<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 June 30, 2000
-------------
or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission File No. 1 - 1997
--------
GENESIS WORLDWIDE INC.
----------------------
(Exact name of registrant as specified in its charter)
Ohio 34-4307810
--------------------------- ----------
(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)
N.A.
----
(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 July 31, 2000 was 4,285,696.
<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 Consolidated Financial Statements:
Balance Sheets - June 30, 2000 (unaudited) and
December 31, 1999 2
Statements of Operations and Comprehensive Income (unaudited)
- Two Quarters and Quarter ended June 30, 2000 and 1999 3
Statements of Cash Flow (unaudited) - Two Quarters ended
June 30, 2000 and 1999 4
Notes to Condensed Consolidated Financial Statements 5-9
ITEM 2. - Management's Discussion and Analysis
of Financial Condition and Results of
Operations 10-12
ITEM 3. - Quantitative and Qualitative Disclosure
About Market Risk 13
PART II. OTHER INFORMATION:
ITEM 1.-5. Inapplicable 14
ITEM 6. Exhibits and Reports on Form 8-K 14
</TABLE>
1
<PAGE> 3
PART 1 - FINANCIAL INFORMATION
GENESIS WORLDWIDE INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
June 30 December 31
2000 1999
---- ----
(Unaudited)
<S> <C> <C>
Current assets:
Cash $ 105 $ 559
Accounts receivable 23,764 22,107
Costs and estimated earnings in excess of
billings on uncompleted contracts 14,002 12,702
Inventories 10,975 10,016
Prepaid and other expenses 1,859 1,783
Deferred income taxes 7,016 6,816
Net current assets of discontinued operations 8,077
--------- ---------
Total current assets 57,721 62,060
Property, Plant & Equipment - Net 28,557 27,770
Prepaid pension costs 9,135 19,849
Deferred income taxes 2,297 2,297
Intangible assets 64,414 68,473
Other assets 3,919 5,018
--------- ---------
$ 166,043 $ 185,467
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $ 6,040 $ 5,540
Accounts payable 18,058 20,557
Accrued liabilities 9,640 15,126
Billings in excess of costs and estimated
earnings on uncompleted contracts 12,771 6,962
Net current liabilities of discontinued operations 384
--------- ---------
Total current liabilities 46,893 48,185
Postretirement benefits 3,107 3,054
Long-term debt, less current portion 80,813 94,034
Other long-term liabilities 1,185 1,122
--------- ---------
Total liabilities 131,998 146,395
Shareholders' equity:
Preferred stock 14 14
Common stock and additional paid in capital 10,160 9,500
Unearned compensation, restricted stock (17) (22)
Retained earnings 24,230 29,685
Accumulated other comprehensive income (342) (105)
--------- ---------
Total Shareholders' equity 34,045 39,072
--------- ---------
$ 166,043 $ 185,467
========= =========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
2
<PAGE> 4
GENESIS WORLDWIDE INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE INCOME
(amounts in thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Two Quarters Ended June 30 Quarter Ended June 30
-------------------------- ---------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $ 66,616 $ 38,855 $ 33,233 $ 21,329
Operating costs and expenses:
Cost of sales 53,132 30,318 27,075 16,554
Selling, general and administrative 12,002 6,225 5,703 3,042
Amortization of goodwill 1,665 204 833 104
-------- -------- -------- --------
Operating income (loss) (183) 2,108 (378) 1,629
Other income (expense):
Interest expense (4,415) (629) (2,114) (302)
Interest income 130 80 97 41
Other (expense) income (273) 191 (441) 138
-------- -------- -------- --------
Income (loss) before income taxes (4,741) 1,750 (2,836) 1,506
Income tax (provision) benefit (124) (630) (215) (542)
-------- -------- -------- --------
Income (loss) from continuing operations (4,865) 1,120 (3,051) 964
Income (loss) from operations of discontinued
segments, net of income tax (provision)
benefit of $324 and $306 in 2000 and $(51)
and $191 in 1999, respectively (576) 91 (544) (341)
-------- -------- -------- --------
Net income (loss) (5,441) 1,211 (3,595) 623
Other comprehensive loss,
foreign
currency translation
adjustments (237) (220) (231) (131)
-------- -------- -------- --------
Comprehensive income (loss) $ (5,678) $ 1,431 $ (3,826) $ 492
======== ======== ======== ========
Average common shares outstanding:
Basic 4,284 3,781 4,286 3,787
Diluted 4,284 3,794 4,286 3,809
Earnings(loss) per common share, basic and diluted:
Continuing operations $ (1.14) $ .30 $ (.71) $ .25
Discontinued operations (.13) .02 (.13) (.09)
-------- -------- -------- --------
$ (1.27) $ .32 $ (.84) $ .16
======== ======== ======== ========
Dividends per share:
Preferred $ .90 $ .90 $ .45 $ .45
Common $ $ .10 $ .05
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
3
<PAGE> 5
GENESIS WORLDWIDE INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
(Unaudited)
Two Quarters Ended June 30
--------------------------
2000 1999
---- ----
<S> <C> <C>
Cash flow from operating activities:
Net income (loss) $ (5,441) $ 1,211
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
(Income) loss from discontinued operations 900 (142)
Depreciation and amortization 3,546 833
Equity in loss of affiliates 707
Prepaid pension cost 70 (717)
Deferred tax provision (benefit) (200) 681
(Gain) loss on sale of fixed assets 3 (6)
Gain from pension plan reversion (3,132)
Changes in operating assets and liabilities
excluding effect of discontinued operations
and acquisition in 1999:
Accounts receivable (1,681) 1,162
Inventories (958) 1,390
Cost and estimated earnings in excess of
billings on uncompleted contracts (1,300) (1,355)
Billings in excess of costs and estimated earnings
on uncompleted contracts 5,810 (1,950)
Prepaids and other assets (52) (441)
Accounts payable (2,499) (1,912)
Accrued liabilities (4,609) 3,167
--------- ---------
Net cash provided by (used in) operating activities (8,836) 1,921
Cash flows from investing activities:
Capital expenditures (2,507) (980)
Proceeds from sale of division 8,334
Acquisition of business, net of cash acquired (73,402)
Proceeds from pension plan reversion 14,086
Decrease in other assets 1,812 173
Proceeds from sale of fixed assets 30 13
--------- ---------
Net cash provided by (used in) investing activities 21,755 (74,196)
Cash flows from financing activities:
Dividends paid (13) (391)
Issuance of stock 19 64
Debt acquisition costs (2,275)
Repayment of short-term borrowings (500)
Proceeds from long-term borrowings 25,524 101,709
Repayments of long-term borrowings (38,050) (17,529)
--------- ---------
Net cash provided by (used in) financing activities (12,520) 81,078
Effect of exchange rates on cash (80) (215)
--------- ---------
Net cash provided by (used in) continuing operations 319 8,588
Net cash provided by (used in) discontinued operations (773) (1,517)
Cash, beginning of period 559 1,708
--------- ---------
Cash end of period $ 105 $ 8,779
========= =========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements
4
<PAGE> 6
GENESIS WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS
TWO QUARTERS ENDED JUNE 30, 2000 AND 1999
( all dollar amounts in thousands, except per share amounts)
1. FINANCIAL STATEMENTS
--------------------
The balance sheet at December 31, 1999 presents condensed financial
information taken from the audited financial statements. The interim
financial statements are unaudited. In the first quarter of 2000 the
Company recorded a net gain of $315 related to the termination of two
of its pension plans, which is included in other income. In the first
quarter of 1999 the Company recorded an accrual for $350 as the
estimated cost to settle litigation. 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 two quarters of 2000 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, 1999 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>
June 30 December 31
2000 1999
---- ----
<S> <C> <C>
Finished goods $ 621 $ 889
Work-in process 5,026 3,252
Raw materials 5,328 5,875
------- --------
Total first-in, first-out cost $10,975 $ 10,016
======= ========
</TABLE>
4. LONG-TERM DEBT
--------------
The Company has an outstanding credit facility consisting of a term
loan facility in an aggregate principal amount of $48,900 and a
revolving credit facility, which provides for loans and letters of
credit. The revolving credit facility has $35,000 available through
October 31, 2000, after which the amount available is reduced to
$30,000. The term loan facility consists of two tranches in principal
amounts of $28,050 (the "Term A Loan") and $19,800 (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 $1,250 per quarter on September 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
TWO QUARTERS ENDED JUNE 30, 2000 AND 1999
( all dollar 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. Outstanding borrowings under the revolving credit
facility and term loans accrue interest based on prime rate or LIBOR
plus an additional percentage depending on the leverage ratio. The
weighted average interest rate of these loans was 9.86% at June 30,
2000. On June 30, 2000 the Company had $6,160 available under the
revolving credit facility.
The credit facility agreement contains certain covenants, including a
maximum senior leverage ratio, minimum interest coverage ratio, minimum
fixed charge coverage ratio, a limitation on the amount of capital
expenditures and a restriction on paying dividends. Substantially all
the assets of the Company are pledged under the above credit facility.
In connection with a June 2000 amendment to the credit facility which
increased the Company's revolving credit line and modified certain
covenants, the Company granted to the lender, ING (U.S.) Capital LLC, a
warrant to purchase shares of the Company's common stock. Under the
warrant agreement, unless the Company achieves certain conditions by
October 31, 2000 including a reduction in its term loans of at least
$10,000 and a prescribed maximum senior leverage ratio, ING will
receive a warrant to acquire 800,000 shares of the Company's common
stock at an exercise price of $.01 per share. The warrant would become
exercisable on February 1, 2001. The number of shares under the warrant
would reduce if certain events occur prior to January 31, 2001. The
fair value of the warrants was estimated at $643, using the
Black-Scholes Model and was recorded at the date of grant. The amount
is included in these financial statements as a discount to the term
loan and will be amortized over the remaining term of the loans.
The Company also has outstanding subordinated notes consisting of
$15,448 in 12% Senior Subordinated Notes ("Notes") due December 31,
2007 and $840 in 8% Junior Subordinated Notes due June 30, 2002. As a
condition to an amendment to the Company's credit facility, interest on
the Notes for the quarter ended June 30, 2000 was not paid but was
capitalized into the amount outstanding on the Notes. In addition,
interest payments for the quarter ended September 30, 2000 will be
deferred and capitalized as part of the Note. The Company has also
issued warrants to purchase 100,000 common shares in conjunction with
the Notes, at a warrant exercise price of $7.75 per share, subject to
adjustment, which expire on June 30, 2009. The fair value of the
100,000 warrants issued, estimated at $291 using the Black-Scholes
Model, was recorded as a discount to the Notes and is being amortized
over the term of the Notes. In addition, the Notes contain provisions
that would increase the interest rate to 12.5% if the Notes are not
repaid by June 30, 2000.
5. DISCONTINUED OPERATIONS
-----------------------
In February 2000, the Company sold substantially all the assets of the
machine tool division located in Cortland, New York, including
inventory, property, plant and equipment and accounts receivable with a
carrying value of $16,900 at December 31, 1999. The buyer paid $7,700
in cash and assumed $3,800 in liabilities. The loss on disposal of
$3,968 (net of taxes of $2,232) was recorded at December 31, 1999 and
consisted of an estimated loss on disposal of $3,712 and a provision of
$256 for anticipated operating losses until the disposal date.
6
<PAGE> 8
GENESIS WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS
TWO QUARTERS ENDED JUNE 30, 2000 AND 1999
( all dollar amounts in thousands, except per share amounts)
The machine tool division, along with the Sidney division which was
sold in 1997, comprised the Company's machine tool segment. The results
of the machine tool segment are reported as discontinued operations in
these financial statements. Net sales from the discontinued segment of
$961 and $8,387 for the two quarters ended June 30, 2000 and 1999
respectively, and the related cost of sales, general and administrative
costs and interest expense have been reclassified from continuing
operations and are included in the loss from discontinued operations.
In the two quarters ended June 30, 2000 the Company has increased the
provision for operating losses by $150 related to certain costs
incurred relating to closing this segment.
In December 1999, the Company adopted a plan to discontinue the paper
coating and laminating segment of its business. The plan of disposal
provides for the servicing and installation of two remaining contracts
which should be completed by September 2000. Net liabilities of $384 at
June 30, 2000 consists of accounts receivable and accounts payable
which will be settled or received in cash in 2000, contract reserves
for remaining contracts and fixed assets which are carried at net
realizable value. Net sales from the discontinued segment of $30 and
$1,391 for the two quarters ended June 30, 2000 and 1999, respectively,
and the respective cost of sales, general and administrative costs and
interest expense have been reclassified from continuing operations and
are included in the loss from discontinued operations. During the
second quarter of 2000, the Company increased the provision for
operating losses by $750 relating to additional estimated contract
costs.
The following table summarizes the net loss from operations of
discontinued segments:
<TABLE>
<CAPTION>
Two Quarters Ended June 30
--------------------------
2000 1999
---- ----
<S> <C> <C>
Net earnings (loss) from operations:
Machine tool segment $(150) $ 569
Paper coating and laminating segment (750) (427)
----- -----
(900) 142
Tax (provision) benefit 324 (51)
----- -----
Earnings (loss) from operations of discontinued
segments $(576) $ 91
===== =====
</TABLE>
The provision for operating losses is summarized as follows:
<TABLE>
<CAPTION>
Machine Tool Paper Coating and
Segment Laminating Segment Total
------- ------------------ -----
<S> <C> <C> <C>
Provision for operating losses
at December 31, 1999 $ 400 $ 220 $ 620
Operating losses charged to
the provision (435) (551) (986)
Additional provision 150 750 900
----- ----- -----
Provision for operating losses
at June 30, 2000 $ 115 $ 419 $ 534
===== ===== =====
</TABLE>
7
<PAGE> 9
GENESIS WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS
TWO QUARTERS ENDED JUNE 30, 2000 AND 1999
( all dollar amounts in thousands, except per share amounts)
6. ACQUISITIONS
------------
On June 30, 1999, the Company acquired Precision Industrial Corporation
and Subsidiaries ("Precision"). The following unaudited proforma
information presents a summary of consolidated results of operations of
the Company as if the acquisition of Precision had occurred at the
beginning of each period presented.
<TABLE>
<CAPTION>
Two Quarters Ended June 30
--------------------------
2000 1999
---- ----
(Unaudited)
<S> <C> <C>
Net sales $ 66,616 $ 65,378
Loss before taxes $ (4,741) $ (1,891)
Income tax (provision) benefit $ (124) $ 1,208
Loss from continuing operations $ (4,865) $ (683)
Earnings (loss) per share (basic and
diluted) from continuing operations $ (1.14) $ (.02)
</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 acquisition,
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 and federal excise tax in 2000.
In the second quarter of 2000 the Company resolved a preacquisition
contingency upon receipt of an actuarial valuation related to a pension
liability recorded by a foreign subsidiary of Precision. The resolution
of this contingency resulted in a reduction of the pension liability
and a decrease in goodwill of $1,235.
7. PENSION PLAN TERMINATION
------------------------
In the first quarter of 2000 the Company completed the termination of
two of its pension plans for certain employees. Plan assets of $15,600
were used to settle plan liabilities and $4,700 was transferred to
trusts to fund future employee benefit obligations. The balance of plan
assets of $14,000 was distributed to the Company with $10,400 used to
repay long-term debt. The Company recorded a net gain on this
transaction of $315 consisting of a $3,132 settlement gain and a $2,817
expense for federal excise taxes. Unrecognized prior service costs of
$145 from the terminated plans remain to be amortized over the next
three years.
8. OTHER MATTERS
-------------
Operating losses were incurred in the first half of 2000 primarily as a
result of the low volume and inconsistency of orders the Company has
received since mid-1999. In addition, collections of accounts
receivable have been delayed due to difficulty encountered in
completing a number of contracts. Due to the above, the Company was
unable to generate adequate cash flow to support its current business
operations and service its financing costs and debt payments. As a
result, the Company has initiated a number of initiatives to reduce its
operating costs and improve its cash flow. These initiatives include
personnel reductions and cost containment programs. The Company
estimates it has reduced its annual operating costs by over $3.1
million through these
8
<PAGE> 10
GENESIS WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS
TWO QUARTERS ENDED JUNE 30, 2000 AND 1999
( all dollar amounts in thousands, except per share amounts)
steps, which began in the second quarter of 2000. In addition to
reducing its operating costs, the Company is aggressively pursuing new
business and focusing on closing out existing contracts to collect
amounts owing from its customers. The Company has also suspended
non-essential spending and capital expenditures to future conserve its
cash.
The Company anticipates that it will have adequate credit available to
continue its operations for the foreseeable future, provided that its
order volume continues at not less than present levels. Through cost
reductions and collections efforts, the Company anticipates improving
its cash flows over the level of cash outflow experienced in the first
half of 2000.
9
<PAGE> 11
GENESIS WORLDWIDE INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
TWO QUARTERS ENDED JUNE 30, 2000 AND 1999
RESULTS OF OPERATIONS
---------------------
For the two quarters and quarter ended June 30, 2000 the Company
reported a net loss from continuing operations of $4,865,000 and
$3,051,000, respectively, compared to net earnings from continuing
operations of $1,120,000 and $964,000 for the same periods in 1999.
During the first quarter of 2000 the Company recorded a net gain of
$315,000 related to the termination of certain of its pension plans. In
the first quarter of 1999, the Company recorded $350,000 of expense
related to settlement of litigation. Excluding the aforementioned
items, the 2000 net earnings were affected by higher interest expense
due to increased borrowing related to recent acquisitions. Goodwill
amortization related to acquisitions increased by $1,461,000 and
$729,000 in the first two quarters and second quarter of 2000 compared
to the same periods in 1999.
Sales increased to $66.6 million and $33.2 million in the two quarters
and second quarter of 2000, compared to $38.9 million and $21.3 million
for the same periods of 1999 with the addition of $34.7 million of
sales ($18.3 million in the second quarter) from Herr-Voss
("Precision") acquired on June 30, 1999. The Company's businesses
excluding Precision experienced a decline in sales of $7 million for
the two quarters ended June 30, 2000, of which $6.4 million of that
decline occurred in the second quarter of 2000. This decline in
revenues was due to a prolonged slowdown in orders for the Company's
capital equipment which began in mid-1999.
Cost of goods sold as a percentage of sales was 79.8% and 81.5% in the
two quarters and second quarter of 2000 compared to 78.0% and 77.6% in
the respective 1999 periods. The newly acquired businesses have
improved the overall profit margin in the Company, but cost overruns
and problems with contract closeouts at the existing businesses,
particularly in the second quarter of 2000, contributed to the lower
margin in the 2000 periods compared to 1999. An operating loss of
$183,000 and $378,000 was incurred in the two quarters and second
quarter of 2000 compared to operating earnings of $2.1 million and $1.6
million for the same periods in 1999. The decrease in operating
earnings was affected by additional amortization of goodwill in 2000
relating to acquisitions. Selling, general and administrative expense
increased by $5.8 million and $2.7 in the two quarters and second
quarter of 2000, primarily due to the acquisition of Precision. Also
affecting comparability of operating results between 2000 and 1999 was
pension income of $717,000 and $376,000 recognized in the two quarters
and quarter ended June 30, 1999 related to pension plans that were
terminated in January, 2000.
Orders received during the first two quarters of 2000 totaled $56.7
million including $45.0 million for Precision, compared to $29.1
million for the same period of 1999. Backlog at June 30, 2000 was $52.5
million compared to $32.8 million at June 30, 1999 and $62.2 million at
December 31, 1999.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
During the first two quarters of 2000 the Company's operating
activities required $8.8 million of cash with an increase in
inventories ($1.0 million) and decreases in accounts payable ($2.5
million) and accrued liabilities ($3.1 million) requiring cash. Advance
payments from customers exceeded costs incurred on contracts in process
and increases in accounts receivables and provided $2.9 million of
cash.
Capital expenditures required $2.5 million in the first two quarters of
2000 and the proceeds from the sale of the Machine Tool Division ($8.3
million) and the termination of certain pension plans ($14.1 million)
allowed the Company to repay $18.0 million of the Company's Term A
long-term debt.
10
<PAGE> 12
GENESIS WORLDWIDE INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
TWO QUARTERS ENDED JUNE 30, 2000 AND 1999
The funding of operating losses and debt service during the first half
of 2000 required the Company to borrow $7.5 million under its line of
credit, including $2.1 million to repay its term debt. At June 30,
2000, the Company had $6.2 million available to borrow or for issuing
letters of credit under its revolving credit line of $35 million. The
Company's line of credit is $35 million through October 31, 2000, after
which it returns to its original amount of $30 million.
Operating losses were incurred in the first half of 2000 primarily as a
result of the low volume and inconsistency of orders the Company has
received since mid-1999. In addition, collections of accounts
receivable have been delayed due to difficulty encountered in
completing a number of contracts. Due to the above, the Company was
unable to generate adequate cash flow to support its current business
operations and service its financing costs and debt payments. As a
result, the Company has initiated a number of initiatives to reduce its
operating costs and improve its cash flow. These initiatives include
personnel reductions and cost containment programs. The Company
estimates it has reduced its annual operating costs by over $3.1
million through these steps, which began in the second quarter of 2000.
In addition to reducing its operating costs, the Company is
aggressively pursuing new business and focusing on closing out existing
contracts to collect amounts owing from its customers. The Company has
also suspended non-essential spending and capital expenditures to
future conserve its cash.
The Company anticipates that it will have adequate credit available to
continue its operations for the foreseeable future, provided that its
order volume continues at not less than present levels. Through cost
reductions and collections efforts, the Company anticipates improving
its cash flows over the level of cash outflow experienced in the first
half of 2000.
The Company's bank loan covenants become more restrictive beginning
September 30, 2000. If a covenant violation would occur in the future,
the Company would attempt to negotiate a waiver or covenant amendment
with its lender.
The Company believes that a valuation allowance against deferred tax
assets is not necessary, other than a valuation allowance relating to
the net operating loss carryforwards of the Company's subsidiaries in
German, which are being liquidated. The Company anticipates that the
deferred tax assets will be realized as a result of the reversal of the
deferred tax liabilities and the generation of future taxable income.
However, a valuation allowance against the deferred tax assets could be
required if estimates of future taxable income are reduced.
INTEREST RATE RISK
------------------
The Company anticipates incurring higher borrowing costs as a result of
increases in prime rate and LIBOR in 2000. At January 1, 2000 prime
rate was 8.50% and 90 day LIBOR was 6.00%. At July 30, 2000 these rates
increased to 9.50% and 6.72%, respectively. The Company estimates that
a .25% change in LIBOR or prime rate would impact annual interest cost
by $115,000 based on the amount of variable rate debt outstanding at
June 30, 2000, exclusive of the notional amount discussed in the
Quantitative and Qualitative Disclosure about Market Risk section
below.
The Company has an interest rate swap contract for a portion of its
bank debt. The notional amount under the contract declines from $23.9
million to $14.5 million at the maturity of the contract on June 30,
2003. The receive rate under the contract is 90 day LIBOR (6.78% for
the period July 1, 2000 to September 30, 2000) and the pay rate is
fixed at 7.16%. This transaction will have the impact of increasing the
Company's borrowing costs by $23 during the quarter ended September 30,
2000.
11
<PAGE> 13
GENESIS WORLDWIDE INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
TWO QUARTERS ENDED JUNE 30, 2000 AND 1999
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,
and governmental regulatory 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
GENESIS WORLDWIDE INC. AND SUBSIDIARIES
QUANTITATIVE AND QUALITATIVE
DISCLOSURE ABOUT MARKET RISK
TWO QUARTERS ENDED JUNE 30, 2000 AND 1999
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS
----------------------------------------------------------
Effective April 1, 2000, the Company entered into a three year interest rate
swap contract for a portion of its bank debt. The notional amount under the
contract declines from an initial amount of $24.5 million to $14.5 million at
the maturity of the contract on June 30, 2003. The interest rate swap hedges
against potential interest increases by having a fixed pay rate of 7.16% with a
variable receive rate of 90 day LIBOR (6.77% at June 30, 2000), which is fixed
two days before each quarter. In the second quarter of 2000, the Company's
interest rate on this portion of its debt was 6.28%. The effect of this swap was
to increase interest expense by $54 in the second quarter of 2000 as the 90 day
LIBOR rate was below the fixed pay rate. For the third quarter of 2000 this
transaction will have the impact of increasing interest cost by $23 under this
swap. At June 30, 2000, a payment of $62,000 would be required to terminate the
interest rate swap contract.
13
<PAGE> 15
PART II - OTHER INFORMATION
Items 1- 3 Inapplicable
Item 4 - Submission of Matters to a vote of Security Holders.
(a.) The Company's Annual Shareholders meeting was held on May 10, 2000.
(b.) The following Directors were elected to serve a three year term:
<TABLE>
<CAPTION>
Votes for Votes Against Abstain
--------- ------------- -------
<S> <C> <C> <C>
John A. Bertrand 3,601,363 34,401 0
Gerald L. Connelly 3,601,388 34,376 0
Joseph M. Rigot 3,602,088 33,676 0
</TABLE>
The following continued as Directors:
Richard E. Clemens
William R. Graber
J. William Uhrig
Augustine A. Fornataro
Waldemar M. Goulet
Item 5 - Inapplicable
Item 6 - Exhibits and Reports on Form 8-K
(a.) Exhibit 4 - Second Amendment and Waiver to the Credit Agreement
dated as of June 28, 2000 between Genesis Worldwide Inc. and
ING (U.S.) Capital LLC.
(b.) Exhibit 27 - Financial Data Schedule
(c.) On June 21, 2000 the Company filed an 8-K to disclose the
resignation of two of its Directors.
14
<PAGE> 16
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: August 14, 2000 By s/Karl A. Frydryk
------------------ -----------------
Karl A. Frydryk
Vice President & Chief Financial Officer
(principal financial officer)
15
