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, 1997
Commission File number 1-5985
NEWCOR, INC.
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(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 2, 1997, the Registrant has 4,942,034 outstanding shares of
common stock, $1.00 par value, the Registrant's only class of common stock.
This amount includes the effect of the 5% stock dividend to be distributed
during the fourth quarter of 1997 to shareholders' of record at the close
of business on August 14, 1997
PART I. FINANCIAL INFORMATION
NEWCOR, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
Nine Months Ended Three Months Ended
-----------------------------------------------
7/31/97 7/31/96 7/31/97 7/31/96
-------- -------- ---------- ---------
Sales $94,949 $78,290 $32,385 $27,902
Cost of sales 77,615 62,420 26,920 22,864
-------- -------- ---------- --------
Gross margin 17,334 15,870 5,465 5,038
SG&A expenses 11,597 10,551 3,720 3,705
Nonrecurring items,
(gain) loss 3 - (708) -
-------- -------- --------- --------
Operating income 5,734 5,319 2,453 1,333
Other income (expense):
Interest expense (1,539) (1,345) (553) (488)
Other (106) 145 (120) 91
-------- -------- -------- -------
Income before income taxes 4,089 4,119 1,780 936
Provision for income taxes 1,419 1,434 558 332
-------- -------- -------- ------
Income from continuing
operations 2,670 2,685 1,222 604
Loss from discontinued
operations, net - (4,703) - -
-------- -------- -------- ------
Net income (loss) $ 2,670$ (2,018) $ 1,222 $ 604
======== ======== ======== ======
Amounts per share of common stock:
Income from continuing
operations (1) $ 0.54 $ 0.55 $ 0.25 $ 0.12
Net income (loss) (1) $ 0.54 $ (0.41) $ 0.25 $ 0.12
Dividends (1) $ 0.14 $ 0.14 $ 0.05 $ 0.05
Weighted average common
shares outstanding (1) 4,937 4,917 4,942 4,921
(1)Per share amounts and shares outstanding have been adjusted to reflect
the 5% stock dividend to shareholders' of record at the close of
business on August 14, 1997.
The accompanying notes are an integral part of
the condensed consolidated financial statements
NEWCOR, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
7/31/97 10/31/96
-------- --------
ASSETS
Current assets:
Cash and equivalents $ 99 $ 34
Accounts receivable 19,614 17,369
Inventories 9,526 8,196
Other current assets 6,965 6,525
-------- --------
Total current assets 36,204 32,124
Property, plant and equipment, net of
accumulated depreciation of $14,601
at 7/31/97 and $14,412 at 10/31/96 28,105 23,131
Net assets held for sale - 3,844
Goodwill, net of amortization 16,059 12,689
Other long-term assets 6,660 5,711
-------- --------
Total assets $ 87,028 $ 77,499
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 11,241 $ 10,175
Other accrued liabilities 6,502 6,998
-------- --------
Total current liabilities 17,743 17,173
Long-term debt 31,700 25,400
Postretirement benefits and other 11,097 10,485
-------- --------
Total liabilities 60,540 53,058
-------- --------
Shareholders' equity:
Common stock 4,937 4,697
Capital in excess of par 2,263 511
Unfunded pension liability (55) (55)
Retained earnings 19,343 19,288
-------- --------
Total shareholders' equity 26,488 24,441
-------- --------
Total liabilities & shareholders' equity $ 87,028 $ 77,499
======== ========
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
-----------------------
7/31/97 7/31/96
-------- --------
Operating Activities:
Income from continuing operations $ 2,670 $ 2,685
Depreciation and amortization 3,153 2,872
Gain on sale of capital assets (711)
Other 226 (325)
Changes in operating assets
and liabilities, net (620) 8,458
-------- --------
Net cash from continuing operations 4,718 13,690
Net cash from discontinued operations - 2,735
-------- --------
Net cash provided by operations 4,718 16,425
-------- --------
Investing Activities:
Capital expenditures (2,050) (3,310)
Proceeds from sale of capital assets 2,301
Acquisitions (12,081) (11,900)
Proceeds from sale of business 1,500 -
-------- --------
Net cash used by investing activities (10,330) (15,210)
-------- --------
Financing Activities:
Borrowings on revolving
line of credit, net 6,300 (600)
Cash dividends (705) (703)
Shares issued under stock option plans 82 131
-------- --------
Net cash from financing activities 5,677 (1,172)
-------- --------
Increase in cash and equivalents 65 43
Cash and equivalents, November 1 34 29
-------- --------
Cash and equivalents, July 31 $ 99 $ 72
======== ========
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 a complete presentation of 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, 1996.
Note B. Interest of $1,501,000 and $1,677,000 was paid during the nine
months ended July 31, 1997 and 1996, respectively. Income taxes
of $931,500 and $550,000 was paid during the nine months ended
July 31, 1997 and 1996, respectively.
Note C. On January 13, 1997, the Company purchased for cash the common
stock of Plastronics Plus, Inc. (Plastronics), a Wisconsin
corporation. Plastronics primarily manufactures custom injection-
molded components for the automotive industry. The purchase
price was approximately $8 million in cash plus the assumption of
approximately $4.1 million of Plastronics debt, which was
subsequently retired. The purchase was financed through the
Company's existing line of credit facility. The acquisition was
recorded using the purchase method of accounting. The cost in
excess of net assets acquired of approximately $4 million is
being amortized on a straight-line basis over twenty years.
Plastronics had sales during fiscal 1996 of approximately $15
million.
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 $11.6 million. The acquisitions were recorded using
the purchase method of accounting. The cost in excess of net
assets acquired of approximately $8 million is being amortized on
a straight-line basis over twenty years.
Note D. On March 6, 1997, the Company sold the business and substantially
all assets of its Eonic operation. Although assets were sold at
approximately net book value, reserves were established for
employee separation costs, costs associated with the collection
of accounts receivable and pension plan costs, resulting in a
$711 expense being recognized during the quarter ended January
31, 1997 as a nonrecurring item. The Company received cash of
$1.5 million and a $1 million 8.25% note due over five years.
The proceeds were used to reduce long-term debt.
The Company sold the business and certain assets of its Wilson
Automation division (Wilson) on May 6, 1996. Wilson designs and
manufactures engine, transmission, and axle assembly systems.
All receivables, the land and building, and certain liabilities
were retained by the Company. Although assets were sold at
approximately net book value, reserves were established for
curtailment of the pension plan, employee separation costs, costs
associated with the allocation of accounts receivable and
additional liabilities related to contracts for which the Company
has retained the responsibility and liabilities. These reserves
coupled with the operating loss from the discontinued operation
measurement date (March 31, 1996) to the sale date resulted in a
net loss of $3.5 million on the disposition of Wilson, which was
recognized in the second quarter of 1996. Summary operating
results of discontinued operations for the nine month period
ended July 31, 1996 are as follows:
Nine Months Ended
7/31/97 7/31/96
---------- ----------
Revenues $ - $9,173
Loss before income taxes - (1,814)
Benefit from income taxes - (611)
Net loss from discontinued operations- (1,203)
Note E. The Company sold the land and building of Wilson Automation
during the third quarter of 1997 for approximately $2.3 million,
net of selling expenses. The pre-tax net gain on this
disposition was $708 and has been recognized as a nonrecurring
item in the Condensed Consolidated Statements of Income.
Note F. Statement of Financial Accounting Standards No. 123, " Accounting
for Stock-Based Compensation" (FAS 123) allows two alternative
methods of accounting for stock-based employee compensation
plans. Either the fair value (recognition) method set forth in
FAS 123 can be applied or the entity can continue to apply the
intrinsic value method as set forth in Accounting Principles
Board Opinion 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
method had been applied. The Company anticipates adopting the
disclosure method during the fourth quarter of fiscal 1997.
Note G. In addition to the quarterly cash dividend of $.05 per share of
common stock, a 5% stock dividend was approved by the Board of
Directors in June 1997. The dividend will be distributed during
the fourth quarter of 1997 to shareholders' of record at the
close of business on August 14, 1997. The effect of the stock
dividend has been reflected in these condensed consolidated
financial statements.
NEWCOR, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
Overview
- --------
Newcor is organized into two industry 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, as well as molded rubber and plastic parts. Special
machines consist of standard individual machines and custom designed
machines, all manufactured on a made-to-order basis, serving primarily the
automotive and appliance industries. Revenues and costs for special
machines are determined under the percentage of completion method of
accounting.
During the third quarter of 1997, Newcor generated income from continuing
operations of $1,222,000 on sales of $32.4 million, compared to income from
continuing operations of $604,000 on sales of $27.9 million for the third
quarter of 1996. The improvement in sales was primarily due to the
Plastronics acquisition during 1997, internal growth within Newcor's
existing divisions and flow through sales for material that is being
purchased rather than received on consignment. Sales were adversely
impacted by strikes at Chrysler and General Motors automotive assembly
plants supplied by Newcor, as well as by automotive customer schedule
reductions caused by lower passenger car and light truck builds during the
quarter. Income from continuing operations as a percentage of sales during
the third quarter of 1997 and 1996 aggregated 3.8% and 2.2%, respectively.
The improvement in income from continuing operations is primarily due to
the net gain on sale of capital assets which resulted in a pre-tax gain of
$708. Other factors contributing to the improvement in income from
continuing operations included additional gross margin on the incremental
sales increase and favorable manufacturing performance that continues to
reflect benefits from the implementation of performance improvement tools
such as one piece flow work cells and team based problem solving. The
improvement was partially offset by the negative impact on margin and fixed
overhead absorption caused by the lost volume due to customer strikes at
the Chrysler and General Motors assembly plants, goodwill amortization of
newly acquired companies, and customer shutdowns for model year changeover.
Interest expense was higher than one year ago due to acquisition financing
debt.
Results of Operations
- ---------------------
Consolidated sales by segment are as follows (in thousands):
Nine Months Ended Three Months Ended
7/31/97 7/31/96 7/31/97 7/31/96
-------- -------- --------------------
Components and
Assemblies $ 80,076 $ 57,860 $ 27,102 $ 21,102
Special Machines 14,873 20,430 5,283 6,800
-------- -------- --------------------
Total Sales $ 94,949 $ 78,290 $ 32,385 $ 27,902
======== ======== ======== ========
Consolidated sales increased 16.1% for the third quarter of 1997 reflecting
a 28.4% increase in Components and Assemblies segment sales offset by a
22.3% decrease in Special Machines segment sales. The third quarter sales
improvement of $6 million for the Components and Assemblies segment was due
to a $2.8 million net increase in sales related to acquisitions, $4.1
million of flow through pricing on material that is being purchased rather
than received on consignment and $1.6 million of incremental new business.
The sales increase was partially offset by the sale of the Company's Eonic
operation in March 1997. The decrease in Special Machines segment sales is
due to the sale of Newcor's Machine Tool division during the fourth quarter
of 1996.
Consolidated gross profit percentage for the third quarter of 1997 was
16.9% compared to 18.1% for the third quarter of 1996. The decrease in
margin was caused principally by the flow through sales, at a nominal
margin, of material that was purchased rather than received on consignment.
Selling, general and administrative expenses for the third quarter of 1997
were comparable with the third quarter of 1996.
Operating income by segment was as follows (in thousands):
Nine Months Ended Three Months Ended
7/31/97 7/31/96 7/31/97 7/31/96
-------- -------- --------------------
Components and
Assemblies $ 5,023 $ 4,536 $ 1,542 $ 1,388
Special Machines 936 1,987 405 365
Corporate (225) (1,204) 506 (420)
-------- -------- --------------------
Total Operating
Income $ 5,734 $ 5,319 $ 2,453 $ 1,333
======== ======== ====== ======
Operating income for the Components and Assemblies segment increased for
the third quarter of 1997 compared to 1996 due to the significant increase
in sales, while gross profit percentage decreased slightly due to the flow
through sales of material that was purchased rather than received on
consignment. An increase in SG&A costs related to acquisitions, hiring,
and company-wide training partially offset the sales and gross margin
increases. Operating income for the Special Machines segment decreased
primarily due to the decrease in sales as referred to above. The increase
in Corporate operating income was mainly due to the net gain on sale of
capital assets.
Liquidity and Capital Resources
- -------------------------------
During the first nine months of 1997, Newcor spent approximately $14.1
million on acquisitions and capital spending, while receiving $2.3 million
from the sale of the Wilson land and building and $1.5 from the sale of
Eonic. The increase in debt, however, was only $6.3 million as
consolidated operations generated approximately $4.7 million in cash.
During the first nine months of 1996, Newcor's consolidated operations
generated cash of $13.7 million which was used to fund over $15 million for
acquisitions and capital spending, as well as reduce debt by $600,000. The
positive cash flow from continuing operations was primarily due to
reductions in accounts receivable and work-in-process inventory within the
Special Machines segment divisions due to the completion, shipment and
collection of a handful of large special machines.
In April 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. Newcor entered into a $10 million seven-year fixed-rate term loan at
7.85% interest in May 1996. No principal payments are due for the first
two years. Monthly principal payments of $166,667 are due from June 1998
through May 2003. In addition, the Company has $6.1 million of EDC limited
obligation revenue bonds outstanding that mature January 1, 2008. At the
Company's discretion, effective March 1, 1997, the amount available under
the revolving credit agreement was reduced from $29 million to $25 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 1997
and 1996 were $705,000 and $703,000, 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.
In addition to the quarterly cash dividend of $.05 per share of common
stock, a 5% stock dividend was approved by the Board of Directors in June
1997. The dividend will be distributed during the fourth quarter of 1997
to shareholders' of record at the close of business on August 14, 1997.
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
No reports filed during the third quarter
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 5, 1997
------------------------- ----------------------------
John Garber
Vice President-Finance
Principal Financial and
Accounting Officer
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