AZZ INC — Interim / Quarterly Report 1997

Jul 10, 1997

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, 1997 ( ) 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 AZTEC MANUFACTURING CO. (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 May 31, 1997 Common Stock, $1.00 Par Value 5,914,185 ----------------------------- ------------------------------------ Class Number of Shares AZTEC MANUFACTURING CO. INDEX ----- PART I. Financial Information Page No. --------------------- -------- Item 1. Financial Statements Consolidated Condensed Balance Sheets at May 31, 1997 and February 28, 1997 3 Consolidated Condensed Statements of Income Periods Ended May 31, 1997 and May 31, 1996 4 Consolidated Condensed Statements of Cash Flow Periods Ended May 31, 1997 and May 31, 1996 5 Notes to Consolidated Condensed Financial Statements 6 Computation of Income Per Common Share 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8-9 PART II. Other Information ----------------- Item 2. Changes in Securities 10 Item 6. Exhibits and Reports on Form 8-K 10 SIGNATURES 11 Page 2 PART I. FINANCIAL INFORMATION ITEM I. FINANCIAL STATEMENTS AZTEC MANUFACTURING CO. CONSOLIDATED CONDENSED BALANCE SHEETS

SEE ACCOMPANYING NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS. Page 3 AZTEC MANUFACTURING CO. CONSOLIDATED CONDENSED STATEMENTS OF INCOME

SEE ACCOMPANYING NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS. Page 4 AZTEC MANUFACTURING CO. CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOW

SEE ACCOMPANYING NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS. Page 5 AZTEC MANUFACTURING CO. 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 17 of its 1997 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 May 31, 1997, and the results of its operations and cash flows for the three-month periods ended May 31, 1997 and May 31, 1996. 3. Effective March 10, 1997, the Company purchased certain assets of Hobson Galvanizing, Inc. for approximately $3.9 million which included a $250,000 payment to the selling shareholders pursuant to a noncompete agreement. 4. In February 1997, the Financial Accounting Standards Board issued FAS No. 128, "Earnings Per Share" ("FAS 128"). The adoption of FAS 128 is not expected to have a materials impact on the Company's prior periods or present earnings per share calculations. Page 6 AZTEC MANUFACTURING CO. COMPUTATION OF INCOME PER COMMON SHARE --------------------------------------

Page 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations RESULTS OF OPERATIONS --------------------- Consolidated net sales for the three month period ending May 31, 1997 as compared to the same period in 1996 were up approximately $4.2 million or 29%. Net sales in the Electrical Products Segment were up $2 million or 27.3% as compared to the same period in 1996. The increased sales are attributed to higher volumes which are a result of improved backlogs at each of the electrical companies. Backlogs were up $2.6 million to $10.2 million from $7.6 million in 1996. Net sales in the Galvanizing Segment were up 17.7% or $1.1 million in 1997 as compared to the same quarter in 1996. Total pounds produced and sales for the quarter ending May 31, 1997 were 49.9 million pounds and $7.5 million as compared to 46 million pounds and $6.3 million in 1996. Aztec acquired Hobson Galvanizing Inc., its ninth galvanizing facility, on March 10,1997. Hobson Galvanizing contributed 9.7 million pounds to production and $1.6 million in sales for the three month period ending May 31, 1997. Volumes were down at all other locations due to a slow down in project oriented work. The average selling price increased to $.1497 per pound for 1997 from $.1329 in 1996. Net sales in the Oil Field Products Segment were up 156% from $1.7 million for the quarter ending May 31, 1997 as compared to $.7 million in 1996. This increase was primarily due to Aztec buying plain end tubing, processing it into finished product and marketing the finished product direct to supply companies in 1997, versus being a third party service company of end finished oil field tubular goods for steel mills and supply companies in 1996. The company is in the process of negotiating agreements with reliable suppliers of plain end tubing in order to expand this segment. Consolidated operating income (net sales less cost of sales) for the period ending May 31, 1997, as compared to the same period in 1996, was up $1.2 million or 30%. Gross operating income in the Electrical Products Segment was up 61% for the quarter ending May 31, 1997, as compared to the same quarter in 1996 . The Calvert Company operated at a 15.6% operating margin in the quarter ending May 31, 1997 versus an operating loss in the same quarter of 1996. The Galvanizing Segment's gross operating income was up 22% for the quarter ending May 31, 1997 compared to the same period in 1996. Total operating income in this Segment for the quarter ending May 31, 1997 was $1.93 million compared to $1.58 million in 1996. Hobson Galvanizing contributed $280,000 to operating income for the quarter ending May 31, 1997. The Oil Field Products Segment showed an operating income of $138,000 for the quarter ending May 31, 1997 compared to an operating loss in 1996. General corporate expenses for the period ending May 31, 1997, as compared to 1996, were up due to increased cost for employee benefits and profit sharing. Interest expense was lower for the period ending May 31, 1997, as compared to 1996, due to a reduction in outstanding debt and lower interest rates. Page 8 LIQUIDITY AND CAPITAL RESOURCES ------------------------------- Net cash provided by operations for the three month period ending May 31, 1997 was $8,596 compared to $3,081,382 during the same period in 1996. Accounts Receivable increased for the three month period ending May 31, 1997 by $2,176,000. This increase was due to the acquisition of Hobson Galvanizing, Inc. and additional volumes of business at the Calvert Company. Inventories increased for the three month period ending May 31, 1997 by $1,692,000. This increase was due to the acquisition of Hobson Galvanizing, overall increased zinc prices in the Galvanizing Segment, as well as increased inventory levels in the Oil Field Segment to support increased business levels. Aztec acquired on March 10, 1997, the operating assets of Hobson Galvanizing, Inc., for $3.9 million. The purchase was funded from cash reserves of the Company. Other significant uses of cash included the repayment of bank debt and capital expenditures. The Company has a credit facility in place that is made up of a three year $10 million revolving line of credit and a six year $10 million term note. The Company's current availability under the revolving line of credit is approximately $10 million. Management believes that the credit facility, current assets and cash generated from operations will be sufficient to accommodate the Company's current operations, internal growth, and possible future acquisitions. Forward Looking Statement - ------------------------- This Form 10-Q contains forward looking statements. Such statements are typically punctuated by words or phrases such as "anticipates," "estimate," "should," "may," "management believes," and words or phrases of similar import. Such statements are subject to certain risks, uncertainties or assumptions. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated or projected. Factors that could cause or contribute to such differences could include, but are not limited to changes in demand, prices, and raw materials cost; changes in the economic conditions of the various markets the Company serves; as well as the other risks detailed herein and in previous Company reports filed with the Securities and Exchange Commission. Page 9 PART II. OTHER INFORMATION AZTEC MANUFACTURING CO. ITEM 2. CHANGES IN SECURITIES - ------------------------------ Title of Class - Common Stock, $1 par value

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K - ----------------------------------------- (A) EXHIBITS - There were no exhibits filed with this 10-Q for the three months ended May 31, 1997. (B) REPORTS ON FORM 8-K - There were no reports on Form 8-K filed for the three months ended May 31, 1997. 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. Page 10 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. AZTEC MANUFACTURING CO. ------------------------------------- (Registrant) Date: July 10, 1997 /s/Dana Perry ------------- -------------------------------------- Dana Perry, Vice President for Finance Chief Financial Officer Page 11