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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: October 28, 2001 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
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
(Title of Class)
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 [ ].
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein and will not be contained, to the best
of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
On January 25, 2002, the aggregate market value of the Registrant's Common
Stock, $.01 par value, held by nonaffiliates of the Registrant was approximately
$960,000.
On January 25, 2002, 5,874,345 shares of the Registrant's Common Stock, $.01 par
value, were outstanding.
Documents Incorporated By Reference
Portions of the Registrant's Proxy Statement to be filed with the Commission in
connection with the Annual Meeting of Shareholders scheduled to be held on April
11, 2002 are incorporated by reference into Part III of this Form 10-K.
Part I
Item 1. Business
In 1998, Owosso Corporation (the "Company") formulated a long-term plan to
concentrate on value-added components for industry. In connection with its
implementation of that plan, the Company began a series of divestitures
beginning with the sale of the four businesses comprising its former
Agricultural Equipment segment. The sale of the last of those businesses was
completed in January 2001 with the divestiture of Sooner Trailer Manufacturing
Company. During that time, however, the Company experienced a significant
down-turn in its operating results and at the end of fiscal 2000 was out of
compliance with covenants under its revolving credit facility.
In February 2001, the Company entered into an amendment to its revolving credit
facility agreement, wherein the lenders agreed to forbear from exercising their
rights and remedies under the facility in connection with such non-compliance
until February 15, 2002, at which time the facility was to mature. In addition,
as further disclosed under Note 11 "Long-term Debt," the amendment to the
revolving credit facility, which has been further amended since February 2001,
modified the interest rates charged, called for reductions in the outstanding
balance during calendar 2001, added additional reporting requirements, prohibits
the payment of preferred or common dividends and added a covenant requiring the
maintenance of minimum operating profit. Beginning in August 2001, the Company
was not in compliance with the minimum operating profit covenant. In February
2002, the Company entered into a further amendment to the facility which extends
the maturity date to December 31, 2002. The amendment calls for further
reductions in the outstanding balance based on expected future asset sales. The
Company's recurring losses from operations, working capital deficiencies,
default under its debt agreements and inability to comply with debt covenants
raise substantial doubt about its ability to continue as a going concern.
Since the second half of fiscal 2000, management of the Company has taken a
series of steps intended to stabilize and improve the operating results
including the implementation of cost and personnel reductions at the corporate
office throughout fiscal 2001 and reductions in fixed costs of the remaining
operating units, commensurate with reductions in sales volumes. In October 2001,
the Company's corporate personnel was reduced from nine individuals to four and
the Company's president and chief executive officer agreed to a 20% reduction in
salary. In order to reduce its obligation under its revolving credit facility,
the Company completed the sale of Dura-Bond Bearing Company ("Dura-Bond") and
Sooner Trailer Manufacturing Company ("Sooner Trailer"), the sale of
substantially all of the assets of Cramer Company ("Cramer") and substantially
all the assets of the Company's Coils segment. Management intends to dispose of
additional assets during fiscal 2002, including real estate at the Company's
former Cramer and Snowmax subsidiaries, and the Company's Motor Products and
MP-Ohio subsidiaries. Proceeds from these sales, which are expected to be
between $12.0 and $14.0 million, will be utilized to reduce the Company's
revolving credit facility. In addition, management intends to further reduce
corporate office costs through the merger of the corporate office function into
the Company's largest subsidiary, resulting in an expected savings of
approximately $3.5 million over fiscal 2001. Management believes that, along
with the sale of assets, available cash and cash equivalents, cash flows from
operations and available borrowings under the Company's revolving credit
facility will be sufficient to fund the Company's operating activities,
investing activities and debt maturities for fiscal 2002. In addition,
management believes that the Company will be in compliance with its debt
covenant requirements throughout fiscal 2002. It is management's intent to
refinance the Company's revolving credit facility prior to its maturity in
December 2002. However, there can be no assurance that management's plans will
be successfully executed.
2
As a result of the divestitures, the Company's remaining businesses consist of
its Motors segment. The Motors segment manufactures fractional and integral
horsepower motors and includes Stature Electric, Inc. ("Stature"), Motor
Products - Owosso Corporation ("Motor Products"), and Motor Products - Ohio
("MP-Ohio"). Significant markets for the Motors segment include commercial
products and equipment, healthcare, recreation and non-automotive
transportation. The products are sold throughout North America and in Europe,
primarily to original equipment manufacturers who use them in their end
products.
The Company's Other segment included Dura-Bond and Cramer. Dura-Bond, which
manufactured replacement camshaft bearings, valve seats and shims for the
automotive after-market, selling its products to engine rebuilders, primarily
through distributors, was sold in November 2000. Cramer manufactured timers and
subfractional horsepower motors for use in commercial applications. The Company
completed the sale of the assets associated with the timer and switch line of
Cramer in December 2000 and, consistent with the Company's intent, sold
substantially all of the remaining Cramer assets in September 2001. Cramer sold
its products primarily to original equipment manufacturers who use them in their
end products.
The Company's former Coils segment, consisting of Astro Air Coils, Inc. ("Astro
Air"), Snowmax Incorporated ("Snowmax") and Astro Air UK Ltd. ("Astro UK"),
manufactured heat exchange coils. Astro UK, a joint venture which began
operations in March 1999, was sold in May 2001. Astro Air and Snowmax were sold
in October 2001. Significant markets for the former Coils segment included
non-automotive transportation, refrigeration and commercial and residential
HVAC. The products were sold throughout North America and in Europe, primarily
to original equipment manufacturers who use them in their end products. The
Company has reported the results of the Coils segment as discontinued operations
for all periods presented in the consolidated statements of operations.
The Company has also included in discontinued operations the results of Sooner
Trailer, the sale of which was completed in January 2001.
The Company was incorporated in Pennsylvania and organized as a holding company
in 1994. The holding company structure separated the administrative and
financing activities of the Company from the activities of its operating
subsidiaries.
The Company obtains raw materials, component parts and supplies from a variety
of sources, generally from more than one supplier. In certain cases, where it
has an impact on improving quality control or cost control, the Company obtains
raw materials and component parts from sole source suppliers. The Company
anticipates it will have no significant problems with respect to sources or
availability of the raw materials or component parts essential to the conduct of
its business.
No material portion of the Company's business in any segment is seasonal.
A significant portion of the Company's sales are concentrated among a small
number of customers. Sales to the two largest customers represented
approximately 15%, 12% and 9% of total sales from continuing operations for
2001, 2000 and 1999, respectively.
The Company's backlog of unfilled orders for the Motors segment was $12.3
million as of December 23, 2001, as compared to $21.1 million as of December 24,
2000.
The Company's businesses are highly competitive. Competition is based primarily
on design and application engineering capabilities and product reliability and
quality, as well as price.
3
The Company has approximately 400 employees, of which approximately 60 are
employed at its Owosso, Michigan facility and are represented by the
International Union, United Automobile, Aerospace and Agricultural Implement
Workers of America, Local 743, under a two-year collective bargaining agreement
which expires in November 2003. The Company believes that its relationship with
its employees is good.
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 wastes 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's manufacturing operations involve the storage, use, handling and
disposal of various hazardous substances and wastes. Under various federal,
state and local environmental laws, ordinances and regulations, a current or
previous owner of real property may be liable for the costs of removal or
remediation of certain hazardous or toxic substances on, in, under or discharged
from such property. The operation and subsequent removal of underground storage
tanks, which are or were located on several of the Company's properties, are
also regulated by federal, state and local environmental laws, ordinances and
regulations. The Company is also subject to the federal Occupational Safety and
Health Act and similar state statutes. See Item 7 - "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Environmental
Matters."
The Company currently maintains product liability insurance coverage of $1.0
million per occurrence and $2.0 million in aggregate annual coverage, and an
umbrella policy for an additional $20.0 million of blanket liability protection
per occurrence. There can be no assurance that such insurance will be sufficient
to cover potential product liability claims or that the Company will be able to
maintain such insurance or obtain product liability insurance in the future at a
reasonable cost.
Executive Officers of the Company
The executive officers of the Company are:
Name Age Position
George B. Lemmon, Jr.................40 President, Chief Executive Officer, and Director
Kirk E. Moore ...................39 Executive Vice President - Finance, Chief
Financial Officer, Treasurer and Secretary
George B. Lemmon, Jr. became President of the Company in May 1996, and has
served as Chief Executive Officer of the Company since August 1995 and as a
director of the Company since March 1994.
Kirk E. Moore became Executive Vice President - Finance, Chief Financial
Officer, Treasurer and Secretary in October 2001. From March 2000 to October
2001, Mr. Moore was Corporate Controller of the Company. Mr. Moore joined the
Company in May 1997 as its Financial Controller. Prior to joining the Company,
he served as Manager of Financial Reporting at PCI Services, Inc., a subsidiary
of Cardinal Health, Inc.
4
Item 2. Properties
The following table sets forth information relating to the Company's
manufacturing facilities. Unless otherwise indicated, the Company owns these
manufacturing facilities.
Total Square Manufacturing
Business Segment Location Footage Square Footage
- ------------------------------------------------------------------------------------------------
Motors: Watertown, New York (1) 112,000 107,800
Owosso, Michigan 86,900 67,400
Barberton, Ohio (2) 29,700 27,400
- ----------
(1) This facility is subject to a mortgage securing a $4.9 million industrial
revenue bond financing.
(2) The lease for this facility expires in 2002 and provides for annual
rental payments of approximately $90,000.
The Company leases its principal offices, located in King of Prussia,
Pennsylvania, which consist of approximately 12,700 square feet of office space.
The lease, which expires in September 2006, requires annual rental payments of
approximately $305,000 plus taxes and certain other charges. In 2000, the
Company entered into a sublease agreement for approximately 6,000 square feet of
its office space. Under the sublease agreement, which expires in September 2006,
the Company receives annual sublease rental payments aggregating $119,000.
The Company has a 92,000 square foot manufacturing facility located in Avon,
Connecticut which housed the Company's former Cramer subsidiary. The Company
also has a 90,000 square foot manufacturing facility located in Kilgore, Texas
which housed the Company's former Snowmax subsidiary. Such facilities are held
for sale.
The Company believes that its machinery, plants and offices are in satisfactory
operating condition and are adequate for the Company's current needs.
Item 3. Legal Proceedings
As discussed in Item 7 under "Environmental Matters," the Company is a party to
various legal proceedings concerning environmental regulations. In addition, the
Company is a party to various lawsuits arising in the ordinary course of
business, none of which is expected to be material with respect to the business
assets or continuing operations of the Company.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
5
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
The Company's common stock began its listing on the Nasdaq SmallCap Market under
the symbol "OWOS" in February 2001. Prior to that, the Company's common stock
was listed on the Nasdaq National Market. The following table sets forth, for
the fiscal quarters indicated, the high and low sales prices per share for the
Company's common stock.
Fiscal year ended October 28, 2001: High Low
---- ---
First Quarter $2.000 $0.813
Second Quarter $1.953 $0.720
Third Quarter $1.250 $0.860
Fourth Quarter $1.000 $0.300
Fiscal year ended October 29, 2000:
First Quarter $4.375 $2.938
Second Quarter $4.125 $2.594
Third Quarter $2.813 $1.875
Fourth Quarter $2.125 $1.375
As of January 17, 2002, there were approximately 117 holders of record of the
Company's common stock and an estimated number of beneficial owners of the
common stock of approximately 490.
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 was, and continues to be, prohibited from making
common stock dividend payments subsequent to August 28, 2000. Further
modifications to the Company's revolving credit facility in February 2001
resulted in the Company also being prohibited from making future preferred stock
dividend payments.
6
Item 6. Selected Financial Data
The information set forth below, which has been derived from the
audited consolidated financial statements of the Company, has been restated to
reflect the Coils segment and Sooner Trailer as discontinued operations and
should be read in conjunction with the Consolidated Financial Statements and
notes thereto and "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Year Ended
----------------------------------------------------------------
Oct. 28, Oct. 29, Oct. 31, Oct. 25, Oct. 26,
2001 2000 1999(1) 1998(2) 1997
--------- -------- -------- -------- --------
(in thousands, except per share amounts)
STATEMENT OF OPERATIONS DATA:
Net sales $ 54,326 $ 75,204 $ 84,214 $ 95,264 $ 97,237
Cost of products sold 43,897 59,429 65,009 72,742 71,660
-------- -------- -------- -------- --------
Gross profit 10,429 15,775 19,205 22,522 25,577
Selling, general and administrative 11,183 13,240 16,305 19,229 19,783
expenses
Write-down of net assets held for sale 1,100 2,800 -- 1,635 --
Gain on sale of business -- -- -- (2,775) --
Restructuring charge -- -- -- 909
-------- -------- -------- -------- --------
Income (loss) from operations (1,854) (265) 2,900 3,524 5,794
Interest expense 4,335 5,069 4,947 4,788 4,012
Other (income) expense (110) 530 (444) (87) (177)
-------- -------- -------- -------- --------
Income (loss) from continuing operations
before income taxes (6,079) (5,864) (1,603) (1,177) 1,959
Income tax expense (benefit) (1,968) (1,082) (658) 812 985
-------- -------- -------- -------- --------
Income (loss) from continuing operations (4,111) (4,782) (945) (1,989) 974
Discontinued operations:
Income (loss) from discontinued
operations (2,073) (290) 2,722 2,691 1,577
Loss on disposal of discontinued
operations (10,040) (8,600) -- -- --
Cumulative effect of accounting change
(67) -- -- -- --
-------- -------- -------- -------- --------
Net income (loss) (16,291) (13,672) 1,777 702 2,551
Dividends and accretion on preferred stock (1,316) (1,121) (1,095) (1,070) (1,047)
-------- -------- -------- -------- --------
Net income (loss) available to common
stockholders $(17,607) $(14,793) $ 682 $ (368) $ 1,504
======== ======== ======== ======== ========
Basic and diluted loss from continuing
operations per common share $ (0.93) $ (1.01) $ (0.35) $ (0.53) $ (0.01)
Weighted average number of common
shares outstanding (basic) 5,866 5,844 5,826 5,813 5,809
7
Year Ended
--------------------------------------------------------
Oct. 28, Oct. 29, Oct. 31, Oct. 25, Oct. 26,
2001 2000 1999(1) 1998(2) 1997
------- ------- -------- -------- --------
(in thousands)
OTHER DATA:
Capital expenditures $ 757 $ 1,195 $ 3,789 $ 7,838 $ 4,423
Depreciation and amortization 3,867 5,025 4,984 4,968 4,867
EBITDA (3) 3,113 7,560 7,884 8,261 10,661
Oct. 28, Oct. 29, Oct. 31, Oct. 25, Oct. 26,
2001 2000 1999 1998 1997
------- ------- -------- -------- --------
BALANCE SHEET DATA:
Total assets $46,394 $81,163 $105,345 $116,499 $107,137
Total short-term and long-term obligations 29,604 49,968 54,222 67,024 53,389
Stockholders' equity 403 18,432 33,984 34,643 36,730
- -------------------------------------------------------------
(1) Includes the results of operations of the Company's former Parker
Industries subsidiary through its disposition on March 5, 1999. Fiscal
1999 included 53 weeks, while the other years presented included 52
weeks.
(2) Includes the results of operations of the Company's former
subsidiaries, Great Bend Manufacturing, Inc. and DewEze Manufacturing,
Inc., through their dates of disposition, April 26, 1998 and July 24,
1998, respectively. Also includes the results of operations of Astro
Air and Cramer from their dates of acquisition, April 26, 1998 and June
30, 1998, respectively.
(3) EBITDA represents income from continuing operations before income
taxes, interest expense, other income and expense, write-down of net
assets held for sale, restructuring charges, and depreciation and
amortization expenses. EBITDA has been presented because the Company
believes it is commonly used in this or a similar format by investors
to analyze and compare operating performance and to determine a
company's ability to service and/or incur debt. However, EBITDA should
not be considered in isolation or as a substitute for net income, cash
flow from operations or any other measure of income or cash flow that
is prepared in accordance with generally accepted accounting
principles, or as a measure of a company's profitability or liquidity.
EBITDA, as presented, may not be comparable to other similarly titled
measures of other companies. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and the Consolidated
Financial Statements, including the Consolidated Statements of Cash
Flows, and the related notes thereto included elsewhere herein.
8
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
General
In 1998, Owosso Corporation (the "Company") formulated a long-term plan to
concentrate on value-added components for industry. In connection with its
implementation of that plan, the Company began a series of divestitures
beginning with the sale of the four businesses comprising its former
Agricultural Equipment segment. The sale of the last of those businesses was
completed in January 2001 with the divestiture of Sooner Trailer Manufacturing
Company. During that time, however, the Company experienced a significant
down-turn in its operating results and at the end of fiscal 2000 was out of
compliance with covenants under its revolving credit facility.
In February 2001, the Company entered into an amendment to its revolving credit
facility agreement, wherein the lenders agreed to forbear from exercising their
rights and remedies under the facility in connection with such non-compliance
until February 15, 2002, at which time the facility was to mature. In addition,
as further disclosed under Note 11 "Long-term Debt," the amendment to the
revolving credit facility, which has been further amended since February 2001,
modified the interest rates charged, called for reductions in the outstanding
balance during calendar 2001, added additional reporting requirements, prohibits
the payment of preferred or common dividends and added a covenant requiring the
maintenance of minimum operating profit. Beginning in August 2001, the Company
was not in compliance with the minimum operating profit covenant. In February
2002, the Company entered into a further amendment to the facility which extends
the maturity date to December 31, 2002. The amendment calls for further
reductions in the outstanding balance based on expected future asset sales. The
Company's recurring losses from operations, working capital deficiencies,
default under its debt agreements and inability to comply with debt covenants
raise substantial doubt about its ability to continue as a going concern.
Since the second half of fiscal 2000, management of the Company has taken a
series of steps intended to stabilize and improve the operating results
including the implementation of cost and personnel reductions at the corporate
office throughout fiscal 2001 and reductions in fixed costs of the remaining
operating units, commensurate with reductions in sales volumes. In October 2001,
the Company's corporate personnel was reduced from nine individuals to four and
the Company's president and chief executive officer agreed to a 20% reduction in
salary. In order to reduce its obligation under its revolving credit facility,
the Company completed the sale of Dura-Bond Bearing Company ("Dura-Bond") and
Sooner Trailer Manufacturing Company ("Sooner Trailer"), the sale of
substantially all of the assets of Cramer Company ("Cramer") and substantially
all the assets of the Company's Coils segment. Management intends to dispose of
additional assets during fiscal 2002, including real estate at the Company's
former Cramer and Snowmax subsidiaries, and the Company's Motor Products and
MP-Ohio subsidiaries. Proceeds from these sales, which are expected to be
between $12.0 and $14.0 million, will be utilized to reduce the Company's
revolving credit facility. In addition, management intends to further reduce
corporate office costs through the merger of the corporate office function into
the Company's largest subsidiary, resulting in an expected savings of
approximately $3.5 million over fiscal 2001. Management believes that, along
with the sale of assets, available cash and cash equivalents, cash flows from
operations and available borrowings under the Company's revolving credit
facility, will be sufficient to fund the Company's operating activities,
investing activities and debt maturities for fiscal 2002. In addition,
management believes that the Company will be in compliance with its debt
covenant requirements throughout fiscal 2002. It is management's intent to
refinance the Company's revolving credit facility prior to its maturity in
December 2002. However, there can be no assurance that management's plans will
be successfully executed.
9
As a result of divestitures, the Company's remaining businesses consist of its
Motors segment. However, the Company has historically operated in four segments:
Motors, Coils, Agricultural Equipment, and Other. The Motors segment
manufactures fractional and integral horsepower motors and includes Stature
Electric, Inc. ("Stature"), Motor Products - Owosso Corporation ("Motor
Products"), and Motor Products - Ohio Corporation ("MP-Ohio"). Significant
markets for the Motors segment include commercial products and equipment,
healthcare, recreation, and non-automotive transportation. Products of the
Motors segment are sold throughout North America and in Europe, primarily to
original equipment manufacturers which use them in their end products.
The Company's Other segment included Dura-Bond Bearing Company ("Dura-Bond") and
Cramer Company ("Cramer"). Dura-Bond manufactured replacement camshaft bearings,
valve seats and shims for the automotive after-market. On November 2, 2000, the
Company completed the sale of the stock of Dura-Bond to a joint venture formed
by Melling Tool Company of Jackson, Michigan and Engine Power Components, Inc.
of Grand Haven, Michigan (the "Joint Venture"). The Joint Venture acquired the
stock of Dura-Bond for approximately $4.6 million, the net assets of which
included debt of approximately $5.0 million. Based upon the terms of the sale,
the Company recorded, in the fourth quarter of fiscal 2000, a pretax charge of
$1.2 million to adjust the carrying value of Dura-Bond's assets to their
estimated fair value. Such charge represented a reduction in goodwill and was
included in "Write-down of net assets held for sale" in the consolidated
statements of operations.
Cramer manufactured timers and subfractional horsepower motors for use in
commercial applications. On December 4, 2000, the Company completed the sale of
the assets associated with the timer and switch line of Cramer to Capewell
Components, LLC of South Windsor, Connecticut for cash of approximately $2.0
million, plus the assumption of approximately $400,000 in liabilities. In
connection with the sale, the name of the company was changed from M.H. Rhodes,
Inc. to Cramer Company. In connection with the sale of the timer and switch line
and the anticipated sale of the remainder of the assets of Cramer, the Company
recorded, in the fourth quarter of fiscal 2000, a pretax charge of $1.6 million
to adjust the carrying value for the Cramer assets to their estimated fair
value, based upon an estimated sales price of the assets. Such charge
represented the write-down of goodwill of $400,000 and the write-down of other
non-current assets of $1.2 million and was included in "Write-down of net assets
held for sale" in the consolidated statements of operations. On September 23,
2001, the Company sold substantially all of the remaining assets of Cramer to
the Chestnut Group of Wayne, Pennsylvania for cash proceeds of $565,000, plus
the assumption of $317,000 in liabilities. In connection with such sale, the
Company recorded a further adjustment to the carrying value of the Cramer assets
resulting in a pre-tax charge of $1.1 million, recorded in the third fiscal
quarter of 2001.
The Coils segment manufactured heat exchange coils and included Astro Air Coils,
Inc. ("Astro Air"), Snowmax, Inc. ("Snowmax"), and Astro Air UK, Limited ("Astro
UK"). Astro UK, which began production of heat exchange coils at a new 15,000
square foot facility located in Birmingham, England in March 1999, was a joint
venture with the Company's largest customer, Bergstrom, Inc. On May 9, 2001, the
Company completed the sale of substantially all of the assets of Astro UK to ACR
Heat Transfer Limited of Norfolk, England for cash of (pound)450,000
(approximately $643,000). Based upon the terms of the sale, the Company
recorded, in the second quarter of 2001, a pretax charge of $700,000 to adjust
the carrying value of Astro UK's assets to their estimated realizable value. No
additional gain or loss was recorded upon completion of the sale. Proceeds from
the sale were utilized to reduce the Company's revolving credit facility.
10
On October 26, 2001, the Company completed the sale of the assets of the
remaining businesses in its Coils segment, Astro Air and Snowmax (together, the
"Coils Subsidiaries"). The sale of the Coils Subsidiaries was effectuated
pursuant to an Asset Purchase Agreement, dated as of October 26, 2001, by and
among the Coils Subsidiaries, Astro Air, Inc. (the "Buyer"), and Rex Dacus, the
manager of the Coils segment and the person from whom the Company acquired the
assets and operations of Astro Air Coils, Inc. in 1998. Proceeds from the sale,
which were utilized to reduce the Company's revolving credit facility, were $5.6
million of cash and the assumption of approximately $3.7 million of liabilities.
The Company recorded a pretax charge of $9.3 million related to this sale in the
fourth quarter of 2001. The Company has reported the results of the Coils
segment as discontinued operations for all periods presented in the consolidated
statements of operations.
On January 24, 2001, the Company completed the sale of stock of Sooner Trailer
to the McCasland Investment Group and certain members of Sooner Trailer's
management for cash of $11.5 million, subject to certain post-closing
adjustments based on changes in working capital, plus the assumption of debt of
approximately $670,000. In May 2001, the Company received approximately $2.0
million related to such post-closing adjustments. In connection with the
anticipated sale, the Company recognized a loss of $8.6 million in the fourth
quarter of 2000 to adjust the carrying value of Sooner Trailer's assets to their
estimated fair value based on an expected sales price. No additional gain or
loss was recorded upon completion of the sale. Sooner Trailer had previously
been included in the Agricultural Equipment segment (formerly known as the
Trailers and Agricultural Equipment segment). Accordingly, the Company has
reported the results of Sooner Trailer as discontinued operations for all
periods presented in the consolidated statements of operations.
Results of Operations
The Company's fiscal year includes 52 or 53 weeks, ending on the last Sunday in
October. Fiscal year 1999 consisted of 53 weeks, while fiscal years 2001 and
2000 consisted of 52 weeks.
Year ended October 28, 2001 compared to year ended October 29, 2000
Net sales. Net sales for 2001 were $54.3 million, as compared to net sales of
$75.2 million in 2000, a decrease of 27.8%. These results include the effects of
disposing of Dura-Bond in November 2000. Sales attributable to Dura-Bond were
$8.2 million in 2000.
Net sales from Motors were $51.4 million in 2001, as compared to 57.7 million in
2000, a decrease of 11.0%. Sales volume at the Motors segment was adversely
effected by the general economic slowdown effecting the Company's primary
markets, particularly the heavy truck and recreational vehicle markets and
increased Pacific Rim competition in the healthcare market.
Net sales from the Company's Other segment were $3.0 million in 2001, as
compared to $17.5 million in 2000. Sales attributable to Dura-Bond, which was
sold November 2, 2000, were $8.2 million in 2000. Net sales at Cramer decreased
$6.4 million, as compared to the prior year, reflecting the sale of the timer
and switch line on December 4, 2000, and the subsequent sale, on September 23,
2001, of substantially all of the remaining Cramer assets.
Income (loss) from operations. For 2001, the Company recorded a loss from
operations of $1.9 million, as compared to a loss from operations of $265,000 in
2000. The current year loss includes a charge of $1.1 million for the write-down
of net assets held for sale, related to Cramer. The prior year period includes a
$2.8 million charge for the write-down of net assets held for sale related to
both Cramer and Dura-Bond.
Income from operations for the Motors segment was $4.7 million, or 9.1% of net
sales for 2001, as compared to $5.0 million, or 8.6% of net sales in the prior
year. Despite an 11.0% decrease in sales, income from operations improved as a
percentage of net sales as a result of increased productivity attributable to
lean manufacturing processes implemented in 2000.
11
The Company's Other segment reported a loss from operations of $1.4 million in
2001, as compared to a loss of $666,000 in 2000. The current period loss
includes a charge of $1.1 million for the write-down of net assets held for sale
related to Cramer. The prior year period includes a $2.8 million charge for the
write-down of net assets held for sale related to both Cramer and Dura-Bond.
Exclusive of the write-downs, the loss from operations would have been $317,000
for 2001, as compared to income from operations of $2.1 million in 2000. This
decrease reflects the sale of Dura-Bond, which had income from operations of
$1.5 million in 2000. In addition, operating results from Cramer decreased as a
result of the sale of the timer and switch line in December 2000 and the sale of
the remaining Cramer assets in September 2001.
Unallocated corporate expenses included in income (loss) from operations were
$5.1 million, or 9.4% of net sales, as compared to $4.6 million, or 6.1% of net
sales in 2000. This increase reflects severance costs for the corporate office
staff of $650,000, increased incentive compensation of $344,000, and increased
bank service charges of $339,000, partially offset by rental income received on
the sublet of corporate office space of $119,000, reduced corporate office
employee costs of $150,000, and income of $400,000 from a vendor dispute.
Interest expense. Interest expense decreased to $4.3 million for 2001 from $5.1
million in the prior year, primarily as a result of lower debt levels. The
current period includes a charge of $598,000 resulting from a decrease in the
fair market value of the Company's interest rate swap agreements as a result of
decreases in interest rates. This charge was recorded in accordance with SFAS
No. 133.
Other (income) expense. For 2001, other (income) expense primarily represents
the partial recovery of a note received in connection with the sale of certain
Cramer assets in 1999 (the "Cramer Note Receivable"). For 2000, other (income)
expense includes a $620,000 charge recorded as a reserve against a note
receivable obtained in connection with the sale of Parker Industries ("Parker")
in 1999 to Top Air Manufacturing, Inc. ("Top Air"), which filed for Chapter 7
bankruptcy liquidation in November 2000. Also included in other (income) expense
for 2000 is a charge of $219,000 recorded as a reserve against the Cramer Note
Receivable, partially offset by income of $100,000 representing a change in
estimate on an allowance against a note receivable.
Income tax expense (benefit). The Company recorded an income tax benefit at an
effective rate of 32.4% for 2001, as compared to an effective tax rate of 18.6%
in the prior year. The Company's effective tax rate was adversely effected in
the prior year as a result of a higher proportion of non-deductible taxable
losses.
Income (loss) from discontinued operations. For 2001, the Company recorded a
loss from discontinued operations, representing the operations of Sooner Trailer
and the Coils segment, of $12.1 million (net of income tax expense of $514,000)
on revenues of $35.6 million. For 2000, loss from discontinued operations was
$8.9 million (net of income tax expense of $522,000) on revenues of $85.1
million. The current year results reflect a pre-tax loss on the sale of the
Coils segment of $10.0 million. The prior year reflects an $8.6 million charge
for the write-down of the net assets of Sooner in connection with its sale,
which was completed in January 2001.
Net income (loss) available for common shareholders. Net loss available for
common shareholders was $17.6 million, or $3.00 per share, in 2001, as compared
to a net loss of $14.8 million, or $2.53 per share, in the prior year. Income
(loss) available for common shareholders is calculated by subtracting dividends
of preferred stock of $1.3 million and $750,000 for 2001 and 2000, respectively,
and by deducting the non-cash accretion in book value of preferred stock of
$371,000 for 2000.
12
Year ended October 29, 2000 compared to year ended October 31, 1999
Net sales. Net sales for 2000 were $75.2 million, as compared to net sales of
$84.2 million in 1999, a decrease of 10.7%. These results include the effects of
disposing of Parker, sales from which were $1.0 million in 1999.
Net sales from the Motors segment were $57.7 million in 2000, as compared to
$63.9 million in 1999, a decrease of 9.8%. This decrease reflects lower demand
from the recreational vehicle and healthcare markets. Sales to the recreational
vehicle market were adversely affected by design issues associated with a new
motor developed for this market. Although the design issues were resolved, sales
to this market remained soft as a result of general economic conditions.
Net sales from the Company's Other segment were $17.5 million in 2000, as
compared to $19.3 million in 1999. This decrease was primarily a result of
decreased sales at Cramer.
Income from operations. For 2000, the Company recorded a loss of $265,000 from
operations, as compared to income from operations of $2.9 million in 1999. The
loss for 2000 includes a charge of $2.8 million for the write-down of net assets
held for sale, primarily representing the write-down of goodwill. Income from
operations for 1999 included a loss of $607,000 related to Parker, which was
sold in March 1999.
Income from operations for the Motors segment was $5.0 million, or 8.6% of net
sales, in 2000, as compared to $7.8 million, or 12.2% of net sales, in the prior
year. These results reflect decreased sales volume to the recreational vehicle
market and a softening of the healthcare market. Income from operations for the
Motors segment was also unfavorably impacted by temporary production
inefficiencies resulting from an overhaul of Motor Products' Owosso, Michigan
facility from batch processing to lean manufacturing during the second quarter
of 2000.
Loss from operations for the Company's Other segment was $666,000 in 2000, as
compared to income from operations of $1.4 million in the prior year. The loss
for 2000 includes $2.8 million for the write-down of net assets held for sale,
primarily representing the write-down of goodwill. Exclusive of the write-down,
income from operations would have been $2.1 million in 2000. The improvement
over the prior year primarily reflects improved profitability, despite decreased
sales, at Cramer.
Unallocated corporate expenses included in income from operations were $4.6
million, or 6.1% of net sales, as compared to $5.7 million, or 6.8% of net
sales, in 1999. This reflects reduced personnel, legal and consulting costs, as
compared to the prior year. In addition, unallocated corporate expenses for 2000
reflect a reduction of $260,000 in the Company's environmental liability related
to the site on which its Cramer facility was previously located. Such reduction
was the result of the Company's revision to its estimate of the cost to complete
remedial measures required at the site.
Interest expense. Interest expense increased to $5.1 million for 2000, as
compared to $4.9 million in the prior year, as a result of increased rates,
partially offset by lower average outstanding debt balances.
Other (income) expense. For 2000, other (income) expense includes a $620,000
charge recorded as a reserve against a note receivable obtained in connection
with the sale of Parker in 1999 to Top Air, which filed for Chapter 7 bankruptcy
liquidation in November 2000. Also included in other (income) expense for 2000
is a charge of $219,000 recorded as a reserve against a note receivable received
in connection with the sale of certain Cramer assets in 1999, partially offset
by income of $100,000 representing a change in estimate on an allowance against
a note receivable. For 1999, other (income) expense includes $192,000 of
interest income related to notes receivable obtained in connection with the sale
of Parker in 1999 and the sale of DewEze in 1998.
13
Income tax expense (benefit). The Company recorded, for 2000, an effective
income tax benefit at a rate of 18.6%, as compared to an effective tax rate
benefit of 41.1% for the prior year. The effective tax rate for 2000 was
adversely affected as a result of a higher proportion of non-deductible
expenses, primarily for the write-down of asset values and non-cash amortization
expenses related to acquisitions, as compared to pre-tax income (loss). The
effective tax rate for 1999 was favorably impacted by a deferred tax benefit
realized upon the sale of Parker.
Income (loss) from discontinued operations. For 2000, the Company recorded a
loss from discontinued operations, representing the operations of Sooner Trailer
and the Coils segment, of $8.9 million (net of income tax expense of $522,000),
reflecting an $8.6 million write-down of the net assets of Sooner in connection
with its anticipated sale. For 1999, income from discontinued operations was
$2.7 million (net of income tax expense of $1.9 million). Revenues from
discontinued operations were $85.1 million in 2000, as compared to $85.9 million
in 1999.
Net income (loss) available for common shareholders. Net loss available for
common shareholders was $14.8 million, or $2.53 per share, in 2000, as compared
to net income available for common shareholders of $682,000, or $.12 per share,
in the prior year. Income (loss) available for common shareholders is calculated
by subtracting dividends on preferred stock of 750,000 for both 2000 and 1999
and by deducting the non-cash accretion in book value of preferred stock of
$371,000 and $345,000 for 2000 and 1999, respectively.
Liquidity and Capital Resources
At October 28, 2001, cash and cash equivalents were $200,000. The Company had
negative working capital of $14.6 million, as compared to positive working
capital of $14.0 million at October 29, 2000. This decrease reflects the sales
of Dura-Bond and Cramer, the net assets of which were classified as net assets
held for sale at October 29, 2000, included in current assets. This decrease
also reflects the sales of Sooner Trailer and the Coils segment, the net assets
of which were included in net assets of discontinued operations held for sale,
included in current assets. Net cash provided by operating activities of
continuing operations was $1.5 million for 2001, as compared to $2.0 million in
the prior year. The decrease in cash from operations was principally the result
of decreased operating results, consistent with decreased sales volume.
Net cash provided by investing activities of continuing operations included
proceeds of $4.0 million from the sale of Dura-Bond and $2.6 million from the
sales of the Cramer assets. Net cash provided by investing activities of
continuing operations also included $757,000 for capital expenditures for
equipment. The Company currently plans to invest approximately $750,000 in
capital expenditures during fiscal 2002. Management anticipates funding such
capital expenditures with cash from operations and proceeds from the Company's
revolving credit facility. Net cash provided by investing activities of
discontinued operations included proceeds from the sales of Sooner Trailer of
$13.6 million and the Coils segment of $6.1 million.
Net cash used in financing activities included net repayments of $19.1 million
under the Company's revolving credit agreement, debt repayments of $1.3 million,
including the repayment of $600,000 of related party debt, and the payment of
dividends of $142,000.
14
At October 28, 2001, $22.0 million was outstanding under the Company's revolving
credit facility. At the end of fiscal 2000, the Company was not in compliance
with covenants contained in its revolving credit facility at that date. In
February 2001, the Company entered into an amendment to its revolving credit
facility, wherein the lenders agreed to forbear from exercising their rights and
remedies under the facility in connection with such non-compliance until
February 15, 2002, at which time the facility was to mature. The amendment to
the revolving credit facility, which has been further amended since February
2001, called for reductions in the outstanding balance during calendar 2001 and
modified the interest rates charged. Borrowings under the facility that are
In-Formula (as defined) are charged interest at the Prime Rate plus 1.5% (7.0%
at October 28, 2001). Borrowings under the facility that are Out of Formula (as
defined) are charged interest at the Prime Rate plus 2.0% (7.5% at October 28,
2001). Borrowings and letters of credit are limited to a Borrowing Base
consisting of eligible accounts receivable and inventory. Borrowings that equal
an amount up to and including the Borrowing Base are defined as In-Formula
borrowings. Total borrowings less In-Formula borrowings, are defined as Out of
Formula borrowings. The amendment also required additional collateral and
reporting requirements as well as the addition of a covenant requiring minimum
operating profits. The amendment also required the suspension of principal and
interest payments on subordinated debt, with an aggregate outstanding balance of
$2.1 million as of October 28, 2001. Furthermore, the amendment to the facility
prohibits the payment of preferred or common stock dividends. Beginning in
August 2001, the Company was not in compliance with the minimum operating profit
covenant. In February 2002, the Company entered into a further amendment to the
facility which extends the maturity date to December 31, 2002. The amendment
calls for further reductions in the outstanding balance based on expected future
asset sales and an increase in the interest rate charged. See Item 7. "General"
section.
The Company has interest rate swap agreements with its two banks with notional
amounts totaling $19.9 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.
Environmental Matters
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 believes that the ultimate resolution of this matter will not have a
material adverse effect on the financial results of the Company.
Recently Issued Financial Accounting Standards
In July 2001, the Financial Accounting Standards Board issued SFAS No. 141
"Business Combinations" ("SFAS No. 141") and SFAS No. 142 "Goodwill and Other
Intangible Assets" ("SFAS No. 142"). SFAS No. 141 requires business combinations
initiated after June 30, 2001 to be accounted for using the purchase method of
accounting, and broadens the criteria for recording intangible assets separate
from goodwill. Recorded goodwill and intangibles will be evaluated against this
new criteria and may result in certain intangibles being subsumed into goodwill,
or alternatively, amounts initially recorded as goodwill may be separately
identified and recognized apart from goodwill. SFAS No. 142 requires the use of
a nonamortization approach to account for purchased goodwill and certain
intangibles. Under a nonamortization approach, goodwill and certain intangibles
will not be amortized into results of operations but, instead, would be reviewed
for impairment and written down and charged to results of operations only in the
periods in which the recorded value of goodwill and certain intangibles is more
than its fair value. The provisions of each statement which apply to goodwill
and intangible assets acquired prior to June 30, 2001 are required to be adopted
for fiscal years beginning after December 15, 2001. The Company has not yet
completed its analysis of the effects of adopting these statements on its
consolidated financial position or results of operations.
15
In August 2001, the Financial Accounting Standards Board issued SFAS No. 144
"Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS No.
144"). SFAS No. 144, which addresses financial accounting and reporting for the
impairment of long-lived assets and for long-lived assets to be disposed of,
supercedes SFAS No. 121 and is effective for fiscal years beginning after
December 15, 2001. The Company has not yet completed its analysis of the effects
of adopting this statement on its consolidated financial position or results of
operations.
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-K, 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
the "Safe Harbor" 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 continued liquidity is dependent upon its ability to
achieve levels of revenue necessary to support the Company's cost
structure, its ability to maintain adequate financing, its ability
to maintain compliance with debt covenants, and its ability to
generate sufficient cash flows to meets its obligations on a timely
basis.
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 of 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.
16
o The influence of foreign competition from low-cost areas of the
world may affect results of operations.
o The Company's results have been and 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.
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 In that the Company's outstanding derivative instruments do not meet
the stringent requirements for hedge accounting under SFAS 133,
future earnings could reflect greater volatility.
o The Company may, in the future, divest of product lines or business
units. Any such divestiture may involve costs of disposition or loss
on the disposition that could adversely affect the Company's
operating results or financial condition.
17
Item 7A. 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 the prime
rate. The Company uses interest rate swap agreements to partially
change interest rate exposure associated with the Company's variable
rate debt. All of the Company's derivative financial instrument
transactions are entered into for non-trading purposes.
To the extent that the Company's financial instruments expose the
Company to interest rate risk and market risk, they are presented in
the table below. The table presents principal cash flows and related
interest rates by year of maturity for the Company's revolving
credit facility, industrial revenue bonds and term loans in effect
at October 28, 2001. For interest rate swaps, the table presents
notional amounts and the related reference interest rates by year of
maturity. Fair values included herein have been determined based
upon (1) rates currently available to the Company for debt with
similar terms and remaining maturities, and (2) estimates obtained
from dealers to settle interest rate swap agreements. Notes 10 and
11 to the consolidated financial statements should be read in
conjunction with the table below (dollar amounts in thousands).
Year of Maturity Fair Value
----------------------------------------------------------- Total Due at
2002 2003 2004 2005 2006 Thereafter at Maturity 10/28/01
--------- -------- -------- -------- ------- ----------- ----------- -----------
Debt:
Fixed rate $ 1,784 $ 373 $ 264 $ 159 $ 93 $ 81 $ 2,754 $ 2,754
Average interest rate 8.0% 8.0% 8.0% 8.0% 8.0% 8.0%
Variable rate $22,300 $ 300 $ 600 $ 600 $ 600 $ 2,450 $ 26,850 $26,850
Average interest rate 8.1% 2.8% 2.8% 2.8% 2.8% 2.8%
Interest rate swap agreements:
Variable to fixed swaps $15,000 $4,850 $ - $ - $ - $ - $ 19,850 $ (699)
Average pay rate 7.1% 4.2%
Average receive rate 2.5% 2.1%
Item 8. Financial Statements and Supplementary Data
The Company's consolidated financial statements and supplemental
schedules appear at pages F-1 through F-28, as set forth in Item 14.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
18
PART III
Item 10. Directors and Executive Officers of the Registrant
Information concerning directors, appearing under the caption "Election
of Directors" in the Company's Proxy Statement (the "Proxy Statement") to be
filed with the Securities and Exchange Commission in connection with the Annual
Meeting of Shareholders scheduled to be held on April 11, 2002, information
concerning executive officers, appearing under the caption "Item 1. Business -
Executive Officers of the Company" in Part I of this Form 10-K, and information
under the caption "Section 16(a) Beneficial Ownership Reporting Compliance" in
the Proxy Statement are incorporated herein by reference in response to this
Item 10.
Item 11. Executive Compensation
The information contained in the section titled "Executive
Compensation" in the Proxy Statement, with respect to executive compensation,
and the information contained in the section entitled "Director Compensation"
with respect to director compensation, are incorporated herein by reference in
response to this Item 11.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information contained in the section titled "Security Ownership of
Certain Beneficial Owners and Management" in the Proxy Statement, with respect
to security ownership of certain beneficial owners and management, is
incorporated herein by reference in response to this Item 12.
Item 13. Certain Relationships and Related Transactions
The information contained in the section titled "Certain Relationships
and Transactions" of the Proxy Statement, with respect to certain relationships
and related transactions, is incorporated herein by reference in response to
this Item 13.
19
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a)(1) Financial Statements
The financial statements listed in the accompanying Table of Contents
to Consolidated Financial Statements are filed as part of this Form
10-K, commencing on page F-1.
(a)(2) Schedules
The following consolidated financial statement schedule of the Company
is filed as part of this Form 10-K:
Schedule II - Valuation and Qualifying Accounts
(a)(3) Exhibits
The exhibits are listed in the index to Exhibits appearing below.
(b) Reports on Form 8-K
The Company filed a report on Form 8-K, dated October 26, 2001, to
report under Item 2 that it had disposed of its subsidiaries, Astro Air
Coils, Inc., and Snowmax Incorporated. This report also included under
Item 7 unaudited proforma condensed consolidated statements of
operations for the nine-months ended July 29, 2001 and the year ended
October 29, 2000, and an unaudited proforma condensed consolidated
balance sheet as of July 29, 2001.
(c) Exhibits
Exhibit No. Description
- -------------------------------------------------------------------------------
* 3.1 Articles of Incorporation of the Company (Exhibit 3.1 to the
Company's Form S-1 Registration Statement, No. 33-76964 (the "1994
Registration Statement")).
* 3.2 By-Laws of the Company, as amended June 5, 1997 (Exhibit 3.2 to the
Company's Quarterly Report on Form 10-Q for the quarter ended July
27, 1997).
* 3.3 Designations of the Class A Convertible Preferred Stock of Owosso
Corporation (Exhibit 4.1 to the Company's Current Report on Form 8-K
dated October 31, 1995 (the "October 31, 1995 Form 8-K")).
*10.1 1994 Stock Option Plan (Exhibit 10.1 to the Company's Annual Report
on Form 10-K for the year ended October 30, 1994 (the "1994 Form 10-K
")).#
*10.2 Deed of Trust, dated April 7, 1992, on property of Snowmax,
Incorporated located in Gregg County, Texas (Exhibit 10.41 to the
1994 Registration Statement).
*10.3 Lease, dated March 21, 1995, between Motor Products - Ohio
Corporation and William Berhard Realty Company (Exhibit 10.44 to the
1995 Form 10-K).
*10.4 Confidentiality and Non-Solicitation Agreement between the Company
and Eugene P. Lynch, dated October 31, 1994 (Exhibit 10.45 to the
1994 Form 10-K).
20
*10.5 Confidentiality and Non-Solicitation Agreement between the Company
and Ellen D. Harvey, dated October 31, 1994 (Exhibit 10.46 to the
1994 Form 10-K).
*10.6 Confidentiality and Non-Solicitation Agreement between the Company
and George B. Lemmon, Jr., dated October 31, 1994 (Exhibit 10.48 to
the 1994 Form 10-K).
*10.7 Confidentiality and Non-Solicitation Agreement between the Company
and John R. Reese, dated October 31, 1994 (Exhibit 10.51 to the 1994
Form 10-K).
*10.8 Agreement and Plan of Merger dated October 25, 1995 by and among
Owosso Corporation, Stature Electric, Inc. and the stockholders of
Stature Electric, Inc. (Exhibit 2.1 to the October 31, 1995 Form
8-K).
*10.9 Registration Rights Agreement dated October 31, 1995 by and among
Owosso Corporation, Lowell Huntsinger, Randall James and Morris Felt
(Exhibit 10.2 to the October 31, 1995 Form 8-K).
*10.10 Lease Agreement by and between Owosso Corporation and Philadelphia
Freedom Partners, L.P. dated September 6, 1996 (Exhibit 10.62 to the
Company's Annual Report on Form 10-K for the year ended October 27,
1996).
*10.11 Owosso Corporation 401(k) Savings Plan (Exhibit 10.2 to the January
25, 1998 Form 10-Q).
#*10.12 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).
*10.13 Amended and Restated Credit Agreement by and among Owosso
Corporation, its subsidiaries, NBD Bank, PNC Bank, N.A., and NBD
Bank, as Agent, dated as of January 22, 1999. (Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q for the quarter ended January
31, 1999).
*10.14 First Amendment to Amended and Restated Credit Agreement (Exhibit
10.1 to the Company's Quarterly Report on Form 10-Q for the quarter
ended July 30, 2000).
*10.15 Stock Purchase and Redemption Agreement among Owosso Corporation,
MEPC, L.L.C., the Landover Company (d/b/a "Dura-Bond Bearing
Company"), Engine Power Components, Inc., and Melling Tool Co.,
effective as of October 29, 2000. (Exhibit 10.2 to the Company's
Current Report on Form 8-K, dated January 24, 2001).
*10.16 Asset Purchase Agreement by and between M.H. Rhodes, Inc. and
Capewell Component Company, L.L.C., dated December 1, 2000 (Exhibit
10.35 to the Company's Annual Report on Form 10-K for the year ended
October 29, 2000).
*10.17 Stock Purchase Agreement between Sooner Investment Manufacturing
Company (purchaser) and Owosso Corporation (seller), dated January
19, 2001 (Exhibit 10.1 to the Company's Current Report on Form 8-K,
dated January 24, 2001).
*10.18 AmendmentAgreement by and among Owosso Corporation, its subsidiaries,
Bank One and PNC Bank, N.A., dated February 12, 2001 (Exhibit 10.37
to the Company's Annual Report on Form 10-K for the year ended
October 29, 2000).
*10.19 Asset Purchase Agreement among Rex Dacus, Dacus Properties, Inc.,
Astro Air Coils, Inc. and Snowmax Incorporated, dated October 26,
2001 (Exhibit 2.1 to the Company's Current Report on Form 8-K, dated
October 26, 2001).
21
*10.20 Seventh Amendment to Amended and Restated Credit Agreement by and
among Owosso Corporation, its subsidiaries, Bank One and PNC Bank,
N.A., effective May 9, 2001 (Exhibit 10.1 to the Company's Quarterly
Report on Form 10-Q for the quarter ended July 29, 2001).
10.21 Tenth Amendment to Amended and Restated Credit Agreement by and among
Owosso Corporation, its subsidiaries, Bank One and PNC Bank, N.A.,
dated February 7, 2002.
11 Computation of per share earnings.
21 Subsidiaries of the registrant.
23 Consent of Deloitte & Touche LLP
- --------------
* Incorporated by reference.
# Management contract or compensatory plan or arrangement.
22
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this Annual Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
OWOSSO CORPORATION
Date: February 8, 2002 By: /s/ George B. Lemmon, Jr.
---------------------------------------
George B. Lemmon, Jr., President, Chief
Executive Officer, and Director
By: /s/ Kirk E. Moore
---------------------------------------
Kirk E. Moore, Executive Vice President -
Finance, Chief Financial Officer and
Treasurer and Secretary
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed by the following persons on February 8, 2002, in the capacities
indicated:
Signature Title
/s/ John R. Reese
- ---------------------------
John R. Reese Chairman of the Board and Director
/s/ George B. Lemmon, Jr.
- ---------------------------
George B. Lemmon, Jr. President, Chief Executive Officer,
and a Director
/s/ Kirk E. Moore
- ---------------------------
Kirk E. Moore Executive Vice President - Finance,
Chief Financial Officer and Treasurer and
Secretary
/s/ Ellen D. Harvey
- ---------------------------
Ellen D. Harvey Director
/s/ Harry E. Hill
- ---------------------------
Harry E. Hill Director
/s/ Lowell P. Huntsinger
- ---------------------------
Lowell P. Huntsinger Director
/s/ Eugene P. Lynch
- ---------------------------
Eugene P. Lynch Director
/s/ James A. Ounsworth
- ---------------------------
James A. Ounsworth Director
OWOSSO CORPORATION
TABLE OF CONTENTS
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Page
INDEPENDENT AUDITORS' REPORT F-1
CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED
OCTOBER 28, 2001, OCTOBER 29, 2000, AND OCTOBER 31, 1999:
Statements of Operations F-2
Balance Sheets F-3
Statements of Stockholders' Equity F-4
Statements of Cash Flows F-5
Notes to Consolidated Financial Statements F-6 - F-27
FINANCIAL STATEMENT SCHEDULE II F-28
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders of
Owosso Corporation
King of Prussia, Pennsylvania
We have audited the accompanying consolidated balance sheets of Owosso
Corporation and subsidiaries as of October 28, 2001 and October 29, 2000, and
the related consolidated statements of operations, stockholders' equity, and
cash flows for each of the three fiscal years in the period ended October 28,
2001. Our audits also included the financial statement schedule listed in the
index at Item 14(a)(2). These financial statements and financial statement
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Owosso Corporation and subsidiaries
as of October 28, 2001 and October 29, 2000, and the results of their operations
and their cash flows for each of the three fiscal years in the period ended
October 28, 2001 in conformity with accounting principles generally accepted in
the United States of America. Also, in our opinion, such financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 2 to the
consolidated financial statements, the Company's recurring losses from
operations, working capital deficiency, default under terms of its credit
agreement, and inability to comply with the covenants of its credit agreement
raise substantial doubt about its ability to continue as a going concern.
Management's plans concerning these matters are also described in Note 2. The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
Deloitte & Touche LLP
Philadelphia, Pennsylvania
February 8, 2002
F-1
OWOSSO CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
- ---------------------------------------------------------------------------------------------------------------------------
Year Ended
--------------------------------------------------------
October 28, October 29, October 31,
2001 2000 1999
Net sales $ 54,326,000 $ 75,204,000 $ 84,214,000
Costs of products sold 43,897,000 59,429,000 65,009,000
------------ ------------ ------------
Gross profit 10,429,000 15,775,000 19,205,000
Selling, general and administrative expenses 11,183,000 13,240,000 16,305,000
Write-down of net assets held for sale 1,100,000 2,800,000 --
------------ ------------ ------------
Income (loss) from operations (1,854,000) (265,000) 2,900,000
Interest expense 4,335,000 5,069,000 4,947,000
Other (income) expense (110,000) 530,000 (444,000)
------------ ------------ ------------
Loss from continuing operations before income taxes (6,079,000) (5,864,000) (1,603,000)
Income tax benefit (1,968,000) (1,082,000) (658,000)
------------ ------------ ------------
Loss from continuing operations (4,111,000) (4,782,000) (945,000)
Discontinued operations:
Income (loss) from discontinued operations, net of income tax
expense of $514,000, $522,000 and $1,868,000 (2,073,000) (290,000) 2,722,000
Loss on disposal of discontinued operations (10,040,000) (8,600,000) --
------------ ------------ ------------
Income (loss) before cumulative effect of accounting change (16,224,000) (13,672,000) 1,777,000
Cumulative effect of accounting change (net of tax of $34,000) (67,000) -- --
------------ ------------ ------------
Net income (loss) (16,291,000) (13,672,000) 1,777,000
Dividends and accretion on preferred stock (1,316,000) (1,121,000) (1,095,000)
------------ ------------ ------------
Net income (loss) available for common shareholders $(17,607,000) $(14,793,000) $ 682,000
============ ============ ============
Basic and diluted income (loss) per common share:
Loss from continuing operations $ (0.93) $ (1.01) $ (0.35)
Income (loss) from discontinued operations (2.06) (1.52) 0.47
Cumulative effect of accounting change, net (0.01) -- --
------------ ------------ ------------
Net income (loss) per share $ (3.00) $ (2.53) $ 0.12
============ ============ ============
Weighted average number of common shares outstanding:
Basic 5,866,000 5,844,000 5,826,000
============ ============ ============
Diluted 5,866,000 5,844,000 5,826,000
============ ============ ============
See notes to consolidated financial statements.
F-2
OWOSSO CORPORATION
CONSOLIDATED BALANCE SHEETS
- ----------------------------------------------------------------------------------------------------------------------
October 28, October 29,
2001 2000
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 200,000 $ 491,000
Receivables, net 6,061,000 7,912,000
Inventories, net 4,815,000 5,530,000
Net assets held for sale 1,181,000 8,663,000
Net assets of discontinued operations held for sale 1,078,000 24,659,000
Prepaid expenses and other 1,446,000 917,000
Tax refund receivable 1,696,000 --
Deferred taxes 2,453,000 1,900,000
------------ ------------
Total current assets 18,930,000 50,072,000
PROPERTY, PLANT AND EQUIPMENT, NET 11,874,000 13,858,000
GOODWILL, NET 9,395,000 10,061,000
OTHER INTANGIBLE ASSETS, NET 5,614,000 6,000,000
OTHER ASSETS 581,000 1,172,000
------------ ------------
TOTAL ASSETS $ 46,394,000 $ 81,163,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable - trade $ 3,350,000 $ 4,562,000
Accrued compensation and benefits 1,085,000 1,064,000
Accrued expenses 5,054,000 2,877,000
Related party debt 400,000 1,000,000
Current portion of long-term debt 23,684,000 26,606,000
------------ ------------
Total current liabilities 33,573,000 36,109,000
LONG-TERM DEBT, LESS CURRENT PORTION 5,520,000 22,362,000
COMMON STOCK PUT OPTION 600,000 --
POSTRETIREMENT BENEFITS AND OTHER LIABILITIES 3,532,000 2,323,000
DEFERRED TAXES 2,766,000 1,937,000
COMMITMENTS AND CONTINGENCIES (Note 13)
STOCKHOLDERS' EQUITY
Convertible preferred stock Class A, 6% in 2001 and 5% in 2000 cumulative,
$.01 par value: 10,000,000 shares authorized; 1,071,428 shares issued
and outstanding
(aggregate liquidation value 2001 - $15,750,000 and 2000 - $15,000,000) 15,000,000 15,000,000
Common stock, $.01 par value; authorized 15,000,000 shares; issued
5,874,345 shares in 2001 and 5,849,839 shares in 2000 59,000 59,000
Additional paid-in capital 21,179,000 21,743,000
Accumulated other comprehensive income -- (142,000)
Accumulated deficit (35,436,000) (17,829,000)
------------ ------------
802,000 18,831,000
Less treasury stock, at cost, 50,039 shares in 2001 and 2000 (399,000) (399,000)
------------ ------------
Total stockholders' equity 403,000 18,432,000
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 46,394,000 $ 81,163,000
============ ============
See notes to consolidated financial statements.
F-3
OWOSSO CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
- ----------------------------------------------------------------------------------------------------------------------------------
Additional Accumulated
Preferred Common Paid-in Other Accumulated Treasury
Stock Stock Capital Comprehensive Deficit Stock Total
Income
BALANCE, OCTOBER 25, 1998 14,285,000 59,000 21,618,000 (918,000) (401,000) 34,643,000
Net income 1,777,000 1,777,000
Other comprehensive income:
Cumulative translation adjustment (3,000) (3,000)
----------
Total comprehensive income 1,774,000
Dividends (2,498,000) (2,498,000)
Accretion on convertible preferred stock 345,000 (345,000) --
Issuance of common stock 64,000 (1,000) 2,000 5,000
---------------------------------------------------------------------------------------
BALANCE, OCTOBER 31, 1999 14,630,000 59,000 21,682,000 (3,000) (1,985,000) (399,000) 33,984,000
Net loss (13,672,000) (13,672,000)
Other comprehensive income:
Cumulative translation adjustment (139,000) (139,000)
----------
Total comprehensive income (loss) (13,811,000)
Dividends (1,802,000) (1,802,000)
Accretion on convertible preferred stock 370,000 (370,000) --
Issuance of common stock 61,000 61,000
---------------------------------------------------------------------------------------
BALANCE, OCTOBER 29, 2000 15,000,000 59,000 21,743,000 (142,000) (17,829,000) (399,000) 18,432,000
Net loss (16,291,000) (16,291,000)
Other comprehensive income:
Cumulative translation adjustment 142,000 142,000
----------
Total comprehensive income (loss) (16,149,000)
Dividends (1,316,000) (1,316,000)
Exercise common stock put option (600,000) (600,000)
Issuance of common stock 36,000 36,000
---------------------------------------------------------------------------------------
BALANCE, OCTOBER 28, 2001 $15,000,00 $ 59,000 $21,179,000 $ -- $(35,436,000) $ (399,000) $ 403,000
=======================================================================================
See notes to consolidated financial statements.
F-4
OWOSSO CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------------------------------------------------------
Year Ended
-------------------------------------------------
October 28, October 29, October 31,
2001 2000 1999
OPERATING ACTIVITIES:
Net income (loss) $(16,291,000) $(13,672,000) $ 1,777,000
(Income) loss from discontinued operations 12,113,000 8,890,000 (2,722,000)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating activities:
Allowance for doubtful accounts 155,000 272,000 52,000
Provision for deferred taxes (238,000) (1,338,000) 43,000
Write-down of net assets held for sale 1,100,000 2,800,000 --
Change in net assets held for sale (543,000) -- 3,177,000
Interest rate swap contracts - market value adjustment 699,000 -- --
Loss on sale of assets 4,000 1,000 10,000
Depreciation 2,798,000 3,700,000 3,687,000
Amortization 1,069,000 1,325,000 1,297,000
Changes in assets and liabilities which provided (used) cash:
Accounts receivable 1,696,000 1,918,000 (2,198,000)
Inventories 715,000 182,000 2,729,000
Prepaid expenses and other 116,000 (369,000) 158,000
Accounts payable (1,212,000) (874,000) 685,000
Accrued expenses (672,000) (860,000) 718,000
------------ ------------ ------------
Net cash provided by continuing operations 1,509,000 1,975,000 9,413,000
Net cash provided by (used in) discontinued operati (5,678,000) 1,797,000 6,943,000
------------ ------------ ------------
Net cash provided by (used in) operating activities (4,169,000) 3,772,000 16,356,000
------------ ------------ ------------
INVESTING ACTIVITIES:
Purchases of property, plant and equipment (757,000) (1,195,000) (3,789,000)
Proceeds from the sale of businesses and assets 6,575,000 -- 4,603,000
Decrease in other assets 729,000 1,929,000 520,000
------------ ------------ ------------
Net cash provided by continuing operations 6,547,000 734,000 1,334,000
Net cash provided by (used in) discontinued operations 18,038,000 (2,599,000) (2,695,000)
------------ ------------ ------------
Net cash provided by (used in) investing activities 24,585,000 (1,865,000) (1,361,000)
------------ ------------ ------------
FINANCING ACTIVITIES:
Borrowings from (payments on) line of credit (19,100,000) 2,950,000 (10,050,000)
Proceeds from long-term debt -- 580,000 --
Payments on long-term debt (664,000) (1,774,000) (1,724,000)
Payments on related party debt (600,000) (815,000) (1,028,000)
Dividends paid (142,000) (2,152,000) (2,006,000)
Other 38,000 (86,000) 68,000
------------ ------------ ------------
Net cash used in continuing operations (20,468,000) (1,297,000) (14,740,000)
Net cash used in discontinued operations (239,000) (280,000) (285,000)
------------ ------------ ------------
Net cash used in financing activities (20,707,000) (1,577,000) (15,025,000)
------------ ------------ ------------
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS (291,000) 330,000 (30,000)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 491,000 161,000 191,000
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 200,000 $ 491,000 $ 161,000
============ ============ ============
See notes to consolidated financial statements.
F-5
OWOSSO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FISCAL YEARS ENDED OCTOBER 28, 2001, OCTOBER 29, 2000, AND OCTOBER 31, 1999
- --------------------------------------------------------------------------------
1. NATURE OF BUSINESS
The Company - The consolidated financial statements represent the
consolidated financial position, results of operations and cash flows of
Owosso Corporation and its subsidiaries (the "Company"). The Company has
historically operated in four business segments: Motors, Coils,
Agricultural Equipment, and Other.
The Motors segment, the Company's only remaining business segment,
includes Stature Electric, Inc. ("Stature"), Motor Products - Owosso
Corporation ("Motor Products"), and Motor Products Ohio Corporation
("MP-Ohio"). The businesses in this segment manufacture fractional and
integral horsepower motors. Significant markets for the Motors segment
include commercial products and equipment, healthcare, recreation, and
non-automotive transportation. The Company sells its motors primarily
throughout North America and also in Europe.
The Coils segment included Astro Air Coils, Inc. ("Astro Air"), Snowmax,
Inc. ("Snowmax"), and Astro Air UK Ltd. ("Astro UK"). Astro UK, which
began operations in March 1999, was sold May 9, 2001. Astro Air and
Snowmax were sold October 26, 2001.
During the fourth quarter of 2000, the Company adopted a plan to dispose
of Sooner Trailer Manufacturing Company ("Sooner Trailer"), which
manufactures all-aluminum trailers, primarily horse and livestock
trailers. Sooner Trailer had previously been included in the Agricultural
Equipment segment. The Company completed the sale of Sooner Trailer on
January 24, 2001. The Agricultural Equipment segment also included,
through the date of its sale, Parker Industries ("Parker"), which was sold
in March 1999.
For financial statement purposes, the assets, liabilities, results of
operations and cash flows of Sooner Trailer and the Coils segment have
been segregated from those of continuing operations and are presented in
the Company's financial statements as discontinued operations. The net
assets of Sooner Trailer and the Coils segment have been included in "Net
Assets of Discontinued Operations Held for Sale" in the consolidated
balance sheets.
The Company's Other segment included Dura-Bond Bearing Company
("Dura-Bond"), and Cramer Company (formerly known as M.H. Rhodes, Inc.,
and hereinafter referred to as "Cramer"). Dura-Bond, which manufactured
replacement camshaft bearings, valve seats and shims for the automotive
after-market, was sold November 2, 2000. Cramer manufactured timers and
subfractional horsepower motors for use in commercial applications. The
Company completed the sale of the assets associated with the timer and
switch line of Cramer on December 4, 2000, and in connection with the
sale, changed the name of the company from M.H. Rhodes, Inc. to Cramer
Company. The Company disposed of substantially all of the remaining Cramer
assets in a separate transaction completed on September 23, 2001. The net
assets of Dura-Bond and Cramer have been included in "Net Assets Held for
Sale" in the consolidated balance sheets.
F-6
2. LIQUIDITY AND FINANCING
The Company has experienced a significant down-turn in its operating
results over the past two years and at the end of fiscal 2000, was not in
compliance with covenants under its revolving credit facility. In February
2001, the Company entered into an amendment to its revolving credit
facility, wherein the lenders agreed to forbear from exercising their
rights and remedies under the facility in connection with such
non-compliance until February 15, 2002, at which time the facility was to
mature. As further disclosed under Note 11 "Long-term Debt", the amendment
to the revolving credit facility, which has been further amended since
February 2001, modified the interest rates charged, called for reductions
in the outstanding balance during calendar 2001 and added a covenant
requiring the maintenance of minimum operating profit. Beginning in August
2001, the Company was not in compliance with the minimum operating profit
covenant. In February 2002, the Company entered into a further amendment
to the facility which extends the maturity date to December 31, 2002. The
amendment calls for further reductions in the outstanding balance based on
expected future asset sales and an increase in the interest rate charged.
The accompanying consolidated financial statements have been prepared on a
going concern basis of accounting and do not reflect any adjustments that
might result if the Company is unable to continue as a going concern. The
Company's recurring losses from operations, working capital deficiency,
default under the terms of its revolving credit agreement and inability to
comply with debt covenants raise substantial doubt about the Company's
ability to continue as a going concern.
Since the second half of fiscal 2000, management of the Company has taken
a series of steps intended to stabilize and improve the operating results
of the Company, including the implementation of cost and personnel
reductions at the corporate office and reductions in fixed costs of the
remaining operating units, commensurate with reductions in sales volume.
In October 2001, the Company's corporate personnel was reduced from nine
individuals to four and the Company's president and chief executive
officer agreed to a 20% reduction in salary. In order to reduce its
obligation under its revolving credit facility, the Company completed the
sale of Dura-Bond and Sooner Trailer, the sale of substantially all of the
assets of Cramer and substantially all of the assets of the Company's
Coils segment. Management intends to dispose of additional assets during
fiscal 2002, including real estate at the Company's former Cramer and
Snowmax subsidiaries, and the Company's Motor Products and MP-Ohio
subsidiaries. Proceeds from these sales, which are expected to be between
$12.0 and $14.0 million, will be utilized to reduce the Company's
revolving credit facility. In addition, management intends to further
reduce corporate office costs through the merger of the corporate office
function into the Company's largest subsidiary, resulting in an expected
savings of approximately $3.5 million over fiscal 2001. Management
believes that, along with the sale of assets, available cash and cash
equivalents, cash flows from operations and available borrowings under the
Company's revolving credit facility will be sufficient to fund the
Company's operating activities, investing activities and debt maturities
for fiscal 2002. In addition, management believes that the Company will be
in compliance with its debt covenant requirements throughout fiscal 2002.
It is management's intent to refinance the Company's revolving credit
facility prior to its maturity in December 2002. However, there can be no
assurance that management's plans will be successfully executed.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation - The consolidated financial statements of the Company
include the accounts of Owosso Corporation and its majority owned
subsidiaries. All intercompany balances and transactions have been
eliminated in consolidation.
F-7
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, while
fiscal years 2001 and 2000 consisted of 52-week years.
Cash and Cash Equivalents - Cash and cash equivalents consist of cash and
highly-liquid investments with an original maturity of three months or
less.
Inventories - Inventories of the Company are recorded at cost, which is
not in excess of market. At October 28, 2001 and October 29, 2000, cost
for 28% and 30%, respectively, of the inventories was determined on the
last-in, first-out (LIFO) basis, and the remainder on the first-in,
first-out (FIFO) basis.
Information related to the FIFO method may be useful in comparing
operating results to those of companies not on LIFO. If the FIFO method of
inventory, which approximates replacement cost, had been used by the
Company for all inventories, inventory would have been approximately
$746,000 and $790,000 higher than reported at October 28, 2001 and October
29, 2000, respectively. Additionally, income from operations would have
decreased by approximately $44,000, $13,000 and $17,000 in 2001, 2000 and
1999, respectively. These amounts reflect the combined effects, in each
year, of changes in inventory quantities and unit costs.
Property, Plant and Equipment - Items of property, plant and equipment are
stated at cost and are depreciated principally on the straight-line method
over their estimated useful lives as follows:
Land improvements 10 - 20 years
Buildings 30 years
Machinery and equipment 3 - 10 years
Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results may differ from those
estimates and assumptions.
Intangible Assets - Intangibles are amortized on a straight-line basis
over their estimated useful lives as follows:
Customer lists 20 years
Goodwill 20-25 years
Asset Impairment - The Company evaluates the carrying value of long-term
assets, including goodwill and other intangible assets, based upon current
and anticipated undiscounted cash flows, and recognizes an impairment when
such estimated cash flows will be less than the carrying value of the
asset. Measurement of the amount of impairment, if any, is based upon the
difference between carrying value and fair value.
Revenue Recognition - Revenue is recognized at the time the product is
shipped and title of ownership has passed. An allowance for doubtful
accounts of $388,000 and $233,000 has been recorded as of October 28, 2001
and October 29, 2000, respectively.
F-8
Income Taxes - Deferred income taxes are determined based on the
difference between the financial reporting and tax bases of assets and
liabilities. Deferred income tax expense (benefit) represents the change
during the reporting period in the deferred tax assets and deferred tax
liabilities, net of the effect of acquisitions and dispositions. Deferred
tax assets include tax loss and credit carryforwards and are reduced by a
valuation allowance if, based on available evidence, it is more likely
than not that some portion or all of the deferred tax assets will not be
realized.
Stock Option Plan - SFAS No. 123, Accounting for Stock-Based Compensation,
encourages, but does not require, companies to record compensation cost
for stock-based employee compensation plans at fair value. The Company has
chosen to continue to account for stock-based compensation in accordance
with Accounting Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees, under which no compensation cost has been recognized.
Reclassifications - Certain reclassifications were made to the 2000 and
1999 consolidated financial statements to conform to 2001 classifications.
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, and by the dilutive effect of the put option on
common stock, computed using the reverse-treasury stock method.
The following table summarizes those securities that could potentially
dilute income (loss) for common shareholders per common share in the
future that were not included in determining net income (loss) available
for common shareholders per common share as the effect was antidilutive:
2001 2000 1999
Potential common shares resulting from:
Stock options and put option on common stock 835,000 955,000 860,000
Convertible preferred stock 1,071,000 1,071,000 1,071,000
---------- ---------- ----------
1,906,000 2,026,000 1,931,000
========== ========== =========
Comprehensive Income - The Company presents comprehensive income (loss) as
a component of shareholders' equity. The components of comprehensive
income are as follows:
2001 2000 1999
Net income (loss) $ (16,291,000) $ (13,672,000) $ 1,777,000
Foreign currency translation 142,000 (139,000) (3,000)
------------- ------------- -----------
Total comprehensive income (loss) $ (16,149,000) $ (13,811,000) $ 1,774,000
============= ============= ===========
F-9
Derivatives - In June 1998, the Financial Accounting Standards Board
issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS No. 133"). SFAS No. 133 was amended in June 2000 by
SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain
Hedging Activities" ("SFAS No. 138"), which addressed a limited number of
issues causing implementation difficulties. SFAS No. 133, as amended,
establishes accounting and reporting standards for derivative instruments
and for hedging activities. It requires that an entity recognize all
derivative instruments as either assets or liabilities and measure them at
fair value. The accounting for changes in fair value depends upon the
purpose of the derivative instrument and whether it is designated and
qualifies for hedge accounting. To the extent derivative instruments
qualify and are designated as hedges of the variability in cash flows
associated with forecasted transactions, the effective portion of the gain
or loss on such derivative instruments will generally be reported in other
comprehensive income and the ineffective portion, if any, will be reported
in net income. Such amounts recorded in accumulated other comprehensive
income will be reclassified into net income when the forecasted
transaction affects earnings. To the extent derivative instruments qualify
and are designated as hedges of changes in the fair value of an existing
asset, liability or firm commitment, the gain or loss on the hedging
instrument will be recognized currently in earnings along with changes in
the fair value of the hedged asset, liability or firm commitment
attributable to the hedged risk.
The Company was required to adopt the provisions of SFAS No. 133 effective
October 30, 2000. The Company's derivative instruments outstanding,
variable-to-fixed interest rate swaps, do not qualify for hedge accounting
under SFAS No. 133. The adoption of SFAS No. 133 required the Company to
mark its interest rate swaps to market. The result was to record a net
liability of $101,000 with an offsetting charge to cumulative effect of
accounting change. This amount, net of tax of $34,000, is reflected in the
consolidated statement of operations as "Cumulative effect of accounting
change".
In that the Company's derivative instruments outstanding do not meet the
stringent requirements for hedge accounting under SFAS 133, future
earnings could reflect greater volatility.
New Accounting Pronouncements - In July 2001, the Financial Accounting
Standards Board issued SFAS No. 141 "Business Combinations" ("SFAS No.
141") and SFAS No. 142 "Goodwill and Other Intangible Assets" ("SFAS No.
142"). SFAS No. 141 requires business combinations initiated after June
30, 2001 to be accounted for using the purchase method of accounting, and
broadens the criteria for recording intangible assets separate from
goodwill. Recorded goodwill and intangibles will be evaluated against this
new criteria and may result in certain intangibles being subsumed into
goodwill, or alternatively, amounts initially recorded as goodwill may be
separately identified and recognized apart from goodwill. SFAS No. 142
requires the use of a nonamortization approach to account for purchased
goodwill and certain intangibles. Under a nonamortization approach,
goodwill and certain intangibles will not be amortized into results of
operations but, instead, would be reviewed for impairment and written down
and charged to results of operations only in the periods in which the
recorded value of goodwill and certain intangibles is more than its fair
value. The provisions of each statement which apply to goodwill and
intangible assets acquired prior to June 30, 2001 are required to be
adopted for fiscal years beginning after December 15, 2001. The Company
has not yet completed its analysis of the effects of adopting these
statements on its consolidated financial position or results of
operations.
In August 2001, the Financial Accounting Standards Board issued SFAS No.
144, "Accounting for the Impairment or Disposal of Long-Lived Assets"
("SFAS No. 144"). SFAS No. 144, which addresses financial accounting and
reporting for the impairment of long-lived assets and for long-lived
assets to be disposed of, supercedes SFAS No. 121 and is effective for
fiscal years beginning after December 15, 2001. The Company has not yet
completed its analysis of the effects of adopting the statement on its
consolidated financial position or results of operations.
F-10
4. SUPPLEMENTAL CASH FLOW INFORMATION
Cash payments for interest in 2001, 2000 and 1999 were $3,594,000,
$4,826,000, and $5,311,000, respectively. Cash paid for income taxes was
$226,000, $1,952,000, and $1,503,000 for 2001, 2000 and 1999,
respectively. Dividends payable were $1,316,000, $142,000 and $492,000 at
October 28, 2001, October 29, 2000 and October 31, 1999, respectively.
5. DISPOSITIONS OF BUSINESSES
Parker - On March 5, 1999, the Company completed the sale of the business
and substantially all of the assets of Parker to Top Air Manufacturing,
Inc. of Cedar Falls, Iowa. In connection with the sale, the Company
received cash of $3,700,000, a non-interest bearing note of $3.3 million,
and the assumption of liabilities of $476,000. In addition, the local
development authority in Iowa acquired certain Parker fixed assets for
$750,000. Based upon the proposed terms of the sale, the Company recorded,
in the fourth quarter of fiscal 1998, a pre-tax charge of $1,635,000 to
adjust the carrying value of Parker's assets to their estimated fair
market value. No additional pre-tax gain or loss was recorded upon
completion of the sale. However, the sale did result in a tax benefit of
approximately $535,000 recorded in 1999.
The non-interest bearing note had been discounted to $3,000,000 and was
payable in monthly installments as to the extent the accounts receivable,
acquired by Top Air pursuant to the sale agreement, were collected. At
October 29, 2000, $620,000 was outstanding on the note. In November 2000,
Top Air filed a Chapter 7 voluntary liquidation in bankruptcy court. As a
result, the Company reserved the full balance of the note during fiscal
2000.
Sales attributable to Parker were $1,004,000 for 1999 and loss from
operations, before the allocation of corporate expenses, from Parker was
$607,000.
Dura-Bond - On November 2, 2000, the Company completed the sale of the
stock of Dura-Bond to a joint venture formed by Melling Tool Company of
Jackson, Michigan and Engine Power Components, Inc. of Grand Haven,
Michigan (the "Joint Venture"). The Joint Venture acquired the stock of
Dura-Bond for approximately $4,600,000, plus the assumption of debt of
approximately $5,000,000. Based upon the terms of the sale, the Company
recorded, in the fourth quarter of fiscal 2000, a pre-tax charge of
$1,200,000 to adjust the carrying value of Dura-Bond's assets to their
estimated fair value, reflecting a reduction in goodwill. Net sales
attributable to Dura-Bond were $8,184,000 and $8,501,000 for 2000 and
1999, respectively. Income from operations before the allocation of
corporate expenses and the charge to adjust the carrying value of the
assets from Dura-Bond was $1,539,000 and $1,272,000 for 2000 and 1999,
respectively.
Cramer - On December 4, 2000, the Company completed the sale of the assets
associated with the timer and switch line of Cramer to Capewell
Components, LLC of South Windsor, Connecticut for cash of approximately
$2,000,000, plus the assumption of approximately $400,000 in liabilities.
In connection with the sale, the name of the Company was changed from M.H.
Rhodes, Inc. to Cramer Company. In connection with the sale of the timer
and switch line and the anticipated sale of the remanding assets of
Cramer, the Company recorded, in the fourth quarter of fiscal 2000, a
pre-tax charge of $1,600,000 to adjust the carrying value of Cramer's
assets to their estimated fair value, based upon an estimated sales price
of the assets. On September 23, 2001, the Company sold substantially all
of the remaining assets of Cramer to the Chestnut Group of Wayne,
Pennsylvania for cash proceeds of $565,000, plus the assumption of
$317,000 in liabilities. In connection with such sale, the Company
recorded a further adjustment to the carrying value of the Cramer assets
resulting in a pre-tax charge of $1,100,000, recorded in the third fiscal
quarter of 2001.
F-11
At October 28, 2001, Net Assets Held for Sale of $1,181,000 represent the
carrying value of the Cramer building, the only remaining Cramer asset. At
October 29, 2000, Net Assets Held for Sale consisted of the following:
Dura-Bond Cramer Total
Current assets $ 3,585,000 $ 3,986,000 $ 7,571,000
Current liabilities (333,000) (1,090,000) (1,423,000)
----------- ----------- -----------
Net current assets 3,252,000 2,896,000 6,148,000
Net fixed assets 4,153,000 1,770,000 5,923,000
Other non-current assets 2,414,000 35,000 2,449,000
Non-current liabilities (5,013,000) (844,000) (5,857,000)
----------- ----------- ----------
Total net assets held for sale $ 4,806,000 $ 3,857,000 $ 8,663,000
=========== =========== ===========
6. DISCONTINUED OPERATIONS
Sooner - On January 24, 2001, the Company completed the sale of the stock
of Sooner Trailer to the McCasland Investment Group and certain members of
Sooner Trailer's management for cash of $11,500,000, subject to certain
post-closing adjustments based on changes in working capital, plus the
assumption of debt of approximately $670,000. In May 2001, the Company
received approximately $2,000,000 related to such post-closing
adjustments. In connection with the anticipated sale, the Company
recognized a loss of $8,600,000 in the fourth quarter of 2000 to adjust
the carrying value of Sooner Trailer's assets to their estimated fair
value based on an expected sales price. No additional gain or loss was
recorded upon completion of the sale.
Coils Segment - On October 26, 2001, the Company completed the sale of the
assets of its Coils segment, which included Astro Air and Snowmax
(together, the "Coils Subsidiaries"). The sale of the Coils Subsidiaries
was effectuated pursuant to an Asset Purchase Agreement, dated as of
October 26, 2001, by and among the Coils Subsidiaries, Astro Air, Inc.
(the "Buyer"), and Rex Dacus, the manager of the Coils segment and the
person from whom the Company acquired the assets and operations of Astro
Air Coils, Inc. in 1998. Proceeds from the sale were $5,600,000 of cash
and the assumption of approximately $3,700,000 of liabilities. The Company
recorded a pretax charge of $9,340,000 related to this sale in the fourth
quarter of 2001.
On May 9, 2001, the company completed the sale of substantially all of the
assets of Astro Air UK to ACR Heat Transfer, Ltd., of Norfolk, England for
cash of (pound)450,000 (approximately $643,000). Based upon the terms of
the sale, the Company recorded, in the second quarter of 2001, a pretax
charge of $700,000 to adjust the carrying value of Astro UK's assets to
their estimated realizable value. No additional gain or loss was recorded
upon completion of the sale.
Revenues from discontinued operations were $35,608,000, $85,128,000 and
$85,906,000 for 2001, 2000 and 1999, respectively.
For financial reporting purposes, the assets and liabilities attributable
to Sooner and the Coils segment have been classified in the consolidated
balance sheets as Net Assets of Discontinued Operations Held for Sale. At
October 28, 2001, Net Assets of Discontinued Operations Held for Sale were
$1,078,000 and represent the carrying value of the Snowmax building, the
only remaining Coil segment asset.
F-12
At October 29, 2000, Net Assets of Discontinued Operations Held for Sale
consist of the following:
2000
Current assets $ 17,695,000
Current liabilities (9,395,000)
------------
Net current assets 8,300,000
Net fixed assets 12,166,000
Other non-current assets 4,897,000
Non-current liabilities (704,000)
------------
Total net assets held for sale $ 24,659,000
============
The following unaudited pro forma financial information presents the
consolidated results of operations of the Company as if the dispositions
of Sooner Trailer, the Coils Segment, Cramer and Dura-Bond (see Note 5)
had occurred at the beginning of fiscal year 2000 after giving effect to
certain adjustments, including the reduction of interest expense as a
result of the utilization of the net proceeds of the sales to reduce the
Company's revolving credit facility. 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 2000.
2001 2000
Net sales $51,356,000 $57,696,000
Income (loss) from operations (436,000) 400,000
Net loss (2,635,000) (2,118,000)
Net loss available for common shareholders (3,951,000) (3,239,000)
Basic loss per common share $ (0.67) $ (0.55)
7. INVENTORIES
2001 2000
Raw materials and purchased parts $ 1,858,000 $ 2,606,000
Work in process 1,662,000 1,721,000
Finished goods 1,295,000 1,203,000
----------- -----------
Total $ 4,815,000 $ 5,530,000
=========== ===========
F-13
8. PROPERTY, PLANT AND EQUIPMENT
2001 2000
Land and improvements $ 218,000 $ 214,000
Buildings and improvements 4,543,000 4,526,000
Machinery and equipment 24,595,000 24,042,000
Construction in progress 1,198,000 1,055,000
----------- -----------
Total 30,554,000 29,837,000
Accumulated depreciation 18,680,000 15,979,000
----------- -----------
Property, plant and equipment, net $11,874,000 $13,858,000
=========== ===========
Depreciation expense from continuing operations was approximately
$2,798,000, $3,700,000 and $3,687,000 for 2001, 2000 and 1999,
respectively.
9. GOODWILL AND OTHER INTANGIBLE ASSETS
2001 2000
Goodwill:
Goodwill $ 13,380,000 $ 13,380,000
Accumulated amortization 3,985,000 3,319,000
------------ ------------
Goodwill, net $ 9,395,000 $ 10,061,000
============ ============
Other Intangible Assets:
Customer lists $ 8,000,000 $ 8,000,000
Other 128,000 114,000
------------ ------------
Total 8,128,000 8,114,000
Accumulated amortization 2,514,000 2,114,000
------------ ------------
Other intangible assets, net $ 5,614,000 $ 6,000,000
============ ============
Amortization expense from continuing operations related to goodwill and
other intangible assets was approximately $1,069,000, $1,325,000 and
$1,297,000 for 2001, 2000 and 1999, respectively.
10. RELATED PARTY DEBT
Related party debt consists of a promissory note to a preferred
shareholder, payable on demand but no later than October 2005, with an
outstanding balance of $400,000 and $1,000,000 as of October 28, 2001 and
October 29, 2000, respectively. Interest on the note is paid quarterly at
8%. Subsequent to the balance sheet date, the remaining outstanding
balance was paid in full.
F-14
11. LONG-TERM DEBT
2001 2000
Revolving credit agreement $ 22,000,000 $ 41,100,000
Termloans, payable in monthly installments through 2007
at variable rates from 5% to 8.5%, collateralized by
certain real property 734,000 748,000
Industrial revenue bonds, payable in varying installments
through 2018 at rates from 4.25% to 7.5%, collateralized
by certain real property, building and equipment 4,974,000 5,327,000
Subordinated promissory notes, payable in varying installments
through 2005 at rates from 7.6% to 9% 1,496,000 1,775,000
Other long-term debt -- 18,000
------------ ------------
Total long-term debt 29,204,000 48,968,000
Less current portion 23,684,000 26,606,000
------------ ------------
Long-term debt, net of current portion $ 5,520,000 $ 22,362,000
============ ============
On January 22, 1999, the Company entered into a new revolving credit
facility with the Company's two primary banks, originally expiring in
December 2002. The agreement included financial and other covenants,
including fixed charge, cash flow and net worth ratios and restrictions on
certain asset sales, mergers and other significant transactions. The
Company was not in compliance with such covenants at October 29, 2000. In
February 2001, the Company entered into an amendment to its revolving
credit facility, wherein the lenders agreed to forbear from exercising
their rights and remedies under the facility in connection with such
non-compliance until February 15, 2002, at which time the facility was to
mature. The amendment to the revolving credit facility, which has been
further amended since February 2001, called for reductions in the
outstanding balance during calendar 2001 and modified the interest rates
charged. Borrowings under the facility that are In-Formula (as defined)
are charged interest at the Prime Rate plus 1.5% (7.0% at October 28,
2001). Borrowings under the facility that are Out of Formula (as defined)
are charged interest at the Prime Rate plus 2.0% (7.5% at October 28,
2001). Borrowings and letters of credit are limited to a Borrowing Base,
consisting of eligible accounts receivable and inventory. Borrowings that
equal an amount up to and including the Borrowing Base, will be defined as
In-Formula borrowings. Total borrowings less In-Formula borrowings, are
defined as Out of Formula borrowings. The amendment required additional
collateral, effectively all of the assets of the Company, and reporting
requirements, as well as, the addition of a covenant requiring minimum
operating profits. The amendment also required the suspension of principal
and interest payments on subordinated debt, with an aggregate outstanding
balance of $2,046,000 at October 28, 2001. Furthermore, the amendment to
the facility prohibits the payment of preferred or common stock dividends.
Beginning in August 2001, the Company was not in compliance with the
minimum operating profit covenant. In February 2002, the Company entered
into a further amendment to the facility which extends the maturity date
to December 31, 2002. The amendment calls for reductions in the
outstanding balance based on expected future asset sales, increases the
interest rate charged and requires minimum EBITDA .
At October 28, 2001, $22,000,000 was outstanding under the Company's
revolving credit facility and $1,858,000 was available for additional
borrowing. Of the amount outstanding at October 28, 2001, In-Formula
borrowings were $10,672,000 and Out-of-Formula borrowings were
$11,328,000. The average amount outstanding in 2001 was $31,614,000 and
the weighted average interest rate was 9.2%.
F-15
Repayment of the Industrial Revenue Bonds of certain of the subsidiaries
has been guaranteed by the Company.
Derivative Interest Rate Contracts - The Company has two interest rate
swap agreements, each with a $7,500,000 notional amount, maturing in July
2002. The Company receives floating interest rate payments at the three
month London Interbank Offered Rate (2.46% at October 28, 2001) in
exchange for the payment of quarterly fixed interest rate payments of
7.0675% and 7.09% over the life of the agreements. In addition, the
Company has an interest rate swap agreement with one of its banks with a
notional amount of $4,850,000. The agreement requires the Company to make
quarterly fixed payments on the notional amount at 4.22% through October
2003 in exchange for receiving payments at the BMA Municipal Swap Index
(2.09% at October 28, 2001). The Company entered into these interest rate
swap agreements to change the fixed/variable interest rate mix of its debt
portfolio to reduce the Company's aggregate risk to movements in interest
rates. Such swap agreements do not meet the stringent requirements for
hedge accounting under SFAS No. 133. Accordingly, changes in the fair
value of such agreements are recorded in the Consolidated Statement of
Operations as a component of interest expense. The fair market value of
the swap agreement liability was $699,000 at October 28, 2001, resulting
in a charge to interest expense of $598,000 and cumulative effect of
accounting change of $67,000, net of tax of $34,000.
The aggregate amount of required payments on long-term debt is as follows:
Year ending October:
2002 $ 23,684,000
2003 673,000
2004 864,000
2005 759,000
2006 693,000
Thereafter 2,531,000
------------
Total $ 29,204,000
============
12. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosures of the estimated fair value of financial
instruments were made in accordance with the requirements of SFAS No. 107,
Disclosures about Fair Value of Financial Instruments. The estimated fair
value amounts have been determined by the Company using available market
information and appropriate valuation methodologies.
Cash and Cash Equivalents, Accounts Receivable, and Accounts
Payable - The carrying amount of these items are a reasonable
estimate of their fair value.
Short-term Debt and Long-term Debt - Rates currently available to
the Company for debt with similar terms and remaining maturities
are used to estimate the fair value for debt issues. Accordingly,
the carrying amount of debt is a reasonable estimate of its fair
value.
Derivatives - The Company's interest rate swap agreements have an
aggregate notional amount of $19,850,000 and were in a liability
position of $699,000 at October 28, 2001.
F-16
13. PENSION AND POSTRETIREMENT PLANS
Pension Plans - The Company sponsors a defined contribution 401(k) plan
covering substantially all of its employees, except for Motor Products'
hourly union employees, who are covered under the defined benefit pension
plan described below. Eligible employees may contribute up to 15% of their
compensation to this plan and their contributions are matched by the
Company at a rate of 50% on the first 4% of the employees' contribution.
The plan also provides for a fixed contribution of 3% of eligible
employees' compensation. Pension expense related to this plan was
$895,000, $1,314,000 and $1,233,000 for 2001, 2000 and 1999, respectively.
Motor Products has a defined benefit pension plan covering substantially
all of its hourly union employees. The benefits are based on years of
service, the employee's compensation during the last three years of
employment, and accumulated employee contributions.
In accordance with SFAS No. 132, Employers Disclosures About Pensions and
Other Post-Retirement Benefits, the following tables provide a
reconciliation of the change in benefit obligation, the change in plan
assets and the net amount recognized in the consolidated balance sheets.
2001 2000
Change in projected pension benefit obligation:
Projected pension benefit obligation at beginning of year $ 3,230,000 $ 3,091,000
Service cost 75,000 84,000
Interest cost 222,000 223,000
Actuarial gain 248,000 (15,000)
Benefits paid (162,000) (153,000)
----------- -----------
Projected pension benefit obligation at end of year $ 3,613,000 $ 3,230,000
=========== ===========
Change in plan assets:
Fair value of plan assets at beginning of year $ 4,226,000 $ 4,081,000
Actual return on plan assets (695,000) 327,000
Employee contributions 13,000 15,000
Benefits and expenses paid (207,000) (197,000)
----------- -----------
Projected pension benefit obligation at end of year $ 3,337,000 $ 4,226,000
=========== ===========
Excess of fair value of plan assets over benefit obligation $ (276,000) $ 996,000
Unrecognized initial net credit (165,000) (206,000)
Unrecognized prior service cost 149,000 209,000
Unrecognized net (gain) loss 857,000 (553,000)
----------- -----------
Prepaid pension asset $ 565,000 $ 446,000
=========== ===========
The accumulated benefit obligation was $3,082,000 as of October 28, 2001,
$2,763,000 as of October 29, 2000, and $2,660,000 as of October 31, 1999.
F-17
Components of net pension expense (credit) included in the consolidated
statements of operations for 2001, 2000 and 1999 are as follows:
2001 2000 1999
Service cost $ 75,000 $ 84,000 $ 106,000
Interest cost on projected benefit obligation 222,000 223,000 204,000
Expected return on assets (415,000) (320,000) (283,000)
Unrecognized net gain (19,000) (5,000) --
Amortization of unrecognized net credit (41,000) (41,000) (41,000)
Amortization of prior service cost 19,000 19,000 19,000
--------- -------- ---------
Net pension expense (credit) $(159,000) $(40,000) $ 5,000
========= ======== =========
Additional disclosures and assumptions:
2001 2000 1999
Discount rate 6.50% 7.50% 7.25%
Expected long-term rate of return 10.0 8.0 8.0
Salary increases 5.0 5.0 5.0
Postretirement Plan - Motor Products - Motor Products provides
postretirement medical benefits and life insurance benefits to current and
former employees who retire from Motor Products. No contributions from
retirees are required and the plan is funded on a pay-as-you-go basis. The
Company recognizes the expected cost of providing such post-retirement
benefits during employee's active service periods.
The following tables provide a reconciliation of the change in the
accumulated postretirement benefit obligation and the net amount
recognized in the consolidated balance sheets:
2001 2000
Change in accumulated postretirement benefit obligation:
Accumulated postretirement benefit obligation, beginning of year $ 2,024,000 $ 1,873,000
Service cost 126,000 107,000
Interest cost 163,000 124,000
Curtailment income (353,000) --
Amendments -- 6,000
Actuarial (gain) loss 678,000 (33,000)
Benefits paid (54,000) (53,000)
----------- -----------
Accumulated postretirement benefit obligation, end of year $ 2,584,000 $ 2,024,000
=========== ===========
F-18
2001 2000
Accumulated postretirement benefit obligation in excess of plan assets $2,584,000 $2,024,000
Unrecognized net gain (loss) from past experience different
from that assumed and from changes in assumptions (240,000) 4,000
Prior service cost not yet recognized in net periodic
postretirement benefit cost 192,000 291,000
---------- ----------
Accrued postretirement benefit cost $2,536,000 $2,319,000
========== ==========
Net periodic postretirement benefit cost included the following components:
2001 2000 1999
Service cost $ 126,000 $ 107,000 $ 128,000
Interest cost 163,000 124,000 118,000
Amortization of prior service cost (18,000) (18,000) (14,000)
--------- --------- ---------
Total $ 271,000 $ 213,000 $ 232,000
========= ========= =========
For measurement purposes, a 10% annual rate of increase in the per capita
cost of covered health care benefits was assumed. The rate was assumed to
decrease gradually to 4.5% for 2012, and remain at that level thereafter.
The healthcare cost trend rate assumption has a significant effect on the
amounts reported. To illustrate, increasing the assumed healthcare cost
trend rates by one percentage point in each year would increase the
accumulated postretirement benefit obligation as of October 28, 2001 by
$551,000 and the aggregate of the service cost and interest cost
components of the net periodic postretirement benefit cost for the year
then ended by $78,000. Decreasing the assumed healthcare postretirement
benefit obligation as of October 28, 2001 by 1% decreases the accumulated
postretirement benefit obligation by $418,000 and the aggregate of the
service cost and interest cost components of the net periodic
postretirement benefit cost for the year then ended by $57,000. The
weighted average discount rate used in determining the accumulated
postretirement benefit obligation was 6.5% as of October 28, 2001, 7.5% as
of October 29, 2000 and 7.25% as of October 31, 1999.
Postretirement Plan - Cramer - Cramer provides postretirement income,
medical benefits and life insurance benefits to certain former employees
who retired from M.H. Rhodes, Inc. No contributions from retirees are
required and the plan is funded on a pay-as-you-go basis. The Company
recognizes the expected cost of providing such postretirement benefits
during employees' active service periods.
The following tables provide a reconciliation of the change in the
accumulated postretirement benefit obligation and the net amount
recognized in the consolidated balance sheets:
2001 2000
Change in accumulated postretirement benefit obligation:
Accumulated postretirement benefit obligation, beginning of year $ 701,000 $ 751,000
Interest cost 53,000 54,000
Actuarial gain 3,000 (40,000)
Amendment to the plan (397,000) --
Benefits paid (64,000) (64,000)
--------- ---------
Accumulated postretirement benefit obligation, end of year $ 296,000 $ 701,000
========= =========
F-19
Net periodic post retirement benefit cost consists of interest cost of
$53,000 for 2001, $54,000 for 2000 and $49,000 for 1999. In connection
with the sale of Cramer's timer and switch line, $397,000 of accrued post
retirement obligation was assumed by the buyer and is reflected in the
above analysis as amendment to the plan. The effects of assumed changes in
the healthcare cost trend by 1% are not material.
2001 2000
Accumulated postretirement benefit obligation in excess of plan assets $ 293,000 $ 701,000
Unrecognized net gain (loss) from past experience different
from that assumed and from changes in assumptions 3,000 24,000
--------- ---------
Accrued postretirement benefit cost $ 296,000 $ 725,000
========= =========
The weighted average discount rate used in determining the accumulated
postretirement benefit obligation was 6.5%, 7.5% and 7.25% for 2001, 2000
and 1999, respectively, and the medical inflation rate was 6.5% for 2001
and 5.5% for 2000 and 1999.
14. COMMITMENTS AND CONTINGENCIES
The Company leases office space and certain production facilities and
equipment under operating leases. Operating lease expense was
approximately $623,000, $880,000 and $811,000 for 2001, 2000 and 1999,
respectively, net of sublease rentals and reimbursements of utilities of
$119,000, $50,000 and $63,000 for 2001, 2000 and 1999, respectively. The
lease on the corporate headquarters office space expires in September 2006
with a base rent of approximately $305,000. Future minimum rental payments
under non-cancelable operating leases are as follows:
2002 $ 264,000
2003 210,000
2004 198,000
2005 186,000
2006 186,000
Thereafter --
-----------
$ 1,044,000
===========
The above minimum lease payments are net of anticipated sublease income of
$119,000 in each of the years 2001 through 2006. At October 28, 2001,
outstanding letters of credit totaled approximately $7,374,000 and
primarily guarantee industrial revenue bonds.
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.
F-20
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 believes that the
ultimate resolution of this matter will not have a material adverse effect
on the consolidated financial results of the Company.
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.
15. MAJOR CUSTOMERS
A significant portion of the Company's sales are concentrated among a
small number of customers. Sales to the two largest customers represented
approximately 15%, 12%, and 9% of total sales from continuing operations
for 2001, 2000 and 1999, respectively.
16. INCOME TAX EXPENSE
The income tax provision consists of the following:
2001 2000 1999
Current:
Federal $ (1,861,000) $ 151,000 $ (885,000)
State 131,000 219,000 184,000
Deferred - Federal (257,000) (1,395,000) 77,000
Deferred - State 19,000 (57,000) (34,000)
------------ ------------ ----------
Income tax benefit $ (1,968,000) $ (1,082,000) $ (658,000)
============ ============ ==========
A reconciliation of the income tax provision as presented in the
consolidated statements of operations is as follows:
2001 2000 1999
Income tax benefit from continuing operations $ (1,968,000) $ (1,082,000) $ (658,000)
Income tax expense from discontinued operations 514,000 522,000 1,868,000
------------ ------------ -----------
Total income tax expense (benefit) $ (1,454,000) $ (560,000) $ 1,210,000
============ ============ ===========
The reconciliation of the statutory federal income tax rate and the
effective rate, for continuing operations, is as follows:
2001 2000 1999
Federal income tax provision at statutory rate (34.0)% (34.0)% (34.0)%
State income taxes, net of federal income tax benefit 1.7 1.8 6.2
Amortization of excess cost of net assets acquired 6.1 5.3 18.9
Effect of disposition of businesses (0.6) 7.5 (33.4)
Other (5.6) 0.8 1.2
----- ----- -----
Effective tax rate, continuing operations (32.4)% (18.6)% (41.1)%
===== ===== =====
F-21
The difference between the statutory federal rate and the reported
amount of income tax expense attributable to continuing operations is
primarily due to non-deductible goodwill and the valuation allowance.
The components of the Company's net deferred tax assets and liabilities
are as follows:
2001 2000
Deferred tax asset:
Accruals and reserves $ 2,432,000 $ 4,540,000
Tax credits and loss carryforwards 7,644,000 3,143,000
Other 21,000 148,000
------------ ------------
Total gross deferred tax assets 10,097,000 7,831,000
Valuation allowance (7,246,000) (3,524,000)
------------ ------------
Net deferred tax assets $ 2,851,000 $ 4,307,000
============ ============
Deferred tax liability:
Intangibles $ 2,128,000 $ 1,781,000
Pension 197,000 150,000
Property, plant and equipment 839,000 2,413,000
------------ ------------
Total gross deferred tax liabilities $ 3,164,000 $ 4,344,000
------------ ------------
Net deferred tax liability $ (313,000) $ (37,000)
============ ============
These amounts are included in the accompanying consolidated financial
statements as follows:
2001 2000
Current deferred tax assets $ 2,453,000 $ 1,900,000
Non-current deferred tax liabilities (2,766,000) (1,937,000)
------------ ------------
Net deferred tax liability $ (313,000) $ (37,000)
============ ============
The Company has recorded valuation allowances which management has
determined are sufficient to reduce its deferred tax assets to an amount
which is more likely than not to be realized. The Company's valuation
allowances relate primarily to intangible assets, federal and state net
operating loss carry-forwards, and other state deferred tax assets.
The Company has approximately $14,584,000 of net operating loss carry
forwards as of October 28, 2001 for federal income tax reporting purposes
and which expire between 2003 and 2021. A portion of these net operating
losses are subject to annual utilization limitations under Section 382 of
the Internal Revenue Code.
F-22
17. COMMON STOCK PUT OPTION
During 2001, a shareholder exercised an option to put 75,000 shares of
common stock to the Company for $8 per share. However, under the terms of
the Company's revolving credit facility, the Company is precluded from any
stock redemptions or entering into any debt agreements. The Company is
currently negotiating the resolution of the redemption request and expects
to enter into a $600,000 long-term subordinated note arrangement with the
holder of such stock.
18. CONVERTIBLE PREFERRED STOCK
In connection with the acquisition of Stature in October 1995, the Company
issued 1,071,428 of its 10,000,000 authorized preferred shares of Class A
convertible preferred stock with a stated value of $14.00 per share. Such
preferred stock was convertible into the Company's common stock on a
one-for-one basis, at the holders' option, through October 2000, at which
time, the Company had the right, but was not obligated, to redeem the
preferred stock for cash at its stated value of $14.00 per share. Neither
the option to convert the preferred stock into the Company's common stock,
nor the Company's right to redeem the preferred stock, has been exercised.
The Company's option to redeem the preferred stock continues after October
2000, with the redemption price increasing annually until it reaches
$21.00 in 2009 for a maximum liquidation amount of $22,500,000. The
Company has accreted the value of its preferred stock to its stated value
of $14.00 per share over the period ending in October 2000, when the
conversion feature of the stock expired, using the effective interest
method at a rate of 7.6%.
The preferred stock earns quarterly cash dividends as a percentage of the
stated value of $15,000,000 at a rate of 5% per annum through October
2000. Thereafter, the dividend percentage rate increases 1% each year to
its maximum rate of 10% in November 2004 and thereafter. Since the
preferred stock was not converted by October 2000, the increasing rate
dividend is accounted for by the accrual of amounts in excess of the cash
dividend through the consolidated statements of operations using the
effective interest method, at a rate of 8.7%. Dividends accrued but not
paid on the preferred stock were $1,316,000 for 2001. Dividends paid on
the preferred stock were $750,000 for 2000 and 1999.
The Company may not pay any common stock dividends unless all preferred
dividend requirements have been met. The convertible preferred
stockholders are entitled to vote as a class to elect one member of the
Board of Directors of the Company, provided at least 40% of the originally
issued Class A preferred stock is outstanding. The convertible preferred
stock has liquidation priority over common stock. In certain
circumstances, the issuance of other classes of securities require the
approval of the Class A preferred stockholders. In connection with the
amendment to the Company's revolving credit facility in February 2001, the
Company is prohibited from making future preferred stock dividend
payments.
19. STOCK-BASED COMPENSATION PLANS
In 1998, the Company adopted a long-term incentive plan (the "Incentive
Plan") which permits the granting of Stock Options, Stock Appreciation
Rights, Restricted Stock, Long-Term Performance Awards, Performance Shares
and Performance Units. Officers, other employees and directors of the
Company are eligible to receive awards under the Incentive Plan. The
maximum number of shares of Common Stock of the Company that may be made
the subject of awards granted under the Incentive Plan is 500,000. Stock
options granted under the Incentive Plan generally vest over five years
and are exercisable for periods up to ten years from the date of grant at
a price which equals fair value at the date of grant.
F-23
The Company also maintains a stock option plan (the "1994 Plan"), designed
to serve as an incentive for retaining valuable employees and directors.
All employees and directors of the Company are eligible to participate in
the 1994 Plan. The 1994 Plan provides for the granting of options to
purchase an aggregate of up to 500,000 shares of common stock of the
Company. Options granted generally vest over five years and are
exercisable for periods up to ten years from the date of grant at a price
which equals fair market value at the date of grant.
The 1994 Plan provides for the automatic acceleration of the
exercisability of all outstanding options upon the occurrence of a change
in control (as defined) and for the cancellation of options and cash
payment to the holders of such canceled options upon the occurrence of
certain events constituting a change in control. The 1994 Plan may be
amended, altered or discontinued at any time, but no amendment, alteration
or discontinuation will be made which would impair the rights of an
optionee with respect to an outstanding stock option without the consent
of the optionee.
The following schedule summarizes stock option activity and status:
Year Ended
--------------------------------------------------------------------------------
October 28, 2001 October 29, 2000 October 31, 1999
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
Outstanding,
beginning of year 880,000 $ 5.84 785,000 $ 7.58 587,000 $ 8.57
Granted 75,000 1.03 259,000 2.23 204,000 4.70
Cancelled (195,000) 6.64 (164,000) 8.44 (6,000) 6.13
-------- -------- -------
Outstanding, end of year 760,000 $ 5.16 880,000 $ 5.84 785,000 $ 7.58
======== ======== =======
Exercisable, end of year 398,000 $ 7.13 324,000 $ 8.31 270,000 $ 9.50
======== ======== =======
The following table summarizes information about stock options outstanding
at October 28, 2001:
Options Outstanding Options Exercisable
--------------------------------------- ---------------------------
Weighted
Average
Remaining Weighted Weighted
Contractual Average Average
Life Exercise Exercise
Range of Exercise Prices Options in Years Price Options Price
$1.00 - $1.13 75,000 9.57 $ 1.03 -- $ --
$1.44 140,000 8.97 $ 1.44 28,000 $ 1.44
$3.16 71,000 8.13 $ 3.16 28,000 $ 3.16
$4.16 - $5.75 148,000 7.37 $ 4.76 58,000 $ 4.76
$5.88 - $8.00 220,000 5.83 $ 7.30 166,000 $ 7.15
$8.88 - $11.38 58,000 4.08 $ 9.22 60,000 $ 9.28
$12.00 48,000 2.99 $12.00 58,000 $12.00
-------- --------
760,000 6.98 $ 5.16 398,000 $ 7.13
======== ========
F-24
The Company accounts for the 1994 Plan and stock options granted under the
Incentive Plan in accordance with APB Opinion No. 25, under which no
compensation cost has been recognized. Had compensation cost for the 1994
Plan and the Incentive Plan been determined consistent with SFAS No. 123,
Accounting for Stock-Based Compensation, the Company's net income and
earnings per share would have been reduced by $138,000 and $0.02 per
share, respectively for 2001, $274,000 and $0.05 per share, respectively
for 2000 and $219,000 and $0.04 per share, respectively for 1999. Because
the SFAS No. 123 method of accounting has not been applied to options
granted prior to October 30, 1995, the resulting pro forma compensation
cost may not be representative of that to be expected in future years.
The weighted average fair value of options granted during 2001, 2000 and
1999 was $48,000, $246,000 and $277,000, respectively. The fair value of
the options granted were estimated on the date of grant using the Binomial
option-pricing model with the following assumptions for grants in 2001,
2000 and 1999: risk-free interest rate of 4.51%, 5.02% and 6.3%,
respectively, expected volatility of 59%, 40%, and 35%, respectively,
dividend yield of 0.0%, 0.0% and 5.1%, respectively, and an expected life
of five years in 2001, 2000 and 1999.
20. SEGMENT INFORMATION
As of October 31, 1999, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 131, Disclosure About Segments of an
Enterprise and Related Information. SFAS No. 131 requires companies to
define and report financial and descriptive information about its
operating segments. The Company is organized based upon the products and
services it offers. Under this organizational structure, the Company has
historically operated in four business segments: Motors, Coils,
Agricultural Equipment, and Other.
The Motors segment, the Company's only remaining business segment,
manufactures fractional and integral horsepower motors. Significant
markets for the Company's motors include commercial products and
equipment, healthcare, recreation and non-automotive transportation.
The Coils segment manufactured heat exchange coils primarily for
non-automotive transportation, refrigeration and commercial and
residential HVAC markets. The businesses included in this segment were
sold during 2001. Accordingly, the Company has reported the results of
this segment as discontinued operations for all periods presented in the
consolidated statements of operations. The net assets of the Coils segment
are included as Assets of Discontinued Operations for purposes of
disclosure of identifiable assets.
During the fourth quarter of fiscal 2000, the Company adopted a plan to
dispose of Sooner Trailer, which manufactures all-aluminum trailers,
primarily horse and livestock trailers. The Company completed the sale of
Sooner Trailer on January 24, 2001. Sooner Trailer had previously been
included in the Agricultural Equipment segment (formerly known as the
Trailers and Agricultural Equipment segment). The Company has reported the
results of Sooner Trailer as discontinued operations for all periods
presented in the consolidated statements of operations. The net assets of
Sooner Trailer are included as Assets of Discontinued Operations for
purposes of disclosure of identifiable assets. The Agricultural Equipment
segment also included Parker through March 1999, the date of its sale.
The Company's Other segment included Dura-Bond and Cramer. Dura-Bond,
which was sold November 2, 2000, manufactures replacement camshaft
bearings, valve seats and shims for the automotive after-market. Cramer
manufactures timers and subfractional horsepower motors for use in
commercial applications. The Company completed the sale of the assets
associated with the timer and switch line of Cramer on December 4, 2000
and, in connection with the sale, changed the name of the company from
M.H. Rhodes, Inc. to Cramer Company. The Company disposed of substantially
all of the remaining Cramer assets in a separate transaction completed on
September 23, 2001.
F-25
The Company derives substantially all of its revenues from within the
United States. Company assets located outside of the United States are not
considered material. 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.
The following table reflects, from continuing operations, net sales,
income (loss) from operations, capital additions, and depreciation and
amortization expense for the fiscal years ended October 2001, 2000 and
1999 and identifiable assets as of October 2001, 2000 and 1999 for each
segment:
2001 2000 1999
Identifiable assets:
Motors $ 38,506,000 $ 44,483,000 $ 49,115,000
Agricultural equipment -- -- 1,773,000
Other 1,181,000 9,137,000 20,370,000
Assets of discontinued operations 1,078,000 24,659,000 32,311,000
Corporate 5,629,000 2,884,000 1,776,000
------------ ------------ ------------
Total identifiable assets $ 46,394,000 $ 81,163,000 $105,345,000
============ ============ ============
Net sales:
Motors $ 51,356,000 $ 57,696,000 $ 63,941,000
Agricultural Equipment -- -- 1,003,000
Other 2,970,000 17,508,000 19,270,000
------------ ------------ ------------
Total net sales $ 54,326,000 $ 75,204,000 $ 84,214,000
============ ============ ============
Income (loss) from operations:
Motors $ 4,669,000 $ 4,978,000 $ 7,801,000
Agricultural Equipment -- -- (607,000)
Other (1) (1,417,000) (666,000) 1,409,000
Corporate (2) (5,106,000) (4,577,000) (5,703,000)
------------ ------------ ------------
Total income (loss) from operations $ (1,854,000) $ (265,000) $ 2,900,000
============ ============ ============
Capital Additions:
Motors $ 695,000 $ 810,000 $ 3,232,000
Agricultural Equipment -- -- 4,000
Other -- 245,000 477,000
Corporate 62,000 140,000 76,000
------------ ------------ ------------
Total capital additions $ 757,000 $ 1,195,000 $ 3,789,000
============ ============ ============
Depreciation and amortization expense:
Motors $ 3,711,000 $ 3,543,000 $ 3,420,000
Other -- 1,141,000 1,131,000
Corporate 156,000 341,000 433,000
------------ ------------ ------------
Total depreciation and amortization expense $ 3,867,000 $ 5,025,000 $ 4,984,000
============ ============ ============
(1) Includes write-down of net assets held for sale of $1,100,000 in 2001
and $2,800,000 in 2000.
(2) Includes unallocated corporate expenses, primarily salaries and
benefits, information technology, and other administrative expenses.
F-26
21. QUARTERLY INFORMATION (UNAUDITED)
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
Year Ended October 28, 2001
--------------------------------------------------
Net sales $ 14,123,000 $ 14,438,000 $ 13,813,000 $ 11,952,000
Gross profit 2,577,000 2,951,000 3,064,000 1,837,000
Loss from continuing operations (1,131,000) (159,000) (1,106,000) (1,715,000)
Income (loss) from discontinued operations (690,000) (672,000) 141,000 (10,892,000)
Net loss (1,888,000) (831,000) (965,000) (12,607,000)
Net loss available for common shareholders (2,214,000) (1,159,000) (1,295,000) (12,939,000)
Basic and diluted earnings (loss) per common share:
Continuing operations (0.25) (0.08) (0.24) (0.35)
Discontinued operations (0.12) (0.11) 0.02 (1.85)
Year Ended October 29, 2000:
--------------------------------------------------
Net sales $ 18,231,000 $ 19,742,000 $ 19,135,000 $ 18,096,000
Gross profit 3,833,000 4,126,000 4,685,000 3,131,000
Income (loss) from continuing operations (589,000) (136,000) 253,000 (4,310,000)
Income (loss) from discontinued operations 317,000 699,000 (57,000) (9,849,000)
Net income (loss) (272,000) 563,000 196,000 (14,159,000)
Net income (loss) available
for common shareholders (550,000) 284,000 (85,000) (14,442,000)
Basic and diluted earnings (loss) per common share:
Continuing operations (0.15) (0.07) -- (0.79)
Discontinued operations 0.05 0.12 (0.01) (1.68)
The above information has been restated to reflect the results of Sooner
Trailer and the Coils segment as discontinued operations.
Loss from continuing operations for the third quarter of 2001 included
$1,100,000 for the write-down of assets held for sale. For the fourth
quarter of 2001, loss from continuing operations included $650,000 for
severance costs incurred and expensed in the quarter.
Income (loss) from discontinued operations for the fourth quarter of 2001
included $9,340,000 for the write-down of assets held for sale.
Income (loss) from continuing operations for the fourth quarter of 2000
included $2,800,000 for the write-down of assets held for sale, $839,000
for the write-off of uncollectible notes receivable, $400,000 for
severance costs and a $400,000 adjustment to the Company's workers
compensation accrual, representing an increase in the estimated costs to
resolve open claims related to previous years. Income (loss) from
discontinued operations for the fourth quarter of 2000 included $8,600,000
for the write-down of assets held for sale.
******
F-27
Schedule II
Owosso Corporation
Valuation and Qualifying Accounts and Reserves
For the three years ended October 28, 2001
- -----------------------------------------------------------------------------------------------------------------------
Balance at Charged to Charged Balance at
Beginning Costs and to Other Deductions End of
of Period Expenses Accounts (a) (b) Period
---------- --------- ------------ ----------- ---------
For the year ended October 28, 2001
Allowances on:
Accounts receivable $ 233,000 $ 155,000 $ -- $ -- $ 388,000
Inventory 1,162,000 62,000 -- (298,000) 926,000
For the year ended October 29, 2000
Allowances on:
Accounts receivable $ 164,000 $ 272,000 $ (127,000) $ (76,000) $ 233,000
Inventory 974,000 815,000 (352,000) (275,000) 1,162,000
For the year ended October 31, 1999
Allowances on:
Accounts receivable $ 230,000 $ 52,000 $ (26,000) $ (92,000) $ 164,000
Inventory 885,000 632,000 -- (543,000) 974,000
Accrued restructuring costs 125,000 -- -- (125,000) --
- --------------------------------------------------------
(a) Reflects reclassification to Net Assets Held for Sale
(b) As to accounts receivable and inventory, primarily represents amounts
written off against related assets; as to accrued restructuring costs,
represents amounts paid.
F-28