================================================================================ 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, 2001 [_] 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) 400 North Tarrant Crowley, Texas 76036 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (817) 297-4361 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. [X] The aggregate market value of Common Stock held by non-affiliates on May 11, 2001, was approximately $95,296,000. As of May 11, 2001, there were 4,982,993 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 2001 Annual Meeting of Shareholders of Registrant. ================================================================================
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 Segment, previously known as the Manufactured Products Segment, and the Galvanizing Services Segment, previously known as the Services Segment. The Company changed its name from Aztec Manufacturing Co. to AZZ incorporated on July 10, 2000. The Company believes the new name will more effectively represent the scope of its business beyond manufacturing, reflect the changes in the Company over the past 10 years and better enable it to cross-leverage its marketing opportunities through the use of a common name and new image. 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. 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 are the petroleum and automotive industries. 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 of the Company. Backlog of orders was approximately $34.8 million at February 28, 2001, $31.2 million at February 29, 2000, and $18.2 million at February 28, 1999. All of the year-end backlog should be delivered in the next 18 months. 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 445 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 2
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 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 452 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. The Company has been under review by the New York Stock Exchange for compliance with its continued listing requirements but is confident that its common stock will continue to be traded on that exchange. Environmental In the course of its galvanizing operations, the Company is subject to occasional governmental proceedings and orders pertaining to noise, air emissions and water discharges into the environment. As part of its continuing environmental program, the Company has complied with such proceedings and orders without any materially adverse effect on its business. The Company provides for costs related to contingencies when a loss is probable and the amount is reasonably determinable. It is the opinion of management, based on past experience, that the ultimate resolution of these contingencies, to the extent not previously provided for, will not have a materially adverse effect on the Company. Executive Officers of the Registrant <TABLE> <CAPTION> Business Experience for Past Name Age Five Years; Position or Office with Registrant Held Since - -------------- --- --------------------------------------------------- ---------- <S> <C> <C> <C> L. C. Martin 75 Chairman of the Board 1958 Chief Executive Officer 1958-2001 David H. Dingus 53 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 52 Vice President of Finance, Chief Financial Officer, Asst. Sec. 1992 Fred L. Wright, Jr. 60 Senior Vice President/Galvanizing Services Segment 1992 Clement H. Watson 54 Vice President Sales, Electrical Products 2000 Vice President Marketing and Sales Pulsafeeder, Inc. 1995-2000 </TABLE> 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. 3
Item 2. Properties The following table sets forth information about the Company's principal facilities owned on February 28, 2001: <TABLE> <CAPTION> Buildings/ Location Land/Acres Sq. Footage Segment/Occupant - -------- ---------- ----------- ---------------- <S> <C> <C> <C> Crowley, Texas 152.0 7,800 Corporate Office 25,600 Galvanizing Services 193,200 Electrical and Industrial Products Houston, Texas 8.7 25,800 Galvanizing Services 37.0 36,000 Electrical and Industrial Products 5.4 67,400 Electrical and Industrial Products 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 5.1 58,700 Electrical and Industrial Products Pittsburg, Kansas 15.3 86,000 Electrical and Industrial Products 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 Westborough, Massachusetts - (Leased) 36,400 Electrical and Industrial Products </TABLE> Item 3. Legal Proceedings Environmental Proceedings In the course of its galvanizing operations, the Company is subject to occasional governmental proceedings and orders pertaining to noise, air emissions, and water discharges into the environment. The Company has complied with such proceedings and orders without any materially adverse effect on its business. The registrant is not a party to, nor is its property the subject of, any material pending legal proceedings. The registrant is involved in ordinary routine litigation incidental to business. For additional information relating to contingencies, see Note 13 of Notes to Consolidated Financial Statements on page 29 of the Registrant's 2001 Form 10-K. 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, 2001, to a vote of security holders through the solicitation of proxies or otherwise. 4
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 2001 the Company paid cash dividends totaling approximately $771,000 or $.16 per share. <TABLE> <CAPTION> - --------------------------------------------------------------------------------------------------- Quarter Ended Quarter Ended Quarter Ended Quarter Ended May 31, August 31, November 30, February 28/29, - --------------------------------------------------------------------------------------------------- Per Share 2000 1999 2000 1999 2000 1999 2001 2000 - --------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> <C> <C> High $16.625 $10.563 $22.9375 $13.250 $19.375 $12.125 $18.6875 $ 12.250 - --------------------------------------------------------------------------------------------------- Low $ 10.25 $ 7.813 $ 14.625 $ 9.500 $15.000 $ 9.375 $ 16.625 $ 9.125 - --------------------------------------------------------------------------------------------------- Dividends (a) - --------------------------------------------------------------------------------------------------- Declared - - - - - - - $ 0.160 - --------------------------------------------------------------------------------------------------- </TABLE> 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 11, 2001 was 828. (a) A cash dividend of $.16 per share was declared on March 27, 2001, and was paid on April 27, 2001. 5
Item 6. Selected Financial Data <TABLE> <CAPTION> Fiscal Year --------------------------------------------------------- 2001(a) 2000(a) 1999 1998(d) 1997 --------- --------- -------- -------- --------- (In thousands, except per share amounts) <S> <C> <C> <C> <C> <C> Summary of operations: Net sales $121,406 $ 92,544 $ 80,922 $ 75,479 $ 57,703 Net income 8,172 6,593 (b) 4,874 (e) 7,220 4,328 Earnings per share: Basic earnings per common share $ 1.67 $ 1.39 (b) $ .87 (e) $ 1.21 $ .75 Diluted earnings per common share 1.63 1.38 (b) .86 (e) 1.19 .74 Total assets $ 88,368 $ 84,804 $ 58,399 $ 57,902 $ 45,995 Long-term debt 22,947 31,075 20,266 11,321 7,527 Total liabilities 44,988 51,783 31,514 23,582 17,421 Shareholders' equity 43,380 33,021 (c) 26,885 34,320 28,573 Working capital 18,732 15,128 15,033 16,731 1 2,220 Cash provided by operations $ 12,372 $ 13,833 $ 8,774 $ 2,698 6,821 Capital expenditures 5,099 4,152 6,992 3,395 2,037 Depreciation & Amortization 5,838 4,770 3,630 3,035 2,664 Cash dividend per common share (f) 0 $.16 $ .12 $.10 $ .06 Weighted average shares outstanding 4,892 4,753 5,614 5,968 5,761 </TABLE> (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. Item 7. Management's Discussion and Analysis of Financial Condition And Results of Operations AZZ incorporated (the "Company") focuses on 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. 6
General For the fiscal year-ended February 28, 2001, the Company recorded record revenues of $121.4 million compared to the prior year's revenues of $92.5 million. Approximately 57% of the Company's revenues were generated from the Electrical and Industrial Products Segment and approximately 43% were generated from the Galvanizing Service Segment. Net income for fiscal 2001 was $8.2 million compared to $6.6 million in the prior fiscal year. Net income as a percent of sales was 6.7% for fiscal 2001 as compared to 7.1% for fiscal 2000. The reduction in net income as a percentage of sales was primarily due to higher interest cost associated with the Company's prior year acquisition activity as well as lower operating margins in the Company's Galvanizing Services Segment. Earnings per share increased by 18% to $1.63 per share for fiscal 2001 compared to $1.38 per share in the prior fiscal year, on a diluted basis. A discussion concerning effects of new accounting standards can be found in note 1 of Notes to Consolidated Financial Statements. Results of Operations 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 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. This segment recorded record 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, 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 2001. Revenues for the Galvanizing Services Segment excluding the prior year acquisition were $44.4 million 7
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. Operating Income The Company's consolidated operating income (see note 12 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 $11.2 million, up 61% from $7 million in fiscal 2000. Operating margin in this segment improved for fiscal 2001 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 $3.5 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. Other income and expense consists of scrap sales and other (income) expense items not specifically identifiable to a segment. 8
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. Year ended February 29, 2000 (2000) compared with year ended February 28, 1999 (1999) Revenues The Company's consolidated net revenues for fiscal 2000 grew by $11.6 million or 14% over the prior year. The Electrical and Industrial Products Segment recorded revenues for fiscal 2000 of $51.5 million an increase of 11% over fiscal 1999 results of $46.4 million. These results were aided by the inclusion of six months of operations associated with an acquisition made on September 1, 1999. The acquisition added revenue of $4.6 million for its six months of operations for fiscal 2000. The Electrical and Industrial Products Segment ended fiscal 2000 with a backlog of $31.2 million, up 71% from the prior years backlog of $18.2 million. The backlog increased for both electrical and industrial products for the segment. The largest increase came from electrical products with an increase of 69% or $11.3 million to close the year with a backlog of $27.5 million. The acquisition contributed $2.3 million to the ending backlog while the Company's existing electrical products contributed $9 million of the increase. The existing electrical products before the acquisition all benefited from increased domestic demand of these products due to the deregulation of the power industries and the need for more power plants in order to meet increasing demand for reliable electricity. The backlog for industrial products increased 89% or $1.7 million for fiscal 2000 to end the year with a backlog $3.7 million. The industrial products backlog increased due to higher demand for these products associated with the upturn of the petroleum market during the last quarter of fiscal 2000. Revenues for this segment's electrical products increased 40% to $33.2 million for fiscal 2000 as compared to $23.8 million in fiscal 1999. Approximately 50% or $4.6 million of the increase is due to the added capacity associated with the segment's fiscal 2000 acquisition. The remaining 50% or $4.8 million of the increase is due to increased demand for the segments electrical systems that are provided to the power generation industry. Increased demand of these products continued in fiscal 2000 due to the deregulation of the power industry and the increased demand for reliable electricity. The Company completed the expansion of an electrical products facility during the first quarter of fiscal 2000, which increased capacity and allowed the company to capitalize on the dynamic power industry market. Revenues increased for the electrical products excluding the fiscal 2000 acquisition by 20% over the prior year. Revenues for industrial products of the Electrical and Industrial Products Segment decreased 19% to $18.3 million for fiscal 2000 as compared to $22.6 million in fiscal 1999. The decrease in revenues is from the continued implementation of a diversification strategy to eliminate low margin products and replace them with higher margin products. Fiscal 1999 revenues were higher due to the liquidation of inventory as part of the implementation of the Company's diversification strategy. Also as part of this strategy, a new product for this group was introduced in the last quarter of fiscal 2000 to serve the automotive industry. The Company's Galvanizing Services Segment, which is made up of eleven hot dip galvanizing facilities, generated revenues of $41.1 million, a 19% increase over the prior year's revenues of $34.5 million. The increase was due to increased volumes from increased customer demand for the Company's galvanizing services. The acquisition of the Company's eleventh galvanizing facility on January 31, 2000 had little impact on fiscal 2000. The Galvanizing Services Segment also benefited from the overall expansion of the domestic economy. 9
Operating Income The Company's consolidated operating income (see note 12 to Notes to Consolidated Financial Statements) increased $4.7 million or 39% for fiscal 2000. The improved operating results for fiscal 2000 were a direct result of increased volumes and expanding margins in both segments of Company's businesses. In the Electrical and Industrial Products Segment, operating income for fiscal 2000 increased to $7 million up 60% from $4.4 million in fiscal 1999. Operating margin in this segment improved for fiscal 2000 to 14%, a 45% increase from the prior years operating margin of 9%. Operating income for this segment's electrical products increased 89% to $5.3 million for fiscal 2000 as compared to $2.8 million in fiscal 1999. Margins improved 36% to 16% for fiscal 2000 as compared to 12% in the prior year. The acquisition on September 1, 1999 contributed $227,000 of operating income for the six months of fiscal 2000. The existing electrical products from this group produced improved operating margins of 18% due to a market shift from foreign demand in fiscal 1999 to domestic demand in fiscal 2000. The domestic market during fiscal 2000 was very dynamic due to deregulation of the power industry, which resulted in favorable pricing in the domestic market versus the foreign markets primarily served in fiscal 1999, which were very competitive due to the turmoil in the Asian and Latin American markets. The products of this group also recorded improved margins as a result of operational efficiencies associated with a recent plant expansion at one of its facilities. Operating income for this segment's industrial products increased 8% to $1.7 million for fiscal 2000 as compared to $1.6 million for fiscal 1999. Operating margin for this product group improved 35% to 9% for fiscal 2000 as compared to 7% in fiscal 1999. The liquidation of inventories had a negative effect on operating margins for fiscal 1999. In fiscal 2000, the Company continued a diversification strategy, which eliminated low margin products in order to concentrate on higher margin products and the introduction of a new product for the automotive industry. The new product had very little impact on fiscal 2000. In the Galvanizing Services Segment, operating income increased 27% to $9.5 million for fiscal 2000 from $7.5 million for the prior year. Operating margin improved to 23.2% for fiscal 2000 from 21.6% in fiscal 1999. Operations benefited from stable zinc costs, improved volumes, and a continued overall expansion of the domestic economy. The acquisition of the Company's eleventh galvanizing facility on January 31, 2000 had little impact on the operation for fiscal 2000. General Corporate Expense General corporate expenses for fiscal 2000 were $4.3 million, up 38% from fiscal 1999. As a percent of sales, general corporate expenses were 4.6% for fiscal 2000 compared to 3.9% in the prior year. This increase was attributed to higher employee benefits and profit sharing expenses as well as higher expenses for professional services primarily associated with acquisitions. Interest expense for fiscal 2000 was $1.7 million, up 70% or $692,000 from fiscal 1999. This increase was due to larger outstanding loan balances during fiscal 2000 associated with the acquisitions made during fiscal 2000 as well as the repurchase of 1.2 million shares of the Company's common stock in the last quarter of fiscal 1999. Other income and expense consists of scrap sales and other (income) expense items not specifically identifiable to a segment. Provision For Income Taxes The provision for income taxes reflects an effective tax rate of 37.5% for both fiscal 2000 and fiscal 1999. 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, debt repayment and dividend payments. The Company believes that working 10
capital, borrowing capabilities, and the funds generated from operations should be sufficient to finance anticipated operational requirements, internal growth, and possible future acquisitions. The Company's operating activities generated cash flows of approximately $12.4 million, $13.8 million, and $8.8 million during fiscal 2001, 2000, and 1999, respectively. Cash flows provided by operations in fiscal 2001 included net income in the amount of $8.2 million, depreciation and amortization in the amount of $5.8 million, and net changes in operating assets and liabilities and other decreased cash flows from operations by $1.6 million. Through the use of cash flows and bank debt, the Company made $5.1 million in capital improvements. The breakdown of capital spending by segment can be found in Note 12 of Notes To Consolidated Financial Statements. Other major uses of cash during fiscal 2001 included the repayment of long-term debt in the amount of $8.2 million and payment of cash dividends in the amount of $771,000. The Company has a credit facility with a bank that provides for a $20 million revolving line of credit, a $10 million term note, and a $17.5 million term note. At the end of fiscal 2001, the Company had $5.8 million outstanding under the revolving line of credit and $21.4 million outstanding under the two term facilities. At February 28, 2001, the Company has approximately $13.8 million available under the revolving credit facility. The Company utilizes interest rate swap agreements to protect against volatile interest rates. At the end of fiscal 2001, the Company had in place interest rate swaps agreements covering $15.7 million of term debt. The Company entered into the first interest rate swap in February 1999 covering $10 million of term interest for the term of the obligation. On April 2000, the Company entered into a second interest rate swap covering $10 million of the $17.5 million term note for the period from April 2000 to April 2002. More information regarding interest rate swaps can be found in Notes to Consolidated Financial Statements. The Company's current ratio was 1.88 to 1 at the end of fiscal 2001, and shareholders' equity grew 31% during fiscal 2001 to $43 million ($8.87 per share). Long-term debt as a percent of shareholders' equity was 53% for the current year compared to 94% in the prior year. 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 processes and through increases in price where competitively feasible. Forward Looking Statements This Report contains, and from time to time the Company or certain of its representatives may make, "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements are generally identified by the use of words such as "anticipate," "expect," "estimate," "intend," "should," "may," "believe," and terms with similar meanings. Although the Company believes that the current views and expectations reflected in these forward-looking statements are reasonable, those views and expectations, and the related statements, are inherently subject to risks, uncertainties, and other factors, many of which are not under the Company's control. Those risks, uncertainties, and other factors could cause the actual results to differ materially from these in the forward-looking statements. Those risks, uncertainties, and factors include, but are not limited to, many of the matters described in this Report: change in demand, prices and raw material cost, including zinc which is used in the hot dip galvanizing process; changes in the economic conditions of the various markets the Company serves, foreign and domestic, including the market price for oil and natural gas; acquisition opportunities, adequacy of financing, and availability of experienced management employees to implement the Company's growth strategy; and customer demand and response to products and Galvanizing 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. 11
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 does not use them for trading purposes 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 $11.5 million of variable rate borrowings at February 28, 2001. In February 1999 and April 2000 the Company entered into interest rate protection agreements with its lender to modify the interest characteristics on a total of approximately $15.7 million of long-term debt from a variable rate to a fixed rate. The Company believes it has adequately protected itself from increased cost under its 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 guard 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. 12
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, 2001 and February 29, 2000, and the related consolidated statements of income, shareholders' equity, and cash flows for each of the three years in the period ended February 28, 2001. Our audits also included the financial statement schedule listed in the Index at Item 14(a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule 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, 2001 and February 29, 2000, and the consolidated results of its operations and its cash flows for each of the three years in the period ended February 28, 2001, in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. /s/ Ernst & Young LLP Fort Worth, Texas March 30, 2001 13
- -------------------------------------------------------------------------------- AZZ incorporated. CONSOLIDATED BALANCE SHEETS - -------------------------------------------------------------------------------- February 28, 2001 and February 29, 2000 <TABLE> <CAPTION> Assets 2001 2000 - ------ ---------------- ---------------- <S> <C> <C> Current assets: Cash and cash equivalents $ 1,446,502 $ 1,328,139 Accounts receivable, net of allowance for doubtful accounts of $649,000 in 2001 and $587,000 in 2000 21,576,988 19,571,111 Inventories 13,379,371 12,553,318 Costs and estimated earnings in excess of billings on uncompleted contracts 2,432,765 487,235 Deferred income taxes 789,247 635,673 Prepaid expenses and other 416,710 382,047 ---------------- ---------------- Total current assets 40,041,583 34,957,523 Long-term investments - 200,000 Property, plant, and equipment, at cost: Land 2,027,431 2,027,431 Buildings and structures 21,495,459 18,923,650 Machinery and equipment 24,294,097 22,424,399 Furniture and fixtures 2,446,544 2,173,714 Automotive equipment 1,556,787 1,620,329 Construction in progress 819,950 1,072,380 ---------------- ---------------- 52,640,268 48,241,903 Less accumulated depreciation (23,889,839) (19,971,944) ---------------- ---------------- Net property, plant, and equipment 28,750,429 28,269,959 Costs in excess of fair value of net assets purchased, less accumulated amortization of $4,139,000 in 2001 and $2,838,000 in 2000 19,120,158 20,792,683 Other assets 455,475 583,576 ---------------- ---------------- $ 88,367,645 $ 84,803,741 ================ ================ </TABLE> See accompanying notes. 14
- -------------------------------------------------------------------------------- AZZ incorporated. CONSOLIDATED BALANCE SHEETS (Continued) - -------------------------------------------------------------------------------- February 28, 2001 and February 29, 2000 <TABLE> <CAPTION> Liabilities and Shareholders' Equity 2001 2000 - ------------------------------------ ------------------ ------------------ <S> <C> <C> Current liabilities: Accounts payable $ 9,221,135 $ 7,302,699 Income tax payable 213,507 229,399 Accrued salaries and wages 2,515,380 1,879,761 Other accrued liabilities 4,954,209 5,644,222 Billings in excess of costs and estimated earnings on uncompleted contracts 60,093 405,435 Long-term debt due within one year 4,345,284 4,367,731 ------------------ ------------------ Total current liabilities 21,309,608 19,829,247 Long-term debt due after one year 22,947,087 31,075,272 Deferred income taxes 730,941 878,500 Shareholders' equity: Common stock, $1 par value; 25,000,000 shares authorized; 6,304,580 shares issued at Feb. 28, 2001 and Feb. 29, 2000 6,304,580 6,304,580 Capital in excess of par value 11,777,305 11,113,565 Retained earnings 37,731,715 29,559,646 Less common stock held in treasury, at cost (1,336,343 shares in 2001 and 1,503,024 shares in 2000) (12,433,591) (13,957,069) ------------------ ------------------ Total shareholders' equity 43,380,009 33,020,722 ------------------ ------------------ $ 88,367,645 $ 84,803,741 ================== ================== </TABLE> See accompanying notes. 15
- -------------------------------------------------------------------------------- AZZ incorporated. CONSOLIDATED STATEMENTS OF INCOME - -------------------------------------------------------------------------------- Years ended February 28, 2001, February 29, 2000 and February 28, 1999 <TABLE> <CAPTION> 2001 2000 1999 ------------ ----------- ----------- <S> <C> <C> <C> Net sales $121,405,601 $92,544,434 $80,922,415 Costs and expenses: Cost of sales 90,674,069 68,030,479 62,525,479 Selling, general, and administrative 15,187,907 12,307,958 9,709,627 Net (gain) loss on sale of property, plant and equipment 11,015 (44,851) (2,161) Interest expense 2,331,515 1,674,434 982,275 Other (income) expense, net 73,865 27,229 (93,200) ------------ ----------- 108,278,371 81,995,249 73,122,020 ------------ ----------- ----------- Income before income taxes 13,127,230 10,549,185 7,800,395 Income tax expense 4,955,161 3,955,945 2,926,000 ------------ ----------- ----------- Net income $ 8,172,069 $ 6,593,240 $ 4,874,395 ============ =========== =========== Earnings per common share: Basic $ 1.67 1.39 $ .87 ============ =========== =========== Diluted $ 1.63 1.38 $ .86 ============ =========== =========== </TABLE> See accompanying notes. 16
- -------------------------------------------------------------------------------- AZZ incorporated CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY - -------------------------------------------------------------------------------- Years ended February 28, 2001, February 29, 2000 and February 28, 1999 <TABLE> <CAPTION> Common stock Capital in ---------------------------- excess of Retained Treasury Shares Amount par value earnings stock ---------- ----------- ------------ ------------ ------------- <S> <C> <C> <C> <C> <C> Balance at February 28, 1998 6,304,580 $6,304,580 $ 11,402,961 $ 19,429,451 $ (2,817,212) Exercise of stock options - - 19,575 - 98,364 Purchase of treasury stock (1,200,030 shares) - - - - (11,859,792) Cash dividends declared - - - (566,872) - Net income - - - 4,874,395 - ---------- ----------- ------------ ------------ ------------- Balance at February 28, 1999 6,304,580 6,304,580 11,422,536 23,736,974 (14,578,640) Exercise of stock options - - (308,971) - 621,571 Cash dividends declared - - - (770,568) - Net income - - - 6,593,240 - ---------- ----------- ------------ ------------ ------------- Balance at February 29, 2000 6,304,580 6,304,580 11,113,565 29,559,646 (13,957,069) Exercise of stock options - - 48,409 - 1,485,646 Purchase of treasury stock (3,166 shares) (55,108) Stock Compensation 207,170 92,940 Income tax benefit from stock option deductions 408,161 Net income - - - 8,172,069 - ---------- ----------- ------------ ------------ ------------- Balance at February 28, 2001 6,304,580 $ 6,304,580 $ 11,777,305 $ 37,731,715 $ (12,433,591) ========== =========== ============ ============ ============= </TABLE> See accompanying notes. 17
- -------------------------------------------------------------------------------- AZZ incorporated CONSOLIDATED STATEMENTS OF CASH FLOWS - -------------------------------------------------------------------------------- Years ended February 28, 2001, February 29, 2000 and February 28, 1999 <TABLE> <CAPTION> 2001 2000 1999 ------------------------------------------------------ <S> <C> <C> <C> Cash flows from operating activities: Net income $ 8,172,069 $ 6,593,240 $ 4,874,395 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 4,520,179 3,711,319 3,014,359 Amortization 1,317,675 1,059,046 615,891 Non-cash stock compensation expense 300,110 - - Provision for doubtful accounts 280,721 298,487 132,107 Deferred income tax benefit (301,133) (380,599) (79,306) Net (gain) loss on sale of property, plant and equipment 11,015 (44,851) (2,161) Effects of changes in operating assets and liabilities, net of acquisition of subsidiaries: Accounts receivable (1,914,984) (4,171,042) (529,056) Inventories (826,053) 285,279 3,037,378 Prepaid expenses and other (34,663) 15,520 (72,440) Other assets 111,337 (121,852) (29,497) Net change in billings related to costs and estimated earnings on uncompleted contracts (2,290,872) 1,811,061 - Accounts payable 1,918,436 2,565,852 (1,485,953) Accrued salaries and wages 635,619 689,537 (182,535) Other accrued liabilities and income taxes 472,824 1,522,436 (519,334) ------------------------------------------------------ Net cash provided by operating activities 12,372,280 13,833,433 8,773,848 Cash flows from investing activities: Proceeds from the sale of property, plant and equipment 86,870 252,429 168,854 Purchases of property, plant and equipment (5,098,534) (4,152,446) (6,992,063) Acquisition of subsidiaries, net of cash acquired - (21,133,219) (5,528) Proceeds from the sale of long-term investments 200,000 - 100,000 ------------------------------------------------------ Net cash used in investing activities (4,811,664) (25,033,236) (6,728,737) </TABLE> 18
- -------------------------------------------------------------------------------- AZZ incorporated CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) - -------------------------------------------------------------------------------- Years ended February 28, 2001, February 29, 2000 and February 28, 1999 <TABLE> <CAPTION> 2001 2000 1999 -------------------------------------------------------------- <S> <C> <C> <C> Cash flows from financing activities: Proceeds from revolving loan 6,750,000 12,147,000 12,200,000 Proceeds from long-term debt - 17,500,000 10,000,000 Payments on revolving loan (10,500,000) (10,397,000) (10,000,000) Payments on long-term debt (4,400,632) (7,267,969) (1,875,715) Cash dividends paid (770,568) (566,872) (593,272) Proceeds from exercise of stock options 1,534,055 312,600 117,939 Purchase of treasury stock (55,108) - (11,859,792) -------------------------------------------------------------- Net cash (used in) provided by financing activities (7,442,253) 11,727,759 (2,010,840) -------------------------------------------------------------- Net increase in cash and cash equivalents 118,363 527,956 34,271 Cash and cash equivalents at beginning of year 1,328,139 800,183 765,912 -------------------------------------------------------------- Cash and cash equivalents at end of year $ 1,446,502 $ 1,328,139 $ 800,183 ============================================================== Supplemental disclosures of cash flow information: Cash paid during the year for: Interest $ 2,528,254 $ 1,567,453 $ 940,588 Income taxes $ 4,797,461 $ 4,041,852 $ 2,910,713 </TABLE> See accompanying notes. 19
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 12 to the consolidated financial statements. Basis of consolidation--The consolidated financial statements include the ---------------------- accounts of AZZ incorporated and its wholly-owned subsidiaries and partnerships. All significant inter-company accounts and transactions have been eliminated in consolidation. Use of estimates--The preparation of the financial statements in conformity ---------------- with generally accepted accounting principles 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 and trade accounts receivable. 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 on 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 2001, 2000, and 1999 were approximately $219,000, $168,000, and $127,000, 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 shipment of product, FOB shipping point. Revenue for the Electrical and Industrial Products segment is recognized upon shipment of product, FOB shipping point, 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 anticipated. 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 first-in-first-out (FIFO) method for the Galvanizing Services segment. 20
Notes to Consolidated Financial Statements 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 costs in excess of fair value of assets acquired ---------------------------------------------------------------------- ("goodwill")--Intangible assets include purchased intangibles primarily ------------ comprised of customer lists and non-compete agreements. Such intangible assets and goodwill are being amortized using the straight-line method over the estimated useful lives of the assets ranging from 5 to 40 years. 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 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 exceed 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. 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 statement 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 has elected to follow 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, and long-term debt. 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. Interest rates on the majority of the Company's borrowings float with prevailing market rates; therefore, the fair value of such debt approximates carrying value at February 28, 2001 and February 29, 2000. 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 10 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 21
1. Summary of significant accounting policies (continued) 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 financial statements. New Accounting Pronouncements ----------------------------- In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative and Hedging Activities," which was amended by SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities (an Amendment of FASB Statement 133)," (collectively "SFAS 133"). SFAS 133 establishes accounting and reporting standards of derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. The Statement will require the Company to recognize all derivatives on the balance sheet at fair value. Derivatives that are not hedges must be adjusted to fair value through income. If the derivative is a hedge, depending on the nature of the hedge, changes in fair value of derivatives will either be offset against the change in fair value of the hedged assets, liabilities, or firm commitments through earnings or recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a derivative's change in fair value will be immediately recognized in earnings. The company will adopt SFAS 133 in its quarter ending May 31, 2001. The Company has evaluated its derivative instruments, consisting solely of two interest rate protection agreements, and believes these instruments will qualify for hedge accounting pursuant to SFAS 133. 2. Inventories Inventories consist of the following: <TABLE> <CAPTION> 2001 2000 ---------- ---------- (In thousands) <S> <C> <C> Raw materials $ 9,307 $ 8,923 Work-in-process 2,562 2,198 Finished goods 1,510 1,432 ---------- ---------- $ 13,379 $ 12,553 ========== ========== </TABLE> 3. Costs and Estimated Earnings on Uncompleted Contracts Costs and estimated earnings on uncompleted contracts at February 28, 2001 and February 29, 2000 consist of the following: <TABLE> <CAPTION> 2001 2000 ---------- ---------- (In thousands) <S> <C> <C> Costs incurred on uncompleted contracts $ 13,568 $ 11,259 Estimated earnings 7,214 3,676 ---------- ---------- 20,782 14,935 Less billings to date 18,409 14,853 ---------- ---------- $ 2,373 $ 82 ========== ========== </TABLE> The amounts noted above are included in the accompanying balance sheet under the following captions: <TABLE> <CAPTION> 2001 2000 ---------- ---------- (In thousands) <S> <C> <C> Cost and estimated earnings in excess of billings on uncompleted contracts $ 2,433 $ 487 Billings in excess of costs and estimated earnings on uncompleted contracts (60) (405) ---------- ---------- $ 2,373 82 ---------- ---------- </TABLE> 22
4. Other accrued liabilities Other accrued liabilities consist of the following: 2001 2000 ------- -------- (In thousands) Accrued warranty $ 1,253 $ 1,409 Accrued common stock dividend - 771 Accrued profit sharing 953 1,050 Other 2,748 2,414 ------- -------- $ 4,954 $ 5,644 ======= ======== 5. Long-term investments The Company's long-term investments at February 29, 2000 represented investments in tax-free municipal bonds and carried interest at rates ranging from 5.1% to 5.5%. The investments were purchased to secure the Company's outstanding letters of credit with a bank. The long-term investments were sold during fiscal year 2001. 6. Employee benefit plans The Company has a trusted 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 amounted to $1,328,000 for 2001, $1,050,000 for 2000, and $784,000 for 1999. During the fiscal year ended 2001, a 401(K) provision was added to the profit sharing plan with a Company matching feature, which accounted for $375,000 of the $1,328,000 contribution. 7. 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 reporting purposes and the amounts used for income tax purposes. Significant components of the Company's net deferred income tax asset (liability) are as follows: 2001 2000 ------- -------- (In thousands) Deferred tax liabilities: Depreciation methods and property basis differences $( 903) $(1,160) Other assets 98) ( 181) ------- -------- Total deferred income tax liabilities (1,001) (1,341) Deferred tax assets: Employee related items 280 247 Reserve for inventory 211 201 Reserve for warranty 152 205 Reserve for doubtful accounts 216 214 Other 200 231 ------- -------- Total deferred tax assets 1,059 1,098 ------- -------- Net deferred tax asset (liability) $ 58 $ (243) ======= ======== 23
7. Income taxes (continued) The provision for income taxes consists of: 2001 2000 1999 ------ ------ ------ (In thousands) Federal: Current $4,634 $3,835 $2,679 Deferred (271) (345) (72) State: Current 622 502 326 Deferred (30) (36) (7) ------ ------ ------ $4,955 $3,956 $2,926 ====== ====== ====== A reconciliation from the federal statutory tax rate to the effective tax is as follows: <TABLE> <CAPTION> 2001 2000 1999 ------ ------ ------ <S> <C> <C> <C> Statutory tax rate 34.0% 34.0% 34.0% Expenses not deductible for tax purposes 1.6 0.7 1.3 State income taxes, net of federal income tax benefit 2.7 3.1 2.8 Other (0.6) (0.3) (0.6) ------ ------ ------ Effective tax rate 37.7% 37.5% 37.5% ====== ====== ====== </TABLE> 8. Earnings per share Basic earnings per share is based on the weighted average number of shares outstanding during the 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. Cash dividends paid per share were $.16, $.12 and $.10 in 2001, 2000 and 1999, respectively. The following table sets forth the computation of basic and diluted earnings per share: <TABLE> <CAPTION> 2001 2000 1999 ---------- ---------- ---------- (In thousands, except share and per share amounts) <S> <C> <C> <C> Numerator: Net income for basic and diluted earnings per common share $ 8,172 $ 6,593 $ 4,874 ========== ========== ========== Denominator: Denominator for basic earnings per common share - weighted-average shares 4,891,993 4,753,243 5,614,026 Effect of dilutive securities: Stock options 118,187 21,711 37,298 ---------- ---------- ---------- Denominator for diluted earnings per common share - adjusted weighted- average shares 5,010,180 4,774,954 5,651,324 ========== ========== ========== Basic earnings per common share $ 1.67 $ 1.39 $ .87 ====== ====== ====== Diluted earnings per common share $ 1.63 $ 1.38 $ .86 ====== ====== ====== </TABLE> 24
Notes To Consolidated Financial Statements 8. 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 2001, 2000, and 1999, there were 0, 229,487, and 248,468 stock options, respectively, outstanding with exercise prices greater than the average market price of common shares. 9. Stock options and other shareholder matters The Company has two Incentive Stock Option Plans for its employees. The maximum number of shares that may be issued under each of the plans is 750,000, and 525,000 shares respectively. At February 28, 2001, options outstanding under these plans amounted to 167,661 of which 161,661 options are vested and exercisable at prices (equal to the market price at the date of grant) ranging from $8.88 to $17.81 per share. Options under these plans vest from immediately upon issuance to ratably over a period of five years and expire at various dates through October 2005. Included in these outstanding options are 2,194 options granted in fiscal 2001 with an exercise price ranging from $10.25 to $17.81, which vest immediately. The Company also has three Non-statutory Stock Option Plans for the independent directors of the Company. The maximum number of shares that may be issued under each of the plans is 250,000, 115,762 and 157,500 shares. At February 28, 2001, options granted and outstanding under these plans amounted to 86,500 of which 68,300 options are vested and exercisable at prices ranging from $3.69 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. A majority of these options vest over a period of eighteen months contingent upon the achievement of certain performance measures. As of February 28, 2001, 38,500 options have vested under this plan and the remaining 31,500 unvested options, vest in three separate groups over six months following February 28, 2001 contingent upon the company meeting certain performance goals. During fiscal 2001 the Company recorded expense of $159,000 related to these options. These options expire in February 2005. A summary of the Company's stock option activity and related information is as follows: <TABLE> <CAPTION> 2001 2000 1999 ---------------------------- --------------------------- -------------------------- Weighted Weighted Weighted Average Average Average Exercise Exercise Exercise Options Price Options Price Options Price ------------ ----------- ----------- ----------- ----------- ----------- <S> <C> <C> <C> <C> <C> <C> Outstanding at beginning of year 491,985 $ 10.14 369,453 $ 9.18 307,073 $ 8.90 Granted 2,194 17.14 207,561 10.12 80,000 10.84 Exercised (159,847) 9.60 (66,798) 4.68 (12,570) 9.38 Forfeited (10,171) 10.59 (18,231) 10.51 (5,050) 17.74 ------------ ----------- ----------- ----------- ----------- ----------- Outstanding at end of year 324,161 $ 10.49 491,985 $ 10.14 369,453 $ 9.18 ============ =========== =========== =========== =========== =========== Exercisable at end of year 268,461 $ 10.44 370,720 $ 10.01 304,853 $ 8.76 ============ =========== =========== =========== =========== =========== Weighted average fair value during the years indicated of options granted during such year indicated $ 5.81 $ 3.35 $ 4.80 =========== =========== =========== </TABLE> 25
Notes To Consolidated Financial Statements 9. Stock options and other shareholder matters (continued) The following table summarizes additional information about stock options outstanding at February 28, 2001. Weighted Weighted Weighted Average Average Shares Average Range of Total Remaining Exercise Currently Exercise Exercise Prices Shares Life Price Exercisable Price ------------------------------------------------------------------ $ 3.69 - $ 4.09 16,000 1.2 $ 3.80 16,000 $ 3.83 $ 8.88 - $11.13 295,661 4.3 $10.85 244,161 $10.65 $16.88 - $17.81 12,500 6.4 $17.03 8,300 $17.10 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 granted subsequent to February 28, 1995 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 5.8% to 6.5%, a dividend yield ranging from 1% to 1.25% and a volatility factor ranging from .419 to .498. In addition, the fair value of these options was estimated based on an expected life ranging from 1 1/2 years to 5 years. 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 income and income per share for fiscal 2001, 2000, and 1999 using the fair value method is as follows: 2001 2000 1999 ------------- --------- ------------- (In thousands except per share amounts) Pro forma net income $7,999 $6,146 $4,833 Pro forma earnings per common share: Basic $1.64 $1.30 $.86 Diluted $1.60 $1.29 $.86 As of February 28, 2001, the Company has approximately 1,868,262 and 16,827,158 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 before a 15% position has been acquired. The rights expire on January 7, 2009. 26
Notes To Consolidated Financial Statements 10. Long-term debt The Company has a credit facility with a bank, which provides a $20 million revolving line of credit, a $17.5 million Term Note A and a $10 million Term Note B. <TABLE> <CAPTION> Long-term debt consists of the following: 2001 2000 -------- ------- (In thousands) <S> <C> <C> Term Note A payable to bank, due in monthly installments of $239,726 through February 2006 (interest ranging from 6.88% to 8.51% on February 28, 2001) $14,384 $17,260 Term Note B payable to bank, due in monthly installments of $119,048 through February 2006, (interest at a fixed rate of 6.8% for the term of the note) 7,023 8,452 Revolving line of credit with bank, due July 2002 (interest ranging from 6.5% to 6.6% on February 28, 2001) 5,750 9,500 Industrial Revenue Bonds, due in December 2003, payable in monthly installments (interest at 6.35% on February 28, 2001) 135 175 Other - 56 ------- ------- 27,292 35,443 Less amount due within one year 4,345 4,368 ------- ------- $22,947 $31,075 ======= ======= </TABLE> 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 tangible net worth, funded debt to EBITDA, dividend payments, capital expenditures and cash flows. The Company is in compliance with these covenants as of February 28, 2001. The Company's long-term debt is secured by receivables, inventory, equipment, and fixtures. 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 80% 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 $2 million at any one time. At February 28, 2001, the Company has approximately $13,790,000 available under the revolving credit facility after deducting $460,000 of outstanding letters of credit. In order to reduce interest rate risk, the Company in February 1999 and April 2000 entered into interest rate protection agreements through the bank (the Swap Agreements) to modify the interest characteristics of the $10 million Term Note B and $10 million of the Term Note A, respectively, from a variable rate to a fixed rate. Term Note A Swap Agreement involves the exchange of interest obligations from April 2000 through April 2002 whereby the Company receives a fixed rate of 8.51% in exchange for a variable 30-day LIBOR plus 1.25% (6.88% at February 28,2001), which is the stated interest rate under the Term Note A agreement. Term Note B Swap Agreement involves the exchange of interest obligations over the life of the Term Note B whereby the Company receives a fixed rate of 6.8% in exchange for a variable 30-day LIBOR plus 1.25% (6.88% at February 28, 2001), which is the stated interest rate under the Term Note B agreement. Management intends to hold the Term A and Term B Swap Agreements until their maturities of April 2002 and March 2006, respectively. The Company has incurred no additional interest expense related to these Swap Agreements for the year ended February 28, 2001. The fair value of the Term A and Term B Swap Agreements represent a loss of approximately $(223,000) and $(73,000), respectively, at February 28, 2001. Maturities of long-term debt are as follows (in thousands): 2002 $ 4,345 2003 10,101 2004 4,355 2005 4,305 2006 4,186 --------- $ 27,292 ========= 27
Notes To Consolidated Financial Statements 11. Quarterly financial information, unaudited (in thousands, except per share amounts) <TABLE> <CAPTION> Quarters Ended May 31, August 31, November 30, February 28, 2000 2000 2000 2001 -------------- -------------- ---------------- --------------- <S> <C> <C> <C> <C> 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 .39 .42 .43 .43 Diluted earnings per common share .38 .41 .42 .42 <CAPTION> Quarters Ended May 31, August 31, November 30, February 29, 1999 1999 1999 2000 --------------- ------------- ---------------- ---------------- <S> <C> <C> <C> <C> 2000 ---- Net sales $20,670 $20,986 $24,654 $26,234 Gross profit 5,354 5,462 6,806 6,892 Net income 1,411 1,567 1,806 1,809 Basic earnings per common share .30 .33 .38 .38 Diluted earnings per common share .30 .33 .37 .38 </TABLE> 12. 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. Statement No. 131 modified existing standards for reporting information about operating segments in annual financial statements and requires selected information about operating segments in interim financial reports issued to stockholders. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision making group, in deciding how to allocate resources and in assessing performance. The segments follow the same accounting policies as described in the summary of significant accounting policies (see Note 1). Information regarding operations and assets by segment is as follows: 28
Notes To Consolidated Financial Statements 12. Operating segments (continued) 2001 2000 1999 -------- -------- -------- (In thousands) Net sales: Electrical and Industrial Products $ 68,859 $51,459 $46,400 Galvanizing Services 52,547 41,085 34,522 -------- ------- ------- $121,406 $92,544 $80,922 ======== ======= ======= Operating income (a): Electrical and Industrial Products $ 11,252 $ 7,004 $ 4,380 Galvanizing Services 9,660 9,519 7,474 -------- ------- ------- 20,912 16,523 11,854 General corporate expenses 5,178 4,292 3,119 Interest expense 2,332 1,674 982 Other (income) expense, net (b) 275 8 (47) -------- ------- ------- 7,785 5,974 4,054 -------- ------- ------- Income before income taxes $ 13,127 $10,549 $ 7,800 ======== ======= ======= Depreciation and amortization: Electrical and Industrial Products $ 2,137 $ 1,910 $ 1,152 Galvanizing Services 3,580 2,745 2,358 Corporate 121 115 120 -------- ------- ------- $ 5,838 $ 4,770 $ 3,630 ======== ======= ======= Expenditures for acquisitions, net of cash, and property, plant and equipment: Electrical and Industrial Products $ 1,612 $ 9,508 $ 3,556 Galvanizing Services 3,443 15,580 3,312 Corporate 44 198 130 -------- ------- ------- $ 5,099 $25,286 $ 6,998 ======== ======= ======= Total assets: Electrical and Industrial Products $ 46,568 $43,184 $28,994 Galvanizing Services 39,343 39,152 27,235 Corporate 2,457 2,468 2,170 -------- ------- ------- $ 88,368 $84,804 $58,399 ======== ======= ======= (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. 13. 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, 2001, the future minimum payments required under these operating leases are summarized as follows: Operating Leases ------------------ (In thousands) 2002 $ 266 2003 275 2004 275 2005 229 2006 - --------------- Total $ 1,045 =============== 29
Notes To Consolidated Financial Statements 13. Commitments and contingencies (continued) - Leases Rental expense for real estate and personal property was approximately $1,003,000, $800,000, and $369,000 for the years ended February 28, 2001, February 29, 2000 and February 28, 1999, 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 and has been identified as a potential responsible party in certain investigations conducted by these agencies. The Company did not expense any significant amounts related to environmental liabilities in 2001, 2000, or 1999. 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. 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. 14. Acquisitions 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 is to receive from the seller purchase price refunds approximating $371,000 as of February 28, 2001. These acquisitions were accounted for under the purchase method of accounting. The excess of costs over fair value for these two acquisitions is being amortized over a period of 15 and 20 years, respectively. 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) Net Sales $104,787 Net Income $ 6,048 Earnings per common share: Basic $ 1.27 Diluted $ 1.27 30
SCHEDULE II AZZ incorporated Valuation and Qualifying Accounts and Reserves (in thousands) <TABLE> <CAPTION> Year Ended ------------------------------------------ Allowance for Doubtful Accounts February 28, February 29, February 28, 1999 2000 2001 ------------ ------------- -------------- <S> <C> <C> <C> Balance at beginning of year $ 423 $ 428 $ 587 Additions charged to income 132 298 281 Additions from acquisitions 0 28 0 Balances written off, net of recoveries (127) (167) (219) ------------ ------------- ------------- Balance at end of year $ 428 $ 587 $ 649 ============ ============= ============= </TABLE> 31
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 2001 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 2001 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 2001 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 2001 Annual Meeting of Shareholders. 32
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. <TABLE> <CAPTION> 1. Financial Statements Page ---- <S> <C> Report of Independent Auditors 13 Consolidated Balance Sheets as of February 28, 2001 and February 29, 2000 14-15 Consolidated Statements of Income for the years ended 16 February 28, 2001, February 29, 2000, and February 28, 1999 Consolidated Statements of Shareholders' Equity for the years ended 17 February 28, 2001, February 29, 2000, and February 28, 1999 Consolidated Statements of Cash Flows for the years ended 18-19 February 28, 2001, February 29, 2000, and February 28, 1999 Notes to Consolidated Financial Statements 20-30 2. Financial Statement Schedules Schedule II - Valuation and Qualifying Accounts and Reserves 31 </TABLE> 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 no reports on Form 8-K during the fiscal year ended February 28, 2001. 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.* 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). 33
10(1) - 1986 Incentive Stock Option Plan of Aztec Manufacturing Co. (incorporated by reference to the Annual Report on Form 10-K filed by Registrant for the fiscal year ended February 28, 1986). 10(2) - Change In Control Agreement between Registrant and Mr. L. C. Martin dated March 1, 1986 (incorporated by reference to Exhibit 10e of the Annual Report on Form 10-K filed by Registrant for the fiscal year ended February 28, 1987). 10(3) - Amendment No. 1 dated May 15, 1992 to the Change in Control Agreement dated April 25, 1986 (incorporated by reference to the Annual Report on Form 10- K filed by Registrant for the fiscal year ended February 29, 2000). 10(4) - 1988 Nonstatutory Stock Option Plan of Aztec Manufacturing Co. (incorporated by reference to Exhibit 10g of the Annual Report on Form 10-K filed by Registrant for the fiscal year ended February 29, 1988). 10(5) - 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(6) - 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(7) - Buy-Sell and Termination Agreement between Registrant and Mr. L.C. Martin dated January 27, 1994 (incorporated by reference to Exhibit 10j of the Annual Report on Form 10-K filed by Registrant for the fiscal year ended February 28, 1994). 10(8) - 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(9) - 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(10) - 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(11) - Aztec Manufacturing Co. Employee Plan and Trust as amended and restated as of December 1, 1999 (incorporated by reference to Form S-8 Registration Statement Number 333-92377 filed on December 8, 1999). 10(12) - 1999 Independent Director Share Ownership Plan (incorporated by reference to Form S-8 Registration Statement Number 333-31716 filed on March 3, 2000). 10(13) - Business Loan Agreement between Registrant and Bank of America, Texas, N.A., dated June 28, 1996 (incorporated by reference to the Annual Report on Form 10-K filed by Registrant for the fiscal year ended February 29, 2000). 10(14) - First Amendment to Business Loan Agreement between Registrant and Bank of America, Texas, N.A., dated February 12, 1997 (incorporated by reference to the Annual Report on Form 10-K filed by Registrant for the fiscal year ended February 29, 2000). 10(15) - Second Amendment to Business Loan Agreement between Registrant and Bank of America, Texas, N.A., dated October 16, 1997 (incorporated by reference to the Annual Report on Form 10-K filed by Registrant for the fiscal year ended February 29, 2000). 10(16) - Third Amendment to Business Loan Agreement between Registrant and Bank of America, Texas, N.A., dated December 26, 1997 (incorporated by reference to the Annual Report on Form 10-K filed by Registrant for the fiscal year ended February 29, 2000). 34
10(17) - Fourth Amendment to Business Loan Agreement between Registrant and Bank of America, Texas, N.A., dated August 21, 1998 (incorporated by reference to the Annual Report on Form 10-K filed by Registrant for the fiscal year ended February 29, 2000). 10(18) - Fifth Amendment to Business Loan Agreement between Registrant and Bank of America, Texas, N.A., dated January 14, 1999 (incorporated by reference to the Annual Report on Form 10-K filed by Registrant for the fiscal year ended February 29, 2000). 10(19) - Sixth Amendment to Business Loan Agreement between Registrant and Bank of America, Texas, N.A., dated February 3, 1999 (incorporated by reference to the Annual Report on Form 10-K filed by Registrant for the fiscal year ended February 29, 2000). 10(20) - Seventh Amendment to Business Loan Agreement between Registrant and Bank of America, Texas, N.A., dated August 26, 1999 (incorporated by reference to the Annual Report on Form 10-K filed by Registrant for the fiscal year ended February 29, 2000). 10(21) - Eight Amendment to Business Loan Agreement between Registrant and Bank of America, Texas, N.A., dated January 31, 2000 (incorporated by reference to the Annual Report on Form 10-K filed by Registrant for the fiscal year ended February 29, 2000). 10(22) - 1999 Independent Share Ownership Plan as Approved on January 19, 1999 and As Amended on September 22, 1999.* 10(23) - 2000 Advisory Director Share Ownership Plan as Approved on March 28, 2000.* 11 - Computation of Per Share Earnings (see Note 3 to the Consolidated Condensed Financial Statements)* . 20 (i) - Press Release - Corporate Name Change (incorporated by reference to the Quarterly Report Form 10-Q filed by Registrant for the quarter ended August 31, 2000). 20 (ii) - Press Release - new Directors (incorporated by reference to the Quarterly Report Form 10-Q filed by Registrant for the quarter ended August 31, 2000). 21 - Subsidiaries of Registrant*. 23 - Consent of Ernst & Young LLP*. 24 - Power of Attorney*. *Filed herewith. 35
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: 5/25/2001 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/ David H. Dingus - ------------------------------------ David H. Dingus, Attorney-in-Fact 36
EXHIBIT INDEX <TABLE> <CAPTION> Sequentially Exhibit Description Numbered Page ------- ----------- ------------- <S> <C> <C> 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.* 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) 1986 Incentive Stock Option Plan of Registrant (incorporated by reference to the Annual Report on Form 10-K filed by Registrant for the fiscal year ended February 28, 1986). 10(2) Change in Control Agreement between Registrant and Mr. L.C. Martin dated March 1, 1986 (incorporated by reference to Exhibit 10e of the Annual Report on Form 10-K filed by Registrant for the fiscal year ended February 29, 1987). 10(3) Amendment No. 1 dated May 15, 1992 to the Change in Control Agreement dated April 25, 1986 (incorporated by reference to the Annual Report on Form 10-K filed by Registrant for the fiscal year ended February 29, 2000). 10(4) 1988 Nonstatutory Stock Option Plan of Aztec Manufacturing Co. (incorporated by reference to Exhibit 10g of the Annual Report on Form 10-K filed by Registrant for the fiscal year ended February 29, 1988). 10(5) 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(6) 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(7) Buy-Sell and Termination Agreement between Registrant and Mr. L.C. Martin dated January 27, 1994 (incorporated by reference to Exhibit 10j of the Annual Report on Form 10-K filed by Registrant for the fiscal year ended February 28, 1994). </TABLE> 37
<TABLE> <CAPTION> Sequentially Exhibit Description Numbered Page ------- ----------- ------------- <S> <C> <C> 10(8) 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(9) 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(10) 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(11) Aztec Manufacturing Co. Employee Plan and Trust as amended and restated as of December 1, 1999 (incorporated by reference to Form S-8 Registration Statement Number 333- 92377 filed on December 8, 1999). 10(12) 1999 Independent Director Share Ownership Plan (incorporated by reference to Form S-8 Registration Statement Number 333- 31716 filed on March 3, 2000). 10(13) Business Loan Agreement between Registrant and Bank of America, Texas, N.A., dated June 28, 1996 (incorporated by reference to the Annual Report on Form 10-K filed by Registrant for the fiscal year ended February 29, 2000). 10(14) First Amendment to Business Loan Agreement between Registrant and Bank of America, Texas, N.A., dated February 12, 1997 (incorporated by reference to the Annual Report on Form 10-K filed by Registrant for the fiscal year ended February 29, 2000). 10(15) Second Amendment to Business Loan Agreement between Registrant and Bank of America, Texas, N.A., dated October 16, 1997 (incorporated by reference to the Annual Report on Form 10-K filed by Registrant for the fiscal year ended February 29, 2000). 10(16) Third Amendment to Business Loan Agreement between Registrant and Bank of America, Texas, N.A., dated December 26, 1997 (incorporated by reference to the Annual Report on Form 10-K filed by Registrant for the fiscal year ended February 29, 2000). 10(17) Fourth Amendment to Business Loan Agreement between Registrant and Bank of America, Texas, N.A., dated August 21, 1998 (incorporated by reference to the Annual Report on Form 10-K filed by Registrant for the fiscal year ended February 29, 2000). 10(18) Fifth Amendment to Business Loan Agreement between Registrant and Bank of America, Texas, N.A., dated January 14, 1999 (incorporated by reference to the Annual Report on Form 10-K filed by Registrant for the fiscal year ended February 29, 2000). 10(19) Sixth Amendment to Business Loan Agreement between Registrant and Bank of America, Texas, N.A., dated February 3, 1999 (incorporated by reference to the Annual Report on Form 10-K filed by Registrant for the fiscal year ended February 29, 2000). </TABLE> 38
<TABLE> <CAPTION> Sequentially Exhibit Description Numbered Page ------- ----------- ------------- <S> <C> <C> 10 (20) Seventh Amendment to Business Loan Agreement between Registrant and Bank of America, Texas, N.A., dated August 26, 1999 (incorporated by reference to the Annual Report on Form 10-K filed by Registrant for the fiscal year ended February 29, 2000). 10 (21) Eight Amendment to Business Loan Agreement between Registrant and Bank of America, Texas, N.A., dated January 31, 2000 (incorporated by reference to the Annual Report on Form 10-K filed by Registrant for the fiscal year ended February 29, 2000). 10 (22) 1999 Independent Share Ownership Plan as Approved on January 19, 1999 and As Amended on September 22, 1999.* 10 (23) 2000 Advisory Director Share Ownership Plan as Approved on March 28, 2000.* 11 Computation of Per Share Earnings (see Note 3 to the Consolidated Condensed Financial Statements)*. 20 (i) Press Release - Corporate Name Change (incorporated by reference to the Quarterly Report Form 10-Q filed by Registrant for the quarter ended August 31, 2000). 20 (ii) Press Release - new Directors (incorporated by reference to the Quarterly Report Form 10-Q filed by Registrant for the quarter ended August 31, 2000). 21 Subsidiaries of Registrant.* 23 Consent of Ernst & Young LLP.* 24 Power of Attorney.* </TABLE> ________________ *Filed herewith 39