UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE PERIOD ENDED March 31, 2002
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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.
(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 April 19, 2002
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Common stock, $.10 par value 6,884,070 shares
Class B stock, $.10 par value 1,798,398 shares
GENCOR INDUSTRIES, INC.
Index
Page
Part I. Financial Information
Item 1. Financial Statements
Condensed consolidated balance sheets -
March 31, 2002 (Unaudited)and September 30, 2001 3
Unaudited condensed consolidated income statements -
Three - and Six-months ended March 31, 2002 and 2001 4
Unaudited condensed consolidated statements of cash
flows - Six-month ended March 31, 2002 and 2001 5
Notes to unaudited condensed consolidated financial
statements 6
Item 2. Management's Discussion and Analysis of Financial
Position and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosure of Market Risk 12
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
2
Part I. Financial Information
Item 1. Financial Statements
GENCOR INDUSTRIES, INC.
Condensed Consolidated Balance Sheets
In thousands, except share amounts
March 31 September 30
2002 2001
---- ----
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents $ 10,617 $ 14,158
Accounts receivable, less allowance for doubtful
accounts of $1,424 ($1,629 at September 30, 2001) 10,882 8,672
Inventories 23,522 23,105
Prepaid expenses 1,314 2,021
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Total current assets 46,335 47,956
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Property and equipment, net 16,285 16,774
Goodwill, net of accumulated amortization 375 379
Other assets 4,401 4,478
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Total assets $ 67,396 $ 69,587
========== ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable $ 196 $ 196
Current portion of long-term debt 2,328 1,299
Accounts payable 6,371 8,788
Customer deposits 2,111 405
Income and other taxes payable 4,263 3,470
Accrued expenses 13,185 15,513
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Total current liabilities 28,454 29,671
Long-term debt 31,985 34,333
Other liabilities 3,309 3,309
Shareholders' equity:
Preferred stock, par value $.10 per share; authorized
300,000 shares; none issued - -
Common stock, par value $.10 per share; 15,000,000
shares authorized;
6,971,470 shares issued 697 697
Class B stock, par value $.10 per share; 6,000,000
shares authorized:
1,890,398 shares issued 189 189
Capital in excess of par value 11,343 11,343
Accumulated deficit (236) (1,187)
Accumulated other comprehensive loss (6,546) (6,969)
Subscription receivable from officer (95) (95)
Common stock in treasury, 179,400 shares at cost (1,704) (1,704)
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3,648 2,274
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Total liabilities and shareholders' equity $ 67,396 $ 69,587
========== ===========
See notes to unaudited condensed consolidated financial statements.
3
GENCOR INDUSTRIES, INC.
Unaudited Condensed Consolidated Income Statements
In thousands, except per share amounts
Three Months Ended Six Months Ended
March 31 March 31
2002 2001 2002 2001
---- ---- ---- ----
Net sales $ 22,433 $ 21,610 $ 33,305 $ 33,399
Costs and expenses:
Costs of products sold 16,160 15,470 25,020 24,396
Product engineering and development 429 561 850 1,130
Selling, general and administrative 3,234 3,769 6,267 7,104
Restructuring costs - 1,450 302 2,985
-------- -------- -------- ------------
19,823 21,250 32,439 35,615
-------- -------- -------- ------------
Operating income (loss) 2,610 360 866 (2,216)
Other income (expense):
Interest income 33 65 74 135
Interest expense (553) (62) (1,183) (99)
Income from investees 1,061 - 1,526 -
Miscellaneous 89 (36) 72 10
-------- -------- -------- ------------
630 (33) 489 46
-------- -------- -------- ------------
Income (loss) from continuing operations
before income taxes 3,240 327 1,355 (2,170)
Income taxes 1,170 - 571 -
-------- -------- -------- ------------
Income (loss) from continuing operations 2,070 327 784 (2,170)
-------- -------- -------- ------------
Discontinued operations
Income from discontinued operations, net
of income taxes 6 1,367 167 2,139
-------- -------- -------- ------------
Net income (loss) $ 2,076 $ 1,694 $ 951 $ (31)
======== ======== ======== ============
Per common share:
Basic:
Income (loss) from continuing operations $ 0.24 $ 0.04 $ 0.09 $ (0.25)
Discontinued operations $ 0.00 $ 0.16 $ 0.02 $ 0.25
-------- -------- -------- ------------
Net income $ 0.24 $ 0.20 $ 0.11 $ -
======== ======== ======== ============
Diluted:
Income (loss) from continuing operations $ 0.22 $ 0.04 $ 0.08 $ (0.25)
Discontinued operations $ 0.00 $ 0.16 $ 0.02 $ 0.25
-------- -------- -------- ------------
Net income $ 0.22 $ 0.20 $ 0.10 $ -
======== ======== ======== ============
See notes to unaudited condensed consolidated financial statements.
4
GENCOR INDUSTRIES, INC.
Unaudited Condensed Consolidated Statements of Cash Flows
In thousands
Six Months Ended
March 31
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2002 2001
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Operating activities:
Net income (loss) $ 951 $ (31)
Adjustments to reconcile net income (loss)
to cash provided by (used for) operating activities:
Depreciation and amortization 829 2,169
Loss on disposition of property and equipment - 900
Write-off deferred loan costs 43 -
Income from investees (1,526) -
Other noncash items (120) -
Change in assets and liabilities net of disposed business
Accounts receivable (3,081) (22)
Inventories (1,326) (4,290)
Prepaid expenses 641 (243)
Other assets (164) 102
Accounts payable (1,978) 1,236
Customer deposits 1,772 1,673
Income and other taxes payable 811 1,585
Accrued expenses and other (398) 4,044
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Total adjustments (4,497) 7,154
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Net cash provided by (used for) operating activities (3,546) 7,123
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Investing activities:
Distributions from unconsolidated investees 1,526 -
Capital expenditures (197) -
Proceeds from sale of property and equipment - 19
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Net cash provided by investing activities 1,329 19
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Financing activities:
Net reduction in notes payable - (552)
Repayment of debt (1,199) -
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Net cash used for financing activities (1,199) (552)
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Effect of exchange rate changes on cash and cash equivalents (125) (219)
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Increase (decrease) in cash and cash equivalents (3,541) 6,371
Cash and cash equivalents, beginning of period 14,158 17,971
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Cash and cash equivalents, end of period $ 10,617 $ 24,342
========= ========
See notes to unaudited condensed consolidated financial statements.
5
GENCOR INDUSTRIES, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
All amounts in thousands, except per share amounts
Note 1 - Basis of Presentation
The accompanying condensed consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all material adjustments
(consisting of normal recurring adjustments) considered necessary for a fair
presentation have been included. Operating results for the three- and six-month
periods ended March 31, 2002 are not necessarily indicative of the results that
may be expected for the year ended September 30, 2002.
The balance sheet at September 30, 2001 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
For further information, refer to the consolidated financial statements and
footnotes thereto included in the Gencor Industries, Inc. Annual Report on Form
10-K for the year ended September 30, 2001.
Note 2 - Reorganization
On December 31, 2001 the Amended Plan of Reorganization of Gencor Industries,
Inc. became effective and the Company emerged from Chapter 11 in accordance with
its earlier confirmed plan of reorganization. Restructuring costs consist of
nonrecurring legal and professional fees relating to the reorganization.
Note 3 - Discontinued Operations
As part of its planned reorganization, the Company announced its intent to
dispose of its food segment. Accordingly, the Company reported the results of
the remaining food processing equipment manufacturing business as discontinued
operations. The food processing equipment manufacturing operations were sold in
May 2001.
6
Certain information with respect to discontinued operations is summarized as
follows:
Three-months Ended Six-months Ended
March 31 March 31
2002 2001 2002 2001
---- ---- ---- ----
Net sales $ 160 $ 18,631 $ 455 $ 34,009
Costs and expenses 154 16,296 288 30,355
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Income from discontinued operations before income taxes 6 2,335 167 3,654
Income taxes - 968 - 1,515
------- -------- ------ ---------
Income from discontinued operations, net of income taxes $ 6 $ 1,367 $ 167 $ 2,139
======= ======== ====== =========
During September 2001, the Company's Swedish food processing operation was
placed into receivership and subsequently disposed of during the first quarter
of fiscal 2002. The Company provided a loss contingency for the net assets of
the Swedish operations during fiscal 2001. During the first quarter of fiscal
2002, the Company wrote off the remaining net assets of the Swedish operations
against the loss reserve.
Note 4 - Inventories
The components of inventory consist of the following:
March 31 September 30
2002 2001
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Raw materials $ 9,752 $ 11,294
Work in process 6,876 2,509
Finished goods 5,482 7,379
Used equipment 1,412 1,923
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$ 23,522 $ 23,105
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7
Note 5 - Earnings Per Share Data
The following table sets forth the computation of basic and diluted earnings per
share:
Three Months Ended Six Months Ended
March 31 March 31
2002 2001 2002 2001
---- ---- ---- ----
Income (loss) from continuing operations $ 2,070 $ 327 $ 784 $(2,170)
Income from discontinued operations 6 1,367 167 2,139
----------------------------------------------------
Net income (loss) $ 2,076 $ 1,694 $ 951 $ (31)
====================================================
Denominator (shares in thousands):
Weighted average shares outstanding 8,682 8,682 8,682 8,682
Effect of dilutive stock options 754 - 377 -
----------------------------------------------------
Denominator for diluted EPS computation 9,436 8,682 9,059 8,682
====================================================
Per common share:
Basic:
Continuing operations $ 0.24 $ 0.04 0.09 $ (0.25)
Discontinued operations 0.00 0.16 0.02 0.25
----------------------------------------------------
Net income $ 0.24 $ 0.20 0.11 $ -
====================================================
Diluted:
Continuing operations $ 0.22 $ 0.04 $ 0.08 $ (0.25)
Discontinued operations 0.00 0.16 0.02 0.25
----------------------------------------------------
Net income $ 0.22 $ 0.20 $ 0.10 $ -
====================================================
The weighted average diluted common shares outstanding for the first quarter of
2002 and 2001 and the six-months ended 2001 exclude approximately 1,676,000 and
1,500,000 stock options, respectively, due to their antidilutive effect.
Note 6 - Comprehensive Loss
Total comprehensive income for the three-and six-months ended March 31, 2002 was
$1,916 and $1,374, respectively, which compares favorably to the total
comprehensive income (loss) for the three- and six-months ended March 31, 2001
of $25 and ($2,275), respectively. Total comprehensive income (loss) differs
from net income (loss) due to gains and losses resulting from foreign currency
translation, which are reflected separately in the shareholders' equity section
of the balance sheet under the caption "Accumulated other comprehensive loss."
Gains and losses resulting from foreign currency transactions are included in
income.
8
Note 7 - Income From Investees
During the first and second quarter of fiscal 2002, the Company received cash
distributions of $465 and $1,061, respectively, from its 45% interest in
Carbontronics LLC and 25% interest in Carbontronics II LLC and Carbontronics
Fuels LLC. These interests were obtained as part of contracts to build four
synthetic fuel production plants during 1998. The Company has no basis in these
investments nor requirement to provide future funding. Any income arising from
these investments is dependent upon tax credits (adjusted for operating losses
at the fuel plants) being generated as a result of synthetic fuel production,
which will be recorded as received. During fiscal 2001, the Company received one
distribution of approximately $215, which was previously included in
miscellaneous income. No significant income was derived from these interests
during fiscal 2000 or fiscal 1999.
9
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
Net sales for the six-months ended March 31, 2002 and 2001 were comparable at
$33.3 million and $33.4 million, respectively. Domestic sales for the six-month
period of fiscal 2002 were $21.8 million reflecting a $2.3 million decline from
year ago levels. The decline in domestic sales is primarily due to the stalling
of our industry attributable to the September 11 events and the prevailing
national economic conditions. This uncertainty was combined with the typical
seasonal slowdown (see Seasonality). Increased asphalt plant orders at the
Company's wholly-owned U.K. subsidiary Gencor International Ltd. partially
offset the decline in domestic sales. However net sales for the second quarter
of fiscal 2002 reflected an increase of approximately $800 over the same period
of the previous year. The domestic operations accounted for $750 of the
improvement and appeared to benefit from a return to more normal buying patterns
of our customers. Historically, the second quarter of the fiscal year has
reflected higher revenues as our customers place orders for shipment prior to
the peak season for road construction work.
Gross margins as a percent of net sales declined by 2.1% during the six-months
ended March 31, 2002 from year ago levels. Domestic margins declined 4.8% during
the second quarter of fiscal 2002 as compared to the same period one year ago,
due to a higher mix of component sales versus complete plant sales in 2002.
Gross margins from foreign sales improved 8.0% during the first six-months of
fiscal 2002 benefiting from lower production costs.
Product engineering and development costs declined $132 and $280 during the
three- and six-month periods ended 2002. The decline resulted from fewer plant
projects having been initiated during the first three-months of fiscal 2002.
Selling and administrative expenses decreased $535 and $837 during the three-
and six-month periods ended fiscal 2002, the result of cost reduction and
containment measures initiated during the first quarter of 2002.
Restructuring costs, primarily legal and professional fees relating to the
reorganization were $302 during the first six-months of fiscal 2002 compared to
$3 million for the same period of fiscal 2001.
Interest expense during 2002, primarily reflects interest incurred under the
Amended and Restated Senior Secured Credit Agreement since the Company emerged
from Chapter 11 at the end of the first quarter.
Liquidity and Capital Resources
On December 27, 2001, the Company and its Senior Secured Lenders signed an
Amended and Restated Senior Secured Credit Agreement, which specifies monthly
principal payments of $320 beginning December 2001 and continuing through July
2002, then increasing to $400 in August 2002 and continuing to August 2005, with
the remaining balance due September 6, 2005. It is management's intention to
refinance any remaining balance. The interest rate during the term of the loan
is based upon the prime rate plus 2%. The Company may elect to defer the first
thirteen (13) monthly principal payments and pay an additional 5% interest on
the total deferred principal payments until such time the deferred principal
amounts are paid. The Amended and Restated Secured Credit Agreement provides for
quarterly supplemental principal payments if certain operating levels are
surpassed. Based upon the results of the six-months ended March 31, 2002, a
supplemental principal payment of approximately $700 will be due May 31, 2002.
It also includes certain other financial and restrictive covenants.
Pursuant to its Amended Plan of Reorganization, on January 29, 2002 the Company
made a principal payment of $488 on the industrial revenue bond. Monthly
principal and interest payments of $38 will continue until the balance is
paid-off in March 2005.
The Company was successful in its efforts to restructure or eliminate various
non-core operations and activities. As a result, the Company has reduced its
outstanding debt balance and the capital structure, liquidity and working
capital
10
have significantly improved from a year ago. The current ratio of 1.63:1.00 and
working capital of $17.9 million at March 31, 2002 compares favorably to the
current ratio of .64:1.00 and negative working capital of $53.9 million a year
earlier.
Net cash used for operating activities during the six-months ended March 31,
2002 was $3.5 million. This net cash outlay reflects a $3.1 million increase in
accounts receivable (attributable to several large plant orders) and a $1.3
million increase in inventories, which were partially offset by the net change
in the other components of working capital. Cash provided by investing
activities during 2002 reflect a $1.5 million cash distribution from the
Company's unconsolidated investees. Cash used in financing activities reflect
$1.2 million in principal payments on the secured debt.
Seasonality
The Company's domestic operations are subject to a seasonal slow-down during the
third and fourth quarters of the calendar year. Traditionally, although
customers may place orders for winter and spring deliveries, especially during
the fourth quarter, they do not accept delivery of new equipment during the
summer and fall months to avoid disrupting their peak season for highway
construction and repair. This slow-down often results in lower reported sales
and earnings and or losses during the first and fourth quarters of the Company's
fiscal year ended September 30.
Forward-Looking Information
Certain statements in this Section and elsewhere in this report are
forward-looking in nature and relate to trends and events that may affect the
Company's future financial position and operating results. Such statements are
made pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. The terms "expect," "anticipate," "believe," "intend," and
"project' and similar words or expressions are intended to identify
forward-looking statements. These statements speak only as of the date of this
report. The statements are based on current expectations, are inherently
uncertain, are subject to risks, and should be viewed with caution. Actual
results and experience may differ materially from the forward-looking statements
as a result of many factors, including changes in economic conditions in the
markets served by the Company, increasing competition, fluctuations in raw
materials and energy prices, and other unanticipated events and conditions. It
is not possible to foresee or identify all such factors. The Company makes no
commitment to update any forward-looking statement or to disclose any facts,
events, or circumstances after the date hereof that may affect the accuracy of
any forward-looking statement.
11
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company operates manufacturing facilities and sales offices principally
located in the United States and the United Kingdom. The Company is subject to
business risks inherent in non-U.S. activities, including political and economic
uncertainty, import and export limitations, and market risk related to changes
in interest rates and foreign currency exchange rates. The Company's principal
currency exposure against the U.S. dollar is the British pound. The Company is
exposed to interest rate risk on its variable rate debt. A 100-basis point
increase in interest rates along the entire yield curve would reduce income from
continuing operations before income taxes for the six-month periods ended March
31, 2002 and 2001 by approximately $176 and $528, respectively. Actual changes
in rates may differ from the hypothetical assumptions used in computing this
exposure.
12
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits:
None.
B. Reports on Form 8-K:
None.
13
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GENCOR INDUSTRIES, INC.
Date: May 9, 2002 /s/ Scott W. Runkel
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Scott W. Runkel, Chief Financial Officer
14