-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CI6hJw9CYXfVPNOUzyH4PRMlO/0JXGo7rkPkZMnYyvX2j34XeppG/XvPQwuXgqsl Pgovi7HhBuPUkTgAreTESg== 0000912057-97-010580.txt : 19970329 0000912057-97-010580.hdr.sgml : 19970329 ACCESSION NUMBER: 0000912057-97-010580 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970328 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ELAMEX SA DE CV CENTRAL INDEX KEY: 0001009302 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRONIC COMPONENTS & ACCESSORIES [3670] IRS NUMBER: 000000000 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-27992 FILM NUMBER: 97566287 BUSINESS ADDRESS: STREET 1: AVENIDA INSURGENTES NO 4145-B OTE STREET 2: CD JUAREZ CHICHUAHUA CITY: MEXICO CP 32340 STATE: O5 BUSINESS PHONE: 9157748000 10-K 1 FORM 10-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended Commission file number DECEMBER 31ST, 1996 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. JAUREZ, CHIHUAHUA MEXICO C.P. 32340 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) REGISTRANT TELEPHONE NUMBER, INCLUDING AREA CODE: (915) 774-8252 IN EL PASO, TEXAS Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: Title of each class Name of exchange on which registered CLASS I COMMON STOCK, NO PAR VALUE NASDAQ NATIONAL MARKET Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- The aggregate market value of the voting stock held by nonaffiliates of the registrant as of March 3, 1997 was: $37,583,437.50 The number of shares of Class I Common Stock of the registrant outstanding as of March 3, 1997 was: 7,400,000 DOCUMENTS INCORPORATED BY REFERENCE Item 14 incorporates by reference exhibits to the registrant's registration statement on Form S-1, file number 333-01768. Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in any amendment to this Form 10-K. [X] REFERENCES IN THIS FORM 10-K TO "ELAMEX" OR THE "COMPANY" ARE TO ELAMEX, S.A. DE C.V. AND ITS SUBSIDIARIES, COLLECTIVELY, AND REFERENCES TO "ELAMEX, S.A. DE C.V". ARE SOLELY TO ELAMEX, S.A. DE C.V. EFFECTIVE JANUARY 1, 1993, THE MEXICAN CONGRESS APPROVED THE ESTABLISHMENT OF A NEW CURRENCY UNIT, THE NEW PESO, WHICH REPLACED THE PESO AT A RATE OF ONE NEW PESO PER ONE THOUSAND PESOS. BEGINNING JANUARY 1, 1996, THE NAME OF THE CURRENCY UNIT WAS CHANGED FROM NEW PESO TO PESO WITHOUT ADJUSTING ITS VALUE. IN THIS FORM 10-K, REFERENCES TO "$" AND "U.S. DOLLARS" ARE TO UNITED STATES DOLLARS AND REFERENCES TO "NPS.", "PS", "NEW PESOS" AND "PESOS" ARE TO MEXICAN PESOS AFTER THE CHANGES DESCRIBED ABOVE. ITEM 1. BUSINESS Elamex is a leading contract manufacturer located in Mexico, delivering high-quality finished goods to Original Equipment Manufacturers ("OEMs") based in North America pursuant to manufacturing contracts. Although functioning as independent contractor, the Company operates in material respects as a manufacturing arm of its customers, offering a rapid and cooperative response to the customers' needs. The Company focuses on the effective management of assembly processes, which range from assembly-only services managed by the customer or by Elamex to full materials procurement and assembly contracts that are referred to in the industry as "turnkey" contracts. The Company frequently works with customers from product design and prototype stages through ongoing production, and provides manufacturing services for successive product generations. Elamex's OEM customers are primarily U.S. and Canadian companies, mainly in the electronics industry, as well as in the electromechanical, avionics and medical industries. The Company's revenues are in U.S. dollars and it obtains financing in U.S. dollars based on contracts with such U.S. and Canadian customers providing for payment in U.S. dollars. The Company's headquarters and certain of its manufacturing facilities are located within nine miles of the U.S. border and the international's airport, rail and truck depots in El Paso Texas. Elamex currently operates or directs operations at 17 manufacturing facilities. The Company prepares financial statements in U.S. dollars in conformity with generally accepted accounting principles applicable in the U.S. ("U.S. GAAP") and also maintains certain financial information in conformity with generally accepted accounting principles applicable in Mexico ("Mexican GAAP"). The Company was a pioneer in Mexico's Border Industrialization Program, usually referred to as the Maquiladora program, in which originally real estate, and later labor, were provided to foreign companies. This companies managed the production for export, or the enhancement of their own imports into Mexico for subsequent export. Elamex's business has evolved from the early Maquiladora concept of supplying real estate and labor for foreign managers to its present status which includes management by Elamex, itself, of assembly services and turnkey manufacturing services. Elamex, S.A. de C.V. is the successor pursuant to the merger, effective October 1, 1995, of Elamex Internacional, S.A. de C.V. ("Elamex Internacional") with and into Elamex, S.A. de C.V. The predecessor of Elamex, S.A. de C.V. was formed in 1990, when Accel, S.A. de C.V. ("Accel"), a public company listed on the Mexican Stock Exchange, indirectly acquired a majority interest in the Company's operations. INDUSTRY BACKGROUND During the early 1980s, the commercialization of the personal computer began to fuel substantial growth in the electronics industry and, with it, the growth of contract manufacturers. At about the same time, significant advances were made in commercial manufacturing technology as Surface Mount Technology ("SMT") began to replace Pin Through-Hole ("PTH") technology as the preferred method for the assembly of circuit boards. SMT provided OEMs with significant cost savings while at the same time increasing the performance of their products. Many of the benefits of SMT, especially those relating to cost reduction, were passed along to customers. The Company believes these benefits have helped to sustain the 2 double digit percentage growth rate of the electronics industry into the 1990s. OEMs originally utilized contract manufacturing sources primarily to reduce labor costs in the production of electronic assemblies and to provide additional manufacturing capacity in times of peak demand. These early contract manufacturers typically were employed on an assembly basis in which the OEM provided the circuit and production designs, procured all components, frequently managed the production process and performed the final product testing. As contract manufacturers began to perform more management services, the relationship between OEMs and contract manufacturers became more strategic in nature, with the two now linked in a closer relationship in order to quickly deliver cost-effective, high-quality products to the marketplace. The practice of contract manufacturers providing management services has evolved into turnkey manufacturing, in which the contract manufacturer performs the procurement function and manages the assembly process. In Elamex's experience, procurement generates lower margins than assembly work, and Elamex believes the same is true for other contract manufacturers. However, Elamex has also found that parts and equipment procurement creates other advantages, such as greater control over the manufacturing process and increased customer satisfaction due to the reduction of an additional cost to the OEM. Elamex believes that the ability to provide these procurement advantages reinforces the strategic relationship between the OEM and the contract manufacturer. The Company believes that the strategic use of contract manufacturers has provided significant benefits to contract manufacturers and to OEMs. Contract manufacturers have benefited from the economies of scale resulting from larger and more frequent orders from OEMs, as well as from the strategic and operational benefits arising from the stability of longer-term relationships. OEMs have been able to reduce costs and increase flexibility through the use of contract manufacturers. The contract manufacturing industry is characterized by a high degree of customer and market concentration. According to Technology Forecasters, Inc., approximately 50% of the contract manufacturing industry's sales in 1995 were to the computer industry. While the Company does not currently perform a significant amount of manufacturing for the computer industry, it has found that margins on computer products it has manufactured are generally lower than those for other products the Company manufactures. The Company believes that the two largest customers of the average contract manufacturer account for in excess of 45% of sales for such contract manufacturer. The industry is also expected to grow significantly. Technology Forecasters, Inc. estimates that U.S.-Canadian demand for electronics contract manufacturing will grow from expenditures of approximately $22 billion in 1995 to approximately $63 billion by 1999, an average annual growth rate of approximately 30%, and that the worldwide electronics contract manufacturing industry will grow from expenditures of $46 billion in 1995 to approximately $117 billion by 1999, an average annual growth rate of approximately 26%. The Company believes that the integration of digital and wireless technologies into new products will help generate growth from several markets outside of the computer industry, such as telecommunications, industrial electronics and medical instrumentation. In addition to growth directly relating to the electronics industry, the Company believes that further growth for contract manufacturing will come from an increasing need for OEMs to reduce product time to market and to manage more complex product designs, inventories and component procurements. MANUFACTURING SERVICES Elamex is a contract manufacturer in the electronics industry, as well as the electromechanical, avionics and medical industries. Elamex's work for the electronics and avionics industries includes the assembly of printed circuit boards with SMT, including SMT on flexible boards, plastic over-molding of SMT boards and other technologies. The Company's work for the electromechanical industry includes the manufacture of such electrical devices as switchboard components, outlet strips, smoke detectors, automatic timer switches and other devices that are not based on complex electronic circuitry, fiber optic cables and connectors, and the refurbishment of telephones. Elamex's work for the medical industry includes assembly 3 surgery sets and band aid packaging. Many of these operations are conducted in special clean rooms. Approximately 28.5% of Elamex's net sales in 1996 were derived from assembly projects, in which Elamex provides manufacturing services, while the customer retains responsibility for parts procurement and, in some cases, direct management of Elamex's employees. Turnkey projects, which accounted for 71.5% of Elamex's net sales during 1996, are those in which Elamex is responsible for manufacturing and delivering the completed product. All turnkey projects involve manufacturing and assembly services and materials procurement. In these projects, Elamex buys raw materials from U.S. and worldwide suppliers, and then performs the required assembly work using those raw materials. The majority of the finished products are returned to the United States and the import duty, if any, is paid only on the value added during assembly plus the value of foreign content. When finished products are delivered from the United States to other countries, the customer pays the import duty, if any, imposed by such other country. Under The North America Free Trade Agreement ("NAFTA"), most products produced by Elamex are duty-free into the United States. As an independent-contractor-manufacturing-arm of its customers, Elamex combines stringent quality control, sophisticated inventory management and cost-effective assembly techniques for the benefit of its customers. The Company's manufacturing operations are structured to incorporate the complex design specifications of its customers' products and to respond rapidly to their design changes. Prior to commencing a manufacturing project, Elamex works closely with the OEM to determine the manufacturing operations and the organization, selection and training of the work force, with particular emphasis on sophisticated training techniques. In establishing a "total manufacturing solution" to its OEM customers, the Company provides expertise in managing the work force available at its facilities, assisting its customers with accounting and management functions, and handling customs, warehousing and other matters inherent in manufacturing in Mexico. In a further effort to create a "total manufacturing solution" relationship with its customers, the Company has improved communications and information reporting using electronic data interchange with its customers. Elamex maintains a microwave link across the border to El Paso, Texas, and as a result it can be reached through telephone numbers in the El Paso area code; this system also functions for electronic data interchange, fully integrating the Company into the U.S. telephone system. Approximately 77.1% of Elamex's net sales for 1996 were derived from the manufacture of electronic products. Over the last three decades, continuous advances have been made in the design of electronic components and in interconnection technologies. Prior to the 1980s, manufacturers developed the technique of PTH technology. In PTH assembly, electrical components such as integrated circuits are attached to printed circuit boards by means of pins or leads that are inserted into pre-drilled holes and soldered to the electrical circuits on the boards. As electronic devices required greater numbers of components with increasing functional density and more interconnections, manufacturers developed SMT. SMT eliminates the need for holes in the printed circuit board, permitting a higher number of leads than PTH and finer lead-to-lead spacings ("pitch"). This technology also allows components to be placed on both sides of a board. Both factors substantially reduce board size. SMT requires the use of more expensive automated assembly equipment and substantially more engineering expertise than PTH. Elamex has adopted SMT as the primary means of electronic assembly for a number of major products, including personal computers, computer peripheral products, communications equipment, navigational control systems, automotive sensors and audio mixing boards. The Company also produces complex wire cable assemblies, plastic over-molded SMT printed circuit boards and fiber optic cables and connectors. Elamex customizes its assembly lines for each customer by assigning a separate workforce, team leaders, supervisors, production engineers, managers and quality control personnel to each project. Elamex analyzes the customer's proposed production process, including the original process if applicable, and proposes improvements whenever possible. Assembly lines are customized to the customer's needs before manufacturing begins. The size of an assembly line is jointly determined by Elamex and the customer. The customer generally provides some of the equipment, particularly for specialized testing and other customer-specific work, while Elamex provides the assembly services and generic equipment. Some 4 customers provide materials used in the production process, while others contract for turnkey projects involving procurement. Final manufacturing inspection may be performed at the customer's plant or by Elamex in "dock to stock" arrangements. Additionally, many products manufactured by Elamex are in the early stages of their product lifecycle and, therefore, may require ongoing design or engineering changes. Responsiveness to customers, particularly with respect to engineering changes once manufacturing has commenced, is a crucial component of Elamex's manufacturing approach. The Company's business is materially dependent on it's ability to produce products of uniformly high quality. The Company has established quality processes under International Standards Organization certification ISO 9002, military specifications of the U.S. Department of Defense and Good Manufacturing Practices certifications. Where appropriate, Elamex also works to achieve this objective using specialized "pick and place" automated equipment. To implement and maintain these quality goals, Elamex employs a large staff of professional engineers. CUSTOMERS AND MARKETS The Company has attempted to balance its marketing efforts and manufacturing services between OEMs of industrial and professional products and those of consumer electronics products. Elamex customers are a diverse group of United States, Canadian and multinational OEMs, including Black & Decker Corp., Polaroid Corp., Xircom, Inc., Texas Instruments, Motorola, JBL Professional/Harman International, Lockheed Martin, Adtran and Siemens Rolm. Contracts with Elamex's five largest customers for 1996 accounted for approximately 66% of Elamex's committed contract revenues. Approximately 18%, 16% and 14% of the Company's net sales for 1996 were derived from sales to Black & Decker Corp., a manufacturer of home appliance consumer products, Polaroid Corp., a manufacturer of photographic consumer products and Xircom, Inc., a manufacturer of computer products, respectively, and approximately 23%, 18% and 16% of the Company's net sales 1995 were derived from sales to Polaroid Corp., Black & Decker Corp., and Xircom, Inc., respectively. Certain of the Company's contracts contain pricing mechanisms that are based on the Company's costs. Elamex and O.F. Mossberg & Sons ("Mossberg") are parties to a manufacturing contract pursuant to which Elamex has agreed to manufacture shotgun components and safe deposit boxes. Due to the Mexican government's regulation of the manufacture of firearms, this contract is performed by Elamex de Torreon S.A. de C.V. ("Elamex de Torreon"), a company beneficially owned by certain of the Company's officers and directors, under contract to Elamex. Elamex has been qualified by the U.S. Department of Defense for manufacturing military and aerospace specifications products. To serve a larger base of customers in Europe as well as in the United States, Elamex has been certified under ISO 9002, one of the highest total quality control standards in the world, at all of its facilities where Elamex manages the labor force. The Company's primary customers include Black & Decker Corp., Polaroid Corp., Xircom, Inc., ADC Telecommunications, Inc. and Texas Instruments. 5 The chart below sets forth the Company's OEM customers by industry, the application for which Elamex manufactures products for such customers and the products and services provided by the Company.
OEM CUSTOMER END USE OEM APPLICATION ELAMEX PRODUCTS AND SERVICES ADC Telecommunications Telecommunications PBX Telecommunications equipment PBX/Switchboards & fiber optic cable connection Adtran Data Communications Cable/telephone communications Printed circuit boards systems American Sensors Commercial Smoke detectors Printed circuit boards & final assembly ASO Corporation Medical Flexible bandages Bandage packaging Austin Innovations Commercial Pet trainers Printed circuit boards & final assembly Black & Decker Commercial Power tool battery chargers Printed circuit boards & final assembly Clinipad Medical Medical kits Surgical kits packaging Honeywell Commercial Home and building controls Printed circuit boards Infopak Computer Palmtop computers Printed circuit boards & computer assembly Intermatic Commercial Electronic timers, powerstrips, Printed circuit boards & final sensors assembly JBL Professional/Harman Commercial Sound Mixers Printed circuit boards & final International assembly Lockheed Martin Military/Aerospace Military products Printed circuit boards & cables Lucent Technologies Telecommunications Telephones Telephone equipment repair Motorola Commercial Semiconductors Semiconductors/mark test & packing M. Stephens Manufacturing Commercial Electric connectors boxes Painting, polishing assembly and packaging of Electric connector boxes Nintendo of America Commercial Video Game System Printed circuit boards and final assembly O.F. Mossberg & Sons Commercial Pump action shotguns Fabrication of shotgun components & safe deposit boxes Plantronics Telecommunications Telecommunications equipment Printed circuit boards Polaroid Commercial Instant & industrial photographic Flexible and rigid circuit cameras boards/component assembly Siemens/Rolm Systems Telecommunications PBX Telecommunications equipment Switchboard repair Sunflower Commercial Marketing of promotional products Packaging of promotional products Texas Instruments Industrial Motor control circuits Printed circuit boards Automotive Automotive control devices Flexible printed circuit boards (transducers) Commercial Transponders for toll systems Printed circuit boards Texas Microsystems Computer Motherboards and VGAs Printed circuit boards Venusa Medical Intravenous kits Intravenous kit assembly Viskase Commercial Food products Casing of food products Xircom Computer LAN adapters Printed circuit boards & cables Zoom Telephonics Data Communications Communications products Printed circuit boards
SALES AND MARKETING The Company has pursued the diversification of its market segments and customer base and sought relationships with leading OEMs in the markets it serves. The Company's principal sources of new business originate from the growth of existing relationships, referrals and direct sales through senior management and direct sales personnel. Sales personnel, supported by the executive staff, identify and attempt to develop relationships with potential OEM customers who meet a certain profile, which includes financial stability, industry leadership, need for technology and assembly-driven manufacturing, anticipated unit volume 6 growth and long-term relationship potential. Elamex also conducts seminars to introduce potential customers to the benefits of contract manufacturing in Mexico. In addition to the efforts of it's sales force, Elamex may pursue the growth through selective acquisitions. COMPETITION The electronics assembly and the contract manufacturing industries are comprised of a large number of companies, several of which have achieved substantial market shares. Several of Elamex's competitors have significantly higher sales, primarily those manufacturers of high volume computer components where sales volume can be high. Elamex also faces competition from current and prospective customers who evaluate Elamex's capabilities against the merits of manufacturing products internally. Elamex competes with various companies, depending on the type of service or geographic area. Certain of Elamex's competitors, including SCI Systems, Inc. and Solectron Corporation and divisions of International Business Machines Corp., Inc. have substantially greater resources than Elamex. The Company believes that the primary bases of competition in its targeted markets are time to market, capability, price, manufacturing quality, advanced manufacturing technology and reliable delivery. Elamex believes that it generally competes favorably with respect to each of these factors. To remain competitive, the Company must continue to provide technologically advanced manufacturing services, maintain world-class quality levels, offer flexible delivery schedules, deliver reliable finished products and compete favorably on the basis of price. EFFECT OF NAFTA The Company believes that NAFTA is having an overall positive effect on its business. NAFTA eliminates import duties and reduces other restrictions on imports into the United States and Canada. These benefits enable Elamex to manufacture goods from imports into Mexico and to return the finished product to the United States and Canada, without paying significant duties. Moreover, the Company believes that NAFTA has the general effect of encouraging growth in industries for which Elamex provides manufacturing services, and will permit the Company's customers to increase their sales in the Mexican market. BACKLOG The Company's order backlog at December 31, 1996 was approximately $147.9 million, compared to order backlog at December 31, 1995 of approximately $115.2 million. Backlog consists of firm purchase orders, commitments and forecasts which are to be filled within the next 12 months. However, since orders and commitments may be rescheduled, increased or canceled, backlog is not necessarily a meaningful indicator of future financial performance. SUPPLIERS The Company uses numerous suppliers of electronic components and other materials for its operations. Although the Company has a general policy against procuring components without a customer commitment to pay for them, it must do so on occasion. While the Company will work with customers and suppliers to minimize the impact of any component shortages or allocations, component shortages and allocations have had, and are expected to have from time to time, short-term adverse effects on Company sales. RAW MATERIALS 7 Raw materials consist of electronic commodities, including integrated circuits, transistors and other solid state elements, printed circuit boards and other circuit elements, as well as components for electromechanical and medical assembly, many of which are provided by customers. Virtually all raw materials supplied by Elamex are purchased in Asia and the United States, with the larger part coming from the United States. Elamex believes that it is not materially dependent on any one supplier or group of suppliers; it purchased less than 6% of its supplies from its largest vendor in 1996. Certain vendors operate at full capacity from time to time and allocate their products among customers. Elamex believes that larger companies generally command larger allocations; however, because of its large-scale purchases of these products, Elamex also believes that it sometimes has greater bargaining power for particular products than its customers even though it may be smaller. EMPLOYEES Elamex had 5,040 employees at December 31, 1996, of which 264 were employees subcontracted from Elamex de Torreon. In 15 active facilities currently used by Elamex in its manufacturing operations, 291 employees in four facilities are covered by collective bargaining agreements; all other employees of the Company at the remaining eleven facilities are not. Elamex believes that its labor relations are good in all of its facilities. Twenty-nine of the Company's executives and senior managers who are citizens or residents of the United States are employees of a U.S. corporation owned by such executives, and provide contracted services to Elamex. The purpose of this arrangement is to provide to U.S.-resident employees U.S. dollar-denominated salaries and U.S.-style employee benefits. Under the contract, the Company pays to the corporation an amount equal to the salary and benefits provided to the executives by the corporation. ENVIRONMENTAL COMPLIANCE The Company's operations are subject to the Mexican General Law of Ecological Stabilization and Environmental Protection (the "Ecological Law") and the regulations promulgated thereunder. In accordance with the Ecological Law, companies engaged in industrial activities are subject to the regulatory jurisdiction of the SECRETARIA DEL MEDIO AMBIENTE, RECURSOS NATURALES Y PESCA (the "Ministry of the Environment, Natural Resources and Fishing"). Since September 1990, each such company has been required to file several semi-annual reports regarding its production facilities and to comply with the Ecological Law and the regulations thereunder, with respect to its environmental protection controls and the disposition of industrial waste. The Company is licensed to handle radioactive materials, which are presently used in the manufacture of smoke alarms, and complies with both U.S. and Mexican standards relating to the handling of such materials. In addition, the Company is subject to U.S. environmental laws and regulations as a consequence of the return to the United States of hazardous wastes generated by the Company that are derived from materials imported from the United States, a requirement of its participation in the Maquiladora program. Such laws and regulations may impose joint and several liability on certain statutory classes of persons for the costs of investigation and remediation of contaminated properties regardless of fault or the legality of the original disposal. These persons include the present and former owner or operator of a contaminated property and companies that generated, disposed of, or arranged for the disposal of hazardous substances found at a property. 8 Mexican environmental laws and regulations have become increasingly stringent over the last decade. This trend is likely to continue and may be influenced by the environmental agreement entered into by Mexico, the United States and Canada in connection with NAFTA. The Company believes that its policies with respect to environmental matters in Mexico currently exceed the standards set forth in the Ecological Law. The Company is committed to maintaining high standards of environmental protection controls. EXCHANGE RATES The following table sets forth, for the periods indicated, the high, low, average and period-end and free market rates for the purchase and sale of U.S. dollars (presented in each case as the average between such purchase and sale rates), expressed in nominal Pesos per U.S. dollar.
YEAR ENDED HIGH(1) LOW(1) AVERAGE (2) PERIOD END(1) DECEMBER 31, ------- ------ ----------- ------------- - ------------ 1990............................ Ps$.2.95 Ps$.2.68 Ps$.2.84 Ps$.2.95 1991............................ 3.07 2.95 3.01 3.07 1992............................ 3.14 3.06 3.08 3.12 1993............................ 3.16 3.02 3.11 3.11 1994............................ 5.00 3.11 3.35 5.00 1995............................ 8.05 5.00 6.44 7.69 1996 8.05 7.33 7.60 7.86 1997 (through March 3).......... 7.97 7.74 7.82 7.97 - ------
SOURCE: Ciemex Wefa Group (1) Daily rate at market close. (2) Average of daily rates. ITEM 2. PROPERTIES The Company's Ciudad Juarez facilities (including its headquarters) are located only a short distance from the U.S. border and the international airport, rail and truck depots in El Paso Texas. Set forth below are Elamex's principal manufacturing facilities:
LOCATION SQUARE FEET ACTIVITY LEASED/OWNED -------- ----------- -------- ------------ Cd. Juarez 80,280 Electronic Equipment Assembly and Electronic Circuit Leased(1) Manufacturing Cd. Juarez 88,897 Electromechanical Part Assembly Leased Cd. Juarez 44,909 Electronic Circuit Manufacturing Leased Cd. Juarez 58,841 Medical Product Assembly Owned(2) Cd. Juarez 43,034 Avionics Product Assembly Owned Cd. Juarez 64,866 Electromechanical Product Assembly Leased(1) Cd. Juarez 67,038 Medical Product Assembly Owned Cd. Juarez 40,263 Electronic Equipment Assembly Leased Delicias 26,804 Electromechanical Product Assembly Leased Nuevo Laredo 60,658 Telephone Repair and Auto Part Assembly Owned Nuevo Laredo 43,917 Telephone Repair Leased(1) Guadalajara 57,246 Testing of Electronic Semiconductors Owned(3) Torreon 55,845 Assembly of shotgun parts Owned Tijuana 55,647 Electromechanical product assembly Leased Tijuana 13,778 Electromechanical product assembly Leased
9 Monterrey 22,098 Electromechanical product assembly Leased Praxedis 11,517 Electromechanical product assembly Leased ------ Total 835,638
- ------- (1) Leased from a company controlled by Federico Barrio, a Director of the Company. (2) A customer who leases this facility has an option under the lease to purchase the facility at fair market value. (3) Asset available for sale or lease. ITEM 3. LEGAL PROCEEDINGS The Company is a party to various claims, actions and complaints, the ultimate disposition of which, in the opinion of management will not have a material adverse effect on the business or financial position of the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS On April 18, 1996 the stockholders of Elamex, S.A. de C.V. at a general ordinary annual stockholders meeting approved: (i) the business report on Elamex, S.A. de C.V. for 1995 fiscal year;(ii) the presentation of audited financial statements as of December 31, 1995 and the report by the statutory auditor; (iii) the proposal for application of Net Income; (iv) the election of Board of Directors, Secretary and Statutory Auditor; and (v) the ratification of the appointment of KPMG Peat Marwick LLP as independent auditors of Elamex, S.A. de C.V. for the fiscal year ending December 31, 1996; On February 24, 1997 the stockholders of Elamex, S.A. de C.V. at an extraordinary stockholders meeting approved the merger of Kronos, Inc., formerly a wholly owned subsidiary of the Company, into Elamex, S.A. de C.V., effective December 31, 1996. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS The Company's Class I Common Stock, no par value ("Common Stock") has been traded on The Nasdaq National Market under symbol ELAMF since March 20, 1996. The following table sets forth, for the period stated, the high and low closing sales prices for the Common Stock as reported on the Nasdaq National Market Systems. CLOSING SALES PRICE PERIOD HIGH LOW - ------------------------------------------------------------------------- March 20, 1996 - March 31, 1996 9 1/8 8 7/8 April 1, 1996 - June 30, 1996 10 3/8 8 7/8 July 1, 1996 - September 30, 1996 9 7/8 8 October 1, 1996 - December 31, 1996 10 1/2 8 7/8 January 1, 1997 - March 14, 1997 11 3/4 9 10 The Company currently intends to follow a policy of retaining earnings, if any, for use in the development of business and to finance growth. The Company has never paid cash dividends on its Common Stock and has no plans to do so in the foreseeable future. Certain of the Company's existing bank credit lines impose limitations on the amount of dividends that Elamex may pay. Specifically, one limits the amount of dividends that may be declared, without the consent of the lender, to the prior year's net profits. Another credit agreement permits payment of dividends only if the Company has complied with all of its covenants and other obligations under such credit agreement. As of March 21, 1997, there were approximately 1,098 beneficial holders of the Company's Common Stock. Also, on April 18, 1996 at the Company's annual stockholders meeting, $897,406 was reserved for the stock repurchase fund. The Mexican Law of Commercial Companies ("LEY GENERAL DE SOCIEDADES MERCANTILES") requires that at least 5% of the Company's net income each year (after profit sharing and other deductions required by law) be allocated to a legal reserve fund, which is not thereafter available for distribution except as a stock dividend until the amount of such fund equals 20% of the Company's historical capital stock. The Company may also maintain additional reserves. TAXATION OF DIVIDENDS UNITED STATES FEDERAL INCOME TAXES Dividends (other than certain dividends paid on a pro rata basis in additional Common Stock) paid by the Company with respect to Common Stock out of current or accumulated earnings and profits ("E&P") to a United States holder will be treated as ordinary income to such holder. United States corporations that hold Common Stock will not be entitled to the dividends received deduction generally available for dividends received from United States corporations (and certain non-United States corporations). To the extent a distribution exceeds E&P, it will be treated first as a return of such holder's basis to the extent thereof, and then as gain from the sale of a capital asset. Such capital gain will be long term if the Common Stock has been held by such holder for more than one year. Dividends generally will constitute foreign source "passive income" or, in the case of certain United States holders, "financial services income" for U.S. foreign tax credit purposes. Dividends paid in Mexican Pesos will be included in gross income of a United States holder in a U.S. dollar amount calculated by reference to the exchange rate in effect on the date of receipt of the distribution, whether or not the Pesos are in fact converted into U.S. dollars at that time. If Pesos are converted into U.S. dollars on the day they are received by a United States holder, such holder generally should not be required to recognize foreign currency gain or loss in respect of the dividend income. United States holders should consult their own tax advisors regarding the treatment of any foreign currency gain or loss on any Pesos which are not converted into U.S. dollars on the day the Pesos are received by such holders. Distributions of additional Common Stock to United States holders with respect to their pre-distribution holdings of Common Stock ("old Common Stock") that are made as part of a pro rata distribution to all stockholders of the Company generally will not be subject to U.S. federal income tax 11 (except with respect to cash received in lieu of fractional shares of Common Stock). The basis of the Common Stock so received will be determined by allocating the United States holders' adjusted basis in the old Common Stock between the old Common Stock and the Common Stock so received. A holder of Common Stock that is, with respect to the United States, not a United States holder (a "non-United States holder") will not be subject to U.S. federal income or withholding tax on dividends paid with respect to the Common Stock, unless such dividends are effectively connected with the conduct by the holder of a trade or business in the United States. MEXICAN INCOME TAXES Mexican income tax law requires that Mexican corporations must pay income tax on taxable income for each fiscal year. Mexican corporations must maintain an account called the CUENTA DE UTILIDAD FISCAL NETA or "previously taxed net earnings account" ("CUFIN", from the Spanish initials). In its CUFIN the Mexican corporation records the balance of the tax profits from previous years, on which income tax has already been paid plus dividends received from Mexican corporations. The CUFIN account balance is subject to restatement for inflation. Whenever a Mexican corporation pays dividends to its stockholders, if the amount maintained in the CUFIN balance exceeds the dividend payment to be made, neither the Mexican corporation nor the stockholders will have to pay Mexican income tax on such dividend payment. Therefore, for Mexican tax purposes, dividend payments made by the Company to United States holders will not generally be subject to imposition of Mexican income taxes. However, if the Mexican corporation's CUFIN balance is less than the dividend payment, then the Mexican corporation must pay income tax of 34% of 1.515 times the amount which exceeds such balance. If the Company distributes stock dividends to United States holders, or pays a dividend in cash and such payment is to be used by the United States holders for a capital subscription or for reinvestment in the Company's stock, and either such transaction by the United States holders occurs within 30 days following the date of the dividend payment, there will be no Mexican tax consequences for such United States holders, so long as the Company does not reduce its capital stock liquidity. If the Company reduces its capital stock and the balance of its CUFIN plus its capital contributions restated for inflation is less than the amount of such stock reduction, the Company will be required to pay income tax on such excess. Tax must also be paid on the excess, if any, of the shareholder's equity over the sum of the CUFIN, the capital contributions restated for inflation and the taxable amount determined as previously indicated. In this case the taxable basis cannot be greater than the total amount of the capital reduction. ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA Although the Company is a Mexican Company located in Mexico, its functional currency is the U.S. dollar, which is the principal currency in which it conducts business. The Company prepares consolidated financial statements in U.S. dollars in conformity with U.S. GAAP and also maintains certain financial information in conformity with Mexican GAAP. Except as otherwise stated herein, all monetary amounts in this report have been presented in U.S. dollars. 12 The following table sets forth selected consolidated financial data of the Company as of and for each of the years ended December 31, 1992, 1993, 1994, 1995 and 1996. Each of the Company's fiscal quarters is comprised of 13 weeks and ends on a Sunday, except for the first quarter, which starts on January 1, and the fourth quarter which ends on December 31. This table is qualified by reference to and should be read in conjunction with the Consolidated Financial Statements, related Notes thereto and other financial data included elsewhere in this Form 10-K. The selected consolidated financial data presented below under the captions "Income Statement Data" for each of the years in the four-year period ended December 31, 1996 and "Balance Sheet Data" as of December 31, 1993, 1994, 1995 and 1996, set forth below, have been derived from consolidated financial statements of Elamex, S.A. de C.V. and subsidiaries, which financial statements have been audited by KPMG Peat Marwick LLP, independent certified public accountants. The consolidated financial statements as of December 31, 1996, and 1995, and for each of the years in the three-year period ended December 31, 1996, and the report thereon, are included elsewhere in this Form 10-K. The selected consolidated financial data as of December 31, 1992 have been derived from unaudited financial data of predecessor entities. These historical results are not necessarily indicative of the results to be expected in the future.
YEAR ENDED DECEMBER 31, ------------------------ 1992 (1) 1993 1994 1995 1996 -------- ---- ---- ---- ---- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) INCOME STATEMENT DATA: Net sales............... $60,221 $70,244 $84,816 $97,544 $118,919 Gross profit............ 6,977 9,524 10,210 14,972 18,683 Operating income........ 980 2,617 2,748 8,788 10,366 EBITDA 2,717 4,613 4,703 11,206 13,315 Other income (expense).. (769) (821) (460) (852) 136 Income tax provision(2). 256 622 743 1,727 2,575 Net income (loss)....... $(45) $1,173 $1,545 $6,209 $7,927 Net income (loss) per $(0.27) $(0.03) $0.23 $1.20 $1.15 share (3) BALANCE SHEET DATA: Current assets.......... $16,227 $19,659 $23,360 $30,586 $38,955 Property, plant and 22,211 22,582 22,684 24,023 28,611 equipment, net. Total assets............ 39,718 43,259 46,783 55,110 67,976 Short-term debt and current maturities of long-term debt 4,959 12,017 2,830 5,257 564 Long-term debt, excluding current maturities.... 7,433 8,603 16,176 15,212 923 Total stockholders' equity (4) $9,160 $13,336 $14,495 $23,196 $49,864
- ------ (1) The Selected Consolidated Financial Data as of December 31, 1992 have been derived from unaudited financial data. Amounts from separate predecessor entities are included in the Selected Consolidated Financial Data. All material intercompany balances and transactions have been eliminated. (2) The 1993 amount includes the cumulative effect of a change in accounting principle amounting to $375,000 resulting from the adoption of the Financial Accounting Standards Board's Statement of Financial Standards No. 109 ACCOUNTING FOR INCOME TAXES ("FAS 109") in 1993. (3) 1996 Net income per share of Common Stock was calculated by dividing net income by the weighted average number of shares of Common Stock outstanding which was approximately 6.9 million shares, 1995 and previous years' net income (loss) per share of common stock was calculated by dividing net income (loss) by the number of common shares outstanding as of the Effective Date, 5,000,000, after deducting amounts attributable to the rights of senior securities. 13 (4) Does not include redeemable Preferred Stock and redeemable Common Stock as of December 31, 1992, 1993, and 1994 of $9,485, $3,406 and $3,792, respectively. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION INTRODUCTION GENERAL The following discussion should be read in conjunction with the Consolidated Financial Statements and Notes thereto appearing elsewhere in this Form 10-K. The Company was acquired by Accel, S.A. de C.V. and certain other investors in May 1990 and is controlled by Accel, S.A. de C.V. at present; however, the internal organizational structure has changed during this period. Elamex, S.A. de C.V. is the successor pursuant to the merger, effective October 1, 1995 (the "Effective Date"), of Elamex Internacional with and into Elamex, S.A. de C.V. Although the Company is a Mexican corporation located in Mexico, its functional currency is the U.S. dollar, which is the principal currency in which it conducts business. The Company prepares Consolidated Financial Statements in U.S. dollars in conformity with U.S. GAAP and maintains certain financial information in accordance with Mexican GAAP. EXCHANGE RATES; INFLATION The Company's results of operations are generally affected by changes in the exchange rate between Pesos and U.S. dollars as follows: In the case of an appreciation of value of the U.S. dollar against the Peso, the Company generally experiences a benefit because its revenues are denominated in U.S. dollars and certain of its costs and expenses are denominated in Pesos. This benefit will be reduced by relative inflation in the Peso versus the U.S. dollar, as well as by inflation within Mexico and by competitive pressures from the Company's customers. In the case of a depreciation of the U.S. dollar against the Peso, the Company generally experiences a detriment mirroring the situation as to appreciation of the dollar, and this detriment will similarly be reduced by relative inflation in the U.S. dollar against the Peso and increased pricing by the Company. On October 26, 1996, the Mexican government signed a pact with labor and business representatives called the Alliance for Economic Growth (the "Alliance"). The Alliance defines a macroeconomic policy designed to support Mexico's economic recovery and promote future growth. By its provisions, the minimum wage rate was increased by 17% effective December 1996. Also, over the 12 months following execution of the Alliance, utility charges will increase an average of approximately 20%. Under the Alliance the Mexican government will attempt to boost the economy by providing tax incentives for new business investments, while utilizing wage and price controls to contain inflation. As part of the Alliance the Mexican government has committed to maintaining a free flotation system for the Peso in the international currency markets. The Alliance also calls for development of social and rural programs. The impact of the Alliance on the Company or the Mexican economy cannot be accurately predicted. CERTAIN ACCOUNTING POLICIES Direct manufacturing contract costs related to initial manufacturing layout and setup for new contracts ("Initial Manufacturing Expenses") are expensed in the current period when such costs are not considered significant. When such costs are considered significant, the portion of such costs expended for 14 capital equipment are capitalized and are amortized using the straight-line method during the length of the applicable contract. No manufacturing contract costs have been capitalized for the year ended December 31, 1996 and 1995. In addition, labor costs required to achieve normal productivity levels are expensed in the period incurred. Commencing in 1995, the Company also adopted a policy of not engaging in futures contracts with the purpose of hedging U.S. dollar/New Peso revenues or costs, with the exception of regular treasury operations to cover operating requirements for up to 30 days. STATUTORY EMPLOYEE PROFIT SHARING All Mexican companies are required to pay their employees, in addition to their agreed compensation benefits, profit sharing in an aggregate amount equal to 10% of net income, calculated for employee profit sharing purposes, of the individual corporation employing such employees. All of Elamex's employees are employed by its subsidiaries, each of which pays profit sharing in accordance with its respective net income for profit sharing purposes. Tax losses do not affect employee profit sharing. Statutory employee profit sharing expense is reflected in the Company's cost of goods sold and selling, general and administrative expenses, depending upon the function of the employees to whom profit sharing payments are made. The Company's net income on a consolidated basis as shown in the Consolidated Financial Statements is not a meaningful indication of net income of the Company's subsidiaries for profit sharing purposes or of the amount of employee profit sharing. Statutory employee profit sharing was $159,731 or an effective rate of 1.52% of income before taxes, for the year ended December 31, 1996, compared to $120,474 or an effective rate of 1.52% of income before taxes, for the year ended December 31, 1995 and $185,923 or an effective rate of 8.13% of income before taxes, for the year ended December 31, 1994. RESULTS OF OPERATIONS GENERAL The following table sets forth income statement data as a percentage of net sales, derived from audited Consolidated Financial Statements included elsewhere herein, for each period indicated, unless otherwise indicated. PERCENTAGE OF NET SALES YEAR ENDED DECEMBER 31, 1994 1995 1996 ---- ---- ---- Net sales................................ 100.0% 100.0% 100.0% Cost of sales............................ 88.0 84.7 84.3 Gross profit............................. 12.0 15.3 15.7 Selling, general and administrative expenses............. 8.8 6.3 7.0 Operating income......................... 3.2 9.0 8.7 Other income (expense)................... (0.5) (0.9) 0.1 Income before taxes...................... 2.7 8.1 8.8 Income tax provision..................... 0.9 1.8 2.2 Net income (loss)........................ 1.8 6.4 6.7 1996 COMPARED TO 1995 NET SALES. Net sales increased 22% to $118.9 million in 1996 from $97.5 million in 1995. The increase was attributable principally to increased dollar volume of turnkey sales to existing customers, and, to a lesser 15 extent, an expansion of business from new customers in 1996. GROSS PROFIT. Gross profit increased by $3.7 million, or 24.8%, to $18.7 million in 1996 compared to $15.0 million for the prior year. Gross profit as a percentage of net sales ("gross margin") increased to 15.7% in 1996 from 15.3% in 1995 due primarily to a shift in the Company's sales mix toward higher assembly-only services rather than turnkey services. Better utilization of the Company's manufacturing facilities also contributed to the increased gross margin, as manufacturing overhead increased at a lower rate than net sales. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses increased 34.5% to $8.3 million, or 7.0% of net sales, in the year ended December 31, 1996, as compared to $6.2 million, or 6.3% of net sales, in the year ended December 31, 1995. This increase resulted in part from the additional cost involved of a public company, an increase in the administrative manufacturing infrastructure and the reinforcement of the supply chain management processes. Of the Company's aggregate cost of sales and selling, general and administrative expenses in 1996, approximately 30.3% was incurred in Pesos, compared to approximately 29.7% in 1995. OPERATING INCOME. Operating income increased by 18.0% to $10.4 million, or 8.7% of net sales, during the year ended December 31, 1996 from $8.8 million, or 9.0% of net sales, during the year ended December 31, 1995, as a result of the above factors, the most significant of which were changes in the sales mix, turnkey operations and the economies of scale described under "-Gross Profit" and "-Selling, General and Administrative Expenses" above. OTHER INCOME (EXPENSE). Interest and other expenses decreased by $1.0 million to $0.1 million, or 0.1% of net sales, for the year ended December 31, 1996, from $(0.9) million or (0.9)% of net sales, for the year ended December 31, 1995. This decrease resulted principally from lower rates and decreased borrowings during the period as a result of the public offering proceeds, partially offset by less interest income on short term investments. 1995 COMPARED TO 1994 NET SALES. Net sales increased 15% to $97.5 million in 1995 from $84.8 million in 1994. The increase was attributable principally to increased dollar volume of turnkey sales to existing customers, and, to a lesser extent, an expansion of business from new customers in 1995. GROSS PROFIT. Gross profit increased by $4.8 million, or 46.6%, to $14.9 million in 1995 compared to $10.2 million for the prior year. Gross profit as a percentage of net sales ("gross margin") increased to 15.3% in 1995 from 12.0% in 1994 due primarily to a shift in the Company's sales mix toward turnkey services with substantially greater revenue from the assembly component of turnkey services than the turnkey services provided by Elamex in prior periods; the assembly component is the higher-margin component of turnkey services, while materials procurement is the lower-margin component. Better utilization of the Company's manufacturing facilities also contributed to the increased gross margin, as manufacturing overhead increased at a lower rate than net sales. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses decreased 17.1% to $6.2 million, or 6.3% of net sales, in the year ended December 31, 1995, as compared to $7.5 million, or 8.8% of net sales, in the year ended December 31, 1994. This decrease resulted in part from an increase in net sales that was achieved with essentially the same personnel as in 1994, in addition to a depreciation of the Mexican peso; from December 18, 1994 through December 31, 1995, the U.S. dollar 16 appreciated 128%, measured in value against the Peso. By December 31, 1995, the beneficial effects of the devaluation were partially offset by increases in wages and other costs in Mexico affected by inflation, which were incurred by the Company during 1995. Of the Company's aggregate cost of sales and selling, general and administrative expenses in 1995, approximately 29.7% was incurred in Pesos, compared to approximately 39.9% in 1994. This decrease was due to the devaluation of the Peso during 1995 and the change in sales mix during the period. OPERATING INCOME. Operating income increased by 219.9% to $8.8 million, or 9.0% of net sales, during the year ended December 31, 1995 and from $2.7 million, or 3.2% of net sales, during the year ended December 31, 1994, as a result of the above factors, the most significant of which were changes in turnkey operations, the devaluation of the Peso and the economies of scale described under "-Gross Profit" and "-Selling, General and Administrative Expenses" above. OTHER INCOME (EXPENSE). Interest and other expenses increased by $0.4 million to $(0.9) million, or (0.9)% of net sales, in the year ended December 31, 1995, from $(0.5) million or (0.5)% of net sales, in the year ended December 31, 1994. This increase resulted principally from higher rates and increased borrowings required to support the Company's working capital growth needs during the period, offset by interest increases on deposits, principally in Mexican banks, during a period of high Mexican interest rates. INCOME TAX; ASSETS TAX Under Mexican tax law as presently in effect, Mexican companies must pay the greater of the income tax or the assets tax. The corporate income tax rate is 34% . For income tax purposes, taxpayers may deduct certain expenses and recognize certain effects of inflation and exchange rate gains or losses, but these deductions are for different amounts than expenses recognized for financial reporting under U.S. GAAP. For income tax purposes, tax losses, updated to recognize the effects of inflation, may be carried forward ten years succeeding the year of the loss. Previously paid assets tax, adjusted for inflation, may be used to offset income taxes that exceed the assets tax due for the year for ten years following the payment of the tax. In addition, tax net operating loss carryforwards can be utilized by the Mexican company that incurred the losses. The amounts of the Company's asset tax and net operating loss carryforwards at December 31, 1996 and 1995 are set forth in Note 7 to the Consolidated Financial Statements. The Mexican asset tax was a 2% tax on assets for 1994 and prior years, and a 1.8% tax on assets for 1995 and later years, computed by recognizing certain effects of inflation, and by reducing the asset base by the amount of certain liabilities. The asset tax operates like an alternative minimum tax in the U.S. The Company's effective tax rate was 121% in 1992 (principally due to imposition of the assets tax as the Company relied on net operating loss carryforwards to reduce its income tax to an amount that was less than the assets tax), 13.8% in 1993, 32.5% in 1994, 21.8% in 1995 and 24.5% in 1996. Accel files consolidated Mexican federal income tax returns, which include Elamex. Consequently, Accel and Elamex have entered into a tax sharing agreement providing for the allocation of taxes and tax benefits to the Company. Under such agreement Elamex will pay Accel an amount equal to the Mexican Federal monthly estimated income tax or assets tax (whichever applies), proportionate to Accel's direct or indirect percentage of ownership of the capital stock of Elamex, S.A. de C.V. and its subsidiaries. The amount Elamex must pay under this agreement will not exceed the amount Elamex would be liable to pay in taxes if each entity in the Elamex group filed separate tax returns. LIQUIDITY AND CAPITAL RESOURCES 17 In recent years the Company has experienced significantly increased working capital needs as its business has grown and there has been an increase in the number of turnkey projects requiring purchases of materials by the Company. At December 31, 1996, the Company had working capital (defined as inventory plus trade and other accounts receivable minus accounts payable) of $23.3 million compared to $19.9 million at December 31, 1995. This increase was due to growth in inventories and accounts receivable associated with an increase in sales, especially those related to turnkey contracts. During the year ended December 31, 1996, the Company had gross operating activities of $14.1 million, which consisted of net income of $7.9 million plus depreciation and amortization of $2.9 million in addition to deferred taxes and allowances of $3.3 million. This flow of activities financed an increase in accounts receivable of $0.7 million and inventories of $5.3 million, which were offset by a net increase in trade payables and accrued expenses of $2.7 million, resulting in net cash provided by operations of $10.9 million. The increases in accounts receivable and inventories were due to the Company's increased net sales during the period. Cash provided by operations plus proceeds from financing of equipment of $1.3 million and proceeds from its initial public offering of approximately $18.7 million allowed the Company to pay down $20.3 million of indebtedness and to invest $7.2 million in property, plant and equipment. In 1996 EBITDA was $13.3 or 11.2% of net sales, and capital expenditures were $7.2 million. EBITDA in 1996 increased 18.8% over 1995. In 1995 EBITDA was $11.2 million. EBITDA is defined by the Company as net income before interest, income taxes, depreciation and amortization. EBITDA is presented in this discussion of liquidity and capital resource because it is a widely accepted financial indicator of the Company's ability to incur and service debt. However, EBITDA should not be considered in isolation as a substitute for net income or cash flow data prepared in accordance with generally accepted accounting principles or as measure of the Company's profitability or liquidity. In addition, this measure of EBITDA might not be comparable to measures as defined and reported by other companies. The Company had the following lines of credit and outstanding borrowings at December 31, 1996:
LENDER OR CLASS OF TYPE AMOUNT INTEREST MATURITY DATE SECURITIES ---- OUTSTANDING AS OF RATE AS OF ------------- - ---------- DECEMBER 31, 1996 DECEMBER 31, 1996 ----------------- ----------------- Comerica Bank $10 million Line of Credit - 8.75% May 1, 1999 Bank of America N.T. & $10 million Line of S.A. Credit - 8.63 December 15, 1999 Confia S.A......(1) $2.2 million Line of Credit 9.13 January 8, 1997 Norwest Bank El Paso $5 million Line of Credit - 8.25 December 6, 2001 Amplicon Financial $1.3 million capital lease 1,306,427 7.92 December 15, 1999 --------- Total......... $1,306,427
- ------ (1) Line of credit under renewal. Effective March 19, 1996 the Company successfully completed an Initial Public Offering of 2,400,000 shares of Class I Common Stock, no par value, the net proceeds of which totaled approximately $18,700,000 and were used to pay down $15,900,000 of outstanding debt and Subordinated Debentures. The remaining $2,800,000 was used as working capital. 18 Under its several credit agreements, Elamex has committed to maintain: (a) a debt service coverage ratio of 1.3, (b) a current ratio no lower than 1.25, (c) a leverage ratio (defined as the ratio of senior indebtedness to the sum of capital plus subordinated indebtedness) no greater than 1.5 and (d) equity plus subordinated indebtedness of no less than $18 million. The Company may not invest in or advance significant amounts to other companies who are not a party to one of the debt agreements. During the last three years, the Company has been in compliance with all material covenants related to its debt obligations and credit agreements. The Company has entered into a certain capital lease transaction to lease machinery and equipment with an original cost of approximately $1.3 million in 1996. The future minimum rental payments under this equipment lease and other capital leases are $658,167 in 1997, $509,981 in 1998 and $490,663 in 1999. See Note 6 to the Consolidated Financial Statements for further information regarding operating lease commitments. 19 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEPENDENT AUDITORS' REPORT The Board of Directors and Stockholders Elamex, S.A. de C.V.: We have audited the accompanying consolidated balance sheets of Elamex, S.A. de C.V. and subsidiaries as of December 31, 1996 and 1995, and the related consolidated statements of earnings, stockholders' equity, and cash flows for each of the years in the three-year period ended December 31, 1996. 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 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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of Elamex, S.A. de C.V. and subsidiaries as of December 31, 1996 and 1995, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1996, in conformity with accounting principles generally accepted in the United States of America. KPMG Peat Marwick LLP El Paso, Texas February 27, 1997 20 ELAMEX, S.A. de C.V. AND SUBSIDIARIES Consolidated Balance Sheets (In U. S. Dollars)
DECEMBER 31, ------------ ASSETS 1996 1995 ---- ---- Current assets: Cash and cash equivalents $ 6,269,825 2,848,628 Receivables (note 5): Trade accounts, less allowance for doubtful accounts ($525,029 in 1996 and $148,629 in 1995) 13,944,948 14,860,718 Other receivables 2,047,019 831,740 ---------- ---------- Total receivables 15,991,967 15,692,458 ---------- ---------- Inventories, net (note 3) 16,200,149 11,358,182 Prepaid expenses 492,933 686,766 ---------- ---------- Total current assets 38,954,874 30,586,034 Property, plant and equipment, net (notes 4 and 5) 28,610,719 24,022,728 Other assets, net 410,460 501,726 ---------- ---------- $ 67,976,053 55,110,488 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Notes payable (note 5) $ - 2,000,000 Accounts payable 8,886,613 7,134,943 Accrued expenses 2,292,682 1,746,074 Current installments of long-term debt (note 5) - 2,691,054 Current obligations of capital leases (note 6) 564,216 565,555 Taxes payable 1,286,132 861,797 Deferred income taxes (note 7) 1,379,783 - Due to related parties (note 12) 86,743 156,124 ---------- ------------ Total current liabilities 14,496,169 15,155,547 Subordinated debentures (note 12) - 2,044,558 Long-term debt, excluding current installments (note 5) - 12,986,621 Capital lease obligations, excluding current obligations (note 6) 923,273 181,062 Other liabilities 212,403 181,964 Deferred income taxes (note 7) 2,480,399 1,364,407 ---------- ----------- Total liabilities 18,112,244 31,914,159 ---------- ---------- Stockholders' equity (notes 8 and 9): Preferred stock, authorized 50,000,000 shares, none issued or outstanding - - Common stock, authorized 22,400,000 shares, 7,400,000 and, 5,000,000 shares issued and outstanding in 1996 and 1995, respectively 35,010,468 16,270,459 Retained earnings 14,853,341 6,925,870 ---------- ----------- Total stockholders' equity 49,863,809 23,196,329 ---------- ---------- Commitments and contingencies (notes 6, 9 and 13) - - $ 67,976,053 55,110,488 ========== ==========
See accompanying notes to consolidated financial statements. 21 ELAMEX, S.A. de C.V. AND SUBSIDIARIES Consolidated Statements of Earnings (In U. S. Dollars)
YEARS ENDED DECEMBER 31, ------------------------ 1996 1995 1994 ---- ---- ---- Net sales $ 118,918,913 97,543,581 84,816,306 Cost of sales 100,236,384 82,571,960 74,605,956 ----------- ---------- ---------- Gross profit 18,682,529 14,971,621 10,210,350 ------------ ---------- ---------- Operating expenses: General and administrative 7,630,870 5,560,356 6,658,530 Selling 685,544 622,811 803,918 -------------- ------------ ------------ Total operating expenses 8,316,414 6,183,167 7,462,448 ------------- ----------- ----------- Operating income 10,366,115 8,788,454 2,747,902 ------------ ----------- ----------- Other income (expense): Interest income 255,362 965,341 153,191 Interest expense (944,003) (2,359,451) (1,689,986) Other, net 825,076 541,799 1,077,048 -------------- ------------ ----------- Total other income (expense) 136,435 (852,311) (459,747) -------------- ------------ ------------- Income before income taxes 10,502,550 7,936,143 2,288,155 Income tax provision (note 7) 2,575,079 1,727,000 742,902 ------------- ----------- ------------ Net income $ 7,927,471 6,209,143 1,545,253 ============= =========== =========== Net income per common share (note 14) $ 1.15 1.20 0.23 ==== ==== ==== Weighted average shares outstanding 6,880,548 5,000,000 5,000,000
See accompanying notes to consolidated financial statements. 22
ELAMEX, S.A. de C.V. AND SUBSIDIARIES Consolidated Statements of Stockholders' Equity (In U. S. Dollars) Retained Total Common Earnings Stockholders' Stock (Deficit) Equity ----- --------- ------ Balances at December 31, 1993 $ 13,552,031 (215,646) 13,336,385 Net income - 1,545,253 1,545,253 Accretion of redemption premium on redeemable common stock - (386,442) (386,442) -------------- ---------- ------------ Balances at December 31, 1994 13,552,031 943,165 14,495,196 Net income - 6,209,143 6,209,143 Cash capital contribution 2,718,428 - 2,718,428 Redemption of common stock (16,270,459) - (16,270,459) Issuance of common stock 16,270,459 - 16,270,459 Accretion of redemption premium on redeemable common stock - (226,438) (226,438) -------------- ---------- ------------ Balances at December 31, 1995 16,270,459 6,925,870 23,196,329 Net income - 7,927,471 7,927,471 Proceeds from sale of common stock, net 18,740,009 - 18,740,009 -------------- ---------- ------------ Balances at December 31, 1996 $ 35,010,468 14,853,341 49,863,809 ============== ========== ============ See accompanying notes to consolidated financial statements. 23 ELAMEX, S.A. de C.V. AND SUBSIDIARIES Consolidated Statements of Cash Flows (In U. S. Dollars) YEARS ENDED DECEMBER 31, ------------------------ 1996 1995 1994 ---- ---- ---- Cash flows provided by operating activities: Net income $ 7,927,471 6,209,143 1,545,253 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 2,948,887 2,417,583 1,954,699 Allowance for doubtful trade accounts receivable 376,400 (45,103) 146,241 Allowance for excess and obsolete inventory 426,358 608,777 647,719 Deferred income taxes, net 2,495,775 1,364,407 - (Gain) loss on disposal of equipment - (2,414) 56,789 Change in assets and liabilities: Trade accounts receivable 539,370 (3,040,022) (2,502,993) Other receivables (1,215,279) (63,526) (80,757) Inventories (5,268,325) (3,093,396) (1,661,107) Prepaid expenses 193,833 (438,953) (111,611) Other assets (224,071) 39,396 111,214 Accounts payable 1,751,670 (99,007) 4,079,246 Accrued expenses, related parties, and taxes payable 901,562 723,468 (270,169) Other liabilities 30,439 (33,486) (24,821) ------------- ----------- ------------- Net cash provided by operating activities 10,884,090 4,546,867 3,889,703 ------------- ----------- ------------- Cash flows used by investing activities: Purchase of property, plant and equipment (7,221,541) (3,572,668) (2,188,736) Proceeds from disposal of equipment - 16,771 242,968 ------------- ----------- ------------- Net cash used by investing activities (7,221,541) (3,555,897) (1,945,768) ------------- ----------- ------------- Cash flows provided (used) by financing activities: Repayments of debt due to a related party - - (191,007) Net increase (decrease) in notes payable (2,000,000) 2,000,000 (10,300,000) Proceeds from issuance of long-term debt - 8,394,341 10,400,000 Repayment of long-term debt (17,722,233) (8,366,666) (1,166,666) Principal repayments of capital lease obligations (565,555) (564,988) (547,256) Proceeds from financing of equipment 1,306,427 - - Proceeds from capital contributions - 2,718,428 - Redemption of redeemable common stock - (4,018,444) - Proceeds from sale of stock, net 18,740,009 - - ------------- ----------- ------------- Net cash provided (used) by financing activities (241,352) 162,671 (1,804,929) ------------- ----------- ------------- Net increase in cash and cash equivalents 3,421,197 1,153,641 139,006 Cash and cash equivalents, beginning of year 2,848,628 1,694,987 1,555,981 ------------- ----------- ------------- Cash and cash equivalents, end of year $ 6,269,825 2,848,628 1,694,987 ============= =========== =============
See accompanying notes to consolidated financial statements. 24 ELAMEX, S.A. de C.V. AND SUBSIDIARIES Notes to Consolidated Financial Statements (In U.S. Dollars) (1) ORGANIZATION AND BASIS OF PRESENTATION COMPANY BACKGROUND Elamex, S.A. de C.V. and its subsidiaries ("Elamex" or the "Company") are Mexican companies, incorporated under the laws of Mexico. Elamex provides contract assembly services and turnkey manufacturing services to customers primarily located in the United States and Canada. The Company manufactures products mainly for companies in the electronics industry as well as in the electromechanical, avionics, and medical industries. All of the Company's manufacturing machinery and equipment are located in facilities in Ciudad Juarez, Nuevo Laredo, Guadalajara, Monterrey, Tijuana, and Delicias, Mexico. Although the organizational structure of Elamex changed during 1995, the business has operated under the control of substantially the same investor group since May 1990. The Company is a subsidiary of Accel, S.A. de C.V. (Accel) which owns approximately 51% of the Company's issued and outstanding common shares at December 31, 1996. As presented in these financial statements, the Company was formed effective October 1, 1995 (the "Effective Date") by means of a merger transaction between the predecessor to Elamex and its parent holding company, Elamex Internacional, S.A. de C.V. ("Internacional"). The merger was accounted for in a manner similar to a pooling of interests due to common control of the merged entities. As part of the merger transaction, the stock of Elamex, S.A. de C.V. was canceled and replaced by shares issued to Internacional's stockholders proportionate to their ownership interest. Internacional's stock was subsequently canceled. BASIS OF PRESENTATION These financial statements and accompanying notes are prepared in U.S. dollars, the functional and reporting currency of Elamex. The consolidated financial statements include the financial position at December 31, 1996 and 1995 and results of operations for the three years ended December 31, 1996 of: - Elamex Internacional, S.A. de C.V., whose assets and liabilities were merged into Elamex on the Effective Date. - Elamex, S.A. de C.V., a wholly-owned subsidiary of Internacional prior to the Effective Date. - Servicios Administrativos Elamex, S.A. de C.V. (Servicios) a wholly-owned subsidiary of Internacional prior to the Effective Date; now wholly owned by Elamex. - Kronos, Inc., a subsidiary of Internacional prior to the Effective Date, merged into Elamex, S.A. de C.V. as of December 31, 1996. These consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America and all monetary amounts are presented in U.S. dollars. All material intercompany transactions have been eliminated. MANAGEMENT ESTIMATES The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make certain estimates that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. Actual results could differ from those estimates. 25 ELAMEX, S.A. de C.V. AND SUBSIDIARIES Notes to Consolidated Financial Statements (In U.S. Dollars) (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CASH AND CASH EQUIVALENTS The Company considers all highly liquid debt instruments and investments purchased with an original maturity of three months or less to be cash equivalents. Cash includes deposits in Mexican banks, denominated in Mexican pesos, of approximately $957,000 and $73,000, at December 31, 1996 and 1995, respectively, and deposits denominated in U.S. dollars of approximately $2,801,000 and $2,426,000 at December 31, 1996 and 1995, respectively, in U.S. banks. The Company had approximately $2,512,000 and $350,000 of short-term repurchase agreements, denominated in U.S. dollars, deposited in U.S. banks and offshore branches of Mexican banks at December 31, 1996 and 1995, respectively. FOREIGN CURRENCY TRANSLATION The functional currency of the Company is the U.S. dollar, the currency of the primary economic environment in which the Company operates. Gains and losses on foreign currency transactions and translation of balance sheet amounts are reflected in net income. Included in "other, net" on the accompanying consolidated statements of earnings are foreign exchange gains of $437,845, $238,545, and $950,004 for the years ended December 31, 1996, 1995, and 1994, respectively. Assets and liabilities of the Company are denominated in U.S. dollars except for certain amounts as indicated below. Certain balance sheet amounts (primarily inventories, property, plant and equipment, accumulated depreciation, prepaid expenses, and common stock) denominated in other than U.S. dollars are translated at the rates in effect at the time the relevant transaction was recorded and all other assets and liabilities are translated at rates effective as of the end of the related periods. Revenues and expenses denominated in other than U.S. dollars are translated at weighted-average exchange rates for the relevant period the transaction was recorded. Assets and liabilities denominated in pesos are summarized as follows in U.S. dollars at the translation rate published in the DIARIO OFICIAL DE LA FEDERACIUN (the "Official Gazette of the Federation"), which is the approximate rate at which a receivable or payable can be settled as of each period-end:
1996 1995 ---- ---- Cash and cash equivalents $ 957,000 73,000 Other receivables 1,634,700 585,491 Prepaid expenses 218,142 363,796 Other assets, net 26,064 42,905 Accounts payable (1,542,331) (101,662) Accrued expenses and other liabilities (2,206,667) (1,560,230) ---------- --------- Net foreign currency position $ (913,092) (596,700) =========== ==========
In addition, the Company has recorded a net deferred tax liability pursuant to FAS 109, ACCOUNTING FOR INCOME TAXES (note 7). The recorded amount of $3,860,182 represents the net dollar denominated value of amounts provided for temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective Mexican tax basis. 26 ELAMEX, S.A. de C.V. AND SUBSIDIARIES Notes to Consolidated Financial Statements (In U.S. Dollars) (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED FOREIGN EXCHANGE INSTRUMENTS Effective January 1995, the Company adopted a policy of not engaging in futures contracts with the purpose of hedging U.S. dollar/peso revenues or costs, with the exception of regular treasury operations to cover operating requirements for up to thirty days. The Company had no open hedge contracts at December 31, 1996 or 1995. However, as of December 31, 1994, the Company had an outstanding commitment to sell U.S. dollars for Mexican pesos. The Company realized a loss of approximately $1,060,000 on this contract, which is recorded in cost of sales and general and administrative expenses in the accompanying consolidated statement of operations for the year ended December 31, 1995. INVENTORIES Inventories are stated at the lower of cost or market. Cost is determined using the first-in, first-out (FIFO) method. Inventory cost includes material, labor, and overhead. Overhead content in ending inventory at December 31, 1996 and 1995 was approximately $451,000 and $471,000, respectively. Inventory reserves, which are charged to cost of sales, are provided for excess inventory, obsolete inventory, and for differences between inventory cost and its net realizable value. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are stated at cost, less accumulated depreciation and amortization. Plant and equipment under capital leases are stated at the lower of their fair value at the inception of the lease or the present value of minimum lease payments. Depreciation and amortization are calculated using the straight-line method over the shorter of related lease terms or estimated useful lives of the assets. The policy of the Company is to charge amounts expended for maintenance and repairs to expense and to capitalize expenditures for major replacements and improvements. NET INCOME PER SHARE Net income per share of common stock for the year ended December 31, 1996 was calculated by dividing net income by the weighted average number of common shares outstanding for the year. Net income per share of common stock for 1995 and 1994 was calculated by dividing net income by the number of common shares outstanding as of the Effective Date, 5,000,000, after deducting amounts attributable to the rights of senior securities in the amounts of $226,438, and $386,442 for the years ended December 31, 1995, and 1994, respectively. 27 ELAMEX, S.A. de C.V. AND SUBSIDIARIES Notes to Consolidated Financial Statements (In U.S. Dollars) (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED INCOME TAXES The Company accounts for income taxes under the asset and liability method, as required by STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 109, ACCOUNTING FOR INCOME TAXES (FAS 109). Under the asset and liability method of FAS 109, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under FAS 109, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Provision for taxes is made based upon the applicable tax laws of Mexico. In conformity with FAS 109, deferred tax assets and liabilities are not provided for differences related to assets and liabilities that are remeasured from pesos into U.S. dollars using historical exchange rates and that result from indexing for Mexican purposes or exchange rate changes. REVENUE RECOGNITION Turnkey contract sales are recognized at the time the order is shipped. Sales from contract assembly services are recognized over the contract period and billed weekly as services are provided. EMPLOYEES' STATUTORY PROFIT SHARING A provision, when material, for deferred employees' statutory profit sharing is computed on income subject to statutory profit sharing which differs from net income, due to certain differences in the recognition of income and expenses for statutory profit sharing and book purposes. POSTRETIREMENT BENEFITS Employees are entitled to certain benefits upon retirement after fifteen years or more of service (seniority premiums), in accordance with the Mexican Federal Labor Law. The benefits are accrued as a liability and recognized as expense during the year in which services are rendered. FISCAL YEAR The Company uses thirteen-week quarters ending on a Sunday except that the first quarter starts on January 1 and the fourth quarter ends on December 31. ACCOUNTING FOR ASSET IMPAIRMENT The Company adopted STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF (FAS 121), effective January 1, 1996. FAS 121 requires that long-lived assets and certain identifiable intangibles to be held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The adoption of FAS 121 did not have a material adverse impact on the Company's financial position or the results of its operations. 28 ELAMEX, S.A. de C.V. AND SUBSIDIARIES Notes to Consolidated Financial Statements (In U.S. Dollars) (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED ACCOUNTING FOR STOCK-BASED COMPENSATION The Company is required to adopt STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION (FAS 123), upon issuance of shares under stock-based compensation plans. FAS 123 defines the fair value based method of accounting for an employee stock option or similar equity instrument and encourages all entities to adopt that method of accounting for all of their employee stock compensation plans. However, it also allows an entity to continue to measure compensation costs for those plans using the intrinsic value based method of accounting. The statement also requires that an employer's financial statements include certain disclosures about stock-based employee compensation arrangements regardless of the method used to account for them. FINANCIAL INSTRUMENTS STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 107, DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS, requires disclosures about the fair value of certain financial instruments for which it is practicable to estimate that value. The fair value of a financial instrument is generally the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced sale or liquidation. The carrying amounts of financial instruments, including cash and cash equivalents, receivables, accounts payable, accrued expenses, taxes payable, and amounts due to related parties, approximated fair value as of December 31, 1996 because of the relatively short maturity of these instruments. Capital lease obligations primarily represent obligations recorded at the present value of the minimum lease payments, at the inception of the lease agreement, in December 1996. Accordingly, the carrying value of capital lease obligations approximated the fair value as of December 31, 1996. (3) INVENTORIES Inventories consist of the following: 1996 1995 ---- ---- Raw materials $ 12,998,270 8,717,922 Work-in-process 3,138,189 2,286,032 Finished goods 1,961,415 1,825,595 ----------- ----------- 18,097,874 12,829,549 Less reserve for excess and obsolete inventory 1,897,725 1,471,367 ----------- ----------- $ 16,200,149 11,358,182 ========== ========== The reserve for excess and obsolete inventory is charged against cost of sales and was increased by $426,358 and $608,777 for the years ended December 31, 1996 and 1995, respectively. 29 ELAMEX, S.A. de C.V. AND SUBSIDIARIES Notes to Consolidated Financial Statements (In U.S. Dollars) (4) PROPERTY, PLANT AND EQUIPMENT A summary of property, plant and equipment, all of which is located in Mexico, is as follows: Estimated Useful Lives (YEARS) 1996 1995 ---------------- ---- ---- Land - $ 5,211,096 4,711,793 Buildings 20 13,197,575 10,556,598 Machinery and equipment 3 - 10 19,963,535 16,678,864 Leasehold improvements 5 1,386,811 755,357 Vehicles 5 148,630 111,400 Construction-in-progress - 127,906 - ----------- ---------- 40,035,553 32,814,012 Less accumulated depreciation and amortization 11,424,834 8,791,284 ---------- ----------- $ 28,610,719 24,022,728 ========== ========== Included in property, plant and equipment is $2,206,676 and $3,371,054 of machinery and equipment under capital leases and $729,358 and $2,460,524 in related accumulated amortization at December 31, 1996 and 1995, respectively. (5) NOTES PAYABLE AND LONG-TERM DEBT At December 31, 1996, the Company had a $2,200,000 short-term credit facility, with a bank, with an adjusted interest rate of LIBOR, plus 3 to 5%. The availability has been reduced by a letter of credit for $200,000. The line is secured by certain equipment. Promissory notes under the line are renewable, with adjusted interest rates, and are due 90 days or 180 days after issuance. Interest on the promissory notes is payable at each note maturity. The facility matured on January 8, 1997 and is in the process of being renewed. At December 31, 1995, the Company had $2,000,000 outstanding on one credit facility. At December 31, 1995, the note bore interest at LIBOR plus 3.125%. The Company paid off the note during the first quarter of 1996. As more fully described in note 9, the Company completed a public offering of 2,400,000 shares of its Class I common stock on March 19, 1996. The net proceeds of the offering were used during the first quarter of 1996 to pay-off substantially all of the Company's outstanding debt. 30 ELAMEX, S.A. de C.V. AND SUBSIDIARIES Notes to Consolidated Financial Statements (In U.S. Dollars) (5) NOTES PAYABLE AND LONG-TERM DEBT, CONTINUED All long-term debt is denominated in U.S. dollars and consists of the following at December 31:
1996 1995 ---- ---- Note payable to bank, paid in full during first quarter of 1996 and not renewed. $ - 4,083,333 Note payable to bank, under line of credit for up to $5,000,000 or 75% of appraised value of certain properties with an adjusted interest rate of prime. The available balance at December 31, 1996 was $5,000,000. The line of credit matures on December 6, 2001 and is secured by a trust guaranty in certain properties. - 4,400,000 Revolving notes payable on a $10,000,000 line of credit to a bank, interest at prime plus 1/2% due upon expiration of term notes which are renewable at the option of the Company in 180 day intervals through May 1, 1999. Secured by trade accounts receivable. Commitment fees of 1/4% of unfunded balance are due quarterly. - 5,200,000 Note payable to a financing corporation, paid in full during first quarter of 1996 and not renewed. - 1,994,342 ------------- ----------- Total long-term debt - 15,677,675 Less current installments - 2,691,054 ------------- ----------- Long-term debt, excluding current installments $ - 12,986,621 ============= ========== In addition to the above short and long-term credit facilities available, the Company originated a $10,000,000 line of credit with a bank in December 1996. The revolving credit facility allows the Company to draw on term notes payable, with adjusted interest rates of LIBOR plus 3%, through December 15, 1999. The credit facility is secured by eligible accounts receivable. Commitment fees of 1/8% of unfunded balance are due quarterly. In December 1996, the Company entered into a capital lease obligation in which a standby letter of credit, for an amount up to $650,000, was issued by a bank, as a security to the lessor, as part of the lease agreement. Interest payments on the notes payable and long-term debt were $857,104, $2,085,530, and $1,267,235 for the years ended December 31, 1996, 1995, and 1994, respectively. The available credit facilities place certain restrictions on the payment of dividends and use of proceeds from disposition of collateralized fixed assets, limit investments or advances in other companies, limit the incurrence of debt, and require the Company to maintain certain financial ratios and insurance coverage. The Company is in compliance with such covenants or restrictions at December 31, 1996. 31 ELAMEX, S.A. de C.V. AND SUBSIDIARIES Notes to Consolidated Financial Statements (In U.S. Dollars) (6) LEASES The Company utilizes certain machinery and equipment and occupies certain buildings under lease arrangements which expire at various dates from 1997 through 2001, some of which have renewal options for additional periods. Rental expense for certain manufacturing and warehouse facilities, mainly for operating lease agreements, aggregated $2,406,815, $1,689,425, and $2,114,578 for the years ended December 31, 1996, 1995, and 1994, respectively. Interest payments on capital leases were $33,160, $90,599, and $146,357, respectively. Future minimum lease obligations at December 31, 1996 for assets under capital leases and for rental commitments under non-cancelable operating leases having an initial or remaining term in excess of one year are as follows: Capital Operating Year ended December 31, Leases Leases ----------------------- ------ --------- 1997 $ 658,167 2,311,600 1998 509,981 2,019,778 1999 490,663 1,465,203 2000 - 1,193,753 2001 - 232,550 ------------- --------- Total minimum obligations $ 1,658,811 7,222,884 ========= Less amounts representing interest (approximately 7.92%) 171,322 --------- Present value of net minimum lease obligations 1,487,489 Less current obligations under capital leases 564,216 Capital lease obligations, excluding current obligations $ 923,273 ==========
The Company leases manufacturing facilities to unrelated parties under operating lease agreements which expire in 1999. The Company pays certain taxes on the properties and provides for general maintenance. Included in property, plant and equipment at December 31, 1996 is the cost of the land and buildings of $4,421,961 and the related accumulated depreciation of $611,337. Rental income was $644,187, $501,370, and $300,047 for the years ended December 31, 1996, 1995, and 1994, respectively. The future minimum rental income to be received under these operating leases in the following years is: $674,274 in 1997; $368,330 in 1998; and $220,583 in 1999. 32 ELAMEX, S.A. de C.V. AND SUBSIDIARIES Notes to Consolidated Financial Statements (In U.S. Dollars) (7) INCOME TAXES Mexican tax legislation requires that companies pay a tax calculated as the greater of tax resulting from taxable income or tax on the total value of certain assets less certain liabilities (assets tax). Taxes resulting from net income are calculated using Mexican tax regulations which define deductibility of expenses and recognize certain effects of inflation. The tax provision differs from the expected tax rate of 34% in 1996, 1995, and 1994 on taxable income as follows:
1996 1995 1994 ---- ---- ---- Statutory tax rate 34.0% 34.0% 34.0% Foreign currency gains or losses not subject to income taxes (1.4)% (1.0)% (14.1)% Kronos losses (income) not subject to tax (i) 0.4% (1.2)% (10.2)% Non-deductible expenses 1.7% 2.1% 3.5% Inflation and currency exchange rate gains or losses on monetary items for tax purposes only (ii) (15.1)% (2.7)% (1.1)% Inflation and currency exchange rate portion of depreciation expense for tax purposes only 0.5% 2.4% (4.3)% Deferred income tax valuation reserve adjustment (iii) 4.4% (11.8)% 24.7% --- ---- ---- 24.5% 21.8% 32.5% ==== ==== ====
Significant items impacting the Company's effective tax rate include: (i) Kronos, Inc. is a British Virgin Islands Corporation and its income is not subject to income taxes (Kronos, Inc. was merged into Elamex effective December 31, 1996); (ii) under Mexican tax laws, inflation and currency exchange rate adjustments are required for income tax purposes; and (iii) changes in valuation reserves for assets tax carryforwards that may expire unused, due mainly to changes in Mexican tax law which occurred during 1996, and the expectation, in 1995, that previously reserved net operating loss carryforwards could be realized in future years due to permission from Mexican taxing authorities to file consolidated tax returns effective in 1995. The income tax provision includes the following:
1996 1995 1994 ---- ---- ---- Current tax provision $ 79,303 363,000 742,902 Deferred tax provision 2,495,776 1,364,000 - --------- --------- ------- Total provision for income taxes $ 2,575,079 1,727,000 742,902 ========= ========= =======
Total income taxes paid were $352,000, $379,000, and $449,000 in December 31, 1996, 1995, and 1994, respectively. 33 ELAMEX, S.A. de C.V. AND SUBSIDIARIES Notes to Consolidated Financial Statements (In U.S. Dollars) (7) INCOME TAXES, CONTINUED The tax effect of significant temporary differences representing deferred tax assets and liabilities is as follows:
1996 1995 ---- ---- Current deferred tax assets: Assets tax carryforwards $ 1,410,364 981,623 Net operating loss carryforwards 5,014,846 4,181,765 Other, net 222,448 249,960 ----------- ---------- 6,647,658 5,413,348 Valuation allowance (458,747) - ----------- ---------- Net current deferred tax assets 6,188,911 5,413,348 Current deferred tax liabilities: Inventories (7,193,934) (5,413,348) Other (374,760) - ----------- ---------- Net current deferred tax (liability) $ (1,379,783) - =========== ========== Non-current deferred tax assets - Assets tax carryforwards $ - 77,292 Non-current deferred tax liabilities - Property, plant and equipment, principally due to differences in useful lives (2,480,399) (1,441,699) --------- --------- Net non-current deferred tax liability $ (2,480,399) (1,364,407) ========== =========
A valuation allowance is provided when it is more likely than not that some portion or all of the deferred tax assets will not be realized. A reserve for certain deferred asset tax carryforwards of $458,747 has been provided at December 31, 1996. During the year ended December 31, 1996, a reserve was recorded as a result of tax planning activities related to tax reforms that provided increased net operating losses, but could also result in possible loss of assets tax carryforwards. The assets tax paid, adjusted for inflation, may be used to offset income taxes that exceed the assets tax due for the year, for ten years following the payment of the tax. These assets tax carryforwards as of December 31, 1996 expire as follows, if not previously utilized to offset income taxes: 1999 $ 82,000 2000 110,000 2001 67,000 2002 173,000 2003 266,000 2004 241,000 2005 432,000 2006 39,000 ---------- $ 1,410,000 ========== 34 ELAMEX, S.A. de C.V. AND SUBSIDIARIES Notes to Consolidated Financial Statements (In U.S. Dollars) (7) INCOME TAXES, CONTINUED At December 31, 1996, certain of the Mexican companies within the consolidated group had tax net operating loss carryforwards that can be utilized only by the Mexican company which incurred the losses. These net operating loss carryforwards may be adjusted for inflation. These tax net operating loss carryforwards, as adjusted for inflation, expire as follows, if not previously utilized to offset taxable income: 2002 1,600,000 2003 1,926,000 2004 7,571,000 2005 953,000 2006 2,700,000 ----------- $ 14,750,000 =========== The Company received authorization to file a consolidated tax return with its majority stockholder commencing in 1995. Effective for 1995, a tax sharing agreement entered into between the majority stockholder, Accel S.A. de C.V., and Elamex whereby Elamex agrees to transfer monthly an amount equal to its estimated payment, less credits, which would be required by the Mexican tax authority calculated as if they were filing a separate return for such year. The majority stockholder further agrees to reimburse Elamex for use of any of Elamex's tax benefits at the time Elamex would otherwise realize the benefit. Dividends paid by Mexican companies which exceed earnings and profits, as defined by the Mexican tax law, are subject to a 34% income tax, payable by the Company, on 1.515 times the amount in excess of earnings and profits. Dividends paid which do not exceed earnings and profits are not currently subject to Mexican tax to either the Company or the stockholder. No dividends on common stock were paid by the Mexican companies in 1996, 1995, or 1994. (8) REDEEMABLE STOCK - PREFERRED AND COMMON Effective December 9, 1993, the stockholders of Kronos, Inc. and Kronoservices, S.A. de C.V. restructured their operations. As part of the restructuring, Kronoservices changed its name to Elamex, S.A. de C.V. and transferred the operations of Kronos, Inc. to Elamex, S.A. de C.V. during 1993 and 1994. A change in ownership did not occur and these transactions were recorded at historical carrying amounts. An agreement was entered into as part of the December 9, 1993 restructuring whereby Elamex was required, if and when its minority-held common stock was distributed to individuals, to repurchase up to 1,060,197 shares of common stock upon the death, disability or, under certain conditions, upon an involuntary termination of certain individuals. This agreement was formalized and revised on March 9, 1995 whereby Elamex was obligated to repurchase these shares of minority-held common stock over the next six years. The repurchase of these redeemable shares was accelerated and by September 1995, all minority held stock was purchased by Internacional for $4,018,444, including redemption premiums. The purchase of the minority held stock was paid for by a loan from Elamex to Internacional of $1,300,016 and a capital contribution from Accel to Internacional of $2,718,428. 35 ELAMEX, S.A. de C.V. AND SUBSIDIARIES Notes to Consolidated Financial Statements (In U.S. Dollars) (9) STOCKHOLDERS' EQUITY COMMON STOCK As part of the merger transaction between Elamex Internacional and Elamex on October 1, 1995, the stock of Elamex, S.A. de C.V. was canceled and replaced by 5,000,000 shares issued to Internacional's stockholders proportionate to their ownership interest; Internacional's stock was canceled. The merged corporation was organized under the laws of Mexico as a SOCIEDAD ANUMINA DE CAPITAL VARIABLE. On December 15, 1995, the stockholders of Elamex, S.A. de C.V., at a special stockholders meeting, approved an amendment and restatement of the bylaws of Elamex, S.A. de C.V. which included the following: (i) elimination of par value of all shares; (ii) a transfer of all the variable capital of Elamex, S.A. de C.V. to fixed capital (5,000,000 shares); (iii) authorization for issuance of up to 3,000,000 shares of common stock constituting fixed capital (for the offering), unsold shares of 600,000 were subsequently canceled; (iv) authorization of 15,000,000 shares constituting variable capital (which will be held by Elamex, S.A. de C.V. as treasury stock and is expected to be sold, from time to time, at the market price prevailing at such time as authorized by the Board of Directors); (v) and a provision requiring a motion at each annual stockholders' meeting to allow the stockholders to designate up to 15% of each year's net profits as reserved for repurchase and cancellation of publicly-traded common shares outstanding. On April 18, 1996, at the annual stockholders' meeting, the Company's stockholders voted to designate $897,406 of 1995's net profits as reserved for repurchase and cancellation of publicly-traded common shares outstanding. Effective March 19, 1996, the Company completed a public offering of 2,400,000 shares of Class I, no par value, common stock for proceeds of approximately $18,700,000, net of expenses of approximately $2,800,000. The shares are traded on the NASDAQ National Market. The common stock outstanding after the offering is 7,400,000 shares. Upon completion of the offering, Accel remained as the majority stockholder; accordingly, Accel has the ability to elect a substantial majority of the Company's directors, subject to certain limitations, and will continue to control the Company. Changes in common stock outstanding are as follows: COMMON STOCK Shares Amount Balance at December 31, 1993 4,240,796 $ 13,552,031 --------- ---------- Balance at December 31, 1994 4,240,796 13,552,031 Cash capital contribution - 2,718,428 Redemption of common stock (4,240,796) (16,270,459) Common stock issued 5,000,000 16,270,459 --------- ---------- Balance at December 31, 1995 5,000,000 16,270,459 Common stock issued 2,400,000 18,740,009 --------- ---------- Balance at December 31, 1996 7,400,000 $ 35,010,468 ========= ========== 36 ELAMEX, S.A. de C.V. AND SUBSIDIARIES Notes to Consolidated Financial Statements (In U.S. Dollars) (9) STOCKHOLDERS' EQUITY, CONTINUED COMMON STOCK Under the bylaws and Mexican law, the capital stock of Elamex, S.A. de C.V. must consist of fixed capital and may have, in addition thereto, variable capital. Stockholders holding shares representing variable capital common stock may require the Company, with a notice of at least three months prior to December 31 of the prior year, to redeem those shares at a price equal to the lesser of either (i) 95% of the market price, based on the average of trading prices in the stock exchange where it is listed during the thirty trading days preceding the end of the fiscal year in which the redemption is to become effective or (ii) the book value of the Company's shares as approved at the meeting of stockholders for the latest fiscal year prior to the redemption date. At December 31, 1996, the Company has not issued any of its authorized variable capital common stock. Although the variable capital common stock is redeemable by the terms described above, such shares would be classified as a component of stockholders' equity in the consolidated balance sheets. Management believes the variable common stock represents permanent capital because the timing and pricing mechanisms through which a stockholder would exercise the option to redeem are such that a stockholder, from an economic standpoint, would not exercise this option. At the time a stockholder is required to give notice of redemption, the stockholder will not be able to know at what price the shares would be redeemed and would not expect the present value of the future redemption payment to equal or exceed the amount which would be received by the stockholder in an immediate public sale. Under Mexican Law, dividends must be declared in pesos. If dividends are declared in the future, the Company's intent is to pay the dividends to all stockholders in U.S. dollars, as converted from pesos as of the date of record, unless otherwise instructed by the stockholder. Mexican Law requires that at least 5% of the Company's net income each year (after profit sharing and other deductions required by law) be allocated to a legal reserve fund, which is not thereafter available for distribution, except as a stock dividend, until the amount of such fund equals 20% of the Company's historical capital stock. The legal reserve fund at December 31, 1996 and 1995 was approximately $329,000 (2,125,000 pesos) and $29,800 (229,000 pesos), respectively. The Company anticipates an additional allocation will be made at its annual stockholders' meeting in April 1997 of approximately $396,000 (3,152,000 pesos). Retained earnings available for dividends under Mexican law at December 31, 1996 was $14,524,341 (114,099,000 pesos). However, debt agreements place certain restrictions on the payment of dividends (note 5). COMMON STOCK PURCHASE RESTRICTIONS AND PREEMPTIVE RIGHTS Any person who seeks to acquire ownership of 15% or more of the total outstanding shares of the Company's common stock must receive written consent from the Company's Board of Directors. Should shares in excess of 15% be acquired without permission, the purchaser will be subject to liquidated damages which will be used by the Company to repurchase stock in excess of the 15% ownership limitation. In addition, in the event that the Company issues additional shares, existing stockholders will have preemptive rights to subscribe for new shares, except when shares are issued in connection with a merger or for the conversion of convertible debentures. The 15,000,000 shares of variable capital authorized on December 15, 1995 are not subject to preemptive rights. 37 ELAMEX, S.A. de C.V. AND SUBSIDIARIES Notes to Consolidated Financial Statements (In U.S. Dollars) (9) STOCKHOLDERS' EQUITY, CONTINUED PREFERRED STOCK As part of the December 15, 1995 amendment and restatement of the Company's bylaws, the Company's Board of Directors, at its discretion, can issue up to an aggregate of 50,000,000 shares of preferred stock in one or more series. The Board may attach any preferences, rights, qualifications, limitations, and restrictions to the shares of each series issued, including dividend rights and rates, conversion rights, voting rights, terms of redemption, and liquidation preferences. The shares may be issued at no par value or at a par value determined by the Board of Directors. No shares of preferred stock have been issued as of December 31, 1996. (10) EXECUTIVE PHANTOM STOCK PLAN During 1995, the Company adopted an Executive Phantom Stock Plan (the "Plan") which offers certain key executives of the Company and related entities long-term incentives in addition to their current compensation. Participants receive benefits expressed in shares of common stock, but which are not actual shares of common stock ("Phantom Stock Shares"). A Participant may exercise the right to receive payment for Phantom Stock Shares two years after the determination date (as defined in the Plan); however, such shares expire after ten years. Upon termination of employment for cause, Phantom Stock Shares and accrued dividends and interest are forfeited. The Company will keep a record of the amount of Phantom Stock Shares held by each Participant. Each Participant will be credited with dollar amounts equal to dividends paid on issued and outstanding common stock, and such amounts accrue interest at the short-term money market rate published by the Chase Manhattan Bank, N.A. The Plan provides that the number of Phantom Stock Shares awarded be determined by a committee of the Board of Directors charged with administering the Plan and the aggregate number of Phantom Stock Shares awarded for any year shall in no event exceed 10% of the number of the Company's issued and outstanding common shares as of the end of such year. As of December 31, 1996, there were eight participants in the Plan, 22,687 Phantom Stock Shares had been issued and the Company recognized an obligation under the Plan of approximately $218,000. 38 ELAMEX, S.A. de C.V. AND SUBSIDIARIES Notes to Consolidated Financial Statements (In U.S. Dollars) (11) MAJOR CUSTOMERS The Company has agreements which provide for the sale of its assembly services and turnkey manufacturing at established prices. The Company's business is dependent on one- to five-year agreements which are subject to termination or renewal. Certain customers accounted for significant percentages of the Company's total sales during the periods ended as follows: DECEMBER 31 CUSTOMER PRODUCTS AND SERVICES 1996 1995 1994 -------- --------------------- ---- ---- ---- A Printed circuit boards and final assembly 18% 18% 17% B Flexible and rigid circuit boards/ component assembly 16% 23% 24% C Printed circuit boards and cables 14% 16% 16% D PBX/switchboards and fiber optic cable connections 11% 7% 6% Although the Company does not anticipate any significant changes with respect to sales to these customers, the termination of any of these agreements could have a material effect on the Company's financial position and results of operations. (12) RELATED PARTY TRANSACTIONS The Company engages in various transactions in the ordinary course of business with certain stockholders and other related parties. A summary of significant related party transactions follows: As part of the reorganization and recapitalization discussed in note 8, the Company issued approximately $2,045,000 of subordinated debentures to certain stockholders of the Company in 1993. The principal was subject to acceleration under certain circumstances, including a public offering of the Company's common stock. As a result, these subordinated debentures were paid-off during the first quarter of 1996 with the net proceeds of the public offering. The Company leased a manufacturing facility from a stockholder, which resulted in rent expense of approximately $88,000, $234,000, and $238,000 at December 31, 1996, 1995, and 1994, respectively. During May 1996, the Company exercised an option to purchase from a related party two manufacturing facilities, located in Torreon and Chihuahua, Mexico. In management's opinion, the purchase price of approximately $3,100,000 represents the fair market value as determined by an independent appraiser. The Company has a manufacturing operation at the Torreon facility and intends to establish an operation at the Chihuahua facility. 39 ELAMEX, S.A. de C.V. AND SUBSIDIARIES Notes to Consolidated Financial Statements (In U.S. Dollars) (12) RELATED PARTY TRANSACTIONS, CONTINUED The Company leases three manufacturing facilities from companies which are owned by a related party. Included in rent expense are rental payments under these leases of approximately $900,000, $833,000, and $968,000 during December 31, 1996, 1995, and 1994, respectively. Elamex de Torreon, S.A. de C.V., a Mexican company owned by affiliates of Elamex, exclusively provides assembly services under the direction of Elamex to a customer of Elamex. Under a manufacturing contract between Elamex and the Mexican company, the Mexican company is required to submit its budget annually to the Board of Directors of Elamex for approval. At December 31, 1996, 1995, and 1994, the Mexican company had sales to Elamex of $1,618,000, $1,835,000, and $2,679,000, respectively. Elamex had a payable to the Mexican company of $62,000 and $54,000, at December 31, 1996 and 1995, respectively. A U.S. corporation, owned by certain executives and senior management of the Company, exclusively provides professional services to Elamex. Under the service agreement, the U.S. corporation is obligated to submit its annual budget to the Board of Directors of Elamex for approval. At December 31, 1996, 1995, and 1994, this company provided services to Elamex for $2,852,000, $2,208,000, and $2,336,000, respectively. Elamex had payables to this company of $212,000 and $102,000 at December 31, 1996 and 1995, respectively. The Company paid consulting fees, consisting of tax advice and return preparation, and other administration services, of approximately $213,000, $280,000, and $191,000 during December 31, 1996, 1995, and 1994, respectively, to companies which are related parties. The Company purchases insurance through an insurance broker that is a related party. Premiums paid approximated $306,000, $175,000, and $362,000 for the years ended December 31, 1996, 1995, and 1994, respectively. (13) COMMITMENTS AND CONTINGENCIES The Company is a party to various claims, actions and complaints, the ultimate disposition of which, in the opinion of management, will not have a material adverse effect on the operations or financial position of the Company. The Mexican Federal Labor Law requires a severance payment for all permanent employees that are terminated by the employer. This payment is calculated on the basis of ninety days pay for termination anytime during the first year of employment, with an additional twelve days pay per year for each year of service thereafter. While most of the Company's Mexican assembly labor is hired under temporary labor contracts during the first two months of employment, the labor force is changed to permanent labor contracts after this period. The Company has agreements with many of its contract-assembly customers which require that the customers pay the severance costs incurred in the event that assembly contracts are terminated prior to their scheduled completion. In management's opinion, any severance costs incurred upon the termination of any manufacturing contracts would not be material. 40 ELAMEX, S.A. de C.V. AND SUBSIDIARIES Notes to Consolidated Financial Statements (In U.S. Dollars) (13) COMMITMENTS AND CONTINGENCIES, CONTINUED Seniority premiums to which employees are entitled upon retirement after fifteen years or more of service, in accordance with the Mexican Federal Labor Law, are recognized as expense during the year in which services are rendered, based on actuarial computations. Included in other liabilities is approximately $212,000 and $182,000 as of December 31, 1996 and 1995, respectively, which fully accrues for these estimated seniority obligations. No significant seniority payments have been made through December 31, 1996. At December 31, 1996, the Company has an obligation to purchase inventory held by suppliers valued at approximately $1,300,000. (14) NET INCOME PER SHARE (UNAUDITED) PRO FORMA INFORMATION AND SUPPLEMENTARY NET INCOME PER SHARE The following is pro forma data for the year ended December 31, 1996 as if the receipt of proceeds from the public offering occurred effective January 1, 1996. The financial data, as adjusted, assumes that net proceeds of approximately $18,700,000 were used to retire outstanding debt of approximately $15,900,000, and that interest on the debt was not incurred during 1996. Pro forma amounts have not been audited. Pro forma net income per share is computed assuming 7,322,221 shares of common stock is the weighted average number of shares outstanding at December 31, 1996.
For the Year ended December 31, 1996 (UNAUDITED) ----------------------------- ACTUAL AS ADJUSTED ------ ----------- Total other income (expense) $ 136,435 469,271 Income before income taxes $ 10,502,550 10,835,386 Net income $ 7,927,471 8,147,143 Weighted average common shares outstanding 6,880,548 7,322,221 Net income per common share $ 1.15 1.11
41 ELAMEX, S.A. de C.V. AND SUBSIDIARIES Notes to Consolidated Financial Statements (In U.S. Dollars) (15) SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) (In thousands, except per share amounts)
1996 QUARTERS 1995 QUARTERS -------------------------------------- ------------------------------------ 1ST 2ND 3RD 4TH 1ST 2ND 3RD 4TH --- --- --- --- --- --- --- --- Net sales $ 25,337 30,925 30,496 32,161 24,947 24,131 23,981 24,484 Gross profit 3,853 5,243 5,399 4,187 3,609 3,626 3,414 4,322 Net income 1,445 2,018 2,320 2,144 (c) 906 2,061 1,974 1,268 Net income per common share (a), (b) $ 0.27 0.27 0.31 0.29 0.17 0.39 0.38 0.25
(a) For 1995, net income per share of common stock is calculated by dividing net income by the number of common shares outstanding at each quarter end, after deducting the amounts attributable to the rights of senior securities. (b) For 1996, net income per share of common stock is calculated by dividing net income by the weighted average number of common shares outstanding at each quarter end. (c) The income tax provision decreased in the fourth quarter due to more favorable inflation/devaluation gain/loss on tax loss carryovers than previously projected. 42 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. Not applicable ITEM 10. EXECUTIVE OFFICERS OF THE REGISTRANT The names, ages and positions of the Director and executive officers of the Company as of March 3, 1997 are as follows: NAME AGE POSITION ---- --- -------- Eloy S. Vallina 59 Chairman of the Board of Directors Federico Barrio 60 Vice Chairman of the Board of Directors Jesus Alvarez-Morodo 50 Vice Chairman of the Board of Directors Officer and Secretary HEctor M. Raynal 43 President, Chief Executive Officer and Director Timothy A. Graves 43 Vice President-Sales and Marketing David R. Crawford 60 Vice President-Manufacturing Operations Wayne Rout 53 Vice President-Materials Jesus E. Vallina 48 Director Rafael Vallina 37 Director Eduardo L. Gallegos 55 Director Robert J. Whetten 54 Director Jerry Neely 60 Director Antonio Elias 48 Director Charles H. Dodsont 66 Director Tomas de Leon 43 Statutory Auditor ELOY S. VALLINA Mr. Vallina has been Chairman of the Board of Accel and its predecessor, Grupo Chihuahua, S.A. de C.V., since its inception in 1979. Mr. Vallina has continued as Chairman of Ponderosa Industrial, S.A. de C.V. since its spin-off by Grupo Chihuahua. He is also chairman of Kleentex Corp., and an Advisory Director of Norwest Bank El Paso. Mr. Vallina was Chairman of Banco Comercial Mexicano, later Multibanco Comermex, one of Mexico's largest commercial banks at that time, from 1971 until its expropriation in 1982. He graduated with a B.A. in Business Administration from the Instituto TecnolUgico y de Estudios Superiores de Monterrey. FEDERICO BARRIO Mr. Barrio has been Vice Chairman of the Board of Elamex and its predecessor companies, or has held the functionally equivalent position, for 23 years and was a founding stockholder of the Elamex business. He is a partner in Constructora Lintel, a major developer of industrial and commercial buildings in Ciudad Juarez, and he has been Constructora Lintel's President since 1983. He has also been an Advisory Director of Norwest Bank El Paso since 1991. He has a B.S. in Industrial Engineering from the Chihuahua Technological Institute and an M.B.A. degree from the University of Chihuahua. Mr. Barrio was former Dean of Juarez Technological Institute and has 27 years of experience in industrial development and general contracting. 43 JESUS ALVAREZ-MORODO Mr. Alvarez-Morodo has been Vice Chairman of the Board of Elamex since 1995 and President and CEO of Accel since 1992. He has been a director of Elamex since 1990. Mr. Alvarez-Morodo has held various positions with Accel, and its predecessor, Grupo Chihuahua and its subsidiaries since 1982, including Vice President from 1989 to 1992. He graduated from the Universidad Iberoamericana with a B.S. in Electromechanical Engineering and from the Sloan School of Management, M.I.T. with an M.S. degree in Management. HECTOR M. RAYNAL Mr. Raynal has been President and Chief Executive Officer of Elamex since January, 1995. In 1994 he was the Director General of Pondercel S.A. de C.V., a pulp and paper manufacturer. From 1990 to 1994 Mr. Raynal directed the paper unit at Pondercel, and served as a director, vice president and secretary of Pondercel's U.S. marketing subsidiary. Mr. Raynal has held various positions with Accel and Grupo Chihuahua since 1983. He received a B.S. and M.S. in Electrical Engineering and an M.B.A from Stanford University. TIMOTHY A. GRAVES Mr. Graves has been Vice President-Sales and Marketing of Elamex since 1993. From 1989 to 1993 he was Vice President of Sales and Marketing/Program Manager at Comptronix Corp. He received a B.S. in Corporate Finance from the University of Alabama. Mr. Graves has 13 years of experience in contract electronics manufacturing. DAVID R. CRAWFORD Mr. Crawford has been Vice President Manufacturing Operations of Elamex since August 1995. From 1987 to 1995 he was Director of Operations of the Allen Bradley Business Unit Electronic Components, a subsidiary of Rockwell International Corporation. Mr. Crawford has 36 years of experience in electronic assembly and components manufacturing from major manufacturing companies in the area. He received a B.S. from Purdue University. WAYNE ROUT Mr. Rout has been Vice President-Materials for Elamex since 1988. Mr. Rout has 29 years of experience in manufacturing and materials. Mr. Rout has a B.S. degree from Brigham Young University. Mr. Rout holds the APICS, NAPM and IMMS certifications. JESUS E. VALLINA Mr. Vallina has been Director of Public Relations of Accel and its predecessor, Grupo Chihuahua, for the past 21 years. He is President of Constructora Inmobiliaria Las Americas, S.A. de C.V., and a Director of Kleentex Corp. He is also an Advisory Director of Norwest Bank El Paso. Mr. Vallina is a graduate of the University of Texas at El Paso, where he received a degree in Business Administration. Mr. Vallina is the brother of Eloy Vallina and cousin of Rafael Vallina. RAFAEL VALLINA Mr. Vallina has been President of Implyex Corp. since 1990, and President of Tableros y Chapas del Norte since 1992. He is also President of Triplay Maderas y Derivadas, and of Kintitsu. He has been a director of Elamex 44 since 1994. Mr. Vallina is a Certified Public Accountant with a degree from the Instituto TechnolUgico y de Estudios Superiores de Monterrey. Mr. Vallina is a cousin of Eloy Vallina and Jesus Vallina. EDUARDO L. GALLEGOS Mr. Gallegos has been with Accel and its predecessor, Grupo Chihuahua, for 24 years. He has been President of Esvamex, S.A. de C.V. since 1985. Mr. Gallegos graduated as a Certified Public Accountant from the Instituto TecnolUgico y de Estudios Superiores de Monterrey, and has studied at the American Management Association, Stanford Alumni Association, Advanced Management College and Instituto de AdministraciUn CientIfica de las Empresas. ROBERT J. WHETTEN Mr. Whetten has been a Director of Elamex since 1994. He was President and Chief Executive Officer of Norwest Bank El Paso. Mr. Whetten has 21 years of banking experience in the United States and Latin America. He received a B.A. in Finance and a Master of Public Administration from Brigham Young University. Mr. Whetten has been on a leave of absence while completing a mission service for his church in a foreign country. ANTONIO L. ELIAS Mr. Elias has been the Senior Vice President, Advanced Projects Group, at Orbital Sciences Corporation ("OSC") since 1989. Mr. Elias joined OSC in 1986 as Chief Engineer, becoming Vice President for Engineering in 1988 and Corporate Vice President in 1989. From 1980 to 1986 he was Assistant Professor of Aeronautics and Astronautics at the Massachusetts Institute of Technology. Mr. Elias obtained a B.S., M.S., E.A.A. and Ph.D. in Aeronautics and Astronautics from the Massachusetts Institute of Technology. JERRY W. NEELY Mr. Neely is Director and Chairman of the Executive Committee of Smith International, Inc. Mr. Neely retired as President / Chairman in 1988. He held several positions at Smith International, Inc. from 1966 to 1988. He serves on the Boards of Norris Cancer Hospital and All Coast Forest Products, is a Trustee of The University of Southern California, Past Chairman of Petroleum Equipment Supplies Association and Past Chairman of The Young Presidents Organization. Mr. Neely received a B.S. in Industrial Management/Business Administration from the University of Southern California. CHARLES H. DODSON Mr. Dodson was owner of Elamex for 17 years in addition to being Chairman of the Board and Chief Executive Officer. Mr. Dodson has remained a Director of Elamex since its acquisition by Accel. He has also been Vice President of Nafta Ventures, Inc. since 1994. TOMO S DE LEUN Mr. de LeUn has been Elamex's statutory auditor since 1988. He has also been a partner in KPMG Co rdenas Dosal, S.C. since 1988. Mr. de LeUn is a member of the Mexican Institute of Public Accountants and has obtained a public accounting degree from the Universidad Iberoamericana in Mexico City. 45 ITEM 11. EXECUTIVE COMPENSATION During the year ended December 31, 1996, Elamex paid, either directly or through a related company, MTI Services Corporation ("MTI"), an aggregate of $1,129,192 to all of its Directors and officers as a group for services in all capacities and an additional $139,600 in respect of a discretionary compensation plan. During such year, the Company, through MTI, set aside or accrued an aggregate of $9,499 to provide pension, retirement or similar benefits for its directors and officers pursuant to existing plans, consisting solely of a 401(k) plan for its U.S.-based officers and Directors. Twenty-nine of the Company's executives and senior managers who are citizens or residents of the United States are employees of MTI, a U.S. corporation owned by such executives, and provide services to MTI under a contract between MTI and Elamex. The purpose of this arrangement is to provide to U.S. resident employees U.S. dollar-denominated salaries and U.S.-style employee benefits. Under such contract, the Company pays to MTI an amount equal to the salary and benefits provided to such executives by MTI. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth information regarding the beneficial ownership of the Company's Common Stock at March 21, 1997 by (i) each person who is known to the Company to own beneficially more than 5% of the outstanding Common Stock of the Company, (ii) each director individually and (iii) all directors and executive officers as a group. NAME AND ADDRESS OF NUMBER OF SHARES PERCENT OF TOTAL BENEFICIAL OWNER BENEFICIALLY OWNED ---------------- ---------------- ------------------- Accel, S.A. de C.V. 3,777,500 51.05% Avenida Zarco No. 2401 31020 Chihuahua, Chih. Mexico Eloy S. Vallina (1) 3,777,500 51.05 Avenida Zarco No. 2401 31020 Chihuahua, Chih. Mexico Delaware Management 440,100 5.95 One Commerce Square, 40th Floor Philadephia, PA - ------ (1) Mr. Vallina directly owns 142,010,600 shares, or 48.26%, of the outstanding voting common stock of Accel. In addition, Mr. Vallina controls companies that hold 28,751,680 shares, or 9.77%, of the outstanding voting common stock of Accel. ITEM 13. CERTAIN TRANSACTIONS The Company was formed on the Effective Date in the merger transaction described below. The Company has been operated by substantially the same investors since its purchase in May 1990; however, the organizational structure has changed during this period. The Company consists of the former Elamex Internacional, whose assets and liabilities were merged with and into Elamex, S.A. de C.V. on the Effective Date. Effective December 9, 1993, the stockholders of Kronos, Inc. ("Kronos") and its subsidiaries and the stockholders of Kronoservices, S.A. de C.V., which were substantially the same persons and entities, restructured the operations of those companies. Kronoservices, S.A. de C.V. changed its name to Elamex, S.A. de C.V., which was chosen as a name easily identified by customers and already associated with the operations of related 46 companies. As of December 31, 1993, the operations of Kronos, constituting substantially all of its assets, were transferred to Elamex, S.A. de C.V. Substantially all remaining Kronos assets were transferred in 1994. Prior to November 16, 1993, Accel held 55% of the common stock of Elamex Internacional, and the Selling Stockholder held the other 45%. Such stockholders and, indirectly, a company controlled by Messrs. Barrio and Dodson, the two founders of the Elamex business, each held preferred stock in Kronos, an 80%-owned subsidiary of Elamex Internacional. Kronos was the intermediate holding company for the Elamex business. As of November 16, 1993, the stockholders, in effect, canceled all of the preferred stock and $1.1 million of accumulated dividends and redemption premiums in exchange for additional common stock and, in addition, two of the stockholders received $2.0 million of five-year Subordinated Debentures bearing interest at 7% per annum. At the same time, the Elamex corporate structure was modified by, in effect, replacing Kronos with Elamex, S.A. de C.V., a Mexican directly held subsidiary of Elamex Internacional, which was the issuer of such Subordinated Debentures. Using a portion of the net proceeds of the public offering the Subordinated Debentures were recently prepaid. Elamex Internacional was merged with and into Elamex, S.A. de C.V. on October 1, 1995. As part of the November 16, 1993 transaction, Accel and Fonlyser, S.A. de C.V. (the "Selling Stockholder") entered into a stockholders' agreement (the "Stockholders' Agreement") providing that each would be required, in effect, to make a bid to buy the shares of Common Stock held by the other, with the party submitting the higher bid being required to buy the low bidder's shares at such high bid price, and the low bidder being required to sell all of its shares at such price, subject to certain limitations. In anticipation of the Company's recent public offering, Accel and the Selling Stockholder entered into an agreement (the "Modification Agreement"), pursuant to which they agreed to waive their respective rights under the Stockholders' Agreement and to terminate such agreement. In addition, Accel agreed not to sell any shares of Common Stock in the public offering and to permit the Selling Stockholder to sell its shares offered herein. Accel and the Selling Stockholder further agreed that the Selling Stockholder would make available to the underwriters for the public offering the entire amount of shares required for the underwriters' over-allotment option, and that the Selling Stockholder would also sell to Accel, at book value, the number of shares of Common Stock required for Accel to maintain ownership of approximately 51% of the shares outstanding. Accel also agreed to take all actions necessary to see that Elamex redeems within thirty days of the public offering $250,498 of Subordinated Debentures then held by the Selling Stockholder. Accordingly, the Selling Stockholder (i) sold to Accel, at book value, the number of shares of Common Stock then held by it and not offered in the public offering and required for Accel to maintain ownership of approximately 51% of the shares outstanding, and (ii) thereafter, set aside and provided the entire amount of shares then held by it and required for the Underwriters' over-allotment option. The over-allotment option was subsequently exercised in the amount of 100,000 shares. On March 9, 1995, Elamex, S.A. de C.V. entered into an agreement whereby it was obligated to purchase, or cause to be repurchased, over a six year period, 1,060,197 shares of its Common Stock from a company controlled by Messrs. Barrio and Dodson for an aggregate purchase price of approximately $3.8 million (to be adjusted by 8.5% per annum). In July and September, 1995, Elamex Internacional purchased all such shares for approximately $4.0 million, or $3.79 per share. After giving effect to the change in the amount of outstanding shares of Elamex, S.A. de C.V. effected in connection with the merger of Elamex Internacional with and into Elamex, S.A. de C.V., such purchase price would have been $4.02 per share. Elamex, S.A. de C.V. and Mossberg are parties to a manufacturing contract pursuant to which Elamex has agreed to manufacture shotgun components and safe deposit boxes. The manufacture of firearms and their components are highly regulated activities in Mexico that may not be conducted by companies with non-Mexican ownership. In order to comply with Mexican regulations, Elamex de Torreon acts as a subcontractor to Elamex for this contract. Elamex de Torreon is owned by Bielas, Ensambles y Articulos Reciclables, S.A. de C.V. ("Bielas"), whose stock is held by members of the Board of Directors who are citizens of Mexico. Elamex de Torreon, which holds a permit from the Mexican Department of National Defense to manufacture the shotgun components, 47 performs the manufacturing required under the Mossberg contract, including the provision of facilities and employees, under contract to Elamex which supervises the work performed by Elamex de Torreon. The manufacturing facility used by Elamex de Torreon is owned by Elamex de Delicias, S.A. de C.V. and leased to Elamex de Torreon. The initial term of the lease has approximately 6 years to run with an option exercisable by the lessee to extend for 4 additional years, while the Mossberg contract runs for approximately two years from the date hereof. Elamex pays Elamex de Torreon its out-of-pocket costs to fulfill the contract (I.E., the cost of rent under the lease and the compensation of employees) plus up to 2%. The stockholders of Elamex de Torreon have agreed not to interfere with performance of the foregoing arrangements, or permit them to be modified, in either case without Elamex's consent, so long as the Mossberg contract is in effect. Elamex de Delicias, S.A. de C.V has granted Elamex, and Elamex has granted to Mossberg, an option to purchase the manufacturing facility where the Mossberg contract is performed from Elamex de Delicias, S.A. de C.V for a price determined by appraisers appointed by each party to represent fair market value. The options expire on the expiration of the lease. In addition, on September 30, 1995, Elamex entered into an agreement with Bielas, a company whose stock is held by five members of the Company's Board of Directors: Messrs. Eloy Vallina, Jesus Vallina, Gallegos, Barrio and Alvarez-Morodo. The agreement provides that Elamex will acquire the stock of Elamex de Torreon for $10,000 if: (i) the law prohibiting non-Mexican ownership of firearms manufacturers is repealed; (ii) the Department of National Defense authorizes acquisition of Elamex de Torreon by Elamex; or (iii) the Mossberg contract is terminated. This option is subject to a prior option, made on January 15, 1994 and granted by Elamex, Bielas, and several affiliated companies, to Mossberg, under which Mossberg has the option to purchase the shares of Elamex de Torreon for $10,000. Accel is the parent corporation of both Elamex and Esvamex, S.A. de C.V. ("Esvamex"). Esvamex and Elamex are parties to a consulting agreement of indefinite duration under which Esvamex provides administrative, accounting, tax and financial services to Elamex. In return, Elamex pays Esvamex $15,833.33 monthly subject to renegotiation as circumstances may require. The Company believes that this amount is the fair market value of the services it receives from Esvamex. At the time he became President and Chief Executive Officer of the Company, Mr. Raynal moved from Ciudad Chihuahua to Ciudad Juarez. At that time, the Company guaranteed a $150,000 loan to Mr. Raynal by a bank, the proceeds of which were used to purchase a home in Ciudad Juarez. ITEM 14. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. (a) Financial Statements (i) The consolidated balance sheets of Elamex, S.A. de C.V. and its subsidiaries as of December 31, 1996 and 1995 and the related consolidated statements of earnings, stockholders' equity and cash flows for each of the years in the three-year period ended December 31, 1996 are filed in Item 8 of this report. (ii) Financial statement schedule, valuation and qualifying accounts and reserves and report thereon included on pages 49 and 50. 48 (b) The following exhibits are filed as part of this report:
EXHIBIT DESCRIPTION NUMBER ----------- ----- 3 Estatutos Sociales (By-Laws) of the Registrant (including English translation).* 10.1 Modification Agreement Between Fonlyser, S.A. and Accel, S.A. de C.V., with a translation in English, and subsequent modification letter, with a translation in English.* 10.2 Credit Agreement with Confia, S.A., with a summary in English, and renewal letter, with a translation in English.* 10.3 Revolving Credit Agreement with Comerica Bank.* 10.4 Contract for the Opening of Credit with Bancomer, S.A., with a summary of subsequent modifications in English.* 10.5 Tax Sharing Agreement between Accel, S.A. de C.V. and Elamex S.A. de C.V.* 10.6 Lease of Elamex de Juarez Plant #3, with a translation in English.* 10.7 Lease of Elamex de Juarez Plant #4, with a translation in English.* 10.8 Lease of Elamex de Juarez Plant #5, with a translation in English.* 10.9 Lease of Elamex de Juarez Plant #9.* 10.10 Lease of Elamex de Nuevo Laredo Plant.* 10.11 Lease of Elamex de Torreon Plant.* 10.12 Executive Phantom Stock Plan.* 21 Subsidiaries of the Registrant.* 99 Financial statement schedule, valuation and qualifying accounts and reserves and report thereon included on pages 49 and 50.
* Filed as an exhibit to the Company's Registration Statement on Form S-1, file No. 333-01768 (c) No reports on Form 8-K were filed during the last quarter of the period covered by this report. 49 INDEPENDENT AUDITORS' REPORT The Board of Directors and Stockholders Elamex, S.A. de C.V.: Under date of February 27, 1997, we reported on the consolidated balance sheets of Elamex, S.A. de C.V. and subsidiaries as of December 31, 1996 and 1995, and the related consolidated statements of earnings, stockholders' equity, and cash flows for each of the years in the three-year period ended December 31, 1996, which are included in Item 8 of the 1996 annual report on Form 10-K. In connection with our audits of the aforementioned consolidated financial statements, we also audited the related consolidated financial statement schedule in the Form 10-K. This consolidated financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on this financial statement schedule based on our audits. In our opinion, such consolidated financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. KPMG Peat Marwick LLP El Paso, Texas February 27, 1997 50 Exhibit 99 ELAMEX & SUBSIDIARIES Valuation and qualifying accounts and reserves
Column A Column B Column C Column D Column E - -------------------------- -------------------------------------------------------------------------------------- Balance Charged to Charged to Balance Beginning Cost and Other at End of Year Expenses Accounts Deductions of Year ALLOWANCE FOR DOUBTFUL ACCOUNTS For the year ended: December 31, 1996 149 527 151 (a) 525 - December 31, 1995 194 (a) 149 160 - 205 December 31, 1994 47 (a) 194 294 - 147 ALLOWANCE FOR MATERIAL OBSOLESCENCE For the year ended: December 31, 1996 1,471 427 1,898 - - December 31, 1995 863 1,471 608 - - December 31, 1994 215 863 648 - -
- -------------------------- (a) Uncollectible accounts written off 51 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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 on March 21, 1997. ELAMEX, S.A. de C.V. By: /s/ JORGE TORRES ------------------ Jorge Torres TREASURER (PRINCIPAL FINANCIAL OFFICER) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on May 7, 1996 by the following persons on behalf of the registrant in the capacities indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ ELOY S. VALLINA Chairman of the Board of Directors March 21, 1997 -------------------- Eloy S. Vallina /s/ FEDERICO BARRIO Vice Chairman of the Board of Directors March 21, 1997 -------------------- Federico Barrio /s/ JESUS ALVAREZ-MORODO Vice Chairman of the Board of Directors March 21, 1997 -------------------------- Jesus Alvarez-Morodo /s/ HECTOR M. RAYNAL President, Chief Executive Officer and Director March 21, 1997 -------------------- (Principal Executive Officer) Hector M. Raynal /s/ JESUS E. VALLINA Director March 21, 1997 ---------------------- Jesus E. Vallina ______________________ Director March 21, 1997 Rafael Vallina /s/ EDUARDO L. GALLEGOS Director March 21, 1997 ------------------------ Eduardo L. Gallegos ______________________ Director March 21, 1997 Robert J. Whetten
52 /s/ JERRY NEELY Director March 21, 1997 Jerry Neely ______________________ Director March 21, 1997 Charles H. Dodson /s/ ANTONIO ELIAS Director March 21, 1997 Antonio Elias
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