<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 March 31, 2000
Commission file number 1-5985
------
NEWCOR, INC.
------------
(Exact name of registrant as specified in its charter)
DELAWARE 38-0865770
- --------------------------------- ------------------------------------
(State of incorporation) (I.R.S. Employer Identification No.)
1825 S. Woodward Ave., Suite 240
Bloomfield Hills, 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 May 10, 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
March 31, March 31,
2000 1999
---- ----
<S> <C> <C>
Sales $ 69,179 $ 64,700
Cost of sales 58,777 52,146
---------- ----------
Gross margin 10,402 12,554
Selling, general and administrative expenses 5,765 6,949
Amortization expense 1,030 1,134
---------- ----------
Operating income 3,607 4,471
Other income (expense):
Interest expense (3,650) (3,486)
Other expense, net (134) (165)
---------- ----------
(Loss) income before income taxes (177) 820
Income tax (benefit) provision (60) 315
---------- ----------
Net (loss) income $ (117) $ 505
========== ==========
Amounts per share of common stock:
Net (loss) income - basic and diluted $ (0.02) $ 0.10
Weighted average common shares outstanding 4,934 4,938
</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>
March 31, December 31,
2000 1999
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 700 $ 1,731
Accounts receivable 45,444 37,171
Inventories 15,163 19,714
Other current assets 4,948 5,408
----------- -----------
Total current assets 66,255 64,024
Property, plant and equipment, net of
accumulated depreciation of $29,298
at 3/31/00 and $26,906 at 12/31/99 57,185 58,777
Cost in excess of assigned value of
acquired companies, net of amortization 70,913 71,947
Debt issuance costs and other non-current assets 9,701 9,783
----------- -----------
Total assets $ 204,054 $ 204,531
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 2,000 $ 2,000
Accounts payable 24,805 31,927
Other accrued liabilities 10,797 14,194
----------- -----------
Total current liabilities 37,602 48,121
Long-term debt 143,694 133,933
Other non-current liabilities 9,705 9,421
----------- -----------
Total liabilities 191,001 191,475
----------- -----------
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 6,551 6,668
----------- -----------
Total shareholders' equity 13,053 13,056
----------- -----------
Total liabilities and shareholders' equity $ 204,054 $ 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>
Three Months Ended
------------------
March 31, March 31,
2000 1999
---- ----
<S> <C> <C>
Operating Activities:
Net (loss) income $ (117) $ 505
Depreciation 2,431 1,890
Amortization 1,030 1,134
Other, net 171 8
Changes in operating assets and liabilities, net (13,480) (3,351)
-------- ----------
Net cash (used in) provided by operations (9,965) 186
-------- ----------
Investing Activities:
Capital expenditures (940) (2,052)
-------- ----------
Net cash used in investing activities (940) (2,052)
-------- ----------
Financing Activities:
Net borrowings (repayments) on revolving credit line 10,260 (1,900)
Repayment of term note (500) (500)
Repurchase of common stock - (51)
Issuance of common stock 114 -
-------- ----------
Net cash provided by (used in) financing activities 9,874 (2,451)
-------- ----------
Decrease in cash (1,031) (4,317)
Cash and cash equivalents, beginning of period 1,731 5,368
-------- ----------
Cash and cash equivalents, end of period $ 700 $ 1,051
======== ==========
</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. 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 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 March 31, 2000, the Company had borrowings outstanding of $10.3
million under such facility and borrowing availability of $23.0 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>
March 31, December 31,
2000 1999
---- ----
<S> <C> <C>
Current assets $ 25,500 $ 25,900
=========== ===========
Total assets $ 99,200 $ 101,200
=========== ===========
Current liabilities $ 16,200 $ 21,100
=========== ===========
Long-term debt $ 6,100 $ 6,100
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
March 31, March 31,
2000 1999
---- ----
<S> <C> <C>
Sales $ 35,513 $ 35,235
=========== ===========
Operating income $ 1,958 $ 5,659
=========== ===========
</TABLE>
5
<PAGE> 6
Note 3. Inventory
Inventories are summarized as follows:
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
---- ----
<S> <C> <C>
Cost and estimated earnings of uncompleted
contracts in excess of related billings of $1,407
at 3/31/00 and $305 at 12/31/99 $ 2,626 $ 7,432
Raw materials 2,831 6,966
Work in process and finished goods 9,706 5,316
---------- ----------
$ 15,163 $ 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 three months ended March 31, 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 March 31,
2000 $ 49,877 $ 13,261 $ 6,041 $ 69,179
1999 45,607 13,373 5,720 64,700
Operating income
Three months ended March 31,
2000 $ 3,410 $ 1,242 $ 1,019 $ (1,034) $ 4,637
1999 5,930 713 272 (1,310) 5,605
Identifiable assets
March 31, 2000 $ 136,666 $ 34,022 $ 17,365 $ 16,001 $ 204,054
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
------------------
March 31, March 31,
2000 1999
---- ----
<S> <C> <C>
Operating income for reportable segments $ 5,671 $ 6,915
Other operating loss, mainly unallocated
corporate and other expenses (1,034) (1,310)
Amortization expense (1,030) (1,134)
--------- ----------
Consolidated operating income $ 3,607 $ 4,471
========= ==========
</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.
RESULTS OF OPERATIONS
Sales were $69.2 million for the quarter ended March 31, 2000, an increase of
$4.5 million, or 6.9%, compared with sales of $64.7 million for the same quarter
of 1999. Sales for the Precision Machined Products segment increased $4.3
million, or 9.4%, to $49.9 million, due to sales increases in the automotive
market of $3.6 million or 10.3% and in the agricultural market of $1.6 million
or 26.9%. The increase in sales in the automotive market is primarily due to
increased volumes and new product launches in the third quarter of 1999. 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. These increases were partially offset by a decrease in
sales in the heavy-duty truck market of $1.1 million as compared to the prior
year, caused by reductions in customer orders as a result of a significant
decline in sales of Class 8 vehicles. Sales for the Rubber and Plastic and the
Special Machines segments were approximately the same as the prior year.
Gross margin was $10.4 million, or 15.0% of sales, for the quarter ended March
31, 2000 compared with $12.6 million, or 19.4% 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, as well as 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 in the Special
Machines segment from a better mix on sales contracts as well as better margins
in the agricultural market due to the increase in sales described above.
Selling, general and administrative expenses ("SG&A") decreased to $5.8 million,
or 8.3% of sales, for the quarter ended March 31, 2000, from $6.9 million, or
10.7% of sales, for the quarter ended March 31, 1999. The decrease in SG&A was
primarily due to cost savings measures taken throughout the Company.
Consolidated operating income for the first quarter of 2000 was $3.6 million, or
5.2% of sales, compared with operating income of $4.5 million, or 6.9% of sales
for the same period one year ago. The decrease in operating income was due
primarily to the decrease in gross margin noted above offset by the lower SG&A
costs also noted above.
Operating income for the Precision Machined Products segment decreased $2.4
million to $3.6 million in the quarter ended March 31, 2000 from $5.9 million in
the same period of 1999. Operating margin decreased to 7.2% of segment sales in
2000 from 13.0% of segment sales in 1999. The decrease in operating income and
operating margin was primarily due to the loss of sales in the heavy-duty truck
market and the lower operating margin currently experienced on parts that were
launched in the third quarter of 1999. These decreases were partially offset by
an increase in operating income and operating margin from increased sales to
agricultural market customers as compared to the same period in 1999.
Operating income for the Rubber and Plastic segment increased $0.5 million to
$1.2 million for the first quarter of 2000 from $0.7 million in the first
quarter of 1999. Operating margin increased to 9.4% of segment sales in 2000
from 5.3% of segment sales in 1999. The increase in operating income and
operating margin is primarily due to the savings realized from plant
consolidation programs completed in the third quarter of 1999.
Operating income for the Special Machines segment increased $0.8 million to $1.1
million, or 18.7% of sales, in the quarter ended March 31, 2000 from $0.3
million, or 4.8% 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.
8
<PAGE> 9
LIQUIDITY AND CAPITAL RESOURCES
The Company's earnings before interest, taxes, depreciation and amortization
("EBITDA") were $7.1 million for the quarter ended March 31, 2000. On March 1,
2000, the Company made the $6.1 million interest payment on the $125 million of
9.875% Senior Subordinated Notes due 2008 (the "Notes"). In addition, the
Company's capital expenditures for the quarter ended March 31, 2000 were $0.9
million. Finally, the Company's accounts receivable balance increased
approximately $8.3 million, from December 31, 1999 to March 31, 2000, primarily
due to the completion of several large contracts in the Company's Special
Machines segment during the quarter ended March 31, 2000. These factors, and
other changes in the Company's working capital during the quarter ended March
31, 2000, resulted in the Company having borrowings of $10.3 million outstanding
on its line of credit facility at March 31, 2000.
At March 31, 2000 the Company had borrowings outstanding of $10.3 million under
its Senior Credit Facility (the "Facility") and current borrowing availability
of an additional $23.0 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.
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.
As of the date of this filing EXX Inc had not commenced such exchange offer. The
Company's board of directors is reviewing the materials filed by EXX Inc and,
if the exchange offer is consummated, will respond within ten business days. The
proposed offer contains certain conditions, one of which is that the Notes are
not immediately due and payable as a result of the exchange offer. The proposed
exchange offer, as currently stated, would violate certain provisions of the
indenture governing the Notes and the agreement governing the Facility, and
would require immediate repayment of these obligations. The filings made with
the SEC by EXX Inc do not address EXX Inc's ability to refinance these
obligations if EXX Inc decides to waive this condition.
The statements above do not constitute a solicitation/recommendation statement
under the rules and regulations of the SEC. The Company's stockholders will be
able to obtain such solicitation/recommendation free of charge when it becomes
available at the SEC's web site at www.sec.gov. The Company urges its
stockholders to carefully review any such solicitation/recommendation statement
prior to making any decisions with respect to any such offer.
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.
9
<PAGE> 10
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: May 12, 2000 /s/ James J. Connor
------------ ---------------------------------
James J. Connor
Vice President-Finance
Principal Financial and
Accounting Officer
10
<PAGE> 11
Exhibit Index
-------------
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 700
<SECURITIES> 0
<RECEIVABLES> 45,444
<ALLOWANCES> 0
<INVENTORY> 15,163
<CURRENT-ASSETS> 66,255
<PP&E> 86,483
<DEPRECIATION> 29,298
<TOTAL-ASSETS> 204,054
<CURRENT-LIABILITIES> 37,602
<BONDS> 143,694
0
0
<COMMON> 5,019
<OTHER-SE> 8,034
<TOTAL-LIABILITY-AND-EQUITY> 204,054
<SALES> 69,179
<TOTAL-REVENUES> 69,179
<CGS> 58,777
<TOTAL-COSTS> 65,572
<OTHER-EXPENSES> 134
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,650
<INCOME-PRETAX> (177)
<INCOME-TAX> (60)
<INCOME-CONTINUING> (117)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (117)
<EPS-BASIC> (0.02)
<EPS-DILUTED> (0.02)
</TABLE>
