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, 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.
| Common Stock, $1.00 Par Value |
Outstanding at September 16, 2004 5,444,504 | |
| Class | Number of Shares |
INDEX
| Page No. | ||||||
| PART I. |
||||||
| Item 1. |
3 | |||||
| Consolidated Condensed Balance Sheets at August 31, 2004 and February 28, 2004 |
||||||
| 4 | ||||||
| 5 | ||||||
| 6-9 | ||||||
| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
9-15 | ||||
| Item 3. |
15 | |||||
| Item 4. |
15 | |||||
| PART II. |
||||||
| Item 1. |
16 | |||||
| Item 2. |
16 | |||||
| Item 3. |
16 | |||||
| Item 4. |
16 | |||||
| Item 5. |
16 | |||||
| Item 6. |
16 | |||||
| 17 | ||||||
| 18 | ||||||
2
| Item I. | Financial Statements |
CONSOLIDATED CONDENSED BALANCE SHEET
| 08/31/04 |
02/29/04 |
|||||||
| (UNAUDITED) | ||||||||
| ASSETS |
||||||||
| CURRENT ASSETS |
||||||||
| CASH AND CASH EQUIVALENTS |
$ | 1,257,353 | $ | 1,444,982 | ||||
| ACCOUNTS RECEIVABLE (NET OF ALLOWANCE FOR DOUBTFUL ACCOUNTS) |
21,998,505 | 21,897,263 | ||||||
| INVENTORIES |
||||||||
| RAW MATERIAL |
9,118,497 | 7,854,625 | ||||||
| WORK-IN-PROCESS |
5,386,871 | 5,732,162 | ||||||
| FINISHED GOODS |
2,630,275 | 4,092,129 | ||||||
| COSTS AND ESTIMATED EARNINGS IN EXCESS OF BILLINGS ON UNCOMPLETED CONTRACTS |
1,911,262 | 236,368 | ||||||
| DEFERRED INCOME TAXES |
1,648,050 | 1,606,388 | ||||||
| PREPAID EXPENSES AND OTHER |
621,514 | 848,961 | ||||||
| TOTAL CURRENT ASSETS |
44,572,327 | 43,712,878 | ||||||
| PROPERTY, PLANT AND EQUIPMENT, NET |
34,932,276 | 34,201,272 | ||||||
| GOODWILL, NET OF ACCUMULATED AMORTIZATION |
40,962,104 | 40,962,104 | ||||||
| OTHER ASSETS, NET OF ACCUMULATED AMORTIZATION |
1,387,843 | 1,150,241 | ||||||
| $ | 121,854,550 | $ | 120,026,495 | |||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY |
||||||||
| CURRENT LIABILITIES: |
||||||||
| LONG-TERM DEBT DUE WITHIN ONE YEAR |
$ | 5,500,000 | $ | 5,500,000 | ||||
| ACCOUNTS PAYABLE |
11,588,893 | 9,985,612 | ||||||
| BILLINGS IN EXCESS OF COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS |
28,429 | 32,395 | ||||||
| ACCRUED LIABILITIES AND INCOME TAXES |
7,757,044 | 7,985,796 | ||||||
| TOTAL CURRENT LIABILITIES |
24,874,366 | 23,503,803 | ||||||
| LONG-TERM DEBT DUE AFTER ONE YEAR |
23,125,000 | 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 |
13,998,463 | 13,956,016 | ||||||
| CUMULATIVE OTHER COMPRENSIVE INCOME (LOSS) |
(154,709 | ) | (324,306 | ) | ||||
| RETAINED EARNINGS |
59,771,516 | 57,618,403 | ||||||
| LESS COMMON STOCK HELD IN TREASURY, AT COST ( 860,581 SHARES AT AUGUST 31, 2004 AND 887,744 SHARES AT FEBRUARY 29, 2004) |
(8,004,246 | ) | (8,257,134 | ) | ||||
| TOTAL SHAREHOLDERS’ EQUITY |
71,915,604 | 69,297,559 | ||||||
| $ | 121,854,550 | $ | 120,026,495 | |||||
See Accompanying Notes to Consolidated Condensed Financial Statements
3
Consolidated Condensed Income Statement
(Unaudited)
| THREE MONTHS ENDED |
SIX MONTHS ENDED |
|||||||||||||
| 08/31/04 |
08/31/03 |
08/31/04 |
08/31/03 |
|||||||||||
| NET SALES |
$ | 36,510,459 | $ | 34,010,636 | $ | 76,203,956 | $ | 70,358,326 | ||||||
| COSTS AND EXPENSES |
||||||||||||||
| COST OF SALES |
30,001,809 | 27,739,569 | 62,498,144 | 57,758,721 | ||||||||||
| SELLING, GENERAL & ADMINISTRATIVE |
4,629,767 | 4,173,832 | 9,379,525 | 8,590,426 | ||||||||||
| INTEREST EXPENSE |
428,057 | 579,926 | 870,174 | 1,253,085 | ||||||||||
| OTHER (INCOME) EXPENSE, NET |
10,614 | (89,896 | ) | 38,532 | (275,201 | ) | ||||||||
| 35,070,247 | 32,403,431 | 72,786,375 | 67,327,031 | |||||||||||
| INCOME BEFORE INCOME TAXES |
1,440,212 | 1,607,205 | 3,417,581 | 3,031,295 | ||||||||||
| INCOME TAX EXPENSE |
532,400 | 611,100 | 1,264,468 | 1,152,200 | ||||||||||
| NET INCOME |
$ | 907,812 | $ | 996,105 | $ | 2,153,113 | $ | 1,879,095 | ||||||
| INCOME PER SHARE |
||||||||||||||
| BASIC |
$ | 0.17 | $ | 0.19 | $ | 0.40 | $ | 0.35 | ||||||
| DILUTED |
$ | 0.16 | $ | 0.19 | $ | 0.39 | $ | 0.35 | ||||||
See Accompanying Notes to Consolidated Condensed Financial Statements
4
PART I. FINANCIAL INFORMATION
| Item I. | Financial Statements |
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOW
| SIX MONTHS ENDING |
||||||||
| 8/31/04 |
8/31/03 |
|||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: |
||||||||
| NET INCOME |
$ | 2,153,113 | $ | 1,879,095 | ||||
| ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES: |
||||||||
| PROVISION FOR DOUBTFUL ACCOUNTS |
64,045 | 151,300 | ||||||
| AMORTIZATION AND DEPRECIATION |
2,813,366 | 2,976,327 | ||||||
| DEFERRED INCOME TAX BENEFIT |
(56,162 | ) | ||||||
| NET GAIN(LOSS) ON SALE OF PROPERTY, PLANT & EQUIPMENT |
16,248 | (296,205 | ) | |||||
| NON-CASH INTEREST EXPENSE |
119,541 | 159,594 | ||||||
| NON-CASH COMPENSATION EXPENSE |
125,000 | 38,400 | ||||||
| EFFECTS OF CHANGES IN ASSETS & LIABILITIES: |
||||||||
| ACCOUNTS RECEIVABLE |
(165,287 | ) | 7,483,564 | |||||
| INVENTORIES |
543,273 | 3,029,362 | ||||||
| PREPAID EXPENSES AND OTHER |
227,447 | 199,110 | ||||||
| OTHER ASSETS |
(424,862 | ) | (236,157 | ) | ||||
| NET CHANGE IN BILLINGS RELATED TO COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS |
(1,678,861 | ) | 1,530,996 | |||||
| ACCOUNTS PAYABLE |
1,603,281 | (1,588,472 | ) | |||||
| OTHER ACCRUED LIABILITIES AND INCOME TAXES |
44,792 | (3,181,038 | ) | |||||
| NET CASH PROVIDED BY OPERATING ACTIVITIES |
5,384,934 | 12,145,876 | ||||||
| CASH FLOWS USED FOR INVESTING ACTIVITIES: |
||||||||
| PROCEEDS FROM SALE OF PROPERTY, PLANT, AND EQUIPMENT |
2,000 | 715,728 | ||||||
| PURCHASE OF PROPERTY, PLANT AND EQUIPMENT |
(3,494,898 | ) | (1,053,663 | ) | ||||
| NET CASH USED IN INVESTING ACTIVITIES |
(3,492,898 | ) | (337,935 | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: |
||||||||
| PROCEEDS FROM EXERCISE OF STOCK OPTIONS |
170,335 | 662,890 | ||||||
| PROCEEDS FROM REVOLVING LOAN |
500,000 | — | ||||||
| PROCEEDS FROM LONG-TERM DEBT |
— | — | ||||||
| PAYMENTS ON LONG TERM DEBT |
(2,750,000 | ) | (12,375,000 | ) | ||||
| NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES |
(2,079,665 | ) | (11,712,110 | ) | ||||
| NET (DECREASE) INCREASE IN CASH & CASH EQUIVALENTS |
(187,629 | ) | 95,831 | |||||
| CASH & CASH EQUIVALENTS AT BEGINNING OF PERIOD |
1,444,982 | 1,983,829 | ||||||
| CASH & CASH EQUIVALENTS AT END OF PERIOD |
$ | 1,257,353 | $ | 2,079,660 | ||||
See Accompanying Notes to Consolidated Condensed Financial Statements
5
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
| 1. | 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. |
| 2. | 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 August 31, 2004, and the results of its operations for the three-month and six-month periods ended August 31, 2004 and 2003, and cash flows for the six-month periods ended August 31, 2004 and 2003. |
| 3. | 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 August 31, |
Six months ended August 31, | |||||||||||
| 2004 |
2003 |
2004 |
2003 | |||||||||
| (Unaudited) | ||||||||||||
| (In thousands except share and per share data) | ||||||||||||
| Numerator: |
||||||||||||
| Net income for basic and diluted earnings per common share |
$ | 908 | $ | 996 | $ | 2,153 | $ | 1,879 | ||||
| Denominator: |
||||||||||||
| Denominator for basic earnings per common share –weighted average shares |
5,438,853 | 5,320,680 | 5,431,185 | 5,304,938 | ||||||||
| Effect of dilutive securities: |
||||||||||||
| Employee and Director stock options |
73,967 | 44,932 | 77,880 | 31,225 | ||||||||
| Denominator for diluted earnings per common share |
5,512,820 | 5,365,612 | 5,509,065 | 5,336,163 | ||||||||
| Basic earnings per common share |
$ | .17 | $ | .19 | $ | .40 | $ | .35 | ||||
| Diluted earnings per common share |
$ | .16 | $ | <|||||||||