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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended September 30, 2002.
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period from to .
-------- --------
Commission file number 0-22580
JPE, Inc. (d/b/a ASCET and ASC Exterior Technologies)
(Exact name of registrant as specified in its charter)
Michigan
(State or other jurisdiction of incorporation or organization)
38-2958730
(I.R.S. Employer Identification No.)
1030 Doris Road, Auburn Hills, Michigan 48326-2613
(Address of principal executive offices) (Zip Code)
(248) 232-1161
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and formal fiscal year, if changed,
since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
As of November 12, 2002, there were 14,043,600 shares of the registrant's common
stock outstanding. This Quarterly Report on Form 10-Q contains 24 pages, of
which this is page 1.
1
JPE, INC. (D/B/A ASCET, ASC EXTERIOR TECHNOLOGIES)
INDEX
Page
PART I. Financial Information
ITEM 1. Financial Statements................................. 3
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................ 14
ITEM 3. Quantitative and Qualitative Disclosures about
Market Risk.......................................... 19
ITEM 4. Controls and Procedures.............................. 19
PART II. Other Information............................................... 20
ITEM 6. Exhibits and Reports................................. 24
Signatures........................................... 21
Certification of CEO................................. 22
Certification of CFO................................. 23
Exhibit 99.1......................................... 24
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
JPE, INC. (D/B/A ASCET AND ASC EXTERIOR TECHNOLOGIES)
CONSOLIDATED CONDENSED BALANCE SHEETS
($ amounts in thousands)
AT AT
DECEMBER 31, SEPTEMBER 30,
2001 2002 UNAUDITED
---- --------------
ASSETS
Current assets:
Cash and cash equivalents $ 2,794 $ 716
Available for sale securities 571 --
Accounts receivable trade, net 12,707 13,528
Inventory 17,788 16,143
Other current assets 1,056 1,454
-------- --------
Total current assets 34,916 31,841
Property, plant and equipment, net 20,675 18,941
Goodwill, net 1,626 --
Other assets 1,155 389
-------- --------
Total assets $ 58,372 $ 51,171
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 543 $ 494
Accounts payable 11,101 12,142
Accrued liabilities 2,606 3,420
Income Taxes 47 --
-------- --------
Total current liabilities 14,297 16,056
Long-term debt 42,507 35,519
-------- --------
Total liabilities 56,804 51,575
-------- --------
Shareholders' equity:
First Series Preferred Shares, no par value, 50 votes per
share, 3,000,000 authorized, 1,973,002 shares issued
and outstanding 16,590 206
Common stock, no par value, 15,000,000 authorized,
14,043,600 shares issued and outstanding 2,672 125
Accumulated other comprehensive income 76 --
Accumulated deficit (17,770) (735)
-------- --------
Total shareholders' equity 1,568 (404)
-------- --------
Total liabilities and shareholders' equity $ 58,372 $ 51,171
======== ========
The accompanying notes are an integral part
of the consolidated condensed financial statements.
3
JPE, INC. (D/B/A ASCET AND ASC EXTERIOR TECHNOLOGIES)
CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
AND COMPREHENSIVE OPERATIONS
For the Three Months Ended September 30, 2002 and 2001
(Unaudited)
($ amounts in thousands, except per share data)
PREDECESSOR SUCCESSOR
COMPANY COMPANY
THREE MONTHS THREE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
2001 2002
---- ----
Net sales $ 28,753 $ 27,861
Cost of goods sold 26,280 24,268
--------- --------
Gross profit 2,473 3,593
Selling, general and administrative expenses 4,266 3,820
Other expense 60 45
Interest expense, net 635 328
--------- --------
Income (loss) before income taxes (2,488) (600)
Income tax expense 32 93
--------- --------
Net income (loss) $ (2,520) $ (693)
========= ========
Basic earnings (loss) per share:
Common Shares $ (0.02) $ (0.01)
First Series Preferred Shares $ (1.12) $ (0.31)
Earnings (loss) per share assuming dilution:
Common Shares $ (0.02) $ (0.01)
First Series Preferred Shares $ (1.12) $ (0.31)
The accompanying notes are an integral part
of the consolidated condensed financial statements.
4
JPE, INC. (D/B/A ASCET AND ASC EXTERIOR TECHNOLOGIES)
CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
AND COMPREHENSIVE OPERATIONS
For the Nine Months Ended September 30, 2002 and 2001
(Unaudited)
($ amounts in thousands, except per share data)
SUCCESSOR
PREDECESSOR COMPANY COMPANY
-------------------------------- -------------
PERIOD FROM PERIOD FROM
NINE MONTHS JANUARY 1, JUNE 1, 2002
ENDED 2002 THROUGH THROUGH
SEPTEMBER 30, MAY 31, SEPTEMBER 30,
2001 2002 2002
---- ---- ----
Net sales $ 93,638 $ 52,126 $ 37,395
Cost of goods sold 83,038 43,636 32,426
-------- -------- --------
Gross profit 10,600 8,490 4,969
Selling, general and administrative expenses 13,366 6,794 5,118
Other (income) expense 76 (152) 56
Interest expense, net 2,358 694 437
-------- -------- --------
Income (loss) before income taxes (5,200) 1,154 (642)
Income tax expense 146 42 93
-------- -------- --------
Net income (loss) $ (5,346) $ 1,112 $ (735)
======== ======== ========
Basic earnings (loss) per share:
Common Shares $ (0.05) $ 0.01 $ (0.01)
First Series Preferred Shares $ (2.37) $ 0.49 $ (0.33)
Earnings (loss) per share assuming dilution:
Common Shares $ (0.05) $ 0.01 $ (0.01)
First Series Preferred Shares $ (2.37) $ 0.49 $ (0.33)
The accompanying notes are an integral part
of the consolidated condensed financial statements.
5
JPE, INC. (D/B/A ASCET AND ASC EXTERIOR TECHNOLOGIES)
CONSOLIDATED CONDENSED STATEMENTS OF SHAREHOLDERS' EQUITY
For the Nine Months Ended September 30, 2002
(Unaudited)
($ amounts in thousands)
PREDECESSOR COMPANY
-------------------------------------------------------------------------
NET INCOME FOR
THE PERIOD
FROM SALE OF
BALANCES AT JANUARY 1, AVAILABLE FOR BALANCES AT
DECEMBER 2002 THROUGH SALE MAY 31,
31, 2001 MAY 31, 2002 SECURITIES 2002
------------ --------------- --------------- -----------
First Series Preferred Shares:
Shares Outstanding 1,973,002 1,973,002
Amount $ 16,590 $ 16,590
Common Stock:
Shares Outstanding 14,043,600 14,043,600
Amount $ 2,672 $ 2,672
Accumulated Other Comprehensive Income $ 76 $ (76) --
Accumulated (Deficit) $ (17,770) $ 1,112 $ (16,658)
------------ ------- ----- -----------
Total Shareholders' Equity $ 1,568 $ 1,112 $ (76) $ 2,604
============ ======= ===== ===========
SUCCESSOR COMPANY
------------------------------------------------------------------------------------
NET LOSS FOR
THE PERIOD
FROM JUNE 1,
BALANCES AT INVESTMENT PREDECESSOR 2002 THROUGH BALANCES AT
MAY 31, NEW SHAREHOLDER SEPTEMBER 30, SEPTEMBER 30,
2002 SHAREHOLDERS BASIS CHANGE 2002 2002
------------ ------------ ------------ ------------- -------------
First Series Preferred Shares:
Shares Outstanding 1,973,002 1,973,002
Amount $ 16,590 $ 182 $ (16,566) $ 206
Common Stock:
Shares Outstanding 14,043,600 14,043,600
Amount $ 2,672 $ 18 $ (2,565) $ 125
Accumulated (Deficit) $ (16,658) $ 16,658 $ (735) $ (735)
------------ ----- ---------- ------ ------------
Total Shareholders' Equity $ 2,604 $ 200 $ (2,473) $ (735) $ (404)
============ ===== ========== ====== ============
The accompanying notes are an integral part
of the consolidated condensed financial statements.
6
JPE, INC. (D/B/A ASCET AND ASC EXTERIOR TECHNOLOGIES)
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
For the Nine Months ended September 30
(Unaudited)
($ amounts in thousands)
SUCCESSOR
PREDECESSOR COMPANY COMPANY
--------------------------- -------------
PERIOD FROM PERIOD FROM
JANUARY 1, 2002 JUNE 1, 2002
THROUGH THROUGH
MAY 31, SEPTEMBER 30,
2001 2002 2002
---- ---- ----
Cash flows from operating activities:
Net income (loss) $ (5,346) $ 1,112 $ (735)
Adjustments to reconcile net income (loss) to net cash provided by (used
for) operating activities:
Depreciation and amortization 2,952 1,595 1,267
Other 338 (76) --
Changes in operating assets and liabilities:
Available for sale securities -- 571 --
Accounts receivable (114) (2,829) 2,008
Inventory 2,949 1,809 (164)
Other current assets (98) (535) 137
Accounts payable 2,568 727 314
Accrued liabilities and income taxes (1,085) 290 (425)
-------- -------- -------
Net cash provided by (used for) operating activities 2,164 2,664 2,402
Cash flows from investing activities:
Purchase of property and equipment (829) (76) (31)
Proceeds from sale of assets 191 -- --
Other (17) -- --
-------- -------- -------
Net cash used for investing activities (655) (76) (31)
Cash flows from financing activities:
Net payments under demand notes (1,400) (5,202) (1,786)
Net repayments of revolving credit facility -- -- --
Net borrowing under subordinated debt -- -- --
Repayments of other debt (41) (48) (1)
-------- -------- -------
Net cash provided by (used for) financing activities (1,441) (5,250) (1,787)
Cash and cash equivalents:
Net increase in cash 68 (2,662) 584
Cash, beginning of period 196 2,794 132
-------- -------- -------
Cash, end of period $ 264 $ 132 $ 716
======== ======== =======
The accompanying notes are an integral part
of the consolidated condensed financial statements.
7
JPE, INC. (D/B/A ASCET INC AND ASC EXTERIOR TECHNOLOGIES)
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(amounts in thousands, except share data)
A. BASIS OF PRESENTATION:
The accompanying unaudited condensed consolidated financial statements
of JPE, Inc. (d/b/a ASCET INC and ASC Exterior Technologies (together
with its subsidiaries, the "Company")) have been prepared in accordance
with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by accounting principles generally accepted in
the United States for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included.
Operating results for the periods presented are not necessarily
indicative of the results that may be expected for the year ending
December 31, 2002. These financial statements should be read in
conjunction with the Company's consolidated financial statements and
footnotes for the year ended December 31, 2001.
The balance sheet at December 31, 2001 has been derived from the
audited financial statements at that date but does not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements.
For further information, refer to the consolidated financial statements
and footnotes thereto included in the Company's and Subsidiaries'
annual report on Form 10-K for the year ended December 31, 2001.
In accordance with the terms of a purchase agreement dated May 7, 2002,
with ASC Holdings, LLC (the Predecessor company's 95% beneficial
owner), QP Acquisition #2, Inc. ("QP") acquired 9,441,420 Common Shares
and 1,952,352 Preferred Shares of the Company, effective May 31, 2002,
for aggregate consideration of $200. The effect of this transaction
transferred 95% of the voting securities of the Company from ASC
Holdings, LLC to QP.
In accounting for these transactions, the Company has applied purchase
accounting as prescribed by Financial Accounting Standards Board
Statement of Accounting Standards 141, Business Combinations and
Accounting Principles Board Opinion 16 and Securities and Exchange
Commission Staff Accounting Bulletin 54. Under this accounting method,
the purchase price has been pushed down into the accompanying financial
statements, with the difference between the purchase price and the sum
of the fair value of tangible and identifiable assets acquired less
liabilities assumed resulting in negative goodwill, which reduced the
fair market value of property, plant and equipment recorded at June 1,
2002, by $1,735.
The purchase price allocation has not been finalized at September 30,
2002, and the fair market value of property, plant and equipment and
certain other employee benefit plan liabilities are based upon
preliminary estimates. The company is in the process of obtaining third
party valuations. Thus, the purchase price allocation is subject to
refinement.
The following table summarizes the estimated fair values of the assets
acquired and liabilities assumed (based on the 95% proportional change
in ownership):
ASSETS
Current assets $ 33,238
PPE 20,063
Non-Compete 503
------------
Total Assets Acquired $ 53,804
LIABILITIES
Current Liabilities $ 15,673
Long-term debt 37,800
Predecessor Shareholder's basis 131
------------
Total Liabilities Assumed $ 53,604
New Shareholders Basis $ 200
============
8
JPE, INC. (D/B/A ASCET INC AND ASC EXTERIOR TECHNOLOGIES)
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(amounts in thousands, except share data)
B. ADOPTION OF ACCOUNTING PRINCIPLES:
Effective January 1, 2002, the Predecessor Company adopted Financial
Accounting Standards Board Statement of Accounting Standards (SFAS)
141, "Business Combinations", SFAS 142, "Goodwill and Intangible
Assets" and SFAS 144, "Accounting for the Impairment or Disposal of
Long-lived Assets." SFAS 141 requires that acquisitions entered into
after June 30, 2001 be accounted for using the purchase method and
establishes criteria to be used in determining whether acquired
intangible assets are to be separated from goodwill. The adoption of
SFAS 141 did not have a material effect on the Predecessor Company's
financial statements.
SFAS 142 sets forth the accounting for goodwill and intangible assets
already recorded. Commencing January 1, 2002, goodwill is no longer
being amortized and amounts in 2001 have not been restated in
accordance with the statement. Further, goodwill should be tested at
least annually, or more frequently if indicators arise, for impairment
by comparing the asset's fair value to its carrying value. Finally,
separable intangible assets that have finite lives will continue to be
amortized over their useful lives. Reported income and earnings per
share adjusted to exclude goodwill amortization for the Predecessor
Company is as follows:
PERIOD FROM PERIOD FROM
JANUARY 1, 2001 JANUARY 1, 2002
THROUGH THROUGH
SEPTEMBER 30, 2001 MAY 31, 2002
------------------ ---------------
Reported income (loss) $ (5,346) $ 1,112
Add back: Goodwill amortization 202 --
Adjusted income (loss) (5,144) 1,112
Basic and diluted earnings per common share:
Income (loss) $ (0.05) $ 0.01
Goodwill amortization -- --
Adjusted income (loss) (0.05) 0.01
Basic and diluted earnings per First Series Preferred Share:
Income (loss) $ (2.37) $ 0.49
Goodwill amortization .09 --
Adjusted income (loss) (2.28) 0.49
The Successor Company has non-compete agreements, which expire in 2004.
Estimated annual amortization expense for these agreements are $338,
$238, and $69 for 2002, 2003 and 2004, respectively.
SFAS 144 addresses the accounting and reporting for the impairment or
disposal of long-lived assets. The statement provides a consistent
method to value long-lived assets to be disposed of and broadens the
presentation of discontinued operations to include more disposal
transactions. The adoption of SFAS 144 did not have a material effect
on the Predecessor Company's financial statements.
9
JPE, INC. (D/B/A ASCET INC AND ASC EXTERIOR TECHNOLOGIES)
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(amounts in thousands, except share data)
C. INVENTORY:
Inventories by component are as follows:
DECEMBER 31, 2001 SEPTEMBER 30, 2002
----------------- ------------------
Raw materials $ 4,957 $ 4,255
Work in process 1,356 1,304
Finished goods 10,119 9,681
Tooling 1,356 903
-------------- -------------
$ 17,788 $ 16,143
============== =============
D. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment by component is as follows:
DECEMBER 31, 2001 SEPTEMBER 30, 2002
----------------- ------------------
Land $ 706 $ 750
Buildings 5,513 4,848
Machinery and equipment 21,154 13,304
Furniture and fixtures 1,397 1,192
-------------- -------------
28,770 20,094
Less accumulated depreciation (8,095) (1,153)
-------------- -------------
$ 20,675 $ 18,941
============== =============
E. ACCRUED LIABILITIES:
Accrued liabilities consisted of the following:
DECEMBER 31, 2001 SEPTEMBER 30, 2002
----------------- ------------------
Accrued compensation $ 285 $ 440
Accrued interest 94 93
Accrued employee benefits 1,205 1,846
Accrued taxes 414 372
Other 608 669
-------------- -------------
$ 2,606 $ 3,420
============== =============
F. DEBT:
Debt consisted of the following:
DECEMBER 31, 2001 SEPTEMBER 30, 2002
----------------- ------------------
Revolving Credit Facility-Comerica Bank $ 27,000 $ 20,500
Notes Payable 975 488
Capitalized lease obligations 55 3
Subordinated demand note 15,000 15,000
Other 20 22
-------------- -------------
$ 43,050 $ 36,013
Less: Current portion 543 494
-------------- -------------
$ 42,507 $ 35,519
============== =============
10
JPE, INC. (D/B/A ASCET INC AND ASC EXTERIOR TECHNOLOGIES)
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(amounts in thousands, except share data)
The Company has a $33,000 revolving credit facility with Comerica Bank
(the "Comerica Facility") which matures February 1, 2003, and a $15,000
subordinated demand loan from ASC Incorporated, an affiliate of the
Company. As Management expects the Comerica Facility to be renewed in
February, 2003, it has been classified as long-term debt.
The Comerica Facility provides for borrowing options at a prime based
rate or Eurodollar rate plus various interest rate margins dependent
upon the Company's financial performance. Advances are subject to a
borrowing base restriction equal to 85% of eligible OEM trade
receivables, 80% of all other eligible trade receivables, 50% of
eligible inventory (up to $9,000), plus an overformula amount of
$10,000. The overformula amount decreases semiannually over a four-year
period. All advances are fully secured by the Company's net assets.
Required covenants under the Comerica Facility include submission of
monthly and annual financial statements and annual financial
projections during a prescribed period, as well as certain financial
covenants, which exclude the effect of the $15,000 subordinated demand
note from ASC Incorporated. In addition, the payment of dividends is
prohibited by the terms of the Comerica Facility.
As of September 30, 2001 and December 31, 2001, the Company was not in
compliance with ratio covenants of the Comerica Facility. On April 16,
2002, the Comerica Facility was amended, and the September 30, 2001 and
December 31, 2001 defaults were waived. The Senior Debt to EBITDA ratio
covenant was removed and the interest coverage ratio covenant was reset
for 2002 year to date performance with June 30, 2002 as the first
measurement date. Interest rates were reset based upon the interest
coverage ratio using the Company's financial performance beginning
January 1, 2002. The revolving credit commitment amount was decreased
from $33,000 to $30,000 as the Company believes $30,000 is adequate for
its liquidity requirements through the remaining term of the loan. In
consideration of the amendments and waivers, the Company paid Comerica
Bank a nonrefundable amendment and waiver fee of $187.5.
The Company's $15,000 subordinated demand note to ASC Incorporated
dated February 7, 2001 is subordinated as to creditor rights and
security to the Comerica Facility. Interest was payable monthly
commencing March 1, 2001 at ASC Incorporated's cost of borrowing. The
April 16, 2002 amendment to the Comerica Facility prohibited the
payment of interest on the note. ASC Incorporated has agreed not to
call the note through at least October 1, 2003. Further, the Comerica
Facility prohibits any payments to ASC Incorporated at non-arm's length
amounts without prior consent. The Company also has a $3,000 Revolving
Line of Credit Note with ASC Incorporated. This Note is subordinated to
the Company's borrowings and advances under the Comerica Facility and
bears interest at a rate equal to the cost of borrowing of ASC
Incorporated. As of September 30, 2002, there were no advances made
under this Note.
G. INCOME TAXES:
The Company's 0% effective tax rate for the three months ended
September 30, 2002 is computed at regular tax rates, and reflects state
and foreign income taxes related to the Company's profitable locations
as well as an increase in the Company's valuation reserve.
H. EARNINGS PER SHARE:
The issuance of First Series Preferred Shares results in the Company
having a participating security. In accordance with Statement of
Financial Accounting Standards No. 128 -- Earnings per Share, the "two
class" method is used for computing earnings per share. Under this
method, an earnings allocation formula is used to determine the amount
of earnings allocated to each class of stock. Based on the
participating rights of the First Series Preferred Shares approximately
87.5% of the earnings will be allocated to these shares and 12.5% of
earnings to the common stock. Shares outstanding for the computation of
basic earnings per share were 14,043,600 common shares as of September
30, 2001, and September 30, 2002. The First Series Preferred Shares
outstanding were 1,973,002 as of September 30, 2001 and September 30,
2002. Earnings per share assuming dilution requires the Company to use
the treasury method for stock
11
JPE, INC. (D/B/A ASCET INC AND ASC EXTERIOR TECHNOLOGIES)
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(amounts in thousands, except share data)
options and warrants. The common stock options outstanding for the
periods presented had exercise prices that were in excess of the market
price and therefore had no effect on the computation assuming dilution.
I. SEGMENT INFORMATION:
The Company manages and reports its operating activities under two
segments, Trim Products and Truck and Automotive Replacement Parts. The
Trim Products segment consists of decorative and functional exterior
trim sold to original equipment manufacturers ("OEM's"). The Truck and
Automotive Replacement Parts segment consists of heavy-duty vehicle
undercarriage parts and brake systems for the automotive industry.
The accounting policies for the segments are the same as those used for
the consolidated financial statements. There are no inter-segment sales
and management does not allocate interest or corporate expenses to the
segments. The Company evaluates the performance of its segments and
allocates resources to them based on operating income. Segment profit
is defined as sales minus cost of goods sold and selling, general and
administrative expenses. Other charges relate to non-recurring expense
and income items.
Information by operating segment for the three months ended September
30, 2002 and 2001 is summarized below:
For The Three Months Ended September 30,
------------------------------------------
Trim Replacement
Products Parts Total
-------- ----------- -----
Sales to unaffiliated customers
2002 $ 14,068 $ 13,793 $ 27,861
2001 14,360 14,393 28,753
Segment profit (loss)
2002 $ (379) $ 1,424 $ 1,045
2001 (1,369) 849 (520)
Other charges
2002 $ -- $ 45 $ 45
2001 -- 60 60
Depreciation and amortization
2002 $ 640 $ 220 $ 860
2001 652 223 875
Segment assets
September 30, 2002 $ 26,063 $ 22,453 $ 48,516
December 31, 2001 31,127 23,448 54,575
Expenditures for segment assets
2002 $ 6 $ 8 $ 14
2001 78 24 102
12
JPE, INC. (D/B/A ASCET INC AND ASC EXTERIOR TECHNOLOGIES)
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(amounts in thousands, except share data)
Information by operating segment for the nine months ended September
30, 2002 and 2001 is summarized below:
For The Nine Months Ended September 30,
------------------------------------------
Trim Replacement
Products Parts Total
-------- ----------- -----
Sales to unaffiliated customers
January 1 to May 31, 2002 $ 29,638 $ 22,488 $ 52,126
June 1 to September 30, 2002 19,337 18,058 37,395
2001 50,900 42,738 93,638
Segment profit (loss)
January 1 to May 31, 2002 $ 2,358 $ 1,360 $ 3,718
June 1 to September 30, 2002 (185) 1,758 1,573
2001 (1,056) 2,513 1,457
Other charges (income)
January 1 to May 31, 2002 $ (207) $ 55 $ (152)
June 1 to September 30, 2002 -- 56 56
2001 -- 76 76
Depreciation and amortization
January 1 to May 31, 2002 $ 1,078 $ 352 $ 1,430
June 1 to September 30, 2002 856 290 1,146
2001 1,961 669 2,630
Expenditures for segment assets
January 1 to May 31, 2002 $ 59 $ 17 $ 76
June 1 to September 30, 2002 23 8 31
2001 710 70 780
A reconciliation of segment profit (loss) for reportable segments to
income (loss) before taxes is as follows:
PREDECESSOR COMPANY SUCCESSOR COMPANY
------------------------------------------- -------------------------------
Three Months Nine Months January 1, June 1, Three Months
Ended Ended 2002 to 2002 to Ended
September 30, September 30, May 31, September 30, September 30,
2001 2001 2002 2002 2002
---- ---- ---- ---- ----
Segment profit (loss) $ (520) $ 1,457 $ 3,718 $ 1,573 $ 1,045
Other income (expense) (60) (76) 152 (56) (45)
Corporate expense (1,273) 4,223 (2,022) (1,722) (1,272)
Interest expense (635) (2,358) (694) (437) (328)
-------- -------- -------- -------- ---------
Income (loss) before taxes $ (2,488) $ (5,200) $ 1,154 $ (642) $ (600)
======== ======== ======== ======== =========
A reconciliation of segment assets to consolidated assets is as
follows:
December 31, 2001 September 30, 2002
----------------- ------------------
Segment assets $ 54,575 $ 48,516
Corporate assets 3,797 2,655
-------------- --------------
$ 58,372 $ 51,171
============== ==============
13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the consolidated
financial statements and notes thereto filed with the Company's Annual Report on
Form 10-K to assist in understanding the Company's results of operations, its
financial position, cash flows, capital structure and other relevant financial
information.
RECENT INFORMATION
GENERAL AND RECENT INFORMATION
In accordance with the terms of a purchase agreement dated May 7, 2002, with ASC
Holdings, LLC (the Predecessor company's 95% beneficial owner), QP Acquisition
#2, Inc. ("QP") acquired 9,441,420 Common Shares and 1,952,352 Preferred Shares
of the Company, effective May 31, 2002, for aggregate consideration of $200. The
effect of this transaction transferred 95% of the voting securities of the
Company from ASC Holdings, LLC to QP.
JPE, Inc. (together with its subsidiaries, the "Company"), through its three
operating subsidiaries, Dayton Parts, Inc. (DPI), Starboard Industries, Inc.
(SBI) and Plastic Trim, Inc. (PTI) manufactures and distributes automotive and
truck components to original equipment manufacturers ("OEMs") and to the
aftermarket.
The Company had 2001 annual revenues of approximately $122,000 and total assets
of approximately $59,000. JPE, Inc. is now operating under the assumed names of
ASCET INC and ASC Exterior Technologies. PTI now operates under the assumed
names of ASC Exterior Technologies - Dayton and ASC Exterior Technologies -
Beavercreek. SBI now operates under the assumed name of ASC Exterior
Technologies - East Tawas.
RESULTS OF OPERATIONS
Management's discussion and analysis of the results of operations for the three
months ended September 30, 2002, compared to the three months ended September
30, 2001, is as follows:
THREE MONTHS ENDED SEPTEMBER 30, 2002 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 2001
Net sales for the quarter ended September 30, 2002 and 2001 were as follows (in
thousands):
2001 2002
---- ----
Trim Products $ 14,360 $ 14,068
Replacement Parts 14,393 13,793
----------- -----------
Total $ 28,753 $ 27,861
=========== ===========
The sales decrease in the Trim Products segment is $292, or 2.0%. The decrease
is due to the completion of product programs for which the Company was not
awarded replacement business. The decrease in Replacement Parts sales of $600,
or 4.2% is attributable to a decrease in heavy duty truck repair orders
consistent with general market conditions in the overall heavy duty aftermarket
industry.
Gross profit was $3,593, or 12.9% of sales for the three months ended September
30, 2002 compared to $2,473, or 8.6% of sales, for the same quarter last year.
The gross profit (loss) by segment is as follows (in thousands):
2001 2002
---- ----
Trim Products $ (858) $ 35
Replacement Parts 3,331 3,558
---------- ----------
Total $ 2,473 $ 3,593
=========== ==========
14
The gross profit percentage for the Trim Products segment was 0.2% and (6.0)%
for the quarters ended September 30, 2002 and 2001, respectively. The increase
in the gross profit percentage was primarily attributable to lower scrap rates,
reduced freight costs, lower third party quality inspection costs, and higher
labor efficiencies at the Dayton, Ohio operation.
The gross profit percentage of sales for the Replacement Parts segment was
25.8%, compared to 23.1% for the three months ended September 30, 2002 and 2001,
respectively. The increase in the gross profit percentage reflects sales of
higher margin products and improved manufacturing efficiencies.
Selling, general and administrative (SGA) expenses for the three months ended
September 30, 2002 were $3,820 or 13.7% of sales compared to $4,266 or 14.8% of
sales for the quarter ended September 30, 2001. Detail of SGA expenses for the
three months ended September 30, 2002 and 2001 are as follows (in thousands):
2001 2002
---- ----
Trim Products $ 511 $ 414
Replacement Parts 2,482 2,134
Corporate 1,273 1,272
--------------- --------------
Total $ 4,266 $ 3,820
=============== ==============
SGA expenses for the Trim Products segment was $414 or 2.9% of sales for the
quarter ended September 30, 2002, compared to $511 or 3.6% of sales for the
quarter ended September 30, 2001. The decrease in SGA expenses is attributable
to reduced spending at the Dayton, Ohio operation.
The Replacement Parts segment's SGA expenses were $2,134 or 15.5% of sales and
$2,482 or 17.2% of sales for the three months ended September 30, 2002 and 2001,
respectively. The decrease in SGA expenses is due to reduced spending levels.
Corporate administrative costs for the three months ended September 30, 2002 and
2001 were $1,272 and $1,273, respectively.
Interest expense for the three months ended September 30, 2002 was $328,
compared to $635 for the quarter ended September 30, 2001. The reduction in
interest expense is primarily attributable to lower borrowing costs due to lower
general interest rates in the United States and Europe as well as a reduction in
total bank borrowing compared to the third quarter of 2001. Also, the April 16,
2002 amendment to the Comerica Facility prohibited the payment of interest on
the $15,000 note to ASC Incorporated.
The Company's effective tax rate of 0% for the three months ended September 30,
2002, reflects regular tax rates and state and foreign income taxes related to
the Company's profitable locations, as well as the effect from an increase in
the valuation reserve.
NINE MONTHS ENDED SEPTEMBER 30, 2002 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 2001
Net sales for the nine months ended September 30, 2002 and 2001 were as follows
(in thousands):
2001 2002
---- ----
Trim Products $ 50,900 $ 48,975
Replacement Parts 42,738 40,546
--------------- --------------
Total $ 93,638 $ 89,521
=============== ==============
The sales decrease in the Trim Products segment is $1,925, or 3.8%. The decrease
is due to the completion of product programs for which the Company was not
awarded replacement business. The decrease in Replacement Parts sales of $2,192,
or 5.1% is attributable to a decrease in heavy duty truck repair orders
consistent with general market conditions in the overall heavy duty aftermarket
industry.
15
Gross profit was $13,459 or 15.0% of sales for the nine months ended September
30, 2002 compared to $10,600, or 11.3% of sales, for the same period last year.
The gross profit by segment is as follows (in thousands):
2001 2002
---- ----
Trim Products $ 529 $ 3,462
Replacement Parts 10,071 9,997
--------------- --------------
Total $ 10,600 $ 13,459
=============== ==============
The gross profit percentage for the Trim Products segment was 7.1% and 1.0% for
the nine months ended September 30, 2002 and 2001, respectively. The increase in
the gross profit percentage was primarily attributable to lower scrap rates,
reduced freight costs, lower third party quality inspection costs, and higher
labor efficiencies at the Dayton, Ohio operation.
The gross profit percentage of sales for the Replacement Parts segment was
24.7%, compared to 23.6% for the nine months ended September 30, 2002 and 2001,
respectively. The increase in the gross profit percentage reflects sales of
higher margin products and improved manufacturing efficiencies.
Selling, general and administrative (SGA) expenses for the nine months ended
September 30, 2002 were $11,912 or 13.3% of sales compared to $13,366 or 14.3%
of sales for the nine months ended September 30, 2001. Detail of SGA expenses
for the nine months ended September 30, 2002 and 2001 are as follows (in
thousands):
2001 2002
---- ----
Trim Products $ 1,585 $ 1,288
Replacement Parts 7,558 6.880
Corporate 4,223 3,744
--------------- --------------
Total $ 13,366 $ 11,912
=============== ==============
SGA expenses for the Trim Products segment was $1,288 or 2.6% of sales for the
nine months ended September 30, 2002, compared to $1,585 or 3.1% of sales for
the nine months ended September 30, 2001. The decrease in SGA expenses is
attributable to reduced spending at the Dayton, Ohio operation.
The Replacement Parts segment's SGA expenses were $6,880 or 17.0% of sales and
$7,558 or 17.7% of sales for the nine months ended September 30, 2002 and 2001,
respectively. SGA for 2001 includes $214 of bad debt expense for the bankruptcy
filing of a distribution customer. Without this item, SGA would have been $7,344
or 17.2% of sales. The lower expense in 2002 is due to reduced spending levels.
Corporate administrative costs for the nine months ended September 30, 2002 and
2001 were $3,744 and $4,223, respectively. SGA for 2001 includes $338 for the
write off of a non-compete agreement for a former employee. Without this item,
SGA would have been $3,885. The remaining decrease in 2002 is attributable to
reduced spending levels.
Interest expense for the nine months ended September 30, 2002 was $1,131,
compared to $2,358 for the same period last year. The reduction in interest
expense is attributable to lower borrowing costs due to lower general interest
rates in the United States and Europe as well as a reduction in total bank
borrowing compared to the first nine months of 2001. Also, no interest expense
was incurred in 2002 on the $15,000 note to ASC Incorporated as the April 16,
2002 amendment to the Comerica Facility prohibits payment of interest. These
items offset the nonrefundable amendment and waiver fee paid to Comerica in
April, 2002 of $187.5.
16
The Company's effective tax rate of 26.3% for the nine months ended September
30, 2002, reflects regular tax rates and state and foreign income taxes related
to the Company's profitable locations, as well as the effect from an increase in
the valuation reserve.
LIQUIDITY AND CAPITAL RESOURCES
Operating activities provided $5,066 in cash for the nine months ended September
30, 2002, primarily due to cash generated from net income plus the addback of
depreciation and amortization and working capital management. Investing
activities used $107 in cash for capital expenditures. Financing activities used
$7,037 in cash, representing debt repayments.
Prior to February 7, 2001, the Company's principal source of liquidity was a
$56,300 demand loan from Comerica Bank which was available to fund daily working
capital needs in excess of internally generated funds. On February 7, 2001, the
Company entered into a new $33,000 revolving credit facility with Comerica Bank
(the "Comerica Facility") which matures February 1, 2003. The $56,300 demand
loan from Comerica Bank was terminated on February 7, 2001. Concurrent with the
execution of the Comerica Facility, the Company received a $15,000 subordinated
demand loan from ASC Incorporated, an affiliate of the Company, which repaid
$15,000 of the Company's $56,300 demand loan from Comerica Bank.
In connection with the Comerica Facility, the Company signed a promissory note
in the amount of $33,000, providing for borrowing options at a prime based rate
or Eurodollar rate plus various interest rate margins dependent upon the
Company's financial performance beginning January 1, 2002. For 2001 and through
March 31, 2002, the Company's margin on prime based loans and Eurodollar loans
was 1/4% and 2 1/4%, respectively. Eurodollar borrowings for 1 month to 6 months
are permitted at the option of the Company. Advances under the Comerica Facility
are subject to a borrowing base restriction equal to 85% of eligible OEM trade
receivables, 80% of all other eligible trade receivables, 50% of eligible
inventory (up to $9,000), plus an overformula amount of $10,000. The overformula
amount decreases semiannually over a four-year period. The initial reduction of
$1,000 occurred on September 1, 2001. The second and third reductions of $1,250
each occurred on March 1, 2002, and September 1, 2002. All advances are fully
secured by the Company's net assets.
Required covenants under the Comerica Facility include submission of monthly and
annual financial statements and annual financial projections during a prescribed
period. Quarterly financial covenants include an interest coverage ratio for
2001 to date performance commencing September 30, 2001, and a Senior Debt to
EBITDA ratio no greater than 5 to 1 as of December 31, 2001. Both covenants
exclude the effect of the $15,000 subordinated demand note from ASC
Incorporated. In addition, the payment of dividends is prohibited by the terms
of the Comerica Facility.
As of September 30, 2001 and December 31, 2001, the Company was not in
compliance with ratio covenants of the Comerica Facility. On April 16, 2002, the
Company's Comerica Facility was amended, and the September 30, 2001 and December
31, 2001 defaults were waived. The Senior Debt to EBITDA ratio covenant was
removed and the interest coverage ratio covenant was reset for 2002 year to date
performance with June 30, 2002 as the first measurement date. Interest rates
were reset based upon the interest coverage ratio using the Company's financial
performance beginning January 1, 2002. For the period from April through
September, 2002, the Company's margin on prime based loans and Eurodollar loans
was 1 3/4% and 3 3/4%, respectively. The revolving credit commitment amount was
decreased from $33,000 to $30,000 as the Company believes $30,000 is adequate
for its liquidity requirements through the remaining term of the loan. In
consideration of the amendments and waivers, the Company paid Comerica Bank a
nonrefundable amendment and waiver fee of $187.5.
The Company's $15,000 subordinated demand note to ASC Incorporated dated
February 7, 2001 is subordinated as to creditor rights and security to the
Comerica Facility. Interest is payable monthly commencing March 1, 2001 at ASC
Incorporated's cost of borrowing. ASC Incorporated has agreed not to call the
Note through at least October 1, 2003. Further, the Comerica Facilities prohibit
any payments to ASC Incorporated at non arm's length amounts, without prior
consent. The April 16, 2002 amendment to the Comerica Facility prohibits the
Company from paying interest to ASC Incorporated on the $15,000 note.
17
Borrowings at September 30, 2002 under the Company's $30,000 revolving credit
facility were $20,500, with unused borrowing capacity of $4,044 (based on the
borrowing base advance restrictions). As Management expects the Comerica
Facility to be renewed in February, 2003, it has been classified as long-term
debt.
On February 7, 2001, concurrent with the execution of the Comerica Facility, the
Company entered into a new $3,000 Revolving Line of Credit Note with ASC
Incorporated. This Note is subordinated to the Company's borrowings and advances
under the Comerica Facility and bears interest at a rate equal to the cost of
borrowing of ASC Incorporated. As of September 30, 2002, there were no advances
made under this Note.
Together with internally generated cash flow, the Company believes the Comerica
Facility and notes with ASC Incorporated are adequate to provide working capital
funding during the course of the year, except in the event of a sustained
cyclical downturn in the automotive industry.
18
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
MARKET RISK
The Company's sales volumes have remained steady during the last quarter of 2001
and throughout the first nine months of 2002. Although most underlying
fundamentals remain strong, the impact of the OEM vehicle manufacturers to
rebalance inventories, the continuance of rebates and reduced customer financing
rates and the trend of retail sales and other uncertainties may adversely impact
the Company's 2002 financial performance.
Furthermore, in the normal course of business the Company is subject to market
exposures from changes in interest rates. The Company's variable interest
expense is sensitive to changes in the general level of United States and
European interest rates. The Company's Comerica Facility provides for borrowing
options at a prime-based rate or Eurodollar rate plus various interest rate
margins dependent on the Company's financial performance. As such, future
borrowings under the Comerica Facility are sensitive to changes in interest
rates. At September 30, 2002, the weighted average interest rate of the $36.0
million debt was 3.2% and the fair value of the debt approximates its carrying
value.
The Company had interest expense of $1,131 for the nine months ended September
30, 2002. The potential increase in interest expense from a hypothetical 2%
adverse change, assuming the September 30, 2002 debt was outstanding for the
entire year, would be $410.
FORWARD LOOKING INFORMATION
This Quarterly Report on Form 10-Q contains, and from time to time the Company
expects to make, certain forward-looking statements regarding its business,
financial condition and results of operations. In connection with the "Safe
Harbor" provisions of the Private Securities Reform Act of 1995 (the "Reform
Act"), the Company intends to caution readers that there are several important
factors that could cause the Company's actual results to differ materially from
those projected in its forward-looking statements, whether written or oral, made
herein or that may be made from time to time by or on behalf of the Company.
Investors are cautioned that such forward-looking statements are only
predictions and that actual events or results may differ materially. The Company
undertakes no obligation to publicly release the results of any revisions to the
forward-looking statements to reflect events or circumstances or to reflect the
occurrence of unanticipated events.
The Company wishes to ensure that any forward-looking statements are accompanied
by meaningful cautionary statements in order to comply with the terms of the
safe harbor provided by the Reform Act. Accordingly, the Company has set forth a
list of important factors that could cause the Company's actual results to
differ materially from those expressed in forward-looking statements or
predictions made herein and from time to time by the Company. Specifically, the
Company's business, financial condition and results of operations could be
materially different from such forward-looking statements and predictions as a
result, among other things, of (i) customer pressures that could impact sales
levels and product mix, including customer sourcing decisions, customer
evaluation of market pricing on products produced by the Company and customer
cost-cutting programs; (ii) operational difficulties encountered during the
launch of major new original equipment manufacturer's ("OEM") programs; (iii)
cyclical consumer demand for new vehicles; (iv) competition in pricing and new
product development from larger companies with substantially greater resources;
(v) the concentration of a substantial percentage of the Company's sales with a
few major OEM customers; and (vi) labor relations at the Company and its
customers and suppliers.
ITEM 4. CONTROLS AND PROCEDURES
As of September 30, 2002, an evaluation was performed under the supervision and
with the participation of the Company's management, including the CEO and CFO,
of the effectiveness of the design and operations of the Company's disclosure
controls and procedures. Based on that evaluation, the Company's management ,
including the CEO and CFO, concluded that the Company's disclosure controls and
procedures were effective as of September 30, 2002. There have been no
significant changes in the company's internal controls or in other factors that
could significantly affect internal controls subsequent to September 30, 2002.
19
PART II. OTHER INFORMATION
JPE, INC. (D/B/A ASCET AND ASC EXTERIOR TECHNOLOGIES)
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. EXHIBITS:
99.1 Certification under Section 906 of Sarbanes-Oxley Act
B. REPORT ON FORM 8-K:
None.
20
JPE, INC. (D/B/A ASCET INC AND ASC EXTERIOR TECHNOLOGIES)
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
JPE, Inc. d/b/a ASCET and ASC Exterior Technologies
By: /s/ Robert A. Naglick
--------------------------
Robert A. Naglick
Vice President and Chief Financial Officer
(Principal Accounting Officer)
Date: November 14, 2002
21
CERTIFICATION
I, David L. Treadwell, Chief Executive Officer of JPE, Inc., certify that:
1. I have reviewed this quarterly report on Form 10-Q of JPE, Inc.
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
(a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent functions):
(a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: November 14, 2002 /s/ David L. Treadwell
-------------------------------
David L. Treadwell
Chairman and Chief Executive Officer
22
CERTIFICATION
I, Robert A. Naglick, Vice President, Chief Financial Officer and Treasurer of
JPE, Inc., certify that:
1. I have reviewed this quarterly report on Form 10-Q of JPE, Inc.
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
(a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent functions):
(a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: November 14, 2002 /s/ Robert A. Naglick
-------------------------------
Robert A. Naglick
Vice President, Chief Financial Officer
and Treasurer
23