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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: June 28, 2002
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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)
1800 Northwestern Dr.
EL PASO, TX 79912
(Address of principal executive offices) (Zip code)
(915) 298-3061
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 12, 2002 was:
7,789,261
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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
Unaudited Consolidated Condensed Balance Sheets as of June 28, 2002 and December 31, 2001 ............ 3
Unaudited Consolidated Condensed Statements of Operations and Comprehensive Loss for the
Thirteen and Twenty-six Weeks ended June 28, 2002 and June 29, 2001.................................... 4
Unaudited Consolidated Condensed Statements of Cash Flows for the Twenty-six Weeks ended
June 28, 2002 and June 29, 2001........................................................................ 5
Notes to Unaudited Consolidated Condensed Financial Statements......................................... 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations................. 10
Item 3. Qualitative and Quantitative Disclosures about Market Risk............................................ 13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings..................................................................................... 13
Item 2. Changes in Securities and use of Proceeds............................................................. 13
Item 3. Defaults upon Senior Securities....................................................................... 13
Item 4. Submission of Matters to a Vote of Security Holders................................................... 13
Item 5. Other Information..................................................................................... 14
Item 6. Exhibits and Reports on Form 8-K...................................................................... 14
SIGNATURES.............................................................................................................. 15
2
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
ELAMEX, S.A. DE C.V. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(IN THOUSANDS OF U.S. DOLLARS)
(UNAUDITED)
June 28, 2002 December 31, 2001
------------- -----------------
ASSETS
Current assets:
Cash and cash equivalents $ 14,301 $ 16,850
Trade accounts receivable, net 14,999 16,362
Other receivables, net 1,864 2,363
Inventories, net 6,700 5,550
Refundable income taxes 2,807 3,365
Prepaid expenses 1,342 515
Related party note receivable 4,100 --
Deferred income taxes -- 246
--------- ---------
Total current assets 46,113 45,251
Property, plant and equipment, net 37,842 38,582
Investment in unconsolidated joint venture 3,340 2,843
Goodwill, net 8,122 8,975
Deferred income taxes 2,176 2,034
Related party note receivable 3,000 3,000
Other assets, net 788 816
--------- ---------
$ 101,381 $ 101,501
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and current portion of long-term debt $ 2,368 $ 2,569
Accounts payable 11,696 9,478
Accrued expenses 1,416 3,645
Taxes payable 1,075 67
--------- ---------
Total current liabilities 16,555 15,759
Long-term debt, excluding current portion 17,350 16,286
Other liabilities -- 56
--------- ---------
Total liabilities 33,905 32,101
Commitments and contingencies -- --
--------- ---------
Stockholders' equity:
Preferred stock, no par, 50,000,000 shares authorized, none issued or
outstanding Common stock, 22,400,000 shares authorized,
7,400,000 issued and 6,866,100 outstanding 35,060 35,060
Retained earnings 35,313 37,237
Treasury stock, 533,900 shares at cost (2,518) (2,518)
Accumulated other comprehensive loss, net of tax (379) (379)
--------- ---------
Total stockholders' equity 67,476 69,400
--------- ---------
$ 101,381 $ 101,501
========= =========
See Notes to Unaudited Consolidated Condensed Financial Statements
3
ELAMEX, S.A. DE C.V. AND SUBSIDIARIES
Consolidated Condensed Statements of Operations and Comprehensive Loss
(In Thousand of U. S. Dollars)
(Unaudited)
13 Weeks ended 26 Weeks ended
--------------------------- ----------------------------
June 28, 2002 June 29, 2001 June 28, 2002 June 29, 2001
------------- ------------- ------------- -------------
Net sales $27,330 $36,165 $53,716 $71,922
Cost of sales 25,426 36,028 49,614 73,076
------------ ----------- ----------- -----------
Gross profit (loss) 1,904 137 4,102 (1,154)
------------ ----------- ----------- -----------
Operating expenses:
General and administrative 1,537 2,430 3,107 5,782
Selling
188 330 454 843
Re-structuring charges 2,477 11,726
------------ ----------- ----------- -----------
Total operating expenses 1,725 5,237 3,561 18,351
------------ ----------- ----------- -----------
Operating income (loss) 179 (5,100) 541 (19,505)
------------ ----------- ----------- -----------
Other (expense) income:
Interest income
257 425 441 910
(216) (674) (397) (1,308)
Other, net (201) 402 (285) 264
Loss in joint venture (76) (453)
Gain on sale of subsidiaries 2,612
244
------------ ----------- ----------- -----------
Total other (expense) income (236) 397 (694) 2,478
------------ ----------- ----------- -----------
Loss before income taxes, minority interest and cumulative
effect of change in accounting principle (57) (4,703) (153) (17,027)
Income tax provision (benefit) 770 (1,297) 918 (2,151)
------------ ----------- ----------- -----------
Loss before minority interest and cumulative effect of change
in accounting principle (827) (3,406) (1,071) (14,876)
Minority interest 1,863 6,285
------------ ----------- ----------- -----------
Loss before cumulative effect of change in accounting principle (827) (1,543) (1,071) (8,591)
Cumulative effect of change in accounting principle, net of tax 853
------------ ----------- ----------- -----------
Net loss (827) (1,543) (1,924) (8,591)
Other comprehensive loss, net of income tax benefit (315) (342)
------------ ----------- ----------- -----------
Comprehensive loss $(827) $(1,858) $(1,924) $(8,933)
============ =========== =========== ===========
Net loss per share, basic and diluted before cumulative effect
of accounting change $(0.12) $(0.22) $(0.16) $(1.25)
Cumulative effect of change in accounting principle, net of tax $(0.12)
------------ ----------- ----------- -----------
Net loss per share, basic and diluted $(0.12) $(0.22) $(0.28) $(1.25)
============ =========== =========== ===========
Shares used to compute net loss per share, basic and diluted 6,866,100 6,866,100 6,866,100 6,866,100
============ =========== =========== ===========
See Notes to Unaudited Consolidated Condensed Financial Statements
4
ELAMEX, S.A. DE C.V. AND SUBSIDIARIES
Consolidated Condensed Statements of Cash Flows
(In Thousands of U. S. Dollars)
(Unaudited)
Twenty-six Weeks ended
----------------------
June 28, 2002 June 29, 2001
------------- -------------
Cash flows from operating activities:
Net loss $ (1,924) $ (8,591)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Depreciation and amortization 1,634 2,518
Cumulative effect of change in accounting principle - goodwill impairment 853 --
Provision for doubtful trade accounts receivable 162 1,364
Provision for excess and obsolete inventory 215 1,034
Gain on sale of subsidiaries -- (2,299)
Equity in loss of unconsolidated joint venture 453 --
Minority interest in losses of joint venture -- (6,285)
Deferred income tax benefit 104 (2,433)
Losses on disposal-impairment of property, plant and equipment -- 5,733
Change in operating assets and liabilities, net of effects from
deconsolidation of joint venture for 2001
Trade accounts receivable 1,201 (241)
Other receivables 499 (245)
Inventories (1,365) 2,328
Refundable income taxes 558 106
Prepaid expenses (827) (529)
Other assets 28 (55)
Accounts payable 2,218 (5,539)
Accrued expenses (2,229) (463)
Taxes payable 1,008 699
Other liabilities (56) (3)
--------- ---------
Net cash provided by (used in) operating activities 2,532 (12,901)
--------- ---------
Cash flows from investing activities:
Proceeds from sale of investment security
-- 1,945
Purchase of property, plant and equipment (894) (2,290)
Investment in joint venture (950)
Proceeds from sale of subsidiaries -- 2,299
Issuance of related party note receivable (4,100)
Repayments of related party note receivable -- 7,000
--------- ---------
Net cash (used in) provided by investing activities (5,944)
8,954
--------- ---------
Cash flows from financing activities:
Proceeds from notes payable and long term-debt 2,276
14,423
Payments of notes payable and long term-debt (1,413) (8,878)
--------- ---------
Net cash provided by financing activities 863 5,545
--------- ---------
Net (decrease) increase in cash and cash equivalents (2,549) 1,598
Cash and cash equivalents, beginning of period 16,850 24,357
--------- ---------
Cash and cash equivalents, end of period $ 14,301 $ 25,955
========= =========
See accompanying notes to consolidated financial statements
5
Elamex S.A. de C.V. and Subsidiaries
Notes to the Unaudited Consolidated Condensed Financial Statements
(In Thousands of U. S. Dollars)
(1) General
The accompanying unaudited interim 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 management of the Company believes that the
disclosures presented are adequate to make the information presented not
misleading, the unaudited interim consolidated condensed financial statements
should be read in conjunction with the consolidated financial statements and
notes included in the Company's 2001 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 unless otherwise stated)
necessary for a fair presentation of the financial position as of June 28,
2002, the results of operations for the thirteen and twenty-six weeks ended
June 28, 2002 and June 29, 2001 and cash flows for the twenty-six weeks ended
June 28, 2002 and June 29, 2001. The consolidated condensed balance sheet as
of December 31, 2001 is derived from the December 31, 2001 audited
consolidated financial statements. The results of operations for the thirteen
and twenty-six weeks ended June 28, 2002 are not necessarily indicative of the
results to be expected for the entire year.
(2) Change in accounting principle
In June 2001, the Financial Accounting Standard Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS No. 142"), "Goodwill
and Other Intangible Assets". This statement is effective for all fiscal
quarters of fiscal years beginning after December 15, 2001. SFAS No. 142
requires, among other things, the discontinuance of amortization of goodwill and
intangible assets with indefinite lives. In addition, the standard includes
provisions for the reclassification of certain existing recognized intangibles,
reclassification of certain intangibles out of previously reported goodwill and
the identification of reporting units for purposes of assessing potential
impairments of goodwill. SFAS No. 142 also requires the Company to complete a
transitional goodwill impairment test six months from the date of adoption. The
result of the non-amortization provision of SFAS No. 142 was a decrease in the
net loss of $246 thousand for the twenty-six weeks ended June 28, 2002.
The Company completed the transitional impairment test and reported
an impairment of goodwill of $853 thousand from the initial adoption of SFAS No.
142 in the first quarter of 2002. After impairment, goodwill remaining on the
books is approximately $8.1 million. The goodwill affected is that recorded at
the time of the acquisition of Precision Tool, Die and Machine Co. in 1999 and
is the only goodwill on the Company's balance sheet as of the end of the second
quarter of 2002.
The following table details the proforma transitional disclosures:
($000s except for earnings-per-share amounts)
13 Weeks ended 26 Weeks ended
---------------------------- ----------------------------
June 28, 2002 June 29, 2001 June 28, 2002 June 29, 2001
Reported net loss $ (827) $(1,543) $ (1,924) $ (8,591)
Add back: Goodwill amortization 123 246
Add back: Cumulative effect of change in accounting principle, net of tax 853
------- ------- --------- ---------
Adjusted net loss $ (827) $(1,420) $ (1,071) $ (8,345)
------- ------- --------- ---------
Basic and diluted earnings per share:
Reported net loss $ (0.12) $ (0.22) $ (0.28) $ (1.25)
Goodwill amortization
0.02 0.04
Cumulative effect of change in accounting principle
0.12
------- ------- --------- ---------
Adjusted net loss $ (0.12) $ (0.20) $ (0.16) $ (1.21)
------- ------- --------- ---------
6
(3) Deconsolidation of Joint Venture
Effective the third quarter of 2001, the operating results of
Qualcore, S. de R.L. de C.V. the joint venture with General Electric, are
reported on the equity method. This is a result of the change in management of
the joint venture. As of the beginning of July 2001 the new general manager
reports directly to a four-member board of directors in which the two joint
venture partners have equal voting rights.
(4) Segment reporting
During the third quarter of 2001 the Company completed the
realignment of its operations in order to more closely align the reportable
segments with the markets the Company serves. As a result of this realignment
the Company's reportable segments are 1) Shelter Services (Previously Contract
Manufacturing) and 2) Metal Stamping.
The Shelter Services segment provides shelter and assembly services
throughout Mexico for non-electronics manufacturing services companies. Under
the shelter business model, Elamex provides labor and administrative services.
Under the assembly business model, Elamex provides shared manufacturing space,
production management and may also provide material procurement services. The
Shelter Services segment also includes Qualcore, the joint venture with General
Electric.
The Metal Stamping segment is the Precision, Tool, Die and Machine
subsidiary located in Louisville, Kentucky. It provides metal and stamping
services primarily to the appliance and automotive sectors.
The following table presents net sales and net income (loss) by
segment:
Shelter Services Metal Corporate
Stamping and other Total
------------------------------------------------------------------------------
Thirteen weeks ended June 28, 2002
Net sales $8,149 $19,181 $-- $27,330
(Loss) income before cumulative
effect of accounting change (660) 123 (290) (827)
- ----------------------------------------------------------------------------------------------------------------------------------
Thirteen weeks ended June 29, 2001
Net sales $15,291 $20,874 $-- $36,165
Net income (2,520) (266) 1,243 (1,543)
- ----------------------------------------------------------------------------------------------------------------------------------
Twenty-six weeks ended June 28, 2002
Net sales $15,875 $37,841 $-- $53,716
(Loss) income before cumulative
effect of accounting change (917) 326 (480) (1,071)
- ----------------------------------------------------------------------------------------------------------------------------------
Twenty-six weeks ended June 29, 2001
Net sales $30,9972 $40,950 $-- $71,922
Net (loss) income (8,502) (657) 568 (8,591)
- ----------------------------------------------------------------------------------------------------------------------------------
(5) Restructuring charges and other matters
During the first quarter of 2001, the Company initiated a process of
restructuring its business model to eliminate non-productive assets and business
lines. As a result the Company recognized restructuring charges of $2.5 million
in the second quarter of 2001 and $11.7 million during the twenty-six weeks
ended June 29, 2001. Such restructuring charges include severance and related
costs and write-off of non productive assets. As of June 28, 2002 the Company
has approximately $329 thousand remaining in accrued liabilities in connection
with such restructuring charges.
7
(6) Inventories
Inventories consist of the following:
June 28, 2002 December 31, 2001
------------- -----------------
Raw materials $ 3,307 $ 2,710
Work-in-process 1,049 1,049
Finished goods 2,584 1,816
--------- ---------
6,940 5,575
Reserve for excess and obsolete inventory (240) (25)
--------- ---------
$ 6,700 $ 5,550
========= =========
(7) Foreign Currency
Included in "other, net" in the accompanying unaudited consolidated
condensed statements of operations are foreign exchange losses of $212 thousand
and $168 thousand for the thirteen weeks ended June 28, 2002, and June 29, 2001,
respectively and $244 thousand and $91 thousand for the twenty-six weeks ended
June 28, 2002, and June 29, 2001, respectively.
Assets and liabilities denominated in Mexican pesos are summarized as
follows in thousands of U. S. dollars:
June 28, 2002 December 31, 2001
------------- -----------------
Cash and cash equivalents $ 0 420
Other receivables 2,184 1,792
Prepaid expenses 3,199 2,681
Other assets, net 17 30
Accounts payable (312) (1,023)
Accrued expenses and other liabilities (2,036) (2,435)
--------- ---------
Net non-U.S. currency position $ 3,052 $ 1,465
========= =========
(8) Income Taxes
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. The tax provision for the thirteen and twenty-six weeks ended
June 28, 2002 was $770 thousand and $918 thousand respectively, and for the
thirteen and twenty-six weeks ended June 29, 2001 the Company recorded tax
benefit of $1.3 million and $2.2 million respectively. 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 for Mexican
tax purposes.
(9) Related party note receivable
In August, 2001, the Company issued $3 million for a subordinated
convertible loan, and in February 2002, May 2002 and June 2002 the Company
issued $2 million, $1.1 million and $1 million respectively of demand loans to
Franklin Connections, LLC, a related party. The Company completed the
acquisition of Franklin Connections on July 18, 2002 and Franklin Connections
repaid $4.1 million plus interest to the Company of the demand loans. The
effective closing date of the transaction for accounting and tax purposes was
June 28, 2002.
8
(10) Earnings per Share
Basic and diluted net loss per common share ("EPS") for the thirteen
and twenty-six weeks ended June 28, 2002 and June 29, 2001 were calculated using
the weighted average number of common shares outstanding during each period. The
weighted average number of common shares outstanding for the thirteen and
twenty-six weeks ended June 28, 2002 and June 29, 2001 were 6,866,100. The
Company has no dilutive securities.
(11) New Accounting Pronouncements
In August 2001 the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-lived assets". This statement addresses
accounting and reporting for the impairment or disposal of long-lived assets,
and is effective for financial statements issued for years beginning after
December 15, 2001 and interim periods within those years. The implementation of
SFAS No. 144 has not had a significant impact on the financial position or
results of the Company.
In April 2002, the Financial Accounting Standards Board issued SFAS No.
145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB
Statement No. 13, and Technical Corrections". This statement requires, among
other things, that gains and losses on the early extinguishments of debt be
classified as extraordinary only if they meet the criteria for extraordinary
treatment set forth in Accounting Principles Board Opinion No. 30. The
provisions of this statement related to classification of gains and losses on
the early extinguishments of debt are effective for fiscal years beginning after
May 15, 2002. The Company is currently considering the impact, if any, that this
statement will have on the consolidated financial statements.
In June 2002, the Financial Accounting Standards Board issued SFAS No.
146, "Accounting for Costs Associated with Exit or Disposal Activities." It
requires recording costs associated with exit or disposal activities at their
fair values when a liability has been incurred. Under previous guidance, certain
exit costs were accrued upon management's commitment to an exit plan, which is
generally before an actual liability has been incurred. The provisions of this
Statement are effective for exit or disposal activities that are initiated after
December 31, 2002. The Company is currently considering the impact, if any, that
this statement will have on the consolidated financial statements.
(12) Subsequent events
On July 18, 2002, Elamex USA, Corp. ("Elamex USA"), a wholly owned
Delaware subsidiary of the Registrant, completed the acquisition of Mt. Franklin
Holdings, LLC, and Franklin Food Products LLC and the merger of Reprop
Corporation with and into Elamex USA. The effective closing date for tax and
accounting purposes was the close of business on June 28, 2002.
On July 19, 2002, the Board of Directors of the Company approved a
stock option plan with up to 850,000 Elamex stock options and granted 200,000
Elamex stock options at $2.00 per share to the President and CEO of the Company.
In addition and in connection with the Mt. Franklin Holdings transaction which
closed on July 18, 2002 the Board of Directors granted 70,730 Elamex stock
options at $6.00 per share to certain officers of Franklin Connections. The
authority for the Board of Directors to issue stock options was voted in the
affirmative by the Company's Shareholders in the special Shareholders meeting
held on April 19, 2002.
9
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
Management's discussion and analysis is based on the results of operations after
consideration of the proforma effects on prior periods of the deconsolidation of
our joint venture effective July 2001. The following tables present those
proforma effects by segment:
Shelter Metal Corporate Inter- Proforma Qualcore
Services Stamping and other segment Total Adjustments Total
-----------------------------------------------------------------------------------------
Thirteen weeks ended June 28, 2002
Net sales $8,149 $19,181 $27,330 $27,330
Gross profit 744 1,160 1,904 1,904
Operating expenses 454 727 $544 1,725 1,725
Other income (expense) 9 (231) 62 (160) (76) (236)
Net (loss) income (584) 123 (290) (751) (76) (827)
Net (loss) income per share (0.09) 0.02 (0.04) (0.11) (0.01) (0.12)
- --------------------------------------------------------------------------------------------------------------------------------
Thirteen weeks ended June 29, 2001
Net sales $13,134 $20,874 $(839) $33,169 $2,996 $36,165
Gross profit (loss) 788 1,400 2,188 (2,051) 137
Operating expenses 1,525 1,155 $1,133 3,813 1,424 5,237
Other (expense) income (305) (459) 1,420 656 (259) 397
Net (loss) income (649) (266) 1,243 328 (1,871) (1,543)
Net (loss) income per share (0.09) (0.04) 0.18 0.05 (0.27) (0.22)
- --------------------------------------------------------------------------------------------------------------------------------
Twenty-six weeks ended June 28, 2002
Net sales $15,875 $37,841 $53,716 $53,716
Gross profit 1,652 2,450 4,102 4,102
Operating expenses 1,069 1,436 $1,056 3,561 3,561
Other (expense) income (10) (477) 246 (241) (453) (694)
Net (loss) income (464) (1,924)
326 (1,333) (1,471) (453)
Net (loss) income per share (0.07) (0.28)
0.05 (0.19) - (0.21) (0.07)
- --------------------------------------------------------------------------------------------------------------------------------
Twenty-six weeks ended June 29, 2001
Net sales $24,308 $40,950 $(1,975) $71,922
$63,283 $8,639
Gross profit (loss) 1,104 2,233 (1,154)
3,337 (4,491)
Operating expenses 3,439 2,072 18,351
$5,356 10,867 7,484
Other (expense) income (646) 2,478
(888) 4,608 3,074 (596)
Net (loss) income (2,205) (8,591)
(657) 568 (2,294) (6,297)
Net (loss) income per share (0.32) (1.25)
(0.10) 0.08 (0.33) (0.92)
- --------------------------------------------------------------------------------------------------------------------------------
General
Net sales
Proforma net sales for the thirteen weeks ended June 28, 2002 decreased 18%
to $27.3 million from $33.2 million for the comparable period in 2001. Proforma
net sales for the twenty-six weeks ended June 28, 2002 decreased 15% to $53.7
million from $63.3 million for the same period in 2001.
Sales for Shelter Services for the thirteen weeks ended June 28, 2002 decreased
to $8.1 million from $13.1 million for the same period in the prior year. For
the twenty-six weeks ended June 28, 2002 sales decreased to 15.9 million from
$24.3 million for the same period in the prior year. This decrease was primarily
due to the termination of certain contracts.
Sales for Metal Stamping for the thirteen weeks ended June 28, 2002 decreased to
$19.2 million from $20.9 million for the same period in the prior year. For the
twenty-six weeks ended June 28, 2002 sales decreased to $37.8 million from $41
million for the same period in the prior year. The decrease was primarily due to
decreases in tooling sales and a general decrease in customers' orders.
Gross profit (loss)
Proforma gross profit decreased to $1.9 million or 7% of sales for the
thirteen weeks ended June 28, 2002, as compared to $2.2 million or 7% of sales
for the same period of the prior year. Proforma gross profit increased to $4.1
million or 8% of sales for the twenty-six weeks ended June 28, 2002, as compared
to $3.3 million or 5% of sales for the same period of the prior year.
Gross profit for Shelter Services for the thirteen weeks ended June 28, 2002
decreased to $744 thousand from $788 thousand for the same period in the prior
year. Gross profit for the twenty-six weeks ended June 28, 2002 increased to
$1.7 million from $1.1million for the same period in the prior year. The
increase was primarily due to reduction in overhead expenses.
Gross profit for Metal Stamping for the thirteen weeks ended June 28, 2002
decreased to $1.2 million from $1.4 million for the same period in the prior
year. Gross profit for the twenty-six weeks ended June 28, 2002 increased to
$2.5 million from $2.2 million for the same period in the prior year.
Operating expenses
Proforma operating expenses decreased 55% to $1.7 million for the thirteen
weeks ended June 28, 2002, compared to $3.8 million for the same period of the
prior year. Operating expenses decreased 67% to $3.6 million for the twenty-six
weeks ended June 28, 2002, compared to $10.9 million for the same period of the
prior year.
Operating expenses for Shelter Services for the thirteen weeks ended June 28,
2002 decreased to $454 thousand from $1.5 million for the same period in the
prior year. This decrease was primarily due to restructuring costs of $947
thousand recorded in the second quarter of 2001. Operating expenses for the
twenty-six weeks ended June 28, 2002 decreased to $1.1 million from $3.4 million
for the same period in the prior year. This decrease was primarily due to
restructuring costs of $1.5 million recorded in the first semester of 2001 and a
decreases in selling and general administrative expenses of $960 thousand.
Operating expenses for Metal Stamping for the thirteen weeks ended June 28, 2002
decreased to $727 thousand from $1.2 million for the same period in the prior
year. The decrease was primarily due to a decrease in general administrative
expenses of $296 thousand, a reduction of $122 thousand in amortization of
goodwill and restructuring charges of $36 thousand recorded in the second
quarter of 2001. Operating expenses for the twenty-six weeks ended June 28, 2002
decreased to $1.4 million from $2.1 million for the same period in the prior
year. The decrease was primarily due to a decrease in general administrative
expenses of $306 thousand, a reduction of $239 thousand in amortization of
goodwill and restructuring charges of $166 thousand recorded in the second
semester of 2001and decreases in depreciation and administrative expenses.
Operating expenses for Corporate for the thirteen weeks ended June 28, 2002
decreased to $544 thousand from $1.1 million for the same period in the prior
year. The decrease was primarily due to a decreases in corporate overhead of
approximately $391 thousand and restructuring costs of $198 thousand recorded
during the second quarter of 2001.. Operating expenses for Corporate for the
twenty-six weeks ended June 28, 2002 decreased to $1.1 million from $5.4 million
for the same period in the prior year. The decrease was primarily due to
restructuring costs of $3.2 million recorded during the second quarter of 2001
and decreases in corporate overhead of approximately $1.1 million.
Other (expense) income
Other (expense) income for the thirteen weeks ended June 28, 2002 was a net
expense of $160 thousand, compared to net other income of $656 thousand in the
same period of the prior year. The primary reason for this change were
incremental exchange translation losses of $305 thousand in the first quarter of
2002 and a gain of approximately $244 thousand of additional income recorded in
the prior year from the sale of subsidiaries. Other (expense) income for the
twenty-six weeks ended June 28, 2002 was a net expense of $241 thousand,
compared to net other income of $3.1 million in the same period of the prior
year. The primary reasons for this change were a gain of approximately $2.6
million recorded in the prior year from the sale of subsidiaries and a reduction
in net interest expense of approximately $179 thousand.
11
Taxes
Due to the impact of inflation and foreign exchange gains and losses, as
determined under Mexican Tax Laws, it is difficult to predict monetary gains and
losses for tax purposes related to monetary assets. Changes in the U.S. Dollar
to Mexican Peso exchange rate can have a material impact to the calculation of
taxes under SFAS No. 109. Accordingly, the effective tax rate is subject to
change on a quarterly basis as the impact of the monetary gains and losses for
tax purposes become known.
Change in accounting principle
The Company has completed the transitional impairment test and reported an
impairment of goodwill of $853 thousand from the initial adoption of SFAS No.
142 in the first quarter of 2002. After impairment, recorded goodwill is
approximately $8.1 million. The goodwill affected is that recorded at the time
of the acquisition of Precision Tool, Die and Machine Co. in 1999 and is the
only goodwill on the Company's balance sheet as of the end of the second quarter
of 2002.
Net loss and loss per share
Proforma net loss for the thirteen weeks ended June 28, 2002 was $751
thousand compared to a net income of $328 thousand for the same period of 2001.
Basic and diluted net loss per common share, calculated on the basis of
6,866,100 shares, for the thirteen weeks ended June 28, 2002 was $0.11 loss per
share, which compares with $0.05 income per share for the same period of the
prior year. Proforma net loss for the twenty-six weeks ended June 28, 2002 was
$1.5 million compared to $2.3 million in net loss for the same period of 2001.
Basic and diluted net loss per common share, calculated on the basis of
6,866,100 shares, for the twenty-six weeks ended June 28, 2002 was $0.21 loss
per share, which compares with $0.33 loss per share for the same period of the
prior year.
Liquidity and Capital Resources
The Company's working capital (defined as current assets minus current
liabilities) as of June 28, 2002 increased slightly to $29.6 million as compared
to $29.5 million from December 31, 2001.
For the twenty-six weeks ended June 28, 2002 the net cash provided by operating
activities was $2.5 million.
The net cash used in investing activities was $5.9 million for the twenty-six
weeks ended June 28, 2002. During the semester ended June 28, 2002 the Company
issued $4.1 million of demand loans to Franklin Connections, LLC, a related
party.
The net cash provided by financing activities was $863 thousand for the
twenty-six weeks ended June 28, 2002.
Subsequent to June 28, 2002 the Company issued Elamex shares in connection with
the acquisition of Mt. Franklin Holdings, LLC and related entities.
Management intends to fund current operations and activities of the Company
through existing working capital, cash and available credit facilities.
New Accounting Pronouncements
In August 2001 the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-lived assets". This statement addresses
accounting and reporting for the impairment or disposal of long-lived assets,
and is effective for financial statements issued for years beginning after
December 15, 2001 and interim periods within those years. The implementation of
SFAS No. 144 has not had a significant impact on the financial position or
results of the Company.
In April 2002, the Financial Accounting Standards Board issued SFAS No.
145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB
Statement No. 13, and Technical Corrections". This statement requires, among
other things, that gains and losses on the early extinguishments of debt be
classified as extraordinary only if they meet the criteria for extraordinary
treatment set forth in Accounting Principles Board Opinion No. 30. The
provisions of this statement related to classification of gains and losses on
the early extinguishments of debt are effective for fiscal years beginning after
May 15, 2002. The Company is currently considering the impact, if any, that this
statement will have on the consolidated financial statements.
12
In June 2002, the Financial Accounting Standards Board issued SFAS No. 146,
"Accounting for Costs Associated with Exit or Disposal Activities." It requires
recording costs associated with exit or disposal activities at their fair values
when a liability has been incurred. Under previous guidance, certain exit costs
were accrued upon management's commitment to an exit plan, which is generally
before an actual liability has been incurred. The provisions of this Statement
are effective for exit or disposal activities that are initiated after December
31, 2002. The Company is currently considering the impact, if any, that this
statement will have on the consolidated financial statements.
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.
Elamex's functional currency is the U.S. dollar and is exposed to the risk
of currency fluctuations of the Mexican peso against the U.S. dollar. Elamex's
currency fluctuation risk management objective is to limit the impact of
currency fluctuations. Elamex has adopted a policy of not engaging in futures
contracts with the purpose of hedging U.S. dollar/Mexican peso revenues or
costs, with the exception of regular treasury operations to cover operating
requirements for up to thirty days.
Elamex and certain of its subsidiaries are exposed to some market risk due
to the floating interest rate under its revolving lines of credit, notes payable
and long-term debt. Floating-rate obligations aggregated $18.8 million at June
28, 2002, inclusive of amounts borrowed under short-term and long-term credit
facilities. A 1.0 % increase in interest rates would result in a $188 thousand
annual increase in interest expense on the existing principal balance. The
Company has determined that it is not necessary to participate in interest
rate-related derivative financial instruments because it currently does not
expect significant short-term increases in interest rates charged under its
borrowings.
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
The annual meeting and an extraordinary meeting of stockholders were
held in Cd. Juarez, Mexico on April 19, 2002 at 9:00 a.m. The
stockholders of the Company were asked to consider and vote on the
following matters:
Extraordinary meeting
1) Amendment of Company's Bylaws to reduce the number of Directors
from eleven (11) to seven (7).
2) Amendment of Company's Bylaws to authorize Board of Directors
to change Company's name.
13
3) Waiver of Shareholders Pre-emptive Rights and Authorize the
Company's Board of Directors to issue shares of the Company's
common stock to acquire Mt. Franklin Holdings, LLC and its
related companies and Franklin Inmobiliarios, S.A. de C.V.
4) Waiver of Shareholders' Pre-emptive Rights and Authorize the
Company's Board of Directors to issue stock options.
Annual meeting
5) Election of Directors
6) To approve and ratify the selection of Deloitte & Touche as
Independent Public Accountants.
The following is a summary of the voting results with respect to each of
the proposals:
Votes for Votes against Votes abstained
Proposal one 6,709,783 9,035 0
Proposal two 6,710,623 4,670 3,525
Proposal three 6,689,123 23,145 6,550
Proposal four 6,580,858 63,410 74,550
Proposal five 6,625,098 7,320 86,400
Proposal six 6,714,168 2,200 2,450
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.
Form 8-K filed on August 2, 2002 for the acquisition of Franklin
Connections
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
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 El Paso, Texas.
In addition and pursuant to section 906 of the Sarbanes-Oxley Act of 2002,
the undersigned chief executive officer and chief financial officer of the
issuer hereby certify that this Form 10-Q fully complies with the requirements
of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that
information contained in this Form 10-Q fairly presents, in all material
respects, the financial condition and results of operations of the issuer.
ELAMEX, S.A. de C.V.
Date: August 12, 2002 By: /S/ Richard P. Spencer
------------------------------------
President and Chief Executive Officer
(Duly Authorized Officer)
Date: August 12, 2002 By: /S/ Thomas J. Benson
------------------------------------
Thomas J. Benson
Vice-President of Finance and
Chief Financial Officer