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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K*
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Fiscal Year Ended: February 28, 2002
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File No. 1-12777
AZZ incorporated
(Exact name of registrant as specified in its charter)
TEXAS 75-0948250
(State of incorporation) (I.R.S. Employer Identification Number)
University Centre I, Suite 200
1300 University Drive
Fort Worth, Texas 76107
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (817) 810-0095
Securities registered pursuant to section 12(b) of the act:
Title of Each Class Name of Exchange on Which Registered
------------------- ------------------------------------
Common Stock, $1.00 par value New York Stock Exchange
Securities registered pursuant to section 12(g) of the act: None
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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
The aggregate market value of Common Stock held by non-affiliates on May 13,
2002, was approximately $98,054,000. As of May 13, 2002, there were 5,002,731
shares of AZZ incorporated Common Stock $1.00 par value outstanding.
Documents Incorporated By Reference
Part III incorporates information by reference from the Proxy Statement for the
2002 Annual Meeting of Shareholders of Registrant.
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PART I
Item 1. Business
AZZ incorporated ("AZZ" or the "Company") was established in 1956 and
incorporated under the laws of the State of Texas. The Company is an electrical
equipment and components manufacturer serving the global growth markets of power
generation, transmission and distribution, and industrial markets as well as a
leading provider of hot dip galvanizing services to the steel fabrication market
nationwide.
The Company offers products through two distinct business segments, Electrical
and Industrial Products and the Galvanizing Services Segment.
The Company changed its name from Aztec Manufacturing Co. to AZZ incorporated on
July 10, 2000. The Company believes the new name more effectively represents the
scope of its business beyond manufacturing, reflects the changes in the Company
over the past 10 years and better enables it to cross-leverage its marketing
opportunities through the use of a common name and new image.
On November 1, 2001, the Company acquired 100% of the outstanding stock of
Central Electric Company (CEC), headquartered in Fulton, Missouri. CEC is
comprised of three operations consisting of a metal clad switchgear facility in
Fulton, Missouri, a power center operation in Tulsa, Oklahoma and a relay panel
and non-segmented bus-duct operation in Nashville, Tennessee. The consolidated
annual revenues of CEC are expected to be approximately $50 million. The cost of
the acquisition was $28.5 million including transaction costs. The acquisition
was paid for with $26.7 million of cash; $1.8 million in AZZ incorporated stock
(97,297 shares of common stock), which was valued based upon the average value
of the stock at the time of the public announcement of the acquisition. The
operating assets acquired included $1.2 million in cash.
On November 1, 2001, the Company also acquired the operating assets of Carter &
Crawley, Inc., headquartered in Greenville, South Carolina for $15.4 million in
cash including transaction costs. The operating assets acquired included $2.2
million in cash. Carter & Crawley, Inc. designs, manufactures and installs relay
panels and custom control systems for utilities and industrial manufacturers.
The annual revenues of Carter & Crawley are expected to be approximately $20
million.
Electrical and Industrial Products Segment
The Electrical and Industrial Products Segment produces highly engineered
specialty electrical products as well as lighting and tubular products. The
Company markets and sells its products throughout the global market place. The
electrical portion of this segment designs, manufactures, and configures
products that distribute electrical power to a generator, transformer, switching
device or other electrical configurations. These electrical systems are supplied
to the power generation, transmission and distribution markets as well as the
industrial market. Also provided by this segment are industrial lighting and
tubular products used for petrochemical and industrial applications. Lighting
products are provided to the petroleum, food processing, and power generation
industries, to consumer retail outlets and to industries with unique lighting
challenges. The principal markets for tubular products is the petroleum
industry. The markets for the Company's Electrical and Industrial Products
Segment are highly competitive and consist of a few large national companies, as
well as numerous small independents. Competition is based primarily on product
quality, range of product line, price and service. While some of these companies
are much larger and better financed than the Company, the Company believes that
it can compete favorably with them. Copper, aluminum and steel are the primary
raw materials used in this segment and are readily available. This segment's
products are sold though manufacturers' representatives and its internal sales
force. This segment is not dependent on any single customer or limited number of
customers for as much as 10% of sales, and the loss of any single customer would
not have a material adverse effect on consolidated revenues or net income of the
Company. Backlog of orders was approximately $85.3 million at February 28, 2002,
$34.8 million at February 28, 2001 and $31.2 million at February 29, 2000. All
of the year-end backlog should be delivered during the next 18 months.
1
Orders included in the backlog are represented by contracts and purchase orders
that the Company believes to be firm. Total employment in this segment is 839
persons.
Galvanizing Services Segment
The Galvanizing Services Segment provides hot dip galvanizing to the steel
fabrication industry through facilities located throughout the South and
Southwest United States. The eleven galvanizing plants of the Company are
located in Texas, Louisiana, Alabama, Mississippi, Arkansas, and Arizona. Hot
dip galvanizing is a metallurgical process by which molten zinc is applied to a
customer's material. The zinc bonding provides corrosion protection of
fabricated steel for extended periods of up to 50 years. Galvanizing is a highly
competitive business and the Company competes with other independent galvanizing
companies, captive galvanizing facilities operated by manufacturers, and
alternate forms of corrosion protection such as paint. The Company is limited,
to some extent, in its galvanizing market to areas within a close proximity of
its existing locations due to freight cost. Zinc, the principal raw material
used in the galvanizing process, is readily available, but has volatile pricing.
The Company manages its exposure to commodity pricing of zinc by utilizing
contracts with zinc suppliers that include protective caps to guard against
rising commodity prices. This segment typically serves fabricators and/or
manufacturers involved in the highway construction, electrical utility,
transportation, water treatment, agriculture, petrochemical and chemical, pulp
and paper industries, and numerous OEM's. The market in general is broken into
two major categories, being large structural steel projects and custom
fabrication. This segment is not dependent on any single customer or limited
number of customers for as much as 10% of sales, and the loss of any customer
would not have a material adverse effect on consolidated revenues or net income
of the Company. The backlog of galvanizing orders generally is nominal due to
the short time requirement involved in the process. Total employment in this
segment is 416 persons.
General
The Company does not have a material portion of business that may be subject to
renegotiations of profits or termination of contracts or subcontracts at the
election of the government. There were no material amounts spent on research and
development activities during the proceeding three fiscal years.
Environmental
The Company is subject to various environmental protection reviews by state and
federal government agencies. The ultimate liability, if any, which might result
from such reviews or additional clean-up and remediation expenses cannot
presently be determined; however, as a result of an internal analysis and prior
clean-up efforts, management believes the results will not have a material
impact on the Company and that the recorded reserves for estimated losses are
adequate. The Company has reserved $590,000 and $186,000 as of February 28, 2002
and 2001, respectively, for estimated losses related to environmental
liabilities.
In order to maintain permits to operate certain of the Company's facilities,
future capital expenditures for equipment may be required to meet new or
existing environmental regulations.
The Company is involved from time to time in various suits and claims arising in
the normal course of business. In management's opinion, the ultimate resolution
of these matters will not have a material effect on the Company's financial
position or results of operations.
2
Executive Officers of the Registrant
Business Experience for Past
Name Age Five Years; Position or Office with Registrant Held Since
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L. C. Martin 76 Chairman of the Board 1987
Chief Executive Officer 1968-2001
President 1965-1998
David H. Dingus 54 President and Chief Executive Officer 2001
President and Chief Operating Officer 1998-2000
President and Chief Executive Officer of Reedrill Corp 1989-1998
Dana L. Perry 53 Vice President of Finance, Chief Financial Officer, Asst. Sec. 1992
Fred L. Wright, Jr. 61 Senior Vice President/Galvanizing Services Segment 1992
Clement H. Watson 55 Vice President Sales, Electrical Products 2000
Vice President Marketing and Sales Pulsafeeder, Inc. 1995-2000
John V. Petro 56 Vice President, Electrical Products 2001
General Manager of CGIT, Inc. 1995-2001
Each executive officer was elected by the Board of Directors to hold office
until the next Annual Meeting or until his successor is elected. There are no
family relationships between Executive Officers of the Registrant.
Item 2. Properties
The following table sets forth information about the Company's principal
facilities owned on February 28, 2002:
Buildings/
Location Land/Acres Sq. Footage Segment/Occupant
- -------- ---------- ----------- ----------------
Crowley, Texas 123.5 201,000 Electrical and Industrial Products
Houston, Texas 37.0 36,000 Electrical and Industrial Products
Jackson, Mississippi 6.7 58,700 Electrical and Industrial Products
Pittsburg, Kansas 15.3 86,000 Electrical and Industrial Products
Westborough, Massachusetts - (Leased) 36,400 Electrical and Industrial Products
Fulton, MO - (Leased) 85,000 Electrical and Industrial Products
Nashville, TN - (Leased) 60,000 Electrical and Industrial Products
Tulsa, OK - (Leased) 66,000 Electrical and Industrial Products
Greenville, SC - (Leased) 65,000 Electrical and Industrial Products
Crowley, Texas 28.5 79,200 Galvanizing Services
Houston, Texas 8.7 25,800 Galvanizing Services
Houston, Texas 5.4 67,400 Galvanizing Services
Waskom, Texas 10.6 30,400 Galvanizing Services
Beaumont, Texas 12.9 33,700 Galvanizing Services
Moss Point, Mississippi 13.5 16,000 Galvanizing Services
Jackson, Mississippi 5.6 22,800 Galvanizing Services
3
Item 2. Properties (continued)
Buildings/
Location Land/Acres Sq. Footage Segment/Occupant
- -------- ---------- ----------- ----------------
Citronelle, Alabama 10.8 34,000 Galvanizing Services
Goodyear, Arizona 11.75 36,800 Galvanizing Services
Prairie Grove, Arkansas 11.5 34,000 Galvanizing Services
Belle Chasse, Louisiana 9.5 34,000 Galvanizing Services
Port Allen, Louisiana 22.2 48,700 Galvanizing Services
Fort Worth, Texas - (Leased) 15,300 Corporate Office
Item 3. Legal Proceedings
Environmental Proceedings
The Company is subject to various environmental protection reviews by state and
federal government agencies. The ultimate liability, if any, which might result
from such reviews or additional clean-up and remediation expenses cannot
presently be determined; however, as a result of an internal analysis and prior
clean-up efforts, management believes the results will not have a material
impact on the Company and that the recorded reserves for estimated losses are
adequate. The Company has reserved $590,000 and $186,000 as of February 28, 2002
and 2001, respectively, for estimated cost related to environmental compliance.
In order to maintain permits to operate certain of the Company's facilities,
future capital expenditures for equipment may be required to meet new or
existing environmental regulations.
The Company is involved from time to time in various suits and claims arising in
the normal course of business. In management's opinion, the ultimate resolution
of these matters will not have a material effect on the Company's financial
position or results of operations.
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted during the fourth quarter of the fiscal year ended
February 28, 2002, to a vote of security holders through the solicitation of
proxies or otherwise.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
The common stock, $1.00 par value, of Registrant ("Common Stock") is traded on
the New York Stock Exchange and its symbol is AZZ. The Company was listed on the
New York Stock Exchange and started trading on March 20, 1997. Prior to that
date, the Company's stock traded on the NASDAQ National Market.
The following table sets forth the high and low sales prices of the Company's
Common Stock on the New York Stock Exchange on a quarterly basis and dividends
declared during the period indicated. During fiscal 2002 the Company paid cash
dividends totaling approximately $796,000 or $.16 per share.
4
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Quarter Ended Quarter Ended Quarter Ended Quarter Ended
May 31, August 31, November 30, February 28,
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Per Share 2001 2000 2001 2000 2001 2000 2002 2001
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High $22.50 $16.625 $25.75 $22.9375 $21.35 $19.375 $21.50 $18.6875
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Low $15.90 $ 10.25 $19.00 $ 14.625 $14.20 $15.000 $16.90 $ 16.625
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Dividends (a)
Declared $ 0.16 - - - - - -
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Effective January 7, 1999, the Board of Directors approved a stock rights plan,
which authorized and declared a dividend distribution of one right for each
share of common stock outstanding at the close of business on February 4, 1999.
The rights are exercisable at an initial exercise price of $60, subject to
certain adjustments as defined in the agreement, if a person or group acquires
15% or more of the Company's common stock or announces a tender offer that would
result in ownership of 15% or more of the common stock. Alternatively, the
rights may be redeemed at one cent per right at any time before a 15% position
has been acquired. The rights expire on January 7, 2009.
The approximate number of holders of record of common stock of Registrant at May
13, 2002 was 764.
(a) A cash dividend of $.16 per share was declared on March 27, 2001, and was
paid on April 27, 2001.
Item 6. Selected Financial Data
Fiscal Year
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2002(g) 2001 2000(a) 1999 1998(d)
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(In thousands, except per share amounts)
Summary of operations:
Net sales $152,917 $121,406 $92,544 $80,922 $75,479
Net income 7,804 8,172 6,593 (b) 4,874 (e) 7,220
Earnings per share:
Basic earnings per common share $ 1.53 $ 1.67 $ 1.39 (b)$ .87 (e)$ 1.21
Diluted earnings per common share 1.50 1.63 1.38 (b) .86 (e) 1.19
Total assets $147,044 $ 88,368 $84,804 $58,399 $57,902
Long-term debt 53,550 22,947 31,075 20,266 11,321
Total liabilities 92,293 44,988 51,783 31,514 23,582
Shareholders' equity 54,751 43,380 33,021 (c) 26,885 34,320
Working capital 26,761 18,732 15,128 15,033 16,731
Cash provided by operating activities $ 14,150 $ 12,372 $13,833 $8,774 $ 2,698
Capital expenditures 12,772 5,099 4,152 6,992 3,395
Depreciation & amortization 6,347 5,838 4,770 3,630 3,035
Cash dividend per common share (f) .16 (f) 0 $ .16 $ .12 $ .10
Weighted average shares outstanding 5,117 4,892 4,753 5,614 5,968
(a) Includes the acquisition of CGIT and Westside in September 1999 and
February 2000, respectively.
(b) Includes a pretax charge of $914,000 (or 10 cents per share) for the
liquidation and write-down of tubular goods inventories.
(c) Includes the repurchase of approximately 1.2 million shares of the
Company's common stock at a cost of $11.9 million.
(d) Includes the acquisition of three subsidiaries in March 1997, December
1997, and February 1998.
(e) Includes a one-time tax benefit of approximately $1,076,000 (or 18 cents
per share).
(f) A cash dividend of $.16 per share was declared on March 27, 2001, and was
paid on April 27, 2001.
(g) Includes the acquisitions of Central Electric Company and Carter & Crawley,
Inc. on November 1, 2001.
5
Item 7. Management's Discussion and Analysis of Financial Condition
And Results of Operations
AZZ incorporated (the "Company") operates two distinct segments, Electrical and
Industrial Products Segment and Galvanizing Services Segment. The Electrical and
Industrial Products Segment serves the power generation, transmission and
distribution market as well as the industrial market. The Galvanizing Services
Segment consists of eleven hot dip galvanizing facilities located throughout the
South and Southwest United States that provides a value added galvanizing
service to the steel fabrication industry.
Management believes that the following commentary appropriately discusses and
analyzes the comparative results of operations and the financial conditions of
the Company for the periods covered.
General
For the fiscal year-ended February 28, 2002, the Company recorded record
revenues of $152.9 million compared to the prior year's revenues of $121.4
million. Approximately 68% of the Company's revenues were generated from the
Electrical and Industrial Products Segment and approximately 32% were generated
from the Galvanizing Services Segment. Net income for fiscal 2002 was $7.8
million compared to $8.2 million in the prior fiscal year. Net income as a
percent of sales was 5.1% for fiscal 2002 as compared to 6.7% for fiscal 2001.
The reduction in net income as a percentage of sales was primarily due to lower
operating margins in the Company's Galvanizing Services Segment and the
industrial products within the Electrical and Industrial Products Segment. These
lower margins were a result of the overall downturn of the general economy.
Earnings per share decreased by 8% to $1.50 per share for fiscal 2002 compared
to $1.63 per share in the prior fiscal year, on a diluted basis.
Results of Operations
Year ended February 28, 2002 (2002) compared with year ended February 28, 2001
(2001)
Revenues
The Company's consolidated net revenues for fiscal 2002 increased by $31.5
million or 26%, as compared to fiscal 2001.
The Electrical and Industrial Products Segment produces highly engineered
specialty products supplied to the power generation, transmission and
distribution market as well as lighting and tubular products to the industrial
market. The segment recorded record revenues for fiscal 2002 of $103.3 million,
an increase of 50% over the prior year results of $68.9 million. These results
were aided by the acquisitions of Central Electric Company and Carter & Crawley
Inc. on November 1, 2001. These acquisitions reinforce the Company's strategy of
broadening our range of products that we are able to offer to our existing
customer base. Excluding the acquisitions, revenues for the Electrical and
Industrial Products Segment increased 17% to $80.8 million for fiscal 2002. The
Electrical and Industrial Products Segment ended fiscal 2002 with a backlog of
$85.3 million, an increase of 145% from the prior year's backlog of $34.8
million. The backlog excluding acquisitions increased 34% to $46.5 million for
fiscal 2002. The electrical products backlog increased $51.5 million to $81.5
million. Approximately 75% of the $51.5 million increase is associated with the
acquired companies, which ended fiscal 2002 with a backlog of $38.8 million. The
remaining 25% increase is due to the dynamic market in which the existing
electrical products served during fiscal 2002. The industrial products backlog
decreased 21% to $3.8 million due the slow down in the petroleum and industrial
markets as well as the economic downturn in the general economy.
Revenues for this segment's electrical products increased 72% to $80.1 million
for fiscal 2002 as compared to $46.5 million in fiscal 2001. Revenues from the
acquisitions of Central Electric Company and Carter & Crawley, Inc. for four
months of the Company's ownership was $22.4 million. Revenues for the electrical
products excluding the acquisitions was $57.7 million for fiscal 2002, as
compared to $46.5 million in fiscal 2001, an increase of 24%. Increased demand
6
for these products continued in fiscal 2002 as a result of the need for new
power plants and the upgrading of existing power plants in order to supply
economical and reliable electricity. The Company's prior year's expansions and
acquisitions have enabled it to capitalize on the growth in the power industry
market. Recent developments, which have impacted the capital markets funding for
new projects, have caused delays and cancellations of domestic power plant
construction planned for 2003 and beyond. Even though the current problems in
the power generation industry tempers our short term optimism, the Company
believes the long term need to expand power generation capacity is a basic one
that should resume once the capital markets are sorted out.
Revenues for industrial products of the Electrical and Industrial Products
Segment increased 4% to $23.2 million for fiscal 2002 as compared to $22.4
million for fiscal 2001. The growth was due to increased demand for petroleum
products during the first half of fiscal 2002. The Company was notified in the
fourth quarter of fiscal 2002 that it was being replaced as a supplier of a
product being offered to the automotive industry. This product generated
revenues of $950,000 for fiscal 2002 and $890,000 for fiscal 2001.
The Company's Galvanizing Services Segment, which is made up of eleven hot dip
galvanizing facilities, generated revenues of $49.6 million, a 6% decrease from
the prior year's revenues of $52.5 million. The downturn in the general economy
and the severe downturn of the telecommunication industry contributed to lower
revenues for this segment. This segment historically has closely followed the
direction of the overall industrial segment of the domestic economy.
Operating Income
The Company's consolidated operating income (see note 11 to Note to Consolidated
Financial Statements) increased 4% to $21.8 million in fiscal 2002 as compared
to $20.9 million in fiscal 2001. Increased revenues for the Electrical and
Industrial Segment produced the improvement in operating income for fiscal 2002.
Consolidated operating margins as a percent of sales declined in fiscal 2002 to
14.2% from the previous years operating margins of 17.2% as a result of
declining margins in the Galvanizing Services Segment.
In the Electrical and Industrial Products Segment, operating income for fiscal
2002 increased to $14.6 million, an increase of 29% as compared to $11.3 million
in fiscal 2001. These results were aided by acquisitions of Central Electric
Company and Carter & Crawley on November 1, 2001. Excluding the acquisitions,
operating income increased to $13.1 million for fiscal 2002, an increase of 16%,
as compared to $11.3 million in fiscal 2001. Operating margins for this segment
were 14.1% for fiscal 2002 as compared to 16.4% for fiscal 2002.
Operating income for this segment's electrical products increased 45% to $11.2
million for fiscal 2002 as compared to $7.7 million in fiscal 2001. The
acquisitions made on November 1, 2001 contributed operating income of $1.5
million for fiscal 2002. The additional $2 million of increased operating
income, excluding acquisitions, is a result of increased demand for the
segment's electrical systems. Margins for electrical products were 14% for
fiscal 2002 compared to 16.6% for fiscal 2001. The decline in operating margins
is a result of the lower margin products offered by the recent acquisitions as
compared with the Company's existing electrical products.
Operating income for this segment's industrial products decreased 5% to $3.4
million in fiscal 2002 as compared to $3.6 million in fiscal 2001. Operating
margins for industrial products were 14.4% for fiscal 2002 compared to 15.8% in
fiscal 2001. Pricing pressures on these products in order to maintain market
share contributed to lower margins. During the fourth quarter of fiscal 2002 the
Company was notified it was being replaced with an alternative vendor for it's
product offered to the automotive industry. Due to the effects of the loss of
this product and current economic conditions in the industrial market,
management has instituted cost reducing measures.
In the Galvanizing Services Segment, operating income decreased 26% to $7.2
million for fiscal 2002 as compared $9.7 million in fiscal 2001. Operating
margins were 15% for fiscal 2002 as compared to 18% in fiscal 2001. Operating
income and margins were impacted by higher natural gas and zinc costs for the
first half of fiscal 2002. In addition this segment experienced significant
reductions in sales volumes due to the downturn in the general economy. During
the fourth quarter of fiscal 2002, management instituted cost reductions to
offset a portion of the effect of lower sales volumes. As of the end of fiscal
2002 it appears the prices for zinc and natural gas have stabilized.
7
General Corporate Expense
General corporate expenses for fiscal 2002 were $6.4 million, an increase of 23%
from fiscal 2001. As a percent of sales, general corporate expenses were 4.2%
for fiscal 2002 as compared to 4.3% in fiscal 2001.
Interest expense for fiscal 2002 was $2.4 million, an increase of 3% as compared
to fiscal 2001. The additional debt required to purchase the acquisitions of
Central Electric Company and Carter & Crawley Inc. created the additional
interest expense. A portion of the increased interest costs associated with the
acquisitions was offset by lower variable interest rates.
Provision For Income Taxes
The provision for income taxes reflects an effective tax rate of 38% for fiscal
2002 and 37.7% for fiscal 2001. The increase in the effective tax rate is a
result of higher state taxes and increased non-deductible expenses.
Year ended February 28, 2001 (2001) compared with year ended February 29, 2000
(2000)
Revenues
The Company's consolidated net revenues for fiscal 2001 grew by $28.9 million or
31% over the prior year.
The Electrical and Industrial Products Segment recorded revenues for fiscal 2001
of $68.9 million, an increase of 34% over the prior year results of $51.5
million. These results were aided by the inclusion of a full year of results of
operations associated with the acquisition made on September 1, 1999, which
added to the segment's capacity to manufacture electrical products. The
Electrical and Industrial Products Segment ended fiscal 2001 with a backlog of
$34.8 million, up 12% from the prior year's backlog of $31.2 million. The
backlog increased for both electrical and industrial products. The electrical
products backlog increased $2.4 million to $30 million primarily from inclusion
of backlog in the amount of $4.5 million associated with the acquisition made in
fiscal 2000. The industrial products backlog increased by $1.2 million to $4.8
million due to increased demand from the petroleum industry for the segment's
industrial products.
Revenues for this segment's electrical products increased 40% to $46.5 million
for fiscal 2001 as compared to $33.2 million in fiscal 2000. Approximately 27%
or $3.6 million of the increase is due to inclusion of a full year's operations
of the segment's acquisition made in fiscal 2000. The remainder of the $9.7
million increase, or 73%, was due to increased demand for the segment's
electrical systems that are provided to the power generation industry. These
products continue to benefit from the deregulation of the power industry and
growing need for reliable supplies of electricity throughout the United States.
The Company's recent plant expansions over the past two years have enabled it to
capture more market share through increased capacity. Excluding the fiscal 2000
acquisition, revenues from the sales of electrical products improved by 34% over
the prior year.
Revenues for this segment's industrial products increased 22% to $22.4 million
for fiscal 2001 as compared to $18.3 million in fiscal 2000. The growth is due
to increased demand for the industrial products in the petroleum markets served.
Revenues for the segment's industrial products were also aided by a full year of
business for its two new products for the automotive industry and the retail
lighting markets. Revenues for these two products increased to $1.9 million for
the current year versus $545,000 in the prior year, a 244% increase.
The Company's Galvanizing Services Segment, which is made up of eleven hot dip
galvanizing facilities, generated record revenues of $52.5 million for fiscal
2001, a 28% increase over the prior year's revenues of $41.1 million. The
acquisition of the Company's eleventh galvanizing facility on January 31, 2000
added an additional $8.1 million in revenue for fiscal 2002. Revenues for the
Galvanizing Services Segment excluding the prior year acquisition were $44.4
million in the current fiscal year as compared to $40.4 million in the prior
fiscal year, a 10% increase. This improvement was associated with higher volumes
due to increased demand for galvanized products from pole and tower
manufacturers as well as other areas of the telecommunications industry.
8
Operating Income
The Company's consolidated operating income (see note 11 to Notes to
Consolidated Financial Statements) increased 27% to $20.9 million in fiscal 2001
as compared to $16.5 million in fiscal 2000. The Company's increased operating
income for fiscal 2001 is the result of increased revenues in both segments of
the Company's business. Consolidated operating margins were 17.2% for fiscal
2001 compared to 17.9% in fiscal 2000 as a result of declining operating margins
in the Galvanizing Services Segment.
In the Electrical and Industrial Products Segment, operating income for fiscal
2001 increased to $11.3 million, up 61% from $7 million in fiscal 2000.
Operating margin in this segment improved for fiscal 2002 to 16.3%, a 20%
increase from the prior year's operating margin of 13.6%.
Operating income for this segment's electrical products increased 45% to $7.7
million for fiscal 2001 as compared to $5.3 million in fiscal 2000. The
acquisition made on September 1, 1999 contributed operating income of $1 million
for fiscal 2001 as compared to $227,000 for fiscal 2000. Approximately $1.6
million of the increased operating income is due to the increased demand for the
segments electrical systems. Margins for electrical products were 16.6% for the
current fiscal year compared to 16% in the prior fiscal year. Improved margins
were a result of increased operating efficiencies associated with higher
volumes.
Operating income for this segment's industrial product sales increased 108% to
$3.6 million for fiscal 2001 as compared to $1.7 million for fiscal 2000. The
increase in operating income for these products is due to higher revenues and
improved margins. This group's operating income also benefited from the
increased demand for the two new products first offered in fiscal 2000. The new
products serve the retail lighting market and automotive industry, contributing
$28,000 and $290,000, respectively, to operating income. Operating margins
improved to 15.8% for fiscal 2001 as compared to 9.3% for fiscal 2000 a 70%
increase. The improved margins were a result of increased volumes allowing for
improved efficiencies due to an upturn in the petroleum market, one of the
markets served by these products.
In the Galvanizing Services Segment, operating income increased 2% to $9.7
million for fiscal 2001 from $9.5 million for the prior year. The acquisition of
the Company's eleventh galvanizing facility made on January 31, 2000 had a
positive impact on operating income for fiscal 2001 in the amount of $496,000 as
compared to a loss of $53,000 for the one month of operation in fiscal 2000. The
increase in operating income from the acquisition was offset by increased
operating costs in the other ten facilities. Operating margins for the existing
ten facilities prior to the acquisition decreased to 20.6% in the current fiscal
year as compared to 23.7% the prior fiscal year. The reduced margins were caused
by higher zinc and utility cost. Zinc costs for this segment increased 10% for
the fiscal 2001 year as compared to fiscal 2000. Net utility costs were up
approximately 42% for fiscal 2001 as compared with the prior year. The increase
in utility cost is a result of increased production as well as increased prices
for natural gas.
General Corporate Expenses
General corporate expenses for fiscal 2001 were $5.2 million, up 21% from fiscal
2000. As a percent of sales, general corporate expenses were 4.3% for fiscal
2001 compared to 4.6% in the prior year.
Interest expense for fiscal 2001 was $2.3 million, up 39% or $658,000 from
fiscal 2000. This increase was due to larger average outstanding loan balances
during fiscal 2001 associated with the acquisitions made during the second half
of fiscal 2000.
9
Provision for Income Taxes
The provision for income taxes reflects an effective tax rate of 37.7% for
fiscal 2001 and 37.5% for fiscal 2000. The increase in the effective tax rate is
from an increase in non-deductible goodwill associated with the acquisition of
the Company's eleventh galvanizing facility in fiscal 2000.
Liquidity and Capital Resources
The Company has historically met its liquidity and capital resource needs
through a combination of cash flows from operating activities and bank
borrowings. The Company's cash requirements are generally for operating
activities, acquisitions, capital improvements, and debt repayment. The Company
believes that working capital, borrowing capabilities, and funds generated from
operations should be sufficient to finance anticipated operational activities,
capital improvements, debt repayment and possible future acquisitions.
The Company's operating activities generated cash flows of approximately $14.2
million, $12.4 million, and $13.8 million during fiscal 2002, 2001,and 2000,
respectively. Cash flow from operations in fiscal 2002 included net income in
the amount of $7.8 million, depreciation and amortization in the amount of $6.3
million, and net changes in operating assets and liabilities and other increases
in cash flows from operations of $100,000.
Through the use of cash flows and bank debt, the Company made $12.8 million in
capital improvements, which included the construction of a new galvanizing
facility located in Crowley, Texas to replace an outdated facility at the same
location. The Company also purchased 100% of the outstanding stock of Central
Electric Company and the operating assets of Carter & Crawley Inc., net of cash
for a total purchase price of $38.8 million. The breakdown of capital spending
by segment can be found in Note 11 of Notes to Consolidated Financial
Statements. Cash dividends were paid early in fiscal 2002 in the amount of
$796,000, but no dividend was declared or paid early in fiscal 2003 and no
resumption of a cash dividend is currently anticipated.
On November 1, 2001, the Company entered into a new syndicated credit facility,
which replaced the previous term notes and revolving line of credit. This
agreement includes a $40 million term facility and a $45 million revolving
credit facility. The revolving credit is contingent on asset-based collateral of
inventories and accounts receivables. The $40 million term note is payable in
$10 million installments over the next four years. At the end of fiscal 2002,
the Company had $40 million outstanding under the term note and $23.5
outstanding on the revolving credit facility. At February 28, 2002, the Company
had approximately $7.9 million available under the revolving credit facility.
The Company utilizes interest rate swap agreements to protect against volatile
interest rates and manage interest rate expense. At February 28, 2002, the
Company has a $5.7 million interest rate swap agreement entered into in February
1999 at a fixed rate of 6.8%. The Company has an additional $7.4 million
interest rate swap agreement entered into in April 2000 for a fixed rate of
8.51%. On November 1, 2001, the Company entered into an interest rate swap
agreement covering an additional $40 million of debt at a fixed rate of 5.89%.
In conjunction with the Company's new financing agreement the Company
discontinued hedge accounting for the February 1999 and April 2000 interest rate
swaps effective November 1, 2001. At February 28, 2002 the fair value of these
two swaps was a liability of $291,000. The November 2001 interest rate swap,
which was designated as a hedge of the Company's variable rate interest, has an
unrealized loss of $60,000 as of February 28, 2002. The accumulated balance in
other comprehensive income is $241,000, net of tax of $145,000, as of February
28, 2002. This amount will be charged to interest expense over the respective
terms of the three swaps.
The Company's current ratio was 1.70 to 1 at the end of fiscal 2002, as compared
to 1.88 to 1 in fiscal 2001. Shareholder equity grew 26% during fiscal 2002 to
$54.8 million ($10.70 per share). Long-term debt as a percent of shareholders
equity was 98% for fiscal 2002 as compared to 53% in fiscal 2001. The increase
in long-term debt as a percent of shareholder's equity for fiscal 2002 is the
result of additional long-term debt to complete the purchase of the Company's
two acquisitions on November 1, 2001.
10
Inflation has not had a significant impact on the Company's operations in recent
years; however, the Company attempts to recover any cost increases through
improvements to its manufacturing process and through increases in price where
competitively feasible.
Critical Accounting Policies and Estimates
The preparation of the consolidated financial statements requires the Company to
make estimates that affect the reported value of assets, liabilities, revenues
and expenses. The Company's estimates are based on historical experience and
various other factors that are believed to be reasonable under the
circumstances, and form the basis for the Company's conclusions. The Company
continually evaluates the information used to make these estimates as the
business and the economic conditions change. The use of estimates is pervasive
throughout the Company's financial statements, but accounting policies and
estimates considered most critical are allowances for doubtful accounts,
accruals for contingent liabilities and revenue recognition. More information
regarding significant accounting policies can be found in Note 1 of Notes to
Consolidated Financial Statements
Allowance for Doubtful Accounts- The carrying value of the accounts receivables
is continually evaluated based on the likelihood of collection. An allowance is
maintained for estimated losses resulting from our customer's inability to make
required payments. The allowance is determined by historical experience of
uncollected accounts, the level of past due accounts, overall level of
outstanding accounts receivables, information about specific customers with
respect of their inability to make payments and future expectations of
conditions that might impact the collectibility of accounts receivables. If the
financial condition of the Company's customers were to deteriorate, resulting in
an impairment of their ability to make payments, additional allowances may be
required.
Accruals for Contingent Liabilities- The amounts the Company records for claims
such as insurance recoverables, warranty and other contingent liabilities
requires the Company to make judgments regarding the amount of expenses that
will ultimately be incurred. The Company uses past history and experience, as
well as other specific circumstances surrounding these claims in evaluating the
amount of liability that should be recorded. Actual results may be different
than the Company's estimates.
Revenue Recognition - Revenue is recognized for the Galvanizing Services segment
upon completion of the galvanizing services or shipment of product. Revenue is
recognized for the Electrical and Industrial Products segment upon shipment of
product or customer receipt of product, or based upon percentage of completion
method as contract services are performed. The extent of progress for revenue
recognized using the percentage of completion method is measured by the ratio of
contract costs incurred to date to estimated total contract costs at completion.
Contract costs include direct labor and material, and certain indirect costs.
Selling, general and administrative costs are charged to expense as incurred.
Provisions for estimated losses, if any, on uncompleted contracts are made in
the period in which such losses are estimable. The assumptions made in
determining the estimated cost could differ from actual performance resulting in
a different outcome for profits or losses than anticipated.
Impact of Recent Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board issued SFAS No. 141
"Business Combinations", and SFAS No. 142 "Goodwill and Other Intangible
Assets", (Statement 142) effective for fiscal years beginning after December 15,
2001. Under the new rules, goodwill and certain intangible assets deemed to have
indefinite lives will no longer be amortized but will be subject to annual
impairment tests in accordance with the Statements. Other intangible assets will
continue to be amortized over their useful lives.
The Company will apply the new rules on accounting for goodwill and other
intangible assets beginning in the first quarter of fiscal 2003, except, as
provided for under Statement 142, goodwill and indefinite-lived intangible
assets resulting from acquisitions completed after June 30, 2001 have not been
amortized. In 2002, the Company recognized $537,000 of tax-deductible goodwill
amortization expense and $702,000 of non-tax deductible goodwill amortization
expense. Application of the non-amortization provisions of Statement 142 is
expected to result in an increase in income before income taxes of approximately
$1,239,000 in 2003 based on goodwill amortization
11
occurring in 2002 that will not occur in 2003. As of March 1, 2002, the Company
performed the first of the required impairment tests of goodwill and indefinite
lived intangible assets and has determined that these tests will not have an
effect on the earnings and financial position of the Company.
In July 2001, the Financial Accounting Standards Board issued SFAS No. 143,
"Accounting for Asset Retirement Obligations," effective for fiscal years
beginning after June 15, 2002. This Statement addresses financial accounting and
reporting for legal obligations associated with the retirement of tangible
long-lived assets and the associated asset retirement costs. The Company is
currently evaluating the effect, if any, this Statement will have on its
financial statements and related disclosures.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets," effective for fiscal years beginning after
December 15, 2001. The new Statement supercedes current accounting guidance
relating to impairment of long-lived assets and provides a single accounting
methodology for long-lived assets to be disposed of, and also supercedes
existing guidance with respect to reporting the effects of the disposal of a
business. The Company is currently evaluating the effect, if any, this Statement
will have on its financial statements and related disclosures.
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 and natural gas 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;
customer requested delay of shipments, 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. The Company can give no
assurances that such forward-looking statements will prove to be correct.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Market risk relating to the Company's operations results primarily from changes
in interest rates and commodity prices. The Company has only limited involvement
with derivative financial instruments and is not a party to any leveraged
derivatives.
The Company manages its exposures to changes in interest rates by optimizing the
use of variable and fixed rate debt. The Company had approximately $23.6 million
of variable rate borrowings at February 28, 2002 after its hedges. In November
2001, the Company entered into a interest rate protection agreement with its
lender to modify the interest characteristics of $40 million of debt from
variable rate to a fixed rate. In conjunction with the Company's new financing
agreement the Company discontinued hedge accounting for the February 1999 and
April 2000 interest rate swaps effective November 1, 2001. At February 28, 2002
the fair value of these two swaps was a liability of $291,000. The November 2001
interest rate swap, which was designated as a hedge of the Company's variable
rate interest, has an unrealized loss of $60,000 as of February 28, 2002. The
accumulated balance in other comprehensive income is $241,000, net of tax of
$145,000, as of February 28, 2002. This amount will be charged
12
to interest expense over the respective terms of the three swaps. The Company
believes it has adequately protected itself from increased interest cost under
these financial arrangements.
The Company manages its exposures to commodity prices, primarily zinc used in
its Galvanizing Services Segment, by utilizing contracts with its zinc suppliers
that include protective caps to guard against rising commodity prices.
Management believes these contractual agreements ensure adequate supplies and
partial offset against exposure to commodity price swings.
The Company does not believe that a hypothetical change of 10% of the interest
rate currently in effect or a change of 10% of commodity prices would have a
significantly adverse effect on the Company's results of operations, financial
position, or cash flows.
Item 8. Financial Statements and Supplementary Data
The Report of Independent Public Accountants, Financial Statements and Notes to
Financial Statements follow.
Report of Ernst & Young LLP, Independent Auditors
Board of Directors and Shareholders
AZZ incorporated
We have audited the accompanying consolidated balance sheets of AZZ incorporated
as of February 28, 2002 and 2001, and the related consolidated statements of
income, shareholders' equity, and cash flows for each of the three years in the
period ended February 28, 2002. Our audits also included the financial statement
schedule listed in the Index at Item 14(a). These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of AZZ incorporated
at February 28, 2002 and 2001, and the consolidated results of its operations
and its cash flows for each of the three years in the period ended February 28,
2002, in conformity with accounting principles generally accepted in the United
States.
/s/ Ernst & Young LLP
Fort Worth, Texas
March 29, 2002
13
- --------------------------------------------------------------------------------
AZZ incorporated CONSOLIDATED STATEMENTS OF INCOME
- --------------------------------------------------------------------------------
Years ended February 28, 2002 and 2001, and February 29, 2000
2002 2001 2000
-------------- -------------- -------------
Net sales $ 152,917,307 $ 121,405,601 $ 92,544,434
Costs and expenses:
Cost of sales 119,001,867 90,674,069 68,030,479
Selling, general, and administrative 18,700,183 15,187,907 12,307,958
Net (gain) loss on sale of property, plant
and equipment (37,631) 11,015 (44,851)
Interest expense 2,409,871 2,331,515 1,674,434
Other expense, net 245,850 73,865 27,229
-------------- -------------- -------------
140,320,140 108,278,371 81,995,249
-------------- -------------- -------------
Income before income taxes 12,597,167 13,127,230 10,549,185
Income tax expense 4,793,053 4,955,161 3,955,945
-------------- -------------- -------------
Net income $ 7,804,114 $ 8,172,069 $ 6,593,240
============== ============== =============
Earnings per common share:
Basic $ 1.53 $ 1.67 $ 1.39
Diluted $ 1.50 $ 1.63 $ 1.38
See accompanying notes.
14
- --------------------------------------------------------------------------------
AZZ incorporated CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
February 28, 2002 and 2001
Assets 2002 2001
- ------ --------------- -------------
Current assets:
Cash and cash equivalents $ 1,737,876 $ 1,446,502
Accounts receivable, net of allowance for doubtful accounts of
$758,000 in 2002 and $649,000 in 2001 32,927,725 21,576,988
Inventories 23,336,228 13,379,371
Costs and estimated earnings in excess of billings on
uncompleted contracts 4,130,982 2,432,765
Deferred income taxes 1,706,294 789,247
Prepaid expenses and other 990,438 416,710
--------------- -------------
Total current assets 64,829,543 40,041,583
Property, plant, and equipment, at cost:
Land 2,078,693 2,027,431
Buildings and structures 23,085,750 21,495,459
Machinery and equipment 29,372,556 24,294,097
Furniture and fixtures 3,367,780 2,446,544
Automotive equipment 1,894,252 1,556,787
Construction in progress 6,792,077 819,950
--------------- -------------
66,591,108 52,640,268
Less accumulated depreciation (27,781,500) (23,889,839)
--------------- -------------
Net property, plant, and equipment 38,809,608 28,750,429
Goodwill, less accumulated amortization of $5,378,000 in 2002 and
$4,139,000 in 2001 41,262,104 19,120,158
Other assets 2,142,615 455,475
--------------- -------------
$ 147,043,870 $ 88,367,645
=============== =============
15
- --------------------------------------------------------------------------------
AZZ incorporated CONSOLIDATED BALANCE SHEETS (Continued)
- --------------------------------------------------------------------------------
February 28, 2002 and 2001
Liabilities and Shareholders' Equity 2002 2001
- ------------------------------------ -------------- -------------
Current liabilities:
Accounts payable $ 17,150,563 $ 9,221,135
Income tax payable 96,943 213,507
Accrued salaries and wages 2,744,684 2,515,380
Other accrued liabilities 8,013,630 4,954,209
Billings in excess of costs and estimated earnings on
uncompleted contracts 18,132 60,093
Long-term debt due within one year 10,045,000 4,345,284
-------------- -------------
Total current liabilities 38,068,952 21,309,608
Long-term debt due after one year 53,550,000 22,947,087
Deferred income taxes 673,663 730,941
Shareholders' equity:
Common stock, $1 par value; 25,000,000 shares authorized;
6,304,580 shares issued at February 28, 2002 and 2001 6,304,580 6,304,580
Capital in excess of par value 13,689,392 11,777,305
Retained earnings 44,740,066 37,731,715
Cumulative other comprehensive income (241,123) -
Less common stock held in treasury, at cost (1,047,199 shares
in 2002 and 1,336,343 shares in 2001) (9,741,660) (12,433,591)
-------------- -------------
Total shareholders' equity 54,751,255 43,380,009
-------------- -------------
$ 147,043,870 $ 88,367,645
============== =============
See accompanying notes.
16
- --------------------------------------------------------------------------------
AZZ incorporated CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
Years ended February 28, 2002 and 2001, and February 29, 2000
2002 2001 2000
-----------------------------------------------
Cash flows from operating activities:
Net income $ 7,804,114 $ 8,172,069 $ 6,593,240
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation 5,012,977 4,520,179 3,711,319
Amortization 1,333,810 1,317,675 1,059,046
Non-cash compensation expense 226,947 300,110 -
Provision for doubtful accounts 253,971 280,721 1,059,046
Deferred income tax benefit (265,807) (301,133) (380,599)
Net (gain) loss on sale of property, plant and equipment (37,631) 11,015 (44,851)
Effects of changes in operating assets and
liabilities, net of acquisition of subsidiaries:
Accounts receivable 1,774,030 (1,914,984) (4,171,042)
Inventories (477,986) (826,053) 285,279
Prepaid expenses and other (492,263) (34,663) 15,520
Other assets (339,238) 111,337 (121,852)
Net change in billings related to costs and
estimated earnings on uncompleted contracts (1,276,369) (2,290,872) 1,811,061
Accounts payable 2,478,535 1,918,436 2,565,852
Accrued salaries and wages (498,392) 635,619 689,537
Other accrued liabilities and income taxes (1,346,682) 472,824 1,522,436
-----------------------------------------------
Net cash provided by operating activities 14,150,016 12,372,280 13,833,433
Cash flows from investing activities:
Proceeds from the sale of property, plant and equipment 72,995 86,870 252,429
Purchases of property, plant and equipment (12,772,087) (5,098,534) (4,152,446)
Acquisition of subsidiaries, net of cash acquired (38,765,992) - (21,133,219)
Proceeds from the sale of long-term investments - 200,000 -
-----------------------------------------------
Net cash used in investing activities (51,465,084) (4,811,664) (25,033,236)
17
- --------------------------------------------------------------------------------
AZZ incorporated CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
- --------------------------------------------------------------------------------
Years ended February 28, 2002 and 2001, and February 29, 2000
2002 2001 2000
----------------------------------------------------
Cash flows from financing activities:
Proceeds from revolving loan $ 28,000,000 $ 6,750,000 12,147,000
Proceeds from long-term debt 40,000,000 - 17,500,000
Payments on revolving loan (10,250,000) (10,500,000) (10,397,000
Payments on long-term debt (21,447,371) (4,400,632) (7,267,969)
Cash dividends paid (795,763) (770,568) (566,872)
Proceeds from exercise of stock options 2,099,576 1,534,055 312,600
Purchase of treasury stock - (55,108) -
--------------------------------------------------
Net cash provided by (used in) financing activities 37,606,442 (7,442,253) 11,727,759
--------------------------------------------------
Net increase in cash and cash equivalents 291,374 118,363 527,956
Cash and cash equivalents at beginning of year 1,446,502 1,328,139 800,183
--------------------------------------------------
Cash and cash equivalents at end of year $ 1,737,876 $ 1,446,502 $ 1,328,139
==================================================
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 1,998,462 $ 2,528,254 $ 1,567,453
Income taxes $ 4,697,928 $ 4,797,461 $ 4,041,852
18
- --------------------------------------------------------------------------------
AZZ incorporated CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
- --------------------------------------------------------------------------------
Years ended February 28, 2002 and 2001, and February 29, 2000
Capital in Cumulative Other
Common Stock excess of Retained Comprehensive Treasury
------------------------
Shares Amount par value earnings Income Stock Total
------------------------ ------------- ------------ -------------- ------------- ------------
Balance at February 28, 1999 6,304,580 $ 6,304,580 $ 11,422,536 $ 23,736,974 - $(14,578,640) $ 26,885,450
Exercise of stock options - - (308,971) - - 621,571 312,600
Cash dividends declared - - - (770,568) - - (770,568)
Net income - - - 6,593,240 - - 6,593,240
--------- ----------- ------------ ------------ ---------- ------------ ------------
Balance at February 29, 2000 6,304,580 6,304,580 11,113,565 29,559,646 - (13,957,069) 33,020,722
Exercise of stock options - - 48,409 - - 1,485,646 1,534,055
Purchase of treasury stock
(3,166 shares) - - - - - (55,108) (55,108)
Stock compensation - - 207,170 - - 92,940 300,110
Federal income tax deducted
on stock options - - 408,161 - - - 408,161
Net income - - - 8,172,069 - - 8,172,069
--------- ----------- ------------ ------------ ---------- ------------ ------------
Balance at February 28, 2001 6,304,580 6,304,580 11,777,305 37,731,715 - (12,433,591) 43,380,009
Exercise of stock options - - 364,685 - - 1,734,891 2,099,576
Stock issued for acquisition - - 894,165 - - 905,835 1,800,000
Cash dividend declared - - - (795,763) - - (795,763)
Stock compensation - - 175,742 - - 51,205 226,947
Federal income tax deducted
on stock options - - 477,495 - - - 477,495
Comprehensive income:
Net income - - - 7,804,114 - - 7,804,114
Other comprehensive income,
net of tax:
Cumulative effect of
SFAS No. 133 - - - - (185,000) - (185,000)
Unrealized loss on market
value of interest rate
swaps - - - - (56,123) - (56,123)
------------
Comprehensive income 7,562,991
--------- ----------- ------------ ------------ ---------- ------------ ------------
Balance at February 28, 2002 6,304,580 $ 6,304,580 $ 13,689,392 $ 44,740,066 $ (241,123) $ (9,741,660) $ 54,751,255
========= =========== ============ ============ ========== ============ ============
See accompanying notes.
19
- --------------------------------------------------------------------------------
AZZ incorporated NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. Summary of significant accounting policies
Organization--AZZ incorporated (the Company) operates primarily in the
------------
United States. Information about the Company's operations by segment is
included in Note 11 to the consolidated financial statements.
Basis of consolidation--The consolidated financial statements include the
----------------------
accounts of AZZ incorporated and its wholly owned subsidiaries. All
significant inter-company accounts and transactions have been eliminated
in consolidation.
Use of estimates--The preparation of the financial statements in
----------------
conformity with accounting principles generally accepted in the United
States requires management to make estimates and assumptions that affect
the amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Concentrations of credit risk--Financial instruments that potentially
-----------------------------
subject the Company to significant concentrations of credit risk consist
principally of cash and cash equivalents, trade accounts receivable and
interest rate swaps. See further discussion on the credit risk associated
with the interest rate swaps under "Derivative Financial Instruments."
The Company maintains cash and cash equivalents with various financial
institutions. These financial institutions are located throughout the
United States and Company policy is designed to limit exposure to any one
institution. The Company performs periodic evaluations of the relative
credit standing of those financial institutions that are considered in
the Company's banking relationships. The Company has not experienced any
losses in such accounts and believes it is not exposed to any significant
credit risk related to cash and cash equivalents.
Concentrations of credit risk with respect to trade accounts receivable
are limited due to the Company's diversity by virtue of two operating
segments, the number of customers, and the absence of a concentration of
trade accounts receivable in a small number of customers. The Company's
net credit losses in 2002, 2001 and 2000 were approximately $204,000,
$219,000 and $168,000, respectively. Collateral is usually not required
from customers as a condition of sale.
Revenue recognition--The Company recognizes revenue for the Galvanizing
-------------------
Services segment upon completion of galvanizing services or shipment of
product. Revenue for the Electrical and Industrial Products segment is
recognized upon shipment of product or customer receipt of product, or
based upon the percentage-of-completion method of accounting as contract
services are performed. The extent of progress for revenue recognized
using the percentage-of-completion method is measured by the ratio of
contract costs incurred to date to estimated total contract costs at
completion. Costs and estimated earnings in excess of related billings on
uncompleted contracts are recorded as current assets and billings in
excess of costs and estimated earnings on uncompleted contracts are
recorded as current liabilities. Contract costs include all direct
material and labor, and certain indirect costs. Selling, general and
administrative costs are charged to expense as incurred. Provisions for
estimated losses, if any, on uncompleted contracts are made in the period
in which such losses are estimable.
Cash and cash equivalents--For purposes of reporting cash flows, cash and
-------------------------
cash equivalents include cash on hand, deposits with banks and all highly
liquid investments with an original maturity of three months or less.
Inventories--Inventories are stated at the lower of cost or market. Cost
-----------
is determined principally using a weighted-average method for the
Electrical and Industrial Products segment and the first-in-first-out
(FIFO) method for the Galvanizing Services segment.
20
- --------------------------------------------------------------------------------
AZZ incorporated NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------
1. Summary of significant accounting policies (continued)
Property, plant and equipment -- For financial reporting purposes,
-----------------------------
depreciation is computed by the straight-line method over the estimated
useful lives of the related assets as follows:
Buildings and structures 10-25 years
Machinery and equipment 3-15 years
Furniture and fixtures 3-15 years
Automotive equipment 3 years
Maintenance and repairs are charged to expense as incurred; renewals and
betterments are capitalized.
Intangible assets and goodwill -- Intangible assets include purchased
------------------------------
intangibles primarily comprised of customer lists, backlogs and
non-compete agreements. Such intangible assets and goodwill, which
resulted from acquisitions completed on or before June 30, 2001, are
being amortized using the straight-line method over the estimated useful
lives of the assets ranging from two to forty years. Goodwill and
intangible assets with indefinite lives related to acquisitions
subsequent to June 30, 2001 will no longer be amortized in accordance
with SFAS No. 142 "Goodwill and Other Intangible Assets" (see New
Accounting Pronouncements below).
Impairment of long-lived assets -- The Company reviews long-lived assets
-------------------------------
and certain identifiable intangibles for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset is
impaired. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to its estimated fair
value, based on future net cash flows expected to be generated by the
asset. If such assets are considered to be impaired, the impairment
recognized is measured by the amount by which the carrying amount of the
assets exceeds the fair value of the assets. Management assesses whether
there has been an impairment of goodwill by considering factors such as
expected future operating income, current operating results and other
economic factors (see New Accounting Pronouncements below).
Debt Origination Costs - Debt origination costs are amortized using the
----------------------
effective interest rate method. Debt origination costs, net of
accumulated amortization, were $886,000 and $0 at February 28, 2002 and
2001, respectively.
Income taxes -- Income tax expense is based on the liability method.
------------
Under this method of accounting, deferred tax assets and liabilities are
recognized based on differences between financial accounting and income
tax bases of assets and liabilities using presently enacted tax rates and
laws.
Stock-based compensation -- The Company grants stock options for a fixed
------------------------
number of shares to employees and directors with an exercise price equal
to the fair value of the shares at the date of grant. The Company follows
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued
to Employees (APB 25), and related interpretations in accounting for
employee stock options. Under APB 25, because the exercise price of the
Company's employee and director stock options equal the market price of
the underlying stock on the date of grant, no compensation expense is
recognized.
Financial instruments -- The Company's financial instruments consist of
---------------------
cash and cash equivalents, accounts receivables, long-term debt and
interest rate swaps. The fair value of financial instruments is
determined by reference to various market data and other valuation
techniques as appropriate. Unless otherwise disclosed, the fair value of
financial instruments approximates their recorded values.
21
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AZZ incorporated NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------
1. Summary of significant accounting policies (continued)
The Company utilizes interest rate swaps to manage variable interest rate
risk associated with portions of its long-term debt. The fair value of
interest rate swap agreements is based on quotes obtained from financial
institutions. Information about the Company's swap agreements is included
in Note 9 to the consolidated financial statements.
Derivative financial instruments--From time to time, the Company uses
--------------------------------
derivatives to manage interest rate risk. The Company's policy is to use
derivatives for risk management purposes only, which includes maintaining
the ratio between the Company's fixed and floating rate debt obligations
that management deems appropriate, and prohibits entering into such
contracts for trading purposes. The Company enters into derivatives only
with counterparties (primarily financial institutions) which have
substantial financial wherewithal to minimize credit risk. The amount of
gains or losses from the use of derivative financial instruments has not
been and is not expected to be material to the Company's consolidated
financial statements.
Change in Accounting Principle
------------------------------
As of March 1, 2001, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which was amended by SFAS No. 138,
"Accounting for Certain Derivative Instruments and Certain Hedging
Activities," (collectively Statement 133). As amended, Statement 133
establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. The Statement requires that an
entity recognize all derivatives as either assets or liabilities on the
balance sheet and measure those instruments at fair value. Changes in the
fair value of derivative financial instruments are either recognized
periodically in income or in stockholders' equity as a component of
comprehensive income depending on whether the derivative financial
instrument qualifies for hedge accounting, and if so, whether it
qualifies as a fair value hedge or a cash flow hedge. The ineffective
portion of a derivative's change in fair value will be immediately
recognized in earnings. At March 1, 2001, the Company's derivatives
consisted of two interests rate swap agreements, which qualified for
hedge accounting.
The Company accounted for the adoption of Statement 133 as a cumulative
effect of a change in accounting principle. The adoption of Statement 133
resulted in a cumulative effect adjustment net of tax of $185,000, which
was recognized as a charge to cumulative other comprehensive income
(equity). The offsetting fair value of the interest rate swaps was
recognized in accrued liabilities. Through October 31, 2001, an
additional $164,000 was accrued in association with these swaps. In
conjunction with the Company's new financing (see Note 9), the Company
discontinued hedge accounting for these two swaps effective November 1,
2001. At February 28, 2002 the fair market value of these two swaps was a
liability of $291,000. The Company entered into a new interest rate swap
in November 2001, which was designated as a hedge of the Company's
variable rate interest exposure and has an unrealized fair value loss of
$60,000 as of February 28, 2002. The accumulated balance in other
comprehensive income is $241,000, net of tax of $145,000, as of February
28, 2002. This amount will be charged to interest expense over the
respective terms of the three swaps.
New accounting pronouncements
-----------------------------
In June 2001, the Financial Accounting Standards Board issued SFAS No.
141 "Business Combinations", and SFAS No. 142 "Goodwill and Other
Intangible Assets", (Statement 142) effective for fiscal years beginning
after December 15, 2001. Under the new rules, goodwill and intangible
assets deemed to have indefinite lives will no longer be amortized but
will be subject to annual impairment tests in accordance with the
Statements. Other intangible assets will continue to be amortized over
their useful lives.
22
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AZZ incorporated NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------
1. Summary of significant accounting policies (continued)
The Company will apply the new rules on accounting for goodwill and other
intangible assets beginning in the first quarter of fiscal 2003, except,
as provided for under Statement 142, goodwill and indefinite-lived
intangible assets resulting from acquisitions completed after June 30,
2001 will not be amortized (See Note 13). In fiscal 2002, the Company
recognized $537,000 of tax-deductible goodwill amortization expense and
$702,000 of non-tax deductible goodwill amortization expense. Application
of the non-amortization provisions of Statement 142 is expected to result
in an increase in income before income taxes of approximately $1,239,000
in 2003 based on goodwill amortization occurring in 2002 that will not
occur in 2003. As of March 1, 2002, the Company performed the first of
the required impairment tests of goodwill and indefinite lived intangible
assets and has determined that these tests will not have an effect on the
earnings and financial position of the Company.
In July 2001, the Financial Accounting Standards Board issued SFAS No.
143, "Accounting for Asset Retirement Obligations," effective for fiscal
years beginning after June 15, 2002. This Statement addresses financial
accounting and reporting for legal obligations associated with the
retirement of tangible long-lived assets and the associated asset
retirement costs. The Company is currently evaluating the effect, if any,
this Statement will have on its financial statements and related
disclosures.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets," effective for fiscal years
beginning after December 15, 2001. The new Statement supercedes current
accounting guidance relating to impairment of long-lived assets and
provides a single accounting methodology for long-lived assets to be
disposed of, and also supercedes existing guidance with respect to
reporting the effects of the disposal of a business. The Company is
currently evaluating the effect, if any, this Statement will have on its
financial statements and related disclosures.
2. Inventories
Inventories consist of the following:
2002 2001
-------------- ------------
(In thousands)
Raw materials $ 11,640 $ 9,307
Work-in-process 9,783 2,562
Finished goods 1,913 1,510
------------ ------------
$ 23,336 $13,379
============ ============
3. Costs and Estimated Earnings on Uncompleted Contracts
Costs and estimated earnings on uncompleted contracts at February 28,
2002 and February 28, 2001 consist of the following:
2002 2001
--------------------------
(In thousands)
Costs incurred on uncompleted contracts $ 19,408 $ 13,568
Estimated earnings 7,052 7,214
--------------------------
26,460 20,782
Less billings to date 22,347 18,409
--------------------------
$ 4,113 $ 2,373
==========================
23
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AZZ incorporated NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------
3. Costs and Estimated Earnings on Uncompleted Contracts (continued)
The amounts noted above are included in the accompanying balance sheet
under the following captions:
2002 2001
--------------------------
(In thousands)
Cost and estimated earnings in excess of billings
on uncompleted contracts $ 4,131 $ 2,433
Billings in excess of costs and estimated earnings
on uncompleted contracts (18) (60)
--------------------------
$ 4,113 $ 2,373
==========================
4. Other accrued liabilities
Other accrued liabilities consist of the following:
2002 2001
---------- ----------
(In thousands)
Accrued warranty $ 1,453 $ 1,253
Accrued profit sharing 825 953
Other 5,736 2,748
---------- -----------
$ 8,014 $ 4,954
========== ===========
5. Employee benefit plans
The Company has a trusteed profit sharing plan covering substantially all
of its employees. Under the provisions of the plan, the Company
contributes amounts as authorized by the Board of Directors.
Contributions to the profit sharing plan were $1,263,000 for 2002,
$1,328,000 for 2001 and $1,050,000 for 2000. During the fiscal year ended
2001, a 401(k) provision was added to the profit sharing plan with a
company-matching feature. Amounts related to the Company's matching
feature were $438,000 in 2002 and $375,000 in 2001.
6. Income taxes
Deferred federal and state income taxes reflect the net tax effects of
temporary differences between the carrying amounts of assets and
liabilities for financial accounting purposes and the amounts used for
income tax purposes. Significant components of the Company's net deferred
income tax asset are as follows:
2002 2001
---------- ----------
(In thousands)
Deferred income tax liabilities:
Depreciation methods and property basis differences $ (739) $ (903)
Other assets (312) (98)
---------- ----------
Total deferred income tax liabilities (1,051) (1,001)
Deferred income tax assets:
Employee related items 473 280
Inventories 324 211
Accrued warranty 246 152
Accounts Receivable 380 216
Interest rate swaps 145 -
Other 516 200
---------- ---------
Total deferred income tax assets 2,084 1,059
---------- ---------
Net deferred income tax asset $ 1,033 $ 58
========== =========
24
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AZZ incorporated NOTES TO CONSOLIDATED FINANCIAL STATEMENT (Continued)
- --------------------------------------------------------------------------------
6. Income taxes (continued)
The provision for income taxes consists of:
2002 2001 2000
--------- ----------- ----------
(In thousands)
Federal:
Current $4,497 $4,634 $3,835
Deferred (237) (271) (345)
State:
Current 562 622 502
Deferred (29) (30) (36)
---------- ---------- ----------
$4,793 $4,955 $3,956
========== ========== ==========
A reconciliation from the federal statutory income tax rate to the
effective income tax rate is as follows:
2002 2001 2000
--------- --------- ---------
Statutory federal income tax rate 34.0% 34.0% 34.0 %
Expenses not deductible for tax purposes 1.8 1.6 0.7
State income taxes, net of federal income tax benefit 2.9 2.7 3.1
Other (0.7) (0.6) (0.3)
-------- ------- --------
Effective income tax rate 38.0% 37.7% 37.5%
======== ======= ========
7. Earnings per share
Basic earnings per share is based on the weighted average number of
shares outstanding during each year. Diluted earnings per share were
similarly computed but have been adjusted for the dilutive effect of the
weighted average number of stock options outstanding.
The following table sets forth the computation of basic and diluted
earnings per share:
2002 2001 2000
----------- ---------- ---------
(In thousands, except share and per share amounts)
Numerator:
Net income for basic and diluted
earnings per common share $ 7,804 $ 8,172 $ 6,593
=============== ================ ===============
Denominator:
Denominator for basic earnings per
common share - weighted-average shares 5,116,586 4,753,243
4,891,993
Effect of dilutive securities:
Stock options 70,114 118,187 21,711
--------------- ---------------- ---------------
Denominator for diluted earnings per
common share - adjusted weighted-
average shares 5,186,700 5,010,180 4,774,954
=============== ================ ===============
Basic earnings per common share $ 1.53 $ 1.67 $ 1.39
Diluted earnings per common share $ 1.50 $ 1.63 $ 1.38
25
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AZZ incorporated NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------
7. Earnings per share (continued)
Stock options for which the exercise price was greater than the average
market price of common shares were not included in the computation of
diluted earnings per share as the effect would be anti-dilutive. At the
end of fiscal years 2002, 2001 and 2000, there were 129,514, none and
229,487 stock options, respectively, outstanding with exercise prices
greater than the average market price of common shares.
Cash dividends paid per share were $0.16, $0.16 and $0.12 in 2002, 2001
and 2000, respectively.
8. Stock options and other shareholder matters
During fiscal 2002, the Company adopted the AZZ incorporated 2001
Long-Term Incentive Plan ("2001 plan"). The purpose of the plan is to
promote the growth and prosperity of the Company by permitting the
Company to grant to its employees, directors and advisors restricted
stock and options to purchase common stock of the Company. The maximum
number of shares that may be issued under this plan is 750,000 shares. In
conjunction with the adoption of the 2001 plan, all options still
available for issuance under pre-existing option plans were terminated.
At February 28, 2002, options outstanding under this plan amounted to
103,264 of which 17,753 are vested and exercisable at prices ranging from
$19.80 to $24.25 per share. Options under this plan vest from immediately
upon issuance to ratably over a period of three to five years and expire
at various dates through November 2011.
In addition to the 2001 Plan, the Company has options that were issued
but not exercised under the 1998 Incentive Stock Option Plan, (the "1998
Plan"). The maximum number of shares that may be issued under the plan
was 750,000 shares, prior to the adoption of the 2001 Plan. The 1998 Plan
was amended to withdraw 508,100 options and the common stock underlying
those options on February 28, 2002. At February 28, 2002, options
outstanding under this plan amounted to 128,436 of which 124,436 options
are vested and exercisable at prices ranging from $8.88 to $17.84 per
share. Options under this plan vest from immediately upon issuance to
ratably over a period of five years and expire at various dates through
March 2006.
In addition to the 2001 Plan, the Company has options that were issued
but not exercised under the 1991 Non-Statutory Stock Option Plan, (the
"1991 Plan") and the 1997 Non-Statutory Stock Option Grants, (the"1997
Grants"). The maximum number of shares that may be issued under these
plans were 157,500 shares for the 1991 Plan and 70,000 shares for the
1997 Grants, prior to the adoption of the 2001 Plan. The 1991 Plan
expired prior to the adoption of the 2001 Plan. At February 28, 2002,
options granted and outstanding under these plans amounted to 53,500 of
which 51,400 options are vested and exercisable at prices ranging from
$11.125 to $16.88 per share. Options under these plans vest ratably over
a five-year period and expire at various dates through July 2008.
In February 2000, the Company entered into an agreement with a company to
issue 70,000 stock options in exchange for services received and to be
received. These options vested over a period of eighteen months
contingent upon the achievement of certain performance measures. As of
February 28, 2001, 38,500 options had vested under this plan and the
remaining 31,500 unvested options were to vest in three separate groups
over six months following February 28, 2001 contingent upon the Company
meeting certain performance goals. During fiscal 2002 an additional
19,250 shares vested under this plan with 7,000 of the vested shares
being exercised in fiscal 2002. In August 2001, the Company amended the
February 2000 plan to allow for the remaining 12,250 unvested options to
vest over an additional eighteen-month period contingent upon the
achievement of certain performance measures. As of February 28, 2002,
none of the 12,250 unvested options have vested. During fiscal 2002 and
2001, the Company recorded expense of $94,000 and $159,000, respectively,
related to these options. These options expire in February 2005.
26
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AZZ incorporated NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------
8. Stock options and other shareholder matters (continued)
During fiscal 2001 and 2002, the Company granted its directors and
advisory directors an aggregate of 10,000 shares of the Company's common
stock for each of the years. Stock compensation expense was recognized in
the amount of $133,000 for fiscal 2002 and $141,000 for fiscal 2001.
A summary of the Company's stock option activity and related information
is as follows:
2002 2001 2000
------------------------- ------------------------ -----------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
-------- ----------- -------- ------------ ---------- ----------
Outstanding at
beginning of year 324,161 $ 10.49 491,985 $ 10.14 369,453 $ 9.18
Granted 212,558 20.65 2,194 17.14 207,561 10.12
Exercised (186,347) 11.27 (159,847) 9.60 (66,798) 4.68
Forfeited (2,172) 10.65 (10,171) 10.59 (18,231) 10.51
-------- ----------- --------- ------------ ---------- ----------
Outstanding at end
of year 348,200 $ 17.67 324,161 $ 10.49 491,985 $10.14
======== =========== ========= ============ ========== ==========
Exercisable at end
of year 244,339 $ 15.77 268,461 $ 10.44 370,720 $10.01
======== =========== ========== ============ ========== ==========
Weighted average
fair value during
the years indicated
of options granted
during such year
indicated $ 7.19 $ 5.81 $ 3.35
=========== ========== =========
The following table summarizes additional information about stock options
outstanding at February 28, 2002.
Weighted Weighted Weighted
Average Average Shares Average
Range of Total Remaining Exercise Currently Exercise
Exercise Prices Shares Life Price Exercisable Price
------------------ ---------- ------------- ----------- -------------- -------------
$8.88-$11.13 90,121 4.3 $10.69 86,121 $10.77
$16.88-$19.80 169,315 4.2 $17.93 140,465 $17.77
$24.25 88,764 9.3 $24.25 17,753 $24.25
Statement of Financial Accounting Standards (SFAS) No. 123, Accounting
for Stock Based Compensation, requires the disclosure of pro forma net
income and income per share of common stock computed as if the Company
had accounted for its stock options under the fair value method set forth
in SFAS 123. The fair value of stock options granted was estimated at the
date of grant using the Black-Scholes option pricing model with the
following weighted average assumptions: a risk-free interest rate ranging
from 5% to 6.5%, a dividend yield ranging from 1% to 1.25% and a
volatility factor ranging from 0.367 to 0.498. In addition, the fair
value of these options was estimated based on an expected life ranging
from 1 1/2 years to 6 years.
27
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AZZ incorporated NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------
8. Stock options and other shareholder matters (continued)
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options, which have no vesting
restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions, including the
expected stock price volatility. Because the Company's stock options have
characteristics significantly different from those described above, and
because changes in the subjective input assumptions can materially affect
the fair value estimate, in management's opinion the existing models do
not necessarily provide a reliable single measure of fair value for the
Company's stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense on a straight-line basis over the
option's vesting period as adjusted for estimated forfeitures. The
Company's pro forma information for fiscal 2002, 2001, and 2000 using the
fair value method is as follows:
2002 2001 2000
------ ------ ------
In thousands except per share amounts)
Pro forma net income $7,054 $7,999 $6,146
Pro forma earnings per common share:
Basic $ 1.38 $ 1.64 $ 1.30
Diluted $ 1.36 $ 1.60 $ 1.29
As of February 28, 2001, the Company has approximately 1,001,936 and
17,693,484 shares, respectively reserved for future issuance under the
stock option plans and shareholder rights plan.
Effective January 7, 1999, the Board of Directors approved a stock rights
plan, which authorized and declared a dividend distribution of one right
for each share of common stock outstanding at the close of business on
February 4, 1999. The rights are exercisable at an initial exercise price
of $60, subject to certain adjustments as defined in the agreement, if a
person or group acquires 15% or more of the Company's common stock or
announces a tender offer that would result in ownership of 15% or more of
the common stock. Alternatively, the rights may be redeemed at one cent
per right at any time until ten business days following the first public
announcement of the acquisition of beneficial ownership of 15% of the
Company's common stock. The rights expire on January 7, 2009.
9. Long-term debt
Long-term debt consists of the following at February 28, 2002 and 2001: 2002 2001
-------- ---------
(In thousands)
Term Note A payable to bank, due February 2006 $ - $ 14,384
Term Note B payable to bank, due February 2006 - 7,023
Revolving line of credit with bank, due July 2002 - 5,750
Term Note payable to bank, due in quarterly installments ranging from
$1,000,000 to $3,000,000 through November 2005 40,000 -
Revolving line of credit with bank, due November 2004 23,500 -
Industrial Revenue Bonds, due in December 2003, payable in monthly
installments (interest at 6.45% at February 28, 2002) 95 135
-------- ----------
63,595 27,292
Less amount due within one year 10,045 4,345
-------- ----------
$ 53,550 $ 22,947
======== ==========
28
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AZZ incorporated NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------
9. Long-term debt (continued)
On November 1, 2001, the Company entered into a new syndicated credit
facility, which replaced the previous term notes and revolving line of
credit. This agreement includes a $40 million term facility and a $45
million revolving credit facility.
Interest on borrowings under the term note and revolving line of credit
bear interest at a rate per annum equal to the lesser of the base rate
plus applicable margin for the base rate borrowings for the applicable
facility, or the adjusted eurodollar rate plus the applicable margin for
eurodollar rate borrowings for the applicable facility. The applicable
margin range is based on the leverage ratio, which was 2.25% at February
28, 2002 and correlated to an interest rate of 5.89% on the term note
and 4.44% on the revolving line of credit at February 28, 2002.
Additionally, the Company is obligated to pay a commitment fee based on
the leverage ratio at a rate ranging from .25% to .5% on the unused
revolving credit facility,
The Company's credit facility and industrial revenue bonds are subject
to loan agreements, which require the Company to comply with various
financial covenants including minimum requirements with regard to
consolidated net worth, leverage ratio, fixed charge coverage ratio and
capital expenditures. The Company's long-term debt is secured by
substantially all of the assets of the Company. Under the terms of the
credit facility, borrowing's on the revolving line of credit are subject
to a borrowing base calculation which is limited to 85% of certain trade
accounts receivable and a range of 50% to 60% of certain raw materials
and finished good inventories and is reduced by the balance of
outstanding letters of credit which may not exceed $5 million at any one
time. At February 28, 2002, the Company has approximately $7,858,000
available under the revolving credit facility after deducting $851,000
of outstanding letters of credit.
In order to manage interest rate expense, the Company has entered into
interest rate protection agreements (the Swap Agreements) to modify its
interest characteristics from a variable rate to a fixed rate. The
February 1999 swap agreement involves the exchange of interest
obligations from February 1999 through February 2006 whereby the Company
pays a fixed rate of 6.8% in exchange for a variable 30-day LIBOR plus
1.25% (3.08% at February 28, 2002). At the end of February 2002 the
notional amount of this swap was $5.7 million. The April 2000 swap
agreement involves the exchange of interest obligations from April 2000
through April 2002 whereby the Company pays a fixed rate of 8.51% in
exchange for a variable 30-day LIBOR plus 1.25% (3.08% at February 28,
2002). At the end of February 2002 the notional amount of this swap was
$7.4 million. In conjunction with the Company's new financing, the
Company discontinued hedge accounting for these two swaps effective
November 1, 2001. The November 2001 swap agreement involves the exchange
of interest rate obligations from November 2001 through November 2005
whereby the Company pays a fixed rate of 5.89% in exchange for a
variable 30-day LIBOR rate plus 2.25% (4.08% at February 28, 2002). At
the end of February 2002 there was $40 million of debt covered by this
swap agreement. The amount of debt covered by the November 2001 swap
agreement reduces on the same amortization schedule as the $40 million
term facility as defined by the loan agreement. Management intends to
hold the swaps until their maturities in April 2002, February 2006, and
November 2005, respectively. The fair value of the February 1999, April
2000 and November 2001 swap agreements is approximately $(225,000),
$(65,000), and $(60,000), respectively, at February 28, 2002.
Maturities of long-term debt are as follows (in thousands):
2003 $10,045
2004 10,050
2005 33,500
2006 10,000
-------------
$63,595
=============
29
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AZZ incorporated NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------
10. Quarterly financial information, unaudited (in thousands, except per
share amounts)
Quarters Ended
May 31, August 31, November 30, February 28,
2001 2001 2001 2002
------------- -------------- --------------- ---------------
2002
----
Net sales $34,306 $32,874 $35,257 $50,480
Gross profit 8,060 7,393 8,108 10,354
Net income 2,176 1,836 2,035 1,757
Basic earnings per common share 0.44 0.36 0.39 0.34
Diluted earnings per common share 0.43 0.36 0.39 0.33
Quarters Ended
May 31, August 31, November 30, February 28,
2000 2000 2000 2001
-------------- ------------- --------------- ----------------
2001
----
Net sales $27,944 $30,474 $32,086 $30,902
Gross profit 7,200 7,746 7,780 8,006
Net income 1,871 2,052 2,099 2,150
Basic earnings per common share 0.39 0.42 0.43 0.43
Diluted earnings per common share 0.38 0.41 0.42 0.42
11. Operating segments
The Company has two reportable segments as defined by the Financial
Accounting Standards Board No. 131, Disclosures about Segments of an
Enterprise and Related Information: (1) Electrical and Industrial
Products and (2) Galvanizing Services. The Electrical and Industrial
Products segment provides highly engineered specialty components
supplied to the power generation transmission and distribution market,
as well as products to the industrial market. The Galvanizing Services
segment provides hot dip galvanizing services to the steel fabrication
industry through facilities located throughout the south and southwest.
Hot dip galvanizing is a metallurgical process by which molten zinc is
applied to a customer's material. The zinc bonding renders a corrosive
resistant coating enhancing the life of the material for up to fifty
years.
30
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AZZ incorporated NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------
11. Operating segments (continued)
Information regarding operations and assets by segment is as follows:
2002 2001 2000
------------- ------------- ------------
(In thousands)
Net sales:
Electrical and Industrial Products $ 103,301 $ 68,859 $ 51,459
Galvanizing Services 49,616 52,547 41,085
------------- -------------- --------------
$ 152,917 $121,406 $ 92,544
============= ============== ==============
Operating income (a):
Electrical and Industrial Products $ 14,562 $ 11,252 $ 7,004
Galvanizing Services 7,189 9,660 9,519
------------- -------------- --------------
21,751 20,912 16,523
General corporate expenses 6,360 5,178 4,292
Interest expense 2,410 2,332 1,674
Other (income) expense, net (b) 384 275 8
------------- -------------- --------------
9,154 7,785 5,974
------------- -------------- --------------
Income before income taxes $ 12,597 $ 13,127 $ 10,549
============= ============== ==============
Depreciation and amortization:
Electrical and Industrial Products $ 2,292 $ 2,137 $ 1,910
Galvanizing Services 3,847 3,580 2,745
Corporate 208 121 115
------------- -------------- --------------
$ 6,347 $ 5,838 $ 4,770
============= ============== ==============
Expenditures for acquisitions, net of cash, and
property, plant and equipment:
Electrical and Industrial Products $ 41,193 $ 1,612 $ 9,508
Galvanizing Services 9,712 3,443 15,580
Corporate 633 44 198
------------- -------------- --------------
$ 51,538 $ 5,099 $ 25,286
============= ============== ==============
Total assets:
Electrical and Industrial Products $ 101,870 $ 46,568 $ 43,184
Galvanizing Services 44,115 39,343 39,152
Corporate 1,059 2,457 2,468
------------- -------------- --------------
$ 147,044 $ 88,368 $ 84,804
============= ============== ==============
(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.
31
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AZZ incorporated NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
12. Commitments and contingencies
Leases
The Company leases various facilities under non-cancelable operating
leases with an initial term in excess of one year. As of February 28,
2002, the future minimum payments required under these operating leases
are summarized as follows:
Operating
Leases
------------------
(In thousands)
2003 $ 1,367
2004 1,230
2005 1,184
2006 961
2007 845
Thereafter 1,340
------------------
Total $ 6,927
==================
Rental expense for real estate and personal property was approximately
$1,421,000, $1,003,000, and $800,000 for the years ended February 28,
2002, February 28, 2001 and February 29, 2000, respectively, and includes
all short-term as well as long-term rental agreements.
Litigation and Environmental Contingencies
The Company is subject to various environmental protection reviews by
state and federal government agencies. The ultimate liability, if any,
which might result from such reviews or additional clean-up and
remediation expenses cannot presently be determined; however, as a result
of an internal analysis and prior clean-up efforts, management believes
the results will not have a material impact on the Company and that the
recorded reserves for estimated losses are adequate. The Company has
reserved $590,000 and $186,000 as of February 28, 2002 and 2001,
respectively, for estimated losses related to environmental liabilities.
In order to maintain permits to operate certain of the Company's
facilities, future capital expenditures for equipment may be required to
meet new or existing environmental regulations.
The Company is involved from time to time in various suits and claims
arising in the normal course of business. In management's opinion, the
ultimate resolution of these matters will not have a material effect on
the Company's financial position or results of operations.
13. Acquisitions
On November 1, 2001, the Company acquired 100% of the outstanding stock
of Central Electric Company (CEC), headquartered in Fulton, Missouri. CEC
is comprised of three operations consisting of a metal clad switchgear
facility in Fulton, Missouri, a power center operation in Tulsa, Oklahoma
and a relay panel and non-segmented bus-duct operation in Nashville,
Tennessee. The consolidated annual revenues of CEC are expect to be
approximately $50 million. The cost of the acquisition was $28.5 million
including transaction costs. The acquisition was paid for with $26.7
million of cash; $1.8 million in AZZ incorporated stock (97,297 shares of
common stock), which was valued based upon the average value of the stock
at the time of the public announcement of the acquisition. The operating
assets acquired included $1.2 million in cash. The acquisition resulted
in non-tax deductible goodwill of $15.4 million. The goodwill is reported
with the Industrial and Electrical Products Segment. Acquired intangible
assets of $885,000, consisted of a $583,000
32
- --------------------------------------------------------------------------------
AZZ incorporated NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------
13. Acquisitions (continued)
non-compete with a previous owner and $302,000 for the acquired backlog.
The weighted-average period for amortization of these intangible assets
is approximately three years. The previous owner guaranteed all
outstanding accounts receivable as of the closing date of November 1,
2001 and $500,000 was set-up in escrow to cover any potential bad debt
for the acquired accounts receivable.
On November 1, 2001, the Company also acquired the operating assets of
Carter & Crawley, Inc., headquartered in Greenville, South Carolina for
$15.4 million in cash including transaction costs. The operating assets
acquired included $2.2 million in cash. Carter & Crawley, Inc. designs,
manufactures and installs relay panels and custom control systems for
utilities and industrial manufactures. The annual revenues of Carter &
Crawley are expected to be approximately $20 million. The acquisition
resulted in tax-deductible goodwill of approximately $8 million. The
goodwill is reported with the Electrical and Industrial Products Segment.
The following table summarizes the estimated fair values of the assets
acquired and liabilities assumed at the date of the acquisition November
1, 2001:
Carter & Central
Crawley, Inc. Electric Company
-------------------- ---------------------
(In thousands)
Current Assets $ 8,210 $19,403
Property, plant & equipment 855 1,480
Intangible assets subject to amortization - 855
Goodwill 7,955 15,427
------------------ -------------------
Total assets acquired 17,020 37,165
Total liabilities acquired (1,619) (8,644)
-------------------- -------------------
Net asset acquired $ 15,401 $ 28,521
==================== ===================
Listed below is the unaudited pro forma results of summary financial
information which includes the Company's historical results of operation
for the twelve-month periods ending February 28, 2002 and 2001 and that
of the acquired entities for the same periods adjusted for purchase
accounting and other proforma adjustments. The pro forma for the
twelve-month periods includes an expense for a non-recurring incentive
plan. The plan was terminated prior to the acquisition on November 1,
2001 and these expenses will not be incurred going forward. For the
twelve-month periods ended February 28, 2002 and 2001, the incentive plan
expense net of tax was $520,000 and $1 million, respectively. This
summary may not be indicative of what would have occurred had the
acquisitions been made at the beginning of these periods or of results
which may occur in the future.
(Unaudited) (Unaudited)
2002 2001
------------------- --------------------
(In thousands except per share amounts)
Net sales $201,331 $190,196
Net income $ 9,513 $ 9,775
Earnings per common share:
Basic $ 1.84 $ 1.96
=================== =====================
Diluted $ 1.81 $ 1.91
=================== =====================
33
- --------------------------------------------------------------------------------
AZZ incorporated NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------
13. Acquisitions (continued)
In September 1999 and February 2000, the Company purchased CGIT and
Westside Galvanizing, respectively. The total purchase price, net of cash
acquired, for these two businesses was approximately $13 million and
$10.6 million, respectively, and comprised of cash paid of $10.9 million
and $9.9 million and liabilities assumed of $2.1 million and $752,000,
respectively. The assets purchased were recorded at estimated fair value
and the costs in excess of fair value for these acquisitions of
approximately $7.3 million and $5.7 million were recorded as goodwill.
Pursuant to the provisions of the purchase agreement for CGIT, the
Company received from the seller purchase price refunds approximating
$371,000 during fiscal 2002.
These acquisitions were accounted for under the purchase method of
accounting. Operations applicable to acquired businesses are included in
the accompanying Consolidated Statements of Income from their respective
dates of acquisitions. The pro forma consolidated results of operations
for the year ended February 29, 2000, assuming the acquisitions had been
consummated as of March 1, 1999 are as follows:
(Unaudited)
2000
----------------------
(In thousands except per share amounts)
Net sales $104,787
Net income $ 6,048
Earnings per common share:
Basic $ 1.27
======================
Diluted $ 1.27
======================
34
Item 9. Disagreements on Accounting and Financial Disclosure
No changes in accountants or disagreements with accountants on accounting and/or
financial disclosure have arisen.
PART III
Item 10. Directors and Executive Officers
The information required by this item with regard to executive officers is
included in Part I, Item 1 of this report under the heading "Executive Officers
of the Registrant."
The other information required by this item is incorporated herein by reference
to the Registrant's Proxy Statement for the 2002 Annual Meeting of Shareholders.
Item 11. Executive Compensation
The information required by this item is incorporated herein by reference to the
Registrant's Proxy Statement for the 2002 Annual Meeting of Shareholders.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by this item is incorporated herein by reference to the
Registrant's Proxy Statement for the 2002 Annual Meeting of Shareholders.
Item 13. Certain Relationships and Related Transactions
The information required by this item is incorporated herein by reference to the
Registrant's Proxy Statement for the 2002 Annual Meeting of Shareholders.
35
Schedule II
AZZ incorporated
Valuation and Qualifying Accounts and Reserves
(in thousands)
Year Ended
--------------------------------------------------------
February 29, February 28, February 28,
2000 2001 2002
--------------- ---------------- ---------------
Allowance for Doubtful Accounts
Balance at Beginning of year $ 428 $ 587 $ 649
Additions charged to income 298 281 254
Additions from acquisitions 28 0 59
Balances written off, net of recoveries (167) (219) (204)
--------------- ---------------- ---------------
Balance at end of year $ 587 $ 649 $ 758
=============== ================ ===============
36
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
A. The following documents are filed as a part of this report.
1. Financial Statements
Page
----
Report of Independent Auditors 13
Consolidated Statements of Income for the years ended 14
February 28, 2002, February 28, 2001, and February 29, 2000
Consolidated Balance Sheets as of February 28, 2002 and February 28, 2001 15-16
Consolidated Statements of Cash Flows for the years ended 17-18
February 28, 2002, February 28, 2001, and February 29, 2000
Consolidated Statements of Shareholders' Equity for the years ended 19
February 28, 2002, February 28, 2001, and February 29, 2000
Notes to Consolidated Financial Statements 20-34
2. Financial Statement Schedules
Schedule II - Valuation and Qualifying Accounts and Reserves 36
Schedules and compliance information other than those referred to above
have been omitted since the required information is not present or is not
present in amounts sufficient to require submission of the schedule, or
because the information required is included in the consolidated
financial statements and the notes thereto.
B. Reports on Form 8-K
The Registrant filed reports on Form 8-K on November 15, 2001 and Form 8-K/A
dated January 11, 2002, relating to the acquisitions of Central Electric Company
and Carter & Crawley, Inc.
C. Exhibits
The following exhibits are filed as a part of this report:
3(1) - Articles of Incorporation, and all amendments thereto (incorporated by
reference to the Annual Report on Form 10-K filed by Registrant for the fiscal
year ended February 28, 1981).
3(2) - Articles of Amendment to the Article of Incorporation of the Registrant
dated June 30, 1988 (incorporated by reference to the Annual Report on Form 10-K
filed by Registrant for the fiscal year ended February 29, 2000).
3(3) - Articles of Amendment to the Articles of Incorporation of the Registrant
dated October 25, 1999 (incorporated by reference to the Annual Report on Form
10-K filed by Registrant for the fiscal year ended February 29, 2000).
3(4) - Articles of Amendment to the Articles of Incorporation dated July 17,
2000 (incorporated by reference to the Quarterly Report Form 10-Q filed by
Registrant for the quarter ended August 31, 2000).
3(5) - Bylaws of AZZ incorporated as restated through March 27, 2001
(incorporated by reference to the Annual Report on Form 10-K filed by Registrant
for the fiscal year ended February 28, 2001).
37
4 - Form of Stock Certificate for the Company's $1.00 par value Common Stock
(incorporated by reference to the Quarterly Report Form 10-Q filed by Registrant
for the quarter ended August 31, 2000).
10(1) - 1991 Incentive Stock Option Plan of Aztec Manufacturing Co.
(incorporated by reference to Exhibit 10h of the Annual Report on Form 10-K
filed by Registrant for the fiscal year ended February 28, 1991).
10(2) - 1991 Nonstatutory Stock Option Plan of Aztec Manufacturing Co.
(incorporated by reference to Exhibit 10i of the Annual Report on Form 10-K
filed by Registrant for the fiscal year ended February 28, 1991).
10(3) - 1998 Incentive Stock Option plan of Aztec Manufacturing Co.
(incorporated by reference to Exhibit 10k of the Annual Report on Form 10-K
filed by Registrant for the fiscal year ended February 28, 1998).
10(4) - 1998 Nonstatutory Stock Option plan of Aztec Manufacturing Co.
(incorporated by reference to Exhibit 10l of the Annual Report on Form 10-K
filed by Registrant for the fiscal year ended February 28, 1998).
10(5) - 1997 Nonstatutory Stock Option Grants of Aztec Manufacturing Co.
(incorporated by reference to Exhibit 10m of the Annual Report on Form 10-K
filed by Registrant for the fiscal year ended February 28, 1998).
10(6) - Aztec Manufacturing Co. Employee Plan and Trust as amended and restated
as of December 1, 1999 (incorporated by reference to Exhibit 4 of the Form S-8
Registration Statement Number 333-92377 filed on December 8, 1999).
10(7) - 1999 Independent Director Share Ownership Plan as Approved on January
19, 1999 and As Amended on September 22, 1999 (incorporated by reference to
Exhibit 10(22) of the Annual Report on Form 10-K filed by Registrant for the
fiscal year ended February 28, 2001).
10(8) - 2000 Advisory Director Share Ownership Plan as Approved on March 28,
2000 (incorporated by reference to Exhibit 10(23) of the Annual Report on Form
10-K filed by Registrant for the fiscal year ended February 28, 2001).
10(9) - AZZ incorporated 2001 Long-Term Incentive Plan (incorporated by
reference to Exhibit A of the Proxy Statement for the 2001 Annual Shareholders
Meeting).
10(10) - Amended and Restated Revolving and Term Loan Agreement with Bank of
America, N.A., dated November 1, 2001 (incorporated by reference to Exhibit (4)
of the Form 8-K filed by the Registrant on November 15, 2001).
10(11) - First amendment to Amended and Restated Revolving and Term Loan
Agreement with Bank of America, N.A., dated November 1, 2001*.
10(12) - Amendment adopted on February 29, 2000 to the 1999 Independent Director
Share Ownership Plan*.
10(13) - Employment Agreement between Registrant and David H. Dingus effective
March 1, 2001*.
10(14) - First amendment to Employment Agreement between Registrant and David H.
Dingus effective March 1, 2001*.
10(15) - Employment Agreement between Registrant and Dana L. Perry effective
March 1, 2001*.
10(16) - First amendment to Employment Agreement between Registrant and Dana L.
Perry effective March 1, 2001*.
10(17) - Change in Control Agreement between Registrant and all Class A
Employees effective March 1, 2001*.
10(18) - Change in Control Agreement between Registrant and all Class B
Employees effective March 1, 2001*.
10(19) - Change in Control Agreement between Registrant and all Class C
Employees effective March 1, 2001*.
10(20) - AZZ incorporated 2003 Management Incentive Bonus Plan*.
38
10(21) - Termination of Change in Control Agreement between Registrant and L. C.
Martin*.
10(22) - Engagement Agreement between the Registrant and RCG Capital Markets
Group, Inc. dated February 7, 2000*.
10(23) - Amendment No. 1 dated July 12, 2000, to the Engagement Agreement
between the Registrant and RCG Capital Markets Group, Inc. dated February 7,
2000*.
10(24) - Amendment No. 2 dated October 6, 2000, to the Engagement Agreement
between the Registrant and RCG Capital Markets Group, Inc. dated February 7,
2000*.
10(25) - Amendment No. 3 dated August 31, 2001, to the Engagement Agreement
between the Registrant and RCG Capital Markets Group, Inc. dated February 7,
2000*.
11 - Computation of Per Share Earnings (see Note 7 to the Consolidated Condensed
Financial Statements)* .
21 - Subsidiaries of Registrant*.
23 - Consent of Ernst & Young LLP*.
24 - Power of Attorney*.
*Filed herewith.
39
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, Registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly authorized.
AZZ incorporated
(Registrant)
Date: 5/24/2002 By: /s/ David H. Dingus
------------------------------------------- ---------------------------------------------
David H. Dingus, Principal Executive Officer
and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of Registrant and in
the capacities and on the dates indicated.
L.C. Martin* /s/ Dana L. Perry
- ------------------------------------------------- -------------------------------------------------
L. C. Martin, Chairman of the Board Dana L. Perry, Principal Accounting Officer,
Principal Financial Officer, and Director
/s/ David H. Dingus /s/ Sam Rosen
- ------------------------------------------------- -------------------------------------------------
David H. Dingus, Principal Executive Sam Rosen, Director
Officer and Director
Daniel R. Feehan* R. J. Schumacher*
- ------------------------------------------------- -------------------------------------------------
Daniel R. Feehan, Director R. J. Schumacher, Director
Martin C. Bowen* Dr. H. Kirk Downey*
- ------------------------------------------------- -------------------------------------------------
Martin C. Bowen, Director Dr. H. Kirk Downey, Director
Daniel Berce* Kevern R. Joyce*
- ------------------------------------------------- -------------------------------------------------
Daniel Berce, Director Kevern R. Joyce, Director
/s/ Dana L. Perry
- -------------------------------------------------
*Dana L. Perry, Attorney-in-Fact
40
EXHIBIT INDEX
Sequentially
Exhibit Description Numbered Page
------- ----------- -------------
3(1) Articles of Incorporation, and all
amendments thereto (incorporated by
reference to the Annual Report on Form
10-K filed by Registrant for the fiscal
year February 28, 1981).
3(2) Articles of Amendment to the Article of
Incorporation of the Registrant dated
June 30, 1988 (incorporated by reference
to the Annual Report on Form 10-K filed
by Registrant for the fiscal year ended
February 29, 2000).
3(3) Articles of Amendment to the Articles of
Incorporation of the Registrant dated
October 25, 1999 (incorporated by
reference to the Annual Report on Form
10-K filed by Registrant for the fiscal
year ended February 29, 2000).
3(4) Articles of Amendment to the Articles of
Incorporation dated July 17, 2000
(incorporated by reference to the
Quarterly Report Form 10-Q filed by
Registrant for the quarter ended August
31, 2000).
3(5) Bylaws of AZZ incorporated as restated
through March 27, 2001 (incorporated by
reference to the Annual Report on Form
10-K filed by Registrant for the fiscal
year ended February 28, 2001).
4 Form of Stock Certificate for the
Company's $1.00 par value Common Stock
(incorporated by reference to the
Quarterly Report Form 10-Q filed by
Registrant for the quarter ended August
31, 2000).
10(1) 1991 Incentive Stock Option Plan of
Aztec Manufacturing Co. (incorporated by
reference to Exhibit 10h of the Annual
Report on Form 10-K filed by Registrant
for the fiscal year ended February 28,
1991).
10(2) 1991 Nonstatutory Stock Option Plan of
Aztec Manufacturing Co.(incorporated by
reference to Exhibit 10i of the Annual
Report on Form 10-K filed by Registrant
for the fiscal year ended February 28,
1991).
10(3) 1998 Incentive Stock Option Plan of
Aztec Manufacturing Co. (incorporated by
reference to Exhibit 10k of the Annual
Report on Form 10-K filed by Registrant
for the fiscal year ended February 28,
1998).
10(4) 1998 Nonstatutory Stock Option Plan of
Aztec Manufacturing Co. (incorporated by
reference to Exhibit 10l of the Annual
Report on Form 10-K filed by Registrant
for the fiscal year ended February 28,
1998).
10(5) 1997 Nonstatutory Stock Option Grants of
Aztec Manufacturing Co. (incorporated by
reference to Exhibit 10m of the Annual
Report on Form 10-K filed by Registrant
for the fiscal year ended February 28,
1998).
10(6) Aztec Manufacturing Co. Employee Plan
and Trust as amended and restated as of
December 1, 1999 (incorporated by
reference to Exhibit 4 of the Form S-8
Registration Statement Number 333-92377
filed on December 8, 1999).
10(7) 1999 Independent Director Share
Ownership Plan as Approved on January
19, 1999 and As Amended on September 22,
1999 (incorporated by reference to
Exhibit 10(22) of the Annual Report on
Form 10-K filed by Registrant for the
fiscal year ended February 28, 2001).
41
Sequentially
Exhibit Description Numbered Page
------- ----------- -------------
10(8) 2000 Advisory Director Share Ownership
Plan as Approved on March 28, 2000
(incorporated by reference to Exhibit
10(23) of the Annual Report on Form 10-K
filed by Registrant for the fiscal year
ended February 28, 2001).
10(9) AZZ incorporated 2001 Long-Term
Incentive Plan (incorporated by
reference to Exhibit A of the Proxy
Statement for the 2001 Annual
Shareholders Meeting).
10(10) Amended and Restated Revolving and Term
Loan Agreement with Bank of America,
N.A., dated November 1, 2001
(incorporated by reference to Exhibit
(4) of the Form 8-K filed by the
Registrant on November 15, 2001).
10(11) First amendment to Amended and Restated
Revolving and Term Loan Agreement with
Bank of America, N.A., dated November 1,
2001*.
10(12) Amendment adopted on February 29, 2000
to the 1999 Independent Director Share
Ownership Plan*.
10(13) Employment Agreement between Registrant
and David H. Dingus effective March 1,
2001*.
10(14) First amendment to Employment Agreement
between Registrant and David H. Dingus
effective March 1, 2001*.
10(15) Employment Agreement between Registrant
and Dana L. Perry effective March 1,
2001*.
10(16) First amendment to Employment Agreement
between Registrant and Dana L. Perry
effective March 1, 2001*.
10(17) Change in Control Agreement between
Registrant and all Class A Employees
effective March 1, 2001*.
10(18) Change in Control Agreement between
Registrant and all Class B Employees
effective March 1, 2001*.
10(19) Change in Control Agreement between
Registrant and all Class C Employees
effective March 1, 2001*.
10(20) AZZ incorporated 2003 Management
Incentive Bonus Plan*.
10(21) Termination of Change in Control
Agreement between Registrant and L.C.
Martin*.
10(22) Engagement Agreement between the
Registrant and RCG Capital Markets
Group, Inc. dated February 7, 2000*.
10(23) Amendment No. 1 dated July 12, 2000, to
the Engagement Agreement between the
Registrant and RCG Capital Markets
Group, Inc. dated February 7, 2000*.
10(24) Amendment No. 2 dated October 6, 2000,
to the Engagement Agreement between the
Registrant and RCG Capital Markets
Group, Inc. dated February 7, 2000*.
10(25) Amendment No. 3 dated August 31, 2001,
to the Engagement Agreement between the
Registrant and RCG Capital Markets
Group, Inc. dated February 7, 2000*.
42
Sequentially
Exhibit Description Numbered Page
------- ----------- -------------
11 Computation of Per Share Earnings (see
Note 7 to the Consolidated Condensed
Financial Statements)*.
21 Subsidiaries of Registrant*.
23 Consent of Ernst & Young LLP*.
24 Power of Attorney*.
__________________
*Filed herewith
43