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, 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 March 5, 1997, 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)
Three Months Ended
-----------------------
1/31/97 1/31/96
-------- --------
Sales $ 27,975 $ 23,260
Cost of sales 22,645 17,925
-------- --------
Gross margin 5,330 5,335
SG&A expenses 3,777 3,186
Loss on sale of business 711 -
-------- --------
Operating income 842 2,149
Other income (expense):
Interest expense (432) (418)
Other 154 168
-------- --------
Income before income taxes 564 1,899
Provision for income taxes 198 652
-------- --------
Income from continuing operations 366 1,247
-------- --------
Discontinued operations:
Loss from discontinued operations,
net of tax benefit - (772)
-------- --------
Loss from discontinued operations - (772)
-------- --------
Net income $ 366 $ 475
======== ========
Amounts per share of common stock:
Income from continuing operations $ 0.08 $ 0.26
Net income $ 0.08 $ 0.10
Dividends $ 0.05 $ 0.05
Weighted average common shares outstanding 4,697 4,679
The accompanying notes are an integral part of
the condensed consolidated financial statements
NEWCOR, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
1/31/97 10/31/96
-------- --------
ASSETS
Current assets:
Cash and equivalents $ 94 $ 34
Accounts receivable 18,632 17,369
Inventories 10,647 8,196
Other current assets 5,364 6,525
-------- --------
Total current assets 34,737 32,124
Property, plant and equipment, net of
accumulated depreciation of $15,154
at 1/31/97 and $14,412 at 10/31/96 29,027 23,131
Net assets held for sale 3,552 3,844
Other long-term assets 22,041 18,400
-------- --------
Total assets $ 89,357 $ 77,499
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 10,923 $ 10,175
Other accrued liabilities 5,797 6,998
-------- --------
Total current liabilities 16,720 17,173
Long-term debt 36,500 25,400
Postretirement benefits and other 11,565 10,485
-------- --------
Total liabilities 64,785 53,058
-------- --------
Shareholders' equity:
Common stock 4,697 4,697
Capital in excess of par 511 511
Unfunded pension liability (55) (55)
Retained earnings 19,419 19,288
-------- --------
Total shareholders' equity 24,572 24,441
-------- --------
Total liabilities & shareholders' equity $ 89,357 $ 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)
Three Months Ended
-----------------------
1/31/97 1/31/96
-------- --------
Operating Activities:
Income from continuing operations $ 366 $ 1,247
Depreciation and amortization 1,003 781
Other (407) (209)
Changes in operating assets
and liabilities, net 934 2,130
-------- --------
Net cash from continuing operations 1,896 3,949
Net cash from discontinued operations - 964
-------- --------
Net cash provided by operations 1,896 4,913
-------- --------
Investing Activities:
Capital expenditures, net (620) (884)
Acquisitions (12,081) (9,000)
-------- --------
Net cash used by investing activities (12,701) (9,884)
-------- --------
Financing Activities:
Long-term borrowings on revolving
line of credit, net 11,100 5,200
Cash dividends (235) (234)
-------- --------
Net cash from financing activities 10,865 4,966
-------- --------
Increase (decrease) in cash and equivalents 60 (5)
Cash and equivalents, November 1 34 29
-------- --------
Cash and equivalents, January 31 $ 94 $ 24
======== ========
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 $432,000 and $418,000 was paid during the three
months ended January 31, 1997 and 1996, respectively. No income
taxes were paid during the three months ended January 31, 1997 or
1996.
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 plus the assumption of
approximately $4.1 million of Plastronics debt. 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 and a $1 million 8.25% note due
over five years. The proceeds were used to reduce long-term
debt. Accordingly, the net assets of Eonic's operations have
been classified as a long-term asset at January 31, 1997.
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. The building is being leased to
the buyer through April 30, 2001. 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 quarter ended January
31, 1996 are as follows:
Three Months Ended
1/31/97 1/31/96
--------- ----------
Revenues $ - $ 5,083
Loss before income taxes - (1,169)
Benefit from income taxes - (397)
Net loss from discontinued operations - (772)
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.
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, and non-symmetrical
machine contoured parts produced and sold in small quantities. 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 first quarter of 1997, Newcor generated income from continuing
operations of $366,000 on sales of $28.0 million, compared to income from
continuing operations of $1,247,000 on sales of $23.3 million for the first
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.
Income from continuing operations was below first quarter of 1996 results
as a result of the $711,000 loss on disposition of Eonic, lower margins
related to the stage of contracts in process within Newcor's Special
Machines segment and higher selling, general , and administrative expenses
due to the acquired companies and increased training costs.
On January 13, 1997, the Company acquired the common stock of Plastronics
Plus, Inc. (Plastronics). Plastronics primarily manufactures custom
injection-molded components for the automotive industry. In addition, on
March 6, 1997, Newcor sold the business and substantially all assets of its
Eonic operation.
Results of Operations
- ---------------------
Consolidated sales by segment are as follows (in thousands):
Three Months Ended
1/31/97 1/31/96
-------- --------
Components and Assemblies $ 23,144 $ 16,071
Special Machines 4,831 7,189
-------- --------
Total Sales $ 27,975 $ 23,260
======== ========
Consolidated sales increased 20.3% for the first quarter of 1997 reflecting
a 44.0% increase in Components and Assemblies segment sales offset by a
32.8% decrease in Special Machines segment sales. Approximately $4.8
million of the Components and Assemblies segment increase was due to the
four acquisitions that occurred in 1996 and 1997. The remaining increase
represented the incremental new business that this segment has been awarded
over the past twelve months and a customer's decision to have the Company
purchase and bill material in the selling price during fiscal 1997 rather
than have the material flow through on a consignment basis as it did during
fiscal 1996. 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 first quarter of 1997 was
19.1% compared to 22.9% for the first quarter of 1996. The decrease in
margin was caused by lower margins related to the stage of certain
contracts in process in the Special Machine segment and 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 first quarter of 1997
increased 18.5% compared to the first 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):
Three Months Ended
1/31/97 1/31/96
-------- --------
Components and Assemblies $ 740 $ 1,332
Special Machines 521 1,213
Corporate (419) (396)
-------- --------
Total Operating Income $ 842 $ 2,149
======== ========
The decrease in operating income for the Components and Assemblies segment
for the first quarter of 1997, compared to 1996, was primarily due to the
loss on the sale of Eonic of $711,000 and additional SG&A costs related to
the four acquisitions and company-wide training initiatives. Operating
income for the Special Machines segment decreased due to the sale of the
Company's Machine Tool division during the fourth quarter of 1996 and the
current stage of contracts in process. Actual manufacturing performance in
terms of controllable variable cost improved over 1996 as a result of our
commitment to continuous improvement through the effective implementation
of various productivity tools such as kaizen, one piece flow work cells,
and team-based problem solving.
Interest expense increased only $14,000 during the first quarter of 1997,
as compared to 1996, even though approximately $12 million was borrowed in
January 1997 related to the Plastronics acquisition. This was due to the
continued emphasis on working capital management and slightly lower
interest rates.
The apparent income tax rate was 35% and 34%for the quarters ended January
31, 1997 and 1996, respectively.
Liquidity and Capital Resources
- -------------------------------
The Company spent approximately $12.7 million on acquisitions and capital
equipment and improvements during the first quarter of 1997. As previously
mentioned, the Company acquired Plastronics during the first quarter of
1997 for approximately $12.1 million. The funds for this acquisition were
obtained through the Company's existing line of credit facility. Newcor's
consolidated operations generated cash of approximately $1.9 million during
the first quarter of 1997.
During the first quarter of 1996, Newcor's consolidated operations
generated cash of approximately $4.9 million, which was used for capital
expenditures and to partially fund the two acquisitions that occurred
during the quarter.
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 quarter of 1997 and
1996 were $235,000 and $234,000, 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 4. Submission of matters to a vote of Security Holders:
(a) The Annual Meeting of Shareholders was held March 5, 1997
for the following purposes:
1. To elect three Directors to serve until the year 2000
Annual Meeting of Shareholders or until their
successors have been duly elected and qualified.
2. To transact such other business as may properly come
before the meeting, or any adjournment thereof.
(b) Jack R. Lousma, Richard A. Smith and Kurt O. Tech were
elected to serve on the Board of Directors until the year
2000 Annual Meeting of Shareholders or until his respective
successor shall be elected and qualified.
The following directors' term of office continues until the
1998 Annual Meeting of Shareholders:
Jerry D. Campbell
Shirley E. Gofrank
W. John Weinhardt
The following directors' term of office continues until the
1999 Annual Meeting of Shareholders:
Frank L. Klapperich, Jr.
William A. Lawson
(c) The following lists the matters voted on at the Annual
Meeting of Shareholders, along with the results of the vote:
Election of Jack R. Lousma, Richard A. Smith and Kurt O.
Tech to serve on the Board of Directors until the year 2000
Annual Meeting of Shareholders or until his respective
successor shall be elected and qualified:
Lousma Smith Tech
---------- -------- ---------
Votes cast for 4,153,001 4,148,613 4,149,267
Votes against or
withheld 52,383 56,771 56,117
Abstentions and
broker non-votes 491,431 491,431 491,431
(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 January 27, 1997, Newcor, Inc. filed a Form 8-K
announcing the acquisition of Plastronics through the
purchase of 100% of Plastronics common stock.
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 12, 1997 /s/ John Garber
-------------- ----------------------------
John Garber
Vice President-Finance
Principal Financial and
Accounting Officer
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