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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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, 1999
[ ] Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the transition period from _______ to _______
Commission file number 0-22580
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, 1999, there were 4,602,180 shares of the registrant's common
stock outstanding.
This Quarterly Report on Form 10-Q contains 17 pages, of which this is page 1.
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JPE, INC.
INDEX
Page
----
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets ............................. 3
- At March 31, 1999 and 1998 (Unaudited)
- At December 31, 1998
Consolidated Statements of Operations
and Comprehensive Income (Unaudited) ................... 4
- For the Three Months Ended
March 31, 1999 and 1998
Consolidated Statements of Cash Flows
(Unaudited) ............................................. 5
- For the Three Months Ended
March 31, 1999 and 1998
Notes to Unaudited Consolidated
Financial Statements .................................... 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations ........... 11
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K ........................ 16
Signature ........................................................ 17
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
JPE, INC.
CONSOLIDATED BALANCE SHEETS
(Amounts in Thousands, Except Share Data)
At March 31, December 31,
1999 1998 1998
---- ---- ----
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents ................ $ 695 $ 357 $ 394
Accounts receivable, net ................. 8,331 42,594 12,151
Inventory ................................ 13,692 38,188 18,572
Other current assets ..................... 1,243 8,824 1,413
------- -------- -------
Total current assets ................... 23,961 89,963 32,530
Investment in affiliate companies .......... 16,817 -- 14,661
Property, plant and equipment, net ......... 10,364 72,655 20,963
Goodwill, net .............................. 5,445 31,752 7,458
Other assets ............................... 654 2,313 1,362
------- -------- -------
Total assets ........................... $57,241 $196,683 $76,974
======= ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt ........ $67,448 $108,338 $84,492
Short-term debt .......................... -- 9,482 --
Accounts payable ......................... 4,768 27,801 8,273
Accrued liabilities ...................... 1,819 5,835 1,931
Income taxes ............................. 34 37 14
Loan guaranty ............................ 535 -- 635
------- -------- -------
Total current liabilities .............. 74,604 151,493 95,345
Deferred income taxes ...................... 157 4,072 157
Other liabilities .......................... 162 1,815 1,563
Long-term debt, non-current ................ 38 9,096 50
------- -------- -------
Total liabilities ...................... 74,961 166,476 97,115
------- -------- -------
Shareholders' equity:
Preferred stock, 3,000,000
authorized, no shares issued
and outstanding ......................... -- -- --
Common stock, 15,000,000 authorized,
4,602,180 shares issued and
outstanding at March 31, 1999
and at March 31, 1998
no par value ............................ 28,051 28,051 28,051
Accumulated other comprehensive loss ..... -- (290) (336)
Retained earnings (accumulated deficit) .. (45,771) 2,446 (47,856)
------- -------- -------
Total shareholders' equity (deficit) ... (17,720) 30,207 (20,141)
------- -------- -------
Total liabilities and shareholders'
equity ................................ $57,241 $196,683 $76,974
======= ======== =======
The accompanying notes are an integral part
of the consolidated financial statements.
JPE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME
(Amounts in Thousands, Except Per Share Data)
Three Months Ended
March 31,
1999 1998
---- ----
(Unaudited)
Net sales ............................................... $24,183 $69,423
Cost of goods sold ...................................... 18,997 63,231
------- -------
Gross profit .......................................... 5,186 6,192
Selling, general and administrative expenses ............ 3,752 7,697
Gain on forgiveness of liabilities ...................... (3,457) --
Loss on sale of subsidiary .............................. 3,991 --
Other expenses (income) ................................. 346 (134)
Affiliate companies' (income) losses .................... (3,718) --
------- -------
Income (loss) before interest and taxes ................. 4,275 (1,371)
Interest expense, net ................................... 2,116 3,464
------- -------
Income (loss) before taxes ............................ 2,159 (4,835)
Income tax expense (benefit) ............................ 71 (1,567)
------- -------
Net income (loss) ..................................... 2,085 (3,268)
Other comprehensive expense
Foreign currency translation adjustment ............... -- (19)
------- -------
Comprehensive income (loss) ............................. $ 2,085 $(3,287)
======= =======
Basic earnings (loss) per common share .................. $0.45 $(0.71)
===== ======
Weighted average shares outstanding ..................... 4,602 4,602
===== =====
Earnings (loss) per common share assuming dilution ...... $0.44 $(0.71)
===== ======
Weighted average shares outstanding
and common stock equivalents ........................... 4,704 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,
1999 1998
---- ----
(Unaudited)
Cash flows from operating activities:
Net income (loss) ................................ $ 2,085 $(3,268)
Depreciation and amortization .................... 903 2,751
Loss on sale of Industrial &
Automotive Fasteners, Inc. ...................... 3,991 --
Forgiveness of liabilities ....................... (3,457) --
Affiliate companies' income ...................... (3,718) --
Other ............................................ 98 --
Adjustments to reconcile net loss
to net cash provided by (used for)
operating activities:
Changes in operating assets and
liabilities:
Accounts receivable ......................... (2,855) (4,597)
Inventory ................................... (35) 1,224
Other current assets ........................ 588 539
Accounts payable ............................ (1,613) 2,582
Accrued liabilities and income taxes ........ (192) (1,318)
Deferred income taxes ....................... (11) --
------- -------
Net cash used for operating activities .... (4,216) (2,087)
Cash flows from investing activities:
Purchase of property and equipment ............... (226) (1,836)
Cash proceeds from sale of Industrial &
Automotive Fasteners, Inc. ...................... 20,000 --
Cash received from equity investees .............. 1,799 --
------- -------
Net cash provided by (used for)
investing activities ..................... 21,573 (1,836)
Cash flows from financing activities:
Net borrowings (payments) under revolving loan ... (17,052) 2,991
Net borrowings under Canadian credit facility .... -- 1,395
Repayments of other debt ......................... (4) (154)
------- -------
Net cash provided by (used for)
financing activities ..................... (17,056) 4,232
Effect of currency translation on cash ............. -- 19
Cash and cash equivalents:
Net increase in cash ............................. 301 328
Cash, beginning of period ........................ 394 29
------- -------
Cash, end of period .............................. $ 695 $ 357
======= =======
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. ("JPE" or the "Company") Form 10-K for the year ended
December 31, 1998.
B. RESTRUCTURING OF COMPANY:
On April 28, 1999, the Company reached a definitive agreement with ASC
Holdings LLC and Kojaian Holdings LLC (together, "Buyer"), pursuant to
which Buyer will acquire common and preferred stock of the Company to
initially have voting control and an economic interest of 95% of the
Company. Buyer will be issued 9,441,420 shares of common stock and
1,560,000 shares of preferred stock, subject to adjustment. Each share of
preferred stock issued to Buyer will have all rights and privileges,
including voting, distribution and dividend rights, equal to 50 shares of
common stock. Buyer will invest $18.4 million in the Company and will
provide or arrange a loan to JPE in the amount of approximately $51.6
million.
The current shareholders of JPE, Inc. would retain the remaining equity in
the Company, subject to further dilution from preferred stock and preferred
stock warrants that will be issued to the Company's bank lenders in
exchange for loan concessions. If the loan concessions are less than $12
million, no preferred stock or preferred stock warrants will be issued. The
Company's bank lenders have agreed to a maximum loan concession of $17
million, in which case the Company's bank lenders will receive 23,011
shares of preferred stock for an aggregate purchase price of $1 thousand
and 86,291 preferred stock warrants for no additional consideration. If the
loan concession is between $12 million and $17 million, the preferred stock
and warrants to be issued will be based on a ratio. In addition, the
current shareholders of the Company and the Bank will receive warrants that
would entitle them to purchase approximately an additional 15% of the
voting power and economic interest in the Company, exercisable two years
after the consummation of Buyer's investment, with the exercise price of
such warrants subject to adjustments based on the Company's EBITDA level
and certain amounts paid by the Company to address environmental issues. As
such, current shareholders of the Company will experience substantial
dilution upon Buyer's investment, but would have the potential of
increasing their aggregate percentage ownership in the future. Buyer is
continuing its due diligence, which should be completed by the end of May
1999. There can be no assurance that the Buyer's due diligence requirements
will be satisfied or that the conditions to consummate the transaction will
be satisfied. If the transaction with Buyer is not consummated, the
Company's ability to continue as a going concern is uncertain.
Plastic Trim, Inc. ("PTI") and Starboard Industries, Inc. ("Starboard")
filed reorganization plans with the Bankruptcy Court which were confirmed
on April 16, 1999. Under these plans, PTI's and Starboard's unsecured
creditors as of September 15, 1998 will be paid 30% of their pre-petition
claims. This will result in a forgiveness of liabilities of approximately
$3.9 million.
JPE, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in Thousands)
C. SALE OF JPE CANADA INC.:
On December 8, 1998, The Bank of Nova Scotia, the Interim Receiver for JPE
Canada Inc. ("JPEC"), General Motors Corporation and General Motors of
Canada Limited entered into an agreement to sell substantially all the
assets of JPEC to the Ventra Group, Inc. This agreement required that JPEC
make an assignment in bankruptcy prior to closing. On February 8, 1999,
JPEC filed an assignment in bankruptcy with the Ontario Court (General
Division) Commercial List and substantially all the assets of JPEC were
sold for approximately $13.7 million. The secured bank loans of JPEC were
approximately $14.8 million at closing. The unpaid liabilities of JPEC at
closing have been eliminated through the bankruptcy proceeding, resulting
in a gain of approximately $2.9 million. For the period of January 1, 1999
to February 8, 1999, JPEC had a net loss from operations of $259 thousand.
The gain and loss from operations are included in the consolidated
statement of operations under the caption "Affiliate companies' (income)
losses."
D. SALE OF INDUSTRIAL & AUTOMOTIVE FASTENERS, INC.:
On March 26, 1999, JPE sold the stock of Industrial & Automotive Fasteners,
Inc. ("IAF") to MacLean Acquisition Company for approximately $20.0
million. The sales agreement required certain vendors to compromise their
accounts receivable from IAF to 30% of the outstanding balance and union
employees to accept annuity contracts in lieu of their postretirement
health care and life insurance benefits. JPE has recorded a gain in the
first quarter of 1999 for the forgiveness of these liabilities of
approximately $3.5 million, offset by a loss on the sale of stock of
approximately $4.0 million. The net proceeds of $19.2 million from this
sale were used to pay down U.S. Bank debt.
E. INVESTMENT IN U.S. AFFILIATE COMPANIES:
JPE's subsidiaries, PTI and Starboard, are debtors-in-possession under
Chapter 11 of the Federal Bankruptcy Code. Under these conditions,
generally accepted accounting principles do not allow the Company to
consolidate these subsidiaries from the date of filing their voluntary
petitions with the Bankruptcy Court. On February 25, 1999, both
subsidiaries filed a Plan of Reorganization and Disclosure Statement with
the Court. These plans were confirmed by the Bankruptcy Court on April 16,
1999. Note B describes a proposed investment in JPE that will result in
these two subsidiaries emerging from Chapter 11.
JPE, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in Thousands)
E. INVESTMENT IN U.S. AFFILIATE COMPANIEs, continued:
The Investment in U.S. affiliate companies on the Consolidated Balance
Sheet at March 31, 1999 is comprised of the following (amounts in
thousands):
PTI Starboard Total
--- --------- -----
Cash ...................................... $ 2 $ 140 $ 142
Receivables ............................... 16,250 3,954 20,204
Inventory ................................. 5,166 547 5,713
Other current assets ...................... 357 1,046 1,403
Property, plant and equipment, net ........ 15,949 4,229 20,178
------- ------ -------
Total Assets ........................... $37,724 $9,916 $47,640
------- ------ -------
Liabilities not subject to compromise:
Current liabilities
Accounts payable ........................ $ 1,034 $ 116 $ 1,150
Accrued liabilities ..................... 1,224 861 2,085
Other liabilities ....................... 339 145 484
Debtor-in-possession financing ........... 18,388 2,880 21,268
Liabilities subject to compromise ......... 4,566 1,270 5,836
------- ------ -------
Total Liabilities ...................... $25,551 $5,272 $30,823
------- ------ -------
Net Equity ........................... $12,173 $4,644 $16,817
======= ====== =======
The results of operations for these subsidiaries since their filing date
has been recorded on the equity method. Summarized statements of operations
for the quarter ended March 31, 1999 are as follows (amounts in thousands):
PTI Starboard Total
--- --------- -----
Sales ..................................... $19,609 $6,094 $25,703
Cost of sales ............................. 17,472 4,904 22,376
------- ------ -------
Gross profit .............................. 2,137 1,190 3,327
Selling, general and administrative
expense .................................. 1,469 299 1,768
Other reorganization expenses ............. 10 14 24
------- ------ -------
Income before interest and taxes .......... 658 877 1,535
Interest expense .......................... 363 71 434
------- ------ -------
Income before taxes ....................... 295 806 1,101
Income tax expense ........................ 1 3 4
------- ------ -------
Net income ................................ $ 294 $ 803 $ 1,097
======= ====== =======
JPE, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in Thousands)
F. SEGMENT INFORMATION:
In 1998, JPE, Inc. adopted FAS 131, "Disclosures about Segments of an
Enterprise and Related Information." The Company manages and reports its
operating activities under three segments: Trim Products, Fasteners, and
Truck and Automotive Replacement Parts. The Trim Products segment consists
of decorative and functional exterior trim sold to Original Equipment
Manufacturers ("OEM's"). Fasteners are decorative, specialty and standard
wheel nuts sold to the OEM's and to the replacement market. The Truck and
Automotive Replacement Parts segment consists of heavy-duty vehicle
undercarriage parts and brake systems for the automotive industry. JPE,
Inc. sold its brake systems segment during 1998. In 1999, JPE, Inc. also
sold a portion of its Trim Products segment (see Note C) and its Fasteners
segment (see Note D).
The accounting policies for the segments are the same as those used for the
consolidated financial statements. There are no inter-segment sales and
management does not allocate interest or corporate expenses to the
segments. The Company evaluates the performance of its segments and
allocates resources to them based on Segment profit. Segment profit (loss)
is defined as sales minus cost of goods sold and selling, general and
administrative expenses. Other charges (income) relate to non-recurring
transactions, such as bankruptcy-related transactions or sales of portions
of segments.
Information by operating segment for the first quarter of 1999 and 1998 is
summarized below:
Trim Replacement
Products Fasteners Parts Total
-------- --------- ----------- -----
Sales to unaffiliated customers
1999 -- $10,024 $14,159 $ 24,183
1998 $ 35,866 10,069 23,488 69,423
Segment profit (loss)
1999 -- $ 842 $ 823 $ 1,665
1998 $ (2,648) 673 1,368 (607)
Other charges (income)
1999 -- $(3,369) $ 31 $ (3,338)
1998 $ (134) -- -- (134)
Affiliate companies' income
1999 $ (3,718) -- -- $ (3,718)
1998 -- -- -- --
Depreciation and amortization
1999 -- $ 430 $ 462 $ 892
1998 $ 1,715 475 454 2,644
Segment assets
1999 -- -- $38,868 $ 38,868
1998 $105,988 $24,868 62,401 193,257
JPE, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in Thousands)
F. SEGMENT INFORMATION, continued:
Trim Replacement
Products Fasteners Parts Total
-------- --------- ----------- -----
Expenditures for segment assets
1999 -- $ 126 $ 83 $ 209
1998 $ 879 324 628 1,831
A reconciliation of segment profit (loss) for reportable segments to
consolidated loss before taxes is as follows:
1997 1998
---- ----
Segment profit (loss) $ 1,665 $ (607)
Other income 3,338 134
Affiliate companies' income 3,718 --
Corporate expense (228) (898)
(Loss) on sale of subsidiary (3,991) --
Costs related to bankruptcy and
forbearance agreements (227) --
Interest expense (2,116) (3,464)
------- -------
Income (loss) before taxes $ 2,159 $ (4,835)
======= =======
A reconciliation of segment assets to consolidated assets is as follows:
1997 1998
---- ----
Segment Assets $38,868 $193,257
Corporate Assets 1,556 3,426
Investment in Affiliates 16,817 --
------- --------
Consolidated Assets $57,241 $196,683
======= ========
G. INVENTORY:
Inventories by component are as follows:
March 31, 1999 March 31, 1998 Dec. 31, 1998
-------------- -------------- -------------
Finished goods $11,364 $18,938 $13,291
Work in process and components 842 2,243 1,411
Raw material 1,486 14,535 1,606
Tooling -- 2,472 2,264
------- ------- -------
$13,692 $38,188 $18,572
======= ======= =======
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.
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 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, among other things, 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; (iii) the availability of funds to the Company
to continue operations pending consummation of a sale or an investment in the
Company and a restructuring of the Company's debt; and (iv) the ability to
consummate a transaction which permits restructuring of the Company's debt and
infusion of additional capital (see "Liquidity and Capital Resources").
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THREE MONTHS ENDED MARCH 31, 1998
Net sales for the quarter ended March 31, 1999 were $24.2 million compared to
$69.4 million for the same period in 1998. This significant decrease is
attributable to recording sales of the Company's Trim Products segment using the
equity method due to the bankruptcy proceedings and the sales of Allparts,
Incorporated ("Allparts") and JPE Canada Inc. ("JPEC") due to the divestiture of
these businesses. By segment, sales are as follows (including Trim Products):
March 31, March 31,
1999 1998
--------- ---------
Trim Products $29,769 $35,866
Fasteners 10,024 10,069
Replacement Parts 14,159 23,488
The decrease in 1999 Trim Products sales is due to the inclusion of only one
month's sales at JPEC prior to its sale on February 8, 1999. This operation
would have contributed approximately $8 million in additional sales if it had
not been sold. Sales at Starboard Industries, Inc. ("Starboard") are $1.7
million higher than the first quarter of 1998 due to the launch of new products
in the second half of 1998. The decrease in 1999 sales of the Replacement Parts
segment is due to the sale of Allparts which accounts for a $4.2 million
decline. The remaining decline of $5 million is attributable to the loss of
heavy duty brake drum business and the impact of the uncertainty related to
JPE's financial condition which is causing certain customers to dual source
their business.
Gross profit was $5.2 million for the quarter ended March 31, 1999 compared to
$6.2 million for the same quarter last year. The gross profit by segment is as
follows (including Trim Products):
March 31, March 31,
1999 1998
--------- ---------
Trim Products $ 3,509 $ (484)
Fasteners 1,342 1,279
Replacement Parts 3,844 5,417
The increase in Trim Products is due to the elimination of JPEC which had a loss
of $1.5 million in the first quarter of 1998, a $1.6 million improvement at
Plastic Trim, Inc. ("PTI") due primarily to better control of scrap, and a $677
thousand improvement at Starboard as a result of increased sales volume. The
decline in gross margin for Replacement Parts is attributable to lower sales
volume, partially offset by higher margin at Dayton Parts due to better product
mix.
Selling, general and administrative expenses decreased $3.9 million for the
first quarter of 1999 as compared to the same period in 1998. Adjusting this
decline to reflect selling, general and administrative costs of the Trim
Products segment, the decrease would have been $2.0 million. This decrease is
primarily a result of the businesses sold, lower sales volume at Dayton Parts,
and lower costs at JPE's corporate office due to staff reductions.
During the quarter ended March 31, 1999, the Company sold the stock of its
Fasteners segment, Industrial & Automotive Fasteners, Inc. ("IAF"). This
transaction required that certain vendors forgive their accounts receivable
resulting in a $2.0 million gain. In addition, union employees at IAF accepted
annuity contracts in lieu of their postretirement healthcare and life insurance
benefits resulting in forgiveness of liability in the amount of $1.5 million.
The sale of stock of IAF resulted in a loss of $4.0 million, offset by gain on
forgiveness of debt.
Other expense for the quarter ended March 31, 1999 was $346 thousand compared to
other income of $134 thousand for the same period in the prior year. Other
expense primarily relates to costs incurred in connection with the Forbearance
Agreement and the proposed investment described in Note B to the consolidated
financial statements. Other income in 1998 was attributable to gain on the sale
of land and foreign exchange gains.
In 1998, the Company's Trim Products segment filed for court-ordered protection.
The Company has recognized the financial results of these subsidiaries using the
equity method. In the first quarter of 1999, the assets of JPEC were sold for
approximately $13.7 million which was used to pay down bank debt. Since JPEC has
no assets, its unpaid liabilities of $2.9 million have been eliminated through
the bankruptcy proceedings resulting in a gain in the first quarter of 1999. The
results of operations for the quarter ended March 31, 1999 for all subsidiaries
included in the Trim Products segment was net income of $838,000. The
improvement in other operations is explained above in the paragraphs discussing
sales and gross profit.
Interest expense for the quarter ended March 31, 1999 was $2.1 million as
compared to $3.5 million for the quarter ended March 31, 1998. The lower
interest expense is a result of lower debt levels due to the sales of certain
businesses and a lower effective interest rate. In the first quarter of 1998,
the Company's effective interest rate was 11% compared to a rate of
approximately 9.75% for the quarter ended March 31, 1999. The higher interest
rate in 1998 was primarily attributable to payment of an amendment fee of
$120,000 per month until maturity of the Company's Credit Agreement in October
1998.
Tax expense for the quarter ended March 31, 1999 represents state and local
taxes, as the Company has net operating losses to offset any federal taxes
payable for the first quarter of 1999.
Net income for the quarter ended March 31, 1999 was $2.1 million or $0.44 per
fully diluted share. Results for 1999 include three non-recurring items relating
to the sale of certain businesses as previously discussed. The effect of these
items was to increase net income by $2.4 million for the quarter ended March 31,
1999. The Company reported a net loss of $3.3 million or $0.71 per share fully
diluted for the quarter ended March 31, 1998. Although the Company's results of
operations have improved substantially, the Company's ability to continue as a
going concern is dependent on the restructuring of the Company as described in
Note B and under Liquidity and Capital Resources below.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal source of liquidity for its U.S. companies is the
Forbearance Agreement dated August 10, 1998, as amended several times through
the current amendment dated May 3, 1999 (the "Forbearance Agreement"). The
Forbearance Agreement is collateralized by all of the Company's assets, with the
exception of the inventories of Starboard and PTI, and the post-petition
accounts receivable of Starboard and PTI. At March 31, 1999, borrowings
outstanding under the Forbearance Agreement totaled $67.4 million.
During the first quarter of 1999, the U.S. lenders have received payments
originating from the sale of IAF in March 1999 in the amount of $19.2 million
and from Starboard's and PTI's collection of pre-petition receivables and other
payments totaling $1.8 million.
At March 31, 1999, Current Liabilities exceeded Current Assets by $50.6 million,
reflecting the classification of the amount outstanding to the Bank Group
pursuant to the Forbearance Agreement of $67.4 million as a current liability.
Excluding the amount outstanding to the Bank Group pursuant to the Forbearance
Agreement, working capital at March 31, 1999 would have been $16.8 million as
compared to $21.7 million at December 31, 1998. This decrease primarily reflects
the working capital related to IAF. As described in Note B to the consolidated
financial statements and below, the Company's liquidity and capital resources
are dependent on consummation of certain transactions. Cash used by operations
was $4.2 million for the quarter ended March 31, 1999, primarily related to an
increase in receivables.
In connection with the filing for protection from creditors under Chapter 11 of
the U.S. Bankruptcy Code for Starboard and PTI (the "debtor companies"), the
debtor companies entered into separate debtor-in-possession financing agreements
to provide for post-petition financing (the "DIP financing") which expires on
September 15, 2000. This debt is not shown on the Company's consolidated balance
sheet as these subsidiaries are reported under the equity method. At March 31,
1999, borrowings under these facilities totaled $2.9 million and $18.4 million
for Starboard and PTI, respectively.
On April 28, 1999, the Company reached a definitive agreement with ASC Holdings
LLC and Kojaian Holdings LLC (together, "Buyer"), pursuant to which the Buyer
will acquire common and preferred stock of the Company to initially have voting
control and an economic interest of 95% of the Company. The Buyer will be issued
9,441,420 shares of common stock and 1,560,000 shares of preferred stock. Each
share of preferred stock has all rights and privileges, including voting,
distribution and dividend rights, equal to 50 shares of common stock. The Buyer
will invest $18.4 million in the Company and will provide or arrange a loan to
JPE in the amount of approximately $51.6 million.
The current shareholders of JPE, Inc. would retain the remaining equity in the
Company, subject to further dilution from preferred stock and preferred stock
warrants that will be issued to the Company's bank lenders in exchange for loan
concessions. If the loan concessions are less than $12 million, no preferred
stock or preferred stock warrants will be issued. The Company's bank lenders
have agreed to a maximum loan concession of $17 million, in which case the
Company's bank lenders will receive 23,011 shares of preferred stock for an
aggregate purchase price of $1 thousand and 86,291 preferred stock warrants for
no additional consideration. If the loan concession is between $12 million and
$17 million, the preferred stock and warrants to be issued will be based on a
ratio. In addition, the current shareholders of the Company and the Bank will
receive warrants that would entitle them to purchase approximately an additional
15% of the voting power and economic interest in the Company, exercisable two
years after the consummation of the Buyer's investment, with the exercise price
of such warrants subject to adjustments based on the Company's EBITDA level and
certain amounts paid by the Company to address environmental issues. As such,
current shareholders of the Company will experience substantial dilution upon
the Buyer's investment, but would have the potential of increasing their
aggregate percentage ownership in the future. If the transaction with the Buyer
is not consummated, the Company's ability to continue as a going concern is
uncertain.
PTI and Starboard filed reorganization plans with the Bankruptcy Court which
were confirmed on April 16, 1999. Under these plans, PTI's and Starboard's
unsecured creditors as of September 15, 1998 will be paid 30% of their
pre-petition claims. This will result in a forgiveness of liabilities of
approximately $3.9 million. The funding of these claims is dependent upon
consummation of the above transaction.
The Buyer is continuing its due diligence, which should be completed by the end
of May 1999. There can be no assurance that the Buyer's due diligence
requirements will be satisfied or that a transaction with the Buyer can be
consummated on terms that are adequate to restructure the Company's obligations
to its bank group. If the transaction with the Buyer is not consummated, the
Company's ability to continue as a going concern is uncertain.
YEAR 2000
PTI's and Starboard's business systems require updating to become Year 2000
compliant. These two companies continue to make progress on their Year 2000
projects and appear to be on track to be compliant by January 1, 2000. DPI's
business system has been updated and is Year 2000 compliant as of April 1999.
The Company's manufacturing operations do not rely on highly sophisticated date
driven processes and, as such, compliance with Year 2000 requirements is not
significant in the manufacturing area. Each of the Company's business systems is
being updated or a replacement system is being purchased. The Company estimates
that the total cost to be spent in 1999 to become Year 2000 compliant is
approximately $355,000 relating to new hardware and software programs. In the
first quarter of 1999, the Company expended approximately $50,000 related to new
hardware for the Starboard business system. In addition, there will be costs for
training employees on the new systems which will be accounted for as operating
expenses.
The Company has also been in contact with its customers and suppliers and has
requested that they complete questionnaires to determine any impact on the
Company's operations. In general, the suppliers and customers have developed or
are in the process of developing plans to address Year 2000 issues. The Company
will continue to monitor and evaluate the progress of suppliers and customers on
this critical matter.
Based on the progress the Company has made in addressing its Year 2000 issues
and the plans and timelines to complete this project, the Company does not
foresee significant risks associated with its Year 2000 compliance at this time.
The Company has not developed a detailed contingency plan, but given the current
status of its progress, it appears that all systems will be compliant. However,
if the Company identifies significant risks related to its Year 2000 compliance
or its progress deviates from the anticipated timeline, the Company will develop
contingency plans as deemed necessary at that time.
PART II. OTHER INFORMATION
JPE, INC.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits:
10.1 Seventh Amendment, dated April 14, 1999, to Forbearance
Agreement, filed with this report.
10.2 Eighth Amendment, dated May 3, 1999, to Forbearance
Agreement, filed with this report.
10.3 Ninth Amendment, dated May 7, 1999, to Forbearance
Agreement, filed with this report.
10.4 Investment Agreement dated April 28, 1999 among ASC Holdings
LLC, Kojaian Holdings LLC and JPE, Inc., filed with this
report.
10.5 Form of Indemnification Agreement, dated April 21, 1999,
between JPE, Inc. and Karen A. Radtke, filed with this
report.
b. Report on Form 8-K:
On April 15, 1999, Registrant filed a report on Form 8-K,
reporting (i) the sale of substantially all of the assets of JPE
Canada Inc., an Ontario, Canada corporation and a wholly-owned
subsidiary of the Registrant, to Ventra Group, Inc. and (ii) the
sale of 100% of the issued and outstanding shares of common stock
of Industrial & Automotive Fasteners, Inc., a Michigan
corporation and a wholly-owned subsidiary of the Registrant, to
MacLean Acquisition Company.
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
and Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
Date: May 17, 1999