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
June 30, 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. (d/b/a ASCET 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.)
30400 Telegraph Road, Suite 401, Bingham Farms, Michigan, 48025
(Address of principal executive offices) (Zip Code)
(248) 723-5531
(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 July 31, 1999, there were 14,043,600 shares of the registrant's common
stock outstanding. This Quarterly Report on Form 10-Q contains 42 pages, of
which this is page 1.
JPE, INC. (d/b/a ASCET INC)
INDEX
Page
----
Part I. Financial Information
Item 1. Financial Statements
Consolidated Condensed Balance Sheets (Unaudited) 4
- At June 30, 1999 and 1998
- At December 31, 1998
Consolidated Condensed Statements of Operations
and Comprehensive Operations (Unaudited)
- For the Predecessor Company for the
Period From April 1, 1999 Through
May 27, 1999 and for ASCET INC for the
Period From May 28, 1999 Through
June 30, 1999 and for the Predecessor
Company for the Three Months Ended
June 30, 1998 5
- For the Predecessor Company for the
Period From January 1, 1999 Through
May 27, 1999 and for ASCET INC for the
Period From May 28, 1999 Through
June 30, 1999 and for the Predecessor
Company for the Six Months Ended
June 30, 1998 6
Consolidated Condensed Statements of
Shareholders' Equity (Unaudited) 7
- For the Six Months Ended
June 30, 1999
Consolidated Condensed Statements of
Cash Flows (Unaudited) 8
- For the Predecessor Company for the
Period January 1, 1999 Through May 27,
1999 and for ASCET INC for the Period
May 28, 1999 Through June 30, 1999
and for the Predecessor Company for
the Six Months Ended June 30, 1998
Notes to Unaudited Consolidated
Financial Statements
9-16
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 17-24
Part II. Other Information
Item 2. Changes in Securities and Use of Proceeds 25
Item 5. Other Information 25
Item 6. Exhibits and Reports on Form 8-K 26-27
Signature 28
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
JPE, INC. (d/b/a ASCET INC)
CONSOLIDATED CONDENSED BALANCE SHEETS
(Amounts in Thousands, Except Share Data)
At June 30, At Dec. 31,
1999 1998 1998
---- ---- ----
(Unaudited) (Note A)
ASSETS
Current assets:
Cash and cash equivalents $ 2,034 $ 493 $ 394
Accounts receivables trade, net 21,885 36,219 12,151
Inventory, net 20,085 36,338 18,572
Other current assets 5,515 7,923 1,413
-------- -------- --------
Total current assets 49,519 80,973 32,530
Investment in affiliated companies -- -- 14,661
Property, plant and equipment, net 30,177 69,888 20,963
Goodwill, net 2,325 30,770 7,458
Other assets 638 790 1,362
-------- -------- --------
Total assets $ 82,659 $182,421 $ 76,974
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt and current
portion of long-term debt $ 48,596 $124,437 $ 84,492
Accounts payable trade 7,527 22,694 8,273
Accrued liabilities and other
current liabilities 4,968 7,012 2,580
-------- -------- --------
Total current liabilities 61,091 154,143 95,345
Deferred income taxes and other liabilities 1,519 5,080 1,720
Long-term debt, non-current 320 517 50
-------- -------- --------
Total liabilities 62,930 159,740 97,115
-------- -------- --------
Shareholders' equity:
Warrants 293 -- --
First Series Preferred Shares, no par value,
3,000,000 authorized, 1,973,002 shares
issued and outstanding at June 30, 1999
and no shares issued and outstanding
at June 30, 1998 16,590 -- --
Common stock, no par value, 15,000,000
authorized, 14,043,600 shares issued and
outstanding at June 30, 1999 and 4,602,180
issued and outstanding at June 30, 1998 2,333 28,051 28,051
Accumulated other comprehensive loss -- (380) (336)
Retained earnings (accumulated deficit) 513 (4,990) (47,856)
-------- -------- --------
Total shareholders' equity (deficit) 19,729 22,681 ( 20,141)
-------- -------- --------
Total liabilities and shareholders' equity $ 82,659 $182,421 $ 76,974
======== ======== ========
The accompanying notes are an integral part
of the consolidated condensed financial statements.
JPE, INC. (d/b/a ASCET INC)
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE OPERATIONS
For the Three Months Ended June 30, 1999 and 1998
(Amounts in Thousands, Except Per Share Data)
(Unaudited)
Predecessor Predecessor
Company ASCET INC Company
Period From Period From Three Months
April 1, 1999 May 28, 1999 Ended
Through May 27, Through June 30, June 30,
1999 1999 1998
---- ---- ----
Net sales $ 9,738 $ 14,013 $ 56,659
Cost of goods sold 7,524 11,021 49,512
------- -------- --------
Gross profit 2,214 2,992 7,147
Selling, general and administrative expenses 1,992 1,786 6,753
Other expense 492 -- 3,083
Affiliate companies' (income) loss (3,893) -- --
Interest expense, net 1,055 384 3,083
------- -------- --------
Income (loss) from continuing operations before
income taxes and extraordinary item 2,568 822 (5,772)
Income tax expense 33 309 1,693
------- --------- --------
Income (loss) from continuing operations
before extraordinary item 2,535 513 (7,465)
Discontinued Operation:
Income from operations of IAF -- -- 29
Extraordinary Item:
Forgiveness of debt 16,257 -- --
------- --------- --------
Net income (loss) 18,792 513 (7,436)
Other comprehensive expense:
Foreign currency translation adjustment -- -- (90)
------- --------- --------
Comprehensive income (loss) $18,792 $ 513 $ (7,526)
======= ========= ========
Basic earnings (loss)
per share from continuing
operations before
extraordinary item:
Common Shares $0.55 $0.00 $ (1.62)
===== ===== =======
First Series Preferred Shares $ -- $0.23 $ --
===== ===== ==========
Earnings (loss) per share
from continuing operations before
extraordinary item
assuming dilution:
Common Shares $0.55 $0.00 $ (1.62)
===== ===== =======
First Series Preferred Shares $ -- $0.20 $ --
===== ===== =======
Basic earnings (loss) per share:
Common Shares $4.08 $0.00 $ (1.62)
===== ===== =======
First Series Preferred Shares $ -- $0.23 $ --
===== ===== =======
Earnings (loss) per share assuming dilution:
Common Shares $4.05 $0.00 $ (1.62)
===== ===== =======
First Series Preferred Shares $ -- $0.20 $ --
===== ===== =======
The accompanying notes are an integral part
of the consolidated condensed financial statements.
JPE, INC. (d/b/a ASCET INC)
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE OPERATIONS
For the Six Months Ended June 30, 1999 and 1998
(Amounts in Thousands, Except Per Share Data)
(Unaudited)
Predecessor Predecessor
Company ASCET INC Company
Period From Period From Six Months
January 1, 1999 May 28, 1999 Ended
Through May 27, Through June 30, June 30,
1999 1999 1998
---- ---- ----
Net sales $ 23,897 $ 14,013 $116,013
Cost of goods sold 17,839 11,021 103,953
-------- -------- --------
Gross profit 6,058 2,992 12,060
Selling, general and administrative expenses 5,244 1,786 13,844
Other expense 750 -- 2,948
Affiliate companies' (income) loss (7,611) -- --
Interest expense, net 2,703 384 6,080
-------- -------- -------
Income (loss) from continuing operations before
income taxes and extraordinary items 4,972 822 (10,812)
Income tax expense 104 309 126
-------- -------- --------
Income (loss) from continuing operations
before extraordinary items 4,868 513 (10,938)
Discontinued Operation:
Income from operations of IAF 58 -- 234
Loss on sale of IAF, net of
operating income of $1,670 (2,321) -- --
Extraordinary Items:-
Forgiveness of debt and liabilities 18,272 -- --
-------- -------- --------
Net income (loss) 20,877 513 (10,704)
Other comprehensive expense:
Foreign currency translation adjustment -- -- (109)
-------- -------- --------
Comprehensive income (loss) $ 20,877 $ 513 $(10,813)
======== ======== ========
Basic earnings (loss) per share
from continuing operations before
extraordinary items:
Common Shares $1.06 $0.00 $(2.33)
===== ===== ======
First Series Preferred Shares $ -- $0.23 $ --
===== ===== ======
Earnings (loss) per share from
continuing operations before
extraordinary items
assuming dilution:
Common Shares $1.04 $0.00 $(2.33)
===== ===== ======
First Series Preferred Shares $ -- $0.20 $ --
===== ===== ======
Basic earnings (loss) per share:
Common Shares $4.54 $0.00 $(2.33)
===== ===== ======
First Series Preferred Shares $ -- $0.23 $ --
===== ===== ======
Earnings (loss) per share assuming dilution:
Common Shares $4.29 $0.00 $(2.33)
===== ===== ======
First Series Preferred Shares $ -- $0.20 $ --
===== ===== ======
The accompanying notes are an integral part
of the consolidated condensed financial statements.
JPE, INC. (d/b/a ASCET INC)
CONSOLIDATED CONDENSED STATEMENTS OF SHAREHOLDERS' EQUITY
For the Six Months Ended June 30, 1999
(Amounts in Thousands, Except Per Share Data)
(Unaudited)
PREDECESSOR COMPANY
Net income
Balances at Foreign Issuance for the period Balances at
December 31, Currency to the January 1 to May 27,
1998 Translation Bank Group May 27, 1999 1999
---- ----------- ---------- ------------ ----
Common Stock:
Shares Outstanding 4,602 4,602
Amount $ 28,051 $ 28,051
First Series Preferred Shares:
Shares Outstanding -- 21 21
Amount -- $ 177 $ 177
Warrants:
Warrants Outstanding -- 77 77
Amount -- $ 54 $ 54
Accumulated Other
Comprehensive Loss $ (336) $ 336 --
Retained Earnings (Deficit) $(47,856) $ 20,877 $(26,979)
--------------------------------------------------------------------------
Total Shareholder Equity $(20,141) $ 336 $ 231 $ 20,877 $ 1,303
==========================================================================
ASCET INC
Predecessor Net income
Balances at Investment Shareholders for the period Balances at
May 27, New Basis May 28 to June 30,
1999 Shareholders Change June 30, 1999 1999
---- ------------ ------ --------- ----
Common Stock:
Shares Outstanding 4,602 9,442 14,044
Amount $ 28,051 $ 2,287 $(28,005) $ 2,333
First Series Preferred Shares:
Shares Outstanding 21 1,952 1,973
Amount $ 177 $ 16,413 $ 16,590
Warrants:
Warrants Outstanding 77 346 423
Amount $ 54 $ 239 $ 293
Accumulated Other
Comprehensive Loss -- --
Retained Earnings (Deficit) $(26,979) $ 26,979 $ 513 $ 513
--------------------------------------------------------------------------
Total Shareholder Equity $ 1,303 $ 18,700 $ (787) $ 513 $ 19,729
==========================================================================
The accompanying notes are an integral part
of the consolidated condensed financial statements.
JPE, INC. (d/b/a ASCET INC)
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Amounts in Thousands, unaudited)
Predecessor Predecessor
Company ASCET INC Company
Period From Period From Six Months
January 1, 1999 May 28,1999 Ended
Through May 27, Through June 30, June 30,
1999 1999 1998
---- ---- ----
Cash flows from operating activities:
Net income (loss) $ 20,877 $ 513 $ (10,704)
Adjustments to reconcile net income (loss) to net
cash provided by (used for) operating activities:
Extraordinary items, forgiveness of debt
and liabilities (18,272) -- --
Depreciation and amortization 1,233 309 5,516
Loss on sale of assets 2,549 -- --
Write-down of assets -- -- 4,468
Affiliate companies' income (7,611) -- --
Other 98 -- --
Changes in operating assets and liabilities:
Accounts receivable (2,306) (851) 1,778
Inventory 279 314 3,074
Other current assets 924 (205) 644
Accounts payable 2,028 (2,165) (2,525)
Accrued liabilities and income taxes (457) (172) (1,743)
Deferred income taxes 2 (1) (882)
-------- ---------- ---------
Net cash (used for) operating activities (656) (2,258) (374)
Cash flows from investing activities:
Purchase of property and equipment (275) (78) (2,062)
Cash proceeds from sale of Industrial &
Automotive Fasteners, Inc. 20,000 -- --
Cash received from (loaned to) equity investees (13,980) -- --
-------- ---------- ---------
Net cash provided by (used for)
investing activities 5,745 (78) (2,062)
Cash flows from financing activities:
Net borrowings under demand notes -- 48,493 --
Net borrowings (payments) under revolving loan (1,742) (66,257) 1,781
Net borrowings under Canadian credit facility -- -- 1,596
Repayments of other debt (6) (2) (429)
Issuance of First Series Preferred Shares 1 16,413 --
Issuance of common stock -- 1, 987 --
-------- ---------- ---------
Net cash provided by (used for)
financing activities (1,747) 634 2,948
Effect of currency translation on cash -- -- (48)
Cash and cash equivalents:
Net increase (decrease) in cash 3,342 (1,702) 464
Cash, beginning of period 394 3,736 29
-------- ---------- ---------
Cash, end of period $ 3,736 $ 2,034 $ 493
========= ========== =========
The accompanying notes are an integral part
of the consolidated condensed financial statements
JPE, INC. (d/b/a ASCET INC)
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
A. BASIS OF PRESENTATION:
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions
to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they 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 consisting of normal
recurring nature considered necessary for a fair presentation have been
included except as disclosed below. Operating results for the periods
presented are not necessarily indicative of the results that may be
expected for the year ended December 31, 1999.
The balance sheet at December 31, 1998 has been derived from the
audited financial statements at that date but does not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements.
For further information, refer to the consolidated financial statements
and footnotes thereto included in the Registrant Company and
Subsidiaries' annual report on Form 10-K for the year ended December
31, 1998.
In accordance with the terms of an Investment Agreement (the
"Investment Agreement") dated April 28, 1999 among JPE, Inc. (the
"Company"), ASC Holdings LLC ("ASC"), and Kojaian Holdings LLC
("Kojaian"), the Company issued 1,952,352.19 shares of First Series
Preferred Shares on May 27, 1999 (the "Closing Date"), in equal
proportions to ASC (50%) and Kojaian (50%), for an aggregate purchase
price of $16,413,274 payable in cash. In addition, pursuant to the
Investment Agreement, on May 27, 1999 ASC and Kojaian (in equal
proportions) subscribed and paid for 9,441,420 newly issued shares of
common stock for an aggregate purchase price of $1,986,726 payable in
cash. The immediate effect of these transactions ("Investment
Transaction") transferred (a) approximately 47.5% of the voting
securities of the Company to Kojaian, and (b) approximately 47.5% of
the voting securities of the Company to ASC. Pursuant to the terms of
a Shareholders Agreement dated as of May 27, 1999 between ASC and
Kojaian, the parties, among other things, are to cooperate in the
voting of their shares of the Company, including regarding the
nomination and election of members to the Board of Directors and at
shareholder meetings. The Shareholders Agreement also provides that
neither ASC nor Kojaian may sell their securities in the Company
without the prior written consent of the other. In addition, the
Shareholders Agreement provides that upon a deadlock or an impasse
between the parties or their nominees to the Board of Directors
regarding a material issue lasting longer than 90 days, that the
parties shall sell to a third party purchaser the Company or all or
substantially all of its assets, subject to certain terms and
conditions (all as more particularly defined in the Shareholders
Agreement). Thus, each of ASC and Kojaian currently beneficially own
approximately 95% of the voting securities of the Company.
In accounting for these transactions, the Company has applied purchase
accounting as prescribed by Accounting Principles Board Opinion 16 and
Securities Exchange Commission Staff Accounting Bulletin 54. Under this
accounting method the difference between the purchase price and the sum
of the fair value of tangible and identifiable intangible assets less
liabilities assumed was recorded as goodwill. The goodwill recorded at
the acquisition date was $2.3 million.
Accordingly, the consolidated financial statements for periods prior to
May 27, 1999 are not necessarily comparable to the consolidated
financial statement presented after that date. The Company is now
operating under the assumed name of ASCET INC, which represents ASC
Exterior Technologies.
B. WARRANTS:
The Investment Agreement provides that the shareholders of record of
JPE, Inc. (other than Kojaian and ASC) common stock on June 11, 1999
(the "Record Date") are entitled to receive as a corporate dividend
warrants (the "Warrants") entitling the holder the right to purchase
.075 shares of First Series Preferred Shares of the Company for each
share of common stock held on the Record Date. The Warrants carry an
initial exercise price of $9.99 per First Series Preferred Share,
subject to price adjustments based on the Final Actual EBITDA and the
cost of certain environmental remediation for the 24 month period from
the acquisition date. The Warrants are exercisable for a 90 day period
following the providing of notice by the Company to the holders
thereof of the Final Actual EBITDA after the JPE Determination (as
defined in the Investment Agreement).
Based on the initial exercise price of the Warrants, the Company has
assigned a fair value based on the difference between the exercise
price and the present value of the exercise price for the 24 month
period at a cost of capital discount rate. The fair value assigned was
$238.9 thousand. If the exercise price of the Warrants is reduced by
achieving an EBITDA amount in excess of target EBITDA of $34.3 million,
then the difference in the exercise price will be treated as a
contingency based on earnings in future periods and recorded as
additional consideration. The additional consideration, if any, will be
an increase to goodwill.
If all Warrants are exercised, including the Warrants issued to the
lenders described in Note C, then ASC and Kojaian would beneficially
own approximately 80% of the voting securities of the Company.
C. FORGIVENESS OF BANK DEBT:
As a precondition to consummation of the Investment Agreement, the
Company's existing bank lenders (the "Bank Group") agreed on May 27,
1999 to a $16.5 million forgiveness of the Company's existing bank
debt, under the terms of the Company's Forbearance Agreement dated
August 10, 1998, as amended. In consideration for the debt forgiveness
and pursuant to the Investment Agreement, the Company issued 20,650.115
shares of First Series Preferred Shares to the Bank Group on May 27,
1999 for $1,000 of consideration. In addition, the Company granted the
existing bank lenders 77,437.937 Warrants (which contain the same terms
and conditions as granted to the shareholder of common stock of the
Company on the Record Date).
The Company has determined the fair value of the First Series Preferred
Shares issued to the Bank Group to be $177.5 thousand based on the same
price per share paid by ASC and Kojaian. The Warrants issued to the
Bank Group have a fair value of $53.6 thousand computed in the same
method used for shareholders of record. These amounts reduce the
forgiveness of the bank debt, resulting in an extraordinary item of
$16.3 million or $3.53 per share. The Company has utilized its net
operating loss carry forward to offset the taxable income from the
forgiveness of debt and liabilities.
D. INVESTMENT IN U.S. AFFILIATE COMPANIES:
JPE's subsidiaries, Plastic Trim, Inc. ("PTI") and Starboard
Industries, Inc. ("Starboard"), were debtors-in-possession under
Chapter 11 of the Federal Bankruptcy Code. Under these conditions,
generally accepted accounting principles did not allow the Company to
consolidate these subsidiaries from September 15, 1998, 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. In connection with the Investment
Transaction, the reorganization plans of the Company's subsidiaries,
PTI and Starboard, which were confirmed by the Bankruptcy Court on
April 16, 1999, became effective on May 27, 1999. Certain vendors of
these subsidiaries agreed to accept 30% of their pre-bankruptcy account
balances as a part of the reorganization plans. The net gain as a
result of the forgiveness of certain liabilities was $3.8 million, is
included in the caption "Affiliates companies (income) loss" for the
period January 1, 1999 to May 27, 1999. These subsidiaries are included
in the consolidated financial statements effective May 28, 1999 for
ASCET INC. The results of operations before extraordinary item of debt
forgiveness for period January 1 through May 27, 1999 was as follows
(amounts in thousands):
PTI Starboard Total
--- --------- -----
Sales $33,162 $10,771 $43,933
Cost of sales 29,746 8,466 38,212
------- ------- -------
Gross profit 3,416 2,305 5,721
Selling, general and
administrative expense 2,284 646 2,930
Other reorganization expenses 736 202 938
------- ------- -------
Income (loss) before interest,
taxes and extraordinary item 396 1,457 1,853
Interest expense 548 107 655
Income tax expense 1 -- 1
------- ------- -------
Income (loss) before
extraordinary item $ (153) $ 1,350 $ 1,197
====== ======= =======
E. DISCONTINUED OPERATIONS:
On March 26, 1999, JPE sold the stock of Industrial & Automotive
Fasteners, Inc. ("IAF"), its fastener segment, 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 which resulted in an extraordinary gain of
$2.0 million or $.44 per share. The net proceeds of $19.2 million from
this sale were used to pay down U.S. Bank debt.
The measurement date for discontinued operation was February 5, 1999
the date that the Board of Directors and the lenders approved the
letter of intent. IAF income from operations prior to the measurement
date was $58 thousand, or $.01 per share. The loss on sale was $4.0
million, offset by income from operations after the measurement date of
$1.7 million, resulting in a net loss of $2.3 million, or $.50 per
share. The Company has allocated interest to the operations of IAF
based on the net proceeds received from the sale in accordance with
Emerging Issue Task Force Issue No. 87-24.
Revenue for IAF for the three month period ended March 31, 1999 was
$10.0 million and for the year ended December 31, 1998 was $38.3
million.
F. 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. The 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 for
the period January 1, 1999 to May 27, 1999 under the caption "Affiliate
companies' (income) losses."
G. PRO FORMA OPERATING RESULTS:
The following Unaudited Pro Forma for the Six Months Ended June 30,
1999 and 1998 assumes that the transactions and events described in
Notes A through F had occurred prior to January 1. The significant
adjustments relate to the difference in depreciation, goodwill
amortization and lower interest expense based on the lower borrowings
(amounts in thousands):
Six Months Ended
June 30,
-------------------------
1999 1998
---- ----
Net sales $ 81,843 $ 84,081
Cost of sales 66,712 71,246
Selling expense 9,925 10,550
Interest expense 2,735 2,920
Income taxes (benefit) 926 (56)
-------- --------
Income (loss) from
continuing operations $ 1,545 $ (579)
======== ========
Basic earnings (loss) per share from
continuing operations:
Common Shares $ .01 $ (.01)
======== ========
First Series Preferred Shares $ .69 $ (.26)
======== ========
Earnings (loss) per share
assuming dilution:
Common Shares $ .01 $ (.01)
======== ========
First Series Preferred Shares $ .64 $ (.26)
======== ========
H. INVENTORY:
Inventories by component are as follows (amounts in thousands):
June 30, 1999 June 30, 1998 Dec. 31, 1998
------------- ------------- -------------
Finished goods $13,460 $17,903 $13,291
Work in process 2,268 2,429 1,411
Raw material 4,357 13,301 1,606
Tooling -- 2,705 2,264
------- ------- -------
$20,085 $36,338 $18,572
======= ======= =======
I. FINANCING:
The Company's debt financing is provided by a $56.3 million demand
loan from Comerica Bank (the "Comerica Facility"). The Company has
executed three promissory notes in the amounts of $6.3 million, $20
million, and $30 million, each providing for borrowing options at
either a Prime based rate plus 1/2% to 1% or LIBOR plus 3% to 3 1/2%.
LIBOR borrowings for 1 to 6 months are permitted at the option of the
Company. Advances under the $30 million demand note are subject to a
borrowing base restriction equal to 80% of eligible trade receivables
and the greater of 50% of eligible inventory or $9 million. There are
no restrictions on advances under either the $6.3 million or $20
million demand notes. Borrowings under the three promissory notes are
secured by the Company's asets, including the Company's cash deposits,
trade receivables, inventory, and real and personal property.
Effective July 1, 1999, the $6.3 million demand note requires monthly
principal payments of $131,250. Beginning November 15, 1999, the $20
million demand note requires quarterly principal payments equal to 75%
of the preceding quarter's excess cash flow, defined as after-tax net
income, less principal note payments, plus depreciation and
amortization expense. Required covenants under the facility are the
submissions of quarterly and annual financial statements and
projections within a prescribed time period and a monthly borrowing
base. There are no financial covenants required by the terms of the
facility. Current borrowings at June 30, 1999 under the Comerica
Facility are $48.6 million. At June 30, 1999, unused borrowing capacity
under the Company's $30 million demand note was $1.4 million.
J. OTHER EXPENSES:
JPE, Inc., the Predecessor Company, has included in other expense for
period January 1, 1999 to May 27, 1999 the costs related to the
negotiation of the Investment Agreement and other professional costs
associated with the bankruptcy proceedings. In the six months ended
June 30, 1998, other expense included the write-down of JPE Canada
patents and the recording of a loan guarantee of the JPEC debt.
Subsequent to June 30, 1998, the sale of JPE Canada has reduced the
amount payable under the loan guarantee to $56 thousand, which is
reflected in current liabilities on the June 30, 1999 balance sheet.
K. EARNINGS PER SHARE:
The issuance of the First Series Preferred Shares resulted in ASCET INC
having a participating security. In accordance with Statement of
Financial Accounting Standards No. 128 - Earnings per Share, the "two
class" method is used for computing earnings per share. Under this
method, an earnings allocation formula is used to determine the amount
of earnings allocated to each class stock. Based on the participating
rights of the First Series Preferred Shares approximately 87.5% of the
earnings will be allocated to these shares and 12.5% of earnings to the
Common Stock. Shares outstanding for the computation of basic earnings
per share was 14,043,600 common shares and for the First Series
Preferred Shares of 1,973,002.305. Earnings per share assuming dilution
requires the Company to use the treasury method for stock options and
warrants. The Common Stock stock options outstanding for the periods
presented had exercise prices that were in excess of the market price
and therefore had no effect on the computation assuming dilution. The
Warrants for the First Series Preferred Shares has the effect of
increasing the denominator in earnings per share calculation by 308,837
shares.
Earnings per share, prior to the Investment Transaction was computed
based 4,602,180 shares outstanding and stock options had an effect of
increasing the shares by 43,296 and 81,291 for periods April 1, 1999
to May 27, 1999 and January 1, 1999 to May 27, 1999, respectively for
earnings per share assuming dilution.
L. INCOME TAXES:
The Predecessor Company has sustained $22.9 million of taxable net
operating loss carryovers for the periods prior to May 27, 1999. Of
this amount, $22.1 million was used to offset taxable income associated
with the bank debt forgiveness and vendor liability settlements. The
$.8 million of remaining taxable loss carryover is subject to certain
limitations as a result of the purchase and its utilization is
dependent on the Company's future profitability. This may prevent full
utilization of these losses during the carryover period, and as such,
the Company has recorded a $ .3 million valuation reserve related to
the tax benefits associated with such losses. The Company's 37.6%
effective tax rate for June 1999, representing all periods subsequent
to the Investment Transaction by ASC Holdings LLC and Kojaian Holdings
LLC, has been computed at regular tax rates.
Deferred tax assets and liabilities of the Predecessor Company have
been recognized on the balance sheet as required by purchase
accounting. The deferred tax assets of approximately $6.3 million
reduced by a $3.2 million valuation reserve, and deferred tax
liabilities of $2.2 million has been recorded at the purchase date. If
in subsequent periods, the valuation reserve related to deferred tax
assets can be reduced, the effect will be to reduce goodwill before any
benefit is realized in the Consolidated Statement of Operations.
M. SEGMENT INFORMATION:
In 1998, JPE, Inc. adopted FAS 131, "Disclosures about Segments of an
Enterprise and Related Information." The Predecessor Company had
managed and reported 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 F) and its Fasteners
segment (see Note E). Information for the Fastener segment has been
excluded as it is accounted for as discontinued operations.
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 is provided below for JPE, Inc. as
Predecessor Company and the one-month period for ASCET INC as Successor
Company (amounts in thousands):
For The Three Months Ended June 30, 1999
Trim Replacement
Products Parts Total
-------- ----------- -----
Sales to unaffiliated customers
April 1 to May 27, 1999 $ -- $ 9,738 $ 9,738
May 28 to June 30, 1999 $ 8,828 $ 5,185 $ 14,013
1998 $ 31,003 $ 25,656 $ 56,659
Segment profit (loss)
April 1 to May 27, 1999 $ -- $ 443 $ 443
May 28 to June 30, 1999 $ 1,026 $ 414 $ 1,440
1998 $ (882) $ 3,420 $ (111)
Segment assets
1999 $ 46,467 $ 32,837 $ 79,304
1998 $ 95,069 $ 60,122 $155,191
For The Six Months Ended June 30, 1999
Trim Replacement
Products Parts Total
-------- ----------- -----
Sales to unaffiliated customers
January 1 to May 27, 1999 $ -- $ 23,897 $ 23,897
May 28 to June 30, 1999 $ 8,828 $ 5,185 $ 14,013
1998 $ 66,869 $ 49,144 $116,013
Segment profit (loss)
January 1 to May 27, 1999 $ -- $ 1,266 $ 1,266
May 28 to June 30, 1999 $ 1,026 $ 414 $ 1,440
1998 $ (3,531) $ 2,052 $ 1,170
A reconciliation of segment profit (loss) for reportable segments to
income (loss) from continuing operations before taxes and extraordinary
items is as follows:
Predecessor
Predecessor ASCET INC Three Six
April 1, January 1, May 28, Months Months
1999 to 1999 to 1999 to Ended Ended
May 27, May 27, June 30, June 30, June 30,
1999 1999 1999 1998 1998
---- ---- ---- ---- ----
Segment profit (loss) $ 443 $1,266 $1,440 $ 1,170 $ (111)
Other income (expense) (492) (750) -- (3,083) (2,948)
Affiliate companies' income 3,893 7,611 -- -- --
Corporate expense (221) (452) (234) (776) (1,673)
Interest expense (1,055) (2,703) (384) (3,083) (6,080)
------- ------ ------ ------- --------
Income (loss) from continuing
operations before taxes
and extraordinary items $2,568 $4,972 $ 822 $(5,772) $(10,812)
====== ====== ====== ======= ========
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
In accordance with the terms of an Investment Agreement (the "Investment
Agreement") dated April 28, 1999 among JPE, Inc. (the "Company"), ASC Holdings
LLC ("ASC"), and Kojaian Holdings LLC ("Kojaian"), the Company issued
1,952,352.19 shares of First Series Preferred Shares on May 27, 1999, in equal
proportions to ASC (50%) and Kojaian (50%), for an aggregate purchase price of
$16,413,274 payable in cash. In addition, pursuant to the Investment Agreement,
on May 27, 1999 ASC and Kojaian (in equal proportions) subscribed and paid for
9,441,420 newly issued shares of common stock for an aggregate purchase price of
$1,986,726 payable in cash. The immediate effect of these transactions
("Investment Transaction") transferred (a) approximately 47.5% of the voting
securities of the Company to Kojaian, and (b) approximately 47.5% of the voting
securities of the Company to ASC. Pursuant to the terms of a Shareholders
Agreement dated as of May 27, 1999 between ASC and Kojaian, the parties, among
other things, are to cooperate in the voting of their shares of the Company,
including regarding the nomination and election of members to the Board of
Directors and at shareholder meetings. The Shareholders Agreement also provides
that neither ASC nor Kojaian may sell their securities in the Company without
the prior written consent of the other. In addition, the Shareholders Agreement
provides that upon a deadlock or an impasse between the parties or their
nominees to the Board of Directors regarding a material issue lasting longer
than 90 days, that the parties shall sell to a third party purchaser the Company
or all or substantially all of its assets, subject to certain terms and
conditions (all as more particularly defined in the Shareholders Agreement).
Thus, each of ASC and Kojaian currently beneficially own approximately 95% of
the voting securities of the Company.
In accounting for the Investment Transaction, the Company has applied purchase
accounting as prescribed by Accounting Principles Board Opinion 16 and
Securities Exchange Commission Staff Accounting Bulletin 54. Under this
accounting method the difference between the purchase price and the sum of the
fair value of tangible and identifiable intangible assets less liabilities
assumed shall be recorded as goodwill. The goodwill recorded at the acquisition
date was $2.3 million.
Accordingly, the consolidated financial statements for periods prior to May 27,
1999 are not necessarily comparable to the consolidated financial statement
presented after to that date. The Company is now operating under the assumed
name of ASCET INC, which represents ASC Exterior Technologies.
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.
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 impact on operations and cash flows
of labor strikes at the Company OEM customers; and (iv) the availability of
funds to the Company to continue operations and provide for capital
expenditures.
RESULTS OF OPERATIONS
The management discussion of the results of operations has been structured to
compare the same operating units of the Predecessor Company, JPE, Inc. with
those entities that remain parts of the Successor Company, ASCET INC to provide
meaningful comparisons. The segment discussion through operations will be
adjusted to reflect Plastic Trim, Inc. "PTI" and Starboard Industries, Inc.
"SBI" in the Trim Segment on a consolidated basis, instead of the equity method.
THREE MONTHS ENDED JUNE 30, 1999
COMPARED TO THREE MONTHS ENDED JUNE 30, 1998
- --------------------------------------------
ASCET INC operating locations, net sales for the quarter ended June 30, 1999 and
1998 were as follows (in thousands):
1999 1998
---- ----
Trim Products $27,058 $20,722
Replacement Parts 14,923 20,385
------- -------
Total $41,981 $41,107
======= =======
The increase of sales in the Trim Segment of 31% is attributable to additional
sales of new programs for SBI starting in second half of 1998, and the GMT800
program for PTI which reached full production in the second quarter. The sales
for Trim Segment in 1998 were negatively impacted by $2.0 million for a strike
at GM which began in June, 1998. The sales decrease in the Replacement Part
Segment of 27% is attributable to lost of heavy-duty brake drum business and
lost customers due to the bankruptcy filings by subsidiaries of the Company.
Some of the customers of the Replacement Parts business elected to dual source
their product requirements, since the bankruptcy filing, in order to assure
adequate supply.
In the three months ended June 30, 1998, sales by entities that were divested,
by segment, were the following (in thousands):
Trim Products $10,281
Fasteners (Discontinued Operations) 9,984
Replacement Parts 5,271
-------
Total $25,536
None of these entities had any sales in the quarter ended June 30, 1999.
Gross profit was $7.6 million for the quarter ended June 30, 1999 compared to
$6.7 million for the same quarter last year for the same operating locations on
a consolidated basis. The gross profit by segment is as follows (in thousands):
1999 1998
---- ----
Trim Products $3,997 $2,014
Replacement Parts 3,602 4,674
------ ------
Total $7,599 $6,688
====== ======
The gross profit percentage for the Trim Product Segment was 14.8% and 10.0% for
the quarters ended June 30, 1999 and 1998, respectively. The increase in the
gross profit percentage was attributable to a customer mix change at SBI, lower
scrap rates at PTI and the effect that the GM strike in 1998 had on absorbing
fixed overhead. The gross profit increase in Trim Product Segment was also
favorably affected by the higher sales volume which accounts for approximately
$600 thousand of the increase in 1999.
The gross profit as percentage of sales for the Replacement Parts Segment is
24.1%, compared to 22.9% for the three months ended June 30, 1999 and 1998,
respectively. The higher margin is primarily attributable to the elimination of
the heavy-duty drum business which was a low margin product line. The dollar
decrease in gross profit is attributable to the lower sales volume and higher
factory variances.
Selling, general and administrative expenses ("SGA") for the Trim Products
Segment was 6.1% and 7.1% of sales for quarters ended June 30, 1999 and 1998,
respectively. The lower percentage is attributable to higher sales volume as SGA
costs are primarily fixed costs for the Trim Products Segment. The Replacement
Parts Segment's SGA percentage of sales was 18.4% and 15.5% for the three months
ended June 30, 1999 and 1998, respectively. The higher percentage is
attributable to the lower sales volume. In the Replacement Parts Segment,
management has been reducing its SGA costs, primarily through headcount
reductions and lower marketing costs. The second quarter ended June 30, 1999 SGA
expense is $269 thousand lower than the first quarter of 1999. Also included in
SGA is the administrative costs related to the corporate office. Total
administrative costs for the three months ended June 30, 1999 and 1998 were $636
and $775 thousands, respectively. The lower administrative costs is primarily
attributable to headcount reductions.
Other expense for the Predecessor Company relates to costs and asset write-offs
associated with the bankruptcy proceedings and JPE's professional costs related
to the Investment Transaction.
Affiliate companies' income for the Predecessor Company for period April 1, 1999
through May 27, 1999 represent the operations of the Trim Product Segment.
Included in the amount reported is the gain from the forgiveness of certain
vendor payable of PTI and SBI in the amount of $3.8 million. The result of
operations included in this caption is discussed above in paragraphs of sales,
gross profit and SGA expense.
The interest expense for the three months ended June 30, 1999 for all of JPE's
operations, including amounts reflected in the caption "Affiliate companies
income" was $1.9 million. This compares with interest expense for the quarter
ended June 30, 1998 of $3.1 million. The lower interest is primarily due to the
divesture of businesses since the second quarter of 1998. In addition, the
interest rate in 1998 was approximately 11% compared to ASCET INC current
average rate of 8.65%.
The effective tax rate for ASCET INC is 37.6%. This rate reflects a normalized
rate as the deferred tax assets and liabilities acquired in purchase have been
recorded on the balance sheet net of a valuation reserves. If in subsequent
periods, additional deferred tax assets can be recognized, any adjustment would
first reduce goodwill to zero and then would reduce income tax expense. Tax
expense for the Predecessor Company is not a normal rate due to the write-off of
deferred tax assets on JPE Canada's books for quarter ended June 30, 1998. The
low tax expense for period April 1, 1999 through May 27, 1999 is attributable to
utilization of loss carryforwards.
The extraordinary item for Predecessor Company represents the forgiveness of
debt by JPE's Bank Group as explained in Note C of the Consolidated Financial
Statements. There is no associated tax with these items as the Company has
utilized its previously unrecorded loss carryforward to offset the tax expense.
Earnings per share methodology is described under Note K of the Unaudited
Consolidated Condensed Financial Statements. The common shares outstanding for
the Predecessor Company was 4,602,180 for the period April 1, 1999 through May
27, 1999 and same for quarter ended June 30, 1998. The common shares outstanding
for ASCET INC was 14,043,600 and the First Series Preferred Shares were
1,973,002 for the period April 1, 1999 to May 27, 1999.
SIX MONTHS ENDED JUNE 30, 1999
COMPARED TO SIX MONTHS ENDED JUNE 30, 1998
- ------------------------------------------
ASCET INC operating locations, net sales for the six months ended June 30, 1999
and 1998, were as follows (in thousands):
1999 1998
---- ----
Trim Products $52,761 $44,380
Replacement Parts 29,082 39,701
------- -------
Total $81,843 $84,081
======= =======
The increase in Trim Products Segment sales is primarily attributable to the new
sales programs for SBI and the GMT800 program for PTI. The Trim Products segment
sales were negatively affected by the GM strike in 1998. The sales decrease in
Replacement Parts segment relates to items explained in the discussion of three
months operating results above.
In the six months ended June 30, 1999 and 1998, sales by entities that were
divested by segment were the following (in thousands):
1999 1998
---- ----
Trim Products $ 4,066 $ 22,489
Fasteners 10,024 20,054
Replacement Parts -- 9,443
-------- --------
Total $ 14,090 $ 51,986
======== ========
Gross profit was $14.8 million for the six months ended June 30, 1999 compared
to $12.1 million for the same period last year for the same operating locations
on a consolidated basis. The gross profit by segment is as follows (in
thousands):
1999 1998
---- ----
Trim Products $ 7,325 $ 3,043
Replacement Parts 7,446 9,014
-------- --------
Total $ 14,771 $ 12,057
======== ========
The gross profit percentage as a percentage of sales for the Trim Product
Segment was 13.9% compared to 6.8% for the six months ended June 30, 1999 and
1998, respectively. The increase in the gross profit percentage was attributable
to a customer mix change at SBI, lower scrap rates at PTI and the effect that
the GM strike in 1998 had on absorbing fixed overhead. In the first quarter of
1998, PTI gross profit percentage was 2.8%, due to high scrap rates and product
efficiencies as a result of a new program launch. The gross profit increase in
Trim Product Segment was also favorably affected by the higher sales volume,
especially at SBI, which accounts for approximately $1.4 million of the increase
in 1999.
The gross profit as a percentage of sales for the Replacement Parts Segment is
25.6%, compared to 22.7% for the six months ended June 30, 1999 and 1998,
respectively. The higher margin is primarily attributable to the elimination of
the heavy-duty drum business which was a low margin product line and a better
product mix in the first quarter of 1999.
Selling, general and administrative expenses for the same operating units on a
consolidated basis for the six month period were as follows (in thousands):
1999 1998
---- ----
Trim Products $ 3,058 $ 2,962
Replacement Parts 5,780 6,358
Corporate Expense 1,137 1,673
------- --------
Total $ 9,975 $ 10,993
======= ========
The lower SGA is primarily due to headcount reduction at Dayton Parts, Inc. and
the Corporate Office. The Dayton Parts headcount is being reduced due to lower
sales. The reduction in Corporate expense was the result of not replacing
employees that left during the restructuring of the Company. Some of these
positions will be hired during the third quarter of 1999.
Other expense represents the same costs as noted above in three month
comparison.
Affiliate companies income for Predecessor Company included the matters
mentioned in the three month comparison and the elimination of JPEC unpaid
liabilities of $2.9 million through its bankruptcy proceedings. The operating
results for the Trim Product segment for the six months ended June 30, 1999
included segment profit (sales minus cost of goods sold and selling, general and
administrative expense) of $3.6 million for PTI and Starboard as compared to $81
thousand for the six months ended June 30, 1998. This improvement is explained
above in the paragraphs discussing sales, gross profit and selling, general and
administrative expense. JPEC had an operating profit of $75 thousand in the
first half of 1999 prior to its divesture.
The interest expense for the six months ended June 30, 1999 including the
amounts reflected in the caption "Affiliate companies income", was $4.5 million
as compared to $7.0 million for the same period last year. The lower interest
expense is the result of lower debt levels due to the sale of certain businesses
and lower effective interest rates. Discussion of current borrowing rates is
included in the Liquidity and Capital Resources section below.
The comparison of tax expense for the six month periods is discussed in the
three month comparison.
The income from continuing operations for the six months ended June 30, 1999 is
divided into two periods, the Predecessor Company January 1, 1999 through May
27, 1999 of $4.9 million and ASCET INC, the Successor Company, for the period
May 28, 1999 through June 30, 1999 of $513 thousand. The application of purchase
accounting results in improvement in operating results of approximately $79
thousand a month for the Successor Company, as compared to the accounting for
the Predecessor Company.
The discontinued operation included in the six months ended June 30, 1999 is the
result of the sale of the Fastener segment. The measurement date was February 5,
1999 as result this segment had operations for one month resulting in $58
thousand of net income, or $.01 per share, and during the sale process of
approximately two months its operation generated net income of $1.7 million, or
$.36 per share, used to offset the net loss on sale of $4.0 million. The
extraordinary items included in the six months results for June 30, 1999
represents the bank group debt forgiveness of $16.3 million, or $3.53 per share,
and a settlement of certain IAF's vendor payables at 70% discount for gain of
$2.0 million, or $.44 per share.
Earnings per share computations for the Predecessor Company is based on shares
outstanding prior to the Investment Transaction of 4,602,180. ASCET INC has two
classes of securities that have the rights to participate in the earnings, under
Financial Accounting Standard 128, the earnings are allocated to the classes
based on their rights, approximately 12.5% of relate to Common Stock and 87.5%
to First Series Preferred Shares. The shares outstanding for the Common Stock
after the Investment Transaction were 14,043,600, resulting in basic earnings
per common share from continuing operations and before extraordinary items
fractional amount of approximately 1/2 cents. The First Series Preferred Shares
computation is based on 1,973,002 shares and resulting in basis earnings per
First Series Preferred Shares from continuing operations and before
extraordinary items of $.23. Comparison to basic loss per share for the six
months ended June 30, 1998 is not meaningful due to the Investment Transaction.
LIQUIDITY AND CAPITAL RESOURCES
Effective, May 27, 1999, the Company's principal source of liquidity is a $56.3
million demand loan from Comerica Bank (the "Comerica Facility"), which is
available to fund daily working capital needs in excess of internally generated
funds. Prior to May 27, 1999, the Company's source of liquidity was a
Forbearance Agreement dated August 10, 1998 (as amended August 31, 1998,
September 4, 1998, September 16, 1998, October 1, 1998, December 1, 1998, and
March 26, 1999), and debtor-in-possession financing by GMAC Business Credit, LLC
for the Company's subsidiaries, Plastic Trim, Inc., and Starboard Industries,
Inc. Borrowings under both the Forbearance Agreement and debtor-in-possession
financing were repaid May 27, 1999 in connection with the Investment
Transaction.
In connection with the Comerica Facility, the Company has executed three
promissory notes in the amounts of $6.3 million, $20 million, and $30 million,
each providing for borrowing options at either a Prime based rate plus 1/2% to
1% or LIBOR plus 3% to 3 1/2%. LIBOR borrowings for 1 to 6 months are permitted
at the option of the Company. Advances under the $30 million demand note are
subject to a borrowing base restriction equal to 80% of eligible trade
receivables and the greater of 50% of eligible inventory or $9 million. There
are no restrictions on advances under either the $6.3 million or $20 million
demand notes. Borrowings under the three promissory notes are secured by the
Company's assets, including cash deposits, trade receivables, inventory, and
real and personal property.
Effective July 1, 1999, the $6.3 million demand note requires monthly principal
payments of $131,250. Beginning November 15, 1999, the $20 million demand note
requires quarterly principal payments equal to 75% of the preceding quarter's
excess cash flow, defined as after-tax net income, less principal note payments,
plus depreciation and amortization expense. Required covenants under the
facility are the submissions of quarterly and annual financial statements and
projections within a prescribed time and a monthly borrowing base. There are no
financial covenants required by the terms of the facility.
Amounts drawn under these loans as of May 27, 1999 was $51.7 million. Current
borrowings at June 30, 1999 under the Comerica Facility are $48.6 million. At
June 30, 1999, unused borrowing capacity under the Company's $30 million demand
note was $1.4 million. The Company believes the Comerica Facility is adequate to
provide it with monthly short term working capital needs, with the exception of
certain cyclical months affected by a reduction in operations brought upon by
shutdowns for model changeovers at certain OEM customers, such as General Motors
Corporation. During these months, the Company intends to supplement any working
capital needs through a demand note from an affiliated company. Advances are
permitted up to $3 million and are unsecured and subordinated to advances made
under the Comerica Facility. Interest accrues at prime plus 1 1/2% as is payable
quarterly. As of June 30, 1999, there were no advances made under this note.
Due to their demand nature, the notes have been classified as short-term debt on
the Company's balance sheet. As of June 30, 1999, in measuring working capital,
the Company's Current Liabilities exceed Current Assets by $11.6 million.
Excluding the amount outstanding under the Comerica Facility, working capital at
June 30, 1999 would have been $37.0 million.
YEAR 2000
The Company is scheduled to completed all Year 2000 readiness plans for all
locations by September 30, 1999.
In April 1999, Dayton Parts' mainframe systems, which regulate order processing,
accounting, production scheduling, and human resource functions, were Year 2000
compliant. Manufacturing operations do not rely on date sensitive processes and,
as such, Year 2000 compliance issues are not material. Management of the Company
has determined that its principal Year 2000 risk exists in maintaining an
uninterrupted source of supply from its vendors. In that regard, Dayton Parts
has actively solicited its vendor base to report on their Year 2000 initiatives.
Dayton Parts has received Year 2000 readiness responses from a majority of their
vendors and customers and a contingency plan to address year-end supply
interruption issues has been developed. The plan addresses alternate sources of
supply as well as increased safety stock levels. As a result, management has
determined that any revenue loss due to Year 2000 would be immaterial. The
Company's adjoining retail store location and Canadian warehouse operation
purchased replacement systems. Full testing and implementation for both of these
locations is on schedule for completion during the third quarter of 1999. Total
cost to the Company for this initiative is approximately $200 thousand.
Both of the Company's exterior OEM automotive trim subsidiaries, Plastic Trim,
Inc. and Starboard Industries, Inc. purchased replacement systems during 1998
and 1999, respectively. Full implementation of all systems for Plastic Trim,
Inc. was completed during June 1999 and was rated Year 2000 ready at that time
by their OEM customer task force. Questionnaires have been mailed and a
contingency plan to address vendor supply interruptions is scheduled for
completion during the third quarter of 1999. Year 2000 implementation costs to
the Company totaled approximately $400 thousand.
Starboard Industries, Inc. purchased replacement systems during June 1999 with
full implementation completed during July 1999. Total cost to the Company for
this initiative was less than $100,000. All of the Company's manufacturing
systems which are date sensitive systems are Year 2000 compliant. A vendor
contingency plan is being developed which included soliciting all 30 key vendors
for their Year 2000 readiness plans. Completion of the vendor contingency plan
is scheduled for the third quarter of 1999.
PART II. OTHER INFORMATION
JPE, INC. (d/b/a ASCET INC)
Item 2. Changes in Securities and Use of Proceeds
c. Pursuant to an Investment Agreement (the "Investment
Agreement") dated April 28, 1999 among JPE, Inc. (the
"Company"), ASC Holdings LLC ("ASC"), and Kojaian
Holdings LLC ("Kojaian"), on May 27, 1999 the Company
issued an aggregate of 1,952,352.19 shares of First
Series Preferred Shares and 9,441,420 newly issued
shares of common stock, each in equal proportions to
ASC (50%) and Kojaian (50%).
As a precondition to the consummation of the above
transaction, the Company's existing bank lenders
(Comerica Bank, Bank One, Dayton, N.A., Bank One, N.A.
(f/k/a NBD Bank), National Bank of Canada and Harris
Trust and Savings Bank) (collectively, the "Bank
Group")) agreed on May 27, 1999 to forgive $16.5
million of the Company's existing bank debt under the
terms of the Company's Forbearance Agreement dated
August 10, 1998, as amended. Pursuant to the Investment
Agreement, the Company issued 20,650.115 First Series
Preferred Shares to the Bank Group (on the same terms
and conditions as granted to the public shareholders of
common stock of the Company on the Record Date) on May
27, 1999 for $1,000 of consideration. In addition, the
Company granted the Bank Group an aggregate of
77,437.937 Warrants entitling each holder the right to
shares of First Series Preferred Shares of the Company.
Each Warrant possesses an initial exercise price of
$9.99 per First Series Preferred Share, subject to
price adjustments based on the Final Actual EBITDA and
the cost of certain environmental remediation for the
24 month period from May 27, 1999. The Warrants are
exercisable for the 90 day period following the
providing of notice by the Company to the holders
thereof of the Final Actual EBITDA after the JPE
Determination (as defined in the Investment Agreement).
Involving seven accredited investors, these
transactions are exempt from registration pursuant to
Section 4(2) of the Securities Act of 1933 (the
"Securities Act").
Item 5. Other Information
Mike Kojaian and C. Michael Kojaian (the two members
of Kojaian Holdings LLC ("Kojaian")) and Heinz C.
Prechter (the sole member of ASC Holdings LLC ("ASC"))
entered into a letter put agreement Dated May 27, 1999
(the "Original Put Agreement"). The Original Put
Agreement provides that it is contemplated that
following the consummation of the Investment Agreement,
all of the outstanding shares of capital stock or all
of the assets of Dott Industries, Inc., a Michigan
corporation ("Dott"), would be acquired by (1) the
Company and/or its subsidiaries or (2) one-half by ASC
and one half by Kojaian for an aggregate purchase price
of no less than $28 to $30 million (less the existing
indebtedness of Dott if structured as a stock
acquisition or merger (if structured as an asset
purchase, Dott would use the proceeds to pay-off its
existing indebtedness)) (the "Dott Acquisition"). Under
the Original Put Agreement, each of Mike Kojaian and C.
Michael Kojaian have the right to require Heinz C.
Prechter (in his individual capacity) to purchase
(through ASC or otherwise) all of the shares of the
Company owned by Mike Kojaian and C. Michael Kojaian
for the purchase price paid by them under the
Investment Agreement (plus interest) if the Dott
Acquisition is not consummated on or before June 30,
1999 (the "Put"). Either Mike Kojaian or C. Michael
Kojaian may exercise the Put from any time beginning on
June 30, 1999 and ending on July 30, 1999 (the
"Exercise Period"). The parties to the Original Put
Agreement entered into a letter agreement (the "Amended
and Restated Put Agreement") dated July 27, 1999 that
restated the terms of the Original Put except that the
Amended and Restated Put Agreement extended the
Exercise Period through September 15, 1999.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits:
10.1 Letter Agreement, dated May 27, 1999, among Heinz C.
Prechter, Mike Kojaian and C. Michael Kojaian,
filed with this report.
10.2 Amended and Restated Letter Agreement, dated July 27,
1999, among Heinz C. Prechter, Mike Kojaian and C.
Michael Kojaian, filed with this report.
10.3 Subordinated Demand Revolving Credit Note, dated
August 23, 1999, 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 wholly-owned subsidiary of the Registrant, to
MacLean Acquisition Company.
On June 8, 1999, Registrant filed a report on Form 8-K, reporting
changes in control of Registrant. In accordance with the terms of
an Investment Agreement dated April 28, 1999 among JPE, Inc., ASC
Holdings LLC, and Kojaian Holdings LLC, the Company issued
1,952,352.19 shares of First Series Preferred Shares and
9,441,420 common shares in equal proportions to ASC Holdings LLC
(50%) and Kojaian Holdings LLC (50%), for an aggregate purchase
price of $18.4 million payable in cash.
On June 30, 1999, Registrant filed a report on Form 8-K,
reporting changes in Registrant's Certifying Accountant. On June
25, 1999, JPE, Inc. d/b/a ASCET INC engaged Ernst & Young LLP,
independent auditors, as the Registrant's principal accountants
to audit the Registrant's financial statements for the year
ending December 31, 1999. Ernst & Young was engaged to replace
PricewaterhouseCoopers LLP, independent accountants, who had
previously been engaged for the same purpose, and whose dismissal
was effective on June 25, 1999.
JPE, INC. (d/b/a ASCET 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. d/b/a ASCET INC
By: /s/ Joseph E. Blake
Joseph E. Blake
Vice President and Chief Financial Officer
(Principal Accounting Officer)
Date: August 23, 1999