<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: May 31, 1999
( ) 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, 1999
Common Stock, $1.00 Par Value 4,741,270
----------------------------- ------------------------------------
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
May 31, 1999 and February 28, 1999 3
Consolidated Condensed Statements of Income for the
Periods Ended May 31, 1999 and May 31, 1998 4
Consolidated Condensed Statements of Cash Flow for the
Periods Ended May 31, 1999 and May 31, 1998 5
Notes to Consolidated Condensed Financial
Statements 6-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-9
PART II. Other Information
-----------------
Item 6. Exhibits and Reports on Form 8-K 10
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>
<S> <C> <C>
5/31/99 2/28/99
ASSETS UNAUDITED AUDITED
- --------------------------------------------- ---------------------- ----------------------
CURRENT ASSETS:
CASH AND CASH EQUIVALENTS $ 678,763 $ 800,183
ACCOUNTS RECEIVABLE (NET OF ALLOWANCE) 14,012,538 13,472,637
INVENTORIES:
RAW MATERIALS 7,179,662 7,306,510
WORK-IN-PROCESS 1,087,978 1,000,480
FINISHED GOODS 2,531,137 2,884,373
PREPAID EXPENSES AND OTHER 279,078 323,176
---------------------- ----------------------
TOTAL CURRENT ASSETS 25,769,156 25,787,359
LONG TERM INVESTMENT 200,000 200,000
PROPERTY, PLANT AND EQUIPMENT, NET 22,816,695 23,078,880
INTANGIBLE ASSETS, NET 8,833,795 8,989,573
OTHER ASSETS 345,554 343,149
---------------------- ----------------------
TOTAL ASSETS $ 57,965,200 $ 58,398,961
====================== ======================
LIABILITIES AND SHAREHOLDERS' EQUITY
- --------------------------------------------
CURRENT LIABILITIES:
LONG TERM DEBT DUE WITHIN ONE YEAR $ 3,135,238 $ 3,135,238
ACCOUNTS PAYABLE 5,473,229 3,826,238
ACCRUED LIABILITIES 4,545,588 3,792,596
---------------------- ----------------------
TOTAL CURRENT LIABILITIES 13,154,055 10,754,072
LONG-TERM DEBT DUE AFTER ONE YEAR 15,992,456 20,266,266
DEFERRED INCOME TAXES 493,173 493,173
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 11,391,540 11,422,536
RETAINED EARNINGS 25,147,540 23,736,974
LESS COMMON STOCK HELD IN TREASURY
(1,563,310 AND 1,569,822 SHARES AT COST (14,518,144) (14,578,640)
---------------------- ----------------------
RESPECTIVELY)
TOTAL SHAREHOLDERS' EQUITY 28,325,516 26,885,450
---------------------- ----------------------
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $ 57,965,200 $ 58,398,961
====================== ======================
SEE ACCOMPANYING NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.
</TABLE>
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AZTEC MANUFACTURING CO.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED
5/31/99 5/31/98
UNAUDITED UNAUDITED
------------------- -------------------
<S> <C> <C>
NET SALES $ 20,670,621 $ 20,728,767
COSTS AND EXPENSES:
COST OF SALES 15,316,585 15,417,594
SELLING/G & A EXPENSE 2,710,212 2,521,345
INTEREST EXPENSE 353,095 228,108
OTHER (INCOME) EXPENSE 33,377 40,293
------------------- -------------------
TOTAL 18,413,269 18,207,340
------------------- -------------------
INCOME BEFORE INCOME TAXES 2,257,352 2,521,427
PROVISION FOR INCOME TAXES 846,537 945,535
------------------- -------------------
NET INCOME $ 1,410,815 $ 1,575,892
=================== ===================
EARNINGS PER COMMON SHARE:
BASIC $ 0.30 $ 0.27
=================== ===================
DILUTED $ 0.30 $ 0.26
=================== ===================
</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>
THREE MONTHS ENDING
5/31/99 5/31/98
UNAUDITED UNAUDITED
-------------- -------------
<S> <C> <C>
CASH FLOWS PROVIDED BY OPERATIONS:
NET INCOME $ 1,410,815 $ 1,575,892
ADJUSTMENTS TO RECONCILE NET INCOME TO
NET CASH PROVIDED BY OPERATIONS:
PROVISION FOR BAD DEBTS 70,443 37,963
AMORTIZATION AND DEPRECIATION 1,015,001 807,813
INCREASE (DECREASE) FROM CHANGES IN ASSETS & LIABILITIES:
ACCOUNTS RECEIVABLE (610,344) 1,003,443
INVENTORIES 392,586 (554,287)
PREPAID EXPENSE AND OTHER 44,098 44,094
OTHER ASSETS (2,405) (4,405)
ACCOUNTS PAYABLE 1,646,991 (761,647)
ACCRUED LIABILITIES 752,992 383,633
-------------- -------------
NET CASH PROVIDED BY OPERATIONS 4,720,177 2,532,499
-------------- -------------
CASH FLOWS USED FOR INVESTING ACTIVITIES:
PURCHASES OF PROPERTY, PLANT, EQUIPMENT (597,038) (2,111,508)
-------------- -------------
CASH FLOWS USED FOR FINANCING ACTIVITIES:
PROCEEDS FROM EXERCISE OF STOCK OPTIONS 29,500 57,794
PAYMENTS ON LONG TERM DEBT (4,273,810) (916,666)
-------------- -------------
DIVIDENDS PAID (249) 1,050
-------------- -------------
NET CASH USED FOR FINANCING ACTIVITIES (4,244,559) (857,822)
-------------- -------------
DECREASE IN CASH & CASH EQUIVALENTS (121,420) (436,831)
CASH & CASH EQUIVALENTS, BEGINNING OF PERIOD 800,183 765,912
-------------- -------------
CASH & CASH EQUIVALENTS, END OF PERIOD $ 678,763 $ 329,081
============== =============
</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 22, 23 and 24 of its 1999 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, 1999, and the results
of its operations and cash flows for the three-month periods ended May 31,
1999 and 1998.
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 May 31
1999 1998
-------------------- ---------------------
<S> <C> <C>
(Dollars in thousands except earnings per share)
Numerator:
Net income for basic and diluted earnings per common share
Denominator:
Denominator for basic earnings per common share -
weighted average shares. 4,738,766 5,925,681
Effect of dilutive securities:
Employee and Director stock options 8,269 95,485
-------------------- --------------------=
Denominator for diluted earnings per common share adjsuted
weighted-average shares and assumed conversions
4,747,035 6,021,166
==================== =====================
Basic earnings per common share $ .30 $ .27
==================== =====================
Diluted earnings per common share $ .30 $ .26
==================== =====================
</TABLE>
4. A summary of the Company's operating segments is defined on page 30 of its
1999 Annual Shareholders' Report.
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Information regarding operations and assets by segment is as follows:
<TABLE>
<CAPTION>
Three Months Ended May 31,
1999 1998
----------------- -----------------
Net Sales:
<S> <C> <C> <C>
Manufactured Products $ 10,947 $ 12,383
Services 9,724 8,346
----------------- -----------------
$ 20,671 $ 20,729
================= =================
Operating Income (a):
Manufactured $ 1,071 $ 1,557
Services 2,476 2,031
----------------- -----------------
3,547 3,588
General Corporate Expense 925 829
Interest Expense 353 228
Other (Income) Expense, Net (b) 12 10
----------------- -----------------
1,290 1,067
Income Before Income Taxes $ 2,257 $ 2,521
================= =================
Total Assets:
Manufactured Products $ 28,062 $ 29,944
Services 27,893 26,466
Corporate 2,010 1,832
----------------- -----------------
$ 57,965 $ 58,242
================= =================
</TABLE>
(a) Operating income consists of net sales less cost of sales, specifically
identifiable general and administrative expenses and selling expenses.
(b) Other (income) expense, net includes gains and losses on sale of property,
plant and equipment and other (income) expense not specifically
identifiable to a segment.
5. Impact of Recently Issued Accounting Standards
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which is required to be adopted in
years beginning after June 15, 2000. The Statement permits early adoption
as of the beginning of any fiscal quarter after its issuance. The expected
date of adoption by the Company is not yet known.
The Statement will require the Company to recognize all derivatives on the
balance sheet at fair value. Derivatives that are not hedges must be
adjusted to fair value through income. If the derivative is a hedge,
depending on the nature of the hedge, changes in the fair value of
derivatives will either be offset against the change in fair value of the
hedged assets,
Page 7
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liabilities, or firm commitments through earnings or recognized in other
comprehensive income until the hedged item is recognized in earnings. The
ineffective portion of a derivative's change in fair value will be
immediately recognized in earnings. The Company has not yet determined what
the effect of Statement No. 133 will be on the earnings and financial
position of the Company
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, 1999 as
compared to the same period in 1998 were relatively flat at $20.7 million for
both periods. Net sales in the Manufactured Products Segment were down $1.4
million or 11.6% as compared to the same period in 1998 primarily due to the
depressed petroleum industry. Sales of electrical products in the Manufactured
Products Segment were relatively flat while tubular products sales were down
52.5%. Backlog for the segment was relatively flat for the quarter versus the
same quarter last year. Backlog for electrical products in this segment was up
$4 million over the same period in 1998 primarily due to the deregulation of the
electrical industry and the need for increased domestic power generation.
Tubular products backlog was down to $300,000 for the quarter ending May
31,1999, from $4.7 million in the previous May quarter. Net sales in the
Services Segment, which is made up of galvanizing services, were up 16.5% or
$1.4 million in 1999 as compared to the same quarter in 1998. Total pounds
shipped and sales for the quarter ending May 31, 1999 were 61.7 million pounds
and $9.7 million as compared to 53.8 million pounds and $8.3 million in 1998.
The volume of steel processed increased by 14.7% due to an increase in project
oriented work. The average selling price per 100 pounds increased from $14.80
in 1998 to $15.21 in 1999 for the three-month period.
Consolidated operating income (net sales less operating expense) was relatively
flat at $3.5 million for the period ending May 31, 1999, as compared to $3.6
million in 1998. Operating income in the Manufactured Products Segment was down
31.3%. Margins were reduced because of downward pricing, low volumes, and the
liquidation of excess inventory in petroleum related products. In the Services
Segment operating income was up 22% for the quarter ending May 31,1999 compared
to same period in 1998. Total operating income in this segment for the quarter
ending May 31, 1999 was $2.5 million compared to $2 million in 1998. Increased
operating income was due to increased volumes and selling prices, coupled with
flat spending for the compared periods.
General corporate expenses (selling, G & A expense and other (income) expense)
as a percent of net sales were consistent for the first quarter ending May 31,
1999, at 13.3% as compared to 12.4% during the same quarter in 1998.
Net interest expense for the quarter ending May 31, 1999, was $353,000, an
increase of $125,000 from $228,000 in the first quarter of 1998. The additional
interest expense is due to a higher outstanding loan balance associated with the
repurchase of Aztec common stock in 1998. With reduced shares outstanding due
to the stock repurchase, diluted earnings per share increased to $.30 per share
for the quarter ending May 31, 1999 versus $.26 per share for 1998, an increase
of 15.4% or .04 per share.
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LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
Net cash provided by operations was $4.7 million for the first three months of
fiscal 2000 compared to $2.5 million for the first quarter in fiscal 1999. The
$4.7 million consisted of $1.4 million in net profits, $1.1 million from
depreciation and amortization, and $2.2 million from other changes primarily an
increase in outstanding payables.
During the quarter ended May 31, 1999, proceeds from operating activities of
$4.7 million were used to repay debt in the amount of $4.3 million and purchase
plant equipment in the amount of $597,000.
The Company's current credit facility is made up of two term notes both in the
amount of $10 million each. The Company also has a revolving line of credit in
the amount of $15 million of which $10.3 million is available for future use.
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 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 Report contains, 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, many of the matters
described in this Report: 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.
Page 9
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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 May 31, 1999.
(B) Reports on Form 8-K - There were no reports on Form 8-K filed for the
three months ended May 31, 1999.
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.
AZTEC MANUFACTURING CO.
-----------------------------------------
(Registrant)
Date: 7/14/99 /s/Dana Perry
------- ------------------------------------------
Dana Perry, Vice President for Finance
Chief Financial Officer
Page 10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 10-Q AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-28-2000
<PERIOD-START> MAR-01-1999
<PERIOD-END> MAY-31-1999
<CASH> 678,763
<SECURITIES> 0
<RECEIVABLES> 14,511,255
<ALLOWANCES> 498,717
<INVENTORY> 10,798,777
<CURRENT-ASSETS> 25,769,156
<PP&E> 40,457,090
<DEPRECIATION> 17,640,395
<TOTAL-ASSETS> 57,965,200
<CURRENT-LIABILITIES> 13,154,055
<BONDS> 15,992,456
0
0
<COMMON> 6,304,580
<OTHER-SE> 22,020,936
<TOTAL-LIABILITY-AND-EQUITY> 57,965,200
<SALES> 20,670,621
<TOTAL-REVENUES> 20,670,621
<CGS> 15,316,585
<TOTAL-COSTS> 18,060,174
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 353,095
<INCOME-PRETAX> 2,257,352
<INCOME-TAX> 846,537
<INCOME-CONTINUING> 1,410,815
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,410,815
<EPS-BASIC> .30
<EPS-DILUTED> .30
</TABLE>
