<PAGE>
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
________________________________
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
DATE OF REPORT: DECEMBER 10, 1996
(Date of earliest event reported)
________________________________
GENCOR INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
________________________________
DELAWARE 0-3821 59-0933147
(State or other jurisdiction of (Commission File Number) (IRS Employer
incorporation or organization) Identification No.)
5201 NORTH ORANGE BLOSSOM TRAIL, ORLANDO, FLORIDA 32810
(Address of principal executive offices, zip code)
(407) 290-6000
(Registrant's telephone number, including area code)
- --------------------------------------------------------------------------------
1
<PAGE>
This Amendment No. 1 supplements the Report on Form 8-K filed with the
Securities and Exchange Commission on December 26, 1996 by Gencor Industries,
Inc. (the "Registrant") to file (a) the financial statements of the Process
Equipment Division (the "PED Division") of Ingersoll-Rand Company ("Ingersoll")
and (b) the pro forma financial information relating to the business combination
of the Registrant and the PED Division.
<TABLE>
<CAPTION>
Item 7. Financial Statements and Exhibits Page
----
<S> <C>
(a) Financial Statements of the Process Equipment Division of Ingersoll-Rand
Company
(i) Report of Indepedent Certified Public Accountants 4
(ii) Combined Balance Sheets--September 30, 1996 and December 31, 1995 5
(iii) Combined Statements of Operations for the nine months ended
September 30, 1996 and for the years ended December 31, 1995 and
December 31, 1994 6
(iv) Combined Statements of Stockholder's Equity for the nine months
ended September 30, 1996 and years ended December 31, 1995 and
1994 7
(v) Combined Statements of Cash Flows for the nine months ended
September 30, 1996 and years ended December 31, 1995 and 1994 8
(vi) Note to Combined Financial Statements for the nine months ended
September 30, 1996 and years ended December 31, 1995 and 1994 9
(b) Pro Forma Combined Financial Statements of Gencor Industries, Inc.
(i) Introduction 18
(ii) Pro Forma Condensed, Combined Statement of Income for the year
ended September 30, 1996 (unaudited) 19
(iii) Notes to Pro Forma, Condensed Combined Statement of Income for
the year ended September 30, 1996 (unaudited) 20
</TABLE>
2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned hereunto duly authorized.
GENCOR INDUSTRIES, INC.
By: /s/ John E. Elliott
--------------------------------------
John E. Elliott, Executive Vice President
Dated: February 21, 1997
3
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors of
Gencor Industries, Inc.:
We have audited the accompanying combined balance sheets of Process Equipment
Division of Ingersoll-Rand Company and subsidiaries (the "Division") as of
September 30, 1996 and December 31, 1995, and the related combined statements of
operations, stockholder's equity, and cash flows for the nine months ended
September 30, 1996 and for each of the two years in the period ended December
31, 1995. These combined financial statements are the responsibility of the
Division's management. Our responsibility is to express an opinion on the
financial statements based on our audits. We did not audit the financial
statements of CPM Europe SA, CPM/Europe Limited, California Pellet Mill Europe
Limited, and CPM/Pacific (Private) Limited (combined companies), which
statements reflect total assets constituting 21% of combined total assets at
December 31, 1995 and total revenues constituting 16% and 17% of combined
revenues for the years ended December 31, 1995 and 1994, respectively. Those
statements were audited by other auditors whose reports have been furnished to
us, and our opinion, insofar as it relates to the amounts included for CPM
Europe SA, CPM/Europe Limited, California Pellet Mill Europe Limited, and
CPM/Pacific (Private) Limited is based solely on the reports of such other
auditors.
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 combined financial statements present fairly, in all
material respects, the financial position of Process Equipment Division of
Ingersoll-Rand Company and subsidiaries at September 30, 1996 and December 31,
1995, and the results of their operations and their cash flows for the nine
months ended September 30, 1996 and for each of the two years in the period
ended December 31, 1995, in conformity with generally accepted accounting
principles.
As discussed in Note 1 to the financial statements, the Division adopted SFAS
121, Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of, in 1996.
The accompanying combined financial statements have been prepared from the
separate records maintained by the Division and may not necessarily be
indicative of the conditions that would have existed or the results of
operations obtained if the Division had been operated as an unaffiliated
company. Portions of certain expenses represent allocations made from home
office items applicable to the Division as a whole.
/s/ Deloitte & Touche LLP
December 10, 1996
Orlando, Florida
4
<PAGE>
PROCESS EQUIPMENT DIVISION OF INGERSOLL-RAND COMPANY
COMBINED BALANCE SHEETS
SEPTEMBER 30, 1996 AND DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
ASSETS 1996 1995
<S> <C> <C>
CURRENT ASSETS:
Cash (Note 11) $ 2,538,949 $ 1,518,584
Accounts receivable, less allowance for doubtful accounts of $1,391,000
and $1,181,000, respectively (Notes 1 and 11) 18,512,770 19,814,387
Inventories (Notes 1 and 2) 20,910,915 19,597,921
Prepaid expenses 893,799 457,383
Deferred tax assets (Notes 1 and 6) 1,748,280 1,618,782
------------ ------------
Total current assets 44,604,713 43,007,057
ACCOUNTS RECEIVABLE FROM AFFILIATES (Notes 11 and 12) 4,275,753 43,877,681
PROPERTY AND EQUIPMENT - Net (Notes 1 and 3) 15,900,480 17,307,935
OTHER ASSETS 2,882,211 3,628,908
------------ ------------
$ 67,663,157 $107,821,581
------------ ------------
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Temporary cash overdraft $ 2,560,178 $ 1,499,983
Notes payable (Note 5) 67,636 321,722
Accounts payable (Note 11) 5,807,233 4,774,903
Income taxes payable (Notes 1 and 6) 528,368 1,502,193
Accrued expenses (Note 4) 8,789,650 7,605,690
------------ ------------
Total current liabilites 17,753,065 15,704,491
DEFERRED INCOME TAXES (Notes 1 and 6) 475,337 506,103
POST RETIREMENT BENEFITS (Note 10) 2,118,200 2,020,300
ACCOUNTS PAYABLE TO AFFILIATES (Notes 11 and 12) 7,759,790 52,328,529
------------ ------------
Total liabilities 28,106,392 70,559,423
------------ ------------
COMMITMENTS AND CONTINGENCIES (Note 7)
STOCKHOLDER'S EQUITY:
Common stock (Note 1) 455,870 455,870
Capital in excess of par value 788,694 788,694
Retained earnings 32,269,255 29,570,109
Cumulative translation adjustment 6,042,946 6,447,485
------------ ------------
Total stockholder's equity 39,556,765 37,262,158
------------ ------------
$ 67,663,157 $107,821,581
============ ============
</TABLE>
See accompanying notes to combined financial statements.
5
<PAGE>
PROCESS EQUIPMENT DIVISION OF INGERSOLL-RAND COMPANY
COMBINED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1996
AND YEARS ENDED DECEMBER 31, 1995 AND 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
-----------------------------------------
1996 1995 1994
<S> <C> <C> <C>
NET SALES (Notes 1 and 12) $77,374,421 $113,448,183 $96,164,570
COSTS AND EXPENSES:
Cost of sales (Notes 1 and 2) 56,903,950 84,022,397 70,578,913
Selling and marketing expenses 9,963,738 14,735,700 13,378,172
General and administrative expenses
(Notes 9, 10, and 12) 4,900,155 6,518,858 5,811,550
----------- ------------ -----------
71,767,843 105,276,955 89,768,635
----------- ------------ -----------
OPERATING INCOME (Note 8) 5,606,578 8,171,228 6,395,935
----------- ------------ -----------
OTHER INCOME (EXPENSE):
Interest income 163,783 287,824 101,717
Interest expense (Note 5) (353,974) (233,155) (117,624)
Other (Note 1) (146,442) (337,082) (937,152)
----------- ------------ -----------
(336,633) (282,413) (953,059)
----------- ------------ -----------
INCOME BEFORE INCOME TAXES 5,269,945 7,888,815 5,442,876
INCOME TAX EXPENSE (Notes 1 and 6):
Current:
Federal 1,615,490 2,410,334 2,713,913
Foreign 365,075 925,310 (81,096)
State 178,700 1,060,873 259,438
----------- ------------ -----------
2,159,265 4,396,517 2,892,255
----------- ------------ -----------
NET INCOME BEFORE CUMULATIVE EFFECT
OF A CHANGE IN ACCOUNTING PRINCIPLE 3,110,680 3,492,298 2,550,621
CUMULATIVE EFFECT OF A CHANGE IN
ACCOUNTING PRINCIPLE, NET (Note 1) (411,534) - -
----------- ------------ -----------
NET INCOME $ 2,699,146 $ 3,492,298 $ 2,550,621
=========== ============ ===========
</TABLE>
See accompanying notes to combined financial statements.
6
<PAGE>
PROCESS EQUIPMENT DIVISION OF INGERSOLL-RAND COMPANY
COMBINED STATEMENTS OF STOCKHOLDER'S EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 1996
AND YEARS ENDED DECEMBER 31, 1995 AND 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CAPITAL CUMULATIVE
COMMON IN EXCESS RETAINED TRANSLATION
STOCK OF PAR EARNINGS ADJUSTMENT TOTAL
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1993 $455,870 $ 788,694 $ 40,453,127 $ 3,353,664 $ 45,051,355
Net income - - 2,550,621 - 2,550,621
Distributions to Parent - - (3,085,440) - (3,085,440)
Change in cumulative translation
adjustment - - - 1,672,825 1,672,825
------------- ------------- --------------- ------------- --------------
BALANCE, DECEMBER 31, 1994 455,870 788,694 39,918,308 5,026,489 46,189,361
Net income - - 3,492,298 - 3,492,298
Distributions to Parent - - (13,840,497) - (13,840,497)
Change in cumulative translation
adjustment - - - 1,420,996 1,420,996
------------ ------------ -------------- ------------ -------------
BALANCE, DECEMBER 31, 1995 455,870 788,694 29,570,109 6,447,485 37,262,158
Net income - - 2,699,146 - 2,699,146
Change in cumulative translation
adjustment - - - (404,539) (404,539)
------------ ------------ -------------- ------------ -------------
BALANCE, SEPTEMBER 30, 1996 $455,870 $ 788,694 $ 32,269,255 $ 6,042,946 $ 39,556,765
============ ============ =============== ============ =============
</TABLE>
See accompanying notes to combined financial statements.
7
<PAGE>
PROCESS EQUIPMENT DIVISION OF INGERSOLL-RAND COMPANY
COMBINED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1996
AND YEARS ENDED DECEMBER 31, 1995 AND 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
------------------------------------
1996 1995 1994
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,699,146 $ 3,492,298 $ 2,550,621
Adjustments to reconcile net income to cash
provided by (used for) operations:
Cumulative effect of a change in accounting principle 411,534
Loss (gain) on foreign exchange (26,184) 146,352 399,307
Depreciation and amortization 1,921,078 2,415,437 2,108,271
Change in assets and liabilities:
Decrease (increase) in trade receivables 1,311,271 (4,341,776) 378,464
Decrease (increase) in inventories (1,315,400) (1,564,674) 3,688,012
Decrease (increase) in prepaid expenses and other assets 311,510 (557,257) 662,548
Increase in deferred income taxes (160,300) (69,944) (1,266,597)
Increase (decrease) in accounts payable 1,032,801 (1,258,066) 1,930,977
Increase (decrease) in temporary cash overdraft 1,061,765 (136,972) 593,866
Decrease in income taxes payable (974,334) (711,690) (1,374,551)
Increase (decrease) in accrued expenses 1,285,314 1,775,529 (1,578,182)
------------ ------------ ------------
Total adjustments 4,859,055 (4,303,061) 5,542,115
------------ ------------ ------------
Cash provided by (used for) operations 7,558,201 (810,763) 8,092,736
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES -
Capital expenditures (1,334,665) (2,662,584) (2,272,268)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (reduction) increase under line of credit and notes payable (254,773) (2,167,962) 2,457,847
Payments to affiliates (44,682,580) (30,181,600) (5,763,660)
Payments from affiliates 39,707,452 47,893,954 266,752
Distributions to parent (13,840,497) (3,085,440)
------------ ------------ ------------
Cash provided by (used for) financing activities (5,229,901) 1,703,895 (6,124,501)
EFFECT OF EXCHANGE RATE CHANGES ON CASH 26,730 270,518 252,363
NET INCREASE (DECREASE) IN CASH $ 1,020,365 (1,498,934) (51,670)
CASH, BEGINNING OF PERIOD $ 1,518,584 3,017,518 3,069,188
------------ ------------ ------------
CASH, END OF PERIOD $ 2,538,949 $ 1,518,584 $ 3,017,518
============ ============ ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 158,510 $ 158,062 $ 139,805
============ ============ ============
Income taxes $ - $ 305,358 $ 796,390
============ ============ ============
</TABLE>
See accompanying notes to combined financial statements.
8
<PAGE>
PROCESS EQUIPMENT DIVISION OF INGERSOLL-RAND COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1996
AND YEARS ENDED DECEMBER 31, 1995 AND 1994
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
BUSINESS - The Process Equipment Division of Ingersoll-Rand Company ( "PED"
or the "Division") is a wholly owned multinational division of Ingersoll-
Rand Company ("I-R" or the "Parent") engaged in the business of the design,
manufacture and marketing of pelleting, grinding and flaking, filtration,
and sugar processing equipment.
PRINCIPLES OF CONSOLIDATION - The combined financial statements include the
accounts of the following companies and divisions:
California Pellet Mill Company and Wholly Owned Subsidiaries:
CPM Europe SA
CPM/Europe Limited
California Pellet Mill Europe Limited
CPM/Pacific (Private) Limited
CPM/Europe BV
Silver Engineering Works, Inc.
Silver-Weibull Division of Ingersoll-Rand Aktiebolag
Filtration Division of Improved Machinery Processing Company
The combined companies' common stock is as follows:
<TABLE>
<CAPTION>
AUTHORIZED OUTSTANDING PAR VALUE
<S> <C> <C> <C>
California Pellet Mill Comapany 100,000 43,087 $10/share
Silver Engineering Works, Inc. 50,000 25,000 $1/share
</TABLE>
All material intercompany transactions and balances have been eliminated.
REVENUES - Revenues and transfers between geographic regions are recorded
as the products are shipped. Revenues are presented net of sales returns.
FOREIGN CURRENCY TRANSLATION - Assets and liabilities of combined entities
located outside of the United States are translated into their U.S. dollar
equivalents based on rates of exchange prevailing at the balance sheet
date. Revenue and expense accounts are translated at the weighted average
exchange rate during the period. Gains and losses resulting from
translation are accumulated in a separate component of stockholder's
equity. Gains and losses resulting from foreign currency transactions are
included in income and are not material for the nine months ended September
30, 1996 or for the years ended December 31, 1995 and 1994.
9
<PAGE>
The Parent, on behalf of the Division, hedges certain foreign currency
transactions and firm foreign currency commitments. The Parent enters into
forward exchange contracts (forward contracts). Gains and losses associated
with currency rate changes on forward contracts are recorded currently in
income. Gains and losses on forward contracts hedging firm foreign currency
commitments are deferred off-balance sheet and included as a component of
the related transaction, when recorded; however, a loss is not deferred if
deferral would lead to the recognition of a loss in future periods.
INVENTORIES - Inventories are stated at cost, which is not in excess of
market. Domestic manufactured inventories of standard products are valued
on the last-in, first-out (LIFO) method and all other inventories are
valued using the first-in, first-out (FIFO) method.
PROPERTY AND DEPRECIATION - Property is stated at cost. The Division
principally uses accelerated depreciation methods for both tax and
financial reporting purposes for assets placed in service prior to December
31, 1994. The Division changed to the straight-line method for financial
reporting purposes for assets acquired on or after January 1, 1995, while
continuing to use accelerated depreciation for tax purposes. The straight-
line method is the predominant method used throughout the industry in which
the Division operates, and its adoption increases the comparability of the
Division's results with those of its competitors. The effect of the change
on the year ended December 31,1995 was not material.
INCOME TAXES - The Division is included as part of I-R's consolidated
federal income tax return. Income taxes are provided on the Division's
combined financial statements on a separate return basis and are payable to
I-R. Deferred taxes are provided on temporary differences between assets
and liabilities for financial reporting and tax purposes as measured by
enacted tax rates expected to apply when temporary differences are settled
or realized.
NEW ACCOUNTING STANDARDS - In March 1995, the Financial Accounting
Standards Board (FASB) issued SFAS No. 121, Accounting for Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of, which
becomes effective for fiscal years beginning after December 15, 1995. Under
SFAS 121, long-lived assets are reviewed for impairment whenever events
indicate that the carrying amount of an asset may not be recoverable. If
the sum of the expected cash flows from the asset is less than the carrying
amount of the asset, an impairment loss is recognized. The effect of the
adoption of SFAS 121 by the Division was a decrease in net income of
approximately $412,000, net of tax, for the nine months ended September 30,
1996.
USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
10
<PAGE>
2. INVENTORIES
Inventories at September 30, 1996 and December 31, 1995 consist of the
following:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
<S> <C> <C>
Raw materials $ 5,853,056 $ 4,449,325
Work in process 3,823,520 3,527,424
Finished goods 17,826,650 17,872,747
----------- -----------
27,503,226 25,849,496
Less:
LIFO reserve (2,110,925) (2,110,988)
Reserve for obsolete and slow-moving
inventory (4,481,386) (4,140,587)
----------- -----------
$20,910,915 $19,597,921
=========== ===========
</TABLE>
At September 30, 1996 and December 31, 1995, cost is determined by the LIFO
method for 42% and 41%, respectively, of total inventories and the FIFO
method for all other inventories.
3. PROPERTY AND EQUIPMENT
Property and equipment at September 30, 1996 and December 31, 1995 consist
of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
<S> <C> <C>
Land and improvements $ 1,146,142 $ 1,485,641
Building and improvements 8,211,414 8,668,308
Machinery and equipment 27,263,183 28,771,402
Furniture and fixtures 3,142,764 2,144,751
------------ ------------
39,763,503 41,070,102
Less: Accumulated depreciation (23,863,023) (23,762,167)
------------ ------------
$ 15,900,480 $ 17,307,935
============ ============
</TABLE>
Depreciation expense for the nine months ending September 30, 1996 and the
years ended December 31, 1995 and 1994 was approximately $1,921,000,
$2,415,000, and $2,108,000, respectively.
11
<PAGE>
4. ACCRUED EXPENSES
Accrued expenses consist of the following at September 30, 1996 and
December 31, 1995:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
<S> <C> <C>
Deposits $2,858,798 $ 761,437
Sales tax payable 63,888 106,061
Accrued payroll 3,512,880 4,341,484
Real estate and other taxes 337,316 618,231
Warranty 478,419 424,832
Product liability 621,113 489,091
Legal 98,958 136,223
Royalties payable 43,071 66,540
Accrued interest 162,072 -
Other 613,135 661,791
----------- -----------
$8,789,650 $7,605,690
----------- -----------
</TABLE>
5. NOTES PAYABLE
The Division has a borrowing facility at a rate of 5% with a bank up to
$6,260,000, guaranteed by the Parent, which expired on November 30, 1996.
At September 30, 1996 and December 31, 1995, $67,636 and $321,722,
respectively, was outstanding.
6. INCOME TAXES
The difference between the U.S. federal income tax rate and the Division's
effective income tax rate is as follows:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEARS ENDED
SEPTEMBER 30, DECEMBER 31,
-------------------
1996 1995 1994
<S> <C> <C> <C>
Federal income tax rate 35.0 % 35.0 % 35.0 %
State income taxes, net of federal income tax benefit 2.2 8.7 2.9
Foreign dividends paid - 9.4 2.2
Foreign operations, net 5.3 - 17.4
Other, net (1.6) 2.6 (4.4)
----- ----- -----
40.9% 55.7% 53.1%
----- ----- -----
</TABLE>
12
<PAGE>
Deferred tax liabilities (assets) were comprised of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
<S> <C> <C>
Depreciation and amortization $1,002,638 $1,254,868
Deferred intercompany profit 148,200 159,600
Deferred tax on foreign corporations 100,700 114,133
---------- ----------
Gross deferred tax liability 1,251,538 1,528,601
Allowance for doubtful accounts 235,435 221,733
Inventory cost adjustments 113,876 102,476
Inventory reserves 983,877 1,141,843
Accrued expenses 1,191,293 1,175,228
---------- ----------
Gross deferred tax asset 2,524,481 2,641,280
---------- ----------
$1,272,943 $1,112,679
========== ==========
</TABLE>
7. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES - The Division leases certain vehicles, equipment, and
buildings under noncancelable operating leases. Total rent expense for the
nine months ended September 30, 1996 and for the years ended December 31,
1995 and 1994 was $291,000, $257,000 and $229,000, respectively. Future
minimum rental commitments under noncancelable leases in effect at September
30, 1996 are as follows:
<TABLE>
<S> <C>
1997 $ 430,228
1998 292,738
1999 262,349
2000 165,809
Thereafter -
----------
$1,151,124
==========
</TABLE>
GUARANTEES- In the normal course of business, the Division has issued several
direct guarantees, including performance letters of credit, totaling
approximately $5,365,000 at September 30, 1996 and $9,483,000 at December 31,
1995. Additionally, CPM Europe BV has guaranteed the liabilities of its
subsidiary, Cia de Projectos y Molineria, Spain. CPM Europe BV is in the
process of liquidating this subsidiary. No significant losses are expected.
PRODUCT LIABILITY AND OTHER CLAIMS - The Division is involved in various
other litigation matters arising in the ordinary course of business.
Management has reviewed all claims and lawsuits and, upon advice of counsel,
has made provisions for estimable losses and expenses of litigation relating
to claims against the Division.
CONCENTRATIONS OF CREDIT RISK - As of September 30, 1996, the Division had no
significant concentration of credit risk in trade receivables due to the
large number of customers which comprise its customer base and their
dispersion across different countries.
13
<PAGE>
8. GEOGRAPHIC INFORMATION
The Division operates in one industry segment (food and animal feed
production industry equipment) and is engaged in the design and manufacture
of processing and pelleting equipment and their controls. The Division
conducts separate operations in the United States, Europe, and Asia.
Information about the Division's operations for the nine months ended
September 30, 1996 and for the years ended December 31, 1995 and 1994 in
these geographic areas is as follows:
<TABLE>
<CAPTION>
UNITED
SEPTEMBER 30, 1996 STATES EUROPE OTHER TOTAL ELIMINATIONS CONSOLIDATED
<S> <C> <C> <C> <C> <C> <C>
Net sales to unaffiliated
customers $47,953,189 $21,404,150 $4,969,595 $ 74,326,934 $ - $ 74,326,934
Transfer between geographic
areas 6,465,737 5,898,866 6,241 12,370,844 (9,323,357) 3,047,487
----------- ----------- ---------- ------------ ------------ ------------
Total net sales $54,418,926 $27,303,016 $4,975,836 $ 86,697,778 $ (9,323,357) $ 77,374,421
=========== =========== ========== ============ ============ ============
Operating income $ 6,296,070 $ (595,736) $ 381,500 $ 6,081,834 $ (475,256) $ 5,606,578
=========== =========== ========== ============ ============ ============
Identifiable assets $45,452,331 $23,615,124 $6,096,538 $ 75,163,993 $ (7,500,836) $ 67,663,157
=========== =========== ========== ============ ============ ============
DECEMBER 31, 1995
Net sales to unaffiliated
customers $61,085,991 $34,556,077 $7,721,397 $103,363,465 $ - $103,363,465
Transfer between geographic
areas 14,583,970 14,048,957 379,525 29,012,452 (18,927,734) 10,084,718
----------- ----------- ---------- ------------ ------------ ------------
Total net sales $75,669,961 $48,605,034 $8,100,922 $132,375,917 $(18,927,734) $113,448,183
=========== =========== ========== ============ ============ ============
Operating income $ 6,013,971 $ 1,233,106 $1,399,407 $ 8,646,484 $ (475,256) $ 8,171,228
=========== =========== ========== ============ ============ ============
Identifiable assets $78,204,790 $60,710,433 $6,035,687 $144,950,910 $(37,129,329) $107,821,581
=========== =========== ========== ============ ============ ============
DECEMBER 31, 1994
Net sales to unaffiliated
customers $54,106,268 $27,261,878 $6,628,021 $ 87,996,167 $ - $ 87,996,167
Transfer between geographic
areas 5,526,857 16,945,882 136,218 22,608,957 (14,440,554) 8,168,403
----------- ----------- ---------- ------------ ------------ ------------
Total net sales $59,633,125 $44,207,760 $6,764,239 $110,605,124 $(14,440,554) $ 96,164,570
=========== =========== ========== ============ ============ ============
Operating income $ 6,114,664 $ 1,034,711 $(318,234) $ 6,831,141 $ (435,206) $ 6,395,935
=========== =========== ========== ============ ============ ============
</TABLE>
Identifiable assets are those assets of the Division that are identifiable
with the operations in each geographic area. Export sales for the nine
months ended September 30, 1996 and for the years ended December 31, 1995
and 1994, were approximately $8,290,000, $13,637,000, and $14,858,000,
respectively.
9. PENSION PLANS
The Division's domestic employees are covered by noncontributory pension
plans sponsored by I-R. In addition, certain employees in other countries
are covered by pension plans. I-R's domestic salaried plans principally
provide benefits based on a career average earnings formula. I-R's hourly
pension plans provide benefits under flat benefit formulas. Foreign plans
provide benefits based on earnings and years of service. In addition, I-R
maintains other supplemental benefit plans for officers and key employees.
I-R's policy is to fund an amount which could be in excess of the pension
cost expensed, subject to limitations imposed by current statutes or tax
regulations.
14
<PAGE>
Allocated pension cost for the nine months ended September 30, 1996 and for
the years ended December 31, 1995 and 1994 were made in accordance with
actuarially determined criteria and amounted to approximately $83,000,
$110,000, and $78,000, respectively.
Most of the Division's domestic employees are covered by savings and other
defined contribution plans. Division contributions and costs are determined
based on criteria specific to the individual plans and amounted to
approximately $57,000, $123,000, and $116,000 for the nine months ended
September 30, 1996 and for the years ended December 31, 1995 and 1994,
respectively.
10. POST-RETIREMENT BENEFITS OTHER THAN PENSIONS
In addition to providing pension benefits, I-R sponsors a post-retirement
plan (the "Plan") that covers most domestic employees of the Division. The
Plan provides for healthcare benefits and, in some instances, life
insurance benefits and is contributory with amounts adjusted annually. Life
insurance plans are noncontributory. When full-time employees retire from
the Division between age 55 and age 65 with 15 years of service, most are
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 becomes coordinated with
Medicare. I-R funds the benefit costs principally on a pay as you go basis.
Information concerning the Division's liability under the Plan is as
follows:
SEPTEMBER 30, DECEMBER 31,
1996 1995
(IN THOUSANDS)
Financial status of plans:
Accumulated postretirement benefit
obligation (APBO):
Retirees $ 592 $ 608
Active employees 1,526 1,412
------ ------
2,118 2,020
Plan assets at fair value - -
------ ------
Unfunded accumulated benefit obligation in excess
of plan assets 2,118 2,020
Unrecognized net gain - -
Unrecognized prior service benefits - -
------ ------
Accrued postretirement benefit cost $2,118 $2,020
====== ======
15
<PAGE>
The components of net periodic postretirement benefits cost for the nine
months ended September 30, 1996 and for the years ended December 31, 1995
and 1994 were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
(IN THOUSANDS)
Service cost, benefits attributed to employee service $ 34 $ 24 $ 36
during the year
Interest cost on accumulated postretirement benefit obligation 111 190 184
----- ----- -----
Net periodic postretirement benefits cost $ 145 $ 214 $ 220
===== ===== =====
</TABLE>
The discount rate used in determining the APBO was 7.25% at September 30,
1996 and December 31, 1995, respectively. The assumed healthcare cost trend
rates used in measuring the accumulated postretirement benefit obligation
were 10.35% in 1996 and 1995, declining each year to an ultimate rate by
2003 of 4.65%.
Increasing the healthcare cost trend rate by 1.0% as of September 30, 1996,
would increase the APBO by 10%. The effect of this change on the sum of the
service cost and interest cost components of net periodic postretirement
benefits cost for 1996 would be an increase of 13%.
11. FINANCIAL INSTRUMENTS
The Division, as a multinational operation, maintains significant
operations in foreign countries. As a result of these global operating and
financing activities, the Division is exposed to changes in foreign
currency exchange rates, which affect the results of operations and
financial conditions of the Division. The Division manages exposure to
changes in foreign currency exchange rates through its normal operating and
financing activities, as well as through I-R's treasury department by the
use of financial instruments. Generally, the only financial instruments the
Division utilized are forward exchange contracts.
The purpose of the hedging activities is to mitigate the impact of changes
in foreign exchange rates. The Division attempts to hedge transaction
exposures through natural offsets. To the extent this is not practicable,
major exposure areas which are considered for hedging include foreign
currency denominated receivables and payables, intercompany loans, firm
committed transactions, anticipated sales and purchases, and dividends
relating to foreign subsidiaries.
The carrying value of accounts receivable, accounts receivable from
affiliates, accounts payable, accounts payable from affiliates, and notes
payable are a reasonable estimate of their fair value due to the short-term
nature of these instruments.
16
<PAGE>
12. TRANSACTIONS WITH AFFILIATES
The Division enters into transactions with I-R and other affiliated I-R
companies in the normal course of business. For the nine months ended
September 30, 1996 and for the years ended December 31, 1995 and 1994,
sales to such affiliates are as follows. Purchases from affiliates were not
significant.
1996 1995 1994
Sales to affiliates $3,047,487 $10,084,718 $8,168,403
========== =========== ==========
The Division is charged for certain administrative services, such as
treasury, credit, and collection, as well as a monthly allocation of Parent
corporate overhead. For the nine months ended September 30, 1996 and for
the years ended December 31, 1995 and 1994, these expenses totaled
approximately $1,068,000, $1,359,000, and $1,311,000, respectively, and are
included in general and administrative expenses in the accompanying
financial statements.
Accounts receivable from affiliates are generally noninterest bearing and
due currently.
Accounts payable to affiliates include short-term notes payable to the
Parent or Parent-owned subsidiaries. Such loans bear interest at rates
between 2.7% to 4.65%.
13. SUBSEQUENT EVENT
Effective September 30, 1996, I-R sold the Division to Gencor Industries,
Inc. at a purchase price of approximately $60,869,000. The transaction
closed subsequent to September 30, 1996.
******
17
<PAGE>
GENCOR INDUSTRIES, INC.
PRO FORMA FINANCIAL DATA
The pro forma condensed, combined statement of income (the proforma) for the
year ended September 30, 1996 have been prepared to illustrate the estimated
effects of the Purchase Agreement between Gencor Industries, Inc. (Gencor) and
Ingersoll-Rand Company (I-R) to purchase the Process Equipment Division (PED) of
I-R.
The following proforma combined statement of income has been derived by the
application of proforma adjustments to the combination of Gencor and PED's
historical statements of income for the twelve months ended September 30, 1996.
The proforma statement for the year ended September 30, 1996 gives effect to the
acquisition as if the transaction was consummated as of October 1, 1995. Since
the transaction was effective as of September 30, 1996, PED's balance sheet is
included in the Gencor Form 10K filing as of September 30, 1996 and,
accordingly, is not presented herein.
The proforma condensed, combined statement of income is not necessarily
indicative of actual results that may have occurred had the transaction been
completed as of the date specified or of the results of operations of Gencor and
its subsidiaries for any future period. The proforma financial data should be
read in conjunction with the audited consolidated financial statements of Gencor
and related notes thereto included in Form 10K.
18
<PAGE>
GENCOR INDUSTRIES, INC.
PROFORMA CONDENSED, COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED SEPTEMBER 30, 1996 (UNAUDITED)
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GENCOR PROCESS
INDUSTRIES, EQUIPMENT PROFORMA PRO
INC. DIVISION ADJUSTMENTS FORMA
<S> <C> <C> <C> <C>
Net sales $ 60,208 $108,142 $(7,673) (a) $ 160,677
Cost of sales 44,534 79,929 (6,655) (a) 117,808
---------- -------- ------- ----------
Gross profit 15,674 28,213 (1,018) 42,869
Product engineering and development 2,207 90 - 2,297
Selling, general, and marketing expenses 8,226 19,548 125 (b) 27,899
---------- -------- ------- ----------
Income from operations 5,241 8,575 (1,143) 12,673
OTHER INCOME (EXPENSE):
Interest expense (1,357) (452) (4,459) (c) (6,268)
Other income 68 18 - 86
---------- -------- ------- ----------
Income before tax 3,952 8,141 (5,602) 6,491
INCOME TAX 1,195 3,658 (2,387) (d) 2,466
---------- -------- ------- ----------
NET INCOME $ 2,757 $ 4,483 $(3,215) $ 4,025
========== ======== ======= ==========
Net income per share
Primary $1.55 $1.85
Fully Diluted $1.55 $1.82
Weighted average shares outstanding
Primary 1,780,159 (e) 2,179,262
Fully Diluted 1,780,159 (e) 2,210,396
</TABLE>
19
<PAGE>
GENCOR INDUSTRIES, INC.
NOTES TO PROFORMA CONDENSED, COMBINED STATEMENT OF INCOME
YEAR ENDED SEPTEMBER 30, 1996
- --------------------------------------------------------------------------------
(a) Proforma adjustment to eliminate sales to I-R affiliates which are not
expected to continue after the acquisition.
(b) The adjustments to selling, general, and marketing expenses are as follows:
<TABLE>
<S> <C>
Amortization of goodwill recorded as a result of the acquisition $ 364
Amortization of deferred debt acquisition costs 680
Removal of I-R corporate overhead charge (1,424)
Allocation of Gencor overhead charge 505
-------
Total selling, general, and marketing adjustment $ 125
=======
</TABLE>
(c) The proforma adjustments to interest expense are as follows:
<TABLE>
<S> <C>
Interest expense on historical debt, repaid in acquisition $(1,589)
Interest expense on revolving credit facility and term notes
assumed at 8.25% 6,048
-------
Total interest expense adjustment $ 4,459
=======
</TABLE>
(d) Proforma adjustment to income tax expense relating to net increase as
adjusted for the combined entity. Income taxes are calculated at an
estimated rate of 38%.
(e) Profoma adjustment to reflect the issuance of 268,559 shares in conjunction
with the acquisition as well as the assumed dilutive effect of stock
options outstanding at September 30, 1996.
20
