10-Q 1 0001.txt FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) (X) Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarterly Period Ended: August 31, 2000 (_) Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from __________________ to __________________ Commission File Number 0-2733 AZZ incorporated (Exact name of registrant as specified in its charter) TEXAS 75-0948250 -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation of organization) Identification No.) 400 North Tarrant, Crowley, Texas 76036 -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (817) 297-4361 ----------------------------- NONE -------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO ______ ----- Indicate the number of outstanding of each of the issuer's classes of common stock, as of the close of the period covered by this report. Outstanding at August 31, 2000 Common Stock, $1.00 Par Value 4,898,016 ----------------------------- --------------------- Class Number of Shares AZZ incorporated INDEX -----
PART I. Financial Information Page No. --------------------- -------- Item 1. Financial Statements Consolidated Condensed Balance Sheets at August 31, 2000 and February 29, 2000 3 Consolidated Condensed Statements of Income for the Periods Ended August 31, 2000 and August 31, 1999 4 Consolidated Condensed Statements of Cash Flow for the Periods Ended August 31, 2000 and August 31, 1999 5 Notes to Consolidated Condensed Financial Statements 6-7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8-9 PART II. Other Information ----------------- Item 4. Submission of Matters to a Vote of Security Holders 10 Item 6. Exhibits and Reports on Form 8-K 10 -11 SIGNATURES 11 EXHIBITS E1 - E8
AZZ incorporated Consolidated Condensed Balance Sheet
08/31/00 02/28/00 ASSETS (UNAUDITED) (AUDITED) ------ ---------------- -------------- CURRENT ASSETS CASH AND CASH EQUIVALENTS $ 631,007 $ 1,328,139 ACCOUNTS RECEIVABLE(NET OF ALLOWANCE) 18,937,901 19,571,111 INVENTORIES RAW MATERIAL 10,151,476 8,923,550 WORK-IN-PROCESS 2,522,620 2,197,548 FINISHED GOODS 1,509,960 1,432,220 REVENUE IN EXCESS OF BILLINGS ON UNCOMPLETED CONTRACTS 1,356,627 487,235 DEFERRED INCOME TAXES 635,673 635,673 PREPAID EXPENSES AND OTHER 357,948 382,047 --------------- -------------- TOTAL CURRENT ASSETS 36,103,212 34,957,523 LONG TERM INVESTMENTS - 200,000 PROPERTY, PLANT AND EQUIPMENT, NET 28,262,814 28,269,959 INTANGIBLE ASSETS, NET 20,142,581 20,792,683 OTHER ASSETS 488,552 583,576 --------------- -------------- TOTAL ASSETS $ 84,997,159 $ 84,803,741 =============== ============== LIABILITIES AND SHAREHOLDERS' EQUITY ------------------------------------ CURRENT LIABILITIES: LONG TERM DEBT DUE WITHIN ONE YEAR $ 4,345,284 $ 4,367,731 ACCOUNTS PAYABLE 8,294,863 7,302,699 BILLINGS IN EXCESS OF REVENUE ON UNCOMPLETED CONTRACTS 374,956 405,435 ACCRUED LIABILITIES 6,648,739 7,753,382 --------------- -------------- TOTAL CURRENT LIABILITIES 19,663,842 19,829,247 LONG TERM DEBT DUE AFTER ONE YEAR 26,339,729 31,075,272 DEFFERRED INCOME TAX 878,500 878,500 SHAREHOLDERS' EQUITY: COMMON STOCK, $1 PAR VALUE SHARES AUTHORIZED-25,000,000 SHARES ISSUED 6,304,580 6,304,580 6,304,580 CAPITAL IN EXCESS OF PAR VALUE 11,388,744 11,113,565 RETAINED EARNINGS 33,482,720 29,559,646 LESS COMMON STOCK HELD IN TREASURY (13,060,956) (13,957,069) --------------- -------------- (1,406,564 AND 1,503,024 SHARES AT COST RESPECTIVELY) TOTAL SHAREHOLDERS' EQUITY 38,115,088 33,020,722 --------------- -------------- TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $ 84,997,159 $ 84,803,741 =============== ==============
See Accompanying Notes to Consolidated Condensed Financial Statements 3 AZZ incorporated Consolidated Condensed Income Statement
THREE MONTHS ENDED SIX MONTHS ENDED 08/31/00 08/31/99 08/31/00 08/31/99 (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) -------------- ------------ ------------ ------------ NET SALES $ 30,473,979 $ 20,986,466 $ 58,418,430 $ 41,657,087 COSTS AND EXPENSES COST OF SALES 22,728,101 15,524,183 43,472,794 30,840,766 SELLING/G & A EXPENSES 3,766,848 2,637,142 7,280,366 5,347,352 INTEREST EXPENSE 612,465 321,838 1,240,590 674,933 OTHER (INCOME) EXPENSE 73,410 (5,058) 137,886 28,323 -------------- ------------ -------------- -------------- 27,180,824 18,478,105 52,131,636 36,891,374 -------------- ------------ -------------- -------------- INCOME BEFORE INCOME TAXES 3,293,155 2,508,361 6,286,794 4,765,713 PROVISION FOR INCOME TAXES 1,240,807 941,043 2,363,720 1,787,596 -------------- ------------ -------------- -------------- NET INCOME $ 2,052,348 $ 1,567,318 $ 3,923,074 $ 2,978,117 ============= ============ ============== ============== EARNINGS PER SHARE BASIC $ 0.42 $ 0.33 $ 0.81 $ 0.63 DILUTED $ 0.41 $ 0.33 $ 0.79 $ 0.63
See Accompanying Notes to Consolidated Condensed Financial Statements 4 AZZ incorporated Consolidated Condensed Statements of Cash Flows (Unaudited)
SIX MONTHS ENDED 08/31/00 8/31/99 ------------ ----------- CASH FLOWS PROVIDED BY OPERATIONS: NET INCOME $ 3,923,074 $ 2,978,117 ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY OPERATIONS: PROVISION FOR BAD DEBTS 90,100 83,581 AMORTIZATION AND DEPRECIATION 2,840,055 2,030,414 GAIN ON SALE OF PROPERTY 1,421 (6,190) OTHER 264,735 - INCREASE (DECREASE) FROM CHANGES IN ASSETS & LIABILITIES ACCOUNTS RECEIVABLE 544,853 (1,131,528) INVENTORIES (1,630,737) 1,085,839 PREPAID EXPENSES AND OTHER 22,354 111,828 OTHER ASSETS 85,074 6,101 REVENUE IN EXCESS OF BILLINGS (899,871) - ACCOUNTS PAYABLE 992,164 1,401,278 ACCRUED LIABILITIES (334,324) 1,000,939 ----------- ----------- NET CASH PROVIDED BY OPERATIONS 5,898,898 7,560,379 CASH FLOWS USED FOR INVESTING ACTIVITIES: PROCEEDS FROM SALE OF EQUIPMENT 55,488 - PURCHASE OF PROPERTY, PLANT AND EQUIPMENT (2,229,767) (1,464,078) PROCEEDS FROM SALE OF INVESTMENTS 200,000 - ----------- ----------- NET CASHUSED FOR INVESTING ACTIVITIES (1,974,279) (1,464,078) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES PROCEEDS FROM EXERCISE OF STOCK OPTIONS 906,557 63,553 PAYMENTS ON DEBT (4,757,990) (6,547,620) CASH DIVIDENDS PAID (770,318) (249) NET CASH USED FOR FINANCING ACTIVITIES (4,621,751) (6,484,316) ----------- ----------- DECREASE IN CASH & CASH EQUIVALENTS (697,132) (388,015) CASH & CASH EQUIVALENTS, BEGINNING OF PERIOD 1,328,139 800,183 ----------- ----------- CASH & CASH EQUIVALENTS, END OF PERIOD $ 631,007 $ 412,168 =========== ===========
See Accompanying Notes to Consolidated Condensed Financial Statements 5 AZZ incorporated NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS ---------------------------------------------------- Summary of Significant Accounting Policies ------------------------------------------ 1. A summary of the Company's significant accounting policies is presented on Page 20 and 21 of its 2000 Annual Shareholders' Report. 2. In the opinion of Management of the Company, the accompanying unaudited consolidated condensed financial statements contain all adjustments (consisting of only normal recurring accruals) necessary to present fairly the financial position of the Company as of August 31, 2000, and the results of its operations and cash flows for the periods ended August 31, 2000 and 1999. 3. Earnings per share is based on the month-end average number of shares outstanding during each period, adjusted for the dilutive effect of stock options. The following table sets forth the computation of basic and diluted earnings per share: (unaudited)
Three months ending August 31, Six months ending August 31, 2000 1999 2000 1999 ---------- ---------- ---------- ---------- (Dollars in thousands except earnings per share) Numerator: Net income for basic and diluted earnings per common share $ 2,052 $ 1,567 $ 3,923 $ 2,978 Denominator: Denominator for basic earnings per common share -weighted average shares 4,878,307 4,744,941 4,848,083 4,741,853 Effect of dilutive securities: Employee and Director stock options 131,472 29,951 115,027 18,476 ---------- ---------- ---------- ----------- Denominator for diluted earnings per common share -adjusted weighted- average shares and assumed conversions 5,009,779 4,774,892 4,963,110 4,760,329 ========== ========== ========== ========== Basic earnings per common share $ .42 $ .33 $ .81 $ .63 ========== ========== ========== ========== Diluted earnings per common share $ .41 $ .33 $ .79 $ .63 ========== ========== ========== ===========
6 4. A summary discussion of the Company's operating segments is contained on page 28 and 29 of the 2000 Annual Shareholders' Report. Information regarding operations and assets by segment in thousands is as follows: (unaudited)
Three Months Ended Aug 31, Six Months Ended Aug 31, 2000 1999 2000 1999 ------- ------- ------- ------- Net Sales: Manufactured Products $16,410 $11,165 $31,263 $22,112 Services 14,064 9,821 27,155 19,545 ------- ------- ------- ------- $30,474 $20,986 $58,418 $41,657 Operating Income (a): Manufactured Products $ 2,510 $ 1,582 $ 4,534 $ 2,653 Services 2,847 2,194 5,644 4,671 ------- ------- ------- ------- $ 5,357 $ 3,776 $10,178 $ 7,324 General Corporate Expense $ 1,436 $ 937 $ 2,648 $ 1,863 Interest Expense 613 322 1,241 675 Other (Income) Exp., Net (b) 15 9 2 20 ------- ------- ------- ------- $ 2,064 $ 1,268 $ 3,891 $ 2,558 Income Before Income Taxes $ 3,293 $ 2,508 $ 6,287 $ 4,766 ======= ======= ======= ======= Total Assets: Manufactured Products $43,901 $28,295 $43,901 $28,295 Services 39,593 27,563 39,593 27,563 Corporate 1,503 1,437 1,503 1,437 ------- ------- ------- ------- $84,997 $57,295 $84,997 $57,295 ======= ======= ======= =======
(a) Operating income consists of net sales less cost of sales, specifically identifiable general and administrative expenses and selling expenses. (b) Other (income) expense, net includes gains and losses on sale of property, plant and equipment and other (income) expense not specifically identifiable to a segment. 7 Item 2. Management's Discussion and Analysis of Financial Condition and -------------------------------------------------------------------------- Results of Operations --------------------- RESULTS OF OPERATIONS ---------------------- For the three-month and six-month periods ended August 31, 2000, consolidated net sales were up 45% and 40%, respectively, as compared to the same periods in fiscal 2000. Net sales in the Manufactured Products Segment were up $5.3 million or 47% for the three-month period ended August 31, 2000, and $9.2 million or 41% for the six-month period ended August 31, 2000, as compared to the same periods in fiscal 2000. Year-to-date results in the Manufactured Products Segment for the period ended August 31, 2000 include six months of revenues from CGIT Westboro, Inc. which was acquired on September 1, 1999. Backlog for the Manufactured Products Segment at the end of August 31, 2000, was $38.2 million compared to $21.1 million at the end of August 31, 1999, due primarily to the deregulation of the power generation industry and the need for increased domestic power supplies. Net sales in the Services Segment, which is made up of the Company's galvanizing operations, were up $4.2 million or 43% and $7.6 million or 39% for the three and six-month periods ended August 31, 2000, and as compared to the same periods in the prior year. Quarterly results for the period ended August 31,2000, include six months of revenues from Westside Galvanizing Services, Inc. acquired on January 31, 2000. The volume of steel processed increased for both the three and six-month periods ended August 31, 2000, as compared to the same periods in the prior year. For the three and six-month periods ended August 31, 2000, Consolidated operating income (net sales less operating expenses) was up 42% and 39%, respectively, as compared to the same periods in fiscal 2000. Operating income in the Manufactured Products Segment was up $928,000 or 59% and $1.9 million or 71% for the three and six-month periods ended August 31, 2000 as compared to the same periods in fiscal 2000. Increases in operating income were experienced in the majority of this segments product lines for the quarter ending August 31, 2000 as compared to the same periods in the prior year. Improvements in operating efficiencies and increased volumes contributed to these increases. In the Services Segment, operating income was up $653,000 or 30% and $973,000 or 21% for the three and six-month periods ended August 31, 2000 as compared to the same periods in fiscal 2000. Increased operating income in the Services Segment was due to increased volumes and improved operating efficiencies coupled with the addition of Westside Galvanizing Services for the compared periods. Operating margins were negatively impacted by escalating natural gas prices as well as higher zinc cost. General corporate expenses (selling, general and administrative expense, and other (income) expense) for the three and six-month periods ended August 31, 2000, were up $1.2 million or 46% and $2 million or 38% as compared to the same periods in the prior year. As a percent of sales, general corporate expenses were 12.6% and 12.7% for the three and six-month periods ended August 31, 2000, as compared to 12.5% and 12.9% to the same periods in fiscal 2000. Net interest expense for the three and six-month periods ended August 31, 2000, was $612,000 and $1.2 million, up 90% and 84%, respectively, compared to the same periods in fiscal 2000. This increase was due to larger outstanding loan balances during fiscal 2001 associated with the acquisitions made during the last half of fiscal 2000. 8 LIQUIDITY AND CAPITAL RESOURCES ------------------------------- Net cash provided by operations was $5.9 million for the six-month period that ended August 31, 2000, compared to $7.6 million for the same period in fiscal 2000. Net income of $3.9 million and $2.8 million in depreciation and amortization contributed to net cash provided by operations. Other changes in assets and liabilities utilized $864,000 of net cash provided by operations. During the six-month period ended August 31, 2000, capital improvements were made in the amount of $2 million, long-term debt was repaid in the amount of $4.8 million, and cash dividends of $770,000 were paid. Proceeds from the exercise of stock options generated $907,000. The Company has a credit facility with a bank that provides for a $20 million revolving line of credit, a $10 million term note, and a $17.5 million term note. At the end of August 31, 2000, the Company had $7.4 million outstanding under the revolving line of credit and $23.3 million outstanding under the two term facilities. At August 31, 2000, the Company had approximately $12.1 million available under the revolving line of credit. Management believes that it's current credit facility coupled with the Company's borrowing capacity along with cash generated from operations will be sufficient to accommodate the Company's current operations, internal growth and possible acquisitions. Forward Looking Statements -------------------------- This Report contains, and from time to time the Company or certain of its representatives may make, "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements are generally identified by the use of words such as "anticipate," "expect," "estimate," "intend," "should," "may," "believe," and terms with similar meanings. Although the Company believes that the current views and expectations reflected in these forward-looking statements are reasonable, those views and expectations, and the related statements, are inherently subject to risks, uncertainties, and other factors, many of which are not under the Company's control. Those risks, uncertainties, and other factors could cause the actual results to differ materially from these in the forward-looking statements. Those risks, uncertainties, and factors include, but are not limited to, many of the matters described in this Report: change in demand, prices and raw material cost, including zinc which is used in the hot dip galvanizing process; changes in the economic conditions of the various markets the Company serves, foreign and domestic, including the market price for oil and natural gas; acquisition opportunities, adequacy of financing, and availability of experienced management employees to implement the Company's growth strategy; and customer demand and response to products and services offered by the Company. The Company expressly disclaims any obligations to release publicly any updates or revisions to these forward-looking statements to reflect any change in its views or expectations. 9 PART II. OTHER INFORMATION AZZ incorporated Item 4. Submissions of Matters to a Vote of Security Holders -------------------------------------------------------------- Shareholders at the Annual Meeting on July 11, 2000, reelected three incumbent directors, David H. Dingus, Dana Perry, and W.C. Walker. Of the 4,164,181 shares represented at the meeting, 4,145,085 shares (99.5%) were voted for Mr. Dingus, 4,145,085 shares (99.5%) were voted for Mr. Perry, 4,138,931 shares (99.4%) were voted for Mr. Walker. Other directors continuing in office are L.C. Martin, Sam Rosen, Martin C. Bowen, R.J. Schumacher, Kevern R. Joyce and Dr. Kirk Downey. Two proposals by the Board of Directors were submitted to the stockholders at the Annual Meeting, with the following vote tabulation. Amendment to the Articles of Incorporation Changing the Name of the Company Approved/Failed to Approve -------------------------- Shares for: 4,056,571 84.1% Shares Against: 90,551 1.9% APPROVED Shares Abstained: 17,059 .4% Approval of Ratification of the Appointment of Ernst & Young LLP as Auditors. Shares for: 4,141,351 99.5% Shares Against: 9,916 .2% APPROVED Shares Abstained: 12,914 .3% Item 6. Exhibits and Reports on Form 8-K ----------------------------------------- (A) Exhibits - There are five exhibits filed with this 10-Q for the three months ended August 31, 2000. 3 (i) Articles of Amendment to the Articles of Incorporation filed July 17, 2000; (ii) Bylaws of AZZ incorporated, as amended and restated on August 15, 2000; 4 Form of Stock Certificate for the Company's $1.00 par value Common Stock; 11 Computation of Per Share Earnings (see note 3 to the Consolidated Condensed Financial Statements); 20 Press Release - Corporate Name Change; 20 Press Release - New Directors. 10 (B) Reports on Form 8-K - No reports on Form 8-K were filed during the three months ended August 31, 2000. All other schedules and compliance information called for by the instructions for Form 10-Q have been omitted since the required information is not present or not present in amounts sufficient to require submission. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. AZZ incorporated ------------------------------------------ (Registrant) Date: 10/13/00 /s/ Dana Perry -------- ------------------------------------------ Dana Perry, Vice President for Finance Chief Financial Officer 11 EXHIBIT INDEX The following exhibits are filed as a part of this report: 3 (i) Articles of Amendment to the Articles of Incorporation filed July 17, 2000; (ii) Bylaws of AZZ incorporated, as amended and restated on August 15, 2000; 4 Form of Stock Certificate for the Company's $1.00 par value Common Stock; 11 Computation of Per Share Earnings (see note 3 to the Consolidated Condensed Financial Statements); 20 (i) Press Release - Corporate Name Change; 20 (ii) Press Release - New Directors. 27 AZZ Incorporated Financial Data Schedule E-1 12