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 27, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period from ____to___________
Commissions 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 November 06, 1998 was:
7,346,000
================================================================================
<PAGE>
<TABLE>
<CAPTION>
ELAMEX, S.A. DE C.V. AND SUBSIDIARIES
TABLE OF CONTENTS
Page No.
<S> <C> <C>
PART I FINANCIAL INFORMATION
Item 1 Consolidated Balance Sheets as of
September 27, 1998 and December 31, 1997......................................1
Consolidated Statements of Earnings for the thirteen and thirty-nine weeks
ended September 27, 1998 and September 28, 1997...............................2
Consolidated Statements of Cash Flows for the thirty-nine weeks
ended September 27, 1998 and September 28, 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...............................................10
Item 4 Submission of Matters to a Vote of Security Holders...........................10
Item 5. Other Information.............................................................10
Item 6 Exhibits and Reports on Form 8-K..............................................11
SIGNATURES ..............................................................................12
</TABLE>
<TABLE>
<CAPTION>
4
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
ELAMEX, S.A. DE C.V. AND SUBSIDIARIES
Consolidated Balance Sheets
(In U. S. Dollars)
September 27, December 31,
1998 1997
(Unaudited)
------------------- ------------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 16,610,103 13,597,581
Receivables
Trade accounts, less allowance for doubtful accounts 16,700,817 14,343,265
Other receivables 3,950,248 1,872,747
------------------- ------------------
Total receivables 20,651,065 16,216,012
------------------- ------------------
Investment security - 2,080,000
Inventories, net 12,921,092 12,696,705
Prepaid expenses 977,555 809,109
------------------- ------------------
Total current assets 51,159,815 45,399,407
Property, plant and equipment, net 32,669,522 28,503,121
Other assets, net 494,031 742,644
------------------- ------------------
$ 84,323,368 74,645,172
=================== ==================
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 10,955,792 4,337,223
Accrued expenses 3,238,982 3,854,638
Current obligations of capital leases 423,581 496,190
Taxes payable 266,278 1,306,126
Deferred income taxes, net 3,581,899 3,581,899
Due to related parties 115,424 45,480
------------------- ------------------
Total current liabilities 18,581,956 13,621,556
Capital lease obligations, excl. current obligations 120,944 654,462
Other liabilities 299,591 258,988
Deferred income taxes, net 3,604,936 3,078,486
------------------- ------------------
Total liabilities 22,607,427 17,613,492
Minority Interest 2,568,895 -
Warrant 50,000 -
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 7,350,000 and 7,381,500 shares outstanding at September 27,
1998 and December 31, 1997, respectively 35,010,468 35,010,468
Retained earnings 24,524,531 22,236,212
Treasury stock, 50,000 and 18,500 shares at September 27, 1998
and December 31, 1997, respectively, at cost (437,953) (215,000)
------------------- --------------------
59,097,046 57,031,680
------------------- --------------------
$ 84,323,368 74,645,172
=================== ====================
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
ELAMEX, S.A. DE C.V. AND SUBSIDIARIES
Consolidated Statements of Earnings
(In U. S. Dollars)
(Unaudited)
13 weeks ended 39 weeks ended
---------------------------------- --------------------------------
September 27, September 28, September 27, September 28,
1998 1997 1998 1997
---------------- ---------------- --------------- ---------------
<S> <C> <C> <C> <C>
Net sales $ 30,757,355 32,871,921 89,730,920 100,514,066
Cost of sales 27,146,426 28,656,054 78,989,327 86,596,906
---------------- ---------------- --------------- ---------------
Gross Profit 3,610,929 4,215,867 10,741,593 13,917,160
---------------- ---------------- --------------- ---------------
Operating expenses:
General and administrative 1,528,330 2,047,195 5,475,638 6,076,290
Selling 479,730 164,286 1,223,194 509,413
Research & development 284,242 - 1,273,863 -
---------------- ---------------- --------------- ---------------
Total operating expenses 2,292,302 2,211,481 7,972,695 6,585,703
---------------- ---------------- --------------- ---------------
Operating income 1,318,627 2,004,386 2,768,898 7,331,457
---------------- ---------------- --------------- ---------------
Other income (expense):
Interest income 258,315 187,371 741,705 310,341
Interest expense (42,706) (49,629) (132,163) (150,785)
Other, net 625,898 214,028 1,046,019 435,091
---------------- ---------------- --------------- ---------------
Total other income 841,507 351,770 1,655,561 594,647
---------------- ---------------- --------------- ---------------
Income before income taxes 2,160,134 2,356,156 4,424,459 7,926,104
Income tax provision 1,479,486 625,448 2,136,140 2,377,831
---------------- ---------------- --------------- ---------------
Net income $ 680,648 1,730,708 2,288,319 5,548,273
================ ================ =============== ===============
Basic and diluted earnings per
common share $ 0.09 0.23 0.31 0.75
Weighted average shares outstanding 7,350,000 7,400,000 7,361,219 7,400,000
================ ================ =============== ===============
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
ELAMEX, S.A. DE C.V. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In U. S. Dollars)
(Unaudited)
39 weeks ended
------------------------------------
September 27, September 28,
1998 1997
--------------- ---------------
<S> <C> <C>
Cash flows provided by operating activities:
Net income $ 2,288,319 5,548,273
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 3,144,539 3,088,648
Allowance for doubtful trade accounts receivable 167,849 (91,869)
Allowance for excess and obsolete inventory (413,848) 9,598
Deferred income taxes, net 526,450 2,106,701
Loss on disposal of property, plant and equipment 163,438 175,114
Gain on sale of minority interest in plastics division (651,345) -
Minority interest in consolidated balances 22,240 -
Change in assets and liabilities:
Trade account receivable (2,525,401) 167,004
Other receivables (2,077,501) (505,917)
Inventories 189,461 5,215,109
Prepaid expenses (168,446) (220,223)
Other assets 205,822 (706,258)
Accounts payable 6,618,569 (1,651,215)
Accrued expenses, taxes payable and
due to related parties (1,585,560) 2,335,156
Other liabilities 40,603 75,472
--------------- ---------------
Net cash provided by operating activities 5,945,189 15,545,593
--------------- ---------------
Cash flows used by investing activities:
Proceeds from the sale of investment security 2,080,000 -
Purchase of property, plant and equipment (7,691,603) (2,177,760)
Purchase of plastics operating assets - (3,868,903)
Proceeds from disposal of equipment - 392,070
Proceeds from sale of minority interest in plastics division, net 3,198,000 -
Issue of warrant 50,000 -
--------------- ---------------
Net cash used by investing activities (2,363,603) (5,654,593)
--------------- ---------------
Cash flows used by financing activities:
Principal repayments of capital lease obligations (346,111) (444,055)
Purchase of treasury stock (222,953) -
--------------- ---------------
Net cash used by financing activities (569,064) (444,055)
--------------- ---------------
Net increase in cash and cash equivalents 3,012,522 9,446,945
Cash and cash equivalents, beginning of period 13,597,581 6,269,825
--------------- ---------------
Cash and cash equivalents, end of period $ 16,610,103 15,716,770
=============== ===============
See accompanying notes to consolidated financial statements.
</TABLE>
3
<PAGE>
Elamex, S.A. de C.V. and Subsidiaries
Notes to Consolidated Financials Statements
(In U.S. Dollars)
September 27, 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 thirty-nine week period
ended September 27, 1998 are not necessarily indicative of the results to be
expected for the entire year.
(2) Inventories
Inventories consist of the following:
<TABLE>
<CAPTION>
September 27, December 31,
1998 1997
--------------- ---------------
<S> <C> <C>
Raw materials $ 12,290,449 10,732,767
Work-in-process 821,348
1,213,553
Finished goods 1,358,117
2,467,932
--------------- ---------------
14,469,914 14,414,252
Reserve for excess and obsolete inventory (1,548,822) (1,717,547)
--------------- ---------------
$ 12,921,092 12,696,705
=============== ===============
</TABLE>
(3) Foreign Currency Translation
Included in "other, net" on the accompanying consolidated statements of
operations are foreign exchange losses of $284,889 and $5,090 for the
thirty-nine week periods ended September 27, 1998 and September 28, 1997,
respectively. Assets and liabilities denominated in pesos are summarized as
follows in U. S. dollars:
<TABLE>
<CAPTION>
September 27, December 31,
1998 1997
---------------- ----------------
<S> <C> <C>
Cash and cash equivalents $ 1,837,133 356,848
Other receivables 2,633,548 690,906
Prepaid expenses 530,076 248,609
Other assets, net 387,814 80,249
Accounts payable (3,045,945) (376,168)
Accrued expenses
and other (1,945,183) (2,547,084)
liabilities
---------------- ----------------
Net non-U.S. currency position $ 397,443 (1,546,640)
================ ================
</TABLE>
4
<PAGE>
Elamex, S.A. de C.V. and Subsidiaries
Notes to Consolidated Financials Statements
(In U.S. Dollars)
September 27, 1998
(Unaudited)
(4) Research and Development
In January 1998, the Company signed a Preferred Stock Purchase
Agreement to purchase 2,525,000 shares of Series A 9% Cumulative Convertible
Preferred Stock ("Preferred Stock") of Optimag, Inc. ("Optimag"), a California
corporation. 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. Preferred
Stock purchases are based on Optimag meeting certain performance targets. The
Company has consolidated the operations of this investment. As of September 27,
1998 approximately $1.3 million has been expensed.
As of September 27, 1998, the Company has purchased 2,075,000 shares of
Preferred Stock for $1.00 per share, convertible into common stock 1 for 1. The
Company intends to purchase the additional 450,000 shares in three tranches
subject to Optimag's meeting remaining performance targets.
(5) Income Taxes
Pursuant to Statement of Financial Accounting Standards No. 109,
Accounting for Income Taxes, the Company has estimated income taxes using an
overall expected effective tax rate of approximately 48%. The effective tax
rate for the thirteen weeks ending September 27, 1998 approximated 68%. This
was primarily due to the devaluation of the Mexican peso against the U.S.
Dollar that resulted in currency gains for Mexican income tax purposes that
are not reflected in the consolidated statement of earnings. The expected
effective tax rate is based on taxable income subject to Mexican income tax,
which includes currency and inflationary gains and losses. The actual
effective tax rate for the year December 31, 1998 may differ from that used to
estimate taxes on September 27, 1998.
(6) Basic Earnings per Share
Basic Earnings per share on common stock ("EPS") for the thirty-nine
weeks ended September 27, 1998 and September 28, 1997 were calculated using
the weighted average number of common shares outstanding. The weighted average
number of common shares outstanding for the thirty-nine week period ended
September 27, 1998 and September 28, 1997 was 7,361,219 and 7,400,000. The
company has no dilutive securities.
(7) Joint Venture
On July 14, 1998, the Company formed a Joint Venture ("J.V.") with
General Electric International Mexico, S.A. de C.V. ("G.E.") to produce plastic
molding and stamped metal components in Cd. Juarez, Mexico. The company
contributed its plastic molding and stamped metal operations to the JV in
exchange for 51% interest in the JV. GE paid approximately $3.5 million to the
Company in exchange for a 49% interest. In connection with the JV, GE received a
3-year warrant to purchase up to 6.3% of Elamex's common stock exercisable at
$7.81 per share subject to anti-dilution provisions as well as a representative
on the Company's Board. The JV began with a $10 million dollar commitment of
business from General Electric expected to increase over the next year. The
Company recognized a gain on the sale of its interest of the plastics molding
and stamped metal operations of approximately $650,000 which is included in
other income.
5
<PAGE>
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
(Unaudited)
Thirteen weeks ended Thirty-nine weeks ended
September 27, September 28, September 27, September 28,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Net sales..................................... 100.0% 100.0% 100.0% 100.0%
Cost of sales................................. 88.3 87.2 88.0 86.2
Gross profit.................................. 11.7 12.8 12.0 13.8
Selling, general and administrative expenses.. 6.5 6.7 7.5 6.6
Research and development...................... 0.9 0.0 1.4 0.0
Operating income.............................. 4.3 6.1 3.1 7.3
Other income.................................. 2.7 1.1 1.8 0.6
Income before income taxes.................... 7.0 7.2 4.9 7.9
Income tax provision.......................... 4.8 1.9 2.4 2.4
Net income ................................... 2.2 5.3 2.6 5.5
</TABLE>
Net Sales for the thirteen weeks ended September 27, 1998 decreased
6.4% to $30.8 million from $32.9 million for the same period in 1997. Net sales
for the thirty-nine weeks ended September 27, 1998 decreased 10.7% to $89.7
million from $100.5 million for the same period in 1997. The decrease is
primarily due to the completion of projects and to fluctuations in demand from
certain other customers; however, these were partially offset by sales to new
customers. For the thirteen-week and thirty-nine week periods ended September
27, 1998, the Company's assembly sales slightly declined. Turnkey sales also
dropped as compared to the same period in 1997.
Gross Profit decreased 14.3% to $3.6 million or 11.7% as a percentage
of sales, for the thirteen weeks ended September 27, 1998, as compared to $4.2
million or 12.8% as a percentage of sales, for the same period in 1997. Gross
profit decreased 23.0% to $10.7 million for the thirty-nine weeks ended
September 27, 1998 from $13.9 million for the same period in 1997. The gross
profit decrease was due to an increase in operating expenses due to the start up
of 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 decreased 9.2% to
$2.0 million for the thirteen weeks ended September 27, 1998, compared to $2.2
million for the same period of the prior year. SG&A Expenses decreased as a
percentage of sales to 6.5% for the thirteen weeks ended September 27, 1998,
compared to 6.7% for the thirteen weeks ended the same period in 1997. The
decrease in SG&A Expenses is primarily due to a reduction in legal fees due to
the utilization of internal counsel, the absence of projects requiring outside
counsel, and also changes in staffing levels for the thirteen and thirty-nine
weeks ended September 27, 1998.
Research and Development (R&D) represents 0.9% and 1.4% of sales for
the thirteen and thirty-nine weeks ended September 27, 1998, respectively, and
is directly attributed to expenses incurred in developing optical stations and
electrical test equipment for companies that produce disk drive heads, magnetic
media, and optical heads and optical media. During the month of August 1998,
Optimag completed the first of three prototypes of the equipment and sold one
soon thereafter. In future months, the Company will purchase in tranches, an
additional 450,000 shares of Preferred Stock at $1.00 per share subject to
Optimag's meeting certain performance targets. After conversion to common stock,
the Company will own a minimum of 51% of the common stock.
6
<PAGE>
Operating Income for the thirteen weeks ended September 27, 1998
decreased by 34.2% to $1.3 million from $2.0 million for the same period in
1997. Operating income for the thirty-nine weeks ended September 27, 1998
decreased 61.6% to $2.8 million from $7.3 million for the same period in 1997.
The decrease in operating income is due to the decrease in net sales and gross
profit as explained above and the $1.3 million incurred in research and
development during the current fiscal year.
Income tax provision increased to $1.5 million for the thirteen weeks
ended September 27, 1998, from $0.6 million for the same period of the previous
year while income before taxes decreased for the same period. The estimated
effective tax rate for the thirteen weeks ending September 27, 1998 approximated
68% compared to 27% for the same period in 1997. The effective tax rate for the
thirty-nine weeks ending September 27, 1998 approximated 48% compared to 30% for
the same period in 1997. The overall increase is caused primarily by currency
gains recognized for Mexican income tax purposes due to the devaluation of the
Mexican Peso against the U.S. Dollar that are not reflected in the consolidated
statement of earnings. Furthermore, the income tax provision does not include
the benefit of deductions caused by losses in Optimag, Inc. a U.S. Company. For
financial reporting purposes, a valuation allowance has been established for the
full amount of the deferred tax asset related to this net operating loss
carryforward.
Liquidity and Capital Resources
The Company's working capital needs (defined as inventory plus trade
and other accounts receivable, minus accounts payable) showed a slight reduction
for this period. At December 31, 1997, the Company had working capital of $24.6
million compared to $22.6 million at September 27, 1998. This decrease was due
mainly to an increase in accounts payable offset by an increase in total
receivables.
For the thirty-nine weeks ended September 27, 1998, the company had net
cash provided by operating activities of $6.0 million. This was funded by net
income of $2.3 million plus depreciation and amortization of $3.1 million, and a
decrease in accounts payable of $6.6 million, offset by an increase in trade
accounts and other receivables of $4.5 million, and a decrease in accrued
expenses and taxes payable of $1.5 million.
Cash provided by operating activities as well as proceeds from sale of
investment security and the sale of a minority interest in the plastics division
financed additions of $7.7 million of property, plant, and equipment, the
repayment of capital lease obligations, and purchase of treasury stock.
The Company had the following lines of credit, outstanding borrowings,
and significant capital leases on September 27, 1998:
<TABLE>
<CAPTION>
Amount Interest
Lender or Outstanding at Rate at
Class of Securities Type September 27, 1998 September 27, 1998 Maturity Date
- ------------------- ---- ------------------ ------------------ -------------
<S> <C> <C> <C> <C>
Comerica Bank $10 million Line of $ - 9.00% May 1, 1999
Credit
Bank of America
N.T. & S.A. $10 million Line of - 8.91% December 15, 1999
Credit
Norwest Bank El Paso $5 million Line of - 8.50% December 6, 2001
Credit
GE Financial Capital Lease $544,525 7.92% December 15, 1999
--------
Total $544,525
</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 September 27, 1998 the Company
believes it was in compliance with all material covenants related to its debt
obligations.
7
<PAGE>
Research and Development
As of September 27, 1998, approximately $1.3 million has been expensed
as research and development costs. Research and development costs are fully
attributable to the development of a prototype optical inspection station and
electrical test equipment for companies that produce disk drive heads, magnetic
media, and optical heads and optical media. Three beta units are expected to be
in place with prospective customers by the fourth quarter 1998 where the units
will be tested. Test results are not expected until January 1999. The Company
expects significant sales to begin during the first quarter of 1999.
Year 2000 Issue
The Company's state of readiness:
The Company has formed a Year 2000 task force, consisting of team members
from various departments. The Company's Year 2000 task force is proceeding on
schedule to identify and address those software programs and embedded chips that
may interpret "00" as the year 1900 instead of the year 2000. The scope of the
task force's duties includes all Company locations throughout Mexico as well as
review of relationships with entities external to the organization both in
Mexico and the United States. An inventory of all systems that are expected to
be affected by the Year 2000 issue has been completed. The task force has
developed solutions to the problems it has identified, and expects to be
completed with all testing during the fourth quarter of 1998. A contingency plan
will then be developed when a reasonable assessment of a worst case scenario can
be determined.
The task force is concentrating on three areas critical to the viability of the
Company; manufacturing and industrial facilities, information technology
infrastructure, and third-party suppliers and customers (supply chain
management).
The Company believes that its industrial facilities are not Year 2000 sensitive.
With regards to manufacturing equipment, the Company has identified the
equipment they believe will be affected by the Year 2000 issue. The Company is
currently updating programs with Year 2000 compliant software and testing such
programs for compliance. The testing phase is expected to be completed during
the fourth quarter of 1998. A contingency plan will be developed once the
testing phase is completed and a reasonable worst case scenario can be
determined.
A majority of the Company's software programs that support day to day operations
are commercial products. There is little reliance on internally developed
programs. As a result, most Year 2000 issues have been or will be addressed by
integrating vendor upgrades that will ensure that these software programs are
Year 2000 compliant. Upgrades are expected to be completed by the first quarter
of 1999. As part of an overall systems upgrade, the Company has recently
completed its installation of the JD Edwards' Enterprise Resource Planning
("ERP") software on which a majority of the Company's operations are performed.
The software has been certified by the vendor as being Year 2000 compliant.
Nonetheless, the Company will perform its own tests of the system during the
fourth quarter of 1998. The Company has identified its payroll and human
resources software as not being Year 2000 compliant. The vendor of this software
has released a Year 2000 compliant upgrade and implementation of this upgrade is
expected before the end of this year.
A majority of the Company's systems hardware has been certified as Year 2000
compliant by its vendors. The task force is currently testing the Company's
hardware for compliance and is expected to be completed with this phase during
the first quarter of 1999. The task force has identified potential problems with
two PBX systems. Remediation of this problem is expected by early 1999. A
contingency plan will be developed once program upgrades and testing are
completed and a reasonable worst case scenario can be determined.
Supply chain management includes the process of identifying those suppliers and
customers that are most critical to support the operations of the Company. The
task force is currently in the process of identifying critical suppliers and
customers and communicating with them on their plans and progress in addressing
the Year 2000 issue. The Company is also working with its customers to identify
the alternate vendors that will be Year 2000 compliant. Contingency plans will
be developed as a result of these communications and will be completed by the
second quarter of 1999.
8
<PAGE>
Cost of Addressing the Year 2000 Issues:
The Company has invested approximately $2.9 million in the implementation
of the new ERP software. Because the software was purchased to enhance the
performance of key areas of the Company as well as the information provided for
managerial decisions and customer satisfaction, costs associated with the
implementation have been capitalized in accordance with SOP 98-1, "Accounting
for the Cost of Computer Software Developed or Obtained for Internal Use". The
Company has included approximately $3.3 million in its budget to address the
Year 2000 issue.
Risks Associated with the Company's Year 2000 Issues:
Failure to properly address the Year 2000 issue can result in an
interruption of, or a failure in, the normal business activities of the Company.
Because of the uncertainty inherent in the Year 2000 issue and the unfinished
efforts of the task force to identify those critical customers and suppliers
that are not or will not be Year 2000 compliant, the Company is unable, at this
time, to determine the impact any Year 2000 failures will have on the Company's
results of operations, liquidity or financial condition. The Company believes
that it is taking the necessary steps to reduce its risk of possible
interruptions or failures that will adversely impact the viability of the
Company.
Contingency Plan:
Contingency plans for the three critical areas detailed above will be
developed once the testing phase is completed for each area. At that point, the
Company feels that it can reasonably determine the extent of its worst case
scenario for each area and develop plans accordingly to mitigate the risks
inherent in the Year 2000 issue. Contingency plans are expected to be in place
by the end of the second quarter of 1999.
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
increase sales to existing customers and to new customers and the effects of
competitive and general economic conditions.
9
<PAGE>
10
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.
10
<PAGE>
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.
11
<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: November 11, 1998 By: /s/ HECTOR RAYNAL
-----------------
Hector M. Raynal
President and Chief Executive Officer
(Duly Authorized Officer)
Date: November 11, 1998 By: /s/ CARLOS MARTENS
------------------
Carlos D. Martens
Vice-President of Finance and
Chief Financial Officer
12
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