10-Q 1 k72392e10vq.txt FORM 10-Q FOR QUARTER ENDED SEPTEMBER 30, 2002 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)

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)

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)

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)

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)

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:

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:

D. PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment by component is as follows:

E. ACCRUED LIABILITIES: Accrued liabilities consisted of the following:

F. DEBT: Debt consisted of the following:

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:

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:

A reconciliation of segment profit (loss) for reportable segments to income (loss) before taxes is as follows:

A reconciliation of segment assets to consolidated assets is as follows:

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):

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):

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):

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):

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):

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):

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

JPE INC 10-Q