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 ------------- 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 ------ Incorporated in the Federal Employer Identification State of Delaware # 59-0933147 ----------------- ---------- GENCOR INDUSTRIES, INC. ----------------------- 5201 North Orange Blossom Trail ------------------------------- Orlando, Florida 32810 ---------------------- (407) 290-6000 -------------- 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. <TABLE> <CAPTION> Index Page <S> <C> 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 </TABLE> 2
Part I. Financial Information Item 1. Financial Statements GENCOR INDUSTRIES, INC. Condensed Consolidated Balance Sheets In thousands, except share amounts <TABLE> <CAPTION> June 30 September 30 2002 2001 ---- ---- <S> <C> <C> 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 ========= ========= </TABLE> 3
GENCOR INDUSTRIES, INC. Unaudited Condensed Consolidated Income Statements In thousands, except per share amounts <TABLE> <CAPTION> Three Months Ended Nine Months Ended June 30 June 30 2002 2001 2002 2001 ---- ---- ---- ---- <S> <C> <C> <C> <C> 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 ========= ========= ========= ======== </TABLE> 4
GENCOR INDUSTRIES, INC. Unaudited Condensed Consolidated Statements of Cash Flows In thousands <TABLE> <CAPTION> Nine Months Ended June 30 --------------------------- 2002 2001 ---- ---- <S> <C> <C> 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 --------- ---------- Net cash provided by (used for) operating activities (515) 9,219 --------- ---------- 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 --------- ---------- Net cash provided by investing activities 1,980 48,805 --------- ---------- Financing activities: Net reduction in notes payable - (616) Repayment of debt (3,208) (62,906) --------- ---------- 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 ========= ========== </TABLE> 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: <TABLE> <CAPTION> Three-months Ended Nine-months Ended June 30 June 30 2002 2001 2002 2001 ---- ---- ---- ---- <S> <C> <C> <C> <C> 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 ====== ======== ====== ======== </TABLE> 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 -------- --------- $ 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: <TABLE> <CAPTION> Three Months Ended Nine Months Ended June 30 June 30 2002 2001 2002 2001 ---- ---- ---- ---- <S> <C> <C> <C> <C> 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 ==================================================== </TABLE> 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: <TABLE> <S> <C> <C> <C> 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 </TABLE> Common Stock Shareholders Votes regarding the election of one Director for a term expiring in 2004 by the Common Stock shareholders were as follows: <TABLE> <S> <C> <C> <C> Term expiring in 2004 FOR AGAINST WITHHELD James H. Stollenwerk 6,317,112 0 26,230 </TABLE> 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: <TABLE> <S> <C> <C> <C> FOR AGAINST WITHHELD Moore Stephens Lovelace, P.A. 6,320,426 16,500 6,616 </TABLE> 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 --------------- ---------------------------------------- Scott W. Runkel, Chief Financial Officer 14