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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
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.
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(Exact name of registrant as specified in its charter)
DELAWARE 38-0865770
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(State of incorporation) (I.R.S. Employer Identification No.)
1825 S. Woodward Ave., Suite 240
Bloomfield Hills, MI 48302 (248) 253-2400
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(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.
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The financial information contained in Part I, Item I of the registrant's
Quarterly Report on Form 10-Q for the quarter ended January 31, 1998 is amended
to read as set forth below. This 10-Q/A filing revises the balance sheet only
by reclassifying one item from a current liability to long-term debt.
PART I. Item I. FINANCIAL INFORMATION
NEWCOR, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended
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1/31/98 1/31/97
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<S> <C> <C>
Sales $ 30,134 $ 27,975
Cost of sales 26,423 22,645
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Gross margin 3,711 5,330
SG&A expenses 4,164 3,511
Amortization expense 325 186
Nonrecurring loss 711
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Operating income (loss) (778) 922
Other income (expense):
Interest expense (825) (432)
Other (11) 74
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Income before income taxes (1,614) 564
Provision (benefit) for income taxes (582) 198
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Net income (loss) $ (1,032) $ 366
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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
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NEWCOR, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
January 31, 1998
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Originally
Filed Reclassification Amended 10/31/97
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ASSETS
<S> <C> <C> <C> <C>
Current assets:
Cash $ 86 $ 86 $ 34
Accounts receivable 21,138 21,138 22,523
Inventories 7,927 7,927 8,084
Other current assets 7,998 7,998 8,672
---------- ---------- ---------- ----------
Total current assets 37,149 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 37,116 28,119
Goodwill, net of amortization 40,202 40,202 16,080
Other long-term assets 9,982 9,982 7,371
X ---------- ---------- ---------- ----------
Total assets $ 124,449 $ - $ 124,449 $ 90,883
========== ========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Note payable $ 21,650 $ (21,650) $ - $ -
Current portion of long-term debt 1,333 1,333 833
Accounts payable 14,319 14,319 14,874
Other accrued liabilities 4,598 4,598 5,668
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Total current liabilities 41,900 (21,650) 20,250 21,375
Long-term debt 46,467 21,650 68,117 32,267
Postretirement benefits and other 9,945 9,945 9,826
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Total liabilities 98,312 - 98,312 63,468
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Shareholders' equity:
Common stock 4,942 4,942 4,942
Capital in excess of par 2,258 2,258 2,258
Unfunded pension liability (99) (99) (99)
Retained earnings 19,036 19,036 20,314
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Total shareholders' equity 26,137 - 26,137 27,415
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Total liabilities & shareholders' equity $ 124,449 $ - $ 124,449 $ 90,883
========== ========== ========== ==========
</TABLE>
Note: The Company has determined that it would be preferable to reclassify the
$21.65 million promissory note referred to in Note C from a current
payable, as shown in the Form 10-Q filed on March 17, 1998, to long-term
debt as a result of the note being refinanced on a long-term basis with
the proceeds from the Company's $125 million Senior Subordinated Note
offering completed March 4, 1998. The reclassification is in accordance
with Statement of Financial Accounting Standards No. 6, "Classification
of Short-Term Obligations Expected to be Refinanced."
The accompanying notes are an integral part of
the condensed consolidated financial statements
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NEWCOR, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended
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1/31/98 1/31/97
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<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
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Net cash provided by operations 417 1,896
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Investing Activities:
Capital expenditures (1,749) (620)
Acquisitions, net of cash acquired (13,070) (12,081)
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Net cash used by investing activities (14,819) (12,701)
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Financing Activities:
Borrowings on revolving
line of credit, net 14,700 11,100
Cash dividends (246) (235)
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Net cash from financing activities 14,454 10,865
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Increase in cash 52 60
Cash, beginning of period 34 34
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Cash, end of period $ 86 $ 94
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</TABLE>
The accompanying notes are an integral part of
the condensed consolidated financial statements
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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
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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.
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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.
SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of 1934, the
registrant has duly caused this amendment to be signed on its behalf by the
undersigned thereunto duly authorized.
NEWCOR, INC.
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Registrant
Date: May 12, 1998 /s/ John Garber
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John Garber
Vice President-Finance
Principal Financial and
Accounting Officer
