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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 March 31, 1998
[ ] 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)
(734) 662-2323
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year,
if changed, since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes /X/ No / /
As of March 31, 1998, there were 4,602,180 shares of the registrant's common
stock outstanding.
This Quarterly Report on Form 10-Q contains 12 pages, of which this is page 1.
JPE, INC.
INDEX
Page
----
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets ............................... 3
- At March 31, 1998 and 1997 (Unaudited)
- At December 31, 1997 (Audited)
Consolidated Statements of Income (Unaudited) ............. 4
- For the Three Months Ended
March 31, 1998 and 1997
Consolidated Statements of Cash Flows (Unaudited) ......... 5
- For the Three Months Ended
March 31, 1998 and 1997
Notes to Unaudited Consolidated Financial Statements ...... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ....................... 7-10
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K .......................... 11
Signature ......................................................... 12
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
JPE, INC.
CONSOLIDATED BALANCE SHEETS
(Amounts in Thousands, Except Share Data)
At March 31, December 31,
1998 1997 1997
---- ---- ----
(Unaudited) (Audited)
ASSETS
Current assets:
Cash and cash equivalents ............ $ 357 $ 1,204 $ 29
Accounts receivable, net ............. 42,594 36,679 37,997
Inventory ............................ 38,188 40,647 39,412
Other current assets ................. 8,824 8,576 8,375
-------- -------- --------
Total current assets ............... 89,963 87,106 85,813
Property, plant and equipment, net ..... 72,655 71,155 72,981
Goodwill, net .......................... 31,752 26,767 31,962
Other assets ........................... 2,313 4,096 2,459
-------- -------- --------
Total assets ....................... $196,683 $189,124 $193,215
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt .... $108,338 $ 672 $105,402
Short-term debt ...................... 9,482 6,878 7,723
Accounts payable ..................... 27,801 25,303 25,219
Accrued liabilities .................. 5,835 5,361 6,336
Income taxes payable ................. 37 5 314
-------- -------- --------
Total current liabilities .......... 151,493 38,219 144,994
Deferred income taxes .................. 4,072 3,579 3,804
Other liabilities ...................... 1,815 1,570 1,651
Long-term debt, non-current ............ 9,096 110,070 9,272
-------- -------- --------
Total liabilities ................... 166,476 153,438 159,721
-------- -------- --------
Shareholders' equity:
Preferred stock, 3,000,000
authorized, no shares issued
and outstanding ..................... -- -- --
Common stock, 15,000,000 authorized,
4,602,180 issued and outstanding at
March 31, 1998 and at March 31,
1997, no par value .................. 28,051 28,026 28,051
Retained earnings .................... 2,446 7,743 5,714
Foreign currency translation
adjustment .......................... (290) (83) (271)
-------- -------- --------
Total shareholders' equity .......... 30,207 35,686 33,494
-------- -------- --------
Total liabilities and
shareholders' equity ............... $196,683 $189,124 $193,215
======== ======== ========
The accompanying notes are an integral part
of the consolidated financial statements.
JPE, INC.
CONSOLIDATED STATEMENTS OF INCOME
AND COMPREHENSIVE INCOME
(Amounts in Thousands, Except Per Share Data)
Three Months
Ended
March 31,
-------------------
1998 1997
---- ----
(Unaudited)
Net sales .................................. $69,423 $67,995
Cost of goods sold ......................... 63,231 59,033
------- -------
Gross profit ........................... 6,192 8,962
Selling, general and
administrative expenses ................... 7,697 6,779
------- -------
Operating profit (loss) ................ (1,505) 2,183
Other expense (income) ..................... (134) 72
Interest expense, net ...................... 3,464 2,210
------- -------
Loss before income taxes ............... (4,835) (99)
Income tax expense (benefit) ............... (1,567) 15
-------- -------
Net loss ............................... $(3,268) $ (114)
Other comprehensive expense
Foreign currency translation
adjustment ............................ (19) (83)
------- -------
Comprehensive loss ......................... $(3,287) $ (197)
======= =======
Basic loss per common share ................ $ (0.71) $ (0.02)
======= =======
Weighted average shares outstanding ........ 4,602 4,602
===== =====
Loss per common share
assuming dilution ......................... $ (0.71) $ (0.02)
======= =======
Weighted average shares outstanding
and common stock equivalents .............. 4,602 4,602
===== =====
The accompanying notes are an integral part
of the consolidated financial statements.
JPE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
Three Months
Ended
March 31,
1998 1997
---- ----
(Unaudited)
Cash flows from operating activities:
Net loss ........................................... $(3,268) $ (114)
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization .................... 2,751 2,303
Changes in operating assets
and liabilities:
Accounts receivable ............................ (4,597) (9,850)
Inventory ...................................... 1,224 (2,684)
Prepaids and other ............................. 539 (404)
Accounts payable ............................... 2,582 7,660
Accrued liabilities ............................ (338) (806)
Income taxes ................................... (980) 18
------- -------
Net cash provided (used)
by operating activities ..................... (2,087) (3,877)
Cash flows from investing activities:
Purchase of property and equipment ................. (1,836) (4,081)
------- -------
Net cash used for
investing activities ........................ (1,836) (4,081)
Cash flows from financing activities:
Sale of common stock ............................... -- 77
Repayments of other debt ........................... (88) (1,199)
Net borrowings under revolving loan ................ 2,991 8,275
Net borrowings under Canadian credit facility ...... 1,395 (19)
Tax benefit from options ........................... -- 28
Borrowing (repayments) under capital lease ......... (66) 811
------- -------
Net cash provided by
financing activities ........................ 4,232 7,973
Currency translation ................................. 19 (127)
Cash and cash equivalents:
Net increase (decrease) in cash .................... 328 (112)
Cash and cash equivalents,
beginning of period ................................ 29 1,316
------- -------
Cash and cash equivalents,
end of period ...................................... $ 357 $ 1,204
======= =======
The accompanying notes are an integral part
of the consolidated financial statements
JPE, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in Thousands)
A. BASIS OF PRESENTATION:
The accompanying unaudited consolidated condensed financial statements have
been prepared in accordance with generally accepted accounting principles
for interim financial information. Accordingly, the financial statements do
not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the
opinion of management, all adjustments considered necessary for a fair
presentation have been included, and such adjustments are of a normal
recurring nature. The consolidated financial statements should be read in
conjunction with the financial statements and notes thereto contained in
the JPE, Inc. Form 10-K for the year ended December 31, 1997.
B. SALE OF COMPANY:
On March 23, 1998, the Company announced that it intends to pursue the sale
of the entire Company. The proceeds from the sale of the Company will be
used to retire the debt of the Company, although there can be no assurance
that the proceeds will be adequate for this purpose. These financial
statements have been prepared as a going concern with no provision for loss
on sale of the Company. The Company and JPE Canada are in violation of
their financial covenants under their respective debt agreements at March
31, 1998, and are working with their respective lenders to obtain the
necessary waivers.
C. INVENTORY:
Inventories by component are as follows:
March 31, 1998 March 31, 1997 Dec. 31, 1997
-------------- -------------- -------------
Finished goods $18,938 $16,317 $19,309
Work in process 2,243 5,596 2,435
Raw material 14,535 15,949 15,211
Tooling 2,472 2,785 2,457
------- ------- -------
$38,188 $40,647 $39,412
======= ======= =======
JPE, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the consolidated
financial statements and notes thereto filed with the Company's Annual Report on
Form 10-K to assist in understanding the Company's results of operations, its
financial position, cash flows, capital structure and other relevant financial
information.
RECENT INFORMATION
On March 23, 1998, the Company announced that it intends to pursue the sale of
the entire Company. The Company has concluded that the turnaround of its
Canadian operation would take longer than anticipated and would require
additional investment. Therefore, management believes that the proper course of
action for the Company is to sell JPE and all of its businesses.
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, customer cost-cutting programs and
reimbursement of costs by the customer; (ii) operational difficulties
encountered during the launch of major new OEM programs; (iii) the ability of
the Company to integrate acquisitions into its existing operations and achieve
expected cost savings; (iv) the ability of the Aftermarket Group to balance the
cyclical nature of the OEM industry; (v) the availability of funds to the
Company for continued operations during the sale process; (vi) the granting of
compliance waivers by the Company's lenders; and (vii) the timing and amount of
proceeds from the sales of the Company's businesses.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31, 1997
Net sales for the quarter ended March 31, 1998 were $69.4 million compared to
$68.0 million for the same period in 1997, an increase of 2%. This increase is
attributable to a 31% increase in Aftermarket sales due to the acquisition of
Brake, Axle and Tandem Company ("BATCO") in April 1997. OEM sales declined 8% to
$45.9 million for the first quarter of 1998 as compared to $50.1 for the first
quarter of 1997. This decline is attributable to lower sales for JPE Canada Inc.
resulting from the end of certain car programs and lower service orders, and to
the discontinuance of stamping sales for the Company's Starboard Industries,
Inc. subsidiary. For the quarter ended March 31, 1998, net sales for the Company
were 66% to OEM customers and 34% to Aftermarket customers.
Gross profit was $6.2 million for the three months ended March 31, 1998, as
compared with $9.0 million for the comparable period in the prior year. The
gross margin percentages were 8.9% and 13.2% for 1998 and 1997, respectively.
The significant decline in gross margin is attributable to the performance of
the Company's JPE Canada and Plastic Trim subsidiaries. JPE Canada had a $1.5
million loss at the gross profit line for the first quarter ended March 31,
1998. This compares to a break-even performance in the first quarter of 1997.
The loss is primarily attributable to production difficulties experienced with
the launch of a truck trim program for a major customer. The difficulties were
caused by numerous engineering changes and acceleration of the build rate at the
customer's request. These requirements resulted in a significant cost penalty to
JPE Canada. In the first quarter of 1998, JPE Canada incurred premium freight
charges of $467,000, overtime premiums of $296,000, and excess scrap and poor
paint yields estimated to cost approximately $770,000 for the quarter. These
charges were offset by a cost reimbursement from the customer in the amount of
$350,000. In addition, the customer has granted an aggregate price increase of
$1.4 million annually on two of JPE Canada's programs. JPE Canada has also
implemented a headcount reduction program to eliminate approximately 100
employees by the end of June and other cost reduction initiatives to return the
operation to profitability by the end of the second quarter.
Plastic Trim's gross margin declined from 16.5% for the first quarter of 1997 to
2.8% for the first quarter of 1998, a $2.1 million decline. In the fourth
quarter of 1997, this operation experienced excess launch costs and higher scrap
rates. The Company has implemented a program to reduce the scrap rate, which has
improved from 15% to 9.5% of sales through April 30, 1998. In addition, a cost
reduction program was instituted in March which includes headcount reductions
and price reductions from vendors supplying raw materials.
Selling, general and administrative expenses increased 13.2% to $7.7 million for
the three months ended March 31, 1998, from $6.8 million for the three months
ended March 31, 1997. This increase is attributable to the inclusion of BATCO in
the first quarter of 1998. The percentage of selling, general and administrative
expenses to net sales was 11.1% for the quarter ended March 31, 1998 as compared
to 10.0% for the comparable period of the prior year. The increase in the
percentage reflects the greater percentage of sales to the Aftermarket which has
higher selling costs.
Net interest expense increased to $3.5 million for the three months ended March
31, 1998 as compared to $2.2 million for the three months ended March 31, 1997.
The higher interest cost is attributable to higher interest rates and amendment
fees stipulated in Amendment No. 3 to the U.S. Credit Agreement at December 31,
1997. Effectively, the Company's borrowing rate under its U.S. Credit Agreement
is approximately 11% compared to 8% for the first quarter of 1997 (see
discussion under Liquidity and Capital Resources).
The Company has recorded a tax benefit for the losses incurred in the first
quarter of 1998. The Company believes that through the sale of the Company, it
will be able to utilize this tax benefit.
Net loss for the three months ended March 31, 1998 was $3.3 million or $.71 per
share as compared to a net loss of $114,000 or $.02 a share for the quarter
ended March 31, 1997. The net loss for this quarter includes a net loss of $1.6
million or $.35 per share relating to the operations of JPE Canada.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal source of liquidity is its U.S. and Canadian credit
agreements. At March 31, 1998, the Company and JPE Canada are in violation of
certain financial covenants under their respective debt agreements. On March 23,
1998, the Company announced that it intends to sell all of JPE and its
businesses, although there can be no assurance that the proceeds of such sale(s)
will be adequate to retire the credit agreements.
The Company's principal source of liquidity for its U.S. companies is the $120
million Third Amended and Restated Credit Agreement dated December 31, 1996 (the
"Credit Agreement"), as amended by Amendment No. 1 dated as of April 16, 1997,
Amendment No. 2 dated as of August 14, 1997 (effective June 30, 1997) and
Amendment No. 3 dated as of February 13, 1998. The Credit Agreement expires on
October 27, 1998. The Credit Agreement is collateralized by all of the Company's
assets, with the exception of JPE Canada's assets. At March 31, 1998, borrowings
outstanding under this Credit Agreement totaled $106.9 million.
Amendment No. 3 to the Credit Agreement requires the Company to reduce its
borrowings under the Credit Agreement to no more than $70 million on or before
June 30, 1998. In addition, the Amendment increased the interest rate on
borrowings to prime plus 1.25%. There is also an amendment fee equal to $120,000
per month until the debt reduction occurs. The Company intends to accomplish the
debt reduction through the sale of its wholly-owned subsidiaries, Dayton Parts,
Inc. and Allparts, Inc., although there can be no assurance that the proceeds of
these sales will be sufficient to satisfy this requirement or that the sales
will occur on or before June 30, 1998. In addition, the Credit Agreement expires
on October 27, 1998.
The principal source of liquidity for JPE Canada is a Cdn. $28.7 million (U.S.
$20.4 million) credit agreement with a Canadian bank. The Canadian Credit
Facility permits JPE Canada to borrow funds in the form of advances for
operating requirements and capital expenditures. Advances under the Canadian
Credit Facility are collateralized 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 March 31, 1998,
borrowings under the Canadian Credit Facility totaled Cdn. $26.2 million (U.S.
$18.6 million).
At March 31, 1998, Current Liabilities exceeded Current Assets by $61.5 million,
reflecting the classification of the U.S. Credit Agreement of $106.9 million as
current liability. Excluding the Credit Agreement, working capital at March 31,
1998 would have been $45.4 million as compared to $44.7 million at December 31,
1997.
PART II. OTHER INFORMATION
JPE, INC.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits:
10.1 Executive Severance Agreement dated February 20, 1998
between Registrant and Donna L. Bacon, filed with this
report.
10.2 Executive Severance Agreement dated February 20, 1998
between Registrant and James J. Fahrner, filed with this
report.
b. Report 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
Executive Vice President
(Principal Financial Officer and
Principal Accounting Officer)
Date: May 15, 1998
EXHIBIT INDEX
-------------
EXHIBIT
NO. DESCRIPTION
- ------- -----------
10.1 Executive Severance Agreement dated February 20, 1998
between Registrant and Donna L. Bacon, filed with this
report.
10.2 Executive Severance Agreement dated February 20, 1998
between Registrant and James J. Fahrner, filed with this
report.
27 Financial Data Schedule, which is submitted electronically
to the Securities and Exchange Commission for information
only and not filed.