<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
--------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
--------------------- -----------------------
Commission file number 0-3821
---------
GENCOR INDUSTRIES, INC.
-----------------------
(Exact name of registrant as specified in its charter)
Delaware 59-0933147
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporated or organization) Identification No.)
5201 North Orange Blossom Trail, Orlando, Florida 32810
--------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(407) 290-6000
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
------- ------
Indicate number of shares outstanding of each of the issuer's classes of common
stock as of the latest practicable date.
Class Outstanding at May 11, 1998
----- ---------------------------
Common stock, $.10 par value 7,025,740 shares
Class B stock, $.10 par value 1,766,128 shares
1
<PAGE>
Gencor Industries, Inc.
Form 10-Q for the Quarter Ended March 31, 1998
<TABLE>
<CAPTION>
Index
- -----
Page
----
<S> <C> <C>
Part I. Financial Information - Unaudited
Item 1. Financial Statements
a) Consolidated Balance Sheets -
March 31, 1998 and
September 30, 1997 3
b) Consolidated Income Statements -
Six Months and Three Months Ended
March 31, 1998 and 1997 4
c) Consolidated Statements of Cash Flows -
Six Months Ended
March 31, 1998 and 1997 5
d) Notes to Consolidated
Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Position and Results of Operations 7
Item 4. Submission of Matters to a Vote of Security Holders 10
Part II. Other Information
Exhibit 11 11
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1.
- -------
Gencor Industries, Inc.
Consolidated Balance Sheets
(All Dollar Amounts in Thousands)
<TABLE>
<CAPTION>
March 31, September 30,
1998 1997
---------------- -----------------
(Unaudited) (Audited)
Assets
- ------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 9,744 $ 10,287
Accounts receivable, less allowance for
doubtful accounts of $3,818 and $3,412 39,188 36,465
Inventories:
Raw materials 13,494 12,109
Work-in-process 19,495 8,915
Finished goods 20,899 25,151
-------- --------
53,888 46,175
Prepaid expenses, including deferred income taxes
of $411 and $419 2,371 2,466
-------- --------
Total current assets 105,191 95,393
Property and equipment, net 42,753 38,414
Goodwill 18,600 16,119
Other assets 15,964 13,226
-------- --------
$182,508 $163,152
======== ========
Liabilities and Shareholders' Equity
- ------------------------------------
Current liabilities:
Notes payable $ 6,276 $ 44
Current portion of long-term debt 6,060 4,798
Accounts payable 14,381 15,825
Customer deposits 15,991 12,218
Accrued expenses 18,240 16,080
Income taxes payable 2,065 701
-------- --------
Total current liabilities 63,013 49,666
Post-retirement benefits 2,155 1,958
Other liabilities 3,332 3,089
Deferred income taxes 2,061 738
Long-term debt 85,145 86,489
Shareholders' equity:
Preferred stock, par value $0.10 per share; authorized
300,000 shares, none issued - -
Common stock, par value $0.10 per share; 15,000,000
shares authorized; 6,545,740 shares issued 654 654
Class B stock, par value $0.10 per share; 6,000,000
shares authorized; 1,766,128 shares issued 177 177
Capital in excess of par value 9,356 9,356
Retained earnings 17,478 11,804
Cumulative translation adjustment (768) (684)
-------- --------
26,897 21,307
Subscription receivable from officer (95) (95)
-------- --------
26,802 21,212
-------- --------
$182,508 $163,152
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
Gencor Industries, Inc.
Consolidated Income Statement
(Unaudited)
(All Dollars in Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
---------------------------- -----------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net revenue $61,156 $48,717 $117,667 $83,936
Costs and expenses:
Production costs 38,614 35,804 79,272 60,661
Product engineering and development 652 568 1,289 1,167
Selling, general and administrative 12,095 7,815 22,540 15,940
------- ------- -------- -------
51,361 44,187 103,101 77,768
------- ------- -------- -------
Operating income 9,795 4,530 14,566 6,168
Other income (expense):
Interest income 359 5 675 5
Interest expense (2,625) (1,662) (5,377) (3,177)
Miscellaneous (719) 34 (360) 345
------- ------- -------- -------
Income before income taxes 6,810 2,907 9,504 3,341
Provision for income taxes 2,691 1,046 3,611 1,198
------- ------- -------- -------
Net income $ 4,119 $ 1,861 $ 5,893 $ 2,143
======= ======= ======== =======
Net income per share:
Basic $0.50 $0.22 $0.71 $0.27
======= ======= ======== =======
Diluted $0.41 $0.20 $0.60 $0.24
======= ======= ======== =======
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
Gencor Industries, Inc.
Consolidated Statement of Cash Flows
(Unaudited)
(Dollars in Thousands)
<TABLE>
<CAPTION>
Six Months Ended
March 31,
------------------------
1998 1997
-------- --------
<S> <C> <C>
Net income $ 5,893 $ 2,143
Adjustments to reconcile net income to cash
provided by operations:
Depreciation and amortization 3,190 2,659
Postretirement benefits 197 -
Loss (gain) on equipment disposal 531 -
Change in assets and liabilities:
Decrease (increase) in receivables 7,392 (10,663)
(Increase) decrease in inventories (4,400) (1,073)
(Increase) decrease in prepaid expenses (109) 1,117
Increase (decrease) in deferred income taxes 315 (497)
(Decrease) increase in accounts payable and customer deposits (1,039) 6,684
(Decrease) increase in accrued expenses (1,555) 3,083
Increase in income taxes payable 1,036 58
Decrease in other assets (1,523) 797
-------- --------
Total adjustments 4,035 2,165
-------- --------
Cash provided by operations 9,928 4,308
Cash flows from investing activities:
Cash paid for business acquired (11,634) -
Capital expenditures (2,230) (1,259)
Acquisition costs (2,849) (1,993)
-------- --------
Cash used for investing activities (16,713) (3,252)
Cash flows from financing activities:
Net increase (reduction) under lines of credit and notes payable 6,233 (12,256)
Net borrowings (repayment) of debt (82) 79,672
Payments to Ingersoll Rand - (61,011)
Dividends paid (219) (89)
Proceeds from sale of stock - 1,611
Other, net 242 (1,247)
-------- --------
Cash provided by financing activities 6,174 6,680
Effect of exchange rate changes on cash 68 (86)
-------- --------
Net increase (decrease) in cash (543) 7,650
Cash and cash equivalents at:
Beginning of period 10,287 1,501
-------- --------
End of period $ 9,744 $ 9,151
======== ========
Supplemental cash flow information:
- -----------------------------------
Cash paid during the period for:
Interest $ 4,491 $ 2,100
======== ========
Income taxes $ 1,975 $ 769
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
Gencor Industries, Inc.
Notes to Consolidated Financial Statements (Unaudited)
NOTE 1 - BASIS OF PRESENTATION
- ------------------------------
The accompanying unaudited interim consolidated financial statements have been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission. Accordingly, certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been omitted pursuant to such rules and regulations.
The accompanying unaudited interim consolidated financial statements and related
notes should be read in conjunction with the financial statements and related
notes included in the Company's 1997 Annual Report on Form 10-K. In the opinion
of management, all material adjustments, consisting of normal recurring
adjustments, considered necessary for a fair presentation have been included in
the accompanying unaudited interim consolidated financial statements. Operating
results for the six months ended March 31, 1998, are not necessarily indicative
of the results that may be expected for the year ending September 30, 1998.
Certain prior year amounts in the consolidated financial statements have been
reclassified to conform with the current year presentation.
NOTE 2 - ACQUISITION
- --------------------
Effective October 1, 1997, the Company acquired ACP Holdings PLC ("ACP"), a
United Kingdom based designer and manufacturer of heavy machinery for the road
construction and quarrying industries for approximately $3.2 million in cash.
The acquisition was financed using the Company's existing revolving line of
credit. In addition, the Company may pay additional payments of the Company's
common stock contingent upon achieving specified earning levels in future
periods. These contingent payments, if any, will be reflected as acquisition
costs when the contingencies are resolved.
The transaction has been accounted for using the purchase method of accounting
and, accordingly, the results of ACP have been included in the accompanying
consolidated financial statements since the date of acquisition. The purchase
price of $3.2 million has been allocated on the basis of the estimated fair
market values of assets acquired of $19.4 million and liabilities assumed of
$16.2 million.
Effective July 1, 1997, the Company purchased the stock of Gumaco Industria E
Comercio Limitada of Sao Paulo, Brazil ("Gumaco") and other South American
companies for $12.7 million, net of imputed interest. Gumaco and the other
companies are engaged in the design and manufacture of process equipment. The
acquisitions were financed under a new $12 million credit facility.
Regarding these acquisitions, further adjustments may be made to the
accompanying balance sheet as a result of finalization of acquisition costs and
fair value adjustments.
The results of operations of these acquired companies have been included in the
results of the Company from the dates of acquisition. Assuming these
acquisitions had occurred on October 1, 1996, the Company's unaudited proforma
net sales, net income, and diluted earnings per share would have been
approximately $59.0 million, $1.6 million and $0.18, and $107.3 million, $2.5
million and $0.28, respectively, for the three months and six months ended March
31, 1997, respectively.
6
<PAGE>
NOTE 3 - STOCK SPLIT
- --------------------
On April 9, 1998, the Board of Directors authorized a 2-for-1 stock split to
shareholders of record as of April 22, 1998, effective May 4, 1998. As a result
of the split, 3,272,870 additional common shares and 883,064 additional Class B
shares were issued and capital in excess of par value was reduced by $415,000.
Shareholders' equity has been restated for all periods presented to give
retroactive recognition to the stock split. In addition, for all periods
presented, all references in the consolidated financial statements and footnotes
thereto to number of shares, per share amounts, weighted average shares
outstanding, as well as stock option and related price information have been
restated to give retroactive effect to the split.
NOTE 4 - CASH DIVIDEND
- ----------------------
On December 22, 1997, the Company declared a cash dividend of $0.025 per share,
payable January 14, 1998, to shareholders of record as of December 31, 1997.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- ------- OF OPERATIONS
"Forward-Looking" Information
This Form 10-Q contains certain "forward-looking statements" within the meaning
of Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), which represent the Company's expectations and beliefs, including, but
not limited to, statements concerning gross margins and sales of the Company's
products. These statements by their nature involve substantial risks and
uncertainties, certain of which are beyond the Company's control, and actual
results may differ materially depending on a variety of important factors,
including the level of acquisition opportunities available to the Company and
the Company's ability to efficiently price and negotiate such acquisitions on a
favorable basis, the financial condition of the Company's customers, the failure
to properly manage growth and successfully integrate acquired companies and
operations, changes in economic conditions, demand for the Company's products
and changes in competitive environment.
The Company cautions that the factors described above could cause actual results
or outcomes to differ materially from those expressed in any forward-looking
statements of the Company made by or on behalf of the Company. Any forward-
looking statement speaks only as of the date on which such statement is made,
and the Company undertakes no obligation to update any forward-looking statement
or statements to reflect events or circumstances after the date on which such
statement is made or to reflect the occurrence of unanticipated events. New
factors emerge from time to time, and it is not possible for management to
predict all of such factors. Further, management cannot assess the impact of
each such factor on the business or the extent to which any factor, or
combination of factors, may cause actual results to differ materially from those
contained in any forward-looking statements.
Consolidated Results of Operations
- ----------------------------------
Results of operations for the quarter ended March 31, 1998 compared to the
quarter ended March 31, 1997:
Net revenue for the quarter ended March 31,1998 increased by $12.4 million, or
25.5%, to $61.2 million from $48.7 million in the same period last year. The
transportation group contributed $14.3 million to the increase in net revenues,
and net revenues in the food processing equipment product lines declined by $1.9
million. The increase in sales as a result of the recent acquisitions of ACP
Holdings PLC ("ACP") and Gumaco Industria E Comercio Limitada ("Gumaco") was
$7.8 million. International sales, excluding the
7
<PAGE>
recent acquisitions, decreased by $4.0 million to $7.5 million, or 14% of net
sales, principally as a result of a decrease in food processing equipment
shipments to Europe caused by Mad Cow Disease and Swine Flu. As a result of the
slaughter of thousands of livestock, purchases of new equipment for the
production of animal feed has been delayed. The Company expects the market to
recover from this temporary situation as the herds are replenished throughout
the year. Sales backlog at March 31, 1998 for the transportation group increased
to $22.9 million from $22.1 million and decreased for the food processing group
to $26.8 million from $30.5 million. The recent acquisitions added $11.8 million
to the backlog.
Gross profit increased 74.6% to $22.5 million in the three months ended March
31, 1998 from $12.9 million in the same period of fiscal 1997. The
transportation group contributed $8.4 million and the food processing equipment
product lines added $1.2 million to the increase in gross profit. The increase
in gross profit as a result of the recent acquisitions was $1.9 million. Gross
profit from international sales, excluding the recent acquisitions, decreased by
$0.4 million to $2.2 million in the quarter ended March 31, 1998. Gross profit
as a percentage of sales increased to 36.9% in the three months ended March 31,
1998 from 26.5% in the prior period as a result of a more favorable product mix.
Selling, general and administrative expenses increased to $12.1 million in the
second quarter of fiscal 1998 from $7.8 million in the same period of fiscal
1997 due primarily to the acquisitions of Gumaco and ACP. The transportation
group selling, general and administrative expenses increased by $2.6 million and
the food processing equipment selling, general and administrative expenses
increased by $1.7 million.
As a result of the above factors, operating income increased by $5.3 million to
$9.8 million in the second quarter of fiscal 1998 from $4.5 million in fiscal
1997. The transportation group contributed $5.8 million to this increase.
Operating income from international activities, including the recent
acquisitions, resulted in a loss of $1.7 million in the second fiscal quarter of
1998.
Results of operations for the six months ended March 31, 1998 compared to the
six months ended March 31, 1997:
Net revenue for the six months ended March 31,1998 increased by $33.8 million,
or 40.2%, to $117.7 million from $83.9 million in the same period last year.
The transportation group contributed $25.0 million and the food processing
equipment product lines added $8.8 million to the increase in net revenues. The
increase in sales as a result of the recent acquisitions of ACP and Gumaco was
$24.9 million. International sales, excluding the recent acquisitions,
decreased by $8.5 million to $15.8 million, or 17% of net sales principally as a
result of an unusually high level of shipments during the first quarter of
fiscal 1997 in Europe for the food processing division and the reduction of
shipments to Europe related to the slaughter of animals caused by Mad Cow
Disease and Swine Flu.
Gross profit increased 65.0% to $38.4 million in the six months ended March 31,
1998 from $23.2 million in the same period of fiscal 1997. The transportation
group contributed $12.7 million and the food processing equipment product lines
added $2.5 million to the increase in gross profit. The increase in gross
profit as a result of the recent acquisitions was $6.2 million. Gross profit
from international sales, excluding the recent acquisitions, decreased by $1.1
million to $4.4 million in the six months ended March 31, 1998. Gross profit as
a percentage of sales increased to 32.6% in the six months ended March 31, 1998
from 27.7% in the prior period as a result of a more favorable product mix.
8
<PAGE>
Selling, general and administrative expenses increased to $22.5 million in the
first six months of fiscal 1998 from $15.9 million in the same period of fiscal
1997 due primarily to the acquisitions of Gumaco and ACP. The transportation
group selling, general and administrative expenses increased by $4.0 million and
the food processing equipment selling, general and administrative expenses
increased by $2.6 million.
As a result of the above factors, operating income increased by $8.4 million to
$14.6 million in the first six months of fiscal 1998 from $6.2 million in fiscal
1997. The transportation group contributed $8.6 million of this increase, which
was offset by a reduction in operating income of $0.2 million in the food
processing equipment product lines. The increase in operating income as a
result of the recent acquisitions of ACP and Gumaco was $0.3 million. Operating
results from international activities, excluding the recent acquisitions,
decreased by $1.0 million to produce a loss of $0.2 million in the first six
months of 1998.
Liquidity and Capital Resources
- -------------------------------
For the six months ended March 31, 1998, cash provided by operations was $9.9
million, an increase of $5.6 million, compared to fiscal 1997. This increase
was due primarily to an increase in net income and collections of accounts
receivable.
Working capital decreased by $3.5 million to $42.2 million at March 31, 1998,
principally as a result of an increase in short-term notes payable related to
the credit facilities established by Gumaco and an increase in customer deposits
and accrued expenses.
Investing activities used $16.7 million in fiscal 1998 compared to $3.3 million
in fiscal 1997, a change of $13.4 million, resulting primarily from the
acquisition of ACP.
Cash provided by financing activities was $6.2 million in fiscal 1998, primarily
as a result of an increase in borrowings related to the new credit facilities
established by Gumaco.
As of March 31,1998, the Company had a revolving credit facility providing a
total of $35 million, of which $10.0 million remained unused.
The Company's asphalt production equipment operations are subject to seasonal
fluctuation, often resulting in lower sales in the third and fourth calendar
quarters of each period and much lower earnings or losses during such quarters.
Traditionally, asphalt producers do not purchase new equipment for shipment
during the summer and fall months to avoid disruption of their activities during
peak periods of highway construction and repair. Pelleting and processing
equipment products are much less seasonal, resulting in lower demand in the
second and third fiscal quarters. The Company expects seasonality to have less
of an influence on future results of operations as it continues to grow in
international markets.
Based upon its present plans, the Company believes that its working capital,
operating cash flow and available credit resources will be adequate to repay
current portions of long-term debt, to finance currently planned capital
expenditures, and to meet the currently foreseeable liquidity needs of the
Company.
9
<PAGE>
PART II. OTHER INFORMATION
ITEM 3. DEFAULTS
- -----------------
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- -------
(a) Annual meeting held March 20, 1998
(b) Not applicable
(c) There were 3,512,870 shares of Common Stock and 883,064 of Class B Stock
outstanding as of February 3, 1998, the record date for the 1998 annual
meeting of shareholders. A total of 4,099,580 shares were voted. The
following matters were voted upon at the meeting:
Proposal 1. Election of Directors
----------------------------------
The five nominees for the Board of Directors were elected by the
shareholders with the following vote:
<TABLE>
<CAPTION>
Votes Votes Broker
Nominee For Against Abstentions Non-Votes
------- ------ ------- ----------- ----------
<S> <C> <C> <C> <C>
E. J. Elliott 863,688 (1) - N/A
Constantine L. Corpas 863,688 (1) - N/A
John E. Elliott 863,688 (1) - N/A
Peter Kourmolis 863,688 (1) - N/A
Glenn B. Dalby 3,223,579 12,313 - N/A
</TABLE>
(1) Class B shareholders elected these directors.
Proposal 2: The selection of Deloitte & Touche LLP, independent certified
----------
public accountants, as auditors for the Company for the year ending
September 30, 1998 was ratified by the shareholders with the following vote:
<TABLE>
<CAPTION>
Votes For Votes Against Abstentions Broker Non-Votes
-------------- ---------------- -------------- --------------------
<S> <C> <C> <C> <C>
Common stock 3,231,870 2,450 1,572 N/A
Class B stock 863,688 - - N/A
</TABLE>
(d) Not applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- -------------------------------------------
A. Exhibits:
(11) Statement regarding computation of earnings per share.
B. Reports on Form 8-K:
None.
10
<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.
GENCOR INDUSTRIES, INC.
Date: May 14, 1998 /s/ Russell R. Lee III
----------------------
Russell R. Lee III
Treasurer
11
<PAGE>
EXHIBIT 11
GENCOR INDUSTRIES, INC.
COMPUTATIONS OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
-------------------------- ---------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Basic earnings per share
- -------------------------
Net income $4,119,000 $1,861,000 $5,893,000 $2,143,000
========== ========== ========== ==========
Average number of shares outstanding 8,311,868 8,255,692 8,311,868 7,840,240
========== ========== ========== ==========
Net income per share $ 0.50 $ 0.22 $ 0.71 $ 0.27
========== ========== ========== ==========
Diluted earnings per share
- --------------------------
Average number of shares outstanding 8,311,868 8,255,692 8,311,868 7,840,240
Add dilutive effect of outstanding options
(as determined by the application of the
treasury stock method) 1,627,781 1,082,420 1,570,663 986,224
---------- ---------- ---------- ----------
Average number of shares outstanding,
as adjusted 9,939,649 9,338,112 9,882,531 8,826,464
========== ========== ========== ==========
Net income per share $ 0.41 $ 0.20 $ 0.60 $ 0.24
========== ========== ========== ==========
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> MAR-31-1998
<CASH> 9,744
<SECURITIES> 0
<RECEIVABLES> 43,006
<ALLOWANCES> (3,818)
<INVENTORY> 53,888
<CURRENT-ASSETS> 105,191
<PP&E> 73,072
<DEPRECIATION> (30,319)
<TOTAL-ASSETS> 182,508
<CURRENT-LIABILITIES> 63,013
<BONDS> 0
0
0
<COMMON> 831
<OTHER-SE> 25,971
<TOTAL-LIABILITY-AND-EQUITY> 182,508
<SALES> 117,667
<TOTAL-REVENUES> 117,667
<CGS> 79,272
<TOTAL-COSTS> 103,101
<OTHER-EXPENSES> 360
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,702
<INCOME-PRETAX> 9,504
<INCOME-TAX> 3,611
<INCOME-CONTINUING> 5,893
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,893
<EPS-PRIMARY> .60
<EPS-DILUTED> 0
</TABLE>
