<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, 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 November 30, 1999
Common Stock, $1.00 Par Value 4,756,891
----------------------------- ------------------------------------
Class Number of Shares
<PAGE>
AZTEC MANUFACTURING CO.
INDEX
-----
PART I. Financial Information Page No.
--------------------- --------
Item 1. Financial Statements
Consolidated Condensed Balance Sheets at
November 30, 1999 and February 28, 1999 3
Consolidated Condensed Statements of Income for the
Periods Ended November 30, 1999 and November 30, 1998 4
Consolidated Condensed Statements of Cash Flow for the
Periods Ended November 30, 1999 and November 30, 1998 5
Notes to Consolidated Condensed Financial Statements 6-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-10
PART II. Other Information
-----------------
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 11
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
AZTEC MANUFACTURING CO.
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
11/30/1999 02/28/1999
ASSETS UNAUDITED AUDITED
- ------------------------------------ -------------------- -------------------
<S> <C> <C>
CURRENT ASSETS:
CASH AND CASH EQUIVALENTS $ 977,595 $ 800,183
ACCOUNTS RECEIVABLE (NET OF ALLOWANCE) 18,951,810 13,472,637
INVENTORIES:
RAW MATERIALS 9,073,856 7,306,510
WORK-IN-PROCESS 1,463,831 1,000,480
FINISHED GOODS 1,616,738 2,884,373
PREPAID EXPENSES AND OTHER 128,208 323,176
REVENUE IN EXCESS OF BILLINGS 446,090 0
-------------------- -------------------
TOTAL CURRENT ASSETS 32,658,128 25,787,359
LONG TERM INVESTMENT 200,000 200,000
PROPERTY, PLANT AND EQUIPMENT, NET 24,061,785 23,078,880
INTANGIBLE ASSETS, NET 15,189,638 8,989,573
OTHER ASSETS 339,508 343,149
-------------------- -------------------
TOTAL ASSETS $ 72,449,059 $ 58,398,961
==================== ===================
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
LONG TERM DEBT DUE WITHIN ONE YEAR $ 3,135,238 $ 3,135,238
ACCOUNTS PAYABLE 7,468,112 3,826,238
ACCRUED LIABILITIES 6,655,079 3,792,596
-------------------- -------------------
TOTAL CURRENT LIABILITIES 17,258,429 10,754,072
LONG-TERM DEBT DUE AFTER ONE YEAR 23,341,837 20,266,266
DEFERRED INCOME TAX 64,655 493,173
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 11,330,302 11,422,536
RETAINED EARNINGS 28,521,263 23,736,974
LESS COMMON STOCK HELD IN TREASURY
(1,547,689 AND 1,569,822 SHARES AT COST RESPECTIVELY) (14,372,007) (14,578,640)
-------------------- -------------------
TOTAL SHAREHOLDERS' EQUITY 31,784,138 26,885,450
-------------------- -------------------
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $ 72,449,059 $ 58,398,961
==================== ===================
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.
Page 3
<PAGE>
AZTEC MANUFACTURING CO.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
11/30/99 11/30/1998 11/30/1999 11/30/1998
UNAUDITED UNAUDITED UNAUDITED UNAUDITED
-------------------- -------------------- ------------------- ---------------------
<S> <C> <C> <C> <C>
NET SALES $ 24,653,795 $ 19,414,282 $ 66,310,882 $ 60,863,730
COSTS AND EXPENSES:
COST OF SALES 17,847,320 14,988,317 48,688,086 46,161,748
SELLING/G & A EXPENSE 3,254,155 2,353,447 8,601,507 7,400,051
INTEREST EXPENSE 475,998 228,800 1,150,931 688,798
OTHER (INCOME) EXPENSE 186,024 4,966 214,347 (59,392)
-------------------- -------------------- ------------------- ---------------------
21,763,497 17,575,530 58,654,871 54,191,205
-------------------- -------------------- ------------------- ---------------------
INCOME BEFORE INCOME TAXES 2,890,298 1,838,752 7,656,011 6,672,525
PROVISION FOR INCOME TAXES 1,083,876 689,865 2,871,472 2,502,534
-------------------- -------------------- ------------------- ---------------------
NET INCOME $ 1,806,422 $ 1,148,887 $ 4,784,539 $ 4,169,991
==================== ==================== =================== =====================
INCOME PER SHARE:
BASIC EARNINGS PER SHARE $ 0.38 $ 0.20 $ 1.01 $ 0.71
==================== ==================== =================== =====================
DILUTED EARNINGS PER SHARE $ 0.38 $ 0.20 $ 1.00 $ 0.71
==================== ==================== =================== =====================
</TABLE>
Page 4
<PAGE>
AZTEC MANUFACTURING CO.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
NINE MONTHS ENDED
11/30/1999 11/30/1998
UNAUDITED UNAUDITED
---------------------- ----------------------
<S> <C> <C>
CASH FLOWS PROVIDED BY OPERATIONS:
NET INCOME $ 4,784,539 $ 4,169,991
ADJUSTMENTS TO RECONCILE NET INCOME TO
NET CASH PROVIDED BY OPERATIONS:
PROVISION FOR BAD DEBTS 138,409 106,622
AMORTIZATION AND DEPRECIATION 3,276,839 2,625,624
GAINS ON SALE OF PROPERTY (47,335) 0
INCREASE (DECREASE) FROM CHANGES IN ASSETS & LIABILITIES:
ACCOUNTS RECEIVABLE (4,255,767) 559,594
INVENTORIES 138,269 922,558
PREPAID EXPENSES 258,521 158,542
OTHER ASSETS 6,770 (2,402)
REVENUE IN EXCESS OF BILLINGS 1,574,584 0
ACCOUNTS PAYABLE 3,230,410 893,196
ACCRUED LIABILITIES 1,007,056 (914,858)
---------------------- ----------------------
NET CASH PROVIDED BY OPERATIONS 10,112,295 8,518,867
---------------------- ----------------------
CASH FLOWS USED FOR INVESTING ACTIVITIES:
PURCHASE OF PROPERTY/PLANT/EQUIPMENT (1,953,524) (6,042,612)
ACQUISITION OF BUSINESS, NET OF CASH (11,171,080) 0
---------------------- ----------------------
CASH FLOWS USED FOR INVESTING ACTIVITIES: (13,124,604) (6,042,612)
---------------------- ----------------------
PROCEEDS FROM EXERCISE OF STOCK OPTIONS 114,399 34,903
NET CHANGES IN LONG TERM NOTES 3,075,570 749,999
ADJUSTMENTS TO DIVIDENDS PAID (248) 1,050
PURCHASE OF TREASURY STOCK 0 (4,022,939)
---------------------- ----------------------
NET CASH (USED FOR)/PROVIDED BY FINANCING ACTIVITIES 3,189,721 (3,236,987)
---------------------- ----------------------
INCREASE/(DECREASE) IN CASH & CASH EQUIVALENTS 177,412 (760,732)
CASH & CASH EQUIVALENTS, BEGINNING OF PERIOD 800,183 765,912
---------------------- ----------------------
CASH & CASH EQUIVALENTS, END OF PERIOD $ 977,595 $ 5,180
====================== ======================
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.
Page 5
<PAGE>
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 November 30, 1999, and the
results of its operations and cash flows for the periods ended November 30,
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 ended Nov. 30 Nine months ended Nov. 30
1999 1998 1999 1998
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
(Dollars in thousands except earnings per share)
Numerator:
Net income for basic and diluted earnings
per common share $ 1,806 $ 1,149 $ 4,785 $ 4,170
Denominator:
Denominator for basic earnings per
common share -weighted average shares 4,755,054 5,669,236 4,746,253 5,833,256
Effect of dilutive securities:
Employee and Director stock options 44,097 3,713 43,933 47,462
---------------- ---------------- ---------------- ----------------
Denominator for diluted earnings per
common share -adjusted weighted-
average shares and assumed conversions 4,799,151 5,672,949 4,790,186 5,880,718
================ ================ ================ ================
Basic earnings per common share $ .38 $ .20 $ 1.01 $ .71
================ ================ ================ ================
Diluted earnings per common share $ .38 $ .20 $ 1.00 $ .71
================ ================ ================ ================
</TABLE>
4. A summary of the Company's operating segments is defined on page 30 of its
1999 Annual Shareholders' Report.
Page 6
<PAGE>
Information regarding operations and assets by segment in thousands is as
follows:
<TABLE>
<CAPTION>
Three Months Ended Nov 30, Nine Months Ended Nov 30,
1999 1998 1999 1998
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Net Sales:
Manufactured Products $14,381 $10,499 $36,493 $34,971
Services 10,273 8,915 29,818 25,893
----------------- ----------------- ----------------- -----------------
$24,654 $19,414 $66,311 $60,864
Operating Income (a):
Manufactured Products $ 2,158 $ 814 $ 4,811 $ 3,956
Services 2,379 1,997 7,050 5,789
----------------- ----------------- ----------------- -----------------
$ 4,537 $ 2,811 $11,861 $ 9,745
General Corporate Expense $ 1,160 $ 735 $ 3,023 $ 2,420
Interest Expense 476 229 1,151 689
Other (Income) Exp., Net (b) 11 8 31 (37)
----------------- ----------------- ----------------- -----------------
$ 1,647 $ 972 $ 4,205 $ 3,072
Income Before Income Taxes $ 2,890 $ 1,839 $ 7,656 $ 6,673
================= ================= ================= =================
Total Assets:
Manufactured Products $41,874 $30,166 $41,874 $30,166
Services 27,990 27,286 27,990 26,286
Corporate 2,585 1,361 2,585 1,361
================= ================= ================= =================
$72,449 $58,813 $72,449 $58,813
================= ================= ================= =================
</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, liabilities,
Page 7
<PAGE>
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.
6. Effective September 1, 1999, Aztec Manufacturing Co. acquired the operating
assets of ABB's Compressed Gas Insulation Transmission Bus Duct division.
The new entity will be known as CGIT Westboro, Inc. The acquisition was
accounted for using the purchase method of accounting. The assets of CGIT
were acquired for a consideration of approximately $11.2 million, which
resulted in approximately $7.2 million in goodwill. Listed below is the
unaudited pro forma results of summary financial information which includes
the Company's historical results of operations for the nine months ending
November 30, 1999 and 1998, and that of CGIT Westboro, Inc. for the same
periods, adjusted for purchase accounting and other pro forma adjustments.
This summary may not be indictive of what would have occurred had the
acquisition been made at the date or of results which may occur in the
future.
<TABLE>
<CAPTION>
Nine Months Ended
11/30/99 11/30/98
Unaudited Unaudited
-------------- ---------------
<S> <C> <C>
Net Sales $ 71,780 $ 69,336
Net Income $ 4,756 $ 4,109
============== ===============
Income Per Share
Basic Earnings Per Share $ 1.00 $ 0.70
============== ===============
Diluted Earnings Per Share $ 0.99 $ 0.70
============== ===============
</TABLE>
Item 2. Management's Discussion and Analysis of Financial Condition and
- ------------------------------------------------------------------------
Results of Operations
- ---------------------
RESULTS OF OPERATIONS
----------------------
Consolidated net sales were up 27% and 9% for the three-month and nine-month
periods ended November 30, 1999 as compared to the same periods in 1998. Net
sales in the Manufactured Products Segment were up $3.9 million or 37% for the
three-month period ended November 30, 1999, and $1.5 million or 4% for the nine-
month period ended November 30, 1999, as compared to the same periods in 1998.
Sales of electrical products in the Manufactured Products Segment increased $4.6
million or 54% and $4.7 million or 17% for the three and nine month periods
ended November 30,1999, as compared to the same periods in 1998. The acquisition
of CGIT Westboro, Inc. on September 1, 1999, added $2.5 million to the
electrical products revenues for the period ended November 30, 1999. Backlog for
the Manufactured Products Segment increased 84% to $31 million for the period
ended November 30, 1999. Backlog for electrical products in this segment
increased 98% to $31.7 million due primarily to deregulation of the electrical
industry and the increased demand for domestic power generation. CGIT added $4.1
million to the backlog for the period ended November 30, 1999. Tubular products
backlog was down $904,000 or 55% to $732,000 from the previous years backlog of
$1.6 million. Net
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<PAGE>
sales in the Services Segment, which is made up of galvanizing services, were up
$1.4 million or 15% and $3.9 million or 15% for the three and nine-month periods
ended November 30, 1999 as compared to the same periods in 1998. Total pounds
produced were 65.8 million and 191.9 million for the three and nine month
periods ended November 30, 1999 as compared to 56.7 million and 165.3 million
during the same periods in 1998. The volume of steel processed increased 16% for
the three and nine-month periods ended November 30, 1999 versus the same periods
last year. The year to date average selling price was virtually the same for the
periods compared.
Consolidated operating income (net sales less operating expenses) was up 61% and
22% for the three and nine-month periods ended November 30, 1999 as compared to
the same periods in 1998. Operating income in the Manufactured Products Segment
was up 165% or $1.3 million for the three-month period ended November 30, 1999
and 22% or $855,000 for the nine-month period ended November 30, 1999 as
compared to the same periods in 1998. Operating income generated from our
electrical products operations was up 129% or $1.2 million and 31% or $1.2
million for the three and nine months period ended November 30, 1999, as
compared to the same periods in 1998. The acquisition of CGIT Westboro on
September 1, 1999 added $234,000 to operating income for the period ended
November 30, 1999. Our tubular products portion of this segment has not
rebounded showing a loss of $8,000 and $393,000 for the three and nine month
periods ended November 30, 1999, as compared to a loss of $134,000 and $11,000
for the same periods last year. In the Service Segment, operating income was up
$382,000 or 19% and $1.3 million or 22% for three and nine months periods ended
November 30, 1999, compared to the same periods in 1998. Increased operating
income in the Service Segment was due to increased volumes coupled with improved
operational efficiencies for the compared periods.
General corporate expenses (selling, G & A expense and other (income) expense)
were up for the three and nine month periods ended November 30, 1999, as
compared to the same periods in 1998. This is a direct result of the acquisition
of CGIT Westboro, Inc.; as well as increased profit sharing and bonus accruals.
Net interest expense for the three and nine-month periods ended November 30,
1999, increased $247,000 and $462,000 over the same periods in the prior year.
The additional interest expense is due to a higher outstanding loan balance
associated with stock repurchases of Aztec common stock in fiscal 1999, coupled
with the recent acquisition of CGIT Westboro on September 1, 1999. With reduced
shares outstanding due to stock repurchases in fiscal 1999 and increased net
income, diluted earnings per share increased to $.38 and $1.00 per share for the
three and nine month periods ended November 30, 1999, versus $.20 and $.71 per
share for the same periods in 1998.
Page 9
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
Net cash provided by operations was $10.1 million for the first nine months of
fiscal 2000, compared to $8.5 million for the same period in fiscal 1999. Net
cash provided by operations was generated by $4.8 million in net income, $3.3
million in depreciation and amortization, and $2.0 million in other changes in
assets and liabilities.
During the nine month period ended November 30, 1999, proceeds from operating
activities were used to repay long-term debt and purchase plant equipment. The
balance of the proceeds from operating activities plus a draw against the
Company's revolving line of credit was used to acquire CGIT Westboro on
September 1, 1999.
The Company's current credit facility is made up of two term notes in the amount
of $10 million each of which $13.1 million is still outstanding. The Company
also has a revolving line of credit in the amount of $22 million of which $5.6
million is available for future use. 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.
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 Statements
- --------------------------
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 10
<PAGE>
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, 1999.
(B) Reports on Form 8-K - Aztec filed one report on Form 8-K and one
report on Form 8-KA during the three-months ended November 30, 1999 in
association with the purchase of ABB's Compressed Gas Insulation
Transmission Bus Duct division located in Westborough, Massachusetts.
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: 1/14/99 /s/ Dana Perry
------- ------------------------------------
Dana Perry, Vice President for
Finance
Chief Financial Officer
Page 11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> FEB-28-2000
<PERIOD-START> MAR-01-1999
<PERIOD-END> NOV-30-1999
<CASH> 977,595
<SECURITIES> 0
<RECEIVABLES> 19,261,741
<ALLOWANCES> 592,473
<INVENTORY> 12,154,425
<CURRENT-ASSETS> 32,658,128
<PP&E> 43,174,434
<DEPRECIATION> 19,112,649
<TOTAL-ASSETS> 72,449,059
<CURRENT-LIABILITIES> 17,258,429
<BONDS> 23,341,837
0
0
<COMMON> 6,304,580
<OTHER-SE> 25,479,558
<TOTAL-LIABILITY-AND-EQUITY> 72,449,059
<SALES> 66,310,882
<TOTAL-REVENUES> 66,310,882
<CGS> 48,688,086
<TOTAL-COSTS> 57,503,940
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,150,931
<INCOME-PRETAX> 7,656,011
<INCOME-TAX> 2,871,472
<INCOME-CONTINUING> 4,784,539
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,784,539
<EPS-BASIC> 1.01
<EPS-DILUTED> 1.00
</TABLE>
