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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: February 01, 2004
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period from _________________ to _________________.
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, NY 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 [ ]
Indicate by a check mark whether registrant is an accelerated filer (as defined
in rule 12b-2 of the Exchange Act). YES [ ] NO [X]
As of March 8, 2004, 5,824,306 shares of the Registrant's Common Stock, $.01 par
value, were outstanding.
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OWOSSO CORPORATION
TABLE OF CONTENTS
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Page
PART I - FINANCIAL INFORMATION:
Item 1. Financial Statements
Condensed Consolidated Statements of Operations 3
for the three months ended February 01, 2004 and
January 26, 2003 (unaudited)
Condensed Consolidated Balance Sheets at 4
February 01, 2004 and October 26, 2003 (unaudited)
Condensed Consolidated Statements of Cash Flows 5
for the three months ended February 01, 2004 and
January 26, 2003 (unaudited)
Notes to Condensed Consolidated Financial Statements 6
(unaudited)
Item 2. Management's Discussion and Analysis of 10
Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures about Market Risk 15
Item 4. Controls and Procedures 15
PART II - OTHER INFORMATION:
Item 3. Defaults Upon Senior Securities 16
Item 6. Exhibits and Reports on Form 8-K 16
2
OWOSSO CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
- ----------------------------------------------------------------------------------------------------------
Three Months Ended
--------------------------------
February 1, January 26,
2004 2003
Net sales $ 4,522,000 $ 4,601,000
Costs of products sold 3,703,000 3,755,000
----------- -----------
Gross profit 819,000 846,000
Selling, general and administrative expenses 1,184,000 928,000
----------- -----------
Loss from operations (365,000) (82,000)
Interest expense 165,000 214,000
----------- -----------
Loss before income taxes (530,000) (296,000)
Income tax benefit (128,000) (62,000)
----------- -----------
Net loss (402,000) (234,000)
Dividends on preferred stock 345,000 341,000
----------- -----------
Net loss available for common shareholders $ (747,000) $ (575,000)
=========== ===========
Net loss per share $ (0.13) $ (0.10)
=========== ===========
Basic and diluted weighted average number of common
shares outstanding 5,824,000 5,824,000
=========== ===========
See notes to condensed consolidated financial statements.
3
OWOSSO CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
- -------------------------------------------------------------------------------------------------------------------------
February 1, October 26,
2004 2003
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 258,000 $ 309,000
Restricted cash 401,000 400,000
Receivables, net 2,121,000 2,323,000
Inventories, net 1,974,000 1,745,000
Net assets held for sale 350,000 350,000
Prepaid expenses and other 237,000 251,000
Deferred taxes 240,000 240,000
------------ ------------
Total current assets 5,581,000 5,618,000
PROPERTY, PLANT AND EQUIPMENT, NET 4,542,000 4,755,000
GOODWILL 3,074,000 3,074,000
CUSTOMER LIST, NET 4,700,000 4,800,000
OTHER ASSETS 130,000 133,000
------------ ------------
TOTAL ASSETS $ 18,027,000 $ 18,380,000
============ ============
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable - trade $ 1,885,000 $ 1,918,000
Accrued compensation and benefits 564,000 504,000
Accrued expenses 1,625,000 1,753,000
Current portion of long-term debt 11,161,000 10,968,000
------------ ------------
Total current liabilities 15,235,000 15,143,000
LONG-TERM DEBT, LESS CURRENT PORTION 85,000 128,000
COMMON STOCK PUT OPTION 600,000 600,000
DEFERRED TAXES 1,446,000 1,446,000
ACCRUED PREFERRED STOCK DIVIDENDS 4,379,000 4,034,000
COMMITMENTS AND CONTINGENCIES (Note 14)
------------ ------------
Total liabilities 21,745,000 21,351,000
------------ ------------
SHAREHOLDERS' DEFICIT (3,718,000) (2,971,000)
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT $ 18,027,000 $ 18,380,000
============ ============
See notes to condensed consolidated financial statements.
4
OWOSSO CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
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Three Months Ended
----------------------------
February 01, January 26,
2004 2003
OPERATING ACTIVITIES:
Net loss $ (402,000) $ (234,000)
Adjustments to reconcile net loss to
net cash (used in) provided by operating activities:
Depreciation 242,000 269,000
Amortization 100,000 100,000
Changes in operating assets and liabilities which
(used) provided cash (115,000) 12,000
---------- ----------
Net cash (used in) provided by operating activities (175,000) 147,000
---------- ----------
INVESTING ACTIVITIES:
Purchases of property, plant and equipment (29,000) (21,000)
Decrease in other assets 3,000 6,000
---------- ----------
Net cash used in investing activities (26,000) (15,000)
---------- ----------
FINANCING ACTIVITIES:
Net borrowings (payments) on line of credit 150,000 (500,000)
Payments on long-term debt 0 (62,000)
---------- ----------
Net cash provided by (used in) financing activities 150,000 (562,000)
---------- ----------
NET DECREASE IN
CASH AND CASH EQUIVALENTS (51,000) (430,000)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 309,000 524,000
---------- ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 258,000 $ 94,000
========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 114,000 $ 197,000
========== ==========
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING
AND FINANCING ACTIVITIES:
Dividends payable $ 345,000 $ 341,000
========== ==========
See notes to condensed consolidated financial statements.
5
OWOSSO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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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 one operating subsidiary, Stature Electric, Inc.
("Stature"), representing the Company's historical Motors segment. Stature
is a custom designer and manufacturer of motors and gear motors both AC and
DC, established in 1974 in Watertown, New York. Significant markets for
Stature, or 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.
Financial Statements - The condensed consolidated balance sheet as of
February 01, 2004 and the condensed consolidated statements of operations
and cash flows for the three months ended February 01, 2004 and January 26,
2003 have been prepared by the Company, without audit. In the opinion of
management, all adjustments (which include only normal recurring
adjustments) considered necessary to present fairly the financial position,
results of operations and cash flows as of February 01, 2004 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 26, 2003 Annual Report on Form 10-K.
New Accounting Pronouncements - In January 2003, the Financial Accounting
Standards Board (`FASB") issued Interpretation No. 46, "Consolidation of
Variable Interest Entities, an Interpretation of ARB No. 51" ("FIN 46").
FIN 46 requires certain variable interest entities to be consolidated by
the primary beneficiary of the entity if the equity investors in the entity
do not have the characteristics of a controlling financial interest or do
not have sufficient equity at risk for the entity to finance its activities
without additional subordinated financial support from other parties. FIN
46 is effective for the Company for the interim period ended April 30,
2004, or earlier in certain instances. Such instances did not have a
material effect on the Company's consolidated financial statements in
fiscal 2003.
In April 2003, the FASB issued Statement of Financial Accounting Standards
("SFAS") No. 149, "Amendment of Statement No. 133 on Derivative Instruments
and Hedging Activities." SFAS No. 149 amends and clarifies financial
accounting and reporting for derivative instruments and for hedging
activities under SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities." This Statement clarifies under what circumstances a
contract with an initial net investment meets the characteristic of a
derivative discussed in SFAS No. 133, clarifies when a derivative contains
a financing component, amends the definition of an underlying to conform it
to language used in FIN 45 and amends certain other existing
pronouncements. These changes are intended to result in more consistent
reporting of contracts as either derivatives or hybrid instruments. The
Statement is generally effective for contracts entered into or modified
after, and for hedging relationships designated after, June 30, 2003. The
Company's adoption of SFAS No. 149 did not have a material effect on its
consolidated financial statements in fiscal 2003.
6
2. BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements have been
prepared assuming that the Company will continue as a going concern, which
contemplates the realization of assets and the satisfaction of liabilities
in the normal course of business. The Company has incurred losses from
operations in each of the past four fiscal years and, as shown in the
consolidated condensed financial statements, the Company incurred a net
loss of $402,000 for the three months ended February 1, 2004. In addition,
at February 1, 2004, the Company had a working capital deficiency since
current liabilities exceeded its current assets by $9,654,000 and the
Company had a stockholders' deficit of $3,718,000 at February 1, 2004. The
Company is also out of compliance with covenants under its bank credit
facility. The amount outstanding under the bank credit facility totaled
$4,650,000 at February 1, 2004 which becomes due on March 31, 2004 (see
note 4). These factors, among others, may indicate that the Company will be
unable to continue as a going concern for a reasonable period of time. The
condensed consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
As disclosed in note 6, the Company has entered into a definitive purchase
agreement to sell the Company. If the sale does not occur, then the Company
intends to refinance the Company's bank credit facility prior to its
maturity in March 2004. However, there can be no assurance that the
Company's plans will be successfully executed.
7
3. INVENTORY
February 1, October 26,
2004 2003
Raw materials and purchased parts $ 1,024,000 $ 912,000
Work in process 962,000 844,000
Finished goods 236,000 192,000
----------- -----------
Total Inventory 2,222,000 1,948,000
Inventory Provision 248,000 203,000
----------- -----------
Net Inventory $ 1,974,000 $ 1,745,000
=========== ===========
4. LONG-TERM DEBT
On January 22, 1999, the Company entered into a new bank 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 bank 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. The amendment
to the bank credit facility, which was further amended in February 2001,
called for reductions in the outstanding balance during calendar 2001 and
modified the interest rates charged. The amendment required additional
collateral, effectively all 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 $2.1 million as of October 28, 2001. Furthermore, the amendment
to the facility prohibits the payment of preferred or common stock
dividends and prohibited the purchase of the Company's stock. Beginning in
August 2001, the Company was out of compliance with its minimum operating
profit covenant. In February 2002, the Company entered into a further
amendment to the facility, which extended the maturity date to December 31,
2002. That amendment called for further reductions in the outstanding
balance based on expected future asset sales, increases the interest rate
charged and requires minimum EBITDA. In December 2002, the Company entered
into a further amendment to the facility, which extends the maturity date
to December 31, 2003. This amendment calls for further reductions in
outstanding balance based on expected future asset sales and cash flow
generated from operations and requires minimum EBITDA. In April 2003, the
Company entered into a further amendment to the facility, which amended the
financial covenant. In September 2003, the Company entered into a further
amendment to the facility, which waived a mandatory paydown. In December
2003, the Company entered into a further amendment to the facility, which
extended the maturity date to March 31, 2004. Borrowings under the facility
are charged interest at the Prime Rate plus 2.75% (6.75% at February 01,
2004).
At February 01, 2004, $4,650,000 was outstanding under the Company's bank
credit facility and $202,000 was available for additional borrowing.
8
5. 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, the dilutive
effect of convertible preferred stock computed using the "if converted"
method, and by the dilutive effect of the put option on common stock,
computed using the reverse-treasury stock method. Due to the net loss for
the periods presented, the effects of stock options and convertible
preferred stock have been ignored for diluted loss per share because their
effects would be antidilutive.
6. POTENTIAL SALE OF COMPANY
On February 10, 2004, the Company reached a definitive agreement with
Allied Motion Control Technologies, Inc. ("Allied") for the acquisition by
Allied of all the shares of the Company on the following terms: 0.068
shares of common stock of Allied for each share of common stock of the
Company, and a combination of 0.127 shares of Allied common stock, a
warrant to purchase 0.28 shares of Allied common stock and cash of $0.9333
for each share outstanding of the Company's Class A convertible preferred
stock. Based on the Company's 5,824,306 common shares and 1,071,428
preferred shares issued, the aggregate amount to common shareholders will
be approximately $1.75 million, and the aggregate amount to preferred
shareholders will be approximately $1.6 million. In addition, Allied has
agreed to repay and assume up to $10.6 million of the Company's outstanding
debt, and the Company's preferred shareholders may be entitled to Allied
subordinated promissory notes with an aggregate principal amount of up to
$500,000 based on the 2004 gross revenue of Stature. Accordingly, the
transaction has an aggregate value of approximately $14.0 million,
exclusive of any value attributable to the warrants and Allied notes. The
board of directors of each company has approved the transaction. The
consummation of the transaction is subject to the approval of the Company's
shareholders and other customary conditions. The transaction is expected to
be completed prior to July 1, 2004.
9
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 February 01, 2004 and the results of operations for the three months
ended February 01, 2004 and January 26, 2003. 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
Owosso Corporation (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.
As of July 30, 2002, the Company had one operating subsidiary, Stature
Electric, Inc. ("Stature"), representing the Company's historical "Motors
segment." Stature's component products are sold throughout North America
and in Europe, primarily to original equipment manufacturers who use them
in their end products.
On February 10, 2004, the Company reached a definitive agreement with
Allied Motion Control Technologies, Inc. ("Allied") for the acquisition by
Allied of all the shares of the Company on the following terms: 0.068
shares of common stock of Allied for each share of common stock of the
Company, and a combination of 0.127 shares of Allied common stock, a
warrant to purchase 0.28 shares of Allied common stock and cash of $0.9333
for each share outstanding of the Company's Class A convertible preferred
stock. Based on the Company's 5,824,306 common shares and 1,071,428
preferred shares issued, the aggregate amount to common shareholders will
be approximately $1.75 million, and the aggregate amount to preferred
shareholders will be approximately $1.6 million. In addition, Allied has
agreed to repay and assume up to $10.6 million of the Company's outstanding
debt, and the Company's preferred shareholders may be entitled to Allied
subordinated promissory notes with an aggregate principal amount of up to
$500,000 based on the 2004 gross revenue of Stature. Accordingly, the
transaction has an aggregate value of approximately $14.0 million,
exclusive of any value attributable to the warrants and Allied notes. The
board of directors of each company has approved the transaction. The
consummation of the transaction is subject to the approval of the Company's
shareholders and other customary conditions. The transaction is expected to
be completed prior to July 1, 2004.
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. 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 bank
credit facility.
Throughout fiscal 2001, the Company remained out of compliance with
financial covenants, including maintenance of minimum operating profit,
under its bank credit facility. As a result, the Company and its lenders
entered into a series of amendments to the facility during fiscal 2001,
2002 and 2003, and in each case the Company's lenders agreed to forebear
from exercising their rights and remedies under the facility. In order to
meet the lenders' requirements for reduced outstanding balances and to
secure the lenders' agreement to forebear, the Company engaged in a series
10
of divestitures of its operating subsidiaries, concluding with the sale of
its Motor Products subsidiaries, Motor Products Owosso Corporation and
Motor Products Ohio Corporation in July of 2002. As disclosed under Note 4
"Long-term Debt," the amendments to the bank credit facility modified the
interest rates charged, called for reductions in the outstanding balance
during calendar 2001, 2002, and 2003, added additional reporting
requirements, suspended payments of principal and interest on subordinated
debt, prohibited the payment of preferred or common dividends, prohibited
the purchase of the Company's stock and added a covenant requiring the
maintenance of minimum operating profit. In December 2003 (fiscal 2004),
the Company entered into a further amendment to the facility, which
extended the maturity date to March 31, 2004.
During fiscal 2004, the Company intends to dispose of the real estate at
the Company's former Snowmax Corporation subsidiary. An entity controlled
by George B. Lemmon, Jr., the Company's President and CEO, has expressed
interest in purchasing such real estate, however no binding agreement has
been entered into and any such sale will be subject to the approval of the
Company's audit committee. Based on current negotiations, the Company
estimates proceeds of approximately $312,000 if successful in completing
the sale.
Management believes that, along with the sale of the real estate, available
cash and cash equivalents, cash flows from operations and available
borrowings under the Company's bank credit facility will be sufficient to
fund the Company's operating activities, investing activities and debt
maturities through March 2004. It is management's intent to refinance the
Company's bank credit facility prior to its maturity in March 2004.
However, there can be no assurance that management's plans will be
successfully executed.
Three months ended February 01, 2004 compared to three months ended January
26, 2003
Net sales. Net sales for the first quarter of 2004 decreased 1.7%, or
$79,000, to $4,522,000, as compared to net sales of $4,601,000 in the prior
year quarter. The current year quarter consisted of 14 weeks compared to 13
weeks in the prior year quarter.
Loss from operations. For the first quarter of 2004, the Company reported a
loss from operations of $365,000 as compared to a loss from operations of
$82,000 in the prior year first quarter. The results reflect an increase in
selling, general and administrative expenses of $256,000 from the prior
year quarter mostly due to the successful termination of the lease for the
Corporate office resulting in a one time charge of $227,000.
Interest expense. Interest expense was $165,000 in 2004 as compared to
$214,000 in 2003. Interest expense decreased primarily as a result of lower
interest rates and debt levels.
Income tax expense (benefit). The Company recorded an income tax benefit of
$128,000 in 2004 compared to $62,000 in the prior year quarter.
Net loss available for common shareholders. Net loss available for common
shareholders was $747,000, or $.13 per share, in the first quarter of 2004,
as compared to a net loss of $575,000, or $.10 per share, in the prior year
quarter. Loss available for common shareholders is calculated by
subtracting dividends on preferred stock of $345,000 and $341,000 for 2004
and 2003, respectively.
11
Liquidity and Capital Resources
Cash and cash equivalents were $258,000 at February 01, 2004. The Company
had negative working capital of $9.7 million at February 01, 2004, as
compared to negative working capital of $9.5 million at October 26, 2003.
Net cash used in operating activities was $175,000, as compared to net cash
provided by operating activities from of $147,000 in the prior year
quarter.
Cash flows used in investing activities included $29,000 for capital
expenditures for equipment. The Company currently plans to invest
approximately $200,000 during the remainder of fiscal 2004. Management
anticipates funding capital expenditures with cash from operations and
borrowings under the Company's revolving credit facility.
Net cash provided by financing activities from continuing operations
included net borrowings of $150,000 under the Company's revolving credit
agreement.
At February 01, 2004, $4,650,000 was outstanding under the Company's
revolving credit facility. On January 22, 1999, the Company entered into a
new bank 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 bank 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. The amendment to the bank credit facility,
which was further amended in February 2001, called for reductions in the
outstanding balance during calendar 2001 and modified the interest rates
charged. The amendment required additional collateral, effectively all 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 $2.1 million as of October
28, 2001. Furthermore, the amendment to the facility prohibits the payment
of preferred or common stock dividends and prohibited the purchase of the
Company's stock. Beginning in August 2001, the Company was out of
compliance with its minimum operating profit covenant. In February 2002,
the Company entered into a further amendment to the facility, which
extended the maturity date to December 31, 2002. That amendment called for
further reductions in the outstanding balance based on expected future
asset sales, increases the interest rate charged and requires minimum
EBITDA. In December 2002, the Company entered into a further amendment to
the facility, which extends the maturity date to December 31, 2003. This
amendment calls for further reductions in outstanding balance based on
expected future asset sales and cash flow generated from operations and
requires minimum EBITDA. In April 2003, the Company entered into a further
amendment to the facility, which amended the financial covenant. In
September 2003, the Company entered into a further amendment to the
facility, which waived a mandatory paydown. In December 2003, the Company
entered into a further amendment to the facility, which extended the
maturity date to March 31, 2004. Borrowings under the facility are charged
interest at the Prime Rate plus 2.75% (6.75% at February 01, 2004).
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
12
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 (including through the sale of assets held
available for sale) to meets its obligations on a timely basis.
o In July 2003, the Company's common stock was delisted from the NASDAQ
SmallCap Market and began trading on the NASD's Over-the-Counter
Bulletin Board ("OTCBB"). As a result, the price of the Company's
common stock may be subject to greater volatility and reduced
liquidity. In addition, among other challenges, the Company may have
difficulties in obtaining future financing.
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.
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.
13
o The Company has a substantial amount of floating rate debt. Increases
in short-term interest rates could be expected to increase the
Company's interest expense.
o The Company has divested all but one of its operating businesses over
the past four years. The Company remains responsible for certain third
party liabilities in connection with these transactions, including
product liabilities, environmental liabilities and taxes, and has
obligations to indemnify the buyers against certain matters arising out
of the transactions. Although the Company maintains general liability
insurance coverage, including coverage for errors and omissions, there
can be no assurance that such coverage will continue to be available on
reasonable terms or will be available in sufficient amounts to cover
one or more large claims, or that the insurer(s) will not disclaim
coverage as to any future claim. The successful assertion of one or
more large claims against the Company that are uninsured, exceed
available insurance coverage or result in changes to the Company's
insurance policies, including premium increases or the imposition of a
large deductible or co-insurance requirements, could adversely affect
the Company's business, results of operations and financial condition.
14
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company uses a bank 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.
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 bank credit facility, industrial
revenue bonds and term loans in effect at February 1, 2004. Fair values
included herein have been determined based upon rates currently available
to the Company for debt with similar terms and remaining maturities. Note 4
to the condensed consolidated financial statements should be read in
conjunction with the table below (dollar amounts in thousands).
Year of Maturity Fair Value
------------------------------------------------------------------ Total Due at
2004 2005 2006 2007 2008 Thereafter at Maturity 2/1/2004
------- ----- ----- ----- ----- ---------- ----------- ----------
Debt:
Fixed rate $ 1,656 $ 216 $ 93 $ 81 $ - $ - $ 2,046 $ 2,046
Average interest rate 9.0% 6.4% 5.0% 5.0%
Variable rate $ 5,250 $ 600 $ 600 $ 900 $ 900 $ 950 $ 9,200 $ 9,200
Average interest rate 6.1% 1.1% 1.1% 1.1% 1.1% 1.1%
ITEM 4. CONTROLS AND PROCEDURES
The Company carried out an evaluation, under the supervision and with the
participation of our management, including our Chief Executive Officer (the
principal executive officer, principal financial officer and principal
accounting officer), of the effectiveness of the design and operation of
our disclosure controls and procedures (as defined in Rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) as of the end of period covered by this Quarterly Report
on Form 10-Q (the "Evaluation Date"). Based on that evaluation, our Chief
Executive Officer concluded that, as of the Evaluation Date, our disclosure
controls and procedures are effective to ensure that information required
to be disclosed by us in our Exchange Act reports was recorded, processed,
summarized and reported within the applicable time periods. There have been
no changes in internal controls over financial reporting identified in
connection with the foregoing evaluation that occurred during the Company's
last fiscal quarter that has materially affected, or is reasonably likely
to materially affect, the Company's internal control over financial
reporting.
15
Part II. OTHER INFORMATION
Item 3. Defaults Upon Senior Securities
(b) 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
$4,379,000.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No. Description
11 Computation of Per Share Loss
31 Certification of Chief Executive Officer (principal executive
officer, principal financial officer and principal accounting
officer) pursuant to Section 302 of the Sarbanes Oxley Act of
2002.
32 Certification of Chief Executive Officer (the principal executive
officer, principal financial officer and principal account
officer) pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes Oxley Act of 2002.
(b) Form 8-K
No reports on Form 8-K were filed during the quarter ended February 01, 2004.
16
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
OWOSSO CORPORATION
Date: March 17, 2004 By: /s/ George B. Lemmon, Jr.
-------------------------
President and Chief Executive
Officer (principal executive
officer, principal financial
officer and principal
accounting officer) and
chairman
17
EXHIBIT INDEX
Exhibit No. Description
11 Computation of Per Share Earnings
31 Certification of Chief Executive Officer (principal executive
officer, principal financial officer and principal accounting
officer) pursuant to Section 302 of the Sarbanes Oxley Act of
2002.
32 Certification of Chief Executive Officer (the principal executive
officer, principal financial officer and principal account
officer) pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes Oxley Act of 2002.
18