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FORM 8-K
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report: November 13, 2000
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Commission file number: 0-27992
ELAMEX, S.A. de C.V.
(Exact name of registrant as specified in its charter)
Mexico Not Applicable
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification number)
Avenida Insurgentes No. 4145-B Ote.
Cd. Juarez, Chihuahua Mexico C.P. 32340
(Address of principal executive offices) (Zip code)
(915) 774-8252
Registrant's telephone number, including area code
In El Paso, Texas
Form 8-K shall be used for current reports under Section 13 or 15(d) of the
Securities Exchange Act of 1934, filed pursuant to Rule 13a-11 [17 CFR
240.13a-11] or Rule 15d-11 [17 CFR 240.15d-11].
Item 5. Other events
Elamex announced on October 27, 2000 a net loss for the third quarter of $958
thousand, $0.14 per share, as well as a restatement of its results for the
quarters ended June 30, 2000 and March 31, 2000. Year-to-date net income through
September 29 was $17.5 million ($2.56 per share), including a $20.5 million
pretax gain on the sale of its EMS operation in the second quarter.
Sales in the third quarter of 2000 decreased by $11.8 million from the
third quarter of 1999. However, our EMS operation represented $20.9 million of
our total sales for the third quarter of 1999. Thus, sales of our comparable
remaining operations increased by $9.1 million.
Gross profit for the same period decreased by $5.3 million. The EMS
operation represented a decrease of $2.2 million and the remaining $3.1 million
decrease resulted primarily from operating problems in Qualcore, our joint
venture with General Electric (GE) in Cd. Juarez, as well as an increase in
labor costs in our other operating units.
As the result of the operating problems in Qualcore, both the first and
second quarters of 2000 have been restated. The first quarter net loss was
increased by $171 thousand, $0.02 per share, to a net loss of $509 thousand,
$0.07 per share. The second quarter net income was decreased by $538 thousand,
$0.08 per share to $19.0 million, $2.77 per share.
Preliminary results of Qualcore for the month of September, which became
available to Elamex management in mid-October, reported poorer than expected
results. Elamex management immediately investigated the causes and found a
number of errors and irregularities, the major ones being:
1. Unrecorded freight invoices from late production runs that resulted
in chartered air freight deliveries in order to meet customer
schedules.
2. Expenses improperly capitalized by Qualcore management associated
with the construction and start-up of the new Celaya plant.
3. Inventory adjustments resulting from under-reporting of scrap over
several months. Daily cycle counts as established in Elamex's
policies had been suspended.
In addition, Elamex management also believes that costs were not
controlled effectively and contracts were not priced in accordance with Company
policies and directives.
As Elamex management's investigation began, Qualcore's controller tendered
his resignation and shortly thereafter, management terminated William T. Allen,
the chief executive officer of Qualcore who was also a vice president of Elamex
itself.
Hector M. Raynal, president and CEO of Elamex, is functioning as the
interim general manager with the assistance of Alfonso Vargas, GE International
sourcing general manager, who is also a member of the Qualcore board of
directors. Alma Diaz, who is the Elamex corporate controller, is acting as the
interim controller for Qualcore. A search for both a new general manager and a
controller is underway.
"These results are completely unacceptable and a big disappointment. We have
already defined and began the implementation of significant corrective actions
that address our operational issues," said Raynal.
Corrective actions being implemented include the following:
1. Replace key personnel.
2. Streamline operations.
3. Ensure compliance with Company policies and procedures.
4. Change in the reporting line of the Qualcore controller from the
general manager of Qualcore to the CFO of Elamex.
5. Replicate the ongoing process currently used in Elamex's assembly
operations of comparing actual product costs to the costs quoted to
the customer and taking corrective actions when needed.
6. Re-implement daily cycle counts and periodic audits of material flow
transactions, and other key operating and financial processes.
Elamex management, in conjunction with Qualcore's outside independent
auditors and Elamex's internal audit staff, has completed an in-depth review of
the September 29, 2000 balance sheet. In addition, Qualcore's external auditors
have begun procedures for the year-end audit. Based on preliminary audit
findings, Elamex management believes that no further material adjustments will
be required.
"Elamex and GE continue to believe that the joint venture has great
potential for the future, in spite of the setback suffered in the third quarter
and, to lesser degrees, in the first and second quarters. Steps have already
been taken and additional corrective measures will ensure that Qualcore adheres
to established Company policies and procedures and that operating processes
become more efficient in order to place Qualcore on a sound and profitable
basis," added Raynal.
"Although the above mentioned operating and financial irregularities
represent a significant setback for Elamex in the short-term, the long-term
business perspective for the Company is positive," said Raynal.
During the third quarter, the previously announced Celaya facility of
Qualcore, which during the start-up period continues to contribute to an
increase in expenses, began product testing, will begin production ramp-up in
the fourth quarter and is expected to contribute to profits during 2001. This
facility has a firm order backlog of $22 million from its major customer, a
large Mexican appliance manufacturer.
In addition, unrelated to the Qualcore joint venture, Elamex has
maintained staff, including its sales capability, to rebuild its contract
manufacturing business by focusing on products other than the EMS operation sold
in the second quarter. This development effort is being expensed as incurred and
is expected to contribute to Elamex's growth over the next several quarters.
Management believes this is not only an area with potential, but also an area
within the Company's practical experience and long-established skills.
During the quarter, a five year agreement for assembly, plastics and
stamping estimated at $11.5 million per year was signed with a large hardware
manufacturer. This project is currently ramping production in both Elamex and
Qualcore facilities. Also, a telecommunications project disclosed by Elamex in a
prior quarter has announced follow-on business expected to represent in excess
of $12 million in revenue in 2001.
Item 7. Financial Statements and Exhibits
(a) None
(b) None
(c) Exhibits
ELAMEX, S.A. DE C.V. AND SUBSIDIARIES
Consolidated Statements of Operations
(In Thousands of U. S. Dollars, except per share amounts)
(Unaudited)
13 Weeks ended 39 Weeks ended
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September 29, October 01, September 29, October 01,
2000 1999 2000 1999
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Net sales $ 36,677 $ 48,456 $ 134,697 $ 112,152
Cost of sales 37,734 44,232 131,862 101,550
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Gross (loss) profit (1,057) 4,224 2,835 10,602
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Operating expenses:
General and administrative 2,861 3,123 9,957 6,996
Selling 465 467 1,457 1,386
Research and development -- 225 -- 1,228
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Total operating expenses 3,326 3,815 11,414 9,610
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Operating (loss) income (4,383) 409 (8,579) 992
Other income (expense):
Interest income 729 89 1,292 580
Interest expense (529) (517) (2,192) (726)
Other, net 1,343 (148) 2,241 370
Gain on sale of assets and liabilities of EMS
Operations -- 20,536 --
---------------------------- ----------------------------
Total other income (expense) 1,543 (576) 21,877 224
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(Loss) income before income taxes and minority
interest (2,840) (167) 13,298 1,216
Income tax (benefit) provision (623) 16 (2,053) 542
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(Loss) income before minority interest (2,217) (183) 15,351 674
Minority interest in loss of subsidiaries 1,259 525 2,196 925
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Net (loss) income $ (958) $ 342 $ 17,547 $ 1,599
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Basic and diluted (loss) income per common share $ (0.14) $ 0.05 $ 2.56 $ 0.23
Weighted average shares outstanding 6,866,100 6,866,100 6,866,100 6,866,100
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ELAMEX, S.A. DE C.V. AND SUBSIDIARIES
Consolidated Condensed Balance Sheets
(In Thousands of U. S. Dollars)
(Unaudited)
September 29, December 31,
2000 1999
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Assets
Current assets $ 79,513 $ 63,884
Property, plant and equipment, net 51,348 52,875
Other assets, net 10,010 10,465
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$ 140,871 $ 127,224
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Liabilities and Stockholders' Equity
Current liabilities $ 41,998 $ 35,004
Long-term debt and liabilities 18,417 27,115
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Total liabilities 60,415 62,119
Minority interest (519) 1,677
Stockholders' equity 80,975 63,428
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$ 140,871 $ 127,224
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ELAMEX, S.A. DE C.V. AND SUBSIDIARIES
Consolidated Statements of Operations
(In Thousands of U. S. Dollars, except per share amounts)
(Unaudited)
13 Weeks ended 26 Weeks ended
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June 30, 2000 July 02, 1999 June 30, 2000 July 02, 1999
(As restated) (As restated)
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Net sales $ 46,693 $ 32,195 $ 98,019 $ 63,696
Cost of sales 45,377 28,735 94,127 57,318
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Gross Profit 1,316 3,460 3,892 6,378
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Operating expenses:
General and administrative 4,368 1,954 7,097 3,874
Selling 467 430 992 920
Research and development -- 454 -- 1,003
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Total operating expenses 4,835 2,838 8,089 5,797
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Operating (loss) income (3,519) 622 (4,197) 581
Other income (expense):
Interest income 451 215 563 492
Interest expense (705) (129) (1,663) (210)
Other, net 469 308 899 518
Gain on sale of assets and liabilities of EMS
Operations 20,536 20,536 --
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Total other income (expense) 20,751 394 20,335 800
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Income before income taxes and
minority interest 17,232 1,016 16,138 1,381
Income tax (benefit) provision (1,210) 252 (1,430) 526
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Income before minority interest 18,442 764 17,568 855
Minority interest in loss of subsidiaries 572 37 937 401
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Net income $ 19,014 $ 801 $ 18,505 $ 1,256
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Basic and diluted income per common share $ 2.77 $ 0.12 $ 2.70 $ 0.18
Weighted average shares outstanding 6,866,100 6,866,100 6,866,100 6,866,100
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ELAMEX, S.A. DE C.V. AND SUBSIDIARIES
Consolidated Condensed Balance Sheets
(In Thousands of U. S. Dollars)
(Unaudited)
June 30, 2000 December 31, 2000
(As restated)
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Assets
Current assets $ 82,944 $ 63,884
Property, plant and equipment, net 44,529 52,875
Other assets, net 10,189 10,465
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$137,662 $127,224
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Liabilities and Stockholders' Equity
Current liabilities $ 34,570 $ 35,004
Long-term debt and liabilities 20,419 27,115
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Total liabilities 54,989 62,119
Minority interest 740 1,677
Stockholders' equity 81,933 63,428
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$137,662 $127,224
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ELAMEX, S.A. DE C.V. AND SUBSIDIARIES
Consolidated Statements of Operations
(In Thousands of U. S. Dollars, except per share amounts)
(Unaudited)
13 Weeks ended
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March 31, 2000 April 04, 1999
(As restated)
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Net sales $ 51,326 $ 31,501
Cost of sales 48,750 28,582
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Gross Profit 2,576 2,919
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Operating expenses:
General and administrative 2,729 1,919
Selling 525 491
Research and development -- 550
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Total operating expenses 3,254 2,960
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Operating loss (678) (41)
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Other income (expense):
Interest income 112 276
Interest expense (957) (80)
Other, net 429 210
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Total other (expense) income (416) 406
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Income (loss) before income taxes and minority interest (1,094) 365
Income tax (benefit) provision (220) 274
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Income (loss) before minority interest (874) 91
Minority interest in loss of subsidiaries 365 364
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Net (loss) income $ (509) $ 455
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Basic and diluted (loss) income per common share $ (0.07) $ 0.07
Weighted average shares outstanding 6,866,100 6,866,100
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ELAMEX, S.A. DE C.V. AND SUBSIDIARIES
Consolidated Condensed Balance Sheets
(In Thousands of U. S. Dollars)
(Unaudited)
March 31, December 31,
2000 1999
(As restated)
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Assets
Current assets $ 65,912 $ 63,884
Property, plant and equipment, net 56,625 52,875
Other assets, net 10,378 10,465
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$132,915 $127,224
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Liabilities and Stockholders' Equity
Current liabilities $ 41,572 $ 35,004
Long-term debt and liabilities 27,110 27,115
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Total liabilities 68,682 62,119
Minority interest 1,313 1,677
Stockholders' equity 62,920 63,428
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$132,915 $127,224
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned; thereunto duly authorized, in Ciudad Juarez, Chihuahua, Mexico.
ELAMEX, S.A. de C.V.
Date: November 13, 2000 By: /s/ Hector Raynal
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Hector M. Raynal
President and Chief Executive Officer
(Duly Authorized Officer)
Date: November 13, 2000 By: /s/ Daniel L. Johnson
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Vice-President of Finance and
Chief Financial Officer