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 April 30, 1997
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 June 10, 1997, the Registrant has 4,706,965 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)
Six Months Ended Three Months Ended
-------------------------------------------
4/30/97 4/30/96 4/30/97 4/30/96
-------- -------- ---------- ---------
Sales $62,564 $50,388 $34,589 $27,128
Cost of sales 50,695 39,556 28,050 21,631
-------- -------- ---------- --------
Gross margin 11,869 10,832 6,539 5,497
SG&A expenses 8,048 7,004 4,271 3,818
Loss on sale of business 711 - - -
-------- -------- --------- --------
Operating income 3,110 3,828 2,268 1,679
Other income (expense):
Interest expense (986) (857) (554) (439)
Other 185 212 31 44
-------- -------- -------- -------
Income before income taxes 2,309 3,183 1,745 1,284
Provision for income taxes 861 1,102 663 450
-------- -------- -------- ------
Income from continuing
operations 1,448 2,081 1,082 834
-------- -------- ------- ------
Discontinued operations:
Loss from discontinued
operations, net of
tax benefit - (1,203) - (431)
Loss on sale of
discontinued operations,
net of tax benefit
of $1,800 - (3,500) - (3,500)
-------- -------- -------- ------
Loss from discontinued
operations - (4,703) - (3,931)
-------- -------- -------- ------
Net income (loss) $ 1,448 $ 2,622) $ 1,082 $ (3,097)
======== ======== ======== ======
Amounts per share of
common stock:
Income from continuing
operations $ 0.31 $ 0.44 $ 0.23 $ 0.18
Net income (loss) $ 0.31 $ (0.56) $ 0.23 $ (0.66)
Dividends $ 0.10 $ 0.10 $ 0.05 $ 0.05
Weighted average common
shares outstanding 4,700 4,683 4,703 4,687
The accompanying notes are an integral part of
the condensed consolidated financial statements
NEWCOR, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
4/30/97 10/31/96
-------- --------
ASSETS
Current assets:
Cash and equivalents $ 96 $ 34
Accounts receivable 18,489 17,369
Inventories 12,131 8,196
Other current assets 3,876 6,525
-------- --------
Total current assets 34,592 32,124
Property, plant and equipment, net of
accumulated depreciation of $16,032
at 4/30/97 and $14,412 at 10/31/96 28,720 23,131
Net assets held for sale - 3,844
Other long-term assets 23,884 18,400
-------- --------
Total assets $ 87,196 $ 77,499
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 11,883 $ 10,175
Other accrued liabilities 5,735 6,998
-------- --------
Total current liabilities 17,618 17,173
Long-term debt 33,000 25,400
Postretirement benefits and other 11,078 10,485
-------- --------
Total liabilities 61,696 53,058
-------- --------
Shareholders' equity:
Common stock 4,707 4,697
Capital in excess of par 583 511
Unfunded pension liability (55) (55)
Retained earnings 20,265 19,288
-------- --------
Total shareholders' equity 25,500 24,441
-------- --------
Total liabilities & shareholders' equity $ 87,196 $ 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)
Six Months Ended
-----------------------
4/30/97 4/30/96
-------- --------
Operating Activities:
Income from continuing operations $ 1,448 $ 2,081
Depreciation and amortization 2,033 1,934
Other (298) (223)
Changes in operating assets
and liabilities, net 1,151 3,531
-------- --------
Net cash from continuing operations 4,334 7,323
Net cash from discontinued operations - 4,661
-------- --------
Net cash provided by operations 4,334 11,984
-------- --------
Investing Activities:
Capital expenditures (902) (2,375)
Acquisitions (12,081) (11,900)
Proceeds from sale of business 1,500 -
-------- --------
Net cash used by investing activities (11,483) (14,275)
-------- --------
Financing Activities:
Borrowings on revolving
line of credit, net 7,600 2,800
Cash dividends (471) (468)
Shares issued under stock option plans 82 80
-------- --------
Net cash from financing activities 7,211 2,412
-------- --------
Increase in cash and equivalents 62 121
Cash and equivalents, November 1 34 29
-------- --------
Cash and equivalents, April 30 $ 96 $ 150
======== ========
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, 1996.
Note B. Interest of $923,000 and $807,000 was paid during the six months
ended April 30, 1997 and 1996, respectively. Income taxes of
$393,000 and $540,000 was paid during the six months ended April
30, 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 recorded during the quarter ended January 31,
1997. 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.
On October 21, 1996, the Company sold the business and
substantially all assets of its Newcor Machine Tool 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.
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 six month period and
the quarter ended April 30, 1996 are as follows:
Six Months Ended Three Months Ended
4/30/97 4/30/96 4/30/97 4/30/96
--------- ---------- --------- ----------
Revenues $ - $9,173 $ - $4,090
Loss before income taxes - (1,814) - (645)
Benefit from income taxes - (611) - (214)
Net loss from discontinued
operations - (1,203) - (431)
Note E. 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 F. In June 1997, the Company sold the land and building of Wilson
Automation for approximately $2.3 million, net of selling
expenses. The after tax gain associated with the sale is
approximately $800,000, which will be recognized in the third
quarter of 1997.
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. The effect of the stock dividend has
not 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, molded rubber and plastic parts. Special machines
consist of standard individual machines, as well as 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 second quarter of 1997, Newcor generated income from continuing
operations of $1,082,000 on sales of $34.6 million, compared to income from
continuing operations of $834,000 on sales of $27.1 million for the second
quarter of 1996. The improvement in sales was primarily due to the
acquisitions of four rubber and plastic companies during 1996 and 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 an estimated $800,000 due to strikes at
Chrysler and General Motors automotive assembly plants supplied by Newcor.
Income from continuing operations as a percentage of sales during the
second quarter of 1997 and 1996, respectively, aggregated 3.1%. The
improvement in income from continuing operations is due to 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
strikes at the Chrysler and General Motors assembly plants, as well as
selling, general, and administrative expenses (SG&A) that were higher than
one year ago due to the SG&A and goodwill amortization of newly acquired
companies. Interest expense was also higher than one year ago due to
acquisition financing debt.
Newcor sold the business and substantially all assets of its Eonic
operation on March 6, 1997.
Results of Operations
- ---------------------
Consolidated sales by segment are as follows (in thousands):
Six Months Ended Three Months Ended
4/30/97 4/30/96 4/30/97 4/30/96
-------- -------- ---------- --------
Components and
Assemblies $ 52,974 $ 36,758 $ 29,830 $ 20,687
Special Machines 9,590 13,630 4,759 6,441
-------- -------- ---------- --------
Total Sales $ 62,564 $ 50,388 $ 34,589 $ 27,128
======== ======== ======== ========
Consolidated sales increased 27.5% for the second quarter of 1997
reflecting a 44.2% increase in Components and Assemblies segment sales
offset by a 26.1% decrease in Special Machines segment sales. The second
quarter sales improvement of $9.1 million for the Components and Assemblies
segment was due to a $5.3 million net increase in sales related to
acquisitions, $4.4 million of flow through pricing on material that is
being purchased rather than received on consignment and $2.5 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 and the stage of certain
contracts in process at quarter end.
Consolidated gross profit percentage for the second quarter of 1997 was
18.9% compared to 20.3% for the first 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 second quarter of 1997
increased 11.9% compared to the second quarter of 1996. This was due to
additional SG&A costs related to the acquisitions and additional hiring and
training costs related to our company-wide initiatives to train employees
to use continuous improvement tools.
Operating income by segment was as follows (in thousands):
Six Months Ended Three Months Ended
4/30/97 4/30/96 4/30/97 4/30/96
-------- -------- ----------- -------
Components and
Assemblies $ 3,393 $ 3,038 $ 2,653 $ 1,706
Special Machines 516 1,574 (5) 361
Corporate (799) (784) (380) (388)
-------- -------- ----------- -------
Total Operating
Income $ 3,110 $ 3,828 $ 2,268 $ 1,679
======== ======== ====== ======
Operating income for the Components and Assemblies segment increased for
the second quarter of 1997 compared to 1996 due to the significant increase
in sales, while gross profit percentage remained constant. An increase in
SG&A costs related to acquisitions and hiring and training related to
company-wide initiatives partially offset the sales and margin increases.
Operating income for the Special Machines segment decreased due to the
decrease in sales as referred to above.
Interest expense increased $115,000 during the second quarter of 1997, as
compared to 1996, primarily due to the acquisition of Plastronics in
January 1997.
The apparent income tax rate was 38% and 35% for the quarters ended April
30, 1997 and 1996, respectively. The increase in the rate is due
principally to the effect of state income taxes for operations outside the
state of Michigan.
Liquidity and Capital Resources
- -------------------------------
During the first six months of 1997, Newcor spent approximately $13 million
on acquisitions and capital spending, while receiving $1.5 million from the
sale of Eonic. The increase in debt, however, was only $7.6 million as
consolidated operations generated approximately $4.3 million in cash.
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 six months of 1997 and
1996 were $471,000 and $468,000, 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.
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 second 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: June 12, 1997 /s/ John Garber
-------------- ----------------------------
John Garber
Vice President-Finance
Principal Financial and
Accounting Officer
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