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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended October 27, 1996
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition 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
incorporation or organization) Identification No.)
The Triad Building, 2200 Renaissance Boulevard, 19406
Suite 150, King of Prussia, PA (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (610) 275-4500
Securities registered pursuant to Section 12(b) of the Act:
None
Name of each exchange on which registered
Title of Class
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
Title of Class
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No __
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. |_|
On January 23, 1997, the aggregate market value of the Registrant's
Common Stock, $.01 par value, held by nonaffiliates of the Registrant was
approximately $14,690,909.
On January 23, 1997, 5,808,676 shares of the Registrant's Common Stock,
$.01 par value, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement to be filed with the
Commission in connection with the Annual Meeting of Shareholders scheduled to be
held on March 12, 1997 are incorporated by reference into Part III of this Form
10-K.
PART I
Item 1. Business
Overview
Owosso Corporation is a diversified manufacturer which currently
operates in two business segments, Engineered Component Products and Specialized
Equipment. By operating in narrowly defined niche markets, the Company seeks to
combine revenue growth, through market penetration and new product development,
with consistently high profit margins. The Company has also grown historically
by acquiring businesses, and acquisitions remain a key element of the Company's
growth strategy. The Company currently has manufacturing facilities in nine
states and sells its products nationwide.
The Company was incorporated in Pennsylvania in March 1994 and is a
holding company for multiple operating companies, five of which became its
wholly-owned subsidiaries in a reorganization (the "Reorganization") which took
place effective October 30, 1994 in connection with the Company's initial public
offering of Common Stock (the "Offering"). The business units currently
operating in the Company's Engineered Component Products segment are Motor
Products - Owosso Corporation, acquired in 1973 ("Motor Products"); Motor
Products - Ohio Corporation ("MP-Ohio"), incorporated in 1995; Cramer Company,
acquired in 1984 and expanded through the acquisition of additional product
lines in 1986 ("Cramer"); Snowmax Incorporated, acquired from a subsidiary of
Brynavon Group, Inc. ("Brynavon Group") in 1989 ("Snowmax"); The Landover
Company, doing business as Dura-Bond Bearing Company, acquired in 1987
("Dura-Bond"), including the operations of Snyder Industries, Inc. ("Snyder"),
acquired in August 1996; and Stature Electric, Inc., acquired in October 1995
("Stature"). The business units operating in the Company's Specialized Equipment
segment are DewEze Manufacturing, Inc., acquired in 1991 ("DewEze"), which
includes the operations formerly conducted by Parker Industries ("Parker"),
which was acquired in 1985; Sooner Trailer Manufacturing Co. ("Sooner"),
acquired in 1994 following the Reorganization; and Great Bend Manufacturing,
Inc. ("Great Bend"), acquired in May 1995. Other than Dura-Bond, which was
controlled by an independent Board of Directors, all of the Company's businesses
which were acquired prior to the Reorganization were operated from the time of
their acquisitions until the Reorganization under the management of Brynavon
Group, a corporation controlled by certain members of the Company's Board of
Directors.
Strategy
The Company's objective is to maximize operating results by combining
revenue growth with consistently high profit margins. Components of the
Company's strategy include the following:
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Focus on Niche Markets. Each of the Company's business units competes
in relatively narrowly defined markets in which the Company seeks substantial
market share. The Company endeavors to maintain and expand its market positions
by offering comprehensive product engineering and design services, manufacturing
products that consistently meet demanding customer specifications and providing
production flexibility to satisfy changing customer manufacturing schedules.
Enhance Internal Growth Through Acquisitions. The Company continually
seeks to enhance its internal growth by acquisitions of additional businesses
and products. The objectives of such acquisitions include increasing the market
penetration of the Company's existing businesses and expanding the Company's
operations into additional niche markets.
Reduce Technological and Market Risk. The Company's strategy focuses on
manufacturing businesses with established technologies, rather than businesses
in rapidly changing technologies, and therefore seeks to reduce the risk to its
businesses of technological obsolescence. The Company's businesses generally
require substantial initial capital expenditures for required tooling and
equipment, which make entry by potential competitors more difficult. The
Company's development activities are focused on designing products for
customer-driven applications rather than developing new products with uncertain
market prospects.
Leverage Management Functions. The Company's business units are managed
on a decentralized basis, allowing operating management to concentrate on
producing and delivering competitive products and to respond quickly to market
conditions. Corporate level management coordinates strategic direction, oversees
implementation of the Company's business plans with operating management and
regularly monitors continuous operating improvement. Cash management, risk
management, management information systems, certain employee benefits and other
services are consolidated at the corporate level, allowing the Company to gain
purchasing leverage and realize operating efficiencies.
Products
Engineered Component Products
The Company's Engineered Component Products business is conducted
through its Stature, Motor Products, MP-Ohio, Cramer, Snowmax and Dura-Bond
subsidiaries, which manufacture and sell motors and timers, heat transfer coils,
and replacement camshaft bearings. These products are sold primarily to original
equipment manufacturers, which incorporate these components into their end
products, with the exception of the Company's replacement camshaft bearings,
which are sold to engine rebuilders through distributors. Products sold by the
motors and timers and heat transfer coils units are used principally in the
non-automotive transportation, heating, air conditioning and refrigeration,
general industrial, construction, health care, commercial appliance, business
equipment, and marine markets. Products sold by the camshaft
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bearings unit are used exclusively in the automotive aftermarket. The Company
seeks to expand its Engineered Component Products segment by increasing sales to
customers who value the Company's quality and service, by introducing new
products in its existing markets and by expanding into new markets where its
existing products can successfully be adapted.
Motors and Timers. The Company designs and manufactures subfractional
horsepower AC and DC motors (less than 1/10 horsepower), fractional horsepower
permanent magnet DC motors (between 1/10 and 1 horsepower), integral horsepower
DC motors (1 horsepower or more), electromechanical timers (which incorporate
the Company's subfractional horsepower motors) and delay mechanisms. The devices
are used in trucks, buses and vans, power tools, welding equipment, motorized
wheelchairs, appliances, business equipment, heating and air conditioning
systems, pumps and other mechanical devices. Fractional and integral horsepower
motors are targeted primarily to original equipment manufacturers with small to
medium-sized production runs (i.e. up to 100,000 units per year), which is the
level at which the Company believes it has certain competitive advantages, such
as production flexibility, over larger competitors. Stature, acquired at the end
of the fiscal 1995, manufactures the Company's integral horsepower motors and
some of the Company's fractional horsepower motors.
The Company's experienced engineering staff designs new products and
adapts existing motors and timers to meet relatively stringent size, performance
and quality standards of customers. The Company utilizes computer aided design
systems to facilitate fast turnaround on custom engineered prototypes, in some
cases as quickly as 48 hours after a customer details its specific needs to the
Company. In October 1996 the Company acquired Koepke & Associates, Inc., a
manufacturers representative firm located in Northfield, Illinois to act as the
sales and marketing organization for Motor Products, MP-Ohio and Stature. Koepke
& Associates was renamed Owosso Motor Group, Inc. upon the acquisition.
Heat Transfer Coils. The Company designs and manufactures fin and tube
heat transfer coils. The Company's heat transfer coils are used in a variety of
heating and cooling applications, including commercial and residential heating
and air conditioning, truck, bus and van heating and air conditioning and
commercial refrigeration. The Company's engineering staff continually designs
variations of the Company's standard coils to meet particular customer
requirements and applications. In addition to offering value-added services, the
Company invests in capital improvements needed to develop and manufacture
additional varieties of fin and tube coil products.
Through fiscal 1996, the Company also designed and manufactured
evaporator coils, which include a standard fin and tube coil together with other
components, and which cool the air in commercial and residential heating and air
conditioning systems. Early in fiscal 1997, the Company entered into a licensing
and lease agreement with a company formed by one of its former employees to
manufacture evaporator coils in a now-vacant facility owned by the Company. The
Company will sell fin and tube coils to this company which will add the other
components and sell the evaporator coils. In addition to selling coils to this
new company, the
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Company will receive lease payments and a royalty fee. Sales of evaporator coils
were approximately $1.8 million in fiscal 1996.
Camshaft Bearings. The Company's principal camshaft bearings products
are replacement camshaft bearings for internal combustion gasoline engines in
automobiles, trucks and farming equipment. Replacement camshaft bearings are an
integral component used in rebuilding cast iron engines. The Company believes it
is the leading supplier of single piece all-round replacement camshaft bearings
for cast iron engines, which the Company manufactures by using a specialized
babbitting process to coat a steel tube with a lead based alloy and then
machining the tube to the precise tolerances required for a specific
application. In fiscal 1994, 1995 and 1996, the Company sold replacement
camshaft bearings suitable for use in rebuilding approximately 2,400,000,
2,300,000 and 1,900,000 cast iron engines, respectively. In fiscal 1996, the
Company added a line of valve seats and shims to this product line through its
acquisition of Snyder Industries.
Specialized Equipment
The Company's Specialized Equipment business is conducted through its
DewEze, Sooner and Great Bend subsidiaries. Products currently offered include
flatbed hay bale handlers and processing equipment and hydraulic power systems
marketed under the DewEze brand name, commercial mowers marketed through a
distributor, grain wagons, auger carts, weigh wagons and related agricultural
equipment marketed under the Parker brand name, all-aluminum horse, livestock
and other specialty trailers marketed under the Sooner trade name and front-end
loaders (designed to be attached to tractors) marketed under the Great Bend
trade name. The Company's expansion plans for its specialized equipment segment
involve the identification of specific agricultural and transportation market
needs and the design and manufacture of specialized equipment to satisfy those
needs.
Bale Handling and Processing Equipment. The Company believes that it is
the leading supplier of flatbed hay bale handlers in the U.S. agricultural
equipment market, and the Company knows of only two other U.S. manufacturers of
flatbed bale handlers. The patented DewEze flatbed lift, which is installed on a
pick-up truck chassis, hydraulically lifts two large round bales weighing up to
2,500 pounds each onto the bed of the pick-up truck, providing a fast and safe
method of transporting multiple bales of hay over large acreage. In addition to
being used on the Company's own flatbed products, the Company's hydraulic power
systems are also sold for use on tow trucks, cherry pickers and other utility
vehicles.
The Company's bale processors are used to process hay for livestock
feeding and operate by slicing the bale, whereas competitors' bale processors
grind the bale. The Company believes that slicing is the preferred method of
processing hay, as it improves digestion and results in increased milk
production in dairy cows, increased weight of beef cattle and decreased feed
costs and waste.
-5-
Commercial Turf Maintenance Equipment. The Company believes that it is
the leading supplier of commercial mowers designed specifically for use on
sloped surfaces in the U.S. market. The Company's patented hydraulic lawn mowers
are designed so that the power unit and driver's seat remain vertical, even
while mowing along the side of terrain with up to a 30(0) slope. This design
provides a higher degree of driver safety and comfort on sloped surfaces than is
currently available on conventional riding mowers. In addition, two mowing decks
allow the operator to mow culverts and ridges more efficiently than other mowing
methods.
Grain Handling Equipment. The Company's grain handling equipment,
including grain wagons, auger carts and weigh wagons, is sold under the Parker
trade name and is used primarily by large corn, soybean and wheat farmers and
seed companies. The Company's grain wagons and auger carts are typically used by
farmers to transport grain, while weigh wagons are typically used by seed
companies to monitor harvest yields.
Trailers. The Company manufactures and distributes all-aluminum horse
and livestock trailers, as well as all-aluminum trailers for carrying
automobiles, boats and general cargo, all under the Sooner brand name. Sooner
trailers are the official trailers of the American Quarter Horse Association.
Over three-fourths of the trailers sold by Sooner in fiscal 1996 were horse
trailers, and the Company expects horse trailers to continue to be Sooner's
primary product.
The Company's trailers range from a two-horse bumper hitch trailer to
multi-horse and multi-automobile goose neck trailers complete with living
quarters, and range in price from approximately $8,000 to over $70,000. Although
trailers have traditionally been made of steel, which is less expensive than
aluminum, Sooner has been successful in marketing its all-aluminum trailers
because of several advantages of aluminum construction. These advantages include
long life and low maintenance due to the corrosion resistance of aluminum
compared to steel, and the light weight and superior weight-to-load ratio of
aluminum compared to steel.
The Company intends to expand Sooner's operations by broadening its
geographic coverage through the expansion of its dealer network and by adding
new models to existing and new product lines in order to address new markets,
such as boat trailers and large livestock trailers.
Front-End Loaders. The Company manufactures and distributes front-end
loaders which are designed to be attached to tractors ranging in size from 20 to
180 horsepower. The Company designs mounting brackets to allow the loader to be
attached to over 800 different tractor models. Through its Hot Shot(TM) program,
most models of Great Bend loaders are able to be delivered to a customer within
four days of receipt of the customer's order. The front-end loaders are marketed
under the Great Bend brand name to end users through independent dealers as well
as to tractor manufacturers which incorporate the front-end loaders into their
tractors.
-6-
Manufacturing
The Company's manufacturing operations are conducted independently in
separate facilities by each of the Company's business units. The Company
regularly invests in improvements to its manufacturing facilities. While the
Company believes that its manufacturing operations, in general, have adequate
capacity and flexibility to meet current and anticipated demand for its
products, the Company may from time to time acquire new facilities or increase
the size of its existing facilities in order to accommodate the growth of the
Company's business. Throughout its operations, the Company has installed
inventory and production control systems to optimize inventory levels and
provide production flexibility and better material flow, all of which has
resulted in reduced production costs. Additional cost and production flexibility
advantages are derived from the Company's quick change tooling and computer
numerical control ("CNC") equipment, which facilitate reduced production
changeover and equipment set-up time.
The manufacturing operations of the Company's Engineered Component
Products segment are highly integrated, permitting almost all component parts to
be produced by the Company when needed. This vertical integration, together with
the Company's CNC equipment and quick change tooling, results in lower
production costs, higher product quality and greater manufacturing flexibility,
and minimizes a business' reliance on outside suppliers for component parts.
Managing for quality assurance is an integral part of the Company's strategy for
continuous operating improvement. All of the Company's production operations
other than Sooner use computer aided design systems. The Company intends to
introduce computer aided design systems in Sooner's operations.
The Company obtains raw materials, component parts and supplies from a
variety of sources, generally from more than one supplier. In certain cases
where it has an impact on improving quality control or cost control, the Company
obtains raw materials and component parts from sole source suppliers. The
Company believes that there are other available sources which the Company could
utilize if necessary. The Company's suppliers are predominantly based in the
United States, although certain materials are obtained from foreign countries.
The Company believes that its sources of raw materials are adequate for its
needs.
Marketing
Engineered Component Products
The Company's replacement camshaft bearings are marketed primarily to a
limited number of large brand name distributors, and to a lesser extent to
engine rebuilders, the end users of the Company's bearings. The Company's other
engineered component products are marketed directly to original equipment
manufacturers and distributors by Company salespersons and independent sales
representatives. While sales are targeted primarily to customers in North
America, the Company intends to expand its international sales, particularly in
its motor
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businesses. In October 1996 the Company acquired Koepke & Associates, Inc., a
manufacturers' representative firm located in Northfield, Illinois to act as the
sales and marketing organization for Motor Products, MP-Ohio and Stature. Koepke
& Associates was renamed Owosso Motor Group, Inc. upon the acquisition.
Specialized Equipment
The Company's specialized equipment is marketed by Company salespersons
and independent manufacturers' representatives, selling primarily to independent
dealers, which resell the equipment to end users. End users of the Company's
bale handling and processing equipment and grain handling equipment are
typically diversified farmers and ranchers. The Company's all-terrain mowing
equipment is sold through a distributor, Gravely International, primarily to
state and local municipalities, airports, schools, hospitals and cemeteries.
Garages, tow truck operations and specialty vehicle manufacturers are among the
principal end users of the Company's hydraulic power systems. In order to
increase inventory availability of Parker grain handling equipment in dealers'
showrooms, the Company offers extended payment plans to dealers, allowing them
to defer payment until mid-October following the purchase date. This coincides
with the fall harvest season when most farmers purchase these products. Sooner's
trailers are also sold to dealers and are resold primarily to horse owners,
farmers, ranchers, breeders and trainers, and car trailers are resold primarily
to race and stock car owners. Sooner and DewEze have arrangements with a number
of financial institutions to provide floor plan financing for its dealers, which
require them to repurchase repossessed products from the financial institutions
in the event of a default by the financed dealer. Great Bend sells its front-end
loaders primarily to farmers and ranchers through its dealer network, and to a
lesser extent to tractor manufacturers which incorporate the front-end loaders
into their tractors.
Competition
Engineered Component Products
The Company competes with numerous competitors in the motors and timers
business, some of which have greater financial, technical and marketing
resources than the Company. Competition is based on design and application
engineering capabilities and product reliability and quality, as well as price.
The Company seeks customers who need medium-sized production runs and have
higher service requirements, and believes that this strategy enables it to
compete effectively against its larger competitors, which typically have
production systems that are geared toward longer, high volume production runs.
The Company faces competition in the heat transfer coils business from
two companies with significantly greater resources than the Company, as well as
from several smaller competitors. The Company believes that its heat transfer
coils unit has the production capabilities necessary to manufacture essentially
the same products as larger suppliers of heat transfer coils competing in the
Company's markets. The Company believes that these
-8-
capabilities, together with the responsiveness of the Company's value-added
engineering and design services and production flexibility, provide its heat
transfer coils business with a competitive advantage over these larger
competitors.
Dura-Bond, the Company's replacement camshaft bearings unit, faces
competition principally from manufacturers of laser-stitched bearings (bearings
which are welded into a round configuration), which the Company believes are
less durable than the Company's bearings. In early fiscal 1996, one of
Dura-Bond's significant customers indicated that it would commence production
of its own laser-stitched bearings in 1996 instead of purchasing the Company's
single piece all-round bearings, which reduced Dura-Bond's net sales in fiscal
1996 by approximately $2.1 million. The Company believes that reduced sales to
Federal-Mogul will continue to have an adverse impact on Dura-Bond's results of
operations, at least in the short term. The Company also faces competition in
the all-round replacement camshaft bearings market from one foreign competitor
with a lower production capacity than the Company and limited U.S. sales. The
Company competes favorably against that competitor based on the Company's
reputation for product quality.
Specialized Equipment
In the Specialized Equipment segment, the Company competes against
several competitors with respect to each of its product lines. In certain of the
product lines, such as the flatbed bale handlers and the grain handling
equipment, the Company's brand name recognition and reputation for high quality
and durability outweigh the need to be the low cost provider. In the slope mower
market, the Company competes based primarily on the unique patented design and
features of its mower products. Sooner competes primarily based on product
quality, durability, weight and brand name recognition. Great Bend competes
primarily based on rapid order delivery, product quality, its ability to fit
loaders to a wide variety of tractors, as well as price. For other product
lines, competition is based on product features, quality, durability and
reputation, as well as price.
Backlog
The Company's backlog of unfilled orders as of December 24, 1995 and
December 22, 1996 was as follows:
December 24, December 22,
1995(1) 1996
------------ ------------
(In thousands)
Engineered Component Products $23,982 $28,300
Specialized Equipment 9,476 10,724
Total $33,458 $39,024
- ---------------
(1) Backlog at December 24, 1995 at Stature has been restated to bring it
in conformity with the December 22, 1996 presentation.
-9-
The Company expects to fill substantially all of the December 22, 1996 backlog
by the end of fiscal 1997.
Patents and Trademarks
The Company owns a number of United States patents and foreign patents
relating to its Specialized Equipment businesses. The Company's material U.S.
patents expire at various dates between 2000 and 2009. The Company's products
are marketed under various trade names, including DewEze, Parker, Sooner,
Dura-Bond, Cramer and Great Bend. While the Company believes that its patents
provide certain competitive advantages in its Specialized Equipment businesses,
the Company does not consider any one patent or trademark or any group thereof
essential to its business as a whole, or to any of its business segments. The
Company relies, to a certain extent, on specialized product knowledge and
manufacturing processes in its operations, such as the babbitting procedure used
in manufacturing replacement camshaft bearings. The Company is not aware of any
pending claims of infringement or other challenges to the Company's rights to
use its marks in the United States as currently used by the Company.
The Company has received notification from the owner of two design
patents that certain trailers with a V-nose configuration manufactured by Sooner
may infringe such patents. The Company believes that it has substantial defenses
to the claim of infringement, including the invalidity of the patents because of
prior art, and the Company intends to continue to manufacture such trailers. If
it were determined that such patents are valid and were infringed, the Company
could be required to stop making the infringing trailers and to pay damages to
the patent holder. The Company does not believe that such an outcome would have
a material effect on the Company or its financial position or results of
operations.
Employees
As of December 22, 1996, the Company had 1,228 hourly and 216 salaried
employees, of which 117 employees at its Owosso, Michigan facility are
represented by a labor union, the International Union, United Automobile,
Aerospace and Agricultural Implement Workers of America, Local 743, under a
four-year collective bargaining agreement which expires in fiscal 1997. The
Company believes that its relationship with its employees is good.
The Company's executive officers provide strategic direction and
emphasize and monitor continuous operating improvement, allowing operating
management to concentrate on producing and delivering competitive products and
to respond quickly to market conditions. The day-to-day management of each
business is supervised by a subsidiary president and, in appropriate
circumstances, the Company's executive officers also provide hands-on operating
management and advice.
-10-
William Rohm has been the president of Motor Products, which produces
fractional horsepower motors for the Company, since November 1986. Before
joining Motor Products, he served as the Vice President of Marketing and Sales
at Barber Coleman's Small Motor Company Division, a competing motor
manufacturer, from 1984 to 1986. He served as President of RAE Corporation, a
competing motor manufacturer, from 1976 to 1984. Prior to that, he served in
various sales and sales management positions with Reliance Electric, which
manufactures motors, drives and controls.
James Pogmore has been the president of Cramer, which produces the
Company's subfractional horsepower motors and timers, since 1989. From 1982 to
1989, he served as the President of Measurement Systems, Inc., a manufacturer of
components for consumer and military products, becoming Chief Executive Officer
in 1985.
Randall James has been the president of Stature, which produces
fractional and integral horsepower motors for the Company, since Stature's
acquisition by the Company in October 1995. Prior to the acquisition, Mr. James
was Vice President and Director of Product Engineering of Stature, and Mr. James
served as an officer and was a principal stockholder of Stature since he
co-founded Stature in 1974. In connection with the Company's acquisition of
Stature, Mr. James entered into an employment agreement with Stature which
expires in October 1998.
Charles Barnett has been the president of Dura-Bond, where the
Company's replacement camshaft bearings are manufactured, since January 1995.
Prior to joining the Company, Mr. Barnett served as General Sales and Marketing
Manager for Red Dot Corporation, a manufacturer of custom heating and air
conditioning units for the transportation industry, since 1992. Prior to that,
he was the General Sales Manager at Paccar Parts from 1989 to 1992. Mr. Barnett
began his career with the AC-Delco Parts Division of General Motors in 1971,
where he rose to Regional Sales Manager before moving to Paccar.
Gerry Averett has been president of Snowmax since October 1995. Prior
to that, Mr. Averett was the General Manager of Snowmax since June 1993. From
January 1992 until he joined the Company, Mr. Averett was the President and
owner of a metal fabrication business. From January 1990 to January 1992, he
served as General Manager of a division of Aspen Coils which manufactured
evaporator coils. Prior to that, Mr. Averett held various sales management and
production management positions within the heating, ventilation and air
conditioning industry.
Timothy Penner has been the president of DewEze, which manufactures the
Company's bale processing and handling equipment, grain handling equipment and
turf maintenance equipment, since April 1996. Before returning to DewEze, where
he had held various managerial positions from 1991, Mr. Penner was President of
Parker Industries from January 1994. From 1981 to 1991 Mr. Penner held various
management positions at MCC International, an international development company.
-11-
John Annin joined the Company as president of the Parker Industries
division of DewEze in April 1996. Prior to joining Parker, Mr. Annin had served
as president of Herschel Corp., a manufacturer of replacement parts for
agricultural equipment from 1991 until 1995. Before Herschel, Mr. Annin held
various managerial positions at Farmhand, Inc., a manufacturer of agricultural
equipment, rising to executive vice president and chief operating officer.
Max Bennett has been the president of Sooner Trailer, which
manufactures the Company's aluminum trailers, since September 1996, when he
moved to Sooner from his position as president of Great Bend. Mr. Bennett had
held that position since 1988, and remained in that position since the
acquisition of Great Bend by the Company in May 1995. Prior to the acquisition
of Great Bend by the Company, Mr. Bennett was an officer and principal
stockholder of Great Bend. Mr. Bennett is scheduled to retire from Sooner in
April 1997 when he will become a consultant to the Company.
James Callaway is executive vice president of Sooner and is scheduled
to succeed Mr. Bennett as president upon his leaving in April 1997. Mr. Callaway
joined Sooner in January 1997, having been president of Quincy Design and
Manufacturing Company of Quincy, Illinois until that company's recent
acquisition. Before joining Quincy in 1992, Mr. Callaway was director of sales
and interim president of Hesston Corporation of Hesston, Kansas for whom he had
worked in various management positions since 1972.
Stephen Hughbanks has served as president of Great Bend Manufacturing,
which manufactures the Company's front-end loaders, since October 1996. Before
joining Great Bend, Mr. Hughbanks was plant manager of the automotive division
of Avery Dennison Corporation, a QS/ISO 9000 automotive supplier, where he had
worked since 1989. Prior to his work at Avery Dennison, Mr. Hughbanks was plant
manager for Coleman Company's heating and air conditioning division.
Environmental and Safety Regulation
The Company is subject to federal, state and local environmental
regulation with respect to its operations. The Company believes that it is
operating in substantial compliance with applicable environmental regulations.
The Company's manufacturing operations involve the storage, use,
handling and disposal of various hazardous substances and wastes. Under various
federal, state and local environmental laws, ordinances and regulations, a
current or previous owner of real property may be liable for the costs of
removal or remediation of certain hazardous or toxic substances on, in, under or
discharged from such property. The operation and subsequent removal of
underground storage tanks, which are or were located on several of the Company's
properties, are also regulated by federal, state and local environmental laws,
ordinances and regulations. The Company is also subject to the federal
Occupational Safety and Health Act and similar state statutes.
-12-
At the Company's Old Saybrook, Connecticut facility, the Company is
engaged in the closure of waste handling facilities in accordance with state
regulations. Based upon the Company's assessment of the scope of construction
necessary to satisfy regulatory requirements, required testing and remediation
is expected to cost no more than $100,000, although no assurance can be made in
this regard.
The lessor of the Company's Old Saybrook, Connecticut facility has
notified the Company that it may assert a claim against the Company relating to
potential contamination at a lagoon formerly owned by the Company and now owned
by the lessor. The property containing the lagoon is nearby the Company's
facility but is not leased or occupied by the Company. The lessor is engaged in
negotiations with the State of Connecticut regarding additional investigative or
remedial measures which may be imposed. The Company may be required to bear a
portion of the costs of the lessor's investigative or remedial measures and may
be required to become directly involved in responding to remediation
requirements. Based on the claims of the lessor and the remediation cost
estimates of the lessor, the aggregate costs which may be incurred by the
Company in connection with the remediation of the lagoon are expected to amount
to less than $250,000. The Company has also been notified by the Connecticut
Department of Environmental Protection ("CDEP") that enforcement action may be
taken against the Company with respect to this lagoon. Based on settlement
negotiations currently being conducted, the Company expects to settle the matter
with CDEP without litigation for approximately $25,000. The settlement would
require the Company to undertake environmental investigations and, if warranted,
remediation at the Old Saybrook, Connecticut facility.
The Company is named as a potentially responsible party ("PRP") with
respect to two hazardous substance disposal sites being cleaned up by the U.S.
Environmental Protection Agency under its "Superfund" program. Under applicable
laws, a PRP can be held jointly and severally liable for any investigation and
remediation costs incurred with respect to such sites and thus may be faced with
a liability that is greater than the proportion of waste it contributes to the
site. With respect to one of the sites, based on the minimal amount of waste
alleged to have been contributed to the site by the Company, the Company expects
to resolve the matter through the payment of a de minimis amount. With respect
to the other site, the Company has only recently received the complaint in the
matter and as a result, the Company does not have sufficient information to
estimate the Company's potential financial exposure, if any, in the matter.
In December 1990, the Company was issued a non-binding request for
certain investigative and remediation measures regarding soil and groundwater by
the California Regional Water Quality Control Board relating to a facility
formerly operated by the Company. Since the issuance of the request, the State
has taken no further action against the Company and has not taken steps to
convert the request into an enforceable order. In the event the State were to
seek further remediation at the site, the Company may face claims from the State
in the form of an administrative order or claims for contribution from the
Company's former lessor at the site. Although the Company believes that it has
substantial defenses, there can be no assurance that the Company will not
eventually be required to conduct or pay for additional investigative and
-13-
remediation activities at the site or the surrounding area.
Current historic manufacturing and other operations at the Company's
various facilities may result and may have resulted in the discharge and release
of hazardous substances and wastes from time to time. The Company routinely
responds to such incidents as deemed appropriate pursuant to applicable federal,
state and local environmental regulations.
The Company does not expect the outcome of any of the foregoing
environmental matters or any potential removal or remediation costs to be
material to the Company or to its financial position or results of operations.
Product Liability Insurance
The Company currently maintains product liability insurance coverage of
$1.0 million per occurrence and $2.0 million in aggregate annual coverage, and
an umbrella policy for an additional $15.0 million of blanket liability
protection per occurrence. There can be no assurance that such insurance will be
sufficient to cover potential product liability claims or that the Company will
be able to maintain such insurance or obtain product liability insurance in the
future at a reasonable cost.
Executive Officers of the Company
The executive officers of the Company are:
Name Age Position
- --------- ----- ----------
George B. Lemmon, Sr................ 64 Chairman of the Board
George B. Lemmon, Jr................ 35 President, Chief Executive Officer, and
Director
Harry Holiday, III ................. 40 Executive Vice President and Chief
Operating Officer
John H. Wert, Jr. .................. 36 Senior Vice President - Finance, Chief
Financial Officer, Treasurer and Secretary
Brian D. Tidwell ................... 35 Vice President of Operations
George B. Lemmon, Sr. is one of the Company's founders and is the
Chairman of the Board of Directors of the Company. Until August 1995, Mr. Lemmon
also served as the
-14-
Company's Chief Executive Officer. Until the Reorganization, he served as a
senior executive officer and a director of each of the Company's business units
since their acquisition by Brynavon Group or its affiliates. Prior to his
affiliation with Brynavon Group and the Company, from 1969 to 1975, Mr. Lemmon
performed corporate finance services for Wood, Struthers & Winthrop, a New York
investment bank which was subsequently acquired by Donaldson, Lufkin & Jenrette.
Mr. Lemmon is the father of George B. Lemmon, Jr., the Company's President and
Chief Executive Officer.
George B. Lemmon, Jr. became President of the Company in May 1996, and
he has served as Chief Executive Officer of the Company since August 1995 and as
a director of the Company since March 1994. Mr. Lemmon was also the Company's
Secretary and Treasurer from March 1994 until June 1996. From January 1995 to
August 1995, Mr. Lemmon served as Executive Vice President - Corporate
Development. From March 1994 until January 1995, Mr. Lemmon was the Company's
Executive Vice President and Chief Financial Officer. Mr. Lemmon served as Chief
Financial Officer of Brynavon Group from 1990 to October 1994. He had held
various managerial and sales positions with Brynavon Group since 1983.
Harry Holiday, III joined the Company as its Executive Vice President
and Chief Operating Officer in November 1996. Before joining the Company, Mr.
Holiday served as vice president of operations at two subsidiaries of Emerson
Electric Co. where he had worked since 1992. His most recent position was at
Emerson's E.L. Wiegand subsidiary, a manufacturer of electric heating elements,
capital equipment and controls with annual revenues of approximately $120
million. Prior to his positions at Emerson, Mr. Holiday served in various
managerial and engineering capacities at General Electric where he had worked
since 1982.
John H. Wert, Jr. has served as Senior Vice President - Finance of the
Company since March 1994, and Mr. Wert became the Company's Chief Financial
Officer in January 1995 and Secretary and Treasurer in June 1996. Mr. Wert
joined the Company from NBD Bank, N.A., where he had been Vice President in the
Michigan Banking Division since 1988. From 1988 to 1992, Mr. Wert was NBD Bank's
relationship manager for Brynavon Group and its affiliates, including the
Company's business units. From 1982 to 1988, Mr. Wert was a banker at J.P.
Morgan & Company, becoming a Vice President in 1988.
Brian D. Tidwell has served as the Company's Vice President of
Operations since June 1996. Mr. Tidwell has worked for the Company since 1987 in
various managerial and technical capacities, including director of operations
analysis and director of management information systems. In addition to his
responsibilities on the corporate level, Mr. Tidwell has also been actively
involved in the management of certain of the Company's operating businesses from
time to time.
-15-
Item 2. Properties
The Company maintains manufacturing facilities with approximately
753,000 square feet in nine states. The following table sets forth information
relating to the Company's manufacturing facilities. Unless otherwise indicated,
the Company owns these manufacturing facilities.
Total Square Manufacturing
Business Segment Location Footage Square Footage
- ---------------- --------- ------------- ---------------
Engineered Component
Products Owosso, Michigan 86,900 67,400
Watertown, New York (1) 82,000 77,800
Old Saybrook, Connecticut (2) 79,400(3) 32,100
Barberton, Ohio (4) 29,700 27,400
Carson City, Nevada (5) 75,100 59,600
Kilgore, Texas (6) 90,000 86,600
Northfield, Illinois (7) 2,046 0
Specialized Equipment Harper, Kansas (8) 51,700 44,500
Jefferson, Iowa 58,450 48,750
Duncan, Oklahoma (9) 122,000 112,300
Great Bend, Kansas (10) 76,300 68,300
- -----------
(1) This facility is subject to a mortgage which secures a $1.8 million
industrial revenue bond financing.
(2) The lease for this facility expires in 1999 and provides for annual
rental payments currently in the amount of $480,000, with future rental
increases based on increases in the cost of living index.
(3) Not including 38,200 square feet subleased to unaffiliated third
parties.
(4) The lease for this facility expires in 2000 and provides for annual
rental payments currently in the amount of $79,000, with future rental
increases at specific rates set forth in the lease, increasing to
$88,000 by the year 2000.
(5) This facility is subject to a mortgage which secures a $5.0 million
industrial revenue bond financing.
(6) This facility is subject to a $634,000 mortgage.
(7) The lease for this facility expires in 1999 and provides for annual
rental payments currently in the amount of $27,000, with future rental
increases at specific rates set forth in the lease, increasing to
$29,000 by the year 1999.
(8) This lease for this facility expires in 2003 upon the payment in full
of a $1.1 million industrial revenue bond financing, at which time the
fee interest in the facility will be transferred to the Company.
-16-
(9) This facility is subject to a $874,000 mortgage.
(10) This facility is subject to a mortgage which secures a $1.0 million
industrial revenue bond financing.
The Company leases its principal offices, located in King of Prussia,
Pennsylvania, which consist of approximately 12,715 square feet of office space.
The lease, which expires in September 2006, requires annual rental payments of
approximately $186,020 plus taxes and certain other charges, with future rental
increases at specific rates set forth in the lease, increasing to $305,000 by
October 1999 through 2006. The Company believes that its machinery, plants and
offices are in satisfactory operating condition and are adequate for the
Company's current needs.
Item 3. Legal Proceedings
Other that as discussed under "Environmental and Safety Regulations" in
Item 1, the Company is not a party to any material legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
-17-
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
The Company consummated its initial public offering of common stock on
October 25, 1994, and its common stock is traded on the Nasdaq National Market
under the symbol "OWOS."
The following table sets forth, for the fiscal quarters indicated, the
high and low sales prices per share for the Company's common stock, as reported
on the Nasdaq National Market:
Fiscal 1996 High Low
----------- ---- ----
Fourth Quarter $ 7 5/8 $ 5 5/8
Third Quarter $ 9 1/2 $ 7 1/4
Second Quarter $10 1/8 $ 7 1/2
First Quarter $11 1/4 $ 8 3/8
Fiscal 1995 High Low
----------- ---- ----
Fourth Quarter $11 7/8 $9 3/4
Third Quarter $12 $11 1/4
Second Quarter $11 3/4 $9 3/4
First Quarter $12 1/4 $9 3/4
Fiscal 1994 High Low
----------- ---- ----
Fourth Quarter (commencing $12 1/4 $12
October 25, 1994) 1
- ----------
1 The date of the initial public offering of the Company's Common Stock.
As of January 21, 1997, there were 83 holders of record of the
Company's common stock and an estimated number of beneficial owners of the
common stock of approximately 1,050.
The Company has paid regular quarterly dividends of $.08 per share on
the Common Stock since January 1995, and the dividend was increased to $.09 per
share effective January 1996. It is the present policy of the Board of Directors
to continue to pay quarterly dividends at the rate of $.09 per share. However,
there can be no assurances that future dividends will be paid. The payment and
rate of future dividends are subject to the discretion of the Board of Directors
and will depend upon the Company's earnings, financial condition, capital
requirements, and other factors.
-18-
Private Placement
On September 30, 1996, Owosso Motor Group, Inc., a
wholly-owned subsidiary of the Company, acquired Koepke & Associates, Inc., a
manufacturers' representative, pursuant to a merger. As consideration for the
acquisition, the Company issued 75,000 shares of common stock of the Company,
par value $.01 per share (the "Shares") to the seller. The Company has agreed to
register the Shares for resale under the Securities Act of 1933 (the "Act")
under certain conditions. The sale of the Shares was exempt from the
registration provisions of the Act pursuant to Section 4(2) of the Act for
transactions not involving a public offering, based on the fact that the private
placement was made to one accredited investor who had access to financial and
other relevant data concerning the Company, its financial condition, business
and assets. The securities sold in the private placement may not be reoffered or
resold absent registration under the Act or available exemptions from such
registration requirements.
Item 6. Selected Financial Data
The consolidated statement of operations data set forth below for the
fiscal years ended October 25, 1992, October 31, 1993, October 30, 1994, October
29, 1995 and October 27, 1996 and the consolidated balance sheet data at October
25, 1992, October 31, 1993, October 30, 1994, October 29, 1995, and October 27,
1996 are derived from the audited consolidated financial statements of the
Company. The information set forth below should be read in conjunction with the
Consolidated Financial Statements and notes thereto and "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Fiscal Years Ended
-------------------
Oct. 25, Oct. 31, Oct. 30, Oct. 29, Oct. 27,
1992 (1) 1993+ (2) 1994 (3) 1995 1996
-------- --------- -------- -------- --------
(In thousands, except per share data)
STATEMENT OF OPERATIONS DATA
Net sales $58,148 $64,659 $73,799 $108,001 $128,216
Costs of products sold 40,202 45,838 52,750 77,629 98,282
------- ------- ------- -------- --------
Gross profit 17,946 18,821 21,049 30,372 29,934
Selling, general and administrative expenses 8,111 8,518 9,487 13,920 19,488
Corporate expenses 2,316 2,304 2,417 3,683 4,444
------ ------ ------ ------- --------
Income from operations 7,519 7,999 9,145 12,769 6,002
Interest expense 2,428 2,424 1,855 2,876 4,081
Interest and other income 426 480 698 390 202
------ ------ ------ ------- -------
-19-
Fiscal Years Ended
-------------------
Oct. 25, Oct. 31, Oct. 30, Oct. 29, Oct. 27,
1992 (1) 1993+ (2) 1994 (3) 1995 1996
-------- --------- -------- -------- --------
(In thousands, except per share data)
Income before discontinued operations, 5,517 6,055 7,988 10,283 2,123
income taxes and cumulative effect of
accounting change
Income tax (benefit) provision (801) 3,900 1,275
Cumulative effect of accounting change (1,017)
------ ------- ------ ------ -------
Net income $5,517 $5,038 $8,789 $6,383 $848
====== ======= ====== ====== =======
Dividends and accretion on preferred stock (1,025)
-------
Net (loss) available to common ($177)
shareholders ======
Net income (loss) per common share $1.09 ($0.03)
===== ======
Weighted average number of common 5,865 5,839
shares outstanding
PRO FORMA DATA:
Income before pro forma tax provision and $5,517 $6,055 $7,988
cumulative effect of accounting change
Pro forma tax provision (4) 1,891 2,090 2,836
----- ------ ------
Pro forma income before cumulative effect 3,626 3,965 5,152
of accounting change
Cumulative effect of accounting change net (671)
of pro forma tax benefit of $346 ----- ----- ------
Pro forma net income $3,626 $3,294 $5,152
====== ====== ======
Pro forma net income before cumulative $0.82 $1.06
effect of accounting change per share
Cumulative effect of accounting change per
common share $0.14
-----
Pro forma net income per common share $0.68 $1.06
===== =====
Pro forma common shares outstanding (5) 4,833 4,847
OTHER DATA:
Capital expenditures $1,610 $1,290 $2,000 $4,437 $4,346
Depreciation and amortization 2,701 2,968 2,786 4,213 6,298
EBITDA (6) 10,220 10,967 11,931 16,982 12,300
-20-
Oct. 25, Oct. 31, Oct. 30, Oct. 29, Oct. 27,
1992 1993 1994 1995 1996
-------- --------- -------- -------- --------
(In thousands)
BALANCE SHEET DATA:
Working capital $10,845 $14,405 $18,488 $20,564 $20,385
Total assets 43,341 45,543 66,118 108,719 107,895
Total short-term and long-term obligations 25,004 23,360 33,106 52,799 53,814
Shareholders' equity 11,510 13,752 21,670 39,570 37,020
- ---------------
+ 53-week fiscal year.
(1) Includes the results of operations of DewEze since December 18, 1991,
the date of its acquisition.
(2) Does not include the results of Sooner, which was acquired as of
October 30, 1994.
(3) Includes the results of operations of Great Bend since May 1, 1995, the
date of its acquisition. Does not include the results of Stature, which
was acquired as of October 29, 1995.
(4) Reflects federal income taxes as if the Company had not been an S
Corporation during these periods. See Notes 2 and 12 of "Notes to
Consolidated Financial Statements."
(5) Historical consolidated shares outstanding for fiscal 1993 and 1994
include an additional 833,000 shares assumed to be outstanding (valued
at the initial public offering price of $12.00 per share) necessary to
reflect a non-cash S corporation distribution of $10.0 million to its
shareholders (on account of previously taxed income) in the form of
certain indebtedness owed to Motor Products by Brynavon Group.
(6) EBITDA represents income before income taxes, interest expense,
interest and other income and depreciation and amortization expenses.
EBITDA is presented as additional financial data but may not be
representative of operating results or cash flows for the periods
presented. EBITDA data should be considered in conjunction with the
Company's Consolidated Statements of Cash Flows included elsewhere in
this Form 10-K, which set forth information concerning the Company's
cash flows for each of the three years in the period ended October 27,
1996.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
General
The Company is a diversified manufacturer of products in narrowly defined niche
markets and currently operates in two business segments, Engineered Component
Products and Specialized Equipment. In the Engineered Component Products
segment, the Company's products are sold primarily to original equipment
manufacturers or service providers who use them in their end product or service.
Products manufactured in this segment include electric motors, timers, heat
-21-
transfer coils, replacement camshaft bearings, valve seats and shims. The
products sold in the Specialized Equipment segment are almost exclusively final
products sold through independent dealers to their end users, typically horse
owners, ranchers, farmers and municipalities. Products sold in the Specialized
Equipment segment include aluminum trailers, grain handling equipment, front-end
loaders, hay bale handling and processing equipment, and all-terrain commercial
mowers.
The Company's net sales for fiscal 1996 were $128.2 million on which net sales
of products manufactured by subsidiaries in the Engineered Component Products
segment accounted for 56.1% of total net sales while net sales of specialized
equipment accounted for 43.9% of net sales. Among other financial data, the
Company measures the profitability of its subsidiaries by its business unit
income, which is defined as a subsidiary's income from operations before
allocation of corporate office expenses. In fiscal 1996, the Company's
consolidated business unit income was $10.4 million, of which the Engineered
Component Products segment produced $6.8 million, or 65.2% of the total. The
Specialized Equipment segment had business unit income of $3.6 million, or 34.8%
of the total.
The Company's goal is to achieve long term growth in cash flow and net income,
with the growth being divided more or less evenly over time between internal
growth and growth through acquisition. The Company's internal growth objective
is to maximize operating results by combining revenue growth with consistently
high profit margins. It seeks to accomplish this objective, in part, by
competing on the basis of engineering and design expertise, production
capabilities and customer service rather than primarily on price, and by
controlling costs. The Company's individual subsidiaries' businesses are managed
on a day-to-day basis by their local management teams so that operating
decisions can be made by managers close to the customer and the manufacturing
operations. Annual plans are agreed upon by subsidiary management and the
corporate office, and subsidiary managers' compensation is tied to their unit's
performance in comparison to those goals. Corporate management monitors progress
towards these objectives and adds assistance where necessary to help
subsidiaries meet them. The corporate staff also coordinates the development and
monitors the implementation of long-term strategic plans. Certain administrative
functions are handled by corporate staff so that business unit presidents can
concentrate on operating objectives. The corporate office also handles functions
that are not value-added to its customers, and where economies of scale can
reduce costs, such as benefits, insurance and banking.
Growth through acquisition is also important in achieving the Company's growth
objectives. The Company attempts to acquire businesses that operate in high
margin, narrowly defined markets similar to those served by its existing
businesses. Acquisitions may add new markets or enhance the market positions of
existing businesses. Target acquisition candidates typically have high initial
capital requirements and low ongoing capital needs, incorporate mature
technologies in their products, have integrated manufacturing processes, compete
on the basis of value-added services, and have a management team with a proven
record of accomplishment. The Company
-22-
has focused its acquisition plans in its existing product segments and intends
to continue to do so, with more of its efforts concentrated on its Engineered
Component Products segment.
During fiscal 1996, the Company made two small strategic acquisitions. In
August, the Company acquired Snyder Industries, Inc. of Seattle, Washington
through its Dura-Bond Bearing subsidiary. Snyder's operations will be
consolidated into Dura-Bond during the first quarter of fiscal 1997. Snyder
manufactures valve seats, valve seat inserts and valve seat booster shims used
in remanufacturing automobile engines. These products serve as an addition to
Dura-Bond's product line serving the engine remanufacturing industry. Dura-Bond
paid $1.35 million in cash and assumed $0.3 million of Snyder's debt, which was
retired at closing.
In October, 1996, the Company acquired Koepke & Associates of Northfield,
Illinois, a manufacturers' representative firm, in exchange for 75,000 shares of
common stock. Koepke & Associates has been renamed Owosso Motor Group, Inc. and
serves as the central sales organization for the Company's Stature Electric,
Motor Products-Owosso and Motor Products-Ohio subsidiaries. The acquisition is
intended to give these subsidiaries an enhanced and more focused presence among
their large corporate accounts and prospects.
The acquisition history of the Company's businesses is as follows:
Year
Business Acquired
- ---------- ----------
Motor Products - Owosso Corporation 1973
Snow Coil, Inc. (1) 1980
Airmax, Inc. (1) 1984
Cramer Company 1984
Parker Industries (2) 1985
Bristol Company (3) 1986
Dura-Bond Bearing Company 1987
DewEze Manufacturing, Inc. 1991
Sooner Trailer Manufacturing Co. 1994
Great Bend Manufacturing, Inc. 1995
Stature Electric, Inc. 1995
Snyder Industries, Inc. (4) 1996
Owosso Motor Group, Inc. 1996
- -------------
(1) Consolidated into Snowmax, Incorporated in 1989.
(2) Consolidated into DewEze in 1994.
(3) Consolidated into Cramer Company in 1987.
(4) Consolidated into Dura-Bond Bearing Company upon acquisition.
-23-
Selected financial results for the Company by business unit and by segment are
set forth below:
Segment and Business Operating Results
Fiscal Year Ended
-------------------------------------------------
October 27, October 29, October 30,
1996 1995 1994
-------------- --------------- --------------
(In thousands)
Net Sales:
Engineered Component Products:
Fractional and Integral HP motors (1) $39,066 $20,786 $22,425
Heat transfer coils 14,904 16,806 17,145
Replacement camshaft bearings and valve seats/shims (2) 9,386 10,867 10,423
Subfractional HP motors and timers 8,631 8,916 8,413
------- ------- -------
Total Engineered Component Products $71,987 $51,375 $58,406
======= ======= =======
Specialized Equipment:
Aluminum trailers $28,739 $30,327 ---
Grain handling equipment 10,749 7,897 7,790
Front-end loaders (3) 10,065 5,336 ---
Bale handling/processing equipment and mowers 6,676 7,065 7,603
----- ------- -------
Total Specialized Equipment $56,229 $50,626 $15,393
======= ======== =======
Total net sales $128,216 $108,001 $73,799
======== ======== =======
Business unit income (4):
Engineered Component Products
Fractional HP motors (1) $4,857 $4,428 $5,935
Heat transfer coils (448) 1,356 603
Replacement camshaft bearings and valve seats/shims (2) 2,594 3,458 3,361
Subfractional HP motors and timers (191) 445 32
----- ------ ------
Total Engineered Component Products $6,812 $9,687 $9,931
====== ====== ======
Specialized Equipment:
Aluminum trailers $1,789 $5,359 ---
Grain handling equipment 1,265 800 646
Bale handling/processing equipment and mowers 152 508 986
-24-
Fiscal Year Ended
-------------------------------------------------
October 27, October 29, October 30,
1996 1995 1994
-------------- --------------- --------------
(In thousands)
Front end loaders (3) 428 118 --
------- ------ ------
Total Specialized Equipment $3,634 $6,785 $1,632
======= ======= =======
Total business unit income $10,446 $16,472 $11,563
======= ======= =======
EBITDA (5):
Engineered Component Products $10,994 $12,080 $12,292
Specialized Equipment 5,750 8,605 2,057
Corporate expenses 4,444 3,682 2,418
Total EBITDA $12,300 $16,982 $11,931
EBITDA/share $2.11 $2.90 $2.46
- ------------
(1) Includes results of Stature Electric from October 30, 1995, its date
of acquisition, and Owosso Motor Group, Inc. from October 1, 1996, its
date of acquisition.
(2) Includes results of Snyder Industries, Inc. from August 15, 1996, its
date of acquisition.
(3) Includes results of Great Bend from May 1, 1995, its date of
acquisition.
(4) Business unit income is calculated before corporate expenses and
before the cumulative effect of accounting change. Amortization
expenses resulting from acquisitions are included as expenses in
calculating business unit income.
(5) EBITDA represents income before income taxes, interest expense,
interest and other income, depreciation and amortization expenses.
EBITDA is presented as additional financial data but may not be
representative of operating results or cash flows for the periods
presented.
Results of Operations
The following table sets forth certain statement of earnings items as a
percentage of net sales for the periods included.
Fiscal Year Ended
-------------------------------------------------------
October 27, October 29, October 30,
1996 1995 1994
--------------- -------------- --------------
Net sales:
Engineered Component Products 56.1% 53.1% 79.1%
Specialized Equipment 43.9% 46.9% 20.9%
Total net sales: 100.0% 100.0% 100.0%
Gross profit (1):
Engineered Component Products 24.0% 28.9% 28.6%
-25-
Fiscal Year Ended
-------------------------------------------------------
October 27, October 29, October 30,
1996 1995 1994
--------------- -------------- --------------
Specialized Equipment 22.5% 27.2% 31.4%
Total gross profit 23.3% 28.1% 29.7%
Business unit income from operations (1):
Engineered Component Products 9.5% 16.9% 17.0%
Specialized Equipment 6.5% 13.4% 10.6%
Total business unit income from operations 8.1% 15.2% 15.7%
Corporate expenses 3.5% 3.4% 3.3%
Income from operations 4.7% 11.8% 12.4%
Interest income, net 3.2% 2.7% 1.6%
Income before income taxes 1.7% 9.5% 10.8%
Net income available to common shareholders (2) (0.1%) 5.9% 7.0%
- -----------
(1) Calculated as a percent of segment net sales.
(2) See Note 2 of "Notes to Consolidated Financial Statements." Amount for
fiscal year 1994 is calculated on a pro forma basis to reflect income
taxes that would have been recorded if none of the Company's businesses
had been an S corporation. Net income available to common shareholders
for fiscal 1996 is calculated after deduction of $750,000 in preferred
stock dividends and $275,000 in accretion of preferred stock value.
Fiscal 1996 Compared to Fiscal 1995
Net sales. In fiscal 1996 the Company's net sales were $128.2 million, an
increase of 18.7% over fiscal 1995 net sales of $108.0 million. The increase in
net sales arose from the addition of the results of Stature Electric, acquired
in October 1995 and the addition of a full year's results of Great Bend
Manufacturing, acquired in May 1995. These factors more than offset a 3% decline
in net sales at the Company's other subsidiaries.
In the Company's Engineered Component Products segment, net sales increased
25.5% to $72.0 million in fiscal 1996 from $57.4 million in fiscal 1995. The
effect of adding Stature's net sales more than offset a decline of 8% for the
other subsidiaries in the segment. Most significantly, net sales at Dura-Bond
declined 13.6% due to a significant reduction in sales to that subsidiary's
largest customer, Federal-Mogul Corporation, which served as Dura-Bond's largest
distribution network. Federal-Mogul began to manufacture its own replacement
camshaft bearings in the first quarter of fiscal 1996. In fiscal 1996,
Dura-Bond's increased sales directly to end-users (rather than through
Federal-Mogul) did not offset the loss of Federal-Mogul sales. Sales of heat
-26-
transfer coils declined 11.3% in fiscal 1996, primarily due to a reduction in
sales of "A" coils to the air conditioning market. The Company has arranged to
sell the rights to this product line to an employee who will begin to
manufacture coils during fiscal 1997. The employee will lease space and
equipment in one of Snowmax's buildings and will pay a royalty fee on sales of
these coils. Sales of "A" coils were $1.8 million in fiscal 1996. Because of
more favorable market conditions and increased orders in its motor businesses,
particularly for the Motor Products-Ohio subsidiary, the Company expects that
net sales in the Engineered Component Products segment will be higher in fiscal
1997 than in fiscal 1996.
Net sales in the Specialized Equipment segment were $56.2 million, an 11.1%
increase over fiscal 1995 net sales of $50.6 million. The inclusion of a full
year of results of Great Bend Manufacturing and a 36.1% increase in sales of
grain handling equipment at Parker more than offset a decline of 5.2% in net
sales of Sooner's aluminum trailers and lower net sales at DewEze, which
continued to be affected by low cattle prices. The increase in sales of grain
handling equipment was due to favorable pricing and production conditions for
grain farmers in the central United States, an improved product line, and
comparison to fiscal 1995 in which Parker was out of production during its
traditionally slow first quarter as the plant was expanded.
Gross profit. In fiscal 1996 the Company's gross profit was $29.9 million, or
23.3% of net sales, 1.4% below fiscal 1995 gross profit of $30.4 million, or
28.1% of net sales.
Gross profit in the Engineered Component Products segment was $17.3 million, or
24.0% of net sales in fiscal 1996, as compared to $16.6 million, or 28.9% of net
sales in the prior fiscal year. The increase in gross profit in this segment was
due to the addition of Stature's results, offsetting reduced gross profit at the
other subsidiaries in this segment. This reduction was due to lower margins in
the Company's Motor Products operations, as a larger percentage of motors were
lower margin wound field motors produced in Motor Products' Ohio plant. Lower
sales at Dura-Bond and Snowmax decreased gross profit at those subsidiaries, and
margins were reduced in the segment due to lower sales to cover fixed overhead
expenses and the results of an inventory reduction program at Snowmax. The
inventory reduction program led to an increase in cost of goods sold of $733,000
during the year, and the Company does not expect to incur similar expenses in
fiscal 1997 to a material extent.
Gross profit in the Specialized Equipment segment was $12.6 million, or 22.5% of
net sales in fiscal 1996, representing a reduction of 8.3% from gross profit of
$13.8 million, or 27.2% of net sales, in fiscal 1995. The inclusion of Great
Bend's results for a full year was more than offset by a significant reduction
in margin and a decline in sales at Sooner. Sooner's sales were reduced by
slower demand in the second half of fiscal 1996 and production inefficiencies
that led to slower shipments. These production problems, caused in part by the
disruptive effects of an ultimately unsuccessful union organization campaign and
high employee turnover, combined with the decline in sales reduced the gross
profit in that operation by $3.1 million as compared to fiscal 1995. Reduced
margins at DewEze due to a less favorable product mix were offset by higher
gross profit at Parker due to that subsidiary's significantly higher sales.
-27-
At the end of fiscal 1996, the Company recognized a reduction in inventory value
of $1.1 million in connection with its year-end physical inventory count and
valuation process. See Note 16 to Consolidated Financial Statements.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses were $19.5 million, or 15.2% of net sales, in fiscal
1996 as compared to $13.9 million, or 12.9% of net sales in fiscal 1995. In the
Company's Engineered Component Products segment, selling, general and
administrative expenses increased to $10.5 million in fiscal 1996 as compared to
$6.9 million in the prior fiscal year. These expenses increased in fiscal 1996
primarily due to including results of Stature, including non-cash amortization
expenses relating to its purchase, and an increase to the reserve for bad debt
expense at Snowmax recognized in the fourth quarter. The increase to selling,
general and administrative expenses of reserves for and write-offs of doubtful
accounts at Snowmax was $0.6 million. In the Specialized Equipment segment,
selling, general and administrative expenses increased to $9.0 million in fiscal
1996 from $7.0 million in fiscal 1995, primarily due to including Great Bend's
results for a full year, including non-cash amortization expenses relating to
its purchase. These expenses also increased at Parker due to the large increase
in sales at that subsidiary and at Sooner for personnel related expenses in
anticipation of higher sales.
Corporate Expenses. Corporate expenses in fiscal 1996 were $4.4 million, or 3.5%
of net sales, as compared to $3.7 million, or 3.4% of net sales, in fiscal 1995.
Corporate expenses increased primarily due to increases in personnel costs,
including severance costs and recruitment expense related to the replacement of
the Company's former president and chief operating officer, increased computer
programming and other information services expenses and increased legal and
professional expenses. Despite the increase, these expenses remained consistent
with the increase in the Company's net sales. The Company expects that its
continuing investment in upgraded information systems and additional personnel
to help manage its growth will cause corporate expenses to increase somewhat in
fiscal 1997, though not materially disproportionately to its sales.
Income from Operations. Income from operations fell 53% to $6.0 million in
fiscal 1996 from $12.8 million in fiscal 1995, due to the lower gross profit and
increased selling, general and administrative expenses and corporate expenses as
discussed above. Among other measures, the Company evaluates the operating
performance of its business segments and its subsidiaries based on business unit
income, which is defined as income from operations before allocation of
corporate expenses. The Company believes this measurement most closely reflects
the subsidiaries' individual contributions. On this basis, business unit income
for the Engineered Component Products segment decreased to $6.8 million, or 9.5%
of net sales, in fiscal 1996 from $9.7 million, or 16.9% of sales, in fiscal
1995 due to the factors discussed above. Business unit income in the Specialized
Equipment segment before corporate expenses was $3.6 million, or 6.5% of sales,
as compared to $6.8 million, or 13.4% of sales, in fiscal 1995 due to the
factors discussed above. A table presenting business unit income by product line
and segment for the past three fiscal years is presented above on page 24.
-28-
Interest Expense, Net. Net interest expense increased to $4.1 million, or 3.2%
of net sales in fiscal 1996 from $2.9 million, or 2.7% of net sales in fiscal
1995. The increase in net interest expense arose from increased average
borrowing levels in fiscal 1996 due primarily to debt carried in connection with
the acquisition of Stature and a full year of interest on debt related to the
acquisition of Great Bend.
Net income. Net income in fiscal 1996 was $0.8 million, or 0.7% of net sales,
after a tax provision at an effective rate of 60.1%. This compares to net income
in fiscal 1995 of $6.4 million, or 5.9% of net sales, after a tax provision at
an effective rate of 37.9%. The decrease is attributable to the lower income
from operations, higher interest expense and higher effective tax rate. The
substantial increase in the Company's effective tax rate results from the higher
proportion of non-deductible expenses, primarily non-cash amortization expenses
related to acquisitions, as compared to pretax income. Because of the pretax
loss in the fourth quarter, the Company recognized income tax expense at a
substantially higher rate in that quarter to bring the full year rate to 60.1%.
See Note 16 to Consolidated Financial Statements. The company expects a lower
effective tax rate in fiscal 1997 due to relatively flat non-deductible expenses
and higher pretax income.
Net loss available for common stockholders. In fiscal 1996, the Company reported
a loss of $0.2 million available for common stockholders. The loss is calculated
by subtracting dividends on preferred stock of $0.8 million and non-cash
accretion in value of preferred stock of $0.3 million from net income. This
results in a net loss per common share of $0.03 in fiscal 1996. As no preferred
stock was outstanding until the end of fiscal 1995, no such subtraction was
necessary in that fiscal year. The Company expects to show improvement in income
available to common shareholders from its current businesses for the full year
in fiscal 1997 as compared to fiscal 1996.
Fiscal 1995 Compared to Fiscal 1994
Net sales. Net sales were $108.0 million for fiscal 1995, as compared to $73.8
million for the prior year period, representing an increase of 46.3%. Net sales
of engineered component products decreased 1.8% to $57.4 million from $58.4
million in fiscal 1994. A decrease in sales of fractional horsepower motors in
the second half of the fiscal year due to a slower manufacturing economy and the
loss of some sales at the higher volume end of that business, combined with a
small decrease in heat transfer coil sales, more than offset increases at the
other businesses in this segment. In the Specialized Equipment segment, sales
more than tripled to $50.6 million in fiscal 1995 from $15.4 million in fiscal
1994. The increase was attributable to the purchase of Sooner and Great Bend.
Sales of grain handling equipment rose slightly despite a plant shutdown in the
first quarter of fiscal 1995 during a construction project, while sales of bale
handling and processing equipment declined in the face of a difficult
agricultural economy in its region of the country.
-29-
Gross profit. Gross profit for fiscal 1995 was $30.4 million, or 28.1% of sales,
an increase of 44.3% over $21.0 million, or 28.5% of net sales, in fiscal 1994.
The gross profit in the Engineered Component Products segment was $16.6 million,
or 28.9% of net sales, in fiscal 1995, as compared to $16.7 million, or 28.6% of
net sales in fiscal 1994. The small decrease is attributable to the decrease in
net sales. In the Specialized Equipment segment the gross profit was $13.8
million, or 27.2% of net sales in fiscal 1995, as compared to $4.4 million, or
28.3% of net sales, in fiscal 1994. The increase in gross profit as well as the
decrease in gross margin is due to including the results of Sooner and Great
Bend in fiscal 1995; the gross margins at those subsidiaries is lower than the
1994 gross margin in the other specialized equipment subsidiaries.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses were $13.9 million, or 12.9% of sales in fiscal 1995 as
compared to $9.5 million, or 12.9% of sales in fiscal 1994. The increase
resulted primarily from the addition of selling, general and administrative
expenses of Sooner and Great Bend, including non-cash amortization expenses of
approximately $0.9 million relating to the acquisition of those businesses by
the Company. Selling, general and administrative expenses for the rest of the
Company's businesses in fiscal 1995 were approximately equal to the fiscal 1994
level. Selling, general and administrative expenses in the Engineered Component
Products segment increased to $6.9 million, or 12.0% of sales, in fiscal 1995
from $6.8 million, or 11.6% of sales, in fiscal 1994 due to non-cash
amortization expenses at its Dura-Bond subsidiary created in connection with the
reorganization of the Company which took place at the end of fiscal 1994 (the
"Reorganization"). In the Specialized Equipment segment, selling, general and
administrative expenses increased to $7.0 million in fiscal 1995, or 13.8% of
net sales, from $2.7 million, or 17.7% of net sales, in the prior fiscal year
due to including Sooner's and Great Bend's expenses in fiscal 1995.
Corporate Expenses. Corporate expenses in fiscal 1995 were $3.7 million, or 3.4%
of net sales, as compared to $2.4 million, or 3.3% of net sales, in fiscal 1994.
Corporate expenses rose in fiscal 1995 primarily due to increased legal and
professional fees and other expenses resulting from the Company's new status as
a public company, increased insurance expense, higher personnel expenses
commensurate with the Company's growth, and increased lease expense for an
upgraded corporate computer system.
Income from Operations. Income from operations increased 39.6% to $12.8 million,
or 11.8% of sales, in fiscal 1995 from $9.1 million, or 12.4% of sales, in
fiscal 1994. The increase can be attributed to the acquisition of Sooner and
Great Bend, while the operating margin decreased because of non-cash
amortization expenses related to these acquisitions, and the other factors
described above. Among other measures, the Company evaluates the operating
performance of its business segments and its subsidiaries based on business unit
income which is defined as income from operations without the allocation of
corporate expenses. The Company believes this measurement most closely reflects
the subsidiaries' individual contributions. On this basis, business unit income
for the Engineered Component Products segment decreased to $9.7 million, or
16.9% of net sales, in fiscal 1995 from $9.9 million, or 17.0% of net sales, in
fiscal 1994 due to the factors discussed above. Business unit income in the
Specialized Equipment segment was
-30-
$6.8 million, or 13.4% of net sales, as compared to $1.6 million, or 10.6% of
sales, in fiscal 1995 due to the factors discussed above. A table presenting
business unit income by product line and segment for the past three fiscal years
is presented above on page 24.
Interest Expense, Net. Net interest expense increased to $2.9 million, or 2.7%
of sales, from $1.2 million, or 1.6% of sales, in fiscal 1994. The increase was
due to higher debt outstanding during fiscal 1995, primarily as a result of the
acquisition of Great Bend, and the lack of interest income from affiliates due
to the retirement of affiliate notes in connection with the Reorganization.
Net income. The Company's net income in fiscal 1995 was $6.4 million, or 5.9% of
net sales, in fiscal 1995 after an income tax provision at an effective rate of
37.9%. This represents a 23.9% increase compared to net income of $5.2 million,
or 7.0% of net sales, in fiscal 1994 after a pro forma tax provision calculated
at a rate of 35.5%. The decrease in net income as a percentage of sales is
attributable to the decline in operating margin described above, as well as
increased net interest expense and the higher effective tax rate.
Reported net income of $8.8 million for fiscal 1994 does not include a provision
for income taxes because the Company's businesses were Subchapter S Corporations
in that year. In addition, reported 1994 net income benefited from a change in
accounting for income taxes that resulted in a $0.8 million gain. Income before
the provision for income taxes increased by 29% from $8.0 million to $10.3
million. The effective tax rate increased due to higher non-deductible expenses,
consisting primarily of non-cash amortization expense related to acquisitions
and the Reorganization.
Liquidity and Capital Resources
Cash and cash equivalents decreased to $0.8 million at October 27, 1996 from
$1.8 million at October 29, 1995. In addition to cash and cash equivalents at
October 29, 1995, the Company had $0.3 million of cash that was restricted under
industrial revenue financings. Net cash provided by operating activities rose to
$8.8 million in fiscal 1996 from $7.7 million in fiscal 1995. This increase
arose despite the substantial decrease in net income because of a $2.1 million
increase in non-cash expenses resulting from the acquisitions of Great Bend and
Stature deducted before calculating net income in fiscal 1996. Additionally, the
Company reduced its working capital needs in fiscal 1996, particularly due to a
$1.8 million decrease in inventory, about half of which resulted from its
inventory reduction program at Snowmax. During fiscal 1995, the Company's
working capital needs accounted for a use of cash of approximately $2.6 million.
These internally generated funds provided for capital expenditures, financing of
acquisitions and dividends to common and preferred shareholders.
The Company's primary cash requirements have been for operating expenses,
including raw materials, labor costs and funding of accounts receivable, as well
as capital expenditures,
-31-
acquisitions and dividends to shareholders. Primary sources of cash have been
from operations and bank borrowings, with industrial revenue bonds being used
for specific capital projects.
Working capital decreased to $20.4 million at October 27, 1996 from $20.6
million at October 29, 1995 primarily due to the decrease in inventory mentioned
above. This decrease more than offset the reduction in the current portion of
notes payable to affiliates issued in connection with the purchase of Stature
which were paid for using the Company's revolving credit facility.
The Company maintains a $55.0 million revolving credit agreement with two banks
with a termination date of March 31, 2000. At October 27, 1996 borrowings of
$30.0 million were outstanding under the revolving credit agreement. Interest is
payable, at the Company's option, at either the agent bank's prime rate or at a
spread over the London Interbank Offered Rate that varies with the Company's
ratio of total debt to EBITDA. The LIBOR spread was 1.75% at October 27, 1996.
The agreement contains customary financial and other covenants, including
leverage, fixed charge, cash flow and net worth ratios, restrictions on certain
asset sales, mergers and other significant transactions and a negative pledge on
assets. During fiscal 1996, the Company entered into interest rate swap
agreements with its two banks with notional amounts totaling $15.0 million. The
agreements call for the company to make quarterly fixed payments on the notional
amount at rates of 7.0675% and 7.09% for five years beginning in July 1997 in
exchange for receiving payments at the three month London Interbank Offered
Rate.
During fiscal 1994, 1995 and 1996, the Company invested $2.0 million, $4.4
million and $4.3 million in capital expenditures, respectively. In fiscal 1996,
$2.8 million of capital expenditures related to the Engineered Component
Products segment, $1.1 million related to the Specialized Equipment segment, and
$0.4 million related to the corporate office. Capital expenditures have grown
due to the Company's acquisitions and internal sales growth and have been used
primarily for updating production equipment, providing tooling and equipment for
the manufacture of new products, expanding the capacity of manufacturing
facilities and reconfiguring production lines. The Company expects to continue
to invest in significant levels of capital expenditures as it invests in the
tooling and equipment necessary to produce its products efficiently and to
respond to customer quality and production flexibility demands. The Company
expects that capital expenditures for fiscal 1997 should remain at a level
consistent with or somewhat higher than that of fiscal 1996. The Company expects
that capital expenditures will continue to be concentrated primarily in the
Engineered Component Products segment in fiscal 1997.
During fiscal 1996 and fiscal 1995, the Company invested cash of $1.7 million
and $1.4 million, respectively, for the acquisition of businesses, net of
acquired cash. In fiscal 1996, the Company also issued common stock as
consideration for an acquisition and in fiscal 1995, in addition to cash, the
Company also issued notes and preferred stock in consideration for acquired
businesses. In connection with the severance agreement with the Company's former
president and chief operating officer, the Company paid $245,000 in cash and
issued a subordinated note for $802,543 in payment for common shares he held,
based on the market value of the shares at the time. See notes 3 and 4 to
Consolidated Financial Statements.
-32-
The Company believes that funds from operations and borrowings from its bank
facilities will be sufficient to fund its activities, including capital
expenditures, for the foreseeable future.
Seasonality
Sales of certain of the Company's specialized equipment tend to be seasonal,
with lowest sales during the first fiscal quarter and higher sales during the
fourth fiscal quarter, corresponding with the fall harvest season for farmers.
Sales of the Company's engineered component products experience less seasonality
but generally have higher sales during the second fiscal quarter while sales of
these products are lowest during the first fiscal quarter.
Cyclicality
The Company's Engineered Component Products segment is subject to changes in the
overall level of domestic economic activity. The Specialized Equipment segment
is subject to changes in certain sectors of the agricultural economy, which may
be influenced by climate changes and governmental policy. The segment's horse
trailer sales, which have not tended to be affected by changes in the
agricultural economy, have had a moderating effect on the results of the entire
Specialized Equipment segment, but are subject to the overall domestic business
cycle.
Environmental Matters
The Company is subject to environmental regulation with respect to its
operations and is named as a potentially responsible party at two sites which
are the subject of a government-mandated clean-up and which may require the
Company to incur additional expenses. While it is not possible to quantify the
potential financial impact of actions regarding environmental matters, the
Company believes that the outcome of this action is not likely to have a
material effect on the Company's financial position or results of operations.
Compliance by the Company's customers with environmental laws may also require
the Company to incur additional capital expenditures. For example, federal
regulations mandated the cessation of the production by 1996 of
chlorofluorocarbons, the main component of the most widely used coolant used in
heat transfer coils. Although the heat transfer coils manufactured by the
Company are designed for use both with chlorofluorocarbons as well as with
certain other coolants complying with the new requirements, if federal
regulations were implemented which required the use of a coolant for which the
Company's heat transfer coils are not designed, the Company may be required to
incur additional capital expenditures to enable it to produce new heat transfer
coils suitable for use with the new coolant. The Company is not aware of any
such proposed or pending regulations.
Inflation
The Company believes that the relatively moderate inflation over the last few
years has not had a significant impact on the Company's revenues or
profitability.
-33-
Cautionary Statement for Purposes of the "Safe Harbor" Provisions of the Private
Securities Litigation Reform Act of 1995
The following information is provided pursuant to the "Safe Harbor" provisions
of the Private Securities Litigation Reform Act of 1995. Certain statements in
Management's Discussion and Analysis of this Form 10-K are "forward-looking
statements" made pursuant to these provisions.
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:
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 and agricultural sectors 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.
Commodity prices can have a material influence on the Company's results. Grain
prices and cattle prices can affect demand for certain agricultural equipment
sold by the businesses in the Company's Specialized Equipment segment. Metal
prices, particularly aluminum, copper and steel, can affect the Company's costs
as well as demand for the Company's products and the value of inventory held at
the end of a reporting period. Lack of availability of certain commodities could
also disrupt the Company's production.
Weather can affect the success of the grain harvest in the United States, which
can directly affect demand for the Company's grain handling equipment business.
The start-up of the Company's new Ohio plant has affected results of operations.
Manufacturing difficulties at this plant could lead to continuing losses from
that operation.
Changes in demand that change product mix may reduce operating margins by
shifting demand toward less profitable products.
Loss of a substantial customer may affect results of operations. For example,
the Company's replacement camshaft bearing business sells a substantially
reduced volume of its products through Federal-Mogul Corporation, which had been
that business unit's largest customer.
The Company's results can be affected by engineering difficulties in designing
new products or applications for existing products to meet the requirements of
its customers.
Obsolescence or quality problems leading to returned goods in need of repair can
also affect the value of the Company's inventories and its profitability.
-34-
The Company's results are dependent on the hiring and retention of qualified
executive and local management. There can be no assurance that the Company will
be able to find qualified candidates in the future.
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.
Acquisitions are an important part of the Company's growth strategy.
Acquisitions may have a dilutive effect on the Company's earnings and could
affect the Company's available credit and interest costs. Conversely, the
Company may from time to time divest of product lines or business units. Any
such divestiture may involve costs of disposition or losses on the disposition
that could reduce the Company's results.
The Company is subject to various Federal and state environmental laws which
could be costly to adhere to if changed materially.
Item 8. Financial Statements and Supplementary Data
The Company's consolidated financial statements and supplemental
schedules appear at pages F-1 through F-25, as set forth in Item 14.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
-35-
PART III
Item 10. Directors and Executive Officers of the Registrant
Information concerning directors, appearing under the caption "Election
of Directors" in the Company's Proxy Statement (the "Proxy Statement") to be
filed with the Securities and Exchange Commission in connection with the Annual
Meeting of Shareholders scheduled to be held on March 12, 1997, information
concerning executive officers, appearing under the caption "Item 1. Business -
Executive Officers of the Company" in Part I of this Form 10-K, and information
under the caption "Section 16(a) Beneficial Ownership Reporting Compliance" in
the Proxy Statement, are incorporated herein by reference in response to this
Item 10.
Item 11. Executive Compensation
The information contained in the section titled "Executive
Compensation" in the Proxy Statement, with respect to executive compensation,
and the information contained in the section entitled "Director Compensation"
with respect to director compensation, are incorporated herein by reference in
response to this Item 11.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information contained in the section titled "Security Ownership of
Certain Beneficial Owners and Management" in the Proxy Statement, with respect
to security ownership of certain beneficial owners and management, is
incorporated herein by reference in response to this Item 12.
Item 13. Certain Relationships and Related Transactions
The information contained in the section titled "Certain Relationships
and Transactions" of the Proxy Statement, with respect to certain relationships
and related transactions, is incorporated herein by reference in response to
this Item 13.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) (1) Financial Statements
The financial statements listed in the accompanying Index to Consolidated
Financial Statements are filed as part of this Form 10-K, commencing on page
F-1.
-36-
(2) Schedules
None.
(3) Exhibits
Exhibit No. Description
- ----------- ------------
* 3.1 Articles of Incorporation of the Company (Exhibit 3.1 to the Company's Form S-1
Registration Statement, No. 33-76964 (the "1994 Registration Statement")).
* 3.2 By-Laws of the Company (Exhibit 3.2 to the 1994 Registration Statement).
* 3.3 Designations of the Class A Convertible Preferred Stock of Owosso Corporation
(Exhibit 4.1 to the Company's Current Report on Form 8-K dated October 31,
1995 (the "October 31, 1995 Form 8-K")).
*10.1 1994 Stock Option Plan (Exhibit 10.1 to the Company's Annual
Report on Form 10-K for the year ended October 30, 1994 (the
"1994 Form 10-K ")).
*10.2 MIS Agreement dated October 31, 1994 by and between Owosso
Corporation and The Owosso Company (Exhibit 10.2 to the 1994
Form 10-K).
*10.3 Lease Agreement, by and between Gregory M. Cook and Kevin C.
Geenty, D/B/A Mill Rock Leasing, as Landlord, and Cramer
Company, as Tenant, dated November 1, 1995 (Exhibit 10.3 to
the Company's Annual Report on Form 10-K for the year ended
October 29, 1995 (the "1995 Form 10-K ")).
*10.4 Second Amended and Restated Credit Agreement by and among The Owosso
Company, Motor Products-Owosso Corporation, Cramer Company, The Macton
Corporation, Seajay Manufacturing Corporation, Redmond Financial Corporation,
Parker Industries, Inc., Kuker-Parker Industries, Inc., Tannewitz, Inc., Gluco, Inc.,
Snow Coil, Inc., Robert A. Martin Company, Inc., Copco, Inc., Beachmont
Company, Beachmont-Tabor Company, and NBD Bank, N.A., dated April 1,
1991, as amended July 31, 1992, and as amended March 21, 1994 (Exhibit 10.4 to
the 1994 Registration Statement).
*10.5 Loan Agreement between Director of the State of Nevada
Department of Commerce as Issuer and The Landover Company
D/B/A Dura-Bond Bearing Company, dated August 1, 1988
regarding the issuance of Series 1988-A Industrial Development
Revenue Bonds (Exhibit 10.5 to the 1994 Registration
Statement).
-37-
Exhibit No. Description
- ----------- ------------
*10.6 Loan Agreement between the City of Jefferson, Iowa and Parker
Industries, Inc., dated December 1, 1985 regarding the
issuance of Series 1985 Industrial Development Revenue Bonds
(Exhibit 10.6 to the 1994 Registration Statement).
*10.7 Offering Statement regarding the City of Harper, Kansas, Industrial Revenue
Bonds issued to DewEze Manufacturing, Inc., dated October 1, 1993 (Exhibit
10.7 to the 1994 Registration Statement).
*10.8 Offering Statement regarding the Gregg County Development Corporation, Inc.
Revenue Bonds, issued to Greer & Snow Coil Manufacturers, Inc., dated May 17,
1984 (Exhibit 10-8 to the 1994 Registration Statement).
*10.9 Lease by and between Gregory M. Cook, D/B/A Mill Rock Leasing,
as Landlord, and Cramer Company, as Tenant, dated April 11,
1986 (Exhibit 10.9 to the 1994 Registration Statement).
*10.10 Equipment Lease Agreement, by and between X/L Datacomp, Inc. and The
Owosso Company, dated March 17, 1989 (Exhibit 10.13 to the 1994 Registration
Statement).
*10.11 Guaranty Agreement, dated as of October 31, 1994, by and
between Owosso Corporation and NBD Bank, N.A. (Exhibit 10.14
to the 1995 Form 10-K).
*10.12 Fourth Amendment to Reimbursement Agreement, dated as of September 30,
1995, by and between The Landover Company and NBD Bank, N.A. (Exhibit
10.15 to the 1995 Form 10-K).
*10.13 Third Amendment to Credit Agreement, dated as of October 31, 1995, by and
among NBD Bank, N.A., PNC Bank, N.A. and NBD Bank, N.A. as Agent, and
Owosso Corporation, Ahab Investment Company, Cramer Company, DewEze
Manufacturing, Inc., The Landover Company, Motor Products-Owosso
Corporation, Snowmax Incorporated, Sooner Trailer Manufacturing Co., Motor
Products-Ohio Corporation, Great Bend Manufacturing Company, Inc. and
Stature Electric, Inc. (Exhibit 10.16 to the 1995 Form 10-K).
*10.14 Reimbursement Agreement, dated as of December 1, 1995, by and between
Stature Electric, Inc. and NBD Bank, N.A. (Exhibit 10.22 to the 1995 Form
10-K).
-38-
Exhibit No. Description
- ----------- ------------
*10.22 Irrevocable Guaranty Agreement, dated as of December 1, 1995, by and between
Owosso Corporation and NBD Bank, N.A. (Exhibit 10.32 to the 1995 Form
10-K).
*10.23 Management Services Agreement, by and between Snowmax,
Incorporated, and The Owosso Company, dated July 31, 1989
(Exhibit 10.33 to the 1994 Registration Statement).
*10.24 Subordinated promissory note of DewEze Manufacturing, Inc.,
issued to Howard Hershberger, dated December 18, 1991 (Exhibit
10.34 to the 1994 Registration Statement).
*10.25 Subordinated promissory note of DewEze Manufacturing, Inc.,
issued to Dewey Hostetler, dated December 18, 1991 (Exhibit
10.35 to the 1994 Registration Statement).
*10.26 Non-Competition Agreement by and between DewEze Manufacturing, Inc. and
Dewey Hostetler, dated December 18, 1991 (Exhibit 10.36 to the 1994
Registration Statement).
-39-
Exhibit No. Description
- ----------- ------------
*10.27 Non-Competition Agreement by and between DewEze Manufacturing, Inc. and
Howard Hershberger, dated December 18, 1991 (Exhibit 10.37 to the 1994
Registration Statement).
*10.28 Extension agreement among Owosso Corporation, Richard R. Carr
and I. Wistar Morris, III, dated September 27, 1994 (Exhibit
2.7 to the 1994 Registration Statement).
*10.29 Promissory Note of Snowmax, Incorporated, dated April 7, 1992,
issued to Longview Bank and Trust Company, in the amount of
$1,000,000 (Exhibit 10.39 to the 1994 Registration Statement).
*10.30 Deed of Trust, dated April 7, 1992, on property of Snowmax,
Incorporated located in Upshur County, Texas (Exhibit 10.40 to
the 1994 Registration Statement).
*10.31 Deed of Trust, dated April 7, 1992, on property of Snowmax,
Incorporated located in Gregg County, Texas (Exhibit 10.41 to
the 1994 Registration Statement).
*10.32 Lender's Subordination Agreement, dated April 7, 1992, among Longview Bank
and Trust Company, Snowcoil, Inc. and Snowmax, Incorporated (Exhibit 10.42 to
the 1994 Registration Statement).
*10.33 Reimbursement Agreement, dated as of August 1, 1991, by The
Landover Company in favor of NBD Bank, N.A., as amended on
December 30, 1991 and March 1, 1993 (Exhibit 10.43 to the 1994
Registration Statement).
*10.34 Lease, dated March 21, 1995, between Motor Products - Ohio
Corporation and William Berhard Realty Company (Exhibit 10.44
to the 1995 Form 10-K).
*10.35 Confidentiality and Non-Solicitation Agreement between the
Company and Eugene P. Lynch, dated October 31, 1994 (Exhibit
10.45 to the 1994 Form 10-K).
*10.36 Confidentiality and Non-Solicitation Agreement between the
Company and Ellen D. Harvey, dated October 31, 1994 (Exhibit
10.46 to the 1994 Form 10-K).
*10.37 Confidentiality and Non-Solicitation Agreement between the
Company and George B. Lemmon, Sr., dated October 31, 1994
(Exhibit 10.47 to the 1994 Form 10-K).
*10.38 Confidentiality and Non-Solicitation Agreement between the
Company and George B. Lemmon, Jr., dated October 31, 1994
(Exhibit 10.48 to the 1994 From 10-K).
-40-
Exhibit No. Description
- ----------- ------------
*10.39 Confidentiality and Non-Solicitation Agreement between the
Company and John H. Wert, Jr., dated October 31, 1994 (Exhibit
10.50 to the 1994 Form 10-K).
*10.40 Confidentiality and Non-Solicitation Agreement between the
Company and John R. Reese, dated October 31, 1994 (Exhibit
10.51 to the 1994 Form 10-K).
*10.41 Credit Agreement by and among NBD Bank, N.A., PNC Bank, N.A. and NBD
Bank, N.A. as Agent, and Owosso Corporation, Ahab Investment Company,
Cramer Company, DewEze Manufacturing, Inc., The Landover Company, Motor
Products-Owosso Corporation, Snowmax Incorporated and Sooner Trailer
Manufacturing Co. (Exhibit 10.52 to the 1994 Form 10-K).
*10.42 Third Amendment to Reimbursement Agreement, dated as of December 15, 1995,
by and between The Landover Company and NBD Bank, N.A. (Exhibit 10.53 to
the 1995 Form 10-K).
*10.43 Stock Purchase Agreement among Owosso Corporation, Richard R. Carr and I.
Wistar Morris, III, dated March 24, 1994 (Exhibit 2.2 to the 1994 Form 10-K).
*10.44 Asset Purchase Agreement among DewEze Manufacturing, Inc., Kuker-Parker
Industries, Inc. and The Owosso Company, dated October 31, 1994 (Exhibit 2.3 to
the 1994 Form 10-K).
*10.45 Subordinated promissory note of DewEze Manufacturing, Inc.,
issued to Howard Hershberger, dated October 31, 1994 (Exhibit
2.4 to the 1994 Form 10-K).
*10.46 Subordinated promissory note of DewEze Manufacturing, Inc.,
issued to Dewey Hostetler, dated October 31, 1994 (Exhibit 2.5
to the 1994 Form 10-K).
*10.47 The Owosso Group, Plan of Reorganization dated March 25, 1994 (Exhibit 2.1 to
the 1994 Registration Statement).
*10.48 Amendment No. 1 to The Owosso Group Plan of Reorganization dated September
26, 1994 (Exhibit 2.8 to the 1994 Registration Statement).
*10.49 Stock Purchase Agreement dated September 9, 1994 by and among Owosso
Corporation, Sooner Trailer Manufacturing Co., Michael S. Bernhardt, Billy J.
Bernhardt, Viola M. Bernhardt, Michael S. and Cynthia L. Bernhardt Charitable
Remainder Unitrust U/T/A 8/15/94, Billy J. and Viola M. Bernhardt Charitable
Remainder Unitrust U/T/A 8/15/94, Steven J. Bernhardt Trust U/T/A 8/15/94 and
Cynthia L. Bernhardt Trust U/T/A 8/15/94 (Exhibit 2.9 to the 1994 Registration
Statement).
-41-
Exhibit No. Description
- ----------- ------------
*10.50 Letter Agreement by and among Owosso Corporation, The Owosso Company and
Sooner Trailer Manufacturing Co. dated October 25, 1994 (Exhibit 2.10 to the
1994 Form 10-K).
*10.51 Stock Purchase Agreement dated April 28, 1995 by and among Owosso
Corporation, Great Bend Manufacturing Inc. and the stockholders of Great Bend
Manufacturing Inc. (Exhibit 2.1 to the Company's Current Report on Form 8-K
dated May 1, 1995).
*10.52 Agreement and Plan of Merger dated October 25, 1995 by and among Owosso
Corporation, Stature Electric, Inc. and the stockholders of Stature Electric, Inc.
(Exhibit 2.1 to the October 31, 1995 Form 8-K).
*10.53 Consulting Agreement dated October 31, 1995 by and between Owosso
Corporation and Lowell Huntsinger (Exhibit 10.1 to the October 31, 1995 Form
8-K).
*10.54 Registration Rights Agreement dated October 31, 1995 by and among Owosso
Corporation, Lowell Huntsinger, Randall James and Morris Felt (Exhibit 10.2 to
the October 31, 1995 Form 8-K).
*10.55 Loan Agreement dated September 18, 1993 between Sooner Trailer
Manufacturing Co. and American National Bank, Duncan, Oklahoma, and
Amendment No. 1 to Loan Agreement dated December 13, 1994 between the
same parties (Exhibit 10.54 to the Company's Quarterly Report on Form 10-Q for
the quarter ended January 29, 1995).
*10.56 First Amendment to Credit Agreement by and among Owosso
Corporation, its subsidiaries, NBD Bank, PNC Bank, N.A., and
NBD Bank, as Agent, dated as of August 1, 1995 (Exhibit 10.56
to the Company's Quarterly Report on Form 10-Q for the quarter
ended July 30, 1995 (the "July 1995 Form 10-Q")).
*10.57 Second Amendment to Credit Agreement by and among Owosso
Corporation, its subsidiaries, NBD Bank, PNC Bank, N.A., and
NBD Bank, as Agent, dated as of September 1, 1995 (Exhibit
10.57 to the July 1995 Form 10-Q).
*10.58 Distribution Agreement by and among DewEze Manufacturing, Inc. and Airens
Company, dated as of July 21, 1995 (Exhibit 10.58 to the July 1995 Form 10-Q).
*10.59 Fourth Amendment to Credit Agreement by and among Owosso
Corporation, its subsidiaries, NBD Bank, PNC Bank, N.A., and
NBD Bank, as Agent, dated as of March 8, 1996. (Exhibit 10.71
to the Company's Quarterly Report on Form 10-Q for the quarter
ended April 28, 1996)
Exhibit No. Description
- ----------- ------------
*10.60 Fifth Amendment to Credit Agreement by and among Owosso
Corporation, its subsidiaries, NBD Bank, PNC Bank, N.A., and
NBD Bank, as Agent, dated as of May 31, 1996. (Exhibit 10.72
to the Company's Quarterly Report on Form 10-Q for the quarter
ended July 28, 1996 (the "July 1996 Form 10-Q")).
*10.61 Separation and Confidentiality Agreement between Thomas L. French and
Owosso Corporation, dated as of June 14, 1996 (Exhibit 10.73 to the July 1996
Form 10-Q).
10.62 Lease Agreement by and between Owosso Corporation and Philadelphia Freedom
Partners, L.P. dated September 6, 1996.
21 Subsidiaries of the registrant.
23 Consent of Deloitte & Touche LLP.
27 Financial Data Schedule
- --------------
* Incorporated by reference.
(b) Reports filed on Form 8-K during the last quarter of fiscal 1996:
The Company filed a Current Report on Form 8-K dated November 13, 1996
to report expected results of operations for fiscal 1996.
-43-
OWOSSO CORPORATION
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
Page
INDEPENDENT AUDITORS' REPORT F-1
CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED OCTOBER 27,
1996, OCTOBER 29, 1995 AND OCTOBER 30, 1994:
Balance Sheets F-2
Statements of Operations F-3
Statements of Stockholders' Equity F-4
Statements of Cash Flows F-5
Notes to Consolidated Financial Statements F-6-24
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders of
Owosso Corporation
King of Prussia, Pennsylvania
We have audited the accompanying consolidated balance sheets of Owosso
Corporation and subsidiaries as of October 27, 1996 and October 29, 1995, and
the related consolidated statements of operations, stockholders' equity, and
cash flows for each of the three fiscal years in the period ended October 27,
1996. Our audits also included the financial statement schedule listed in the
index at Item 14(a)2. These financial statements and financial statement
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Owosso Corporation and subsidiaries
as of October 27, 1996 and October 29, 1995, and the results of their operations
and their cash flows for each of the three fiscal years in the period ended
October 27, 1996 in conformity with generally accepted accounting principles.
Also, in our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
Philadelphia, Pennsylvania
December 5, 1996
F-1
OWOSSO CORPORATION
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
October 27, October 29,
ASSETS 1996 1995
---------- ----------
CURRENT ASSETS:
Cash and cash equivalents $ 839,889 $ 1,750,236
Receivables, net 18,415,245 18,190,026
Inventories, net 19,123,122 20,564,974
Prepaid expenses and other 1,608,169 1,164,617
Advances and interest receivable from affiliate 36,766 27,807
Deferred taxes 1,032,000 785,000
------------- -------------
Total current assets 41,055,191 42,482,660
PROPERTY, PLANT AND EQUIPMENT, NET 26,308,809 25,353,517
INTANGIBLES, NET 39,277,112 39,719,089
OTHER ASSETS 1,254,233 1,164,005
------------- -------------
TOTAL ASSETS $ 107,895,345 $ 108,719,271
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Payables - trade $ 6,597,061 $ 6,026,511
Accrued compensation and benefits 3,005,658 3,127,438
Accrued expenses 1,901,892 1,734,491
Accrued interest 419,565 363,827
Current portion of related party debt 5,975,000 8,950,000
Current portion of long-term debt 2,770,934 1,715,951
------------- -------------
Total current liabilities 20,670,110 21,918,218
RELATED PARTY DEBT, LESS CURRENT PORTION 4,150,000
LONG-TERM DEBT, LESS CURRENT PORTION 45,068,116 37,982,933
POSTRETIREMENT BENEFITS 1,593,950 1,412,298
DEFERRED TAXES 3,543,000 3,686,000
COMMTMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Convertible preferred stock Class A, 5% cumulative, $.0l par value; 10,000,000 shares
authorized; 1,071,428 shares issued and outstanding (aggregate liquidation value at
October 27, 1996 and October 29, 1995 - $15,000,000) 13,667,814 13,392,850
Common stock, $.0l par value; 15,000,000 shares authorized; 5,865,000 shares issued
and outstanding 58,650 58,650
Additional paid-in capital 21,611,701 21,611,701
Retained earnings 2,131,288 4,506,621
------------- -------------
Total 37,469,453 39,569,822
Less treasury stock, at cost (56,324 shares at October 27, 1996) (449,284)
------------- -------------
Total stockholders' equity 37,020,169 39,569,822
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 107,895,345 $ 108,719,271
============= =============
See notes to consolidated finaincial statements.
F-2
OWOSSO CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
Year Ended
--------------------------------------------------------
October 27, October 29, October 30,
1996 1995 1994
------------- ------------- -------------
Net sales $ 128,215,995 $ 108,000,652 $ 73,799,423
Costs of products sold 98,282,019 77,628,763 52,749,667
------------- ------------- -------------
Gross profit 29,933,976 30,371,889 21,049,756
Expenses:
Selling, general and administrative 19,488,114 13,919,978 9,487,211
Corporate 4,444,313 3,682,413 2,417,317
------------- ------------- -------------
Income from operations 6,001,549 12,769,498 9,145,228
Interest expense 4,080,762 2,876,317 1,855,449
Interest income 11,561 663,501
Other income 202,184 378,679 34,249
------------- ------------- -------------
Income before income tax provision (benefit) 2,122,971 10,283,421 7,987,529
Income tax provision (benefit) 1,275,000 3,900,000 (801,000)
------------- ------------- -------------
Net income 847,971 6,383,421 $ 8,788,529
=============
Dividends and accretion on preferred stock (1,024,964)
------------- -------------
Net (loss) income available for common stockholders $ (176,993) $ 6,383,421
============= =============
Net (loss) income per commom share $ (0.03) $ 1.09
============= =============
Weighted average number of common shares outstanding 5,839,000 5,865,000
============= =============
PRO FORMA
Pro forma income before pro forma tax provision $ 7,987,529
Pro forma tax provision 2,836,000
-------------
Pro forma net income $ 5,151,529
=============
Pro forma net income per share $ 1.06
=============
Pro forma common shares outstanding 4,847,000
=============
See notes to consolidated finaincial statements.
F-3
OWOSSO CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS'EQUITY
- --------------------------------------------------------------------------------
Additional
Preferred Common Paid-in Retained Treasury
Stock Stock Capital Earnings Stock Total
--------- -------- ---------- -------- -------- -------
BALANCE, OCTOBER 31, 1993 $ 516,929 $ 1,706,652 $ 11,604,400 $ (76,325) $ 13,751,656
Net income 8,788,529 8,788,529
Capital contributions 977,632 977,632
Distributions of current earnings (5,226,081) (5,226,081)
Capital distribution (10,000,000) (10,000,000)
Exchange of common stock (476,929) (792,499) 1,193,103 76,325
Purchase of Parker (4,500,000) (4,500,000)
Payment for warrant (1,000,000) (1,000,000)
Redemption of Dura-Bond stock (859,951) (859,951)
Initial public offering of common
stock 18,650 19,719,916 19,738,566
----------- ------------ ------------ ------------ ------------
BALANCE, OCTOBER 30, 1994 58,650 21,611,701 21,670,351
Net income 6,383,421 6,383,421
Dividends paid (1,876,800) (1,876,800)
Issuance of convertible preferred
stock $ 13,392,850 13,392,850
------------ ------------ ------------ ------------ ------------ ------------
BALANCE, OCTOBER 29, 1995 13,392,850 58,650 21,611,701 4,506,621 39,569,822
Net income 847,971 847,971
Dividends paid (2,856,331) (2,856,331)
Accretion on convertible preferred
stock 274,964 (274,964)
Treasury stock purchase (1,047,543) (1,047,543)
Issuance of treasury shares (92,009) 598,259 506,250
------------ ------------ ------------ ------------ ------------ ------------
BALANCE, OCTOBER 27, 1996 $ 13,667,814 $ 58,650 $ 21,611,701 $ 2,131,288 $ (449,284) $ 37,020,169
============ ============ ============ ============ ============ ============
See notes to consolidated financial statements.
F-4
OWOSSO CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
Year Ended
---------------------------------------------
October 27, October 29, October 30,
1996 1995 1994
------------ ----------- -----------
OPERATING ACTIVITIES:
Net income $ 847,971 $ 6,383,421 8,788,529
Adjustments to reconcile net income to net cash provided by operating activities:
Deferred taxes (572,420) (242,193) (801,000)
Corporate expenses paid by Brynavon Group 977,632
Loss (gain) on sale of assets 233,803 (3,633) (87,387)
Depreciation 3,824,744 2,889,753 2,553,000
Amortization 2,473,543 1,323,584 232,928
Amortization of defeffed gain on sale and leaseback (77,183) (77,183)
Changes in assets and liabilities which provided (used) cash:
Accounts receivable (140,108) (290,237) (2,514,516)
Inventories 1,752,803 (567,265) (642,014)
Prepaid expenses and other (402,306) (152,301) (231,500)
Prepaid pension 15,727 32,174 25,000
Accounts payable 556,371 (1,745,924) 2,134,967
Accrued expenses 169,238 123,117 446,086
------------ ------------ ------------
Net cash provided by operating activities 8,759,366 7,673,313 10,804,542
------------ ------------ ------------
INVESTING ACTIVITIES:
Acquisition of businesses, net of cash acquired (1,675,200) (1,401,241) (12,726,982)
Proceeds from sale and leaseback of assets 113,003
Purchases of property, plant and equipment (4,346,267) (4,437,238) (2,000,024)
Purchase of Parker (4,500,000)
(Increase) decrease in other assets (759,538) (348,582) 57,907
------------ ------------ ------------
Net cash used in investing activities (6,781,005) (6,187,061) (19,056,096)
------------ ------------ ------------
FINANCING ACTIVITIES:
Payments to acquire treasury stock (245,000)
Payments on amounts due to/from affiliates (889,172) (11,598,730)
Borrowings from line of credit 8,900,000 7,100,000 14,000,000
Proceeds from long-term debt 150,000 18,278
Payments on long-term debt (1,712,377) (4,975,748) (4,402,026)
Payments on related party debt (7,125,000) (450,000) (200,000)
Dividends paid (2,856,331) (1,876,800) (5,226,081)
Payment for warrant (1,000,000)
Redemption of Dura-Bond stock (2,148,927)
Initial public offering of common stock 19,738,566
------------ ------------ ------------
Net cash (used in) provided by financing activities (2,888,708) (1,091,720) 9,181,080
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (910,347) 394,532 929,526
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,750,236 1,355,704 426,178
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 839,889 $ 1,750,236 $ 1,355,704
============ ============ ============
See notes to consolidated financial statements.
F-5
OWOSSO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED OCTOBER 27, 1996, OCTOBER 29, 1995 AND OCTOBER 30, 1994
- --------------------------------------------------------------------------------
1. NATURE OF BUSINESS AND BASIS OF PRESENTATION
The Company - The consolidated financial statements represent the
consolidated financial position, results of operations and cash flows of
Owosso Corporation and subsidiaries (the "Company"). The subsidiaries include
Motor Products-Owosso Corporation (Motor Products), Motor Products - Ohio
Corporation: (MP - Ohio), Sooner Trailer Manufacturing Co. (Sooner), Cramer
Company (Cramer), DewEze Manufacturing, Inc., including Parker Industries,
Inc. (DewEze), Snowmax, Incorporated (Snowmax), The Landover Company
(Dura-Bond), Great Bend Manufacturing, Inc. (Great Bend) and Stature
Electric, Inc. (Stature Electric) and Owosso Motor Group, Inc. (Motor Group).
Certain of the Company's subsidiaries were previously affiliated with the
Brynavon Group, due to those entities being under common control and common
management. The Company is a diversified manufacturer of products in narrowly
defined niche markets and currently operates in two business segments,
Engineered Component Products and Specialized Equipment. In the Engineered
Component Products segment, the Company's products are sold primarily to
original equipment manufacturers or service providers who use them in their
end product or service. These products are primarily motors, cam shaft
bearings, heat transfer "fin and tube" coils and air conditioning evaporator
units. The products sold in the Specialized Equipment segment are almost
exclusively final products sold through dealers to their users. These
products are primarily all-aluminum horse trailers and agricultural and turf
maintenance equipment. The majority of the Company's customers are located in
North America.
The Reorganization - On October 25, 1994 the Company sold 1,865,000 shares of
its common stock at $12 per share in an initial public offering (the
"Offering"). The proceeds of the Offering along with proceeds from a new line
of credit agreement with a bank were used to repay certain indebtedness,
complete the Reorganization (see below) and acquire Sooner.
Immediately prior to the closing of the Offering, the stockholders of certain
subsidiaries of the Company received an aggregate of 4,000,000 shares of
common stock of the Company, constituting all of the shares of the Company
outstanding prior to the completion of the Offering. At the same time,
substantially all of the assets of Parker, a division of Kuker Industries,
Inc. which was a wholly owned subsidiary of Brynavon Group, was purchased by
DewEze for $4,500,000 plus the assumption of certain liabilities. The
consolidated statements of earnings prior to the Reorganization include the
results of operations of Parker and the entire amount of the purchase price
reduced stockholders' equity. Cash payments between Brynavon Group and Parker
have been accounted for as capital contributions or distributions.
Prior to the Reorganization discussed above, shares of certain stockholders
of Dura-Bond were redeemed for approximately $4,300,000. The redemption of
such shares were considered a partial purchase of Dura-Bond for accounting
purposes. As such, a proportionate share of the assets and liabilities was
recorded at their fair values. The Company performed an analysis and
concluded that the current recorded values do not materially differ from
their fair values. The result of this accounting treatment is that the
premium paid of approximately $3,400,000 over the proportionate share of the
equity redeemed has been reflected as goodwill and stockholders' equity was
reduced by approximately $900,000. Goodwill arising from this transaction is
being amortized over 25 years.
F-6
In 1989, Snowmax purchased its operating assets from a subsidiary of Brynavon
Group in exchange for consideration which included a promissory note (the
"Earn-Out Note") requiring Snowmax to pay amounts to Brynavon Group from 1990
through 1999 depending upon the future earnings of Snowmax. In 1991, Brynavon
Group acquired a warrant held by a third party to acquire a 10% interest in
Snowmax (the "Warrant"). In connection with the Reorganization, the Earn-Out
Note and the Warrant were canceled in consideration for a payment of
$2,150,000 to Brynavon Group, which was paid out of the proceeds of the
Offering. The Earn-Out Note was recorded in the historical financial
statements and the payment for the Warrant resulted in a reduction of
stockholders' equity of $1,000,000.
Motor Products distributed a dividend to certain stockholders in the form of
certain indebtedness owed to Motor Products by Brynavon Group of $10,000,000
which resulted in a reduction in stockholders' equity.
The corporate headquarters of Brynavon Group were assumed by the Company
subsequent to the Offering. As such, the cost of operating the Brynavon Group
corporate headquarters, except for an allocation to the remaining
subsidiaries and affiliates of Brynavon Group of approximately $150,000 per
year, has been included in the statement of operations for the fiscal year
ended October 30, 1994. Brynavon Group paid certain expenses on behalf of the
Company of approximately $978,000 for the fiscal year ended October 30, 1994.
This amount has been included as corporate expenses and capital contributions
in the accompanying consolidated financial statements.
Pro Forma Presentation (Unaudited):
The pro forma data for 1994 reflects the following:
o Pro forma tax provision represents the pro forma tax provision as if the
Company was subject to federal income tax.
o Pro forma net income represents the pro forma net income of the Company,
after consideration of the pro forma tax provision.
o Pro forma net income per share was based on 4,000,000 shares outstanding
upon the completion of the Reorganization, an additional 833,000 shares to
give effect to the number of shares required to fund the $10,000,000
distribution to the Motor Products stockholders and the effect of shares
issued in the Offering.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation - The consolidated financial statements of the Company include
the accounts of Owosso Corporation and its wholly owned subsidiaries. All
intercompany balances and transactions have been eliminated in consolidation.
Fiscal Year - The Company's year-end is the last Sunday in October. Fiscal
years 1996, 1995 and 1994 constituted 52-week years.
Cash and Cash Equivalents - consist of cash and highly-liquid investments
with an original maturity of three months or less.
Inventories - Inventories of the Company are recorded at cost, which is not
in excess of market. At October 27, 1996 and October 29, 1995, cost for 17%
and 14%, respectively, of the inventories are determined on the last-in,
first-out (LIFO) basis, and the remainder on the first-in, first-out (FIFO)
basis.
Information related to the FIFO method may be useful in comparing operating
results to those of companies not on LIFO. If the FIFO method of inventory,
which approximates replacement cost, had
F-7
been used by the Company for all inventories, inventory would have been
approximately $900,000 and $955,000 higher than reported at October 27, 1996
and October 29, 1995, respectively. Additionally, net income would have
(decreased) increased by approximately $(55,000), $(42,000) and $247,000 for
the years ended October 27, 1996, October 29, 1995 and October 30, 1994,
respectively. These amounts reflect the combined effects, in each year, of
changes in inventory quantities and unit costs.
Property, Plant and Equipment - Items of property, plant and equipment are
stated at cost and are depreciated principally on the straight-line method
over their estimated useful lives as follows:
Land improvements 10 - 20 years
Buildings 30 years
Machinery and equipment 3 - 10 years
Income Taxes - The Company elected to be taxed as an S corporation for
federal tax purposes prior to the Reorganization. As such, taxable income was
included on the income tax returns of the stockholders under those elections
(see pro forma presentation in Notes 1 and 12).
Subsequent to the Reorganization, taxes on income are provided based upon
Statement of Financial Accounting Standards (SFAS) No. 109, Accounting for
Income Taxes, which requires an asset and liability approach to financial
accounting and reporting for income taxes. Deferred income tax assets and
liabilities are computed for differences between the financial statement and
tax bases of assets and liabilities that will result in taxable or deductible
amounts in the future. Such deferred income tax asset and liability
computations are based on enacted tax laws and rates applicable to periods in
which the differences are expected to affect taxable income. Valuation
allowances are established when necessary to reduce deferred tax assets to
the amounts expected to be realized. Income tax expense is the tax payable or
refundable for the period plus or minus the change during the period in
deferred tax assets and liabilities.
Fair Value of Financial Instruments - The following disclosures of the
estimated fair value of financial instruments were made in accordance with
the requirements of SFAS No. 107, Disclosures about Fair Value of Financial
Instruments. The estimated fair value amounts have been determined by the
Company using available market information and appropriate valuation
methodologies.
Cash and Cash Equivalents, Accounts Receivable, and Accounts Payable -
The carrying amount of these items are a reasonable estimate of their
fair value.
Short-term Debt and Long-term Debt - Rates currently available to the
Company for debt with similar terms and remaining maturities are used to
estimate the fair value for debt issues. Accordingly, the carrying
amount of debt is a reasonable estimate of its fair value.
Derivatives - The Company's interest rate swap agreements have an
aggregate notional amount of $15,000,000 and were in a liability
position of $360,000 at October 27, 1996.
Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results may differ from those estimates
and assumptions.
F-8
Intangibles - Items are amortized on a straight-line basis over their
estimated useful lives as follows:
Noncompetition agreements 3-6 years
Customer lists 20 years
Goodwill 20-25 years
Other 5-20 years
The Company evaluates the carrying value of long-term assets, including
goodwill and other intangible assets, based upon current and anticipated
undiscounted cash flows, and recognizes an impairment when such estimated
cash flows will be less than the carrying value of the asset. Measurement of
the amount of impairment, if any, is based upon the difference between
carrying value and fair value. The Company must adopt SFAS No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed Of in fiscal 1997. Adoption of SFAS No. 121 is not expected to
have a significant effect on the consolidated financial position or results
of operations of the Company.
Revenue Recognition - Revenue is recognized at the time the product is
shipped. An allowance for doubtful accounts of approximately $509,000 and
$155,000 has been recorded as of October 27, 1996 and October 29, 1995,
respectively.
Stock-Based Compensation - In October 1995, the Financial Accounting
Standards Board issued SFAS No. 123, Accounting for Stock-Based Compensation.
SFAS No. 123 defines a fair value method of accounting for stock options and
other equity instruments. Under the fair value method, compensation cost is
measured at the grant date based on the fair value of the award and is
recognized over the service period, which is usually the vesting period.
Under SFAS No. 123, the Company is permitted to continue to account for
employee stock-based transactions under Accounting Principles Board Opinion
No. 25, Accounting for Stock Issued to Employees ("APB No. 25"), but will be
required to disclose in a note to the consolidated financial statements pro
forma net income and income per share information as if the Company had
applied the new method of accounting. SFAS No. 123 also requires increased
disclosures for stock-based compensation arrangements regardless of the
method chosen to measure and recognize compensation for employee stock-based
arrangements.
The Company has determined that it will continue to account for such
transactions under APB No. 25 and will provide the disclosures required by
SFAS No. 123 during the year ending October 26, 1997.
Reclassifications - Certain reclassifications were made to the 1995 and 1994
consolidated financial statements to conform to 1996 classifications.
3. SUPPLEMENTAL CASH FLOW INFORMATION
Cash payments in 1996, 1995 and 1994 included payments for interest of
$4,025,024, $2,596,438 and $1,773,307, respectively. Cash payments in 1996
and 1995 included payments for taxes of $1,880,000 and $4,708,000.
In 1996, in connection with the repurchase of common stock from the former
chief operating officer, the Company issued a promissory note totaling
$802,543.
In 1996, in connection with the purchase of Motor Group, the Company reissued
75,000 shares of treasury stock.
F-9
In 1995, in connection with the acquisition of Great Bend, subordinated notes
totaling $1,700,000 were issued to certain selling stockholders and a
noncompetition agreement totaling $600,000 was entered into with the
president.
In 1995, in connection with the acquisition of Stature Electric 1,071,428
shares of Class A convertible preferred stock with a fair market value of
$13,392,850 and $12,500,000 of promissory notes were issued to the selling
stockholders.
In 1994, in connection with the Reorganization, shares of Dura- Bond were
redeemed for approximately $4,300,000 of which approximately $2,100,000 was
in the form of a note payable. In addition, Motor Products distributed a
dividend to certain stockholders in the form of certain indebtedness to Motor
Products by Brynavon Group of $10,000,000.
In 1994, in connection with the acquisition of Sooner, subordinated notes
totaling $5,000,000 were issued to certain selling stockholders.
4. BUSINESS ACQUISITIONS
All acquisitions have been accounted for as purchases and, accordingly, the
aggregate prices were allocated to assets and liabilities acquired based on
their fair values at the date of acquisition. The results of operations have
been included in the consolidated results of the Company from the effective
dates of each acquisition.
Acquisition of Sooner - Effective October 30, 1994, the Company acquired all
of the issued and outstanding capital stock of Sooner, a manufacturer of
all-aluminum horse trailers. The purchase price was $17,000,000, including
$12,000,000 paid in cash and $5,000,000 payable under a seven-year promissory
note bearing interest at 7.67%. One of the former principal stockholders and
management employees of Sooner received $1,000,000 in consideration for his
covenant not to compete with the Company.
Acquisition of Great Bend - Effective May 1, 1995, the Company acquired all
of the issued and outstanding capital stock of Great Bend which manufactures
and markets front-end loaders. The purchase price was $4,300,000, including
$2,600,000 paid in cash and $1,700,000 of subordinated promissory notes, with
a term of 10 years bearing interest at 8% annually. The president of Great
Bend entered into a six-year employment agreement with Great Bend and
received $600,000 in consideration for his covenant not to compete with the
Company.
Acquisition of Stature Electric- Effective October 29, 1995, the Company
acquired all of the issued and outstanding capital stock of Stature Electric,
a manufacturer of permanent magnet gear motors. As such, the consolidated
balance sheet includes the assets and liabilities of Stature Electric. The
purchase price was $25,900,000, including $12,500,000 of promissory notes,
with a term not exceeding 10 years bearing interest at 8% annually, and the
issuance of 1,071,428 shares of Class A convertible preferred stock of the
Company, with a fair value of $12.50 per share.
F-10
The following unaudited pro forma financial information shows the results of
the Company's operations for the period presented as though the purchase of
Great Bend and Stature Electric had been made at the beginning of the period.
October 29,
1995
Net sales $133,058,000
Income from operations 15,699,000
Net income 7,086,000
Dividends and accretion on preferred stock 1,025,000
Net income available for common stockholders 6,061,000
Net income per common share $ 1.03
Number of shares 5,865,000
5. INVENTORIES
Inventories are summarized as follows:
October 27, October 29,
1996 1995
Raw materials and purchased parts $ 8,468,218 $10,187,479
Work in process 4,316,588 4,957,924
Finished goods 6,338,316 5,419,571
----------- -----------
Total $19,123,122 $20,564,974
=========== ===========
6. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is summarized by major classification as
follows:
October 27, October 29,
1996 1995
Land and improvements $ 1,165,459 $ 1,200,243
Buildings 15,131,406 14,786,844
Machinery and equipment 32,457,930 28,195,307
Construction in progress 638,574 748,258
------------ ------------
Total 49,393,369 44,930,652
Accumulated depreciation and amortization (23,084,560) (19,577,135)
------------ ------------
Property, plant and equipment, net $ 26,308,809 $ 25,353,517
============ ============
Depreciation expense was approximately $3,825,000, $2,890,000 and $2,553,000
for the years ended October 27, 1996, October 29, 1995 and October 30, 1994,
respectively.
F-11
7. INTANGIBLES
Intangibles are summarized as follows:
October 27, October 29,
1996 1995
Noncompetition agreements $ 2,220,000 $ 2,220,000
Goodwill 32,876,500 30,878,865
Customer lists 8,000,000 8,000,000
Other 897,734 863,793
----------- -----------
Total 43,994,234 41,962,658
Accumulated amortization (4,717,122) (2,243,569)
----------- -----------
Intangibles, net $39,277,112 $39,719,089
=========== ===========
Amortization expense was approximately $2,474,000, $1,324,000 and $234,000
for the years ended October 27, 1996, October 29, 1995 and October 30, 1994,
respectively.
F-12
8. LONG-TERM DEBT AND RELATED PARTY DEBT
Long-term debt and related party debt consists of the following:
October 27, October 29,
1996 1995
THIRD-PARTY DEBT:
Banks:
Unsecured revolving credit agreement $30,000,000 $21,100,000
Promissory note payable in monthly installments of $4,100 to $7,400 due April 1997
with interest at 9% due monthly, collateralized by certain real property 633,938 735,085
Promissory note in monthly installments of $8,864 due February 2009,
with a variable interest rate
(7.7% at October 27, 1996) due monthly, collateralized by certain real property 873,705 911,360
Industrial revenue bonds:
Series 1993, interest at 4.50% to 6.75%, payable in annual installments increasing from
$120,000 to $190,000; commencing in September 1994 and final payment due September 2003
collateralized by building and equipment 1,125,000 1,255,000
Series 1988-A; issued August 25, 1988, payable in annual installments of $500,000 commencing
in January 1997 and final payment due January 1, 2006, collateralized by building
and equipment 5,000,000 5,000,000
Series 1985, interest at 88% of prime, payable semiannually in amounts increasing from $10,000 to
$25,000; final payment due December 1997 74,780 118,364
Series 1984, interest at 75% of prime payable in monthly installments; final payment
due December 1999, collateralized by building and equipment 128,862 166,320
Series 1984 A & B, payable in annual installments ranging from $100,000 to $155,000, plus
interest payable semi-annually at rates from 4.25% to 6.75%; final payment due March 2004,
collateralized by building and equipment 1,045,000 1,150,000
Series 1989, interest at 7.5% , payable semiannually, with principal amount due
in August 1999, collateralized by certain real property 1,800,000 1,800,000
Former and current stockholders:
Noncompetition agreement, payable in quarterly installments of
$25,000 through December 1996, noninterest bearing 37,500 125,000
Noncompetition agreement, payable in quarterly installments of
$25,000 through May 2001, noninterest bearing 450,000 550,000
Subordinated promissory notes, principal and interest of $20,054
and $13,281 payable in quarterly installments, interest at 9%
with final payment due April 1999 221,887 332,830
Subordinated promissory notes, payable in monthly installments of $77,107,
interest at 7.67% with final payment due October 2001 3,882,859 4,487,099
Subordinated promissory notes, payable in quarterly installments of $42,585 plus interest at
8% with final payment due April 2005 1,447,903 1,618,245
Subordinated promissory note, payable in August 1998, interest payable in quarterly
installments at 8% 802,543
Other:
Capital lease obligations 134,516 281,042
Other long-term debt 180,557 68,539
----------- -----------
Total third-party debt 47,839,050 39,698,884
----------- -----------
RELATED PARTY DEBT:
Promissory notes, payable to preferred stockholders in installments ranging from $3,125,000 in January
1996 and $1,875,000 quarterly through October 1996, interest at 8%, with final payment of $3,750,000
thereafter due on demand, due no later than October 2005 5,625,000 12,500,000
Subordinated promissory notes payable to a director, interest only at 10%, due December 1996 350,000 350,000
Subordinated notes payable to a director, annual payments of $137,500 to $200,000 due October 1992
through October 1996 with interest at 15% due quarterly 250,000
----------- -----------
Total related party debt 5,975,000 13,100,000
----------- -----------
Total long-term debt 53,814,050 52,798,884
Less current portion 8,745,934 10,665,951
----------- -----------
Total $45,068,116 $42,132,933
=========== ===========
F-13
The Company has a $55,000,000 unsecured revolving credit agreement with two
banks, which expires on March 31, 2000 of which $30,000,000 was outstanding
at October 27, 1996. On December 5, 1996, the Company amended the agreement
in order to meet certain financial covenants with which the Company would not
have been in compliance as of October 27, 1996. Interest is payable monthly,
at the Company's option, at either the bank's prime rate (8.25% at October
27, 1996) or a variable spread (1.75% at October 27, 1996) over the London
Interbank Offered Rate. The effective rate at October 27, 1996 was 7.4%. The
agreement includes financial and other covenants, including leverage, fixed
charge, cash flow and net worth ratios, restrictions on certain asset sales,
mergers and other significant transactions and a negative pledge on fixed
assets. Repayment of the Industrial Revenue Bonds of certain of the
subsidiaries has been guaranteed by the Company.
Derivative Interest Rate Contracts - The Company entered into two interest
rate swap agreements, each with a $7.5 million notional amount. Beginning in
fiscal year 1997, the Company will receive floating interest rate payments at
the three month London Interbank Offered Rate in exchange for quarterly fixed
interest rate payments of 7.0675% and 7.09% over the life of the agreements.
The Company enters into these interest rate swap agreements to change the
fixed/variable interest rate mix of the debt portfolio to reduce the
Company's aggregate risk to movements in interest rates. The agreements are
accounted for using settlement accounting.
The aggregate amount of required payments on long-term debt, excluding
capital lease obligations, is as follows:
Year ending October:
1997 $ 8,650,159
1998 2,796,174
1999 3,750,469
2000 31,976,689
2001 1,816,038
Thereafter 4,690,005
-----------
Total $53,679,534
===========
Future capital lease obligations are as follows:
1997 $106,657
1998 41,676
--------
Total 148,333
Amount representing interest 13,817
--------
Present value of payments 134,516
Less current portion 95,775
--------
Long-term capital lease obligations $ 38,741
========
Equipment with a net book value of $253,255 and $276,240 at October 27, 1996
and October 29, 1995 (net of accumulated amortization of $539,646 and
$452,644 at October 27, 1996 and October 29, 1995), has been leased under
capital leases.
9. TRANSACTIONS WITH RELATED PARTIES
Advances and interest receivable from affiliate represent amounts owed to the
Company for the cash balances advanced to Brynavon Group. Prior to the
Reorganization (see Note 1) interest income was
F-14
received on these balances at the prime rate and was approximately $614,000
for the year ended October 30, 1994.
During 1995, the Company and Brynavon Group settled all remaining amounts
outstanding, including a subordinated note payable to Brynavon Group, which
resulted in a gain of $200,000, which has been included as other income in
the 1995 consolidated statement of operations.
Interest expense related to amounts owed to Brynavon Group were
approximately $83,000 and $809,000 for the years ended October 29, 1995 and
October 30, 1994.
10. PENSION AND POSTRETIREMENT PLANS
Pension Plans - In July 1995, the Company established a defined contribution
401(k) plan covering substantially all of its employees, except for Motor
Products' hourly employees who are covered under the defined benefit pension
plan described below. Eligible employees may contribute up to 15% of their
compensation to this plan and their contributions are matched by the Company
at a rate of 50% on the first 4% of the employees' contribution. The plan
also provides for a fixed contribution of 3% of eligible employees'
compensation. The expense for the years ended October 27, 1996 and October
29, 1995 under this plan was approximately $686,000 and $206,000,
respectively. All existing 401(k) and defined contribution plans were merged
into the newly created 401(k) plan. These other plans are described below.
Great Bend sponsors a 401(k) savings plan covering substantially all of its
employees. Employees can contribute up to 15% of their salary and their
contributions are matched at a rate of 25% on the first 4% of the employees'
contribution. Expense for the years ended October 27, 1996 and October 29,
1995 under this plan was approximately $16,000 and $7,000, respectively.
Motor Products, Snowmax, Cramer and other affiliated entities of Brynavon
Group had participated in a defined contribution plan covering substantially
all of their employees, except for Motor Products hourly employees who are
covered under a defined benefit pension plan described below. This plan
provided for contributions which, when added to forfeitures which have
become available for allocation, totaled 4.5% of eligible employees'
compensation. The sponsors' fund costs accrued currently. The expense for
the years ended October 29, 1995 and October 30, 1994 under this plan was
approximately $228,000 and $280,000, respectively.
DewEze sponsored a 401(k) savings plan covering substantially all of its
employees. Employees could contribute up to 10% of their salary, of which up
to 3% was matched by DewEze. Expense for the years ended October 29, 1995
and October 30, 1994 under this plan was approximately $30,000 for each
year-end.
Dura-Bond sponsored a defined contribution pension plan covering
substantially all of its employees. Contributions were determined as 4% of
each covered employee's compensation, net of employee forfeitures. Dura-Bond
also sponsored, beginning in fiscal 1992, a 401(k) savings plan covering
substantially all of its employees. Employees could contribute up to 15% of
their salary, of which 1/2%
F-15
was matched by Dura-Bond. Expense for the Dura-Bond plans for the years
ended October 29, 1995 and October 30, 1994 was approximately $38,000 and
$120,000, respectively.
Motor Products has a defined benefit pension plan covering substantially all
of its hourly employees. The benefits are based on years of service, the
employee's compensation during the last three years of employment and
accumulated employee contributions. Net pension expense included in the
consolidated statements of operations for the years ended October 27, 1996,
October 29, 1995, and October 30, 1994 was determined as follows:
October 27, October 29, October 30,
1996 1995 1994
Service cost $ 68,600 $ 52,500 $ 63,200
Interest cost on projected benefit obligation 186,543 187,088 175,112
Expected return on assets (220,463) (197,459) (207,225)
Amortization of unrecognized net credit (41,235) (41,235) (41,235)
Amortization of prior service cost 12,641 12,641 12,641
Amortization of unrecognized loss 9,641 18,639 23,212
--------- --------- ---------
Net pension expense $ 15,727 $ 32,174 $ 25,705
========= ========= =========
The following is a reconciliation of the plan's funded status:
October 27, October 29,
1996 1995
Projected benefit obligation $ 2,656,200 $ 2,752,500
Plan assets at market value - consisting primarily of mutual funds 3,036,722 2,755,787
----------- -----------
Funded status 380,522 3,287
Unrecognized initial net credit (371,110) (412,345)
Unrecognized prior service cost 161,721 174,362
Unrecognized net loss 226,349 647,905
----------- -----------
Prepaid pension $ 397,482 $ 413,209
=========== ===========
Additional disclosures and assumptions:
October 27, October 29,
1996 1995
Accumulated benefit obligation $ 2,174,200 $ 2,186,900
Vested benefit obligation 2,127,500 2,169,700
Discount rate 7.50% 7.25%
Expected long-term rate of return 8.0 8.0
Salary increases 5.0 5.0
Stature Electric had a defined benefit pension plan covering substantially
all of its employees. Upon the acquisition, the Company initiated a plan to
freeze the benefits, terminate the plan and provide new retirement benefits
under the Company's 401(k) plan.
F-16
Postretirement Plan - Motor Products provides postretirement medical benefits
and life insurance benefits to current and former employees who retire from
Motor Products. No contributions from retirees are required and the Plan is
funded on a pay-as-you-go basis.
Motor Products has adopted SFAS No. 106, Employers' Accounting for
Postretirement Benefits Other Than Pensions (SFAS 106). SFAS 106 requires
recognition during employees' active service periods of the expected cost of
providing such postretirement benefits. Motor Products paid $64,500, $44,400
and $33,900 in such benefits during the years ended October 27, 1996, October
29, 1995 and October 30, 1994, respectively.
The following table sets forth the funded status of the plan reconciled with
the amount shown in the consolidated balance sheet as of October 27, 1996 and
at October 29, 1995:
October 27, October 29,
1996 1995
Accumulated postretirement benefit obligation:
Retirees $ 454,800 $ 407,300
Fully eligible active plan participants 171,900 225,300
Other active plan participants 1,067,900 1,054,200
----------- -----------
Total 1,694,600 1,686,800
Plan assets at fair value 0 0
----------- -----------
Accumulated postretirement benefit obligation in excess
of plan assets 1,694,600 1,686,800
Unrecognized net gain from past experience different from that
assumed and from changes in assumptions 185,290 27,318
Prior service cost not yet recognized in net periodic
postretirement benefit cost (285,940) (301,820)
----------- -----------
Accrued postretirement benefit cost $ 1,593,950 $ 1,412,298
=========== ===========
Net periodic postretirement benefit cost included the following components
for the years ended October 27, 1996 and October 29, 1995:
October 27, October 29,
1996 1995
Service cost $ 115,600 $ 97,100
Interest cost 113,700 109,100
Amortization of prior service cost 15,880 15,880
Amortization of unrecognized loss (2,500)
--------- ---------
Total $ 245,180 $ 219,580
========= =========
For measurement purposes, a 9.4% and 10.4% annual rate of increase in the per
capita cost of covered health care benefits was assumed for the years ended
October 27, 1996 and October 29, 1995, respectively; the rate was assumed to
decrease gradually to 4.9% for 2015 and 5.2% for 2012, and remain
F-17
at that level thereafter. The health care cost trend rate assumption has a
significant effect on the amounts reported. To illustrate, increasing the
assumed health care cost trend rates by one percentage point in each year
would increase the accumulated postretirement benefit obligation as of
October 27, 1996 by $361,000 and the aggregate of the service cost and
interest cost components of the net periodic postretirement benefit cost for
the year then ended by $60,300.
The weighted average discount rate used in determining the accumulated
postretirement benefit obligation was 7.5% and 7.25%, as of October 27, 1996
and October 29, 1995, respectively.
11. COMMITMENTS AND CONTINGENCIES
The Company leases office space, a production facility and certain equipment
under operating leases. Operating lease expense was approximately
$1,061,000, $702,000 and $574,000 for the years ended October 27, 1996,
October 29, 1995 and October 30, 1994, respectively, net of sublease rentals
and reimbursements of utilities of $99,000, $269,000 and $260,000,
respectively. The lease on the corporate headquarters office space expires
in September 2006 with a base rent of approximately $186,000 in 1996, which
adjusts annually through October 1999 to $305,000. Cramer leases its
facilities under an operating lease which is scheduled to expire in 1999,
with an additional 10 year renewal option beyond 1999. The lease requires
Cramer to pay the property taxes, insurance, utilities and maintenance
expenses. Future minimum rental payments under non-cancellable operating
leases are as follows:
Year ending October:
1997 $ 909,163
1998 963,297
1999 773,694
2000 353,741
2001 305,160
Thereafter 1,500,370
---------
$4,805,425
==========
At October 27, 1996, outstanding letters of credit totaled approximately
$8,111,000. These letters of credit primarily guarantee certain notes and
performance of contracts associated with acquisitions made by the Company.
The Company is subject to federal, state and local environmental regulation
with respect to its operations. The Company believes that it is operating in
substantial compliance with applicable environmental regulations.
In December 1990, Dura-Bond was issued a non-binding request for certain
investigative and remediation measures by the California Regional Water
Quality Control Board relating to a facility it formerly operated. Since the
issuance of the request, the State has taken no further action against
Dura-Bond. In the event the State were to seek further remediation,
Dura-Bond may face claims from the State or claims for contribution to its
former lessor. Dura-Bond believes that it has substantial defenses to any
such claim.
The lessor of Cramer's facility is engaged in negotiations with the State of
Connecticut regarding additional investigative or remedial measures at this
facility. Cramer may be required to bear a portion of the costs of any such
investigative or remedial measures, the amount of which cannot currently be
F-18
reasonably estimated. Cramer is also engaged in the closure of waste
handling facilities at this location in accordance with State regulations.
Closure is expected to be completed in 1997 at a cost which is not expected
to be significant.
Cramer has been named as a potentially responsible party with respect to a
hazardous substance disposal site being cleaned up by the U.S. Environmental
Protection Agency under its "Superfund" program, which they expect to settle
through the payment of minor amounts.
A portion of Sooner's manufacturing facility was used in the past to store
containers of waste oil and solvents, and an above-ground diesel fuel
storage tank is currently located at the facility. The Company intends to
establish a well at the facility for the purpose of monitoring the ground
water for any contamination, and the Company estimates such monitoring will
cost approximately $12,500 per year.
Current historic 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.
Sooner and DewEze have arrangements with a number of financial institutions
to provide floor plan financing for its dealers, which require them to
repurchase repossessed products from the financial institutions in the event
of a default by the financed dealer. Their obligation is typically to
repurchase the equipment at 90% of the purchase price for the first 180
days, 80% for the next 90 days and 70% for the next 90 days, after which the
obligation expires. Neither subsidiary has taken possession on any equipment
pursuant to the repurchase obligations in these contracts.
In addition to the matters reported herein, the Company is involved in
litigation dealing with the numerous aspects of its business operations. The
Company believes that settlement of such litigation will not have a material
effect on its consolidated financial position or results of operations.
12. TAXES ON INCOME
Effective with the Reorganization, taxes on income are provided based upon
SFAS No. 109. As such, the Company established deferred taxes at the date of
the Reorganization in the amount of $801,000 which was reflected in the
consolidated statement of operations for the year ended October 30, 1994.
The income tax provision consists of the following:
October 27, October 29,
1996 1995
Current:
Federal $ 1,810,000 $ 3,899,000
State 40,000 178,000
Deferred - federal (575,000) (177,000)
----------- -----------
Total income tax provision $ 1,275,000 $ 3,900,000
=========== ===========
F-19
The reconciliation to the statutory federal income tax rate is as follows:
October 27, October 29,
1996 1995
Federal income tax provision at statutory rate 35.0% 35.0%
State income taxes, net of federal income tax benefit 1.2 1.1
Amortization of excess cost of net assets acquired 23.5 2.4
Other 0.4 (0.6)
---- ---
Provision for income taxes 60.1% 37.9%
==== ===
The components of the Company's net deferred tax assets and liabilities,
including the deferred tax liability recorded upon the acquisition of Stature
Electric are as follows:
October 27, October 29,
1996 1995
Deferred tax asset:
Intangibles $ 615,000 $ 615,000
Accruals and reserves 1,540,000 1,369,000
Tax credits and loss carryforwards 683,000 315,000
Other 484,000 121,000
----------- -----------
3,322,000 2,420,000
Valuation allowance (1,397,000) (961,000)
----------- -----------
Total $ 1,925,000 $ 1,459,000
=========== ===========
Deferred tax liabilities:
Intangibles $ 2,888,000 $ 3,040,000
Pension 135,000 140,000
Property, plant and equipment 1,413,000 1,180,000
----------- -----------
Total $ 4,436,000 $ 4,360,000
=========== ===========
Net deferred tax liability $(2,511,000) $(2,901,000)
=========== ===========
These amounts are included in the accompanying consolidated financial
statements as follows:
October 27, October 29,
1996 1995
Current assets $ 1,032,000 $ 785,000
Long-term liabilities (3,543,000) (3,686,000)
----------- -----------
Net deferred tax liability $(2,511,000) $(2,901,000)
=========== ===========
The Company's valuation allowance relates primarily to intangibles and state
deferred tax assets on which management believes realization may be
unlikely.
F-20
Prior to the Reorganization, the Company had elected to be taxed as an S
corporation for federal income tax purposes. As such, current taxable income
had been included on the income tax returns of the stockholders under these
elections. The completion of the Reorganization, (see Note 1) resulted in a
termination of the S corporation election. The pro forma provision for
federal income tax presented below reflects the provision for income taxes
the Company would have reported had the Company been taxed on its income.
The pro forma tax provision for 1994 consists of the following:
October 30,
1994
Current $ 3,206,000
Deferred (370,000)
-----------
Total $ 2,836,000
===========
The pro forma effective income tax rate differs from the federal statutory
tax rate due to adjustments for amortization of goodwill, officers' life
insurance premiums, state income taxes and meals and entertainment.
13. CONVERTIBLE PREFERRED STOCK
As part of the Stature Electric acquisition, the Company issued 1,071,428 of
its 10,000,000 authorized preferred shares as Class A convertible preferred
stock, with a stated value of $14 per share. The stock was recorded at its
fair market value of $12.50 per share. The convertible preferred stock is
entitled to quarterly cash dividends as a percentage of the stated value of
$15,000,000 as follows:
November 1996 to October 2000 5% per annum
November 2000 to October 2001 6% per annum
November 2001 to October 2002 7% per annum
November 2002 to October 2003 8% per annum
November 2003 to October 2004 9% per annum
November 2004 and thereafter 10% per annum
The Company may not pay any common stock dividends unless all preferred
dividend requirements have been met. At October 27, 1996, there are no
accrued preferred dividends. The Class A convertible preferred stock has a
liquidation preference of $14 per share at October 27, 1996. At any time
prior to October 26, 2000, the holders of the preferred stock have a right
to convert all, or any portion of the preferred stock into shares of common
stock on a one to one ratio, (subject to adjustment under certain
conditions). At any time after October 29, 2000, the Company may, at its
option, redeem all, or any portion of the then outstanding preferred stock.
The redemption price and the liquidation preference of the preferred stock
is initially equal to the stated value of $14 per share and increases after
November 2000 by 5% each year for ten years to a maximum of 150% of stated
value. The convertible preferred stockholders are entitled to vote as a
class to elect one member of the Board of Directors of the Company so long
as at least 40% of the originally issued Class A preferred stock is
outstanding. The convertible preferred stock has liquidation priority over
common stock.
F-21
14. STOCK OPTION PLAN
The Company's 1994 Stock Option Plan (the "Stock Option Plan") provides for
the grant of options to purchase an aggregate of up to 500,000 shares of
common stock of the Company. The Stock Option Plan is designed to serve as
an incentive for retaining qualified and competent employees and directors.
Eligible participants under the Stock Option Plan are all employees and
directors of the Company. The Stock Option Plan is administered by the
Company's Compensation Committee of the Board of Directors.
The Stock Option Plan contains a provision for the automatic acceleration of
the exercisability of all outstanding options upon the occurrence of a
change in control (as defined in the Stock Option Plan) and a provision for
the cancellation of options and cash payment to the holders of such canceled
options upon the occurrence of certain of the events constituting a change
in control. The Compensation Committee may generally amend, alter or
discontinue the Stock Option Plan at any time, but no amendment, alteration
or discontinuation will be made which would impair the rights of an optionee
with respect to an outstanding stock option without the consent of the
optionee.
The following schedule summarizes stock option activity and status:
October 27, October 29, October 30,
1996 1995 1994
Outstanding at beginning of year 284,340 264,340 264,340
Granted 175,500 30,000 0
Cancelled (135,000) (10,000) 0
-------- ------- ---------
Outstanding at end of year 324,840 284,340 264,340
======= ======= =======
Exercise price of options outstanding at the
end of year $5.875-$12.00 $11.375-$12.00 $ 12.00
============= ============== ==========
At October 27, 1996, a total of 175,160 shares were available for issuance
under the Stock Option Plan to be granted in the future. At October 27,
1996, 88,340 options were fully vested and exercisable.
F-22
15. BUSINESS SEGMENTS
Business segment information is as follows:
Engineered Specialized Corporate
Components Equipment Expenses
Net sales:
1996 $ 71,987,398 $ 56,228,597
1995 57,374,938 50,625,714
1994 58,406,532 15,392,891
Income (loss) from operations:
1996 6,811,929 3,633,933 $ (4,444,313)
1995 9,666,192 6,785,719 (3,682,413)
1994 9,930,971 1,631,574 (2,417,317)
Identifiable assets:
1996 67,231,968 38,491,159 2,172,218
1995 67,109,265 40,014,760 1,595,246
1994 34,351,722 29,951,268 1,815,316
Capital additions:
1996 2,794,999 1,123,560 427,708
1995 2,352,722 1,719,327 365,189
1994 1,366,781 571,935 61,308
Depreciation and amortization expense:
1996 4,056,704 2,052,157 189,426
1995 2,334,540 1,768,610 110,187
1994 2,360,817 425,111
F-23
16. QUARTERLY INFORMATION (UNAUDITED)
The following table details net sales, gross profit, income (loss) before
taxes, net income (loss) and net income (loss) per share on a quarterly
basis for 1996 and 1995:
Quarter Ended Quarter Ended Quarter Ended Quarter Ended
January 1996 April 1996 July 1996 October 1996
Net sales $ 27,919,402 $ 33,442,895 $ 33,294,650 $ 33,559,048
Gross profit 7,030,686 7,967,068 8,526,174 6,410,048
Income (loss) before taxes 607,107 968,311 1,592,208 (1,044,655)
Net income (loss) 367,300 539,180 844,180 (902,689)
Net income (loss) available
for common shareholders 112,986 283,598 587,305 (1,160,882)
Net income (loss) per
common share $ 0.02 $ 0.05 $ 0.10 $ (0.20)
Quarter Ended Quarter Ended Quarter Ended Quarter Ended
January 1995 April 1995 July 1995 October 1995
Net sales $ 21,492,937 $ 26,819,155 $ 29,549,940 $ 30,138,620
Gross profit 6,403,949 7,993,514 7,872,238 8,102,188
Income before taxes 2,212,819 3,381,216 2,609,923 2,079,463
Net income 1,383,014 2,096,476 1,612,933 1,290,998
Net income per share $ 0.24 $ 0.36 $ 0.28 $ 0.21
Fourth Quarter Adjustments
In the fourth quarter of fiscal 1996, the Company recorded $600,000 in
selling, general and administrative expenses due to write-offs of doubtful
accounts and additions to its reserve for doubtful accounts at its Snowmax
subsidiary. At the end of fiscal 1996, the Company also recognized a
reduction in inventory value of $1,093,000, consisting of physical inventory
adjustments ($267,000), lower inventory valuations due to lower material,
labor and overhead costs and a change in the method of valuing Sooner's
finished goods ($576,000), and an additional reserve for obsolete inventory
($250,000). These adjustments were made in connection with the Company's
year-end physical inventory valuation process and charged to cost of
products sold. During the second half of fiscal 1996, the Company undertook
an inventory reduction program at its Snowmax subsidiary. This led to an
increase in cost of products sold of $240,000 in the third quarter and
$493,000 in the fourth quarter. The Company's effective tax rate for the
full year was 60.1%, a higher rate than had been expensed during the first
three quarters of the year. The effect of increasing income tax expense in
the fourth quarter to bring the full year rate to that level was
approximately $300,000.
Seasonality
Sales of certain of the Company's specialized equipment tend to be seasonal
with lowest sales during the first fiscal quarter and higher sales during
the fourth fiscal quarter, corresponding with the fall harvest season for
farmers. Sales of the Company's engineered component products experience
less seasonality but generally have higher sales during the second fiscal
quarter while sales of these products are lowest during the first fiscal
quarter.
Cyclicality
The Company's Engineered Component Products segment is subject to changes in
the overall level of domestic economic activity. The Specialized Equipment
segment is subject to changes in certain sectors of the agricultural
economy, which may be influenced by climate changes and governmental policy.
The segment's horse trailer sales which have not tended to be affected by
changes in the agricultural economy, have had a moderating effect on the
results of the entire Specialized Equipment segment, but may be subject to
the overall domestic business cycle.
******
F-24
Schedule II
Owosso Corporation
Valuation and Qualifying Accounts and Reserves
For the three years ended October 27, 1996
- --------------------------------------------------------------------------------
Balance at Charged to Balance at
Beginning Costs and Deductions End of
of Period Expenses (a) Period
---------- ------------ ----------- ------------
For the year ended October 27, 1996
Allowances on:
Accounts receivable $ 155,352 $ 646,547 $ (292,923) $ 508,976
Inventory 294,382 1,216,017 (945,437) 564,962
For the year ended October 29, 1995
Allowances on:
Accounts receivable $ 267,779 $ 94,104 $ (206,531) $ 155,352
Inventory 300,000 100,000 (105,618) 294,382
For the year ended October 30, 1994
Allowances on:
Accounts receivable $ 220,430 $ 115,335 $ (67,986) $ 267,779
Inventory 300,000 300,000
(a) Amounts written off against related assets
F-25
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this Annual Report to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Philadelphia, Commonwealth of Pennsylvania, on the 24th day of January, 1997.
OWOSSO CORPORATION
By: /s/ George B. Lemmon, Jr.
------------------------------------------
George B. Lemmon, Jr., President, Chief
Executive Officer, and Director,
the principal executive officer
By: /s/ John H. Wert, Jr.
------------------------------------------
John H. Wert, Jr., Senior Vice President -
Finance, Chief Financial Officer and
Treasurer and Secretary, the principal
financial and accounting officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed by the following persons on January 24, 1997, in the
capacities indicated:
Signature Title
--------- --------
/s/ George B. Lemmon, Sr. George B. Lemmon, Sr., Chairman of the Board and a
- ------------------------------- Director
/s/ George B. Lemmon, Jr. George B. Lemmon, Jr., President, Chief Executive Officer,
- -------------------------------------- and a Director
/s/ John H. Wert, Jr. John H. Wert, Jr., Senior Vice President - Finance, Chief
- -------------------------------------- Financial Officer, Treasurer and Secretary
/s/ John R. Reese John R. Reese, Director
- --------------------------------------
/s/ Harry E. Hill Harry E. Hill, Director
- --------------------------------------
/s/ Ellen D. Harvey Ellen D. Harvey, Director
- --------------------------------------
/s/ Eugene P. Lynch Eugene P. Lynch, Director
- --------------------------------------
/s/ Lowell P. Huntsinger Lowell P. Huntsinger, Director
- --------------------------------------