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, 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 March 6, 1996, the Registrant has 4,686,865 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)
Three Months Ended
-----------------------
1/31/96 1/31/95
-------- --------
Sales $ 28,343 $ 27,923
Cost of sales 23,050 23,351
-------- --------
Gross margin 5,293 4,572
Selling, general & admin expense 4,233 3,594
-------- --------
Operating income 1,060 978
Other income (expense):
Interest expense (482) (515)
Other 152 38
-------- --------
Income before income taxes 730 501
Provision for income taxes 255 171
-------- --------
Net income $ 475 $ 330
======== ========
Amounts per share of common stock:
Net income $ 0.10 $ 0.07
Dividends $ 0.05 $ 0.05
Weighted average common shares outstanding 4,679 4,678
The accompanying notes are an integral part of
the condensed consolidated financial statements
NEWCOR, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
1/31/96 10/31/95
-------- --------
ASSETS
Current assets:
Cash and equivalents $ 24 $ 29
Accounts receivable 25,593 24,906
Costs and estimated earnings in excess
of related billings on uncompleted
contracts 5,858 9,784
Inventories 6,016 4,979
Other current assets 2,177 3,196
-------- --------
Total current assets 39,668 42,894
Property, plant and equipment, net of
accumulated depreciation of $20,669
at 1/31/96 and $20,081 at 10/31/95 26,617 24,518
Other long-term assets 16,120 10,141
-------- --------
Total assets $ 82,405 $ 77,553
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 8,017 $ 7,605
Other accrued liabilities 7,648 8,714
-------- --------
Total current liabilities 15,665 16,319
Long-term debt 31,400 26,200
Postretirement benefits and other 9,190 9,125
-------- --------
Total liabilities 56,255 51,644
-------- --------
Shareholders' equity:
Common stock 4,679 4,679
Capital in excess of par 395 395
Unfunded pension liability (536) (536)
Retained earnings 21,612 21,371
-------- --------
Total shareholders' equity 26,150 25,909
-------- --------
Total liabilities & shareholders' equity $ 82,405 $ 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)
Three Months Ended
-----------------------
1/31/96 1/31/95
-------- --------
Operating Activities:
Net income $ 475 $ 330
Depreciation and amortization 863 847
Other (209) 238
Changes in net operating assets 3,755 3,243
-------- --------
Net cash provided by operations 4,884 4,658
-------- --------
Investing Activities:
Capital expenditures, net (855) (863)
Acquisitions (9,000) -
-------- --------
Net cash used by investing activities (9,855) (863)
-------- --------
Financing Activities:
Long-term borrowings on revolving
line of credit, net 5,200 (3,600)
Cash dividends (234) (234)
Shares issued under stock option plans - 20
-------- --------
Net cash from financing activities 4,966 (3,814)
-------- --------
Decrease in cash and equivalents (5) (19)
Cash and equivalents, November 1 29 55
-------- --------
Cash and equivalents, January 31 $ 24 $ 36
======== ========
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 $582,000 and $461,000 was paid during the three
months ended January 31, 1996 and 1995, respectively. No income
taxes were paid during the three months ended January 31, 1996 or
1995.
Note C. 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 is expected to be
completed by April 1, 1996. The total purchase price for the two
acquisitions completed in January was approximately $9 million
and was financed through an increase in the Company's existing
line of credit facility. Both 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 D. 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: Precision Parts and Special
Machines. The Precision Parts 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. 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 first quarter of 1996, Newcor generated net income of $475,000
on sales of $28.3 million compared to net income of $330,000 on sales of
$27.9 million for the first quarter of 1995. This performance improvement
reflects the benefits from a number of programs that we have initiated
throughout the Company to achieve continuous improvement. Included in the
first quarter 1996 results were start-up costs associated with installing
equipment and completing the learning curve to attain process capability
and productivity objectives on two important new programs within the
Precision Parts segment.
On January 2, 1996, the Company completed the acquisition of two companies
in the molded rubber and plastic component parts industry. The completion
of a third acquisition in this industry is expected by April 1, 1996. In
the short run, we are incurring costs to relocate equipment, tooling, and
production in order to focus each plant into a particular manufacturing
center of expertise. However, these actions will enhance our ability to
implement world-class manufacturing techniques and achieve continuous
improvement.
Results of Operations
- ---------------------
Consolidated sales by segment are as follows (in thousands):
Three Months Ended
1/31/96 1/31/95
-------- --------
Precision Parts $ 16,071 $ 14,759
Special Machines 12,272 13,164
-------- --------
Total Sales $ 28,343 $ 27,923
======== ========
Consolidated sales increased 1.5% for the first quarter of 1996 reflecting
a 8.9% increase in Precision Parts segment sales offset by a 6.8% decrease
in Special Machines segment sales. Approximately $800,000 of the Precision
Parts segment increase was due to the two acquisitions on January 2, 1996.
The remaining increase represented the incremental new business that this
segment has been awarded over the past twelve months, partially offset by
lower automotive releases on parts for certain models. The decrease in
Special Machines segment sales reflects the stage of certain contracts in
process at quarter end.
Consolidated gross profit percentage for the first quarter of 1996 was
18.7% compared to 15.7% for the year ended October 31, 1995 and 16.4% for
the first quarter of 1995. A portion of this improvement was due to
retroactive price increases and cost recoveries received in the first
quarter of 1996. However, we are beginning to also see the effect of the
company-wide initiatives that we have made in the areas of quality,
customer focus and internal operating efficiency.
Selling, general and administrative expenses for the first quarter of 1996
increased 18% compared to the first quarter of 1995. This was due to three
main factors: the additional SG&A costs related to the acquisitions,
additional hiring and training costs related to our company-wide
initiatives mentioned above, and additional research and development
expenses in the Special Machines area.
Operating income by segment was as follows (in thousands):
Three Months Ended
1/31/96 1/31/95
-------- --------
Precision Parts $ 1,351 $ 1,269
Special Machines 39 21
Corporate (330) (312)
-------- --------
Total Operating Income $ 1,060 $ 978
======== ========
Operating income for the Precision Parts segment increased for the first
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 Special Machines segment remained at close to break-even.
Performance to budget for work performed on special machine orders in
process was good, but the segment incurred unfavorable overhead absorption
due to the relatively low level of assembly operation.
Interest expense was lower for the first quarter of 1996 as compared to
1995 even though approximately $9 million was borrowed in January 1996
related to the two acquisitions. This was due to improved working capital
management, as well as slightly lower interest rates.
The apparent income tax rate was 35% and 34% for the quarters ended January
31, 1996 and 1995, respectively.
Liquidity and Capital Resources
- -------------------------------
As mentioned earlier, during the first quarter of 1996, Newcor completed
the acquisition of two companies for a combined purchase price of
approximately $9 million. The funds were obtained through an increase in
the Company's existing line of credit facility. Newcor's consolidated
operations generated cash of approximately $4.9 million during the first
quarter of 1996, so the outstanding balance on the line of credit facility
only increased $5.2 million since October 31, 1995.
During the first quarter of 1995, Newcor's consolidated operations
generated cash of $4.6 million which was used to fund $900,000 of capital
expenditures and pay down $3.6 million of debt.
The Company continues to pay a quarterly cash dividend of $.05 per share of
common stock. Total dividends paid during the first quarter of both 1996
and 1995 were $234,000. 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.
New Orders and Backlog
- ----------------------
New orders booked during the first quarter of 1996 were $32.0 million, up
from $27.3 million booked during the same period in 1995. The ending
backlog as of January 31, 1996 was $52.6 million compared to $49.0 million
at year-end 1995 and $54.0 million as of January 31, 1995. The reported
backlog consists of the portion of individual orders in process for which
revenue has not been recognized under the percentage of completion method
of accounting, except for those divisions in our Precision Parts segment
which report backlog based on production releases anticipated during the
succeeding quarter.
NEWCOR, INC.
PART II. OTHER INFORMATION
Item 4. Submission of matters to a vote of Security Holders:
(a) The Annual Meeting of Shareholders was held March 6, 1996
for the following purposes:
1. To elect three Directors to serve until the 1999 Annual
Meeting of Shareholders or until their successors have
been duly elected and qualified.
2. To consider and act upon a proposal to approve the 1996
Employee Incentive Stock Plan.
3. To consider and act upon a proposal to approve the 1996
Non-Employee Directors Stock Option Plan.
4. To transact such other business as may properly come
before the meeting, or any adjournment thereof.
(b) Frank L. Klapperich, Jr., William A. Lawson and W. John
Weinhardt were elected to serve on the Board of Directors
until the 1999 Annual Meeting of Shareholders or until his
respective successor shall be elected and qualified.
The following directors' term of office continues until the
1997 Annual Meeting of Shareholders:
Jack R. Lousma
Richard A. Smith
Kurt O. Tech
The following directors' term of office continues until the
1998 Annual Meeting of Shareholders:
Jerry D. Campbell
Shirley E. Gofrank
(c) The following list the matters voted on at the Annual
Meeting of Shareholders, along with the results of the vote:
Election of Frank L. Klapperich, Jr., William A. Lawson and
W. John Weinhardt to serve on the Board of Directors until
the 1999 Annual Meeting of Shareholders or until his
respective successor shall be elected and qualified:
Klapperich Lawson Weinhardt
---------- -------- ---------
Votes cast for 4,137,348 4,138,574 4,137,864
Votes against or
withheld 27,501 26,275 26,985
Abstentions and
broker non-votes 514,748 514,748 514,748
Approval of the 1996 Employee Incentive Stock Plan:
Votes cast for 2,479,760
Votes against or withheld 651,913
Abstentions and broker non-votes 1,547,924
Approval of the 1996 Non-Employee Directors Stock Option
Plan:
Votes cast for 2,883,080
Votes against or withheld 424,667
Abstentions and broker non-votes 1,371,850
(d) No settlements were needed to be reached to terminate any
solicitation.
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 December 8, 1995, Newcor, Inc. filed a Form 8-K
announcing the signing of three separate definitive
agreements to purchase the assets of three unrelated
rubber and plastic product companies.
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: March 15, 1996 /s/ John Garber
-------------- ----------------------------
John Garber
Vice President-Finance
Principal Financial and
Accounting Officer
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