-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PrTetSE+OA7V+Qv4E8xzjO0nGPQqFObw2kVd3EgWclBNeRVXCGpIU3Jjni2pgRNL tVMMhvzbgFVw/pC9GtHeBQ== 0000930661-99-001323.txt : 19990624 0000930661-99-001323.hdr.sgml : 19990624 ACCESSION NUMBER: 0000930661-99-001323 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19990228 FILED AS OF DATE: 19990526 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AZTEC MANUFACTURING CO CENTRAL INDEX KEY: 0000008947 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC LIGHTING & WIRING EQUIPMENT [3640] IRS NUMBER: 750948250 STATE OF INCORPORATION: TX FISCAL YEAR END: 0228 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-12777 FILM NUMBER: 99634945 BUSINESS ADDRESS: STREET 1: 400 N TARRANT RD CITY: CROWLEY STATE: TX ZIP: 76036 BUSINESS PHONE: 8172974361 MAIL ADDRESS: STREET 1: P O BOX 668 STREET 2: P O BOX 668 CITY: CROWLEY STATE: TX ZIP: 76036 10-K405 1 FORM 10-K405 - -------------------------------------------------------------------------------- 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, 1999 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File No. 0-2733 AZTEC MANUFACTURING CO. (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 10, 1999, was approximately $43,027,000. As of May 10, 1999, there were 4,741,270 shares of Aztec Manufacturing Co. Common Stock $1.00 par value outstanding. Documents Incorporated By Reference Part I, Part II and Part IV incorporate certain information by reference from the Registrant's Annual Report to Shareholders for the year ended February 28, 1999. Part III incorporates information by reference from the Proxy Statement for the 1999 Annual Meeting of Shareholders of Registrant. - -------------------------------------------------------------------------------- PART I Item 1. Business Aztec Manufacturing Co. ("Aztec" or the "Company") was incorporated under the laws of the state of Texas on March 26, 1956. Aztec, through its subsidiaries, operates under two segments which are primarily in the United States. These segments are (i) Manufactured Products and (ii) Services, which are discussed further below. Aztec started in 1956 as an oil field-related company servicing oil field supply companies and steel mills. The Company was located in Fort Worth, Texas, but subsequently moved to Crowley, Texas. In 1965, Aztec diversified into the galvanizing industry and opened its first location in Crowley, Texas. Oil field operations were expanded with the opening of its Houston facility in 1967. Galvanizing operations were expanded with the formation of Aztec Industries in Jackson, Mississippi in 1969, the opening of a galvanizing facility in Houston in 1975, the acquisition of Automatic Processing in Moss Point, Mississippi and the formation of Aztec Mfg. Co. - Waskom in Waskom, Texas in 1986. Aztec acquired Parks Machine in 1986, a job shop screw machine facility, located in Crowley, Texas. Aztec closed its Houston Tubing facility in 1989 due to the depressed domestic oil industry. Aztec acquired Rig-A-Lite Partnership, LTD. in Houston, Texas, in March 1990 and The Calvert Company located in Jackson, Mississippi, in September 1990. Aztec closed and liquidated Parks Machine in November 1992, due to the low level of oil field activity. Aztec added to its electrical companies with the acquisition of Atkinson Industries, Inc., in March 1993. Gulf Coast Galvanizing, Inc., located in Citronelle, Alabama, was acquired in January 1994. Aztec completed and opened in November 1994 a new galvanizing facility near Phoenix in Goodyear, Arizona. Arkansas Galvanizing, Inc., located in Prairie Grove, Arkansas, was acquired in February 1996. The Company made three acquisitions in fiscal 1998. Hobson Galvanizing, Inc. located in Belle Chase, Louisiana was acquired in March 1997, and International Galvanizers, Inc. located in Beaumont, Texas was acquired in December 1997. Drilling Rig Electrical Systems, Inc. (DRES-CO), located in Houston, Texas was acquired and added to the Company's Manufactured Products Segment in February 1998. The Company now operates two distinct segments, Manufactured Products and Services. The Manufactured Products Segment is made up of four electrical companies and the tubular products operations. The Services Segment is made up of our ten hot dip galvanizing facilities servicing the steel fabrication industry. A three-year summary of sales, operating profit and identifiable assets by industry segment is included in Note 10 of Notes To Consolidated Financial Statements on page 30 of the Registrant's 1999 Annual Report to Shareholders. Such information is hereby incorporated by reference. Aztec provides manufacturing of products and services in the following areas: Manufactured Products Segment This segment includes Rig-A-Lite Partnership, LTD, DRES-CO, The Calvert Company, Atkinson Industries, Inc. and our tubular products business. Rig-A-Lite manufactures and assembles lighting fixtures for hostile and hazardous environments in the industrial market. DRES-CO designs, furnishes and contracts the installation of electrical systems for oil field drilling rigs, drilling barges, and other drilling equipment used for the production of oil and natural gas. DRES-CO operates in conjunction with Rig-A-Lite, utilizing their lighting products. Also in this segment is The Calvert Company which designs, manufactures and installs electrical bus duct systems for the power generation industry. A bus duct consists of insulated power conductors housed in a metal enclosure. Individual pieces of bus duct are arranged in a variety of physical configurations that may be required to distribute electrical power to or from a generator, transformer, switching device or other electrical apparatus. Bus duct systems that can be provided are non-segregated phase, segregated phase and isolated phase styles with numerous amperage and voltage ratings. Atkinson, located in Pittsburg, Kansas, manufactures factory-fabricated electrical power centers and assemblies for the industrial and power generation industries. Aztec also processes and provides tubular products to the extent of upsetting, threading, testing and heat treating and also manufactures pup joints. The principal market for Aztec's tubular products is the oil industry, with distribution through supply houses, steel mills and other 2 manufacturers in the metal fittings industry. The market for Aztec's Manufactured Products Segment is highly competitive and consists 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. The Company believes that it can compete favorably with regard to each of these factors. Copper, aluminum and steel are the primary raw materials used in this segment and are readily available. This segment's products are sold through manufacturers' representatives and its internal sales force. This segment is not dependent on any single customer or limited number of customers for sales, and the loss of any single customer would not have a material adverse effect on consolidated revenues. Backlog of orders was approximately $18,214,000 at February 28, 1999, $19,936,000 at February 28, 1998, and $10,945,000 at February 28, 1997. All of the year end 1999 backlog will 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 320 persons. Services Segment Custom hot-dip galvanizing service is provided for industries handling fabricated metal products. This process provides corrosion protection of fabricated steel for extended periods up to 50 years. Galvanizing is a highly competitive business. Aztec competes with other independent galvanizing companies, captive galvanizing facilities operated by manufacturers, and alternate forms of corrosion protection such as paint. Market conditions and pricing are, therefore, highly competitive. Aztec 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. Aztec has a broad customer base in galvanizing. No one customer represented as much as 10 percent of consolidated revenues. The backlog of galvanizing orders generally is nominal due to the short time requirement involved in the process. Total employment in this segment is 316 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 preceding three fiscal years. Environmental The Company complies, in all material respects, with the relevant legislation and regulations affecting its operations and the discharge of waste material. To date, the Company has not expended any material amounts to comply with such regulations and management does not currently anticipate that future compliance will have a material adverse effect on the consolidated financial position or results of operations of the Company. 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, like all statements that look to the future are inherently subject to risks, uncertainties, and other factors, many of which are not under the Company's control and may not even be predictable. 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, adequate financing, and experienced management employees to implement the Company's growth strategy; and customer demand and response to products and services offered by the Company. The Company 3 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. Executive Officers of the Registrant
Business Experience for Past Name Age Five Years; Position or Office with Registrant Held Since - --------------- --- ------------------------------------------------------ ---------- L. C. Martin 73 Chairman and Chief Executive Officer 1958 David H. Dingus 51 President and Chief Operating Officer 1998 President and Chief Executive Officer of Reedrill Corp 1989-1998 Dana L. Perry 50 Vice President of Finance, Chief Financial Officer 1992 and Assistant Secretary 1977 Fred L. Wright, Jr. 58 Senior Vice President/Services Segment 1992
Each executive officer was elected by the Board of Directors to hold office until the next Annual Meeting or until his successor is elected. There are no family relationships between Executive Officers of the Registrant. Item 2. Properties The following table sets forth information about the Company's principal facilities owned on February 28, 1999:
Buildings/ Location Land/Acres Sq. Footage Segment/Occupant - -------- ---------- ----------- ---------------- Crowley, Texas 152.0 7,772 Corporate Office 25,600 Services 193,245 Manufactured Products Houston, Texas 8.7 25,800 Services 37.0 36,000 Manufactured Products 5.4 67,440 Manufactured Products 1.8 6,500 Manufactured Products Waskom, Texas 10.6 30,400 Services Moss Point, Mississippi 13.5 16,000 Services Jackson, Mississippi 5.6 22,800 Services 5.1 36,160 Manufactured Products Pittsburg, Kansas 15.3 86,000 Manufactured Products Citronelle, Alabama 10.8 33,960 Services Goodyear, Arizona 11.75 36,750 Services Prairie Grove, Arkansas 11.5 34,000 Services Belle Chasse, Louisiana 9.5 34,000 Services Beaumont, Texas 12.9 33,700 Services
4 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 11 of Notes To Consolidated Financial Statements on page 31 of the Registrant's 1999 Annual Report to Shareholders, which is Exhibit 13 to this 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, 1999, to a vote of security holders through the solicitation of proxies or otherwise. 5 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. 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. Information called for by Item 201 of Regulation S-K is contained under the caption "Stock Prices and Dividends Per Share" on the inside back cover of Registrant's 1999 Annual Report to Shareholders. That inside back cover is hereby incorporated by reference. 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 10, 1999 was 980. Item 6. Selected Financial Data The information contained under the caption "Selected Financial Information" on page 1 of Registrant's 1999 Annual Report to Shareholders is incorporated herein by reference. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations The information contained under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" on pages 14, 15, 16, 17 and 18 of Registrant's 1999 Annual Report to Shareholders is incorporated herein by reference. 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 $17.7 million of variable rate borrowings at February 28,1999. In February 1999 the Company entered into an interest rate protection agreement with its lender to modify the interest characteristics on approximately $9.9 million of debt from a variable rate to a fixed rate. The Company manages its exposures to commodity prices, primarily zinc used in its 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. 6 Item 8. Financial Statements and Supplementary Data The consolidated balance sheets of Aztec Manufacturing Co. as of February 28, 1999 and February 28, 1998, and the related consolidated statements of income, shareholders' equity, and cash flows for each of the three years in the period ended February 28, 1999, and the report of independent auditors and the information required by Item 302 of Regulation of S-K are on pages 19 through 32 of Registrant's 1999 Annual Report to Shareholders and are incorporated herein by reference. Item 9. Disagreements on Accounting and Financial Disclosure No changes in accountants or disagreements with accountants on accounting and/or financial disclosure have arisen. 7 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 1999 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 1999 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 1999 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 1999 Annual Meeting of Shareholders. 8 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K (a) 1. Financial Statements The following financial statements and report of independent auditors incorporated herein by reference to pages 19 through 32 of Registrant's 1999 Annual Report to Shareholders.
Page numbers of 1999 Annual Report to Shareholders --------------------------- Consolidated Balance Sheets as of February 28, 1999 and February 28, 1998 19 Consolidated Statements of Income for the years ended 20 February 28, 1999, February 28, 1998, and February 28, 1997 Consolidated Statements of Shareholders' Equity for the years ended 20 February 28, 1999, February 28, 1998, and February 28, 1997 Consolidated Statements of Cash Flows for the years ended 21 February 28, 1999, February 28, 1998, and February 28, 1997 Notes to Consolidated Financial Statements 22-32 Report of Independent Auditors 32
2. Financial Statement Schedules All schedules and compliance information 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. 3. Exhibits The following exhibits are filed as a part of this report: 3(i) - 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). 3c - Bylaws adopted by the Board of Directors of Registrant on May 11, 1999.* 10a - 1982 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 29, 1984). 10b - Employees Benefit Plan and Trust 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, 1985). 10c - Amendment No. 1 to the Employees Benefit Plan and Trust of Aztec Manufacturing Co. (incorporated by reference to Exhibit 10c of the Annual Report on Form 10-K filed by Registrant for the fiscal year ended February 28, 1987). 10d - 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). 9 10e - 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). 10f - Amendment No. 1 dated May 15, 1992 to the Change in Control Agreement dated April 25, 1986.* 10g - 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). 10h - 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). 10i - 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). 10j - 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). 10k - 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). 10l - 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). 10m - 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). 13 - Annual Report to Shareholders for the fiscal year ended February 28, 1999; provided however, only parts of such report as are specifically incorporated by reference into this Form 10-K shall be deemed part of this Form 10-K*. 21 - Subsidiaries of Registrant*. 23 - Consent of Ernst & Young LLP*. 24 - Power of Attorney*. - ------------------- *Filed herewith. (b) Reports on Form 8-K The Registrant filed no reports on Form 8-K during the fiscal year ended February 28, 1999. 10 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. AZTEC MANUFACTURING CO. (Registrant) Date: 5/25/99 By: /s/ L.C. Martin -------------------------- --------------------------------- L. C. Martin, 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. /s/ L.C. Martin /s/ Dana L. Perry - --------------------------------- ------------------------------------- L. C. Martin, Principal Executive Dana L. Perry, Principal Accounting Officer and Director Officer, Principal Financial Officer, and Director David H. Dingus* /s/ Sam Rosen - --------------------------------- ------------------------------------- David H. Dingus, President, Sam Rosen, Director Chief Operating Officer and Director Robert H. Johnson* R. J. Schumacher* - --------------------------------- ------------------------------------- Robert H. Johnson, Director R. J. Schumacher, Director Martin C. Bowen* Dr. H. Kirk Downey* - --------------------------------- ------------------------------------- Martin C. Bowen, Director Dr. H. Kirk Downey, Director W.C. Walker* Kevern R. Joyce* - --------------------------------- ------------------------------------- W.C. Walker, Director Kevern R. Joyce, Director /s/ L.C. Martin - --------------------------------- L. C. Martin, Attorney-in-Fact 11 EXHIBIT INDEX
Sequentially Exhibit Description Numbered Page ------- ----------- ------------- 3(i) 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). ------------- 3c Bylaws adopted by the Board of Directors of registrant on May 11, 1999.* ------------- 10a 1982 Incentive Stock Option Plan of Registrant (incorporated by reference to the Annual Report of Form 10-K filed by Registrant for the fiscal year ended February 29, 1984). ------------- 10b Employees Benefit Plan and Trust 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, 1985). ------------- 10c Amendment No. 1 to the Employees Benefit Plan and Trust of Aztec Manufacturing Co. (incorporated by reference to Exhibit 10c of the Annual Report on Form 10-K filed by Registrant for the fiscal year ended February 28, 1987). ------------- 10d 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). ------------- 10e 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). ------------- 10f Amendment No. 1 dated May 15, 1992 to the Change in Control Agreement dated April 25, 1986.* ------------- 10h 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). ------------- 10i 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). ------------- 10j 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). -------------
12
Sequentially Exhibit Description Numbered Page ------- ----------- ------------- 10k 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). ------------- 10l 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). ------------- 10m 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). ------------- 13 Annual Report to Shareholders for the fiscal year ended February 28, 1999; provided however, only parts of such report as are specifically incorporated by reference into this Form 10-K shall be deemed part of this Form 10-K.* ------------- 21 Subsidiaries of Registrant.* ------------- 23 Consent of Ernst & Young LLP.* ------------- 24 Power of Attorney.* -------------
- ------------------- *Filed herewith 13 EX-3.C 2 BYLAWS EXHIBIT 3c BYLAWS OF AZTEC MANUFACTURING CO. Contents -------- Art. 1: Offices 1.01 Principal Office 1.02 Registered Office 1.03 Other Offices Art. 2: Meetings of Shareholders 2.01 Place of Meetings 2.02 Annual Meeting 2.03 Special Meetings 2.04 Notice of Meetings 2.05 Voting Lists 2.06 Quorum 2.07 Organization of Meetings 2.08 Business to be Conducted 2.09 Proxies 2.10 Voting of Shares 2.11 Voting of Shares by Certain Holders 2.12 Record Date; Closing Transfer Books Art. 3: Directors 3.01 Management 3.02 Number; Qualification; Election; Term 3.03 Change in Number 3.04 Resignation 3.05 Removal 3.06 Vacancies 3.07 Election of Directors 3.08 Nomination of Directors 3.09 Place of Meetings 3.10 First Meetings 3.11 Regular Meetings 3.12 Special Meetings 3.13 Quorum; Majority Vote 3.14 Compensation 3.15 Procedure 3.16 Interested Directors, Officers and Shareholders 3.17 Committees of the Board 3.18 Advisory Directors Art. 4: Notice and Attendance through Use of Electronic Equipment 4.01 Method 4.02 Waiver 4.03 Telephone and Similar Meetings Art. 5: Officers and Agents 5.01 Number; Qualification; Election; Term 5.02 Removal EXHIBIT 3c 5.03 Vacancies 5.04 Authority 5.05 Compensation 5.06 Chairman of the Board 5.07 Chief Executive Officer 5.08 President 5.09 Vice President 5.10 Secretary 5.11 Assistant Corporate Officers 5.12 Treasurer Art. 6: Certificates and Shareholders 6.01 Certificates 6.02 Replacement of Lost or Destroyed Certificates 6.03 Transfer of Shares 6.04 Registered Shareholders 6.05 Pre-Emptive Rights 6.06 Treasury Stock 6.07 Dividends and Reserves Art. 7: General Provisions 7.01 Books and Records 7.02 Annual Statement 7.03 Contracts 7.04 Loans 7.05 Checks, drafts, etc. 7.06 Deposits 7.07 Fiscal Year 7.08 Seal 7.09 Resignation 7.10 Amendment of Bylaws 7.11 Construction 7.12 Relation to Laws and Articles Art. 8: Indemnification 8.01 Indemnification; Insurance Art. 9: Transition Provisions 9.01 Prior Bylaws 9.02 Directors and Officers 9.03 Effect of Section 2.03 9.04 Effect of Article 9 Article 1: Offices Section 1.01. Principal Office. The principal office of Aztec Manufacturing Co. (the "Corporation") shall be maintained in Tarrant County, Texas. Section 1.02. Registered Office. The registered office of the Corporation shall be maintained in the State of Texas as required by law. The registered office of the Corporation may be, but need not be, the same as the principal office. The address of the registered office may be changed from time to time by the Board of Directors of the Corporation (the "Board") in the manner provided by law. Section 1.03. Other Offices. The Corporation may also have offices at such other places, both within and without the State of Texas, as the Board may from time to time determine or the business of the Corporation may require. Article 2: Meetings of Shareholders Section 2.01. Place of Meetings. The Board may designate any place, either within or without the State of Texas, as the place of meeting for any annual meeting or for any special meeting called by the Board. If no designation is made, or if a special meeting is called other than by the Board, the place of meeting shall be the principal office of the Corporation. Section 2.02. Annual Meeting. (a) The annual meeting of shareholders shall be held each year at a time and on a day as may be selected by the Board. At the meeting, the shareholders shall elect Directors and transact such other business as may properly come before the meeting. (b) If an annual meeting is omitted by oversight or otherwise and not held as provided herein, an annual meeting may be called at a later date in the manner provided for special meetings, and business transacted at such a meeting shall be valid as if transacted at an annual meeting held as provided herein. Section 2.03. Special Meetings. (a) Unless otherwise prescribed by law or by the Articles of Incorporation of the Corporation (the "Articles") or these Bylaws, special meetings of the shareholders may be called for any purpose by (i) the Chairman of the Board (ii) the President, if no Chairman of the Board has been elected, (iii) the Board, or (iv) the holders of at least fifteen percent of all of the shares entitled to vote at the meetings. (b) Business transacted at any special meetings shall be confined to the purpose or purposes stated in the notice of the meeting. Section 2.04. Notice of Meetings. (a) Written or printed notice of all meetings of shareholders stating the place, day and hour thereof, and, in the case of a special meeting, the purpose or purposes for which the meeting is called, shall be delivered by personal delivery or by mail, not less than ten days nor more than 60 days before the date of the meeting, to each shareholder entitled to vote at the meeting. If mailed, notice shall be deemed delivered when deposited in the United States mail addressed to the shareholder at his address as it appears on the share transfer records of the Corporation, with postage thereon prepaid. (b) Delivery of any notice of a shareholder meeting to any officer or manager of a corporation, company or association, or to any member of a partnership, shall constitute delivery of the notice to the corporation, company, association or partnership. Section 2.05. Voting Lists. (a) At least ten days before each meeting of shareholders, the officer or agent having charge of the share transfer records of the Corporation shall make a complete list of shareholders entitled to vote at the meeting. The list shall be arranged in alphabetical order and show the address of each shareholder and the number 1 of shares held by each. For a period of ten days prior to the meeting, the list shall be kept on file at the registered office or principal place of business of the Corporation and shall be subject to inspection by any shareholder at any time during usual business hours. The list shall also be produced and kept open at the time and place of the meeting and shall be subject to the inspection of any shareholder during the whole time of the meeting. The original share transfer records shall be prima facie evidence as to who are the shareholders entitled to examine such list or share transfer records or to vote at any meeting of shareholders. (b) Failure to comply with the requirements of this Section 2.05 with respect to any meeting of shareholders shall not affect the validity of any action taken at such meeting. Section 2.06. Quorum. (a) The holders of a majority of the shares issued and outstanding and entitled to vote, present in person or represented by proxy, shall constitute a quorum for the transaction of business at any meeting of shareholders except as otherwise provided by law, the Articles or these Bylaws. Once a quorum is present, the shareholders may continue to transact business properly brought before the meeting until adjournment notwithstanding the withdrawal of enough shareholders to leave less than a quorum. (b) If a quorum is not present at any meeting of shareholders, the shareholders entitled to vote at the meeting, present in person or represented by proxy may, by majority vote, adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum is present. At an adjourned meeting at which a quorum is present, any business may be transacted which might have been transacted at the meeting under the notice of the meeting as originally given. (c) For the purposes of determining the presence of a quorum, abstentions and broker non-votes, as defined in Section 2.10(c), shall be treated as shares present and entitled to vote. Section 2.07. Organization of Meetings. (a) The Chairman of the Board shall preside at all meetings of the shareholders. In the absence of the Chairman of the Board or if no Chairman has been elected, the President or, in his absence, the Vice President shall preside. In the absence of all of these officers, any shareholder or the duly appointed proxy of any shareholder may call the meeting to order and a chairman shall be elected from among the shareholders present. (b) The Secretary of the Corporation shall act as secretary at all meetings of the shareholders. In the absence of the Secretary, an Assistant Secretary shall so act, or, in the absence of all of these officers, the person presiding at a meeting may appoint any person to act as secretary of the meeting. Section 2.08. Business to be Conducted. (a) Only such business may be conducted at an annual meeting of the shareholders as shall have been properly brought before the meeting. To be properly brought before an annual meeting, business must be (i) specified in the notice of meeting given by or at the direction of the Board, or (ii) otherwise properly brought before the meeting by or at the direction of the Board, or (iii) properly brought before the meeting by a shareholder. (b) In addition to any other applicable requirements, for business to be properly brought before an annual meeting by a shareholder, the shareholder must give the Secretary of the Corporation timely written notice as required by this Section 2.08(b). To be timely, a shareholder's notice must be received at the principal office of the Corporation not less than 50 days nor more than 75 days prior to the meeting; however, if less than 65 days' notice or prior public disclosure of the date of the meeting is given or made to shareholders, notice by a shareholder will be timely if received at the principal office of the Corporation not later than the close of business on the 15th day following the earlier of the day on which the notice of the date of the annual meeting was mailed or public disclosure was made. A shareholder's notice to the Secretary must set forth (i) a brief description of each business matter which the shareholder proposed to bring before the annual meeting and the reasons for bringing each such business matter before the annual meeting, (ii) the name and record address of the shareholder proposing such business, (iii) the class and number of 2 shares of the Corporation which are beneficially owned by the shareholder, and (iv) any material interest of the shareholder in such business. (c) Notwithstanding anything in these Bylaws to the contrary, no business shall be conducted at an annual meeting unless properly brought before the meeting in accordance with this Section 2.08. If the chairman of a meeting should find that the facts warrant a determination that a business matter is not properly brought before the meeting in accordance with this Section 2.08, he shall so declare to the meeting, and the matter shall not be considered at the meeting. Section 2.09. Proxies. (a) At any meeting of the shareholders, every shareholder having the right to vote shall be entitled to vote in person or by proxy executed in writing by the shareholder or by his duly authorized attorney- in-fact. No proxy shall be valid after eleven months from the date of its execution unless otherwise provided in the proxy. Each proxy shall be revocable unless the proxy form expressly and conspicuously states that the proxy is irrevocable and the proxy is coupled with an interest. All proxies shall be filed with the Secretary of the Corporation prior to or at the time of the meeting at which they are to be voted. (b) In the event that any instrument in writing shall designate two or more persons to act as proxies, a majority of such persons present at the meeting or, if only one shall be present, then that one, shall have and may exercise all of the powers conferred by such written instrument upon all the persons so designated unless the instrument shall otherwise provide. Section 2.10. Voting of Shares. (a) Subject to Section 2.12, each shareholder, regardless of class, shall be entitled at each meeting of shareholders to one vote on each matter submitted to a vote at the meeting. Once a quorum is present at any meeting of shareholders, the vote of the holders of a majority of shares entitled to vote and present in person or represented by proxy shall decide any question brought before the meeting unless the question is one upon which, by express provision of law or the Articles or these Bylaws, a different vote is required in which case such express provision shall control the decision of the question. (b) For the purpose of determining whether a majority, or any different required vote of shares present and entitled to vote, has voted affirmatively on a particular question, only those shares voted "for" or "against" such questions shall be included in the count. Abstentions and broker non-votes shall not be counted even though such shares shall be considered present and entitled to vote for the purposes of determining the presence of a quorum under Section 2.06. (c) As used in these Bylaws, the term "abstention" means shares which are not voted "for" or "against" a question by a holder or holders present in person or represented by proxy at the meeting and entitled to vote such shares on the question, and the term "broker non-votes" means shares represented at a meeting by proxies held by brokers or nominees as to which instructions have not been received from the beneficial owner or persons entitled to vote and as to which the broker or nominee does not have discretionary power to vote on the question. (d) Any vote at a shareholders meeting may be taken by voice vote or by show of hands unless a shareholder or the duly appointed proxy of a shareholder entitled to vote on the question objects in which case the vote shall be taken by written ballets. Section 2.11. Voting of Shares by Certain Holders. (a) Shares standing in the name of another corporation may be voted by such officer, agent or proxy as the bylaws of such corporation may authorize or, in the absence of such authorization, as the board of directors of such corporation may determine. (b) Shares held by an administrator, executor, guardian or conservator may be voted by him so long as the shares are part of the estate being served by him, either in person or by proxy, without a transfer of such shares into his name. Shares standing in the name of a trustee may be voted by him, either in person or by proxy, but 3 no trustee shall be entitled to vote shares held by him without a transfer of such shares into his name as trustee. (c) Shares standing in the name of a receiver may be voted by the receiver, and shares held by or under the control of a receiver may be voted by such receiver without the transfer into the receiver's name if authority to do so has been given in an appropriate order of the court by which the receiver was appointed. (d) A shareholder whose shares are pledged may vote the shares until the shares have been transferred into the name of the pledgee, and thereafter the pledgee may vote the shares so transferred. (e) Shares of the Corporation's stock either (i) owned by the Corporation itself, (ii) owned by another corporation, the majority of the voting stock of which is owned or controlled by the Corporation, or (iii) held by the Corporation in a fiduciary capacity shall not be voted, directly or indirectly, at any meeting, and shall not be counted in determining the total number of outstanding shares at any given time. Section 2.12. Record Date; Closing Transfer Books. (a) The Board may fix in advance a record date for the purpose of determining shareholders entitled to notice of or to vote at a meeting of the shareholders, the record date to be not less than ten nor more than 60 days prior to the meeting, or the Board may close the stock transfer books for such purpose for a period of not less than ten nor more than 60 days prior to such meeting. (b) In the absence of action by the Board fixing a record date, the date upon which the notice of the meeting is mailed shall be the record date for the purpose of determining shareholders entitled to vote at the meeting. Article 3: Directors Section 3.01. Management. The business and affairs of the Corporation shall be managed by the Board of Directors, which may exercise all such powers of the Corporation and do all such lawful acts and things as are not, by law, the Articles or these Bylaws, required to be exercised or done by the shareholders. Section 3.02. Number; Qualification; Election; Term. (a) Subject to Section 3.02(b), the Board of Directors shall consist of nine Directors, none of whom need be shareholders of the Corporation or residents of the State of Texas. The Directors shall be divided into three classes consisting of three Directors each. At each annual shareholders meeting, Directors shall be elected for the class whose term of office expires at that meeting, and the Directors so elected shall hold office until the third succeeding annual shareholders meeting after their election and until their successors are elected and qualified. (b) Notwithstanding subsection (a) of Section 3.02, one Director in addition to the nine provided by subsection (a) shall serve from April 20, 1999 to the 2000 annual shareholders meeting. At the 1999 annual shareholders meeting, four Directors shall be elected, one who shall become a fourth member of the class of Directors whose term of office expires at the 2000 annual shareholders meeting and three who shall be elected for a three year term to succeed that class of Directors whose term of office expires at the 1999 annual meeting. The Board of Directors shall consist of ten Directors from April 20, 1999, until the 2000 annual shareholders meeting and until the successors of the class of Directors whose term of office expires at the 2000 annual shareholders meeting shall have been elected and qualified, after which the Board shall consist of nine Directors. Section 3.03. Change in Number. The number of Directors may be increased or decreased from time to time by amendment to these Bylaws, but no decrease shall have the effect of shortening the term of any incumbent Director. Any directorship to be filled by reason of an increase in the number of Directors may be filled by the Board or by election at an annual meeting of shareholders or at a special meeting of shareholders called for that purpose. Any Director elected to the Board to fill a directorship resulting in an increase in the number of Directors shall hold office for a term continuing only until the next election of Directors by shareholders. The Board may not fill more than two 4 directorships resulting from an increase in the number of Directors between any two successive annual meeting of shareholders. Section 3.04. Resignation. Any Director may resign at any time by giving written notice to the Chairman of the Board, the President or the Secretary. A Director's resignation shall take effect at the time specified in the resignation. Unless otherwise provided in the resignation, the acceptance of a resignation shall not be necessary to make it effective. Section 3.05. Removal. Any Director may be removed, either with or without cause, at any meeting of shareholders expressly called for that purpose by the affirmative vote of more than two-thirds in number of shares of the shareholders present in person or represented by proxy at such meeting and entitled to vote for the election of Directors. Section 3.06. Vacancies. (a) Any vacancy occurring in the Board by death, resignation or removal of a Director may be filled by an affirmative vote of a majority of the remaining Directors though less than a quorum of the Board. A Director elected to fill such a vacancy shall be elected for the unexpired term of his predecessor in office. (b) Any vacancy resulting from an increase in the number of directors shall be filled as provided in Section 3.03. Section 3.07. Election of Directors. Directors shall be elected by plurality vote. Cumulative voting shall not be permitted. Section 3.08. Nomination of Directors. (a) Only those persons who are nominated in accordance with this Section 3.08 shall be eligible for election as Directors. Nomination of persons for election to the Board of the Corporation may be made at a meeting of shareholders (i) by or at the direction of the Board, (ii) by a nominating committee appointed by the Board, or (iii) by any shareholder of the Corporation entitled to vote at the meeting for the election of Directors but only if the shareholder complies with this Section 3.08. (b) In addition to other applicable requirements, for a nomination to be made by a shareholder, the shareholder must give the Secretary of the Corporation timely written notice as required by this Section 3.08(b). To be timely, a shareholder's notice must be received at the principal office of the Corporation, not less than 50 days nor more than 75 days prior to the meeting at which the nomination is to be made; however, if less than 65 days' notice or prior public disclosure of the date of the meeting is given or made to shareholders, notice by a shareholder will be timely if received at the principal office of the Corporation not later than the close of business on the 15th day following the earlier of the day on which the notice of the date of the meeting was mailed or public disclosure was made. A shareholder's notice to the Secretary must set forth as to each person whom the shareholder proposes to nominate (i) the name, age, business address and residence address of the person, (ii) the principal occupation or employment of the person, (iii) the class and number of shares of the Corporation which are beneficially owned by the person, and (iv) any other information relating to the person that is required to be disclosed in solicitation for proxies for election of Directors pursuant to Regulation 14A of the Securities Exchange Act of 1934, as amended. A shareholder's notice to the Secretary must also set forth as to the shareholder giving the notice (i) the name and record address of the shareholder and (ii) the class and number of shares of the Corporation which are beneficially owned by the shareholder. The Corporation may require any proposed nominee to furnish such other information as may reasonably be required by the Corporation to determine the eligibility of such proposed nominee to serve as a Director of the Corporation. (c) Notwithstanding anything in these Bylaws to the contrary, no person shall be eligible for election as a Director unless nominated in accordance with this Section 3.08. If the chairman of the meeting at which a nomination is made should find that the facts warrant a determination that the nomination is not made in accordance with this Section 3.08, he shall so declare to the meeting, and the nomination shall be disregarded. 5 Section 3.09. Place of Meetings. Meetings of the Board, regular or special, may be held either within or without the State of Texas. Section 3.10. First Meetings. The first meeting of a Board after Directors are elected at an annual meeting of shareholders shall be held, without further notice, immediately following the annual meeting of shareholders. The meeting shall be held at the same place as the annual shareholders meeting unless by written unanimous consent the time or place for the meeting shall be changed by the Directors serving after the shareholders meeting. Section 3.11. Regular Meetings. Regular meetings of the Board may be held without notice at such time and place as shall, from time to time, be determined by the Board. Section 3.12. Special Meetings. (a) Special meetings of the Board may be called by the Chairman of the Board, the President or the Secretary. Special meetings shall be called by the Chairman, the President or the Secretary in like manner and on like notice upon the written request of any Director. (b) Written notice of the place, day and hour of any special meeting of the Board shall be delivered to each Director not less than three days before the date of the meeting, delivery to be by personal delivery, mail, telecopier, or a national recognized overnight delivery service. If mailed or sent by overnight delivery service, notice shall be deemed delivered when deposited in the United States mail or given to the delivery service. Notice by telecopier shall be deemed delivered when sent. (c) Except as otherwise expressly provided by law or by the Articles or these Bylaws, neither the business to be transacted at, nor the purpose of, any special meeting of the Board need be specified in a notice or waiver of notice. Section 3.13. Quorum; Majority Vote. (a) At all meetings of the Board of Directors, a majority of the Board fixed by these Bylaws shall constitute a quorum for the transaction of business. The act of a majority of the Directors present at any meeting at which a quorum is present shall be the act of the Board, except as otherwise specifically provided by law or by the Articles or these Bylaws. (b) Anything herein to the contrary notwithstanding, any alteration, amendment, or repeal of subsections (a), (b) or (c) of Section 2.10 or of Sections 3.02, 3.03, 3.04, 3.07, 3.13 or 7.10 of these Bylaws, or adoption of any bylaw provision inconsistent therewith, by the Board shall require the affirmative vote of two-thirds of the full Board. (c) If a quorum is not present at a meeting of the Board, the Directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum is present. Section 3.14. Compensation. By resolution of the Board, the Directors may be paid their expenses, if any, of attendance at each meeting of the Board and may be paid a fixed sum for attendance at each meeting of the Board or a stated salary as Director. No such payment shall preclude any Director from serving the Corporation in any other capacity and receiving compensation therefor. Section 3.15. Procedure. (a) The Board shall cause regular minutes of its proceedings to be kept. The minutes shall be placed in the minute book of the Corporation. (b) A Director who is present at a meeting of the Board at which action on any corporate matter is taken shall be presumed to have assented to the action unless his dissent shall be entered in the minutes of the meeting 6 or unless he shall file his written dissent with the secretary of the meeting before the adjournment thereof or send his dissent by registered or certified mail to the Secretary of the Corporation immediately after adjournment of the meeting. A Director who voted in favor of any action may not thereafter dissent from such action. Section 3.16. Interested Directors, Officers and Shareholders. (a) Any contract or other transaction between the Corporation and any of its Directors, officers or shareholders (or any corporation or firm which any of them are directly or indirectly interested) shall be valid for all purposes notwithstanding the presence of such Director, officer or shareholder at the meeting at which such contract or transaction is authorized, or his participation in such meeting or authorization. (b) Subsection (a) of this Section 3.16 shall, however, apply only if the interest of each Director, officer or shareholder is known or disclosed: (1) to the Board of Directors and the Board, nevertheless, authorizes or ratifies the contract or transaction by a majority of the Directors present, each such interested person to be counted in determining whether a quorum is present but not in calculating the majority necessary to carry the vote; or (2) to the shareholders and they, nevertheless, authorize or ratify the contract or transaction by a majority of the shares present, each such interested person to be counted for quorum and voting purposes. (c) This Section 3.16 shall not be construed to invalidate any contract or transaction which would be valid in the absence of this provision. Section 3.17. Committees of the Board. (a) By resolution adopted by a majority of the full Board of Directors, the Board may designate from among its members one or more committees, each of which, to the extent provided in the resolution, shall have and may exercise all of the authority of the Board in the business and affairs of the Corporation except were action by the Board is required by law, the Articles or these Bylaws. (b) Each committee shall consist of one or more Directors appointed by resolution adopted by a majority of the full Board. Each committee member shall serve as such until the expiration of his term as a Director or his earlier resignation unless sooner removed as a committee member or as a Director. (c) The number of members of any committee may be increased or decreased from time to time by resolution adopted by a majority of the full Board. The Board shall have the power at any time to fill any vacancy in, to change the membership of, or to dissolve, any committee. (d) Regular meetings of any committee may be held without notice at such time and place as may be designated from time to time by resolution of the committee and communicated to all committee members. (e) A special meeting of any committee may be held whenever called by any committee member at such time and place that such committee member shall designate in the notice of such special meeting. The committee member calling any such special meeting shall cause notice of such special meeting to be given to each committee member at least twelve hours before such special meeting. Notice may be either written or oral. Neither the business to be transacted at, nor the purpose of, any special meeting of any committee need be specified in the notice or waiver of notice of any special meeting. (f) At all meetings of any committee a majority of the number of committee members designated by the Board of Directors shall constitute a quorum for the transaction of business. The act of a majority of the committee members present at any meeting at which a quorum is present shall be the act of the committee, except as otherwise specifically provided by law, the Articles or these Bylaws. If a quorum is not present at a meeting of any 7 committee, the members present may adjourn the meeting from time to time, without notice other than an announcement at the meeting, until a quorum is present. (g) Each committee shall keep regular minutes of its proceedings and report the same to the Board of Directors upon the request of the Board. The minutes of the proceedings of each committee shall be placed in the minute book of the Corporation. (h) Any action required or permitted to be taken at any meeting of a committee may be taken without a meeting if a consent in writing, setting forth the action so taken, is signed by all the members of the committee. Such consent shall have the same force and effect as a unanimous vote at a meeting. The signed consent shall be placed in the minute book. (i) Members of any committee designated by the Board may participate in or hold a meeting by use of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other. (j) The designation of any committee and the delegation of authority to it shall not operate to relieve the Board, or any member thereof, of any responsibility imposed upon it or him by law. Section 3.18. Advisory Directors. (a) The Board, by resolution adopted by not less than a majority of the Directors then in office, may from time to time appoint such number of individuals as it may deem appropriate to serve as Advisory Directors at the pleasure of the Board. Advisory Directors may be given such designations (including without limitation "Advisory Director," "Director Emeritus" or "Honorary Directors") as the Board may from time to time designate. Advisory Directors are not, and shall not have the duties and responsibilities of, Directors of the Corporation, and the terms "Directors" or "members of the Board of Directors" as used in these Bylaws shall not be deemed to mean or include Advisory Directors. (b) Without limiting the generality of the foregoing, Advisory Directors shall not be entitled (i) to receive any notice of any meeting of the Board of Directors, (ii) to attend any meeting of the Board of Directors except at the invitation of the Board, (iii) to vote on any matter presented for action by the Board of Directors or, except at the invitation of the Board, to participate in the consideration of any such matter or the formulation or determination of corporate policy, (iv) to receive any non-public information regarding the business or affairs of the Corporation or any matters presented for action or consideration by the Board of Directors, or (v) to receive any compensation for serving as an Advisory Director except as the Board of Directors may otherwise determine by resolution. (c) At the discretion of the Board of Directors, an Advisory Director may be deemed a Director as that term is used in any stock option plan of the Corporation, in order to qualify such Advisory Director for the continued holding of stock options, the term of which would otherwise expire as a result of the termination of Director status. Article 4: Notice and Attendance through Use of Electronic Equipment Section 4.01. Method. Whenever by law or the Articles or these Bylaws, notice is required to be given to a Director, shareholder or committee member and no provision is made as to how the notice shall be given, notice may be given (i) in writing, by mail, postage prepaid, addressed to the Director, committee member or shareholder at the address appearing on the books of the Corporation, or (ii) in any other method permitted by law. Any notice given by mail shall be deemed given at the time when the same is thus deposited in the United States mails. Section 4.02. Waiver. (a) Whenever, by law or the Articles or these Bylaws, notice to a Director, committee member or shareholder is required, a waiver thereof in writing signed by the person or persons entitled to such notice, 8 whether before or after the time stated in such notice, shall be equivalent to the giving of such notice. (b) Attendance of a Director or committee member at a meeting shall constitute a waiver of notice of such meeting, except where a Director or member attends for the express purpose of objecting to the transaction of any business on the ground that the meeting is not lawfully called or convened. Section 4.03. Telephone and Similar Meetings. Directors and committee members may participate in and hold a meeting by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other. Participation in such meeting shall constitute presence in person at the meeting except where a person participates in the meeting for the express purpose of objecting to the transaction of any business on the grounds that the meeting is not lawfully called or convened. Article 5: Officers and Agents Section 5.01. Number; Qualification; Election; Term. (a) The Corporation shall have: (1) a President, a Vice President, a Secretary and a Treasurer, and (2) such other officers (including additional vice presidents) and assistant officers and agents as the Board may think necessary. (b) No officer or agent need be a shareholder or a Director of the Corporation or a resident of Texas. (c) Officers named in Section 5.0l(a)(l) shall be elected by the Board on the expiration of an officer's term or whenever a vacancy exists. Officers and agents named in Section 5.0l(a)(2) may be elected by the Board at any meeting. (d) Unless otherwise specified by the Board at the time of election or appointment, or in an employment contract approved by the Board, each officer's term shall end at the first meeting of Directors after the next annual meeting of shareholders. Each officer shall serve until the end of his term or his earlier death, resignation or removal. (e) Any two or more offices may be held by the same person, except that the President and the Secretary shall not be the same person. Section 5.02. Removal. Any officer or agent elected or appointed by the Board may be removed by the Board whenever in its judgment the best interests of the Corporation will be served thereby. Removal shall be without prejudice to the contract rights, if any, of the person so removed. Election or appointment of an officer or agent shall not of itself create contract rights. Section 5.03. Vacancies. Any vacancy occurring in any office of the Corporation may be filled by the Board. Section 5.04. Authority. Officers and agents shall have such authority and perform such duties in the management of the Corporation as are provided in these Bylaws or as may be determined by resolution of the Board not inconsistent with these Bylaws. Section 5.05. Compensation. The compensation of officers and agents shall be fixed from time to time by the Board. 9 Section 5.06. Chairman of the Board. The Corporation may have a Chairman of the Board. If a Chairman of the Board is elected, he shall be the Corporation's principal planning and development officer and shall preside at all meetings of the shareholders and the Board. The Chairman shall also perform such other duties as may be prescribed by the Board from time to time. If no Chairman is elected, the duties of that office shall be performed by the President unless the Board provides otherwise. Section 5.07. Chief Executive Officer. The Corporation may have a Chief Executive Officer. If a Chief Executive Officer is elected, he shall supervise, control and have general and active management of the day-to-day business and affairs of the Corporation and shall perform such other duties as may be prescribed by the Board from time to time. If no Chief Executive Officer is elected, the duties of that office shall be performed by the President unless the Board provides otherwise. Section 5.08. President. The President shall have such powers and responsibilities and shall perform such duties as delineated by the Board or the Chief Executive Officer. Section 5.09. Vice President. (a) The Vice President shall, in the absence of the President, perform the duties and have the authority and exercise the powers of the President. The Vice President shall perform such other duties and have such other authority and powers as the Board may from time to time prescribe or as the Chairman of the Board or Chief Executive Officer may from time to time delegate. (b) If the Corporation has more than one Vice President, each Vice President shall have such duties and authorities as the Board may from time to time prescribe or as the Chief Executive Officer or President may from time to time delegate. Section 5.10. Secretary. (a) The Secretary shall attend all meetings of the Board and all meetings of the shareholders and record all votes and the minutes of all proceedings in a book to be kept for that purpose. (b) The Secretary shall give, or cause to be given, notice of all meetings of the shareholders and special meetings of the Board. (c) The Secretary shall keep in safe custody the seal of the Corporation and, when authorized by the Board, affix the same to any instrument requiring it and, when so affixed, it shall be attested by his signature or by the signature of the Treasurer or an Assistant Secretary. (d) The Secretary shall be under the supervision of the President. He shall perform such other duties and have such other authority and powers as the Board may from time to time prescribe or as the President may from time to time delegate. Section 5.11. Assistant Corporate Officers. (a) The Board may elect an Assistant Secretary and Assistant Treasurer and such additional assistant corporate officers as it may from time to time find necessary. (b) Each assistant corporate officer shall perform the duties of the principal officer to whom he is an assistant if the principal office is vacant or if the principal officer is absent or unable to act, as well as such other duties as the Board may from time to time prescribe. Section 5.12. Treasurer. (a) The Treasurer shall have the custody of the corporate funds and securities and shall keep full and accurate accounts of receipts and disbursements of the Corporation and shall deposit all monies and other valuable effects in the name and to the credit of the Corporation in such depositories as may be designated by the Board. (b) The Treasurer shall disburse the funds of the Corporation as may be ordered by the Board, 10 taking proper vouchers for such disbursements, and shall render to the President and Directors, at the regular meetings of the Board, or whenever they may require it, an account of all his transactions as treasurer and of the financial condition of the Corporation. (c) If required by the Board, the Treasurer shall give the Corporation a bond in such form, in such sum, and with such surety or sureties as shall be satisfactory to the board for the faithful performance of the duties of his office and for the restoration to the Corporation, in case of his death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in his possession or under his control belonging to the corporation. (d) The Treasurer shall perform such other duties and have such other authority and powers as the Board may from time to time prescribe or as the Chief Executive Officer or President may from time to time delegate. Article 6: Certificates and Shareholders Section 6.01. Certificates. Certificates in the form determined by the Board shall be delivered representing all shares to which shareholders are entitled. Certificates shall be consecutively numbered and shall be entered in the books of the Corporation as they are issued. Each certificate shall state on the face thereof the holder's name, the number and class of shares, the par value of shares or a statement that such shares are without par value, and such other matters as may be required by law. Certificates shall be signed by the Chairman of the Board, the President or a Vice President and such other officer or officers as the Board shall designate, and may be sealed with the seal of the Corporation or a facsimile thereof. If any certificate is countersigned by a transfer agent, or an assistant transfer agent or registered by a registrar (either of which is other than the Corporation or an employee of the Corporation), the signature of such officer may be a facsimile. Section 6.02. Replacement of Lost or Destroyed Certificates. The Board may direct a new certificate or certificates to be issued in place of any certificate previously issued by the Corporation alleged to have been lost or destroyed, upon the making of an affidavit of that fact by the person claiming the loss or destruction. In so doing the Board may, in its discretion and as a condition precedent to the issuance, (i) require the owner of the lost or destroyed certificate, or his legal representative, to advertise the same in such manner as it shall require and/or (ii) to give the Corporation a bond (with a surety or sureties satisfactory to the Corporation) in such sum as it may direct, as indemnity against any claim, or expense resulting from any claim, that may be made against the Corporation with respect to the certificate alleged to have been lost or destroyed. Section 6.03. Transfer of Shares. Shares of the Corporation shall be transferable only on the books of the Corporation by the holder thereof in person or by his duly authorized attorney. Upon surrender to the Corporation or its transfer agent of a certificate representing shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, the Corporation or its transfer agent shall issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. Section 6.04. Registered Shareholders. The Corporation shall be entitled to treat the holder of record of any share or shares as the holder in fact thereof and, accordingly, shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it has express or other notice thereof, except as otherwise provided by law. Section 6.05. Pre-Emptive Rights. No shareholder shall have pre-emptive rights. Section 6.06. Treasury Stock. The Board shall be authorized at any time to purchase any outstanding shares or bonds of the Corporation from the surplus of the Corporation or from the net profits arising from its business, and the stock so purchased shall constitute treasury stock of the corporation and may be subject to resale by the board of 11 directors upon such terms as the board in its discretion may determine or to rateable distribution among the shareholders. Section 6.07. Dividends and Reserves. (a) Subject to statute and the Articles, dividends may be declared by the Board at any regular or special meeting and may be paid in cash, in property, or in shares of the Corporation. The declaration shall be at the discretion of the Board. (b) The Board may fix in advance a record date for the purpose of determining shareholders entitled to receive payment of any dividend, the record date to be not more than 50 days prior to the payment date of such dividend, or the Board may close the stock transfer books for such purpose for a period of not more than 50 days prior to the payment date of such dividend. In the absence of any action by the Board, the date upon which the Board adopts the resolution declaring the dividend shall be the record date. (c) By resolution the Board may create such reserve or reserves out of the earned surplus of the Corporation as the Directors from time to time, in their discretion, think proper to provide for contingencies, or to equalize dividends, or to repair or maintain any property of the Corporation, or for any other purpose they think beneficial to the Corporation. The Board may modify or abolish any such reserve in the manner in which it was created. Article 7: General Provisions Section 7.01. Books and Records. The Corporation shall keep correct and complete books and records of account and shall keep minutes of the proceedings of its shareholders and the Board of Directors, and shall keep at its registered office or principal place of business, or at the office of its transfer agent or registrar, a record of its shareholders, giving the names and addresses of all shareholders and the number and class of the shares held by each. Section 7.02. Annual Statement. The Board shall present at each annual meeting of shareholders a full and clear statement of the business and condition of the Corporation, including a reasonably detailed balance sheet, income statement, and surplus statement. Section 7.03. Contracts. The Board may authorize any officer or officers, agent or agents, to enter into any contract or execute and deliver any instrument in the name of and on behalf of the Corporation, and such authority may be general or confined to a specific instance. Section 7.04. Loans. No loans shall be contracted on behalf of the Corporation and no evidences of indebtedness shall be issued in its name unless authorized by a resolution of the Board. Such authority may be general or confined to a specific instance. Section 7.05. Checks, drafts, etc. All checks, drafts or other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the Corporation, shall be signed by such officer or officers, agent or agents of the Corporation and in such manner as shall from time to time be determined by resolution of the Board. Section 7.06. Deposits. All funds of the Corporation not otherwise employed shall be deposited from time to time to the credit of the Corporation in such banks, trust companies, or other depositories as the Board may select. Section 7.07. Fiscal Year. The fiscal year of the Corporation shall be fixed by resolution of the Board. Section 7.08. Seal. The seal of the Corporation (of which there may be one or more exemplars) shall contain the name of the Corporation and the name of the state of incorporation. The seal may be used by impressing it or reproducing a facsimile of it, or otherwise. Section 7.09. Resignation. Any officer or agent may resign by giving written notice to the President or the Secretary. The resignation shall take effect at the time specified therein, or immediately if no time is specified therein. 12 Unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. Section 7.10. Amendment to Bylaws. (a) Subject to Section 7.10(b), these Bylaws may be altered, amended or repealed or new bylaws may be adopted (subject to the shareholders repealing or changing the action of the Board, or making new bylaws, at an annual or special meeting called and held as provided in these Bylaws) at any meeting of the Board of Directors at which a quorum is present, by the affirmative vote of a majority of the Directors present at such meeting, provided notice of the proposed alteration, amendment or repeal is contained in the notice of such meeting. (b) The Board of Directors may not amend or repeal a particular Bylaw if the shareholders, in amending, repealing or adopting that particular Bylaw, expressly provide that the Directors may not amend or repeal that Bylaw. Section 7.11. Construction. (a) Unless context requires otherwise, as used in these Bylaws: (1) words of the masculine gender include the feminine, and words in the singular number include the plural and in the plural number include the singular, and (2) references to a "Section" or an "Article" are to the given section or article of these Bylaws. (b) Article and section headings are used in these Bylaws primarily for convenience and shall not be construed as limiting the effect any provision would otherwise have. (c) If any provision of these Bylaws is held by a court of competent jurisdiction to be invalid, such invalidity shall not impair or invalidate any remaining provision of these Bylaws and, insofar as reasonable and possible, effect shall be given to the intent manifested by the provision held to be invalid. Section 7.12. Relation to Laws and Articles. These Bylaws shall be subject to all valid and applicable laws, including specifically (but without limitations) the Texas Business Corporation Act, as now or hereafter amended, and the Corporation's Articles of Incorporation. Article 8: Indemnification Section 8.01. Indemnification; Insurance. The Corporation shall indemnify to the full extent permitted by law any person who is made or threatened to be made a defendant or respondent in any action, suit or proceeding, whether civil, criminal, administrative, arbitrative or investigative, or in any appeal in such an action, suit or proceeding, by reason of the fact that he or she is or was a Director, advisory director or officer of the Corporation or of any other company at the request of the Corporation or is or was serving at the Corporation's request as an officer, managing partner or in any other position of authority in the operation of a partnership, limited partnership or joint venture in which the Corporation has or had a substantial direct or indirect interest (collectively referred to hereinafter as "Indemnified Persons"), against all expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such Indemnified Persons in connection with any such action, suit or proceeding. The Corporation shall advance, pay and reimburse (as applicable) expenses to Indemnified Persons to the full extent permitted by law. The Corporation may, to the extent permitted by law, purchase and maintain insurance, create a trust fund, establish any form of self-insurance, secure its indemnity obligation by grant of a security interest or other lien on the assets of the Corporation, establish a letter of credit, guaranty or surety arrangement, or other arrangement on behalf of Indemnified Persons against any liability asserted against such persons in their capacities as described above, whether or not the Corporation would have the power to indemnify such Indemnified Persons against such liability. No amendment to or rescission of this Article shall affect the rights of any of the Indemnified Persons to indemnification or the advancement, payment or reimbursement of expenses required by this bylaw growing out of any act, transaction, 13 event or circumstance which occurred before such amendment or rescission. Article 9: Transition Provisions Section 9.01. Prior Bylaws. (a) The Bylaws of the Corporation (the "Prior Bylaws") in effect upon adoption of these Bylaws are hereby amended and, as amended, restated in their entirety by these Bylaws. (b) Action validly taken under the Prior Bylaws remains valid. Section 9.02. Directors and Officers. Each Director, officer and committee member elected or appointed pursuant to the Prior Bylaws and in office upon adoption of these Bylaws shall continue in office for the term to which elected or appointed pursuant to the Prior Bylaws subject to resignation or removal as provided by these Bylaws. Section 9.03. Effect of Section 2.03. Until such time as the shareholders adopt an amendment to the Corporation's Articles of Incorporation to provide that action by the holders of at least fifteen percent of all of the shares entitled to vote at the meeting will be required for shareholders to call a special meeting of shareholders, clause (iv) of subsection (a) of Section 2.03 of these Bylaws shall be effective in the following terms: "(iv) the holders of at least ten percent of all of the shares entitled to vote at the meeting." After the shareholders shall have adopted such an amendment to the Corporation's Articles, clause (iv) of subsection (a) of Section 2.03 shall be effective as therein stated. Section 9.04. Effect of Article 9. The provisions of this Article 9 control over any contrary provision of other Articles of these Bylaws. 14 EX-10.F 3 AMENDMENT#1 TO CHANGE IN CONTROL AGREEMENT EXHIBIT 10(f) AMENDMENT NO. 1 TO CHANGE IN CONTROL AGREEMENT This agreement is entered into between Aztec Manufacturing Co. (the "Company") and L.C. Martin ("Martin") on the date hereafter set forth. WHEREAS, the parties hereto entered into a change in control agreement (the "Change in Control Agreement") on the 25 day of April, 1986; and WHEREAS, the parties to that Change in Control Agreement desire to amend it as set forth herein. NOW, THEREFORE, in consideration of the premises and the continued employment of Martin, it is agreed as follows: 1. Subparagraphs 3(ii) and 3 (iii) of the Change in Control Agreement are amended to read as follows: "3. Compensation Following Change of Control ... (ii) If your employment during such three (3) month period shall be terminated by you for Good Reason, as defined below, or as a result of your death or total disability or for any other reason whatsoever by the Company, the Company shall, in addition to the payment provided for in Section 3(i),pay you your full base salary through the date of termination of employment, plus any other amounts to which you are entitled under any compensation plan of the Company, at the time such payments are due. The payment provided for in Section 3(i) shall be due within five (5) days after the date of your termination. (iii) If your employment during such three (3) month period shall be terminated by you for any reason whatsoever other than as a result of your death, total disability or Good Reason as define below, the Company shall pay you your full base salary through the date of termination of your employment at the rate in effect at the time of your termination of employment, plus any other amounts to which you are entitled under any compensation plan of the Company, at the time such payments are due, but you shall not be entitled to the payment provided for in Section 3(i). For purposes of the Agreement, "Good Reason" shall mean without your express written consent, the occurrence after a change in control of the Company of any of the following circumstances: (A) the assignment to you of any duties inconsistent with your present status as Chairman of the Board and President of the Company (or such other title or titles as you may be holding immediately prior to the change in control of the Company) or a substantial adverse alteration in the nature or status of your responsibilities from those in effect immediately prior to the change in control of the Company; (B) a reduction by the Company in your annual base salary as in effect on the date of the change in control of the Company; (C) the relocation of the Company's principal executive offices to a location outside of Fort Worth, Texas (or, if different, the metropolitan area in which such offices are located immediately prior to the change in control of the Company) or the Company's requiring you to be based anywhere other than the Company's principal EXHIBIT 10(f) Page 2 of 3 executive offices except for required travel on the Company's business to an extent substantially consistent with your business travel obligations on the date of the change in control of the Company; (D) the failure by the Company, without consent to pay to you any portion of current compensation, or to pay you any portion of an installment of deferred compensation under any deferred compensation program of the Company, within seven (7) days of the date such compensation is due; (E) except as provided below, the failure by the Company to continue in effect any compensation plan in which you participate immediately prior to the change in control of the Company's current plan under which you receive a bonus, based on gross profits of the Company or any substitute plans adopted prior to the change in control, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan, or the failure by the Company to continue your participation therein (or in such substitute or alternative plan) on a basis not materially less favorable, both in terms of the amount of benefits provided and the level of your participation relative to other participants, as existed at the time of the change in control; (F) except as provided below, the failure of the Company to continue to provide you with benefits substantially similar to those enjoyed by you under the Employees Benefit Plan and Trust of Aztec Manufacturing Co. or under any of the Company's other deferred compensation plans, life insurance, medical, health and accident, or disability plans in which you were participating at the time of the change in control of the Company, the taking of any action by the Company which would directly or indirectly materially reduce any of such benefits or deprive you of any material fringe benefits enjoyed by you at the time of the change in control of the Company, or the failure by the Company to provide you with the number of paid vacation days to which you are entitled on the basis of years service with the Company in accordance with the Company's normal vacation policy for officers in effect at the time of the change in control of the Company". 2. In all other respects, the Change in Control Agreement is ratified, confirmed and approved. WITNESS OUR HANDS this the 15/th/ day of May, 1992. AZTEC MANUFACTURING CO. By: _______________________________ Gayle D. Flowers ___________________________________ L.C. MARTIN EXHIBIT 10(f) Page 3 of 3 EX-13 4 ANNUAL REPORT EXHIBIT 13 - -------------------------------------------------------------------------------- AZTEC MANUFACTURING CO. - -------------------------------------------------------------------------------- 1999 CALVERT AZTEC R-A-L - -------------------------------------------------------------------------------- ANNUAL REPORT - -------------------------------------------------------------------------------- CORPORATE PROFILE Aztec Manufacturing Co. markets and services industries worldwide through two distinct segments. The Manufactured Products Segment is made up of electrical and tubular products operations providing products to a wide range of customers in the industrial, power generation and petroleum industries. The Services Segment provides hot dip galvanizing services to the steel fabrication business through ten facilities located throughout the South and Southwest. PAGE 1 SELECTED FINANCIAL INFORMATION
Fiscal Year ----------------------------------------------------------------------------------------- 1999 1998(a) 1997 1996(b) 1995 -------------------- ------------------ ---------------- ----------- ----------- (In thousands, except per share amounts, percentages and ratios) Summary of operations: Net sales $ 80,922 $ 75,479 $ 57,703 $ 49,184 $ 44,608 Net income (c) 4,874 (d) 7,220 4,328 2,582 1,578 Earnings per share: Basic earnings per common share (c) $ .87 (d) $ 1.21 $ .75 $ .46 $ .28 Diluted earnings per common share (c) .86 (d) 1.19 .74 .45 .27 Return on average shareholders' equity 15.9% 23% 16.7% 11.6% 7.7% Pretax profits to sales 9.6% 13.1% 12.4% 8.7% 5.8% Net income to sales 6.0% 9.6% 7.5% 5.2% 3.5% Total assets $ 58,399 $ 57,902 $ 45,995 $ 42,621 $ 40,791 Long-term debt, excluding current portion 20,266 11,321 7,527 9,516 10,484 Total liabilities 31,514 23,582 17,421 19,461 19,415 Shareholders' equity (e) 26,885 34,320 28,573 23,160 21,376 Working capital 15,033 16,731 12,220 7,879 10,117 Shareholders' equity per share (e) 4.79 5.75 4.96 4.11 3.75 Long term debt to equity ratio .75 to 1 .33 to 1 .26 to 1 .41 to 1 .49 to 1 Current ratio 2.40 to 1 2.43 to 1 2.30 to 1 1.89 to 1 2.22 to 1 EBITDA $ 12,413 $ 13,682 $ 10,691 $ 7,407 $ 5,185 Cash provided by operations 8,774 2,698 6,821 9,103 40 Capital expenditures 6,992 3,395 2,037 3,434 4,890 EBITDA per share 2.21 2.29 1.86 1.31 .91 Cash dividends per share .12 .10 .06 .03 .02 Average shares outstanding 5,614 5,968 5,761 5,634 5,698
(a) Includes the acquisition of three subsidiaries in March 1997, December 1997, and February 1998. (b) Includes the acquisition of a subsidiary in February 1996. (c) Includes the a pretax charge of $914,000 (or 10 cents per share) for the liquidation and write-down of tubular goods inventories. (d) Includes a one time tax benefit of approximately $1,076,000 (or 18 cents per share). (e) Includes the repurchase of approximately 1.2 million shares of the Company's common stock at a cost of $11.9 million. NET SALES NET INCOME SHAREHOLDERS' EQUITY (In millions) (In millions) (In millions) [BAR CHART APPEARS HERE] [BAR CHART APPEARS HERE] [BAR CHART APPEARS HERE] PAGE 2 LETTER TO OUR SHAREHOLDERS We are pleased to present to you the operating results of Aztec Manufacturing Co. for the fiscal year ending February 28, 1999. Despite the economic turmoil in much of the world and low commodity prices, Aztec had a good year. Aztec's revenues for fiscal 1999 grew to a record level of $80.9 million, a 7 percent increase over the prior year's revenues of $75.5 million. Net income was $4.9 million for the fiscal year ending February 28, 1999 and generated a 6 percent return on sales. This compares to $7.2 million or 9.6 percent in fiscal 1998. The Company's operations are divided into two distinct and unique segments, Manufactured Products and Services. An equal distribution of revenues between the two segments has been and continues to be an integral part of the operating and growth strategy of the Company. The Manufactured Products Segment is made up of our electrical and tubular products, and the Services Segment is made up of hot dip galvanizing services to the steel fabrication industry. Since the acquisition of our first electrical products company in 1990, Aztec has maintained a strategy to grow the Manufactured Products Segment with a combination of internal growth and acquisition. Simultaneously there has been a growth strategy of participating fully in the regional industry consolidation, which is now taking place in the hot dip galvanizing industry. This growth strategy has resulted in an increase from five galvanizing plants to ten in our Services Segment. While market conditions and acquisitions can change the mix from year to year, we remain committed to the strategy of growing both simultaneously and maintaining an equal distribution between Manufactured Products and Services. The Manufactured Products Segment of Aztec's business accounted for 57 percent of our revenues or $46.4 million compared to the prior year's 60 percent or $44.9 million. While revenues were at record levels, the downturn in the international power generation market and the deterioration in the price of oil adversely affected profit margins in this segment. Each year sales to the petroleum industry represents a declining portion of our total business. With the broadening of our business and customer base, combined with entry into new markets with our tubular products, our future operating results should more closely track the general economic trends, rather than the price of a singular commodity. As we look to fiscal 2000, we anticipate further growth in both revenues and profitability will occur in the Manufactured Products Segment. New product development and the dynamics of the deregulation of the power generation industry will be the primary factors in the growth of this segment. We completed the year with record backlogs and increasing quotation activity. For the fiscal year ending February 28, 1999, growth in the Manufactured Products Segment was favorably impacted by the expansion of our manufacturing facilities, increased investment in machinery and equipment, new product introductions and the full year impact of the acquisition of DRES-CO. We will continue our emphasis on increasing market share, globalizing our marketing efforts, and providing more products to our existing customer base, either through acquisition or product development. The Services Segment of our business generated 43 percent of our revenues or $34.5 million for the year just ended compared to the prior year's 40 percent of revenues or $30.5 million. This segment recorded record revenue levels and also a record level of operating profits. Operating results were favorably aided by the full year impact of acquisitions, improvement in cost control and efficiency and stabilization of the price of zinc. Extensive reinvestment in this segment positions us well for a continuation of growth and improvement in operating results. We now serve the steel fabrication industry with hot dip galvanizing services from ten strategically located facilities. In fiscal 1999, we served over 3,500 customers, which has provided a broad economic base and one that is not tied to a particular industry or market. This has also helped us develop a high level of expertise and efficiency in many different types of work. A superior level of service and support to our customers has allowed us to have a very PAGE 3 LETTER TO OUR SHAREHOLDERS high customer retention rate and enhanced marketing capabilities. Future growth and expansion of the Services Segment will be through vigorous participation in the accelerating regional industry consolidation, which is now underway. As we have previously reported to you, Aztec is in a strong position to capitalize on the pending consolidation wave and should emerge as a premier industry "consolidator" for several reasons: 1) Aztec has a strong and rapidly growing cash flow. 2) Aztec has a well-developed management team, experienced in running a multi-plant operation. 3) The Company has a large enough presence in its regional area to achieve high levels of synergism as it makes acquisitions. As we continue to execute our strategy for growth and expansion, the investment community should recognize the sustainability of our historical and anticipated growth and this should reward our shareholders accordingly over time. Improvement in shareholder value remains at the forefront of our goals and objectives. Management is pleased with the results attained over the past years, but we are disappointed that the investment community has not looked more favorably on these results. This problem is not unique to Aztec but is reflected in the valuation of many small cap companies. This level of pricing of our stock combined with our excellent cash flows provided an opportunity for the Company to repurchase a significant number of shares during the fiscal year ending February 28, 1999. Aztec repurchased 1.2 million shares or approximately 20 percent of the outstanding common stock. In the Review of Operations section of this report you will find more details about the specific achievements of our individual operations and the steps being taken to increase revenues and profits. The changes hold much significance for the future of Aztec and we trust you will take the time to review them. The Board of Directors, on February 16, 1999, declared a year-end cash dividend of 12 cents per share, a 20 percent increase over the previous payment. This dividend was paid March 26, 1999, to shareholders of record as of March 5, 1999. The shareholders annual meeting of Aztec Manufacturing Co. will be held at 10:00 a.m. Tuesday, July 13, 1999, at the Petroleum Club in the Derrick I Room on the 39th floor of the UPR Plaza (formerly Continental Plaza), Fort Worth, Texas. We cordially invite all shareholders to attend. Aztec remains financially strong, alert to opportunities and looking forward to another record year in the new millennium. It is our goal to be the best at what we do, for the benefit and enhancement of our customers, our Company, our employees and our shareholders. Thank you for your continuing support of our efforts. Sincerely, L.C. Martin Chairman of the Board and Chief Executive Officer David H. Dingus President and Chief Operating Officer PAGE 4 A GAME PLAN FOR GROWTH - BENCHMARKS TO MEASURE PROGRESS Aztec operates in two distinct businesses, Manufactured Products and Services. Fiscal 1999 provided mixed results among the two businesses. Softening in the electrical group and a severe drop in tubular products offset continued progress in our galvanizing operations. A portion of Rig-A-Lite sales are within the energy sector, depressing their sales and operating margins. Calvert was impacted in the second and third quarter by the Asian Crisis as power generating projects were stretched out or delayed in a number of Pacific Rim countries. This was also the case to a lesser degree in the Latin American markets. Tubular products remain depressed, but much of the inventory has been sold and converted to cash. Whether OPEC moves to cut production are effective and whether this leads to improved oil pricing and increased activity is still unknown at this juncture. EBITDA (In millions) [BAR CHART APPEARS HERE] As we enter the new fiscal year, the outlook for the Manufactured Products Segment is looking more positive. Rig-A-Lite continues to broaden both its product line and markets served and this is beginning to offset the lower activity in the energy markets. Atkinson completed its plant expansion last fall and its sales growth and operating margins are showing excellent progress. Also, after a shortage of new construction in the U.S. electrical utility industry over the last several years, deregulation is changing the picture. Calvert saw a significant turnaround in its business in the fourth quarter, which is continuing into fiscal 2000. Tubular products is diversifying into new markets by embarking on two new product offerings away from the petroleum industry. All of these trends are discussed in more detail in the Review of Operations. RETURN ON SALES [BAR CHART APPEARS HERE] ASSET TURNOVER is the ratio of sales per dollar employed during the year. It is calculated by dividing net sales by average assets. (In thousands) Fiscal 1995 Sales = $44,608 =1.19 ----- ------- Avg. Assets 37,425 Fiscal 1996 Sales = $49,184 =1.18 ----- ------- Avg. Assets 41,706 Fiscal 1997 Sales = $57,703 =1.30 ----- ------- Avg. Assets 44,308 Fiscal 1998 Sales = $75,479 =1.45 ----- ------- Avg. Assets 51,948 Fiscal 1999 Sales = $80,922 =1.39 ----- ------- Avg. Assets 58,150 PAGE 5 A GAME PLAN FOR GROWTH - BENCHMARKS TO MEASURE PROGRESS The Services Segment successfully integrated the acquisition made in December 1997 of International Galvanizers in Beaumont, Texas. The improvements made at this facility coupled with the upgrading of the kettle at Hobson Galvanizing have us well positioned for the upcoming projects in the coastal area. The current year outlook holds much promise. The recently enacted $217 billion national highway bill should open more construction activity. Material costs (zinc) are currently stable and expected to remain so for the balance of the year. RETURN ON ASSETS [BAR CHART APPEARS HERE] PRETAX RETURN ON AVERAGE ASSETS is earnings before taxes and extraordinary items divided by average assets. (In thousands) Fiscal 1995 Pretax Earnings = $2,608 = 7.0% --------------- ------ Avg. Assets 37,425 Fiscal 1996 Pretax Earnings = $4,267 = 10.2% --------------- ------ Avg. Assets 41,706 Fiscal 1997 Pretax Earnings = $7,153 = 16.1% --------------- ------ Avg. Assets 44,308 Fiscal 1998 Pretax Earnings = $9,909 = 19.1% --------------- ------ Avg. Assets 51,948 Fiscal 1999 Pretax Earnings = $7,800 = 13.4% --------------- ------ Avg. Assets 58,150 SALES PER AVERAGE EMPLOYEE is sales divided by average number of employees. (In thousands) Fiscal 1995 Sales = $44,608 = $106 ----- ------- Avg. Employees 419 Fiscal 1996 Sales = $49,184 = $105 ----- ------- Avg. Employees 469 Fiscal 1997 Sales = $57,703 = $110 ----- ------- Avg. Employees 524 Fiscal 1998 Sales = $75,479 = $120 ----- ------- Avg. Employee 627 Fiscal 1999 Sales = $80,922 = $118 ----- ------- Avg. Employees 688 PRETAX INCOME PER AVERAGE EMPLOYEE is earnings before taxes and extraordinary items divided by average employees. (In thousands) Fiscal 1995 Pretax Earnings = $2,608 = $6 --------------- ------ Avg. Employees 419 Fiscal 1996 Pretax Earnings = $4,267 = $9 --------------- ------ Avg. Employees 469 Fiscal 1997 Pretax Earnings = $7,153 = $14 --------------- ------ Avg. Employees 524 Fiscal 1998 Pretax Earnings = $9,909 = $16 --------------- ------ Avg. Employees 627 Fiscal 1999 Pretax Earnings = $7,800 = $11 --------------- ------ Avg. Employees 688 RETURN ON EQUITY - The definitive measure of profitability for our shareholders is calculated by dividing net income by the average equity capital employed during the year to achieve the earnings. (In thousands) Fiscal 1995 $1,578 = 7.7% ------ 20,462 Fiscal 1996 $2,582 = 11.6% ------ 22,268 Fiscal 1997 $4,328 = 16.7% ------ 25,867 Fiscal 1998 $7,220 = 23.0% ------ 31,447 Fiscal 1999 $4,874 = 15.9% ------ 30,603 PAGE 6 A GAME PLAN FOR GROWTH - BENCHMARKS TO MEASURE PROGRESS In summary, our productivity and performance measurements, while all still at acceptable levels, declined last year but should post a meaningful recovery in fiscal 2000. As we pointed out in last years' report the trend over multiple years is what is relevant. Of particular importance as we go forward, asset turnover and sales per employee remained near historical highs - we were able to adjust reasonably quickly. This leads directly into the topic of cash flow and reinvestment. While earnings declined in fiscal 1999, cash flow from operations increased primarily because of good gains in operating income from our galvanizing business and the liquidation of tubular products inventories. As shown in the accompanying graph, cash flow from operations was $8.8 million compared to $2.7 million in fiscal 1998. The chart plots the cash flow from operations in millions of dollars each year since fiscal 1995 and superimposes after tax earnings for the same years. (IN MILLIONS) [BAR CHART APPEARS HERE] Pursuing a policy that stresses maximization of cash flow logically should result in an improving earnings trend for Aztec because it allows an acceleration of our expansion and acquisition programs. Of course maximizing the cash flow and reinvesting it through accelerating our expansion programs is a sound approach only if acceptable rates of return are achieved. STANDARD & POORS 500 ROE [BAR CHART APPEARS HERE] AZTEC'S ROE [BAR CHART APPEARS HERE] The monitoring of the various performance measurements help us make better cash flow reinvestment decisions. Based on our expectations of our business going forward, and given the depressed valuation of our common stock and for that matter small cap stocks in general, we used available cash to repurchase approximately 20% of Aztec's outstanding common stock in the latter half of the fiscal year. With depressed prices recently prevailing, the expected rate of return for the common shareholder appeared to be potentially higher through the repurchase of common stock rather than the investment in available acquisition candidates during fiscal 1999. This does not mean that your management has stopped pursuing growth either internally or by acquisition. Quite the contrary, we are merely reinvesting cash for the long-term benefit of all our shareholders. PAGE 7 REVIEW OF OPERATIONS Aztec's volume for fiscal 1999 grew to $80.9 million, a 7% increase over the prior year. Manufactured Products sales accounted for 57% of our volume, while Services represented 43%. This compares to a mix in fiscal 1998 of 60% Manufactured Products and 40% Services. Our Manufactured Products consist of our electrical and tubular products operations, while our Services consist of hot dip galvanizing, primarily to steel fabricators. The distribution of revenue between Manufactured Products and Services has been an integral part of the growth strategy of the Company. Since the acquisition of the first electrical company in 1990, Aztec has maintained a strategy to grow the Manufactured Products with a combination of internal growth and acquisitions. Simultaneous with the strategy of growth in Manufactured Products, our growth strategy has seen the Services Segment increase from five galvanizing plants to ten. This has been accomplished by acquisitions and the building of a new facility. While market conditions and acquisitions can change the mix from year to year, we remain committed to the strategy of growing both simultaneously. A discussion of the operating results by segment and operations within that segment is presented below. MANUFACTURED PRODUCTS The Manufactured Products Segment of Aztec generated over 57% of total revenues and 37% of operating income. This segment is one of the core strengths of the Company and is one we believe is well positioned for continued growth and expansion. Sales increased by 3% over the prior year. While this appears to be a low growth rate, this segment was negatively impacted by the economic crisis in many of our international markets and further impacted by the severe downturn in the petroleum markets. We were able to offset these factors with a full year operating results of DRES-CO, which was acquired in February 1998, combined with continued expansion of our served markets, and broadening of our customer base and product offerings. Operating margins were below that of the prior year as a result of the unexpected downturn in some of our markets and increased spending levels on product development and marketing as we redirected our business to a broader customer base and continued our investment in the future of this core segment. Return on assets employed exceeded 15% and operating income exceeded 9%. While this is down from the prior year due to the conditions stated above, it remains a very profitable segment and one that should continue to be a significant contributor to the overall performance of the Company. All of our products enjoy world-class status, with excellent name recognition and customer acceptance. Our strategy is to continue to grow our global customer base, offering them an integrated and innovative, one-stop total solution to their needs. We will look to continued product development and complimentary acquisitions to supplement our growth in this segment in order to take more products to our existing customer base. Aztec's Manufactured Products Segment is made up of five operating entities: Atkinson Industries, Inc. ("Atkinson"), Rig-A-Lite Partnership, Ltd. ("R-A-L"), The Calvert Company ("Calvert"), tubular products, and Drilling Rig Electrical Systems Partnership, Ltd., ("DRES-CO"). An individual discussion of each of these entities is provided below. ATKINSON INDUSTRIES, INC. - PITTSBURG, KANSAS Atkinson is a leading manufacturer of custom engineered factory fabricated modular power distribution enclosures. Atkinson has been involved in this business for approximately twenty years, and has been one of the primary agents in promoting the acceptance of the factory fabricated modular enclosure concept across a broad spectrum of industries and applications. This concept has moved beyond the original application of providing environmentally controlled protection for PAGE 8 REVIEW OF OPERATIONS Manufactured Products (In thousands)
============================================================================================================== 1995 1996 1997 1998 1999 - -------------------------------------------------------------------------------------------------------------- Sales $31,847 $32,264 $34,057 $44,940 $46,400 - -------------------------------------------------------------------------------------------------------------- % Change 2%- 1% 6% 32% 3% - -------------------------------------------------------------------------------------------------------------- OP Income $ 2,442 $ 3,836 $ 5,261 $ 6,904 $ 4,380 - -------------------------------------------------------------------------------------------------------------- % Change <47%> 57% 37% 31% <37%> - -------------------------------------------------------------------------------------------------------------- OP Margin Return on Sales 8% 12% 15% 15% 9% - -------------------------------------------------------------------------------------------------------------- Avg. Assets Employed $22,296 $21,683 $19,884 $24,830 $29,436 - -------------------------------------------------------------------------------------------------------------- Return on Assets 11% 18% 26% 28% 15% ==============================================================================================================
power distribution equipment in hazardous areas such as refineries, to encompass applications in the chemical, paper, automotive, steel, telecommunications and petroleum industries, as well as general industry, utilities, and municipalities. Atkinson has continued to emphasize its "turnkey" capabilities in providing packages that include instrumentation, analyzing equipment, programmable logic controllers, and other applications involving microprocessor based equipment. This is in addition to the more traditional applications composed of power distribution equipment packages. The "turnkey" package provides the end user with a modular structure that is ready to operate at a lower installed cost than is available by procuring and coordinating all of the individual pieces of the package. This concept reduces the end user procurement and coordination efforts, while reducing project lead times and field installation cost. We have long enjoyed a reputation of providing a high quality distinctly constructed modular enclosure package. This reputation has been maintained as we have expanded the company to become a more significant force in the industry. Growth of the company has come from expansion of this type of application across a wider base of markets served. These efforts resulted in Atkinson realizing another record year in orders, sales, and operating income for fiscal 1999. Sales for fiscal 1999 grew by approximately 12% while operating income grew by a rate of 47%. In addition to recording record levels of orders, sales, and profitability, fiscal 1999 saw the successful completion of the expansion of our production facilities. This addition more than doubled our manufacturing capacity. The expansion was completed without significant production interruptions, and allowed us to take advantage of opportunities to meet increasing customer demand for our product. The new capacity has allowed us to be more responsive to our customers by reducing the lead times associated with our products. As we enter the new fiscal year, we believe that the expanded and improved facilities will lead to increased responsiveness to our customer's requirements, greater efficiency, and higher operating margins. RIG-A-LITE PARTNERSHIP, LTD. - HOUSTON TEXAS R-A-L is a leading manufacturer of highly engineered hazardous and severe environment lighting fixtures primarily operating in three distinct markets with a fourth being introduced at the end of fiscal 1999 as described below. Operating results for the current fiscal year reflect a downturn from the prior fiscal year. This is the first year since the acquisition in 1990 that we have not shown a substantial growth above the prior year. The primary cause of the downturn was the severe decline experienced in the petroleum sector and the unfavorable impact on our international business brought on by the economic crisis in many of our served geographic markets. The three industry markets served are Commercial/Industrial, Food Processing and Petrochemical. Our newest market entry is Retail Outdoor Lighting. Approximately 43% of R-A-L's revenues are generated in the Commercial/Industrial lighting PAGE 9 REVIEW OF OPERATIONS fixture market. Development and implementation of proactive sales programs and enhanced product development are the key factors in increasing the independent agent specification selling capability, a critical factor to continued growth. Intense field training has increased the agent knowledge and has increased the success rate with large project specifications, not only within the U.S. but also large industrial projects around the world. Further product development and the introduction of an intrinsically safe fiber optic hazardous product line should continue R-A-L's technological leadership position in this market. The Food Processing lighting fixture market, primarily fresh poultry and red meat products, continues to be driven by new building projects. This market was pioneered by R-A-L a number of years ago with a product specifically designed and manufactured for this application. The new generation, state of the art, energy efficient products were successfully introduced in fiscal 1999. These products were specified for use in new building projects as well as re-lighting of older R-A-L installations. This trend of re-lighting and new projects will continue through the coming fiscal year. The Petrochemical market that R-A-L serves went through a difficult year. The steep decline in crude oil prices reduced demand for drilling, especially for land based rigs. Because of this decline in the new or refurbished land based rig markets, greater emphasis was placed on offshore rigs, production platforms and service related barge projects to gain a larger share of a declining market. Our reliance on this market for growth has diminished over the past few years as we have expanded our participation in other markets. We will continue our strategy to increase market share by concentrating on larger project specifications and offshore project business. We are excited about our latest market entry, that being the Retail Outdoor Lighting market. We anticipate that this will represent approximately 10% of R- A-L's business in the coming fiscal year. We have completed the majority of our product development for this market and have identified and signed leading independent sales agents to work with distributors in order to penetrate this market. Our initial emphasis will be in the growth of the retail outlets that provide the customer with a combination of services, such as the retail petroleum, convenience store, and fast food outlet combinations. This is a growing market and one that should facilitate penetration. We will also aggressively pursue the auto service, car washes, and retail auto providers as they increase their emphasis on upgrading their lighting to enhance appearance and customer acceptance. While R-A-L incurred a downturn in fiscal 1999, we are encouraged about the outlook for this entity as we continue to broaden our customer base and expand our product offerings. Continued product development, further expansion of agent and distribution networks, and increased emphasis on specification should facilitate a return to growth and help restore our historical pattern of year over year increased revenues and profits. THE CALVERT COMPANY - RICHLAND, MISSISSIPPI Calvert is a leading manufacturer of custom designed electrical distribution systems in the fields of isolated phase bus, segregated and non-segregated phase bar bus, cable bus, grounding cubicles and installation services. The markets served are Original Equipment Manufacturers (OEM), architectural engineering design firms, investor owned utilities, independent power producers and industrial companies. Total revenues and profits were down due to a weak second and third quarter of this fiscal year. The primary contributing factor was the turmoil in the Asian and Latin American markets, combined with the fact that the Independent Power Producers (IPP's) were not yet in a position to solicit bids for new plant construction. The IPP market has been brought about by the deregulation of the electricity industry. As deregulation moves into the electricity market, the changes promise to be dramatic. The new power structure is made up of 1) power producers which are deregulated, 2) middlemen or a new class of power PAGE 10 REVIEW OF OPERATIONS marketers which are deregulated, 3) delivery systems which remain regulated and 4) billing and metering which has also been deregulated. We are the most influenced by the deregulation in the power producers as they address the critical need for more power production capacity in the United States. While the fourth quarter of fiscal 1999 was a record setting quarter in terms of revenues and incoming orders, the sales increase was not sufficient to offset the downturn in the second and third quarter. The fourth quarter increase was due primarily to a more stabilized foreign market and the dynamic domestic market conditions created by deregulation and the resulting business from the IPP's. The incoming orders for our primary products were supplemented by the selection of Calvert to be a major supplier of general terminal enclosures to an OEM. We anticipate that these market conditions will continue for the next three years. The continuation of these conditions should facilitate further growth and expansion of our business. Operating income was unfavorably impacted by the same factors that impacted our volume in the second and third quarter. The downturn that occurred did not provide for sufficient near term backlog to effectively and efficiently operate our facility and cover the fixed overhead and expense structure at the same margin percent as we have historically enjoyed. This was addressed in the fourth quarter and the continuation of the operating income level achieved in the fourth quarter should position this entity to achieve operating income at record levels in fiscal 2000. Emphasis on product development was increased in fiscal 1999 and will continue into the new fiscal year. Keeping abreast of changing market conditions will be a key focal point for Calvert. With years of service to the industry, every effort will be made to ensure that we maintain a leadership position and better serve our changing markets. This will be combined with increased emphasis on the segment of the international market we serve so as to position the company for maximum long-term growth. We are utilizing government agencies such as the Local Trade Commission and the Federal Trade Commission to assist us in identifying opportunities with NAFTA partners. Calvert Installation Services (CIS) and parts sales continue to be brisk. As our bus business grows, so do the opportunities for CIS and spare parts. This combined with efforts of utility companies to downsize their support staffs in the cost cutting environment of deregulation have resulted in an increased usage of outside subcontractors for maintenance and repair, thus adding to the potential of CIS. We enter fiscal 2000 with the highest backlog in the history of Calvert. Domestic sales should account for approximately 70% of its business in the coming fiscal year. In fiscal 1999 and 1998 approximately 80% of Calvert projects were shipped overseas. We anticipate that the growth trend experienced in the fourth quarter will continue into next year. This is supported by the fact that generator manufacturers are backlogged 1-2 years and their backlog is increasing. It is anticipated that these factors will continue and favorably impact the growth and operating results. TUBULAR PRODUCTS Tubular products is a small component of our Manufactured Products Segment, and one that is in a state of change. Fiscal 1999 was a disappointing year and clearly demonstrates the volatility that occurs when operating results are tied to a singular market or commodity. With the petroleum industry as tubular products primary source of revenues, our results clearly reflect the impact on this segment by wide fluctuations in the price of oil. Operating results for the current year when compared to the operating results of fiscal 1998, when more favorable marketing conditions prevailed, demonstrates the need for a change in nature and direction of this product. Your management has responded to this and has begun to put in place strategies that will lessen the dependence on a singular market. This downturn in oil pricing and the resultant impact it has had on our operations required us to continually adjust our operating cost structure to minimize the adverse impact on the PAGE 11 REVIEW OF OPERATIONS Company. Of particular significance is the downward pressure on our product pricing which resulted in substantial write-downs of inventory and liquidation of products well below our inventory carrying costs. This charge amounted to $914,000 in fiscal 1999. We anticipate that without further pricing deterioration, this should be behind us and our products currently in inventory should be sold at carried cost or a slight margin. This situation occurred primarily in our larger diameter pipe. During the course of the year as business declined, we took steps to maintain our market share in the small diameter sizes of pipe (macaroni). This is currently our core competency and is the product that we will have to concentrate on in the climate we are now experiencing. We do not anticipate any major favorable change in the marketing condition for the balance of calendar 1999. The other core competency is pup joints. As we endeavored to maintain acceptable pricing levels during fiscal 1999, we did lose some market share. As we look to the current year, our strategy for these two products is to maintain our market share at acceptable pricing levels. In each of these areas, we do compete from a position of strength. The key to our long-term success is to diversify into markets that will not fluctuate as greatly as the oil industry and markets that can be entered based upon current capabilities and facilities. To that end we have embarked on two new product offerings. The first is a new product that fits perfectly into our capabilities and does not require additional capital investment. This product is for an automotive application, to be supplied to a tier one manufacturer. We believe that a product such as this will give us constant sales volumes on a month to month basis. The second part will be a drill pipe offering to serve the underground construction and utility industry. This product will have to go through an acceptance period and will take some time to be widely used in the industry. Additionally, market distribution channels must be established. It is imperative that we develop new areas of business to insulate the Company from the wide fluctuations of the oil industry. Initial steps have been taken and further investigation will be done. Short-term improvement in our operating results will need to come from improved oil pricing. However, sustainable improvement must come from diversification and broadening of our customer base. Your management is dedicated to minimizing the adverse impact on the Company from falling oil prices. DRILLING RIG ELECTRICAL SYSTEM PARTNERSHIP, LTD., (DRES-CO) - HOUSTON, TEXAS Formed in 1977, DRES-CO's product offering consists of designing and installing of electrical systems primarily on land based drilling rigs. Over the years, DRES-CO has established itself as a leader of quality design, workmanship and service. Aztec acquired DRES-CO in February of 1998 and fiscal 1999 results reflect the first full year of operation. Being a provider of design and installation services to primarily land based drilling rigs, DRES-CO was severely impacted by the decline in crude oil prices and the resultant deterioration of its primary market segment. In an effort to offset this unfavorable trend, renewed management effort brought about a diversification to provide for a business level that would not only offset the downturn but also provide a means for growth and expansion. This diversification was to shift the company from strictly a domestic land rig electrical installation company to a wider range of opportunities that includes offshore/marine rigs and power load distribution systems designed for other industries, including but not limited to petroleum, mining and petrochemical. Despite the severe downturn in the market, DRES-CO made a positive contribution to the operating income of the Manufactured Products Segment. The diversification that has been put in place combined with new sales and marketing emphasis, and managerial structure should lead to an improvement in the coming year despite the current status of the domestic oil market. PAGE 12 REVIEW OF OPERATIONS SERVICES SEGMENT (In thousands)
====================================================================================================================== 1995 1996 1997 1998 1999 - ---------------------------------------------------------------------------------------------------------------------- Sales $12,761 $16,920 $23,646 $30,539 $34,522 - ---------------------------------------------------------------------------------------------------------------------- % Change 35% 33% 40% 29% 13% - ---------------------------------------------------------------------------------------------------------------------- OP Income $ 3,056 $ 4,270 $ 5,930 $ 6,543 $ 7,474 - ---------------------------------------------------------------------------------------------------------------------- % Change 54% 40% 39% 10% 14% - ---------------------------------------------------------------------------------------------------------------------- OP Margin Return on Sales 24% 25% 25% 21% 22% - ---------------------------------------------------------------------------------------------------------------------- Avg. Assets Employed $11,267 $16,594 $19,313 $22,522 $26,576 - ---------------------------------------------------------------------------------------------------------------------- Return on Assets 27% 26% 31% 29% 28% ======================================================================================================================
SERVICES The Services Segment of Aztec generated 43% of total revenues and 63% of operating income. This segment, which provides hot dip galvanizing services to the steel fabrication industry, is the second of the core strengths of the Company, and like Manufactured Products, is one we believe is well positioned for continued growth and expansion. Sales increased by 13% over the prior year while operating income increased 14% over fiscal 1998. On a same store basis, the growth was 4% and the favorable impact of a full year of operation of International Galvanizers in Beaumont Texas, acquired in December 1997, accounted for the balance of the increase. In fiscal 1999, Aztec provided long term, cost effective corrosion protection for more than 110,000 tons of steel. This is a 16% increase over the prior year and exceeded our forecast for the year. Return on assets employed exceeded 28% and operating income as a percent of sales at 22% was slightly ahead of last year. Despite a slight decrease in average selling price, operating efficiency improvements combined with stability in zinc pricing more than offset this decrease. The galvanizing services industry typically serves fabricators and/or manufacturers involved in the highway construction, power generation, transportation, water treatment, agriculture, petrochemical and chemical, pulp and paper, and numerous OEM industries. The market in general is broken into two major categories, being large structural steel projects and custom fabrication. Aztec now operates ten galvanizing plants. Each plant serves a broad base of customers in a relatively defined geographic market. Most of the customer base is located within a 150-mile radius of the plant and we compete primarily with respective galvanizing facilities contiguous to the area. A key strategy of our Services Segment has been to serve a broader base of customers to better ensure that we move more in concert with the general economy rather than a specific market. While a particular customer or market may impact an individual plant, in total we believe that we have achieved the desired balance. This strategy not only helps insulate the Company from wide fluctuations in a particular market, but also helps us achieve a higher average selling price. In general, the structural steel projects have a lower average selling price than custom fabrication. In fiscal 1999, we served over 3,500 customers, a key indicator to us. Additionally, serving a wide customer basis allows us to develop a high level of expertise and efficiency in handling of essentially every type of work. A superior level of service and support to our customers has allowed us to have a very high retention rate and enhanced our marketing abilities. Since 1966 Aztec has been providing long-term, cost effective corrosion protection with quality galvanizing and superior service, combined with strict quality control at each of the plants. The ten galvanizing plants of Aztec are in the south and southwest with locations in Texas, Louisiana, Alabama, Mississippi, Arkansas and Arizona. With our multi-plant operations we have the ability to coordinate and manage the largest projects or smaller single loads. Through the experience gained from many years of operations, we are able to PAGE 13 REVIEW OF OPERATIONS provide the customer with 1) consistent high quality, 2) excellent customer service, 3) competitive pricing and 4) on-time delivery. Responding to industry issues is a key to Aztec's success. An example is the galvanizing industry has been aware of the adverse effects that silicon killed steel can have on the galvanized coating. Most steel produced today is made using continuous casting technology rather than the old method of casting ingots. Silicon is widely used to deoxidize these steels and significant concentrations of silicon can remain in the finished product. This results in very reactive steel, sometimes producing very thick and discolored coatings. GALVXTRA, Aztec's nickel-zinc alloying process, has had much success in limiting the adverse effects of reactive steel. GALVXTRA improves the aesthetic appeal of the galvanized coating and reduces the frequency of developing irregular thickness. We continue to search for the best methods of serving our customer's needs. Since many application designs entail very large fabricated steel parts that minimize field erection requirements, the galvanizing industry has been challenged to build longer, wider and deeper kettles. Many of the new plants and the latest expansions of existing plants have involved installations of larger kettles. In keeping with this industry trend, Aztec made capital investments in fiscal 1999 to provide longer, deeper, and wider kettles. We will continue this trend to ensure that our capabilities match changing requirements of our customers. In general, Aztec has undertaken an aggressive reinvestment program in our galvanizing plants to ensure that they address the needs of our customers, and operate at the highest efficiency level. We believe that this has been a key success in achievement of the growth and high margin levels of this segment. In calendar year 1998, carbon steel production in the United States was 94.3 million tons, a slight decrease from the 1997 level. Of that, 3.2 million tons were hot dip galvanized. This represents a 10.5% increase over the previous year. The American Galvanizing Association reports there has been an average increase of 8.5% over the past five years. Because of the regional nature of the business, the galvanizing industry is highly fragmented with over 125 job shop type galvanizing plants in the United States. However, there is a growing trend toward industry consolidation. Aztec is one of the leading providers of galvanizing services and is considered to be an industry consolidator. Even though we are one of the leading providers, our tonnage of processed steel only represents slightly more than 3% of total industry shipments. We believe that this provides for excellent opportunities for growth and your management remains ever vigilant and proactive in pursuing acquisition opportunities. As one of our core strengths, we will look to the Services Segment for major expansion of the Company. PAGE 14 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Aztec Manufacturing Co. (the "Company") is organized into two distinct segments, Manufactured Products and Services. The Manufactured Products Segment consists of our electrical and tubular products and the Services Segment consist of our hot dip galvanizing services. The Company adopted Statement of Financial Accounting Standards ("SFAS") 131, "Disclosure About Segments of an Enterprise and Related Information," in fiscal 1999. This discussion and analysis has been prepared on the basis of these two business segments, which are primarily in the United States. Prior year information has been reclassified to the current year basis of presentation. In prior years and throughout fiscal 1999, for quarterly reporting purposes, the Company disclosed the following three segments. The first was the Electrical Products Segment, which manufactures lighting products, electrical bus ducts and power distribution enclosures. The second segment was the Galvanizing Segment which provides hot dip galvanizing services to the steel fabrication industry. The third segment was the Tubular Products Segment which provides oil field tubular products to the petroleum industry. Management believes that the following commentary appropriately discusses and analyzes the comparative results of operations and the financial conditions of the Company for the periods covered. GENERAL The Company reported sales of $80.9 million for fiscal 1999 compared with $75.5 million in the previous year. Net income for fiscal 1999 was $4.9 million or $.86 cents per share compared with $7.2 million or $1.19 per share in fiscal 1998 on a diluted basis. Net income for fiscal 1999 was negatively impacted by a pretax charge of $914,000 associated with liquidations of tubular inventories and inventory write-downs. Prior fiscal year 1998 results included a one-time tax benefit of $1.1 million. Excluding these unusual items, net income per share for the fiscal year ended 1999 would have been $.96 cents per share versus $1.01 per share in 1998 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, 1999 (1999) COMPARED WITH YEAR ENDED FEBRUARY 28, 1998 (1998) Aztec's consolidated net sales for 1999 grew by $5.4 million or 7% over 1998. Revenues from the Company's Manufactured Products Segment, which is made up of Atkinson, R-A-L, Calvert, tubular products and DRES-CO, were up $1.5 million or 3% for 1999 as compared to 1998. Total backlog for this segment was $18.2 million at the end of fiscal 1999 compared to $19.9 million in 1998. Backlog in the segment's four electrical companies was up $3.5 million or 25% in 1999 as compared to 1998. Backlog in the tubular product portion of this segment was down $5.2 million in 1999 from 1998. Revenues at Atkinson were up 12% in 1999 as compared to 1998. This increase came primarily from their core business, the manufacture of factory fabricated module power distribution enclosures. With the successful completion of the expansion of their production facility, Atkinson should show further revenue increases. Revenues at R-A-L were down 10% in 1999 as compared to 1998. R-A-L's down turn was attributed to the severe decline experienced in the petroleum related sector of their business and the unfavorable impact on their international business brought on by the economic crisis in their served geographic markets. With the introduction of new products discussed in the Review of Operations, R-A-L should be positioned for future growth. Revenues at Calvert were down 7% in 1999 as compared to 1998. The down turn experienced during Calvert's second half of fiscal 1999 is a direct result of the turmoil in the Asian and Latin American markets they serve. Over 80% of Calvert's revenues for 1999 and 1998 were generated from these overseas markets. Fiscal 2000 should see a significant shift in orders towards the domestic market due to deregulation Page 15 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS in the U.S. electrical market. Backlog at Calvert was at a record level at the end of fiscal 1999. Revenues generated from tubular products were up 8% or $700,000 for 1999 as compared to 1998. This portion of the Manufactured Products Segment has been severely impacted by the volatility in the petroleum industry. Due to deteriorating oil prices, the Company liquidated a significant portion of its inventories of tubular products in the last half of fiscal 1999. These inventory liquidations increased revenues for the year, but were sold at deep discounts. New products are being developed to move away from the petroleum industry, but it will take time to bring them to market. It is not anticipated there will be any major favorable change in the market conditions for the coming year. Tubular products continue to represent a diminishing portion of Manufactured Products Segment revenues. DRES-CO, acquired in February 1998, completed its first year as a contributor to the Company's Manufactured Products Segment, generating $1.5 million in revenues for fiscal 1999. DRES-CO is a provider of electrical systems primarily on land based rigs. This portion of the Manufactured Products Segment has been negatively impacted by the volatility in the petroleum industry. To offset a portion of this downturn, DRES-CO is diversifying its business to serve not only land based drilling rigs but also serve offshore marine rigs. This diversification should lead to an improvement in DRES-CO's performance in fiscal 2000. Revenues in the Services Segment, which is made up of the Company's ten hot dip galvanizing facilities, were up 13% or $4 million in fiscal 1999 as compared to 1998, due to a 4% increase in revenues at the segments existing nine facilities and the acquisition of International Galvanizers in late fiscal 1998. International Galvanizers contributed $3.4 million in revenues for the first full year of operations with the segment. Aztec's consolidated operating income (see Note 10 of Notes to Consolidated Financial Statements) decreased $1.6 million or 12% in fiscal 1999 as compared to 1998. Consolidated operating income in fiscal 1999 was negatively impacted by a pretax charge of $914,000 associated with liquidations of tubular inventories and inventory write-downs in the Company's Manufactured Products Segment. Operating income in the Manufactured Products Segment was down 37% or $2.5 million in fiscal 1999 as compared to 1998. Atkinson's operating income was up 47%, which corresponded with increased revenues for the year as well as reflecting increased efficiencies associated with its plant expansion. R-A-L's operating income in fiscal 1999 was down 29% from 1998. This down turn was due to competitive pricing pressures in the markets it serves. Calvert's operating income was down 55% in fiscal 1999 as compared to 1998. Again, this down turn was due to competitive pricing pressures associated with the turmoil in the Asian and Latin American markets it serves. Margins at Calvert should improve in fiscal 2000 as its production shifts to higher margin domestic projects. Tubular products showed a loss for fiscal 1999 of $961,000 as compared to an operating income of $724,000 in 1998. This loss was primarily associated with the down turn in the petroleum markets it serves leading to the liquidation and write-down of inventories. DRES-CO showed an operating income of $125,000 for its first full year of operations in the Manufactured Products Segment. The Services Segment's consolidated operating income increased 14% during 1999 compared to 1998. Operating income in this segment's nine existing facilities was up 12% due to increased volumes and production efficiencies. International Galvanizers contributed $268,000 in operating income in fiscal 1999. General corporate expenses for 1999 decreased by 6% from 1998 due to lower profit sharing expenses associated with lower profits for the year. Interest expense in 1999, as compared to 1998, was up 33% or $245,000. This increase was due to larger outstanding loan balances during the last half of fiscal 1999 associated with the repurchase of 1.2 million shares of the Company's common stock at a cost of $11.9 million. Page 16 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Other income and expense was made up of scrap sales and other (income) expense items not specifically identifiable to a segment. YEAR ENDED FEBRUARY 28, 1998 (1998) COMPARED WITH YEAR ENDED FEBRUARY 28, 1997 (1997) Aztec's consolidated net sales for 1998 grew by $17.8 million or 31% over 1997. Revenues from the Company's Manufactured Products Segment were up $10.9 million or 32% in 1998 as compared to 1997. Total backlog in the Manufactured Products Segment was $19.9 million at the end of fiscal 1998 compared to $10.9 million in 1997. Revenues at Atkinson were up 18% in 1998 as compared to 1997. Sales of Atkinson's factory fabricated power centers, which represented 91% of Atkinson's revenues, were up 24% over 1997. Rig-A-Lite's revenues were up 7% in 1998. Rig-A-Lite's revenue increase was a direct result of an improved petroleum industry. Calvert's revenues were up 43% in 1998 compared to 1997, due to continued market penetration in international markets, which represents 80% of Calvert's revenues, and Calvert's domestic customer installation service business was up 11% in the year. Tubular products generated 19% of the segment's consolidated revenues in 1998. Revenues generated from this segment were up $4.8 million or 127% for 1998 from 1997. Tubular products' backlog increased to $5.9 million at the end of fiscal 1998 compared to $630,000 in 1997. The increased revenues in 1998 were a direct result of Aztec's strategy to become a direct supplier of oil field tubular goods in fiscal 1997. DRES-CO, acquired on February 23, 1998, designs and installs electrical systems on drilling rigs. DRES-CO did not contribute to fiscal 1998 revenues. Revenues in the Services Segment were up $6.9 million or 29% for 1998 as compared to 1997, due to a 3% increase in revenues at the Company's existing eight facilities and two acquisitions during fiscal 1998. Hobson Galvanizing acquired in March 1997 and International Galvanizers acquired in December 1997 contributed a combined total of $6.3 million in revenues or 21% of the segment's revenues in fiscal 1998. Aztec's consolidated operating income (see Note 10 of Notes to Consolidated Financial Statements) increased $2.3 million or 20% for fiscal 1998, as compared to 1997. Operating income in the Manufactured Products Segment was up 31% in fiscal 1998 compared to 1997. Atkinson's operating income was up 14% compared to 1997 due to improved operating margins. Rig-A-Lite's operating income in 1998 was up 7% from 1997, which corresponded with the increase in revenues for the year. Calvert's operating income was up 52% in 1998 compared to 1997, due to increased volumes as well as higher margin jobs. Tubular products showed a $724,000 operating income for 1998 as compared to the $56,000 loss in 1997. The operating loss in 1997 included carrying cost of $115,000 for the segment's idle facility in Houston, which was sold in 1997. The improvement in operating income in this segment is attributable to the increased volumes of tubular goods processed and sold during fiscal 1998. The Services Segment total operating income increased 10% during 1998 compared to 1997. Income in this segment was negatively impacted by a write-down of zinc inventory to market price in the amount of $482,000 at the end of fiscal 1998. Operating income in the segment's eight existing facilities was down 5% due to a 7% reduction in the volume of steel processed in 1998. Hobson Galvanizing and International Galvanizers, which were acquired in 1997, contributed 14% of the Service Segment's operating income or $936,000 in combined income. General corporate expenses in 1998 increased by 13% over 1997 due to higher employee benefits and profit sharing expenses, and increased selling expenses. The increased expenses are attributed to higher consolidated sales volumes and the Services Segment's acquisitions. Page 17 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Interest expense in 1998, as compared to 1997, was down due to a lower average outstanding loan balance through the course of the year. Other (income) expense was made up of scrap sales and other (income) expense items not specifically identifiable to a segment. This amount included the reduction in various corporate reserves during 1998 that were no longer needed. LIQUIDITY AND CAPITAL RESOURCES The primary sources for the Company's liquidity and capital resources are cash flow from operating activities and bank debt. The Company's cash requirements are generally for operating activities, acquisitions, debt repayment, treasury stock purchases and dividend payouts. The Company believes that working 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 flow of approximately $8.8 million, $2.7 million, and $6.8 million during fiscal 1999, 1998, and 1997, respectively. Operating cash flow was provided by net income, depreciation and amortization, and other non-cash items. Additional cash was generated during the year through reduction in inventories. Tubular product inventories were liquidated during the last half of the fiscal year by $2.1 million and all other inventories were reduced during the year by $930,000. The Company made $7 million in various capital improvements during the year, which were funded from cash flow and bank debt. In the Manufactured Products Segment, Atkinson doubled its capacity at a cost of $1.9 million. New product tooling and other capital investments in the amount of $1.7 million were also expended in the Manufactured Products Segment over the course of the year. Capital improvements in the amount of $3.3 million were made in the Services Segment. The Company's excellent cash flows and low stock valuation afforded the Company an opportunity to repurchase 1.2 million shares of the Company's common stock at a cost of $11.9 million. Other major uses of cash during 1999 included repayment of long term debt and payment of cash dividends. The Company has a credit facility with a bank, which provides for a $15 million revolving line of credit, a $10 million Term Note A and a $10 million Term Note B. At the end of fiscal 1999, the Company had $7.8 million outstanding under their revolving line of credit and $15.4 million outstanding under the term facilities. Availability under the revolving line of credit at year-end was $7.2 million. ENVIRONMENTAL MATTERS 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. YEAR 2000 COMPLIANCE The year 2000 issue is the result of computer programs being written to use two digits rather four digits to define the applicable year. Any computer program that has date sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in a temporary inability to process transactions or engage in normal manufacturing or other business activities. Page 18 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The Company has completed its initial review of the impact of the year 2000 issue on the Company's financial accounting software, information systems and support systems, including hardware and software used in the manufacture of its products. Based on the Company's assessment and subsequent modifications of its systems, the Company does not believe that any additional modifications to or replacement of its information technology or other systems are necessary as a result of the year 2000 problem. The Company plans to complete the testing process of all significant applications by September 30, 1999. If some of these systems are not year 2000 capable by September 30, 1999, there are a number of alternate systems available in the market place which have been designed to be year 2000 capable. The Company has communicated with others with whom it does significant business to determine their year 2000 readiness and the extent to which the Company may be vulnerable to third-party year 2000 problems. However, there can be no guarantee that the systems of other companies will be converted timely, or that a failure to convert by another company will not have a material adverse effect on the Company. The total cost to the Company of the year 2000 compliance activities has not been and is not anticipated to be material to its financial position or results of operations in any given year. These costs and the date on which the Company plans to complete the year 2000 modifications and testing are based on management's best estimates, which were derived using numerous assumptions about future events, including the continued availability of certain resources, third-party modification plans and other factors. However, there can be no guarantee that these estimates will be achieved, and actual results could differ from those plans. FORWARD LOOKING STATEMENTS This Report contains, and from time to time the Company or certain of its representatives may make, "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements are generally identified by the use of words such as "anticipate," "expect," "estimate," "intend," "should," "may," "believe," and terms with similar meanings. Although the Company believes that the current views and expectations reflected in these forward-looking statements are reasonable, those views and expectations, and the related statements, are inherently subject to risks, uncertainties, and other factors, many of which are not under the Company's control. Those risks, uncertainties, and other factors could cause the actual results to differ materially from these in the forward-looking statements. Those risks, uncertainties, and factors include, but are not limited to, many of the matters described in this Report: change in demand, prices and raw material cost, including zinc which is used in the hot dip galvanizing process; changes in the economic conditions of the various markets the Company serves, foreign and domestic, including the market price for oil and natural gas; acquisition opportunities, adequacy of financing, and availability of experienced management employees to implement the Company's growth strategy; and customer demand and response to products and services offered by the Company. The Company expressly disclaims any obligations to release publicly any updates or revisions to these forward-looking statements to reflect any change in its views or expectations. PAGE 19 CONSOLIDATED BALANCE SHEET February 28, 1999 and 1998
Assets 1999 1998 - ------ ---------------- --------------- Current assets: Cash and cash equivalents $ 800,183 $ 765,912 Accounts receivable, net of allowance for doubtful accounts of $428,300 in 1999 and $422,700 in 1998 13,465,633 13,068,684 Income taxes receivable 7,004 106,120 Inventories 11,191,363 14,228,741 Prepaid expenses and other 323,176 250,736 ---------------- --------------- Total current assets 25,787,359 28,420,193 Long-term investments 200,000 300,000 Property, plant and equipment, at cost: Land 1,827,431 1,827,431 Buildings and structures 17,194,254 14,337,446 Machinery and equipment 17,795,993 14,225,780 Furniture and fixtures 1,609,601 1,450,062 Automotive equipment 1,207,593 889,868 Construction in progress 225,179 1,056,705 ---------------- --------------- 39,860,051 33,787,292 Less accumulated depreciation 16,781,171 14,519,423 ---------------- --------------- Net property, plant and equipment 23,078,880 19,267,869 Intangible assets, less accumulated amortization of $1,405,000 in 1999 and $1,336,000 in 1998 160,653 230,334 Costs in excess of fair value of assets purchased, less accumulated amortization of $2,028,000 in 1999 and $1,482,000 in 1998 8,828,920 9,369,602 Other assets 343,149 313,652 ---------------- --------------- $ 58,398,961 $57,901,650 ================ =============== Liabilities and Shareholders' Equity - ------------------------------------ Current liabilities: Accounts payable $ 3,826,238 $ 5,312,191 Accrued salaries and wages 903,145 1,085,680 Other accrued liabilities 2,889,451 3,534,301 Long-term debt due within one year 3,135,238 1,756,666 ---------------- --------------- Total current liabilities 10,754,072 11,688,838 Long-term debt due after one year 20,266,266 11,320,553 Net deferred income tax liability 493,173 572,479 Shareholders' equity: Common stock, $1 par value; 25,000,000 shares authorized; 6,304,580 shares issued and outstanding 6,304,580 6,304,580 Capital in excess of par value 11,422,536 11,402,961 Retained earnings 23,736,974 19,429,451 Less common stock held in treasury, at cost (1,569,822 shares in 1999 and 382,362 shares in 1998) (14,578,640) (2,817,212) ---------------- --------------- Total shareholders' equity 26,885,450 34,319,780 ---------------- --------------- $ 58,398,961 $57,901,650 ================ ===============
See accompanying notes. PAGE 20 CONSOLIDATED STATEMENTS OF INCOME Years ended February 28, 1999, February 28, 1998 and February 28, 1997
1999 1998 1997 --------------- --------------- --------------- Net sales $80,922,415 $75,479,456 $57,703,287 Costs and expenses: Cost of sales 62,525,479 55,993,665 41,305,269 Selling, general, and administrative 9,709,627 9,570,337 8,089,434 Net (gain) loss on sale of property, plant and equipment (2,161) 35,469 1,310 Interest expense 982,275 737,391 874,209 Other (income) expense, net (93,200) (766,850) 280,065 --------------- --------------- --------------- 73,122,020 65,570,012 50,550,287 --------------- --------------- --------------- Income before income taxes 7,800,395 9,909,444 7,153,000 Income taxes: Current expense 3,005,306 2,609,861 3,391,740 Deferred (benefit) expense (79,306) 79,791 (566,305) --------------- --------------- --------------- 2,926,000 2,689,652 2,825,435 --------------- --------------- --------------- Net income $ 4,874,395 $ 7,219,792 $ 4,327,565 =============== =============== =============== Earnings per common share: Basic $.87 $1.21 $.75 ===== ====== ===== Diluted $.86 $1.19 $.74 ===== ====== =====
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY Years ended February 28, 1999, February 28, 1998 and February 28, 1997
Common stock Capital in ---------------------------- excess of Retained Treasury Shares Amount par value earnings Stock ------------- ------------- ------------- ------------- ------------- Balance at February 29, 1996 5,772,895 $5,772,895 $ 9,283,268 $ 8,830,213 $ (726,131) Exercise of stock options 372,114 372,114 1,068,255 - - Cash dividends declared - - - (354,847) - Net income - - - 4,327,565 - ------------- ------------- ------------- ------------- ------------- Balance at February 28, 1997 6,145,009 6,145,009 10,351,523 12,802,931 (726,131) Exercise of stock options 159,571 159,571 1,051,438 - - Purchase of treasury stock (150,000 shares) - - - - (2,091,081) Cash dividends declared - - - (593,272) - Net income - - - 7,219,792 - ------------- ------------- ------------- ------------- ------------- 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) ============= ============= ============= ============= =============
See accompanying notes. PAGE 21 CONSOLIDATED STATEMENTS OF CASH FLOWS Years ended February 28, 1999, February 28, 1998 and February 28, 1997
1999 1998 1997 ---------------- ---------------- ---------------- Cash flows from operating activities: Net income $ 4,874,395 $ 7,219,792 $ 4,327,565 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 3,014,359 2,449,906 2,231,547 Amortization 615,891 585,389 432,655 Provision for doubtful accounts 132,107 138,883 309,717 Deferred income tax expense (benefit) (79,306) 79,791 (566,305) Net (gain) loss on sale of property, plant and equipment (2,161) 35,469 1,310 ---------------- ---------------- ---------------- 8,555,285 10,509,230 6,736,489 Effect of changes in operating assets and liabilities, net of acquisition of subsidiaries in 1998: Accounts receivable (529,056) (2,475,504) (356,358) Inventories 3,037,378 (7,186,887) 357,856 Prepaid expenses and other (72,440) (37,037) (855) Other assets (29,497) (33,507) (45,805) Accounts payable (1,485,953) 2,472,083 (1,237,646) Accrued salaries and wages (182,535) 225,059 145,812 Other accrued liabilities and income taxes (519,334) (775,843) 1,221,385 ---------------- ---------------- ---------------- Net cash provided by operating activities 8,773,848 2,697,594 6,820,878 Cash flows from investing activities: Proceeds from the sale of property, plant and equipment and property held for sale 168,854 104,979 1,200,853 Purchases of property, plant and equipment (6,992,063) (3,395,402) (2,036,877) Acquisition of subsidiaries, net of cash acquired (5,528) (6,783,392) - Purchase of long-term investments - - (300,000) Proceeds from the sale of long-term investments 100,000 - - ---------------- ---------------- ---------------- Net cash used in investing activities (6,728,737) (10,073,815) (1,136,024) Cash flows from financing activities: Proceeds from revolving loan $ 12,200,000 $ 5,550,000 $ 17,863,736 Proceeds from long-term debt 10,000,000 - 10,000,000 Payments on revolving loan (10,000,000) - (24,441,764) Payments on long-term debt (1,875,715) (1,756,668) (5,213,483) Cash dividends paid (593,272) (354,847) (166,215) Proceeds from exercise of stock options 117,939 1,211,009 1,440,369 Purchase of treasury stock (11,859,792) (2,091,081) - ---------------- ---------------- ---------------- Net cash provided by (used in) financing activities (2,010,840) 2,558,413 (517,357) ---------------- ---------------- ---------------- Net increase (decrease) in cash and cash equivalents 34,271 (4,817,808) 5,167,497 Cash and cash equivalents at beginning of year 765,912 5,583,720 416,223 ---------------- ---------------- ---------------- Cash and cash equivalents at end of year $ 800,183 $ 765,912 $ 5,583,720 ================ ================ ================ Supplemental disclosures of cash flow information: Cash paid during the year for: Interest $ 940,588 $ 733,796 $ 866,565 ================ ================ ================ Income taxes $ 2,910,713 $ 3,766,345 $ 2,926,265 ================ ================ ================
See accompanying notes. PAGE 22 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Summary of significant accounting policies Organization--Aztec Manufacturing Co. (the "Company") operates primarily in ------------ the United States. Information on the Company's operations by segment are included in Note 10 to the consolidated financial statements. Basis of consolidation--The consolidated financial statements include the ---------------------- accounts of Aztec Manufacturing Co. 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 reported in the financial statements and accompanying notes. The primary areas of estimation affecting the consolidated financial statements include the determination of the allowance for doubtful accounts receivable, inventory reserves and warranty and environmental accruals. Actual results could differ from those estimates and assumptions. Concentrations of credit risk--Financial instruments that potentially subject ----------------------------- the Company to significant concentrations of credit risk consist principally of cash, investments and trade accounts receivable. The Company maintains cash and cash equivalents with various financial institutions. These financial institutions are located throughout the country 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. Concentrations of credit risk with respect to trade accounts receivable are limited due to the diversity of operating segments. The Company's net credit losses in 1999, 1998 and 1997 were approximately $127,000, $102,000 and $124,000, respectively. Collateral is usually not required from customers as a condition of sale. Revenue recognition--The Company recognizes revenue from product sales upon ------------------- shipment. Inventories--Inventories are stated at the lower of cost (primarily first-in, ----------- first-out) or market. Provisions for obsolete and slow-moving inventories are recorded. Property, plant and equipment--For financial reporting purposes, depreciation ----------------------------- is computed by the straight-line method using rates based on 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. When units of property are retired or otherwise disposed of, their cost and related accumulated depreciation are removed from the accounts, and any resulting gain or loss is credited or charged to income. PAGE 23 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Summary of significant accounting policies (continued) The Company reviews its long-term assets for impairment in accordance with the guidelines of Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of," (SFAS 121). SFAS 121 requires that, when changes in circumstances indicate that the carrying amount of an asset may not be recoverable, the Company should determine if impairment of value exists. Impairment is measured as the amount by which the carrying amount of the asset exceeds the expected future undiscounted cash flows from the use and eventual disposal of the assets under review. Any write-downs are treated as a permanent reduction in the carrying value of the assets. Cash equivalents--For purposes of reporting cash flows, the Company considers ---------------- all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents. Intangible assets and costs in excess of fair value of assets purchased-- ----------------------------------------------------------------------- Intangible assets include purchased intangibles (customer lists, engineering drawings, noncompete agreements, and sales backlog). Such intangible assets and costs in excess of fair value of assets purchased are being amortized over the estimated useful lives of the assets ranging from 5 to 40 years. Income taxes--Deferred income taxes are recognized using the liability ------------ method. Under this method of accounting, deferred income taxes are recorded for the difference between the financial reporting and income tax bases of assets and liabilities using enacted tax rates and laws. Stock-based compensation--The Company generally 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 accounts for stock option grants in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and accordingly, recognizes no compensation expense for the stock option grants in which the exercise price is equal to the fair value of the shares granted. Earnings per share--Effective February 28, 1998, the Company adopted ------------------ Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings per Share," which established new standards for computing and disclosing earnings per share. SFAS No. 128 requires dual presentation of "basic" and "diluted" earnings per share, each as defined therein, which replaced primary and fully diluted earnings per share, respectively, required under previous guidance. The new standard had no effect on previously reported earnings per share amounts. Fair value of financial investments--The following methods and assumptions ----------------------------------- were used by the Company in estimating its fair value disclosures for financial instruments as of February 28, 1999: Cash and cash equivalents: The carrying amount reported in the consolidated balance sheet for cash and cash equivalents approximates fair value. Accounts receivable and accounts payable: The recorded amounts of the Company's accounts receivable and accounts payable approximate fair value. Long-term investments: The carrying value of long-term investments in the consolidated balance sheet approximates fair value. PAGE 24 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Summary of significant accounting policies (continued) Long-term debt: The reported amounts of the Company's long-term debt approximate fair value since interest rates for substantially all of the debt approximate current rates of interest. Reclassifications--Certain prior year amounts have been reclassified to ----------------- conform to the 1999 presentation. Impact of Recently Issued Accounting Standards ---------------------------------------------- In June, 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income," and SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." SFAS No. 130 requires that an enterprise report, by major component and as a single total, the change in its equity during the period from nonowner sources, and SFAS No. 131 establishes annual and interim reporting requirements for an enterprise's operating segments, and related disclosures about its products and services, geographical areas in which it operates, and major customers. Both statements were effective for fiscal years beginning after December 15, 1997, with earlier application permitted. The Company adopted both of these statements in the first quarter of fiscal 1999 and the impact of adoption did not materially impact the Company's consolidated financial position or statements of income, shareholder's equity, and cash flows. The effects of adoption were primarily limited to form and content of the Company's disclosures. 2. Inventories
Inventories consist of the following: 1999 1998 ----------- ----------- (In thousands) Raw materials $ 7,491 $10,297 Work-in-process 1,001 1,510 Finished goods 2,884 2,568 ----------- ----------- 11,376 14,375 Less reserve for obsolete and slow-moving inventory 185 146 ----------- ----------- $11,191 $14,229 =========== ===========
3. Long-term investments The Company's long-term investments represent investments in tax-free municipal bonds maturing in 2001 and carrying interest at rates ranging from 5.1% to 5.5%. The investments were purchased and are being held to secure the Company's outstanding letters of credit with a bank. 4. Employee benefit plans The Company has a trustee 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 $784,000 for 1999, $992,000 for 1998 and $715,000 for 1997. PAGE 25 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 5. 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 liability as of February 28, 1999 and 1998 are as follows:
1999 1998 ----------- ----------- (In thousands) Deferred tax liabilities: Depreciation methods and property basis differences $ 944 $1,003 Other assets 155 180 ----------- ----------- Total deferred income tax liabilities 1,099 1,183 Deferred tax assets: Employee related items 199 190 Reserve for environmental liabilities 65 77 Reserve for slow-moving inventory 14 14 Reserve for doubtful accounts 167 165 Other 161 165 ----------- ----------- Total deferred tax assets 606 611 ----------- ----------- Net deferred tax liability $ 493 $ 572 =========== ===========
Current income tax expense consists of:
1999 1998 1997 ----------- ----------- ----------- (In thousands) Federal $2,679 $2,229 $3,065 State 326 381 327 ----------- ----------- ----------- $3,005 $2,610 $3,392 =========== =========== ===========
A reconciliation from the federal statutory tax rate to the effective tax rate for the years 1999, 1998 and 1997 is as follows:
1999 1998 1997 ----------- ----------- ----------- Statutory tax rate 34.0% 34.0% 34.0% Expenses not deductible for tax purposes 1.3 1.1 1.5 State income taxes, net of federal income tax benefit 2.8 2.5 3.0 Stock options exercised 0 (7.5) 0 Other (0.6) (3.0) 1.0 ----------- ----------- ----------- Effective tax rate 37.5% 27.1% 39.5% =========== =========== ===========
PAGE 26 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 6. Earnings per share Earnings per share is based on the month-end average number of shares outstanding during each year, adjusted for the dilutive effect of stock options. Cash dividends paid (or declared) per share are $.12 in 1999, $.10 in 1998 and $.06 in 1997. The following table sets forth the computation of basic and diluted earnings per share:
1999 1998 1997 ---------------- -------------- --------------- (In thousands, except share and per share amounts) Numerator: Net income for basic and diluted earnings per common share $ 4,874 $ 7,220 $ 4,328 ================ ============== =============== Denominator: Denominator for basic earnings per common share - weighted - average shares 5,614,026 5,967,610 5,761,080 Effect of dilutive securities: Employee and Director stock options 37,298 124,634 120,441 ---------------- -------------- --------------- Denominator for diluted earnings per common share - adjusted weighted-average shares and assumed conversions 5,651,324 6,092,244 5,881,521 ================ ============== =============== Basic earnings per common share $ .87 $ 1.21 $ .75 ================ ============== =============== Diluted earnings per common share $ .86 $ 1.19 $ .74 ================ ============== ===============
7. Stock options The Company has three Incentive Stock Option Plans for its employees. The maximum number of shares that may be issued under each of the plans is 750,000, 322,977 and 525,000 shares respectively. At February 28, 1999, options outstanding under these plans amounted to 235,417 of which 225,417 options are exercisable at prices (equal to the market price at the date of grant) ranging from $4.44 to $11.13 per share. These options expire February 2000 through December 2003. Included in these outstanding options are 10,000 options granted in fiscal 1999 with an exercise price of $8.875, which vest ratably over a five year period and expire in December 2003. During fiscal 1999, employees exercised 12,570 options at prices ranging from $4.44 to $11.13 per share and 5,050 options were forfeited. The Company also has three Nonstatutory Stock Option Plans for the independent directors of the Company. Under the plans, options are generally granted at 100 percent of the fair value of the shares at the grant date. 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, 1999, options granted and outstanding under these plans amounted to 134,036 of which 65,436 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. Included in these outstanding options are 70,000 options granted in 1999 with an exercise price of $11.13, which expire in July 2008. During fiscal 1999, none of the options under the plans were exercised and none were forfeited. PAGE 27 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 7. Stock options (continued) A summary of the Company's stock option activity and related information is as follows:
1999 1998 1997 -------------------------- -------------------------- -------------------------- Weighted Weighted Weighted Average Average Average Exercise Exercise Exercise Options Price Options Price Options Price --------- ----------- --------- ------------ ---------- ---------- Outstanding at beginning of year 307,073 $ 8.90 200,420 $ 4.42 565,496 $ 4.04 Granted 80,000 10.84 266,224 11.48 10,500 5.25 Exercised (12,570) 9.38 (159,571) 7.59 (372,094) 3.87 Forfeited (5,050) 17.74 - - (3,482) 4.44 --------- ----------- --------- ----------- ---------- ----------- Outstanding at end of year 369,453 $ 9.18 307,073 $ 8.90 200,420 $ 4.42 ========= =========== ========= =========== ========== =========== Exercisable at end of year 304,853 $ 8.76 288,173 $ 8.72 187,820 $ 4.39 ========= =========== ========= =========== ========== =========== Weighted average fair value of options granted during the year $ 4.80 $ 3.21 $ 2.33 =========== =========== =========== Weighted average remaining contractual life in years 4.21 3.94 3.36 ========== ========== ==========
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 information 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 for these options 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 of 1% and a volatility factor ranging from .458 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 pro forma effect in fiscal 1999 and 1997 options granted is not material to the operations of the Company for fiscal 1999 and 1997. The Company's pro forma information for fiscal 1998 is as follows:
1998 -------------- (In thousands except per share amount) Pro forma net income $6,445 Pro forma earnings per common share: Basic earnings per common share $ 1.08 Diluted earnings per common share $ 1.06
PAGE 28 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 7. Stock options (continued) 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. 8. Long-term debt The Company has a credit facility with a bank which provides for a $15 million revolving line of credit, a $10 million Term Note A and a $10 million Term Note B. Long-term debt consists of the following:
1999 1998 --------- ----------- (In thousands) Term Note A payable to bank, due in monthly installments of $138,889 through July 2002, with any remaining balance payable on July 1, 2002 (interest at 7.86 percent on February 28, 1999) $ 5,555 $ 7,223 Term Note B payable to bank, due in monthly installments of $119,048 through February 2006, (interest at a fixed rate of 6.80 percent for the term of the note) 9,881 - Revolving line of credit with bank, due July 2001 (interest at 5.84 percent on February 28, 1998) 7,750 5,550 Industrial Revenue Bonds, due in July 1998 (interest at 7.9 percent on February 28, 1998) - 55 Industrial Revenue Bonds, due in December 2003, payable in monthly installments (interest at 5.75 percent on February 28, 1999) 215 250 ---------- ----------- 23,401 13,078 Less amount due within one year 3,135 1,757 ---------- ----------- $20,266 $11,321 ========== ===========
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 working capital, debt-to-net worth ratio, dividend payments, capital expenditures and cash flows. The Company was in compliance or obtained waivers for events of non-compliance with these covenants as of February 28, 1999. The Company's long-term debt is secured by receivables, inventory, equipment, and fixtures. Under the terms of the loan agreement, 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 amounted to $548,000 at February 28, 1999. In February 1999, the Company entered into an interest rate protection agreement with the bank (the Swap Agreement) to modify the interest characteristics of the $10 million Term Note B from a variable rate to a fixed rate. The Swap Agreement involves the exchange of interest obligations over the life of the Term PAGE 29 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 8. Long-term debt (continued) Note B whereby the Company receives a fixed rate of 6.8% in exchange for a variable 30-day LIBOR rate plus 1.25% (6.2% at February 28, 1999) which is the stated interest rate under the Term Note B agreement. According to the terms of the Swap Agreement, the Company will make all future interest payments on the Term Note B at the fixed rate of 6.8%. To the extent the differences in the fixed rate and the variable rate are not material, the fair value of the Swap Agreement and changes in the fair value as a result of changes in the market interest rates will not be recognized in the financial statements. In the event of the early termination of the Term Note B, or any early termination of the Swap Agreement, any realized gain or loss from the Swap Agreement would be recognized as an adjustment to interest expense at that time. Maturities of long-term debt are as follows (in thousands): 2000 $3,135 2001 3,135 2002 10,885 2003 2,029 2004 1,479 Thereafter 2,738 ------------------ $23,401 ==================
9. Quarterly financial information, unaudited (in thousands, except per share amounts)
Quarters Ended May 31, August 31, November 30, February 28, 1998 1998 1998 1999 ------------ ------------- -------------- ------------- 1999 ----- Net sales $20,729 $20,721 $19,414 $20,058 Gross profit 5,311 4,965 4,426 3,695 Net income 1,576 1,445 1,149 704 Basic earnings per common share .27 .25 .21 (a) .14 Diluted earnings per common share .26 .25 .21 (a) .14 Quarters Ended May 31, August 31, November 30, February 28, 1997 1997 1997 1998 ------------ ------------- -------------- ------------- 1998 ----- Net sales $18,387 $18,776 $18,080 $20,236 Gross profit 5,221 4,946 4,560 4,759 Net income 1,647 1,652 1,282 2,639 Basic earnings per common share .28 .28 .21 (b) .44 Diluted earnings per common share .27 .27 .21 (b) .44
(a) Included a pretax charge of $914,000 (or 10 cents per share) for the liquidation and write-down of tubular goods inventories. (b) Includes a one time tax benefit of approximately $1,076,000 (or 18 cents per share). PAGE 30 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 10. Operating segments Upon adoption of SFAS No. 131 in fiscal 1999, management evaluated the operations of the Company, which are primarily in the United States, and established two segments: (1) Manufactured Products and (2) Services. In prior years and throughout fiscal 1999, for quarterly reporting purposes, the Company disclosed segment information under the following three segments: (1) Electrical Products - manufactures petroleum and industrial lighting products, electrical bus ducts and electrical power centers; (2) Tubular Products - provides oil field tubular products and manufactures oil field pup joints; and (3) Galvanizing - provides hot dip galvanizing services for industries handling fabricated metal products. Under the provisions of SFAS 131, management has determined that it operates the business as two segments rather than three; therefore, the electrical products and tubular products have been combined into the Manufactured Products Segment and galvanizing has been renamed as the Services Segment. SFAS 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:
1999 1998 1997 --------------- --------------- --------------- Net sales: Manufactured Products $46,400 $44,940 $34,057 Services 34,522 30,539 23,646 --------------- ---------------- --------------- $80,922 $75,479 $57,703 =============== =============== =============== Operating income (a): Manufactured Products $ 4,380 $ 6,904 $ 5,261 Services 7,474 6,543 5,930 --------------- --------------- --------------- 11,854 13,447 11,191 General corporate expenses 3,119 3,316 2,938 Interest expense 982 737 874 Other (income) expense, net (b) (47) (515) 226 --------------- --------------- --------------- 4,054 3,538 4,038 --------------- --------------- --------------- Income before income taxes $ 7,800 $ 9,909 $ 7,153 =============== =============== =============== Depreciation and amortization: Manufactured Products $ 1,152 $ 994 $ 958 Services 2,358 1,941 1,593 Corporate 120 100 113 --------------- ------------------ --------------- $ 3,630 $ 3,035 $ 2,664 =============== ================== ===============
PAGE 31 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 10. Operating segments (continued)
1999 1998 1997 --------------- --------------- -------------- Additions to property, plant and equipment (including assets of purchased subsidiaries in 1998): Manufactured Products $ 3,550 $ 1,355 $ 649 Services 3,312 3,514 1,353 Corporate 130 56 35 --------------- --------------- --------------- $ 6,992 $ 4,925 $ 2,037 =============== =============== =============== Total assets: Manufactured Products $28,994 $29,877 $19,784 Services 27,235 25,916 19,128 Corporate 2,170 2,109 7,083 --------------- --------------- --------------- $58,399 $57,902 $45,995 =============== =============== ===============
(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. 11. Commitments and 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 1999, 1998 or 1997. 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. 12. Acquisitions In March 1997, the Company purchased substantially all of the assets of Hobson Galvanizing for approximately $3.9 million in cash. The assets purchased were recorded at estimated fair value; the costs in excess of fair value for this acquisition of approximately $2.8 million were recorded as goodwill. In connection with this acquisition, the Company paid the selling shareholders $250,000 pursuant to an agreement not to compete. PAGE 32 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 12. Acquisitions (continued) The Company purchased substantially all of the assets of International Galvanizers, Inc. in December 1997 for approximately $1.7 million in cash. Costs in excess of estimated fair value of this acquisition were approximately $350,000 were recorded to goodwill. Additionally, the Company paid the selling shareholder $50,000 pursuant to an agreement not to compete. In February 1998 the Company purchased substantially all of the assets of Drilling Rig Electrical Systems Co. (DRES-CO), a company which is involved in the design and installation of electrical systems on land based and offshore drilling rigs, for approximately $1.2 million in cash. Costs in excess of estimated fair value of this acquisition were approximately $190,000 were recorded to goodwill. All acquisitions were accounted for under the purchase method of accounting. Operations applicable to acquired businesses, which are immaterial to the consolidated operations of the Company, are included in the accompanying Consolidated Statements of Income from their respective dates of acquisition. The excess of costs over fair value for these acquisitions is being amortized over a period of 15 years. REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS Board of Directors and Shareholders Aztec Manufacturing Co. We have audited the accompanying consolidated balance sheets of Aztec Manufacturing Co. as of February 28, 1999 and 1998, and the related consolidated statements of income, shareholders' equity, and cash flows for each of the three years in the period ended February 28, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. 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 Aztec Manufacturing Co. at February 28, 1999 and 1998, and the consolidated results of its operations and its cash flows for each of the three years in the period ended February 28, 1999, in conformity with generally accepted accounting principles. /s/ ERNST & YOUNG LLP Fort Worth, Texas March 29, 1999 CORPORATE INFORMATION STOCK PRICES AND DIVIDENDS PER SHARE
Quarter Ended Quarter Ended Quarter Ended Quarter Ended May 31, August 31, November 30, February 28, --------------------------------------------------------------------------- Per Share 1999 1998 1999 1998 1999 1998 1999 1998 - ---------------------------------------------------------------------------------------------------------- High 15-1/2 12-3/8 13-7/16 19-7/8 10 24-9/16 10-5/8 18-15/16 Low 12-3/8 9-1/8 8-3/4 12-1/2 6-5/8 15-3/4 8-1/4 10-3/4 Dividends declared $ .00 $ .00 $ .00 $ .00 $ .00 $ .00 $ .12 $ .10
Stock Prices: Aztec's common stock is listed for trading on the New York Stock Exchange and its symbol is AZZ. Prior to March 20, 1997, its common stock was listed on the NASDAQ Stock Market. The above table sets forth the high and low sales prices for the Company's common stock on the New York and NASDAQ Stock Exchanges, as appropriate, on a quarterly basis. BOARD OF DIRECTORS L. C. MARTIN Chairman of the Board and Chief Executive Officer of the Company DAVID H. DINGUS President and Chief Operating Officer of the Company DANA L. PERRY Vice President of Finance, Chief Financial Officer of the Company Assistant Secretary of the Company MARTIN C. BOWEN Vice President and Chief Financial Officer of Fine Line, Inc. R. J. SCHUMACHER Vice President of Texland Petroleum, Inc. KEVERN R. JOYCE President, CEO and Chairman TNP Enterprises, Inc. W. C. WALKER Management Consultant SAM ROSEN Partner in the Law Firm of Shannon, Gracey, Ratliff & Miller, L.L.P., Secretary of the Company DR. H. KIRK DOWNEY Professor of Management and Dean of the M.J. Neeley School of Business, Texas Christian University ROBERT H. JOHNSON CPA and Financial Consultant ADVISORY DIRECTOR JOHN G. RICHARDS Fort Worth Investor EXECUTIVE OFFICERS L. C. MARTIN Chairman of the Board and Chief Executive Officer DAVID H. DINGUS President and Chief Operating Officer FRED L. WRIGHT, JR. Senior Vice President/Services Segment DANA L. PERRY Vice President of Finance, Chief Financial Officer, Assistant Secretary SAM ROSEN Secretary OTHER INFORMATION LEGAL COUNSEL Shannon, Gracey, Ratliff & Miller, L.L.P., Fort Worth, Texas INDEPENDENT AUDITORS Ernst & Young LLP, Fort Worth, Texas TRANSFER AGENT & REGISTRAR Harris Trust and Savings Bank, Chicago, Illinois STOCK LISTING New York Stock Exchange, NYSE Symbol - AZZ FORM 10-K Shareholders may obtain a copy of the Company's Form 10-K for the year ended February 28, 1999, as filed with the Securities and Exchange Commission by writing Dana Perry at the Company's Corporate Office. ANNUAL MEETING July 13, 1999, 10:00 a.m. Fort Worth Petroleum Club Fort Worth, Texas AZZ ---------- Listed ---------- NYSE THE NEW YORK STOCK EXCHANGE CORPORATE OFFICE 400 N. Tarrant P.O. Box 668 Crowley, Texas 76036 817/297-4361 Phone 817/297-4621 Fax EX-21 5 SUBSIDIARIES OF THE REGISTRANT EXHIBIT 21
--------------------------------- AZTEC MANUFACTURING CO. --------------------------------- ------------------------ ------------------------------ --------------------------- Aztec Industries, Inc. Arbor-Crowley, Inc. Atkinson Industries, Inc. ------------------------ ------------------------------ --------------------------- ------------------------ --------------------------- Aztec Industries Arizona Moss Point, Inc. Galvanizing, Inc. ------------------------ --------------------------- --------------------------- Hobson Galvanizing, Inc. ------------------------ ------------- ---------------------- --------------------------- Automatic Aztec Group Aztec Holdings, Inc. Processing, Inc. Company ------------------------ ------------- ---------------------- ------------------------ The Calvert Co., Inc. ------------------------ 1% 99% ------------------------------ ------------------------ Aztec Manufacturing Gulf Coast Partnership, Ltd. ------------------------------ Galvanizing, Inc. ------------------------ ------------------------------ ------------------------ Aztec Manufacturing Arkansas Waskom Partnership, Ltd. Galvanizing, Inc. ------------------------------ ------------------------ ------------------------------ Rig-A-Lite Partnership, Ltd. ------------------------------ ------------------------------ International Galvanizers Partnership, Ltd. ------------------------------ ------------------------------ Drilling Rig Electrical Systems Partnership, Ltd. ------------------------------
EXHIBIT 21 Page 2 of 2 EX-23 6 CONSENT OF ERNST & YOUNG EXHIBIT 23 ---------- CONSENT OF ERNST & YOUNG LLP We consent to the incorporation by reference in this Annual Report (Form 10-K) of Aztec Manufacturing Co. of our report dated March 29, 1999, included in the 1999 Annual Report to Shareholders of Aztec Manufacturing Co. We also consent to the incorporation by reference in the Registration Statements on Form S-8, No. 33-15481 pertaining to the 1986 Incentive Stock Plan of Aztec Manufacturing Co., No. 33-30993 pertaining to the Aztec Manufacturing Co. 1988 Nonstatutory Stock Option Plan, No. 33-49164 pertaining to the Aztec Manufacturing Co. 1991 Nonstatutory Stock Option Plan, and No. 33-49158 pertaining to the 1991 Incentive Stock Option Plan of Aztec Manufacturing Co. of our report dated March 29, 1999, with respect to the consolidated financial statements of Aztec Manufacturing Co., which are incorporated by reference in the Registrants Form 10-K Annual Report for the year ended February 28, 1999. ERNST & YOUNG LLP /s/ Ernst & Young LLP --------------------- Fort Worth, Texas May 24, 1999 EXHIBIT 23 Page 2 of 2 EX-24 7 SPECIAL POWER OF ATTORNEY EXHIBIT 24 SPECIAL POWER OF ATTORNEY THE STATE OF TEXAS (S) (S) KNOW ALL MEN BY THESE PRESENTS COUNTY OF TARRANT (S) THAT WE, the undersigned, of Tarrant County, Texas, have made, constituted, and appointed, and by these presents do make, constitute, and appoint L. C. MARTIN, DANA L. PERRY and SAM ROSEN, and each of them severally, our true and lawful attorneys and agents to execute in our name, place and stead (in such capacity) the Annual Report on Form 10-K of AZTEC MANUFACTURING CO. ("Form 10- K") for the fiscal year ended February 28, 1999, each of said attorneys and agents to have power to act with or without the other and to have full power and authority to do and perform in the name of and on behalf of each of the undersigned, as the case may be, every act whatsoever necessary or advisable to be done in the premises as fully and to all intents and purposes as any of the undersigned might or could do in person, such power to extend to the execution of any amendment to the Form 10-K. WITNESS OUR HANDS this 18th day of May, 1999. ---- --- /s/ L.C. Martin ----------------------------------------- L. C. MARTIN /s/ David H. Dingus ----------------------------------------- DAVID H. DINGUS /s/ Robert H. Johnson ----------------------------------------- ROBERT H. JOHNSON /s/ Martin C. Bowen ----------------------------------------- MARTIN C. BOWEN /s/ Dr. H. Kirk Downey ----------------------------------------- DR. H. KIRK DOWNEY /s/ Sam Rosen ----------------------------------------- SAM ROSEN /s/ Kevern R. Joyce ----------------------------------------- KEVERN R. JOYCE /s/ Dana L. Perry ----------------------------------------- DANA L. PERRY /s/ R.J. Schumacher ----------------------------------------- R. J. SCHUMACHER /s/ W.C. Walker ----------------------------------------- W. C. WALKER EXHIBIT 24 Page 2 of 4 CERTIFIED COPY OF RESOLUTIONS The undersigned, being the Assistant Secretary of AZTEC MANUFACTURING CO. (the "Company"), a Texas corporation, does hereby certify that the following resolutions are true and correct copies of the resolutions duly adopted by the Board of Directors of said Company on April 20, 1999, and that such resolutions have not been revoked or amended in any manner: WHEREAS, the officers of the Company are obligated to prepare, execute and file with the Securities and Exchange Commission on behalf of the Company an Annual Report on Form 10-K of the Company for the fiscal year ended February 28, 1999; NOW, THEREFORE, BE IT RESOLVED, that L. C. Martin be, and he is hereby, authorized and directed to prepare, execute, and file with the Securities and Exchange Commission on behalf of the Company the Annual Report on Form 10-K ("Form 10-K") of the Company for the fiscal year ended February 28, 1999; and RESOLVED FURTHER, that each officer and director who may be required in any capacity to execute the Form 10-K on behalf of the Company, be, and each such officer and director is hereby, authorized to execute a power of attorney appointing L. C. Martin, Dana L. Perry, and Sam Rosen, and each of them severally, his true and lawful attorneys and agents to execute in his name, place and stead (in any such capacity) said Form 10-K, and all instruments necessary or proper in connection therewith and to file the same with the Securities and Exchange Commission, each of said attorneys and agents to have power to act with or without the other and to have full power and authority to do and perform in the name of and on behalf of each of said officers and directors, every act whatsoever necessary or advisable to be done in the premises as fully and to all intents and purposes as any such officer and director might or could do in person, such power to extend to the execution of any amendment to the Form 10-K. SIGNED on the 18th day of May, 1999. /s/ Dana L. Perry ------------------------------------------ DANA L. PERRY, Assistant Secretary EXHIBIT 24 Page 3 of 4 THE STATE OF TEXAS (S) (S) COUNTY OF TARRANT (S) BEFORE ME, the undersigned authority, on this day personally appeared DANA L. PERRY, Assistant Secretary of the above named corporation, known to me to be the person and officer whose name is subscribed to the foregoing instrument and acknowledged to me that he executed the same for the purposes and considerations therein expressed and in the capacity therein stated and that the statements therein contained are true. GIVEN UNDER MY HAND AND SEAL OF OFFICE this 18th day of May 1999. /s/ Mary Rickard ---------------------------------- Notary Public in and for the State of Texas Mary Rickard ---------------------------------- (Type or print name) My commission expires: May 30, 1999 ------------- EXHIBIT 24 Page 4 of 4 EX-27 8 FINANCIAL DATA SCHEDULE
5 12-MOS FEB-28-1999 MAR-01-1998 FEB-28-1999 800,183 0 13,893,933 428,300 11,191,363 25,787,359 39,860,051 16,781,171 58,398,961 10,754,072 20,266,266 0 0 6,304,580 20,580,870 58,398,961 80,922,415 80,922,415 62,525,479 72,139,745 0 0 982,275 7,800,395 2,926,000 4,874,395 0 0 0 4,874,395 .87 .86
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