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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 September 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
(I.R.S. Employer Identification No.)
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 the registrant's Common Stock outstanding on September 30,
1996 was 4,582,480.
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JPE, INC.
INDEX
Page
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets ............................. 3
- At September 30, 1996 and 1995
- At December 31, 1995
Consolidated Statements of Operations ................... 4
- For the Three and Nine Months Ended
September 30, 1996 and 1995
Consolidated Statements of Cash Flows ................... 5
- For the Nine Months Ended
September 30, 1996 and 1995
Notes to Unaudited Consolidated
Financial Statements ................................... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations .................... 8
Part II. Other Information
Item 5. Other Information ......................................... 12
Item 6. Exhibits and Reports on Form 8-K .......................... 12
Signature .......................................................... 13
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
JPE, INC.
CONSOLIDATED BALANCE SHEETS
(Amounts in Thousands, Except Share Data)
At Sept. 30, At Dec. 31,
1996 1995 1995
---- ---- ----
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents ........... $ 681 $ 3,817 $ 288
Accounts receivable, net ............ 28,792 26,821 23,410
Inventory ........................... 33,681 32,508 35,073
Other current assets ................ 2,682 2,596 2,639
----- ----- -----
Total current assets .......... 65,834 65,742 61,410
Property, plant and equipment, net .... 53,733 47,357 49,193
Goodwill, net ......................... 27,351 32,990 32,635
Other assets, net ..................... 1,388 2,050 1,991
----- ----- -----
Total assets $148,308 $148,139 $145,229
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt ... $ 107 $ 104 $ 108
Accounts payable .................... 19,158 17,503 15,156
Accrued liabilities ................. 4,947 6,563 5,656
Income taxes payable ................ -- 94 174
----- ----- -----
Total current liabilities ..... 24,212 24,264 21,094
Accrued liabilities ................... 1,147 917 1,194
Deferred income taxes ................. 2,251 2,399 2,927
Long-term debt, non-current ........... 84,443 89,369 83,267
------ ------ ------
Total liabilities ............. 112,053 116,949 108,482
------- ------- -------
Shareholders' equity:
Preferred stock, 3,000,000 authorized,
no shares issued and outstanding ... -- -- --
Common stock, no par value, 15,000,000
authorized, 4,582,480 and 4,473,930
issued and outstanding at September
30, 1996 and December 31, 1995,
respectively, and 3,973,930 shares
issued and outstanding at
September 30, 1995. ................ 27,921 22,707 27,301
Retained earnings ................... 8,334 8,483 9,446
----- ----- -----
Total shareholders' equity ........ 36,255 31,190 36,747
------ ------ ------
Total liabilities and
shareholders' equity ........ $148,308 $148,139 $145,229
======== ======== ========
The accompanying notes are an integral part
of the consolidated financial statements.
JPE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three and Nine Months Ended September 30, 1996 and 1995
(Amounts in Thousands, Except Per Share Data)
(Unaudited)
Three Months Nine Months
Ended Ended
September 30, September 30,
1996 1995 1996 1995
---- ---- ---- ----
Net sales ........................ $50,142 $44,886 $153,732 $124,616
Cost of goods sold ............... 43,163 35,707 126,589 98,000
------ ------ ------- ------
Gross profit .................. 6,979 9,179 27,143 26,616
Charge for impairment
of goodwill (Note B) ............ 4,300 -- 4,300 --
Selling, general and
administrative expenses ......... 6,686 5,747 18,667 16,390
----- ----- ------ ------
Operating profit (loss) ....... (4,007) 3,432 4,176 10,226
Interest expense, net ............ (1,718) (1,902) (5,252) (4,492)
------ ------ ------ ------
Income (loss) before
taxes ...................... (5,725) 1,530 (1,076) 5,734
Provision for (benefit from)
income taxes .................... (1,819) 650 36 2,248
------ --- -- -----
Net income (loss) ............. $(3,906) $ 880 (1,112) $ 3,486
======= ===== ====== =======
Earnings (loss) per share ........ $ (0.85) $ 0.22 $ (0.24) $ 0.86
======= ====== ====== ======
Weighted average
shares outstanding ............. 4,590 4,080 4,585 4,034
===== ===== ===== =====
The accompanying notes are an integral part
of the consolidated financial statements.
JPE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 1996 and 1995
(Amounts in Thousands)
(Unaudited)
Nine Months
Ended
September 30,
1996 1995
---- ----
Cash flows from operating activities:
Net income (loss) ................................ $ (1,112) $ 3,486
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization ................. 5,531 4,109
Loss on impairment of goodwill ................ 4,300 --
Disposal of property and equipment ............ 405 48
Changes in operating assets and liabilities:
Accounts receivable ......................... (5,382) (2,133)
Inventory ................................... 1,392 (3,382)
Other current assets ........................ 359 17
Accounts payable ............................ 4,002 2,877
Accrued liabilities ......................... (756) (100)
Income taxes ................................ (174) 96
Deferred income taxes ....................... (1,078) 675
------ ---
Net cash provided by
operating activities .................... 7,487 5,659
----- -----
Cash flows from investing activities:
Purchase of property and equipment ............... (8,889) (2,953)
Acquisition of Industrial &
Automotive Fasteners .......................... -- (15,638)
Acquisition of Plastic Trim, Inc. ................ -- (40,578)
----- -------
Net cash used for
investing activities .................... (8,889) (59,169)
------ -------
Cash flows from financing activities:
Repayments of term loan .......................... -- (2,519)
Net borrowings under revolving loan .............. 11,275 68,385
Repayments of note payable ....................... (10,100) (12,744)
Payment of deferred financing costs .............. -- (278)
Issuance of common stock ......................... 410 1,975
Tax benefit from exercised stock options ......... 210 216
--- ---
Net cash provided by
financing activities .................... 1,795 55,035
----- ------
Cash and cash equivalents:
Net increase in cash ............................. 393 1,525
Cash and cash equivalents, beginning of period ... 288 2,292
--- -----
Cash and cash equivalents, end of period ......... $ 681 $ 3,817
====== =======
The accompanying notes are an integral part
of the consolidated financial statements
JPE, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in Thousands)
A. BASIS OF PRESENTATION:
The accompanying unaudited consolidated condensed financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information. Accordingly, the financial statements do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments considered necessary for a fair presentation have
been included, and such adjustments are of a normal recurring nature or are
described in the footnotes herein. The consolidated financial statements should
be read in conjunction with the financial statements and notes thereto contained
in the JPE, Inc. Annual Report on Form 10-K for the year ended December 31, 1995
and the Forms 10-Q for the quarters ended March 31, 1996 and June 30, 1996.
December 31, 1995 disclosures within the financial statements and footnotes
have been derived from audited Financial Statements included in the Form 10-K;
information at September 30, 1996 and 1995 and for the periods then ended is
unaudited.
B. GOODWILL IMPAIRMENT:
During the third quarter of 1996, management identified that a significant
change had occurred in the product mix of IAF since it was acquired in March
1995. In accordance with SFAS 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of," management recorded a
$4,300 impairment writedown of the goodwill associated with the acquisition of
IAF. The goodwill was originally valued at $6,820 when IAF was acquired and,
subsequent to the adjustment, had a net unamortized carrying value of
approximately $2,140 as of September 30, 1996, based on the current fair market
value of the IAF business which was acquired.
JPE, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in Thousands)
C. INVENTORY:
Inventories by component are as follows:
Sept. 30, 1996 Sept. 30, 1995 Dec. 31, 1995
-------------- -------------- -------------
Finished goods ..... $15,953 $14,280 $16,607
Work in process .... 4,219 4,795 2,630
Raw material ....... 10,142 9,475 10,780
Tooling ............ 3,367 3,958 5,056
------ ------ ------
$33,681 $32,508 $35,073
======= ======= =======
D. NONCASH OPERATING, INVESTING AND FINANCING ACTIVITIES:
Sept. 30, 1996 Sept. 30, 1995
-------------- --------------
Note payable issued in
connection with acquisition
of IAF, secured by a letter
of credit ........................ -- $10,377
E. PROVISION FOR INCOME TAXES:
The change in the effective tax rate for the third quarter is the result of
losses recorded. The income tax benefit recorded for the third quarter
represents the anticipated refund for estimated federal taxes paid for 1996 and
a deferred tax benefit related to deduction for goodwill. The losses for the
quarter are from Michigan subsidiaries, which are not subject to a state income
tax. As a result, there is no state income tax benefit related to the losses for
the third quarter. The provision for taxes for the nine months represents the
combined provision for the third quarter and the first half of 1996.
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 financial
statements and notes thereto 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
THIRD QUARTER ENDED SEPTEMBER 30, 1996
COMPARED TO THIRD QUARTER ENDED SEPTEMBER 30, 1995
Net sales for the third quarter of 1996 were $50,142,000 compared to
$44,886,000 for the same quarter last year. The net sales increase of 11.7% 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 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 quarter ending September 30, 1996 for
the Aftermarket businesses were 15% above the sales for the similar period in
1995. The higher sales in the Aftermarket are attributable to increased market
penetration of heavy duty leaf springs and suspension parts and increased orders
from retail customers due to expansion of customer facilities. For the quarters
ending September 30, 1996 and 1995, net sales for the Company were 62% to OEM
customers and 38% to Aftermarket customers.
Gross profit decreased 24% to $6,979,000 in the third quarter of 1996
compared with $9,179,000 for the third quarter ended September 30, 1995. The
gross margin percentages were 13.9% and 20.4% for the third quarters of 1996 and
1995, respectively. The decline in gross margin is a result of production
difficulties at the Company's Industrial & Automotive Fasteners, Inc. ("IAF")
and Starboard Industries, Inc. ("SBI") subsidiaries; a change in sales mix at
IAF to products with lower gross margins; a reduction in SBI's sales volumes
attributable to balancing out several programs that will not be replaced until
the 1998 model year; significant start-up costs associated with new OEM product
launches; increasing quality pressures from OEM customers; and the impact of
incentives associated with long-term OEM contract pricing. In addition to the
above factors, the decline in gross margin is attributable to $1,350,000 of
inventory adjustments relating to slow-moving/obsolete inventory and physical
inventory adjustments.
During the third quarter of 1996, management identified that a significant
change had occurred in the product mix of IAF since it was acquired in March
1995. In accordance with SFAS 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of," management recorded a
$4,300,000 impairment writedown of the goodwill associated with the acquisition
of IAF. The goodwill was originally valued at $6,820,000 when IAF was acquired
and, subsequent to the adjustment, had a net unamortized carrying value of
approximately $2,140,000 as of September 30, 1996, based on the current fair
market value of the IAF business which was acquired. This adjustment will reduce
goodwill amortization by $172,000 on an annual basis.
Selling, general and administrative expenses increased 16.3% to $6,686,000
in the third quarter of 1996 over $5,747,000 for the third quarter of 1995.
Selling, general and administrative expense for the third quarters of 1996 and
1995 was 13% of net sales. Selling, general and administrative expense for the
three months ending September 30, 1996 includes a $850,000 charge related to the
write-down of an equity investment related to the SBI business and severance
costs for changes in senior management at IAF and SBI. These increases are
partially offset by management efforts to contain costs in its Aftermarket and
OEM businesses.
Net interest expense decreased to $1,718,000 for the three months ended
September 30, 1996 as compared to $1,902,000 for the three months ended
September 30, 1995. The lower interest cost is attributable to debt repayments
made during the quarter, resulting in a decrease in the average debt level and a
slightly lower interest rate.
As a result of the loss in the third quarter, the Company recorded a
federal income tax benefit, partially offset by state income taxes. This tax
benefit represents the anticipated refund for estimated federal income taxes
paid for 1996 and a deferred tax benefit related to the deduction of goodwill.
The effective tax rate for the three months ended September 30, 1995 was 42.5%.
Net loss for the three months ended September 30, 1996 was $3,906,000 as
compared to net income of $880,000 for the quarter ended September 30, 1995. The
decrease is attributable to the matters summarized above. Loss per share during
the third quarter of 1996 was $.85 as compared to earnings per share of $.22
during the third quarter of 1995. The decrease is due to the factors mentioned
above and an increase in the weighted average shares outstanding. The weighted
average shares outstanding for the third quarter of 1996 were 4,590,000 as
compared to 4,080,000 for the third quarter of 1995. Since the third quarter of
1995, the Company has issued a total of 608,550 shares through a public offering
and its stock option plan.
NINE MONTHS ENDED SEPTEMBER 30, 1996
COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 1995
Net sales for the nine months ended September 30, 1996 increased to
$153,732,000 from $124,616,000 for the nine months ended September 30, 1995, an
increase of 23%. The increase in net sales is attributable to the acquisitions
of two OEM suppliers purchased in the first half of 1995 and other matters
discussed above. Net sales for the Aftermarket businesses for the first nine
months of 1996 were 7.5% above the sales for the nine months ended September 30,
1995 as a result of the same factors mentioned in the above quarterly
discussion. For the nine months ended September 30, 1996, net sales for the
Company were approximately 63% to OEM customers and 37% to Aftermarket
customers.
Gross profit increased 2% to $27,143,000 for the nine months ended
September 30, 1996 as compared with $26,616,000 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 17.7% and 21.4% 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. In addition to the first quarter strike, GM had a three-week strike of
its Canadian operations during October 1996 and is experiencing local strikes in
its U.S. truck plants. The impact of these strikes on the Company's operations
will affect fourth quarter operating results. Additionally, the acquired OEM
businesses have lower gross margin percentages than Aftermarket companies. These
reductions are partially offset by the recovery of $890,000 in costs related to
the cancellation of a trim program from an OEM customer.
See the quarterly discussion for an explanation of the $4,300,000 charge
for impairment of goodwill.
Selling, general and administrative expenses increased 13.9% to $18,667,000
for the nine months ended September 30, 1996 over $16,390,000 for the nine
months ended September 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 12.1% for the nine months ended
September 30, 1996 as compared to 13.2% 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
tend to have lower levels of selling, general and administrative costs than the
Aftermarket businesses. Additionally, several cost containment measures were
established at the Company's corporate office.
Net interest expense increased to $5,252,000 for the nine months ended
September 30, 1996 as compared to $4,492,000 for the nine months ended September
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.
As a result of the loss for the year to date, the Company has reduced its
federal income tax expense for the nine months ending September 30, 1996. The
provision for income taxes for the first nine months of 1996 represents state
income taxes, partially offset by the federal income tax benefit. The effective
tax rate for the nine months ended September 30, 1995 was 39.2%.
Net loss for the nine months ended September 30, 1996 was $1,112,000 as
compared to net income of $3,486,000 for the nine months ended September 30,
1995. The decrease is a result of factors mentioned above. Loss per share for
the nine months ending September 30, 1996 was $.24 as compared to earnings per
share of $.86 during the first nine months of 1995. The decrease is due to the
factors mentioned above and an increase in the weighted average shares
outstanding. The weighted average shares outstanding for the first nine months
of 1996 were 4,585,000 as compared to 4,034,000 for the same period in 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal capital requirements are to fund acquisitions, its
working capital needs, and its acquisition of capital equipment. Historically,
the Company has used cash flows generated by its operations, borrowings under
its credit facilities and equity financings 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 2.1% and the average rate on the outstanding
borrowings at September 30, 1996 was approximately 7.79%. At September 30, 1996,
the available commitment under the Agreement was $26 million. The Company was in
compliance with all covenants as of September 30, 1996. However, the Company has
amended its interest coverage ratio for the goodwill impairment charge as in
future periods this covenant could be violated without the amendment. The
amendment requires the Company to pay a $33,000 amendment fee and increases the
variable margin by 25 basis points until the Company's interest coverage ratio
exceeds 1.75.
Working capital at September 30, 1996 was $42.1 million as compared to
$40.3 million at December 31, 1995. The increase in working capital is primarily
attributable to a higher level of receivables from increased sales during the
third quarter of 1996 from the both the OEM and Aftermarket businesses. Cash
generated from operations was $7.5 million for the nine months ended September
30, 1996. These funds along with increased borrowings were used primarily for
additions to property, plant and equipment totaling $8.9 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 5. OTHER INFORMATION
On October 10, 1996, JPE, Inc. announced that it had signed a letter of
intent to purchase all of the shares of Pebra Inc., a Canadian manufacturer of
plastic injection molded exterior trim for the original equipment automotive
market. The transaction is subject to the satisfaction of certain conditions,
including regulatory approvals and is expected to close by the end of 1996.
Effective October 15, 1996, Gareth L. Reed resigned as President of JPE,
Inc.'s Aftermarket Group and as a director of JPE, Inc.
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 J. Fahrner
- ------------------------
James J. Fahrner
Vice President and Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
Date: November 13, 1996
EXHIBIT INDEX
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EXHIBIT
NO. DESCRIPTION
- ------- -----------
27 Financial Data Schedule, which is submitted
electronically to the Securities and Exchange
Commission for information only and not filed.