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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE PERIOD ENDED June 30, 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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Incorporated in the Federal Employer Identification
State of Delaware # 59-0933147
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GENCOR INDUSTRIES, INC.
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5201 North Orange Blossom Trail
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Orlando, Florida 32810
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(407) 290-6000
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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 ____
----
Indicate number of shares outstanding of each of the issuer's classes of common
stock as of the latest practicable date.
Class Outstanding at July 10, 2002
----- ----------------------------
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 - June 30, 2002 (Unaudited)
and September 30, 2001 3
Unaudited condensed consolidated income statements - Three- and
Nine-months ended June 30, 2002 and 2001 4
Unaudited condensed consolidated statements of cash flows - Nine-months
ended June 30, 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
Exhibit 99.1 15
2
Part I. Financial Information
Item 1. Financial Statements
GENCOR INDUSTRIES, INC.
Condensed Consolidated Balance Sheets
In thousands, except share amounts
June 30 September 30
2002 2001
---- ----
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents $ 12,574 $ 14,158
Accounts receivable, less allowance for doubtful
accounts of $1,514 ($1,629 at September 30, 2001) 12,157 8,672
Inventories 18,014 23,105
Prepaid expenses 1,367 2,021
--------- ---------
Total current assets 44,112 47,956
--------- ---------
Property and equipment, net 15,740 16,774
Goodwill, net of accumulated amortization 375 379
Other assets 4,374 4,478
--------- ---------
Total assets $ 64,601 $ 69,587
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable $ 196 $ 196
Current portion of long-term debt 3,074 1,299
Accounts payable 7,664 8,788
Customer deposits 618 405
Income and other taxes payable 4,533 3,470
Accrued expenses 11,724 15,513
--------- ---------
Total current liabilities 27,809 29,671
Long-term debt 28,941 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
Retained earnings (deficit) 338 (1,187)
Accumulated other comprehensive loss (6,226) (6,969)
Subscription receivable from officer (95) (95)
Common stock in treasury, 179,400 shares at cost (1,704) (1,704)
--------- ---------
4,542 2,274
--------- ---------
Total liabilities and shareholders' equity $ 64,601 $ 69,587
========= =========
3
GENCOR INDUSTRIES, INC.
Unaudited Condensed Consolidated Income Statements
In thousands, except per share amounts
Three Months Ended Nine Months Ended
June 30 June 30
2002 2001 2002 2001
---- ---- ---- ----
Net sales $ 17,853 $ 20,841 $ 51,158 $ 54,240
Costs and expenses:
Costs of products sold 13,159 14,210 38,179 38,606
Product engineering and development 450 601 1,300 1,731
Selling, general and administrative 3,286 3,877 9,553 10,981
Restructuring costs - 75 302 3,060
--------- ---------- --------- --------
16,895 18,763 49,334 54,378
--------- --------- --------- --------
Operating income (loss) 958 2,078 1,824 (138)
Other income (expense):
Interest income 44 90 118 225
Interest expense (554) (93) (1,737) (192)
Income from investees - - 1,526 -
Miscellaneous 384 72 456 82
--------- --------- --------- --------
(126) 69 363 115
--------- --------- --------- --------
Income (loss) from continuing operations
before income taxes 832 2,147 2,187 (23)
Income taxes 263 - 834 -
--------- --------- --------- --------
Income (loss) from continuing operations 569 2,147 1,353 (23)
--------- --------- --------- --------
Discontinued operations
Income from discontinued operations, net
of income taxes 5 1,676 172 3,815
Gain on sale of business unit, net of
income taxes - 3,546 - 3,546
--------- --------- --------- --------
Net income $ 574 $ 7,369 $ 1,525 $ 7,338
========= ========= ========= ========
Per common share:
Basic:
Income from continuing operations $ 0.07 $ 0.25 $ 0.16 $ -
Discontinued operations $ - $ 0.19 $ 0.02 $ 0.44
Gain on sale of business unit $ - $ 0.41 $ - $ 0.41
--------- --------- --------- --------
Net income $ 0.07 $ 0.85 $ 0.18 $ 0.85
========= ========= ========= ========
Diluted:
Income from continuing operations $ 0.06 $ 0.25 $ 0.15 $ -
Discontinued operations $ - $ 0.19 $ 0.02 $ 0.44
Gain on sale of business unit $ - $ 0.41 $ - $ 0.41
--------- --------- --------- --------
Net income $ 0.06 $ 0.85 $ 0.17 $ 0.85
========= ========= ========= ========
4
GENCOR INDUSTRIES, INC.
Unaudited Condensed Consolidated Statements of Cash Flows
In thousands
Nine Months Ended
June 30
---------------------------
2002 2001
---- ----
Operating activities:
Net income $ 1,525 $ 7,338
Adjustments to reconcile net income to cash
provided by (used for) operating activities:
Gain on sale of business unit - (4,646)
Depreciation and amortization 1,170 3,004
(Gain) Loss on disposition of property and equipment (421) 893
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 (4,316) 2,526
Inventories 4,260 (3,979)
Prepaid expenses 622 869
Other assets (163) (1,558)
Accounts payable (815) 2,023
Customer deposits 279 (445)
Income and other taxes payable 1,081 3,271
Accrued expenses and other (2,134) (77)
--------- ----------
Total adjustments (2,040) 1,881
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Net cash provided by (used for) operating activities (515) 9,219
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Investing activities:
Distributions from unconsolidated investees 1,526 -
Capital expenditures (219) -
Net proceeds from sale of business unit - 48,778
Proceeds from sale of property and equipment 673 27
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Net cash provided by investing activities 1,980 48,805
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Financing activities:
Net reduction in notes payable - (616)
Repayment of debt (3,208) (62,906)
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Net cash used for financing activities (3,208) (63,522)
--------- ----------
Effect of exchange rate changes on cash and cash equivalents 159 (144)
--------- ----------
Decrease in cash and cash equivalents (1,584) (5,642)
Cash and cash equivalents, beginning of period 14,158 17,971
--------- ----------
Cash and cash equivalents, end of period $ 12,574 $ 12,329
========= ==========
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 nine-month
periods ended June 30, 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 and Restructuring Costs
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 Nine-months Ended
June 30 June 30
2002 2001 2002 2001
---- ---- ---- ----
Net sales $ 206 $ 8,731 $ 661 $ 42,740
Costs and expenses 201 5,870 489 36,225
------ -------- ------ --------
Income from discontinued operations before income taxes 5 2,861 172 6,515
Income taxes - 1,185 - 2,700
------ -------- ------ --------
Income from discontinued operations, net of income taxes $ 5 $ 1,676 $ 172 $ 3,815
====== ======== ====== ========
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 net of reserves consist of the following:
June 30 September 30
2002 2001
---- ----
Raw materials $ 9,591 $ 11,294
Work in process 2,435 2,509
Finished goods 3,560 7,379
Used equipment 2,428 1,923
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$ 18,014 $ 23,105
======== =========
7
Note 5 - Earnings Per Share Data
The following table sets forth the computation of basic and diluted earnings per
share:
Three Months Ended Nine Months Ended
June 30 June 30
2002 2001 2002 2001
---- ---- ---- ----
Income (loss) from continuing operations $ 569 $ 2,147 $ 1,353 $ (23)
Income from discontinued operations 5 1,676 172 3,815
Gain on sale of business unit - 3,546 - 3,546
----------------------------------------------------
Net income (loss) $ 574 $ 7,369 $ 1,525 $ 7,338
====================================================
Denominator (shares in thousands):
Weighted average shares outstanding 8,682 8,682 8,682 8,682
Effect of dilutive stock options 758 - 504 -
----------------------------------------------------
Denominator for diluted EPS computation 9,440 8,682 9,186 8,682
====================================================
Per common share:
Basic:
Continuing operations $ 0.07 $ 0.25 $ 0.16 $ -
Discontinued operations - 0.19 0.02 0.44
Gain on sale of business unit - 0.41 - 0.41
----------------------------------------------------
Net income $ 0.07 $ 0.85 $ 0.18 $ 0.85
====================================================
Diluted:
Continuing operations $ 0.06 $ 0.25 $ 0.15 $ -
Discontinued operations - 0.19 0.02 0.44
Gain on sale of business unit - 0.41 - 0.41
----------------------------------------------------
Net income $ 0.06 $ 0.85 $ 0.17 $ 0.85
====================================================
Note 6 - Comprehensive Loss
Total comprehensive income was $894 and $2,268 for the three-and nine-months
ended June 30, 2002, respectively, and $10,435 and $8,160 for the same periods
ended June 30, 2001. Total comprehensive income differs from net income 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. 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 nine-months ended June 30, 2002 and 2001 were $51.2 million
and $54.2 million, respectively. Domestic sales during this period for 2002 and
2001 were $32.8 million and $42.0 million, respectively. 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. Asphalt
plant orders at the Company's U.K. operations increased $6.2 million from the
previous year, which partially offset the decline in domestic sales. Net sales
for the third quarter of 2002 declined by approximately $3.0 million from the
same period of fiscal 2001. Domestic sales during the quarter were lower by
approximately $7.0 million. Foreign sales increased by approximately $4.0
million over the same quarter of last year.
Gross margins as a percent of net sales declined by 3.4% during the nine-months
ended June 30, 2002 from year ago levels. Margins have declined due to a higher
mix of foreign versus domestic sales. In addition, domestic margins have
declined 5.4% from a year ago due to a higher mix of component sales as opposed
to complete plant sales. Gross margins on foreign sales increased 9.2% from a
year ago due to lower production costs.
Product engineering and development costs declined $151 and $431 during the
three- and nine-month periods ended June 2002. Selling and administrative
expenses decreased $591 and $1,428 during the three- and nine-month periods
ended June 2002. The improvements reflect cost reductions and containment
measures initiated by the Company during the first quarter of 2002.
Restructuring costs, which consist of legal and professional fees relating to
the reorganization were $302 during the first nine-months of fiscal 2002
compared to $3,060 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.
Income from investees includes cash distributions of $465 and $1,061 received
during the first and second quarter of 2002, respectively.
Net income for the quarter ended June 30, 2001 included $5.2 million from
discontinued operations, which includes a net gain on sale of the food
processing segment of $3.5 million.
Liquidity and Capital Resources
On December 27, 2001, the Company and its Senior Secured Lenders signed an
Amended and Restated Senior Secured Credit Agreement (Credit Agreement). The
Credit Agreement 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 Credit Agreement also
provides for quarterly supplemental principal payments if certain operating
levels are surpassed. A supplemental principal payment for $710 was paid on May
17, 2002. Based upon the operating results for the third quarter, another
supplemental principal payment for approximately $256 will be due August 29,
2002. The Credit Agreement includes other financial and restrictive covenants.
10
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 has been successful in its efforts to restructure or eliminate
various non-core operations and reduce its outstanding debt balance. As a
result, the Company's capital structure, liquidity and working capital have
significantly improved from a year ago. The current ratio of 1.59:1.00 and
working capital of $16.3 million at June 30, 2002 compares favorably to the
current ratio of .72:1.00 and negative working capital of $20.8 million a year
earlier.
Net cash used for operating activities during the nine-months ended June 30,
2002 was $515. This net cash outlay reflects a $4.3 million increase in accounts
receivable (attributable to several large plant orders), which was offset by a
$4.3 million decrease in inventories. Cash used in financing activities reflect
principal payments on the secured debt of $3.2 million.
Seasonality
The asphalt-related 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 activity of 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 nine-month periods ended June
30, 2002 and 2001 by approximately $258 and $679, respectively. Actual changes
in rates may differ from the hypothetical assumptions used in computing this
exposure.
12
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Shareholders was held on Friday, March 8, 2002, in
Orlando, Florida, at which the following matters were submitted to a vote of the
shareholders:
Election of Directors
Class B Shareholders
Votes regarding the election of four Directors for a term expiring in 2004 by
the Class B shareholders were as follows:
Term expiring in 2004 FOR AGAINST WITHHELD
E. J. Elliott 1,786,398 0 0
John E. Elliott 1,786,398 0 0
Randolph H. Fields 1,786,398 0 0
John M. Panettiere 1,786,398 0 0
Common Stock Shareholders
Votes regarding the election of one Director for a term expiring in 2004 by the
Common Stock shareholders were as follows:
Term expiring in 2004 FOR AGAINST WITHHELD
James H. Stollenwerk 6,317,112 0 26,230
Selection of Auditors
Votes regarding the ratification of Moore Stephens Lovelace, P.A. independent
certified accountants, as auditors for the Company for the year ending September
30, 2002 were as follows:
FOR AGAINST WITHHELD
Moore Stephens Lovelace, P.A. 6,320,426 16,500 6,616
Item 6. Exhibits and Reports on Form 8-K
The following exhibits are included herein:
99.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
The Company did not file any reports on Form 8-K during the three months ended
June 30, 2002.
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: August 14, 2002 /s/ Scott W. Runkel
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Scott W. Runkel, Chief Financial Officer
14