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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: July 28, 2002 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)
22543 Fisher Road
PO Box 6660
Watertown, New York 13601
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (315)-782-5910
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES [X] NO [ ]
As of September 9, 2002, 5,874,345 shares of the Registrant's Common Stock, $.01
par value, were outstanding.
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OWOSSO CORPORATION
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
Page
PART I - FINANCIAL INFORMATION:
Item 1. Financial Statements
Condensed Consolidated Statements of Operations 3
for the three and nine months ended July 28, 2002 and
July 29, 2001 (unaudited)
Condensed Consolidated Balance Sheets at 4
July 28, 2002 (unaudited) and October 28, 2001
Condensed Consolidated Statements of Cash Flows 5
for the nine months ended July 28, 2002 and
July 29, 2001 (unaudited)
Notes to Condensed Consolidated Financial Statements 6
(unaudited)
Item 2. Management's Discussion and Analysis of 13
Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures about Market Risks 19
PART II - OTHER INFORMATION:
Item 2. Changes in Securities and Use of Proceeds 20
Item 3. Defaults Upon Senior Securities 20
Item 6. Exhibits and Reports on Form 8-K 20
2
OWOSSO CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
- --------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
-------------------------------- -------------------------------
July 28, July 29, July 28, July 29,
2002 2001 2002 2001
------------- ------------ ------------ ------------
Net sales $ 11,415,000 $ 13,813,000 $ 31,515,000 $ 42,374,000
Cost of products sold 9,743,000 10,749,000 26,913,000 33,782,000
------------- ------------ ------------ ------------
Gross profit 1,672,000 3,064,000 4,602,000 8,592,000
Selling, general and administrative expenses 2,826,000 2,650,000 6,746,000 7,721,000
Write-down of net assets held for sale - 1,100,000 1,100,000
------------- ------------ ------------ ------------
Loss from operations (1,154,000) (686,000) (2,144,000) (229,000)
Interest expense 389,000 989,000 1,374,000 3,410,000
Other income - (3,000) (113,000) (108,000)
------------- ------------ ------------ ------------
Loss from continuing operations
before income taxes (1,543,000) (1,672,000) (3,405,000) (3,531,000)
Income tax benefit (424,000) (566,000) (5,182,000) (1,135,000)
------------- ------------ ------------ ------------
Income (loss) from continuing operations (1,119,000) (1,106,000) 1,777,000 (2,396,000)
Income (loss) from discontinued operations, net of
income taxes - 141,000 (1,221,000)
------------- ------------ ------------ ------------
Income (loss) before cumulative effect
of accounting change (1,119,000) (965,000) 1,777,000 (3,617,000)
Cumulative effect of accounting change
(net of tax of $34,000) - - (67,000)
------------- ------------ ------------ ------------
Net income (loss) (1,119,000) (965,000) 1,777,000 (3,684,000)
Dividends and accretion on preferred stock (338,000) (330,000) (1,009,000) (984,000)
------------- ------------ ------------ ------------
Net income (loss) available for common shareholders $ (1,457,000) $ (1,295,000) $ 768,000 $ (4,668,000)
============= ============ ============ ============
Basic and diluted income (loss) per common share:
Income (loss) from continuing operations $ (0.25) $ (0.24) $ 0.13 $ (0.58)
Income (loss) from discontinued operations - 0.02 - (0.21)
Cumulative effect of account change, net - - - (0.01)
------------- ------------ ------------ ------------
Net income (loss) per share $ (0.25) $ (0.22) $ 0.13 $ (0.80)
============= ============ ============ ============
Weighted average number of
common shares outstanding
Basic 5,874,000 5,865,000 5,874,000 5,863,000
============= ============ ============ ============
Diluted 5,874,000 5,865,000 5,874,000 5,863,000
============= ============ ============ ============
See notes to condensed consolidated financial statements.
3
OWOSSO CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
July 28, October 28,
2002 2001
(Unaudited) (See Note)
----------------- ----------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 248,000 $ 200,000
Receivables, net 3,084,000 6,061,000
Inventories, net 1,893,000 4,815,000
Net assets held for sale 6,016,000 1,181,000
Prepaid expenses and other 819,000 1,446,000
Tax refund receivable 1,696,000
Deferred taxes 393,000 2,453,000
------------ ------------
Total current assets 12,453,000 17,852,000
PROPERTY, PLANT AND EQUIPMENT, NET 6,072,000 11,874,000
GOODWILL, NET 8,894,000 9,395,000
OTHER INTANGIBLE ASSETS, NET 5,317,000 5,614,000
NET ASSETS OF DISCONTINUED OPERATIONS HELD FOR SALE 1,078,000 1,078,000
OTHER ASSETS 142,000 581,000
------------ ------------
TOTAL ASSETS $ 33,956,000 $ 46,394,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable - trade $ 2,144,000 $ 3,350,000
Accrued expenses 1,556,000 4,823,000
Related party debt - 400,000
Current portion of long-term debt 19,304,000 23,684,000
------------ ------------
Total current liabilities 23,004,000 32,257,000
LONG-TERM DEBT, LESS CURRENT PORTION 5,257,000 5,520,000
COMMON STOCK PUT OPTION 600,000 600,000
POSTRETIREMENT BENEFITS AND OTHER LIABILITIES 405,000 3,532,000
DEFERRED TAXES 1,194,000 2,766,000
ACCRUED PREFERRED STOCK DIVIDENDS 2,325,000 1,316,000
SHAREHOLDERS' EQUITY 1,171,000 403,000
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 33,956,000 $ 46,394,000
============ ============
Note: the balance sheet at October 28, 2001 has been condensed from the audited
financial statements at that date
See notes to condensed consolidated financial statements.
4
OWOSSO CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
- --------------------------------------------------------------------------------
Nine Months Ended
------------------------------------
July 28, July 29,
2002 2001
---------------- -------------
OPERATING ACTIVITIES:
Net income (loss) $ 1,777,000 $ (3,684,000)
Loss from discontinued operations 1,221,000
Adjustments to reconcile net income (loss) to cash
provided by (used in) operating activities:
Depreciation 1,967,000 2,061,000
Amortization 802,000 798,000
Other 313,000 317,000
Changes in operating assets and liabilities 130,000 14,000
------------ ------------
Net cash provided by continuing operations 4,989,000 727,000
Net cash used in discontinued operations (4,956,000)
------------ ------------
Net cash provided by (used in) operating activities 4,989,000 (4,229,000)
------------ ------------
INVESTING ACTIVITIES:
Proceeds from the sale of businesses 5,996,000
Purchases of property, plant and equipment (293,000) (576,000)
Other (369,000) 1,336,000
------------ ------------
Net cash provided by (used in) continuing operations (662,000) 6,756,000
Net cash provided by discontinued operations 12,405,000
------------ ------------
Net cash provided by (used in) investing activities (662,000) 19,161,000
------------ ------------
FINANCING ACTIVITIES:
Net payments on revolving credit agreement (4,400,000) (14,150,000)
Payments on long-term debt (242,000) (406,000)
Payments on related party debt (400,000) (375,000)
Dividends paid (142,000)
Other 142,000
------------ ------------
Net cash used in continuing operations (5,042,000) (14,931,000)
Net cash provided by (used in) discontinued operations 763,000 (185,000)
------------ ------------
Net cash used in financing activities (4,279,000) (15,116,000)
------------ ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 48,000 (184,000)
CASH AND CASH EQUIVALENTS, BEGINNING 200,000 491,000
------------ ------------
CASH AND CASH EQUIVALENTS, ENDING $ 248,000 $ 307,000
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 2,299,000 $ 2,718,000
============ ============
Taxes paid (refunded) $ (6,392,000) $ 226,000
============ ============
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES:
Dividends payable $ 2,325,000 $ 984,000
============ ============
See notes to condensed consolidated financial statements.
5
OWOSSO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company - The condensed consolidated financial statements represent
the consolidated financial position, results of operations and cash
flows of Owosso Corporation and its subsidiaries (the "Company"). The
Company currently operates in only one business segment.
The Motors segment, which includes Stature Electric, Inc. ("Stature"),
Motor Products - Owosso Corporation ("Motor Products"), and Motor
Products Ohio Corporation ("MP-Ohio"), manufactures fractional and
integral horsepower motors, gear motors, and motor part sets.
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 Company's former Other segment consisted of Cramer Company
("Cramer"). The Company completed the sale of the assets associated
with the timer and switch line of Cramer on December 4, 2000 and
disposed of substantially all of the remaining Cramer assets in a
separate transaction completed on September 23, 2001. The Company
intends to dispose of the remaining Cramer asset in fiscal 2002.
Accordingly, such asset has been included in net assets held for sale
in the condensed consolidated balance sheets.
Discontinued operations included the operations of Sooner Trailer
Manufacturing Company ("Sooner Trailer") and the former Coils segment
which consisted of Astro Air Coils, Inc. ("Astro Air"), Snowmax
Incorporated ("Snowmax") and Astro Air UK, LTD. ("Astro UK"). The
Company completed the sale of Sooner Trailer in January 2001. The
Company's interest in Astro UK was sold on May 9, 2001. Astro Air and
Snowmax were sold on October 26, 2001. The Company intends to dispose
of the remaining Coil asset as soon as practicable. Accordingly, such
asset has been included in the net assets of discontinued operations
held for sale in the condensed consolidated balance sheets.
Financial Statements - The condensed consolidated balance sheet as of
July 28, 2002, the condensed consolidated statements of operations for
the three and nine months ended July 28, 2002 and July 29, 2001 and
cash flows for nine months ending July 28, 2002 and July 29, 2001 have
been prepared by the Company, without audit. In the opinion of
management, all adjustments considered necessary to present fairly the
financial position, results of operations and cash flows as of July 28,
2002 and for all periods presented have been made. Certain information
and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles
have been condensed or omitted. These financial statements should be
read in conjunction with the consolidated financial statements and
notes thereto included in the Company's October 28, 2001 Annual Report
on Form 10-K.
Reclassifications - Certain reclassifications were made to the 2001
condensed consolidated financial statements to conform to the 2002
classifications.
6
Earnings (loss) per share - Basic earnings per common share is computed
by dividing net earnings (loss) available for common stockholders (the
numerator) by the weighted average number of common shares outstanding
during each period (the denominator). The computation of diluted
earnings per common share is similar to that of basic earnings per
common share, except that the denominator is increased by the dilutive
effect of stock options outstanding, computed using the treasury stock
method.
Comprehensive income - The Company presents comprehensive income (loss)
as a component of shareholders' equity. The components of comprehensive
income are as follows:
Three Months Ended Nine Months Ended
----------------------------------------------------------------
July 28, July 29, July 28, July 29,
2002 2001 2002 2001
-------- -------- -------- --------
Net income (loss) $ (1,119,000) $ (965,000) $ 1,777,000 $ (3,684,000)
Foreign currency translation 194,000 143,000
------------ ------------ ------------ ------------
Total comprehensive income (loss) $ (1,119,000) $ (771,000) $ 1,777,000 $ (3,541,000)
============ ============ ============ ============
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 reclassified as 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
the 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.
7
In April 2002, the Financial Accounting Standards Board issued SFAS
No.145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of
FASB Statement No. 13, and Technical Corrections". This Statement
rescinds FASB Statement No. 4, Reporting Gains and Losses from
Extinguishment of Debt, and an amendment of that Statement, FASB
Statement No. 64, Extinguishments of Debt Made to Satisfy Sinking-Fund
Requirements. This Statement also rescinds FASB Statement No. 44,
Accounting for Intangible Assets of Motor Carriers. This Statement
amends FASB Statement No. 13, Accounting for Leases, to eliminate an
inconsistency between the required accounting for sale-leaseback
transactions and the required accounting for certain lease
modifications that have economic effects that are similar to
sale-leaseback transactions. This Statement also amends other existing
authoritative pronouncements to make various technical corrections,
clarify meanings, or describe their applicability under changed
conditions. The Company has not yet completed its analysis of the
effects of adopting this statement on its consolidated financial
position or results of operation.
In June 2002, the Financial Accounting Standards Board issued SFAS
No.146 "Accounting for Costs Associated with Exit or Disposal
Activities". This Statement addresses financial accounting and
reporting for costs associated with exit or disposal activities and
nullifies Emerging Issues Task Force (EITF) Issue No. 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs
to Exit an Activity (including Certain Costs Incurred in a
Restructuring)." The Company has not yet completed its analysis of the
effects of adopting this statement on its consolidated financial
position or results of operation.
2. LIQUIDITY AND FINANCING
The Company has experienced a significant downturn in its operating
results over the past two years and has been unable to remain in
compliance with its debt 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. As further disclosed in Note 6 "Long
Term Debt", the Company entered into a further amendment to the
facility in February 2002, which extended the maturity date to December
31, 2002. The amendment calls for further reductions in the outstanding
balance based on expected future asset sales and increases the interest
rate charged. The accompanying condensed 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 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.
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 at the remaining
operating units, commensurate with reductions in sales volumes.
Effective February 15, 2002, the corporate function was merged and
absorbed by Stature. 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, the sale of
substantially all of the assets of Cramer and substantially all the
assets of the Company's Coils segment. Subsequent to the third quarter,
the Company completed the sale of all of the outstanding stock of Motor
Products and MP-Ohio , which comprise a significant portion of Owosso's
non-gearmotor business, to a subsidiary of Hathaway Corporation
(Nasdaq: HATH) for $11.5 million in cash and a $300,000 note guaranteed
by Hathaway Corporation. Net proceeds from these sales were utilized to
reduce the Company's revolving credit facility. Management intends to
dispose of the real estate at the former Cramer and Snowmax
subsidiaries as soon as practicable and net proceeds, which are
expected to be between $1.5 and $2.5 million, will also be utilized to
reduce the Company's revolving credit facility. 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. As of July 28, 2002, the Company's
outstanding revolving credit facility maturing in December 2002 is
$17.6 million and is classified as current on the balance sheet. At the
end of the third quarter of 2002, the Company was not in compliance
with its debt covenant requirements, however, the Company has entered
into a thirteenth amendment which anticipates that the Company and its
lenders will agree upon replacement debt covenants. 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.
8
3. DISCONTINUED OPERATIONS
Sooner Trailer- 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 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 the
Company's portion 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, Sooner Trailer and the Coil
Group were $8,183,000 and $28,645,000 for the three and nine months
July 29, 2001, respectively.
At July 28, 2002 and 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.
4. NET ASSETS HELD FOR SALE
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 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 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. In addition to the Cramer real estate,
which has a carrying value of $1,070,000, the net assets of Motor
Products and MP-OH (collectively "Motor Assets") are included in the
net assets held for sale in the condensed consolidated balance sheets.
The combined value of the Motor Assets were $4,946,000 as of July 28,
2002.
9
5. INVENTORIES
July 28, October 28,
2002 2001
-------- -----------
Raw materials and purchased parts $ 652,000 $1,858,000
Work in process 1,159,000 1,662,000
Finished goods 82,000 1,295,000
---------- ----------
Total $1,893,000 $4,815,000
========== ==========
6. LONG-TERM DEBT
At October 29, 2000, the Company was not in compliance with covenants
under its revolving credit facility. As a result, 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, modified the interest rates charged and
required additional collateral and reporting requirements. The
amendment also required the suspension of principal and interest
payments on subordinated debt, with an aggregate outstanding balance of
$2.0 million at July 28, 2002, and prohibits the payment of preferred
or common stock dividends. In addition, the amendment required the
Company to maintain minimum operating profits. 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. This amendment calls for further reductions to the
outstanding balance based on expected future asset sales. In addition,
the interest rate was modified so that borrowings under the facility
are charged interest of the Prime Rate plus 1.75% through June 30,
2002. Beginning July 1, 2002, borrowings under the facility will be
charged interest of the Prime Rate plus 2.75%. At July 28, 2002 the
Prime Rate was 4.75%. At July 28, 2002, $17,600,000 was outstanding
under the facility, classified as current on the balance sheet, and
$2,109,000 was available for additional borrowing. At the end of the
third quarter of 2002, the Company was not in compliance with its debt
covenant requirements, however, the Company has entered into a
thirteenth amendment which anticipates that the Company and its lenders
will agree upon replacement debt covenants. 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.
Repayment of the Industrial Revenue Bond of the Company's Stature
subsidiary, $4,850,000 as of July 28, 2002, has been guaranteed by the
Company.
10
Derivative Interest Rate Contracts - The Company has two interest rate
swap agreements, each with a $7,500,000 notional amount, that matured
in July 2002. 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 (1.27% at July 28,
2002). 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 decreased to $143,000 at July 28, 2002,
resulting in a credit to interest income of $556,000 for the nine
months ended July 28, 2002. The fair market value of the swap agreement
liability increased to $635,000 at July 29, 2001, resulting in a charge
to interest expense of $533,000.
7. COMMITMENTS AND CONTINGENCIES
The Company is subject to federal, state and local environmental
regulations with respect to its operations. The Company believes that
it is operating in substantial compliance with applicable environmental
regulations. Manufacturing and other operations at the Company's
various facilities may result, and may have resulted, in the discharge
and release of hazardous substances and waste from time to time. The
Company routinely responds to such incidents as deemed appropriate
pursuant to applicable federal, state and local environmental
regulations.
The Company is a party to a consent decree with the State of
Connecticut pursuant to which it has agreed to complete its
environmental investigation of the site on which its Cramer facility
was previously located and conduct any remedial measures which may be
required. Based upon the amounts recorded as liabilities, the Company
does not believe that the ultimate resolution of this matter will have
a material adverse effect on the consolidated financial results of the
Company.
In addition to the matters reported herein, the Company is involved in
litigation dealing with a number of 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.
11
8. SEGMENT INFORMATION
Three Months Ended Nine Months Ended
----------------------------------------------------------------
July 28, July 29, July 28, July 29,
2002 2001 2002 2001
-------- -------- -------- --------
Net sales:
Motors $11,415,000 $13,105,000 $31,515,000 $39,831,000
Other 708,000 2,543,000
----------- ----------- ----------- -----------
Total net sales $11,415,000 $13,813,000 $31,515,000 $42,374,000
----------- ----------- ----------- -----------
Income (loss) from operations:
Motors $ 386,000 $ 1,690,000 $ 710,000 $ 4,365,000
Other (1,178,000) 44,000 (1,452,000)
Corporate(1) (1,540,000) (1,198,000) (2,898,000) (3,142,000)
----------- ----------- ----------- -----------
Total income (loss) from operations $(1,540,000) $ (686,000) $(2,144,000) $ (229,000)
=========== =========== =========== ===========
(1) Includes unallocated corporate expenses, primarily salaries and
benefits, information technology and other administrative
expenses.
The Company derives substantially all of its revenues from within the
United States. Identifiable assets of the segments are not materially
different from amounts disclosed in the Company's 2001 Annual Report on
Form 10-K. Information about interest expense, other income and income
taxes is not provided on a segment level. The accounting policies of
the segments are the same as those described in the summary of
significant accounting policies and in the Company's 2001 Annual Report
on Form 10-K.
9. INCOME TAX REFUND
The Company recorded an income tax benefit in the second quarter of
2002 of $4.8 million as a result of recent changes in federal tax laws,
which allow the carryback of net operating losses for five years. The
Company received $4.6 million of the refund in the second quarter and
the balance was received during the third quarter. All of the refund
received was utilized to pay down the Company's revolving credit
facility.
10. SUBSEQUENT EVENT
On July 9, 2002, the Company announced it signed a definitive agreement
to sell the stock of its Motor Products and MP-OH subsidiaries, which
comprise a significant portion of the Company's non-gearmotor business,
to a subsidiary of Hathaway Corporation (Nasdaq: HATH) for $11.5
million in cash and a $300,000 note guaranteed by Hathaway Corporation.
On July 30, 2002, the Company completed this transaction. Net proceeds
of $10.7 million from the sale, after payment of certain transaction
costs, were utilized to reduce outstanding bank debt. Owosso expects to
recognize a pretax gain, net of expenses, on the sale of approximately
$6.0 million, and that gain from the sale will be substantially
sheltered by net operating losses.
12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion addresses the financial condition of the
Company as of July 28, 2002 and the results of operations for the three
and nine months ended July 28, 2002 and July 29, 2001. This discussion
should be read in conjunction with the financial statements included
elsewhere herein and the Management's Discussion and Analysis and
Financial Statement sections of the Company's Annual Report on Form
10-K to which the reader is directed for additional information.
General
In 1998, 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 downturn 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 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
increases the interest rate charged. 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.
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 at the remaining
operating units, commensurate with reductions in sales volumes.
Effective February 15, 2002, the corporate function was merged and
absorbed by Stature. 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, the sale of
substantially all of the assets of Cramer and substantially all the
assets of the Company's Coils segment. Subsequent to the third quarter,
the Company completed the sale of all of the outstanding stock of Motor
Products and MP-Ohio , which comprise a significant portion of Owosso's
non-gearmotor business, to a subsidiary of Hathaway Corporation
(Nasdaq: HATH) for $11.5 million in cash and a $300,000 note guaranteed
by Hathaway Corporation. Net proceeds from these sales were utilized to
reduce the Company's revolving credit facility. Management intends to
dispose of the real estate at the former Cramer and Snowmax
subsidiaries as soon as practical and net proceeds, which are expected
to be between $1.5 and $2.5 million, will also be utilized to reduce
the Company's revolving credit facility. 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. At the end of the third quarter of 2002, the Company was
not in compliance with its debt covenant requirements, however, the
Company has entered into a thirteenth amendment which anticipates that
the Company and its lenders will agree upon replacement debt covenants.
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.
13
Three months ended July 28, 2002 compared to three months ended July
29, 2001
Net sales. Net sales for the third quarter of 2002 decreased 17.4%, or
$2.4 million, to $11.4 million, as compared to net sales of $13.8
million in the prior year quarter. Net sales from Motors, the Company's
only remaining segment, decreased 12.9% to $11.4 million in 2002, from
$13.1 million in 2001. Although improved over the first quarter of
fiscal 2002, the general economic slowdown continued to effect the
Company's primary markets, particularly the heavy truck and
recreational vehicle markets. Pricing pressures and increased Pacific
Rim competition in the healthcare market also continues to adversely
affect the Company's results. The quarter results also include the
effect of disposing of Cramer in 2001, which was included in the
Company's Other segment. Sales attributable to Cramer were $708,000 in
the third quarter of 2001.
Loss from operations. For the third quarter of fiscal 2002, the Company
reported a loss from operations of $1,154,000 as compared to loss from
operations of $686,000 in the prior year third quarter. The Motors
segment reported income from operations of $386,000, or 3.4% of net
sales, in the third quarter of 2002, as compared to $1.7 million, or
12.9% of net sales, in the prior year quarter. These results reflect
decreased sales volume and decreased margins caused by price pressures
and changes in product mix, as well as the under absorption of overhead
costs, partially offset by a 15.1%, or $230,000, decrease in selling,
general and administration expenses.
In April 2002, union employees of the Company's Motor Products
subsidiary agreed to modify their collective bargaining agreement,
allowing a two-tiered compensation and benefits arrangement. In July
2002, the Company closed its MP - Ohio facility and consolidating the
production from that facility to the Motor Products facility located in
Michigan. A one-time cost related to the move of approximately $200,000
was recorded in the third quarter of 2002.
Corporate expenses included in selling, general and administrative
costs were $1,540,000 in the third quarter of 2002, as compared to
$977,000 in the prior year third quarter. This increase primarily
reflects the increase of the expense estimate of outstanding workman's
compensation claims, increased professional fees, other miscellaneous
expenses, less reductions in personnel at the corporate office.
Interest expense. Interest expense was $389,000 for the third quarter
of fiscal 2002, as compared to $989,000 in the prior year quarter. The
current year quarter includes income of $151,000 resulting from a
decrease in the fair market value of the Company's interest rate swap
liability. The prior year quarter includes interest expense of $81,000,
resulting from an increase in the fair market value of the Company's
interest rate swap liability. These amounts were recorded in accordance
with SFAS 133. Exclusive of the effects of interest rate swap
agreements, interest expense would have been $540,000 for the third
quarter of 2002, as compared to $908,000 in the prior year quarter.
Interest expense decreased primarily as a result of lower debt levels.
Loss from discontinued operations. Discontinued operations represent
the operations of Sooner Trailer, which was sold in January 2001, and
the Coils segment, which included Astro Air Coils, Inc. ("Astro Air"),
Snowmax, and Astro Air UK, LTD. ("Astro UK"). Astro UK was sold in May
2001. Astro Air and Snowmax were sold in October 2001.
For the third quarter of 2001, the Company recorded a loss from
discontinued operations of $53,000 (net of a tax benefit of $20,000).
Revenues from discontinued operations were $8.2 million.
14
Net income (loss) available for common shareholders.
Net loss available for common shareholders was $1.5 million, or $.25
per share, in the third quarter of fiscal 2002, as compared to a net
loss of $1.3 million, or $.22 per share, in the prior year quarter.
Income or loss available for common shareholders is calculated by
subtracting dividends on preferred stock of $338,000 and $330,000 for
2002 and 2001, respectively.
Nine months ended July 28, 2002 compared to nine months ended July 29,
2001
Net sales. Net sales for the first nine months of 2002 decreased 25.6%,
or $10.9 million, to $31.5 million, as compared to net sales of $42.4
million in the prior year. Net sales from Motors, the Company's only
remaining segment, decreased 20.9% to $31.5 million in 2002, from $39.8
million in 2001, as a result of both price reduction and the general
economic slowdown. These results also include the effect of disposing
of Cramer in 2001, and which was included in the Company's Other
segment. Sales attributable to Cramer were $2.6 million in the first
nine months of 2001.
Loss from operations. For the first nine months of 2002, the Company
reported a loss from operations of $2,144,000 as compared to loss from
operations of $229,000 in the prior year period. The Motors segment
reported income from operations of $710,000, or 2.3% of net sales, in
2002, as compared to $4.4 million, or 11.0% of net sales, in the prior
year period. These results reflect decreased sales volume and decreased
margins caused by price pressures and changes in product mix, as well
as the under absorption of overhead costs, partially offset by a
$409,000 or 9.6% reduction in selling, general and administrative
expenses.
In April 2002, union employees of the Company's Motor Products
subsidiary agreed to modify their collective bargaining agreement,
allowing a two-tiered compensation and benefits arrangement. In July
2002, the Company closed its MP - Ohio facility and consolidating the
production from that facility to the Motor Products facility located in
Michigan. A one-time cost related to the move of approximately $200,000
was recorded in the third quarter of 2002.
Income from operations for the Company's Other segment was $44,000 for
the first nine months of 2002 and represents lease income on the former
Cramer building. The prior year quarter results include the results of
operations of Cramer, which reported a loss from operations of
$352,000.
Corporate expenses included in selling, general and administrative
costs were $2.9 million in the first nine months of 2002, as compared
to $2.9 million in the prior year period. The impact of the expense
estimate of outstanding workman's compensation claims, increased
professional fees, other miscellaneous expenses was offset by
reductions in personnel at the corporate office.
Interest expense. Interest expense was $1.4 million for the first nine
months of 2002, as compared to $3.4 million in prior year period. The
current year period includes income of $556,000 resulting from a
decrease in the fair market value of the Company's interest rate swap
liability. The prior year includes interest expense of $533,000,
resulting from an increase in the fair market value of the Company's
interest rate swap liability. These amounts were recorded in accordance
with SFAS 133. Exclusive of the effects of interest rate swap
agreements, interest expense would have been $2.0 million for the
current period, as compared to $2.9 million in the prior year. Interest
expense decreased primarily as a result of lower debt levels.
15
Income tax benefit. The Company recorded an income tax benefit of $5.2
million for 2002 of which $4.8 million was as a result of recent
changes in federal tax laws, which allow the carryback of net operating
losses for five years.
Loss from discontinued operations. Discontinued operations represent
the operations of Sooner Trailer and the Coils segment.
For the first nine months of 2001, the Company recorded a loss from
discontinued operations of $1.2 million (net of a tax benefit of
$336,000). Revenues from discontinued operations for the period were
$28.6 million.
Net income (loss) available for common shareholders. Net income
available for common shareholders was $768,000, or $.13 per share, in
the first nine months of 2002, as compared to a net loss of $4.7
million, or $.80 per share, in the prior year period. Income or loss
available for common shareholders is calculated by subtracting
dividends on preferred stock of $1,009,000 and $984,000 for 2002 and
2001, respectively.
Liquidity and Capital Resources
Cash and cash equivalents were $248,000 at July 28, 2002. The Company
had negative working capital of $10.6 million at July 28, 2002, as
compared to negative working capital of $14.4 million at October 28,
2001. Net cash provided by operating activities of continuing
operations was $5.0 million as compared to net cash provided by
operating activities from continuing operations of $727,000 in the
prior period.
Cash flows used in investing activities from continuing operations was
662,000 including $293,000 for capital expenditures for equipment. Cash
flows provided by investing activities from continuing operations also
includes approximately $6.0 million received for asset sales in the
prior year. The Company currently plans to invest approximately $90,000
during the remainder of fiscal 2002. Management anticipates funding
capital expenditures with cash from operations and proceeds from the
Company's revolving credit facility.
Net cash used in financing activities from continuing operations
included net repayments of $4.4 million under the Company's revolving
credit agreement, debt repayments of $242,000, and the payment in full
of related party debt of $400,000.
At July 28, 2002, $17.6 million was outstanding under the Company's
revolving credit facility. As a result of noncompliance with covenants
contained in its revolving credit facility at October 29, 2000, the
Company, in February 2001, 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. This amendment called for reductions in the outstanding
balance during calendar 2001, modified the interest rates charged and
required additional collateral and reporting requirements. The
amendment also required the suspension of principal and interest
payments on subordinated debt, with an aggregate outstanding balance of
$2.0 million at July 28, 2002, and prohibits the payment of preferred
or common stock dividends. In addition, the amendment required the
Company to maintain minimum operating profits. Beginning in August
2001, the Company was not in compliance with the minimum operating
16
profit covenant. In February 2002, the company entered into a further
amendment to the facility, which extends the maturity date to December
31, 2002. This amendment calls for further reductions to the
outstanding balance based on expected future asset sales. In addition,
the interest rate was modified so that borrowings under the facility
are charged interest at the Prime Rate plus 1.75% though June 30, 2002.
Beginning July 1, 2002, borrowings under the facility will be charged
interest at the Prime Rate plus 2.75%. At July 28, 2002 the Prime Rate
was 4.75%. At July 28, 2002, $2.1 million was available under the
facility for additional borrowing. At the end of the third quarter of
2002, the Company was not in compliance with its debt covenant
requirements, however, the Company has entered into a thirteenth
amendment which anticipates that the Company and its lenders will agree
upon replacement debt covenants.
The Company has a interest rate swap agreement with its banks with
notional amounts totaling $4.85 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. In that the Company's interest rate swap
agreements 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 reclassified as 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
the 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.
In April 2002, the Financial Accounting Standards Board issued SFAS No.
145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of
FASB Statement No. 13, and Technical Corrections". This Statement
rescinds FASB Statement No. 4, Reporting Gains and Losses from
Extinguishment of Debt, and an amendment of that Statement, FASB
Statement No. 64, Extinguishments of Debt Made to Satisfy Sinking-Fund
Requirements. This Statement also rescinds FASB Statement No. 44,
Accounting for Intangible Assets of Motor Carriers. This Statement
amends FASB Statement No. 13, Accounting for Leases, to eliminate an
inconsistency between the required accounting for sale-leaseback
transactions and the required accounting for certain lease
modifications that have economic effects that are similar to
sale-leaseback transactions. This Statement also amends other existing
authoritative pronouncements to make various technical corrections,
clarify meanings, or describe their applicability under changed
conditions. The Company has not yet completed its analysis of the
effects of adopting this statement on its consolidated financial
position or results of operation.
In June 2002, the Financial Accounting Standards Board issued SFAS No.
146 "Accounting for Costs Associated with Exit or Disposal Activities".
This Statement addresses financial accounting and reporting for costs
associated with exit or disposal activities and nullifies Emerging
Issues Task Force (EITF) Issue No. 94-3, "Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring)." The
Company has not yet completed its analysis of the effects of adopting
this statement on its consolidated financial position or results of
operation.
Cautionary Statement for Purposes of the "Safe Harbor" Provisions of
the Private Securities Litigation Reform Act of 1995
The following information is provided pursuant to the "Safe Harbor"
provisions of the Private Securities Litigation Reform Act of 1995.
Certain statements in Management's Discussion and Analysis of this Form
10-Q, including those which express "belief", "anticipation" or
"expectation" as well as other statements which are not historical
fact, are "forward-looking statements" made pursuant to these
provisions. Such statements are subject to certain risks and
uncertainties which could cause actual results to differ materially
from those projected. Readers are cautioned not to place undue reliance
on these forward-looking statements which speak only as of the date
hereof. The Company undertakes no obligation to republish revised
forward-looking statements to reflect events or circumstances after the
date hereof or to reflect the occurrence of unanticipated events.
17
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 meet 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 aluminum, copper and steel, can
affect the Company's costs as well as demand for the Company's
products and the value of inventory held at the end of a
reporting period. Lack of availability of certain commodities
could also disrupt the Company's production.
o Changes in demand that change product mix may reduce operating
margins by shifting demand toward less profitable products.
o Loss of a substantial customer or customers may affect results of
operations.
o The influence of foreign competition from low-cost areas of the
world have affected and may continue to affect results of
operations.
o The Company's results have been and can in the future 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 instrument does not
meet the stringent requirements for hedge accounting under SFAS
133, future earnings could reflect greater volatility.
18
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
The Company uses a revolving credit facility, an industrial revenue
bond 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 hedge 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 July 28,
2002. 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. Note 6 to the condensed consolidated financial
statements should be read in conjunction with the table below (dollar
amounts in thousands).
Fair Value
Year of Maturity Total Due at
2002 2003 2004 2005 2006 Thereafter at Maturity 07/28/02
---- ---- ---- ---- ---- ---------- ----------- --------
Debt:
Fixed rate $ 1,404 $ 253 $ 258 $ 92 $ 96 $ 8 $ 2,111 $ 2,111
Average interest rate 8.0% 8.0% 8.0% 8.0% 8.0% 8.0%
Variable rate $17,900 $ 300 $ 600 $ 600 $ 600 $2,450 $22,450 $22,450
Average interest rate 8.1% 2.8% 2.8% 2.8% 2.8% 2.8%
Interest rate swap agreements:
Variable to fixed swap $ - $4,850 $ - $ - $ - $ - $ 4,850 $ (143)
Average pay rate 4.2%
Average receive rate 1.4%
19
Part II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
Effective for the second quarter of 2000, the Company modified certain
covenants included in its revolving credit facility. In accordance with
such modifications, the Company was, and continues to be, prohibited
from making common stock dividend payments. 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.
Item 3. Defaults Upon Senior Securities
Since February 2001, the Company has been prohibited from making
dividend payments on its Class A Convertible Preferred Stock in
connection with modifications to its revolving credit facility. As of
the date of the filing of this report, accrued dividends on the Class A
Convertible Preferred Stock total $2,325,000.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No. Description
10.23 Twelfth Amendment to the Amended and Restated Credit
Agreement by and among Owosso Corporation, its subsidiaries, Bank One,
Michigan and PNC Bank, N.A. effective July 8, 2002.
10.24 Thirteenth Amendment to the Amended and Restated
Credit Agreement by and among Owosso Corporation, its subsidiaries,
Bank One, Michigan and PNC Bank, N.A. effective July 30, 2002.
11 Computation of Per Share Earnings
(b) Form 8-K
The Company filed a report on Form 8-K, dated July 9, 2002, to report
under Item 5 that the Company had signed a definitive agreement to sell
the stock of its Motor Products subsidiaries, which comprise a
significant portion of Owosso's non-gearmotor business, to a subsidiary
of Hathaway Corporation (Nasdaq: HATH) for $11.5 million in cash and a
$300,000 note guaranteed by Hathaway Corporation.
The Company filed a report on form 8-K, dated August 13, 2002, to
report under Item 2 that the Company had completed the sale of all of
the outstanding stock of Motor Products - Owosso Corporation, a
Delaware corporation and Motor Products - Ohio Corporation, a Delaware
corporation (together, "Motor Products"), manufacturers of fractional
and integral horsepower motors.
20
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
OWOSSO CORPORATION
Date: September 10, 2002 By: /s/ George B. Lemmon, Jr.
-------------------------
George B. Lemmon, Jr.
President and Chief Executive Officer
(Principal Executive Officer and
Principal Financial Officer)
Exhibit Index
Exhibit No. Description Page
- ----------- ----------- ----
10.23 Twelfth Amendment to the Amended and Restated Credit A-1
Agreement by and among Owosso Corporation, its subsidiaries,
Bank One, Michigan and PNC Bank, N.A. effective July 8, 2002.
10.24 Thirteenth Amendment to the Amended and Restated Credit B-1
Agreement by and among Owosso Corporation, its subsidiaries,
Bank One, Michigan and PNC Bank, N.A. effective July 30, 2002
11 Computation of Per Share Earnings C-1
99.1 302 Certification D-1
99.2 906 Certification E-1