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 June 30, 1998
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OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________________ to ______________________
Commission file number 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 August 5, 1998
----- -----------------------------
Common stock, $.10 par value 7,045,740 shares
Class B stock, $.10 par value 1,766,128 shares
1
Gencor Industries, Inc.
Form 10-Q for the Quarter Ended June 30, 1998
Index
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Page
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Part I. Financial Information - Unaudited
Item 1. Financial Statements
a) Consolidated Balance Sheets -
June 30, 1998 and
September 30, 1997 3
b) Consolidated Income Statements -
Three Months and Nine Months Ended
June 30, 1998 and 1997 4
c) Consolidated Statements of Cash Flows -
Nine Months Ended
June 30, 1998 and 1997 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
Item 2.
c) Changes in Securities and Use of Proceeds 10
Exhibit 11 11
2
PART I. FINANCIAL INFORMATION
ITEM 1.
- -------
Gencor Industries, Inc.
Consolidated Balance Sheets
(All Dollar Amounts in Thousands)
June 30, September 30,
1998 1997
---- ----
(Unaudited) (Audited)
Assets
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Current assets:
Cash and cash equivalents $ 31,777 $ 10,287
Accounts receivable, less allowance for
doubtful accounts of $4,125 and $3,412 40,971 36,465
Inventories:
Raw materials 16,507 12,109
Work-in-process 16,841 8,915
Finished goods 16,872 25,151
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50,220 46,175
Prepaid expenses, including deferred income taxes
of $821 and $419 2,213 2,466
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Total current assets 125,181 95,393
Property and equipment, net 42,756 38,414
Goodwill 18,269 16,119
Other assets 15,787 13,226
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$ 201,993 $ 163,152
========= =========
Liabilities and Shareholders' Equity
- ------------------------------------
Current liabilities:
Notes payable $ 5,141 $ 44
Current portion of long-term debt 6,064 4,798
Accounts payable 24,757 15,825
Customer deposits 4,213 12,218
Accrued expenses 18,417 16,080
Income taxes payable 6,055 701
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Total current liabilities 64,647 49,666
Post-retirement benefits 2,254 1,958
Other liabilities 3,325 3,089
Deferred income taxes 2,093 738
Long-term debt 94,841 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; 6,565,740 and 6,545,740 shares issued, respectively 656 654
Class B stock, par value $0.10 per share; 6,000,000
shares authorized; 1,766,128 shares issued 177 177
Capital in excess of par value 9,393 9,356
Retained earnings 26,099 11,804
Cumulative translation adjustment (1,397) (684)
Subscription receivable from officer (95) (95)
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34,833 21,212
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$ 201,993 $ 163,152
========= =========
See accompanying notes to consolidated financial statements.
3
Gencor Industries, Inc.
Consolidated Income Statement
(Unaudited)
(Dollars in Thousands Except Per Share Amounts)
Three Months Ended Nine Months Ended
June 30, June 30,
------------------------------ -------------------------------
1998 1997 1998 1997
---- ---- ---- ----
Net revenue $ 85,274 $ 51,079 $ 202,941 $ 135,015
Costs and expenses:
Production costs 55,290 37,442 134,562 99,854
Product engineering and development 708 943 1,997 2,111
Selling, general and administrative 11,500 7,188 34,040 21,376
--------- --------- --------- ---------
67,498 45,573 170,599 123,341
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Operating income 17,776 5,506 32,342 11,674
Other income (expense):
Interest income 427 125 1,102 130
Interest expense (3,065) (1,787) (8,442) (4,964)
Miscellaneous (1,629) (7) (1,989) 338
--------- --------- --------- ---------
Income before income taxes 13,509 3,837 23,013 7,178
Provision for income taxes 4,888 1,501 8,500 2,699
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Net income $ 8,621 $ 2,336 $ 14,513 $ 4,479
========= ========= ========= =========
Net income per share:
Basic $ 1.04 $ 0.28 $ 1.74 $ 0.56
========= ========= ========= =========
Diluted $ 0.86 $ 0.24 $ 1.46 $ 0.49
========= ========= ========= =========
See accompanying notes to consolidated financial statements.
4
Gencor Industries, Inc.
Consolidated Statement of Cash Flows
(Unaudited)
(Dollars in Thousands)
Nine Months Ended
June 30,
-----------------------------
1998 1997
---- ----
Net income $ 14,513 $ 4,479
Adjustments to reconcile net income to cash
provided by operations:
Depreciation and amortization 4,665 3,770
Post retirement benefits 296 --
Loss (gain) on equipment disposal 1,531 (78)
Change in assets and liabilities, net of business acquired:
Decrease (increase) in receivables 5,180 (15,317)
(Increase) decrease in inventories (732) 37
Decrease in prepaid expenses 487 1,159
Decrease in deferred income taxes 338 70
(Decrease) increase in accounts payable and customer deposits (2,826) 5,491
(Decrease) increase in accrued expenses and other liabilities (1,757) 815
Increase in income taxes payable 5,026 1,003
(Increase) decrease in other assets (2,561) 617
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Total adjustments 9,647 (2,433)
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Cash provided by operations 24,160 2,046
Cash flows from investing activities:
Cash paid for business acquired (11,634) --
Capital expenditures (3,793) (1,229)
Acquisition costs (2,849) (1,993)
Other, net 1,070 (288)
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Cash used for investing activities (17,206) (3,510)
Cash flows from financing activities:
Net increase under lines of credit and notes payable 5,097 15,036
Net borrowings of debt 9,618 54,879
Payments to Ingersoll-Rand -- (60,869)
Dividends paid (219) (89)
Issuance of common stock 39 1,611
Other, net 211 (1,522)
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Cash provided by financing activities 14,746 9,046
Effect of exchange rate changes on cash (210) (261)
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Net increase in cash 21,490 7,321
Cash and cash equivalents at:
beginning of period 10,287 1,502
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end of period $ 31,777 $ 8,823
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Supplemental cash flow information:
- ----------------------------------
Cash paid during the period for:
Interest $ 8,537 $ 3,333
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Income taxes $ 2,743 $ 779
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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
- ------------------------------
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 nine months ended June 30, 1998, are not necessarily indicative
of the results that may be expected for the year ending September 30, 1998.
Certain prior year amounts in the consolidated financial statements have been
reclassified to conform with the current year presentation.
NOTE 2 RECENT DEVELOPMENTS
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In June 1998, the Company finalized agreements with Carbontronics, LLC
("Carbontronics") pursuant to which the Company was obligated to manufacture and
install four synthetic fuel production plants. Pursuant to agreements with
Carbontronics, the Company received a 45% equity interest in Carbontronics and a
total of approximately $26 million for its machinery and technology.
NOTE 3 ACQUISITIONS AND DISPOSITIONS
- -------------------------------------
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.
6
Regarding the ACP acquisition, 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 pro forma
net sales, net income, and diluted earnings per share would have been
approximately $59.9 million, $3.0 million and $0.31, and $167.2 million, $5.5
million and $0.60, respectively, for the three months and nine months ended June
30, 1997, respectively.
During the third quarter, the Company began closure of its facility in Aurora,
Colorado. A provision of $1,500,000 has been recorded for potential losses
related to property disposals.
NOTE 4 - STOCK SPLIT
- --------------------
On April 9, 1998, the Board of Directors authorized a 2-for-1 stock split to
shareholders of record as of April 22, 1998, effective May 4, 1998. As a result
of the split, 3,272,870 additional common shares and 883,064 additional Class B
shares were issued and capital in excess of par value was reduced by $415,000.
Shareholders' equity has been restated for all periods presented to give
retroactive recognition to the stock split. In addition, for all periods
presented, all references in the consolidated financial statements and footnotes
thereto to number of shares, per share amounts, weighted average shares
outstanding, as well as stock option and related price information have been
restated to give retroactive effect to the split.
NOTE 5 - CASH DIVIDEND
- ----------------------
On December 22, 1997, the Company declared a cash dividend of $0.025 per share,
payable January 14, 1998, to shareholders of record as of December 31, 1997.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- ------- OF OPERATIONS
"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
7
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
- ----------------------------------
Results of operations for the quarter ended June 30, 1998 compared to the
quarter ended June 30, 1997:
Net revenue for the quarter ended June 30,1998 increased by $34.2 million, or
66.9%, to $85.3 million from $51.1 million in the same period last year. The
transportation group contributed $36.8 million to the increase in net revenues
due primarily to revenue from contracts to sell machinery to manufacture
synthetic fuel, and net revenues in the food processing equipment product lines
declined by $2.6 million. The increase in sales as a result of the recent
acquisitions of ACP Holdings PLC ("ACP") and Gumaco Industria E Comercio
Limitada ("Gumaco") was $6.3 million. International sales, excluding the recent
acquisitions, decreased by $2.9 million to $9.2 million, or 11% of net sales,
principally as a result of a decrease in food processing equipment shipments to
Europe caused by Mad Cow Disease and Swine Flu. As a result of the slaughter of
thousands of livestock, purchases of new equipment for the production of animal
feed has been delayed. The Company expects the market to recover from this
temporary situation as the herds are replenished throughout the year. Sales
backlog at June 30, 1998 for the transportation group increased to $16.4 million
from $9.6 million and decreased for the food processing group to $18.3 million
from $28.4 million. The recent acquisitions added $7.9 million to the backlog.
Gross profit increased 121% to $30.0 million in the three months ended June 30,
1998 from $13.6 million in the same period of fiscal 1997. The transportation
group contributed $16.0 million and the food processing equipment product lines
added $.4 million to the increase in gross profit. The increase in gross profit
as a result of the recent acquisitions was $.4 million. Gross profit from
international sales, excluding the recent acquisitions, decreased by $.1 million
to $2.2 million in the quarter ended June 30, 1998. Gross profit as a
percentage of sales increased to 35.2% in the three months ended June 30, 1998
from 26.7% in the prior period as a result of a more favorable product mix.
Selling, general and administrative expenses increased to $11.5 million in the
third quarter of fiscal 1998 from $7.2 million in the same period of fiscal 1997
due primarily to higher commissions and the acquisitions of Gumaco and ACP. The
transportation group selling, general and administrative expenses increased by
$3.3 million and the food processing group selling, general and administrative
expenses increased by $1.0 million.
As a result of the above factors, operating income increased by $12.3 million to
$17.8 million in the third quarter of fiscal 1998 from $5.5 million in fiscal
1997. The transportation group contributed $12.7 million to this increase.
Operating income from international activities, including the recent
acquisitions, resulted in a loss of $2.3 million in the third fiscal quarter of
1998.
Results of operations for the nine months ended June 30, 1998 compared to the
nine months ended June 30, 1997:
Net revenue for the nine months ended June 30, 1998 increased by $68.0 million,
or 50.3%, to $203 million from $135 million in the same period last year. The
transportation group contributed $59.1 million and the food processing equipment
product lines added $8.9 million to the increase in net revenues. The increase
in sales as a result of the recent acquisitions of ACP and Gumaco was $31.3
million. International sales, excluding the recent acquisitions, decreased by
$13.7 million to $27.4 million, or 13.5% of net sales principally as a result of
an unusually high level of shipments during the first quarter of fiscal 1997 in
Europe
8
for the food processing division and the reduction of shipments to Europe
related to the slaughter of animals caused by Mad Cow Disease and Swine Flu.
Gross profit increased 94.3% to $68.4 million in the nine months ended June 30,
1998 from $35.2 million in the same period of fiscal 1997. The transportation
group contributed $28.5 million and the food processing equipment product lines
added $4.7 million to the increase in gross profit. The increase in gross
profit as a result of the recent acquisitions was $6.6 million. Gross profit
from international sales, excluding the recent acquisitions, decreased by $1.2
million to $6.7 million in the nine months ended June 30, 1998. Gross profit as
a percentage of sales increased to 33.7% in the nine months ended June 30, 1998
from 26% in the prior period as a result of a more favorable product mix.
Selling, general and administrative expenses increased to $34.0 million in the
first nine months of fiscal 1998 from $21.4 million in the same period of fiscal
1997 due primarily to higher commissions and the acquisitions of Gumaco and ACP.
The transportation group selling, general and administrative expenses increased
by $7.9 million and the food processing equipment selling, general and
administrative expenses increased by $4.7 million.
As a result of the above factors, operating income increased by $20.7 million to
$32.3 million in the first nine months of fiscal 1998 from $11.7 million in
fiscal 1997. The transportation group contributed $20.6 million of this
increase, and food processing contributed $0.1 million. The increase in
operating income was offset by losses at the recent acquisitions of ACP and
Gumaco of $1.3 million. Operating results from international activities,
excluding the recent acquisitions, decreased by $1.6 million to produce a loss
of $.2 million in the first nine months of 1998.
Liquidity and Capital Resources
- -------------------------------
For the nine months ended June 30, 1998, cash provided by operations was $24.2
million, an increase of $22.1 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 $14.8 million to $60.5 million at June 30, 1998,
principally as a net result of an increase in short-term notes payable related
to the credit facilities established by Gumaco and an increase in cash balances,
and accrued expenses.
Investing activities used $17.2 million in fiscal 1998 compared to $3.5 million
in fiscal 1997, a change of $13.7 million, resulting primarily from the
acquisition of ACP.
Cash provided by financing activities was $14.7 million in fiscal 1998,
primarily as a result of an increase in borrowings related to the new credit
facilities established by Gumaco.
As of June 30, 1998, the Company had a revolving credit facility providing a
total of $48 million, of which $13 million remained unused.
The Company's asphalt production equipment operations are subject to seasonal
fluctuation, which may lower sales and result in lower earnings or possible
losses in the first and fourth fiscal quarters of each year. Traditionally,
asphalt producers do not purchase new equipment for shipment during the summer
and fall months to avoid disruption of their activities during peak periods of
highway construction and repair. Pelleting and processing equipment products
are less seasonal, but may result in lower demand in the second and third fiscal
quarters. The Company expects seasonality to have less of an influence on
future results of operations as it continues to add new companies and products
and to grow in international markets.
9
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 2.c) CHANGES IN SECURITIES AND USE OF PROCEEDS
- ----------------------------------------------------
On April 22, 1998, the Company issued 20,000 shares of restricted Common Stock
to an employee pursuant to the exercise of an option at an exercise price of
$1.94 per share. The shares were issued in reliance on Section 4(2) of the
Securities Act of 1933, as amended because the transaction did not involve a
public offering. The employee was provided information about the Company and was
afforded an opportunity to ask questions of the Company's management. The
securities were acquired with investment intent and the certificate bears a
legend, accordingly.
ITEM 3. DEFAULTS
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None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------------------------------------------------------------
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- -----------------------------------------
A. Exhibits:
(11) Statement regarding computation of earnings per share.
B. Reports on Form 8-K:
None.
10
EXHIBIT 11
GENCOR INDUSTRIES, INC.
COMPUTATIONS OF NET INCOME PER SHARE
Three Months Ended Nine Months Ended
June 30, June 30,
-------------------------------- ---------------------------------
1998 1997 1998 1997
---- ---- ---- ----
Basic earnings per share
- ------------------------
Net income $ 8,620,509 $ 2,335,735 $14,513,155 $ 4,479,042
=========== =========== =========== ===========
Average number of shares outstanding 8,327,253 8,310,868 8,316,996 8,020,210
=========== =========== =========== ===========
Net income per share $ 1.04 $ 0.28 $ 1.74 $ 0.56
=========== =========== =========== ===========
Diluted earnings per share
- --------------------------
Average number of shares outstanding 8,327,253 8,310,868 8,316,996 8,020,210
Add dilutive effect of outstanding options
(as determined by the application of the
treasury stock method) 1,745,009 1,307,768 1,649,717 1,049,469
----------- ----------- ----------- -----------
Average number of shares outstanding,
as adjusted 10,072,262 9,618,636 9,966,713 9,069,679
=========== =========== =========== ===========
Net income per share $ 0.86 $ 0.24 $ 1.46 $ 0.49
=========== =========== =========== ===========
11
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: _______, 1998 /s/ Russell R. Lee III
-------------------------------
Russell R. Lee III
Treasurer
12