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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
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<S> <C> <C>
For the quarterly period ended: January 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
</TABLE>
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 March 10, 2000, 5,849,739 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 Months Ended January 30, 2000 and
January 31, 1999 (unaudited)
Condensed Consolidated Balance Sheets at January 30, 4
2000 (unaudited) and October 31, 1999
Condensed Consolidated Statements of Cash Flows 5
for the Three Months Ended January 30, 2000 and
January 31, 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 6. Exhibits and Reports on Form 8-K 16
2
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OWOSSO CORPORATION
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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
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<CAPTION>
Three Months Ended
------------------------------
January 30, January 31,
2000 1999
<S> <C> <C>
Net sales $37,879,000 $38,835,000
Cost of products sold 31,281,000 31,607,000
----------- -----------
Gross profit 6,598,000 7,228,000
Selling, general and administrative expenses 5,821,000 6,248,000
----------- -----------
Income from operations 777,000 980,000
Interest expense 1,332,000 1,296,000
Other income 47,000 73,000
----------- -----------
Loss before income taxes (508,000) (243,000)
Income tax benefit (236,000) (111,000)
----------- -----------
Net loss (272,000) (132,000)
Dividends and accretion on preferred stock (278,000) (271,000)
----------- -----------
Net loss available for common stockholders $ (550,000) $ (403,000)
=========== ===========
Basic and diluted loss per common share $ (0.09) $ (0.07)
=========== ===========
Weighted average number of common shares outstanding 5,830,000 5,816,000
=========== ===========
</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>
January 30, October 31,
2000 1999
ASSETS (Unaudited) (See Note)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 349,000 $ 161,000
Receivables, net 18,642,000 19,999,000
Inventories, net 21,285,000 20,173,000
Prepaid expenses and other 1,656,000 1,101,000
Deferred taxes 1,220,000 1,220,000
------------ ------------
Total current assets 43,152,000 42,654,000
PROPERTY, PLANT AND EQUIPMENT, NET 35,049,000 35,900,000
GOODWILL, NET 26,930,000 27,057,000
OTHER INTANGIBLE ASSETS, NET 7,699,000 7,893,000
OTHER ASSETS 2,685,000 3,186,000
------------ ------------
TOTAL ASSETS $115,515,000 $116,690,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable - trade $ 13,918,000 $ 13,169,000
Accrued expenses 7,687,000 8,695,000
Current portion of related party debt 1,815,000 1,815,000
Current portion of long-term debt 1,977,000 2,064,000
------------ ------------
Total current liabilities 25,397,000 25,743,000
LONG-TERM DEBT, LESS CURRENT PORTION 51,459,000 51,601,000
POSTRETIREMENT BENEFITS AND OTHER LIABILITIES 2,960,000 2,923,000
DEFERRED TAXES 2,522,000 2,439,000
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY 33,177,000 33,984,000
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $115,515,000 $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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<CAPTION>
Three Months Ended
-----------------------------
January 30, January 31,
2000 1999
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (272,000) $ (132,000)
Adjustments to reconcile net loss to cash
provided by (used in) operating activities:
Depreciation 1,334,000 1,292,000
Amortization 570,000 570,000
Other -- --
Changes in operating assets and liabilities (432,000) (1,384,000)
----------- -----------
Net cash provided by operating activities 1,200,000 346,000
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (630,000) (2,313,000)
Contingent consideration on acquisition (237,000) (223,000)
Other 620,000 1,000
----------- -----------
Net cash used in investing activities (247,000) (2,535,000)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under revolving credit agreement 200,000 4,400,000
Payments on long-term debt (428,000) (468,000)
Payments on related party debt -- (1,028,000)
Dividends paid (537,000) (711,000)
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Net cash (used in) provided by financing activities (765,000) 2,193,000
----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 188,000 4,000
CASH AND CASH EQUIVALENTS, BEGINNING 161,000 191,000
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CASH AND CASH EQUIVALENTS, ENDING $ 349,000 $ 195,000
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 1,054,000 $ 1,495,000
=========== ===========
Taxes paid $ 232,000 $ 84,000
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
5
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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 four business segments: Motors, Coils,
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
January 30, 2000 and the condensed consolidated statements of
operations and cash flows for the three months ended January 30, 2000
and January 31, 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
January 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.
6
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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 fiscal quarter of 1999 included 14 weeks, whereas the first
quarter of 2000 included 13 weeks.
Earnings (loss) 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 presents comprehensive income (loss)
as a component of stockholders' equity. For the first quarter of 2000,
total comprehensive income (loss) was ($547,000) and consisted of a net
loss available for common stockholders of $550,000, offset by income on
foreign currency translation adjustment of $3,000. The Company's
comprehensive income for the first quarter of 1999 consisted solely of
net loss.
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
January 30, October 31,
2000 1999
Raw materials and purchased parts $ 10,349,000 $ 9,619,000
Work in process 3,785,000 4,076,000
Finished goods 7,151,000 6,478,000
------------ ------------
Total $ 21,285,000 $ 20,173,000
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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.
7
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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 fourth quarter of fiscal 1999, the Company entered
into a settlement agreement with the former operators of the site. In
accordance with the terms of the agreement, the Company received
$600,000 from the former operators, in return for a release from future
obligations with respect to environmental matters related to the site.
The $600,000 received, which is included in accrued expenses, will be
used to complete the environmental investigation of the site and to
conduct any remedial measures which may be required. 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 $11,300,000 of product as of January 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
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4. SEGMENT INFORMATION
Three Months Ended
January 30, January 31,
2000 1999
Net sales:
Motors $ 13,998,000 $ 15,281,000
Coils 10,479,000 11,026,000
Trailers and Agricultural Equipment 9,169,000 7,978,000
Other 4,233,000 4,550,000
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Total net sales $ 37,879,000 $ 38,835,000
============ ============
Income (loss) from operations:
Motors $ 1,266,000 $ 1,750,000
Coils 317,000 942,000
Trailers and Agricultural Equipment 369,000 (127,000)
Other 394,000 (24,000)
Corporate (1) (1,569,000) (1,561,000)
------------ ------------
Total income from operations $ 777,000 $ 980,000
============ ============
(1) Includes unallocated corporate expenses, primarily executive,
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
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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 January 30, 2000 and the results of operations for the
three months ended January 30, 2000 and January 31, 1999. The fiscal
2000 period included 13 weeks, whereas the fiscal 1999 period included
14 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.
Three Months Ended
-------------------------
January 30, January 31,
2000 1999
Net sales 100.0% 100.0%
Cost of products sold 82.6% 81.4%
----- -----
Gross profit 17.4% 18.6%
Selling, general and administrative expenses 15.4% 16.1%
----- -----
Income from operations 2.0% 2.5%
Interest expense 3.5% 3.3%
Other income 0.2% 0.2%
----- -----
Loss before income taxes -1.3% -0.6%
Income tax benefit -0.6% -0.3%
----- -----
Net loss -0.7% -0.3%
Dividends and accretion on preferred stock 0.7% 0.7%
----- -----
Net loss available for common stockholders -1.4% -1.0%
===== =====
Three months ended January 30, 2000 compared to three months ended
January 31, 1999
Net sales. Net sales for the first quarter of 2000 decreased 2.5%, or
$1.0 million, to $37.9 million, as compared to net sales of $38.8
million in the prior year quarter. These results include the effects of
the 14-week period in 1999 as compared to the 13-week period in the
current quarter, and the effect of disposing of Parker in March 1999.
Sales attributable to Parker were $606,000 in 1999.
Net sales from Motors decreased 8.4% to $14.0 million in 2000, from
$15.3 million in 1999 , as a result of the longer 14-week reporting
period in 1999, as well as sales pressures, particularly from off-shore
competitors, and a softening of the healthcare market.
Net sales from Coils decreased 5.0% to $10.5 million in 2000 from $11.0
million in 1999. This decrease is a result of the longer 14-week
reporting period in 1999 and weakness in demand experienced in the
beverage refrigeration and heavy truck markets.
10
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Net sales from the Trailers and Agricultural Equipment segment were
$9.2 million in 2000, as compared to $8.0 million in 1999. Sales
attributable to Parker were $606,000 in 1999. Sales at Sooner Trailer,
the only remaining business in this segment, increased 24.3%, or $1.8
million as a result of higher unit volume.
Net sales from the Company's Other segment were $4.2 million in 2000,
as compared to $4.6 million in 1999. This decrease was primarily a
result of the longer 14-week reporting period in 1999.
Gross profit. For 2000, gross profit was $6.6 million, or 17.4% of net
sales, as compared to $7.2 million, or 18.6% of net sales in the prior
year quarter.
Gross profit from Motors decreased 10.8%, to $2.9 million, or 20.8% of
net sales, as compared to $3.3 million, or 21.4% of net sales in 1999.
These results reflect decreased sales volume and lower margins as a
result of price pressures and changes in product mix.
Gross profit from Coils was $1.0 million in 2000, or 9.9% of net sales,
as compared to $1.6 million, or 14.3% of net sales in 1999. This
decrease was primarily a result of operating inefficiencies,
particularly at Snowmax, as well as lower sales volume to the beverage
and heavy truck markets.
In the Trailers and Agricultural Equipment segment, gross profit was
$1.6 million, or 17.4% of net sales, as compared to $1.4 million, or
17.5% of net sales, in the prior year quarter, primarily as a result of
increased sales volume.
Gross profit from the Company's Other segment was $1.2 million in 2000,
as compared to $1.0 million in 1999. This increase was a result of
improved profitability at Rhodes.
Selling, general and administrative expenses. Selling, general and
administrative expenses decreased to $5.8 million, or 15.4% of net
sales, as compared to $6.2 million, or 16.1% of net sales in the prior
year quarter. This decrease was primarily attributable to the effects
of the sale of Parker and the longer 14-week reporting period in 1999.
Selling, general and administrative expenses for Motors were $1.6
million, or 11.8% of net sales, as compared to $1.5 million, or 9.9% of
net sales in 1999. The increase in expense was primarily a result of
increased bad debt expense.
Selling, general and administrative expenses for Coils were $719,000,
or 6.9% of net sales, as compared to $630,000, or 5.7% of net sales in
1999. The increase in expense was primarily a result of costs
associated with the consolidation of the Coil Group, as well as, costs
attributable to the Company's coil facility in England, which began
production in March 1999.
In the Trailers and Agricultural Equipment segment, selling, general
and administrative expenses were $1.2 million, or 13.4% of net sales,
as compared to $1.5 million, or 19.1% of net sales, in the prior year
quarter. This decrease reflects the sale of Parker.
Selling, general and administrative expenses at the Company's Other
segment were $826,000 in the current quarter, as compared to $1.0
million in 1999.
Unallocated corporate expenses included in selling, general and
administrative expenses were $1.4 million, or 3.7% of net sales, as
compared to $1.6 million, or 4.0% of net sales, in 1999. This decrease
primarily reflects the 13-week accounting period in 2000, as compared
to the 14-week period in 1999.
11
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Income from operations. For 2000, income from operations was $777,000,
or 2.0% of net sales, as compared to $980,000, or 2.5% of net sales, in
1999.
Income from operations for the Motors segment was $1.3 million, or 9.0%
of net sales, in the first quarter of 2000, as compared to $1.8
million, or 11.5% of net sales, in the prior year quarter. These
results reflect decreased sales volume and decreased margins caused by
price pressures and changes in product mix.
Income from operations for the Coils segment was $317,000, or 3.0% of
net sales, as compared to $942,000, or 8.5% of net sales, in the prior
year quarter. These results reflect decreased sales volume and lower
margins.
The Trailers and Agricultural Equipment segment had income from
operations of $369,000 in 2000, as compared to a loss of $127,000 in
the prior year quarter. This increase reflects the disposition of
Parker which reported a net loss from operations in the prior year
quarter and increased income from operations at Sooner Trailer.
Income from operations for the Company's Other segment was $394,000 in
2000, as compared to a loss of $23,000 in the prior year quarter,
reflecting improved profitability at Rhodes.
Interest expense. Interest expense was $1.3 million for the first
quarters of both 2000 and 1999.
Income tax expense (benefit). The Company's effective income tax rate
was 46.5% for 2000, as compared to 45.7% in the prior year quarter.
Net income (loss) available for common stockholders. Net loss available
for common stockholders was $550,000, or $.09 per share, in the first
quarter of 2000, as compared to a net loss of $403,000, or $.07 per
share, in the prior year quarter. Income (loss) available for common
stockholders is calculated by subtracting dividends on preferred stock
of $188,000 for both 2000 and 1999 and by deducting the non-cash
accretion in book value of preferred stock of $90,000 and $83,000 for
2000 and 1999, respectively.
Liquidity and Capital Resources
Cash and cash equivalents were $349,000 at January 30, 2000. Working
capital increased to $17.8 million at January 30, 2000 from $16.9
million at October 31, 1999. Net cash provided by operating activities
was $1.2 million, as compared to $346,000 in prior year quarter. The
increase in cash from operations was principally the result of changes
in the level of current assets and current liabilities due to timing.
Net cash used in investing activities included $630,000 for capital
expenditures for equipment, invested primarily in the Motors and Coils
segments and $237,000 of contingent consideration paid to the former
owner of Astro Air and recorded as goodwill. The Company currently
plans to invest approximately $4.2 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 include approximately
$500,000 received on notes obtained in connection with the sales of
subsidiaries.
12
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Net cash provided by financing activities included net borrowings of
$200,000 under the Company's $55.0 million revolving credit agreement,
debt repayments of $428,000, and the payment of dividends of $537,000.
The Company has interest rate swap agreements with its two banks with
notional amounts totaling $20.8 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 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.
13
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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 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 Acquisitions are an important part of the Company's growth
strategy. Acquisitions may have a dilutive effect on the Company's
earnings and could effect 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.
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.
14
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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
January 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.
15
<PAGE>
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No. Description
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
January 30, 2000.
- ----------------------------
* Incorporated by reference.
16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
OWOSSO CORPORATION
Date: March 10, 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
<PAGE>
OWOSSO CORPORATION
EXHIBIT 11
COMPUTATION OF PER SHARE EARNINGS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended
----------------------------
January 30, January 31,
2000 1999
<S> <C> <C>
BASIC:
Net loss available for common stockholders $ (550,000) $ (403,000)
========== ==========
Weighted average number of common shares outstanding 5,830,000 5,816,000
========== ==========
Basic loss per common share $ (0.09) $ (0.07)
========== ==========
DILUTED:
Net loss available for common stockholders $ (550,000) $ (403,000)
========== ==========
Weighted average number of common shares outstanding 5,830,000 5,816,000
Dilutive effect of stock options -- --
---------- ----------
Weighted average number of shares outstanding 5,830,000 5,816,000
========== ==========
Diluted loss per common share $ (0.09) $ (0.07)
========== ==========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-29-2000
<PERIOD-END> JAN-30-2000
<CASH> 349
<SECURITIES> 0
<RECEIVABLES> 19,124
<ALLOWANCES> 482
<INVENTORY> 21,285
<CURRENT-ASSETS> 43,152
<PP&E> 69,929
<DEPRECIATION> 34,880
<TOTAL-ASSETS> 115,515
<CURRENT-LIABILITIES> 25,397
<BONDS> 55,251
0
14,719
<COMMON> 59
<OTHER-SE> 18,399
<TOTAL-LIABILITY-AND-EQUITY> 115,515
<SALES> 37,879
<TOTAL-REVENUES> 37,879
<CGS> 31,281
<TOTAL-COSTS> 31,281
<OTHER-EXPENSES> 5,821
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,332
<INCOME-PRETAX> (508)
<INCOME-TAX> (236)
<INCOME-CONTINUING> (272)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (272)
<EPS-BASIC> (0.09)
<EPS-DILUTED> (0.09)
</TABLE>
