<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
-------------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended: April 27, 1997 Commission file number: 0-25066
OWOSSO CORPORATION
(Exact name of registrant as specified in its charter)
Pennsylvania 23-2756709
(State or other jurisdiction of (IRS employer identification no.)
incorporation or organization)
The Triad Building, 2200 Renaissance Boulevard
Suite 150, King of Prussia, PA 19406
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (610) 275-4500
Indicate by check 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
--- ---
As of June 6, 1997 there were 5,808,676 shares of Common Stock, $.01 par value,
were outstanding.
<PAGE>
OWOSSO CORPORATION
PART I - Financial Information: Page No.
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets 3
April 27, 1997 (unaudited) and
October 27, 1996
Consolidated Statements of Operations 4
Three and Six Months Ended April 27, 1997 and
April 28, 1996 (unaudited)
Consolidated Statements of Cash Flows 5
Six Months Ended April 27, 1997 and
April 28, 1996 (unaudited)
Notes to Consolidated Financial Statements 6
(unaudited)
Item 2. Management's Discussion and Analysis of 9
Financial Condition and Results of Operation
Part II - Other Information:
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 6. Exhibits and Reports on Form 8-K 16
-2-
<PAGE>
OWOSSO CORPORATION
CONSOLIDATED BALANCE SHEETS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
April 27, October 27,
1997 1996
(Unaudited)
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 573,338 $ 839,889
Receivables, net 20,065,866 18,415,245
Inventories, net 22,160,956 19,123,122
Advances and interest receivable from affiliate 43,840 36,766
Prepaid expenses and other 2,958,417 2,640,169
------------- -------------
Total current assets 45,802,417 41,055,191
PROPERTY, PLANT AND EQUIPMENT, NET 26,780,443 26,308,809
INTANGIBLES, NET 38,251,477 39,277,112
OTHER ASSETS 1,293,517 1,254,233
------------- -------------
TOTAL ASSETS $ 112,127,854 $ 107,895,345
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Payables - trade $ 8,888,969 $ 6,597,061
Accrued compensation and benefits 3,000,890 3,005,658
Accrued expenses 3,907,972 2,321,457
Related party debt 3,750,000 5,975,000
Current portion of long-term debt 2,725,021 2,770,934
------------- -------------
Total current liabilities 22,272,852 20,670,110
LONG-TERM DEBT, LESS CURRENT PORTION 48,247,570 45,068,116
POSTRETIREMENT BENEFITS 1,701,225 1,593,950
DEFERRED TAXES 3,543,000 3,543,000
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Convertible preferred stock Class A, 5% cumulative, $.01 par value; 10,000,000
shares authorized; 1,071,428 shares issued and outstanding (aggregate
liquidation value at April 27, 1997 and October 27, 1996 - $15,000,000) 13,813,252 13,667,814
Common stock, $.01 par value; 15,000,000 authorized; 5,865,000 shares issued
and outstanding 58,650 58,650
Additional paid-in capital 21,611,701 21,611,701
Retained earnings 1,328,888 2,131,288
------------- -------------
Total 36,812,491 37,469,453
Less treasury stock, at cost (56,324 shares at April 27, 1997 and October 27, 1996) (449,284) (449,284)
------------- -------------
Total stockholders' equity 36,363,207 37,020,169
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 112,127,854 $ 107,895,345
============= =============
</TABLE>
See notes to consolidated financial statements.
-3-
<PAGE>
OWOSSO CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
--------------------------------------------------------------------------
April 27, April 28, April 27, April 28,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Net Sales $ 37,567,098 $ 33,442,895 $ 67,729,171 $ 61,362,296
Cost of products sold 28,707,320 25,475,827 51,860,577 46,364,544
------------ ------------ ------------ ------------
Gross Profit 8,859,778 7,967,068 15,868,594 14,997,752
Expenses:
Selling, general and administrative 5,147,508 4,819,379 10,056,893 9,362,904
Corporate 1,289,047 1,082,231 2,552,714 2,051,477
------------ ------------ ------------ ------------
Income from operations 2,423,223 2,065,458 3,258,987 3,583,371
Interest expense 992,225 1,099,572 1,975,377 2,062,348
Other income 40,470 2,425 91,865 54,394
------------ ------------ ------------ ------------
Income before income tax provision 1,471,468 968,311 1,375,475 1,575,417
Income tax provision 652,707 429,131 611,875 668,938
------------ ------------ ------------ ------------
Net income 818,761 539,180 763,600 906,479
Dividends and accretion on preferred stock (260,903) (255,582) (520,438) (509,896)
------------ ------------ ------------ ------------
Net income available for common stockholders $ 557,858 $ 283,598 $ 243,162 $ 396,583
============ ============ ============ ============
Net income per common share $ 0.10 $ 0.05 $ 0.04 $ 0.07
============ ============ ============ ============
Weighted average number of common shares outstanding 5,828,000 5,865,000 5,828,000 5,865,000
============ ============ ============ ============
</TABLE>
See notes to consolidated financial statements.
-4-
<PAGE>
OWOSSO CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended
------------------------------
April 27, April 28,
1997 1996
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 763,600 $ 906,479
Adjustments to reconcile net income to net cash provided by operating
activities:
Loss on sale of assets 83,643 92,060
Depreciation 1,986,416 1,931,830
Amortization 1,026,666 1,223,711
Changes in assets and liabilities which provided (used) cash:
Accounts receivable (1,650,621) (1,548,852)
Inventories (3,037,834) (128,290)
Prepaid expenses and other (324,722) (271,265)
Accounts payable 2,291,908 (196,943)
Accrued expenses 1,688,999 96,577
----------- -----------
Net cash provided by operating activities 2,828,055 2,105,307
----------- -----------
INVESTING ACTIVITIES:
Purchases of property, plant and equipment (2,541,916) (1,878,594)
Increase in other assets (40,669) (338,719)
----------- -----------
Net cash used in investing activities (2,582,585) (2,217,313)
----------- -----------
FINANCING ACTIVITIES:
Proceeds from long-term debt 350,000 150,000
Borrowings from line of credit 3,650,000 5,900,000
Payments on long-term debt (866,459) (842,071)
Payments on related party debt (2,225,000) (5,100,000)
Dividends paid (1,420,562) (1,243,200)
----------- -----------
Net cash used in financing activities (512,021) (1,135,271)
----------- -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (266,551) (1,247,277)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 839,889 1,750,236
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 573,338 $ 502,959
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION -
Cash paid during the period for interest $ 1,782,992 $ 2,020,880
=========== ===========
Cash paid during the period for taxes $ -- $ 300,000
=========== ===========
SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITY -
Accrual of preferred stock dividends $ 187,500 $ 187,500
=========== ===========
</TABLE>
See notes to consolidated financial statements.
-5-
<PAGE>
OWOSSO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
1. THE COMPANY
Business - The consolidated financial statements represent the
consolidated financial position, results of operations and cash flows of
Owosso Corporation and subsidiaries (the "Company"). The subsidiaries
include Motor Products - Owosso Corporation (Motor Products), Motor
Products-Ohio Corporation (MP - Ohio), Sooner Trailer Manufacturing Co.
(Sooner), Cramer Company (Cramer), DewEze Manufacturing, Inc., including
Parker Industries, Inc.(DewEze), Snowmax Incorporated (Snowmax), The
Landover Company (Dura-Bond), Great Bend Manufacturing, Inc. (Great Bend),
Stature Electric, Inc. (Stature Electric) and Owosso Motor Group, Inc.
(Motor Group). The Company is a diversified manufacturer of products in
narrowly defined niche markets and currently operates in two business
segments, Engineered Component Products and Specialized Equipment. In the
Engineered Component Products segment, the Company's products are sold
primarily to original equipment manufacturers or service providers who use
them in their end product or service. These products are primarily motors,
cam shaft bearings and heat transfer "fin and tube" coils. The products
sold in the Specialized Equipment segment are almost exclusively final
products sold through dealers to their users. These products are primarily
all-aluminum horse trailers and agricultural and turf maintenance
equipment. The majority of the Company's customers are located in North
America.
Seasonality - Sales of certain of the Company's specialized equipment
tend to be seasonal with lowest sales during the first fiscal quarter and
higher sales during the fourth fiscal quarter, corresponding with the fall
harvest season for farmers. Sales of the Company's engineered component
products experience less seasonality but generally have higher sales
during the second fiscal quarter while sales of these products are lowest
during the first fiscal quarter.
Cyclicality - The Company's Engineered Component Products segment is
subject to changes in the overall level of domestic economic activity. The
Specialized Equipment segment is subject to changes in certain sectors of
the agricultural economy, which may be influenced by climate changes and
governmental policy. The segment's horse trailer sales, which have not
tended to be affected by changes in the agricultural economy, have had a
moderating effect on the results of the entire Specialized Equipment
segment, but may be subject to the overall domestic business cycle.
Pursuant to the rules and regulations of the Securities and Exchange
Commission, the financial statements do not include all of the information
and notes normally included with financial statements prepared in
accordance with generally accepted accounting principles. In the opinion
of management, all adjustments (consisting of a normal recurring nature)
considered necessary for a fair presentation of results for interim
periods have been made. These financial statements should be read in
conjunction with the consolidated financial statements and notes thereto
included in the Company's Annual Report on Form 10-K for the year ended
October 27, 1996.
-6-
<PAGE>
2. INVENTORIES
Inventories are summarized as follows:
April 27, October 27,
1997 1996
Raw materials and purchased parts $ 9,718,446 $ 8,468,218
Work in process 5,160,505 4,316,588
Finished goods 7,282,005 6,338,316
----------- -----------
Total $22,160,956 $19,123,122
=========== ===========
3. LONG-TERM DEBT
Long-term debt consists of the following:
April 27, October 27,
1997 1996
Banks $35,103,777 $31,507,643
Industrial revenue bonds 9,106,364 9,173,642
Former and current stockholders 6,291,665 6,842,692
Related party debt 3,750,000 5,975,000
Other 470,785 315,073
----------- -----------
Total long-term debt 54,722,591 53,814,050
Less portion due within one year 6,475,021 8,745,934
----------- -----------
Total $48,247,570 $45,068,116
=========== ===========
The Company has a $55,000,000 unsecured revolving credit agreement with
two banks, which expires on March 31, 2000. Interest is payable, at the
Company's option, at either the bank's prime rate (8.50% at April 27,
1997) or a variable spread (2.00% at April 27, 1997) over the London
Interbank Offered Rate. The agreement includes financial and other
covenants, including, fixed charge, cash flow and net worth ratios,
restrictions on certain asset sales, mergers and other significant
transactions, and a negative pledge on fixed assets. Repayment of the
Industrial Revenue Bonds of certain of the subsidiaries has been
guaranteed by the Company.
The Company entered into two interest rate swap agreements, each with a
$7.5 million notional amount. Beginning in the third quarter of fiscal
1997, the Company will receive floating interest rate payments at the
three month London Interbank Offered Rate in exchange for quarterly fixed
interest rate payments of 7.0675% and 7.09% over the life of the
agreements. The Company enters into these interest rate swap agreements to
change the fixed/variable interest rate mix of the debt portfolio to
reduce the Company's aggregate risk to movements in interest rates. These
agreements are accounted for using settlement accounting.
-7-
<PAGE>
4. CONTINGENCIES
The Company is subject to federal, state and local environmental
regulation with respect to their operations. The Company believes that it
is operating in substantial compliance with applicable environmental
regulations.
The lessor of Cramer's facility is engaged in negotiations with the State
of Connecticut regarding investigative or remedial measures at this
facility. Cramer may be required to bear a portion of the costs of any
such investigative or remedial measures, the amount of which cannot
currently be reasonably estimated. Cramer is also engaged in the closure
of waste handling facilities at this location in accordance with State
regulations. Closure is expected to be completed in 1997 at a cost which
is not expected to be significant.
The Company is named as a potentially responsible party with respect to
two hazardous substance disposal sites being cleaned up by the U.S.
Environmental Protection Agency under its "Superfund" program. With
respect to both sites, based on the minimal amount of waste alleged to
have been contributed to the site by the Company, the Company expects to
resolve the matter through the payment of a de minimis amount.
Current historic manufacturing and other operations at the Company's
various facilities may result, and may have resulted, in the discharge and
release of hazardous substances and waste from time to time. The Company
routinely responds to such incidents as deemed appropriate pursuant to
applicable federal, state and local environmental regulations.
Sooner and DewEze have arrangements with a number of financial
institutions to provide floor plan financing for their dealers, which
require them to repurchase repossessed products from the financial
institutions in the event of a default by the financed dealer. Their
obligation is typically to repurchase the equipment at 90% of the purchase
price for the first 180 days, 80% for the next 90 days and 70% for the
next 90 days, after which the obligation expires. In the event of a
default by all of the financed dealers, the Company would be required to
repurchase approximately $3.0 million of product as of April 27, 1997. The
Company does not believe that its obligation under these repurchase
agreements will have a material adverse effect on the financial results of
the Company. Neither subsidiary has taken possession on any equipment
pursuant to the repurchase obligations in these contracts.
In addition to the matters reported herein, the Company is involved in
litigation dealing with the numerous aspects of its business operations.
The Company believes that settlement of such litigation will not have a
material effect on its financial position or results of operations.
-8-
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Three months ended April 27, 1997 compared to three months ended April 28, 1996
Net sales. Net sales for the Company's second quarter of fiscal 1997 were $37.6
million, an increase of 12.3% over net sales of $33.4 million in the second
quarter of fiscal 1996. Net sales increased at each of the Company's business
units during the quarter, with the largest increases coming from the Company's
motor businesses and its agricultural equipment businesses.
In the Company's Engineered Component Products segment, net sales increased
13.1% to $21.2 million in the second quarter of fiscal 1997 from $18.7 million
in the fiscal 1996 period. The favorable economic conditions in domestic
manufacturing, combined with new customers for the Company's Ohio motor
manufacturing operation led to a 15% increase in sales from the Company's motor
businesses. At Dura-Bond, an expanded distribution network, sales derived from
its newly-acquired valve seat and shim product line and comparison to a slow
second quarter in fiscal 1996 led to a 25% increase in net sales.
Net sales in the Specialized Equipment segment were $16.4 million in the second
quarter of fiscal 1997, an 11.3% increase over net sales of $14.7 million in the
comparable 1996 period. Demand for the Company's agricultural equipment
continued to be strong, particularly at Great Bend, where sales of front-end
loaders were 48% ahead of last year's second quarter, and at Parker, where
fiscal second quarter sales of grain handling equipment were up 25% over the
prior year period. Sales of aluminum trailers were 4% higher in the second
quarter as compared to the second quarter of fiscal 1996.
Overall, backlogs and customer demand were strong at the end of the second
quarter of fiscal 1997, and sales are expected to continue to be ahead of prior
year sales levels in the second half of the fiscal year.
Gross profit. The Company's gross profit in the second quarter of fiscal 1997
was $8.9 million, or 23.6% of net sales, 11% greater than gross profit of $8.0
million, or 23.8% of net sales, in the second quarter of fiscal 1996.
Gross profit in the Engineered Component Products segment was $5.3 million, or
25.0% of net sales in the second quarter of fiscal 1997, up 12% as compared to
$4.7 million, or 25.3% of net sales in the prior fiscal year's second quarter.
The increase in gross profit in this segment was due to the increase in sales.
The slight decline in gross profit margin was due to lower gross profit margins
at Dura-Bond, partially offset by higher gross profit margins at Snowmax. Gross
profit margins in the motor businesses in the second quarter of fiscal 1997 were
level with the prior year period.
Gross profit in the Specialized Equipment segment was $3.6 million, or 21.8% of
net sales, in the second quarter of fiscal 1997, an increase of 10.2% over gross
profit of $3.3 million, or 22.0% of net sales, in the second quarter of fiscal
1996. The increase in gross profit is due to increased sales. The slight decline
in gross profit margin is primarily due to lower gross margins at Parker and
Great Bend, partially offset by the effect of a more favorable mix of business
due to the large increase in sales at Great Bend, which has a higher gross
profit margin than the other businesses in this segment. Sooner Trailer's gross
profit margin was slightly below last year's level, although showing an increase
over the first quarter of fiscal 1997, as production efficiency began to improve
in the fiscal second quarter.
-9-
<PAGE>
Selling, General and Administrative Expenses. Selling, general and
administrative expenses were $5.1 million, or 13.7% of net sales, in the second
quarter of fiscal 1997 as compared to $4.8 million, or 14.4% of net sales, in
the 1996 fiscal period. In the Company's Engineered Component Products segment,
selling, general and administrative expenses increased to $2.7 million in the
second quarter of fiscal 1997 as compared to $2.6 million in the prior fiscal
year period. In the Specialized Equipment segment, selling, general and
administrative expenses increased to $2.4 million in the second quarter of
fiscal 1997 from $2.2 million in the prior year period. The percentage increase
in each segment was less than the percentage increase in net sales.
Corporate Expenses. Corporate expenses in the second fiscal quarter of 1997 were
$1.3 million, or 3.4% of net sales, as compared to $1.1 million, or 3.2% of net
sales, in the second quarter of fiscal 1996. Corporate expenses increased
primarily due to increases in personnel costs and information services expenses,
including higher depreciation and amortization expenses related to a computer
upgrade.
Income from Operations. Income from operations increased 17.3% to $2.4 million,
or 6.5% of net sales, in the second quarter of fiscal 1997 from $2.1 million, or
6.2% of net sales, in the prior year period, primarily due to increased sales.
The operating margin improved because the slightly lower gross profit margins
and increased corporate expenses were more than offset by the decline in
selling, general and administrative expenses as a percentage of net sales.
Among other measures, the Company evaluates the operating performance of its
business segments and its individual subsidiaries based on business unit income,
which is defined as income from operations before allocation of corporate
expenses. The Company believes this measurement most closely reflects the
subsidiaries' individual contributions. On this basis, business unit income for
the Engineered Component Products segment increased 21.0% to $2.6 million, or
12.3% of net sales, in the fiscal 1997 quarter from $2.2 million, or 11.5% of
net sales in fiscal 1996. Increased business unit income in the motor
businesses, due primarily to increased sales volume, as well as higher margins
at Snowmax more than offset reduced business unit income at Dura-Bond.
Business unit income in the Specialized Equipment segment before corporate
expenses was $1.1 million, or 6.8% of sales, as compared to $1.0 million, or
6.6% of sales in the second quarter of fiscal 1996. The increase was due to the
significantly increased sales at the Company's Great Bend subsidiary and
improved margins at DewEze, which more than offset reduced margins at Sooner and
Parker as compared to the prior year period.
Because of the overall favorable trends in demand for its products, the Company
expects that income from operations for the second half of fiscal 1997 will
continue to show increases over the prior year.
Interest Expense. Interest expense was $1.0 million, or 2.6% of net sales in the
second quarter of fiscal 1997 as compared to $1.1 million, or 3.3% of net sales,
in the second quarter of fiscal 1996. Interest expense was lower in the fiscal
1997 period due to a lower effective interest rate offsetting a small increase
in average debt outstanding.
Net income. In the second quarter of fiscal 1997, the Company reported net
income of $0.8 million, or 2.2% of net sales, as compared to $0.5 million, or
1.6% of net sales in the fiscal 1996 period. The effective tax rate was 44.3% in
both periods.
-10-
<PAGE>
Net income available for common stockholders. The Company reported income
available to common stockholders of $0.6 million or $0.10 per share, as compared
to $0.3 million, or $0.05 per share in the second quarter of fiscal 1996. Income
for common stockholders is calculated by subtracting dividends on preferred
stock of $187,500 and non-cash accretion in value of preferred stock of $73,403
($68,082 in the fiscal 1996 second quarter) from net income.
Six months ended April 27, 1997 compared to six months ended April 28, 1996
Net sales. Net sales for the Company's first six months of fiscal 1997 were
$67.7 million, an increase of 10.4% over net sales of $61.4 million in the first
six months of fiscal 1996. With the exception of flat sales of aluminum trailers
at Sooner, all of the Company's subsidiaries reported increased net sales in the
first half of fiscal 1997 as compared to the fiscal 1996 period.
In the Company's Engineered Component Products segment, net sales increased
11.3% to $38.3 million in the first half of fiscal 1997 from $34.5 million in
the fiscal 1996 period. The largest increases came from increased demand for
motors, including the effect of new customers at the Company's Ohio
manufacturing facility.
In the first six months of fiscal 1997, net sales in the Specialized Equipment
segment were $29.4 million, a 9.2% increase over net sales of $26.9 million in
the first three months of fiscal 1996. An improved economic environment for the
Company's agricultural equipment businesses, including the effects of favorable
weather conditions in the first quarter of fiscal 1997, resulted in an increase
of 19.3% in net sales at those businesses. Net sales of aluminum trailers were
approximately equal to the prior year period.
Gross profit. The Company's gross profit in the first six months of fiscal 1997
was $15.9 million, or 23.4% of net sales, an increase of 5.8% over gross profit
in the comparable 1996 period of $15.0 million, or 24.4% of net sales.
In the first half of fiscal 1997, gross profit in the Engineered Component
Products segment was $9.5 million, or 24.8% of net sales, 10.2% higher than
gross profit of $8.6 million, or 25.1% of net sales in the prior fiscal year
period. The increase in gross profit in this segment was due to the increase in
sales. The small decline in gross profit margin was due to a lower gross margin
at Dura-Bond, which more than offset an increased gross profit margin at
Snowmax, while the gross profit margin in the Company's motor businesses
remained relatively level.
Gross profit in the Specialized Equipment segment was $6.4 million, or 21.6% of
net sales, in the first six months of fiscal 1997, approximately equal to gross
profit of $6.4 million, or 23.6% of net sales, in the first six months of fiscal
1996. A significantly reduced gross profit at Sooner Trailer due to higher labor
costs and production inefficiencies, particularly in 1997's fiscal first
quarter, outweighed overall increased gross profit at the agricultural equipment
businesses in the segment, which increased due to increased sales.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses were $10.1 million, or 14.8% of net sales, in the first
six months of fiscal 1997 as compared to $9.4 million, or 15.3% of net sales, in
the 1996 fiscal period. In the Company's Engineered Component Products segment,
selling, general and administrative expenses increased to $5.3 million in the
first six months of fiscal 1997 as compared to $5.0 million in the prior fiscal
year period, and represented 13.7% of net sales and 14.4%, respectively. In the
Specialized Equipment segment, selling, general and administrative expenses
increased to $4.8 million in the first half of fiscal 1997 from $4.4 million in
the prior year period, an increase commensurate with the increase in net sales
in the segment.
-11-
<PAGE>
Corporate Expenses. Corporate expenses in the first half of fiscal 1997 were
$2.6 million, or 3.8% of net sales, as compared to $2.1 million, or 3.3% of net
sales, in the first half of fiscal 1996. Corporate expenses increased primarily
due to increases in personnel costs and information services expenses, including
higher depreciation and amortization expenses related to a computer upgrade.
Income from Operations. Income from operations declined 9.1% to $3.3 million, or
4.8% of net sales, in the first half of fiscal 1997 from $3.6 million, or 5.8%
of net sales, in the prior year period, due to the lower gross profit margins
and increased selling, general and administrative expenses and corporate
expenses as discussed above.
Among other measures, the Company evaluates the operating performance of its
business segments and its individual subsidiaries based on business unit income,
which is defined as income from operations before allocation of corporate
expenses. The Company believes this measurement most closely reflects the
subsidiaries' individual contributions. On this basis, business unit income for
the Engineered Component Products segment increased 15.8% to $4.2 million, or
11.1% of net sales, in the first six months of fiscal 1997 from $3.7 million, or
10.6% of sales in the first six months of fiscal 1996. Increased business unit
income in the motor businesses overall and at Snowmax more than offset reduced
business unit income at Dura-Bond.
Business unit income in the Specialized Equipment segment before corporate
expenses was $1.6 million, or 5.4% of sales, 20.4% below the $2.0 million, or
7.4% of sales, earned in the first half of fiscal 1996. The Company's DewEze and
Great Bend subsidiaries had a significant increase in business unit income as
compared to the prior year period. These increases were outweighed by a
significant reduction in business unit income at Sooner due to the higher labor
costs and production inefficiencies mentioned above, and lower margins at
Parker, compared to the prior year period.
Because of the overall favorable trends in demand for its products, the Company
expects that income from operations for fiscal 1997 will be higher than in the
prior year.
Interest Expense. Interest expense was $2.0 million, or 2.9% of net sales in the
first half of fiscal 1997 as compared to $2.1 million or 3.4% of net sales in
the first quarter of fiscal 1996. Interest expense was slightly lower in the
fiscal 1997 period due to a lower effective interest rate.
Net income. The Company reported net income of $0.8 million, or 1.1% of net
sales in the first six months of fiscal 1997 as compared to net income of $0.9
million, or 1.5% of net sales, in the first six months of fiscal 1996. The
effective tax rate for the first half of 1997 was 44.5% as compared to 42.5% in
the fiscal 1996 period. The lower results are attributable to the lower income
from operations.
Net income available for common stockholders. In the first half of fiscal 1997,
the Company reported income available to common stockholders of $0.2 million or
$0.04 per share, as compared to net income available to common stockholders of
$0.4 million, or $0.07 per share in the first half of fiscal 1996. Income for
common stockholders is calculated by subtracting dividends on preferred stock of
$375,000 and non-cash accretion in value of preferred stock of $145,438
($134,896 in the fiscal 1996 first half) from net income. Due primarily to the
favorable economic prospects in its markets, the Company expects to report
higher net income available to common stockholders in each of the remaining
quarters of fiscal 1997, both as compared to the comparable fiscal 1996
quarters, and as compared to the first two quarters of fiscal 1997.
-12-
<PAGE>
Liquidity and Capital Resources
Cash and cash equivalents decreased to $0.6 million at April 27, 1997 from $0.8
million at October 27, 1996. In addition to cash and cash equivalents at April
27, 1997, the Company had $0.4 million of cash that was restricted under
industrial revenue financings. Net cash provided by operating activities was
$2.8 million in the first half of fiscal 1997, as compared to $2.1 million in
the first quarter of fiscal 1996. The increase in net cash provided by
operations was primarily a reduction in net cash used to finance working capital
in first half of fiscal 1997. Net non-cash working capital at April 27, 1997 was
6% lower than at the end of the second quarter of fiscal 1996, despite the
increase in sales in the fiscal 1997 second quarter over the prior year period.
The Company's primary cash requirements have been for operating expenses,
including raw materials, labor costs and funding of accounts receivable, as well
as capital expenditures, acquisitions and dividends to shareholders. Primary
sources of cash have been from operations and bank borrowings, with industrial
revenue bonds being used for specific capital projects.
Working capital increased to $23.5 million at January 26, 1997 from $20.4
million at October 27, 1996. The increase was primarily due to repayment of
current maturities of related party debt issued in connection with the purchase
of Stature using proceeds from the Company's long-term revolving credit
agreement, and seasonal increases in inventory and accounts receivable in excess
of seasonal increases in current liabilities.
The Company maintains a $55.0 million revolving credit agreement with two banks
with a termination date of March 31, 2000. At April 27, 1997 borrowings of $33.7
million were outstanding under the revolving credit agreement. Interest is
payable, at the Company's option, at either the agent bank's prime rate or at a
spread over the London Interbank Offered Rate that varies with the Company's
ratio of total debt to EBITDA. The LIBOR spread was 2% at April 27, 1997. The
agreement contains customary financial and other covenants, including, fixed
charge, cash flow and net worth ratios, restrictions on certain asset sales,
mergers and other significant transactions and a negative pledge on assets. The
covenants were amended in the second quarter of fiscal 1997 to reduce the
required levels of net worth and to increase the maximum allowable ratio of
total debt to cash flow. In addition, the definition of the fixed charge
coverage ratio was changed and the leverage covenant was eliminated. The Company
anticipates being in compliance with these covenants for the foreseeable future.
During fiscal 1996, the Company entered into interest rate swap agreements with
its two banks with notional amounts totaling $15.0 million. The agreements call
for the Company to make quarterly fixed payments on the notional amount at rates
of 7.0675% and 7.09% for five years beginning in July 1997 in exchange for
receiving payments at the six month London Interbank Offered Rate.
In the first half of fiscal 1997, the Company has invested $2.5 million in
capital expenditures as compared to $1.9 million in the first half of fiscal
1996. Of the $2.5 million invested in the first six months of fiscal 1997,
approximately $2.0 million was invested in the Engineered Component Products
segment and $0.5 million in the Specialized Equipment segment, with a small
amount at the corporate level. The Company expects that capital expenditures for
fiscal 1997 will be higher than that of fiscal 1996, and that capital
expenditures in the remainder of fiscal 1997 will be at a rate approximately
consistent with that of the first half. The Company intends that capital
expenditures will continue to be concentrated primarily in the Engineered
Component Products segment for the remainder of the fiscal year.
The Company believes that funds from operations and borrowings from its bank
facilities will be sufficient
-13-
<PAGE>
to fund its activities, including capital expenditures, for the foreseeable
future.
Seasonality
Sales of certain of the Company's specialty equipment tend to be seasonal, with
lowest sales during the first fiscal quarter and higher sales during the fourth
fiscal quarter, corresponding with the fall harvest season for farmers. Sales of
the Company's engineered component products experience less seasonality but
generally have higher sales during the second fiscal quarter while sales of
these products are lowest during the first fiscal quarter. Accordingly, the
Company's results have historically been lowest in the fiscal first quarter.
Cautionary Statement for Purposes of the "Safe Harbor" Provisions of the Private
Securities Litigation Reform Act of 1995
The following information is provided pursuant to the "Safe Harbor" provisions
of the Private Securities Litigation Reform Act of 1995. Certain statements in
Management's Discussion and Analysis of this Form 10-Q are "forward-looking
statements" made pursuant to these provisions.
The Company cautions readers that the following important factors, among others,
have in the past affected and could in the future affect the Company's actual
results of operations and cause the Company's actual results to differ
materially from the results expressed in any forward-looking statements made by
or on behalf of the Company:
The Company's results have been and can be expected to continue to be
affected by the general economic conditions in the United States and
specific economic factors influencing the manufacturing and
agricultural sectors of the economy. Lower demand for the Company's
products can lower revenues as well as cause underutilization of the
Company's plants, leading to reduced gross margins.
Commodity prices can have a material influence on the Company's
results. Grain prices and cattle prices can affect demand for certain
agricultural equipment sold by the businesses in the Company's
Specialized Equipment segment. Metal prices, particularly aluminum,
copper and steel, can affect the Company's costs as well as demand for
the Company's products and the value of inventory held at the end of a
reporting period. Lack of availability of certain commodities could
also disrupt the Company's production.
Weather can affect the success of the grain harvest in the United
States, which can directly affect demand for the Company's grain
handling equipment business.
The Company's Sooner Trailer subsidiary has experienced production
inefficiencies which have caused increased production costs and lower
gross margins. Continuation of such inefficiencies could continue to
adversely affect the Company's results of operations.
Loss of a substantial customer may affect results of operations.
-14-
<PAGE>
The Company's results can be affected by engineering difficulties in
designing new products or applications for existing products to meet
the requirements of its customers.
Obsolescence or quality problems leading to returned goods in need of
repair can also affect the value of the Company's inventories and its
profitability.
The Company has a substantial amount of floating rate debt. Increases
in short term interest rates could be expected to increase the
Company's interest expense.
Acquisitions are an important part of the Company's growth strategy.
Acquisitions may have a dilutive effect on the Company's earnings and
could affect the Company's available credit and interest costs.
Conversely, the Company may from time to time divest of product lines
or business units. Any such divestiture may involve costs of
disposition or losses on the disposition that could reduce the
Company's results.
-15-
<PAGE>
Part II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
At the Company's Annual Meeting of Shareholders held on March 12, 1997, the
shareholders elected six directors, the holders of the Class A Convertible
Preferred Stock elected one director and the shareholders ratified the
appointment of independent auditors for the year ended October 26, 1997. In the
election of directors, 5,464,102 shares were voted in favor of the election of
George B. Lemmon, Jr. and 3,963 shares were withheld, 5,464,265 shares were
voted in favor of the election of John B. Reese and 3,800 shares were withheld,
5,464,102 shares were voted in favor of the election of Eugene P. Lynch and
3,963 shares were withheld, 5,463,852 shares were voted in favor of the election
of Ellen D. Harvey and 4,213 shares were withheld, 5,464,102 shares were voted
in favor of the election of Harry E. Hill and 3,963 shares were withheld,
5,464,102 shares were voted in favor of the election of James A. Ounsworth and
3,963 shares were withheld. There were 812,212 shares of the Class A Convertible
Preferred Stock voted in favor of Lowell P. Huntsinger. In the vote for
ratification of the appointment of Deloitte & Touche LLP as independent auditors
for the year ended October 26, 1997, 5,459,920 shares were voted in favor, 3,963
shares voted against and 1,482 shares abstained.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
Exhibit No. Description
10.64 Seventh Amendment to Credit Agreement by and among Owosso
Corporation, its subsidiaries, NBD Bank, PNC Bank, N.A., and
NBD Bank, as Agent, dated as of March 3, 1997.
27 Financial Data Schedule
(b) Form 8-K
No reports on Form 8-K were filed during the period ended
April 27, 1997.
-16-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
OWOSSO CORPORATION
By: /s/ George B. Lemmon, Jr.
----------------------------------
George B. Lemmon, Jr.
Chief Executive Officer
By: /s/ John H. Wert, Jr.
-----------------------------------
John H. Wert, Jr.,
Senior Vice President - Finance and
Chief Financial Officer
Date: June 11, 1997
-17-
<PAGE>
Index to Exhibits
Exhibit Number Description
- -------------- -----------
10.64 Seventh Amendment to Credit Agreement
by and among Owosso Corporation,
its subsidiaries, NBD Bank, PNC Bank,
N.A., and NBD Bank, as Agent, dated
as of March 3, 1997.
27 Financial Data Schedule
<PAGE>
EXHIBIT No. 10.64
CREDIT AGREEMENT AMENDMENT
<PAGE>
SEVENTH AMENDMENT TO CREDIT AGREEMENT
THIS SEVENTH AMENDMENT TO CREDIT AGREEMENT, dated as of March
3, 1997 (this "Amendment"), is by and among OWOSSO CORPORATION, a Pennsylvania
corporation ("Owosso"), AHAB INVESTMENT COMPANY, a Delaware corporation
("Ahab"), CRAMER COMPANY, a Delaware corporation ("Cramer"), DEWEZE
MANUFACTURING, INC., a Pennsylvania corporation ("DewEze"), THE LANDOVER
COMPANY, a Pennsylvania corporation ("Landover"), MOTOR PRODUCTS-OWOSSO
CORPORATION, a Delaware corporation ("Motor Products"), SNOWMAX, INCORPORATED, a
Pennsylvania corporation ("Snowmax"), SOONER TRAILER MANUFACTURING CO., a
Delaware corporation ("Sooner"), MOTOR PRODUCTS-OHIO CORPORATION, a Delaware
corporation ("Motor Products-Ohio"), GREAT BEND MANUFACTURING COMPANY, INC., a
Kansas corporation, STATURE ELECTRIC, INC., a New York corporation ("Stature"),
OWOSSO MOTOR GROUP, INC., a Pennsylvania corporation ("Motor Group"), and SNYDER
INDUSTRIES, INC., a Washington corporation ("Snyder" and, together with Owosso,
Ahab, Cramer, DewEze, Landover, Motor Products, Snowmax, Sooner, Motor
Products-Ohio, Great Bend, Stature and Motor Group, collectively the "Borrowers"
and individually a "Borrower"), NBD BANK, a Michigan banking corporation
formerly known as NBD Bank, N.A. ("NBD"), PNC BANK, NATIONAL ASSOCIATION, a
national banking association ("PNC" and, together with NBD, collectively the
"Banks" and individually a "Bank"), and NBD BANK, as agent (in such capacity,
the "Agent") for the Banks.
INTRODUCTION
A. The Borrowers, the Banks and the Agent are parties to the
Credit Agreement, dated as of October 31, 1994, as amended by the First
Amendment to Credit Agreement, dated as of August 1, 1995, the Second Amendment
to Credit Agreement, dated as of September 1, 1995, the Third Amendment to
Credit Agreement, dated as of October 31, 1995, and the Fourth Amendment to
Credit Agreement, dated as of March 8, 1996, the Fifth Amendment to Credit
Agreement, dated as of May 31, 1996, and the Sixth Amendment to Credit
Agreement, dated as of December 1, 1996 (the "Credit Agreement"), pursuant to
which the Banks provide to the Borrowers, on a joint and several liability
basis, a revolving credit facility in the aggregate principal amount of
$55,000,000.
B. The Borrowers now desire certain covenants of the Borrowers
under the Credit Agreement be modified, and the Banks and the Agent are willing
to so amend the Credit Agreement on the terms and conditions herein set forth.
NOW, THEREFORE, in consideration of the mutual agreements
herein and in the Credit Agreement contained, the parties hereto agree as
follows:
<PAGE>
ARTICLE I. CREDIT AGREEMENT AMENDMENTS
Effective as of the date hereof, the Credit Agreement hereby
is amended as follows:
1.1 The first sentence of the definition of the term
"Applicable Margin" in Section 1.1 is amended to read in full as follows:
"Applicable Margin" shall mean, for purposes of determining
the Eurodollar Rate applicable to Eurodollar Rate Loans
outstanding during any fiscal quarter of the Borrowers (the
"Applicable Quarter") (a) if the ratio of (i) the Consolidated
Total Debt of the Borrowers and their Subsidiaries to (ii) the
Consolidated EBITDA of the Borrowers and their Subsidiaries
determined as of the last day of the fiscal quarter of the
Borrowers (the "Determinative Quarter") immediately preceding
the Applicable Quarter (hereinafter, the "Relevant Ratio") is
equal to or greater than 3.75 to 1.00, one and three-quarters
of one percent (1 and 3/4 of 1%), (b) if the Relevant Ratio is
equal to or greater than 2.50 to 1.00 but less than 3.75 to
1.00, one and one-half of one percent (1 and 1/2 of 1%), (c)
if the Relevant Ratio is equal to or greater than 2.00 to 1.00
but less than 2.50 to 1.00, one and one-quarter of one percent
(1 and 1/4 of 1%), (d) if the Relevant Ratio is equal to or
greater than 1.50 to 1.00 but less than 2.00 to 1.00, one
percent (1%), and (e) if the Relevant Ratio is less than 1.50
to 1.00, three-quarters of one percent (3/4 of 1%); provided,
however, that if the Consolidated Tangible Net Worth of the
Borrowers and their Subsidiaries as of the end of the
Determinative Quarter is less than $14,000,000, each of the
various levels of the Applicable Margin as provided above will
be increased by one-quarter of one percent (1/4 of 1%).
1.2 The definitions of the terms "Available Facility
Coverage", "Excludable Other Borrower Indebtedness" and "Excludable Stature
Indebtedness" in Section 1.1 are deleted.
1.3 The definition of the term "Excluded Indebtedness" in
Section 1.1 is amended to read in full as follows:
"Excluded Indebtedness" shall mean all Indebtedness of Stature
Electric, Inc. to its former shareholders arising in
connection with its acquisition by Owosso.
1.4 The definition of the term "Fixed Charges" in Section 1.1
is amended to read in full as follows:
"Fixed Charges" of any person shall mean, for any period, the
sum, without duplication, of (a) interest paid or payable
during such period by such person on Indebtedness of such
person, plus (b) the maximum scheduled amount of principal or
other sums required to be paid by such person during the
period of four fiscal quarters of such person immediately
following such period with respect to Indebtedness (including
the current portion of any Capital Lease) of such person
having a final maturity more than one year from the date of
creation of such Indebtedness, but excluding, for purposes of
this clause (b) only, the Excluded Indebtedness, plus (c) all
debt discount
-2-
<PAGE>
and expense amortized or required to be amortized during such
period by such person, plus (d) Operating Lease Rental Expense
of such person for such period, plus (e) all capital
expenditures made by such person during such period, plus (f)
all dividends and other distributions paid or payable or
otherwise accumulating during such period on any capital stock
of such person.
1.5 The definition of the term "Fixed Charges Coverage
Availability" in Section 1.1 is amended to read in full as follows:
"Fixed Charges Coverage Availability" of any person shall
mean, for any period, the sum of EBITDA of such person for
such period plus, to the extent deducted in determining such
EBITDA for such period, the Operating Lease Rental Expense of
such person for such period.
1.6 Section 5.2(a) is amended to read in full as follows:
(a) Net Worth. Permit or suffer the Consolidated Net
Worth of the Borrowers and their Subsidiaries to be less than
(i) at any time during the period prior to the end of the
Borrowers' fiscal year ending on or about October 31, 1997,
$34,000,000, (ii) at the end of the Borrowers' fiscal year
ending on or about October 31, 1997 and at any time thereafter
prior to the end of the Borrowers' fiscal year ending on or
about October 31, 1998, $36,000,000, (iii) at the end of the
Borrowers' fiscal year ending on or about October 31, 1998 and
at any time thereafter prior to the end of the Borrowers'
fiscal year ending on or about October 31, 1999, $38,000,000,
and (iv) at the end of the Borrowers' fiscal year ending on or
about October 31, 1999 or at any time thereafter, the greater
of (A) 90% of the highest previous fiscal year-end
Consolidated Net Worth of the Borrowers and their Subsidiaries
and (B) the sum of $2,000,000 plus the Consolidated Net Worth
of the Borrowers and their Subsidiaries as of the last fiscal
year-end of the Borrowers.
[The rest of this page intentionally left blank.]
-3-
<PAGE>
1.7 Section 5.2(b) is amended to read in full as follows:
(b) Total Debt to EBITDA. Permit or suffer the ratio
of Consolidated Total Debt of the Borrowers and their
Subsidiaries to Consolidated EBITDA of the Borrowers and their
Subsidiaries to be greater than (i) 5.00 to 1.00 as of the
last day of either of the Borrowers' fiscal quarters ending on
or about January 31,1997 or April 30, 1997, (ii) 4.75 to 1.00
as of the last day of the Borrowers' fiscal quarter ending on
or about July 31, 1997, (iii) 4.00 to 1.00 as of the last day
of either of the Borrowers' fiscal quarters ending on or about
October 31, 1997 or January 31, 1998, (iv) 3.75 to 1.00 as of
the last day of either of the Borrowers' fiscal quarters
ending on or about April 30, 1998 or July 31, 1998, or (v)
3.50 to 1.00 as of the end of any of the Borrowers' fiscal
quarters ending at any time thereafter. For purposes of
determining from time to time the Borrowers' compliance with
this subsection, each Person that is a Borrower or a
Subsidiary of a Borrower at the time of such determination
shall be deemed to have been a Borrower or a Subsidiary of a
Borrower, as the case may be, for the entire period relevant
to such determination (i.e., in each case, the period of four
fiscal quarters of the Borrowers then ended) and each Person
that was a Borrower or Subsidiary of a Borrower at any time
during such relevant period, but is no longer a Borrower or
Subsidiary of a Borrower, as the case may be, at the time of
such determination, shall be deemed not to have been a
Borrower or a Subsidiary of a Borrower, as the case may be, at
any time during such period.
1.8 Section 5.2(c) is amended to read in full as follows:
(c) Fixed Charges Coverage. Permit or suffer the
ratio of Consolidated Fixed Charges Coverage Availability of
the Borrowers and their Subsidiaries to Consolidated Fixed
Charges of the Borrowers and their Subsidiaries to be less
than (i) 0.75 to 1.00 as of the end of either of the
Borrowers' fiscal quarters ending on or about January 31, 1997
or April 30, 1997, (ii) 0.80 to 1.00 as of the end of the
Borrowers' fiscal quarter ending on or about July 31, 1997,
(iii) 1.00 to 1.00 as of the end of the Borrowers' fiscal
quarter ending on or about October 31, 1997, (iv) 1.10 to 1.00
as of the end of any of the Borrowers' fiscal quarters ending
on or about January 31, 1998, April 30, 1998, July 31, 1998,
October 31, 1998, January 31, 1999 or April 30, 1999, or (v)
1.25 to 1.00 as of the end of any of the Borrowers' fiscal
quarters ending at any time thereafter; such ratio to be
determined as of the last day of each fiscal quarter of the
Borrowers for the period of four fiscal quarters of the
Borrowers then ended. For purposes of determining from time to
time the Borrowers' compliance with this subsection, each
Person that is a Borrower or a Subsidiary of a Borrower at the
time of such determination shall be deemed to have been a
Borrower or a
-4-
<PAGE>
Subsidiary of a Borrower, as the case may be, for the entire
period relevant to such determination (i.e., in each case, the
period of four fiscal quarters of the Borrowers then ended)
and each Person that was a Borrower or Subsidiary of a
Borrower at any time during such relevant period, but is no
longer a Borrower or Subsidiary of a Borrower, as the case may
be, at the time of such determination, shall be deemed not to
have been a Borrower or a Subsidiary of a Borrower, as the
case may be, at any time during such period.
1.9 Section 5.2(d) is amended to read in full as follows:
(d) [intentionally omitted]
ARTICLE 2. REPRESENTATIONS AND WARRANTIES
In order to induce the Banks to enter into this Amendment,
each Borrower represents and warrants that:
2.1 The execution, delivery and performance by the Borrowers
of this Amendment have been duly authorized by all necessary corporate action
and do not and will not (a) require any consent or approval of the stockholders
of any Borrower, (b) violate any provisions of any law, rule, regulation, order,
writ, judgment, injunction, decree, determination or award presently in effect
having applicability to any Borrower or of the Articles of Incorporation or
By-Laws of any Borrower, or (c) result in a breach of or constitute a default
under any indenture or loan or credit agreement or any other agreement, lease or
instrument to which any Borrower is a party or by which any Borrower or its
properties may be bound or affected.
2.2 No authorization, consent, approval, license, exemption of
or filing, declaration or registration with any governmental authority or any
non-governmental person or entity, including without limitation any creditor or
stockholder of any Borrower, is required on the part of any Borrower in
connection with the execution, delivery and performance of this Amendment, or
the transactions contemplated hereby or as a condition to the legality, validity
or enforceability of this Amendment.
2.3 This Amendment is a legal, valid and binding obligation of
the Borrowers enforceable against the Borrowers in accordance with its terms.
2.4 After giving effect to the amendments contained in Article
1 of this Amendment and to Section 4.2 of this Amendment, the representations
and warranties contained in Article IV of the Credit Agreement are true on and
as of the date hereof with the same force and effect as if made on and as of the
date hereof, provided that none of Stature, Motor Products-Ohio, Great Bend,
Motor Group or Snyder shall be deemed a "Borrower" with respect to, but only
with respect to, such representations and warranties regarding historical
matters not involving such Borrower.
-5-
<PAGE>
ARTICLE 3. MISCELLANEOUS
3.1 If any Borrower shall fail to perform or observe any term,
covenant or agreement in this Amendment, or any representation or warranty made
by any Borrower in this Amendment shall prove to have been incorrect in any
material respect when made, such occurrence shall be deemed to constitute an
Event of Default.
3.2 All references to the Credit Agreement in any agreement,
certificate or instrument referred to in the Credit Agreement, or delivered
pursuant thereto or in connection therewith or in any other document, hereafter
shall be deemed references to the Credit Agreement, as amended hereby.
3.3 All agreements, certificates and instruments executed
pursuant to the Credit Agreement or in connection therewith and, subject to the
amendments herein provided, the Credit Agreement, shall in all respects continue
in full force and effect and are hereby ratified and confirmed.
3.4 Capitalized terms used but not defined in this Amendment
shall have the respective meanings ascribed thereto in the Credit Agreement.
3.5 This Amendment shall be governed by and construed in
accordance with the laws of the State of Michigan.
3.6 This Amendment may be signed upon any number of
counterparts with the same effect as if the signatures thereto were upon the
same instrument.
3.7 The Borrowers jointly and severally agree to pay the
reasonable fees and expenses of Dickinson, Wright, Moon, Van Dusen & Freeman,
counsel for the Agent, in connection with the negotiation and preparation of
this Amendment and the documents referred to herein and the consummation of the
transactions contemplated hereby, and in connection with advising the Agent as
to its rights and responsibilities with respect thereto.
[The rest of this page intentionally left blank.]
-6-
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Amendment to
be duly executed and delivered as of the date first above written.
BORROWERS: OWOSSO CORPORATION
By: /s/ John H. Wert, Jr.
----------------------------
Its: SVP-Finance & CFO
----------------------
AHAB INVESTMENT COMPANY
By: /s/ Norman J. Shuman
----------------------------
Its: V. Pres.
----------------------
CRAMER COMPANY
By: /s/ John H. Wert, Jr.
----------------------------
Its: Secretary/Treasurer
----------------------
DEWEZE MANUFACTURING, INC.
By: /s/ John H. Wert, Jr.
----------------------------
Its: Secretary/Treasurer
----------------------
THE LANDOVER COMPANY
By: /s/ John H. Wert, Jr.
----------------------------
Its: Secretary/Treasurer
----------------------
-7-
<PAGE>
MOTOR PRODUCTS-OWOSSO
By: /s/ John H. Wert, Jr.
----------------------------
Its: Secretary/Treasurer
---------------------
GREAT BEND MANUFACTURING
COMPANY, INC.
By: /s/ John H. Wert, Jr.
----------------------------
Its: Secretary/Treasurer
-------------------------
SNOWMAX, INCORPORATED
By: /s/ John H. Wert, Jr.
----------------------------
Its: Secretary/Treasurer
----------------------
SOONER TRAILER MANUFACTURING
CO.
By: /s/ John H. Wert, Jr.
----------------------------
Its: Secretary/Treasurer
----------------------
MOTOR PRODUCTS-OHIO
CORPORATION
By: /s/ John H. Wert, Jr.
----------------------------
Its: Secretary/Treasurer
----------------------
STATURE ELECTRIC, INC.
By: /s/ John H. Wert, Jr.
----------------------------
Its: Secretary/Treasurer
----------------------
-8-
<PAGE>
OWOSSO MOTOR GROUP, INC.
By: /s/ John H. Wert, Jr.
----------------------------
Its: Secretary/Treasurer
----------------------
SNYDER INDUSTRIES, INC.
By: /s/ John H. Wert, Jr.
----------------------------
Its: Secretary/Treasurer
----------------------
Agent and Banks: NBD BANK, as Agent and as a Bank
By: /s/ William C. Goodhue
-----------------------------
Its: Vice President
-----------------------
PNC BANK, NATIONAL ASSOCIATION
By: /s/ Charlene C. Massih
-----------------------------
Its: Vice President
-----------------------
-9-
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<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-26-1997
<PERIOD-END> JAN-26-1997
<CASH> 573
<SECURITIES> 0
<RECEIVABLES> 20,385
<ALLOWANCES> 319
<INVENTORY> 22,161
<CURRENT-ASSETS> 45,802
<PP&E> 51,760
<DEPRECIATION> 24,980
<TOTAL-ASSETS> 112,128
<CURRENT-LIABILITIES> 22,273
<BONDS> 48,248
0
13,813
<COMMON> 59
<OTHER-SE> 22,491
<TOTAL-LIABILITY-AND-EQUITY> 112,128
<SALES> 67,729
<TOTAL-REVENUES> 67,729
<CGS> 51,861
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<OTHER-EXPENSES> 12,610
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<INTEREST-EXPENSE> 1,975
<INCOME-PRETAX> 1,375
<INCOME-TAX> 612
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