorney-in-fact
and agent full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, as fully to
all intents and purposes as such attorney-in-fact might or could do in person,
hereby ratifying and confirming all that said attorney-in-fact and agent or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
/s/ Stephen J. Gore
----------------------------------
Stephen J. Gore
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each officer or director of DT
Industries, Inc. (the "Corporation") whose signature appears below constitutes
and appoints Stephen J. Gore and Bruce P. Erdel, and each of them, his true and
lawful attorney-in-fact and agent, with full power of substitution, for him and
in his name, place and stead, in any and all capacities, to sign the
Corporation's Registration Statement on Form S-3 relating to the proposed public
offering of the Corporation's Common Stock and to sign any and all amendments
(including post-effective amendments and any registration statement or
amendments thereto filed pursuant to Rule 462 as promulgated under the
Securities Act of 1933, as amended) and supplements thereto, and to file the
same, with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said attorney-in-fact
and agent full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, as fully to
all intents and purposes as such attorney-in-fact might or could do in person,
hereby ratifying and confirming all that said attorney-in-fact and agent or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
/s/ James C. Janning
----------------------------------
James C. Janning
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each officer or director of DT
Industries, Inc. (the "Corporation") whose signature appears below constitutes
and appoints Stephen J. Gore and Bruce P. Erdel, and each of them, his true and
lawful attorney-in-fact and agent, with full power of substitution, for him and
in his name, place and stead, in any and all capacities, to sign the
Corporation's Registration Statement on Form S-3 relating to the proposed public
offering of the Corporation's Common Stock and to sign any and all amendments
(including post-effective amendments and any registration statement or
amendments thereto filed pursuant to Rule 462 as promulgated under the
Securities Act of 1933, as amended) and supplements thereto, and to file the
same, with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said attorney-in-fact
and agent full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, as fully to
all intents and purposes as such attorney-in-fact might or could do in person,
hereby ratifying and confirming all that said attorney-in-fact and agent or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
/s/ William H.T. Bush
----------------------------------
William H.T. Bush
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each officer or director of DT
Industries, Inc. (the "Corporation") whose signature appears below constitutes
and appoints Stephen J. Gore and Bruce P. Erdel, and each of them, his true and
lawful attorney-in-fact and agent, with full power of substitution, for him and
in his name, place and stead, in any and all capacities, to sign the
Corporation's Registration Statement on Form S-3 relating to the proposed public
offering of the Corporation's Common Stock and to sign any and all amendments
(including post-effective amendments and any registration statement or
amendments thereto filed pursuant to Rule 462 as promulgated under the
Securities Act of 1933, as amended) and supplements thereto, and to file the
same, with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said attorney-in-fact
and agent full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, as fully to
all intents and purposes as such attorney-in-fact might or could do in person,
hereby ratifying and confirming all that said attorney-in-fact and agent or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
/s/ Gregory A. Fox
----------------------------------
Gregory A. Fox
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each officer or director of DT
Industries, Inc. (the "Corporation") whose signature appears below constitutes
and appoints Stephen J. Gore and Bruce P. Erdel, and each of them, his true and
lawful attorney-in-fact and agent, with full power of substitution, for him and
in his name, place and stead, in any and all capacities, to sign the
Corporation's Registration Statement on Form S-3 relating to the proposed public
offering of the Corporation's Common Stock and to sign any and all amendments
(including post-effective amendments and any registration statement or
amendments thereto filed pursuant to Rule 462 as promulgated under the
Securities Act of 1933, as amended) and supplements thereto, and to file the
same, with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said attorney-in-fact
and agent full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, as fully to
all intents and purposes as such attorney-in-fact might or could do in person,
hereby ratifying and confirming all that said attorney-in-fact and agent or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
/s/ Samuel A. Hamacher
----------------------------------
Samuel A. Hamacher
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each officer or director of DT
Industries, Inc. (the "Corporation") whose signature appears below constitutes
and appoints Stephen J. Gore and Bruce P. Erdel, and each of them, his true and
lawful attorney-in-fact and agent, with full power of substitution, for him and
in his name, place and stead, in any and all capacities, to sign the
Corporation's Registration Statement on Form S-3 relating to the proposed public
offering of the Corporation's Common Stock and to sign any and all amendments
(including post-effective amendments and any registration statement or
amendments thereto filed pursuant to Rule 462 as promulgated under the
Securities Act of 1933, as amended) and supplements thereto, and to file the
same, with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said attorney-in-fact
and agent full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, as fully to
all intents and purposes as such attorney-in-fact might or could do in person,
hereby ratifying and confirming all that said attorney-in-fact and agent or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
/s/ James J. Kerley
----------------------------------
James J. Kerley
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each officer or director of DT
Industries, Inc. (the "Corporation") whose signature appears below constitutes
and appoints Stephen J. Gore and Bruce P. Erdel, and each of them, his true and
lawful attorney-in-fact and agent, with full power of substitution, for him and
in his name, place and stead, in any and all capacities, to sign the
Corporation's Registration Statement on Form S-3 relating to the proposed public
offering of the Corporation's Common Stock and to sign any and all amendments
(including post-effective amendments and any registration statement or
amendments thereto filed pursuant to Rule 462 as promulgated under the
Securities Act of 1933, as amended) and supplements thereto, and to file the
same, with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said attorney-in-fact
and agent full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, as fully to
all intents and purposes as such attorney-in-fact might or could do in person,
hereby ratifying and confirming all that said attorney-in-fact and agent or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
/s/ Lee M. Liberman
----------------------------------
Lee M. Liberman
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each officer or director of DT
Industries, Inc. (the "Corporation") whose signature appears below constitutes
and appoints Stephen J. Gore and Bruce P. Erdel, and each of them, his true and
lawful attorney-in-fact and agent, with full power of substitution, for him and
in his name, place and stead, in any and all capacities, to sign the
Corporation's Registration Statement on Form S-3 relating to the proposed public
offering of the Corporation's Common Stock and to sign any and all amendments
(including post-effective amendments and any registration statement or
amendments thereto filed pursuant to Rule 462 as promulgated under the
Securities Act of 1933, as amended) and supplements thereto, and to file the
same, with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said attorney-in-fact
and agent full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, as fully to
all intents and purposes as such attorney-in-fact might or could do in person,
hereby ratifying and confirming all that said attorney-in-fact and agent or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
/s/ Donald E. Nickelson
----------------------------------
Donald E. Nickelson
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each officer or director of DT
Industries, Inc. (the "Corporation") whose signature appears below constitutes
and appoints Stephen J. Gore and Bruce P. Erdel, and each of them, his true and
lawful attorney-in-fact and agent, with full power of substitution, for him and
in his name, place and stead, in any and all capacities, to sign the
Corporation's Registration Statement on Form S-3 relating to the proposed public
offering of the Corporation's Common Stock and to sign any and all amendments
(including post-effective amendments and any registration statement or
amendments thereto filed pursuant to Rule 462 as promulgated under the
Securities Act of 1933, as amended) and supplements thereto, and to file the
same, with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said attorney-in-fact
and agent full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, as fully to
all intents and purposes as such attorney-in-fact might or could do in person,
hereby ratifying and confirming all that said attorney-in-fact and agent or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
/s/ Charles F. Pollnow
----------------------------------
Charles F. Pollnow
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information (in thousands except per
share data) extracted from the Consolidated Balance Sheet as of September 29,
1996 (unaudited) and the Consolidated Statement of Operations for the Three
Months Ended September 29, 1996 (unaudited) and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-29-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-29-1996
<EXCHANGE-RATE> 1
<CASH> 2,653
<SECURITIES> 0
<RECEIVABLES> 36,198
<ALLOWANCES> 1,258
<INVENTORY> 38,636
<CURRENT-ASSETS> 141,016
<PP&E> 55,070
<DEPRECIATION> 10,866
<TOTAL-ASSETS> 346,962
<CURRENT-LIABILITIES> 92,146
<BONDS> 153,695
0
0
<COMMON> 90
<OTHER-SE> 92,275
<TOTAL-LIABILITY-AND-EQUITY> 92,365
<SALES> 82,635
<TOTAL-REVENUES> 82,365
<CGS> 59,870
<TOTAL-COSTS> 59,870
<OTHER-EXPENSES> 11,588
<LOSS-PROVISION> 19
<INTEREST-EXPENSE> 2,715
<INCOME-PRETAX> 8,462
<INCOME-TAX> 3,589
<INCOME-CONTINUING> 4,873
<DISCONTINUED> 0
<EXTRAORDINARY> 324
<CHANGES> 0
<NET-INCOME> 4,549
<EPS-PRIMARY> 0.48
<EPS-DILUTED> 0.48
</TABLE>
