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, 1996
Commission File number 1-5985
NEWCOR, INC.
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 38-0865770
- ------------------------ ------------------------------------
(State of incorporation) (I.R.S. Employer Identification No.)
1825 S. Woodward Ave., Suite 240
Bloomfield Hills, MI 48302 (810) 253-2400
- --------------------------------------- -------------------------------
(Address of principal executive office) (Registrant's telephone number)
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 ( ).
APPLICABLE ONLY TO CORPORATE ISSUERS:
As of September 10, 1996, the Registrant has 4,696,815 outstanding shares
of common stock, $1.00 par value, the Registrant's only class of common
stock.
PART I. FINANCIAL INFORMATION
NEWCOR, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
Nine Months Ended Three Months Ended
-------------------- --------------------
7/31/96 7/31/95 7/31/96 7/31/95
-------- -------- -------- --------
Sales $ 78,290 $ 66,176 $ 27,902 $ 21,327
Cost of sales 62,420 54,500 22,864 18,129
-------- -------- -------- --------
Gross margin 15,870 11,676 5,038 3,198
SG&A expenses 10,788 8,418 3,784 2,554
-------- -------- -------- --------
Operating income 5,082 3,258 1,254 644
Other income (expense):
Interest expense (1,345) (1,105) (488) (357)
Other 382 105 170 31
-------- -------- -------- --------
Income before income taxes 4,119 2,258 936 318
Provision for income taxes 1,434 767 332 107
-------- -------- -------- --------
Income from continuing
operations 2,685 1,491 604 211
-------- -------- -------- --------
Discontinued operations:
Loss from discontinued
operations, net of
tax benefit (Note C) (1,203) (1,349) - (108)
Loss on sale of discontinued
operations, net of tax
benefit of $1,800 (3,500) - - -
-------- -------- -------- --------
Loss from discontinued
operations (4,703) (1,349) - (108)
-------- -------- -------- --------
Net income (loss) $ (2,018) $ 142 $ 604 $ 103
======== ======== ======== ========
Amounts per share of common stock:
Income from continuing
operations $ 0.57 $ 0.32 $ 0.13 $ 0.05
Net income (loss) $ (0.43) $ 0.03 $ 0.13 $ 0.02
Dividends $ 0.15 $ 0.15 $ 0.05 $ 0.05
Weighted average common
shares outstanding 4,683 4,678 4,687 4,679
The accompanying notes are an integral part of
the condensed consolidated financial statements
NEWCOR, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
7/31/96 10/31/95
-------- --------
ASSETS
Current assets:
Cash and equivalents $ 72 $ 29
Accounts receivable 16,337 24,906
Costs and estimated earnings in excess
of related billings on uncompleted
contracts 4,959 9,784
Inventories 5,048 4,979
Other current assets 4,516 3,196
-------- --------
Total current assets 30,932 42,894
Property, plant and equipment, net of
accumulated depreciation of $20,086
at 7/31/96 and $20,081 at 10/31/95 26,658 24,518
Other long-term assets 18,312 10,141
-------- --------
Total assets $ 75,902 $ 77,553
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 7,026 $ 7,605
Accrued liabilities 10,001 8,714
-------- --------
Total current liabilities 17,027 16,319
Long-term debt 25,600 26,200
Postretirement benefits and other 9,953 9,125
-------- --------
Total liabilities 52,580 51,644
-------- --------
Shareholders' equity:
Common stock 4,697 4,679
Capital in excess of par 511 395
Unfunded pension liability (536) (536)
Retained earnings 18,650 21,371
-------- --------
Total shareholders' equity 23,322 25,909
-------- --------
Total liabilities & shareholders' equity $ 75,902 $ 77,553
======== ========
The accompanying notes are an integral part of
the condensed consolidated financial statements
NEWCOR, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Nine Months Ended
-----------------------
7/31/96 7/31/95
-------- --------
Operating Activities:
Income from continuing operations $ 2,685 $ 1,491
Depreciation and amortization 2,872 2,232
Other (325) (390)
Changes in net operating assets 8,458 (214)
-------- -------
Net cash from continuing operations 13,690 3,119
Net cash from discontinued operations 2,735 3,804
-------- --------
Net cash provided by operations 16,425 6,923
-------- --------
Investing Activities:
Capital expenditures, net (3,310) (3,526)
Acquisitions (11,900) -
-------- --------
Net cash used by investing activities (15,210) (3,526)
-------- --------
Financing Activities:
Long-term borrowings on revolving
line of credit, net (600) (2,700)
Cash dividends (703) (701)
Shares issued under stock option plans 131 24
-------- --------
Net cash from financing activities (1,172) (3,377)
-------- --------
Increase in cash and equivalents 43 20
Cash and equivalents, November 1 29 55
-------- --------
Cash and equivalents, July 31 $ 72 $ 75
======== ========
The accompanying notes are an integral part of
the condensed consolidated financial statements
NEWCOR, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note A. The accompanying unaudited condensed consolidated 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, 1995.
Note B. Interest of $1,677,000 and $1,279,000 was paid during the nine
months ended July 31, 1996 and 1995, respectively. Income taxes
of $550,000 were paid during the nine months ended July 31, 1996.
Income tax refunds of $1,652,000 were received during the nine
months ended July 31, 1995.
Note C. On May 6, 1996, Newcor sold the business and certain assets of
its Wilson Automation division (Wilson) to ABB Flexible
Automation, a unit of ABB (Asea Brown Boveri). Wilson designs
and manufactures engine, transmission, and axle assembly systems.
All receivables, the land and building, and certain liabilities
were retained by Newcor. The building is being leased to ABB.
Although assets were sold at approximately net book value,
reserves were established for curtailment of the pension plan,
employee separation costs for those employees not hired by ABB
Flexible Automation, costs associated with the collection of
accounts receivable and additional liabilities related to
contracts for which Newcor has retained the responsibility and
liabilities, and the operating loss from the measurement date
(March 31, 1996) to the sale date. These reserves resulted in a
net loss of $3.5 million on the disposition of Wilson. Summary
operating results of discontinued operations through the
measurement date are as follows:
Nine Months Ended Three Months Ended
-------------------- --------------------
7/31/96 7/31/95 7/31/96 7/31/95
-------- -------- -------- --------
Revenues $ 9,173 $ 20,354 $ - $ 7,791
Loss before income taxes (1,814) (2,119) - (239)
Benefit from income taxes (611) (770) - (131)
Net loss from discontinued
operations (1,203) (1,349) - (108)
Note D. On December 4 and 5, 1995, the Company signed three separate
definitive agreements to purchase for cash certain assets of
three unrelated companies in the molded rubber and plastic
component parts industry. Each company primarily manufactures
parts for the automotive industry. Two of the acquisitions were
completed on January 2, 1996 and the third was completed on April
1, 1996. The total purchase price for all three acquisitions was
approximately $11.9 million and was financed through an increase
in the Company's existing line of credit facility. The
acquisitions were recorded using the purchase method of
accounting. The three acquisitions had combined sales during
1995 of approximately $22 million and estimated net book value of
$4 million.
Note E. In October 1995, the Financial Accounting Standards Board issued
Financial Accounting Standard No. 123, " Accounting for Stock-
Based Compensation" (FAS 123) which allows two alternative
methods of accounting for stock-based employee compensation
plans. Either the " fair value based method of accounting" (the
recognition method) set forth in FAS 123 can be applied or the
entity can continue to apply APB No. 25, " Accounting for Stock
Issued to Employees" for financial statement purposes and then
disclose pro forma net income and earnings per share determined
as if the fair value based method had been applied (the
disclosure method). The Company anticipates adopting the
disclosure method effective in fiscal 1997.
NEWCOR, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
Overview
- --------
Newcor is organized into two business segments: Components and Assemblies
and Special Machines. The Components and Assemblies segment consists of
automotive components and farm equipment parts machined in dedicated
manufacturing cells, molded rubber and plastic parts, and non-symmetrical
machine contoured parts produced and sold in small quantities. This
segment had previously been referred to as the Precision Parts segment but
has been renamed to better reflect the current business of the companies
within the segment. Special machines consist of a range of standard
individual machines, as well as custom designed machines on a made-to-order
basis and sold either individually or incorporated into complete systems.
Revenues and costs for special machines are determined under the percentage
of completion method of accounting.
During the third quarter of 1996, Newcor generated income from continuing
operations of $604,000 on sales of $27.9 million compared to income from
continuing operations of $211,000 on sales of $21.3 million for the third
quarter of 1995. The improvement in sales was due to the acquisition in
1996 of the three rubber and plastic companies as well as internal growth
within Newcor's existing divisions. The improvement in income reflected
the combination of higher sales and internal performance improvement
resulting from the rigorous implementation of lean manufacturing and
continuous improvement programs.
The following table shows Newcor's earnings per share from continuing
operations during the past two fiscal years:
Fiscal 1996 Fiscal 1995
----------- -----------
First Quarter (January 31) $0.26 $0.21
Second Quarter (April 30) 0.18 0.06
Third Quarter (July 31) 0.13 0.05
Fourth Quarter (October 31) 0.19
Results for each quarter of fiscal 1996 have represented an improvement
over the same period of fiscal 1995. Third quarter results were lower than
the first two quarters of 1996 as a result of lower business levels due to
seasonal assembly plant shutdowns at all of our major customers and work in
process in the Special Machines segment being primarily in the engineering
phase rather than the assembly phase during the third quarter.
On June 19, 1996, Newcor announced its intention to sell two more of its
divisions: Newcor Machine Tool and Eonic. This is a continuation of the
strategy to focus on core businesses which began earlier this year with the
acquisition of the three rubber and plastic companies and the disposition
of Wilson Automation. Roney & Company has been retained to assist in
managing the sale process. We have received expressions of interest from a
number of potential purchasers for both divisions and the sale process is
moving forward on the time line that was established with Roney & Company.
Results of Continuing Operations
- --------------------------------
Consolidated sales by segment are as follows (in thousands):
Nine Months Ended Three Months Ended
7/31/96 7/31/95 7/31/96 7/31/95
-------- -------- -------- --------
Components and Assemblies $ 57,860 $ 44,209 $ 21,102 $ 14,024
Special Machines 20,430 21,967 6,800 7,303
-------- -------- -------- --------
Total Sales $ 78,290 $ 66,176 $ 27,902 $ 21,327
======== ======== ======== ========
Consolidated sales increased 31% for the third quarter of 1996 compared to
the same quarter for 1995 reflecting a 50% increase in Components and
Assemblies segment sales offset by a 7% decrease in Special Machines
segment sales. Approximately $4.5 million of the Components and Assemblies
segment increase was due to the acquisitions of three rubber and plastic
component manufacturers. The remaining increase represented the
incremental new business that this segment has been awarded over the past
twelve months. The decrease in Special Machines segment sales reflects the
stage of certain contracts in process at quarter end.
Consolidated gross profit percentage for the third quarter of 1996 was
18.1% compared to 15.0% for the third quarter of 1995. This improvement
reflects the company-wide initiatives in the areas of quality, customer
focus and internal operating efficiency. Consolidated gross profit
percentage for the first nine months of 1996 was 20.3% compared to 17.6%
for the first nine months of 1995 and 18.4 for the year ended October 31,
1995.
Selling, general and administrative expenses for the third quarter of 1996
increased 48.2% compared to the third quarter of 1995. This was due to two
main factors: the additional SG&A costs related to the acquisitions and
additional personnel and training costs related to achieving the Company's
continuous improvement objectives.
Operating income by segment was as follows (in thousands):
Nine Months Ended Three Months Ended
7/31/96 7/31/95 7/31/96 7/31/95
-------- -------- -------- --------
Components and Assemblies $ 4,371 $ 3,290 $ 1,333 $ 936
Special Machines 1,915 1,228 341 8
Corporate (1,204) (1,260) (420) (300)
-------- -------- -------- --------
Total Operating Income $ 5,082 $ 3,258 $ 1,254 $ 644
======== ======== ======== ========
Operating income for the Components and Assemblies segment increased for
the third quarter of 1996 compared to 1995 due to the higher sales and
margins, partially offset by the increased SG&A costs referred to above.
Operating income for the third quarter of 1996 for the Special Machines
segment was higher than in 1995 due to the extremely low volume of assembly
work completed during the third quarter of 1995. Significant shipments of
completed machines were made during the first quarter of both 1996 and
1995, which caused the segment's operating income for those quarters to be
in excess of the results for the second and third quarters of both years.
Corporate expenses were higher during the third quarter of 1996 due to
additional personnel and training costs related to the company-wide
initiatives mentioned above.
Interest expense was higher for the third quarter of 1996 as compared to
1995 primarily due to additional borrowings to finance the three
acquisitions. The apparent income tax rate was 35.5% and 33.6% for the
quarters ended July 31, 1996 and 1995, respectively. The higher rate for
1996 reflects the June 30, 1995 expiration of the tax credit for increasing
research and experimentation.
Discontinued Operations
- -----------------------
The loss from discontinued operations for 1996 reflects the operations of
Wilson Automation through the measurement date, March 31, 1996. Although
assets were sold at approximately net book value, reserves were established
for curtailment of the pension plan, employee separation costs for those
employees not hired by ABB Flexible Automation, costs associated with the
collection of accounts receivable and additional liabilities related to
contracts for which Newcor has retained the responsibility and liabilities,
and the operating loss from the measurement date to the sale date. These
reserves resulted in a net loss of $3.5 million on the disposition of
Wilson.
Liquidity and Capital Resources
- -------------------------------
During the first nine months of 1996, Newcor spent over $15 million on
acquisitions and capital spending. This was accomplished while also
reducing debt by $600,000 as continuing operations generated $13.7 million
of cash. Most of this came from reductions in accounts receivable and work-
in-process inventory within the existing Special Machines segment divisions
due to the completion, shipment and collection of a handful of large
special machines. Net income plus depreciation and amortization generated
$5.6 million of cash.
During the first nine months of 1995, Newcor's consolidated operations
generated cash of $6.9 million ($3.8 million of which was from Wilson
Automation) which was used to fund $3.5 million of capital purchases and
pay down $2.7 million of debt. The positive cash flow from continuing
operations was generated by the net income plus depreciation and
amortization of $3.7 million.
On April 12, 1996, the Company amended its revolving credit agreement to
allow for a portion of the revolving credit to be replaced with a fixed-
rate term loan. On May 13, 1996, the Company entered into a $10 million
seven-year fixed-rate term loan at 7.85% interest. No principal payments
are due for the first two years. Monthly principal payments of $166,667
are due from June 10, 1998 through May 10, 2003. Effective May 13, 1996,
the amount available under the revolving credit agreement was reduced from
$32.5 million to $20 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 1996
and 1995 were $703,000 and $701,000, 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 and strategic direction.
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.
NEWCOR, INC.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K:
(a) Exhibits:
Exhibit 27 - Financial Data Schedule-EDGAR version only.
(b) Reports on Form 8-K:
On May 21, 1996, Newcor, Inc. filed a Form 8-K announcing
the completion of the sale of its Wilson Automation Division
to ABB Flexible Automation.
SIGNATURES
Pursuant to the requirement of the Securities Exchange 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
Date: September 12, 1996 /s/ John Garber
------------------ ----------------------------
John Garber
Vice President-Finance
Principal Financial and
Accounting Officer
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