<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10 - K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15[d] OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Fiscal Year Ended September 30, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15[d] OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File No. 0-3821
GENCOR INDUSTRIES, INC.
Incorporated in the State I.R.S. Employer Identification
of Delaware No. 59-0933147
5201 North Orange Blossom Trail
Orlando, Florida 32810
Registrant's Telephone Number, Including Area Code:
(407) 290-6000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock ($.10 Par Value)
-----------------------------
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 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 filing requirements
for the past 90 days.
[X]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
[X]
State the aggregate market value of the voting stock, $.10 per share value
Common Stock, held by nonaffiliates of the Registrant as of December 4, 1997:
$52,113,930.
Indicate the number of shares outstanding of each of the Registrant's classes of
Common Stock, as of the latest practicable date: 3,512,870 shares of Common
Stock ($.10 par value) and 883,064 shares of Class B Stock ($.10 par value) as
of December 4, 1997.
List hereunder the following documents if incorporated by reference and the part
of the Form 10-K into which the document is incorporated.
Part III - 1998 Proxy Statement which will be filed with the Securities and
Exchange Commission.
<PAGE>
PART I
ITEM 1. BUSINESS
- ------
OVERVIEW
- --------
Gencor Industries, Inc. (together with its subsidiaries, "Gencor" or the
"Company") is a diversified heavy machinery manufacturer primarily serving the
food and transportation industries. Gencor is a market share leader in the
manufacture of machinery for the production of highway construction materials
and related equipment, and also, machinery for the manufacture of pelletized
feeds for the production of meat, and machinery for the production of sugar,
edible oils and fruit juices.
Gencor was incorporated in Florida in 1960, as Mechtron Corporation and changed
its name to Mechtron-Genco Corporation in 1969 following its merger with General
Combustion, Inc. and Genco Manufacturing, Inc. It reincorporated in Delaware in
1969 and adopted the name Mechtron International Corporation in 1970. In 1987
the Company and its shareholders approved a name change to Gencor Industries,
Inc.
The following table summarizes the Company's history of principal acquisitions:
---------
<TABLE>
<CAPTION>
Date Business Acquired Type of Business
- ---- ----------------- ----------------
<C> <S> <C>
1985 Beverley Group Thermal fluid heaters and industrial incinerators
1986 Hy-Way Heat Company, Inc. Manufacturer of fluid heat transfer systems and
specialty tanks.
1986 Bituma-Stor, Inc. and its wholly owned Asphalt plants and hot mix asphalt storage silos.
subsidiary, Bituma Corporation
1988 The Davis Line and its wholly owned Batch mix asphalt plants, specialty tanks,
subsidiary Midwest Tank and compact rollers and other products.
Construction Holding Corporation
1996 Process Equipment Division of Pelleting, grinding, flaking, sugar processing
Ingersoll-Rand Company and filtration equipment
1997 Gumaco Industria E Comercio Limitada Citrus processing machinery and equipment
</TABLE>
PRODUCTS
- --------
The Company operates in one business segment consisting of the design,
manufacture and marketing of process machinery equipment for the production of
highway construction materials and related equipment, and machinery used in the
production of pelletized animal feeds, edible oil production from oil seed,
sugar production, citrus juice production and filtration equipment.
The Company offers its products and services through its domestic and foreign
subsidiaries. The significant activities of the Company's domestic and foreign
subsidiaries and divisions are described below.
2
<PAGE>
Thermal Fluid Heaters and Industrial Incinerators
- -------------------------------------------------
The Company has been manufacturing and selling combustion systems fueled by oil,
gas and non-fossil fuels to paving contractors since the 1940's. In addition,
Gencor manufactures combustion systems for boilers, fume and liquid
incinerators, dryers and tank heaters.
Fluid Heat Transfer Systems
- ---------------------------
Gencor manufactures and sells fluid heat transfer systems under the product line
of Hy-Way Heat Systems that are primarily used by the hot mix asphalt industry
and other process industries. The Hy-Way heat name is known throughout the
world and is often used generically to refer to fluid heat transfer systems.
Asphalt Plants and Hot Mix Storage Silos
- ----------------------------------------
The Company manufactures asphalt plants, hot mix storage silos, fabric
filtration systems and other asphalt plant components. Gencor first introduced
the concept of drum-mix continuous asphalt production, which has been adopted
world-wide as the standard technology. These products are recognized for high
quality and excellent workmanship and are known for providing the "heaviest
construction" in the asphalt industry.
Soil Remediation Equipment
- --------------------------
Gencor develops, markets and produces equipment to clean soil contaminated with
petroleum products. The Company has developed a design which thermally desorbs
the contaminants from the soil. The equipment filters the solid matter from the
exhaust gasses of the process, oxidizes the polluting contaminants in the
exhaust gasses by elevating temperatures, and releases clean and odorless carbon
dioxide and water.
Pelleting Equipment
- -------------------
The Company's line of pelleting equipment is primarily used in the production of
scientifically compounded animal and aquaculture feed used by integrated food
producers. This is achieved through a process of particle size upgrading in
which loose, often bulky material with physical characteristics ranging from a
fine powder to small granules are compressed and formed into pellets of
increased bulk density. Pellets are durable, stable and highly resistant to
disintegration and breakage. They permit particle size control, optimize
nutrient conversion to meat production, lower costs, and also minimize many of
the processing problems normally encountered with fine substances, such as
storage, handling, and dust. Although pelleting equipment is typically used in
the production of animal and fish feed, pelleting technology is increasingly
being used by other industries, including bio-mass conversion to fuel, synthetic
fuel production and chemical and plastics manufacturing.
Grinding and Flaking Equipment
- ------------------------------
This product line includes machinery designed to grind and process various
grains, including wheat, soybeans and corn. This equipment is used by customers
for the preparation of ingredients for the production of pelletized animal feed,
grinding of mash feed, and the processing of seeds for edible oil production.
Sugar Processing Equipment
- --------------------------
Under the name Silver-Weibull, the Company manufactures sugar processing
equipment, including extraction centrifuges and crystallizers for cane and beet
sugar processors. The manufacture of sugar requires a number of phases which
lead to a process in which the sugar is crystallized and separated from a raw
juice known as "standard liquor." Gencor manufactures products specifically for
this crystallization phase of sugar processing.
3
<PAGE>
Filtration Products
- -------------------
The Company manufactures a line of filtration products, including twin roll
presses and a continuous pressure filter. These products are sold to a range of
industrial users, including mineral processing, as well as corn wet milling for
the production of food starches.
Citrus Processing Machinery
- ---------------------------
Gencor, through its newly acquired Brazilian subsidiary, manufactures equipment
for the production and processing of citrus juice which extract, concentrate and
freeze fruit juices. The Company also manufactures a line of evaporators and
condensers used in the production of sugar, gasahol and the petroleum refining
industries.
A three-year summary of sales, operating profit and identifiable assets with
respect to foreign and domestic operations and export sales is included in Note
14 to the Consolidated Financial Statements.
SALES AND MARKETING
The principal users of Gencor products are large highway construction companies,
producers of materials used in highway construction, commercial agricultural
companies, integrated food producers, feed mills and food processing companies.
Gencor markets its products through a combination of Company employed sales
representatives, independent dealers and agents located throughout the world.
The Company believes that it has developed the largest and most comprehensive
marketing and sales organization in the industry, which allows it to focus on
common end-markets and customers for all of the Company's product lines
throughout the world.
Gencor believes that 4,000 to 5,000 asphalt production plants operate in the
United States, and a similar number in the United Kingdom and Europe. Gencor's
focus over recent years has been to serve the highway construction industry by
developing products which are fuel efficient, environmentally compatible and
technologically ahead of the competition. The Company utilizes technologies
involving advanced concepts and disciplines in environmental compliance, heat
release, energy conservation, heat recovery and noise attenuation in
manufacturing machinery and plants used in the production of highway
construction materials.
Pelleting, grinding and flaking products are sold to a common customer base
primarily for use in integrated systems for animal feed production. This common
market focus has allowed the Company to realize certain synergies from the
combination of these businesses in the areas of marketing and manufacturing.
Based upon many years of supplying its products and services to customers in the
U.S. and internationally, the Company believes it has the largest installed base
of pelleting and grinding equipment in the world. These products are viewed by
customers as the most reliable and technologically advanced equipment available
in the market. This large installed base has provided the Company with a strong
reputation and a source which has generated a continuous level of orders for its
products and services. Gencor's leadership position in its targeted markets
continues to be well protected by its reputation, new process innovations,
applications expertise and customer loyalty.
The Company's asphalt production equipment operations are subject to seasonal
fluctuation, resulting in lower sales and possible losses in the third and
fourth calendar quarter of each year. 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.
4
<PAGE>
PRODUCT ENGINEERING AND DEVELOPMENT
The Company is engaged in continuing product engineering and development
efforts, both domestically and internationally, to expand its product lines and
to further develop more energy efficient and environmentally compatible systems
throughout its principal markets.
Work has been accomplished on the uses of cost effective, nonfossil fuels, bio-
mass, refuse-derived fuel, coal and coal mixtures, the economical recycling of
old asphalt, new designs of environmentally compatible asphalt plants and
development of advanced designs of machinery for the remediation of contaminated
soil. In addition, product engineering and development activities are directed
toward more efficient methods of producing asphalt through a continuous effort
to improve the quality of the asphalt plants manufactured and the methods by
which asphalt is produced by the plants. Product engineering and development
has also focused on the development of combustion systems that operate at higher
temperatures and with higher levels of environmental compatibility, as well as
more efficient and lower cost fluid heat transfer systems.
Product engineering and development efforts in the Company's pelleting, grinding
and flaking product lines are directed toward new mill design features, such as
quick change rollers and specialty count dies, and developing testing facilities
to expand product uses to include pharmaceutical and scientific applications.
Product engineering and development expenses were approximately $2.8 million,
$2.2 million, and $1.9 million in the fiscal years ended September 30, 1997,
1996, and 1995, respectively.
SOURCES OF SUPPLY AND MANUFACTURING
Substantially all products sold by the Company and its subsidiaries are
manufactured by the Company, except for procured raw materials and hardware.
The Company purchases a large quantity of steel used in the manufacture of many
of its products and various raw materials and hardware from hundreds of
suppliers. The Company does not believe it is dependent on any single supplier
for major raw materials or components. The Company reviews the cost
effectiveness of internal manufacturing versus subcontracting the assembly of
its product line and currently believes it has the internal capability to
produce the lowest cost, highest quality products.
INVENTORIES
As of September 30, 1997, inventories constituted approximately 48% of the
Company's current assets and 28% of the Company's total assets. Most of the
inventory is utilized in manufacturing operations.
COMPETITION
Gencor is subject to competition in each of its product lines from a number of
sources, some of which have greater resources than the Company.
Gencor seeks to maintain a competitive advantage with respect to its highway
construction materials machinery line through advanced technological design,
increased fuel efficiency, improved product reliability and greater
environmental compatibility as well as after-sale services.
The Company is subject to competition from a number of sources in its process
machinery equipment in the pelleting, grinding, flaking, sugar processing and
filtration product lines as well. Domestic competition for pellet mills
consists primarily of small manufacturers who often lack both the capital
resources and the breadth of product line possessed by Gencor. The competitive
environment for the Company's sugar processing equipment is characterized by a
few large manufacturers and a number of relatively small manufacturers which
focus on specific geographic markets.
5
<PAGE>
SALES BACKLOG
The nature of Gencor's business is such as to require a relatively short
turnaround from order to shipment; usually less than ninety (90) days. Demand
for the Company's asphalt production equipment exhibits seasonality,
particularly in the first and fourth fiscal quarters, whereas the Company's
agricultural products exhibit slightly less seasonality, primarily in the second
and third fiscal quarters. As a result of the foregoing, the size of the
Company's backlog should not be viewed as an indicator of future Company
financial results. The Company's backlog was approximately $54.4 million at
November 25, 1997. The Company believes that all of the backlog at November 25,
1997 will be delivered in fiscal 1998.
GOVERNMENT REGULATIONS
The Company believes it has the design and manufacturing capability to meet all
industry or governmental agency standards that may apply to its entire line of
products, including all domestic and foreign structural, electrical and safety
codes. The Company's products are designed and manufactured to comply with
Environmental Protection Agency regulations. Certain state and local regulatory
authorities have strong environmental impact regulations. While the Company
believes such regulations have helped rather than restricted its marketing
efforts and sales results, there is no assurance that changes to federal, state,
local, or foreign laws and regulations will not have a material adverse effect
on the Company's products and earnings in the future.
EMPLOYEES
As of September 30, 1997, the Company employed approximately 1,351 persons in
manufacturing, sales and marketing, engineering positions relating to product
manufacturing and development and administration. The Company has negotiated a
collective bargaining agreement as of June 25, 1996 effective through June 27,
1998, covering the production and maintenance employees at its Marquette, Iowa
facility. In addition, the Company has a collective bargaining agreement in
place covering the production employees at its Crawfordsville, Indiana facility
until April 1, 2000.
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Registrant are:
NAME POSITION
---- ---------
E.J. Elliott Chairman of the Board and President
John E. Elliott Executive Vice President
Russell R. Lee III Treasurer
David F. Brashears Senior Vice President, Technology
D. William Garrett Vice President, Sales
Marc G. Elliott Vice President, Marketing
Jeanne Lyons Secretary
Mr. E.J. Elliott has served as Chairman of the Board since 1973 and President
since 1969. Mr. Elliott has over 40 years experience in the design, manufacture
and operation of construction machinery and asphalt manufacturing plants. In
the 1960's, Mr. Elliott owned and served as President and Chairman of General
Combustion, Inc. and Genco Manufacturing Corporation. Mr. Elliott has been a
director of the Company since 1968.
6
<PAGE>
Mr. John Elliott was elected Assistant Vice President and a Director of the
Company in 1985. In 1986, he was elected a Vice President and promoted to
Executive Vice president in 1989. He has been with the Company since 1982.
Mr. Lee was elected Treasurer in 1995. He had previously been Corporate
Controller since he joined the Company in 1990.
Mr. Brashears was named Senior Vice President, Technology, in July 1993. He had
previously been Vice President, Engineering, since he joined the Company in
1978.
Mr. Garrett was elected Vice President, Sales in 1991. He had previously held
numerous management positions in sales and marketing for various Company
subsidiaries.
Mr. Marc Elliott was elected Vice President, Marketing, in July 1993. He had
previously served in various marketing positions since he joined the Company in
1988.
Ms. Jeanne Lyons was elected Secretary in 1996 and has been with the Company
since 1995.
7
<PAGE>
ITEM 2. PROPERTIES
- ------
<TABLE>
<CAPTION>
LOCATION ACREAGE SQ. FEET PRINCIPAL FUNCTION
-------- ------- -------- -----------------------------------------
<S> <C> <C> <C>
Orange County, Florida 27 171,000 Principal corporate headquarters and
manufacturing
Billingshurst, West Sussex,
England 1.2 5,000 Offices and manufacturing
Youngstown, Ohio 5.5 45,000 Offices and manufacturing
Marquette, Iowa 72 137,000 Offices and manufacturing
Indianapolis, Indiana 11.3 79,000 Property for sale (former offices and
manufacturing facilities)
Aurora, Colorado 16.8 117,000 Offices and manufacturing
Hasselholm, Sweden N/A 10,000 Offices and manufacturing
Crawfordsville, Indiana 2.7 62,000 Offices and manufacturing
Waterloo, Iowa 11.5 55,000 Offices and manufacturing
North Kansas City, Missouri .7 6,000 Offices and warehouse
Amsterdam, Netherlands 1.2 75,000 Offices and manufacturing
Wexford, Ireland 5.6 60,000 Offices and manufacturing
Rueil Malmaison, France .2 4,000 Office
Singapore, Republic of Singapore N/A 40,000 Offices and manufacturing
Sao Paulo, Brazil .4 38,000 Office
Araraquara, Brazil 29.2 295,000 Offices and manufacturing
</TABLE>
See Note 9 to the accompanying consolidated financial statements (Item 14) for a
description of existing encumbrances.
ITEM 3. LEGAL PROCEEDINGS
- ------
In the normal course of business, the Company has various lawsuits and claims
pending, which may be covered in whole or in part by insurance, and which, in
any event, if found against the Company, will not have a material effect.
Management has reviewed all litigation matters and, upon advice of counsel, has
made provisions for any estimable losses and expenses of litigation.
8
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------
(a) Annual meeting held April 11, 1997
(b) Not applicable
(c) There were 3,272,870 shares of Common Stock and 883,064 of Class B Stock
outstanding as of February 26, 1997, the record date for the 1997 annual
meeting of shareholders. A total of 3,790,876 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 883,064 (1) - N/A
Constantine L. Corpas 883,064 (1) - N/A
John E. Elliott 883,064 (1) - N/A
Peter Kourmolis 883,064 (1) - N/A
Larry H. Pitsch 2,854,862 52,950 - N/A
</TABLE>
(1) Class B shareholders elected these directors.
Proposal 2: Adoption of the Company's 1997 Stock Option Plan
-------------------------------------------------------------
The Company's 1997 Stock Option Plan was approved with the following vote:
<TABLE>
<CAPTION>
Votes For Votes Against Abstentions Broker Non-Votes
--------- ------------- ----------- ----------------
<S> <C> <C> <C> <C>
Common stock 1,276,738 390,740 1,605,392 N/A
Class B stock 883,064 - - N/A
</TABLE>
Proposal 3: Amendment to the Company's Certificate of Incorporation to
-----------
increase the number of authorized Common Stock from 5,000,000 to 15,000,000
and the number of authorized Class B Stock from 3,000,000 to 6,000,000 was
passed by the shareholders with the following vote:
<TABLE>
<CAPTION>
Votes For Votes Against Abstentions Broker Non-Votes
--------- ------------- ----------- ----------------
<S> <C> <C> <C> <C>
Common stock 2,478,188 422,092 372,590 N/A
Class B stock 883,064 - - N/A
</TABLE>
Proposal 4: The selection of Deloitte & Touche LLP, independent certified
----------
public accountants, as auditors for the Company for the year ending September
30, 1997 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 2,894,810 5,700 372,360 N/A
Class B stock 883,064 - - N/A
</TABLE>
(d) Not applicable
9
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER
- ------
MATTERS
Stock price information is as follows:
<TABLE>
<CAPTION>
SALES PRICES
------------
HIGH LOW
---- ---
<S> <C> <C>
1996
----
First Quarter 5-1/2 3-3/4
Second Quarter 4-3/4 3-3/4
Third Quarter 4-7/8 4-1/4
Fourth Quarter 8-1/2 3-3/4
1997
----
First Quarter 9-1/4 6-1/2
Second Quarter 10-3/8 7-3/8
Third Quarter 15 7-5/16
Fourth Quarter 16-3/16 11-3/8
</TABLE>
As of November 27, 1997, there were 423 holders of Common Stock of record and 10
holders of Class B Stock of record.
Gencor's stock is traded on the American Stock Exchange under the symbol (GX).
On May 7, 1997, the Board of Directors authorized a 2 for 1 stock split to
shareholders of record as of May 19, 1997, effective May 30, 1997. As a result
of the split, 1,636,435 additional common shares and 441,532 additional Class B
shares were issued, and paid-in capital was reduced by $208. 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.
On November 21, 1996, the Board of Directors declared a cash dividend of $.025
per share, payable January 4, 1997 to shareholders of record as of December 18,
1996. The Company previously paid a cash dividend of $.025 per share on January
5, 1996 to shareholders of record as of December 18, 1995.
On November 16, 1994, the Company's Board of Directors declared a ten percent
stock dividend. Prior to this, the Company had not paid any dividends in cash
or otherwise on any shares of its capital stock since 1971.
Any dividends which may be paid in the future will be dependent upon conditions
then existing and will be at the discretion of the Board of Directors of the
Company. Further, under the terms of the Senior Secured Credit agreement, the
Company is restricted from paying dividends in excess of $150,000 in the
aggregate in any fiscal year.
10
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
- -------
<TABLE>
<CAPTION>
Nine Months
Years Ended Ended
September 30, September 30,
-------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net revenue $ 195,313 $ 60,208 $ 58,944 $ 57,732 $ 43,642
Operating income 18,206 5,240 3,871 3,560 2,072
Income before extraordinary gain 6,896 2,756 2,039 1,630 955
Extraordinary gain - - 498 - -
---------- ---------- ---------- ---------- ----------
Net income $ 6,896 $ 2,756 $ 2,537 $ 1,631 $ 955
========== ========== ========== ========== ==========
Per share data:
Primary:
- --------
Income before extraordinary gain $ 1.48 $ 0.78 $ 0.58 $ 0.51 $ 0.30
Extraordinary gain - - 0.14 - -
---------- ---------- ---------- ---------- ----------
Net income $ 1.48 $ 0.78 $ 0.72 $ 0.51 $ 0.30
========== ========== ========== ========== ==========
Fully diluted:
- --------------
Income before extraordinary gain $ 1.45 $ 0.78 $ 0.58 $ 0.51 $ 0.30
Extraordinary gain - - 0.14 - -
---------- ---------- ---------- ---------- ----------
Net income $ 1.45 $ 0.78 $ 0.72 $ 0.51 $ 0.30
========== ========== ========== ========== ==========
Weighted average shares used in computing
net income per common and common
equivalent share:
Primary 4,663,163 3,560,318 3,523,278 3,250,922 3,213,480
Fully diluted 4,761,977 3,560,318 3,523,278 3,250,922 3,213,480
Cash dividends declared per common share $ 0.025 $ 0.025 $ - $ - $ -
========== ========== ========== ========== ==========
Selected balance sheet data:
September 30,
----------------------------------------------------------------
1997 1996 (1) 1995 1994 1993
---- -------- ---- ---- ----
Current assets $ 95,393 $ 69,813 $ 24,005 $ 23,437 $ 21,200
Current liabilities $ 49,666 $ 29,952 $ 12,958 $ 15,172 $ 16,046
Total assets $ 163,152 $ 119,061 $ 34,819 $ 34,538 $ 35,138
Long-term debt, excluding current maturities $ 86,489 $ 73,746 $ 11,708 $ 11,623 $ 12,388
Shareholders' equity $ 21,212 $ 12,399 $ 9,642 $ 7,100 $ 5,417
</TABLE>
(1) Includes the Company's acquisition of CPM, effective as of September 30,
1996.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- ------
RESULTS OF OPERATIONS
"FORWARD-LOOKING" INFORMATION
This form 10-K 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
11
<PAGE>
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.
The consolidated statements of income, shareholders' equity, and cash flows are
presented for the years ended September 30, 1997, 1996, and 1995.
Year ended September 30, 1997 compared with the year ended September 30, 1996
- -----------------------------------------------------------------------------
Net sales for the twelve months ended September 30, 1997 were $195.3 million
versus $60.2 million for the same period of 1996, an increase of $135.1 million
or 224.4%. The increase resulted primarily from the inclusion of sales from the
acquisition of CPM.
Production costs were $142.9 million or 73.2% of net sales in fiscal 1997 versus
$44.5 million or 74.0% of net sales in fiscal 1996. This increase in production
costs is a result of the CPM acquisition.
Product engineering and development costs increased $.62 million or 27.9%
primarily as a result of higher personnel costs.
Selling, general, and administrative expenses increased in fiscal 1997 to $31.4
million from $8.2 million in fiscal 1996, due primarily to the CPM acquisition,
including the related amortization of goodwill.
The increase in interest expense reflects higher average borrowings, primarily
as a result of financing the CPM acquisition.
Net income increased in fiscal 1997 to $6.9 million from $2.8 million in fiscal
1996 as a result of the above factors.
Year ended September 30, 1996 compared with the year ended September 30, 1995
- -----------------------------------------------------------------------------
Net sales and revenue increased to $60.2 million in the twelve months ended
September 30, 1996 as compared to $58.9 million in the twelve months ended
September 30, 1995. Income before the extraordinary gain increased 35.2% from
$2.0 million in the twelve months ended September 30, 1995 to $2.8 million in
the 1996 period.
Sales in the U.S. increased slightly from $56.4 million in 1995's twelve months
to $57.4 million in the 1996 period. Production costs as a percentage of sales
also increased slightly between the two periods. Operating expenses in the U.S.
decreased $1.9 million in the twelve months ended September 30, 1996 from 20.9%
of sales to 17.3% of sales. This increase resulted from a decrease in bad debt
expense and outside service costs.
Operating income in the U.S. increased from $3.7 million in the twelve months
ended September 30, 1995 to $5.1 million in 1996, as a result of the higher
sales volume and lower operating expenses.
12
<PAGE>
The Company's U.K. subsidiary's sales increased from $2.5 million in the twelve
months ended September 30, 1995 to $2.8 million in fiscal 1996. Operating
income in the U.K. decreased 19.2% from $.21 million in 1995 to $.17 million in
1996, as a result of sales of lower margin products.
Consolidated nonoperating income and expense increased from a net expense of $.7
million in the twelve months ended September 30, 1995 to $1.3 million in fiscal
1996, as the result of higher interest expense due to higher average outstanding
debt balances combined with the loss of nonrecurring equipment rental income in
fiscal 1995.
Liquidity and Capital Resources
- -------------------------------
For the year ended September 30, 1997, cash provided by operations was $5.7
million, an increase of $8.6 million, compared to fiscal 1996. This increase
was due primarily to an increase in net income and depreciation and
amortization, offset by a decrease in operating assets and liabilities.
Working capital increased by $5.9 million to $45.7 million at September 30,
1997, principally as a result of an increase in accounts receivable and a
reduction in customer deposits, partially offset by a decrease in inventories.
Investing activities used $1.6 million in fiscal 1997 compared to providing $.2
million in fiscal 1996, a change of $1.8 million, resulting primarily from an
increase in other assets related to acquisition costs.
Cash provided by financing activities increased by $1.1 million, to $4.9 million
in fiscal 1997, primarily as a result of an increase in borrowings related to
the acquisition of Gumaco and other South American assets, offset by repayments
of long-term debt.
As of September 30, 1997, the Company had a revolving credit facility providing
a total of $35 million, of which $15.1 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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- -------
An index to the consolidated financial statements of the Company and its
subsidiaries is set forth following Part IV hereof.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- -------
FINANCIAL DISCLOSURE
None
13
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
- --------
The information regarding the Company's Directors required by this Item 10 is
incorporated herein by reference to the Company's definitive Proxy statement,
which will be filed with the Securities and Exchange Commission.
Information regarding the Company's Executive Officers required by this Item 10
is furnished in a separate item captioned "Executive Officers of Registrant,"
included in Part I of this Annual Report on Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
- --------
The information required by this Item 11 is incorporated herein by reference to
the Company's definitive Proxy Statement which will be filed with the Securities
and Exchange Commission.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- --------
The information required by this Item 12 is incorporated herein by reference to
the Company's definitive Proxy Statement which will be filed with the Securities
and Exchange Commission.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- --------
The information required by this Item 13 is incorporated herein by reference to
the Company's definitive Proxy Statement which will be filed with the Securities
and Exchange Commission.
14
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
- --------
(a) A listing of financial statements and financial statement schedules filed
as part of this report is set forth in the "Index to Financial Statements"
following Part IV hereof.
(b) Reports on Form 8-K: None.
(c) Exhibit Index - 1997 Annual Report on Form 10-K.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION FILED HEREWITH
- ------ ----------- --------------
<S> <C> <C>
3.1 Restated Certificate of Incorporation of Company,
incorporated by reference to Exhibit 3.1 to Registration
No. 33-627
3.2 Composite of Bylaws of Company, incorporated by
reference to Exhibit 3.2 to Registration No. 33-627
3.3 Certificate of Amendment, changing name of Mechtron
International Corporation to Gencor Industries, Inc. and
adding a "twelfth" article regarding director liability
limitation, incorporated by reference to the Company's
annual report on Form 10-K for the year ended December
31, 1987.
4.1 Form of Common Stock certificate, incorporated by
reference to Exhibit 4.1 to Registration No. 33-627.
4.2 Loan Agreement between the Orange County Industrial
Development Authority and the Company dated as of
December 1, 1984, incorporated by reference to Exhibit
4.2 to Registration No. 33-627.
4.3 Specimen copy of Promissory Note dated December 1, 1984,
from the Company to the Orange County Industrial
Development Authority in the principal sum of $5
million, incorporated by reference to Exhibit 4.3 to
Registration No. 33-627
4.4 Mortgage Deed and Security Agreement dated as of
December 1, 1984, from the Company to the Orange County
Industrial Development Authority, incorporated by
reference to Exhibit 4.4 to Registration No. 33-627.
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION FILED HEREWITH
- ------ ----------- --------------
<S> <C> <C>
4.5 Trust Indenture between Orange County Industrial
Development Authority and Barnett Banks Trust Company
dated as of December 1, 1984, incorporated by reference
to Exhibit 4.5 to Registration No. 33-627.
4.6 Guaranty Agreement between General Combustion
Corporation, Mechtron International DISC Corporation,
Control Delta Corporation, Thermotech Systems
Corporation of Florida, General Combustion Limited, and
the Orange County Industrial Development Authority dated
as of December 1, 1984, incorporated by reference to
Exhibit 4.6 to Registration No. 33-627.
4.27 $95 million Senior Secured Credit Agreement, by and
among Gencor, the Lenders and Credit Lyonnais, New York
Bank as Agent to the Lenders and the Issuing Bank with
respect to the Letters of Credit, incorporated by
reference to Exhibit 10.4 to the Company's Report on
Form 8-K filed on December 26, 1996.
4.28 Borrower Security Agreement, dated as of December 10,
1996, made by Registrant in favor of Credit Lyonnais New
York Branch, as Agent, incorporated by reference to
Exhibit 10.5 to the Company's Report on Form 8-K filed
on December 26, 1996.
4.29 Borrower Copyright Security Agreement, dated as of
December 10, 1996, made by Registrant in favor of Credit
Lyonnais New York Branch, as Agent, incorporated by
reference to Exhibit 10.6 to the Company's Report on
Form 8-K filed on December 26, 1996.
4.30 Borrower Pledge Agreement, dated as of December 10,
1996, made by Registrant in favor of Credit Lyonnais New
York Branch, as Agent, incorporated by reference to
Exhibit 10.7 to the Company's Report on Form 8-K filed
on December 26, 1996.
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION FILED HEREWITH
- ------ ----------- --------------
<S> <C> <C>
4.31 California Pellet Mill Company Security Agreement, dated
as of December 10, 1996, made by California Pellet Mill
Company in favor of Credit Lyonnais New York Branch, as
Agent, incorporated by reference to Exhibit 10.8 to the
Company's Report on Form 8-K filed on December 26, 1996.
4.32 California Pellet Mill Company Pledge Agreement, dated
as of December 10, 1996, made by California Pellet Mill
Company in favor of Credit Lyonnais New York Branch, as
Agent, incorporated by reference to Exhibit 10.9 to the
Company's Report on Form 8-K filed on December 26, 1996.
4.33 General Combustion Corporation Security Agreement, dated
as of December 10, 1996, made by General Combustion
Corporation in favor of Credit Lyonnais New York Branch,
as Agent, incorporated by reference to Exhibit 10.10 to
the Company's Report on Form 8-K filed on December 26,
1996.
4.34 Equipment Services Group, Inc. Security Agreement, dated
as of December 10, 1996, made by Equipment Services
Group, Inc. in favor of Credit Lyonnais New York Branch,
as Agent, incorporated by reference to Exhibit 10.11 to
the Company's Report on Form 8-K filed on December 26,
1996.
4.35 Thermotech Systems Corporation Security Agreement, dated
as of December 10, 1996, made by Thermotech Systems
Corporation in favor of Credit Lyonnais New York Branch,
as Agent, incorporated by reference to Exhibit 10.12 to
the Company's Report on Form 8-K filed on December 26,
1996.
4.36 Bituma-Stor, Inc. Security Agreement, dated as of
December 10, 1996, made by Bituma-Stor, Inc. in favor of
Credit Lyonnais New York Branch, as Agent, incorporated
by reference to Exhibit 10.13 to the Company's Report on
Form 8-K filed on December 26, 1996.
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION FILED HEREWITH
- ------ ----------- --------------
<S> <C> <C>
4.37 Bituma Corporation Security Agreement, dated as of
December 10, 1996, made by Bituma Corporation in favor
of Credit Lyonnais New York Branch, as Agent,
incorporated by reference to Exhibit 10.13 to the
Company's Report on Form 8-K filed on December 26, 1996.
4.38 Mortgage made by Gencor, Industries, Inc. in favor of
Credit Lyonnais New York Branch, as Agent, for certain
real property located in Orlando, Florida, incorporated
by reference to Exhibit 10.15 to the Company's Report on
Form 8-K filed on December 26, 1996.
4.39 Mortgage made by General Combustion Corporation in favor
of Credit Lyonnais New York Branch, as Agent, for
certain real property located in Youngstown, Ohio,
incorporated by reference to Exhibit 10.16 to the
Company's Report on Form 8-K filed on December 26, 1996.
4.40 Mortgage made by Gencor Industries, Inc. in favor of
Credit Lyonnais New York Branch, as Agent, for certain
real property located in Marquette, Iowa, incorporated
by reference to Exhibit 10.17 to the Company's Report on
Form 8-K filed on December 26, 1996.
4.41 Mortgage made by California Pellet Mill Company in favor
of Credit Lyonnais New York Branch, as Agent, for
certain real property located in Waterloo, Iowa,
incorporated by reference to Exhibit 10.18 to the
Company's Report on Form 8-K filed on December 26, 1996.
4.42 Mortgage made by California Pellet Mill Company in favor
of Credit Lyonnais New York Branch, as Agent, for
certain real property located in Crawfordsville,
Indiana, incorporated by reference to Exhibit 10.19 to
the Company's Report on Form 8-K filed on December 26,
1996.
4.43 Tranche A Term Note, incorporated by reference to
Exhibit 10.20 to the Company's Report on Form 8-K filed
on December 26, 1996.
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION FILED HEREWITH
- ------ ----------- --------------
<S> <C> <C>
4.44 Tranche B Term Note, incorporated by reference to
Exhibit 10.21 to the Company's Report on Form 8-K filed
on December 26, 1996.
4.45 Revolving Credit Notes, incorporated by reference to
Exhibit 10.22 to the Company's Report on Form 8-K filed
on December 26, 1996.
4.46 Tranche C Term Notes, incorporated by reference to
Exhibit 10.23 to the Company's Report on Form 8-K, filed
on October 27, 1997.
10.1 1982 Incentive Stock Option Plan and form of Stock
Option Agreement, incorporated by reference to Exhibit
10.1(a) to the Company's Annual Report on Form 10-K for
the year ended December 31, 1984.
10.2 Form of Agreement for Nonqualified Stock Options granted
in 1982, 1983, 1984, and 1985, incorporated by reference
to Exhibit 10.2(b) to the Company's Annual Report on
Form 10-K for the year ended December 31, 1984.
10.5 Form of Agreement for Nonqualified Stock Options granted
in 1986, incorporated by reference to the Annual Report
on Form 10-K for the year ended December 31, 1986.
10.6 1992 Stock Option Plan and Form of Agreement,
incorporated by reference to Exhibit 10.6 to the
Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1992.
10.7 Purchase Agreement between Ingersoll-Rand Company and
Registrant, dated August 12, 1996 incorporated by
reference to Exhibit 10.1 to the Company's Report on
Form 8-K filed on August 19, 1996.
10.8 First Amendment, dated as of November 22, 1996, to the
Purchase Agreement between Ingersoll-Rand Company and
Registrant, dated August 12, 1996 incorporated by
reference to Exhibit 10.2 to the Company's Report on
Form 8-K filed on December 26, 1996.
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION FILED HEREWITH
- ------ ----------- --------------
<S> <C> <C>
10.9 Second Amendment, dated as of December 10, 1996, to the
Purchase Agreement between Ingersoll-Rand Company and
Registrant, dated August 12, 1996 incorporated by
reference to Exhibit 10.3 to the Company's Report on
Form 8-K filed on December 26, 1996.
10.11 1997 Stock Option Plan incorporated by reference to
Exhibit A to the Company's Proxy Statement on 14A, filed
March 3, 1997.
11.0 Statement regarding Computation of Earnings per Share. X
21.0 Subsidiaries of the Registrant. X
</TABLE>
20
<PAGE>
EXHIBIT 11
GENCOR INDUSTRIES, INC.
COMPUTATION OF EARNINGS PER SHARE
(All Dollar Amounts in Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
September 30, September 30, September 30,
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Earnings per share
- ------------------
Income before extraordinary gain $ 6,896 $ 2,756 $ 2,039
Extraordinary gain - - 498
---------- ---------- ----------
Net income $ 6,896 $ 2,756 $ 2,537
========== ========== ==========
Average number of shares outstanding 4,047,134 3,560,318 3,465,450
========== ========== ==========
Income per share:
Income before extraordinary gain $ 1.70 $ 0.78 $ 0.59
Extraordinary gain - - 0.14
---------- ---------- ----------
Net income $ 1.70 $ 0.78 $ 0.73
========== ========== ==========
Additional primary computation
- ------------------------------
Average number of shares outstanding 4,047,134 3,560,318 3,465,450
Add dilutive effect of outstanding options
(as determined by the application of the
treasury stock method) 616,029 - 57,828
---------- ---------- ----------
Average number of shares outstanding,
as adjusted 4,663,163 3,560,318 3,523,278
========== ========== ==========
Primary earnings per share:
Income before extraordinary gain $ 1.48 $ 0.78 $ 0.58
Extraordinary gain - - 0.14
---------- ---------- ----------
Net income $ 1.48 $ 0.78 (A) $ 0.72 (A)
========== ========== ==========
Additional fully diluted computation
- ------------------------------------
Average number of shares outstanding 4,047,134 3,560,318 3,465,450
Add dilutive effect of outstanding options
(as determined by the application of the
treasury stock method) 714,843 - 57,828
---------- ---------- ----------
Average number of shares outstanding,
as adjusted 4,761,977 3,560,318 3,523,278
========== ========== ==========
Fully diluted earnings per share:
Income before extraordinary gain $ 1.45 $ 0.78 $ 0.58
Extraordinary gain - - 0.14
---------- ---------- ----------
Net income $ 1.45 $ 0.78 (A) $ 0.72 (A)
========== ========== ==========
</TABLE>
(A) This calculation is submitted in accordance with Regulation S-K item 601
(b)(11) although not required by footnote to paragraph 14 of APB Opinion No. 15
because it results in dilution of less than 3%.
21
<PAGE>
EXHIBIT 21
GENCOR INDUSTRIES, INC. AND SUBSIDIARIES
SUBSIDIARIES OF THE REGISTRANT
All of the operating subsidiaries of Gencor Industries, Inc., a Delaware
Corporation, listed below are included in the Consolidated Financial Statements:
State in Which Country in Which
Incorporated Incorporated
------------ ------------
General Combustion Corporation Florida
Thermotech Systems Corporation Florida
General Combustion Limited England
Bituma-Stor, Inc. Iowa
Bituma Corporation Washington
The Davis Line, Inc. Indiana
Equipment Services Group, Inc. Florida
California Pellet Mill Company California
CPM/Europe Limited Ireland
CPM/Europe S.A. France
CPM/Europe B.V. Netherlands
CPM/Pacific (Private) Limited Singapore
Gigantissimo 2046 AB Sweden
California Pellet Mill Europe Limited United Kingdom
CPM Brazil, Inc. Florida
CPM do Brasil Ltda. Brazil
Gumaco Industria E Comercio Ltda. Brazil
Gumaco Projectos E. Montagens Ltda. Brazil
CPM Industria E Comercio Ltda. Brazil
22
<PAGE>
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.
Dated: December 16, 1997 GENCOR INDUSTRIES, INC.
(Registrant)
By: /s/ E.J. Elliott
-----------------------------------
E.J. Elliott
President and Chairman
of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated. The signatures of Directors
constitute a majority of Directors.
/s/ E.J. Elliott /s/ Russell R. Lee III
- ------------------------------------ -----------------------------------
E.J. Elliott Russell R. Lee III
President and Chairman of the Board Treasurer
/s/ C.L. Corpas /s/ Peter Kourmolis
- ------------------------------------ -----------------------------------
C.L. Corpas Peter Kourmolis
Director Director
/s/ John E. Elliott
- ------------------------------------
John E. Elliott
Director
23
<PAGE>
GENCOR INDUSTRIES, INC.
-----------------------
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
---------------------------------------------------------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Certified Public Accountants............................ 25
Consolidated Balance Sheets at September 30, 1997 and 1996.................... 26
Consolidated Statements of Income for the years ended
September 30, 1997, 1996, and 1995.......................................... 27
Consolidated Statements of Shareholders' Equity for the years
ended September 30, 1997, 1996, and 1995.................................... 28
Consolidated Statements of Cash Flows for the years ended
September 30, 1997, 1996, and 1995.......................................... 29
Notes to Consolidated Financial Statements.................................... 30
Financial Statement Schedule:
II Valuation and Qualifying Accounts.............................. 42
</TABLE>
All other schedules are omitted because they are not applicable or the required
information is shown in the financial statements or notes thereto.
24
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of
Gencor Industries, Inc.
Orlando, Florida
We have audited the accompanying consolidated balance sheets of Gencor
Industries, Inc. and subsidiaries (the "Company") as of September 30, 1997 and
1996, and the related consolidated statements of income, shareholders' equity
and cash flows for each of the three years in the period ended September 30,
1997. Our audits also included the financial statement schedule listed in the
accompanying index. These consolidated financial statements and financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on the financial statements and
financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Gencor Industries, Inc. and
subsidiaries at September 30, 1997 and 1996, and the results of their operations
and their cash flows for each of the three years in the period ended September
30, 1997, in conformity with generally accepted accounting principles. Also, in
our opinion, such financial statement schedule, when considered in relation to
the basic consolidated financial statements taken as a whole, presents fairly in
all material respects the information set forth therein.
DELOITTE & TOUCHE LLP
November 11, 1997
Orlando, Florida
25
<PAGE>
GENCOR INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(All Dollar Amounts in Thousands)
<TABLE>
<CAPTION>
September 30
----------------------------------
ASSETS 1997 1996
---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 10,287 $ 1,501
Accounts receivable, less allowance for doubtful accounts
of $3,412 ($2,859 in 1996) 36,465 24,646
Inventories 46,175 41,537
Prepaid expenses, including deferred income taxes of
$419 ($612 in 1996) 2,466 2,129
-------- --------
Total current assets 95,393 69,813
Property and equipment, net 38,414 36,795
Goodwill 16,119 9,107
Other assets 13,226 3,346
-------- --------
$163,152 $119,061
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable $ 44 $ 1,699
Current portion of long-term debt 4,798 2,528
Accounts payable 15,825 13,368
Customer deposits 12,218 3,242
Income taxes payable 701 285
Accrued expenses 16,080 8,830
-------- --------
Total current liabilities 49,666 29,952
Post-retirement benefits 1,958 1,526
Deferred income taxes 738 1,438
Other liabilities 3,089 -
Long-term debt 86,489 73,746
Contingencies and commitments
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 (5,000,000 in 1996); 3,272,870 shares
issued (3,240,534 shares in 1996) 327 324
Class B stock, par value $.10 per share; 6,000,000
shares authorized (3,000,000 in 1996); 883,064 shares
issued and outstanding (883,064 shares in 1996) 88 88
Capital in excess of par value 9,772 7,630
Retained earnings 11,804 4,998
Cumulative translation adjustment (684) 309
-------- --------
21,307 13,349
Less: Subscription receivable from officer (95) (95)
Common stock in treasury, 532,870 shares at cost - (855)
-------- --------
21,212 12,399
-------- --------
$163,152 $119,061
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
26
<PAGE>
GENCOR INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(All Dollar Amounts in Thousands, Except for Share Amounts)
<TABLE>
<CAPTION>
Years Ended September 30,
------------------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Net revenue $ 195,313 $ 60,208 $ 58,944
Costs and expenses:
Production costs 142,878 44,534 42,763
Product engineering and development 2,824 2,208 1,920
Selling, general and administration expenses 31,405 8,226 10,390
---------- ---------- ----------
177,107 54,968 55,073
---------- ---------- ----------
Operating income 18,206 5,240 3,871
Other income (expense):
Interest income 363 - 17
Interest expense (7,170) (1,357) (1,055)
Miscellaneous (378) 68 292
---------- ---------- ----------
(7,185) (1,289) (746)
---------- ---------- ----------
Income before income taxes and
extraordinary gain 11,021 3,951 3,125
Provision for income taxes 4,125 1,195 1,086
---------- ---------- ----------
Income before extraordinary gain 6,896 2,756 2,039
Extraordinary gain from the retirement of debt,
net of income taxes of $312,000 - - 498
---------- ---------- ----------
Net income $ 6,896 $ 2,756 $ 2,537
========== ========== ==========
Per share data:
Primary:
Income before extraordinary gain $ 1.48 $ 0.78 $ 0.58
Extraordinary gain - - 0.14
---------- ---------- ----------
Net income $ 1.48 $ 0.78 $ 0.72
========== ========== ==========
Fully diluted:
Income before extraordinary gain $ 1.45 $ 0.78 $ 0.58
Extraordinary gain - - 0.14
---------- ---------- ----------
Net income $ 1.45 $ 0.78 $ 0.72
========== ========== ==========
Weighted average shares used in computing net
income per common and common equivalent share:
Primary 4,663,163 3,560,318 3,523,278
========== ========== ==========
Fully diluted 4,761,977 3,560,318 3,523,278
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
27
<PAGE>
GENCOR INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(All Dollar Amounts in Thousands)
FOR THE YEARS ENDED SEPTEMBER 30, 1997, 1996, AND 1995
<TABLE>
<CAPTION>
Capital in Cumulative
Common Stock Class B Stock Excess of Retained Translation
-------------- -------------
Shares Amount Shares Amount Par Value Earnings Adjustment
--------- ------ ------- ------ ---------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
September 30, 1994 2,919,014 $ 292 789,150 $ 79 $ 6,622 $ 744 $ 316
10% stock dividend 291,520 29 78,914 8 915 (952) -
Net income - - - - - 2,537 -
Translation adjustment - - - - - - 3
Reductions in subscription
receivable - - - - - - -
--------- ------ ------- ------ ---------- ------- -----------
September 30, 1995 3,210,534 321 868,064 87 7,537 2,329 319
Stock options exercised 30,000 3 15,000 1 93 - -
Cash dividend - - - - - (87) -
Net income - - - - - 2,756 -
Translation adjustment - - - - - - (10)
--------- ------ ------- ------ ---------- ------- -----------
September 30, 1996 3,240,534 324 883,064 88 7,630 4,998 309
Sale of stock 565,206 56 - - 2,944 - -
Retirement of treasury stock (532,870) (53) - - (802) - -
Cash dividend - - - - - (90) -
Net income - - - - - 6,896 -
Translation adjustment - - - - - - (993)
--------- ------ ------- ------ ---------- ------- -----------
September 30, 1997 3,272,870 $ 327 883,064 $ 88 $ 9,772 $11,804 $ (684)
========= ====== ======= ====== ========== ======= ===========
<CAPTION>
Total
Subscription Treasury Stock Shareholders'
--------------
Subtotal Receivable Shares Cost Equity
-------- ------------ -------- ------ ------
<S> <C> <C> <C> <C> <C>
September 30, 1994 $ 8,053 $(100) 484,428 $(853) $ 7,100
10% stock dividend - - 48,442 (2) (2)
Net income 2,537 - - - 2,537
Translation adjustment 3 - - - 3
Reductions in subscription
receivable - 5 - - 5
------- ------------ -------- ------ -------
September 30, 1995 10,593 (95) 532,870 (855) 9,643
Stock options exercised 97 - - - 97
Cash dividend (87) - - - (87)
Net income 2,756 - - - 2,756
Translation adjustment (10) - - - (10)
------- ------------ -------- ------ -------
September 30, 1996 13,349 (95) 532,870 (855) 12,399
Sale of stock 3,000 - - - 3,000
Retirement of treasury stock (855) - (532,870) 855 -
Cash dividend (90) - - - (90)
Net income 6,896 - - - 6,896
Translation adjustment (993) - - - (993)
------- ------------ -------- ------ -------
September 30, 1997 $21,307 $ (95) - $ - $21,212
======= ============ ======== ====== =======
</TABLE>
See accompanying notes to consolidated financial statements.
28
<PAGE>
GENCOR INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(All Dollar Amounts in Thousands)
<TABLE>
<CAPTION>
For the Years Ended September 30,
-------------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Cash flows from operations:
Net income $ 6,896 $ 2,756 $ 2,537
Adjustments to reconcile net income
to cash provided by (used for) operations:
Extraordinary gain - - (499)
Inputed interest 1,070 - -
Depreciation and amortization 4,445 695 757
Postretirement benefits 432 - -
Change in assets and liabilities - net of
business acquired:
(Increase) in accounts receivable (12,609) (362) (1,650)
(Increase) in inventories 10,208 (5,913) (2,604)
Decrease (increase) in prepaid expenses (1,619) 767 (131)
(Increase) in other assets (3,253) - -
Decrease in deferred income taxes 4,316 (182) (133)
Increase (decrease) in accounts payable
and customer deposits (7,993) (41) 2,401
Increase (decrease) in income tax liabilities 416 (455) (879)
Increase (decrease) in accrued expenses 3,379 (157) (1,719)
-------- ------- -------
Total adjustments (1,208) (5,648) (4,457)
-------- ------- -------
Cash provided by (used for) operations 5,688 (2,892) (1,920)
Cash flows from investing activities:
Cash acquired from CPM - 1,219 -
Cash acquired from Gumaco 3,973 - -
Cash paid for business acquired (2,000) - -
Capital expenditures, net (1,580) (1,397) (454)
Proceeds from sale of property and equipment - 434 -
Insurance proceeds from property theft - 400 -
Acquisition costs (1,977) (312) -
Other, net - (160) 19
-------- ------- -------
Cash provided by (used for) investing activities (1,584) 184 (435)
Cash flows from financing activities:
Net (reduction) increase in notes payable (331) 2,292 599
Payment to Ingersoll-Rand (60,869) - -
Repayment of existing debt (14,978) (1,375) (4,210)
Borrowings 80,719 2,867 2,484
Cash dividends paid (90) (87) -
Issuance of common stock 1,675 - -
Other, net (1,247) 97 (27)
-------- ------- -------
Cash provided by (used for) financing activities 4,879 3,794 (1,154)
Effect of exchange rate changes on cash (197) - -
-------- ------- -------
Net increase (decrease) in cash 8,786 1,086 (3,509)
Cash and cash equivalents at:
Beginning of period 1,501 415 3,924
-------- ------- -------
End of period $ 10,287 $ 1,501 $ 415
======== ======= =======
Supplemental cash flow information:
Cash paid during the year for:
Interest $ 5,175 $ 1,381 $ 1,288
======== ======= =======
Income taxes $ 2,220 $ 1,571 $ 2,179
======== ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
29
<PAGE>
GENCOR INDUSTRIES, INC.
-----------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(All Dollar Amounts in Thousands, Except Per Share Amounts)
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
- ----------------------------------------
General
- -------
The Company designs and manufactures material handling equipment primarily
utilized in the asphalt, agricultural and food industries.
On May 7, 1997, the Board of Directors authorized a 2 for 1 stock split to
shareholders of record as of May 19, 1997, effective May 30, 1997. As a result
of the split, 1,636,435 additional common shares and 441,532 additional Class B
shares were issued, and paid-in capital was reduced by $208. 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.
The consolidated financial statements include the accounts of Gencor Industries,
Inc. and its subsidiaries (the "Company"). All material intercompany accounts
and transactions are eliminated in consolidation. In conformity with generally
accepted accounting principles, management has used estimates in preparing its
consolidated financial statements. Actual results could differ from these
estimates.
In February 1997, the Financial Accounting Standards Board issued SFAS No. 128,
"Earnings Per Share", which becomes effective for fiscal years ending after
December 31, 1997. Pro forma earnings per share for the years ended September
30, 1997 and 1996, under the new pronouncement are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-----------------
1997 1996
<S> <C> <C>
Basic $1.70 $ .78
===== =====
Diluted $1.48 $ .78
===== =====
</TABLE>
Cash Equivalents
- ----------------
Cash equivalents, which consist of short-term certificates of deposit and
deposits in money market accounts with original maturities of three months or
less, are carried at cost, which approximates their market value.
Fair Value of Financial Instruments
- -----------------------------------
The carrying amounts of cash, accounts receivable, accounts payable, and notes
payable to banks approximate fair value because of the short-term nature of
these items. The carrying amount of substantially all of the Company's long-
term debt approximates fair value due to the variable nature of the interest
rates on the debt.
30
<PAGE>
Foreign Currency Translation
- ----------------------------
Assets and liabilities of the Company's foreign subsidiaries are translated into
U.S. dollars at the applicable rate of exchange in effect at the end of the
fiscal year. Revenue and expense accounts are translated at the average rate of
exchange during the period and equity accounts are translated at the rate in
effect when the transactions giving rise to the balances took place. Gains and
losses resulting from translation are accumulated in a separate component of
shareholders' equity. Gains and losses resulting from foreign currency
transactions are included in income.
Foreign Exchange Risk Management
- --------------------------------
The Company enters into foreign currency forward exchange contracts with major
financial institutions to hedge certain loans and trade accounts receivables
against adverse fluctuations in exchange rates. At September 30, 1997, the
Company had forward exchange contracts totaling $5,801. These contracts mature
at various dates in the first quarter of fiscal 1998. The Company expects to
continue to utilize foreign currency exchange contracts to manage its exposure,
although there can be no assurance the Company's efforts in this regard will be
successful.
Inventories
- -----------
Inventories are stated at the lower of cost or market. The Company uses the
last-in, first-out (LIFO) method of determining cost for substantially all
inventories in the United States. All other inventories are accounted for using
the first-in, first-out (FIFO) method.
Property and Equipment
- ----------------------
Property and equipment are stated at cost. Depreciation of property and
equipment, including depreciation on assets acquired under capital leases, is
computed using straight-line and accelerated methods over the estimated useful
lives of the related assets. Maintenance and repairs are expensed as incurred.
Expenditures which significantly increase asset values or extend useful lives
are capitalized.
Assets held for resale are stated at lower of depreciated cost or net realizable
value and are no longer depreciated.
Goodwill
- --------
Goodwill, the excess of the purchase price over the fair value of net assets of
businesses acquired, is being amortized over 25 years using the straight-line
method. Management evaluates the recoverability of intangible assets
periodically based on current operating trends.
Revenues
- --------
Revenues from contracts for the design and manufacture of certain custom
equipment are recognized under the percentage-of-completion method. Revenue
from all other sales are recorded as the products are shipped.
The percentage-of-completion method of accounting for long term contracts
recognizes revenue in proportion to actual labor costs incurred as compared with
total estimated labor costs expected to be incurred during the entire contract.
All selling, general and administrative expenses are charged to income as
incurred. Provision is made for any anticipated contract losses in the period
that the loss becomes evident.
The estimated costs of product warranties are charged to production costs as
revenue is recognized.
31
<PAGE>
Income Taxes
- ------------
The Company recognizes deferred tax liabilities and assets for the expected
future tax consequences of events that have been included in the financial
statements or tax returns using current tax rates. The Company and its domestic
subsidiaries file a consolidated federal income tax return. The foreign
subsidiaries provide income taxes based on the tax regulations of the countries
in which they operate. Undistributed earnings of the Company's foreign
subsidiaries are indefinitely reinvested. No deferred taxes have been provided
on these earnings.
Net Income Per Share
- --------------------
Net income per share is based on the weighted average number of common shares
and common stock equivalents outstanding during each period. Common stock
equivalent shares include the dilutive effect of outstanding options calculated
using the treasury stock method.
Stock Options
- -------------
The Company discloses stock-based compensation at fair value.
Reclassification
- ----------------
Certain prior year amounts in the consolidated financial statements have been
reclassified to conform with the current year presentation.
NOTE 2 - ACQUISITIONS
- ---------------------
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 $12,730, 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 (see Note 9).
The transactions were accounted for as a purchase and the assets have been
included in the accompanying balance sheet at their fair value. Total assets
acquired approximated $32,780, liabilities assumed approximated $23,288, and the
excess of the amount paid over the fair value of the assets acquired was
approximately $3,238. 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 July 1, 1997. Assuming these acquisitions and the
acquisition of CPM, referred to below, had occurred on October 1, 1996 and 1995,
the Company's unaudited proforma net sales, net income, and earnings per share
would have been approximately $210,381, $7,881, and $1.65 and $183,901, $3,869,
and $.88, respectively, for the years ended September 30, 1997 and 1996.
Effective September 30, 1996, the Company purchased the stock of Process
Equipment Division of Ingersoll-Rand Company ("CPM") for $60,869. CPM, a multi-
national entity, is also engaged in the design and manufacture of process
equipment. The acquisition was financed under a new $95 million credit facility
(see Note 9).
32
<PAGE>
NOTE 3 - INVENTORIES
- --------------------
Inventories at September 30, 1997 and 1996 consist of the following:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Raw materials $12,109 $14,390
Work in process 8,915 10,340
Finished goods 25,151 16,807
------- -------
$46,175 $41,537
======= =======
</TABLE>
At September 30, 1997, accumulated costs of approximately $3,855 on major
contracts, net of progress payments of approximately $2,772, and estimated
earnings of approximately $4,075 amount to approximately $5,158 and are included
in work-in-process inventory.
At September 30, 1996, accumulated costs of approximately $4,102 on major
contracts, net of progress payments of approximately $1,068, and estimated
earnings of approximately $2,437 amount to approximately $5,471, and are
included in work-in-process inventory.
At September 30, 1997 and 1996, cost is determined by the last-in, first-out
(LIFO) method for 60% and 69%, respectively, of total inventories, exclusive of
progress payments, and the first-in, first-out (FIFO) method for all other
inventories. At September 30, 1997 and 1996, the estimated current cost of
inventories exceeded their LIFO basis by approximately $2,575 and $2,468,
respectively.
NOTE 4 - PROPERTY AND EQUIPMENT
- -------------------------------
Property and equipment at September 30, 1997 and 1996, consist of the following:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Land and improvements $ 6,251 $ 6,072
Building and improvements 14,511 17,825
Machinery and equipment 23,804 17,969
Tools, jigs and dies 120 119
Furniture and equipment 3,135 2,986
Automobiles 586 362
Construction in progress 488 369
-------- -------
48,895 45,702
Less: Accumulated depreciation (10,481) (8,907)
-------- -------
$ 38,414 $36,795
======== =======
</TABLE>
Substantially all of the Company's property and equipment is pledged as
collateral for the Company's debt.
Depreciation expense for the years ended September 30, 1997, 1996, and 1995 was
approximately $3,641, $641, and $675, respectively. There was no interest
capitalized during 1997, 1996, or 1995.
33
<PAGE>
NOTE 5 - OTHER ASSETS
- ---------------------
Other assets at September 30, 1997 and 1996 consist of the following:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Deposits $ 3,498 $ -
Deferred acquisition costs, net 1,976 -
Deferred loan costs, net 1,836 147
Other 5,916 3,199
------- ------
$13,226 $3,346
======= ======
</TABLE>
NOTE 6 - ACCRUED EXPENSES
- -------------------------
Accrued expenses consist of the following at September 30, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Payroll and related accruals $ 6,705 $5,004
Warranty and related accruals 1,751 2,049
Acquisition costs 2,723 662
Professional fees 1,117 130
Interest 904 274
Sales and property taxes 540 603
Other 2,340 108
------- ------
Total $16,080 $8,830
======= ======
</TABLE>
NOTE 7 - INCOME TAXES
- ---------------------
The provision for income taxes consists of:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Current:
Federal $1,697 $ 872 $1,301
State 210 (33) 170
Foreign 1,400 - -
------ ------ ------
Total currently payable 3,307 839 1,471
Deferred:
Federal 731 370 (341)
State 87 (14) (44)
Foreign - - -
------ ------ ------
Total deferred tax expense (benefit) 818 356 (385)
------ ------ ------
Provision for income taxes $4,125 $1,195 $1,086
====== ====== ======
</TABLE>
34
<PAGE>
The difference between the U.S. federal income tax rate and the Company's
effective income tax rate is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Federal income tax rate 34.0% 34.0% 34.0%
State income taxes, net of federal income tax benefit 1.3 (0.5) 2.9
Internal revenue service examination and other prior
period adjustments and refunds - (2.0) -
Difference arising from transactions with, and profit
and loss of, foreign subsidiary not deductible or
includable for U.S. federal income tax purposes 0.2 (2.3) (1.3)
Other, net 1.9 1.0 (0.9)
------ ----- -----
37.4% 30.2% 34.7%
====== ===== =====
</TABLE>
Deferred taxes and balance sheet classifications are recorded as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Deferred tax assets (liabilities):
Differences in basis of acquired assets $ - $(1,109)
Depreciation and amortization (738) (329)
Inventory cost adjustments (1,582) (720)
------- -------
Gross deferred tax liability (2,320) (2,158)
Allowance for doubtful accounts 700 480
Accrued expenses 1,301 852
------- -------
Gross deferred tax asset 2,001 1,332
------- -------
$ (319) $ (826)
======= =======
</TABLE>
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Balance sheet classification:
Allowance for doubtful accounts $ 700 $ 480
Inventory (1,582) (720)
Accrued expenses 1,301 852
------- -------
Current deferred tax assets $ 419 $ 612
======= =======
Difference on basis of acquired assets $ - $(1,109)
Depreciation and amortization (738) (329)
------- -------
Noncurrent deferred tax liabilities $ (738) $(1,438)
======= =======
</TABLE>
NOTE 8 - RETIREMENT BENEFITS
- ----------------------------
Retirement Benefits Other than Pensions
- ---------------------------------------
The Company sponsors a postretirement plan (the "Plan") that covers certain
domestic employees. The Plan provides for healthcare benefits and, in some
instances, life insurance benefits and is contributory with amounts adjusted
annually. When full-time employees retire from CPM between age 55 and age 65
with 15 years of service, most will be eligible to receive, at a cost to the
retiree, certain healthcare benefits identical to those available to active
employees. After attaining age 65, an eligible retiree's healthcare benefit
coverage will become coordinated with Medicare.
35
<PAGE>
At September 30, 1997 and 1996, respectively, the actuarial and recorded
liabilities for these postretirement benefits, none of which have been funded,
are as follows:
1997 1996
------ ------
Accumulated postretirement benefit obligation:
Retirees $ - $ -
Active employees 1,794 1,526
------ ------
Unfunded accumulated postretirement
benefit obligation 1,794 1,526
Unrecognized net (gain) 164 -
Unrecognized prior service benefits -
------ ------
Accrued postretirement benefit cost $1,958 $1,526
====== ======
The components of net periodic postretirement benefits cost for the year ended
September 30, 1997 are as follows:
Service costs $ 229
Interest costs 158
Net amortization and deferred amounts 44
------
Total $ 431
======
The discount rate used in determining the accumulated postretirement benefit
obligation was 7.25% at September 30, 1997. The assumed healthcare cost trend
rates used in measuring the accumulated post-retirement benefit obligation was
8.55% in 1997, declining each year to an ultimate rate by 2003 of 4.75%.
An increase of one percentage point in the assumed healthcare cost trend
rates for each future year would have increased the aggregate of the service and
interest cost components of the 1997 net periodic postretirement benefit cost by
$52 and would have increased the accumulated postretirement benefit obligation
as of September 30, 1997 by $93.
401(k) Plan
- -----------
The Company has voluntary 401(k) employee benefit plans ("401(k) Plans") which
covers all eligible employees. The Company makes discretionary matching
contributions subject to a maximum level, in accordance with the terms of the
respective 401(k) Plans. The Company charged approximately $390, $127, and $113
to operating expense under the provisions of the 401(k) Plan in the years ended
September 30, 1997, 1996, and 1995, respectively.
Pension Plan
- ------------
The Company provides pension benefits covering certain domestic employees.
Benefits under the plan are based upon an employee's compensation and years of
service. It is the Company's policy to make contributions to the plan
sufficient to meet the minimum funding requirements of applicable laws and
regulations plus such additional amounts, if any, as the Company's actuarial
consultants advise to be appropriate.
The following table sets forth the plan's funded status and amounts recognized
in the Company's balance sheet at September 30, 1997:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Actuarial present value of accumulated benefit obligations:
Vested $ 201 $ 43
Nonvested 60 15
----- -----
Accumulated benefit obligation $ 261 $ 58
===== =====
Projected benefit obligation $ 329 $ 75
Plan assets at fair value - -
----- -----
Projected benefit obligation in excess of plan assets 329 75
Unrecognized prior service cost (70) (75)
Adjustment required to recognize minimum liability 2 -
----- -----
Accrued pension costs $ 261 $ -
===== =====
</TABLE>
Net periodic pension cost includes the following components:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Service cost - benefits earned during the year $ 247 $ -
Interest cost on projected benefit obligation 6 -
Actual return on plan assets - -
Net amortization and deferral 5 -
----- --------
$ 258 $ -
===== ========
</TABLE>
36
<PAGE>
To determine the actuarial present value of the projected benefit obligation,
the following rates were used:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Discount rate 7.5 % N/A
Rate of increase in future compensation levels 5.0 % N/A
</TABLE>
NOTE 9 - LONG-TERM DEBT
- -----------------------
Long-term debt at September 30, 1997 and 1996 consists of the following:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Line of credit facility $19,860 $ 9,072
Senior secured credit agreement 57,750 -
Term loan payable to bank - 3,365
Industrial revenue bonds payable to bank 2,677 2,969
Acquisition payable (see below) 11,000 60,868
------- -------
91,287 76,274
Less current maturities (4,798) (2,528)
------- -------
$86,489 $73,746
======= =======
</TABLE>
The industrial revenue bonds are payable in monthly installments of principal
and interest (6.851% at September 30, 1997) at a varying percentage (82% at
September 30, 1997) of the bank's prime rate through December 2004. Under the
terms of the industrial revenue bond indenture, the Company is required to
maintain compliance with certain financial and other covenants. The Company was
in compliance with the covenants at September 30, 1997.
In conjunction with the acquisition of CPM, the Company entered into a Senior
Secured Credit Agreement with a bank whereby the Company retired its existing
line of credit facilities, including its foreign line of credit and term loan
payable to another bank. Under the terms of the agreement, the Company borrowed
$60 million under two term loans and, in connection therewith, was granted a $35
million revolving credit facility to facilitate the acquisition. Interest rates
on these loans vary, at the Company's option, based upon a factor applied to the
prime rate or LIBOR. The weighted average interest rate for these borrowings
was 8.6% for fiscal 1997. The revolving credit facility and $30 million of the
term notes are payable through December 2001 with the remaining term note
payable through December 2003. Under the terms of the senior secured credit
agreement, the Company is required to maintain compliance with certain financial
and other covenants. The Company was in compliance with the covenants at
September 30, 1997.
The Company has entered into both an interest rate swap and an interest rate
collar with a major financial institution to reduce exposures to interest rate
fluctuations. Under the rate swap, the Company agrees with other parties to
exchange, at specified intervals, the difference between fixed-rate and
floating-rate interest amounts calculated by reference to an agreed notional
principal amount. Under the interest rate collar, the Company has effectively
limited its interest rate to a maximum of 7.0%. The notional amounts of each of
the interest rate swap and the interest rate collar outstanding at September 30,
1997 are $40,000 and expire in February 1999 and 2000, respectively. At
September 30, 1997, the Company owed $27 and $26 under the terms of the interest
rate swap and interest rate collar, respectively.
In conjunction with the acquisition of Gumaco and the other South American
companies, the Company amended its existing Senior Secured Credit Agreement to
provide an additional $12 million term loan. Interest on this loan is based on
a factor applied to the prime rate or LIBOR. The loan is payable in equal
quarterly installments through December 2004.
37
<PAGE>
Substantially all of the Company's assets are pledged as security under the
various credit agreements.
Aggregate maturities of long-term debt under the existing agreement and the
industrial revenue bonds for each of the five years in the period ending
September 30, 2002 are as follows:
<TABLE>
<S> <C>
1998 $ 4,798
1999 7,569
2000 9,841
2001 12,614
2002 32,624
Thereafter 23,841
-------
$91,287
=======
</TABLE>
NOTE 10 - COMMITMENTS AND CONTINGENCIES
- ---------------------------------------
The Company leases certain equipment under noncancelable operating leases.
Future minimum rental commitments under noncancelable leases in effect at
September 30, 1997 are as follows:
<TABLE>
<S> <C>
1998 $ 782
1999 432
2000 333
2001 42
2002 20
------
$1,619
------
</TABLE>
Total rental expense for the years ended September 30, 1997, 1996, and 1995 was
$658, $374, and $415, respectively.
The Company is involved in various litigation matters arising in the ordinary
course of business. Management has reviewed all claims and lawsuits and, upon
the advice of counsel, has made provision for estimable losses and expenses of
litigation relating to claims against the Company.
NOTE 11 - SHAREHOLDERS' EQUITY
- ------------------------------
On May 7, 1997, the Board of Directors authorized a 2 for 1 stock split to
shareholders of record as of May 19, 1997, effective May 30, 1997. As a result
of the split, 1,636,435 additional common shares and 441,532 additional Class B
shares were issued, and paid-in capital was reduced by $208. 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.
On November 21, 1996 the Company declared a cash dividend of $0.025 per share
payable on January 4, 1997, to shareholders of record as of December 18, 1996.
Under the Company's amended Certificate of Incorporation, certain of the rights
of the holders of the Company's Common Stock are modified during any period when
shares of Class B Stock are outstanding. During such periods, holders of Common
Stock will have the right to elect approximately 25% of the Company's Board of
Directors, and conversely, Class B Stock will be entitled to elect approximately
75%. During any period when Common Stock and Class B Stock are outstanding,
certain matters submitted to a vote of shareholders will also require approval
of the holders of Common Stock and Class B Stock, each voting separately as a
class.
38
<PAGE>
NOTE 12 - STOCK OPTIONS
- -----------------------
The Company maintains two stock option plans which provide for the issuance of
nonqualified or incentive stock options to certain directors, officers and key
employees.
The 1992 Stock Option Plan (the "1992 Plan") authorizes the granting of options
to purchase up to 200,000 shares of the Company's Common Stock, 200,000 shares
of the Company's Class B Stock and fifteen percent (15%) of the authorized
Common Stock of any Company subsidiary. Shares are no longer available for
grant under the 1992 Plan since all options authorized under the Plan have been
granted.
The 1997 Stock Option Plan (the "1997 Plan") provides for the issuance of
incentive stock options and nonqualified stock options to purchase up to 600,000
shares of the Company's Common Stock, 600,000 shares of the Company's Class B
Stock and up to fifteen percent (15%) of the authorized Common Stock of any
subsidiary.
Options become exercisable in a manner and on such dates and times as determined
by a committee of the Board of Directors. Options expire not more than ten
years from the date of grant.
The following table summarizes option activity under the plans:
<TABLE>
<CAPTION>
WEIGHTED
OPTION PRICE
SHARES PER SHARE
------ ------------
<S> <C> <C>
Outstanding at September 30, 1994 30,000 $ 1.38
Granted 400,000 4.75
Exercised - -
--------- --------
Outstanding at September 30, 1995 430,000 4.56
Granted 639,000 3.88
Exercised (30,000) 1.38
--------- --------
Outstanding at September 30, 1996 1,039,000 4.21
Granted - -
Exercised - -
--------- --------
Outstanding at September 30, 1997 1,039,000 $ 4.21
========= ========
</TABLE>
No compensation cost has been recognized for stock options granted in 1995 or
1996. If the Company had elected to recognize compensation cost based on the
fair value of the options granted at grant date amortized to expense, net income
and earnings per share for the years ended September 30, 1996 and 1995 would
have been reduced by, on a proforma basis, $2,017 and $841 and $.42 and $.24,
respectively. The estimated weighted average fair value at grant date for the
options granted during 1996 and 1995 was $1.84 and $2.10, respectively, per
option. The fair value of options at date of grant was estimated using the
Black-Scholes option-pricing model with the following assumptions:
<TABLE>
<S> <C>
Expected dividend yield 0 %
Expected stock price volatility 55 %
Risk-free interest rate 6.65 %
Expected life of options 3 years
</TABLE>
39
<PAGE>
NOTE 13 - QUARTERLY FINANCIAL DATA (UNAUDITED)
- ----------------------------------------------
The following is a summary of the quarterly results of operations for the years
ended September 30, 1997 and 1996:
<TABLE>
<CAPTION>
September 30, 1997
------------------------------------------------------
First Second Third Fourth
----- ------ ----- ------
<S> <C> <C> <C> <C>
Net revenue $35,219 $48,717 $51,079 $60,298
Cost and expenses 34,785 45,810 47,242 56,455
Income tax expense 152 1,046 1,501 1,426
------- ------- ------- -------
Net income $ 282 $ 1,861 $ 2,336 $ 2,417
======= ======= ======= =======
EPS
Primary $ 0.07 $ 0.42 $ 0.49 $ 0.50
Fully diluted $ 0.07 $ 0.42 $ 0.48 $ 0.49
</TABLE>
<TABLE>
<CAPTION>
September 30, 1996
------------------------------------------------------
First Second Third Fourth
----- ------ ----- ------
<S> <C> <C> <C> <C>
Net revenue $ 8,261 $17,433 $21,722 $12,792
Cost and expenses 9,384 15,445 19,118 12,309
Income tax expense (450) 738 1,025 (118)
------- ------- ------- -------
Net income $ (673) $ 1,250 $ 1,579 $ 601
======= ======= ======= =======
EPS
Primary $ (0.19) $ 0.35 $ 0.44 $ 0.17
Fully diluted $ (0.19) $ 0.35 $ 0.44 $ 0.17
</TABLE>
NOTE 14 - SEGMENT AND GEOGRAPHIC INFORMATION
- --------------------------------------------
The Company operates in one industry segment consisting of the design,
manufacture, and marketing of products and services for process machinery
equipment used for the production of highway construction materials and related
equipment, and machinery for the production of pelleting, grinding, flaking,
sugar processing, citrus juice, and filtration equipment.
40
<PAGE>
Information about the Company's identifiable assets as of September 30, 1997,
1996, and 1995 and operations for the years ended September 30, 1997, 1996, and
1995, in these geographic areas is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------------- --------------- -------------
<S> <C> <C> <C>
Net sales to unaffiliated customers
United States $134,104 $ 57,396 $56,427
Europe 39,128 2,812 2,517
South America 15,337 - -
Other 6,744 - -
-------- -------- -------
Total consolidated $195,313 $ 60,208 $58,944
======== ======== =======
Net sales or transfers between
geographic areas
United States $ 5,944 $ - $ -
Europe 8,345 109 144
South America - - -
Other 9 - -
-------- -------- -------
Total $ 14,298 $ 109 $ 144
======== ======== =======
Operating profit
United States $ 13,667 $ 5,067 $ 3,657
Europe 1,539 173 214
South America 2,697 - -
Other 303 - -
-------- -------- -------
Total $ 18,206 $ 5,240 $ 3,871
======== ======== =======
Identifiable assets at year-end
United States $114,424 $ 98,170 $32,984
Europe 19,734 13,915 1,835
South America 27,139 - -
Other 1,855 6,976 -
-------- -------- -------
Total $163,152 $119,061 $34,819
======== ======== =======
</TABLE>
The Company's intercompany policy is to transfer product at estimated market
prices. Identifiable assets are those assets of the Company that are
identifiable with the operations in each geographic area. Export sales for the
years ended September 30, 1997, 1996, and 1995, were approximately $19,994,
$1,846, and $4,828, respectively.
NOTE 15 - SUBSEQUENT EVENTS
- ---------------------------
Effective October 1997, the Company acquired ACP Holdings PLC, a United Kingdom
based designer and manufacturer of heavy machinery for the road construction and
quarrying industries for approximately $3.0 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.
41
<PAGE>
SCHEDULE II
GENCOR INDUSTRIES, INC.
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Balance at Charges/Credits Balance at
Beginning to Cost and Additions/ End of
Description of Period Expenses (Deductions) (1) Period
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Valuation accounts deducted
from assets to which they apply:
For doubtful accounts receivable:
September 30, 1997 $2,859 $ 978 $ (425) $3,412
September 30, 1996 $2,555 $(729) $ 1,033 (2) $2,859
September 30, 1995 $2,533 $ 812 $ (790) $2,555
For inventory obsolescence:
September 30, 1997 $6,012 $ 571 $(3,695) $2,888
September 30, 1996 $1,511 $ 20 $ 4,481 (2) $6,012
September 30, 1995 $1,709 $(198) $ - $1,511
</TABLE>
(1) Represents accounts written off during the year and collections of accounts
previously written off.
(2) Additional reserve transferred in association with the purchase of CPM.
42
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> SEP-30-1997
<CASH> 10,287
<SECURITIES> 0
<RECEIVABLES> 39,877
<ALLOWANCES> (3,412)
<INVENTORY> 46,175
<CURRENT-ASSETS> 95,393
<PP&E> 60,006
<DEPRECIATION> (21,592)
<TOTAL-ASSETS> 163,152
<CURRENT-LIABILITIES> 49,666
<BONDS> 0
0
0
<COMMON> 415
<OTHER-SE> 20,797
<TOTAL-LIABILITY-AND-EQUITY> 163,152
<SALES> 195,313
<TOTAL-REVENUES> 195,313
<CGS> 142,878
<TOTAL-COSTS> 177,107
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,170
<INCOME-PRETAX> 11,021
<INCOME-TAX> 4,125
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,896
<EPS-PRIMARY> 1.48
<EPS-DILUTED> 1.45
</TABLE>
