<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, 2000
Commission file number 1-5985
------
NEWCOR, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 38-0865770
------------------------ ------------------------------------
(State of incorporation) (I.R.S. Employer Identification No.)
43252 Woodward Ave., Suite 240
Bloomfield Hills, Michigan 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 August 7, 2000, the Registrant has 4,949,068 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 OPERATIONS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------ ----------------
June 30, June 30, June 30, June 30,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales $ 67,653 $ 64,916 $ 136,832 $ 129,616
Cost of sales 56,073 53,256 114,850 105,402
---------- ---------- ----------- -----------
Gross margin 11,580 11,660 21,982 24,214
Selling, general and administrative expenses 5,845 5,677 11,610 12,626
Amortization expense 1,037 1,148 2,067 2,282
Nonrecurring loss 350 350
---------- ---------- ----------- -----------
Operating income 4,698 4,485 8,305 8,956
Other income (expense):
Interest expense (3,658) (3,523) (7,308) (7,009)
Other professional fees (650) (650)
Other expense, net (101) 42 (235) (123)
---------- ---------- ----------- -----------
Income before income taxes 289 1,004 112 1,824
Income tax provision 96 381 36 696
---------- ---------- ----------- -----------
Net income $ 193 $ 623 $ 76 $ 1,128
========== ========== =========== ===========
Amounts per share of common stock:
Net income - basic and diluted $ 0.04 $ 0.13 $ 0.02 $ 0.23
Weighted average common shares outstanding 4,950 4,922 4,942 4,929
</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, December 31,
2000 1999
---- ----
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 192 $ 1,731
Accounts receivable 39,323 37,171
Inventories 17,164 19,714
Other current assets 4,629 5,408
----------- -----------
Total current assets 61,308 64,024
Property, plant and equipment, net of
accumulated depreciation of $31,538
at 6/30/00 and $26,906 at 12/31/99 56,688 58,777
Cost in excess of assigned value of
acquired companies, net of amortization 69,878 71,947
Debt issuance costs and other non-current assets 9,722 9,783
----------- -----------
Total assets $ 197,596 $ 204,531
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 2,000 $ 2,000
Accounts payable 25,404 31,927
Other accrued liabilities 13,790 14,194
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Total current liabilities 41,194 48,121
Long-term debt 133,581 133,933
Other non-current liabilities 9,575 9,421
----------- -----------
Total liabilities 184,350 191,475
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Shareholders' equity:
Common stock 5,019 4,980
Capital in excess of par 2,415 2,340
Treasury stock (489) (489)
Accumulated other comprehensive income (443) (443)
Retained earnings 6,744 6,668
----------- -----------
Total shareholders' equity 13,246 13,056
----------- -----------
Total liabilities and shareholders' equity $ 197,596 $ 204,531
=========== ===========
</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,
2000 1999
---- ----
<S> <C> <C>
Operating Activities:
Net income $ 76 $ 1,128
Depreciation 4,792 3,779
Amortization 2,067 2,282
Loss (gain) on disposition of capital assets 7 (100)
Other, net 217 (152)
Changes in operating assets and liabilities, net (5,765) 4,147
-------- ----------
Net cash provided by operations 1,394 11,084
-------- ----------
Investing Activities:
Proceeds from sale of capital assets 150
Capital expenditures (2,811) (4,477)
-------- ----------
Net cash used in investing activities (2,811) (4,327)
-------- ----------
Financing Activities:
Net borrowings (repayments) on revolving credit line 648 (2,600)
Repayment of term note (1,000) (1,000)
Repurchase of common stock - (81)
Issuance of common stock 114 -
-------- ----------
Net cash used in financing activities (238) (3,681)
-------- ----------
Increase (decrease) in cash (1,655) 3,076
Cash and cash equivalents, beginning of period 1,847 5,368
-------- ----------
Cash and cash equivalents, end of period $ 192 $ 8,444
======== ==========
</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. 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. Approximately 70,000 common
stock options were excluded from the calculation of earnings per share because
they would have been antidilutive. 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 December 31, 1999.
Note 2. Financing
The Company completed the issuance of $125 million of 9.875% Senior Subordinated
Notes due 2008 (the "Notes") on March 4, 1998. 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. The terms of the
Notes required the Company to suspend its cash dividend.
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 and December 31, 1999
primarily to ease certain restrictive covenants and limit revolving credit
borrowings to an asset based calculation. 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. At June
30, 2000, the Company had borrowings outstanding of $0.6 million under such
facility and borrowing availability of $24.5 million using the criteria
established in the revolving credit agreement, as amended.
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, December 31,
2000 1999
---- ----
<S> <C> <C>
Current assets $ 24,000 $ 25,900
=========== ===========
Total assets $ 95,800 $ 101,200
=========== ===========
Current liabilities $ 13,300 $ 21,100
=========== ===========
Long-term debt $ 6,100 $ 6,100
=========== ===========
<CAPTION>
Six Months Ended
June 30, June 30,
2000 1999
---- ----
<S> <C> <C>
Sales $ 69,500 $ 68,200
=========== ===========
Operating income $ 5,000 $ 9,900
=========== ===========
</TABLE>
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Note 3. Inventory
Inventories are summarized as follows:
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
---- ----
<S> <C> <C>
Cost and estimated earnings of uncompleted
contracts in excess of related billings of $1,611
at 6/30/00 and $305 at 12/31/99 $ 5,189 $ 7,432
Raw materials 3,685 6,966
Work in process and finished goods 8,290 5,316
---------- ----------
$ 17,164 $ 19,714
========== ==========
</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 4. Comprehensive Income
Other comprehensive income for the six months ended June 30, 2000 and 1999 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 5. 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.
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,
2000 $ 48,401 $ 12,511 $ 6,741 $ 67,653
1999 45,313 13,176 6,427 64,916
Six months ended June 30,
2000 $ 98,271 $ 25,779 $ 12,782 $ 136,832
1999 90,920 26,549 12,147 129,616
Operating income
Three months ended June 30,
2000 $ 4,505 $ 1,179 $ 1,107 $ (1,056) $ 5,735
1999 4,989 1,308 499 (813) 5,983
Six months ended June 30,
2000 $ 8,082 $ 2,423 $ 2,237 $ (2,370) $ 10,372
1999 10,919 2,021 771 (2,123) 11,588
Identifiable assets
June 30, 2000 $ 133,811 $ 33,247 $ 17,090 $ 13,448 $ 197,596
December 31, 1999 136,347 30,942 17,107 20,135 204,531
</TABLE>
6
<PAGE> 7
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,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Operating income for reportable segments $ 6,791 $ 6,796 $ 12,742 $ 13,711
Other operating loss, mainly unallocated
corporate and other expenses (1,056) (813) (2,370) (2,123)
Amortization expense (1,037) (1,148) (2,067) (2,282)
Nonrecurring (loss) (350) (350)
--------- ---------- --------- --------
Consolidated operating income $ 4,698 $ 4,485 $ 8,305 $ 8,956
========= ========== ========= ========
</TABLE>
Note 6. Recent Pronouncements
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" (SAB
101). Management is currently reviewing the provisions of SAB 101 but does not
expect that the implementation of this pronouncement will have a significant
impact on the Company's financial statements.
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.
RESULTS OF OPERATIONS
Sales were $67.6 million for the quarter ended June 30, 2000, an increase of
$2.7 million, or 4.0%, compared with sales of $64.9 million for the same quarter
of 1999. Sales for the Precision Machined Products segment increased $3.1
million, or 6.8%, to $48.4 million, due to sales increases in the agricultural
market of $2.3 million or 39.4% and in the automotive market of $2.2 million or
10.5%. The increase in sales in the agricultural market is due to higher
customer orders as compared to the low level of sales in the depressed
agricultural market that was experienced in 1999. The increase in sales in the
automotive market is primarily due to increased volumes and new product launches
in the third quarter of 1999. These increases were partially offset by a
decrease in sales in the heavy-duty truck market of $1.4 million as compared to
the prior year, caused by reductions in customer orders as a result of a
significant decline in retail sales of Class 8 vehicles. Sales for the Rubber
and Plastic and the Special Machines segments were approximately the same as the
prior year.
Sales for the six months ended June 30, 2000 were $136.8 million, an increase of
$7.2 million, or 5.6%, compared with sales of $129.6 million for the same period
in 1999. Sales in the Precision Machined Products segment increased $7.4
million, due to sales increases in the automotive and agricultural markets of
$6.0 million and $3.8 million, respectively, partially offset by a decrease in
sales in the heavy-duty truck market of $2.5 million. Sales for the Rubber and
Plastic and the Special Machines segments were approximately the same as the
prior year.
Gross margin was $11.6 million, or 17.1% of sales, for the quarter ended June
30, 2000 compared with $11.7 million, or 18.0% of sales, for the same period of
1999. Gross margin and gross margin percentage decreased primarily due to the
decrease in sales in the heavy-duty truck market that historically has had
higher margins as compared to the other markets. These decreases were partially
offset by gross margin increases in the Special Machines segment from improved
operating performance on sales contracts as well as improved gross margins in
the agricultural market due to the increased sales.
Gross margin was $22.0 million, or 16.1% of sales, for the six months ended June
30, 2000 compared with $24.2 million, or 18.7% of sales, for the six months
ended June 30, 1999. The decreases in gross margin and gross margin percentage
were primarily due to the decrease in sales in the heavy-duty market and a
one-time expense of $0.7 million incurred in the first quarter of 2000 for early
settlement of a union contract at one location in the Precision Machined
Products segment. These decreases were partially offset by gross margin
increases from improved operating performance in the Special Machines segment as
well as from increased sales in the agricultural market.
Selling, general and administrative expenses ("SG&A") of $5.8 million, or 8.6%
of sales, for the quarter ended June 30, 2000 were approximately the same as
amounts for the quarter ended June 30, 1999, which were $5.7 million, or 8.7% of
sales. Amounts for the quarter ended June 30, 1999 reflect the benefit of
approximately $0.6 million from management incentive adjustments.
SG&A for the six months ended June 30, 2000 of $11.6 million, or 8.5% of sales,
were down $1.0 million from SG&A for the six months ended June 30, 1999 of $12.6
million, or 9.7% of sales. The decrease in SG&A is primarily due to cost savings
measures taken throughout the Company. SG&A for the six months ended June 30,
1999 reflect the benefit of approximately $0.6 million from management incentive
adjustments.
Consolidated operating income for the second quarter of 2000 was $4.7 million,
or 6.9% of sales, compared with operating income of $4.5 million, or 6.9% of
sales for the same period one year ago.
8
<PAGE> 9
Operating income for the Precision Machined Products segment decreased $0.5
million to $4.5 million in the quarter ended June 30, 2000 from $5.0 million in
the same period of 1999. Operating margin decreased to 9.3% of segment sales for
the quarter ended June 30, 2000 from 11.0% of segment sales in the same period
of 1999. The decrease in operating income and operating margin was primarily due
to the lower sales in the heavy-duty truck market, partially offset by an
increase in operating income and operating margin from increased sales in the
agricultural market.
Operating income for the Rubber and Plastic segment decreased $0.1 million to
$1.2 million for the second quarter of 2000 from $1.3 million in the second
quarter of 1999. Operating margin was 9.4% of segment sales for the quarter
ended June 30, 2000, approximately the same as operating margin for the quarter
ended June 30, 1999.
Operating income for the Special Machines segment increased $0.6 million to $1.1
million, or 16.4% of sales, in the quarter ended June 30, 2000 from $0.5
million, or 7.8% of sales, in the same period of 1999. The increase in operating
income was primarily due to the increased revenue and the profitability of
contracts in progress within the segment.
Interest expense for the quarter ended June 30, 2000 was $3.7 million, slightly
higher than interest expense of $3.5 million recorded in the second quarter of
1999. The increase in interest expense is due to increased borrowings under the
Company's line of credit facility, primarily caused by working capital uses in
the Company's Special Machines segment.
During the quarter ended June 30, 2000, the Company recorded $0.7 million for
other professional fees, related to advice and counsel regarding certain
exchange offer documents filed with the Securities and Exchange Commission. See
"Recent Developments" section below.
LIQUIDITY AND CAPITAL RESOURCES
The Company's earnings before interest, taxes, depreciation and amortization
("EBITDA") were $7.4 million for the quarter ended June 30, 2000. The Company's
capital expenditures for the quarter ended June 30, 2000 were $1.9 million.
Also, the Company's accounts receivable balance increased approximately $2.2
million, from December 31, 1999 to June 30, 2000, primarily due to the
completion of several large contracts in the Company's Special Machines segment
during the quarter ended June 30, 2000. In addition, the Company reduced its
accounts payable balance by approximately $6.5 million from December 31, 1999
to June 30, 2000. These factors, and other changes in the Company's working
capital during the quarter ended June 30, 2000, resulted in the Company
borrowing $0.6 million on its line of credit facility at June 30, 2000.
At June 30, 2000 the Company had borrowings outstanding of $0.6 million under
its Senior Credit Facility (the "Facility") and current borrowing availability
of an additional $24.5 million. 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.
Borrowings under the Facility have been classified as long-term in the
accompanying condensed consolidated balance sheet at June 30, 2000, as the
Company has both the ability and the intent to refinance this debt.
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.
RECENT DEVELOPMENTS
In April 2000, the Company's largest single holder of its common stock, EXX Inc,
filed documents with the Securities and Exchange Commission ("SEC") for a
proposed exchange offer of the remaining shares of the Company's common stock.
On August 8, 2000, EXX Inc filed documents with the SEC withdrawing such
exchange offer.
9
<PAGE> 10
In June 2000, EXX Inc and its majority shareholder filed an amendment to their
combined Schedule 13D disclosing that they may be deemed to beneficially own
15.1% of the Company's common stock and acknowledged that such beneficial
ownership may trigger some of the provisions of the Company's rights agreement.
In July 2000, the Company's board of directors received a written proposal from
EXX Inc proposing that EXX Inc purchase newly issued shares of the Company's
common stock in order to increase its beneficial ownership to 34.84% and acquire
effective control of the Company by controlling three seats on the board of
directors and by having the Chairman of EXX Inc become the Company's Chairman of
the Board and Chief Executive Officer. In August 2000, after careful
consideration the board of directors of the Company rejected the proposal as not
in the best interest of the Company's shareholders. EXX Inc and the Chairman of
EXX Inc were encouraged, however, to maintain an open dialogue with the
Company's board of directors for the purpose of providing constructive
suggestions with the goal of maximizing shareholder value. In addition, the
rights plan was amended to increase from 15% to 17.5% the percentage that EXX
Inc and its affiliates and associates can beneficially own of the Company's
common stock before triggering the distribution of rights, and related
consequences, under the Company's rights plan.
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 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. 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.
10
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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
On July 14, 2000 the Company filed a Form 8-K for a press release
issued on the same date regarding the extension of the
distribution date under its rights agreement.
On August 4, 2000 the Company filed a Form 8-K for a press release
issued on the same date regarding amendments to its rights
agreement and rejection of the proposal received from EXX Inc.
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 9, 2000 /s/ James J. Connor
-------------- ----------------------
James J. Connor
Vice President-Finance
Principal Financial and
Accounting Officer
11
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Exhibit Index
-------------
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
