ANNUAL REPORT
ON E COMPANY • ONE SOU RCE • ON E SO LUT IO N
Message to Our Shareholders
We are pleased to report that year 2019 saw continued margin improvement and profitability in all areas
The robust market activity over the last two years continued for Gencor through
of our Operations. This was due to the strong economy, and also ongoing internal improvements in all
fiscal 2017 as a result of the continuing effects of the FAST Act, as well as overall
areas of the Company. Noteworthy is that during the last year, a number of States passed legislation to
increased state highway infrastructure funding activities. Our growth, coupled with
Message to Our Shareholders
fund their own infrastructure programs, notwithstanding the fact the Federal FAST was soon expiring,
ongoing productivity enhancements, was key to the Company’s increase in
Message to Our Shareholders
and Congress failed to pass any meaningful long-term legislation. Just recently Congress passed
performance and profitability.
resolutions that include continued funding of the FAST Act through this year 2020.
The robust market activity over the last two years continued for Gencor through
Net income for fiscal 2017 was $8.4 million, an increase of 20% over fiscal 2016.
In the second half of fiscal 2019, we experienced a return to seasonal ordering patterns where customers
fiscal 2017 as a result of the continuing effects of the FAST Act, as well as overall
place large equipment and plant orders in the latter part of the year, with the expectation of delivery in the
Sales increased over 15% as highway construction spending for asphalt plants
increased state highway infrastructure funding activities. Our growth, coupled with
late winter and early spring months. Nevertheless, we have been able to respond to the market changes by
accelerated. Operating income increased to 12.7% of net revenue resulting in
ongoing productivity enhancements, was key to the Company’s increase in
reducing production levels as demand normalized in 2019, but remain flexible to meet timely any and all
increased margins on the higher volume of product shipped.
performance and profitability.
sales as they may occur. Also we plan to continue cost improvements and to adjust production based on
demand, to maximize productivity and profitability.
Gencor’s revenues increased as a result of an improvement in the domestic
Net income for fiscal 2017 was $8.4 million, an increase of 20% over fiscal 2016.
economic outlook, as well as the highway construction industry’s recognition of
During the fourth quarter of fiscal 2019, the Company changed its method for accounting for cost of
Sales increased over 15% as highway construction spending for asphalt plants
inventories from the last-in, first-out (“LIFO”) method to the first-in, first-out (“FIFO”) method. The
our products, and the Company as the technological leaders. The significant
accelerated. Operating income increased to 12.7% of net revenue resulting in
Company believes the FIFO method will improve financial reporting by better reflecting the current value
growth in revenue was also bolstered by Gencor’s reinforced presence at The 2017
increased margins on the higher volume of product shipped.
of inventory on the condensed consolidated balance sheets, by more closely aligning the flow of
CONEXPO-CON/AGG construction equipment exhibition in Las Vegas. As one
physical inventory with the accounting for the inventory, and by providing better matching of revenues
of the largest exhibitors, Gencor’s increased exposure resulted in numerous asphalt
Gencor’s revenues increased as a result of an improvement in the domestic
and expenses.
plant sales, and expansion of our customer base due to the increased corporate
economic outlook, as well as the highway construction industry’s recognition of
visibility.
Following the close of fiscal 2019, we are enjoying an increase in orders for production and delivery in
our products, and the Company as the technological leaders. The significant
fiscal 2020. In anticipation of improved demand, we prudently increased stocking inventory in the
growth in revenue was also bolstered by Gencor’s reinforced presence at The 2017
summer months, and have converted this inventory to revenue more quickly; improving typical lead times
Going forward, Gencor is well positioned to continue its profitability into fiscal
CONEXPO-CON/AGG construction equipment exhibition in Las Vegas. As one
on equipment. Continued manufacturing improvement initiatives, such as increased automation, has also
2018. Our core business is operating efficiently, and we expect to continue to
of the largest exhibitors, Gencor’s increased exposure resulted in numerous asphalt
helped augment an otherwise very tight labor environment.
capitalize on our markets with new product introductions and continuing
plant sales, and expansion of our customer base due to the increased corporate
production improvements. With the support of our loyal customers, dedicated
We believe we are well-positioned to capitalize on demand for asphalt plants and related components as
visibility.
employees, and shareholders, we are well-positioned for continued growth and
we continue to strategically invest in our business. We continue to take action to reduce the impact of
long-term success.
U.S. tariff policies, raw material volatility and a continued tight labor market.
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
Overall, we are confident that our products and designs are the best designs and technology across all
capitalize on our markets with new product introductions and continuing
Continents, and are expanding our marketing across more than half the globe. We are enjoying the best
engineering, manufacturing and sales marketing staff, and being totally debt free, we can only look
production improvements. With the support of our loyal customers, dedicated
forward to a prosperous and growing future.
employees, and shareholders, we are well-positioned for continued growth and
long-term success.
John E. Elliott
John E. Elliott
John E. Elliott
Chief Executive Officer
Chief Executive Officer
Chief Executive Officer
Marc G. Elliott
Marc G. Elliott
Marc G. Elliott
President
President
President
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.
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.
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.
We thank our employees and management for all their efforts and contributions, and our
shareholders for their loyalty and support.
John E. Elliott
John E. Elliott
John E. Elliott
Chief Executive Officer
Chief Executive Officer
Chief Executive Officer
Marc G. Elliott
Marc G. Elliott
President
President
Marc G. Elliott
Marc G. Elliott
President
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, 2019
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File No. 001-11703
GENCOR INDUSTRIES, INC.
Delaware
(State or other jurisdiction of
Incorporation or organization)
59-0933147
(I.R.S. Employer Identification No.)
5201 North Orange Blossom Trail
Orlando, Florida 32810
(Address of principal executive offices, including zip code)
Registrant’s Telephone Number, Including Area Code: (407) 290-6000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of Class
Trading Symbol (s)
Name of Exchange on Which Registered
Common Stock ($.10 Par Value)
GENC
Nasdaq Global Market
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 every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to
submit such files).
[Ö] Yes [ ] No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company,
or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,”
and “emerging growth company” in Rule 12b-2 of the Exchange Act:
Large Accelerated Filer [ ]
Non-Accelerated Filer
Emerging Growth Company
[ ]
[ ]
Accelerated Filer
Smaller Reporting Company [Ö ]
[Ö ]
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]
1
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 $129,500,000.
Indicate the number of shares outstanding of each of the registrant’s classes of Common Stock, as of the latest practicable date: 12,277,337 shares
of Common Stock ($.10 par value) and 2,308,857 shares of Class B Stock ($.10 par value) as of December 1, 2019.
DOCUMENTS INCORPORATED BY REFERENCE
Part III of this Form 10-K is incorporated by reference from the Registrant’s 2020 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 and
environmentally friendly process technology have enabled it to become a leading producer of hot mix asphalt plants and
related components in North America. The Company believes it has the largest installed base of asphalt plants in the
United States.
Because the Company’s products are sold primarily to companies in the highway construction industry, its business has
historically been seasonal. Traditionally, the Company’s customers do not purchase new equipment during the summer
and fall months to avoid disrupting their peak season for highway construction and repair work. The majority of orders
for the Company’s asphalt plants are typically received between October and February, with a significant volume of
shipments occurring prior to June. The principal factors driving demand for the Company’s products are the level of
2
federal and state funding for domestic highway construction and repair, the replacement of existing plants, and a trend
towards efficient, larger plants.
In 1968, the Company was formed by the merger of Mechtron Corporation with General Combustion, Inc. (“General
Combustion”) and Genco Manufacturing, Inc. The new entity reincorporated in Delaware in 1969 and adopted the
name Mechtron International Corporation in 1970. In 1985, the Company began a series of acquisitions into related
fields starting with the Beverley Group Ltd. (“Beverley”) in the United Kingdom (the “UK”). Hy-Way Heat Company,
Inc. (“Hy-Way Heat”) and the Bituma Group were acquired in 1986. In 1987, the Company changed its name to
Gencor Industries, Inc. and acquired Davis Line Inc. and its subsidiaries in 1988.
In 1998, the Company entered into agreements with Carbontronics, LLC (“CLLC”) pursuant to which the Company
designed, manufactured, sold and installed four synthetic fuel production plants. In addition to payment for the plants,
the Company received membership interests in two synthetic fuel entities. These derived significant cash flows from the
sale of synthetic fuel and tax credits (Internal Revenue Code, Section 29) and, consequently, distributed significant cash
to the Company from 2001 to 2010.
The tax credit legislation expired at the end of calendar year 2007. Consequently, the four synthetic fuel plants were
decommissioned. The plants were sold or transferred to site owners in exchange for a release of all contracted liabilities
related to the removal of plants from the sites. Gencor’s ownership in the two synthetic fuel entities ended in 2013.
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.
3
Sources of Supply and Manufacturing
Substantially all products and components sold by the Company and its subsidiaries are manufactured and assembled by
the Company, except for specialized parts. 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 may augment internal production by outsourcing some of its production when demand for its products
exceeds its manufacturing capacity.
Seasonality
The Company is concentrated in the manufacturing of asphalt plants and related components, which is typically subject
to a seasonal slow-down during the third and fourth quarters of the calendar year.
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, price, delivery, and technology. The Company believes it manufactures the highest quality and heaviest
equipment in the industry. Its products’ performance reliability, brand recognition, pricing, and 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.
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 $27.3 million and $28.0 million as of December 1, 2019 and December 1,
2018, respectively.
Financial Information about Geographic Areas Reporting Segments
For a geographic breakdown of revenues and long-term assets, see Reporting Segments and Geographic Areas in Note 1
to the Consolidated Financial Statements.
Licenses, Patents and Trademarks
The Company held numerous patents covering technology and applications related to various products, equipment and
systems, and numerous trademarks and trade names registered with the U.S. Patent and Trademark Office and in various
foreign countries. In general, the Company depends upon technological capabilities, manufacturing quality control and
application know-how, rather than patents or other proprietary rights in the conduct of its business.
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.
4
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.
Employees
As of September 30, 2019, the Company had a total of 334 full-time employees. The Company has a collective
bargaining agreement covering employees at its Marquette, Iowa facility. No other employees are represented by a labor
union or collective bargaining agreement.
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 Report.
5
ITEM 1A
RISK FACTORS
The following risk factors and other information included in this Report 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/or labor costs.
The business is affected by the level of government funding for highway construction in the United States and
Canada.
Most highway 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.
Previously, the Company depended on one customer for a significant portion of its revenue. The loss of this
relationship, or a significant downturn in the business or financial condition of this customer, could have adverse
consequences on the Company’s future business.
The percentage of the Company’s net revenue that was derived from sales to its largest customer in recent years was 6%
in fiscal 2019, 3% in fiscal 2018 and 13% in fiscal 2017. No customer accounted for 10% or more of fiscal 2019 or
2018 revenues.
If the Company fails to comply with requirements relating to internal control over financial reporting under
Section 404 of the Sarbanes-Oxley Act, the business could be harmed and its stock price could decline.
Rules adopted by the SEC pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 require the Company to assess its
internal control over financial reporting annually. The rules governing the standards that must be met for management to
assess its internal control over financial reporting are complex. They require significant documentation, testing, and
possible remediation of any significant deficiencies in and/or material weaknesses of internal controls in order to meet
the detailed standards under these rules. The Company has evaluated its internal control over financial reporting as
effective as of September 30, 2019. See Item 9A – Controls and Procedures – Management’s Annual Report on Internal
Control over Financial Reporting. Although the Company concluded that its internal control over financial reporting
was effective as of September 30, 2019, 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 in which revenues are recognized over time.
Revenues from contracts with customers for the design, manufacture and sale of custom equipment are recognized over
time when the performance obligation is satisfied by transferring control of the equipment. Control of the equipment
transfers over time as the equipment is unique to the specific contract and thus does not create an asset with an
alternative use to the Company. Revenues and costs are recognized in proportion to actual labor costs incurred, as
compared with total estimated labor costs expected to be incurred during the entire contract. 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 by
accounting principles generally accepted in the United States of America (“GAAP”), the Company cannot assure you
that its estimated contract profit margins will not decrease or its estimated loss provisions will not increase materially in
the future.
The Company may encounter difficulties with future acquisitions.
As part of its growth strategy, the Company intends to evaluate the acquisition of other companies, assets or product
lines that would complement or expand the Company’s existing business or broaden its customer base. Although the
Company conducts due diligence reviews of potential acquisition candidates, it may not be able to identify all material
liabilities or risks related to potential acquisition candidates. There can be no assurance that the Company will be able to
locate and acquire any business, retain key personnel and customers of an acquired business or integrate any acquired
business successfully. Additionally, there can be no assurance that financing for any acquisition, if necessary, will be
available on acceptable terms, if at all, or that the Company will be able to accomplish its strategic objectives in
connection with any acquisition. Although the Company periodically considers possible acquisitions, no specific
acquisitions are probable as of the date of this Report.
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
companies in the highway construction industry. The highway construction industry historically has been cyclical and
vulnerable to downturns in the economy. Decreases in industry spending could have a material adverse effect upon
demand for the Company’s products and negatively impact its business, financial condition, results of operations and
the market price of its common stock.
The Company’s marketable securities are comprised of cash and money funds, equities, corporate bonds, mutual
funds, exchange-traded funds, and government securities invested through a professional investment management
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 contracts
with customers for the design, manufacture and sale of custom equipment are recognized over time when the
performance obligation is satisfied by transferring control of the equipment. Revenues from all other contracts for the
design and manufacture of equipment, for service and for parts sales, net of any discounts and return allowances, are
recorded at a point in time when control of the goods or services has been transferred. The Company’s asphalt
production equipment operations are subject to seasonal fluctuations, which may lower revenues and result in possible
quarterly operating losses.
If the Company is unable to attract and retain key personnel, its business could be adversely affected.
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
7
Company’s operations. The Company’s ability to attract and retain qualified personnel, either through direct hiring, or
acquisition of other businesses employing such persons, will also be an important factor in determining its future
success.
The Company may be required to defend its intellectual property against infringement or against infringement
claims of others.
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. There can be no assurance as to the breadth or degree of protection that 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 technologies,
products or trademarks infringe upon the patents, technologies, products or trademarks of others, it is possible that the
Company’s trademarks or other rights may not be valid or that infringement of 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 strategic suppliers could cause production delays.
The principal raw material the Company uses is carbon steel which is sourced through numerous suppliers. The
Company uses select suppliers to provide proprietary components to its finished products. Although the Company
believes that such raw materials are readily available from alternate sources, an interruption in the supply of steel and
related products or a substantial increase in the price of steel could have a material adverse effect on the Company’s
business and its results of operations.
8
The Company is committed to responsible environmental, social and government practices. The Company strives to be
recognized as a company that achieves customer expectations safely and in a manner that rewards both its customers
and its employees. The Company strives to achieve these goals through an organizational structure that provides
excellent service and a reputation of integrity with the communities where it operates while providing its employees
with growth opportunities in an injury-free environment.
The Company is subject to 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 beneficially own 100% of the outstanding shares of the Company’s Class B stock. The holders
of the Class B stock are entitled to elect 75% (calculated to the nearest whole number, rounding five-tenths to next
highest whole number) of the members of the Company’s Board of Directors. Further, approval of a majority of the
holders of the Class B stock is generally required to effect a sale of the Company and certain other corporate
transactions. As a result, 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
9
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.
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.
The Company intends to retain any earnings to finance its business requirements. It does not anticipate paying 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 common stock has been, and likely will continue to be, subject to substantial price and volume
fluctuations due to a number of factors, many of which will be beyond the Company’s control.
The market price of the Company’s common stock may be significantly affected by various factors, such as:
• Quarterly variations in operating results;
• Changes in revenue growth rates as a whole or for specific geographic areas or products;
10
• 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.
11
ITEM 1B
None
UNRESOLVED STAFF COMMENTS
ITEM 2
PROPERTIES
The following table lists the operating properties owned by the Company as of September 30, 2019:
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 Report,
which have occurred in the ordinary course of business, and which may be covered in whole, or in part, by insurance.
Management has reviewed all litigation matters arising in the ordinary course of business and, upon advice of legal
counsel, has made provisions, not deemed material, for any probable losses and expenses of litigation.
ITEM 4
MINE SAFETY DISCLOSURES
None
12
PART II
ITEM 5
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
The Company’s common stock is traded on the Nasdaq Global Market under the symbol “GENC.”
The Company has not issued any securities during the prior two years that were not already registered under the
Exchange Act.
As of September 30, 2019, there were 211 holders of common stock of record and 6 holders of Class B stock of record.
The Company has not paid cash dividends during the last two fiscal years and has no intention to pay cash dividends in
the foreseeable future.
EQUITY COMPENSATION PLANS
The following table includes information about the Company’s common 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, 2019:
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
272,492
$6.126
582,000 *
* Includes 100,000 of Class B stock
13
ITEM 7
RESULTS OF OPERATIONS
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
“Forward-Looking” Information
This Report contains certain “forward-looking statements” within the meaning of Section 21E of the Securities
Exchange Act of 1934, as amended (the “Exchange Act”), which represent the Company’s expectations and beliefs,
including, but not limited to, statements concerning gross margins, sales of the Company’s products and future
financing plans, income from investees and litigation. These statements by their nature involve substantial risks and
uncertainties, certain of which are beyond the Company’s control. Actual results may differ materially depending on a
variety of important factors, including the financial condition of the Company’s customers, changes in the economic and
competitive environments, the performance of the investment portfolio and the demand for the Company’s products.
For information concerning these factors and related matters, see “Risk Factors” in Part I, Item 1A in this 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.
Because the Company’s products are sold primarily to the highway construction industry, the business is seasonal in
nature. Traditionally, the Company’s customers reduce their purchases of new equipment for shipment during the
summer and fall months to avoid disrupting their peak season for highway construction and related repair work. The
majority of orders for the Company’s products are thus received between October and February, with a significant
volume of shipments occurring in the late winter and spring. The principal factors driving demand for the Company’s
products are the overall economic conditions, the level of government funding for domestic highway construction and
repair, Canadian infrastructure spending, the need for spare parts, fluctuations in the price of crude oil (liquid asphalt as
well as fuel costs), and a trend towards larger more efficient asphalt plants.
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 included spending of more than $205 billion on
roads and highways over five years. The 2016 funding levels were 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. Additionally, at least twenty other states have taken steps to increase their gas tax revenues in recent
years.
Fluctuations in the price of carbon steel, which is a significant cost and material used in the manufacturing of the
Company’s equipment, may affect the Company’s financial performance. 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.
14
Also, a significant increase in the price of liquid asphalt could decrease demand for hot mix asphalt paving materials
and certain of the Company’s products. Increases in oil prices also drive up the cost of gasoline and diesel, which results
in increased freight costs. Where possible, the Company will pass increased freight costs on to its customers. However,
the Company may not be able to recapture all of the higher costs and thus could have a negative impact on the
Company’s financial performance.
The Company believes its strategy of continuing to invest in product engineering and development and its focus on
delivering the highest quality products and superior service will strengthen the Company’s market position. The
Company continues to review its internal processes to identify inefficiencies and cost-reduction opportunities. The
Company will continue to scrutinize its relationships with suppliers to ensure it is achieving the highest quality
materials and services at the most competitive cost.
Results of Operations
Year ended September 30, 2019 compared with the year ended September 30, 2018
Net revenue for the year ended September 30, 2019 decreased 17.5% to $81.3 million from $98.6 million for the year
ended September 30, 2018. Net revenue for the fourth quarter of 2019 decreased 29.5% to $14.5 million compared to
$20.5 million for the quarter ended September 30, 2018. The decrease in revenues reflects a decline in orders from prior
years as the impact of the FAST Act has slowed. The FAST Act is scheduled to expire in 2020. Currently, there is no
approved Federal infrastructure bill to replace the FAST Act.
Gross profit for fiscal 2019 was 27.6% of net revenue versus 27.2% of net revenue in fiscal 2018. The improved gross
profit margins resulted from the Company’s cost management and operational improvements implemented over the past
few years, partially offset by the impact of lower production volumes.
Product engineering and development (“PED”) expenses increased $380,000 or 13.0% to $3,295,000 from $2,915,000
in fiscal 2018 due to increased headcount. Selling, general and administrative (“SG&A”) expenses decreased $344,000
or 3.4% to $9,647,000 from $9,991,000 in fiscal 2018. The lower SG&A expenses in 2019 were due to reduced sales
commissions and advertising expenses partially offset by an increase in sales headcount and related travel expenses.
SG&A expenses as a percentage of net revenue increased to 11.9%, compared to 10.1% in the prior year.
Fiscal 2019 had operating income of $9,470,000 versus $13,890,000 in fiscal 2018 based on reduced net revenues.
As of September 30, 2019 and 2018, the cost basis of the investment portfolio was $104.2 million and $103.8 million,
respectively. For the years ended September 30, 2019 and 2018, net investment interest and dividend income
(“Investment Income”) was $2.3 million and $1.5 million, respectively. The net realized and unrealized gains (losses)
on marketable securities were $1.0 million in fiscal 2019 versus $(0.4) million in fiscal 2018. The total cash, cash
equivalents and investments balance at September 30, 2019 was $115.6 million, compared to the September 30, 2018
cash, cash equivalents and investments balance of $112.1 million, an increase of $3.5 million.
On December 22, 2017, the U.S. Tax Cuts and Jobs Act (the “Tax Reform Act”) was signed into law by President
Donald Trump. The Tax Reform Act significantly lowered the U.S. corporate income tax rate from 35% to 21%
effective January 1, 2018, while also repealing the deduction for domestic production activities, implementing a
territorial tax system and imposing repatriation tax on deemed repatriated earnings of foreign subsidiaries. GAAP
requires that the impact of tax legislation be recognized in the period in which the law was enacted. As a result of the
Tax Reform Act, the Company recorded a tax benefit of $0.7 million due to re-measurement of its deferred tax liability,
during the first quarter of fiscal 2018. The Company recorded an additional $0.1 million of tax benefits related to the
Tax Reform Act in the fourth quarter of fiscal 2018.
The effective income tax rate for fiscal 2019 was 20.5% versus 15.7% in fiscal 2018. The 2018 tax rate was impacted by
a $0.8 million adjustment that reduced the net deferred tax liability as a result of applying the lower corporate tax rates
to comply with the Tax Reform Act.
15
In fiscal 2018, the Company generated $249,000 of federal research and development tax credits (“R&D Credits”), all
of which were used. In fiscal 2019, the Company generated $241,000 of R&D Credits, all of which were used. There
were no R&D Credits carryforwards as of September 30, 2019.
As of September 30, 2017, the Company had $155,000 in Florida state research and development tax credits (“Florida
R&D Credits”) carryforwards. The Company received additional Florida R&D Credits of $25,000 in fiscal 2018 and
used $93,000, leaving $87,000 of Florida R&D Credits carryforwards as of September 30, 2018, which are included in
net deferred and other income tax liabilities of $(2,640,000) at September 30, 2018. The Company did not receive any
additional Florida R&D Credits in fiscal 2019. The Company used the $87,000 of Florida R&D Credits carryforwards
from fiscal 2018 in fiscal 2019. There were no Florida R&D Credits carryforwards at September 30, 2019.
Net income for the year ended September 30, 2019 was $10,196,000 or $0.69 per diluted share versus net income of
$12,694,000 or $0.86 per diluted share for the year ended September 30, 2018. The decrease in net income was
primarily due to the reduced net revenues.
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, 2019 or 2018. As of September 30, 2019, the
Company has funded $135,000 in cash deposits at insurance companies to cover collateral needs.
As of September 30, 2019, the Company had $10.3 million in cash and cash equivalents, and $105.3 million in
marketable securities. The marketable securities are invested through professional investment management firms. The
securities may be liquidated at any time into cash and cash equivalents.
The Company’s backlog, which includes orders received through the filing date of this Report, was $36.9 million at
September 30, 2019 versus $43.8 million at September 30, 2018. The Company’s working capital was $150.4 million at
September 30, 2019 versus $139.7 million at September 30, 2018.
The significant purchases, sales and maturities of marketable securities shown on the consolidated statements of cash
flows reflect the frequent purchase and sale of United States treasury bills.
Year ended September 30, 2019 compared with the year ended September 30, 2018
Cash provided by operations in fiscal 2019 was $4,163,000, primarily resulting from net income. The increase in
inventories of $3.5 million reflected the impact of a summer stock build to meet the anticipated increased demand for
the Company’s products at the start of fiscal 2020. The increase in costs and estimated earnings in excess of billings of
$1.9 million reflects the ongoing progress on customer contracts with revenues recognized over time prior to final
billing and payment of amounts due in advance of shipment. Customer deposits decreased $2.6 million, reflecting the
application of down payments on these jobs.
Cash used in operations in fiscal 2018 of $(11,997,000) was primarily due to investing an additional $15.0 million of
operating cash in marketable equity securities. The increase in costs and estimated earnings in excess of billings of $5.1
million reflected significant progress on customer contracts with revenues recognized over time prior to final billing and
payment of amounts due in advance of shipment. Similarly, customer deposits decreased $4.1 million, reflecting the
application of down payments on these jobs.
Cash used in investing activities during the year ended September 30, 2019 of $2,104,000 and $3,550,000 for the year
ended September 30, 2018, related primarily to capital expenditures for manufacturing equipment. Cash provided by
financing activities of $231,000 in fiscal 2019 and $626,000 in fiscal 2018 related to proceeds from the exercise of stock
options.
16
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
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
As previously discussed in Note 1 to the Company’s consolidated financial statements included in the Company’s
Annual Report on Form 10-K for the year ended September 30, 2018, under the heading “Accounting Pronouncements
and Policies.”, the Company adopted the provisions of ASU No. 2014-09 and its related amendments effective for the
quarter ended December 31, 2018 using the modified retrospective method. The adoption of this standard did not have
a material impact on the timing or amounts of revenues recognized by the Company, and, as such, no cumulative effect
adjustment was recorded with the adoption of the standard.
Revenues from contracts with customers for the design, manufacture and sale of custom equipment are recognized over
time when the performance obligation is satisfied by transferring control of the equipment. Control of the equipment
transfers over time as the equipment is unique to the specific contract and thus does not create an asset with an
alternative use to the Company. Revenues and costs are recognized in proportion to actual labor costs incurred, as
compared with total estimated labor costs expected to be incurred during the entire contract. All incremental costs
related to obtaining a contract are expensed as incurred as the amortization period is less than one year. Changes to total
estimated contract costs or losses, if any, are recognized in the period in which they are determined.
Contract assets (excluding accounts receivable) under contracts with customers represent revenue recognized in excess
of amounts billed on equipment sales recognized over time. Contract assets were $13,838,000 at September 30, 2019
and are included in current assets on the Company’s consolidated balance sheet at September 30, 2019. The Company
anticipates that all contract assets at September 30, 2019, will be billed and collected within one year.
Revenues from all other contracts for the design and manufacture of equipment, for service and for parts sales, net of
any discounts and return allowances, are recorded at a point in time when control of the goods or services has been
transferred. Control of the goods or service typically transfers at time of shipment or upon completion of the service.
Payment for equipment under contract with customers is typically due prior to shipment. Payment for services under
contract with customers is due as certain milestones are completed. Accounts receivable related to contracts with
customers at September 30, 2019 was $301,000.
Product warranty costs are estimated using historical experience and known issues and are charged to production costs
as revenue is recognized.
Under certain contracts with customers, recognition of a portion of the consideration received may be deferred and
recorded as a contract liability if the Company has to satisfy a future obligation, such as to provide installation
assistance. Excluding customer deposits, there were no contract liabilities at September 30, 2019. Customer deposits
related to contracts with customers were $1,918,000 at September 30, 2019, and are included in current liabilities on the
Company’s consolidated balance sheet at September 30, 2019.
17
The Company records revenues earned for shipping and handling as freight revenue at the time of shipment, regardless
of whether or not it is identified as a separate performance obligation. The cost of shipping and handling is classified as
cost of goods sold concurrently.
Provisions for estimated returns and allowances and other adjustments are provided for in the same period the related
sales are recorded. Returns and allowances, which reduce product revenue, are estimated using historical experience.
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 net realizable value. Net realizable value is defined as the estimated selling
price of goods less reasonable costs of completion and delivery. During the fourth quarter of fiscal 2019, the Company
changed its method for accounting for cost of inventories from the last-in, first-out (“LIFO”) method to the first-in, first-
out (“FIFO”) method. The Company believes the FIFO method will improve financial reporting by better reflecting the
current value of inventory on the consolidated balance sheets, by more closely aligning the flow of
physical inventory with the accounting for the inventory, and by providing better matching of revenues and expenses.
The change in accounting method will also require the Company to make a conforming change for U.S. income tax
purposes.
As required by GAAP, the Company has reflected this change in accounting principle on a retrospective basis, resulting
in changes to the historical periods presented. The retrospective application of the change resulted in an increase in the
Company’s September 30, 2018 and September 30, 2017 retained earnings of $2,838,000 (net of $838,000 in taxes) and
$2,708,000 (net of $792,000 in taxes) respectively, and an increase to the Company’s net income of $130,000 (net of
$45,000 in taxes) for the year ended September 30, 2018. This change did not affect our previously reported cash flows
from operating, investing or financing activities nor did it have a significant impact on the previously reported quarterly
operating results for fiscal 2019.
All inventories are now valued at the lower of cost or net realizable value, with cost being determined under the FIFO
method and net realizable value defined as the estimated selling price of goods less reasonable costs of completion and
delivery (see Note 2 to Consolidated Financial Statements). Appropriate consideration is given to obsolescence,
excessive levels, deterioration, possible alternative uses and other factors in determining net realizable value. The cost
of work in process and finished goods includes materials, direct labor, variable costs and overhead. The Company
evaluates the need to record inventory adjustments on all inventories, including raw materials, work in process, finished
goods, spare parts and used equipment. Used equipment acquired by the Company on trade-in from customers is carried
at estimated net realizable value. Unless specific circumstances warrant different treatment regarding inventory
obsolescence, 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
standard valuation methodologies for Level 2 investments. Realized gains and losses on investment transactions are
18
determined by specific identification and are recognized as incurred in the consolidated income statements. Net
unrealized gains and losses are reported in the consolidated income statements and represent the change in the fair value
of investment holdings during the period.
Long Lived Asset Impairment
Property and equipment, and intangible assets subject to amortization are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset (or asset group) may not be recoverable. An
impairment loss would be recognized when the carrying amount of an asset exceeds the estimated undiscounted cash
flows expected to result from the use of the asset and its eventual disposition. The amount of the impairment loss to be
recorded is calculated by the excess over its fair value of the asset’s carrying value. Fair value is generally determined
using a discounted cash flow analysis.
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, 2019.
The Company had no long-term or short-term debt as of September 30, 2019. There was no long-term debt facility in
place and there were no outstanding letters of credit at September 30, 2019.
Off-Balance Sheet Arrangements
None
19
ITEM 8
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
GENCOR INDUSTRIES, INC.
Page
Report of Independent Registered Public Accounting Firm ..........................................................
21
Consolidated Balance Sheets as of September 30, 2019 and 2018 .................................................
Consolidated Income Statements for the years ended September 30, 2019 and 2018 ...................
Consolidated Statements of Shareholders’ Equity for the years ended
September 30, 2019 and 2018 .........................................................................................................
Consolidated Statements of Cash Flows for the years ended September 30, 2019 and 2018 ........
23
24
25
26
Notes to Consolidated Financial Statements ...................................................................................
27
All other schedules are omitted because they are not applicable or the required information is shown in the consolidated
financial statements or notes thereto.
20
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of Gencor Industries, Inc.:
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Gencor Industries, Inc. (the “Company”) as of
September 30, 2019 and 2018, and the related consolidated statements of income, shareholders’ equity, and cash flows
for each of the years in the two-year period ended September 30, 2019, and the related notes (collectively referred to as
the consolidated financial statements). We also have audited the Company’s internal control over financial reporting as
of September 30, 2019, based on criteria established in Internal Control – Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).
In our opinion, the consolidated financial statements referred to in the first paragraph present fairly, in all material
respects, the consolidated financial position of the Company as of September 30, 2019 and 2018, and the consolidated
results of its operations and its cash flows for each of the years in the two-year period ended September 30, 2019, in
conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the
Company maintained, in all material respects, effective internal control over financial reporting as of September 30,
2019, based on criteria established in Internal Control – Integrated Framework (2013) issued by COSO.
Change in Accounting Principle
As disclosed in Notes 1 and 2 to the consolidated financial statements, during the year ended September 30, 2019 the
Company elected to change its method of accounting for inventory to the first-in, first-out (“FIFO”) method from the
last-in, last-out (“LIFO”) method used in prior years.
Basis for Opinion
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 “Item 9A, Management’s Annual Report on Internal Control over Financial
Reporting”. Our responsibility is to express an opinion on the Company’s consolidated financial statements and an
opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting
firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to
be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules
and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of
material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was
maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material
misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that
respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and
disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used
and significant estimates made by management, as well as evaluating the overall presentation of the consolidated
financial statements. Our audit of internal control over financial reporting included obtaining an understanding of
internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating
the design and operating effectiveness of internal control based on the assessed risk. Our audits also included
performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide
a reasonable basis for our opinions.
21
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s internal control over financial reporting includes those policies
and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are
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.
/s/ MOORE STEPHENS LOVELACE, P.A.
MOORE STEPHENS LOVELACE, P.A.
Certified Public Accountants
We have served as the Company’s auditor since 2001.
Orlando, Florida
December 11, 2019
22
Part I. Financial Information
GENCOR INDUSTRIES, INC.
Consolidated Balance Sheets
As of September 30, 2019 and 2018
ASSETS
Current assets:
Cash and cash equivalents
Marketable securities at fair value (cost of $104,176,000 at September 30,
2019 and $103,751,000 at September 30, 2018)
Accounts receivable, less allowance for doubtful accounts of $459,000 at
September 30, 2019 and $313,000 at September 30, 2018
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;
12,277,337 shares and 12,252,337 shares issued and outstanding at
September 30, 2019 and 2018, respectively
Class B Stock, par value $.10 per share; 6,000,000 shares authorized;
2,308,857 shares and 2,288,857 shares issued and outstanding at
September 30, 2019 and 2018, respectively
Capital in excess of par value
Retained earnings
Total shareholders’ equity
Total Liabilities and Shareholders’ Equity
2019
2018 *
$10,302,000
$8,012,000
105,322,000
104,058,000
1,603,000
13,838,000
25,366,000
499,000
156,930,000
8,389,000
53,000
$165,372,000
$1,907,000
1,918,000
2,660,000
6,485,000
3,372,000
9,857,000
993,000
11,900,000
21,890,000
1,348,000
148,201,000
7,889,000
53,000
$156,143,000
$1,838,000
4,563,000
2,085,000
8,486,000
2,640,000
11,126,000
-
-
1,228,000
1,225,000
231,000
12,159,000
141,897,000
155,515,000
$165,372,000
229,000
11,862,000
131,701,000
145,017,000
$156,143,000
See accompanying Notes to Consolidated Financial Statements
* The amounts as of September 30, 2018 have been adjusted to reflect the change in inventory accounting method, as described in
Notes 1 and 2 to the Consolidated Financial Statements.
23
GENCOR INDUSTRIES, INC.
Consolidated Income Statements
For the Years Ended September 30, 2019 and 2018
Net revenue
Cost of goods sold
Gross profit
Operating expenses:
Product engineering and development
Selling, general and administrative
Total operating expenses
Operating income
Other income (expense), net:
Interest and dividend income, net of fees
Realized and unrealized gains (losses) on marketable securities, net
Other
Income before income tax expense
Income tax expense
Net income
Basic earnings per common share
Diluted earnings per common share
2019
2018 *
$81,329,000
$98,614,000
58,917,000
22,412,000
3,295,000
9,647,000
12,942,000
71,818,000
26,796,000
2,915,000
9,991,000
12,906,000
9,470,000
13,890,000
2,307,000
1,047,000
-
3,354,000
12,824,000
2,628,000
$10,196,000
1,535,000
(363,000)
2,000
1,174,000
15,064,000
2,370,000
$12,694,000
$0.70
$0.69
$0.88
$0.86
See accompanying Notes to Consolidated Financial Statements
* The amounts for the year ended September 30, 2018 have been adjusted to reflect the change in inventory accounting method, as
described in Notes 1 and 2 to the Consolidated Financial Statements.
24
GENCOR INDUSTRIES, INC.
Consolidated Statements of Shareholders’ Equity
For the Years Ended September 30, 2019 and 2018
Common Stock
Class B Stock
Shares
Amount
Shares
Amount
Capital in
Excess of
Par Value
Retained
Earnings
Total
Shareholders’
Equity
September 30, 2017
Inventory accounting
method change *
September 30, 2017 *
12,154,829
$1,215,000
2,263,857
$226,000
$11,178,000
$116,299,000
$128,918,000
-
12,154,829
-
1,215,000
-
2,263,857
-
226,000
-
11,178,000
2,708,000
119,007,000
2,708,000
131,626,000
Net income *
Stock-based compensation
Stock options exercised
-
-
97,508
-
-
10,000
-
-
25,000
-
-
3,000
-
71,000
613,000
12,694,000
-
-
12,694,000
71,000
626,000
September 30, 2018 *
12,252,337
1,225,000
2,288,857
229,000
11,862,000
131,701,000
145,017,000
Net income
Stock-based compensation
Stock options exercised
-
-
25,000
-
-
3,000
-
-
20,000
-
-
2,000
-
71,000
226,000
10,196,000
-
-
10,196,000
71,000
231,000
September 30, 2019
12,277,337
$1,228,000
2,308,857
$231,000
$12,159,000
$141,897,000
$155,515,000
See accompanying Notes to Consolidated Financial Statements
*
The balances as of September 30, 2017 and 2018, and the amounts for the year ended September 30, 2018, have been adjusted to reflect the
change in inventory accounting method, as described in Notes 1 and 2 to the Consolidated Financial Statements.
25
GENCOR INDUSTRIES, INC.
Consolidated Statements of Cash Flows
For the Years Ended September 30, 2019 and 2018
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to cash provided by (used in) 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 (used in) 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 (decrease) in cash and cash equivalents
Cash and cash equivalents at:
Beginning of year
End of year
2019
2018 *
$10,196,000
$12,694,000
(188,066,000)
188,047,000
(1,245,000)
732,000
1,600,000
175,000
4,000
71,000
(256,124,000)
239,462,000
490,000
262,000
1,380,000
210,000
3,000
71,000
(785,000)
(1,938,000)
(3,476,000)
849,000
69,000
(2,645,000)
575,000
(6,033,000)
4,163,000
(19,000)
(5,132,000)
(1,702,000)
312,000
518,000
(4,065,000)
(357,000)
(24,691,000)
(11,997,000)
(2,104,000)
-
(2,104,000)
(3,550,000)
-
(3,550,000)
231,000
231,000
626,000
626,000
2,290,000
(14,921,000)
8,012,000
$10,302,000
22,933,000
$8,012,000
See accompanying Notes to Consolidated Financial Statements
* The amounts for the year ended September 30, 2018 have been adjusted to reflect the change in inventory accounting method, as
described in Notes 1 and 2 to the Consolidated Financial Statements.
26
GENCOR INDUSTRIES, INC.
Notes to Consolidated Financial Statements
For the Years Ended September 30, 2019 and 2018
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, and interim periods within those
annual periods, beginning after December 15, 2017. The Company adopted ASU 2014-09 in the first quarter of fiscal
2019. The Company elected to adopt the standard using the modified retrospective method. The adoption of ASU
2014-09 did not have a significant impact on its consolidated financial statements.
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 May 2017, the FASB issued ASU 2017-09, Compensation - Stock Compensation (Topic 718): Scope of
Modification Accounting (“ASU 2017-09”). The new guidance clarifies when a change to the terms or conditions of a
share-based payment award must be accounted for as a modification. ASU 2017-09 is effective for annual periods, and
interim periods within those annual periods, beginning after December 15, 2017, with early adoption permitted. The
Company adopted ASU 2017-09 in the first quarter of fiscal 2019. The adoption of ASU 2017-09 did not have a
significant impact on its consolidated financial statements.
No other accounting pronouncements recently issued or newly effective have had, or are expected to have, a material
impact on the Company’s consolidated financial statements.
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.
27
Earnings per Share
The consolidated financial statements include basic and diluted earnings per share (“EPS”) information. Basic EPS is
based on the weighted-average number of shares outstanding. Diluted EPS is based on the sum of the weighted-
average number of shares outstanding plus common stock equivalents.
The weighted-average shares issuable upon the exercise of stock options included in the diluted EPS calculation at
September 30, 2019 were 307,000, which equates to 157,000 dilutive common stock equivalents. For the year ended
September 30, 2018, the weighted-average shares issuable upon the exercise of stock options included in the diluted
EPS calculation were 367,000, which equates to 231,000 dilutive common stock equivalents. Weighted-average shares
issuable upon the exercise of stock options, which were not included in the diluted EPS calculation because they were
anti-dilutive, were zero in 2019 and 2018.
The following presents the calculation of the basic and diluted EPS for the years ended September 30, 2019 and 2018:
2019
2018 (as adjusted)
Basic EPS
Common stock equivalents
Diluted EPS
Net Income
$10,196,000
Shares
14,551,000
157,000
$10,196,000 14,708,000
EPS
$0.70
$0.69
Cash Equivalents
Net Income
$12,694,000
Shares
14,492,000
231,000
$12,694,000 14,723,000
EPS
$0.88
$0.86
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 income statements. Net
changes in unrealized gains and losses are reported in the consolidated income statements 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.
The fair value of marketable equity securities (stocks), mutual funds, exchange-traded funds, government securities,
and cash and money funds, are substantially based on quoted market prices (Level 1). Corporate bonds are valued
using market standard valuation methodologies, including: discounted cash flow methodologies, and matrix pricing or
other similar techniques. The inputs to these market standard valuation methodologies include, but are not limited to:
interest rates, credit standing of the issuer or counterparty, industry sector of the issuer, coupon rate, call provisions,
maturity, estimated duration and assumptions regarding liquidity and estimated future cash flows. In addition to bond
characteristics, the valuation methodologies incorporate market data, such as actual trades completed, bids and actual
dealer quotes, where such information is available. Accordingly, the estimated fair values are based on available
market information and judgments about financial instruments (Level 2). Fair values of the Level 2 investments are
provided by the Company’s professional investment management firms.
28
The following table sets forth by level, within the fair value hierarchy, the Company’s assets measured at fair value as
of September 30, 2019:
Equities
Mutual Funds
Exchange-Traded Funds
Corporate Bonds
Government Securities
Cash and Money Funds
Total
Level 1
$10,412,000
3,987,000
5,163,000
-
45,171,000
1,899,000
$66,632,000
Fair Value Measurements
Level 3
Level 2
$ -
-
-
38,690,000
-
-
$38,690,000
$ -
-
-
-
-
-
$ -
Total
$10,412,000
3,987,000
5,163,000
38,690,000
45,171,000
1,899,000
$105,322,000
Net unrealized gains reported during fiscal 2019 on trading securities still held as of September 30, 2019, were
$737,000. There were no transfers of investments between Level 1 and Level 2 during the year ended September 30,
2019.
The following table sets forth by level, within the fair value hierarchy, the Company’s assets measured at fair value as
of September 30, 2018:
Equities
Mutual Funds
Exchange-Traded Funds
Corporate Bonds
Government Securities
Cash and Money Funds
Total
Level 1
$11,768,000
3,811,000
4,148,000
-
53,883,000
564,000
$74,174,000
Fair Value Measurements
Level 3
Level 2
$ -
-
-
29,884,000
-
-
$29,884,000
$ -
-
-
-
-
-
$ -
Total
$11,768,000
3,811,000
4,148,000
29,884,000
53,883,000
564,000
$104,058,000
Net unrealized losses reported during fiscal 2018 on trading securities still held as of September 30, 2018, were
$612,000. There were no transfers of investments between Level 1 and Level 2 during the year ended September 30,
2018. In September 2018, the Company invested an additional $15.0 million of its operating cash in government
securities.
The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable, customer deposits and
accrued expenses approximate fair value because of the short-term nature of these items.
Foreign Currency Transactions
Gains and losses resulting from foreign currency transactions are included in income and were not significant during
the years ended September 30, 2019 and 2018.
Risk Management
Financial instruments that potentially subject the Company to concentrations of credit risk primarily consist 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 include investments in cash and money funds, mutual funds, exchange-traded funds (“ETF’s”), corporate
bonds, government securities and stocks through two professional investment management firms. Investment
securities are exposed to various risks, such as interest rate, market and credit risks.
29
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 net realizable value. Net realizable value is defined as the estimated
selling price of goods less reasonable costs of completion and delivery. During the fourth quarter of fiscal 2019, the
Company changed its method for accounting for cost of inventories from the last-in, first-out (“LIFO”) method to the
first-in, first-out (“FIFO”) method. As required by accounting principles generally accepted in the United States of
America (“GAAP”), the Company has reflected this change in accounting principle on a retrospective basis, resulting
in changes to the historical periods presented. Appropriate consideration is given to obsolescence, excessive levels,
deterioration, possible alternative uses and other factors in determining net realizable value. The cost of work in
process and finished goods includes materials, direct labor, variable costs and overhead. The Company evaluates the
need to record inventory adjustments on all inventories, including raw material, work in process, finished goods, spare
parts and used equipment. Used equipment acquired by the Company on trade-in from customers is carried at
estimated net realizable value. Unless specific circumstances warrant different treatment regarding inventory
obsolescence, 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-moving 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
2019
$ 4,543,000
304,000
(147,000)
$ 4,700,000
2018
(as adjusted)
$ 4,575,000
283,000
(315,000)
$ 4,543,000
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 & improvements
Equipment
Impairments
Years
15
6-40
2-10
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 losses were recorded during the years ended September 30,
2019 and 2018.
30
Revenues and Expenses
The Company adopted the provisions of ASU No. 2014-09 and related amendments effective for the quarter ended
December 31, 2018 using the modified retrospective method. The adoption of this standard did not have a material
impact on the timing or amounts of revenues recognized by the Company, and, as such, no cumulative effect
adjustment was recorded with the adoption of the standard.
The following table disaggregates the Company’s net revenue by major source for the years ended September 30, 2019
and 2018:
Equipment sales recognized over time
Equipment sales recognized at a point in time
Parts and component sales
Freight revenue
Other
Net revenue
2019
2018
$43,489,000
19,987,000
13,356,000
4,130,000
367,000
$81,329,000
$70,836,000
11,521,000
11,580,000
4,474,000
203,000
$98,614,000
Revenues from contracts with customers for the design, manufacture and sale of custom equipment are recognized over
time when the performance obligation is satisfied by transferring control of the equipment. Control of the equipment
transfers over time, as the equipment is unique to the specific contract and thus does not create an asset with an
alternative use to the Company. Revenues and costs are recognized in proportion to actual labor costs incurred, as
compared with total estimated labor costs expected to be incurred, during the entire contract. All incremental costs
related to obtaining a contract are expensed as incurred, as the amortization period is less than one year. Changes to
total estimated contract costs or losses, if any, are recognized in the period in which they are determined.
Contract assets (excluding accounts receivable) under contracts with customers represent revenue recognized in excess
of amounts billed on equipment sales recognized over time. These contract assets were $13,838,000 at September 30,
2019 and are included in current assets as costs and estimated earnings in excess of billings on the Company’s
consolidated balance sheet at September 30, 2019. The Company anticipates that all of these contract assets at
September 30, 2019, will be billed and collected within one year.
Revenues from all other contracts for the design and manufacture of equipment, for service and for parts sales, net of
any discounts and return allowances, are recorded at a point in time when control of the goods or services has been
transferred. Control of the goods or service typically transfers at time of shipment or upon completion of the service.
Payment for equipment under contract with customers is typically due prior to shipment. Payment for services under
contract with customers is due as certain milestones are completed. Accounts receivable related to contracts with
customers for equipment sales was $301,000 at September 30, 2019.
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:
Balance, beginning of year
Warranties issued
Warranties settled
Balance, end of year
2019
$ 400,000
140,000
(263,000)
$ 277,000
2018
$ 412,000
225,000
(237,000)
$ 400,000
Provisions for estimated returns and allowances, and other adjustments are provided for in the same period the related
sales are recorded. Returns and allowances, which reduce product revenue, are estimated using historical experience.
31
Under certain contracts with customers, recognition of a portion of the consideration received may be deferred and
recorded as a contract liability if the Company has to satisfy a future obligation, such as to provide installation
assistance. There were no contract liabilities other than customer deposits at September 30, 2019. Customer deposits
related to contracts with customers were $1,918,000 at September 30, 2019, and are included in current liabilities on
the Company’s consolidated balance sheet at September 30, 2019.
The Company records revenues earned for shipping and handling as freight revenue at the time of shipment, regardless
of whether or not it is identified as a separate performance obligation. The cost of shipping and handling is classified
as production costs concurrently with the revenue recognition.
All product engineering and development costs, and selling, general and administrative expenses are charged to
operations as incurred. Provision is made for any anticipated contract losses in the period that the loss becomes
evident.
The allowance for doubtful accounts is determined by performing a specific review of all account balances greater than
90 days past due and other higher risk amounts to determine collectibility, 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 uncollectible. Any recoveries of
account balances previously considered in the allowance for doubtful accounts reduce future additions to the allowance
for doubtful accounts. The allowance for doubtful accounts also includes an estimate for returns and allowances.
Provisions for estimated returns and allowances and other adjustments, are provided for in the same period the related
sales are recorded. Returns and allowances, which reduce product revenue, are estimated using known issues and
historical experience.
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 writtenoff
Returns and allowances issued
Balance, end of year
Shipping and Handling Costs
2019
$ 313,000
175,000
315,000
(71,000)
(273,000)
$459,000
2018
$ 207,000
210,000
265,000
(76,000)
(293,000)
$ 313,000
Shipping and handling costs are included in production costs in the consolidated income statements.
Income Taxes
Income taxes are provided for the tax effects of transactions reported in the consolidated financial statements and
primarily consist 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, 2019 and 2018.
On December 22, 2017, the U.S. Tax Cuts and Jobs Act (the “Tax Reform Act”) was signed into law by President
Donald Trump. The Tax Reform Act significantly lowered the U.S. corporate income tax rate from 35% to 21%
32
effective January 1, 2018, while also repealing the deduction for domestic production activities for tax years beginning
after December 31, 2017, implementing a territorial tax system and imposing repatriation tax on deemed repatriated
earnings of foreign subsidiaries. GAAP requires that the impact of tax legislation be recognized in the period in which
the law was enacted. As a result of the Tax Reform Act, the Company recorded a tax benefit of $0.7 million due to re-
measurement of its deferred tax liability, in the first quarter of fiscal 2018. The Company recorded an additional $0.1
million of tax benefits related to the Tax Reform Act in the fourth quarter of fiscal 2018.
The Company’s income tax provision is based on management’s estimate of the effective tax rate for the full year. The
tax provision in any period will be affected by, among other things, permanent, as well as temporary differences in the
deductibility of certain items, in addition to changes in tax legislation. As a result, the Company may experience
significant fluctuations in the effective book tax rate (that is, its tax expense divided by pre-tax book income) from
period to period. The Company’s effective tax rates for fiscal 2019 and 2018 reflect the impact of the reduced rates
under the Tax Reform Act.
Comprehensive Income
For the years ended September 30, 2019 and 2018, other comprehensive income is equal to net income.
Reporting Segments and Geographic Areas
The Company has one reportable segment. For fiscal 2019 and 2018, total revenues of $81,329,000 and $98,614,000,
and total long-term assets of $8,442,000 and $7,942,000, respectively, were attributed to the United States. Revenues
are attributed to geographic areas based on the location of the assets producing the revenues.
Customers with 10% (or greater) of Net Revenues
No customer accounted for 10% or more of fiscal 2019 or 2018 net revenues.
Subsequent Events
Management has evaluated events occurring from September 30, 2019 through the date these financial statements were
filed with the Securities and Exchange Commission for proper recording and disclosures herein.
NOTE 2 – INVENTORIES
Inventories are valued at the lower of cost or net realizable value. During the fourth quarter of fiscal 2019, the
Company changed its method for accounting for cost of inventories from the LIFO method to the FIFO method. The
Company believes the FIFO method will improve financial reporting by better reflecting the current value of inventory
on the consolidated balance sheets, by more closely aligning the flow of physical inventory with the accounting for
the inventory, and by providing better matching of revenues and expenses.
Net inventories consist of the following:
Raw materials
Work in process
Finished goods
Used equipment
Inventories, net
September 30,
2019
$ 14,158,000
1,397,000
9,811,000
-
$ 25,366,000
2018
(as adjusted)
$ 13,470,000
1,247,000
7,157,000
16,000
$ 21,890,000
The fiscal 2018 consolidated financial statements have been retrospectively adjusted to apply the new method of FIFO
cost accounting for inventories. The cumulative effect of this change on periods prior to those presented herein resulted
in an increase in retained earnings of $2,708,000.
33
Slow-moving and obsolete inventory reserves were $4,700,000 and $4,543,000 (as adjusted) at September 30, 2019
and 2018, respectively.
As a result of the retrospective application of this change in accounting method, the following financial statement line
items within the accompanying fiscal 2018 consolidated financial statements were adjusted, as follows:
As Originally
Reported under LIFO
Effect of
Change
As Reported
under FIFO
Consolidated Balance Sheets
ASSETS
Inventories, net
Prepaid expenses
LIABILITIES &
SHAREHOLDERS’ EQUITY
Deferred and other income taxes
Retained earnings
Consolidated Income
Statements
Cost of goods sold
Income before income tax
expense
Income tax expense
Net income
Basic earnings per common
share
Diluted earnings per common
share
Consolidated Statements of
Cash Flows
Net income
Deferred and other income taxes
Inventories
Prepaid expenses
Accrued expenses
$18,214,000
1,904,000
$3,676,000
(556,000)
$21,890,000
1,348,000
2,358,000
128,863,000
282,000
2,838,000
2,640,000
131,701,000
$71,993,000
$(175,000)
$71,818,000
14,889,000
2,325,000
$12,564,000
175,000
45,000
$130,000
15,064,000
2,370,000
$12,694,000
$0.87
$0.85
$0.01
$0.01
$0.88
$0.86
$12,564,000
757,000
(1,527,000)
(244,000)
(341,000)
$130,000
(495,000)
(175,000)
556,000
(16,000)
$12,694,000
262,000
(1,702,000)
312,000
(357,000)
There was no material impact to the previously reported unaudited interim fiscal 2018 quarterly condensed
consolidated results of operations or statements of income as a result of the retrospective application of the change in
inventory accounting principle.
34
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, 2019 and 2018
consisted of the following:
Costs incurred on uncompleted contracts
Estimated earnings
Billings to date
Costs and estimated earnings in excess of billings
September 30,
2019
$ 18,707,000
9,063,000
27,770,000
13,932,000
$ 13,838,000
2018
$ 17,437,000
7,335,000
24,772,000
12,872,000
$ 11,900,000
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment consist of the following as of September 30, 2019 and 2018:
Land and improvements
Buildings and improvements
Equipment
Less: Accumulated depreciation and amortization
Property and equipment, net
September 30,
2019
$ 3,323,000
13,462,000
14,809,000
31,594,000
(23,205,000)
$ 8,389,000
2018
$ 3,323,000
13,350,000
12,966,000
29,639,000
(21,750,000)
$ 7,889,000
Property and equipment includes approximately $12,866,000 and $11,996,000 of fully depreciated assets, which
remained in service during fiscal 2019 and 2018, respectively.
NOTE 5 - ACCRUED EXPENSES
Accrued expenses consist of the following as of September 30, 2019 and 2018:
Payroll and related accruals
Warranty and related accruals
Professional fees
Income tax accruals
Other
Accrued expenses
September 30,
2019
$ 1,759,000
277,000
205,000
175,000
244,000
$ 2,660,000
2018
$ 1,371,000
400,000
118,000
-
196,000
$ 2,085,000
35
NOTE 6 - INCOME TAXES
The fiscal 2018 comparative amounts have been adjusted to reflect the change in inventory accounting method, as
described in Notes 1 and 2 to the Consolidated Financial Statements.
The provision for income tax expense consists of:
Current:
Federal
State
Deferred:
Federal
State
Year Ended September 30,
2018
2019
Total current
$2,297,000
148,000
2,445,000
$ 1,483,000
130,000
1,613,000
Total deferred
52,000
131,000
183,000
631,000
126,000
757,000
Income tax expense
$ 2,628,000
$ 2,370,000
A reconciliation of the federal statutory tax rate to the total tax provision is as follows:
Year Ended September 30,
2018
2019
Federal income taxes computed at the statutory rate
State income taxes, net of federal benefit
Change in current tax rate
Change in deferred tax rate
Research & development tax refunds & credits
Dividend received deduction
Domestic production activities deduction
Incentive stock options
Other, net
Effective income tax rate
21.0%
1.6%
-
-
(1.9%)
(0.6%)
-
0.2%
0.2%
20.5%
Deferred income tax assets and liabilities consist of the following:
24.3%
1.4%
(2.9%)
(2.3%)
(1.8%)
(0.9%)
(1.2%)
(1.0%)
0.1%
15.7%
Deferred Tax Assets:
Accrued liabilities and reserves
Allowance for doubtful accounts
Inventory
R&D tax credits carryforwards
Stock-based compensation
Net operating losses carryforwards
Gross Deferred Income Tax Assets
September 30,
2019
2018
$344,000
104,000
98,000
-
82,000
7,000
635,000
$ 218,000
71,000
212,000
87,000
104,000
57,000
749,000
36
Deferred and Other Tax Liabilities:
Domestic international sales corporation
Percentage of completion
Property and equipment
Unrealized gain on investments
Unrecognized tax benefits
Gross Deferred and Other Income Tax Liabilities
Net Deferred and Other Income Tax Assets (Liabilities)
(464,000)
(2,048,000)
(1,080,000)
(265,000)
(150,000)
(4,007,000)
$ (3,372,000)
(543,000)
(1,717,000)
(904,000)
(75,000)
(150,000)
(3,389,000)
$ (2,640,000)
Total income taxes paid in fiscal 2019 and 2018 were $1,150,000 and $2,775,000, respectively.
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
of changing facts and circumstances. As of September 30, 2019 and 2018, the Company had UTB’s of $150,000. There
were no additional accruals of UTB’s during fiscal years ended September 30, 2019 and 2018.
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, 2019 and
2018. It is reasonably possible that the amount of the UTB’s with respect to certain unrecognized tax positions will
increase or decrease during the next 12 months. The Company does not expect the change to have a material effect on
its results of operations or its financial position. The only expected potential reason for change would be the normal
expiration of the statute of limitations or the ultimate results stemming from any examinations by taxing authorities. If
recognized, the entire amount of UTB’s would have an impact on the Company’s effective income tax rate.
The effective income tax rate for fiscal 2019 was 20.5% versus 15.7% in fiscal 2018.
In fiscal 2018, the Company generated $249,000 of federal research and development credits (“R&D Credits”), all of
which were used. In fiscal 2019, the Company generated $241,000 of R&D Credits, all of which were used. There
were no R&D Credits carryforwards as of September 30, 2019.
As of September 30, 2017, the Company had $155,000 in Florida state research and development tax credits (“Florida
R&D Credits”) carryforwards. The Company received additional Florida R&D Credits of $25,000 in fiscal 2018 and
used $93,000, leaving $87,000 of Florida R&D Credits carryforwards as of September 30, 2018, which are included in
net deferred and other income tax liabilities of $(3,091,000) at September 30, 2018. The Company did not receive any
additional Florida R&D Credits in fiscal 2019. The Company used the $87,000 of Florida R&D Credits carryforwards
from fiscal 2018 in fiscal 2019. There were no Florida R&D Credits carryforwards at September 30, 2019.
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, 2016 are generally no longer
subject to examination by taxing authorities due to the expiration of the statute of limitations.
NOTE 7 - RETIREMENT BENEFITS
The Company has a voluntary 401(k) employee benefit plan, which covers all eligible, domestic employees. The
Company makes discretionary matching contributions subject to a maximum level, in accordance with the terms of the
37
plan. The Company charged approximately $282,000 and $322,000 to expense under the provisions of the plan during
the fiscal years 2019 and 2018, respectively.
NOTE 8 - LONG-TERM DEBT
The Company had no long-term debt outstanding at September 30, 2019 or 2018. The Company does not currently
require a credit facility.
As of September 30, 2019, 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. Future minimum rental commitments
under these leases at September 30, 2019 are immaterial. Total rental expense for the fiscal years ended September 30,
2019 and 2018 was $40,000 and $38,000, respectively.
Litigation
The Company is involved in legal proceedings arising out of the normal course of business, none of which we believe
will have a material adverse effect on our business, financial condition or results of operations. Claims made in the
ordinary course of business may be covered in whole or in part by insurance.
NOTE 10 - SHAREHOLDERS’ EQUITY
Under the Company’s Certificate of Incorporation, as amended, certain rights of the holders of the Company’s
common stock are modified by shares of Class B stock for as long as such shares shall remain outstanding. During that
period, holders of common stock will have the right to elect approximately 25% of the Company’s Board of Directors,
and conversely, holders of Class B stock will be entitled to elect approximately 75% of the Company’s Board of
Directors. During the period when shares of common stock and Class B stock are outstanding, certain matters
submitted to a vote of shareholders will also require approval of the holders of common stock and Class B stock, each
voting separately as a class. Common stock and Class B shareholders have equal rights with respect to dividends,
preferences, and rights, including rights in liquidation.
NOTE 11 – STOCK-BASED COMPENSATION
The Company maintains a stock-based compensation plan, which provides for the issuance of Company stock to
certain directors, officers, key employees and affiliates.
On March 17, 2009, the shareholders of the Company approved the 2009 Incentive Compensation Plan (the “2009
Plan”). The 2009 Plan provides that the total number of shares of Company stock that may be subject to the granting of
awards under the 2009 Plan (“Awards”) at any time during the term of the 2009 Plan shall be equal to 800,000 shares
of common stock and 160,000 shares of Class B stock. The foregoing limit shall be increased, as provided for in 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, 2019, all outstanding common stock options had been fully vested. These options amounted to
197,492 at September 30, 2019. As long as the employee remains employed by the Company, these options are
exercisable through October 1, 2021.
As of September 30, 2019, 45,000 outstanding Class B stock options were fully vested and are exercisable through
October 1, 2021 as long as the employee remains employed by the Company. In addition, 30,000 outstanding Class B
38
stock options were 75% vested and are exercisable through September 26, 2026 as long as the employee remains
employed by the Company.
As of September 30, 2019, 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, 2017
Options exercised during fiscal 2018
Options outstanding at September 30, 2018
Options exercised during fiscal 2019
Options outstanding at September 30, 2019
Number of
Shares
440,000
(122,508)
317,492
(45,000)
272,492
Average
Exercise Price
Per Share
$5.739
$5.104
$5.984
$5.126
$6.126
No options were granted, forfeited or cancelled during the year ended September 30, 2019. The weighted average
remaining contractual life on the options outstanding as of September 30, 2019 is 2.5 years under the 2009 Plan.
NOTE 12 - RELATED-PARTY TRANSACTIONS
Marcar Leasing Corporation (“Marcar”) was engaged in leasing vehicles and forklifts to the Company. Marcar is
owned by a family member of the Company’s chairman. New leases between the Company and Marcar provided for
equal monthly payments. On October 5, 2017, the Company agreed to purchase leased vehicles and forklifts under
contract with Marcar for $320,000. There were no lease payments made to Marcar during fiscal 2018. The Company
has no further obligation to Marcar.
39
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 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, 2019.
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, 2019. This assessment was based on criteria for
effective internal control over financial reporting described in Internal Control-Integrated Framework (2013) issued by
the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management
believes the Company maintained effective internal control over financial reporting as of September 30, 2019. The
effectiveness of our internal control over financial reporting as of September 30, 2019 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, 2019 that materially affected, or are reasonably likely to
materially affect, the Company’s internal control over financial reporting.
40
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 Proxy
Statement for the 2020 Annual Meeting of Stockholders.
ITEM 11
EXECUTIVE COMPENSATION
The information required by this Item 11 is incorporated herein by reference to the Company’s Definitive Proxy
Statement for the 2020 Annual Meeting of Stockholders.
ITEM 12
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
The information required by this Item 12 is incorporated herein by reference to the Company’s Definitive Proxy
Statement for the 2020 Annual Meeting of Stockholders.
ITEM 13
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
The information required by this Item 13 is incorporated herein by reference to the Company’s Definitive Proxy
Statement for the 2020 Annual Meeting of Stockholders.
ITEM 14
PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required by this Item 14 is incorporated herein by reference to the Company’s Definitive Proxy
Statement for the 2020 Annual Meeting of Stockholders.
41
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
10.2
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)
10.3
1997 Stock Option Plan incorporated by reference to Exhibit A to the
Company’s Proxy Statement on 14A, filed March 3, 1997
10.4
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
18.01
Preferability Letter on Change in Accounting Principle
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
42
X
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
ITEM 16
FORM 10-K SUMMARY
None
43
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 11, 2019
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 11, 2019
/s/ Marc G. Elliott
Marc G. Elliott
President
December 11, 2019
/s/ John E. Elliott
John E. Elliott
Chief Executive Officer
(Principal Executive Officer)
December 11, 2019
/s/ Eric E. Mellen
Eric E. Mellen
Chief Financial Officer
(Principal Financial and Accounting Officer)
December 11, 2019
/s/ James P. Sharp
James P. Sharp
Director
December 11, 2019
/s/ General John G. Coburn
Gen. John G. Coburn December 11, 2019
Director
/s/ David A. Air
David A. Air
Director
December 11, 2019
44
PREFERABILITY LETTER ON CHANGE IN ACCOUNTING PRINCIPLE
EXHIBIT 18.01
December 11, 2019
Board of Directors
Gencor Industries, Inc.
Notes 1 and 2 to the consolidated financial statements of Gencor Industries, Inc. (the “Company”) included
in its Form 10-K for the year ended September 30, 2019 describe a change in the method of accounting for
inventory valuation from the last-in, first-out (“LIFO”) method to the first-in, first-out (“FIFO”) method.
Note 2 states that the newly adopted accounting principle is preferable in the circumstances because the FIFO
method better reflects the current value of inventory in the consolidated balance sheets, more closely aligns
the flow of physical inventory with the accounting for inventory, and provides for better matching of
revenues and expenses. In accordance with your request, we have reviewed and discussed with the Company
officials the circumstances and business judgment and planning upon which the decision to make this change
in the method of accounting was based.
With regard to the aforementioned accounting change, authoritative criteria have not been established for
evaluating the preferability of one acceptable method of accounting over another acceptable method.
However, for purposes of the Company’s compliance with the requirements of the Securities and Exchange
Commission, we are furnishing this letter.
Based on our review and discussion, with reliance on management’s business judgment and planning, we
concur that the aforementioned change in the accounting method is preferable in the Company’s
circumstances.
Very truly yours,
/s/ MOORE STEPHENS LOVELACE, P.A.
MOORE STEPHENS LOVELACE, P.A.
45
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 International Limited
State in Which
Incorporated
Country in Which
Incorporated
Florida
Iowa
Washington
Florida
USA
USA
USA
USA
-
British Virgin Islands
Gencor Holdings International Corp.
Florida
USA
46
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. (the “Company”) 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 11, 2019, with
respect to the consolidated balance sheets of the Company as of September 30, 2019 and 2018, and the related
consolidated statements of income, shareholders’ equity, and cash flows for each of the years in the two-year period
ended September 30, 2019, and the effectiveness of the Company’s internal control over financial reporting as of
September 30, 2019, included in this Annual Report on Form 10-K of the Company for the fiscal year ended
September 30, 2019.
/s/ MOORE STEPHENS LOVELACE, P.A.
MOORE STEPHENS LOVELACE, P.A.
Certified Public Accountants
Orlando, Florida
December 11, 2019
47
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 11, 2019
/s/ John E. Elliott
John E. Elliott
Chief Executive Officer
48
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 11, 2019
/s/ Eric E. Mellen
Eric E. Mellen
Chief Financial Officer
49
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, 2019 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 11, 2019
/s/ Eric E. Mellen
Eric E. Mellen
Chief Financial Officer
December 11, 2019
50
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, 2019 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 2020 Annual Meeting of Shareholders
of Gencor Industries, Inc. will be held at
the corporate office on February 27, 2020
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
1 State Street 30th Floor
New York, New York 10004-1561
Directors
E.J. Elliott
Executive Chairman
Marc G. Elliott
President
David A. Air
Business Consultant
General John G. Coburn – Ret.
Senior Strategic Advisor
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
Steve Ramsey
Vice President, Engineering
Jeanne Lyons
Corporate Secretary
5201 N. Orange Blossom Trail • Orlando, Florida 32810
T (407) 290-6000 • F (407) 578-0577
www.gencor.com