Back to GetFilings.com
================================================================================
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: JULY 4, 2003
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 DRIVE
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
----- -----
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes No X
----- -----
The number of shares of Class I Common Stock, no par value. of the Registrant
outstanding as of August 14, 2003 was:
7,781,060
================================================================================
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 July 4, 2003 and December 31, 2002..............3
Unaudited Consolidated Condensed Statements of Operations for the Thirteen and
Twenty-six Weeks ended July 4, 2003 and June 28, 2002.................................................4
Unaudited Consolidated Condensed Statements of Cash Flows for the Twenty-six Weeks
ended July 4, 2003 and June 28, 2002................................................................5
Notes to Unaudited Consolidated Condensed Financial Statements........................................6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations................11
Item 3. Qualitative and Quantitative Disclosures about Market Risk...........................................15
Item 4. Controls and Procedures..............................................................................15
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......................................................................16
Item 4. Submission of Matters to a Vote of Security Holders..................................................16
Item 5. Other Information....................................................................................16
Item 6. Exhibits and Reports on Form 8-K.....................................................................16
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)
JULY 4, 2003 DECEMBER 31,
(UNAUDITED) 2002
------------------ ------------------
ASSETS
Current assets:
Cash and cash equivalents $ 4,159 $ 8,919
Receivables:
Trade accounts receivable, net 17,792 17,120
Other receivables, net 3,882 1,655
------------------ ------------------
21,674 18,775
Inventories, net 15,092 14,018
Refundable income taxes 1,249 2,495
Prepaid expenses 2,207 1,420
Deferred income taxes 314 279
------------------ ------------------
Total current assets 44,695 45,906
Property, plant and equipment, net 70,067 69,979
Investment in unconsolidated joint venture 2,147 2,669
Goodwill, net 8,247 11,827
Deferred income taxes 2,645 1,932
Other assets, net 1,998 2,188
------------------ ------------------
$ 129,799 $ 134,501
================== ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and current portion of long-term debt $ 17,953 $ 8,939
Current portion of capital lease obligations 1,029 971
Accounts payable 18,881 16,442
Accrued expenses 6,387 5,977
Taxes payable 78 78
------------------ ------------------
Total current liabilities 44,328 32,407
Long-term debt, excluding current portion 9,338 20,133
Capital lease obligations, excluding current obligations 15,713 16,296
------------------ ------------------
Total liabilities 69,379 68,836
------------------ ------------------
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 for 2003 and 2002
and 7,781,060 and 7,789,261 (including shares in escrow) outstanding for 2003
and 2002, respectively 36,963 36,963
Retained earnings 26,004 31,220
Treasury stock, 542,101 and 533,900 shares at cost, as of July 4, 2003 and
December 31, 2002, respectively (2,547) (2,518)
------------------ ------------------
Total stockholders' equity 60,420 65,665
------------------ ------------------
$ 129,799 $ 134,501
================== ==================
See Notes to Unaudited Consolidated Condensed Financial Statements
3
ELAMEX, S.A. DE C.V. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS OF U.S. DOLLARS EXCEPT PER SHARE DATA)
(UNAUDITED)
THIRTEEN WEEKS ENDED TWENTY-SIX WEEKS ENDED
JULY 4, 2003 JUNE 28, 2002 JULY 4, 2003 JUNE 28, 2002
------------------- ------------------- ----------------- -----------------
Net sales $ 41,400 $ 27,330 $ 80,828 $ 53,716
Cost of sales 36,034 25,426 70,788 49,614
------------------- ------------------- ----------------- -----------------
Gross profit 5,366 1,904 10,040 4,102
------------------- ------------------- ----------------- -----------------
Operating expenses:
General and administrative 2,202 1,537 4,147 3,107
Selling 1,715 188 3,459 454
Distribution 2,331 4,549
Goodwill impairment 3,580
------------------- ------------------- ----------------- -----------------
Total operating expenses 6,248 1,725 15,735 3,561
------------------- ------------------- ----------------- -----------------
Operating (loss) income (882) 179 (5,695) 541
------------------- ------------------- ----------------- -----------------
Other income (expense):
Interest income 257 14 441
Interest expense (866) (216) (1,724) (397)
Equity in loss of unconsolidated joint venture (350) (76) (522) (453)
Gain on sale of certain Shelter operations 1,680 1,680
Other, net 836 (201) 826 (285)
------------------- ------------------- ----------------- -----------------
Total other income (expense) 1,300 (236) 274 (694)
------------------- ------------------- ----------------- -----------------
Income (loss) before income taxes and
cumulative effect of change in accounting
principle 418 (57) (5,421) (153)
ncome tax provision (benefit) 198 770 (205) 918
------------------- ------------------- ----------------- -----------------
Income (loss) before cumulative effect
of change in accounting principle 220 (827) (5,216) (1,071)
Cumulative effect of change in accounting
principle, net of tax 853
------------------- ------------------- ----------------- -----------------
Net income (loss) $ 220 $ (827) $ (5,216) $ (1,924)
==================== =================== ================= =================
Net income (loss) per share, basic before
cumulative effect of change in accounting
Principle $ 0.03 $ (0.12) $ (0.69) $ (0.16)
Net income (loss) per share, basic $ 0.03 $ (0.12) $ (0.69) $ (0.28)
==================== =================== ================= =================
Shares used to compute net loss per share,
basic 7,504,904 6,866,100 7,507,881 6,866,100
==================== =================== ================= =================
Net income (loss) per share, diluted before
cumulative effect of change in accounting
Principle $ 0.03 $ (0.12) $ (0.69) $ (0.16)
Net income (loss) per share, diluted $ 0.03 $ (0.12) $ (0.69) $ (0.28)
==================== =================== ================= =================
Shares used to compute net loss per share,
diluted 7,526,051 6,866,100 7,507,881 6,866,100
==================== =================== ================= =================
See Notes to Unaudited Consolidated Condensed Financial Statements
4
ELAMEX, S.A. DE C.V. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASHFLOWS
(IN THOUSANDS OF U.S. DOLLARS)
(UNAUDITED)
TWENTY-SIX WEEKS ENDED
JULY 4, 2003 JUNE 28, 2002
-------------------- ---------------------
Cash flows from operating activities:
Net loss $ (5,216) $ (1,924)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation and amortization 3,007 1,634
Gain on sale of certain Shelter operations (1,680)
Cumulative effect of change in accounting principle -
goodwill impairment 853
Provision for doubtful trade accounts receivable 162
Goodwill impairment loss 3,580
Provision for excess and obsolete inventory 28 215
Equity in loss of unconsolidated joint venture 522 453
Deferred income tax benefit (748) 48
Change in operating assets and liabilities:
Trade accounts receivable (672) 1,201
Other receivables (456) 499
Inventories (1,102) (1,365)
Refundable income taxes 1,246 558
Prepaid expenses (787) (827)
Other assets 190 28
Accounts payable 2,439 2,218
Accrued expenses 410 (2,229)
Taxes payable 1,008
-------------------- ---------------------
Net cash provided by operating activities 761 2,532
-------------------- ---------------------
Cash flows from investing activities:
Purchase of property, plant and equipment (3,215) (894)
Investment in joint venture (950)
Issuance of related party note receivable (4,100)
-------------------- ---------------------
Net cash used in investing activities (3,215) (5,944)
-------------------- ---------------------
Cash flows from financing activities:
Proceeds from notes payable and long term-debt 814 2,276
Payments of notes payable and long term-debt (2,537) (1,413)
Principal repayments of capital lease obligations (583)
-------------------- ---------------------
Net cash (used in) provided by financing activities (2,306) 863
-------------------- ---------------------
Net decrease in cash and cash equivalents (4,760) (2,549)
Cash and cash equivalents, beginning of period 8,919 16,850
-------------------- ---------------------
Cash and cash equivalents, end of period $ 4,159 $ 14,301
==================== =====================
See Notes to Unaudited Consolidated Condensed Financial Statements
38
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 2002
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 July 4, 2003, the results of operations for the
thirteen and twenty-six weeks ended July 4, 2003 and June 28, 2002 and cash
flows for the twenty-six weeks ended July 4, 2003 and June 28, 2002. The
consolidated condensed balance sheet as of December 31, 2002 is derived from the
December 31, 2002 audited consolidated financial statements. The results of
operations for the thirteen and twenty-six weeks ended July 4, 2003 are not
necessarily indicative of the results to be expected for the entire year.
The Company closes the 13 weeks periods ending on a Friday, except that the
first quarter starts on January 1, and the fourth quarter ends on December 31.
As a result, the twenty-six weeks ended July 4, 2003 includes six more days than
the twenty-six weeks ended June 28, 2002.
Certain prior year amounts have been reclassified to conform to the 2003
financial statement presentation.
(2) 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. During
the second quarter of 2003, 38,210 options were forfeited due to the resignation
of one of the awarded executives.
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
32,520 $6.00 10 $5.35
The Company accounts for these plans under APB Opinion No. 25, under which
compensation cost of $77 thousand and $154 thousand have been recognized for the
thirteen and twenty-six weeks ended July 4, 2003. Additional compensation
expense of $195 thousand 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
income (loss) and income (loss) per share would have been adjusted to the
following proforma amounts:
6
13 Weeks ended 26 Weeks ended
July 4, 2003
Net income (loss) as reported $ 220 $ (5,216)
Stock based employee compensation expense included in
reported net income (loss) 77 154
Total stock-based employee compensation expense determined
under fair value based method (105) (209)
---------------------- ----------------------
Pro forma net income (loss) $ 192 $ (5,271)
====================== ======================
Earnings per share:
Basic - as reported $ 0.03 $ (0.69)
Basic - pro forma 0.03 (0.70)
Diluted - as reported 0.03 (0.69)
Diluted - pro forma 0.03 (0.70)
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 61%.
In addition to the above, Franklin Connections a subsidiary of the Company has
an options plan in shares of the subsidiary. There are 50,000 options
outstanding under this plan with an exercise price of $12.87. No compensation
expense has been recorded in connection with this plan, and the Company believes
the fair value of the options is zero.
(3) GOODWILL
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 perform an
annual goodwill impairment test.
The Company engaged an independent company to assist in the valuation of an
operating entity with assigned goodwill. The fair value of the operating entity
was determined using a discounted cash flow model. Based on the analysis
performed the Company completed its implementation analysis of goodwill arising
from prior acquisitions and recorded an impairment charge of $853 thousand in
the first quarter of 2002, which was recorded as a cumulative effect of change
in accounting principle in the first quarter of 2002.
The Company completed its annual impairment test during the first quarter of
2003 and reported an impairment of goodwill of $3.6 million. 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 primarily reason
for the impairment was an increase in required capital expenditures necessary to
replace aging equipment and new capital for business expansion. After
impairment, goodwill remaining on the books is approximately $8.2 million of
which $3.8 million was recorded during the third quarter of 2002 as a result of
the acquisition of Mt. Franklin Holdings.
7
(4) ACQUISITION AND DISPOSITION OF ASSETS
The sale of certain assets, effective at the close of business on July 4, 2003,
was made to TECMA Group LLC, a private contract, shelter and manufacturing
services provider headquartered in El Paso, Texas. The transaction included the
sale of five Shelter Services customer contracts, miscellaneous assets and stock
of five newly created Companies. Substantially all Shelter Services operations
personnel related to these contracts were transferred to the buyer. Proceeds
from the disposition of these operations of $1.8 million are included in other
receivables as of July 4, 2003 and were paid in full on July 11, 2003. In
connection with the disposition the Company transferred assets with a book value
of $120 thousand to the buyer and incurred other costs of approximately $575
thousand which are included in operating expenses.
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.
The unaudited proforma combined historical results, as if Franklin had been
acquired at the beginning of fiscal 2002, are estimated in the following table:
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
Thirteen Weeks Ended Twenty-six Weeks Ended
July 4, 2003 June 28, 2002 July 4, 2003 June 28, 2002
-------------- --------------- -------------- ---------------
Net sales $ 41,400 $ 38,129 $ 80,828 $ 75,653
Gross profit (loss) 5,366 4,442 10,040 8,151
Net (loss) income 220 (3,292) (5,216) (7,114)
Net (loss) income per share 0.03 (0.44) (0.69) (0.95)
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.
(5) NOTES PAYABLE AND LONG TERM DEBT
Debt agreements for our Metal Stamping segment contain a number of affirmative
and negative covenants, including limitations on additional borrowings and
maintenance of certain financial ratios. The Company obtained waiver of
compliance with certain of these covenants as of and for the quarter ended July
4, 2003. Also, the Company and the bank have agreed to discuss amendments to
certain of these covenants.
The $8.2 million debt related to this waiver matures in March 2004 and has been
classified as current in the accompanying balance sheet.
(6) SEGMENT REPORTING
The Company's reportable segments are 1) Shelter Services, 2) Metal Stamping and
3) Food Products (Acquired in the 3rd Quarter of 2002).
The Shelter Services segment provides shelter, assembly and real estate services
throughout Mexico and also provides assembly services, primarily to the Food
Products segment.
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.
8
The Food Products segment, which is Mt. Franklin Holdings LLC. 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- TOTAL
SERVICES STAMPING PRODUCTS AND OTHER SEGMENT
---------------------------------------------------------------------------------------------------------------------
THIRTEEN WEEKS ENDED JULY 4, 2003
Sales $ 8,482 $ 18,018 $ 18,665 $(3,765) $ 41,400
Net income ( loss) 920 (162) 60 $ (598) 220
---------------------------------------------------------------------------------------------------------------------
THIRTEEN WEEKS ENDED JUNE 28, 2002
Sales $ 8,149 $ 19,181 $ 27,330
Net ( loss) income (584) 123 $(366) (827)
---------------------------------------------------------------------------------------------------------------------
TWENTY-SIX WEEKS ENDED JULY 4, 2003
Sales $ 17,109 $ 36,171 $ 35,316 $(7,768) $ 80,828
Net income ( loss) 890 (141) (1,228) $(4,737) (5,216)
---------------------------------------------------------------------------------------------------------------------
TWENTY-SIX WEEKS ENDED JUNE 28, 2002
Sales $ 15,875 $ 37,841 $ 53,716
(Loss) income before cumulative effect
of change in accounting principle (464) 326 $(933) (1,071)
---------------------------------------------------------------------------------------------------------------------
(7) INVENTORIES
Inventories consist of the following:
JULY 4, 2003 DECEMBER 31, 2002
(In Thousands of U.S. Dollars)
Raw materials $ 5,570 $ 4,519
Packaging supplies 1,535 2,096
Work-in-process 2,353 1,622
Finished goods 6,494 6,792
----------------- -----------------------
Sub total 15,952 15,029
Less reserve for excess and obsolete inventory (860) (1,011)
----------------- -----------------------
Total $ 15,092 $ 14,018
================= =======================
(8) FOREIGN CURRENCY
Included in "other, net" in the accompanying unaudited consolidated condensed
statements of operations are foreign exchange losses of $19 thousand and $212
thousand for the thirteen weeks ended July 4, 2003, and June 28, 2002,
respectively and $116 thousand and $244 thousand for the twenty-six weeks ended
July 4, 2003, and June 28, 2002, respectively.
9
Assets and liabilities denominated in Mexican pesos are summarized as
follows in thousands of U. S. dollars:
July 4, 2003 December 31, 2002
---------------------- -----------------------
(In Thousands of U.S. Dollars)
Cash and cash equivalents $ 6 $ 262
Other receivables 1,506 1,032
Prepaid expenses and refundable taxes 1,964 1,705
Other assets, net 27 26
Accounts payable (128) (477)
Accrued expenses and other liabilities (1,270) (1,264)
---------------------- -----------------------
Net foreign currency position $ 2,105 $ 1,284
====================== =======================
(9) 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 (benefit) for the thirteen weeks ended July 4, 2003
and June 28, 2002 was $198 thousand and $770 thousand, respectively, and $(205)
thousand and $918 for the twenty-six weeks ended July 4, 2003 and June 28, 2002,
respectively. The primary difference between the overall effective tax rate and
the statutory rates of 34% for Mexico and 35% for the U.S. are currency and
inflation gains and losses for Mexican tax purposes, Mexican asset tax and
non-deductible goodwill impairment expense in the U.S.
(10) EARNINGS PER SHARE
Earnings per share ("EPS"), is computed in accordance with the Financial
Accounting Standards Board's Statement, or SFAS No. 128, Earnings per share.
SFAS No. 128 requires dual presentation of basic and diluted earnings per share.
Basic EPS includes no dilution and it is computed by dividing net income by
weighted average number of common shares outstanding for the period. Diluted EPS
reflects the potential dilution of securities that could share in our earnings,
such as common stock equivalents that may be issuable upon exercise of
outstanding common stock options.
Shares used in calculating basic and diluted earnings per share were as
follows:
Thirteen weeks ended Twenty-six weeks ended
July 4, 2003 June 28, 2002 July 4, 2003 June 28, 2002
Weighted average common shares outstanding
Shares used in calculating per share amounts
Basic 7,504,904 6,866,100 7,507,881 6,866,100
Net effect of dilutive common share equivalents
using the treasury stock method 21,147
-------------- --------------- --------------- ---------------
Shares used in calculating per share amounts
Diluted 7,526,051 6,866,100 7,507,881 6,866,100
============== =============== ================ ===============
(11) NEW ACCOUNTING PRONOUNCEMENTS
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities" . SFAS No. 149 improves financial
reporting by requiring that contracts with comparable characteristics be
accounted for similarly. In particular, SFAS No. 149 (1) clarifies under what
circumstances a contract with an initial net investment meets the characteristic
of a derivative discussed in paragraph 6(b) of SFAS No. 133, (2) clarifies when
a derivative contains a financing component, (3) amends the definition of an
underlying to conform it to language used in FIN No. 45, and (4) amends certain
other existing pronouncements. Those changes will result in more consistent
reporting of
10
contracts as either derivatives or hybrid instruments. In general, SFAS No. 149
is effective for contracts entered into or modified after June 30, 2003 and for
hedging relationships designated after June 30, 2003. The adoption of SFAS No.
149 is not expected to have a material impact on the Company's financial
position or results of operations.
In May 2003, the FASB issued Statement No. 150 ("SFAS 150"), "ACCOUNTING FOR
CERTAIN FINANCIAL INSTRUMENTS WITH CHARACTERISTICS OF BOTH LIABILITIES AND
EQUITY." SFAS 150 establishes standards for how an issuer classifies and
measures certain financial instruments with characteristics of both liabilities
and equity. The Company does not believe the adoption of this interpretation
will have a material impact on its financial position or results of operations.
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 by
segment as presented in the following table:
Unallocated
Shelter Metal Food Corporate Inter-
Services Stamping Products and other segment Total
-------------------------------------------------------------------------
THIRTEEN WEEKS ENDED JULY 4, 2003
Net sales $ 8,482 $ 18,018 $ 18,665 $ (3,765) $ 41,400
Gross profit 586 450 4,330 5,366
Operating expenses 993 501 4,221 $ 533 6,248
Other (expense) income 1,698 (150) (18) (230) 1,300
- --------------------------------------------------------------------------------------------------------------------
THIRTEEN WEEKS ENDED JUNE 28, 2002
Net sales $ 8,149 $ 19,181 $427,330
Gross profit 744 1,160 1,904
Operating expenses 454 727 $ 544 1,725
Other (expense) income 9 (231) (14) (236)
- --------------------------------------------------------------------------------------------------------------------
TWENTY-SIX WEEKS ENDED JULY 4, 2003
Net sales $ 17,109 $ 36,171 $ 35,316 $ (7,768) $ 80,828
Gross profit 1,173 1,422 7,445 10,040
Operating expenses 1,450 1,236 8,402 $4,647 15,735
Other (expense) income 1,706 (348) (903) (181) 274
- --------------------------------------------------------------------------------------------------------------------
TWENTY-SIX WEEKS ENDED JUNE 28, 2002
Net sales $ 15,875 $ 37,841 $ 53,716
Gross profit 1,652 2,450 4,102
Operating expenses 1,069 1,436 $1,056 3,561
Other (expense) income (10) (477) (207) (694)
- --------------------------------------------------------------------------------------------------------------------
GENERAL
NET SALES
Net sales for the thirteen weeks ended July 4, 2003 increased 51% to $41.4
million from $27.3 million for the comparable period in 2002. Net sales for the
twenty-six weeks ended July 4, 2003 increased 50% to $80.8 million from $53.7
million for the comparable period.
Sales for Shelter Services for the thirteen weeks ended July 4, 2003 increased
4% to $8.5 million from $8.1 million for the same period in the prior year. Net
sales for the twenty-six weeks ended July 4, 2003 increased 8% to $17.1 million
from $15.9 million for the same period in the prior year. This increase was
primarily due to an increase in existing customers' orders resulting from an
increase in their operations.
Sales for Metal Stamping for the thirteen weeks ended July 4, 2003 decreased 6%
to $18 million from $19.2 million for the same period in the prior year. Sales
for the twenty-six weeks ended July 4, 2003 decreased 4% to $36.2 million from
$37.8
11
million for the same period in the prior year. The decrease was primarily due to
decreases in customers' orders resulting from a decrease of demand in the
appliances industry.
The newly acquired Food Products segment contributed sales of $18.7 million and
$35.3 million for the thirteen and twenty-six weeks ended July 4, 2003
respectively.
GROSS PROFIT
Gross profit increased to $5.4 million or 13% of sales for the thirteen weeks
ended July 4, 2003, as compared to $1.9 million or 7% of sales for the same
period of the prior year. Gross profit increased to $10 million or 12.4% of
sales for the twenty-six weeks ended July 4, 2003, as compared to $4.1 million
or 7.6% of sales for the same period of the prior year.
Gross profit for Shelter Services for the thirteen weeks ended July 4, 2003
decreased 21% to $586 thousand from $744 thousand for the same period in the
prior year. Gross profit for the twenty-six weeks ended July 4, 2003 decreased
29% to $1.2 million from $1.7 million. The decrease was primarily due to
available buildings not rented during the first semester of 2003.
Gross profit for Metal Stamping for the thirteen weeks ended July 4, 2003
decreased 61% to $450 thousand from $1.2 million for the same period in the
prior year. Gross profit for the twenty-six weeks decreased 42% to $1.4 million
from $2.5 million. The decrease was primarily due to an increase in labor
variances, depreciation expense and other fixed manufacturing expenses.
Gross profit contributed by the Food Products segment was $4.3 million for the
thirteen weeks ended July 4, 2003, and $7.4 million for the twenty-six weeks
ended July 4, 2003.
OPERATING EXPENSES
Operating expenses increased to $6.2 million for the thirteen weeks ended July
4, 2003, compared to $1.7 million for the same period of the prior year.
Operating expenses increased to $15.7 million for the twenty-six weeks ended
July 4, 2003 from $3.6 million for the same period in the prior year.
Operating expenses for Shelter Services for the thirteen weeks ended July 4,
2003 increased 118% to $993 thousand from $454 thousand for the same period in
the prior year. The increase was primarily due to recognition of exit costs
incurred of $575 thousand as a result of the sale of certain Shelter operations.
Operating expenses for the twenty-six weeks increased 36% to $1.5 million from
$1.1 million recorded in the same period of the prior year. The increase was
primarily due to recognition of exit costs of $575 thousand, partially offset by
a decrease in depreciation and selling expenses.
Operating expenses for Metal Stamping for the thirteen weeks ended July 4, 2003
decreased 31% to $501 thousand from $727 thousand for the same period in the
prior year. Operating expenses for the twenty-six weeks ended July 4, 2003
decreased 14% to $1.2 million from $1.4 million for the same period in the prior
year. The primary reason for the decrease was the cancellation of allowance for
doubtful accounts for approximately $200 thousand.
Operating expenses incurred by Food Products segment were $4.2 million for the
thirteen weeks ended July 4, 2003 and $8.4 million for the twenty-six weeks
ended July 4, 2003.
Operating expenses for Corporate for the thirteen weeks ended July 4, 2003
decreased 2% to $533 thousand from $544 thousand for the same period in the
prior year. Operating expenses for the twenty-six weeks ended July 4, 2003
increased to $4.7 million from $1.1 million for the same period in the prior
year. The increase was primarily due to goodwill impairment of $3,580 thousand.
OTHER (EXPENSE) INCOME
Other income for the thirteen weeks ended July 4, 2003 was $1.3 million,
compared to an expense of $236 thousand in the same period of the prior year.
Other income for the twenty-six weeks ended July 4, 2003 was $274 thousand as
compared to an expense of $694 thousand for the same period in the prior year.
12
Other income for Shelter Services for the thirteen weeks ended July 4, 2003 was
$1.7 million as compared to $9 thousand for the same period in the prior year.
Other income for the twenty-six weeks ended July 4, 2003 was $1.7 million as
compared to an expense of $10 thousand for the same period in the prior year.
The primary reason for the increase was the recognition of a gain on the sale of
five shelter contracts, miscellaneous assets and stock of five newly created
companies of approximately $1.7 million.
Other expense for Metal Stamping for the thirteen weeks ended July 4, 2003
decreased to $150 thousand from $231 thousand for the same period in the prior
year. Other expense for the twenty-six weeks ended July 4, 2003 decreased to
$348 thousand from $477 thousand for the same period in the prior year. The
primary reason for the decrease was due to a loss on the disposal of fixed
assets recorded in the first and second quarter of 2002 and a decrease in
interest expense as result of a decrease in interest rates.
Other expense for Food Products for the thirteen and twenty-six weeks ended July
4, 2003 was $18 thousand and $903 thousand, respectively. During the second
quarter of 2003 this segment recorded a gain of $750 thousand resulting from a
settlement of a customer contract breach.
Other expense for Corporate for the thirteen weeks ended July 4, 2003 increased
to $230 thousand from an expense of $14 thousand for the same period in the
prior year. The increase was primarily due to an increase in loss of
unconsolidated joint venture of $274 thousand and a decrease in interest income
of $163 mainly due to a reduction in inter-company loans, partially offset by
translation losses of $174 thousand recorded during 2003. Other expense for the
twenty-six weeks ended July 4, 2003 decreased to $181 thousand from an expense
of $207 thousand for the same period in the prior year. The decrease was
primarily due to a decrease in translation losses of $138 thousand, offset by an
increase in loss of unconsolidated joint venture of $69 thousand and decrease of
interest income of $93 thousand.
TAXES
The tax provision for the thirteen weeks ended July 4, 2003 and June 28, 2002
was $198 thousand and $770 thousand respectively. The tax (benefit) provision
for the twenty-six weeks ended July 4, 2003 and June 28, 2002 was $(205)
thousand and $918 thousand respectively.
The primary difference between the overall effective tax rate and the statutory
rates of 34% for Mexico and 35% for the U.S. are currency and inflation gains
and losses for Mexican tax purposes, Mexican asset tax and non-deductible
goodwill impairment expense in the U.S.
GOODWILL
The Company engaged an independent company to assist in the valuation of an
operating entity with assigned goodwill. The fair value of the operating entity
was determined using a discounted cash flow model. Based on the analysis
performed the Company completed its implementation analysis of goodwill arising
from prior acquisitions and recorded an impairment charge of $853 thousand in
the first quarter of 2002, which was recorded as a cumulative effect of change
in accounting principle in the first quarter of 2002.
The Company completed its annual impairment test during the first quarter of
2003 and reported an impairment of goodwill of $3.6 million. 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 primarily reason
for the impairment was an increase in required capital expenditures necessary to
replace aging equipment and new capital for business expansion. After
impairment, goodwill remaining on the books is approximately $8.2 million of
which $3.8 million was recorded during the third quarter of 2002 as a result of
the acquisition of Mt. Franklin Holdings.
NET INCOME (LOSS) AND INCOME (LOSS) PER SHARE
Net income for the thirteen weeks ended July 4, 2003 was $220 thousand compared
to a net loss of $827 thousand for the same period of 2002. For the thirteen
weeks ended July 4, 2003 basic and diluted net income per share was $0.03, which
compares with a loss per share of $0.12 for the same period of the prior year.
The average number of shares used to calculate basic and diluted income per
share were 7,504,904 and 7,526,051, respectively for the thirteen weeks ended
July 4, 2003 and the average number of shares used for the thirteen weeks ended
June 28, 2002 were 6,866,100. Net loss for the twenty-six weeks ended July 4,
2003 was $5.2 million compared to a net loss of $1.9 million for the same period
of 2002. For the twenty-six weeks ended July 4, 2003 basic and diluted net loss
per share was $0.69, which compares with a loss per share of
13
$0.28 for the same period of the prior year. The average number of shares used
to calculate basic and diluted income per share, were 7,507,881 and 6,866,100
for the twenty-six weeks ended July 4, 2003 and June 28, 2002, respectively.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital (defined as current assets minus current
liabilities) as of July 4, 2003 decreased to $367 thousand as compared to $13.5
million as of December 31, 2002. A line of credit with an outstanding amount of
$8.2 million, associated with the Metal Stamping segment is now classified as a
current liability since it is scheduled to mature in March 2004.
For the twenty-six weeks ended July 4, 2003 the net cash provided by operating
activities was $761 thousand.
The net cash used in investing activities was $3.2 million for the twenty-six
weeks ended July 4, 2003, due to the acquisition of equipment.
The net cash used in financing activities was $2.3 million for the twenty-six
weeks ended July 4, 2003 due to the net payments on notes payable and long term
debt and capital leases.
Debt agreements for our Metal Stamping segment contain a number of affirmative
and negative covenants, including limitations on additional borrowings and
maintenance of certain financial ratios. The Company obtained waiver of
compliance with certain of these covenants as of and for the quarter ended July
4, 2003. Also, the Company and the bank have agreed to discuss amendments to
certain of these covenants.
Management intends to fund current operations and activities of the Company
through existing working capital, cash and available credit facilities.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Please refer to the Company's annual report on Form 10-K for the year ended
December 31, 2002 for a summary of the Company's critical accounting policies.
RECENT ACCOUNTING PRONOUNCEMENTS
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities" . SFAS No. 149 improves financial
reporting by requiring that contracts with comparable characteristics be
accounted for similarly. In particular, SFAS No. 149 (1) clarifies under what
circumstances a contract with an initial net investment meets the characteristic
of a derivative discussed in paragraph 6(b) of SFAS No. 133, (2) clarifies when
a derivative contains a financing component, (3) amends the definition of an
underlying to conform it to language used in FIN No. 45, and (4) amends certain
other existing pronouncements. Those changes will result in more consistent
reporting of contracts as either derivatives or hybrid instruments. In general,
SFAS No. 149 is effective for contracts entered into or modified after June 30,
2003 and for hedging relationships designated after June 30, 2003. The adoption
of SFAS No. 149 is not expected to have a material impact on the Company's
financial position or results of operations.
In May 2003, the FASB issued Statement No. 150 ("SFAS 150"), "ACCOUNTING FOR
CERTAIN FINANCIAL INSTRUMENTS WITH CHARACTERISTICS OF BOTH LIABILITIES AND
EQUITY." SFAS 150 establishes standards for how an issuer classifies and
measures certain financial instruments with characteristics of both liabilities
and equity. The Company does not believe the adoption of this interpretation
will have a material impact on its financial position or results of operations.
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.
14
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 it 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. A peso devaluation of 10% would result in a
translation loss of $191 thousand with the Company's existent $2,105 thousand
asset monetary position in Mexican Pesos.
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 $27.3 million at July
4, 2003, inclusive of amounts borrowed under short-term and long-term credit
facilities. A 1.0 % increase in interest rates would result in a $273 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 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 at the end of the quarter, 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 control over financial reporting
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 control
over financial reporting 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.
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not applicable
15
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of stockholders was held in Cd. Juarez, Mexico on April
24, 2003 at 9:00 a.m. The stockholders of the Company were asked to
consider and vote on the following matters:
1) Election of Directors and Statutory Auditor
2) Approval of the reports to be rendered by the external auditors and
corporate examiners
The following is a summary of the voting results with respect to each of
the proposals:
VOTES FOR VOTES AGAINST VOTES ABSTAINED
Proposal one 4,916,761 8,965 40,100
Proposal two 4,956,161 9,200 465
Proposals were approved by the majority of all shares issued by the Company and
in circulation as of March 10, 2003.
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
there under. 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 therefore; 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.
EXHIBIT
NUMBER DESCRIPTION
------ -----------
1. Exhibits
99.1 Certification of Chief Financial Officer Pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002
99.2 Certification of Chief Executive Officer Pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002
99.3 Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section
1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
99.4 Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section
1350 as Adopted Pursuant to Section 906 of the Sarbanes Oxley Act of
2002
2. Reports on Form 8-K during the quarter ended July 4, 2003.
A Form 8-K was filed on May 21, 2003, under Item 9, incorporating by
reference the Company's May 19, 2003, press release setting forth the
Company's first-quarter 2003 earnings.
A Form 8-K was filed on April 30, 2003, under item 9, incorporating by
reference the Company's press release dated April 30, 2003, reporting a
change in leadership at Franklin Connections, LP, the Company's wholly
owned candy manufacturing and nut processing subsidiary.
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: August 14, 2003 By: /s/ Richard P. Spencer
---------------------------------------
Richard P. Spencer
PRESIDENT AND CHIEF EXECUTIVE OFFICER
(DULY AUTHORIZED OFFICER)
Date: August 14, 2003 By: /s/ Thomas J. Benson
-------------------------------------
Thomas J. Benson
VICE- PRESIDENT OF FINANCE AND CHIEF FINANCIAL OFFICER
(DULY AUTHORIZED OFFICER)
17