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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
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[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended June 30, 1996
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from ______ to ______
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Commission file number 0-22580
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JPE, Inc.
(Exact name of registrant as specified in its charter)
Michigan
(State or other jurisdiction of
incorporation or organization)
900 Victors Way, Suite 140
Ann Arbor, Michigan
(Address of principal executive offices)
38-2958730
(IRS Employer Identification Number)
48108
(Zip code)
(313) 662-2323
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year,
if changed, since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes /X/ No
The total number of shares of the registrant's Common Stock outstanding on June
30, 1996 was 4,582,480.
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JPE, INC.
INDEX
Page
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Part I. Financial Information
Item 1. Financial Statements
Consolidated Condensed Balance Sheets ................. 3
- At June 30, 1996 and 1995
Consolidated Statements of Income ..................... 4
- For the Three and Six Months Ended
June 30, 1996 and 1995
Consolidated Statements of Cash Flows ................. 5
- For the Six Months Ended
June 30, 1996 and 1995
Notes to Unaudited Consolidated
Condensed Financial Statements ....................... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations .................... 7
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders ..... 11
Item 6. Exhibits and Reports on Form 8-K ........................ 12
Signature ........................................................ 13
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
JPE, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(Amounts in Thousands, Except Share Data)
At June 30, At Dec. 31,
1996 1995 1995
---- ---- ----
(Unaudited) (Audited)
ASSETS
Current assets:
Cash and cash equivalents ............. $ 385 $ 3,444 $ 288
Accounts receivable, net .............. 30,439 27,010 23,410
Inventory ............................. 32,655 30,396 35,073
Other current assets .................. 2,100 2,650 2,639
----- ----- -----
Total current assets ............ 65,579 63,500 61,410
Property, plant and equipment, net ...... 52,368 47,002 49,193
Goodwill, net ........................... 31,997 33,219 32,635
Other assets ............................ 1,846 2,128 1,991
----- ----- -----
Total assets .................... $151,790 $145,849 $145,229
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt ..... $ 107 $ 104 $ 108
Accounts payable ...................... 16,105 16,668 15,156
Accrued liabilities ................... 5,222 6,992 5,656
Income taxes payable .................. 716 -- 174
----- ----- -----
Total current liabilities ....... 22,150 23,764 21,094
Accrued liabilities ..................... 1,223 1,222 1,194
Deferred income taxes ................... 3,238 2,496 2,927
Long-term debt, non-current ............. 85,018 88,348 83,267
------ ------ ------
Total liabilities ............... 111,629 115,830 108,482
------- ------- -------
Shareholders' equity:
Preferred stock, 3,000,000 authorized,
no shares issued and outstanding ..... -- -- --
Common stock, 15,000,000 authorized,
4,582,480 and 4,473,930 shares issued
and outstanding at June 30, 1996 and
and December 31, 1995, respectively;
3,923,830 shares issued and outstand-
ing at June 30, 1995, no par value ... 27,921 22,416 27,301
Retained earnings ..................... 12,240 7,603 9,446
------ ----- -----
Total shareholders' equity ...... 40,161 30,019 36,747
------ ------ ------
Total liabilities and
shareholders' equity .......... $151,790 $145,849 $145,229
======== ======== ========
The accompanying notes are an integral part
of the consolidated financial statements.
JPE, INC.
CONSOLIDATED STATEMENTS OF INCOME
For the Three and Six Months Ended June 30, 1996 and 1995
(Amounts in Thousands, Except Per Share Data)
(Unaudited)
Three Months Six Months
Ended Ended
June 30, June 30,
1996 1995 1996 1995
------ ------ ------ ------
Net sales ....................... $55,979 $49,859 $103,590 $79,730
Cost of goods sold .............. 44,691 39,710 83,426 62,293
------ ------ ------ ------
Gross profit ................. 11,288 10,149 20,164 17,437
Selling, general and
administrative expenses ...... 6,312 6,043 11,981 10,643
----- ----- ------ ------
Operating profit ............. 4,976 4,106 8,183 6,794
Interest expense, net ........... 1,879 1,688 3,534 2,591
----- ----- ----- -----
Income before income taxes ... 3,097 2,418 4,649 4,203
Income tax expense .............. 1,235 900 1,855 1,597
----- --- ----- -----
Net income ................... $ 1,862 $ 1,518 $ 2,794 $ 2,606
======= ======= ======= =======
Earnings per common share ....... $0.41 $0.37 $0.61 $0.65
===== ===== ===== =====
Weighted average
shares outstanding 4,591 4,106 4,585 4,010
===== ===== ===== =====
The accompanying notes are an integral part
of the consolidated financial statements.
JPE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30, 1996 and 1995
(Amounts in Thousands)
(Unaudited)
Six Months
Ended
June 30,
1996 1995
------ ------
Cash flows from operating activities:
Net income ........................................ $ 2,794 $ 2,606
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization .................. 3,604 2,591
Disposal of property and equipment ............. -- 48
Changes in operating assets and liabilities:
Accounts receivable .......................... (7,029) (2,322)
Inventory .................................... 2,418 (1,335)
Other current assets ......................... 539 --
Accounts payable ............................. 949 2,042
Accrued liabilities .......................... (405) 634
Income taxes ................................. 542 219
Deferred income taxes ........................ 311 350
--- ---
Net cash provided by
operating activities ..................... 3,723 4,833
Cash flows from investing activities:
Purchase of property and equipment ................ (5,996) (1,404)
Acquisition of Industrial & Automotive Fasteners .. -- (15,638)
Acquisition of Plastic Trim, Inc. ................. -- (40,578)
---- -------
Net cash used for
investing activities ..................... (5,996) (57,620)
Cash flows from financing activities:
Repayments of term loan ........................... -- (2,561)
Net borrowings under revolving loan ............... 11,850 67,344
Repayments of note payable ........................ (10,100) (12,744)
Sale of common stock .............................. 410 1,900
Tax benefit from options .......................... 210 --
--- ----
Net cash provided by
financing activities ..................... 2,370 53,939
Cash and cash equivalents:
Net increase in cash .............................. 97 1,152
Cash and cash equivalents, beginning of period 288 2,292
--- -----
Cash and cash equivalents, end of period $ 385 $ 3,444
====== =======
The accompanying notes are an integral part
of the consolidated financial statements
JPE, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(Amounts in Thousands)
A. BASIS OF PRESENTATION:
The accompanying unaudited consolidated condensed financial statements have
been prepared in accordance with generally accepted accounting principles
for interim financial information. Accordingly, the financial statements do
not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the
opinion of management, all adjustments considered necessary for a fair
presentation have been included, and such adjustments are of a normal
recurring nature. The consolidated financial statements should be read in
conjunction with the financial statements and notes thereto contained in
the JPE, Inc. Annual Report and Form 10-K for the year ended December 31,
1995 and the Form 10-Q for the quarter ended March 31, 1996.
B. INVENTORY:
Inventories by component are as follows:
June 30, 1996 June 30, 1995
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Finished goods ................... $13,897 $14,703
Work in process .................. 4,102 3,850
Raw material .................... 11,065 9,218
Tooling 3,591 2,625
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$32,655 $30,396
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C. NONCASH INVESTING AND FINANCING ACTIVITIES:
June 30, 1996 June 30, 1995
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Issuance of note payable in
connection with acquisition
of Industrial & Automotive
Fasteners, secured by a letter
of credit -- $10,377
JPE, INC.
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the consolidated
financial statements and notes thereto filed with the Company's Annual Report on
Form 10-K to assist in understanding the Company's results of operations, its
financial position, cash flows, capital structure and other relevant financial
information.
RESULTS OF OPERATIONS
SECOND QUARTER ENDED JUNE 30, 1996
COMPARED TO SECOND QUARTER ENDED JUNE 30, 1995
Net sales for the quarter ended June 30, 1996 were $55,979,000 compared to
$49,859,000 for the three months ended June 30, 1995. The net sales increase of
12% is attributable to higher original equipment manufacturers ("OEM") sales
volumes as a result of a stronger North American automotive market than in 1995
and a seasonal rise in aftermarket orders. In addition to the stronger
automotive market, the Company began production and shipments of end formed
plastic extruded body side moldings, which is a proprietary technology that was
purchased from another company in late 1995. Net sales for the Aftermarket
businesses were 9% above the sales for the three months ended June 30, 1995. The
higher sales in the aftermarket are attributable to normal seasonality of sales,
increased marketing efforts and the carryover impact of a slow first quarter as
a result of heavy snow storms on the east coast. For the quarter ended June 30,
1996, net sales for the Company were approximately 65% to OEM customers and 35%
to Aftermarket customers.
Gross profit increased 11% to $11,288,000 for the three months ended June 30,
1996 as compared with $10,149,000 for the comparable period of the prior year.
The gross margin percentages were 20.2% and 20.4% for 1996 and 1995,
respectively. The small decline in gross margin percentage reflects increasing
quality pressures from OEM customers; the impact of incentives associated with
long-term OEM contract pricing; and heightened competition in the aftermarket.
In addition to these factors, the Company has noted a minor change in sales mix
at its Industrial & Automotive Fasteners, Inc. and Dayton Parts, Inc.
subsidiaries to products with slightly lower gross margins. These reductions in
gross margin percentages are partially offset by the recovery of $890,000 in
costs related to the cancellation of a trim program from an OEM customer. This
reimbursement was made to compensate the Company for costs incurred in prior
periods.
Selling, general and administrative expenses increased 4% to $6,312,000 for the
three months ended June 30, 1996 over $6,043,000 for the three months ended June
30, 1995. The increase is attributable to higher sales commissions and employee
incentive awards as a result of increased OEM sales levels and certain costs
incurred related to investigating potential acquisitions that were not
consummated. The percentage of selling, general and administrative expenses to
net sales was 11.3% for the quarter ended June 30, 1996 as compared to 12.1% for
the comparable period of the prior year. The decline in this percentage is
attributable to the non-recurrence of severance costs accrued for two senior
executives in the second quarter of 1995.
Net interest expense increased to $1,879,000 for the three months ended June 30,
1996 as compared to $1,688,000 for the three months ended June 30, 1995. The
higher interest cost is attributable to the funds borrowed to finance the two
acquisitions made in 1995 and a slightly higher average debt level as a result
of a temporary interruption of shipments to General Motors Corporation due to
the March 1996 Delphi Chassis brake plant strike, resulting in lower cash
receipts in the second quarter.
The effective tax rates for the three months ended June 30, 1996 and 1995 were
40% and 37%, respectively. The higher effective tax rate is attributable to
state income taxes related to the purchase of a company located in Ohio.
Net income for the three months ended June 30, 1996 increased 23% to $1,862,000
as compared to $1,518,000 for the quarter ended June 30, 1995. The growth in net
income is attributable to the matters summarized above. Earnings per share rose
11% to $.41 per share from $.37 per share due to the increase in net income,
partially offset by an increase in the weighted average shares outstanding. The
weighted average shares outstanding for the second quarter of 1996 were
4,591,000 as compared to 4,106,000 for the second quarter of 1995. Since the
second quarter of 1995, the Company has issued a total of 658,650 shares through
a public offering and its stock option plan.
SIX MONTHS ENDED JUNE 30, 1996
COMPARED TO SIX MONTHS ENDED JUNE 30, 1995
Net sales for the six months ended June 30, 1996 were $103,590,000 compared to
$79,730,000 for the six months ended June 30, 1995. The net sales increase of
30% is attributable to the acquisitions of two OEM suppliers purchased in the
first and second quarters of 1995 and other matters discussed above. Net sales
for the Aftermarket businesses were 4% above the sales for the six months ended
June 30, 1995 as a result of the same factors discussed for the quarter ended
June 30, 1996, above. For the six months ended June 30, 1996, net sales for the
Company were approximately 65% to OEM customers and 35% to Aftermarket
customers.
Gross profit increased 16% to $20,164,000 for the six months ended June 30, 1996
as compared with $17,437,000 for the comparable period of the prior year. The
increase is related to the acquisitions of two OEM suppliers purchased in the
first and second quarters of 1995, as well as higher sales volumes. Gross profit
percentages were 19.5% and 21.9% for 1996 and 1995, respectively. This decline
in gross margin percentage reflects the impact of the GM strike in the first
quarter of 1996 and matters discussed above. The Company estimates that the
impact of the GM strike on the gross margin was approximately $700,000.
Additionally, the acquired OEM businesses have lower gross margin percentages
than aftermarket companies. These reductions are partially offset by the cost
recovery related to trim program cancellation as discussed above.
Selling, general and administrative expenses increased 13% to $11,981,000 for
the six months ended June 30, 1996 over $10,643,000 for the six months ended
June 30, 1995. The increase is attributable to the acquisition of two OEM
suppliers in the first and second quarters of 1995 and other factors discussed
in the quarter comparison above. The percentage of selling, general and
administrative expenses to net sales was 11.6% for the six months ended June 30,
1996 as compared to 13.3% for the comparable period of the prior year. The
decline in this percentage is partially attributable to the increasing
significance of the OEM businesses to the consolidated income statement which
tends to have lower levels of selling, general and administrative costs than the
Aftermarket businesses; cost containment measures established at the Company's
corporate office; and the non-recurring severance costs referred to in the
quarterly discussion.
Net interest expense increased to $3,534,000 for the six months ended June 30,
1996 as compared to $2,591,000 for the six months ended June 30, 1995. The
higher interest cost is attributable to the funds borrowed to finance the two
OEM supplier acquisitions made in 1995; a slightly higher average debt level as
a result of capital additions to enhance existing production technologies and
capabilities; and lower cash receipts as a result of the March 1996 GM plant
strike discussed above.
The effective tax rates for the six months ended June 30, 1996 and 1995 were 40%
and 38%, respectively. The increase in the effective tax rate is a result of the
same matters affecting the quarterly results discussed above.
Net income for the six months ended June 30, 1996 increased 7% to $2,794,000 as
compared to $2,606,000 for the six months ended June 30, 1995. The growth in net
income is a result of the two OEM supplier acquisitions in 1995 and other
factors mentioned above. These increases are partially offset by the first
quarter 1996 GM strike, which had an estimated impact on net income of $375,000
or $.08 per share. Earnings per share declined 6% to $.61 per share from $.65
per share due to the GM strike, partially offset by the acquisitions of the two
OEM suppliers in the first and second quarters of 1995, and an increase in the
weighted average shares outstanding. The weighted average shares outstanding for
the six months ending June 30, 1996 were 4,585,000 as compared to 4,010,000 for
the first six months of 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal capital requirements are to fund acquisitions, purchases
of capital equipment and working capital needs. Historically, the Company has
used cash flows generated by operations, borrowings under its credit agreement
and equity financing to meet these needs.
The Company's principal source of liquidity is the $110 million Second Amended
and Restated Credit Agreement dated March 4, 1996. The Company has several
borrowing rate options under the Agreement based on, among other things, the
bank's prime rate and LIBOR plus a variable margin. The variable margin depends
on the Company's cash flows and fixed charge coverage ratios. The variable
margin is currently 2.25%, which is the maximum level, and the average rate on
the outstanding borrowings at June 30, 1996 was approximately 8%. At June 30,
1996, the available commitment under the Agreement was $25 million. The Company
was in compliance with all covenants as of June 30, 1996.
Working capital at June 30, 1996 was $43.4 million as compared to $40.3 million
at December 31, 1995. The increase in working capital is primarily attributable
to higher level of receivables from increased sales during the second quarter of
1996 from the both the OEM and Aftermarket businesses. Cash generated from
operations was $3.7 million for the six months ended June 30, 1996. These funds
along with increased borrowings were used primarily for additions to property,
plant and equipment totaling $6.0 million. The Company expects that it will be
able to satisfy its debt service, working capital and capital expenditure
requirements through cash flow generated from operations, and to the extent
necessary, through borrowings under the Credit Agreement.
PART II. OTHER INFORMATION
JPE, INC.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Shareholders of JPE, Inc. was held on May 7, 1996, for the
purpose of electing two directors of JPE, Inc. for a term to expire in 1999 and
voting on the proposals described below. Proxies for the meeting were solicited
pursuant to Section 14(a) of the Securities Exchange Act of 1934 and there was
no solicitation in opposition to management's solicitations.
Management's nominees for directors as listed in the proxy statement were
elected with the following vote:
Shares Shares
Voted "For" "Withheld"
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Donald R. Mandich 3,840,203 112,280
Gareth L. Reed 3,839,903 112,580
The proposal to amend the JPE, Inc. 1993 Stock Incentive Plan for Key Employees
to increase the number of shares of the Company's Common Stock available for
grant under the Plan.
Shares Voted Shares Voted Shares Shares
"FOR" "AGAINST" "ABSTAINING" Not Voted
----- --------- ------------ ---------
3,765,605 140,668 16,310 29,900
The proposal to approve the JPE, Inc. Director Stock Option Plan.
Shares Voted Shares Voted Shares Shares
"FOR" "AGAINST" "ABSTAINING" Not Voted
----- --------- ------------ ---------
3,809,253 86,395 24,535 32,300
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits:
None
b. Reports on Form 8-K:
None
JPE, INC.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
JPE, Inc.
By: /s/ James F. Fahrner
- - -----------------------------
James J. Fahrner
Vice President and Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
Date: August 1, 1996
EXHIBIT INDEX
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EXHIBIT
NO. DESCRIPTION
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27 Financial Data Schedule, which is submitted
electronically to the Securities and Exchange
Commission for information only and not filed.