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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10 - K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15[d] OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Fiscal Year Ended September 30, 1995
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15[d] OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File No. 0-3821
GENCOR INDUSTRIES, INC.
Incorporated in the State I.R.S. Employer Identification
of Delaware No. 59-0933147
5201 North Orange Blossom Trail
Orlando, Florida 32810
Registrant's Telephone Number, Including Area Code:
(407) 290-6000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock ($.10 Par Value)
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 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 filing requirements
for the past 90 days.
[X]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
[X]
State the aggregate market value of the voting stock, $.10 per share value
Common Stock, held by nonaffiliates of the Registrant as of November 27, 1995:
$19,058,288.
Indicate the number of shares outstanding of each of the Registrant's classes of
Common Stock, as of the latest practicable date: 1,338,832 shares of Common
Stock ($.10 par value) and 434,032 shares of Class B Stock ($.10 par value) as
of November 27, 1995.
List hereunder the following documents if incorporated by reference and the part
of the Form 10-K into which the document is incorporated.
Part III - Proxy Statement which will be filed with the Securities and Exchange
Commission.
-1-
PART I
ITEM 1. BUSINESS
(a) General Development of Business:
During 1995, the Company had eight domestic subsidiaries and one
foreign-based subsidiary. The eight domestic subsidiaries are General
Combustion Corporation ("Genco"), Genco-Sellers, Inc. ("Genco-Sellers"),
Thermotech Systems Corporation ("Thermotech"), Equipment Services Group,
Inc. ("ESGI"), Gencor Systems, Inc. ("GSI"), Bituma-Stor, Inc.
("Bituma-Stor"), Bituma Corporation ("Bituma") and The Davis Line, Inc.
(AKA "H&B"). The Company's foreign subsidiary is General Combustion Ltd.
("Genco Ltd."). Additionally, the Company has one operating division -
Hy-Way Heat Systems ("Hy-Way"). Except where the context indicates
otherwise, the terms "Gencor" and "Company" include its subsidiaries,
predecessors and divisions. The Company operates in Orlando, Florida;
Marquette, Iowa; Youngstown, Ohio and Billingshurst, West Sussex,
England.
Gencor designs, manufactures, and sells industrial combustion systems,
electronic process control systems, fluid heat transfer systems, and
asphalt production plants and components, primarily utilized in the
production of asphalt and other materials used in the highway construction
industry. To a lesser extent, the Company's products are also used in
soil remediation processes, chemical and petroleum processing and
production, production of construction materials, processing of minerals
and in energy generation facilities. The Company is engaged in continuing
product engineering and development efforts to expand its product lines
and to further develop systems which are more energy efficient and
environmentally compatible than equipment presently used throughout its
principal markets.
(b) Financial Information About Industry Segments:
During 1995, the Company operated in one business segment, by
manufacturing heat generation, heat transfer, asphalt production plants,
aggregate and other material handling equipment and combustion systems
primarily utilized in the production of materials used in the construction
and repair of roads and highways, and related industries.
(c) Narrative Description of Business:
The principal users of Gencor products are large highway construction
companies and producers of materials used in highway construction and
remediators of contaminated soils. Gencor believes that 4,000 to 5,000
asphalt production plants operate in the United States, and a similar
number in the United Kingdom and Europe. Asphalt paving contractors
participate in the highway construction industry, which is equipment and
capital intensive. Gencor's focus over recent years has been on
developing products which are fuel efficient, environmentally compatible,
and technologically ahead of the competition. It utilizes technologies
involving advanced concepts and disciplines in environmental compliance,
heat release, energy conservation, heat recovery, and noise attenuation in
manufacturing machinery and plants used in the production of highway
construction materials. The largest portion of Gencor revenues are
derived through the manufacture and design of asphalt plants and hot mix
asphalt storage silos used primarily to produce and store asphalt.
Genco has been manufacturing and selling combustion systems fueled by oil
or gas to paving contractors since the 1940's. Genco also manufactures
combustion systems for boilers, fume and liquid incinerators, dryers, and
tank heaters.
In 1985, Genco Ltd. acquired certain assets and the business of the
Beverley Group, a manufacturer of large thermal fluid heaters and
industrial incinerators. In 1990, Genco Ltd. significantly reduced its
manufacturing operations in England and redirected its efforts toward
engineering, sales and service. Genco Ltd. has developed a system for
subcontracting the manufacturing of its proprietary products in response
to customer requirements.
-2-
In 1986, Genco acquired Hy-Way Heat Company, Inc., an established
manufacturer with over 30 years of experience in the manufacture of fluid
heat transfer systems and specialty tanks. The Hy-Way Heat name is known
throughout the world and is often used generically to refer to fluid heat
transfer systems. The manufacturing operations of Genco-Sellers and
Hy-Way Heat were combined and operate as Hy-Way Heat Systems, a division
of Genco. The combination of Genco-Sellers and Hy-Way Heat principally
sells fluid heat transfer systems and tanks to the petroleum and asphalt
industries.
The Hy-Way Heat division manufactures and sells fluid heat transfer
systems that are generally used by the hot mix asphalt industry and other
process industries. Genco Ltd. designs and sells fluid heat transfer
systems that are generally in the larger sizes as used by refineries and
other heavy industries. The Company has established marketing and
manufacturing programs to enable Hy-Way Heat and Genco Ltd. to sell one
another's product lines since the product lines are complementary. In
addition, Genco Ltd. is marketing the General Combustion systems in the
United Kingdom and Europe as well as marketing the Bituma Group and H&B
lines of asphalt plants and related components in the same areas.
In 1986, the Company acquired Bituma-Stor, Inc. and its wholly owned
subsidiary, Bituma Construction Equipment Corporation, manufacturers of
asphalt plants, hot mix storage silos, fabric filtration systems and other
asphalt plant components. Bituma-Stor had manufactured hot mix asphalt
storage silos, and Bituma Corporation had manufactured asphalt plants and
related components since 1970 as Boeing Construction Equipment Company.
Boeing Construction Equipment Company first introduced the then-radical
concept of drum-mix continuous asphalt production, since then adopted
world-wide as the standard technology. As a result of a 1982 acquisition,
the name Boeing Construction Equipment Company was changed to Bituma
Construction Equipment Company. The Bituma Group's products are
recognized for high quality and excellent workmanship and are known for
providing the "heaviest steel" in the asphalt industry.
In January 1988, Gencor acquired all the outstanding stock of The Davis
Line Inc. and its wholly owned subsidiary Midwest Tank and Construction
Holding Corporation, and its three subsidiaries, manufacturers of batch
mix asphalt plants, specialty tanks, compaction rollers and other
products. H&B has been manufacturing batch mix asphalt plants and
components under the name H&B (Hetherington & Berner), or other names,
since 1882.
The Company's asphalt production equipment operations are subject to
seasonal fluctuation, resulting in lower sales and possible losses in the
third and fourth calendar quarter 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.
Thermotech develops, markets and produces equipment to clean soil
contaminated with petroleum products. The most common current process
involves scraping and digging up contaminated soil, taking the
contaminated soil to a landfill and bringing in clean soil. Thermotech
has developed a design which thermally desorbs the contaminants from the
soil and, after filtering out all the solid matter from the exhaust gasses
of the process, subjects the off-gasses to such elevated temperatures as
to oxidize all the polluting contaminants in the exhaust and release clean
and odorless carbon dioxide and water.
In 1989, the Company concentrated all of its electronic process controls
in its wholly owned subsidiary, Gencor Systems Inc., ("GSI"), and directed
GSI to undertake the design of new, state-of-the-art controls for all of
its products, as well as the retrofit market. These proprietary products
consist of both hardware and internally designed computer software to
enable operators of asphalt plants to increase their batch and mix options
to fulfill their customers' needs. Gencor believes that GSI's controls
can be extended to other applications beyond asphalt plants and other
products produced by its subsidiaries.
The Company's various products are related through a common technological
core in that they involve thermo-fluid dynamics in various forms and the
efficient conversion and use of energy in all aspects, plus significant
environmental technologies. The products of each subsidiary add to and
complement the products of the others. The Company also believes it is
deriving economies and efficiencies by interrelating the engineering,
manufacturing, and marketing strengths of each of its subsidiaries.
-3-
(i) International Operations:
The Company has one foreign subsidiary located in England. See "Narrative
Description of Business" above for information concerning the foreign
subsidiary.
(ii) Sources of Supply and Manufacturing:
Virtually all products sold by the Company and its subsidiaries are
manufactured by the Company, except for procured raw materials and
hardware. The Company does purchase a large quantity of steel with which
to manufacture all of its products. The Company regularly purchases from
over 500 manufacturers and suppliers basic raw materials and a broad
variety of hardware utilized in the manufacture of the products of the
Company. No one manufacturer or supplier accounted for more than 10% of
the Company's total purchases during the year ended September 30, 1995.
(iii) Inventories:
As of September 30, 1995, inventories constituted approximately 61% of the
Company's current assets and 42% of the Company's total assets. Most of
the inventory is utilized in manufacturing operations.
(iv) Product Engineering and Development:
The Company's product engineering and development activities are directed
and conducted at its offices in Orlando, Florida; Marquette, Iowa;
Youngstown, Ohio and Billingshurst, West Sussex, England. Work has been
accomplished on the uses of cost effective, nonfossil fuels, bio-mass,
refuse-derived fuel, coal and coal mixtures, the economical recycling of
old asphalt, new designs of environmentally compatible asphalt plants and
development of advanced designs of machinery for the remediation of
contaminated soil. In addition, product engineering and development
activities are directed toward more efficient methods of producing asphalt
by constantly seeking to upgrade the quality of the asphalt plants
manufactured and the methods by which asphalt is produced by the plants.
Product engineering and development has also been directed toward the
development of combustion systems that operate at higher temperatures and
with higher levels of environmental compatibility, as well as more
efficient and lower cost fluid heat transfer systems. Product engineering
and development continues on a daily basis into other applications
beneficial to the Company. Product engineering and development expenses
were approximately $1,920,000 and $1,939,000 in the twelve months ended
September 30, 1995 and 1994, respectively and $1,788,000 in the nine months
ended September 30, 1993.
(v) Competition:
Gencor is subject to competition from a number of sources, some of which
have greater resources than the Company. Gencor believes that its
superior product performance in terms of advanced technological design,
fuel efficiency, product reliability, environmental compatibility and
after-sale service are key factors in maintaining a competitive advantage
in the industry. Thus, the Company has attempted to design and produce
technically superior products and to provide extensive servicing
capability as a means of overcoming competitors. Failure to maintain
technical leadership in the industry or adequate servicing capability
could result in decreased sales and adverse earnings consequences to the
Company in the future.
(vi) Sales Backlog:
The nature of Gencor's business is such as to require a relatively short
turnaround from order to shipment; usually less than ninety (90) days.
Demand for Company asphalt production equipment exhibits seasonality. As
a result of the foregoing, the size of the Company's backlog should not be
viewed as an indicator of future Company financial results. The Company's
backlog was approximately $18,300,000 at November 27, 1995. The Company
believes that all of the backlog at November 27, 1995 will be delivered in
fiscal 1996.
-4-
(vii) Marketing:
The Gencor sales are handled by Gencor employed sales representatives,
independent dealers, and agents located throughout the world.
(viii) Regulations:
The Company believes it has the design and manufacturing capability to
meet all industry or governmental agency standards that may apply to its
entire line of products, including all domestic and foreign structural,
electrical and safety codes. Also the Company's products can be designed
and manufactured to meet Environmental Protection Agency regulations.
Certain state and local regulatory authorities have strong environmental
impact regulations. While the Company believes such regulations have
helped rather than restricted its marketing efforts and sales results,
there is no assurance that future federal, state or local restrictions
will not adversely affect the Company's products and earnings in the
future.
(ix) Employees:
As of September 30, 1995, the Company employed approximately 382 persons in
manufacturing, sales and marketing, and engineering positions relating to
product manufacturing and development, and administration. The Company has
negotiated a collective bargaining agreement as of June 19, 1994 effective
through June 24, 1996, covering the production and maintenance employees at
its Marquette, Iowa facility.
(d) Financial Information About Foreign and Domestic Operations and
Export Sales:
Geographic information at September 30, 1995, 1994, and 1993 and for the
years ended September 30, 1995 and 1994, and the nine months ended
September 30, 1993 is as follows:
Net Sales to Unaffiliated Customers
United States $56,427,367 $55,395,036 $41,318,801
Europe 2,517,065 2,336,871 2,323,324
----------- ----------- -----------
Total Consolidated $58,944,432 $57,731,907 $43,642,125
=========== =========== ===========
Net Sales or Transfers Between
Geographic Areas
United States $ - $ - $ -
Europe 143,861 224,365 513,215
----------- ----------- -----------
Total $ 143,861 $ 224,365 $ 513,215
=========== =========== ===========
Operating Income
United States $ 3,657,019 $ 3,466,893 $ 1,723,951
Europe 213,900 93,451 348,199
----------- ----------- -----------
Total $ 3,870,919 $ 3,560,344 $ 2,072,150
=========== =========== ===========
Identifiable Assets
United States $33,296,053 $32,595,135 $32,969,290
Europe 1,835,425 1,943,301 2,169,067
----------- ----------- -----------
Total $35,131,478 $34,538,436 $35,138,357
=========== =========== ===========
Export Sales from the U.S. $ 4,828,000 $ 7,548,000 $ 2,600,000
=========== =========== ===========
-5-
(e) Executive Officers of the Registrant:
The executive officers of the Registrant are:
NAME POSITION AGE
---- -------- ---
E.J. Elliott Chairman of the Board and President 66
John E. Elliott Executive Vice President and Secretary 35
Russell R. Lee III Treasurer 46
Alan B. Dawes Managing Director, General Combustion Ltd. 52
David F. Brashears Senior Vice President, Technology 48
D. William Garrett Vice President, Sales 46
Marc G. Elliott Vice President, Marketing 30
Mr. E.J. Elliott has served as Chairman of the Board since 1973 and President
since 1969. Mr. Elliott has over 40 years experience in the design, manufacture
and operation of construction machinery and asphalt manufacturing plants. In the
1960's, Mr. Elliott owned and served as President and Chairman of General
Combustion, Inc. and Genco Manufacturing Corporation. Mr. Elliott has been a
director of the Company since 1968.
Mr. John Elliott was elected Assistant Vice President and a Director of the
Company in 1985. In 1986, he was elected a Vice President and promoted to
Executive Vice president in 1989. Mr. John Elliott was elected Secretary in 1994
and has been with the Company since 1982.
Mr. Lee was elected Treasurer in 1995. He had previously been Corporate
Controller since he joined the Company in 1990.
Mr. Dawes was elected Managing Director of General Combustion Ltd. in the U.K.,
in July 1992. He had previously directed the Company's technical efforts in the
U.K. and Europe since the 1985 acquisition of certain assets of the Beverley
Group.
Mr. Brashears was named Senior Vice President, Technology, in July 1993. He had
previously been Vice President, Engineering, since he joined the Company in
1978.
Mr. Garrett joined the Company in 1985 with the acquisition of Sellers
Corporation and has held numerous management positions in sales and marketing
for various Company subsidiaries. In 1991, he was elected to the position of
Vice President, Sales.
Mr. Marc Elliott was elected Vice President, Marketing, in July 1993. He had
previously served in various marketing positions since he joined the Company in
1988.
-6-
ITEM 2. PROPERTIES
LOCATION ACREAGE SQ. FEET PRINCIPAL FUNCTION
-------- ------- -------- ------------------
Orange County, Florida 27 171,000 Principal Company offices
and manufacturing of
General Combustion and
H&B products
Billinghurst, West
Sussex, England 1.2 5,000 General Combustion Ltd.
offices
Youngstown, Ohio 5.5 45,000 Hy-Way offices and manufacturing
Marquette, Iowa 72 137,000 Bituma Group offices and
manufacturing
Indianapolis, Indiana 16.5 151,000 Property for sale (former
H&B offices and manufacturing
facilities)
See note 4 to the accompanying consolidated financial statements (Item 14)
for a description of existing encumbrances.
ITEM 3. LEGAL PROCEEDINGS
In the normal course of business, the Company has various lawsuits and claims
pending, which may be covered in whole or in party by insurance, and which, in
any event, if found against the Company, will not have a material effect.
Management has reviewed all litigation matters and, upon advice of counsel, has
made provisions for any estimable losses and expenses of litigation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
NONE
-7-
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
SHAREHOLDER MATTERS
Stock price information is as follows:
SALES PRICES
---------------
HIGH LOW
------ -----
1995
----
First Quarter 15 9 1/2
Second Quarter 13 9
Third Quarter 11 1/4 8 7/8
Fourth Quarter 14 1/4 8 1/4
1994
----
First Quarter 12 1/2 6 1/2
Second Quarter 13 8
Third Quarter 11 1/2 7 1/4
Fourth Quarter 13 7 1/4
As of November 27, 1995, there were 468 holders of Common Stock of record and 11
holders of Class B Stock of record.
Gencor's stock is traded on NASDAQ's National Market System under the symbol
(GCOR).
On November 16, 1994, the Company's Board of Directors declared a ten percent
stock dividend. Prior to this, the Company had not paid any dividends in cash or
otherwise on any shares of its capital stock since 1971. The Company has
retained its earnings to provide funds for the operation and expansion of its
business.
On December 1, 1995, the Board of Directors declared a dividend of $0.05 per
share payable January 4, 1996 to shareholders of record as of December 18, 1995.
Any dividends which may be paid in the future will be dependent upon conditions
then existing and will be at the discretion of the Board of Directors of the
Company.
-8-
ITEM 6. SELECTED FINANCIAL DATA
Nine Months
Years Ended Ended
September 30, September 30, Years Ended December 31,
1995 1994 1993 (1) 1992 (1) 1991 (1)
----------- ----------- ------------- ----------- -----------
Net revenue $58,944,432 $57,731,907 $43,642,125 $44,852,548 $38,467,641
Operating income 3,870,919 3,560,344 2,072,150 1,188,810 2,488,381
Income before extraordinary gain 2,038,722 1,630,516 955,486 34,741 725,179
Extraordinary gain 497,701 - - - -
----------- ----------- ----------- ----------- -----------
Net income $ 2,536,423 $ 1,630,516 $ 955,486 $ 34,741 $ 725,179
=========== =========== =========== =========== ===========
Net income per common share (2):
Income before extraordinary
gain $ 1.18 $ 1.01 $ 0.59 $ 0.02 $ 0.45
Extraordinary gain 0.28 - - - -
----------- ----------- ----------- ----------- -----------
Net income $ 1.46 $ 1.01 $ 0.59 $ 0.02 $ 0.45
=========== =========== =========== =========== ===========
Selected balance sheet data:
SEPTEMBER 30, DECEMBER 31,
-------------------------------------- ------------------------
1995 1994 1993 1992 (1) 1991 (1)
----------- ----------- ----------- ----------- -----------
Current assets $24,317,167 $23,437,160 $21,199,692 $19,409,613 $19,114,328
Current liabilities $13,269,780 $15,171,583 $16,046,375 $13,888,648 $12,381,086
Total assets $35,131,478 $34,538,436 $35,138,357 $32,635,554 $32,519,475
Long-term debt $11,708,403 $11,623,075 $12,387,854 $13,389,751 $14,848,966
Shareholders' equity $ 9,642,295 $ 7,099,778 $ 5,417,128 $ 4,454,155 $ 4,190,423
- ----------
(1) In January 1993, the Company adopted Statement of Financial Accounting
Standards No. 109, Accounting for Income Taxes (FAS 109). The selected
---------------------------
financial data presented for the two-year period ended December 31, 1992
has been adjusted to reflect the effect of retroactively applying FAS 109.
(2) Income per share has been computed based on the weighted average number of
common and common equivalent shares outstanding during each fiscal year.
1995 1,732,725
1994 1,610,608
1993 1,606,740
1992 1,602,092
1991 1,595,788
-9-
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
In July 1993, the Company changed to a fiscal year ending September 30, in
order to conform financial reporting to the Company's natural business
year. The consolidated statements of income, shareholders' equity and
cash flows are presented for the years ended September 30, 1995 and 1994,
and the nine months ended September 30, 1993. The Company believes that a
comparison of operating results for the twelve months ended September 30,
1994 and 1993 are more meaningful than a comparison of the twelve months
ended September 30, 1994 and the nine months ended September 30, 1993 due to
the seasonality of the Company's business.
Year ended September 30, 1995 compared with the year ended September 30,
1994
Net sales and revenue increased to $58,944,000 in the twelve months ended
September 30, 1995 as compared to $57,732,000 in the twelve months ended
September 30,1994. Income before the extraordinary gain increased 25.0%
from $1,630,000 in the twelve months ended September 30, 1994 to $2,039,000
in the 1995 period. Net income, which includes an extraordinary gain of
$498,000 related to a real estate transaction, increased to $2,536,000 for
the twelve moths ended September 30, 1995 as compared to $1,630,000 in the
1994 period.
Sales in the U.S. increased slightly from $55,395,000 in 1994's twelve
months to $56,427,000 in the 1995 period. Production costs as a
percentage of sales remained stable between the two periods. Operating
expenses in the U.S. increased $1,277,000 in the twelve months ended
September 30, 1995 from 19.0% of sales to 20.9% of sales. This increase
resulted from increase in outside service costs, commissions, and bad debt
expense partially offset by lower insurance costs.
Operating income in the U.S. increased from $3,467,000 in the twelve
months ended September 30, 1994 to $3,657,000 in 1995, as a result of the
higher sales volume partially offset by higher operating expenses.
The Company's U.K. subsidiary's sales increased from $2,337,000 in the
twelve months ended September 30, 1994 to $2,517,000 in fiscal 1995.
Operating income in the U.K. increased 230% from $93,000 in 1994 to
$214,000 in 1995, as the result of the increase in sales volume,
particularly in the higher margin product lines.
Consolidated nonoperating income and expense decreased from a net expense
of $1,106,000 in the twelve months ended September 30, 1994 to $746,000 in
fiscal 1995, as the result of nonrecurring litigation settlement costs
which were partially offset by the gain on the sale of certain real estate
in fiscal 1994.
Year ended September 30, 1994 compared with the twelve months ended
September 30, 1993
Net sales and revenue increased 9.2% to $57,732,000 in the twelve months
ended September 30, 1994 as compared to $52,861,000 in the twelve months
ended September 30, 1993. The increase in sales is attributable to an
increase in the Company's sales of asphalt production equipment in the
U.S. Net income increased 357% from $357,000 in the twelve months ended
September 30, 1993 to $1,630,000 in the 1994 period.
Sales in the U.S. increased 8.8% from $50,897,000 in 1993's twelve months
to $55,395,000 in the 1994 period as a result of increased sales of
asphalt production equipment. Production costs as a percentage of sales
remained stable between the two periods. Operating expenses in the U.S.
decreased $852,000 in the twelve months ended September 30, 1994 from 28.5%
of sales to 24.5% of sales. This reduction resulted from the nonrecurring
cost associated with ConExpo in 1993, a decline in outside service costs
partially offset by higher service and insurance costs and bad debt
expense.
-10-
Operating income in the U.S. increased 215% from $1,099,000 in the twelve months
ended September 30, 1993 to $3,467,000 in 1994 as a result of the higher sales
volume and the reduced operating expenses.
The Company's U.K. subsidiary's sales decreased from $2,568,000 in the twelve
months ended September 30, 1993 to $2,337,000 in fiscal 1994. Operating income
in the U.K. decreased 71% from $323,000 in 1993 to $93,000 in 1994 as the
result of a decrease in the sales volume, particularly in the higher margin
product lines, partially offset by reduced general and administrative costs.
Consolidated nonoperating income and expense increased from a net expense of
$1,027,000 in the twelve months ended September 30, 1993 to $1,106,000 in fiscal
1994 as the result of an increase in litigation settlement costs partially
offset by lower interest costs and the gain on the sale of real estate.
Nine months ended September 30, 1993 compared with nine months ended September
30, 1992
Net sales and revenues increased 21% to $43,642,000 in the nine months ended
September 30, 1993 as compared to $36,000,000 in the nine months ended September
30, 1992. The increase in sales is attributable to an increase in the Company's
sales of asphalt production equipment in the U.S. Net income increased 223% from
$295,000 in the nine months ended September 30, 1992 to $955,000 in the 1993
period.
Sales in the U.S. increased 21% from $34,022,000 in 1992's nine months to
$41,319,000 in the 1993 period as a result of increased sales of asphalt
production equipment. Manufacturing margins increased in the U.S. from 31.5% of
sales to 32.2% of sales due to increased volume and production efficiencies
stemming from productivity enhancement studies and programs initiated during
fiscal 1993. Operating expenses in the U.S. increased $2,455,000 in fiscal 1993
due to the investment in the productivity enhancement programs initiated during
fiscal 1993 and the expenses of ConExpo, the construction equipment industry's
once-every-six-years trade show. Both of these expenses are expected to show
positive returns in the future. Other increases in operating expenses, including
service, selling and marketing costs, result from the increased sales volume in
fiscal 1993. Legal costs continued to require significant amounts of time, money
and other resources in fiscal 1993. Operating income in the U.S. increased 8%
from $1,602,000 in the nine months ended September 30, 1992 to $1,724,000 in
fiscal 1993 as a result of the higher sales volume and better margins, offset by
increased spending in sales and marketing.
The Company's U.K. subsidiary's sales increased from $1,978,000 in the nine
months ended September 30, 1992 to $2,323,000 in fiscal 1993 as a result of the
first shipments of the Company's soil remediation equipment to Europe, which
offset a decrease in the U.K. company's sales of its existing products. The
cost-reduction steps taken in 1992 combined with the more profitable sales mix
generated an operating profit of $348,000 in fiscal 1993 as opposed to an
operating loss of $189,000 in the nine months ended September 30, 1992.
Nonoperating income and expense increased from a net expense of $708,000 in the
nine months ended September 30, 1992 to $777,000 in fiscal 1993 as a result of
lower net interest expense which was offset by lower miscellaneous income and
expense. The 1992 period also included a one-time gain from the settlement of
litigation.
In 1993, the Company adopted Statement of Financial Accounting Standards No.
109, Accounting for Income Taxes, on a retroactive basis. Accordingly, the
---------------------------
Company has restated the results of its operations for the five years ended
December 31, 1992 to reflect this retroactive adoption of FAS No. 109. See Item
6, Selected Financial Data.
-11-
Liquidity and Capital Resources
The Company has working capital at September 30, 1995 of $11,047,000 as
compared with working capital of $8,266,000 as of September 30, 1994. The
increase in working capital resulted from the retirement of the second
mortgage on the Company's Orlando facility and an increase in inventory
and accounts receivable.
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 or replace old equipment during the summer and fall months,
thereby avoiding disruption of their activities during such peak periods
of highway construction. The Company's soil remediation equipment
business does not show such seasonality.
During 1995, the Company's total debt decreased $1,935,000, as a result of
scheduled principal repayments and the retirement of the second mortgage
on the Company's Orlando headquarters property.
In December 1994, the Company accepted a commitment from its then primary
domestic lender (First Union National Bank), that extended the maturities
of the revolving line of credit and term loan to January 1996, with an
additional extension until August 1996 at which time the Company signed a
new Loan and Security Agreement with SouthTrust Bank of Alabama, N.A. (see
Exhibits 4.25 and 4.26). The new Loan and Security Agreement provided the
Company with a $16,000,000 revolving line of credit and a $3,714,000 term
facility.
The Company successfully reached a settlement in August 1995 with the
holder of a disputed second mortgage on its Orlando, Florida headquarters
building and factory. The settlement had the effect of yielding a taxable
gain of approximately $810,000 to the Company.
The Company owns several real estate properties which are regarded as
excess and are unused as a result of consolidation and having built more
efficient, modern facilities. During 1994, two of these properties were
sold and the proceeds of these sales were used to reduce bank debt. The
Company cannot predict when it will sell the remaining parcels of
property.
The Company believes that, based on the present conditions and banking
arrangements, it will be able to meet its working capital needs during
fiscal 1996 through operations.
Capital expenditures were approximately $463,000 in the year ended
September 30, 1995 compared to $501,000 in the year ended September 30,
1994.
The effect of inflationary adjustments have been substantially offset by
pricing adjustments.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
An index to the consolidated financial statements of the Company and its
subsidiaries is set forth following Part IV hereof.
ITEM 9. DISAGREEMENT ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
-12-
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information regarding the Company's Directors required by this Item 10
is incorporated herein by reference to the Company's definitive Proxy
statement, which will be filed with the Securities and Exchange
Commission.
Information regarding the Company's Executive Officers required by this
Item 10 is furnished in a separate item captioned "Executive Officers of
Registrant," included in Part I of this Annual Report on Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item 11 is incorporated herein by
reference to the Company's definitive Proxy Statement which will be filed
with the Securities and Exchange Commission.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item 12 is incorporated herein by
reference to the Company's definitive Proxy Statement which will be filed
with the Securities and Exchange Commission.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item 13 is incorporated herein by
reference to the Company's definitive Proxy Statement which will be filed
with the Securities and Exchange Commission.
-13-
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM
8-K
(a) A listing of financial statements and financial statement schedules
filed as part of this report is set forth in the "Index to Financial
Statements" following Part IV hereof.
(b) Reports on Form 8-K: None.
(c) Exhibit Index - 1995 Annual Report on Form 10-K.
EXHIBIT
NUMBER DESCRIPTION FILED HEREWITH
- ------- ------------------------------------------ --------------
3.1 Restated Certificate of Incorporation
of Company, incorporated by reference
to Exhibit 3.1 to Registration No. 33-627
3.2 Composite of Bylaws of Company,
incorporated by reference to Exhibit 3.2
to Registration No. 33-627
3.3 Certificate of Amendment, changing
name of Mechtron International
Corporation to Gencor Industries,
Inc. and adding a "twelfth" article
regarding director liability limitation,
incorporated by reference to the
Company's annual report on Form 10-K
for the year ended December 31,
1987.
4.1 Form of Common Stock certificate,
incorporated by reference to Exhibit 4.1
to Registration No. 33-627.
4.2 Loan Agreement between the Orange
County Industrial Development Authority
and the Company dated as of December 1,
1984, incorporated by reference
to Exhibit 4.2 to Registration No. 33-627.
4.3 Specimen copy of Promissory Note
dated December 1, 1984, from the
Company to the Orange County Industrial
Development Authority in the principal
sum of $5 million, incorporated
by reference to Exhibit 4.3 to
Registration No. 33-627
4.4 Mortgage Deed and Security Agreement
dated as of December 1, 1984, from
the Company to the Orange County
Industrial Development Authority,
incorporated by reference to Exhibit 4.4
to Registration No. 33-627.
-14-
EXHIBIT
NUMBER DESCRIPTION FILED HEREWITH
- ------- ------------------------------------------------- --------------
4.5 Trust Indenture between Orange County Industrial
Development Authority and Barnett Banks Trust
Company dated as of December 1, 1984, incorporated
by reference to Exhibit 4.5 to Registration No.
33-627.
4.6 Guaranty Agreement between General dated as
of December 1, Combustion Corporation,
Mechtron 1984, incorporated International DISC
Corporation, by reference to Exhibit 4.6 Control
Delta Corporation, Thermotech to Registration
No. 33-627. Systems Corporation of Florida,
General Combustion Limited, and the Orange County
Industrial Development Authority
4.7 Credit agreement between Mechtron International
Corporation, General Combustion Corporation,
Genco-Sellers, Inc., Control Delta Corporation,
Thermotech Systems Corporation of Florida,
Bituma-Stor, Inc., Bituma Construction
Equipment Corporation, General Combustion
National Bank dated March 19, 1987, but
for accounting purposes treated as if dated
December 31, 1986, incorporated by reference
to Exhibit 4.7 to Registration No. 33-627.
4.9 Specimen copy of Term Note from the Company
and all subsidiaries to Florida National
Bank dated March 19, 1987, but for accounting
purposes treated as if dated December 31,
1986, incorporated by reference to Exhibit 4.9
to Registration No. 33-627.
4.10 Specimen copy of Line of Credit Note from
the Company and all subsidiaries to Florida
National Bank dated March 19, 1987, but
for accounting purposes treated as if dated
December 31, 1986, incorporated by reference
to the 1986 Annual Report on Form 10-K.
4.11 Specimen copy of note from Company to David
Eugene Davis dated January 8, 1988, incorporated
by reference to Form 8-K filed on February 17,
1988.
4.12 Specimen copy of term note from the Company
and all subsidiaries to Florida National
Bank dated January 6, 1988, incorporated
by reference to Form 8-K on February 17, 1988.
-15-
EXHIBIT
NUMBER DESCRIPTION FILED HEREWITH
- ------- ---------------------------------------------- --------------
4.13 Specimen copy of the amendment to the
line of credit note from the Company and
all subsidiaries to Florida National Bank
dated January 6, 1988, incorporated by
reference to the 1987 Annual Report on
Form 10-K.
4.14 Specimen copy of short-term second
mortgage note from the company to
American Pioneer Savings Bank dated June 1,
1988, and renewed in December 1988 until
June 1, 1989, incorporated by reference to
the Company's 1988 Annual Report on Form 10-K.
4.15 Specimen copy of second mortgage
note from the Company to American
Pioneer Savings Bank dated January 21,
1991, incorporated by reference
to the Company's 1990 Annual Report
on Form 10-K.
4.16 Security agreement for benefit of
Standard Havens Products Inc. dated as
of April 5, 1990, incorporated by
reference to the Company's 1990 Annual
Report on Form 10-K.
4.17 Specimen copy of the fifth amendment to
the Credit Agreement between the Company
and First Union National Bank of Florida,
dated May 13, 1992, but treated for accounting
purposes as if dated December 31, 1991,
incorporated by reference to the Company's
1991 Annual Report on Form 10-K.
4.18 Specimen copies of Renewal Notes dated
May 13, 1992, between the Company and First
Union National Bank of Florida, incorporated
by reference to the Company's 1991 Annual
Report on Form 10-K.
4.19 Specimen copy of the sixth amendment to
the Credit Agreement between the Company
and First Union National Bank of Florida,
dated May 20, 1993, but treated for accounting
purposes as if dated December 31, 1992,
incorporated by reference to the Company's 1992
Annual Report on Form 10-K.
4.20 Specimen copies of Renewal Notes dated
May 20, 1993, between the Company and First
Union National Bank of Florida, incorporated
by reference to the Company's 1992 Annual
Report on Form 10-K.
-16-
EXHIBIT
NUMBER DESCRIPTION FILED HEREWITH
- ------- ------------------------------------------ --------------
4.21 Specimen copy of the seventh amendment
to the Credit Agreement between
the Company and First Union National
Bank of Florida, dated December 29,
1993, but treated for accounting
purposes as if dated September 30,
1993, incorporated by reference
to the Company's 1993 Transition
Report on Form 10-K.
4.22 Specimen copies of Renewal Notes
dated December 29, 1993, between
the Company and First Union National
Bank of Florida incorporated by
reference to the Company's 1993
Transition Report on Form 10-K.
4.23 Commitment letter between the Company
and First Union National Bank of
Florida, dated December 14, 1994.
4.24 Specimen copy of the eighth amendment
to the credit agreement between
the Company and First Union National
Bank of Florida, dated January 15,
1995, but treated for accounting
purposes as if dated September 30,
1995, incorporated by reference
to the Company's 1995 Transition
Report on Form 10K.
4.25 Agreements and documents related
to the Loan and Security Agreement
between the Company and SouthTrust Bank
of Alabama, National Association, dated
August 3, 1995
4.26 Specimen copies of the Term Loan Promissory
Note and the Revolving Credit Promissory
Note dated August 3, 1995, between the
Company and SouthTrust Bank of Alabama,
National Association.
10.1 1982 Incentive Stock Option Plan and form
of Stock Option Agreement, incorporated by
reference to Exhibit 10.1(a) to the Annual
Report on Form 10-K for the year ended
December 31, 1984.
10.2 Form of Agreement for Nonqualified
Stock Options granted in 1982, 1983, 1984,
and 1985, incorporated by reference to
Exhibit 10.2(b) to the Company's Annual
Report on Form 10-K for the year ended
December 31, 1984.
-17-
EXHIBIT
NUMBER DESCRIPTION FILED HEREWITH
- ------- --------------------------------------------- --------------
10.3 Stock Option Termination Agreements dated
September 20, 1984, between the Company and
Constantine Corpas, E.J. Elliott, John E.
Elliott, Michael J. Elliott, Frederick M.
Glass, and Peter Kourmolis, incorporated by
reference to Exhibit 10.3 to Registration
No. 33.627.
10.5 Form of Agreement for Nonqualified Stock
Options granted in 1986, incorporated by
reference to the Annual Report on Form 10-K
for the year ended December 31,1986.
10.6 1992 Stock Option Plan and Form of Agreement,
incorporated by reference to the Company's
Quarterly Report on Form 10-Q for the quarter
ended June 30, 1992.
11.0 Statement regarding Computation of X
Earnings per Share.
21.0 Subsidiaries of the Registrant. X
27.0 Financial Data Schedule X
-18-
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.
Dated: December 13, 1995 GENCOR INDUSTRIES, INC.
(Registrant)
By: /s/ E.J. Elliott
-------------------------------
E.J. Elliott
President and Chairman
of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated. The
signatures of Directors constitute a majority of Directors.
/s/ E.J. Elliott /s/ Russell R. Lee III
- ----------------------------------- -------------------------------
E.J. Elliott Russell R. Lee III
President and Chairman of the Board Treasurer
/s/ C.L. Corpas /s/ Peter Kourmolis
- ----------------------------------- -------------------------------
C.L. Corpas Peter Kourmolis
Director Director
/s/ John E. Elliott /s/ David A. Air
- ----------------------------------- -------------------------------
John E. Elliott David A. Air
Director Director
-19-
GENCOR INDUSTRIES, INC.
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
PAGE
----
Report of Independent Certified Public Accountants 23
Consolidated Balance Sheets at September 30, 1995 and 1994 24
Consolidated Statements of Income for the years ended
September 30, 1995 and 1994, and the nine months ended
September 30, 1993 25
Consolidated Statements of Shareholders' Equity for the
years ended September 30, 1995 and 1994, and the nine
months ended September 30, 1993 26
Consolidated Statements of Cash Flows for the years ended
September 30, 1995 and 1994, and the nine months ended
September 30, 1993 27
Notes to Consolidated Financial Statements 28
Financial Statement Schedule:
VIII Valuation and Qualifying Accounts 35
All other schedules are omitted because they are not applicable or the
required information is shown in the financial statements or notes
thereto.
-20-
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of
Gencor Industries, Inc.
Orlando, Florida
We have audited the accompanying consolidated balance sheets of Gencor
Industries, Inc. and subsidiaries (the "Company") as of September 30, 1995
and 1994, and the related consolidated statements of income, shareholders'
equity, and cash flows for the two years then ended and the nine-month
period ended September 30, 1993. Our audits also included the financial
statement schedule listed in the accompanying index. These consolidated
financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to
express an opinion on the financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Gencor Industries, Inc.
and subsidiaries at September 30, 1995 and 1994, and the results of their
operations and their cash flows for the two years then ended and the
nine-month period ended September 30, 1993, in conformity with generally
accepted accounting principles. Also, in our opinion, such financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.
DELOITTE & TOUCHE LLP
November 22, 1995
Orlando, Florida
-21-
GENCOR INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
September 30,
ASSETS 1995 1994
------ ------
Current assets:
Cash and cash equivalents $ 415,668 $ 3,924,728
Accountants receivable, less allowance for doubtful accounts
of $2,555,000 ($2,533,000 in 1994) 7,184,733 5,531,796
Inventories (Note 2) 14,714,777 12,109,805
Prepaid expenses, including deferred income taxes of
$1,462,000 ($1,210,000 in 1994) (Note 5) 2,001,989 1,870,831
----------- -----------
Total current assets 24,317,167 23,437,160
Property and equipment, net (Notes 3 and 4) 10,453,405 10,669,525
Other assets 360,906 431,751
----------- -----------
$35,131,478 $34,538,436
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable (Note 4) $ 913,337 $ 963,634
Current portion of long-term debt (Note 4) 632,254 2,601,958
Accounts payable 7,167,886 3,699,485
Customer deposits (Note 2) 448,166 1,513,291
Income taxes payable (Note 5) 740,237 1,307,430
Accrued expenses 3,367,900 5,085,785
----------- -----------
Total current liabilities 13,269,780 15,171,583
Long-term debt (Note 4) 11,708,403 11,623,075
Deferred income taxes (Note 5) 511,000 644,000
Contingencies and commitments (Note 6)
Shareholders' equity: (Notes 8 and 9)
Preferred stock, par value $.10 per share; authorized
300,000 shares; none issued
Common stock, par value $.10 per share; 5,000,000
shares authorized; 1,605,267 shares issued
(1,459,507 shares in 1994) 160,527 145,950
Class B stock, par value $.10 per share; 3,000,000
shares authorized; 434,032 shares issued and outstanding
(394,575 shares in 1994) 43,403 39,457
Capital in excess of par value 7,740,908 6,807,270
Retained earnings 2,328,655 744,307
Cumulative translation adjustment 319,131 315,947
----------- -----------
10,592,624 8,052,931
Less: Subscription receivable from officer (94,992) (100,238)
Common stock in treasury, 266,435 shares at cost
(242,214 shares in 1994) (855,337) (852,915)
----------- -----------
9,642,295 7,099,778
----------- -----------
$35,134,478 $34,538,436
=========== ===========
See accompanying notes to consolidated financial statements.
-22-
GENCOR INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
Year Ended Year Ended Nine Months Ended
September 30, September 30, September 30,
1995 1994 1993
------------- ------------- -----------------
Net revenue $58,944,432 $57,731,907 $43,642,125
Costs and expenses:
Production costs 42,763,506 43,139,659 31,605,825
Product engineering and development 1,919,851 1,939,038 1,788,328
Selling, general and administration expenses 10,390,156 9,092,866 8,175,822
----------- ----------- -----------
55,073,513 54,171,563 41,569,975
----------- ----------- -----------
Operating income 3,870,919 3,560,344 2,072,150
Other income (expense):
Interest income 17,160 103,434 39,803
Interest expense (1,055,043) (985,845) (763,448)
Miscellaneous 291,686 (223,417) (53,019)
----------- ----------- -----------
(746,197) (1,105,828) (776,664)
----------- ----------- -----------
Income before income taxes and
extraordinary gain 3,124,722 2,454,516 1,295,486
Income tax expense (benefit) (Note 5)
Current:
Federal 1,301,000 1,427,000 435,000
State 170,000 52,000
----------- ----------- -----------
1,471,000 1,479,000 435,000
Deferred (385,000) (655,000) (95,000)
----------- ----------- -----------
1,086,000 824,000 340,000
----------- ----------- -----------
Income before extraordinary gain 2,038,722 1,630,516 955,486
Extraordinary gain from the retirement of debt,
net of income taxes of $312,000 (Note 4) 497,701 - -
----------- ----------- -----------
Net income $ 2,536,423 $ 1,630,516 $ 955,486
=========== =========== ===========
Income per share:
Income before extraordinary gain $ 1.18 $ 1.01 $ 0.59
Extraordinary gain 0.28 - -
----------- ----------- -----------
Net income per common share $ 1.46 $ 1.01 $ 0.59
=========== =========== ===========
Shares used in computing net income
per common share 1,732,725 1,610,608 1,606,740
=========== =========== ===========
See accompanying notes to consolidated financial statements.
-23-
GENCOR INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 1995 AND 1994, AND THE NINE MONTHS ENDED
SEPTEMBER 30, 1993
Common Stock Class B Stock Retained
---------------------- ------------------ Capital in Earnings
Excess of (Accumulated
Shares Amount Shares Amount Par Value Deficit)
--------- -------- ------- ------- ---------- ------------
December 31, 1992 1,440,613 $144,061 403,469 $40,346 $6,780,770 $(1,841,695)
Stock option exercised (Note 9) 5,000 500 -- -- 13,250 --
Net income -- -- -- -- -- 955,486
Translation adjustment -- -- -- -- -- --
--------- -------- ------- ------- ---------- ------------
September 30, 1993 1,445,613 144,561 403,469 40,346 6,794,020 (886,209)
Stock option exercised (Note 9) 5,000 500 -- -- 13,250 --
Conversion of Class B shares
to Common shares 8,894 889 (8,894) (889) -- --
Net income -- -- -- -- -- 1,630,516
Translation adjustment -- -- -- -- -- --
--------- -------- ------- ------- ---------- ------------
September 30, 1994 1,459,507 145,950 394,575 39,457 6,807,270 744,307
10% stock dividend 145,760 14,577 39,457 3,946 933,638 (952,075)
Net income -- -- -- -- -- 2,536,423
Translation adjustment -- -- -- -- -- --
Reductions in subscription
receivable -- -- -- -- -- --
--------- -------- ------- ------- ---------- ------------
September 30, 1995 1,605,267 $160,527 434,032 $43,403 $7,740,908 $ 2,328,655
========= ======== ======= ======= ========== ============
Treasury Stock
Cumulative ---------------------- Total
Translation Subscription Shareholders'
Adjustment Subtotal Receivable Shares Cost Equity
---------- ----------- ---------- ------- --------- ----------
December 31, 1992 $283,826 $ 5,407,308 $(100,238) 242,214 $(852,915) $4,454,155
Stock option exercised (Note 9) -- 13,750 -- -- -- 13,750
Net income -- 955,486 -- -- -- 955,486
Translation adjustment (6,263) (6,263) -- -- -- (6,263)
-------- ----------- --------- ------- --------- ----------
September 30, 1993 277,563 6,370,281 (100,238) 242,214 (852,915) 5,417,128
Stock option exercised (Note 9) -- 13,750 -- -- -- 13,750
Conversion of Class B shares
to Common shares -- -- -- -- -- --
Net income -- 1,630,516 -- -- -- 1,630,516
Translation adjustment 38,384 38,384 -- -- -- 38,384
-------- ----------- --------- ------- --------- ----------
September 30, 1994 315,947 8,052,931 (100,238) 242,214 (852,915) 7,099,778
10% stock dividend -- 86 -- 24,221 (2,422) (2,336)
Net income -- 2,536,423 -- -- -- 2,536,423
Translation adjustment 3,184 3,184 -- -- -- 3,184
Reductions in subscription
receivable -- -- 5,246 -- -- 5,246
-------- ----------- --------- ------- --------- ----------
September 30, 1995 $319,131 $10,592,624 $ (94,992) 266,435 $(855,337) $9,642,295
======== =========== ========= ======= ========= ==========
See accompanying notes to consolidated financial statements.
-24-
GENCOR INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
[CAPTION]
Year Ended Year Ended Nine Months Ended
September 30, September 30, September 30,
1995 1994 1993
------ ------ ------
Net income $ 2,536,423 $ 1,630,516 $ 955,486
Adjustments to reconcile net income
to cash provided by (used for) operations:
Extraordinary gain (497,701) - -
Loss (gain) on disposal of property and equipment 6,329 (382,372) 33,893
Loss (gain) on foreign exchange 1,086 (311) 9,942
Depreciation and amortization 757,568 862,058 663,207
Escrow account releases (deposits) - 2,250,000 (1,000,000)
Change in assets and liabilities:
Decrease (increase) in accounts and
notes receivable (1,649,989) 221,144 (1,926,501)
Decrease in income tax receivable - - 400,000
Decrease (increase) in inventories (2,603,986) 912,832 634,526
Decrease (increase) in prepaid expenses (131,065) 195,151 (211,771)
Increase in deferred income taxes (133,000) (655,000) (95,000)
Increase (decrease) in accounts payable
and customer deposits 2,399,668 (2,768,777) 506,269
Increase (decrease) in income tax liabilities (879,193) 847,427 385,862
Increase (decrease) in accrued expenses (1,719,632) 835,686 202,795
----------- ----------- ----------
Total adjustments (4,449,915) 2,317,838 (396,778)
----------- ----------- ----------
Cash provided by (used for) operations (1,913,492) 3,948,354 558,708
Cash flows from investing activities:
Capital expenditures (462,513) (500,970) (343,819)
Proceeds from sale of property and equipment 1,770 821,048 13,714
Other, net 19,076 (201,963) (52,918)
----------- ----------- ----------
Cash provided (used for) investing activities (441,667) 118,115 (383,023)
Cash flows from financing activities:
Net (reduction) increase under line of credit 599,470 (207,570) 1,269,283
Repayment of existing debt (4,210,743) (413,289) (1,192,505)
Borrowings 2,484,000 - -
Other, net (27,160) 53,134 (24,984)
----------- ----------- ----------
Cash provided (used for) financing activities (1,154,433) (567,725) 51,794
Effect of exchange rate changes on cash 532 (3,245) 1,106
----------- ----------- ----------
Net increase (decrease) in cash (3,509,060) 3,495,499 228,585
Cash and cash equivalents at:
Beginning of period 3,924,728 429,229 200,644
----------- ----------- ----------
End of period $ 415,668 $ 3,924,728 $ 429,229
=========== =========== ==========
Supplemental cash flow information:
Cash paid during the year for:
Interest $ 1,288,000 $ 837,000 $ 684,000
=========== =========== ==========
Income taxes $ 2,179,000 $ 634,000 $ -
=========== =========== ==========
See accompanying notes to consolidated financial statements.
-25-
GENCOR INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
Change in Fiscal Year
In July 1993, the Company changed to a fiscal year ending September 30, in order
to conform financial reporting to the Company's natural business year. The
consolidated statements of income, shareholders' equity and cash flows are
presented for the years ended September 30, 1995 and 1994 and the nine months
ended September 30, 1993.
Business
The Company manufactures heat transfer products, aggregate and other
material handling equipment and combustion systems primarily utilized in
the asphalt and related industries.
Principles of Consolidation
The consolidated financial statements include the accounts of Gencor
Industries, Inc. and its subsidiaries (the "Company"). All material
intercompany accounts and transactions are eliminated in consolidation.
Foreign Currency Translation
Assets and liabilities of the Company's foreign subsidiary are translated
into U.S. dollars at the applicable rate of exchange in effect at the end
of the fiscal year. Revenue and expense accounts are translated at the
average rate of exchange during the period and equity accounts are
translated at the rate in effect when the transactions giving rise to the
balances took place. Gains and losses resulting from translation are
accumulated in a separate component of shareholders' equity. Gains and
losses resulting from foreign currency transactions are included in
income.
Cash Equivalents
Cash equivalents, which consist of short-term certificates of deposit and
deposits in money market accounts with original maturities of three months
or less, are carried at cost, which approximates their market value.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined
principally by the last-in, first-out (LIFO) method.
Property and Equipment
Property and equipment are stated at cost. Depreciation of property and
equipment, including depreciation on assets acquired under capital leases,
is computed using straight-line and accelerated methods over the estimated
useful lives of the related assets. Maintenance and repairs are expensed
as incurred. Expenditures which significantly increase asset values or
extend useful lives are capitalized.
Assets held for resale are stated at lower of depreciated cost or net
realizable value and are no longer depreciated.
-26-
Revenues
Sales, other than revenues from contracts for the production of custom
equipment, are recorded generally as the products are shipped. Revenues
from contracts for the design and manufacture of certain custom equipment
are recognized under the percentage-of-completion method.
Percentage-of-completion accounting is applied to all contracts where (i)
the equipment ordered by a customer is designed and manufactured to the
customer's specific application, (ii) design, production and installation,
if applicable, takes more than three months, and (iii) the aggregate
contract sales price exceeds $500,000. In applying the
percentage-of-completion method, revenue is recognized in proportion to
actual labor costs incurred as compared with total estimated labor costs
expected to be incurred during the entire contract. All selling, general
and administrative expenses are charged to income as incurred. When the
contract estimates indicate a loss, provision is made for the total
anticipated loss in the period that the loss becomes evident.
The estimated costs of product warranties are charged to production costs
as revenue is recognized.
Income Taxes
The Company and its domestic subsidiaries file a consolidated federal
income tax return. The foreign subsidiary provides income taxes based on
the tax regulations of the country in which it operates. Tax credits are
recognized under the flow-through method.
Net Income Per Share
Net income per share is based on the weighted average number of common
shares and common stock equivalents outstanding during each period.
NOTE 2 - INVENTORIES
Inventories at September 30, 1995 and 1994 consist of the following:
1995 1994
---- ----
Raw materials $ 7,583,079 $ 6,347,530
Work in progress 3,275,335 1,059,500
Finished goods 3,856,363 4,702,775
----------- -----------
$14,714,777 $12,109,805
=========== ===========
At September 30, 1995, accumulated costs of approximately $1,754,000 on
major contracts, net of progress payments of approximately $230,000, and
estimated earnings of approximately $609,000 amount to approximately
$2,133,000, and are included in work-in-process inventory.
At September 30, 1994, accumulated costs of approximately $3,301,000 on
major contracts, net of progress payments of approximately $2,920,000, and
estimated earnings of approximately $1,012,000 amount to approximately
$1,393,000, and are included in work-in-process and finished goods
inventories.
At September 30, 1995 and 1994 cost is determined by the last-in, first-out
(LIFO) method for 88% and 84%, respectively, of total inventories,
exclusive of progress payments, and the first-in, first-out (FIFO) method
for all other inventories. At September 30, 1995 and 1994, the estimated
current cost of inventories exceeded their LIFO basis by approximately
$1,996,000 and $1,625,000, respectively.
-27-
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment at September 30, 1995 and 1994, consist of the
following:
1995 1994
------ ------
Land and improvements $ 3,324,756 $ 3,299,885
Building and improvements 10,831,057 10,732,800
Machinery and equipment 2,785,275 2,548,521
Tools, jigs and dies 119,100 119,100
Furniture and equipment 1,733,718 1,706,827
----------- -----------
18,793,906 18,407,827
Less: Accumulated depreciation (8,340,501) (7,737,608)
----------- -----------
$10,453,405 $10,669,525
=========== ===========
Substantially all of the Company's property and equipment is pledged as
collateral for the Company's debt.
The Company has for sale assets with a net book value of approximately
$984,000 at September 30, 1995. These assets include land and buildings
previously used for manufacturing and administrative offices.
Depreciation expense for the years ended September 30, 1995 and 1994, and
the nine months ended September 30, 1993 was approximately $675,000,
$765,000, and $626,000, respectively. There was no interest capitalized
during 1995, 1994, or 1993.
NOTE 4 - NOTES PAYABLE AND LONG-TERM DEBT
Outstanding borrowings under the Company's foreign line of credit amounted
to $128,000 and $325,000 at September 30, 1995 and 1994, respectively.
These borrowings bear interest (9.45% at September 30, 1995) at the United
Kingdom's base rate plus 3.35 percent and are secured by a first lien
against substantially all of the assets of the Company's United Kingdom
subsidiary. The Company had approximately $192,000 available under the
United Kingdom credit facility at September 30, 1995. This facility will
require renewal in fiscal 1996. The Company also had other short-term
notes of $785,000 and $638,000 at September 30, 1995 and 1994,
respectively. The weighted average interest rate on short-term borrowings
during the year ended September 30, 1995 was 7.66%.
Long-term debt at September 30, 1995 and 1994 consists of the following:
1995 1994
------ ------
Line of credit facility $ 6,652,067 $ 6,000,000
Term loan payable to bank 2,484,000 2,988,022
Industrial revenue bonds payable to bank 3,204,590 3,445,820
Second mortgage note payable 1,791,191
----------- -----------
12,340,657 14,225,033
Less current maturities (632,254) (2,601,958)
----------- -----------
$11,708,403 $11,623,075
=========== ===========
In July 1995, the Company satisfied the second mortgage on its Orlando
property at a discount. The retirement of the note, which had been in
default, resulted in an extraordinary taxable gain of approximately
$810,000.
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In August 1995, the Company entered into a new credit facility with a
bank. Under the terms of the Loan and Security Agreement, the Company may
borrow, subject to certain financial limitations, up to $16,000,000 under
the revolving credit portion of the facility and up to $5,000,000 under
the term loan portion of the facility. Borrowings under the revolving
credit facility, which expires on January 31, 1998, bear interest (8.3125%
at September 30, 1995) at the Company's choice of the bank's base rate plus
1/2 of 1% or the LIBOR rate plus 2-1/2%. The term loan which bears
interest at 8.81%, is payable in equal monthly installments, based on a
ten-year amortization, with the balance due upon maturity in August 2000.
The Loan and Security Agreement requires, among other things, compliance
with specified financial and other covenants. At September 30, 1995, the
Company was in compliance with the covenants.
The industrial revenue bonds are payable in monthly installments of
principal and interest (7.166% at September 30, 1995) at a varying
percentage (82% at September 30, 1995) of the bank's prime rate through
December 2004. Under the terms of the industrial revenue bond indenture
agreement, the Company is required to maintain compliance with certain
financial and other covenants. The Company was in compliance with the
covenants at September 30, 1995.
Substantially all of the Company's assets are pledged as security under
the various credit agreements.
Aggregate maturities of notes payable and long-term debt subsequent to
September 30, 1995, excluding short-term notes payable, in accordance with
the terms of the agreements, are approximately as follows:
1996 $ 632,000
1997 651,000
1998 7,323,000
1999 692,000
2000 1,295,000
2000 and thereafter 1,748,000
-----------
$12,341,000
===========
NOTE 5 - INCOME TAXES
The difference between the U.S. federal income tax rate and the Company's
effective income tax rate is as follows:
Federal income tax rate 34.0% 34.0% 34.0%
State income taxes, net of federal income tax benefit 2.9 1.4 --
Difference arising from transactions with, and profit
and loss of, foreign subsidiary not deductible or
includable for U.S. federal income tax purposes (1.3) (1.2) (7.5)
Other, net (0.9) (0.6) (0.3)
---- ---- ----
34.7% 33.6% 26.2%
==== ==== ====
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Deferred tax liabilities (assets) were comprised of the following:
1995 1994
----------- -----------
Depreciation and amortization $ 511,000 $ 644,000
Inventory cost adjustments 143,000 271,000
----------- -----------
Gross deferred tax liability 654,000 915,000
Allowance for doubtful accounts (923,000) (757,000)
Accrued expenses (682,000) (724,000)
----------- -----------
Gross deferred tax asset (1,605,000) (1,481,000)
----------- -----------
$ (951,000) $ (566,000)
=========== ===========
Losses related to the Company's United Kingdom subsidiary, totaling
approximately $993,000 at September 30, 1995, are available to offset
future income generated from the same trade or business historically
carried on by the U.K. subsidiary.
NOTE 6 - COMMITMENTS AND CONTINGENCIES
The Company leases certain equipment under noncancelable operating leases.
Future minimum rental commitments under noncancelable leases in effect at
September 30, 1995 are as follows:
1996 $285,000
1997 175,000
1998 84,000
1999 28,000
--------
$572,000
========
Total rental expense for the years ended September 30, 1995 and 1994, and
the nine months ended September 30, 1993 was $415,000, $378,000, and
$277,000, respectively.
In September 1994, the Company settled its patent litigation with Standard
Havens Products, Inc. The liens on the Company's assets and the
restricted cash equivalents held in escrow were released in accordance
with this confidential settlement agreement in October 1994.
The Company is involved in various other litigation matters arising in the
ordinary course of business. Management has reviewed all claims and
lawsuits and, upon the advice of counsel, has made provision for estimable
losses and expenses of litigation relating to claims against the Company.
NOTE 7 - SEGMENT AND GEOGRAPHIC INFORMATION
The Company operates in one industry segment (asphalt and related industry
equipment) and is engaged in the design and manufacture of combustion
systems, thermal fluid heat systems, soil remediation equipment, asphalt
plants, asphalt components and their controls. The Company conducts
separate operations in the United States and Europe.
-30-
Information about the Company's operations at September 30, 1995, 1994 and
1993 and for the years ended September 30, 1995 and 1994, and the nine
months ended September 30, 1993 in these geographic areas is as follows:
1995 1994 1993
----------- ----------- -----------
Net sales to unaffiliated customers
United States $56,427,367 $55,395,036 $41,318,801
Europe 2,517,065 2,336,871 2,323,324
----------- ----------- -----------
Total consolidated $58,944,432 $57,731,907 $43,642,125
=========== =========== ===========
Net sales or transfers between
geographic areas
United States $ -- $ -- $ --
Europe 143,861 224,365 513,215
----------- ----------- -----------
Total $ 143,861 $ 224,365 $ 513,215
=========== =========== ===========
Operating profit (loss)
United States $ 3,657,019 $ 3,466,893 $ 1,723,951
Europe 213,900 93,451 348,199
----------- ----------- -----------
Total $ 3,870,919 $ 3,560,344 $ 2,072,150
=========== =========== ===========
Identifiable assets at year-end
United States $33,296,053 $32,595,135 $32,969,290
Europe 1,835,425 1,943,301 2,169,067
----------- ----------- -----------
Total $35,131,478 $34,538,436 $35,138,357
=========== =========== ===========
The Company's intercompany policy is to transfer product at estimated
market prices. Identifiable assets are those assets of the Company that
are identifiable with the operations in each geographic area. Export
sales for the years ended September 30, 1995 and 1994, and the nine months
ended September 30, 1993 were approximately $4,828,000, $7,548,000, and
$2,600,000, respectively.
NOTE 8 - STOCK OPTIONS
Qualified Stock Options
During the years ended September 30, 1995 and 1994, and the nine months
ended September 30, 1993, option activity under the Company's 1982
qualified stock option plan was as follows:
Number of Option Price
Shares per Share
--------- ------------
Outstanding at September 30, 1993 20,000 $2.75
Exercised (5,000) 2.75
------ -----
Outstanding at September 30, 1995 and 1994 15,000 $2.75
====== =====
Options for 10,000 shares of Common Stock were exercisable at September 30,
1995. Shares are no longer available for grant under the 1982 plan as the
plan has expired.
-31-
Nonqualified Stock Options
As of September 30, 1995 and 1994, the Company had a nonqualified stock
option plan for 7,500 shares of Common Stock or Class B Stock outstanding
to a member of its Board of Directors which is exercisable at $7.50 per
share.
In December 1995, the Company issued options for 100,000 shares of Common
Stock and 100,000 shares of Class B Stock to certain key employees. These
options are outstanding and exercisable at $9.50 per share at September 30,
1995.
NOTE 9 - SHAREHOLDERS' EQUITY
Under the Company's amended Certificate of Incorporation, certain of the
rights of the holders of the Company's Common Stock are modified during
any period when shares of Class B Stock are outstanding. During such
periods, holders of Common Stock will have the right to elect
approximately 25% of the Company's Board of Directors, and will be
entitled until December 31, 1995, to receive per share cash dividends when,
as, and if declared by the Board of Directors, equal to 110% of those paid
on shares of Class B Stock, and conversely, Class B Stock will be entitled
to elect approximately 75% of the Company's Board of Directors and, until
December 31, 1995, will be limited to receiving, to the extent that cash
dividends, if any, are paid, 10% less in dividends than would be payable
on shares of Common Stock. During any period when Common Stock and Class
B Stock are outstanding, certain matters submitted to a vote of
shareholders will also require approval of the holders of Common Stock and
Class B Stock, each voting separately as a class.
On December 30, 1994, the Company issued a 10% stock dividend to all
shareholders of record on November 16, 1994. Accordingly, amounts equal to
the fair market value (based on quoted market prices) of the additional
shares issued have been charged to retained earnings, to the extent
available, and credited to Common and Class B stock and capital in excess
of par value.
NOTE 10 - EMPLOYEE BENEFIT PLANS
The Company has a voluntary 401(K) employee benefit plan ("401(K) Plan")
which covers all eligible employees. The 401(K) Plan provides that 50% of
a participant's contribution will be matched by the Company subject to a
maximum contribution amount. The matching contribution becomes fully
vested after seven years of credited service with the Company. The
Company charged approximately $113,000, $117,000, and $84,000 to operating
expense under the provisions of the 401(K) Plan in the years ended
September 30, 1995 and 1994, and the nine months ended September 30, 1993,
respectively.
-32-
SCHEDULE VIII
GENCOR INDUSTRIES, INC.
VALUATION AND QUALIFYING ACCOUNTS
Balance at Additions Balance at
Beginning Charged to Adjustments End of
Description of Period Income (Deductions) Period
- ---------------------------------------------------------------------------------------
Valuation accounts deducted
from assets to which they apply:
For doubtful accounts receivable:
September 30, 1995 $2,532,958 $ 811,957 $(789,915) (1) $2,555,000
September 30, 1994 $2,305,320 $ 397,740 $(170,102) (1) $2,532,958
September 30, 1993 $1,873,970 $1,139,970 $(708,620) (1) $2,305,320
For inventory obsolescence:
September 30, 1995 $1,708,695 $ (197,375) $ - $1,511,320
September 30, 1994 $1,508,044 $ 200,651 $ - $1,708,695
September 30, 1993 $1,216,160 $ 291,884 $ - $1,508,044
- ----------
(1) Accounts written off during the year and collection of accounts previously
written off.
-33-