AZZ INC - 10-Q Quarterly Report

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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Quarterly Period Ended: May 31, 2004

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 1-12777

AZZ incorporated

(Exact name of registrant as specified in its charter)


TEXAS		75-0948250
(State or other jurisdiction of incorporation of organization)		(I.R.S. Employer Identification No.)

Suite 200, 1300 South University Drive, Fort Worth, Texas		76107
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (817) 810-0095

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 by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practical date.


		Outstanding at June 15, 2004

Common Stock, $1.00 Par Value		5,433,721
Class		Number of Shares

AZZ incorporated

INDEX


		Page No.
PART I.	Financial Information

Item 1.	Financial Statements
	Consolidated Condensed Balance Sheets at May 31, 2004 and February 28, 2004	3
	Consolidated Condensed Statements of Income for the Periods Ended May 31, 2004 and May 31, 2003	4
	Consolidated Condensed Statements of Cash Flow for the Periods Ended May 31, 2004 and May 31, 2003	5
	Notes to Consolidated Condensed Financial Statements	6-8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	9-14
Item 3.	Quantitative and Qualitative Disclosure of Market Risk	14
Item 4.	Controls and Procedures	14-15

PART II.	Other Information

Item 1.	Legal Proceedings	15
Item 2.	Changes in Securities	15
Item 3.	Defaults Upon Senior Securities	15
Item 4.	Submissions of Matters to a Vote of Security Holders	15
Item 5.	Other Information	15
Item 6.	Exhibits and Reports on Form 8-K	15

SIGNATURES		16

EXHIBIT INDEX		17

PART I. FINANCIAL INFORMATION

Item

I. Financial Statements

AZZ incorporated

CONSOLIDATED CONDENSED BALANCE SHEET


	05/31/04			02/28/04
	(UNAUDITED)
ASSETS

CURRENT ASSETS
CASH AND CASH EQUIVALENTS	$	1,229,181		$	1,444,982
ACCOUNTS RECEIVABLE (NET OF ALLOWANCE FOR DOUBTFUL ACCOUNTS)		24,633,330			21,897,263
INVENTORIES
RAW MATERIAL		8,379,725			7,854,625
WORK-IN-PROCESS		4,680,474			5,732,162
FINISHED GOODS		2,986,029			4,092,129
COSTS AND ESTIMATED EARNINGS IN EXCESS OF BILLINGS ON UNCOMPLETED CONTRACTS		562,869			236,368
DEFERRED INCOME TAXES		1,682,041			1,606,388
PREPAID EXPENSES AND OTHER		718,393			848,961

TOTAL CURRENT ASSETS		44,872,042			43,712,878

PROPERTY, PLANT AND EQUIPMENT, NET		34,834,167			34,201,272
GOODWILL, NET OF ACCUMULATED AMORTIZATION		40,962,104			40,962,104
OTHER ASSETS, NET OF ACCUMULATED AMORTIZATION		1,063,162			1,150,241

	$	121,731,475		$	120,026,495

LIABILITIES AND SHAREHOLDERS’ EQUITY

CURRENT LIABILITIES:
LONG-TERM DEBT DUE WITHIN ONE YEAR	$	5,500,000		$	5,500,000
ACCOUNTS PAYABLE		10,513,697			9,985,612
BILLINGS IN EXCESS OF COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS		100,341			32,395
ACCRUED LIABILITIES AND INCOME TAXES		8,382,669			7,985,796

TOTAL CURRENT LIABILITIES		24,496,707			23,503,803

LONG-TERM DEBT DUE AFTER ONE YEAR		24,500,000			25,375,000
DEFERRED INCOME TAXES		1,939,580			1,850,133

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		13,951,297			13,956,016
CUMULATIVE OTHER COMPRENSIVE INCOME (LOSS)		(210,169	)		(324,306	)
RETAINED EARNINGS		58,863,687			57,618,403
LESS COMMON STOCK HELD IN TREASURY, AT COST ( 872,392 SHARES AT MAY 31, 2004 AND 887,744 SHARES AT FEBRUARY 29, 2004)		(8,114,207	)		(8,257,134	)

TOTAL SHAREHOLDERS’ EQUITY		70,795,188			69,297,559

	$	121,731,475		$	120,026,495

See Accompanying Notes to Consolidated Condensed Financial Statements

PART I. FINANCIAL INFORMATION

Item

I. Financial Statements

AZZ incorporated

CONSOLIDATED CONDENSED INCOME STATEMENT


	THREE MONTHS ENDED
	5/31/04		5/31/03
	(UNAUDITED)		(UNAUDITED)
NET SALES	$	39,693,479	$	36,347,690

COSTS AND EXPENSES
COST OF SALES		32,496,335		30,019,152
SELLING, GENERAL AND ADMINISTRATIVE		4,749,758		4,416,594
INTEREST EXPENSE		442,117		673,159
OTHER (INCOME) EXPENSE, NET		27,918		(185,305	)

		37,716,128		34,923,600

INCOME BEFORE INCOME TAXES		1,977,351		1,424,090
INCOME TAX EXPENSE		732,068		541,100

NET INCOME	$	1,245,283	$	882,990

EARNINGS PER COMMON SHARE
BASIC	$	0.23	$	0.17
DILUTED	$	0.23	$	0.17

See Accompanying Notes to Consolidated Condensed Financial Statements

PART I. FINANCIAL INFORMATION

Item

I. Financial Statements

AZZ incorporated

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOW


	THREE MONTHS ENDING
	5/31/04			5/31/03
	(Unaudited)			(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME	$	1,245,283		$	882,990

ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES:
PROVISION FOR DOUBTFUL ACCOUNTS		71,575			82,850
AMORTIZATION AND DEPRECIATION		1,399,105			1,491,209
DEFERRED INCOME TAX BENEFIT		(56,162	)		—
NET GAIN(LOSS) ON SALE OF PROPERTY, PLANT & EQUIPMENT		18,248			(96,696	)
NON-CASH INTEREST EXPENSE		62,814			81,177

EFFECTS OF CHANGES IN ASSETS & LIABILITIES:

ACCOUNTS RECEIVABLE		(2,807,643	)		4,579,009
INVENTORIES		1,632,688			1,811,364
PREPAID EXPENSES AND OTHER		130,568			37,634
OTHER ASSETS		(7,093	)		(221,180	)
NET CHANGE IN BILLINGS RELATED TO COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS		(258,555	)		710,989
ACCOUNTS PAYABLE		528,085			(3,105,971	)
OTHER ACCRUED LIABILITIES AND INCOME TAXES		580,966			(2,437,926	)

NET CASH PROVIDED BY OPERATING ACTIVITIES		2,539,879			3,815,449

CASH FLOWS USED FOR INVESTING ACTIVITIES:
PROCEEDS FROM SALE OF PROPERTY, PLANT, AND EQUIPMENT		—			192,156
PURCHASE OF PROPERTY, PLANT AND EQUIPMENT		(2,018,888	)		(633,151	)

NET CASH USED IN INVESTING ACTIVITIES		(2,018,888	)		(440,995	)

CASH FLOWS FROM FINANCING ACTIVITIES:
PROCEEDS FROM EXERCISE OF STOCK OPTIONS		138,208			89,947
PROCEEDS FROM REVOLVING LOAN		—			—
PROCEEDS FROM LONG-TERM DEBT		—			—
PAYMENTS ON LONG TERM DEBT		(875,000	)		(4,500,000	)

NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES		(736,792	)		(4,410,053	)

NET DECREASE IN CASH & CASH EQUIVALENTS		(215,801	)		(1,035,599	)

CASH & CASH EQUIVALENTS AT BEGINNING OF PERIOD		1,444,982			1,983,829

CASH & CASH EQUIVALENTS AT END OF PERIOD	$	1,229,181		$	948,230

See Accompanying Notes to Consolidated Condensed Financial Statements

AZZ incorporated

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

Summary of Significant Accounting Policies

These interim unaudited consolidated financial statements were prepared pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to the SEC rules and regulations referred to above. Accordingly, these financial statements should be read in conjunction with the audited financial statements and related notes for the fiscal year ended February 29, 2004 included in the Form 10-K covering such period.

In the opinion of Management of the Company, the accompanying unaudited consolidated condensed financial statements contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the financial position of the Company as of May 31, 2004, and the results of its operations for the three-month periods ended May 31, 2004 and 2003, and cash flows for the three-month periods ended May 31, 2004 and 2003.

Earnings per share is based on the weighted 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:


	Three months ended May 31,
	2004		2003
	(unaudited)
	(In thousands except share and per share data)
Numerator:
Net income for basic and diluted earnings per common share	$	1,245	$	883

Denominator:
Denominator for basic earnings per common share –weighted average shares		5,423,517		5,289,195
Effect of dilutive securities:
Employee and Director stock options		81,793		17,518

Denominator for diluted earnings per common share		5,505,309		5,306,713

Basic earnings per common share	$	.23	$	.17

Diluted earnings per common share	$	.23	$	.17

Total comprehensive income for the quarter ended May 31, 2004 was $1,359,420 consisting of net income of $1,245,283 and net changes in accumulated other comprehensive income of $114,137. Changes in other comprehensive income result from changes in fair value of the Company’s cash flow hedges.

Total comprehensive income for the quarter ended May 31, 2003 was $903,599 consisting of net income of $882,989 and changes in accumulated other comprehensive income of $20,610.

The Company grants stock options for a fixed number of shares to employees and directors with an exercise price equal to the fair value of the shares at the date of grant. The Company accounts for stock option grants using the intrinsic value method in accordance with the Accounting Principles Board

Opinion No. 25, Accounting for Stock Issued to Employees (“APB 25”), and related interpretations. The following schedule reflects the impact on net income if the Company had applied the fair value recognition provisions of SFAS No. 123, Accounting for Stock Based Compensation, to stock based employee compensation for the three periods ended May 31, 2004 and 2003:


	Three Months Ended May 31,
	2004			2003
	(Unaudited)
	(In thousands except per share amounts)
Reported net income	$	1,245		$	883
Compensation expense per SFAS No .123		(77	)		(465	)

Pro forma net income for SFAS No.123	$	1,168		$	418

Reported earnings per common share:
Basic	$	0.23		$	0.17
Diluted	$	0.23		$	0.17

Compensation expense per SFAS No.123:
Basic	$	(0.01	)	$	(0.09	)
Diluted	$	(0.02	)	$	(0.09	)

Pro forma earnings per share:
Basic	$	0.22		$	0.08
Diluted	$	0.21

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