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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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(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 31, 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 May 15, 1999 was:
6,866,100
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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
March 31, 2000 (unaudited) and December 31, 1999 ........... 1
Consolidated Condensed Statements of Operations
for the Thirteen Weeks Ended March 31, 2000
(unaudited) and April 04, 1999 (unaudited) ................. 2
Consolidated Condensed Statements of Cash Flows
for the Thirteen Weeks ended March 31, 2000
(unaudited) and April 04, 1999 (unaudited) ................. 3
Notes to Unaudited Consolidated Condensed
Financial Statements ....................................... 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 ................................................ 7
PART II. OTHER INFORMATION
Item 1. Legal Proceedings .......................................... 8
Item 2. Changes in Securities and Use of Proceeds .................. 8
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 ........................... 8
SIGNATURES ............................................................... 9
<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)
March 31, December 31,
2000 1999
(Unaudited)
------------- -------------
Assets
Current assets:
Cash and cash equivalents $ 8,916,949 7,164,115
Receivables
Trade accounts, net 32,270,500 30,757,105
Other receivables, net 2,645,669 2,371,984
------------- -------------
Total receivables 34,916,169 33,129,089
Inventories, net 19,181,099 21,211,814
Refundable income taxes 1,425,530 1,084,992
Prepaid expenses 1,648,059 1,294,200
------------- -------------
Total current assets 66,087,806 63,884,210
Property, plant and equipment, net 56,737,802 52,874,539
Goodwill, net 9,824,546 9,948,662
Other assets, net 553,674 516,582
------------- -------------
$ 133,203,828 127,223,993
============= =============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 21,323,415 19,807,188
Accrued expenses 7,586,057 5,235,091
Notes payable and current portion of
long-term debt 7,026,144 4,364,289
Taxes payable 1,331,754 606,092
Deferred income taxes 4,251,502 4,991,335
------------- -------------
Total current liabilities 41,518,872 35,003,995
Long-term debt, excluding current portion 26,467,539 26,454,901
Other liabilities 191,038 208,412
Deferred income taxes 451,484 451,484
------------- -------------
Total liabilities 68,628,933 62,118,792
Minority interest 1,484,878 1,677,446
Stockholders' equity:
Common stock, 22,400,000 shares authorized,
7,400,000 shares issued and
6,866,100 outstanding 35,060,468 35,060,468
Retained earnings 30,547,681 30,885,419
Treasury stock (2,518,132) (2,518,132)
------------- -------------
Total stockholders' equity 63,090,017 63,427,755
------------- -------------
Commitments and contingencies -- --
$ 133,203,828 127,223,993
============= =============
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ELAMEX, S.A. DE C.V. AND SUBSIDIARIES
Consolidated Condensed Statements of Operations
(In U. S. Dollars)
13 Week Periods Ended
--------------------------------
March 31, 2000 April 04, 1999
(Unaudited) (Unaudited)
-------------- -------------
Net sales $ 51,426,481 31,500,707
Cost of sales 48,677,151 28,582,272
------------ ------------
Gross Profit 2,749,330 2,918,435
------------ ------------
Operating expenses:
General and administrative 2,668,518 1,919,458
Selling 525,008 490,567
Research and development -- 549,598
------------ ------------
Total operating expenses 3,193,526 2,959,623
------------ ------------
Operating loss (444,196) (41,188)
------------ ------------
Other income (expense):
Interest income 112,205 276,423
Interest expense (957,569) (80,494)
Other, net 538,767 209,764
------------ ------------
Total other income (expense) (306,597) 405,693
------------ ------------
(Loss) income before income
taxes and minority interest (750,793) 364,505
Income tax (benefit) provision (219,997) 274,231
------------ ------------
(Loss) income before minority interest (530,796) 90,274
Minority interest 193,058 364,244
------------ ------------
Net (loss) income $ (337,738) 454,518
============ ============
Basic and diluted (loss)
income per common share $ (0.05) 0.07
Weighted average shares outstanding 6,866,100 6,866,100
============ ============
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ELAMEX, S.A. DE C.V. AND SUBSIDIARIES
Consolidated Condensed Statements of Cash Flows
(In U. S. Dollars)
<TABLE>
<CAPTION>
Thirteen Week Periods Ended
---------------------------
March 31, April 04,
2000 1999
(Unaudited) (Unaudited)
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income $ (337,738) 454,518
Adjustments to reconcile net (loss) income
to net cash provided (used) by operating activities:
Depreciation and amortization 1,749,610 1,123,937
Minority interest in loss of
consolidated subsidiaries (192,568) (364,244)
Deferred income tax benefit (739,833) (3,646)
Loss on sale of equipment (10,928) 42,442
Change in operating assets and
liabilities:
Trade accounts receivable (1,513,395) (478,194)
Other receivables (273,685) (1,988,309)
Inventories 2,030,715 (1,241,825)
Refundable income taxes (340,538) --
Prepaid expenses (353,859) (1,124,018)
Other assets (49,092) 44,433
Accounts payable 1,516,227 257,776
Accrued expenses 2,350,966 (347,934)
Taxes payable 725,662 --
Other liabilities (17,374) 37,710
----------- -----------
Net cash provided (used)
by operating activities 4,544,170 (3,587,354)
----------- -----------
Cash flows from investing activities:
Purchase of property, plant and equipment (4,995,287) (885,404)
Proceeds from sale of equipment -- 100,509
----------- -----------
Net cash used by
investing activities (5,465,829) (784,895)
----------- -----------
Cash flows from financing activities:
Proceeds from notes payable 2,318,493 --
Principal repayments of capital
lease obligations (114,000) (163,554)
Minority interest contribution -- 228,936
----------- -----------
Net cash provided by
financing activities 2,674,493 65,382
----------- -----------
Net increase (decrease) in cash and cash equivalents 1,752,834 (4,306,867)
Cash and cash equivalents, beginning of period 7,164,115 5,697,035
----------- -----------
Cash and cash equivalents, end of period $ 8,916,949 1,390,168
=========== ===========
</TABLE>
3
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ELAMEX, S.A. DE C.V. AND SUBSIDIARIES
Notes to Unaudited Consolidated Condensed Financial Statements
(In U.S. Dollars)
(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 generally accepted accounting
principles 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 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 March 31, 2000, and the results of operations and cash flows for
the thirteen weeks ended March 31, 2000 and April 04, 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 thirteen weeks ended March 31, 2000 are not necessarily indicative of the
results to be expected for the entire year.
(2) Disposition agreement
On March 30, 2000, the Company entered into an agreement with Plexus
Corp., pursuant to which the Company will sell to Plexus Corp. all of its assets
and liabilities related to its contract electronics manufacturing services. The
consummation of the transaction contemplated by the agreement would be subject
to certain conditions and is expected to close in the second quarter of this
year. The sales price is $52,000,000 to be paid in cash.
The Company's contract electronics manufacturing services operations
represented approximately 44% of the Company's consolidated net assets at March
31, 2000, and 33 % of the Company's consolidated revenues for the thirteen weeks
ended March 31, 2000.
(3) Inventories
Inventories consist of the following:
March 31, December 31,
2000 1999
------------ ------------
Raw materials $ 14,377,933 $ 16,550,010
Work-in-process 1,560,695 1,510,236
Finished goods 4,371,669 4,204,528
------------ ------------
20,310,297 22,265,574
Reserve for excess and
obsolete inventory (1,129,198) (1,053,760)
------------ ------------
$ 19,181,099 $ 21,211,814
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ELAMEX, S.A. DE C.V. AND SUBSIDIARIES
Notes to Unaudited Consolidated Condensed Financial Statements
(In U.S. Dollars)
(3) Foreign Currency Translation
Included in "other, net" on the accompanying consolidated condensed
statements of operations are foreign exchange (losses) gains of ($87,658) and
$4,913 for the thirteen weeks ended March 31, 2000, and April 04, 1999
respectively.
Assets and liabilities denominated in pesos are summarized as
follows in U. S. dollars:
March 31, December 31,
2000 1999
----------- -----------
Cash and cash equivalents $ 106,126 $ 121,077
Other receivables 1,930,802 1,917,023
Prepaid expenses and taxes 2,294,180 4,489,299
Other assets, net 87,184 598,237
Accounts payable (1,215,491) (1,828,987)
Accrued expenses and other
liabilities (3,557,269) (7,215,736)
----------- -----------
Net non-U.S. currency
position $ (354,468) $(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 carryforwards. 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 thirteen weeks
ended March 31, 2000 of approximately 29%. The primary differences between the
overall effective tax rate and the statutory rates of 35% for both Mexico and
the U.S. are 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 Optimag's tax loss
carryforwards in the U.S., as realization of these 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 weeks
ended March 31, 2000 and April 04, 1999 were calculated using the weighted
average number of common shares outstanding. The weighted average number of
common shares outstanding for the thirteen week periods ended March 31, 2000
and April 04, 1999 were 6,866,100. The Company has no dilutive securities.
(8) New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS
No. 133, Accounting for Derivative Instruments and Hedging Activities and is
effective for all fiscal quarters of fiscal years beginning after June 15, 2000.
Given the Company's current operations and policies, the adoption of SFAS 133 is
not expected to have a material impact on the financial statements of the
Company.
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 statements of operations data as a
percentage of net sales, derived from the unaudited consolidated condensed
financial statements included elsewhere herein, for each period presented,
unless otherwise indicated.
Percentage of Net Sales
Thirteen Weeks Ended
--------------------
March 31, April 04,
2000 1999
(unaudited) (unaudited)
Net sales ............................................. 100% 100%
Cost of sales ......................................... 94.7% 90.7%
Gross profit .......................................... 5.3% 9.3%
Selling, general and administrative expenses .......... 5.2% 7.7%
Research and development .............................. -- 1.7%
Operating loss ........................................ (0.9)% (0.1)%
Other income Expense .................................. (0.6)% 1.3%
(Loss) income before income taxes and minority interest (1.5)% 1.2%
Income tax benefit provision .......................... (0.4)% 0.9%
(loss) Income before minority interest ................ (1.0)% 0.3%
Minority interest ..................................... 0.4% 1.2%
Net (loss) income ..................................... (0.7)% 1.4%
Net sales
Net sales for the thirteen weeks ended March 31, 2000 increased 63.3% to
$51.4 million dollars from $31.5 million dollars for the comparable period in
1999. The increase of $19.9 million dollars was primarily due to the
inclusion of sales from Precision of $19.6 million dollars. Additionally, an
increase in sales from our Qualcore operation of $4.5 million dollars was offset
by a decrease in sales of $4.2 million dollars from our shelter and turnkey
operations.
Gross profit
Gross profit decreased 5.8% to $2.7 million dollars or 5.3% as a
percentage of sales for the thirteen weeks ended March 31, 2000, as compared to
$2.9 million dollars or 9.3% as a percentage of sales, for the same period of
the prior year. This decrease in gross margin percentage of 4.0% 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 content of
material; and an upward revaluation of the mexican peso against the U.S. dollar
of Ps. 0.60 as of March 31, 2000 compared to April 04, 1999 resulting in higher
dollar equivalent costs of peso denominated non-labor expenses. The combined
effect of the Peso upward revaluation on peso denominated non-labor costs and
the inflationary impact on peso denominated labor costs, amounted to
approximately $1 million dollars.
Selling, general and administrative and research and development expenses
Operating expenses increased 7.9% to $3.2 million dollars for the thirteen
weeks ended March 31, 2000, compared to $3.0 million dollars for the same period
of the prior year. The consolidation of our Precision operation into our
consolidated operating results added $767 thousand dollars to operating
expenses. This increase was partially offset by R&D costs of $550 thousand
dollars incurred by Optimag in the first quarter of last year and not repeated
in the first quarter of this year because of the sale of Optimag last year.
Other Income (expense)
Other expense for the quarter of this year of $307 thousand dollars
compares with Other income of $406 thousand dollars for the same quarter last
year. During the first quarter of 2000, Elamex recognized a gain on the sale of
other assets of $445 thousand dollars and accrued the first quarter's earnout
from the sale of Optimag of $186 thousand dollars. These gains were offset by an
increase in net interest expense of $1.042 million dollars resulting primarily
from the financing cost
6
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of acquiring our metal stamping and tooling operation in Kentucky, combined with
a reduction in net interest income resulting from a reduced cash flow in the
first quarter of this year.
Income Tax Provision
The tax liability for the quarter is based on our calculation of the tax
liability for the complete year. Factors affecting these numbers include Company
results, inflation, and exchange rates. Based on our calculations, we are
expecting an effective tax rate of 29.3% for the full year compared to 75% last
year.
Net (loss) income
Net loss for the quarter of $338 thousand dollars compares to the $455
thousand dollar, net Income for 1Q99 basic and diluted net loss per common share
for 1Q00 was $0.05 loss per share, which compares with $0.07 income per share
for the same period last year. At the end of the quarter, weighted average
shares outstanding were 6,866,100, same as the comparable period in 1999.
Liquidity and Capital Resources
The Company's working capital (defined as current assets minus current
liabilities) at the end of 1Q00 decreased by $4.3 million dollars from the end
of 4Q99 primarily due to an increases in notes payable of $2.7 million dollars;
accounts payable of $1.5 million dollars; and accrued expenses of $2.4 million
dollars; and a decrease in inventories of $2.0 million dollars. These increases
in current liabilities were only partially offset by increases in accounts
receivable of $1.5 million dollars and cash and cash Equivalents of $1.8 million
dollars.
On January 26, 2000, the Company entered into a $15,000,000 revolving line
of credit agreement with a bank at LIBOR plus 2.75 to 3% or prime plus 0.5 to
0.75% as selected by the Company. This loan is due on July 31, 2002. Also, on
January 26, 2000, the Company entered into a $5,000,000 term loan agreement with
a bank at LIBOR plus 3.25% payable in quarterly installments of $263,000 plus
interest through January 31, 2005. The proceeds of these loans were used to
refinance $15,000,000 of short-term notes payable which matured January 28,
2000, and accordingly those amounts have been classified as long-term at
December 31, 1999. These loans are collateralized by certain properties and
trade accounts receivable and the loan agreements contain certain restrictive
covenants including restrictions on the payment of dividends, disposition of
assets, incurrence of debt, limit investments, and require the Company to
maintain certain financial ratios.
On March 1, 2000, the Company's wholly owned subsidiary, Precision,
entered into a $12,000,000 note agreement with a bank at a variable interest
rate, calculated weekly. Principal and interest under the note agreement are
due in monthly installments through March 2010. The proceeds from the note were
used to refinance approximately $11,380,000 of short-term and long-term notes
payable and, accordingly, those short-term amounts have been classified as
long-term debt at December 31, 1999. The note is collateralized by substantially
all assets of Precision and requires the maintenance of certain financial
ratios.
During the first quarter of 2000, the Company invested $5.5 million
dollars 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 Precision operation in the amount of $3.7 million dollars, leasehold
improvements in our recently completed Las Torres plant for $800 thousand
dollars, and in machinery and equipment in our shelter and turnkey operations in
Mexico for $1 million dollars.
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.
7
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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 no reports on Form 8-K during the quarter ended March 31,
2000.
- --------------------------------------------------------------------------------
8
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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: November 22, 1999 By: /S/
-------------------------------------
Hector M. Raynal
President and Chief Executive Officer
(Duly Authorized Officer)
Date: November 22, 1999 By: /S/
-------------------------------------
Daniel L. Johnson
Vice-President of Finance and
Chief Financial Officer
9
