<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended March 31, 2000
[ ] 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 0-22580
JPE, INC. (D/B/A ASCET INC AND ASC EXTERIOR TECHNOLOGIES)
(Exact name of registrant as specified in its charter)
MICHIGAN
(State or other jurisdiction of incorporation or organization)
38-2958730
(I.R.S. Employer Identification No.)
30400 TELEGRAPH ROAD, SUITE 401, BINGHAM FARMS, MICHIGAN, 48025
(Address of principal executive offices) (Zip Code)
(248) 723-5531
(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
--- ---
As of March 31, 2000, there were 14,043,600 shares of the registrant's common
stock outstanding. This Quarterly Report on Form 10-Q contains 22 pages, of
which this is page 1.
<PAGE> 2
JPE, INC. (D/B/A ASCET INC AND ASC EXTERIOR TECHNOLOGIES)
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C> <C> <C>
Part I. Financial Information
Item 1. Financial Statements
Consolidated Condensed Balance Sheets 3
- At March 31, 2000 and 1999 (Unaudited)
- At December 31, 1999
Consolidated Condensed Statements of Operations (Unaudited) 4
- For the Three Months Ended
- March 31, 2000 (Successor Company)
- March 31, 1999 (Predecessor Company)
Consolidated Condensed Statements of
Shareholders' Equity (Unaudited) 5
- For the Three Months Ended March 31, 2000
Consolidated Condensed Statements of Cash Flows (Unaudited) 6
- For the Three Months Ended March 31, 2000 (Successor Company)
- For the Three Months Ended March 31, 1999 (Predecessor Company)
Notes to Unaudited Consolidated Condensed Financial Statements 7-15
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 15
Item 3. Quantative and Qualitative Disclosures About Market Risk 19
Part II. Other Information
Item 6. Exhibits and Reports 21
Signature 22
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
JPE, INC. (D/B/A ASCET INC AND ASC EXTERIOR TECHNOLOGIES)
CONSOLIDATED CONDENSED BALANCE SHEETS
($ Amounts in Thousands)
<TABLE>
<CAPTION>
AT MARCH 31,
(UNAUDITED)
-----------
1999 AT DECEMBER 31,
2000 RESTATED (NOTE A) 1999
---- ---------------- ----
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 338 $ 695 $ 639
Accounts receivables trade, net 21,219 8,448 20,205
Inventory, net 22,064 13,724 22,589
Other current assets 1,369 1,243 1,396
-------- ------- --------
Total current assets 44,990 24,110 44,829
Investment in affiliated companies -- 17,233 --
Property, plant and equipment, net 26,211 10,350 26,797
Goodwill, net 3,832 5,445 3,902
Deferred income taxes 2,844 -- 2,778
Other assets 678 654 599
-------- ------- --------
Total assets $ 78,555 $ 57,792 $ 78,905
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Notes Payable $ 42,972 $ -- $ 45,877
Current portion of long term debt -- 67,448 --
Accounts payable trade 9,380 4,737 8,306
Accrued liabilities and other
current liabilities 4,569 2,388 3,451
-------- -------- --------
Total current liabilities 56,921 74,573 57,634
Deferred income taxes and other liabilities 1,924 319 1,873
Long-term debt, non-current 219 38 246
-------- -------- --------
Total liabilities 59,064 74,930 59,753
-------- -------- --------
Shareholders' equity (deficit):
Warrants 293 -- 293
First Series Preferred Shares, no par value,
3,000,000 authorized, 1,973,002 shares
issued and outstanding at March 31, 2000
and December 31, 1999 and no shares issued
and outstanding at March 31, 1999 16,590 -- 16,590
Common stock, no par value, 15,000,000
authorized, 14,043,600 shares issued and
outstanding at March 31, 2000 and December
31, 1999 and 4,602,180 issued and outstanding
at March 31, 1999 2,379 28,051 2,379
Retained earnings (accumulated deficit) 229 (45,189) (110)
-------- -------- --------
Total shareholders' equity
(deficit) 19,491 (17,138) 19,152
-------- -------- --------
Total liabilities and
shareholders' equity (deficit) $ 78,555 $ 57,792 $ 78,905
======== ======== ========
</TABLE>
The accompanying notes are an integral part
of the consolidated condensed financial statements.
3
<PAGE> 4
JPE, INC. (D/B/A ASCET INC AND ASC EXTERIOR TECHNOLOGIES)
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
For the Three Months Ended March 31, 2000 and 1999
($ Amounts in Thousands, Except Per Share Data)
(Unaudited)
<TABLE>
<CAPTION>
SUCCESSOR PREDECESSOR
COMPANY COMPANY
------- -------
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, MARCH 31,
2000 1999
---- ----
RESTATED (NOTE A)
<S> <C> <C>
Net sales $37,727 $14,276
Cost of goods sold 30,922 10,284
------- -------
Gross profit 6,805 3,992
Selling, general and administrative expenses 5,000 3,234
Other expense (income) (2) 258
Affiliate companies' (income) -- (4,134)
Interest expense, net 1,213 1,804
------- -------
Income from continuing operations before
income taxes and extraordinary item 594 2,830
Income tax expense 255 71
------- -------
Income from continuing operations before
extraordinary item 339 2,759
Discontinued operation:
Income from operations of IAF -- 214
Loss on sale of stock of IAF -- (2,321)
Extraordinary item:
Forgiveness of IAF debt -- 2,015
------- -------
Net income $ 339 $ 2,667
======= =======
Basic earnings per share from continuing
operations before extraordinary item:
Common Shares $0.00 $0.60
First Series Preferred Shares 0.15 --
Earnings per share from continuing operations
before extraordinary item assuming dilution:
Common Shares $0.00 $0.59
First Series Preferred Shares 0.15 --
Basic earnings per share:
Common Shares $0.00 $0.58
First Series Preferred Shares 0.15 --
Earnings per share assuming dilution:
Common Shares $0.00 $0.57
First Series Preferred Shares 0.15 --
</TABLE>
The accompanying notes are an integral part
of the consolidated condensed financial statements.
4
<PAGE> 5
JPE, INC. (D/B/A ASCET INC AND ASC EXTERIOR TECHNOLOGIES)
CONSOLIDATED CONDENSED STATEMENTS OF SHAREHOLDERS' EQUITY
($ Amounts in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
NET INCOME
BALANCES AT FOR THE PERIOD BALANCES AT
DECEMBER 31, JANUARY 1 TO MARCH 31,
1999 MARCH 31, 2000 2000
---- -------------- ----
<S> <C> <C> <C>
Common Stock:
Shares Outstanding 14,043,600 14,043,600
Amount $ 2,379 $ 2,379
First Series Preferred Shares:
Shares Outstanding 1,973,002 1,973,002
Amount $ 16,590 $ 16,590
Warrants:
Warrants Outstanding 422,601 422,601
Amount $ 293 $ 293
Retained Earnings (Deficit) $ (110) $ 339 $ 229
------------ ----- -------------
Total Shareholder Equity $ 19,152 $ 339 $ 19,491
============ ===== =============
</TABLE>
The accompanying notes are an integral part
of the consolidated condensed financial statements.
5
<PAGE> 6
JPE, INC. (D/B/A ASCET INC AND ASC EXTERIOR TECHNOLOGIES)
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
($ Amounts in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
PREDECESSOR
COMPANY
SUCCESSOR -------
COMPANY THREE MONTHS
-------
THREE MONTHS ENDED
ENDED MARCH 31,
MARCH 31, 1999
2000 RESTATED (NOTE A)
---- ----------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 339 $ 2,667
Adjustments to reconcile net income to net
cash provided by (used for) operating activities:
Extraordinary items, forgiveness of liabilities -- (2,015)
Depreciation and amortization 930 895
Loss on sale of subsidiary -- 2,549
Affiliate companies' income -- (4,134)
Other -- 98
Changes in operating assets and liabilities:
Accounts receivable (1,014) (2,972)
Inventory 525 (67)
Other current assets 27 588
Accounts payable 1,074 (1,644)
Accrued liabilities and other current liabilities 1,103 (192)
Deferred income taxes -- (11)
------- -------
Net cash provided by (used for)
operating activities 2,984 (4,238)
Cash flows from investing activities:
Purchase of property and equipment (274) (204)
Other (79) --
Cash proceeds from sale of Industrial &
Automotive Fasteners, Inc. -- 20,000
Cash loaned to equity investees -- 1,799
------- -------
Net cash provided by (used for)
investing activities (353) 21,595
Cash flows from financing activities:
Net borrowings (payments) under demand notes (2,905) --
Net borrowings (payments) under revolving loan -- (17,052)
Repayments of other debt (27) (4)
------- -------
Net cash provided by (used for)
financing activities (2,932) (17,056)
Cash and cash equivalents:
Net increase (decrease) in cash (301) 301
Cash, beginning of period 639 394
------- -------
Cash, end of period $ 338 $ 695
======= =======
</TABLE>
The accompanying notes are an integral part
of the consolidated condensed financial statements
6
<PAGE> 7
JPE, INC. (D/B/A ASCET INC AND ASC EXTERIOR TECHNOLOGIES)
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
A. BASIS OF PRESENTATION:
The accompanying unaudited condensed consolidated financial statements
of JPE, Inc. (d/b/a ASCET INC and ASC Exterior Technologies (together
with its subsidiaries, the "Company")) have been prepared in accordance
with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for
complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results
for the periods presented are not necessarily indicative of the results
that may be expected for the year ended December 31, 2000. These
financial statements should be read in conjunction with the Company's
consolidated financial statements and footnotes for the year ended
December 31, 1999. Certain financial statement items have been
reclassified to conform to the current quarter's format. In addition,
net earnings for the Predecessor Company for the three months ended
March 31, 1999 has been restated from unaudited amounts as originally
reported to reflect additional income of $582 thousand principally
related to additional revenue, inventory valuation and certain accrual
adjustments.
The balance sheet at December 31, 1999 has been derived from the
audited financial statements at that date but does not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements.
For further information, refer to the consolidated financial statements
and footnotes thereto included in the Registrant Company and
Subsidiaries' annual report on Form 10-K for the year ended December
31, 1999.
During 1998 and throughout the first quarter of 1999, the Company
experienced operational and financial difficulties and a plan to
restructure its financial affairs was formulated. During the third
quarter of 1998, three of the Company's subsidiaries were placed under
court ordered protection. On September 15, 1998, Plastic Trim, Inc.
("PTI") and Starboard Industries, Inc. ("Starboard") filed voluntary
petitions for relief under Chapter 11 of the Federal Bankruptcy Code in
the United States Bankruptcy Court for the Eastern Division of
Michigan. On August 27, 1998, the Ontario Court (General Division)
Commercial List issued an order to appoint an Interim Receiver for JPE
Canada, Inc. ("JPEC") pursuant to Section 47 of the Bankruptcy and
Insolvency Act of Canada. On February 8, 1999, the net assets of JPEC
were sold, to the Ventra Group, as more fully described in Note I.
Under these conditions, generally accepted accounting principles do not
allow the Company to consolidate these subsidiaries from the dates of
their respective filings. The Company has utilized the equity method of
accounting in preparing the financial statements for the three months
ended March 31, 1999.
Certain non-core operations of the Company were divested of March 26,
1999. The stock of the Company's subsidiary, Industrial and Automotive
Fasteners, Inc., was sold to MacLean-Fogg Company, as more fully
described in Note J. The remaining subsidiaries of the Company were
included in the Investment Transaction, as more fully described below.
On May 27, 1999 in accordance with the terms of an Investment Agreement
(the "Investment Agreement") among JPE, Inc., ASC Holdings LLC ("ASC")
and Kojaian Holdings LLC ("Kojaian") dated April 28, 1999 the Company
issued 1,952,352.19 shares of First Series Preferred Shares on May 27,
1999 (the "Closing Date"), in equal proportions to ASC and Kojaian for
an aggregate purchase price of $16,413,274 payable in cash. Each First
Series Preferred Share possesses voting and equity rights equal to 50
common shares of the Company. In addition, the Investment Agreement
provided that the shareholders of record of JPE, Inc. common stock on
June 11, 1999 (the "Record Date") were entitled to receive warrants to
purchase First Series Preferred Shares (the "Warrants"). Each holder of
common stock received .075 Warrants for each share of common stock held
on the record date, and each full Warrant entitled the holder to
purchase one First Series Preferred Share. The Warrants were
distributed as a dividend to such shareholders. The Warrants carry an
initial exercise price of $9.99 per First Series Preferred Share,
subject to price adjustments based on the Final Actual EBITDA (as
defined in the Investment Agreement) and the cost of certain
environmental remediation for a 24 month period occurring after the
consummation of the
7
<PAGE> 8
Investment Agreement. The Warrants are exercisable for the 90 day
period following the providing of notice by the Company to the holders
thereof of the Final Actual EBITDA.
In addition, on May 27, 1999 ASC and Kojaian (in equal proportions)
subscribed and paid for 9,441,420 newly issued shares of common stock
for an aggregate purchase price of $1,986,726 payable in cash. These
newly issued shares of common stock were distributed to ASC and Kojaian
on June 12, 1999.
As a precondition to the consummation of the Investment Transaction,
the Company's existing bank lenders (the "Bank Group") agreed on May
27, 1999 to a $16.5 million forgiveness of the Company's existing bank
debt, under the terms of the Company's Forbearance Agreement dated
August 10, 1998, as amended. In consideration for the debt forgiveness
and pursuant to the Investment Agreement, the Company issued 20,650.115
shares of Preferred Stock to the Bank Group on May 27, 1999 for $1,000
of consideration (see Note K). In addition, the Company granted the
Bank Group 77,437.937 Warrants (which Warrants contain the same terms
and conditions as granted to the shareholders of common stock of the
Company on the Record Date), except the exercise price for each First
Series Preferred Shares is approximately $8.16 per share.
The immediate effect of these transactions transferred (a)
approximately 47.5% of the voting securities of the Company to Kojaian,
(b) approximately 47.5% of the voting securities of the Company to ASC,
and (c) approximately 1% of the voting securities of the Company to the
Bank Group (these transactions are hereafter referred to as the
"Investment Transaction"). The remaining amount of the voting
securities continues to be held by the public shareholders of the
Company and the Bank Group. Thus, as of December 29, 1999 each of ASC
and Kojaian beneficially owned approximately 95% of the voting
securities of the Company, and after the exercise of all of the
Warrants, would have beneficially owned approximately 80% of the voting
securities of the Company.
Pursuant to the terms of a letter agreement (the " Letter Agreement")
dated August 30, 1999 among ASC and the sole member of ASC (Heinz C.
Prechter) and Kojaian and the members of Kojaian (Mike Kojaian and C.
Michael Kojaian), Heinz C. Prechter agreed to purchase (through ASC or
otherwise) 4,720,710 common shares and 976,176.095 First Series
Preferred Shares of JPE, Inc. from Kojaian for $9.2 million. The Letter
Agreement was subject to the conditions precedent of (i) obtaining the
consent of Comerica Bank, the Company's post-Investment Transaction
lender, and (ii) the termination of the applicable waiting period under
the Hart-Scott-Rodino Act. On December 30, 1999, the last of the
conditions precedent was fulfilled, and on such date the Letter
Agreement was consummated.
Upon consummation of the Letter Agreement, ASC directly and Heinz C.
Prechter, indirectly through ASC, owned a total of 9,441,420 common
shares and 1,952,353.19 First Series Preferred Shares of JPE, Inc.,
constituting approximately 95% of the beneficial interests of the
Company. In addition, the Shareholders Agreement dated May 27, 1999
which included provisions, addressing among other things, the
nomination, election, and voting of members to the Board of Directors,
was terminated upon the execution of the Letter Agreement.
In connection with the closing of the Investment Transaction on May 27,
1999, the Company entered into a Consulting Services Agreement with ASC
which requires payment of $250,000 annually, payable monthly, for
consulting services provided by ASC with respect to various business,
operating, management, and financial matters. In addition, the Company
is required to pay ASC an additional fee equal to 2% of the excess of
the final EBITDA over the targeted EBITDA (both defined in the
Investment Agreement) for the 24 month period ending after the
acquisition date.
Accordingly, due to the events described above, the consolidated
financial statements for periods prior to May 27, 1999 are not
necessarily comparable to the consolidated financial statement
presented after that date. JPE, Inc. is now operating under the assumed
names of ASCET INC and ASC Exterior Technologies and is hereinafter
referred to as the Successor Company.
8
<PAGE> 9
B. INVENTORY:
Inventories by component are as follows (amounts in thousands):
<TABLE>
<CAPTION>
March 31, 1999
March 31, 2000 Restated (Note A) December 31, 1999
-------------- ----------------- -----------------
<S> <C> <C> <C>
Finished goods $12,484 $11,396 $13,292
Work in process 1,914 842 1,544
Raw material 6,026 1,486 5,959
Tooling 1,640 -- 1,794
------- ------- -------
$22,064 $13,724 $22,589
======= ======= =======
</TABLE>
C. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment by component is as follows (amounts in
thousands):
<TABLE>
<CAPTION>
March 31, 1999
March 31, 2000 Restated (Note A) December 31, 1999
-------------- ----------------- -----------------
<S> <C> <C> <C>
Land $ 803 $ 500 $ 803
Buildings 5,980 3,201 5,980
Machinery and equipment 20,873 14,769 20,599
Furniture and fixtures 1,280 1,032 1,280
------- ------- -------
28,936 19,502 28,662
Less accumulated depreciation (2,725) (9,152) (1,865)
------- ------- -------
$26,211 $10,350 $26,797
======= ======= =======
</TABLE>
D. ACCRUED LIABILITIES AND OTHER CURRENT LIABILITIES:
Accrued liabilities and other current liabilities consisted of the
following (amounts in thousands):
<TABLE>
<CAPTION>
March 31, 1999
March 31, 2000 Restated (Note A) December 31, 1999
-------------- ----------------- -----------------
<S> <C> <C> <C>
Accrued compensation $ 836 $ 533 $ 469
Accrued interest 582 687 329
Accrued employee benefits 1,641 148 1,026
Accrued taxes 349 34 497
Loan guaranty - JPEC -- 534 --
Other 1,161 452 1,130
------- ------- -------
$ 4,569 $ 2,388 $ 3,451
======= ======= =======
</TABLE>
E. INVESTMENT IN U.S. AFFILIATE COMPANIES:
JPE, Inc.'s subsidiaries, Plastic Trim, Inc. ("PTI") and Starboard
Industries, Inc. ("Starboard") were debtors-in-possession under Chapter
11 of the Federal Bankruptcy Code (see Note I for discussion of the
sale of JPE Canada, Inc. ("JPEC")). Under these conditions, generally
accepted accounting principles did not allow the Company to consolidate
these subsidiaries from September 15, 1998, the date of filing their
voluntary petitions with the Bankruptcy Court. In this regard, the
Company utilized the equity method of accounting in preparing the
financial statements for these subsidiaries for the quarter ended March
31, 1999.
On February 25, 1999, both PTI and Starboard filed a Plan of
Reorganization and Disclosure Statement with the Court. In connection
with the Investment Transaction (see Note A), the reorganization plans
of the Company's subsidiaries, PTI and Starboard, which were confirmed
by the Bankruptcy Court on April 16, 1999, became effective on May 27,
1999, the date the Investment Agreement was consummated.
9
<PAGE> 10
These subsidiaries are included in the consolidated financial
statements effective May 28, 1999 for the Successor Company.
The investment in U.S. affiliate companies on the Consolidated Balance
Sheet at March 31, 1999 as Restated (see Note A) is comprised of the
following (amounts in thousands):
<TABLE>
<CAPTION>
PTI Starboard Total
--- --------- -----
<S> <C> <C> <C>
Cash $ -- $ 140 $ 140
Receivables 16,523 3,954 20,477
Inventory 5,273 547 5,820
Other current assets 290 1,045 1,335
Property, plant and equipment, net 15,667 4,248 19,915
------- ------ -------
Total Assets 37,753 9,934 47,687
------- ------ -------
Liabilities not subject to compromise:
Current liabilities:
Accounts payable 520 24 544
Accrued liabilities 1,418 904 2,322
Other liabilities 339 -- 339
Debtor-in-possession financing 18,388 3,025 21,413
Liabilities subject to compromise 4,566 1,270 5,836
------- ------ --------
Total Liabilities 25,231 5,223 30,454
------- ------ -------
Net Equity $12,522 $ 4,711 $17,233
======= ======= =======
</TABLE>
The results of operations for the three months ended March 31, 1999 as
Restated (see Note A) was as follows (amounts in thousands):
<TABLE>
<CAPTION>
PTI Starboard Total
Restated (Note A) Restated (Note A) Restated (Note A)
----------------- ----------------- -----------------
<S> <C> <C> <C>
Sales $20,040 $ 6,094 $26,134
Cost of sales 17,180 4,864 22,044
------- ------- -------
Gross profit 2,860 1,230 4,090
Selling, general and
administrative expense 1,898 272 2,170
Other reorganization expenses 10 14 24
------- ------- -------
Income before interest and taxes 952 944 1,896
Interest expense 308 71 379
------- ------- -------
Income before taxes 644 873 1,517
Income tax expense 1 2 3
------- ------- -------
Net income $ 643 $ 871 $ 1,514
======= ======= =======
</TABLE>
F. NOTES PAYABLE:
The Company's existing debt financing is provided by a $56.3 million
demand loan from Comerica Bank (the "Comerica Facility"). The Company
has executed three promissory notes in the amounts of $6.3 million, $20
million, and $30 million, each providing for borrowing options at
either a Prime based rate plus 1/2% to 1% or Eurodollar plus 3% to 3
1/2%. Eurodollar borrowings for 1 to 6 months are permitted at the
option of the Company. Advances under the $30 million demand note are
subject to a borrowing base restriction equal to 80% of eligible trade
receivables and the lesser of 50% of eligible inventory or $9 million.
There are no restrictions on advances under either the $6.3 million or
$20 million demand notes. Borrowings under the three promissory notes
are secured by the Company's cash deposits, trade receivables,
inventory, and personal property, as well as a guaranty from ASC. The
collateral for ASC's guaranty is the Common Shares and First Series
Preferred Shares of the Company held by ASC.
10
<PAGE> 11
Effective July 1, 1999, the $6.3 million demand note requires monthly
principal payments of $131 thousand. Beginning November 15, 1999, the
$20 million demand note requires quarterly principal payments equal to
75% of the preceding quarter's excess cash flow, defined as after-tax
net income, less principal note payments, plus depreciation and
amortization expense. Required covenants under the Comerica Facility
are the submissions of quarterly and annual financial statements and
projections within a prescribed time period and a monthly borrowing
base. There are no financial covenants required by the terms of the
Comerica Facility. Current borrowings at March 31, 2000 under the
Comerica Facility are $42.9 million. At March 31, 2000, unused
borrowing capacity under the Company's $30 million demand note was $6.1
million.
In addition, the Company is able to supplement any working capital
needs not satisfied by the Comerica Facility through a $3 million
demand note dated August 23, 1999 from ASC Incorporated, an affiliate
of ASC. Advances are permitted up to $3 million and are unsecured and
subordinated to advances made under the Comerica Facility. Interest
accrues at prime plus 1 1/2% and is payable quarterly. As of March 31,
2000 there were no advances made under this note.
G. WARRANTS TO ACQUIRE PREFERRED STOCK:
The Investment Agreement provides that the shareholders of record of
JPE, Inc. common stock on June 11, 1999 (the "Record Date") were
entitled to receive warrants (the "Warrants") entitling the holder with
the right to purchase .075 First Series Preferred Shares of the Company
for each share of common stock held on the Record Date. Each full
warrant entitles the holder to purchase one First Series Preferred
share. The Warrants carry an initial exercise price of $9.99 per First
Series Preferred Share, subject to price adjustments based on the final
actual EBITDA (as defined in the Investment Agreement) and the cost of
certain environmental remediation for the 24 month period from the date
of the consummation of the Investment Transaction. The Warrants are
exercisable for a 90 day period following the providing of notice by
the Company to the holders thereof of the Final Actual EBITDA.
Based on the initial exercise price of the Warrants, the Company has
assigned a fair value based on the difference between the exercise
price and the present value of the exercise price for the 24 month
period at a cost of capital discount rate. The fair value assigned was
$238.9 thousand. If the exercise price of the Warrants is reduced by
achieving an EBITDA amount in excess of target EBITDA of $34.3 million,
then the difference in the exercise price will be treated as a
contingency based on earnings in future periods and recorded as
additional consideration. The additional consideration, if any, will be
an increase to goodwill.
H. INCOME TAXES:
As of May 27, 1999, the date of the Investment Transaction, the Company
had approximately $23 million of taxable net operating loss carryovers.
Of this amount, approximately $22 million was used to offset taxable
income for the period January 1, 1999 through May 27, 1999, including
income associated with the bank debt forgiveness and vendor liability
settlements. The remaining taxable loss carryovers are subject to
certain limitations as a result of the Investment Agreement and
utilization is dependent on the Company's future profitability. This
may prevent full utilization of these losses during the carryover
period, and as such, the Company has recorded a valuation reserve
related to the tax benefits associated with such losses. In addition,
the Company sustained a further net taxable loss of $1.2 million for
the period May 28, 1999 through December 31, 1999. The Company's 42.9%
effective tax rate for the three months ended March 31, 2000 is
computed at regular tax rates, and reflects the Company's inability to
deduct certain bankruptcy costs and the amortization of goodwill
associated with the Investment Transaction, as well as the Company's
utilization of a Canadian taxable loss carryover, which was previously
not recognized. A reconciliation to the U.S. federal statutory tax rate
is as follows:
Statutory U.S. federal tax rate 34.0%
State taxes, net of federal tax benefit 6.2
Nondeductible Goodwill amortization 3.8
Nondeductible bankruptcy and other expenses 2.2
Foreign tax rate below U.S. federal (3.3)
----
42.9%
=====
11
<PAGE> 12
Deferred tax assets and liabilities of the Predecessor Company have
been recognized on the balance sheet as required by purchase
accounting. The deferred tax assets of approximately $6.7 million have
been reduced by a $4.1 million valuation reserve, and deferred tax
liabilities of $1.6 million have been recorded. If in subsequent
periods, the valuation reserve related to the May 27, 1999 deferred tax
assets can be reduced, the effect will be to reduce goodwill before any
benefit is realized in the Consolidated Statement of Operations.
I. SALE OF JPE CANADA INC.:
At December 31, 1998, JPE Canada Inc. ("JPEC") was under the control of
an Interim Receiver appointed pursuant to Section 47 of the Bankruptcy
and Insolvency Act of Canada. The duties of the Interim Receiver
included commencing the process of realizing value of the assets for
the benefit of The Bank of Nova Scotia, the secured lender. On December
8, 1998, The Bank of Nova Scotia, the Interim Receiver, General Motors
Corporation and General Motors of Canada Limited entered into an
agreement to sell substantially all the assets of JPEC to the Ventra
Group, Inc. This agreement required that JPEC make an assignment in
bankruptcy prior to closing. On February 8, 1999, JPEC filed an
assignment in bankruptcy with the Ontario Court (General Division)
Commercial List and substantially all the assets of JPEC were sold for
approximately $13.7 million. The secured bank loans of JPEC were
approximately $14.8 million at closing. The balance sheet and income
statement for JPEC have been recorded on the equity method from the
appointment of the Interim Receiver on August 27, 1998. The unpaid
liabilities of JPEC at closing were eliminated through the bankruptcy
proceeding, resulting in a gain of approximately $2.9 million which was
recognized in the first quarter of 1999.
The following is a summary of JPEC's Statement of Operations for the
period January 1, 1999 through the date of divestiture, February 8,
1999 (amounts in thousands):
<TABLE>
<S> <C>
Net sales $4,066
Cost of sales 3,857
------
Gross profit 209
Selling, general and administrative expenses 134
Other expense 242
------
Loss before interest and taxes (167)
Interest expense 94
------
Loss before taxes (261)
Tax benefit --
------
(Loss) before extraordinary item (261)
Extraordinary item, forgiveness of
debt and liabilities 2,881
------
Net income $2,620
======
</TABLE>
J. DISCONTINUED OPERATIONS AND SALE OF INDUSTRIAL & AUTOMOTIVE FASTENERS,
INC.:
On March 26, 1999, the Company sold the stock of Industrial &
Automotive Fasteners, Inc. ("IAF"), its fastener segment, to MacLean
Acquisition Company for approximately $20.0 million. The sales
agreement required certain vendors to compromise their accounts
receivable from IAF to 30% of the outstanding balance which resulted in
an extraordinary gain of $2.0 million or $.44 per share. The net
proceeds of $19.2 million from this sale were used to pay down U.S.
Bank debt. The measurement date for discontinued operation was February
5, 1999, the date that the Board of Directors and the lenders approved
the letter of intent. IAF's income from operations prior to the
measurement date was $214 thousand, or $.05 per share. The loss on sale
was $2.5 million, offset by income from operations after the
measurement date of $200 thousand, resulting in a net loss of $2.3
million, or $.50 per share. Revenue for IAF for the three months period
ended March 31, 1999 was $10.0 million.
12
<PAGE> 13
K. FORGIVENESS OF BANK DEBT:
As a precondition to consummation of the Investment Agreement, the
Company's existing bank lenders (the "Bank Group") agreed on May 27,
1999 to a $16.5 million forgiveness of the Company's existing bank
debt. In consideration for the debt forgiveness and pursuant to the
Investment Agreement, the Company issued 20,650.115 shares of First
Series Preferred Shares to the Bank Group on May 27, 1999 for $1,000 of
consideration. In addition, the Company granted the existing bank
lenders warrants to purchase 77,437.937 First Series Preferred Shares
(which contain the same terms and conditions as granted to the
shareholder of common stock of the Company on the Record Date except
the exercise price per First Series Preferred Shares is approximately
$8.16).
The Company has determined the fair value of the First Series Preferred
Shares issued to the Bank Group to be $177.5 thousand based on the same
price per share paid by ASC. The Warrants issued to the Bank Group have
a fair value of $53.6 thousand computed in the same method used for
shareholders of record. These amounts reduce income associated with the
forgiveness of the bank debt to $16.3 million.
L. OTHER EXPENSES (INCOME):
The Predecessor Company, has included in Other Expense for the three
months ended March 31, 1999 the costs related to the negotiation of the
Investment Agreement and other professional costs associated with the
bankruptcy proceedings of $260 thousand.
M. EARNINGS PER SHARE:
The issuance of the First Series Preferred Shares resulted in the
Successor Company having a participating security. In accordance with
Statement of Financial Accounting Standards No. 128 - Earnings per
Share, the "two class" method is used for computing earnings per share.
Under this method, an earnings allocation formula is used to determine
the amount of earnings allocated to each class stock. Based on the
participating rights of the First Series Preferred Shares approximately
87.5% of the earnings will be allocated to these shares and 12.5% of
earnings to the Common Stock. Shares outstanding for the computation of
basic earnings per share was 14,043,600 Common Shares and for the First
Series Preferred Shares of 1,973,002.305. Earnings per share assuming
dilution requires the Company to use the treasury method for stock
options and warrants. The Common Stock options outstanding for the
periods presented had exercise prices that were in excess of the market
price and therefore had no effect on the computation assuming dilution.
The Warrants for the First Series Preferred Shares had the effect of
increasing the denominator in the earnings per share calculation by
53,726 shares, for the three months ended March 31, 2000.
Earnings per share, prior to the Investment Transaction was computed
based on 4,602,180 common shares outstanding and stock options had the
effect of increasing the denominator to 4,703,619 common shares
outstanding.
N. SEGMENT INFORMATION:
In 1998, the Predecessor Company adopted FAS 131, "Disclosures about
Segments of an Enterprise and Related Information." The Predecessor
Company managed and reported its operating activities under three
segments: Trim Products, Fasteners, and Truck and Automotive
Replacement Parts. The Successor Company manages and reports its
operating activities under two segments, Trim Products and Truck and
Automotive Replacement Parts. The Trim Products segment consists of
decorative and functional exterior trim sold to original equipment
manufacturers ("OEM's"). Fasteners are decorative, specialty and
standard wheel nuts sold to the OEM's and to the replacement market.
The Truck and Automotive Replacement Parts segment consists of
heavy-duty vehicle undercarriage parts and brake systems for the
automotive industry. In 1999, the Company sold a portion of its Trim
Products segment (see Note I). Information for the Fastener segment has
been excluded as it is accounted for as discontinued operations because
it was sold by the Company on March 26, 1999 (see Note J).
The accounting policies for the segments are the same as those used for
the consolidated financial statements. There are no inter-segment sales
and management does not allocate interest or corporate expenses to the
segments. The Company evaluates the performance of its segments and
allocates resources to them based on operating income. Segment profit
13
<PAGE> 14
is defined as sales minus cost of goods sold and selling, general and
administrative expenses. Other items relate to non-recurring
transactions, such as bankruptcy-related transactions or sales of
portions of segments.
Information by operating segment is summarized below:
<TABLE>
<CAPTION>
For The Three Months Ended March 31
-----------------------------------
Trim Replacement
Products Parts Total
-------- ----- -----
<S> <C> <C> <C>
Sales to unaffiliated customers
2000 $ 24,890 $ 12,837 $37,727
1999 Restated (Note A) -- 14,276 14,276
Segment profit
2000 $ 1,853 $ 714 $ 2,567
1999 Restated (Note A) -- 989 989
Other charges (income)
2000 $ (2) -- $ (2)
1999 Restated (Note A) -- 31 31
Affiliate companies' income
2000 $ -- $ -- $ --
1999 Restated (Note A) 4,404 -- 4,404
Depreciation and amortization
2000 $ 686 $ 233 $ 919
1999 Restated (Note A) -- 454 454
Segment assets
March 31, 2000 $ 46,859 $ 27,791 $74,650
March 31, 1999 Restated (Note A) -- 39,003 39,003
Expenditures for segment assets:
2000 $ 182 $ 92 $ 274
1999 Restated (Note A) -- 83 83
</TABLE>
A reconciliation of segment profit for reportable segments to income (loss) from
continuing operations before taxes and extraordinary items is as follows:
<TABLE>
<CAPTION>
Three
Three Months
Months Ended
Ended March 31,
March 31, 1999
2000 Restated (Note A)
---- ----------------
<S> <C> <C>
Segment profit $ 2,567 $ 989
Other income (expense) 2 (258)
Affiliate companies' income -- 4,404
Corporate expense (762) (501)
Interest expense (1,213) (1,804)
------- -------
Income from continuing
operations before taxes
and extraordinary items $ 594 $ 2,830
======= =======
</TABLE>
14
<PAGE> 15
A reconciliation of segment assets to consolidated assets is as follows:
<TABLE>
<CAPTION>
Three Months
Three Months Ended
Ended March 31, 1999
March 31, 2000 Restated (Note A)
-------------- -----------------
<S> <C> <C>
Segment assets $74,650 $ 39,003
Corporate assets 3,905 1,556
Investment in affiliates -- 17,233
------- --------
$78,555 $ 57,792
======= ========
</TABLE>
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.
GENERAL AND RECENT INFORMATION
JPE, Inc. (together with its subsidiaries, the "Company"), through its five
operating subsidiaries in existence as of January 1, 1999, manufactured and
distributed automotive and truck components to original equipment manufacturers
("OEMs") and to the aftermarket. During 1998 and through May 1999, the Company
experienced financial difficulty resulting in a strategy to sell certain
subsidiaries, obtain additional capital and restructure its debt.
During the period from August, 1998 through May, 1999, three of the Company's
operating subsidiaries, Plastic Trim, Inc. ("PTI"), Starboard Industries, Inc.
("Starboard") and JPE Canada Inc. ("JPEC"), were operating under court ordered
protection. On September 15, 1998, PTI and Starboard filed voluntary petitions
for relief under Chapter 11 of the Federal Bankruptcy Code in the United States
Bankruptcy Court for the Eastern District of Michigan. On August 27, 1998, the
Ontario Court (General Division) Commercial List issued an order to appoint an
Interim Receiver for JPEC pursuant to Section 47 of the Bankruptcy and
Insolvency Act of Canada. Collectively, these companies represent the Company's
Trim Group. The Company's two other operating subsidiaries, Dayton Parts, Inc.
("DPI") and Industrial & Automotive Fasteners, Inc. ("IAF"), and the parent
company of all five operating subsidiaries, JPE, Inc., continued to operate
without court protection.
On February 8, 1999, under court order, the Company sold substantially all the
assets of JPEC for approximately Cdn. $21 million, to the Ventra Group, Inc.
Proceeds were used to pay Canadian bank debt and other secured debt provided by
a major customer. In conjunction with the sale of all of its assets, JPEC filed
an assignment in bankruptcy on February 8, 1999. JPEC had no assets to pay its
unsecured debt and, as such, JPEC was dissolved. The unpaid liabilities of JPEC
at closing were eliminated through the bankruptcy proceeding, resulting in a
gain of approximately $2.9 million which was recognized in the first quarter of
1999.
On March 26, 1999, the Company sold the stock of IAF for approximately $20
million. As part of this transaction, certain vendors of IAF agreed to accept a
30% payment for past due payables resulting in a gain on debt forgiveness of $2
million. The Company recognized a loss of approximately $2.5 million as a result
of the stock sale in the first quarter of 1999.
On February 25, 1999, the Company filed Plans of Reorganization for PTI and
Starboard with the United States Bankruptcy Court, pursuant to which those
companies would emerge from pending Chapter 11 bankruptcy proceedings. This
action was contingent on the consummation of an investment in the Company by ASC
Holdings LLC ("ASC") and Kojaian Holdings LLC ("Kojaian"), as described in Note
A, which occurred on May 27, 1999. As a result, these reorganization plans were
confirmed by the Bankruptcy Court, and the unsecured creditors of PTI and
Starboard forgave 70% of their claims, totaling approximately $4.1 million. In
addition, on December 8, 1999, the Bankruptcy Court entered a Final Decree
discharging Starboard from bankruptcy proceedings. PTI's discharge
15
<PAGE> 16
from bankruptcy proceedings will occur after the settlement of two outstanding
claims, which the Company fully expects to resolve during the second quarter of
2000.
After these transactions, JPE, Inc. owns three operating subsidiaries, DPI, PTI
and Starboard, with 1999 annual revenues of approximately $157 million and total
assets of approximately $79 million. JPE, Inc. is now operating under the
assumed names of ASCET INC and ASC Exterior Technologies and is hereinafter
referred to as the Successor Company. PTI now operates under the assumed names
of ASC Exterior Technologies - Dayton and ASC Exterior Technologies -
Beavercreek. SBI now operates under the assumed name of ASC Exterior
Technologies - East Tawas.
RESULTS OF OPERATIONS
Managements' discussion and analysis of the results of operations for the three
months ended March 31, 2000 compared to the three months ended March 31, 1999
has been structured to compare the results of operations related only to the
operating locations that remain part of the Company at March 31, 2000. To
facilitate this discussion, the information shown below makes the following
adjustments to the Company's income (loss) from continuing operations before
income taxes and extraordinary items for the three months ended March 31, 1999:
(1) the sale of the assets of JPE Canada Inc. in February 1999, and (2) the
consolidation of entities that were previously accounted for under the equity
method (Plastic Trim, Inc. and Starboard Industries, Inc., for the period
January 1, 1999 through March 31, 1999).
RESULTS OF OPERATIONS FOR ASCET INC OPERATING LOCATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
CONSOLIDATION OF
AS REPORTED ENTITIES PREVIOUSLY ASCET INC
AND RESTATED DIVESTED CARRIED ON EQUITY OPERATING
(NOTE A) OPERATIONS METHOD LOCATIONS
-------- ---------- ------ ---------
<S> <C> <C> <C> <C>
Net sales $ 14,276 $ -- $ 26,134 $ 40,410
Cost of goods sold 10,284 -- 22,044 32,328
------- -------- -------- --------
Gross profit 3,992 -- 4,090 8,082
Selling, general and
administrative expenses 3,504 -- 1,629 5,133
Other expense (income) 258 -- 298 556
Affiliate companies'
(income) loss (4,404) 2,620 1,784 --
Interest expense, net 1,804 -- 379 2,183
------- -------- -------- --------
Income (loss) from continuing
operations before income
taxes and extraordinary item $ 2,830 $ (2,620) $ -- $ 210
======= ======== ======== ========
</TABLE>
THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO THREE MONTHS ENDED MARCH 31, 1999
For ASCET INC operating locations, net sales for the three months ended March
31, 2000 and 1999 were as follows (in thousands): 1999 2000 Restated (Note A)
<TABLE>
<CAPTION>
<S> <C> <C>
Trim Products $24,890 $26,134
Replacement Parts 12,837 14,276
------ -------
Total $37,727 $40,410
======= =======
</TABLE>
The decrease in Trim Segment sales of $1,244 thousand, or 4.8% is the net result
of 1999 additional sales of approximately $400 thousand related to set up
charges on original equipment manufacturer service parts and sales reductions
related to completion of production on certain programs for which the Company
has
16
<PAGE> 17
not been awarded replacement business. The sales decrease in the Replacement
Part Segment of 10% is mainly attributable to lost business due to customers
resourcing their purchases to other vendors during the Company's financial
difficulties for the purpose of assuring a continuous supply of product, and
selling price reductions required to meet competitive market pricing.
For the three months ended March 31, 1999, sales by entities that were divested,
by segment, were as follows (in thousands). None of these entities had any sales
in the quarter ended March 31, 2000.
Trim Products (JPE Canada) $ 4,066
Fasteners (Discontinued Operation) 10,024
-------
Total $14,090
=======
Gross profit was $6,805 thousand, or 18% of sales, for the three months ended
March 31, 2000 compared to $8,082 thousand, or 20% of sales, for the same
quarter last year for the same operating locations on a consolidated basis.
The gross profit (loss) by segment is as follows (in thousands):
<TABLE>
<CAPTION>
1999
2000 Restated (Note A)
---- -----------------
<S> <C> <C>
Trim Products $ 3,618 $ 4,090
Replacement Parts 3,187 3,992
------ ------
Total $6,805 $ 8,082
====== =======
</TABLE>
The gross profit percentage for the Trim Product Segment was 14.5% and 15.7% for
the quarters ended March 31, 2000 and 1999, respectively. The decrease in the
gross profit percentage was attributable to higher scrap rates, increased
freight costs, and lower labor efficiency related to the consolidation of
certain manufacturing activities at the Dayton, Ohio operation and lower
overhead burden absorption due to lower sales levels.
The gross profit as percentage of sales for the Replacement Parts Segment is
24.8%, compared to 28% for the three months ended March 31, 2000 and 1999,
respectively. The decrease in gross profit as a percentage of sales is the
result of lower overhead burden absorption caused by lower demand for
manufactured products and selling price reductions required to meet competitive
market pricing.
Selling, general and administrative (SGA) expenses for the three months ended
March 31, 2000 were $5,000 thousand or 13.3% of sales compared to $5,133
thousand or 12.7% of sales for the quarter ended March 31, 1999. Detail of SGA
expenses, for these operating locations on a consolidated basis, for the three
months ended March 31, 2000 and March 31, 1999 are as follows (in thousands):
<TABLE>
<CAPTION>
1999
2000 Restated (Note A)
---- -----------------
<S> <C> <C>
Trim Products $1,765 $1,629
Replacement Parts 2,473 3,003
Corporate 762 501
---- ----
Total $5,000 $5,133
====== ======
</TABLE>
SGA expense for the Trim Products Segment was $1,765 thousand or 7.1% of sales
and $1,629 thousand or 6.2% of sales for quarters ended March 31, 2000 and 1999,
respectively. The higher percentage is attributable to higher administrative
expenses and decreased sales revenue, described previously.
The Replacement Parts Segment's SGA expenses were $2,473 thousand or 19.3% of
sales and $3,003 thousand or 21% of sales for the three months ended March 31,
2000 and 1999, respectively. In the Replacement Parts Segment, management has
been reducing its SGA costs, primarily through headcount reductions and lower
administrative costs.
Corporate administrative costs for the three months ended March 31, 2000 and
1999 were $762 and $501 thousand, respectively. The increase in corporate
administrative costs reflect program management fees and product
17
<PAGE> 18
development costs related to the Company's Trim segment, as well as a loss on
the sublease of the Company's Ann Arbor facility during the second quarter.
Other income (loss) for the three months ended March 31, 1999 related to costs
associated with the bankruptcy proceedings and the Predecessor Company's
professional costs related to the Investment Transaction.
The interest expense for the three months ended March 31, 2000 was $1.2 million.
This compares with interest expense for the quarter ended March 31, 1999 of $2.2
million. The lower interest is primarily due to the divesture of businesses
during the first quarter of 1999 and the forgiveness of bank indebtedness. In
addition, the interest rate in 1999 was approximately 11% compared to the
approximate ASCET INC current average rate of 9.1%.
The effective tax rate for ASCET INC is 42.9% for the three months ended March
31, 2000. This rate reflects regular tax rates and the Company's inability to
deduct certain bankruptcy costs and the amortization of goodwill associated with
the Investment Transaction. The Company's deferred tax assets and liabilities
acquired in purchase have been recorded on the balance sheet net of a valuation
reserve. If in subsequent periods, additional deferred tax assets can be
recognized, any adjustment would first reduce goodwill to zero and then would
reduce income tax expense.
Earnings per share methodology is described under Note M of the Unaudited
Consolidated Condensed Financial Statements. The Common Shares outstanding were
4,602,180 for the three months ended March 31, 1999. The Common Shares
outstanding were 14,043,600 and the First Series Preferred Shares outstanding
were 1,973,002 for the three months ended March 31, 2000.
LIQUIDITY AND CAPITAL RESOURCES
Effective, May 27, 1999, the Company's principal source of liquidity is a $56.3
million demand loan from Comerica Bank (the "Comerica Facility"), which is
available to fund daily working capital needs in excess of internally generated
funds. Prior to May 27, 1999, the Company's source of liquidity was a
Forbearance Agreement dated August 10, 1998 (as amended August 31, 1998,
September 4, 1998, September 16, 1998, October 1, 1998, December 1, 1998, and
March 26, 1999), and debtor-in possession financing by GMAC Business Credit, LLC
for the Company's subsidiaries, Plastic Trim, Inc., and Starboard Industries,
Inc. Borrowings under both the Forbearance Agreement and debtor-in-possession
financing were repaid May 27, 1999 in connection with the Investment
Transaction.
In connection with the Comerica Facility, the Company has executed three
promissory notes in the amounts of $6.3 million, $20 million, and $30 million,
each providing for borrowing options at either a Prime based rate plus 1/2% to
1% or Eurodollar plus 3% to 3 1/2%. Eurodollar borrowings for 1 to 6 months are
permitted at the option of the Company. Advances under the $30 million demand
note are subject to a borrowing base restriction equal to 80% of eligible trade
receivables and the lesser of 50% of eligible inventory or $9 million. There are
no restrictions on advances under either the $6.3 million or $20 million demand
notes. Borrowings under the three promissory notes are secured by the Company's
cash deposits, trade receivables, inventory, and personal property, as well as a
guaranty from ASC. The collateral for ASC's guaranty is the Common Shares and
First Series Preferred Shares of the Company held by ASC.
Effective July 1, 1999, the $6.3 million demand note requires monthly principal
payments of $131 thousand. Beginning November 15, 1999, the $20 million demand
note requires quarterly principal payments equal to 75% of the preceding
quarter's excess cash flow, defined as after-tax net income, less principal note
payments, plus depreciation and amortization expense. Required covenants under
the Comerica Facility are the submissions of quarterly and annual financial
statements and projections within a prescribed time and a monthly borrowing
base. There are no financial covenants required by the terms of the Comerica
Facility.
Current borrowings at March 31, 2000 under the Comerica Facility are $42.9
million. At March 31, 2000, unused borrowing capacity under the Company's $30
million demand note was $6.1 million. The Company believes the Comerica Facility
is adequate to provide it with monthly short term working capital needs, with
the exception of certain cyclical months affected by a reduction in operations
brought upon by shutdowns for model changeovers at certain OEM customers, such
as General Motors Corporation. In addition, the Company is able to supplement
any working capital needs not satisfied by the Comerica Facility through a $3
million subordinated demand note dated August 23, 1999 from ASC Incorporated, an
affiliate of ASC. Advances are permitted up to $3 million and are
18
<PAGE> 19
unsecured and subordinate to advances made under the Comerica Facility. Interest
accrues at prime plus 1 1/2% and is payable quarterly. As of March 31, 2000
there were no advances made under this note.
Due to their demand nature, all of the notes described above have been
classified as short-term debt on the Company's balance sheet. As of March 31,
2000 in measuring working capital, the Company's Current Liabilities exceed
Current Assets by $11.9 million. Excluding the amount outstanding under the
Comerica Facility, working capital at March 31, 2000 would have been $31
million.
IMPACT OF YEAR 2000
In prior years, the Company discussed the nature and progress of its plans to
become Year 2000 ready. During the second and fourth quarter of 1999, the
Company completed its remediation and testing of systems. As a result of those
planning and implementation efforts, the Company experienced no significant
disruptions in mission critical information technology and non-information
technology systems and believes those systems successfully responded to the Year
2000 date change. The Company incurred costs of approximately $700 thousand in
connection with remediating its systems and anticipates no further costs. The
Company is not aware of any material problems resulting from Year 2000 issues,
either with its products, its internal systems, or the products and services of
third parties. The Company will continue to monitor its mission critical
computer applications and those of its suppliers and vendors throughout the year
2000 to ensure that any latent Year 2000 matters that may arise are addressed
promptly.
RECENTLY ISSUED STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities," as amended by SFAS No. 137
"Accounting for Derivative Instruments and Hedging Activities Deferral of the
Effective Date of SFAS No. 133" becomes effective for all fiscal quarters for
all fiscal years beginning after June 15, 2000 (effective January 1, 2001 for
the Company). SFAS No. 133 is not currently applicable to the Company as the
Company does not currently use derivative instruments or participate in hedge
activities.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
MARKET RISK
In the normal course of business the Company is subject to market exposures from
changes in interest rates. The Company's variable interest expense is sensitive
to changes in the general level of United States and European interest rates.
The Company's debt represents borrowings under several demand notes at the
bank's prime rate plus 1/2% to 1% or Eurodollar rates plus 3% to 3 1/2% and is
sensitive to changes in interest rates. The borrowings under the Eurodollar
rates have maturity dates varying between 30 to 59 days. At March 31, 2000 the
weighted average interest rate of the $42.9 million debt was 9.1% and the fair
value of the debt approximates its carrying value.
The Company had interest expense of $1,213 thousand for the three months ended
March 31, 2000. The potential increase in interest expense from a hypothetical
2% adverse change, assuming the March 31, 2000 debt was outstanding for the
entire year, would be $858 thousand.
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.
Investors 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.
19
<PAGE> 20
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, among other things, 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 original equipment manufacturer's ("OEM") programs; (iii)
cyclical consumer demand for new vehicles; (iv) competition in pricing and new
product development from larger companies with substantially greater resources;
(v) the concentration of a substantial percentage of the Company's sales with a
few major OEM customers; and (vi) labor relations at the Company and its
customers and suppliers.
20
<PAGE> 21
PART II. OTHER INFORMATION
JPE, INC. (D/B/A ASCET INC AND ASC EXTERIOR TECHNOLOGIES)
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. EXHIBITS:
None
B. REPORT ON FORM 8-K:
None
21
<PAGE> 22
JPE, INC. (D/B/A ASCET INC AND ASC EXTERIOR TECHNOLOGIES)
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. (d/b/a ASCET INC and
ASC Exterior Technologies)
By: /s/ Joseph E. Blake
------------------------------
Joseph E. Blake
Vice President and Chief
Financial Officer
(Principal Accounting Officer)
Date: May 15, 2000
22
<PAGE> 23
Exhibit Index
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
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0
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