UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended July 31, 1995
Commission file number 1-5985
NEWCOR, INC.
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(Exact name of registrant as specified in its charter)
Delaware 38-0865770
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
1825 S. Woodward Avenue, Suite 240, Bloomfield Hills, MI 48302
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(810) 253-2400
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 XX No
As of September 7, 1995 the Registrant has 4,679,597 outstanding
shares of common stock $1.00 par value, the Registrant's only class of
common stock.
<PAGE>
PART I. FINANCIAL INFORMATION
NEWCOR, INC.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(In thousands, except per share amounts)
Nine Months Ended Three Months Ended
7/31/957/31/94 7/31/95 7/31/94
Sales $86,530 $80,229 $29,118 $29,346
Cost of sales 74,078 71,586 25,307 25,680
Gross margin 12,452 8,643 3,811 3,666
SG&A expenses 10,961 11,457 3,282 3,934
Operating profit (loss) 1,491 (2,814) 529 (268)
Interest expense (1,429) (1,018) (453) (473)
Other income 80 106 6 55
Pre-tax profit (loss) 142 (3,726) 82 (686)
Income tax expense - (1,434) (21) (229)
Net income (loss) $ 142 $(2,292) $ 103 $ (457)
Amounts per share of common stock:
Net income (loss) $ 0.03 $ (0.49) $ 0.02 $ (0.10)
Dividends $ 0.15 $ 0.15 $ 0.05 $ 0.05
Weighted average number of
common shares outstanding 4,678 4,657 4,679 4,670
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
(In thousands)
Nine Months Ended
Operating activities: 7/31/95 7/31/94
Net income (loss) $ 142 $(2,292)
Depreciation and amortization 2,582 1,991
Other (391) (51)
Changes in net operating assets 4,590 (12,793)
Net cash provided by (used in)
operating activities 6,923 (13,145)
Investing activities:
Capital expenditures (3,602) (3,589)
Purchase of Blackhawk Engineering - (8,740)
Use of EDC proceeds - 111
Proceeds from sale of capital assets 76 196
Net cash used in investing activities (3,526) (12,022)
Financing activities:
Long-term borrowings on revolving
line of credit, net (2,700) 25,542
Cash dividends (701) (697)
Shares issued under stock option plans 24 318
Net cash provided by (used in)
financing activities (3,377) 25,163
Increase (decrease in cash and equivalents 20 (4)
Cash and equivalents, November 1 55 20
Cash and equivalents, July 31 $ 75 $ 16
The accompanying notes are an integral part of
the consolidated financial statements.
<PAGE>
NEWCOR, INC.
CONSOLIDATED CONDENSED BALANCE SHEET
(In thousands)
ASSETS
7/31/95 10/31/94
Current assets:
Cash and equivalents $ 75 $ 55
Receivables 19,919 25,600
Cost and estimated earnings in excess of
related billings on uncompleted contracts 19,125 18,189
Inventories 4,980 4,123
Other current assets 1,888 3,575
Total current assets 45,987 51,542
Property, plant and equipment, net of
accumulated depreciation of $20,566
at 7/31/95 and $18,577 at 10/31/94 24,062 22,793
Other assets 10,708 10,501
$80,757 $84,836
LIABILITIES
Current liabilities:
Current portion of long-term debt $ 1,300 $ 600
Accounts payable 8,512 11,132
Other accrued liabilities 9,259 7,624
Total current liabilities 19,071 19,356
Long-term debt, less current portion 27,500 30,900
Postretirement benefits and other 9,564 9,423
56,135 59,679
SHAREHOLDERS' EQUITY
Common stock 4,679 4,676
Capital in excess of par 395 374
Unfunded pension liability (1,319) (1,319)
Retained earnings 20,867 21,426
24,622 25,157
$80,757 $84,836
The accompanying notes are an integral part of
the consolidated condensed financial statements.<PAGE>
<PAGE>
NEWCOR, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Note A. The accompanying unaudited consolidated condensed financial
statements have been prepared in accordance with generally
accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Rule
10-01 of Regulation S-X. Accordingly, they do not include
all of the information and footnotes required by generally
accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments
considered necessary for a fair presentation have been
included, and such adjustments are of a normal recurring
nature. Results for interim periods should not be
considered indicative of results for a full year. The year-
end condensed balance sheet data was derived from audited
financial statements, but does not include all disclosures
required by generally accepted accounting principles. For
further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's
annual report on Form 10-K for the year ended October 31,
1994.
Note B. Interest of $1,279,000 and $740,000 was paid during the nine
months ended July 31, 1995 and 1994, respectively. Income
tax refunds of $1,652,000 were received during the nine
months ended July 31, 1995. No income taxes were paid
during the nine months ended July 31, 1995 and 1994.
Note C. On February 10, 1994, Newcor purchased all the assets of
Blackhawk Engineering Company ("Blackhawk"), an Iowa
corporation with operations in Cedar Falls, and Waterloo,
Iowa. Blackhawk's principal line of business is the
production machining of gray iron, modular iron, and steel
foundry castings, and its principal customer is Deere &
Company. The acquisition has been recorded using the
purchase method of accounting. Blackhawk's results of
operations have been included in the Company's consolidated
financial statements as of February 11, 1994.
<PAGE>
NEWCOR, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
Overview
During the third quarter of 1995, Newcor earned net income of $103,000
on sales of $29.1 million. This represents substantial improvement
over the same period last year, when we reported a net loss of
$457,000, and over the second quarter of 1995, when we reported a net
loss of $291,000. Throughout 1994 and the first half of 1995,
Newcor's performance has been negatively impacted by cost over-runs on
a number of special machine systems that were shipped to our customers
during 1994. We believe that the residual field problems associated
with these systems are behind us.
Newcor, Inc. is organized into two business segments: Special Machines
and Precision Parts. Special machines are custom designed and sold
individually on a made-to-order basis or incorporated into complete
systems. Revenues and costs for special machines are determined under
the percentage of completion method of accounting. Operating results
and backlog levels are dependent upon this segment's ability to obtain
individual contracts through competitive quotes. Accordingly, this
ability to obtain contracts can result in significant fluctuations in
sales, net income, order backlog, working capital and bank borrowings.
The Precision Parts segment consists of automotive and farm equipment
parts machined on dedicated manufacturing cells, molded rubber and
plastic parts and special contoured parts produced and sold in small
quantities. Sales are recorded when title transfers upon shipment.
Operating results and working capital of the Precision Parts segment
are more consistent between accounting periods than the Special
Machines segment.
Results of Operations
Consolidated sales (in thousands) by segment are as follows:
Nine Months Ended Three Months Ended
7/31/95 7/31/94 7/31/95 7/31/94
Special Machines $42,320 $48,182 $15,094 $17,218
Precision Parts 44,210 32,047 14,024 12,128
$86,530 $80,229 $29,118 $29,346
Consolidated sales for the nine months ended July 31, 1995 have
increased $6.3 million or 8%. Sales for the three months ended July
31, 1995 approximated sales for the same period last year. Precision
Parts segment sales for the quarter increased 15.6% over 1994's level
due primarily to incremental new business for the 1995 model year.
This segment's year-to-date sales are up 38% from the first nine
months of 1994 due to the incremental new business, as well as the
strong automotive market during 1995 and the purchase of Blackhawk
Engineering in February 1994. Looking towards fiscal 1996, this
segment has been awarded significant new business that will start up
in the fourth quarter of 1995 and approach full production during the
first quarter of 1996.
Sales at the Special Machines segment were down 12% both for the third
quarter and year-to-date. This decrease has been due to a more
careful job selection process after the problems of 1994, the stage of
certain contracts-in-process, and a general slowdown in the receipt of
new orders during 1995.
Consolidated gross margin percentage was up 3 percentage points to 14%
for the nine months ended July 31, 1995. The improvement was
primarily due to a reduction of cost overruns compared with 1994. The
14% margin achieved in 1995 remained below normal because of the
additional costs incurred in the first half of 1995 to fix problems
with certain special machines systems that were shipped during 1994.
Selling, general and administrative expenses were 17% lower for the
third quarter of 1995 as compared to the third quarter of 1994. Year-
to-date SG&A expenses for 1995 have been 4% lower than in 1994. These
cost decreases have primarily been due to various cost-saving measures
at all divisions, particularly the Special Machines segment in
response to their lower sales level.
Operating profit (in thousands) by segment was as follows:
Nine Months Ended Three Months Ended
7/31/95 7/31/94 7/31/95 7/31/94
Special Machines $ (897) $(4,126) $ (254) $ (822)
Precision Parts 3,491 2,221 1,026 888
Corporate (1,103) (909) (243) (334)
$ 1,491 $(2,814) $ 529 $ (268)
The improved operating profitability of the Special Machines segment
resulted from the effect of reducing the cost overruns that occurred
in 1994. The improved operating profitability of the Precision Parts
segment reflected the acquisition of Blackhawk and the incremental new
business for 1995. Year-to-date corporate expenses have increased due
to costs related to various personnel changes.
Year-to-date interest expense has been higher in 1995 due primarily to
a higher average borrowing level, as well as higher interest rates.
The higher average borrowing level was due principally to the
acquisition of Blackhawk. Interest expense for the third quarter was
slightly lower in 1995 than in 1994 due to lower average borrowing
levels reflecting the lower activity level of the Special Machines
segment.
The year-to-date effective income tax rate for 1995 is 0% due to the
favorable outcome of a tax year under audit. For the nine months
ended July 31, 1994, the apparent income tax rate was 38% due to the
reversal of certain tax liabilities related to Newcor's Canadian
subsidiary which was shut down in 1990.
Liquidity and Capital Resources
During the first nine months of 1995, Newcor's consolidated operations
generated cash of approximately $7 million which was used to fund $3.6
million of capital purchases and pay down $2.7 million of debt. The
positive cashflow from operations was generated by net income plus
depreciation and amortization of approximately $2.7 million and a
reduction in net operating assets of $4.6 million. The main cause of
the change in net operating assets was a reduction in the Special
Machines segment inventory build due to the stage of contracts-in-
progress and the lower activity level. Capital spending was primarily
for machinery and plant expansions needed to support new business
awarded to the Precision Parts segment. We expect to spend
approximately $2.5 million during the balance of 1995 for additional
equipment to manufacture the aforementioned new business.
During the first nine months of 1994, Newcor's consolidated operations
used cash of $13.1 million due primarily to an increase in net
operating assets of $12.8 million. This, coupled with the purchase of
Blackhawk for $8.7 million and capital purchases of $3.6 million,
caused bank borrowings to increase by $25.5 million.
The company continues to pay a quarterly cash dividend of $.05 per
share of common stock. Total dividends paid during the first nine
months of 1995 and 1994 were $701,000 and $697,000, respectively.
Future dividends will be determined at the quarterly meetings of the
Board of Directors after considering cash requirements for operations
and reviewing the company's financial condition, but are expected to
remain at the current level.
The company believes that existing and potential debt capacity and
cash from operations will be adequate to service debt obligations,
continue capital improvements, and maintain adequate working capital.
New Orders and Backlog
The following table shows the new orders booked each quarter and
backlog as of the end of each quarter for the past three fiscal years:
(In millions)
New orders booked by quarter
1995 1994 1993
First quarter (January 31) $27.3 $18.2 $23.9
Second quarter (April 30) 21.9 31.5 29.2
Third quarter (July 31) 23.3 30.7 33.4
Fourth quarter (October 31) 36.2 27.0
(In millions)
Backlog as of the end of the quarter
1995 1994 1993
First quarter (January 31) $54.0 $44.8 $48.2
Second quarter (April 30) 46.4 48.8 46.5
Third quarter (July 31) 40.6 50.1 53.0
Fourth quarter (October 31) 54.6 50.0
New orders booked for the quarter ended July 31, 1995 were $23.3
million compared to $30.7 million for the third quarter of 1994. New
orders for the first nine months of 1995 have been $72.5 million
compared to $80.4 million for the same period in 1994. Third quarter
and year-to-date 1995 new orders do not include production orders
related to two simultaneous engineering contracts which are in process
within our Special Machines segment. We expect to receive at least
one of these orders during the fourth quarter which should improve our
backlog to over $50 million by the end of fiscal 1995.
<PAGE>
NEWCOR, INC.
PART II. OTHER INFORMATION
Item 5. Other Information
On June 13, 1995, the Board of Directors increased the size of
the Board from seven persons to eight persons and appointed
Shirley E. Gofrank to the newly-created directorship whose term
of office shall expire at the 1998 Annual Meeting of
Shareholders.
Item 6. Exhibits and Reports on Form 8-K
(b) Reports on Form 8-K
None
<PAGEp
SIGNATURES
Pursuant to the requirement of the Securities Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
NEWCOR, INC.
Registrant
September 7, 1995 John Garber
John Garber
Vice President - Finance
Principal Financial & Accounting
Officer
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