SECURITIES AND EXCHANGE COMMISSION
| ☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Fiscal Year Ended September 30,
20182020| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
(Exact name of registrant as specified in its charter)
| | |
Incorporated in the | | IRS Employer Identification |
(State or other jurisdiction of Delaware incorporation or organization) | | (I.R.S. Employer
Identification No. 59-0933147) |
|
5201 North Orange Blossom Trail
(Address of principal executive offices, including zip code)
Registrant’s
Telephone Number, Including Area Code:telephone number, including area code: (407)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
| | | | |
| | | | Name of Exchange on Whichwhich Registered |
Common Stock ($.10 Par Value) | | | | |
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act ☐ Yes ☒ No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15 (d) of the Act ☐ Yes ☒ No
Indicate by check mark whether the
Registrantregistrant (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
Registrantregistrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation
S-T (§
(§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ NoIndicate by check mark if disclosure of delinquent filers pursuant to Item 405 of RegulationS-K (§229.405 of this chapter) 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 Form10-K or any amendment to thisForm 10-K. ☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated
filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule12b-2
of the Exchange Act (check one):Act: | | | | | | |
| Large Accelerated Filer | | ☐ | | Accelerated Filer | | ☒☐ |
| | | |
| Non-Accelerated Filer | | ☐☒ | | Smaller Reporting Company | | ☐☒ |
| | | |
| | | | Emerging Growth Company | | ☐ | | | | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule
12b-2
of the Exchange Act). ☐ Yes ☒ NoThe
State the aggregate market value of the
voting andnon-voting
common equity held by
non-affiliates
computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter was $166,869,500.quarter: $109,937,000.
Indicate the number of shares outstanding of each of the
Registrant’sregistrant’s classes of Common Stock, as of the latest practicable
date: 12,252,337 shares of Common Stock ($.10 par value) and 2,288,857 shares of Class B Stock ($.10 par value) asdate. As of December
1, 2018.11, 2020: | | | | |
Common Stock ($.10 par value): | | | 12,287,337 shares | |
Class B Stock ($.10 par value): | | | 2,318,857 shares | |
DOCUMENTS INCORPORATED BY REFERENCE
Part III of this Form
10-K
is incorporated by reference from the Registrant’s 20192021 Proxy Statement for the Annual Meeting of the Stockholders.Introductory Note: Caution Concerning Forward-Looking Statements
This
annual reportAnnual Report on Form
10-K (“
(this “Annual Report”) and the Company’s other communications and statements may contain “forward-looking statements,”statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), including statements about the Company’s beliefs, plans, objectives, goals, expectations, estimates, projections and intentions. TheseAll forward-looking statements, by their nature, are subject to significant risks and uncertainties and are subject to change based on various factors, many of which are beyond the Company’s control. The Company’s actual future results may differ materially from those set forth in the Company’s forward-looking statements depending on a variety of important factors, including the financial condition of the Company’s customers, changes in the economic and competitive environments, demand for the Company’s products, the duration and scope of the coronavirus(“COVID-19”)
pandemic, actions government entities and businesses take in response to theCOVID-19
pandemic, including mandatory business closures; the impact of the pandemic and actions taken on regional economies; and the pace of recovery when theCOVID-19
pandemic subsides. The words “may,” “could,” “should,” “would,” “believe,” “anticipate,” “estimate,” “expect,” “intend,” “plan,” “target,” “goal,” and similar expressions are intended to identify forward-looking statements. All forward-looking statements, by their nature, are subject to risks and uncertainties. The Company’s actual future results may differ materially from those set forth in the Company’s forward-looking statements. For information concerning these factors and related matters, see “Risk Factors” in Part I, Item 1A in this
Annual Report, and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 in this
Annual Report. However, other factors besides those referenced could adversely affect the Company’s results, and you should not consider any such list of factors to be a complete set of all potential risks or uncertainties. Any forward-looking statements made by the Company herein speak as of the date of this
Annual Report. The Company does not undertake to update any forward-looking statement, except as required by law.
Gencor Industries, Inc. and its subsidiaries (the “Company,” “Gencor,” “we,” “us” or “our”) is a leading manufacturer of heavy machinery used in the production of highway construction materials and environmental control equipment. The Company’s products are manufactured in
two facilities in the United States. The Company’s products are sold through a combination of Company sales representatives and independent dealers and agents located throughout the world.
The Company designs, manufactures and sells machinery and related equipment used primarily for the production of asphalt and highway construction materials. The Company’s principal core products include asphalt plants, combustion systems and fluid heat transfer systems. The Company believes that its technical and design capabilities and environmentally friendly process technology have enabled it to become a leading producer of hot mix asphalt plants and related components in North America. The Company believes it has the largest installed base of asphalt plants in the United States.
Because the Company’s products are sold primarily to companies in the highway construction industry, its business has historically been seasonal. Traditionally, the Company’s customers do not purchase new equipment during the summer and fall months to avoid disrupting their peak season for highway construction and repair work. The majority of orders for the Company’s asphalt plants are typically received between October and February, with a significant volume of shipments occurring prior to June. The principal factors driving demand for the Company’s products are the level of federal and state funding for domestic highway construction and repair, the replacement of existing plants, and a trend towards efficient, larger plants.
In 1968, the Company was formed by the merger of Mechtron Corporation with General Combustion, Inc.
(“General Combustion”) and Genco Manufacturing, Inc. The new entity reincorporated in Delaware in 1969 and adopted the name Mechtron International Corporation in 1970. In 1985, the Company began a series of acquisitions into related fields starting with the Beverley Group Ltd.
(“Beverley”) in the United Kingdom (the “UK”).
Hy-Way Heat Company, Inc.
(“Hy-Way Heat”) and the Bituma Group were acquired in 1986. In 1987, the Company changed its name to Gencor Industries, Inc. and acquired Davis Line Inc. and its subsidiaries in 1988.
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In 1998, the Company entered into agreements with Carbontronics, LLC (“CLLC”) pursuant to which the Company designed, manufactured, sold and installed four synthetic fuel production plants. In addition to payment for the plants, the Company received membership interests in two synthetic fuel entities. These derived significant cash flows from the sale of synthetic fuel and tax credits (Internal Revenue Code, Section 29) and, consequently, distributed significant cash to the Company from 2001 to 2010.
The tax credit legislation expired at the end of calendar year 2007. Consequently, the four synthetic fuel plants were decommissioned. The plants were sold or transferred to site owners in exchange for a release of all contracted liabilities related to the removal of plants from the sites. Gencor’s ownership in the two synthetic fuel entities ended in 2013.
In October 2020, the Company acquired the Blaw-Knox paver business from Volvo Construction Equipment North America, LLC (“Volvo CE”). The acquisition expands the Company’s product offerings by adding highway class asphalt pavers to its asphalt plant and related equipment products. Operations will continue with Blaw-Knox’s in place management and workforce.
. The Company manufactures and produces
hot-mix
asphalt plants used in the production of asphalt paving materials. The Company also manufactures related asphalt plant equipment, includinghot-mix
storage silos, fabric filtration systems, cold feed bins and other plant components. The Company’s H&B (Hetherington and Berner) product line is the world’s oldest asphalt plant line, first manufactured in 1894. The Company’s subsidiary, Bituma Corporation, formerly known as Boeing Construction Company, developed the first continuous process for asphalt production. Gencor developed and patented the first counter flow drum mix technology, several adaptations of which have become the industry standard, which recaptures and burns emissions and vapors, resulting in a cleaner and more efficient process. The Company also manufactures a very comprehensive range of fully mobile batch plants.
Combustion Systems and Industrial Incinerators
. The Company manufactures combustion systems, which are large burners that can transform most solid, liquid or gaseous fuels into usable energy, or burn multiple fuels, alternately or simultaneously. Through its subsidiary General Combustion, the Company has been a significant source of combustion systems for the asphalt and aggregate drying industries since the 1950’s. The Company also manufactures
soil remediation machinery, as well as combustion systems for rotary dryers, kilns, fume and liquid incinerators and fuel heaters. The Company believes maintenance and fuel costs are lower for its burners because of their superior design.
Fluid Heat Transfer Systems
. The Company’s General Combustion subsidiary
also manufactures the
Hy-Way heat Heat and Beverley lines of thermal fluid heat transfer systems and specialty storage tanks for a wide array of industry uses. Thermal fluid heat transfer systems are similar to boilers, but use high temperature oil instead of water. Thermal fluid heaters have been replacing steam pressure boilers as the best method of heat transfer for storage, heating and pumping viscous materials (i.e., asphalt, chemicals, heavy oils, etc.) in many industrial and petrochemical applications worldwide. The Company believes the high-efficiency design of its thermal fluid heaters can outperform competitive units in many types of process applications.
The Company manufactures asphalt pavers under the Blaw-Knox brand.The Blaw-Knox brand dates back over a century, when in 1917 Blaw Collapsible Steel Centering Company merged with the Knox Pressed and Welded Steel Company. Blaw-Knox made its first road paving equipment in 1929. Blaw-Knox pavers are the industry leading, highway class pavers that deliver outstanding reliability and produce the highest quality rideable surfaces in the industry. Projects paved with Blaw-Knox pavers continually win industry awards for the highest quality highway pavements. Product Engineering and Development
The Company is engaged in product engineering and development efforts to expand its product lines and to further develop more energy-efficient and environmentally friendly
systems.equipment.
Product engineering and development activities are directed toward more efficient methods of producing asphalt and lower cost fluid heat transfer systems. In addition, efforts are also focused on developing combustion systems that operate at higher efficiency and offer a higher level of environmental compatibility.
Sources of Supply and Manufacturing
Substantially all products and components sold by the Company and its subsidiaries are manufactured and assembled by the
Company, except for specialized parts.Company. The Company purchases steel, other raw materials and hardware used to manufacture its products from numerous
suppliers and is not dependent on any single supplier. Periodically, the Company reviews the cost effectiveness of internal manufacturing versus outsourcing to independent third parties.suppliers. The Company may augment internal production by outsourcing some of its production when demand for its products exceeds its manufacturing capacity.
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The Company is concentrated in the manufacturing of asphalt plants and related components, which is typically subject to a seasonal slow-down during the third and fourth quarters of the calendar year.
The markets for the Company’s products are highly competitive. The industry remains fairly concentrated, with a small number of companies competing for the majority of the Company’s product lines. The principal competitive factors include quality, price, delivery, and technology. The Company believes it manufactures the highest quality and heaviest equipment in the industry. Its products’ performance reliability, brand recognition, pricing, and
technical support are other important factors.
The Company’s products and services are marketed primarily through Company-employed sales
representatives.representatives and independent dealers.
The size of the Company’s backlog should not be viewed as an indicator of the Company’s quarterly or annualized revenues, due to the timing of order fulfillment of asphalt plants. The Company’s backlog, which includes orders received through the date of this filing, was
$28.0$24.9 million and
$46.0$27.3 million as of December 1,
20182020 and December 1,
2017,2019, respectively.
Financial Information about Geographic Areas Reporting Segments
For a geographic breakdown of revenues and long-term assets, see
the table captioned Reporting Segments
and Geographic Areas in Note 1 to the Consolidated Financial Statements.
Licenses, Patents and Trademarks
The Company held numerous patents covering technology and applications related to various products, equipment and systems, and numerous trademarks and trade names registered with the U.S. Patent and Trademark Office and in various foreign countries. In general, the Company depends upon technological capabilities, manufacturing quality control and application
know-how,
rather than patents or other proprietary rights in the conduct of its business. The Company believes the expiration of any one patent would not have a material adverse effect on the overall operations of the Company.
The Company believes its design and manufacturing processes meet all industry and governmental agency standards that may apply to its entire line of products, including all domestic and foreign environmental, structural, electrical and safety codes. The Company’s products are designed and manufactured to comply with U.S. Environmental Protection Agency regulations. Certain state and local regulatory authorities have strong environmental impact regulations. While the Company believes that such regulations have helped, rather than restricted its marketing efforts and sales results, there is no assurance that changes to federal, state, local, or foreign laws and regulations will not have a material adverse effect on the Company’s products and earnings in the future.
The Company is subject to various federal, state, local and foreign laws and regulations relating to the protection of the environment. The Company believes it is in compliance with all applicable environmental laws and regulations. The Company does not expect any material impact on future operating costs as a result of compliance with currently enacted environmental regulations.
As of September 30,
2018,2020, the Company had
a total of 372316 full-time employees. The Company has a collective bargaining agreement covering employees at its Marquette, Iowa facility. No other employees are represented by a labor union or collective bargaining agreement.
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For further discussion concerning the Company’s business, see the information included in Item 7 (Management’s Discussion and Analysis of Financial Condition and Results of Operations) and Item 8 (Financial Statements and Supplementary Data) of this
Annual Report.
The Company makes available free of charge through its website at www.gencor.com the Company’s Annual
ReportReports on Form
10-K, quarterly reports
Quarterly Reports on Form10-Q, current reports
Current Reports on Form8-K
and all amendments to those reports, if applicable, filed or furnished pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act, of 1934, as amended, as soon as reasonably practicable after the material is electronically filed with or furnished to the Securities and Exchange Commission (“SEC”). The information posted on the website is not incorporated into this Annual Report on Form10-K.Report.
The following risk factors and other information included in this Annual Report
on Form10-K should be carefully considered. The risks and uncertainties described below are not the only ones the Company faces. Additional risks and uncertainties not presently known to the Company, or that the Company presently deems less significant, may also impair the Company’s operations. If any of the following risks actually occur, the Company’s business operating results and financial condition could be materially adversely affected. The order of these risk factors does not reflect their relative importance or likelihood of occurrence.
The business is affected by the cyclical nature of the markets it serves and steel prices
The demand for the Company’s products and service is dependent on general economic conditions and more specifically, the commercial highway construction industry. Adverse economic conditions may cause customers to forego or delay new purchases and rely more on repairing existing equipment thus negatively impacting the Company’s sales and profits.
Rising oil prices, volatileVolatile steel prices and shortage of qualified workers may have adverse effects on the Company. Market conditions could limit the Company’s ability to raise selling prices to offset increases in material and/or labor costs.
The business is affected by the level of government funding for highway construction in the United States and
Canada.Canada.
Most highway contractors
in the U.S. and Canada depend on funding by federal,
foreign,provincial, state and local agencies for highway, transit and infrastructure programs. Future legislation may increase or decrease government spending, which, if decreased, could have a negative effect on the Company’s financial condition or results of operations. Federal
and/or state funding allocated to infrastructure may
be decreaseddecrease in the future.
Previously, the Company depended on one customer for a significant portion of its revenue. The loss of
thisany relationship
with a large customer, or a significant downturn in the business or financial condition of any such customer, could have adverse consequences on the Company’s future business.
The percentage of the Company’s net revenue that was derived from sales to its largest customer
was 9% in
recent years wasfiscal 2020, 6% in fiscal 2019 and 3% in fiscal
2018, 13% in fiscal 2017 and 14% in fiscal 2016.2018. No customer accounted for 10% or more of fiscal
20182020 or 2019 revenues.
If the Company had customers that accounted for a significant portion of its net revenues, then the loss of any of those customers, or a significant reduction in sales to any such customer, could adversely affect the Company’s revenues and, consequently, its business.
If the Company fails to comply with requirements relating to internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act, the business could be harmed and its stock price could decline.
Rules adopted by the SEC pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 require the Company to assess its internal control over financial reporting annually. The rules governing the standards that must be met for management to assess its internal control over financial reporting are complex. They require significant documentation, testing, and possible remediation of any significant deficiencies in and/or material weaknesses of internal controls in order to meet the detailed standards under these rules. The Company has evaluated its internal control over financial reporting as effective as of September 30,
2018.2020. See Item 9A – Controls and Procedures – Management’s Annual Report on Internal Control over Financial Reporting. Although the Company concluded that its internal control over financial reporting was effective as of September 30,
2018,2020, in future fiscal years, the Company may encounter unanticipated delays or problems in assessing its internal control over financial reporting as effective or in completing its assessments by the required dates. In addition, the Company cannot
assure yoube assured that,
if required, its independent registered public accountants will attest that internal control over financial reporting is effective in future fiscal years. If the Company cannot assess its internal control over financial reporting as effective, investor confidence and share value may be negatively impacted.
The Company may be required to reduce its profit margins on contracts on which it useswhere revenues are recognized over time.
Revenues from contracts with customers for the
percentage-of-completion accounting method.The Company records revenues design, manufacture and profits on manysale of its contracts usingcustom equipment are recognized over time when thepercentage-of-completion method performance obligation is satisfied by transferring control of accounting.the equipment. Control of the equipment transfers over time as the equipment is unique to the specific contract and thus does not create an asset with an alternative use. Revenues and costs are recognized in proportion to actual labor costs incurred, as compared with total estimated labor costs expected to be incurred during the entire contract. As a result, revisions made to the estimates of revenues and profits are recorded in the period in which the conditions that require such revisions become known and can be estimated. Although the Company believes that its profit margins are fairly stated and that adequate provisions for losses for its fixed-price contracts are recorded in the financial statements, as required under U.S.by accounting principles generally accepted accounting principlesin the United States of America (“GAAP”), the Company cannot assure you that its estimated contract profit margins will not decrease or its estimated loss provisions will not increase materially in the future.
The Company may encounter difficulties with future
acquisitions.acquisitions.
As part of its growth strategy, the Company intends to evaluate the acquisition of other companies, assets or product lines that would complement or expand the Company’s existing business or broaden its customer base. Although the Company conducts due diligence reviews of potential acquisition candidates, it may not be able to identify all material liabilities or risks related to potential acquisition candidates. There can be no assurance that the Company will be able to locate and acquire any business, retain key personnel and customers of an acquired business or integrate any acquired business successfully. Additionally, there can be no assurance that financing for any acquisition, if necessary, will be available on acceptable terms, if at all, or that the Company will be able to accomplish its strategic objectives in connection with any acquisition.
Although the Company periodically considers possible acquisitions, no specific acquisitions are probable as of the date of this Report on Form10-K.
Demand for the Company’s products is cyclical in
nature.nature.
Demand for the Company’s products depends, in part, upon the level of capital
and maintenance expenditures by companies in the highway construction industry. The highway construction industry historically has been cyclical and vulnerable to downturns in the economy. Decreases in industry spending could have a material adverse effect upon demand for the Company’s products and negatively impact its business, financial condition, results of operations and the market price of its common stock.
The Company’s marketable securities are comprised of cash and money funds, equities, corporate bonds, mutual funds, exchange-traded funds, and government securities invested through
a professional investment management
firmfirms and are subject to various risks, such as interest rates, markets, and
credit.credit.
Due to the level of risk associated with certain investment securities and the level of uncertainty related to changes in the value of securities, changes in these risk factors could have a material adverse impact on the Company’s results of operations.
There are and will continue to be quarterly fluctuations of the Company’s operating
results.results.
The Company’s operating results historically have fluctuated from quarter to quarter as a result of a number of factors, including the value, timing and shipment of individual orders and the mix of products sold. Revenues from
larger contracts
with customers for the design, manufacture and sale of custom equipment are recognized
usingover time when the
percentage-of-completion method performance obligation is satisfied by transferring control of
accounting. The Company recognizes product revenues upon shipmentthe equipment. Revenues from all other contracts for the design and manufacture of
its products.equipment, for service and for parts sales, net of any discounts and return allowances, are recorded at a point in time when control of the goods or services has been transferred. The Company’s asphalt production equipment operations are subject to seasonal fluctuations, which may lower revenues and result in possible quarterly operating losses.
If the Company is unable to attract and retain key personnel, its business could be adversely
affected.affected.
The success of the Company will continue to depend substantially upon the efforts, abilities and services of its management team and certain other key employees. The loss of one or more key employees could adversely affect the Company’s operations. The Company’s ability to attract and retain qualified personnel, either through direct hiring, or acquisition of other businesses employing such persons, will also be an important factor in determining its future success.
The Company may be required to defend its intellectual property against infringement or against infringement claims of
others.others.
The Company
holdsheld numerous patents covering technology and applications related to various products, equipment and systems, and numerous trademarks and trade names registered with the U.S. Patent and Trademark Office and in various foreign countries. There can be no assurance as to the breadth or degree of protection that
existing or future patents or trademarks may afford the Company, or that any pending patent or trademark applications will result in issued patents or trademarks, or that the Company’s patents, registered trademarks or patent applications, if any, will be upheld if challenged, or that competitors will not develop similar or superior methods or products outside the protection of any patents issued, licensed or sublicensed to the Company. Although the Company believes that none of its
patents, technologies, products or trademarks infringe upon the patents, technologies, products or trademarks of others, it is possible that the Company’s
existing patents, trademarks or other rights may not be valid or that infringement of
existing or future patents, trademarks or proprietary rights may occur. In the event that the Company’s products are deemed to infringe upon the patent or proprietary rights of others, the Company could be required to modify the design of its products, change the name of its products or obtain a license for the use of certain technologies incorporated into its products. There can be no assurance that the Company would be able to do any of the foregoing in a timely manner, upon acceptable terms and conditions, or at all, and the failure to do so could have a material adverse effect on the Company. In addition, there can be no assurance that the Company will have the financial or other resources necessary to enforce or defend a patent, registered trademark or other proprietary right, and, if the Company’s products are deemed to infringe upon the patents, trademarks or other proprietary rights of others, the Company could become liable for damages, which could also have a material adverse effect on the Company.
The Company may be subject to substantial liability for its
products.products.
The Company is engaged in a business that could expose it to possible liability claims for personal injury or property damage due to alleged design or manufacturing defects in its products. The Company believes that it meets existing professional specification standards recognized or required in the industries in which it operates, and there are no material product liability claims pending against the Company as of the date hereof. Although the Company currently maintains product liability coverage, which it believes is adequate for the continued operation of its business, such insurance may prove inadequate or become difficult to obtain or unobtainable in the future on terms acceptable to the Company.
The Company is subject to extensive environmental laws and regulations, and the costs related to compliance with, or the Company’s failure to comply with, existing or future laws and regulations, could adversely affect the business and results of
operations.operations.
The Company’s operations are subject to federal, state, local and foreign laws and regulations relating to the protection of the environment. Sanctions for noncompliance may include revocation of permits, corrective action orders, significant administrative or civil penalties and criminal prosecution. The Company’s business involves environmental management and issues typically associated with historical manufacturing operations. To date, the Company’s cost of complying with environmental laws and regulations has not been material, but the fact that such laws or regulations are changed frequently makes predicting the cost or impact of such laws and regulations on the Company’s future operations uncertain.
The loss of one or more of the Company’s
raw materialsstrategic suppliers could cause production delays.
The principal raw material the Company uses is carbon
steel.steel which is sourced through numerous suppliers. The Company
has been ablealso uses select suppliers to
obtain sufficient supplies of raw materials forprovide proprietary components to its
operations.finished products. Although the Company believes that
such raw materials are readily available from alternate sources, an interruption in the supply of steel and related products or a substantial increase in the price of steel could have a material adverse effect on the Company’s
businessproduction and its results of operations.
The Company is subject to
significant government
regulations.regulations.
The Company is committed to responsible environmental, social and governance (“ESG”) practices. The Company strives to be recognized as a company that achieves customer expectations safely and in a manner that rewards both its customers and its employees. The Company strives to achieve these goals through an organizational structure that provides excellent service and a reputation of integrity with the communities where it operates while providing its employees with growth opportunities in an injury-free environment.
The Company is subject to a variety of governmental regulations relating to the manufacturing of its products.
Any failureFailure by the Company to comply with
present or future regulations could subject it to
future liabilities, or
the suspension of production that could have a material adverse effect on the Company’s
results of operations.results. Such regulations could also restrict the Company’s ability to expand its facilities,
or could require the Company to acquire costly equipment or to incur other expenses to comply with such regulations. Although the Company believes it has the design and manufacturing capability to meet all industry or governmental agency standards that may apply to its product lines, including all domestic and foreign environmental, structural, electrical and safety codes, there can be no assurance that governmental laws and regulations will not become more stringent over time, imposing greater compliance costs and increasing risks and penalties associated with a violation. The cost to the Company of such compliance to date has not materially affected its business, financial condition or results of operations. There can be no assurance, however, that violations will not occur in the future as a result of human error, equipment failure or other causes. The Company’s customers are also subject to extensive regulations, including those related to the workplace. The Company cannot predict the nature, scope or effect of governmental legislation, or regulatory requirements that could be imposed or how existing or future laws or regulations will be administered, or interpreted. Compliance with more stringent laws or regulations, as well as more vigorous enforcement policies of regulatory agencies, could require substantial expenditures by the Company and could adversely affect its business, financial condition and results of operations.
Increasing scrutiny and changing expectations from stakeholders with respect to the Company’s ESG practices may expose us to new or additional risks.
Companies across many industries are facing increasing scrutiny from stakeholders related to their ESG practices. Investor advocacy groups, certain institutional investors, investment funds and other influential investors are also increasingly focused on ESG practices and in recent years have placed increasing importance on the implications and social cost of their investments. Regardless of the industry, investors’ and stakeholders’ increased focus related to stakeholder ESG expectations and standards, which are evolving, may cause the Company to suffer from reputational damage and its business or financial condition could be adversely affected.
The Company’s management has effective voting
control.control.
The Company’s officers beneficially own 100% of the outstanding shares of the Company’s Class B stock. The holders of the Class B stock are entitled to elect 75% (calculated to the nearest whole number, rounding five-tenths to next highest whole number) of the members of the Company’s Board of Directors. Further, approval of a majority of the holders of the Class B stock is generally required to effect a sale of the Company and certain other corporate transactions. As a result,
thesethe Class B shareholders can elect more than a majority of the Board of Directors and exercise significant influence over most matters requiring approval by the Company’s shareholders. This concentration of control may also have the effect of delaying or preventing a change in control.
The issuance of preferred stock may impede a change of control or may be dilutive to existing
shareholders.shareholders.
The Company’s Certificate of Incorporation, as amended, authorizes the Company’s Board of Directors, without shareholder vote, to issue up to 300,000 shares of preferred stock in one or more series and to determine for any series the dividend, liquidation, conversion, voting or other preferences, rights and terms that are senior, and not available, to the holders of the Company’s common stock. Thus, issuances of series of preferred stock could adversely affect the relative voting power, distributions and other rights of the common stock. The issuance of preferred stock could deter or impede a merger, tender offer or other transaction that some, or a majority of the Company’s common shareholders might believe to be in their best interest or in which the Company’s common shareholders might receive a premium for their shares over the then current market price of such shares.
The Company may be required to indemnify its directors and executive
officers.officers.
The Company has authority under Section 145 of the Delaware General Corporation Law to indemnify its directors and officers to the extent provided in that statute. The Company’s Certificate of Incorporation, as amended, provides that a director shall not be personally liable to the Company for breach of fiduciary duty as a director, except to the extent such exemption from liability or limitation thereof is not permitted under the Delaware General Corporation Law. The Company’s Bylaws provide, in part, that it indemnify each of its directors and officers against liabilities imposed upon them (including reasonable amounts paid in settlement) and expenses incurred by them in connection with any claim made against them or any action, suit or proceeding to which they may be a party by reason of their being or having been a director or officer. The Company maintains officers’ and directors’ liability insurance coverage. There can be no assurance that such insurance will be available in the future, or that if available, it will be available on terms that are
acceptable to the Company. Furthermore, there can be no assurance that the insurance coverage provided will be sufficient to cover the amount of any judgment awarded against an officer or director (either individually or in the aggregate). Consequently, if such judgment exceeds the coverage under the policy, the Company may be forced to pay such difference.
9
The Company enters into indemnification agreements with each of its executive officers and directors containing provisions that may require the Company, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as officers or directors (other than liabilities arising from willful misconduct of a culpable nature) and to advance their expenses incurred as a result of any proceeding against them as to which they could be indemnified. Management believes that such indemnification provisions and agreements are necessary to attract and retain qualified persons as directors and executive officers.
The Company does not expect to pay cash dividends for the foreseeable
future.For the foreseeable future, thefuture.
The Company intends to retain
any earningsits cash to
financefund its business requirements. It does not anticipate paying
any cash dividends on its common stock or Class B stock. Any future determination to pay cash dividends will be at the discretion of the Company’s Board of Directors and will be dependent upon
then existing conditions, including the financial condition and results of operations, capital requirements, contractual restrictions, business prospects, and other factors that the Board of Directors considers relevant.
Competition could reduce revenue from the Company’s products and services and cause it to lose market share.
The Company currently faces strong competition in product performance, price and service. Some of the Company’s competitors have greater financial, product development and marketing resources than the Company. If competition in the Company’s industry intensifies or if the current competitors enhance their products or lower their prices for competing products, the Company may lose sales or be required to lower the prices it charges for its products. This may reduce revenues from the Company’s products and services, lower its gross margins, or cause
it to losea loss in market share.
The Company’s quarterly operating results are likely to fluctuate, which may decrease its stock price.
The Company’s quarterly operating results have varied significantly in the past and are likely to vary significantly from quarter to quarter in the future. As a result, the Company’s operating results may fall below the expectations of securities analysts and investors in some quarters, which could result in a decrease in the market price of its common stock. The reasons the Company’s quarterly results may fluctuate include:
General competitive and economic conditionsconditions;
Delays in, or uneven timing in, delivery of customer ordersorders;
The seasonal nature of the industryindustry;
The fluctuations in the market value of its securities portfolioportfolio;
The introduction of new products by the Company or its competitorscompetitors;
Product supply shortagesshortages;
Reduced demand due to adverse weather conditionsconditions;
Expiration or renewal of Federal highway programs,programs; and
Changes to state or Canadian provincial programs.
comparisons of such items should not be relied on as indications of future performance.
The Company’s common stock has been, and likely will continue to be, subject to substantial price and volume fluctuations due to a number of factors, many of which will be beyond the Company’s control.
The market price of the Company’s common stock may be significantly affected by various factors, such as:
Quarterly variations in operating resultsresults;
Changes in revenue growth rates as a whole or for specific geographic areas or productsproducts;
Changes in earnings estimates by market analystsanalysts;
The announcement of new products or product enhancements by the Company or its competitorscompetitors;
Speculation in the press or analyst community of potential acquisitions by the Company,Company; and
General market conditions or market conditions specific to particular industries.
10
The Company’s business, results of operations, financial condition, cash flows, and the stock price of its common stock could be adversely affected by theCOVID-19
pandemic. The Company’s business, results of operations financial condition, cash flows, and the stock price of its common stock can be adversely affected by pandemics or other public health emergencies, such as the recent outbreak ofCOVID-19.
In March 2020, the WHO declaredCOVID-19
as a pandemic. TheCOVID-19
pandemic has resulted in governments around the world implementing increasingly stringent measures to
Financial Statementshelp control the spread of the virus, including “stay at home” orders, travel restrictions, business curtailments, school closures, and other measures. The outbreak ofCOVID-19
and any preventive or protective actions taken by governmental authorities may have a material adverse effect on the Company’s operations, supply chain, customers, and transportation networks, including business shutdown or disruptions. The extent to whichCOVID-19
may adversely impact the Company’s business depends on future developments, which are highly uncertain and unpredictable, depends upon the severity and duration of the outbreak and the effectiveness of actions taken globally to contain or mitigate its effect. Any resulting financial impact cannot be estimated reasonably at this time, but may materially adversely affect the Company’s business, results of operations, financial condition, and cash flows. Even after theCOVID-19
pandemic has subsided, the Company may experience materially adverse impacts to its business due to any resulting economic recession or depression. Additionally, concerns over the economic impact ofCOVID-19
have caused extreme volatility in financial and other capital markets, which has and may continue to adversely impact the Company’s stock price, its ability to access capital markets, and the value of its investment portfolio. To the extent theCOVID-19
pandemic adversely affects the Company’s business and financial results it may also have the effect of heightening many of the other risks described in this Annual Report, such as those relating to the Company’s products and financial performance. The Company may suffer adverse consequences if it is deemed an investment company under the Investment Company Act of 1940, as amended (the “Investment Company Act”).
Under Section 3(a)(1)(A) of the Investment Company Act, a company is deemed to be an investment company if it is, or holds itself out as being, engaged primarily, or proposes to engage primarily, in the business of investing, reinvesting, or trading in securities. The Company believes that it is not an investment company under Section 3(a)(1)(A) of the Investment Company Act because it does not hold itself out as being engaged primarily in the business of investing in securities. Rather, the Company has been a manufacturer of heavy equipment used in the production of asphalt for highway construction and environmental control equipment for over 50 years. The Company’s core products include asphalt plants, combustion systems, and fluid heat transfer systems. The Company is expanding its product offerings through new product introductions and its recent acquisition of an asphalt paver product line.
Under Section 3(a)(1)(C) of the Investment Company Act, a company is deemed to be an investment company if it is engaged, or proposes to engage in the business of investing, reinvesting, owning, holding, or trading in securities and owns or proposes to acquire investment securities having a value exceeding 40% of the value of its total assets (exclusive of U.S. Government securities and cash items) on an unconsolidated basis. As reflected on the Company’s balance sheet at September 30, 2020, the Company owns a significant amount of marketable securities, which include cash, cash equivalents, government and corporate bonds, mutual funds, exchange-traded funds and equities. Section 3(a)(2) defines the term “investment securities”, as used in Section 3(a)(1)(C) to include all marketable securities except government securities and cash and cash equivalents. The value of the Company’s investment securities was approximately 57% of the value of its total assets (excluding government securities and cash items) at September 30, 2020. Because of the value of its investment securities, the Company may be deemed an investment company. The Company believes that it is not an investment company under Section 3(a)(1)(C) of the Investment Company Act because it does not propose to engage in the business of investing, reinvesting, owning, holding, or trading in securities. In addition, if the Company was deemed an investment company under Section 3(a)(1)(C), it believes that it will qualify for an exemption from the definition of an investment company as it is primarily engaged in a business other than that of investing in securities. As noted above, the Company is primarily engaged in the manufacturing of heavy equipment. If the SEC or a court challenged the Company’s status as an operating company, it could incur significant legal expenses.
If the Company was deemed to be, and was required to register as an investment company, the Company would be forced to comply with the legal requirements of the Investment Company Act. As an investment company, the Company would be (i) subjected to disclosure and accounting guidance geared toward investment, rather than operating, companies; and (ii) required to undertake significant expense to meet other disclosure, reporting, and regulatory requirements to which it would be subject as a registered investment company.
The Company faces risks in connection with the acquisition of Blaw-Knox and any future acquisitions.
The Company acquired the Blaw-Knox paver product line on October 1, 2020. The success of this acquisition depends, in part, on the Company’s ability to successfully grow the business and realize anticipated benefits, including any synergies. It may take longer than expected to realize growth in the business or realize anticipated benefits, which may be smaller than the Company expects. Also, there are a number of challenges and risks involved in the Company’s ability to successfully integrate Blaw-Knox with its current business. Any of these factors could have a material adverse effect on the Company’s business, financial condition, results of operations, or cash flows.
Acquiring businesses or products that expand and/or complement the Company’s operations has been an element of its business strategy. The Company continues to evaluate potential acquisitions that may expand and/or complement its business. The Company may not be able to successfully identify attractive acquisition candidates or negotiate favorable terms in the future. Furthermore, the Company’s ability to effectively integrate any future acquisitions will depend on, among other things, the adequacy of its implementation plans, the ability of its management to oversee and operate effectively the combined operations, and the Company’s ability to achieve desired operational efficiencies. The Company’s failure to successfully integrate the operations of any business that it may acquire in the future may adversely affect our business, financial position, results of operations, or cash flows.
| ITEM 1B | UNRESOLVED STAFF COMMENTS |
The following table lists the operating properties owned
or leased by the Company as of September 30,
2018: | | | | | | | | | | |
Location | | Owned
Acreage | | | Building
Square
Footage | | | Principal Function |
Marquette, Iowa | | | 72.0 | | | | 137,000 | | | Offices and manufacturing |
Orlando, Florida | | | 27.0 | | | | 215,000 | | | Corporate offices and manufacturing |
| | | | | | | | | | |
| | | | |
| | | |
| Marquette, Iowa | | | 72.0 | | | | 137,000 | | | Owned offices and manufacturing - Gencor |
| | | |
| Orlando, Florida | | | 27.0 | | | | 215,000 | | | Owned corporate offices and manufacturing - Gencor |
| | | |
| Chambersburg, Pennsylvania | | | 7.4 | | | | 91,500 | | | Leased offices and manufacturing – Blaw-Knox (as of September 1, 2020) |
The Company has various litigation and claims, either as a plaintiff or defendant, pending as of the date of this
Form10-KAnnual Report, which have occurred in the ordinary course of business, and which may be covered in whole, or in part, by insurance. Management has reviewed all litigation matters arising in the ordinary course of business and, upon advice of legal counsel, has made provisions, not deemed material, for any probable losses and expenses of litigation.
| ITEM 5 | MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
The Company’s
common stock is traded on the
NASDAQNasdaq Global Market under the symbol “GENC.”
The Company has not issued any securities during the prior two years that were not already registered under the Exchange Act.
As of September 30,
2018,2020, there were
220200 holders of common stock of record and 6 holders of Class B stock of record. The Company has not paid cash dividends during the last two fiscal years and has no intention to pay cash dividends in the foreseeable future.
EQUITY COMPENSATION PLANS
The following table includes information about the Company’s common
and Class B stock that may be issued upon exercise of options, warrants and rights under all of the existing equity compensation plans and arrangements previously approved by security holders as of September 30,
2018: | | | | | | | | | | | | |
Plan | | Number of Securities to
be Issued upon
Exercise of
Outstanding Options | | | Weighted-Average
Exercise Price of
Outstanding
Options | | | Number of Securities Remaining
Available for Future Issuance
under Equity Compensation
Plans | |
2009 Incentive Compensation Plan | | | 317,492 | | | $ | 5.984 | | | | 582,000 | * |
* | Includes 100,000 of Class B securities
|
12
2020: | | | | | | | | | | | | |
| | Number of Securities to
be Issued upon
Exercise of
Outstanding Options | | | Weighted-Average
Exercise Price of
Outstanding
Options | | | Number of Securities Remaining
Available for Future Issuance
under Equity Compensation
Plans | |
| | | |
2009 Incentive Compensation Plan | | | 252,492 | | | $ | 6.205 | | | | — | |
| ITEM 7 | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
“Forward-Looking” Information
This
Form10-KAnnual Report contains certain “forward-looking statements” within the meaning of
Section 21E of the
Securities Exchange Act,
of 1934, as amended (the “Exchange Act”), which represent the Company’s expectations and beliefs, including, but not limited to, statements concerning gross margins, sales of the Company’s products and future financing plans, income from investees and litigation. These statements by their nature involve substantial risks and uncertainties, certain of which are beyond the Company’s control. Actual results may differ materially depending on a variety of important factors, including the financial condition of the Company’s customers, changes in the economic and competitive environments, the performance of the investment portfolio and the demand for the Company’s products.
For information concerning these factors and related matters, see “Risk Factors” in Part I, Item 1A in this
Annual Report. However, other factors besides those referenced could adversely affect the Company’s results, and you should not consider any such list of factors to be a complete set of all potential risks or uncertainties. Any forward-looking statements made by the Company herein speak as of the date of this
Annual Report. The Company does not undertake to update any forward-looking statements, except as required by law.
Gencor
Industries, Inc. (the “Company”), is a leading manufacturer of heavy machinery used in the production of highway construction materials and environmental control equipment. The Company’s core products include asphalt plants, combustion systems,
and fluid heat transfer
systems.systems and asphalt pavers. The Company’s products are manufactured
in twoat three facilities in the United States.
Because the Company’s products are sold primarily to the highway construction industry, the business is seasonal in nature. Traditionally, the Company’s customers reduce their purchases of new equipment for shipment during the summer and fall months to avoid disrupting their peak season for highway construction and related repair work. The majority of orders for the Company’s products are thus received between October and February, with a significant volume of shipments occurring in the late winter and spring. The principal factors driving demand for the Company’s products are the overall economic conditions, the level of government funding for domestic highway construction and repair, Canadian infrastructure spending, the need for spare parts, fluctuations in the price of
crude oil (liquid asphalt),liquid asphalt, and a trend towards
larger more efficient
largerasphalt plants.
On July 6, 2012, President Obama signed a $118 billion transportation bill, Moving Ahead for Progress in the 21st Century Act(“MAP-21”).MAP-21 included a final three-month extension of the previousSAFETEA-LU bill at then current spending levels combined with a newtwo-year, $105 billion authorization of the federal highway, transit, and safety programs effective October 1, 2012. The bill provided states with two years of funding to build roads, bridges, and transit systems. On August 8, 2014, President Obama signed a $10.8 billionten-month bill to fund Federal highway and mass-transit programs through May 31, 2015. On May 29, 2015,MAP-21 was extended through July 31, 2015. On July 31, 2015, President Obama signed a three-month extension ofMAP-21, which provided $8 billion in funding for the Highway Trust Fund from August 1, 2015 through October 29, 2015. Two additional short-term extensions were approved between October 29, 2015 and December 4, 2015.
On December 4, 2015, President Obama signed into law a five-year, $305 billion transportation bill, Fixing America’s Surface Transportation Act (the “FAST Act”). The FAST Act reauthorized the collection of the 18.4 cents per gallon gas tax that is typically used to pay for transportation projects. It also included $70 billion from other areas of the federal budget to close a $16 billion annual funding deficit. The bill
includesincluded spending of more than $205 billion on roads and highways over five years. The 2016 funding levels
arewere approximately 5% above 2015 projected funding, with annual increases between 2.0% and 2.5% from 2016 through
September 2020.
On the eve of its expiration, a
one-year
extension to the FAST Act was passed and signed into law. Theone-year
extension maintains current funding levels under the FAST Act through September 2021.California’s Senate Bill 1 (“SB1”), the Road Repair and Accountability Act of 2017, was signed into law on April 28, 2017. The legislative package invests $54 billion over the next decade to fix roads, freeways and bridges in communities across California and puts more dollars towards transit and safety. These funds will be allocated to state and local projects.
13
increase their gas tax revenues in recent years.In addition to government funding and overall economic conditions, fluctuations
Fluctuations in the price of
oil,carbon steel, which is a
major componentsignificant cost and material used in the manufacturing of
asphalt mix,the Company’s equipment, may affect the Company’s financial performance.
An increase in the price of oil increases the cost of liquid asphalt and could decrease demand forhot-mix asphalt paving materials and certain of the Company’s products. The Company will pass increased freight costs on to its customers. However, the Company may not be able to recapture all of the increased costs and thus could have a negative impact on the Company’s financial performance.Steel is a major component used in manufacturing the Company’s equipment. The Company is subject to fluctuations in market prices for raw materials, such as steel. If the Company is unable to purchase materials it requires or is unable to pass on price increases to its customers or otherwise reduce its cost of goods sold, its business results of operations and financial condition may be adversely affected.
Also, a significant increase in the price of liquid asphalt could decrease demand for hot mix asphalt paving materials and certain of the Company’s products. Increases in oil prices also drive up the cost of gasoline and diesel, which results in increased freight costs. Where possible, the Company will pass increased freight costs on to its customers. However, the Company may not be able to recapture all of the higher costs and thus could have a negative impact on the Company’s financial performance.
The Company believes its strategy of continuing to invest in product engineering and development and its focus on delivering the highest quality products and superior service will strengthen the Company’s market position. The Company continues to review its internal processes to identify inefficiencies and cost-reduction opportunities. The Company will continue to scrutinize its relationships with
external suppliers to ensure it is achieving the highest quality materials and services at the most competitive cost.
Year ended September 30,
20182020 compared with the year ended September 30,
20172019
Net revenue for the year ended September 30,
2018 was $98.6 million, an increase of 22.3% or $18.02020 decreased 4.8% to $77.4 million from
$80.6$81.3 million for the year ended September 30,
2017.2019. Net revenue for the fourth quarter of
2018 was up 10.7% or $2.02020 decreased 27.8% to $10.5 million
overcompared to $14.5 million for the
fourth quarter
ended September 30, 2019. The decrease in revenues reflects a decline in orders from prior year as the impact of
2017. Thethe FAST Act,
along with increased domestic infrastructure spendingwhich was set to expire at the
federal level, continuedend of September 2020, has slowed. On the eve of its expiration, aone-year
extension to
generate strong demand for the
Company’s products from domestic highway contractorsFAST Act was passed and signed into law. Theone-year
extension maintains current funding levels under the FAST Act through
fiscal 2018.September 2021.
Gross profit for fiscal
20182020 was
27.0%24.5% of net revenue versus
26.2%27.6% of net revenue in fiscal
2017.2019. The
Company faced significant inflationary pressuresreduced gross profit margins resulted from
steellower margins on contract jobs related to new products and
related purchased parts, but was able to improve its gross margins through higher net revenues, cost management and operational improvements implemented over the past few years.overall lower production volumes.
Product engineering and development (“PED”) expenses
increased $768,000decreased by $234,000 or
35.8%7.1% to $3,061,000 from
$3,295,000 in fiscal
20172019 due to
increased headcountreduced supplies, consulting and
salaries to meet the higher demand for its products.travel expenses. Selling, general and administrative (“SG&A”) expenses increased
$1,215,000$709,000 or
13.8%7.3% to
$9,991,000$10,356,000 from
$8,776,000$9,647,000 in fiscal
2017.2019. The higher SG&A expenses
increasedin 2020 were due to increased headcount,
increased sales commissions due to higher revenues, and increased advertising and trade show
and professional expenses. SG&A expenses
to capture the optimism within the highway construction industry. Asas a percentage of net revenue
SG&A expenses declinedincreased to
10.1%13.4%, compared to
10.9%11.9% in the prior year.
Fiscal 20182020 had operating income of $13,715,000$5,536,000 versus $10,236,000$9,470,000 in fiscal 2017.2019 based on lower net revenues and increased selling expenses.
On October 1, 2020, the Company completed the acquisition of the Blaw-Knox paver business and associated assets, including inventory fixed assets and related intellectual property, for a purchase price of approximately $14.4 million, subject to post-closing adjustments. The
improved operating results were due primarilyacquisition expands the Company’s product offerings by adding highway class asphalt pavers to
higher net revenueits asphalt plant and
gross margins, partially offsetrelated equipment products. Operations will continue with Blaw-Knox’s current management and workforce at a manufacturing facility located in Chambersburg, Pennsylvania. The financial information included in the Management’s Discussion and Analysis of Financial Condition and Results of Operations of this Annual Report and in the accompanying Consolidated Financial Statements is that of Gencor prior to the acquisition of Blaw-Knox because the acquisition was completed after September 30, 2020, the annual period covered by
increasesthe Consolidated Financial Statements included in
PED and SG&A expenses.this Annual Report. Accordingly, the historical information included in this Annual Report, unless otherwise indicated, is that of Gencor prior to the acquisition.
As of September 30,
20182020 and
2017,2019, the cost basis of the investment portfolio was
$103.8$89.5 million and
$87.0$104.2 million, respectively.
During the fourth quarter of 2020, approximately $17.0 million of investments were liquidated. The cash was used to fund the acquisition of the Blaw-Knox paver business (see Note 12 - Subsequent Events to Consolidated Financial Statements for additional information). For
theboth years ended September 30,
20182020 and
2017,2019, net
investment interest and dividend income
(“Investment Income”) was
$1.5 million and $0.7 million, respectively.$2.3 million. The net realized and unrealized gains (losses) on marketable securities were
$(0.4)$(1.2) million in fiscal
20182020 versus
$1.3$1.0 million in fiscal
2017.2019. The total cash, cash equivalents and investments balance at September 30,
20182020 was
$112.1$125.1 million, compared to the September 30,
20172019 cash, cash equivalents and investments balance of
$110.8$115.6 million, an increase of
$1.3$9.5 million.
On December 22, 2017, the U.S. Tax Cuts and Jobs Act (the “Tax Reform Act”) was signed into law by President Donald Trump. The Tax Reform Act significantly lowered the U.S. corporate income tax rate from 35% to 21% effective January 1, 2018, while also repealing the deduction for domestic production activities, implementing a territorial tax system and imposing repatriation tax on deemed repatriated earnings of foreign subsidiaries. U.S. GAAP requires that the impact of tax legislation be recognized in the period in which the law was enacted. As a result of the Tax Reform Act, the Company recorded a tax benefit of $0.7 million due tore-measurement of its deferred tax liability, during the first quarter of fiscal 2018. The Company recorded an additional $0.1 million of tax benefits related to the Tax Reform Act in the fourth quarter of fiscal 2018.
14
The effective income tax rate for fiscal
20182020 was
15.6%17.2% versus
30.9%20.5% in fiscal
2017 due primarily to lowering of the corporate income tax rate under the Tax Reform Act.As of September 30, 2017,2019.
In fiscal 2019, the Company
had nogenerated $241,000 of federal research and development tax credits (“R&D Credits”)
carryforwards., all of which were used in fiscal 2019. In fiscal
2018, $249,0002020, the Company generated $421,000 of
new credits were generated,R&D Credits, all of which were used. There
arewere no R&D Credits carryforwards as of September 30,
2018.2020 or September 30, 2019.
As of September 30,
2017,2018, the Company had
$155,000$87,000 in Florida state research and development tax credits (“Florida R&D Credits”) carryforwards. The Company
receiveddid not receive any additional Florida R&D Credits
of $25,000 in fiscal
2018 and2019 or fiscal 2020. The Company used
$93,000, leavingthe $87,000 of Florida R&D Credits carryforwards
as of September 30, 2018. The $87,000 offrom fiscal 2018 in fiscal 2019. There were no Florida R&D Credits
which are included in net deferred and other income tax liabilities of $(2,358,000)carryforwards at September 30,
2018, expire in fiscal 2022.2020 or September 30, 2019.
Net income for the year ended September 30,
20182020 was
$12,564,000$5,531,000 or
$0.85$0.38 per diluted share versus net income of
$8,418,000$10,196,000 or
$0.57$0.69 per diluted share for the year ended September 30,
2017.2019. The
increasedecrease in net income was primarily due to the
improvedlower net
revenuerevenues, higher SG&A expenses and
higher gross profit margins.lower investment income.
Liquidity and Capital Resources
The Company generates capital resources through operations and returns
onfrom its investments.
The Company had no long-term debt outstanding at September 30,
20182020 or
2017.2019. As of September 30,
2018,2020, the Company has funded
$135,000$85,000 in cash deposits at insurance companies to cover collateral needs.
In April 2020, a financial institution issued an irrevocable standby letter of credit (“letter of credit”) on behalf of the Company for the benefit of one of the Company’s insurance carriers. The maximum amount that can be drawn by the beneficiary under the letter of credit is $150,000. The letter of credit expires in April 2021, unless terminated earlier, and can be extended, as provided by the agreement. The Company intends to renew the letter of credit for as long as the Company does business with the beneficiary insurance carrier. The letter is collateralized by restricted cash of the same amount on any outstanding drawings. To date, no amounts have been drawn under the letter of credit.
As of September 30,
2018,2020, the Company had
$8.0$35.6 million in cash and cash equivalents, and
$104.1$89.5 million in marketable securities. The marketable securities are invested through professional investment management firms. The securities may be liquidated at any time into cash and cash equivalents.
The Company’s backlog, which includes orders received through the
filing date of this
filing,Annual Report, was
$43.8$34.6 million at September 30,
20182020 versus
$61.3$36.9 million at September 30,
2017.2019. The Company’s working capital was
$136.6$153.2 million at September 30,
20182020 versus
$124.7$150.4 million at September 30,
2017.2019.
The significant purchases, sales and maturities of marketable securities shown on the consolidated statements of cash flows
typically reflect the frequent purchase and sale of United States treasury bills.
In the fourth quarter of fiscal 2020, the Company liquidated approximately $17.0 million of its investments. The cash was used to fund the acquisition of the Blaw-Know paver product line (see Note 12 - Subsequent Events to Consolidated Financial Statements for additional information).
Year ended September 30,
20182020 compared with the year ended September 30,
20172019
Cash used inprovided by operations in fiscal 20182020 was $26,774,000, primarily resulting from the sale of $(11,995,000)investment securities and net income. The decrease in costs and estimated earnings in excess of billings of $7.4 million reflects the completion of customer contracts with revenues recognized over time that were open at the end of fiscal 2019 and the reduced number of such contracts open at the end of fiscal 2020. The increase in inventories of $1.7 million reflects the progress on several contract jobs where revenues are recognized at a point in time. Customer deposits increased $1.9 million, reflecting the down payments on these jobs.
Cash provided by operations in fiscal 2019 was
$4,163,000, primarily
dueresulting from net income. The increase in inventories of $3.5 million reflected the impact of a product build to
investing an additional $15.0 millionmeet the anticipated demand for the Company’s products at the start of
operating cash in marketable equity securities.fiscal 2020. The increase in costs and estimated earnings in excess of billings of
$5.1$1.9 million reflects
significantthe ongoing progress on
largepercentage-of-completion jobscustomer contracts with revenues recognized over time prior to final billing and payment of amounts due in advance of shipment.
Similarly, customerCustomer deposits decreased
$4.1$2.6 million, reflecting the application of down payments on
thesethose jobs.
Cash provided by operations in fiscal 2017 of $6,108,000 was primarily from increases in net revenue. The increase in inventories of $5.1 million reflected the ongoing need for additional equipment to meet the increased demand for the Company’s products. Similarly, customer deposits increased $4.1 million, reflecting the down payments related to increased backlog of orders.
Cash used in investing activities during the year ended September 30,
20182020 of
$3,550,000$1,595,000 and
$1,617,000$2,104,000 for the year ended September 30,
2017,2019, related primarily to capital expenditures for manufacturing equipment. Cash provided by financing activities of
$624,000$103,000 in fiscal
20182020 and
$223,000$231,000 in fiscal
20172019 related to proceeds from the exercise of stock options.
Critical Accounting Policies, Estimates and Assumptions
The Company believes the following discussion addresses
itsit’s most critical accounting policies, which are those that are most important to the portrayal of the Company’s financial condition and results of operations and require management’s most difficult, subjective, or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Accounting policies, in addition to the critical accounting policies referenced below, are presented in Note 1 to the Consolidated Financial Statements, “Accounting Policies.”
Estimates and Assumptions
In preparing the Consolidated Financial Statements, the Company uses certain estimates and assumptions that may affect reported amounts and disclosures. Estimates and assumptions are used, among other places, when accounting for certain revenue (e.g., contract accounting), expense, and asset and liability valuations. The Company believes that the estimates and assumptions made in preparing the Consolidated Financial Statements are reasonable, but are inherently uncertain. Assumptions may be incomplete or inaccurate and unanticipated events may occur. The Company is subject to risks and uncertainties that may cause actual results to differ from estimated results.
15
As previously discussed in Note 1 to the Company’s consolidated financial statements included in the Company’s Annual Report on Form10-K
for the year ended September 30, 2018, under the heading “Accounting Pronouncements and Policies”, the Company adopted the provisions of ASUNo. 2014-09
and its related amendments effective for the quarter ended December 31, 2018 using the modified retrospective method. The adoption of this standard did not have a material impact on the timing or amounts of revenues recognized by the Company, and, as such, no cumulative effect adjustment was recorded with the adoption of the standard. Revenues from contracts with customers for the design, manufacture and sale of asphalt plantscustom equipment are recognized underover time when thepercentage-of-completion method. Thepercentage-of-completion method performance obligation is satisfied by transferring control of accounting for these contracts recognizes revenue, netthe equipment. Control of any promotional discounts,the equipment transfers over time as the equipment is unique to the specific contract and thus does not create an asset with an alternative use to the Company. Revenues and costs are recognized in proportion to actual labor costs incurred, as compared with total estimated labor costs expected to be incurred during the entire contract.Pre-contract All incremental costs related to obtaining a contract are expensed as incurred.incurred as the amortization period is less than one year. Changes to total estimated contract costs or losses, if any, are recognized in the period in which they are determined. Revenue
Contract assets (excluding accounts receivable) under contracts with customers represent revenue recognized in excess of amounts billed
is classified ason equipment sales recognized over time. These contract assets were $6,405,000 and $13,838,000 at September 30, 2020 and 2019, respectively, and are included in current assets
under “costsas costs and estimated earnings in excess of
billings.”billings on the Company’s consolidated balance sheets. The Company anticipates that all
incurred costs associated with these contractsof the contract assets at September 30,
20182020, will be billed and collected within one year.
Revenues from all other contracts for the design and manufacture of
custom equipment, for service and for parts sales, net of any discounts and return allowances, are recorded
at a point in time when
the following four revenue recognition criteria are met: product is delivered/ownership is transferred or service is performed, persuasive evidencecontrol of
an arrangement exists, the
selling price is fixed or determinable, and collectability is reasonably assured.In May 2014, the FASB issued ASUNo. 2014-09,Revenue from Contracts with Customers: (Topic 606) (“ASU2014-09”), amending its accounting guidance related to revenue recognition. Under this ASU and subsequently issued amendments, revenue is recognized to depict the transfer of goods or services has been transferred. Control of the goods or service typically transfers at time of shipment or upon completion of the service.
Payment for equipment under contract with customers is typically due prior to shipment. Payment for services under contract with customers in an amount that reflectsis due as services are completed. Accounts receivable related to contracts with customers at September 30, 2020 and September 30, 2019 were $223,000 and $301,000, respectively.
Product warranty costs are estimated using historical experience and known issues and are charged to production costs as revenue is recognized.
Under certain contracts with customers, recognition of a portion of the consideration to which the entity expects toreceived may be entitled in exchange for those goods or services. The standard is effective for annual periods,deferred and interim periods within those annual periods, beginning after December 15, 2017. ASU 2014-09 is effective forrecorded as a contract liability if the Company startinghas to satisfy a future obligation, such as to provide installation assistance. There were no contract liabilities other than customer deposits at September 30, 2020 and September 30, 2019. Customer deposits related to contracts with customers were $3,853,000 and $1,918,000 at September 30, 2020 and 2019, respectively, and are included in current liabilities on the first quarter of its fiscal 2019. Company’s consolidated balance sheets.
The Company
elected to adoptrecords revenues earned for shipping and handling as freight revenue at the
standard using the modified retrospective method.time of shipment, regardless of whether or not it is identified as a separate performance obligation. The
Company has substantially completed its analysiscost of
the impactshipping and handling is classified as cost of
the adoption, and expects that the adoption of this guidance will not have a material impact on its consolidated financial statements.goods sold concurrently.
Provisions for estimated returns and allowances and other adjustments are provided for in the same period the related sales are recorded. Returns and allowances, which reduce product revenue, are estimated using historical experience.
Product warranty All product engineering and development costs, are estimated using historical experience and known issuesselling, general and are charged to production costs as revenue is recognized.
All PED and SG&Aadministrative expenses are charged to operations as incurred. Provision is made for any anticipated contract losses in the period that the loss becomes evident.
The allowance for doubtful accounts is determined by performing a specific review of all account balances greater than 90 days past due and other higher risk amounts to determine collectability and also adjusting for any known customer payment issues with account balances in the
past due aging buckets. Account balances are charged off against the allowance for doubtful accounts when they are determined to be uncollectable. Any recoveries of account balances previously considered in the allowance for doubtful accounts reduce future additions to the allowance for doubtful accounts.
Inventories are valued at the lower of cost or
market,net realizable value. Net realizable value is defined as the estimated selling price of goods less reasonable costs of completion and delivery. During the fourth quarter of fiscal 2019, the Company changed its method for accounting for cost of inventories from thelast-in,
first-out
(“LIFO”) method to thefirst-in,
first-out
(“FIFO”) method. The Company believes the FIFO method improved financial reporting by better reflecting the current value of inventory on the consolidated balance sheets, by more closely aligning the flow of physical inventory with the accounting for the inventory, and by providing better matching of revenues and expenses. The change in accounting method also required the Company to make a change for U.S. income tax purposes.As required by GAAP, the Company has reflected this change in accounting principle on a retrospective basis, resulting in changes to the historical periods presented. The retrospective application of the change resulted in an increase in the Company’s September 30, 2018 and September 30, 2017 retained earnings of $2,838,000 (net of $838,000 in taxes) and $2,708,000 (net of $792,000 in taxes) respectively, and an increase to the Company’s net income of $130,000 (net of $45,000 in taxes) for the year ended September 30, 2018. This change did not affect our previously reported cash flows from operating, investing or financing activities nor did it have a significant impact on the previously reported quarterly operating results for fiscal 2019.
All inventories are now valued at the lower of cost or net realizable value, with cost being determined
principally by usingunder the
last-in,first-out (“LIFO”) FIFO method
and market defined as replacement cost for raw materials and net realizable value
for work in processdefined as the estimated selling price of goods less reasonable costs of completion and
finished goodsdelivery (see Note 2 to Consolidated Financial Statements). Appropriate consideration is given to obsolescence, excessive levels, deterioration, possible alternative uses and other factors in determining net realizable value. The cost of work in process and finished goods includes materials, direct labor, variable costs and overhead. The Company evaluates the need to record inventory adjustments on all inventories, including raw materials, work in process, finished goods, spare parts and used equipment. Used equipment acquired by the Company on
trade-in
from customers is carried at estimated net realizable value. Unless specific circumstances warrant different treatment regarding inventory obsolescence, an allowance is established to reduce the cost basis of inventories three to four years old are reduced by 50%, while the cost basis of inventories four to five years old are reduced by 75%, and the cost basis of inventories greater than five years old are reduced to zero. Inventory is typically reviewed for obsolescence on an annual basis computed as of September 30, the Company’s fiscal year end. If significant known changes in trends, technology or other specific circumstances that warrant consideration occur during the year, then the impact on obsolescence is considered at that time.16
Marketable debt and equity securities are categorized as trading securities and are thus marked to market and stated at fair value. Fair value is determined using the quoted closing or latest bid prices for Level 1 investments and market standard valuation methodologies for Level 2 investments. Realized gains and losses on investment transactions are determined by specific identification and are recognized as incurred in the consolidated income statements. Net unrealized gains and losses are reported in the consolidated income statements and represent the change in the fair value of investment holdings during the period.
Long Lived Asset Impairment
Property and equipment, and intangible assets subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset (or asset group) may not be recoverable. An impairment loss would be recognized when the carrying amount of an asset exceeds the estimated undiscounted cash flows expected to result from the use of the asset and its eventual disposition. The amount of the impairment loss to be recorded is calculated by the excess over its fair value of the asset’s carrying value. Fair value is generally determined using a discounted cash flow analysis.
The overall effects of inflation on the Company’s business during the periods discussed have not been significant. The Company monitors the prices it charges for its products and services on an ongoing basis and believes that it will be able to adjust those prices to take into account future changes in the rate of inflation.
Contractual Obligations
There were no outstanding borrowings or long-term contractual obligations at September 30, 2018.
The Company had no long-term or short-term debt as of September 30,
2018. There2020 and there was no long-term debt facility in place
and there were no outstanding letters of credit at September 30,
2018.2020.
In April 2020, a financial institution issued an irrevocable standby letter of credit (“letter of credit”) on behalf of the Company for the benefit of one of the Company’s insurance carriers. The maximum amount that can be drawn by the beneficiary under the letter of credit is $150,000. The letter of credit expires in April 2021, unless terminated earlier, and can be extended, as provided by the agreement. The Company intends to renew the letter of credit for as long as the Company does business with the beneficiary insurance carrier. The letter is collateralized by restricted cash of the same amount on any outstanding drawings. To date, no amounts have been drawn under the letter of credit.
On August 28, 2020, the Company entered into a three year operating lease for property related to the manufacturing and warehousing of the Blaw-Knox paver business which was acquired after September 30, 2020 (refer to Note 12 – Subsequent Events to Consolidated Financial Statements for additional information). The lease term is for the period September 1, 2020 through August 31, 2023.
Off-Balance
Sheet Arrangements
| ITEM 8 | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
| | | | |
| | | | |
| |
| | | 1922 | |
| |
| | | 2123 | |
| |
| | | 2224 | |
| |
| | | 2325 | |
| |
| | | 2426 | |
| |
| | | 2527 | |
All other schedules are omitted because they are not applicable or the required information is shown in the consolidated financial statements or notes thereto.
18
21
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of Gencor Industries, Inc.:
Opinions
Opinion on the Financial Statements
and Internal Control over Financial Reporting We have audited the accompanying consolidated balance sheets of Gencor Industries, Inc. (the “Company”) as of September 30,
20182020 and
2017,2019, and the related consolidated statements of income, shareholders’ equity, and cash flows for each of the years in the
two-year
period ended September 30, 2018,2020, and the related notes (collectively referred to as the consolidated financial statements). We also have audited the Company’s internal control over financial reporting as of September 30, 2018, based on criteria established inInternal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).In our opinion, the consolidated financial statements referred to in the first paragraph present fairly, in all material respects, the consolidated financial position of the Company as of September 30, 20182020 and 2017,2019, and the consolidated results of its operations and its cash flows for each of the years in thetwo-year
period ended September 30, 2018,2020, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of September 30, 2018, based on criteria established inInternal Control – Integrated Framework (2013) issued by COSO.
Basis for Opinion
The Company’s management is responsible for these
These consolidated financial statements
for maintaining effective internal control over financial reporting, and for its assessmentare the responsibility of the
effectiveness of internal control over financial reporting, included in the accompanying Item 9A, Management’s Annual Report on Internal Control over Financial Reporting.Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements
and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or
fraud, and whether effectivefraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting,
was maintained in all material respects.Our auditsbut not for the purpose of expressing an opinion on the effectiveness of the consolidatedCompany’s internal control over financial statementsreporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.
Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are
19
recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and the receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
MOORE STEPHENS LOVELACE,
Certified Public Accountants
We have served as the Company’s auditor since 2001.
December
13, 201820
18, 2020
Part I. Financial Information
Consolidated Balance Sheets
As of September 30,
20182020 and
2017 | | | | | | | | |
| | | 2018 | | | 2017 | |
ASSETS | | | | | | | | |
Current assets: | | | | | | | | |
Cash and cash equivalents | | $ | 8,012,000 | | | $ | 22,933,000 | |
Marketable securities at fair value (cost of $103,751,000 at September 30, 2018 and $86,967,000 at September 30, 2017) | | | 104,058,000 | | | | 87,886,000 | |
Accounts receivable, less allowance for doubtful accounts of $313,000 at September 30, 2018 and $207,000 at September 30, 2017 | | | 993,000 | | | | 1,184,000 | |
Costs and estimated earnings in excess of billings | | | 11,900,000 | | | | 6,768,000 | |
Inventories, net | | | 18,214,000 | | | | 16,687,000 | |
Prepaid expenses | | | 1,904,000 | | | | 1,660,000 | |
| | | | | | | | |
Total current assets | | | 145,081,000 | | | | 137,118,000 | |
| | | | | | | | |
Property and equipment, net | | | 7,889,000 | | | | 5,722,000 | |
Other assets | | | 53,000 | | | | 53,000 | |
| | | | | | | | |
Total Assets | | $ | 153,023,000 | | | $ | 142,893,000 | |
| | | | | | | | |
LIABILITIES AND SHAREHOLDERS’ EQUITY | | | | | | | | |
Current liabilities: | | | | | | | | |
Accounts payable | | $ | 1,838,000 | | | $ | 1,320,000 | |
Customer deposits | | | 4,563,000 | | | | 8,628,000 | |
Accrued expenses | | | 2,085,000 | | | | 2,426,000 | |
| | | | | | | | |
Total current liabilities | | | 8,486,000 | | | | 12,374,000 | |
| | | | | | | | |
Deferred and other income taxes | | | 2,358,000 | | | | 1,601,000 | |
| | | | | | | | |
Total liabilities | | | 10,844,000 | | | | 13,975,000 | |
| | | | | | | | |
Commitments and contingencies | | | | | | | | |
Shareholders’ equity: | | | | | | | | |
Preferred stock, par value $.10 per share; 300,000 shares authorized; none issued | | | — | | | | — | |
Common stock, par value $.10 per share; 15,000,000 shares authorized; 12,252,337 shares and 12,154,829 shares issued and outstanding at September 30, 2018 and 2017, respectively | | | 1,225,000 | | | | 1,215,000 | |
Class B Stock, par value $.10 per share; 6,000,000 shares authorized; 2,288,857 shares and 2,263857 shares issued and outstanding at September 30, 2018 and 2017, respectively | | | 229,000 | | | | 226,000 | |
Capital in excess of par value | | | 11,862,000 | | | | 11,178,000 | |
Retained earnings | | | 128,863,000 | | | | 116,299,000 | |
| | | | | | | | |
Total shareholders’ equity | | | 142,179,000 | | | | 128,918,000 | |
| | | | | | | | |
Total Liabilities and Shareholders’ Equity | | $ | 153,023,000 | | | $ | 142,893,000 | |
| | | | | | | | |
2019
| | | | | | | | |
| | | | | | | |
| | | | | | | | |
| | | | | | | | |
Cash and cash equivalents | | $ | 35,584,000 | | | $ | 10,302,000 | |
Marketable securities at fair value (cost of $89,514,000 at September 30, 2020 and $104,176,000 at September 30, 2019) | | | 89,498,000 | | | | 105,322,000 | |
Accounts receivable, less allowance for doubtful accounts of $442,000 at September 30, 2020 and $459,000 at September 30, 2019 | | | 1,992,000 | | | | 1,603,000 | |
Costs and estimated earnings in excess of billings | | | 6,405,000 | | | | 13,838,000 | |
| | | 27,090,000 | | | | 25,366,000 | |
| | | 1,189,000 | | | | 499,000 | |
| | | | | | | | |
| | | 161,758,000 | | | | 156,930,000 | |
| | | | | | | | |
Property and equipment, net | | | 8,341,000 | | | | 8,389,000 | |
| | | 995,000 | | | | 53,000 | |
| | | | | | | | |
| | $ | 171,094,000 | | | $ | 165,372,000 | |
| | | | | | | | |
| | |
LIABILITIES AND SHAREHOLDERS’ EQUITY | | | | | | | | |
| | | | | | | | |
| | $ | 1,728,000 | | | $ | 1,907,000 | |
| | | 3,853,000 | | | | 1,918,000 | |
| | | 2,605,000 | | | | 2,660,000 | |
Current operating lease liabilities | | | 328,000 | | | | — | |
| | | | | | | | |
Total current liabilities | | | 8,514,000 | | | | 6,485,000 | |
| | |
Deferred and other income taxes | | | 746,000 | | | | 3,372,000 | |
Non-current operating lease liabilities | | | 614,000 | | | | — | |
| | | | | | | | |
| | | 9,874,000 | | | | 9,857,000 | |
| | | | | | | | |
Commitments and contingencies | | | | | | | | |
| | | | | | | | |
Preferred stock, par value $ .10 per share; 300,000 shares authorized; NaN issued | | | 0 | | | | 0 | |
Common stock, par value $.10 per share; 15,000,000 shares authorized; 12,287,337 shares and 12,277,337 shares issued and outstanding at September 30, 2020 and 2019, respectively | | | | | | | | |
Class B Stock, par value $.10 per share; 6,000,000 shares authorized; 2,318,857 shares and 2,308,857 shares issued and outstanding at September 30, 2020 and 2019, respectively | | | | | | | | |
Capital in excess of par value | | | 12,331,000 | | | | 12,159,000 | |
| | | 147,428,000 | | | | 141,897,000 | |
| | | | | | | | |
Total shareholders’ equity | | | 161,220,000 | | | | 155,515,000 | |
| | | | | | | | |
Total Liabilities and Shareholders’ Equity | | $ | 171,094,000 | | | $ | 165,372,000 | |
| | | | | | | | |
See accompanying Notes to Consolidated Financial Statements
21
Consolidated Income Statements
For the Years Ended September 30,
20182020 and
2017 | | | | | | | | |
| | | 2018 | | | 2017 | |
Net revenue | | $ | 98,614,000 | | | $ | 80,608,000 | |
Cost of goods sold | | | 71,993,000 | | | | 59,449,000 | |
| | | | | | | | |
Gross profit | | | 26,621,000 | | | | 21,159,000 | |
Operating expenses: | | | | | | | | |
Product engineering and development | | | 2,915,000 | | | | 2,147,000 | |
Selling, general and administrative | | | 9,991,000 | | | | 8,776,000 | |
| | | | | | | | |
Total operating expenses | | | 12,906,000 | | | | 10,923,000 | |
| | | | | | | | |
Operating income | | | 13,715,000 | | | | 10,236,000 | |
| | |
Other income (expense), net: | | | | | | | | |
Interest and dividend income, net of fees | | | 1,535,000 | | | | 650,000 | |
Realized and unrealized gains (losses) on marketable securities, net | | | (363,000 | ) | | | 1,297,000 | |
Other | | | 2,000 | | | | (5,000 | ) |
| | | | | | | | |
| | | 1,174,000 | | | | 1,942,000 | |
| | | | | | | | |
Income before income tax expense | | | 14,889,000 | | | | 12,178,000 | |
Income tax expense | | | 2,325,000 | | | | 3,760,000 | |
| | | | | | | | |
Net income | | $ | 12,564,000 | | | $ | 8,418,000 | |
| | | | | | | | |
Basic earnings per common share | | $ | 0.87 | | | $ | 0.58 | |
| | | | | | | | |
Diluted earnings per common share | | $ | 0.85 | | | $ | 0.57 | |
| | | | | | | | |
2019
| | | | | | | | |
| | | | | | | |
| | |
| | $ | 77,420,000 | | | $ | 81,329,000 | |
| | | 58,467,000 | | | | 58,917,000 | |
| | | | | | | | |
| | | 18,953,000 | | | | 22,412,000 | |
| | | | | | | | |
Product engineering and development | | | 3,061,000 | | | | 3,295,000 | |
Selling, general and administrative | | | 10,356,000 | | | | 9,647,000 | |
| | | | | | | | |
| | | 13,417,000 | | | | 12,942,000 | |
| | | | | | | | |
| | |
| | | 5,536,000 | | | | 9,470,000 | |
| | |
Other income (expense), net: | | | | | | | | |
Interest and dividend income, net of fees | | | 2,321,000 | | | | 2,307,000 | |
Realized and unrealized gains (losses) on marketable securities, net | | | (1,160,000 | ) | | | 1,047,000 | |
| | | (16,000 | ) | | | — | |
| | | | | | | | |
| | | 1,145,000 | | | | 3,354,000 | |
| | | | | | | | |
| | |
Income before income tax expense | | | 6,681,000 | | | | 12,824,000 | |
| | | 1,150,000 | | | | 2,628,000 | |
| | | | | | | | |
| | $ | 5,531,000 | | | $ | 10,196,000 | |
| | | | | | | | |
| | |
Basic earnings per common share | | $ | 0.38 | | | $ | 0.70 | |
| | | | | | | | |
| | |
Diluted earnings per common share | | $ | 0.38 | | | $ | 0.69 | |
| | | | | | | | |
See accompanying Notes to Consolidated Financial Statements
22
Consolidated Statements of Shareholders’ Equity
For the Years Ended September 30,
20182020 and
2017 | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Common Stock | | | Class B Stock | | | Capital in
Excess of | | | Retained | | | Total
Shareholders’ | |
| | | Shares | | | Amount | | | Shares | | | Amount | | | Par Value | | | Earnings | | | Equity | |
September 30, 2016 | | | 12,111,079 | | | $ | 1,211,000 | | | | 2,263,857 | | | $ | 226,000 | | | $ | 10,887,000 | | | $ | 107,881,000 | | | $ | 120,205,000 | |
Net income | | | — | | | | — | | | | — | | | | — | | | | — | | | | 8,418,000 | | | | 8,418,000 | |
Stock-based compensation | | | — | | | | — | | | | — | | | | — | | | | 71,000 | | | | — | | | | 71,000 | |
Stock options exercised | | | 43,750 | | | | 4,000 | | | | — | | | | — | | | | 220,000 | | | | — | | | | 224,000 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
September 30, 2017 | | | 12,154,829 | | | | 1,215,000 | | | | 2,263,857 | | | | 226,000 | | | | 11,178,000 | | | | 116,299,000 | | | | 128,918,000 | |
Net income | | | — | | | | — | | | | — | | | | — | | | | — | | | | 12,564,000 | | | | 12,564,000 | |
Stock-based compensation | | | — | | | | — | | | | — | | | | — | | | | 71,000 | | | | — | | | | 71,000 | |
Stock options exercised | | | 97,508 | | | | 10,000 | | | | 25,000 | | | | 3,000 | | | | 613,000 | | | | — | | | | 626,000 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
September 30, 2018 | | | 12,252,337 | | | $ | 1,225,000 | | | | 2,288,857 | | | $ | 229,000 | | | $ | 11,862,000 | | | $ | 128,863,000 | | | $ | 142,179,000 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
2019
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Common Stock | | | Class B Stock | | | Capital in
Excess of
Par Value | | | Retained
Earnings | | | Total
Shareholders’
Equity | |
| | | Shares | | | Amount | | | Shares | | | Amount | |
| | | | | | | |
| | | 12,252,337 | | | $ | 1,225,000 | | | | 2,288,857 | | | $ | 229,000 | | | $ | 11,862,000 | | | $ | 131,701,000 | | | $ | 145,017,000 | |
| | | | | | | |
| | | — | | | | — | | | | — | | | | — | | | | — | | | | 10,196,000 | | | | 10,196,000 | |
| | | — | | | | — | | | | — | | | | — | | | | 71,000 | | | | — | | | | 71,000 | |
| | | 25,000 | | | | 3,000 | | | | 20,000 | | | | 2,000 | | | | 226,000 | | | | — | | | | 231,000 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | |
| | | 12,277,337 | | | $ | 1,228,000 | | | | 2,308,857 | | | $ | 231,000 | | | $ | 12,159,000 | | | $ | 141,897,000 | | | $ | 155,515,000 | |
| | | | | | | |
| | | — | | | | — | | | | — | | | | — | | | | — | | | | 5,531,000 | | | | 5,531,000 | |
| | | — | | | | — | | | | — | | | | — | | | | 71,000 | | | | — | | | | 71,000 | |
| | | 10,000 | | | | 1,000 | | | | 10,000 | | | | 1,000 | | | | 101,000 | | | | — | | | | 103,000 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | |
| | | 12,287,337 | | | $ | 1,229,000 | | | | 2,318,857 | | | $ | 232,000 | | | $ | 12,331,000 | | | $ | 147,428,000 | | | $ | 161,220,000 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
See accompanying Notes to Consolidated Financial Statements
23
| The balances as of September 30, 2018, have been adjusted to reflect the change in inventory accounting method, as described in Notes 1 and 2 to the Consolidated Financial Statements. |
Consolidated Statements of Cash Flows
For the Years Ended September 30,
20182020 and
2017 | | | | | | | | |
| | | 2018 | | | 2017 | |
Cash flows from operating activities: | | | | | | | | |
Net income | | $ | 12,564,000 | | | $ | 8,418,000 | |
Adjustments to reconcile net income to cash provided by (used in) operating activities: | | | | | | | | |
Purchase of marketable securities | | | (256,124,000 | ) | | | (492,674,000 | ) |
Proceeds from sale and maturity of marketable securities | | | 239,462,000 | | | | 491,852,000 | |
Change in value of marketable securities | | | 490,000 | | | | (1,126,000 | ) |
Deferred and other income taxes | | | 757,000 | | | | 1,285,000 | |
Depreciation and amortization | | | 1,380,000 | | | | 1,128,000 | |
Provision for doubtful accounts | | | 210,000 | | | | 115,000 | |
Loss on disposal of assets | | | 3,000 | | | | 7,000 | |
Stock-based compensation | | | 71,000 | | | | 71,000 | |
Changes in assets and liabilities: | | | | | | | | |
Accounts receivable | | | (19,000 | ) | | | (189,000 | ) |
Costs and estimated earnings in excess of billings | | | (5,132,000 | ) | | | (1,847,000 | ) |
Inventories | | | (1,527,000 | ) | | | (5,053,000 | ) |
Prepaid expenses | | | (244,000 | ) | | | (62,000 | ) |
Accounts payable | | | 518,000 | | | | (123,000 | ) |
Customer deposits | | | (4,065,000 | ) | | | 4,144,000 | |
Accrued expenses | | | (341,000 | ) | | | 162,000 | |
| | | | | | | | |
Total adjustments | | | (9,561,000 | ) | | | (2,310,000 | ) |
| | | | | | | | |
Cash flows provided by (used in) operating activities | | | (11,997,000 | ) | | | 6,108,000 | |
| | | | | | | | |
Cash flows from investing activities: | | | | | | | | |
Capital expenditures | | | (3,550,000 | ) | | | (1,624,000 | ) |
Proceeds from sale of property and equipment | | | — | | | | 7,000 | |
| | | | | | | | |
Cash flows used in investing activities | | | (3,550,000 | ) | | | (1,617,000 | ) |
| | | | | | | | |
Cash flows from financing activities: | | | | | | | | |
Proceeds from stock option exercises | | | 626,000 | | | | 223,000 | |
| | | | | | | | |
Cash flows provided by financing activities | | | 626,000 | | | | 223,000 | |
| | | | | | | | |
Net increase (decrease) in cash and cash equivalents | | | (14,921,000 | ) | | | 4,714,000 | |
Cash and cash equivalents at: | | | | | | | | |
Beginning of year | | | 22,933,000 | | | | 18,219,000 | |
| | | | | | | | |
End of year | | $ | 8,012,000 | | | $ | 22,933,000 | |
| | | | | | | | |
2019
| | | | | | | | |
| | | | | | | |
| | |
Cash flows from operating activities: | | | | | | | | |
| | $ | 5,531,000 | | | $ | 10,196,000 | |
Adjustments to reconcile net income to cash provided by operating activities: | | | | | | | | |
Purchase of marketable securities | | | (131,635,000 | ) | | | (188,066,000 | ) |
Proceeds from sale and maturity of marketable securities | | | 146,122,000 | | | | 188,047,000 | |
Change in value of marketable securities | | | 1,337,000 | | | | (1,245,000 | ) |
Deferred and other income taxes | | | (2,626,000 | ) | | | 732,000 | |
Depreciation and amortization | | | 1,643,000 | | | | 1,600,000 | |
Provision for doubtful accounts | | | 50,000 | | | | 175,000 | |
Loss on disposal of assets | | | — | | | | 4,000 | |
| | | 71,000 | | | | 71,000 | |
Changes in assets and liabilities: | | | | | | | | |
| | | (439,000 | ) | | | (785,000 | ) |
Costs and estimated earnings in excess of billings | | | 7,433,000 | | | | (1,938,000 | ) |
| | | (1,724,000 | ) | | | (3,476,000 | ) |
| | | (690,000 | ) | | | 849,000 | |
| | | (179,000 | ) | | | 69,000 | |
| | | 1,935,000 | | | | (2,645,000 | ) |
| | | (55,000 | ) | | | 575,000 | |
| | | | | | | | |
| | | 21,243,000 | | | | (6,033,000 | ) |
| | | | | | | | |
Cash flows provided by operating activities | | | 26,774,000 | | | | 4,163,000 | |
| | | | | | | | |
| | |
Cash flows from investing activities: | | | | | | | | |
| | | (1,595,000 | ) | | | (2,104,000 | ) |
| | | | | | | | |
Cash flows used in investing activities | | | (1,595,000 | ) | | | (2,104,000 | ) |
| | | | | | | | |
| | |
Cash flows from financing activities: | | | | | | | | |
Proceeds from stock option exercises | | | 103,000 | | | | 231,000 | |
| | | | | | | | |
Cash flows provided by financing activities | | | 103,000 | | | | 231,000 | |
| | | | | | | | |
| | |
Net increase in cash and cash equivalents | | | 25,282,000 | | | | 2,290,000 | |
Cash and cash equivalents at: | | | | | | | | |
| | | 10,302,000 | | | | 8,012,000 | |
| | | | | | | | |
| | $ | 35,584,000 | | | $ | 10,302,000 | |
| | | | | | | | |
| | |
Non-cash investing and financing activities: | | | | | | | | |
| | $ | 942,000 | | | $ | — | |
Operating lease liabilities | | | 942,000 | | | | — | |
See accompanying Notes to Consolidated Financial Statements
24
Notes to Consolidated Financial Statements
For the Years Ended September 30, 20182020 and 20172019
NOTE 1
–- NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Gencor Industries, Inc. and its subsidiaries (collectively, the “Company”) is a diversified, heavy machinery manufacturer for the production of highway construction materials and environmental control machinery and equipment.
These consolidated financial statements include the accounts of Gencor Industries, Inc. and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.
Accounting Pronouncements and Policies
In May 2014, the FASB issued ASU
No. 2014-09,
Revenue from Contracts with Customers (Topic
2014-09”),
amending its accounting guidance related to revenue recognition. Under this ASU and subsequently issued amendments, revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Additional disclosures are required to provide the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. The standard is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. ASU 2014-09 is effective for theThe Company starting adopted ASU2014-09
in the first quarter of its fiscal 2019. The Company elected to adopt the standard using the modified retrospective method. The Company has substantially completed its analysis of the impact of the adoption, and expects that the adoption of this guidance willASU2014-09
did not have a materialsignificant impact on its consolidated financial statements.In February 2016, the FASB issued ASU No.
2016-02,
(Topic 842) (“ASU2016-02”).
With adoption of this standard, lessees will have to recognize most leases as aasset and a lease liability on their balance sheet. For income statement purposes, the FASB retained a dual model, requiring leases to be classified as either operating or finance. Classification will be based on criteria that are similar to those applied in current lease accounting. ASU2016-02
must be applied on a modified retrospective basis and is effective for fiscal years beginning after December 15, 2018, and interim periods within those years, with early adoption permitted.The Company
doesadopted ASU 2016-02 in the first quarter of fiscal 2020. The initial adoption of ASU 2016-02 did not
expect the new accounting standard to have a significant impact on its
consolidated financial
results when adopted.statements. During the fourth quarter of fiscal 2020, the Company entered into a new operating lease which resulted in reporting a right-of-use (“ROU”) asset and related lease liabilities of approximately $970,000 (see Note 9 – Leases)
.
In May 2017, the FASB issued ASU
2017-09, “Compensation
Compensation - Stock Compensation” (TopicCompensation
718):
Scope of Modification Accounting (“
ASU
2017-09”).
The new guidance clarifies when a change to the terms or conditions of a
share basedshare-based payment award must be accounted for as a modification. ASU
2017-09
is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2017, with early adoption permitted.
ASU 2017-09 is effective for theThe Company
adopted ASU2017-09
in the first quarter of
its fiscal 2019. The
Company does not expect the adoption of
this standard toASU2017-09
did not have a significant impact on its
consolidated financial
results when adopted.statements.
No other accounting pronouncements recently issued or newly effective have had, or are expected to have, a material impact on the Company’s consolidated financial statements.
The preparation of the consolidated 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, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
25
Earnings per Share
(“EPS”)The consolidated financial statements include basic and diluted earnings
(loss) per share (“EPS”) information. Basic EPS is based on the weighted-average number of shares outstanding. Diluted EPS is based on the sum of the weighted-average number of shares outstanding plus common stock equivalents.
The weighted-average shares issuable upon the exercise of stock options included in the diluted EPS calculation at September 30,
20182020 were
367,000,256,000, which equates to
231,000125,000 dilutive common stock equivalents. For the year ended September 30,
2017,2019, the weighted-average shares issuable upon the exercise of stock options included in the diluted EPS calculation were
463,000,307,000, which equates to
284,000157,000 dilutive common stock equivalents. Weighted-average shares issuable upon the exercise of stock options, which were not included in the diluted EPS calculation because they were anti-dilutive, were
zero7,000 in
20182020 and
2017.0 in 2019.
The following presents the calculation of the basic and diluted EPS for the years ended September 30,
20182020 and
2017: | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 2018 | | | 2017 | |
| | | Net Income | | | Shares | | | EPS | | | Net Income | | | Shares | | | EPS | |
Basic EPS | | $ | 12,564,000 | | | | 14,492,000 | | | $ | 0.87 | | | $ | 8,418,000 | | | | 14,396,000 | | | $ | 0.58 | |
Common stock equivalents | | | | | | | 231,000 | | | | | | | | | | | | 284,000 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Diluted EPS | | $ | 12,564,000 | | | | 14,723,000 | | | $ | 0.85 | | | $ | 8,418,000 | | | | 14,680,000 | | | $ | 0.57 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
2019:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | 2020 | | | 2019 | |
| | | Net Income | | | Shares | | | EPS | | | Net Income | | | Shares | | | EPS | |
| | $ | 5,531,000 | | | | 14,595,000 | | | $ | 0.38 | | | $ | 10,196,000 | | | | 14,551,000 | | | $ | 0.70 | |
| | | | | | | 125,000 | | | | | | | | | | | | 157,000 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | $ | 5,531,000 | | | | 14,720,000 | | | $ | 0.38 | | | $ | 10,196,000 | | | | 14,708,000 | | | $ | 0.69 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Cash equivalents consist of short-term certificates of deposit and deposits in money market accounts with original maturities of three months or less.
Marketable Securities
and Fair Value Measurements
Marketable debt and equity securities are categorized as trading securities and are thus marked to market and stated at fair value. Fair value is determined using the quoted closing or latest bid prices for Level 1 investments and market standard valuation methodologies for Level 2 investments. Realized gains and losses on investment transactions are determined by specific identification and are recognized as incurred in the consolidated income statements. Net changes in unrealized gains and losses are reported in the consolidated income statements in the current period.
The fair value of financial instruments is presented based upon a hierarchy of levels that prioritizes the inputs of valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.
The fair value of marketable equity securities
(stocks), mutual funds, exchange-traded funds,
corporate bonds, government securities, and cash and money funds, are substantially based on quoted market prices (Level 1). Corporate
and municipal bonds are valued using market standard valuation methodologies, including: discounted cash flow methodologies, and matrix pricing or other similar techniques. The inputs to these market standard valuation methodologies include, but are not limited to: interest rates, credit standing of the issuer or counterparty, industry sector of the issuer, coupon rate, call provisions, maturity, estimated duration and assumptions regarding liquidity and estimated future cash flows. In addition to bond characteristics, the valuation methodologies incorporate market data, such as actual trades completed, bids and actual dealer quotes, where such information is available. Accordingly, the estimated fair values are based on available market information and judgments about financial instruments (Level 2). Fair values of the Level 2 investments are provided by the Company’s professional investment management firms.
26
The following table sets forth by level, within the fair value hierarchy, the Company’s assets measured at fair value as of September 30,
2018: | | | | | | | | | | | | | | | | |
| | | Fair Value Measurements | |
| | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
Equities | | $ | 11,768,000 | | | $ | — | | | $ | — | | | $ | 11,768,000 | |
Mutual Funds | | | 3,811,000 | | | | — | | | | — | | | | 3,811,000 | |
Exchange-Traded Funds | | | 4,148,000 | | | | — | | | | — | | | | 4,148,000 | |
Corporate Bonds | | | — | | | | 29,884,000 | | | | — | | | | 29,884,000 | |
Government Securities | | | 53,883,000 | | | | — | | | | — | | | | 53,883,000 | |
Cash and Money Funds | | | 564,000 | | | | — | | | | — | | | | 564,000 | |
| | | | | | | | | | | | | | | | |
Total | | $ | 74,174,000 | | | $ | 29,884,000 | | | $ | — | | | $ | 104,058,000 | |
| | | | | | | | | | | | | | | | |
2020:
| | | | | | | | | | | | | | | | |
| | | Fair Value Measurements | |
| | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
| | $ | 11,949,000 | | | $ | — | | | $ | — | | | $ | 11,949,000 | |
| | | 9,595,000 | | | | — | | | | — | | | | 9,595,000 | |
| | | 10,344,000 | | | | — | | | | — | | | | 10,344,000 | |
| | | — | | | | 27,877,000 | | | | — | | | | 27,877,000 | |
| | | 16,147,000 | | | | — | | | | — | | | | 16,147,000 | |
| | | 13,586,000 | | | | — | | | | — | | | | 13,586,000 | |
| | | | | | | | | | | | | | | | |
| | $ | 61,621,000 | | | $ | 27,877,000 | | | $ | — | | | $ | 89,498,000 | |
| | | | | | | | | | | | | | | | |
Net unrealized losses reported during fiscal 20182020 on trading securities still held as of September 30, 2018,2020, were $612,000.$(1,091,000). There were no0 transfers of investments between Level 1 and Level 2 during the year ended September 30, 2018. 2020.
In
September 2018,the fourth quarter of fiscal 2020, the Company
invested an additional $15.0liquidated approximately $17.0 million of its
operatinginvestments.
The cash
in government securities.was used to fund the acquisition of the Blaw-Knox paver business and associated assets, including inventory, fixed assets and related intellectual property, from Volvo CE (see Note 12 - Subsequent Events for additional information).
The following table sets forth by level, within the fair value hierarchy, the Company’s assets measured at fair value as of September 30,
2017: | | | | | | | | | | | | | | | | |
| | | Fair Value Measurements | |
| | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
Equities | | $ | 11,338,000 | | | $ | — | | | $ | — | | | $ | 11,338,000 | |
Mutual Funds | | | 7,155,000 | | | | — | | | | — | | | | 7,155,000 | |
Exchange-Traded Funds | | | 3,417,000 | | | | — | | | | — | | | | 3,417,000 | |
Corporate Bonds | | | — �� | | | | 7,196,000 | | | | — | | | | 7,196,000 | |
Government Securities | | | 54,542,000 | | | | — | | | | — | | | | 54,542,000 | |
Cash and Money Funds | | | 4,238,000 | | | | — | | | | — | | | | 4,238,000 | |
| | | | | | | | | | | | | | | | |
Total | | $ | 80,690,000 | | | $ | 7,196,000 | | | $ | — | | | $ | 87,886,000 | |
| | | | | | | | | | | | | | | | |
2019:
| | | | | | | | | | | | | | | | |
| | | Fair Value Measurements | |
| | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
| | $ | 10,412,000 | | | $ | — | | | $ | — | | | $ | 10,412,000 | |
| | | 3,987,000 | | | | — | | | | — | | | | 3,987,000 | |
| | | 5,163,000 | | | | — | | | | — | | | | 5,163,000 | |
| | | — | | | | 38,690,000 | | | | — | | | | 38,690,000 | |
| | | 45,171,000 | | | | — | | | | — | | | | 45,171,000 | |
| | | 1,899,000 | | | | — | | | | — | | | | 1,899,000 | |
| | | | | | | | | | | | | | | | |
| | $ | 66,632,000 | | | $ | 38,690,000 | | | $ | — | | | $ | 105,322,000 | |
| | | | | | | | | | | | | | | | |
Net unrealized gains reported during fiscal
20172019 on trading securities still held as of September 30,
2017,2019, were
$1,183,000.$737,000. There were
no0 transfers of investments between Level 1 and Level 2 during the year ended September 30,
2017.2019.
In fiscal 2019, the Company transferred a net $2.0 million from the marketable securities portfolio to operating cash and cash equivalents.
The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable, customer deposits and accrued expenses approximate fair value because of the short-term nature of these items.
Foreign Currency Transactions
Gains and losses resulting from foreign currency transactions are included in income and were not significant during the years ended September 30,
20182020 and
2017.27
2019.
Financial instruments that potentially subject the Company to concentrations of credit risk
primarily consist
primarily of cash and cash equivalents, marketable securities, and accounts receivable. The Company maintains its cash accounts in various domestic financial institutions which may from time to time exceed federally insured limits. Operating cash is retained overnight in
non-interest-bearing accounts which allow for offsets to treasury service charges. The marketable securities
are investedinclude investments in cash and money funds, mutual funds,
exchange-tradedexchange traded funds (“ETF’s”), corporate bonds, government securities and stocks through
a professional investment
advisor.management firms. Investment securities are exposed to various risks, such as interest rate, market and credit risks.
The Company’s customers are not concentrated in any specific geographic region, but are concentrated in the road and highway construction industry. The Company extends limited credit
on parts sales to its customers based upon their
credit- worthiness and generallycredit-worthiness. Generally, the Company requires a significant
up-front deposit before beginning
constructionmanufacturing on complete asphalt plant and
component orders, and requires full payment subject to hold-back provisions prior to
shipment on complete asphalt plant and component orders.shipment. The Company establishes an allowance for doubtful accounts based upon the credit risk of specific customers, historical trends and other pertinent information.
Inventories are valued at the lower of cost or
market, withnet realizable value. Net realizable value is defined as the estimated selling price of goods less reasonable costs of completion and delivery. During the fourth quarter of fiscal 2019, the Company changed its method for accounting for cost
being determined principally by usingof inventories from the
last-in,
first-out
(“LIFO”) method and market defined as replacement cost for raw materials and net realizable value for workto thefirst-in,
first-out
(“FIFO”) method. As required by accounting principles generally accepted in process and finished goods (see Note 2). the United States of America (“GAAP”), the Company reflected this change in accounting principle on a retrospective basis, resulting in changes to the historical periods presented.Appropriate consideration is given to obsolescence, excessive levels, deterioration, possible alternative uses and other factors in determining net realizable value. The cost of work in process and finished goods includes materials, direct labor, variable costs and overhead. The Company evaluates the need to record inventory adjustments on all inventories, including raw material, work in process, finished goods, spare parts and used equipment. Used equipment acquired by the Company on
trade-in
from customers is carried at estimated net realizable value. Unless specific circumstances warrant different treatment regarding inventory obsolescence,an allowance is established to reduce the cost basis of inventories three to four years old are reduced by 50%, while the cost basis of inventories four to five years old are reduced by 75%, and the cost basis of inventories greater than five years old are reduced to zero.0. Inventory is typically reviewed for obsolescence on an annual basis computed as of September 30, the Company’s fiscal year end. If significant known changes in trends, technology or other specific circumstances that warrant consideration occur during the year, then the impact on obsolescence is considered at that time.Changes in the allowance for
slow movingslow-moving and obsolete inventories are as follows:
| | | | | | | | |
| | | 2018 | | | 2017 | |
Balance, beginning of year | | $ | 3,826,000 | | | $ | 3,869,000 | |
Charged to cost of sales | | | 262,000 | | | | 77,000 | |
Disposal of inventory, net of recoveries | | | (315,000 | ) | | | (120,000 | ) |
| | | | | | | | |
Balance, end of year | | $ | 3,773,000 | | | $ | 3,826,000 | |
| | | | | | | | |
| | | | | | | | |
| | | 2020 | | | 2019 | |
Balance, beginning of year | | $ | 4,700,000 | | | $ | 4,543,000 | |
| | | 401,000 | | | | 304,000 | |
Disposal of inventory, net of recoveries | | | (484,000 | ) | | | (147,000 | ) |
| | | | | | | | |
| | $ | 4,617,000 | | | $ | 4,700,000 | |
| | | | | | | | |
Property and equipment are stated at cost (see Note 4). Depreciation of property and equipment is computed using the straight-line method over the estimated useful lives of the related assets, as follows:
28
Impairments
Property and equipment, and intangible assets subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset (or asset group) may not be recoverable. An impairment loss would be recognized when the carrying amount of an asset exceeds the estimated undiscounted cash flows expected to result from the use of the asset and its eventual disposition. The amount of the impairment loss to be
recorded is calculated by the excess of the asset’s carrying value over its fair value. Fair value is generally determined using a discounted cash flow analysis.
NoNaN such impairment losses were recorded during the years ended September 30,
20182020 and
2017.2019.
The Company adopted the provisions of ASUNo. 2014-09
and related amendments effective for the quarter ended December 31, 2018 using the modified retrospective method. The adoption of this standard did not have a material impact on the timing or amounts of revenues recognized by the Company, and, as such, no cumulative effect adjustment was recorded with the adoption of the standard. The following table disaggregates the Company’s net revenue by major source for the years ended September 30, 2020 and 2019:
| | | | | | | | |
| | | 2020 | | | 2019 | |
Equipment sales recognized over time | | $ | 35,579,000 | | | $ | 43,489,000 | |
Equipment sales recognized at a point in time | | | 23,642,000 | | | | 19,987,000 | |
Parts and component sales | | | 13,896,000 | | | | 13,356,000 | |
| | | 3,983,000 | | | | 4,130,000 | |
| | | 320,000 | | | | 367,000 | |
| | | | | | | | |
| | $ | 77,420,000 | | | $ | 81,329,000 | |
| | | | | | | | |
Revenues from contracts with customers for the design, manufacture and sale of asphalt plantscustom equipment are recognized underover time when thepercentage-of-completion method. Thepercentage-of-completion method performance obligation is satisfied by transferring control of accounting for these contracts recognizes revenue, netthe equipment. Control of any promotional discounts,the equipment transfers over time, as the equipment is unique to the specific contract and thus does not create an asset with an alternative use to the Company. Revenues and costs are recognized in proportion to actual labor costs incurred, as compared with total estimated labor costs expected to be incurred, during the entire contract.Pre-contract All incremental costs related to obtaining a contract are expensed as incurred.incurred, as the amortization period is less than one year. Changes to total estimated contract costs or losses, if any, are recognized in the period in which they are determined. Revenue
Contract assets (excluding accounts receivable) under contracts with customers represent revenue recognized in excess of amounts billed
is classified ason equipment sales recognized over time. These contract assets were $6,405,000 and $13,838,000 at September 30, 2020 and 2019, respectively, and are included in current assets
under “costsas costs and estimated earnings in excess of
billings.”billings on the Company’s consolidated balance sheets. The Company anticipates that all
incurred costs associated with these contractsof the contract assets at September 30,
2018,2020, will be billed and collected within one year.
Revenues from all other contracts for the design and manufacture of custom equipment, for service and for parts sales, net of any discounts and return allowances, are recorded at a point in time when control of the following four revenue recognition criteria are met: product is delivered/ownership is transferredgoods or services has been transferred. Control of the goods or service typically transfers at time of shipment or upon completion of the service.
Payment for equipment under contract with customers is
performed, persuasive evidence of an arrangement exists, the selling pricetypically due prior to shipment. Payment for services under contract with customers is
fixed or determinable,due as are completed. Accounts receivable related to contracts with customers for equipment sales were $223,000 and
collectability is reasonably assured.$301,000 at September 30, 2020 and September 30, 2019, respectively.
Product warranty costs are estimated using historical experience and known issues and are charged to production costs as revenue is recognized.
Changes in the accrual for warranty and related costs are composed of the following:
| | | | | | | | |
| | | 2018 | | | 2017 | |
Balance, beginning of year | | $ | 412,000 | | | $ | 401,000 | |
Warranties issued | | | 225,000 | | | | 400,000 | |
Warranties settled | | | (237,000 | ) | | | (389,000 | ) |
| | | | | | | | |
Balance, end of year | | $ | 400,000 | | | $ | 412,000 | |
| | | | | | | | |
| | | | | | | | |
| | | 2020 | | | 2019 | |
Balance, beginning of year | | $ | 277,000 | | | $ | 400,000 | |
| | | 375,000 | | | | 140,000 | |
| | | (353,000 | ) | | | (263,000 | ) |
| | | | | | | | |
| | $ | 299,000 | | | $ | 277,000 | |
| | | | | | | | |
Provisions for estimated returns and allowances, and other adjustments are provided for in the same period the related sales are recorded. Returns and allowances, which reduce product revenue, are estimated using historical experience.
Under certain contracts with customers, recognition of a portion of the consideration received may be deferred and recorded as a contract liability if the Company has to satisfy a future obligation, such as to provide installation assistance. There were no contract liabilities other than customer deposits at September 30, 2020 and September 30, 2019. Customer deposits related to contracts with customers were $3,853,000 and $1,918,000 at September 30, 2020 and 2019, respectively, and are included in current liabilities on the Company’s consolidated balance sheets.
The Company records revenues earned for shipping and handling as freight revenue at the time of shipment, regardless of whether or not it is identified as a separate performance obligation. The cost of shipping and handling is classified as production costs concurrently with the revenue recognition.
All product engineering and development costs, and selling, general and administrative expenses are charged to operations as incurred. Provision is made for any anticipated contract losses in the period that the loss becomes evident.
The allowance for doubtful accounts is determined by performing a specific review of all account balances greater than 90 days past due and other higher risk amounts to determine collectability, and also adjusting for any known customer payment issues with account balances in the
past due aging category. Account balances are charged off against the allowance for doubtful accounts when they are determined to be uncollectable.uncollectible. Any recoveries of account balances previously considered in the allowance for doubtful accounts reduce future additions to the allowance for doubtful accounts. The allowance for doubtful accounts also includes an estimate for returns and allowances. Provisions for estimated returns and allowances and other adjustments, are provided for in the same period the related sales are recorded. Returns and allowances, which reduce product revenue, are estimated using known issues and historical experience.29
Changes in the allowance for doubtful accounts are composed of the following:
| | | | | | | | |
| | | 2018 | | | 2017 | |
Balance, beginning of year | | $ | 207,000 | | | $ | 195,000 | |
Provision for doubtful accounts | | | 210,000 | | | | 115,000 | |
Provision for estimated returns and allowances | | | 265,000 | | | | 385,000 | |
Uncollectible accountswritten-off | | | (76,000 | ) | | | (16,000 | ) |
Returns and allowances issued | | | (293,000 | ) | | | (472,000 | ) |
| | | | | | | | |
Balance, end of year | | $ | 313,000 | | | $ | 207,000 | |
| | | | | | | | |
| | | | | | | | |
| | | 2020 | | | 2019 | |
Balance, beginning of year | | $ | 459,000 | | | $ | 313,000 | |
Provision for doubtful accounts | | | 50,000 | | | | 175,000 | |
Provision for estimated returns and allowances | | | 205,000 | | | | 315,000 | |
Uncollectible accounts written off | | | (5,000 | ) | | | (71,000 | ) |
Returns and allowances issued | | | (267,000 | ) | | | (273,000 | ) |
| | | | | | | | |
| | $ | 442,000 | | | $ | 459,000 | |
| | | | | | | | |
Shipping and Handling Costs
Shipping and handling costs are included in production costs in the consolidated income statements.
Income taxes are provided for the tax effects of transactions reported in the consolidated financial statements and
primarily consist
primarily of taxes currently due, plus deferred taxes
(see(see Note
6)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 consolidated financial statements or tax returns using current tax rates. The Company and its domestic subsidiaries file a consolidated federal income tax return.
Deferred tax assets and liabilities are measured using the rates expected to apply to taxable income in the years in which the temporary differences are expected to reverse and the credits are expected to be used. The effect on deferred tax assets and liabilities of the change in tax rates is recognized in income in the period that includes the enactment date. All available evidence, both positive and negative, is considered to determine whether, based on the weight of that evidence, the Company is more likely than not to realize the benefit of a deferred tax asset and whether a valuation allowance is needed for some portion or all of a deferred tax asset.
NoNaN such valuation allowances were recorded as of September 30,
20182020 and
2017.On December 22, 2017, the U.S. Tax Cuts and Jobs Act (the “Tax Reform Act”) was signed into law by President Donald Trump. The Tax Reform Act significantly lowered the U.S. corporate income tax rate from 35% to 21% effective January 1, 2018, while also repealing the deduction for domestic production activities for tax years beginning after December 31, 2017, implementing a territorial tax system and imposing repatriation tax on deemed repatriated earnings of foreign subsidiaries. U.S. GAAP requires that the impact of tax legislation be recognized in the period in which the law was enacted. As a result of the Tax Reform Act, the Company recorded a tax benefit of $0.7 million due tore-measurement of its deferred tax liability, in the three months ended December 31, 2017. The Company recorded an additional $0.1 million of tax benefits related to the Tax Reform Act in the fourth quarter of fiscal 2018.
2019.
The Company’s income tax provision is based on management’s estimate of the effective tax rate for the full year. The tax provision in any period will be affected by, among other things, permanent, as well as temporary differences in the deductibility of certain items, in addition to changes in tax legislation. As a result, the Company may experience significant fluctuations in the effective book tax rate (that is, its tax expense divided by
pre-tax
book income) from period to period. For fiscal 2018, theThe Company’s effective tax rate declined compared torates for fiscal 2017, primarily due to2020 and 2019 reflect the implementationimpact of the reduced rates under the U.S. Tax Cuts and Jobs Act (the “Tax Reform Act.Act) which was signed into law on December 22, 2017.
For the years ended September 30,
20182020 and
2017,2019, other comprehensive income is equal to net income.
Reporting Segments and Geographic Areas
The Company has one reportable segment. For fiscal
20182020 and
2017,2019, total revenues of
$98,614,000$77,420,000 and
$80,608,000,$81,329,000, and total long-term assets of
$7,942,000$9,336,000 and
$5,775,000,$8,442,000, respectively, were attributed to the United States. Revenues are attributed to geographic areas based on the location of the assets producing the revenues.
30
Customers with 10% (or greater) of Net Revenues
Approximately 3% of total net revenue in the year ended September 30, 2018 and 13% of total net revenue for the year ended September 30, 2017, was from one or more separate U.S. entities owned by a foreign-based global company.
One other customer accounted for approximately 10% of net revenue for the year ended September 30, 2017.
No customer accounted for 10% or more of fiscal
20182020 or 2019 net
revenue.revenues.
Management has evaluated events occurring from September 30,
20182020 through the date these
consolidated financial statements were filed with the
SECSecurities and Exchange Commission for proper recording and
disclosures therein.disclosure herein.
On October 1, 2020, the Company acquired the Blaw-Knoxpaver business and associated assets, including inventory, fixed assets and related intellectual property,
from Volvo CE. The acquisition was accounted for as a business combination under ASC 805, “Business Combinations.” The purchase price of approximately $14.4 million was funded by cash on hand (see Note 12 - Subsequent Events for additional information).
Inventories are valued at the lower of cost or net realizable value. During the fourth quarter of fiscal 2019, the Company changed its method for accounting for cost of inventories from the LIFO method to the FIFO method. The Company believes the FIFO method improves financial reporting by better reflecting the current value of inventory on the consolidated balance sheets, by more closely aligning the flow of physical inventory with the accounting for the inventory, and by providing better matching of revenues and exp
enses. Net inventories consist of the following:
| | | | | | | | |
| | | September 30, | |
| | | 2018 | | | 2017 | |
Raw materials | | $ | 11,254,000 | | | $ | 9,407,000 | |
Work in process | | | 1,020,000 | | | | 3,098,000 | |
Finished goods | | | 5,924,000 | | | | 4,166,000 | |
Used equipment | | | 16,000 | | | | 16,000 | |
| | | | | | | | |
| | $ | 18,214,000 | | | $ | 16,687,000 | |
| | | | | | | | |
At September 30, 2018 and 2017, cost is determined by the LIFO method for inventories. The estimated current cost of inventories exceeded their LIFO basis by approximately $4,446,000 and $4,250,000 at September 30, 2018 and 2017, respectively. Slow moving
| | | | | | | | |
| | | September 30, | |
| | | 2020 | | | 2019 | |
| | $ | 14,607,000 | | | $ | 14,158,000 | |
| | | 3,633,000 | | | | 1,397,000 | |
| | | 8,810,000 | | | | 9,811,000 | |
| | | 40,000 | | | | — | |
| | | | | | | | |
| | $ | 27,090,000 | | | $ | 25,366,000 | |
| | | | | | | | |
Slow-moving and obsolete inventory reserves were $3,773,000$4,617,000 and $3,826,000$4,700,000 at September 30, 20182020 and 2017,2019, respectively.
NOTE 3 - COSTS AND ESTIMATED EARNINGS IN EXCESS OF BILLINGS
Costs and estimated earnings in excess of billings on uncompleted contracts as of September 30,
20182020 and
20172019 consisted of the following:
| | | | | | | | |
| | | September 30, | |
| | | 2018 | | | 2017 | |
Costs incurred on uncompleted contracts | | $ | 17,437,000 | | | $ | 10,250,000 | |
Estimated earnings | | | 7,335,000 | | | | 3,161,000 | |
| | | | | | | | |
| | | 24,772,000 | | | | 13,411,000 | |
Billings to date | | | 12,872,000 | | | | 6,643,000 | |
| | | | | | | | |
Costs and estimated earnings in excess of billings | | $ | 11,900,000 | | | $ | 6,768,000 | |
| | | | | | | | |
31
| | | | | | | | |
| | | September 30, | |
| | | 2020 | | | 2019 | |
Costs incurred on uncompleted contracts | | $ | 10,390,000 | | | $ | 18,707,000 | |
| | | 4,680,000 | | | | 9,063,000 | |
| | | | | | | | |
| | | 15,070,000 | | | | 27,770,000 | |
| | | 8,665,000 | | | | 13,932,000 | |
| | | | | | | | |
Costs and estimated earnings in excess of billings | | $ | 6,405,000 | | | $ | 13,838,000 | |
| | | | | | | | |
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment consist of the following as of September 30,
20182020 and
2017: | | | | | | | | |
| | | September 30, | |
| | | 2018 | | | 2017 | |
Land and improvements | | $ | 3,323,000 | | | $ | 3,323,000 | |
Buildings and improvements | | | 13,350,000 | | | | 12,935,000 | |
Equipment | | | 12,966,000 | | | | 9,943,000 | |
| | | | | | | | |
| | | 29,639,000 | | | | 26,201,000 | |
Less: Accumulated depreciation and amortization | | | (21,750,000 | ) | | | (20,479,000 | ) |
| | | | | | | | |
Property and equipment, net | | $ | 7,889,000 | | | $ | 5,722,000 | |
| | | | | | | | |
2019:
| | | | | | | | |
| | | September 30, | |
| | | 2020 | | | 2019 | |
| | $ | 3,323,000 | | | $ | 3,323,000 | |
Buildings and improvements | | | 13,547,000 | | | | 13,462,000 | |
| | | 16,305,000 | | | | 14,809,000 | |
| | | | | | | | |
| | | 33,175,000 | | | | 31,594,000 | |
Less: Accumulated depreciation and amortization | | | (24,834,000 | ) | | | (23,205,000 | ) |
| | | | | | | | |
Property and equipment, net | | $ | 8,341,000 | | | $ | 8,389,000 | |
| | | | | | | | |
Property and equipment includes approximately $11,996,000$14,300,000 and $10,645,000$12,866,000 of fully depreciated assets, which remained in service during fiscal 20182020 and 2017,2019, respectively.
NOTE 5 - ACCRUED EXPENSES
Accrued expenses consist of the following as of September 30,
20182020 and
2017: | | | | | | | | |
| | | September 30, | |
| | | 2018 | | | 2017 | |
Payroll and related accruals | | $ | 1,371,000 | | | $ | 1,374,000 | |
Warranty and related accruals | | | 400,000 | | | | 412,000 | |
Professional fees | | | 118,000 | | | | 158,000 | |
Other | | | 196,000 | | | | 482,000 | |
| | | | | | | | |
Accrued expenses | | $ | 2,085,000 | | | $ | 2,426,000 | |
| | | | | | | | |
2019:
| | | | | | | | |
| | | September 30, | |
| | | 2020 | | | 2019 | |
Payroll and related accruals | | $ | 1,608,000 | | | $ | 1,759,000 | |
Warranty and related accruals | | | 299,000 | | | | 277,000 | |
| | | 247,000 | | | | 205,000 | |
| | | 225,000 | | | | 175,000 | |
| | | 226,000 | | | | 244,000 | |
| | | | | | | | |
| | $ | 2,605,000 | | | $ | 2,660,000 | |
| | | | | | | | |
The provision for income tax expense consists of:
| | | | | | | | |
| | | Year Ended September 30, | |
| | | 2018 | | | 2017 | |
Current: | | | | | | | | |
Federal | | $ | 1,441,000 | | | $ | 2,381,000 | |
State | | | 127,000 | | | | 50,000 | |
| | | | | | | | |
Total current | | | 1,568,000 | | | | 2,431,000 | |
| | | | | | | | |
Deferred: | | | | | | | | |
Federal | | | 631,000 | | | | 1,238,000 | |
State | | | 126,000 | | | | 91,000 | |
| | | | | | | | |
Total deferred | | | 757,000 | | | | 1,329,000 | |
| | | | | | | | |
Income tax expense | | $ | 2,325,000 | | | $ | 3,760,000 | |
| | | | | | | | |
32
| | | | | | | | |
| | | Year Ended September 30, | |
| | | 2020 | | | 2019 | |
| | | | | | | | |
| | $ | 3,430,000 | | | $ | 2,297,000 | |
| | | 346,000 | | | | 148,000 | |
| | | | | | | | |
| | | 3,776,000 | | | | 2,445,000 | |
| | | | | | | | |
| | | | | | | | |
| | | (2,436,000 | ) | | | 52,000 | |
| | | (190,000 | ) | | | 131,000 | |
| | | | | | | | |
| | | (2,626,000 | ) | | | 183,000 | |
| | | | | | | | |
| | |
| | $ | 1,150,000 | | | $ | 2,628,000 | |
| | | | | | | | |
A reconciliation of the federal statutory tax rate to the total tax provision is as follows:
| | | | | | | | |
| | | Year Ended September 30, | |
| | | 2018 | | | 2017 | |
Federal income taxes computed at the statutory rate | | | 24.3 | % | | | 34.0 | % |
State income taxes, net of federal benefit | | | 1.4 | % | | | 1.2 | % |
Change in current tax rate | | | (3.0 | %) | | | — | |
Change in deferred tax rate | | | (2.3 | %) | | | — | |
Research & development tax refunds & credits | | | (1.8 | %) | | | (2.1 | %) |
Dividend received deduction | | | (0.9 | %) | | | (0.9 | %) |
Domestic production activities deduction | | | (1.2 | %) | | | (2.8 | %) |
Incentive stock options | | | (1.0 | %) | | | — | |
Other, net | | | 0.1 | % | | | 1.5 | % |
| | | | | | | | |
Effective income tax rate | | | 15.6 | % | | | 30.9 | % |
| | | | | | | | |
| | | | | | | | |
| | | Year Ended September 30, | |
| | | 2020 | | | 2019 | |
Federal income taxes computed at the statutory rate | | | 21.0 | % | | | 21.0 | % |
State income taxes, net of federal benefit | | | 1.3 | % | | | 1.6 | % |
Research & development tax refunds & credits | | | (6.3 | %) | | | (1.9 | %) |
Dividend received deduction | | | (1.2 | %) | | | (0.6 | %) |
263A Section 481(a) adjustment | | | 1.5 | % | | | — | |
| | | 0.9 | % | | | 0.4 | % |
| | | | | | | | |
Effective income tax rate | | | 17.2 | % | | | 20.5 | % |
| | | | | | | | |
Deferred income tax assets and liabilities consist of the following:
| | | | | | | | |
| | | September 30, | |
| | | 2018 | | | 2017 | |
Deferred Tax Assets: | | | | | | | | |
Accrued liabilities and reserves | | $ | 218,000 | | | $ | 351,000 | |
Allowance for doubtful accounts | | | 71,000 | | | | 73,000 | |
Inventory | | | 494,000 | | | | 778,000 | |
R&D tax credits carryforwards | | | 87,000 | | | | 155,000 | |
Stock-based compensation | | | 104,000 | | | | 95,000 | |
Net operating losses carryforwards | | | 57,000 | | | | 58,000 | |
Other | | | — | | | | 48,000 | |
| | | | | | | | |
Gross Deferred Income Tax Assets | | | 1,031,000 | | | | 1,558,000 | |
| | | | | | | | |
Deferred and Other Tax Liabilities: | | | | | | | | |
Domestic international sales corporation | | | (543,000 | ) | | | (839,000 | ) |
Percentage of completion | | | (1,717,000 | ) | | | (1,114,000 | ) |
Property and equipment | | | (904,000 | ) | | | (694,000 | ) |
Unrealized gain on investments | | | (75,000 | ) | | | (332,000 | ) |
Unrecognized tax benefits | | | (150,000 | ) | | | (150,000 | ) |
Other | | | — | | | | (30,000 | ) |
| | | | | | | | |
Gross Deferred and Other Income Tax Liabilities | | | (3,389,000 | ) | | | (3,159,000 | ) |
| | | | | | | | |
Net Deferred and Other Income Tax Assets (Liabilities) | | $ | (2,358,000 | ) | | $ | (1,601,000 | ) |
| | | | | | | | |
| | | | | | | | |
| | | September 30, | |
| | | 2020 | | | 2019 | |
| | | | | | | | |
Accrued liabilities and reserves | | $ | 340,000 | | | $ | 344,000 | |
Allowance for doubtful accounts | | | 98,000 | | | | 104,000 | |
| | | 369,000 | | | | 98,000 | |
| | | 81,000 | | | | 82,000 | |
Net operating losses carryforwards | | | 5,000 | | | | 7,000 | |
| | | | | | | | |
Gross Deferred Income Tax Assets | | | 893,000 | | | | 635,000 | |
| | | | | | | | |
| | |
Deferred and Other Tax Liabilities: | | | | | | | | |
Domestic international sales corporation | | | (329,000 | ) | | | (464,000 | ) |
| | | — | | | | (2,048,000 | ) |
| | | (1,158,000 | ) | | | (1,080,000 | ) |
Unrealized gain on investments | | | (2,000 | ) | | | (265,000 | ) |
Unrecognized tax benefits | | | (150,000 | ) | | | (150,000 | ) |
| | | | | | | | |
Gross Deferred and Other Income Tax Liabilities | | | (1,639,000 | ) | | | (4,007,000 | ) |
| | | | | | | | |
Net Deferred and Other Income Tax Assets (Liabilities) | | $ | (746,000 | ) | | $ | (3,372,000 | ) |
| | | | | | | | |
Total income taxes paid in fiscal
20182020 and
20172019 were
$2,775,000$3,850,000 and
$1,918,000,$1,150,000, respectively.
Accounting principles generally accepted in The fiscal 2020 income taxes paid includes $2,050,000 of tax payments due on the United Statesfiling of America (“GAAP”)the Company’s Form 3115 with the Internal Revenue Service to reflect the revenue recognition method change to the percentage of completion method for tax purposes pursuant to Internal Revenue Code Sections 460 and 451(b).
GAAP prescribes a comprehensive model for the financial recognition, measurement, classification, and disclosure
ofuncertainofuncertain tax positions. GAAP contains a
two-step
approach to recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, based on the technical merits of the position. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon settlement. Significant judgment is required in evaluating the Company’s uncertain tax position and determining the Company’s provision for taxes. Although the Company believes the reserves of unrecognized tax benefits (“UTB’s”) are reasonable, no assurance can be given that the final outcome of these matters will not be different from that which is
33
reflected in the Company’s historical income tax provision and accruals. The Company adjusts these reserves in light of changing facts and circumstances. As of September 30, 20182020 and 2017,2019, the Company had UTB’s of $150,000. There were no0 additional accruals of UTB’s during fiscal years ended September 30, 20182020 and 2017.
2019.
The Company recognizes interest and penalties accrued related to UTB’s as a component of income tax expense. There were
no0 additional accruals of interest expense nor penalties during fiscal years ended September 30,
20182020 and
2017.2019. It is reasonably possible that the amount of the UTB’s with respect to certain unrecognized tax positions will increase or decrease during the next 12 months.
The Company does not expect the change to have a material effect on its results of operations or its financial position. The only expected potential reason for change would be the
normal expiration of the statute of limitations or the ultimate results stemming from any examinations by taxing authorities. If recognized, the entire amount of UTB’s would have an impact on the Company’s effective
income tax rate.
The effective income tax rate for fiscal
20182020 was
15.6%17.2% versus
30.9%20.5% in fiscal
2017 due primarily to changes in the corporate income tax rate.As of September 30, 2017,2019.
In fiscal 2019, the Company
had nogenerated $241,000 of federal research and development
tax credits (“R&D Credits”)
carryforwards., all of which were used. In fiscal
2018, $249,0002020, the Company generated $421,000 of
new credits were generated,R&D Credits, all of which were used. There
are nowere 0 R&D Credits carryforwards as of September 30,
2018.2020.
As of September 30,
2017,2018, the Company had
$155,000$87,000 in Florida state research and development tax credits (“Florida R&D Credits”) carryforwards. The Company
receiveddid 0t receive any additional Florida R&D Credits
of $25,000 in fiscal
2018 and2020 or fiscal 2019. The Company used
$93,000, leavingthe $87,000 of Florida R&D Credits carryforwards
as of September 30, 2018. The $87,000 offrom fiscal 2018 in fiscal 2019. There were 0 Florida R&D Credits
which are included in net deferred and other income tax liabilities of $(2,358,000)carryforwards at September 30,
2018, expire in fiscal 2022.2020.
The Company files U.S. federal income tax returns, as well as Florida and Iowa income tax returns. The Company’s U.S. federal income tax returns filed for tax years prior to fiscal year ended September 30, 20152017 are generally no longer subject to examination by taxing authorities due to the expiration of the statute of limitations.
NOTE 7 - RETIREMENT BENEFITS
The Company has a voluntary 401(k) employee benefit plan, which covers all eligible, domestic employees. The Company makes discretionary matching contributions subject to a maximum level, in accordance with the terms of the plan. The Company charged approximately
$420,000$290,000 and
$218,000$282,000 to expense under the provisions of the plan during the
fiscal years
2018ended September 30, 2020 and
2017,2019, respectively.
NOTE 8 - LONG-TERM DEBT
AND ARRANGEMENTS WITH FINANCIAL INSTITUTIONS
The Company had
no0 long-term debt outstanding at September 30,
20182020 or
2017.2019. The Company does not currently require a credit facility.
As of September 30,
2018,2020, total cash deposits with insurance companies covering collateral needs were
$135,000.34
$85,000.
The Company leases certain equipment under non-cancelable operating leases. Future minimum rental payments under these leases at September 30, 2020 are immaterial. Total rental expense for the fiscal years ended September
30, 2020 and 2019 was $37,000 and $40,000, respectively.On August 28, 2020, the Company entered into athree-year
operating lease for property related to the manufacturing
and warehousing of the Blaw-Knoxpaver business
which was acquired after September 30, 2020 (refer to Note 12 – Subsequent Events for additional information
). The lease term is for the period September 1, 2020 through August 31, 2023. In accordance with ASU 2016-02, the Company recorded a ROU asset totaling $970,000and
related lease liabilities at inception.
For the year ended September 30, 2020, operating lease cost was
$28,000 which was accrued at September 30, 2020 and paid in October 2020. There were no cash payments related to this operating lease in fiscal 2020.Other information concerning the Company’s operating lease accounted for under ASC 842 guidelines is as follows:
| | | | |
| | | As of September 30, 2020 | |
Operating lease ROU asset included in other long-term assets | | $ | 942,000 | |
Current operating lease liability | | | 328,000 | |
Non-current operating lease liability | | | 614,000 | |
Weighted average remaining lease term (in years) | | | 2.92 | |
Weighted average discount rate used in calculating ROU asset | | | 4.0 | % |
Future annual minimum lease payments as of September 30, 2020 are as follows:
| | | | |
| | Annual Lease Payments | |
| | $ | 335,000 | |
| | | 343,000 | |
| | | 322,000 | |
| | | | |
| | | 1,000,000 | |
| | | (58,000 | ) |
| | | | |
Present value of lease liabilities | | $ | 942,000 | |
| | | | |
NOTE
910 - COMMITMENTS AND CONTINGENCIES
Leases
The Company leases certain equipment undernon-cancelable operating leases. Future minimum rental commitments under these leases at September 30, 2018 are immaterial. Total rental expense for the fiscal years ended September 30, 2018 and 2017 was $38,000 and $179,000, respectively.
The Company is
not involved in
any legal proceedings
other than routine litigation arising
inout of the normal course of business, none of which we believe will have a material adverse effect on our business, financial condition or results of operations. Claims made in the ordinary course of business may be covered in whole or in part by insurance.
The Company continues to monitor and evaluate the risks to public health and the slowdown in overall business activity related to the novel coronavirus(“COVID-19”)
pandemic, including impacts on its employees, customers, suppliers and financial results. As of the date of issuance of these Consolidated Financial Statements, the Company’s operations have not been significantly impacted. However, the full impact of theCOVID-19
pandemic continues to evolve subsequent to the quarter and year ended September 30, 2020 and as of the date these Consolidated Financial Statements are issued. As such, the full magnitude that theCOVID-19
pandemic will have on
the Company’s financia
l condition and future results of operations is uncertain. Management is actively monitoring the situation on the Company’s financial condition, operations, suppliers, industry, customers, and workforce. As the spread ofCOVID-19
continues, the Company’s ability to meet customer demands for products may be impacted or its customers may experience adverse business consequences due toCOVID-19.
Reduced demand for products or ability to meet customer demand (including as a result of disruptions at the Company’s suppliers) could have a material adverse effect on its business operations and financial performance. NOTE
1011 - SHAREHOLDERS’ EQUITY
AND STOCK-BASED COMPENSATION
Under the Company’s Certificate of Incorporation, as amended, certain rights of the holders of the Company’s common stock are modified by shares of Class B stock for as long as such shares shall remain outstanding. During that period, holders of common stock will have the right to elect approximately 25% of the Company’s Board of Directors, and conversely, holders of Class B stock will be entitled to elect approximately 75%
of the Company’s Board of Directors. During the period when shares of common stock and Class B stock are outstanding, certain matters submitted to a vote of shareholders will also require approval of the holders of common stock and Class B stock, each voting separately as a class. Common stock and Class B shareholders have equal rights with respect to dividends, preferences, and rights, including rights in liquidation.
NOTE 11 – STOCK-BASED COMPENSATION
The Company maintains a stock-based compensation plan, which provides for the issuance of Company stock to certain directors, officers, key employees and affiliates.
On March 17, 2009, the shareholders of the Company approved the 2009 Incentive Compensation Plan (the “2009 Plan”). The 2009 Plan provides that the total number of shares of Company stock that may be subject to the granting of awards under the 2009 Plan (“Awards”) at any time during the term of the 2009 Plan shall be equal to
800,000 shares of common stock and 160,000 shares of Class B stock. The foregoing limit shall be increased, as provided for in stock
, subject to adjustment pursuant to the terms of
the 2009 Plan. Persons eligible to receive Awards under the 2009 Plan include employees, directors, consultants and other persons who provide services to the Company. The 2009 Plan imposes individual limitations on the amount of certain Awards, in part, to comply with Internal Revenue Code, Section 162(m).
The Awards can be in the form of stock options, restricted and deferred stock, performance awards and other stock-based awards, as provided for in the 2009 Plan.As of September 30,
2018,2020 and 2019
, all outstanding common stock options
issued under the 2009 Plan
had been
fully vested. These options amounted to
242,492177,492 at September 30,
2018.2020. As long as the
employee remains employees remain
employed by the Company, these options are exercisable through October 1, 2021.
35
As of September 30,
2018, 482,000 shares of Company common stock2020 and 100,000 shares of2019
, 45,000 outstanding Class B stock
optionsissued under the 2009 Plan
were fully vested and are exercisable through October 1, 2021 as long as the employee remains employed by the Company. In addition, 30,000 outstanding Class B stock options
issued under the 2009 Plan
were fully vestedat September 30, 2020, and were 75% vested as of September 30, 2019,
and are exercisable through September 26, 2026 as long as the employee remains employed by the Company. As of September 30, 2020, options
are available for granting of Awards under the 2009 Plan.
The
The
following table summarizes option activity under the
2009
Plan:
| | | | | | | | |
| | | Number of
Shares | | | Average
Exercise Price
Per Share | |
Options outstanding at September 30, 2016 | | | 483,750 | | | $ | 5.684 | |
Options exercised during fiscal 2017 | | | (43,750 | ) | | $ | 5.126 | |
| | | | | | | | |
Options outstanding at September 30, 2017 | | | 440,000 | | | $ | 5.739 | |
Options exercised during fiscal 2018 | | | (122,508 | ) | | $ | 5.104 | |
| | | | | | | | |
Options outstanding at September 30, 2018 | | | 317,492 | | | $ | 5.984 | |
| | | | | | | | |
No
| | | | | | | | |
| | | Number of
Shares | | | Average
Exercise Price
Per Share | |
Options outstanding at September 30, 2018 | | | 317,492 | | | $ | 5.984 | |
Options exercised during fiscal 2019 | | | (45,000 | ) | | $ | 5.126 | |
| | | | | | | | |
Options outstanding at September 30, 2019 | | | 272,492 | | | $ | 6.126 | |
Options exercised during fiscal 2020 | | | (20,000 | ) | | $ | 5.126 | |
| | | | | | | | |
Options outstanding at September 30, 2020 | | | 252,492 | | | $ | 6.205 | |
| | | | | | | | |
NaNoptions were granted, forfeited or cancelled during the yearyears ended September 30, 2018.2020 or September 30, 2019. The weighted average remaining contractual life on the options outstanding as of September 30, 20182020 is 3.5
1.6 years under the 2009 Plan.
NOTE 12 -
RELATED PARTY TRANSACTIONSMarcar Leasing Corporation (“Marcar”) was engaged in leasing vehicles and forklifts to the Company. Marcar is owned by a family member of the Company’s chairman. New leases betweenSUBSEQUENT EVENTS
On
October 1, 2020, the Company
acquired the Blaw-Knox paver business and
Marcar providedassociated assets, including inventory, fixed assets and related intellectual property, from Volvo CE.
The acquisition was accounted for
equal monthly payments.as a business combination under ASC 805, “Business Combinations.” The purchase price of approximately $14.4 million, which is subject to post-closing adjustments, was funded by cash on hand.Due to COVID-19 constraints, as well as limited time since the acquisition date, the Company is still in the process of completing the initial accounting for the business combination. As a result, the specific amounts for the major classes of assets acquired are not provided. There were no lease payments made to Marcar during fiscal 2018. During fiscal 2017,liabilities assumed.
This acquisition provides the Company
made lease payments to Marcar totaling $125,000. On October 5, 2017,entry into the
Company agreed to purchase leased vehicles and forklifts under contract with Marcar for $320,000. The Company has no further obligation to Marcar.36
hot mix paver segment of the asphalt industry.
| ITEM 9 |
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
Evaluation of Disclosure Controls and Procedures
The Company’s Chief Executive Officer and Chief Financial Officer evaluated the effectiveness of the design and operation of the Company’s “disclosure controls and procedures” (as defined in Rule
13a-15(e)
under the Securities Exchange Act of 1934, as amended (the “Exchange Act”))Act) as of the end of the period covered by this Annual Report. Based upon that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that, as of the end of the period covered by this Annual Report, the Company’s disclosure controls and procedures are effective.Because of inherent limitations, the Company’s disclosure controls and procedures, no matter how well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of such disclosure controls and procedures are met and no evaluation can provide absolute assurance that all control issues and instances of fraud, if any, within the Company has been detected.
As of the end of the period covered by this
Annual Report, the Company conducted an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Exchange Act Rules
13a-15(b).
Based on this evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of September 30, 2018.2020.
Management’s Annual Report on Internal Control over Financial Reporting
This Annual Report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to rules of the SEC that permit the Company to provide only management’s report in this Annual Report.
The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in
Rule13a-15(f)
under the Exchange Act) for the Company. The Company’s internal control system is designed to provide reasonable assurance to the Company’s management and Board of Directors regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. There are inherent limitations in the effectiveness of all internal control systems no matter how well designed. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to the preparation and presentation of financial statements. Furthermore, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of a change in circumstances or conditions.
In order to ensure that the Company’s internal control over financial reporting is effective, management regularly assesses such controls and did so most recently as of September 30,
2018.2020. This assessment was based on criteria for effective internal control over financial reporting described in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management believes the Company maintained effective internal control over financial reporting as of September 30,
2018. The effectiveness of our internal control over financial reporting as of September 30, 2018 has been audited by Moore Stephens Lovelace, P.A., an independent registered public accounting firm, as stated in their report that is included herein.2020
Changes in Internal Control over Financial Reporting
The Company’s management, including the Chief Executive Officer and Chief Financial Officer, has reviewed the Company’s internal control over financial reporting. There were no changes in the Company’s internal control over financial reporting during the year ended September 30,
20182020 that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
37
| ITEM 10 | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE |
The information required by this Item 10 is incorporated herein by reference to the Company’s Definitive Proxy Statement for the
20192021 Annual Meeting of Stockholders.
| ITEM 11 | EXECUTIVE COMPENSATION |
The information required by this Item 11 is incorporated herein by reference to the Company’s Definitive Proxy Statement for the
20192021 Annual Meeting of Stockholders.
| ITEM 12 | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS |
The information required by this Item 12 is incorporated herein by reference to the Company’s Definitive Proxy Statement for the
20192021 Annual Meeting of Stockholders.
| ITEM 13 | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE |
The information required by this Item 13 is incorporated herein by reference to the Company’s Definitive Proxy Statement for the
20192021 Annual Meeting of Stockholders.
| ITEM 14 | PRINCIPAL ACCOUNTING FEES AND SERVICES |
The information required by this Item 14 is incorporated herein by reference to the Company’s Definitive Proxy Statement for the
20192021 Annual Meeting of Stockholders.
38
| ITEM 15 | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES |
| (a) | A listing of financial statements and financial statement schedules filed as part of this Annual Report and which financial statements and schedules are incorporated into this report by reference, is set forth in the “Index to Financial Statements and Financial Statement Schedules” in Item 8 hereof. |
| | | | | | |
| | | | | |
| | |
| 3.1 | | Restated Certificate of Incorporation of Company, incorporated by reference to Exhibit 3.1 to Registration No. 33-627(P) | | | | |
| | |
| 3.2 | | Amended and RestatedBy-Laws of Gencor Industries, Inc., incorporated by reference to Exhibit 3.2 to the Company’s Annual Report on Form10-K for the year ended September 30, 2007 | | | | |
| | |
| 3.3 | | Certificate of Amendment, changing name of Mechtron International Corporation to Gencor Industries, Inc. and adding a “twelfth” article regarding director liability limitation, incorporated by reference to the Company’s Annual Report on Form10-K for the year ended December 31, | | | | |
| | |
| 4.1 | | Form of Common Stock certificate, incorporated by reference to Exhibit 4.1 to RegistrationNo. 33-627(P) | | | | |
| | |
| 4.2 | | Description of Securities Registered under Section 12 of the Securities Exchange Act of 1934, as amended | | | X | |
| | |
| 10.1 | | The Company’s 2009 Incentive Compensation Plan, as incorporated by reference to the Company’s 2009 Proxy Statement filed with the Securities and Exchange Commission on Schedule 14A on January 28, 2009 | | | | |
| | |
10.5 10.2 | | Form of Agreement for Nonqualified Stock Options granted in 1986, incorporated by reference to the Annual Report onForm 10-K for the year ended December 31, 1986(P) | | | | |
| | |
10.11 10.3 | | 1997 Stock Option Plan incorporated by reference to Exhibit A to the Company’s Proxy Statement on 14A, filed March 3, 1997 | | | | |
| | |
10.12 10.4 | | First Amendment to the Stock Option Plan Agreement incorporated by reference to Exhibit 10.12 to the Company’s Quarterly Report on Form10-Q for the quarter ended June 30, 2006 | | | | |
| | |
| 21.1 | | Subsidiaries of the Registrant | | | X | |
| | |
| 23.1 | | Consent of Independent Registered Public Accountants | | | X | |
| | |
| 31.1 | | Certification of Chief Executive Officer Pursuant to Rule 13a – 14(a) of the Securities Exchange Act of 1934, as amended | | | X | |
| | |
| 31.2 | | Certification of Chief Financial Officer Pursuant to Rule 13a – 14(a) of the Securities Exchange Act of 1934, as amended | | | X | |
| | |
| 32.1 | | Certifications of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U. S. C. Section 1350 | | | X | |
39
| | | | | | |
| | | | | |
| | |
| 101.INS | | XBRL Instance Document | | | X | |
| | |
| 101.SCH | | XBRL Taxonomy Extension Schema | | | X | |
| | |
| 101.CAL | | XBRL Taxonomy Extension Calculation Linkbase | | | X | |
| | |
| 101.DEF | | XBRL Taxonomy Extension Definition Linkbase | | | X | |
| | |
| 101.LAB | | XBRL Taxonomy Extension Label Linkbase | | | X | |
| | |
| 101.PRE | | XBRL Taxonomy Extension Presentation Linkbase | | | X | |
40
Pursuant to the requirements of Sections 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this
Annual Report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | | | | | |
Dated: December 13, 2018 | | 18, 2020 | | | | GENCOR INDUSTRIES, INC. |
| | | | | | (Registrant) |
| | | |
| | | | | | |
| | | | | | John E. Elliott |
| | | | | | Chief Executive Officer |
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Annual Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. The signatures of Directors constitute a majority of Directors.
| | | | | | | | |
| | | | | | |
| E.J. Elliott | | December 13, 201818, 2020 | | | | John E. Elliott | | December 13, 201818, 2020 |
| Chairman | | | | Chief Executive Officer |
| | |
| | | | (Principal Executive Officer) | | |
| | | |
| | | | | | |
| Marc G. Elliott | | December 13, 201818, 2020 | | | | Eric E. Mellen | | December 13, 201818, 2020 |
| President | | | | Chief Financial Officer |
| | |
| | | | (Principal Financial and Accounting Officer) | | |
| | | |
| | | | | | General John G. Coburn |
| James P. Sharp | | December 13, 201818, 2020 | | Cort J. Dondero | | Gen. John G. Coburn | | December 13, 201818, 2020 |
| Director | | | | Director | | |
| | | |
| | | | | | |
| David A. Air | | December 13, 201818, 2020 | | | | | | |
| Director | | | | | | |
41