UNITED STATES
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: May 31, 2005
| ¨ | 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
(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 18, 2005 | ||
| Common Stock, $1.00 Par Value | 5,515,822 | |
| Class | Number of Shares | |
AZZ incorporated
| Page No. | ||||
| PART I. |
Financial Information | |||
| Item 1. |
Financial Statements | |||
| Consolidated Condensed Balance Sheets at May 31, 2005 and February 28, 2005 |
3 | |||
| 4 | ||||
| 5 | ||||
| 6-9 | ||||
| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations | 10-16 | ||
| Item 3. |
Quantitative and Qualitative Disclosure of Market Risk | 17 | ||
| Item 4. |
Controls and Procedures | 17 | ||
| PART II. |
Other Information | |||
| Item 1. |
Legal Proceedings | 18 | ||
| Item 2. |
Changes in Securities | 18 | ||
| Item 3. |
Defaults Upon Senior Securities | 18 | ||
| Item 4. |
Submissions of Matters to a Vote of Security Holders | 18 | ||
| Item 5. |
Other Information | 18 | ||
| Item 6. |
Exhibits | 18 | ||
| 18 | ||||
| 19 | ||||
2
CONSOLIDATED CONDENSED BALANCE SHEET
| 05/31/05 |
02/28/05 |
|||||||
| (UNAUDITED) | ||||||||
| ASSETS |
||||||||
| CURRENT ASSETS |
||||||||
| CASH AND CASH EQUIVALENTS |
$ | 1,202,231 | $ | 516,828 | ||||
| ACCOUNTS RECEIVABLE (NET OF ALLOWANCE FOR DOUBTFUL ACCOUNTS) |
25,577,327 | 25,939,544 | ||||||
| INVENTORIES |
||||||||
| RAW MATERIAL |
11,736,735 | 9,248,485 | ||||||
| WORK-IN-PROCESS |
7,196,938 | 8,731,611 | ||||||
| FINISHED GOODS |
2,161,627 | 1,625,682 | ||||||
| COSTS AND ESTIMATED EARNINGS IN EXCESS OF BILLINGS ON UNCOMPLETED CONTRACTS |
3,723,941 | 2,472,139 | ||||||
| DEFERRED INCOME TAXES |
2,007,539 | 1,971,617 | ||||||
| PREPAID EXPENSES AND OTHER |
553,136 | 656,618 | ||||||
| TOTAL CURRENT ASSETS |
54,159,474 | 51,162,524 | ||||||
| PROPERTY, PLANT AND EQUIPMENT, NET |
35,273,542 | 35,311,532 | ||||||
| GOODWILL, NET OF ACCUMULATED AMORTIZATION |
40,962,104 | 40,962,104 | ||||||
| OTHER ASSETS, NET OF ACCUMULATED AMORTIZATION |
1,101,467 | 1,199,036 | ||||||
| $ | 131,496,587 | $ | 128,635,196 | |||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY |
||||||||
| CURRENT LIABILITIES: |
||||||||
| LONG-TERM DEBT DUE WITHIN ONE YEAR |
$ | 5,500,000 | $ | 5,500,000 | ||||
| ACCOUNTS PAYABLE |
12,043,729 | 12,488,100 | ||||||
| BILLINGS IN EXCESS OF COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS |
940,470 | 138,363 | ||||||
| ACCRUED LIABILITIES AND INCOME TAXES |
8,354,984 | 8,197,143 | ||||||
| TOTAL CURRENT LIABILITIES |
26,839,183 | 26,323,606 | ||||||
| LONG-TERM DEBT DUE AFTER ONE YEAR |
24,000,000 | 23,875,000 | ||||||
| DEFERRED INCOME TAXES |
3,117,413 | 3,117,413 | ||||||
| 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 |
14,124,962 | 14,114,153 | ||||||
| CUMULATIVE OTHER COMPRENSIVE INCOME (LOSS) |
(116,650 | ) | (55,486 | ) | ||||
| RETAINED EARNINGS |
64,562,673 | 62,430,419 | ||||||
| LESS COMMON STOCK HELD IN TREASURY, AT COST ( 788,758 SHARES AT MAY 31, 2005 AND 803,679 SHARES AT FEBRUARY 28, 2005) |
(7,335,574 | ) | (7,474,489 | ) | ||||
| TOTAL SHAREHOLDERS’ EQUITY |
77,539,991 | 75,319,177 | ||||||
| $ | 131,496,587 | $ | 128,635,196 | |||||
See Accompanying Notes to Consolidated Condensed Financial Statements
3
PART I. FINANCIAL INFORMATION
Item I. Financial Statements
CONSOLIDATED CONDENSED INCOME STATEMENT
| THREE MONTHS ENDED |
||||||||
| 5/31/05 |
5/31/04 |
|||||||
| (UNAUDITED) | (UNAUDITED) | |||||||
| NET SALES |
$ | 44,739,018 | $ | 39,693,479 | ||||
| COSTS AND EXPENSES |
||||||||
| COST OF SALES |
35,733,458 | 32,496,335 | ||||||
| SELLING, GENERAL AND ADMINISTRATIVE |
5,201,077 | 4,806,903 | ||||||
| INTEREST EXPENSE |
440,679 | 442,117 | ||||||
| NET (GAIN) LOSS ON SALE OF PROPERTY, PLANT AND EQUIPMENT |
58,297 | 18,248 | ||||||
| OTHER (INCOME) |
(134,447 | ) | (138,026 | ) | ||||
| OTHER EXPENSE |
— | 90,551 | ||||||
| 41,299,064 | 37,716,128 | |||||||
| INCOME BEFORE INCOME TAXES |
3,439,954 | 1,977,351 | ||||||
| INCOME TAX EXPENSE |
1,307,700 | 732,068 | ||||||
| NET INCOME |
$ | 2,132,254 | $ | 1,245,283 | ||||
| EARNINGS PER COMMON SHARE |
||||||||
| BASIC |
$ | 0.39 | $ | 0.23 | ||||
| DILUTED |
$ | 0.38 | $ | 0.23 | ||||
See Accompanying Notes to Consolidated Condensed Financial Statements
4
PART I. FINANCIAL INFORMATION
Item I. Financial Statements
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOW
| THREE MONTHS ENDING |
||||||||
| 5/31/05 |
5/31/04 |
|||||||
| (Unaudited) | (Unaudited) | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: |
||||||||
| NET INCOME |
$ | 2,132,254 | $ | 1,245,283 | ||||
| ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES: |
||||||||
| PROVISION FOR DOUBTFUL ACCOUNTS |
2,711 | 71,575 | ||||||
| AMORTIZATION AND DEPRECIATION |
1,382,573 | 1,399,105 | ||||||
| DEFERRED INCOME TAX BENEFIT |
— | (56,162 | ) | |||||
| NET GAIN (LOSS) ON SALE OF PROPERTY, PLANT & EQUIPMENT |
58,297 | 18,248 | ||||||
| NON-CASH INTEREST EXPENSE |
45,848 | 62,814 | ||||||
| EFFECTS OF CHANGES IN ASSETS & LIABILITIES: |
||||||||
| ACCOUNTS RECEIVABLE |
359,507 | (2,807,643 | ) | |||||
| INVENTORIES |
(1,489,523 | ) | 1,632,688 | |||||
| PREPAID EXPENSES AND OTHER |
103,482 | 130,568 | ||||||
| OTHER ASSETS |
5,361 | (7,093 | ) | |||||
| NET CHANGE IN BILLINGS RELATED TO COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS |
(449,695 | ) | (258,555 | ) | ||||
| ACCOUNTS PAYABLE |
(444,370 | ) | 528,085 | |||||
| OTHER ACCRUED LIABILITIES AND INCOME TAXES |
60,754 | 580,966 | ||||||
| NET CASH PROVIDED BY OPERATING ACTIVITIES |
1,767,199 | 2,539,879 | ||||||
| CASH FLOWS USED FOR INVESTING ACTIVITIES: |
||||||||
| PROCEEDS FROM SALE OF PROPERTY, PLANT, AND EQUIPMENT |
24,701 | — | ||||||
| PURCHASE OF PROPERTY, PLANT AND EQUIPMENT |
(1,381,221 | ) | (2,018,888 | ) | ||||
| NET CASH USED IN INVESTING ACTIVITIES |
(1,356,520 | ) | (2,018,888 | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: |
||||||||
| PROCEEDS FROM EXERCISE OF STOCK OPTIONS |
149,724 | 138,208 | ||||||
| PROCEEDS FROM REVOLVING LOAN |
1,500,000 | 500,000 | ||||||
| PROCEEDS FROM LONG-TERM DEBT |
— | — | ||||||
| PAYMENTS ON LONG TERM DEBT |
(1,375,000 | ) | (1,375,000 | ) | ||||
| NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES |
274,724 | (736,792 | ) | |||||
| NET DECREASE IN CASH & CASH EQUIVALENTS |
685,403 | (215,801 | ) | |||||
| CASH & CASH EQUIVALENTS AT BEGINNING OF PERIOD |
516,828 | 1,444,982 | ||||||
| CASH & CASH EQUIVALENTS AT END OF PERIOD |
$ | 1,202,231 | $ | 1,229,181 | ||||
See Accompanying Notes to Consolidated Condensed Financial Statements
5
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Summary of Significant Accounting Policies
| 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 28, 2005 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 May 31, 2005, and the results of its operations for the three-month periods ended May 31, 2005 and 2004, and cash flows for the three-month periods ended May 31, 2005 and 2004. |
| 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 May 31, | ||||||
| 2005 |
2004 | |||||
| (Unaudited) | ||||||
| (In thousands except share and per share data) | ||||||
| Numerator: |
||||||
| Net income for basic and diluted earnings per common share |
$ | 2,132 | $ | 1,245 | ||
| Denominator: |
||||||
| Denominator for basic earnings per common share –weighted average shares |
5,507,380 | 5,423,517 | ||||
| Effect of dilutive securities: |
||||||
| Employee and Director stock options |
61,119 | 81,793 | ||||
| Denominator for diluted earnings per common share |
5,568,499 | 5,505,309 | ||||
| Basic earnings per common share |
$ | .39 | $ | .23 | ||
| Diluted earnings per common share |
$ | .38 | $ | .23 | ||
| 4. | Total comprehensive income for the quarter ended May 31, 2005 was $2,071,090 consisting of net income of $2,132,254 and net changes in accumulated other comprehensive income of ($61,164). 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, 2004 was $1,359,420 consisting of net income of $1,245,283 and changes in accumulated other comprehensive income of $114,137.
6
| 5. | 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 month periods ended May 31, 2005 and 2004: |
| Three Months Ended May 31, |
||||||||
| 2005 |
2004 |
|||||||
| (unaudited) | ||||||||
| (In thousands except per share amounts) |
||||||||
| Reported net income |
$ | 2,132 | $ | 1,245 | ||||
| Recognized Compensation, net of tax |
0 | 0 | ||||||
| Compensation expense per SFAS No. 123, net of tax |
(74 | ) | (77 | ) | ||||
| Pro forma net income for SFAS No. 123 |
$ | 2,058 | $ | 1,168 | ||||
| Reported earnings per common share: |
||||||||
| Basic |
$ | 0.39 | $ | 0.23 | ||||
| Diluted |
$ | 0.38 | $ | 0.23 | ||||
| Compensation expense per SFAS No. 123: |
||||||||
| Basic |
$ | (0.02 | ) | $ | (0.01 | ) | ||
| Diluted |
$ | (0.01 | ) | $ | (0.02 | ) | ||