<PAGE> 1
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, 1998
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 (248) 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 10, 1998, the Registrant has 4,942,034 outstanding shares of common
stock, $1.00 par value, the Registrant's only class of common stock.
<PAGE> 2
PART I. FINANCIAL INFORMATION
NEWCOR, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended
------------------------
1/31/98 1/31/97
--------- ----------
<S> <C> <C>
Sales $ 30,134 $ 27,975
Cost of sales 26,423 22,645
--------- ----------
Gross margin 3,711 5,330
SG&A expenses 4,164 3,511
Amortization expense 325 186
Nonrecurring loss 711
--------- ----------
Operating income (loss) (778) 922
Other income (expense):
Interest expense (825) (432)
Other (11) 74
--------- ----------
Income before income taxes (1,614) 564
Provision (benefit) for income taxes (582) 198
--------- ----------
Net income (loss) $ (1,032) $ 366
========= ==========
Amounts per share of common stock:
Net income (loss) - Basic $ (0.21) $ 0.07 (1)
Net income (loss) - Diluted $ (0.21) $ 0.07 (1)
Dividends $ 0.05 $ 0.05 (1)
Weighted average common shares outstanding 4,942 4,932 (1)
</TABLE>
(1) Per share amounts and shares outstanding have been adjusted to reflect
the 5% stock dividend declared and paid during fiscal 1997.
The accompanying notes are an integral part of
the condensed consolidated financial statements
<PAGE> 3
NEWCOR, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
1/31/98 10/31/97
-------- --------
ASSETS
<S> <C> <C>
Current assets:
Cash $ 86 $ 34
Accounts receivable 21,138 22,523
Inventories 7,927 8,084
Other current assets 7,998 8,672
---------- ----------
Total current assets 37,149 39,313
Property, plant and equipment, net of
accumulated depreciation of $15,496
at 1/31/98 and $14,544 at 10/31/97 37,116 28,119
Goodwill, net of amortization 40,202 16,080
Other long-term assets 9,982 7,371
---------- ----------
Total assets $ 124,449 $ 90,883
========== ==========
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Note payable $ 21,650 $ -
Current portion of long-term debt 1,333 833
Accounts payable 14,319 14,874
Other accrued liabilities 4,598 5,668
---------- ----------
Total current liabilities 41,900 21,375
Long-term debt 46,467 32,267
Postretirement benefits and other 9,945 9,826
---------- ----------
Total liabilities 98,312 63,468
---------- ----------
Shareholders' equity:
Common stock 4,942 4,942
Capital in excess of par 2,258 2,258
Unfunded pension liability (99) (99)
Retained earnings 19,036 20,314
---------- ----------
Total shareholders' equity 26,137 27,415
---------- ----------
Total liabilities & shareholders' equity $ 124,449 $ 90,883
========== ==========
</TABLE>
The accompanying notes are an integral part of
the condensed consolidated financial statements
<PAGE> 4
NEWCOR, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended
------------------
1/31/98 1/31/97
-------- --------
<S> <C> <C>
Operating Activities:
Net income (loss) $ (1,032) $ 366
Depreciation and amortization 1,277 1,003
Other 8 (407)
Changes in operating assets
and liabilities, net 164 934
-------- --------
Net cash provided by operations 417 1,896
-------- --------
Investing Activities:
Capital expenditures (1,749) (620)
Acquisitions, net of cash acquired (13,070) (12,081)
-------- --------
Net cash used by investing activities (14,819) (12,701)
-------- --------
Financing Activities:
Borrowings on revolving
line of credit, net 14,700 11,100
Cash dividends (246) (235)
-------- --------
Net cash from financing activities 14,454 10,865
-------- --------
Increase in cash 52 60
Cash, beginning of period 34 34
-------- --------
Cash, end of period $ 86 $ 94
======== ========
</TABLE>
The accompanying notes are an integral part of
the condensed consolidated financial statements
<PAGE> 5
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, 1997.
Certain items in prior years' condensed consolidated financial
statements have been reclassified to conform with the presentation
used in the quarterly period ended January 31, 1998.
Note B. Interest of approximately $665,000 and $432,000 was paid during the
three months ended January 31, 1998 and 1997, respectively. Income
taxes were not paid during the three months ended January 31, 1998 and
1997, respectively.
Note C. On December 23, 1997, the Company purchased the assets and business of
Machine Tool & Gear, Inc. (MT&G) for $27.25 million plus the
assumption of approximately $5.8 million of debt, which was
subsequently retired. MT&G manufactures differential pinion and side
gears, output shafts and rear axle shafts for the automotive industry.
For these assets, the Company paid cash of $2.5 million in October
1997 and an additional $3.1 million in December 1997. On December 5,
1997, the Company's revolving credit agreement was increased from
$25.0 million to $37.0 million to pay off acquired bank debt and make
the down payment on the MT&G acquisition. A promissory note for
$21.65 million, paying interest at 8%, was issued for the balance of
the purchase price and was subsequently paid off on March 11, 1998
using the proceeds from the Company's private placement of $125
million of 9.875% Senior Subordinated Notes (the Notes) as described
in Note E. The acquisition was recorded using the purchase method of
accounting. The cost in excess of net assets acquired of
approximately $24 million is being amortized on a straight-line basis
over twenty years. The unaudited pro forma results of operations with
the inclusion of MT&G for the entire first quarter of fiscal 1998 and
1997 would not have been materially different from actual results.
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.
Note D. On March 4, 1998, the Company purchased the common stock of Grand
Machining Company, Deco Technologies, Inc. and Deco International,
Inc. (collectively, Deco) for $54.85 million in cash, subject to
certain net book value adjustments. Deco manufactures high volume,
precision machined components and assemblies for the medium and heavy
duty truck and automotive industries. Deco's products include rocker
arm components and assemblies, transmission shafts, axle shafts and
thrust plates. The Company made a $5.0 million deposit to the Deco
shareholders in December 1997. The balance of the purchase price was
paid in March 1998, with the proceeds from the Notes as described in
Note E. The acquisition will be recorded using the purchase method of
accounting. The cost in excess of net assets acquired is expected to
be approximately $40 million and will be amortized on a straight-line
basis over twenty years.
On March 4, 1998, the Company purchased the stock of Turn-Matic, Inc.
(Turn-Matic) for $17.0 million in cash, subject to certain net book
value adjustments. Contingent consideration of up to $3.5 million may
be paid if profitability achieves certain levels over the next five
years. Turn-Matic manufactures high volume precision machined
components and assemblies for the automotive industry. Turn-Matic's
products include oil filter adapters, main bearing caps and intake and
exhaust manifolds. The purchase was financed with the proceeds from
the Notes
<PAGE> 6
as described in Note E. The acquisition will be recorded using the
purchase method of accounting. The cost in excess of net assets
acquired is expected to be approximately $10 million and will be
amortized on a straight-line basis over twenty years.
Note E. The Company completed the private placement of the Notes on March 4,
1998. Interest on the Notes will be payable semi-annually on March 1
and September 1 of each year, commencing September 1, 1998. The Notes
will mature on March 1, 2008. The Notes are unsecured and will be
redeemable, in whole or in part, at the option of the Company, on or
after March 1, 2003. Proceeds from the Notes have been used to
finance the Deco and Turn-Matic acquisitions, pay off the note issued
in connection with the MT&G acquisition and pay down the Company's
line of credit facility.
In conjunction with the Notes offering, the Company's revolving credit
agreement was amended to allow the Company to increase total
availability to $50.0 million. The revolving credit agreement is
collateralized by substantially all of the Company's non-real estate
assets and by Rochester Gear, Inc. real estate. The current
expiration date for the revolving credit agreement is February 28,
2001.
The revolving credit agreement, the Company's $10 million term note
and the Notes require the Company to comply with certain financial
covenants including net worth, debt service coverage and total debt.
In addition, the terms of the Notes require the Company to suspend its
cash dividend.
Note F. 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 $711,000 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.
Note G. The Company sold the land and building of Newcor Machine Tool during
the second quarter of 1998 for approximately $1.3 million, net of
selling expenses. The after-tax gain associated with this sale is
approximately $200,000, which will be recognized in the second quarter
of 1998.
Note H. 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
the third quarter of 1997. The dividend was 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.
As mentioned in Note E., the Company has suspended future cash
dividend payments.
Note I. The Company has been notified by one of its largest customers that the
customer is defending itself in a patent infringement lawsuit
involving certain processes/methods used on manufacturing equipment
supplied by numerous vendors including one of the Company's former
divisions within the Special Machines segment. The Company retained
responsibility for this matter when it sold the related business.
Certain component suppliers of the Company have been notified of their
potential responsibility to the Company in connection with this
action. The Company does not possess sufficient information to
evaluate the validity of this claim and, accordingly, is unable to
determine whether it will ultimately be required to make any payment
related to this lawsuit, or the extent to which any such payment could
be offset or mitigated by claims against suppliers.
The Company sold several of its businesses during fiscal 1997 and
1996, including the division that produced the equipment described
above. In each case the Company's agreement with the purchaser
requires it to indemnify the purchaser for various claims including
certain environmental, product liability, warranty and other claims
that may arise relating to the conduct of the business before the date
of sale, subject in some cases to limits on the time within which an
indemnification claim may be brought or the maximum amount the Company
may be required to pay. The Company provided for its estimated
indemnification obligations when these businesses were sold and has no
reason to believe there are potential claims against it in excess of
this provision, although no specific amounts are included in such
reserve with respect to the patent infringement action described
above.
<PAGE> 7
Various other legal matters arising during the normal course of
business are pending against the Company. Management does not expect
that the ultimate liability, if any, of these matters will have a
material effect on future financial position and results of
operations.
<PAGE> 8
NEWCOR, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
OVERVIEW
Newcor, Inc. (the Company) is organized into three industry segments: the
Precision Machined Products segment, the Rubber and Plastic segment and the
Special Machines segment. The Precision Machined Products segment produces
transmission, powertrain and engine components and assemblies for the
automotive and agricultural vehicle industries. The Rubber and Plastic segment
produces cosmetic and functional seals and boots and functional engine
compartment products primarily for the automotive industry. The Special
Machines segment designs and manufactures welding, assembly, forming, heat
treating and testing machinery and equipment for the automotive, appliance and
other industries.
The Company's strategy to build the Precision Machined Products segment as a
high volume automotive supplier took a significant step forward as a result of
the following actions during the first quarter of 1998: On December 23, 1997,
the Company purchased the assets of Machine Tool & Gear, Inc. (MT&G) for $27.3
million, and assumed $5.8 million of debt, which was subsequently retired.
MT&G manufactures differential pinion and side gears, output shafts and rear
axle shafts for the automotive industry. The Company also signed definitive
agreements to purchase the common stock of Grand Machining Company, Deco
Technologies, Inc. and Deco International, Inc. (collectively, Deco) for $54.9
million and the common stock of Turn-Matic, Inc. (Turn-Matic) for $17.0 million
during the first quarter. These transactions were completed on March 4, 1998
upon completion of a private placement of $125 million of 9.875% Senior
Subordinated Notes due 2008 (the Notes). Deco manufactures high-volume,
precision-machined engine and powertrain components and assemblies for the
medium and heavy truck and automotive industries, while Turn-Matic manufactures
high volume, precision machined engine components and assemblies for the
automotive industry. These companies all have product lines and capabilities
that management believes will complement Newcor's existing precision machining
businesses. In the twelve months ended September 30, 1997, sales for these
three companies aggregated $111.8 million. As a result of these acquisitions,
the Company's financial condition and operations for the remainder of fiscal
1998 and future years will differ substantially compared with those of the
Company for the first quarter of fiscal 1998, fiscal 1997 and prior years.
RESULTS OF OPERATIONS
The following table illustrates the factors causing the Company's
quarter-to-quarter change in sales by segment, including the effect of
acquisitions and change in sales from existing operations.
<TABLE>
<CAPTION>
Precision
Machined Rubber and Special
(In thousands) Products Plastic Machines Total
<S> <C> <C> <C> <C>
First quarter 1997 sales $ 13,087 $ 10,057 $ 4,831 $ 27,975
Acquisitions 2,031 2,553 - 4,584
Change from existing business (492) (544) (1,389) (2,425)
---------- ---------- --------- ----------
First quarter 1998 sales $ 14,626 $ 12,066 $ 3,442 $ 30,134
========== =========== ========= ==========
</TABLE>
Consolidated sales were $30.1 million for the first quarter of 1998, an
increase of $2.1 million, or 7.7%, from first quarter 1997 sales of $28.0
million. Sales for the Precision Machined Products segment increased $1.5
million, or 11.8%, to $14.6 million, sales for the Rubber and Plastic segment
increased $2.0 million, or 20.0%, to $12.1 million, while sales for the Special
Machines segment decreased $1.4 million, or 28.8%, to $3.4 million. The
increase in sales for the Precision Machined Products segment was due to sales
at the recently acquired MT&G division of approximately $2.0 million, partially
offset by reduced sales as a result of a customer's vehicle assembly line
changeover. The increase in sales for the Rubber and Plastic segment was due
to full quarter results of the Company's Plastronics acquisition that occurred
in January 1997, partially offset by reduced shipment of certain products as a
result of customer production schedules. The sales decrease for the Special
Machines segment was primarily due to not receiving a significant new order
that had been anticipated, as well as delays associated with certain new orders
pending final customer approval.
<PAGE> 9
Consolidated gross profit decreased $1.6 million to $3.7 million in the first
quarter of 1998 from $5.3 million in the first quarter of 1997. Consolidated
gross margin decreased to 12.3% in the first quarter of 1998 from 19.1% in the
first quarter of 1997. The decrease in gross profit and gross margin was due
to several reasons including: (i) decreased sales in the Special Machines
segment (which has generally commanded higher margins than other segments);
(ii) lower Precision Machined Products segment sales (excluding the effect of
the MT&G acquisition) due to a vehicle assembly line changeover at a customer,
which resulted in a temporary halt in the shipment of parts for these vehicles;
(iii) Rubber and Plastic segment results being adversely affected by increased
scrap, high training costs and productivity issues (due to high hourly labor
turnover caused by full employment in local economies) and, to a lesser extent,
by pricing issues on certain coated metal parts produced by the segment; and
(iv) new program launch start-up costs at MT&G and one other division within
the Precision Machined Products segment.
Selling, general and administrative expenses (SG&A) increased to $4.2 million
in the first quarter of 1998 from $3.5 million in the first quarter of 1997.
SG&A as a percentage of sales increased to 13.8% in the first quarter of 1998
from 12.6% in the first quarter of 1997. The increase in SG&A was due to the
following factors: (i) SG&A associated with acquisitions of approximately $0.3
million, which resulted from the MT&G acquisition and a full quarter of
Plastronics SG&A; (ii) expenditures incurred to begin the implementation of a
company-wide information system; (iii) expenditures incurred to continue to
train employees in the Newcor Operating System; and (iv) expansion of the sales
department within the Rubber and Plastic segment. SG&A as a percentage of
sales increased due to the reasons described above.
Amortization expense increased to $0.3 million in the first quarter of 1998
from $0.2 million in the first quarter of 1997 due to the MT&G acquisition and
a full quarter of Plastronics amortization.
Operating income (loss) by segment was as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended
1/31/98 1/31/97
-------- --------
<S> <C> <C>
Precision Machined Products $ 460 $ 995
Rubber and Plastic (468) 441
Special Machines (348) 521
Corporate (422) (1,035)
--------- ----------
Total operating income (loss) $ (778) $ 922
========= ==========
</TABLE>
Consolidated operating income decreased $1.7 million to a $0.8 million loss in
the first quarter of 1998 from $0.9 million in income in the first quarter of
1997. Consolidated operating margin decreased to (2.6%) of sales in the first
quarter of 1998 from 3.3% of sales in the first quarter of 1997.
Operating income for the Precision Machined Products segment decreased $0.5
million to $0.5 million in the first quarter of 1998 from $1.0 million in the
first quarter of 1997. Operating margin decreased to 3.1% of segment sales in
the first quarter of 1998 from 7.6% of segment sales in the first quarter of
1997. The decrease in operating income and margin was primarily due to lower
sales at an existing division within this segment due to a vehicle assembly
line changeover at a customer, which resulted in a temporary halt in the
shipment of higher margin parts for these vehicles and to new program launch
costs at MT&G and an existing division within this segment.
Operating income for the Rubber and Plastic segment decreased $0.9 million to a
loss of $0.5 million in the first quarter of 1998 from income of $0.4 million
in the first quarter of 1997. Operating margin decreased to (3.9%) of segment
sales in the first quarter of 1998 from 4.4% of segment sales in the first
quarter of 1997. The decrease in operating income was primarily due to
operational inefficiencies that resulted in increased scrap, high training
costs and productivity issues. These inefficiencies were mainly the result of
high labor turnover caused by full employment in local economies. Expansion of
the sales department within this segment also adversely affected operation
income. These developments, and, to a lesser extent, pricing issues on certain
coated metal parts produced by the segment, resulted in the operating margin
reduction.
Operating income for the Special Machines segment decreased $0.9 million to a
loss of $0.4 million in the first quarter of 1998 from income of $0.5 million
in the first quarter of 1997. Operating margin decreased to (10.1%) of segment
sales in the first quarter of 1998
<PAGE> 10
from 10.8% in the first quarter of 1997. The decrease in operating income and
operating margin is due to the decline in sales at the remaining division
within this segment.
Corporate operating loss improved primarily due to the elimination of the $0.7
million loss on the sale of Eonic that was incurred during the first quarter of
1997, partially offset by expenditures incurred to begin the implementation of
a company-wide information system.
Interest expense increased $0.4 million to $0.8 million in the first quarter of
fiscal 1998 from $0.4 million in the first quarter of 1997. The increase in
interest expense was due to additional debt incurred related to: (i) the MT&G
acquisition, which was comprised of a $3.1 million pre-closing cash payment,
pay off of $5.8 million of existing MT&G debt subsequent to closing and the
issuance of a $21.65 million note; and (ii) a $5.0 million deposit to the Deco
shareholders made in December 1997.
Certain of the factors impacting results for the first quarter of 1998, such as
vehicle assembly line changeover, new program launch and acquisition related
costs, were short-term or nonrecurring in nature. The customer's vehicle
changeover has been completed and the Precision Machined Products segment sales
outlook for the balance of fiscal 1998 is improved compared with the first
quarter. MT&G's new program launch is proceeding on schedule with full
production planned for early in the third quarter of fiscal 1998. Management
is implementing certain actions in response to the lower than expected results
by the Special Machines and Rubber and Plastic segments, and believes these
actions will begin to favorably impact the performance of those segments during
the second quarter of fiscal 1998.
The Company is in the process of implementing a company-wide Enterprise
Resource Planning (ERP) computer system. One of the anticipated benefits of
this system is year 2000 date conversion without any adverse effect on
customers or disruption to business operations. Implementation of the system
is underway with projected completion during mid 1999. The Company is also
communicating with all of its significant suppliers and large customers to
coordinate year 2000 conversion. The identifiable cost of year 2000 compliance
and its effect on the Company's future results of operations is not expected to
be material.
LIQUIDITY AND CAPITAL RESOURCES
Cash outflows during the first quarter of 1998 of $13.1 million to finance the
MT&G acquisition and deposit on Deco and $1.7 million to purchase capital
equipment were financed by increased borrowings of $14.7 million on the
Company's line of credit and positive cash flow of $0.4 million from
operations. Cash from operations was primarily provided by depreciation and
amortization expense, mostly offset by the loss incurred during the quarter.
On December 5, 1997, the Company's revolving credit agreement was increased
from $25.0 million to $37.0 million to make a pre-closing down payment of $3.1
million to MT&G, pay off the acquired MT&G bank debt of approximately $5.8
million (net of cash acquired), and make a $5.0 million deposit to the
Deco shareholders. In addition, on December 23, 1997, the Company issued a
$21.65 million promissory note, paying interest at 8%, for the balance of the
MT&G purchase price.
The Company completed the private placement of the Notes on March 4, 1998.
Interest on the Notes will be payable semi-annually on March 1 and September 1
of each year, commencing September 1, 1998. The Notes will mature on March 1,
2008. The Notes are unsecured and will be redeemable, in whole or in part, at
the option of the Company, on or after March 1, 2003. Proceeds from the Notes
have been used to finance the Deco and Turn-Matic acquisitions, pay off the
note issued in connection with the MT&G acquisition and pay down the Company's
line of credit facility.
In conjunction with the Notes offering, the Company's revolving credit
agreement was amended to allow the Company to increase total availability to
$50.0 million. The revolving credit agreement is collateralized by
substantially all of the Company's non-real estate assets and by Rochester
Gear, Inc. real estate. The current expiration date for the revolving credit
agreement is February 28, 2001.
The revolving credit agreement, the Company's $10.0 million term note and the
Notes require the Company to comply with certain financial covenants including
net worth, debt service coverage and total debt. In addition, the revolving
credit agreement requires the Company to suspend its cash dividend.
The Company is highly leveraged as a result of the Notes. The Company's
ability to make scheduled payments of principal of, or to pay the interest on,
or to refinance, its indebtedness (including the Notes) or to fund planned
capital expenditures will depend on its
<PAGE> 11
future performance, which, to a certain extent, is subject to general economic,
financial, competitive, legislative, regulatory and other factors that are
beyond its control.
The Company believes that, through a combination of cash flow from operations
and available credit under the revolving credit agreement, it will have
adequate cash available to service debt obligations, continue capital
improvements and maintain adequate working capital.
The Company paid a quarterly dividend of $.05 per share of common stock during
the first quarter of fiscal 1998 and 1997, respectively. Total dividends paid
during the first quarter of 1998 and 1997 were $246,000 and $235,000
respectively. The terms of the Notes require the suspension of cash dividends.
CAUTIONARY STATEMENTS UNDER THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
Statements contained in the "Management's Discussion and Analysis of Financial
Condition and Results of Operations" section and, in particular, the
information in the second paragraph under "Overview" concerning the expected
impact of the MT&G, Deco and Turn-Matic acquisitions and the last two
paragraphs under "Results of Operations" concerning the Company's performance
for the remainder of fiscal 1998 and year 2000 conversion constitute
"forward-looking statements" within the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995. A number of factors could cause
actual results to differ materially from those included in or suggested by such
forward-looking statements, including without limitation: the cyclical nature
of the industries served by the Company, all of which have encountered
significant downturns in the past; the level of production by and demand from
the Company's principal customers, upon which the Company is substantially
dependent, including the three major domestic automobile manufacturers,
American Axle, Inc., Deere & Company and Detroit Diesel, Inc.; whether, when
and to what extent expected orders materialize; whether the Company will be
able to successfully integrate MT&G, Deco and Turn-Matic into the Company's
pre-existing operations and operate them profitability; whether the Company's
recent initiatives to improve upon the recent labor turnover experienced in its
Rubber and Plastic segment will be successful and cost-effective; the duration
of the start-up phase of MT&G's new program and the extent to which it is
successful; the impact on the Company of actions by its competitors, some of
which are significantly larger and have greater financial and other resources
than the Company; developments with respect to contingencies, including
environmental matters, litigation and retained liabilities from businesses
previously sold by the Company; and the extent to which the Company's new ERP
computer system performs as anticipated and the accuracy of the information
supplied by the Company's suppliers and customers concerning their year 2000
readiness. All forward-looking statements in the "Management's Discussion and
Analysis of Financial Condition and Results of Operations" section are
qualified by such factors. The Company disclaims any obligation to update any
such forward-looking statements.
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 4, 1998 to
elect two Directors to serve until the year 2001 Annual Meeting of
Shareholders or until their successors have been duly elected and
qualified.
(b) Shirley E. Gofrank and W. John Weinhardt were elected to serve
on the Board of Directors until the year 2001 Annual Meeting of
Shareholders or until their respective successor shall be elected and
qualified.
The following directors' term of office continue until the 1999 Annual
Meeting of Shareholders:
Jerry D. Campbell
William A. Lawson
The following directors' term of office continue until the 2000 Annual
Meeting of Shareholders:
Jack R. Lousma
Richard A. Smith
Kurt O. Tech
(c) The following lists the matters voted on at the Annual Meeting
of Shareholders along with the results of the vote:
<PAGE> 12
Election of Shirley E. Gofrank and W. John Weinhardt to serve on the
Board of Directors until the year 2001 Annual Meeting of Shareholders
or until their respective successor shall be elected and qualified:
Gofrank Weinhardt
---------- -------------
Votes cast for 4,138,739 4,135,600
Votes against or withheld 26,205 29,344
Abstentions and broker non-votes 777,090 777,090
(d) No settlements were needed to be reached to terminate any
solicitation.
Item 6. Exhibits and Reports on Form 8-K:
(a) Exhibits
Exhibit 1. - Purchase Agreement dated February 27, 1998 among the
Company, the subsidiary guarantors (as defined therein), and the
initial purchasers of the Notes incorporated herein by reference from
Exhibit 1 to Form 8-K filed on March 13, 1998. (Commission file no.
1-5985).
Exhibit 4 (a) - Indenture dated as of March 4, 1998 between the
Company, the subsidiary guarantors (as defined therein), and First
Trust National Association as trustee, relating to the Notes
(including forms of Notes) incorporated herein by reference from
Exhibit 4 (a) to Form 8-K filed on March 13, 1998. (Commission file
no. 1-5985).
Exhibit 4 (b) - A/B Exchange Registration Rights Agreement
dated as of March 4, 1998 between the Company, the subsidiary
guarantors (as defined therein) , and the initial purchasers of the
Notes incorporated herein by reference from Exhibit 4(b) to Form 8-K
filed on March 13, 1998. (Commission file no. 1-5985).
Exhibit 4 (c) - Asset Purchase Agreement between MT&G and
Newcor dated October 1, 1997 incorporated herein by reference from
Exhibit 2 to Form 8-K/A filed on March 6, 1998. (Commission file
no. 1-5985).
Exhibit 4 (d) - First Amendment to Asset Purchase Agreement
between MT&G and Newcor dated October 28, 1997 incorporated herein by
reference from Exhibit 2.1 to Form 8-K/A filed on March 6, 1998.
(Commission file no. 1-5985).
Exhibit 4 (e) - Second Amendment to Asset Purchase Agreement
between MT&G and Newcor incorporated herein by reference from Exhibit
2.2 to Form 8-K/A filed on March 6, 1998. (Commission file no.
1-5985).
Exhibit 4 (f) - Third Amendment to Asset Purchase Agreement
between MT&G and Newcor incorporated herein by reference from Exhibit
2.3 to Form 8-K/A filed on March 6, 1998. (Commission file no.
1-5985).
Exhibit 4 (g) - Fourth Amendment to Asset Purchase Agreement
between MT&G and Newcor incorporated herein by reference from Exhibit
2.4 to Form 8-K/A filed on March 6, 1998. (Commission file no.
1-5985).
Exhibit 4 (h) - Secured Promissory Note between MT&G and Newcor
incorporated herein by reference from Exhibit 4 to Form 8-K/A filed
on March 6, 1998. (Commission file no. 1-5985).
Exhibit 4 (i) - Stock Purchase Agreement between Stephen Grand,
Individually and as Trustee of the Stephen Grand Revocable Trust
dated July 5, 1979 and the Stephen M. Grand Property Trust dated
January 22, 1992 and Newcor, Inc. dated December 9, 1997 incorporated
herein by reference from Exhibit 10(l) to report on Form 10-K for the
fiscal year ended October 31, 1997 (Commission file no. 1-5985).
Exhibit 4 (j) - Amendment to Stock Purchase Agreement between
Stephen Grand, Individually and as Trustee of the Stephen Grand
Revocable Trust dated July 5, 1979 and the Stephen M. Grand Property
Trust dated January 22, 1992 and Newcor, Inc., dated March 4,
1998 incorporated herein by reference from Exhibit 10.(b) to Form 8-K
filed on March 13, 1998. (Commission file no. 1-5985).
<PAGE> 13
Exhibit 4 (k) - Stock Purchase Agreement by and among each of the
Shareholders of Turn-Matic, Inc. and Newcor, Inc. dated January 16,
1998 incorporated herein by reference from Exhibit 10(m) to report on
Form 10-K for the fiscal year ended October 31, 1997. (Commission file
no. 1-5985).
Exhibit 4 (l) - Employment Agreement with Keith Hale dated March
4, 1998 incorporated herein by reference from Exhibit 10.(d) to Form
8-K filed on March 13, 1998. (Commission file no. 1-5985).
Exhibit 4 (m) - First Amendment to Third Amended and Restated
Revolving Credit Agreement between Newcor, Inc. and Comerica Bank
dated February 12, 1998.
Exhibit 27 - Financial Data Schedule (EDGAR version only)
(b) Reports on Form 8-K
1. On January 6, 1998, Newcor, Inc. filed a Form 8-K
announcing the acquisition of MT&G and the entering into a
definitive purchase agreement for the common stock of Deco.
2. On March 6, 1998, the Company filed a Form 8-K/A
including the required financial information for MT&G and the pro
forma effect of the acquisition.
3. On March 13, 1998, the Company filed a Form 8-K
announcing the acquisition of 100% of the common stock of Deco,
the acquisition of 100% of the common stock of Turn-Matic and the
private placement of the Notes. The required financial
information for Deco and Turn-Matic was included with this
filing as well as the pro forma effect of MT&G, Deco and
Turn-Matic acquisitions and the Notes on the Company.
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 17, 1998 /s/ John Garber
- ------------------------- ----------------------------
John Garber
Vice President-Finance
Principal Financial and
Accounting Officer
<PAGE> 14
EXHIBIT INDEX
Exhibit
No. Description
------- -----------------------
Exhibit 1. - Purchase Agreement dated February 27, 1998 among the
Company, the subsidiary guarantors (as defined
therein), and the initial purchasers of the Notes
incorporated herein by reference from Exhibit 1 to
Form 8-K filed on March 13, 1998. (Commission file
no. 1-5985).
Exhibit 4 (a) - Indenture dated as of March 4, 1998 between the
Company, the subsidiary guarantors (as defined
therein), and First Trust National Association as
trustee, relating to the Notes (including forms of
Notes) incorporated herein by reference from Exhibit
4 (a) to Form 8-K filed on March 13, 1998.
(Commission file no. 1-5985).
Exhibit 4 (b) - A/B Exchange Registration Rights Agreement
dated as of March 4, 1998 between the Company, the
subsidiary guarantors (as defined therein) , and the
initial purchasers of the Notes incorporated herein
by reference from Exhibit 4(b) to Form 8-K filed on
March 13, 1998. (Commission file no. 1-5985).
Exhibit 4 (c) - Asset Purchase Agreement between MT&G and
Newcor dated October 1, 1997 incorporated herein by
reference from Exhibit 2 to Form 8-K/A filed on March
6, 1998. (Commission file no. 1-5985).
Exhibit 4 (d) - First Amendment to Asset Purchase Agreement
between MT&G and Newcor dated October 28, 1997
incorporated herein by reference from Exhibit 2.1 to
Form 8-K/A filed on March 6, 1998. (Commission file
no. 1-5985).
Exhibit 4 (e) - Second Amendment to Asset Purchase Agreement
between MT&G and Newcor incorporated herein by
reference from Exhibit 2.2 to Form 8-K/A filed on
March 6, 1998. (Commission file no. 1-5985).
Exhibit 4 (f) - Third Amendment to Asset Purchase Agreement
between MT&G and Newcor incorporated herein by
reference from Exhibit 2.3 to Form 8-K/A filed on
March 6, 1998. (Commission file no. 1-5985).
Exhibit 4 (g) - Fourth Amendment to Asset Purchase Agreement
between MT&G and Newcor incorporated herein by
reference from Exhibit 2.4 to Form 8-K/A filed on
March 6, 1998. (Commission file no. 1-5985).
Exhibit 4 (h) - Secured Promissory Note between MT&G and Newcor
incorporated herein by reference from Exhibit 4 to
Form 8-K/A filed on March 6, 1998. (Commission file
no. 1-5985).
Exhibit 4 (i) - Stock Purchase Agreement between Stephen Grand,
Individually and as Trustee of the Stephen Grand
Revocable Trust dated July 5, 1979 and the Stephen M.
Grand Property Trust dated January 22, 1992 and
Newcor, Inc. dated December 9, 1997 incorporated
herein by reference from Exhibit 10(l) to report on
Form 10-K for the fiscal year ended October 31, 1997
(Commission file no. 1-5985).
Exhibit 4 (j) - Amendment to Stock Purchase Agreement between
Stephen Grand, Individually and as Trustee of the
Stephen Grand Revocable Trust dated July 5, 1979 and
the Stephen M. Grand Property Trust dated January 22,
1992 and Newcor, Inc., dated March 4, 1998
incorporated herein by reference from Exhibit 10.(b)
to Form 8-K filed on March 13, 1998. (Commission file
no. 1-5985).
Exhibit 4 (k) - Stock Purchase Agreement by and among each of the
Shareholders of Turn-Matic, Inc. and Newcor, Inc.
dated January 16, 1998 incorporated herein by
reference from Exhibit 10(m) to report on Form 10-K
for the fiscal year ended October 31, 1997
(Commission file no. 1-5985).
Exhibit 4 (l) - Employment Agreement with Keith Hale dated March
4, 1998 incorporated herein by reference from Exhibit
10.(d) to Form 8-K filed on March 13, 1998.
(Commission file no. 1-5985).
Exhibit 4 (m) - First Amendment to Third Amended and Restated
Revolving Credit Agreement between Newcor, Inc. and
Comerica Bank dated February 12, 1998.
Exhibit 27 - Financial Data Schedule (EDGAR version only)
<PAGE> 1
EXHIBIT 4(m)
AMENDMENT NO. 1
FIRST AMENDMENT TO THIRD AMENDED AND
RESTATED REVOLVING CREDIT AGREEMENT
THIS FIRST AMENDMENT, dated as of the 12th day of February, 1998, by and
between Newcor, Inc., a Delaware corporation, of Bloomfield Hills, Michigan
(herein collectively called "Company") and Comerica Bank, a Michigan banking
corporation, of Detroit, Michigan (herein called "Bank");
WITNESSETH:
WHEREAS, Company and Bank desire to amend that certain Third Amended and
Restated Revolving Credit Agreement dated as of January 15, 1998, entered into
by and between Company and Bank (herein called "Agreement");
NOW, THEREFORE, it is agreed that the Agreement is amended as follows:
1. The first sentence of the definition of "Base Net Worth" set forth in
Section 1 of the Agreement is amended to read in its entirety as follows:
"'Base Net Worth' shall initially mean $22,500,000."
2. The following sentence is added to the end of the definition of
"EBITDA" set forth in Section 1 of the Agreement:
"In determining EBITDA for any period ending on or prior to
April 30, 1999, Deco Grand, Inc., Deco Technologies, Inc., Deco
International, Inc. and Turn-Matic, Inc. shall be deemed to have
been consolidated Subsidiaries of Company as of February 1, 1998
(unless Company has not consummated the acquisition of any such
entity prior to April 30, 1998, in which case such entity shall
not be deemed to have been a consolidated Subsidiary for purposes
of determining EBITDA as of February 1, 1998). In addition, in
determining EBITDA the results of the operations for Deco Grand,
Inc., Deco Technologies, Inc., Deco International, Inc. and
Turn-Matic, Inc. shall be based on the period from the date of
consummation of the acquisition by Company of the applicable
entity and adjusted with respect to any partial quarter to yield a
'quarterly' result (e.g. if the acquisition of Deco Grand, Inc.
occurs on March 15, 1998, the results for Deco Grand, Inc. for the
period from March 15, 1998 through April 30, 1998 shall be
multiplied by 2 to give a 'quarterly' result)."
3. The definition of "Net Worth" set forth in Section 1 of the Agreement
is amended to read in its entirety as follows:
"'Net Worth' of any person, as of any applicable measuring
date, shall mean an amount computed in accordance with generally
accepted accounting principles consistently applied and based on
the latest published fiscal quarter or year-end balance sheet for
such person, by subtracting total liabilities from total assets,
but adjusted to exclude to the extent such items impact the
Company's consolidated financial statements after February 10,
1998 (i) charges related to legal proceedings, (ii) charges
related to restructuring activities, (iii) gains or losses on
sales of businesses or operations and (iv) income or losses from
divested or discontinued operations."
4. The following definition of "Permitted Refinancing Subordinated
Indebtedness" is hereby added to Section 1 of the Agreement in alphabetical
order:
"'Permitted Refinancing Subordinated Indebtedness' shall mean
indebtedness of Company the issuance of which is approved by Bank and
which is issued in exchange for, or the net proceeds of which are used to
extend, refinance, renew, replace, defease or refund the Senior
Subordinated Notes; provided that: (i) the principal amount of such
Permitted Refinancing Subordinated Indebtedness does not exceed the
principal amount of plus accrued interest on the Senior Subordinated
<PAGE> 2
Notes (plus the amount of reasonable expenses incurred in connection
therewith); (ii) such Permitted Refinancing Subordinated Indebtedness has
a final maturity date later than the final maturity date of, and has a
Weighted Average Life to Maturity equal to or greater than the Weighted
Average Life to Maturity of, the Senior Subordinated Notes; and (iii)
such Permitted Refinancing Subordinated Indebtedness is subordinated in
right of payment to Company's indebtedness to Bank on terms at least as
favorable to Bank as those contained in the documentation governing the
Senior Subordinated Notes."
5. The following definition of "Weighted Average Life to Maturity" is
hereby added to Section 1 of the Agreement in alphabetical order:
"'Weighted Average Life to Maturity' shall mean, when applied
to any indebtedness at any date, the number of years obtained by
dividing (i) the sum of the products obtained by multiplying (a)
the amount of each then remaining installment, sinking fund,
serial maturity or other required payments of principal, including
payment at final maturity, in respect thereof, by (b) the number
of years (calculated to the nearest one-twelfth) that will elapse
between such date and the making of such payment, by (ii) the then
outstanding principal amount of such indebtedness."
6. The following Section 6.2A is hereby added to the Agreement:
"6.2A On a Consolidated statement basis, maintain as of
January 31, 1998:
(i) A Debt Service Coverage Ratio of not
less than 1.5 to 1.0;
(ii) A Net Worth of not less than
$22,500,000; and
(iii) A Debt to Capitalization Ratio of not more than .85
to 1.0."
7. Sections 6.2 and 6.5 are amended to add the words "beginning with the
fiscal quarter ending April 30, 1998" before the word "maintain" and Section
6.5 is amended to change the word "Capital" to "Capitalization".
8. Section 6.3 is amended to read in its entirety as follows:
"6.3 On a Consolidated statement basis beginning with the
fiscal quarter ending April 30, 1998, maintain as of the end of
each fiscal quarter, a Debt Service Coverage Ratio of not less
than 1.5 to 1.0."
9. Section 6.4 is amended to read in its entirety as follows:
"6.4 On a Consolidated statement basis, beginning with the
fiscal quarter ending April 30, 1998, maintain as of the end of
each fiscal quarter a Funded Debt to EBITDA Ratio of not more than
the following amounts during the periods specified below:
Present through October 30, 1998 6.0 to 1.0
October 31, 1998 through October 30, 1999 5.5 to 1.0
October 31, 1999 and thereafter 4.5 to 1.0"
10. Section 7.11 is amended to read in its entirety as follows:
"7.11 Amend or modify any of the terms of the Note Documents
or purchase, redeem or prepay any of the Senior Subordinated
Notes; provided, however, Company may redeem or prepay the Senior
Subordinated Notes (i) with the net proceeds received by Company from the
issuance of
2
<PAGE> 3
capital stock of the Company and (ii) with the net proceeds received
by Company from the issuance of Permitted Refinancing Subordinated
Indebtedness."
11. Company hereby represents and warrants that, after giving effect to
the amendments contained herein, (a) execution, delivery and performance of
this Amendment and any other documents and instruments required under this
Amendment or the Agreement are within Company's corporate powers, have been
duly authorized, are not in contravention of law or the terms of Company's
Certificate of Incorporation or Bylaws, and do not require the consent or
approval of any governmental body, agency, or authority; and this Amendment and
any other documents and instruments required under this Amendment or the
Agreement, will be valid and binding in accordance with their terms; (b) the
continuing representations and warranties of Company set forth in Sections 5.1
through 5.7 and 5.9 through 5.15 of the Agreement are true and correct on and
as of the date hereof with the same force and effect as made on and as of the
date hereof; (c) the continuing representations and warranties of Company set
forth in Section 5.8 of the Agreement are true and correct as of the date
hereof with respect to the most recent financial statements furnished to the
Bank by Company in accordance with Section 6.1 of the Agreement; and (d) no
event of default, or condition or event which, with the giving of notice or the
running of time, or both, would constitute an event of default under the
Agreement, has occurred and is continuing as of the date hereof.
12. This Amendment shall be effective upon execution of this Amendment by
Company and Bank, execution by the Guarantors of the attached Acknowledgment
and payment by Company to Bank of a non-refundable amendment fee in the amount
of $60,000.
13. Except as modified hereby, all of the terms and conditions of the
Agreement shall remain in full force and effect.
WITNESS the due execution hereof on the day and year first above written.
COMERICA BANK NEWCOR, INC.
By: /s/ Timothy P. Ashley By: /s/ W. John Weinhardt
------------------------- -------------------------
W. John Weinhardt
Its: Vice President Its: President
By: /s/ John J. Garber
-----------------------
John J. Garber
Its: Treasurer
ACKNOWLEDGMENT
3
<PAGE> 4
The undersigned accept and agree to the Amendment No. 1 to the Third
Amended and Restated Revolving Credit Agreement and agree to the continued
effectiveness of the Guaranty originally executed and delivered to Comerica
Bank by the undersigned on January 15, 1998.
ROCHESTER GEAR, INC.
By: /s/ W. John Weinhardt
--------------------------
W. John Weinhardt
Its: Chairman
By: /s/ John J. Garber
----------------------
John J. Garber
Its: Treasurer
ENC CORP.
By: /s/ W. John Weinhardt
-------------------------
W. John Weinhardt
Its: Chairman
By: /s/ John J. Garber
----------------------
John J. Garber
Its: Treasurer
4
<PAGE> 5
PLASTRONICS PLUS, INC.
By: /s/ W. John Weinhardt
---------------------
W. John Weinhardt
Its: Chairman
By: /s/ John J. Garber
------------------
John J. Garber
Its: Treasurer
NEWCOR M-T-L, INC.
By: /s/ W. John Weinhardt
---------------------
W. John Weinhardt
Its: Chairman
By: /s/ John J. Garber
------------------
John J. Garber
Its: Treasurer
5
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