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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
OR
[ ] Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Commission File Number 0-22580
JPE, INC.
775 Technology Drive, Suite 200, Ann Arbor, MI 48108
(734) 662-2323
Incorporated in Michigan IRS Employer Identification Number 38-2958730
Securities Registered Pursuant to Section 12(b) of the Act: None
Securities Registered Pursuant to Section 12(g) of the Act:
Title of Class Exchange on Which Registered
Common Stock Nasdaq National Market
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Based on the closing price of March 16, 1998, the aggregate market value of the
Registrant's Common Stock held by non-affiliates of the Registrant was
approximately $17,936,503.
The number of shares of the Registrant's Common Stock outstanding at March 16,
1998 was 4,602,180.
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TABLE OF CONTENTS
Item Pages
- ---- -----
PART I
1. Business 3
2. Properties 11
3. Legal Proceedings 11
4. Submission of Matters to a Vote of Security Holders 12
PART II
5. Market for Registrant's Common Equity and Related
Stockholder Matters 12
6. Selected Financial Data 13
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 15
8. Financial Statements and Supplementary Data 21
9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 42
PART III
10. Directors and Executive Officers of the Registrant 42
11. Executive Compensation 46
12. Security Ownership of Certain Beneficial Owners
and Management 52
13. Certain Relationships and Related Transactions 52
PART IV
14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K 53
Signatures 58
FINANCIAL STATEMENT SCHEDULES
JPE, Inc. and Subsidiary Financial Statement Schedules 59
Exhibit Index 61
PART I
ITEM 1. BUSINESS
FORWARD LOOKING INFORMATION
This Annual Report on Form 10-K contains, and from time to time the Company
expects to make, certain forward-looking statements regarding its business,
financial condition and results of operations. In connection with the "Safe
Harbor" provisions of the Private Securities Reform Act of 1995 (the "Reform
Act"), the Company intends to caution investors that there are several important
factors that could cause the Company's actual results to differ materially from
those projected in its forward-looking statements, whether written or oral, made
herein or that may be made from time to time by or on behalf of the Company.
Investors are cautioned that such forward-looking statements are only
predictions and that actual events or results may differ materially. The Company
undertakes no obligation to publicly release the results of any revisions to the
forward-looking statements to reflect events or circumstances or to reflect the
occurrence of unanticipated events.
The Company wishes to ensure that any forward-looking statements are accompanied
by meaningful cautionary statements in order to comply with the terms of the
safe harbor provided by the Reform Act. Accordingly, the Company has set forth a
list of important factors that could cause the Company's actual results to
differ materially from those expressed in forward-looking statements or
predictions made herein and from time to time by the Company. Specifically, the
Company's business, financial condition and results of operations could be
materially different from such forward-looking statements and predictions as a
result, among other things, of (i) customer pressures that could impact sales
levels and product mix, including customer sourcing decisions, customer
evaluation of market pricing on products produced by the Company and customer
cost-cutting programs; (ii) operational difficulties encountered during the
launch of major new OEM programs; (iii) the availability of funds to the Company
for strategic acquisitions and capital investments to enhance existing
production and distribution capabilities (see "Liquidity and Capital
Resources"); and (iv) the net proceeds to the Company from the sale of the stock
or assets of Company subsidiaries.
GENERAL
JPE, Inc. (together with its consolidated subsidiaries, the "Company"), through
its six operating subsidiaries, manufactures and distributes automotive and
truck components to original equipment manufacturers ("OEMs") and to the
aftermarket. The Company's business strategy is to develop and operate
manufacturing and distribution businesses in the automotive components industry
which have significant potential for growth in sales and earnings. Since
December 1992, the Company has completed seven acquisitions, which are described
below:
Effective
Date of Product Primary Major
Acquisition Acquisition Classes Market Customers
- ----------- ----------- ------- ------ ---------
December 1992 Dayton Parts, Heavy-duty Heavy-duty Truckpro
Inc. ("DPI") undercarriage truck and Inland Truck
parts trailer Parts
aftermarket Better Spring
Company, Inc.
July 1994 Allparts, Inc. Brake systems Automotive Autozone
("Allparts") aftermarket
September 1994 SAC Corporation Exterior trim Automotive General Motors
("Starboard") and light Chrysler
truck OEM
February 1995 Industrial & Fasteners Automotive Chrysler
Automotive and light Ford
Fasteners, truck OEM General Motors
Inc. ("IAF")
March 1995 Plastic Trim, Exterior trim Automotive General Motors
Inc. ("PTI") and light Chrysler
truck OEM Ford
December 1996 Pebra Inc. Exterior trim Automotive General Motors
("JPE Canada") and light
truck OEM
April 1997 Brake, Axle Heavy-duty Heavy-duty Moroto y
and Tandem undercarriage truck and Balmaceda
Company parts trailer Weldon Parts
("BATCO") aftermarket
In February 1998, the Company announced its intention to sell Dayton Parts
(including BATCO) and Allparts, its Aftermarket businesses, and will use the
proceeds to pay down debt. In addition, in March 1998, the Company announced its
intention to sell all of JPE and its businesses. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
The following table sets forth information regarding the Company's sales in
certain classes of similar products as percentages of net sales for the periods
indicated.
Percentage of Net Sales
Year ended December 31,
-----------------------------------------
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
OEM:
Exterior Trim..................... -- 12.5% 44.2% 46.8% 54.3%
Fasteners......................... -- -- 15.8 16.2 13.8
Aftermarket:
Heavy-duty undercarriage parts.... 100.0% 81.3 33.7 30.4 25.7
Other............................. -- 6.2 6.3 6.6 6.2
------ ------ ------ ------ ------
100.0% 100.0% 100.0% 100.0% 100.0%
====== ====== ====== ====== ======
ORIGINAL EQUIPMENT
The Company's OEM group consists of four operations: Starboard, PTI, JPE Canada
and IAF. Starboard manufactures and supplies luster, painted and co-extruded
metallic decorative and functional exterior trim parts. PTI manufactures and
supplies decorative extruded plastic exterior trim. JPE Canada manufactures,
paints and supplies plastic injection-molded exterior trim. Starboard, PTI and
JPE Canada supply parts directly to OEMs and to suppliers which sell to OEMs
("Tier 1 suppliers"). All of the parts supplied are utilized in automotive and
light truck applications.
IAF manufactures and supplies decorative, specialty and standard wheel nuts for
domestic OEMs and certain Japanese transplants for use on automobiles and light
trucks. In addition, IAF uses its proprietary process to manufacture stainless
steel capped wheel nuts.
AFTERMARKET
The Company's aftermarket group consists of two operations: DPI and Allparts.
DPI manufactures and distributes springs and spring-related products and
distributes a variety of other undercarriage replacement parts for trucks and
trailers, consisting of brake, wheel-end, suspension and steering products.
Almost all of DPI's springs and spring-related products are manufactured at its
plant in Harrisburg, Pennsylvania. Other products sold by DPI are purchased from
third party manufacturers. DPI sells products to the truck and trailer parts
independent aftermarket under the brand names "Stanley Springs," "Dayton Parts"
and "BATCO."
In April 1997, DPI acquired all of the capital stock of BATCO. BATCO added
complementary products to DPI's product line, particularly brake hardware. In
addition, BATCO has a distribution operation in Canada and established customers
in Mexico and Central America. In June 1997, DPI closed BATCO's U.S.
distribution center located in Dallas, Texas, and consolidated those operations
in DPI's Harrisburg, Pennsylvania warehouse.
Allparts distributes hydraulic brake system products for the independent
automotive and light truck aftermarket. Currently, Allparts sells its brake
parts under the brand names of "Brakeware" and "Tru-Torque." Allparts also sells
a small percentage of parts under private label.
MANUFACTURING OPERATIONS
ORIGINAL EQUIPMENT
Starboard manufactured decorative exterior trim, functional stampings and
specialty products from stainless and galvanized steel. In 1997, Starboard
ceased producing substantially all of its stampings, resourced the stamping
business and sold most of its stamping related equipment. Starboard's primary
manufacturing processes include roll forming, bending, pierce and end forming,
and co-extrusion of steel and PVC. Decorative and functional parts produced by
Starboard are often plated, painted or heat treated by third parties before
final shipment to the customer. Decorative products are utilized in fascia, body
side, window trim and reveal, garnish and wheel well trim applications.
Specialty products produced by Starboard are primarily luggage racks and
appliques.
PTI manufactures extruded plastic exterior trim products. These products are
manufactured primarily from PVC plastic which is extruded at high temperatures
into parts of varying dimensions. Once extruded, these parts are assembled
before being shipped to the customer. The parts are used primarily for
decorative and styling purposes in the production of passenger cars, light
trucks, minivans, and sport-utility vehicles. PTI manufactures three primary
products: (1) reveal moldings, which surround a vehicle's windshield and
backlight glass and cover the gap between the edge of the glass and the car
body; (2) body side moldings, which serve aesthetic and functional purposes and
are affixed to the side of a vehicle; and (3) bumper fascia moldings, which are
bright or colored decorative inserts attached to plastic bumpers and bumper
pads, and are primarily aesthetic in nature.
JPE Canada manufactures plastic injection molded parts which are both decorative
and functional in nature. These parts are produced utilizing plastic compound
which is injected into a product mold at high temperatures and then painted with
a high luster finish. These products consist of: (1) body-side moldings, which
are styling aspects of the vehicle as well as providing dent protection; (2)
rocker panels, which function as a guard directly below the door(s) and between
the two wheels of the vehicle; and (3) front and rear fascias, which act as the
integrated system of the grill, headlights/tail lamps and bumper on the front or
rear of a vehicle.
IAF manufactures decorative capped, specialty, and standard wheel nuts. The
manufacturing of wheel nuts is a highly automated repetitive process using cold
forming machines for the basic shapes and secondary machines for internal and
external threading, shaving, welding and crimping. IAF owns patents to affix
stainless steel caps to the wheel nut that provide an aesthetically sleek and
stylish appearance and serve as a rust shield.
AFTERMARKET
DPI manufactures springs, spring assemblies and spring-related products for the
heavy-duty truck and trailer aftermarket. The Company has the capability of
producing more than 17,000 spring types. These products require heating,
trimming, bending and final heat treatment prior to assembly and painting. This
manufacturing process is similar to the methods used by the OEM spring
manufacturers.
MARKETING, DISTRIBUTION AND CUSTOMERS
ORIGINAL EQUIPMENT
The Company's OEM business supplies products to domestic OEMs either directly or
through Tier 1 suppliers. In the year ended December 31, 1997, approximately 68%
of the Company's net sales were to OEM customers. Sales to significant customers
for the year ending December 31, 1997 were as follows:
Actual
------
General Motors 44%
Chrysler Corporation 11%
No other OEM customer accounts for more than 10% of the Company's net sales.
The Company sells its products through a direct sales force or agents that
specialize in the Company's product lines. The Company works directly with its
customers, including the three major U.S. automobile manufacturers, to design
and develop products to satisfy market demands. Most of the parts the Company
produces have lead times of one to four years from product award to production.
The Company has been awarded new business for each of the 1998-2001 model years.
Because the Company's OEM business supplies its customers on a "just-in-time"
basis, it does not currently maintain a backlog.
AFTERMARKET
The Company's aftermarket business distributes springs and spring-related
products manufactured by DPI, as well as other undercarriage replacement parts,
including wheel-end products (such as brake drums, cast spoke wheels, rotors and
calipers), brake hardware, suspension parts (such as hangers, bushings, shocks
and suspension kits) and steering components (such as king pin sets, ball
joints, drag links and tie rod ends). Allparts derives all of its sales through
the distribution of hydraulic brake parts to the independent aftermarket. As
part of its distribution process, a number of products sold by Allparts are
packaged at its distribution facility.
DPI uses its own sales force to sell products for heavy and medium-duty trucks
and trailers throughout the continental United States, Mexico, Central America
and parts of Canada to approximately 1,800 customers. Although most of DPI's
products are for the repair and maintenance needs of heavy and medium-duty
trucks, trailers and mobile equipment, DPI also sells some products for
light-duty trucks. In addition to on-the-road trucks and trailers, DPI
distributes undercarriage replacement parts for specialty vehicles such as
garbage trucks, cement trucks, construction equipment and farm equipment.
DPI sells its products primarily to spring service shops, fleet distributors,
manufacturers of specialty vehicles, warehouse distributors and wheel and rim
distributors. These outlets in turn sell parts to local truck fleets,
redistribute parts to smaller outlets such as local repair garages or install
the parts themselves on the end-users' vehicles.
Allparts' sales and marketing efforts are directed through a network of
manufacturer's representative agencies. These agencies are directed by the
national sales manager of Allparts.
Allparts' sales include a major retail chain that represents 14% of the total
sales for aftermarket businesses. No one aftermarket customer accounts for more
than 10% of the Company's annual net sales. The aftermarket group ships most of
its products in a short period of time after receiving the related order and
does not maintain a significant order backlog.
SEASONALITY
The OEM business experiences seasonal fluctuations that are consistent with
those of other OEM suppliers. The Company typically experiences decreased sales
and operating income from its OEM business during the second half of each year
due to OEM model changeovers and vacation periods.
The aftermarket business is subject to minor seasonal fluctuations, with demand
for aftermarket parts tending to be higher in the second and third quarters
because end-users have tended to make more vehicle repairs at those times.
COMPETITION
ORIGINAL EQUIPMENT
The OEM supplier industry is highly competitive and comprised of many companies
of various sizes. Demand for parts and components sold to OEMs is driven by the
demand for sales of new vehicles. The Company believes that the number of such
competitors will decrease in response to the OEMs' pressure for supplier
consolidation. The Company's largest competitors for exterior trim include Magna
International Inc.-Decomo Division, Venture Holdings Trust, Standard Products,
Arrow Plastic Products and Guardian Industries Corp., and for fasteners include
MacLean-Fogg, Horizon and others. Many of the Company's competitors are
divisions or subsidiaries of companies which are substantially larger and more
diversified than the Company. In addition, many of the Company's competitors
have greater financial and other resources than the Company.
The Company competes for new business both at the beginning of the development
of new models and upon the redesign of existing models. Competitive factors in
the market for the Company's OEM products include quality, reliability, cost,
timely delivery, technical expertise and development capability.
Aftermarket
The automotive and truck parts aftermarket in which DPI and Allparts operate is
highly competitive. Both DPI and Allparts have numerous competitors. However,
the product lines of DPI and Allparts are narrow and focus on specific markets.
There is no one competitor that dominates any product line in which either DPI
or Allparts participates. Some of the Company's more significant competitors are
Triangle Auto Spring Co., Meritor Automotive and Euclid Industries Inc. In
addition, some of the Company's competitors are well-established truck or
automotive suppliers which have greater financial and other resources than the
Company. Among the primary competitive factors affecting this market are price,
product quality, breadth of product line and customer service.
SUPPLIERS AND RAW MATERIALS
The principal raw materials used by DPI, Starboard and IAF in their
manufacturing operations are various types and grades of steel, all of which are
readily available. The principal raw materials used by PTI and JPE Canada are
acrylic foam tape, paint, PVC, and thermo plastic olefin (TPO) and thermo
plastic urethane (TPU) compounds, all of which are readily available.
The Company's aftermarket business is affected by its ability to obtain an
adequate supply of the products it distributes, its relationships with its
suppliers and its ability to purchase products from those suppliers on favorable
terms. The Company believes that it has multiple sources for all product part
numbers from either domestic or offshore manufacturers.
INTELLECTUAL PROPERTY
The Company has a number of patents and patent applications pending in both the
United States and certain foreign jurisdictions for its stainless steel fastener
design and for processes related to its plastic injection molded products.
Notwithstanding its patent portfolio, the Company believes that the design,
quality and pricing of its products and its relations with its customers are
substantially more important to its business than patent protection.
There can be no assurance that patents will be issued from any pending
applications or that any claims allowed from existing or pending patents will be
sufficiently broad to protect the Company's technology. The Company believes
that it is not dependent to any material extent upon any one patent or group of
patents.
GOVERNMENTAL REGULATIONS
The Company is subject to various federal, state, provincial and local laws and
regulations relating to the operation of its businesses and the manufacture of
its products, including those relating to product safety guidelines; generation,
handling and disposal of waste; discharge and emission controls; and protection
of health and the environment. These laws include the Clean Water Act, the Clean
Air Act, the Resource Conservation and Recovery Act ("RCRA") and the
Comprehensive Environmental Response, Compensation and Liability Act in the
United States, together with implementing regulations and similar state laws and
regulations, as well as similar laws and regulations in Canada and Ontario. In
part, these laws and regulations govern the manner in which the Company handles
various wastes, discharges, emissions and environmental conditions at or
attributable to its operations or facilities.
Operations at some of the Company's facilities have been and continue to be
sources of emissions and discharges of various materials, including air
emissions from coating and painting operations and discharges of process
wastewaters. For example, various Company facilities have been the sites of
releases of polychlorinated biphenyl-contaminated oil, mineral spirits, fuel and
quench oils and, possibly, other materials. Some of these materials remain at
and about the sites of these facilities. Some of DPI's Harrisburg, Pennsylvania
facilities are believed to be located on a former municipal landfill because
materials associated with municipal landfills have been found at these
facilities. In addition, at various Company facilities, substances have been and
currently are used that are classified as hazardous under RCRA or as pollutants,
contaminants or hazardous, toxic or regulated substances under other applicable
laws. The parties from whom the Company acquired its operations have, to various
degrees, agreed to limited indemnification of the Company against some
environmental claims under the various acquisition agreements with the Company,
but there can be no assurance that these indemnities will be adequate to cover
all liabilities and expenses that may arise. Although the Company does not know
the amounts of any liabilities or expenses it may incur in the future in
connection with the investigation or remediation of materials or conditions in
connection with the control of emissions and discharges at its facilities, it
does not believe that these liabilities and expenses will have a material
adverse effect on its financial condition or results of operations (although
there could be such effects in particular periods).
Developments with regard to laws, regulations and enforcement policies could
result in additional, presently unquantifiable, costs or liabilities to the
Company or might in the future restrict the Company in ways that could require
it to modify, supplement or replace existing equipment and facilities and to
change or cease present methods of operation. Furthermore, laws, regulations and
governmental policies are subject to change and no assurance can be given that
existing laws, regulations and policies will not be amended or that new laws,
regulations and policies will not be adopted that will impose more extensive
regulation, cost or liability on the Company in the future.
EMPLOYEES
The Company had a total of approximately 1,426 employees on December 31, 1997,
approximately 909 of whom were located in the United States. Approximately 692
were represented by labor unions, at the Company's JPE Canada, IAF and PTI
operations. The IAF collective bargaining agreement expires in April 1998 and
the PTI agreement expires in October 1998.
ITEM 2. PROPERTIES
The following list indicates the Company's principal manufacturing, distribution
and administrative facilities by location. All owned U.S. facilities are subject
to liens under the Credit Agreement and all owned Canadian facilities are
subject to liens under the Canadian Credit Facility:
Building Size
Primary Use (Approximate Owned
of the Facility Location Square Feet) or Leased
- --------------- -------- ------------- ---------
Corporate headquarters Ann Arbor, MI 5,200 Leased
Manufacturing East Tawas, MI 100,000 Owned
Manufacturing and
administrative Royal Oak, MI 75,000 Owned
Manufacturing and
administrative Beavercreek, OH 105,000 Owned
Finishing and
distribution Jamestown, OH 90,000 Owned
Manufacturing Harrisburg, PA 100,000 Owned
Distribution and
administrative Harrisburg, PA 150,000 Leased
Packing and
distribution
facility Louisiana, MO 40,000 Owned
Manufacturing and
administrative Peterborough,
Ontario, Canada 231,000 Owned
Manufacturing and
warehousing Peterborough,
Ontario, Canada 147,000 Leased
Manufacturing Kitchener, Ontario,
Canada 94,000 Owned
The Company's buildings, machinery and equipment are in adequate operating
condition, and are suitable and adequate for current production requirements.
ITEM 3. LEGAL PROCEEDINGS
Neither the Company nor any of its subsidiaries is a party to, nor are any of
its properties the subject of, any pending legal proceedings, other than certain
ordinary routine litigation incidental to their businesses, which in the opinion
of management is not material.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock trades on the Nasdaq National Market tier of The
Nasdaq Stock MarketSM under the symbol "JPEI." The following table indicates the
high and low sale prices for the Company's Common Stock as reported on the
Nasdaq National Market for the last two years. Such over-the-counter market
quotations reflect inter-dealer prices, without retail mark-up, mark-down or
commission and may not necessarily represent actual transactions.
MARKET PRICE
QUARTER 1996 1997
- ------- ---- ----
High Low High Low
---- --- ---- ---
First $11.25 $8.25 $8.50 $6.75
Second 11.13 9.00 7.75 6.38
Third 10.00 8.00 7.69 5.44
Fourth 9.00 6.88 8.25 5.25
On March 16, 1998, there were approximately 146 holders of record of the
Company's Common Stock and approximately 1,633 beneficial shareholders.
The Company has never declared or paid any dividends on shares of Common Stock
and has no intention of declaring or paying any dividends on shares of Common
Stock in the foreseeable future. The Company intends to retain its earnings, if
any, for the development of its business.
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data presented below, as of and for the periods ended
December 31, 1993, 1994, 1995, 1996 and 1997, are derived from the Company's
financial statements, audited by Coopers & Lybrand L.L.P., independent
accountants, and should be read in conjunction with the Company's audited
financial statements and notes thereto included elsewhere in this Report on Form
10-K (the "Company's Financial Statements"). The selected financial data set
forth below should also be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included in Item 7 of
this Report on Form 10-K. Certain amounts from prior years have been
reclassified to conform with the 1997 presentation.
Years Ended December 31,
---------------------------------------------------
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
(in thousands, except per share data)
Income statement data:
Net sales $54,693 $70,073 $169,202 $201,453 $287,066
Cost of goods sold 40,639 51,994 134,156 166,714 246,903
------- ------- -------- -------- --------
Gross profit 14,054 18,079 35,046 34,739 40,163
Charge for impairment
of goodwill -- -- -- 4,300 --
Discontinuance of
stamping operations -- -- -- -- 2,164
Selling, general and
administrative expenses 9,950 11,892 21,361 24,600 29,254
------- ------- -------- -------- --------
Operating profit 4,104 6,187 13,685 5,839 8,745
Other non-operating expense -- -- -- -- 618
Interest income (expense),
net (844) (1,029) (6,456) (7,225) (10,464)
------- ------- -------- -------- --------
Income (loss) before
income taxes 3,260 5,158 7,229 (1,386) (2,337)
Income tax expense (benefit) 1,159 1,968 2,780 203 (194)
------- ------- -------- -------- --------
Net income (loss) $ 2,101 $ 3,190 $ 4,449 $ (1,589) $ (2,143)
======= ======= ======== ======== ========
Earnings (loss) per common
share assuming dilution $ .73 $ .83 $1.09 $ (.35) $ (.47)
===== ===== ===== ====== ======
Weighted average shares
outstanding and common
stock equivalent 2,871 3,865 4,098 4,586 4,606
Years Ended December 31,
---------------------------------------------------
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
(in thousands)
Balance sheet data at
end of period:
Working capital (deficit) $15,617 $22,084 $ 39,955 $ 42,138 $(59,181)(1)
Total assets 34,891 66,492 145,229 174,725 193,215
Long-term debt (including
current maturities) 7,287 25,973 83,375 110,001 9,272 (1)
Total liabilities 13,101 40,979 108,482 138,947 159,721
Total shareholders'
equity 21,790 25,513 36,747 35,778 33,494
1. Working capital and long-term debt reflect the classification of the
Company's U.S. revolving credit agreement of $103,875 outstanding at
December 31, 1997, which matures on October 27, 1998. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
and "Liquidity and Capital Resources."
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the financial
statements and notes thereto to assist in understanding the Company's results of
operations, its financial position, cash flows, capital structure and other
relevant financial information.
RECENT INFORMATION
On March 23, 1998, the Company announced that it intends to pursue the sale of
the entire Company, in addition to the aftermarket businesses. The Company has
concluded that the turnaround of its Canadian operation would take longer than
anticipated and would require additional investment. Therefore, management
believes that the proper course of action for the Company is to sell JPE and all
of its businesses.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
Net sales for the year ended December 31, 1997 were $287 million compared to
$201 million for the previous year. The net sales increase of 43% is principally
attributable to the full year effect of the acquisition of JPE Canada completed
in December 1996 and the acquisition of BATCO in April 1997. For the year ended
December 31, 1997, net sales for the Company were 68% to OEM customers and 32%
to aftermarket customers.
Gross profit increased to $40.2 million for the year ended December 31, 1997
compared with $34.7 million for the prior year. The gross margin percentages
were 14.0% and 17.2% for 1997 and 1996, respectively. The decline in gross
margin is a result of production difficulties at the Company's JPE Canada
operation which was purchased out of bankruptcy in December 1996. JPE Canada's
gross profit for 1997 was $1.5 million on sales of $61.4 million. Based on
unaudited financial data for 1996, the operations of Pebra Inc. (now JPE Canada)
would have reported a gross loss of $2.3 million on sales of $68.9 million.
Excluding JPE Canada's results, the gross margin for 1997 would have been 17.1%.
The gross margin for the Company's OEM businesses, without JPE Canada, in 1997
was 11.1% compared to 12.4% and 16.4% for the years ended 1996 and 1995,
respectively. This gross margin percentage decline is attributable to additional
production costs incurred by Starboard in connection with implementing its plan
to exit the stamping business and excessive launch costs and scrap at Plastic
Trim.
During the second quarter of 1997, management implemented a plan to improve the
operating results of its Starboard business, primarily by discontinuing its
stamping operations by September 30, 1997. The plan included resourcing the
stamped parts to other third-party suppliers, the sale of its stamping assets,
reducing the workforce and a major re-layout of Starboard's East Tawas, Michigan
production facility to improve productivity of its roll-forming and co-extrusion
operations. Management made this decision based on the negative impact the
stamping business had on the operating results of Starboard and the OEM Trim
Group as a whole. As a result of this discontinuance of stamping operations, the
Company recorded a charge of $2.2 million relating to the loss on disposal of
assets, employee severances and other costs directly related to the stamping
business.
See discussion below for an explanation of the charge for impairment of goodwill
in 1996.
Selling, general and administrative expenses increased 19% to $29.3 million for
the year ended December 31, 1997 compared to $24.6 million for 1996. The
increase in spending is a result of the full year impact of the JPE Canada
acquisition made in December 1996 and the acquisition of BATCO in April 1997.
Selling, general and administrative expense as a percentage of sales was 10.2%
and 12.2% for the years ending December 31, 1997 and 1996, respectively. The
decline in this percentage is attributable to management efforts to contain
costs in its Aftermarket and OEM businesses and the increasing significance of
the OEM business to the Company. Amortization of goodwill for the year ended
December 31, 1997 was $1.4 million versus $1.3 million for the same period in
1996. The increase in goodwill amortization expense is attributable to the
acquisition of BATCO, partially offset by the reduction in goodwill due to the
impairment charge recorded in 1996.
Other non-operating expense in 1997 consists principally of foreign currency
transaction losses of $468,000 incurred by JPE Canada related to its net U.S.
dollar liability position. The functional currency for JPE Canada is the
Canadian dollar which weakened from Cdn. $1.365 to Cdn. $1.43 per U.S. dollar.
Interest expense increased to $10.5 million in 1997 compared to $7.2 million for
the year ended December 31, 1996. The increase is a result of funds borrowed to
finance the acquisitions of JPE Canada in December 1996 and BATCO in April 1997
and a slightly higher debt level as a result of capital additions to enhance
existing production technologies and capabilities. The average borrowing rates
for 1997 and 1996 were 8.2% and 7.8%, respectively. Interest expense includes
facility fees and debt agreement amendment fees of $376,000 for 1997 compared to
$293,000 for 1996.
The effective tax rate for the year ended December 31, 1997 was a benefit of 8%
compared to a tax rate of 15% for the year ended December 31, 1996. The unusual
tax rate relationship for 1997 is attributable to non-deductible goodwill and
losses that occurred in Michigan, whose tax is not income based, which are
offset by a foreign tax benefit associated with JPE Canada's losses. There was
only a nominal foreign tax benefit in 1996.
Net loss for the year ended December 31, 1997 was $2.1 million compared to a net
loss of $1.6 million for the year ended December 31, 1996. Loss per share
assuming dilution for the year ended December 31, 1997 was $0.47 per share as
compared to a loss per share assuming dilution of $0.35 for the same period in
1996. These changes are a result of the factors mentioned above. The Company has
adopted Financial Accounting Standards Board Statement No. 128, "Earnings Per
Share." All share amounts have been restated to reflect weighted average shares
outstanding for the period with the dilutive effect for stock options or
warrants.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Net sales for the year ended December 31, 1996 were $201 million compared to
$169 million for the previous year. The net sales increase of 19% is principally
attributable to the full year effect of the acquisition of two OEM businesses
completed in the first quarter of 1995, a stronger North American automotive
market than in 1995 and a rise in aftermarket orders. Additionally, the Company
began production and shipments of end-formed plastic extruded body side
moldings, which is a proprietary technology that was purchased from another
company in late 1995. For the year ended December 31, 1996, net sales for the
Company were 63% to OEM customers and 37% to aftermarket customers.
Gross profit decreased to $34.7 million for the year ended December 31, 1996
compared with $35.0 million for the prior year. The gross margin percentages
were 17.2% and 20.7% for 1996 and 1995, respectively. The decline in gross
margin is a result of production and launch difficulties at the Company's IAF
and Starboard facilities; a change in sales mix at IAF to products with lower
gross margins; and the impact of incentives associated with long-term OEM
contract pricing. These reductions are partially offset by the recovery of
$890,000 in costs related to the cancellation of a trim program from an OEM
customer.
During the third quarter of 1996, management identified that a significant
change had occurred in the product mix of IAF since it was acquired in March
1995. In accordance with SFAS 121, "Accounting for Impairment of Long-Lived
Assets to be Disposed of," management recorded a $4.3 million impairment
writedown of goodwill associated with the acquisition of IAF. The goodwill was
originally valued at $6.8 million when IAF was acquired and, subsequent to the
adjustment, had a net unamortized carrying value of approximately $2.1 million
as of December 31, 1996, based on management's estimate of the current fair
market value of the IAF business which was acquired. This adjustment will reduce
goodwill amortization by $172,000 on an annual basis.
Selling, general and administrative expenses increased 15.2% to $24.6 million
for the year ended December 31, 1996 compared to $21.4 million for 1995. The
increase in spending is a result of the full year impact of two OEM acquisitions
made in the first three months of 1995 and an $850,000 charge related to the
write-down of an equity investment and severance costs for changes in senior
management at IAF and Starboard. Selling, general and administrative expense as
a percentage of sales was 12% and 13% for the years ending December 31, 1996 and
1995, respectively. The decline in this percentage is attributable to management
efforts to contain costs in its Aftermarket and OEM businesses, the increasing
significance of the OEM business to the Company and a $342,000 non-recurring
charge recorded in 1995 for severance agreements of two senior executives.
Amortization of goodwill for the year ended December 31, 1996 was $1.3 million
versus $924,000 for the same period in 1995.
Interest expense increased to $7.2 million in 1996 compared to $6.5 million for
the year ended December 31, 1995. The increase is a result of funds borrowed to
finance two OEM supplier acquisitions in 1995 and a slightly higher debt level
as a result of capital additions to enhance existing production technologies and
capabilities. The average interest rate for 1996 and 1995 was 8%.
The effective tax rates for the years ended December 31, 1996 and 1995 were 15%
and 38.5%, respectively. The decline in tax rate is due to the Company
experiencing pre-tax losses for the year ending December 31, 1996. Even with
pre-tax losses in 1996, the Company was still subject to tax as a result of
non-deductible goodwill, the write-off of an equity investment in a joint
venture and losses that occurred in Michigan, whose tax is not income based.
Net loss for the year ended December 31, 1996 was $1.6 million compared to net
income of $4.4 million for the year ended December 31, 1995. Loss per share
assuming dilution for the year ended December 31, 1996 was $0.35 per share as
compared to earnings per share of $1.09 for the same period in 1995. These
changes are a result of the factors mentioned above. The weighted average shares
for 1996 were 4,574,000 as compared to 3,966,000 for 1995. During 1995 and 1996,
the Company issued a total of 794,362 shares through a public offering and its
stock option plans.
On a pro forma basis, assuming the acquisitions of IAF, PTI and JPE Canada
occurred on January 1, 1995, the net sales for the year ended December 31, 1996
would have been approximately $276 million, an increase of approximately 5% over
1995 sales. The increase is attributable to higher new vehicle production, an
increase in the aftermarket industry in 1996 and other sales factors mentioned
above. On a pro forma basis, net loss would have been approximately $2.0 million
or $.43 per share for the year ended December 31, 1996.
The pro forma data does not purport to be indicative of the results which would
actually have been reported if these transactions had occurred on such dates or
which may be reported in the future. The pro forma data should be read in
conjunction with the historical financial statements.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal capital requirements are to fund working capital needs
and capital additions to enhance existing production technologies and
capabilities. Historically, the Company has used cash flows generated by
operations, borrowings under its credit agreements and equity financing to meet
these needs.
The Company's principal source of liquidity is the $120 million Third Amended
and Restated Credit Agreement dated December 31, 1996 (the "Credit Agreement"),
as amended by Amendment No. 1 dated as of April 16, 1997, Amendment No. 2 dated
as of August 14, 1997 (effective June 30, 1997) and Amendment No. 3 dated as of
February 13, 1998. The Credit Agreement expires on October 27, 1998. The Credit
Agreement is collateralized by all of the Company's assets, with the exception
of JPE Canada's assets. The Credit Agreement includes various restrictive
financial and other covenants. The Company was in compliance with all covenants
as of December 31, 1997.
Amendment No. 3 to the Credit Agreement requires the Company to reduce its
borrowings under the Credit Agreement to no more than $70 million on or before
June 30, 1998. In addition, the Amendment increased the interest rate on
borrowings to prime plus 1.25%. There is also an amendment fee equal to $120,000
per month until the debt reduction occurs. The Company intends to accomplish the
debt reduction through the sale of its wholly-owned subsidiaries, Dayton Parts,
Inc. and Allparts, Inc., although there can be no assurance that the proceeds of
these sales will be sufficient to satisfy this requirement or that the sales
will occur on or before June 30, 1998. In addition, the Credit Agreement expires
on October 27, 1998. The Company has announced that it intends to sell all of
JPE and its businesses, although there can be no assurance that such sale(s)
will occur prior to October 27, 1998 nor can there be any assurance that the
proceeds of such sale(s) will be adequate to retire the Credit Agreement.
The Company has an interest rate swap agreement on $30 million notional amount
of borrowings under the Credit Agreement. The swap agreement is effective
October 26, 1995 through October 26, 1998. This agreement exchanged the
three-month LIBOR rate for a fixed rate of 6.225%.
During 1997, the Company acquired all of the outstanding capital stock of Brake,
Axle and Tandem Company for total consideration of $5.5 million plus a five year
earn-out not to exceed $3.9 million based on achieving certain sales levels. The
acquisition was financed from borrowings under the Credit Agreement.
On December 20, 1996, JPE Canada entered into a Cdn. $28.7 million credit
agreement with a Canadian bank (the "Canadian Credit Facility"), primarily to
fund the acquisition of Pebra Inc. In addition to funding the acquisition of
Pebra Inc., the Canadian Credit Facility permits JPE Canada to borrow funds in
the form of advances for operating requirements and capital expenditures.
Repayment terms of borrowings under the facility vary based on the nature of the
advance. Advances under the Canadian Credit Facility are collateralized by
substantially all of the assets of JPE Canada. Interest rates on the advances
are computed at either the Canadian Prime Rate or the Base Rate, as defined in
the agreement. At December 31, 1997, the average interest rate was 7.8%. JPE
Canada was in compliance, or had received waivers for compliance, with all
covenants as of December 31, 1997.
During 1995, the Company acquired the assets of Industrial & Automotive
Fasteners, Inc. and all outstanding capital stock of Plastic Trim, Inc. The
total consideration for these two businesses was $66.6 million. The acquisitions
were financed principally from borrowings under the Credit Agreement and a $10
million short-term note to a former owner. This short-term note was repaid on
January 2, 1996 from borrowings under the Credit Agreement.
During the second quarter of 1995, the Company sold 135,712 shares of Common
Stock at $14.00 per share for cash proceeds of approximately $1.9 million to
certain former shareholders of Plastic Trim, Inc. in a private transaction.
In November 1995, the Company sold 500,000 shares of Common Stock at $10.75 per
share through a public offering. The net proceeds of $4.6 million were used to
pay down borrowings under the Credit Agreement.
At December 31, 1997, Current Liabilities exceeded Current Assets by $59.2
million, reflecting the classification of the U.S. Credit Agreement of $103.9
million as current liability. Excluding the Credit Agreement, working capital at
December 31, 1997 would have been $44.7 million as compared to $42.1 million at
December 31, 1996. The increase in working capital is attributable to higher
receivables due to strong aftermarket sales in December and tooling receivables
for the OEM businesses. Cash provided by operations was $4 million for the year
ended December 31, 1997. These funds, along with additional borrowings under the
Credit Agreement, were used to fund losses at JPE Canada and Starboard and for
additions to property, plant and equipment and the purchase of BATCO.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
JPE, INC.
INDEX TO FINANCIAL STATEMENTS
Page
----
Report of Independent Accountants 22
Consolidated Balance Sheets as of December 31,
1996 and 1997 23
Consolidated Statements of Income and
Comprehensive Income for the Years
Ended December 31, 1995, 1996 and 1997 24
Consolidated Statements of Shareholders'
Equity for the Years Ended December 31,
1995, 1996 and 1997 25
Consolidated Statements of Cash Flows
for the Years Ended December 31, 1995,
1996 and 1997 26
Notes to Consolidated Financial Statements 27-41
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Shareholders of JPE, Inc.:
We have audited the consolidated balance sheets of JPE, Inc. as of December 31,
1997 and 1996 and the related consolidated statements of income and
comprehensive income, shareholders' equity, and cash flows for each of the three
years in the period ended December 31, 1997 and the financial statement schedule
listed in Item 14(a) of this Form 10-K. These financial statements and financial
statement schedule are the responsibility of the company's management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of JPE, Inc. as of
December 31, 1997 and 1996, and the consolidated results of their operations and
their cash flows for each of the three years in the period ended December 31,
1997, in conformity with generally accepted accounting principles. In addition,
in our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. At December 31, 1997, current
liabilities exceed current assets by $59.2 million which reflects the current
classification of the revolving credit agreement of $103.9 million, which
expires on October 27, 1998. As discussed in Note 5, an amendment to the
revolving credit agreement requires that outstanding debt be reduced to $70
million prior to June 30, 1998 and the Company intends to accomplish this
through the sale of its wholly owned subsidiaries, Dayton Parts, Inc. and
Allparts, Inc. The Company incurred net losses in 1996 and 1997 and management's
current projections indicate that there will not be sufficient cash flow from
operations to meet this debt reduction obligation. If the proceeds from the sale
of Dayton Parts, Inc. and Allparts, Inc. are not sufficient to reduce the debt
level to $70 million, JPE, Inc. will not be able to meet this debt reduction
obligation nor can there be any assurance that the sale of subsidiaries will
occur before June 30, 1998. These conditions raise substantial doubt about the
Company's ability to continue as a going concern. The financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
COOPERS & LYBRAND L.L.P.
Detroit, Michigan
February 26, 1998, except as to the information
presented in Note 16, for which the date is March 23, 1998
JPE, INC.
CONSOLIDATED BALANCE SHEETS
at December 31,
(amounts in thousands, except share data)
ASSETS
1996 1997
---- ----
Current assets:
Cash and cash equivalents $ 1,316 $ 29
Accounts receivable, net of
allowance for doubtful
accounts of $262 and $374
at December 31, 1996
and 1997, respectively 26,829 37,997
Inventory 37,963 39,412
Other current assets 8,688 8,375
-------- --------
Total current assets 74,796 85,813
Property, plant and equipment, net 69,281 72,981
Goodwill, net 27,068 31,962
Other assets 3,580 2,459
-------- --------
Total assets $174,725 $193,215
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 323 $105,402
Short term debt 8,120 7,723
Accounts payable 17,643 25,219
Accrued liabilities 6,190 6,336
Income taxes 382 314
-------- --------
Total current liabilities 32,658 144,994
Deferred income taxes 3,184 3,804
Other liabilities 1,547 1,651
Long-term debt, non-current 101,558 9,272
-------- --------
Total liabilities 138,947 159,721
-------- --------
Commitments and contingencies -- --
Shareholders' equity:
Preferred stock, no par value,
3,000,000 authorized, no
shares issued and outstanding -- --
Common stock, no par value,
15,000,000 authorized,
4,582,480 and 4,602,180 issued
and outstanding at December 31,
1996 and 1997, respectively 27,921 28,051
Accumulated other comprehensive loss -- (271)
Retained earnings 7,857 5,714
-------- --------
Total shareholders' equity 35,778 33,494
-------- --------
Total liabilities and
shareholders' equity $174,725 $193,215
======== ========
The accompanying notes are an integral part
of the consolidated financial statements.
JPE, INC.
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
for the years ended December 31,
(amounts in thousands, except per share data)
1995 1996 1997
---- ---- ----
Net sales $169,202 $201,453 $287,066
Cost of goods sold 134,156 166,714 246,903
-------- -------- --------
Gross profit 35,046 34,739 40,163
Charge for impairment of
goodwill (Note 11) -- 4,300 --
Discontinuance of stamping
operations -- -- 2,164
Selling, general and
administrative expenses 21,361 24,600 29,254
-------- -------- --------
Operating profit 13,685 5,839 8,745
Other non-operating expenses -- -- 618
Interest expense, net 6,456 7,225 10,464
-------- -------- --------
Income (loss) before income taxes 7,229 (1,386) (2,337)
Income tax expense (benefit) 2,780 203 (194)
-------- -------- --------
Net income (loss) $ 4,449 $ (1,589) $ (2,143)
Other comprehensive expense
Foreign currency translation
adjustment -- -- (271)
-------- -------- --------
Comprehensive income (loss) $ 4,449 $ (1,589) $ (2,414)
======== ======== ========
Basic earnings (loss) per common share $1.12 $ (.35) $ (.47)
===== ====== ======
Weighted average shares outstanding 3,966 4,574 4,602
===== ===== =====
Earnings (loss) per common share -
assuming dilution $1.09 $ (.35) $ (.47)
===== ====== ======
Weighted average shares outstanding
and common stock equivalents 4,092 4,574 4,602
===== ===== =====
The accompanying notes are an integral part
of the consolidated financial statements.
JPE, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
for the years ended December 31
(amounts in thousands, except share data)
Accumulated
Common Stock Other
Shares Comprehensive Retained
Outstanding Amount Loss Earnings Total
----------- ------ ------------- -------- -----
Balances, January 1, 1995 3,788,118 $20,516 $4,997 $25,513
Issuance of stock 635,712 6,497 6,497
Employee Stock Plan 50,100 75 75
Tax benefit from exercised
stock options 213 213
Net income 4,449 4,449
--------- ------- ----- ------ -------
Balances, December 31, 1995 4,473,930 27,301 -- 9,446 36,747
--------- ------- ----- ------ -------
Employee Stock Plan 108,550 410 410
Tax benefit from exercised
stock options 210 210
Net loss (1,589) (1,589)
--------- ------- ----- ------
Balances, December 31, 1996 4,582,480 27,921 -- 7,857 35,778
--------- ------- ----- ------ -------
Employee Stock Plan 19,700 77 77
Options granted for
consulting services 25 25
Tax benefit from exercised
stock options 28 28
Foreign currency translation
adjustment (271) (271)
Net loss (2,143) (2,143)
--------- ------- ----- ------ -------
Balances, December 31, 1997 4,602,180 $28,051 $(271) $5,714 $33,494
========= ======= ===== ====== =======
The accompanying notes are an integral part
of the consolidated financial statements.
JPE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended December 31,
(amounts in thousands)
1995 1996 1997
---- ---- ----
Cash flows from operating activities:
Net income (loss) $ 4,449 $ (1,589) $ (2,143)
Adjustments to reconcile net income
to net cash provided by operating
activities:
Charge for impairment of goodwill
(Note 11) -- 4,300 --
Charge for discontinued operations
(Note 12) -- -- 2,250
Depreciation and amortization 5,822 7,416 10,412
Disposal of property and equipment 232 98 1,296
Deferred income taxes 1,057 257 620
Changes in operating assets and
liabilities:
Accounts receivable 1,278 (936) (9,109)
Inventory (3,815) 729 (1,322)
Other assets (2,940) 1,534) 1,898
Accounts payable 530 2,487 4,260
Accrued liabilities (852) (1,376) (4,072)
Income taxes 138 208 (68)
-------- -------- --------
Net cash provided by
operating activities 5,899 10,060 4,022
-------- -------- --------
Cash flows from investing activities:
Purchase of property and equipment (5,221) (13,150) (13,172)
Purchase of patent -- (1,466) --
Proceeds on sale of property
and equipment -- -- 1,200
Acquisition of Industrial &
Automotive Fasteners, Inc. (15,638) -- --
Acquisition of Plastic Trim, Inc. (40,578) -- --
Acquisition of Pebra Inc. -- (21,662) --
Acquisition of Brake, Axle and
Tandem Company -- -- (5,518)
-------- -------- --------
Net cash used by
investing activities (61,437) (36,278) (17,490)
-------- -------- --------
Cash flows from financing activities:
Repayments of promissory notes (12,889) -- --
Sale of common stock, net 6,572 410 102
Repayments of term loans (2,461) (10,100) (1,727)
Net borrowings under revolving loan 62,377 19,270 11,675
Net borrowings under Canadian credit
facility -- 17,456 1,059
Net borrowings under sale leaseback
of equipment -- -- 1,555
Payment of deferred financing costs (278) -- --
Tax benefit from exercised stock options 213 210 28
-------- -------- --------
Net cash provided by
financing activities 53,534 27,246 12,692
-------- -------- --------
Currency translation effect on cash -- -- (511)
-------- -------- --------
Cash and cash equivalents:
Net increase (decrease) in cash (2,004) 1,028 (1,287)
Cash and cash equivalents,
beginning of period 2,292 288 1,316
-------- -------- --------
Cash and cash equivalents,
end of period $ 288 $ 1,316 $ 29
======== ======== ========
The accompanying notes are an integral part
of the consolidated financial statements
JPE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share data)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BUSINESS - JPE, Inc. is a manufacturer and distributor of automotive and
truck components for the original equipment manufacturers and the
replacement parts markets principally in North America. Total sales for the
year ended December 31, 1997 were approximately 68% to the original
equipment manufacturers and 32% to the replacement parts markets. JPE, Inc.
has announced its intention to sell the entire Company as explained in
Notes 15 and 16.
FINANCIAL STATEMENT PRESENTATION - The preparation of financial statements
in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates. Certain financial
statement items have been reclassified to conform to the current year's
format.
PRINCIPLES OF CONSOLIDATION - The accompanying consolidated financial
statements include the accounts of JPE, Inc. (the "Company"), and its
wholly-owned subsidiaries, Dayton Parts, Inc. ("Dayton Parts"), Allparts,
Inc. ("Allparts"), SAC Corporation ("Starboard"), Industrial & Automotive
Fasteners, Inc. ("IAF"), Plastic Trim, Inc. ("PTI") and JPE Canada Inc.
("JPE Canada"), from the dates of acquisition (the "Acquisitions"),
December 31, 1992, July 31, 1994, September 30, 1994, February 28, 1995,
March 31, 1995, and December 23, 1996, respectively. All significant
intercompany accounts and transactions with the consolidated subsidiaries
have been eliminated in the preparation of the consolidated financial
statements.
CONCENTRATION OF CREDIT RISK - Accounts receivable of the Company, which
represent the principal concentration of credit risk, result from sales to
companies in the automotive, light truck and heavy duty truck original
equipment and aftermarket industries. Credit is extended based upon an
evaluation of the customer's financial condition and collateral is not
required from customers.
INVENTORY - Inventory is valued at the lower of cost or market using the
first-in, first-out ("FIFO") cost method.
FOREIGN CURRENCY TRANSLATION - Transaction gains and losses arising from
the settlement of foreign currency transactions and the increase or
decrease in expected functional currency cash flows are charged to the
related period's statement of operations. Included in other non-operating
expense are foreign currency transaction losses of $468 in 1997.
Translation adjustments arising from the translation of foreign subsidiary
financial statements are recorded as a separate component of stockholders'
equity and other comprehensive income.
PROPERTY, PLANT AND EQUIPMENT AND DEPRECIATION - Property, plant and
equipment are recorded at cost. Costs assigned to property, plant, and
equipment purchased as part of an acquisition are based on the fair value
of such assets on the date of the acquisition or an allocation of total
purchase price if the fair value of assets acquired exceeds the purchase
price. Improvements are capitalized, and expenditures for maintenance and
repairs are charged to operations as incurred. Gains or losses on sales and
retirements of properties are included in the determination of the results
of operations. Provisions for depreciation of property, plant, and
equipment have been computed using the straight-line method based on
estimated useful lives of the related assets.
JPE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share data)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
GOODWILL - Costs in excess of net assets of acquired companies are
amortized over 25 years using the straight-line method. Accumulated
amortization at December 31, 1996 and 1997 was $2,337 and $3,699,
respectively.
DEFERRED FINANCING COSTS - Deferred financing costs associated with
borrowings are being amortized over their respective periods. Accumulated
amortization at December 31, 1996 and 1997 was $243 and $466, respectively.
EARNINGS PER COMMON SHARE - The Company has adopted Statement of Financial
Accounting Standards No. 128, "Earnings Per Share." In accordance with the
pronouncement, basic earnings per share is computed by dividing earnings by
the sum of the weighted average number of common shares outstanding during
the period. Diluted earnings per share includes common stock equivalents
(options and warrants) outstanding during the year. The dilutive effect of
common stock equivalents increases the weighted average shares outstanding
by 132,528, 12,058 and 4,439 shares, respectively, for the years ended
December 31, 1995, 1996 and 1997.
STOCK BASED COMPENSATION - Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation," encourages, but does not
require companies to record compensation cost for stock-based employee
compensation plans at fair value. The Company has elected to continue to
measure compensation costs using the intrinsic value method prescribed in
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," and related Interpretations. Accordingly, compensation cost for
stock options is measured as the excess of the quoted market price of the
Company's stock at the date of grant over the amount an employee must pay
to acquire the stock.
CASH AND CASH EQUIVALENTS - Cash and cash equivalents include investments
in highly liquid instruments with a maturity of three months or less.
2. INVENTORY:
Inventory consisted of the following at December 31:
1996 1997
---- ----
Raw materials $15,116 $15,211
Work in process and components 4,811 2,435
Finished goods 15,457 19,309
Tooling 2,579 2,457
------- -------
$37,963 $39,412
======= =======
JPE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share data)
3. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment consisted of the following at December 31:
1996 1997
---- ----
Land $ 2,894 $ 2,838
Buildings 15,015 15,967
Machinery and equipment 59,891 68,978
Furniture and fixtures 4,565 5,866
------- -------
82,365 93,649
Less accumulated depreciation (13,084) (20,668)
------- -------
$69,281 $72,981
======= =======
4. ACCRUED LIABILITIES:
Accrued liabilities consisted of the following at December 31:
1996 1997
---- ----
Accrued compensation $1,856 $1,254
Accrued interest 876 817
Accrued employee benefits 1,381 1,458
Accrued taxes 530 566
Other 1,547 2,241
------ ------
$6,190 $6,336
====== ======
5. FINANCING:
Debt consisted of the following at December 31:
1996 1997
---- ----
Revolving credit agreement with banks
due October 1998. $92,200 $103,875
Credit agreement between JPE Canada
Inc. and a Canadian bank 16,357 16,422
JPE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share data)
5. FINANCING, CONTINUED:
1996 1997
---- ----
Other 1,444 2,100
-------- --------
Total long-term debt 110,001 122,397
Less short-term debt 8,120 7,723
Less current portion of
long-term debt 323 105,402
-------- --------
Long term debt, non-current $101,558 $ 9,272
======== ========
At December 31, 1997, the Company's revolving credit agreement provided for
maximum borrowings of $120 million. Interest is computed under prime plus a
margin based on leverage and fixed charge coverage ratios. At December 31,
1996 and 1997, the average effective borrowing rate was 7.8% and 8.2%,
respectively. The revolving credit agreement provides for a facility fee
which is payable quarterly in arrears. Facility and amendment fees were
$230 in 1995, $293 in 1996, $376 in 1997, and are included as interest
expense.
All assets of the Company, with the exception of the assets of JPE Canada,
are collateralized by the lender under the revolving credit agreement. In
addition, the revolving credit agreement contains restrictive covenants
pertaining to payment of cash dividends, fixed charges and funded debt. The
revolving credit agreement was amended during 1996 to provide for separate
borrowings for JPE Canada and to change the fixed coverage ratio for the
effect of the impairment of an asset explained in Note 11. The revolving
credit agreement was further amended during 1997 to provide for an
additional $10 million line of credit and to change the fixed coverage
ratio for the effect of the discontinuance of Starboard's stamping
operations as explained in Note 12. On February 13, 1998, the revolving
credit agreement was amended to change certain financial ratios and to add
a requirement that the Company reduce its total borrowings under the
revolving credit agreement to not more than $70 million on or before June
30, 1998. The fee paid to the banks for this amendment is $120 per month
until the debt is reduced to at least $70 million. The interest rate on
borrowings has been increased to prime plus 1.25%. The revolving credit
agreement expires on October 27, 1998. The Company was in compliance with
the covenants at December 31, 1996 and 1997.
The Company has an interest rate swap agreement on $30 million notional
amount of borrowings under the revolving credit agreement. The swap
agreement, which is held for other than trading purposes, is effective
October 26, 1995 through October 26, 1998. This agreement exchanged the
three-month LIBOR rate for a fixed rate of 6.225%. The interest rate swap
agreement has been entered into with a major financial institution which is
expected to fully perform under the terms of the agreement. The difference
in the interest rate between the swap agreement and the three-month LIBOR
rate is recorded as an increase or decrease to interest expense.
JPE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share data)
5. FINANCING, CONTINUED:
On December 20, 1996, JPE Canada entered into a Cdn. $28.7 million credit
agreement with a Canadian bank, primarily to fund the acquisition of Pebra
Inc. At December 31, 1997, JPE Canada had Cdn. $23.5 million (U.S. $16.4
million) outstanding related to working capital borrowings and equipment
term loans under the credit agreement. The credit agreement also allows JPE
Canada to borrow funds for other operating needs and capital expenditures.
Repayment terms on these borrowings vary based on the nature of the
borrowing. All borrowings under the credit agreement are collateralized by
substantially all of the assets of JPE Canada. Interest rates on the
borrowings are computed based on either the Canadian Prime Rate or the Base
Rate (for U.S. dollar borrowings), as defined in the agreement. At December
31, 1997, the average interest rate on all Canadian borrowings was 7.8%.
Maturities of long-term debt, including current portion for the years
following December 31, 1997 are as follows: $113.1 million in 1998; $2.0
million in 1999; $1.9 million in 2000; $5.0 million in 2001; and $413
thereafter. All debt related amounts recorded in the accompanying balance
sheets at December 31, 1997 and 1996 approximate the fair value of the
related debt.
6. EMPLOYEE BENEFIT PLANS:
The Company has several different defined contribution plans consisting of
a 40l(k) plan and profit sharing plans which cover substantially all U.S.
based non-union employees. The Company's contribution is discretionary. The
charges to operations for the years ended December 31, 1995, 1996 and 1997
were $1,183, $1,639 and $1,258, respectively.
The Company sponsors a defined contribution money purchase plan for the
non-union employees of JPE Canada. The charge to operations for the year
ended December 31, 1997 was $79. There were no contributions made to this
plan in the year ended December 31, 1996.
The Company sponsors defined benefit pension plans for employees covered
under collective bargaining agreements at its PTI and JPE Canada
subsidiaries. The benefits are earned based on stated amounts for each
month of credited service. The Company's policy is to fund amounts as
allowed under applicable federal regulations. The assets of the plans are
invested in certificates of deposit, treasury notes and equity securities.
JPE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share data)
6. EMPLOYEE BENEFIT PLANS, CONTINUED:
Pension information is as follows:
Components of Net Periodic Pension Cost
Year Ending December 31,
1996 1997 1997
PTI JPE Canada PTI
---- ---------- ----
Service cost $69 $139 $ 81
Interest cost 77 89 102
Actual return on assets (91) (56) (144)
Net amortization and deferral (10) (1) 30
--- ---- ----
Net cost $45 $171 $ 69
=== ==== ====
No expense was recognized in the year ending December 31, 1996 for the JPE
Canada plan.
Reconciliation of Funded Status
December 31, 1996 December 31, 1997
----------------- -----------------
JPE Canada PTI JPE Canada PTI
---------- --- ---------- ---
Actuarial present value of
benefit obligations
Vested $1,144 $1,129 $1,332 $1,432
Unvested 23 39
Accumulated Benefit Obligation (ABO) 1,144 1,152 1,332 1,471
Projected Benefit Obligation (PBO) 1,144 1,152 1,332 1,536
Actual plan assets at fair value 650 1,344 897 1,549
Plan assets greater (less) than PBO (494) 192 (435) 13
Unrecognized transition liability -- (86) -- (73)
Unrecognized net gain -- (108) 38 (45)
Unrecognized prior service cost -- 62 (32) 110
Unamortized prior year's gain -- (69) 12 (33)
------ ------ ------ ------
Accrued pension cost recognized
in the balance sheet $ (494) $ (9) $ (417) $ (28)
Major assumptions
Discount rate 7.00% 8.00% 7.00% 7.50%
Rate of return on plan assets 7.00% 8.00% 7.00% 8.00%
JPE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share data)
6. EMPLOYEE BENEFIT PLANS, CONTINUED:
The Company contributes to a multiemployer defined benefit plan for the IAF
employees covered under its collective bargaining agreement. This plan is
composed of hundreds of different participating employers and many
international and local unions. Pension benefits are determined on a
formula basis which recognize length of service and benefit units. One
benefit unit is credited for each 1,800 hours of service in covered
employment. The Company has charged to expense $122 and $151 for the years
ended December 31, 1996 and 1997, respectively.
The Company also provides health care and life insurance benefits for the
union employees of IAF. These employees become eligible for benefits if
they qualify for retirement while working for the Company. The following
table presents the plan's status at December 31:
1996 1997
---- ----
Accumulated postretirement benefit obligation
Retirees $ (151) $ (277)
Fully eligible active plan participants (278) (299)
Other active plan participants (744) (792)
------- -------
Accumulated postretirement benefit
obligation $(1,173) $(1,368)
Unrecognized net loss 111 119
------- -------
Recorded accumulated postretirement
benefit obligation $(1,062) $(1,249)
======== ========
The following table presents net periodic benefit cost for the year ended
December 31:
1996 1997
---- ----
Service cost $117 $171
Interest cost 72 95
---- ----
Net periodic benefit cost $189 $266
==== ====
The accumulated postretirement benefit obligation was determined using an
assumed discount rate of 7.25% and 7.0% in 1996 and 1997, respectively. The
assumed annual health care cost trend rate was 7.0% and 8.5% for 1996 and
1997, respectively, decreasing to 5% in 2001. A one percentage point
increase in the assumed health care cost trend rate would have increased
the 1997 accumulated postretirement cost by $63 and would have increased
the accumulated postretirement benefit obligation by $268.
JPE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share data)
7. INCOME TAXES:
Income tax expense (benefit) at December 31, 1995, 1996 and 1997 is as
follows:
1995 1996 1997
---- ---- ----
Income (loss) before income tax
U.S. $7,229 $(1,301) $ 63
Foreign -- (85) (2,400)
------ ------- -------
$7,229 (1,386) (2,337)
Current payable (refundable):
Federal $1,195 $ (395) (456)
State 220 378 333
Foreign -- -- 43
------ ------- ------
Total current payable (refundable) 1,415 (17) (80)
------ ------- ------
Deferred:
Federal 1,375 96 606
State (10) 157 88
Foreign -- (33) (808)
------ ------- ------
Total deferred 1,365 220 (114)
------ ------- ------
Total income tax expense $2,780 $ 203 $ (194)
====== ======= ======
The 1995, 1996 and 1997 provision for income taxes differs from the amount
of income tax determined by applying the statutory U. S. federal income tax
rate to pretax income as a result of the following:
1995 1996 1997
---- ---- ----
Statutory U. S. federal tax rate 34% (34%) (34%)
State taxes, net of federal tax
benefit 3 26 12
Non-deductible write-off of
equity investment -- 10 --
Goodwill amortization 7 14 10
Foreign tax rate in excess
of U.S. federal tax rate -- -- 2
All other (6) (1) 2
--- --- ---
Effective tax rate 38% 15% ( 8%)
=== === ====
JPE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share data)
7. INCOME TAXES, CONTINUED:
Deferred income taxes reflect the estimated future tax effect of temporary
differences between the amount of the assets and liabilities for financial
reporting purposes and such amounts as measured by tax laws and
regulations. At December 31, 1996 and 1997, deferred tax assets and
liabilities are as follows:
1996 1997
---- ----
Deferred tax assets:
Goodwill $1,089 $ 827
Inventory 466 551
Allowance for doubtful accounts 96 243
Employee benefits 961 800
AMT tax credit 275 357
Net operating loss -- 1,461
All other 74 117
------ ------
Total deferred tax assets 2,961 4,356
------ ------
Deferred tax liabilities:
Property and equipment 4,664 5,065
LIFO inventory 230 183
Accrued liabilities -- 274
------ ------
Total deferred tax liabilities 4,894 5,522
------ ------
Net deferred taxes $1,933 $1,166
====== ======
8. STOCK OPTIONS AND WARRANTS:
The Company has granted certain officers, directors, key employees and
consultants stock options under the 1993 Stock Incentive Plan for Key
Employees of JPE, Inc. The options granted under this plan give the bearer
the right to purchase stock at a fixed price, determined at the date of
grant.
Under the JPE Stock Incentive Plan for Key Employees (the "Plan"), the
total number of shares of common stock that may be granted is 686,586. The
Plan provides that shares granted come from the Company's authorized but
unissued common stock and that the price of the options granted qualifying
as incentive options will not be less than 100 percent of the fair market
value of the shares on the date of the grant. All options that have been
granted under the Plan vest equally over a four year period and expire on
various dates, typically ten years after the date of grant.
JPE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share data)
8. STOCK OPTIONS AND WARRANTS, CONTINUED:
Information regarding the Plan, the prior plan and the JPE Director Stock
Option Plan for 1995, 1996 and 1997 is as follows:
Weighted Weighted
Average Average
Exercise Options Exercise
Shares Price Exercisable Price
------ -------- ----------- --------
Balance, January 1, 1995 399,350 $ 7.54 197,600 $ 4.06
Options exercised (50,100) $ 1.50
Options terminated and expired (149,211) 12.05
Options granted 449,539 12.29
-------
Balance, December 31, 1995 649,578 $10.26 191,198 $ 6.33
Options exercised (108,550) $ 3.78
Options terminated and expired (597,418) 11.24
Options granted 537,000 7.67
-------
Balance, December 31, 1996 480,610 $ 7.61 168,981 $ 8.26
Options exercised (19,700) $3.87
Options terminated and expired (130,910) 9.07
Options granted 86,750 7.09
-------
Balance, December 31, 1997 416,750 $ 7.22 178,500 $ 7.25
=======
1995 1996 1997
---- ---- ----
Options available for grant
at end of year 125,672 294,640 323,814
Option price range at end
of year $3.26-$14.25 $3.26-$13.50 $6.625-$8.00
Option price range for
exercised shares $1.50 $3.26-$4.01 $3.26-$7.25
Weighted average grant date
fair value of options granted $4.44 $3.61
Weighted average remaining
contractual life 8 years 7.5 years
On December 16, 1996, the Company elected to reprice 415,000 of the
outstanding options to the then fair market value of $7.25.
During 1994, the Company granted warrants to purchase 100,000 shares of
common stock at $9.50 per share. The warrants were exercisable on the grant
date and expire ten years from the date of grant. During 1993, the Company
granted warrants to purchase 25,000 shares of common stock for $13.80 per
share. These warrants expire on October 26, 1998.
JPE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share data)
8. STOCK OPTIONS AND WARRANTS, CONTINUED:
The Company has elected to adopt the disclosure-only provisions of
Statement of Financial Accounting Standards No. 123, "Accounting for Stock
Based Compensation." Accordingly, no compensation cost has been recognized
for the stock option plan. Had compensation cost for the Company's plan
been determined based on the fair value at the grant date for awards in
1995, 1996 and 1997 consistent with the provisions of SFAS No. 123, the
Company's net income and earnings per share would have changed to the pro
forma amounts indicated below:
1995 1996 1997
---- ---- ----
Net income (loss) - as reported $4,449 $(1,589) $(2,143)
Net income (loss) - pro forma $4,406 $(1,810) $(2,380)
Earnings (loss) per share assuming
dilution - as reported $1.09 $(.35) $(.47)
Earnings (loss) per share assuming
dilution - pro forma $1.08 $(.40) $(.52)
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in 1995, 1996 and 1997: dividend yield of 0%;
expected volatility of 56%; risk-free interest rate of 6.3%; and expected
lives of 6 years.
The pro forma disclosures may not be representative of the effects on
reported net income and earnings per share because only stock options
granted beginning in 1995 are reflected in the pro forma amounts. Other
factors that may impact pro forma disclosures in future years include the
vesting period of stock options, timing of additional grants and number of
additional shares granted.
9. COMMITMENTS AND CONTINGENCIES:
Various legal actions and other claims could be asserted against the
Company. Litigation is subject to many uncertainties. The outcome of
individual litigated matters is not predictable with assurance, and it is
reasonably possible that some of these matters may be decided unfavorably
to the Company. It is the opinion of management that the ultimate
liability, if any, with respect to these matters will not materially affect
the consolidated financial position, liquidity, or results of operations of
the Company at December 31, 1997.
JPE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share data)
10. ACQUISITIONS:
On April 16, 1997, Dayton Parts acquired all of the issued and outstanding
capital stock of Brake, Axle and Tandem Company ("BATCO"). On December 23,
1996, the Company acquired substantially all of the assets of JPE Canada.
These acquisitions have been accounted for as purchases. Accordingly, the
purchase prices, which amounted to $21,662 and $5,518 for JPE Canada and
BATCO, respectively, were allocated to the assets acquired and liabilities
assumed. The values of the assets acquired and liabilities assumed with the
purchase of BATCO were based on the fair values at the date of acquisition.
The values of the assets acquired and liabilities assumed with the purchase
of JPE Canada were based on the fair values at the date of acquisition with
the exception of fixed assets, which are valued at an amount lower than the
fair value due to the bargain purchase nature of the acquisition. The
amounts allocated to JPE Canada at acquisition date have been revised based
on refinement to amounts estimated at December 31, 1996.
The value of assets and liabilities assumed for the purchases of JPE Canada
and BATCO were comprised of the following on December 23, 1996 and April
16, 1997, respectively.
JPE
Canada BATCO
------ -----
Accounts receivable and other assets $ 3,814 $ 2,020
Inventory 4,858 1,770
Property, plant and equipment 16,225 293
Goodwill -- 6,263
Deferred tax asset -- 653
------- -------
Total 24,897 10,999
Accounts payable and accrued
expenses (3,235) (5,481)
------- -------
Total, net $21,662 $ 5,518
======= =======
The following unaudited pro forma summary for the years ended December 31,
1996 and 1997 assumes that the acquisitions of JPE Canada and BATCO had
occurred on January 1, 1996. The significant adjustments relate to the
inclusion of amortization of goodwill, an increase in interest expense
based on an increase in long-term obligations, additional or reduced
depreciation on the revaluation of property, plant and equipment, and the
related income tax effects.
JPE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share data)
10. ACQUISITIONS, CONTINUED:
1996 1997
---- ----
Revenues $296,031 $292,576
Operating profit 5,568 8,474
Loss before income taxes (3,742) (2,769)
Net loss (3,132) (2,393)
Loss per common share - assuming dilution ($0.68) ($.52)
11. GOODWILL IMPAIRMENT:
During the third quarter of 1996, management identified that a significant
change had occurred in the product mix of its IAF subsidiary since its
purchase in March 1995. In accordance with SFAS 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of," management recorded a $4.3 million impairment writedown of the
goodwill associated with the acquisition of IAF. The goodwill was
originally valued at $6.8 million when IAF was acquired and, subsequent to
the adjustment, had a net unamortized carrying value of approximately $2.1
million as of December 31, 1996. The writedown of $4.3 million was
calculated based on the estimated current fair market value of the IAF
business which was $21.3 million. As a result of this writedown, goodwill
amortization will be reduced by $172 on an annual basis.
12. DISCONTINUANCE OF STAMPING OPERATIONS:
During the second quarter of 1997, management implemented a plan to improve
the operating results of its Starboard business, primarily by discontinuing
the production by its stamping operations by September 30, 1997. The plan
included resourcing the stamped parts to other third-party suppliers, the
sale of its stamping assets, reducing the workforce and a major re-layout
of Starboard's East Tawas, Michigan production facility to improve
productivity of its roll-forming and co-extrusion operations. Management
made this decision based on the negative impact the stamping business had
on the operating results of Starboard and the OEM Trim Group as a whole. As
a result of this discontinuance of stamping operations, the Company
recorded a charge of $2.25 million relating to the loss on disposal of
assets, employee severances and other costs directly related to the
stamping business. Subsequent to recording the charge, the Company
recognized a gain on the disposal of assets of $86.
JPE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share data)
13. SUPPLEMENTAL CASH FLOW INFORMATION:
Selected cash payments and noncash activities for the years ended December
31, 1995, 1996 and 1997 were as follows:
1995 1996 1997
---- ---- ----
Cash paid for interest $ 4,605 $ 6,780 $10,226
Cash paid for income taxes 1,935 83 535
Noncash investing and financing activities:
Issuance of note payable in connection
with the acquisition of IAF 10,377 -- --
Increase in fixed assets for revised
allocation of purchase price of JPE Canada -- -- 2,070
14. INDUSTRY SEGMENT AND GEOGRAPHIC AREA:
The Company operates principally in one segment, automotive and truck
components, which are sold to the original equipment manufacturers as well
as the replacement parts markets. The Company's sales to individual
customers in excess of 10% of total revenue were:
1995 1996 1997
---- ---- ----
General Motors Corporation 34% 36% 44%
Chrysler Corporation 12% 14% 11%
The Company had export sales of approximately $20.5, $26.5 and $29.0
million, principally to Canada and Central America, for the years ended
December 31, 1995, 1996 and 1997, respectively. The Company operates in the
North American geographic area.
JPE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share data)
15. SALE OF AFTERMARKET BUSINESSES:
In February 1998, the Company announced its intention to sell its
aftermarket businesses, Dayton Parts and Allparts. The Company expects to
record a gain on the sale of these businesses and will use the proceeds to
pay down debt. The following is a financial summary of the elements of the
businesses being sold for the year ended December 31, 1997. Interest was
allocated based on the percentage of these businesses' assets to
consolidated assets. Tax expense was based on these businesses' effective
tax rate.
Net Sales $91,575
=======
Operating Profit $ 8,706
Allocated Interest Expense (2,958)
-------
Income Before Tax 5,748
Tax Expense (2,363)
-------
Net Income $ 3,385
=======
Net Assets to be Sold
Current Assets $36,503
Property, Plant and Equipment 12,314
Goodwill 10,890
Current Liabilities (12,601)
-------
Net Assets $47,106
=======
16. SUBSEQUENT EVENT:
On March 23, 1998, the Company announced that it intends to pursue the sale
of the entire Company, in addition to the aftermarket businesses. The
Company has concluded that the turnaround of its Canadian operation would
take longer than anticipated and would require additional investment.
Therefore, management believes that the proper course of action for the
Company is to sell JPE and all of its businesses.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
Not applicable.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Directors
---------
Percent of
Positions and Total Shares of
Offices with Shares of Common Stock
the Company Common Stock of the Company
and Other Beneficially Beneficially Term
Principal Owned as of Owned as of to
Name of Director Age Occupations March 16, 1998 March 16, 1998 Expire
- ---------------- --- ------------- -------------- -------------- ------
John Psarouthakis (1) 65 Chairman of the 2,098,379 45.6 2000
(December 1990) Board, President,
Chief Executive
Officer and Director
of the Company
Donna L. Bacon (2) 46 Executive Vice 34,750 * 1998
(May 1997) President and
Director of the
Company
David E. Cole (3) 60 Director of the 500 * 1998
(May 1997) Company; Director of
Office for the Study
of Automotive
Transportation at
University of Michigan's
Transportation
Research Institute
John F. Daly (4) 75 Director of the 26,200 * 1998
(May 1993) Company; Retired Vice
Chairman of the Board
of Directors of
Johnson Controls, Inc.
Otto Gago (5) 63 Director of the 37,462 * 2000
(May 1993) Company; Thoracic and
Cardiovascular Surgeon
Donald R. Mandich (6) 72 Director of the 26,200 * 1999
(May 1993) Company; Retired
Chairman and Chief
Executive Officer of
Michigan Mutual
Insurance Company and
its subsidiaries
Other Executive Officers
------------------------
James J. Fahrner (7) 46 Executive Vice President 30,750 * --
All Directors and
Executive Officers as a
Group (7 persons) (8) 2,254,241 49.0
* Less than 1%.
(1) Consists of (a) 721,212 shares owned by a trust of which Dr. Psarouthakis
is trustee and a beneficiary, (b) 65,000 shares subject to stock options
exercisable within 60 days of March 16, 1998, and (c) 1,312,167 shares
owned or subject to stock options exercisable within 60 days of March 16,
1998 by persons who have granted Dr. Psarouthakis the power to vote their
shares until various dates in 2007 under a shareholder agreement.
(2) Consists of (a) 3,000 shares owned by Ms. Bacon directly and (b) 31,750
shares subject to stock options exercisable within 60 days of March 16,
1998.
(3) Consists of 500 shares owned by Dr. Cole jointly with his wife.
(4) Consists of (a) 16,700 shares owned by Mr. Daly directly and (b) 9,500
shares subject to stock options exercisable within 60 days of March 16,
1998. Does not include 2,000 shares owned by a trust of which Mr. Daly's
wife is trustee and beneficiary.
(5) Consists of (a) 27,962 shares held in Dr. Gago's individual retirement
account and (b) 9,500 shares subject to stock options exercisable within 60
days of March 16, 1998. Dr. Psarouthakis has the power to vote the shares
held in Dr. Gago's individual retirement account under a shareholder
agreement. Does not include (a) 215,627 shares held by Dr. Gago's wife and
(b) 15,000 shares held by a charitable foundation established by Dr. and
Mrs. Gago, all of which Dr. Psarouthakis has the power to vote under a
shareholder agreement.
(6) Consists of (a) 16,700 shares owned by a trust of which Mr. Mandich is
trustee and beneficiary and (b) 9,500 shares subject to stock options
exercisable within 60 days of March 16, 1998.
(7) Consists of (a) 3,000 shares owned by a trust of which Mr. Fahrner is
trustee and a beneficiary and (b) 27,750 shares subject to stock options
exercisable within 60 days of March 16, 1998.
(8) Includes 153,000 shares subject to stock options exercisable within 60 days
of March 16, 1998 by the Company's directors and executive officers as a
group.
Information Relating to Directors
---------------------------------
Following each director's name is a brief account of his business
experience during the past five years.
John Psarouthakis
- -----------------
Dr. John Psarouthakis is the founder of the Company and has been Chairman
of the Board, Chief Executive Officer and a Director of the Company since it
began operations in late 1991 and President since October 1996. In 1978, Dr.
Psarouthakis organized J. P. Industries, Inc. ("JPI"), which became a Fortune
500 transportation components manufacturing and distribution company, where he
served as Chairman, President and a Director until its sale in August, 1990.
After the sale of JPI, Dr. Psarouthakis was involved in various private
investments and professional activities until the Company began operations. Dr.
Psarouthakis is currently an Adjunct Professor teaching Acquisitions and Mergers
at The University of Michigan Graduate School of Business.
Donna L. Bacon
- --------------
Ms. Donna L. Bacon has been Executive Vice President and Chief Financial
Officer, responsible for the financial, legal and administrative activities of
the Company, since January 1998. From May 1997 to January 1998, Ms. Bacon served
as Executive Vice President, General Counsel and Secretary of the Company, and
from October 1994 to May 1997, as Vice President, General Counsel and Secretary
of the Company. From August 1991 to October 1994, Ms. Bacon was Vice President,
General Counsel and Secretary of The MEDSTAT Group, Inc., a provider of
healthcare information services. From 1987 to January 1991, Ms. Bacon was
General Counsel and Secretary of JPI. Ms. Bacon became a Director of the Company
in May 1997.
David E. Cole
- -------------
Dr. David E. Cole has been the Director of the Office for the Study of
Automotive Transportation (OSAT) at the University of Michigan's Transportation
Research Institute since 1978. He has worked extensively on internal combustion
engines, vehicle design, and overall automotive industry trends. Dr. Cole is a
director of the Automotive Hall of Fame and is on the Board of Trustees of Hope
College. Dr. Cole became a Director of the Company in May 1997.
John F. Daly
- ------------
Mr. John F. Daly was the Chairman of the Board of Directors and Chief
Executive Officer of Hoover Universal, Inc., a diversified manufacturer of
industrial engineered parts and components, from 1976 until his retirement in
1987. Mr. Daly also served as the Vice Chairman of the Board of Directors of
Johnson Controls, Inc., from May 1985 until his retirement in 1987. Mr. Daly is
a director of AAOMS-Educational Foundation, Comerica Bank & Trust, F.S.B.,
Edwards Brothers, Inc. and Handleman Company and is a trustee of Sienna Heights
College. Mr. Daly became a Director of the Company in May 1993.
Otto Gago
- ---------
Dr. Otto Gago has been a thoracic and cardiovascular surgeon since 1967. He
currently practices in Ann Arbor, Michigan. Dr. Gago is also an investor in new
businesses and real estate ventures. Dr. Gago became a Director of the Company
in May 1993.
Donald R. Mandich
- -----------------
Mr. Donald R. Mandich served as Chairman and Chief Executive Officer of
Michigan Mutual Insurance Company and its subsidiaries from May 1995 through May
1996 and has served as a director of such company since May 1985. He was
Chairman of the Board and Chief Executive Officer of Comerica Bank from 1981
until his retirement in 1990. Mr. Mandich is a member of the Board and former
Chairman of the Heart and Vascular Institute of the Henry Ford Hospital. Mr.
Mandich became a Director of the Company in May 1993.
During the fiscal year ended December 31, 1997, the Board of Directors of
the Company held six meetings.
Executive Officers
------------------
The current executive officers of the Company are identified below. Officers are
appointed by the Board of Directors and serve at its discretion.
Name Age Position
- ---- --- --------
John Psarouthakis 65 Chairman of the Board, President, Chief
Executive Officer and Director
Donna L. Bacon 46 Executive Vice President, Chief Financial
Officer, General Counsel and Secretary
James J. Fahrner 46 Executive Vice President - OEM Group
Dr. John Psarouthakis is the founder of the Company and has been Chairman of the
Board, Chief Executive Officer and a Director of the Company since it began
operations in late 1991 and assumed the position of President in July, 1996. Dr.
Psarouthakis is currently an Adjunct Professor teaching Acquisitions and Mergers
at the University of Michigan Graduate School of Business.
Donna L. Bacon has been Executive Vice President, Chief Financial Officer,
General Counsel and Secretary of the Company since January 1998. She has been
with the Company since October 1994, serving as Vice President, General Counsel
and Secretary from October 1994 to May 1997 and as Executive Vice President,
General Counsel and Secretary from May 1997 to January 1998. From August 1991 to
October 1994, Ms. Bacon was Vice President, General Counsel and Secretary of The
MEDSTAT Group, Inc., a provider of healthcare information services.
James J. Fahrner has been Executive Vice President - OEM Group of the Company
since January 1998. He has been with the Company since June 1995, serving as
Vice President and Chief Financial Officer from June 1995 to May 1997 and as
Senior Vice President and Chief Financial Officer from May 1997 to January 1998.
From November 1990 until June 1995, Mr. Fahrner served as Vice President-Chief
Financial Officer, Treasurer of Gelman Sciences Inc., a manufacturer of
microfiltration products.
Section 16(a) Beneficial Ownership Compliance
---------------------------------------------
Section 16(a) of the Securities and Exchange Act of 1934 generally requires
the Company's Directors and Executive Officers and persons who own more than 10%
of a registered class of the Company's equity securities ("10% owners") to file
with the Securities and Exchange Commission and the Nasdaq Stock Market, Inc.
initial reports of ownership and reports of changes in ownership of common stock
of the Company. Directors, Executive Officers and 10% owners are required by
Securities and Exchange Commission regulation to furnish the Company with copies
of all Section 16(a) forms they file. To the Company's knowledge, based solely
on review of copies of such reports furnished to the Company and written
representations that no other reports were required to be filed during the 1997
fiscal year, all Section 16(a) filing requirements applicable to its Directors,
Executive Officers and 10% owners were met, except that Dr. Psarouthakis failed
to timely report a charitable contribution of 10,000 shares of the Company's
common stock that he made in July 1997. This transaction was reported in
December 1997.
ITEM 11. EXECUTIVE COMPENSATION
Compensation of Directors
-------------------------
Each director who is not also an officer or employee of the Company
receives a semi-annual director's fee of $3,000 and is reimbursed for expenses
of attending Board of Directors and committee meetings.
In addition, non-employee directors receive grants for stock options
pursuant to the JPE, Inc. Director Stock Option Plan (the "Director Plan"). Each
non-employee director of the Company who was a member of the Board on April 27,
1995, the date the Director Plan was adopted by the Board, was granted an option
to purchase 5,000 shares of Common Stock of the Company and each non-employee
director who is subsequently first elected or appointed to serve as a member of
the Board is automatically granted on the date of such election an option to
purchase 5,000 shares of Common Stock of the Company at an exercise price equal
to the fair market value of the Company's Common Stock on the date of such
grant. On the date of each annual meeting of shareholders subsequent to April
27, 1995, each non-employee director serving on or elected to the Board on such
date shall receive an option to purchase 3,000 shares of Common Stock of the
Company at an exercise price equal to the fair market value of the Company's
Common Stock on the date of such grant
Summary Compensation Table
--------------------------
The following table sets forth information for the fiscal years ended
December 31, 1995, 1996 and 1997 concerning compensation of the Company's Chief
Executive Officer and each of the Company's executive officers whose total
annual salary and bonus exceeded $100,000 in 1997:
Long-Term
Compensation
Annual Compensation Awards
------------------- ------------
Fiscal Other Annual Stock Option All Other
Name and Position Year Salary (1) Bonus Compensation (2) Shares (#) Compensation (3)
- ----------------- ------ ---------- ----- ---------------- ------------ ----------------
John Psarouthakis 1997 $250,008 -0- -- -0- $ 9,550
Chairman of the 1996 233,333 $50,000 -- 110,000 (4) 9,250
Board, President 1995 192,500 50,000 -- 90,000 4,500
Chief Executive
Officer and Director
Donna L. Bacon 1997 165,988 -0- -- -0- 9,550
Executive Vice 1996 152,500 40,000 -- 75,000 (5) 9,250
President, Chief 1995 146,625 35,000 -- 15,000 -0-
Financial Officer
and Director
C. William Mercurio (6) 1997 97,475 -0- -- -0- 51,550 (7)
Former President- 1996 167,760 50,000 -- 25,000 (4) 98,374 (8)
OEM Group and
Director
James J. Fahrner 1997 160,563 -0- -- -0- 9,550
Executive Vice 1996 153,125 40,000 -- 95,000 (9) 9,250
President 1995 78,542 20,000 -- 45,000 -0-
(1) Amounts represent the dollar value of base salary earned by the named
executive officer during the fiscal year covered as reported on the
officer's W-2.
(2) The dollar value of perquisites provided to each of the named executive
officers does not exceed the lesser of $50,000 or 10% of the total of
annual salary and bonus reported for the named executive officer.
(3) Represents the amount contributed to an account for the employee's benefit
by the Company under the Company's 401(k) Savings Plan, unless otherwise
indicated.
(4) Represents options granted as replacement options in connection with the
December 16, 1996 repricing of options. See "Ten-Year Option/SAR
Repricings" below.
(5) Includes options to purchase 15,000 shares of the Company's Common Stock
that were canceled in connection with the December 16, 1996 repricing of
options. See "Ten-Year Option/SAR Repricings" below.
(6) Mr. Mercurio resigned as President-OEM Group and Director of the Company
effective July 31, 1997.
(7) Represents $42,000 paid in consideration for a covenant not-to-compete and
$9,550 contributed to Mr. Mercurio's account under the Company's 401(k)
Savings Plan.
(8) Represents $72,000 paid in consideration for a covenant not-to-compete and
$26,374 contributed to Mr. Mercurio's account under the Plastic Trim Profit
Sharing Retirement Plan.
(9) Includes options to purchase 25,000 shares of the Company's Common Stock
that were canceled in connection with the December 16, 1996 repricing of
options. See "Ten-Year Option/SAR Repricings" below.
Aggregated Option Exercises in the Last Fiscal Year
and Fiscal Year End Option Values
---------------------------------------------------
The following table sets forth information concerning (i) each exercise of
stock options during the fiscal year ended December 31, 1997 by each named
executive officer of the Company and (ii) the value of unexercised stock options
held by such persons as of December 31, 1997:
Value of
Unexercised
Number of In-the-Money
Unexercised Options Options at
Shares at December 31, 1997 December 31, 1997
Acquired Value Exercisable/ Exercisable/
Name on Exercise Realized Unexercisable Unexercisable (1)
- ---- ----------- -------- ------------------- ------------------
John Psarouthakis -- -- 65,000/45,000 0/0
Donna L. Bacon 2,000 750 31,750/26,250 0/0
C. William Mercurio -- -- 0/0 0/0
James J. Fahrner 1,000 562 27,750/41,250 0/0
(1) In calculating the value of unexercised in-the-money options at
December 31, 1997, the Company used a market value of $5.5625 per
share, the closing price for shares of Common Stock on the Nasdaq
National Market on December 31, 1997.
Ten-Year Option/SAR Repricings
------------------------------
On December 16, 1996, the Board of Directors of JPE, Inc. acknowledged the
effort that would be required from its key employees to implement changes at the
Company's operations and to effect a successful turnaround of Pebra Inc., that
was acquired on December 23, 1996. This Board of Directors determined that the
most effective and economical method to motivate and reward such employees would
be to reprice all outstanding options of then current, active employees.
Therefore, the Board of Directors approved an option exchange for then current,
active employees entitling such employees to cancel their outstanding options in
exchange for new options with an exercise price of $7.25 per share, the fair
market value of the Company's stock on the date of exchange. The new options
were subject to the same vesting schedule as the canceled options, including the
same vesting commencement date, with the same termination date; provided that if
the canceled option was an incentive stock option, it became a non-qualified
option.
JPE, Inc. Board of Directors
Number of Market Length of
Securities Price of Exercise Original
Underlying Stock at Price at Option Term
Options/ Time of Time of Remaining
SARs Repricing Repricing New at Date of
Repriced or or Exercise Repricing or
Name Date or Amended Amendment Amendment Price Amendment
---- ---- ---------- --------- --------- -------- ------------
John Psarouthakis 12/16/96 20,000 $7.25 $12.65 $7.25 1.92 years
23,678 7.25 11.55 7.25 3.92 years
66,322 7.25 10.50 7.25 8.92 years
C. William Mercurio 12/16/96 25,000 7.25 10.50 7.25 8.92 years
Donna L. Bacon 12/16/96 30,000 7.25 10.75 7.25 7.83 years
15,000 7.25 10.50 7.25 8.92 years
15,000 7.25 7.75 7.25 9.92 years
James J. Fahrner 12/16/96 30,000 7.25 14.00 7.25 8.58 years
15,000 7.25 10.50 7.25 8.92 years
15,000 7.25 9.875 7.25 9.67 years
10,000 7.25 7.75 7.25 9.92 years
Tax Deductibility of Executive Compensation
-------------------------------------------
During 1993, Section 162(m) of the Internal Revenue Code was enacted to
limit the corporate deduction for compensation paid to each of the five most
highly compensated executive officers of a publicly-held corporation to $1
million per year, unless certain requirements are met. The Compensation
Committee has reviewed the impact of this legislation on the Company's executive
compensation plans and concluded that this legislation should not apply to limit
the deduction for executive compensation paid by the Company in 1997.
Report of Compensation Committee
--------------------------------
The report of the Compensation Committee shall not be deemed incorporated
by reference by any general statement incorporating by reference this Proxy
Statement into any filing under the Securities Act of 1933 or under the
Securities Exchange Act of 1934, except to the extent the Company specifically
incorporates this information by reference, and shall not be deemed filed under
such Acts.
Introduction and Organization
-----------------------------
The Compensation Committee of the Board of Directors, composed of
non-employee directors, reviews and develops compensation programs for key
management, evaluates executive performance, administers the Company's
compensation programs and makes recommendations as to compensation matters to
the Board of Directors.
General Policies
----------------
The Compensation Committee's overall compensation policy with regard to
executive officers is to provide a compensation package that is intended to
attract and retain qualified executives and to provide incentives to achieve the
Company's goals and increase shareholder value. The Compensation Committee
implements this policy through base salaries, bonuses and grants of stock
options, stock appreciation rights and restricted stock.
Base Salaries
-------------
Base salary is determined for each of the Company's key executives by the
Compensation Committee based upon recommendations of the Company's Chief
Executive Officer. Factors affecting executive salary determinations include
experience, leadership, the Company's performance and achievements, individual
initiative, performance and achievements and an evaluation of the
responsibilities of the position held by the executive. No specific weighting of
factors is used.
Bonuses
-------
The Company awards its executive officers discretionary bonuses deemed
appropriate by the Compensation Committee. Bonuses are intended to provide
incentives to achieve the Company's financial and operational goals and increase
shareholder value, as well as to recognize an executive's individual
contributions to the Company. Factors affecting executive bonus determinations
include an evaluation of the Company's results and the executive's initiative,
performance and achievements, and the executive's salary. The Compensation
Committee does not use any specific weighting of factors. The Compensation
Committee obtains recommendations from the Chief Executive Officer as to
executive officer bonuses based on an evaluation of each individual executive's
performance during the year.
Long-Term Incentives
--------------------
The Compensation Committee believes that executive ownership of the
Company's stock, together with compensation plans that foster the alignment of
management's interests with those of the Company's shareholders, are in the best
interests of shareholders and management. Under the Company's 1993 Stock
Incentive Plan, the Compensation Committee approved grants of stock options to
executive officers and to other key employees. Awards under the 1993 Stock
Incentive Plan are intended to provide participants with an increased incentive
to make significant contributions to the long-term performance and growth of the
Company, to join the interests of participants with the interests of
shareholders of the Company and to facilitate attracting and retaining key
employees of exceptional ability.
The Compensation Committee's policy is to award stock options in amounts
reflecting the participant's position and the ability to influence the Company's
overall performance. In determining the size of individual awards, the
Compensation Committee also considers the amounts of options outstanding and
previously granted both in the aggregate and with respect to the optionee, the
amount of shares remaining available for grant under the Company's stock
incentive plan, the amount of stock owned by the executive and the aggregate
amount of the current awards. Generally, the exercise price for stock options
will be at or above the fair market value of the underlying shares on the date
of the grant.
Other Compensation
------------------
The Company has adopted certain employee benefit plans, including its
401(k) savings plan and health benefit plans, in which executive officers have
been permitted to participate. Benefits under these plans are not directly or
indirectly tied to the Company's performance.
Chief Executive Officer Compensation
------------------------------------
The compensation of Dr. Psarouthakis is determined based upon the same
criteria as are used for other executive officers. Dr. Psarouthakis did not
participate in the approval of his own compensation, but he did participate in
the discussion of the Company's performance and he made recommendations
concerning the compensation of executives reporting to him.
By the Compensation Committee
John F. Daly
Otto Gago
Donald R. Mandich
Compensation Committee Interlocks and Insider Participation
-----------------------------------------------------------
The Company's Compensation Committee was established in May 1993 and
consists of Messrs. Daly, Gago and Mandich, each of whom has been an director of
the Company since that date. None of these directors has ever been an officer or
employee of the Company or any of its subsidiaries.
Stock Performance Graph
-----------------------
The following table compares the cumulative return since October 1993 (the
date of the Company's initial public offering) on a hypothetical investment in
JPE, Inc. (JPEI), the Nasdaq National Market (U.S.) Index and other motor
vehicle equipment manufacturers and distributors. The stock price performance
shown on the graph is not necessarily indicative of future price performance.
COMPARISON OF 50 MONTH CUMULATIVE TOTAL RETURN*
Among JPE, Inc., The Nasdaq Stock Market-US Index
and a Peer Group
10/27/93 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97
-------- -------- -------- -------- -------- --------
JPE, Inc. 100.00 106.52 82.61 84.78 61.96 48.37
Peer Group 100.00 124.13 80.60 71.42 96.31 114.81
Nasdaq Stock Market (U.S.) 100.00 100.18 97.93 138.49 170.34 209.03
* $100 invested on 10/27/93 in stock or Index - including reinvestment of
dividends. Fiscal year ending December 31.
Assumes $100 invested on October 27, 1993 in JPE, Inc., Nasdaq National
Market (U.S.) Index and other motor vehicle equipment manufacturers and
distributors (APS Holding Corp., Excel Industries, Hahn Automotive Warehouse,
MascoTech, Inc., Simpson Industries, Inc., Standard Products Co., Stant Corp.
and Tower Automotive), weighted for market capitalization.
Total return equals price appreciation plus dividends and assumes
reinvestment of dividends.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Set forth below is information relating to the beneficial ownership of
outstanding shares of Common Stock by each person who is known to the Company to
be the beneficial owner of more than 5% of the outstanding shares of Common
Stock as of March 16, 1998:
Shares Beneficially Owned
-------------------------
Name and Address Indirectly through Percent
of Beneficial Owner Number Shareholder Agreement of Class (5)
- ------------------- ------ --------------------- ------------
Dr. John Psarouthakis (1) 786,212 (2) 1,312,167 (3) 45.6%
775 Technology Drive, Suite 200
Ann Arbor, Michigan 48108
Dimensional Fund Advisors, Inc. 246,100 (4) 5.4%
(1) Chairman of the Board, President, Chief Executive Officer and a Director of
the Company.
(2) Consists of (a) 721,212 shares owned by a trust of which Dr. Psarouthakis
is trustee and a beneficiary and (b) 65,000 shares subject to stock options
exercisable within 60 days of March 16, 1998.
(3) Consists of (a) 40,000 shares held by a charitable foundation established
by Dr. Psarouthakis and (b) shares owned or subject to stock options
exercisable within 60 days of March 16, 1998 by persons who have granted
Dr. Psarouthakis the power to vote their shares until various dates in 2007
under a shareholder agreement.
(4) Based on information as of December 31, 1997 contained in Form 13G filed
with the Securities and Exchange Commission (the "Commission") by the
shareholder.
(5) On March 16, 1998, the Company had issued and outstanding 4,602,180 shares
of Common Stock.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not applicable.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Listing of Documents
(1) Financial Statements
The Company's Consolidated Financial Statements included in
Item 8 hereof, as required at December 31, 1996 and 1997,
and for the years ended December 31, 1995, 1996 and 1997,
consist of the following:
o Report of Independent Accountants
o Consolidated Balance Sheets
o Consolidated Statements of Income
o Consolidated Statements of Shareholders' Equity
o Consolidated Statements of Cash Flows
o Notes to Consolidated Financial Statements
(2) Financial Statement Schedule
The financial statement schedule of the Company appended
hereto, as required for the years ended December 31, 1995,
1996 and 1997, consist of the following:
VIII. Valuation and Qualifying Accounts
(3) Exhibits
Exhibit
Number Description
------- -----------
2.1 Asset Purchase Agreement dated December 31, 1992, among
Varity Corporation, a subsidiary of Varity Corporation
formerly known as Dayton Parts, Inc., the Registrant and JPE
Acquisition I, Inc., incorporated by reference to Exhibit 2
to the Registrant's Registration Statement on Form S-1 (File
No. 33-68544).
2.2 Stock Purchase Agreement dated December 13, 1994 by and
among JPE, Inc. and the Shareholders of SAC Corporation,
incorporated by reference to Registrant's Current Report on
Form 8-K dated December 28, 1994.
2.3 Asset Purchase Agreement dated February 28, 1995 among JPE
Acquisition II, Inc., Key Manufacturing Group Limited
Partnership and TTD Management, Inc., incorporated by
reference to Exhibit 2 to Registrant's Current Report on
Form 8-K dated March 14, 1995.
2.4 Acquisition Agreement dated as of April 6, 1995 among JPE,
Inc., PTI Acquisition Corp. and Plastic Trim, Inc.,
incorporated by reference to Exhibit 2 to Registrant's
Current Report on Form 8-K dated April 24, 1995.
2.5 Agreement of Purchase and Sale dated November 15, 1996
between JPE, Inc., in trust for 1203462 Ontario Inc., and
Pebra Inc., incorporated by reference to Registrant's
Current Report on Form 8-K dated January 6, 1997.
2.6 Stock Purchase Agreement dated April 16, 1997 among JPE,
Inc., Dayton Parts, inc. and the Stockholders of Brake, Axle
and Tandem Company, incorporated by reference to
Registrant's Current Report on Form 8-K dated April 30,
1997.
3.1 Articles of Incorporation, incorporated by reference to
Exhibit 3.1 to the Registrant's Registration Statement on
Form S-1 (File No. 33-68544).
3.2 Bylaws, incorporated by reference to Exhibit 3.2 to the
Registrant's Registration Statement on Form S-1 (File No.
33-68544).
4 Form of Certificate for Shares of the Common Stock,
incorporated by reference to Exhibit 4 to the Registrant's
Registration Statement on Form S-1 (File No. 33-68544).
*10.1 Stock Option Agreement dated as of November 27, 1991,
between John F. Daly and the Registrant, incorporated by
reference to Exhibit 10.4 to the Registrant's Registration
Statement on Form S-1 (File No. 33-68544).
10.2 Shareholder Agreement (Conformed Copy), incorporated by
reference to Exhibit 10.6 to the Registrant's Registration
Statement on Form S-1 (File No. 33-68544).
10.3 Indemnification Agreement dated September 1, 1993, between
the Registrant and Dr. John Psarouthakis, incorporated by
reference to Exhibit 10.7 to the Registrant's Registration
Statement on Form S-1 (File No. 33-68544).
10.4 Indemnification Agreement dated September 1, 1993, between
the Registrant and Dr. Otto Gago, incorporated by reference
to Exhibit 10.8 to the Registrant's Registration Statement
on Form S-1 (File No. 33-68544).
10.5 Indemnification Agreement dated September 1, 1993, between
the Registrant and John F. Daly, incorporated by reference
to Exhibit 10.9 to the Registrant's Registration Statement
on Form S-1 (File No. 33-68544).
10.6 Indemnification Agreement dated September 1, 1993, between
the Registrant and Donald R. Mandich, incorporated by
reference to Exhibit 10.10 to the Registrant's Registration
Statement on Form S-1 (File No. 33-68544).
10.7 JPE, Inc. Warrant to Purchase Common Stock issued by the
Registrant in favor of Roney & Co., incorporated by
reference to Exhibit 10.11 to the Registrant's Registration
Statement on Form S-1 (File No. 33-68544). Pursuant to its
terms, the foregoing Warrant was surrendered and exchanged
for substitute Warrants identical to the foregoing Warrant
in all respects except for the name of the substitute
Warrant holder and the number of shares of the Registrant's
Common Stock for which the substitute Warrants are
exercisable, which terms are as follows:
Number of Shares
of Common Stock for
Warrant Holder which Warrant is Exercisable
-------------- ----------------------------
Roney & Co. 10,000
John C. Donnelly 6,250
James C. Penman 6,250
Dan B. French, Jr. 2,500
10.8 Exclusive Distributor Agreement dated December 31, 1992,
between Dayton Walther Corporation ("DWC") and Dayton Parts,
incorporated by reference to Exhibit 10.14 to the
Registrant's Registration Statement on Form S-1 (File No.
33-68544).
10.9 Exclusive Distributor Agreement dated December 31, 1992,
between DWC and Dayton Parts, incorporated by reference to
Exhibit 10.15 to the Registrant's Registration Statement on
Form S-1 (File No. 33-68544).
10.10 Letter Agreement dated December 31, 1992, from Kelsey-Hayes
Company to Acquisition (now known as Dayton Parts),
incorporated by reference to Exhibit 10.16 to the
Registrant's Registration Statement on Form S-1 (File No.
33-68544).
10.11 Lease Agreement dated May 3, 1993, between Central Storage
& Transfer Company of Harrisburg, Inc. ("CSTCH") and Dayton
Parts, as amended by First Addendum to Lease dated May 3,
1993, between CSTCH and Dayton Parts, incorporated by
reference to Exhibit 10.17 to the Registrant's Registration
Statement on Form S-1 (File No. 33-68544).
10.12 JPE, Inc. 1993 Stock Incentive Plan for Key Employees, as
amended, incorporated by reference to Exhibit 28 to the
Registrant's Registration Statement on Form S-8 (File No.
33-93326).
10.13 Form of JPE, Inc. Warrant to purchase an aggregate of
100,000 shares of Common Stock at $9.50 per share issued by
the Registrant in favor of the sellers of SAC Corporation,
incorporated by reference to Exhibit 4.a. to the
Registrant's Form 8-K dated December 28, 1994.
10.14 Third Amendment to JPE, Inc. 1993 Stock Incentive Plan for
Key Employees, incorporated by reference to Registrant's
Annual Report on Form 10-K for the year ended December 31,
1995.
*10.15 Amendment to Stock Option Agreement dated as of November
27, 1991, between JPE, Inc. and John F. Daly, incorporated
by reference to Registrant's Annual Report on Form 10-K for
the year ended December 31, 1995.
*10.16 JPE, Inc. Director Stock Option Plan, incorporated by
reference to Exhibit 28 to the Registrant's Registration
Statement on Form S-8 (File No. 33-93328).
10.17 Form of Indemnification Agreement dated February 8, 1995,
between the Registrant and Donna L. Bacon, incorporated by
reference to Exhibit 10.1 to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1995.
10.18 Form of Indemnification Agreement between the Registrant
and James J. Fahrner, incorporated by reference to Exhibit
10.3 to the Registrant's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1995.
10.19 Form of Indemnification Agreement between Registrant and C.
William Mercurio, incorporated by reference to Registrant's
Annual Report on Form 10-K for the year ended December 31,
1996.
10.20 Third Amended and Restated Credit Agreement dated as of
December 31, 1996, by and among Comerica Bank, other
participants and JPE, Inc. (the "Credit Agreement"),
incorporated by reference to Registrant's Annual Report on
Form 10-K for the year ended December 31, 1996.
10.21 Credit Agreement dated as of December 20, 1996 between JPE
Canada Inc. and The Bank of Nova Scotia, incorporated by
reference to Registrant's Annual Report on Form 10-K for the
year ended December 31, 1996.
10.22 Form of Indemnification Agreement between the Registrant
and David E. Cole, filed with this report.
10.23 Amendment 1 dated April 16, 1997 to the Credit Agreement,
filed with this report.
10.24 Amendment 2 dated August 14, 1997, effective June 30, 1997,
to the Credit Agreement, incorporated by reference to
Exhibit 10.1 to the Registrant's Quarterly Report on Form
10-0Q for the quarter ended September 30, 1997.
10.25 Amendment 3 dated February 13, 1998 to the Credit
Agreement, filed with this report.
21 Subsidiaries of the Registrant, filed with this report.
23 Consent of Coopers & Lybrand L.L.P.
* Indicates management contract or compensatory plan or
arrangement.
(b) Reports on Form 8-K
The Registrant did not file any Reports on Form 8-K during the
quarter ended December 31, 1997.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf on March 31, 1998 by the undersigned, thereunto duly authorized.
JPE, INC.
By: /s/ John Psarouthakis
--------------------------------------
John Psarouthakis
Chairman of the Board, Chief Executive
Officer, President and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
/s/ John Psarouthakis Chairman of the Board, March 31, 1998
John Psarouthakis Chief Executive Officer,
President and Director
(Principal Executive Officer)
/s/ James J. Fahrner Executive Vice President March 31, 1998
James J. Fahrner (Principal Financial Officer and
Principal Accounting Officer)
/s/ Donna L. Bacon Executive Vice President, March 31, 1998
Donna L. Bacon Chief Financial Officer,
General Counsel, Secretary
and Director
/s/ David E. Cole Director March 31, 1998
David E. Cole
/s/ John F. Daly Director March 31, 1998
John F. Daly
/s/ Otto Gago Director March 31, 1998
Otto Gago
/s/ Donald R. Mandich Director March 31, 1998
Donald R. Mandich
JPE, INC.
FINANCIAL STATEMENT SCHEDULES
PURSUANT TO ITEM 14(a)(2) OF FORM 10-K
ANNUAL REPORT TO THE SECURITIES AND EXCHANGE COMMISSION
The schedule, as required, for the years ended December 31, 1995, 1996 and 1997:
Pages
-----
VIII. Valuation and Qualifying Accounts 60
JPE, INC.
SCHEDULE VIII - VALUATION ACCOUNTS
for the years ended December 31, 1995, 1996 and 1997
Column A Column B Column C Column D Column E
- -------- -------- --------------------- ---------- ---------
Balance at Charges to Charges Balance
Beginning Costs and to Other at End
Description of Period Expenses Accounts Deductions of Period
- ----------- --------- -------- -------- ---------- ---------
Accounts receivable,
allowance for doubtful
accounts:
January 1, 1995 through
December 31, 1995 $236,000 $186,000 $ 13,000 $ (66,000) $369,000
======== ======== ======== ========= ========
January 1, 1996 through
December 31, 1996 $369,000 $104,000 $ -- $(211,000) $262,000
======== ======== ======== ========== ========
January 1, 1997 through
December 31, 1997 $262,000 $165,000 $160,000 $(213,000) $374,000
======== ======== ======== ========= ========
EXHIBIT INDEX
Exhibit
Number Description
------- -----------
2.1 Asset Purchase Agreement dated December 31, 1992, among Varity
Corporation, a subsidiary of Varity Corporation formerly known as
Dayton Parts, Inc., the Registrant and JPE Acquisition I, Inc.,
incorporated by reference to Exhibit 2 to the Registrant's
Registration Statement on Form S-1 (File No. 33-68544).
2.2 Stock Purchase Agreement dated December 13, 1994 by and among JPE,
Inc. and the Shareholders of SAC Corporation, incorporated by
reference to Registrant's Current Report on Form 8-K dated December
28, 1994.
2.3 Asset Purchase Agreement dated February 28, 1995 among JPE Acquisition
II, Inc., Key Manufacturing Group Limited Partnership and TTD
Management, Inc., incorporated by reference to Exhibit 2 to
Registrant's Current Report on Form 8-K dated March 14, 1995.
2.4 Acquisition Agreement dated as of April 6, 1995 among JPE, Inc., PTI
Acquisition Corp. and Plastic Trim, Inc., incorporated by reference to
Exhibit 2 to Registrant's Current Report on Form 8-K dated April 24,
1995.
2.5 Agreement of Purchase and Sale dated November 15, 1996 between JPE,
Inc., in trust for 1203462 Ontario Inc., and Pebra Inc., incorporated
by reference to Registrant's Current Report on Form 8-K dated January
6, 1997.
2.6 Stock Purchase Agreement dated April 16, 1997 among JPE, Inc., Dayton
Parts, inc. and the Stockholders of Brake, Axle and Tandem Company,
incorporated by reference to Registrant's Current Report on Form 8-K
dated April 30, 1997
3.1 Articles of Incorporation, incorporated by reference to Exhibit 3.1 to
the Registrant's Registration Statement on Form S-1 (File No.
33-68544).
3.2 Bylaws, incorporated by reference to Exhibit 3.2 to the Registrant's
Registration Statement on Form S-1 (File No. 33-68544).
4 Form of Certificate for Shares of the Common Stock, incorporated by
reference to Exhibit 4 to the Registrant's Registration Statement on
Form S-1 (File No. 33-68544).
*10.1 Stock Option Agreement dated as of November 27, 1991, between John F.
Daly and the Registrant, incorporated by reference to Exhibit 10.4 to
the Registrant's Registration Statement on Form S-1 (File No.
33-68544).
10.2 Shareholder Agreement (Conformed Copy), incorporated by reference to
Exhibit 10.6 to the Registrant's Registration Statement on Form S-1
(File No. 33-68544).
10.3 Indemnification Agreement dated September 1, 1993, between the
Registrant and Dr. John Psarouthakis, incorporated by reference to
Exhibit 10.7 to the Registrant's Registration Statement on Form S-1
(File No. 33-68544).
10.4 Indemnification Agreement dated September 1, 1993, between the
Registrant and Dr. Otto Gago, incorporated by reference to Exhibit
10.8 to the Registrant's Registration Statement on Form S-1 (File No.
33-68544).
10.5 Indemnification Agreement dated September 1, 1993, between the
Registrant and John F. Daly, incorporated by reference to Exhibit 10.9
to the Registrant's Registration Statement on Form S-1 (File No.
33-68544).
10.6 Indemnification Agreement dated September 1, 1993, between the
Registrant and Donald R. Mandich, incorporated by reference to Exhibit
10.10 to the Registrant's Registration Statement on Form S-1 (File No.
33-68544).
10.7 JPE, Inc. Warrant to Purchase Common Stock issued by the Registrant in
favor of Roney & Co., incorporated by reference to Exhibit 10.11 to
the Registrant's Registration Statement on Form S-1 (File No.
33-68544). Pursuant to its terms, the foregoing Warrant was
surrendered and exchanged for substitute Warrants identical to the
foregoing Warrant in all respects except for the name of the
substitute Warrant holder and the number of shares of the Registrant's
Common Stock for which the substitute Warrants are exercisable, which
terms are as follows:
Number of Shares
of Common Stock for
Warrant Holder which Warrant is Exercisable
-------------- ----------------------------
Roney & Co. 10,000
John C. Donnelly 6,250
James C. Penman 6,250
Dan B. French, Jr. 2,500
10.8 Exclusive Distributor Agreement dated December 31, 1992, between
Dayton Walther Corporation ("DWC") and Dayton Parts, incorporated by
reference to Exhibit 10.14 to the Registrant's Registration Statement
on Form S-1 (File No. 33-68544).
10.9 Exclusive Distributor Agreement dated December 31, 1992, between DWC
and Dayton Parts, incorporated by reference to Exhibit 10.15 to the
Registrant's Registration Statement on Form S-1 (File No. 33-68544).
10.10 Letter Agreement dated December 31, 1992, from Kelsey-Hayes Company
to Acquisition (now known as Dayton Parts), incorporated by reference
to Exhibit 10.16 to the Registrant's Registration Statement on Form
S-1 (File No. 33-68544).
10.11 Lease Agreement dated May 3, 1993, between Central Storage & Transfer
Company of Harrisburg, Inc. ("CSTCH") and Dayton Parts, as amended by
First Addendum to Lease dated May 3, 1993, between CSTCH and Dayton
Parts, incorporated by reference to Exhibit 10.17 to the Registrant's
Registration Statement on Form S-1 (File No. 33-68544).
10.12 JPE, Inc. 1993 Stock Incentive Plan for Key Employees, as amended,
incorporated by reference to Exhibit 28 to the Registrant's
Registration Statement on Form S-8 (File No. 33-92236).
10.13 Form of JPE, Inc. Warrant to purchase an aggregate of 100,000 shares
of Common Stock at $9.50 per share issued by the Registrant in favor
of the sellers of SAC Corporation, incorporated by reference to
Exhibit 4.a. to the Registrant's Form 8-K dated December 28, 1994.
10.14 Third Amendment to JPE, Inc. 1993 Stock Incentive Plan for Key
Employees, incorporated by reference to Registrant's Annual Report on
Form 10-K for the year ended December 31, 1995.
*10.15 Amendment to Stock Option Agreement dated as of November 27, 1991,
between JPE, Inc. and John F. Daly, incorporated by reference to
Registrant's Annual Report on Form 10-K for the year ended December
31, 1995.
*10.16 JPE, Inc. Director Stock Option Plan, incorporated by reference to
Exhibit 28 to the Registrant's Registration Statement on Form S-8
(File No. 33-93328).
10.17 Form of Indemnification Agreement dated February 8, 1995, between the
Registrant and Donna L. Bacon, incorporated by reference to Exhibit
10.1 to the Registrant's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1995.
10.18 Form of Indemnification Agreement between the Registrant and James J.
Fahrner, incorporated by reference to Exhibit 10.3 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1995.
10.19 Form of Indemnification Agreement between Registrant and C. William
Mercurio, incorporated by reference to Registrant's Annual Report on
Form 10-K for the year ended December 31, 1996.
10.20 Third Amended and Restated Credit Agreement dated as of December 31,
1996, by and among Comerica Bank, other participants and JPE, Inc.
(the "Credit Agreement"), incorporated by reference to Registrant's
Annual Report on Form 10-K for the year ended December 31, 1996.
10.21 Credit Agreement dated as of December 20, 1996 between JPE Canada
Inc. and The Bank of Nova Scotia, incorporated by reference to
Registrant's Annual Report on Form 10-K for the year ended December
31, 1996.
10.22 Form of Indemnification Agreement between the Registrant and David E.
Cole, filed with this report.
10.23 Amendment 1 dated April 16, 1997 to the Credit Agreement, filed with
this report.
10.24 Amendment 2 dated August 14, 1997, effective June 30, 1997, to the
Credit Agreement, incorporated by reference to Exhibit 10.1 to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1997.
10.25 Amendment 3 dated February 13, 1998 to the Credit Agreement, filed
with this report.
21 Subsidiaries of the Registrant, filed with this report.
23 Consent of Coopers & Lybrand L.L.P.
* Indicates management contract or compensatory plan or arrangement.