================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
AMENDMENT NO. 1 TO
FORM 8-K/A
CURRENT REPORT
--------------
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): April 16, 1997
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Commission File Number 0-22580
------------------------------
JPE, INC.
(Exact name of registrant as specified in its charter)
Michigan
(State or other jurisdiction of Incorporation)
38-2958730
(IRS Employer Identification No.)
900 Victors Way, Suite 140, Ann Arbor, MI 48108
(Address of principal executive offices, including zip code)
(313) 662-2323
(Registrant's telephone number, including area code)
================================================================================
<PAGE>
FORM 8-K/A
AMENDMENT NO. 1
The undersigned registrant hereby amends the following items, financial
statements, exhibits or other portions of its Current Report on Form 8-K, dated
as of April 16, 1997 and filed with the Securities and Exchange Commission on
April 30, 1997, as set forth in the pages attached hereto:
1. Cover page
2. Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
(a) Financial Statements of Brake, Axle and Tandem Company and Subsidiary
Independent Auditor's Report
Consolidated Balance Sheets at December 31, 1996, 1995 and 1994
Consolidated Statements of Operations and Retained Earnings
(Accumulated Deficit) for the years ended December 31, 1996,
1995 and 1994
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994
Notes to Consolidated Financial Statements
(b) Pro Forma Financial Information
Pro Forma Consolidated Balance Sheet as of December 31, 1996
(Unaudited)
Pro Forma Consolidated Statement of Income for the year ended
December 31, 1996 (Unaudited)
Notes to unaudited Pro Forma Consolidated Financial Statements
(c) Exhibits
23 Consent of Mike G. Kirkpatrick, Independent Auditor
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this amendment to be signed on its behalf by the
undersigned, thereunto duly authorized.
JPE, INC.
Dated: May 14, 1997 By: /s/ James J. Fahrner
-------------------------
James J. Fahrner
Vice President and Chief
Financial Officer
<PAGE>
ITEM 7 FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(A) FINANCIAL STATEMENTS
To the Board of Directors
Brake, Axle and Tandem Company
8351 Moberly Lane Blvd.
Dallas, Texas 77227
Independent Auditor's Report
I have audited the accompanying consolidated balance sheets of Brake, Axle, and
Tandem Company (a corporation) and its wholly owned subsidiary, Brake, Axle, and
Tandem Company Canada, Inc. as of December 31, 1996, 1995 and 1994, and the
related consolidated statements of operations, retained earnings (accumulated
deficit), and cash flows for the years then ended. These consolidated financial
statements are the responsibility of the Company's management. My responsibility
is to express an opinion on these consolidated financial statements based on my
audit.
I conducted my audit in accordance with generally accepted auditing standards.
Those standards require that I 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, the evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accompanying principles and using significant
estimates made by management, as well as evaluating the overall financial
statement presentation. I believe that my audit provides a reasonable basis for
my opinion.
In my opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Brake, Axle, and
Tandem Company and its wholly owed subsidiary, Brake, Axle, and Tandem Company
Canada, Inc. as of December 31, 1996, 1995 and 1994 and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
/s/ Mike G. Kirkpatrick, CPA
Dallas, Texas
February 28, 1997, except for Note 10, as to which the date is
April 16, 1997
<PAGE>
BRAKE, AXLE AND TANDEM COMPANY
<TABLE>
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996, 1995 AND 1994
<CAPTION>
Assets
------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Current assets:
Cash ............................ $ 321,967 $ 141,718 $ 373,724
Accounts receivable-trade
(Note 1) ....................... 1,896,230 2,206,595 2,481,786
Accounts receivable - Other ..... 769 6,736 16,082
Inventories (Note 1) ............ 3,865,458 5,412,322 5,143,445
Prepaid expenses ................ 170,255 455,498 518,908
Federal income tax-refundable ... 67,726 59,566 --
Account receivable - affiliate
(Note 2) ....................... 65,077 64,344 75,334
---------- ---------- ----------
Total current assets .......... 6,387,482 8,346,769 8,609,339
---------- ---------- ----------
Property and equipment, at cost (Note 1):
Office furniture and
equipment ...................... 837,199 752,229 600,397
Equipment ....................... 498,425 489,380 216,704
Leasehold improvements .......... 44,354 43,890 43,072
---------- ---------- ----------
1,379,978 1,285,499 860,173
Less accumulated depreciation ... 781,268 687,940 588,417
---------- ---------- ----------
Net property and equipment ...... 598,710 597,559 271,756
---------- ---------- ----------
Other assets:
Cash value life insurance ....... -- 36,649 36,649
Deposits ........................ 16,592 58,807 58,807
Start-up costs - Branches
(Net of amortization of
$22,431 in 1995 and
$14,954 in 1994.
Closed in 1996.) ............. -- 14,954 22,431
---------- ---------- ----------
Total other assets ............ 16,592 110,410 117,887
---------- ---------- ----------
Total assets ...................... $7,002,784 $9,054,738 $8,998,982
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
Liabilities and Stockholders' Equity
------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Current liabilities:
Accounts payable - trade ........ $3,355,799 $3,886,069 $3,665,699
Current portion of notes
payable (Note 3) ............... 2,978,652 3,354,364 3,366,077
Current portion - notes
payable stockholders
(Notes 2 & 3) .................. 80,080 -- --
Accounts payable - other ........ 21,741 -- --
Accrued liabilities ............. 161,726 111,272 108,514
---------- ---------- ----------
Total current liabilities ..... 6,597,998 7,351,705 7,140,290
Notes payable long-term ........... 453,183 -- --
---------- ---------- ----------
Total liabilities ............. 7,051,181 7,351,705 7,140,290
---------- ---------- ----------
Contingency
Stockholders' equity:
Common stock ($0.875 par
value; 500,000 shares
authorized, 100,000
shares issued and
outstanding) ................... 87,500 87,500 87,500
Preferred stock ($12.00
par value; 500,000
shares authorized;
100,000 shares issued
and outstanding) ............... 1,200,000 1,200,000 1,200,000
Retained earnings
(accumulated deficit) .......... (1,250,981) 480,881 667,303
Less: Treasury stock
(Note 6) ....................... (126,382) (88,000) (88,000)
Equity adjustment from
foreign currency
transaction .................... 41,466 22,652 (8,111)
---------- ---------- ----------
Total stockholders' equity .... (48,397) 1,703,033 1,858,192
---------- ---------- ----------
Total liabilities and stockholders'
equity ........................... $7,002,784 $9,054,738 $8,998,982
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
BRAKE, AXLE, AND TANDEM COMPANY AND SUBSIDIARY
<TABLE>
CONSOLIDATED STATEMENTS OF OPERATIONS
AND RETAINED EARNINGS (ACCUMULATED DEFICIT)
FOR THE YEARS ENDED
DECEMBER 31, 1996, 1995 AND 1994
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Sales ............................. $20,170,211 $22,699,726 $22,970,588
Cost of goods sold ................ (17,734,613) (19,100,251) (19,206,994)
----------- ----------- -----------
Gross profit ...................... 2,435,598 3,599,475 3,763,594
------------ ----------- -----------
Operating expense ............. (3,499,992) (3,374,228) (3,286,894)
----------- ----------- -----------
Net income (loss) from
operations ....................... (1,064,394) 225,247 476,700
----------- ----------- -----------
Other income (expenses):
Gain on sales of assets ......... 583 -- 1,200
Miscellaneous income ............ 2,462 4,880 5,333
Interest expense ................ (415,490) (476,115) (372,552)
Consulting expense .............. (276,629) -- --
----------- ----------- -----------
Total other income
(expenses) ................... (689,074) (471,235) (366,019)
----------- ----------- -----------
Income (loss) before Federal
income tax ....................... (1,753,468) (245,988) 110,681
Federal income tax
benefit (Note 1) ............... 21,606 59,566 (33,704)
----------- ----------- -----------
Net income (loss) ................. (1,731,862) (186,422) 76,977
Retained Earnings, Beginning,
as of January 1 .................. 480,881 667,303 590,326
----------- ----------- -----------
Retained Earnings, (Accumulated
Deficit), Ending, as of
December 31 ...................... $(1,250,981) $ 480,881 $ 667,303
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
BRAKE, AXLE, AND TANDEM COMPANY AND SUBSIDIARY
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating
activities:
Net income (loss) ................. $(1,731,862) $ (186,422) $ 76,977
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and Amortization ..... 109,090 107,000 98,887
(Gain) on sale of equipment ....... (583) -- (1,200)
(Increase) decrease in:
Accounts receivable - trade ..... 310,365 275,191 (352,412)
Accounts receivable - other
and affiliate .................. 5,224 20,406 (42,001)
Inventory ....................... 1,546,864 (268,877) (361,406)
Prepaid expenses ................ 285,243 63,410 (354,058)
Federal income tax - refundable . (8,160) (59,566) --
Deposits ........................ 42,215 -- (14,571)
Other assets .................... 51,603 -- 2,200
Currency exchange ............... 18,814 30,763 (3,670)
Increase (decrease) in:
Accounts payable - trade ........ (530,270) 220,370 1,001,654
Accounts payable - other ........ 21,741 -- --
Accrued liabilities ............. 50,454 2,758 (37,802)
----------- ----------- -----------
Net cash provided (used) by
operating activities ............. 170,738 205,033 12,598
----------- ----------- -----------
Investing activities:
Purchase of equipment ........... (113,658) (425,326) (113,847)
Proceeds from sale of assets ...... 4,000 -- 1,200
----------- ----------- -----------
Net cash provided (used) by
investing activities ............. (109,658) (425,326) (112,647)
----------- ----------- -----------
Financing activities:
Cash received from:
Proceeds from borrowing ....... 20,219,688 24,407,110 22,404,223
Less cash expended for:
Debt reduction ................ (20,062,137) (24,418,823) (22,282,556)
Purchase of treasury stock .... (38,382) -- --
----------- ----------- -----------
Net cash provided (used) by
financing activities ............. 119,169 (11,713) 121,667
----------- ----------- -----------
Net increase (decrease) in cash ... 180,249 (232,006) 21,618
Cash at beginning of year ......... 141,718 373,724 352,106
----------- ----------- -----------
Cash at end of year ............... $ 321,967 $ 141,718 $ 373,724
=========== =========== ===========
Supplemental disclosures:
Interest paid ................... $ 415,490 $ 476,115 $ 372,552
Federal income taxes paid ....... $ -- $ 30,806 $ 20,394
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
BRAKE, AXLE, AND TANDEM COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of Brake, Axle, and Tandem
Company (the Company) is presented to assist in understanding the Company's
financial statements.
NATURE OF BUSINESS
The Company and its wholly owned subsidiary are engaged in the business of
wholesale selling of truck and trailer parts. The Company purchases
inventory for resale throughout the United States, Canada, and
internationally through sales representatives. The Company had branches in
California and New Jersey that closed during 1996. The subsidiary is
located in Canada.
Management used estimates and assumptions in preparing these financial
statements in accordance with generally accepted accounting principles.
Those estimates and assumptions affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities, and the
reported revenues and expenses. Actual results could vary from the
estimates that were used.
The Company operates on a schedule for monthly cut-offs of five weeks, four
weeks, and four weeks for each quarter. The actual year and dates were
December 27, for 1996 and December 30, for 1995.
BASIS OF CONSOLIDATION
The consolidated financial statements include the accounts of Brake, Axle,
and Tandem Company Canada, Inc., a wholly owned subsidiary. All significant
intercompany accounts and transactions have been eliminated in
consolidation. These financial statements are reported in American dollars.
The exchange rate on December 31, 1996 was .731 American dollars per
Canadian dollar, the rate on December 31, 1995 was .735 American dollars
per Canadian dollar, and the rate on December 31, 1994 was .713 American
dollars per Canadian dollar.
INVENTORIES
Effective December 31, 1987, the Company changed their method of accounting
for their inventory to more accurately match the flow of expenses with
revenue. As a result of the change, certain costs, which had previously
been charged as period expenses, are capitalized in inventory and charged
to cost of sales as product costs. The cumulative effect of the accounting
change on prior years resulted in a gain of $342,565. The capitalization
adjustments decreased inventories by $132,939 in 1996 and increased
inventories by $4,799 and $5,458 in 1995 and 1994, respectively. The
capitalization adjustment reduction was due to a decrease in the inventory
and resulted in a $132,939 increase in the Cost of Goods sold for 1996.
Inventories consist primarily of goods bought for resale and are stated as
a weighted average of costs. During 1996 the inventory was written down by
management decision in the amount of $405,573 to more accurately reflect
net realized value. Results of operations for 1996 include a corresponding
charge of $405,573.
<PAGE>
BRAKE, AXLE, AND TANDEM COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT.)
DOUBTFUL ACCOUNTS
Bad debts are accounted for utilizing the direct charge-off method. During
1996, 1995 and 1994 there were bad debt charge offs of $65,875, $14,787 and
$6,240 respectively for Brake, Axle, and Tandem Company with customer
accounts receivable balances at December 31, 1996, 1995 and 1994 of
$1,592,060, $1,907,527 and $2,185,634. Brake, Axle, and Tandem Company
Canada had bad debt write offs of $40,646 during 1996 and $4,786 during
1994 and no bad debt write offs during 1995 with customer accounts
receivable balances at December 31, 1996, 1995 and 1994 of $304,170,
$299,068 and $296,151, respectively.
FEDERAL INCOME TAXES
Effective January 1, 1994 the Company adopted the provisions of SFAS No.
109; however, the effects of SFAS No. 109 on the Company's financial
statements is immaterial.
The Company and its subsidiary file a consolidated Federal income tax
return. The Company has no deferred tax liability or operating loss
carryforwards at December 31, 1995. The Operating Loss for the year ended
December 31, 1995, in the amount of $221,574, has been carried back to
prior years with a benefit of $46,120. Differences between book and tax
amounts are immaterial.
The loss for the year ended December 31, 1996 of $1,731,862 can be carried
back to prior years with a potential benefit of $21,606, and a carryforward
of approximately $1,587,234. A tax benefit (if any) for the Company from
the net operating loss carryforward cannot be determined.
PROPERTY AND EQUIPMENT
Property and equipment are carried at cost. Depreciation of property and
equipment is computed using the straight line and modified asset cost
recovery system over the estimated useful lives of the assets. Depreciation
expense for the year ended December 31, 1996, 1995 and 1994 was $91,758,
$86,972 and $84,835 respectively in the United States and $12,489, $12,551
and $6,575 respectively in Canada. Estimated useful lives are as follows:
Years
-----
Office furniture and equipment 5-10
Equipment 5-10
Leasehold improvements 31.5
<PAGE>
BRAKE, AXLE, AND TANDEM COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - RELATED PARTY TRANSACTIONS
The Company owed stockholder George Boyd $56,622 on a promissory note
bearing interest at 5% per annum, due upon demand. No principal payments
were paid by the Company during 1996, 1995 or 1994. Interest was paid
monthly on the note. The note is unsecured.
The Company owed stockholder George Boyd $23,458 on a promissory note
bearing interest at 11.5% per annum at December 31, 1996. Principal
payments of $16,646 and $3,094 were paid by the Company during 1996 and
1995. Interest was paid monthly on the note. The note is unsecured.
The Company is owed $65,077, $64,334 and $75,334 at December 31, 1996, 1995
and 1994, respectively, by an affiliated company that is owned 100% by
three company stockholders. There is no written agreement for repayment.
The receivable is classified as current.
NOTE 3 - LONG-TERM DEBT
At December 31, 1996, 1995 and 1994, long-term debt consisted of the
following:
<TABLE>
<CAPTION>
At December 31, 1996 At December 31, 1995 At December 31, 1994
-------------------- -------------------- --------------------
Due in Due after Due in Due after Due in Due after
One Year One Year One Year One Year One Year One Year
-------- --------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Notes Payable:
Revolving credit ($4,250,000
limit) note payable plus
variable interest rate (First
National Bank of Chicago
base rate plus 3.0%) secured
by inventory, accounts
receivable and fixed assets
w/monthly installments of
interest w/principal payments
made daily from accounts
receivable deposits ................. $2,517,569 $ -- $3,241,219 $ -- $3,254,406 $ --
As described in note 2, note to
stockholder ......................... 56,622 -- 56,622 -- 56,622 --
As described in note 2, note to
stockholder ......................... 23,458 -- 40,104 -- 43,198 --
</TABLE>
<PAGE>
BRAKE, AXLE, AND TANDEM COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - LONG-TERM DEBT (CONT.)
<TABLE>
<CAPTION>
At December 31, 1996 At December 31, 1995 At December 31, 1994
-------------------- -------------------- --------------------
Due in Due after Due in Due after Due in Due after
One Year One Year One Year One Year One Year One Year
-------- --------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Insurance installment note
payable, interest free.
Monthly installments of
$4,376 through November,
1996. The note is unsecured ........ 11,769 -- -- -- -- --
Insurance installment interest
free note payable, monthly
installments of $4,105 through
April 1996 .......................... -- -- 16,419 -- -- --
Installment note payable interest
free for treasury stock. Monthly
installments of $1,600 through
December, 1997 ...................... 19,191 -- -- -- -- --
Insurance installment note payable,
7.95% interest. Monthly payments
of $4,155 through December, 1995 .... -- -- -- -- 11,851 --
Term note payable plus variable
interest rate (First National
Bank of Chicago base rate plus
3.0%) secured by inventory,
accounts receivable and fixed
assets w/monthly installments
of $10,000 principal payments
plus accrued interest through
November 1998 ....................... 120,000 120,000 -- -- -- --
Term notes payable to creditors,
with interest rates of 5% on six
of eight notes, 8.25% on one
note, and 0% on the eighth
note. Unsecured. Monthly
principal payments of $28,773
plus accrued interest through
October 1998 ........................ 310,123 333,183 -- -- -- --
$3,058,732 $453,183 $3,354,364 $ -- $3,366,077 $ --
========== ======== ========== ======== ========== ========
</TABLE>
<PAGE>
BRAKE, AXLE, AND TANDEM COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - LONG-TERM DEBT (CONT.)
Principal debt service requirements for the next two years are:
Year Principal
---- ---------
1997 .................... $3,058,731
1998 .................... 453,183
----------
Totals .................. $3,511,914
==========
BREACH OF LOAN COVENANTS
The loan agreement relating to the revolving credit note contains various
covenants pertaining to tangible net worth, net income and ratio of debt to
tangible net worth (all on a consolidated basis). At December 31, 1996 the
Company had a consolidated net loss of $1,731,862 whereas the covenants
required a minimum net income (loss) of $(450,000). Further the Company had
a negative net worth of $48,397 whereas the covenants required a minimum
tangible net worth of $400,000. Also at December 31, 1996 the Company
failed to meet the required ratio of debt to tangible net worth of 19.1.
NOTE 4 - EMPLOYEE BENEFIT PLAN
The Company has a defined contribution profit sharing plan covering
substantially all of its employees. The benefits are based on time of
service of the employee. The Company's funding policy is to contribute
annually out of profits an amount determined and authorized by the Board,
to be paid in full, not later than the time prescribed by law to enable the
Company to obtain a deduction thereof on its federal income tax return for
said year. There is no contribution accrued for the year ended December 31,
1996 and 1995. The amount contributed for the year ended December 31, 1994
was $20,000.
NOTE 5 - COMMITMENTS
The Company is obligated on a long-term lease for a warehouse facility
located on Moberly Lane in Dallas, Texas with the following terms:
Months Amount
------ ------
1-3 $ 5,800
4-36 11,600
37-60 12,800
61-96 14,200
97-120 14,950
The lease runs from March, 1991 through February, 2002.
<PAGE>
BRAKE, AXLE, AND TANDEM COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - COMMITMENTS (CONT.)
The Company is obligated on a long-term lease for a warehouse facility
located on 111 Avenue in Edmonton, Alberta in the amount of $1,500 per
month from September 1, 1993 to August 1, 1998.
The Company was obligated on a long-term lease for the former warehouse
facility located on Mayfield Avenue in Edison, New Jersey with the
following terms:
Months Amount
------ ------
1-12 $ 2,525
12-24 2,720
25-36 2,914
The Company has closed the operations in New Jersey and have recorded
$21,284 in accounts payable for the balance remaining on the lease, but the
final amount to be paid was still in negotiations at December 31, 1996.
NOTE 6 - TREASURY STOCK
Treasury stock is shown at cost and in 1996 consisted of 6,000 shares of
preferred stock and 12,000 shares of common stock.
During the year ended December 31, 1996 the Company purchased from a
stockholder 2,000 shares of preferred stock at $12 per share and 2,000
shares of common stock at a price of $7.19 per share. The related note
payable is described in Note 3. At December 31, 1995 and 1994 treasury
stock was at cost and consisted of 4,000 shares of preferred stock and
10,000 shares of common stock.
NOTE 7 - DIVIDENDS
No dividends were declared or paid in 1996, 1995 or 1994.
NOTE 8 - UNCERTAINTIES RELATED TO A GOING CONCERN
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles, which contemplates continuation
of the company as a going concern. However, the company has sustained
substantial operating losses in recent years. In addition, the Company has
used substantial amounts of working capital in its operations. Further, at
December 31, 1996, current liabilities exceed current assets by $210,516
and liabilities exceed total assets by $48,397. Further, at December 31,
1996 the Company was in breach of Loan Covenants as described in Note 3.
<PAGE>
BRAKE, AXLE, AND TANDEM COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - UNCERTAINTIES RELATED TO A GOING CONCERN (CONT.)
In view of these matters, realization of a major portion of the assets in
the accompanying balance sheet is dependent upon continued operations of
the company, which in turn is dependent upon the company's ability to meet
its financing requirements, and the success of its future operations.
However, the resolution of the going concern problem is more adequately
discussed in Note 10, Subsequent Event.
NOTE 9 - CONTINGENCY
The Company has cash in the amount of $321,967 located in one bank, which
is insured by the U.S. Government only to the maximum of $100,000 per
customer, resulting in a potential loss in the amount of $221,969 in the
unlikely event of the bank's failure.
NOTE 10 - SUBSEQUENT EVENT
On April 16, 1997, the Company and its wholly-owned subsidiary was sold to
JPE, Inc., who will assume control and management of the Company, thereby
eliminating the uncertainties related to the continuation of the Company as
a going concern.
<PAGE>
(B) PRO FORMA FINANCIAL INFORMATION
JPE, INC.
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma consolidated financial statements give effect
to the following transactions, all of which are accounted for as purchases:
o Acquisition of all of the issued and outstanding shares of preferred and
common stock of Brake, Axle and Tandem Company ("BATCO") on April 16, 1997,
for an aggregate purchase price of $10.5 million in the form of cash and
assumption of certain liabilities. In addition, a maximum contingent
payment of up to $4 million can be earned based on achieving certain sales
levels over the next five years.
o Acquisition of substantially all of the assets used in the business of
Pebra Inc. ("Pebra") on December 23, 1996 for an aggregate of Cdn. $29.7
million (U.S. $21.7 million) paid in the form of cash.
The pro forma consolidated balance sheet at December 31, 1996 reflects the
acquisition of BATCO as if it had been completed on December 31, 1996. The pro
forma consolidated statement of income for the year ended December 31, 1996
reflects the acquisitions as if they had been completed as of January 1, 1996.
BATCO and Pebra's 1996 earnings are included in a separate column of the
statement of income for the year ended December 31, 1996.
The pro forma data do not purport to be indicative of the results which would
actually have been reported if these transactions had occurred on such dates or
which may be reported in the future. The pro forma data should be read in
conjunction with the historical financial statements of JPE, BATCO and Pebra and
the related notes to such financial statements.
<PAGE>
JPE, INC.
<TABLE>
PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1996
(UNAUDITED)
(amounts in thousands)
<CAPTION>
Pro Forma Pro Forma
JPE, Inc. BATCO Adjustments Consolidated
--------- ----- ----------- ------------
<S> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents .............. $ 1,316 $ 322 -- $ 1,638
Accounts receivable, net ............... 26,829 1,897 -- 28,726
Inventory .............................. 37,963 3,865 $ (900)(a) 40,928
Other current assets ................... 8,688 238 288 (b)(g) 9,214
-------- -------- ------- --------
Total current assets ............... 74,796 6,322 (612) 80,506
Property, plant & equipment, net ...... 69,281 599 (300)(c) 69,580
Goodwill .............................. 27,068 -- 4,396 (d) 31,464
Other assets .......................... 3,580 82 -- 3,662
-------- ------- ------- --------
Total assets ...................... $174,725 $ 7,003 $ 3,484 $185,212
======== ======= ======= ========
Liabilities & Shareholders' Equity
Current liabilities:
Short-term debt ....................... $ 8,120 $ 2,637 $(2,637)(e) $ 8,120
Current portion of long-term debt ..... 323 422 -- 745
Accounts payable ...................... 17,643 3,377 -- 21,020
Accrued liabilities ................... 6,190 162 1,245 (f) 7,597
Income taxes payable .................. 382 -- -- 382
-------- ------- ------- --------
Total current liabilities ......... 32,658 6,598 (1,392) 37,864
Accrued liabilities ................... 1,547 -- 350 (f) 1,897
Long-term debt, non-current ........... 101,558 453 5,137 (e) 107,148
Deferred income taxes ................. 3,184 -- (659)(g) 2,525
-------- ------- ------- --------
Total liabilities ................. 138,947 7,051 3,436 149,434
Shareholders' Equity:
Preferred stock ....................... -- 88 (88)(h) --
Common stock .......................... 27,921 1,200 (1,200)(h) 27,921
Treasury stock ........................ -- (126) 126 (h) --
Foreign currency translation .......... -- 41 (41)(h) --
Retained earnings ..................... 7,857 (1,251) 1,251 (h) 7,857
-------- ------- ------- --------
Total shareholders' equity ........ 35,778 (48) 48 35,778
-------- ------- ------- --------
Total liabilities &
shareholders' equity ............. $174,725 $ 7,003 $ 3,484 $185,212
======== ======= ======= ========
</TABLE>
See notes to unaudited pro forma condensed
consolidated financial statements.
<PAGE>
JPE, INC.
<TABLE>
PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDING DECEMBER 31, 1996
(UNAUDITED)
(amounts in thousands, except share data)
<CAPTION>
Pebra BATCO
Pro Forma Pro Forma Pro Forma
JPE Pebra BATCO Adjustments Adjustments Consolidated
--- ----- ----- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net sales ..................... $201,453 $68,895 $20,171 $ 5,512 (a) -- $296,031
Cost of goods sold ............ 166,714 71,238 17,735 (2,015)(b) $ (66)(f) 253,606
-------- ------- ------- ------- ------ --------
Gross profit (loss) ....... 34,739 (2,343) 2,436 7,527 66 42,425
Charge for impairment
of goodwill .................. 4,300 -- -- -- -- 4,300
Selling, general &
administrative expenses ...... 24,893 6,066 3,500 (1,860)(c) 176 (g) 32,775
-------- ------- ------- ------- ------ --------
Operating profit (loss) ... 5,546 (8,409) (1,064) 9,387 (110) 5,350
Non-operating expenses ........ -- 149 274 -- (274)(h) 149
Interest expense .............. 6,932 1,095 415 306 (d) 120 (i) 8,868
-------- ------- ------- ------- ------ --------
Income (loss) before
income taxes ................. (1,386) (9,653) (1,753) 9,081 44 (3,667)
Income taxes (benefit) ........ 203 70 (21) (276)(d) (560)(j) (584)
-------- ------- ------- ------- ------ --------
Net income (loss) ......... $ (1,589) $(9,723) $(1,732) $ 9,357 $ 604 $ (3,083)
======== ======= ======= ======= ====== ========
Loss per share ................ $ (0.35) $ (0.67)
======== ========
Weighted average shares
outstanding ................. 4,587 4,587
===== =====
</TABLE>
See notes to unaudited pro forma condensed
consolidated financial statements.
<PAGE>
JPE, INC., BATCO AND PEBRA
NOTES TO UNAUDITED PRO FORMA
CONSOLIDATED FINANCIAL STATEMENTS
A. PRO FORMA BALANCE SHEET ADJUSTMENTS
The following adjustments were made to arrive at the pro forma consolidated
balance sheet:
(a) To reflect inventory at net realizable value, based on JPE's
accounting policies.
(b) To eliminate prepaid asset of $125,000 that has no future benefit to
JPE.
(c) To reduce fixed assets to estimated fair market value.
(d) To record goodwill as the excess purchase price over the net assets
acquired.
(e) To record the borrowings utilized to retire BATCO's bank debt and pay
$2.5 million in cash to the BATCO shareholders for the purchase of the
business.
(f) To record the expenses associated with the BATCO acquisition and to
recognize liabilities for lease cancellation cost, severance payments
and a non-compete contract.
(g) To record the deferred tax benefits associated with the recognition of
BATCO's net operating loss carryforward and the tax treatment of
liabilities assumed in the acquisition.
(h) To eliminate the capital accounts of BATCO at the acquisition date.
B. ADJUSTMENTS TO PRO FORMA STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER
31, 1996
The following adjustments were made to arrive at the pro forma consolidated
statement of income:
PEBRA PRO FORMA ADJUSTMENTS:
(a) Adjusts sales revenue for the effect of a long-term supply agreement
with a major customer, which was an integral part of the purchase.
(b) Reflects reduction in depreciation as result of the bargain purchase
price.
(c) Adjusts sales commission expense for the change in sales agencies.
(d) Reflects the additional interest expense recorded on funds borrowed to
finance the acquisition purchase price.
(e) Reflects provision for Canadian federal and provincial income taxes at
an effective rate of 36%.
<PAGE>
JPE, INC., BATCO AND PEBRA
NOTES TO UNAUDITED PRO FORMA
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
BATCO PRO FORMA ADJUSTMENTS:
(f) Reflects the reduction in depreciation to recognize the write-down of
fixed assets to net realizable value.
(g) Represents amortization of goodwill over 25 years.
(h) Eliminates costs incurred by BATCO in connection with the sale of the
business.
(i) Recognizes additional interest expense for the funds borrowed to
finance the purchase of the capital stock.
(j) Records the tax benefit associated with the loss for BATCO that would
be carried back in the JPE consolidated return.
<PAGE>
INDEX TO EXHIBITS
-----------------
Exhibit
Number Description
- ------- -----------
23 Consent of Independent Auditor
MIKE G. KIRKPATRICK
CERTIFIED PUBLIC ACCOUNTANT
CONSENT OF INDEPENDENT ACCOUNTANT
I consent to the incorporation by reference in the registration statements of
JPE, Inc. on Form S-8 of my report dated February 28, 1997, except for Note 10,
as to which the date is April 16, 1997, with respect to the financial statements
of Brake Axle and Tandem Company and Subsidiary as of December 31, 1996, 1995
and 1994 and for each of the three years in the period ended December 31, 1996,
which report is included in Amendment No. 1 to Form 8-K/A dated April 16, 1997.
/s/ Mike G. Kirkpatrick
May 13, 1997
