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 September 30, 2001.
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period from to .
-------- -------
Commission file number 0-22580
JPE, Inc. (d/b/a ASCET and ASC Exterior Technologies)
(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) 203-0440
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and formal 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, 2001, there were 14,043,600 shares of the registrant's
common stock outstanding. This Quarterly Report on Form 10-Q contains 22 pages,
of which this is page 1.
1
JPE, INC. (D/B/A ASCET AND ASC EXTERIOR TECHNOLOGIES)
INDEX
Page
----
PART I. Financial Information
ITEM 1. Financial Statements
Consolidated Condensed Balance Sheets 3
- At September 30, 2001 (Unaudited)
- At December 31, 2000
Consolidated Condensed Statements of Operations (Unaudited) 4
- For the Three Months Ended September 30, 2001 and 2000
- For the Nine Months Ended September 30, 2001 and 2000
Consolidated Condensed Statements of Shareholders' Equity (Unaudited) 6
- For the Nine Months Ended September 30, 2001
Consolidated Condensed Statements of Cash Flows (Unaudited) 7
- For the Nine Months ended September 30, 2001 and 2000
Notes to Unaudited Consolidated Condensed Financial Statements 8
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations 15
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk 19
PART II. Other Information
ITEM 6. Exhibits and Reports 21
SIGNATURE 22
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
JPE, INC. (D/B/A ASCET AND ASC EXTERIOR TECHNOLOGIES)
CONSOLIDATED CONDENSED BALANCE SHEETS
($ amounts in thousands)
AT SEPTEMBER 30, AT
2001 DECEMBER 31,
(UNAUDITED) 2000
---------------- ------------
ASSETS
Current assets:
Cash and cash equivalents $ 264 $ 196
Accounts receivables trade, net 14,620 14,506
Inventory 19,320 22,269
Other current assets 1,538 1,405
--------- ---------
Total current assets 35,742 38,376
Property, plant and equipment, net 21,811 23,582
Goodwill, net 3,428 3,630
Deferred income taxes 2,366 2,295
Other assets 1,130 2,007
--------- ---------
Total assets $ 64,477 $ 69,890
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current portion of long-term debt $ 27,609 $ 611
Accounts payable 11,290 8,722
Accrued liabilities 3,054 4,319
Income taxes 424 224
--------- ---------
Total current liabilities 42,377 13,876
Deferred income taxes 2,366 2,295
Other liabilities -- 20
Long-term debt, non-current 15,513 43,952
--------- ---------
Total liabilities 60,256 60,143
--------- ---------
Shareholders' equity (deficit):
Warrants 293 293
First Series Preferred Shares, no par value, 50 votes per
share, 3,000,000 authorized, 1,973,002 and 1,993,694 shares
issued and outstanding at September 30, 2001 and December
31, 2000, respectively 16,590 16,770
Common stock, no par value, 15,000,000 authorized,
14,043,600 shares issued and outstanding at September
30, 2001 and December 31, 2000 2,379 2,379
Accumulated deficit (15,041) (9,695)
--------- ---------
Total shareholders' equity 4,221 9,747
--------- ---------
Total liabilities and shareholders' equity $ 64,477 $ 69,890
========= =========
The accompanying notes are an integral part
of the consolidated condensed financial statements
3
JPE, INC. (D/B/A ASCET AND ASC EXTERIOR TECHNOLOGIES)
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE OPERATIONS
For the Three Months Ended September 30, 2001 and 2000
(Unaudited)
($ amounts in thousands, except per share data)
2001 2000
---- ----
Net sales $ 28,753 $ 32,842
Cost of goods sold 26,280 28,744
----------- ---------
Gross profit 2,473 4,098
Selling, general and administrative expenses 4,266 5,301
Other expenses 60 74
Interest expense, net 635 1,121
----------- ---------
Loss from operations before income taxes (2,488) (2,398)
Income tax expense (benefit) 32 1
----------- ---------
Net loss $ (2,520) $ (2,399)
=========== =========
Basic loss per share:
Common Shares $ (0.02) $ (0.02)
First Series Preferred Shares $ (1.12) $ (1.06)
Loss per share assuming dilution:
Common Shares $ (0.02) $ (0.02)
First Series Preferred Shares $ (1.12) $ (1.06)
The accompanying notes are an integral part
of the consolidated condensed financial statements.
4
JPE, INC. (D/B/A ASCET AND ASC EXTERIOR TECHNOLOGIES)
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE OPERATIONS
For the Nine Months Ended September 30, 2001 and 2000
(Unaudited)
($ amounts in thousands, except per share data)
2001 2000
---- ----
Net sales $ 93,638 $ 108,867
Cost of goods sold 83,038 93,401
----------- ----------
Gross profit 10,600 15,466
Selling, general and administrative expenses 13,366 15,463
Other expenses 76 95
Interest expense, net 2,358 3,512
----------- ----------
Loss from operations before income taxes (5,200) (3,604)
Income tax expense 146 117
----------- ----------
Net loss $ (5,346) $ (3,721)
=========== ==========
Loss per share:
Common Shares $ (0.05) $ (0.03)
First Series Preferred Shares $ (2.37) $ (1.64)
Loss per share assuming dilution:
Common Shares $ (0.05) $ (0.03)
First Series Preferred Shares $ (2.37) $ (1.64)
The accompanying notes are an integral part
of the consolidated condensed financial statements.
5
JPE, INC. (D/B/A ASCET AND ASC EXTERIOR TECHNOLOGIES)
CONSOLIDATED CONDENSED STATEMENTS OF SHAREHOLDERS' EQUITY
For the Nine Months Ended September 30, 2001
(Unaudited)
($ amounts in thousands)
BALANCES AT REDEMPTION OF NET LOSS FOR THE BALANCES AT
DECEMBER 31, SHAREHOLDER NINE MONTHS ENDED SEPTEMBER 30,
2000 INTERESTS SEPTEMBER 30, 2001 2001
--------------- ------------------- ------------------- ----------------
Common Stock:
Shares Outstanding 14,043,600 14,043,600
Amount $ 2,379 $ 2,379
First Series Preferred Shares:
Shares Outstanding 1,993,694 1,973,002
Amount $ 16,770 $ (180) $ 16,590
Warrants:
Warrants Outstanding 422,601 422,601
Amount $ 293 $ 293
Accumulated deficit $ (9,695) $ $ (5,346) $ (15,041)
----------- ---------- ----------- -----------
Total Shareholders' Equity $ 9,747 $ (180) $ (5,346) $ 4,221
=========== ========== =========== ===========
The accompanying notes are an integral part
of the consolidated condensed financial statements.
6
JPE, INC. (D/B/A ASCET AND ASC EXTERIOR TECHNOLOGIES)
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
For the Nine Months ended September 30, 2001 and 2000
(Unaudited)
($ amounts in thousands)
2001 2000
---- ----
Cash flows from operating activities:
Net loss $ (5,346) $ (3,721)
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depreciation and amortization 2,952 3,083
Write Down of Impaired Asset 338
Other -- 44
Changes in operating assets and liabilities:
Accounts receivable (114) 726
Inventory 2,949 (39)
Other current assets (98) 105
Accounts payable 2,568 3,175
Accrued liabilities and income taxes (1,085) 644
--------- ----------
Net cash provided by operating activities 2,164 4,017
Cash flows from investing activities:
Purchase of property and equipment (829) (1,458)
Proceeds from sale of assets 191 600
Other (17) (15)
Purchase of Sales and Engineering Assets -- (1)
--------- ----------
Net cash used for investing activities (655) (874)
Cash flows from financing activities:
Net payments under demand notes (1,400) (3,512)
Repayments of other debt (41) (116)
--------- ----------
Net cash used for financing activities (1,441) (3,628)
Cash and cash equivalents:
Net increase (decrease) in cash 68 (485)
Cash, beginning of period 196 639
--------- ----------
Cash, end of period $ 264 $ 154
========= ==========
The accompanying notes are an integral part
of the consolidated condensed financial statements
7
JPE, INC. (D/B/A ASCET INC AND ASC EXTERIOR TECHNOLOGIES)
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(amounts in thousands, except share data)
A. BASIS OF PRESENTATION:
The accompanying unaudited condensed consolidated financial statements
of JPE, Inc. (d/b/a ASCET INC and ASC Exterior Technologies (together
with its subsidiaries, the "Company")) 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 accruals) considered
necessary for a fair presentation have been included. Operating results
for the periods presented are not necessarily indicative of the results
that may be expected for the year ended December 31, 2001. These
financial statements should be read in conjunction with the Company's
consolidated financial statements and footnotes for the year ended
December 31, 2000.
The balance sheet at December 31, 2000 has been derived from the
audited financial statements at that date but does not include all of
the information and footnotes required by accounting principles
generally accepted in the United States for complete financial
statements.
For further information, refer to the consolidated financial statements
and footnotes thereto included in the Company's and Subsidiaries'
annual report on Form 10-K for the year ended December 31, 2000.
On May 27, 1999 in accordance with the terms of an Investment Agreement
(the "Investment Agreement") among JPE, Inc., ASC Holdings LLC ("ASC")
and Kojaian Holdings LLC ("Kojaian") dated April 28, 1999 the Company
issued 1,952,352.19 shares of First Series Preferred Shares to ASC and
Kojaian for an aggregate purchase price of $16,413. In addition, on May
27, 1999 ASC and Kojaian, purchased 9,441,420 newly issued shares of
common stock for an aggregate purchase price of $1,987. These newly
issued shares of common stock were distributed to ASC and Kojaian on
June 12, 1999.
Each First Series Preferred Share possesses voting and equity rights
equal to 50 common shares of the Company. In addition, the Investment
Agreement provided that the shareholders of record of JPE, Inc. common
stock on June 11, 1999 (the "Record Date") were entitled to receive
warrants to purchase First Series Preferred Shares (the "Warrants").
Each holder of common stock received .075 Warrants for each share of
common stock held on the record date, and each full Warrant entitled
the holder to purchase one First Series Preferred Share. The Warrants
were distributed as a dividend to such shareholders during June 1999.
In accordance with the Investment Agreement, the warrant exercise price
was set at $8.16 per First Series Preferred Share. On July 6, 2001, the
Company notified the warrant holders of their rights to exercise their
warrants at $8.16 per First Series Preferred Share. The Warrants were
exercisable for a 90 day period commencing July 6, 2001 and expiring on
October 4, 2001. At the expiration of the warrant exercise period on
October 4, 2001, none of the Warrant holders had exercised their
Warrants.
On December 30, 1999, pursuant to the terms of a letter agreement dated
August 30, 1999 among ASC and Kojaian, ASC purchased 4,720,710 common
shares and 976,176.095 First Series Preferred Shares of JPE, Inc. from
Kojaian for $9,200. As a result ASC now owns a total of 9,441,420
common shares and 1,952,353.19 First Series Preferred Shares of JPE,
Inc., constituting approximately 95% of the beneficial interests of the
Company.
During July 2000 the Company paid $1 plus other remuneration, to
purchase certain assets and liabilities of MB Associates, Inc. ("MB"),
which operated as the exclusive sales representative for the Company's
Trim Products Group. Prior to that date, commission expenses were
recorded as selling, general and administrative expenses. In addition,
the Company entered into consulting and/or employment agreements with
certain former MB owners and key management members. Under the terms of
these agreements, the Company paid $358 at closing and executed notes
payable in the aggregate amount of $1,463. These notes require three
payments of $488 due each June 30 of 2001, 2002 and 2003. In addition,
First Series Preferred Shares, equal in value to $180 were distributed
to these individuals as a signing bonus. These shares were subsequently
redeemed by the Company for cash consideration on June 30, 2001.
8
JPE, INC. (D/B/A ASCET INC AND ASC EXTERIOR TECHNOLOGIES)
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(amounts in thousands, except share data)
Due to the events described above, the consolidated financial
statements for periods prior to July 1, 2000, are not necessarily
comparable to the consolidated financial statement presented after that
date. JPE, Inc. is now operating under the assumed names of ASCET INC
and ASC Exterior Technologies.
B. INVENTORY:
Inventories by component are as follows:
SEPTEMBER 30, 2001 DECEMBER 31, 2000
------------------ -----------------
Finished goods $ 10,810 $ 12,148
Work in process 1,279 1,698
Raw material 5,262 5,413
Tooling 1,969 3,010
-------- --------
$ 19,320 $ 22,269
======== ========
C. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment by component is as follows:
SEPTEMBER 30, 2001 DECEMBER 31, 2000
------------------ -----------------
Land $ 706 $ 706
Buildings 5,513 5,496
Machinery and equipment 21,453 20,871
Furniture and fixtures 1,389 1,372
-------- --------
29,061 28,445
Less accumulated depreciation (7,250) (4,863)
-------- --------
$ 21,811 $ 23,582
======== ========
D. ACCRUED LIABILITIES AND OTHER CURRENT LIABILITIES:
Accrued liabilities and other current liabilities consisted of the
following:
SEPTEMBER 30, 2001 DECEMBER 31, 2000
------------------ -----------------
Accrued compensation $ 470 $ 496
Accrued interest 125 359
Accrued employee benefits 1,102 1,609
Accrued taxes 813 1,041
Other 544 814
-------- --------
$ 3,054 $ 4,319
======== ========
9
JPE, INC. (D/B/A ASCET INC AND ASC EXTERIOR TECHNOLOGIES)
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(amounts in thousands, except share data)
E. Debt:
Debt consisted of the following:
SEPTEMBER 30, 2001 DECEMBER 31, 2000
------------------ -----------------
Revolving Credit Facility-Comerica Bank $ 27,039 $ 42,874
Notes Payable-MB purchase 975 1,464
Capitalized lease obligations 82 193
Subordinated demand note 15,000 --
Other 26 32
-------- --------
$ 43,122 $ 44,563
Less: Current portion 27,609 611
-------- --------
$ 15,513 $ 43,952
======== =========
During the year 2000 and through February 6, 2001, the Company's source
of funding was a $56,300 revolving credit demand loan from Comerica
Bank. On February 7, 2001, the Company entered into a new $33,000
revolving credit facility with Comerica Bank (the "Comerica Facility")
which matures February 1, 2003. Concurrent with the execution of the
Comerica Facility, the Company received a $15,000 subordinated demand
loan from ASC Incorporated, the proceeds of which were used to repay
$15,000 of the Company's $56,300 demand loan from Comerica Bank.
The new Comerica Facility provides for borrowing options at a prime
based rate or Eurodollar rate plus various interest rate margins
dependent upon the Company's financial performance beginning January 1,
2002. Advances are subject to a borrowing base restriction equal to 85%
of eligible OEM trade receivables, 80% of all other eligible trade
receivables, 50% of eligible inventory (up to $9,000), plus an
overformula amount of $10,000. The overformula amount is scheduled to
amortize over a four year period beginning September 1, 2001, with the
initial reduction of $1,000. All advances are fully secured by the
Company's net assets.
Required covenants under the Comerica Facility include submission of
monthly and annual financial statements and annual financial
projections during a prescribed period. Quarterly financial covenants
include an interest expense coverage ratio for 2001 year to date
performance commencing September 30, 2001, and a Funded Debt to EBITDA
coverage ratio (Earnings Before Interest and Taxes, plus Depreciation
and Amortization expenses) as of no greater than 5 to 1 as of December
31, 2001. Both covenants exclude the effect of the $15,000 subordinated
demand note from ASC Incorporated. In addition, the payment of
dividends is prohibited by the terms of the Comerica Facility.
As of September 30, 2001, the Company was not in compliance with the
interest coverage ratio covenant of the Comerica Facility. Per the
terms of the Comerica Facility, Comerica Bank has the option to declare
all outstanding debt due and payable upon demand and is not obligated
to make further advances. As such, the outstanding balance on these
borrowings ($27,039 at September 30, 2001) has been classified as
current in the accompanying financial statements. However, there are
ongoing negotiations with Comerica Bank to obtain a waiver of default.
Management anticipates that the negotiations will be completed by
December 2001.
The Company's $15,000 subordinated demand note to ASC Incorporated
dated February 7, 2001 is subordinated as to creditor rights and
security to the Comerica Facility. Interest is payable monthly
commencing March 1, 2001 at ASC Incorporated's cost of borrowing. ASC
Incorporated has agreed not to call the note through at least July 1,
2002. Further, the Comerica Facility prohibits any payments to ASC
Incorporated at non-arm's length amounts without prior consent of
Comerica.
In addition, notes payable of the Company at September 30, 2001 include
a note in the original principal amount of $975 due to the former
owners of MB Associates, which was executed in connection with the
purchase of MB Associates on July 1, 2000 (see Note A). Remaining
payments on these notes are $488
10
JPE, INC. (D/B/A ASCET INC AND ASC EXTERIOR TECHNOLOGIES)
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(amounts in thousands, except share data)
each due on June 30, 2002 and 2003. All notes payable are non-interest
bearing and are guaranteed by ASC Holdings LLC.
The Company has used the payment terms of the new Comerica Facility to
classify its debt maturities as of December 31, 2000.
During the year 2000, the Company supplemented any funding inadequacies
by advances from a $3,000 subordinated demand note dated August 23,
1999 with ASC Incorporated. Such advances were unsecured and
subordinated to advances from Comerica Bank. Interest accrued at prime
plus 1 1/2% and was payable quarterly. As of December 31, 2000, there
were no advances outstanding under this note. In addition, on January
24, 2001, an additional Subordinated Demand Revolving Credit Note for
$1,500 was executed with ASC Incorporated to satisfy the Company's need
for additional funds during January 2001, just prior to the execution
of the Comerica Facility. This additional $1,500 note carried identical
terms to the Company's previous $3,000 Subordinated Demand Note with
ASC Incorporated.
On February 7, 2001, concurrent with the execution of the Comerica
Facility, the Company entered into a new $3,000 Revolving Line of
Credit Note with ASC Incorporated. This note is subordinated to the
Company's borrowings and advances under the Comerica Facility and bears
interest at a rate equal to the cost of borrowing of ASC Incorporated.
As of September 30, 2001, there were no advances outstanding under this
note.
The accompanying financial statements have been prepared on the basis
that the Company will continue as a going concern. The Company's
ability to meet its short term and long term debt service and other
obligations (including compliance with financial covenants) will be
dependent upon its future operating performance. Operating performance
is subject to several important factors, certain of which are beyond
the Company's control, such as prevailing economic conditions. The
Company believes that funds generated by its operations and funds
available from the Comerica Facility and its other credit facilities
with ASC Incorporated will be sufficient to finance short term capital
needs, as well as to fund existing operations for the foreseeable
future. However, there can be no assurance that, in the event the
Comerica Facility was called as payable on demand by Comerica Bank,
that additional financing would be available on satisfactory terms. In
such case, the Company would consider selling certain of its
subsidiaries, pursuing strategic alliances or consolidating the
operations of its Beavercreek, Ohio and East Tawas, Michigan operations
to retire the Comerica Facility loan.
F. WARRANTS TO ACQUIRE PREFERRED STOCK:
Pursuant to the Investment Agreement, the shareholders of record of
JPE, Inc. common stock on June 11, 1999 (the "Record Date") received
warrants (the "Warrants") entitling them to purchase .075 First Series
Preferred Shares of the Company for each share of common stock held on
the Record Date. Each full warrant entitles the holder to purchase one
First Series Preferred Share. The Warrant exercise price is $8.16 per
First Series Preferred Share, calculated in accordance with the
Investment Agreement. On July 6, 2001, the Company notified the warrant
holders of their rights to exercise their warrants at $8.16 per First
Series Preferred Share. The Warrants were exercisable for a 90 day
period commencing July 6, 2001, and expiring on October 4, 2001. At the
expiration of the warrant exercise period on October 4, 2001, none of
the Warrant Holders had exercised their Warrants.
At the date of the Investment Transaction, the Company assigned a fair
value of $238.9 to the Warrants, based on the difference between the
exercise price of the warrants and the present value of the exercise
price for the 24 month period at a cost of capital discount rate.
G. INCOME TAXES:
The Company's 3% effective tax rate for the nine months ended September
30, 2001 is computed at regular tax rates, and reflects state and
foreign income taxes related to the Company's profitable locations.
11
JPE, INC. (D/B/A ASCET INC AND ASC EXTERIOR TECHNOLOGIES)
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(amounts in thousands, except share data)
G. INCOME TAXES, continued:
A reconciliation to the U.S. federal statutory tax rate is as follows:
Statutory U.S. federal tax rate (34%)
State taxes, net of federal tax benefit 2
Foreign tax rate in excess of U.S. rate 1
Increase in valuation reserve 34
---
3%
===
H. EARNINGS PER SHARE:
The issuance of the First Series Preferred Shares resulted in the
Successor Company 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 of stock. Based on the
participating rights of the First Series Preferred Shares as of
September 30, 2001, approximately 87.6% of the earnings will be
allocated to these shares and 12.4% of earnings to the common stock.
Shares outstanding for the computation of basic earnings per share were
14,043,600 common shares as of September 30, 2000, and September 30,
2001. The First Series Preferred Shares outstanding were 1,993,694
shares as of September 30, 2000 and 1,973,002 as of September 30, 2001.
Earnings per share assuming dilution requires the Company to use the
treasury method for stock options and warrants. Options for common
shares 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 had no effect on the denominator in the earnings per
share calculation for the three months and nine months ended September
30, 2001 as the effect would be antidilutive, and the Company could
purchase shares on the open market at a price significantly less than
the exercise price. For the three months and nine months ended
September 30, 2000, these warrants had the effect of increasing the
denominator in the earnings per share calculation by 79,978 shares and
65,730 shares respectively.
I. SEGMENT INFORMATION:
Since the date of the Investment Transaction, May 27, 1999, the Company
manages and reports its operating activities under two segments, Trim
Products and Truck and Automotive Replacement Parts. The Trim Products
segment consists of decorative and functional exterior trim sold to
original equipment manufacturers ("OEM's"). The Truck and Automotive
Replacement Parts segment consists of heavy-duty vehicle undercarriage
parts and brake systems for the automotive industry.
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 operating income. Segment profit
is defined as sales minus cost of goods sold and selling, general and
administrative expenses. Other charges relate to non-recurring expense
and income items.
Information by operating segment for the three months ended September
30, 2001 and 2000 is summarized below:
For The Three Months Ended September 30,
------------------------------------------
Trim Replacements
Products Parts Total
-------- ----- -----
Sales to unaffiliated customers
2001 $ 14,360 $ 14,393 $ 28,753
2000 19,792 13,050 32,842
12
JPE, INC. (D/B/A ASCET INC AND ASC EXTERIOR TECHNOLOGIES)
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(amounts in thousands, except share data)
I. SEGMENT INFORMATION, continued:
For The Three Months Ended September 30,
-------------------------------------------
Trim Replacements
Products Parts Total
-------- ----- -----
Segment profit (loss)
2001 $ (1,369) $ 849 $ (520)
2000 153 791 944
Other charges
2001 $ -- $ 60 $ 60
2000 56 18 74
Depreciation and amortization
2001 $ 652 $ 223 $ 875
2000 714 214 928
Segment assets
September 30, 2001 $ 34,220 $ 26,098 $ 60,318
December 31, 2000 39,392 25,870 65,262
Expenditures for segment assets
2001 $ 78 $ 24 $ 102
2000 530 89 619
A reconciliation of segment profit for reportable segments to income
(loss) before taxes is as follows:
For the Three Months Ended September 30,
----------------------------------------
2001 2000
---- ----
Segment profit (loss) $ (520) $ 944
Other income (expense) (60) (74)
Corporate expense (1,273) (2,147)
Interest expense (635) (1,121)
-------- --------
Loss before taxes $ (2,488) $ (2,398)
======== ========
Information by operating segment for the nine months ended September
30, 2001 and 2000 is summarized below:
For The Nine Months Ended September 30,
-------------------------------------------
Trim Replacements
Products Parts Total
-------- ----- -----
Sales to unaffiliated customers
2001 $ 50,900 $ 42,738 $ 93,638
2000 69,144 39,723 108,867
Segment profit (loss)
2001 $ (1,056) $ 2,513 $ 1,457
2000 1,257 2,540 3,797
13
JPE, INC. (D/B/A ASCET INC AND ASC EXTERIOR TECHNOLOGIES)
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(amounts in thousands, except share data)
I. SEGMENT INFORMATION, continued:
For The Nine Months Ended September 30,
-------------------------------------------
Trim Replacements
Products Parts Total
-------- ----- -----
Other charges
2001 $ 0 $ 76 $ 76
2000 63 32 95
Depreciation and amortization
2001 $ 1,961 $ 669 $ 2,630
2000 1,954 555 2,509
Expenditures for segment assets
2001 $ 710 $ 70 $ 780
2000 869 334 1,203
A reconciliation of segment profit for reportable segments to income
(loss) before taxes is as follows:
For the Nine Months Ended September 30,
---------------------------------------
2001 2000
---- ----
Segment profit $ 1,457 $ 3,797
Other income (expense) (76) (95)
Corporate expense (4,223) (3,794)
Interest expense (2,358) (3,512)
------- --------
Loss before taxes $(5,200) $ (3,604)
======= ========
A reconciliation of segment assets to consolidated assets is as
follows:
September 30, 2001 December 31, 2000
------------------ -----------------
Segment assets $ 60,318 $ 65,262
Corporate assets 4,159 4,628
-------- --------
$ 64,477 $ 69,890
======== ========
14
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.
GENERAL INFORMATION
JPE, Inc. (together with its subsidiaries, the "Company"), through its three
operating subsidiaries, Dayton Parts, Inc. (DPI), Starboard Industries, Inc.
(SBI) and Plastic Trim, Inc. (PTI), manufactures and distributes automotive and
truck components to original equipment manufacturers ("OEMs") and to the
aftermarket.
The Company had 2000 annual revenues of approximately $139,000 and total assets
of approximately $70,000. JPE, Inc. now operates under the assumed names of
ASCET INC and ASC Exterior Technologies. PTI now operates under the assumed
names of ASC Exterior Technologies - Dayton and ASC Exterior Technologies -
Beavercreek. SBI now operates under the assumed name of ASC Exterior
Technologies - East Tawas.
RESULTS OF OPERATIONS
Managements' discussion and analysis of the results of operations for the three
months ended September 30, 2001, compared to the three months ended September
30, 2000 is as follows:
THREE MONTHS ENDED SEPTEMBER 30, 2001 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 2000
Net sales for the quarter ended September 30, 2001 and 2000 were as follows (in
thousands):
2001 2000
---- ----
Trim Products $ 14,360 $ 19,792
Replacement Parts 14,393 13,050
-------- --------
Total $ 28,753 $ 32,842
======== ========
The decrease in Trim Products Segment sales of $5,432, or 27.5%, is related to
the completion of product programs for which the Company was not awarded
replacement business, as well as a decrease in customer orders in the third
quarter of 2001 caused by the continued economic downturn, and the impact of
customer negotiated price concessions. The sales increase in the Replacement
Part Segment of $1,343, or 10.3%, is attributable to an increase in heavy duty
truck repair orders.
Gross profit was $2,473, or 8.6% of sales, for the three months ended September
30, 2001, compared to $4,098, or 12.5% of sales, for the same quarter last year.
The gross profit (loss) by segment is as follows (in thousands):
2001 2000
---- ----
Trim Products $ (858) $ 902
Replacement Parts 3,331 3,196
-------- --------
Total $ 2,473 $ 4,098
======== ========
The gross profit percentage for the Trim Products Segment was (6.0)% and 4.5%
for the quarters ended September 30, 2001 and 2000, respectively. The decrease
in the gross profit percentage was attributable to the effect on overhead
absorption costs of sales volume decline and the impact of customer negotiated
price concessions.
15
The gross profit percentage for the Replacement Parts Segment was 23.1%,
compared to 24.5% for the three months ended September 30, 2001 and 2000,
respectively, and reflects pricing discounts offered to customers during the
quarter, sales of lower margin products and increased energy costs.
Selling, general and administrative (SGA) expenses for the three months ended
September 30, 2001 were $4,266, or 14.8% of sales, compared to $5,301, or 16.1%
of sales, for the quarter ended September 30, 2000. Detail of SGA expenses, for
the three months ended September 30, 2001 and 2000 are as follows (in
thousands):
2001 2000
---- ----
Trim Products $ 511 $ 749
Replacement Parts 2,482 2,405
Corporate 1,273 2,147
-------- --------
Total $ 4,266 $ 5,301
======== ========
SGA expense for the Trim Products Segment was $511, or 3.6% of sales, for the
quarter ended September 30, 2001, compared to $749, or 3.8% of sales, for the
quarter ended September 30, 2000. The lower percentage is primarily attributable
to better expense control during the quarter at the Beavercreek, Ohio operation.
The Replacement Parts Segment's SGA expenses were $2,482, or 17.3% of sales, and
$2,405, or 18.4% of sales, for the three months ended September 30, 2001 and
2000, respectively. The lower percentage represents spending reductions made
during the quarter.
Corporate administrative costs for the three months ended September 30, 2001 and
2000 were $1,273 and $2,147, respectively. The decrease in corporate
administrative costs is a result of administrative costs that were incurred in
the third quarter of 2000 resulting from the purchase of MB Associates on July
1, 2000, as well as headcount reductions and spending reductions made during the
quarter.
Interest expense for the three months ended September 30, 2001 was $635,
compared to $1,121 for the quarter ended September 30, 2000. The reduction in
interest expense reflects lower borrowing costs of the new bank credit facility
executed during February 2001, as well as a reduction in total bank borrowings
due to the subordinated debt funding, which carries a lower interest rate than
bank borrowings.
The Company's effective tax rate of 3% for the three months ended September 30,
2001, reflects regular tax rates and state and foreign income taxes related to
the Company's profitable locations.
NINE MONTHS ENDED SEPTEMBER 30, 2001 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 2000
Net sales for the nine months ended September 30, 2001 and 2000 were as follows
(in thousands):
2001 2000
---- ----
Trim Products $ 50,900 $ 69,144
Replacements Parts 42,738 39,723
-------- --------
Total $ 93,638 $108,867
======== ========
The decrease in Trim Products Segment sales of $18,244, or 26.4%, is related to
completion of product programs for which the Company has not been awarded
replacement business, as well as a decrease in customer orders in the nine
months of 2001 caused by the economic downturn, and the impact of customer
negotiated price concessions. The sales increase in the Replacement Part Segment
of $3,015, or 7.6%, is attributable to an increase in heavy duty truck repair
orders.
Gross profit was $10,600, or 11.3% of sales, for the nine months ended September
30, 2001 compared to $15,466, or 14.2% of sales, for the same period last year.
16
The gross profit by segment is as follows (in thousands):
2001 2000
---- ----
Trim Products $ 529 $ 5,671
Replacements Parts 10,071 9,795
-------- --------
Total $ 10,600 $ 15,466
======== ========
The gross profit percentage for the Trim Product Segment was 1.0% and 8.2% for
the nine months ended September 30, 2001 and 2000, respectively. The decrease in
the gross profit percentage was attributable to higher scrap rates, increased
freight costs, third party quality inspection costs, and lower labor
efficiencies at the Beavercreek, Ohio operation and lower overhead burden
absorption due to lower sales levels. Management is continuing to address these
issues.
The gross profit percentage for the Replacement Parts Segment was 23.6%,
compared to 24.7% for the nine months ended September 30, 2001 and 2000,
respectively. The decrease in gross profit as a percentage of sales is the
result of selling price reductions required to meet competitive market pricing,
sales of lower margin products and increased energy costs.
Selling, general and administrative (SGA) expenses for the nine months ended
September 30, 2001 were $13,366, or 14.3% of sales, compared to $15,463, or
14.2% of sales, for the nine months ended September 30, 2000. Detail of SGA
expenses, for these operating locations on a consolidated basis, for the nine
months ended September 30, 2001 and September 30, 2000 are as follows (in
thousands):
2001 2000
---- ----
Trim Products $ 1,585 $ 4,414
Replacements Parts 7,558 7,255
Corporate 4,223 3,794
-------- --------
Total $ 13,366 $ 15,463
======== =========
SGA expense for the Trim Products Segment was $1,585, or 3.1% of sales, and
$4,414, or 6.4% of sales, for the nine months ended September 30, 2001 and 2000,
respectively. The lower percentage is attributable to the elimination of the
sales commission to MB Associates of $1,279 as a result of the purchase of its
net assets during 2000, and the inclusion of these salaries and administrative
expenses as corporate expenses. Without this change, SGA expense for the Trim
Products Segment for the nine months ended September 30, 2001 would have been
$2,864, or 5.6% of sales, and the remaining reduction is primarily attributable
to actions taken at the Beavercreek, Ohio operation to reduce SGA expenses.
The Replacement Parts Segment's SGA expenses were $7,558, or 17.7% of sales, and
$7,255, or 18.3% of sales, for the nine months ended September 30, 2001 and
2000, 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 nine months ended September 30, 2001 and
2000 were $4,223 and $3,794, respectively. The increase in corporate
administrative costs reflect the addition of MB Associates salaries and
administrative costs resulting from the purchase of MB Associates during July
2000.
Interest expense for the nine months ended September 30, 2001, was $2,358,
compared to $3,512 for the same period last year. The reduction in interest
expenses reflects lower borrowing costs of the new bank credit facility executed
during February 2001, as well as a reduction in total bank borrowing due to the
subordinated debt funding, which carries a lower interest rate than bank
borrowing.
The Company's effective tax rate of 3% for the nine months ended September 30,
2001 reflects regular tax rates and state and foreign income taxes related to
the Company's profitable locations.
17
LIQUIDITY AND CAPITAL RESOURCES
Operating activities provided $2,164 in cash for the nine months ended September
30, 2001 primarily due to the net decrease of $4,220 in working capital. An
increase in accounts payable and a decrease in inventory were the primary
reasons for the net decrease in working capital. Investing activities used $655
in cash for the nine months ended September 30, 2001, primarily due to capital
expenditures of $829 offset by proceeds of $191 from the sale of assets in
August, 2001. Financing activities used $1,441 in cash, representing debt
repayments.
Until February 2001, the Company's principal source of liquidity was a $56,300
demand loan from Comerica Bank which was available to fund daily working capital
needs in excess of internally generated funds. On February 7, 2001, the Company
entered into a new $33,000 revolving credit facility with Comerica Bank (the
"Comerica Facility") which matures February 1, 2003. Concurrent with the
execution of this Comerica Facility, the Company received a $15,000 subordinated
demand loan from ASC Incorporated which repaid $15,000 of the Company's $56,300
demand loan from Comerica Bank.
In connection with the Comerica Facility, the Company has signed a promissory
note in the amount of $33,000, providing for borrowing options at a prime based
rate or Eurodollar rate plus various interest rate margins dependent upon the
Company's financial performance beginning January 1, 2002. For 2001 and through
March 31, 2002, the Company's margin on prime based loans and Eurodollar loans
is 1/4% and 2 1/4% , respectively. Eurodollar borrowings for 1 month to 6 months
are permitted at the option of the Company. Advances under the Comerica Facility
are subject to a borrowing base restriction equal to 85% of eligible OEM trade
receivables, 80% of all other eligible trade receivables, 50% of eligible
inventory (up to $9,000), plus an overformula amount of $10,000. The overformula
amount is scheduled to amortize over a four year period beginning September 1,
2001, with the initial reduction of $1,000. All advances are fully secured by
the Company's net assets.
Required covenants under the Comerica Facility include submission of monthly and
annual financial statements and annual financial projections during a prescribed
period. Quarterly financial covenants include an interest expense coverage ratio
covering 2001 to date performance commencing September 30, 2001, and a Funded
Debt to EBITDA coverage ratio (Earnings Before Interest and Taxes, plus
Depreciation and Amortization expenses) of no greater than 5 to 1 as of December
31, 2001. Both covenants exclude the effect of the $15,000 subordinated demand
note from ASC Incorporated. In addition, the payment of dividends is prohibited
by the terms of the Comerica Facility.
As of September 30, 2001, the Company was not in compliance with the interest
coverage ratio covenant of the Comerica Facility. Per the terms of the Comerica
Facility, Comerica Bank has the option to declare all outstanding debt due and
payable upon demand and is not obligated to make further advances. As such, the
outstanding balance on these borrowings ($27,039 at September 30, 2001) has been
classified as current in the accompanying financial statements. However, there
are ongoing negotiations with Comerica Bank to obtain a waiver of default.
Management anticipates that the negotiations will be completed by December 2001.
The Company's $15,000 subordinated demand note to ASC Incorporated dated
February 7, 2001 is subordinated as to creditor rights and security to the
Comerica Facility. Interest is payable monthly commencing March 1, 2001 at ASC
Incorporated's cost of borrowing. ASC Incorporated has agreed not to call the
note through at least July 1, 2002. Further, the Comerica Facility prohibits any
payments to ASC Incorporated at non-arm's length amounts, without prior consent
of Comerica.
Borrowings at September 30, 2001, under the Comerica Facility were $27,039, with
unused borrowing capacity of $1,661. Together with internally generated cash
flow, the Company believes the Comerica Facility is adequate to provide working
capital funding during the course of the year.
On January 24, 2001, just prior to the Company entering into the new Comerica
Facility, an additional Subordinated Demand Revolving Credit Note for $1,500 was
executed with ASC Incorporated to satisfy the Company's need for additional
funds during January 2001. This additional $1,500 note carried identical terms
to the Company's previous $3,000 Subordinated Demand Note with ASC Incorporated.
On February 7, 2001, concurrent with the execution of the Comerica Facility, the
Company entered into a new $3,000 Revolving Line of Credit Note with ASC
Incorporated. This note is subordinated to the Company's borrowings and advances
under the Comerica Facility and bears interest at a rate equal to the cost of
borrowing of ASC Incorporated.
18
The accompanying financial statements have been prepared on the basis that the
Company will continue as a going concern. The Company's ability to meet its
short term and long term debt service and other obligations (including
compliance with financial covenants) will be dependent upon its future operating
performance. Operating performance is subject to several important factors,
certain of which are beyond the Company's control, such as prevailing economic
conditions. The Company believes that funds generated by its operations and
funds available from the Comerica Facility and its other credit facilities with
ASC Incorporated will be sufficient to finance short term capital needs, as well
as to fund existing operations for the foreseeable future. However, there can be
no assurance that, in the event the Comerica Facility was called as payable on
demand by Comerica Bank, that additional financing would be available on
satisfactory terms. In such case, the Company would consider selling certain of
its subsidiaries, pursuing strategic alliances or consolidating the operations
of its Beavercreek, Ohio and East Tawas, Michigan operations to retire the
Comerica Facility loan.
RECENTLY ISSUED STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS
In June 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 141, Business Combinations, and No. 142,
Goodwill and Other Intangible Assets, effective for fiscal years beginning after
December 15, 2001. Under the new rules, goodwill and intangible assets deemed to
have indefinite lives will no longer be amortized but will be subject to annual
impairment tests in accordance with the Statements. Other intangible assets will
continue to be amortized over their useful lives.
The Company will apply the new rules on accounting for goodwill and other
intangible assets beginning in the first quarter of 2002. During 2002, the
Company will perform the first of the required impairment tests of goodwill and
indefinite lived intangible assets as of January 1, 2002 and has not yet
determined what the effect of these tests will be on the earnings and financial
position of the Company.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
MARKET RISK
The Company has experienced lower sales volumes during the last quarter of 2000
and throughout the nine months of 2001, as a result of a general softening of
the U.S. economy, and has been affected by pressures from the Company's largest
customers for price concessions. The Company expects automotive industry
conditions for the remainder of 2001 to be consistent with this recent
experience. Although most underlying fundamentals remain strong, the impact of
the OEM vehicle manufacturers to rebalance inventories in light of an economic
downturn, and the trend of retail sales and other uncertainties may adversely
impact the Company's 2001 financial performance.
Furthermore, in the normal course of business the Company is subject to market
exposures from changes in interest rates. The Company's variable interest
expense is sensitive to changes in the general level of United States and
European interest rates. The Company's September 30, 2001 Comerica bank debt
represents borrowings at the bank's prime rate plus 1/4% or Eurodollar rates
plus 2 1/4%. Interest expense on the Company's $15,000 subordinated debt to ASC
Incorporated is based on ASC's actual cost of borrowing which fluctuates based
on rates charged ASC by commercial lenders. As such, future borrowings for the
Company are sensitive to changes in interest rates. At September 30, 2001, the
weighted average interest rate of the $27,039 Comerica Debt and the Company's
$15,000 Subordinated Debt to ASC Incorporated was 5.59% and the fair value of
the debt approximates its carrying value.
The Company had interest expense of $2,358 for the nine months ended September
30, 2001. The potential increase in interest expense from a hypothetical 2%
adverse change, assuming Company's total debt at September 30, 2001 was
outstanding for the entire year, would be $841.
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 cautions readers that there are several important factors
that could cause the Company's actual results to differ
19
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 original equipment manufacturer's ("OEM") programs; (iii)
cyclical consumer demand for new vehicles; (iv) competition in pricing and new
product development from larger companies with substantially greater resources;
(v) the concentration of a substantial percentage of the Company's sales with a
few major OEM customers; and (vi) labor relations at the Company and its
customers and suppliers.
20
PART II. OTHER INFORMATION
JPE, INC. (D/B/A ASCET AND ASC EXTERIOR TECHNOLOGIES)
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. EXHIBITS:
None
b. REPORT ON FORM 8-K:
None
21
JPE, INC. (D/B/A ASCET INC AND ASC EXTERIOR TECHNOLOGIES)
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 and ASC Exterior
Technologies
By: /s/ Robert A. Naglick
------------------------------
Robert A. Naglick
Vice President, Chief Financial
Officer & Treasurer
(Principal Accounting Officer)
Date: November 14, 2001
22