Owosso Corporation

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Owosso Corporation

The Triad Building
2200 Renaissance Boulevard, Suite 150
King of Prussia, Pennsylvania 19406
U.S.A.
(610) 275-4500
Fax: (610) 275-5122
Web site: http://www.owosso.com

Public Company
Incorporated: 1973
Employees: 1,800
Sales: $160 million (1998)
Stock Exchanges: NASDAQ
Ticker Symbol: OWOS
NAIC: 335312 Motor & Generator Manufacturing; 333111 Farm Machinery & Equipment Manufacturing; 335314 Relay & Industrial Control Manufacturing; 336312 Carburetor, Piston, Piston Ring & Valve Manufacturing; 33633 Motor Vehicle Steering & Suspension Components (Except Spring) Manufacturing; 336212 Truck Trailer Manufacturing

Owosso Corporation, through its subsidiaries, produces engineered component products, including motors, timers, heat transfer coils, and replacement camshaft bearings. These products are sold primarily to original equipment manufacturers (OEMs), who use them in the manufacture of various end products. End markets served by Owosso’s components include commercial products, refrigeration systems, process equipment, construction, health care, and automotive. Owosso also manufactures all-aluminum trailers through its Sooner Trailer Manufacturing subsidiary. The majority of Sooner’s products are horse and livestock trailers, but the company also makes trailers for automobiles, boats, and general cargo. Approximately 20 percent of Owosso’s total sales derive from Sooner products.

Building a Business: 1973-89

In January 1973, three investors—George Lemmon, John Northway, and Ronald Hendee—formed Owosso Corporation in order to purchase an Owosso, Michigan-based division of The Singer Company. The division, Motor Products-Owosso, was a maker of factional horsepower D/C motors used in a variety of end products.

At the time, Lemmon was living in Philadelphia and working in Manhattan for the investment bank of Wood, Struthers & Winthrop. When The Singer Company retained Wood, Struthers & Winthrop to sell off several of its smaller subsidiaries—including its Owosso operation—Lemmon traveled to Michigan to arrange the sale. Once there, he was impressed with both the business and the plant’s manager, John Northway. Although several buyers were interested in the $4 million Owosso business, Lemmon and Northway decided to purchase it themselves. They brought Hendee on board as a third investor and completed the deal in six weeks, paying $1.3 million. Lemmon became the CEO of the newly formed company, with Northway remaining in charge of its day-to-day operations.

After seven successful years, Lemmon and Northway were ready to try their hands at another acquisition. In 1980, Owosso purchased the Longview, Texas-based Snow Coil, Inc. Snow Coil manufactured heat-transfer coils that were used in heating and cooling applications, including commercial refrigeration truck, bus, and van heating and air conditioning. Also in 1980, Lemmon’s and North way’s third investor, Ronald Hendee, decided to sell his stake in the company. Lemmon and Northway offered Hendee’s stock to John Reese, one of Lemmon’s colleagues at Wood, Struthers & Winthrop, who accepted.

Owosso’s next major expansion came in 1984, with the acquisitions of Airmax, Inc. and Cramer Company. Airmax was a manufacturer of heating and cooling components, and Cramer manufactured subfractional horsepower motors and timers used primarily in the appliance industry. The following year Owosso diversified further, stepping away from motors and HVAC components and into the agricultural marketplace. The company purchased Parker Industries, an Iowa-based manufacturer of grain transportation and weighing equipment. Parker’s products included grain wagons and auger carts, which were typically used by large-scale corn, soybean, and wheat farmers to transport grain. Parker also manufactured weigh wagons, which were used by seed companies to monitor harvest yields.

In 1986, Owosso was back to what it knew best: motors. The company added to its line of subfractional horsepower motors and timers with the purchase of Bristol Company, which was consolidated into Cramer Company the following year.

Owosso added a new product and a new end market to its portfolio in 1987, when it purchased the Dura-Bond Bearing Company. Dura-Bond, located in Carson City, Nevada, manufactured replacement camshaft bearings for internal combustion gas engines. Replacement bearings were used in the automotive aftermarket—to rebuild cast-iron engines in automobiles, trucks, and farming equipment. Unlike most of Owosso’s other products, Dura-Bond’s bearings were not marketed to OEMs; rather, they were sold primarily to large brand-name distributors and engine rebuilders.

Acquisitions and IPO: Early 1990s

As Owosso moved into the 1990s, it continued to grow through acquisitions. In 1991, the company purchased its second agricultural-market company: DewEze Manufacturing, Inc. DewEze was a Kansas-based maker of flatbed hay bale handlers—that is, hydraulic lifts that mounted on a pickup truck chassis and hoisted up to 5,000 pounds of hay onto the pickup bed. The company had little competition in this niche market; only two other U.S. companies manufactured similar products. Another key DewEze product was a hay bale processor, which sliced large hay bales into pieces to be used for livestock feed.

Owosso again strengthened its presence in the agricultural market in 1994 with the $17 million purchase of Sooner Trailer Manufacturing Co. Located in Duncan, Oklahoma, Sooner manufactured aluminum trailers for horses, livestock, automobiles, boats, and general cargo. The majority of its revenues came from the sale of horse trailers, which ranged from two-horse bumper hitch trailers to multi-horse goose neck trailers complete with living quarters.

In October 1994, Owosso went public, selling 1,865 shares and generating more than $20 million. Lemmon and other major shareholders retained control of the company, holding more than 63 percent of the shares. At the time of its IPO, Owosso’s various subsidiaries were divided into two business segments: Engineered Component Products and Specialized Equipment. The company’s Engineered Component Products segment included the Cramer, Snowmax, Dura-Bond, and Motor Products-Owosso businesses. Its Specialized Equipment segment consisted of Sooner, Parker, and DewEze. Altogether, the companies employed some 1,300 workers and had total combined sales of approximately $74 million. Because its subsidiaries were both diversified and geographically far-flung, Owosso’s corporate management maintained a decentralized, hands-off approach. The 11-person staff in the company’s Pennsylvania headquarters handled financing, employee benefits, and management information systems for its seven subsidiaries. Aside from those functions, each onsite manager was responsible and accountable for running his or her own business. Owosso’s senior vice-president, John Wert, Jr., described the company’s management style as “decentralized and attentive without being obtrusive” in an August 1995 interview with the Philadelphia Inquirer.

Second Generation Leadership: 1995-96

In 1995, Lemmon’s son, George Lemmon, Jr., took over as Owosso’s CEO. Although he was only in his early 30s, Lemmon, Jr., had almost 20 years of industry experience. He had begun working summers in his father’s companies when he was in his teens and joined Owosso’s management team in the early 1990s. Thus, he had a broad understanding of all aspects of the business, from manufacturing to management. Lemmon, Sr., remained active in the company, serving as chairman of the board of directors.

The year 1995 was also marked by two acquisitions, one for each operating segment. The first of the two, Great Bend Manufacturing, Inc., was a maker of front-end loaders for farming tractors. Owosso paid $4.3 million for the company, which had 1994 sales of $13.4 million. Great Bend’s previous owner, Max Bennett, stayed on as president under the new ownership. Owosso’s second 1995 acquisition was Stature Electric, Inc., a maker of integral horsepower motors located in Watertown, New York. Stature’s motors were used primarily in the health care market to power wheelchairs and scooters. Also in 1995, Owosso incorporated Motor Products-Ohio, a manufacturing facility that operated as a division of the company’s flagship business, Motor Products-Owosso.

Another two companies were added to the growing list of Owosso subsidiaries in 1996. In August the company acquired Snyder Industries, Inc., of Seattle, Washington, for $1.3 million. Snyder manufactured valve seats, valve seat inserts, and valve seat booster shims used to remanufacture automobile engines. In early 1997, Snyder’s operations were consolidated into Owosso’s Dura-Bond subsidiary, whose products, like Snyders, were used in the automotive aftermarket. In October 1996, Owosso purchased Koepke & Associates, a manufacturers’ representative firm located in Northfield, Illinois. Renamed Owosso Motor Group, Inc., the firm served as a central sales organization for Owosso’s motor companies, providing a more unified and focused sales presence.

Company Perspectives:

Owosso’s mission is to be a world-class, diversified manufacturing company with an intense customer-driven strategy, and an organization with an attitude of continuous improvement in all areas of the business. Owosso’s goal is to generate consistent, predictable earnings growth in order to provide maximum value to its customers, employees, suppliers and shareholders.

Owosso’s sales for 1996 were $128.2 million, an increase of almost 19 percent over 1995’s sales of $108 million. Fifty-six percent of the total sales were generated by the Engineered Component Products subsidiaries, with the Specialized Equipment businesses making up the remainder. Despite its increase in sales, the company’s bottom line for 1996 was disappointing. From a net of $6.4 million in 1995, profits fell to $848,000 in 1996. In a December 1996 interview with The Philadelphia Inquirer, a company representative said that while Owosso’s total sales had increased due to acquisitions, its core businesses had suffered from lower sales and margins, higher taxes, and an inventory reduction program. The company also said it planned to take a more active role in managing its subsidiaries’ operations in the coming years, striving for greater integration of the businesses.

Integration and Focus: 1997-98

True to its word, Owosso spent 1997 and 1998 reworking its management style in order to become less of a holding company and more of an integrated manufacturing company. In a 1997 strategic planning session, the company’s management identified its core competencies as operational excellence, information technology, and management process. They then set about establishing a long-term growth plan built around those competencies. One of the main tenets of the plan was a tighter focus on engineered component products. Owosso believed that by devoting its energies more exclusively to this business segment, it could eliminate operational inefficiencies, provide greater value to its customers, and become more competitive in its various markets.

One of the company’s first steps toward realizing this goal was to exit its agricultural equipment businesses—Parker Industries, Great Bend Manufacturing, and DewEze. In the spring of 1998, the company announced its intention to sell the three subsidiaries, which together had accounted for almost 24 percent of Owosso’s 1997 sales. It was the first time Owosso had ever sold a financially successful subsidiary for strategic purposes. In a March 30, 1998 press release, George Lemmon, Jr., stated that the divestitures marked a “significant new strategic direction” for Owosso. He also noted that the capital derived from the sales would allow the company to pursue acquisitions in its Engineered Component Products segment.

Two such acquisitions were announced in April 1998. The first was Astro Air Inc., a Jacksonville, Texas, manufacturer of fin and tube heat exchange coils. Astro Air’s products were used primarily in HVAC systems for large trucks, buses, and off-road vehicles. Owosso’s second 1998 acquisition was M.H. Rhodes Inc., a maker of mechanical timers and photoelectric controls used mainly in the appliance industry. The Rhodes business was an ideal complement to Owosso’s Cramer subsidiary, which manufactured both motors and timers used in appliances. Upon completing the acquisition, Owosso merged its Cramer operations into Rhodes’ manufacturing facility located in Avon, Connecticut.

Owosso also made substantial investments in its Stature Electric business in 1998. Stature was at that point the company’s fastest growing subsidiary, with sales that had increased by 45 percent since 1996. To accommodate this growth, Owosso initiated an expansion project that would add 30,000 square feet of manufacturing space and $4 million in new equipment to the Stature facility by the end of 1999.

Growth on Dual Fronts: 1999 and Beyond

At the end of 1998, Owosso had net sales of $160 million. The company’s Sooner Trailer business contributed more than 21 percent of the total sales, followed by Stature, Motor Products-Owosso, and Snomax. Net income for 1998 was $702,000, which translated into a net per-share loss of $.06 for the year. Owosso’s poor bottom line was due largely to charges associated with the Astro Air and M.H. Rhodes acquisitions and the subsequent consolidation of the Rhodes and Cramer subsidiaries.

The company’s goal for the future was annual growth of 15 to 20 percent, split evenly between internal initiatives and acquisitions. The company’s corporate acquisition team was continuing to seek acquisition candidates that would fit into its engineered components business segment. Likely candidates were profitable manufacturing operations that opened new end markets or broadened the ones already served. Internal growth was to be achieved through a continued effort to eliminate inefficiencies and reduce costs throughout the entire manufacturing process and supply chain, from raw materials to finished product. Owosso believed that by streamlining operations, it could enhance its service and value to customers, providing them with a “product package” that included consistently on-time delivery, shared data, and jointly engineered products. By providing a superior product surrounded by value-added services, the company hoped to sharpen its competitive edge and capture substantial market share in each of its niche markets.

Principal Subsidiaries

Astro Air, Inc.; Dura-Bond Bearing Company; M.H. Rhodes, Inc.; Motor Products-Owosso Corporation; Motor Products-Ohio Corporation; Owosso Motor Group, Inc.; Snowmax, Incorporated; Sooner Trailer Manufacturing Co.; Stature Electric, Inc.