10-Q 1 d10q.txt FORM 10-Q 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 December 31, 2000 ----------------- 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 _______ No X ----- 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 31, 2001 ----- ---------------------------- 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 - December 31, 2000 (Unaudited) and September 30, 2000 3 Unaudited condensed consolidated income statements - Three months ended December 31, 2000 and 1999 4 Unaudited condensed consolidated statements of cash flows - Three months ended December 31, 2000 and 1999 5 Notes to condensed consolidated financial statements 6 Item 2. Management's Discussion and Analysis of Financial Position and Results of Operations 9 Item 3. Quantitative and Qualitative Disclosure of Market Risk 11 Part II. Other Information Item 3. Default Upon Senior Securities 12 Item 6. Exhibits and Reports on Form 8-K 12 Signatures 13
2 Part I. Financial Information Item 1. Financial Statements GENCOR INDUSTRIES, INC. Condensed Consolidated Balance Sheets In thousands, except share amounts
December 31 September 30 2000 2000 ---- ---- Assets (Unaudited) Current assets: Cash and cash equivalents $ 14,724 $ 17,971 Accounts receivable, less allowance for doubtful accounts of $3,374 ($3,146 at September 30, 2000) 23,738 24,130 Inventories 48,240 41,394 Prepaid expenses 2,825 2,374 ---------- ------------ Total current assets 89,527 85,869 Property and equipment, net of accumulated depreciation of $31,440 and $30,368, respectively 32,729 33,567 Goodwill 12,118 12,018 Other assets 8,360 8,492 ---------- ------------ Total assets $ 142,734 $ 139,946 ========== ============ Liabilities and shareholders' deficit Current liabilities: Notes payable $ 1,111 $ 1,124 Current portion of long-term debt 104,743 104,743 Accounts payable 17,104 17,079 Customer deposits 3,601 1,735 Income and other taxes payable 2,175 1,362 Accrued expenses 17,026 14,629 ---------- ------------ Total current liabilities 145,760 140,672 Post-retirement benefits 2,950 2,950 Other liabilities 3,747 3,747 Shareholders' deficit: 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 (11,835) (10,110) Accumulated other comprehensive loss (8,318) (7,743) Subscription receivable from officer (95) (95) Common stock in treasury, 179,400 shares at cost (1,704) (1,704) ---------- ------------ (9,723) (7,423) ---------- ------------ Total liabilities and shareholders' deficit $ 142,734 $ 139,946 ========== ============
See notes to condensed consolidated financial statements. 3 GENCOR INDUSTRIES, INC. Unaudited Condensed Consolidated Income Statements In thousands, except per share amounts
Three Months Ended December 31 2000 1999 ---- ---- Net sales $ 11,789 $ 18,435 Costs and expenses: Production costs 8,926 13,671 Product engineering and development 569 768 Selling, general and administrative 3,335 4,102 Restructuring costs 1,535 330 -------- -------- 14,365 18,871 -------- -------- Operating loss (2,576) (436) -------- -------- Other income (expense): Interest income 70 28 Interest expense (37) (1,442) Miscellaneous 46 175 -------- -------- 79 (1,239) -------- -------- Loss from continuing operations before income taxes (2,497) (1,675) Income taxes -- (622) -------- -------- Loss from continuing operations (2,497) (1,053) -------- -------- Discontinued operations Income (loss) from discontinued operations, net of income taxes 772 (537) -------- -------- Net loss $ (1,725) $ (1,590) ======== ======== Basic and diluted net income (loss) per common share: Loss from continuing operations $ (0.29) $ (0.12) Discontinued operations 0.09 (0.06) -------- -------- Net loss $ (0.20) $ (0.18) ======== ========
See notes to condensed consolidated financial statements. 4 GENCOR INDUSTRIES, INC. Unaudited Condensed Consolidated Statements of Cash Flows In thousands
Three Months Ended December 31 2000 1999 ---- ---- Cash flows from operations: Net loss $ (1,725) $ (1,590) Adjustments to reconcile net loss to cash provided by (used for) operations: Depreciation and amortization 1,103 1,074 (Gain) loss on disposition of assets -- (14) Postretirement benefits -- 96 Change in assets and liabilities Accounts receivable 392 4,534 Inventories (7,099) (759) Prepaid expenses (451) (104) Other assets (233) (206) Accounts payable 25 (1,725) Customer deposits 1,641 2,393 Income and other taxes payable 813 (2,068) Accrued expenses 2,178 186 Other liabilities -- (108) -------- -------- Total adjustments (1,631) 3,299 -------- -------- Cash provided by (used for) operations (3,356) 1,709 -------- -------- Cash flows from investing activities: Capital expenditures -- (433) Proceeds from sale of property and equipment -- 25 -------- -------- Cash used for investing activities -- (408) -------- -------- Cash flows from financing activities: Net reduction in notes payable (13) (319) Repayment of debt -- (81) -------- -------- Cash used for financing activities (13) (400) -------- -------- Effect of exchange rate changes on cash and cash equivalents 122 (48) -------- -------- Increase (decrease) in cash and cash equivalents (3,247) 853 Cash and cash equivalents at beginning of period 17,971 9,581 -------- -------- Cash and cash equivalents at end of period $ 14,724 $ 10,434 ======== ========
See notes to condensed consolidated financial statements. 5 GENCOR INDUSTRIES, INC. Notes to Condensed Consolidated Financial Statements 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-month period ended December 31, 2000 are not necessarily indicative of the results that may be expected for the year ended September 30, 2001. The balance sheet at September 30, 2000 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, 2000. Note 2 - Bankruptcy Proceedings As of September 1999, the Company was in default of the terms and conditions of its Senior Secured Credit Facility and Industrial Revenue Bond Indenture. In November 1999, the Senior Secured Lenders accelerated their demand for payment in full. During April 2000, certain of the Company's lenders filed an Involuntary Petition under Chapter 11 of the U.S. Bankruptcy Code. On September 13, 2000 (the "petition date"), the Company and certain of its subsidiaries ("the Debtors") filed voluntary petitions commencing cases under Chapter 11 of the U. S. Bankruptcy Code. The Company and certain of its subsidiaries began operating its businesses as debtors-in-possession under Chapter 11 of the U. S. Bankruptcy Code. On April 13, 2001, the Debtors filed the Amended Plan of Reorganization of Gencor Industries, Inc. (the "Amended Plan"), dated April 9, 2001 with the Bankruptcy Court providing essentially for 100% payment of all secured and unsecured creditors and no dilution or diminution to the equity holders. The Amended Plan was confirmed on July 11, 2001. The Amended Plan will become effective on or before October 30, 2001, unless extended (the "Effective Date"). Pursuant to the Amended Plan, as of the Effective Date, the approved sale of Consolidated Process Machinery's (CPM) domestic and foreign pellet operations was to be consummated (see Note 3 - Discontinued Operations). The sale was in fact consummated on May 29, 2001 for $52 million. The net proceeds from the sale were used to reduce the outstanding balance of the Senior Secured Lenders. Under the Amended Plan, all of the Company's debts will be satisfied in full. Also by the Effective Date, the Senior Secured Lenders and the Debtor are to have closed an Amended and Restated Senior Secured Credit Agreement, which would specify that the remaining claims of the Senior Secured Lenders of approximately $33 million are to be paid over a four-year period with the balance due in 2005. Any remaining debt balance at the end of the four-year period is expected to be refinanced. The Company intends to emerge from bankruptcy on the Effective Date. These condensed consolidated financial statements do not include any adjustments, which may arise as a result of the Company's bankruptcy proceedings. 6 Note 3 - Discontinued Operations As part of its planned reorganization in September 2000, the Company announced its intent to dispose of its food segment. Accordingly, the Company reported the results of the operations of the food processing equipment manufacturing business as discontinued operations. Certain information with respect to discontinued operations is summarized as follows:
Three-months Ended December 31 2000 1999 ------- ------- Net revenue $15,378 $28,205 Costs and expenses 14,059 28,607 ------- ------- Income (loss) from discontinued operations before income taxes 1,319 (402) Income taxes 547 135 ------- ------- Income (loss) from discontinued operations, net of income taxes $ 772 $ (537) ======= =======
On May 29, 2001, the Company sold the stock of Consolidated Process Machinery's foreign pellet subsidiaries and the assets and certain liabilities of the domestic pellet subsidiaries for approximately $52 million in cash. The net sale proceeds were used to pay-down the outstanding loan balance of the Senior Secured Lenders. The Company's domestic and foreign food processing machinery operations located in Colorado, Sweden and Brazil were not included in the aforementioned sale. The Company intends to dispose of these operations. The Company anticipates that it will realize a net gain on the disposal of its discontinued operations. Note 4 - Restructuring Costs Restructuring costs consist of nonrecurring legal and professional fees relating to the bankruptcy filing and amending the Company's credit agreements. Note 5 - Inventories The components of inventory consist of the following:
December 31 September 30 2000 2000 ---- ---- Raw materials $ 18,598 $ 17,532 Work in process 11,296 7,705 Finished goods 17,361 15,034 Used equipment 985 1,123 ----------- ------------ $ 48,240 $ 41,394 =========== ============
7 Note 6 - Earnings Per Share Data The following table sets forth the computation of basic and diluted earnings per share for the periods indicated.
Three Months Ended December 31 2000 1999 ---- ---- Basic and diluted: Loss from continuing operations $(2,497) $(1,053) Income (loss) from discontinued operations 772 (537) ------- ------- Net loss $(1,725) $(1,590) ======= ======= Average outstanding shares 8,682 8,682 ======= ======= Basic and diluted EPS: Loss from continuing operations $ (0.29) $ (0.12) Income (loss) from discontinued operations 0.09 (0.06) ------- ------- Basic and diluted EPS $ (0.20) $ (0.18) ======= =======
Approximately 1,500,000 options to purchase common stock have not been included as common stock equivalents in the per share calculations since the effect would not be dilutive or would be antidilutive. Note 7 - Comprehensive Loss The total comprehensive loss for the three-months ended December 31, 2000 and 1999 was $2,300 and $2,887, 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 (deficit) 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 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations - Continuing Operations Net sales for the quarter ended December 31, 2000 decreased by approximately $6.6 million, or 36.1%, to $11.8 million from $18.4 million for the same quarter of 1999. The majority of the decline occurred in domestic net sales, which decreased by approximately $5 million or 38.4% to $8.1 million during the first quarter of fiscal 2001 from $13.1 million a year ago. The significant decline in sales is attributed to the Company's filing for bankruptcy protection in September 2000 and the reluctance of several of its customers to commit to new plant projects after the filing. Gross margins during the first quarter of fiscal 2001 declined slightly by 1.6% as a percent of net sales. Gross margins for the domestic operations reflected a 2.4% improvement as a percent of net sales. However, higher production costs experienced by the foreign operations caused gross margins on foreign sales to slip to 13.7%. The decline in gross margins on foreign sales more than offset the improvement in margins on domestic sales and caused overall margins to decline during the first quarter of fiscal 2001. Selling, general and administrative expenses decreased to $3.3 million during the first quarter of fiscal 2001 from $4.1 million in the same period of fiscal 2000. Restructuring costs were $1.5 million and $.3 million during the first quarter of 2001 and 2000, respectively. The Company recorded lower interest expense during the first quarter of fiscal 2001, due to the bankruptcy filing in September 2000. Interest expense would have been approximately $2.6 million during the 3-months ended December 31, 2000 had the Company recorded interest expense at the original contracted rates per the loan agreements. Seasonality The asphalt-related operations of Construction Equipment Group (CEG) are subject to a seasonal slow-down during the third and fourth quarters of the calendar year. Traditionally, CEG's customers do not purchase new equipment for shipment during the summer and fall months to avoid disrupting their peak season for highway construction and repair work. This slow-down often results in the Company reporting lower sales and earnings and or losses during the first and fourth quarters of its fiscal year ended September 30. Liquidity and Capital Resources During the first quarter of fiscal 2001, cash used for operations was approximately $3.4 million. This reflects a net loss of approximately $1.7 million and increases in the work in process and finished goods inventories of $3.6 million and $2.3 million, respectively. These cash outflows were partially offset by increases in customer deposits of $1.6 million and accrued expenses of $2.2 million during the period. Working capital was negative $56.2 million at the end of December 2000 compared to negative $54.8 million at September 30, 2000. In November 1999, the Company's was in default on its indebtedness and the Senior Secured Lenders accelerated their demand for full payment. This action resulted in the reclassification of all secured long-term debt to current maturities in the accompanying financial statements. The reclassification severely impacted the Company's working capital structure. (See Note 2). The Company did not incur any capital expenditures during the first quarter of fiscal 2001. Cash and cash equivalents at December 31, 2000 were $14.7 million compared to $10.4 million a year earlier. 9 As of the Effective Date, the new credit agreement will go into effect (see Note 2 - Bankruptcy Proceedings). The new credit agreement will provide for full payment of the outstanding balance over a four-year period and will contain certain financial and other restrictive covenants. Any remaining debt balance in 2005 is expected to be refinanced. The Company's management anticipates that after emerging from bankruptcy, its existing working capital, credit resources and future cash flows are adequate to meet its liquidity needs for the foreseeable future. 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. 10 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 has used foreign currency forward exchange contracts to mitigate fluctuations in currency. The Company does not hold derivatives for trading purposes. Periodically, the Company will use derivative financial instruments consisting primarily of interest rate hedge agreements to manage exposures to interest rate changes. The Company's objective in managing its exposure to changes in interest rates (on its variable rate debt) is to limit the impact of such changes on earnings and cash flow and to reduce its overall borrowing costs. A 100 basis point adverse movement (increase) in interest rates along the entire yield curve would increase the pre-tax loss for the three-months ended December 31, 2000 and 1999 by approximately $264 and $255, respectively. Actual changes in rates may differ from the hypothetical assumptions used in computing this exposure. 11 Part II. Other Information Item 3. Defaults Upon Senior Securities See Note 2 - Bankruptcy Proceedings in the accompanying financial statements regarding the Company's default on its senior secured credit agreements. Item 6. Exhibits and Reports on Form 8-K A. Exhibits: None. B. Reports on Form 8-K: The Company did not file any reports on Form 8-K during the three-months ended December 31, 2000. 12 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: October 25th 2001 /s/ Scott W. Runkel ---------------------------------------- Scott W. Runkel, Chief Financial Officer 13