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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________________________
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: September 29, 1996
------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________________ to _______________
Commission file number: 0-27992
ELAMEX, S.A. de C.V.
(Exact name of registrant as specified in its charter)
Mexico Not Applicable
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification number)
Avenida Insurgentes No. 4145-B Ote.
Cd. Juarez, Chihuahua Mexico C.P. 32340
(Address of principal executive offices) (Zip code)
(915) 774-8252
Registrant's telephone number, including area code
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 ____
The number of shares of Class I Common Stock, no par value of the
Registrant outstanding as of October 2, 1996 was:
7,400,000
<PAGE>
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
ELAMEX, S.A. DE C.V. AND SUBSIDIARIES
Consolidated Balance Sheets
(In U. S. Dollars)
September 29, December 31,
1996 1995
(Unaudited)
---------------- ----------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 2,777,678 2,848,628
Receivables:
Trade accounts, less allowance for doubtful accounts 17,036,945 14,860,718
Other 1,942,824 831,740
---------------- ----------------
Total receivables 18,979,769 15,692,458
Inventories, net 14,779,731 11,358,182
Prepaid expenses 818,878 686,766
---------------- ----------------
Total current assets 37,356,056 30,586,034
Property, plant and equipment, net 27,045,317 24,022,728
Other assets, net 310,798 501,726
---------------- ----------------
$ 64,712,171 55,110,488
================ ================
Liabilities and Stockholders' Equity
Current liabilities:
Notes payable $ 1,500,000 2,000,000
Accounts payable 6,862,785 7,134,943
Accrued expenses 3,170,712 1,902,198
Current installments of long-term debt - 2,691,054
Current obligations of capital leases 329,287 565,555
Taxes payable 1,149,584 861,797
---------------- ----------------
Total current liabilities 13,012,368 15,155,547
Subordinated debentures - 2,044,558
Long-term debt, excluding current installments - 12,986,621
Capital lease obligations, excluding current
obligations 23,683 181,062
Other liabilities 195,838 181,964
Deferred income taxes, net 3,760,208 1,364,407
---------------- ----------------
Total liabilities 16,992,097 31,914,159
Stockholders' equity:
Preferred stock, authorized 50,000,000 shares, none
issued - -
or outstanding
Common stock, 7,400,000 and 5,000,000 shares issued and
outstanding at September 29, 1996 and December 31, 1995 35,010,468 16,270,459
Retained earnings 12,709,606 6,925,870
---------------- ----------------
Total stockholders' equity 47,720,074 23,196,329
---------------- ----------------
Commitments and contingencies - -
$ 64,712,171 55,110,488
================ ================
<PAGE>
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ELAMEX, S.A. DE C.V. AND SUBSIDIARIES
Consolidated Statements of Earnings
(In U. S. Dollars)
13 weeks ended 39 weeks ended
--------------------------------- --------------------------------
September 29, October 1, September 29, October 1,
1996 1995 1996 1995
(Unaudited) (Unaudited) (Unaudited)
---------------- --------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Net sales $ 30,496,368 23,981,216 86,758,075 73,059,111
Cost of sales 25,097,059 20,566,724 72,262,592 62,409,977
---------------- --------------- ---------------- ---------------
Gross Profit 5,399,309 3,414,492 14,495,483 10,649,134
---------------- --------------- ---------------- ---------------
Operating expenses:
General and administrative 1,956,638 1,378,134 5,312,498 4,031,287
Selling 196,719 173,650 530,434 493,129
---------------- --------------- ---------------- ---------------
Total operating expenses 2,153,357 1,551,784 5,842,932 4,524,416
---------------- --------------- ---------------- ---------------
Operating income 3,245,952 1,862,708 8,652,551 6,124,718
---------------- --------------- ---------------- ---------------
Other income (expense):
Interest income 89,774 268,508 191,411 908,046
Interest expense (224,363) (681,524) (859,952) (1,741,157)
Other, net 68,764 16,235 521,484 109,204
---------------- --------------- ---------------- ---------------
Total other income (expense) (65,825) (396,781) (147,057) (723,907)
---------------- --------------- ---------------- ---------------
Income before income taxes 3,180,127 1,465,927 8,505,494 5,400,811
Income tax expense (benefit) 860,010 (508,219) 2,721,758 459,762
---------------- --------------- ---------------- ---------------
Net income $ 2,320,117 1,974,146 5,783,736 4,941,049
================ =============== ================ ===============
Net income per common share $ 0.31 0.38 0.86 0.94
Weighted average shares outstanding 7,400,000 5,000,000 6,705,495 5,000,000
================ =============== ================ ===============
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ELAMEX, S.A. DE C.V. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In U. S. Dollars)
39 weeks ended
----------------------------------
September 29, October 1,
1996 1995
(Unaudited)
---------------- --------------
<S> <C> <C>
Cash flows provided (used) by operating activities:
Net income $ 5,783,736 4,941,049
Adjustments to reconcile net income to net cash provided (used)
by operating activities:
Depreciation and amortization 2,185,279 1,780,016
Allowance for doubtful trade accounts receivable 224,917 (66,661)
Allowance for excess and obsolete inventory 433,601 302,804
Deferred income taxes, net 2,395,801 73,514
Gain on disposal of equipment - (2,414)
Change in assets and liabilities:
Trade accounts receivable (2,401,144) (3,131,168)
Other receivables (1,111,084) 175,718
Inventories (3,855,150) (4,568,353)
Prepaid expenses (132,112) (81,605)
Other assets (68,891) 878
Accounts payable (272,158) (1,855,126)
Accrued expenses and taxes payable 1,556,301 580,376
Other liabilities 13,874 (12,450)
---------------- --------------
Net cash provided (used) by operating 4,752,970 (1,863,422)
activities
---------------- --------------
Cash flows used by investing activities:
Purchase of property, plant and equipment (4,948,049) (2,430,192)
Proceeds from disposal of equipment - 16,771
---------------- --------------
Net cash used by investing (4,948,049) (2,413,421)
activities
---------------- --------------
Cash flows provided by financing activities:
Net increase (decrease) in notes payable (500,000) 5,000,000
Proceeds from long-term debt 2,500,000 6,194,343
Repayment of long-term debt (20,222,233) (3,708,334)
Principal repayments of capital lease (393,647) (448,934)
obligations
Proceeds from capital contributions - 2,718,428
Redemption of redeemable common stock - (4,018,444)
Proceeds from sale of stock, net 18,740,009 -
---------------- --------------
Net cash provided by financing activities 124,129 5,737,059
---------------- --------------
Net increase (decrease) in cash and cash equivalents (70,950) 1,460,216
Cash and cash equivalents, beginning of period 2,848,628 1,694,987
---------------- --------------
Cash and cash equivalents, end of period $ 2,777,678 3,155,203
================ ==============
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
ELAMEX, S.A. DE C.V. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In U.S. Dollars)
September 29, 1996
(Unaudited)
(1)General
The financial statements of Elamex, S.A. de C.V. and subsidiaries
("Elamex" or the "Company") are unaudited and certain information and footnote
disclosures normally included in financial statements have been omitted. While
the management of the Company believes that the disclosures presented are
adequate, interim financial statements should be read in conjunction with the
financial statements and notes included in the Company's 1995 annual report on
Form 10-K.
In the opinion of management, the accompanying unaudited financial
statements contain all normal recurring adjustments necessary for a fair
presentation of the Company's financial statements for the interim period. The
results of operations for the thirteen-week and thirty-nine-week periods ended
September 29, 1996 are not necessarily indicative of the results to be expected
for the entire year.
(2) Inventories
Inventories consist of the following:
September 29, December 31,
1996 1995
--------------- ---------------
Raw materials $ 13,508,039 8,717,922
Work-in-process 1,658,046 2,286,032
Finished goods 1,518,614 1,825,595
--------------- ---------------
16,684,699 12,829,549
Reserve for excess and obsolete
inventory (1,904,968) (1,471,367)
--------------- ---------------
$ 14,779,731 11,358,182
=============== ===============
(3) Purchase of property and plant
During May 1996, the Company exercised an option to purchase from a
related party two manufacturing facilities, located in Torreon and Chihuahua,
Mexico. The purchase price of approximately $3,100,000 represents the fair
market value as determined by an independent appraiser. The Company has a
manufacturing operation at the Torreon facility and intends to establish an
operation at the Chihuahua facility.
(4) Sale of Common Stock and Long-Term Debt
Effective March 19, 1996, the Company completed a public offering of
2,400,000 shares of Class I, no par value, common stock. The shares are traded
on the NASDAQ National Market. The total amount of common stock outstanding
after the offering is 7,400,000 shares. Upon completion of the offering, Accel,
S.A. de C.V. ("Accel") remained the Company's majority stockholder; accordingly,
Accel has the ability to elect a majority of the Company's directors, subject to
certain limitations, and will continue to control the Company. Proceeds from the
public offering, net of expenses of $2,900,000, were approximately $18,700,000.
During March 1996, the Company used proceeds from its initial public
offering to pay approximately $15,900,000 of long-term debt and subordinated
debentures, including accrued interest. A note payable to a financing
corporation, with an unpaid balance of $1,790,174, due August 30, 1999 and
bearing interest at a rate of 13.64% per annum, was prepaid on September 6,
1996.
<PAGE>
ELAMEX, S.A. DE C.V.AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In U.S. Dollars)
September 29, 1996
(Unaudited)
(5) Stockholders Equity
On April 18, 1996, at the Company's annual stockholders' meeting,
$897,406 of retained earnings was reserved for the future repurchase and
cancellation of outstanding common stock.
(6) Commitments and Contingencies
The Company is committed to purchase new FUJI CPVI Surface Mount
Technology ("SMT") equipment with a cost of approximately $930,000. This
equipment will be included as part of Property, plant and equipment in the
fourth quarter of 1996.
(7) Foreign Currency Translation
Included in "other" on the accompanying consolidated statements of
operations are foreign exchange gains (losses) of $317,331 and ($158,028) for
the thirty-nine weeks ended September 29, 1996 and October 1, 1995,
respectively. Assets and liabilities denominated in pesos are summarized as
follows in U. S. dollars:
September 29, December 31,
1996 1995
-------------- --------------
Cash and cash equivalents $ 0 73,000
Other receivables 1,816,544 585,491
Prepaid expenses 245,585 363,796
Other assets, net 27,165 42,905
Accounts payable (744,628) (101,662)
Accrued expenses (2,578,486) (961,973)
Other liabilities (195,838) (598,257)
-------------- --------------
Net non-U.S. currency position $(1,429,658) (596,700)
============== ==============
(8) Income Taxes
Pursuant to Statement of Financial Accounting Standards No. 109,
Accounting for Income Taxes ("FAS 109"), the Company has estimated income taxes
using an expected effective tax rate of 32% for the twelve months ended December
31, 1996. The actual effective tax rate for the year ended December 31, 1996 may
differ from that used to estimate taxes at September 29, 1996.
(9) Earnings per Share
Earnings per share of common stock ("EPS") for the thirty-nine weeks
ended September 29, 1996 were calculated using the weighted average of common
shares outstanding. EPS for the same period ended October 1, 1995 were
calculated using the number of common shares outstanding immediately prior to
the same date of the stock sale. The weighted average number of shares
outstanding for the thirteen-week period ended September 29, 1996 was 7,400,000,
and the number of shares used to determine EPS at October 1, 1995 was 5,000,000.
Amounts attributed to the rights of holders of senior securities of $224,438 and
$60,432 were deducted from net income in arriving at the earnings per share
amount for the thirty-nine weeks and thirteen-weeks ended October 1, 1995,
respectively. There were no amounts attributable to the rights of senior
securities for the thirty-nine weeks ended September 29, 1996.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
General
The following table sets forth income statement data as a percentage of
net sales, derived from Consolidated Financial Statements included elsewhere
herein, for each period indicated, unless otherwise indicated.
<TABLE>
<CAPTION>
Percentage of Net Sales
Thirteen weeks ended, Thirty-nine weeks ended,
--------------------------- ---------------------------
September 29, October 1, September 29 October 1,
1996 1995 1996 1995
------------- ---------- ------------ ----------
(unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Net sales........................................... 100.0% 100.0% 100.0% 100.0%
Cost of sales....................................... 82.3 85.8 83.3 85.4
Gross profit........................................ 17.7 14.2 16.7 14.6
Selling, general and administrative expenses........ 7.1 6.5 6.7 6.2
Operating income.................................... 10.6 7.8 10.0 8.4
Other income (expense), net......................... (0.2) (1.7) (0.2) (1.0)
Income before income taxes.......................... 10.4 6.1 9.8 7.4
Income tax expense (benefit)........................ 2.8 (2.1) 3.1 0.6
Net income (loss)................................... 7.6 8.2 6.7 6.8
</TABLE>
Net Sales. Net sales for the thirteen weeks ended September 29, 1996
increased 27.2% to $30.5 million from $24.0 million in the comparable period of
1995. Net sales also increased for the thirty-nine week period ended September
29, 1996 by 18.8% to $86.8 million compared with $73.1 million in the comparable
period in 1995. For the thirteen weeks ended September 29, 1996, the Company's
sales mix changed slightly from that of the comparable period of 1995, as
assembly sales were slightly increased. However for the thirty-nine weeks ended
September 29, 1996, the sales mix remained unchanged due to a similar increase
in both assembly and turnkey sales.
Gross Profit. Gross profit increased 58.1% to $5.4 million for the
thirteen weeks ended September 29, 1996, compared to $3.4 million for the same
period of the prior year. Gross profit increased 36.1% to $14.5 million for the
thirty-nine weeks ended September 29, 1996, compared to $10.6 million for the
thirty-nine weeks ended October 1, 1995. Gross profit as a percentage of net
sales ("Gross Margin") increased to 17.7% for the thirteen weeks ended September
29, 1996, from 14.2% for the thirteen weeks ended October 1, 1995; and to 16.7%
for the thirty-nine weeks ended September 29, 1996, from 14.6% for the
comparable period of 1995. These Gross Margin increases were due primarily to
the growth in sales in addition to economies of scale in utilization of the
Company's manufacturing facilities.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 38.8% to $2.2 million, or 7.1% of net sales,
for the thirteen weeks ended September 29, 1996, as compared to $1.6 million, or
6.5% of net sales, for the thirteen weeks ended October 1, 1995. Selling,
general and administrative expenses increased 29.1% to $5.8 million, or 6.7% of
net sales for the thirty-nine weeks ended September 29, 1996, as compared to
$4.5 million, or 6.2% of net sales for the thirty-nine weeks ended October 1,
1995. This increase resulted in part from an increase in costs associated with
personnel restructuring in several departments, in addition to an increase in
other corporate expenses.
Operating Income. Operating income increased by 74.3% to $3.2 million,
or 10.6% of net sales, for the thirteen weeks ended September 29, 1996, from
$1.9 million, or 7.8% of net sales, for the thirteen weeks ended October 1,
1995. This item also increased by 41.3% to $8.7 million, or 10.0% of net sales,
for the thirty-nine weeks ended September 29, 1996 from $6.1 million, or 8.4% of
net sales, for the comparable period of 1995. These increases were attained as a
result of the above factors, the most significant of which were the net sales
increase, changes in sales mix and the economies of scale described under
"-Gross Profit".
<PAGE>
Other income (expense), net. Other income (expenses) were ($0.1)
million or (0.2)% of sales for the thirteen weeks ended September 29, 1996,
compared with ($0.4) million or (1.7)% of net sales, for the thirteen weeks
ended October 1, 1995. Other income (expenses) were ($0.1) million or (0.2)% of
sales for the thirty-nine weeks ended September 29, 1996, compared with ($0.7)
million or (1.0)% of net sales, for the thirty-nine weeks ended October 1, 1995.
This decrease resulted principally from a translation loss on a foreign currency
net asset position during 1995, which was not incurred in the 1996 period. Other
factors contributing to the decrease were decreased borrowings and lower
interest rates as compared with the same period of the prior year.
Income tax. Income tax expense increased to $0.9 million, or 2.8% of
net sales for the thirteen weeks ended September 29, 1996, from ($0.5) million
or (2.1)% of net sales for the thirteen weeks ended October 1, 1995. Income tax
expense increased to $2.7 million, or 3.1% of sales for the thirty-nine weeks
ended September 29, 1996, from $0.5 million or 0.6% for the comparable period in
1995. The lower effective tax rate for the thirty-nine week period ended October
1, 1995 was due to the utilization of net operating losses. There were fewer net
operating losses available to be utilized during the thirty-nine weeks ended
September 29, 1996, resulting in a higher effective tax rate for this period.
Liquidity and Capital Resources
During the thirty-nine weeks ended September 29, 1996, the Company had
gross operating funds of $11.0 million, which consisted of net income of $5.8
million plus depreciation and amortization of $2.2 million in addition to
deferred taxes and allowances of $3.0 million. This flow of funds financed an
increase in accounts receivable of $3.5 million, inventories of $3.9 million and
other current assets of $0.2 million, which were offset by a net increase in
trade payables and accrued expenses of $1.3 million, resulting in net cash
provided by operations of $4.8 million. The increases in accounts receivable and
inventories were due to the Company's increased net sales during the period.
Cash provided by operations plus the issuance of notes payable and long-term
debt of $2.0 million and proceeds from its initial public offering of
approximately $18.7 million allowed the Company to pay down $20.6 million of
indebtedness and to invest $4.9 million in property, plant and equipment.
The Company had the following lines of credit and outstanding
borrowings at September 29, 1996:
<TABLE>
<CAPTION>
Amount Interest
Lender or Outstanding at Rate at
Class of Securities Type September 29, 1996 September 29, 1996 Maturity Date
- ------------------- ---- ------------------ ------------------- --------------
<S> <C> <C> <C> <C>
Comerica Bank $10 million Line of Credit $ - 8.75% May 1, 1998
Bank of America
N.T. & S.A. $7 million Line of Credit 1,500,000 8.75% April 7, 1997
Confia S.A. $2.2 million Line of Credit - 9.125% January 8, 1997
------------------
Total $1,500,000
</TABLE>
Under its several credit agreements, Elamex has committed to maintain:
(a) a debt service coverage ratio of 1.3, (b) a current ratio no lower than
1.25, (c) a leverage ratio (defined as the ratio of senior indebtedness to the
sum of capital plus subordinated indebtedness) no greater than 1.5 and (d)
equity plus subordinated indebtedness of no less than $18 million. The Company
may not invest in or advance significant amounts to other companies that are not
a party to one of the debt agreements. At September 29, 1996 the Company was in
compliance with all material covenants related to its debt obligations.
<PAGE>
PART II
OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of Security Holders during the
period covered by this report.
<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit
Number Description
- ------- -----------
3 Estatutos Sociales (By-Laws) of the Registrant (including
English translation).*
10.1 Modification Agreement Between Fonlyser, S.A. and Accel,
S.A. de C.V., with a translation in English, and
subsequent modification letter, with a translation in
English.*
10.2 Credit Agreement with Confia, S.A., with a summary in
English, and renewal letter, with a translation in
English.*
10.3 Revolving Credit Agreement with Comerica Bank.*
10.4 Tax Sharing Agreement between Accel, S.A. de C.V. and
Elamex S.A. de C.V.*
10.5 Lease of Elamex de Juarez Plant #3, with a translation in
English.*
10.6 Lease of Elamex de Juarez Plant #4, with a translation in
English.*
10.7 Lease of Elamex de Juarez Plant #5, with a translation in
English.*
10.8 Lease of Elamex de Juarez Plant #9.*
10.9 Lease of Elamex de Nuevo Laredo Plant.*
10.10 Executive Phantom Stock Plan.*
*Filed as an exhibit to the Company's Registration Statement on Form S-1, file
No. 333-01768
(b) No reports on Form 8-K were filed during the period covered by
this report.
<PAGE>
SIGNATURES
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, in Ciudad Juarez, Chihuahua, Mexico.
ELAMEX, S.A. de C.V.
Date: October 30, 1996 By:/s/ Hector Raynal
-----------------------
Hector M. Raynal
President and Chief
Executive Officer
(Duly Authorized Officer)
Date: October 30, 1996 By:/s/ Jorge Torres
------------------------
Jorge M. Torres Perez
Treasurer
(acting as Principal Financial
Officer)
<PAGE>
ELAMEX, S.A. DE C.V. AND SUBSIDIARIES
TABLE OF CONTENTS
Page No.
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Balance Sheets as of
September 29, 1996 and December 31, 1995..........................1
Consolidated Statements of Earnings for
the thirteen and thirty-nine weeks
ended September 29, 1996 and October 1, 1995......................2
Consolidated Statements of Cash Flows for
the thirty-nine weeks ended September 29,
1996 and October 1, 1995..........................................3
Notes to Consolidated Financial Statements........................4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations...............................6
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders...............8
Item 6. Exhibits and Reports on Form 8-K..................................9
SIGNATURES..............................................................10
<PAGE>
