<PAGE> 1
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 quarter ended September 30, 1999
------------------
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 No. 1 - 1997
--------
GENESIS WORLDWIDE INC.
----------------------
(Exact name of registrant as specified in its charter)
Ohio 34-43407810
- ---------------------------- ----------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
2600 Kettering Tower, Dayton, Ohio 45423
----------------------------------------
(Address of principal executive offices, zip code)
(937) 910-9300
--------------
(Registrant's telephone number including area code)
Monarch Machine Tool Company
----------------------------
(Former name, former address and former fiscal year, if changed since last
report)
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 such filing
requirements for the past 90 days. Yes X No
--- ---
The number of common shares outstanding as of October 28, 1999 was 4,282,817.
<PAGE> 2
GENESIS WORLDWIDE INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C>
PART 1. FINANCIAL INFORMATION:
ITEM 1. - Condensed Financial Statements:
Balance Sheets - September 30, 1999 and December 31, 1998 2
Statements of Operations and Comprehensive Income -
Quarter and Three Quarters ended September 30, 1999 and 1998 3
Statements of Cash Flow - Three Quarters 4
ended September 30, 1999 and 1998
Notes to Condensed Financial Statements 5-8
ITEM 2. - Management's Discussion and Analysis
of Financial Condition and Results of
Operations 9-12
ITEM 3. - Quantitative and Qualitative Disclosure
About Market Risk (inapplicable) 12
PART II. OTHER INFORMATION:
ITEM 1. Legal Proceedings 13
ITEM 2. Changes in Securities 13
ITEM 3. Inapplicable 13
ITEM 4. Submission of Matters to a vote of
Security Holders 13
ITEM 5. Inapplicable 13
ITEM 6. Exhibits and Reports on Form 8-K 13
</TABLE>
1
<PAGE> 3
PART 1 - FINANCIAL INFORMATION
GENESIS WORLDWIDE INC. AND SUBSIDIARIES
CONDENSED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
September 30 December 31
1999 1998
---- ----
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash $ 1,446 $ 1,733
Accounts receivable 25,412 23,893
Costs and estimated earnings in excess of
billings on uncompleted contracts 9,770 3,275
Inventories 23,093 10,486
Prepaid and other expenses 1,911 667
Deferred income taxes 4,934 1,874
--------- ---------
Current assets 66,566 41,928
PROPERTY, PLANT & EQUIMENT - NET 32,341 11,070
INVESTMENT IN JOINT VENTURES 1,543
PREPAID PENSION COSTS 20,236 19,051
DEFERRED INCOME TAXES 1,229 1,631
GOODWILL 64,700 10,099
OTHER ASSETS 7,042 4,678
--------- ---------
$ 193,657 $ 88,457
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Short-term borrowings $ $ 500
Current portion of long-term debt 4,450
Accounts payable 16,118 8,930
Accrued liabilities 19,552 12,153
Billings in excess of costs and estimated
earnings on uncompleted contracts 7,917 5,517
Long-term debt in technical default (Note 4) 79,500
--------- ---------
Current liabilities 143,099 27,100
POSTRETIREMENT BENEFITS 3,547 1,450
LONG-TERM DEBT 15,562 16,497
OTHER LONG-TERM LIABILITIES 685 756
SHAREHOLDERS' EQUITY:
Preferred stock 14 14
Common stock 9,495 5,815
Unearned compensation, restricted stock (35) (37)
Retained earnings 36,926 37,042
Accumulated other comprehensive income (74) (180)
--------- ---------
46,326 42,654
--------- ---------
$ 193,657 $ 88,457
========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
2
<PAGE> 4
GENESIS WORLDWIDE INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Quarters Ended September 30 Quarter Ended September 30
--------------------------------- --------------------------
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Net sales $ 88,480 $ 60,427 $ 39,848 $ 18,168
Operating costs and expenses:
Cost of sales 69,085 48,335 30,947 14,441
Selling, general and administrative 16,349 9,471 7,176 3,015
Amortization of goodwill 891 685
-------- -------- -------- --------
Operating income 2,155 2,621 1,040 712
Other income (expense):
Interest expense (2,965) (252) (2,336) (72)
Interest income 225 125 145 12
Other income (expense) 1,529 (102) 203 13
-------- -------- -------- --------
Income (loss) before income taxes 944 2,392 (948) 665
Income tax provision (benefit) 661 791 (20) 226
-------- -------- -------- --------
Net income (loss) 283 1,601 (928) 439
Other comprehensive income (expense),
net of tax - foreign
currency translation
adjustments 68 (62) 209 (95)
-------- -------- -------- --------
Comprehensive income $ 351 $ 1,539 $ (719) $ 344
======== ======== ======== ========
Average common shares outstanding:
Basic 3,948 3,768 4,283 3,769
======== ======== ======== ========
Diluted 3,963 3,768 4,283 3,769
======== ======== ======== ========
Net income per common share,
basic and diluted $ .07 $ .42 $ (.22) $ .12
======== ======== ======== ========
Dividends per share:
Preferred $ 1.35 $ 1.35 $ .45 $ .45
Common $ .10 $ .15 $ $ .05
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
3
<PAGE> 5
GENESIS WORLDWIDE INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Quarters Ended September 30
---------------------------------
1999 1998
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 283 $ 1,601
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization 2,863 716
Equity in loss of affiliates 133
Pension income (968) (2,420)
Deferred tax provision 661 791
Gain on sale of assets (17)
Changes in operating assets and liabilities
excluding effect of acquisition in 1999:
Accounts receivable 754 3,299
Inventories (3,902) 2,200
Other assets 18 793
Cost and estimated earnings in excess of
billings on uncompleted contracts 799 (398)
Billings in excess of costs and estimated earnings (5,470)
on uncompleted contracts (44)
Accounts payable (1,814) (4,018)
Accrued liabilities 2,065 (4,789)
--------- ---------
Net cash provided by (used in) operating activities (4,595) (2,269)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (1,971) (1,877)
Acquisition of business, net of cash acquired (73,402)
Proceeds from sale of fixed assets 71
(Increase) decrease in other assets 943
--------- ---------
Net cash provided by (used in) investing activities (74,359) (1,877)
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid (398) (585)
Stock activity 73
Debt acquisition costs (2,528)
Repayments of short-term borrowings (500)
Proceeds from long-term borrowings 109,221 6,971
Repayments of long-term borrowings (27,123) (5,000)
--------- ---------
Net cash provided by (used in) financing activities 78,745 1,386
EFFECT OF EXCHANGE RATES ON CASH (78) (113)
--------- ---------
INCREASE (DECREASE) IN CASH (287) (2,873)
CASH - BEGINNING OF PERIOD 1,733 5,022
--------- ---------
CASH - END OF PERIOD $ 1.446 $ 2,149
========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements
4
<PAGE> 6
GENESIS WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS
THREE QUARTERS ENDED SEPTEMBER 30, 1999 AND 1998
(all amounts in thousands except per share amounts)
1. FINANCIAL STATEMENTS
--------------------
The balance sheet at December 31, 1998 presents condensed financial
information taken from the audited financial statements. The interim
financial statements are unaudited. In the first three quarters of 1999
the Company recorded an accrual for $350 as the estimated cost to
settle litigation and has also recognized $1,300 of other income as a
result of the reduction of amounts previously accrued for an
environmental liability. In the opinion of management, all other
adjustments, which consist of normal recurring adjustments necessary to
present fairly the financial position and results of operations for the
interim periods presented, have been made. The results shown for the
first three quarters of 1999 are not necessarily indicative of the
results that may be expected for the entire year.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. It is suggested
that these financial statements be read in conjunction with the
financial statements and notes thereto included in the Company's
December 31, 1998 annual report to shareholders.
2. EARNINGS PER SHARE
------------------
Basic earnings per common share is computed by dividing net income
(loss), after adjustment for the preferred stock dividend requirement,
by the weighted average number of common shares outstanding during the
period. Diluted earnings per share is computed by adding the dilutive
effect of common stock equivalents, such as the convertible preferred
shares and any stock options outstanding, to the weighted average
number of common shares outstanding.
3. INVENTORIES
-----------
The Company's inventories consist of the following balances:
<TABLE>
<CAPTION>
September 30 December 31
1999 1998
-------- --------
<S> <C> <C>
Finished goods $ 2,700 $ 1,285
Work-in process and parts 18,165 12,967
Raw materials 6,793 739
Less LIFO reserve (4,565) (4,505)
-------- --------
Net inventories $ 23,093 $ 10,486
======== ========
</TABLE>
4. LONG-TERM DEBT
--------------
The Company has an outstanding credit facility consisting of a term
loan facility in an aggregate principal amount of $70,000 and a
revolving credit facility, which provides for loans and letters of
credit of up to $30,000. The term loan facility consists of two
tranches in principal amounts of $50,000 (the "Term A Loan") and
$20,000 (the "Term B Loan"). The Term A Loan and the revolving credit
facility mature on June 30, 2006 and the Term B Loan matures on
December 31, 2006. Principal payments of the Term A Loan are required
on a quarterly basis increasing from $1,000 per quarter through June
30, 2000 to $2,500 per quarter during the last four quarters of the
payment term.
5
<PAGE> 7
GENESIS WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS
THREE QUARTERS ENDED SEPTEMBER 30, 1999 AND 1998
(all amounts in thousands except per share amounts)
Principal payments of the Term B Loan are in quarterly installments of
$50 through June 30, 2005 with $9,300 due on September 30, 2006 and
December 31, 2006. The Company is required to use the net proceeds
received from asset sales in excess of $250 and from the termination of
two of its pension plans to repay the amounts outstanding under these
two Term Loans in reverse order of payment due date. The weighted
average interest rate of these loans was 8.53% at September 30, 1999.
On September 30, 1999 the Company had $10,398 available under the
Revolving Credit facility.
Debt acquisition costs of $2,275 were paid relating to obtaining the
new credit facility and are being amortized over seven years.
The agreement for this credit facility contains certain covenants,
including a maximum senior leverage ratio, minimum interest coverage
ratios, minimum fixed charge coverage, minimum consolidated net worth
and a limitation on the amount of dividends and capital expenditures.
Substantially all the assets of the Company are pledged under the above
credit facility.
As a result of the lower than expected operating results during the
third quarter, the Company was not able to generate sufficient earnings
to be in compliance with certain of its earnings related loan
covenants. This has caused the Company to be in default of the loan
covenants and accordingly, $79,500 of long-term debt in technical
default has been classified in current liabilities at September 30,
1999. The Company has requested that its lender provide waivers or
amendments of the applicable covenants. Although such amendments or
waivers have not been finalized, the Company expects to resolve this
situation in a satisfactory manner to allow it to continue its normal
business operations.
The Company also has outstanding subordinated notes consisting of
$15,000 in 12% Senior Subordinated Notes due December 31, 2007 and $840
in 8% Junior Subordinated Notes due June 30, 2002. The Company has also
issued warrants to purchase 100,000 common shares in conjunction with
the Senior Subordinated Notes, at a warrant exercise price of $7.75 per
share, subject to adjustment. The Warrants are not exercisable before
June 30, 2000 and expire on June 30, 2009. In addition, the 12%
Subordinated Note contains provisions that would increase the interest
rate and require the issuance of additional warrants if the Note is not
repaid by June 30, 2000. The fair value of the warrants issued was
estimated at $291 using the Black-Scholes Model and was recorded as a
discount to the $15,000 Senior Subordinated Note and will be amortized
over the term of the note.
6
<PAGE> 8
GENESIS WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS
THREE QUARTTERS ENDED SEPTEMBER 30, 1999 AND 1998
(all amounts in thousands except per share amounts)
5. SEGMENTS
--------
The Company operates in two primary reportable segments, coil
processing and machining centers. Business segment information is as
follows (in thousands):
<TABLE>
<CAPTION>
Three Quarters Ended September 30
---------------------------------
1999 1998
-------- --------
<S> <C> <C>
Sales:
Coil Processing $ 76,213 $ 36,264
Machining Centers 12,267 24,163
-------- --------
Total $ 88,480 $ 60,427
======== ========
Operating Earnings:
Coil Processing $ 6,576 $ 3,023
Machining Centers (1,778) 423
Corporate (2,643) (825)
-------- --------
Total $ 2,155 $ 2,621
======== ========
</TABLE>
Included in the coil processing segment results for the three quarters
ended September 30, 1999 were sales of $17,476 and operating earnings
of $794 from GFG Corporation which was acquired by the Company on
December 31, 1998 and $19,893 of sales and $2,167 of operating earnings
from Precision Industrial Corp. and Subsidiaries (parent of Herr-Voss)
("Precision") which was acquired on June 30, 1999.
6. ACQUISITIONS
------------
On June 30, 1999, the Company acquired Precision. The acquisition has
been accounted for under the purchase method and, accordingly, the
results of operation of Precision have been included in the
consolidated financial statements since the date of acquisition.
The purchase price paid by the Company for all of the outstanding
capital stock of Precision consisted of $39,295 cash paid to seller,
$25,340 of cash used to pay seller bank debt and accrued interest, a
$15,000 seller subordinated note, an $840 Junior Subordinated Note
assumed by Precision and 500,000 shares of the Company's Common Stock
(valued at $6.59 a share). During the third quarter of 1999, the
Company completed the post closing price adjustment in connection with
the acquisition and received a payment of $2.4 million from the seller.
The adjusted purchase price is $81,370. Fees and expenses paid in
connection with the purchase totaled approximately $1,010 and are being
amortized over 25 years using the straight-line method.
The excess purchase price over the fair value of identifiable net
assets acquired has been allocated to goodwill. Goodwill of $55,723
recorded in the transaction is being amortized over 25 years using the
straight-line method. The purchase price allocation has been completed
on a preliminary basis, subject to adjustments should new or additional
facts become known. Significant preacquisition contingencies include
the determination of the adjustments necessary to pension and post
employment benefit liabilities and the valuation of intangible assets
at acquisition date. The resolution of these contingencies could result
in adjustment to assets and liabilities at acquisition date and a
corresponding adjustment to goodwill.
7
<PAGE> 9
GENESIS WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS
THREE QUARTTERS ENDED SEPTEMBER 30, 1999 AND 1998
(all amounts in thousands except per share amounts)
The following unaudited proforma information presents a summary of
consolidated results of operations of the Company as if the acquisition
of Precision and GFG had occurred at the beginning of each period
presented.
<TABLE>
<CAPTION>
Three Quarters Ended September 30
1999 1998
---- ----
(Unaudited)
<S> <C> <C>
Net sales $133,006 $137,472
Earnings before taxes $ 1,300 $ 4,861
Income taxes $ 1,204 $ 1,959
Net income $ 96 $ 2,902
Earnings per share (basic and diluted) $ .02 $ .68
</TABLE>
These unaudited proforma results have been prepared for comparative
purposes only and include certain adjustments such as elimination of
management costs not expected to be incurred after the acquisitions,
additional depreciation as a result of the step-up in the basis of
fixed assets, additional amortization expense as a result of goodwill
and an increase in interest expense as a result of acquisition debt.
They do not purport to be indicative of the results of operations which
would have resulted had the combination occurred at the beginning of
each period presented or of future results of operations of the
combined entities. The disproportionate tax provision results from the
nondeductibility of goodwill.
7. ENVIRONMENTAL LIABILITY
-----------------------
As discussed in the Company's 1998 10K filing, in 1998, a Consent
Decree was entered into among the EPA, several other potentially
responsible parties ("PRP's") and a group of ten other companies
("Defendants") related to the costs of remediation of the Rosen Site, a
former scrap yard in Cortland, New York. During April 1999, the Consent
Decree was approved by the Department of Justice and in June 1999
formally approved by the U.S. District Court in New York. Based on the
fact that this Consent Decree substantially reduced the Company's
future liability for this matter, the accrual recorded at December 31,
1998 was reduced by $1,300. The reduction in the accrual is recorded in
other income, net.
8
<PAGE> 10
GENESIS WORLDWIDE INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
THREE QUARTERS ENDED SEPTEMBER 30, 1999 AND 1998
RESULTS OF OPERATIONS
---------------------
For the three quarters ended September 30, 1999 the Company reported
net earnings of $283,000 or $.07 per share and a net loss of ($928,000)
or ($.22) per share for the quarter ended September 30, 1999, compared
to net earnings of $1,601,000 or $.42 per share and $439,000 or $.12
per share, respectively, for the same periods in 1998. During the first
three quarters of 1999, the Company recorded $1.3 million of other
income as a result of a reversal of an accrual for an environmental
liability. The Company also recorded $350,000 of expense related to
settlement of litigation at its coil processing segment. In the third
quarter of 1999, the machining center segment recorded a restructuring
charge of approximately $400,000 relating to a reduction in the
workforce. Excluding the aforementioned items, the 1999 net earnings
were affected by higher depreciation as a result of fixed asset
additions, including a new ERP computer system, higher interest expense
due to increased borrowing related to the GFG and Precision
acquisitions, and lower pension income in 1999 due to the Company's
1998 decision to terminate two of its pension plans, related changes in
projected investment returns and the cost of replacement benefit plans.
Goodwill amortization of $891,000 and $685,000 for the three quarters
and quarter ended September 30, 1999 affected the comparability of 1999
to 1998. A discussion of results of operations on a segment basis
follows.
Coil Processing
---------------
Sales increased to $76.2 million and $36.0 million in the three
quarters and third quarter of 1999, respectively, compared to $36.2
million and $10.7 million for the same periods in 1998. Sales of $17.5
million from GFG, which was acquired on December 31, 1998 and $19.9
million from Precision, which was acquired on June 30, 1999, comprised
the majority of the change. Cost of sales as a percentage of sales was
77% and 76% in the three quarters and third quarter of 1999 compared to
77% and 74% in the respective 1998 periods. The lower cost of sales
percentage in the third quarter of 1998 is the result of better margins
from jobs closed out during the quarter. Operating earnings improved to
$6.6 million and $3.0 million in the three quarters and third quarter
of 1999, respectively, compared to $3.0 million and $1.0 million in the
same periods of 1998. This improvement in the operating earnings is
related to the increase in sales, and the addition of GFG and
Precision, which have historically been profitable. This segment was
negatively impacted by the recording of $350,000 in expense related to
settlement of litigation in the first quarter of 1999 and goodwill
amortization of $891,000 and $685,000 for the three quarters and third
quarter of 1999 relating to the acquisition of GFG and Precision.
Orders received during the first three quarters of 1999 totaled $49.1
million, including $19.0 million by GFG and $10.3 million for
Precision, compared to $33.3 million for the same period in 1998.
Backlog at September 30, 1999 was $49.6 million, including $9.1 million
for GFG and $18.7 million for Precision, compared to $25.9 million at
September 30, 1998.
Machining Centers
-----------------
Sales declined to $12.3 million and $3.9 million in the first three
quarters and third quarter of 1999, respectively, compared to $24.2
million and $7.4 million in the same periods of 1998, as a slow-down in
domestic capital goods orders and continued selling pressures from
foreign, particularly Asian, competitors negatively affected sales
volume and selling prices for this segment. Cost of sales as a
percentage of sales was 85.7% and 93.8% in the three quarters and third
quarter of 1999, respectively, compared to 85.2% and 88.2% in the same
periods of 1998. Management had taken steps to control manufacturing
costs and to reduce the labor force in late 1998 and early 1999 in
response to the declining demand for their products. At the end of the
third quarter of 1999
9
<PAGE> 11
management further restructured it operation to focus on more
profitable lines of business and incurred approximately $400,000 of
restructuring charges relating to the severance and early termination
of employees. The existing workforce now matches the current order
level and management feels that this segment is better positioned to
take advantage of any increase in future order levels. In the third
quarter of 1999 cost of sales as a percentage of sales was negatively
impacted by fixed costs being absorbed over a lower sales volume.
As a result of the lower sales volume and the restructuring changes
noted above, this segment reported an operating loss of $1.8 million
and $1.2 million in the first three quarters and third quarter of 1999,
respectively, compared to operating earnings of $423,000 and an
operating loss of $134,000 for the same periods in 1998.
Orders received during the first three quarters of 1999 totaled $12.2
million compared to $22.5 million during the same period last year. The
reduction in the level of orders booked was primarily due to foreign
competition and lower demand for this segments' products. Backlog at
the end of the third quarter of this year was $4.5 million compared to
$6.6 million at September 30, 1998.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
During the first three quarters of 1999, exclusive of the Precision
acquisition, the Company's operating activities used $4.6 million of
cash to reduce accounts payable ($1.8 million) and increase inventories
($3.9 million). In addition, costs incurred on contracts in process
exceeded advance payments from customers and required $4.7 million in
cash due to the decreased level of orders. Decreases in accounts
receivable provided $.8 million and increases in accrued liabilities
provided $2.1 million. Cash was required for capital expenditures and
to pay dividends.
The Company borrowed $101.2 million and repaid $17.5 million of
long-term debt on June 30, 1999, with the cash used primarily to
conclude the purchase of Precision and for repayment of debt from the
Company's previous lender. The purchase price paid by the Company for
the outstanding capital stock of Precision consisted of $39.3 million
cash paid to seller, $25.3 million of cash used to pay seller bank debt
and accrued interest, a $15 million seller subordinated note and
$840,000 Junior Subordinated Note assumed by Precision and 500,000
shares of Stock (valued at $6.59 a share). During the third quarter of
1999 the Company completed the post closing price adjustment and
received a payment of $2.4 million from the seller. The adjusted
purchase price is $81.4 million. Fees and expenses paid in connection
with the purchase totaled approximately $1,010,000.
As a result of the lower than expected operating results during the
third quarter, the Company was not able to generate sufficient earnings
to be in compliance with certain of its earnings related loan
covenants. This has caused the Company to be in default of the loan
covenants and accordingly, $79,500,000 of long-term debt in technical
default has been classified in current liabilities at September 30,
1999. The Company has requested that its lender provide waivers or
amendments of the applicable covenants. Although such amendments or
waivers have not been finalized, the Company expects to resolve this
situation in a satisfactory manner to allow it to continue its normal
business operations. The Company does not anticipate that the lender
will request repayment of the loan or discontinue the current revolving
credit facility, but if these events were to occur the Company would
have to seek an alternative source of financing.
At September 30, 1999, the Company had borrowed $15 million under its
$30 million revolving credit facility and utilized $4.6 million of the
facility for letters of credit. The remaining amount of $10.4 million
is available for general corporate purposes.
The Company has received approval from the Pension Benefit Guaranty
Corporation relating to the termination of two of its pension plans. In
connection with the termination, plan assets are projected to be
distributed as follows: $17 million to plan participants, $4 million to
be transferred to a trust to be used to pay benefits under replacement
pension plans, $3 million to pay excise taxes due to plan termination,
and $10 million reverting to the Company which will be used to reduce
indebtedness. Any gain or loss on pension plan termination will be
recognized at the date of plan asset distribution.
10
<PAGE> 12
The Company anticipates receiving IRS approval of this termination and
expects to make the distribution in January, 2000.
At an August 1999 meeting, the Board of Directors of the Company
decided to suspend paying a dividend to the common shareholders of the
Company. A dividend had been paid at the rate of $.05 per share per
quarter. By discontinuing those dividend payments, the Company's cash
flow will benefit by $850,000 per year. Payment of the dividend to the
Company's preferred shareholders, at an annual cash requirement of
$26,000, was not affected.
YEAR 2000
---------
Year 2000 issues arise because of the inability of many existing
computer systems and software, which utilize a two-digit conversion for
recording years, to properly recognize and process information relating
to Year 2000. In early 1998, the Company began a Company-wide program
to replace its internal information processing systems for reasons
unrelated to Year 2000 issues. This program was completed during the
third quarter of 1999 and resulted in information processing systems
being Year 2000 compliant. The cost to the Company to fully implement
this new system was approximately $2.5 million. GFG and Precision have
also replaced their information processing systems. These processes
began in 1998 and were substantially completed during the third quarter
of 1999. Fourth quarter activity related to Year 2000 compliance
includes final installations of hardware related to communication
systems at Precision and final upgrade of company voice mail systems.
Backup and recovery procedures and contingency planning will also be
finalized in the fourth quarter. The Company estimates future cost to
be approximately $50,000. As part of a comprehensive Year 2000
compliance project, the Company has assessed other key aspects of its
operating and administrative processes which, if they would become
inoperable due to Year 2000 issues, would have a material impact on the
Company's ability to continue its normal operations. The Company is not
presently aware of any Year 2000 issues, which would have a disruptive
impact on its operations or a material adverse impact upon its
financial condition or results of operation.
The Company believes it has diligently addressed Year 2000 issues and
that it will satisfactorily resolve any significant Year 2000 problems.
The Company anticipates completing its Year 2000 projects during 1999,
with major completion milestones completed in the second quarter and
third quarter with finalization of minor projects occurring in the
fourth quarter. The company has also developed contingency plans to
respond to any problems related to Year 2000 issues.
INTEREST RATE RISK
------------------
A change in interest rates could have an impact on the Company's
financial results, as the Company is presently paying a variable
interest rate on the majority of its outstanding debt. The risk to the
Company has increased as a result of the higher level of indebtedness
the Company is carrying as a result of the financing required to
acquire Precision Industrial Corporation. In conjunction with its
lenders, the Company is evaluating the cost and benefits of instituting
an interest rate protection arrangement to address the risk in this
area. Under its credit agreement, the Company is required to establish
an interest rate protection program which is satisfactory to its lender
by December 31, 1999.
11
<PAGE> 13
FORWARD LOOKING STATEMENTS
--------------------------
In addition to historical information, this document contains various
forward-looking statements, which are subject to risks, and
uncertainties that could cause actual results to differ materially from
these statements. These risks include, but are not limited to, changes
in economic conditions, interest rates, price and product offering
competition from domestic and foreign entities, customer purchasing
patterns, labor costs, product liability issues and other legal claims,
governmental regulatory issues and Year 2000 readiness issues. Words
identifying forward-looking statements include "plan", "believe",
"expect", "anticipate", "project", "intend", "estimate" and other
expressions which are predictions or indications of future events or
trends which do not relate to historical matters.
Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date the
statement is made. The Company undertakes no obligation to publicly
update or revise any forward-looking statements, whether as a result of
new information, future events or otherwise. Readers are urged to
carefully review and consider the various disclosures made by the
Company in this document and other reports filed with the Securities
and Exchange Commission that attempt to advise interested parties of
the risks and factors that may affect the Company's business.
12
<PAGE> 14
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
As discussed in the Company's 1998 10K filing, in 1998, a Consent
Decree was entered into among the EPA, several other potentially
responsible parties ("PRP's") and a group of ten other companies
("Defendants") related to the costs of remediation of the Rosen Site, a
former scrap yard in Cortland, New York. During April 1999, the Consent
Decree was approved by the Department of Justice and in June 1999 was
approved by the U.S. District Court in New York. Based on the fact that
this Consent Decree substantially reduced the Company's future
liability for this matter, the accrual recorded at December 31, 1998
was reduced by $1,300,000. The reduction in the accrual is recorded in
other income, net.
Items 2 - 3 Inapplicable
Item 4 - Submission of Matters to a vote of Security Holders.
(a.) The Company held a special meeting of Shareholders on August
31, 1999.
(b.) The results of the voting to amend the Articles of
Incorporation to change the Company's name to "Genesis
Worldwide Inc."
Votes for Votes Against Abstain
--------- ------------- -------
3,721,989 102,315 170,469
Item 5 - Inapplicable
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibit 27 - Financial Data Schedule
(b) On July 15, 1999 the Company filed an 8-K in conjunction with
its acquisition of Precision Industrial Corporation, in which
it provided financial statements and exhibits and pro forma
financial information related to its acquisition of Precision
Industrial Corporation.
13
<PAGE> 15
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this quarterly report to be signed on
its behalf by the undersigned thereunto duly authorized.
GENESIS WORLDWIDE INC.
(Registrant)
DATE: November 15, 1999 By s/Karl A. Frydryk
----------------------- ----------------------------------------
Karl A. Frydryk
Vice President & Chief Financial Officer
(principal financial officer)
14
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Genesis
Worldwide Inc. and subsidiaries condensed financial statements, September
30, 1999, and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 1,446
<SECURITIES> 0
<RECEIVABLES> 26,515
<ALLOWANCES> 1,103
<INVENTORY> 23,093
<CURRENT-ASSETS> 66,566
<PP&E> 51,957
<DEPRECIATION> 19,616
<TOTAL-ASSETS> 193,657
<CURRENT-LIABILITIES> 143,099
<BONDS> 15,562
0
14
<COMMON> 9,495
<OTHER-SE> 36,817
<TOTAL-LIABILITY-AND-EQUITY> 193,657
<SALES> 88,480
<TOTAL-REVENUES> 88,480
<CGS> 69,085
<TOTAL-COSTS> 69,085
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 49
<INTEREST-EXPENSE> 2,965
<INCOME-PRETAX> 944
<INCOME-TAX> 661
<INCOME-CONTINUING> 283
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 283
<EPS-BASIC> .07
<EPS-DILUTED> .07
</TABLE>
