<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 June 30, 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, ASC Exterior Technologies and ASC Exterior Technologies
- Sales and Engineering)
(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 June 30, 2000, there were 14,043,600 shares of the registrant's common
stock outstanding. This Quarterly Report on Form 10-Q contains 27 pages, of
which this is page 1.
<PAGE> 2
JPE, INC. (D/B/A ASCET, ASC EXTERIOR TECHNOLOGIES AND ASC EXTERIOR TECHNOLOGIES
- SALES AND ENGINEERING)
INDEX
<TABLE>
<CAPTION>
Page
<S> <C> <C>
Part I. Financial Information
Item 1. Financial Statements
Consolidated Condensed Balance Sheets 3
- At June 30, 2000 and 1999 (Unaudited)
- At December 31, 1999
Consolidated Condensed Statements of Operations (Unaudited)
- For the Successor Company for the Three Months Ended June 30, 2000 4
- For the Predecessor Company for the Period April 1, 1999 Through
May 27, 1999
- For the Successor Company for the period May 28, 1999 through
June 30, 1999
- For the Successor Company for the Six Months ended June 30, 2000 5
- For the Predecessor Company for the period January 1, 1999 through
May 27, 1999
Consolidated Condensed Statements of Shareholders' Equity (Unaudited) 6
- For the Successor Company for the Six Months Ended June 30, 2000
Consolidated Condensed Statements of Cash Flows (Unaudited) 7
- For the Successor Company for the Six Months ended June 30, 2000
- For the Successor Company for the Period May 28, 1999 through
June 30, 1999
- For the Predecessor Company for the period January 1, 1999 through
May 27, 1999
Notes to Unaudited Consolidated Condensed Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations 17
Item 3. Quantitative and Qualitative Disclosures About Market Risk 24
Part II. Other Information
Item 6. Exhibits and Reports 26
Signature 27
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
JPE, INC. (D/B/A ASCET, ASC EXTERIOR TECHNOLOGIES AND ASC EXTERIOR
TECHNOLOGIES - SALES AND ENGINEERING)
CONSOLIDATED CONDENSED BALANCE SHEETS
($ Amounts in Thousands)
<TABLE>
<CAPTION>
AT JUNE 30
(UNAUDITED)
--------------------------
1999 AT DECEMBER 31,
2000 RESTATED (NOTE A) 1999
---- ----------------- ----
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 82 $ 1,937 $ 639
Accounts receivables trade, net 21,140 22,406 20,205
Inventory, net 21,984 21,838 22,589
Other current assets 1,250 2,442 1,396
------- ------- -------
Total current assets 44,456 48,623 44,829
Property, plant and equipment, net 25,260 26,611 26,797
Goodwill, net 3,765 4,021 3,902
Deferred income taxes 2,656 2,293 2,778
Other assets 654 478 599
------- ------- -------
Total assets $76,791 $82,026 $78,905
======= ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Notes payable $42,650 $48,596 $45,877
Accounts payable trade 9,711 7,537 8,306
Accrued liabilities and other
current liabilities 4,703 4,299 3,451
------- ------- -------
Total current liabilities 57,064 60,432 57,634
Deferred income taxes and other liabilities 1,721 1,519 1,873
Long-term debt, non-current 176 320 246
------- ------- -------
Total liabilities 58,961 62,271 59,753
------- ------- -------
Shareholders' equity (deficit):
Warrants 293 293 293
First Series Preferred Shares, no par value,
3,000,000 authorized, 1,973,002 shares
issued and outstanding at June 30, 2000,
June 30, 1999 and December 31, 1999 16,590 16,590 16,590
Common stock, no par value, 15,000,000
authorized, 14,043,600 shares issued and
outstanding at June 30, 2000, June 30, 1999
and December 31, 1999 2,379 2,379 2,379
Retained earnings (accumulated deficit) (1,432) 493 (110)
------- ------- -------
Total shareholders' equity (deficit) 17,830 19,755 19,152
------- ------- -------
Total liabilities and shareholders' equity (deficit) $76,791 $82,026 $78,905
======= ======= =======
</TABLE>
The accompanying notes are an integral part
of the consolidated condensed financial statements
3
<PAGE> 4
JPE, INC. (D/B/A ASCET, ASC EXTERIOR TECHNOLOGIES AND ASC EXTERIOR TECHNOLOGIES
- SALES AND ENGINEERING)
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE OPERATIONS
For the Three Months Ended June 30, 2000 and 1999
($ Amounts in Thousands, Except Per Share Data)
(Unaudited)
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
SUCCESSOR COMPANY COMPANY
COMPANY ------- -------
-------- PERIOD FROM PERIOD FROM
APRIL 1, 1999 MAY 28, 1999
THREE MONTHS THROUGH MAY 27, THROUGH JUNE 30,
ENDED JUNE 30, 1999 1999
2000 RESTATED (NOTE A) RESTATED (NOTE A)
---- ----------------- -----------------
<S> <C> <C> <C>
Net sales $38,298 $ 9,768 $14,061
Cost of goods sold 33,734 7,432 11,061
------- ------- -------
Gross profit 4,564 2,336 3,000
Selling, general and administrative expenses 5,187 2,304 1,813
Other expense (income) -- 424 --
Affiliate companies' (income) loss -- (4,546) --
Interest expense, net 1,176 1,055 384
------- ------- -------
Income (loss) from continuing operations before
income taxes and extraordinary item (1,799) 3,099 803
Income tax expense (benefit) (138) 33 310
------- ------- -------
Income (loss) from continuing operations
before extraordinary item (1,661) 3,066 493
Extraordinary Item:
Forgiveness of debt -- 16,257 --
------- ------- -------
Net income (loss) $(1,661) $19,323 $ 493
======== ======= =======
Basic earnings (loss) per share from continuing operations
before extraordinary item:
Common Shares $(0.01) $0.67 $0.00
======= ===== =====
First Series Preferred Shares $(0.74) $0.22
======= =====
Earnings (loss) per share from continuing operations
before extraordinary item assuming dilution:
Common Shares $(0.01) $0.66 $0.00
======= ===== =====
First Series Preferred Shares $(0.74) $0.19
======= =====
Basic earnings (loss) per share:
Common Shares $(0.01) $4.20 $0.00
======= ===== =====
First Series Preferred Shares $(0.74) $0.22
======= =====
Earnings (loss) per share assuming dilution:
Common Shares $(0.01) $4.16 $0.00
======= ===== =====
First Series Preferred Shares $(0.74) $0.19
======= =====
</TABLE>
The accompanying notes are an integral part
of the consolidated condensed financial statements.
4
<PAGE> 5
JPE, INC. (D/B/A ASCET, ASC EXTERIOR TECHNOLOGIES AND ASC EXTERIOR TECHNOLOGIES
- SALES AND ENGINEERING)
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE OPERATIONS
For the Six Months Ended June 30, 2000 and 1999
(Amounts in Thousands, Except Per Share Data)
(Unaudited)
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
SUCCESSOR COMPANY COMPANY
COMPANY ------- -------
------- PERIOD FROM PERIOD FROM
JANUARY 1, 1999 MAY 28, 1999
SIX MONTHS THROUGH MAY 27, THROUGH JUNE 30,
ENDED JUNE 30, 1999 1999
2000 RESTATED (NOTE A) RESTATED (NOTE A)
---- ----------------- -----------------
<S> <C> <C> <C>
Net sales $76,025 $24,044 $14,061
Cost of goods sold 64,656 17,716 11,061
------- ------- -------
Gross profit 11,369 6,328 3,000
Selling, general and administrative expenses 10,185 5,538 1,813
Other expense (income) -- 682 --
Affiliate companies' (income) loss -- (8,680) --
Interest expense, net 2,390 2,859 384
------- ------- -------
Income (loss) from continuing operations before
income taxes and extraordinary items (1,206) 5,929 803
Income tax expense 116 104 310
------- ------- -------
Income (loss) from continuing operations
before extraordinary items (1,322) 5,825 493
Discontinued Operation:
Income from operations of IAF -- 214 --
Loss on sale of the Stock of IAF -- (2,321) --
Extraordinary Items:
Forgiveness of debt and liabilities -- 18,272 --
------- ------- -------
Net income (loss) $(1,322) $21,990 $ 493
======== ======= =======
Basic earnings (loss) per share from continuing
operations before extraordinary items:
Common Shares $ (0.01) $1.27 $0.00
========== ===== =====
First Series Preferred Shares $ (0.59) $0.00 $0.22
========== ===== =====
Earnings (loss) per share from continuing
operations before extraordinary items assuming dilution:
Common Shares $ (0.01) $1.25 $0.00
========== ===== =====
First Series Preferred Shares $ (0.59) $0.00 $0.19
========== ===== =====
Basic earnings (loss) per share:
Common Shares $ (0.01) $4.78 $0.00
========== ===== =====
First Series Preferred Shares $ (0.59) $0.00 $0.22
========== ===== =====
Earnings (loss) per share assuming dilution:
Common Shares $ (0.01) $4.73 $0.00
========== ===== =====
First Series Preferred Shares $ (0.59) $0.00 $0.19
========== ===== =====
</TABLE>
The accompanying notes are an integral part
of the consolidated condensed financial statements.
5
<PAGE> 6
JPE, INC. (D/B/A ASCET, ASC EXTERIOR TECHNOLOGIES AND ASC EXTERIOR TECHNOLOGIES
- SALES AND ENGINEERING)
CONSOLIDATED CONDENSED STATEMENTS OF SHAREHOLDERS' EQUITY
For the Six Months Ended June 30, 2000
($ Amounts in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
NET INCOME
BALANCES AT FOR THE SIX MONTHS BALANCES AT
DECEMBER 31, ENDED JUNE 30,
1999 JUNE 30, 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) $(1,322) $ (1,432)
----------- ------- -----------
Total Shareholder Equity $ 19,152 $(1,322) $ 17,830
=========== ======= ===========
</TABLE>
The accompanying notes are an integral part
of the consolidated condensed financial statements.
6
<PAGE> 7
JPE, INC. (D/B/A ASCET, ASC EXTERIOR TECHNOLOGIES AND ASC EXTERIOR TECHNOLOGIES
- SALES AND ENGINEERING)
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
($ Amounts in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
SUCCESSOR COMPANY COMPANY
COMPANY ------- -------
------- PERIOD FROM PERIOD FROM
JANUARY 1, 1999 MAY 28, 1999
SIX MONTHS THROUGH MAY 27, THROUGH JUNE 30,
ENDED JUNE 30, 1999 1999
2000 RESTATED (NOTE A) RESTATED (NOTE A)
---- ----------------- -----------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $(1,322) $21,990 $ 493
Adjustments to reconcile net income (loss) to net
cash provided by (used for) operating activities:
Extraordinary items, forgiveness of debt
and liabilities -- (18,272) --
Depreciation and amortization 1,906 1,250 298
Loss on sale of assets -- 2,549 --
Affiliate companies' income -- (8,680) --
Other -- 98 --
Changes in operating assets and liabilities:
Accounts receivable (935) (2,204) (901)
Inventory 605 657 226
Other current assets 146 422 (230)
Accounts payable 1,405 2,065 (2,112)
Accrued liabilities and income taxes 1,222 (570) (128)
Deferred income taxes -- 2 (1)
-------- ------- --------
Net cash provided by (used for)
operating activities 3,027 (693) (2,355)
-------- ------- --------
Cash flows from investing activities:
Purchase of property and equipment (832) (238) (78)
Other (55) -- --
Cash proceeds from sale of Subsidiary -- 20,000 --
Cash proceeds from sale of assets 600 -- --
Cash received from (loaned to) equity investees -- (13,890)
-------- ------- --------
Net cash provided by (used for)
investing activities (287) 5,782 (78)
-------- ------- --------
Cash flows from financing activities:
Net borrowings (payments) under demand notes (3,227) (6) 48,493
Net borrowings (payments) under revolving loan -- (1,742) (66,257)
Issuance of First Series Preferred Shares -- 1 16,413
Issuance of Common Stock -- -- 1,987
Repayment of other debt (70) -- (2)
-------- ------- --------
Net cash provided by (used for)
financing activities (3,297) (1,747) 634
-------- ------- --------
Cash and cash equivalents:
Net increase (decrease) in cash (557) 3,342 (1,799)
Cash, beginning of period 639 394 3,736
-------- ------- --------
Cash, end of period $ 82 $ 3,736 $ 1,937
======== ======= ========
</TABLE>
The accompanying notes are an integral part
of the consolidated condensed financial statements
7
<PAGE> 8
JPE, INC. (D/B/A ASCET INC, ASC EXTERIOR TECHNOLOGIES AND ASC EXTERIOR
TECHNOLOGIES - SALES AND ENGINEERING)
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, ASC Exterior Technologies and ASC
Exterior Technologies - Sales and Engineering (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 period January 1, 1999
through May 27, 1999 and for the Successor Company for the period May
28, 1999 though June 30, 1999 have been restated from unaudited amounts
as originally reported to include income of $1,113 thousand, and
expenses of $20 thousand, respectively, to reflect additional revenue
and inventory valuation and other 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 through the period January 1, 1999 through May 27,
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 period January 1, 1999 through May 27, 1999.
Certain non-core operations of the Company were divested as 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.
8
<PAGE> 9
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 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.
On July 1, 2000 the Company paid $1,000 plus other remuneration
described below, to purchase certain assets and liabilities of MB
Associates, Inc. (MB). MB was the exclusive sales representative for
the Company's Trim Products Group. In connection with the purchase of
MB, the Company entered into consulting and/or employment agreements
with certain former owners and key members of MB's management team.
9
<PAGE> 10
Under the terms of these agreements, the Company paid $357,500 at
closing and executed notes payable in the amount of $1,462,500. These
notes require three payments of $487,500 due on June 30 of each of
2001, 2002 and 2003. In addition, the Company agreed to issue common or
preferred stock equal in value to $180,000 as a signing bonus for the
individuals who will become employees of the Company.
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, ASC
Exterior Technologies and ASC Exterior Technologies - Sales and
Engineering and is hereinafter referred to as the Successor Company.
B. INVENTORY:
Inventories by component are as follows (amounts in thousands):
<TABLE>
<CAPTION>
June 30, 1999
June 30, 2000 Restated (Note A) December 31, 1999
------------- ----------------- ------------------
<S> <C> <C> <C>
Finished goods $12,792 $14,525 $13,292
Work in process 1,660 2,268 1,544
Raw material 5,940 4,357 5,959
Tooling 1,592 688 1,794
------- ------- -------
$21,984 $21,838 $22,589
======= ======= =======
</TABLE>
C. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment by component is as follows (amounts in
thousands):
<TABLE>
<CAPTION>
June 30, 1999
June 30, 2000 Restated (Note A) December 31, 1999
------------- ----------------- -----------------
<S> <C> <C> <C>
Land $ 706 $ 803 $ 803
Buildings 5,477 5,980 5,980
Machinery and equipment 21,417 18,825 20,599
Furniture and fixtures 1,294 1,280 1,280
------- ------- -------
28,894 26,888 28,662
Less accumulated depreciation (3,634) (277) (1,865)
------- ------- -------
$25,260 $26,611 $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>
June 30, 1999
June 30, 2000 Restated (Note A) December 31, 1999
------------- ----------------- -----------------
<S> <C> <C> <C>
Accrued compensation $ 884 $ 452 $ 469
Accrued interest 355 214 329
Accrued employee benefits 2,230 2,322 1,026
Accrued taxes 113 325 497
Other 1,121 986 1,130
------ ------ ------
$4,703 $4,299 $3,451
====== ====== ======
</TABLE>
10
<PAGE> 11
E. INVESTMENT IN U.S. AFFILIATE COMPANIES:
JPE, Inc.'s subsidiaries, Plastic Trim, Inc. ("PTI") and Starboard
Industries ("Starboard"), Inc. 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 period January 1,
1999 through May 27, 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. These
subsidiaries are included in the consolidated financial statements
effective May 28, 1999 for the Successor Company.
The results of operations for the period April 1, 1999 to May 27, 1999
and January 1, 1999 to May 27, 1999, as Restated, (see Note A) were as
follows (amounts in thousands):
<TABLE>
<CAPTION>
April 1, 1999 to May 27, 1999: PTI Starboard Total
Restated (Note A) Restated (Note A) Restated (Note A)
----------------- ----------------- -----------------
<S> <C> <C> <C>
Net sales $13,632 $ 5,015 $18,647
Cost of sales 12,412 3,545 15,957
------- ------- -------
Gross profit 1,220 1,470 2,690
Selling, general and administrative expense 674 319 993
Other reorganization expenses 613 164 777
------- ------- -------
Income (loss) before interest and taxes (67) 987 920
Interest expense 131 36 167
------- ------- -------
Income (loss) before extraordinary item (198) 951 753
Extraordinary item forgiveness of debt and liabilities 2,985 808 3,793
------- ------- -------
Net income $ 2,787 $ 1,759 $ 4,546
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
January 1, 1999 to May 27, 1999: PTI Starboard Total
--- --------- -----
<S> <C> <C> <C>
Net sales $33,672 $11,109 $44,781
Cost of sales 29,592 8,409 38,001
------- ------- -------
Gross profit 4,080 2,700 6,780
Selling, general and administrative expense 2,572 591 3,163
Other reorganization expenses 624 180 804
------- ------- -------
Income before interest and taxes 884 1,929 2,813
Interest expense 439 107 546
------- ------- -------
Income before extraordinary item 445 1,822 2,267
Extraordinary item forgiveness of debt and liabilities 2,985 808 3,793
------- ------- -------
Net income $ 3,430 $ 2,630 $ 6,060
======= ======= =======
</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.
11
<PAGE> 12
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 period and a monthly borrowing
base. There are no financial covenants required by the terms of the
Comerica Facility. Current borrowings at June 30, 2000 under the
Comerica Facility are $42.6 million. At June 30, 2000, unused borrowing
capacity under the Company's $30 million demand note was $4.7 million.
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 June 30,
2000 there were no advances made under this note.
On June 14, 2000, the Company's Board of Directors agreed to allow ASC
Incorporated, an affiliate of ASC, to guarantee $5 million of
indebtedness owed to Comerica Bank in return for a commitment fee,
payable quarterly in arrears to ASC Incorporated, of 3% per anum. The
agreement became effective June 1, 2000. As of June 30, 2000, $13
thousand was accrued and payable to ASC Incorporated under the terms of
this agreement.
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 further net taxable losses of $1.2 million for
the period May 28, 1999 through December 31, 1999, and $3.3 million for
the six months ended June 30, 2000.
12
<PAGE> 13
The Company's 10% effective tax rate for the six months ended June 30,
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 state
income taxes related to the Company's profitable locations and an
increase in the Company's valuation reserve related to its inability to
utilize the current period's net taxable loss. A reconciliation to the
U.S. federal statutory tax rate is as follows:
<TABLE>
<S> <C>
Statutory U.S. federal tax rate (34%)
State taxes, net of federal tax benefit 9
Nondeductible Goodwill amortization 5
Nondeductible bankruptcy and other expenses 1
Increase in valuation reserve 28
Foreign tax rate above U.S. federal 1
---
10%
===
</TABLE>
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 $7.4 million have
been reduced by a $4.7 million valuation reserve, and deferred tax
liabilities of $1.7 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>
13
<PAGE> 14
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.
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 Share 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 six
months ended June 30, 1999 the costs related to the negotiation of the
Investment Agreement and other professional costs associated with the
bankruptcy proceedings of $492 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 were 14,043,600 Common Shares and
1,973,002.305 for the First Series Preferred Shares. 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 no
effect on the denominator in the earnings per share calculation for the
three months and six months ended June 30, 2000, respectively, as the
effect would be antidilutive. The warrants for the First Series
Preferred Shares had the effect of increasing the denominator in the
earnings per share calculation by 308,838 shares for the period from
May 28, 1999 to June 30, 1999.
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 common shares outstanding by 43,296 and 81,291
for the periods April 1, 1999 to May 27, 1999 and January 1, 1999 to
May 27, 1999 respectively.
14
<PAGE> 15
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
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 June 30
----------------------------------
Trim Replacement
Products Parts Total
-------- ----- -----
<S> <C> <C> <C>
Sales to unaffiliated customers
2000 $24,462 $13,836 $38,298
1999 Restated (Note A) Predecessor -- 9,768 9,768
1999 Restated (Note A) Successor 8,828 5,233 14,061
Segment profit
2000 $ (748) $ 1,012 $ 264
1999 Restated (Note A) Predecessor -- 253 253
1999 Restated (Note A) Successor 998 461 1,459
Other charges (income)
2000 $ 9 -- $ 9
1999 Restated (Note A) Predecessor -- (165) (165)
1999 Restated (Note A) Successor 99 66 165
Affiliate companies' income
2000 $ -- $ -- $ --
1999 Restated (Note A) Predecessor 4,546 -- 4,546
1999 Restated (Note A) Successor -- -- --
Depreciation and amortization
2000 $ 780 $ 181 $ 961
1999 Restated (Note A) Predecessor -- 320 320
1999 Restated (Note A) Successor 227 67 294
Segment assets
June 30, 2000 $45,652 $27,725 $73,377
June 30, 1999 Restated (Note A) 41,401 38,101 79,502
Expenditures for segment assets
2000 $ 264 $ 153 $ 417
1999 Restated (Note A) Predecessor -- 49 49
1999 Restated (Note A) Successor 69 9 78
</TABLE>
15
<PAGE> 16
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
Months 1999 Restated (Note A)
Ended ----------------------
June 30, Predecessor Successor
2000 Period Period
---- ------ ------
<S> <C> <C> <C>
Segment profit $ 264 $ 253 $1,459
Other income (expense) (9) 165 (165)
Affiliate companies' income -- 4,546 --
Corporate expense (878) (810) (107)
Interest expense (1,176) (1,055) (384)
------- ------- ------
Income (loss) from continuing
operations before taxes
and extraordinary items $(1,799) $ 3,099 $ 803
======= ======= ======
</TABLE>
For The Six Months Ended June 30
--------------------------------
<TABLE>
<CAPTION>
Trim Replacement
Products Parts Total
-------- ----- -----
<S> <C> <C> <C>
Sales to unaffiliated customers
2000 $49,352 $26,673 $76,025
1999 Restated (Note A) Predecessor -- 24,044 24,044
1999 Restated (Note A) Successor 8,828 5,233 14,061
Segment profit
2000 $ 1,104 $ 1,735 $ 2,839
1999 Restated (Note A) Predecessor -- 1,240 1,240
1999 Restated (Note A) Successor 998 461 1,459
Other charges
2000 $ 7 $ -- $ 7
1999 Restated (Note A) Predecessor -- 81 81
1999 Restated (Note A) Successor 99 66 165
Affiliate companies' income
2000 $ -- $ -- $ --
1999 Restated (Note A) Predecessor 8,680 -- 8,680
1999 Restated (Note A) Successor -- -- --
Depreciation and amortization
2000 $ 1,480 $ 413 $ 1,893
1999 Restated (Note A) Predecessor -- 795 454
1999 Restated (Note A) Successor 227 67 294
Expenditures for segment assets:
2000 $ 560 $ 245 $ 805
1999 Restated (Note A) Predecessor -- 238 238
1999 Restated (Note A) Successor 69 9 78
</TABLE>
16
<PAGE> 17
A reconciliation of segment assets to consolidated assets is as follows:
<TABLE>
<CAPTION>
June 30, 1999
June 30, 2000 Restated (Note A)
------------- -----------------
<S> <C> <C>
Segment assets $73,377 $ 79,502
Corporate assets 3,414 2,524
Investment in affiliates -- --
------- --------
$76,791 $ 82,026
======= ========
</TABLE>
A reconciliation of segment profit for reportable segments to income from
continuing operations before taxes and extraordinary items is as follows:
<TABLE>
<CAPTION>
Six
Months 1999 Restated (Note A)
Ended ----------------------
June 30, Predecessor Successor
2000 Period Period
---- ------ ------
<S> <C> <C> <C>
Segment profit (loss) $ 2,839 $ 1,240 $1,459
Other income (expense) (7) (81) (165)
Affiliate companies' income -- 8,680 --
Corporate expense (1,648) (1,051) (107)
Interest expense (2,390) (2,859) (384)
------------ ------- -------
Income from continuing
operations before taxes
and extraordinary items $(1,206) $ 5,929 $ 803
============ ======= =======
</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.
RECENT 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 throughout 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.
17
<PAGE> 18
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 and on May 12, 2000, the
Bankruptcy Court entered a Final Decree Discharging PTI from bankruptcy
proceedings.
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, ASC Exterior Technologies and ASC Exterior
Technologies - Sales and Engineering 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.
On July 1, 2000 the Company paid $1,000, plus other remuneration described
below, to purchase certain assets and liabilities of MB Associates (MB), Inc. MB
was the exclusive sales representative for the Company's Exterior Trim
operations. In connection with the purchase of MB, the Company entered into
consulting and/or employment agreements with certain former owners and key
members of MB's management team. Under the terms of these agreements, the
Company paid $357,500 at closing and executed notes payable in the amount of
$1,462,500. These notes require three payments of $487,500 due on June 30, of
each of 2001, 2002 and 2003. In addition, the Company agreed to issue common or
preferred stock equal in value to $180,000 as a signing bonus for the
individuals who will become employees of the Company.
RESULTS OF OPERATIONS
Managements' discussion and analysis of the results of operations for the three
and six month periods ended June 30, 2000 compared to the three and six month
periods ended June 30, 1999 has been structured to compare the results of
operations related only to the operating locations that remain part of the
Company at June 30, 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
and six month periods ended June 30, 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 May 27,
1999).
18
<PAGE> 19
RESULTS OF OPERATIONS FOR ASCET INC OPERATING LOCATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
COMPANY COMPANY CONSOLIDATION OF
AS REPORTED AS REPORTED ENTITIES PREVIOUSLY ASCET INC
AND RESTATED AND RESTATED CARRIED ON EQUITY OPERATING
(NOTE A) (NOTE A) METHOD (2) LOCATIONS
-------- -------- ---------- ---------
<S> <C> <C> <C> <C>
Net sales $ 9,768 $14,061 $18,647 $42,476
Cost of goods sold 7,432 11,061 15,957 34,450
------- ------- ------- -------
Gross profit 2,336 3,000 2,690 8,026
Selling, general and
administrative expenses 2,304 1,813 995 5,112
Other expense (income) 424 -- 775 1,199
Affiliate companies'
(income) loss (4,546) -- 4,546 --
Interest expense, net 1,055 384 167 1,606
------- ------- ------- -------
Income (loss) from continuing
operations before income
taxes and extraordinary item $ 3,099 $ 803 $(3,793) $ 109
======= ======= ======== =======
</TABLE>
RESULTS OF OPERATIONS FOR ASCET INC OPERATING LOCATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
COMPANY COMPANY CONSOLIDATION OF
AS REPORTED AS REPORTED ENTITIES PREVIOUSLY ASCET INC
AND RESTATED AND RESTATED DIVESTED CARRIED ON EQUITY OPERATING
(NOTE A) (NOTE A) OPERATIONS (1) METHOD (2) LOCATIONS
-------- -------- -------------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Net sales $24,044 $14,061 $ -- $44,781 $82,886
Cost of goods sold 17,716 11,061 -- 38,001 66,778
------- ------- ------- ------- -------
Gross profit 6,328 3,000 -- 6,780 16,108
Selling, general and
administrative expenses 5,538 1,813 -- 3,163 10,514
Other expense (income) 682 -- -- 804 1,486
Affiliate companies'
(income) loss (8,680) -- 2,620 6,060 --
Interest expense, net 2,859 384 -- 546 3,789
------- ------- ------- ------- -------
Income (loss) from continuing
operations before income
taxes and extraordinary item $ 5,929 $ 803 $(2,620) $(3,793) $ 319
======= ======= ======= ======= =======
</TABLE>
19
<PAGE> 20
THREE MONTHS ENDED JUNE 30, 2000 COMPARED TO THREE MONTHS ENDED JUNE 30, 1999
ASCET INC operating locations' net sales for the quarter ended June 30, 2000 and
1999 were as follows (in thousands):
<TABLE>
<CAPTION>
1999
2000 Restated (Note A)
---- -----------------
<S> <C> <C>
Trim Products $24,462 $27,475
Replacement Parts 13,836 15,001
------- -------
Total $38,298 $42,476
======= =======
</TABLE>
The decrease in Trim Products Segment sales of $3,013 thousand, or 11.0% is the
result of sales reductions related to completion of production on certain
programs for which the Company has not been awarded replacement business. The
sales decrease in the Replacement Part Segment of $1,165 thousand, or 7.8% 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, selling price reductions required to
meet competitive market pricing, and general market conditions in the overall
heavy duty aftermarket industry.
Gross profit was $4,564 thousand, or 11.9% of sales, for the three months ended
June 30, 2000 compared to $8,026 thousand, or 18.9% of sales, for the same
quarter last year for the same operating locations on a consolidated basis.
The gross profit by segment is as follows (in thousands):
<TABLE>
<CAPTION>
1999
2000 Restated (Note A)
---- -----------------
<S> <C> <C>
Trim Products $1,152 $4,268
Replacement Parts 3,412 3,758
------ -----
Total $4,564 $8,026
====== ======
</TABLE>
The gross profit percentage for the Trim Products Segment was 4.7% and 15.5% for
the quarters ended June 30, 2000 and 1999, respectively. The decrease in the
gross profit percentage was attributable to higher scrap rates, increased
freight costs, third party quality inspection 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 Company has narrowed the scope of this supplier consolidation and moved
certain activities back to their original source.
The gross profit as percentage of sales for the Replacement Parts Segment was
24.7%, compared to 25.1% for the three months ended June 30, 2000 and 1999,
respectively
Selling, general and administrative (SGA) expenses for the three months ended
June 30, 2000 were $5,187 thousand or 13.5% of sales compared to $5,112 thousand
or 12.0% of sales for the quarter ended June 30, 1999. Detail of SGA expenses,
for these operating locations on a consolidated basis, for the three months
ended June 30, 2000 and June 30, 1999 are as follows (in thousands):
<TABLE>
<CAPTION>
1999
2000 Restated (Note A)
---- -----------------
<S> <C> <C>
Trim Products $1,900 $1,393
Replacement Parts 2,392 3,044
Corporate 895 675
------ ------
Total $5,187 $5,112
====== ======
</TABLE>
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<PAGE> 21
SGA expense for the Trim Products Segment was $1,900 thousand or 7.8% of sales
and $1,393 thousand or 5.1% of sales for quarters ended June 30, 2000 and 1999,
respectively. The higher percentage is attributable to higher administrative
expenses, including $126 thousand of employee severance costs, and decreased
sales revenue, described previously.
The Replacement Parts Segment's SGA expenses were $2,392 thousand or 17.3% of
sales and $3,044 thousand or 20.3% of sales for the three months ended June 30,
2000 and 1999, respectively. In the Replacement Parts Segment, management has
been reducing its SGA costs, primarily through headcount reductions and lower
administrative costs. The improvement in SGA costs as a percentage of sales is
also due to the absence in 2000 of approximately $250 thousand of reserve
charges expensed in 1999 related to accounts and notes receivable from one of
the Company's customers.
Corporate administrative costs for the three months ended June 30, 2000 and 1999
were $895 and $675 thousand, respectively. The increase in corporate
administrative costs reflect program management fees and product development
costs related to the Company's Trim Products Segment, and the addition of
certain management positions and services that were unfilled in 1999.
Other income (loss) for the three months ended June 30, 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 June 30, 2000 was $1.2 million.
This compares with interest expense for the quarter ended June 30, 1999 of $1.6
million. The lower interest is primarily due to the forgiveness of bank
indebtedness in May of 1999. In addition, the interest rate in 1999 was
approximately 11% compared to the approximate ASCET current average rate for the
six months ended June 30, 2000 of 9.5%.
SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO SIX MONTHS ENDED JUNE 30, 1999
ASCET INC operating locations' net sales for the quarter ended June 30, 2000 and
1999 were as follows (in thousands):
<TABLE>
<CAPTION>
1999
2000 Restated (Note A)
---- -----------------
<S> <C> <C>
Trim Products $49,352 $53,609
Replacement Parts 26,673 29,277
------- -------
Total $76,025 $82,886
======= =======
</TABLE>
The decrease in Trim Products Segment sales of $4,257 thousand, or 7.9% is the
result of sales reductions related to completion of production on certain
programs for which the Company has not been awarded replacement business. The
sales decrease in the Replacement Part Segment of $2,604 thousand, or 8.9% 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, selling price reductions required to
meet competitive market pricing, and general market softness in the overall
heavy duty aftermarket industry.
Gross profit was $11,369 thousand, or 15.0% of sales, for the six months ended
June 30, 2000 compared to $16,108 thousand, or 19.4% of sales, for the same
period last year for the same operating locations on a consolidated basis.
21
<PAGE> 22
The gross profit by segment is as follows (in thousands):
<TABLE>
<CAPTION>
1999
2000 Restated (Note A)
---- -----------------
<S> <C> <C>
Trim Products $ 4,770 $ 8,359
Replacement Parts 6,599 7,749
------ ------
Total $11,369 $16,108
======= =======
</TABLE>
The gross profit percentage for the Trim Product Segment was 9.7% and 15.6% for
the six months ended June 30, 2000 and 1999, respectively. The decrease in the
gross profit percentage was attributable to higher scrap rates, increased
freight costs, third party quality inspection 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 Company has narrowed the scope of this supplier consolidation and moved
certain activities back to their original source.
The gross profit as percentage of sales for the Replacement Parts Segment was
24.7%, compared to 26.5% for the six months ended June 30, 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 six months ended June
30, 2000 were $10,185 thousand or 13.4% of sales compared to $10,514 thousand or
12.7% of sales for the six months ended June 30, 1999. Detail of SGA expenses,
for these operating locations on a consolidated basis, for the six months ended
June 30, 2000 and June 30, 1999 are as follows (in thousands):
<TABLE>
<CAPTION>
1999
2000 Restated (Note A)
---- -----------------
<S> <C> <C>
Trim Products $ 3,665 $ 3,292
Replacement Parts 4,864 6,047
Corporate 1,656 1,175
------ ------
Total $10,185 $10,514
======= =======
</TABLE>
SGA expense for the Trim Products Segment was $3,665 thousand or 7.4% of sales
and $3,292 thousand or 6.1% of sales for quarters ended June 30, 2000 and 1999,
respectively. The higher percentage is attributable to higher administrative
expenses, including $126 thousand of employee severance costs, and decreased
sales revenue, described previously.
The Replacement Parts Segment's SGA expenses were $4,864 thousand or 18.2% of
sales and $6,047 thousand or 20.7% of sales for the six months ended June 30,
2000 and 1999, respectively. In the Replacement Parts Segment, management has
been reducing its SGA costs, primarily through headcount reductions and lower
administrative costs. The improvement in SGA costs as a percentage of sales is
also due to the absence in 2000 of approximately $250 thousand of reserve
charges expensed in 1999 related to accounts and notes receivable from one of
the Company's customers.
Corporate administrative costs for the six months ended June 30, 2000 and 1999
were $1,656 and $1,175 thousand, respectively. The increase in corporate
administrative costs reflect program management fees and product development
costs related to the Company's Trim Products segment, and the addition of
certain management positions and services that were unfilled in 1999.
22
<PAGE> 23
Other income (loss) for the six months ended June 30, 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 six months ended June 30, 2000 was $2.4 million.
This compares with interest expense for the six months ended June 30, 1999 of
$3.8 million. The lower interest is primarily due to the forgiveness of bank
indebtedness in May of 1999. In addition, the interest rate in 1999 was
approximately 11% compared to the approximate ASCET current average rate for the
six months ended June 30, 2000 of 9.5%.
The effective tax rate for ASCET is 10% for the six months ended June 30, 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, as well as state income taxes related to the Company's
profitable locations and an increase in the Company's valuation reserve related
to its inability to utilize the current period's net taxable loss. 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 for
the Predecessor Company were 4,602,180 for the period January 1, 1999 through
May 27, 1999. The common shares outstanding for ASCET INC were 14,043,600 and
the First Series Preferred Shares were 1,973,002 for the period to May 27, 1999
to June 30, 1999 and for the period January 1, 2000 to June 30, 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 June 30, 2000 under the Comerica Facility are $42.6
million. At June 30, 2000, unused borrowing capacity under the Company's $30
million demand note was $4.7 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.
23
<PAGE> 24
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 unsecured and subordinate to advances made
under the Comerica Facility. Interest accrues at prime plus 1 1/2% and is
payable quarterly. As of June 30, 2000 there were no advances made under this
note.
On June 14, 2000, the Company's Board of Directors agreed to allow ASC
Incorporated, an affiliate of ASC, to guarantee $5 million of indebtedness owed
to Comerica Bank in return for a commitment fee, payable quarterly in arrears to
ASC Incorporated, of 3% per anum. The agreement became effective June 1, 2000.
As of June 30, 2000, $13 thousand was accrued and payable to ASC Incorporated
under the terms of this agreement
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 June 30,
2000 in measuring working capital, the Company's Current Liabilities exceed
Current Assets by $12.6 million. Excluding the amount outstanding under the
Comerica Facility, working capital at June 30, 2000 would have been $30
million.
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 and
138 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.
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101 (SAB 101), Revenue Recognition in Financial Statements. SAB 101
provides guidance for revenue recognition under certain circumstances. The
accounting and disclosures prescribed by SAB 101 will be effective for the
fourth quarter of fiscal year 2001. The Company believes there will be no
material impact resulting from the application of SAB 101.
In March 2000, the FASB issued Interpretation No. 44, (FIN44), Accounting for
Certain Transactions Involving Stock Compensation - an Interpretation of APB 25.
This Interpretation clarified (a) the definition of employee for purpose of
applying Opinion 25, (b) the criteria for determining whether a plan qualifies
as a non-compensatory plan, (c) the accounting consequence of various
modifications to the terms of a previously fixed stock option or award, and (d)
the accounting for an exchange of stock compensation awards in a business
combination. This Interpretation is effective July 1, 2000, but certain
conclusions in this cover specific events that occur after either December 15,
1998, or January 12, 2000. To the extent that this Interpretation covers events
occurring during the period after December 15, 1998, or January 12, 2000 but
before the effective date of July 1, 2000, the effects of applying this
Interpretation are recognized on a prospective basis from July 1, 2000. The
Company has not yet determined the impact, if any, of adopting this
Interpretation.
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 32 to 61 days. At June 30, 2000 the
weighted average interest rate of the $42.6 million debt was 9.5% and the fair
value of the debt approximates its carrying value.
24
<PAGE> 25
The Company had interest expense of $2,390 thousand for the six months ended
June 30, 2000. The potential increase in interest expense from a hypothetical 2%
adverse change, assuming the June 30, 2000 debt was outstanding for the entire
year, would be $852 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.
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.
25
<PAGE> 26
PART II. OTHER INFORMATION
JPE, INC. (D/B/A ASCET, ASC EXTERIOR TECHNOLOGIES AND ASC EXTERIOR TECHNOLOGIES
- SALES AND ENGINEERING)
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. EXHIBITS:
10.1 Letter Agreement on ASC Incorporated's guarantee of the
Registrant's undebtedness to Comerica Bank.
B. REPORT ON FORM 8-K:
None
26
<PAGE> 27
JPE, INC. (D/B/A ASCET, ASC EXTERIOR TECHNOLOGIES AND ASC EXTERIOR TECHNOLOGIES
- SALES AND ENGINEERING)
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
By: /s/ Joseph E. Blake
------------------------------------------------
Joseph E. Blake
Vice President and Chief Financial Officer
(Principal Accounting Officer)
Date: August 14, 2000
27
<PAGE> 28
Exhibit Index
Exhibit No. Description
----------- -----------
10.1 Letter Agreement on ASC Inc.'s guarantee of the
Registrant's undebtedness to Comerica Bank.
27 Financial Data Schedule
