Large
accelerated filer o
|
Accelerated
filer o
|
Non-accelerated
filer x
|
Part
I.
|
Financial Information | Page | ||
Forward Looking Statements or Information |
2
|
|||
Item 1. |
Financial
Statements
|
|||
Report
of Independent Registered Public Accounting Firm
|
3
|
|||
Condensed
Consolidated Balance Sheets as of September 30, 2006 (unaudited),
and
December 31, 2005
|
4
|
|||
Condensed
Consolidated Statements of Income for the three- and nine-month
periods
ended September 30, 2006 and 2005 (unaudited)
|
5
|
|||
Condensed
Consolidated Statements of Cash Flows for the nine months ended
September
30, 2006 and 2005 (unaudited)
|
6
|
|||
Condensed
Consolidated Statement of Stockholders’ Equity for the nine months ended
September 30, 2006 (unaudited)
|
7
|
|||
Notes
to Condensed Consolidated Interim Financial Statements for the
three- and
nine-month periods ended September 30, 2006 and 2005
(unaudited)
|
8-14
|
|||
Item 2. |
Management's
Discussion and Analysis of Financial Condition and Results of
Operations
|
15-22
|
||
Item 3. |
Quantitative
and Qualitative Disclosure About Market Risks
|
22
|
||
Item 4. |
Controls
and Procedures
|
23
|
||
Part
II.
|
Other Information |
23-24
|
||
Signatures and Certifications |
25-64
|
CONDENSED
CONSOLIDATED BALANCE SHEETS
|
|||||||
(In
thousands, except per share amounts)
|
|
|
|||||
Unaudited
|
|||||||
September
30,
|
December
31,
|
||||||
ASSETS
|
2006
|
2005
|
|||||
CURRENT
ASSETS:
|
|||||||
Cash
and cash equivalents
|
$
|
131
|
$
|
1,367
|
|||
Investments
|
1,008
|
—
|
|||||
Trade
receivables—less allowances of $239 for 2006 and $124 for
2005
|
11,838
|
6,808
|
|||||
Inventories
|
6,569
|
6,077
|
|||||
Prepaid
expenses and other assets
|
451
|
966
|
|||||
Deferred
tax asset—net
|
802
|
243
|
|||||
Total
current assets
|
20,799
|
15,461
|
|||||
PROPERTY,
PLANT AND EQUIPMENT—AT COST:
|
|||||||
Land
|
2,167
|
2,167
|
|||||
Galvanizing
plants and equipment
|
36,567
|
35,330
|
|||||
38,734
|
37,497
|
||||||
Less—allowance
for depreciation
|
(18,054
|
)
|
(15,954
|
)
|
|||
Construction
in progress
|
424
|
325
|
|||||
Total
property, plant and equipment—net
|
21,104
|
21,868
|
|||||
GOODWILL—Net
|
3,448
|
3,448
|
|||||
OTHER
ASSETS
|
252
|
278
|
|||||
TOTAL
ASSETS
|
$
|
45,603
|
$
|
41,055
|
|||
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|||||||
CURRENT
LIABILITIES:
|
|||||||
Current
maturities of long-term obligations
|
$
|
758
|
$
|
715
|
|||
Current
portion of bonds payable
|
760
|
731
|
|||||
Subordinated
notes payable
|
—
|
1,000
|
|||||
Trade
accounts payable
|
4,414
|
1,838
|
|||||
Accrued
payroll and employee benefits
|
1,190
|
1,222
|
|||||
Accrued
taxes
|
2,229
|
591
|
|||||
Other
accrued liabilities
|
2,916
|
2,338
|
|||||
Total
current liabilities
|
12,267
|
8,435
|
|||||
DEFERRED
TAX LIABILITY—Net
|
907
|
1,047
|
|||||
LONG-TERM
OBLIGATIONS
|
3,414
|
7,072
|
|||||
BONDS
PAYABLE
|
4,630
|
5,203
|
|||||
Total
liabilities
|
21,218
|
21,757
|
|||||
COMMITMENTS
AND CONTINGENCIES (NOTES 6 AND 7)
|
|||||||
STOCKHOLDERS’
EQUITY:
|
|||||||
Common
stock—$.10 par value:
|
|||||||
Issued—8,209,925
shares in 2006 and 2005
|
821
|
821
|
|||||
Additional
paid-in capital
|
14,922
|
17,391
|
|||||
Retained
earnings
|
10,072
|
6,543
|
|||||
Common
shares in treasury at cost— 357,054 in 2006 and 1,362,977 in
2005
|
(1,430
|
)
|
(5,457
|
)
|
|||
Total
stockholders’ equity
|
24,385
|
19,298
|
|||||
TOTAL
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
$
|
45,603
|
$
|
41,055
|
|||
|
|||||||
See
notes to condensed consolidated interim financial
statements.
|
CONDENSED
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
|
|||||||||||||
(In
thousands, except per share amounts)
|
|
|
|
|
|||||||||
For
the Three Months Ended
|
For
the Nine Months Ended
|
||||||||||||
September
30
|
September
30
|
||||||||||||
2006
|
2005
|
2006
|
2005
|
||||||||||
SALES
|
$
|
20,155
|
$
|
12,687
|
$
|
53,793
|
$
|
34,768
|
|||||
COSTS
AND EXPENSES:
|
|||||||||||||
Cost
of sales
|
15,109
|
9,721
|
38,811
|
26,254
|
|||||||||
Selling,
general and administrative expenses
|
2,119
|
1,778
|
6,206
|
5,209
|
|||||||||
Depreciation
and amortization
|
842
|
600
|
2,134
|
1,865
|
|||||||||
Total
costs and expenses
|
18,070
|
12,099
|
47,151
|
33,328
|
|||||||||
OPERATING
INCOME
|
2,085
|
588
|
6,642
|
1,440
|
|||||||||
INTEREST
EXPENSE
|
172
|
285
|
651
|
788
|
|||||||||
INCOME
BEFORE INCOME TAXES
|
1,913
|
303
|
5,991
|
652
|
|||||||||
INCOME
TAX EXPENSE
|
809
|
124
|
2,462
|
262
|
|||||||||
NET
INCOME
|
$
|
1,104
|
$
|
179
|
$
|
3,529
|
$
|
390
|
|||||
NET
INCOME PER COMMON SHARE:
|
|||||||||||||
Net
income
|
|||||||||||||
Basic
|
$
|
0.14
|
$
|
0.03
|
$
|
0.48
|
$
|
0.06
|
|||||
Diluted
|
$
|
0.14
|
$
|
0.02
|
$
|
0.46
|
$
|
0.05
|
|||||
|
|||||||||||||
See
notes to condensed consolidated interim financial
statements.
|
NORTH
AMERICAN GALVANIZING & COATINGS, INC.
|
|||||||
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
|
|||||||
NINE
MONTHS ENDED SEPTEMBER 30, 2006 AND 2005
|
|||||||
(In
thousands, except per share amounts)
|
|
|
|||||
2006
|
2005
|
||||||
OPERATING
ACTIVITIES:
|
|||||||
Net
income
|
$
|
3,529
|
$
|
390
|
|||
Loss
on disposal of assets
|
19
|
51
|
|||||
Depreciation
|
2,134
|
1,865
|
|||||
Non-cash
directors’ fees
|
352
|
175
|
|||||
Deferred
income taxes
|
(699
|
)
|
456
|
||||
Non-cash
share-based compensation
|
61
|
—
|
|||||
Changes
in operating assets and liabilities, net of purchase of assets from
Gregory Industries, Inc. (Note 2):
|
|||||||
Accounts
receivable—net
|
(5,030
|
)
|
(1,643
|
)
|
|||
Inventories
and other assets
|
49
|
108
|
|||||
Accounts
payable, accrued liabilities and other
|
4,559
|
2,828
|
|||||
Cash
provided by operating activities
|
4,974
|
4,230
|
|||||
INVESTING
ACTIVITIES:
|
|||||||
Capital
expenditures
|
(944
|
)
|
(606
|
)
|
|||
Purchase
of investment
|
(1,008
|
)
|
—
|
||||
Payment
for purchase of Gregory Industries' galvanizing operation
|
—
|
(4,188
|
)
|
||||
Cash
used in investing activities
|
(1,952
|
)
|
(4,794
|
)
|
|||
FINANCING
ACTIVITIES:
|
|||||||
Payments
on long-term obligations
|
(19,948
|
)
|
(16,017
|
)
|
|||
Proceeds
from long-term obligations
|
16,089
|
17,469
|
|||||
Payment
of subordinated notes payable
|
(1,000
|
)
|
—
|
||||
Proceeds
from exercise of stock options
|
771
|
—
|
|||||
Payment
on bonds
|
(544
|
)
|
(516
|
)
|
|||
Tax
benefit realized from stock options exercised
|
320
|
—
|
|||||
Proceeds
from exercise of stock warrants
|
57
|
—
|
|||||
Purchase
of common stock for the treasury
|
(3
|
)
|
—
|
||||
Proceeds
from sale of treasury stock
|
—
|
100
|
|||||
Cash
provided by/(used in) financing activities
|
(4,258
|
)
|
1,036
|
||||
INCREASE/(DECREASE)
IN CASH AND CASH EQUIVALENTS
|
(1,236
|
)
|
472
|
||||
CASH
AND CASH EQUIVALENTS:
|
|||||||
Beginning
of period
|
1,367
|
634
|
|||||
|
|||||||
End
of period
|
$
|
131
|
$
|
1,106
|
|||
CASH
PAID DURING THE PERIOD FOR:
|
|||||||
Income
taxes (net of refunds of $432 in 2005)
|
$
|
1,419
|
$
|
(376
|
)
|
||
Interest
|
$
|
750
|
$
|
733
|
|||
NON-CASH
INVESTING AND FINANCING ACTIVITIES:
|
|||||||
Acquisitions
of fixed assets under capital lease obligations
|
$
|
244
|
$
|
—
|
|||
See
notes to condensed consolidated interim financial
statements.
|
NORTH
AMERICAN GALVANIZING & COATINGS, INC.
|
||||||||||||||||||||||
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY
|
||||||||||||||||||||||
FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 2006
|
||||||||||||||||||||||
(In
thousands, except per share amounts)
|
|
|
|
|
|
|
||||||||||||||||
Common
Stock
|
Additional
|
|||||||||||||||||||||
$.10
Par Value
|
Paid-in
|
Retained
|
Treasury
Stock
|
|||||||||||||||||||
Shares
|
Amount
|
Capital
|
Earnings
|
Shares
|
Amount
|
Total
|
||||||||||||||||
BALANCE—January
1, 2006
|
8,209,925
|
$
|
821
|
$
|
17,391
|
$
|
6,543
|
1,362,977
|
$
|
(5,457
|
)
|
$
|
19,298
|
|||||||||
Net
income
|
—
|
—
|
—
|
3,529
|
—
|
—
|
3,529
|
|||||||||||||||
|
||||||||||||||||||||||
Stock
units for Director Stock Unit Program
|
—
|
—
|
352
|
—
|
—
|
—
|
352
|
|||||||||||||||
Incentive
Stock Plan Compensation
|
—
|
—
|
61
|
—
|
—
|
—
|
61
|
|||||||||||||||
|
||||||||||||||||||||||
Purchase
of common stock for the treasury
|
—
|
—
|
—
|
—
|
535
|
(3
|
)
|
(3
|
)
|
|||||||||||||
|
||||||||||||||||||||||
|
||||||||||||||||||||||
Issuance
of treasury shares for stock option transactions, net of shares
tendered for payment and including tax benefit
|
—
|
—
|
(558
|
)
|
—
|
(411,823
|
)
|
1,649
|
1,091
|
|||||||||||||
|
||||||||||||||||||||||
Issuance
of treasury shares for warrant transactions, net of shares tendered
for payment
|
—
|
—
|
(2,324
|
)
|
—
|
(594,635
|
)
|
2,381
|
57
|
|||||||||||||
BALANCE—September
30, 2006
|
8,209,925
|
$
|
821
|
$
|
14,922
|
$
|
10,072
|
357,054
|
$
|
(1,430
|
)
|
$
|
24,385
|
|||||||||
Current
assets
|
$1.8
million
|
Net
property, plant & equipment
|
2.3
|
Goodwill
|
0.1
|
Purchase
price
|
$4.2
million
|
Nine
Months
Ended
September 30
|
|||||
Dollars
in Thousands, Except per Share Amounts
|
2005
|
||||
Sales
|
$
|
35,872
|
|||
Net
Income
|
270
|
||||
Earnings
per share:
|
|||||
Basic
|
$
|
.04
|
|||
Diluted
|
$
|
.04
|
Three
Months Ended
|
Nine
Months Ended
|
||||||
(Dollars in Thousands, Except per Share Amounts) |
September
30, 2005
|
September
30, 2005
|
|||||
Net
Income, as reported
|
$
|
179
|
$
|
390
|
|||
Deduct:
Total stock-based employee compensation expense determined under
fair
value based methods, net of tax
|
$
|
(24
|
)
|
$
|
(39
|
)
|
|
Pro
forma net income
|
$
|
155
|
$
|
351
|
|||
Earnings
per share:
|
|||||||
Basic
and Diluted - as reported
|
$
|
.03
|
$
|
.06
|
|||
Basic
and Diluted - pro forma
|
$
|
.02
|
$
|
.05
|
Three
Months Ended September 30
|
Nine
Months Ended September 30
|
||||||||||||
Dollars in Thousands, Except per Share Amounts |
2006
|
2005
|
2006
|
2005
|
|||||||||
Volatility
|
—
|
47
|
%
|
54
|
%
|
47
|
%
|
||||||
Discount
Rate
|
—
|
4.2
|
%
|
4.7
|
%
|
4.2
|
%
|
||||||
Dividend
Yield
|
—
|
—
|
—
|
—
|
|||||||||
Fair
Value
|
—
|
$
|
1.25
|
$
|
1.50
|
$
|
1.48
|
|
Number of
Shares
|
Weighted Average
Exercise Price
|
|||||
Outstanding,
December 31, 2005 (518,333 exercisable)
|
713,333
|
$ | 2.11 | ||||
Granted
|
167,500
|
2.14 | |||||
Exercised
|
(413,750
|
)
|
2.19 | ||||
Surrendered/expired/cancelled
|
(40,000
|
)
|
2.42 | ||||
Outstanding,
September 30, 2006 ( 178,083 exercisable)
|
427,083
|
$ | 2.02 |
Options
Outstanding
|
Options
Exercisable
|
||||||||||||||||||
Weighted-
|
Weighted-
|
||||||||||||||||||
Weighted-
|
Average
|
Weighted-
|
Average
|
||||||||||||||||
Average
|
Remaining
|
Average
|
Remaining
|
||||||||||||||||
Range
of
|
Number
of
|
Exercise
|
Contractual
|
Number
of
|
Exercise
|
Contractual
|
|||||||||||||
Exercise
Prices
|
Shares
|
Price
|
Life
(Years)
|
Shares
|
Price
|
Life
(Years)
|
|||||||||||||
$1.00
to $1.50
|
95,833
|
$
|
1.28
|
5.1
|
88,333
|
$
|
1.26
|
5.5
|
|||||||||||
$1.70
to $2.10
|
230,000
|
2.05
|
8.5
|
70,000
|
1.97
|
7.6
|
|||||||||||||
$2.41
to $2.85
|
81,250
|
2.51
|
8.5
|
—
|
—
|
—
|
|||||||||||||
$3.06
to $3.50
|
20,000
|
3.16
|
1.2
|
20,000
|
3.16
|
1.2
|
|||||||||||||
427,083
|
$
|
2.02
|
7.4
|
178,083
|
$
|
1.75
|
5.9
|
Three
Months Ended September 30
|
|||||||
Number
of Shares
|
|||||||
2006
|
2005
|
||||||
Basic
|
7,804,952
|
6,909,360
|
|||||
Diluted
|
8,091,372
|
7,626,642
|
Nine
Months Ended September 30
|
|||||||
Number
of Shares
|
|||||||
2006
|
2005
|
||||||
Basic
|
7,360,852
|
6,857,820
|
|||||
Diluted
|
7,594,776
|
7,584,103
|
September
30
|
December
31
|
||||||
(Dollars in Thousands) |
2006
|
2005
|
|||||
Revolving
line of credit
|
$
|
—
|
$
|
3,304
|
|||
Term
loan
|
3,930
|
4,465
|
|||||
Capital
lease obligations
|
225
|
—
|
|||||
9.5%
note due 2015
|
17
|
18
|
|||||
$
|
4,172
|
$
|
7,787
|
||||
Less
current portion
|
(758
|
)
|
(715
|
)
|
|||
$
|
3,414
|
$
|
7,072
|
Three
Months Ended September 30
|
Nine
Months Ended September 30
|
||||||||||||
2006
|
2006
|
2006
|
2005
|
||||||||||
Deferred
director stock units
|
23,716
|
35,712
|
125,588
|
79,632
|
|||||||||
Average
value per stock unit
|
$
|
4.52
|
$
|
1.96
|
$
|
2.80
|
$
|
2.20
|
· |
highway
and transportation,
|
· |
power
transmission and distribution,
|
· |
wireless
and telecommunications,
|
· |
utilities,
|
· |
petrochemical
processing,
|
· |
industrial
grating,
|
· |
infrastructure
including buildings, airports, bridges and power
generation;
|
· |
wastewater
treatment,
|
· |
fresh
water storage and transportation;
|
· |
pulp
and paper,
|
· |
pipe
and tube,
|
· |
food
processing,
|
· |
agricultural
(irrigation systems),
|
· |
recreation
(boat trailers, marine docks, stadium
scaffolds),
|
· |
bridge
and pedestrian handrail,
|
· |
commercial
and residential lighting poles, and
|
· |
original
equipment manufactured products, including general
fabrication.
|
(Dollars
in thousands)
|
|||||||||||||
Three
Months Ended September 30,
|
|||||||||||||
2006
|
2005
|
||||||||||||
%
of
|
%
of
|
||||||||||||
Amount
|
Sales
|
Amount
|
Sales
|
||||||||||
Sales
|
$
|
20,155
|
100.0
|
%
|
$
|
12,687
|
100.0
|
%
|
|||||
Cost
of sales
|
15,109
|
75.0
|
%
|
9,721
|
76.6
|
%
|
|||||||
Gross
profit
|
5,046
|
25.0
|
%
|
2,966
|
23.4
|
%
|
|||||||
Selling,
general and administrative expenses
|
2,119
|
10.5
|
%
|
1,778
|
14.0
|
%
|
|||||||
Depreciation
and amortization
|
842
|
4.2
|
%
|
600
|
4.7
|
%
|
|||||||
Operating
income
|
2,085
|
10.3
|
%
|
588
|
4.6
|
%
|
|||||||
Interest
expense
|
172
|
0.9
|
%
|
285
|
2.2
|
%
|
|||||||
Income
before income taxes
|
1,913
|
9.5
|
%
|
303
|
2.4
|
%
|
|||||||
Income
tax expense
|
809
|
4.0
|
%
|
124
|
1.0
|
%
|
|||||||
Net
income
|
$
|
1,104
|
5.5
|
%
|
$
|
179
|
1.4
|
%
|
|||||
(Dollars
in thousands)
|
|||||||||||||
Nine
Months Ended September 30,
|
|||||||||||||
2006
|
2005
|
||||||||||||
%
of
|
%
of
|
||||||||||||
Amount
|
Sales
|
Amount
|
Sales
|
||||||||||
Sales
|
$
|
53,793
|
100.0
|
%
|
$
|
34,768
|
100.0
|
%
|
|||||
Cost
of sales
|
38,811
|
72.1
|
%
|
26,254
|
75.5
|
%
|
|||||||
Gross
profit
|
14,982
|
27.9
|
%
|
8,514
|
24.5
|
%
|
|||||||
Selling,
general and administrative expenses
|
6,206
|
11.5
|
%
|
5,209
|
15.0
|
%
|
|||||||
Depreciation
and amortization
|
2,134
|
4.0
|
%
|
1,865
|
5.4
|
%
|
|||||||
Operating
income
|
6,642
|
12.3
|
%
|
1,440
|
4.1
|
%
|
|||||||
Interest
expense
|
651
|
1.2
|
%
|
788
|
2.3
|
%
|
|||||||
Income
before income taxes
|
5,991
|
11.1
|
%
|
652
|
1.9
|
%
|
|||||||
Income
tax expense
|
2,462
|
4.6
|
%
|
262
|
0.8
|
%
|
|||||||
Net
income
|
$
|
3,529
|
6.6
|
%
|
$
|
390
|
1.1
|
%
|
|||||
(a) Exhibits
|
3.1
|
The
Company’s Restated Certificate of Incorporation (incorporated by reference
to Exhibit 3.1 to the Company’s Pre-Effective Amendment No. 1 to
Registration Statement on Form S-3 (Reg. No. 333-4937) filed on June
7,
1996).
|
3.2 |
The
Company’s Amended and Restated Bylaws (incorporated by reference to
Exhibit 3.2 to the Company’s Quarterly Report on Form 10-Q dated September
30, 1996).
|
10.5 |
2004
Incentive Stock Plan
|
18 |
Letter
regarding Change in Accounting
Principle
|
31.1 |
Certification
pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
|
31.2 |
Certification
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
32
|
Certifications
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of
the Sarbanes-Oxley Act of 2002.
|
99 |
Cautionary
Statements by the Company Related to Forward-Looking
Statements.
|
NORTH AMERICAN GALVANIZING & COATINGS, INC. | ||
(Registrant) | ||
|
|
|
Date: October 31, 2006 | By: | /s/ Beth B. Hood |
Vice
President and
Chief
Financial Officer
(Principal
Financial Officer)
|
||