<PAGE>
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, 1998
( ) 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
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(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 August 31, 1998
Common Stock, $1.00 Par Value 5,851,613
----------------------------- ------------------------------------
Class Number of Shares
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AZTEC MANUFACTURING CO.
INDEX
<TABLE>
<CAPTION>
PART I. Financial Information Page No.
--------------------- --------
<S> <C> <C>
Item 1. Financial Statements
Consolidated Condensed Balance Sheets at
August 31, 1998 and February 28, 1998 3
Consolidated Condensed Statements of Income
Periods Ended August 31, 1998 and August 31, 1997 4
Consolidated Condensed Statements of Cash Flow
Periods Ended August 31, 1998 and August 31, 1997 5
Notes to Consolidated Condensed Financial
Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7-8
PART II. Other Information
-----------------
Item 4. Submissions of Matters to a Vote of Security Holders 9
Item 6. Exhibits and Reports on Form 8-K 9
SIGNATURES 10
</TABLE>
Page 2
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PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
AZTEC MANUFACTURING CO.
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
8/31/98 2/28/98
ASSETS UNAUDITED AUDITED
- ------ ----------- -----------
<S> <C> <C>
CURRENT ASSETS:
CASH AND CASH EQUIVALENTS $ 510,329 $ 765,912
ACCOUNTS RECEIVABLE (NET OF ALLOWANCE) 12,464,620 13,174,804
INVENTORIES:
RAW MATERIALS 9,977,343 10,151,440
WORK-IN-PROGRESS 1,385,916 1,509,423
FINISHED GOODS 2,670,730 2,567,878
PREPAID EXPENSES AND OTHER 133,551 250,736
----------- -----------
TOTAL CURRENT ASSETS 27,142,489 28,420,193
LONG TERM INVESTMENT 300,000 300,000
PROPERTY, PLANT AND EQUIPMENT, NET 21,502,882 19,267,869
INTANGIBLE ASSETS, NET 9,299,490 9,599,936
OTHER ASSETS 313,838 313,652
----------- -----------
TOTAL ASSETS $58,558,699 $57,901,650
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
LONG TERM DEBT DUE WITHIN ONE YEAR $ 1,756,666 $ 1,756,666
ACCOUNTS PAYABLE 4,293,831 5,312,191
ACCRUED LIABILITIES 3,818,837 4,619,981
----------- -----------
TOTAL CURRENT LIABILITIES 9,869,334 11,688,838
LONG-TERM DEBT DUE AFTER ONE YEAR 11,487,220 11,320,553
DEFERRED INCOME TAX 572,479 572,479
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 11,437,864 11,402,961
RETAINED EARNINGS 22,451,612 19,429,451
LESS COMMON STOCK HELD IN TREASURY
(452,967 AND 382,362 SHARES AT COST
RESPECTIVELY) (3,564,390) (2,817,212)
----------- -----------
TOTAL SHAREHOLDERS' EQUITY 36,629,666 34,319,780
----------- -----------
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $58,558,699 $57,901,650
=========== ===========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.
Page 3
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AZTEC MANUFACTURING CO.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
8/31/98 8/31/97 8/31/98 8/31/97
UNAUDITED UNAUDITED UNAUDITED UNAUDITED
----------- ----------- ----------- -----------
<C> <S> <S> <S> <S>
NET SALES $20,720,681 $18,776,256 $41,449,448 $37,163,071
COSTS AND EXPENSES:
COST OF SALES 15,755,838 13,830,664 31,173,432 26,996,669
SELLING/G&A EXPENSE 2,465,496 2,398,411 4,986,841 4,782,879
INTEREST EXPENSE 231,889 179,954 459,997 368,269
OTHER (INCOME) EXPENSE (44,888) (318,569) (4,595) (349,404)
----------- ----------- ----------- -----------
18,408,335 16,090,460 36,615,675 31,798,413
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES 2,312,346 2,685,796 4,833,773 5,364,658
PROVISION FOR INCOME TAXES 867,134 1,034,250 1,812,669 2,065,625
----------- ----------- ----------- -----------
NET INCOME $ 1,445,212 $ 1,651,546 $ 3,021,104 $ 3,299,033
=========== =========== =========== ===========
INCOME PER SHARE:
BASIC EARNINGS PER SHARE $ 0.25 $ 0.28 $ 0.51 $ 0.56
=========== =========== =========== ===========
DILUTED EARNINGS PER SHARE $ 0.25 $ 0.27 $ 0.51 $ 0.54
=========== =========== =========== ===========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.
Page 4
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AZTEC MANUFACTURING CO.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
SIX MONTHS ENDING
8/31/98 8/31/97
UNAUDITED UNAUDITED
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<S> <C> <C>
CASH FLOWS PROVIDED BY OPERATIONS:
NET INCOME $ 3,021,104 $ 3,299,033
ADJUSTMENTS TO RECONCILE NET INCOME TO
NET CASH PROVIDED BY OPERATIONS:
PROVISION FOR BAD DEBTS 74,909 2,712
AMORTIZATION AND DEPRECIATION 1,675,204 1,466,325
GAINS ON SALE OF PROPERTY 0 15,415
INCREASE (DECREASE) FROM CHANGES IN ASSETS & LIABILITIES:
ACCOUNTS RECEIVABLE 635,275 (1,297,159)
INVENTORIES 194,752 (2,696,247)
PREPAID EXPENSES 117,185 95,694
ACCOUNTS PAYABLE (1,018,360) 831,028
ACCRUED LIABILITIES (801,144) (472,475)
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NET CASH PROVIDED BY OPERATIONS 3,898,925 1,244,326
---------- ---------
CASH FLOWS USED FOR INVESTING ACTIVITIES:
PURCHASES OF PROPERTY/PLANT/EQUIPMENT (3,609,950) (4,986,028)
---------- ---------
CASH FLOWS USED FOR FINANCING ACTIVITIES:
EXERCISE OF STOCK OPTIONS 34,903 416,488
NET CHANGES IN LONG TERM NOTES 166,667 (833,334)
ADJUSTMENTS TO DIVIDENDS PAID 1,050 0
PURCHASE OF TREASURY STOCK (747,178) 0
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NET CASH USED FOR FINANCING ACTIVITIES (544,558) (416,846)
---------- ---------
DECREASE IN CASH & CASH EQUIVALENTS (255,583) (4,158,548)
CASH & CASH EQUIVALENTS, BEGINNING OF PERIOD 765,912 5,583,720
---------- ---------
CASH & CASH EQUIVALENTS, END OF PERIOD $ 510,329 $ 1,425,172
========== =========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.
Page 5
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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 19 of its 1998 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 August 31, 1998, and the
results of its operations and cash flows for the six-month periods ended
August 31, 1998 and August 31, 1997.
3. Earnings per share is based on the month-end average number of shares
outstanding during each year, adjusted for the dilutive effect of stock
options.
The following table sets forth the computation of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
Three months ending August 31 Six months ending August 31
1998 1997 1998 1997
------------ ----------- ------------ -----------
(Dollars in thousands except earnings per share)
<S> <C> <C> <C> <C>
Numerator:
Net income for basic and diluted earnings
per common share $ 1,445 $ 1,652 $ 3,021 $ 3,299
Denominator:
Denominator for basic earnings per
common share weighted average shares 5,904,850 5,956,579 5,915,266 5,935,126
Effect of dilutive securities:
Employee and Director stock options 24,374 185,916 62,762 118,586
---------- ---------- ---------- ----------
Denominator for diluted earnings per
common share adjusted weighted-
average shares and assumed conversions 5,929,224 6,142,495 5,978,028 6,053,712
========== ========== ========== ==========
Basic earnings per common share $ .25 $ .28 $ .51 $ .56
========== ========== ========== ==========
Diluted earnings per common share $ .25 $ .27 $ .51 $ .54
========== ========== ========== ==========
</TABLE>
4. In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive
Income," and SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information." SFAS No. 130 requires that an enterprise report, by
major component and as a single total, the change in its equity during the
period from nonowner sources, and SFAS No. 131 establishes annual and
interim reporting requirements for an enterprise's operating segments, and
related disclosures about its products and services, geographical areas in
which it operates, and major customers. Both statements are effective for
fiscal years beginning after December 15, 1997, with earlier application
permitted. The Company adopted both of these statements in the first
quarter of fiscal 1999 and the impact of adoption did not materially impact
the Company's consolidated financial position or
Page 6
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statements of income, shareholder's equity, and cash flows. The effects of
adoption were primarily limited to form and content of the Company's
disclosures.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
RESULTS OF OPERATIONS
----------------------
Consolidated net sales were up 10% and 12% for the three month and six month
periods ending August 31, 1998 as compared to the same periods in 1997. Net
sales in the Electrical Products Segment were up $498,000 or 5% for the three
month period ending August 31, 1998, and $814,000 or 4% for the six month period
ending August 31, 1998, as compared to the same periods in 1997. Drilling Rig
Electrical Systems Co. (DRESCO) acquired on February 23, 1998, contributed
$462,000 and $707,000 for the three and six month periods ending August 31,
1998. Sales in the Electrical Products Segment excluding DRESCO were $9.2
million and $18.5 million for the three and six month periods ending August 31,
1998, as compared to $9.2 million and $18.4 million for the same periods in
1997. Backlog continues to improve in the Electrical Segment at $13,566,000
compared to $10,650,000 in the prior year. Net sales in the Galvanizing
Segment were up $1,145,000 or 15% for the three month period ending August 31,
1998, and $2,025,000 or 14% for the six month period ending August 31, 1998 as
compared to the same periods in 1997, primarily due to the acquisition of
International Galvanizers, Inc. on December 8, 1997. Total pounds produced were
54,362,000 and 108,557,000 for the three and six month periods ending August 31,
1998 compared to 43,461,000 and 93,373,000 during the same periods in 1997.
International Galvanizers contributed $818,000 and $1,615,000 in sales for the
three and six month periods ending August 31, 1998 and produced 5,793,000 and
11,201,000 pounds respectively. Volumes of steel produced were up 4% at the
segment's other nine locations. The year to date average selling price
decreased to $.1493 per pound for 1998 from $.1529 in 1997. Net sales in the
Oil Field Products Segment were up 14.5% and 38% for the three and six month
periods ending August 31, 1998, as compared to the same periods in 1997. Even
though sales were up, margins in this segment have been negatively impacted due
to the slow down in the oil and gas industry.
Consolidated gross profit (net sales less cost of sales) was relatively flat
for the three and six month periods ending August 31, 1998, as compared to the
same periods in 1997. Operating income in the Electrical Products Segment was
down 5% and 10% for the three and six month periods ending August 31, 1998, as
compared to the same periods in 1997. Margins were reduced because of downward
pricing pressure on the segment's products due to the continued economic
weakness in the Pacific Rim countries and in the petroleum industry, as well as
increased selling expenses. DRESCO did not contribute significantly to
operating income in this segment. The Galvanizing Segment's operating income
was up 7% and 6% for the three and six month periods ending August 31, 1998 as
compared to the same periods in 1997. Total operating income in this segment
was $1,760,000 and $3,792,000 for the three and six month periods ending August
31, 1998 as compared to $1,651,000 and $3,576,000 in the same periods in 1997.
International Galvanizers operated at approximately break-even for the quarter
and contributed $143,000 to the segment's operating income for the six month
period ending August 31, 1998. The Oil Field Products Segment showed operating
income of $19,000 and $123,000 for the three and six month periods ending August
31, 1998 as compared to $204,000 and $342,000 during the same periods in 1997.
General corporate expenses (selling, G & A expense, and other [income] expense)
as a percent of net sales was relatively flat for the three and six month
periods ending August 31, 1998, compared to the same periods in 1997.
Page 7
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Interest expense was higher for the three and six month periods ending August
31, 1998, as compared to 1997. The additional interest expense is due to a
higher outstanding loan balance associated with acquisitions the Company made in
the last quarter of fiscal 1998.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Net cash provided by operations was $3.9 million for the first six months of
fiscal 1999 compared to $1.2 million for the same period in fiscal 1998.
Accounts receivable days outstanding were lower and the Oil Field segments
inventories were reduced during the period resulting in a combined reduction of
$830,000.
During the period ended August 31, 1998, proceeds from operating activities of
$3.9 million were used to fund the purchase of plant equipment in the amount of
$3.6 million and long term debt repayments in the amount of $833,000. The
Company made a $1 million draw against it's bank line of credit to repurchase
treasury stock.
The Company's current credit facility is made up of a $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 $4 million.
Management believes that the credit facility and cash generated from operations
will be sufficient to accommodate the Company's current operations, internal
growth, and possible future acquisitions.
Year 2000 Compliance
- --------------------
The Company is in the process of reviewing and making necessary modifications
to its computer systems for year 2000 compliance. Costs incurred to date to
modify the Company's computer systems have not been material and future costs
are not expected to be material. Although the Company expects its modifications
will be successfully completed on a timely basis, there can be no assurance that
it will be completed on the time schedule anticipated. The Company is also
communicating with vendors and others with which it does business to coordinate
Year 2000 compliance. There can be no assurance that the systems of other
companies and agencies on which the Company relies will be timely converted or
that such failure by other entities would not have an adverse impact on the
Company's operations.
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, including zinc which is used in the
galvanizing segment; changes in the economic conditions of the various markets
the Company serves, including the market price of crude oil and natural gas as
well as the Pacific Rim countries economic conditions; as well as the other
risks detailed herein and in previous Company reports filed with the Securities
and Exchange Commission.
Page 8
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PART II. OTHER INFORMATION
AZTEC MANUFACTURING CO.
Item 4. Submission of Matters to a Vote of Security Holders
Shareholders at the Annual Meeting on July 14, 1998, and by proxy, elected
three incumbent directors, L.C. Martin, R.J. Schumacher, and H. Kirk Downey. Of
the 5,025,071 shares represented at the meeting, 4,739,941 shares (94.3%) were
voted for Mr. Martin, 4,740,477 shares (94.34%) were voted for Mr. Schumacher
and 4,719,948 shares (93.93%) were voted for Dr. Downey. Other directors
continuing in office are Martin Bowen, Kevern Joyce, Sam Rosen, Robert H.
Johnson, Dana Perry, and W.C. Walker.
Three proposals by the Board of Directors were approved by the stockholders at
the Annual Meeting, with the following vote tabulation:
Approval of the 1998 Incentive Stock Option Plan
Shares For: 2,860,887 81.68%
Shares Against: 641,626 18.32%
Shares Abstained: 66,303 n/a
Broker Non votes: 1,456,255 n/a
Approval of the 1998 Nonstatutory Stock Option Plan
Shares For: 2,999,448 85.71%
Shares Against: 500,226 14.29%
Shares Abstained: 69,142 n/a
Broker Non votes: 1,456,255 n/a
Approval of the 1997 Nonstatutory Stock Option Grants
Shares For: 3,048,092 87.16%
Shares Against: 448,831 12.84%
Shares Abstained: 71,893 n/a
Broker Non votes: 1,456,255 n/a
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 August 31, 1998.
(B) REPORTS ON FORM 8-K - There were no reports on Form 8-K filed for the three
months ended August 31, 1998.
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 9
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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: 10/14/98 /s/Dana Perry
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Dana Perry, Vice President for Finance
Chief Financial Officer
Page 10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> FEB-28-1999
<PERIOD-START> MAR-01-1998
<PERIOD-END> AUG-31-1998
<CASH> 510,329
<SECURITIES> 0
<RECEIVABLES> 12,962,230
<ALLOWANCES> 497,610
<INVENTORY> 14,033,989
<CURRENT-ASSETS> 27,142,489
<PP&E> 36,988,233
<DEPRECIATION> 15,485,351
<TOTAL-ASSETS> 58,558,699
<CURRENT-LIABILITIES> 9,869,334
<BONDS> 11,487,220
0
0
<COMMON> 6,304,580
<OTHER-SE> 30,325,086
<TOTAL-LIABILITY-AND-EQUITY> 58,558,699
<SALES> 41,449,448
<TOTAL-REVENUES> 41,449,448
<CGS> 31,173,432
<TOTAL-COSTS> 36,155,678
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 459,997
<INCOME-PRETAX> 4,833,773
<INCOME-TAX> 1,812,669
<INCOME-CONTINUING> 3,021,104
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,021,104
<EPS-PRIMARY> .51
<EPS-DILUTED> .51
</TABLE>
