-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, L2KoWiCpZxqpgtqWEEThveB007sU+6k47se7FAyN9elwMNRK//c0dbavO4wjL6TC /Z/wU1XUivVUr+uNZUElHg== 0000950152-99-009119.txt : 19991117 0000950152-99-009119.hdr.sgml : 19991117 ACCESSION NUMBER: 0000950152-99-009119 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991115 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GENESIS WORLDWIDE INC CENTRAL INDEX KEY: 0000067532 STANDARD INDUSTRIAL CLASSIFICATION: METALWORKING MACHINERY & EQUIPMENT [3540] IRS NUMBER: 344307810 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-01997 FILM NUMBER: 99753481 BUSINESS ADDRESS: STREET 1: 2600 KETTERING TOWER STREET 2: PO BOX 668 CITY: DAYTON STATE: OH ZIP: 45423 BUSINESS PHONE: 5134924111 MAIL ADDRESS: STREET 1: 615 N OAK ST STREET 2: PO BOX 668 CITY: SIDNEY STATE: OH ZIP: 45365 FORMER COMPANY: FORMER CONFORMED NAME: MONARCH MACHINE TOOL CO DATE OF NAME CHANGE: 19920703 10-Q 1 GENESIS WORLDWIDE, INC. 10-Q 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarter ended September 30, 1999 ------------------ or ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _________ to _________ Commission File No. 1 - 1997 -------- GENESIS WORLDWIDE INC. ---------------------- (Exact name of registrant as specified in its charter) Ohio 34-43407810 - ---------------------------- ---------------- (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 2600 Kettering Tower, Dayton, Ohio 45423 ---------------------------------------- (Address of principal executive offices, zip code) (937) 910-9300 -------------- (Registrant's telephone number including area code) Monarch Machine Tool Company ---------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- The number of common shares outstanding as of October 28, 1999 was 4,282,817. 2 GENESIS WORLDWIDE INC. AND SUBSIDIARIES INDEX TO FORM 10-Q
PAGE NUMBER ------ PART 1. FINANCIAL INFORMATION: ITEM 1. - Condensed Financial Statements: Balance Sheets - September 30, 1999 and December 31, 1998 2 Statements of Operations and Comprehensive Income - Quarter and Three Quarters ended September 30, 1999 and 1998 3 Statements of Cash Flow - Three Quarters 4 ended September 30, 1999 and 1998 Notes to Condensed Financial Statements 5-8 ITEM 2. - Management's Discussion and Analysis of Financial Condition and Results of Operations 9-12 ITEM 3. - Quantitative and Qualitative Disclosure About Market Risk (inapplicable) 12 PART II. OTHER INFORMATION: ITEM 1. Legal Proceedings 13 ITEM 2. Changes in Securities 13 ITEM 3. Inapplicable 13 ITEM 4. Submission of Matters to a vote of Security Holders 13 ITEM 5. Inapplicable 13 ITEM 6. Exhibits and Reports on Form 8-K 13
1 3 PART 1 - FINANCIAL INFORMATION GENESIS WORLDWIDE INC. AND SUBSIDIARIES CONDENSED BALANCE SHEETS (In thousands)
September 30 December 31 1999 1998 ---- ---- (Unaudited) CURRENT ASSETS: Cash $ 1,446 $ 1,733 Accounts receivable 25,412 23,893 Costs and estimated earnings in excess of billings on uncompleted contracts 9,770 3,275 Inventories 23,093 10,486 Prepaid and other expenses 1,911 667 Deferred income taxes 4,934 1,874 --------- --------- Current assets 66,566 41,928 PROPERTY, PLANT & EQUIMENT - NET 32,341 11,070 INVESTMENT IN JOINT VENTURES 1,543 PREPAID PENSION COSTS 20,236 19,051 DEFERRED INCOME TAXES 1,229 1,631 GOODWILL 64,700 10,099 OTHER ASSETS 7,042 4,678 --------- --------- $ 193,657 $ 88,457 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY ------------------------------------ CURRENT LIABILITIES: Short-term borrowings $ $ 500 Current portion of long-term debt 4,450 Accounts payable 16,118 8,930 Accrued liabilities 19,552 12,153 Billings in excess of costs and estimated earnings on uncompleted contracts 7,917 5,517 Long-term debt in technical default (Note 4) 79,500 --------- --------- Current liabilities 143,099 27,100 POSTRETIREMENT BENEFITS 3,547 1,450 LONG-TERM DEBT 15,562 16,497 OTHER LONG-TERM LIABILITIES 685 756 SHAREHOLDERS' EQUITY: Preferred stock 14 14 Common stock 9,495 5,815 Unearned compensation, restricted stock (35) (37) Retained earnings 36,926 37,042 Accumulated other comprehensive income (74) (180) --------- --------- 46,326 42,654 --------- --------- $ 193,657 $ 88,457 ========= =========
The accompanying notes are an integral part of the consolidated financial statements. 2 4 GENESIS WORLDWIDE INC. AND SUBSIDIARIES CONDENSED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (In thousands, except per share amounts) (Unaudited)
Three Quarters Ended September 30 Quarter Ended September 30 --------------------------------- -------------------------- 1999 1998 1999 1998 Net sales $ 88,480 $ 60,427 $ 39,848 $ 18,168 Operating costs and expenses: Cost of sales 69,085 48,335 30,947 14,441 Selling, general and administrative 16,349 9,471 7,176 3,015 Amortization of goodwill 891 685 -------- -------- -------- -------- Operating income 2,155 2,621 1,040 712 Other income (expense): Interest expense (2,965) (252) (2,336) (72) Interest income 225 125 145 12 Other income (expense) 1,529 (102) 203 13 -------- -------- -------- -------- Income (loss) before income taxes 944 2,392 (948) 665 Income tax provision (benefit) 661 791 (20) 226 -------- -------- -------- -------- Net income (loss) 283 1,601 (928) 439 Other comprehensive income (expense), net of tax - foreign currency translation adjustments 68 (62) 209 (95) -------- -------- -------- -------- Comprehensive income $ 351 $ 1,539 $ (719) $ 344 ======== ======== ======== ======== Average common shares outstanding: Basic 3,948 3,768 4,283 3,769 ======== ======== ======== ======== Diluted 3,963 3,768 4,283 3,769 ======== ======== ======== ======== Net income per common share, basic and diluted $ .07 $ .42 $ (.22) $ .12 ======== ======== ======== ======== Dividends per share: Preferred $ 1.35 $ 1.35 $ .45 $ .45 Common $ .10 $ .15 $ $ .05
The accompanying notes are an integral part of the consolidated financial statements. 3 5 GENESIS WORLDWIDE INC. AND SUBSIDIARIES CONDENSED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited)
Three Quarters Ended September 30 --------------------------------- 1999 1998 ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 283 $ 1,601 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 2,863 716 Equity in loss of affiliates 133 Pension income (968) (2,420) Deferred tax provision 661 791 Gain on sale of assets (17) Changes in operating assets and liabilities excluding effect of acquisition in 1999: Accounts receivable 754 3,299 Inventories (3,902) 2,200 Other assets 18 793 Cost and estimated earnings in excess of billings on uncompleted contracts 799 (398) Billings in excess of costs and estimated earnings (5,470) on uncompleted contracts (44) Accounts payable (1,814) (4,018) Accrued liabilities 2,065 (4,789) --------- --------- Net cash provided by (used in) operating activities (4,595) (2,269) CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (1,971) (1,877) Acquisition of business, net of cash acquired (73,402) Proceeds from sale of fixed assets 71 (Increase) decrease in other assets 943 --------- --------- Net cash provided by (used in) investing activities (74,359) (1,877) CASH FLOWS FROM FINANCING ACTIVITIES: Dividends paid (398) (585) Stock activity 73 Debt acquisition costs (2,528) Repayments of short-term borrowings (500) Proceeds from long-term borrowings 109,221 6,971 Repayments of long-term borrowings (27,123) (5,000) --------- --------- Net cash provided by (used in) financing activities 78,745 1,386 EFFECT OF EXCHANGE RATES ON CASH (78) (113) --------- --------- INCREASE (DECREASE) IN CASH (287) (2,873) CASH - BEGINNING OF PERIOD 1,733 5,022 --------- --------- CASH - END OF PERIOD $ 1.446 $ 2,149 ========= =========
The accompanying notes are an integral part of the consolidated financial statements 4 6 GENESIS WORLDWIDE INC. AND SUBSIDIARIES NOTES TO CONDENSED FINANCIAL STATEMENTS THREE QUARTERS ENDED SEPTEMBER 30, 1999 AND 1998 (all amounts in thousands except per share amounts) 1. FINANCIAL STATEMENTS -------------------- The balance sheet at December 31, 1998 presents condensed financial information taken from the audited financial statements. The interim financial statements are unaudited. In the first three quarters of 1999 the Company recorded an accrual for $350 as the estimated cost to settle litigation and has also recognized $1,300 of other income as a result of the reduction of amounts previously accrued for an environmental liability. In the opinion of management, all other adjustments, which consist of normal recurring adjustments necessary to present fairly the financial position and results of operations for the interim periods presented, have been made. The results shown for the first three quarters of 1999 are not necessarily indicative of the results that may be expected for the entire year. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. It is suggested that these financial statements be read in conjunction with the financial statements and notes thereto included in the Company's December 31, 1998 annual report to shareholders. 2. EARNINGS PER SHARE ------------------ Basic earnings per common share is computed by dividing net income (loss), after adjustment for the preferred stock dividend requirement, by the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed by adding the dilutive effect of common stock equivalents, such as the convertible preferred shares and any stock options outstanding, to the weighted average number of common shares outstanding. 3. INVENTORIES ----------- The Company's inventories consist of the following balances:
September 30 December 31 1999 1998 -------- -------- Finished goods $ 2,700 $ 1,285 Work-in process and parts 18,165 12,967 Raw materials 6,793 739 Less LIFO reserve (4,565) (4,505) -------- -------- Net inventories $ 23,093 $ 10,486 ======== ========
4. LONG-TERM DEBT -------------- The Company has an outstanding credit facility consisting of a term loan facility in an aggregate principal amount of $70,000 and a revolving credit facility, which provides for loans and letters of credit of up to $30,000. The term loan facility consists of two tranches in principal amounts of $50,000 (the "Term A Loan") and $20,000 (the "Term B Loan"). The Term A Loan and the revolving credit facility mature on June 30, 2006 and the Term B Loan matures on December 31, 2006. Principal payments of the Term A Loan are required on a quarterly basis increasing from $1,000 per quarter through June 30, 2000 to $2,500 per quarter during the last four quarters of the payment term. 5 7 GENESIS WORLDWIDE INC. AND SUBSIDIARIES NOTES TO CONDENSED FINANCIAL STATEMENTS THREE QUARTERS ENDED SEPTEMBER 30, 1999 AND 1998 (all amounts in thousands except per share amounts) Principal payments of the Term B Loan are in quarterly installments of $50 through June 30, 2005 with $9,300 due on September 30, 2006 and December 31, 2006. The Company is required to use the net proceeds received from asset sales in excess of $250 and from the termination of two of its pension plans to repay the amounts outstanding under these two Term Loans in reverse order of payment due date. The weighted average interest rate of these loans was 8.53% at September 30, 1999. On September 30, 1999 the Company had $10,398 available under the Revolving Credit facility. Debt acquisition costs of $2,275 were paid relating to obtaining the new credit facility and are being amortized over seven years. The agreement for this credit facility contains certain covenants, including a maximum senior leverage ratio, minimum interest coverage ratios, minimum fixed charge coverage, minimum consolidated net worth and a limitation on the amount of dividends and capital expenditures. Substantially all the assets of the Company are pledged under the above credit facility. As a result of the lower than expected operating results during the third quarter, the Company was not able to generate sufficient earnings to be in compliance with certain of its earnings related loan covenants. This has caused the Company to be in default of the loan covenants and accordingly, $79,500 of long-term debt in technical default has been classified in current liabilities at September 30, 1999. The Company has requested that its lender provide waivers or amendments of the applicable covenants. Although such amendments or waivers have not been finalized, the Company expects to resolve this situation in a satisfactory manner to allow it to continue its normal business operations. The Company also has outstanding subordinated notes consisting of $15,000 in 12% Senior Subordinated Notes due December 31, 2007 and $840 in 8% Junior Subordinated Notes due June 30, 2002. The Company has also issued warrants to purchase 100,000 common shares in conjunction with the Senior Subordinated Notes, at a warrant exercise price of $7.75 per share, subject to adjustment. The Warrants are not exercisable before June 30, 2000 and expire on June 30, 2009. In addition, the 12% Subordinated Note contains provisions that would increase the interest rate and require the issuance of additional warrants if the Note is not repaid by June 30, 2000. The fair value of the warrants issued was estimated at $291 using the Black-Scholes Model and was recorded as a discount to the $15,000 Senior Subordinated Note and will be amortized over the term of the note. 6 8 GENESIS WORLDWIDE INC. AND SUBSIDIARIES NOTES TO CONDENSED FINANCIAL STATEMENTS THREE QUARTTERS ENDED SEPTEMBER 30, 1999 AND 1998 (all amounts in thousands except per share amounts) 5. SEGMENTS -------- The Company operates in two primary reportable segments, coil processing and machining centers. Business segment information is as follows (in thousands):
Three Quarters Ended September 30 --------------------------------- 1999 1998 -------- -------- Sales: Coil Processing $ 76,213 $ 36,264 Machining Centers 12,267 24,163 -------- -------- Total $ 88,480 $ 60,427 ======== ======== Operating Earnings: Coil Processing $ 6,576 $ 3,023 Machining Centers (1,778) 423 Corporate (2,643) (825) -------- -------- Total $ 2,155 $ 2,621 ======== ========
Included in the coil processing segment results for the three quarters ended September 30, 1999 were sales of $17,476 and operating earnings of $794 from GFG Corporation which was acquired by the Company on December 31, 1998 and $19,893 of sales and $2,167 of operating earnings from Precision Industrial Corp. and Subsidiaries (parent of Herr-Voss) ("Precision") which was acquired on June 30, 1999. 6. ACQUISITIONS ------------ On June 30, 1999, the Company acquired Precision. The acquisition has been accounted for under the purchase method and, accordingly, the results of operation of Precision have been included in the consolidated financial statements since the date of acquisition. The purchase price paid by the Company for all of the outstanding capital stock of Precision consisted of $39,295 cash paid to seller, $25,340 of cash used to pay seller bank debt and accrued interest, a $15,000 seller subordinated note, an $840 Junior Subordinated Note assumed by Precision and 500,000 shares of the Company's Common Stock (valued at $6.59 a share). During the third quarter of 1999, the Company completed the post closing price adjustment in connection with the acquisition and received a payment of $2.4 million from the seller. The adjusted purchase price is $81,370. Fees and expenses paid in connection with the purchase totaled approximately $1,010 and are being amortized over 25 years using the straight-line method. The excess purchase price over the fair value of identifiable net assets acquired has been allocated to goodwill. Goodwill of $55,723 recorded in the transaction is being amortized over 25 years using the straight-line method. The purchase price allocation has been completed on a preliminary basis, subject to adjustments should new or additional facts become known. Significant preacquisition contingencies include the determination of the adjustments necessary to pension and post employment benefit liabilities and the valuation of intangible assets at acquisition date. The resolution of these contingencies could result in adjustment to assets and liabilities at acquisition date and a corresponding adjustment to goodwill. 7 9 GENESIS WORLDWIDE INC. AND SUBSIDIARIES NOTES TO CONDENSED FINANCIAL STATEMENTS THREE QUARTTERS ENDED SEPTEMBER 30, 1999 AND 1998 (all amounts in thousands except per share amounts) The following unaudited proforma information presents a summary of consolidated results of operations of the Company as if the acquisition of Precision and GFG had occurred at the beginning of each period presented.
Three Quarters Ended September 30 1999 1998 ---- ---- (Unaudited) Net sales $133,006 $137,472 Earnings before taxes $ 1,300 $ 4,861 Income taxes $ 1,204 $ 1,959 Net income $ 96 $ 2,902 Earnings per share (basic and diluted) $ .02 $ .68
These unaudited proforma results have been prepared for comparative purposes only and include certain adjustments such as elimination of management costs not expected to be incurred after the acquisitions, additional depreciation as a result of the step-up in the basis of fixed assets, additional amortization expense as a result of goodwill and an increase in interest expense as a result of acquisition debt. They do not purport to be indicative of the results of operations which would have resulted had the combination occurred at the beginning of each period presented or of future results of operations of the combined entities. The disproportionate tax provision results from the nondeductibility of goodwill. 7. ENVIRONMENTAL LIABILITY ----------------------- As discussed in the Company's 1998 10K filing, in 1998, a Consent Decree was entered into among the EPA, several other potentially responsible parties ("PRP's") and a group of ten other companies ("Defendants") related to the costs of remediation of the Rosen Site, a former scrap yard in Cortland, New York. During April 1999, the Consent Decree was approved by the Department of Justice and in June 1999 formally approved by the U.S. District Court in New York. Based on the fact that this Consent Decree substantially reduced the Company's future liability for this matter, the accrual recorded at December 31, 1998 was reduced by $1,300. The reduction in the accrual is recorded in other income, net. 8 10 GENESIS WORLDWIDE INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THREE QUARTERS ENDED SEPTEMBER 30, 1999 AND 1998 RESULTS OF OPERATIONS --------------------- For the three quarters ended September 30, 1999 the Company reported net earnings of $283,000 or $.07 per share and a net loss of ($928,000) or ($.22) per share for the quarter ended September 30, 1999, compared to net earnings of $1,601,000 or $.42 per share and $439,000 or $.12 per share, respectively, for the same periods in 1998. During the first three quarters of 1999, the Company recorded $1.3 million of other income as a result of a reversal of an accrual for an environmental liability. The Company also recorded $350,000 of expense related to settlement of litigation at its coil processing segment. In the third quarter of 1999, the machining center segment recorded a restructuring charge of approximately $400,000 relating to a reduction in the workforce. Excluding the aforementioned items, the 1999 net earnings were affected by higher depreciation as a result of fixed asset additions, including a new ERP computer system, higher interest expense due to increased borrowing related to the GFG and Precision acquisitions, and lower pension income in 1999 due to the Company's 1998 decision to terminate two of its pension plans, related changes in projected investment returns and the cost of replacement benefit plans. Goodwill amortization of $891,000 and $685,000 for the three quarters and quarter ended September 30, 1999 affected the comparability of 1999 to 1998. A discussion of results of operations on a segment basis follows. Coil Processing --------------- Sales increased to $76.2 million and $36.0 million in the three quarters and third quarter of 1999, respectively, compared to $36.2 million and $10.7 million for the same periods in 1998. Sales of $17.5 million from GFG, which was acquired on December 31, 1998 and $19.9 million from Precision, which was acquired on June 30, 1999, comprised the majority of the change. Cost of sales as a percentage of sales was 77% and 76% in the three quarters and third quarter of 1999 compared to 77% and 74% in the respective 1998 periods. The lower cost of sales percentage in the third quarter of 1998 is the result of better margins from jobs closed out during the quarter. Operating earnings improved to $6.6 million and $3.0 million in the three quarters and third quarter of 1999, respectively, compared to $3.0 million and $1.0 million in the same periods of 1998. This improvement in the operating earnings is related to the increase in sales, and the addition of GFG and Precision, which have historically been profitable. This segment was negatively impacted by the recording of $350,000 in expense related to settlement of litigation in the first quarter of 1999 and goodwill amortization of $891,000 and $685,000 for the three quarters and third quarter of 1999 relating to the acquisition of GFG and Precision. Orders received during the first three quarters of 1999 totaled $49.1 million, including $19.0 million by GFG and $10.3 million for Precision, compared to $33.3 million for the same period in 1998. Backlog at September 30, 1999 was $49.6 million, including $9.1 million for GFG and $18.7 million for Precision, compared to $25.9 million at September 30, 1998. Machining Centers ----------------- Sales declined to $12.3 million and $3.9 million in the first three quarters and third quarter of 1999, respectively, compared to $24.2 million and $7.4 million in the same periods of 1998, as a slow-down in domestic capital goods orders and continued selling pressures from foreign, particularly Asian, competitors negatively affected sales volume and selling prices for this segment. Cost of sales as a percentage of sales was 85.7% and 93.8% in the three quarters and third quarter of 1999, respectively, compared to 85.2% and 88.2% in the same periods of 1998. Management had taken steps to control manufacturing costs and to reduce the labor force in late 1998 and early 1999 in response to the declining demand for their products. At the end of the third quarter of 1999 9 11 management further restructured it operation to focus on more profitable lines of business and incurred approximately $400,000 of restructuring charges relating to the severance and early termination of employees. The existing workforce now matches the current order level and management feels that this segment is better positioned to take advantage of any increase in future order levels. In the third quarter of 1999 cost of sales as a percentage of sales was negatively impacted by fixed costs being absorbed over a lower sales volume. As a result of the lower sales volume and the restructuring changes noted above, this segment reported an operating loss of $1.8 million and $1.2 million in the first three quarters and third quarter of 1999, respectively, compared to operating earnings of $423,000 and an operating loss of $134,000 for the same periods in 1998. Orders received during the first three quarters of 1999 totaled $12.2 million compared to $22.5 million during the same period last year. The reduction in the level of orders booked was primarily due to foreign competition and lower demand for this segments' products. Backlog at the end of the third quarter of this year was $4.5 million compared to $6.6 million at September 30, 1998. LIQUIDITY AND CAPITAL RESOURCES ------------------------------- During the first three quarters of 1999, exclusive of the Precision acquisition, the Company's operating activities used $4.6 million of cash to reduce accounts payable ($1.8 million) and increase inventories ($3.9 million). In addition, costs incurred on contracts in process exceeded advance payments from customers and required $4.7 million in cash due to the decreased level of orders. Decreases in accounts receivable provided $.8 million and increases in accrued liabilities provided $2.1 million. Cash was required for capital expenditures and to pay dividends. The Company borrowed $101.2 million and repaid $17.5 million of long-term debt on June 30, 1999, with the cash used primarily to conclude the purchase of Precision and for repayment of debt from the Company's previous lender. The purchase price paid by the Company for the outstanding capital stock of Precision consisted of $39.3 million cash paid to seller, $25.3 million of cash used to pay seller bank debt and accrued interest, a $15 million seller subordinated note and $840,000 Junior Subordinated Note assumed by Precision and 500,000 shares of Stock (valued at $6.59 a share). During the third quarter of 1999 the Company completed the post closing price adjustment and received a payment of $2.4 million from the seller. The adjusted purchase price is $81.4 million. Fees and expenses paid in connection with the purchase totaled approximately $1,010,000. As a result of the lower than expected operating results during the third quarter, the Company was not able to generate sufficient earnings to be in compliance with certain of its earnings related loan covenants. This has caused the Company to be in default of the loan covenants and accordingly, $79,500,000 of long-term debt in technical default has been classified in current liabilities at September 30, 1999. The Company has requested that its lender provide waivers or amendments of the applicable covenants. Although such amendments or waivers have not been finalized, the Company expects to resolve this situation in a satisfactory manner to allow it to continue its normal business operations. The Company does not anticipate that the lender will request repayment of the loan or discontinue the current revolving credit facility, but if these events were to occur the Company would have to seek an alternative source of financing. At September 30, 1999, the Company had borrowed $15 million under its $30 million revolving credit facility and utilized $4.6 million of the facility for letters of credit. The remaining amount of $10.4 million is available for general corporate purposes. The Company has received approval from the Pension Benefit Guaranty Corporation relating to the termination of two of its pension plans. In connection with the termination, plan assets are projected to be distributed as follows: $17 million to plan participants, $4 million to be transferred to a trust to be used to pay benefits under replacement pension plans, $3 million to pay excise taxes due to plan termination, and $10 million reverting to the Company which will be used to reduce indebtedness. Any gain or loss on pension plan termination will be recognized at the date of plan asset distribution. 10 12 The Company anticipates receiving IRS approval of this termination and expects to make the distribution in January, 2000. At an August 1999 meeting, the Board of Directors of the Company decided to suspend paying a dividend to the common shareholders of the Company. A dividend had been paid at the rate of $.05 per share per quarter. By discontinuing those dividend payments, the Company's cash flow will benefit by $850,000 per year. Payment of the dividend to the Company's preferred shareholders, at an annual cash requirement of $26,000, was not affected. YEAR 2000 --------- Year 2000 issues arise because of the inability of many existing computer systems and software, which utilize a two-digit conversion for recording years, to properly recognize and process information relating to Year 2000. In early 1998, the Company began a Company-wide program to replace its internal information processing systems for reasons unrelated to Year 2000 issues. This program was completed during the third quarter of 1999 and resulted in information processing systems being Year 2000 compliant. The cost to the Company to fully implement this new system was approximately $2.5 million. GFG and Precision have also replaced their information processing systems. These processes began in 1998 and were substantially completed during the third quarter of 1999. Fourth quarter activity related to Year 2000 compliance includes final installations of hardware related to communication systems at Precision and final upgrade of company voice mail systems. Backup and recovery procedures and contingency planning will also be finalized in the fourth quarter. The Company estimates future cost to be approximately $50,000. As part of a comprehensive Year 2000 compliance project, the Company has assessed other key aspects of its operating and administrative processes which, if they would become inoperable due to Year 2000 issues, would have a material impact on the Company's ability to continue its normal operations. The Company is not presently aware of any Year 2000 issues, which would have a disruptive impact on its operations or a material adverse impact upon its financial condition or results of operation. The Company believes it has diligently addressed Year 2000 issues and that it will satisfactorily resolve any significant Year 2000 problems. The Company anticipates completing its Year 2000 projects during 1999, with major completion milestones completed in the second quarter and third quarter with finalization of minor projects occurring in the fourth quarter. The company has also developed contingency plans to respond to any problems related to Year 2000 issues. INTEREST RATE RISK ------------------ A change in interest rates could have an impact on the Company's financial results, as the Company is presently paying a variable interest rate on the majority of its outstanding debt. The risk to the Company has increased as a result of the higher level of indebtedness the Company is carrying as a result of the financing required to acquire Precision Industrial Corporation. In conjunction with its lenders, the Company is evaluating the cost and benefits of instituting an interest rate protection arrangement to address the risk in this area. Under its credit agreement, the Company is required to establish an interest rate protection program which is satisfactory to its lender by December 31, 1999. 11 13 FORWARD LOOKING STATEMENTS -------------------------- In addition to historical information, this document contains various forward-looking statements, which are subject to risks, and uncertainties that could cause actual results to differ materially from these statements. These risks include, but are not limited to, changes in economic conditions, interest rates, price and product offering competition from domestic and foreign entities, customer purchasing patterns, labor costs, product liability issues and other legal claims, governmental regulatory issues and Year 2000 readiness issues. Words identifying forward-looking statements include "plan", "believe", "expect", "anticipate", "project", "intend", "estimate" and other expressions which are predictions or indications of future events or trends which do not relate to historical matters. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date the statement is made. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Readers are urged to carefully review and consider the various disclosures made by the Company in this document and other reports filed with the Securities and Exchange Commission that attempt to advise interested parties of the risks and factors that may affect the Company's business. 12 14 PART II - OTHER INFORMATION Item 1 - Legal Proceedings As discussed in the Company's 1998 10K filing, in 1998, a Consent Decree was entered into among the EPA, several other potentially responsible parties ("PRP's") and a group of ten other companies ("Defendants") related to the costs of remediation of the Rosen Site, a former scrap yard in Cortland, New York. During April 1999, the Consent Decree was approved by the Department of Justice and in June 1999 was approved by the U.S. District Court in New York. Based on the fact that this Consent Decree substantially reduced the Company's future liability for this matter, the accrual recorded at December 31, 1998 was reduced by $1,300,000. The reduction in the accrual is recorded in other income, net. Items 2 - 3 Inapplicable Item 4 - Submission of Matters to a vote of Security Holders. (a.) The Company held a special meeting of Shareholders on August 31, 1999. (b.) The results of the voting to amend the Articles of Incorporation to change the Company's name to "Genesis Worldwide Inc." Votes for Votes Against Abstain --------- ------------- ------- 3,721,989 102,315 170,469 Item 5 - Inapplicable Item 6 - Exhibits and Reports on Form 8-K (a) Exhibit 27 - Financial Data Schedule (b) On July 15, 1999 the Company filed an 8-K in conjunction with its acquisition of Precision Industrial Corporation, in which it provided financial statements and exhibits and pro forma financial information related to its acquisition of Precision Industrial Corporation. 13 15 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this quarterly report to be signed on its behalf by the undersigned thereunto duly authorized. GENESIS WORLDWIDE INC. (Registrant) DATE: November 15, 1999 By s/Karl A. Frydryk ----------------------- ---------------------------------------- Karl A. Frydryk Vice President & Chief Financial Officer (principal financial officer) 14 EX-27 2 EXHIBIT 27
5 This schedule contains summary financial information extracted from Genesis Worldwide Inc. and subsidiaries condensed financial statements, September 30, 1999, and is qualified in its entirety by reference to such financial statements. 1,000 9-MOS DEC-31-1999 JAN-01-1999 SEP-30-1999 1,446 0 26,515 1,103 23,093 66,566 51,957 19,616 193,657 143,099 15,562 0 14 9,495 36,817 193,657 88,480 88,480 69,085 69,085 0 49 2,965 944 661 283 0 0 0 283 .07 .07
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