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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: June 30, 2000
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 August 15 2000 was:
6,866,100
<PAGE>
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ELAMEX, S.A. DE C.V. AND SUBSIDIARIES
TABLE OF CONTENTS
Page No.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Balance Sheets as of June 30, 2000
and December 31, 1999 (unaudited) ........................... 1
Consolidated Condensed Statements of Earnings for the
twenty-six and thirteen week periods ended June 30, 2000
and July 02, 1999 (unaudited) ............................... 2
Consolidated Condensed Statements of Cash Flows for the
twenty-six week periods ended June 30, 2000 and July 02,
1999 (unaudited) ............................................ 3
Notes to Consolidated Condensed Financial Statements
(unaudited) ................................................. 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ................. 6
Item 3. Qualitative and Quantitative Disclosures About
Market Risk ......................................... 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.................................... 9
Item 2. Changes in Securities and use of proceeds............ 9
Item 3. Defaults upon Senior Securities...................... 9
Item 4. Submission of Matters to a Vote of Security Holders.. 9
Item 5. Other Information.................................... 9
Item 6. Exhibits and Reports on Form 8-K..................... 9
SIGNATURES......................................................... 10
<PAGE>
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
ELAMEX, S.A. DE C.V. AND SUBSIDIARIES
Consolidated Condensed Balance Sheets
(In U. S. Dollars)
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
------------- -------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 46,030,499 $ 7,164,115
Receivables
Trade accounts, net 21,779,188 30,757,105
Other receivables 4,346,646 2,371,984
------------- -------------
Total receivables 26,125,834 33,129,089
Inventories, net 6,249,842 21,211,814
Refundable income taxes -- 1,084,992
Prepaid expenses 5,254,566 1,294,200
------------- -------------
Total current assets 83,660,741 63,884,210
Property, plant and equipment, net 44,912,930 52,874,539
Goodwill, net of accumulated amortization 9,701,173 9,948,662
Other assets, net 487,574 516,582
------------- -------------
$ 138,762,418 $ 127,223,993
============= =============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 19,981,801 $ 19,807,188
Accrued expenses 5,330,169 5,235,091
Notes payable and current portion of
long-term debt 8,165,004 4,364,289
Taxes payable 676,953 606,092
Deferred income taxes, net 99,430 4,991,335
------------- -------------
Total current liabilities 34,253,357 35,003,995
Long-term debt, excluding current portion 18,652,661 26,454,901
Other liabilities 141,379 208,412
Deferred income taxes, net 1,623,474 451,484
------------- -------------
Total liabilities 54,670,871 62,118,792
Minority interest 1,449,388 1,677,446
Commitments and contingencies -- --
Stockholders' equity:
Common stock, 22,400,000 authorized,
7,400,000 shares Issued and 6,866,100
outstanding 35,060,468 35,060,468
Retained earnings 50,099,823 30,885,419
Treasury stock (2,518,132) (2,518,132)
------------- -------------
Total stockholders' equity
82,642,159 63,427,755
------------- -------------
$ 138,762,418 $ 127,223,993
============= =============
</TABLE>
See Notes to Consolidated Condensed Financial Statements
1
<PAGE>
ELAMEX, S.A. DE C.V. AND SUBSIDIARIES
Consolidated Condensed Statements of Earnings
(In U. S. Dollars)
(Unaudited)
<TABLE>
<CAPTION>
13 Weeks Ended 26 Weeks Ended
------------------------------------------------------------
June 30, July 02, June 30, July 02,
2000 1999 2000 1999
------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 47,105,974 $ 32,195,276 $ 98,532,455 $ 63,695,983
Cost of sales 44,800,858 28,735,459 93,478,009 57,317,731
------------------------------------------------------------
Gross Profit 2,305,116 3,459,817 5,054,446 6,378,252
------------------------------------------------------------
Operating expenses:
General & administrative 4,253,870 1,954,298 6,922,388 3,873,756
Selling 467,150 429,508 992,158 920,075
Research and development -- 453,547 -- 1,003,145
------------------------------------------------------------
Total operating expenses 4,721,020 2,837,353 7,914,546 5,796,976
------------------------------------------------------------
Operating (loss) income (2,415,904) 622,464 (2,860,100) 581,276
------------------------------------------------------------
Other income (expense):
Interest income 450,784 215,233 562,989 491,656
Interest expense (705,382) (129,303) (1,662,951) (209,797)
Other, net 442,110 308,260 980,877 518,024
Gain on sale of EMS operations 20,535,390 -- 20,535,390 --
------------------------------------------------------------
Total other income 20,722,902 394,190 20,416,305 799,883
------------------------------------------------------------
Income before income taxes
and minority interest 18,306,998 1,016,654 17,556,205 1,381,159
Income tax (benefit) provision (1,210,144) 251,644 (1,430,141) 525,875
------------------------------------------------------------
Income before minority
interest 19,517,142 765,010 18,986,346 855,284
Minority interest 35,000 37,089 228,058 401,333
------------------------------------------------------------
Net income $ 19,552,142 $ 802,099 $ 19,214,404 $ 1,256,617
============================================================
Basic and diluted income per
common share $ 2.85 $ 0.12 $ 2.80 $ 0.18
Weighted average share
outstanding 6,866,100 6,866,100 6,866,100 6,866,100
============================================================
</TABLE>
See Notes to Consolidated Condensed Financial Statements
2
<PAGE>
ELAMEX, S.A. DE C.V. AND SUBSIDIARIES
Consolidated Condensed Statements of Cash Flows
(In U. S. Dollars)
(Unaudited)
26 weeks ended
-----------------------------
June 30, July 02,
2000 1999
------------ ------------
Cash flows from operating activities:
Net income $ 19,214,404 $ 1,256,617
Adjustments to reconcile net income to net
cash (used in) provided by operating
activities:
Depreciation and amortization 3,051,878 2,368,903
Gain on sale of EMS operations (20,535,390) --
Minority interest in loss of consolidated
subsidiaries (228,058) (401,333)
Deferred income tax benefit (3,719,915) (3,335,877)
Loss on sale of equipment -- 146,587
Change in operating assets and liabilities,
net of effects of disposition:
Trade accounts receivable (1,144,151) (47,191)
Other receivables (2,152,873) (597,034)
Related party note receivable -- 6,210,149
Inventories 1,735,733 (973,975)
Refundable income taxes 1,084,992 --
Prepaid expenses (4,061,770) 1,107,949
Other assets (35,467) 69,739
Accounts payable 5,527,317 (8,924)
Accrued expenses (123,046) 1,241,332
Taxes payable 70,861 --
Other liabilities (67,033) 61,959
------------ ------------
Net cash (used in) provided by
operating activities (1,382,518) 7,098,901
------------ ------------
Cash flows from investing activities:
Purchase of property, plant and equipment (6,743,793) (1,622,658)
Proceeds from sale of equipment -- 111,505
Proceeds from sale of EMS operations 51,146,867 --
------------ ------------
Net cash provided by (used in)
investing activities 44,403,074 (1,511,153)
------------ ------------
Cash flows from financing activities:
Proceeds from long-term debt 3,800,715 --
Repayment of long-term debt (7,802,240) --
Principal repayments of capital lease
obligations (152,647) (290,331)
Minority interest contribution -- 163,936
------------ ------------
Net cash used in financing
activities (4,154,172) (126,395)
------------ ------------
Net increase in cash and cash equivalents 38,866,384 5,461,353
Cash and cash equivalents, beginning of period 7,164,115 5,697,035
------------ ------------
Cash and cash equivalents, end of period $ 46,030,499 $ 11,158,388
============ ============
See Notes to Consolidated Condensed Financial Statements
3
<PAGE>
(1) General
The accompanying consolidated condensed 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 the annual
financial statements prepared in accordance with accounting principles generally
accepted in the United States of America have been omitted pursuant to the rules
and regulations of the Securities and Exchange Commission. While the management
of the Company believes that the disclosures presented are adequate to make the
information presented not misleading, interim consolidated condensed financial
statements should be read in conjunction with the consolidated financial
statements and notes included in the Company's 1999 annual report on Form 10-K.
In the opinion of management, the accompanying unaudited consolidated
condensed financial statements contain all adjustments (consisting solely of
normal recurring adjustments) necessary for a fair presentation of the financial
position as of June 30, 2000, the results of operations for the twenty-six and
thirteen week periods ended June 30, 2000 and July 02, 1999 and cashflows for
the twenty-six week periods ended June 30, 2000 and July 2, 1999. The
consolidated condensed balance sheet as of December 31, 1999 is derived from the
December 31, 1999 audited consolidated financial statements. The results of
operations for the twenty-six and thirteen week periods ended June 30, 2000 are
not necessarily indicative of the results to be expected for the entire year.
(2) Gain on Disposition of EMS Operations
Effective May 23, 2000 the Company sold its contract electronics
manufacturing services (EMS) operations, for cash proceeds of approximately
$51.2 million and realized a pre-tax gain of $20.5 million. In connection with
the sale, the Company placed approximately $3.3 million in escrow for
contingencies related to potentially obsolete inventories and bad debts. Such
escrowed amounts are recoverable if the related assets are realized.
Additionally the final sales price is subject to certain adjustments related to
the final determination of book value. The EMS operations had revenues of
approximately $26.8 million through May 23, 2000, which represented 28% of
consolidated revenues of the Company for the twenty-six week period ended June
30, 2000.
(3) Inventories
Inventories consist of the following:
June 30, December 31,
2000 1999
(Thousands) (Thousands)
----------- -----------
Raw materials $ 4,356 $ 16,550
Work-in-process 865 1,510
Finished goods 1,105 4,206
-------- --------
6,326 22,266
Reserve for excess and obsolete
inventory (76) (1,054)
-------- --------
$ 6,250 $ 21,212
======== ========
(3) Foreign Currency Translation
Included in "other, net" on the accompanying consolidated condensed
statements of earnings are foreign exchange (losses) gains of ($8,382) and
$(96,040) for the thirteen and twenty-six weeks ended June 30, 2000 respectively
and $35,354 and $30,441 for the thirteen and twenty-six weeks ended July 02,
1999 respectively.
4
<PAGE>
Assets and liabilities denominated in pesos are summarized as follows in
U. S. dollars:
June 30, December 31,
2000 1999
----------- -----------
Cash and cash equivalents 1,461,159 $ 121,077
Other receivables 2,993,504 1,917,023
Prepaid expenses 480,936 4,489,299
Other assets, net 141,655 598,237
Accounts payable (501,688) (1,828,987)
Accrued expenses and other
liabilities (6,383,167) (7,215,736)
----------- -----------
Net non-U.S. currency
position $(1,807,601) $(1,919,087)
=========== ===========
(4) Income Taxes
The Company has applied Statement of Financial Accounting Standards (SFAS)
No. 109, Accounting for Income Taxes. Under SFAS No.109, deferred tax assets and
liabilities are recognized for the future tax consequences of temporary
differences between the financial carrying amounts of assets and liabilities and
their respective tax bases. Deferred tax assets are also recognized for the
estimated future effects of tax loss carry forwards. Deferred tax assets are
reduced by any tax benefit, the realization of which is not considered to be
more likely than not.
In accordance with SFAS No.109, the Company has calculated taxes based on
its operations subject to tax in Mexico as well as its operations subject to tax
in the U.S., resulting in an overall effective tax rate for the twenty-six weeks
ended June 30, 2000 of a benefit of approximately 8%. The primary differences
between the overall effective tax rate and the statutory rates of 35% for both
Mexico and the U.S. are basis differences in the shares of the EMS operations
disposed of in the second quarter ended June 30, 2000, currency and inflationary
gains and losses in Mexico and non-deductible goodwill in the U.S. In addition,
the Company has established a valuation allowance to offset the tax benefit
associated with certain asset tax carry forwards of individual Mexican
subsidiaries and Qualcore tax loss carry forwards, as realization of those
benefits are not considered more likely than not at this time.
(5) Earnings per Share
Basic and diluted income per common share ("EPS") for the thirteen and
twenty-six week periods ended June 30, 2000 and July 02, 1999 were calculated
using the weighted average number of common shares outstanding. The weighted
average number of common shares outstanding for the thirteen and twenty-six week
periods ended June 30, 2000 and July 02, 1999 were 6,866,100. The Company has no
dilutive securities.
(6) New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS
No. 133, Accounting for Derivative Instruments and Hedging Activities which is
effective for all fiscal quarters of fiscal years beginning after June 15, 2000.
Given the Company's current operations and policies, management believes that
the adoption of SFAS 133 will not have a material impact on the consolidated
financial statements of the Company.
In December 1999, the Security and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" (SAB
101). SAB 101 summarizes certain of the SEC's views in applying generally
accepted accounting principles to revenue recognition in financial statements.
SAB 101, as amended, is effective beginning in the fourth quarter of 2000.
Management currently believes that this new pronouncement should not have any
material effect on the Company's consolidated financial statements.
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 statements of earnings data as a percentage of
net sales, derived from the consolidated condensed financial statements included
elsewhere herein, for each period presented, unless otherwise indicated.
Percentage of Net Sales
<TABLE>
<CAPTION>
Thirteen weeks ended Twenty-six weeks ended
---------------------- ----------------------
June 30, July 02, June 30, July 02,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales .................... 100% 100% 100% 100%
Cost of sales ................ 95.1 89.3 94.9 90.0
Gross profit ................. 4.9 10.7 5.1 10.0
Selling, general and
administrative expenses .... 10.0 7.4 8.0 7.5
Research and development ..... -- 1.4 -- 1.6
Operating (loss) income ...... (5.1) 1.9 (2.9) 0.9
Other income ................. 44.0 1.2 20.7 1.3
Income before income taxes
and minority interest ...... 38.9 3.2 17.8 2.2
Income tax (benefit)
provision .................. (2.6) 0.8 (1.5) 0.8
Income before minority
interest ................... 41.4 2.4 19.3 1.3
Minority interest ............ 0.1 0.1 0.2 0.6
Net income ................... 41.5% 2.5% 19.5% 2.0%
</TABLE>
Net sales
Net sales for the thirteen weeks ended June 30, 2000 increased 48% to
$46.3 million from $32.2 million for the comparable period in 1999. Net sales
for the twenty-six weeks ended June 30, 2000 increased 55% to $98.5 million from
$63.7 million for the comparable period in 1999. The increase in sales during
the first two quarters was primarily attributable to the Precision, Tool and Die
operation, which was acquired in the 3rd Quarter of 1999 and to growth in sales
in our Plastics and metal stamping operations, partially offset by the sale of
the EMS operations in May 2000.
Gross profit
Gross Profit decreased 33% to $2.5 million or 4.9% of sales for the
thirteen weeks ended June 30, 2000, as compared to $3.5 million or 10.7% of
sales, for the same period of the prior year. Gross profit decreased 20.7% to
$5.1 million or 5.1% of sales for the twenty-six weeks ended June 30, 2000, as
compared to $6.4 million or 10% of sales, for the same period of the prior year.
This decrease in gross margin was due to an increase in peso denominated labor
costs of 13% in the first quarter of this year; a higher cost of sales
associated with Precision's higher material content; and an upward revaluation
of the Mexican peso against the U.S. dollar resulting in higher dollar
equivalent costs of peso denominated non-labor expenses.
Selling, general and administrative and research and development expenses
Operating Expenses increased 66.4% to $4.7 million for the thirteen weeks
ended June 30, 2000, compared to $2.8 million for the same period of the prior
year. Operating Expenses increased 36.5% to $7.9 million for the twenty-six
weeks ended June 30, 2000, compared to $5.8 million for the same period of the
prior year. The increase is primarily due to non recurring severance, personnel
and management costs directly resulting from the sale of the EMS operations, the
consolidation of our Kentucky operations and peso denominated cost increases
with no offsetting effect in the exchange rate. The increase in operating
expenses was partially offset by a decrease in R&D expenses related to the
Optimag operation sold in October of the prior year.
6
<PAGE>
Other income
Other income for the thirteen weeks ended June 30, 2000 was $20.7 million
and $394 thousand for the thirteen weeks ended July 02, 1999. Other income for
the twenty-six weeks ended June 30, 2000 was $20.4 million and $780 thousand for
the thirteen weeks ended July 02, 1999. During the second quarter, the Company
recognized a gain of $20.5 million as a result of the sale of the EMS
operations. During the first quarter of 2000, Elamex recognized a gain on the
sale of securities of $445 thousand. These gains were offset by an increase in
net interest expense of $341 thousand for the thirteen week period and $1.4
million for the twenty-six week period, over the prior year comparable period,
due primarily to the financing cost of acquiring Precision.
Income taxes
Income tax provision decreased to a benefit of $1.2 million for the
thirteen weeks ended June 30, 2000 from a provision of $0.3 million for the
thirteen weeks ended July 2, 1999. Income tax provision decreased to a benefit
of $1.4 million for the twenty-six weeks ended June 30, 2000 from a provision of
$0.5 million for the twenty-six weeks ended July 2, 1999. The reduction in tax
provision is due primarily to a basis difference in the shares of the EMS
operations disposed of in the second quarter ended June 30, 2000.
Net income
Net income for the thirteen weeks ended June 30, 2000 was $19.6 million
and $802 thousand for the thirteen weeks ended July 02, 1999. Net income for the
twenty-six weeks ended June 30, 2000 was $19.2 million and $1.3 million for the
twenty-six weeks ended July 02, 1999. Basic and diluted net income per common
share for the thirteen weeks ended June 30, 2000 was $2.85 and $0.12 for the
thirteen weeks ended July 02, 1999. Basic and diluted net income per common
share for the twenty-six weeks ended June 30, 2000 was $2.8 and $0.18 for the
twenty-six weeks ended July 02, 1999. At the end of the quarter, weighted
average shares outstanding were 6,866,100, which is equal to weighted average
shares outstanding for the same period in 1999.
Liquidity and Capital Resources
The Company's working capital (defined as current assets minus current
liabilities) as of June 30, 2000 increased by $20.6 million from December 31,
1999 primarily due to an increase in cash of $38.9 million, a decrease of
current deferred income taxes accrual of $4.9 million partially offset by a
decrease in receivables of $7 million, a decrease in inventories of $15 million
and an increase in notes payable and current portion of long-term debt of $3.8
million.
The increase in cash of $38.9 million was primarily due to the proceeds
from the sale of EMS operations. A portion of the sale proceeds was used to pay
out the balance of a revolving credit facility that had been used to fund the
acquisition of our Kentucky operation, the rest will be used to increase our
market share in our custom component manufacturing operations such as metal
stamping and plastics injection molding and our shelter services through
acquisitions and green field investments.
Under its several credit agreements, the Company has committed to maintain
certain financial covenants:
(a) A leverage ratio (defined as the ratio of the sum of funded
debt less cash equivalent to EBITDA), not in excess of 2.7 to
1.0
(b) Tangible Net Worth equal to or greater than $45 million
(c) Interest Coverage Ratio not less than 2.5 to 1.0
(d) Current Ratio not less than 1.25 to 1.0
(e) Receivables Collection Ratio not less than $4.5 million
While these ratios are calculated on an annual basis at the end of the
fiscal year, it is noted that as of the end of the quarter ended June 30, 2000,
management believes the Company was in compliance with all of the above
financial ratios.
During the first two quarters of 2000, the Company invested $6.7 million
in property, plant & equipment. These investments were primarily to complete the
installation of the new 1100 metric ton press and powder paint line in our
Kentucky operation in the amount of $4.4 million, leasehold improvements to our
recently completed Las Torres plant for $800 thousand, and investment of $1
million in machinery and equipment in our Qualcore operations in Mexico.
7
<PAGE>
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.
There can be no assurance that the Company's principal customers will
continue to purchase products and services from the Company at current levels,
if at all, and the loss of one or more major customers could have a material
adverse effect on the Company's results of operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
The Company has financial instruments that involve market risks and
uncertainties. For information regarding the Company's exposure to market risks,
see Item 7A of the Company's Form 10-K.
8
<PAGE>
PART II
OTHER INFORMATION
Item 1. Legal proceedings
Not applicable.
Item 2. Changes in Securities and Use of Proceeds
Not applicable.
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 pursuant 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.
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).*
*Filed as an exhibit to the Company's Registration Statement on Form S-1, file
No. 333-01768
27 Financial Data Schedule
(b) Reports on Form 8-K
The Company filed one report on Form 8-K during the quarter ended
June 30, 2000.
i) On June 6, 2000, the Company filed a Form 8-K reporting the
sale of its contract electronics manufacturing services
operations.
9
<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: August 15, 2000 By: /s/ Hector M. Raynal
-------------------------------------
President and Chief Executive Officer
(Duly Authorized Officer)
Date: August 15, 2000 By: /s/ Daniel L. Johnson
-------------------------------------
Vice-President of Finance and
Chief Financial Officer
10
