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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: July 30, 2000 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 September 8, 2000, 5,849,789 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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<TABLE>
<CAPTION>
Page
<S> <C> <C>
PART I - FINANCIAL INFORMATION:
Item 1. Financial Statements
Condensed Consolidated Statements of Operations for 3
the three and nine months ended July 30, 2000 and
August 1, 1999 (unaudited)
Condensed Consolidated Balance Sheets at 4
July 30, 2000 (unaudited) and October 31, 1999
Condensed Consolidated Statements of Cash Flows 5
for the nine months ended July 30, 2000 and August 1, 1999
(unaudited)
Notes to Condensed Consolidated Financial Statements 6
(unaudited)
Item 2. Management's Discussion and Analysis of 10
Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures about Market Risks 15
PART II - OTHER INFORMATION:
Item 2. Changes in Securities and Use of Proceeds 16
Item 6. Exhibits and Reports on Form 8-K 16
</TABLE>
2
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OWOSSO CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
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<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------------------------------------------------------------
July 30, August 1, July 30, August 1,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Net sales $41,824,000 $43,910,000 $124,941,000 $128,487,000
Cost of products sold 34,940,000 35,114,000 103,822,000 103,167,000
----------- ----------- ------------ ------------
Gross profit 6,884,000 8,796,000 21,119,000 25,320,000
Selling, general and administrative expenses 5,183,000 5,646,000 16,392,000 18,444,000
----------- ----------- ------------ ------------
Income from operations 1,701,000 3,150,000 4,727,000 6,876,000
Interest expense 1,286,000 1,272,000 3,854,000 3,787,000
Other income 19,000 269,000 106,000 402,000
----------- ----------- ------------ ------------
Income before income taxes 434,000 2,147,000 979,000 3,491,000
Income tax expense 237,000 1,093,000 491,000 1,270,000
----------- ----------- ------------ ------------
Net income 197,000 1,054,000 488,000 2,221,000
Dividends and accretion on preferred stock (282,000) (275,000) (839,000) (819,000)
----------- ----------- ------------ ------------
Net income (loss) available
for common stockholders $ (85,000) $ 779,000 $ (351,000) $ 1,402,000
=========== =========== ============ ============
Earnings (loss) per common share:
Basic $ (0.01) $ 0.13 $ (0.06) $ 0.24
=========== =========== ============ ============
Diluted $ (0.01) $ 0.13 $ (0.06) $ 0.24
=========== =========== ============ ============
Weighted average number of
common shares outstanding
Basic 5,850,000 5,830,000 5,842,000 5,824,000
=========== =========== ============ ============
Diluted 5,850,000 5,868,000 5,842,000 5,853,000
=========== =========== ============ ============
</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>
July 30, October 31,
2000 1999
(Unaudited) (See Note)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 450,000 $ 161,000
Receivables, net 20,084,000 19,999,000
Inventories, net 19,914,000 20,173,000
Prepaid expenses and other 1,986,000 1,101,000
Deferred taxes 1,220,000 1,220,000
------------- -------------
Total current assets 43,654,000 42,654,000
PROPERTY, PLANT AND EQUIPMENT, NET 34,108,000 35,900,000
GOODWILL, NET 26,572,000 27,057,000
OTHER INTANGIBLE ASSETS, NET 7,268,000 7,893,000
OTHER ASSETS 2,061,000 3,186,000
------------- -------------
TOTAL ASSETS $ 113,663,000 $ 116,690,000
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable - trade $ 13,385,000 $ 13,169,000
Accrued expenses 7,082,000 8,695,000
Current portion of related party debt 1,000,000 1,815,000
Current portion of long-term debt 1,651,000 2,064,000
------------- -------------
Total current liabilities 23,118,000 25,743,000
LONG-TERM DEBT, LESS CURRENT PORTION 52,140,000 51,601,000
POSTRETIREMENT BENEFITS AND OTHER LIABILITIES 3,037,000 2,923,000
DEFERRED TAXES 2,521,000 2,439,000
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY 32,847,000 33,984,000
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 113,663,000 $ 116,690,000
============= =============
</TABLE>
Note: the balance sheet at October 31, 1999 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)
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<TABLE>
<CAPTION>
Nine Months Ended
-----------------
July 30, August 1,
2000 1999
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 488,000 $ 2,221,000
Adjustments to reconcile net income to cash
provided by (used in) operating activities:
Depreciation 4,092,000 4,039,000
Amortization 1,727,000 1,710,000
Other -- 6,000
Changes in operating assets and liabilities (1,986,000) (374,000)
----------- -----------
Net cash provided by operating activities 4,321,000 7,602,000
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of business -- 4,442,000
Purchases of property, plant and equipment (2,436,000) (4,846,000)
Contingent consideration on acquisition (628,000) (660,000)
Other 1,344,000 1,839,000
----------- -----------
Net cash provided by (used in) investing activities (1,720,000) 775,000
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (payments) under revolving credit agreement 1,450,000 (4,350,000)
Payments on long-term debt (1,324,000) (1,260,000)
Payments on related party debt (815,000) (1,028,000)
Dividends paid (1,613,000) (1,423,000)
Other (10,000) --
----------- -----------
Net cash used in financing activities (2,312,000) (8,061,000)
----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 289,000 316,000
CASH AND CASH EQUIVALENTS, BEGINNING 161,000 191,000
----------- -----------
CASH AND CASH EQUIVALENTS, ENDING $ 450,000 $ 507,000
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 3,286,000 $ 4,085,000
=========== ===========
Taxes paid $ 1,951,000 $ 1,468,000
=========== ===========
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES:
Dividends payable $ 493,000 $ 537,000
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE>
OWOSSO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company - The condensed consolidated financial statements represent the
consolidated financial position, results of operations and cash flows of
Owosso Corporation and its subsidiaries (the "Company"). The Company
currently operates in two core business segments: Motors and Coils; and two
business segments considered to be non-core: Trailers and Agricultural
Equipment, and Other.
The Motors segment, which includes Stature Electric, Inc. ("Stature"), Motor
Products - Owosso Corporation ("Motor Products"), and Motor Products Ohio
Corporation ("MP-Ohio"), manufactures fractional and integral horsepower
motors. Significant markets for the Company's motors include commercial
products and equipment, healthcare and recreation. The Company sells its
motors primarily throughout North America and also in Europe.
The Coils segment manufactures heat exchange coils primarily for
non-automotive transportation, refrigeration and commercial and residential
HVAC markets. The businesses included in this segment include Astro Air
Coils, Inc. ("Astro Air"), Snowmax, Inc. ("Snowmax"), and Astro Air UK Ltd.
("Astro UK"), which began operations in March 1999. The Company sells its
coils primarily throughout North America and also in Europe.
The Trailers and Agricultural Equipment segment includes Sooner Trailer
Manufacturing Co. ("Sooner Trailer"), which manufactures all-aluminum
trailers, primarily horse and livestock trailers. Sooner Trailer sells its
trailers through a dealer network located throughout the United States and
Canada. Also included in this segment through March 1999, the date of its
sale, is Parker Industries ("Parker").
The Company's Other segment includes Dura-Bond Bearing Company ("Dura-Bond"),
and M.H. Rhodes, Inc. ("Rhodes"). Dura-Bond manufactures replacement camshaft
bearings, valve seats and shims for the automotive after-market. Rhodes
manufactures timers and subfractional horsepower motors for use in commercial
applications.
Financial Statements - The condensed consolidated balance sheet as of July
30, 2000 and the condensed consolidated statements of operations and cash
flows for the three- and nine-month periods ended July 30, 2000 and August 1,
1999 have been prepared by the Company, without audit. In the opinion of
management, all adjustments (which include only normal recurring adjustments)
considered necessary to present fairly the financial position, results of
operations and cash flows as of July 30, 2000 and for all periods presented
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 31,
1999 Annual Report on Form 10-K.
Fiscal Year - The Company's fiscal year includes 52 or 53 weeks ending on the
last Sunday in October. Fiscal year 1999 consisted of 53 weeks. The first
nine months of 2000 included 39 weeks, whereas the first nine months of 1999
included 40 weeks. Both the third quarter of 2000 and 1999 included 13 weeks.
6
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Earnings per share - 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.
Comprehensive income - The Company's comprehensive income consists of net
earnings and foreign currency translation adjustments as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
July 30, August 1, July 30, August 1,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Net income (loss) available for
common stockholders $ (85,000) $ 779,000 $ (351,000) $ 1,402,000
Foreign currency translation loss (17,000) (54,000) (70,000) (54,000)
---------- --------- ---------- -----------
Total comprehensive income (loss) $ (102,000) $ 725,000 $ (421,000) $ 1,348,000
========== ========= ========== ===========
</TABLE>
New Accounting Pronouncements - In June 1998, the Financial Accounting
Standards Board (the "FASB") issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. This statement establishes accounting and
reporting standards for derivative instruments and hedging activities. It
requires that an entity recognize all derivatives as either assets or
liabilities in the consolidated balance sheet and measure those instruments
at fair value. This statement, as amended by SFAS No. 137, Accounting for
Derivative Instruments and Hedging Activities - Deferral of the Effective
Date of FASB Statement No. 133, is effective for all fiscal quarters of
fiscal years beginning after June 15, 2000. The Company is in the process of
analyzing the impact that SFAS No. 133 will have on its consolidated
financial position and results of operations when such statement is adopted.
2. INVENTORIES
July 30, October 31,
2000 1999
Raw materials and purchased parts $ 8,912,000 $ 9,619,000
Work in process 6,174,000 4,076,000
Finished goods 4,828,000 6,478,000
------------ ------------
Total $ 19,914,000 $ 20,173,000
============ ============
7
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3. COMMITMENTS AND CONTINGENCIES
The Company is subject to federal, state and local environmental regulations
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.
The Company 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 Cramer facility was previously located and conduct
any remedial measures which may be required. In the second quarter of 2000,
the Company revised its estimate of the cost to complete the remedial
measures required at the site. The revision to the estimate resulted in a
reduction in the liability of $260,000. Based upon the amounts recorded as
liabilities, the Company does not believe that the ultimate resolution of
this matter will have a material adverse effect on the consolidated financial
results of the Company.
The Company has been named as a potentially responsible party with respect to
three hazardous substance disposal sites currently under remediation by the
U.S. Environmental Protection Agency (the "EPA") under its "Superfund"
program. With respect to all three sites, based on the minimal amount of
waste alleged to have been contributed to the sites by the Company, the
Company expects to resolve the matters through the payment of de minimis
amounts.
Sooner has arrangements with a number of financial institutions to provide
floor plan financing for its dealers, which requires it to repurchase
repossessed products from the financial institutions in the event of a
default by the financed dealer. Its 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 $12,000,000 of product
as of July 30, 2000. 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. Sooner has not taken possession of 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
adverse effect on its consolidated financial position or results of
operations.
8
<PAGE>
4. SEGMENT INFORMATION
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
July 30, August 1, July 30, August 1,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Net sales:
Motors $ 14,821,000 $ 16,242,000 $ 43,523,000 $ 47,864,000
Coils 10,473,000 12,007,000 33,685,000 35,800,000
Trailers and Agricultural Equipment 12,216,000 10,846,000 34,148,000 30,274,000
Other 4,314,000 4,815,000 13,585,000 14,549,000
------------ ------------ ------------- -------------
Total net sales $ 41,824,000 $ 43,910,000 $ 124,941,000 $ 128,487,000
============ ============ ============= =============
Income (loss) from operations:
Motors $ 1,907,000 $ 2,554,000 $ 4,373,000 $ 6,728,000
Coils (65,000) 893,000 841,000 3,261,000
Trailers and Agricultural Equipment 253,000 771,000 1,285,000 1,015,000
Other 712,000 474,000 1,865,000 796,000
Corporate (1) (1,106,000) (1,542,000) (3,637,000) (4,924,000)
------------ ------------ ------------- -------------
Total income from operations $ 1,701,000 $ 3,150,000 $ 4,727,000 $ 6,876,000
============ ============ ============= =============
</TABLE>
(1) Includes unallocated corporate expenses, primarily executive compensation,
information technology, and other administrative expenses.
The Company derives substantially all of its revenues from within the United
States. Identifiable assets of the segments are not materially different from
amounts disclosed in the Company's 1999 Annual Report on Form 10-K. Information
about interest expense, other income and income taxes is not provided on a
segment level. The accounting policies of the segments are the same as those
described in the summary of significant accounting policies and in the Company's
1999 Annual Report on Form 10-K.
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
July 30, 2000 and the results of operations for the three and nine months ended
July 30, 2000 and August 1, 1999. The nine- month 2000 period included 39 weeks,
whereas the nine-month 1999 period included 40 weeks. Both of the three-month
periods included 13 weeks. 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.
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 Nine Months Ended
-------------------- ---------------------
July 30, August 1, July 30, August 1,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of products sold 83.5% 80.0% 83.1% 80.3%
------ ------ ------ ------
Gross profit 16.5% 20.0% 16.9% 19.7%
Selling, general and administrative expenses 12.4% 12.8% 13.1% 14.3%
------ ------ ------ ------
Income from operations 4.1% 7.2% 3.8% 5.4%
Interest expense 3.1% 2.9% 3.1% 2.9%
Other income 0.0% 0.6% 0.1% 0.2%
------ ------ ------ ------
Income before income taxes 1.0% 4.9% 0.8% 2.7%
Income tax expense 0.6% 2.5% 0.4% 1.0%
------ ------ ------ ------
Net income 0.4% 2.4% 0.4% 1.7%
Dividends and accretion on preferred stock 0.6% 0.6% 0.7% 0.6%
------ ------ ------ ------
Net income (loss) available for common stockholders -0.2% 1.8% -0.3% 1.1%
====== ====== ====== ======
</TABLE>
Three months ended July 30, 2000 compared to three months ended August 1, 1999
Net sales. Net sales for the third quarter of 2000 decreased 4.8%, or $2.1
million, to $41.8 million, as compared to net sales of $43.9 million in the
prior year quarter.
Net sales from Motors decreased 8.7% to $14.8 million in 2000, from $16.2
million in 1999, primarily as a result of decreased sales to the recreational
vehicle market and a softening of the healthcare market. Sales to the
recreational vehicle market were adversely affected by design issues associated
with a new motor developed for this market.
Net sales from Coils decreased 12.8% to $10.5 million, compared to $12.0 million
in the prior year quarter, primarily as a result of a softening in the truck
market. The Company expects demand from the heavy truck market to continue to
decline in the fourth quarter.
Net sales from Sooner Trailer, the only remaining business in the Trailers and
Agricultural Equipment segment, were $12.2 million in 2000, as compared to $10.8
million in 1999. This increase is a result of higher unit volume, primarily from
the newly introduced Revolution product line.
10
<PAGE>
Net sales from the Company's Other segment were $4.3 million in 2000, as
compared to $4.8 million in 1999. This decrease was primarily a result of
decreased sales to the timer and switch markets.
Income from operations. For the third quarter of 2000, income from operations
was $1.7 million, or 4.1% of net sales, as compared to $3.2 million, or 7.2% of
net sales, in 1999.
Income from operations for the Motors segment was $1.9 million, or 12.9% of net
sales, in the third quarter of 2000, as compared to $2.6 million, or 15.7% of
net sales, in the prior year quarter. These results reflect decreased sales
volume to the recreational vehicle market and a softening of the healthcare
market. As noted above, sales to the recreational vehicle market have been
adversely affected by design issues associated with a new motor developed for
this market. The design issues were resolved during the third quarter and the
Company expects sales to this market to improve during the fourth quarter.
Income from operations for the Motors segment also continued to be unfavorably
impacted by temporary production inefficiencies resulting from a complete
overhaul of Motor Products' facility from batch processing to demand flow
technology during the second quarter of 2000.
The Coils segment reported a loss from operations of $65,000, or 0.6% of net
sales, as compared to income from operations of $893,000, or 7.4% of net sales,
in the prior year quarter. These results reflect a decrease in gross profit of
$731,000 primarily from reduced net sales, as well as manufacturing
inefficiencies related, in part, to the transition to a new manufacturing
system. In addition, selling, general and administrative costs increased
$227,000, or 41.9%, over the prior year quarter primarily as a result of higher
personnel costs associated with additional management personnel, including
approximately $80,000 related to recruiting and relocation costs.
The Trailers and Agricultural Equipment segment had income from operations of
$253,000, or 2.1% of net sales, in 2000, as compared to $771,000, or 7.1% of net
sales, in the prior year quarter. During the second quarter of 2000, Sooner
Trailer initiated efforts to redefine its manufacturing process by adopting more
modern and efficient techniques. The temporary disruption this caused to the
business has unfavorably affected income from operations during the second and
third quarters of 2000. The Company expects profitability at Sooner Trailer to
improve during the fourth quarter of 2000.
Income from operations for the Company's Other segment was $712,000 in 2000, as
compared to $474,000 in the prior year quarter, primarily reflecting improved
profitability at Rhodes.
Unallocated corporate expenses included in income from operations were $1.1
million, or 2.6% of net sales, as compared to $1.5 million, or 3.5% of net sales
in 1999. This reflects reduced personnel, legal and consulting costs, as
compared to the prior year.
Interest expense. Interest expense was $1.3 million for the third quarters of
both 2000 and 1999.
Income tax expense (benefit). The Company's effective income tax rate was 54.6%
for 2000, as compared to 50.9% in the prior year quarter. The increase in the
effective tax rate is a result of a higher proportion of non-deductible
expenses, primarily non-cash amortization expenses related to acquisitions, as
compared to pre-tax income.
Net income (loss) available for common stockholders. Net loss available for
common stockholders was ($85,000), or ($.01) per share, in the third quarter of
2000, as compared to income of $779,000, or $.13 per share, in the prior year
quarter. Income (loss) available for common stockholders is calculated by
subtracting dividends on preferred stock of $187,000 for both 2000 and 1999 and
by deducting the non-cash accretion in book value of preferred stock of $94,000
and $88,000 for 2000 and 1999, respectively.
11
<PAGE>
Nine months ended July 30, 2000 compared to nine months ended August 1, 1999
Net sales. Net sales for the nine-month period of 2000 decreased 2.8%, or $3.5
million, to $124.9 million, as compared to net sales of $128.5 million in the
prior year period. These results include the effect of disposing of Parker in
March 1999. Sales attributable to Parker were $1.0 million in 1999.
Net sales from Motors decreased 9.1% to $43.5 million in 2000, from $47.9
million in 1999, primarily as a result of decreased sales to the recreational
vehicle market due to design issues associated with a new motor developed for
this market and a softening of the healthcare market.
Net sales from Coils decreased 5.9% to $33.7 million in 2000 from $35.8 million
in 1999. This decrease is a result of a weakness in demand experienced in the
heavy truck and beverage refrigeration markets.
Net sales from the Trailers and Agricultural Equipment segment were $34.1
million in 2000, as compared to $30.3 million in 1999. Sales attributable to
Parker were $1.0 million in 1999. Sales at Sooner Trailer, the only remaining
business in this segment, increased 16.7%, or $4.9 million as a result of higher
unit volume, particularly from the newly-introduced Revolution product line.
Net sales from the Company's Other segment were $13.6 million in 2000, as
compared to $14.5 million in 1999. This decrease was primarily a result of lower
demand at Rhodes and softness in the automotive after-market.
Income from operations. For the nine-month period of 2000, income from
operations was $4.7 million, or 3.8% of net sales, as compared to $6.9 million,
or 5.4% of net sales, in 1999.
Income from operations for the Motors segment was $4.4 million, or 10.0% of net
sales, as compared to $6.7 million, or 14.1% of net sales, in the prior year
period. These results reflect decreased sales volume to the recreational vehicle
market and a softening of the healthcare market. As mentioned above, sales to
the recreational vehicle market were adversely affected in the second and third
quarters of 2000 by design issues associated with a new motor developed for this
market. The design issues have been resolved and the Company recorded a charge
of $275,000 for the replacement of such motors. Income from operations for
Motors was also impacted by production inefficiencies related to the adoption of
demand flow technology at Motor Products at the beginning of the second quarter
of 2000.
Income from operations for the Coils segment was $841,000, or 2.5% of net sales,
as compared to $3.3 million, or 9.1% of net sales, in the prior year period.
These results reflect decreased sales volume primarily to the heavy truck and
beverage refrigeration markets and lower margins caused primarily by
manufacturing inefficiencies related, in part, to the transition to a new
manufacturing system.
The Trailers and Agricultural Equipment segment had income from operations of
$1.3 million in 2000, as compared to $1.0 million in the prior year period. This
increase reflects the disposition of Parker which reported a net loss from
operations of $607,000 in the prior year. Exclusive of the effects of Parker,
income from operations for this segment decreased $335,000 as a result of the
disruption to Sooner Trailer's manufacturing process, as discussed above.
Income from operations for the Company's Other segment was $1.9 million in 2000,
as compared to $796,000 in the prior year period, reflecting improved
profitability at Rhodes.
Unallocated corporate expenses included in income from operations were $3.6
million, or 2.9% of net sales, as compared to $4.9 million, or 3.8% of net
sales, in 1999. This decrease primarily reflects reduced environmental costs, as
well as reduced personnel and related costs.
12
<PAGE>
Interest expense. Interest expense increased to $3.9 million for 2000 as
compared to $3.8 million in the prior year period, primarily as a result of
increased rates.
Income tax expense (benefit). The Company's effective income tax rate was 50.2%
for 2000, as compared to 36.4% in the prior year period. The effective tax rate
for 1999 was favorably impacted by a deferred tax benefit realized upon the sale
of Parker.
Net income (loss) available for common stockholders. Net loss available for
common stockholders was ($351,000), or ($.06) per share, in 2000, as compared to
net income available for common stockholders of $1.4 million, or $.24 per share,
in the prior year period. Income (loss) available for common stockholders is
calculated by subtracting dividends on preferred stock of $562,000 for both 2000
and 1999 and by deducting the non-cash accretion in book value of preferred
stock of $276,000 and $257,000 for 2000 and 1999, respectively.
Liquidity and Capital Resources
Cash and cash equivalents were $450,000 at July 30, 2000. Working capital
increased to $20.5 million at July 30, 2000 from $16.9 million at October 31,
1999. Net cash provided by operating activities was $4.3 million, as compared to
$7.6 million in the prior year period. The decrease in cash from operations was
principally the result of decreased operating income.
Net cash used in investing activities included $2.4 million for capital
expenditures for equipment, invested primarily in Motors, Coils and Trailers,
and $628,000 of contingent consideration paid to the former owner of Astro Air
and recorded as goodwill. The Company currently plans to invest approximately
$1.4 million during the remainder of fiscal 2000, primarily for added capacity
and production efficiencies. Management anticipates funding capital expenditures
with cash from operations and proceeds from the Company's revolving credit
facility. Cash flows from investing activities also included approximately $1.1
million received on notes obtained in connection with the sale of subsidiaries.
Net cash used in financing activities included net borrowings of $1.5 million
under the Company's revolving credit agreement, debt repayments of $2.1 million,
including $815,000 of related- party debt, and the payment of dividends of $1.6
million.
Effective for the second quarter of 2000, the Company modified certain covenants
included in its revolving credit facility. In connection with such
modifications, the Company is restricted from making common stock dividend
payments subsequent to August 28, 2000. The Company is in compliance with such
modified covenants and expects to continue to be in compliance for the
foreseeable future.
The Company has interest rate swap agreements with its two banks with notional
amounts totaling $20.4 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 Company intends to sell its non-core businesses subject to terms and
conditions that are considered to be in the best interest of the Company and its
shareholders. If the Company is successful in these efforts, total proceeds,
including the assumption of debt by acquirers, would be expected to be in the
range of $30 million to $40 million. To the extent that the proceeds are
received in cash, such cash would be used to reduce the outstanding debt of the
Company. Although the Company is currently in preliminary negotiations
concerning a number of these dispositions, no definitive agreements have been
entered into and there can be no assurance that these transactions will
ultimately be consummated.
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The Company believes anticipated funds to be generated from future operations
and available credit facilities will be sufficient to meet anticipated operating
and capital needs.
"Year 2000" Costs
The Company did not experience any business interruptions or any other
significant issues related to the "Year 2000". The costs associated with
bringing the Company's centralized manufacturing and accounting information
system and other date-sensitive equipment into "Year 2000" compliance was not
material. In addition, the Company is not aware of any "Year 2000" disruptions
at any of its significant suppliers or large customers.
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. Such statements are subject to certain risks and uncertainties
which could cause actual results to differ materially from those projected.
Readers are cautioned not to place undue reliance on these forward-looking
statements which speak only as of the date hereof. The Company undertakes no
obligation to republish revised forward-looking statements to reflect events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
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 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 sector 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 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.
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 or customers 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 The Company's results can be affected by changes in manufacturing processes
and techniques.
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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 The Company's facility in the United Kingdom subjects the Company to various
risks, which may include currency risk, risk associated with compliance with
foreign regulations, and political and economic risks.
o The Company intends to sell its non-core businesses subject to terms and
conditions that are considered to be in the best interest of the Company and
its shareholders. Any such divestiture may involve costs of disposition or
loss on the disposition that could adversely effect the Company's operating
results or financial condition.
o Although the Company is not aware of any "Year 2000" disruptions at any
significant supplier or customer, there can be no assurance that if a
disruption did occur, it would not have a material adverse effect on the
Company's operating results or financial condition.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company uses a revolving credit facility, industrial revenue bonds and term
loans to finance a significant portion of its operations. These on-balance sheet
financial instruments, to the extent they provide for variable rates of
interest, expose the Company to interest rate risk resulting from changes in
London Interbank Offered Rate or the prime rate. The Company uses off-balance
sheet interest rate swap agreements to partially hedge interest rate exposure
associated with on-balance sheet financial instruments. All of the Company's
derivative financial instrument transactions are entered into for non-trading
purposes.
The quantitative and qualitative disclosures about market risk as of July 30,
2000 did not differ materially from the information disclosed in the Company's
Form 10-K for the fiscal year ended October 31, 1999. The information set forth
in the Form 10-K under Part I, Item 7A - Quantitative and Qualitative
Disclosures About Market Risk is incorporated herein by reference in response to
this Item 3.
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Part II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
Effective for the second quarter of 2000, the Company's revolving credit
facility was amended. In accordance with such amendment, the Company is
restricted from making common stock dividend payments subsequent to August 28,
2000.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No. Description
10.1 First Amendment to Amended and Restated Credit Agreement
11 Computation of Per Share Earnings
27 Financial Data Schedule
*99.1 Part I, Item 7A - Quantitative and Qualitative Disclosures About
Market Risk of the Company's Annual Report on Form 10-K for the
year ended October 31, 1999.
(b) Form 8-K
No reports on Form 8-K were filed during the quarter ended
July 30, 2000.
----------------------------
* Incorporated by reference.
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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: September 8, 2000 By: /s/ George B. Lemmon, Jr.
-------------------------
George B. Lemmon, Jr.
President, Chief Executive
Officer, and Director
By: /s/ John M. Morrash
-----------------------------------
John M. Morrash
Executive Vice President - Finance,
Chief Financial Officer, and
Treasurer and Secretary
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