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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended September 30, 1997
[ ] Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the transition period from ______ to ______
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Commission file number 0-22580
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JPE, Inc.
(Exact name of registrant as specified in its charter)
Michigan
(State or other jurisdiction of
incorporation or organization)
38-2958730
(I.R.S. Employer Identification No.)
775 Technology Drive, Suite 200, Ann Arbor, Michigan, 48108
(Address of principal executive offices) (Zip Code)
(313) 662-2323
(Registrant's telephone number, including area code)
900 Victors Way, Suite 140, Ann Arbor, Michigan 48108
(Former name, former address and former fiscal year,
if changed, since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes /X/ No / /
As of September 30, 1997, there were 4,602,180 shares of the registrant's common
stock outstanding.
This Quarterly Report on Form 10-Q contains 16 pages, of which this is page 1.
JPE, INC.
INDEX
Page
----
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets .............................. 3
- At September 30, 1997 and 1996 (unaudited)
and December 31, 1996
Consolidated Statements of Income ........................ 4
- For the Three and Nine Months Ended
September 30, 1997 and 1996 (unaudited)
Consolidated Statements of Cash Flows .................... 5
- For the Nine Months Ended September 30,
1997 and 1996 (unaudited)
Notes to Unaudited Consolidated
Financial Statements ................................... 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations .......... 10
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K ......................... 15
Signature ......................................................... 16
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
JPE, INC.
CONSOLIDATED BALANCE SHEETS
(Amounts in Thousands, Except Share Data)
At September 30, At Dec. 31,
1997 1996 1996
---- ---- ----
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents ............. $ 508 $ 681 $ 1,316
Accounts receivable, net .............. 43,350 28,792 26,829
Inventory ............................. 44,394 33,003 37,963
Other current assets .................. 11,916 5,447 8,688
-------- -------- --------
Total current assets ................ 100,168 67,923 74,796
Property, plant and equipment, net ...... 71,665 51,220 69,281
Goodwill, net ........................... 31,632 27,351 27,068
Other assets, net ....................... 2,600 1,814 3,580
-------- -------- --------
Total assets ........................ $206,065 $148,308 $174,725
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt ..... $ 1,603 $ 107 $ 323
Short-term debt ....................... 10,545 -- 8,120
Accounts payable ...................... 29,114 19,158 17,643
Accrued liabilities ................... 6,299 4,947 6,190
Income taxes payable .................. 189 -- 382
-------- -------- --------
Total current liabilities ........... 47,750 24,212 32,658
Accrued liabilities ..................... 1,914 1,147 1,547
Deferred income taxes ................... 3,725 2,251 3,184
Long-term debt, non-current ............. 117,729 84,443 101,558
-------- -------- --------
Total liabilities ................... 171,118 112,053 138,947
-------- -------- --------
Shareholders' equity:
Preferred stock, 3,000,000
authorized, no shares issued
and outstanding ...................... -- -- --
Common stock, no par value,
15,000,000 authorized,
4,602,180 and 4,582,480
issued and outstanding at
September 30, 1997 and
December 31, 1996,
respectively, and 4,582,480
shares issued and outstanding
at September 30, 1996 ................ 28,026 27,921 27,921
Retained earnings ..................... 6,932 8,334 7,857
Foreign currency translation
adjustment ........................... (11) -- --
-------- -------- --------
Total shareholders' equity .......... 34,947 36,255 35,778
-------- -------- --------
Total liabilities and
shareholders' equity ............... $206,065 $148,308 $174,725
======== ======== ========
The accompanying notes are an integral part
of the consolidated financial statements.
JPE, INC.
CONSOLIDATED STATEMENTS OF INCOME
For the Three and Nine Months Ended September 30, 1997 and 1996
(Amounts in Thousands, Except Per Share Data)
(Unaudited)
Three Months Nine Months
Ended Ended
September 30, September 30,
1997 1996 1997 1996
---- ---- ---- ----
Net sales ................... $70,298 $50,142 $215,330 $153,732
Cost of goods sold .......... 59,801 43,163 184,418 126,589
------- ------- -------- --------
Gross profit .............. 10,497 6,979 30,912 27,143
Charge for impairment
of goodwill (Note D) ....... -- 4,300 -- 4,300
Discontinuance of stamping
operations (Note E) ........ -- -- 2,250 --
Selling, general and
administrative expenses .... 7,293 6,686 21,936 18,667
------- ------- -------- --------
Operating profit (loss) ... 3,204 (4,007) 6,726 4,176
Other expense ............... 8 -- 194 --
Interest expense, net ....... 2,730 1,718 7,346 5,252
------- ------- -------- --------
Income (loss) before
taxes .................. 466 (5,725) (814) (1,076)
Provision for (benefit
from) income taxes ......... 275 (1,819) 111 36
------- ------- -------- --------
Net income (loss) ......... $ 191 $(3,906) $ (925) $ (1,112)
======= ======= ======= ========
Earnings (loss) per share ... $ 0.04 $ (0.85) $ (0.20) $ (0.24)
======= ======= ======= ========
Weighted average shares
outstanding ................ 4,604 4,590 4,602 4,585
======= ======= ======= ========
The accompanying notes are an integral part
of the consolidated financial statements.
JPE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 1997 and 1996
(Amounts in Thousands)
(Unaudited)
Nine Months
Ended
September 30,
1997 1996
---- ----
Cash flows from operating activities:
Net loss ........................................... $ (925) $ (1,112)
Adjustments to reconcile net loss to
net cash provided by (used for)
operating activities:
Depreciation and amortization ................... 7,426 5,531
Loss on impairment of goodwill .................. -- 4,300
Discontinuance of stamping operations ........... 2,250 --
Disposal of property and equipment .............. 33 405
Changes in operating assets and
liabilities:
Accounts receivable ........................... (14,610) (5,382)
Inventory ..................................... (4,760) 1,392
Other current assets .......................... (1,690) 359
Accounts payable .............................. 8,596 4,002
Accrued liabilities ........................... (1,767) (756)
Income taxes .................................. (193) (174)
Deferred income taxes ......................... 541 (1,078)
------- --------
Net cash provided by (used for)
operating activities ....................... (5,099) 7,487
------- --------
Cash flows from investing activities:
Purchase of property and equipment ................. (10,687) (8,889)
Cash proceeds from sale of property
and equipment ..................................... 1,200 --
Acquisition of BATCO ............................... (5,518) --
------- --------
Net cash used for investing
activities ................................. (15,005) (8,889)
------- --------
Cash flows from financing activities:
Net borrowings under revolving loan ................ 15,621 11,275
Repayments of note payable ......................... (1,540) (10,100)
Net borrowings under Canadian credit
facility .......................................... 3,501 --
Net borrowings under capital lease
arrangements ...................................... 1,571 --
Sale of common stock ............................... 77 410
Tax benefit from exercised stock
options ........................................... 28 210
------- --------
Net cash provided by financing
activities ................................. 19,258 1,795
------- --------
Currency translation effect on cash ................ 38 --
------- --------
Cash and cash equivalents:
Net increase (decrease) in cash .................... (808) 393
Cash and cash equivalents,
beginning of period ............................... 1,316 288
------- --------
Cash and cash equivalents,
end of period ..................................... $ 508 $ 681
======= ========
The accompanying notes are an integral part
of the consolidated financial statements
JPE, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in Thousands, Except Per Share Data)
A. BASIS OF PRESENTATION:
The accompanying unaudited consolidated condensed financial statements have
been prepared in accordance with generally accepted accounting principles
for interim financial information. Accordingly, the financial statements do
not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the
opinion of management, all adjustments considered necessary for a fair
presentation have been included and such adjustments are of a normal
recurring nature or are described in the footnotes herein. The consolidated
financial statements should be read in conjunction with the financial
statements and notes thereto contained in the JPE, Inc. Annual Report on
Form 10-K for the year ended December 31, 1996 and the Form 10-Q for the
quarters ended March 31, 1997 and June 30, 1997.
December 31, 1996 disclosures within the financial statements and footnotes
have been derived from the audited financial statements included in the
aforementioned Form 10-K; information at September 30, 1997 and 1996 and
for the periods then ended is unaudited.
B. INVENTORY:
Inventories by component are as follows:
Sept. 30, 1997 Sept. 30, 1996 Dec. 31, 1996
-------------- -------------- -------------
Finished goods ........ $19,030 $15,953 $15,457
Work in process ....... 4,337 4,219 4,811
Raw material .......... 18,394 10,142 15,116
Tooling ............... 2,633 2,689 2,579
------- ------- -------
$44,394 $33,003 $37,963
======= ======= =======
JPE, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in Thousands, Except Per Share Data)
C. NEW FINANCIAL ACCOUNTING STANDARDS:
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share."
This standard requires a change in method for computing and presenting
earnings per share effective for the period ending after December 15, 1997.
The Company has reviewed this statement and believes that there will be no
material change in its reported earnings per share amounts.
Beginning in 1998, the Company is required to adopt SFAS No. 130,
"Reporting Comprehensive Income" and SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." SFAS No. 130 will
require the Company to report comprehensive income as part of the
consolidated financial statements. The Company expects that foreign
currency translation adjustments will be the principal additional item
required to be presented as comprehensive income. SFAS No. 131 will require
the Company to report certain information about operating segments in the
consolidated financial statements. The Company is currently evaluating the
provisions of this statement to determine its impact upon current segment
disclosures.
D. GOODWILL IMPAIRMENT:
During the third quarter of 1996, management identified that a significant
change had occurred in the product mix of Industrial & Automotive
Fasteners, Inc. ("IAF") since it was acquired in March 1995. In accordance
with SFAS 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of," management recorded a $4,300
impairment writedown of the goodwill associated with the acquisition of
IAF. The goodwill was originally valued at $6,820 when IAF was acquired
and, subsequent to the adjustment, had a net unamortized carrying value of
approximately $2,140 as of September 30, 1996, based on the then estimated
current fair market value of the IAF business which was acquired.
E. DISCONTINUANCE OF STAMPING OPERATIONS:
On May 15, 1997, the Company announced a plan to discontinue its stamping
operations at its East Tawas, Michigan facility of Starboard Industries,
Inc. ("Starboard" or "SBI"), a wholly-owned subsidiary of the Company. The
plan included resourcing stamped parts to other OEM suppliers, the sale of
stamping assets and a reduction in the Starboard workforce. As a result of
this plan, the Company recorded a charge of $2.25 million comprised of the
following:
JPE, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in Thousands, Except Per Share Data)
E. DISCONTINUANCE OF STAMPING OPERATIONS (CONTINUED):
Loss on sale of fixed assets ............................... $1,348
Severance expenses ......................................... 365
Adjustment to net realizable value of inventory ............ 407
Other ...................................................... 130
------
Total ...................................................... $2,250
======
F. BATCO ACQUISITION:
On April 16, 1997, Dayton Parts, Inc., a wholly-owned subsidiary of JPE,
Inc., acquired all of the capital stock of Brake, Axle and Tandem Company
("BATCO") for $5,518 in cash. In addition to the cash paid, the purchase
agreement also includes an "earn-out" provision which will increase the
purchase price by up to $4,000 if certain sales levels are achieved over
the next five years. The value of assets acquired and liabilities assumed
for the purchase was the following:
Accounts receivable and other current assets ............... $ 1,975
Inventory .................................................. 2,078
Property, plant and equipment .............................. 379
Goodwill ................................................... 5,551
Deferred tax asset ......................................... 657
-------
Total assets .......................................... 10,640
Accounts payable ........................................... 2,875
Accrued expenses ........................................... 1,573
Debt ....................................................... 674
-------
Total liabilities ...................................... 5,122
-------
Total, net ................................................. $ 5,518
=======
JPE, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in Thousands, Except Per Share Data)
F. BATCO ACQUISITION (CONTINUED):
The following unaudited pro forma summary information for the nine months
ended September 30, 1997 and 1996 assumes that the acquisitions of JPE
Canada and BATCO had occurred on January 1, 1996. The significant
adjustments relate to the inclusion of amortization of goodwill, an
increase in interest expense based on an increase in long-term obligations,
a decrease in commission expense at JPE Canada, reduced depreciation on the
revaluation of property, plant and equipment and the related income tax
effects:
Nine Months Ended September 30,
1997 1996
---- ----
Revenues ............................... $220,840 $223,516
Operating profit ....................... 6,455 5,900
Loss before income taxes ............... (1,246) (1,245)
Net loss ............................... (1,175) (1,224)
Loss per common share .................. $ (0.26) $ (0.27)
JPE, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the consolidated
financial statements and notes thereto included in the Company's Annual Report
on Form 10-K to assist in understanding the Company's results of operations, and
its financial position, cash flows, capital structure and other relevant
financial information.
FORWARD LOOKING INFORMATION
This Quarterly Report on Form 10-Q contains, and from time to time the Company
expects to make, certain forward-looking statements regarding its business,
financial condition and results of operations. In connection with the "Safe
Harbor" provisions of the Private Securities Reform Act of 1995 (the "Reform
Act"), the Company intends to caution readers that there are several important
factors that could cause the Company's actual results to differ materially from
those projected in its forward-looking statements, whether written or oral, made
herein or that may be made from time to time by or on behalf of the Company.
Readers 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) the
impact on the Company's operations and cash flows caused by labor strikes or
work stoppages at the Company's OEM customers; (iii) operational difficulties
encountered during the launch of major new OEM programs; (iv) the ability of the
Company to integrate acquisitions into its existing operations and achieve
expected cost savings; (v) the ability of the Aftermarket Group to balance the
cyclical nature of the OEM industry; and (vi) the availability of funds to the
Company for strategic acquisitions and capital investments to enhance existing
production and distribution capabilities.
RESULTS OF OPERATIONS
THIRD QUARTER ENDED SEPTEMBER 30, 1997 COMPARED
TO THIRD QUARTER ENDED SEPTEMBER 30, 1996
Net sales for the third quarter of 1997 were $70.3 million compared to $50.1
million for the same quarter last year. The net sales increase of 40% is
primarily attributable to the acquisitions of JPE Canada Inc. ("JPE Canada") and
Brake, Axle and Tandem Company ("BATCO") in December 1996 and April 1997,
respectively. JPE Canada is a Canadian supplier of injection-molded plastic
exterior trim to original equipment manufacturers ("OEMs") and BATCO is a
supplier of brake hardware, wheel attaching and suspension parts for the heavy
duty truck and trailer aftermarket. In addition to these acquisitions, the
Company experienced slightly higher sales in all three of its operating groups
due to new product line offerings in the aftermarket and launches of new
programs for OEM customers during 1997. For the quarter ended September 30,
1997, net sales for the Company were approximately 65% to OEM customers and 35%
to aftermarket customers
Gross profit increased 50% to $10.5 million in the third quarter of 1997
compared with $7.0 million for the third quarter ended September 30, 1996. The
gross margin percentages were 14.9% and 13.9% for the third quarters of 1997 and
1996, respectively. During the third quarter of 1996, the Company recorded $1.4
million of inventory adjustments relating to slow-moving/obsolete inventory and
physical inventory adjustments. Adjusting for this one time write-down of
inventory, gross profit percentage for the third quarter of 1996 was 16.7%. The
decrease from adjusted gross profit percentage is a result of operating results
at the Company's JPE Canada and Starboard subsidiaries which are lower than the
other JPE companies. The lower gross profit percentage at JPE Canada is a result
of JPE Canada being purchased out of bankruptcy in December 1996. Starboard's
lower gross profit percentage is a result of the stamping production, a
manufacturing process which is being discontinued.
The Company has on-going turn-around plans to improve both JPE Canada and
Starboard. The plan related to JPE Canada is focused on improving JPE Canada's
profitability through reducing scrap, premium freight, and overtime while
improving productivity. Management believes that JPE Canada will continue to
show improvement in its gross profit percentage with the continued execution of
this turn-around plan. The Starboard turn-around plan details actions necessary
to exit the stamping operation at Starboard's East Tawas, Michigan facility.
This plan involved resourcing stamped parts to other third party suppliers,
reducing its workforce and selling the stamping assets. All of these actions
were completed by the end of the third quarter 1997. Management believes that
these actions, along with a relayout of the manufacturing facility will return
Starboard's operations to profitability.
The decrease in gross profit percentage discussed above is partially offset by
significant improvements in gross margin at the Company's Industrial &
Automotive Fasteners, Inc. ("IAF") subsidiary. The improvement at IAF is a
result of the continued execution of a turn-around plan which includes a major
plant relayout, upgrading of existing equipment and stronger production
controls.
During the third quarter of 1996, management identified that a significant
change had occurred in the product mix of IAF since it was acquired in March
1995. In accordance with SFAS 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of," management recorded a $4.3
million impairment writedown of the goodwill associated with the acquisition of
IAF. The goodwill was originally valued at $6.8 million when IAF was acquired
and, subsequent to the adjustment, had a net unamortized carrying value of
approximately $2.1 million as of September 30, 1996, based on the current fair
market value of the IAF business which was acquired. This adjustment reduced
goodwill amortization by $172,000 on an annual basis.
Selling, general and administrative expenses increased 9.1% to $7.3 million in
the third quarter of 1997 over $6.7 million for the third quarter of 1996.
Selling, general and administrative expense for the third quarters of 1997 and
1996 was 10.4% and 13.3% of net sales, respectively. Selling, general and
administrative expense for the three months ending September 30, 1996 includes a
$850,000 charge related to the write-down of an equity investment related to the
SBI business and severance costs for changes in senior management at IAF and
SBI. Adjusting for this one time event, the selling, general and administrative
expense percentage for the third quarter of 1996 was 11.6%. The decrease in
adjusted selling, general and administrative expense percentage is a result of
the acquisition of JPE Canada which has a lower administrative overhead
structure than the other JPE businesses and the acquisition of BATCO, which
increased Dayton Parts, Inc.'s ("Dayton Parts") sales without a proportionate
increase in its selling, general and administrative expense.
Net interest expense increased to $2.7 million for the three months ended
September 30, 1997 as compared to $1.7 million for the three months ended
September 30, 1996. The higher interest cost is attributable to the funds
borrowed to finance the JPE Canada and BATCO acquisitions; a higher average debt
level as a result of capital investments made in the Company's businesses; and
increased customer tooling balances related to several new 1997 and 1998 program
launches in the OEM trim group.
Income tax expense for the quarter ending September 30, 1997 was $275,000 as
compared to income tax benefit of $1.8 million recorded during the same period
in 1996. The change is a result of pre-tax earnings in the third quarter of 1997
versus a pre-tax loss in the same period in 1996. As a result of the loss in the
third quarter 1996, the Company recorded a federal income tax benefit, partially
offset by state and foreign income taxes. The effective tax rate for the third
quarter 1997 is 59%, which is a result of higher pre-tax income from JPE
companies which reside in states with income based taxes.
Net income for the three months ended September 30, 1997 was $191,000 as
compared to net loss of $3.9 million for the quarter ended September 30, 1996.
The change is attributable to the matters summarized above. Earnings per share
during the third quarter were $0.04 as compared to a loss per share of $0.85
during the third quarter of 1996. The improvement is due to the factors
mentioned above. The weighted average shares outstanding for the third quarter
of 1997 were 4,604,000 as compared to 4,590,000 for the third quarter of 1996.
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED
TO NINE MONTHS ENDED SEPTEMBER 30, 1996
Net sales for the nine months ended September 30, 1997 increased to $215.3
million from $153.7 million for the nine months ended September 30, 1996, an
increase of 40%. The increase in net sales is attributable to the acquisitions
of JPE Canada and BATCO as mentioned in the quarterly discussion above. In
addition to these acquisitions, the Company experienced slightly higher sales in
all three of its operating groups due to new product line offerings in the
aftermarket and launches of new programs for OEM customers during 1997. For the
nine months ended September 30, 1997, net sales for the Company were
approximately 68% to OEM customers and 32% to Aftermarket customers.
Gross profit increased 14% to $30.9 million for the nine months ended September
30, 1997 as compared with $27.1 million for the comparable period of the prior
year. The increase is related to the acquisitions of JPE Canada and BATCO, as
well as higher sales volumes. Gross profit percentages were 14.4% and 17.7% for
1997 and 1996, respectively. This decline in gross margin percentage is due
primarily to the acquisition of JPE Canada which was purchased out of bankruptcy
in 1996 and lower operating performance at the Company's Starboard subsidiary,
partially offset by factors mentioned in the quarterly discussion above. The
decline in Starboard's performance is a result of production difficulties,
higher scrap and pricing issues in its stamping operations.
During the second quarter of 1997, management implemented a plan to improve the
operating results of its Starboard business. The plan resulted in Starboard
discontinuing its stamping operations on September 30, 1997. Management made
this decision based on the negative impact the stamping business had on the
operating results of Starboard and the OEM Trim Group, as a whole. As a result
of this discontinuance of stamping operations, the Company recorded a charge of
$2.25 million relating to the loss on disposal of assets, employee severance and
other costs directly related to the stamping business. Through the end of the
third quarter 1997, Starboard had resourced its stamped parts to other OEM
suppliers, sold its stamping assets and reduced its workforce in accordance with
the plan. The final stage of the plan involves a major relayout of Starboard's
East Tawas, Michigan production facility which will be completed by the second
quarter of 1998.
See the quarterly discussion for an explanation of the $4.3 million charge for
impairment of goodwill.
Selling, general and administrative expenses increased 17.5% to $21.9 million
for the nine months ended September 30, 1997 over $18.7 million for the nine
months ended September 30, 1996. The increase is a result of the acquisitions of
JPE Canada and BATCO as discussed above. The percentage of selling, general and
administrative expenses to net sales was 10.2% for the nine months ending
September 30, 1997 as compared to 12.1% for the same period in 1996. The decline
in this percentage is attributable to the acquisition of JPE Canada which has a
lower overhead structure than the other JPE businesses, partially offset by the
one-time charge recorded in the third quarter of 1996 mentioned in the quarterly
discussion above.
See quarterly discussion for explanation of increase in operating profit
percentage.
Net interest expense increased to $7.3 million for the nine months ended
September 30, 1997 as compared to $5.3 million for the nine months ended
September 30, 1996. The higher interest cost is attributable to the factors
mentioned in the quarterly discussion above.
As a result of the year to date pre-tax loss, the Company has reduced its
federal income tax expense for the nine months ending September 30, 1997 and
1996. The provision for income taxes for the first nine months of both 1997 and
1996 represents state income taxes, partially offset by the federal income tax
benefit.
Net loss for the nine months ended September 30, 1997 was $925,000 as compared
to $1.1 million for the nine months ended September 30, 1996. The decrease in
net loss is a result of factors mentioned above. Loss per share for the nine
months ending September 30, 1997 was $0.20 as compared to $0.24 during the first
nine months of 1996. The decrease in net loss is due to the factors mentioned
above and an increase in the weighted average shares outstanding. The weighted
average shares outstanding for the first nine months of 1997 were 4,602,000 as
compared to 4,585,000 for the same period in 1996.
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 for the U.S. operations is the Third
Amended and Restated Credit Agreement dated December 31, 1996 providing for an
aggregate of $120 million in credit lines. At September 30, 1997, the amount
outstanding under this agreement was $107.8 million. This Credit Agreement
matures on October 27, 1998. Management is currently evaluating various options
to refinance, restructure or extend this facility and believes it will be
successful in completing these activities prior to the maturity date.
The Company's JPE Canada subsidiary has a credit agreement with a Canadian bank
to fund its operating requirements and capital expenditures. At September 30,
1997, the borrowings under this facility total approximately $19.8 million.
Repayment terms of borrowings under this facility vary based on the nature of
the advance. Currently, $10.5 million is classified as short-term debt because
the portion of the credit agreement for operating requirements is payable on
demand or on December 31, 1997. The total commitment for operating needs is
approximately $10.6 million through December 31, 1997, reducing to $8.5 million
in 1998 (Cdn $14 million and $12 million, respectively). The Company is
currently reviewing its capital needs with the Canadian bank to continue to
provide adequate financing for JPE Canada's operations. The term portion of this
agreement aggregates approximately $8.4 million with monthly principal payments
beginning in October 1997 of approximately $72,000 (Cdn $100,000). It is
anticipated that the cash flow from the Canadian operations will fund these
future payments.
Working capital at September 30, 1997 increased to $52.4 million as compared to
$42.1 million at December 31, 1996. The increase in working capital is due
primarily to increased customer tooling balances as a result of several new
programs related to 1997 and 1998 launches for the Company's OEM trim group;
additional inventories related to new product line offerings in the aftermarket;
and the impact on inventory from the BATCO acquisition. Management is
anticipating collection of approximately $3 million of tooling costs in the
fourth quarter of 1997 and the remainder of the balance in 1998. Customer
tooling costs are normally incurred prior to the production of parts and, upon
approval by the customer, these tooling costs are reimbursed by the customer.
The delay between the expenditure of funds for tooling and reimbursement by the
customer can be several months to over a year depending on the program and the
customer. The BATCO acquisition resulted in increased inventories in order to
achieve acceptable customer order fill rates. In addition to these factors, at
December 31, 1996, receivables and inventories were low due to the holiday shut
down by our OEM customers. Cash used by operations was $5.1 million for the
reasons mentioned above. Capital investment spending for the nine months ending
September 30, 1997 totaled $10.7 million. These funds were provided through the
various credit agreements. The Company expects that it will satisfy its debt
service, working capital and capital expenditure requirements through cash flows
generated by operations and, to the extent necessary, through borrowings under
the credit agreements.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits:
10.1 Amendment No. 2 dated as of June 30, 1997 to Third
Amended and Restated Credit Agreement
b. Reports on Form 8-K:
None.
JPE, INC.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
JPE, Inc.
By: /s/ James J. Fahrner
--------------------------
James J. Fahrner
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
Date: November 12, 1997
EXHIBIT INDEX
-------------
EXHIBIT
NO. DESCRIPTION
- ------- -----------
10.1 Amendment No. 2 dated as of June 30, 1997
to Third Amended and Restated Credit Agreement
27 Financial Data Schedule, which is submitted
electronically to the Securities and Exchange
Commission for information only and not filed.