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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
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[X] Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended March 31, 1997
[ ] Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the transition period from ____ to _____
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Commission file number 0-22580
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JPE, Inc.
(Exact name of registrant as specified in its charter)
Michigan
(State or other jurisdiction of
incorporation or organization)
900 Victors Way, Suite 140
Ann Arbor, MI 48108
(Address of principal executive offices, including zip code)
38-2958730
(I.R.S. Employer Identification No.)
(313) 662-2323
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year,
if changed, since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes /X/ No / /
The total number of the registrant's Common Stock outstanding on March 31, 1997
was 4,602,180.
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<PAGE>
JPE, INC.
INDEX
Page
----
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets ............................. 3
- At March 31, 1997 and 1996 (Unaudited)
- At December 31, 1996 (Audited)
Consolidated Statements of Income (Unaudited) .......... 4
- For the Three Months Ended March 31, 1997
and 1996
Consolidated Statements of Cash Flows (Unaudited) ...... 5
- For the Three Months Ended March 31, 1997
and 1996
Notes to Unaudited Consolidated Financial Statements .... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ..................... 8
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K ........................ 12
Signature ........................................................ 13
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
JPE, INC.
<TABLE>
CONSOLIDATED BALANCE SHEETS
(Amounts in Thousands, Except Share Data)
<CAPTION>
At March 31, December 31,
1997 1996 1996
---- ---- ----
(Unaudited) (Audited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ............ $ 1,204 $ 358 $ 1,316
Accounts receivable, net ............. 36,679 26,547 26,829
Inventory ............................ 40,647 34,745 37,963
Other current assets ................. 8,576 4,192 8,688
-------- -------- --------
Total current assets .............. 87,106 65,842 74,796
Property, plant and equipment, net ..... 71,155 50,091 69,281
Goodwill, net .......................... 26,767 32,291 27,068
Other assets ........................... 4,096 2,199 3,580
-------- -------- --------
Total assets $189,124 $150,423 $174,725
....................................... ======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt .... $ 672 $ 107 $ 323
Short-term debt ...................... 6,878 -- 8,120
Accounts payable ..................... 25,303 17,412 17,643
Accrued liabilities .................. 5,361 5,071 6,190
Income taxes payable ................. 5 288 382
-------- -------- --------
Total current liabilities 38,219 22,878 32,658
Accrued liabilities .................... 1,570 1,111 1,547
Deferred income taxes .................. 3,579 2,982 3,184
Long-term debt, non-current ............ 110,070 85,243 101,558
-------- -------- --------
Total liabilities ................. 153,438 112,214 138,947
-------- -------- --------
Shareholders' equity:
Preferred stock, 3,000,000 authorized,
no shares issued and outstanding .... -- -- --
Common stock, 15,000,000 authorized,
4,602,180 issued and outstanding at
March 31, 1997 and 4,565,780 shares
issued and outstanding at March 31,
1996, no par value ................. 28,026 27,831 27,921
Retained earnings .................... 7,743 10,378 7,857
Foreign currency translation
adjustment .......................... (83) -- --
-------- -------- --------
Total shareholders' equity 35,686 38,209 35,778
-------- -------- --------
Total liabilities and
shareholders' equity $189,124 $150,423 $174,725
======== ======== ========
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
<PAGE>
JPE, INC.
<TABLE>
CONSOLIDATED STATEMENTS OF INCOME
(Amounts in Thousands, Except Per Share Data)
<CAPTION>
Three Months
Ended
March 31,
1997 1996
---- ----
(Unaudited)
<S> <C> <C>
Net sales $67,995 $47,611
Cost of goods sold 59,033 38,735
------- -------
Gross profit 8,962 8,876
Selling, general and
administrative expenses 6,845 5,669
------- -------
Operating profit 2,117 3,207
Other expense 72 --
Interest expense, net 2,144 1,655
------- -------
Income (loss) before
income taxes (99) 1,552
Income tax expense 15 620
------- -------
Net income $ (114) $ 932
======= =======
Earnings (loss) per
common share $ (0.02) $ 0.20
======= =======
Weighted average
shares outstanding 4,611 4,579
===== =====
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
<PAGE>
JPE, INC.
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
<CAPTION>
Three Months
Ended
March 31,
1997 1996
---- ----
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income .................................... $ (114) $ 932
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization ...................... 2,303 1,726
Changes in operating assets and liabilities:
Accounts receivable .............................. (9,850) (3,137)
Inventory ........................................ (2,684) (607)
Prepaids and other ............................... (404) 679
Accounts payable ................................. 7,660 2,256
Accrued liabilities .............................. (806) (668)
Income taxes ..................................... 18 255
------- -------
Net cash provided (used)
by operating activities ....................... (3,877) 1,436
Cash flows from investing activities:
Purchase of property and equipment ................... (4,081) (3,871)
------- -------
Net cash used for investing
activities .................................... (4,081) (3,871)
Cash flows from financing activities:
Sale of common stock ................................. 77 355
Repayments of other debt ............................. (1,199) --
Net borrowings under revolving loan .................. 8,275 12,075
Net borrowings under Canadian credit
facility ............................................ (19) --
Repayments of note payable ........................... -- (10,100)
Tax benefit from options ............................. 28 175
Borrowing under capital lease ........................ 811 --
------- -------
Net cash provided by financing
activities .................................... 7,973 2,505
Currency translation ................................... (127) --
Cash and cash equivalents:
Net increase (decrease) in cash ...................... (112) 70
Cash and cash equivalents,
beginning of period ................................. 1,316 288
------- -------
Cash and cash equivalents,
end of period ....................................... $ 1,204 $ 358
======= =======
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements
<PAGE>
JPE, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in Thousands)
A. BASIS OF PRESENTATION:
The accompanying unaudited consolidated condensed financial statements have
been prepared in accordance with generally accepted accounting principles
for interim financial information. Accordingly, the financial statements do
not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the
opinion of management, all adjustments considered necessary for a fair
presentation have been included, and such adjustments are of a normal
recurring nature. Certain financial statement items have been reclassified
to conform to current year's format. The consolidated financial statements
should be read in conjunction with the financial statements and notes
thereto contained in the JPE, Inc. Annual Report and Form 10-K for the year
ended December 31, 1996.
B. INVENTORY:
Inventories by component are as follows:
<TABLE>
<CAPTION>
March 31, 1997 March 31, 1996 Dec. 31, 1996
-------------- -------------- -------------
<S> <C> <C> <C>
Finished goods ...... $16,317 $16,258 $15,457
Work in process ..... 5,596 3,534 4,811
Raw material ........ 15,949 12,115 15,116
Tooling ............. 2,785 2,838 2,579
------- ------- -------
$40,647 $34,745 $37,963
======= ======= =======
</TABLE>
C. SUBSEQUENT EVENT:
On April 16, 1997, Dayton Parts, Inc., a wholly-owned subsidiary of JPE,
Inc., acquired all of the capital stock of Brake, Axle and Tandem Company
("BATCO"). The purchase price was approximately $10.5 million in cash and
the assumption of certain liabilities plus an earn-out based on sales not
to exceed $3.9 million over the next three years. This acquisition, which
will be accounted for as a purchase, was financed through funds available
under the credit agreement. BATCO is a full line aftermarket distributor of
suspension, brake and wheel parts for the heavy duty and medium duty truck
industry.
<PAGE>
JPE, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in Thousands)
D. NEW FINANCIAL ACCOUNTING STANDARDS:
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128 - Earnings per Share. This
standard requires a change in method for computing and presenting earnings
per share effective for the period ending after December 15, 1997. The
Company has reviewed this statement and believes that there will be no
material change in its reported earnings per share amounts.
<PAGE>
JPE, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the consolidated
financial statements and notes thereto filed with the Company's Annual Report on
Form 10-K to assist in understanding the Company's results of operations, its
financial position, cash flows, capital structure and other relevant financial
information.
FORWARD LOOKING INFORMATION
This Quarterly Report on Form 10-Q contains, and from time to time the Company
expects to make, certain forward-looking statements regarding its business,
financial condition and results of operations. In connection with the "Safe
Harbor" provisions of the Private Securities Reform Act of 1995 (the "Reform
Act"), the Company intends to caution readers that there are several important
factors that could cause the Company's actual results to differ materially from
those projected in its forward-looking statements, whether written or oral, made
herein or that may be made from time to time by or on behalf of the Company.
Readers are cautioned that such forward-looking statements are only predictions
and that actual events or results may differ materially. The Company undertakes
no obligation to publicly release the results of any revisions to the
forward-looking statements to reflect events or circumstances or to reflect the
occurrence of unanticipated events.
The Company wishes to ensure that any forward-looking statements are accompanied
by meaningful cautionary statements in order to comply with the terms of the
safe harbor provided by the Reform Act. Accordingly, the Company has set forth a
list of important factors that could cause the Company's actual results to
differ materially from those expressed in forward-looking statements or
predictions made herein and from time to time by the Company. Specifically, the
Company's business, financial condition and results of operations could be
materially different from such forward-looking statements and predictions as a
result of (i) customer pressures that could impact sales levels and product mix,
including customer sourcing decisions, customer evaluation of market pricing on
products produced by the Company and customer cost-cutting programs; (ii)
operational difficulties encountered during the launch of major new OEM
programs; (iii) the ability of the Company to integrate acquisitions into its
existing operations and achieve expected cost savings; (iv) the ability of the
Aftermarket Group to balance the cyclical nature of the OEM industry; and (v)
the availability of funds to the Company for strategic acquisitions and capital
investments to enhance existing production and distribution capabilities.
<PAGE>
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THREE MONTHS ENDED MARCH 31, 1996
Net sales for the quarter ended March 31, 1997 were $68.0 million compared to
$47.6 million for the same period in 1996, an increase of 43%. This increase is
primarily attributable to the acquisition of JPE Canada Inc., a Canadian
supplier of exterior trim to OEMs, which was acquired out of bankruptcy in
December of 1996. In the first quarter of 1996, the Company experienced a loss
in sales by its OEM businesses estimated at approximately $2.8 million as a
result of the Delphi Chassis brake plant strike which closed General Motors
Corporation assembly plants for three weeks in March 1996.
For the quarter ended March 31, 1997, net sales for the Company were 74% to OEM
customers and 26% to Aftermarket customers. On April 16, 1997, the Company
purchased Brake, Axle and Tandem Company ("BATCO"), an aftermarket distributor
of suspension and brake parts to the heavy and medium duty truck industry. With
this acquisition, the amount of aftermarket sales in future quarters as a
percentage of total sales is estimated to be approximately 30%.
Gross profit was $9.0 million for the three months ended March 31, 1997, as
compared with $8.9 million for the comparable period in the prior year. The
gross margin percentages were 13.2% and 18.6% for 1997 and 1996, respectively.
This decline in gross margin percentages is primarily the result of JPE Canada
Inc. which was purchased out of bankruptcy in 1996. JPE Canada's gross profit
was .1% for the first quarter of 1997. The Company has implemented a turn-around
plan to improve profitability through reducing scrap, premium freight, and
overtime and improving productivity. Although improvements will be on-going,
management anticipates the full impact of this plan is not expected to be
realized until late in 1997. Adjusting for JPE Canada's performance, the gross
profit percentage declined to 17.2%. This decline is attributable to the lower
performance of the Starboard Industries and the Industrial & Automotive
Fasteners businesses as compared to first quarter of 1996.
Selling, general and administrative expenses increased 18% to $6.8 million for
the three months ended March 31, 1997, from $5.7 million for the three months
ended March 31, 1996. This increase is a result of the acquisition of JPE Canada
and higher sales commissions for the quarter. The percentage of selling, general
and administrative expenses to net sales was 10.1% for the quarter ended March
31, 1997 as compared to 11.9% for the comparable period of the prior year. The
decline in this percentage reflects the greater percentage of sales to the OEM
market which has lower selling costs.
<PAGE>
The operating profits for JPE's U.S. operations continue to improve over the
1996 second half performance as shown in the table below, adjusted for
non-recurring charges:
<TABLE>
<CAPTION>
Quarter Ended Operating Profit Percent of Sales
- ------------- ---------------- ----------------
<S> <C> <C>
September 30, 1996 $ 993,000 2.0%
December 31, 1996 $1,307,000 2.9%
March 31, 1997 $2,685,000 5.2%
</TABLE>
This improvement is attributable primarily to stronger operating performances in
our OEM businesses as a result of action plans instituted in the second half of
1996. These action plans are continuing to be examined and refined for further
operating enhancements in order to reach a goal of an operating profit margin in
excess of 8% for the U.S. operations by the end of the calendar year, although
there can be no assurances that this level will be reached.
Net interest expense increased to $2.1 million for the three months ended March
31, 1997 as compared to $1.7 million for the three months ended March 31, 1996.
The higher interest cost is attributable to the funds borrowed to finance the
acquisition of JPE Canada and increased capital investments and tooling
expenditures for production of 1998-2000 model programs for our OEM customers.
The effective tax rates for the three months ended March 31, 1997 and 1996 were
15% and 40%, respectively. The tax benefit associated with the Canadian
operation's pretax loss for quarter ended March 31, 1997 does not fully offset
the taxes computed for the U.S. operations. The U.S. operations' effective tax
rate was 42% compared to the Canadian tax benefit effective rate of 36% in the
first quarter of 1997.
Net loss for the three months ended March 31, 1997 was $114,000 or $.02 per
share as compared to net income of $932,000 or $.20 a share for the quarter
ended March 31, 1996. The net loss for this quarter includes a loss of $570,000
or $.12 per share relating to the operations of JPE Canada.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal capital requirements are to fund business acquisitions,
working capital needs, and capital additions to enhance existing production
technologies and capabilities. Historically, the Company has used cash flow
generated by operations, borrowings under its credit agreements and equity
financing to meet these needs.
<PAGE>
The Company's principal source of liquidity for the U.S. operations is the $110
million Third Amended and Restated Credit Agreement dated December 31, 1996.
This agreement was amended on April 16, 1997 to increase the commitment by $10
million for the purchase of BATCO and to provide further liquidity for working
capital needs. At March 31, 1997, the amount outstanding under this agreement
was $100 million and on closing of the purchase of BATCO, the Company borrowed
an additional $6 million. This Credit Agreement matures on October 31, 1998.
Management is currently evaluating various options to refinance, restructure or
extend this facility and believes it will be successful in completing these
activities prior to the maturity date. The Company was in compliance with all
covenants as of March 31, 1997.
The Company's JPE Canada subsidiary has a credit agreement with a Canadian bank
to fund its operating requirements and capital expenditures. At March 31, 1997,
the borrowings under this facility total approximately $16.5 million. Repayment
terms of borrowings under this facility vary based on the nature of the advance.
Currently, $7.3 million is classified as short-term debt because the portion of
the credit agreement for operating requirements is payable on demand or on
December 31, 1997. The total commitment for operating needs is approximately
$10.1 million through December 31, 1997, reducing to $8.5 million in 1998 (Cdn
$14 million and $12 million, respectively). The term portion of this agreement
aggregates approximately $9.2 million with monthly principal payments beginning
in October 1997 of approximately $72,000 (Cdn $100,000). It is anticipated that
the cash flow from the Canadian operations will fund these future payments.
Working capital at March 31, 1997 increased to $48.9 million as compared to
$42.1 million at December 31, 1996. The increase in working capital is due to
higher receivables and inventories which was not fully offset by increased
payables. This situation occurred partially because JPE Canada's payment terms
with its vendors are, on average, less than 30 days because of JPE Canada's
predecessor's bankruptcy filing. Management is rebuilding vendor relationships
and believes that by the end of the year it should have average payment terms at
40 days, which is customary in this industry. In addition, at December 31, 1996,
receivables and inventories were low due to the Christmas shut down by our OEM
customers. Cash used by operations was $3.9 million for the reasons mentioned
above. Capital expenditures spending for the quarter totaled $4.1 million. These
funds were provided through the various credit agreements. The Company expects
that it will satisfy its debt service, working capital and capital expenditure
requirements through cash flows generated by operations and, to the extent
necessary, through borrowings under the credit agreements.
<PAGE>
PART II. OTHER INFORMATION
JPE, INC.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits:
None
b. Report on Form 8-K:
On January 6, 1997, Registrant filed a report on Form 8-K
reporting the acquisition of substantially all of the assets used
in the business of Pebra Inc.
On March 6, 1997, Registrant filed Amendment 1 to Form 8-K/A
containing financial statements for Registrant's acquisition of
substantially all of the assets used in the business of Pebra
Inc.
<PAGE>
JPE, INC.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
JPE, Inc.
By: /s/ James J. Fahrner
-----------------------
James J. Fahrner
Vice President and Chief
Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
Date: May 14, 1997
<PAGE>
EXHIBIT INDEX
-------------
EXHIBIT
NO. DESCRIPTION
- ------- -----------
27 Financial Data Schedule, which is submitted
electronically to the Securities and Exchange
Commission for information only and not filed.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 1,204
<SECURITIES> 0
<RECEIVABLES> 37,176
<ALLOWANCES> 497
<INVENTORY> 40,647
<CURRENT-ASSETS> 87,106
<PP&E> 86,229
<DEPRECIATION> 15,074
<TOTAL-ASSETS> 189,124
<CURRENT-LIABILITIES> 38,219
<BONDS> 0
0
0
<COMMON> 28,026
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 189,124
<SALES> 67,995
<TOTAL-REVENUES> 67,995
<CGS> 59,033
<TOTAL-COSTS> 65,878
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,144
<INCOME-PRETAX> (99)
<INCOME-TAX> 15
<INCOME-CONTINUING> (114)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (114)
<EPS-PRIMARY> (0.02)
<EPS-DILUTED> (0.02)
</TABLE>
