<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 September 30, 1999
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 48302
- --------------------------------------- ----------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (248) 253-2400
-------------
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 November 10, 1999, the Registrant has 4,920,834 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 Nine Months Ended
------------------ -----------------
September 30, September 30, September 30, September 30,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales $ 61,230 $ 56,482 $ 190,846 $ 165,103
Cost of sales 54,516 46,235 159,918 135,644
---------- ---------- ----------- -----------
Gross margin 6,714 10,247 30,928 29,459
Selling, general and administrative expenses 6,789 5,712 19,415 17,182
Amortization expense 1,147 1,163 3,429 3,009
Nonrecurring loss (gain) 350 (362)
---------- ---------- ----------- -----------
Operating (loss) income (1,222) 3,372 7,734 9,630
Other income (expense):
Interest expense (3,482) (3,633) (10,491) (9,188)
Other expense, net (235) 59 (358) 83
---------- ---------- ----------- -----------
(Loss) income before income taxes (4,939) (202) (3,115) 525
Income tax (benefit) provision (1,823) (68) (1,127) 201
---------- ---------- ----------- -----------
Net (loss) income $ (3,116) $ (134) $ (1,988) $ 324
========== ========== =========== ===========
Amounts per share of common stock:
Net (loss) income - basic and diluted $ (0.63) $ (0.03) $ (0.40) $ 0.07
Dividends $ - $ - $ - $ 0.05
Weighted average common shares outstanding 4,921 4,942 4,927 4,942
</TABLE>
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>
September 30, October 31,
1999 1998
---- ----
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 4,476 $ 3,539
Accounts receivable 35,230 35,175
Inventories 17,196 14,014
Other current assets 7,246 9,454
----------- -----------
Total current assets 64,148 62,182
Property, plant and equipment, net of
accumulated depreciation of $26,142
at 9/30/99 and $19,288 at 10/31/98 56,450 53,837
Cost in excess of assigned value of
acquired companies, net of amortization 81,669 85,861
Debt issuance costs and other non-current assets 9,637 10,657
----------- -----------
Total assets $ 211,904 $ 212,537
=========== ===========
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Current portion of long-term debt $ 2,000 $ 2,000
Accounts payable 28,096 21,072
Other accrued liabilities 10,760 10,068
----------- -----------
Total current liabilities 40,856 33,140
Long-term debt 136,433 141,467
Other non-current liabilities 11,822 12,401
----------- -----------
Total liabilities 189,111 187,008
----------- -----------
Shareholders' equity:
Common stock 4,921 4,942
Capital in excess of par 2,195 2,258
Accumulated other comprehensive income (580) (580)
Retained earnings 16,257 18,909
----------- -----------
Total shareholders' equity 22,793 25,529
----------- -----------
Total liabilities & shareholders' equity $ 211,904 $ 212,537
=========== ===========
</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>
Nine Months Ended
-----------------
September 30, September 30,
1999 1998
---- ----
<S> <C> <C>
Operating Activities:
Net (loss) income $ (1,988) $ 324
Depreciation 5,855 4,531
Amortization 3,429 3,009
Gain on sale of capital assets (68) (362)
Other, net 236 (381)
Changes in operating assets
and liabilities, net 4,190 (4,653)
-------- ----------
Net cash provided by operations 11,654 2,468
-------- ----------
Investing Activities:
Capital expenditures (8,512) (6,465)
Proceeds from sale of capital assets 150 1,367
Acquisitions, net of cash acquired (88,911)
-------- ----------
Net cash used in investing activities (8,362) (94,009)
-------- ----------
Financing Activities:
Net repayments on revolving credit line (2,600) (18,967)
Repayment of term note (1,500) (500)
Repurchase of common stock (84)
Proceeds from issuance of subordinated notes 125,000
Subordinated notes issuance costs (4,849)
Cash dividends (246)
-------- ----------
Net cash (used in) provided by financing activities (4,184) 100,438
-------- ----------
(Decrease) increase in cash (892) 8,897
Cash and cash equivalents, beginning of period 5,368 3,427
-------- ----------
Cash and cash equivalents, end of period $ 4,476 $ 12,324
======== ==========
</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 1. Basis of Presentation
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. Certain amounts from the prior
year have been reclassified to conform to the current period's presentation. 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, 1998 and the transition report on Form 10-Q for the two
month period ended December 31, 1998.
In 1998, the Company changed its annual reporting period from a fiscal year
ending October 31 to a calendar year ending December 31. As a result, the
financial information for the three and nine months ended September 30, 1998
presented in this Form 10-Q has not been previously disclosed; however,
management believes that this financial information includes all adjustments
considered necessary for a fair presentation, and such adjustments are of a
normal recurring nature.
Note 2. Business Acquisitions
On March 4, 1998, the Company purchased the common stock of Grand Machining
Company, Deco Technologies, Inc. and Deco International, Inc. (collectively,
"Deco") for approximately $55.0 million in cash. 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 Company's
issuance of $125 million of 9.875% Senior Subordinated Notes due 2008 (the
"Notes") as described in Note 3. The acquisition was recorded using the purchase
method of accounting. The cost in excess of net assets acquired of approximately
$40 million is being 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 approximately $17.0 million in cash. 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. The acquisition was
recorded using the purchase method of accounting. The cost in excess of net
assets acquired of approximately $9 million is being amortized on a
straight-line basis over twenty years. Any contingent purchase price payments,
if required, will be recognized as additional cost in excess of the net assets
acquired and amortized over the remaining amortization period.
The unaudited results of operations as if Deco and Turn-Matic had been acquired
on January 1, 1998 would have been as follows:
<TABLE>
<CAPTION>
Nine Months Ended
-----------------
Actual Pro Forma
September 30, September 30,
1999 1998
---- ----
<S> <C> <C>
Sales $ 190,846 $ 183,900
=========== ===========
Net income $ (1,988) $ 392
Net income per share - basic and diluted $ (0.40) $ 0.08
</TABLE>
<PAGE> 6
These pro-forma results do not purport to be indicative of the results that
would actually have occurred had the acquisitions been made on January 1, 1998
or which may occur in the future.
Note 3. Financing
The Company completed the issuance of the Notes on March 4, 1998 as described in
Note 2. Interest on the Notes is payable semi-annually on March 1 and September
1 of each year. 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 were used to finance the Deco and
Turn-Matic acquisitions and pay down the Company's existing debt. In addition,
the terms of the Notes required the Company to suspend its cash dividend.
Subsequent to September 30, 1999, the Company became aware that certain
transactions involving market purchases of its common shares by the Company
might have violated certain provisions of the indenture related to the Notes.
These purchases, made to support its employee benefit programs, approximated
$108,000. The Company notified the Trustee for the Noteholders regarding these
transactions and sold common shares to certain of its directors and management
in a private placement for cash proceeds equivalent to the original cost plus
imputed interest and other expenses. The shares were sold from the Company's
treasury stock at the then-prevailing market price, for an aggregate sum of
$120,000. The Company believes that any non-compliance with the indenture
resulting from its prior stock purchases now has been fully remedied and no
longer is continuing. In addition, cross default provisions under the Company's
bank credit agreement, have also been waived for the period prior to remedying
the matter related to the indenture. Accordingly, the Notes are reflected in
the financial statements consistent with maturity terms specified at issuance.
In conjunction with the Notes offering, the Company's credit agreement was
amended to allow total borrowing availability of up to $50.0 million. The
credit agreement was further amended on October 14, 1999 revising certain
covenants and borrowing base limitations. The amendment provides for the
Company to borrow, under its line of credit, an amount equal to 80% of
qualified domestic accounts receivable. The revolving credit agreement is
collateralized by substantially all of the Company's non-real estate assets and
by Rochester Gear, Inc.'s real estate. The agreement expires on February 28,
2001. Current available but unused borrowings under the agreement were $26.2
million at September 30, 1999.
The Company's domestic subsidiaries; Plastronics, Rochester Gear, Deco, and
Turn-Matic, are full and unconditional guarantors of obligations issued under
the Notes. The following summarized financial information is derived from the
consolidating financial statements of the Company for the periods presented. No
intercompany balances or transactions occurred among the subsidiaries during the
periods presented.
<TABLE>
<CAPTION>
September 30, October 31,
1999 1998
---- ----
<S> <C> <C>
Current assets $ 25,300 $ 24,700
=========== ===========
Total assets $ 107,600 $ 107,500
=========== ===========
Current liabilities $ 20,900 $ 15,300
=========== ===========
Long-term debt $ 6,100 $ 6,100
=========== ===========
<CAPTION>
Nine Months Ended
September 30, September 30,
1999 1998
---- ----
<S> <C> <C>
Sales $ 102,900 $ 77,600
=========== ===========
Operating income $ 11,300 $ 8,600
=========== ===========
</TABLE>
<PAGE> 7
Note 4. Inventory
Inventories are summarized as follows:
<TABLE>
<CAPTION>
September 30, October 31,
1999 1998
---- ----
<S> <C> <C>
Cost and estimated earnings of uncompleted
contracts in excess of related billings of $360
at 9/30/99 and $1,679 at 10/31/98 $ 5,294 $ 3,244
Raw materials 2,787 4,903
Work in process and finished goods 9,115 5,867
---------- ----------
$ 17,196 $ 14,014
========== ==========
</TABLE>
Costs and estimated earnings of uncompleted contracts in excess of related
billings represents revenue recognized under the percentage of completion method
in excess of amounts billed.
Note 5. Comprehensive Income
The Company adopted Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income," in 1998. Other comprehensive income for the
three and nine months ended September 30, 1999 and 1998 was zero, as the only
component of other comprehensive income for these periods was the minimum
pension liability adjustment which is determined on an annual basis at the end
of each fiscal year.
Note 6. Segment Reporting
The Company is organized into three business 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, medium and
heavy duty truck, 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. Other is primarily composed of corporate activities. Comparability
of the information for the Precision Machined Products segment for the nine
months ended September 30 is affected by the acquisitions described in Note 2.
The accounting policies of the segments are the same as those of the Company.
There are no intersegment sales and management does not allocate all corporate
expenses to the segments. The Company evaluates the performance of its segments
and allocates resources to them based on operating income from continuing
operations. Information by operating segment is summarized below:
<TABLE>
<CAPTION>
Precision
Machined Rubber and Special
Products Plastic Machines Other Total
-------- ------- -------- ----- -----
<S> <C> <C> <C> <C> <C>
Sales to unaffiliated customers
Three months ended September 30,
1999 $ 44,174 $ 11,439 $ 5,617 $ 61,230
1998 39,654 10,753 6,075 56,482
Nine months ended September 30,
1999 $ 135,094 $ 37,988 $ 17,764 $ 190,846
1998 114,545 36,577 13,981 165,103
Operating income
Three months ended September 30,
1999 $ 780 $ 337 $ 268 $ 1,385
1998 4,327 531 734 5,592
Nine months ended September 30,
1999 $ 11,699 $ 2,358 $ 1,039 $ 15,096
1998 13,270 1,936 275 15,481
Identifiable assets
September 30, 1999 $ 143,622 $ 30,646 $ 13,366 $ 24,270 $ 211,904
October 31, 1998 143,977 34,313 10,492 23,755 212,537
</TABLE>
<PAGE> 8
A reconciliation of operating income for reportable segments to consolidated
operating (loss) income is as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------ -----------------
September 30, September 30, September 30, September 30,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Operating income for reportable segments $ 1,385 $ 5,592 $ 15,096 $ 15,481
Other operating loss, mainly unallocated
corporate and other expenses (1,460) (1,057) (3,583) (3,204)
Amortization expense (1,147) (1,163) (3,429) (3,009)
Nonrecurring (loss) gain (350) 362
--------- ---------- --------- --------
Consolidated operating (loss) income $ (1,222) $ 3,372 $ 7,734 $ 9,630
========= ========== ========= ========
</TABLE>
<PAGE> 9
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
OVERVIEW
Newcor, Inc. (the "Company") is organized into three business 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, medium and heavy duty truck, 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 continued its strategy to build the Precision Machined Products
segment as a high volume automotive supplier when, on March 4, 1998, the Company
purchased the common stock of Grand Machining Company, Deco Technologies, Inc.
and Deco International, Inc. (collectively, "Deco") for approximately $55.0
million and the common stock of Turn-Matic, Inc. ("Turn-Matic") for
approximately $17.0 million. These acquisitions were financed concurrent with
the issuance 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 duty truck and
automotive industries, while Turn-Matic manufactures high volume, precision
machined engine components and assemblies for the automotive industry. These
companies have product lines and capabilities that management believes are
complementary to the other businesses in Newcor's Precision Machined Products
segment.
RESULTS OF OPERATIONS
The following tables summarize the principal factors causing the Company's
change in sales by segment, including the effect of acquisitions and change in
sales from existing operations, for the quarter and nine months ended September
30, 1999 compared with the same period one year ago.
<TABLE>
<CAPTION>
Precision
Machined Rubber and Special
(In thousands) Products Plastic Machines Total
-------- ------- -------- -----
<S> <C> <C> <C> <C>
Quarter ended September 30, 1998 sales $ 39,654 $ 10,753 $ 6,075 $ 56,482
Change from existing business 4,520 686 (458) 4,748
------------ ---------- --------- ----------
Quarter ended September 30, 1999 sales $ 44,174 $ 11,439 $ 5,617 $ 61,230
============ ========== ========= ==========
Nine months ended September 30, 1998 sales $ 114,545 $ 36,577 $ 13,981 $ 165,103
Acquisitions 16,053 16,053
Change from existing business 4,496 1,411 3,783 9,690
------------ ---------- --------- ----------
Nine months ended September 30, 1999 sales $ 135,094 $ 37,988 $ 17,764 $ 190,846
============ ========== ========= ==========
</TABLE>
Consolidated sales were $61.2 million for the quarter, an increase of $4.7
million, or 8.4%, compared with sales of $56.5 million for the third quarter of
1998. Sales for the Precision Machined Products segment increased $4.5 million,
or 11.4%, to $44.2 million, sales for the Rubber and Plastic segment increased
$0.7 million, or 6.4%, to $11.4 million, and sales for the Special Machines
segment decreased $0.5 million, or 7.5%, to $5.6 million. The increase in sales
for the Precision Machined Products segment was due to volume increases in the
automotive and heavy duty truck markets of $7.8 million, partially offset by the
continued decline in agricultural machined component sales of $3.3 million.
Sales in the Rubber and Plastic segment increased due to volume increases at
automotive component customers. The Special Machines segment sales for the
quarter decreased due to the decrease in new orders experienced during the
quarter as compared to the third quarter of 1998.
Consolidated sales for the nine month period ended September 30, 1999 increased
by $25.7 million to $190.8 million compared with sales of $165.1 million for the
same period of 1998. The increase in sales was primarily due to sales from the
acquisitions of Deco and Turn-Matic, referred to collectively as the
"Acquisitions," as well as the increase in the rate of new orders in the Special
Machines segment.
<PAGE> 10
Consolidated gross margin was $6.7 million, or 11.0% of sales, for the quarter
ended September 30, 1999 compared with $10.2 million, or 18.1% of sales, for the
same period of 1998. The gross margin decrease and the decrease in the gross
margin as a percentage of sales is primarily due to the launch of a new product
in the Precision Machined Products segment. The launch has resulted in poor
productivity and high scrap rates as the operation moves to increasing
production output. In addition to the new product launch, a second operation in
this segment continues to incur higher operating losses caused by labor
inefficiencies and increased scrap rates. The profitability of the higher sales
in the heavy duty truck market partially offset these decreases in margin.
Consolidated gross margin for the nine months ended September 30, 1999 was $30.9
million or 16.2% of sales compared with $29.5 million or 17.8% of sales for the
same period one year ago. The increase in gross margin is primarily due to the
Acquisitions and the increased sales in the automotive and heavy duty truck
markets, partially offset by the decrease in gross margin from the difficulties
noted at two operations in the Precision Machined Products segment noted above
and the decrease in agricultural machined component sales. The decrease in gross
margin as a percentage of sales is primarily due to the difficulties at two
operations in the Precision Machined Products segment discussed above.
Selling, general and administrative expenses ("SG&A") increased to $6.8 million,
or 11.9% of sales, for the quarter ended September 30, 1999, from $5.7 million,
or 10.1% of sales, for the quarter ended September 30, 1998. The increase in
SG&A was primarily due to a reduction in management incentive adjustments
recorded in the third quarter of 1998.
SG&A increased to $19.4 million, or 10.2% of sales, for the nine months ended
September 30, 1999, from $17.2 million, or 10.4% of sales, for the same period
in 1998. The increase in SG&A was primarily due to the increase in sales as well
as the Acquisitions, which accounted for approximately $0.8 million of the
increase in 1999.
Amortization expense was $1.1 million for the quarter ended September 30, 1999,
consistent with amortization expense recorded for the quarter ended September
30, 1998. Amortization expense increased to $3.4 million in the nine month
period ended September 30, 1999 from $3.0 million in the same period of 1998 due
to the Acquisitions.
The Company recorded a nonrecurring loss of $0.4 million in the second quarter
of 1999 for costs that were incurred related to the closure of the Livonia,
Michigan facility. This facility was closed in the third quarter of 1999.
The first quarter of 1998 included a nonrecurring gain of approximately $0.4
million related to the sale of the land and building where the Company's Machine
Tool division was located prior to its being sold in October 1996.
Operating income (loss) by segment was as follows:
<TABLE>
<CAPTION>
Precision Amortization
Machined Rubber and Special Expense/Non-
(In thousands) Products Plastic Machines Other recurring Items Total
-------- ------- -------- ----- --------------- -----
<S> <C> <C> <C> <C> <C> <C>
Quarter ended
September 30, 1998 $ 4,327 $ 531 $ 734 $ (1,057) $ (1,163) $ 3,372
Change from existing business (3,547) (194) (466) (403) 16 (4,594)
--------- -------- -------- --------- ---------- ---------
Quarter ended
September 30, 1999 $ 780 $ 337 $ 268 $ (1,460) $ (1,147) $ (1,222)
========= ======== ======== ========= ========== =========
Nine months ended
September 30, 1998 $ 13,270 $ 1,936 $ 275 $ (3,204) $ (2,647) $ 9,630
Acquisitions 2,265 (434) 1,831
Change from existing business (3,836) 422 764 (379) (698) (3,727)
--------- -------- -------- --------- ---------- ---------
Nine months ended
September 30, 1999 $ 11,699 $ 2,358 $ 1,039 $ (3,583) $ (3,779) $ 7,734
========= ======== ======== ========= ========== =========
</TABLE>
<PAGE> 11
Consolidated operating loss for the third quarter of 1999 was $1.2 million, or
2.0% of sales, compared with operating income of $3.4 million, or 6.0% of sales
for the same period one year ago. The decrease in operating income was due
primarily to the difficulties noted above at two of the operations in the
Precision Machined Products segment, partially offset by higher sales in the
heavy duty truck market.
Operating income for the Precision Machined Products segment decreased $3.5
million to $0.8 million in the quarter ended September 30, 1999 from $4.3
million in the same period of 1998. Operating margin decreased to 1.8% of
segment sales in 1999 from 10.9% of segment sales in 1998. The decrease in
operating income and operating margin was primarily due to the difficulties
noted above at two operations in this segment, partially offset by higher sales
in the heavy duty truck market.
Operating income for the Rubber and Plastic segment decreased $0.2 million to
$0.3 million in the third quarter from operating income of $0.5 million in the
third quarter of 1998. Operating margin decreased to 2.9% of segment sales in
1999 from 4.9% in 1998. The decrease in operating income was primarily due to
closure costs and production inefficiencies associated with the closure of the
Livonia, Michigan facility during the quarter, partially offset by cost savings
achieved from the closure of the Auburn Hills facility in the first quarter of
1999 and improvements in operational inefficiencies experienced in the 1998
period that were mainly the result of high labor turnover caused by full
employment in local economies.
Operating income for the Special Machines segment decreased $0.4 million to $0.3
million, or 4.8% of sales, in the quarter ended September 30, 1999 from $0.7
million in the same period of 1998. The decrease in operating income was
primarily due to the decreased revenue and the profitability of contracts in
progress within the segment.
Interest expense decreased $0.1 million to $3.5 million in the third quarter
from $3.6 million in the third quarter of 1998. The slight decrease in interest
expense was due to reductions in long term debt and fewer borrowings on the line
of credit facility. Interest expense for both the 1999 and 1998 periods included
approximately $0.1 million of amortization of debt issuance costs.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash provided by operations for the nine months ended September
30, 1999 was approximately $11.7 million. Cash outflows for capital expenditures
of $8.5 million and for debt repayments of $4.1 million left the Company with
$4.5 million in cash at September 30, 1999. In addition, the Company made the
$6.1 million semi-annual interest payment on September 1, 1999 for the
subordinated notes.
Effective January 15, 1998 the Company's revolving credit facility was amended
and restated to become the Senior Credit Facility ("the Facility") and was
increased to provide total revolving credit availability of $50.0 million
concurrent with completion of the issuance of the Notes on March 4, 1998. The
Facility was further amended on October 14, 1999 primarily to ease certain
restrictive covenants and limit revolving credit borrowings to an asset based
calculation. Availability of funds under the Facility is subject to satisfaction
of certain financial ratios and other conditions. At September 30, 1999 the
Company had no borrowings outstanding under the Facility and current borrowing
availability of $26.2 million using the criteria established in the Facility, as
amended. The Facility is collateralized by substantially all of the Company's
non-real estate assets and by Rochester Gear, Inc.'s real estate. The current
expiration of the Facility is February 28, 2001.
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 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 Facility it will have adequate cash available to
service debt obligations, fund capital improvements and maintain adequate
working capital.
No dividends were declared or paid during the first three quarters of 1999 and
the second and third quarters of 1998. The Company paid a dividend of $0.05 per
share of common stock during the first quarter of 1998. Total dividends paid
during the first quarter of 1998 were $246,000. The terms of the Notes required
the suspension of cash dividends.
<PAGE> 12
OTHER FINANCIAL DATA/INFORMATION
Newcor's sales, operating income, interest expense, depreciation, amortization,
and capital expenditures for the three and twelve months ended September 30,
1999 were as follows:
<TABLE>
<CAPTION>
Period Ended September 30, 1999
Three Months Twelve Months
------------ -------------
<S> <C> <C>
Sales $ 61,200 $ 251,300
Operating (loss) income (1,200) 9,500
Interest expense 3,500 14,000
Depreciation 2,100 8,000
Amortization 1,100 4,500
Capital expenditures 4,000 12,500
</TABLE>
YEAR 2000
The year 2000 ("Y2K") issue is the result of computer programs being written
using two digits rather than four to define the applicable year. Any of the
Company's systems or equipment that have date-sensitive software using only two
digits may recognize a date using "00" as the year 1900 rather than the year
2000. The resulting system failures or miscalculations may cause disruption of
operations, including the temporary inability to process transactions or send
and receive electronic data with third parties or engage in similar normal
business activities.
The Company began to address the Y2K issue in 1997 by identifying all systems
and equipment that could be affected by the Y2K issue. This process is complete.
Management determined that only one location of the Company was using an
information technology system that was not Y2K compliant. During the third
quarter of 1999, the Company closed this location. The Company's non-information
technology systems and equipment, including production equipment, telephones,
security and electrical are currently Y2K compliant. Costs incurred for
replacing or remediating non-information technology systems and equipment were
not material. The Company's Y2K efforts are funded through operating cash flow.
In 1997 the Company began communicating with its significant suppliers and large
customers to determine the extent to which the Company is vulnerable to such
parties' failure to remediate their own Y2K issues. Management continues to
evaluate the responses received and their remediation plans. Although a failure
on the part of the Company's significant suppliers or large customers to
effectively remediate their Y2K issues in a timely manner may affect Company
operations, management does not currently believe that any material exposure to
significant business interruption exists as a result of Y2K compliance issues.
Therefore, the Company has not adopted any formal contingency plan. While
management expects all planned work to be completed, there can be no guarantee
that all systems will be in compliance by the year 2000, that the systems of the
Company's significant suppliers and large customers will be converted in a
timely manner, or that contingency planning will be able to fully address all
potential interruptions. Therefore, Y2K issues could cause delays in the
Company's ability to produce or ship its products, process transactions, or
otherwise conduct its business.
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 last
paragraph under "Results of Operations" concerning the Company's performance for
the remainder of fiscal 1999 and the paragraph concerning 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; 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; and the extent to which the Company's new
ERP computer system performs as anticipated and the
<PAGE> 13
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.
Item 3. Defaults Upon Senior Securities
(a) See this Form 10Q, Part I, Item I - Financial Statements,
Footnote 3 - Financing, which is herein incorporated by reference.
NEWCOR, INC.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K:
(a) Exhibits
Exhibit 4(a) - Fourth Amendment to Third Amended and Restated
Revolving Credit Agreement, dated April 21, 1999, between Newcor,
Inc. and Comerica Bank.
Exhibit 4(b) - Fifth Amendment to Third Amended and Restated
Revolving Credit Agreement, dated October 14, 1999, between
Newcor, Inc. and Comerica Bank.
Exhibit 27 - Financial Data Schedule (EDGAR version only)
(b) Reports on Form 8-K
None.
SIGNATURES
Pursuant to the requirements 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: November 15, 1999 /s/ James J. Connor
----------------- ------------------------------
James J. Connor
Vice President-Finance
Principal Financial and
Accounting Officer
<PAGE> 14
EXHIBIT INDEX
4(a) Fourth Amendment to Third Amended and Restated Revolving Credit
Agreement, dated April 21, 1999, between Newcor, Inc. and Comerica
Bank.
4(b) Fifth Amendment to Third Amended and Restated Revolving Credit
Agreement, dated October 14, 1999, between Newcor, Inc. and Comerica
Bank.
27 Financial Data Schedule (EDGAR version only).
<PAGE> 1
EXHIBIT 4(a)
AMENDMENT NO. 4
FOURTH AMENDMENT TO THIRD AMENDED AND
RESTATED REVOLVING CREDIT AGREEMENT
THIS FOURTH AMENDMENT, dated as of the 21st day of April, 1999, 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, which was amended by an Amendment dated as
of February 10, 1998, an Amendment dated as of September 1, 1998 and an
Amendment dated as of October 30, 1998 (herein called "Agreement");
NOW, THEREFORE, it is agreed that the Agreement is amended as follows:
<TABLE>
<S> <C>
1. Section 6.4 of the Agreement is amended to read as follows:
"6.4 On a Consolidated statement basis, 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:
October 31, 1998 through December 30, 1998.............................................6.5 to 1.0
December 31, 1998 through March 30, 1999..............................................6.75 to 1.0
March 31, 1999 through March 30, 2000..................................................5.5 to 1.0
March 31, 2000 through December 30, 2000..............................................4.75 to 1.0
December 31, 2000 and thereafter......................................................4.5 to 1.0"
2. Section 6.5 of the Agreement is amended to read as follows:
"6.5 On a Consolidated statement basis, maintain, as of the
end of each fiscal quarter, a Debt to Capital Ratio of not more than:
Present through October 30, 1998.................................................................85 to 1.0
October 31, 1998 through December 30, 1999.......................................................80 to 1.0
December 31, 1999 and thereafter................................................................75 to 1.0"
</TABLE>
3. Company hereby represents and warrants that, after giving effect to
the amendment 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.
4. This Amendment shall be effective upon (a) execution of this
Amendment by Company and Bank and (b) execution by the Guarantors of the
attached Acknowledgment.
<PAGE> 2
5. 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/ Brian E. Marshall By: /s/ Keith F. Hale
----------------------- ------------------
Its: Vice President Its: President and CEO
------------------
By: /s/ Thomas D. Parker
---------------------
Its: Vice President and Secretary
------------------------------
<PAGE> 3
ACKNOWLEDGMENT
The undersigned accept and agree to the Amendment No. 4 to the Third
Amended and Restated Revolving Credit Agreement and agree to the continued
effectiveness of the Guaranties originally executed and delivered to Comerica
Bank by the undersigned on January 15, 1998 and on March 4, 1998, as applicable.
ROCHESTER GEAR, INC.
By: /s/ Keith F. Hale
------------------
Its: President and Chairman
-----------------------
By: /s/ Thomas D. Parker
---------------------
Its: Secretary
----------
ENC CORP.
By: /s/ Keith F. Hale
-------------------
Its: President and Chairman
-----------------------
By: /s/ Thomas D. Parker
----------------------
Its: Secretary
----------
<PAGE> 4
DECO TECHNOLOGIES, INC. PLASTRONICS PLUS, INC.
By: /s/ Keith F. Hale By: /s/ Keith F. Hale
-------------------- ------------------
Its: President and Chairman Its: President and Chairman
------------------------ -----------------------
By: /s/ Thomas D. Parker
--------------------
By: /s/ Thomas D. Parker
----------------------
Its: Secretary
-----------
Its: Secretary
----------
DECO INTERNATIONAL, INC. NEWCOR M-T-L, INC.
By: /s/ Keith F. Hale By: /s/ Keith F. Hale
-------------------- ------------------
Its: President and Chairman Its: President and Chairman
------------------------ -----------------------
By: /s/ Thomas D. Parker
----------------------
By: /s/ Thomas D. Parker
----------------------
Its: Secretary
-----------
Its: Secretary
----------
TURN-MATIC, INC. GRAND MACHINING COMPANY
By: /s/ Keith F. Hale By: /s/ Keith F. Hale
------------------- -------------------
Its: President and Chairman Its: President and Chairman
------------------------ ------------------------
By: /s/ Thomas D. Parker By: /s/ Thomas D. Parker
---------------------- ----------------------
Its: Secretary Its: Secretary
----------- -----------
<PAGE> 1
EXHIBIT 4(b)
AMENDMENT NO. 5
FIFTH AMENDMENT TO THIRD AMENDED AND
RESTATED REVOLVING CREDIT AGREEMENT
THIS FIFTH AMENDMENT, dated as of the 14th day of October, 1999, by and
between Newcor, Inc., a Delaware corporation, of Bloomfield Hills, Michigan
(herein 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, which was amended by
an Amendment dated as of February 10, 1998, an Amendment dated as
of September 1, 1998 an Amendment dated as of October 30, 1998 and
an Amendment dated April 21, 1999 (herein called "Agreement");
NOW, THEREFORE, it is agreed that the Agreement is amended as follows:
1. The definition of "Base Net Worth" in Section 1 of the
Agreement is amended to read in its entirety:
" `Base Net Worth' shall mean, $19,000,000. On the last day of each
fiscal quarter of Company commencing December 31, 1999, Base Net Worth
shall be increased by an amount equal to 50% of Net Income for the
fiscal quarter then ended. Such increase shall be effective on the last
day of the fiscal quarter in which such determination is made. Any
fiscal quarter with respect to which Net Income is less than zero, Net
Income shall be deemed to be zero."
2. The following Section 2.1A is hereby added to the Agreement:
"2.1A. The aggregate principal amount at any one time outstanding under
the Revolving Credit Note and the undrawn amount of any Letters of
Credit shall never exceed the formula set forth in the Advance Formula
Agreement between Company and Bank dated as of October 14, 1999 or in
any Advance Formula Agreement delivered by Company to Bank in
substitution therefore. Company shall immediately make all payment
necessary to comply with this provision."
3. Schedule 2.11 attached to this Amendment is substituted for
Schedule 2.11 attached to the Agreement.
4. Section 6.3 of the Agreement is deleted in its entirety.
5. Section 6.4 of the Agreement is amended to read as follows:
<PAGE> 2
"6.4 On a Consolidated statement basis, maintain as of the end of each
fiscal quarter, a Funded Debt to EBITDA Ratio of not more than the
following amounts during the period specified below:
<TABLE>
<S> <C>
March 31, 1999 through September 29, 2000.............................................8.0 to 1.0
September 30, 2000 through December 30, 2000..........................................7.0 to 1.0
December 31, 2000 through March 30, 2001..............................................6.5 to 1.0
March 31, 2001 through June 29, 2001..................................................6.0 to 1.0
June 30, 2001 through September 29, 2001..............................................5.5 to 1.0
September 30, 2001 through December 30, 2001..........................................5.0 to 1.0
December 31, 2001 and thereafter.....................................................4.5 to 1.0"
</TABLE>
6. Section 6.5 is deleted in its entirety.
7. Company hereby represents and warrants that, after giving
effect to the amendment 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.
8. This Amendment shall be effective upon (a) execution of this
Amendment by Company and Bank (b) execution by the Guarantors of the attached
Acknowledgment, and (c) execution by Company and Bank of the Advance Formula
Agreement referenced in Section 2.1A of the Agreement as amended by this
Amendment, and (d) payment by Company to Bank of a non-refundable $25,000
closing fee.*
9. 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/ Brian E. Marshall By: /s/ James J. Connor
--------------------------- --------------------
Its: Vice President Its: Vice President
---------------
By: /s/ Keith F. Hale
------------------
Its: President and CEO
------------------
- --------------------------
*MAY BE REQUIREMENTS FOR ADDITIONAL SECURITY AGREEMENTS AND FINANCING
STATEMENTS.
<PAGE> 3
ACKNOWLEDGMENT
The undersigned accept and agree to the Amendment No. 5 to the Third
Amended and Restated Revolving Credit Agreement and agree to the continued
effectiveness of the Guaranties originally executed and delivered to Comerica
Bank by the undersigned on January 15, 1998 and on March 4, 1998, as applicable.
ROCHESTER GEAR, INC.
By: /s/ James J. Connor
--------------------
Its: Vice President
---------------
By: /s/ Keith F. Hale
------------------
Its: President and CEO
------------------
ENC CORP.
By: /s/ James J. Connor
--------------------
Its: Vice President
---------------
By: /s/ Keith F. Hale
------------------
Its: President and CEO
------------------
<PAGE> 4
DECO TECHNOLOGIES, INC. PLASTRONICS PLUS, INC.
By: /s/ James J. Connor By: /s/ James J. Connor
--------------------- ---------------------
Its: Vice President Its: Vice President
---------------- ---------------
By: /s/ Keith F. Hale
-------------------
By: /s/ Keith F. Hale
-------------------
Its: President and CEO
-------------------
Its: President and CEO
------------------
DECO INTERNATIONAL, INC. NEWCOR M-T-L, INC.
By: /s/ James J. Connor By: /s/ James J. Connor
--------------------- ---------------------
Its: Vice President Its: Vice President
---------------- ---------------
By: /s/ Keith F. Hale
-------------------
By: /s/ Keith F. Hale
-------------------
Its: President and CEO
-------------------
Its: President and CEO
------------------
TURN-MATIC, INC. GRAND MACHINING COMPANY
By: /s/ James J. Connor By: /s/ James J. Connor
--------------------- ---------------------
Its: Vice President Its: Vice President
---------------- ---------------
By: /s/ Keith F. Hale By: /s/ Keith F. Hale
------------------- -------------------
Its: President and CEO Its: President and CEO
------------------- ------------------
<PAGE> 5
SCHEDULE 2.11
<TABLE>
<CAPTION>
- ----------------------- -------------- ----------------- ---------------- ----------------- ---------------- --------------
LEVEL I LEVEL II LEVEL III LEVEL IV LEVEL V LEVEL VI
- ----------------------- -------------- ----------------- ---------------- ----------------- ---------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Funded Debt to < 3.0 to 1.0 > 3.0 to 1.0 & > 3.5 to 1.0 & > 4.0 to 1.0 & >4.5 to 1.0 & >5.0 to 1.0
EBITDA Ratio - < 3.5 to 1.0 < 4.0 to 1.0 < 4.5 to 1.0 < 5.0 to 1.0
- - - -
- ----------------------- -------------- ----------------- ---------------- ----------------- ---------------- --------------
Applicable 1/2% 3/4% 1% 1 3/4% 2 1/2% 3 1/4%
Margin
- ----------------------- -------------- ----------------- ---------------- ----------------- ---------------- --------------
Applicable 1/4% 1/4% 1/4% 3/8% 3/8% 3/8%
Commitment Fee
Percentage
- ----------------------- -------------- ----------------- ---------------- ----------------- ---------------- --------------
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 4,476
<SECURITIES> 0
<RECEIVABLES> 35,230
<ALLOWANCES> 0
<INVENTORY> 17,196
<CURRENT-ASSETS> 64,148
<PP&E> 82,592
<DEPRECIATION> 26,142
<TOTAL-ASSETS> 211,904
<CURRENT-LIABILITIES> 40,856
<BONDS> 6,100
0
0
<COMMON> 4,921
<OTHER-SE> 17,872
<TOTAL-LIABILITY-AND-EQUITY> 211,904
<SALES> 61,230
<TOTAL-REVENUES> 61,230
<CGS> 54,516
<TOTAL-COSTS> 62,452
<OTHER-EXPENSES> (235)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,482
<INCOME-PRETAX> (4,939)
<INCOME-TAX> (1,823)
<INCOME-CONTINUING> (3,116)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,116)
<EPS-BASIC> (0.63)
<EPS-DILUTED> (0.63)
</TABLE>
