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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1996
Commission File Number 0-22580
JPE, INC.
(Exact Name of Registrant as Specified in its Charter)
Michigan
(State of Incorporation)
38-2958730
(I.R.S. Employer Identification No.)
900 Victors Way, Suite 140
Ann Arbor, Michigan 48108
(Address of Principal Executive Offices)
Registrant's telephone number, including area code:
(313) 662-2323
Securities Registered Pursuant to Section 12(b) of the Act:
None
Securities Registered Pursuant to Section 12(g) of the Act:
Title of Class
Common Stock
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the Registrant's Common Stock held by
non-affiliates of the Registrant on March 17, 1997 (based on the closing price
of $7.125 per share of the Registrant's Common Stock as reported on the Nasdaq
National Market on such date) was approximately $26,398,702.
Number of shares outstanding of the Registrant's Common Stock at March 17, 1997:
4,602,180 shares of Common Stock
Certain portions of the Registrant's Proxy Statement for the 1997 Annual Meeting
of Shareholders, scheduled to be held May 15, 1997, are incorporated by
reference into Part III of this Report on Form 10-K.
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TABLE OF CONTENTS
Item Pages
- ---- -----
PART I
1. Business 3-11
2. Properties 12
3. Legal Proceedings 12
4. Submission of Matters to a Vote of Security Holders 12-13
Supplemental Item. Executive Officers of the Registrant
PART II
5. Market for Registrant's Common Equity and Related
Stockholder Matters 14
6. Selected Financial Data 15
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 16-20
8. Financial Statements and Supplementary Data 21-40
9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 41
PART III
10. Directors and Executive Officers of the Registrant 41
11. Executive Compensation 41
12. Security Ownership of Certain Beneficial Owners
and Management 41
13. Certain Relationships and Related Transactions 42
PART IV
14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K 42-46
Signatures 47
FINANCIAL STATEMENT SCHEDULES
JPE, Inc. and Subsidiary Financial Statement Schedules 48
Exhibit Index 50-52
PART I
ITEM 1. BUSINESS
GENERAL
JPE, Inc. (together with its consolidated subsidiaries, the "Company"), through
its six operating subsidiaries, manufactures and distributes automotive and
truck components to original equipment manufacturers ("OEMs") and to the
aftermarket. The Company's business strategy is to acquire, develop and operate
manufacturing and distribution businesses in the automotive components industry
which have significant potential for growth in sales and earnings. Since
December 1992, the Company has completed six acquisitions, which are described
below:
Effective
Date of Product Primary Major
Acquisition Acquisition Classes Market Customers
- ----------- ----------- ------- ------ ---------
December Dayton Parts, Heavy-duty Heavy-duty Haygood Limited
1992 Inc. ("DPI") undercarriage truck and Inland Truck
parts trailer Parts
aftermarket ARC Remanu-
facturing
July 1994 Allparts, Inc. Brake systems Automotive Autozone
("Allparts") aftermarket
September SAC Corporation Exterior trim Automotive General Motors
1994 ("Starboard") and light truck Ford
OEM Chrysler
February Industrial & Fasteners Automotive Ford
1995 Automotive and light truck General Motors
Fasteners, OEM Chrysler
Inc. ("IAF")
March 1995 Plastic Trim, Exterior trim Automotive General Motors
Inc. ("PTI") and light truck Chrysler
OEM Ford
December Pebra Inc. Exterior trim Automotive General Motors
1996 ("JPE Canada") and light truck
OEM
The following table sets forth information regarding the Company's sales in
certain classes of similar products as percentages of net sales for the periods
indicated.
Percentage of Net Sales
Year ended December 31,
-----------------------
Pro Forma
1993(1) 1994 1995 1996 1996(2)
------- ---- ---- ---- -------
OEM:
Exterior Trim........................ -- 12.5% 44.2% 46.8% 61.1%
Fasteners............................ -- -- 15.8 16.2 11.8
Aftermarket:
Heavy-duty undercarriage parts....... 100.0% 81.3 33.7 30.4 22.3
Other................................ -- 6.2 6.3 6.6 4.8
------ ------ ------ ------ ------
100.0% 100.0% 100.0% 100.0% 100.0%
====== ====== ====== ====== ======
<FN>
(1) The Company purchased its first operation on December 31, 1992, as such
there were no sales in 1992.
2) Pro forma data for the year ended December 31, 1996, as if the Company's
acquisition of JPE Canada had been completed on January 1, 1996.
</FN>
ORIGINAL EQUIPMENT
The Company's OEM group consists of four operations: Starboard, PTI, JPE Canada
and IAF. Starboard manufactures and supplies luster, powder coated and
co-extruded metallic decorative and functional exterior trim parts. PTI
manufactures and supplies decorative extruded plastic exterior trim. JPE Canada
manufactures and supplies plastic injection-molded fascias, rocker panels and
body-side moldings. Starboard, PTI and JPE Canada supply parts directly to OEMs
and to suppliers which sell to OEMs ("Tier 1 suppliers"). All of the parts
supplied are utilized in automotive and light truck applications.
IAF manufactures and supplies decorative, specialty and standard wheel nuts for
domestic OEMs and certain Japanese transplants. In addition, IAF uses its
proprietary process to manufacture stainless steel capped wheel nuts.
On December 23, 1996, the Company acquired certain assets of Pebra Inc., a
Canadian company which had filed for protection from creditors under the
Companies' Creditors Arrangement Act ("CCAA"). Pebra Inc. filed for protection
under the CCAA because the operations were experiencing excessive scrap,
production inefficiencies, quality issues and substantial losses which
management projected would continue under the existing operating structure. As a
result of these negative trends and the CCAA filing, the Company was able to
purchase certain assets of Pebra Inc. ("JPE Canada") at a substantial discount.
On the date of acquisition, the Company began to implement a detailed plan to
turn around the operations. This plan included a supplier agreement with JPE
Canada's major customer and a realignment of the existing sales and
administrative cost structure, both of which were executed as part of the
acquisition. With these two steps, the addition of certain essential capital
equipment and a revised management structure, the Company believes that it can
turn around the operational and financial results of JPE Canada.
The acquisition of JPE Canada provides the Company with the ability to injection
mold and paint large exterior trim parts, two technologies the Company did not
previously possess. As a result of this acquisition, the Company will be able to
provide OEM's with complete exterior trim systems which the Company believes is
a competitive advantage when being considered for future OEM sourcing decisions.
AFTERMARKET
The Company's aftermarket group consists of two operations: DPI and Allparts.
DPI manufactures and distributes springs and spring-related products and
distributes a variety of other undercarriage replacement parts for trucks and
trailers, consisting of wheel-end, suspension and steering products. Almost all
of DPI's springs and spring-related products are manufactured at its plant in
Harrisburg, Pennsylvania. Other products sold by DPI are purchased from third
party manufacturers. DPI sells products to the truck and trailer parts
independent aftermarket under the brand names "Stanley Springs" and "Dayton
Parts."
Allparts distributes hydraulic brake system products for the independent
automotive and light truck aftermarket. Currently, Allparts sells its brake
parts under the brand names of "Brakeware" and "Tru-Torque." Allparts also sells
a small percentage of parts under private label.
FORWARD LOOKING INFORMATION
This Annual Report on Form 10-K 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 investors 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 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 OEM
programs; and (iii) the availability of funds to the Company for strategic
acquisitions and capital investments to enhance existing production and
distribution capabilities (see "Liquidity and Capital Resources").
MANUFACTURING OPERATIONS
ORIGINAL EQUIPMENT
Starboard manufactures decorative exterior trim, functional stampings and
specialty products from stainless and galvanized steel. Starboard's primary
manufacturing processes include roll forming, stamping, bending, and
co-extrusion of steel and PVC. Decorative and functional parts produced by
Starboard are often plated, painted or heat treated by third parties before
final shipment to the customer. Decorative products are utilized in fascia, body
side, window trim and reveal, garnish and wheel well trim applications.
Starboard's functional stampings include shields, shims, spacers, rods,
strikers, brackets, hinges, window stabilizers, seat channels and bent tubes.
Specialty products produced by Starboard are primarily speaker grilles, luggage
racks, appliques, and lamp bezels.
PTI manufactures extruded plastic exterior trim products. These products are
manufactured primarily from PVC plastic which is extruded at high temperatures
into parts of varying dimensions. Once extruded, these parts are usually painted
or assembled by third party processors before being shipped to the customer. The
parts are used primarily for decorative and styling purposes in the production
of passenger cars, light trucks, minivans, and sport-utility vehicles. PTI
manufactures three primary products: (1) reveal moldings, which surround a
vehicle's windshield and backlight glass and cover the gap between the edge of
the glass and the car body; (2) body side moldings, which serve aesthetic and
functional purposes and are affixed to the side of a vehicle; and (3) bumper
fascia moldings, which are bright or colored decorative inserts attached to
plastic bumpers and bumper pads, and are primarily aesthetic in nature.
JPE Canada manufactures plastic injection molded parts which are both decorative
and functional in nature. These parts are produced utilizing plastic compound
which is injected into a product mold at high temperatures and then painted with
a high luster finish. These products consist of: (1) front and rear fascias,
which act as the integrated system of the grille, headlights/tail lamps and
bumper on the front or rear of a vehicle; (2) rocker panels, which function as a
guard directly below the door(s) and between the two wheels of the vehicle; and
(3) body-side moldings, which are styling aspects of the vehicle as well as
providing dent protection.
IAF manufactures decorative capped, specialty, and standard wheel nuts. The
manufacturing of wheel nuts is a highly automated repetitive process using cold
forming machines for the basic shapes and secondary machines for internal and
external threading, shaving, welding and crimping. IAF owns patents to secure
stainless steel caps to the wheel nut that provide an aesthetically sleek and
stylish appearance and serve as a rust shield.
AFTERMARKET
DPI manufactures springs, spring assemblies and spring-related products for the
heavy-duty truck and trailer aftermarket. The Company has the capability of
producing more than 17,000 spring types. These products require heating,
trimming, bending and final heat treatment prior to assembly and painting. This
manufacturing process is similar to the methods used by the OEM spring
manufacturers.
MARKETING, DISTRIBUTION AND CUSTOMERS
ORIGINAL EQUIPMENT
The Company's OEM business supplies products to domestic OEMs either directly or
through Tier 1 suppliers. In the year ended December 31, 1996, approximately 63%
of the Company's net sales were to OEM customers. With the acquisition of JPE
Canada, net sales to OEM customers would have been 73% on a pro forma basis.
Sales to significant customers for the year ending December 31, 1996 were as
follows:
Actual Pro Forma*
------ ----------
General Motors 36% 53%
Chrysler Corporation 14% 10%
<FN>
*Pro forma amounts include the impact of the JPE Canada acquisition.
</FN>
No other OEM customer accounts for more than 10% of the Company's net sales.
The Company sells its products through a direct sales force or agents that
specialize in the Company's product lines. The Company works directly with its
customers, including the three major U.S. automobile manufacturers, to design
and develop products to satisfy market demands. Most of the parts the Company
produces have lead times of one to four years from product award to production.
The Company has been awarded new business for each of the 1998-2000 model years.
Because the Company's OEM business supplies its customers on a "just-in-time"
basis, it does not currently maintain a backlog.
AFTERMARKET
The Company's aftermarket business distributes springs and spring-related
products manufactured by DPI, as well as other undercarriage replacement parts,
including wheel-end products (such as brake drums, cast spoke wheels, rotors and
calipers), suspension parts (such as hangers, bushings, shocks and suspension
kits) and steering components (such as king pin sets, ball joints, drag links
and tie rod ends). Allparts derives all of its sales through the distribution of
hydraulic brake parts to the independent aftermarket. As part of its
distribution process, a number of products sold by Allparts are packaged at its
distribution facility.
DPI uses its own sales force to sell products for heavy and medium-duty trucks
and trailers throughout the continental United States and parts of Canada to
approximately 700 customers with approximately 1,200 locations. Although most of
DPI's products are for the repair and maintenance needs of heavy and medium-duty
trucks, trailers and mobile equipment, DPI also sells some products for
light-duty trucks. In addition to on-the-road trucks and trailers, DPI
distributes undercarriage replacement parts for specialty vehicles such as
garbage trucks, cement trucks, construction equipment and farm equipment.
DPI sells its products primarily to spring service shops, fleet distributors,
warehouse distributors and wheel and rim distributors. These outlets in turn
sell parts to local truck fleets, redistribute parts to smaller outlets such as
local repair garages or install the parts themselves on the end-users' vehicles.
Allparts' sales and marketing efforts are directed through a network of
manufacturer's representative agencies. These agencies are directed by the
national sales manager of Allparts.
No one aftermarket customer accounts for more than 10% of the Company's annual
net sales. The aftermarket group ships most of its products in a short period of
time after receiving the related order and does not maintain a significant order
backlog.
SEASONALITY
The OEM business experiences seasonal fluctuations that are consistent with
those of other OEM suppliers. The Company typically experiences decreased sales
and operating income from its OEM business during the second half of each year
due to OEM model changeovers and vacation periods.
The aftermarket business is subject to minor seasonal fluctuations, with demand
for aftermarket parts tending to be higher in the second and third quarters
because end-users have tended to make more vehicle repairs at those times.
COMPETITION
ORIGINAL EQUIPMENT
The OEM supplier industry is highly competitive and comprised of many companies
of various sizes. Demand for parts and components sold to OEMs is driven by the
demand for sales of new vehicles. The Company believes that the number of such
competitors will decrease in response to the OEMs' pressure for supplier
consolidation. The Company's largest competitors for exterior trim include Magna
International Inc., Venture and Standard Products, and for fasteners include
MacLean-Fogg, Horizon and others. Many of the Company's competitors are
divisions or subsidiaries of companies which are substantially larger and more
diversified than the Company. In addition, many of the Company's competitors
have greater financial and other resources than the Company.
The Company competes for new business both at the beginning of the development
of new models and upon the redesign of existing models. Competitive factors in
the market for the Company's OEM products include quality, reliability, cost,
timely delivery, technical expertise and development capability.
AFTERMARKET
The automotive and truck parts aftermarket in which DPI and Allparts operate is
highly competitive. Both DPI and Allparts have numerous competitors. However,
the product lines of DPI and Allparts are narrow and focus on specific markets.
There is no one competitor that dominates any product line in which either DPI
or Allparts participates. Some of the Company's more significant competitors are
Triangle Auto Spring Co., Brake Axle and Tandem Company, Rockwell International
and Euclid Industries Inc. In addition, some of the Company's competitors are
well-established truck or automotive suppliers which have greater financial and
other resources than the Company. Among the primary competitive factors
affecting this market are price, product quality, breadth of product line and
customer service.
SUPPLIERS AND RAW MATERIALS
The principal raw materials used by DPI, Starboard and IAF in their
manufacturing operations are various types and grades of steel, all of which are
readily available. The principal raw materials used by PTI and JPE Canada are
acrylic foam tape, PVC, and thermo plastic olefin (TPO) and thermo plastic
urethane (TPU) compounds, all of which are readily available.
The Company purchases some of the products it distributes from many suppliers.
The Company's distribution business is affected by its ability to obtain an
adequate supply of the products it distributes, its relationships with its
suppliers and its ability to purchase products from those suppliers on favorable
terms.
Allparts purchases approximately 19,000 part numbers in bulk for the hydraulic
brake line. The Company believes that it has multiple sources for all product
part numbers from either domestic or offshore manufacturers.
INTELLECTUAL PROPERTY
The Company has a number of patents and patent applications pending in both the
United States and certain foreign jurisdictions for its stainless steel fastener
design and for processes related to its plastic injection molded products.
Notwithstanding its patent portfolio, the Company believes that the design,
quality and pricing of its products and its relations with its customers are
substantially more important to its business than patent protection.
There can be no assurance that patents will be issued from any pending
applications or that any claims allowed from existing or pending patents will be
sufficiently broad to protect the Company's technology. The Company believes
that it is not dependent to any material extent upon any one patent or group of
patents.
GOVERNMENTAL REGULATIONS
The Company is subject to various federal, state, provincial and local laws and
regulations relating to the operation of its businesses and the manufacture of
its products, including those relating to product safety guidelines; generation,
handling and disposal of waste; discharge and emission controls; and protection
of health and the environment. These laws include the Clean Water Act, the Clean
Air Act, the Resource Conservation and Recovery Act ("RCRA") and the
Comprehensive Environmental Response, Compensation and Liability Act in the
United States, together with implementing regulations and similar state laws and
regulations, as well as similar laws and regulations in Canada and Ontario. In
part, these laws and regulations govern the manner in which the Company handles
various wastes, discharges, emissions and environmental conditions at or
attributable to its operations or facilities.
Operations at some of the Company's facilities have been and continue to be
sources of emissions and discharges of various materials, including air
emissions from coating and painting operations and discharges of process
wastewaters. For example, various Company facilities have been the sites of
releases of polychlorinated biphenyl-contaminated oil, mineral spirits, fuel and
quench oils and, possibly, other materials. Some of these materials remain at
and about the sites of these facilities. Some of DPI's Harrisburg, Pennsylvania
facilities are believed to be located on a former municipal landfill because
materials associated with municipal landfills have been found at these
facilities. In addition, at various Company facilities, substances have been and
currently are used that are classified as hazardous under RCRA or as pollutants,
contaminants or hazardous, toxic or regulated substances under other applicable
laws. The parties from whom the Company acquired its operations have, to various
degrees, agreed to limited indemnification of the Company against some
environmental claims under the various acquisition agreements with the Company,
but there can be no assurance that these indemnities will be adequate to cover
all liabilities and expenses that may arise. Although the Company does not know
the amounts of any liabilities or expenses it may incur in the future in
connection with the investigation or remediation of materials or conditions in
connection with the control of emissions and discharges at its facilities, it
does not believe that these liabilities and expenses will have a material
adverse effect on its financial condition or results of operations (although
there could be such effects in particular periods).
Developments with regard to laws, regulations and enforcement policies could
result in additional, presently unquantifiable, costs or liabilities to the
Company or might in the future restrict the Company in ways that could require
it to modify, supplement or replace existing equipment and facilities and to
change or cease present methods of operation. Furthermore, laws, regulations and
governmental policies are subject to change and no assurance can be given that
existing laws, regulations and policies will not be amended or that new laws,
regulations and policies will not be adopted that will impose more extensive
regulation, cost or liability on the Company in the future.
RESEARCH AND DEVELOPMENT
During the year ended December 31, 1994, the Company did not make any
significant expenditures for research and development. For the years ended
December 31, 1996 and 1995, expenditures of approximately $1.7 million and $1.3
million, respectively, were incurred working with the Company's OEM customers on
product design and development.
EMPLOYEES
The Company had a total of approximately 1,420 employees on December 31, 1996,
approximately 870 of whom were located in the United States.
ITEM 2. PROPERTIES
The following list indicates the Company's principal manufacturing, distribution
and administrative facilities by location. All owned U.S. facilities are subject
to liens under the Credit Agreement and all owned Canadian facilities are
subject to liens under the Canadian Credit Facility:
Building Size
Primary Use (Approximate Owned
of the Facility Location Square Feet) or Leased
- --------------- -------- ------------ ---------
Corporate headquarters Ann Arbor, MI 3,200 Leased
Manufacturing East Tawas and
Tawas, MI 141,000 Owned
Manufacturing and
administrative Royal Oak, MI 75,000 Owned
Manufacturing and
administrative Beavercreek, OH 105,000 Owned
Finishing and
distribution Jamestown, OH 90,000 Owned
Manufacturing Harrisburg, PA 100,000 Owned
Distribution and
administrative Harrisburg, PA 160,000 Leased
Packing and dis-
tribution facility Louisiana, MO 40,000 Owned
Manufacturing and
administrative Peterborough,
Ontario, Canada 220,000 Owned
Manufacturing and
warehousing Peterborough,
Ontario, Canada 191,000 Leased
Manufacturing Kitchener, Ontario,
Canada 94,000 Owned
The Company's buildings, machinery and equipment are in adequate operating
condition, and are suitable and adequate for current production requirements.
ITEM 3. LEGAL PROCEEDINGS
Neither the Company nor any of its subsidiaries is a party to, nor are any of
its properties the subject of, any pending legal proceedings, other than certain
ordinary routine litigation incidental to their businesses, which in the opinion
of management is not material.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
SUPPLEMENTAL ITEM. EXECUTIVE OFFICERS OF THE REGISTRANT
The current executive officers of the Company are identified below. Officers are
appointed by the Board of Directors and serve at its discretion.
Name Age Position
- ---- --- --------
John Psarouthakis 64 Chairman of the Board, President, Chief
Executive Officer and Director
C. William Mercurio 57 President-OEM Group
Donna L. Bacon 45 Vice President, General Counsel and Secretary
James J. Fahrner 45 Vice President and Chief Financial Officer
Dr. John Psarouthakis is the founder of the Company and has been Chairman of the
Board, Chief Executive Officer and a Director of the Company since it began
operations in late 1991 and assumed the position of President in July, 1996. In
1978, Dr. Psarouthakis organized J. P. Industries, Inc. ("JPI"), which became a
Fortune 500 transportation components manufacturing and distribution company,
where he served as Chairman, President and a Director until its sale in August
1990. After the sale of JPI, Dr. Psarouthakis was involved in various private
investments and professional activities until the Company began operations. Dr.
Psarouthakis is currently an Adjunct Professor teaching Acquisitions and Mergers
at the University of Michigan Graduate School of Business.
Mr. C. William Mercurio has been President of the Company's OEM Group since July
1996, prior to which he served as President of PTI since its acquisition by the
Company in April 1995. In November 1990, Mr. Mercurio and a group of investors
purchased PTI from its parent company, Protective Treatments, Inc. Mr. Mercurio
has held the position of President of PTI since 1990.
Ms. Donna L. Bacon has been Vice President, General Counsel and Secretary of the
Company since October 1994. From August 1991 to October 1994, Ms. Bacon was Vice
President, General Counsel and Secretary of The MEDSTAT Group, Inc., a provider
of healthcare information services. From 1987 to January 1991, Ms. Bacon was
General Counsel and Secretary of JPI.
Mr. James J. Fahrner has been Vice President and Chief Financial Officer of the
Company since June 1995. From November 1990 until June 1995, Mr. Fahrner served
as Vice President-Chief Financial Officer, Treasurer of Gelman Sciences Inc., a
manufacturer of microfiltration products. From December 1989 to October 1990,
Mr. Fahrner served as Vice President-Treasurer of JPI.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock trades on the Nasdaq National Market tier of The
Nasdaq Stock MarketSM under the symbol "JPEI." The following table indicates the
high and low sale prices for the Company's Common Stock as reported on the
Nasdaq National Market for the last two years. Such over-the-counter market
quotations reflect inter-dealer prices, without retail mark-up, mark-down or
commission and may not necessarily represent actual transactions.
MARKET PRICE
QUARTER 1995 1996
- ------- ---- ----
High Low High Low
---- --- ---- ---
First $14.00 $ 9.50 $11.25 $ 8.25
Second 16.25 13.50 11.13 9.00
Third 14.50 12.75 10.00 8.00
Fourth 13.50 8.75 9.00 6.88
On March 17, 1997, there were approximately 159 holders of record of the
Company's Common Stock and approximately 2,500 beneficial shareholders.
The Company has never declared or paid any dividends on shares of Common Stock
and has no intention of declaring or paying any dividends on shares of Common
Stock in the foreseeable future. The Company intends to retain its earnings, if
any, for the development of its business, including possible future
acquisitions.
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data presented below, as of and for the periods ended
December 31, 1992, 1993, 1994, 1995 and 1996, are derived from the Company's
financial statements, audited by Coopers & Lybrand L.L.P., independent
accountants, and should be read in conjunction with the Company's audited
financial statements and notes thereto included elsewhere in this Report on Form
10-K (the "Company's Financial Statements"). The selected financial data set
forth below should also be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included in Item 7 of
this Report on Form 10-K. Certain amounts from 1995 have been reclassified to
conform with the 1996 presentation.
Years Ended December 31,
------------------------
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
(in thousands, except per share data)
Income statement data:
Net sales $ -- $54,693 $70,073 $169,202 $201,453
Cost of goods sold -- 40,639 51,994 134,156 166,714
------- ------- ------- -------- --------
Gross profit -- 14,054 18,079 35,046 34,739
Charge for impairment
of goodwill -- -- -- -- 4,300
Selling, general and
administrative expenses 572 9,950 11,892 21,591 24,893
------- ------- ------- -------- --------
Operating profit (loss) (572) 4,104 6,187 13,455 5,546
Interest income (expense),
net 224 (844) (1,029) (6,226) (6,932)
------- ------- -------- -------- --------
Income (loss) before
income taxes (348) 3,260 5,158 7,229 (1,386)
Income tax expense -- 1,159 1,968 2,780 203
------- ------- ------- -------- --------
Net income (loss) $ (348) $ 2,101 $ 3,190 $ 4,449 $ (1,589)
======= ======= ======= ======== ========
Earnings (loss) per
common share $ (.15) $ .73 $ .83 $ 1.09 $ (.35)
======= ======= ======= ======== ========
Weighted average shares
outstanding 2,290 2,871 3,865 4,092 4,587
Balance sheet data
(at end of period):
Working capital $ 6,563 $15,617 $22,084 $ 39,955 $ 42,138
Total assets 28,168 34,891 66,492 145,229 174,725
Long-term debt (including
current maturities) 14,009 7,287 25,973 83,375 110,001
Total shareholders' equity 6,154 21,790 25,513 36,747 35,778
ITEM 7. 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
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Net sales for the year ended December 31, 1996 were $201,453,000 compared to
$169,202,000 for the previous year. The net sales increase of 19% is principally
attributable to the full year effect of the acquisition of two OEM businesses
completed in the first quarter of 1995, a stronger North American automotive
market than in 1995 and a rise in aftermarket orders. Additionally, 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. For the year ended December 31, 1996, net sales for the
Company were 63% to OEM customers and 37% to aftermarket customers.
Gross profit decreased to $34,739,000 for the year ended December 31, 1996
compared with $35,046,000 for the prior year. The gross margin percentages were
17.2% and 20.7% for 1996 and 1995, respectively. The decline in gross margin is
a result of production and launch difficulties at the Company's IAF and
Starboard facilities; a change in sales mix at IAF to products with lower gross
margins; and the impact of incentives associated with long-term OEM contract
pricing. 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.
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 Impairment of Long-Lived
Assets to be Disposed of," management recorded a $4,300,000 impairment writedown
of 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 $2,136,000 as of December
31, 1996, based on management's estimate of 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 15.3% to $24,893,000 for
the year ended December 31, 1996 compared to $21,591,000 for 1995. The increase
in spending is a result of the full year impact of two OEM acquisitions made in
the first three months of 1995 and an $850,000 charge related to the write-down
of an equity investment and severance costs for changes in senior management at
IAF and Starboard. Selling, general and administrative expense as a percentage
of sales was 12% and 13% for the years ending December 31, 1996 and 1995,
respectively. The decline in this percentage is attributable to management
efforts to contain costs in its Aftermarket and OEM businesses, the increasing
significance of the OEM business to the Company and a $342,000 non-recurring
charge recorded in 1995 for severance agreements of two senior executives.
Amortization of goodwill for the year ended December 31, 1996 was $1,267,000
versus $924,000 for the same period in 1995.
Interest expense increased to $6,932,000 in 1996 compared to $6,226,000 for the
year ended December 31, 1995. The increase is a result of funds borrowed to
finance two OEM supplier acquisitions in 1995 and a slightly higher debt level
as a result of capital additions to enhance existing production technologies and
capabilities. The average interest rate for 1996 and 1995 was 8%.
The effective tax rates for the years ended December 31, 1996 and 1995 were 15%
and 38.5%, respectively. The decline in tax rate is due to the Company
experiencing pre-tax losses for the year ending December 31, 1996. Even with
pre-tax losses in 1996, the Company was still subject to tax as a result of
non-deductible goodwill, the write-off of an equity investment in a joint
venture and losses that occurred in Michigan, whose tax is not income based.
Net loss for the year ended December 31, 1996 was $1,589,000 compared to net
income of $4,449,000 for the year ended December 31, 1995. Loss per share for
the year ended December 31, 1996 was $0.35 per share as compared to earnings per
share of $1.09 for the same period in 1995. These changes are a result of the
factors mentioned above. The weighted average shares for 1996 were 4,587,000 as
compared to 4,092,000 for 1995. During 1995 and 1996, the Company issued a total
of 794,362 shares through a public offering and its stock option plans.
On a pro forma basis, assuming the acquisitions of IAF, PTI and JPE Canada
occurred on January 1, 1995, the net sales for the year ended December 31, 1996
would have been approximately $275,860,000, an increase of approximately 5% over
1995 sales. The increase is attributable to higher new vehicle production, an
increase in the aftermarket industry in 1996 and other sales factors mentioned
above. On a pro forma basis, net loss would have been approximately $2.0 million
or $.43 per share for the year ended December 31, 1996.
The pro forma data does not purport to be indicative of the results which would
actually have been reported if these transactions had occurred on such dates or
which may be reported in the future. The pro forma data should be read in
conjunction with the historical financial statements.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
Net sales for the year ended December 31, 1995 were $169,202,000 compared to
$70,073,000 for the previous year. The net sales increase of 141% is principally
attributable to the acquisitions of two OEM businesses completed in the first
quarter of 1995 and the full year effect of the two acquisitions made in 1994.
For the year ended December 31, 1995, net sales for the Company were 60% to OEM
customers and 40% to aftermarket customers. The Company's only business which
was owned for the full twelve months of both 1994 and 1995 was Dayton Parts, the
Company's first acquisition. Sales for this business were flat in 1995 as
compared to the prior year, reflecting a slowdown due to customer inventory
adjustments and fewer miles driven in the truck industry.
Gross profit increased 94% to $35,046,000 for the year ended December 31, 1995
compared with $18,079,000 for the prior year. The gross margin percentages were
20.7% and 25.8% for 1995 and 1994, respectively. This decline in gross margin
reflects the impact of the acquired OEM businesses, which have lower gross
margins than aftermarket companies. However, the margins of the aftermarket
businesses are offset by higher selling and distribution costs.
Selling, general and administrative expenses increased 82% to $21,591,000 for
the year ended December 31, 1995 compared to $11,892,000 for 1994. Approximately
$7,500,000 of the increase represent selling, general and administrative
expenses from the Company's acquisitions in 1995 and 1994. The percentage of
selling, general and administrative expenses to net sales was 13% for 1995 as
compared to 17% for the year ended December 31, 1994. The decline in this
percentage is attributable to the increasing significance of the OEM business to
the Company. The increased level of spending also includes a $342,000
non-recurring accrual for severance agreements for two senior executives whose
employment terminated during the second quarter of 1995, and higher corporate
administrative costs for professional personnel required to manage and operate
the Company at its current size. Amortization of goodwill for the year ended
December 31, 1995 was $1,180,000, which on an annual basis will be approximately
$1.4 million.
Interest expense increased to $6,226,000 in 1995 compared to $1,029,000 for the
year ended December 31, 1994. The Company has financed the last three
acquisitions totaling approximately $79 million through its $110 million Credit
Agreement. The average interest rate on this facility during the past year was
8%.
The effective tax rates for the years ended December 31, 1995 and 1994 were
38.5% and 38.2%, respectively. The higher effective tax rate is attributable to
non-deductible goodwill resulting from the acquisitions of Allparts and
Starboard, which were stock purchases.
Net income for the year ended December 31, 1995 increased 39% to $4,449,000
compared to reported results of $3,190,000 for the year ended December 31, 1994.
Earnings per share increased 31% to $1.09 per share from $.83 per share. The
weighted average shares for 1995 were 4,092,000 as compared to 3,865,000 for
1994. During 1995, the Company issued a total of 685,812 shares through private
and public offerings, and its stock option plans.
On a pro forma basis assuming the acquisitions of Starboard, IAF and PTI
occurred on January 1, 1994, the net sales for the year ended December 31, 1995
would have been approximately $190,285,000, an increase of approximately 2% over
the comparable amount for 1994. On a pro forma basis, net income would have been
approximately $5.3 million or $1.28 per share for the year ended December 31,
1995.
The pro forma data does not purport to be indicative of the results which would
actually have been reported if these transactions had occurred on such dates or
which may be reported in the future. The pro forma data should be read in
conjunction with the historical financial statements.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal capital requirements are to fund business acquisitions,
working capital needs, and capital additions to enhance existing production
technologies and capabilities. Historically, the Company has used cash flows
generated by operations, borrowings under its credit agreements and equity
financing to meet these needs.
The Company's principal source of liquidity is the $110 million Third Amended
and Restated Credit Agreement dated December 31, 1996 (the "Credit Agreement").
This Agreement was amended several times during 1995 through December 1996 to
provide the Company with adequate capital resources for businesses that were
acquired. 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 flow and fixed charge
coverage ratios. The variable margin was 2.25% at December 31, 1996 and the
average rate on the outstanding borrowings was 7.8%. The Credit Agreement
expires on October 27, 1998 and has no principal repayment requirements prior to
expiration. The Credit Agreement is collateralized by all of the Company's
assets, with the exception of JPE Canada's assets. The Credit Agreement includes
various restrictive financial and other covenants. The Company was in compliance
with all covenants as of December 31, 1996.
The Company has an interest rate swap agreement on $30 million notional amount
of borrowings under the Credit Agreement. The swap agreement is effective
October 26, 1995 through October 26, 1998. This agreement exchanged the
three-month LIBOR rate for a fixed rate of 6.225%.
On December 20, 1996, JPE Canada entered into a Cdn. $28.7 million credit
agreement with a Canadian bank (the "Canadian Credit Facility"), primarily to
fund the acquisition of Pebra Inc. In addition to funding the acquisition of
Pebra Inc., the Canadian Credit Facility permits JPE Canada to borrow funds in
the form of advances for operating requirements and capital expenditures.
Repayment terms of borrowings under the facility vary based on the nature of the
advance. Advances under the Canadian Credit Facility are secured by
substantially all of the assets of JPE Canada. Interest rates on the advances
are computed at either the Canadian Prime Rate or the Base Rate, as defined in
the agreement. At December 31, 1996, the average interest rate was 5.5%.
During 1995, the Company acquired the assets of Industrial & Automotive
Fasteners, Inc. and all outstanding capital stock of Plastic Trim, Inc. The
total consideration for these two businesses was $66.6 million. The acquisitions
were financed principally from borrowings under the Credit Agreement and a $10
million short-term note to a former owner. This short-term note was repaid on
January 2, 1996 from borrowings under the Credit Agreement.
During 1996, the Company acquired certain assets and liabilities of Pebra Inc.
for a total consideration of Cdn. $29.6 million (U.S. $21.7 million). Pebra Inc.
filed for protection from creditors under the Companies' Creditors Arrangement
Act due to negative operating results prior to the acquisition. Due to the
nature of the acquisition, only certain assets (i.e., accounts receivable,
inventory and fixed assets) and the Canadian Auto Workers Union unfunded pension
liability were acquired from Pebra Inc. The acquisition was financed from
borrowings under the Canadian Credit Facility and the Credit Agreement.
During the second quarter of 1995, the Company sold 135,712 shares of Common
Stock at $14.00 per share for cash proceeds of approximately $1.9 million to
certain former shareholders of Plastic Trim, Inc. in a private transaction.
In November 1995, the Company sold 500,000 shares of Common Stock at $10.75 per
share through a public offering. The net proceeds of $4.6 million were used to
pay down borrowings under the Credit Agreement.
Working capital at December 31, 1996 increased to $42.1 million as compared to
$40.0 million at December 31, 1995. The increase in working capital was due
primarily to the acquisition of JPE Canada. Cash generated from operations was
$10.1 million for the year ended December 31, 1996. These funds were used for
additions to property, plant and equipment totaling $13.5 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 and
the Canadian Credit Facility.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
JPE, INC.
INDEX TO FINANCIAL STATEMENTS
Page
----
Report of Independent Accountants 22
Consolidated Balance Sheets as of December 31,
1995 and 1996 23
Consolidated Statements of Income for the
Years Ended December 31, 1994, 1995 and 1996 24
Consolidated Statements of Shareholders' Equity for
the Years Ended December 31, 1994, 1995 and 1996 25
Consolidated Statements of Cash Flows for the Years
Ended December 31, 1994, 1995 and 1996 26
Notes to Consolidated Financial Statements 27-40
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Shareholders of JPE, Inc.:
We have audited the accompanying consolidated balance sheets of JPE, Inc. as of
December 31, 1995 and 1996 and the related consolidated statements of income,
shareholders' equity, and cash flows for each of the three years in the period
ended December 31, 1996 and the financial statement schedule listed in Item
14(a)(2) of this Form 10-K. These financial statements and financial statement
schedule are the responsibility of the company's management. Our responsibility
is to express an opinion on these financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of JPE, Inc. as of
December 31, 1995 and 1996, and the consolidated results of their operations and
their cash flows for each of the three years in the period ended December 31,
1996, in conformity with generally accepted accounting principles. In addition,
in our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
COOPERS & LYBRAND L.L.P.
Detroit, Michigan
February 25, 1997
JPE, INC.
CONSOLIDATED BALANCE SHEETS
at December 31,
(amounts in thousands, except share data)
ASSETS
1995 1996
---- ----
Current assets:
Cash and cash equivalents $ 288 $ 1,316
Accounts receivable, net of
allowance for doubtful
accounts of $369 and $262
at December 31, 1995 and
1996, respectively 23,410 26,829
Inventory 32,597 37,963
Other current assets 4,754 8,688
-------- --------
Total current assets 61,049 74,796
Property, plant and equipment, net 47,978 69,281
Goodwill, net 32,635 27,068
Other assets 3,567 3,580
-------- --------
Total assets $145,229 $174,725
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 108 $ 323
Short term debt -- 8,120
Accounts payable 15,156 17,643
Accrued liabilities 5,656 6,190
Income taxes 174 382
-------- --------
Total current liabilities 21,094 32,658
Deferred income taxes 2,927 3,184
Other liabilities 1,194 1,547
Long-term debt, non-current 83,267 101,558
-------- --------
Total liabilities 108,482 138,947
-------- --------
Commitments and contingencies -- --
Shareholders' equity:
Preferred stock, no par value,
3,000,000 authorized, no
shares issued and outstanding -- --
Common stock, no par value,
15,000,000 authorized,
4,473,930 and 4,582,480 issued
and outstanding at December 31,
1995 and 1996, respectively 27,301 27,921
Retained earnings 9,446 7,857
-------- --------
Total shareholders' equity 36,747 35,778
-------- --------
Total liabilities and
shareholders' equity $145,229 $174,725
======== ========
The accompanying notes are an integral part
of the consolidated financial statements.
JPE, INC.
CONSOLIDATED STATEMENTS OF INCOME
for the years ended December 31,
(amounts in thousands, except per share data)
1994 1995 1996
---- ---- ----
Net sales $70,073 $169,202 $201,453
Cost of goods sold 51,994 134,156 166,714
------- -------- --------
Gross profit 18,079 35,046 34,739
Charge for impairment of
goodwill (Note 11) -- -- 4,300
Selling, general and
administrative expenses 11,892 21,591 24,893
------- -------- --------
Operating profit 6,187 13,455 5,546
Interest expense, net 1,029 6,226 6,932
------- -------- --------
Income (loss) before income taxes 5,158 7,229 (1,386)
Income tax expense 1,968 2,780 203
------- -------- --------
Net income (loss) $ 3,190 $ 4,449 $ (1,589)
======= ======== ========
Earnings (loss) per common share $ .83 $ 1.09 $ (.35)
====== ====== =====
Weighted average shares outstanding 3,865 4,092 4,587
===== ===== =====
The accompanying notes are an integral part
of the consolidated financial statements.
JPE, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
for the years ended December 31
(amounts in thousands, except share data)
Common Stock
------------
Shares Retained
Outstanding Amount Earnings Total
----------- ------ -------- -----
Balances, January 1, 1994 3,781,772 $19,983 $1,807 $21,790
Issuance of stock warrants 500 500
Employee Stock Plan 6,346 33 33
Net income 3,190 3,190
--------- ------- ------ ------
Balances, December 31, 1994 3,788,118 20,516 4,997 25,513
--------- ------- ------ -------
Issuance of stock 635,712 6,497 6,497
Employee Stock Plan 50,100 75 75
Tax benefit from exercised
stock options 213 213
Net income 4,449 4,449
--------- ------ -------
Balances, December 31, 1995 4,473,930 27,301 9,446 36,747
--------- ------- ------ -------
Employee Stock Plan 108,550 410 410
Tax benefit from exercised
stock options 210 210
Net loss (1,589) (1,589)
--------- -------- ------ -------
Balances, December 31, 1996 4,582,480 $ 27,921 $7,857 $35,778
========= ======== ====== =======
The accompanying notes are an integral part
of the consolidated financial statements.
JPE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended December 31,
(amounts in thousands)
1994 1995 1996
---- ---- ----
Cash flows from operating activities:
Net income (loss) $ 3,190 $ 4,449 $ (1,589)
Adjustments to reconcile net income to
net cash provided by operating activities:
Charge for impairment of goodwill (Note 11) -- -- 4,300
Depreciation and amortization 1,782 5,822 7,416
Disposal of property and equipment 21 232 98
Changes in operating assets and liabilities:
Accounts receivable (864) 1,278 (936)
Inventory 711 (3,815) 729
Other assets (790) (2,940) (1,534)
Accounts payable (1,607) 530 2,487
Accrued liabilities (799) (852) (1,376)
Income taxes (1,255) 138 208
Deferred income taxes 529 1,057 257
------- ------- --------
Net cash provided by operating
activities 918 5,899 10,060
------- ------- --------
Cash flows from investing activities:
Purchase of property and equipment (1,563) (5,221) (13,150)
Purchase of patent -- -- (1,466)
Acquisition of Allparts, Inc. (7,723) -- --
Acquisition of Starboard Industries, Inc. (207) -- --
Acquisition of Industrial & Automotive
Fasteners, Inc. -- (15,638) --
Acquisition of Plastic Trim, Inc. -- (40,578) --
Acquisition of Pebra Inc. -- -- (21,662)
------- ------- --------
Net cash used by investing activities (9,493) (61,437) (36,278)
------- ------- --------
Cash flows from financing activities:
Repayments of promissory notes (1,940) (12,889) --
Sale of common stock, net 33 6,572 410
Repayments of term loans (2,874) (2,461) (10,100)
Net borrowings (repayments) under revolving loan 9,141 62,377 19,270
Net borrowings under Canadian credit facility -- -- 17,456
Payment of deferred financing costs (325) (278) --
Tax benefit from exercised stock options -- 213 210
------- ------- --------
Net cash provided by financing activities 4,035 53,534 27,246
------- ------- --------
Net increase (decrease) in cash (4,540) (2,004) 1,028
Cash and cash equivalents, beginning of period 6,832 2,292 288
------- ------- --------
Cash and cash equivalents, end of period $ 2,292 $ 288 $ 1,316
======= ======= ========
The accompanying notes are an integral part
of the consolidated financial statements
JPE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share data)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BUSINESS - JPE, Inc. is a manufacturer and distributor of automotive and
truck components for the original equipment manufacturers and the
replacement parts markets sold principally in North America. Total sales
for the year ended December 31, 1996 were approximately 63% to the original
equipment manufacturers and 37% to the replacement parts markets. Including
the full year effect of the acquisition of Pebra Inc., as discussed in Note
10, the percentage of sales to original equipment manufacturers would have
been 73%
FINANCIAL STATEMENT PRESENTATION - The preparation of financial statements
in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates. Certain financial
statement items have been reclassified to conform to the current year's
format.
PRINCIPLES OF CONSOLIDATION - The accompanying consolidated financial
statements include the accounts of JPE, Inc. (the "Company"), and its
wholly-owned subsidiaries, Dayton Parts, Inc. ("Dayton Parts"), Allparts,
Inc. ("Allparts"), SAC Corporation ("Starboard"), Industrial & Automotive
Fasteners, Inc. ("IAF"), Plastic Trim, Inc. ("PTI") and JPE Canada Inc.
("JPE Canada"), from the dates of acquisition (the "Acquisitions"),
December 31, 1992, July 31, 1994, September 30, 1994, February 28, 1995,
March 31, 1995, and December 23, 1996, respectively. All significant
intercompany accounts and transactions with the consolidated subsidiaries
have been eliminated in the preparation of the consolidated financial
statements.
CONCENTRATION OF CREDIT RISK - Accounts receivable of the Company, which
represent the principal concentration of credit risk, result from sales to
companies in the automotive, light truck and heavy duty truck original
equipment and aftermarket industries. Credit is extended based upon an
evaluation of the customer's financial condition and collateral is not
required from customers.
INVENTORY - Inventory is valued at the lower of cost or market using the
first-in, first-out ("FIFO") cost method.
FOREIGN CURRENCY TRANSLATION - Translation gains and losses arising from
the settlement of foreign currency transactions are charged to the related
period's statement of operations. Translation adjustments arising from the
translation of foreign subsidiary financial statements are recorded as a
separate component of stockholders' equity.
PROPERTY, PLANT AND EQUIPMENT AND DEPRECIATION - Property, plant and
equipment are recorded at cost. Costs assigned to property, plant, and
equipment purchased as part of an acquisition are based on the fair value
of such assets on the date of the acquisition or an allocation of total
purchase price if the fair value of assets acquired exceeds the purchase
price. Improvements are capitalized, and expenditures for maintenance and
repairs are charged to operations as incurred. Gains or losses on sales and
retirements of properties are included in the determination of the results
of operations. Provisions for depreciation of property, plant, and
equipment have been computed using the straight-line method based on
estimated useful lives of the related assets.
JPE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share data)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued:
GOODWILL - Costs in excess of net assets of acquired companies are
amortized over 25 years using the straight-line method. Accumulated
amortization at December 31, 1995 and 1996 was $1,070 and $2,337,
respectively.
DEFERRED FINANCING COSTS - Deferred financing costs associated with
borrowings are being amortized over their respective periods. Accumulated
amortization at December 31, 1995 and 1996 was $114 and $243, respectively.
EARNINGS PER COMMON SHARE - Earnings are divided by the sum of the weighted
average number of common shares and common stock equivalents outstanding
during the year to compute earnings per share.
STOCK BASED COMPENSATION - Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation," encourages, but does not
require companies to record compensation cost for stock-based employee
compensation plans at fair value. The Company has elected to continue to
measure compensation costs using the intrinsic value method prescribed in
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," and related Interpretations. Accordingly, compensation cost for
stock options is measured as the excess of the quoted market price of the
Company's stock at the date of grant over the amount an employee must pay
to acquire the stock.
CASH AND CASH EQUIVALENTS - Cash and cash equivalents include investments
in highly liquid instruments with a maturity of three months or less.
2. INVENTORY:
Inventory consisted of the following at December 31:
1995 1996
---- ----
Raw materials $10,780 $15,116
Work in process and components 2,630 4,811
Finished goods 16,607 15,457
Tooling 2,580 2,579
------- -------
$32,597 $37,963
======= =======
JPE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share data)
3. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment consisted of the following at December 31:
1995 1996
---- ----
Land $ 2,304 $ 2,894
Buildings 12,464 15,015
Machinery and equipment 35,260 59,891
Furniture and fixtures 5,217 4,565
------- -------
55,245 82,365
Less accumulated depreciation (7,267) (13,084)
------- -------
$47,978 $69,281
======= =======
4. ACCRUED LIABILITIES:
Accrued liabilities consisted of the following at December 31:
1995 1996
---- ----
Accrued compensation $ 714 $ 1,856
Accrued interest 1,558 876
Accrued employee benefits 1,998 1,381
Accrued taxes 326 530
Other 1,060 1,547
------- -------
$ 5,656 $ 6,190
======= =======
JPE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share data)
5. LONG-TERM DEBT:
Long-term debt consisted of the following at December 31:
1995 1996
---- ----
Revolving credit agreement with banks
due October 1998. $72,925 $ 92,200
Credit agreement between JPE Canada
Inc. and Canadian bank -- 16,357
Note payable to sellers of
Industrial & Automotive
Fasteners payable January 2,
1996, interest rate of 8 percent
per annum, refinanced January
1996 using funds available under
revolving credit agreement 10,000 --
Other 450 1,444
------- --------
Total long-term debt 83,375 110,001
Less short-term portion of
long-term debt -- 8,120
Less current portion of
long-term debt 108 323
------- --------
Long term debt, non-current $83,267 $101,558
======= ========
At December 31, 1996, the Company's revolving credit agreement provided for
maximum borrowings of $110,000. Interest is computed under various options
available to the Company including prime and LIBOR plus a margin based on
leverage and fixed charge coverage ratios. At December 31, 1995 and 1996,
the average interest rate was 7.8%. The revolving credit agreement provides
for a facility fee which is payable quarterly in arrears. Facility fees
were $276 in 1995 and $241 in 1996.
All assets of the Company, with the exception of the assets of JPE Canada,
are collateralized by the lender under the revolving credit agreement. In
addition, the revolving credit agreement contains restrictive covenants
pertaining to payment of cash dividends, fixed charges and funded debt. The
revolving credit agreement was amended during 1996 to provide for separate
borrowings for JPE Canada and to change the fixed coverage ratio for the
effect of the impairment of an asset explained in Note 11. The Company was
in compliance with the covenants at December 31, 1995 and 1996.
The Company has an interest rate swap agreement on $30 million notional
amount of borrowings under the revolving credit agreement. The swap
agreement, which is held for other than trading purposes, is effective
October 26, 1995 through October 26, 1998. This agreement exchanged the
three-month LIBOR rate for a fixed rate of 6.225%. The interest rate swap
agreement has been entered into with a major financial institution which is
expected to fully perform under the terms of the agreement. The difference
in the interest rate between the swap agreement and the three-month LIBOR
rate is recorded as an increase or decrease to interest expense.
JPE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share data)
5. LONG-TERM DEBT, continued:
On December 20, 1996, JPE Canada entered into a Cdn. $28.7 million credit
agreement with a Canadian bank, primarily to fund the acquisition of Pebra
Inc. See Note 10 for the discussion on the acquisition. Included in the
Cdn. $28.7 million credit agreement is Cdn. $12 million which can be
utilized towards the original purchase of working capital from Pebra Inc.
and future working capital needs. Borrowings under this section of the
credit agreement are payable on demand. At December 31, 1996, JPE Canada
had Cdn. $11,081 (U.S. $8,120) outstanding related to working capital
borrowings under the credit agreement. The credit agreement also allows JPE
Canada to borrow funds for other operating needs and capital expenditures.
Repayment terms on these borrowings vary based on the nature of the
borrowing. All borrowings under the credit agreement are secured by
substantially all of the assets of JPE Canada. Interest rates on the
borrowings are computed based on either the Canadian Prime Rate or the Base
Rate (for U.S. dollar borrowings), as defined in the agreement. At December
31, 1996, the average interest rate on all Canadian borrowings was 5.5%.
Maturities of long-term debt, including current portion for the years
following December 31, 1996 are as follows: $8,443 in 1997; $93,184 in
1998; $1,767 in 1999; $1,667 in 2000; and $4,940 thereafter. All debt
related amounts recorded in the accompanying balance sheets at December 31,
1996 and 1995 approximate the fair value of the related debt.
6. EMPLOYEE BENEFIT PLANS:
The Company has several different defined contribution plans consisting of
a 40l(k) plan and profit sharing plans which cover substantially all U.S.
based non-union employees. The Company's contribution is discretionary. The
charges to operations for the years ended December 31, 1994, 1995 and 1996
were $229, $1,183 and $1,639, respectively.
The Company sponsors a defined contribution money purchase plan for the
non-union employees of JPE Canada. There were no contributions made to this
plan in the year ended December 31, 1996.
The Company sponsors defined benefit pension plans for employees covered
under collective bargaining agreements at its PTI and JPE Canada
subsidiaries. The benefits are earned based on stated amounts for each
month of credited service. The Company's policy is to fund amounts as
allowed under applicable federal regulations. The assets of the plans are
invested in certificates of deposit, treasury notes and equity securities.
JPE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share data)
6. EMPLOYEE BENEFIT PLANS, continued:
Pension information is as follows:
Components of Net Periodic Pension Cost
Year Ending December 31,
1995 1996
---- ----
Service cost $ 89 $ 69
Interest cost 82 77
Actual return on assets (48) (91)
Net amortization and deferral (6) (10)
---- ----
Net cost $117 $ 45
==== ====
No expense was recognized in the year ending December 31, 1996 for the JPE
Canada plan.
Reconciliation of Funded Status
December 31, 1995 December 31, 1996
----------------- -----------------
PTI JPE Canada PTI
--- ---------- ---
Actuarial present value of
benefit obligations
Vested $ 943 $1,144 $1,129
Unvested 17 23
Accumulated Benefit Obligation (ABO) 960 1,144 1,152
Projected Benefit Obligation (PBO) 960 1,144 1,152
Actual plan assets at fair value 1,078 650 1,344
Plan assets greater (less) than PBO 118 (494) 192
Unrecognized transition liability (98) (86)
Unrecognized net gain (90) (108)
Unrecognized prior service cost 67 62
Unamortized prior year's gain (46) (69)
------ ------ ------
Accrued pension cost recognized
in the balance sheet $ (49) $ (494) $ (9)
Major assumptions
Discount rate 7.75% 7.00% 8.00%
Rate of return on plan assets 7.00% 7.00% 8.00%
JPE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share data)
6. EMPLOYEE BENEFIT PLANS, continued:
The Company contributes to a multiemployer defined benefit plan for the IAF
employees covered under its collective bargaining agreement. This plan is
composed of hundreds of different participating employers and many
international and local unions. Pension benefits are determined on a
formula basis which recognize length of service and benefit units. One
benefit unit is credited for each 1,800 hours of service in covered
employment. The Company has charged to expense $86 and $122 for the years
ended December 31, 1995 and 1996, respectively.
The Company also provides health care and life insurance benefits for the
union employees of IAF. These employees become eligible for benefits if
they qualify for retirement while working for the Company. The following
table presents the plan's status at December 31:
1995 1996
---- ----
Accumulated postretirement benefit obligation
Retirees $ (152) $ (151)
Fully eligible active plan participants (259) (278)
Other active plan participants (585) (744)
------- -------
Accumulated postretirement benefit
obligation $ (996) $(1,173)
Unrecognized net loss 107 111
------- -------
Recorded accumulated postretirement
benefit obligation $ (889) $(1,062)
======= =======
The following table presents net periodic benefit cost for the year ended
December 31:
1995 1996
---- ----
Service cost $ 63 $ 117
Interest cost 56 72
------- -------
Net periodic benefit cost $ 119 $ 189
======= =======
The accumulated postretirement benefit obligation was determined using an
assumed discount rate of 7.25% in 1995 and 1996. The assumed annual health
care cost trend rate was 7.5% and 7.0% for 1995 and 1996, respectively,
decreasing to 5% in 2001. A one percentage point increase in the assumed
health care cost trend rate would have increased the 1996 accumulated
postretirement cost by $45 and would have increased the accumulated
postretirement benefit obligation by $205.
JPE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share data)
7. INCOME TAXES:
Income tax expense at December 31, 1994, 1995 and 1996 is as follows:
1994 1995 1996
---- ---- ----
Income (loss) before income tax
U.S. $5,158 $7,229 $(1,301)
Foreign -- -- (85)
Current payable (refundable):
Federal $1,219 $1,195 $ (395)
State 220 220 378
------ ------ -------
Total current payable (refundable) 1,439 1,415 (17)
------ ------ -------
Deferred:
Federal 432 1,375 96
State 97 (10) 157
Foreign -- -- (33)
------ ------ -------
Total deferred 529 1,365 220
------ ------ -------
Total income tax expense $1,968 $2,780 $ 203
====== ====== =======
The 1994, 1995 and 1996 provision for income taxes differs from the amount
of income tax determined by applying the statutory U. S. federal income tax
rate to pretax income as a result of the following:
1994 1995 1996
---- ---- ----
Statutory U. S. federal tax rate 34% 34% (34%)
State taxes, net of federal tax
benefit 4 3 26
Non-deductible write-off of
equity investment -- -- 10
Goodwill amortization 3 7 14
All other (3) (6) (1)
--- --- ---
Effective tax rate 38% 38% 15%
=== === ===
JPE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share data)
7. INCOME TAXES, continued:
Deferred income taxes reflect the estimated future tax effect of temporary
differences between the amount of the assets and liabilities for financial
reporting purposes and such amounts as measured by tax laws and
regulations. At December 31, 1995 and 1996, deferred tax assets and
liabilities are as follows:
1995 1996
---- ----
Deferred tax assets:
Goodwill $ -- $1,089
Inventory 224 466
Allowance for doubtful accounts 142 96
Employee benefits 844 961
AMT tax credit -- 275
All other 81 74
------ ------
Total deferred tax assets 1,291 2,961
------ ------
Deferred tax liabilities:
Property and equipment 3,098 4,664
LIFO Inventory 276 230
Goodwill 158 --
------ ------
Total deferred tax liabilities 3,532 4,894
------ ------
Net deferred taxes $2,241 $1,933
====== ======
8. STOCK OPTIONS AND WARRANTS:
The Company has granted certain officers, directors, key employees and
consultants stock options under the 1993 Stock Incentive Plan for Key
Employees of JPE, Inc. The options granted under this plan give the bearer
the right to purchase stock at a fixed price, determined at the date of
grant.
Under the JPE Stock Incentive Plan for Key Employees (the "Plan"), the
total number of shares of common stock that may be granted is 775,250. The
Plan provides that shares granted come from the Company's authorized but
unissued common stock and that the price of the options granted qualifying
as incentive options will not be less than 100 percent of the fair market
value of the shares on the date of the grant. All options that have been
granted under the Plan vest equally over a four year period and expire on
various dates, typically ten years after the date of grant.
Information regarding the Plan, the prior plan and the JPE Director Stock
Option Plan for 1994, 1995 and 1996 is as follows:
JPE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share data)
8. STOCK OPTIONS AND WARRANTS, continued:
Weighted Weighted
Average Average
Exercise Options Exercise
Shares Price Exercisable Price
------ -------- ----------- --------
Balance, December 31, 1993 291,400 $ 6.04
Options exercised (6,346) 5.99
Options terminated and expired (20,704) 6.52
Options granted 135,000 10.56
-------
Balance, December 31, 1994 399,350 $ 7.54 197,600 $ 4.06
Options exercised (50,100) $ 1.50
Options terminated and expired (149,211) 12.05
Options granted 449,539 12.29
-------
Balance, December 31, 1995 649,578 $10.26 191,198 $ 6.33
Options exercised (108,550) $ 3.78
Options terminated and expired (597,418) 11.24
Options granted 537,000 7.67
-------
Balance, December 31, 1996 480,610 $ 7.61 168,981 $ 8.26
=======
1996 1995 1994
---- ---- ----
Options available for grant
at end of year 294,640 125,672 176,000
Option price range at end
of year $3.26-$13.50 $3.26-$14.25 $1.50-$12.65
Option price range for
exercised shares $3.26-$4.01 $1.50 $5.99
Weighted average grant date
fair value of options granted $4.44
Weighted average remaining
contractual life 8 years
On December 16, 1996, the Company elected to reprice 415,000 of the
outstanding options to the then fair market value of $7.25.
During 1994, the Company granted warrants to purchase 100,000 shares of
common stock at $9.50 per share. The warrants were exercisable on the grant
date. During 1993, the Company granted warrants to purchase 25,000 shares
of common stock for $13.80 per share.
JPE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share data)
8. STOCK OPTIONS AND WARRANTS, continued:
The Company has elected to adopt the disclosure-only provisions of
Statement of Financial Accounting Standards No. 123, "Accounting for Stock
Based Compensation." Accordingly, no compensation cost has been recognized
for the stock option plan. Had compensation cost for the Company's plan
been determined based on the fair value at the grant date for awards in
1996 consistent with the provisions of SFAS No. 123, the Company's net
earnings per share would have been reduced to the pro forma amounts
indicated below:
1995 1996
---- ----
Net income (loss) - as reported $4,449 $(1,589)
Net income (loss) - pro forma $4,406 $(1,810)
Earnings (loss) per share - as reported $1.09 $(.35)
Earnings (loss) per share - pro forma $1.08 $(.40)
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in 1995 and 1996: dividend yield of 0%;
expected volatility of 56%; risk-free interest rate of 6.3%; and expected
lives of 6 years.
The pro forma disclosures may not be representative of the effects on
reported net income and earnings per share because only stock options
granted beginning in 1995 and 1996 are reflected in the pro forma amounts.
Other factors that may impact pro forma disclosures in future years include
the vesting period of stock options, timing of additional grants and number
of additional shares granted.
9. COMMITMENTS AND CONTINGENCIES:
Various legal actions and other claims could be asserted against the
Company. Litigation is subject to many uncertainties. The outcome of
individual litigated matters is not predictable with assurance, and it is
reasonably possible that some of these matters may be decided unfavorably
to the Company. It is the opinion of management that the ultimate
liability, if any, with respect to these matters will not materially affect
the consolidated financial position, liquidity, or results of operations of
the Company at December 31, 1996.
10. ACQUISITIONS:
On December 23, 1996, the Company acquired substantially all of the assets
of JPE Canada. On February 28, 1995 and March 31, 1995, the Company
acquired the assets of IAF and all of the outstanding stock of PTI,
respectively. These acquisitions have been accounted for as purchases.
Accordingly, the purchase prices, which amounted to $26,015, $40,578 and
$21,662 for IAF, PTI and JPE Canada, respectively, were allocated to the
assets acquired and liabilities assumed. The values of the assets acquired
and liabilities assumed with the purchases of IAF and PTI were based on the
fair values at the respective dates of acquisition. The values of the
assets acquired and liabilities assumed with the purchase of JPE Canada
were based on the fair values at the date of acquisition with the exception
of fixed assets, which are valued at an amount lower than the fair value
due to the bargain purchase nature of the acquisition.
JPE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share data)
10. ACQUISITIONS, continued:
The value of assets and liabilities assumed for the purchases of IAF, PTI
and JPE Canada were comprised of the following on February 28, 1995, March
31, 1995, and December 23, 1996, respectively.
JPE
IAF PTI Canada
--- --- ------
Cash $ -- $ -- $ --
Accounts receivable and other assets 5,466 7,955 3,676
Inventory 6,377 5,701 6,095
Property, plant and equipment 10,443 17,517 14,154
Goodwill 6,820 15,237 --
Deferred tax asset 876 469 --
------- ------- -------
Total 29,982 46,879 23,925
Accounts payable and accrued
expenses (3,967) (6,301) (2,263)
------- ------- -------
Total, net $26,015 $40,578 $21,662
======= ======= =======
The following unaudited pro forma summary for the years ended December 31,
1995 and 1996 assumes that the acquisitions of IAF, PTI and JPE Canada had
occurred on January 1, 1995. The significant adjustments relate to the
inclusion of amortization of goodwill, an increase in interest expense
based on an increase in long-term obligations, additional or reduced
depreciation on the revaluation of property, plant and equipment, and the
related income tax effects.
1995 1996
---- ----
Revenues $262,539 $275,860
Operating profit 24,486 6,524
Income (loss) before income taxes 13,012 (1,958)
Net income (loss) 8,120 (1,955)
Earnings (loss) per common share $1.98 ($0.43)
JPE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share data)
11. GOODWILL IMPAIRMENT:
During the third quarter of 1996, management identified that a significant
change had occurred in the product mix of its IAF subsidiary since its
purchase 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 $2,136 as of December 31,
1996. The writedown of $4,300 was calculated based on the estimated current
fair market value of the IAF business which was $21,300. As a result of
this writedown, goodwill amortization will be reduced by $172 on an annual
basis.
12. SUPPLEMENTAL CASH FLOW INFORMATION:
Selected cash payments and noncash activities for the years ended December
31, 1994, 1995 and 1996 were as follows:
1994 1995 1996
---- ---- ----
Cash paid for interest $ 1,050 $ 4,605 $ 6,780
Cash paid for income taxes 2,514 1,935 83
Noncash investing and financing activities:
Issuance of note payable in connection
with Starboard acquisition 11,625 -- --
Issuance of stock warrants in connection
with Starboard acquisition 500 -- --
Debt assumed in connection with
purchase of real property 490 -- --
Issuance of note payable in connection
with the acquisition of IAF -- 10,377 --
JPE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share data)
13. INDUSTRY SEGMENT AND GEOGRAPHIC AREA:
The Company operates principally in one segment, automotive and truck
components, which are sold to the original equipment manufacturers as well
as the replacement parts markets. The Company's sales to individual
customers in excess of 10% of total revenue were:
Pro Forma*
1995 1996 1996
---- ---- ----
General Motors Corporation 34% 36% 53%
Chrysler Corporation 12% 14% 10%
<FN>
*Including the impact of JPE Canada for all of 1996.
</FN>
There were no customers to whom sales were in excess of 10% of total
revenue for the year ended December 31, 1994.
The Company had export sales of approximately $20.5 and $26.5 million,
principally to Canada, for the years ended December 31, 1995 and 1996,
respectively. Export sales for the year ended December 31, 1994 were less
than 10% of total revenues. The Company operates in the North American
geographic area.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item 10 regarding executive officers of the
Company is included in the Supplemental Item in Part I of this Report and is
incorporated in this Item 10 by reference. The information required by this Item
10 regarding directors of the Company will be set forth under the captions
"Election of Directors" and "Other Information Relating to Nominees and
Directors" in the Company's Proxy Statement in connection with the 1997 Annual
Meeting of Shareholders scheduled to be held May 15, 1997 and is incorporated in
this Item 10 by reference. The Company is not required to make any disclosures
under Item 405 of Regulation S-K.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item 11 concerning executive compensation will
be set forth under the caption "Compensation of Executive Officers and
Directors" in the Company's Proxy Statement in connection with the 1997 Annual
Meeting of Shareholders scheduled to be held May 15, 1997 and (except for the
information set forth under the caption "Compensation of Executive Officers and
Directors -- Report of Compensation Committee") is incorporated in this Item 11
by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item 12 concerning security ownership of
certain beneficial owners and management will be set forth under the captions
"Voting Securities and Principal Holders Thereof" and "Election of Directors" in
the Company's Proxy Statement in connection with the 1997 Annual Meeting of
Shareholders scheduled to be held May 15, 1997 and is incorporated in this Item
12 by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not applicable.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Listing of Documents
(1) FINANCIAL STATEMENTS
The Company's Consolidated Financial Statements included in
Item 8 hereof, as required at December 31, 1995 and 1996,
and for the years ended December 31, 1994, 1995 and 1996,
consist of the following:
o Report of Independent Accountants
o Consolidated Balance Sheets
o Consolidated Statements of Income
o Consolidated Statements of Shareholders' Equity
o Consolidated Statements of Cash Flows
o Notes to Consolidated Financial Statements
(2) FINANCIAL STATEMENT SCHEDULE
The financial statement schedule of the Company appended
hereto, as required for the years ended December 31, 1994,
1995 and 1996, consist of the following:
VIII. Valuation and Qualifying Accounts
(3) EXHIBITS
Exhibit
Number Description
------ -----------
2.1 Asset Purchase Agreement dated December 31, 1992, among
Varity Corporation, a subsidiary of Varity Corporation
formerly known as Dayton Parts, Inc., the Registrant and JPE
Acquisition I, Inc., incorporated by reference to Exhibit 2
to the Registrant's Registration Statement on Form S-1 (File
No. 33-68544).
2.2 Stock Purchase Agreement dated December 13, 1994 by and
among JPE, Inc. and the Shareholders of SAC Corporation,
incorporated by reference to Registrant's Current Report on
Form 8-K dated December 28, 1994.
2.3 Asset Purchase Agreement dated February 28, 1995 among JPE
Acquisition II, Inc., Key Manufacturing Group Limited
Partnership and TTD Management, Inc., incorporated by
reference to Exhibit 2 to Registrant's Current Report on
Form 8-K dated March 14, 1995.
2.4 Acquisition Agreement dated as of April 6, 1995 among JPE,
Inc., PTI Acquisition Corp. and Plastic Trim, Inc.,
incorporated by reference to Exhibit 2 to Registrant's
Current Report on Form 8-K dated April 24, 1995.
2.5 Agreement of Purchase and Sale dated November 15, 1996
between JPE, Inc., in trust for 1203462 Ontario Inc., and
Pebra Inc., incorporated by reference to Registrant's
Current Report on Form 8-K dated January 6, 1997.
3.1 Articles of Incorporation, incorporated by reference to
Exhibit 3.1 to the Registrant's Registration Statement on
Form S-1 (File No. 33-68544).
3.2 Bylaws, incorporated by reference to Exhibit 3.2 to the
Registrant's Registration Statement on Form S-1 (File No.
33-68544).
4 Form of Certificate for Shares of the Common Stock,
incorporated by reference to Exhibit 4 to the Registrant's
Registration Statement on Form S-1 (File No. 33-68544).
*10.1 Stock Option Agreement dated as of November 27, 1991,
between John F. Daly and the Registrant, incorporated by
reference to Exhibit 10.4 to the Registrant's Registration
Statement on Form S-1 (File No. 33-68544).
10.2 Shareholder Agreement (Conformed Copy), incorporated by
reference to Exhibit 10.6 to the Registrant's Registration
Statement on Form S-1 (File No. 33-68544).
10.3 Indemnification Agreement dated September 1, 1993, between
the Registrant and Dr. John Psarouthakis, incorporated by
reference to Exhibit 10.7 to the Registrant's Registration
Statement on Form S-1 (File No. 33-68544).
10.4 Indemnification Agreement dated September 1, 1993, between
the Registrant and Dr. Otto Gago, incorporated by reference
to Exhibit 10.8 to the Registrant's Registration Statement
on Form S-1 (File No. 33-68544).
10.5 Indemnification Agreement dated September 1, 1993, between
the Registrant and John F. Daly, incorporated by reference
to Exhibit 10.9 to the Registrant's Registration Statement
on Form S-1 (File No. 33-68544).
10.6 Indemnification Agreement dated September 1, 1993, between
the Registrant and Donald R. Mandich, incorporated by
reference to Exhibit 10.10 to the Registrant's Registration
Statement on Form S-1 (File No. 33-68544).
10.7 JPE, Inc. Warrant to Purchase Common Stock issued by the
Registrant in favor of Roney & Co., incorporated by
reference to Exhibit 10.11 to the Registrant's Registration
Statement on Form S-1 (File No. 33-68544). Pursuant to its
terms, the foregoing Warrant was surrendered and exchanged
for substitute Warrants identical to the foregoing Warrant
in all respects except for the name of the substitute
Warrant holder and the number of shares of the Registrant's
Common Stock for which the substitute Warrants are
exercisable, which terms are as follows:
Number of Shares
of Common Stock for
Warrant Holder which Warrant is Exercisable
-------------- ----------------------------
Roney & Co. 10,000
John C. Donnelly 6,250
James C. Penman 6,250
Dan B. French, Jr. 2,500
10.8 Exclusive Distributor Agreement dated December 31, 1992,
between Dayton Walther Corporation ("DWC") and Dayton Parts,
incorporated by reference to Exhibit 10.14 to the
Registrant's Registration Statement on Form S-1 (File No.
33-68544).
10.9 Exclusive Distributor Agreement dated December 31, 1992,
between DWC and Dayton Parts, incorporated by reference to
Exhibit 10.15 to the Registrant's Registration Statement on
Form S-1 (File No. 33-68544).
10.10 Letter Agreement dated December 31, 1992, from Kelsey-Hayes
Company to Acquisition (now known as Dayton Parts),
incorporated by reference to Exhibit 10.16 to the
Registrant's Registration Statement on Form S-1 (File No.
33-68544).
10.11 Lease Agreement dated May 3, 1993, between Central Storage
& Transfer Company of Harrisburg, Inc. ("CSTCH") and Dayton
Parts, as amended by First Addendum to Lease dated May 3,
1993, between CSTCH and Dayton Parts, incorporated by
reference to Exhibit 10.17 to the Registrant's Registration
Statement on Form S-1 (File No. 33-68544).
10.12 JPE, Inc. 1993 Stock Incentive Plan for Key Employees, as
amended, incorporated by reference to Exhibit 28 to the
Registrant's Registration Statement on Form S-8 (File No.
33-93326).
10.13 Form of JPE, Inc. Warrant to purchase an aggregate of
100,000 shares of Common Stock at $9.50 per share issued by
the Registrant in favor of the sellers of SAC Corporation,
incorporated by reference to Exhibit 4.a. to the
Registrant's Form 8-K dated December 28, 1994.
10.14 Third Amendment to JPE, Inc. 1993 Stock Incentive Plan for
Key Employees, incorporated by reference to Registrant's
Annual Report on Form 10-K for the year ended December 31,
1995.
*10.15 Amendment to Stock Option Agreement dated as of November
27, 1991, between JPE, Inc. and John F. Daly, incorporated
by reference to Registrant's Annual Report on Form 10-K for
the year ended December 31, 1995.
*10.16 JPE, Inc. Director Stock Option Plan, incorporated by
reference to Exhibit 28 to the Registrant's Registration
Statement on Form S-8 (File No. 33-93328).
10.17 Form of Indemnification Agreement dated February 8, 1995,
between the Registrant and Donna L. Bacon, incorporated by
reference to Exhibit 10.1 to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1995.
10.18 Form of Indemnification Agreement between the Registrant
and James J. Fahrner, incorporated by reference to Exhibit
10.3 to the Registrant's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1995.
10.19 Form of Indemnification Agreement between Registrant and C.
William Mercurio, filed with this report.
10.20 Third Amended and Restated Credit Agreement dated as of
December 31, 1996, by and among Comerica Bank, other
participants and JPE, Inc., filed with this report.
10.21 Credit Agreement dated as of December 20, 1996 between JPE
Canada Inc. and The Bank of Nova Scotia, filed with this
report.
21 Subsidiaries of the Registrant, filed with this report.
23 Consent of Coopers & Lybrand L.L.P.
* Indicates management contract or compensatory plan or arrangement.
(b) Reports on Form 8-K
The Registrant did not file any Reports on Form 8-K during the
quarter ended December 31, 1996.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf on March 26, 1997 by the undersigned, thereunto duly authorized.
JPE, INC.
By: /s/ John Psarouthakis
--------------------------------------
John Psarouthakis
Chairman of the Board,
Chief Executive Officer and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
/s/ John Psarouthakis Chairman of the Board, March 26, 1997
John Psarouthakis Chief Executive Officer,
President and Director
(Principal Executive Officer)
/s/ James J. Fahrner Vice President and March 26, 1997
James J. Fahrner Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
/s/ C. William Mercurio President-OEM Group March 26, 1997
C. William Mercurio and Director
/s/ John F. Daly Director March 26, 1997
John F. Daly
/s/ Otto Gago Director March 26, 1997
Otto Gago
/s/ Donald R. Mandich Director March 26, 1997
Donald R. Mandich
JPE, INC.
FINANCIAL STATEMENT SCHEDULES
PURSUANT TO ITEM 14(a)(2) OF FORM 10-K
ANNUAL REPORT TO THE SECURITIES AND EXCHANGE COMMISSION
The schedule, as required, for the years ended December 31, 1994, 1995 and 1996:
Pages
-----
VIII. Valuation and Qualifying Accounts 49
JPE, INC.
SCHEDULE VIII - VALUATION ACCOUNTS
for the years ended December 31, 1994, 1995 and 1996
Column A Column B Column C Column D Column E
- -------- -------- -------------------- -------- --------
Balance at Charges to Charges Balance
Beginning Costs and to Other at End
Description of Period Expenses Accounts Deductions of Period
- ----------- --------- -------- -------- ---------- ---------
Accounts receivable,
allowance for doubtful
accounts:
January 1, 1994 through
December 31, 1994 .... $199,000 $(97,000) $134,000 $ -- $236,000
======== ========= ======== ========== ========
January 1, 1995 through
December 31, 1995 .... $236,000 $186,000 $ 13,000 $ (66,000) $369,000
======== ========= ======== ========== ========
January 1, 1996 through
December 31, 1996 .... $369,000 $104,000 $ -- $(211,000) $262,000
======== ========= ======== ========== ========
EXHIBIT INDEX
Exhibit
Number Description
------ -----------
2.1 Asset Purchase Agreement dated December 31, 1992, among Varity
Corporation, a subsidiary of Varity Corporation formerly known as
Dayton Parts, Inc., the Registrant and JPE Acquisition I, Inc.,
incorporated by reference to Exhibit 2 to the Registrant's
Registration Statement on Form S-1 (File No. 33-68544).
2.2 Stock Purchase Agreement dated December 13, 1994 by and among JPE,
Inc. and the Shareholders of SAC Corporation, incorporated by
reference to Registrant's Current Report on Form 8-K dated December
28, 1994.
2.3 Asset Purchase Agreement dated February 28, 1995 among JPE Acquisition
II, Inc., Key Manufacturing Group Limited Partnership and TTD
Management, Inc., incorporated by reference to Exhibit 2 to
Registrant's Current Report on Form 8-K dated March 14, 1995.
2.4 Acquisition Agreement dated as of April 6, 1995 among JPE, Inc., PTI
Acquisition Corp. and Plastic Trim, Inc., incorporated by reference to
Exhibit 2 to Registrant's Current Report on Form 8-K dated April 24,
1995.
2.5 Agreement of Purchase and Sale dated November 15, 1996 between JPE,
Inc., in trust for 1203462 Ontario Inc., and Pebra Inc., incorporated
by reference to Registrant's Current Report on Form 8-K dated January
6, 1997.
3.1 Articles of Incorporation, incorporated by reference to Exhibit 3.1 to
the Registrant's Registration Statement on Form S-1 (File No.
33-68544).
3.2 Bylaws, incorporated by reference to Exhibit 3.2 to the Registrant's
Registration Statement on Form S-1 (File No. 33-68544).
4 Form of Certificate for Shares of the Common Stock, incorporated by
reference to Exhibit 4 to the Registrant's Registration Statement on
Form S-1 (File No. 33-68544).
*10.1 Stock Option Agreement dated as of November 27, 1991, between John F.
Daly and the Registrant, incorporated by reference to Exhibit 10.4 to
the Registrant's Registration Statement on Form S-1 (File No.
33-68544).
10.2 Shareholder Agreement (Conformed Copy), incorporated by reference to
Exhibit 10.6 to the Registrant's Registration Statement on Form S-1
(File No. 33-68544).
10.3 Indemnification Agreement dated September 1, 1993, between the
Registrant and Dr. John Psarouthakis, incorporated by reference to
Exhibit 10.7 to the Registrant's Registration Statement on Form S-1
(File No. 33-68544).
10.4 Indemnification Agreement dated September 1, 1993, between the
Registrant and Dr. Otto Gago, incorporated by reference to Exhibit
10.8 to the Registrant's Registration Statement on Form S-1 (File No.
33-68544).
10.5 Indemnification Agreement dated September 1, 1993, between the
Registrant and John F. Daly, incorporated by reference to Exhibit 10.9
to the Registrant's Registration Statement on Form S-1 (File No.
33-68544).
10.6 Indemnification Agreement dated September 1, 1993, between the
Registrant and Donald R. Mandich, incorporated by reference to Exhibit
10.10 to the Registrant's Registration Statement on Form S-1 (File No.
33-68544).
10.7 JPE, Inc. Warrant to Purchase Common Stock issued by the Registrant in
favor of Roney & Co., incorporated by reference to Exhibit 10.11 to
the Registrant's Registration Statement on Form S-1 (File No.
33-68544). Pursuant to its terms, the foregoing Warrant was
surrendered and exchanged for substitute Warrants identical to the
foregoing Warrant in all respects except for the name of the
substitute Warrant holder and the number of shares of the Registrant's
Common Stock for which the substitute Warrants are exercisable, which
terms are as follows:
Number of Shares
of Common Stock for
Warrant Holder which Warrant is Exercisable
-------------- ----------------------------
Roney & Co. 10,000
John C. Donnelly 6,250
James C. Penman 6,250
Dan B. French, Jr. 2,500
10.8 Exclusive Distributor Agreement dated December 31, 1992, between
Dayton Walther Corporation ("DWC") and Dayton Parts, incorporated by
reference to Exhibit 10.14 to the Registrant's Registration Statement
on Form S-1 (File No. 33-68544).
10.9 Exclusive Distributor Agreement dated December 31, 1992, between DWC
and Dayton Parts, incorporated by reference to Exhibit 10.15 to the
Registrant's Registration Statement on Form S-1 (File No. 33-68544).
10.10 Letter Agreement dated December 31, 1992, from Kelsey-Hayes Company
to Acquisition (now known as Dayton Parts), incorporated by reference
to Exhibit 10.16 to the Registrant's Registration Statement on Form
S-1 (File No. 33-68544).
10.11 Lease Agreement dated May 3, 1993, between Central Storage & Transfer
Company of Harrisburg, Inc. ("CSTCH") and Dayton Parts, as amended by
First Addendum to Lease dated May 3, 1993, between CSTCH and Dayton
Parts, incorporated by reference to Exhibit 10.17 to the Registrant's
Registration Statement on Form S-1 (File No. 33-68544).
10.12 JPE, Inc. 1993 Stock Incentive Plan for Key Employees, as amended,
incorporated by reference to Exhibit 28 to the Registrant's
Registration Statement on Form S-8 (File No. 33-92236).
10.13 Form of JPE, Inc. Warrant to purchase an aggregate of 100,000 shares
of Common Stock at $9.50 per share issued by the Registrant in favor
of the sellers of SAC Corporation, incorporated by reference to
Exhibit 4.a. to the Registrant's Form 8-K dated December 28, 1994.
10.14 Third Amendment to JPE, Inc. 1993 Stock Incentive Plan for Key
Employees, incorporated by reference to Registrant's Annual Report on
Form 10-K for the year ended December 31, 1995.
*10.15 Amendment to Stock Option Agreement dated as of November 27, 1991,
between JPE, Inc. and John F. Daly, incorporated by reference to
Registrant's Annual Report on Form 10-K for the year ended December
31, 1995.
*10.16 JPE, Inc. Director Stock Option Plan, incorporated by reference to
Exhibit 28 to the Registrant's Registration Statement on Form S-8
(File No. 33-93328).
10.17 Form of Indemnification Agreement dated February 8, 1995, between the
Registrant and Donna L. Bacon, incorporated by reference to Exhibit
10.1 to the Registrant's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1995.
10.18 Form of Indemnification Agreement between the Registrant and James J.
Fahrner, incorporated by reference to Exhibit 10.3 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1995.
10.19 Form of Indemnification Agreement between Registrant and C. William
Mercurio, filed with this report.
10.20 Third Amended and Restated Credit Agreement dated as of December 31,
1996, by and among Comerica Bank, other participants and JPE, Inc.,
filed with this report.
10.21 Credit Agreement dated as of December 20, 1996 between JPE Canada
Inc. and The Bank of Nova Scotia, filed with this report.
21 Subsidiaries of the Registrant, filed with this report.
23 Consent of Coopers & Lybrand L.L.P.
27 Financial Data Schedule, which is submitted electronically to the
Securities and Exchange Commission for information only and not filed.
* Indicates management contract or compensatory plan or arrangement.