<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 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 26, 1998 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 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 [ ]
As of June 5, 1998, 5,814,883 shares of the Registrant's Common Stock, $.01 par
value, were outstanding.
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OWOSSO CORPORATION
TABLE OF CONTENTS
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Page
PART I - FINANCIAL INFORMATION:
Item 1. Financial Statements
Condensed Consolidated Statements of Operations 3
for the Three and Six Months Ended April 26, 1998 and
April 27, 1997 (unaudited)
Condensed Consolidated Balance Sheets at 4
April 26, 1998 (unaudited) and October 26, 1997
Condensed Consolidated Statements of Cash Flows 5
for the Six Months Ended April 26, 1998 and
April 27, 1997 (unaudited)
Notes to Condensed Consolidated Financial Statements 6
(unaudited)
Item 2. Management's Discussion and Analysis of 10
Financial Condition and Results of Operations
PART II - OTHER INFORMATION:
Item 6. Exhibits and Reports on Form 8-K 18
2
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OWOSSO CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
-------------------------------- -------------------------------
April 26, April 27, April 26, April 27,
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $ 41,868,000 $ 37,567,000 $ 75,922,000 $ 67,729,000
Cost of products sold 31,644,000 28,846,000 58,202,000 52,098,000
------------ ------------ ------------ ------------
Gross profit 10,224,000 8,721,000 17,720,000 15,631,000
Expenses:
Selling, general and administrative 5,499,000 5,009,000 10,505,000 9,819,000
Corporate 1,624,000 1,289,000 3,024,000 2,553,000
------------ ------------ ------------ ------------
Income from operations 3,101,000 2,423,000 4,191,000 3,259,000
Interest expense 1,272,000 992,000 2,396,000 1,975,000
Gain on sale of business 2,775,000 -- 2,775,000 --
Other income 26,000 40,000 71,000 91,000
------------ ------------ ------------ ------------
Income before income taxes 4,630,000 1,471,000 4,641,000 1,375,000
Income tax expense 2,693,000 652,000 2,698,000 611,000
------------ ------------ ------------ ------------
Net income 1,937,000 819,000 1,943,000 764,000
Dividends and accretion on preferred stock (267,000) (261,000) (532,000) (521,000)
------------ ------------ ------------ ------------
Net income available
for common stockholders $ 1,670,000 $ 558,000 $ 1,411,000 $ 243,000
============ ============ ============ ============
Earnings per common share:
Basic $ 0.29 $ 0.10 $ 0.24 $ 0.04
============ ============ ============ ============
Diluted $ 0.29 $ 0.10 $ 0.24 $ 0.04
============ ============ ============ ============
Weighted average number of common shares outstanding:
Basic 5,814,000 5,809,000 5,811,000 5,809,000
============ ============ ============ ============
Diluted 5,838,000 5,829,000 5,835,000 5,824,000
============ ============ ============ ============
</TABLE>
See notes to condensed consolidated financial statements.
3
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OWOSSO CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
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<TABLE>
<CAPTION>
April 26, October 26,
1998 1997
ASSETS (Unaudited) (See Note)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,527,000 $ 840,000
Receivables, net 25,209,000 19,868,000
Inventories, net 26,293,000 23,084,000
Prepaid expenses and other 950,000 1,153,000
Deferred taxes 741,000 1,039,000
------------ ------------
Total current assets 54,720,000 45,984,000
PROPERTY, PLANT AND EQUIPMENT, NET 32,742,000 27,443,000
GOODWILL, NET 27,441,000 29,048,000
OTHER INTANGIBLE ASSETS, NET 9,641,000 8,054,000
OTHER ASSETS 746,000 1,152,000
------------ ------------
TOTAL ASSETS $125,290,000 $111,681,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable - trade $ 10,725,000 $ 8,821,000
Accrued expenses 7,653,000 6,323,000
Current portion of related party debt 2,843,000 3,750,000
Current portion of long-term debt 1,416,000 2,479,000
------------ ------------
Total current liabilities 22,637,000 21,373,000
LONG-TERM DEBT, LESS CURRENT PORTION 60,162,000 48,619,000
POSTRETIREMENT BENEFITS 1,845,000 1,812,000
DEFERRED TAXES 3,346,000 3,147,000
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY 37,300,000 36,730,000
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $125,290,000 $111,681,000
============ ============
</TABLE>
Note: the balance sheet at October 26, 1997 has been condensed from the audited
financial statements at that date.
See notes to condensed consolidated financial statements.
4
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OWOSSO CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended
-------------------------------------
April 26, April 27,
1998 1997
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,943,000 $ 764,000
Adjustments to reconcile net income to cash
provided by (used in) operating activities:
Depreciation 2,155,000 1,986,000
Amortization 1,154,000 1,027,000
Gain on sale of business (2,775,000) --
Other 276,000 84,000
Changes in operating assets and liabilities (6,699,000) (1,033,000)
------------ ------------
Net cash (used in) provided by operating activities (3,946,000) 2,828,000
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sale of business 9,886,000 --
Acquisition of business, net of cash acquired (7,784,000) --
Purchases of property, plant and equipment (3,850,000) (2,542,000)
Other 99,000 (41,000)
------------ ------------
Net cash used in investing activities (1,649,000) (2,583,000)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under revolving credit agreement 10,200,000 3,650,000
Proceeds from long-term debt -- 350,000
Payments on long-term debt (1,590,000) (866,000)
Payments on related party debt (907,000) (2,225,000)
Dividends paid (1,421,000) (1,421,000)
------------ ------------
Net cash provided by (used in) financing activities 6,282,000 (512,000)
------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 687,000 (267,000)
CASH AND CASH EQUIVALENTS, BEGINNING 840,000 840,000
------------ ------------
CASH AND CASH EQUIVALENTS, ENDING $ 1,527,000 $ 573,000
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 1,199,000 $ 1,783,000
============ ============
Taxes paid $ 1,377,000 $ --
============ ============
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE>
OWOSSO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- -------------------------------------------------------------------------------
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company - 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"), Stature
Electric, Inc. ("Stature"), Owosso Motor Group, Inc. ("Motor Group")
and Cramer Company ("Cramer"), (collectively the "Motor Companies"),
and Snowmax, Incorporated ("Snowmax"), The Landover Company
("Dura-Bond"), Sooner Trailer Manufacturing Co. ("Sooner"), and DewEze
Manufacturing, Inc., including Parker Industries ("DewEze"). The
Company's Great Bend Manufacturing subsidiary ("Great Bend") was sold
effective April 26, 1998. Accordingly, the effects of the sale of Great
Bend are included in the Company's consolidated financial statements of
April 26, 1998. The Consolidated Balance Sheet as of April 26, 1998
includes the accounts of Astro Air, Inc. ("Astro Air"), which was
acquired effective April 26, 1998. The results of operations of Astro
Air will be included in the Company's consolidated results of
operations from the effective date of the acquisition.
The Company is a diversified manufacturer of products in narrowly
defined niche markets and currently operates in two business segments,
Engineered Component Products (the Motor Companies, Snowmax, Dura-Bond,
and Astro Air) and Specialized Equipment (Sooner, DewEze and Great
Bend prior to its disposition). In the Engineered Component Products
segment, the Company's products, primarily motors, heat transfer "fin
and tube" coils and replacement cam shaft bearings, are sold primarily
to original equipment manufacturers or service providers who use them
in their end products or services. The products sold in the Specialized
Equipment segment, primarily all-aluminum horse trailers and
agricultural and turf maintenance equipment, are almost exclusively
final products sold through dealers to their users. Nearly all of the
Company's customers are located in North America.
Financial Statements - The condensed consolidated balance sheet as of
April 26, 1998 and the condensed consolidated statements of operations
and cash flows for the three- and six-month periods ended April 26,
1998 and April 27, 1997 have been prepared by the Company, without
audit. In the opinion of management, all adjustments (which include
only normal recurring adjustments) considered necessary for a fair
presentation have been made. Certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted. These financial statements should be read in
conjunction with the consolidated financial statements and notes
thereto included in the Company's October 26, 1997 Annual Report on
Form 10-K.
Reclassifications - Certain reclassifications have been made to the
1997 consolidated financial statements to conform to the 1998
presentation.
Seasonality - Sales of certain of the Company's specialized equipment
tend to be seasonal with lowest sales during the first 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 are lowest
during the first fiscal quarter.
6
<PAGE>
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 government 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 are subject to the overall domestic business
cycle.
Earnings per share - Effective for the first quarter of fiscal 1998,
the Company adopted Statement of Financial Accounting Standards
("SFAS") No. 128, "Earnings per Share." In accordance with the
provisions of this statement, all prior periods presented have been
restated. Basic earnings per common share is computed by dividing net
earnings (the numerator) by the weighted average number of common
shares outstanding during each period (the denominator). The
computation of diluted earnings per common share is similar to that of
basic earnings per common share, except that the denominator is
increased by the dilutive effect of stock options outstanding, computed
using the treasury stock method.
New Accounting Pronouncements - In June 1997, the Financial Accounting
Standards Board (the "FASB") issued SFAS No. 130, "Reporting
Comprehensive Income." This statement, which establishes standards for
reporting and disclosure of comprehensive income, is effective for
fiscal years beginning after December 15, 1997, although earlier
adoption is permitted. Reclassification of financial information for
earlier periods presented for comparative purposes is required under
SFAS No. 130. As this statement only requires additional disclosures in
the Company's consolidated financial statements, its adoption will not
have any impact on the Company's consolidated financial position or
results of operations. The Company expects to adopt SFAS No. 130 in the
first quarter of fiscal 1999.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information." This statement, which
establishes standards for reporting information about operating
segments and requires the reporting of selected information about
operating segments in interim financial statements, is effective for
fiscal years beginning after December 15, 1997, although earlier
adoption is permitted. Reclassification of segment information for
earlier periods presented for comparative purposes is required under
SFAS No. 131. The Company has not yet completed its analysis of the
effects of adopting this statement on its presentation of financial
data by business segment. The Company expects to adopt SFAS No. 131 in
the first quarter of fiscal 1999.
2. ACQUISITIONS AND DISPOSITIONS OF BUSINESSES
Sale of Great Bend - Effective April 26, 1998, the Company sold
substantially all of the assets of Great Bend to Allied Products
Corporation, of Chicago, Illinois for cash proceeds of approximately
$9,900,000, plus the assumption of approximately $2,100,000 in
liabilities. The Company recorded a pre-tax gain on the sale of Great
Bend of $2,775,000 ($924,000, net of tax). The Company's results of
operations for the six months ended April 26, 1998 include net sales
and income from operations, before allocation of corporate expenses,
from Great Bend of $7,251,000 and $670,000, respectively.
Acquisition of Astro Air - Effective April 26, 1998, the Company
acquired substantially all of the assets of Astro Air, Inc. ("Astro
Air"), a Jacksonville, Texas manufacturer of "fin and tube" heat
transfer coils, for $8,000,000 in cash, plus the repayment, shortly
7
<PAGE>
after closing, of approximately $2,700,000 of debt. In connection with
the acquisition, the Company has entered into a five-year consulting
agreement with Dacus Properties, Inc. ("DPI"), the former owner of
Astro Air, under which DPI will receive 3.4% of the net revenues
generated by certain specified customers. The acquisition has been
accounted for by the purchase method of accounting. The Company's
Consolidated Balance Sheet as of April 26, 1998 includes the accounts
of Astro Air, while the results of operations of Astro Air will be
included in the Company's Consolidated Statement of Operations from the
effective date of the acquisition. The purchase price was allocated to
the net assets acquired based on estimated fair values at the date of
acquisition. This resulted in excess of purchase price over assets
acquired of approximately $950,000, which is being amortized on a
straight-line basis over 20 years.
The following unaudited pro forma financial information presents the
consolidated results of operations of the Company as if the acquisition
of Astro Air and the disposition of Great Bend had occurred at the
beginning of fiscal year 1997 after giving effect to certain
adjustments, including depreciation expense related to the fair market
write-up of machinery and equipment, amortization of intangible assets,
including goodwill, and the elimination of the gain on the disposition
of Great Bend. The unaudited pro forma information is presented for
comparative purposes only and does not purport to be indicative of the
results of operations of the Company had these transactions been made
at the beginning of fiscal year 1997.
<PAGE>
Six Months Ended
--------------------------------
April 26, April 27,
1998 1997
Net sales $ 80,773,000 $ 72,241,000
Net income 1,200,000 659,000
Net income available for common stockholders 668,000 138,000
Basic earnings per common share $ 0.11 $ 0.02
3. INVENTORIES
April 26, October 26,
1998 1997
Raw materials and purchased parts $ 10,529,000 $ 9,325,000
Work in process 5,869,000 5,014,000
Finished goods 9,895,000 8,745,000
------------ -----------
Total $ 26,293,000 $ 23,084,000
============ ============
8
<PAGE>
4. COMMITMENTS AND CONTINGENCIES
The Company is subject to federal, state and local environmental
regulation with respect to its operations. The Company believes that it
is operating in substantial compliance with applicable environmental
regulations. 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.
Cramer is a party to a consent decree with the State of Connecticut
pursuant to which it has agreed to complete its environmental
investigation of the site on which its facility is located and conduct
any remedial measures which may be required. Cramer is also in
negotiations with the former operator of the site concerning the
reimbursement by the former operator of any costs the Company has
incurred or may incur in the future in connection with this matter. The
Company does not believe that the resolution of this matter will have a
material adverse effect on the financial results of the Company.
The Company has been named as a potentially responsible party with
respect to two hazardous substance disposal sites currently under
remediation 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 de minimis amounts.
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 $10.3 million of product as of
April 26, 1998. 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 significant amount of equipment pursuant to the
repurchase obligations in these contracts.
In addition to the matters reported herein, the Company is involved in
litigation dealing with numerous aspects of its business operations.
The Company believes that settlement of such litigation will not have a
material effect on its consolidated financial position, results of
operations or cash flows.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion addresses the financial condition of the Company as of
April 26, 1998 and the results of operations for the three and six-month periods
ended April 26, 1998 and April 27, 1997. This discussion should be read in
conjunction with the financial statements included elsewhere herein and the
Management's Discussion and Analysis and Financial Statement sections of the
Company's Annual Report on Form 10-K to which the reader is directed for
additional information.
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 are lowest during the first fiscal quarter.
General
On March 30, 1998, the Company announced that it intends to exit the three
agricultural equipment businesses included in its Specialized Equipment segment
in order to focus its resources on expanding the Company's Engineered Component
Products businesses and improving the performance of its trailer business.
As the first step in this process, the Company completed the sale of
substantially all of the assets of its Great Bend Manufacturing subsidiary to
Allied Products Corporation, effective as of April 26, 1998. Proceeds from the
sale were approximately $9.9 million, plus the assumption of approximately $2.1
million in liabilities. The Company recorded a gain on the sale of $2.8 million
($924,000, net of tax).
The Company has signed a non-binding letter of intent to sell the assets of its
DewEze Manufacturing ("DewEze") business to a company formed by the president of
the subsidiary for a premium of $200,000 over the book value of the assets to be
acquired, net of assumed liabilities. The Company expects to receive
approximately $4 million in consideration from the sale, and expects any gain or
loss to be negligible. The sale is expected to be completed in the Company's
third fiscal quarter.
The Company's previously announced non-binding letter of intent to sell the
assets of its Parker Industries ("Parker") grain handling equipment business has
expired, with no definitive agreement being reached. The Company is continuing
its efforts to sell Parker and has been in contact with a number of parties
in this regard. However, there can be no assurances as to whether or when such a
sale will be consummated.
Effective April 26, 1998, the Company acquired substantially all of the assets
of Astro Air, Inc. ("Astro Air"), a Jacksonville, Texas manufacturer of "fin and
tube" heat transfer coils, for $8.0 million in cash, plus the repayment, shortly
after closing, of approximately $2.7 million of debt. In connection with the
acquisition, the Company has entered into a five-year consulting agreement with
Dacus Properties, Inc. ("DPI"), the former owner of Astro Air, under which DPI
will receive 3.4% of the net revenues generated by certain specified customers.
On April 6, 1998, the Company announced that it had signed a definitive
agreement to acquire all of the outstanding stock of M.H. Rhodes, Inc.
("Rhodes"), for $14.51 per Rhodes share, aggregating $2.9 million, plus the
assumption or repayment of debt of approximately $1.2 million. Rhodes is a
publicly held manufacturer of mechanical timers and photoelectric controls,
located in Avon, Connecticut. The transaction, expected to be completed in the
fiscal third quarter, is subject to certain conditions, including approval by
the shareholders of Rhodes.
10
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In connection with the acquisition of Rhodes, the Company announced that it
intends to consolidate the operations of its Cramer subsidiary, located in Old
Saybrook, Connecticut, into Rhodes' manufacturing facility. Cramer will be
merged into and operate as a division of Rhodes. Owosso expects to incur
merger-related costs associated with the integration of the separate companies
and the institution of efficiencies anticipated as a result of the merger. Based
on information currently available, the total amount of merger-related charges
to be recognized is estimated to be between $1.5 and $2.0 million, before tax,
and include costs related to closing Cramer's Old Saybrook facility, moving
Cramer's operations to Avon, and severance costs. Certain of these
merger-related costs will be charged to expense in the period in which the
merger is consummated, expected to be the third fiscal quarter of 1998, with the
remainder of such costs recorded in subsequent periods, when incurred. Since the
acquisition has not yet been consummated, the merger expenses can only be
estimated at this time, and are subject to revision, as further information
becomes available.
Results of Operations
The following table sets forth for the periods indicated the percentage
relationship that certain items in the Company's Condensed Consolidated
Statements of Operations bear to net sales.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
----------------------- ----------------------
April 26, April 27, April 26, April 27,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of products sold 75.6% 76.8% 76.7% 76.9%
----- ----- ----- -----
Gross profit 24.4% 23.2% 23.3% 23.1%
Expenses:
Selling, general and administrative 13.1% 13.3% 13.8% 14.5%
Corporate 3.9% 3.4% 4.0% 3.8%
----- ----- ----- -----
Income from operations 7.4% 6.5% 5.5% 4.8%
Interest expense 3.0% 2.6% 3.2% 2.9%
Gain on sale of business -6.6% 0.0% -3.7% 0.0%
Other income -0.1% 0.0% -0.1% -0.1%
----- ----- ----- -----
Income before income taxes 11.1% 3.9% 6.1% 2.0%
Income tax expense 6.5% 1.7% 3.5% 0.9%
----- ----- ----- -----
Net income 4.6% 2.2% 2.6% 1.1%
Dividends and accretion on preferred stock 0.6% 0.7% 0.7% 0.7%
----- ----- ----- -----
Net income available for common stockholders 4.0% 1.5% 1.9% 0.4%
===== ===== ===== =====
</TABLE>
Three months ended April 26, 1998 compared to three months ended April 27, 1997
Net sales. For the second quarter of 1998, net sales increased 11.4%, to $41.9
million, as compared to net sales of $37.6 million in the second quarter of
1997.
In the Company's Engineered Component Products segment, net sales increased
9.7%, to $23.2 million in 1998 from $21.1 million in 1997, primarily as a result
of an 11.4% increase in sales at the Motor Companies to existing customers and
the addition of new customers. Sales of heat transfer coils at Snowmax increased
10.9% over the prior year quarter, primarily as a result of increased unit
volume, while sales of replacement camshaft bearings at Dura-Bond declined 1.9%
as compared to the prior year quarter.
11
<PAGE>
Net sales in the Specialized Equipment segment increased 13.7%, to $18.7 million
in the second quarter of 1998, as compared to $16.4 million in the prior year
quarter. This increase reflects a 16.2%, or $1.3 million, increase in sales of
aluminum trailers, attributable to both a price increase effective beginning in
the second quarter of 1998 and increased volume. The increase in net sales in
this segment was also a result of an 11.3%, or $943,000, increase in sales of
agricultural equipment. Net sales attributable to Great Bend were $3.6 million
and $3.8 million in the second quarter of 1998 and 1997, respectively.
Gross profit. For the second quarter of 1998, gross profit increased to $10.2
million, or 24.4% of net sales, as compared to $8.7 million, or 23.2% of net
sales in the prior year quarter.
Gross profit in the Engineered Component Products segment increased 20.9%, to
$6.2 million, or 26.5% of net sales, as compared to $5.1 million, or 24.1% of
net sales in the second quarter of 1997. These increases reflect a 16.7%
increase in gross profit at the Motor Companies and a 44.1% increase in gross
profit at Snowmax, both resulting from increased sales volume and changes in
product mix, and a 16.0% increase at Dura-Bond as a result of changes in
customer mix.
In the Specialized Equipment segment, gross profit increased 12.1%, to $4.1
million, or 21.8% of net sales, as compared to $3.6 million, or 22.1% of net
sales, in 1997, primarily as a result of improved operations at Sooner Trailer.
In response to disappointing operating results in the first quarter of 1998, the
Company discontinued the production of certain low-margin livestock trailers and
instituted price increases on certain other models.
Selling, general and administrative expenses. As a percentage of net sales,
selling, general and administrative expenses decreased to 13.1%, or $5.5
million, in the second quarter of 1998, as compared to 13.3%, or $5.0 million in
the prior year quarter. In the Engineered Component Products segment, selling
general and administrative expenses were $2.7 million, or 11.6% of net sales, as
compared to $2.5 million or 11.8% of net sales in the second quarter of 1997.
The increase in selling, general and administrative expenses in this segment was
primarily the result of an increase in engineering costs in response to
increased sales and increased sales and administrative personnel costs. In the
Specialized Equipment segment, selling, general and administrative expenses were
$2.8 million, or 15.1% of net sales, in 1998, as compared to $2.5 million, or
15.3% of net sales, in the prior year quarter. The increase in selling, general
and administrative expenses in this segment was primarily the result of an
increase in sales personnel and increased advertising and promotional costs.
Corporate expenses. In the second quarter of 1998, corporate expenses were $1.6
million, or 3.9% of net sales, as compared to $1.3 million, or 3.4% of net sales
in 1997. Corporate expenses increased primarily as a result of higher medical
insurance costs and consulting costs.
Income from operations. For the second quarter of 1998, income from operations
increased 28.0%, to $3.1 million, or 7.4% of net sales, as compared to $2.4
million, or 6.5% of net sales, in 1997.
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 33.3%, to $3.5 million, in
the second quarter of 1998, as compared to $2.6 million, in the prior year
quarter. As a percentage of net sales, business unit income for this segment
increased to 15.0% in 1998 from 12.3% in 1997. These increases were primarily a
result of strong sales and improved margins at Snowmax, increased sales at the
Motor Companies and improved results at Dura-Bond. Business unit income from the
Motor Companies was adversely affected by a reduction in income from operations
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<PAGE>
from the Company's Cramer subsidiary, the operations of which are planned to be
consolidated into Rhodes' manufacturing facility in connection with the merger
of the two companies.
Business unit income from the Specialized Equipment segment increased 12.7%, to
$1.3 million in the second quarter of 1998, from $1.1 million in the prior year
quarter, as a result of improved operations at Sooner Trailers. Business unit
income attributable to Great Bend was $295,000 and $440,000 for the second
quarter of 1998 and 1997, respectively.
Interest expense. For the second quarter of 1998, interest expense was $1.3
million, as compared to $1.0 million in 1997. This increase was the result of
increased borrowings under the Company's revolving credit agreement.
Income tax expense. The Company's effective income tax rate was 58.2% for the
second quarter of 1998, as compared to 44.4% in the prior year quarter. This
increase was primarily a result of non-deductible goodwill associated with the
sale of Great Bend. The Company expects its effective tax rate to decrease for
the remainder of the year.
Net income available for common stockholders. Net income available for common
stockholders was $1.7 million, or $.29 per share, in the second quarter of 1998,
as compared to $558,000, or $.10 per share, in the prior year quarter. Income
available for common stockholders is calculated by subtracting dividends on
preferred stock of $188,000 for both 1998 and 1997 and by deducting the non-cash
accretion in book value of preferred stock of $79,000 and $73,000 for 1998 and
1997, respectively. The current quarter results include the gain on the sale of
Great Bend of $2.8 million ($924,000 net of taxes, or $0.16 per share).
Six months ended April 26, 1998 compared to six months ended April 27, 1997
Net sales. Net sales for the six months ended April 26, 1998 increased 12.1%, to
$75.9 million, as compared to net sales of $67.7 million in the first six months
of 1997.
In the Company's Engineered Component Products segment, net sales increased
9.2%, to $41.9 million in 1998 from $38.4 million in 1997, primarily as a result
of increased sales volume at the Motor Companies to existing customers and the
addition of new customers. This increase also reflects a 7.2% increase in sales
of heat transfer coils at Snowmax, primarily as a result of increased unit
volume, while sales of replacement camshaft bearings at Dura-Bond decreased 2.2%
as compared to the prior year period.
Net sales in the Specialized Equipment segment increased 15.9%, to $34.1 million
in 1998, as compared to $29.4 million in the prior year period. This increase
reflects a 16.0%, or $2.4 million, increase in sales of agricultural equipment,
resulting from the strong agricultural market, and a 15.8%, or $2.2 million,
increase in sales of aluminum trailers. Sales attributable to Great Bend were
$7.3 million in the first six months of 1998 and $6.7 million in 1997.
Gross profit. For the first six months of 1998, gross profit increased to $17.7
million, or 23.3% of net sales, as compared to $15.6 million, or 23.1% of net
sales in the prior year period.
Gross profit in the Engineered Component Products segment increased 15.6%, to
$10.6 million, or 25.3% of net sales, as compared to $9.2 million, or 23.9% of
net sales in 1997. These increases were attributable to a 15.5% increase in
gross profit at the Motor Companies and a 30.5% increase in gross profit at
Snowmax, both resulting from increased sales volume and changes in product mix.
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<PAGE>
In the Specialized Equipment segment, gross profit increased 10.3%, to $7.1
million, as compared to $6.5 million, in 1997, reflecting increased sales of
agricultural equipment and improved operating results at Sooner during the
second quarter of 1998 as a result of changes in product mix.
Selling, general and administrative expenses. As a percentage of net sales,
selling, general and administrative expenses decreased to 13.8%, or $10.5
million, in 1998, as compared to 14.5%, or $9.8 million in the prior year
period. In the Engineered Component Products segment, selling general and
administrative expenses were $5.1 million, or 12.1% of net sales, in 1998, as
compared to $4.9 million, or 12.8% of net sales, in 1997. The increase in
selling, general and administrative expenses in this segment was primarily the
result of increased engineering costs in response to increased sales and
increased sales and administrative personnel costs. In the Specialized Equipment
segment, selling, general and administrative expenses were $5.4 million, or
15.9% of net sales, in 1998, as compared to $4.9 million, or 16.7% of net sales,
in the prior year period. The increase in selling, general and administrative
expenses in this segment was primarily the result of an increase in sales
personnel and increased advertising and promotional costs.
Corporate expenses. For the current six-month period, corporate expenses were
$3.0 million, or 4.0% of net sales, as compared to $2.6 million, or 3.8% of net
sales in the prior year period. Corporate expenses increased primarily as a
result of higher medical insurance, consulting and personnel costs.
Income from operations. For the first six months of 1998, income from operations
increased 28.6%, to $4.2 million, or 5.5% of net sales, as compared to $3.3
million, or 4.8% of net sales, in 1997.
Business unit income, defined as income from operations before allocation of
corporate expenses, for the Engineered Component Products segment increased
29.6%, to $5.5 million, in the current period, as compared to $4.2 million, in
1997. As a percentage of net sales, business unit income for this segment
increased to 13.1% in 1998 from 11.1% in 1997. These increases were primarily a
result of increased sales at the Motor Companies, as a whole, and strong sales
and improved margins at Snowmax.
Business unit income from the Specialized Equipment segment was $1.7 million in
1998, as compared to $1.6 million, in 1997, an increase of 8.6%. These results
reflect a $213,000 increase in business unit income from the agricultural
equipment companies, as a result of continued strong sales, offset by a $77,000
decrease in business unit income from Sooner Trailer, primarily as a result of
changes in product mix and increased selling, general and administrative
expenses in the first quarter of 1998. Business unit income attributable to
Great Bend was $670,000 and $657,000 for the 1998 and 1997 six-month periods,
respectively.
Interest expense. For the current six-month period, interest expense was $2.4
million, as compared to $2.0 million in 1997. This increase was the result of
increased borrowings under the Company's revolving credit agreement.
Income tax expense. The Company's effective income tax rate was 58.1% for the
first six months of 1998, as compared to 44.5% in the prior year period. This
increase was primarily a result of non-deductible goodwill associated with the
sale of Great Bend.
Net income available for common stockholders. Net income available for common
stockholders was $1.4 million, or $.24 per share, in the first six months of
1998, as compared to $243,000, or $.04 per share, in the prior year period.
Income available for common stockholders is calculated by subtracting dividends
on preferred stock of $375,000 for both 1998 and 1997 and by deducting the
non-cash accretion in book value of preferred stock of $157,000 and $146,000 for
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<PAGE>
1998 and 1997, respectively. The current period results include the gain on the
sale of Great Bend of $2.8 million ($924,000 net of taxes, or $0.16 per share).
Liquidity and Capital Resources
Cash and cash equivalents were $1.5 million at April 26, 1998, exclusive of
$225,000 of cash that was restricted under industrial revenue financings. This
compares to cash of $840,000 and restricted cash of $298,000 as of October 26,
1997. Working capital increased to $32.1 million at April 26, 1998 from $24.6
million at October 26, 1997. This increase was principally a result of
additional investments in accounts receivable and inventory of $5.3 million and
$3.2 million, respectively, as well as a reduction in the current portion of
long-term debt of $2.0 million, partially offset by an increase in accounts
payable of $1.9 million. The increase in working capital also reflects the
effects of the acquisition of Astro Air and the disposition of Great Bend. Net
cash used in operating activities was $3.9 million, as compared to net cash
provided by operating activities of $2.8 million in the prior year period. The
decrease in cash from operations was principally the result of increased
accounts receivable and inventories, primarily in response to increased sales
and the effects of seasonality, partially offset by improved operating results.
Investing activities included proceeds from the sale of Great Bend, effective
April 26, 1998, of $9.9 million. Also effective April 26, 1998, the Company
acquired the assets of Astro Air for $7.8 million, net of cash acquired.
Investing activities also included $3.9 million for capital expenditures for
equipment. Of this amount, approximately $2.5 million was invested in the
Engineered Component Products segment and $747,000 in the Specialized Equipment
segment. The remainder, $562,000, was invested in computer equipment and
software upgrades at the corporate office. The Company currently plans to invest
approximately $4.5 million during the remainder of fiscal 1998, including
approximately $2.5 million for the expansion of the Stature manufacturing
facility and related machinery and equipment, expected to be substantially
completed in the fourth quarter of 1998. Funding for the Stature expansion is
expected to be through the use of industrial revenue financing. Management
anticipates funding the other capital expenditures with cash from operations and
proceeds from the Company's revolving credit facility.
Financing activities included net borrowings under the Company's $55.0 million
revolving credit agreement of $10.2 million, related to increased working
capital needs, debt repayments of $2.5 million and the payment of dividends of
$1.4 million.
The Company maintains a $55.0 million revolving credit agreement with two banks
with a termination date of March 31, 2000. At April 26, 1998, $47.8 million was
outstanding and $7.2 million was available for additional borrowing under the
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
2.0% at April 26, 1998. The agreement contains customary financial and other
covenants, including fixed charges, cash flow and net worth ratios, restrictions
on certain asset sales, mergers and other significant transactions and a
negative pledge on assets. Certain covenants, including the fixed charges
coverage ratio, the total debt to EBITDA ratio, and the tangible net worth
covenant, were amended during the second quarter of 1998 to allow for the
acquisitions of Astro Air and Rhodes and the divestitures of Great Bend, DewEze
and Parker. The Company anticipates that it will remain in compliance with these
covenants for the foreseeable future.
The Company has interest rate swap agreements with its two banks with notional
amounts totaling $15.0 million. The Company entered into these agreements to
change the fixed/variable interest rate mix of its debt portfolio, in order to
reduce the Company's aggregate risk from movements in interest rates. The
agreements require the Company to make quarterly fixed payments on the notional
15
<PAGE>
amount at rates of 7.0675% and 7.09% through July 2002 in exchange for receiving
payments at the three-month London Interbank Offered Rate.
The Company believes anticipated funds to be generated from future operations,
available credit facilities and dispositions will be sufficient to meet
anticipated operating and capital needs, including the acquisition of Rhodes.
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, including those which
express "belief", "anticipation" or "expectation" as well as other statements
which are not historical fact, 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:
o The sale of DewEze is subject to a non-binding letter of intent,
with a definitive sale agreement currently under negotiation. Such
sale will be subject to customary conditions, some of which will
be outside the Company's control. Accordingly, there can be no
assurance that the sale will be completed.
o No definitive agreement or commitment exists with regard to the
sale of Parker. Accordingly, there can be no assurance as to
whether or when the sale will be completed. The results of
operations of Parker may be adversely affected as a result of the
announced sale.
o The acquisition of Rhodes is subject to approval by Rhodes'
shareholders, as well as other customary conditions, some of
which are outside the Company's control. Accordingly, there can be
no assurance that the acquisition will be completed. Since the
acquisition of Rhodes is not yet completed, the ultimate cost and
timing of such acquisition and the related consolidation of the
Cramer operations can only be estimated.
o 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.
o 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.
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<PAGE>
o 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.
o The Company's Sooner Trailer subsidiary has experienced
production inefficiencies that have caused increased production
costs and lower gross margins. Continuation of such inefficiencies
could continue to adversely affect the Company's results of
operations.
o Changes in demand that change product mix may reduce operating
margins by shifting demand toward less profitable products.
o Loss of a substantial customer may affect results of operations.
o 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.
o Obsolescence or quality problems leading to returned goods in
need of repair can affect the value of the Company's inventories
and its profitability.
o 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.
o 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 loss on the disposition that
could reduce the Company's results. In addition, acquisitions or
dispositions could effect the Company's relative mix of operating
results from engineered component products and specialized
equipment, thereby effecting the seasonality and cyclicality of
such operating results.
17
<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 18, 1998, 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 ending October 25, 1998 and
approved the adoption of the 1998 Long-Term Incentive Plan. In the election of
directors, 5,520,709 shares were voted in favor of the election of George B.
Lemmon, Jr. and 11,252 were withheld, 5,498,409 shares were voted in favor of
the election of John B. Reese and 11,252 were withheld, 5,497,819 shares were
voted in favor of the election of Eugene P. Lynch and 11,842 were withheld,
5,520,709 shares were voted in favor of the election of Ellen D. Harvey and
11,252 were withheld, 5,520,709 shares were voted in favor of the election of
Harry E. Hill and 11,252 were withheld, 5,497,819 shares were voted in favor of
the election of James A. Ounsworth and 11,842 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 ending October 25, 1998, 5,501,979
shares were voted in favor, 2,350 shares were voted against and 5,332 shares
abstained. In the vote to adopt the 1998 Long-Term Incentive Plan, 4,498,437
shares were voted in favor, 65,124 shares voted against, 271,079 shares
abstained and 697,321 were broker non-votes.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No. Description
10.1 Ninth 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 27, 1998.
*10.2 1998 Long-Term Incentive Plan (Exhibit 4.1 to the Company's
Registration Statement on Form S-8 filed June 2, 1998,
Registration No. 333-55835).
11 Computation of per share earnings
27 Financial Data Schedule
- -------------
* Incorporated by reference.
(b) Reports on Form 8-K
A Current Report on Form 8-K, dated March 30, 1998 was filed
to announce that the Company had signed an agreement to sell
substantially of the assets of Great Bend Manufacturing
Company, Inc. and that it had signed non-binding letters of
intent to sell the assets of two other businesses in its
specialized equipment segment.
A Current Report on Form 8-K, dated April 3, 1998 was filed
to announce that the Company had signed two definitive
agreements, one to acquires substantially all of the assets
of Astro Air, Inc. and one to acquire all of the outstanding
stock of M.H. Rhodes, Inc.
A Current Report on Form 8-K, dated April 26, 1998 was filed
to announce that the Company had completed both the sale of
Great Bend Manufacturing Company, Inc. and the acquisition of
Astro Air, Inc.
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<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
Date: June 10, 1998 By: /s/ George B. Lemmon, Jr.
-----------------------------
George B. Lemmon, Jr.
President, Chief Executive
Officer, and Director
By: /s/ John H. Wert, Jr.
-----------------------------
John H. Wert, Jr.
Senior Vice President - Finance,
Chief Financial Officer, and
Treasurer and Secretary
19
<PAGE>
Execution Copy
NINTH AMENDMENT TO CREDIT AGREEMENT
THIS NINTH AMENDMENT TO CREDIT AGREEMENT, dated as of March
27, 1998 (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, and the survivor of the merger with Snyder
Industries Group, Inc., a Washington 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 ("Great Bend"), STATURE
ELECTRIC, INC., a New York corporation ("Stature"), and OWOSSO MOTOR GROUP,
INC., a Pennsylvania corporation ("Motor Group" and, together with Owosso, Ahab,
Cramer, DewEze, Landover, Motor Products, Snowmax, Sooner, Motor Products-Ohio,
Great Bend and Stature, 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, the Sixth Amendment to Credit Agreement,
dated as of December 1, 1996, the Seventh Amendment to Credit Agreement, dated
as of March 3, 1997, and the Eighth Amendment to Credit Agreement, dated as of
December 29, 1997 (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, the Banks and the Agent now desire to
further 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 1. AMENDMENTS TO CREDIT AGREEMENT
Effective upon the date (the "Amendment Date") the conditions
precedent set forth in Article 2 of this Amendment are satisfied, the Credit
Agreement hereby is amended as follows:
1.1 The following definitions of the terms "Ninth Amendment"
and "Pledge Agreement" are added to Section 1.1 in alphabetical order:
"Ninth Amendment" shall mean the Ninth Amendment to Credit
Agreement, dated as of March 27, 1998, by and among the
Borrowers, the Banks and the Agent.
"Pledge Agreement" shall mean, collectively, each pledge
agreement entered into by Owosso in favor of the Agent for the
benefit of the Banks and the Agent, pursuant to the Ninth
Amendment or otherwise, as amended or modified from time to
time.
1.2 The following sentence is added to the end of
Section 5.1(g):
In addition, the relevant Borrower or Subsidiary shall, within
such time period, execute and deliver to the Banks and the
Agent a pledge agreement, or an amendment to any existing
Pledge Agreement, in form and substance satisfactory to the
Agent, pursuant to which such Borrower or Subsidiary, as the
case may be, shall pledge all capital stock of such new
Subsidiary.
1.3 Section 5.2(b) is amended and restated 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) 4.50 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
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<PAGE>
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.
1.4 Section 5.2(c) is amended and restated 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 or January 31,
1998, (iv) 0.90 to 1.00 as of the end of either of the
Borrowers' fiscal quarters ending on or about April 30, 1998
or July 31, 1998, (v) 1.10 to 1.00 as of the end of any of the
Borrowers' fiscal quarters ending on or about October 31,
1998, January 31, 1999 or April 30, 1999, or (vi) 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
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. 1.5 Section
5.2(e) is amended and restated in full as follows:
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<PAGE>
(e) Tangible Net Worth. Permit or suffer the Consolidated
Tangible Net Worth of the Borrowers and their Subsidiaries to
be less than $0 at the end of the Borrowers' fiscal quarter
ending on or about October 31, 1998, or at anytime thereafter.
1.6 Section 5.2(i) is amended and restated in full as follows:
(i) Negative Pledge Limitation. At any time after the
Amendment Date (as defined in the Ninth Amendment), enter into
any agreement, with any person other than the Banks and the
Agent pursuant hereto which prohibits or limits the ability of
any of the Borrowers or any of their respective Subsidiaries
to create, incur, assume or suffer to exist any Lien upon any
of their respective assets, rights, revenues or property,
real, personal or mixed, tangible or intangible, whether now
owned or hereafter acquired.
1.7 Subsection (j) of Section 6.1 is relabeled as subsection
"(k)", and a new subsection (j) is inserted immediately following subsection
(i), as follows:
(j) Pledge Agreement. Any event of default described in the
Pledge Agreement shall have occurred and be continuing, or any
material provision of the Pledge Agreement shall at any time
for any reason cease to be valid and binding and enforceable
against any obligor thereunder, or the validity, binding
effect or enforceability thereof shall be contested by any
Borrower or any other Pledged Subsidiary (as defined in the
Pledge Agreement), if any, or any obligor shall deny that it
has any or further liability or obligation thereunder, or any
material provision thereof shall be terminated, invalidated or
set aside, or be declared ineffective or inoperative or in any
way cease to give or provide to the Banks and the Agent the
benefits purported to be created thereby; provided that the
occurrence of any Divestiture (as defined in the Ninth
Amendment) with the consent of the Banks, and the release from
the Pledge Agreement of the stock of the divested Pledged
Subsidiary in connection therewith, shall not constitute an
Event of Default hereunder.
ARTICLE 2. CONDITIONS PRECEDENT TO AMENDMENTS
As conditions precedent to the effectiveness of the amendments
to the Credit Agreement set forth in Article 1 of this Amendment, the Banks and
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<PAGE>
the Agent shall receive the following documents and the following matters shall
be completed, all in form and substance satisfactory to the Agent:
2.1 Owosso shall have executed and delivered to the Banks and
the Agent a pledge agreement, in form and substance satisfactory to the Agent
(the "Pledge Agreement"), pursuant to which Owosso shall have pledged all
capital stock of all Subsidiaries of Owosso.
2.2 Certified copies of such documents evidencing necessary
corporate action of Owosso with respect to this Amendment, the Pledge Agreement
and the transactions contemplated hereby as the Agent may reasonably request.
2.3 The favorable written opinion of counsel to the Borrowers
in form and substance satisfactory to the Agent, with respect to such matters as
the Agent may reasonably request.
2.4 Such other documents and agreements reasonably requested
by the Agent.
ARTICLE 3. REPRESENTATIONS AND WARRANTIES
In order to induce the Banks to enter into this Amendment,
each Borrower represents and warrants that:
3.1 The execution, delivery and performance by the Borrowers
of this Amendment, and the execution, delivery and performance by Owosso of the
Pledge Agreement, 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.
3.2 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
Pledge Agreement, or the transactions contemplated hereby or as a condition to
the legality, validity or enforceability of this Amendment or the Pledge
Agreement.
3.3 This Amendment is a legal, valid and binding obligation of
the Borrowers enforceable against the Borrowers in accordance with its terms.
The Pledge Agreement is a legal, valid and binding obligation of Owosso
enforceable against Owosso in accordance with its terms.
-5-
<PAGE>
3.4 After giving effect to the amendments contained in Article
1 of this Amendment and to Section 5.2 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 or
Motor Group shall be deemed a "Borrower" with respect to, but only with respect
to, such representations and warranties regarding historical matters not
involving any such Borrower.
3.5 To the best of its knowledge, none of the Borrowers or any
of their respective Subsidiaries is a party to or otherwise bound by any
agreement which, if such agreement were entered into or became binding after the
Amendment Date, would be prohibited by Section 5.2(i) of the Credit Agreement,
as amended by this Amendment. The Borrowers agree to promptly inform the Banks
and the Agent upon any of the Borrowers becoming aware after the Amendment Date
of any such agreement to which any of them was a party as of the Amendment Date
and thereafter continues to be a party.
ARTICLE 4. CONDITIONAL CONSENT TO
ACQUISITIONS AND DIVESTITURES
Owosso has informed the Banks and the Agent that it desires
(a) to purchase the stock of M.H. Rhodes, Inc., a Delaware corporation, and to
purchase the stock of Astro Air, Inc., a Texas corporation (collectively, the
"Acquisitions" and, individually, an "Acquisition"), and (b) to sell
substantially all the assets or 100% of the capital stock of Great Bend, to sell
substantially all the assets of the Parker division of DewEze, and to sell
substantially all the other assets or 100% of the capital stock of DewEze
(collectively, the "Divestitures" and, individually, a "Divestiture"). The
Borrowers and the Banks agree that, notwithstanding anything in the Credit
Agreement to the contrary, the Acquisitions and the Divestitures shall be
prohibited without the prior written consent of the Banks.
The Banks hereby consent to each Acquisition and each
Divestiture, provided that in each case the following conditions shall have been
satisfied:
(a) no Default or Event of Default shall have
occurred and be continuing at the time of each such
Acquisition and Divestiture (both before and after the
consummation of each such Acquisition or Divestiture);
(b) the Great Bend Divestiture or other Divestitures
the net proceeds of which total not less than $7,000,000 shall
have been consummated prior to any Acquisition;
-6-
<PAGE>
(c) each such Acquisition or Divestiture shall be
consummated on substantially the terms and conditions as the
Borrowers shall have from time to time represented to the
Banks would be the terms and conditions for such Acquisition
or Divestiture, as the case may be;
(d) all other requirements of Sections 5.1(g) and
5.2(g) of the Credit Agreement shall be satisfied in
connection with each such Acquisition; and
(e) immediately upon the consummation of each such
Acquisition, Owosso shall pledge all capital stock of the
acquired entity to the Banks and the Agent pursuant to a
pledge agreement, or an amendment to any existing Pledge
Agreement, in form and substance satisfactory to the Agent.
The consent of the Banks provided herein is limited to the Acquisitions and
Divestitures and is subject to the conditions set forth above, and such consent
shall not be deemed to be a waiver of or consent to any other action or omission
in violation of the Credit Agreement, or a waiver or modification of any
provision of the Credit Agreement, except as expressly set forth herein, and
such consent shall not be deemed to prejudice any other right or rights which
any of the Banks or the Agent may now have or have in the future under or in
connection with the Credit Agreement.
Immediately upon the consummation of each such Divestiture
that is a stock sale, provided that all relevant conditions described in (a)-(e)
above relating to such Divestiture have been satisfied, whichever one of Great
Bend and DewEze is the subject of each such Divestiture automatically shall be
released from its obligations under the Credit Agreement and the Notes, and its
stock shall be released from the pledge under the Pledge Agreement.
ARTICLE 5. MISCELLANEOUS
5.1 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.
5.2 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.
-7-
<PAGE>
5.3 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.
5.4 Capitalized terms used but not defined in this Amendment
shall have the respective meanings ascribed thereto in the Credit Agreement.
5.5 This Amendment shall be governed by and construed in
accordance with the laws of the State of Michigan.
5.6 This Amendment may be signed upon any number of
counterparts with the same effect as if the signatures thereto were upon the
same instrument.
5.7 The Borrowers agree, jointly and severally, to pay the
reasonable fees and expenses of Dickinson Wright PLLC, 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.]
-8-
<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: Senior VP - Finance & CFO
--------------------------
AHAB INVESTMENT COMPANY
By: /s/ Norman J. Shumon
-----------------------------
Its: Vice President
-------------------
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
--------------------
-9-
<PAGE>
MOTOR PRODUCTS-OWOSSO
CORPORATION
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
--------------------
-10-
<PAGE>
STATURE ELECTRIC, INC.
By: /s/ John H. Wert, Jr.
-----------------------------
Its: Secretary/Treasurer
--------------------
OWOSSO MOTOR GROUP, 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/ Heidi S. Bahmueller
-----------------------------
Its: Banking Officer
----------------
-11-
<PAGE>
OWOSSO CORPORATION
EXHIBIT 11
COMPUTATION OF PER SHARE EARNINGS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
-------------------------------- ---------------------------------
April 26, April 27, April 26, April 27,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
BASIC:
Net income available for common stockholders $1,670,000 $ 558,000 $1,411,000 $ 243,000
========== ========== ========== ==========
Weighted average number of
common shares outstanding 5,814,000 5,809,000 5,811,000 5,809,000
========== ========== ========== ==========
Basic earnings per common share $ 0.29 $ 0.10 $ 0.24 $ 0.04
========== ========== ========== ==========
DILUTED:
Net income available for common stockholders $1,670,000 $ 558,000 $1,411,000 $ 243,000
========== ========== ========== ==========
Weighted average number of
common shares outstanding 5,814,000 5,809,000 5,811,000 5,809,000
Dilutive effect of stock options 24,000 20,000 24,000 15,000
---------- ---------- ---------- ----------
Weighted average number of shares outstanding 5,838,000 5,829,000 5,835,000 5,824,000
========== ========== ========== ==========
Diluted earnings per common share $ 0.29 $ 0.10 $ 0.24 $ 0.04
========== ========== ========== ==========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-25-1998
<PERIOD-END> APR-26-1998
<CASH> 1,527
<SECURITIES> 0
<RECEIVABLES> 25,551
<ALLOWANCES> 342
<INVENTORY> 26,293
<CURRENT-ASSETS> 54,720
<PP&E> 61,473
<DEPRECIATION> 28,731
<TOTAL-ASSETS> 115,041
<CURRENT-LIABILITIES> 22,637
<BONDS> 64,421
0
14,121
<COMMON> 59
<OTHER-SE> 23,120
<TOTAL-LIABILITY-AND-EQUITY> 125,290
<SALES> 75,922
<TOTAL-REVENUES> 75,922
<CGS> 58,202
<TOTAL-COSTS> 58,202
<OTHER-EXPENSES> 13,529
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,396
<INCOME-PRETAX> 4,641
<INCOME-TAX> 2,698
<INCOME-CONTINUING> 1,943
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,411
<EPS-PRIMARY> 0.24
<EPS-DILUTED> 0.24
</TABLE>
