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