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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999 Commission File No. 1-1997
GENESIS WORLDWIDE INC.
Ohio 34-4307810
------------------------ ---------------------------------
(State of Incorporation) (IRS Employer Identification No.)
2600 Kettering Tower, Dayton, Ohio 45423
Telephone 937/910-9300
Security registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
------------------- ---------------------
Common shares, without par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
----------------------------------
Indicated by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 for 15(d) of the Securities Exchange Act of
1934 during the preceding twelve months, and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark id disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
The aggregate market value of the common shares held by nonaffiliates of the
registrant as the close of business on March 17, 2000 was $14,850,296.
The number of common shares outstanding as of March 17, 2000, was 4,282,996.
Documents Incorporated By Reference
-----------------------------------
Portions of the Registrant's Definitive Proxy Statement for its annual Meeting
of Shareholders to be held on May 10, 2000.
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PART I
ITEM 1 - BUSINESS
Genesis Worldwide Inc. and Subsidiaries, (the "Company"), formerly known as the
Monarch Machine Tool Company, was incorporated in 1909 and has its principal
executive office in Dayton, Ohio. The Company operates primarily through three
wholly owned subsidiaries; GenSystems Inc., located in Callery, Pennsylvania,
GenCoat Inc. (formerly GFG) located in Sussex, Wisconsin and GenInternational
Inc., located in Dayton, Ohio.
The Company engineers and manufactures high quality metal coil processing, roll
coating and electrostatic oiling equipment in the United States and the United
Kingdom. The Company also provides mill roll reconditioning, texturing and
grinding services in addition to its rebuild, repair and spare parts business.
RECENT DEVELOPMENTS
On December 31, 1998, the Company acquired GFG Corporation ("GFG"), which has
been renamed GenCoat. GenCoat designs and assembles roll coating and laminating,
electrostatic oil application and coil processing equipment used by the metal
coil processing industry.
On June 30, 1999, the Company acquired Precision Industrial Corporation and
Subsidiaries, including Herr-Voss Industries, Inc. ("Precision"). Precision
designs, manufactures, installs and services metal coil processing equipment and
also manufactures and services rolls for metal leveling. Precision was
subsequently renamed GenSystems and, as restructured, now includes the Company's
Stamco division as well as Herr-Voss.
In February 2000, the Company sold the assets of the machine tool division
located in Cortland, New York. This division, along with the Sidney, Ohio
division which was sold in 1997, comprised the Company's machine tool segment.
In December 1999, the Company adopted a plan to discontinue the Busch paper
coating and laminating segment of its business. The plan of disposal provides
for concluding operations by June 2000.
As a result of the Company's recent dispositions, it now operates in one
business segment.
BUSINESS AND PRODUCTS
GENSYSTEMS INC - GenSystems designs, manufactures, installs and services a broad
line of metal coil processing equipment under the names Herr-Voss and Stamco.
This equipment, generally sold as complete lines, is used by steel and aluminum
mills and mini-mills, ferrous and non-ferrous supply centers, and end users of
coiled material. Coil processing lines perform various operations, such as
slitting, tension leveling, shearing, cleaning, forming, coating, galvanizing,
annealing, and heat treating. Individual components are also manufactured for
the upgrading of existing lines.
GenSystems also manufactures rolls for metal leveling/flattening equipment and
also provides a broad variety of technical services for the metals forming,
producing and coil processing industries.
GENCOAT INC. - GenCoat has three product lines; 1) roll coaters and laminators,
2) electrostatic oilers and 3) coil processing equipment. GenCoat has
manufactured roll coaters and laminators since it began operations in 1969. Roll
coaters and laminators are used in continuous coil coating lines where coils of
steel and/or aluminum are uncoiled, cleaned, painted with prime coat, cured,
painted with a finish coat, laminated with film, cured and recoiled. The
finished coil is used primarily in the construction, container and automotive
markets.
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GenCoat purchased the Peabody electrostatic oiler product line in 1993.
Electrostatic oilers are used to apply oil or lubricants on steel and/or
aluminum strip in a continuous coil processing line. The purpose of the oil is
to protect the strip from rust prior to other processing of the strip or to
lubricate the strip prior to a stamping or forming operation.
In 1994, GenCoat expanded its product line to include coil processing equipment.
This includes all equipment necessary for a coil coating line, from uncoilers to
recoilers. GenCoat provides equipment for complete new coil coating lines, as
well as, equipment to upgrade existing lines.
GENINTERNATIONAL INC. - GenInternational provides similar products as provided
by GenSystems Inc. and GenCoat and markets its own products and those of
GenSystems outside of North America. It also provides marketing support and
technical assistance to GenCoat outside of the United States.
MARKETS AND DISTRIBUTION
The customers for the Company's products include major steel and aluminum
producers, processors, service centers, prime contractors and toll coaters and
processors in the United States and throughout the world. The Company is not
dependent on a single customer or a few customers and the loss of any individual
customer would not have a material adverse effect on the Company.
The Company has its own marketing staff for its domestic and international
markets and also uses a number of agents throughout the world.
COMPETITION
Genesis actively competes with other equipment manufacturers, both domestic and
foreign. The market for the Company's products is subject to normal price,
service, and quality competition. Domestically, the coil processing equipment
produced by GenSystems and GenCoat primarily competes with other domestic
producers and the Company believes it holds approximately 40% of the North
American market. Internationally, the Company competes with a number of other
major international companies some of which are larger and have more resources
than the Company. GenCoat believes it has over 50% of the market share, both
domestically and internationally, for its roll coating equipment and also holds
the largest market share, compared to its competitors, for its electrostatic oil
application equipment. Its major competitors include both domestic and
international companies.
BACKLOG
The Company's backlog for its coil processing equipment was $62.2 million and
$43.1 million at December 31, 1999 and 1998, respectively. The entire backlog
can reasonably be expected to be shipped within twelve months. Seasonal factors
are not significant to Genesis.
PURCHASES OF RAW MATERIALS AND SUPPLIES
In the Company's coil processing business the principal materials purchased are
obtained on a competitive basis from many different sources and are commercially
available. A portion of the Company's operations are involved in the design and
assembly of the final product and sub-contract for a majority of their equipment
from numerous suppliers at competitive prices. The Company does not believe that
the loss of any one supplier would have a material adverse affect on the ability
of these operations to continue. GenCoat has alliances with
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certain key suppliers of components used in its equipment. While the loss of one
of these suppliers could be disruptive in the short-term, alternative sources of
supply would be available.
ENGINEERING AND DEVELOPMENT
The Company's engineering departments are responsible for designing equipment to
customer order specifications, the improvement of existing product lines, and
the development of new products. Refer to the Notes to Consolidated Financial
Statements contained in Item 8 of this Form 10-K, for the amount of research and
development expense incurred by the Company.
EMPLOYEES
The Company had 801 employees at December 31, 1999.
WORKING CAPITAL
Because of the up to 12 month cycle time required to manufacture certain of its
products, Genesis may be required to finance a substantial volume of work in
process. However, to the extent possible, it obtains progress payments from
customers during the production cycle.
DOMESTIC AND FOREIGN OPERATIONS AND EXPORT SALES
Amounts of revenue, profitability, and identifiable assets attributable to
domestic and foreign operations are included in Notes to Consolidated Financial
Statements contained in Item 8 of this Form 10-K.
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ITEM 2 - PROPERTIES
DOMESTIC
The following is a listing of the Company's various offices and manufacturing
facilities.
GENESIS WORLDWIDE INC., DAYTON, OH GENCOAT INC., SUSSEX, WI
- ---------------------------------- ------------------------
Executive Offices Administrative Offices
Headquarters for GenInternational Engineering and Manufacturing
11,357 Sq. Ft. Office 22,000 Sq. Ft. Office
Facility - Leased 60,000 Sq. Ft. Manufacturing
Facility - Leased
GENSYSTEMS INC.
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HERR-VOSS DIVISION, CALLERY, PA STAMCO DIVISION, NEW BREMEN, OH
- ------------------------------- -------------------------------
Administrative Offices Engineering and Manufacturing
Engineering and Manufacturing 20,900 Sq. Ft. Office
33,300 Sq. Ft. Office 138,600 Sq. Ft. Manufacturing
89,300 Sq. Ft. Manufacturing Facility - Owned
Facility - Owned
VALLEY ROLLS, MARS, PA CONWAY, PA
- ---------------------- ----------
Leveler Rolls and Back-Up Bearings Mill Rolls Manufacturing
Manufacturing and Services Facility Services Facility
900 Sq. Ft. Office 800 Sq. Ft. Office
13,200 Sq. Ft. Manufacturing 31,000 Sq. Ft. Manufacturing
Facility - Owned Facility - Owned
H-V MILL ROLL SERVICES, AMBRIDGE, PA H-V RCI, GARY, IN
- ------------------------------------ -----------------
Mill Roll Service Facility Mill Rolls Service Facility
2,500 Sq. Ft. Office 32,000 Sq. Ft. Office/Manufacturing
23,500 Sq. Ft. Manufacturing Facility - Leased
Facility - Owned
CHICAGO ROLLS, ELK GROVE, IL
- ----------------------------
Leveler Rolls and Back-Up Bearings
Service Facility
9,400 Sq. Ft. Office/Manufacturing
Facility - Leased
In April 2000 the Chicago Rolls operation will be combined with the HV RCI
operation in a new plant now being constructed. The new location will be leased
and provides a 50,000 sq. ft. office and manufacturing facility.
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FOREIGN
GenSystems Ltd., a subsidiary of GenInternational, leases office facilities near
Birmingham, England where it designs, purchases components and sells metal coil
processing equipment, and also has a sales office located in Walsall, West
Midland.
GFG Peabody Ltd. leases a sales and service office in Surrey, England.
During 1997, the Company decided to close or sell the operations of Stamco
Depiereux GmbH, Monarch Werkzeugmaschinen GmbH and Monarch Busch GmbH, all
located in Germany. Each of the companies are in liquidation, in accordance with
the regulations for liquidation required in Germany.
All of the Company's facilities are in good condition.
ITEM 3 - LEGAL PROCEEDINGS
The Company is a defendant in various legal actions, arising in the ordinary
course of business, including product liability claims. The Company is
responsible for legal and settlement costs up to $100,000 associated with
product liability claims and has insurance coverage for costs which exceed that
amount, subject to specific and aggregate loss limitations. For the product
liability claims against Herr-Voss for occurrences prior to 1998, the Company is
responsible for legal and settlement costs up to $350,000. The Company believes
that the ultimate liability, if any, resulting from these matters will not have
a material effect on the Company's consolidated financial position or results of
operations.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the fourth
quarter of 1999.
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PART II
ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDERS
MATTERS
The following table sets forth, for 1999 and 1998, the high and low price of the
Company's Common Stock on the New York Stock Exchange-Composite Tape and the
dividend per share paid on the Common Stock (ticker symbol GWO beginning
September 1, 1999 and MMO prior to that date):
<TABLE>
<CAPTION>
1999 1998
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DIVIDEND DIVIDEND
QUARTER ENDED HIGH LOW PAID HIGH LOW PAID
-------------------------------------------------------------- ----------------------------------
<S> <C> <C> <C> <C> <C> <C>
March 31 $ 7 1/2 $ 6 3/8 $ .05 $ 8-1/2 $ 7-1/2 $ .05
June 30 $ 9 $ 6 3/4 $ .05 $ 8-15/16 $ 7-13/16 $ .05
September 30 $ 9 1/8 $ 4 None $ 8-11/16 $ 7 $ .05
December 31 $ 6 1/8 $ 3 1/8 None $ 7-1/8 $ 6-1/4 $ .05
</TABLE>
At December 31, 1999, the number of holders of record for the Company's Common
Stock was 737. Under its revolving credit facility the Company is restricted as
to the amount of dividends it may pay in any year, as described in the Notes to
the Consolidated Financial Statements contained in Item 8 of this Form 10-K.
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ITEM 6 - SELECTED FINANCIAL DATA
The selected financial data set forth below for the five years ended December
31, 1999 has been derived from the audited financial statements of the Company
and its consolidated subsidiaries. Such information should be read in
conjunction with the financial statements. The operating data below excludes
amounts from the machine tool and paper coating and laminating businesses which
are classified as discontinued operations. Results from GenCoat (formerly GFG),
beginning January 1, 1999 and Precision (including Herr-Voss), beginning July 1,
1999, are included in the data below. (Dollars in thousands, except per share
amounts).
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
SUMMARY OF OPERATIONS:
<S> <C> <C> <C> <C> <C>
Net Sales $ 111,394 $ 46,038 $ 61,937 $ 56,577 $ 57,145
Operating Income (Loss)
from Continuing Operations $ 5,243 $ 3,639 $ (1,846) $ (1,104) $ 667
Net Income (Loss) from Continuing
Operations $ (428) $ 2,280 $ (2,672) $ 2,895 $ (191)
Earnings (Loss) per Common
Share from Continuing
Operations $ (.11) $ .60 $ (.71) $ .77 $ (.05)
BALANCE SHEET DATA:
Working Capital $ 13,875 $ 14,828 $ 15,308 $ 36,368 $ 38,942
Total Assets $ 185,467 $ 82,750 $ 66,100 $ 94,351 $ 86,757
Debt $ 99,574 $ 16,997 $ 2,062 $ 18,175 $ 16,647
Shareholders' Equity $ 39,072 $ 42,654 $ 41,269 $ 46,579 $ 52,650
OTHER DATA:
Cash Provided by (Used in)
Operating Activities $ (1,276) $ (4,102) $ (1,304) $ (3,201) $ (4,312)
Payments of Indebtedness $ 36,497 $ 20,464 $ 120
Additional Indebtedness $ 118,234 $ 14,786 $ 4,129 $ 11,764
Ending Backlog $ 62,245 $ 43,112 $ 28,826 $ 40,070 $ 45,861
Cash Dividend per
Common Share $ .10 $ .20 $ .20 $ .20 $ .20
</TABLE>
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ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
GENERAL
During the three years ended December 31, 1999, the business of the Company has
changed due to two acquisitions and the disposal of two previously identified
segments. The data presented below includes results of operations from GenCoat
(formerly GFG) for 1999 and from Precision (including Herr-Voss) beginning July
1, 1999. These entities, along with the Stamco operation, comprise the Company's
sole operating segment, manufacturing and servicing equipment used in the
processing of metal coils. Results from the Company's former machine tool and
paper coating and laminating segments are included in discontinued operations.
Accordingly, the assets and liabilities of these segments have been segregated
on the consolidated balance sheets and the revenues and expenses have been
reported as discontinued operations on the consolidated statements of
operations.
The acquisition of Precision in 1999 provided the Company with additional
revenue sources from services and aftermarket sales, which had not been a
significant part of its previous coil processing equipment business. During the
second half of 1999, revenues from services and aftermarket sales comprised over
25% of the Company's net sales, while the percentage prior to the acquisition
had recently averaged about 7%. The Company intends to focus on continued growth
in this sector of its business.
The Company's efforts in addressing Year 2000 issues relative to its computer
systems and software were successful in eliminating any conditions which would
negatively impact its ability to continue normal operations in 2000. In
addition, it has not experienced any disruption from its key vendors and
consultants due to problems occurring because of Year 2000 issues.
1999 COMPARED TO 1998
The Company reported a loss from continuing operations of $428 thousand in 1999
compared to income from continuing operations of $2.3 million in 1998. Included
in 1999 results is a charge to operations of $600 thousand impairment of assets
and $1.9 million for amortization of intangibles.
Net sales were $111 million in 1999 compared to $46 million in 1998. Sales of
$42 million from Precision, which was acquired on June 30, 1999, and $23 million
from GFG, which was acquired on December 31, 1998 comprised the increase.
Cost of sales as a percentage of sales was 77.8% in 1999 compared to 76.3% in
1998. Although the businesses acquired since 1998 have historically experienced
higher margins than were experienced in 1999, low order volume, particularly in
the third quarter of 1999, affected the sales volume and related gross margins.
Selling, general and administrative expense increased to $17.1 million in 1999
of which $8.1 million was the result of acquired businesses compared to $7.3
million in 1998. In 1999, additional depreciation of $700 thousand, a large
portion of which related to the Company's new management information system and
$600 thousand of legal and other costs for settlement of litigation related to
contract performance comprised a large portion of the difference. An increase in
interest expense of $5.1 million in 1999 compared to 1998 was the result of a
higher level of borrowing which was used to finance the Company's acquisitions.
The income tax
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provision in 1999 was disproportionate to pre-tax earnings as a result of the
nondeductibility of amortization of intangibles for tax purposes.
1998 COMPARED TO 1997
The Company reported income from continuing operations of $2.3 million in 1998
compared to a loss from continuing operations of $2.7 million in 1997. Included
in 1998 results is a $250 thousand reserve for costs to close the Company's coil
processing operations in Germany. During 1997, the Company recorded a charge for
asset impairment of $2.4 million of which $1.5 million related to assets held
for sale, while the remaining $894 thousand related to the Company's decision to
close the German coil processing operation.
Net sales from continuing operations were $46 million in 1998 compared to $62
million from continuing operations in 1997. The lower sales in 1998 were the
result of the sale and closure of a German subsidiary and lower overall sales
volume, which resulted from a low order backlog entering 1998.
Cost of sales as a percentage of sales was 76.3% in 1998 compared to 85.0% in
1997. The improvement in gross margin percentage resulted from the sale and
closure of a German subsidiary, which generated poor gross margin, and an
improvement in gross margin at the Company's domestic operations. The
improvement in margin resulted primarily from lower raw materials costs.
Selling, general and administrative expense decreased to $7.3 million in 1998
from $8.7 million in 1997. Closure of the German operations along with the
Company's efforts to streamline the administration of the ongoing businesses
resulted in this decrease in administrative expense. Interest expense declined
in 1998 due primarily to using proceeds from the sale of businesses to repay
indebtedness. The Company's income tax provision (benefit) generally reflects
the statutory rates in the jurisdiction in which the Company operated in 1998.
LIQUIDITY AND CAPITAL RESOURCES
During 1999, 1998 and 1997 the Company's continuing operating activities used
$1.3 million, $4.1 million and $1.3 million of cash, respectively. A major
component of operating cash activity each year is changes in the Company's
working capital, which required $3.9 million in 1999, $6.1 million in 1998.
There was no net change in working capital in 1997. These working capital
changes relate primarily to changes in inventory balances and the timing of
collection of accounts receivable and payment of accounts payable and accrued
expenses. The Company also paid $2.6 million in debt acquisition costs in 1999
related to the credit facility as described below. Included in 1999 operating
results is $1.7 million of income earned on investments carried in the Company's
overfunded pension plans, while $3.2 and $2 million of income was recognized in
1998 and 1997, respectively. This income does not generate operating cash to the
Company, as the Company's pension assets are held in a trust to fund the
Company's obligations under its pension plans. Because of its net operating loss
position for Federal income tax purposes, the Company was not required to pay
Federal income taxes on its aggregate 1998 earnings from continuing and
discontinued operations nor did it receive a cash refund for the income tax
benefit it recorded in 1999 and 1997. Other non-cash charges in 1999 included
$777 thousand related to a provision for asset impairment and a write down of
inventory. In 1997, a reserve of $2.7 million was recorded for asset impairment
and for closure of certain of the Company's operations.
The Company's capital expenditures in 1999 totaled $2.8 million primarily for
machinery and equipment for the Company's new roll center refurbishing facility
in Indiana and costs relating to the Company's new management information
system. The Company's capital expenditures in 1998 totaled $2.4 million,
primarily related to implementation of the management information system,
including the purchase of new computer hardware. During 1997, the sale of Sidney
division assets generated $7.2 million. The Company used proceeds
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from this sale and collection of accounts receivable to repay $20.6 million of
its bank debt. In December 1998, the Company borrowed $13.5 million under its
line of credit to acquire GFG Corporation.
The Company significantly increased its debt financing as a result of the
Precision acquisition in June 1999. The Company's capitalization (indebtedness
plus shareholders' equity) increased from $60 million at December 31, 1998 to
$139 million at December 31, 1999 and the ratio of the indebtedness to
capitalization increased from 28% at December 31, 1998 to 72% at December 31,
1999. The Company's credit facilities consist of two term loans and a revolving
credit line, provided under one credit agreement. The revolving credit line,
available through June 30, 2006, provides for loans and letters of credit of up
to $30 million. At December 31, 1999, the Company had borrowed $16.1 million and
had issued $4.3 million of letters of credit under this facility. The credit
agreement restricts the Company from incurring additional indebtedness, as
defined in the agreement. In addition, the Company is required to use proceeds
from the termination of any pension plans, the issuance of any debt or equity
securities and the sale of any assets not in the ordinary course of business to
repay the amount outstanding under the term loans. In February 2000, the Company
received $7.74 million from the sale of its machine tool division and used $7.55
million of that amount to repay the term loans. Also in February 2000, the
Company received $14.1 million from the final asset distributions of its
terminated pension plans and used $10.4 million of proceeds to further reduce
the amount outstanding under the term loans. The Company also incurred a
liability for excise taxes of $2.8 million relating to the terminated plans.
The Company's manufacturing cycle from receipt of an order to shipment of
equipment can extend to a year or longer. To the extent possible during the
negotiation of contracts, the Company attempts to receive cash payments from its
customers equal to or in excess of the amount of cash expenditures required
during the manufacturing process. However, these types of cash payment terms are
not always attainable. In addition, equipment manufactured by the Company may be
required to achieve certain performance tests before the customer is required to
make the final contractual payment, which can be 10% or more of the contract
value. The Company is presently proposing on contracts with values significantly
larger than the contracts historically obtained by the Company. The manufacture
of the equipment under these contracts could require significant working capital
depending on the cash payment terms contained in the contract. To the extent
that the Company is not able to continue to obtain orders in sufficient amounts
and with favorable cash payment terms, the Company will be required to use its
revolving credit facility to provide working capital. If the amount of funds
available to the Company under its present credit facility is not adequate to
provide for its working capital needs, the Company would likely request
additional funding from its present lender or pursue other financing sources.
The Company's sales contracts may require letters of credit to secure advance
payments received during the manufacturing cycle or during the warranty period
for the equipment. The issuance of the letters of credit in these situations
would reduce the borrowing capacity of the Company under its revolving credit
facility.
The Company has two properties for sale which are not used in its operations.
The estimate of the value of these properties is between $3 and $4.5 million,
although the timing of the sale and the ultimate sale prices are not known.
During February 2000, $4.7 million was provided from the termination of two
pension plans to fund future retirement plan obligations. In addition, certain
retirement plans hold assets substantially in excess of plan liabilities. Based
on the amount presently available in its pension trusts, the Company anticipates
that no operating funds will be required to fund the $1.3 million annual cost of
its retirement plans for the next four to five years.
The Company estimates a normal annual level of capital expenditures to be in the
range of $3 to $5 million, and anticipates an amount in that range will be
expended during 2000. In addition, the company plans to expand the
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roll refurbishment sector of its business, as part of its long-range growth plan
and is considering opening such a business in 2000, at an investment of
approximately $4 million.
During 1999, the Company suspended paying a dividend on its common shares.
BACKLOG
The Company's backlog at December 31, 1999 was $62.2 million compared to a
beginning of year backlog of $43.0 million for its ongoing businesses. The
Company recorded $98.9 million of orders during 1999.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
INTEREST RATE RISK
At December 31, 1999 the Company was paying a variable rate of interest on $84
million of its bank debt and a 12% fixed rate of interest on its $15 million
subordinated debt. The Company has the option of paying interest on the bank
debt at either LIBOR or prime rate, plus a lending margin. At December 31, 1999,
$81.9 million of the bank debt was borrowed under the LIBOR interest rate
option, with the remaining $2.1 million borrowed under prime rate. The average
interest rate on the amount borrowed at December 31, 1999, including the base
rate of interest plus lending margin spread, was 8.94%. A .25% change in LIBOR
or prime rate would impact the annual interest cost by $210 thousand, based on
the amount of debt outstanding at December 31, 1999. Under its credit agreement,
the Company is required to establish an interest rate protection program which
is satisfactory to its lender. Subsequent to year-end, the Company entered into
an interest rate swap contract for a portion of its variable rate 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
receive rate under the contract is 90 day LIBOR (presently 6.13%) and the pay
rate is 7.16%. This transaction will have the near term impact of increasing the
Company's borrowing costs based on the present 90 day LIBOR rate.
FOREIGN CURRENCY RISK
The Company has limited market risk exposure to changes in foreign exchange
rates, as it does not have a substantial portion of its operating assets,
liabilities and cash flows in currencies other than the U.S. dollar. Its foreign
operation, which provides less than 10% of sales, total assets and total
liabilities, is located in the United Kingdom. This operation uses its local
currency as its functional currency and primarily buys and sells using that same
currency.
The Company intends to minimize its exposure to foreign currency risks by
negotiating its contracts in U.S. dollars or in British pounds for contracts
involving its United Kingdom operation. Currently it does not conduct a
significant portion of its business in foreign currencies. Based upon the
Company's overall foreign currency exchange rate exposure at December 31, 1999,
a 10% adverse change in currency rates would not materially affect the Company's
financial position, results of operations or cash flows. In situations where the
Company projects to be long or short for a material amount of non U.S. or
British currencies for an extended period of time, it evaluates the advantage of
hedging some or a portion of its exposure. The Company did not have any foreign
currency hedge contracts outstanding at December 31, 1999.
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NEW ACCOUNTING STANDARDS
All issued accounting standards presently applicable to the Company have been
adopted by the Company.
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standard ("SFAS") No. 133 "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including forward foreign
exchange contracts, and for hedging activities. It will require entities to
recognize all derivatives as either assets or liabilities in the statement of
financial position and measure those instruments at fair value. The accounting
for gains and losses from changes in the fair value of a particular derivative
will depend on the intended use of the derivative. In June 1999, FASB issues
SFAS No. 137 "Accounting for Derivative Instruments and Hedging
Activities-Deferral of the Effective Date of FASB Statement No. 133" which
postponed the Company's required adoption of SFAS No. 133 until 2001. The
Company does not expect the eventual adoption of SFAS No. 133 to have a material
impact on the results of its operations or financial position.
FORWARD-LOOKING STATEMENTS
In addition to historical information, this Annual Report 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
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION> INDEX TO FINANCIAL STATEMENTS PAGE
<S> <C>
Report of Independent Accountants 14
Consolidated Balance Sheets - December 31, 1999 and 1998 15-16
Consolidated Statements of Results of Operations and
Comprehensive Income (Loss) - for the years ended
December 31, 1999, 1998 and 1997 17
Consolidated Statements of Shareholders' Equity -
for the years ended December 31, 1999, 1998 and 1997 18
Consolidated Statements of Cash Flows - for the years ended
December 31, 1999, 1998 and 1997 19-20
Notes to Consolidated Financial Statements 21-45
</TABLE>
13
<PAGE> 15
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Genesis Worldwide Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations and comprehensive income (loss), of
shareholders' equity and of cash flows present fairly, in all material respects,
the financial position of Genesis Worldwide Inc. and its subsidiaries at
December 31, 1999 and 1998, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1999, in
conformity with accounting principles generally accepted in the United States.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
PricewaterhouseCoopers LLP
Dayton, Ohio
March 9, 2000
14
<PAGE> 16
GENESIS WORLDWIDE INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
as of December 31, 1999 and 1998
(Dollars in thousands)
<TABLE>
<CAPTION>
ASSETS 1999 1998
---- ----
<S> <C> <C>
Cash and cash equivalents $ 559 $ 1,708
Accounts receivable, net of allowance for doubtful
accounts of $930 and $1,123 in 1999 and 1998,
respectively 22,107 12,932
Inventories 10,016 3,546
Cost and estimated earnings in excess of billings on
uncompleted contracts 12,702 8,557
Prepaid expenses 1,783 646
Deferred income taxes 6,816 1,874
Net current assets from discontinued operations 8,077 7,533
-------- -------
Current assets 62,060 36,796
Property, plant and equipment, net 27,770 6,657
Prepaid pension cost 19,849 19,051
Deferred income taxes 2,297 1,631
Intangible assets 68,473 10,099
Other assets 5,018 3,113
Net long-term assets from discontinued operations 5,403
-------- -------
Total assets $185,467 $82,750
======== =======
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART
OF THE CONSOLIDATED FINANCIAL STATEMENTS
15
<PAGE> 17
GENESIS WORLDWIDE INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
as of December 31, 1999 and 1998
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
LIABILITIES 1999 1998
---- ----
<S> <C> <C>
Short-term borrowings $ $ 500
Accounts payable 20,557 7,109
Accrued liabilities 15,126 8,842
Billings in excess of costs and estimated earnings
on uncompleted contracts 6,962 5,517
Current portion of long-term debt 5,540
--------- --------
Current liabilities 48,185 21,968
Postretirement benefits 3,054 1,450
Other liabilities 1,122 181
Long-term debt, less current portion 94,034 16,497
--------- --------
Total liabilities 146,395 40,096
Commitments and contingencies
SHAREHOLDERS' EQUITY
Preferred stock, no par value, $1.80 cumulative convertible, $1 stated
value; 500,000 shares authorized;
14,642 shares issued and outstanding in 1999 and 1998
(liquidation preference of $586) 14 14
Common stock, no par value, 12,000,000 shares authorized;
4,283,927 and 3,769,427 shares issued and outstanding
in 1999 and 1998, respectively 9,500 5,815
Unearned compensation, restricted stock (22) (35)
Retained earnings 29,685 37,040
Accumulated other comprehensive income (loss) (105) (180)
--------- --------
Total shareholders' equity 39,072 42,654
--------- --------
Total liabilities and shareholders' equity $ 185,467 $ 82,750
========= ========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART
OF THE CONSOLIDATED FINANCIAL STATEMENTS
16
<PAGE> 18
GENESIS WORLDWIDE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
for the years ended December 31, 1999, 1998 and 1997
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net sales $111,394 $ 46,038 $ 61,937
Cost of sales 86,610 35,128 52,650
Selling, general and administrative expenses 17,083 7,271 8,739
Amortization of intangibles 1,858
Impairment and other disposal costs 600 2,394
-------- -------- ---------
Total costs and operating expenses 106,151 42,399 63,783
-------- -------- ---------
Operating income (loss) 5,243 3,639 (1,846)
Other income (expense):
Interest expense (5,450) (368) (960)
Interest income 281 161 510
Other income (expense), net 301 54 (841)
-------- -------- ---------
Income (loss) before income taxes 375 3,486 (3,137)
Income tax (provision) benefit (803) (1,206) 465
-------- -------- ---------
Income (loss) from continuing operations (428) 2,280 (2,672)
Discontinued operations:
Loss from operations of discontinued segments,
net of income tax benefit of $1,203, $106
and $638 in 1999, 1998 and 1997, respectively ( 2,139) (197) (1,530)
Loss on disposal of discontinued segments,
net of income tax benefit of $2,465 (4,383)
-------- -------- ---------
Net income (loss) (6,950) 2,083 (4,202)
Other comprehensive income (loss) -
foreign currency translation adjustments 75 (32) (375)
-------- -------- ---------
Comprehensive income (loss) $ (6,875) $ 2,051 $ (4,577)
======== ======== =========
Earnings (loss) per common share, basic and diluted:
From continuing operations $ (.11) $ .60 $ (.71)
Discontinued operations
Loss from operations (.53) (.05) (.41)
Loss on disposal (1.09)
-------- -------- ---------
Net earnings (loss) $ (1.73) $ .55 $ (1.12)
======== ======== =========
Average shares outstanding:
Basic 4,032,197 3,768,480 3,757,717
Diluted 4,032,197 3,768,480 3,757,717
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART
OF THE CONSOLIDATED FINANCIAL STATEMENTS
17
<PAGE> 19
GENESIS WORLDWIDE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
for the years ended December 31, 1999, 1998 and 1997
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Accumulated
Other
Preferred Common Unearned Retained Comprehensive
Stock Stock Compensation Earnings Income/Loss Total
----- ----- ------------ -------- ----------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance , December 31, 1996 $ 14 $5,618 $40,720 $ 227 $46,579
Net loss (4,202) (4,202)
Cash dividends:
$ .20 per share - Common (754) (754)
$1.80 per share - Preferred (27) (27)
Restricted stock awards:
Shares granted 123 $ (123)
Amortization 48 48
Other comprehensive income (loss) (375) (375)
------ ------ ------ ------- -------- -------
Balance, December 31, 1997 14 5,741 (75) 35,737 (148) 41,269
Net income 2,083 2,083
Cash dividends:
$ .20 per share - Common (754) (754)
$1.80 per share - Preferred (26) (26)
Restricted stock awards:
Shares granted 74 (74)
Amortization 114 114
Other comprehensive income (loss) (32) (32)
------ ------ ------ ------- -------- -------
Balance, December 31, 1998 14 5,815 (35) 37,040 (180) 42,654
Net loss (6,950) (6,950)
Cash dividends:
$ .10 per share - Common (378) (378)
$1.80 per share - Preferred (27) (27)
Issuance of common stock 3,294 3,294
Issuance of warrants 291 291
Restricted stock awards
Shares granted 100 (42) 58
Amortization 55 55
Other comprehensive income (loss) 75 75
------ ------ ------ ------- -------- -------
Balance, December 31, 1999 $ 14 $9,500 $ (22) $29,685 $ (105) $39,072
====== ====== ====== ======= ======== =======
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART
OF THE CONSOLIDATED FINANCIAL STATEMENTS
18
<PAGE> 20
GENESIS WORLDWIDE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
for the years ended December 31, 1999, 1998 and 1997
(Dollars in thousands)
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (6,950) $ 2,083 $(4,202)
Adjustments to reconcile net income (loss) to
net cash used in operating activities:
Loss from discontinued operations 10,190 303 2,168
Depreciation and amortization 4,319 731 802
Equity in earnings of affiliates 115
Prepaid pension cost (1,739) (3,289) (2,014)
Deferred tax provision (benefit) (2,865) 1,100 (719)
Gain on sale of fixed assets (14) (10) (79)
Provision for inventory write-down 177 35 751
Impairment of assets 600 1,914
Changes in operating assets and liabilities excluding
discontinued operations and effect of acquisitions
in 1999 and 1998
Accounts receivable (1,652) 10,130 190
Inventories 1,782 (354) (7,141)
Costs and estimated earnings in excess of
billings on uncompleted contracts (2,133) (7,796) 7,180
Billings in excess of costs and estimated
earnings on uncompleted contracts (6,408) 484 427
Other assets (1,209) 1,051 96
Accounts payable 4,467 (2,463) 201
Accrued liabilities 44 (6,107) (878)
-------- -------- -------
Net cash used in operating activities (1,276) (4,102) (1,304)
Cash flows from investing activities:
Capital expenditures (2,843) (2,430) (479)
Acquisition of businesses, net of cash acquired (71,002) (13,181)
Purchase of other assets 546
Proceeds from sales of fixed assets 244 10 416
Proceeds from sale of Sidney division assets 7,167
-------- -------- -------
Net cash provided by (used in) investing activities (73,055) (15,601) 7,104
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART
OF THE CONSOLIDATED FINANCIAL STATEMENT
19
<PAGE> 21
GENESIS WORLDWIDE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW (CONTINUED)
for the years ended December 31, 1999, 1998 and 1997
(Dollars in thousands)
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Cash flows from financing activities:
Dividends paid (405) (780) (779)
Issuance of stock 84
Debt acquisition costs (2,562)
Proceeds from (repayment of) short-term borrowings (500) 500 (4,351)
Proceeds from long-term borrowings 118,234 14,286
Repayment of long-term borrowings (35,997) (16,113)
--------- -------- --------
Net cash provided by (used in) financing activities 78,854 14,006 (21,243)
Effect of exchange rates on cash (120) (86) (176)
--------- -------- --------
Net cash provided by (used in) continuing operations 4,403 (5,783) (15,619)
Net cash provided by (used in) discontinued operations (5,552) 3,356 16,938
Cash, beginning of year 1,708 4,135 2,816
--------- -------- --------
Cash, end of year $ 559 $ 1,708 $ 4,135
========= ======== ========
Supplemental cash flow information:
Cash paid (received) during the year for:
Interest $ 5,534 $ 362 $ 1,102
Income taxes $ (161)
Non Cash transactions:
Common shares issued in acquisition $ 3,294
Warrants issued in acquisition $ 291
Note receivable on sale of property $ 348
Acquisition of businesses:
Fair value of assets acquired $ 105,756 $ 17,128
Cash paid $ 78,075 $ 13,497
Issuance of common stock $ 3,295
Liabilities assumed $ 24,386 $ 3,631
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART
OF THE CONSOLIDATED FINANCIAL STATEMENTS
20
<PAGE> 22
GENESIS WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS - Genesis Worldwide Inc. and Subsidiaries (the
"Company"), formerly known as The Monarch Machine Tool Company,
engineers and manufactures high quality metal coil processing, roll
coating and electrostatic oiling equipment in the United States and the
United Kingdom. The Company also provides mill roll reconditioning,
texturing and grinding services in addition to its rebuild, repair and
spare parts business. The Company has operating locations in the United
States and the United Kingdom and provides equipment and services to
customers both in the United States and internationally. The
consolidated financial statements include the accounts of the Company
and its joint ventures, which are accounted for under the equity method
of accounting. All intercompany accounts and transactions have been
eliminated.
The following is a summary of the significant accounting policies:
USE OF ESTIMATES - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the dates of the financial statements and the
reported amounts of revenues and expenses during the reporting periods.
Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS - Cash equivalents include those obligations
which are readily convertible to cash and have a stated maturity of
three months or less when purchased.
INVENTORIES - Inventories are stated at the lower of cost or market,
with cost being determined on a first-in, first-out basis.
PROPERTY, PLANT AND EQUIPMENT - Property, plant and equipment are
recorded at cost and depreciated principally under the straight-line
method, over their estimated useful lives. Repairs which do not extend
the useful life of the asset are expensed as incurred. Major renewals
or renovations are capitalized. When assets are retired or otherwise
disposed of, the cost of the asset and the related accumulated
depreciation are removed from the respective accounts and any resulting
gain or loss is recognized.
The Company recognizes depreciation using the following
depreciable lives:
Buildings 20-35 years
Machinery and equipment 10
Furniture and fixtures 5-10
Automobiles 3-5
Computer equipment 3-5
Computer software 5
LONG-LIVED ASSETS - The Company performs reviews for the impairment of
long-lived assets whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable.
21
<PAGE> 23
GENESIS WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
An impairment loss would be recognized when estimated future cash flows
expected to result from the use of the asset and its eventual
disposition are less than its carrying amount.
INTANGIBLE ASSETS - Intangible assets consist of goodwill and other
intangibles. Goodwill represents the excess of purchase price over the
fair value of net assets acquired and is being amortized on a
straight-line basis over twenty-five years. Goodwill relates to the
Company's purchase of Precision Industrial Corporation on June 30, 1999
and the purchase of GFG Corporation on December 31, 1998 (see note 2).
Other intangibles, predominantly unpatented technology and service
agreements, are stated at appraised fair market value and amortized on
a straight line basis over periods of 8-20 years. The carrying value of
goodwill and intangibles will be reviewed periodically if the facts and
circumstances suggest that it may be impaired. If the review indicates
that goodwill and other intangibles will not be recoverable, as
determined by the undiscounted cash flow method, the assets will be
reduced to their estimated recoverable value.
REVENUE RECOGNITION - Revenues are recorded at the time products are
shipped, except for significant long-term contracts which are recorded
on the percentage-of-completion method. Revenue and gross profit are
recognized as work is performed based on the relationship between
actual manufacturing, engineering and assembly hours incurred and total
estimated manufacturing, engineering and assembly hours at completion.
In addition, revenue and gross profit for major subcontract work is
recognized on a straight-line basis over the period of the contract.
Revenue and gross profit are adjusted prospectively for revisions in
estimated total contract costs. Estimated losses on contracts are
recorded when identified.
RESEARCH AND DEVELOPMENT COSTS - Research and development costs, which
are expensed as incurred, were approximately $265, $1,265, and $1,474,
in 1999, 1998 and 1997, respectively.
FOREIGN CURRENCY - The Company's foreign subsidiaries use the local
currency as their functional currency. Accordingly, assets and
liabilities are translated into U.S. dollars at year-end exchange
rates, and revenues and expenses are translated at average exchange
rates prevailing during the year. Currency translation adjustments
resulting from fluctuations in exchange rates are recorded in other
comprehensive income.
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.
ENVIRONMENTAL REMEDIATION COSTS - Costs incurred to investigate and
remediate contaminated sites are expensed. Liabilities for these
expenditures are recorded, on an undiscounted basis, when it is
probable that obligations have been incurred and the amounts can be
reasonably estimated.
STOCK BASED COMPENSATION - The Company measures compensation cost for
its stock option plans using the intrinsic value method.
22
<PAGE> 24
GENESIS WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except per share data)
POSTRETIREMENT BENEFITS - The Company accrues the cost of providing
postretirement benefits for medical and life insurance coverage over
the active service period of the employee. These benefits are funded by
the Company when paid.
FAIR VALUE OF FINANCIAL INSTRUMENTS - The financial instruments of the
Company consist mainly of cash, long-term investments, current and
non-current accounts receivables, short-term and long-term debt,
accounts payable, accrued liabilities and long-term liabilities. In
view of their nature, the fair value of the financial instruments
included in working capital of the Company is usually identical or
close to their carrying amount. The fair value of non-current
receivables and long-term liabilities also approximates their carrying
value, because they bear interest at rates close to the prevailing
market rates.
INCOME TAXES - The provision for income taxes is computed based on the
pre-tax income (loss) included in the Consolidated Statement of
Operations. The asset and liability approach is used to recognize
deferred tax assets and liabilities for the expected future tax
consequences of temporary differences between the carrying amounts and
the tax basis of assets and liabilities.
SEGMENT DATA - The Company operates in one industry segment which
includes the design and manufacture of equipment used in the coil
processing industry in the United States and Europe.
RECENT PRONOUNCEMENTS - In June 1998, the Financial Accounting
Standards Board ("FASB") issued Statement of Financial Accounting
Standard ("SFAS") No. 133 "Accounting for Derivative Instruments and
Hedging Activities." SFAS No. 133 establishes accounting and reporting
standards for derivative instruments, including forward foreign
exchange contracts, and for hedging activities. It will require
entities to recognize all derivatives as either assets or liabilites in
the statement of financial position and measure those instruments at
fair value. The accounting for gains and losses from changes in the
fair value of a particular derivative will depend on the intended use
of the derivative. In June 1999, FASB issued SFAS No. 137 "Accounting
for Derivative Instruments and Hedging Activities-Deferral of the
Effective date of FASB Statement No. 133" which postponed the Company's
required adoption of SFAS No. 133 until 2001. The Company does not
expect the eventual adoption of SFAS No. 133 to have a material impact
on the results of its operations or financial position.
During December 1999, the Securities and Exchange Commission issued
Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial
Statements" ("SAB 101"). SAB 101 provides interpretive guidance on
applying generally accepted accounting principles to revenue
recognition issues in financial statements. SAB 101 is effective for
fiscal years beginning after December 15, 1999. The Company will adopt
SAB 101 in the first quarter of 2000 and believes that such adoption
will not have a material adverse effect on its consolidated results of
operations or financial position.
RECLASSIFICATIONS - Certain prior year amounts have been reclassified
to conform to the 1999 presentation.
23
<PAGE> 25
GENESIS WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
2. ACQUISITION OF BUSINESSES
On June 30, 1999, the Company acquired Precision Industrial Corporation
and Subsidiaries, including Herr-Voss Industries, Inc. ("Precision").
Precision designs, manufactures, installs and services metal coil
processing equipment and also manufactures and services rolls for metal
leveling. The acquisition has been accounted for under the purchase
method of accounting and, accordingly, the results of operations 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
$36,895 cash paid to seller, $25,340 of cash used to pay seller bank
debt and accrued interest, a $15,000 seller subordinated note, a $840
junior subordinated note and 500,000 shares of the Company's Common
Stock (valued at $6.59 a share). The adjusted purchase price was
$81,370, plus fees and expenses paid in connection with the purchase of
approximately $1,010.
Goodwill of $38,477 was recorded as part of this transaction and is
being amortized over 25 years using the straight-line method.
Significant preacquisition contingencies include the determination of
the adjustments necessary to pension liabilities. The resolution of
these contingencies could result in an adjustment to assets and
liabilities at acquisition date and a corresponding adjustment to
goodwill.
On December 31, 1998, the Company acquired GFG Corporation ("GFG"). GFG
designs and assembles roll coating, electrostatic oil application and
strip processing equipment used by the metal coil processing industry.
The acquisition of GFG has been accounted for under the purchase method
of accounting and accordingly, the results of operations of GFG 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 common stock of GFG totaled $12,972 in cash, after other
post-closing adjustments. Goodwill of $9,773 was recorded in this
transaction and is being amortized over 25 years on a straight-line
basis.
The following table reflects unaudited pro forma combined results of
operations of the Company as if the acquisitions of Precision and GFG
had occurred at the beginning of each respective period:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Net sales $155,919 $146,154
Income (loss) from continuing (739) 2,477
operations
Net income (loss) (7,261) 2,280
Earnings (loss) per common share - basic and diluted:
From Continuing operations (.17) .58
Net income (loss) (1.70) .53
</TABLE>
24
<PAGE> 26
GENESIS WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
These unaudited pro forma results 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 expense related to the amortization
of goodwill and other intangible assets and increased interest expense
on acquisition debt. They do not purport to be indicative of the
results of operations which actually would have resulted had the
combination occurred at the beginning of each period presented or of
future results of operations of the combined entities.
3. DISPOSAL OF SEGMENTS
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. 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) consisted of an estimated loss on disposal of $3,712 and a
provision of $256 for anticipated operating losses until the disposal
date.
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
$16,505, $30,433 and $41,561 for the years ended December 31, 1999,
1998 and 1997 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 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 June 2000. Net assets of $143 at December
31, 1999 consists of accounts receivable and accounts payable which
will be settled or received in cash in 2000 and fixed assets which are
carried at net realizable value.
Net sales from the discontinued segment of $2,873, $2,595 and $3,618
for the years ended December 31, 1999, 1998 and 1997, 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.
25
<PAGE> 27
GENESIS WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
The following table summarizes the net loss from operations and loss on
disposal of the discontinued segments for the years ended December 31,
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net loss from operations:
Machine Tool segment $ (2,417) $ 549 $ (631)
Paper Coating and Laminating segment (925) (852) (1,537)
-------- -------- --------
(3,342) (303) (2,168)
Tax benefit 1,203 106 638
-------- -------- --------
Loss from operations $ (2,139) $ (197) $ (1,530)
======== ======== ========
Loss on disposal:
Machine Tool segment $ (6,200)
Paper Coating and Laminating segment (648)
--------
(6,848)
Tax benefit 2,465
--------
Loss on disposal $ (4,383)
========
</TABLE>
The net current and long-term assets of discontinued operations are summarized
as follows at December 31,
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Net current assets:
Machine Tool segment $ 7,934 $ 7,838
Paper Coating and Laminating segment 143 (305)
-------- --------
8,077 7,533
-------- --------
Net non-current assets:
Machine Tool segment -- 4,704
Paper Coating and Laminating segment -- 699
-------- --------
-- 5,403
-------- --------
$ 8,077 $ 12,936
======== ========
</TABLE>
26
<PAGE> 28
GENESIS WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
4. INVENTORIES
At December 31, 1999 and 1998, inventories are as follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Finished goods $ 889 $
Work-in-process 3,252 3,327
Raw materials 5,875 219
-------- --------
Total first-in, first-out cost $ 10,016 $ 3,546
========= ========
</TABLE>
5. CONTRACTS IN PROCESS
Amounts included in the consolidated financial statements related to
uncompleted contracts are as follows:
<TABLE>
<CAPTION>
Costs and Billings in
Estimated Excess of
Earnings in Costs and
Excess Estimated
of Billings Earnings Total
----------- ------------ -------
<S> <C> <C> <C>
December 31, 1999:
Costs $ 84,496 $ 8,263 $ 92,759
Estimated earnings 19,508 3,171 22,679
-------- ------ --------
104,004 11,434 115,438
Less amounts billed (91,302) (18,396) (109,698)
-------- --------- --------
$ 12,702 ($ 6,962) 5,740
======== ========= ========
December 31, 1998:
Costs $ 49,164 $3,597 $52,761
Estimated earnings 14,683 540 15,223
-------- --------- --------
63,847 4,137 67,984
Less amounts billed (55,290) (9,654) (64,944)
-------- --------- --------
$ 8,557 $ (5,517) $ 3,040
======== ========= ========
</TABLE>
27
<PAGE> 29
GENESIS WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
6. INCOME TAXES
The Company recognizes deferred tax liabilities and assets for the
expected future tax consequences of events that have been included in
the financial statements or tax returns. Deferred tax liabilities and
assets are determined based on the difference between the financial
statement and tax basis of assets and liabilities using enacted tax
rates in effect for the year in which the differences are expected to
reverse.
The income (loss) before income taxes reflected in the consolidated
financial statements is classified between continuing and discontinued
operations as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Continuing operations $ 375 $ 3,486 $(3,137)
Discontinued operations (10,190) (303) (2,168)
-------- ------- --------
$ (9,815) $ 3,183 $(5,305)
========= ======== ========
</TABLE>
The income (loss) before income taxes reflected in the consolidated
financial statements is comprised of the following:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
United States $ (139) $ 2,842 $ (1,726)
Europe 514 644 (1,411)
------- ------- --------
$ 375 $ 3,486 $ (3,137)
======= ======= ========
</TABLE>
The income tax provision (benefit) reflected in the consolidated
financial statements is classified between continuing and discontinued
operations as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Continuing operations $ 803 $ 1,206 $ (465)
Discontinued operations (3,668) (106) (638)
--------- ------- --------
$ (2,865) $ 1,100 $ (1,103)
========= ======= ========
</TABLE>
28
<PAGE> 30
GENESIS WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
The income tax provision (benefit) reflected in the consolidated financial
statements is comprised of the following:
1999 1998 1997
---- ---- ----
Current:
Federal $ $ $
State 70
Foreign 55 16 (277)
------- ------- -------
125 16 (277)
Deferred:
Federal (1,078) 1,825 1,856
State (63)
------- ------- -------
(1,141) 1,825 1,856
Net operating loss carryforward:
Federal (1,869) (937) (2,905)
State (110)
Foreign 130 196 223
------- ------- -------
(1,849) (741) (2,682)
------- ------- -------
$(2,865) $ 1,100 $(1,103)
======= ======= =======
The differences between the statutory U.S. income tax rate and effective income
tax rate are as follows:
1999 1998 1997
---- ---- ----
U.S. income tax rate 34% 34% 34%
Effect of state tax and foreign
operations 2% 1% (13)%
Impact of goodwill amortization (7)%
----- ----- -----
29% 35% 21%
===== ===== =====
29
<PAGE> 31
GENESIS WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
The effect of the foreign operations in 1997 is primarily due to a
valuation allowance provided against the deferred tax assets of the
Company's subsidiaries in Germany.
The components of deferred taxes included in the consolidated balance
sheets are as follows:
1999 1998
---- ----
Deferred tax assets:
Accounts receivable $ 278 $ 424
Inventories 489 210
Intangible assets 484 535
Product liability reserve 393 185
Valuation reserves 2,232
Other liabilities and reserves 3,424 1,056
Postretirement benefits 1,597 493
Net operating loss and tax credit
carryforwards 11,007 8,966
-------- --------
Total deferred tax assets 19,904 11,869
Less valuation allowance (1,383) (1,383)
-------- --------
Deferred tax asset 18,521 10,486
Deferred tax liabilities:
Property, plant and equipment (2,431) (503)
Prepaid pension cost (6,977) (6,478)
-------- --------
Deferred tax liability (9,408) (6,981)
-------- --------
Net deferred tax asset 9,113 3,505
Net current deferred tax asset 6,816 1,874
-------- --------
Net non-current deferred tax asset $ 2,297 $ 1,631
======== ========
Generally accepted accounting principles require a valuation allowance against
deferred tax assets if based on the weight of available evidence, it is more
likely than not that some or all of the deferred tax assets will not be
realized. The Company believes that a valuation allowance is not necessary,
other than a valuation allowance relating to the net operating loss
carryforwards of the Company's subsidiaries in Germany, which are being
liquidated. The Company anticipates that the deferred tax assets will be
realized as a result of the utilization of deferred tax liabilities, the
generation of future taxable income and the existence of appreciated values over
the tax basis of the Company's net assets. However, a valuation allowance
against the deferred tax assets could be required if estimates of future taxable
income are reduced.
30
<PAGE> 32
GENESIS WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
At December 31, 1999, the Company has domestic net operating loss
carryforwards available to offset future taxable income. These
carryforwards expire as follows:
2007 $ 1,546
2008 2,068
2009 3,012
2010 624
2011 2,268
2012 8,548
2018 2,807
2019 5,497
--------
$ 26,370
========
The Company also has foreign net operating loss carryforwards for its
subsidiary in the United Kingdom and its subsidiaries in Germany of
$242 and $3,073 respectively, which can be carried forward
indefinitely.
The Company has not provided for U.S. federal income taxes or foreign
withholding taxes of undistributed earnings of certain foreign entities
as of December 31, 1999 and 1998, respectively, because such earnings
are intended to be reinvested indefinitely.
The income tax effects relating to comprehensive income for 1999, 1998
and 1997 were not significant as a result of the Company's tax position
in these years.
7. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment includes the following:
1999 1998
---- ----
Land $ 751 $ 142
Buildings 9,004 4,344
Machinery and equipment 28,044 10,517
-------- ---------
37,799 15,003
Accumulated depreciation (10,029) (8,346)
-------- ---------
$ 27,770 $ 6,657
======== =========
Included in machinery and equipment is software costs of $1,098, net of
amortization of $219, as of December 31, 1999.
31
<PAGE> 33
GENESIS WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
8. BENEFIT PLANS
Under the Company's pension plans (Plans), certain domestic salaried
employees are provided monthly retirement benefits based on an
employee's compensation and years of service at date of retirement. In
addition, certain bargaining hourly employees are paid monthly
retirement benefits of specified amounts for each year of service. The
Company annually contributes amounts to provide the Plans with
sufficient assets to fund payment of the benefits based on actuarial
assumptions as noted in the following tables. Minimal contributions
were required in 1999, 1998 and 1997 as Plan assets exceeded projected
benefit obligations. At December 31, 1999, Plan assets exceeded
projected benefit obligations by $24,966. Under present tax laws, the
Company's ability to realize the full value of this asset is limited.
Subsequent to December 31, 1999 the Company completed the termination
of two salaried and non-bargaining hourly pension plans and received
$14,100 in cash (see note 21).
One of the Company's U.S. subsidiaries has two non-contributory defined
benefit pension plans covering certain of their collective bargaining
employees. Pension benefits are determined by a fixed benefit formula
and number of years of service. Company contributions are computed
using the projected unit credit method of funding.
A subsidiary of the Company in the United Kingdom has a contributory
defined benefit retirement plan covering substantially all salaried
employees. Pension benefits are based primarily on years of service and
the employee's average compensation during the three highest
consecutive years in the last ten years proceeding the date of normal
retirement. In addition, employees contribute either 3.0% or 5.0% of
their salary, depending upon their position in the Company. The Company
contributions are computed using the projected unit credit method of
funding, taking into account future salary increases. Plan assets are
invested in a pooled collective investment fund comprised of publicly
traded stocks and bonds. The Company is in the process of determining
the accrued pension liability required for this subsidiary as it was
part of the acquisition of Precision on June 30, 1999. Upon resolution
of this preacquisition contingency, the Company may have to record an
increase or a decrease in the pension liability beyond the $389
presently accrued at December 31, 1999 with a corresponding adjustment
to goodwill.
In 1999, the Company realized Plan curtailment gains of $103 and
incurred special termination benefits of $615 as a result of the sale
of the machine tool division and workforce reductions prior to the
sale. Also, a Plan curtailment gain of $318 was realized in 1997 as a
result of the sale of the Sidney division (described in Note 3), and
subsequent termination of employees covered under the plan.
The Company also provides other postretirement and post employment
benefits (OPEB") consisting of group health and life insurance coverage
and salary continuation for certain retirees and other health benefits
to all retirees.
32
<PAGE> 34
GENESIS WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
Net periodic expense (income) for pension and OPEB plans includes the
following components:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
PENSION OPEB PENSION OPEB PENSION OPEB
------- ---- ------- ---- ------- ----
<S> <C> <C> <C> <C> <C> <C>
Service cost $ 870 $ 89 $ 628 $ 75 $ 636 $ 26
Interest cost 1,526 129 1,481 105 1,481 88
Expected return on plan assets (3,033) (3,688) (3,139)
Amortization of prior service
costs (178) 8 151 8
Amortization of initial asset (135) (151) (329)
Recognized net actuarial (gain)
loss (1,239) (1,629) (561) (3)
Curtailment and special
termination benefits 512 (318)
------- -------- ------- ------- ------- -------
$(1,677) $ 226 $(3,208) $ 188 $(2,230) $ 111
======= ======= ======= ======= ======= =======
</TABLE>
33
<PAGE> 35
GENESIS WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
The Plans funded status and accounting assumptions at December 31, 1999
and 1998 are as follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
PENSION OPEB PENSION OPEB
------- ---- ------- ----
<S> <C> <C> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year $ 19,830 $ 1,639 $ 20,048 $ 1,336
Acquisition 11,891 1,432
Service cost 870 89 628 75
Interest cost 1,526 129 1,481 105
Amendments 313 (1,205) 168
Actuarial (gain) loss (118) (232) 405 66
Benefits paid (1,878) (86) (1,527) (111)
Expenses paid (237)
Curtailments 239
-------- -------- -------- --------
Benefit obligation at end of year 32,436 2,971 19,830 1,639
-------- -------- -------- --------
Change in plan assets:
Fair value of plan assets at beginning of year 46,808 44,088
Acquisition 10,556
Actual return on plan assets 2,105 4,248
Employer contribution 48 86 121 111
Benefits paid (1,878) (86) (1,527) (111)
Expenses paid (237) (122)
-------- -------- -------- --------
Fair value of plan assets, end of year 57,402 46,808
-------- -------- -------- --------
Reconciliation of funded status:
Funded status 24,966 (2,971) 26,978 (1,639)
Unrecognized net actuarial (gain) loss (5,584) (236) (8,313) (4)
Unrecognized prior service cost 410 153 597 193
Unrecognized initial net obligation 57 (211)
-------- -------- -------- --------
Prepaid (accrued) benefit cost $ 19,849 ($ 3,054) $ 19,051 $ (1,450)
======== ======== ======== ========
Weighted-average assumptions as of December 31:
Discount rate 7.25% 7.25% 7.0% 6.5%
Expected return on plan assets 7.4% 6.3%
Rate of compensation increase 3.0% 3.0% 4.5% 3.0%
</TABLE>
A change in the pension plan discount rate from 7.00% to 7.25% was
recognized at December 31, 1999, creating gains of $399. The weighted
average expected return and rate of compensation increase were affected
by the termination of two defined benefit plans in 1999. There were no
other changes in actuarial assumptions or methods.
34
<PAGE> 36
GENESIS WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
The change in the pension plan discount rate to 7.00% at December 31,
1998 from 7.25% at December 1997 resulted in an increase of $599 in the
actuarial present value of projected benefit obligations, at December
31, 1998. This amount will be amortized as an unrecognized net loss.
Unrecognized gains and losses, are amortized rateably over five years.
Assets in the pension plans include common stock of the Company with a
fair value of $318 and $700 at December 31, 1999 and 1998,
respectively.
Under the Company's OPEB plans a 1% change in the assumed health care
cost trend rates would have the following effect:
<TABLE>
<CAPTION>
1% INCREASE 1% DECREASE
----------- -----------
<S> <C> <C>
Effect on total of service and interest
cost components $ 17 $ (17)
Effect on postretirement benefit obligation $ 132 $ (134)
</TABLE>
For measurement purposes a 9.5% annual rate of increase in the per
capita cost of health care benefits was assumed for 1999. The rate was
assumed to decrease by .5% each year until 2008 and remain at 5% each
year thereafter.
The Genesis Worldwide Inc. Retirement Savings Plans (the Plans) enable
substantially all full-time domestic employees to participate and
contribute up to 15% of their salary to the Plan upon completion of six
months of service. Currently, the Company match ranges from 0-4%. Total
expense for these plans was $505, $124 and $145, in 1999, 1998 and
1997, respectively.
The Genesis Worldwide Inc. Cash Balance Pension Plan is available for
eligible full and part-time employees of the Company. Contributions are
made by the Company in an amount equal to 5% of eligible employees'
annual compensation. Employee contributions are not required or
permitted. Contributions earn interest that is based on a one year U.S.
Treasury Bill rate. Vesting is complete after five years of service. As
of December 31, 1999 the Company had $524 accrued for this plan.
9. INTANGIBLE ASSETS
Intangible assets (including amortization period) consist of the
following:
1999 1998
---- ----
Goodwill (25 years) $ 48,250 $ 10,099
Unpatented technology (20 years) 12,500
Service agreements (8 years) 5,000
Assembled workforce (10 years) 2,200
Debt issuance costs (7 years) 2,562
-------- --------
70,512 10,099
Less accumulated amortization (2,039)
-------- --------
$ 68,473 $ 10,099
======== ========
35
<PAGE> 37
GENESIS WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
10. OTHER ASSETS
Other assets consist of the following:
1999 1998
---- ----
Assets held for sale $2,127 $2,640
Investment in joint ventures 1,623
Other 1,268 473
------ ------
$5,018 $3,113
====== ======
The Company recorded an initial impairment reserve of $1,500 in 1997
for a building held for sale and increased the reserve by $600 in 1999,
based on the Company's estimates of net realizable value of the
building and current market conditions. These charges are included in
the impairment and other disposal costs in the consolidated statements
of operations.
Investments in joint ventures consists of a 50% interest in the
outstanding common stock of Nippon Herr Co., LTD and Daido Herr
Engineering Co., LTD. The Company's equity in net earnings of Nippon
Herr and Daido Herr were recorded through September 30, 1999 and
November 30, 1999, respectively, based on financial statements at those
dates. The Company accounts for its investments in Nippon Herr and
Daido Herr using the equity method. Equity losses of $63 and $52 were
recognized for Nippon Herr and Daido Herr, respectively, for the period
ended December 31, 1999. Total assets were $5,085 and $5,932, and
stockholders equity was $2,448 and $134, for Nippon Herr and Daido
Herr, respectively.
11. ACCRUED LIABILITIES
Accrued liabilities include the following:
1999 1998
---- ----
Accrued start-up and warranty costs $ 4,522 $ 3,565
Self-insurance reserves 2,320 1,207
Payroll and related 2,593 1,159
Customer deposits 844 1,516
Interest 971 11
Other 3,876 1,384
------- -------
$15,126 $ 8,842
======= =======
36
<PAGE> 38
GENESIS WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
12. DEBT
The Company has an outstanding credit facility consisting of a term
loan facility 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 $48,000 (the "Term A Loan") and
$19,900 (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.
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 8.94% at December 31,
1999. On December 31, 1999 the Company had $9,568 available under the
revolving credit facility.
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.
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,
estimated at $291 using the Black-Scholes Model, was recorded as a
discount to the $15,000 Senior Subordinated Note and is being amortized
over the term of the note.
Future payments due under all debt agreements are as follows:
2000 $ 5,540
2001 6,200
2002 7,200
2003 7,700
2004 8,700
2005 and thereafter 64,234
--------
$99,574
========
37
<PAGE> 39
GENESIS WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
Subsequent to year end, the Company repaid $18,000 on the outstanding
Term A loan as required by the loan agreement as a result of cash
received from a pension plan termination and the sale of a discontinued
business. (See note 21) This payment reduced the amount to be repaid
under the Term A loan in the inverse order of maturity.
13. LEASE COMMITMENTS
The Company leases certain facilities and equipment under operating
leases. At December 31, 1999, the future minimum lease payments under
operating leases are as follows:
YEAR
2000 $ 833
2001 871
2002 844
2003 846
2004 844
2005 and thereafter 5,026
--------
Total $ 9,264
========
The Company incurred rental expense for operating leases of $846, $258,
and $127 for the years ended December 31, 1999, 1998 and 1997,
respectively.
14. ENVIRONMENTAL LIABILITY
In September 1988, the Company and several other potentially
responsible parties ("PRPs") were ordered by the Environmental
Protection Agency ("EPA"), under the Federal "Superfund" legislation to
perform a remedial investigation and a limited removal action to
dispose of waste materials at the Rosen site, a former scrap yard in
Cortland, New York. That investigation and removal action was completed
in 1996 to the EPA's satisfaction.
In 1998, a Consent Decree was entered into among the EPA, the PRPs
(including the Company) and a group of ten companies ("Defendants")
that the EPA considered to be potentially liable to share the costs of
remediation. The Consent Decree prescribes the remediation procedures
necessary to be performed at the property. 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 in 1999. The reduction in the accrual is
recorded in the net loss from discontinued operations as it relates to
the machine tool segment.
38
<PAGE> 40
GENESIS WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
15. CONTINGENCIES
The Company is self-insured for a portion of the cost of the health
care benefits it provides its employees with an aggregate annual
self-insured claim limit of $2,500. The Company is also self-insured
for workers' compensation for those divisions located in Ohio and is
liable for individual claims up to $350 per occurrence. Self-insurance
costs are accrued based upon the aggregate of the liability for
reported claims and an estimated liability for claims incurred but not
reported.
The Company is responsible for all legal and settlement costs
associated with product liability claims up to $100 for each matter.
For losses occurring prior to July 1, 1997 at Precision, the Company is
responsible for claims up to $350 for each matter. The Company has
insurance coverage for costs which exceed that amount, subject to
specific and aggregate loss limitations.
The Company is a defendant in various legal actions arising in the
ordinary course of business, including product liability claims.
Included in these legal actions is a claim by one of the Company's
customers related to alleged defects in equipment supplied by the
Company. A trial date for litigation of this claim has been estimated
to begin April 2001. The Company believes that the equipment meets all
specifications prescribed in the contract and intends to vigorously
defend this litigation. The Company believes that the ultimate
liability, if any, resulting from these matters will not have a
material effect on the Company's consolidated financial position. The
significance of these matters on the Company's future operating results
and cash flows will depend on the Company's level of future earnings as
well as the timing and the amount of the ultimate disposition of these
matters above any amounts covered by insurance.
39
<PAGE> 41
GENESIS WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
16. EARNINGS PER SHARE
<TABLE>
<CAPTION>
1999 1998 1997
---- ----- ----
<S> <C> <C> <C>
Numerator:
Income (loss) from continuing operations ($428) $2,280 ($2,672)
Preferred stock dividend requirement ( 26) ( 26) ( 26)
Numerator for basic earnings per share-
income (loss) from continuing operations
available to common shareholders (454) 2,254 (2,698)
Effect of dilutive securities - - -
------ ------ -------
Numerator for diluted earnings per share-
Income (loss) from continuing operations
available to common shareholders after
assumed conversions ($454) $2,254 ($2,698)
------ ------ -------
Denominator:
Denominator for basic earnings per share-
weighted average shares outstanding 4,032 3,768 3,758
Effect of dilutive securities -
Employee stock options - - -
------- ------- --------
Denominator for diluted earnings per share-
adjusted for weighted average shares and
assumed conversions 4,032 3,768 3,758
------- ------- --------
Income (loss) per share from continuing operations -
basic and diluted ($.11) $.60 ($ .71)
====== ======= ========
</TABLE>
Stock options (in thousands) totaling 238, 152, and 110 for 1999, 1998
and 1997 respectively, and warrants to purchase 100 shares of common
stock in 1999 that could potentially dilute basic earnings per share in
the future were not included in the computation of diluted earnings per
share because to do so would have been antidilutive.
17. CAPITAL STOCK
The Company's preferred shares are $1.80 cumulative. Each preferred
share is entitled to one vote and is convertible into four common
shares.
40
<PAGE> 42
GENESIS WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
18. STOCK-BASED COMPENSATION PLANS
During the three-year period ended on December 31, 1999, the Company
has maintained the Genesis Worldwide Inc. 1994 Employees Stock Option
Plan, the Genesis Worldwide Inc. 1984 Restricted Stock Bonus Plan and
the Genesis Worldwide Inc. Long-Term Incentive Stock Plan (collectively
the "Plans", and individually the "Option Plan" and "Stock Plan" and
"Incentive Plan", respectively), which are described below.
Under the Incentive Plan, the Company can issue incentive awards for up
to 175,000 shares of Common Stock. An incentive award can be either
stock options or restricted shares or the right to receive restricted
shares of stock. The plan provides that the option price be not less
than the fair market value of the Common Stock at date of grant. All
stock options granted in 1999 are fully vested one year from date of
grant, except for 7,000 shares which were granted in exchange for
services and were exercisable at date of grant. Restricted shares
granted under the Incentive Plan vest ratably from one to three years
from date of grant.
Under the Option Plan, the Company is authorized to issue up to 100,000
shares of Common Stock pursuant to stock options. The Company may grant
incentive stock options, or nonqualified stock options. The Option Plan
provides that the exercise price of the stock option may not be less
than the fair market value of the Common Stock on the date of grant.
All stock options granted have terms of 10 years and are fully vested
on the first anniversary of the date of grant.
Under the Stock Plan, the Company is authorized to award up to 50,000
shares of Common Stock to employees. In 1999, 5,682 shares were awarded
to Directors as part of their annual compensation and 9,549 shares were
awarded in connection with employee incentive compensation for 1998. In
1998, 7,000 shares were awarded to an employee, which vest ratably over
a 3-year period from date of award. During 1997, the Company awarded an
employee 17,000 non-plan shares which vest ratably over a 2- year
period from date of award. During 1999, 1998 and 1997, the Company
recorded compensation expense of $30, $178 and $46, respectively, in
connection with the awarding of the above shares.
In 1997, the Company granted 75,000 non-qualified stock options to an
officer. The options granted during 1997 have a term of 10 years and
vest on the sixth anniversary of the date of grant, or earlier if
certain stock prices are achieved.
41
<PAGE> 43
GENESIS WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
A summary of the status of the Company's stock options is presented
below.
NUMBER OF WEIGHTED AVERAGE
SHARES EXERCISE PRICE
------ --------------
Outstanding December 31, 1996 41,300 $ 11.50
Granted 75,000 $ 8.44
Cancelled or expired (6,000) $ 11.95
-------
Outstanding December 31, 1997 110,300 $ 9.43
Granted 69,050 $ 7.71
Cancelled or expired (27,666) $ 9.95
-------
Outstanding December 31, 1998 151,684 $ 8.52
Granted 119,500 $ 6.82
Cancelled or expired (33,506) $ 9.16
------- ---------
Outstanding December 31, 1999 237,678 $ 7.57
======= =========
Since the Company accounts for stock options using the intrinsic value
method, no compensation expense has been recognized for any stock
options granted in 1999, 1998 and 1997. Had the compensation cost for
the Company's stock-based compensation plans been determined using the
fair value method, compensation expense charged to operations, on a
pre-tax basis, would have been $288 in 1999, $126 in 1998 and $59 in
1997.
For purposes of applying the fair value method, the fair value of each
stock option granted is estimated on the date of grant using the
Black-Scholes option-pricing model. The weighted average fair value of
options granted during 1999 and 1998 was $2.58 and $1.85, respectively,
which was calculated using the following weighted-average assumptions.
42
<PAGE> 44
GENESIS WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
ASSUMPTION 1999 1998 1997
---- ---- ----
Expected Term 5 years 5 years 7 years
Expected Volatility 32.0% 24.3% 24.5%
Expected Dividend Yield - 2.6% 2.4%
Risk-Free Interest Rate 5.2% 5.5% 5.7%
The following table summarizes information about stock options at
December 31, 1999.
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------------ -------------------------------------
WEIGHTED
AVERAGE WEIGHTED
RANGE OF NUMBER REMAINING AVERAGE NUMBER WEIGHTED AVERAGE
EXERCISE PRICES OUTSTANDING CONTRACT LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
--------------- ----------- ------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$4.18 - $ 5.58 1,000 9.8 $ 5.41 1,000 $ 5.41
$5.59 - $ 6.96 98,500 9.1 $ 6.56 - $ -
$6.97 - $ 8.36 41,611 8.1 $ 7.68 41,611 $ 7.68
$8.37 - $ 9.75 94,267 7.5 $ 8.54 5,267 $ 9.29
$9.76 - $ 11.15 2,300 5.9 $ 10.19 2,300 $ 10.19
-------------- --------- --- ------ -------- -------
$4.18 - $ 11.15 237,678 8.3 $ 7.57 50,178 $ 7.92
</TABLE>
19. FOREIGN CURRENCY
All assets and liabilities of foreign subsidiaries are translated into
U.S. dollars at rates of exchange in effect at the close of the year,
and that the effects of changes in the value of the U.S. dollar, as
compared to the local currency of the foreign subsidiaries, are shown
as translation adjustments in Shareholders' Equity.
Translation adjustments are as follows.
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Balance, beginning of year $ (180) $ (148) $ 227
Translation adjustment increase (decrease):
Net long-term assets 196 (66) (124)
Net current assets (121) 34 (251)
------- -------- --------
Total adjustment 75 (32) (375)
------- -------- --------
Balance, end of year $ (105) $ (180) $ (148)
======= ======== ========
</TABLE>
Currency exchange losses (gains) during 1999, 1998 and 1997 were
approximately ($153), $24 and $456, respectively, relating primarily to
the Company's foreign operations.
43
<PAGE> 45
GENESIS WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
The Company may enter into forward foreign exchange contracts during
the normal course of business to hedge its foreign currency exposure
associated with sales contracts and purchase orders denominated in
foreign currencies. Any gains and losses in connection with the
contracts are included in the consolidated financial statements. There
were no outstanding contracts at December 31, 1999 and 1998.
20. SEGMENT AND GEOGRAPHIC INFORMATION
The Company operates in the coil processing segment in 1999. In 1998
and 1997, the Company operated in two additional segments which were
the machine tool segment and the paper coating and laminating segments.
These segments have been sold or discontinued.
Approximately 20%, 13%, and 11%, of the Company's consolidated revenues
from continuing operations from 1999, 1998 and 1997, respectively, were
export sales from the United States primarily to Mexico, Canada, Europe
and the Far East. Substantially all long-lived assets are located in
the United States. Intercompany sales are priced at market but are not
material. The foreign subsidiaries are located in England.
Geographic information for which revenues and operating income is based
on the geographic locations in which the sale originated, is presented
below:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Sales:
United States $ 103,274 $ 39,290 $ 48,985
Europe 10,354 6,748 13,236
Adjustments and eliminations (2,234) (284)
--------- --------- ---------
$ 111,394 $ 46,038 $ 61,937
========= ========= =========
Operating income (loss):
United States $ 7,280 $ 4,964 $ (105)
Europe 643 541 (1062)
Corporate (2,680) (1,866) (679)
--------- --------- ---------
$ 5,243 $ 3,639 $ (1,846)
========= ========= =========
Total assets:
United States $ 176,590 $ 77,299 $ 55,259
Europe 8,877 5,451 10,841
--------- --------- ---------
$ 185,467 $ 82,750 $ 66,100
========= ========= =========
</TABLE>
44
<PAGE> 46
GENESIS WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
21. SUBSEQUENT EVENTS
In February 2000, the Company concluded the sale of the machine tool
division and received $7,738 in cash. As required by the Company's
revolving credit and term loan facility, $7,550 of the proceeds were
used to repay the Company's Term A loan agreement in inverse order of
maturity.
Also in February 2000, the Company completed the termination of two of
its pension plans for salaried non-bargaining and hourly employees.
Plan assets of $15,600 were used to settle plan liabilities and $4,700
was transferred to trusts to fund future benefit obligations of other
Company plans. The balance of plan assets of $14,100 was distributed to
the Company, with $10,400 used to repay amounts against the Company's
Term A loan agreement in inverse order of maturity. As a result of this
transaction, the Company expects to record a $3,100 settlement gain in
the first quarter of 2000 and expense of $2,800 for federal excise
taxes. Unrecognized prior service cost of $146 related to the
terminated plans is being amortized through 2002 ($49 per year). The
Company anticipates being able to use its net operating loss
carryforwards to offset the taxable income of $14,100 generated by this
transaction.
As a result of the above payments, the Company reduced the debt
outstanding and the amount available under its Term A loan by $18,000.
45
<PAGE> 47
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
EXECUTIVE OFFICERS OF THE REGISTRANT
The following are the names and ages of the Company officers, each of
whom has been appointed to a one year term.
<TABLE>
<CAPTION>
OFFICE NAME AGE
------ ---- ---
<S> <C> <C>
President and Chief Executive Officer Richard E. Clemens 50
Vice President and Chief Financial
Officer Karl A. Frydryk 45
Vice President, Operations Improvement
and Information Technology Patrick M. Flaherty 50
Vice President, Human Resources Timothy P. Gibson 42
Secretary and Controller Leo E. Dugdale 47
President - GenSystems Inc. Vernon E. Collins 51
President - GenCoat Inc. Alan L. Roehrig 54
President - GenInternational Inc. Frederick G. Sharp 46
</TABLE>
Mr. Clemens became President and Chief Executive Officer of Genesis in
March 1997. He was previously the Vice President and General Manager of
the Frick Company (a subsidiary of York International), a manufacturer
of compressors, heat exchangers, and process refrigeration equipment,
from 1995 to 1997. Prior to working for the Frick Company, he was
President and Chief Executive Officer of Clark Material Handling
Company, a manufacturer of fork lift trucks, from 1994 to 1995. Before
then, he was President of BMY Combat Systems, a division of Harsco
Corporation, from 1992 to 1994 and held various other management
positions with the division from 1985 to 1992.
Mr. Frydryk, a CPA, became Vice President and Chief Financial Officer
on January 5, 1998. He had previously been employed for over 13 years
by Nord Resources Corporation, a New York Stock Exchange listed company
engaged in mining and mineral and chemical processing. He held various
positions with that company, including serving for over 10 years as its
Vice President - Controller and Secretary.
46
<PAGE> 48
Mr. Flaherty became Vice President, Operations Improvement on February
16, 1998 and Information Technology in 1999. Prior to joining the
Company, he was a consultant, providing consulting services to the
Company for 6 months. From 1995 to 1997 he was Vice President,
Operations for the Frick Company, a subsidiary of York International,
which manufactures compressors, heat exchangers and process
refrigeration equipment. From 1994 to 1995 he served as Vice President,
Operations and then Vice President, Business Development for Clark
Material Handling Company, a manufacturer of fork lift trucks, and from
1977 to 1994 served in various capacities with Allied Signal, including
Vice President, Airline Services from 1992 to 1994.
Mr. Gibson became Vice President, Human Resources on March 2, 1998.
From January 1995 until his employment by the Company he was Vice
President, Human Resources for CTG, Inc., a distributor of
computer-related equipment. Prior to then he was, for over 5 years, the
Senior Director, Human Resources for US Airways Express.
Mr. Dugdale, a CPA, was named Controller on June 1, 1998 and Secretary
effective March 1, 1999. Mr. Dugdale was employed by Moto Photo
Corporation, a NASDAQ-listed company engaged in franchising of film
processing service-centers in 1998, prior to joining the Company. Until
1998, he was employed for over 10 years as assistant controller with
Nord Resources Corporation, a New York Stock Exchange listed company
engaged in mining and mineral processing and for 2 years served as
Secretary for Nord Pacific Limited, a NASDAQ-listed company engaged in
the same industry.
Mr. Collins became President and Chief Executive Officer of GenSystems
Inc., on July 1, 1999. Previously, he had been the President and CEO of
Herr-Voss Corporation since October 1998. Prior to this, he was the
President and CEO and Chairman of the Board for Bliss-Salem, Inc. as
well as the Chairman of the Board of Directors and CEO of the Company's
wholly-owned subsidiary, Damian Industrial Services Inc. Mr. Collins
was an executive for Alyseka Pipeline Service Company in Alaska and is
a retired colonel in the U.S. Army Reserves Corps of Engineers.
Mr. Roehrig became President of GenCoat Inc. (formerly GFG Corporation)
in 1989. Previously, he had been the Executive Vice President of the
Cheney Company from 1983 through 1988. From 1974 through 1982 he held
various manufacturing management positions with Allis Chalmers
Corporation. From 1969 through 1973 he held various manufacturing
management positions with Westinghouse Electric Corporation.
Mr. Sharp became President of GenInternational Inc. in November 1999.
He was previously President of the Stamco Division of Genesis from
February 1998 to November 1999. Prior to Genesis, Mr. Sharp was Vice
President, Marketing and Sales for Fairfield Manufacturing Company,
Inc. a developer and manufacturer of custom and proprietary power
transmission components from 1996 to 1998. Before then, he was Director
of Combat Artillery Programs, United Defense, LP (formerly BMY Combat
Systems), a designer and manufacturer of combat vehicles from 1991 to
1996.
Additional information required by this Item 10 is set forth on the
Proxy Statement and is incorporated herein by reference.
ITEM 11 - EXECUTIVE COMPENSATION
The information required by this Item 11 is set forth in the Proxy
Statement and is incorporated herein by this reference.
47
<PAGE> 49
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item 12 is set forth in the Proxy
Statement and is incorporated herein by this reference.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item 13 is set forth in the Proxy
Statement and is incorporated herein by this reference.
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) List of Documents filed as part of this Report.
(1) Financial Statements:
See Item 8-Index to Financial Statements
(2) Financial Statements Schedules: PAGE NO.
--------
Report of Independent Accountants 50
Schedule II - Valuation and Qualifying Accounts 51
Schedules other than those listed above are omitted as
they are not applicable or are not required
(3) Exhibits: See Index of Exhibits
(b) On December 7, 1999 the Company filed an 8-K relating to an amendment
to its $100 million Credit Agreement with ING (U.S.) Capital LLC which
addressed certain financial covenants. A copy of the amendment is filed
as an exhibit to the 8-K.
(c) See Index of Exhibits for location of filed exhibits
(d) No other financial statements, other than those mentioned above, are
required to be filed to comply with regulation S-X
48
<PAGE> 50
SIGNATURES
Pursuant to the requirements of Section 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.
GENESIS WORLDWIDE INC.
By: /s/ Richard E. Clemens
----------------------
RICHARD E. CLEMENS
Director, President and Chief Executive Officer
March 29, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following persons on behalf of Genesis Worldwide
Inc. and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
<S> <C>
By: /s/ Richard E. Clemens By: /s/ William R. Graber
---------------------- ---------------------
RICHARD E. CLEMENS WILLIAM R. GRABER
Director, President and Chief Executive Officer Director
March 29, 2000 March 29, 2000
By: /s/ John A. Bertrand By: /s/ Joseph M. Rigot
-------------------- -------------------
JOHN A. BERTRAND JOSEPH M. RIGOT
Director Director
March 29, 2000 March 29, 2000
By: /s/ Gerald L. Connelly By: /s/ J. William Uhrig
---------------------- --------------------
GERALD L. CONNELLY J. WILLIAM UHRIG
Director Director
March 29, 2000 March 29, 2000
By: /s/ William A. Enouen By: /s/ Karl A. Frydryk
--------------------- -------------------
WILLIAM A. ENOUEN KARL A. FRYDRYK
Director Vice President
March 29, 2000 (Principal Financial Officer)
March 29, 2000
By: /s/ Augustine A. Fornataro By: /s/ Leo E. Dugdale III
-------------------------- ----------------------
AUGUSTINE A. FORNATARO LEO E. DUGDALE III
Director Controller
March 29, 2000 (Principal Accounting Officer)
March 29, 2000
By: /s/ Waldemar M. Goulet
--------------------------
WALDEMAR M. GOULET
Director
March 29, 2000
</TABLE>
49
<PAGE> 51
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULES
To the Board of Directors of
Genesis Worldwide Inc.
Our audits of the consolidated financial statements referred to in our report
dated March 9, 2000 appearing in the 1999 Annual Report to Shareholders of
Genesis Worldwide Inc. (which report and consolidated financial statements are
incorporated by reference in this annual Report on Form 10-K) also included an
audit of the financial statement schedule listed in Item 14(a)(2) of this Form
10-K. In our opinion, this financial statement schedule presents fairly, in all
material respects, the information set forth therein when read in conjunction
with the related consolidated financial statements.
PricewaterhouseCoopers LLP
Dayton, Ohio
March 9, 2000
50
<PAGE> 52
GENESIS WORLDWIDE INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E
BALANCE AT ADDITIONS BALANCE AT
BEGINNING FROM END OF
DESCRIPTION OF PERIOD ADDITIONS ACQUISITION DEDUCTIONS PERIOD
- ----------- --------- --------- ----------- ---------- ------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1999:
Allowance for doubtful trade accounts
receivable $ 1,123 $ 177 $ 478 $ (848) $ 930
Inventory reserves 290 177 846 (389) 924
Impairment reserve - assets held for
resale 1,500 600 2,100
Valuation allowance for deferred
tax assets 1,383 1,383
Loss on disposition 620 620
------- ------- ------- ------- -------
Total $ 4,296 $ 1,574 $ 1,324 $(1,237) $ 5,957
======= ======= ======= ======= =======
Year ended December 31, 1998:
Allowance for doubtful trade accounts
receivable $ 877 $ 310 $ (64) $ 1,123
Inventory reserves 40 290 (40) 290
Impairment reserve - assets held for
for sale 1,500 1,500
Valuation allowance for deferred
tax assets 1,243 140 1,383
------- ------- ------- ------- -------
Total $ 3,660 $ 740 $ (104) $ 4,296
======= ======= ======= ======= =======
Year ended December 1997:
Allowance for doubtful trade accounts
receivable $ 338 $ 598 $ (59) $ 877
Inventory reserves 50 7 (17) 40
Impairment reserve - assets held for resale 1,500 1,500
Valuation allowance for deferred
tax assets 1,243 1,243
------- ------- ------- ------- -------
Total $ 388 $ 3,348 $ (76) $ 3,660
======= ======= ======= ======= =======
</TABLE>
51
<PAGE> 53
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
Exhibit Footnote
Number Description Number
------ ----------- ------
<S> <C>
2 Plan of Acquisition, Reorganization, Arrangement, Liquidation
or Succession
2.1 Stock Purchase Agreement between Derlan Industries Inc.,
and The Monarch Machine Tool Company dated
December 30, 1998. (10)
2.2 Stock Purchase Agreement dated May 13, 1999 between
The Monarch Machine Tool Company and the Stockholders
of Precision Industrial Corporation (8)
3 Articles of Incorporation and Regulations (2)
4 Instruments Defining the Rights of Security Holders including
Indentures
4.1 Credit Agreement among The Monarch Machine Tool
Company and ING (U.S.) Capital LLC, dated as of
June 30, 1999 (9)
4.2 Agreement dated June 30, 1999 between The Monarch
Machine Tool Company and the Stockholders of Precision
Industrial Corporation identified in the Stock Purchase
Agreement dated May 13, 1999 (9)
10 Material Contracts
10.1 1994 Employees Stock Option Plan (3)
10.2 Letter Agreement, dated February 13, 1997, between The
Monarch Machine Tool Company and Richard E. Clemens (3)
10.3 Amended and Restated Credit Agreement dated as of
May 29, 1998 by and among the Company, NBD Bank,
Star Bank, N.A. and NBD Bank, as agent (6)
10.4 Asset Purchase Agreement by and between Monarch Lathes,
L.P. and the Company, dated July 16, 1997 (4)
10.5 First Amendment to Amended and Restated Credit Agreement
dated as of December 29, 1998 (5)
</TABLE>
52
<PAGE> 54
<TABLE>
<CAPTION>
<S> <C>
10.6 Letter agreement, dated November 3, 1998 between the Monarch
Machine Tool Company and Richard E. Clemens (6)
10.7 Letter agreement, dated November 3, 1998 between the Monarch
Machine Tool Company and Karl A. Frydryk (6)
10.8 First Amendment to Credit Agreement among Genesis Worldwide
Inc., and ING (U.S.) Capital LLC, dated as of December 2, 1999 (7)
21 Subsidiaries of the Registrant (1)
22 Submision of Matters to a Vote of Security Holders (11)
23 Consent of Independent Accountants (1)
27 Financial Data Schedules (1)
</TABLE>
53
<PAGE> 55
INDEX OF EXHIBITS
Footnote
Number Description
- ------ -----------
(1) Indicates Exhibit is being filed with this report
(2) Incorporated by reference to the Exhibits with the same number filed
with the Company's Form 10-K for the year ended December 31, 1980
(3) Incorporated by reference to the Exhibits with the same number filed
with the Company's Form 10-K for the year ended December 31, 1996
(4) Incorporated by reference to Exhibit 10.1 filed with the Company's Form
8-K dated August 13, 1997
(5) Incorporated by reference to Exhibit 1.1 filed with the Company's Form
8-K dated January 14, 1999
(6) Incorporated by reference to the Exhibits with the same number filed
with the Company's Form 10-K for the year ended December 31, 1998
(7) Incorporated by reference to Exhibit 5.1 filed with the Company's Form
8-K dated December 2, 1999
(8) Incorporated by reference to Exhibit 2.1 filed with the Company's Form
8-K dated July 15, 1999
(9) Incorporated by reference to Exhibits 4.1 and 4.2 filed with the
Company's Form 8-K dated July 15, 1999
(10) Incorporated by reference to Exhibits 2.1 filed with the Company's Form
8-K dated January 14, 1999
(11) Incorporated by reference to Part II, Item 4 of the Company's Form 10-Q
for the quarter ended September 30, 1999
54
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
Genesis has the following consolidated subsidiaries, each of which is
wholly-owned. The German subsidiaries are in liquidation.
Name Jurisdiction
---- ------------
GenCoat Inc. Delaware
GenInternational Inc. Delaware
GenSystems Inc. Delaware
GenSystems Services Inc. Delaware
GFG Corporation Wisconsin
H-V Asset Management Corp. Delaware
H-V Equipment Company Pennsylvania
H-V Mill Roll Services Inc. Pennsylvania
H-V Roll Center Inc. Pennsylvania
H-V Technical Servcies Inc. Delaware
Herr-Voss Corporation Pennsylvania
Herr-Voss Industries Inc. Pennsylvania
Monarch Ohio, Inc. Ohio
Precision Industrial Corporation Delaware
Salem International Services, Inc. Pennsylvania
WLT Corporation Pennsylvania
Monarch Werkzeugmaschinen GmbH Germany
Stamco Depiereux GmbH Germany
Monarch Busch GmbH Germany
Stamco (U.K.), Ltd. United Kingdom
55
<PAGE> 2
Monarch Machine Tool International, Inc. (FSC) Barbados, West Indies
GFG International Corporation (FSC) Virgin Islands
GFG Peabody Ltd. United Kingdom
H-V Foreign Sales Corporation Virgin Islands
Herr-Voss Limited United Kingdom
Mazuinas Operatrizes Monarch LTDA Brazil
Salem Engineering Company Limited United Kingdom
Salem Engineering Limited United Kingdom
56
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Forms S-8 (File No. 333-86225, File No. 333-86187, File No. 2-92311
and File No. 33-80332) of Genesis Worldwide Inc. of our report dated March 9,
2000 relating to the financial statements, which appears in the Annual Report to
Shareholders, which is incorporated in this Annual Report on Form 10-K. We also
consent to the incorporation by reference of our report dated March 9, 2000
relating to the financial statement schedule, which appears in this Form 10-K.
PricewaterhouseCoopers LLP
Dayton, Ohio
March 27, 2000
57
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 559
<SECURITIES> 0
<RECEIVABLES> 23,230
<ALLOWANCES> 1,123
<INVENTORY> 10,016
<CURRENT-ASSETS> 62,060
<PP&E> 37,799
<DEPRECIATION> 10,029
<TOTAL-ASSETS> 185,467
<CURRENT-LIABILITIES> 48,185
<BONDS> 94,034
0
14
<COMMON> 9,500
<OTHER-SE> 29,558
<TOTAL-LIABILITY-AND-EQUITY> 185,467
<SALES> 111,394
<TOTAL-REVENUES> 111,394
<CGS> 86,610
<TOTAL-COSTS> 86,610
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 177
<INTEREST-EXPENSE> 5,450
<INCOME-PRETAX> 375
<INCOME-TAX> 803
<INCOME-CONTINUING> (428)
<DISCONTINUED> (6,522)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,950)
<EPS-BASIC> (1.73)
<EPS-DILUTED> (1.73)
</TABLE>
