UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1998 -------------- 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 --------- GENCOR INDUSTRIES, INC. ----------------------- (Exact name of registrant as specified in its charter) Delaware 59-0933147 -------- ---------- (State or other jurisdiction of (I.R.S. Employer incorporated or organization) Identification No.) 5201 North Orange Blossom Trail, Orlando, Florida 32810 -------------------------------------------------------- (Address of principal executive offices) (Zip Code) (407) 290-6000 -------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ------- ------ Indicate number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date. Class Outstanding at May 11, 1998 ----- --------------------------- Common stock, $.10 par value 7,025,740 shares Class B stock, $.10 par value 1,766,128 shares 1
Gencor Industries, Inc. Form 10-Q for the Quarter Ended March 31, 1998 <TABLE> <CAPTION> Index - ----- Page ---- <S> <C> <C> Part I. Financial Information - Unaudited Item 1. Financial Statements a) Consolidated Balance Sheets - March 31, 1998 and September 30, 1997 3 b) Consolidated Income Statements - Six Months and Three Months Ended March 31, 1998 and 1997 4 c) Consolidated Statements of Cash Flows - Six Months Ended March 31, 1998 and 1997 5 d) Notes to Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Position and Results of Operations 7 Item 4. Submission of Matters to a Vote of Security Holders 10 Part II. Other Information Exhibit 11 11 </TABLE> 2
PART I. FINANCIAL INFORMATION ITEM 1. - ------- Gencor Industries, Inc. Consolidated Balance Sheets (All Dollar Amounts in Thousands) <TABLE> <CAPTION> March 31, September 30, 1998 1997 ---------------- ----------------- (Unaudited) (Audited) Assets - ------ <S> <C> <C> Current assets: Cash and cash equivalents $ 9,744 $ 10,287 Accounts receivable, less allowance for doubtful accounts of $3,818 and $3,412 39,188 36,465 Inventories: Raw materials 13,494 12,109 Work-in-process 19,495 8,915 Finished goods 20,899 25,151 -------- -------- 53,888 46,175 Prepaid expenses, including deferred income taxes of $411 and $419 2,371 2,466 -------- -------- Total current assets 105,191 95,393 Property and equipment, net 42,753 38,414 Goodwill 18,600 16,119 Other assets 15,964 13,226 -------- -------- $182,508 $163,152 ======== ======== Liabilities and Shareholders' Equity - ------------------------------------ Current liabilities: Notes payable $ 6,276 $ 44 Current portion of long-term debt 6,060 4,798 Accounts payable 14,381 15,825 Customer deposits 15,991 12,218 Accrued expenses 18,240 16,080 Income taxes payable 2,065 701 -------- -------- Total current liabilities 63,013 49,666 Post-retirement benefits 2,155 1,958 Other liabilities 3,332 3,089 Deferred income taxes 2,061 738 Long-term debt 85,145 86,489 Shareholders' equity: Preferred stock, par value $0.10 per share; authorized 300,000 shares, none issued - - Common stock, par value $0.10 per share; 15,000,000 shares authorized; 6,545,740 shares issued 654 654 Class B stock, par value $0.10 per share; 6,000,000 shares authorized; 1,766,128 shares issued 177 177 Capital in excess of par value 9,356 9,356 Retained earnings 17,478 11,804 Cumulative translation adjustment (768) (684) -------- -------- 26,897 21,307 Subscription receivable from officer (95) (95) -------- -------- 26,802 21,212 -------- -------- $182,508 $163,152 ======== ======== </TABLE> See accompanying notes to consolidated financial statements. 3
Gencor Industries, Inc. Consolidated Income Statement (Unaudited) (All Dollars in Thousands, Except Per Share Amounts) <TABLE> <CAPTION> Three Months Ended Six Months Ended March 31, March 31, ---------------------------- ----------------------------- 1998 1997 1998 1997 ---- ---- ---- ---- <S> <C> <C> <C> <C> Net revenue $61,156 $48,717 $117,667 $83,936 Costs and expenses: Production costs 38,614 35,804 79,272 60,661 Product engineering and development 652 568 1,289 1,167 Selling, general and administrative 12,095 7,815 22,540 15,940 ------- ------- -------- ------- 51,361 44,187 103,101 77,768 ------- ------- -------- ------- Operating income 9,795 4,530 14,566 6,168 Other income (expense): Interest income 359 5 675 5 Interest expense (2,625) (1,662) (5,377) (3,177) Miscellaneous (719) 34 (360) 345 ------- ------- -------- ------- Income before income taxes 6,810 2,907 9,504 3,341 Provision for income taxes 2,691 1,046 3,611 1,198 ------- ------- -------- ------- Net income $ 4,119 $ 1,861 $ 5,893 $ 2,143 ======= ======= ======== ======= Net income per share: Basic $0.50 $0.22 $0.71 $0.27 ======= ======= ======== ======= Diluted $0.41 $0.20 $0.60 $0.24 ======= ======= ======== ======= </TABLE> See accompanying notes to consolidated financial statements. 4
Gencor Industries, Inc. Consolidated Statement of Cash Flows (Unaudited) (Dollars in Thousands) <TABLE> <CAPTION> Six Months Ended March 31, ------------------------ 1998 1997 -------- -------- <S> <C> <C> Net income $ 5,893 $ 2,143 Adjustments to reconcile net income to cash provided by operations: Depreciation and amortization 3,190 2,659 Postretirement benefits 197 - Loss (gain) on equipment disposal 531 - Change in assets and liabilities: Decrease (increase) in receivables 7,392 (10,663) (Increase) decrease in inventories (4,400) (1,073) (Increase) decrease in prepaid expenses (109) 1,117 Increase (decrease) in deferred income taxes 315 (497) (Decrease) increase in accounts payable and customer deposits (1,039) 6,684 (Decrease) increase in accrued expenses (1,555) 3,083 Increase in income taxes payable 1,036 58 Decrease in other assets (1,523) 797 -------- -------- Total adjustments 4,035 2,165 -------- -------- Cash provided by operations 9,928 4,308 Cash flows from investing activities: Cash paid for business acquired (11,634) - Capital expenditures (2,230) (1,259) Acquisition costs (2,849) (1,993) -------- -------- Cash used for investing activities (16,713) (3,252) Cash flows from financing activities: Net increase (reduction) under lines of credit and notes payable 6,233 (12,256) Net borrowings (repayment) of debt (82) 79,672 Payments to Ingersoll Rand - (61,011) Dividends paid (219) (89) Proceeds from sale of stock - 1,611 Other, net 242 (1,247) -------- -------- Cash provided by financing activities 6,174 6,680 Effect of exchange rate changes on cash 68 (86) -------- -------- Net increase (decrease) in cash (543) 7,650 Cash and cash equivalents at: Beginning of period 10,287 1,501 -------- -------- End of period $ 9,744 $ 9,151 ======== ======== Supplemental cash flow information: - ----------------------------------- Cash paid during the period for: Interest $ 4,491 $ 2,100 ======== ======== Income taxes $ 1,975 $ 769 ======== ======== </TABLE> See accompanying notes to consolidated financial statements. 5
Gencor Industries, Inc. Notes to Consolidated Financial Statements (Unaudited) NOTE 1 - BASIS OF PRESENTATION - ------------------------------ The accompanying unaudited interim consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted pursuant to such rules and regulations. The accompanying unaudited interim consolidated financial statements and related notes should be read in conjunction with the financial statements and related notes included in the Company's 1997 Annual Report on Form 10-K. In the opinion of management, all material adjustments, consisting of normal recurring adjustments, considered necessary for a fair presentation have been included in the accompanying unaudited interim consolidated financial statements. Operating results for the six months ended March 31, 1998, are not necessarily indicative of the results that may be expected for the year ending September 30, 1998. Certain prior year amounts in the consolidated financial statements have been reclassified to conform with the current year presentation. NOTE 2 - ACQUISITION - -------------------- Effective October 1, 1997, the Company acquired ACP Holdings PLC ("ACP"), a United Kingdom based designer and manufacturer of heavy machinery for the road construction and quarrying industries for approximately $3.2 million in cash. The acquisition was financed using the Company's existing revolving line of credit. In addition, the Company may pay additional payments of the Company's common stock contingent upon achieving specified earning levels in future periods. These contingent payments, if any, will be reflected as acquisition costs when the contingencies are resolved. The transaction has been accounted for using the purchase method of accounting and, accordingly, the results of ACP have been included in the accompanying consolidated financial statements since the date of acquisition. The purchase price of $3.2 million has been allocated on the basis of the estimated fair market values of assets acquired of $19.4 million and liabilities assumed of $16.2 million. Effective July 1, 1997, the Company purchased the stock of Gumaco Industria E Comercio Limitada of Sao Paulo, Brazil ("Gumaco") and other South American companies for $12.7 million, net of imputed interest. Gumaco and the other companies are engaged in the design and manufacture of process equipment. The acquisitions were financed under a new $12 million credit facility. Regarding these acquisitions, further adjustments may be made to the accompanying balance sheet as a result of finalization of acquisition costs and fair value adjustments. The results of operations of these acquired companies have been included in the results of the Company from the dates of acquisition. Assuming these acquisitions had occurred on October 1, 1996, the Company's unaudited proforma net sales, net income, and diluted earnings per share would have been approximately $59.0 million, $1.6 million and $0.18, and $107.3 million, $2.5 million and $0.28, respectively, for the three months and six months ended March 31, 1997, respectively. 6
NOTE 3 - STOCK SPLIT - -------------------- On April 9, 1998, the Board of Directors authorized a 2-for-1 stock split to shareholders of record as of April 22, 1998, effective May 4, 1998. As a result of the split, 3,272,870 additional common shares and 883,064 additional Class B shares were issued and capital in excess of par value was reduced by $415,000. Shareholders' equity has been restated for all periods presented to give retroactive recognition to the stock split. In addition, for all periods presented, all references in the consolidated financial statements and footnotes thereto to number of shares, per share amounts, weighted average shares outstanding, as well as stock option and related price information have been restated to give retroactive effect to the split. NOTE 4 - CASH DIVIDEND - ---------------------- On December 22, 1997, the Company declared a cash dividend of $0.025 per share, payable January 14, 1998, to shareholders of record as of December 31, 1997. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS - ------- OF OPERATIONS "Forward-Looking" Information This Form 10-Q contains certain "forward-looking statements" within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), which represent the Company's expectations and beliefs, including, but not limited to, statements concerning gross margins and sales of the Company's products. These statements by their nature involve substantial risks and uncertainties, certain of which are beyond the Company's control, and actual results may differ materially depending on a variety of important factors, including the level of acquisition opportunities available to the Company and the Company's ability to efficiently price and negotiate such acquisitions on a favorable basis, the financial condition of the Company's customers, the failure to properly manage growth and successfully integrate acquired companies and operations, changes in economic conditions, demand for the Company's products and changes in competitive environment. The Company cautions that the factors described above could cause actual results or outcomes to differ materially from those expressed in any forward-looking statements of the Company made by or on behalf of the Company. Any forward- looking statement speaks only as of the date on which such statement is made, and the Company undertakes no obligation to update any forward-looking statement or statements to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events. New factors emerge from time to time, and it is not possible for management to predict all of such factors. Further, management cannot assess the impact of each such factor on the business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Consolidated Results of Operations - ---------------------------------- Results of operations for the quarter ended March 31, 1998 compared to the quarter ended March 31, 1997: Net revenue for the quarter ended March 31,1998 increased by $12.4 million, or 25.5%, to $61.2 million from $48.7 million in the same period last year. The transportation group contributed $14.3 million to the increase in net revenues, and net revenues in the food processing equipment product lines declined by $1.9 million. The increase in sales as a result of the recent acquisitions of ACP Holdings PLC ("ACP") and Gumaco Industria E Comercio Limitada ("Gumaco") was $7.8 million. International sales, excluding the 7
recent acquisitions, decreased by $4.0 million to $7.5 million, or 14% of net sales, principally as a result of a decrease in food processing equipment shipments to Europe caused by Mad Cow Disease and Swine Flu. As a result of the slaughter of thousands of livestock, purchases of new equipment for the production of animal feed has been delayed. The Company expects the market to recover from this temporary situation as the herds are replenished throughout the year. Sales backlog at March 31, 1998 for the transportation group increased to $22.9 million from $22.1 million and decreased for the food processing group to $26.8 million from $30.5 million. The recent acquisitions added $11.8 million to the backlog. Gross profit increased 74.6% to $22.5 million in the three months ended March 31, 1998 from $12.9 million in the same period of fiscal 1997. The transportation group contributed $8.4 million and the food processing equipment product lines added $1.2 million to the increase in gross profit. The increase in gross profit as a result of the recent acquisitions was $1.9 million. Gross profit from international sales, excluding the recent acquisitions, decreased by $0.4 million to $2.2 million in the quarter ended March 31, 1998. Gross profit as a percentage of sales increased to 36.9% in the three months ended March 31, 1998 from 26.5% in the prior period as a result of a more favorable product mix. Selling, general and administrative expenses increased to $12.1 million in the second quarter of fiscal 1998 from $7.8 million in the same period of fiscal 1997 due primarily to the acquisitions of Gumaco and ACP. The transportation group selling, general and administrative expenses increased by $2.6 million and the food processing equipment selling, general and administrative expenses increased by $1.7 million. As a result of the above factors, operating income increased by $5.3 million to $9.8 million in the second quarter of fiscal 1998 from $4.5 million in fiscal 1997. The transportation group contributed $5.8 million to this increase. Operating income from international activities, including the recent acquisitions, resulted in a loss of $1.7 million in the second fiscal quarter of 1998. Results of operations for the six months ended March 31, 1998 compared to the six months ended March 31, 1997: Net revenue for the six months ended March 31,1998 increased by $33.8 million, or 40.2%, to $117.7 million from $83.9 million in the same period last year. The transportation group contributed $25.0 million and the food processing equipment product lines added $8.8 million to the increase in net revenues. The increase in sales as a result of the recent acquisitions of ACP and Gumaco was $24.9 million. International sales, excluding the recent acquisitions, decreased by $8.5 million to $15.8 million, or 17% of net sales principally as a result of an unusually high level of shipments during the first quarter of fiscal 1997 in Europe for the food processing division and the reduction of shipments to Europe related to the slaughter of animals caused by Mad Cow Disease and Swine Flu. Gross profit increased 65.0% to $38.4 million in the six months ended March 31, 1998 from $23.2 million in the same period of fiscal 1997. The transportation group contributed $12.7 million and the food processing equipment product lines added $2.5 million to the increase in gross profit. The increase in gross profit as a result of the recent acquisitions was $6.2 million. Gross profit from international sales, excluding the recent acquisitions, decreased by $1.1 million to $4.4 million in the six months ended March 31, 1998. Gross profit as a percentage of sales increased to 32.6% in the six months ended March 31, 1998 from 27.7% in the prior period as a result of a more favorable product mix. 8
Selling, general and administrative expenses increased to $22.5 million in the first six months of fiscal 1998 from $15.9 million in the same period of fiscal 1997 due primarily to the acquisitions of Gumaco and ACP. The transportation group selling, general and administrative expenses increased by $4.0 million and the food processing equipment selling, general and administrative expenses increased by $2.6 million. As a result of the above factors, operating income increased by $8.4 million to $14.6 million in the first six months of fiscal 1998 from $6.2 million in fiscal 1997. The transportation group contributed $8.6 million of this increase, which was offset by a reduction in operating income of $0.2 million in the food processing equipment product lines. The increase in operating income as a result of the recent acquisitions of ACP and Gumaco was $0.3 million. Operating results from international activities, excluding the recent acquisitions, decreased by $1.0 million to produce a loss of $0.2 million in the first six months of 1998. Liquidity and Capital Resources - ------------------------------- For the six months ended March 31, 1998, cash provided by operations was $9.9 million, an increase of $5.6 million, compared to fiscal 1997. This increase was due primarily to an increase in net income and collections of accounts receivable. Working capital decreased by $3.5 million to $42.2 million at March 31, 1998, principally as a result of an increase in short-term notes payable related to the credit facilities established by Gumaco and an increase in customer deposits and accrued expenses. Investing activities used $16.7 million in fiscal 1998 compared to $3.3 million in fiscal 1997, a change of $13.4 million, resulting primarily from the acquisition of ACP. Cash provided by financing activities was $6.2 million in fiscal 1998, primarily as a result of an increase in borrowings related to the new credit facilities established by Gumaco. As of March 31,1998, the Company had a revolving credit facility providing a total of $35 million, of which $10.0 million remained unused. 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 for shipment during the summer and fall months to avoid disruption of their activities during peak periods of highway construction and repair. Pelleting and processing equipment products are much less seasonal, resulting in lower demand in the second and third fiscal quarters. The Company expects seasonality to have less of an influence on future results of operations as it continues to grow in international markets. Based upon its present plans, the Company believes that its working capital, operating cash flow and available credit resources will be adequate to repay current portions of long-term debt, to finance currently planned capital expenditures, and to meet the currently foreseeable liquidity needs of the Company. 9
PART II. OTHER INFORMATION ITEM 3. DEFAULTS - ----------------- None ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - ------- (a) Annual meeting held March 20, 1998 (b) Not applicable (c) There were 3,512,870 shares of Common Stock and 883,064 of Class B Stock outstanding as of February 3, 1998, the record date for the 1998 annual meeting of shareholders. A total of 4,099,580 shares were voted. The following matters were voted upon at the meeting: Proposal 1. Election of Directors ---------------------------------- The five nominees for the Board of Directors were elected by the shareholders with the following vote: <TABLE> <CAPTION> Votes Votes Broker Nominee For Against Abstentions Non-Votes ------- ------ ------- ----------- ---------- <S> <C> <C> <C> <C> E. J. Elliott 863,688 (1) - N/A Constantine L. Corpas 863,688 (1) - N/A John E. Elliott 863,688 (1) - N/A Peter Kourmolis 863,688 (1) - N/A Glenn B. Dalby 3,223,579 12,313 - N/A </TABLE> (1) Class B shareholders elected these directors. Proposal 2: The selection of Deloitte & Touche LLP, independent certified ---------- public accountants, as auditors for the Company for the year ending September 30, 1998 was ratified by the shareholders with the following vote: <TABLE> <CAPTION> Votes For Votes Against Abstentions Broker Non-Votes -------------- ---------------- -------------- -------------------- <S> <C> <C> <C> <C> Common stock 3,231,870 2,450 1,572 N/A Class B stock 863,688 - - N/A </TABLE> (d) Not applicable ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K - ------------------------------------------- A. Exhibits: (11) Statement regarding computation of earnings per share. B. Reports on Form 8-K: None. 10
SIGNATURES Pursuant to the requirements of Sections 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. GENCOR INDUSTRIES, INC. Date: May 14, 1998 /s/ Russell R. Lee III ---------------------- Russell R. Lee III Treasurer 11