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, 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 August 31, 1999 Common Stock, $1.00 Par Value 4,748,944 ----------------------------- --------------------------- Class Number of Shares
AZTEC MANUFACTURING CO. INDEX ----- PART I. Financial Information Page No. --------------------- ------- Item 1. Financial Statements Consolidated Condensed Balance Sheets at August 31, 1999 and February 28, 1999 3 Consolidated Condensed Statements of Income for the Periods Ended August 31, 1999 and August 31, 1998 4 Consolidated Condensed Statements of Cash Flow for the Periods Ended August 31, 1999 and August 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 8-10 PART II. Other Information ----------------- Item 4. Submissions of Matters to a Vote of Security Holders 10-11 Item 6. Exhibits and Reports on Form 8-K 11 SIGNATURES 11 2
PART I. FINANCIAL INFORMATION ITEM I. FINANCIAL STATEMENTS AZTEC MANUFACTURING CO. CONSOLIDATED CONDENSED BALANCE SHEETS <TABLE> <CAPTION> 08/31/99 02/28/99 ASSETS UNAUDITED AUDITED - ------------------------- ----------------- ------------------ <S> <C> <C> CURRENT ASSETS: CASH AND CASH EQUIVALENTS $ 412,168 $ 800,183 ACCOUNTS RECEIVABLE (NET OF ALLOWANCE) 14,520,584 13,472,637 INVENTORIES: RAW MATERIALS 6,828,776 7,306,510 WORK-IN-PROCESS 1,293,274 1,000,480 FINISHED GOODS 1,983,474 2,884,373 PREPAID EXPENSES AND OTHER 211,348 323,176 ----------------- ------------------ TOTAL CURRENT ASSETS 25,249,624 25,787,359 LONG TERM INVESTMENT 200,000 200,000 PROPERTY, PLANT AND EQUIPMENT, NET 22,830,290 23,078,880 INTANGIBLE ASSETS, NET 8,678,017 8,989,573 OTHER ASSETS 337,049 343,149 ----------------- ------------------ TOTAL ASSETS $ 57,294,980 $ 58,398,961 ================= ================== LIABILITIES AND SHAREHOLDERS' EQUITY - ------------------------------------ CURRENT LIABILITIES: LONG TERM DEBT DUE WITHIN ONE YEAR $ 3,135,238 $ 3,135,238 ACCOUNTS PAYABLE 5,227,516 3,826,238 ACCRUED LIABILITIES 4,793,535 3,792,596 ----------------- ------------------ TOTAL CURRENT LIABILITIES 13,156,289 10,754,072 LONG-TERM DEBT DUE AFTER ONE YEAR 13,718,646 20,266,266 DEFERRED INCOME TAX 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 11,353,284 11,422,536 RETAINED EARNINGS 26,714,842 23,736,974 LESS COMMON STOCK HELD IN TREASURY (1,555,636 AND 1,569,822 SHARES AT COST RESPECTIVELY) (14,445,834) (14,578,640) ----------------- ------------------ TOTAL SHAREHOLDERS' EQUITY 29,926,872 26,885,450 ----------------- ------------------ TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $ 57,294,980 $ 58,398,961 ================= ================== </TABLE> SEE ACCOMPANYING NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS. 3
AZTEC MANUFACTURING CO. CONSOLIDATED CONDENSED STATEMENTS OF INCOME <TABLE> <CAPTION> THREE MONTHS ENDED SIX MONTHS ENDED 8/31/99 8/31/98 8/31/99 8/31/98 UNAUDITED UNAUDITED UNAUDITED UNAUDITED ------------- ------------- ------------- ------------- <S> <C> <C> <C> <C> NET SALES $ 20,986,466 $ 20,720,679 $ 41,657,087 $ 41,449,445 COSTS AND EXPENSES: COST OF SALES 15,524,183 15,755,838 30,840,766 31,173,430 SELLING/G & A EXPENSE 2,637,142 2,465,495 5,347,352 4,986,845 INTEREST EXPENSE 321,838 231,889 674,933 459,997 OTHER (INCOME) EXPENSE (5,058) (44,890) 28,323 (4,592) ------------- ------------- ------------- ------------- 18,478,105 18,408,332 36,891,374 36,615,680 ------------- ------------- ------------- ------------- INCOME BEFORE INCOME TAXES 2,508,361 2,312,347 4,765,713 4,833,765 PROVISION FOR INCOME TAXES 941,043 867,127 1,787,596 1,812,661 ------------- ------------- ------------- ------------- NET INCOME $ 1,567,318 $ 1,445,220 $ 2,978,117 $ 3,021,104 ============= ============= ============= ============= INCOME PER SHARE: BASIC EARNINGS PER SHARE $ 0.33 $ 0.25 $ 0.63 $ 0.51 ============= ============= ============= ============= DILUTED EARNINGS PER SHARE $ 0.33 $ 0.25 $ 0.63 $ 0.51 ============= ============= ============= ============= </TABLE> SEE ACCOMPANYING NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS. 4
AZTEC MANUFACTURING CO. CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOW <TABLE> <CAPTION> SIX MONTHS ENDING 8/31/99 8/31/98 UNAUDITED UNAUDITED ------------- ------------- <S> <C> <C> CASH FLOWS PROVIDED BY OPERATIONS: NET INCOME $ 2,978,117 $ 3,021,104 ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY OPERATIONS: PROVISION FOR BAD DEBTS 83,581 74,909 AMORTIZATION AND DEPRECIATION 2,030,414 1,675,204 GAINS ON SALE OF PROPERTY (6,190) 0 INCREASE (DECREASE) FROM CHANGES IN ASSETS & LIABILITIES: ACCOUNTS RECEIVABLE (1,131,528) 635,275 INVENTORIES 1,085,839 194,752 PREPAID EXPENSES 111,828 117,185 OTHER ASSETS 6,101 0 ACCOUNTS PAYABLE 1,401,278 (1,018,360) ACCRUED LIABILITIES 1,000,939 (801,144) ------------- ------------- NET CASH PROVIDED BY OPERATIONS 7,560,379 3,898,925 ------------- ------------- CASH FLOWS USED FOR INVESTING ACTIVITIES: PURCHASE OF PROPERTY/PLANT/EQUIPMENT (1,464,078) (3,609,950) ------------- ------------- CASH FLOWS USED FOR FINANCING ACTIVITIES: PROCEEDS FROM EXERCISE OF STOCK OPTIONS 63,553 34,903 NET CHANGES IN LONG TERM NOTES (6,547,620) 166,667 ADJUSTMENTS TO DIVIDENDS PAID (249) 1,050 PURCHASE OF TREASURY STOCK 0 (747,178) ------------- ------------- NET CASH USED FOR FINANCING ACTIVITIES (6,484,316) (544,558) ------------- ------------- DECREASE IN CASH & CASH EQUIVALENTS (388,015) (255,583) CASH & CASH EQUIVALENTS, BEGINNING OF PERIOD 800,183 765,912 ------------- ------------- CASH & CASH EQUIVALENTS, END OF PERIOD $ 412,168 $ 510,329 ============= ============= </TABLE> SEE ACCOMPANYING NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS. 5
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 August 31, 1999, and the results of its operations and cash flows for the periods ended August 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 August 31 Six months ending August 31 1999 1998 1999 1998 ---------- ---------- ---------- ---------- (Dollars in thousands except earnings per share) <S> <C> <C> <C> <C> Numerator: Net income for basic and diluted earnings per common share $ 1,567 $ 1,445 $ 2,978 $ 3,021 Denominator: Denominator for basic earnings per common share -weighted average shares 4,744,941 5,904,850 4,741,853 5,915,266 Effect of dilutive securities: Employee and Director stock options 29,951 24,374 18,476 62,762 ---------- ---------- ---------- ---------- Denominator for diluted earnings per common share -adjusted weighted- average shares and assumed conversions 4,774,892 5,929,224 4,760,329 5,978,028 ========== ========== ========== ========== Basic earnings per common share $ .33 $ .25 $ .63 $ .51 ========== ========== ========== ========== Diluted earnings per common share $ .33 $ .25 $ .63 $ .51 ========== ========== ========== ========== </TABLE> 4. A summary of the Company's operating segments is defined on page 30 of its 1999 Annual Shareholders' Report. 6
Information regarding operations and assets by segment in thousands is as follows: <TABLE> <CAPTION> Three Months Ended Aug 31, Six Months Ended Aug 31, 1999 1998 1999 1998 ------- ------- ------- ------- <S> <C> <C> <C> <C> Net Sales: Manufactured Products $11,165 $12,089 $22,112 $24,471 Services 9,821 8,632 19,545 16,978 ------- ------- ------- ------- $20,986 $20,721 $41,657 $41,449 Operating Income (a): Manufactured Products $ 1,582 $ 1,585 $ 2,653 $ 3,142 Services 2,194 1,760 4,671 3,792 ------- ------- ------- ------- $ 3,776 $ 3,345 $ 7,324 $ 6,934 General Corporate Expense $ 937 $ 855 $ 1,863 $ 1,685 Interest Expense 322 232 675 460 Other (Income) Exp., Net (b) 9 (54) 20 (45) ------- ------- ------- ------- $ 1,268 $ 1,033 $ 2,558 $ 2,100 Income Before Income Taxes $ 2,508 $ 2,312 $ 4,766 $ 4,834 ======= ======= ======= ======= Total Assets: Manufactured Products $28,295 $29,858 $28,295 $29,858 Services 27,563 26,811 27,563 26,811 Corporate 1,437 1,890 1,437 1,890 ------- ------- ------- ------- $57,295 $58,559 $57,295 $58,559 ======= ======= ======= ======= </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, 7
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 assets of CGIT were acquired for a consideration of approximately $9.9 million, which resulted in approximately $6.9 million in goodwill. Item 2. Management's Discussion and Analysis of Financial Condition and - -------------------------------------------------------------------------- Results of Operations - --------------------- RESULTS OF OPERATIONS --------------------- Consolidated net sales were up 1% for both the three-month and six-month periods ending August 31, 1999 as compared to the same periods in 1998. Net sales in the Manufactured Products Segment were down $922,000 or 8% for the three-month period ending August 31, 1999, and $2,360,000 or 10% for the six-month period ending August 31, 1999,as compared to the same periods in 1998. Sales of electrical products in the Manufactured Products Segment were up by 1% for both the three and six-month periods ending August 31,1999, while tubular products sales were down 42% and 48% for the three and six-month periods. Backlog for the segment was up by $4,159,000 or 25% for the period ended August 31, 1999, versus the same period last year. Backlog for electrical products in this segment was up $7,411,000 or 55% due primarily to the deregulation of the electrical industry and the need for increased domestic power generation. Tubular products backlog was down to $102,000 for the period ending August 31,1999, from $3,354,000 the previous period ended August 31, 1998. Net sales in the Services Segment, which is made up of galvanizing services, were up $1,189,000 or 14% and $2,567,000 or 15% for the three and six-month periods ending August 31, 1999 as compared to the same periods in 1998. Total pounds produced were 63,892,000 and 126,282,000 for the three and six month periods ending August 31, 1999 as compared to 54,362,000 and 108,557,000 during the same periods in 1998. The volume of steel processed increased 17.5% and 16.5% for the three and six-month period ended August 31, 1999 versus the same periods last year. The year to date average selling price was virtually the same for the two periods compared. Consolidated operating income (net sales less operating expenses) was up 13% and 6% or $431,000 and $390,000 for the three and six-month periods ended August 31, 999 as compared to the prior year. Operating income in the Manufactured Products Segment was flat for the three-month period and down 16% for the six-month period as compared to 1998. Operating Income in our electrical products was up 9% and 6% for the three and six-month periods in 1999 as compared to prior year. Our tubular products portion of this segment has not rebounded with current improvement in oil and natural gas showing $120,000 and $385,000 loss for the three and six month periods ended August 31, 1999, as compared to a $18,000 and $123,000 profit for the same periods last year. In the Service Segment operating income was up $434,000 or 25% and $878,000 or 23% for three and six-months periods ended August 31, 1999, compared to the same periods in 1998. Increased operating income was due to increased volumes 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 three and six month periods this year versus last year. 8
Net interest expense for the three and six month periods ending August 31, 1999, was $322,000 and $675,000 an increase of $90,000 and $215,000 over last year. The additional interest expense is due to a higher outstanding loan balance associated with the stock repurchase of Aztec common stock in fiscal 1999. With reduced shares outstanding due to the stock repurchase, diluted earnings per share increased to $.33 and $.63 per share for the three and six-month periods ending August 31, 1999, versus $.25 and $.51 per share for the same period in 1998. LIQUIDITY AND CAPITAL RESOURCES ------------------------------- Net cash provided by operations was $7.6 million for the first six months of fiscal 2000 compared to $3.9 million for the same period in fiscal 1999. Net cash provided by operations was generated by $3.0 million in net profits, $2 million in depreciation and amortization, and $2.6 million in other changes which included a reduction in inventory of $1.1 million, primarily in tubular products. During the six month period ended August 31, 1999, proceeds from operating activities of $7.6 million were used to repay debt in the amount of $6.5 million and purchase plant equipment in the amount of $1.5 million. 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 $11.8 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 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: 9
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. PART II. OTHER INFORMATION AZTEC MANUFACTURING CO. Item 4. Submissions of Matters to a Vote of Security Holders - -------------------------------------------------------------- Shareholders at the Annual Meeting on July 13, 1999, and by proxy, elected from incumbent directors, Martin C. Bowen, Kevern R. Joyce, Sam Rosen and David H. Dingus. Of the 4,086,283 shares represented at the meeting, 3,632,502 shares (88.9%) were voted for Mr. Bowen, 3,634,583 shares (89.0%) were voted for Mr. Joyce, 3,634,853 shares (89.0%) were voted for Mr. Rosen, 3,634,853 shares (89.0%) were voted for Mr. Dingus. Other directors continuing in office are L.C. Martin, Robert Johnson, W.C. Walker, R.J. Schumacher and Dana Perry. Four proposals by the Board of Directors were submitted to the stockholders at the Annual Meeting, with the following vote tabulation. <TABLE> <CAPTION> Amendment to the Articles of Incorporation on Calling of a Special Meeting. Approved/Failed to Approve -------------------------- <S> <C> <C> <C> Shares for: 2,309,786 48.7% Shares Against: 575,089 12.1% FAILED Shares Abstained: 22,389 n/a Approval of the Amendment to the Articles of Incorporation on Indemnification of Directors, Advisory Directors and Officers. Shares for: 3,979,234 83.9% Shares Against: 75,135 1.6% PASSED Shares Abstained: 31,914 .7% Approval of the Ratification of Amended and Restated Bylaws. Shares for: 2,783,183 68.1% Shares Against: 89,967 1.9% PASSED Shares Abstained: 34,114 n/a Approval of Ratification of the Appointment of Ernst & Young LLP as Auditors. Shares for: 4,053,535 99.2% Shares Against: 15,245 .4% PASSED Shares Abstained: 17,503 n/a </TABLE> 10
Item 6. Exhibits and Reports on Form 8-K - ------------------------------------------ (A) Exhibits - Exhibit 3ii - New By-Laws of Aztec Manufacturing Co. approved at the Company's July 13, 1999 Annual Meeting of Shareholders. (B) Reports on Form 8-K - There were no reports on Form 8-K filed for the three months ended August 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: 10/13/99 /s/ Dana Perry -------- ---------------------------------------- Dana Perry, Vice President for Finance Chief Financial Officer 11
INDEX TO EXHIBITS ----------------- EXHIBIT DESCRIPTION - -------------------------------------------------------------------------------- 3ii New ByLaws of Aztec Manufacturing Co. approved at the Company's July 13, 1999 Annual Meeting of Shareholders.