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 January 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, Michigan 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 __ X__ No
As of March 2, 1995 the Registrant has 4,678,847 outstanding shares of
common stock $1.00 par value, the Registrant's only class of common stock.
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NEWCOR, INC.
PART I. FINANCIAL INFORMATION
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(In thousands, except per share amounts)
Three Months Ended
1/31/95 1/31/94
Sales $27,923 $23,412
Cost of sales 23,351 20,856
Gross margin 4,572 2,556
Selling, general, and
administrative expenses 3,594 3,714
Operating income 978 (1,158)
Other income (expense):
Interest expense (515) (179)
Other 38 39
Income before income taxes 501 (1,298)
Provision for income taxes 171 (599)
Net income (loss) $ 330 $ (699)
Amounts per share of common stock:
Net income (loss) $ 0.07 $ (0.15)
Dividends $ 0.05 $ 0.05
Weighted average
common shares outstanding 4,678 4,645
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
Three Months Ended
1/31/95 1/31/94
Operating Activities:
Net income (loss) $ 330 $ (699)
Depreciation and amortization 847 547
Other 238 27
Changes in net operating assets 3,243 (9,087)
Net cash provided by (used in)
operating activities 4,658 (9,212)
Investing activities:
Capital expenditures (898) (852)
Use of EDC proceeds - 111
Proceeds from sale of capital assets 35 55
Net cash used in investing activities (863) (686)
Financing activities:
Long-term borrowings, net (3,600) 10,100
Cash dividends (234) (232)
Shares issued under stock option plans 20 27
Net cash provided by (used in)
financing activities (3,814) 9,895
Decrease in cash and equivalents (19) (3)
Cash and equivalents, November 1 55 20
Cash and equivalents, January 31 $ 36 $ 17
The accompanying notes are an integral part of
the consolidated condensed financial statements.
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NEWCOR, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands)
1/31/95 10/31/94
ASSETS
Current assets:
Cash and equivalents $ 36 $ 55
Receivables 25,317 25,600
Costs and estimated earnings in excess of
related billings on uncompleted contracts 14,673 18,189
Inventories 4,591 4,123
Other current assets 3,403 3,575
Total current assets 48,020 51,542
Property, plant and equipment, net of
accumulated depreciation of $19,196
at 1/31/95 and $18,577 at 10/31/94 22,887 22,793
Other assets 10,396 10,501
Total assets $81,303 $84,836
LIABILITIES
Current liabilities:
Current portion of long-term debt $ 1,300 $ 600
Accounts payable 8,680 11,132
Other accrued liabilities 9,816 7,624
Total current liabilities 19,796 19,356
Long-term debt, less current portion 26,600 30,900
Postretirement benefits and other 9,634 9,423
Total liabilities 56,030 59,679
SHAREHOLDERS' EQUITY
Common stock 4,679 4,676
Capital in excess of par 391 374
Unfunded pension liability (1,319) (1,319)
Retained earnings 21,522 21,426
Total shareholders' equity 25,273 25,157
Total liabilities and shareholders' equity $81,303 $84,836
The accompanying notes are an integral part of
the consolidated condensed financial statements.
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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 $461,000 and $132,000 was paid during the three months
ended January 31, 1995 and 1994, respectively. No income taxes
were paid during the three months ended January 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.
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NEWCOR, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
Overview
During the first quarter of 1995, Newcor generated $330,000 of net income
on sales of $27.9 million. This marked a significant improvement over the
first quarter of 1994, when we incurred a $699,000 net loss on sales of
$23.4 million. Three main factors led to the improved results during 1995.
First, costs incurred on special machine systems during 1995 were generally
within budget, unlike the first quarter of 1994 when a $1.3 million pre-tax
provision for excess costs on a major assembly system was recognized.
Second, Blackhawk Engineering, which was acquired on February 10, 1994,
continued to perform well. And third, the remainder of the divisions
within the Precision Parts segment benefitted from incremental new business
for 1995, as well as the strong automotive market.
Each division within our Precision Parts segment began 1995 with
incremental new business as well as prospects for additional new business
that will start up in the second half of fiscal 1995. Provided the economy
maintains its positive growth, this segment should reach record sales and
operating income levels during 1995. We believe that we have corrected the
problems that occurred during 1994 within the Special Machines segment, and
we expect margins to continue at acceptable levels throughout 1995. This
segment's backlog involves proven technology and we anticipate a good
stream of opportunities for additional new orders.
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 by segment are as follows:
(In Thousands)
Three Months Ended
1/31/95 1/31/94
Special Machines $13,164 $15,550
Precision Parts 14,759 7,862
Total Sales $27,923 $23,412
Consolidated sales increased 19.3% for the first quarter of 1995 compared
to the first quarter of 1994. Sales for the Precision Parts segment
increased 87.7%, but sales for the Special Machines segment decreased
15.3%. The increase by the Precision Parts segment is due to sales of
approximately $4 million generated by Blackhawk in 1995, as well as
additional sales of approximately $3 million at the other three Precision
Parts divisions. Each division has benefitted from incremental new
business for 1995, as well as the strong automotive market.
The decrease in sales by the Special Machines segment resulted from working
on a number of smaller projects during 1995, as compared to a few larger
projects in 1994. These smaller projects entail proven technology and have
generally been completed within budget.
Consolidated gross profit percentage for the first quarter of 1995 was
16.4% compared to only 10.9% in 1994. The low gross profit percentage in
1994 reflected the $1.3 million provision for excess costs on a major
assembly system referred to in the Overview section. The 16.4% margin
generated in 1995 still does not match the 20-25% margins experienced
during 1992 and 1993 because of two main reasons. First, increased
competition in the special machines market has caused the margins of this
segment to decline. Second, our Precision Parts segment has grown
drastically over the past few years, and this segment has historically had
lower margins, as well as lower SG&A costs, than the Special Machines
segment.
Selling, general and administrative expenses were down 3% from 1994 levels
due to cost reduction programs and administrative changes made during 1994
and 1995. This reduction in SG&A was achieved even though Blackhawk had
SG&A expenses of approximately $200,000 in 1995.
Operating income by segment was as follows:
(In thousands)
Three Months Ended
1/31/95 1/31/94
Special Machines $ 21 $ (1,170)
Precision Parts 1,269 312
Corporate (312) (300)
Total Operating Income $ 978 $ (1,158)
The improved operating profitability of the Special Machines segment
represents the effect of the excess costs incurred in 1994. The improved
operating profitability of the Precision Parts segment represents the
acquisition of Blackhawk, as well as the incremental new business for 1995.
Corporate costs and expenses remained relatively constant.
Interest expense was 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, as
well as the net cash used by operations during the 1994 fiscal year.
The apparent income tax rate was 34% for the quarter ended January 31, 1995
as the effect of non-deductible items was offset by the benefit generated
by our foreign sales corporation. For the quarter ended January 31, 1994,
the apparent income tax benefit rate was 46% 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 quarter of 1995, Newcor's consolidated operations
generated cash of $4.6 million which was used to fund approximately
$900,000 of capital purchases and pay down $3.6 million of debt. The
positive cashflow from operations was generated by the net income plus
depreciation and amortization of approximately $1.2 million and a reduction
in net operating assets of $3.2 million. The main cause of the change in
net operating assets was a reduction in inventory build at the Special
Machines segment due to the stage of contracts-in-progress.
During the first quarter of 1994, Newcor's consolidated operations used
cash of $9.2 million due primarily to increases in net operating assets of
$9.1 million. This, coupled with capital purchases of $850,000, caused
bank borrowings to increase by $10.1 million.
We anticipate total capital spending in 1995 to be approximately $6
million, with $5 million of this being spent at the Precision Parts
divisions. This money will be spent on additional machinery and plant
expansions and is required to support new business.
The company continues to pay a quarterly cash dividend of $.05 per share of
common stock. Total dividends paid during the first quarter of 1995 and
1994 were $234,000 and $232,000, 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
New orders booked during the first quarter of 1995 were $27.3 million, up
significantly from the $18.2 million booked during the same period one year
ago. New order bookings for the first quarter of 1995 were below the $36.2
million booked during the fourth quarter of 1994, which is normal due to
the holiday season. In addition, the Special Machines segment has been
awarded simultaneous engineering contracts for two large orders, and the
probability for subsequently receiving the system build orders is quite
good. The following table shows the new orders booked 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) 31.5 29.2
Third quarter (July 31) 30.7 33.4
Fourth quarter (October 31) 36.2 27.0
The backlog as of January 31, 1995 was $54.0 million compared with $54.6
million at the beginning of the quarter and $44.8 million one year ago.
The January 31, 1995 backlog involves proven technology and provides a
solid platform for the remainder of the fiscal year. The following table
shows the backlog as of the end of each quarter for the past three fiscal
years:
(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) 48.8 46.5
Third quarter (July 31) 50.1 53.0
Fourth quarter (October 31) 54.6 50.0
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NEWCOR, INC.
PART II. OTHER INFORMATION
Item 5. Other Information
On March 1, 1995, W. John Weinhardt succeeded Richard A. Smith as
Newcor's president and chief executive officer. Mr. Weinhardt, who
is 44, comes to Newcor from Danaher Corporation, a $1.5 billion
Fortune 500 company that manufactures tools, process/environmental
controls and transportation products, where we was vice president,
group executive of the $350 million Transportation Group and
president and chief executive officer of Fayette Tubular Products,
Inc., one of the transportation companies. Mr. Smith will remain on
Newcor's board and also act as an advisor to the Company.
Item 6. Exhibits and Reports on Form 8-K
(b) Reports on Form 8-K
None
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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
March 8, 1995 John Garber
John Garber
Vice President - Finance
Principal Financial & Accounting Officer
