Elamex Reports Second Quarter 2001 Results
EL PASO, Texas--Aug. 6, 2001--Elamex, S.A. de C.V. announced today its results for the quarter ended June 29, 2001.Sales decreased 23% ($10.5 million) to $36.2 million from $46.7 million in the second quarter of the prior year. Net loss for the quarter of $1.5 million compared to net income of $19.0 million for the same quarter in 2000. Net loss per share for the second quarter of 2001 was $0.22 per share, a decrease of $2.99 per share compared to earnings per share of $2.77 for the same quarter in the prior year. There were 6,866,100 outstanding shares at the end of the second quarter for both 2000 and 2001.
The decrease in net sales was primarily the result of the sale of our EMS operation in the second quarter of 2000, which accounted for $9.8 million in sales in that same quarter. In addition, our shelter operation sales increased $3.3 million and sales from our joint venture with GE (Qualcore) decreased $4.3 million as the result of the closing of the Juarez plant in the second quarter of 2001.
Gross profit in the second quarter of 2001 fell to $137,000, down from $1.3 million in the prior year, a reduction of $1.2 million. The major contributors to this reduction were:
| -- | Our joint venture with GE generated a negative gross profit in the second quarter of this year of $2.1 million compared to a negative $927,000 in 2000, a decrease of $1.1 million. Of this amount, $1 million was due to an increase in scrap because of start up problems in many of the new machines, continued production inefficiencies, costs associated with tooling repairs, and an increase in reserves for inventory obsolescence. |
| -- | Shelter operations recorded $658,000 less gross profit in the second quarter of 2001 than in the same quarter of a year ago, the result of significant losses from discontinued contracts, and from lower margins throughout the division. |
| -- | The EMS operation provided a negative gross profit of $432,000 in the second quarter of 2000, thus resulting in a favorable variance of that same amount in 2001. |
Operating expenses of $5.2 million in the second quarter of this year increased by $400,000 over the $4.8 million of one year ago. This net increase is primarily due to the following:
-- Restructuring costs of $2.5 million recorded in the second
quarter of 2001 associated with the closing of the Juarez
plant, costs related to future lease obligations on idle
property, and severance costs resulting from continued
reductions in personnel.
-- A reduction in operating expenses in 2001 of $2 million
compared to 2000 resulting from the sale of EMS operations in
the second quarter of 2000.
-- During the second quarter of 2001 reserves for uncollectable
accounts increased by $393,000, primarily in our Kentucky
operation.
-- A reduction in personnel related expenses in 2001 of $441,000
compared to the same quarter in 2000.
Other income of $397,000 in the second quarter of 2001 was $20.4 million less than the $20.8 million recorded in the same quarter of last year, primarily due to the $20.5 million gain on the sale of EMS operations in the second quarter of 2000.
The tax liability for the quarter is based on our calculation of the tax liability for the complete year. Factors affecting this liability include Company results, year end exchange rates and projections for inflation. Based on the second quarter operating results, the Company estimates a tax credit of approximately $1.3 million.
Richard P. Spencer, President and CEO of Elamex, made the following comments regarding the second quarter results:
"Elamex's financial results for the second quarter 2001 reflect our business plan to bring ongoing expenses in line with revenues and streamline our business structure. The steps taken to date are beginning to show positive financial results. The 2001 second quarter consolidated income before taxes and minority interest adjusted for depreciation, amortization and net interest expense (EBITDA), which includes the consolidation of minority interest of $1.9 million, shows a negative EBITDA of approximately $3.3 million compared to a negative EBITDA of approximately $10.8 million in the first quarter 2001. Excluding adjustments for severance, plant closures, asset reductions and other writedowns, the adjusted consolidated EBITDA for the second quarter was approximately $484,000 compared to $115,000 in the first quarter, an improvement of $369,000. We anticipate continued measurable improvement in the second half of 2001."
"In Elamex's first quarter earnings announcement, we indicated that the second quarter 2001 results would be negatively impacted from additional non-recurring expenses associated with repositioning ongoing business operations. The non-recurring charges taken in the second quarter associated with these initiatives were $2.5 million. Of this amount, $1.3 million was the result of the closure of the Juarez plant in our joint venture, $740,000 was associated with the remaining contracted rent from a vacant leased building and an additional $441,000 in severance costs resulting from continued reductions in personnel. Since the beginning of the year, we have reduced our administrative personnel in our wholly owned subsidiaries and corporate staff by 15% and by year end we project this reduction to be approximately 36%. All of the reductions have not just come from lower level positions. We have reduced our corporate staff from forty one to fourteen, a 65% reduction, and we anticipate further reductions in this area. We believe that we have now substantially recognized the bulk of the excess overhead expenses associated with our business operations."
"We still face significant challenges in our business units to reach acceptable financial performance levels on an ongoing basis. Our shelter business is stable but growth is being impacted by the uncertainty of the U.S. economy. As a result, U.S. companies are generally delaying decisions regarding plant expansions or movement of production facilities to Mexico. We do not expect our shelter operations to show significant growth until the U.S. economy shows clear signs of recovery."
"While the Kentucky operation has been able to maintain its revenue base, extreme competitive pricing pressures and plant efficiency issues have negatively impacted operating results. Since our Kentucky operation primarily sells to the appliance and automotive sectors, we anticipate ongoing pricing pressures while we work on improving plant efficiencies."
"With respect to our joint venture plastics molding and metal stamping business with General Electric de Mexico, the Juarez facility has been closed on time and at a cost lower than anticipated. We continue to face with ramp-up issues at the new plant in Celaya, Mexico. We do not anticipate that this plant will reach break even operations until the fourth quarter."
"Besides taking steps to improve our expense base and balance sheet, we have also been in the process of defining our future business model and strategy. We will primarily focus on investment opportunities where Elamex can leverage its expertise in the shelter business, while looking to our future partners to bring manufacturing and marketing expertise."
Consistent with this strategy, the Elamex Board of Directors has approved a $3.0 million convertible subordinated loan to Franklin Connections LLC., a related party. If converted, this investment will represent approximately 17.3% ownership in the company. Franklin Connections has recently built a new 55-60 million pound candy manufacturing facility in Juarez, Mexico. Candy production from this plant is for export to the United States. Individuals in the Franklin Connections senior management team have held senior executive positions in major U.S. candy companies, such as Mars Inc., E.J. Broch and Farley Candy Company. Elamex has an existing shelter contract for the local labor and related services associated with this new plant.
Elamex will conduct a group conference call on Tuesday, Aug. 7, 2001, at 10:30 a.m. (EST) to discuss second quarter 2001 results.
Elamex is a Mexican manufacturer service provider. The Company, in addition to production of plastic and stamped metal components, delivers high quality finished assemblies to U.S. and Canadian Original Equipment Manufacturers (OEM) in the consumer, telecommunications, industrial, medical and automotive industries. Elamex participates in a high growth industry, where its unique competitive advantage results from its demonstrated capability to leverage low cost, highly productive labor, strategic North American locations, recognized world class quality, and proven ability to combine high technology with labor intensive manufacturing processes.
ELAMEX, S.A. DE C.V. AND SUBSIDIARIES
Consolidated Condensed Balance Sheets
(In Thousands of U.S. Dollars)
(Unaudited)
June 29, December 31,
2001 2000
--------- ---------
Assets
Current assets $ 66,081 $ 76,775
Property, plant and equipment, net 49,370 55,108
Other assets, net 12,784 10,485
--------- ---------
$ 128,235 $ 142,368
========= =========
Liabilities and Stockholders' Equity
Current liabilities $ 25,930 $ 34,667
Long-term debt and liabilities 36,278 26,455
--------- ---------
Total liabilities 62,208 61,122
Minority interest (5,811) 474
Stockholders' equity 71,838 80,772
--------- ---------
$ 128,235 $ 142,368
========= =========
ELAMEX, S.A. DE C.V. AND SUBSIDIARIES
Consolidated Condensed Statements of Operations
(In Thousands of U.S. Dollars, except per share amounts)
(Unaudited)
13 Weeks ended 26 Weeks ended
-------------------- -------------------
June 29 June 30 June 29 June 30
2001 2000 2001 2000
-------------------- -------------------
Net sales $ 36,165 $ 46,693 $ 71,922 $ 98,019
Cost of sales 36,028 45,377 73,076 94,127
-------------------- -------------------
Gross (loss) profit 137 1,316 (1,154) 3,892
-------------------- -------------------
Operating expenses:
General and administrative 2,430 4,368 5,781 7,096
Selling 330 467 843 992
Re-structuring charges
2,477 -- 11,726 --
-------------------- -------------------
Total operating expenses 5,237 4,835 18,350 8,088
-------------------- -------------------
Operating loss (5,100) (3,519) (19,504) (4,196)
Other income:
Interest income 425 451 910 563
Interest expense (674) (705) (1,308) (1,663)
Other, net 402 470 264 899
Gain on sale of
subsidiaries 244 20,535 2,612 20,535
-------------------- -------------------
Total other income 397 20,751 2,478 20,334
-------------------- -------------------
Loss before income taxes
and minority interest (4,703) 17,232 (17,026) 16,138
Income tax benefit (1,297) (1,210) (2,151) (1,430)
-------------------- -------------------
(Loss) income before
minority interest (3,406) 18,442 (14,875) 17,568
Minority interest in loss
of subsidiaries 1,863 572 6,284 937
-------------------- -------------------
Net (loss) income (1,543) 19,014 (8,591) 18,505
Other comprehensive loss,
net of income tax benefit
of $170 and $184
respectively (315) -- (342) --
-------------------- -------------------
Comprehensive (loss) income $ (1,858) $ 19,014 $ (8,933)$ 18,505
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Basic and diluted loss per
common share $ (0.22) $ 2.77 $ (1.25)$ 2.70
Weighted average shares
outstanding 6,866,100 6,866,100 6,866,100 6,866,100
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