UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the quarterly period
ended March 31, 2002.
[ ] 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.)
1030 Doris Road, Auburn Hills, Michigan 48326-2613
(Address of principal executive offices) (Zip Code)
(248) 232-1161
(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 May 10, 2002, there were 14,043,600 shares of the registrant's common
stock outstanding. This Quarterly Report on Form 10-Q contains 17 pages, of
which this is page 1.
1
JPE, INC. (D/B/A ASCET, ASC EXTERIOR TECHNOLOGIES)
INDEX
Page
----
PART I. Financial Information
ITEM 1. Financial Statements 3
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 12
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk 15
PART II. Other Information 16
ITEM 6. Exhibits and Reports
Signature 17
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 AT MARCH 31,
DECEMBER 31, 2002
2001 UNAUDITED
---- ---------
ASSETS
Current assets:
Cash and cash equivalents $ 2,794 $ --
Available for sale securities 571 --
Accounts receivable trade, net 12,707 14,037
Inventory 17,788 16,339
Other current assets 1,056 1,887
-------- ---------
Total current assets 34,916 32,263
Property, plant and equipment, net 20,675 19,826
Goodwill, net 1,626 1,626
Other assets 1,155 1,064
-------- ---------
Total assets $ 58,372 $ 54,779
======== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 543 $ 511
Accounts payable 11,101 11,152
Accrued liabilities 2,606 2,774
Income Taxes 47 156
-------- ---------
Total current liabilities 14,297 14,593
Long-term debt 42,507 38,607
-------- ---------
Total liabilities 56,804 53,200
-------- ---------
Shareholders' equity:
First Series Preferred Shares, no par value,
50 votes per share, 3,000,000 authorized,
1,973,002 shares issued and outstanding at
March 31, 2002 and December 31, 2001 16,590 16,590
Common stock, no par value, 15,000,000
authorized, 14,043,600 shares issued and
outstanding at March 31, 2002 and December
31, 2001 2,672 2,672
Accumulated other comprehensive income 76 --
Accumulated deficit (17,770) (17,683)
-------- ---------
Total shareholders' equity 1,568 1,579
-------- ---------
Total liabilities and shareholders' equity $ 58,372 $ 54,779
======== =========
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 STATEMENT OF OPERATIONS
AND COMPREHENSIVE OPERATIONS
For the Three Months Ended March 31, 2002 and 2001
(Unaudited)
($ amounts in thousands, except per share data)
2001 2002
---- ----
Net sales $ 30,379 $ 29,745
Cost of goods sold 27,267 25,144
--------- -------
Gross profit 3,112 4,601
Selling, general and administrative expenses 4,351 4,256
Other (income) -- (179)
Interest expense, net 949 420
--------- -------
Income (loss) before income taxes (2,188) 104
Income tax expense 56 17
--------- -------
Net income (loss) $ (2,244) $ 87
========= =======
Basic earnings (loss) per share:
Common Shares $ (0.02) $ 0.00
First Series Preferred Shares $ (0.99) $ 0.04
Earnings (loss) per share assuming dilution:
Common Shares $ (0.02) $ 0.00
First Series Preferred Shares $ (0.99) $ 0.04
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 SHAREHOLDERS' EQUITY
For the Three Months Ended March 31, 2002
(Unaudited)
($ amounts in thousands)
NET INCOME FOR
THE THREE SALE OF
BALANCES AT MONTHS ENDED AVAILABLE FOR BALANCES AT
DECEMBER MARCH 31, SALE MARCH 31,
31, 2001 2002 SECURITIES 2002
----------- -------------- ------------ ------------
First Series Preferred Shares:
Shares Outstanding 1,973,002 1,973,002
Amount $ 16,590 $ 16,590
Common Stock:
Shares Outstanding 14,043,600 14,043,600
Amount $ 2,672 $ 2,672
Accumulated Other Comprehensive
Income $ 76 $ (76) --
Accumulated (Deficit) $ (17,770) $ 87 $ $ (17,683)
---------- -------- ----------- ----------
Total Shareholders' Equity $ 1,568 $ 87 $ (76) $ 1,579
========== ======== =========== ==========
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 CASH FLOWS
For the Three Months ended March 31,
(Unaudited)
($ amounts in thousands)
2001 2002
---- ----
Cash flows from operating activities:
Net income (loss) $ (2,244) $ 87
Adjustments to reconcile net income (loss) to net cash
provided by (used for) operating activities:
Depreciation and amortization 1,006 961
Other -- (76)
Changes in operating assets and liabilities:
Available for sale securities -- 571
Accounts receivable (2,242) (1,330)
Inventory 2,566 1,449
Other current assets (912) (831)
Accounts payable (391) 51
Accrued liabilities and income taxes (129) 277
-------- --------
Net cash provided by (used for) operating activities (2,346) 1,159
Cash flows from investing activities:
Purchase of property and equipment (213) (21)
Other 19 --
-------- --------
Net cash used for investing activities (194) (21)
Cash flows from financing activities:
Net payments under demand notes (12,426) --
Net repayments of revolving credit facility -- (3,900)
Net borrowing under subordinated debt 15,000 --
Repayments of other debt (54) (32)
-------- --------
Net cash provided by (used for) financing activities 2,520 (3,932)
Cash and cash equivalents:
Net decrease in cash (20) (2,794)
Cash, beginning of period 196 2,794
-------- --------
Cash, end of period $ 176 $ --
======== ========
The accompanying notes are an integral part
of the consolidated condensed financial statements.
6
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, 2002. These
financial statements should be read in conjunction with the Company's
consolidated financial statements and footnotes for the year ended
December 31, 2001.
The balance sheet at December 31, 2001 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 Company's and Subsidiaries' annual
report on Form 10-K for the year ended December 31, 2001.
Effective January 1, 2002, the Company adopted Financial Accounting
Standards Board Statement of Accounting Standards (SFAS) 141, "Business
Combinations", SFAS 142, "Goodwill and Intangible Assets" and SFAS 144,
"Accounting for the Impairment or Disposal of Long-lived Assets." SFAS
141 requires that acquisitions entered into after June 30, 2001 be
accounted for using the purchase method and establishes criteria to be
used in determining whether acquired intangible assets are to be
separated from goodwill. The adoption of SFAS 141 did not have a
material effect on the Company's financial statements.
SFAS 142 sets forth the accounting for goodwill and intangible assets
already recorded. Commencing January 1, 2002, goodwill is no longer
being amortized and amounts in 2001 have not been restated in accordance
with the statement. Further, goodwill should be tested at least
annually, or more frequently if indicators arise, for impairment by
comparing the asset's fair value to its carrying value. Finally,
separable intangible assets that have finite lives will continue to be
amortized over their useful lives. During the second quarter, management
will perform the first of the required impairment tests for goodwill and
accordingly, has not yet determined what the effect, if any, these tests
will have on the earnings and financial position of the Company.
Reported income and earnings per share adjusted to exclude goodwill
amortization is as follows:
For the three months ended March 31,
2001 2002
---- ----
Reported income (loss) $ (2,244) $ 87
Add back: Goodwill amortization 67 --
Adjusted income (loss) (2,177) 87
Basic and diluted earnings per common share:
Income (loss) $ (0.02) $ 0.00
Goodwill amortization -- --
Adjusted income (loss) (0.02) 0.00
Basic and diluted earnings per First Series
Preferred Share:
Income (loss) $ (0.99) $ 0.04
Goodwill amortization 0.03 --
Adjusted income (loss) (0.96) 0.04
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)
The Company has non-compete agreements which expire in 2004. Estimated
amortization expense for these agreements are $338, $238, and $69 for
2002, 2003 and 2004, respectively.
SFAS 144 addresses the accounting and reporting for the impairment or
disposal of long-lived assets. The statement provides a consistent
method to value long-lived assets to be disposed of and broadens the
presentation of discontinued operations to include more disposal
transactions. The adoption of SFAS 144 did not have a material effect on
the Company's financial statements.
B. INVENTORY:
Inventories by component are as follows:
DECEMBER 31, 2001 MARCH 31, 2002
----------------- --------------
Raw materials $ 4,957 $ 4,339
Work in process 1,356 1,317
Finished goods 10,119 10,090
Tooling 1,356 593
------- -------
$ 17,788 $ 16,339
======= =======
C. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment by component is as follows:
DECEMBER 31, 2001 MARCH 31, 2002
----------------- --------------
Land $ 706 $ 706
Buildings 5,513 5,513
Machinery and equpment 21,154 21,175
Furniture and fixtures 1,397 1,397
------- -------
28,770 28,791
Less accumulated depreciation (8,095) (8,965)
------- -------
$ 20,675 $ 19,826
======= =======
D. ACCRUED LIABILITIES:
Accrued liabilities consisted of the following:
DECEMBER 31, 2001 MARCH 31, 2002
----------------- --------------
Accrued compensation $ 285 $ 283
Accrued interest 94 218
Accrued employee benefits 1,205 872
Accrued taxes 414 485
Other 608 916
------ -------
$ 2,606 $ 2,774
====== =======
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)
E. DEBT:
Debt consisted of the following:
DECEMBER 31, 2001 MARCH 31, 2002
----------------- --------------
Revolving Credit Facility-Comerica Bank $ 27,000 $ 23,098
Notes Payable-MB purchase 975 975
Capitalized lease obligations 55 25
Subordinated demand note 15,000 15,000
Other 20 20
------- --------
$ 43,050 $ 39,118
Less: Current portion 543 511
------- --------
$ 42,507 $ 38,607
======= ========
Prior to February 7, 2001, the Company's source of funding was a $56,300
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. The $56,300 demand
loan from Comerica Bank was terminated on February 7, 2001. Concurrent
with the execution of the Comerica Facility, the Company received a
$15,000 subordinated demand loan from ASC Incorporated, an affiliate of
the Company, which repaid $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 decreases
semiannually over a four year period. The initial reduction of $1,000
occurred on September 1, 2001. The second reduction of $1,250 occurred
on March 1, 2002. 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 coverage ratio for 2001 to date performance commencing
September 30, 2001, and a Senior Debt to EBITDA ratio 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 and December 31, 2001, the Company was not in
compliance with ratio covenants of the Comerica Facility. On April 16,
2002, the Company's Comerica Facility was amended, and the September 30,
2001 and December 31, 2001 defaults were waived. The Senior Debt to
EBITDA ratio covenant was removed and the interest coverage ratio
covenant was reset for 2002 year to date performance with June 30, 2002
as the first measurement date. Interest rates were reset based upon the
interest coverage ratio using the Company's financial performance
beginning January 1, 2002. The revolving credit commitment amount was
decreased from $33,000 to $30,000 as the Company believes $30,000 is
adequate for its liquidity requirements through the remaining term of
the loan. In consideration of the amendments and waivers, the Company
has agreed to pay Comerica Bank a nonrefundable amendment and waiver fee
of $187.5.
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 January 1, 2003. Further,
the Comerica Facility prohibits any payments to ASC Incorporated at
non-arm's length amounts without prior consent. On February 7, 2001,
concurrent
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)
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 March 31, 2002, there were no
advances made under this Note.
F. INCOME TAXES:
The Company's 19.6% effective tax rate for the three months ended March
31, 2002 is computed at regular tax rates, and reflects state and
foreign income taxes related to the Company's profitable locations as
well as an increase in the Company's valuation reserve.
G. EARNINGS PER SHARE:
The issuance of the First Series Preferred Shares resulted in the
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 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 were 14,043,600 common shares as of March 31, 2001, and March
31, 2002. The First Series Preferred Shares outstanding were 1,993,694
shares as of March 31, 2001 and 1,973,002 shares outstanding as of March
31, 2002. Earnings per share assuming dilution requires the Company to
use the treasury method for stock options and warrants. The common 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.
H. SEGMENT INFORMATION:
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 March 31,
2002 and 2001 is summarized below:
For The Three Months Ended March 31,
------------------------------------
Trim Replacement
Products Parts Total
-------- ----- -----
Sales to unaffiliated customers
2002 $ 17,152 $ 12,593 $ 29,745
2001 16,961 13,418 30,379
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)
For The Three Months Ended March 31,
------------------------------------
Trim Replacement
Products Parts Total
-------- ----- -----
Segment profit (loss)
2002 $ 1,201 $ 429 $ 1,630
2001 (667) 759 92
Other charges (income)
2002 $ (208) $ 29 $ (179)
2001 -- -- --
Depreciation and amortization
2002 $ 651 $ 211 $ 862
2001 599 198 797
Segment assets
March 31, 2002 $ 28,816 $ 24,489 $ 53,305
December 31, 2001 31,127 23,448 54,575
Expenditures for segment assets
2002 $ 4 $ 17 $ 21
2001 195 18 213
A reconciliation of segment profit for reportable segments to income
(loss) before taxes is as follows:
For the Three Months Ended March 31,
------------------------------------
2001 2002
---- ----
Segment profit $ 92 $ 1,630
Other income -- 179
Corporate expense (1,331) (1,285)
Interest expense (949) (420)
------ ------
Income (loss) before taxes $ (2,188) $ 104
====== ======
A reconciliation of segment assets to consolidated assets is as follows:
December 31, 2001 March 31, 2002
----------------- --------------
Segment assets $ 54,575 $ 53,305
Corporate assets 3,797 1,474
------- -------
$ 58,372 $ 54,779
======= =======
I. SUBSEQUENT EVENT:
During the first quarter of 2002, the beneficial owner of 95% of the
outstanding stock of the Company signed a letter of intent with an
unrelated third party for the sale of such 95% equity interest in the
Company. On May 7, 2002, the relevant parties entered into a definitive
sale agreement with respect to such transaction. The closing of the
transaction is subject to several conditions. If the proposed
transaction is consummated, control of the Company will change.
11
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
GENERAL AND RECENT 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 2001 annual revenues of approximately $122,000 and total assets
of approximately $59,000. JPE, Inc. is now operating 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
Management's discussion and analysis of the results of operations for the three
months ended March 31, 2002 compared to the three months ended March 31, 2001 is
as follows:
THREE MONTHS ENDED MARCH 31, 2002 COMPARED TO THREE MONTHS ENDED MARCH 31, 2001
Net sales for the quarter ended March 31, 2002 and 2001 were as follows (in
thousands):
2001 2002
---- ----
Trim Products $ 16,961 $ 17,152
Replacement Parts 13,418 12,593
-------- -------
Total $ 30,379 $ 29,745
======== =======
The sales increase in the Trim Products segment is $191, or 1.1%. The minor
increase is due to newly awarded product programs offset by the impact of
customer negotiated price concessions. The decrease in Replacement Parts sales
of $825, or 6.1% is attributable to a decrease in heavy duty truck repair orders
consistent with general market conditions in the overall heavy duty aftermarket
industry.
Gross profit was $4,601, or 15.5% of sales for the three months ended March 31,
2002 compared to $3,112, or 10.2% of sales, for the same quarter last year.
The gross profit by segment is as follows (in thousands):
2001 2002
---- ----
Trim Products $ (129) $ 1,601
Replacement Parts 3,241 3,000
------- ------
Total $ 3,112 $ 4,601
======= ======
The gross profit percentage for the Trim Products segment was 9.3% and (.8)% for
the quarters ended March 31, 2002 and 2001, respectively. The increase in the
gross profit percentage was primarily attributable to lower scrap
12
rates, reduced freight costs, lower third party quality inspection costs, and
higher labor efficiencies at the Dayton, Ohio operation.
The gross profit percentage of sales for the Replacement Parts segment was
23.8%, compared to 24.2% for the three months ended March 31, 2002 and 2001,
respectively. The decrease in the gross profit percentage reflects pricing
discounts offered to customers during the current quarter and sales of lower
margin products.
Selling, general and administrative (SGA) expenses for the three months ended
March 31, 2002 were $4,256 or 14.3% of sales compared to $4,351 or 14.3% of
sales for the quarter ended March 31, 2001. Detail of SGA expenses for the three
months ended March 31, 2002 and 2001 are as follows (in thousands):
2001 2002
---- ----
Trim Products $ 538 $ 400
Replacement Parts 2,482 2,571
Corporate 1,331 1,285
------- ------
Total $ 4,351 $ 4,256
======= ======
SGA expenses for the Trim Products segment was $400 or 2.3% of sales for the
quarter ended March 31, 2002, compared to $538 or 3.2% of sales for the quarter
ended March 31, 2001. The decrease in SGA expenses is attributable to reduced
spending at the Dayton, Ohio operation.
The Replacement Parts segment's SGA expenses were $2,571 or 20.4% of sales and
$2,482 or 18.5% of sales for the three months ended March 31, 2002 and 2001,
respectively. The increase in SGA is attributable to higher spending levels.
Corporate administrative costs for the three months ended March 31, 2002 and
2001 were $1,285 and $1,331, respectively. The decrease in corporate
administrative costs is attributable to reduced spending levels.
Interest expense for the three months ended March 31, 2002 was $420, compared to
$949 for the quarter ended March 31, 2001. The reduction in interest expense is
primarily attributable to lower borrowing costs due to lower general interest
rates in the United States and Europe as well as a reduction in total bank
borrowing compared to the first quarter of 2001.
The Company's effective tax rate of 19.6% for the three months ended March 31,
2002, reflects regular tax rates and state and foreign income taxes related to
the Company's profitable locations.
LIQUIDITY AND CAPITAL RESOURCES
Operating activities provided $1,159 in cash for the three months ended March
31, 2002, primarily due to cash generated from net income plus the addback of
depreciation and amortization. Investing activities used $21 in cash for capital
expenditures. Financing activities used $3,932 in cash, representing debt
repayments.
Prior to February 7, 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. The $56,300 demand
loan from Comerica Bank was terminated on February 7, 2001. Concurrent with the
execution of the Comerica Facility, the Company received a $15,000 subordinated
demand loan from ASC Incorporated, an affiliate of the Company, which repaid
$15,000 of the Company's $56,300 demand loan from Comerica Bank.
In connection with the Comerica Facility, the Company 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
was 1/4% and 2 1/4%, respectively. Eurodollar
13
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 decreases semiannually over a four
year period. The initial reduction of $1,000 occurred on September 1, 2001. The
second reduction of $1,250 occurred on March 1, 2002. 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 coverage ratio for
2001 to date performance commencing September 30, 2001, and a Senior Debt to
EBITDA ratio 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 and December 31, 2001, the Company was not in
compliance with ratio covenants of the Comerica Facility. On April 16, 2002, the
Company's Comerica Facility was amended, and the September 30, 2001 and December
31, 2001 defaults were waived. The Senior Debt to EBITDA ratio covenant was
removed and the interest coverage ratio covenant was reset for 2002 year to date
performance with June 30, 2002 as the first measurement date. Interest rates
were reset based upon the interest coverage ratio using the Company's financial
performance beginning January 1, 2002. The revolving credit commitment amount
was decreased from $33,000 to $30,000 as the Company believes $30,000 is
adequate for its liquidity requirements through the remaining term of the loan.
In consideration of the amendments and waivers, the Company has agreed to pay
Comerica Bank a nonrefundable amendment and waiver fee of $187.5.
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 January 1, 2003. Further, the Comerica Facilities
prohibits any payments to ASC Incorporated at non arm's length amounts, without
prior consent. The April 16, 2002 amendment to the Comerica Facility prohibits
the Company from paying interest to ASC Incorporated on the $15,000 note.
Borrowings at March 31, 2002 under the Company's $33,000 revolving credit
facility were $23,100, with unused borrowing capacity of $4,100 (based on the
borrowing base advance restrictions).
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 March 31, 2002, there were no advances made
under this Note.
Together with internally generated cash flow, the Company believes the Comerica
Facility and notes with ASC Incorporated are adequate to provide working capital
funding during the course of the year, except in the event of a sustained
cyclical downturn in the automotive industry.
14
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
MARKET RISK
The Company's sales volumes have remained steady during the last quarter of 2001
and throughout the first quarter of 2002. Although most underlying fundamentals
remain strong, the impact of the OEM vehicle manufacturers to rebalance
inventories, the continuance of rebates and reduced customer financing rates and
the trend of retail sales and other uncertainties may adversely impact the
Company's 2002 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 Comerica Facility reduced its borrowing
costs for 2001 through March 31, 2002 to the bank's prime rate plus 1/4% or
Eurodollar rates plus 2 1/4 %. As such, future borrowings under the Comerica
Facility are sensitive to changes in interest rates. At March 31, 2002, the
weighted average interest rate of the $39.1 million debt was 3.8% and the fair
value of the debt approximates its carrying value.
The Company had interest expense of $420 for the three months ended March 31,
2002. The potential increase in interest expense from a hypothetical 2% adverse
change, assuming the March 31, 2002 debt was outstanding for the entire year,
would be $762.
FORWARD LOOKING INFORMATION
This Quarterly Report on Form 10-Q contains, and from time to time the Company
expects to make, certain forward-looking statements regarding its business,
financial condition and results of operations. In connection with the "Safe
Harbor" provisions of the Private Securities Reform Act of 1995 (the "Reform
Act"), the Company intends to caution readers that there are several important
factors that could cause the Company's actual results to differ materially from
those projected in its forward-looking statements, whether written or oral, made
herein or that may be made from time to time by or on behalf of the Company.
Investors are cautioned that such forward-looking statements are only
predictions and that actual events or results may differ materially. The Company
undertakes no obligation to publicly release the results of any revisions to the
forward-looking statements to reflect events or circumstances or to reflect the
occurrence of unanticipated events.
The Company wishes to ensure that any forward-looking statements are accompanied
by meaningful cautionary statements in order to comply with the terms of the
safe harbor provided by the Reform Act. Accordingly, the Company has set forth a
list of important factors that could cause the Company's actual results to
differ materially from those expressed in forward-looking statements or
predictions made herein and from time to time by the Company. Specifically, the
Company's business, financial condition and results of operations could be
materially different from such forward-looking statements and predictions as a
result, among other things, of (i) customer pressures that could impact sales
levels and product mix, including customer sourcing decisions, customer
evaluation of market pricing on products produced by the Company and customer
cost-cutting programs; (ii) operational difficulties encountered during the
launch of major new 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.
15
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
16
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 and Chief Financial Officer
(Principal Accounting Officer)
Date: May 14, 2002
17