<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended September 30, 2000
------------------
or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission File No. 1 - 1997
--------
GENESIS WORLDWIDE INC.
----------------------
(Exact name of registrant as specified in its charter)
Ohio 34-4307810
--------------------------- ----------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
2600 Kettering Tower, Dayton, Ohio 45423
----------------------------------------
(Address of principal executive offices, zip code)
(937) 910-9300
--------------
(Registrant's telephone number including area code)
N.A.
----
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
The number of common shares outstanding as of October 31, 2000 was 3,785,696.
<PAGE> 2
GENESIS WORLDWIDE INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
PAGE
NUMBER
------
PART 1. FINANCIAL INFORMATION:
ITEM 1. - Condensed Consolidated Financial Statements:
Balance Sheets - September 30, 2000 (unaudited) and
December 31, 1999 2
Statements of Operations and Comprehensive Income (unaudited)
- Three Quarters and Quarter ended September 30, 2000 and 1999 3
Statements of Cash Flow (unaudited) - Three Quarters ended
September 30, 2000 and 1999 4
Notes to Condensed Consolidated Financial Statements 5-9
ITEM 2. - Management's Discussion and Analysis
of Financial Condition and Results of
Operations 10-12
ITEM 3. - Quantitative and Qualitative Disclosure
About Market Risk 13
PART II. OTHER INFORMATION:
ITEM 1.-5. Inapplicable 14
ITEM 6. Exhibits and Reports on Form 8-K 14
1
<PAGE> 3
PART 1 - FINANCIAL INFORMATION
GENESIS WORLDWIDE INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
September 30 December 31
2000 1999
---- ----
(Unaudited)
<S> <C> <C>
Current assets:
Cash $ 241 $ 559
Accounts receivable 22,006 22,107
Costs and estimated earnings in excess of
billings on uncompleted contracts 12,893 12,702
Inventories 9,785 10,016
Prepaid and other expenses 1,197 1,783
Deferred income taxes 7,987 6,816
Net current assets of discontinued operations 8,077
--------- ---------
Total current assets 54,109 62,060
Property, Plant & Equipment - Net 28,336 27,770
Prepaid pension costs 9,135 19,849
Deferred income taxes 2,297 2,297
Goodwill and other intangible assets 59,672 68,473
Other assets 3,778 5,018
--------- ---------
$ 157,327 $ 185,467
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
-------------------------------------
Current liabilities:
Current portion of long-term debt $ 6,540 $ 5,540
Accounts payable 17,983 20,557
Accrued liabilities 8,978 15,126
Billings in excess of costs and estimated
earnings on uncompleted contracts 10,774 6,962
Net current liabilities of discontinued operations 86
Long-term debt in technical default 65,420
--------- ---------
Total current liabilities 109,781 48,185
Postretirement benefits 3,079 3,054
Long-term debt, less current portion 11,987 94,034
Other long-term liabilities 1,182 1,122
--------- ---------
Total liabilities 126,029 146,395
Shareholders' equity:
Preferred stock 14 14
Common stock and additional paid in capital 9,805 9,500
Unearned compensation, restricted stock (9) (22)
Retained earnings 21,936 29,685
Accumulated other comprehensive income (448) (105)
--------- ---------
Total shareholders' equity 31,298 39,072
--------- ---------
$ 157,327 $ 185,467
========== =========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
2
<PAGE> 4
GENESIS WORLDWIDE INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE INCOME
(amounts in thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Quarters Ended Quarter Ended
-------------------- -------------
September 30 September 30
------------ ------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $ 99,738 $ 74,086 $ 33,122 $ 35,231
Operating costs and expenses:
Cost of sales 81,915 57,017 28,784 26,237
Selling, general and administrative 16,733 11,744 4,730 5,982
Amortization of goodwill and other
intangible assets 2,435 891 770 686
-------- -------- -------- --------
Operating income (loss) (1,345) 4,434 (1,162) 2,326
Other income (expense):
Interest expense (6,714) (2,966) (2,299) (2,336)
Interest income 154 225 24 145
Other (expense) income (180) 93 93 (98)
-------- -------- -------- --------
Income (loss) before income taxes (8,085) 1,786 (3,344) 37
Income tax (provision) benefit 925 (964) 1,049 (335)
-------- -------- -------- --------
Income (loss) from continuing operations (7,160) 822 (2,295) (298)
Income (loss) from operations of discontinued
segments, net of income tax
benefit of $324 in 2000 and $303
and $354 in 1999, respectively (576) (539) (630)
-------- -------- -------- --------
Net income (loss) (7,736) 283 (2,295) (928)
Other comprehensive income (loss),
foreign currency translation adjustments (343) 106 (112) 327
-------- -------- -------- --------
Comprehensive income (loss) $ (8,079) $ 389 $ (2,407) $ (601)
======== ======== ======== ========
Average common shares outstanding:
Basic 4,227 3,948 4,112 4,283
Diluted 4,227 3,963 4,112 4,283
Earnings(loss) per common share,
basic and diluted:
Continuing operations $ (1.69) $ .21 $ (.56) $ (.07)
Discontinued operations (.14) (.14) (.15)
-------- -------- -------- --------
$ (1.83) $ .07 $ (.56) $ (.22)
======== ======== ======== ========
Dividends per share:
Preferred $ 1.35 $ 1.35 $ .45 $ .45
Common $ .10
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
3
<PAGE> 5
GENESIS WORLDWIDE INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Quarters Ended September 30
---------------------------------
2000 1999
---- ----
<S> <C> <C>
Cash flow from operating activities:
Net income (loss) $ (7,736) $ 283
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
(Income) loss from discontinued operations 900 842
Depreciation and amortization 5,326 2,373
Equity in loss of affiliates 811 133
Prepaid pension income (271) (1,094)
Deferred tax provision (benefit) (1,171) 661
(Gain) loss on sale of fixed assets 3 (1)
Gain from pension plan reversion (3,132)
Changes in operating assets and liabilities
excluding effect of discontinued operations
and acquisition in 1999:
Accounts receivable 78 (4,546)
Inventories 231 (981)
Cost and estimated earnings in excess of
billings on uncompleted contracts (191) 799
Billings in excess of costs and estimated earnings
on uncompleted contracts 3,813 (5,529)
Prepaids and other assets 610 781
Accounts payable (2,574) (2,814)
Accrued liabilities (4,877) 3,753
-------- --------
Net cash provided by (used in) operating activities (8,180) (5,340)
Cash flows from investing activities:
Capital expenditures (3,208) (1,390)
Proceeds from sale of division 8,334
Acquisition of business, net of cash acquired (73,402)
Proceeds from pension plan reversion 14,086
Decrease in other assets 2,016 1,008
Proceeds from sale of fixed assets 41 47
-------- --------
Net cash provided by (used in) investing activities 21,269 (73,737)
Cash flows from financing activities:
Dividends paid (13) (398)
Issuance of stock 15 73
Debt acquisition costs (2,528)
Repayment of short-term borrowings (500)
Proceeds from long-term borrowings 35,148 109,222
Repayments of long-term borrowings (47,350) (27,096)
-------- --------
Net cash provided by (used in) financing activities (12,200) 78,773
Effect of exchange rates on cash (136) (78)
-------- --------
Net cash provided by (used in) continuing operations 753 (382)
Net cash provided by (used in) discontinued operations (1,071) 95
Cash, beginning of period 559 1,708
-------- --------
Cash end of period $ 241 $ 1,421
========= ========
</TABLE>
The accompanying notes are an integral part of the condensed
consolidated financial statements
4
<PAGE> 6
GENESIS WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS
THREE QUARTERS ENDED SEPTEMBER 30, 2000 AND 1999
(all dollar amounts in thousands, except per share amounts)
1. FINANCIAL STATEMENTS
The accompanying condensed consolidated financial statements have been
prepared by Genesis Worldwide Inc. (Genesis or the Company) without audit
pursuant to the rules and regulations of the Securities and Exchange
Commission and, in the opinion of management, include all adjustments
consisting only of normal recurring adjustments necessary for a fair
presentation of the consolidated results of operations, financial position,
and cash flows for each period presented. The consolidated results for
interim periods are not necessarily indicative of results to be expected
for the full year. These financial statements should be read in conjunction
with the Company's 1999 Annual Report to Shareholders, Form 10-K for the
year ended December 31, 1999 and Form 10-Q for the quarters ended March 31,
2000 and June 30, 2000.
Certain prior year amounts have been reclassified to conform to the 2000
presentation.
2. EARNINGS PER SHARE
Basic earnings per common share is computed by dividing net income (loss),
after adjustment for the preferred stock dividend requirement, by the
weighted average number of common shares outstanding during the period.
Diluted earnings per share is computed by adding the dilutive effect of
common stock equivalents, such as the convertible preferred shares and any
stock options outstanding, to the weighted average number of common shares
outstanding.
3. INVENTORIES
The Company's inventories consist of the following balances:
September 30 December 31
2000 1999
---- ----
Finished goods $ 1,444 $ 1,454
Work-in process 3,692 3,252
Raw materials 4,649 5,310
-------- --------
Total first-in, first-out cost $ 9,785 $ 10,016
======== ========
4. LONG-TERM DEBT
The Company has an outstanding credit facility consisting of a term loan
facility in an aggregate principal amount of $48,900 and a revolving credit
facility, which provides for loans and letters of credit, consisting of an
initial amount of $30,000 which was increased to $35,000 during the period
June 28, 2000 through October 31, 2000. Subsequent to October 31, 2000, the
lender increased the amount of the line to $32,000 through December 31,
2000. The term loan facility consists of two tranches in principal amounts
of $26,800 (the "Term A Loan") and $19,750 (the "Term B Loan"). The Term A
Loan and the revolving credit facility mature on June 30, 2006 and the Term
B Loan matures on December 31, 2006. Principal payments of the Term A Loan
are required on a quarterly basis increasing from $1,250 per quarter on
September 30, 2000 to $2,500 per quarter during the last four quarters of
the payment term.
5
<PAGE> 7
GENESIS WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS
THREE QUARTERS ENDED SEPTEMBER 30, 2000 AND 1999
(all dollar amounts in thousands, except per share amounts)
Principal payments of the Term B Loan are in quarterly installments of $50
through June 30, 2005 with $9,300 due on September 30, 2006 and December
31, 2006. Outstanding borrowings under the revolving credit facility and
term loans accrue interest based on prime rate or LIBOR plus an additional
percentage depending on the leverage ratio. The weighted average interest
rate of these loans was 9.78% at September 30, 2000. On September 30, 2000
the Company had $5,013 available under the revolving credit facility.
The credit facility agreement contains certain covenants, including a
maximum senior leverage ratio, minimum interest coverage ratio, minimum
fixed charge coverage ratio, a limitation on the amount of capital
expenditures and a restriction on paying dividends. Substantially all the
assets of the Company are pledged under the above credit facility. As a
result of the losses from operations incurred during 2000, the Company did
not generate sufficient earnings to be in compliance with certain of its
earnings related loan covenants at September 30, 2000. As a result of the
covenant violation, $66,000 of long-term debt is in technical default and
has been classified as a current liability at September 30, 2000. The
lender has agreed to forebear from accelerating payment of the loan balance
through December 31, 2000. The Company has proposed a debt restructuring
plan to its bank lender consisting of exchanging a portion of its
outstanding indebtedness (which totals $71,700 at September 30, 2000) for
equity in the Company. The lender has not yet formally responded to the
Company's proposal but has had ongoing discussions with the Company and its
financial advisor concerning this issue. The Company anticipates that it
will reach an agreement with its bank lender on a debt restructuring. If a
debt restructuring is not reached by December 31, 2000, the Company would
request an extension of the bank forebearance and, if necessary, a
continuation of its increased revolving credit facility.
In connection with a June 2000 amendment to the credit facility which
increased the Company's revolving credit line and modified certain
covenants, the Company granted to the lender, ING (U.S.) Capital LLC, a
warrant to purchase shares of the Company's common stock. Under the warrant
agreement, unless the Company complied with certain conditions by October
31, 2000 including a reduction in its term loans of at least $10,000 and a
prescribed maximum senior leverage ratio, ING will earn a warrant to
acquire 800,000 shares of the Company's common stock at an exercise price
of $.01 per share. The Company was unable to comply with the required
conditions at October 31, 2000. Consequently, the warrant was earned by ING
and is exercisable on February 1, 2001. The number of shares under the
warrant would reduce if certain events occur prior to January 31, 2001. The
fair value of the warrants was estimated at $643, using the Black-Scholes
Model and was recorded at the date of grant. The amount is included in
these financial statements as a discount to the term loan and will be
amortized over the remaining term of the loans.
The Company also has outstanding subordinated notes consisting of $11,987
in Senior Subordinated Notes ("Notes") due December 31, 2007. The Notes
bear interest at 9% for the period July 1, 2000 through December 31, 2001,
changing to 12.5% effective January 1, 2002 through March 31, 2002 and
increasing by .5% on April 1, 2002 and at each three month interval until
April 1, 2004 unless repaid to a maximum rate of 17%. Interest on the Notes
due on June 30, 2000 and September 30, 2000 was not paid but was
capitalized into the amount outstanding on the Notes. Interest payments due
on December 31, 2000 and March 31, 2001 will also be deferred and
capitalized as part of the Notes. The Company issued warrants to purchase
100,000 common shares in conjunction with the Notes, at a warrant exercise
price of $7.75 per share, subject to adjustment, which expire on June 30,
2009. The fair value of the 100,000 warrants issued, estimated at $291
using the Black-Scholes Model, was recorded as a discount to the Notes and
is being amortized over the term of the Notes. The Company also has
outstanding $840 in 8% Junior Subordinated Notes due June 30, 2002. These
Notes shall be deemed paid in full in exchange for 50% of the proceeds
received from the sale of the Company's interest in the Nippon-Herr joint
venture (See Note 9).
6
<PAGE> 8
GENESIS WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS
THREE QUARTERS ENDED SEPTEMBER 30, 2000 AND 1999
(all dollar amounts in thousands, except per share amounts)
5. DISCONTINUED OPERATIONS
In February 2000, the Company sold substantially all the assets of the
machine tool division located in Cortland, New York, including inventory,
property, plant and equipment and accounts receivable with a carrying value
of $16,900 at December 31, 1999. The buyer paid $7,700 in cash and assumed
$3,800 in liabilities. The loss on disposal of $3,968 (net of taxes of
$2,232) was recorded at December 31, 1999 and consisted of an estimated
loss on disposal of $3,712 and a provision of $256 for anticipated
operating losses until the disposal date.
The machine tool division, along with the Sidney division which was sold in
1997, comprised the Company's machine tool segment. The results of the
machine tool segment are reported as discontinued operations in these
financial statements. Net sales from the discontinued segment of $961 and
$12,267 for the three quarters ended September 30, 2000 and 1999
respectively, and the related cost of sales, general and administrative
costs and interest expense have been reclassified from continuing
operations and are included in the loss from discontinued operations. In
the three quarters ended September 30, 2000 the Company has increased the
provision for operating losses by $150 related to certain costs incurred
relating to closing this segment.
In December 1999, the Company adopted a plan to discontinue the paper
coating and laminating segment of its business. The plan of disposal
provides for the servicing and installation of two remaining contracts
which should be completed by the end of 2000. Net liabilities of $86 at
September 30, 2000 consists of accounts receivable and accounts payable
which will be settled or received in cash in 2000, contract reserves for
remaining contracts and fixed assets which are carried at net realizable
value. Net sales from the discontinued segment of $30 and $2,127 for the
three quarters ended September 30, 2000 and 1999, respectively, and the
respective cost of sales, general and administrative costs and interest
expense have been reclassified from continuing operations and are included
in the loss from discontinued operations. During the second quarter of
2000, the Company increased the provision for operating losses by $750
relating to additional estimated contract costs.
The following table summarizes the net loss from operations of discontinued
segments:
<TABLE>
<CAPTION>
Three Quarters Ended September 30
---------------------------------
2000 1999
---- ----
<S> <C> <C>
Net earnings (loss) from operations:
Machine tool segment $ (150) $ (341)
Paper coating and laminating segment (750) (501)
------- ------
(900) (842)
Tax (provision) benefit 324 303
------- ------
Earnings (loss) from operations of discontinued
segments $ (576) $ (539)
======= ======
</TABLE>
7
<PAGE> 9
GENESIS WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS
THREE QUARTERS ENDED SEPTEMBER 30, 2000 AND 1999
(all dollar amounts in thousands, except per share amounts)
The provision for operating losses is summarized as follows:
<TABLE>
<CAPTION>
Machine Tool Paper Coating and
Segment Laminating Segment Total
------- ------------------ ------
<S> <C> <C> <C>
Provision for operating losses
at December 31, 1999 $ 400 $ 220 $ 620
Operating losses charged to
the provision (470) (769) (1,239)
Additional provision 150 750 900
----- ----- -----
Provision for operating losses
at September 30, 2000 $ 80 $ 201 $ 281
===== ===== =====
</TABLE>
6. ACQUISITIONS
On June 30, 1999, the Company acquired Precision Industrial Corporation and
Subsidiaries ("Precision"). The following unaudited proforma information
presents a summary of consolidated results of operations of the Company as
if the acquisition of Precision had occurred at the beginning of each
period presented.
<TABLE>
<CAPTION>
Three Quarters Ended September 30
2000 1999
---- ----
(Unaudited)
<S> <C> <C>
Net sales $ 99,738 $ 100,609
Loss before taxes $ (8,085) $ (1,854)
Income tax (provision) benefit $ 925 $ 873
Loss from continuing operations $ (7,160) $ (981)
Earnings (loss) per share (basic and
diluted) from continuing operations $ (1.69) $ (.23)
</TABLE>
These unaudited proforma results have been prepared for comparative
purposes only and include certain adjustments such as elimination of
management costs not expected to be incurred after the acquisition,
additional depreciation as a result of the step-up in the basis of fixed
assets, additional amortization expense as a result of goodwill and an
increase in interest expense as a result of acquisition debt. They do not
purport to be indicative of the results of operations which would have
resulted had the combination occurred at the beginning of each period
presented or of future results of operations of the combined entities. The
disproportionate tax provision results from the nondeductibility of
goodwill and federal excise tax in 2000.
In the second quarter of 2000 the Company resolved a preacquisition
contingency upon receipt of an actuarial valuation related to a pension
liability recorded by a foreign subsidiary of Precision. The resolution of
this contingency resulted in a reduction of the pension liability and a
decrease in goodwill of $1,235.
8
<PAGE> 10
GENESIS WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS
THREE QUARTERS ENDED SEPTEMBER 30, 2000 AND 1999
(all dollar amounts in thousands, except per share amounts)
In the third quarter of 2000, the Company resolved certain issues relating
to the Precision purchase price. Precision returned to Genesis the 500,000
shares of Genesis common stock issued in connection with the purchase. The
principal amount of the 12%, $15,000 Subordinate Note issued to Precision
was reduced by $3,500, the interest rate on the Note was reduced to 9%
through December 31, 2001, interest on the Note through March 31, 2001 will
be added to the principal amount rather than paid in cash, and warrants to
purchase Genesis common shares that could have been earned by holders of
the Note beginning June 30, 2000 were eliminated.
The adjustment to the purchase price resulted in a decrease in goodwill of
$4,697.
7. PENSION PLAN TERMINATION
In the first quarter of 2000 the Company completed the termination of two
of its pension plans for certain employees. Plan assets of $15,600 were
used to settle plan liabilities and $4,700 was transferred to trusts to
fund future employee benefit obligations. The balance of plan assets of
$14,000 was distributed to the Company with $10,400 used to repay long-term
debt. The Company recorded a net gain on this transaction of $315
consisting of a $3,132 settlement gain and a $2,817 expense for federal
excise taxes. Unrecognized prior service costs of $145 from the terminated
plans remain to be amortized over the next three years.
8. OTHER MATTERS
An operating loss was incurred in the first nine months of 2000, primarily
as a result of the low volume and uneven flow of orders the Company has
received since mid-1999 and from higher than anticipated manufacturing
costs being incurred on some contracts. Due to the above, the Company was
unable to generate adequate cash flow from operations to service its
financing costs and debt payments and had to borrow from its line of
credit. As a result, the Company has instituted a number of initiatives to
reduce its operating costs and improve its cash flow. These initiatives
include personnel reductions and other cost containment programs. The
Company estimates it has reduced its annual operating costs by over $3.1
million through these steps, which began in the second quarter of 2000.
Selling, general and administrative expense was $600,000 lower in the third
quarter of 2000 than in the second quarter. The Company is continuing to
review its cost structure to identify additional cost saving initiatives.
In addition to reducing its operating costs, the Company is aggressively
pursuing new business and is focused on closing out existing contracts to
collect amounts owed from its customers. The Company has suspended
non-essential spending and capital expenditures to further conserve its
cash.
9. INVESTMENT IN AFFILIATES
Subsequent to September 30, 2000 the Company sold its 50% interest in
Nippon Herr Company, Ltd for $615 in cash and recorded a net gain of $360
on this transaction in the fourth quarter of 2000, which includes the
elimination of $840 of subordinated debt and a realized loss of $50 for
cumulative translation adjustments.
9
<PAGE> 11
GENESIS WORLDWIDE INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
THREE QUARTERS ENDED SEPTEMBER 30, 2000 AND 1999
RESULTS OF OPERATIONS
For the three quarters and quarter ended September 30, 2000 the Company
reported a net (loss) from continuing operations of $(7,160,000) and
$(2,295,000), respectively, compared to net earnings (loss) from continuing
operations of $822,000 and $(298,000) for the same periods in 1999. During
the first quarter of 2000 the Company recorded a net gain of $315,000
related to the termination of certain of its pension plans. In the first
quarter of 1999, the Company recorded $350,000 of expense related to
settlement of litigation. Excluding the aforementioned items, the 2000 net
earnings were affected by higher interest expense due to increased
borrowing related to recent acquisitions. Goodwill amortization related to
acquisitions increased by $1,544,000 and $84,000 in the first three
quarters and third quarter of 2000 compared to the same periods in 1999.
Sales increased to $99.7 million in the three quarters of 2000, compared to
$74.1 million for the same period in 1999 with an additional $35.8 million
of sales from Herr-Voss ("Precision") acquired on June 30, 1999. Sales
decreased to $33.1 million in the third quarter of 2000 compared to $35.2
million for the same period in 1999. The Company's businesses excluding
Precision experienced a decline in sales of $9.7 million for the three
quarters ended September 30, 2000. This decline in revenues was due to a
prolonged slowdown in orders for the Company's capital equipment which
began in mid-1999.
Cost of goods sold as a percentage of sales was 82.1% and 86.9% in the
three quarters and third quarter of 2000 compared to 77.0% and 74.5% in the
respective 1999 periods. The newly acquired businesses have improved the
overall profit margin in the Company, but cost overruns and problems with
contract closeouts at the existing businesses, particularly in the second
and third quarters of 2000, contributed to the lower margin in the 2000
periods compared to 1999. An operating loss of $1.3 million and $1.2
million was incurred in the three quarters and third quarter of 2000
compared to operating earnings of $4.4 million and $2.3 million for the
same periods in 1999. The decrease in operating earnings was affected by
additional amortization of goodwill in 2000 relating to acquisitions.
Selling, general and administrative expenses increased by $4.9 million in
the three quarters of 2000 due to the acquisition of Precision. Selling,
general and administrative expenses decreased by $1.2 million in the third
quarter of 2000 compared to 1999 as a result of the Company's efforts to
reduce costs to more closely match its current business volume. Also
affecting comparability of operating results between 2000 and 1999 was a
decrease in pension income of $824,000 recognized in the three quarters
ended September 30, 2000 related to pension plans that were terminated in
January, 2000.
Orders received during the first three quarters of 2000 totaled $88.2
million including $38.9 million for Precision, compared to $49.1 million
for the same period of 1999. Backlog at September 30, 2000 was $50.5
million compared to $49.6 million at September 30, 1999 and $62.2 million
at December 31, 1999.
LIQUIDITY AND CAPITAL RESOURCES
During the first three quarters of 2000 the Company's operating activities
required $8.2 million of cash. The Company's operating losses and decreases
in accounts payable ($2.6 million) and accrued liabilities ($4.9 million)
required cash during the period. Advance payments from customers exceeded
costs incurred on contracts in process and increases in accounts
receivables and provided $3.7 million of cash.
10
<PAGE> 12
GENESIS WORLDWIDE INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
THREE QUARTERS ENDED SEPTEMBER 30, 2000 AND 1999
Capital expenditures required $3.2 million in the first three quarters of
2000 and a portion of the proceeds from the sale of the Machine Tool
Division ($8.3 million) and the termination of certain pension plans ($14.1
million) were used to repay $18.0 million of the Company's Term A long-term
debt.
The funding of operating losses and debt service during the first three
quarters of 2000 required the Company to borrow $9.0 million under its line
of credit, including $3.4 million to repay its term debt. At September 30,
2000, the Company had $5.0 million available to borrow or for issuing
letters of credit under its revolving credit line of $35 million. The
Company's line of credit was temporarily increased from $30 million at June
28, 2000 to $35 million through October 31, 2000, at which time it returned
to $30 million. Subsequent to October 31, 2000 the lender increased the
amount of the line to $32 million through December 31, 2000.
Operating losses have been incurred in 2000 primarily as a result of the
low volume and uneven flow of orders the Company has received since
mid-1999 and from higher than anticipated manufacturing costs being
incurred on contracts. Due to the above, the Company was unable to generate
adequate cash flow from operations to service its financing costs and debt
payments and had to borrow from its line of credit. As a result, the
Company has instituted a number of initiatives to reduce its operating
costs and improve its cash flow. These initiatives include personnel
reductions and other cost containment programs. The Company estimates it
has reduced its annual operating costs by over $3.1 million through these
steps, which began in the second quarter of 2000. These initiatives have
resulted in a reduction in selling, general and administrative expense in
the third quarter of 2000 of $1.2 million compared to the third quarter of
1999, with $600 thousand of the reduction occurring between the second and
third quarter of 2000. The Company is continuing to review its cost
structure to identify additional cost saving initiatives. In addition to
reducing its operating costs, the Company is aggressively pursuing new
business and is focused on closing out existing contracts to collect
amounts owed from its customers. The Company has suspended non-essential
spending and capital expenditures to future conserve its cash. Positively
impacting cash flow is the Company's settlement of claims against the
seller of its Herr-Voss operation, which included a reduction in the amount
owed to the seller of $3.5 million, a reduction in the interest rate (from
12% to 9%) to be paid on the remaining $12.0 million of seller indebtedness
through December 31, 2001 and a moratorium on the payment of interest
(amounts to be capitalized as additional borrowings) through March 31,
2001.
Because of lower than expected order volume continuing throughout 2000, the
Company may not be able to generate adequate cash flow from operations to
continue servicing its indebtedness. As a result, the Company has initiated
discussions with its present bank lender to consider various alternatives
to address the Company's capital structure, with a goal to reduce the
Company's financing costs and provide adequate capital for the company to
continue its operations. The Company has engaged a financial advisor,
McDonald Investments, to assist it in reviewing its capital structure and
advising it in discussions with its lender concerning these issues. The
Company has proposed a debt restructuring plan to its bank lender
consisting of exchanging a portion of its outstanding indebtedness (which
totals $71.7 million at September 30, 2000) for equity in the Company. The
lender has not yet formally responded to the Company's proposal but has had
ongoing discussions with the Company and its financial advisor concerning
this issue. If the Company is not able to reach a satisfactory agreement
with its bank lender, it may have to consider other steps to sustain its
operations, including reorganization, sale of all or parts of its business
or shutting down certain of its business locations. The Company cannot be
assured that any of these actions would ultimately provide adequate cash
flow to service its existing level of indebtedness without impairing its
ongoing viability.
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GENESIS WORLDWIDE INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
THREE QUARTERS ENDED SEPTEMBER 30, 2000 AND 1999
At September 30, 2000, the Company was in violation of certain of its bank
loan covenants. As a result, $66 million of long term debt in technical
default is classified as a current liability at September 30, 2000. The
lender has agreed to forebear from accelerating payment of the loan balance
through December 31, 2000. If a debt restructuring is not reached by that
date, the Company would request an extension of the bank forebearance and,
if necessary, a continuation of its increased revolving credit facility.
The Company believes that a valuation allowance against deferred tax assets
is not necessary, other than a valuation allowance relating to the net
operating loss carry forwards 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 reversal of the deferred tax
liabilities and the generation of future taxable income. However, a
valuation allowance against the deferred tax assets could be required if
estimates of future taxable income are reduced.
INTEREST RATE RISK
The Company anticipates incurring higher borrowing costs as a result of
increases in prime rate and LIBOR in 2000. At January 1, 2000 prime rate
was 8.50% and 90 day LIBOR was 6.00%. At October 31, 2000 these rates
increased to 9.50% and 6.76%, respectively. The Company estimates that a
.25% change in LIBOR or prime rate would impact annual interest cost by
$119,000 based on the amount of variable rate debt outstanding at September
30, 2000, exclusive of the notional amount discussed in the Quantitative
and Qualitative Disclosure about Market Risk section below.
The Company has an interest rate swap contract for a portion of its bank
debt. The notional amount under the contract declines from $23.9 million to
$14.5 million at the maturity of the contract on June 30, 2003. The receive
rate under the contract is 90 day LIBOR (6.66% for the period September 1,
2000 to December 31, 2000) and the pay rate is fixed at 7.16%. This
transaction will have the impact of increasing the Company's borrowing
costs by $30 during the quarter ended December 31, 2000.
FORWARD LOOKING STATEMENTS
In addition to historical information, this document contains various
forward-looking statements, which are subject to risks, and uncertainties
that could cause actual results to differ materially from these statements.
These risks include, but are not limited to, changes in economic
conditions, availability of adequate financing, 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.
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GENESIS WORLDWIDE INC. AND SUBSIDIARIES
QUANTITATIVE AND QUALITATIVE
DISCLOSURE ABOUT MARKET RISK
THREE QUARTERS ENDED SEPTEMBER 30, 2000 AND 1999
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS
Effective April 1, 2000, the Company entered into a three year interest
rate swap contract for a portion of its bank debt. The notional amount
under the contract declines from an initial amount of $24.5 million to
$14.5 million at the maturity of the contract on June 30, 2003. The
interest rate swap hedges against potential interest increases by having a
fixed pay rate of 7.16% with a variable receive rate of 90 day LIBOR (6.81%
at September 30, 2000), which is fixed two days before each quarter. In the
second and third quarter of 2000, the Company's interest rate on this
portion of its debt was 6.28% and 6.78%, respectively. The effect of this
swap was to increase interest expense in the second and third quarters by
$54 and $23, respectively, as the 90-day LIBOR rate was below the fixed pay
rate. For the fourth quarter of 2000 this transaction will have the impact
of increasing interest cost by $30 under this swap. At September 30, 2000,
a payment of $296 thousand would be required to terminate the interest rate
swap contract.
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PART II - OTHER INFORMATION
Items 1- 5 Inapplicable
Item 6 - Exhibits and Reports on Form 8-K
(a.) On September 6, 2000 the Company filed an 8-K to disclose the
Company's settlement of claims in connection with the purchase of the
Herr-Voss companies and the issuance of a new note as part of the
agreement terms.
(b.) Exhibit 4 - Forebearance Agreement dated as of November 20, 2000
among Genesis Worldwide Inc. and ING (U.S.) Capital LLC.
(c.) Exhibit 27 - Financial Data Schedule
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this quarterly report to be signed on its behalf
by the undersigned thereunto duly authorized.
GENESIS WORLDWIDE INC.
(Registrant)
DATE: November 20, 2000 By s/Karl A. Frydryk
--------------------- ----------------------------------------
Karl A. Frydryk
Vice President & Chief Financial Officer
(principal financial officer)
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