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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: SEPTEMBER 27, 2002
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 November 12, 2002 was:
7,789,261
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1
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 September 27, 2002 and December
31, 2001.................................................................................... 3
Unaudited Consolidated Condensed Statements of Operations and Comprehensive Loss for the
Thirteen and Thirty-nine Weeks ended September 27, 2002 and September 28, 2001.............. 4
Unaudited Consolidated Condensed Statements of Cash Flows for the Thirty-nine Weeks ended
September 27, 2002 and September 28, 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.................................. 14
Item 4. Controls and Procedures..................................................................... 14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings........................................................................... 15
Item 2. Changes in Securities and use of Proceeds................................................... 15
Item 3. Defaults upon Senior Securities............................................................. 15
Item 4. Submission of Matters to a Vote of Security Holders......................................... 15
Item 5. Other Information........................................................................... 15
Item 6. Exhibits and Reports on Form 8-K............................................................ 15
SIGNATURES.................................................................................................... 17
CERTIFICATIONS ............................................................................................... 18
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)
SEPTEMBER 27, 2002 DECEMBER 31, 2001
----------------------- ----------------------
ASSETS
Current assets:
Cash and cash equivalents $ 7,956 $ 16,850
Trade accounts receivable, net 18,377 16,362
Other receivables, net 3,636 2,363
Inventories, net 14,029 5,550
Refundable income taxes 2,332 3,365
Prepaid expenses 765 515
Deferred income taxes 546 246
----------------------- ----------------------
Total current assets
47,641 45,251
Property, plant and equipment, net 69,099 38,582
Investment in unconsolidated joint venture 3,064 2,843
Goodwill, net 11,902 8,975
Deferred income taxes 747 2,034
Related party note receivable 3,000
Other assets, ne 675 816
----------------------- ----------------------
$ 133,128 $ 101,501
======================= ======================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and current portion of long-term debt $ 7,715 $ 2,569
Accounts payable 18,115 9,478
Accrued expenses 5,210 3,645
Taxes payable 78 67
----------------------- ----------------------
Total current liabilities 31,118 15,759
Long-term debt, excluding current portion 35,131 16,286
Other liabilities 56
----------------------- ----------------------
Total liabilities 66,249 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, 8,323,161
issued and 7,789,261 outstanding 36,963 35,060
Retained earnings 33,079 37,237
Treasury stock, 533,900 shares at cost (2,518) (2,518)
Accumulated other comprehensive loss, net of tax (518) (379)
Officers' notes receivable (127)
----------------------- ----------------------
Total stockholders' equity 66,879 69,400
----------------------- ----------------------
$ 133,128 $ 101,501
======================= ======================
See acompanying notes to anaudited 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 39 Weeks ended
----------------------------------------------------------------
Sep 27, 2002 Sep 28, 2001 Sep 27, 2002 Sep 28, 2001
----------------------------------------------------------------
Net sales $ 37,580 $ 31,489 $ 91,296 $ 103,411
Cost of sales 33,153 29,752 82,767 102,828
------------- -------------- -------------- ----------------
Gross profit 4,427 1,737 8,529 583
------------- -------------- -------------- ----------------
Operating expenses:
General and administrative 1,972 1,768 5,079 7,550
Selling 1,686 264 2,140 1,107
Distribution 1,913 1,913 -
Re-structuring charges - 205 - 11,931
------------- -------------- -------------- ----------------
Total operating expenses 5,571 2,237 9,132 20,588
------------- -------------- -------------- ----------------
Operating loss (1,144) (500) (603) (20,005)
------------- -------------- -------------- ----------------
Other (expense) income:
Interest income 46 191 487 1,101
Interest expense (970) (531) (1,367) (1,839)
Other, net (274) 45 (559) 309
Loss in joint venture (276) (755) (729) (755)
Gain on sale of subsidiaries - - - 2,612
------------- -------------- -------------- ----------------
Total other (expense) income (1,474) (1,050) (2,168) 1,428
------------- -------------- -------------- ----------------
Loss before income taxes, minority interest, and
cumulative effect of change in accounting principle (2,618) (1,550) (2,771) (18,577)
Income tax (benefit) provision (384) (488) 534 (2,639)
------------- -------------- -------------- ----------------
Loss before minority interest and cumulative effect
of change in accounting principle (2,234) (1,062) (3,305) (15,938)
Minority interest - - - 6,284
------------- -------------- -------------- ----------------
Loss before cumulative effect of change in accounting
principle (2,234) (1,062) (3,305) (9,654)
Cumulative effect of change in accounting principle,
net of tax - - 853 -
------------- -------------- -------------- ----------------
Net loss (2,234) (1,062) (4,158) (9,654)
Other comprehensive loss, net of income tax benefit (139) (37) (139) (379)
------------- -------------- -------------- ----------------
Comprehensive loss $ (2,373) $ (1,099) $ (4,297) $ (10,033)
============= ============== ============== ================
Net loss per share, basic and diluted before cumulative
effect of accounting change $ (0.30) $ (0.15) $ (0.47) $ (1.41)
Cumulative effect of change in accounting principle,
net of tax $ - $ - $ (0.12) $ -
------------- -------------- -------------- ----------------
Net loss per share, basic and diluted $ (0.30) $ (0.15) $ (0.59) $ (1.41)
============= ============== ============== ================
Shares used to compute net loss per share, basic and 7,510,762 6,866,100 7,080,987 6,866,100
============= ============== ============== ================
See acompanying notes to anaudited 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)
THIRTY-NINE WEEKS ENDED
SEPTEMBER 27, 2002 SEPTEMBER 28, 2001
----------------------- ----------------------
Cash flows from operating activities:
Net loss $ (4,158) $ (9,654)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Depreciation and amortization 1,634 3,468
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 -
Gain on sale of subsidiaries - (2,612)
Equity in loss of unconsolidated joint venture 729 755
Minority interest in losses of joint ventur - (7,213)
Deferred income tax benefit 540 (2,942)
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 in 2001 and acquisition of
Franklin in 2002
Trade accounts receivable 2,364 921
Other receivables 429 796
Inventories (3,217) 3,413
Refundable income taxes 1,033 416
Prepaid expenses 351 (24)
Other assets 2 (402)
Accounts payable 1,018 (5,859)
Accrued expenses (1,649) (2,415)
Taxes payable 11 432
Other liabilities (56) (15)
----------------------- -----------------------
Net cash provided by (used in) operating activities 261 (13,838)
----------------------- -----------------------
Cash flows from investing activities:
Proceeds from sale of investment security - 1,945
Purchase of property, plant and equipment (1,628) (3,949)
Investment in joint venture (950)
Cash effects of deconsolidation of joint venture (1,506)
Business acquisition, net of cash acquired (497)
Proceeds from sale of subsidiaries - 2,612
Issuance of related party note receivable (3,000)
Repayment of related party note receivable 3,000 7,000
----------------------- -----------------------
Net cash (used in) provided by investing activities (75) 3,102
----------------------- -----------------------
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 (11,356) (8,502)
----------------------- -----------------------
Net cash (used in) provided by financing activities (9,080) 5,921
----------------------- -----------------------
Net decrease in cash and cash equivalents (8,894) (4,815)
Cash and cash equivalents, beginning of period 16,850 24,357
----------------------- -----------------------
Cash and cash equivalents, end of period $ 7,956 $ 19,542
======================= =======================
See acompanying notes to anaudited consolidated condensed 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 September 27, 2002, the results of operations
for the thirteen and thirty-nine weeks ended September 27, 2002 and September
28, 2001 and cash flows for the thirty-nine weeks ended September 27, 2002 and
September 28, 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 thirty-nine weeks
ended September 27, 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 No. 142 ("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 $369 thousand for the thirty-nine weeks ended September 27, 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 $11.9 million of which $3.8 million was recorded during
the third quarter of 2002 as a result of the acquisition of Mt. Franklin
Holdings (See Note 9). The goodwill affected by the impairment analysis is that
recorded at the time of the acquisition of Precision Tool, Die and Machine Co.
in 1999.
The following table details the proforma transitional disclosures:
($000s except for earnings-per-share amounts)
13 Weeks ended 39 Weeks ended
------------------------------------- --------------------------------------
September 27, September 28, September 27, September 28,
2002 2001 2002 2001
------------------------------------- --------------------------------------
Reported net loss $ (2,234) $ (1,062) $ (4,158) $ (9,654)
Add back: Goodwill amortization 123 369
Add back: Cumulative effect of change in
accounting principle, net of tax 853
------------------------------------- --------------------------------------
Adjusted net loss $ (2,234) $ (939) $ (3,305) $ (9,285)
------------------------------------- --------------------------------------
Basic and diluted earnings per share:
Reported net loss $ (0.30) $ (0.15) $ (0.59) $ (1.41)
Goodwill amortization
0.02 0.05
Cumulative effect of change in
accounting principle 0.12
------------------------------------- --------------------------------------
Adjusted net loss $ (0.30) $ (0.13) $ (0.47) $ (1.36)
------------------------------------- --------------------------------------
6
(3) 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.
During the third quarter of 2002 the Company acquired the new segment of Food
Products, which is Mt. Franklin Holdings LLC. a Company that operates a retail
nut and foodservice nut packaging and marketing company, whose operations are
located in El Paso, Texas and a candy manufacturing and packaging facility in
Juarez, Mexico
The following table presents net sales and net income (loss) by segment:
Unallocated
Shelter Metal Food Corporate Inter-
Services Stamping Services and other segment Total
-----------------------------------------------------------------
THIRTEEN WEEKS ENDED SEPTEMBER 27, 2002
Net sales $ 8,079 $18,518 $ 13,713 $(2,730) $37,580
(Loss) income before cumulative effect of
Accounting change (644) 205 (1,219) (576) (2,234)
Total assets
20,777 46,728 49,131 27,731 (11,239) 133,128
-----------------------------------------------------------------------------------------------------------
THIRTEEN WEEKS ENDED SEPTEMBER 28, 2001
Net sales $ 11,761 $19,728 $31,489
Net (loss) income (865) (302) 105 (1,062)
Total assets 23,418 43,895 38,801 106,114
-----------------------------------------------------------------------------------------------------------
THIRTY-NINE WEEKS ENDED SEPTEMBER 27, 2002
Net sales $ 23,954 $56,359 $ 13,713 $(2,730) $91,296
(Loss) income before cumulative effect of
Accounting change (1,561) 531 (1,219) (1,056) (3,305)
Total assets 20,777 46,728 49,131 27,731 (11,239) 133,128
-----------------------------------------------------------------------------------------------------------
THIRTY-NINE WEEKS ENDED SEPTEMBER 28, 2001
Net sales $ 42,733 $60,678 $103,411
Net (loss) income (9,368) (959) 673 (9,654)
Total assets 23,418 43,895 38,801 106,114
-----------------------------------------------------------------------------------------------------------
(4) 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 $205 thousand
in the third quarter of 2001 and $11.9 million during the thirty-nine weeks
ended September 28, 2001. Such restructuring charges include severance and
related costs and write-off of non productive assets. As of September 27, 2002
the Company has no remaining accrued liabilities in connection with such
restructuring charges.
7
(5) INVENTORIES
Inventories consist of the following:
SEPTEMBER 27, 2002 DECEMBER 31, 2001
----------------------- ---------------------
Raw materials $ 6,530 $ 2,710
Work-in-process 1,404 1,049
Finished goods 6,669 1,816
----------------------- ---------------------
14,603 5,575
Reserve for excess and obsolete inventory (574) (25)
----------------------- ---------------------
$ 14,029 $ 5,550
======================= =====================
(6) FOREIGN CURRENCY
Included in "other, net" in the accompanying unaudited consolidated condensed
statements of operations are foreign exchange losses of $7 thousand and $49
thousand for the thirteen weeks ended September 27, 2002, and September 28,
2001, respectively and $265 thousand and $42 thousand for the thirty-nine weeks
ended September 27, 2002, and September 28, 2001, respectively.
Assets and liabilities denominated in Mexican pesos are summarized as
follows in thousands of U. S. dollars:
September 27, 2002 December 31, 2001
--------------------- ---------------------
Cash and cash equivalents $ 164 $ 420
Other receivables 1,555 1,792
Prepaid expenses 2,413 2,681
Other assets, net 27 30
Accounts payable (359) (1,023)
Accrued expenses and other liabilities (2,208) (2,435)
--------------------- ---------------------
Net non-U.S. currency position $ 1,592 $ 1,465
===================== =====================
(7) 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 (benefit) provision for the thirteen and thirty-nine weeks
ended September 27, 2002 was $(384) thousand and $534 thousand respectively, and
for the thirteen and thirty-nine weeks ended September 28, 2001 the Company
recorded $(488) thousand and $(2.6) million respectively. The primary
differences between the overall effective tax rate and the statutory rates of
34% for both Mexico and the U.S. are currency and inflationary gains and losses
for Mexican tax purposes.
(8) RELATED PARTY NOTE RECEIVABLE
In August, 2001, the Company issued a subordinated convertible loan for $3
million, and in February 2002, May 2002 and June 2002 the Company issued demand
loans for $2 million, $1.1 million and $1 million respectively 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 in connection with the demand loans. The
effective closing date of the transaction for accounting and tax purposes was
June 28, 2002.
(9) ACQUISITION
On July 18, 2002, Elamex USA, Corp. ("Elamex USA"), a wholly owned Delaware
subsidiary of Elamex, completed the acquisition of Mt. Franklin Holdings, LLC
("Franklin"), 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.
8
The unaudited proforma combined historical results, as if Franklin had been
acquired at the beginning of fiscal 2002 and 2001, respectively, are estimated
in the following table:
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
13 Weeks ended 39 Weeks ended
---------------------------- -----------------------------
Sep 27, 2002 Sep 28, 2001 Sep 27, 2002 Sep 28, 2001
---------------------------- -----------------------------
Net sales $ 37,580 $ 41,129 $ 113,515 $ 127,947
Gross profit 4,427 3,239 12,994 3,506
Net loss (2,234) (4,050) (9,347) (18,638)
Net loss per share (0.30) (0.54) (1.24) (2.48)
The above proforma results include adjustments to give effect to intercompany
sales, depreciation and other purchase price adjustments. The proforma results
are not necessarily indicative of the operating results that would have occurred
had the acquisition been consummated as of the beginning of the periods
presented, nor are they necessarily indicative of future operating results. The
Company has not yet determined the final allocation of the purchase price and,
accordingly, the amounts shown may differ from the amounts ultimately
determined; however, that allocation is not expected to differ materially from
the preliminary allocation.
(10) EARNINGS PER SHARE
Basic and diluted net loss per common share ("EPS") for the thirteen and
thirty-nine weeks ended September 27, 2002 and September 28, 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 thirty-nine weeks ended September 27, 2002 were 7,510,762 and
7,080,987 respectively and for the thirteen and thirty-nine weeks ended
September 28, 2001 were 6,866,100. Dilutive stock options for the thirteen and
thirty-nine weeks ended September 27, 2002 of 270,730 and 90,243, respectively
have not been included in the computation of diluted net loss per share as their
effect would be antidilutive. There were no dilutive stock options for the
thirteen and thirty-nine weeks ended September 28, 2001.
(11) STOCK OPTION PLAN
On April 19, 2002, the shareholders approved the issuance of up to 850,000
Elamex stock options and authorized the Board of Directors to establish the
terms and conditions of the grant of the stock options.
On July 19, 2002, the Board of Directors of the Company granted 200,000 stock
options at $2.00 per share and 70,730 stock options at $6.00 per share.
The following table summarizes information concerning currently outstanding and
exercisable options:
OPTIONS EXERCISE LIFE IN NUMBER STOCK
OUTSTANDING PRICE YEARS EXERCISABLE PRICE
AT GRANT
DATE
200,000 $2.00 10 50,000 $5.35
70,730 $6.00 10 - $5.35
The Company accounts for these plans under APB Opinion No. 25, under which
compensation cost of $244 thousand has been recognized. Additional compensation
expense of $426 will be expensed in the future in connection with these options.
Had compensation cost for these plans been determined consistent with SFAS No.
123, "Accounting for Stock Based Compensation", the Company's net loss and loss
per share would have been adjusted to the following proforma amounts:
9
13 Weeks Ended 39 Weeks Ended
September 27, 2002 September 27, 2002
------------------- ------------------ ------------------- ---------------------
Net Loss:
As reported: $(2,234) $(3,305)
Proforma: $(2,311) $(3,382)
Loss per share Basic and Diluted:
As reported $(0.30) $(0.47)
Proforma $(0.31) $(0.48)
The fair value of each option is estimated on the date of grant using the
Black-Scholes option pricing model using the following assumptions; risk free
interest rate of 2.68%; expected dividend yield of 0.0%; expected life of 5
years and expected volatility of 64%.
In addition to the above, Franklin Connections a subsidiary of the Company has
an options plan in shares of the subsidiary. There are 97,500 options
outstanding under this plan with an exercise price of $12.87. No compensation
expense has been recorded in connection with this plan.
(12) 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. Implementation of this statement is not expected to have a significant
impact on the consolidated financial statements of the Company.
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.
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:
10
Shelter Metal Food Corporate Inter- Proforma Qualcore
Services Stamping Services and other Segment Total Adjustments Total
-------------------------------------------------------------------------------------
THIRTEEN WEEKS ENDED SEPTEMBER 27, 2002
Net sales $ 8,079 $18,518 $ 13,713 $(2,730) $37,580 $37,580
Gross profit (loss) 498 1,178 2,751 4,427 4,427
Operating expenses 459 793 3,774 $ 545 5,571 5,571
Other income (expense) (261) (224) (824) 111 (1,198) (276) (1,474)
Net (loss) income (368) 205 (1,219) (576) (1,958) (276) (2,234)
Net (loss) income per share (0.05) 0.03 (0.16) (0.08) (0.26) (0.04) (0.30)
- ----------------------------------------------------------------------------------------------------------------------------
THIRTEEN WEEKS ENDED SEPTEMBER 28, 2001
Net sales $ 11,761 $19,728 $31,489 $31,489
Gross profit (loss) 779 958 1,737 1,737
Operating expenses 662 792 $ 783 2,237 2,237
Other (expense) income (284) (454) 443 (295) (755) (1,050)
Net (loss) income (110) (302) 105 (307) (755) (1,062)
Net (loss) income per share (0.02) (0.04) 0.02 (0.04) (0.11) (0.15)
- ----------------------------------------------------------------------------------------------------------------------------
THIRTY-NINE WEEKS ENDED SEPTEMBER 27, 2002
Net sales $ 23,954 $56,359 $ 13,713 $(2,730) $91,296 $91,296
Gross profit (loss) 2,150 3,628 2,751 8,529 8,529
Operating expenses 1,528 2,229 3,774 $ 1,601 9,132 9,132
Other (expense) incom (271) (701) (824) 357 (1,439) (729) (2,168)
Net (loss) income (832) 531 (1,219) (1,909) (3,429) (729) (4,158)
Net (loss) income per share (0.12) 0.07 (0.17) (0.27) (0.49) (0.10) (0.59)
- ----------------------------------------------------------------------------------------------------------------------------
THIRTY-NINE WEEKS ENDED SEPTEMBER 28, 2001
Net sales $ 36,236 $60,678 $(1,975) $94,939 $ 8,472 $103,411
Gross profit (loss) 1,883 3,191 5,074 (4,491) 583
Operating expenses 4,101 2,864 $ 6,139 13,104 7,484 20,588
Other (expense) income (930) (1,342) 5,051 2,779 (1,351) 1,428
Net (loss) income (2,315) (959) 673 (2,602) (7,052) (9,654)
Net (loss) income per share (0.34) (0.14) 0.10 (0.38) (1.03) (1.41)
- ----------------------------------------------------------------------------------------------------------------------------
GENERAL
NET SALES
Net sales for the thirteen weeks ended September 27, 2002 increased 19% to $37.6
million from $31.5 million for the comparable period in 2001. Proforma net sales
for the thirty-nine weeks ended September 27, 2002 decreased 4% to $91.3 million
from $94.9 million for the same period in 2001.
Sales for Shelter Services for the thirteen weeks ended September 27, 2002
decreased to $8.1 million from $11.8 million for the same period in the prior
year. For the thirty-nine weeks ended September 27, 2002 sales decreased to $24
million from $36.2 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 September 27, 2002
decreased to $18.5 million from $19.7 million for the same period in the prior
year. For the thirty-nine weeks ended September 27, 2002 sales decreased to
$56.4 million from $60.7 million for the same period in the prior year. The
decrease was primarily due to decreases in tooling sales and a general decrease
in pricing and customers' orders.
The newly acquired Food Services segment contributed sales of $13.7 million for
the thirteen and thirty-nine weeks ended September 27, 2002.
GROSS PROFIT
Gross profit increased to $4.4 million or 11.8% of sales for the thirteen weeks
ended September 27, 2002, as compared to $1.7 million or 5.5% of sales for the
same period of the prior year. Gross profit increased to $8.5 million or 9.3% of
sales for the thirty-nine weeks ended September 27, 2002, as compared to
proforma gross profit of $5.1 million or 5.3% of sales for the same period of
the prior year.
11
Gross profit for Shelter Services for the thirteen weeks ended September 27,
2002 decreased to $498 thousand from $779 thousand for the same period in the
prior year. The decrease was primarily due to termination of certain contracts.
Gross profit for the thirty-nine weeks ended September 27, 2002 increased to
$2.2 million from $1.9 million 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 September 27, 2002
increased to $1.2 million from $958 thousand for the same period in the prior
year primarily due to a reduction in material costs. Gross profit for the
thirty-nine weeks ended September 27, 2002 increased to $3.6 million from $3.2
million for the same period in the prior year. The increase was primarily due to
reduction of costs of material.
Gross profit contributed by the Food Services segment was $2.8 million for the
thirteen and thirty-nine weeks ended September 27, 2002.
OPERATING EXPENSES
Operating expenses increased 149% to $5.6 million for the thirteen weeks ended
September 27, 2002, compared to $2.2 million for the same period of the prior
year. The primary reason is due to the addition of the Food Service segment
starting July 2002. Operating expenses decreased 30% to $9.1 million for the
thirty-nine weeks ended September 27, 2002, compared to proforma operating
expenses of $13.1 million for the same period of the prior year.
Operating expenses for Shelter Services for the thirteen weeks ended September
27, 2002 decreased to $459 thousand from $662 thousand for the same period in
the prior year. This decrease was primarily due to restructuring costs of $152
thousand recorded in the third quarter of 2001. Operating expenses for the
thirty-nine weeks ended September 27, 2002 decreased to $1.5 million from $4.1
million for the same period in the prior year. This decrease was primarily due
to restructuring costs of $1.7 million recorded during 2001 and a decrease in
selling and general administrative expenses of $915 thousand.
Operating expenses for Metal Stamping for the thirteen weeks ended September 27,
2002 increased slightly to $793 thousand from $792 thousand for the same period
in the prior year. Operating expenses for the thirty-nine weeks ended September
27, 2002 decreased to $2.2 million from $2.9 million for the same period in the
prior year. The decrease was primarily due to a reduction of $369 thousand in
amortization of goodwill and restructuring charges of $190 thousand recorded
during 2001.
Operating expenses contributed by Food Services segment were $3.8 million for
the thirteen and thirty-nine weeks ended September 27, 2002.
Operating expenses for Corporate for the thirteen weeks ended September 27, 2002
decreased to $545 thousand from $783 thousand for the same period in the prior
year. The decrease was primarily due to decreases in Corporate overhead of
approximately $209 thousand and restructuring costs of $29 thousand recorded
during 2001. Operating expenses for Corporate for the thirty-nine weeks ended
September 27, 2002 decreased to $1.6 million from $6.1 million for the same
period in the prior year. The decrease was primarily due to restructuring costs
of $3.2 million recorded during 2001 and decreases in Corporate overhead of
approximately $1.3 million.
OTHER (EXPENSE) INCOME
Proforma other (expense) income for the thirteen weeks ended September 27, 2002
was a net expense of $1.2 million, compared to net expense of $295 thousand in
the same period of the prior year. Proforma other (expense) income for the
thirty-nine weeks ended September 27, 2002 was a net expense of $1.4 million,
compared to net other income of $2.8 million in the same period of the prior
year.
Other expense for Shelter Services for the thirteen weeks ended September 27,
2002 decreased slightly to $261 thousand from $284 thousand for the same period
in the prior year. For the thirteen weeks ended September 27, 2002 Shelter
Services had a $127 thousand income item due to the early termination of a lease
obligation, the Shelter Services also recorded a customs penalty of $409
thousand and $21 thousand of other gains primary related to fixed assets sales.
For the thirteen weeks ended September 28, 2001 Shelter Services had $67
thousand of translation losses and $217 of interest expense. Other expense for
Shelter Services for the thirty-nine weeks ended September 27, 2002 decreased to
$271 thousand from $930 thousand for the same period in the prior year. The
decrease was primarily due to interest expense during 2001 of $893 thousand,
partially offset with the recognition of a customs penalty of $409 thousand and
other income related to extraordinary transactions.
12
Other expense for Metal Stamping for the thirteen weeks ended September 27, 2002
decreased to $224 thousand from $454 thousand for the same period in the prior
year primarily due to a reduction in interest expense. Other expenses for the
thirty-nine weeks ended September 27, 2002 decreased to $701 thousand from $1.3
million for the same period in the prior year. The decrease was primarily due to
reduction in interest expense.
Other expense for Food Services for the thirteen and thirty-nine weeks ended
September 27, 2002 of $824 is primarily interest expense.
Other income for Corporate for the thirteen weeks ended September 27, 2002
decreased to $111 from $443 thousand for the same period in the prior year. The
decrease was primarily due to decrease in interest income. Other income for
Corporate for the thirty-nine weeks ended September 27, 2002 decreased to $357
from $5.1 million for the same period in the prior year. The decrease was
primarily due to recognition of gain on sale of subsidiaries of $2.6 million in
2001 and recognition of other extraordinary income of $426 in 2001, and decrease
in interest income of $1.5 million in 2002.
TAXES
Tax (benefit) provision for the thirteen and thirty-nine weeks ended September
27, 2002 were $(384) thousand and $534 thousand respectively, and for the
thirteen and thirty-nine weeks ended September 28, 2001 the Company recorded a
tax benefit of $488 thousand and $2.6 million respectively.
The primary differences between the overall effective tax rate and the statutory
rates of 34% for both Mexico and the U.S. are currency and inflationary gains
and losses for Mexican tax purposes.
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, the related goodwill is
approximately $8.1 million. The goodwill affected by the impairment is that
recorded at the time of the acquisition of Precision Tool, Die and Machine Co.
in 1999. In addition, the Company recorded $3.8 million of goodwill in
connection with the acquisition of Mt. Frnklin Holdings for total of $11.9
million in goodwill at September 27, 2002.
NET LOSS AND LOSS PER SHARE
Proforma net loss for the thirteen weeks ended September 27, 2002 was $2 million
compared to a proforma net loss of $307 thousand for the same period of 2001.
For the thirteen weeks ended September 27, 2002 basic and diluted proforma net
loss per share was $0.26, which compares with proforma loss per share of $0.04
for the same period of the prior year. Proforma net loss for the thirty-nine
weeks ended September 27, 2002 was $3.4 million compared to proforma net loss of
$2.6 million for the same period of 2001. For the thirty-nine weeks ended
September 27, 2002 basic and diluted proforma net loss per share was $0.49,
which compares with proforma loss per share $0.38 for the same period of the
prior year. The average number of shares used to calculate basic and diluted
losses per share were 7,510,762 and 7,080,987 for the thirteen and thirty-nine
weeks ended September 27, 2002 and for the thirteen and thirty-nine weeks ended
September 28, 2001 the average number of shares used was 6,866,100.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital (defined as current assets minus current
liabilities) as of September 27, 2002 decreased to $16.5 million as compared to
$29.5 million from December 31, 2001.
For the thirty-nine weeks ended September 27, 2002 the net cash provided by
operating activities was $261 thousand.
The net cash used in investing activities was $75 thousand for the thirty-nine
weeks ended September 27, 2002. At the beginning of the third quarter of 2002
the Company acquired Mt. Franklin Holdings with a net cash payment of $497
thousand and 923,161 Elamex shares issued.
The net cash used in financing activities was $9.1 million for the thirty-nine
weeks ended September 27, 2002 from net payments on notes payable and long term
debt.
13
As part of the Franklin acquisition debt and capital lease obligations of
approximately $33.1 million were assumed.
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. Implementation of this statement is not expected to have a significant
impact on the consolidated financial statements of the Company.
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 $24.5 million at
September 27, 2002, inclusive of amounts borrowed under short-term and long-term
credit facilities. A 1.0 % increase in interest rates would result in a $245
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.
ITEM 4. CONTROLS AND PROCEDURES
DISCLOSURE CONTROLS AND PROCEDURES
The Company maintains disclosure controls and procedures designed to ensure that
it is able to collect the information it is
14
required to disclose in the reports it files with the Securities and Exchange
Commission (SEC), and to process, summarize and disclose this information within
the time periods specified in the rules of the SEC. Based on their evaluation of
the Company's disclosure controls and procedures which took place as of a date
within 90 days of the filing date of this report, the Chief Executive and Chief
Financial Officers believe that these controls and procedures are effective to
ensure that the Company is able to collect, process and disclose the information
it is required to disclose in the reports it files with the SEC within the
required time periods.
The Company also maintains a system of internal controls designed to provide
reasonable assurance that: transactions are executed in accordance with
management's general or specific authorization; transactions are recorded as
necessary (1) to permit preparation of financial statements in conformity with
generally accepted accounting principles, and (2) to maintain accountability for
assets; access to assets is permitted only in accordance with management's
general or specific authorization; and the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate action
is taken with respect to any differences.
Since the date of the most recent evaluation of the Company's internal controls
by the Chief Executive and Chief Financial Officers, there have been no
significant changes in such controls or in other factors that could have
significantly affected those controls, including any corrective actions with
regard to significant deficiencies and material weaknesses.
6 PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
As more fully discribed in the Company's Form 8-K filed on August 2, 2002 (as
amended October 1, 2002), at June 28, 2002 the Company issued 923,161 restricted
shares (556,268 shares to third parties and 366,893 shares to Accel) of the
common stock of Elamex to acquire Mt. Franklin Holdings. Two hundred
seventy-eight thousand five hundred (278,499) of these shares are contingent and
subject to escrow agreements which requires Franklin to reach certain income
levels through December 31, 2003. The market value of the shares at the
transaction date was $5.15 per share.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
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
Form 8-K/A filed on October 1, 2002 for the acquisition of Franklin
Connections
(Including audited financial statements of Azar Nut Company
(Franklin Connections) and Reprop Corporation and Subsidiaries)
15
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
10.1 Agreement and escrow agreement between Elamex USA, Corp. and Azar Nut
Company **
10.2 Agreement and escrow agreement between Elamex USA, Corp. and Kids
Holding Corp. **
10.3 Merger agreement and escrow agreement between Elamex USA, Corp. and
Reprop Corporation **
10.4 Inducement letter to Accel, S.A. de C.V., from Elamex, S.A. de C.V.,
and Elamex USA, Corp., relating to the merger of Reprop Corporation.
**
**Filed as an exhibit to the Company's Form 8-K filed on August 2, 2002.
99.1 Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
16
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.
ELAMEX, S.A. de C.V.
Date: November 12, 2002 By: /S/ Richard P. Spencer
---------------------------------------
Richard P. Spencer
PRESIDENT AND CHIEF EXECUTIVE OFFICER
(DULY AUTHORIZED OFFICER)
Date: November 12, 2002 By: /s/ Thomas J. Benson
-------------------------------------
Thomas J. Benson
VICE- PRESIDENT OF FINANCE AND CHIEF FINANCIAL OFFICER
(DULY AUTHORIZED OFFICER)
17
CERTIFICATIONS
I, Thomas J. Benson, Vice-President of Finance and Chief Financial Officer of
Elamex, S.A. de C.V., certify that:
1. I have reviewed this quarterly report on Form 10-Q of Elamex, S.A. de C.V.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 12, 2002 By: /s/ Thomas J. Benson
---------------------------------
Thomas J. Benson
VICE-PRESIDENT OF FINANCE AND
CHIEF FINANCIAL OFFICER
18
CERTIFICATIONS (CONTINUED)
I, Richard P. Spencer, President and Chief Executive Officer of Elamex, S.A. de
C.V., certify that:
1. I have reviewed this quarterly report on Form 10-Q of Elamex, S.A. de C.V.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 12, 2002 By: /s/ Richard P. Spencer
-------------------------------
Richard P. Spencer
PRESIDENT AND
CHIEF EXECUTIVE OFFICER
19