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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 OR
15(d) of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 1999
or
[ ] Transition Report Pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934
For the transition period from to .
Commission File number 1-5985
NEWCOR, INC.
------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 38-0865770
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1825 S. Woodward Ave., Suite 240, Bloomfield Hills, Michigan 48302
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (248) 253-2400
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Securities registered pursuant to section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Title of each class: Name of each exchange on which registered:
Common stock, $1 par value American Stock Exchange
- -------------------------- ------------------------------------------
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 and 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 .
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (ss.229.405 of this chapter) is not contained herein, and will
not be contained, to the best of the registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K [X].
The aggregate market value of the voting common stock held by non-affiliates of
the registrant as of February 29, 2000 was $14,426,000. As of February 29, 2000,
there were 4,910,987 shares of the Company's common stock ($1 par value)
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the annual shareholders report for the year ended December 31, 1999
are incorporated by reference into Parts I, II and IV. Portions of the proxy
statement for the annual shareholders meeting to be held May 3, 2000 are
incorporated by reference into Part III.
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PART I
ITEM 1. BUSINESS
GENERAL DESCRIPTION OF BUSINESS
Newcor, Inc., a Delaware corporation with its executive offices located in
Bloomfield Hills, Michigan, (together with its wholly owned subsidiaries
referred to as the "Company" or "Newcor") was organized in 1969 to succeed a
Michigan corporation organized in 1933. The Company is organized into three
operating segments: Precision Machined Products, Rubber and Plastic and Special
Machines. The Precision Machined Products segment produces transmission,
powertrain and engine components and assemblies primarily 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 purchased the business and substantially all of the assets of
Machine Tool & Gear, Inc. ("MT&G") in December 1997. MT&G manufactures
differential pinion and side gears, output shafts and rear axle shafts for the
automotive industry. The Company also purchased the common stock of the three
related companies known as The Deco Group ("Deco") and Turn-Matic, Inc.
("Turn-Matic") in March 1998, subsequent to the issuance of $125 million 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.
The MT&G, Deco and Turn-Matic acquisitions and the issuance of the Notes have
substantially increased in the size of the Company and changed the character and
scope of its business. In addition, these transactions substantially increased
the Company's leverage, interest expense and cash requirements for debt service
in 1998 and future years as compared to 1997 and prior years. The Company's
ability to make scheduled payments of principal of, or to pay the interest on,
or to refinance, its indebtedness 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.
During 1997, the Company purchased the common stock of Plastronics Plus, Inc.
("Plastronics"), which primarily manufactures custom plastic injection-molded
components for the automotive industry. Also during 1997, the Company sold the
business and substantially all assets of its Eonic division, which operated in
the Precision Machined Products segment.
FINANCIAL INFORMATION ABOUT OPERATING SEGMENTS
Financial information about operating segments is presented in Note 16 (Segment
Reporting) of the Notes to Consolidated Financial Statements in Newcor's 1999
Annual Report to Shareholders. This information is hereby incorporated by
reference. This segment information is supplemented by the additional financial
information included under "Narrative Description of Business" below.
NARRATIVE DESCRIPTION OF BUSINESS
The Company sells and markets its products into five market segments defined as
automotive (51%), heavy-duty truck (30%), capital goods (10%), agricultural (8%)
and industrial (1%). The percentages following the market definition reflect the
portion of 1999 consolidated revenue sold into that respective market. The
markets served by the Company are highly cyclical and are impacted by the
general strength of the economy, by prevailing interest rates and by other
factors outside the control of the Company. The markets for automotive,
heavy-duty trucks, agricultural vehicles and capital goods, for which the
Company supplies goods and services have all experienced both strength in recent
years as well as significant downturns. Such downturns have materially adversely
affected the revenues,
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profitability and cash flow of suppliers to these industries, including the
Company, and there can be no assurance that one or all such industries will not
experience similar downturns in the future. A cyclical decline in overall demand
in any of the markets served by the Company would have a material adverse effect
on the Company's financial condition, results of operations and debt service
capability.
The Company operates in industries that are highly competitive though
fragmented. If any customer becomes dissatisfied with the Company's prices,
quality or timeliness of delivery, it could award future business or move
existing business to a competitor. There can be no assurance that the Company's
products will continue to compete successfully with the products of competitors,
including original equipment manufacturers ("OEM's") themselves, many of which
are significantly larger and have greater financial and other resources than the
Company.
Across all segments, sales in 1999 to Detroit Diesel Company, American Axle &
Manufacturing and Ford Motor Company were approximately 28%, 18% and 14%,
respectively, of consolidated sales. Although the Company presently has ongoing
supply relationships with each of these customers, there can be no assurance
that sales to these customers will continue at the same levels or at all.
(Reference is made to Management's Discussion and Analysis in Item 7 of this
report as it relates to certain lost business in the OEM heavy truck market.)
Each of these customers has, and regularly exercises, substantial negotiating
leverage over its suppliers, including the Company, and continuation of these
relationships is dependent upon the customers' satisfaction with the price,
quality and delivery of the Company's products and the Company's engineering
capabilities and customer services. While management believes its relationships
with its customers are mutually satisfactory, if any of these customers were to
reduce substantially or discontinue its purchases from the Company, the
financial condition and results of operations of the Company would be materially
adversely affected. From time to time, suppliers to these large customers,
including the Company, enter into agreements mandating periodic price
reductions, which thereby effectively require such suppliers to improve their
efficiency and reduce costs in order to maintain profit margins, and the Company
is presently a party to several such contracts.
Precision Machined Products Segment
During 1999, the Precision Machined Products segment accounted for 71% of
consolidated total revenue. This segment consists of five operating units at
December 31, 1999: Blackhawk Engineering, MT&G, Deco, Turn-Matic and Rochester
Gear.
Deco produces high-volume precision machined engine and powertrain components
and assemblies for the heavy-duty truck market. Blackhawk's principal line of
business is machining large gray iron, nodular iron and steel foundry castings
for companies with business in the agricultural market. Rochester Gear produces
high-quality shafts, axles, transmission parts and other machined components.
MT&G manufactures differential pinion and side gears, output shafts and rear
axle shafts. Turn-Matic manufactures high-volume, precision machined engine
components and assemblies. Rochester Gear, MT&G and Turn-Matic participate
primarily in the automotive market.
In 1999, approximately 48% of the Precision Machined Products segment revenue
came from sales to the automotive market (OEM's and Tier 1 suppliers) and 41%
from the heavy-duty diesel truck market. The remaining revenue was from sales to
agricultural equipment manufacturers, primarily Deere & Company. Both divisions
and subsidiaries in the Precision Machined Products segment have several
competitors, primarily domestic. Orders are almost exclusively obtained through
competitive bidding, based on quality, engineering capabilities, delivery and
price. Substantially all of the segment's revenue comes from domestic sales
through either the Company's sales staff or independent manufacturers'
representatives. Engineering design changes and model year changes mandated for
the OEM's in both the automotive and heavy-duty truck market occur routinely and
require the Company to maintain competitive pricing with strong business
relationships to ensure that future business is attained.
Most raw materials, supplies and other components are purchased from a number of
suppliers. Occasionally, a division will depend upon a single supplier for a
particular item when instructed by the customer. The Company has not experienced
any difficulty obtaining necessary purchased materials.
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Throughout its product lines, Newcor has various patents and trademarks that
have been obtained over a number of years and expire at various times. The loss
of any patent or trademark would not materially affect the sales and
profitability of the Company.
The Precision Machined Products segment is considered seasonal, varying
primarily on OEM's semi-annual shutdowns in July and December.
There are no unusual working capital requirements within the Precision Machined
Products segment's divisions. In general, new business opportunities and
capacity enhancements within this segment require substantial capital
expenditures.
Newcor's Precision Machined Products segment primarily operates under annual
blanket purchase orders with its customers. Specific releases against these
blanket purchase orders are made on a daily basis by the customer.
Accordingly, order backlog is not considered meaningful to this group.
None of the segment's revenue is derived from government contracts.
Rubber and Plastic Segment
During 1999, the Rubber and Plastic segment accounted for 19% of consolidated
total revenue. This segment consisted of two divisions and one subsidiary at
December 31, 1999: Deckerville, Walkerton and Plastronics. In 1999,
approximately 91% of the Rubber and Plastic segment revenue came from sales to
the automotive market (OEM's and Tier 1 suppliers). The remaining revenue
resulted from a wide variety of markets, including health care, agricultural,
appliance and others.
The segment utilizes dip, cast and other molding processes to manufacture both
interior components (principally transmission shift boots, steering column and
gearshift lever seals and air conditioning ducts) and engine compartment and
other body components (body and dash panel grommets and fuel filler seals). The
segment's injection molding facilities are used to manufacture fluid recovery
systems, hose and wire brackets, speaker seals and vacuum control systems. The
segment also supplies attachment and restraining products such as clips and
brackets.
Each of the divisions in the Rubber and Plastic segment has several competitors,
primarily all domestic. Orders are almost exclusively obtained through
competitive bidding, based on quality, engineering capabilities, delivery and
price. Almost all of the segment's revenue results from domestic sales through
either the Company's sales staff or independent manufacturers' representatives.
Engineering design changes and model year changes mandated for the OEM's in both
the automotive and heavy-duty truck market occur routinely and require the
Company to maintain competitive pricing with strong business relationships to
ensure that future business is attained.
Most raw materials, supplies and other components are purchased from a number of
suppliers. Occasionally, a division will depend upon a single supplier for a
particular item when instructed by the customer. The Company has not experienced
any difficulty obtaining necessary purchased materials.
Throughout its product lines, Newcor has various patents and trademarks that
have been obtained over a number of years and expire at various times. The loss
of any patent or trademark would not materially affect the sales and
profitability of the Company.
The Rubber and Plastic segment is considered seasonal, varying primarily with
the automotive industry's semi-annual shutdowns in July and December.
There are no unusual working capital requirements within the Rubber and Plastic
segment's divisions.
Newcor's Rubber and Plastic segment primarily operates under annual blanket
purchase orders with its customers. Specific releases against these blanket
purchase orders are made on a daily basis by the customer. Accordingly, order
backlog is not considered meaningful to this segment.
None of the segment's revenue is derived from government contracts.
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Special Machines Segment
During 1999, the Special Machines segment accounted for 10% of consolidated
total revenue. This segment consists of one division, Newcor Bay City ("Bay
City"). The Bay City division designs and assembles standard and special custom
machines and systems to meet its customers' welding, assembly, forming, heat
treating and testing process requirements.
Approximately 82% of the Special Machines segment revenue came from sales to the
automotive market (OEM's and Tier 1 suppliers) during 1999. The remaining
revenue resulted from a variety of markets including appliance, consumer goods,
aerospace and others.
Competition for the Special Machines segment is from both domestic and foreign
manufacturers. Most orders are obtained through a competitive bidding process
with decisions based on machine design and performance, production and
engineering capabilities, delivery, service and price. Repeat orders for a
similar machine are sometimes single-sourced. The level of competition varies
widely depending upon the industry in which the potential customer operates, the
size of the order and technical complexity involved in fulfilling the specific
order requirements. The Company attempts to differentiate itself by providing
timely, innovative solutions to its customers' requirements.
The products of this segment are marketed primarily in the major industrial
areas of the United States, Canada and Mexico by direct sales to its customers.
The majority of the segment sales are generated by sales engineers, with some
sales coming from independent manufacturers' representatives.
Competitive quotes are obtained for most components, raw materials and supplies
from a number of suppliers. The Company has not experienced any difficulty
obtaining necessary purchased materials.
Newcor has various patents and trademarks in the Special Machines Product
segment that have been obtained over a number of years and expire at various
times. While Newcor considers each of them to be important to its business, the
loss of any patent or trademark would not materially affect the sales and
profitability of the Company.
The Special Machines segment is not considered seasonal but revenue will vary
significantly as the cyclical capital goods markets fluctuate with general
economic conditions.
This segment's working capital requirements can vary significantly based on the
number of and stage of contracts in process.
As of January 31, 2000, the Special Machines segment backlog was $9.1 million.
Backlog at December 31, 1998 was $9.6 million. The backlog at January 31, 2000
is expected to be completed during the year ended December 31, 2000.
None of the segment's revenues resulted from government contracts.
Environmental Compliance
Compliance by the Company with federal, state and local laws and regulations
pertaining to the environment has not and is not anticipated to have any
material effect on the capital expenditures, earnings or operations of the
Company. However, the Company's operations are subject to various federal, state
and local environment laws, ordinances and regulations, including those
governing discharges into the air and water, the storage, handling and disposal
of solid and hazardous wastes, the remediation of soil and groundwater
contaminated by petroleum products or hazardous substances or wastes and the
health and safety of employees ("Environmental Laws"). The nature of the
Company's current and former operations and the history of industrial uses at
some of its facilities expose the Company to the risk of liabilities or claims
with respect to environmental and related worker health and safety matters.
Compliance with Environmental Laws, stricter interpretations of or amendments to
such laws or more vigorous enforcement policies by regulatory agencies may
require material expenditures by the Company. In addition, under certain
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Environmental Laws a current or previous owner or operator of property may be
liable for the costs of removal or remediation of certain hazardous substances
or petroleum products on, under or in such property, without regard to whether
the owner or operator knew of, or caused, the presence of the contaminants, and
regardless of whether the practices that resulted in the contamination were
legal at the time they occurred.
Employees
At January 31, 2000, the Company had approximately 2,000 employees.
Approximately 25% of the Company's employees and contract workers at January 31,
2000 were represented by the United Auto Workers and the United Steel Workers of
America. Collective bargaining agreements with these unions will expire at
various times in 2000 and 2002. In addition, most of the Company's customers
employ workforces represented by the United Auto Workers and other unions, and
many of these customers have experienced work stoppages at various times in the
past. A dispute between the Company and its employees, or between any of its
major customers and such customers' employees, could have a material adverse
effect on the Company's financial condition and results of operations. The labor
strike of General Motors Corporation workers represented by the United Auto
Workers in June 1998 adversely impacted the profitability of the Precision
Machined Products and Rubber and Plastic segments. In addition, sustained
economic growth in the United States has resulted in lower unemployment and
higher demand for labor in many locations, including certain locations in which
the Company operates. There can be no assurance that labor market conditions
will not materially adversely affect one or more of the Company's businesses.
FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND SALES
The Company does not have any foreign operations and, therefore, does not
segregate its revenue by geographic area. Export sales, principally to Mexico
and Canada, represented less than 10% of consolidated revenue in 1999, 1998 and
1997.
FORWARD-LOOKING STATEMENTS AND CAUTIONARY STATEMENTS UNDER THE PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This report, including the "Business" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations" ("MD&A") sections, contains
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995, which can be identified by the use of
forward-looking terminology such as "may," "intend," "will," "expect,"
"anticipate," "plan," "management believes," "estimate," "continue" or
"position" or the negatives of or other variations on those terms or comparable
terminology. In particular, any statement, express or implied, concerning future
operating results or the ability to generate revenues, income or cash flow are
forward-looking statements. Readers are cautioned that reliance on any
forward-looking statements involves risks and uncertainties and that, although
the Company believes that the assumptions on which the forward-looking
statements contained in this report are based are reasonable, any of those
assumptions could prove to be inaccurate. As a result, the forward-looking
statements based on those assumptions also could be incorrect, and actual
results may differ materially from any results indicated or suggested by those
forward-looking statements. The uncertainties in this regard include, but are
not limited to, those discussed under "Cautionary Statements Under the `Safe
Harbor' Provisions of the Private Securities Litigation Reform Act of 1995" in
the MD&A incorporated in this report, "Environmental Compliance" in this
section, Item 3 of this report and other cautionary statements contained
throughout the "Business Section" of this report. All forward-looking statements
are expressly qualified by the cautionary statements set forth therein. In light
of these and other uncertainties, the inclusion of a forward-looking statement
in this report should not be regarded as a representation by the Company that
the Company's plans and objectives will be achieved.
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ITEM 2. PROPERTIES
The Company conducts its business in company-owned facilities totaling
approximately 536,000 square feet and leased facilities totaling approximately
282,000 square feet of office, engineering, manufacturing and warehouse space,
respectively. All of these facilities are fully utilized and are suitable to
meet the current capacity needs of the divisions. Leases expire at various times
through 2008, and the Company generally has extension options.
Below is a summary of the existing facilities:
<TABLE>
<CAPTION>
LOCATION SQUARE FOOTAGE TYPE OF INTEREST DESCRIPTION OF USE
<S> <C> <C> <C>
Corporate Office
Bloomfield Hills, MI 7,000 Leased Administrative Office
Precision Machined Products Group
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Rochester Gear
Clifford, MI 49,000 Owned Transmission and powertrain
components
Blackhawk Engineering
Cedar Falls, IA 54,000 Owned Tractor differential cases,
Waterloo, IA 17,000 Leased transmission cases, steering arms
and brake pedals
MT&G
Corunna, MI 100,000 Owned Differential pinion and side gears,
Fenton, MI 10,000 Owned output shafts and rear axle shafts
Deco
Troy, MI 55,000 Leased Rocker arm components and
Royal Oak, MI 110,000 Leased assemblies, transmission shafts,
accessory drive assemblies and
thrust and pressure plates
Turn-Matic
Clinton Township, MI 93,000 Leased Engine oil filter adapters, main
bearing caps and manifolds
Rubber and Plastic Group
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Deckerville Division
Deckerville, MI 89,000 Owned Gear shift boots, steering column
seals, shift lever gap hiders,
windshield wiper covers and
coated metal parts
Walkerton Division
Walkerton, IN 33,000 Owned Steering column seals and shift
lever boots and gap hiders
</TABLE>
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<TABLE>
<CAPTION>
LOCATION SQUARE FOOTAGE TYPE OF INTEREST DESCRIPTION OF USE
<S> <C> <C> <C>
Plastronics
East Troy, WI 39,000 Owned Vacuum reservoirs and assemblies
East Troy, WI 39,000 Owned for air conditioning, power steering
and cruise control systems, hose
and wire brackets and dash panel
grommets
Special Machines Group
- ----------------------
Newcor Bay City
Bay City, MI 123,000 Owned Automated welding and assembly
systems
</TABLE>
ITEM 3. LEGAL PROCEEDINGS
Various legal matters arising during the normal course of business are pending
against the Company. Management does not expect that the ultimate liability, if
any, of these matters will have a material adverse effect on future results of
operations or financial condition of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's security holders during the
last quarter of its fiscal year ended December 31, 1999.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The information required by this item, other than the number of shareholders, is
contained in Note 17 of the "Notes to Consolidated Financial Statements" in the
Newcor, Inc. 1999 Annual Report to Shareholders. This information is
incorporated herein by reference. At February 15, 2000 there were approximately
550 holders of record of the Company's common stock.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this item is contained in the Newcor, Inc. 1999
Annual Report to Shareholders under the heading "Five Year Financial Summary."
This information is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information required by this item is contained in "Management's Discussion
and Analysis of Financial Condition and Results of Operations" in the Newcor,
Inc. 1999 Annual Report to Shareholders. This information is incorporated herein
by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Management believes that the Company is not subject to market risk exposures
arising from derivative financial instruments, as well as all other financial
instruments, and derivative commodity instruments as defined by Item 305 of
Regulation S-K.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item, including selected 1999 and 1998
quarterly financial data, is contained in the consolidated financial statements
and notes thereon and "Report of Independent Accountants" in the Newcor, Inc.
1999 Annual Report to Shareholders. This information is incorporated herein by
reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by Items 401 and 405 of Regulation S-K that will be
contained in the definitive Proxy Statement for the Annual Meeting of
Shareholders to be held on May 3, 2000 (the "2000 Proxy Statement") is
incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 402 of Regulation S-K, which will be contained
in the Company's 2000 Proxy Statement, is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 403 of Regulation S-K, which will be contained
in the Company's 2000 Proxy Statement, is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 404 of Regulation S-K, which will be contained
in the Company's 2000 Proxy Statement, is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. Financial Statements
The consolidated Financial Statements and Notes thereto contained in
Newcor's 1999 Annual Report to Shareholders are incorporated herein by
reference.
2. Financial Statement Schedules
None required.
3. Exhibits (File number for all documents incorporated by reference is
Commission File Number 1-5985, except as otherwise indicated below)
3(a) Restated Certificate of Incorporation dated July 25, 1990.
Incorporated herein by reference from Exhibit 3(a) to report on
Form 10-K for the fiscal year ended October 31, 1990.
3(b) Amended and Restated By Laws of the Registrant effective as of
December 17, 1999. Incorporated herein by reference from Exhibit
3(c) to current report on Form 8-K filed on January 3, 2000.
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4(a) Indenture dated as of March 4, 1998 between the Company, the
subsidiary guarantors (as defined therein), and First Trust
National Association as trustee, relating to the Notes (including
forms of Notes). Incorporated herein by reference from Exhibit 4(a)
to current report on Form 8-K filed on March 13, 1998.
4(b) A/B Exchange Registration Rights Agreement dated as of March 4,
1998 between the Company, the subsidiary guarantors (as defined
therein), and the initial purchasers of the Notes. Incorporated
herein by reference from Exhibit 4(b) to current report on Form 8-K
filed on March 13, 1998.
4(c) Form of 9 7/8% Series B Senior Subordinated Notes due 2008.
Incorporated herein by reference from Exhibit 4.1.3 to Registration
Statement on Form S-4 filed on April 30, 1998 (Commission File
Number 333-51415).
4(d) Rights Agreement, dated as of January 12, 2000, between Newcor,
Inc. and ChaseMellon Shareholder Services, L.L.C., as Rights Agent.
Incorporated herein by reference from Exhibit 4(h) to current
report on Form 8-K filed on January 13, 2000.
4(e) Third Amended and Restated Revolving Credit Agreement between
Newcor, Inc. and Comerica Bank dated January 15, 1998. Incorporated
herein by reference from Exhibit 4(a) to report on Form 10-K for
the fiscal year ended October 31, 1997.
4(f) First Amendment to Third Amended and Restated Revolving Credit
Agreement, dated February 12, 1998, between Newcor, Inc. and
Comerica Bank. Incorporated herein by reference from Exhibit 4(m)
to report on Form 10-Q for the quarter ended January 31, 1998.
4(g) Second Amendment to Third Amended and Restated Revolving Credit
Agreement, dated September 1, 1998, between Newcor, Inc. and
Comerica Bank. Incorporated herein by reference from Exhibit 4(f)
to report on Form 10-K for the fiscal year ended October 31, 1998.
4(h) Third Amendment to Third Amended and Restated Revolving Credit
Agreement, dated October 30, 1998, between Newcor, Inc. and
Comerica Bank. Incorporated herein by reference from Exhibit 4(g)
to report on Form 10-K for the fiscal year ended October 31, 1998.
4(i) Fourth Amendment to Third Amended and Restated Revolving Credit
Agreement, dated April 21, 1999, between Newcor, Inc. and Comerica
Bank. Incorporated herein by reference from Exhibit 4(a) to report
on Form 10-Q for the quarter ended September 30, 1999.
4(j) Fifth Amendment to Third Amended and Restated Revolving Credit
Agreement, dated October 14, 1999, between Newcor, Inc. and
Comerica Bank. Incorporated herein by reference from Exhibit 4(b)
to report on Form 10-Q for the quarter ended September 30, 1999.
4(k) Sixth Amendment to Third Amended and Restated Revolving Credit
Agreement, dated January 13, 2000 between Newcor, Inc. and
Comerica Bank.
4(l) Seventh Amendment to Third Amended and Restated Revolving Credit
Agreement, dated December 31, 1999, between Newcor, Inc. and
Comerica Bank. Registrant hereby undertakes to furnish copies of
documents relating to $6.1 million Michigan Strategic Fund Limited
Obligation Refunding Revenue Bonds, Series 1995, to the Securities
and Exchange Commission upon its request.
10(a)* 1982 Incentive Stock Option Plan. Incorporated herein by reference
from Exhibit 10(a) to report on Form 10-K for the fiscal year ended
October 31, 1983.
10(b)* Newcor, Inc. Directors' Retirement Plan. Incorporated herein by
reference from Exhibit 10(b) to report on Form 10-K for the fiscal
year ended October 31, 1988.
10(c)* Board of Directors Deferred Directors' Fees Plan. Incorporated
herein by reference from Exhibit 10(e) to report on Form 10-K for
the fiscal year ended October 31, 1987.
10(d)* Agreement with Thomas D. Parker dated June 7, 1989. Incorporated
herein by reference from Exhibit 10(h) to report on Form 10-K for
the fiscal year ended October 31, 1992.
10(e)* Newcor, Inc. 1993 Management Stock Incentive Plan. Incorporated
herein by reference from Exhibit 10(j) to report on Form 10-K for
the fiscal year ended October 31, 1994.
10(f)* Amendment to Newcor, Inc. 1993 Management Stock Incentive Plan.
Incorporated herein by reference from Exhibit 10(k) to report on
Form 10-K for the fiscal year ended October 31, 1994.
10(g)* Employment Agreement with W. John Weinhardt dated February 13,
1995. Incorporated herein by reference from Exhibit 10(g) to report
on Form 10-K for the fiscal year ended October 31, 1995.
10(h)* Change in Control Agreement with W. John Weinhardt dated February
13, 1995. Incorporated herein by reference from Exhibit 10(h) to
report on Form 10-K for the fiscal year ended October 31, 1995.
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<PAGE> 11
10(i)* 1996 Employee Incentive Stock Plan dated March 6, 1996.
Incorporated herein by reference from the Registrant's Proxy
Statement dated February 5, 1996.
10(j)* 1996 Non-Employee Directors Stock Option Plan dated March 6, 1996.
Incorporated by reference from the Registrant's Proxy Statement
dated February 5, 1996.
10(k)* Employment Agreement with Dennis H. Reckinger dated July 31, 1992.
Incorporated herein by reference from Exhibit 10(n) to report on
Form 10-K for the fiscal year ended October 31, 1997.
10(l)* Employment Agreement with Robert C. Ballou dated September 25,
1995. Incorporated herein by reference from Exhibit 10(o) to report
on Form 10-K for the fiscal year ended October 31, 1997.
10(m)* Employment Agreement with Keith Hale dated November 9, 1998 and
signed February 5, 1999. Incorporated herein by reference from
Exhibit 10 to report on Form 10-Q for the transition period from
November 1, 1998 to December 31, 1998.
10(n) Asset Purchase Agreement dated October 1, 1997 between Newcor, Inc.
and Machine Tool and Gear, Inc. Incorporated herein by reference
from Exhibit 2 to current report on Form 8-K/A filed on March 6,
1998.
10(o) First Amendment to Asset Purchase Agreement dated October 1, 1997
between Newcor, Inc. and Machine Tool and Gear, Inc. Incorporated
herein by reference from Exhibit 2.1 to current report on Form
8-K/A filed on March 6, 1998.
10(p) Second Amendment to Asset Purchase Agreement dated October 1, 1997
between Newcor, Inc. and Machine Tool and Gear, Inc. Incorporated
herein by reference from Exhibit 2.2 to current report on Form
8-K/A filed on March 6, 1998.
10(q) Third Amendment to Asset Purchase Agreement dated October 1, 1997
between Newcor, Inc. and Machine Tool and Gear, Inc. Incorporated
herein by reference from Exhibit 2.3 to current report on Form
8-K/A filed on March 6, 1998.
10(r) Fourth Amendment to Asset Purchase Agreement dated October 1, 1997
between Newcor, Inc. and Machine Tool and Gear, Inc. Incorporated
herein by reference from Exhibit 2.4 to current report on Form
8-K/A filed on March 6, 1998.
10(s) Stock Purchase Agreement, dated December 9, 1997, between Newcor,
Inc. and Stephen Grand, individually and as Trustee of the Stephen
Grand Revocable Trust u/a dated July 5, 1979 and the Stephen M.
Grand Property Trust u/a dated January 22, 1992. Incorporated
herein by reference from Exhibit 10(l) to report on Form 10-K for
the fiscal year ended October 31, 1997.
10(t) Amendment to Stock Purchase Agreement, dated December 9, 1997,
between Newcor, Inc. and Stephen Grand, individually and as Trustee
of the Stephen Grand Revocable Trust u/a dated July 5, 1979 and the
Stephen M. Grand Property Trust u/a dated January 22, 1992.
Incorporated herein by reference from Exhibit 10(b) to current
report on Form 8-K dated March 13, 1998.
10(u) Stock Purchase Agreement by and among each of the Shareholders of
Turn-Matic, Inc. and Newcor, Inc. dated January 16, 1998.
Incorporated herein by reference from Exhibit 10(m) to report on
Form 10-K for the fiscal year ended October 31, 1997.
13 Those portions of the Newcor, Inc. 1999 Annual Report to
Shareholders that are incorporated by reference in this Form 10-K.
21 List of Subsidiaries of Registrant. Incorporated herein by
reference from Exhibit 21.1 to Registration Statement on Form S-4
filed on April 30, 1998 (Commission File Number 333-51415).
23 Consent of Independent Accountants.
27 Financial Data Schedule (EDGAR file only).
* - Indicates management contract or compensatory plan or arrangement.
(b) Reports on Form 8-K
The Company filed a Current Report on Form 8-K on January 3, 2000 with the
amended and restated by laws of the Company effective as of December 17, 1999.
The Company filed a Current Report on Form 8-K on January 13, 2000 announcing
the adoption of a shareholder rights plan.
11
<PAGE> 12
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Registrant Newcor, Inc.
------------
By: /s/ Keith F. Hale 3/13/00
Keith F. Hale, Director, President Date
and Chief Executive Officer
Pursuant to the requirements of the Securities and Exchange Act of 1934, this
Report has been signed below by the following persons in the capacities and on
the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date Signed
- --------- ----- -----------
<S> <C> <C>
/s/ Jerry D. Campbell Director 3/13/00
- -------------------------------- -----------
Jerry D. Campbell
/s/ James D. Cirar Director 3/13/00
- -------------------------------- -----------
James D. Cirar
/s/ James J. Connor Vice President Finance and 3/13/00
- -------------------------------- Chief Financial Officer -----------
James J. Connor
/s/ Shirley E. Gofrank Director 3/13/00
- -------------------------------- -----------
Shirley E. Gofrank
/s/ Keith F. Hale Director, President and 3/13/00
- -------------------------------- Chief Executive Officer -----------
Keith F. Hale
/s/ William A. Lawson Director 3/13/00
- -------------------------------- -----------
William A. Lawson
/s/ Jack R. Lousma Director 3/13/00
- -------------------------------- -----------
Jack R. Lousma
/s/ Richard A. Smith Director 3/13/00
- -------------------------------- -----------
Richard A. Smith
/s/ W. John Weinhardt
- -------------------------------- Director 3/13/00
W. John Weinhardt -----------
</TABLE>
12
<PAGE> 13
EXHIBIT INDEX
4(k) Sixth Amendment to Third Amended and Restated Revolving Credit Agreement,
dated January 13, 2000, between Newcor, Inc. and Comerica Bank.
4(l) Seventh Amendment to Third Amended and Restated Revolving Credit Agreement,
dated December 31, 1999, between Newcor, Inc. and Comerica Bank.
13 Those portions of the Newcor, Inc. 1999 Annual Report to Shareholders that
are incorporated by reference in this Form 10-K.
23 Consent of Independent Accountants.
27 Financial Data Schedule (EDGAR file only).
13
<PAGE> 1
EXHIBIT 4(k)
AMENDMENT NO. 6
SIXTH AMENDMENT TO THIRD AMENDED AND
RESTATED REVOLVING CREDIT AGREEMENT
THIS SIXTH AMENDMENT, dated as of the 13 day of January, 2000, 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 five previous
Amendments (herein called "Agreement");
NOW, THEREFORE, it is agreed that the Agreement is amended as follows:
1. The definition of "Prime-based Rate" in Section 1 of the
Agreement is amended to read in its entirety:
" `Prime-based Rate' shall mean a per annum interest rate which is the
sum of the Applicable Margin plus the greater of (i) the Prime Rate or
(ii) the Alternate Base Rate."
2. Schedule 2.11 attached to this Amendment is substituted for
Schedule 2.11 attached to the Agreement.
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.
5. Except as modified hereby, all of the terms and conditions of the
Agreement shall remain in full force and effect.
14
<PAGE> 2
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/ James J. Connor
--------------------------
Its: Vice President
--------------------------
15
<PAGE> 3
ACKNOWLEDGMENT
The undersigned accept and agree to the Amendment No. 6 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 CEO
-------------------------
By: /s/ James J. Connor
-------------------------
Its: Vice President
-------------------------
ENC CORP.
By: /s/ Keith F. Hale
-------------------------
Its: President and CEO
-------------------------
By: /s/ James J. Connor
-------------------------
Its: Vice President
-------------------------
16
<PAGE> 4
DECO TECHNOLOGIES, INC. PLASTRONICS PLUS, INC.
By: /s/ Keith F. Hale By: /s/ Keith F. Hale
--------------------- ---------------------
Its: President and CEO Its: President and CEO
--------------------- ---------------------
By: /s/ James J. Connor By: /s/ James J. Connor
--------------------- ---------------------
Its: Vice President Its: Vice President
--------------------- ---------------------
DECO INTERNATIONAL, INC. NEWCOR M-T-L, INC.
By: /s/ Keith F. Hale By: /s/ Keith F. Hale
--------------------- ---------------------
Its: President and CEO Its: President and CEO
--------------------- ---------------------
By: /s/ James J. Connor By: /s/ James J. Connor
--------------------- ---------------------
Its: Vice President Its: Vice President
--------------------- ---------------------
TURN-MATIC, INC. GRAND MACHINING COMPANY
By: /s/ Keith F. Hale By: /s/ Keith F. Hale
--------------------- ---------------------
Its: President and CEO Its: President and CEO
--------------------- ---------------------
By: /s/ James J. Connor By: /s/ James J. Connor
--------------------- ---------------------
Its: Vice President Its: Vice President
--------------------- ---------------------
17
<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 EBITDA < 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
Ratio -
< 3.5 to 1.0 < 4.0 to 1.0 < 4.5 to 1.0 < 5.0 to 1.0
- - - -
- ----------------------- -------------- ----------------- ---------------- ----------------- ---------------- --------------
Applicable Margin 1/2% 3/4% 1% 1 3/4% 2 1/2% 3 1/4%
(Eurodollar-based
Advances)
- ----------------------- -------------- ----------------- ---------------- ----------------- ---------------- --------------
Applicable Commitment 1/4% 1/4% 1/4% 3/8% 3/8% 3/8%
Fee Percentage
Applicable Margin 0% 0% 0% 0% 0% 1/2%
(Prime-based Advances)
- ----------------------- -------------- ----------------- ---------------- ----------------- ---------------- -------------
</TABLE>
18
<PAGE> 1
EXHIBIT 4(l)
AMENDMENT NO. 7
SEVENTH AMENDMENT TO THIRD AMENDED AND
RESTATED REVOLVING CREDIT AGREEMENT
THIS SEVENTH AMENDMENT, dated as of the 31st day of December, 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 six amendments
(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 less an amount equal
to the lesser of the `impairment charge' taken by Company with respect
to fiscal year 1999 (`Impairment Charge') and $9,000,000. On the last
day of each fiscal quarter of Company commencing March 31, 2000, 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 definition of "EBITDA" set forth in Section 1 of the
Agreement is amended to read as follows:
"`EBITDA' shall mean as of any date of determination, Net
Income for the four preceding fiscal quarters ending on such date of
determination plus, to the extent deducted in determining Net Income,
(1) depreciation and amortization expense of Company and its
consolidated Subsidiaries for such period, (2) interest expense of
Company and its consolidated Subsidiaries for such period, (3) income
taxes of Company and its consolidated Subsidiaries for such period, and
(4) an amount equal to the lesser of the Impairment Charge and
$9,000,000, all as determined in accordance with generally accepted
accounting principles consistently applied."
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.
19
<PAGE> 2
4. 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) payment by Company to Bank of a non-refundable $15,000
closing fee.
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/ James J. Connor
------------------------------- ------------------------
Its: Vice President Its: Vice President
-----------------------
By: /s/ Keith F. Hale
------------------------
Its: President and CEO
-----------------------
20
<PAGE> 3
ACKNOWLEDGMENT
The undersigned accept and agree to the Amendment No. 7 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
------------------------
21
<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
--------------------------- --------------------------------
22
<PAGE> 1
EXHIBIT 13
MANAGEMENT'S DISCUSSION AND ANALYSIS
The following management's discussion and analysis of financial condition and
results of operations ("MD&A") should be read in conjunction with the Company's
consolidated financial statements and notes thereto included elsewhere herein.
On December 21, 1998, the Company filed a current report on Form 8-K announcing
that the Board of Directors approved changing the Company's annual reporting
period from a fiscal year ending October 31 to a calendar year ending December
31. The MD&A that follows compares the twelve month period ended December 31,
1999 ("1999") to the twelve month period ended October 31, 1998 ("fiscal 1998").
OVERVIEW
The Company is organized into three operating 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.
On December 23, 1997, the Company purchased the assets and business of Machine
Tool & Gear, Inc. ("MT&G") for approximately $27.3 million, and assumed
approximately $5.8 million of debt, which was subsequently retired. MT&G
manufactures differential pinion and side gears, output shafts and rear axle
shafts for the automotive industry. On March 4, 1998, the Company acquired the
common stock of the three companies comprising The Deco Group ("Deco") for
approximately $55.0 million and the common stock of Turn-Matic, Inc.
("Turn-Matic") for approximately $17.0 million, concurrent with the issuance of
$125.0 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 for
the automotive industry.
RESULTS OF OPERATIONS
The following table illustrates the factors causing year-to-year sales trends by
segment, including the effect of acquisitions and net incremental business from
operations owned throughout each year presented.
<TABLE>
<CAPTION>
Precision
Machined Rubber and Special
(in millions) Products Plastic Machines Total
--------- ----------- --------- ---------
<S> <C> <C> <C> <C>
Fiscal 1997 Sales $ 60.5 $ 48.5 $ 21.8 $ 130.8
Acquisitions 85.1 85.1
Net decrease in business (6.8) 0.7 (3.6) (9.7)
--------- --------- --------- ---------
Fiscal 1998 Sales $ 138.8 $ 49.2 $ 18.2 $ 206.2
Prior year acquisitions 39.8 39.8
Net increase in business 5.0 0.4 7.1 12.5
--------- --------- --------- ---------
1999 Sales $ 183.6 $ 49.6 $ 25.3 $ 258.5
========= ========= ========= =========
</TABLE>
1999 COMPARED WITH FISCAL 1998
The Company recorded sales in 1999 of $258.5 million, an increase of $52.3
million, or 25.4%, from fiscal 1998 sales of $206.2 million. Sales for the
Precision Machined Products segment increased $44.8 million, or 32.3%, to $183.6
million, sales for the Rubber and Plastic segment increased $0.4 million, or
0.8%, to $49.6 million, and sales for the Special Machines segment increased
$7.1 million, or 39.0% to $25.3 million. The increase in sales for the Precision
Machined Products segment was primarily due to the full year impact of the
fiscal 1998 acquisitions of MT&G, Deco and Turn-Matic (referred to collectively
as the "Acquisitions"), which accounted for $39.8 million of the increase.
Increased volumes in the automotive market of $14.9 million and heavy-duty truck
market of $7.1 million, were partially offset by $16.6 million of decreased
product sales in the agricultural machined components market. The increase in
sales for the Rubber and Plastic segment was primarily due to the increased
volumes in the automotive market. The lower
23
<PAGE> 2
volumes experienced in fiscal 1998 were primarily caused by the General Motors
("GM") strike. The sales increase in the Special Machines segment was due to
increases in new orders that were obtained during 1999.
Consolidated gross margin increased $5.8 million to $39.8 million in 1999 from
$34.0 million in fiscal 1998. The increase in gross margin is attributable to
the increase in sales described above, partially offset by a decrease in
consolidated gross margin percentage. Consolidated gross margin percentage
decreased to 15.4% in 1999 from 16.5% in fiscal 1998. The decrease in margin
percentage was primarily attributable to three factors: 1) the launch of a new
product in the Precision Machined Products segment resulted in poor productivity
and high scrap rates as the operation moved to increase production output
negatively impacting margins by approximately $4.0 million, 2) a second
operation in this segment continued to incur higher operating losses caused by
labor inefficiencies and increased scrap rates, negatively impacting margin by
$2.0 million, and 3) lower agricultural machined component production schedules
also adversely impacted gross margins at a third operation in this product
segment, with an estimated reduction in margin of $1.0 million in 1999 compared
to fiscal 1998. These decreases in margin were partially offset by higher sales
in the heavy-duty truck market as well as the increase in sales and profits in
the Special Machines segment.
Selling, general and administrative expenses ("SG&A") increased to $24.7 million
from $20.8 million in fiscal 1998. SG&A as a percentage of sales decreased to
9.6% in 1999 from 10.1% in fiscal 1998. The increase in SG&A expense was
primarily due to the increase in sales described above, as well as the
acquisitions in the Precision Machined Products segment, which added
approximately $2.5 million of SG&A expense in 1999. The primary reason for the
decrease in SG&A as a percentage of sales was the sales increase described above
and the lower expense associated with the operations in the acquisitions as
compared to the Special Machines segment.
Amortization expense increased to $4.6 million in 1999 from $3.5 million in
fiscal 1998 due to the full year effect of the Acquisitions.
Operating income (loss) by segment was as follows:
<TABLE>
<CAPTION>
Precision Amortization
Machined Rubber and Special Expense/
(in millions) Products Plastic Machines Other Other Items Total
-------- ------- -------- ----- ----------- -----
<S> <C> <C> <C> <C> <C> <C>
Year ended
October 31, 1997 $ 6.2 $ 3.2 $ 2.0 $ (2.5) $ (0.6) $ 8.3
Acquisitions 11.8 (2.6) 9.2
Change from existing business (3.0) (2.0) (1.5) (1.2) (0.7) (8.4)
-------- ------- -------- -------- -------- --------
Year ended
October 31, 1998 15.0 1.2 0.5 (3.7) (3.9) 9.1
Acquisitions 4.8 (1.0) 3.8
Impairment charge (8.5) (8.5)
Change from existing business (5.4) 1.6 1.9 (0.9) (0.1) (2.9)
-------- ------- -------- -------- -------- --------
Year ended
December 31, 1999 $ 14.4 $ 2.8 $ 2.4 $ (4.6) $ (13.5) $ 1.5
======== ======= ======== ======== ======== ========
</TABLE>
Consolidated operating income, including the non-cash impairment charge of $8.5
million, decreased $7.6 million to $1.5 million in 1999 from $9.1 million in
fiscal 1998, and consolidated operating margin decreased to 0.6% of sales in
1999 from 4.5% of sales in fiscal 1998. Consolidated operating income,
excluding the non-cash impairment charge of $8.5 million, was $10.0 million in
1999 compared to $9.1 million in fiscal 1998, an increase of $0.9 million.
Operating income for the Precision Machined Products segment decreased $0.6
million to $14.4 million in 1999 from $15.0 million in fiscal 1998. Operating
margin decreased to 7.8% of segment sales in 1999 from 10.8% of segment sales in
fiscal 1998. The decrease in operating income was attributable to the factors
delineated in the gross margin and SG&A discussion above.
Sales in the OEM automotive and heavy-duty truck market are comprised of parts
and assemblies which are sold to a number of customers and are subject to design
and other engineering changes. One such assembly, sold into the heavy-duty truck
market, accounted for 19% of total company sales in 1999. The OEM to which this
assembly is supplied has made certain design changes required due to
environmental regulations and other factors. The design changes are planned by
the OEM to be effective in model year 2002 production. As such, this revenue is
not expected to continue beyond the third quarter of 2001, as the newly
designed assembly will be
24
<PAGE> 3
sourced from a competitor. Operating income attributable to this assembly is
approximately $14.5 million for the year ended December 31, 1999.
Operating income for the Rubber and Plastic segment increased $1.6 million to
$2.8 million in 1999 from $1.2 million in fiscal 1998. Operating margin
increased to 5.7% of segment sales in 1999 from 2.5% of segment sales in fiscal
1998. The increase in operating income was primarily due to increases in
operational efficiencies experienced during the year, mainly as a result of the
closure of two operations in this segment during 1999. Production at these two
operations was moved to other operations within the Rubber and Plastic segment.
In addition, operating income was lower in fiscal 1998 due to the General Motors
strike during the third quarter of fiscal 1998.
Operating income for the Special Machines segment increased $1.9 million to $2.4
million in 1999 from $0.5 million in fiscal 1998. Operating margin increased to
9.5% of segment sales in 1999 from 3.0% of segment sales in fiscal 1998. The
increase in operating income and margin was primarily due to the increase in
sales.
For the year ended December 31, 1999, the Company recorded an impairment charge
related to its long-lived assets, primarily goodwill, at its Turn-Matic location
in the Precision Machined Products segment. The Company is recording the charge
after an intense review of the Turn-Matic operation. The operation incurred
lost business in 1999 and the first quarter of 2000. Assumptions related to
certain business retention and business growth were reviewed and deemed to be
unrealistic as compared to previous analyses. Accordingly, the impairment
charge was determined based upon Turn-Matic's discounted future cash flows. A
charge to earnings of $8.5 million was recorded, as management determined that
the carrying value of the assets would not be realized. The Company acquired
Turn-Matic in 1998 for approximately $17.0 million. Management is currently
reviewing the purchase agreement with respect to the Turn-Matic acquisition,
relating to potential claims against the sellers.
Operating income in 1999 included plant consolidation costs of $0.4 million from
a plant consolidation program in the Rubber and Plastic segment. Fiscal 1998
plant consolidation costs of $0.4 million were for another location in the
Rubber and Plastic segment. Other gains and losses in fiscal 1998 were $0.4
million for separation costs for the former Chief Executive Officer of the
Company, partially offset by a gain of $0.4 million related to the sale of the
land and building where the Company's Newcor Machine Tool ("NMT") division was
located prior to its being sold in October 1996.
Interest expense was $14.0 million and $10.8 million in 1999 and 1998,
respectively. The increase in interest expense was primarily due to the full
year impact of the Notes. The effective tax rate was 11.0% in 1999 and 33.9% in
fiscal 1998. The decrease in the effective tax rate is due to the impairment
charge not being immediately deductible for federal and state income tax
purposes.
FISCAL 1998 COMPARED WITH FISCAL 1997
The Company had sales in 1998 of $206.2 million, an increase of $75.4 million,
or 57.6%, from 1997 sales of $130.8 million. Sales for the Precision Machined
Products segment increased $78.3 million, or 129.4%, to $138.8 million, sales
for the Rubber and Plastic segment increased $0.7 million, or 1.4%, to $49.2
million, while sales for the Special Machines segment decreased $3.6 million, or
16.5% to $18.2 million. The increase in sales for the Precision Machined
Products segment was primarily due to the Acquisitions, which had aggregate
sales of approximately $85.1 million during 1998, partially offset by
approximately $6.8 million of decreased product sales within existing divisions
mainly caused by the downturn in the agricultural machined components market
that began during July 1998. The increase in sales for the Rubber and Plastic
segment was primarily due to the acquisition of Plastronics in January 1997,
partially offset by the effects of the General Motors strike during the third
quarter of 1998. Sales decreases within the Special Machines segment were due to
insufficient new orders to sustain the business that was achieved during 1997.
Consolidated gross profit increased $10.2 million to $34.0 million in 1998 from
$23.8 million in 1997. The increase in gross profit is attributable to the
increase in sales described above, partially offset by a decrease in
consolidated gross margin. Consolidated gross margin decreased to 16.5% in 1998
from 18.2% in 1997. The decrease in margin was primarily attributable to several
factors. High hourly labor turnover, particularly in the Rubber and Plastic
segment, reduced production efficiency significantly in the first quarter of
1998. Although turnover remained relatively high due to full employment, actions
taken to mitigate turnover have resulted in lower labor turnover since the first
quarter of 1998. In addition, a vehicle assembly line changeover at a customer
of the Precision Machined Products segment and pricing issues on certain coated
metal parts produced by the Rubber and Plastic segment resulted in temporary
losses of gross margin during the year. The customer assembly line changeover
was completed and the pricing issues were resolved with the customer in the
first half of 1998. Underabsorbed overhead in the third quarter that resulted
from low GM strike related production schedules and in the fourth quarter due to
much lower agricultural machined components production schedules also adversely
impacted gross margins. Finally, the Special Machines segment's low level of
sales and slow rate of new orders in the first half of 1998 caused further
reductions in gross margin during 1998. Although the Special Machines segment's
rate of new orders did improve during the second half of 1998, the segment's
sales and gross margin will not benefit from this new business until fiscal 1999
due to the relatively long lead time required to complete the orders.
25
<PAGE> 4
SG&A increased to $20.8 million in 1998 from $14.9 million in 1997. SG&A as a
percentage of sales decreased to 10.1% in 1998 from 11.4% in 1997. The increase
in SG&A expense was primarily due to the acquisitions in the Precision Machined
Products segment, which added approximately $6.0 million of SG&A expense in
1998. This increase was partially offset by lower employee related costs. The
primary reason for the decrease in SG&A as a percentage of sales was the sales
increase described above.
Amortization expense increased to $3.5 million in 1998 from $0.9 million in 1997
due to the Acquisitions.
Consolidated operating income increased $0.9 million to $9.2 million in 1998
from $8.3 million in 1997, and consolidated operating margin decreased to 4.5%
of sales in 1998 from 6.3% of sales in 1997.
Operating income for the Precision Machined Products segment increased $8.9
million to $15.0 million in 1998 from $6.2 million in 1997. Operating margin
increased to 10.8% of segment sales in 1998 from 10.2% in 1997. The increase in
operating income was primarily due to the Acquisitions. Operating income and
operating margins at existing divisions within this segment were down when
compared with 1997 primarily due to the effect of lower sales caused by customer
schedule reductions, mainly for the Company's agricultural industry machined
components.
Operating income for the Rubber and Plastic segment decreased $2.0 million to
$1.2 million in 1998 from $3.2 million in 1997. Operating margin decreased to
2.5% of sales in 1998 from 6.5% of segment sales in 1997. The decrease in
operating income was primarily due to the loss of gross margin associated with
the General Motors strike during the third quarter of 1998, operational
inefficiencies during the first half of 1998 from high labor turnover caused by
full employment in local economies and increased costs related to the start of
new parts production during the first half of 1998. The high labor turnover did
improve during the second half of 1998.
Operating income for the Special Machines segment decreased $1.5 million to $0.5
million in 1998 from $2.0 million in 1997. Operating margin decreased to 3.0% of
segment sales in 1998 from 9.2% of segment sales in 1997. The decrease in
operating income and margin was primarily due to the decline in sales.
Consolidated operating income was impacted by plant consolidation costs of $0.4
million in the Rubber and Plastic segment. In addition, other gains and losses
were separation costs for the former chief executive officer of $0.4 million,
partially offset by a gain of $0.4 million related to the sale of the land and
building where the Company's NMT division was located prior to its being sold in
October 1996. Other gains and losses in 1997 were a net gain on the sale of a
building of $1.0 million, which was partially offset by a $0.7 million loss on
the sale of Eonic.
Interest expense was $10.8 million and $2.1 million in 1998 and 1997,
respectively. The increase in interest expense was primarily due to the issuance
of the Notes to finance the Acquisitions. The effective tax rate was 33.9% in
1998 and 35.3% in 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash provided by operations for the year ended December 31, 1999
was approximately $16.3 million. Cash outflows for capital expenditures of $13.9
million and for debt repayments of $4.6 million left the Company with $1.7
million in cash at December 31, 1999.
Effective January 15, 1998, the Company's revolving credit facility with a major
U.S. bank 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 and December 31,
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 December 31, 1999, the Company had no borrowings outstanding
under the Facility and current borrowing availability of $23.2 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 principal payments 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.
26
<PAGE> 5
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. However, there can be no assurance that the Company's business
will generate sufficient cash flow from operations, that anticipated growth
opportunities, after considering lost business, and operating improvements will
be realized or that future borrowings will be available under the Senior Credit
Facility in an amount sufficient to enable the Company to service its
indebtedness.
No dividends were declared or paid during 1999. During fiscal 1997 and the first
quarter of 1998, the Company paid a quarterly cash dividend of $0.05 per share
of common stock. Total dividends paid were $1.0 million in 1997 and $0.2 million
in the first quarter of 1998. The terms of the Notes required suspension of the
cash dividend.
CAUTIONARY STATEMENTS UNDER THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995 This MD&A contains "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 & Manufacturing,
Detroit Diesel Corporation and Deere & Company; whether, when and to what extent
expected orders materialize; whether the Company will be able to successfully
launch new programs; 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; developments with respect to contingencies,
including environmental matters, litigation and retained liabilities from
businesses previously sold by the Company; and the extent to which the Company's
new ERP computer system performs as anticipated. All forward-looking statements
in this MD&A are qualified by such factors, as well as by the further discussion
of these and other risks and uncertainties of the Company's business provided in
the Business section of the Company's 1999 Form 10-K. The Company disclaims any
obligation to update any such forward-looking statements.
27
<PAGE> 6
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of Newcor, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of shareholders' equity, and of cash
flows present fairly, in all material respects, the financial position of
Newcor, Inc. and its subsidiaries at December 31, 1999 and October 31, 1998, and
the results of their operations and their cash flows for the year ended December
31, 1999, for the two month period ended December 31, 1998, and for each of the
two years in the period ended October 31, 1998 in conformity with accounting
principles generally accepted in the United States. These financial statements
are the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ PricewaterhouseCoopers LLP
Detroit, Michigan
March 7, 2000
28
<PAGE> 7
NEWCOR, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
For the year ended For the two month period
December 31, ended December 31, For the years ended October 31,
1999 1998 1998 1997
<S> <C> <C> <C> <C>
Sales $ 258,483 $ 36,895 $ 206,220 $ 130,848
Cost of sales 218,709 30,685 172,255 107,083
---------- ---------- ---------- ---------
Gross margin 39,774 6,210 33,965 23,765
Selling, general and administrative expense 24,736 4,143 20,845 14,880
Amortization expense 4,626 763 3,477 879
Impairment charge 8,521
Plant consolidation costs and other 350 403 (297)
---------- ---------- ---------- ---------
Operating income 1,541 1,304 9,240 8,303
Other income (expense):
Interest expense (14,006) (2,342) (10,821) (2,070)
Other (548) 37 (172) (224)
---------- ---------- ---------- ---------
Income (loss) before income taxes (13,013) (1,001) (1,753) 6,009
Provision (benefit) for income taxes (1,433) (340) (594) 2,119
---------- ---------- ---------- ---------
Net income (loss) $ (11,580) $ (661) $ (1,159) $ 3,890
========== ========== ========== =========
Net income (loss) per share of common stock
stock - basic and diluted $ (2.36) $ (0.13) $ (0.23) $ 0.79
========== ========== ========== =========
Weighted average common shares outstanding 4,897 4,916 4,927 4,932
========== ========== ========== =========
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
29
<PAGE> 8
NEWCOR, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Accumulated
Capital in Other Total
Common Excess Comprehensive Retained Treasury Shareholders'
Stock of Par Income Earnings Stock Equity
<S> <C> <C> <C> <C> <C> <C>
Balance, November 1, 1996 $ 4,697 $ 511 $ (55) $ 19,288 $ - $ 24,441
Increase in unfunded
pension liability (44) (44)
Net income 3,890 3,890
--------
Comprehensive income, net of tax 3,846
--------
Cash dividends, $.20 per share (954) (954)
Repurchase of common stock (412) (412)
Shares issued under
employee stock plans 10 72 277 359
Stock dividend, 5% 235 1,675 (1,910)
-------- -------- ------- --------- --------- --------
Balance, October 31, 1997 4,942 2,258 (99) 20,314 (135) 27,280
Increase in unfunded
pension liability, net of tax (481) (481)
Net loss (1,159) (1,159)
--------
Comprehensive loss, net of tax (1,640)
--------
Cash dividends, $.05 per share (246) (246)
Repurchase of common stock (39) (39)
Shares forfeited under
employee stock plans (34) (34)
-------- -------- ------- --------- --------- --------
Balance, October 31, 1998 4,942 2,258 (580) 18,909 (208) 25,321
Net loss (661) (661)
--------
Comprehensive loss, net of tax (661)
-------- -------- ------- --------- --------- --------
Balance, December 31, 1998 4,942 2,258 (580) 18,248 (208) 24,660
Decrease in unfunded
pension liability, net of tax 137 137
Net loss (11,580) (11,580)
--------
Comprehensive loss, net of tax (11,443)
--------
Repurchase of common stock (69) (69)
Shares forfeited under
employee stock plans (212) (212)
Shares issued 38 82 120
-------- -------- ------- --------- --------- --------
Balance, December 31, 1999 $ 4,980 $ 2,340 $ (443) $ 6,668 $ (489) $ 13,056
======== ======== ======= ========= ========= ========
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
30
<PAGE> 9
NEWCOR, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
December 31, October 31,
1999 1998
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 1,731 $ 3,539
Accounts receivable 37,171 35,175
Inventories 19,714 14,014
Prepaid expenses and other 3,583 5,823
Deferred income taxes 1,825 1,423
---------- ---------
Total current assets 64,024 59,974
Property, plant and equipment, net of
accumulated depreciation 58,777 53,837
Prepaid pension expense 2,893 2,472
Cost in excess of assigned value of
acquired companies, net of amortization 71,947 85,861
Debt issuance costs and other non-current assets 6,890 8,185
---------- ---------
Total assets $ 204,531 $ 210,329
========== =========
Liabilities
Current Liabilities:
Current portion of long-term debt $ 2,000 $ 2,000
Accounts payable 31,927 21,072
Accrued payroll and related expenses 6,860 5,315
Other accrued liabilities 7,334 4,753
---------- ---------
Total current liabilities 48,121 33,140
Long-term debt 133,933 139,467
Postretirement benefits other than pensions 6,517 6,420
Pension liability and other 2,904 5,981
---------- ---------
Total liabilities 191,475 185,008
---------- ---------
Shareholders' Equity
Preferred stock, no par value.
Authorized: 1,000 shares. Issued: None
Common stock, par value $1 per share.
Authorized: 10,000 shares.
Issued: 4,980 shares in 1999 and 4,942 shares in 1998 4,980 4,942
Capital in excess of par 2,340 2,258
Accumulated other comprehensive income (443) (580)
Retained earnings 6,668 18,909
Treasury stock at cost (489) (208)
---------- ---------
Total shareholders' equity 13,056 25,321
---------- ---------
Total liabilities and shareholders' equity $ 204,531 $ 210,329
========== =========
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
31
<PAGE> 10
NEWCOR, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
For the year ended For the two month period
December 31, ended December 31, For the years ended October 31,
1999 1998 1998 1997
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ (11,580) $ (661) $ (1,159) $ 3,890
Adjustments to reconcile net income (loss)
to cash provided by continuing operating
activities:
Loss on sale of businesses 711
Depreciation 8,051 1,114 5,708 3,401
Amortization 4,626 763 3,477 879
Impairment charge 8,521
Deferred income taxes (2,395) 1,340 692
Pensions (348) (321) (125)
Loss (gain) on sale of capital assets 427 (7) (331) (1,025)
Other, net 458 236 (154) 888
Changes in operating assets and liabilities:
Accounts receivable (7,807) 5,811 751 (3,258)
Inventories (3,475) (2,225) (225) 1,498
Other current assets 2,069 794 1,241 732
Accounts payable 15,337 (4,482) (3,360) 1,741
Accrued liabilities 2,438 1,331 2,032 (1,170)
---------- ---------- ---------- ----------
Cash provided by continuing operating activities 16,322 2,674 8,999 8,854
---------- ---------- ---------- ----------
Cash used in discontinued operations (29) (40) (370) (1,117)
---------- ---------- ---------- ----------
INVESTING ACTIVITIES
Capital expenditures (13,934) (2,429) (8,123) (3,539)
Proceeds from sale of businesses 1,500
Acquisitions, net of cash acquired (101,981) (14,581)
Proceeds from sale of capital assets 434 677 1,628 2,467
---------- ---------- ---------- ----------
Net cash used in investing activities (13,500) (1,752) (108,476) (14,153)
---------- ---------- ---------- ----------
FINANCING ACTIVITIES
Net borrowings (repayments) on revolving credit line (2,600) (600) (13,800) 7,700
Repayment of term note (2,000) (334) (833)
Issuance of senior subordinated notes 125,000
Repurchase of senior subordinated notes (1,881)
Subordinated notes issuance costs (4,849)
Shares issued under employee stock plans 120 82
Repurchase of common stock (69) (39) (412)
Cash dividends paid (246) (954)
---------- ---------- ---------- ----------
Net cash provided by (used in) financing activities (4,549) (934) 103,352 6,416
---------- ---------- ---------- ----------
Increase (decrease) in cash (1,756) (52) 3,505 -
Cash and cash equivalents, beginning of year 3,487 3,539 34 34
---------- ---------- ---------- ----------
Cash and cash equivalents, end of year $ 1,731 $ 3,487 $ 3,539 $ 34
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
32
<PAGE> 11
NEWCOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
1. ACCOUNTING POLICIES
Description of the Business - Newcor, Inc. and its subsidiaries (the
"Company") design and manufacture precision machined components and assemblies
and custom rubber and plastic products primarily for the automotive and
agricultural vehicle markets. The Company is also a supplier of standard and
specialty machines and equipment systems mainly for the automotive and appliance
industries.
Change in Fiscal Year - On December 21, 1998, the Company filed a
current report on Form 8-K announcing that the Board of Directors approved
changing the Company's annual reporting period from a fiscal year ending October
31 to a calendar year ending December 31, resulting in a two month reporting
period ended December 31, 1998.
Principles of Consolidation - The consolidated financial statements
include the accounts of Newcor, Inc. and its subsidiaries. All significant
intercompany accounts and transactions are eliminated.
Cash Equivalents - The Company considers all highly liquid investments
with an initial maturity of three months or less to be cash equivalents.
Inventory Valuation - Inventories are stated at the lower of cost or
net realizable value. Costs, other than those specifically identified to
contracts, are determined primarily on the first-in, first-out ("FIFO") basis.
Contract Accounting - The percentage of completion method of accounting
is used by the Company's Special Machines segment. Sales and gross profit are
recognized as work is performed based on the relationship between actual costs
incurred and total estimated costs at completion. Sales and gross profit are
adjusted prospectively for revisions in estimated total contract costs and
contract values. Estimated losses are recognized when known.
Property, Plant and Equipment - Property, plant and equipment is stated
at cost and is depreciated using the straight-line method. The general range of
lives is fifteen to thirty years for building and land improvements and four to
ten years for machinery, office equipment and vehicles.
Cost in Excess of Assigned Value of Acquired Companies - The costs of
acquired companies that exceed the assigned value at dates of acquisition
(goodwill) are generally being amortized over a twenty-year period using the
straight-line method. Several factors are used to evaluate the recoverability of
goodwill, including management's plans for future operations, recent operating
results and each division's projected undiscounted cash flows. Accumulated
amortization was $10,787 and $6,265 at December 31, 1999 and October 31, 1998,
respectively.
Asset Impairment - The Company recognizes impairment losses for assets
or groups of assets where the sum of the estimated future cash flows
(undiscounted and without interest charges) is less than the carrying amount of
the related asset or group of assets. The amount of the impairment loss is the
excess of the carrying amount over the fair value of the asset or group of
assets being measured.
Debt Issuance Costs - Costs incurred to issue new debt are being
amortized over the life of the related debt issuance, ranging from 3 to 10
years. Accumulated amortization was $965 and $593 at December 31, 1999 and
October 31, 1998, respectively.
Income Taxes - Deferred income taxes are provided for the temporary
differences between the financial reporting basis and the tax basis of the
Company's assets and liabilities.
Treasury Stock - Treasury stock is carried at cost and included 69 and
26 shares at December 31, 1999 and October 31, 1998, respectively.
Use of Estimates - The preparation of consolidated financial statements
in conformity with generally accepted accounting principles requires the Company
to make estimates and assumptions that affect the reported amounts of assets and
liabilities, and disclosures of contingent assets and liabilities at the date of
the consolidated financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Financial Instruments - The carrying amount of the Company's financial
instruments, which includes cash and cash equivalents, accounts receivable,
accounts payable and notes payable approximates their fair value at December 31,
1999 and October 31, 1998. The fair value of the Company's long-term debt was
approximately $72,000 and $124,000 at December 31, 1999 and October 31, 1998,
respectively. Fair values have been determined through information obtained from
market sources and management estimates.
Stock Dividend - On June 11, 1997, the Company declared a 5% stock
dividend that was paid on September 12, 1997 to shareholders of record on August
14, 1997. The dividend was charged to retained earnings in the amount of $1,910.
Per share amounts and shares outstanding included in the accompanying
consolidated financial statements and notes are based on the increased number of
shares giving retroactive effect to the stock dividend.
33
<PAGE> 12
Earnings Per Share - Statement of Financial Accounting Standards No.
128, "Earnings per Share" ("FAS 128") established an updated standard for
computing and presenting earnings per share. FAS 128 was adopted in fiscal 1998
and did not result in a different reported earnings per share for the Company.
Segment Reporting - The Company adopted Statement of Financial
Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and
Related Information" ("FAS 131") in 1998. The adoption of FAS 131 did not affect
the Company's results of operations or financial position.
Pensions and Other Postretirement Benefits - The Company adopted
Statement of Financial Accounting Standards No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits" ("FAS 132") in 1999. FAS 132
only changed the disclosures required for pension and other postretirement
benefits. Measurement and recognition of these liabilities did not change as a
result of the issuance of FAS 132. The adoption of FAS 132 did not affect the
Company's results of operations or financial position.
Reclassifications - Certain items in prior years' financial statements
have been reclassified to conform with the presentation used in the year ended
December 31, 1999.
2. FISCAL 1998 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 $55,000 in cash. The Company made a
$5,000 deposit to the Deco shareholders in December 1997. The balance of the
purchase price was paid in March 1998 using the proceeds from the Company's
issuance of $125,000 of 9.875% Senior Subordinated Notes due 2008 (the "Notes")
as described in Note 10. The acquisition was recorded using the purchase method
of accounting. The cost in excess of net assets acquired of approximately
$40,000 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 $17,000 in cash. Contingent consideration of up
to $3,500 may be paid if profitability achieves certain levels through 2003. The
purchase was financed with the proceeds of the Notes as described in Note 10.
The acquisition was recorded using the purchase method of accounting. The cost
in excess of net assets acquired of approximately $9,000 is being amortized on a
straight-line basis over its estimated economic useful life. 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 useful life.
On December 23, 1997, the Company purchased the assets and business of
Machine Tool & Gear, Inc. ("MT&G") for approximately $27,250 plus the assumption
of approximately $5,800 of debt, which was subsequently retired. For this
acquisition, the Company paid cash of $2,500 in October 1997 and $3,100 in
December 1997 and issued a promissory note for $21,650, paying interest at 8%,
for the balance of the purchase price which was subsequently paid off on March
11, 1998 using the proceeds from the Notes as described in Note 10. The
acquisition was recorded using the purchase method of accounting. The cost in
excess of net assets acquired of approximately $24,000 is being amortized on a
straight-line basis over twenty years.
The unaudited pro forma results of operations as if Deco, Turn-Matic
and MT&G had been acquired at the beginning of fiscal 1997 would have been as
follows.
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Sales $ 241,700 $ 242,600
========== ==========
Net income (loss) $ (1,100) $ 4,600
========== ==========
Net income (loss) per share - basic and diluted $ (0.22) $ 0.93
========== ==========
</TABLE>
These pro forma results do not purport to be indicative of the results
that would actually have occurred had the acquisitions been made at the
beginning of fiscal 1997 or which may occur in the future.
3. FISCAL 1997 ACQUISITIONS
On January 10, 1997, the Company purchased for cash the common stock of
Plastronics Plus, Inc. ("Plastronics"), a Wisconsin corporation. The purchase
price was approximately $8,000 in cash plus the assumption of $4,100 of debt,
which was subsequently retired. The purchase was financed through the Company's
existing line of credit facility. The acquisition was accounted for using the
purchase method of accounting. The cost in excess of net assets acquired of
approximately $4,000 is being amortized on a straight-line basis over twenty
years.
34
<PAGE> 13
4. IMPAIRMENT CHARGE
Management determined that the cost in excess of assigned value of
acquired companies (goodwill) at one of its operations in the Precision Machined
Products segment was impaired, and has recognized an impairment charge of $8,521
in the consolidated statement of operations for the year ended December 31,
1999. This charge is not immediately deductible for federal or state income tax
purposes, and therefore results in an earnings per share charge of $1.74 per
share.
5. DISCONTINUED OPERATIONS
The Company sold the business and certain assets of its Wilson
Automation ("Wilson") division in 1996. All receivables, the land and building,
and certain liabilities were retained by the Company. The building was leased to
the buyer through April 30, 2001. Although assets were sold at approximately net
book value, accruals were established for curtailment of the pension plan,
employee separation costs, costs associated with the collection of accounts
receivable and additional liabilities related to contracts for which the Company
retained responsibility. These accruals coupled with the operating loss from the
measurement date (March 31, 1996) to the sale date resulted in a net loss of
$3,500 on the disposition of Wilson. The remaining accruals at December 31, 1999
and October 31, 1998 are not material.
The Company sold the Wilson land and building during 1997 for
approximately $2,300, net of selling expenses. The pre-tax net gain on this
disposition was $1,008 and has been recognized with other gains and losses in
the consolidated statements of operations.
6. BUSINESS DISPOSITIONS
In 1997, the Company sold the business and substantially all assets of
its Eonic operation. Although assets were sold at approximately net book value,
accruals were established for employee separation costs, costs associated with
the collection of accounts receivable and pension plan costs, resulting in an
additional $711 loss on disposition being recognized with other gains and losses
in the consolidated statements of operations. The Company received cash of
$1,500, which was used to reduce long-term debt and a $816 note due over six
years and paying interest at the prime rate.
In 1996, the Company sold the business and substantially all assets of
its Newcor Machine Tool ("NMT") operation. The Company sold the NMT land and
building during 1998 for approximately $1.4 million. The pre-tax gain on this
disposition was $362 and has been recognized with other gains and losses in the
consolidated statements of operations.
7. INVENTORIES
Inventories at December 31, 1999 and October 31, 1998 are summarized as
follows:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Costs and estimated earnings of uncompleted
contracts in excess of related billings
of $305 in 1999 and $1,679 in 1998 $ 7,432 $ 3,244
Raw materials 6,966 4,903
Work in process and finished goods 5,316 5,867
---------- ---------
$ 19,714 $ 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.
35
<PAGE> 14
8. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at December 31, 1999 and October 31, 1998
are summarized as follows:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Land and improvements $ 1,856 $ 1,958
Buildings 14,000 14,194
Machinery 57,633 49,212
Office and transportation equipment 7,185 5,703
Construction in progress 5,009 2,058
---------- ---------
85,683 73,125
Less accumulated depreciation 26,906 19,288
---------- ---------
$ 58,777 $ 53,837
========== =========
</TABLE>
9. OPERATING LEASES
The Company leases certain manufacturing equipment and facilities,
office space and other equipment under lease agreements accounted for as
operating leases. Rent expense related to these leases aggregated approximately
$6,387, $997, $4,583 and $1,342 in 1999, the two month period ended December 31,
1998, and the years ended October 31, 1998 and 1997, respectively.
Future minimum rental payments for leases extending beyond one year
from December 31, 1999 are as follows:
<TABLE>
<S> <C>
Year Ending
December 31,
2000 $ 6,710
2001 6,586
2002 5,943
2003 6,136
2004 5,409
Thereafter 4,741
----------
$ 35,525
----------
</TABLE>
10. CREDIT ARRANGEMENTS AND LONG-TERM DEBT
A summary of long-term debt at December 31, 1999 and October 31, 1998
is as follows:
<TABLE>
1999 1998
<S> <C> <C>
Revolving credit line $ - $ 3,200
Term note 6,833 9,167
Limited obligation revenue bonds, variable
interest rate (average 3.4% in 1999 and
3.7% in 1998), payable January 1, 2008 6,100 6,100
Senior subordinated notes due 2008 125,000 125,000
Less: face value of senior subordinated notes held in treasury (2,000) (2,000)
---------- ---------
$ 135,933 $ 141,467
========== =========
</TABLE>
On March 4, 1998, the Company completed the issuance of $125,000 of
9.875% Senior Subordinated Notes due 2008 (the "Notes"). 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, pay off the promissory note issued in connection with the MT&G
acquisition and pay down the Company's line of credit facility. During the year
ended October 31, 1998, the Company repurchased in the open market $2,000 face
value of the Notes and is currently holding these notes in treasury.
36
<PAGE> 15
Effective January 15, 1998, the Company's revolving credit facility
with a major U.S. bank was amended and restated to become the Senior Credit
Facility (the "Facility") and was increased to provide total revolving credit
availability of $50,000 concurrent with completion of the issuance of the Notes.
The Facility 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. Availability of funds under the
Facility is subject to satisfaction of certain financial ratios and other
conditions. The rate of interest on outstanding borrowings is principally at the
prime rate (8.5% at December 31, 1999). Borrowings under the credit agreement
are primarily supported by prime-based borrowings principally with maturities of
three months or less. At December 31, 1999, the Company had no borrowings
outstanding under the Facility. Availability of borrowings under the Facility is
limited to 80% of eligible accounts receivable and borrowing availability was
$23,200 at December 31, 1999. 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 term note has a fixed rate of 7.85% and requires monthly principal payments
through May 2003.
The Facility, the term note and the Notes require the Company to comply
with certain financial covenants including earnings before interest, taxes,
depreciation and amortization ("EBITDA"), total debt and tangible net worth. In
addition, the terms of the Notes required the Company to suspend its cash
dividend.
In November 1999, the Company became aware that certain transactions
involving market purchases of its common shares by the Company of approximately
$108 might have violated certain provisions of the indenture related to the
Notes. 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. 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 Facility
have also been waived for the period prior to remedying the matter related to
the indenture. Accordingly, the Notes are reflected in the consolidated
financial statements consistent with maturity terms specified at issuance.
The Company's operating subsidiaries; Rochester Gear, Inc.,
Plastronics, 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 as of December 31, 1999 and October 31, 1998, and for the year ended
December 31, 1999, for the two month period ended December 31, 1998 and for the
years ended October 31, 1998 and 1997. No intercompany balances or transactions
occurred among the subsidiaries during the periods presented.
<TABLE>
<CAPTION>
December 31, December 31, October 31, October 31,
1999 1998 1998 1997
<S> <C> <C> <C> <C>
Sales $ 140,100 $ 21,200 $ 93,900 $ 29,200
========== ========== ========== =========
Operating income $ 17,000 $ 3,500 $ 13,100 $ 2,300
========== ========== ========== =========
Current assets $ 26,200 $ 24,700
========== ==========
Total assets $ 101,400 $ 107,500
========== ==========
Current liabilities $ 21,300 $ 15,300
========== ==========
Long-term debt $ 6,100 $ 6,100
========== ==========
</TABLE>
In September 1995, Rochester Gear, Inc., a wholly owned subsidiary of
the Company (the "Subsidiary"), entered into a loan agreement whereby $6,100 of
limited obligation refunding revenue bonds were issued. These bonds mature on
January 1, 2008 and are collateralized by the Subsidiary's land, building and
equipment and guaranteed by the Company.
37
<PAGE> 16
Total interest payments aggregated $13,402, $205, $8,420 and $2,114 in
the year ended December 31, 1999, the two month period ended December 31, 1998,
and the years ended October 31, 1998 and 1997, respectively.
Annual maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
<S> <C>
Year Ending
December 31, Amount
2000 $ 2,000
2001 2,000
2002 2,000
2003 833
2004
Thereafter 129,100
----------
$ 135,933
==========
</TABLE>
11. INCOME TAXES
Provision (benefit) for federal income taxes is as follows:
<TABLE>
<CAPTION>
December 31, December 31, October 31, October 31,
1999 1998 1998 1997
<S> <C> <C> <C> <C>
Currently payable (refundable) $ 37 $ (53) $ (1,934) $ 1,430
Deferred, net (1,470) (287) 1,340 689
---------- ---------- ---------- ---------
$ (1,433) $ (340) $ (594) $ 2,119
========== ========== ========== =========
</TABLE>
Significant components of the deferred tax assets and liabilities as of
December 31, 1999 and October 31, 1998 are as follows:
<TABLE>
<CAPTION>
1999 1998
Deferred tax assets
<S> <C> <C>
Net operating loss carryforward $ 2,501 $ 685
Accrued postretirement benefits 2,216 2,183
AMT and other credits 1,720 1,063
Accrued vacation and employee benefits 822 459
Percentage of completion revenue 460 35
Costs related to sale of businesses 379
Other 843 449
---------- ---------
Total deferred tax assets 8,562 5,253
---------- ---------
Deferred tax liabilities
Depreciation 4,608 3,664
Goodwill 1,123 982
Pensions 670 821
Other 98 117
---------- ---------
Total deferred tax liabilities 6,499 5,585
---------- ---------
Net deferred tax asset (liability) $ 2,063 $ (332)
========== =========
</TABLE>
38
<PAGE> 17
Reconciliation of income (loss) multiplied by the statutory federal tax
rate to reported income tax expense (benefit) is summarized as follows:
<TABLE>
<CAPTION>
December 31, December 31, October 31, October 31,
1999 1998 1998 1997
<S> <C> <C> <C> <C>
Income (loss) multiplied by statutory rate (34%) $ (4,424) $ (340) $ (596) $ 2,043
Nondeductible impairment charge 2,897
Nondeductible expenses 317 55 273 127
Foreign sales corporation (47) (99) (33)
Other items, net (176) (55) (172) (18)
---------- ---------- --------- ---------
Income tax (benefit) expense $ (1,433) $ (340) $ (594) $ 2,119
========== ========== ========= =========
Income taxes paid (refunded), net $ (460) $ - $ (15) $ 1,615
========== ========== ========= =========
</TABLE>
At December 31, 1999, the Company has net operating loss carryforwards
for federal income tax purposes of approximately $7,350 that expire in 2018. In
addition, the Company has Alternative Minimum Tax and other credits of
approximately $1,720 at December 31, 1999 that do not expire.
12. EMPLOYEE RETIREMENT BENEFITS
Pension Plans:
The Company provides retirement benefits for certain employees under
several defined benefit pension plans. Benefits from these plans are based on
compensation, years of service and either fixed dollar amounts per year of
service or employee compensation during the later years of employment. The
assets of the plans consist principally of cash equivalents, corporate and
government bonds, and common and preferred stocks. The Company's policy is to
fund only amounts required to satisfy minimum legal requirements.
The following tables summarize the funded status, net periodic pension
(benefit) expense and actuarial assumptions for the pension benefits based on
the measurement date of September 30 for each period presented:
39
<PAGE> 18
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at prior measurement date $ 34,606 $ 34,095
Benefit obligation from acquired companies 2,488
Service cost 769 628
Interest cost 2,217 2,158
Actuarial gain (3,510) (2,569)
Benefits paid (2,262) (2,194)
-------- ---------
Benefit obligation at current measurement date 31,820 34,606
-------- ---------
CHANGE IN PLAN ASSETS
Fair value of plan assets at prior measurement date 31,318 31,372
Fair value of plan assets from acquired companies 1,562
Actual return on plan assets 2,355 350
Employer contributions 490 228
Benefits paid (2,262) (2,194)
-------- ---------
Fair value of plan assets at current measurement date 31,901 31,318
-------- ---------
Funded status 81 (3,288)
Unamortized net asset at transition (772) (1,058)
Unrecognized prior service cost 1,636 1,881
Unrecognized net loss and other 940 4,090
-------- ---------
Net amount recognized $ 1,885 $ 1,625
======== =========
Amounts recognized in the consolidated balance sheets
Prepaid benefit cost $ 2,893 $ 2,472
Accrued benefit liability (3,132) (3,388)
Intangible asset 1,453 1,662
Accumulated other comprehensive income 671 879
-------- ---------
Net amount recognized $ 1,885 $ 1,625
======== =========
WEIGHTED AVERAGE ASSUMPTIONS AS OF END OF YEAR
Discount rate 7.50% 6.75%
Expected return on plan assets 9.00% 9.00%
Rate of compensation increase 5.00% 5.00%
</TABLE>
<TABLE>
<CAPTION>
For the year ended For the two month period
December 31, ended December 31, For the years ended October 31,
1999 1998 1998 1997
COMPONENTS OF NET PERIODIC BENEFIT COST
<S> <C> <C> <C>
Service cost $ 769 $ 117 $ 627 $ 460
Interest cost 2,217 364 2,158 1,968
Actual return on plan assets (2,729) (394) (350) (5,337)
Amortization of net gain and deferral (6) (2,569) 2,828
-------- -------- --------- ---------
Net periodic benefit cost $ 251 $ 87 $ (134) $ (81)
======== ======== ========= =========
</TABLE>
The projected benefit obligation, accumulated benefit obligation and
fair value of plan assets for pension plans with accumulated benefit obligations
in excess of plan assets were $10,055, $9,707 and $7,140, respectively, as of
December 31, 1999, and $10,384, $9,947 and $6,933, respectively, as of October
31, 1998.
Retiree Health Care and Life Insurance Benefits:
The Company is obligated to provide health care and life insurance
benefits to certain eligible retired employees; however, all postretirement
benefits other than pensions were discontinued for all employees who retired
after January 1, 1993. The plan obligation is unfunded but the accumulated
postretirement benefit obligation, as originally actuarially determined, has
been fully accrued for in the accompanying consolidated balance sheet. The
medical plan pays a stated percentage of most medical expenses, reduced for any
40
<PAGE> 19
deductible and payments made by government programs or other group coverage. The
cost of providing these benefits is shared with the retirees. The cost sharing
arrangements limit the Company's future retiree medical cost increases to the
rate of inflation, as measured by the Consumer Price Index.
13. STOCK OPTION PLANS
The Company has four stock option plans: a 1982 plan and a 1993 plan
which are expired except as to options still outstanding and two 1996 plans (the
"Non-Employee Directors Stock Option Plan" and the "Employee Incentive Stock
Plan"). Under the Non-Employee Directors Stock Option Plan, options covering
105,000 shares of common stock may be granted to non-employee directors. The
Employee Incentive Stock Plan provides for the use of several long-term
incentive compensation tools for key employees, including incentive stock
options which are limited to a maximum of 315,000 shares over the life of the
Employee Incentive Stock Plan. The total number of options that may be granted
in any given fiscal year under the Employee Incentive Stock Plan is determined
as five percent of the outstanding shares of the Company at the beginning of the
fiscal year. Option prices for both plans must not be less than the fair market
value of the Company's stock on the date granted. Options are exercisable over
10 years and vest at a rate of 25% each year, commencing in the second year. All
options granted to date under these plans have a grant/exercise price the same
as the fair market value at the date of grant. Options expire upon termination
of employment or one year following death or retirement.
The Company applies the intrinsic value based method to account for
stock options granted to employees. This method is set forth in Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees."
Under this method, no compensation expense is recognized on the grant date since
on that date the option price equals the market price of the underlying common
stock. Net income (loss) and net income (loss) per share for the year ended
December 31, 1999, the two month period ended December 31, 1998 and the years
ended October 31, 1998 and 1997 would not have been materially different from
reported amounts if compensation expense had been determined based on the fair
value method as set forth in Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation."
Option activity for the year ended December 31, 1999, the two month
period ended December 31, 1998 and the years ended October 31, 1998 and 1997 is
summarized as follows:
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998 October 31, 1998 October 31, 1997
----------------- ----------------- ---------------- ----------------
Weighted- Weighted- Weighted- Weighted-
Average Average Average Average
Exercise Exercise Exercise Exercise
Shares Price Shares Price Shares Price Shares Price
------ ----- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of period 265,984 $ 7.11 393,551 $ 8.50 232,002 $ 7.83 164,487 $ 7.86
Granted 7,000 3.84 74,000 3.94 176,000 9.39 73,815 8.00
Forfeited (90,992) 6.17 (201,567) 8.65 (7,494) 8.94
Expired (650) 4.62 (6,957) 10.61 (6,300) 9.14
--------- ------- -------- ------- -------- ------- --------- -------
Outstanding, end of period 181,342 $ 7.27 265,984 $ 7.11 393,551 $ 8.50 232,002 $ 7.83
========= ======= ======== ======= ======== ======= ========= =======
Exercisable at end of period 70,302 50,802 133,649 91,062
========= ======== ======== =========
</TABLE>
The following table summarizes information about stock options
outstanding at December 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------------------------- -----------------------------
Weighted-
Average Weighted- Weighted-
Range of Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life (years) Price Exercisable Price
------ ----------- ------------ ----- ----------- -----
<S> <C> <C> <C> <C> <C>
$ 3.84 - 5.76 68,531 8.8 $ 3.96 16,531 $ 4.06
$ 5.77 - 8.64 21,106 6.9 $ 7.87 12,391 $ 7.79
$ 8.65 - 11.37 91,705 7.1 $ 9.60 41,380 $ 9.85
--------- ---------
$ 3.84 - 11.37 181,342 7.7 $ 7.27 70,302 $ 8.13
========= =========
</TABLE>
41
<PAGE> 20
14. STOCKHOLDER RIGHTS PLAN
On December 28, 1999, the Company adopted a Stockholder Rights Plan
(the "Rights Plan") in which rights were distributed as a dividend at the rate
of one Right for each share of common stock of the Company held by stockholders
of record as of the close of business on January 12, 2000. Pursuant to the terms
of the Rights Plan, each Right will entitle stockholders to buy one unit of a
share of preferred stock for $10.50. The Rights will be exercisable only if a
person or group acquires beneficial ownership of 15% or more of the Company's
common stock or if the Board of Directors determines that a person or group,
having obtained beneficial ownership of at least 10% of the Company's common
stock, is seeking short term financial gain which would not serve the long-term
interests of the Company or whose ownership is causing or is likely to cause a
material adverse impact on the Company (an "Adverse Person").
If any person becomes the beneficial owner of 15% or more of the
Company's common stock, other than pursuant to a tender or exchange offer for
all outstanding shares of the Company approved by a majority of the independent
directors not affiliated with a 15%-or-more stockholder, or the Board of
Directors determines that any person or group is an Adverse Person, then each
Right not owned by a 15%-or-more stockholder or Adverse Person, as the case may
be, or related parties will entitle its holder to purchase, at the Right's then
current exercise price, shares of the Company's common stock (or, in certain
circumstances as determined by the Board, cash, other property, or other
securities) having a value of twice the Right's then current exercise price. In
addition, if after any person has become a 15%-or-more stockholder, the Company
is involved in a merger or other business combination transaction with another
person in which the Company does not survive or in which its common stock is
changed or exchanged, or sells 50% or more of its assets or earning power to
another person, each Right will entitle its holder to purchase, at the Right's
then current exercise price, shares of common stock of such other person having
a value of twice the Right's then current exercise price.
The Company will generally be entitled to redeem the Rights at $0.001
per Right at any time prior to 10 days (subject to extension) following a public
announcement that a 15% position has been acquired. The Company will not be
entitled, however, to redeem the Rights following a determination by the Board
of Directors that any person or group is an Adverse Person. The Rights Plan
expires in January 2010.
15. CONTINGENT LIABILITIES
Various legal matters arising during the normal course of business are
pending against the Company. Management does not expect that the ultimate
liability, if any, of these matters will have a material adverse effect on
future results of operations or financial condition of the Company.
16. SEGMENT REPORTING
The Company manages and reports its operating activities under three
operating segments: Precision Machined Products, Rubber and Plastic, and Special
Machines. The Precision Machined Products segment consists of automotive
components and agricultural equipment parts machined in dedicated manufacturing
cells. The Rubber and Plastic segment consists of molded rubber and plastic
parts primarily for the automotive industry. The Special Machines segment
consists of standard individual machines, as well as custom designed machines,
all manufactured on a made-to-order basis. Other is primarily composed of
corporate activities. Comparability of the information for the Precision
Machined Products segment is affected by the fiscal 1998 acquisitions described
in Note 2.
42
<PAGE> 21
The accounting policies of the segments are the same as those presented
in Note 1. 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
Year ended December 31, 1999 $ 183,653 $ 49,553 $ 25,277 $ 258,483
Two month period ended
December 31, 1998 27,434 7,854 1,607 36,895
Year ended October 31, 1998 138,784 49,238 18,198 206,220
Year ended October 31, 1997 60,471 48,517 21,860 130,848
OPERATING INCOME (LOSS)
Year ended December 31, 1999 $ 14,350 $ 2,845 $ 2,404 $ (4,561) $ 15,038
Two month period ended
December 31, 1998 3,276 18 (532) (695) 2,067
Year ended October 31, 1998 15,042 1,213 549 (3,684) 13,120
Year ended October 31, 1997 6,157 3,172 2,005 (2,449) 8,885
DEPRECIATION AND AMORTIZATION
Year ended December 31, 1999 $ 9,839 $ 1,982 $ 354 $ 502 $ 12,677
Two month period ended
December 31, 1998 1,456 334 64 23 1,877
Year ended October 31, 1998 6,769 1,962 367 87 9,185
Year ended October 31, 1997 2,113 1,677 376 114 4,280
IDENTIFIABLE ASSETS
December 31, 1999 $ 144,868 $ 30,942 $ 17,107 $ 20,527 $ 213,444
October 31, 1998 143,977 34,313 10,492 23,755 212,537
CAPITAL EXPENDITURES
Year ended December 31, 1999 $ 11,110 $ 1,823 $ 65 $ 936 $ 13,934
Two month period ended
December 31, 1998 2,104 180 6 139 2,429
Year ended October 31, 1998 5,306 1,416 60 1,341 8,123
Year ended October 31, 1997 1,332 1,057 332 818 3,539
</TABLE>
A reconciliation of operating income for reportable segments to
consolidated operating income is as follows:
<TABLE>
<CAPTION>
December 31, December 31, October 31, October 31,
1999 1998 1998 1997
<S> <C> <C> <C> <C>
Operating income for reportable segments $ 19,599 $ 2,762 $ 16,804 $ 11,334
Other operating loss, mainly unallocated corporate
and other expenses (4,561) (695) (3,684) (2,449)
Amortization expense (4,626) (763) (3,477) (879)
Impairment charge (8,521)
Plant consolidation costs and other (350) (403) 297
---------- ---------- ---------- ---------
Consolidated operating income $ 1,541 $ 1,304 $ 9,240 $ 8,303
========== ========== ========== =========
</TABLE>
Sales to manufacturers in the automotive and heavy-duty truck industries, each
representing over 10% of consolidated sales in each year, aggregated
approximately $154,000, $20,000, $87,000 and $58,000 in the year ended December
31, 1999, the two month period ended December 31, 1998 and the years ended
October 31, 1998 and 1997, respectively. Sales to agricultural equipment
manufacturers, principally one customer, were $17,000, $2,800, $35,000 and
$40,000 in the year ended December 31, 1999, the two month period ended December
31, 1998 and the years ended October 31, 1998 and 1997, respectively.
43
<PAGE> 22
17. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The principal market for trading Newcor shares is The American Stock
Exchange ("AMEX"). Prior to May 7, 1999, the principal market for trading Newcor
shares was The NASDAQ Stock Market. The closing price on December 31, 1999 was
$2.4375. In connection with the issuance of the Notes described in Note 2, cash
dividends, which have historically been paid on a quarterly basis, were
suspended. Quarterly operating results, dividends paid and the quarterly price
ranges on the AMEX and NASDAQ during the last two years and for the two month
period ended December 31, 1998 are as follows.
<TABLE>
<CAPTION>
For the year ended December 31, 1999
-------------------------------------------------------------------------------
Quarter
--------------------------------------------------------------
First Second Third Fourth Total
<S> <C> <C> <C> <C> <C>
Sales $ 64,700 $ 64,916 $ 61,230 $ 67,637 $ 258,483
Gross margin 12,554 11,660 6,714 8,846 39,774
Net income (loss) 505 623 (3,116) (9,592) (11,580)
Net income (loss) per share $ 0.10 $ 0.13 $ (0.63) $ (1.96) $ (2.36)
Share prices:
High $ 5.75 $ 5.25 $ 4.88 $ 3.75
Low 3.50 3.00 1.56 1.31
</TABLE>
<TABLE>
<CAPTION>
For the year ended October 31, 1998
-------------------------------------------------------------------------------
Quarter Two month
-------------------------------------------------------------- period ended
First Second Third Fourth Total December 31, 1998
-----------------
<S> <C> <C> <C> <C> <C> <C>
Sales $ 30,134 $ 55,369 $ 57,963 $ 62,754 $ 206,220 $ 36,895
Gross margin 3,711 10,312 9,945 9,997 33,965 6,210
Net income (loss) (1,032) 753 (233) (647) (1,159) (661)
Net income (loss) per share $ (0.21) $ 0.15 $ (0.05) $ (0.13) $ (0.23) $ (0.13)
Share prices:
High $ 9.88 $ 9.75 $ 9.75 $ 8.13 $ 6.13
Low 8.00 8.00 7.25 2.63 3.25
Dividends 0.05
</TABLE>
Gross margin for the fourth quarter of fiscal 1998 was negatively impacted by
approximately $1,300 (pre-tax) resulting from certain unfavorable year-end
adjustments to previously estimated inventory reserves. The aggregate effect of
these adjustments on the fourth quarter amounted to $0.17 per share after-tax.
44
<PAGE> 23
FIVE YEAR FINANCIAL SUMMARY
The following financial summary for the periods indicated has been
derived from the consolidated financial statements of Newcor, Inc. Information
for 1996 and 1995, excluding balance sheet information, has been restated for
the discontinued operations of Wilson Automation.
<TABLE>
<CAPTION>
Two month
(In thousands, except Year ended period ended
per share amounts) December 31, December 31, Years ended October 31,
--------------------------------------------------------
1999 1998 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C> <C>
OPERATING RESULTS
Precision Machined Products:
Sales $ 183,653 $ 27,434 $ 138,784 $ 60,471 $ 48,439 $ 42,382
Operating income 14,350 3,276 15,042 6,157 4,525 4,865
Rubber and Plastic:
Sales 49,553 7,854 49,238 48,517 32,447 17,165
Operating income (loss) 2,845 18 1,213 3,172 2,647 1,532
Special Machines:
Sales 25,277 1,607 18,198 21,860 30,858 30,626
Operating income (loss)
from continuing operations 2,404 (532) 549 2,005 3,972 3,396
Consolidated:
Sales 258,483 36,895 206,220 130,848 111,744 90,173
Gross margin 39,774 6,210 33,965 23,765 22,657 16,618
Interest expense 14,006 2,342 10,821 2,070 1,787 1,504
Income (loss) from
continuing operations (11,580) (661) (1,159) 3,890 3,558 2,391
Per share income (loss)
from continuing operations
- basic and diluted (1) (2.36) (0.13) (0.23) 0.79 0.72 0.49
Net income (loss) (11,580) (661) (1,159) 3,890 (1,145) 881
Net income (loss) per share
- basic and diluted (1) (2.36) (0.13) (0.23) 0.79 (0.24) 0.18
Dividends per share (1) 0.05 0.19 0.19 0.19
FINANCIAL POSITION
Working capital $ 15,903 $ 26,288 $ 26,834 $ 17,803 $ 14,951 $ 26,575
Current ratio 1.33 1.88 1.81 1.83 1.87 2.63
Net property, plant and equipment 58,777 53,866 53,837 28,119 23,131 24,518
Total assets 204,531 205,649 210,329 90,748 77,499 77,553
Total debt 135,933 140,533 141,467 33,100 25,400 26,200
Shareholders' equity 13,056 24,660 25,321 27,280 24,441 25,909
Debt as percent of total capitalization 91.2% 85.0% 84.8% 54.8% 51.0% 50.3%
OTHER FINANCIAL DATA
Shareholders' equity per share (1) $ 2.67 $ 5.02 $ 5.14 $ 5.53 $ 4.96 $ 5.27
Depreciation and amortization
from continuing operations 12,677 1,877 9,185 4,280 3,622 2,850
Earnings before interest, taxes,
depreciation and amortization
from continuing operations 14,218 3,181 18,425 12,583 10,403 8,204
Capital expenditures from
continuing operations 13,934 2,429 8,123 3,539 2,946 4,580
Weighted average shares outstanding (1) 4,897 4,916 4,927 4,932 4,923 4,913
</TABLE>
(1) Share and per share data have been restated to reflect a 5% stock dividend
declared on June 11, 1997.
45
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statements of
Newcor, Inc. on Form S-8 (File Nos. 033-72906, 333-01895, 333-12931, 333-12937,
333-23181 and 333-24301) of our report dated March 7, 2000, on our audits of the
consolidated financial statements as of December 31, 1999 and October 31, 1998
and for the year ended December 31, 1999, the two month period ended December
31, 1998 and for each of the two years in the period ended October 31, 1998
which report is incorporated by reference in this Annual Report on Form 10-K.
/s/PricewaterhouseCoopers LLP
Detroit, Michigan
March 10, 2000
46
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<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
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0
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