20 7
ON E COMPANY • ONE SOU RCE • ON E SO LUT IO N
Annual Report
Message to Our Shareholders
Message to Our Shareholders
The robust market activity over the last two years continued for Gencor through
fiscal 2017 as a result of the continuing effects of the FAST Act, as well as overall
increased state highway infrastructure funding activities. Our growth, coupled with
ongoing productivity enhancements, was key to the Company’s increase in
performance and profitability.
Rebuilding of Americas infrastructure, and primarily our deteriorating highways and decaying
bridges, must still await to see if relief is to come from the political shift of power in the recent
elections. In the meantime, our industry has gone through another year of virtually no change in
funding of the Highway Trust Fund while the needs of our highway system have continued to
increase. The twenty-seven month bill that expired on September 20, 2014 was replaced with
another short-term bill that will expire on May 31, 2015.
Net income for fiscal 2017 was $8.4 million, an increase of 20% over fiscal 2016.
Sales increased over 15% as highway construction spending for asphalt plants
accelerated. Operating income increased to 12.7% of net revenue resulting in
increased margins on the higher volume of product shipped.
While purchases of large capital goods such as we manufacture have declined due to the
uncertainty of the under-funded Highway Trust Fund, we remain overall profitable. We are also
managing to maintain steady our workforce of highly skilled employees, and investing in new
designs of equipment so as to broaden our product lines and retain our technological leadership
in the industry.
Gencor’s revenues increased as a result of an improvement in the domestic
economic outlook, as well as the highway construction industry’s recognition of
our products, and the Company as the technological leaders. The significant
growth in revenue was also bolstered by Gencor’s reinforced presence at The 2017
CONEXPO-CON/AGG construction equipment exhibition in Las Vegas. As one
of the largest exhibitors, Gencor’s increased exposure resulted in numerous asphalt
plant sales, and expansion of our customer base due to the increased corporate
visibility.
Meanwhile, we feel that our industry has likely bottomed out and are optimistic that the highway
trust funding process will be resolved at least in part this coming year to address the much
needed repairs to our nation’s infrastructure. Our continued efforts to operate more efficiently
and reduce our cost structure should positively impact future profits when business improves. In
the meantime, we are focused on continued overall profitability while we expand our efforts to
increase export sales, broaden our product lines, and pursue suitable acquisitions. Notwithstanding
all these challenges, we ended the fiscal year with the strongest balance sheet in the company’s
history.
Going forward, Gencor is well positioned to continue its profitability into fiscal
2018. Our core business is operating efficiently, and we expect to continue to
capitalize on our markets with new product introductions and continuing
production improvements. With the support of our loyal customers, dedicated
employees, and shareholders, we are well-positioned for continued growth and
long-term success.
We thank our employees and management for all their efforts and contributions, and our
shareholders for their loyalty and support.
John E. Elliott
Chief Executive Officer
Marc G. Elliott
President
Marc G. Elliott
President
E.J. Elliott
Chairman
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10 – K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended September 30, 2017
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File No. 001-11703
GENCOR INDUSTRIES, INC.
Incorporated in the
State of Delaware
I.R.S. Employer Identification
No. 59-0933147
5201 North Orange Blossom Trail
Orlando, Florida 32810
Registrant’s Telephone Number, Including Area Code: (407) 290-6000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
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 [Ö] 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 [Ö] No
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
[Ö] Yes [ ] No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File
required to be submitted and posted 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 and post such files).
[Ö] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
[Ö ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting
company. See definitions of “large accelerated filer” and “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act
(check one):
Large Accelerated Filer [ ]
Non-Accelerated Filer [ ] (Do not check if a smaller reporting Company)
Accelerated Filer [Ö ]
Smaller Reporting Company [ ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
[ ] Yes [Ö ] No
The aggregate market value of the common equity held by non-affiliates computed by reference to the price at which the common equity was last
sold as of the last business day of the most recently completed second fiscal quarter was $152,357,700.
Indicate the number of shares outstanding of each of the Registrant’s classes of Common Stock, as of the latest practicable date: 12,154,829
shares of Common Stock ($.10 par value) and 2,263,857 shares of Class B Stock ($.10 par value) as of December 1, 2017.
1
DOCUMENTS INCORPORATED BY REFERENCE
Part III of this Form 10-K is incorporated by reference from the Registrant’s 2018 Proxy Statement for the
Annual Meeting of the Stockholders.
Introductory Note: Caution Concerning Forward-Looking Statements
This annual report on Form 10-K (“Report”) and the Company’s other communications and statements may contain
“forward-looking statements,” including statements about the Company’s beliefs, plans, objectives, goals, expectations,
estimates, projections and intentions. These statements 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 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 Report, and “Management’s Discussion and Analysis of Financial Condition and
Results of Operations” in Part II, Item 7 in this 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 Report.
The Company does not undertake to update any forward-looking statement, except as required by law.
PART I
ITEM 1.
BUSINESS
General
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,
environmentally friendly process technology, and wide range of products have enabled it to become a leading producer
of highway construction materials fuels and environmental control equipment worldwide. The Company believes it has
the largest installed base of asphalt production plants in the United States.
Because the Company’s products are sold primarily to the highway construction industry, the business has historically
been seasonal. Traditionally, the Company’s customers do not purchase new equipment for shipment 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 products 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
government funding for domestic highway construction and repair, replacement of existing plants, the need for spare
parts, and a continuing trend towards efficiencies of a larger plant.
In 1968, the Company was formed by the merger of Mechtron Corporation with General Combustion, Inc. 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. in the United Kingdom (the “UK”). Hy-Way Heat Company, Inc. and the Bituma Group were acquired in
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1986. In 1987, the Company changed its name to Gencor Industries, Inc. and acquired Davis Line Inc. and its
subsidiaries in 1988.
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 no longer has any ownership in the two synthetic fuel entities.
Products
Asphalt Plants. 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, including hot-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 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.
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.
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 procured raw materials and hardware. 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. The Company believes it has the internal capability to produce the highest quality products at the lowest
cost. The Company may augment internal production by outsourcing some of its production when demand for its
products exceeds its manufacturing capacity.
3
Seasonality
The Company is concentrated in the manufacturing of asphalt plants and related components which had historically
been subject to a seasonal slow-down during the third and fourth quarters of the calendar year. Recent bidding activity
and delivery of equipment has been occurring more evenly throughout the year. The Company cannot determine if this
is a new trend or the result of a greater near-term demand for its products.
Competition
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, 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 after-the-sale technical
support are other important factors.
Sales and Marketing
The Company’s products and services are marketed primarily through Company-employed sales representatives and, to
a lesser extent, independent dealers.
Sales Backlog
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 $46.0 million and $32.1 million as of December 1, 2017 and December 1,
2016, respectively.
Financial Information about Geographic Areas Reporting Segments
For a geographic breakdown of revenues and long-term assets, see the table captioned Reporting Segments 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.
Government Regulations
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.
Environmental Matters
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.
4
Employees
As of September 30, 2017, the Company had a total of 332 full-time employees and 3 part-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.
Available Information
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 Report.
The Company makes available free of charge through its website at www.gencor.com the Company’s Annual Report on
Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-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
Form 10-K.
5
ITEM 1A.
RISK FACTORS
The following risk factors and other information included in this Annual Report on Form 10-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.
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, volatile 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 labor costs.
The business is affected by the level of government funding for highway construction in the United States and
Canada.
Many contractors depend on funding by federal, foreign, 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 funding allocated to infrastructure may be
decreased in the future.
In fiscal years 2017, 2016 and 2015, the Company depended on one customer for a significant portion of its
revenue. The loss of this relationship could have adverse consequences on the Company’s future business.
The percentage of the Company’s net revenue that was derived from sales to one customer was 13% in fiscal 2017, 14%
in fiscal 2016 and 15% in fiscal 2015.
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 Securities and Exchange Commission 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, 2017. See Item 9A – Controls and Procedures –
Management’s Annual Report on Internal Control over Financial Reporting. Although the Company has evaluated its
internal control over financial reporting as effective as of September 30, 2017, 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 you that 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.
6
The Company may be required to reduce its profit margins on contracts on which it uses the percentage-of-
completion accounting method.
The Company records revenues and profits on many of its contracts using the percentage-of-completion method of
accounting. 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. generally accepted accounting principles (“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.
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 relationships.
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 Form 10-K.
Demand for the Company’s products is cyclical in nature.
Demand for the Company’s products depends, in part, upon the level of capital and maintenance expenditures by the
highway construction industry. The highway construction industry historically has been cyclical in nature and
vulnerable to general 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
firm and are subject to various risks, such as interest rates, markets, and 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.
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 certain large
contracts are recognized using the percentage-of-completion method of accounting. The Company recognizes product
revenues upon shipment for the rest of its products. The Company’s asphalt production equipment operations are
subject to seasonal fluctuation, which may lower revenues and result in possible losses in a quarter.
If the Company is unable to attract and retain key personnel, its business could be adversely 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.
7
The Company may be required to defend its intellectual property against infringement or against infringement
claims of others.
The Company holds 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.
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.
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 materials suppliers could cause production delays.
The principal raw materials the Company uses are steel and related products. The Company has been able to obtain
sufficient supplies of raw materials for its operations. 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 any of these raw materials could have a material adverse effect on the Company’s business and
its results of operations.
8
The Company is subject to significant government regulations.
The Company is subject to a variety of governmental regulations relating to the manufacturing of its products. Any
failure 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. 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.
The Company’s management has effective voting control.
The Company’s officers and directors beneficially own an aggregate of approximately 96.8% of the outstanding shares
of the Company’s $.10 par value Class B stock. The Class B stock is entitled to elect 75% (calculated to the nearest
whole number, rounding five-tenths to next highest whole number) of the members of its Board of Directors. Further,
approval of a majority of the Class B stock is generally required to effect a sale of the Company and certain other
corporate transactions. As a result, these 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.
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.
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, the Company intends to retain any earnings to finance 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 lose 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 conditions
• Delays in, or uneven timing in, delivery of customer orders
• The seasonal nature of the industry
• The fluctuations in market value of its securities portfolio
• The introduction of new products by the Company or its competitors
• Product supply shortages
• Reduced demand due to adverse weather conditions
• Expiration or renewal of Federal highway programs, and
• Changes to state or Canadian provincial programs.
Period-to-period comparisons of such items should not be relied on as indications of future performance.
The Company’s 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 results
• Changes in revenue growth rates as a whole or for specific geographic areas or products
• Changes in earnings estimates by market analysts
• The announcement of new products or product enhancements by the Company or its competitors
• Speculation in the press or analyst community of potential acquisitions by the Company, and
• General market conditions or market conditions specific to particular industries.
10
ITEM 1B.
UNRESOLVED STAFF COMMENTS
None
ITEM 2.
PROPERTIES
The following table lists the operating properties owned by the Company as of September 30, 2017:
Location
Marquette, Iowa
Orlando, Florida
Owned
Acreage
Building
Square
Footage
Principal Function
72.0
137,000 Offices and manufacturing
27.0
215,000 Corporate offices and manufacturing
ITEM 3.
LEGAL PROCEEDINGS
The Company has various litigation and claims, either as a plaintiff or defendant, pending as of the date of this Form 10-
K 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 estimable losses and expenses of litigation.
ITEM 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted during the fourth quarter of this fiscal year to a vote of security holders.
11
PART II
ITEM 5.
MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER’S PURCHASES OF EQUITY SECURITIES
The Company’s stock has been traded on the NASDAQ Global Market under the symbol “GENC” since December 20,
2007.
Stock Split
On July 11, 2016, the Company’s Board of Directors approved a three-for-two split of the Company’s common and
Class B stock to be effected in the form of a 50% stock dividend. As a result, shareholders received one additional share
of common or Class B stock for every two shares they held of the respective class of stock as of the record date. These
shares were distributed on August 1, 2016, to shareholders of record as of the end of business on July 22, 2016.
Following are the high and low closing prices for the Company’s common stock for the periods indicated:
2017
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
2016
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
HIGH
$16.05
$16.15
$16.80
$17.85
HIGH
$9.25
$10.29
$10.62
$13.41
LOW
$11.01
$13.50
$15.10
$15.35
LOW
$6.07
$7.00
$9.19
$9.84
As of September 30, 2017, there were 228 holders of common stock of record and 5 holders of Class B stock of record.
The Company has not paid any cash dividends during the last two fiscal years and there is no intention to pay cash
dividends in the foreseeable future.
12
EQUITY COMPENSATION PLANS
The following table includes information about the Company’s common 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, 2017:
Plan
2009 Incentive
Compensation 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
440,000
$5.739
582,000 *
* Includes 100,000 of Class B securities
13
COMPARATIVE 5-YEAR CUMULATIVE RETURN GRAPH
The following graph sets forth the cumulative total return to the Company’s shareholders during the five-year period
ended September 30, 2017, as well as the Wilshire US Micro-Cap Price Index and the Dow Jones Heavy Construction
Index. The stock performance assumes $100 was invested on October 1, 2012.
350
300
250
200
150
100
50
2012
2013
2014
2015
2016
2017
Gen co r Industries
DJ Heavy Constr uction Index
Wilshire US Micro-Cap Index
Comparison of Cumulative Total Return among Gencor Industries, Inc., the
Wilshire US Micro-Cap Price Index and the Dow Jones Heavy Construction Index
With Base Year of 2012:
9/30/2012
9/30/2013
9/30/2014
9/30/2015
9/30/2016
9/30/2017
Gencor Industries, Inc.
100.00
115.95
132.70
122.16
242.84
357.77
DJ Heavy Construction Index
100.00
125.38
119.13
87.91
98.97
106.11
Wilshire US Micro-Cap Index
100.00
131.96
139.78
138.23
155.37
191.34
On December 1, 2017, the Company’s stock was available for trading on the NASDAQ Global Market under the
symbol “GENC.”
14
ITEM 6.
SELECTED FINANCIAL DATA
Selected Consolidated Statement
of Operations Data:
Net Revenue
Operating Income (Loss)
Net Income (Loss)
Per Share Data:
Basic – Net Income (Loss)
Diluted – Net Income (Loss)
Selected Consolidated Balance
Sheet Data:
Current Assets
Current Liabilities
Total Assets
Long Term Debt
Shareholders’ Equity
2017
$80,608,000
10,236,000
8,418,000
Years Ended September 30
2015
$39,230,000
(794,000)
(1,819,000)
2016
$69,991,000
7,816,000
7,043,000
2014
$40,017,000
(26,000)
3,473,000
2013
$48,943,000
2,578,000
6,725,000
$ 0.58
$ 0.57
$ 0.49
$ 0.48
$ (0.13)
$ (0.13)
$ 0.24
$ 0.24
$ 0.47
$ 0.47
2017
$137,118,000
12,374,000
142,893,000
-
128,918,000
2016
$123,420,000
8,191,000
128,712,000
-
120,205,000
September 30
2015
$112,366,000
7,399,000
120,144,000
-
112,745,000
2014
$110,619,000
2,960,000
117,828,000
-
114,175,000
2013
$108,791,000
6,036,000
116,948,000
-
110,428,000
15
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
“Forward-Looking” Information
This Form 10-K 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 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 Report. The Company does not undertake to update
any forward-looking statements, except as required by law.
Overview
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. The Company’s products are manufactured in two facilities
in the United States.
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), and a trend towards more efficient, larger 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 previous SAFETEA-LU bill at then
current spending levels combined with a new two-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 billion ten-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 of MAP-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 includes spending of more than $205 billion on
roads and highways over five years. The 2016 funding levels are approximately 5% above 2015 projected funding, with
annual increases between 2.0% and 2.5% from 2016 through 2020.
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.
The Canadian government has also enacted major infrastructure stimulus programs. In 2007, the Building Canada Plan
provided $33 billion in infrastructure funding through 2014. The 2014 New Building Canada Fund is one component
within the $53 billion 2014 New Building Canada Plan. The 2014 New Building Canada Fund provided funding for
infrastructure projects at the national, provincial and local levels.
16
In addition to government funding and overall economic conditions, fluctuations in the price of oil, which is a major
component of asphalt mix, may affect the Company’s financial performance. An increase in the price of oil increases
the cost of liquid asphalt and could decrease demand for hot-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.
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.
Results of Operations
Year ended September 30, 2017 compared with the year ended September 30, 2016
Net revenue for the year ended September 30, 2017 was $80.6 million, an increase of 15.2% or $10.6 million from
$70.0 million for the year ended September 30, 2016. Net revenue for the fourth quarter of 2017 was up 25.4% or $3.8
million over the fourth quarter of 2016. The Company’s increase in net revenue reflects a continued strong demand for
its equipment due to the passing of the FAST Act. In addition, state and local programs that fund infrastructure,
including gas tax increases and other ballot initiatives passed over the previous few years, have had a positive impact on
the demand for the Company’s products.
Gross profit for fiscal 2017 was 26.2% of net revenue versus 25.0% of net revenue in fiscal 2016. The gross margin
increase in 2017 was due to overall higher net revenues and improved overhead absorption from increased production
volumes.
Product engineering and development (“PED”) expenses increased $580,000 or 37.0% from fiscal 2016 due to
increased headcount to meet the higher demands for our engineered products. Selling, general and administrative
(“SG&A”) expenses increased $634,000 or 7.8% to $8,776,000 from $8,142,000 in fiscal 2016. SG&A expenses
increased due to increased headcount, increased sales commissions due to higher revenues, and increased trade show
expenses to capitalize on the renewed optimism within the highway construction industry. As a percentage of net
revenue, SG&A expenses declined to 10.9%, compared to 11.6% in the prior year.
Fiscal 2017 had operating income of $10,236,000 versus $7,816,000 in fiscal 2016. The improved operating results
were due primarily to higher net revenue and improved cost absorption, partially offset by increases in PED and SG&A
expenses.
As of September 30, 2017 and 2016, the cost basis of the investment portfolio was $87.0 million and $86.2 million,
respectively. For the years ended September 30, 2017 and 2016, net investment interest and dividend income
(“Investment Income”) was $0.7 million and $0.8 million, respectively. The net realized and unrealized gains (losses)
on marketable securities were $1.3 million in fiscal 2017 versus $0.8 million in fiscal 2016. The total cash, cash
equivalents and investments balance at September 30, 2017 was $110.8 million, compared to the September 30, 2016
cash, cash equivalents and investments balance of $104.2 million, an increase of $6.6 million.
The effective income tax rate for fiscal 2017 was 30.9% versus 25.1% in fiscal 2016. As of September 30, 2016, the
Company had $647,000 in federal research and development tax credits (“R&D Credits”) carryforwards. In fiscal 2017,
there were $332,000 of new credits generated, bringing the total R&D Credits to $979,000, of which all were used.
There are no R&D Credits carryforwards as of September 30, 2017.
17
As of September 30, 2016, the Company had $224,000 in Florida state research and development tax credits (“Florida
R&D Credits”) carryforwards. The Company received additional Florida R&D Credits of $22,000 in fiscal 2017 and
used $91,000, leaving $155,000 of Florida R&D Credits carryforwards as of September 30, 2017. The $155,000 of
Florida R&D Credits, which are included in net deferred and other income tax liabilities of $(1,601,000) at September
30, 2017, expire in fiscal 2021.
Net income for the year ended September 30, 2017 was $8,418,000 or $0.57 per diluted share versus net income of
$7,043,000 or $0.48 per diluted share for the year ended September 30, 2016. The increase in net income was primarily
due to the improved net revenue and higher gross profit margins.
Year ended September 30, 2016 compared with the year ended September 30, 2015
Net revenue for the year ended September 30, 2016 was $70.0 million, an increase of 78.4% or $30.8 million from
$39.2 million for the year ended September 30, 2015. Net revenue for the fourth quarter of 2016 was up 79.3% or $6.5
million over the fourth quarter of 2015. On December 4, 2015, President Obama signed the FAST Act, which gave our
U.S. customers the confidence to invest in new asphalt equipment for production capacity expansion and replacement of
older, less efficient equipment. The Company’s increased net revenue reflects a significantly improved demand for its
equipment due to the passing of the FAST Act. In Canada, orders were weak in fiscal 2016 due to low oil prices
impacting the Canadian economy and the increase in the US-Canada exchange rate.
Gross profit for fiscal 2016 was 25.0% of net revenue versus 19.1% of net revenue in fiscal 2015. The gross profit
increase in 2016 was due to higher net revenue and improved overhead absorption from increased production volumes.
Product engineering and development expenses increased $145,000 or 10.2% from fiscal 2015 due to increased
headcount. SG&A expenses increased $1,264,000 or 18.4% to $8,142,000 from $6,878,000 in fiscal 2015. SG&A
expenses increased due to increased headcount, and increased sales commissions due to higher net revenue. As a
percentage of net revenue, SG&A expenses declined to 11.6%, compared to 17.5% in the prior year.
Fiscal 2016 had operating income of $7,816,000 versus an operating loss of $(794,000) in fiscal 2015. As compared to
fiscal 2015, the improved operating results were due to significantly higher net revenue, resulting in improved cost
absorption, partially offset by a moderate increase in SG&A.
As of September 30, 2016 and 2015, the cost basis of the investment portfolio was $86.2 million and $87.1 million,
respectively. For the years ended September 30, 2016 and 2015, Investment Income was $0.8 million and $0.9 million,
respectively. The net realized and unrealized gains on marketable securities were $0.8 million in fiscal 2016 versus net
losses of $(3.6) million in fiscal 2015. Total cash and investment balance at September 30, 2016 was $104.2 million,
compared to the September 30, 2015 cash and investment balance of $95.5 million, an increase of $8.6 million.
The effective income tax rate for fiscal 2016 was 25.1% versus a benefit of (48.7%) in fiscal 2015. As of September 30,
2015, the Company had $900,000 in R&D Credits carryforwards. In fiscal 2016, there was a net usage of R&D Credits
of $253,000, bringing the total R&D Credits carry-forwards to $647,000 at September 30, 2016. The $647,000 of R&D
Credits carryforwards, which are included in net deferred and other income tax liabilities of $(316,000) at September
30, 2016, expire in fiscal years 2031 through 2035.
As of September 30, 2015, the Company had $214,000 in Florida R&D Credits carryforwards. The Company received
additional net Florida R&D Credits of $10,000 in fiscal 2016. The $224,000 of Florida R&D Credits, which are
included in net deferred and other income tax liabilities of $(316,000) at September 30, 2016, expire in fiscal 2020.
Net income for the year ended September 30, 2016 was $7,043,000 or $0.48 per diluted share versus a net loss of
$(1,819,000) or $(0.13) per diluted share for the year ended September 30, 2015 (adjusted for three-for-two stock split –
see Note 10 to Consolidated Financial Statements). The increase in net income was primarily due to the improved net
revenue and higher gross profit margins.
18
Liquidity and Capital Resources
The Company generates capital resources through operations and returns on its investments.
The Company had no long-term debt outstanding at September 30, 2017 or 2016. As of September 30, 2017, the
Company has funded $135,000 in cash deposits at insurance companies to cover collateral needs.
As of September 30, 2017, the Company had $22.9 million in cash and cash equivalents, and $87.9 million in
marketable securities. The marketable securities are invested through a professional investment management firm. The
securities may be liquidated at any time into cash and cash equivalents.
The Company’s backlog, which includes orders received through the date of this filing, was $61.3 million at
September 30, 2017 versus $43.2 million at September 30, 2016, an increase of 41.9%. The Company’s working capital
was $124.7 million at September 30, 2017 versus $115.2 million at September 30, 2016.
The significant purchases, sales and maturities of marketable securities shown on the consolidated statements of cash
flows reflect the recurring purchase and sale of United States treasury bills.
Year ended September 30, 2017 compared with the year ended September 30, 2016
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 reflects the ongoing need for additional equipment to meet the increased demand for our
products. Similarly, customer deposits increased $4.1 million, reflecting the down payments on our increased backlog of
orders.
Cash used in investing activities during the year ended September 30, 2017 of $1,617,000 related to capital expenditures
for manufacturing equipment. Cash provided by financing activities of $223,000 in fiscal 2017 related to proceeds from
the exercise of stock options.
Year ended September 30, 2016 compared with the year ended September 30, 2015
Cash provided by operations during the years ended September 30, 2016 and 2015 was $6,993,000 and $4,512,000,
respectively, primarily from increases in net revenues. The change in deferred income taxes between years is primarily
due to the tax impact on net unrealized losses on marketable securities, which were an unrealized loss of $(0.3) million
at September 30, 2016 versus an unrealized loss of $(2.7) million at September 30, 2015. Costs and estimated earnings
in excess of billings increased $2.5 million, reflecting the composition of open percentage-of-completion towards larger
plants as of September 30, 2016 versus plant components at September 30, 2015. Prepaid expenses increased $0.8
million over prior year reflecting an overpayment on estimated federal income taxes for fiscal 2016. Inventories
decreased $1.1 million as prior year stock build was used to fulfill current year orders. Accrued expenses increased $0.8
million as payroll and related accruals and sales commissions increased due to increased headcount and significantly
improved revenues.
Cash used in investing activities during the years ended September 30, 2016 and 2015 of $306,000 and $689,000,
respectively, related to capital expenditures for manufacturing equipment. Cash provided by financing activities of
$380,000 and $136,000 in fiscal 2016 and 2015, respectively, related to proceeds from the exercise of stock options.
Critical Accounting Policies, Estimates and Assumptions
The Company believes the following discussion addresses its 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
19
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.
Revenues & Expenses
Revenues from contracts for the design, manufacture and sale of asphalt plants are recognized under the percentage-of-
completion method. The percentage-of-completion method of accounting for these contracts recognizes revenue, net of
any promotional discounts, and costs in proportion to actual labor costs incurred as compared with total estimated labor
costs expected to be incurred during the entire contract. Pre-contract costs are expensed as incurred. Changes to total
estimated contract costs or losses, if any, are recognized in the period in which they are determined. Revenue
recognized in excess of amounts billed is classified as current assets under “costs and estimated earnings in excess of
billings.” The Company anticipates that all incurred costs associated with these contracts at September 30, 2017, 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 when the following four revenue recognition criteria are met:
product is delivered/ownership is transferred or service is performed, persuasive evidence of an arrangement exists, the
selling price is fixed or determinable, and collectability is reasonably assured.
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 costs are estimated using historical experience and known issues and are charged to production costs
as revenue is recognized.
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 less-than-90-day 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
Inventories are valued at the lower of cost or market, with cost being determined principally by using the last-in, first-
out (“LIFO”) method and market defined as replacement cost for raw materials and net realizable value for work in
process and finished goods (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 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, 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.
Investments
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
20
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 statements of operations. Net
unrealized gains and losses are reported in the consolidated statements of operations 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.
Inflation
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, 2017.
The Company had no long-term or short-term debt as of September 30, 2017. There was no long-term debt facility in
place and there were no outstanding letters of credit at September 30, 2017.
Off-Balance Sheet Arrangements
None
21
ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company operates manufacturing facilities and sales offices at two locations in the United States. The Company is
subject to business risks inherent in non-U.S. activities, including political and economic uncertainty, import and export
limitations, and market risk related to changes in interest rates and foreign currency exchange rates.
At September 30, 2017 and 2016, the Company had no debt outstanding. At September 30, 2017, there was no credit
facility in place.
The Company’s marketable securities are invested in cash and money funds, equities, corporate bonds, mutual funds,
exchange-traded funds, and government securities through a professional investment advisor. Investment securities are
exposed to various risks, such as interest rate, market and credit risks. Due to the level of risk associated with certain
investment securities and the level of uncertainty related to changes in the value of securities, it is possible that changes
in these risk factors could have an adverse material impact on the Company’s results of operations or equity.
22
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
GENCOR INDUSTRIES, INC.
Page
Management Assessment Report…………………………………………………………………
24
Report of Independent Registered Public Accounting Firm ..........................................................
25
Consolidated Balance Sheets as of September 30, 2017 and 2016 .................................................
26
Consolidated Statements of Operations for the years ended
September 30, 2017, 2016 and 2015 .............................................................................................
Consolidated Statements of Shareholders’ Equity for the years ended
September 30, 2017, 2016 and 2015 .............................................................................................
Consolidated Statements of Cash Flows for the years ended
September 30, 2017, 2016 and 2015 .............................................................................................
27
28
29
Notes to Consolidated Financial Statements ...................................................................................
30
Supplementary Data – Selected Quarterly Financial Data (Unaudited)………………………….
42
All other schedules are omitted because they are not applicable or the required information is shown in the consolidated
financial statements or notes thereto.
23
GENCOR INDUSTRIES, INC.
MANAGEMENT ASSESSMENT REPORT
The management of Gencor Industries, Inc. (the “Company”) is responsible for establishing and maintaining
adequate internal control over financial reporting 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, 2017. This assessment was
based on criteria for effective internal control over financial reporting described in Internal Control-Integrated
Framework 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, 2017. Moore Stephens Lovelace, P.A., the Company’s independent registered
public accounting firm, has issued an attestation report on the Company’s internal control over financial
reporting as of September 30, 2017.
24
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of Gencor Industries, Inc.:
We have audited the accompanying consolidated balance sheets of Gencor Industries, Inc. (the “Company”) as of
September 30, 2017 and 2016, and the related consolidated statements of operations, shareholders’ equity, and cash flows for
each of the years in the three-year period ended September 30, 2017. We have also audited the Company’s internal control
over financial reporting as of September 30, 2017, based on criteria established in Internal Control – Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). The Company’s
management is responsible for these consolidated financial statements, for maintaining effective internal control over financial
reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying
Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on
these consolidated financial statements and on the Company’s internal control over financial reporting based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement and whether effective internal control over financial reporting was
maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial statement presentation. 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.
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 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.
In our opinion, the consolidated financial statements referred to in the first paragraph present fairly, in all material respects,
the consolidated financial position of Gencor Industries, Inc. as of September 30, 2017 and 2016, and the consolidated results
of its operations and its cash flows for each of the years in the three-year period ended September 30, 2017, in conformity
with accounting principles generally accepted in the United States of America. Also, in our opinion, Gencor Industries, Inc.
maintained, in all material respects, effective internal control over financial reporting as of September 30, 2017, based on
criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (“COSO”).
/s/ MOORE STEPHENS LOVELACE, P.A.
MOORE STEPHENS LOVELACE, P.A.
Certified Public Accountants
Orlando, Florida
December 6, 2017
25
Part I. Financial Information
GENCOR INDUSTRIES, INC.
Consolidated Balance Sheets
As of September 30, 2017 and 2016
ASSETS
Current assets:
Cash and cash equivalents
Marketable securities at fair value (cost of $86,967,000 at September 30, 2017
and $86,203,000 at September 30, 2016)
Accounts receivable, less allowance for doubtful accounts of $207,000 at
September 30, 2017 and $195,000 at September 30, 2016
Costs and estimated earnings in excess of billings
Inventories, net
Prepaid expenses
Total current assets
Property and equipment, net
Other assets
Total Assets
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable
Customer deposits
Accrued expenses
Total current liabilities
Deferred and other income taxes
Total liabilities
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;
12,154,829 shares and 12,111,079 shares issued and outstanding at
September 30, 2017 and 2016, respectively *
Class B Stock, par value $.10 per share; 6,000,000 shares authorized;
2,263,857 shares issued and outstanding at September 30, 2017 and 2016 *
Capital in excess of par value
Retained earnings
Total shareholders’ equity
Total Liabilities and Shareholders’ Equity
2017
2016
$22,933,000
$18,219,000
87,886,000
85,938,000
1,184,000
6,768,000
16,687,000
1,660,000
137,118,000
5,722,000
53,000
$142,893,000
$1,320,000
8,628,000
2,426,000
12,374,000
1,601,000
13,975,000
1,110,000
4,921,000
11,634,000
1,598,000
123,420,000
5,239,000
53,000
$128,712,000
$1,443,000
4,484,000
2,264,000
8,191,000
316,000
8,507,000
-
-
1,215,000
1,211,000
226,000
11,178,000
116,299,000
128,918,000
$142,893,000
226,000
10,887,000
107,881,000
120,205,000
$128,712,000
See accompanying Notes to Consolidated Financial Statements
* 2016 adjusted for three-for-two stock split
26
GENCOR INDUSTRIES, INC.
Consolidated Statements of Operations
For the Years Ended September 30, 2017, 2016 and 2015
Net revenue
Cost of goods sold
Gross profit
Operating expenses:
Product engineering and development
Selling, general and administrative
Total operating expenses
2017
2016
2015
$80,608,000
$69,991,000
$39,230,000
59,449,000
21,159,000
2,147,000
8,776,000
10,923,000
52,466,000
17,525,000
31,724,000
7,506,000
1,567,000
8,142,000
9,709,000
1,422,000
6,878,000
8,300,000
Operating income (loss)
10,236,000
7,816,000
(794,000)
Other income (expense), net:
Interest and dividend income, net of fees
Realized and unrealized gains (losses) on marketable securities, net
Other
Income (loss) before income tax expense (benefit)
Income tax expense (benefit)
Net income (loss)
Basic earnings per common share:
Net income (loss) *
Diluted earnings per common share:
Net income (loss) *
650,000
1,297,000
(5,000)
1,942,000
12,178,000
3,760,000
$8,418,000
754,000
828,000
2,000
1,584,000
883,000
(3,638,000)
3,000
(2,752,000)
9,400,000
2,357,000
$7,043,000
(3,546,000)
(1,727,000)
$(1,819,000)
$0.58
$0.49
$(0.13)
$0.57
$0.48
$(0.13)
See accompanying Notes to Consolidated Financial Statements
* 2016 and 2015 adjusted for three-for-two stock split
27
GENCOR INDUSTRIES, INC.
Consolidated Statements of Shareholders’ Equity
For the Years Ended September 30, 2017, 2016 and 2015
September 30, 2014
Common Stock
Class B Stock
Shares *
12,015,079
Amount *
$1,202,000
Shares *
2,263,857
Amount *
$226,000
Capital in
Excess of
Par Value *
$10,090,000
Retained
Earnings
$102,657,000
Total
Shareholders’
Equity
$114,175,000
Net loss
Stock-based compensation
Stock options exercised
-
-
28,125
-
-
3,000
-
-
-
-
-
-
-
253,000
133,000
(1,819,000)
-
-
(1,819,000)
253,000
136,000
September 30, 2015
12,043,204
1,205,000
2,263,857
226,000
10,476,000
100,838,000
112,745,000
Net income
Stock-based compensation
Stock options exercised
-
-
67,875
-
-
6,000
-
-
-
-
-
-
-
37,000
374,000
7,043,000
-
-
7,043,000
37,000
380,000
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
Stock-based compensation
Stock options exercised
-
-
43,750
-
-
4,000
-
-
-
-
-
-
-
71,000
220,000
8,418,000
-
-
8,418,000
71,000
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
See accompanying Notes to Consolidated Financial Statements
* 2016 and 2015 adjusted for three-for-two stock split
28
GENCOR INDUSTRIES, INC.
Consolidated Statements of Cash Flows
For the Years Ended September 30, 2017, 2016 and 2015
Cash flows from operating activities:
Net income (loss)
Adjustments to reconcile net income (loss) to cash provided by operating
activities:
Purchase of marketable securities
Proceeds from sale and maturity of marketable securities
Change in value of marketable securities
Deferred and other income taxes
Depreciation and amortization
Provision for doubtful accounts
Loss on disposal of assets
Stock-based compensation
Changes in assets and liabilities:
Accounts receivable
Costs and estimated earnings in excess of billings
Inventories
Prepaid expenses
Accounts payable
Customer deposits
Accrued expenses
Total adjustments
Cash flows provided by operating activities
Cash flows from investing activities:
Capital expenditures
Proceeds from sale of property and equipment
Cash flows used in investing activities
Cash flows from financing activities:
Proceeds from stock option exercises
Cash flows provided by financing activities
Net increase in cash
Cash and cash equivalents at:
Beginning of year
End of year
2017
2016
2015
$8,418,000
$7,043,000
$(1,819,000)
(492,674,000)
491,852,000
(1,126,000)
1,285,000
1,128,000
115,000
7,000
71,000
(550,295,000)
549,027,000
(314,000)
1,647,000
1,397,000
105,000
65,000
37,000
(384,668,000)
383,773,000
3,649,000
(2,024,000)
1,385,000
60,000
1,000
253,000
(189,000)
(1,847,000)
(5,053,000)
(62,000)
(123,000)
4,144,000
162,000
(2,310,000)
6,108,000
(341,000)
(2,525,000)
1,136,000
(781,000)
(86,000)
66,000
812,000
(50,000)
6,993,000
514,000
(2,052,000)
968,000
32,000
582,000
4,094,000
(236,000)
6,331,000
4,512,000
(1,624,000)
7,000
(1,617,000)
(306,000)
-
(306,000)
(689,000)
-
(689,000)
223,000
223,000
380,000
380,000
136,000
136,000
4,714,000
7,067,000
3,959,000
18,219,000
$22,933,000
11,152,000
$18,219,000
7,193,000
$11,152,000
See accompanying Notes to Consolidated Financial Statements
29
GENCOR INDUSTRIES, INC.
Notes to Consolidated Financial Statements
For the Years Ended September 30, 2017, 2016 and 2015
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 606) (“ASU 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 beginning after December 15, 2017,
including interim periods therein, using either of the following transition methods: (i) a full retrospective approach
reflecting the application of the standard in each prior reporting period with the option to elect certain practical
expedients or (ii) a retrospective approach with the cumulative effect upon initial adoption recognized at the date of
adoption, which includes additional footnote disclosures. The Company plans to adopt the new standard in fiscal 2019.
The Company does not expect the adoption of this standard to have a material impact on its results of operations.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”). With adoption of this
standard, lessees will have to recognize most leases as a right-of-use asset 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. ASU 2016-
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 does not expect the new
accounting standard to have a significant impact on its financial results when adopted.
In March 2016, the FASB issued ASU No. 2016-09, Compensation – Stock Compensation (Topic 718). The new
standard identifies areas for simplification involving several aspects of accounting for share-based payment
transactions, including the income tax consequences, classification of awards as equity or liabilities, an option to
recognize gross stock compensation expense with actual forfeitures recognized as they occur, as well as certain
classifications on the statement of cash flows. The Company adopted the provisions of ASU No. 2016-09 during the
quarter ended March 31, 2017 with no material impact on the Company’s financial position, results of operations or
cash flows.
No other accounting pronouncements issued or effective during the fiscal 2017 have had or are expected to have a
material impact on the Company’s consolidated financial statements.
Use of Estimates
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.
30
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.
On July 11, 2016, the Company’s Board of Directors approved a three-for-two split of the Company’s common and
Class B stock to be effected in the form of a 50% stock dividend. As a result, shareholders received one additional
share of common or Class B stock for every two shares they held of the respective class of stock as of the record date.
These shares were distributed on August 1, 2016, to shareholders of record as of the end of business on July 22, 2016.
All share and per share data (except par value) has been adjusted to reflect the effect of the stock split for all periods
presented. The number of shares of common and Class B stock issuable upon exercise of outstanding stock options
were proportionately increased in accordance with terms of the respective plans (see Note 11). The number of
authorized shares, as reflected on the consolidated balance sheets, was not affected by the stock split and, accordingly,
has not been adjusted.
Weighted-average shares issuable upon the exercise of stock options included in the diluted EPS calculation as of
September 30, 2017 were 463,000, which equates to 284,000 dilutive common stock equivalents on a post stock split
basis. For the year ended September 30, 2016, weighted-average shares issuable upon the exercise of stock options
included in the diluted EPS calculation were 480,000, which equates to 190,000 dilutive common stock equivalents.
For the year ended September 30, 2015, there were no common stock equivalents included in the diluted EPS
calculations, as to do so would have been anti-dilutive. 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 zero in 2017 and
2016, and 512,000 in 2015 on a post stock split basis.
The following presents the calculation of the basic and diluted EPS for the years ended September 30, 2017, 2016 and
2015:
Basic EPS
Common stock
equivalents
Diluted EPS
2017
2016
2015
Net Income
$8,418,000 14,396,000
Shares
EPS Net Income
$0.58 $7,043,000
Shares
14,334,000
Net Loss
EPS
$0.49 $(1,819,000)
Shares
EPS
14,283,000 $(0.13)
284,000
190,000
-
$8,418,000 14,680,000
$0.57 $7,043,000
14,524,000
$0.48 $(1,819,000)
14,283,000 $(0.13)
Cash Equivalents
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
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 statements of operations. Net
changes in unrealized gains and losses are reported in the consolidated statements of operations in the current period.
Fair Value Measurements
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.
31
The fair value of marketable equity securities, 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 firm.
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:
Equities
Mutual Funds
Exchange-Traded Funds
Corporate Bonds
Government Securities
Cash and Money Funds
Total
Level 1
$11,338,000
7,155,000
3,417,000
-
54,542,000
4,238,000
$80,690,000
Fair Value Measurements
Level 3
Level 2
$ -
-
-
7,196,000
-
-
$7,196,000
$ -
-
-
-
-
-
$ -
Total
$11,338,000
7,155,000
3,417,000
7,196,000
54,542,000
4,238,000
$87,886,000
Net unrealized gains reported during fiscal 2017 on trading securities still held as of September 30, 2017, were
$1,183,000. There were no transfers of investments between Level 1 and Level 2 during the year ended September 30,
2017.
The following table sets forth by level, within the fair value hierarchy, the Company’s assets measured at fair value as
of September 30, 2016:
Equities
Mutual Funds
Exchange-Traded Funds
Government Securities
Cash and Money Funds
Total
Level 1
$2,408,000
5,212,000
510,000
69,583,000
8,225,000
$85,938,000
Fair Value Measurements
Level 3
Level 2
$ -
-
-
-
-
$ -
$ -
-
-
-
-
$ -
Total
$2,408,000
5,212,000
510,000
69,583,000
8,225,000
$85,938,000
Net unrealized gains reported during fiscal 2016 on trading securities still held as of September 30, 2016, were
$2,502,000. There were no transfers of investments between Level 1 and Level 2 during the year ended September 30,
2016.
Net unrealized losses reported during fiscal 2015 on trading securities still held as of September 30, 2015, were
$(4,882,000).
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.
32
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, 2017, 2016 and 2015.
Risk Management
Financial instruments that potentially subject the Company to concentrations of credit risk 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 invested in cash and money funds, mutual funds, exchange-traded funds (ETF’s), corporate bonds,
government securities and stocks through a professional investment advisor. 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 to its customers based upon their credit-
worthiness and generally requires a significant up-front deposit before beginning construction and full payment subject
to hold-back provisions prior to shipment on complete asphalt plant and component orders. The Company establishes
an allowance for doubtful accounts based upon the credit risk of specific customers, historical trends and other
pertinent information.
Inventories
Inventories are valued at the lower of cost or market, with cost being determined principally by using the last-in, first-
out (“LIFO”) method and market defined as replacement cost for raw materials and net realizable value for work in
process and finished goods (see Note 2). 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, 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.
Changes in the allowance for slow move and obsolete inventories are as follows:
Balance, beginning of year
Charged to cost of sales
Disposal of inventory, net of recoveries
Balance, end of year
Property and Equipment
2017
$ 3,869,000
77,000
(120,000)
$ 3,826,000
2016
$ 3,310,000
621,000
(62,000)
$ 3,869,000
2015
$ 3,139,000
144,000
27,000
$ 3,310,000
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:
Land improvements
Buildings and improvements
Equipment
33
Years
15
6-40
2-10
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. No such impairment loss was recorded during the years ended September 30,
2017, 2016 and 2015.
Revenues and Expenses
Revenues from contracts for the design, manufacture and sale of asphalt plants are recognized under the percentage-of-
completion method. The percentage-of-completion method of accounting for these contracts recognizes revenue, net of
any promotional discounts, and costs in proportion to actual labor costs incurred, as compared with total estimated
labor costs expected to be incurred during the entire contract. Pre-contract costs are expensed as incurred. Changes to
total estimated contract costs or losses, if any, are recognized in the period in which they are determined. Revenue
recognized in excess of amounts billed is classified as current assets under “costs and estimated earnings in excess of
billings.” The Company anticipates that all incurred costs associated with these contracts at September 30, 2017, 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 when the following four revenue recognition criteria are met:
product is delivered/ownership is transferred or service is performed, persuasive evidence of an arrangement exists, the
selling price is fixed or determinable, and collectability is reasonably assured.
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:
2017
$ 401,000
Balance, beginning of year
Warranties issued
400,000
Warranties settled (389,000)
$ 412,000
Balance, end of year
2016
$ 205,000
475,000
(279,000)
$ 401,000
2015
$ 367,000
20,000
(182,000)
$ 205,000
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 less-than-90-day past due aging category. 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. 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.
34
Changes in the allowance for doubtful accounts are composed of the following:
Balance, beginning of year
Provision for doubtful accounts
Provision for estimated returns and
allowances
Uncollectible accounts written-off
Returns and allowances issued
Balance, end of year
Shipping and Handling Costs
2017
$ 195,000
115,000
2016
$ 357,000
105,000
2015
$ 244,000
60,000
385,000
(16,000)
(472,000)
$ 207,000
175,000
(89,000)
(353,000)
$ 195,000
170,000
(46,000)
(71,000)
$ 357,000
Shipping and handling costs are included in production costs in the consolidated statements of operations.
Income Taxes
Income taxes are provided for the tax effects of transactions reported in the consolidated financial statements and
consist primarily of taxes currently due, plus deferred taxes (see Note 6).
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. No such valuation allowances were recorded as of
September 30, 2017 and 2016.
Comprehensive Income
For the years ended September 30, 2017, 2016 and 2015, other comprehensive income (loss) is equal to net income
(loss).
Reporting Segments and Geographic Areas
The Company only has one reportable segment. Information concerning principal geographic areas is as follows:
2017
2016
2015
United States
Other
Revenues
$80,608,000
-
Total $80,608,000
Long-Term
Assets
$5,775,000
-
$5,775,000
Revenues
$69,991,000
-
$69,991,000
Long-Term
Assets
$5,292,000
-
$5,292,000
Revenues
Long-Term
Assets
$39,230,000 $7,778,000
-
-
$39,230,000 $7,778,000
Revenues are attributed to geographic areas based on the location of the assets producing the revenues.
Customers with 10% (or greater) of Net Revenues
Approximately 13% of total net revenue in the year ended September 30, 2017, 14% of total net revenue for the year
ended September 30, 2016 and 15% of total net revenue for the year ended September 30, 2015, was from one or more
separate U.S. entities owned by a foreign-based global company.
35
One other customer accounted for approximately 10% of net revenue for the year ended September 30, 2017. Net
revenue for this customer was less than 1% during the two prior year comparative periods.
Subsequent Events
Management has evaluated events occurring from September 30, 2017 through the date these financial statements were
filed with the SEC for proper recording and disclosures therein (see Note 12).
Reclassifications and Adjustments
Certain prior year amounts in the consolidated financial statements have been reclassified to conform to the fiscal 2017
presentation. All historical share and per share data in the consolidated financial statements and notes thereto have
been restated to give retroactive recognition of the Company’s three-for-two stock split. In the Consolidated
Statements of Shareholders’ Equity, for all periods presented, the par value of the additional shares was reclassified
from capital in excess of par value to common stock. Refer to Note 10 and Note 11 for additional information
regarding the stock split.
NOTE 2 - INVENTORIES, NET
Net inventories consist of the following:
Raw materials
Work in process
Finished goods
Used equipment
September 30,
2017
$ 9,407,000
3,098,000
4,166,000
16,000
$ 16,687,000
2016
$ 7,072,000
976,000
3,545,000
41,000
$ 11,634,000
At September 30, 2017 and 2016, cost is determined by the LIFO method for inventories. The estimated current cost of
inventories exceeded their LIFO basis by approximately $4,250,000 and $4,766,000 at September 30, 2017 and 2016,
respectively. Slow moving and obsolete inventory reserves were $3,826,000 and $3,869,000 at September 30, 2017
and 2016, 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, 2017 and 2016
consisted of the following:
Costs incurred on uncompleted contracts
Estimated earnings
Billings to date
Costs and estimated earnings in excess of billings
September 30,
2017
$ 10,250,000
3,161,000
13,411,000
6,643,000
$ 6,768,000
2016
$ 8,898,000
3,124,000
12,022,000
7,101,000
$ 4,921,000
36
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment consist of the following as of September 30, 2017 and 2016:
Land and improvements
Buildings and improvements
Equipment
Less: Accumulated depreciation and amortization
Property and equipment, net
September 30,
2017
$ 3,323,000
12,935,000
9,943,000
26,201,000
(20,479,000)
$ 5,722,000
2016
$ 3,323,000
12,886,000
8,599,000
24,808,000
(19,569,000)
$ 5,239,000
Property and equipment includes approximately $10,645,000 and $8,777,000 of fully depreciated assets, which
remained in service during fiscal 2017 and 2016, respectively.
NOTE 5 - ACCRUED EXPENSES
Accrued expenses consist of the following as of September 30, 2017 and 2016:
Payroll and related accruals
Warranty and related accruals
Professional fees
Other
Accrued expenses
September 30,
2017
$ 1,374,000
412,000
158,000
482,000
$ 2,426,000
2016
$ 1,330,000
401,000
133,000
400,000
$ 2,264,000
NOTE 6 - INCOME TAXES
The provision for income tax expense (benefit) consists of:
Current:
Federal
State
Deferred:
Federal
State
Years Ended September 30,
2016
2015
2017
Total current
Total deferred
$ 2,381,000
50,000
2,431,000
1,238,000
91,000
1,329,000
$ 679,000
31,000
710,000
1,768,000
(121,000)
1,647,000
$ 261,000
37,000
298,000
(1,871,000)
(154,000)
(2,025,000)
Income tax expense (benefit)
$ 3,760,000
$ 2,357,000
$ (1,727,000)
37
A reconciliation of the federal statutory tax rate to the total tax provision is as follows:
Federal income taxes computed at the statutory rate
State income taxes, net of federal benefit
Research & development tax refunds & credits
Dividend received deduction
Domestic production activities deduction
Domestic international sales corporation benefits
Other, net
Effective income tax rate
2017
34.0%
1.2%
(2.1%)
(0.9%)
(2.8%)
-
1.5%
30.9%
Years Ended September 30,
2016
34.0%
1.5%
(2.8%)
(2.2%)
(1.9%)
-
(3.5%)
25.1%
2015
34.0%
3.3%
5.2%
-
-
5.8%
0.4%
48.7%
Deferred tax assets and liabilities consist of the following:
Deferred Tax Assets:
Accrued liabilities and reserves
Allowance for doubtful accounts
Inventory
R&D tax credits carryforwards
Stock-based compensation
Net operating losses carryforwards
Unrealized loss on investments
Other
Gross Deferred Tax Assets
Deferred and Other Tax Liabilities:
Domestic international sales corporation
Percentage of completion
Property and equipment
Unrealized gain on investments
Unrecognized tax benefits
Other
Gross Deferred and Other Tax Liabilities
Net Deferred and Other Income Tax Assets (Liabilities)
September 30,
2017
2016
$ 351,000
73,000
778,000
155,000
95,000
58,000
-
48,000
1,558,000
(839,000)
(1,114,000)
(694,000)
(332,000)
(150,000)
(30,000)
(3,159,000)
$ (1,601,000)
$ 331,000
70,000
632,000
871,000
140,000
73,000
85,000
62,000
2,264,000
(577,000)
(1,158,000)
(683,000)
-
(150,000)
(12,000)
(2,580,000)
$ (316,000)
Total income taxes paid in fiscal 2017 and 2016 were $1,918,000 and $1,105,000, respectively.
Accounting principles generally accepted in the United States of America (“GAAP”) prescribes a comprehensive
model for the financial recognition, measurement, classification, and disclosure of uncertain 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
reflected in the Company’s historical income tax provision and accruals. The Company adjusts these reserves in light
38
of changing facts and circumstances. As of September 30, 2017 and 2016, the Company had UTB’s of $150,000. There
were no additional accruals of UTB’s during fiscal years ended September 30, 2017 and 2016.
The Company recognizes interest and penalties accrued related to UTB’s as a component of income tax expense.
There were no additional accruals of interest expense nor penalties during fiscal years ended September 30, 2017, 2016
and 2015. 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 tax rate.
The effective income tax rate for fiscal 2017 was 30.9% versus 25.1% in fiscal 2016 and a benefit of 48.7% in fiscal
2015. As of September 30, 2016, the Company had $647,000 in federal research and development tax credits (“R&D
Credits”) carryforwards. In fiscal 2017, there was $332,000 of new credits generated bringing the total R&D Credits to
$979,000, of which all were used. There are no R&D Credits carryforwards as of September 30, 2017.
As of September 30, 2016, the Company had $224,000 in Florida state research and development tax credits (“Florida
R&D Credits”) carryforwards. The Company received additional Florida R&D Credits of $22,000 in fiscal 2017 and
used $91,000, leaving $155,000 of Florida R&D Credits carryforwards as of September 30, 2017. The $155,000 of
Florida R&D Credits, which are included in net deferred and other income tax liabilities of $(1,601,000) at September
30, 2017, expire in fiscal 2021.
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, 2014 are 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 $218,000, $178,000 and $159,000 to expense under the provisions of the
plan during the fiscal years 2017, 2016 and 2015, respectively.
NOTE 8 - LONG-TERM DEBT
The Company had no long-term debt outstanding at September 30, 2017 or 2016. The Company does not currently
require a credit facility.
As of September 30, 2017, total cash deposits with insurance companies covering collateral needs were $135,000.
NOTE 9 - COMMITMENTS AND CONTINGENCIES
Leases
The Company leases certain equipment under non-cancelable operating leases. There were no future minimum rental
commitments under these leases at September 30, 2017 (see Note 12). Total rental expense for the fiscal years ended
September 30, 2017, 2016 and 2015 was $179,000, $200,000 and $182,000, respectively.
Litigation
The Company has no pending litigation or other claims. Claims made in the ordinary course of business may be
covered in whole or in part by insurance.
39
NOTE 10 - SHAREHOLDERS’ EQUITY
Under the Company’s amended Certificate of Incorporation, 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, Class B stock will be entitled to elect approximately 75% of the Company’s Board of Directors. During
the period when 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.
Stock Split
On July 11, 2016, the Company’s Board of Directors approved a three-for-two split of the Company’s common and
Class B stock to be effected in the form of a 50% stock dividend. As a result, shareholders received one additional
share of common or Class B stock for every two shares they held of the respective class of stock as of the record date.
These shares were distributed on August 1, 2016, to shareholders of record as of the end of business on July 22, 2016.
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 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, 2017, all outstanding common stock options had been fully expensed. These options amounted to
365,000 at September 30, 2017, adjusted for the three-for-two stock split. As long as the employee remains employed
by the Company, these options are exercisable through October 1, 2021.
On January 19, 2016, 30,000 Class B stock options (45,000 post stock split) were issued to an employee under the
2009 Plan. These options vest at 25% per year starting on January 19, 2017 and each year thereafter through January
19, 2020. As long as the employee remains employed by the Company, these options will be exercisable upon vesting
and remain exercisable through October 1, 2021. The Company used the Black-Scholes pricing model to estimate the
fair value of the options of $138,000 at time of grant. At September 30, 2017, $78,000 of compensation expense
remained to be expensed through January 19, 2020. The following assumptions were used to determine the fair value
of the stock options at time of grant:
Risk-free interest rate
Expected life of options
Dividend yield
Volatility
2.5%
10.0 years
0.0%
29.1%
On September 26, 2016, 30,000 Class B stock options were issued to an employee under the 2009 Plan. These options
vest at 25% per year starting on September 26, 2017 and each year thereafter through September 26, 2020. As long as
the employee remains employed by the Company, these options will be exercisable upon vesting and remain
exercisable through September 26, 2026. The Company used the Black-Scholes pricing model to estimate the fair
value of the options of $147,000 at time of grant. At September 30, 2017, $110,000 of compensation expense remained
40
to be expensed through September 26, 2020. The following assumptions were used to determine the fair value of the
stock options at time of grant:
Risk-free interest rate
Expected life of options
Dividend yield
Volatility
2.25%
10.0 years
0.0%
29.2%
As of September 30, 2017, 482,000 shares of Company common stock and 100,000 shares of Class B stock are
available for granting of Awards under the 2009 Plan.
The following table summarizes option activity under the 2009 Plan:
Options outstanding at September 30, 2014
Options exercised during fiscal 2015
Options outstanding at September 30, 2015
Options granted
Options exercised during fiscal 2016
Options outstanding at September 30, 2016
Options exercised during fiscal 2017
Options outstanding at September 30, 2017
Number of
Shares
Average
Exercise Price
Per Share
474,750
(28,125)
446,625
75,000
(37,875)
483,750
(43,750)
440,000
$5.103
$4.839
$5.120
$8.760
$5.126
$5.684
$5.126
$5.739
No options were granted, forfeited or cancelled during the year ended September 30, 2017. The weighted average
remaining contractual life on the options outstanding as of September 30, 2017 is 4.3 years under the 2009 Plan.
The 1997 Stock Option Plan (the “1997 Plan”) provided for the issuance of incentive stock options and nonqualified
stock options to purchase up to 1,200,000 shares of the Company’s common stock, 1,200,000 shares of the Company’s
Class B stock and up to 15% of the authorized common stock of any subsidiary. Under the terms of the 1997 Plan,
option holders may tender previously owned shares with a market value equal to the exercise price of the options at
exercise date, subject to compensation committee approval. Additionally, option holders may, upon compensation
committee approval, surrender shares of stock to satisfy federal withholding tax requirements. Options become
exercisable in a manner and on such dates and times, as determined by a committee of the Board of Directors. Options
expire not more than ten years from the date of grant. The option holders have no shareholder rights until the date of
issuance of a stock certificate for such shares.
As of September 30, 2017, there were no options available for future grants and there were no options outstanding
under the 1997 Plan.
The following table summarizes option activity under the 1997 Plan:
Number of
Shares
Exercise Price
Per Share
Outstanding at September 30, 2014 and 2015
Options exercised during fiscal 2016
Options expired during fiscal 2016
Options outstanding at September 30, 2016
41,250
(30,000)
(11,250)
-
$6.213
$6.213
$6.213
41
NOTE 12 - RELATED PARTY TRANSACTIONS
Marcar Leasing Corporation (“Marcar”) is engaged in leasing machinery and vehicles to the public and the Company.
Marcar is owned by family members of the Company’s chairman. New leases between the Company and Marcar
provide for equal monthly payments. During fiscal 2017, 2016 and 2015, the Company made lease payments to Marcar
totaling $125,000, $147,000 and $136,000, respectively.
Subsequent Event
On October 5, 2017, the Company agreed to purchase all of the leased vehicles under contract with Marcar for
$320,000. The Company has no further obligation to Marcar.
SUPPLEMENTARY DATA - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Net Revenue
Gross Profit
Other income (expense), net
Net income
Net income per common share:
Basic
Diluted
Weighted-average common
shares outstanding
Basic
Diluted
Net Revenue
Gross Profit
Other income (expense), net
Net income
Net income per common share:
Basic
Diluted
Weighted-average common
shares outstanding
Basic
Diluted
12/31/16
$15,783,000
4,150,000
448,000
1,394,000
For the Quarters Ended
6/30/17
3/31/17
$23,743,000
$22,526,000
6,690,000
6,657,000
(72,000)
818,000
2,588,000
3,415,000
9/30/17
$18,556,000
3,662,000
748,000
1,021,000
Fiscal 2017
$80,608,000
21,159,000
1,942,000
8,418,000
$0.10
$0.10
$0.24
$0.23
$0.18
$0.18
$0.07
$0.07
$0.58
$0.57
14,380,000
14,589,000
14,390,000
14,597,000
14,400,000
14,699,000
14,414,000
14,700,000
14,396,000
14,680,000
12/31/15
$13,258,000
3,282,000
979,000
1,575,000
For the Quarters Ended
6/30/16
3/31/16
$19,863,000
$22,078,000
5,151,000
5,441,000
563,000
(285,000)
2,114,000
1,630,000
9/30/16
$14,792,000
3,651,000
327,000
1,724,000
Fiscal 2016
$69,991,000
17,525,000
1,584,000
7,043,000
$0.11
$0.11
$0.11
$0.11
$0.15
$0.15
$0.12
$0.12
$0.49
$0.48
14,307,000
14,425,000
14,320,000
14,489,000
14,333,000
14,550,000
14,368,000
14,616,000
14,334,000
14,524,000
42
ITEM 9.
None
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
ITEM 9A.
CONTROLS AND PROCEDURES
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”)) as of the end of the period covered by this 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 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 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, 2017.
Management’s Annual Report on Internal Control over Financial Reporting
The management of the Company is responsible for establishing and maintaining adequate internal control over
financial reporting (as defined in Rule 13a-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, 2017. This assessment was based on criteria for
effective internal control over financial reporting described in Internal Control-Integrated Framework 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, 2017. The
effectiveness of our internal control over financial reporting as of September 30, 2017 has been audited by Moore
Stephens Lovelace, P.A., an independent registered public accounting firm, as stated in their report that is included
herein.
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, 2017 that materially affected, or are reasonably likely to
materially affect, the Company’s internal control over financial reporting.
43
ITEM 9B.
OTHER INFORMATION
None
PART III
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 2018 Proxy
Statement for the 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 2018 Proxy
Statement for the 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 2018 Proxy
Statement for the 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 2018 Proxy
Statement for the 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 2018 Proxy
Statement for the Annual Meeting of Stockholders.
44
PART IV
ITEM 15.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)
A listing of financial statements and financial statement schedules filed as part of this 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.
(b)
Exhibit Index
EXHIBIT
NUMBER
DESCRIPTION
FILED HEREWITH
3.1
Restated Certificate of Incorporation of Company, incorporated by reference
to Exhibit 3.1 to Registration No. 33-627(P)
3.2
3.3
Amended and Restated By-Laws of Gencor Industries, Inc., incorporated by
reference to Exhibit 3.2 to the Company’s Annual Report on Form 10-K for
the year ended September 30, 2007
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 Form 10-K for the year ended December 31,
1987(P)
4.1
Form of Common Stock certificate, incorporated by reference to Exhibit 4.1
to Registration No. 33-627(P)
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
Form of Agreement for Nonqualified Stock Options granted in 1986,
incorporated by reference to the Annual Report on Form 10-K for the year
ended December 31, 1986(P)
10.11
1997 Stock Option Plan incorporated by reference to Exhibit A to the
Company’s Proxy Statement on 14A, filed March 3, 1997
10.12
First Amendment to the Stock Option Plan Agreement incorporated by
reference to Exhibit 10.12 to the Company’s Quarterly Report on Form 10-Q
for the quarter ended June 30, 2006
21.1
Subsidiaries of the Registrant
23.1
Consent of Independent Registered Public Accountants
31.1
Certification of Chief Executive Officer Pursuant to Rule 13a – 14(a) of the
Securities Exchange Act of 1934, as amended
31.2
Certification of Chief Financial Officer Pursuant to Rule 13a – 14(a) of the
Securities Exchange Act of 1934, as amended
32.1
Certifications of Chief Executive Officer and Chief Financial Officer
Pursuant to 18 U. S. C. Section 1350
45
X
X
X
X
X
EXHIBIT
NUMBER
101.INS
101.SCH
101.CAL
101.DEF
101.LAB
101.PRE
DESCRIPTION
FILED HEREWITH
XBRL Instance Document
XBRL Taxonomy Extension Schema
XBRL Taxonomy Extension Calculation Linkbase
XBRL Taxonomy Extension Definition Linkbase
XBRL Taxonomy Extension Label Linkbase
XBRL Taxonomy Extension Presentation Linkbase
46
SIGNATURES
Pursuant to the requirements of Sections 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly
caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: December 6, 2017
GENCOR INDUSTRIES, INC.
(Registrant)
/s/ John E. Elliott
John E. Elliott
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this 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.
/s/ E.J. Elliott
E.J. Elliott
Chairman
December 6, 2017
/s/ Marc G. Elliott
Marc G. Elliott
President
December 6, 2017
/s/ John E. Elliott
John E. Elliott
Chief Executive Officer
(Principal Executive Officer)
December 6, 2017
/s/ Eric E. Mellen
Eric E. Mellen
Chief Financial Officer
(Principal Financial and Accounting Officer)
December 6, 2017
/s/ James P. Sharp
James P. Sharp
Director
December 6, 2017
/s/ Randolph H. Fields
Randolph H. Fields
Director
December 6, 2017
/s/ Cort J. Dondero
Cort J. Dondero
Director
/s/ David A. Air
David A. Air
Director
December 6, 2017
December 6, 2017
47
GENCOR INDUSTRIES, INC. AND SUBSIDIARIES
SUBSIDIARIES OF THE REGISTRANT
EXHIBIT 21.1
All of the operating subsidiaries of Gencor Industries, Inc., a Delaware corporation, listed below are included in the
Consolidated Financial Statements:
General Combustion Corporation
Bituma-Stor, Inc.
Bituma Corporation
Equipment Services Group, Inc.
Gencor Holdings International Corp.
State in Which
Incorporated
Country in Which
Incorporated
Florida
Iowa
Washington
Florida
Florida
USA
USA
USA
USA
USA
48
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
EXHIBIT 23.1
We consent to the incorporation by reference in the Post-Effective Amendment No. 1 to the Registration Statement of
Gencor Industries, Inc. on Form S-8 for the registration of 3,556,000 ($.10 par value) shares of its common stock
issuable pursuant to its 1992 Stock Option Plan, 1996 Stock Option Agreements and 1997 Stock Option Plan (SEC File
Number 333-61769) and in the related prospectus of our report dated December 6, 2017, with respect to the
consolidated balance sheets of Gencor Industries, Inc. (the “Company”) as of September 30, 2017 and 2016,
and the related consolidated statements of operations, shareholders’ equity, and cash flows for each of the
years in the three-year period ended September 30, 2017, and the effectiveness of the Company’s internal control
over financial reporting, included in this Annual Report on Form 10-K of the Company for the year ended September
30, 2017.
/s/ MOORE STEPHENS LOVELACE, P.A.
MOORE STEPHENS LOVELACE, P.A.
CERTIFIED PUBLIC ACCOUNTANTS
Orlando, Florida
December 6, 2017
49
EXHIBIT 31.1
I, Mr. John E. Elliott, certify that:
CERTIFICATION
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K of Gencor Industries, Inc.;
Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this annual report;
Based on my knowledge, the financial statements, and other financial information included in this annual
report, fairly present in all material respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
The registrant’s other certifying officers and I, are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15 (f) and 15d-15(f)) for the registrant and have:
a)
b)
c)
d)
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to
be designed under our supervision, to ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by others within those entities, particularly
during the period in which this annual report is being prepared;
designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, 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;
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of
the period covered by this report based on such evaluation; and
disclosed in this report any change in the registrant’s internal control over financial reporting that
occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably
likely to materially affect, the registrant’s internal control over financial reporting, and;
5.
The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of
directors (or persons performing the equivalent functions):
a)
b)
all significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record,
process, summarize and report financial information; and
any fraud, whether or not material, that involves management or other employees who have a significant
role in the registrant’s internal controls.
Date: December 6, 2017
/s/ John E. Elliott
John E. Elliott
Chief Executive Officer
50
I, Mr. Eric E. Mellen, certify that:
CERTIFICATION
EXHIBIT 31.2
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K of Gencor Industries, Inc.;
Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this annual report;
Based on my knowledge, the financial statements, and other financial information included in this annual
report, fairly present in all material respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
The registrant’s other certifying officers and I, are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15 (f) and 15d-15(f)) for the registrant and have:
a)
b)
c)
d)
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to
be designed under our supervision, to ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by others within those entities, particularly
during the period in which this annual report is being prepared;
designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, 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;
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of
the period covered by this report based on such evaluation; and
disclosed in this report any change in the registrant’s internal control over financial reporting that
occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably
likely to materially affect, the registrant’s internal control over financial reporting, and;
5.
The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of
directors (or persons performing the equivalent functions):
a)
b)
all significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record,
process, summarize and report financial information; and
any fraud, whether or not material, that involves management or other employees who have a significant
role in the registrant’s internal controls.
Date: December 6, 2017
/s/ Eric E. Mellen
Eric E. Mellen
Chief Financial Officer
51
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
EXHIBIT 32.1
In connection with the Annual Report of Gencor Industries, Inc. (the “Company”) on Form 10-K for the fiscal year
ended September 30, 2017 as filed with the Securities and Exchange Commission on the date hereof (the “Report”),
each of the undersigned officers of the Company, certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to 906 of the
Sarbanes-Oxley Act of 2002, that:
(1)
(2)
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities
Exchange Act of 1934; and
The information contained in the Report fairly presents, in all materials respects, the financial
condition and results of operations of the Company.
/s/ John E. Elliott
John E. Elliott
Chief Executive Officer
December 6, 2017
/s/ Eric E. Mellen
Eric E. Mellen
Chief Financial Officer
December 6, 2017
52
General Information
Form 10-K Annual Report
Additional copies of the Form 10-K
Annual Report filed with the Securities
and Exchange Commission for the fiscal
year ended September 30, 2017 are
available at no charge to shareholders
who submit a request in writing to:
Gencor Industries, Inc.
5201 N. Orange Blossom Trail
Orlando, Florida 32810
Attention: Corporate Secretary
Annual Meeting of Shareholders
The 2018 Annual Meeting of Shareholders
of Gencor Industries, Inc. will be held at
the corporate office on March 1, 2018
at 10:00 a.m. Eastern standard time.
Executive Offices
Corporate Offices
Gencor Industries, Inc.
5201 N. Orange Blossom Trail
Orlando, Florida 32810
(407) 290-6000
Fax (407) 578-0577
Independent Accountants
Moore Stephens Lovelace, P.A.
255 S. Orange Ave, Suite 600
Orlando, Florida 32801
Registrar and Transfer Agent
Continental Stock Transfer & Trust Company
17 Battery Place South (8th Floor)
New York, New York 10004
Directors
E.J. Elliott
Executive Chairman
Marc G. Elliott
President
Randolph H. Fields
Attorney, GrayRobinson, P.A.
David A. Air
Business Consultant
Cort J. Dondero
Former COO of Bluegrass Materials
Founder of Dondero and Associates
James P. Sharp
Management Consultant
Officers
E.J. Elliott
Executive Chairman
John E. Elliott
Chief Executive Officer
Marc G. Elliott
President
Eric E. Mellen
Chief Financial Officer
Dennis B. Hunt
Senior Vice President
Lawrence C. Maingot
Vice President and Controller
Lawrence K. Miles
Vice President, Product Support
Jeanne Lyons
Corporate Secretary
5201 N. Orange Blossom Trail • Orlando, Florida 32810
T (407) 290-6000 • F (407) 578-0577
www.gencor.com