<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 June 30, 1999
Commission file number 1-5985
NEWCOR, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C>
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)
</TABLE>
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 August 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 Six Months Ended
------------------ ----------------
June 30, June 30, June 30, June 30,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales $ 64,916 $ 61,968 $ 129,616 $ 108,621
Cost of sales 53,256 50,564 105,402 89,409
---------- ---------- ----------- -----------
Gross margin 11,660 11,404 24,214 19,212
Selling, general and administrative expenses 5,677 6,443 12,626 11,470
Amortization expense 1,148 1,146 2,282 1,846
Nonrecurring loss (gain) 350 350 (362)
---------- ---------- ----------- -----------
Operating income 4,485 3,815 8,956 6,258
Other income (expense):
Interest expense (3,523) (3,609) (7,009) (5,555)
Other expense, net 42 59 (123) 24
---------- ---------- ----------- -----------
Income before income taxes 1,004 265 1,824 727
Provision for income taxes 381 90 696 269
---------- ---------- ----------- -----------
Net income $ 623 $ 175 $ 1,128 $ 458
========== ========== =========== ===========
Amounts per share of common stock:
Net income - basic and diluted $ 0.13 $ 0.03 $ 0.23 $ 0.09
Dividends $ - $ - $ - $ 0.05
Weighted average common shares outstanding 4,922 4,942 4,929 4,942
</TABLE>
The accompanying notes are an integral part of
the condensed consolidated financial statements
2
<PAGE> 3
NEWCOR, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
June 30, October 31,
1999 1998
---- ----
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 8,444 $ 3,539
Accounts receivable 36,433 35,175
Inventories 14,354 14,014
Other current assets 6,543 9,454
----------- -----------
Total current assets 65,774 62,182
Property, plant and equipment, net of
accumulated depreciation of $24,103
at 6/30/99 and $19,288 at 10/31/98 54,492 53,837
Cost in excess of assigned value of
acquired companies, net of amortization 82,814 85,861
Debt issuance costs and other non-current assets 10,096 10,657
----------- -----------
Total assets $ 213,176 $ 212,537
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
<CAPTION>
<S> <C> <C>
Current liabilities:
Current portion of long-term debt $ 2,000 $ 2,000
Accounts payable 22,420 21,072
Other accrued liabilities 14,048 10,068
----------- -----------
Total current liabilities 38,468 33,140
Long-term debt 136,933 141,467
Other non-current liabilities 11,860 12,401
----------- -----------
Total liabilities 187,261 187,008
----------- -----------
Shareholders' equity:
Common stock 4,922 4,942
Capital in excess of par 2,197 2,258
Accumulated other comprehensive income (580) (580)
Retained earnings 19,376 18,909
----------- -----------
Total shareholders' equity 25,915 25,529
----------- -----------
Total liabilities & shareholders' equity $ 213,176 $ 212,537
=========== ===========
</TABLE>
The accompanying notes are an integral part of
the condensed consolidated financial statements
3
<PAGE> 4
NEWCOR, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Six Months Ended
June 30, June 30,
1999 1998
---- ----
<S> <C> <C>
Operating Activities:
Net income $ 1,128 $ 458
Depreciation 3,779 2,899
Amortization 2,282 1,846
Gain on sale of capital assets (100) (362)
Other, net (152) 83
Changes in operating assets
and liabilities, net 4,147 (634)
-------- ----------
Net cash provided by operations 11,084 4,290
-------- ----------
Investing Activities:
Capital expenditures (4,477) (2,994)
Proceeds from sale of capital assets 150 1,367
Acquisitions, net of cash acquired (88,911)
-------- ----------
Net cash used in investing activities (4,327) (90,538)
-------- ----------
Financing Activities:
Net repayments on revolving credit line (2,600) (31,800)
Repayment of term note (1,000) (167)
Repurchase of common stock (81)
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 (3,681) 87,938
-------- ----------
Increase in cash 3,076 1,690
Cash and cash equivalents, beginning of period 5,368 3,427
-------- ----------
Cash and cash equivalents, end of period $ 8,444 $ 5,117
======== ==========
</TABLE>
The accompanying notes are an integral part of
the condensed consolidated financial statements
4
<PAGE> 5
NEWCOR, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1. 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 six months ended June 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. 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 1998 unaudited pro-forma results of operations as if Deco
and Turn-Matic had been acquired on January 1, 1998 would have
been as follows:
<TABLE>
<CAPTION>
Six Months Ended
----------------
Actual Pro Forma
June 30, June 30,
1999 1998
---- ----
<S> <C> <C>
Sales $ 129,616 $ 127,400
=========== ===========
Net income $ 1,128 $ 526
=========== ===========
Net income per share - basic and diluted $ 0.23 $ 0.11
=========== ===========
</TABLE>
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.
5
<PAGE> 6
Note 3. 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 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.'s
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. The Company was in compliance with these
covenants at June 30, 1999. In addition, the terms of the Notes
required the Company to suspend its cash dividend.
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>
June 30, October 31,
1999 1998
---- ----
<S> <C> <C>
Current assets $ 24,900 $ 24,700
========== ==========
Total assets $ 105,400 $ 107,500
========== ==========
Current liabilities $ 15,900 $ 15,300
========== ==========
Long-term debt $ 6,100 $ 6,100
========== ==========
<CAPTION>
Six Months Ended
----------------
June 30, June 30,
1999 1998
---- ----
<S> <C> <C>
Sales $ 68,200 $ 47,000
========== ==========
Operating income $ 9,900 $ 5,400
========== ==========
Note 4. Inventories are summarized as follows:
June 30, October 31,
1999 1998
---- ----
Cost and estimated earnings of uncompleted
contracts in excess of related billings of $215
at 6/30/99 and $1,679 at 10/31/98 $ 1,935 $ 3,244
Raw materials 3,008 4,903
Work in process and finished goods 9,411 5,867
---------- ----------
$ 14,354 $ 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.
6
<PAGE> 7
Note 5. The Company adopted Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income," in 1998. Other
comprehensive income for the three and six months ended June
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. 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 six months ended June 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 June 30, 1999 $ 45,313 $ 13,176 $ 6,427 $ 64,916
1998 45,515 12,689 3,764 61,968
Six months ended June 30, 1999 $ 90,920 $ 26,549 $ 12,147 $ 129,616
1998 74,891 25,824 7,906 108,621
Operating income (loss)
Three months ended June 30, 1999 $ 4,989 $ 1,308 $ 499 $ 6,796
1998 5,598 854 (509) 5,943
Six months ended June 30, 1999 $ 10,919 $ 2,021 $ 771 $ 13,711
1998 8,943 1,405 (459) 9,889
Identifiable assets
June 30, 1999 $ 143,439 $ 31,165 $ 12,507 $ 26,065 $ 213,176
October 31, 1998 143,977 34,313 10,492 23,755 212,537
</TABLE>
A reconciliation of operating income for reportable segments to consolidated
operating income is as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------ ----------------
June 30, June 30, June 30, June 30,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Operating income for reportable segments $ 6,796 $ 5,943 $ 13,711 $ 9,889
Other operating loss, mainly unallocated corporate
and other expenses (813) (982) (2,123) (2,147)
Amortization expense (1,148) (1,146) (2,282) (1,846)
Nonrecurring gain (loss) (350) (350) 362
---------- -------- ---------- -----------
Consolidated operating income $ 4,485 $ 3,815 $ 8,956 $ 6,258
========== ======== ========== ===========
</TABLE>
7
<PAGE> 8
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 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 six months ended June 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 June 30, 1998 sales $ 45,515 $ 12,689 $ 3,764 $ 61,968
Change from existing business (202) 487 2,663 2,948
---------- ---------- --------- ----------
Quarter ended June 30, 1999 sales $ 45,313 $ 13,176 $ 6,427 $ 64,916
========== ========== ========= ==========
Six months ended June 30, 1998 sales $ 74,891 $ 25,824 $ 7,906 $ 108,621
Acquisitions 16,053 16,053
Change from existing business (24) 725 4,241 4,942
---------- ---------- --------- ----------
Six months ended June 30, 1999 sales $ 90,920 $ 26,549 $ 12,147 $ 129,616
========== ========== ========= ==========
</TABLE>
Consolidated sales were $64.9 million for the quarter, an increase of $2.9
million, or 4.8%, compared with sales of $62.0 million for the second quarter of
1998. Sales for the Precision Machined Products segment decreased $0.2 million,
or 0.4%, to $45.3 million, sales for the Rubber and Plastic segment increased
$0.5 million, or 3.8%, to $13.2 million, and sales for the Special Machines
segment increased $2.7 million, or 70.7%, to $6.4 million. The decrease in sales
for the Precision Machined Products segment was due to a continued decline in
sales of agricultural machined components (down approximately $5.1 million),
almost completely offset by volume increases at customers of automotive and
heavy duty truck machined components. Sales in the Rubber and Plastic segment
increased due to volume increases at automotive component customers. The Special
Machines segment sales for the quarter increased due to the increase in new
orders experienced during the quarter as compared to the second quarter of 1998.
Consolidated sales for the six month period ended June 30, 1999 increased by
$21.0 million to $129.6 million compared with sales of $108.6 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.
8
<PAGE> 9
Consolidated gross margin was $11.7 million, or 18.0% of sales, for the quarter
ended June 30, 1999 compared with $11.4 million, or 18.4% of sales, for the same
period of 1998. The gross margin increase of $0.3 million was due to the
increase in sales. The decrease in the gross margin as a percentage of sales is
primarily due to the $5.1 million decrease in agricultural machined component
sales, which historically have had higher gross margin as a percentage of sales
as compared to automotive and heavy duty truck machined components sales.
Consolidated gross margin for the six months ended June 30, 1999 was $24.2
million or 18.7% of sales compared with $19.2 million or 17.7% of sales for the
same period one year ago. The increase in gross margin and gross margin as a
percentage of sales is primarily due to the Acquisitions, as well as
management's focus on improving the manufacturing operations of the Company
through continuous improvement (Kaizen) programs and other methods. The increase
in gross margin and gross margin as a percentage of sales more than offset the
decline caused by the decrease in agricultural machined component sales noted
above.
Selling, general and administrative expenses (SG&A) decreased to $5.7 million,
or 8.7% of sales, for the quarter ended June 30, 1999, from $6.4 million, or
10.4% of sales, for the quarter ended June 30, 1998. The decrease in SG&A was
primarily due to headcount reductions and management incentive adjustments
recorded in the second quarter of 1999.
SG&A increased to $12.6 million, or 9.7% of sales, for the six months ended June
30, 1999, from $11.5 million, or 10.6% 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 June 30, 1999,
consistent with amortization expense recorded for the quarter ended June 30,
1998. Amortization expense increased to $2.3 million in the six month period
ended June 30, 1999 from $1.8 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 will be incurred related to the closure of the Livonia,
Michigan facility. Management expects the closure of this facility will occur 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 June 30, 1998 $ 5,598 $ 854 $ (509) $ (982) $ (1,146) $ 3,815
Change from existing business (609) 454 1,008 169 (352) 670
-------- --------- ------- --------- --------- ---------
Quarter ended June 30, 1999 $ 4,989 $ 1,308 $ 499 $ (813) $ (1,498) $ 4,485
======== ========= ======= ========= ========= =========
Six months ended June 30, 1998 $ 8,943 $ 1,405 $ (459) $ (2,147) $ (1,484) $ 6,258
Acquisitions 2,265 (434) 1,831
Change from existing business (289) 616 1,230 24 (714) 867
-------- --------- ------- --------- --------- ---------
Six months ended June 30, 1999 $ 10,919 $ 2,021 $ 771 $ (2,123) $ (2,632) $ 8,956
======== ========= ======= ========= ========= =========
</TABLE>
Consolidated operating income for the second quarter of 1999 was $4.5 million,
or 6.9% of sales, compared with operating income of $3.8 million, or 6.2% of
sales for the same period one year ago. The increase in operating income was due
primarily to an increase in orders in the Special Machines segment and cost
savings in the Rubber and Plastic segment, partially offset by a decrease in
agricultural machined component orders in the Precision Machined Products
segment and a $350,000 non-recurring loss recorded for the closure of the
Livonia, Michigan facility.
Operating income for the Precision Machined Products segment decreased $0.6
million to $5.0 million in the quarter ended June 30, 1999 from $5.6 million in
the same period of 1998. Operating margin decreased to 11.0% of segment sales in
1999 from 12.3% of
9
<PAGE> 10
segment sales in 1998. The decrease in operating income and operating margin was
primarily due to the decrease in sales of agricultural machined components as
compared to the prior year, partially offset by volume increases of the
Company's automotive and heavy duty truck machined components.
Operating income for the Rubber and Plastic segment increased $0.4 million to
$1.3 million in the second quarter from operating income of $0.9 million in the
second quarter of 1998. Operating margin increased to 9.9% of segment sales in
1999 from 6.7% in 1998. The increase in operating income was primarily due to
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 increased $1.0 million to $0.5
million, or 7.8% of sales, in the quarter ended June 30, 1999 from operating
loss of $0.5 million in the same period of 1998. The increase in operating
income was primarily due to the increased revenue and the profitability of
contracts in progress within the segment.
Interest expense decreased $0.1 million to $3.5 million in the second quarter
from $3.6 million in the second 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.
The Company's sales outlook for the balance of 1999 remains positive. The
Company anticipates automotive and heavy and medium duty truck sales to be
comparable or slightly positive compared with 1998. The Company's Special
Machines segment backlog was $12.7 million as of June 30, 1999, up $7.5 million
compared with June 30, 1998. Agricultural machined component sales will continue
to be below 1998 levels for the balance of 1999 due to the downturn in the
agricultural market which began in the summer of 1998.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash provided by operations for the six months ended June 30, 1999
was approximately $11.1 million. Cash outflows for capital expenditures of $4.5
million and for debt repayments of $3.6 million left the Company with over $8.4
million in cash at June 30, 1999. This cash balance will more than cover the
$6.1 million semi-annual interest payment due 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 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. Availability of funds under the
Senior Credit Facility is subject to satisfaction of certain financial ratios
and other conditions. At June 30, 1999 the Company had no borrowings outstanding
under its Senior Credit Facility. The Senior Credit Facility covenant related to
the ratio of funded debt to earnings before interest, taxes, depreciation, and
amortization would have limited the borrowing availability to $30.9 million at
June 30, 1999. The Senior Credit 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 Senior Credit 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 Senior Credit 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 two quarters of 1999 and the
second quarter 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.
OTHER FINANCIAL DATA/INFORMATION
Newcor's sales, operating income, interest expense, depreciation, amortization,
and capital expenditures for the three and twelve months ended June 30, 1999
were as follows:
10
<PAGE> 11
<TABLE>
<CAPTION>
Period Ended June 30, 1999
Three Months Twelve Months
------------ -------------
<S> <C> <C>
Sales $ 64,900 $ 246,300
Operating income 4,500 14,100
Interest expense 3,500 14,200
Depreciation 1,900 7,100
Amortization 1,100 4,500
Capital expenditures 2,400 12,000
</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
substantially complete, and management has determined that only one location of
the Company is currently using an information technology system that is not Y2K
compliant. During the second quarter of 1999, the Company announced that it was
closing this location during the third quarter of 1999. Most of the Company's
non-information technology systems and equipment, including production
equipment, telephones, security and electrical are currently Y2K compliant. Any
costs incurred for replacing or remediating non-information technology systems
and equipment are not expected to be 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. The Company's
evaluation of these remediation plans and its assessment of the risk that any
issues identified could have a material adverse impact on the Company could
impact its development of a contingency plan. 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 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.
11
<PAGE> 12
NEWCOR, INC.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K:
(a) Exhibits
Exhibit 27 - Financial Data Schedule (EDGAR version only)
(b) Reports on Form 8-K
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: August 13, 1999 /s/ James J. Connor
------------------------
James J. Connor
Vice President-Finance
Principal Financial and
Accounting Officer
12
<PAGE> 13
EXHIBIT INDEX
27 Financial Data Schedule (EDGAR version only).
13
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> APR-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 8,444
<SECURITIES> 0
<RECEIVABLES> 36,433
<ALLOWANCES> 0
<INVENTORY> 14,354
<CURRENT-ASSETS> 65,774
<PP&E> 78,595
<DEPRECIATION> 24,103
<TOTAL-ASSETS> 213,176
<CURRENT-LIABILITIES> 38,468
<BONDS> 6,100
0
0
<COMMON> 4,922
<OTHER-SE> 20,993
<TOTAL-LIABILITY-AND-EQUITY> 213,176
<SALES> 64,916
<TOTAL-REVENUES> 64,916
<CGS> 53,256
<TOTAL-COSTS> 60,431
<OTHER-EXPENSES> 42
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,523
<INCOME-PRETAX> 1,004
<INCOME-TAX> 381
<INCOME-CONTINUING> 623
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 623
<EPS-BASIC> 0.13
<EPS-DILUTED> 0.13
</TABLE>
