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: March 29, 1998
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
in El Paso, Texas
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 May 8, 1998 was:
7,350,000
================================================================================
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ELAMEX, S.A. DE C.V. AND SUBSIDIARIES
TABLE OF CONTENTS
Page No.
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PART I FINANCIAL INFORMATION
Item 1. Consolidated Balance Sheets as of
March 29, 1998 and December 31, 1997.......................................1
Consolidated Statements of Earnings for the thirteen weeks
ended March 29, 1998 and March 30, 1997....................................2
Consolidated Statements of Cash Flows for the thirteen weeks
ended March 29, 1998 and March 30, 1997...................................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 3. Defaults Upon Senior Securities............................................8
Item 4 Submission of Matters to a Vote of Security Holders........................8
Item 5. Other Information..........................................................8
Item 6 Exhibits and Reports on Form 8-K...........................................9
SIGNATURES .......................................................................10
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<CAPTION>
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
ELAMEX, S.A. DE C.V. AND SUBSIDIARIES
Consolidated Balance Sheets
(In U. S. Dollars)
March 29, December 31,
1998 1997
(Unaudited)
------------------- ------------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 17,595,412 13,597,581
Receivables
Trade accounts, less allowance for doubtful accounts 14,463,943 14,343,265
Other receivables 2,738,709 1,872,747
------------------- ------------------
Total receivables 17,202,652 16,216,012
------------------- ------------------
Investment security 1,393,600 2,080,000
Inventories, net 10,624,701 12,696,705
Prepaid expenses 1,397,721 809,109
------------------- ------------------
Total current assets 48,214,086 45,399,407
Property, plant and equipment, net 28,498,355 28,503,121
Other assets, net 511,382 742,644
------------------- ------------------
$ 77,223,823 74,645,172
=================== ==================
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 6,362,443 4,337,223
Accrued expenses 3,997,247 3,854,638
Current obligations of capital leases 413,109 496,190
Taxes payable 1,522,693 1,306,126
Deferred income taxes, net 3,581,899 3,581,899
Due to related parties 121,660 45,480
------------------- ------------------
Total current liabilities 15,999,051 13,621,556
Capital lease obligations, excl. current obligations 356,150 654,462
Other liabilities 225,698 258,988
Deferred income taxes, net 3,015,740 3,078,486
------------------- ------------------
Total liabilities 19,596,639 17,613,492
Stockholders' equity:
Preferred stock, authorized 50,000,000 shares, none issued
or outstanding - -
Common stock, 22,400,000 shares authorized, 7,400,000 issued,
and 7,373,500 and 7,381,500 shares outstanding at
March 29,1998 and December 31, 1997, respectively 35,010,468 35,010,468
Retained earnings 22,886,056 22,236,212
Treasury stock, 26,500 and 18,500 shares at March 29, 1998
and December 31, 1997, respectively, at cost (269,340) (215,000)
------------------- --------------------
57,627,184 57,031,680
------------------- --------------------
$ 77,223,823 74,645,172
=================== ====================
<FN>
See accompanying notes to consolidated financial statements.
</FN>
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1
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ELAMEX, S.A. DE C.V. AND SUBSIDIARIES
Consolidated Statements of Earnings
(In U. S. Dollars)
13 weeks ended
--------------------------------------
March 29, March 30,
1998 1997
(Unaudited) (Unaudited)
----------------- ----------------
<S> <C> <C>
Net sales $ 28,305,758 33,815,271
Cost of sales 25,108,538 29,381,427
----------------- ----------------
Gross Profit 3,197,220 4,433,844
----------------- ----------------
Operating expenses:
General and administrative 1,991,562 1,878,330
Selling 311,152 151,776
Research and development 493,602 -
----------------- ----------------
Total operating expenses 2,796,316 2,030,106
----------------- ----------------
Operating income 400,904 2,403,738
----------------- ----------------
Other income (expense):
Interest income 230,796 39,450
Interest expense (44,461) (50,238)
Other, net 341,110 88,290
----------------- ----------------
Total other income 527,445 77,502
----------------- ----------------
Income before income taxes 928,349 2,481,240
Income tax provision 278,505 793,996
----------------- ----------------
Net income $ 649,844 1,687,244
================= ================
Net income per common share $ 0.09 0.23
Weighted average shares outstanding 7,376,977 7,400,000
================= ================
<FN>
See accompanying notes to consolidated financial statements.
</FN>
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2
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ELAMEX, S.A. DE C.V. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In U. S. Dollars)
13 weeks ended
------------------------------------
March 29, March 30,
1998 1997
(Unaudited) (Unaudited)
--------------- ---------------
<S> <C> <C>
Cash flows provided by operating activities:
Net Income $ 649,844 1,687,244
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,024,561 1,000,036
Allowance for doubtful trade accounts receivable 106,886 1,938
Allowance for excess and obsolete inventory (207,226) 323,709
Deferred income taxes, net (62,746) 689,585
Loss on disposal of property, plant and equipment 104,844 -
Change in assets and liabilities:
Trade account receivable (227,564) (5,350,327)
Other receivables (865,962) 951,370
Inventories 2,279,230 3,351,674
Prepaid expenses (588,612) (353,222)
Other assets 216,468 138,884
Accounts payable 2,025,220 (2,419,485)
Accrued expenses, taxes payable and
due to related parties 435,356 814,034
Other liabilities (33,290) 29,805
--------------- ---------------
Net cash provided by operating activities 4,857,009 865,245
--------------- ---------------
Cash flows used by investing activities:
Proceeds from the sale of investment security 686,400 -
Purchase of property, plant and equipment (1,377,845) (672,352)
--------------- ---------------
Net cash used by investing activities (691,445) (672,352)
--------------- ---------------
Cash flows used by financing activities:
Principal repayments of capital lease obligations (113,393) (144,056)
Purchase of treasury stock (54,340) -
--------------- ---------------
Net cash used by financing activities (167,733) (144,056)
Net increase in cash and cash equivalents 3,997,831 48,837
Cash and cash equivalents, beginning of period 13,597,581 6,269,825
--------------- ---------------
Cash and cash equivalents, end of period $ 17,595,412 6,318,662
=============== ===============
See accompanying notes to consolidated financial statements.
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3
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Elamex, S.A. DE C.V. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In U.S. Dollars)
March 29, 1998
(Unaudited)
(1) General
The consolidated 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 consolidated financial statements should be
read in conjunction with the consolidated financial statements and notes
included in the Company's 1997 annual report on Form 10-K.
In the opinion of management, the accompanying unaudited consolidated
financial statements contain all normal recurring adjustments necessary for a
fair presentation of the Company's consolidated financial statements for the
interim period. The results of operations for the thirteen-week period ended
March 29, 1998 are not necessarily indicative of the results to be expected
for the entire year.
(2) Inventories
Inventories consist of the following:
<TABLE>
<CAPTION>
March 29, December 31,
1998 1997
--------------- ---------------
<S> <C> <C>
Raw materials $ 9,614,078 10,732,767
Work-in-process 1,489,918 1,213,553
Finished goods 1,031,026 2,467,932
--------------- ---------------
12,135,022 14,414,252
Reserve for excess and obsolete inventory (1,510,321) (1,717,547)
--------------- ---------------
$ 10,624,701 12,696,705
=============== ===============
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(3) Foreign Currency Translation
Included in "other, net" on the accompanying consolidated statements of
operations are a foreign exchange loss of $45,957 and a $18,220 gain for the
thirteen week periods ended March 29, 1998 and March 30, 1997, respectively.
Assets and liabilities denominated in pesos are summarized as follows in U. S.
dollars:
<TABLE>
<CAPTION>
March 29, December 31,
1998 1997
---------------- ----------------
<S> <C> <C>
Cash and cash equivalents $ 1,868,465 356,848
Other receivables 1,083,736 690,906
Prepaid expenses 180,178 248,609
Other assets, net 80,089 80,249
Accounts payable (1,444,110) (376,168)
Accrued expenses
and other liabilities (3,031,097) (2,547,084)
---------------- ----------------
Net non-U.S. currency position $ (1,262,739) (1,546,640)
================ ================
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4
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Elamex, S.A. DE C.V. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In U.S. Dollars)
March 29, 1998
(Unaudited)
(4) Research and Development
In January 1998, the Company agreed to purchase 2,525,000 shares of
Series A 9% Cumulative Convertible Preferred Stock ("Preferred Stock") of
Optimag, Inc. ("Optimag"), a California corporation. A majority of the Board
members of Optimag are Elamex directors.
Optimag was formed to develop, manufacture, and market optical
inspection stations and electrical test equipment to companies that produce disk
drive heads, magnetic media, and optical heads and optical media. The Company
has agreed to purchase the Preferred Stock in a three-part transaction as
follows:
In January 1998, the Company signed the Preferred Stock Purchase
Agreement and purchased 637,500 shares of Preferred Stock for $1.00 per
share which are convertible into common stock 1 for 1.
Because certain performance targets were met, in March 1998 the Company
purchased an additional 637,500 shares of Preferred Stock at $1.00 per
share.
Upon completion of a prototype inspection station, the Company will
purchase a final 1,250,000 shares of Preferred Stock at $1.00 per share.
After conversion to common stock, the Company will own a minimum of 51% of
the common stock.
The Company has consolidated the operations of this investment. As of
March 1998, $0.5 million have already been expensed.
(5) 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 approximately 30% for the twelve
months ended December 31, 1998. The actual effective tax rate for the year
ended December 31, 1998 may differ from that used to estimate taxes on March
29, 1998.
(6) Basic Earnings per Share
Basic Earnings per share on common stock ("EPS") for the thirteen weeks
ended March 29, 1998 and March 30, 1997 were calculated using the weighted
average number of common shares outstanding. The weighted average number of
common shares outstanding for the thirteen week period ended March 29, 1998
was 7,376,977, and the weighted average number of shares used to determine EPS
at March 30, 1997 was 7,400,000. The company has no dilutive securities.
5
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
General
The following table sets forth statement of earnings data as a
percentage of net sales, derived from Consolidated Financial Statements included
elsewhere herein, for each period presented, unless otherwise indicated.
<TABLE>
<CAPTION>
Percentage of Net Sales
Thirteen weeks ended
March 29 March 30
1998 1997
(unaudited) (unaudited)
<S> <C> <C>
Net sales............................... 100.0% 100.0%
Cost of sales........................... 88.7 86.9
Gross profit............................ 11.3 13.1
Selling, general and administrative
expenses.............................. 8.2 6.0
Research and development................ 1.7 0.0
Operating income........................ 1.4 7.1
Other income ........................... 1.9 0.2
Income before income taxes.............. 3.3 7.3
Income tax provision.................... 1.0 2.3
Net income ............................. 2.3 5.0
</TABLE>
Net Sales for the thirteen weeks ended March 29, 1998 decreased 16.3% to
$28.3 million from $33.8 million for the comparable period in 1997. The decrease
is primarily due to the completion of projects and to temporary adjustments in
demand to certain other customers,however, these were partially offset by sales
to new customers. For the thirteen weeks ended March 29, 1998, the Company's
assembly sales were constant, as opposed to turnkey sales that dropped as
compared to the same period of 1997.
Gross Profit decreased 27.9% to $3.2 million or 11.3% as a percentage of
sales, for the thirteen weeks ended March 29, 1998, as compared to $4.4 million
or 13.1% as a percentage of sales, for the same period of the prior year. The
Gross Margin decrease was due to an increase in labor cost as headcount
increased due to new projects, in addition to a change in the business structure
of some assembly contracts and the loss of turnkey sales as explained above.
Selling, General and Administrative (SG&A) Expenses increased 13.4% to $2.3
million for the thirteen weeks ended March 29, 1998, compared to $2.0 million
for the same period of the prior year. SG&A Expenses increased as a percentage
of sales to 8.2% for the thirteen weeks ended March 29, 1998, compared to 6.0%
for the thirteen weeks ended the same period in 1997. The increase in SG&A
Expenses reflects additional staffing and infrastructure in the sales and
marketing areas.
Research and Development (R&D) represents 1.7% of sales and is directly
attributed to the start-up of Optimag, Inc., a non-invasive inspection
technology company, which Elamex holds a majority interest in.
Operating Income decreased by 83.3% to $0.4 million, or 1.4% of net sales,
for the thirteen weeks ended March 29, 1998, from $2.4 million, or 7.1% of net
sales, for the thirteen weeks ended March 30, 1997. The decrease in operating
income as a percentage of sales was a result of the Gross Margin decrease and
the increase of SG&A Expenses previously mentioned.
Income tax provision decreased to $0.3 million, or 1.0% of net sales for
the thirteen weeks ended March 29, 1998, from $0.8 million or 2.3% of net sales
for the thirteen weeks ended March 30, 1997. The estimated effective tax rate
for the thirteen weeks ended March 29, 1998 was 30%, compared to 32% for the
same period ended 1997. The difference between the estimated tax rate of 30% and
the statutory tax rate of 34% for 1998, is caused primarily by accrued
liabilities for expenses deductible in future periods offset by negative
inflationary effects and the non-deductible expenses.
6
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Liquidity and Capital Resources
The Company's working capital (defined as inventory plus trade and other
accounts receivable, minus accounts payable) needs showed a slight reduction for
this period. At December 31, 1997, the Company had working capital of $24.6
million compared to $21.5 million at March 29, 1998. This decrease was due to a
reduction in inventories partially offset by an increase in accounts payable.
For the thirteen weeks ended March 29, 1998, the company had net cash
provided by operating activities of $4.9 million which consists of net income of
$0.7 million plus depreciation and amortization of $1.0 million, a decrease of
inventories of $2.3 million, a decrease in accrued and other liabilities of $0.4
million, a decrease in accounts payable of $2.0 million, and other miscellaneous
reductions of $0.2 million,offset by an increase in receivables of $1.1 million
and prepaid expenses of $0.6 million.
Cash provided by operating activities partially financed additions of $1.4
million of property, plant, and equipment. The remaining portion was financed
through proceeds of $0.7 million received from the sale of investment
securities.
The Company had the following lines of credit, outstanding borrowings, and
significant capital leases at March 29, 1998:
<TABLE>
<CAPTION>
Amount Interest
Lender or Outstanding at Rate at
Class of Securities Type March 29, 1998 March 29, 1998 Maturity Date
- ------------------- ---- -------------- -------------- -------------
<S> <C> <C> <C> <C>
Comerica Bank $10 million Line of $ - 9.00% May 1, 1999
Credit
Bank of America $10 million Line of
N.T. & S.A. Credit - 8.91% December 15, 1999
Norwest Bank El Paso $5 million Line of - 8.50% December 6, 2001
Credit
GE Financial Capital Lease $ 769,259 7.92% December 15, 1999
----------
Total $769,259
</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. As of March 29, 1998 the Company believes
it was in compliance with all material covenants related to its debt
obligations.
Plant Closing
During the month of March of this quarter, the Company announced its
decision to end production at its Guadalajara, Mexico location in order to
concentrate its resources at other facilities having greater profitability
potential and better economies of scale and is not expected to impact future
financial results.
Forward Looking Comments
This form 10-Q includes forward-looking statements that involve risks
and uncertainties, including, but not limited to, risks associated with the
company's future growth and profitability, the ability of the Company to
continue to increase sales to existing customers and to new customers and the
effects of competitive and general economic conditions.
7
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PART II
OTHER INFORMATION
Item 3. Defaults Upon Senior Securities
Not applicable.
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.
Item 5. Other Information
Elamex, S.A. de C.V. intends to provide periodic reports according to
Section 13 of the Securities Exchange Act of 1934, as amended, and the rules
promulgated thereunder. It expects that its annual reports will be filed on Form
10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, or
equivalent forms, following the customary time deadlines therefor; but, as a
foreign private issuer, it is entitled to report on Form 20-F and Form 6-K and
it hereby reserves all of its rights to use such forms or their equivalent as
permitted for such an issuer under applicable laws, rules and regulations.
8
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Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit Description
Number
3 Estatutos Sociales (By-Laws) of the Registrant (including
English translation).*
* 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.
9
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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: May 8, 1998 By: /s/ HECTOR RAYNAL
-----------------
Hector M. Raynal
President and Chief Executive Officer
(Duly Authorized Officer)
Date: May 8, 1998 By: /s/ CARLOS MARTENS
------------------
Carlos D. Martens
Vice-President of Finance and
Chief Financial Officer
10
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-29-1998
<CASH> 17,595
<SECURITIES> 1,394
<RECEIVABLES> 17,203
<ALLOWANCES> 0
<INVENTORY> 10,625
<CURRENT-ASSETS> 48,214
<PP&E> 44,274
<DEPRECIATION> 15,775
<TOTAL-ASSETS> 77,224
<CURRENT-LIABILITIES> 15,999
<BONDS> 0
0
0
<COMMON> 35,010
<OTHER-SE> 22,617
<TOTAL-LIABILITY-AND-EQUITY> 77,224
<SALES> 28,306
<TOTAL-REVENUES> 28,306
<CGS> 25,109
<TOTAL-COSTS> 2,796
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 928
<INCOME-TAX> 279
<INCOME-CONTINUING> 649
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 649
<EPS-PRIMARY> .09
<EPS-DILUTED> .09
</TABLE>
