UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-3821
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GENCOR INDUSTRIES, INC.
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(Exact name of registrant as specified in its charter)
Delaware 59-0933147
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(State or other jurisdiction of (I.R.S. Employer
incorporated or organization) Identification No.)
5201 North Orange Blossom Trail, Orlando, Florida 32810
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(Address of principal executive offices) (Zip Code)
(407) 290-6000
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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Indicate number of shares outstanding of each of the issuer's classes of common
stock as of the latest practicable date.
Class Outstanding at February 13, 1998
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Common stock, $.10 par value 3,512,870 shares
Class B stock, $.10 par value 883,064 shares
Gencor Industries, Inc.
Form 10-Q for the Quarter Ended December 31, 1997
Index
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Page
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Part I. Financial Information - Unaudited
Item 1. Financial Statements
a) Consolidated Balance Sheets -
December 31, 1997 and
September 30, 1997 3
b) Consolidated Income Statements -
Three Months Ended
December 31, 1997 and 1996 4
c) Consolidated Statements of Cash Flows -
Three Months Ended
December 31, 1997 and 1996 5
d) Notes to Consolidated
Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Position and Results of Operations 7
Part II. Other Information 8
Exhibit 11 9
2
PART I. FINANCIAL INFORMATION
ITEM 1.
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GENCOR INDUSTRIES, INC.
Consolidated Balance Sheets
(All Dollar Amounts in Thousands)
December 31, September 30,
1997 1997
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(Unaudited) (Audited)
Assets
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Current assets:
Cash and cash equivalents $ 10,408 $ 10,287
Accounts receivable, less allowance for
doubtful accounts of $3,185 and $3,412 43,821 36,465
Inventories:
Raw materials 13,307 12,109
Work-in-process 19,546 8,915
Finished goods 19,277 25,151
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52,130 46,175
Prepaid expenses, including deferred income taxes
of $518 and $419 1,776 2,466
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Total current assets 108,135 95,393
Property and equipment, net 43,235 38,414
Goodwill 17,867 16,119
Other assets 14,652 13,226
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$183,889 $163,152
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Liabilities and Shareholders' Equity
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Current liabilities:
Notes payable $ 855 $ 44
Current portion of long-term debt 5,303 4,798
Accounts payable 16,351 15,825
Customer deposits 17,658 12,218
Accrued expenses 17,905 16,080
Income taxes payable 490 701
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Total current liabilities 58,562 49,666
Post-retirement benefits 2,057 1,958
Other liabilities 3,251 3,089
Deferred income taxes 838 738
Long-term debt 96,506 86,489
Shareholders' equity:
Preferred stock, par value $0.10 per share; authorized
300,000 shares, none issued --- ---
Common stock, par value $0.10 per share; 15,000,000
shares authorized; 3,272,870 shares issued 327 327
Class B stock, par value $0.10 per share; 6,000,000
shares authorized; 883,064 shares issued 88 88
Capital in excess of par value 9,772 9,772
Retained earnings 13,359 11,804
Cumulative translation adjustment (776) (684)
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22,770 21,307
Subscription receivable from officer (95) (95)
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22,675 21,212
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$183,889 $163,152
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See accompanying notes to consolidated financial statements.
3
GENCOR INDUSTRIES, INC.
Consolidated Income Statements
(Unaudited)
(All Dollar Amounts in Thousands Except for Share Amounts)
Months Ended
December 31,
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1997 1996
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Net revenue $56,511 $35,219
Costs and expenses:
Production costs 40,658 24,856
Product engineering and development 637 600
Selling, general and administrative 10,445 8,125
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51,740 33,581
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Operating income 4,771 1,638
Other income (expense):
Interest expense (2,436) (1,515)
Miscellaneous 359 311
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Income before income taxes 2,694 434
Provision for income tax 920 152
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Net income $ 1,774 $ 282
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Net income per share:
Basic $0.43 $0.08
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Diluted $0.36 $0.07
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See accompanying notes to consolidated financial statements.
4
GENCOR INDUSTRIES, INC.
Consolidated Statements of Cash Flows (Unaudited)
(All Dollar Amounts in Thousands)
Three Months Ended
December 31,
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1997 1996
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Net income (loss) $ 1,774 $ 282
Adjustments to reconcile net income to cash
provided by operations:
Depreciation and amortization 1,143 1,260
Postretirement benefits 99 -
Loss (gain) on foreign exchange (92) 4
Purchase price adjustment - 669
Change in assets and liabilities:
(Increase) decrease in receivables 3,137 (3,290)
(Increase) in income tax receivable - (568)
(Increase) in inventories (2,642) (2,385)
Decrease in prepaid expenses 215 191
Decrease in deferred income taxes 98 114
(Decrease) increase in accounts payable and customer deposits (2,217) 1,481
(Increase) decrease in accrued expenses 2,695 (437)
(Increase) decrease in income taxes payable (945) (285)
Increase in other assets - (88)
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Total adjustments 1,491 (3,334)
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Cash provided by (used for) operations 3,265 (3,052)
Cash flows from investing activities:
Cash paid for business acquired (11,634) -
Capital expenditures (635) (927)
Acquisition costs (2,469) (3,372)
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Cash provided by (used for) investing activities (14,738) (4,299)
Cash flows from financing activities:
Cash paid to Ingersoll-Rand - (60,869)
Net increase under lines of credit 821 12,386
Net borrowings of debt 10,522 56,567
Dividends paid - (89)
Proceeds from sale of stock - 1,497
Other, net 162 -
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Cash provided by (used for) financing activities 11,505 9,492
Effect of exchange rate changes on cash 89 25
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Net increase in cash 121 2,166
Cash and cash equivalents at:
beginning of period 10,287 1,502
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end of period $ 10,408 $ 3,668
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Supplemental cash flow information:
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Cash paid during the period for:
Interest $ 2,048 $ 353
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Income taxes $ 1,103 $ 622
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See accompanying notes to consolidated financial statements.
5
GENCOR INDUSTRIES, INC.
Notes to Consolidated Financial Statements (Unaudited)
NOTE 1 - BASIS OF PRESENTATION
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The accompanying unaudited interim consolidated financial statements have been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission. Accordingly, certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been omitted pursuant to such rules and regulations.
The accompanying unaudited interim consolidated financial statements and related
notes should be read in conjunction with the financial statements and related
notes included in the Company's 1997 Annual Report on Form 10-K. In the opinion
of management, all material adjustments, consisting of normal recurring
adjustments, considered necessary for a fair presentation have been included in
the accompanying unaudited interim consolidated financial statements. Operating
results for the three months ended December 31, 1997, are not necessarily
indicative of the results that may be expected for the year ending September 30,
1998.
NOTE 2 - ACQUISITION
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Effective October 1, 1997, the Company acquired ACP Holdings PLC ("ACP"), a
United Kingdom based designer and manufacturer of heavy machinery for the road
construction and quarrying industries for approximately $3.2 million in cash.
The acquisition was financed using the Company's existing revolving line of
credit. In addition, the Company may pay additional payments of the Company's
common stock contingent upon achieving specified earning levels in future
periods. These contingent payments, if any, will be reflected as acquisition
costs when the contingencies are resolved.
The transaction has been accounted for using the purchase method of accounting
and, accordingly, the results of ACP have been included in the accompanying
consolidated financial statements since the date of acquisition. The purchase
price of $3.2 million has been allocated on the basis of the estimated fair
market values of assets acquired of $19.4 million and liabilities assumed of
$16.2 million.
Effective July 1, 1997, the Company purchased the stock of Gumaco Industria E
Comercio Limitada of Sao Paulo, Brazil ("Gumaco") and other South American
companies for $12.7 million, net of imputed interest. Gumaco and the other
companies are engaged in the design and manufacture of process equipment. The
acquisitions were financed under a new $12 million credit facility.
Regarding these acquisitions, further adjustments may be made to the
accompanying balance sheet as a result of finalization of acquisition costs and
fair value adjustments.
The results of operations of these acquired companies have been included in the
results of the Company from the dates of acquisition. Assuming these
acquisitions had occurred on October 1, 1996, the Company's unaudited proforma
net sales, net income, and diluted earnings per share would have been
approximately $48.3 million, $0.8 million and $0.21, respectively, for the
quarter ended December 31, 1997.
NOTE 3 - CASH DIVIDEND
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On December 22, 1997, the Company declared a cash dividend of $0.05 per share,
payable January 14, 1998, to shareholders of record as of December 31, 1997.
6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
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"FORWARD-LOOKING" INFORMATION
This Form 10-Q contains certain "forward-looking statements" within the meaning
of Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), which represent the Company's expectations and beliefs, including, but
not limited to, statements concerning gross margins and sales of the Company's
products. These statements by their nature involve substantial risks and
uncertainties, certain of which are beyond the Company's control, and actual
results may differ materially depending on a variety of important factors,
including the level of acquisition opportunities available to the Company and
the Company's ability to efficiently price and negotiate such acquisitions on a
favorable basis, the financial condition of the Company's customers, the failure
to properly manage growth and successfully integrate acquired companies and
operations, changes in economic conditions, demand for the Company's products
and changes in competitive environment.
The Company cautions that the factors described above could cause actual results
or outcomes to differ materially from those expressed in any forward-looking
statements of the Company made by or on behalf of the Company. Any forward-
looking statement speaks only as of the date on which such statement is made,
and the Company undertakes no obligation to update any forward-looking statement
or statements to reflect events or circumstances after the date on which such
statement is made or to reflect the occurrence of unanticipated events. New
factors emerge from time to time, and it is not possible for management to
predict all of such factors. Further, management cannot assess the impact of
each such factor on the business or the extent to which any factor, or
combination of factors, may cause actual results to differ materially from those
contained in any forward-looking statements.
Consolidated Results of Operations
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Results of operations for the quarter ended December 31, 1997 compared to the
quarter ended December 31, 1996:
Net revenue for the quarter ended December 31, 1997 increased by $21.3 million,
or 60.5%, to $56.5 million from $35.2 million in the same period last year. The
transportation group contributed $10.6 million and the food processing equipment
product lines added $10.7 million to the increase in net revenues. The increase
in sales as a result of the recent acquisitions of ACP Holdings PLC ("ACP") and
Gumaco Industria E Comercio Limitada and other South American Companies
("Gumaco") was $17.1 million. International sales, excluding the recent
acquisitions, decreased by $4.5 million to $8.3 million, or 21% of net sales,
principally as a result of an unusually high level of shipments during the
first quarter of fiscal 1997 in Europe for the food processing division. Sales
backlog at December 31, 1997 for the transportation group increased to $31.5
million from $8.7 million and decreased for the food processing group to $29.7
million from $31.9 million. The recent acquisitions added $18.4 million of the
$20.6 million increase to the backlog.
Gross profit increased to $15.9 million in the three months ended December 31,
1997 from $10.4 million in the same period of fiscal 1997. The transportation
group contributed $4.3 million and the food processing equipment product lines
added $1.2 million to the increase in gross profit. The increase in gross profit
as a result of the recent acquisitions was $4.4 million. Gross profit from
international sales, excluding the recent acquisitions, decreased by $0.8
million to $2.2 million in the quarter ended December 31, 1997.
Selling, general and administrative expenses increased by 28.6% in the first
quarter of fiscal 1998 to $10.4 million from $8.1 million in the same period of
fiscal 1997 due primarily to the acquisitions of Gumaco and ACP. The
transportation group expenses increased by $1.4 million and the food processing
equipment expenses increased by $0.9 million. Selling, general and
administrative expenses related to international operations, excluding the
recent acquisitions, decreased by $0.2 million to $2.0 million primarily as a
result of reduced expenses due to the consolidation of sales offices in the food
processing equipment division in Europe.
As a result of the above factors, operating income increased by $3.1 million to
$4.7 million in the first quarter of fiscal 1998 from $1.6 million in fiscal
1997. The transportation group contributed $2.9 million and the food processing
equipment product lines added $0.2 million to this increase. The increase in
operating income as a result of the recent acquisitions of ACP and Gumaco was
$1.5 million. Operating income from international activities, excluding the
recent acquisitions, decreased by $0.5 million to $0.1 million in the first
fiscal quarter of 1998 primarily due to lower European sales in the food
processing group.
Interest expense increased as a result of higher average borrowings due
primarily to the acquisitions of Gumaco and ACP.
Net income in the first quarter of fiscal 1998 increased by 528.6% to $1.8
million from $0.3 million in the comparable period of fiscal 1997.
7
Liquidity and Capital Resources
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For the three months ended December 31, 1997, cash provided by operations was
$3.3 million, an increase of $6.3 million, compared to fiscal 1997. This
increase was due primarily to an increase in net income and collections of
accounts receivable.
Working capital increased by $3.7 million to $49.5 million at December 31, 1997,
principally as a result of the inclusion of the assets and liabilities of recent
acquisitions which had the effect of increasing accounts receivable, inventories
and customer deposits.
Investing activities used $14.5 million in fiscal 1998 compared to $4.3 million
in fiscal 1997, a change of $10.2 million, resulting primarily from the
acquisition of ACP.
Cash provided by financing activities increased by $1.8 million, to $11.3
million in fiscal 1998, primarily as a result of an increase in borrowings
related to the acquisition of ACP.
As of December 31, 1997, the Company had a revolving credit facility providing a
total of $35 million, of which $4.8 million remained unused.
The Company's asphalt production equipment operations are subject to seasonal
fluctuation, often resulting in lower sales in the third and fourth calendar
quarters of each period and much lower earnings or losses during such quarters.
Traditionally, asphalt producers do not purchase new equipment for shipment
during the summer and fall months to avoid disruption of their activities during
peak periods of highway construction and repair. Pelleting and processing
equipment products are much less seasonal, resulting in lower demand in the
second and third fiscal quarters. The Company expects seasonality to have less
of an influence on future results of operations as it continues to grow in
international markets.
Based upon its present plans, the Company believes that its working capital,
operating cash flow and available credit resources will be adequate to repay
current portions of long-term debt, to finance currently planned capital
expenditures, and to meet the currently foreseeable liquidity needs of the
Company.
PART II. OTHER INFORMATION
ITEM 3. DEFAULTS
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None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
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A. Exhibits:
(11) Statement regarding computation of earnings per share.
B. Reports on Form 8-K:
Form 8-K filed on October 27, 1997
8
SIGNATURES
Pursuant to the requirements of Sections 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
GENCOR INDUSTRIES, INC.
Date: February 17, 1998 /s/ Russell R. Lee III
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Russell R. Lee III
Treasurer
9