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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
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[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 For the quarterly period ended
September 30, 1999
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from ____________ to ___________
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Commission file number 0-22580
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JPE, Inc. (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 September 30, 1999, there were 14,043,600 shares of the registrant's
common stock outstanding. This Quarterly Report on Form 10-Q contains 24 pages,
of which this is page 1.
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JPE, INC. (d/b/a ASCET INC)
INDEX
Page
----
Part I. Financial Information
Item 1. Financial Statements
Consolidated Condensed Balance Sheets (Unaudited) .........3
- At September 30, 1999 and 1998
- At December 31, 1998
Consolidated Condensed Statements of Operations
and Comprehensive Operations (Unaudited) .....................4
- For ASCET INC for the Three months ended
September 30, 1999 and for the
Predecessor Company for the Three
Months Ended September 30, 1998
- For the Predecessor Company for the .........................5
Period From January 1, 1999 Through
May 27, 1999 and for ASCET INC for the Period From
May 28, 1999 Through September 30, 1999 and for the
Predecessor Company for the Nine Months Ended
September 30, 1998
Consolidated Condensed Statements of
Shareholders' Equity (Unaudited) ..............................6
- For the Nine Months Ended
September 30, 1999
Consolidated Condensed Statements of
Cash Flows (Unaudited) ........................................7
- 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
September 30, 1999 and for the Predecessor Company
for the Nine Months Ended September 30, 1998
Notes to Unaudited Consolidated Condensed
Financial Statements ........................................8-15
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ........................15-22
Part II. Other Information
Item 6. Exhibits and Reports ........................................23
Signature ........................................................24
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
JPE, INC. (d/b/a ASCET INC)
CONSOLIDATED CONDENSED BALANCE SHEETS
($ Amounts in Thousands)
At September 30, At Dec. 31,
1999 1998 1998
---- ---- ----
(Unaudited) (Note A)
ASSETS
Current assets:
Cash and cash equivalents $ 358 $ 408 $ 394
Accounts receivables trade, net 20,934 18,968 12,151
Inventory, net 20,228 26,141 18,572
Other current assets 5,442 3,507 1,413
------ ------- ------
Total current assets 46,962 49,024 32,530
Investment in affiliated companies -- 27,232 14,661
Property, plant and equipment, net 30,133 22,138 20,963
Goodwill, net 1,776 7,322 7,458
Other assets 688 761 1,362
---- ------ ------
Total assets $79,559 $106,477 $76,974
======= ======== =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt and current
portion of long-term debt $45,130 $104,024 $84,492
Accounts payable trade 8,456 12,049 8,273
Accrued liabilities and other
current liabilities 3,410 4,140 2,580
------- -------- -------
Total current liabilities 56,996 120,213 95,345
Deferred income taxes and other liabilities 1,989 -- 1,720
Long-term debt, non-current 274 1,643 50
------- -------- -------
Total liabilities 59,259 121,856 97,115
------- -------- -------
Shareholders' equity (deficit):
Warrants 293 -- --
First Series Preferred Shares, no par value,
3,000,000 authorized, 1,973,002 shares issued and
outstanding at September 30, 1999 and no shares issued
and outstanding at September 30, 1998 and December 31, 1998 16,590 -- --
Common stock, no par value, 15,000,000
authorized, 14,043,600 shares issued and outstanding at
September 30, 1999 and 4,602,180 issued and outstanding at
September 30, 1998 and December 31, 1998 2,355 28,051 28,051
Accumulated other comprehensive loss -- (336) (336)
Retained earnings (accumulated deficit) 1,062 (43,094) (47,856)
----- -------- --------
Total shareholders' equity (deficit) 20,300 (15,379) (20,141)
------ ------- -------
Total liabilities and shareholders' equity $ 79,559 $106,477 $76,974
======== ======== =======
The accompanying notes are an integral part of the
consolidated condensed financial statements.
JPE, INC. (d/b/a ASCET INC)
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE OPERATIONS
For the Three Months Ended September 30, 1999 and 1998
($ Amounts in Thousands, Except Per Share Data)
(Unaudited)
Predecessor
ASCET. INC Company
Three Months Three Months
Ended Ended
September 30, September 30,
1999 1998
------ -----
Net sales $38,005 $ 40,447
Cost of goods sold 31,183 36,419
------- -------
Gross profit 6,822 4,028
Selling, general and administrative expenses 5,009 7,394
Other expense (income) (223) 1,369
Affiliate companies' income -- (133)
Charges for subsidiaries under
court ordered protection 26,555
Loss on sale of subsidiary 5,268
Interest expense, net 1,166 3,176
----- ------
Income (loss) from continuing operations before
income taxes and extraordinary item 870 (39,601)
Income tax expense (benefit) 321 (1,582)
--- ------
Income (loss) from continuing operations 549 (38,019)
Discontinued operation:
Income (loss) from operations of IAF -- (125)
---- -----
Net income (loss) 549 (38,144)
Other comprehensive expense:
Foreign currency translation adjustment -- (44)
------ ------
Comprehensive income (loss) $ 549 $(38,100)
====== =========
Basic earnings (loss) per share from
continuing operations:
Common Shares $0.01 $(8.28)
===== =======
First Series Preferred Shares $0.24 $ --
===== =======
Earnings (loss) per share from continuing
operations assuming dilution:
Common Shares $0.00 $(8.28)
===== =======
First Series Preferred Shares $0.22 $ --
===== =======
Basic earnings (loss) per share:
Common Shares $0.01 $(8.28)
===== =======
First Series Preferred Shares $0.24 $ --
===== =======
Earnings (loss) per share assuming dilution:
Common Shares $0.00 $(8.28)
===== =======
First Series Preferred Shares $0.22 $ --
===== =======
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
($ Amounts in Thousands, Except Per Share Data)
(Unaudited)
Predecessor
Company ASCET, INC Predecessor
Period From Period From Company
January 1, 1999 May 28, 1999 Nine Months
Through May 27, Through Ended
1999 September 30, September 30,
Restated (Note A) 1999 1998
--------- ----- ----
Net sales $23,897 $52,018 $156,460
Cost of goods sold 17,839 42,204 140,373
------ ------ -------
Gross profit 6,058 9,814 16,087
Selling, general and administrative expenses 5,244 6,795 21,338
Other expense (income) 682 (223) 1,556
Affiliate companies' (income) loss (8,088) (133)
Charges for subsidiaries under court ordered
protection 29,216
Loss on sale of subsidiary 5,268
Interest expense, net 2,703 1,550 9,255
------ ------ -------
Income (loss) from continuing operations before
income taxes and extraordinary items 5,517 1,692 (50,413)
Income tax expense (benefit) 104 630 (1,496)
--- --- ------
Income (loss) from continuing operations
before extraordinary items 5,413 1,062 (48,917)
Discontinued operation:
Income from operations of IAF 58 -- 109
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) 21,422 1,062 (48,808)
Other comprehensive expense:
Foreign currency translation adjustment -- -- (65)
------- ----- ------
Comprehensive income (loss) $21,422 $ 1,062 $(48,873)
======= ====== =========
Basic earnings (loss) per share from
continuing operations before
extraordinary items:
Common Shares $0.68 $0.01 $(10.62)
===== ===== ========
First Series Preferred Shares $ -- $0.47 $ --
======= ===== ========
Earnings (loss) per share from continuing
operations before extraordinary items
assuming dilution:
Common Shares $0.68 $0.01 $(10.62)
===== ===== =======
First Series Preferred Shares $ -- $0.42 $ --
======= ===== =======
Basic earnings (loss) per share:
Common Shares $0.68 $0.01 $(10.62)
===== ===== =======
First Series Preferred Shares $ -- $0.47 $ --
======= ===== =======
Earnings (loss) per share assuming dilution:
Common Shares $0.68 $0.01 $(10.62)
===== ===== =======
First Series Preferred Shares $ -- $0.42 --
======= ===== =======
The accompanying notes are an integral part
of the consolidated condensed financial
statements.
JPE, INC. (d/b/a ASCET INC)
CONSOLIDATED CONDENSED STATEMENTS OF SHAREHOLDERS' EQUITY
($ Amounts in Thousands)
(Unaudited)
PREDECESSOR COMPANY
Net income
for the period Balances at
Balances at Foreign Issuance January 1 to May 27,
December 31, Currency to the May 27, 1999 1999
1998 Translation Bank Group Restated (Note A) Restated (Note A)
---- ----------- ---------- ----------------- -----------------
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) $ 21,422 $(26,434)
-----------------------------------------------------------------------------------
Total Shareholder Equity $(20,141) $ 336 $ 231 $ 21,422 $ 1,848
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ASCET INC
Balances at Predecessor Net income
May 27, Investment Shareholders for the period Balances at
1999 New Basis May 28 to September 30,
Restated (Note A) Shareholders Change September 30, 1999 1999
----------------- ------------ ------ ------------------ ----
Common Stock:
Shares Outstanding 4,602 9,442 14,044
Amount $ 28,051 $ 2,287 $(27,983) $ 2,355
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) $(26,434) $ 26,434 $1,062 $ 1,062
---------------------------------------------------------------------------
Total Shareholder Equity $ 1,848 $18,700 $ (1,310) $1,062 $20,300
===========================================================================
The accompanying notes are an integral part
of the consolidated condensed financial
statements.
JPE, INC. (d/b/a ASCET INC)
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
($ Amounts in Thousands)
(Unaudited)
Predecessor
Company ASCET, INC Predecessor
Period From From Period Company
January 1, 1999 May 28, 1999 Nine Months
Through May 27, Through Ended
1999 September 30, September 30,
Restated (Note A) 1999 1998
----------------- ---- ----
Cash flows from operating activities:
Net income (loss) $ 21,422 $ 1,062 $(48,808)
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 1,231 7,765
Loss on sale of assets 2,549 -- 5,268
Write-down of assets -- -- 24,518
Affiliate companies' income (8,088) -- --
Other 98 549 559
Changes in operating assets and liabilities:
Accounts receivable (2,306) 100 7,202
Inventory 279 171 3,602
Other current assets 924 (197) 405
Accounts payable 2,120 (1,236) (2,726)
Accrued liabilities and income taxes (617) (1,745) 1,642
Deferred income taxes 2 549 763
- --- ---
Net cash provided by (used for)
operating activities (656) 484 190
Cash flows from investing activities:
Purchase of property and equipment (275) (912) (2,945)
Other -- (50)
Cash proceeds from sale of Industrial &
Automotive Fasteners, Inc. 20,000 -- --
Cash loaned to equity investees (13,980) -- --
------- ---- ----
Net cash provided by (used for)
investing activities 5,745 (962) (2,945)
Cash flows from financing activities:
Net borrowings under demand notes -- 45,027 --
Net borrowings (payments) under revolving loan (1,742) (66,257) 62
Net borrowings under Canadian credit facility -- -- 3,983
Repayments of other debt (6) (48) (558)
Issuance of First Series Preferred Shares 1 16,413 --
Issuance of common stock -- 1,965 --
----- ----- ----
Net cash provided by (used for)
financing activities (1,747) (2,900) 3,487
Effect of currency translation on cash -- -- (353)
-------- --------- -------
Cash and cash equivalents:
Net increase (decrease) in cash 3,342 (3,378) 379
Cash, beginning of period 394 3,736 29
--- ----- --
Cash, end of period $ 3,736 $ 358 $ 408
======== ======= =========
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 both a normal
recurring and nonrecurring items 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, (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, agreed 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 provided 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 agreed to 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, as of May 27, 1999, each of ASC and Kojaian currently
beneficially owned approximately 95% of the voting securities of the
Company.
ASC and Kojaian terminated the Shareholder's Agreement on August 30,
1999 pursuant to the terms of a letter agreement regarding the
purchase of JPE, Inc. Capital Stock. The members of ASC, (Heinz C.
Prechter), and the members of Kojaian, (Mike Kojaian, and C. Michael
Kojaian), entered into a letter put agreement dated May 27, 1999 (the
"Put Agreement"). The Put Agreement provides that it is contemplated
that following the consummation of the Investment Transaction, all of
DOTT 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 Put Agreement, each of Mike
Kojaian and C. Michael Kojaian had 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 Transaction (plus interest) if the DOTT Acquisition was not
consummated on or before June 30, 1999 (the "Put"). Either Mike
Kojaian or C. Michael Kojaian had the right to exercise the Put from
any time beginning on June 30, 1999 and ending on the thirtieth day
following June 30, 1999. The Put Agreement was amended and restated on
July 27, 1999 to extend the exercise date from July 30, 1999 to
September 15, 1999. On August 30, 1999 Mike Kojaian and C. Michael
Kojaian and Heinz C. Prechter entered into a letter agreement
regarding the purchase of JPE, Inc. Capital Stock (the "Agreement"),
pursuant to which Heinz C. Prechter agreed to purchase 4,720,710
common shares and 976,176.095 First Series Preferred Shares of the
Company from Kojaian for the purchase price paid by Kojaian under the
Investment Transaction (without interest). The Agreement is subject to
the consent of Comerica Bank, the Company's lender, which consent is
expected to be forthcoming no later than the end of November, 1999.
Assuming the consent of Comerica Bank, upon consummation of the
Agreement, ASC directly and Heinz C. Prechter, indirectly through ASC,
will own a total of 9,441,420 common shares and 1,952,352.19 First
Series Preferred Shares of the Company, constituting approximately 95%
of the beneficial interests of the Company. The Agreement supersedes
all previous agreements between the parties regarding the purchase of
such capital stock, including the Put Agreement dated May 27, 1999, as
amended on July 27, 1999. In addition, the Agreement terminated the
Shareholders Agreement dated as of May 27, 1999 between ASC and
Kojaian.
In accounting for the transactions under the Investment Agreement, 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, which has been adjusted during the quarter ended
September 30, 1999 to $1.8 million to reflect payment of additional
legal fees and elimination of certain accruals for estimated expenses
as of the closing date, May 27, 1999. In addition, net earnings for the
Predecessor Company for the period January, through May 27, 1999 has
been restated from $20,877 thousand to $21,422 thousand to reflect
these adjustments.
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. common stock on June 11, 1999 (the "Record Date") are
entitled to receive 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.
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 warrants to purchase 77,437.937 First Series
Preferred Shares (which contain the same terms and conditions as
granted to the shareholder of common stock of the Company on the Record
Date except the exercise price per First Series Preferred Share is
approximately $8.16).
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 carryforward 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 (see Note F for discussion of
JPE Canada (JPEC)). 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. In this regard, the
Company utilized the equity method of accounting in preparing the
financial statements for these subsidiaries for the quarter ended
September 30, 1998. The Company applied the accounting treatment under
various Financial Accounting Standards to write down the assets of
these subsidiaries to estimated net realizable value. The following
adjustments were recorded to these balance sheet accounts as of
September 30, 1998:
PTI SBI JPEC Total
--- --- ---- -----
Goodwill $13,222 $ 5,333 $ -- $18,555
Fixed assets 8,000 -- -- 8,000
Accounts receivable 1,156 350 -- 1,506
Inventory 1,759 -- -- 1,759
Patents -- -- 1,300 1,300
Loan guarantee -- -- 1,361 1,361
Other assets -- -- 100 100
------ ------ ------ ------
Total $24,137 $ 5,683 $2,761 $32,581
======= ======= ====== =======
These charges have been reflected on the income statement for the nine
months ended September 30, 1998 in the following captions:
Cost of sales $ 1,759 -- -- $ 1,759
Selling, general and administrative 1,156 $ 350 $ 100 1,606
Charges for subsidiaries
under court ordered protection 21,222 5,333 2,661 29,216
------ ------ ------ -------
Total $24,137 $5,683 $2,761 $32,581
======= ====== ====== =======
On February 25, 1999, both PTI and Starboard filed a Plan of
Reorganization and Disclosure Statement with the Court. In connection
with the Investment Transaction (see Note A), 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 the extraordinary items of forgiveness of debt and
liabilities for the period January 1 through May 27, 1999 was as
follows (amounts in thousands):
PTI Starboard Total
Restated (Note A) Restated (Note A) Restated (Note A)
Sales $33,162 $10,771 $43,933
Cost of sales 29,619 8,430 38,049
-------- --------- --------
Gross profit 3,543 2,341 5,884
Selling, general and
administrative expense 2,269 591 2,860
Other reorganization expenses 624 180 804
--------- --------- ---------
Income before interest,
taxes and extraordinary items 650 1,570 2,220
Interest expense 438 107 545
Income tax expense 1 -- 1
-------- --------- ---------
Income (loss) before
extraordinary items $ 211 $ 1,463 $ 1,674
======= ======== ========
E. Sale of Allparts, Inc.:
On October 28, 1998, the Company completed the sale of substantially
all of the assets of its wholly-owed subsidiary, Allparts, Inc., to
R&B, Inc. for $10.1 million and assumption of trade and accrued
liabilities of $1.5 million, for a total sales price of $11.6 million.
The expenses related to this transaction totaled $242 thousand. The
assets of Allparts, Inc. on October 28, 1998 totaled $16.6 million. The
loss on the sale of Allparts, Inc. was $5.2 million and the net
proceeds of $9.9 million were used to pay down debt. Revenue for
Allparts Inc. for the three months and nine months ended September 30,
1998 was $4.6 million and $14 million, respectively. Net income from
operations for the three months and nine months ended September 30,
1998 was $86 thousand and $257 thousand, respectively.
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. Discontinued Operations and Sale of Industrial & Automotive
Fasteners, Inc.:
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's 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, for the year ended December 31, 1998 was $38.3 million,
and for the three months and nine months ended September 30, 1998 was
$8.7 and $28.8 million, respectively.
H. Pro Forma Operating Results:
The following Unaudited Pro Forma for the Nine Months Ended September
30, 1999 and 1998 assumes that the transactions and events described in
Notes A through G had occurred prior to January 1, 1998. The
significant adjustments relate to the difference in depreciation,
goodwill amortization and lower interest expense based on the lower
borrowings (amounts in thousands):
Nine Months Ended
September 30,
-------------
1999
Restated (Note A) 1998
----------------- ----
Net sales $119,849 $119,896
Cost of sales 97,569 100,868
Selling expense 14,795 15,481
Other expense (income) (223) 1,243
Interest expense 3,902 4,379
Income taxes (benefit) 1,436 (652)
-------- -------
Income (loss) from
continuing operations $ 2,370 $(1,423)
======== ========
Basic earnings (loss) per share from
continuing operations:
Common Shares $ .02 $ (.01)
======== ========
First Series Preferred Shares $ 1.05 $ (.63)
======== ========
Earnings (loss) per share assuming dilution:
Common Shares $ .02 $ (.01)
======= ========
First Series Preferred Shares $ .94 $ (.57)
======== ========
I. Inventory:
Inventories by component are as follows (amounts in thousands):
September 30, 1999 September 30, 1998 Dec. 31, 1998
------------------ ------------------ -------------
Finished goods $13,562 $16,616 $13,291
Work in process 1,513 1,232 1,411
Raw material 5,153 5,476 1,606
Tooling -- 2,817 2,264
-------- ------ ------
$20,228 $26,141 $18,572
======= ======= =======
J. 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 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 cash
deposits, trade receivables, inventory, and personal property, as well
as guaranties from ASC Holdings LLC and Kojaian Holdings LLC. The
source of collateral for each is the common shares and preferred shares
of stock of the Company held by the respective shareholders.
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 Comerica 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
Comerica Facility. Current borrowings at September 30, 1999 under the
Comerica Facility are $45 million. At September 30, 1999, unused
borrowing capacity under the Company's $30 million demand note was $4.6
million.
In addition, the Company is able to supplement any working capital
needs not satisfied by the Comerica Facility through a $3 million
demand note dated August 23, 1999 from ASC Incorporated, an affiliate
of ASC. 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% and is payable quarterly. As of September
30, 1999 there were no advances made under this note.
K. Other Expenses (Income):
JPE, Inc., the Predecessor Company, has included in Other Expense for
the 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. For the nine months ended
September 30, 1999, Other Income includes a gain on settlement of a
vendor dispute related to the Company's aftermarket operations and an
insurance refund.
L. 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 have the effect of
increasing the denominator in the earnings per share calculation by
255,435 shares, 275,910 shares and 259,157 shares, for the periods
January 1 to September 30, 1999, May 28 to September 30, 1999 and July
1 to September 30, 1999, respectively.
Earnings per share, prior to the Investment Transaction was computed
based 4,602,180 shares outstanding and stock options had no effect
assuming dilution.
M. 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 37.2%
effective tax rate for the post-acquisition period May 28 through
September 30, 1999, represents all periods subsequent to the Investment
Transaction by ASC Holdings LLC and Kojaian Holdings LLC, 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 $6.1 million have
been reduced by a $3.1 million valuation reserve, and deferred tax
liabilities of $2.7 million have been recorded. If in subsequent
periods, the valuation reserve related to the May 27, 1999 deferred tax
assets can be reduced, the effect will be to reduce goodwill before any
benefit is realized in the Consolidated Statement of Operations.
N. Segment Information:
In 1998, the Predecessor Company 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. The
Predecessor Company sold its brake systems segment during 1998 ( see
Note E). In 1999, the Predecessor Company also sold a portion of its
Trim Products segment (see Note F) and its Fasteners segment (see Note
G). 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 for the period January 1, to May 27, 1999 and for
the three months and nine months ended September 30, 1999 for ASCET INC
as Successor Company (amounts in thousands):
For The Three Months Ended September 30
Trim Replacement
Product Parts Total
------- ----- -----
Sales to unaffiliated customers
1999 $23,707 $14,298 $ 38,005
1998 $18,861 $21,585 $ 40,446
Segment profit (loss)
1999 $ 1,371 $ 1,318 $ 2,689
1998 $(4,601) $ 1,807 $ (2,794)
Segment assets
September 30, 1999 $ 47,099 $28,626 $ 75,725
September 30, 1998 $ -- $53,669 $ 53,669
For The Nine Months Ended September 30
Trim Replacement
Products Parts Total
-------- ----- -----
Sales to unaffiliated customers
January 1 to May 27, 1999 $ -- $23,897 $ 23,897
May 28 to September 30, 1999 $32,535 $19,483 $ 52,018
1998 $85,730 $70,729 $ 156,459
Segment profit (loss)
January 1 to May 27, 1999 $ -- $ 1,266 $ 1,266
May 28 to September 30, 1999 $ 2,384 $ 1,745 $ 4,129
1998 $ (8,072) $ 5,267 $ (2,805)
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
Restated (Note A) ASCET INC Three Nine
January 1, May 28, Months Months
1999 to 1999 to Ended Ended
May 27, September 30, September 30, September 30,
1999 1999 1998 1998
---- ---- ---- ----
Segment profit (loss) $1,266 $4,129 $ (2,794) $ (2,805)
Other income (expense) (682) 223 (33,192) (36,040)
Affiliate companies' income 8,088 -- 133 133
Corporate expense (452) (1,110) (572) (2,446)
Interest expense (2,703) (1,550) (3,176) (9,255)
------ ------ ------ ------
Income (loss) from continuing
operations before taxes
and extraordinary items $5,517 $1,692 $(39,601) $(50,413)
====== ======= ========= =========
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, (b) approximately 47.5% of the voting
securities of the Company to ASC, and pursuant to the terms of a Shareholders
Agreement dated as of May 27, 1999 between ASC and Kojaian, the parties, among
other things, agreed 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 provided
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
provided 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 agreed to 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, as of May 27, 1999, each of ASC and Kojaian currently beneficially own
approximately 95% of the voting securities of the Company.
ASC and Kojaian terminated the Shareholder's Agreement on August 30, 1999
pursuant to the terms of a letter agreement regarding the purchase of JPE, Inc.
Capital Stock. The member of ASC, (Heinz C. Prechter), and the members of
Kojaian, (Mike Kojaian, C. Michael Kojaian), entered into a letter put agreement
dated May 27, 1999 (the "Put Agreement"). The Put Agreement provides that it is
contemplated that following the consummation of the Investment Transaction, all
of DOTT 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 Put Agreement, each
of Mike Kojaian and C. Michael Kojaian had 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 Transaction (plus interest)
if the DOTT Acquisition was not consummated on or before June 30, 1999 (the
"Put"). Either Mike Kojaian or C. Michael Kojaian had the right to exercise the
Put from any time beginning on June 30, 1999 and ending on the thirtieth day
following June 30, 1999. The Put Agreement was amended and restated on July 27,
1999 to extend the exercise date from July 30, 1999 to September 15, 1999. On
August 30, 1999 Mike Kojaian and C. Michael Kojaian and Heinz C. Prechter
entered into a letter agreement regarding the purchase of JPE, Inc. Capital
Stock (the "Agreement"), pursuant to which Heinz C. Prechter agreed to purchase
4,720,710 common shares and 976,176.095 First Series Preferred Shares of the
Company from Kojaian for the purchase price paid by Kojaian under the Investment
Transaction (without interest). The Agreement is subject to the consent of
Comerica Bank, the Company's lender, which consent is reasonably expected to be
forthcoming no later than the end of November, 1999. Assuming the consent of
Comerica Bank, upon consummation of the Agreement, ASC directly and Heinz C.
Prechter, indirectly through ASC, will own a total of 9,441,420 common shares
and 1,952,352.19 First Series Preferred Shares of the Company, constituting
approximately 95% of the beneficial interests of the Company. The Agreement
supersedes all previous agreements between the parties regarding the purchase of
such capital stock, including the Put Agreement dated May 27, 1999, as amended
on July 27, 1999. In addition, the Agreement terminated the Shareholders
Agreement dated as of May 27, 1999 between ASC and Kojaian.
In accounting for the transactions under the Investment Agreement, 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, which has been adjusted during the quarter
ended September 30, 1999 to $1.8 million to reflect payment of additional legal
fees and elimination of certain accruals for estimated expenses as of the
closing date, May 27, 1999. In addition, net earnings for the Predecessor
Company for the period January, through May 27, 1999 has been restated from
$20,877 thousand to $21,422 thousand to reflect these adjustments.
Accordingly, the consolidated financial statements for periods prior to May 27,
1999 are not necessarily comparable to the consolidated financial statements
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 sets 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's OEM customers; (iv) the availability of funds
to the Company to continue operations and provide for capital expenditures, and
(v) general economic conditions, such as recession, inflation or rising interest
rates directly or indirectly affecting the demand for OEM products and
aftermarket customers.
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 have been
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 September 30, 1999 compared to Three Months Ended September
30, 1998
ASCET INC operating locations, net sales for the quarter ended September 30,
1999 and 1998 were as follows (in thousands):
1999 1998
---- ----
Trim Products $23,707 $14,502
Replacement Parts 14,298 16,994
------- -------
Total $38,005 $31,496
======= =======
The increase of sales in the Trim Segment of 63.5% is attributable to additional
sales of new programs starting in the second half of 1998. The sales for Trim
Segment in 1998 were negatively impacted by $6.5 million for a strike at GM
which began in June, 1998 and ended in August 1998. The sales decrease in the
Replacement Part Segment of 15.9% 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 September 30, 1998, sales by entities that were
divested, by segment, were the following (in thousands):
Trim Products $ 4,359
Fasteners (Discontinued Operations) 8,703
Replacement Parts 4,591
-------
Total $17,653
None of these entities had any sales in the quarter ended September 30, 1999.
Gross profit was $6,822 thousand, or 18% of sales, for the quarter ended
September 30, 1999 compared to $3,637 thousand, or 11.5% of sales, for the same
quarter last year for the same operating locations on a consolidated basis. The
gross profit (loss) by segment is as follows (in thousands):
1999 1998
---- ----
Trim Products $ 2,953 $ (826)
Replacement Parts 3,869 4,463
------- -------
Total $ 6,822 $ 3,637
======= =======
The gross profit (loss) percentage for the Trim Product Segment was 12.5% and
(5.7)% for the quarters ended September 30, 1999 and 1998, respectively. The
increase in the gross profit percentage was attributable to a customer mix
change at Starboard, lower scrap rates at PTI and the effect that the GM strike
in 1998 had on absorbing fixed overhead.
The gross profit as percentage of sales for the Replacement Parts Segment is
27.1%, compared to 26.3% for the three months ended September 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.
Selling, general and administrative (SGA) expenses for the quarter ended
September 30, 1999 were $5,009 thousand or 13.2% of sales compared to $6,543
thousand or 20.8% of sales for the quarter ended September 30, 1999, for the
same operating locations on a consolidated basis.
ASCET Inc. SGA expenses, for the same operating locations on a consolidated
basis, for the quarter ended September 30, 1999 and September 30, 1998 were as
follows (in thousands):
1999 1998
---- ----
Trim Products $1,581 $2,914
Replacement Parts 2,552 3,058
Corporate 876 571
------ ------
Total $5,009 $6,543
====== ======
SGA expense for the Trim Products Segment was $1,581 thousand or 6.7% of sales
and $2,914 thousand or 20.1% of sales for quarters ended September 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.
Additionally, 1998 SGA cost for the period included an unusual receivable
write-off of $1,506. The Replacement Parts Segment's SGA expenses were $2,552
thousand or 17.8% of sales and $3,058 thousand or 18.0% of sales for the three
months ended September 30, 1999 and 1998, respectively. In the Replacement Parts
Segment, management has been reducing its SGA costs, primarily through headcount
reductions and lower administrative costs. Corporate administrative costs for
the three months ended September 30, 1999 and 1998 were $876 and $571 thousand,
respectively.
Other income for the quarter ended September 30, 1999 includes a gain on
settlement of a vendor dispute related to the company's aftermarket operations
and an insurance refund. Other income (loss) for the three months ended
September 30, 1998 related to costs associated with the bankruptcy proceedings
and JPE's professional costs related to the Investment Transaction.
The charge for subsidiaries under court ordered protection for the three months
ended September 30, 1998 totaled $26.6 million. This charge related to the
impairment of long-term assets in PTI, Starboard, and JPEC as shown in Note D to
the financial statements. The Company believes that the charge reduces the
assets of such businesses to net realizable value in accordance with generally
accepted accounting principals. This charge has no impact on the Company's cash
flow.
On October 28, 1998, the Company completed the sale of substantially all the
assets of its subsidiary, Allparts, Inc. The sales price was approximately $11.6
million, consisting of cash of $10.1 million and assumption of accounts payable
and accrued liabilities. The assets on October 28, 1998 were approximately $16.6
million and expenses related to this transaction were $242,000, resulting in a
net loss on the sale of $5.2 million. The Company recognized this loss in
September, 1998 by writing-down goodwill and fixed assets by $4.6 million and
$645,000 thousand, respectively. The net cash proceeds after payment of expenses
were used to reduce debt.
The interest expense for the three months ended September 30, 1999 was $1.2
million. This compares with interest expense for the quarter ended September 30,
1998 of $3.27 million. The lower interest is primarily due to the divesture of
businesses since the second quarter of 1998 and the forgiveness of bank
indebtedness. In addition, the interest rate in 1998 was approximately 11%
compared to the approximate ASCET INC current average rate of 8.49%.
The effective tax rate for ASCET INC is 37.2% for the period May 28, through
September 30, 1999. 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 reserve. 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.
Earnings per share methodology is described under Note L of the Unaudited
Consolidated Condensed Financial Statements. The common shares outstanding for
the Predecessor Company were 4,602,180 for the period January 1, 1999 through
May 27, 1999 and the same for the quarter ended September 30, 1998. The common
shares outstanding for ASCET INC were 14,043,600 and the First Series Preferred
Shares were 1,973,002 for the period May 28, 1999 to September 30, 1999.
Nine Months Ended September 30, 1999 compared to Nine Months Ended September 30,
1998
ASCET INC operating locations, net sales for the nine months ended September 30,
1999 and 1998, were as follows (in thousands):
1999 1998
---- ----
Trim Products $ 76,468 $ 63,200
Replacement Parts 43,380 56,695
------- -------
Total $119,848 $119,895
======== ========
The increase in Trim Products Segment sales is primarily attributable to the new
sales programs for Starboard 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 nine months ended September 30, 1999 and 1998, sales by entities that
were divested by segment were the following (in thousands):
1999 1998
---- ----
Trim Products $ 4,066 $26,848
Fasteners (Discontinued operations) 10,024 28,757
Replacement Parts -- 14,034
------- -------
Total $14,090 $69,639
======= =======
Gross profit was $21,919 thousand, or 18.3% of sales, for the nine months ended
September 30, 1999 compared to $16,106 thousand, or 13.4% of sales, 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 $10,599 $ 2,629
Replacement Parts 11,320 13,477
------- -------
Total $21,919 $16,106
======= =======
The gross profit percentage as a percentage of sales for the Trim Product
Segment was 13.9% compared to 4.2% for the nine months ended September 30, 1999
and 1998, respectively. The increase in the gross profit percentage was
attributable to a customer mix change at Starboard, lower scrap rates at PTI and
the effect that the GM strike in 1998 had on absorbing fixed overhead.
The gross profit as a percentage of sales for the Replacement Parts Segment was
26.1%, compared to 23.8% for the nine months ended September 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 better
product mix throughout the segment's other product line.
SGA expenses, for the same operating location on a consolidated basis were
$14,832 thousand, or 12.4% of sales and $17,679 thousand, or 14.7% of sales, for
the nine months ended September 30, 1999 and 1998, respectively.
Selling, general and administrative expenses for the same operating units on a
consolidated basis for the nine month period were as follows (in thousands):
1999 1998
---- ----
Trim Products $ 4,577 $ 5,847
Replacement Parts 8,310 9,416
Corporate Expense 1,945 2,416
------ -------
Total $14,832 $17,629
======= =======
SGA expense for the Trim Products Segment were $4,577 thousand, or 6.0% of sales
for the nine months ended September 30, 1999 compared to $5,847 thousand, or
9.3% of sales for the nine months ended September 30, 1998. The lower percentage
is attributable to higher sales volume as SGA costs are primary fixed costs.
Additionally, SGA expenses for the 1998 period include an unusual accounts
receivable write-off of approximately $1.5 million. SGA expenses for the
Replacement Parts Segment were $8,310 thousand, or 19.2% of sales for the nine
months ended September 30, 1999 compared to $9,416 thousand, or 16.6% of sales
for the same period in 1998. This segment has been reducing its SGA costs,
primarily through the headcount reductions and lower administrative costs. The
higher percentage is due to lower sales volumes explained in the discussion of
three months operating results above. Corporate Administrative expenses were
$1,945 thousand, or 1.6% of sales and $2,416 thousand or 2.0% of sales for the
nine months ended September 30, 1999 and 1998, respectively.
Other expense represents the same costs as noted above in three month
comparison.
Affiliate companies' income for the Predecessor Company for January 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 Starboard in the amount of $3.8 million and the
elimination JPEC unpaid liabilities of $2.9 million through its bankruptcy
proceedings. The results of operations included in this caption are discussed
above in paragraphs of sales, gross profit and SGA expense.
The interest expense for the nine months ended September 30, 1999 including the
amounts reflected in the caption "Affiliate companies income", was $5.6 million
as compared to $10.6 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 income from continuing operations for the nine months ended September 30,
1999 is divided into two periods, the Predecessor Company January 1, 1999
through May 27, 1999 of $5.4 million and ASCET INC, the Successor Company, for
the period May 28, 1999 through September 30, 1999 of $1.1 million. The
application of purchase accounting results in improvement in operating results
of approximately $55 thousand a month for the Successor Company, as compared to
the accounting for the Predecessor Company.
The discontinued operation included in the nine months ended September 30, 1999
is the result of the sale of the Fastener segment. The measurement date was
February 5, 1999, as a 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 nine months results for September 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 common
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 of approximately $.01. The First Series Preferred Share
computation is based on 1,973,002 shares and results in basic earnings per First
Series Preferred Share from continuing operations and before extraordinary items
of $.24 and $.47 for the three months ended September 30, 1999 and for the
period May 28, through September 30, 1999, respectively. Comparison to basic
loss per share for the nine months ended September 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 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
cash deposits, trade receivables, inventory, and personal property, as well as
guaranties from ASC Holdings LLC and Kojaian Holdings LLC. The source of
collateral for each is the common shares and preferred shares of stock of the
Company held by the respective shareholders.
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
Comerica 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 Comerica
Facility.
Amounts drawn under these loans as of May 27, 1999 were $51.7 million. Current
borrowings at September 30, 1999 under the Comerica Facility are $45 million. At
September 30, 1999, unused borrowing capacity under the Company's $30 million
demand note was $4.6 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. In addition, the Company is able to supplement
any working capital needs not satisfied by the Comerica Facility through a $3
million subordinated demand note dated August 23, 1999 from ASC Incorporated, an
affiliate of ASC. Advances are permitted up to $3 million and are unsecured and
subordinate to advances made under the Comerica Facility. Interest accrues at
prime plus 1 1/2% and is payable quarterly. As of September 30, 1999 there were
no advances made under this note.
Due to their demand nature, all of the notes described above have been
classified as short-term debt on the Company's balance sheet. As of September
30, 1999, in measuring working capital, the Company's Current Liabilities exceed
Current Assets by $10 million. Excluding the amount outstanding under the
Comerica Facility, working capital at September 30, 1999 would have been $35
million.
Year 2000
The Company has completed all Year 2000 readiness plans for all locations.
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 manufacturing compliance issues should not significantly
affect operations. 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 its 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 information
systems. Full testing and implementation for both of these locations was
completed during the third quarter of 1999. Total cost to the Company for this
initiative was approximately $200 thousand.
Both, Plastic Trim, Inc. and Starboard Industries, Inc. purchased replacement
information 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 its OEM customer task force. Questionnaires have
been mailed and a contingency plan to address vendor supply interruptions has
been completed. Year 2000 implementation costs to the Company totaled
approximately $400 thousand .
Starboard Industries, Inc. purchased replacement information 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 information systems which are date sensitive systems are Year 2000
compliant. A vendor contingency plan has been developed which included
soliciting key vendors for their Year 2000 readiness plans.
Plastic Tim, Inc., Starboard Industries, Inc., and Dayton Parts, Inc. initiated
formal communications with all of their significant suppliers and large
customers to determine the extent to which they are vulnerable to potential
third parties' failures to remediate their own Year 2000 Issues. Though it is in
the interest of the Company to use this information to mitigate these risks,
because of the complexity of this issue, the Company can give no guaranties that
the systems of other companies on which the Company's systems rely will be
remedied for the Year 2000 Issue on time or that a failure to remedy the problem
by another company would not have a material adverse effect on the Company.
PART II. OTHER INFORMATION
JPE, INC. (d/b/a ASCET INC)
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits:
10.1 Amended and Restated Termination Agreement and Release of
All Liability, dated as of May 27, 1999, between Richard
Eidswick and Registrant, filed with this report.
10.2 Shareholders Representative Agreement, dated as of May 27,
1999, between Richard P. Eidswick and Registrant, filed
with this report.
10.3 Letter Agreement, dated August 30, 1999, among Mike
Kojaian, C. Michael Kojaian, Kojaian Holdings LLC, Heinz
C. Prechter and Prechter Holdings LLC, filed with this
report.
27 Financial Data Schedule, which is submitted electronically
to the Securities and Exchange Commission for information
only and not filed.
b. Report on Form 8-K:
On July 13, 1999, Registrant filed a report on Form 8-K,
reporting a management change.
On August 6, 1999, Registrant filed a Amendment No. 1
to Form 8-K containing financial statements relating to the
changes in control of Registrant.
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: November 15, 1999