<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: November 30, 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 November 30, 1998
Common Stock, $1.00 Par Value 5,506,483
----------------------------- --------------------------------
Class Number of Shares
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AZTEC MANUFACTURING CO.
INDEX
-----
PART I. Financial Information Page No.
--------------------- --------
Item 1. Financial Statements
Consolidated Condensed Balance Sheets at
November 30, 1998 and February 28, 1998 3
Consolidated Condensed Statements of Income
Periods Ended November 30, 1998 and November 30, 1997 4
Consolidated Condensed Statements of Cash Flow
Periods Ended November 30, 1998 and November 30, 1997 5
Notes to Consolidated Condensed Financial
Statements 6-7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7-9
PART II. Other Information
-----------------
Item 6. Exhibits and Reports on Form 8-K 9
SIGNATURES 10
Page 2
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PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
AZTEC MANUFACTURING CO.
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
11/30/98 2/28/98
ASSETS UNAUDITED AUDITED
- ------------------------------------ ------------ ------------
<S> <C> <C>
CURRENT ASSETS
CASH AND CASH EQUIVALENTS $ 5,180 $ 765,912
ACCOUNTS RECEIVABLE (NET OF ALLOWANCE) 12,508,588 13,174,804
INVENTORIES:
RAW MATERIALS 8,755,097 10,151,440
WORK-IN-PROCESS 1,623,922 1,509,423
FINISHED GOODS 2,927,164 2,567,878
PREPAID EXPENSES AND OTHER 92,194 250,736
------------ ------------
TOTAL CURRENT ASSETS 25,912,145 28,420,193
LONG TERM INVESTMENT 199,463 300,000
PROPERTY, PLANT AND EQUIPMENT, NET 23,241,784 19,267,869
INTANGIBLE ASSETS, NET 9,143,546 9,599,936
OTHER ASSETS 316,054 313,652
------------ ------------
TOTAL ASSETS $ 58,812,992 $ 57,901,650
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES
LONG TERM DEBT DUE WITHIN ONE YEAR $ 1,701,666 $ 1,756,666
ACCOUNTS PAYABLE 6,205,387 5,312,191
ACCRUED LIABILITIES 3,760,123 4,619,981
------------ ------------
TOTAL CURRENT LIABILITIES 11,667,176 11,688,838
LONG-TERM DEBT DUE AFTER ONE YEAR 12,070,552 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 23,600,492 19,429,451
LESS COMMON STOCK HELD IN TREASURY
(798,097 AND 382,362 AT COST RESPECTIVELY) (6,840,151) (2,817,212)
------------ ------------
TOTAL SHAREHOLDERS' EQUITY 34,502,785 34,319,780
------------ ------------
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $ 58,812,992 $ 57,901,650
============ ============
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.
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AZTEC MANUFACTURING CO.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
11/30/98 11/30/97 11/30/98 11/30/97
UNAUDITED UNAUDITED UNAUDITED UNAUDITED
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
NET SALES $ 19,414,282 $ 18,079,978 $ 60,863,730 $ 55,243,049
COSTS AND EXPENSES:
COST OF SALES 14,988,317 13,519,923 46,161,748 40,516,592
SELLING/G & A EXPENSE 2,353,447 2,373,228 7,400,051 7,185,595
INTEREST EXPENSE 228,800 169,977 688,798 538,246
OTHER (INCOME) EXPENSE 4,966 (67,092) (59,392) (445,984)
------------ ------------ ------------ ------------
17,575,530 15,996,036 54,191,205 47,794,449
------------ ------------ ------------ ------------
INCOME BEFORE INCOME TAXES 1,838,752 2,083,942 6,672,525 7,448,600
PROVISION FOR INCOME TAXES 689,865 802,320 2,502,534 2,867,945
------------ ------------ ------------ ------------
NET INCOME $ 1,148,887 $ 1,281,622 $ 4,169,991 $ 4,580,655
============ ============ ============ ============
INCOME PER SHARE:
BASIC EARNINGS PER SHARE $ 0.20 $ 0.21 $ 0.71 $ 0.77
============ ============ ============ ============
DILUTED EARNINGS PER SHARE $ 0.20 $ 0.21 $ 0.71 $ 0.75
============ ============ ============ ============
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.
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AZTEC MANUFACTURING CO.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
NINE MONTHS ENDING
11/30/98 11/30/97
UNAUDITED UNAUDITED
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<S> <C> <C>
CASH FLOWS PROVIDED BY OPERATIONS:
NET INCOME $ 4,169,991 $ 4,580,655
ADJUSTMENTS TO RECONCILE NET INCOME TO
NET CASH PROVIDED BY OPERATIONS:
PROVISION FOR BAD DEBTS 106,622 41,925
AMORTIZATION AND DEPRECIATION 2,625,624 2,236,469
GAINS ON SALE OF PROPERTY 0 30,303
INCREASE (DECREASE) FROM CHANGES IN ASSETS & LIABILITIES:
ACCOUNTS RECEIVABLE 559,594 (1,830,188)
INVENTORIES 922,558 (5,286,222)
PREPAID EXPENSES 158,542 148,646
OTHER ASSETS (2,402) (9,331)
ACCOUNTS PAYABLE 893,196 1,195,120
ACCRUED LIABILITIES (914,858) (84,903)
----------- -----------
NET CASH PROVIDED BY OPERATIONS 8,518,867 1,022,474
----------- -----------
CASH FLOWS USED FOR INVESTING ACTIVITIES:
PURCHASE OF PROPERTY/PLANT/EQUIPMENT (6,042,612) (6,189,647)
----------- -----------
CASH FLOWS USED FOR FINANCING ACTIVITIES:
EXERCISE OF STOCK OPTIONS 34,903 1,203,678
NET CHANGES IN LONG TERM NOTES 749,999 (1,250,001)
ADJUSTMENTS TO DIVIDENDS PAID 1,050 0
PURCHASE OF TREASURY STOCK (4,022,939) 0
----------- -----------
NET CASH USED FOR FINANCING ACTIVITIES (3,236,987) (46,323)
----------- -----------
DECREASE IN CASH & CASH EQUIVALENTS (760,732) (5,213,496)
CASH & CASH EQUIVALENTS, BEGINNING OF PERIOD 765,912 5,583,720
----------- -----------
CASH & CASH EQUIVALENTS, END OF PERIOD $ 5,180 $ 370,224
=========== ===========
</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 and 20 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 November 30, 1998, and the
results of its operations and cash flows for the nine-month periods ended
November 30, 1998 and November 30, 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 ended Nov. 30 Nine months ended Nov. 30
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 $1,149 $1,282 $4,170 $4,581
Denominator:
Denominator for basic earnings per
common share weighted average shares 5,669,236 6,058,677 5,833,256 5,976,309
Effect of dilutive securities:
Employee and Director stock options 3,713 161,221 47,462 128,999
-------------- -------------- ------------- -------------
Denominator for diluted earnings per
common share-adjusted weighted-
average shares and assumed conversions 5,672,949 6,219,898 5,880,718 6,105,309
============== ============== ============= =============
Basic earnings per common share $.20 $.21 $.71 $.77
============== ============== ============= =============
Diluted earnings per common share $.20 $.21 $.71 $.75
============== ============== ============= =============
</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 non-owner 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
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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 7% and 10% for the three month and nine month
periods ended November 30, 1998 as compared to the same periods in 1997. Net
sales in the Electrical Products Segment were down $221,000 or 3% for the three
month period ended November 30, 1998, and were up $594,000 or 2% for the nine
month period ended November 30, 1998, as compared to the same periods in 1997.
Drilling Rig Electrical Systems Co. (DRESCO) acquired on February 23, 1998,
contributed $113,000 and $820,000 for the three and nine month periods ended
November 30, 1998. Sales in the Electrical Products Segment excluding DRESCO
were $8.4 million and $26.9 million for the three and nine month periods ended
November 30, 1998, as compared to $8.7 million and $27.1 million for the same
periods in 1997. Backlog continues to improve in the Electrical Products
Segment at $15.6 million compared to $12.2 million the prior year. Net sales in
the Galvanizing Segment were up $1.7 million or 23% for the three month period
ended November 30, 1998, and $3.7 million or 17% for the nine month period ended
November 30, 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 56.9 million and 165.3 million for the three and nine month
periods ended November 30, 1998 compared to 42.9 million and 135.4 million
during the same periods in 1997. International Galvanizers contributed $885,000
and $2.5 million in sales for the three and nine month periods ended November
30, 1998 and produced 6.1 million and 17.3 million pounds respectively. Volumes
of steel produced were up 18% and 9% for the three and nine month periods ended
November 30, 1998 compared to the same periods in 1997 at the segment's other
nine locations. The year to date average selling price decreased to $.1499 per
pound for 1998 from $.1552 in 1997. Net sales in the Oil Field Products Segment
were down 6% for the three month period ended November 30, 1998, as compared to
1997 and were up 22% for the nine month period ended November 30, 1998 as
compared to 1997. Even though year to date sales were up, margins in this
segment have been negatively impacted due to a down turn in the oil and gas
industry.
Consolidated gross profit (net sales less cost of sales) was relatively flat
for the three and nine month periods ended November 30, 1998, as compared to the
same periods in 1997. Operating income in the Electrical Products Segment was
down 25% and 14% for the three and nine month periods ended November 30, 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 25% and 12% for the three and nine month periods ended November 30, 1998
as compared to the same periods in 1997. Total operating income in this segment
was $2 million and $5.8 million for the three and nine month periods ended
November 30, 1998 as compared to $1.6 million and $5.2 million in the same
periods in 1997. International Galvanizers contributed $67,000 for the quarter
and contributed $210,000 to the segment's operating income for the nine month
period ended November 30, 1998. The Oil Field Products Segment showed operating
losses of $134,000 and $11,000 for the three and nine month periods ended
November 30, 1998 as compared to operating income of $133,000 and $475,000
during the same periods in 1997.
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General corporate expenses (selling, G & A expense, and other [income] expense)
as a percent of net sales was relatively flat for the three and nine month
periods ended November 30, 1998, compared to the same periods in 1997.
Interest expense was higher for the three and nine month periods ended November
30, 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, as well as the repurchase of the Company's
common stock on the open market through the course of fiscal 1999.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Net cash provided by operations was $8.5 million for the first nine months of
fiscal 1999 compared to $1.0 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
$1.5 million.
During the period ended November 30, 1998, proceeds from operating activities
of $8.5 million and a $2 million draw against the Company's bank line of credit
were used to fund the purchase of plant equipment in the amount of $6 million,
make long term debt repayments in the amount of $1.25 million, and repurchase
treasury stock in the amount of $4 million.
The Company's credit facility as of November 30, 1998 was made up of a $10
million revolving line of credit and a six year $10 million term note. In
January 1999, the Company's revolving line of credit was increased to $15
million and an additional $10 million term note was put into place by its
lender. As of January 1999, the Company's current availability under the
revolving line of credit was approximately $10 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
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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.
PART II. OTHER INFORMATION
AZTEC MANUFACTURING CO.
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 November 30, 1998.
(B) Reports on Form 8-K - There were no reports on Form 8-K filed for the
three months ended November 30, 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: 1/15/99 /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> 9-MOS
<FISCAL-YEAR-END> FEB-28-1999
<PERIOD-START> MAR-01-1998
<PERIOD-END> NOV-30-1998
<CASH> 5,180
<SECURITIES> 0
<RECEIVABLES> 13,037,910
<ALLOWANCES> 529,322
<INVENTORY> 13,306,183
<CURRENT-ASSETS> 25,912,145
<PP&E> 39,268,984
<DEPRECIATION> 16,027,200
<TOTAL-ASSETS> 58,812,992
<CURRENT-LIABILITIES> 11,667,176
<BONDS> 12,070,552
0
0
<COMMON> 6,304,580
<OTHER-SE> 28,198,204
<TOTAL-LIABILITY-AND-EQUITY> 58,812,992
<SALES> 60,863,730
<TOTAL-REVENUES> 60,863,730
<CGS> 46,161,748
<TOTAL-COSTS> 53,502,407
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 688,798
<INCOME-PRETAX> 6,672,525
<INCOME-TAX> 2,502,534
<INCOME-CONTINUING> 4,169,991
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,169,991
<EPS-PRIMARY> .71
<EPS-DILUTED> .71
</TABLE>
