AZZ INC — Interim / Quarterly Report 2001

Jan 11, 2001

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: November 30, 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 November 30, 2000 Common Stock, $1.00 Par Value 4,938,721 ----------------------------- -------------------------- Class Number of Shares AZZ incorporated INDEX -----

AZZ incorporated Consolidated Condensed Balance Sheet

3 AZZ incorporated Consolidated Condensed Income Statement

See Accompanying Notes to Consolidated Condensed Financial Statements 4 AZZ incorporated Consolidated Condensed Statements of Cash Flows (Unaudited)

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 adjustments) necessary to present fairly the financial position of the Company as of November 30, 2000, and the results of its operations and cash flows for the periods ended November 30, 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)

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)

(a) Operating income consists of net sales less cost of sales, specifically identifiable general and administrative expenses and selling expenses. (b) Other 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 nine-month periods ended November 30, 2000, consolidated net sales increased 30% and 37%, respectively, as compared to the same periods in fiscal 2000. Net sales in the Manufactured Products Segment increased $4.7 million or 33% for the three-month period ended November 30, 2000, and $13.9 million or 38% for the nine-month period ended November 30, 2000, as compared to the same periods in fiscal 2000. Year-to-date results in the Manufactured Products Segment for the period ended November 30, 2000 include nine months of revenues from CGIT Westboro, Inc. which was acquired on September 1, 1999. Backlog for the Manufactured Products Segment at the end of November 30, 2000, was $34.1 million compared to $31.7 million at the end of November 30, 1999. This increase was 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, increased $2.7 million or 26% and $10.3 million or 35% for the three and nine- month periods ended November 30, 2000, as compared to the same periods in the prior year. Results for the period ended November 30, 2000, include revenues from Westside Galvanizing Services, Inc. acquired on January 31, 2000. The volume of steel processed increased for both the three and nine-month periods ended November 30, 2000, as compared to the same periods in the prior year. For the three and nine-month periods ended November 30, 2000, Consolidated operating income (net sales less operating expenses) increased 17% and 26%, respectively, as compared to the same periods in fiscal 2000. Operating income in the Manufactured Products Segment increased $1.2 million or 54% and $3 million or 63% for the three and nine-month periods ended November 30, 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 November 30, 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 decreased $374,000 or 16% for the three-month period and was up $599,000 or 8% for the nine-month period ended November 30, 2000, as compared to the same periods in fiscal 2000. Operating margins for the Service Segment were unfavorably impacted by substantial cost increases associated with zinc and utilities. General corporate expenses (selling, general and administrative expense, and other (income) expense) for the three and nine-month periods ended November 30, 2000, increased $392,000 or 11% and $2.4 million or 28% as compared to the same periods in the prior year. As a percent of sales, general corporate expenses were 11.9% and 12.4% for the three and nine-month periods ended November 30, 2000, as compared to 14% and 13.3% to the same periods in fiscal 2000. Net interest expense for the three and nine-month periods ended November 30, 2000, was $560,000 and $1.8 million, up 18% and 56%, 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 $8.1 million for the nine-month period ended November 30, 2000, compared to $10.1 million for the same period in fiscal 2000. Net income of $6 million and depreciation and amortization of $4.3 million contributed to net cash provided by operations. Other non cash item changes in assets and liabilities utilized $2.2 million of net cash provided by operations. During the nine-month period ended November 30, 2000, capital improvements were made in the amount of $4.2 million, long-term debt was repaid in the amount of $4.5 million, and cash dividends of $770,000 were paid. Proceeds from the exercise of stock options generated $1.2 million. 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 November 30, 2000, the Company had $8.3 million outstanding under the revolving line of credit and $22.5 million outstanding under the two term facilities. At November 30, 2000, the Company had approximately $10.8 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 may contain, 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: 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 6. Exhibits and Reports on Form 8-K - ----------------------------------------- (A) Exhibits - See INDEX ON EXHIBITS. (B) Reports on Form 8-K - No reports on Form 8-K were filed during the three months ended November 30, 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: 01/11/01 /s/ Dana Perry -------- ---------------------------------------- Dana Perry, Vice President for Finance Chief Financial Officer 10 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; (incorporated by reference to Exhibit 3 of the Quarterly Report on Form 10-Q filed by registrant for the quarter ended August 31, 2000.) (ii) Bylaws of AZZ incorporated, as amended and restated on August 15, 2000; (incorporated by reference to Exhibit 3 of the Quarterly Report on Form 10-Q filed by registrant for the quarter ended August 31, 2000.) 4 Form of Stock Certificate for the Company's $1.00 par value Common Stock; (incorporated by reference to Exhibit 4 of the Quarterly Report on Form 10-Q filed by registrant for the quarter ended August 31, 2000.) 20 (i) Press Release - Corporate Name Change; (incorporated by reference to Exhibit 20 of the Quarterly Report on Form 10-Q filed by registrant for the quarter ended August 31, 2000.) 20 (ii) Press Release - New Directors, (incorporated by reference to Exhibit 20 of the Quarterly Report on Form 10-Q filed by registrant for the quarter ended August 31, 2000.) 11