SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report: OCTOBER 1, 2002 (AMENDS FORM 8K FILED AUGUST 2, 2002)
ELAMEX, S.A. DE C.V.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Commission file number: 0-27992
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
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 2. ACQUISITION OR DISPOSITION OF ASSETS.
On July 18, 2002, Elamex USA, Corp. ("Elamex USA"), a wholly owned Delaware
subsidiary of Elamex, S.A. de C.V. and subsidiaries ("Elamex"), completed the
acquisition of Mt. Franklin Holdings, LLC, and Franklin Food Products LLC and
the merger of Reprop Corporation with and into Elamex USA. The effective closing
date for tax and accounting purposes was the close of business on June 28, 2002.
DESCRIPTION OF COMPANIES ACQUIRED
Mt. Franklin Holdings, LLC ("Mt. Franklin"), a limited liability company
organized under the laws of Delaware, is a holding company whose only activity
is ownership of 100% of Franklin Connections, LP ("Franklin Connections"). Mt.
Franklin was owned 34.262% by Azar Nut Company, a Delaware corporation which is
owned approximately 78% by private investors located in the United States and
22% by members of the management of Franklin Connections. Franklin Connections
operates a retail nut and foodservice nut packaging and marketing company whose
operations are located in El Paso, Texas and a candy manufacturing facility in
Juarez, Mexico. The nut business operates under the trade name "Azar Nuts" while
the candy sector generally operates under the "Sunrise" trade name. In addition
to the nut and candy operations, Franklin Connections has a small operation in
El Paso involved in providing contract warehousing and distribution. Franklin
Connections signed a shelter contract with Elamex, S.A. de C.V. in 2000 for its
plant in Juarez Mexico. In 2001 Franklin Connections received a $3 million
convertible subordinated loan from Elamex, S.A. de C.V. with a term of five
years. In 2002 Franklin Connections also received a loan from Elamex, S.A. de
C.V. of $4.1 million, which was paid at the closing date of this acquisition
transaction.
Franklin Food Products LLC (FFP) is a Delaware limited liability company
whose only activity is the ownership of 65.738% of Mt. Franklin. FFP was owned
50.1% by Reprop Corporation and 49.9% by Kids Holding Corp., a privately held
company organized under the laws of Delaware.
Reprop Corporation (Reprop) is a company organized under the laws of
Delaware whose only activity at the date of merger was the ownership of 50.1% of
FFP. Reprop was owned 100% by Accel, S.A. de C.V. (Accel). Accel is a Mexican
company and is the majority owner of Elamex, S.A. de C.V.
PURCHASE PRICE AND PAYMENT METHOD
The purchase price was based upon negotiations with Azar Nut Company and
Kids Holding Corp. considering the fair market value of Franklin Connections in
relation to the value of the Elamex's shares. Reprop Corporation, an affiliate
of Elamex, agreed to the same pricing terms as those resulting from such
negotiations; provided, however, that an additional US$300,000 was paid to Accel
as described in the inducement letter attached as an exhibit hereto. The
purchase price was (a) cash payment of US$1,445,040 ($ 1,145,040 to third
parties and $ 300,000 to Accel) and (b) 923,161 restricted shares (556,268
shares to third parties and 366,893 shares to Accel) of the common stock of
Elamex. Two hundred seventy-eight thousand five hundred (278,500) 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 US$5.15 per share.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(A) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED.
The audited financial statements include:
1) Azar Nut Company Audited Financial Statements
2) Reprop Corporation and Subsidiaries
AZAR NUT COMPANY
Financial Statements
For the period January 2, 2000 through February 13, 2000
and the year ended January 1, 2000
(With Independent Auditors' Report Thereon)
Independent Auditors' Report
----------------------------
The Board of Directors
Azar Nut Company:
We have audited the accompanying statements of operations, stockholders' equity
and cash flows of Azar Nut Company for the period January 2, 2000 through
February 13, 2000 and the period January 3, 1999 through January 1, 2000. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations and the cash flows of Azar Nut
Company for the period January 2, 2000 through February 13, 2000 and the period
January 3, 1999 through January 1, 2000 in conformity with accounting principles
generally accepted in the United States of America.
(signed) KPMG LLP
El Paso, Texas
September 23, 2002
AZAR NUT COMPANY
STATEMENTS OF OPERATIONS
FOR THE PERIOD JANUARY 2, 2000 THROUGH FEBRUARY 13, 2000
AND THE YEAR ENDED JANUARY 1, 2000
JANAURY 2, 2000 YEAR ENDED
THROUGH JANUARY 1,
FEBRUARY 13, 2000 2000
------------------------ ----------------
Net sales $ 3,417,783 $ 47,271,868
Cost of sales 2,511,403 33,236,752
------------------------ ----------------
Gross profit 906,380 14,035,116
Operating expenses:
Distribution and warehousing 530,382 2,571,719
Marketing, advertising, and promotions 563,176 7,335,660
General and administrative 252,097 2,195,551
------------------------ ----------------
Total operating expenses 1,345,655 12,102,930
------------------------ ----------------
Operating income (loss) (439,275) 1,932,186
Other expenses:
Interest expense (22,405) (555,105)
Other expenses (21,517) -
------------------------ ----------------
(43,922) (555,105)
------------------------ ----------------
Net (loss) income $ (483,197) $ 1,377,081
======================== ================
See accompanying notes to financial statements.
3
AZAR NUT COMPANY
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE PERIOD JANUARY 2, 2000 THROUGH FEBRUARY 13, 2000 AND THE YEAR ENDED JANUARY 1, 2000
Common Stock Total
------------------- Additional Retained Treasury Due from Stockholders'
Units Amount Paid in Capital Earnings Stock Stockholders' Equity
--------- -------- --------------- ------------ ---------- ------------- -------------
Balance at January 2, 1999 577,831 $ 5,962 $ 7,688,823 $ (4,051,576) $ (206,507) $ (174,650) $ 3,262,052
Dividend paid (88,014) (88,014)
Net income 1,377,081 1,377,081
--------- -------- --------------- ------------ ---------- ------------- -------------
Balances at January 1, 2000 577,831 5,962 7,688,823 (2,762,509) (206,507) (174,650) 4,551,119
Dividend paid (570,000) (570,000)
Capital contributed to Azar Nut Company 22,800 228 293,108 293,336
Options exercised 8,320 8 41,592 41,600
Net loss (483,197) (483,197)
--------- -------- --------------- ------------ ---------- ------------- -------------
Balances at February 13, 2000 608,951 $ 6,198 $ 8,023,523 $ (3,815,706) $ (206,507) $ (174,650) $ 3,832,858
========= ======== =============== ============ ========== ============= =============
See accompanying notes to financial statements.
4
AZAR NUT COMPANY
STATEMENTS OF CASH FLOWS
JANAURY 2, 2000 YEAR ENDED
THROUGH JANUARY 1,
FEBRUARY 13, 2000 2000
--------------------- --------------------
Cash flows from operating activities:
Net (loss) income $ (483,197) $ 1,377,081
Adjustments to reconcile net (loss) income to net cash provided by
operating activities:
Depreciation and amortization 73,348 571,402
Provision for bad debts -- (4,855)
Net change in operating assets and liabilities:
Trade accounts receivable 3,450,181 (741,752)
Inventories (129,181) 522,197
Prepaid expenses and other (31,412) 504,556
Prepaid slotting allowances 448,105 84,159
Other assets 103,224 --
Accounts payable (3,478,153) 401,027
Accrued liabilities (564,977) 871,379
--------------------- --------------------
Net cash (used) provided by operating activities (612,062) 3,585,194
--------------------- --------------------
Cash flows used by investing activities:
Note receivable (511,411) --
Purchase of property, plant, and equipment -- (540,630)
--------------------- --------------------
Net cash used by investing activities (511,411) (540,630)
Cash flows from financing activities:
Net proceeds from line of credit 3,888,733 --
Repayment on line of credit -- (672,049)
Repayment on term loans (587,784) (803,329)
Increase (decrease) in checks outstanding in excess of bank balances (1,894,132) 501,467
Dividends paid to shareholders (570,000) (88,014)
--------------------- --------------------
Net cash provided (used) by financing activities 836,817 (1,061,925)
--------------------- --------------------
Net change in cash (286,656) 1,982,639
Cash at beginning of the period 2,521,120 538,481
--------------------- --------------------
Cash at end of the period $ 2,234,464 $ 2,521,120
===================== ====================
Supplemental disclosure of cash flow information:
Cash paid during the year for interest $ 33,018 $ 557,204
See accompanying notes to financial statements.
5
AZAR NUT COMPANY
NOTES TO THE FINANCIAL STATEMENTS
FOR THE PERIOD JANUARY 2, 2000 THROUGH FEBRUARY 13, 2000
AND THE YEAR ENDED JANUARY 1, 2000
(1) NATURE OF OPERATIONS
Azar Nut Company and its former wholly owned subsidiary, ANC Development
Corp. (ANC) (collectively, the Company), engage in the processing,
packaging and marketing of nut meats to retailers and wholesalers located
throughout the United States. The Company provides customers with products
packaged under its label as well as under certain customers' private
labels. As of December 12, 1999, ANC was merged with Azar Nut Company.
During the year ended January 1, 2000, one of the Company's customers
accounted for approximately 12% of net sales and 13% for the period ended
February 13, 2001, a second customer accounted for 26% of net sales for the
period from January 2, 2000 through February 13, 2000.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) BASIS OF PRESENTATION
The accompanying financial statements for the period January 2, 2000
through February 13, 2000 and the year ended January 1, 2000 include
the accounts of Azar Nut Company (Azar) and its former wholly owned
subsidiary, ANC Development Corp. All significant intercompany
transactions were eliminated in consolidation.
(B) FISCAL YEAR
The Company's fiscal year is on a 52-53 week year ending on the
Saturday closest to December 31.
(C) CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, cash and cash equivalents
consist of deposits with banks which are unrestricted as to withdrawal
or use and all highly liquid investments purchased with original
maturities of three months or less. There were no cash equivalents at
February 13, 2000 or January 1, 2000. Cash deposits are primarily
maintained with banks in Chicago, Illinois and El Paso, Texas.
(D) USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
(E) CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentrations of credit risk consist of cash and accounts receivable.
The Company monitors the risk of having deposits in banks in excess of
the Federal Deposit Insurance Corporation (FDIC) limits and does not
anticipate any losses. The Company performs ongoing credit evaluations
of its customers and generally does not require collateral to support
amounts due for the sale of its products.
6
AZAR NUT COMPANY
NOTES TO THE FINANCIAL STATEMENTS
FOR THE PERIOD JANUARY 2, 2000 THROUGH FEBRUARY 13, 2000
AND THE YEAR ENDED JANUARY 1, 2000
(F) ACCRUED REBATES
The Company enters into contractual agreements for rebates on certain
products with its customers. Such amounts are netted against sales and
accrued based on management estimates at the date the sales occur.
(G) INVENTORIES
Inventories are stated at the lower of cost or market. Cost is
determined using a moving weighted-average method.
(H) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost less accumulated
depreciation. Depreciation is computed using the straight-line method
over the estimated useful lives of the related assets which range from
five to thirty years. The cost and accumulated depreciation for
property, plant and equipment sold, retired or otherwise disposed of
are removed from the accounts and resulting gains and losses are
included in income. The cost of repairs and maintenance is charged to
operations as incurred; significant renewals and betterments are
capitalized. Depreciation expense for the period January 2, 2000
through February 13, 2000 was approximately $73,000 and for the year
ended January 1, 2000 was approximately $520,000.
(I) INTANGIBLE ASSETS
Intangible assets, including excess of cost over fair value of net
assets acquired, are amortized using the straight-line method over
their related estimated useful lives, currently ranging up to ten
years.
(J) REVENUE RECOGNITION
Revenues are recognized when finished products are shipped, and title
passes.
(K) ADVERTISING
The Company expenses the cost of advertising as it is incurred or the
first time the advertising takes place. Advertising expense was
approximately $14,000 for the period January 2, 2000 through February
13, 2000 and $442,000 for the year ended January 1, 2000.
(L) INCOME TAXES
The Company has elected with the Internal Revenue Service to be
treated as an S-Corporation under the Internal Revenue Code. Taxable
income (loss) is included in the federal income tax returns of the
individual shareholders and, accordingly, no provision related to the
Parent's results of operations have been recorded in the accompanying
income statements.
(3) SHAREHOLDERS' EQUITY
The Company has adopted the disclosure only provisions of Statement of
Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based
Compensation. As allowed by SFAS No. 123, the Company continues to account
for its stock option plans under Accounting Principles Board
7
AZAR NUT COMPANY
NOTES TO THE FINANCIAL STATEMENTS
FOR THE PERIOD JANUARY 2, 2000 THROUGH FEBRUARY 13, 2000
AND THE YEAR ENDED JANUARY 1, 2000
Opinion No. 25, Accounting for Stock Issued to Employees. If the Company
had applied the compensation recognition provisions of SFAS No. 123 during
the period January 2, 2000 through February 13, 2000 and the year ended
January 1, 2000, compensation expense relating to the stock options
outstanding would not have been significant.
At February 13, 2000 and January 1, 2000, options to purchase shares of the
Company's common stock at various exercise prices were outstanding under
various agreements with employees and shareholders. Vesting provisions vary
by plan, including vesting 100% at the date of grant, vesting over a
specified period, or vesting based upon certain earnings thresholds. Three
of the Company's stock option plans are considered variable plans due to
cash-less exercise or variable vesting provisions. As variable plans,
compensation expense on vested options is recognized based on increases in
the options' intrinsic value (market value in excess of option exercise
price). Compensation expense related to the variable plans is not
significant for the period January 2, 2000 through February 13, 2000 or the
year ended January 1, 2000. Fair value of common stock is determined by
management and approved by the board of directors, based on the book value
and earnings of the Company. As of February 13, 2000, such fair value was
determined based on values established in the subsequent transactions
described in note 6. Such fair value is the basis for treasury stock
transactions, share issuance pricing and determining compensation expense
for the variable options.
The following table summarizes information for options outstanding and
exercisable at February 13, 2000:
NUMBER
EXERCISE NUMBER EXERCISABLE AT
PLAN PRICE OUTSTANDING FEBRUARY 13, 2000 EXPIRATION
1991 $ 100.00 4,710 4,710 December 2001
1994 20.00 11,250 11,250 August 2004
1995 5.00 35,000 23,333 February 2005
1995 - 2 5.00 21,360 21,360 April 2005
1996 5.00 20,720 20,720 February 2006
1998 12.16 15,000 5,400 July 2008
The following summarizes the activity relating to stock options:
WEIGHTED
NUMBER OF AVERAGE
OPTIONS EXERCISE PRICE
----------------- ----------------
Balance at January 2, 1999: 116,360 $ 11.22
Granted -- --
Exercised -- --
Forfeited -- --
Expired -- --
----------------- ----------------
8
AZAR NUT COMPANY
NOTES TO THE FINANCIAL STATEMENTS
FOR THE PERIOD JANUARY 2, 2000 THROUGH FEBRUARY 13, 2000
AND THE YEAR ENDED JANUARY 1, 2000
Balance at January 1, 2000: 116,360 11.22
Granted -- --
Exercised (8,320) 5.00
Forfeited -- --
Expired -- --
----------------- ----------------
Balance at February 13, 2000 108,040 $ 11.70
================= ================
Due from shareholders represents notes received from employees for the
issuance of common stock. These notes bear interest at 8% and are due the
earlier of March 31, 2000 or 90 days after such employees are no longer in
the employ of the Company.
(4) EMPLOYEE SAVINGS PLAN
The Company has a 401(k) Savings Plan for eligible employees of the Company
as defined in the Adoption Agreement. The 401(k) Savings Plan calls for the
Company to match 100% of participating employees' contributions up to a
maximum of 6% of each employee's compensation. Matching contributions
approximated $12,000 for the period January 2, 2000 through February 13,
2000 and $108,000 for the year ended January 1, 2000.
(5) RELATED PARTY TRANSACTION
The Company pays a management fee to a company affiliated with certain
stockholders of the Company. This fee is included in the selling, general
and administrative expenses of the Company. For year ended January 1, 2000
$100,000 was paid and for the period January 2, 2000 through February 13,
2000 $12,500 was paid.
(6) SUBSEQUENT EVENT
On February 14, 2000, the Company entered into several agreements with a
group of third-party investors to obtain additional capital for the
expansion into candy manufacturing operations in Mexico. Under these
agreements, substantially all operations, assets and liabilities of the
Company were contributed to a new limited partnership along with
approximately $6,500,000 from the new investors. The Company received cash
of approximately $2,500,000 from the investors and a 34% ownership interest
in the limited partnership. The new investors received a 66% interest in
the limited partnership.
9
REPROP CORPORATION and subsidiaries
Consolidated Financial Statements
December 31, 2001, 2000 and 1999
(With Independent Auditors' Report Thereon)
Independent Auditors' Report
----------------------------
The Board of Directors
Reprop Corporation:
We have audited the accompanying consolidated balance sheets of Reprop
Corporation and subsidiaries as of December 31, 2001 and 2000, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the years in the three-year period ended December 31, 2001. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Reprop Corporation
and subsidiaries as of December 31, 2001 and 2000, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 2001 in conformity with accounting principles generally
accepted in the United States of America.
(signed) KPMG LLP
El Paso, Texas
September 23, 2002
REPROP CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, DECEMBER 31,
ASSETS 2001 2000
----------------- -----------------
Current assets:
Cash $ 405,337 $ 6,972,497
Trade accounts receivable, net 4,611,590 4,719,633
Inventories (note 3) 7,686,574 4,038,408
Prepaid expenses and other 673,850 231,102
----------------- -----------------
Total current assets 13,377,351 15,961,640
Property, plant, and equipment, net of accumulated
depreciation (note 4) 27,349,466 25,408,095
Prepaid slotting allowances 707,099 908,024
Other assets 77,319 135,065
----------------- -----------------
Total assets $ 41,511,235 $ 42,412,824
================= =================
Liabilities and Stockholders' Equity
Current liabilities:
Checks outstanding in excess of bank balances $ 2,123,477 $ 2,060,081
Line of credit (note 5) 3,689,000 --
Accounts payable 3,830,982 2,479,815
Accrued payroll and benefits 189,656 115,196
Accrued advertising and promotions 1,426,135 1,433,711
Other accrued expenses 1,852,743 2,161,620
Current portion of long-term debt (note 5) 1,511,889 326,687
Current portion of related party capitalized lease
obligations (note 7) 897,875 522,118
Due to affiliate (note 12) 1,939,570 787,978
----------------- -----------------
Total current liabilities 17,461,327 9,887,206
Long-term debt, net of current portion (note 5) 5,680,949 3,149,363
Obligation under related party capitalized lease, less
current installments (note 7) 17,206,893 16,294,265
----------------- -----------------
Total liabilities 40,349,169 29,330,834
----------------- -----------------
Minority interest 258,716 7,976,769
Stockholders' equity (note 8)
Common stock 1,000 1,000
Additional paid in capital 6,787,199 6,787,199
Accumulated deficit (5,884,849) (1,682,979)
----------------- -----------------
Total stockholders' equity 903,350 5,105,220
----------------- -----------------
Commitments and contingencies (note 13)
----------------- -----------------
Total liabilities and stockholders' equity $ 41,511,235 $ 42,412,824
================= =================
See accompanying notes to consolidated financial statements.
2
REPROP CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended December 31, 2001, 2000 and 1999
2001 2000
------------------ -------------------
Net sales $ 47,291,997 $ 43,151,230
Cost of sales (note 12) 40,529,606 29,047,978
------------------ -------------------
Gross profit 6,762,391 14,103,252
Operating expenses:
Distribution and warehousing 6,856,108 5,294,039
Marketing, advertising, and promotions 6,605,819 6,817,071
General and administrative 2,201,783 1,620,266
------------------ -------------------
Total operating expenses 15,663,710 13,731,376
------------------ -------------------
Operating income (loss) (8,901,319) 371,876
Other income (expense):
Interest expense (3,029,424) (483,822)
Interest income 19,688 181,384
Other expenses (12,942) (21,588)
------------------ -------------------
(3,022,678) (324,026)
------------------ -------------------
(Loss) income before minority interest (11,923,997) 47,850
Minority interest 7,722,126 (65,812)
------------------ -------------------
Net loss $ (4,201,871) $ (17,962)
================== ===================
See accompanying notes to consolidated financial statements.
3
REPROP CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
COMMON STOCK
--------------------------- ADDITIONAL ACCUMULATED TOTAL
UNITS AMOUNT PAID IN CAPITAL DEFICIT STOCKHOLDERS' EQUITY
-------------- ----------- ------------------- ----------------- ----------------------
Balance at January 1, 1999 1,000 $ 1,000 $ 2,276,199 $ (1,648,471) $ 628,728
Dividend paid --
Net loss (16,546) (16,546)
-------------- ----------- ------------------- ----------------- ----------------------
Balances at December 31, 1999 1,000 1,000 2,276,199 (1,665,017) 612,182
Capital contributed to FFP by Reprop 4,511,000 4,511,000
Net loss (17,962) (17,962)
-------------- ----------- ------------------- ----------------- ----------------------
Balances at December 31, 2000 1,000 1,000 6,787,199 (1,682,979) 5,105,220
Net loss (4,201,871) (4,201,871)
-------------- ----------- ------------------- ----------------- ----------------------
Balances at December 31, 2001 1,000 $ 1,000 $ 6,787,199 $ (5,884,849) $ 903,350
============== =========== =================== ================= ======================
See accompanying notes to consolidated financial statements.
4
REPROP CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
For the years ended December 31, 2001, 2000 and 1999
2001 2000 1999
--------------- ---------------- -----------------
Cash flows from operating activities:
Net loss $ (4,201,871) $ (17,962) $ #REF!
Adjustments to reconcile net loss to net cash (used) provided by
operating activities:
Depreciation and amortization 2,153,825 711,455 --
Provision for bad debts -- (10,144) --
Impairment of property, plant and equipment 352,303 -- --
Minority interest in income (loss) of combined subsidiaries (7,722,126) 65,812 --
Other 49,730 49,139 --
Net change in operating assets and liabilities:
Trade accounts receivable 113,043 (1,551,343) --
Inventories (3,648,166) (162,172) --
Prepaid expenses and other (447,748) 37,272 --
Prepaid slotting allowances 200,925 (125,903) --
Other assets 10,000 (85,315) --
Accounts payable 1,351,167 865,180 --
Accrued liabilities (241,993) 394,531 1,210
--------------- ---------------- -----------------
Net cash (used) provided by operating activities (12,030,911) 170,550 #REF!
--------------- ---------------- -----------------
Cash flows used by investing activities:
Purchase of property, plant, and equipment (2,648,588) (2,683,292) --
Acquisition of business, net of cash received -- (265,535) --
--------------- ---------------- -----------------
Net cash used by investing activities (2,648,588) (2,948,827) --
Cash flows from financing activities:
Net proceeds from line of credit 3,689,000 -- --
Borrowings under term loans 4,127,233 3,640,000 --
Repayment on term loans (410,445) (3,837,006) --
Increase (decrease) in checks outstanding in excess of bank
balances 63,396 (214,017) --
Principal payments on capital lease obligation (512,510) -- --
Increase in due to affiliate 1,151,592 787,978 --
Proceeds from minority interest 4,073 335,036 --
Proceeds from shareholders -- 9,000,000 --
--------------- ---------------- -----------------
Net cash provided by financing activities 8,112,339 9,711,991 --
--------------- ---------------- -----------------
Net change in cash (6,567,160) 6,933,714 #REF!
Cash at beginning of the period 6,972,497 38,783 54,119
--------------- ---------------- -----------------
Cash at end of the period $ 405,337 $ 6,972,497 $ #REF!
=============== ================ =================
Supplemental disclosure of cash flow information:
Cash paid during the year for interest $ 967,310 $ 284,125 $ --
Supplemental disclosures of noncash investing and financing
activities:
Property and equipment acquired under capital leases 1,751,165 16,803,744 --
See accompanying notes to consolidated financial statements.
5
REPROP CORPATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2001, 2000 and 1999
(1) COMPANY BACKGROUND
Reprop Corporation (Reprop) is a company organized under the laws of
Delaware whose only activies are real estate investment and the ownership
of 50.1% of Franklin Food Products LLC (FFP). Reprop is owned 100% by
Accel, S.A. de C.V. (Accel). Accel is a Mexican company.
FFP is a Delaware limited liability company whose only activity is the
ownership of 65.738% of Mt. Franklin Holdings, LLC. FFP is owned 50.1% by
Reprop Corporation and 49.9% by Kids Holding Corp., a privately held
company organized under the laws of Delaware.
MFH is engaged in the processing, packaging and marketing of candy and nut
meats to retailers and wholesalers located throughout the United States and
provides warehousing and distribution services. Franklin provides customers
with products packaged under its own labels, as well as under certain
customers' private labels.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) BASIS OF PRESENTATION
The accompanying consolidated financial statements as of December 31,
2001 include the results of Reprop Corporation and its wholly owned
subsidiary, Proptex Corporation, Franklin Food Products, LLC and Mt.
Franklin Holdings, LLC and its wholly owned subsidiaries Franklin
General Partners, LLC, Franklin Limited Partners, LLC and Franklin
Connections, L.P. (together, the Company). All significant
intercompany transactions were eliminated in combination.
On February 14, 2000, the net assets of Azar Nut Company were
exchanged for MFH partnership interests (MFH Transaction). Also on
February 14, 2000, Reprop and Kids Holding Corporation contributed
$9,000,000 to FFP. As part of the MFH Transaction, FFP paid Azar Nut
Company $2.5 million for ownership units in MFH and contributed
approximately $6 million to MFH, net of $467,500 of direct expenses
related to the MFH Transaction. Therefore the accompanying
consolidated financial statements as of December 31, 2000 include the
results of Reprop Corporation and its wholly owned subsidiary, Proptex
Corporation for the year ended December 31, 2000, together with the
results of Franklin Food Products, LLC and Mt. Franklin Holdings, LLC
and its wholly owned subsidiaries Franklin General Partners, LLC,
Franklin Limited Partners, LLC and Franklin Connections, L.P. for the
period February 14, 2000 (date of acquisition) through December 31,
2000.The accompanying consolidated financial statements as of December
31, 1999 include on the results of operations of Reprop Corporation
and its wholly owned subsidiary, Proptex Corporation.
(B) CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, cash and cash equivalents
consist of deposits with banks which are unrestricted as to withdrawal
or use and all highly liquid investments purchased with original
maturities of three months or less.
(C) USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets
6
REPROP CORPATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2001, 2000 and 1999
and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
(D) CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentrations of credit risk consist of cash and accounts receivable.
The Company monitors the risk of having deposits in banks in excess of
the Federal Deposit Insurance Corporation (FDIC) limits and does not
anticipate any losses. The Company performs ongoing credit evaluations
of its customers and generally does not require collateral to support
amounts due for the sale of its products.
(E) ACCRUED REBATES
The Company enters into contractual agreements for rebates on certain
products with its customers. Such amounts are netted against sales and
accrued on the balance sheet based on management estimates at the date
the sales occur.
(F) PREPAID SLOTTING ALLOWANCES
Prepaid slotting allowances consist of payments to customers for store
shelf space and are amortized straight-line over the term of the
customer contract or proportionately with sales recorded, based on the
nature of the slotting contract. Contracts generally vary in length
from one to seven years and provide for fixed payments or payments
upon achievement of sales benchmarks.
(G) INVENTORIES
Inventories are stated at the lower of cost or market. Cost is
determined using a moving weighted average method. Spoiled inventory
is written off in the period the spoilage is discovered.
(H) PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment transferred to the Company at formation
are stated at historical value and fair market value for the portion
acquired by Franklin Food Products less accumulated depreciation.
Property, plant, and equipment current period additions are stated at
cost less accumulated depreciation. Depreciation is computed using the
straight-line method over the estimated useful lives of the related
assets which range from 5 to 30 years. The cost and accumulated
depreciation for property, plant, and equipment sold, retired or
otherwise disposed of are removed from the accounts, and resulting
gains and losses are included in income. The cost of repairs and
maintenance is charged to operations as incurred; significant renewals
and betterments are capitalized.
(I) REVENUE RECOGNITION
Revenue is recognized when finished products are shipped to customers
and title passes.
7
REPROP CORPATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2001, 2000 and 1999
(J) ADVERTISING
The Company expenses the cost of advertising as it is incurred or the
first time the advertising takes place. Advertising expense was
approximately $393,000 for 2001, $261,000 for 2000, and $0 for 1999.
(K) ALLOWANCE FOR DOUBTFUL ACCOUNTS
The Company maintains an allowance for doubtful accounts based on its
best estimate of accounts receivable considered to be uncollectible.
The balances for the years ended December 31, 2001, 2000 and 1999 are
$82,342, $82,342 and $0, respectively.
(L) INCOME TAXES
FFP and MFH are limited liability companies, and are treated as
partnerships for federal income tax purposes. As such, income and
expense items are passed through to the individual members of the
companies and taxed at the member level. Accordingly, no provision for
federal income taxes has been recorded in the accompanying financial
statements for these entities.
For Reprop, income taxes are determined using the liability method in
which deferred taxes are provided for temporary differences between
the carrying amounts of assets and liabilities used for financial
reporting purposes and income tax reporting purposes calculated using
the income tax rates, under existing legislation, expected to be in
effect at the date such temporary differences are expected to reverse.
(3) INVENTORIES
Inventories consisted of the following at December 31,
2001 2000
----------------- ------------------
Raw product $ 1,362,774 1,507,552
Packaging supplies 1,840,969 665,680
Work in process 508,456 8,817
Finished product 3,974,375 1,856,359
----------------- ------------------
$ 7,686,574 4,038,408
================= ==================
(4) PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment consisted of the following at December 31,
2001 2000
-------------- --------------
Machinery and equipment $ 12,689,460 10,594,791
Building and improvements 14,221,935 11,916,851
-------------- --------------
26,911,395 22,511,642
Less accumulated depreciation (2,774,620) (668,541)
-------------- --------------
8
REPROP CORPATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2001, 2000 and 1999
24,136,775 21,843,101
Land 3,212,691 3,564,994
-------------- ---------------
$ 27,349,466 25,408,095
============== ===============
Depreciation expense for 2001, 2000 and 1999 was $2,106,079, $668,541 and
$0, respectively.
9
REPROP CORPATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2001, 2000 and 1999
(5) LONG-TERM DEBT
Long-term debt, net of unamortized loan fees, consisted of the following at
December 31, 2001 and 2000:
2001 2000
Subordinated note - note payable to shelter affiliate at 12% interest
with a maturity date of August 23, 2006, and convertible at the
option of the note holder into an equity interest of 233,100
membership units of MFH through August 23, 2003. Through August 23,
2003, there are no principal payments and interest will be accrued
and capitalized into the loan balance. Interest is payable
quarterly after August 23, 2003. $ 3,1277,233 _
Demand note - note payable to Kids Holding Corp., a related entity,
due on demand, bearing interest at 10%, payable monthly. 1,000,0000 _
Building loan - note payable to bank due in monthly installments of
$34,182, including interest at the bank's prime rate plus 0.75%
(5.50% and 10.25% at December 31, 2001 and 2000, respectively)
through July 24, 2005; collateralized by substantially all assets
of Franklin Connections. 2,697,692 2,882,091
Machinery and equipment loan - note payable to bank due in monthly
installments of $22,670, including interest at the bank's prime
rate plus 0.75% (5.50% and 10.25% at December 31, 2001 and December
31, 2000, respectively) through July 24, 2003; collateralized by
substantially all assets of Franklin Connections. 367,913 593,959
Line of credit with interest only payments through June 30, 2002 at the
bank's prime rate plus 0.75% (5.50% and 10.25% at December 31, 2001
and December 31, 2000, respectively); collateralized by
substantially all 3,689,000 assets of Franklin Connections. ---------------------------------
10,881,838 3,476,050
Less current portion (5,200,889) (326,687)
---------------------------------
$ 5,680,949 3,149,363
=================================
Amounts available under the line of credit, which had a maximum loan limit
of $7,000,000 and $2,000,000 at December 31, 2001 and December 31, 2000,
respectively, vary based on a borrowing base formula of eligible accounts
receivable and inventory. Unused availability under the line of credit at
December 31, 2001 and 2000 was $3,311,000 and $2,000,000, respectively.
10
REPROP CORPATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2001, 2000 and 1999
Scheduled principal payments on long-term debt outstanding at the end of
fiscal year 2001 are approximately as follows:
2002 $ 5,200,889
2003 401,161
2004 296,093
2005 1,856,462
2006 3,127,233
------------------
$ 10,881,838
==================
(6) INCOME TAXES
Income tax benefit attributable to loss was $0 for the years ended December
31, 2001, 2000 and 1999, and differed from the amounts computed by applying
the U.S. federal income tax rate of 35% to pretax loss as a result of the
following:
2001 2000 1999
------------------ ------------ ------------------
Computed "expected" tax benefit $ (1,470,655) (6,287) (5,791)
Increase (reduction) in income taxes resulting from:
Change in the beginning-of-the-year balance of
the valuation allowance for deferred tax assets
allocated to income tax expense 1,294,535 4,770 5,791
Other, net 176,120 1,517 --
------------------ ------------ ------------------
$ -- -- --
================== ============ ==================
The significant components of deferred income tax expense for the years
ended December 31, 2001, 2000 and 1999 are as follows:
2001 2000 1999
------------------ ------------ ------------------
Deferred tax benefit (exclusive of the effects of
other components below) $ (1,294,535) (4,770) (5,791)
Increase in beginning-of-the-year balance of the
valuation allowance for deferred tax assets 1,294,535 4,770 5,791
------------------ ------------ ------------------
$ -- -- --
================== ============ ==================
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
December 31, 2001, 2000 and 1999 are presented below.
11
REPROP CORPATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2001, 2000 and 1999
2001 2000 1999
------------------ ------------ ------------------
Deferred tax assets:
Temporary difference in partnership
Flow-through items $ 177,536 -- --
Inventories, principally due to additional costs
Inventoried for tax purposes pursuant to the
Tax Reform Act of 1996 177,326 174,020 170,778
Net operating loss carryforwards 1,527,155 413,462 411,934
------------------ ------------ ------------------
Total gross deferred tax assets 1,882,017 587,482 582,712
Less valuation allowance (1,882,017) (587,482) (582,712)
------------------ ------------ ------------------
Net deferred tax assets $ -- -- --
================== ============ ==================
The valuation allowance for deferred tax assets as of December 31, 2001,
2000 and 1999 was $1,882,017, $587,482, and $582,712, respectively. The net
change in the total valuation allowance for the years ended December 31,
2001, 2000 and 1999 was an increase of $1,294,535, an increase of $4,770,
and an increase of $5,791 respectively. In assessing the realizability of
deferred tax assets, management considers whether it is more likely than
not that some portion or all of the deferred tax assets will not be
realized. The ultimate realization of deferred tax assets is dependent upon
the generation of future taxable income during the periods in which those
temporary differences become deductible. Management considers the scheduled
reversal of deferred tax liabilities, projected future taxable income, and
tax planning strategies in making this assessment. Taxable income for the
years ended December 31, 2001, 2000 and 1999 was $(3,181,980), $(4,367) and
$(6,931), respectively. Based upon the level of historical taxable income
and projections for future taxable income over the periods which the
deferred tax assets are deductible, management believes it is more likely
than not the Company will realize the benefits of these deductible
differences, net of the existing valuation allowances at December 31, 2001.
The amount of the deferred tax asset considered realizable, however, could
be increased in the near term if estimates of future taxable income during
the carryforward period are increased.
At December 31, 2001, the Company has net operating loss carryforwards for
federal income tax purposes of $3,181,980 which are available to offset
future federal taxable income, if any, through 2021. The net operating loss
caryforwards expired from 2003 through 2021.In addition, the Company has
alternative minimum tax net operating loss carryforwards of approximately
$3,212,070 which are available to reduce future alternative minimum income
taxes, if any, through 2021.
12
REPROP CORPATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2001, 2000 and 1999
(7) LEASES
The Company leases its candy production facility, candy production
equipment, and certain other equipment and facilities under both capital
and operating leases. The candy production facility and candy equipment
under capital leases included in property and equipment is as follows:
2001 2000
--------------- ---------------
Production facility $ 11,256,338 11,256,338
Equipment 7,434,208 5,547,406
Less accumulated depreciation (994,811) (18,531)
--------------- ---------------
Net equipment under capital leases $ 17,695,735 16,785,213
=============== ===============
Amortization expense related to the production facility and equipment under
capital leases is included in cost of sales in the accompanying combined
statements of operations. All assets under capitalized leases are
physically located in Mexico (see note 12).
Total rent expense for all operating leases amounted to approximately
$5,414,000 for 2001, $3,943,000 for 2000 and $0 for 1999.
Future minimum payments under operating leases with terms in excess of one
year and the present value of minimum capital lease payments were as
follows as of December 31, 2001:
Capital leases Operating leases
------------------- -------------------
2002 $ 3,211,000 2,056,000
2003 3,211,000 1,356,000
2004 3,211,000 977,000
2005 3,211,000 977,000
2006 4,577,000 941,000
Later years through 2016 19,480,000 11,514,000
------------------- -------------------
Total minimum lease payments 36,901,000 17,821,000
===================
Less amount representing interest (18,796,000)
-------------------
Present value of future minimum lease payments 18,105,000
Less current portion (898,000)
-------------------
Long-term capital lease obligations $ 17,207,000
===================
(8) STOCKHOLDERS' EQUITY
The members' capital of Mt. Franklin Holdings includes options and
shareholder loans, as follows:
13
REPROP CORPATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2001, 2000 and 1999
(A) OPTION PLANS
MFH has adopted various stock option plans pursuant to which MFH's
Board of Directors may grant stock options to directors, officers and
key employees.
MFH has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards (SFAS) No. 123, Accounting for
Stock-Based Compensation. As allowed by SFAS No. 123, Franklin
continues to account for its option plans under Accounting Principles
Board Opinion No. 25, Accounting for Stock Issued to Employees. If MFH
had applied the compensation recognition provisions of SFAS No. 123
during the years ended December 31, 2001 and 2000 compensation expense
relating to the options outstanding would have been approximately
$188,000 in each year. For 1999 the compensation expense relating to
the options outstanding would have been zero because MFH was not a
part of Reprop Corporation, and the net loss would have been the pro
forma amounts indicated below:
2001 2000
-------------- --------------
Net income (loss)
As reported (4,201,871) (17,962)
Pro forma (4,263,788) (79,879)
At December 31, 2001 and 2000, options to purchase membership units of
MFH at various exercise prices were outstanding under various
agreements with employees and members. The 1994 through 1998 option
plans are "mirror" options which automatically exercise when options
in an affiliated company are exercised. Vesting provisions vary by
plan, including vesting 100% at the date of grant, vesting over a
specified period or vesting based upon certain earnings thresholds.
Five of MFH's option plans are considered variable plans due to
cash-less exercise or variable vesting provisions. As variable plans,
compensation expense on vested options is recognized based on
increases in the options' intrinsic value (market value in excess of
option exercise price). Compensation expense related to the variable
plans was not significant for the years ended December 31, 2001 and
2000. Fair value of membership units is determined by management and
approved by the board of directors, based on the book value and
earnings of MFH. Such fair value is the basis for treasury membership
unit transactions, membership unit issuance pricing, and determining
compensation expense for the variable options.
The following table summarizes information for options outstanding and
exercisable at December 31, 2001:
EXERCISE NUMBER NUMBER
PLAN PRICE OUTSTANDING EXERCISABLE EXPIRATION
---------- ------------ --------------- ------------- ---------------
1994 $ 20.00 11,250 11,250 August 2004
1995 5.00 35,000 23,333 February 2005
1995-2 5.00 21,360 21,360 April 2005
1996 5.00 20,720 20,720 February 2006
1998 12.16 15,000 10,200 July 2008
2000-T 12.87 127,000 63,500 February 2010
2000-P 12.87 166,300 -- February 2010
14
REPROP CORPATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2001, 2000 and 1999
The following summarizes the activity relating to options since MFH
was consolidated by Reprop Corporation:
Weighted average
Number of options exercise price
------------------- ------------------
Balance at February 14, 2000: 108,040 $ 11.70
Granted 312,000 12.87
Exercised -- --
Forfeited (8,000) 12.87
Expired -- --
------------------- ------------------
Balance at December 31, 2000: 12.56
Granted 10,000 12.87
Exercised -- --
Forfeited (20,700) 12.87
Expired (4,710) 100.00
------------------- ------------------
Balance at December 31, 2001 396,630 $ 11.52
=================== ==================
(B) DUE FROM STOCKHOLDERS
Due from stockholders represents notes received from employees for the
issuance of membership units of an affiliate. These notes bear
interest at 8% and are due the earlier of the employees' reaching
certain predetermined compensation levels or 90 days after such
employees are no longer in the employ of MFH.
(9) EMPLOYEE SAVINGS PLAN
The Company has a 401(k) Savings Plan for eligible employees of the Company
as defined in the plan agreement. The 401(k) Savings Plan calls for the
Company to match 100% of participating employees' contributions up to a
maximum of 6% of each employee's compensation. Matching contributions
approximated $151,000, $124,000 and $0 for 2001, 2000 and 1999
respectively.
(10) ASSET IMPAIRMENT
During 2001, Reprop evaluated its land holdings for impairment in
accordance with SFAS 121, Accounting for Impairment of Long-Lived Assets.
As a result, the Company recorded a non-cash charge of $352,303 to reduce
the carrying value of the land, based on the actual sales price of the land
in March of 2002. The impairment charge is recorded in general and
administrative expenses in the Consolidated Statement of Operations for the
year ended December 31, 2001.
15
REPROP CORPATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2001, 2000 and 1999
(11) GEOGRAPHIC INFORMATION AND MAJOR CUSTOMERS
The Company has two facilities in the United States and Mexico to serve its
customers. Long-lived asset information, representing only net property,
plant, and equipment, is based on the physical location of the asset.
Long-lived assets located in Mexico accounted for 85% and 84%, and 0% of
total long-lived assets in 2001, 2000 and 1999, respectively. All other
long-lived assets are located in the United States.
Substantially all sales were made to customers in the United States and the
Company views its operations as a single reporting segment. Significant
sales information for the years ended 2001, 2000 and 1999 is as follows:
2001 2000
-------- --------
Customer A 25% 24%
Customer B 10% -
(12) RELATED PARTY TRANSACTIONS
The Company has entered into a shelter agreement with Elamex, S.A. de C.V.
(Elamex) whereby Elamex performs certain services in the management and
operation of the Company's candy production in Mexico. Under the terms of
the shelter agreement, which expires December 31, 2003, the Company pays
Elamex a monthly fee of $30,000, plus reimburses actual expenses, plus 0.0%
to 5.0%, depending on the type of expense. Total expenses paid or accrued
under the shelter agreement, excluding rent, for the periods ended December
31, 2001 and 2000 totaled approximately $6,416,000 and $925,000,
respectively. Amounts payable to Elamex at December 31, 2001 and 2000
totaled $1,939,570 and $787,978, respectively.
In August 2001 Elamex issued a $3,000,000 convertible subordinated loan to
the Company, this loan has a term of five years with an annual interest
rate of 12%. During the first two years interest accrues with no payments
due. After two years if the loan is not converted interest becomes part of
the principal and interest only payments become due quarterly with the
principal amount maturing in August 2006.
In November 2001 Kids Holding Corp. issued a $1,000,000 demand note to the
Company, this loan is due on demand and the interest rate is 10% payable
monthly.
(13) PURCHASE COMMITMENTS
The Company has entered into certain fixed-price commitments to purchase
raw materials to be used in the Company's manufacturing process over the
next fiscal year. As of December 31, 2001, 2000 and 1999, the aggregate
value of these commitments was approximately $14,386,000, $17,702,000 and
$0 respectively.
16
REPROP CORPATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2001, 2000 and 1999
(14) SUBSEQUENT EVENTS
On July 18, 2002, Elamex USA, Corp. ("Elamex USA"), a wholly owned Delaware
subsidiary of Elamex, S.A. de C.V., completed the acquisition of 100% of
the membership units of Mt. Franklin Holdings, LLC, and Franklin Food
Products LLC and the merger of Reprop Corporation with and into Elamex USA.
The effective closing date for tax and accounting purposes was the close of
business on June 28, 2002. On July 3, 2002, Elamex USA contributed
$7,500,000 of cash to MFH as additional capital. Concurrent with the cash
contribution, MFH repaid approximately $1,000,000 of accounts payable due
to Elamex and repaid the demand note held by a former holder of membership
units.
The Company incurred substantial losses during 2001 and has been dependent
upon affiliates for operating and investment capital. Elamex has indicated
its commitment to provide sufficient financial support to the Company to
satisfy current and future obligations on an as-needed basis through at
least December 31, 2002.
17
(B) PRO FORMA FINANCIAL INFORMATION FILED AS PART OF THIS REPORT:
The following unaudited pro forma information is presented to show the estimated
effect of Elamex's acquisition of Mt. Franklin Holdings, LLC, ("Mt. Franklin")
and Franklin Food Products LLC ("FFP") and the merger of Reprop Corporation
("Reprop") collectively referred to herein as ("Franklin") for purposes of
presentation. with and into Elamex USA, a wholly owned subsidiary of Elamex,
S.A. de C.V. The effective day of the acquisition was the close of business on
June 28, 2002.
The adjustments related to the unaudited pro forma combined balance sheet have
been determined as of June 28, 2002. The unaudited pro forma combined balance
sheet combines the unaudited consolidated balance sheet of Elamex, S.A. de C.V.
and subsidiaries as of June 28, 2002 with the unaudited Franklin balance sheet
as of June 28, 2002. The pro forma combined statement of operations includes the
companies' respective statements of operations as if the acquisition had
occurred on January 1, 2001. The Elamex, S.A de C.V audited consolidated
statement of operations for the year ended December 31, 2001 is combined with
the audited Franklin combined statement of operations that includes the
combination of Reprop, FFP and Mt. Franklin for year ended December 31, 2001.
The Elamex, S.A de C.V unaudited statement of operations for the twenty-six
weeks ended June 28, 2002 is combined with the unaudited Franklin statement of
operations for the twenty-six weeks ended June 28, 2002.
The pro forma adjustments reflecting the consummation of the acquisition are
based upon the purchase method of accounting and the assumptions set forth in
the Notes hereto, including the issuance of 923,161 shares of Elamex. This pro
forma combined financial information should be read in conjunction with the
historical audited financial statements of Elamex, S.A. de C.V. filed as part of
its Annual Report on Form 10-K for the year ended December 31, 2001 and the
historical audited financial statements of Franklin, for the year ended December
31, 2001 which are contained herein.
The pro forma information shown in this report is unaudited, is presented for
informational purposes only, is not necessarily indicative of the financial
position or results of operations that would actually have occurred if the
acquisition had been consummated at the beginning of the periods presented, nor
is it necessarily indicative of future operating results or financial position.
ELAMEX, S.A. DE C.V.
UNAUDITED PRO FORMA COMBINED BALANCE SHEETS
AS OF JUNE 28, 2002
(IN THOUSAND OF U.S. DOLLARS)
PRO FORMA (A)
----------------------------
ELAMEX FRANKLIN TRANSACTION
HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
----------- ---------- ------------ -----------
ASSETS
Current assets:
Cash and cash equivalents $ 14,301 $ 660 $ (2,207) (B) $ 12,754
Trade accounts, net 14,999 4,541 (1,809) (I) 17,731
Other receivables, net 1,864 (438) (H) 1,426
Inventories, net 6,700 5,477 12,177
Refundable income taxes 2,807 2,807
Prepaid expenses 1,342 601 1,943
Related party note receivable 4,100 (4,100) (H) -
Customer contracts 1,701 1,701
----------- ---------- ------------ -----------
Total current assets 46,113 12,980 (8,554) 50,539
Property, plant and equipment, net 37,842 23,994 6,529 (C) 68,365
Investment in unconsolidated joint venture 3,340 3,340
Goodwill, net 8,122 5,490 (D) 13,312
Deferred income taxes 2,176 (2,220) (F) 385
Related party note receivable 3,000 (3,000) (H) -
Other assets, net 788 788
----------- ---------- ------------ -----------
$ 101,381 $ 36,974 $ (1,755) $ 136,600
=========== ========== ============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and current portion of $ 2,368 $ 10,724 $ (5,293) (H) $ 7,799
Accounts payable 11,696 7,125 (1,509) (I) 17,312
Accrued expenses 1,416 3,214 192 (E) 4,822
Taxes payable 1,075 1,075
----------- ---------- ------------ -----------
Total current liabilities 16,555 21,063 (6,610) 31,008
Long-term debt, excluding current portion 17,350 7,657 25,007
Capital lease 11,383 11,383
Subordinated debt 3,307 (3,307) (H) -
----------- ---------- ------------ -----------
Total liabilities 33,905 43,410 (9,917) 67,398
Commitments and contingencies
- - - -
Stockholders' equity:
Common stock 35,060 9,944 (6,624) (G) 38,380
Officer notes receivable (177) (177)
Retained earnings 35,313 (16,203) 14,786 (G) 33,896
Treasury stock, 533,900 shares at cost (2,518) (2,518)
Accumulated other comprehensive loss, net of
tax (379) (379)
----------- ---------- ------------ -----------
Total stockholders' equity 67,476 (6,436) 8,162 69,202
----------- ---------- ------------ -----------
$ 101,381 $ 36,974 $ (1,755) $ 136,600
=========== ========== ============ ===========
SEE NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
Notes to Unaudited Pro Forma Combined Balance Sheets
(IN THOUSANDS OF U.S. DOLLARS)
(A) The accompanying unaudited pro forma combined balance sheet combines the
unaudited Elamex consolidated balance sheet with the unaudited Franklin
balance sheet as of June 28, 2002.
(B) To reflect net cash payments of (1) $1,145 paid as part of the acquisition
price and (2) debt payments to Kids Holding of $1,062.
(C) This adjustment represents the purchase price adjustment to fixed assets
based on fair value appraisals.
(D) Represents the excess of the purchase price paid by Elamex over the sum of
the assets acquired less liabilities assumed in the acquisition.
(E) Represents the estimated accrued transaction costs related to the
acquisition. The costs include Elamex's legal advisory, accounting and
similar expenses.
(F) To reflect the tax effect on the difference between the new book basis and
the old book basis of the acquired assets of Franklin.
(G) To (1) eliminate the Franklin stockholders' equity accounts as of the
acquisition closing and (2) record the estimated market valuation of the
Elamex's shares issued in the acquisition and (3) record the capital
distribution for shares issued to related parties at fair value. (H)
Represents (1) the payment of Inter-Company notes receivable $4,100 plus
$131 of interest, (2) elimination of subordinated debt of $3,000 plus $307
of interest, (3) the payment by Franklin of the demand note to Kids Holding
of $1,062.
(I) To (1) eliminate inter-company receivables and payables of $1,809 and (2)
record $300 of purchase price payable.
ELAMEX, S.A. DE C.V.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2001
(IN THOUSAND OF U.S. DOLLARS)
PRO FORMA (A)
--------------------------------
ELAMEX FRANKLIN TRANSACTION
HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
----------------------------------------------------------
Net sales $ 131,984 $ 47,292 $ (8,815) (D) $ 170,461
Cost of sales 129,878 40,530 (8,640) (B)(D) 161,768
----------------------------------------------------------
Gross profit 2,106 6,762 (175) 8,693
Operating expenses:
General and administrative 9,373 2,201 11,574
Selling 1,265 6,606 7,871
Distribution 6,856 6,856
Re-structuring charges 12,916 12,916
----------------------------------------------------------
Total operating expenses 23,554 15,663 39,217
----------------------------------------------------------
Operating loss (21,448) (8,901) (175) (30,524)
Other income (expense):
Interest income 1,280 20 (140) (C) 1,160
Interest expense (2,098) (3,029) 148 (C) (4,979)
Equity in loss of unconsolidated joint venture (1,464) (1,464)
Gain on sale of subsidiaries 2,612 2,612
Other, net 374 (13) 361
----------------------------------------------------------
Total other income (expense) 704 (3,022) 8 (2,310)
----------------------------------------------------------
Loss before income taxes and minority
interest (20,744) (11,923) (167) (32,834)
Income tax benefit (3,362) (3,362)
----------------------------------------------------------
Loss before minority interest (17,382) (11,923) (167) (29,472)
Minority interest 6,352 7,722 (7,722) (E) 6,352
----------------------------------------------------------
Net loss (11,030) (4,201) (7,889) (23,120)
Other comprehensive unrealized loss, net of income
tax benefit (342) (342)
----------------------------------------------------------
Comprehensive (loss) income $ (11,372) $ (4,201) $ (7,889) $ (23,462)
==========================================================
Net (loss) income per share, basic and diluted $ (1.61) $ (3.08)
Shares used to compute net loss per share, basic
and diluted 6,866,100 7,510,761
==========================================================
SEE NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
(IN THOUSANDS OF U.S. DOLLARS)
(A) The accompanying unaudited pro forma combined statement of operations for
the year ended December 31, 2001 combines Elamex's audited consolidated
statement of operations for the year ended December 31, 2001 with the
audited Franklin statement of operations for the year ended December 31,
2001, as if the acquisition had been completed at January 1, 2001. The
unaudited pro forma combined statement of operations does not include pro
forma adjustments to reflect cost savings from synergies, which may be
realized subsequent to the acquisition. The number of shares used to
compute net losses per share do not include the amount of contingent shares
subject to escrow.
(B) This adjustment represents the increase in depreciation expense of $175 due
to the step-up in basis of fixed assets.
(C) The interest adjustment for the year ended December 31, 2001 represents
elimination of inter-company interest and estimated decrease of interest
expense and interest income assuming payment of debt.
(D) Elimination of Inter-Company sales and cost of sales of $8,815.
(E) Elimination of minority interest upon acquisition.
ELAMEX, S.A. DE C.V.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
TWENTY-SIX WEEKS ENDED JUNE 28, 2002
(IN THOUSAND OF U.S. DOLLARS)
PRO FORMA (A)
--------------------------------
ELAMEX FRANKLIN TRANSACTION
HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
----------------------------------------------------------
Net sales $ 53,716 $ 30,137 $ (4,141) (D) $ 79,712
Cost of sales 49,614 22,076 (4,054) (B)(D) 67,636
----------------------------------------------------------
Gross profit (loss) 4,102 8,062 (87) 12,077
Operating expenses:
General and administrative 3,107 878 3,985
Selling 454 6,387 6,841
Distribution 4,061 4,061
----------------------------------------------------------
Total operating expenses 3,561 11,326 - 14,887
----------------------------------------------------------
Operating income (loss) 541 (3,265) (87) (2,811)
Other income (expense):
Interest income 441 - (371) (C) 70
Interest expense (397) (1,896) 411 (C) (1,882)
Other, net (285) - (285)
Loss in joint venture (453) - (453)
----------------------------------------------------------
Total other expense (694) (1,896) 40 (2,550)
----------------------------------------------------------
Loss before income taxes, cumulative
effect of change in accounting principle (153) (5,161) (47) (5,361)
Income tax provision 918 918
----------------------------------------------------------
Loss before cumulative effect of change
in accounting principle (1,071) (5,161) (47) (6,279)
Cumulative effect of change in accounting principle,
net of tax 853 - - 853
----------------------------------------------------------
Net loss (1,924) (5,161) (47) (7,132)
==========================================================
Net loss per share, basic and diluted $ (0.28) $ (0.95)
Shares used to compute net loss per share, basic
and diluted 6,866,100 7,510,761
========================================================
SEE NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
(IN THOUSANDS OF U.S. DOLLARS)
(A) The accompanying unaudited pro forma combined statement of operations for
the 26 weeks ended June 28, 2002 combines Elamex's unaudited statement of
operations for the twenty-six weeks ended June 28, 2002 with the unaudited
Franklin statement of operations for the 26 weeks ended June 28, 2002, as
if the acquisition had been completed at January 1, 2002. The unaudited pro
forma combined statement of operations does not include pro forma
adjustments to reflect cost savings from synergies which may be realized
subsequent to the acquisition. The number of shares used to compute net
losses per share does not include the amount of contingent shares subject
to escrow.
(B) This adjustment represents the increase in depreciation expense of $87 due
to step-up in basis of fixed assets.
(C) The interest adjustment for the 26 weeks ended June 28, 2002 represents
elimination of inter-company interest and estimated decrease of interest
expense and interest income assuming payment of debt.
(D) Elimination of Inter-Company sales and cost of sales of $4,141.
EXHIBITS
1.- Agreement and escrow agreement between Elamex USA, Corp. and Azar Nut
Company
2.- Agreement and escrow agreement between Elamex USA, Corp. and Kids
Holding Corp.
3.- Merger agreement and escrow agreement between Elamex USA, Corp. and
Reprop Corporation
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.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, in El Paso Texas.
ELAMEX, S.A. de C.V.
Date: October 1, 2002 By: /s/ Richard P. Spencer
----------------------
Richard P. Spencer
President and Chief Executive Officer
(Duly Authorized Officer)
Date: October 1, 2002 By: /s/ Thomas J. Benson
--------------------
Thomas J. Benson
Vice-President of Finance and
Chief Financial Officer