-----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, EY+i5kfehWPc5ySdN6asZCPCugBDlX8cdefxBKjbVUdyp8KgOxaZPTLbOkaRTcbg L6Cdjnh1WKAGCgetuApDKg== 0000930661-97-001423.txt : 19970529 0000930661-97-001423.hdr.sgml : 19970529 ACCESSION NUMBER: 0000930661-97-001423 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19970228 FILED AS OF DATE: 19970528 SROS: NYSE 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-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-12777 FILM NUMBER: 97615171 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-K 1 FORM 10-K ================================================================================ 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 [Fee Required] For the Fiscal Year Ended: FEBRUARY 28, 1997 [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [No Fee Required] 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 2, 1997, was approximately $51,131,362. As of May 2, 1997, there were 5,912,647 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, 1997. Part III incorporates information by reference from the Proxy Statement for the 1997 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 three segments. These segments are Electrical Products, Galvanizing and Oil Field Products, 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 added to its Oil Field Products Segment in 1986 with the purchase of Parks Machine, 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. The Electrical Products Segment was formed with the purchase of Rig-A-Lite Partnership, LTD. in Houston, Texas, in March 1990 and the acquisition of 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 Products Segment 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. Hobson Galvanizing, Inc. located in Belle Chase, Louisiana, the Company's ninth galvanizing facility, was acquired in March, 1997. A three-year summary of sales, operating profit and identifiable assets by industry segment is included in Note 10 to the Consolidated Financial Statements on page 22 of the Registrant's 1997 Annual Report to Shareholders. Such information is hereby incorporated by reference. Aztec provides services and manufacturing of products in the following areas: ELECTRICAL PRODUCTS SEGMENT This segment includes Rig-A-Lite Partnership, LTD, which manufactures and assembles lighting fixtures for hostile and hazardous environments in the industrial market. Rig-A-Lite also engages in the assembly and installation of electrical components and lighting fixtures on drilling rigs for the petroleum industry. 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 whatever physical configuration 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 Industries, Inc., was acquired in March, 1993 and added to Aztec's Electrical Products Segment. Atkinson, located in Pittsburg, Kansas, manufactures factory- fabricated electrical power centers and assemblies for the industrial and power generation industries. The market for Aztec's Electrical 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 revenues. Backlog of orders was approximately $10,315,000 at February 28, 1997, $7,600,000 at February 29, 1996, and $9,100,000 at February I-1 28, 1995. All of the fiscal 1997 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. Historically, no material amount of orders included in the backlog has been canceled. The Company experiences no seasonal fluctuations in this segment's business nor does it follow any unusual practices relating to working capital items such as inventory and rights to return merchandise. Total employment in this segment is 238 persons. GALVANIZING 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 are, therefore, highly competitive in pricing, due to freight cost. Aztec is limited to some extent in its galvanizing market to areas within a close proximity of its existing locations. Zinc is the principal raw material used in the galvanizing process and currently is readily available. 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. The Company experiences no seasonal fluctuations in this segment's business nor does it follow any unusual practices relating to working capital items such as inventory, rights to return merchandise, and extended payment terms to customers. Total employment in this segment is 252 persons. OIL FIELD PRODUCTS SEGMENT Aztec processes and provides oil field tubular products to the extent of upsetting, threading, testing and heat treating and also manufacturers oil field pup joints. The principal market is the oil industry, with distribution through supply houses, steel mills and other manufacturers in the metal fittings industry. This business is highly competitive and price sensitive, with competition coming from several small oil field tubing processors and supply houses. The Company closed its Houston Tubing facility in March 1989, and liquidated this facility in 1997. The low level of activity in the Company's screw machine operation prompted the Company to close this facility in November 1992. Steel is the principal raw material used in this segment and currently is readily available. Aztec has a limited customer base in this area, but no one customer represents as much as 10 percent of consolidated revenues. Backlog consisted of approximately $630,000 at February 28, 1997, $137,000 at February 29, 1996, and $50,000 at February 28, 1995. Backlogs are expected to be filled within the coming fiscal year. The Company experiences no seasonal fluctuations in this segment's business nor does it follow any unusual practices relating to working capital items such as inventory, rights to return merchandise, and extended payment terms to customers. Total employment in this segment is 72 persons. GENERAL In fiscal 1997, the Company did not introduce a new product line or a new industry segment or make public its intentions to introduce a new product or do business in a new industry segment. The Company has established a $386,000 reserve at the end of fiscal 1997 against receivables for any possible loss of these receivables. There are no significant patents, trademarks, licenses, franchises or concessions. The Company does not have a material portion of business that may be subject to renegotiation 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 wastes. 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. The Company has been named in environmental proceedings that are further described in Item 3 - Legal Proceedings. I-2 FORWARD LOOKING STATEMENT This Form 10-K contains forward looking statements. Such statements are typically punctuated by words or phrases such as "anticipates," "estimate," "should," "may," "management believes," and words or phrases of similar import. Such statements are subject to certain risks, uncertainties or assumptions. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated or projected. Factors that could cause or contribute to such differences could include, but are not limited to, changes in demand, prices, and raw materials cost; changes in the economic conditions of the various markets the company serves; as well as the other risks detailed herein and in the Company's reports filed with the Securities and Exchange Commission. EXECUTIVE OFFICERS OF THE REGISTRANT
Business Experience for Past Name Age Five Years; Position or Office with Registrant Held Since - ------------------- --- ---------------------------------------------- ---------- L. C. Martin 71 Chairman, President and Chief Executive Officer 1958 D. L. Perry 48 Vice President of Finance, and Chief Financial Officer 1992 Assistant Secretary 1977 F. L. Wright, Jr. 56 Senior Vice President/Galvanizing Segment 1992 Vice President/Galvanizing Segment 1989 General Mgr./Galvanizing Segment 1987
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, 1997:
Location Acres Sq. Footage Segment/Occupant - -------- ----- ----------- ---------------- Crowley, Texas 152.0 7,772 Corporate Office 25,600 Galvanizing 193,245 Oil Field Products Houston, Texas 8.7 25,800 Galvanizing 37.0 36,000 Oil Field Products (currently under contract to sell)* 5.4 67,440 Electrical Products Waskom, Texas 10.6 30,400 Galvanizing Moss Point, Mississippi 13.5 16,000 Galvanizing Jackson, Mississippi 5.6 22,800 Galvanizing 5.1 36,160 Electrical Products Pittsburg, Kansas 15.3 42,000 Electrical Products Citronelle, Alabama 10.8 33,960 Galvanizing Goodyear, Arizona 11.75 36,750 Galvanizing Prairie Grove, Arkansas 11.5 34,000 Galvanizing
I-3
Location Acres Sq. Footage Segment/Occupant - -------- ----- ----------- ---------------- Belle Chasse, Louisiana 4.5 34,000 Galvanizing
* The Company has a three year lease with a Purchase Option Agreement and a six month Option To Purchase Agreement to sell this idle facility. 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. As part of its continuing environmental program, the Company has complied with such proceedings and orders without any materially adverse effect on its business. In August 1988, the Company received a letter from the Texas Natural Resource Conservation Commission ("TNRCC") regarding remedial actions at a chemical waste disposal site near Ranger, Texas. Records indicate the Company may have generated a portion of the waste placed at the site and therefore has been deemed by the TNRCC to be a potentially responsible party ("PRP"), with respect to the site under Texas Solid Waste Disposal Act, Chapter 361, Texas Health and Safety Code. The Company, together with other companies which also may have generated waste placed at the site, is participating with the TNRCC in a clean- up study at the site. 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 this contingency, to the extent not previously provided for, will not have a material adverse effect on the Company. No material adverse findings have resulted from the reviews to date. Other than the matter described in the preceding paragraph, 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 to the Consolidated Financial Statements on page 23 of the Registrant's 1997 Annual Report to Shareholders. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matter was submitted during the fiscal year ended February 28, 1997, to a vote of security holders through the solicitation of proxies or otherwise. I-4 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The common stock, $1.00 par value, of Registrant ("Common Stock") is traded on the New York Stock Exchange. The Company was listed on the New York Stock Exchange and started trading on March 20, 1997. The information contained under the caption "Stock Prices and Dividends Per Share" on Page 13 of Registrant's 1997 Annual Report to Shareholders is incorporated herein by reference. The approximate number of holders of record of Common Stock of Registrant at May 2, 1997 was 1,400. ITEM 6. SELECTED FINANCIAL DATA The information contained under the caption "Consolidated Summary of Operations and Other Financial Information" on page 2 of Registrant's 1997 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 10, 11 and 12 of Registrant's 1997 Annual Report to Shareholders is incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The consolidated balance sheets of Aztec Manufacturing Co. as of February 28, 1997 and February 29, 1996, and the related consolidated statements of income, shareholders' equity, and cash flows for each of the three years in the period ended February 28, 1997 and the report of the independent auditors and the information required by item 302 of Regulation of S-K are on pages 13 through 24 of Registrant's 1997 Annual Report to Shareholders and are incorporated herein by reference. ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE There have been no disagreements with accountants on any matter of accounting principles or practices or financial statement disclosures during the twenty- four (24) months ended February 28, 1997 or the subsequent interim period. II-1 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS The information required by the 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 the item is incorporated herein by reference to the Registrant's Proxy Statement for the 1997 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 1997 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 1997 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 1997 Annual Meeting of Shareholders. III-1 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 have been incorporated herein by reference to pages 13 through 24 of Registrant's 1997 Annual Report to Shareholders.
Pages of 1997 Annual Report to Shareholders ---------------------- Report of Independent Auditors 13 Consolidated Balance Sheets as of February 28, 1997 and February 29, 1996 14 Consolidated Statements of Income for the years ended 15 February 28, 1997, February 29, 1996, and February 28, 1995 Consolidated Statements of Shareholders' Equity for the years ended 15 February 28, 1997, February 29, 1996, and February 28, 1995 Consolidated Statements of Cash Flows for the years ended 16 February 28, 1997, February 29, 1996, and February 28, 1995 Notes to Consolidated Financial Statements 17-24
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). 3(ii)- Bylaws including the amendment adopted by the Board of Directors of registrant on May 17, 1993. 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). IV-1 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). 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). 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). 13 - Annual Report to Shareholders for the fiscal year ended February 28, 1997 (including the Registrant Proxy Statement for the 1997 Annual Meeting of Shareholders).* 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, 1997. IV-2 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: 5-27-97 By: /s/ L.C. Martin ------------------------------- -------------------------------- L. C. Martin, President 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, Officer and Director Principal Financial Officer, and Director /s/ Robert H. Johnson /s/ Sam Rosen - ------------------------------------ ------------------------------------ Robert H. Johnson, Director Sam Rosen, Director Dr. H. Kirk Downey* R. J. Schumacher* - ------------------------------------ ------------------------------------ Dr. H. Kirk Downey, Director R. J. Schumacher, Director Martin C. Bowen* John G. Richards* - ------------------------------------ ------------------------------------ Martin C. Bowen, Director John G. Richards, Director W.C. Walker* - ------------------------------------ W. C. Walker, Director * /s/ L.C. Martin - ------------------------------------ L. C. Martin, Attorney-in-Fact IV-3 EXHIBIT INDEX EXHIBIT DESCRIPTION - ------- ----------- 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). 3(ii) Bylaws including the amendment adopted by the Board of Directors of registrant on May 17, 1993. 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 From 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). 10g 1988 Nonstatutory Stock Option Plan of Registrant (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). 13 Annual Report to Shareholders for the fiscal year ended February 28, 1997 (including the Registrant Proxy Statement for the 1997 Annual Meeting of Shareholders).* EXHIBIT DESCRIPTION - ------- ----------- 21 Subsidiaries of Registrant.* 23 Consent of Ernst & Young LLP.* 24 Power of Attorney.* ________________ *FILED HEREWITH EX-13 2 ANNUAL REPORT AND PROXY EXHIBIT 13 About Aztec Aztec Manufacturing Co. markets and services worldwide to three distinct industries. The Electrical Products Segment consists of three companies with different product lines, each possessing a strong position in a niche market and excellent prospects for growth. The Galvanizing Segment, working in a fragmented industry, is being scaled up rapidly through acquisitions and plant expansions, thereby providing increasing cash flow for overall corporate growth. The Oil Field Segment, redefined in fiscal 1997, processes and markets oil field tubular products and manufactures oil tubular accessories for the petroleum industry. Net Sales Net Income Shareholders Equity (millions) (millions) (millions) [CHARTS APPEAR HERE] CONSOLIDATED SUMMARY OF OPERATIONS AND OTHER FINANCIAL INFORMATION
Fiscal Year --------------------------------------------------------------- 1997 1996 1995 1994 1993 ------------ ---------- ---------- ---------- --------- (In thousands, except per share amounts, percentages and ratios) Summary of operations: Net sales $57,703 $49,184 $44,608 $40,834 $30,834 Net income 4,328 2,582 1,578 2,172 1,073 Income per share: Net income--assuming no dilution $ .75 $ .46 $ .28 $ .39 $ .19 Net income--assuming full dilution .74 .45 .27 .37 .19 Return on average shareholders' equity 16.7% 11.6% 7.7% 11.7% 6.2% Pretax profits to sales 12.4% 8.7% 5.8% 8.7% 6% Net income to sales 7.5% 5.2% 3.5% 5.3% 3.5% Total assets $45,995 $42,621 $40,791 $34,060 $25,827 Long-term debt, excluding current portion 7,527 9,516 10,484 6,622 1,730 Total liabilities 17,421 19,461 19,415 14,512 8,280 Shareholders' equity 28,573 23,160 21,376 19,548 17,547 Working capital 12,220 7,879 10,117 7,389 5,734 Shareholders' equity per share 4.96 4.11 3.75 3.48 3.12 Long term debt to equity ratio .26 to 1 .41 to 1 .49 to 1 .34 to 1 .10 to 1 Current ratio 2.30 to 1 1.89 to 1 2.22 to 1 2.06 to 1 2.04 to 1 EBITDA $10,691 $ 7,407 $ 5,185 $ 5,839 $ 3,477 Cash provided by operations 6,821 9,103 40 3,765 2,137 Capital expenditures 2,037 3,434 4,890 2,713 1,073 EBITDA per share 1.86 1.31 .91 1.04 .62 Cash dividends per share .06 .03 .02 .045 .10 Average shares outstanding 5,761 5,634 5,698 5,625 5,623
2 LETTER TO OUR SHAREHOLDERS Aztec Manufacturing Co. recorded record revenues of 57.7 million dollars for its fiscal year ended February 28, 1997. The previous record was set prior to the collapse of the oil business in 1982, which was our fiscal year ending February 28, 1982, when revenues were 55.4 million dollars. Although the record stood for fifteen years, management anticipates the 57.7 million dollars just recorded will be broken in the year ending February 28, 1998. As was previously announced Aztec acquired the operating assets of Hobson Galvanizing Inc., located outside New Orleans, Louisiana, on March 10, 1997. This facility will operate as a wholly-owned subsidiary and becomes the ninth galvanizing operation in our Galvanizing Segment. We will continue to pursue other opportunities that may arise to expand this portion of our business. For the first time in several years, the Crowley tubing facility was profitable. However, it was not profitable enough to offset the carrying cost of the idled Houston tubing facility sold October 31, 1996. Management anticipates this Segment of our business to be profitable for the year ending February 28, 1998. COMMON STOCK PRICE (High/Low Yearly Bid Price) [GRAPH APPEARS HERE] The Electrical Segment also performed well with Rig-A-Lite posting another record year and Calvert showing solid gains in margins and profitability. Upon review of the operational portion of this report you will find that all three segments of our business showed an appreciable improvement in operating income for the fiscal year just ended. These improvements hold much significance for the future of Aztec and its shareholders and we hope you will take the time to learn about them. Aztec is a far different company than it was when we recorded what is now our second biggest year. On Thursday, March 20, 1997, the common stock of Aztec Manufacturing Co. became listed on the New York Stock Exchange using the symbol AZZ and is the last stock listed under the "A" section of the daily stock report. Management is of the opinion this listing will enhance shareholder value and give some added degree of stability to the stock. It was with deep sorrow and great personal loss that we recorded, on November 30, 1996, the passing of Mr. William D. Ratliff, Jr., a member of the Board of Directors since 1965. In the years he served on the Board of our Company, he made invaluable contributions to its progress. The Board of Directors, on February 18, 1997, declared a year-end cash dividend of six cents per share, which was a 100% increase over the previous year's dividend. This six cent dividend was paid March 28, 1997, to shareholders of record as of March 7, 1997. The Aztec Annual Meeting is scheduled for 10:00 a.m. Tuesday, July 8, 1997; at the Petroleum Club, in the Derrick I Room, on the 39th floor of the Continental Plaza, Fort Worth, Texas. We invite all shareholders to attend. Thank you for your interest and your support of Aztec. The year ahead should bring good things for our Company. We will keep you informed. Sincerely, L.C. Martin Chairman of the Board President and Chief Executive Officer 3 A GAMEPLAN FOR GROWTH BENCHMARKS TO MEASURE PROGRESS Aztec operates in three distinct businesses, Electrical Products, Hot Dip Galvanizing and Oil Field Tubular Products. Each has distinct growth characteristics and capital requirements. The Electrical Products Segment should have above average growth prospects in each of its three operating companies as well as the possibility of complementary acquisitions. Rig-A-Lite is experiencing a pickup in the offshore drilling and petrochemical industries, core markets for its hazardous environmental lighting and electrical product lines. Calvert is likely to benefit from the coming deregulation of the electric utility industry and is already a participant in the rapid capacity additions in the Pacific Rim and other developing areas. The explosion of wireless communication and cellular services is helping to fuel Atkinson's business. Galvanizing is an industry that offers very attractive acquisition opportunities as the consolidation of this highly fragmented industry begins to accelerate. Management believes Aztec, with its growing cash flow, is positioned to be one of the leaders in this consolidation process. EBITDA (MILLIONS) [GRAPH APPEARS HERE] The Oil Field Products Segment is finally turning after years in the doldrums. The shake out of industry participants would appear to have run its course and drilling and rework activity in the oil patch has picked up with the recovery in energy prices. Fortunately for Aztec, at this point, the Company has the capacity to do multiples of its current Segment sales with its plant in place and paid for. The only capital investment required will be modest amounts for inventory and, as sales recover, this Segment should quickly begin to generate free cash flow to add to the already positive cash flow of the other two Segments to accelerate Aztec's growth. Given the varied opportunities, it is incumbent on Aztec management to be disciplined and focused in the intelligent reinvestment of rising cash flows. Sales and earnings growth, as well as expense ratio trends and profit margin analysis explained in considerable detail in the discussion which accompanies the financial statements, gives an overall measurement of the Company's progress. But other more specialized returns and/or productivity benchmarks, reflected below, specifically address the question of intelligent reinvestment of capital and are also important to monitor. RETURN ON SALES [GRAPH APPEARS HERE] ASSET TURNOVER - is the ratio of sales per dollar employed during the year. It is calculated by dividing net sales by the average assets. 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 4 A GAMEPLAN FOR GROWTH BENCHMARKS TO MEASURE PROGRESS Asset turnover improved in fiscal 1997 for several reasons. The Arizona Galvanizing facility, opened in 1994, continued to mature, an idled oil tubing plant in Houston was sold and good internal growth was achieved at Rig-A-Lite, Atkinson and most of the other galvanizing facilities. Expressed another way, Aztec generated $1.30 in sales for each dollar of assets employed in fiscal 1997 compared to under $1.20 in each of the prior two years. There is no generally accepted turnover ratio to target and acquisitions and the timing of an acquisition closing can affect the ratio in a given year. However, a sudden precipitous drop or steady deterioration would cause management to reexamine and adjust the capital reinvestment plan. RETURN ON ASSETS [GRAPH APPEARS HERE] PRETAX RETURN ON AVERAGE ASSETS - is earnings before taxes and extraordinary items divided by average assets. 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 The combination of rising asset turnover combined with the improved profit margin on sales discussed in the financial review section has a multiplier effect on the return on assets. As a result it has more than doubled since fiscal 1995 rising to 16.1%. The inescapable fact that all companies must face is that internal cash flow funds businesses, not reported earnings or earnings per share. The growth rate of a corporation is ultimately determined by the generation and growth of such cash flow. The trends in asset turnover and return on assets is encouraging as Aztec enters its new fiscal year and this portends favorable cash flow trends as well. The Hobson Galvanizing acquisition, which closed on March 10, 1997 clearly demonstrates that attractive reinvestment opportunities continue to present themselves to Aztec and that management will be disciplined and aggressive in pursuing its growth plan. 5 REVIEW OF OPERATIONS ELECTRICAL PRODUCTS Aztec's Electrical Products Segment is undoubtedly one of the Company's core strengths. This segment generated over 52% of total revenues and 48% of operating profit. Sales were essentially flat in fiscal 1997, but operating margins expanded significantly and return on assets employed exceeded 33%. Operating income increased 25%. Aztec's Electrical Products Segment is comprised of three operating entities: Rig-A-Lite Partnership, Ltd., The Calvert Company and Atkinson Industries, Inc. ELECTRICAL PRODUCTS
================================================== 1995 1996 1997 - -------------------------------------------------- Sales $27,547 $30,172 $30,276 - -------------------------------------------------- % Change -0- 10% -0- - -------------------------------------------------- OP Income $ 1,358 $ 4,264 $ 5,317 - -------------------------------------------------- % Change (67%) 214% 25% - -------------------------------------------------- OP Margin Return on Sales 5% 14% 18% - -------------------------------------------------- Avg. Assets Emp $18,314 $18,100 $15,925 - -------------------------------------------------- Return on Assets 7% 24% 33% ==================================================
RIG-A-LITE PARTNERSHIP, LTD-HOUSTON, TEXAS Rig-A-Lite had another record year in fiscal 1997. After three years of continued growth, the food processing market, primarily fresh poultry, a market Rig-A-Lite pioneered with lighting products, settled down to essentially a replacement market. However, this trend was offset by a resurgence in Rig-A- Lite's core energy and petrochemical markets and rapid expansion in the international arena. The domestic petrochemical market comprised approximately one-quarter of Rig-A- Lite's sales. Products for this market are normally sold through specialized petrochemical distributors but are also sold directly to large end users. In this market, Rig-A-Lite enjoys the advantage of having its products known by name as the "best in the business." The major customers in this market are those involved with domestic exploration and/or production of oil and gas. Furthermore, the vast majority of Rig-A-Lite's customer base in this market is located in the South Central states, such as Texas, Louisiana, and Mississippi, where most domestic exploration takes place. This market is driven by drilling activity, thus, is tied to the world prices for oil and gas. Domestic drilling activity accelerated significantly in fiscal 1997, both onshore and offshore, particularly in the Gulf of Mexico and this higher level of oil industry activity appears to be continuing into fiscal 1998. The international petrochemical market is similarly benefiting from a recovery in energy prices and activity and Rig-A-Lite is moving aggressively to position itself to capitalize on the emerging market opportunity. In fiscal 1997, the company expanded its distribution in Canada, and in Singapore to service the Pacific Rim. Rig-A-Lite entered into a new relationship in Mexico which is adding sales there and in other Latin American countries. The company now has agent/distribution agreements in 20 countries. 1997 SEGMENT SALES [GRAPH APPEARS HERE] 6 REVIEW OF OPERATIONS THE CALVERT COMPANY-RICHLAND, MISSISSIPPI Calvert primarily manufactures a broad variety of bus duct products for the power generation and distribution industries. Calvert operates in three primary markets: Original Equipment Mfg. (OEM), architectural engineering and the investor owned utility markets. Calvert has continued to show margin improvements. The OEMs manufacture and sell a product that utilizes Calvert's bus duct systems as part of their equipment. The major OEMs are those companies that manufacture power generators. The architectural engineering firms Calvert conducts business with are typically those that act as general contractors for an entire power plant project. As much as 80 percent of the current demand for Calvert's products is for overseas use. Until the unfolding deregulation of the domestic electric utility industry fully develops, U.S. equipment sales will continue to be primarily into the replacement market. Markets, such as the Far East, the Asian-Pacific Rim, and South America, have attracted the attention of those in the bus duct product industry as these areas have seen (and will continue to see) rapid development of electrical power generation infrastructures. The hottest foreign markets are those such as China, India, and Russia, which are expected to significantly increase their power generation capacity over the next ten years. Despite the dependence on foreign sales, Calvert has little currency exposure because it deals primarily with U.S. contractors and quotes its prices in U.S. dollars. The current uncertainty arising from the emerging trend towards deregulation in the U.S. electric utility industry is providing a growth opportunity and Calvert is devoting resources to capitalize on it. Efforts of utility companies to downsize their support staffs in the cost cutting environment of deregulation have resulted in an increased usage of outside sub contractors for maintenance and repair. Calvert's Installation Services (C.I.S.), a unit that contracts with utilities to perform bus duct replacement installation, bus maintenance and installation supervision of bus duct systems, is benefiting from this trend. ATKINSON INDUSTRIES - PITTSBURG, KANSAS Atkinson Industries was originally developed to provide power distribution equipment, electrical components, and electrical repair services to the mining and other industries. Mine-duty equipment and electrical repair services are still vital parts of Atkinson but have become smaller components of the business as the company has concentrated its efforts on factory fabricated electrical enclosures. These enclosures provide environmentally controlled protection for electrical equipment that must operate in hazardous locations. Atkinson ships its enclosures with the electrical equipment requiring protection already installed so that the enclosures are ready to be set in place and utilized upon delivery. As market needs continually change, the uses of these enclosures have evolved and spanned new industries, allowing Atkinson to penetrate new markets. Some of the bigger industries which utilize enclosures include the telecommunications, petroleum, chemical, paper, utilities industries and municipalities. Fiscal 1997 was a special year for Atkinson as the company delivered two 80 foot portable electrical and communication command centers for on-site riverside pulp operations, a new market for Atkinson. Built in 20 foot sections the finished enclosures housed a computer room, electrical power and switchgear, and even lavatories. The electrical utility industry continues to be the backbone of Atkinson's business, yet fiscal 1997 saw further progress in penetrating the faster growing communications industry with enclosures to support remote towers. Prospects for continued growth in the new fiscal year are excellent and Atkinson began fiscal 1998 with a backlog 22% ahead of last year. 7 REVIEW OF OPERATIONS GALVANIZING Aztec operated eight galvanizing facilities in fiscal 1997 and acquired a ninth, Hobson Galvanizing, Inc. near New Orleans, Louisiana on March 10, 1997. With current production in excess of 200 million pounds annually, Aztec is one of the largest independent galvanizers in the United States and one of the fastest growing. GALVANIZING SEGMENT
================================================= 1995 1996 1997 - ------------------------------------------------- Sales $12,761 $16,920 $23,646 - ------------------------------------------------- % Change 35% 33% 40% - ------------------------------------------------- OP Income $ 3,056 $ 4,270 $ 5,930 - ------------------------------------------------- % Change 54% 40% 39% - ------------------------------------------------- OP Margin Return on Sales 24% 25% 25% - ------------------------------------------------- Avg. Assets Emp $11,267 $16,594 $19,313 - ------------------------------------------------- Return on Assets 27% 26% 31% =================================================
The Galvanizing Segment accounted for 41% of the Company's total revenues and 53% of operating income. Growth has and continues to come from a combination of solid internal growth and acquisitions. The acquisition of Arkansas Galvanizing in February, 1996 added 34% to production, while existing Aztec facilities grew a solid 12%. The acquisition of Hobson at the start of our new fiscal year should further enhance the growth in galvanizing revenues in fiscal 1998. Hobson had revenues in calendar 1996 in excess of $5 million and processed 41 million pounds of steel products. After less than two months of ownership, Aztec has already seen a trend of improved margins and a rising revenue stream from Hobson. Because galvanizing provides metallurgically bonded protection, it offers economic advantages over repetitive application of coatings or use of costly stainless steel. In Europe, about 35 percent of all rolled steel is galvanized, compared with just six percent in this country. Through coordinated industry efforts, U.S. market share is expected to increase in the years ahead, but may not reach European levels. In 1995, the latest year industry wide statistics are available, U.S. steel companies produced 85.8 million tons of steel. Of that, only 2.7 million tons, or about 3.2 percent, were hot dipped galvanized. The significant factor here is that 2.7 million tons represent an 8 percent increase over the 1994's 2.5 million tons. The American Galvanizing Association projected a 10 percent increase in 1996 to 3.0 million tons. Industry growth trends are not necessarily meaningful because of the regional nature of the business. Galvanizing is a regional business mainly because freight quickly becomes a significant cost factor in the pricing equation. Aztec operates plants throughout the South and Southeast and the above industry growth rate exhibited by the Company's Galvanizing Segment has clearly benefited by the overall healthy economic progress of the geographical areas in which it operates. Because of the regional nature of the business, the galvanizing industry is highly fragmented with over 200 galvanizing plants in the U.S. Even though Aztec processed 83,000 tons of steel in the most recent year, that represents only about 3% of the total 3.0 million tons available industry wide. The galvanizing industry is starting to consolidate for a variety of reasons. The demand for value added services and broader geographic service from larger OEM customers, ever tightening EPA requirements, the aging of entrepreneurs who built much of the post World War II industry capacity and other reasons are all contributing to an acceleration of this trend. Aztec, because of its strong cash flow growth, should be well positioned to be a primary participant in this consolidation process. 8 REVIEW OF OPERATIONS OIL FIELD PRODUCTS In the early eighties, Aztec was the largest independent processor of oil field tubing in the United States. After the boom and subsequent bust a decade ago, the Oil Field Segment has become a very minor part of operations, breaking even or losing money in recent years. But it may be about to emerge as a significant incremental profit contributor in fiscal 1998 and beyond. In fiscal 1997, the Crowley tubing plant posted a solid profit for the first time in several years, most of which occurred in the fourth quarter. Results of the Oil Field Products Segment have been negatively impacted in recent years because of an idle facility in Houston, which was finally sold in October 1996. OIL FIELD PRODUCTS
============================================== 1995 1996 1997 - ---------------------------------------------- Sales $4,300 $2,092 $3,781 - ---------------------------------------------- % Change 13% (51)% 81% - ---------------------------------------------- OP Income $1,084 $ (428) $ (56) - ---------------------------------------------- % Change 138% (139)% 87% - ---------------------------------------------- OP Margin Return on Sales 25% NM NM - ---------------------------------------------- Avg. Assets Emp $3,983 $3,583 $3,960 - ---------------------------------------------- Return on Assets 27% NM NM ==============================================
In the eighties and prior, the oil field tubular business was a three or even four-step market structure. Raw pipe, both seamless and welded, would be manufactured by a steel company, sold by the ton to either an oil company or an oil field supply distributor, but consigned to a third party processor (i.e., Aztec) for processing, threading, heat treating, and tempering. Aztec functioned as a service provider for a processing fee but never owned the pipe, except for the related pup joint business. (Pup joints are short sections of tubing used to complete a production string.) Aztec was the largest third party processor from 1978 through 1986 with revenues from the business, at the peak, in excess of $50 million per year. The industry collapsed in 1985-1986 and Aztec collapsed with it. In the space of one year, revenues from this business virtually disappeared. Because of the glut of tubular products, most steel companies abandoned the production of tubular products altogether, or at the very least the small diameter (under two inches, referred to in the industry as macaroni tubing) part of the business. Those that remain have concentrated on large diameter tubing and casing products and processing has largely been brought in house. However, technological innovations in the oil patch such as 3-D seismic, horizontal drilling and simultaneous production from multiple pay zones, have improved economics and led to a resurgence in domestic drilling activity. Further, because of higher oil and gas prices, oil well rework activity has picked up. Demand for macaroni tubing has resulted from increases in dual lateral drilling and dual completions that require additional flow lines within a single wellbore. Aztec envisions an opportunity to rebuild this business and therefore reentered the market starting in the fourth quarter of fiscal 1997. Its approach is not strictly on a third party service basis, but directly, buying new tubing, processing it into finished pipe and selling to the ultimate customer, i.e. an oil company or oil field distributor. Purchasing some imported tubing, the Company shipped approximately 500,000 feet in the December through February period. Now that it is obvious there is an ongoing market, Aztec is addressing the supply side of the business. Supply sources for raw tubing have been found in Romania and Korea, as well as Spain and Canada, and material started arriving in December. In addition, the Company is negotiating with other sources both foreign and domestic. While there is risk associated with this expansion, the incremental revenue and profit implications are meaningful. Aztec's oil field tubular processing facility in Crowley, Texas, has been depreciated to under $3 million over the years. This is a large facility capable of producing more than ten times its current production. Aztec intends to pursue this line of business aggressively. 9 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL Aztec Manufacturing Co. (the "Company") focuses on three industrial markets: Electrical Products, Galvanizing, and Oil Field Services. The Company reported sales of $57.7 million for fiscal 1997 compared with $49.2 million in the previous year. Net income for fiscal 1997 was $4.3 million or 74 cents per share compared with $2.6 million or 45 cents per share fully diluted. 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, 1997 (1997) COMPARED WITH YEAR ENDED FEBRUARY 29, 1996 (1996) Consolidated net sales for 1997 grew by $8.5 million or 17% over 1996. Revenues from the Company's Electrical Products Segment, which is made up of Rig-A-Lite Partnership Ltd. ("Rig-A-Lite") , The Calvert Company ("Calvert") and Atkinson Industries, Inc. ("Atkinson") remained constant for 1997 as compared to 1996. Rig-A-Lite's revenues were up 18% for 1997. Rig-A-Lite's domestic industrial sales, which represented 44% of their total revenues, were flat for 1997. Fixture sales to the food processing industry, which represented 20% of its total revenues, were down by 11% for 1997 due to a slow down in the consumption of poultry related products. Sales of Rig-A-Lite's international and petroleum fixtures, which represented 36% of their total sales, were up 95% due to renewed activity in international petroleum markets. Calvert's revenues were down 20% for 1997 compared to 1996 due to the continued sluggishness of the domestic power generation market. Overseas shipments of bus duct products continued to represent approximately 80% of Calvert's revenues for 1997. Calvert's domestic customer installation service business, which represents 15% of Calvert's 1997 revenues, was flat for 1997 as compared to 1996. Revenues at Atkinson were up 2% for 1997 as compared to 1996. Sales of Atkinson's factory fabricated power centers, which represents 87% of Atkinson's business, were up 3% over 1996. Atkinson's electrical repair services was down 5% for 1997 as compared to 1996. Revenues in the Galvanizing Segment were up 40% for 1997 as compared to 1996 due to a 13% increase in revenues at Aztec's existing seven facilities and the acquisition of Arkansas Galvanizing on February 1, 1996. During the first full year under Aztec's management, Arkansas Galvanizing represented 21% of total revenues for this segment. The Oil Field Products Segment generated 7% of the Company's consolidated revenues for 1997. Revenues generated from this segment were up 81% for 1997 as compared to 1996. Aztec changed its long standing philosophy regarding how the Company markets its services to the industry. Since the Company's inception in 1956, Aztec's Oil Field Products Segment provided a third party service of end finishing oil field tubular goods for steel mills and oil field supply houses in the U.S. In the second half of fiscal 1997, Aztec began buying plain end tubing, processing it into finished product and marketing the finished tubing direct to supply houses. The Company has experienced a strong demand for finished tubing and is working diligently to solidify long term agreements with reliable suppliers of plain end tubing. Consolidated operating income (see note 10 of Notes to Consolidated Financial Statements) increased $3.1 million or 38 percent for 1997, as compared to 1996. The Electrical Products Segment continued to improve for 1997, with operating income up 25% over 1996. Rig-A-Lite's operating income for 1997 was up 45% from 1996 due to improved margins achieved by cost efficiencies and lower material cost related to increased volumes. Calvert's operating income was up 64% for 1997 compared to 1996. Continued cost controls and increased efficiencies helped to improve margins. Atkinson's operating income was down 16% for 1997 compared to 1996 due to less profitable jobs being accepted to improve backlog. Higher margin jobs are being added to Atkinson's backlog. The Galvanizing Segment's operating income increased 39% during 1997 compared to 1996. Operating income was up 7% due to increased volumes of steel being processed at Aztec's seven existing facilities and the acquisition of Arkansas Galvanizing on February 1, 1996. Arkansas Galvanizing accounted for 24% of this segment's operating income. 10 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The Oil Field Products Segment showed a $56,000 operating loss for 1997 as compared to a $428,000 operating loss in 1996. The operating loss included carrying costs of the Segment's idle facility in Houston, Texas of $115,000 for 1997 and $139,000 for 1996. A portion of this facility was sold on October 31, 1996, and these carrying costs should not reoccur. The Crowley facility showed a $60,000 operating profit for 1997 as compared to a $289,000 operating loss in 1996. The improvement in operating income at the Crowley facility is attributable to the increased volumes of tubular goods processed and sold during the last quarter of 1997. General corporate expenses for 1997 increased by 16% over 1996. This increase was attributed to higher employee benefits and profit sharing expenses, and increased selling expenses. Interest expense in 1997, as compared to 1996, was down due to lower interest rates through the course of the year as well as a lower outstanding loan balance. Other (income) expense was made up of scrap sales, (gains) and losses on sales of property and equipment, and other (income) expense items not specifically identifiable to a segment. This expense included the establishment of a corporate reserve for slow moving inventory in the amount of $240,000. YEAR ENDED FEBRUARY 29, 1996 (1996) COMPARED WITH YEAR ENDED FEBRUARY 28, 1995 (1995) Consolidated net sales for 1996 grew by $4.6 million or 10% over 1995. The Company's Electrical Products Segment showed a 10% increase in revenues for 1996 as compared to 1995. Rig-A-Lite's consolidated revenues increased 7% for 1996. Revenues from the industrial lighting market increased 9 percent for 1996 over 1995 due to continued sales emphasis in this market. Revenues generated from the petroleum industry were flat for 1996 as compared to 1995. Calvert's revenues increased 15% for 1996 due to an intensified emphasis on marketing. The majority of Calvert's products were shipped to foreign markets during 1996. Atkinson revenues were up 6% in 1996, a record year. Revenues in the Galvanizing Segment were up 33% for 1996 as compared to 1995. This increase was primarily due to an approximate 31% increase in the volume of steel processed, as well as improved average selling prices over 1995. Arizona Galvanizing contributed $1.86 million or 11% to the segment's total revenues for their first full year of operation. The addition of Arkansas Galvanizing, Inc., effective February 1, 1996, was a small contributor to revenues for 1996. The Oil Field Products Segment was down 51% for 1996. This segment generated 4% of the consolidated revenues of the Company in 1996. Consolidated operating income (see note 10 of Notes to Consolidated Financial Statements) increased $2.6 million or 47 % for 1996, as compared to 1995. The Electrical Products Segment showed a dramatic improvement for 1996, with operating income up 214% over 1995. Rig-A-Lite's operating income for 1996 was up 10 % from 1995 due to increased volume. Calvert showed an operating income for 1996 as compared to an operating loss in 1995. This was achieved through improved cost controls and increased efficiencies. Atkinson's operating income for 1996 was up 20 % from 1995 due to improved operating efficiencies. The Galvanizing Segment's operating income improved 40 %, consistent with increased revenues for 1996. The Oil Field Products Segment showed a $428,000 operating loss for 1996 as compared to $1.1 million in operating income for 1995. The operating loss was attributed to reduced volume. General corporate expenses for 1996 increased by 47% over 1995. This increase was attributed to higher employee benefits and profit sharing expenses, higher expense for professional services and increased selling expenses. Interest expense in 1996, as compared to 1995, increased due to higher interest rates through the course of the year as well as additional borrowings for the purchase of Arkansas Galvanizing in February 1996. Other (income) expense was made up of scrap sales, gain on sales of equipment, write-down of assets held for sale in the amount of $420,000, and other (income) expense items not specifically identifiable to a segment. 11 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS LIQUIDITY AND CAPITAL RESOURCES YEARS ENDED FEBRUARY 28, 1997, FEBRUARY 29, 1996 AND FEBRUARY 28, 1995 Aztec's financial condition, in management's opinion, remained strong through fiscal 1997. The Company's operations and acquisitions have been financed with funds generated from operations, bank borrowings, liquidation of idle assets and proceeds from the exercise of stock options. Cash provided by operating activities was $6.8 million in 1997, $9.1 million 1996 and $39,500 in 1995. Operating cash flows in 1997 were provided by net income, depreciation and amortization, and other non cash items. The increased cash flows from operations in 1996 as compared to 1995 were attributed to improved profits, reductions in outstanding accounts receivable and lower inventory balances. The sale of a portion of the Company's idle Houston property on October 31, 1996, generated cash of approximately $1 million. The amount realized from the sale of this property was equal to the net book value carried by the Company. The balance of this property is under contract of sale and should close by midyear of fiscal 1998. The Company anticipates the amount it will receive from the sale of the remains of the Houston property will equal its current carrying value. Additional cash was generated through the exercise of employee stock options in the amount of $1.4 million. Subsequent to year end, the Company acquired on March 10, 1997, the operating assets of Hobson Galvanizing, Inc., for $3.9 million. The purchase was funded from cash reserves of the Company. Hobson Galvanizing had revenues in excess of $5 million per year. Other major uses of cash during fiscal 1997 included capital expenditures, repayment of debt, and payment of cash dividends. Working capital increased to $12.2 million for 1997 from $7.9 million in 1996. The Company's current ratio and quick ratio for 1997 were 2.30 to 1 and 1.61 to 1, respectively. The long term debt-to-equity ratio was .26 to 1 on February 28, 1997, and .41 to 1 on February 29, 1996. The Company arranged a new credit facility with a new lender effective July 1, 1996. This agreement is made up of a three year $10 million revolving line of credit and a six year $10 million term note. The Company's current availability under the credit facility is approximately $10 million. Management believes that the credit facility, current assets and cash generated from operations will be sufficient to accommodate the Company's current operations, internal growth, and possible future acquisitions. Inflation has not significantly impacted the Company over the last three years. Management does not expect inflation to have a significant impact on operations in the foreseeable future. The Company does not engage in any hedging activities or make use of any investments in derivatives, commodities, or other interest-rate sensitive vehicles. 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. In August 1988, the Company received a letter from the Texas Natural Resource Conservation Commission ("TNRCC") regarding remedial actions at a chemical waste disposal site near Ranger, Texas. Records indicate the Company may have generated a portion of the waste placed at the site and, therefore, has been deemed by the TNRCC to be a Potentially Responsible Party ("PRP"), with respect to the site under the Texas Solid Waste Disposal Act, Chapter 361, Texas Health and Safety Code. The Company, together with other companies that may have generated waste placed at the site, is participating with the TNRCC in a clean- up study at the site. No materially adverse findings have resulted from the reviews to date. 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. 12 STOCK PRICES AND DIVIDENDS PER SHARE
Fiscal 1997 High Bid Low Bid Cash Dividend -------- ------- ------------- 1st Quarter $ 6-3/8 $4-3/8 $ .00 2nd Quarter 8-1/4 6 .00 3rd Quarter 9-1/8 6-1/2 .00 4th Quarter 11-3/8 6-3/4 .06 Whole Year 11-3/8 4-3/8 .06
Fiscal 1996 High Bid Low Bid Cash Dividend -------- ------- ------------- 1st Quarter $ 4-1/2 $3-1/2 $ .00 2nd Quarter 3-7/8 3-1/8 .00 3rd Quarter 4-1/8 3-1/4 .00 4th Quarter 5-3/8 3-1/2 .03 Whole Year 5-3/8 3-1/8 .03
Stock Prices: The above quotations represent prices between dealers and do not include retail mark-up, mark-down or commission. They may or may not represent actual transactions. Daily bid/ask closing prices are quoted in the National OTC List. The Company's common stock traded on the NASDAQ Stock Market under the symbol: AZTC. Subsequent to year-end, the Company was listed on the New York Stock Exchange and began trading on March 20, 1997. The Company's common stock trades under the symbol AZZ. 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, 1997 and February'29, 1996, and the related consolidated statements of income, shareholders' equity, and cash flows for each of the three years in the period ended February 28, 1997. 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, 1997 and February'29, 1996, and the consolidated results of its operations and its cash flows for each of the three years in the period ended February 28, 1997, in conformity with generally accepted accounting principles. /s/Ernst & Young, LLP --------------------- Fort Worth, Texas March 31, 1997 13 AZTEC MANUFACTURING CO. CONSOLIDATED BALANCE SHEETS February 28, 1997 and February 29, 1996
Assets 1997 1996 - ------ ------------ ------------ Current assets: Cash and cash equivalents $ 5,583,720 $ 416,223 Accounts receivable, net of allowance for doubtful accounts of $385,900 in 1997 and $200,000 in 1996 9,530,112 9,483,471 Inventories 6,314,692 6,672,548 Prepaid expenses and other 192,902 192,047 ------------ ------------ Total current assets 21,621,426 16,764,289 Long-term investments 300,000 - Property, plant, and equipment, at cost: Land 1,212,750 1,212,750 Buildings and structures 13,088,844 12,859,464 Machinery and equipment 12,556,079 12,080,903 Furniture and fixtures 1,345,227 1,244,137 Automotive equipment 650,953 592,689 Construction in progress 272,501 255,725 ------------- ------------ 29,126,354 28,245,668 Less accumulated depreciation 12,584,177 11,420,716 ------------- ------------ Net property, plant, and equipment 16,542,177 16,824,952 Property held for sale, net of accumulated depreciation of $235,102 in 1997 and $1,209,000 in 1996 390,698 1,504,756 Intangible assets, less accumulated amortization of $1,266,126 in 1997 and $1,427,600 in 1996 300,014 425,430 Costs in excess of fair value of assets purchased, less accumulated amortization of $966,281 in 1997 and $642,300 in 1996 6,560,304 6,867,543 Other assets 280,145 234,340 ------------- ------------ $45,994,764 $42,621,310 ============= ============ Liabilities and Shareholders' Equity - ------------------------------------ Current liabilities: Accounts payable $ 2,840,108 $ 4,077,754 Accrued salaries and wages 839,150 693,338 Other accrued liabilities 3,044,313 2,038,227 Income taxes 921,286 517,355 Long-term debt due within one year 1,756,666 1,558,926 ------------ ------------ Total current liabilities 9,401,523 8,885,600 Long-term debt due after one year 7,527,221 9,516,472 Net deferred income tax liability 492,688 1,058,993 Shareholders' equity: Common stock, $1 par value; 25,000,000 shares athorized; 6,145,009 and 5,772,895 shares issued and outstanding at February 28, 1997 and February 29, 1996, respectively 6,145,009 5,772,895 Capital in excess of par value 10,351,523 9,283,268 Retained earnings 12,802,931 8,830,213 Less common stock held in treasury (232,362 shares, at cost) (726,131) (726,131) ------------ ------------ Total shareholders' equity 28,573,332 23,160,245 ------------ ------------ $45,994,764 $42,621,310 ============ ============
See accompanying notes. 14 AZTEC MANUFACTURING CO. CONSOLIDATED STATEMENTS OF INCOME Years ended February 28, 1997, February 29, 1996 and February 28, 1995 1997 1996 1995 ------------ ------------- ------------ Net sales $ 57,703,287 $ 49,184,383 $44,607,665 Costs and expenses: Cost of sales 41,305,269 36,352,710 34,129,695 Selling, general, and administrative 8,089,434 7,548,641 6,566,317 Net loss on sale of property, plant, and equipment 1,310 45,162 3,040 Interest expense 874,209 912,586 822,627 Other expense, net 280,065 57,923 477,525 ------------ ------------- ------------ 50,550,287 44,917,022 41,999,204 ------------ ------------- ------------ Income before income taxes 7,153,000 4,267,361 2,608,461 Income taxes: Current expense 3,391,740 1,514,762 1,269,735 Deferred expense (benefit) (566,305) 170,986 (239,406) ------------ ------------- ------------ 2,825,435 1,685,748 1,030,329 ------------ ------------- ------------ Net income $ 4,327,565 $ 2,581,613 $ 1,578,132 Income per share: Assuming no dilution $.75 $.46 $.28 ==== ==== ==== Assuming full dilution $.74 $.45 $.27 ==== ==== ====
AZTEC MANUFACTURING CO. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY Years ended February 28, 1997, February 29, 1996 and February 28, 1995
Common stock Capital in ------------------------ excess of Retained Treasury Shares Amount par value earnings stock ---------- ----------- ------------- -------------- ------------- Balance at Feb. 28, 1994 5,645,494 $5,645,494 $ 8,951,255 $ 4,951,417 $ - Exercise of stock options 95,766 95,766 268,743 - - Cash dividends declared - - - (114,734) - Net income - - - 1,578,132 - ---------- ----------- ------------- -------------- ------------- Balance at Feb. 28, 1995 5,741,260 5,741,260 9,219,998 6,414,815 - Exercise of stock options 31,635 31,635 63,270 - - Purchase of treasury stock (232,362 shares) - - - - (726,131) Cash dividends declared - - - (166,215) - Net income - - - 2,581,613 - ---------- ----------- ------------- -------------- ------------- Balance at Feb. 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 Feb. 28, 1997 6,145,009 $6,145,009 $ 10,351,523 $ 12,802,931 $ (726,131) =========== =========== ============= ============= =============
See accompanying notes. 15 AZTEC MANUFACTURING CO. CONSOLIDATED STATEMENTS OF CASH FLOWS Years ended February 28, 1997, February 29, 1996 and February 28, 1995
1997 1996 1995 ------------- -------------- ----------------- Cash flows from operating activities: Net income $ 4,327,565 $ 2,581,613 $ 1,578,132 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 2,231,547 1,890,836 1,407,846 Amortization 432,655 336,431 346,427 Writedown of property held for sale - 458,000 - Provision for doubtful accounts 309,717 564,069 216,000 Deferred income tax expense (566,305) 170,986 (239,406) (benefit) Net loss on sale of property, plant, and equipment 1,310 45,162 3,040 ------------- -------------- -------------- 6,736,489 6,047,097 3,312,039 Effect of changes in operating assets and liabilities, net of acquisition of subsidiaries in 1996: Accounts receivable (356,358) 2,039,108 (2,341,328) Inventories 357,856 932,491 (1,926,303) Prepaid expenses (855) (83,769) 36,737 Other assets (45,805) (17,131) (5,339) Accounts payable (1,237,646) (208,588) 762,983 Accrued salaries and wages 145,812 135,590 (4,123) Other accrued liabilities and income taxes 1,221,385 257,775 204,885 ------------- -------------- -------------- Net cash provided by operating 6,820,878 9,102,573 39,551 activities Cash flows from investing activities: Proceeds from the sale of property, plant, and equipment and property held for sale 1,200,853 59,140 497,370 Purchases of property, plant, and equipment (2,036,877) (2,861,780) (4,890,348) Acquisition of subsidiaries, net of cash acquired - (3,931,225) - Purchase of long-term investments (300,000) - - ------------- -------------- -------------- Net cash used in investing activities (1,136,024) (6,733,865) (4,392,978) Cash flows from financing activities: Proceeds from revolving loan 17,863,736 53,681,381 5 2,146,909 Proceeds from long-term debt 10,000,000 - 1,900,000 Payments on long-term debt (5,213,483) (1,490,597) (1,893,304) Payments on revolving loan (24,441,764) (53,590,073) (47,976,262) Cash dividends paid (166,215) (114,734) (112,910) Proceeds from exercise of stock options 1,440,369 94,905 364,509 Purchase of treasury stock - (726,131) - ------------- -------------- -------------- Net cash provided by (used in) financing activities (517,357) (2,145,249) 4,428,942 ------------- -------------- -------------- Net increase in cash and cash equivalents 5,167,497 223,459 75,515 Cash and cash equivalents at beginning of year 416,223 192,764 117,249 ------------- -------------- -------------- Cash and cash equivalents at end of year $ 5,583,720 $ 416,223 $ 192,764 ============= ============== ============== Supplemental disclosures of cash flow information: Cash paid during the year for: Interest $ 866,565 $ 967,000 $ 762,000 Income taxes $ 2,926,265 $ 1,210,000 $ 1,440,000
See accompanying notes. 16 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FEBRUARY 28, 1997, FEBRUARY 29, 1996 AND FEBRUARY 28, 1995 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 intercompany 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 1997, 1996 and 1995 were approximately $124,000, $589,000 and $41,000, 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 5-15 years Automotive equipment 3 years 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. 17 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Summary of significant accounting policies (continued) Asset impairment--The Financial Accounting Standards Board issued ---------------- Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of," in March 1995. SFAS No. 121 requires that long-lived assets and certain identifiable intangibles (such as those described above) be reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. The Statement also requires assets to be disposed of be reported at the lower of carrying amount or fair value less costs to sell. The new standard is effective for the fiscal years beginning after December 15, 1995. No assets were impaired and it is expected that the carrying amount of all assets will be recoverable. 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 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. 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, 1997: Cash and cash equivalents: The carrying amount reported in the consolidated balance sheet for cash and cash equivalents approximates fair value. Long-term investments: The carrying value of long-term investments in the consolidated balance sheet approximates fair value. 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. 2. Inventories Inventories consist of the following:
1997 1996 --------- ---------- (Dollars in thousands) Raw materials $4,744 $5,000 Work-in-process 1,101 991 Finished goods 888 747 --------- ---------- 6,733 6,738 Less reserve for obsolete and slow-moving inventory 418 65 --------- ---------- $6,315 $6,673 ========= ==========
3. Long-term investments At February 28, 1997, the Company's long-term investments represent investments in 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. 18 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 4. Employee benefit plans The Company has a trusteed profit sharing plan covering substantially all of its employees. Under the provisions of the plan, the Company contributes amounts as authorized by the Board of Directors. Contributions to the profit sharing plan amounted to $715,000 for 1997, $426,000 for 1996 and $260,500 for 1995. During fiscal 1994, the Company recorded a deferred compensation liability and corresponding charge to expense in the amount of $246,000 under the terms of a "buy-sell and termination" agreement with an officer of the Company. This agreement provides for the proceeds of an existing life insurance policy to be used to acquire Company stock from the estate of the officer in the event of his death or for transfer of the policy to the officer upon retirement. The deferred compensation amount is equivalent to the cash surrender value of the life insurance policy and amounted to approximately $250,000 at February 28, 1997. 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 liabilities and assets as of February 28, 1997 and February 29, 1996 are as follows:
1997 1996 ---------- ---------- (Dollars in thousands) Deferred income tax liabilities: Depreciation methods and property $ 975 $1,224 basis differences Accounts receivable and inventory - 237 Other assets 62 - ---------- ---------- Total deferred income tax liabilities 1,037 1,461 Deferred income tax assets: Employee related items 152 162 Intangible assets - 118 Reserve for environmental liabilities 108 96 Reserve for slow-moving inventory 82 - Reserve for doubtful accounts 131 - Other 71 26 ---------- ---------- Total deferred income tax assets 544 402 ---------- ---------- Net deferred income tax liability $ 493 $1,059 ========== ==========
Current income tax expense consists of: 1997 1996 1995 ---------- ---------- ---------- (Dollars in thousands) Federal $3,065 $1,393 $1,158 State 327 122 112 ---------- ---------- ---------- $3,392 $1,515 $1,270 ========== ========== ==========
A reconciliation from the federal statutory tax rate to the effective tax rate for the years 1997, 1996 and 1995 is as follows:
1997 1996 1995 --------- ----------- --------- Statutory tax rate 34.0 % 34.0 % 34.0 % Expenses not deductible for tax purposes 1.5 2.2 6.7 State income taxes, net of federal income tax benefit 3.0 1.9 2.8 Other 1.0 1.4 (4.0) --------- ----------- --------- Effective tax rate 39.5 % 39.5 % 39.5 % ========= =========== =========
19 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 6. Income per share Net income per share is based on the month-end average number of shares outstanding during each year, adjusted for the dilutive effect of stock options. The average number of shares outstanding is 5,761,080 in 1997, 5,634,341 in 1996 and 5,698,496 in 1995. Cash dividends paid (or declared) per share are $.06 in 1997, $.03 in 1996 and $.02 in 1995. 7. Stock options The Company has two Incentive Stock Option Plans for its employees. At February 28, 1997, options were outstanding and exercisable on 97,788 shares at exercise prices (equal to the market price at the date of grant) ranging from $3.88 to $4.44 per share. These options expire November 1998 through December 2000. Approximately 281,000 options were exercised and 3,500 options were forfeited in 1997 at prices ranging from $3.00 to $4.44 per share. No options were granted in 1997. The Company also has two Nonstatutory Stock Option Plans for the independent directors of the Company. Under the plans, options are 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 115,752 and 157,500 shares. At February 28, 1997, 102,632 shares have been granted under these plans, and are exercisable at prices ranging from $3.69 to $5.67 per share. Options under these plans expire at various dates through April 2006. Included in these outstanding options are 10,500 options granted in 1997 with an exercise price of $5.25 which expire in April 2006. Approximately 91,100 options were exercised in 1997 at prices ranging from $3.33 to $5.67 per share. No shares were forfeited in 1997. 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 of 6.5% for options granted in 1997 and 6.3% for options granted in 1996; a dividend yield of 1.5%; and a volatility factor of .478. In addition, the fair value of these options was estimated based on an expected life of five 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 of traded options, 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 of the 1997 and 1996 options granted is not material to the operations of the Company for 1997 and 1996. The weighted average fair value of the 1997 and 1996 options granted is approximately $2.33 and $1.71 per option, respectively. 8. Long-term debt Effective July 1, 1996, the Company entered into a new credit facility with a new lender. The new credit facility provides a three-year $10 million revolving line of credit and a six-year $10 million term note and replaced a term and revolving loan agreement that allowed for borrowings up to $6 million and $10 million, respectively. 20 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 8. Long-term debt (continued) Long-term debt consists of the following:
1997 1996 --------------- -------------- (Dollars in thousands) Term note payable to bank ($10 million), due in monthly installments through July 2002 (interest at 7.86 percent on $ 8,889 $ - February 28, 1997) Term notes payable to bank ($6 million), due in monthly installments through March 2000 (interest at 8.75 percent on - 4,029 February 29, 1996) Revolving loan payable to bank ($10 million), due May 1997 (interest at 8.75 percent on February 29, 1996) - 6,578 Industrial Revenue Bonds, due in July 1998, payable in monthly installments (interest at 7.90 percent on February 28, 1997) 110 153 Industrial Revenue Bonds, due in December 2003, payable in monthly installments (interest at 5.75 percent on Feb. 28, 1997) 285 315 --------------- -------------- 9,284 11,075 Less amount due within one year 1,757 1,559 --------------- -------------- $ 7,527 $ 9,516 =============== ==============
The revolving line of credit, term notes 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 is in compliance with these covenants as of February 28, 1997. The Company's long-term debt is secured by inventory, equipment, and fixtures. Pursuant to the loan agreement, borrowing under the revolving line of credit is limited to certain percentages of trade accounts receivable and inventory and is reduced by the balance of outstanding letters of credit, which amounted to $237,000 at February 28, 1997. This line of credit has not been utilized in 1997. Maturities of long-term debt are as follows (dollars in thousands): 1998 $ 1,757 1999 1,757 2000 1,707 2001 1,707 2002 1,707 Thereafter 649 -------------- $ 9,284 ==============
9. Quarterly financial information, unaudited (dollars in thousands, except per share amounts)
Quarters Ended May 31, August 31, November 30, February 28, 1996 1996 1996 1997 ----------------- ----------------- ----------------- ----------------- 1997 ---- Net sales $ 14,236 $ 13,889 $ 14,287 $ 15,291 Gross profit 4,019 3,912 3,916 4,551 Net income 943 925 1,134 1,325 Net income per share--assuming no dilution .17 .16 .20 .22 Net income per share--assuming full dilution .16 .16 .20 .22
21 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 9. Quarterly financial information, unaudited (dollars in thousands, except per share amounts) (continued)
Quarters Ended May 31, August 31, November 30, February 29, 1995 1995 1995 1996 --------------- -------------- -------------- --------------- 1996 ---- Net sales $ 12,069 $ 11,332 $ 12,975 $ 12,808 Gross profit 2,948 2,905 3,496 3,483 Net income 554 569 732 727 Net income per share--assuming no dilution .10 .10 .13 .13 Net income per share--assuming full dilution .10 .10 .13 .12
10. Operating segments (dollars in thousands) The Company provides processing services and manufactures products for sale primarily in the United States in the following segments: (1) Electrical Products - manufactures petroleum and industrial lighting products, electrical bus ducts and electrical power centers; (2) Galvanizing - provides custom hot dip galvanizing service for industries handling fabricated metal products; and (3) Oil Field Products - provides oil field tubular products and manufactures oil field pup joints. Information regarding operations and assets by division is as follows:
Fiscal year Fiscal year Fiscal year ended ended ended February 28, February 29, February 28, 1997 1996 1995 ----------------- ----------------- ----------------- Net sales: Electrical products $ 30,276 $ 30,172 $ 27,547 Galvanizing 23,646 16,920 12,761 Oil field products 3,781 2,092 4,300 ----------------- ----------------- ----------------- $ 57,703 $ 49,184 $ 44,608 ================= ================= ================= Operating income (loss) (a): Electrical products $ 5,317 $ 4,264 $ 1,358 Galvanizing 5,930 4,270 3,056 Oil field products (56) (428) 1,084 ----------------- ----------------- ----------------- 11,191 8,106 5,498 General corporate expenses 2,938 2,523 1,722 Interest expense 874 913 823 Other (income) expense, net (b) 226 403 345 ----------------- ----------------- ----------------- 4,038 3,839 2,890 ================= ================= ================= Income before income taxes $ 7,153 $ 4,267 $ 2,608 ================= ================= =================
22 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 10. Operating segments (continued)
Fiscal year Fiscal year Fiscal year ended ended ended February 28, February 29, February 28, 1997 1996 1995 ----------------- ----------------- ----------------- Depreciation and amortization: Electrical products $ 714 $ 656 $ 646 Galvanizing 1,593 1,231 833 Oil field products 244 246 203 Corporate 113 94 72 ----------------- ----------------- ----------------- $ 2,664 $ 2,227 $ 1,754 ================= ================= ================= Additions to property, plant, and equipment (including assets of purchased subsidiaries in 1996): Electrical products $ 304 $ 1,002 $ 266 Galvanizing 1,353 2,273 4,413 Oil field products 345 48 56 Corporate 35 111 155 ----------------- ----------------- ----------------- $ 2,037 $ 3,434 $ 4,890 ================= ================= ================= Total assets: Electrical products $15,395 $16,454 $19,745 Galvanizing 19,128 19,499 13,689 Oil field products 4,389 3,531 3,636 Corporate (c) 7,083 3,137 3,721 ----------------- ----------------- ----------------- $45,995 $42,621 $40,791 ================= ================= =================
(a) Operating income (loss) 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. (c) Corporate includes $390,700, $1,504,800 and $2,038,300 of property held for sale in 1997, 1996 and 1995, respectively. 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 1997, 1996 or 1995. 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. 23 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 12. Property held for sale The Company closed its Houston Tubing facility in March 1989 due to lagging sales associated with the slump in the drilling industry. As a result, the Houston facility was being offered for sale. The Company reached a tentative agreement in 1996 to sell a portion of the facility to an unrelated third party and, accordingly, reduced the carrying value by $458,000 in 1996 to reflect the estimated net proceeds from the proposed sale. This agreement was finalized in 1997 and this portion of the property was sold at its carrying value after the 1996 write-down. The Company believes the carrying value of the remainder of the facility will be recovered under an existing lease purchase option. 13. Acquisitions In February 1996, the Company purchased all of the stock of Arkansas Galvanizing, Inc. for approximately $4.2 million in cash and the assumption of approximately $.8 million in liabilities. Costs in excess of estimated fair value of this acquisition were approximately $2.8 million. In connection with this acquisition, the Company agreed to pay the selling shareholders $450,000 pursuant to an agreement not to compete. The total potential obligation will be paid and expensed in equal monthly installments over a 60 month period which commenced on April 1, 1996. The acquisition was accounted for under the purchase method of accounting. The excess of costs over fair value is being amortized over the estimated useful life of 25 years. A full year of revenues from this acquisition were included in fiscal 1997 and one month of revenues for fiscal 1996. The pro forma consolidated results of operations for the years ended February 29, 1996 and February 28, 1995, assuming the Arkansas Galvanizing, Inc. acquisition had been consummated as of March 1, 1994 is as follows:
(Unaudited) 1996 1995 ---------- ---------- (Dollars in thousands, except per share amounts) Net sales $ 52,598 $ 48,001 Net income 2,797 1,766 Net income per share - assuming no dilution .50 .31 Net income per share - assuming full dilution .49 .31
14. Subsequent event Effective March 10, 1997, the Company purchased certain assets of Hobson Galvanizing, Inc. for approximately $3.9 million which included a $250,000 payment to the selling shareholders pursuant to a noncompete agreement. 24 CORPORATE INFORMATION BOARD OF DIRECTORS L. C. MARTIN Chairman of the Board, President & Chief Executive 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 President & CEO Performing Arts Fort Worth R. J. SCHUMACHER President of Texland Petroleum, Inc. JOHN G. RICHARDS Fort Worth Investor 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 EXECUTIVE OFFICERS L. C. MARTIN Chairman of the Board, President & Chief Executive Officer SAM ROSEN Secretary FRED L. WRIGHT, JR. Senior Vice President/Galvanizing Segment DANA L. PERRY Vice President of Finance Chief Financial Officer, Assistant 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 current Form 10-K by writing Dana Perry at the Company's Corporate Office. ANNUAL MEETING July 8, 1997, 10:00 a.m. Fort Worth Petroleum Club Fort Worth, Texas CORPORATE OFFICE 400 N. Tarrant P.O. Box 668 Crowley, Texas 76036 817/297-4361 Phone 817/297-4621 Fax AZTEC MANUFACTURING CO. 400 NORTH TARRANT . P.O. BOX 668 CROWLEY, TEXAS 76036 NOTICE OF ANNUAL MEETING OF SHAREHOLDERS To the Shareholders of Aztec Manufacturing Co.: The Annual Meeting of the Shareholders of AZTEC MANUFACTURING CO. (the "Company") will be held at the Petroleum Club in the Derrick I Room on the 39th floor of the Continental Plaza, 777 Main Street, Fort Worth, Texas, on the 8th day of July, 1997, at 10:00 a.m. for the purpose of considering and acting upon the following matters: 1. ELECTION OF DIRECTORS. To elect three directors for a term of three years. 2. APPROVAL OF AUDITORS. To approve the appointment of Ernst & Young LLP as auditors for the Company for it's fiscal year ending February 28, 1998. 3. OTHER BUSINESS. To transact such other business as may properly come before the meeting or any adjournment or adjournments thereof. Information regarding the matters to be acted upon at the meeting is contained in the Proxy Statement attached to this Notice. As of the date of this Notice, management does not know of any other business to be presented at the meeting. Only Shareholders of record at the close of business on the 9th day of May, 1997, will be entitled to notice of or to vote at the meeting or any adjournment or adjournments thereof. A copy of the Annual Report to Shareholders for the fiscal year ended February 28, 1997 is enclosed herewith. WE HOPE YOU WILL BE ABLE TO ATTEND THE MEETING IN PERSON. WHETHER OR NOT YOU PLAN TO ATTEND, PLEASE DATE AND SIGN THE ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED ADDRESSED ENVELOPE WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES. BY ORDER OF THE BOARD OF DIRECTORS Sam Rosen, Secretary Crowley, Texas June 1, 1997 AZTEC MANUFACTURING CO. P. O. BOX 668 CROWLEY, TEXAS 76036 PROXY STATEMENT FOR ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON JULY 8, 1997 This Proxy Statement is furnished in connection with the solicitation of proxies by the Board of Directors of Aztec Manufacturing Co. (the "Company") for use at the regular Annual Meeting of the Shareholders of the Company to be held at the Petroleum Club in the Derrick I Room on the 39th floor of the Continental Plaza, 777 Main Street, Fort Worth, Texas, on the 8th day of July, 1997, at 10:00 a.m., and at any adjournment or adjournments thereof. This Proxy Statement and the accompanying proxy are being mailed on or about June 1, 1997, to the Shareholders of the Company. GENERAL INFORMATION - ------------------- At the close of business on the 9th day of May, 1997, the record date for determination of Shareholders entitled to notice of and to vote at the meeting, there were outstanding 5,912,627 shares of Common Stock, $1.00 par value, of the Company (the "Common Stock"). The presence, in person or by proxy, of the holders of a majority of the outstanding shares of Common Stock is necessary to constitute a quorum at the meeting. All shares represented at the meeting in person or by proxy shall be counted in determining the presence of a quorum. Each holder of shares of Common Stock will be entitled to one vote, in person or by proxy, for each share of Common Stock of the Company owned of record at the close of business on May 9, 1997. Cumulative voting for directors is not permitted. Directors are elected by plurality vote and, therefore, the three nominees receiving the highest number of affirmative votes shall be elected as directors provided a quorum is present. Abstentions and broker non-votes will not be considered part of the voting power present with respect to any matter on which such shares so acted which has the effect of reducing the number of shares voting affirmatively that is required to approve a matter requiring a majority vote. Therefore, assuming a quorum is present, if more shares vote "for" approval of the appointment of the independent auditors than vote "against," this matter will pass. All shares of Common Stock represented by a valid proxy will be voted. A proxy may be revoked at any time before it is voted by filing with the Secretary of the Company a written revocation thereof or a duly executed proxy bearing a later date. The cost of preparing, assembling and mailing the Notice of Annual Meeting of Shareholders, the Proxy Statement and the accompanying proxy will be borne by the Company. In addition to solicitation of proxies by mail, certain officers and employees of the Company, without additional compensation for such services, may solicit proxies by telephone, telegraph or personal contact. The Company will also supply brokerage firms and other custodians, nominees, and fiduciaries with such number of proxy materials as they may require for mailing to beneficial owners and will reimburse them for their reasonable expenses in connection therewith. BOARD OF DIRECTORS AND COMMITTEES OF THE BOARD - ---------------------------------------------- Meetings of the Board of Directors are held regularly each month, including a meeting following the conclusion of the Annual Meeting of Shareholders. During the fiscal year ended February 28, 1997, there were twelve (12) regular meetings and one (1) special meeting of the Board of Directors. For the fiscal year ended February 28, 1997, each non-employee director was paid a monthly retainer of $700 and a fee of $300 for each meeting of the Board of Directors attended from March, 1996 through July, 1996 and a monthly retainer of $1000 and a fee of $400 for each meeting of the Board of Directors attended from August, 1996 through February, 1997. Mr. Martin, as an employee director, was paid a monthly retainer of $500 and a fee of $200 for each meeting of the Board of Directors attended. Each committee member was paid a fee of $300 for each meeting of a committee attended from March, 1996 through July, 1996 and a fee of $400 for each meeting of a committee attended from August, 1996 through February, 1997. Each of the current directors of the Company attended more than 75 percent of the aggregate of (i) the total number of meetings of the Board of Directors, and (ii) the total number of meetings held by all committees of the Board on which he served, held during the fiscal year ended February 28, 1997. The Company has an Audit Committee . The functions of the Audit Committee are to (i) meet with the independent auditors to review the audit and its results, as well as to review internal controls of the Company and (ii) make recommendations to the Board of Directors as to the engagement or discharge of independent auditors. The members of the Audit Committee are Robert H. Johnson, Chairman, W. C. Walker and R. J. Schumacher. During the fiscal year ended February 28, 1997, that committee _____ 1 had one (1) meeting. The Company has a Compensation Committee. The functions of the Compensation Committee are to (i) make recommendations to the Board of Directors of remuneration arrangements for Directors and senior management and (ii) administer the Company's Incentive Stock Option plans, which includes selecting the executives and other key personnel of the Company eligible to participate thereunder. The members of the Compensation Committee are Martin C. Bowen and Dr. H. Kirk Downey. During the fiscal year ended February 28, 1997, that committee had four (4) meetings. The Company has a Nonstatutory Stock Option Committee which administers the Company's nonstatutory stock option plans. The members of this committee are L. C. Martin and Dana L. Perry. During the fiscal year ended February 28, 1997, that committee held no meetings. The Company does not have a nominating committee. SECURITY OWNERSHIP OF PRINCIPAL BENEFICIAL OWNERS - ------------------------------------------------- To the best knowledge of the Company, the only beneficial owners of over 5 percent of the outstanding shares of Common Stock of the Company as of May 2, 1997 were as follows:
TITLE OF CLASS NAME & ADDRESS OF BENEFICIAL OWNERS NUMBER OF SHARES PERCENT OF CLASS -------------- ----------------------------------- ---------------- ---------------- Common Stock Dimensional Fund Advisors, Inc. 316,430(1) 5.27% $1.00 par value 1299 Ocean Ave., 11th Floor Santa Monica, CA 90401 Common Stock FMR Corp. 599,500(2) 9.99% $1.00 par value 82 Devonshire Street Boston, MA 02109 Common Stock Kennedy Capital Management, Inc. 302,970(3) 5.2% $1.00 par value 10829 Olive Blvd. St. Louis, MO 63141
(1) Based on a Schedule 13G furnished by Dimensional Fund Advisors, Inc. ("Dimensional"), a registered investment adviser, Dimensional is deemed to have beneficial ownership of 316,430 shares of Aztec Manufacturing Co. Common Stock, all shares of which are held in portfolios of DFA Investment Dimensions Group, Inc., a registered open-end investment company, or the DFA Group Trust and DFA Participation Group Trust, investment vehicles for qualified employee benefit plans, all of which Dimensional serves as investment manager. Dimensional disclaims beneficial ownership of all such shares. (2) Based on a Schedule 13G furnished by Fidelity Management & Research Company ("Fidelity"), a wholly-owned subsidiary of FMR Corp. and an investment adviser, Fidelity is deemed to have beneficial ownership of 599,500 shares of Aztec Manufacturing Co. Common Stock as a result of acting as investment adviser to several investment companies. The ownership of one investment company, Fidelity Low-Priced Stock fund, amounted to 599,500 shares of the Common Stock outstanding. Fidelity Low-Priced Stock fund has its principal business office at 82 Devonshire Street, Boston, Massachusetts, 02109. (3) Based on a Schedule 13G furnished by Kennedy Capital Management, Inc. ("Kennedy"), Kennedy holds sole voting power over 237,570 shares and sole dispositive power over 302,970 shares of the Common Stock outstanding. PROPOSAL NO. 1: ELECTION OF DIRECTORS - -------------------------------------- The Bylaws of the Company provide for nine directors and classify the Board of Directors into three classes, each class consisting of three directors, the members of which serve for three years. Of the directors listed under "DIRECTORS OF THE COMPANY," the terms of office of Robert H. Johnson, Dana L. Perry and W.C. Walker expire at the 1997 Annual Meeting of Shareholders. The Board of Directors nominated and recommends the reelection of Messrs. Robert H. Johnson, Dana L. Perry and W.C. Walker for a three-year term expiring at the 2000 Annual Meeting of Shareholders. Mr. William D. Ratliff, a director of the Company from 1958 to 1996 and an Advisory Director of the Company since April 16, 1996, died on November 30,1996. All of the nominees are now directors of the Company. All of the nominees have consented to serve if elected. If for any unforeseen reason a nominee would be unable to serve if elected, the persons named in the accompanying proxy may exercise their discretion to vote for a substitute nominee selected by the Board of Directors. However, the Board of Directors has no reason to anticipate that any of the nominees will not be able to serve, if elected. _____ 2 The Board of Directors recommends that Shareholders vote "FOR" the election of the nominees for directors. PROPOSAL NO. 2: APPROVAL OF APPOINTMENT OF AUDITORS - ---------------------------------------------------- Subject to approval by the Shareholders, the Board of Directors has selected the firm of Ernst & Young LLP to audit the financial statements of the Company for the fiscal year ending February 28, 1998. This firm of certified public accountants or its predecessor has acted as independent auditors for the Company and its subsidiaries since 1976. Representatives of Ernst & Young LLP will be present at the 1997 Annual Meeting of Shareholders and will be available to respond to appropriate questions. The Board of Directors recommends that Shareholders vote "FOR" the approval of the appointment of Ernst & Young LLP. DIRECTORS OF THE COMPANY - ------------------------ The following table sets forth certain information as to the number of shares of Common Stock of the Company beneficially owned as of May 2, 1997, by (i) each current director and (ii) all of the current executive officers and directors of the Company as a group. Except as otherwise indicated, each of the persons named below has sole voting and investment power with respect to the shares of Common Stock beneficially owned by that person.
COMMON STOCK OF PRINCIPAL OCCUPATION FOR PAST THE COMPANY % OF FIVE YEARS; POSITIONS AND DIRECTOR BENEFICIALLY OWNED CLASS DIRECTORS AGE OFFICES WITH THE COMPANY SINCE OTHER DIRECTORSHIPS AT MAY 2, 1997 (1) - --------- --- ----------------------------- -------- ------------------- ------------------ --- L.C. Martin (2) 71 Chairman of the Board, 1958 None. 206,800 (4) 3.5% President and Chief Executive Officer of the Company Martin C. Bowen (14) 53 Chairman of Team Bank - 1993 Kevco, Inc. (3) 7,300 (6) * Ft. Worth (1989 to 1992), President & CEO of Performing Arts Fort Worth (1993 to present) John G. Richards 73 Personal Investments 1963 None. 30,507 (7) * Sam Rosen (8) 61 Partner in the law 1996 Gainsco, Inc. (3) 7,533 (9) * firm of Shannon, Gracey, Ratliff & Miller, L.L.P. , Secretary of the Company Robert H. Johnson (5) 72 Financial Consultant; 1965 None. 2,167 * Certified Public Accountant Dana L. Perry (2) 48 Vice President of 1992 None. 100,600 (10) 1.7% Finance; Chief Financial Officer of the Company; and Assistant Secretary of the Company R.J. Schumacher (5) 68 CEO and Chairman of 1986 None. 28,909 (11) * Pride Refining, Inc. (1989-1994); President and CEO of Texland Petroleum, Inc. (1973-Present) W.C. Walker (5) 73 Management Consultant 1986 None. 29,241 (12) * (1989-Present) Dr. H. Kirk Downey (14) 54 Dean of the M.J. Neeley 1992 Harris Methodist -0- * School of Business and Health Plan a Professor of LKCM Fund Management at Texas Christian University All Current Directors and Executive Officers as a Group (10 Persons) 420,316 7% (13) *Less than one percent (1%)
_____ 3 (1) The percentage is calculated for each individual by using as the denominator the total shares of Common Stock outstanding at the close of business on May 2, 1997 (5,912,627 shares), plus the shares of Common Stock such individual has the right to acquire within sixty (60) days of May 2, 1997, pursuant to the exercise of stock options granted by the Company. (2) Member of the Nonstatutory Stock Option Committee. (3) A publicly owned corporation. (4) Includes 19,424 shares of Common Stock which Mr. Martin has the right to acquire within 60 days of May 2, 1997, pursuant to the exercise of stock options granted under the 1986 Incentive Stock Option Plan of the Company. (5) Member of the Audit Committee. (6) Includes 6,300 shares of Common Stock which Mr. Bowen has the right to acquire within 60 days of May 2, 1997, pursuant to the exercise of stock options granted under the 1991 Nonstatutory Stock Option Plan of the Company. (7) Includes 16,536 shares Mr. Richards has the right to acquire within sixty (60) days of May 2, 1997, pursuant to the exercise of stock options granted under the 1988 Nonstatutory Stock Option Plan. (8) Mr. Rosen is a Partner in the law firm of Shannon, Gracey, Ratliff & Miller, L.L.P., which has been general counsel to the Company since 1968. The Company proposes to retain said law firm as its general counsel during the current fiscal year. (9) Includes 2,100 shares Mr. Rosen has the right to acquire within sixty (60) days of May 2, 1997, pursuant to the exercise of stock options granted 1991 Nonstatutory Stock Option Plan. (10) Includes 6,587 shares of Common Stock which Mr. Perry has the right to acquire within 60 days of May 2, 1997, pursuant to the exercise of stock options granted under the 1986 Incentive Stock Option Plan. (11) Includes 27,036 shares Mr. Schumacher has the right to acquire within sixty (60) days of May 2, 1997, pursuant to the exercise of stock options granted under the 1988 and 1991 Nonstatutory Stock Option Plans. (12) Includes 27,036 shares Mr. Walker has the right to acquire within sixty (60) days of May 2, 1997, pursuant to the exercise of stock options granted under the 1988 and 1991 Nonstatutory Stock Option Plans. All 2,205 shares of Common Stock currently owned are held jointly by Mr. Walker and his wife. (13) The percentage is calculated by using total shares of Common Stock outstanding at the close of business on May 2, 1997 (5,912,627) plus 31,998 shares of Common Stock that executive officers of the Company have the right to acquire within 60 days of May 2, 1997 pursuant to the exercise of stock options granted under the 1986 Incentive Stock Option Plan of the Company plus 79,008 shares of Common Stock that directors have the right to acquire within sixty (60) days of May 2, 1997 pursuant to the exercise of stock options granted under the 1988 and 1991 Nonstatutory Stock Option Plans. (14) Member of Compensation Committee. No family relationship exists between any director or executive officer of the Company and any other director or executive officer of the Company. COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934. Section 16(a) of the Securities Exchange Act of 1934 requires executive officers, directors and persons who beneficially own more than ten percent of the Company's stock to file initial reports of ownership and reports of changes of ownership with the Securities and Exchange Commission. Copies of such reports are required to be furnished to the Company. Based solely on a review of such forms furnished to the Company and certain written representations from the executive officers and directors, the Company believes that all Section 16(a) filing requirements applicable to its executive officers, directors and greater than 10% beneficial owners were complied with on a timely basis. EXECUTIVE COMPENSATION AND OTHER MATTERS - ---------------------------------------- REPORT OF COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION. Through fiscal periods ended February 28, 1997, compensation for the Chief Executive Officer and senior executives has been approved by the full Board of Directors upon the recommendations of the Compensation Committee. This Committee is composed of two outside directors, none of whom perform any services to or receive any fees from the Company in any capacity other than as director. It has been the philosophy and the practice of the Committee to relate executive compensation to the profitability of the Company. The compensation program provides for market-driven salary ranges based on job responsibilities and influences on _______ 4 Company performance with a balanced incentive compensation element based on profit performance of the Company. This is accomplished through a two-tiered structure of measuring the compensation rewards as follows: 1. Base Salary - The Committee reviews and approves salaries for the Chief Executive Officer and the other executive officers on an annual basis. Recommended base salaries are reviewed and set based on information derived from comparative group reviews and national surveys of compensation data, as well as evaluations of the individual executive' positions and expected future performance and contribution. In making salary decisions, the Committee exercises its discretion and judgment with no specific formula being applied to determine salary levels. 2. Bonus - The purpose of the bonus program is to promote the Company's goal of increasing shareholder value through sustainable internal growth, high operating efficiencies, strategic acquisitions, and attracting highly motivated, results-oriented executive officers. A portion of executive compensation was calculated using a formula reflecting growth in pre-tax income of the Company in the case of the Chief Executive Officer and certain executive officers or a particular segment of the Company in the case of an executive officer who is responsible for such segment. Mr. Martin's and Mr. Perru's bonus base is fixed at 2.5% and 1% of the yearly pre-tax profits of the Company, respectively. Mr. Wright's bonus base is fixed at 1.25% of the yearly pre-tax profits of the Galvanizing Segment. The maximum and minimum bonus is set at 150% and 50% of the bonus base, respectively. When the Company or a segment exceeds prior year performance, the executives are rewarded through increased bonuses up to a maximum of 150% of his bonus base. Conversely, if the Company or segment falls short of the prior years performance, the executive officers receive a reduced bonus. If the current years performance falls below 50% of the prior year, the executive officers receive no bonus. Additionally, the executive officers participate, along with other employees, in the Company Profit Sharing Plan, the annual contributions to which are dramatically affected by profitability of the Company, and the Company Stock Option Plans. Section 162(m) of the Internal Revenue Code of 1986, as amended, which was enacted in 1993, imposes a $1 million limit on the amount of compensation that will be deductible by the Company with respect to the Chief Executive Officer and the four other most highly compensated executive officers. Performance based compensation that meets certain requirements will not be subject to the deduction limit. The Committee has reviewed the impact of Section 162(m) on the Company and believes it is unlikely that the compensation paid to any executive officer during the fiscal year ending February 28, 1998 will exceed the limit. The Committee will continue to monitor the impact of the Section 162(m) limit and to assess alternatives for avoiding any loss of tax deductions in future years. The role of the Compensation Committee also includes a full review of the compensation package of the five highest paid executive officers, whether or not their salary and bonuses exceed $100,000. This review is then presented and recommended to the full board of nine directors, seven of whom are independent directors. MEMBERS OF THE COMPENSATION COMMITTEE Martin C. Bowen Dr. H. Kirk Downey _______ 5 SUMMARY COMPENSATION TABLE. The following information summarizes annual and long-term compensation for services in all capacities to the Company for the fiscal years ended February 28, 1997, February 29, 1996 and February 28, 1995 of the Chief Executive Officer and the other most highly compensated executive officers of the Company whose total annual salary and bonus exceeds $100,000 (the "Named Executives"). SUMMARY COMPENSATION TABLE ==========================
ANNUAL COMPENSATION LONG-TERM COMPENSATION ------------------- ---------------------- AWARDS PAYOUTS OTHER ANNUAL RESTRICTED LONG-TERM ALL OTHER NAME AND YEAR COMPENSATION STOCK AWARD(S) OPTIONS/ INCENTIVE COMPENSATION PRINCIPAL POSITION ENDING SALARY ($) BONUS($) ($) ($) SARS (#) PAYOUTS ($) ($) - ------------------ ------ ---------- -------- ------------ -------------- -------- ----------- ------------ L.C. Martin, Chairman, 1997 250,000 214,919 0 0 0 0 23,060 (2) President, and Chief 1996 250,000 106,443 0 0 0 0 17,937 (3) Executive Officer 1995 250,000 65,144 0 0 19,424 0 14,174 (4) D.L. Perry, Vice 1997 75,000 85,968 0 0 0 0 12,979 (5) President of Finance, 1996 75,000 36,543 0 0 0 0 6,007 (5) Chief Financial Officer, 1995 70,500 32,091 0 0 6,587 0 4,313 (5) and Assistant Secretary F. L. Wright, Jr. 1997 77,550 84,522 0 0 0 0 14,460 (6) Senior Vice President 1996 75,000 65,053 0 0 0 0 8,301 (6) Galvanizing Segment 1995 66,250 46,551 0 0 5,987 0 4,178 (6) R.O. Grosso, Former 1997 84,800 24,897 0 0 0 0 0 Vice President Electrical 1996 96,085 34,549 0 0 5,000 0 0 Products Segment (1) 1995 0 0 0 0 0 0 0
(1) Mr. Grosso separated from the Company on October 31, 1996. (2) The amount of $23,060 includes 1997 Director fees of $8,600 and 1997 contribution made to Mr. Martin's account in Aztec's Profit Sharing Plan of $14,460. (3) The amount of $17,937 includes 1996 Director Fees of $8,600 and 1996 contribution made to Mr. Martin's account in Aztec's Profit Sharing Plan of $9,337. (4) The amount of $14,174 includes 1995 Director Fees of $8,400 and 1995 contribution made to Mr. Martin's account in Aztec's Profit Sharing Plan of $5,774. (5) This amount represents the contribution made to Mr. Perry's account in Aztec's Profit Sharing Plan. (6) This amount represents the contribution made to Mr. Wright's account in Aztec's Profit Sharing Plan. OPTIONS EXERCISED AND YEAR END VALUE TABLE. The following table sets forth certain information regarding the options exercised and the year end value of options held by the Named Executives during the fiscal year ending February 28, 1997. AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION VALUES =================================
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED IN-THE- SHARES ACQUIRED OPTIONS AT FY-END (#) MONEY OPTIONS AT FY-END ($) NAME ON EXERCISE (#) VALUE REALIZED ($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE - ------------------- --------------- ------------------ ------------------------- ---------------------------- L. C. Martin 24,833 88,468 19,424 -0- 94,692 -0- D. L. Perry 6,600 23,512 6,587 -0- 32,112 -0- F. L. Wright, Jr. 5,900 11,800 5,987 -0- 29,187 -0- R. O. Grosso 5,000 30,625 -0- -0- -0- -0-
_______ 6 CHANGE IN CONTROL AGREEMENT. The Company has entered into a change in control agreement with Mr. L. C. Martin, the President and Chief Executive Officer of the Company. The change in control agreement provides for the payment of certain benefits upon the occurrence of a change in control of the Company. A "change in control of the Company" includes the acquisition by any person of 50 percent or more of the shares of Common Stock, a merger or consolidation of the Company in which the Company does not survive as an independent public company, a sale of all or substantially all of the assets of the Company, or a liquidation or dissolution of the Company. Under the change in control agreement, if Mr. Martin remains in the employ of the Company for a period of at least three months immediately following the date of occurrence of a change in control of the Company, he will be entitled to receive a lump sum payment from the Company within five days after the expiration of the three-month period, regardless of whether he continues in the employ of the Company after the expiration of the three-month period (the "Change in Control Payment"). The change in control agreement provides for the payment of the Change in Control Payment of $750,000 in the event of any change in control of the Company, whether or not such change in control is approved by the Board of Directors and/or Shareholders of the Company. Additionally, if during the three-month period Mr. Martin is terminated as a result of death or total disability or for any other reason whatsoever by the Company, he will be entitled to receive, in addition to the Change in Control Payment provided above, his full base salary through the date of termination of his employment, plus any other amounts to which he would be entitled under any compensation plan of the Company. However, if the employment of Mr. Martin during the three-month period is terminated by him for any reason other than as a result of his death or total disability or voluntary termination for good reason as defined in the agreement, he would be entitled to his full base salary through the date of termination of his employment, plus any other amounts to which he would be entitled under any compensation plan of the Company, but would not be entitled to the Change in Control Payment provided above. BUY-SELL AND TERMINATION AGREEMENT. During fiscal 1994 the Company entered into a "Buy-Sell and Termination Agreement" (the "Agreement") with Mr. L. C. Martin, the President and Chief Executive Officer of the Company. The Agreement provides that the proceeds from a $1 million dollar life insurance policy on Mr. Martin be used to acquire (from the executive's wife or estate) the number of shares of Company Common Stock which could be purchased in the event the executive dies while employed by the Company. The purchase price per share is to be the market value of the stock on the day before the date of death. Upon termination (other than for "just cause") of employment from the Company prior to death, the Company will convey all rights in the insurance policy to the executive, including cash surrender value. The Company has recorded a deferred liability and corresponding charge to expense in the amount of $246,000 during fiscal 1994. The deferred compensation amount is equivalent to the cash surrender value of the insurance policy and amounted to $249,970 at February 28, 1997. Under the "Buy-Sell and Termination Agreement", the Company agrees to maintain a whole life insurance policy in the face amount of $1 million on the life of Mr. Martin previously acquired by the Company (the "Policy"). The Company shall be the owner and direct beneficiary of the Policy and shall be solely responsible for the payment of any and all premiums required to be paid to keep the Policy in effect. Within 180 days of the death of Mr. Martin, if Mr. Martin was at the time of his death employed by the Company, Mrs. Martin or the estate, heirs, legal representatives, successors or beneficiaries of Mr. Martin shall tender to the Company for sale, transfer or conveyance to the Company a number of shares equal in value to the proceeds received by the Company from the Policy. Upon the tender of the shares of the Company, the Company shall purchase the shares with the proceeds received by the Company under the policy. For purposes of this Agreement, the value of the shares to be sold, assigned and conveyed to the Company as provided for herein shall be determined based on the closing price per share of the Common Stock of the Company as traded on the New York Stock Exchange on the day before the date of death of Mr. Martin. Upon the termination of employment of Mr. Martin from the Company for any reason other than "Just Causes", the Company hereby agrees to assign and convey all rights and title of the Company in the Policy, including any cash surrender value in the Policy, to Mr. Martin. No shares shall be transferred to the Company in consideration of the assignment and conveyance of the Policy to Mr. Martin. For purposes of this Agreement, "Just Cause" shall mean Mr. Martin willfully and intentionally fails to substantially perform his duties as an officer of the Company, or Mr. Martin has committed an illegal act (other than minor traffic violations or similar acts) in connection with his employment that could reasonably be expected to materially adversely affect the Company. If Mr. Martin is terminated for "Just Cause," the Company shall be under no obligation to assign and convey the Policy to Mr. Martin. _______ 7 STOCK PRICE PERFORMANCE GRAPH. The following graph illustrates the five-year cumulative total returns on investments in Aztec Manufacturing Co., the CRSP Index for NYSE Stock Market (U.S. Companies) and the CRSP Index for NYSE Stocks (SIC 5000-5099 US Companies). Aztec is listed on the New York Stock Exchange and is engaged in multiple industries. The shareholder return shown below is not necessarily indicative of future performance. Total return, as shown, assumes $100 invested on February 29, 1992 in shares of Aztec Manufacturing Co. and each index, all with cash dividends reinvested. The calculations exclude trading commissions and taxes. FIVE YEAR-CUMULATIVE TOTAL RETURN VALUE OF $100 INVESTED ON FEBRUARY 29, 1992 For Fiscal Year Ended on the Last Day of February [GRAPH APPEARS HERE]
2/92 2/93 2/94 2/95 2/96 2/97 ----- ----- ----- ----- ----- ----- Aztec Manufacturing Co. 100.0 73.7 172.2 115.2 127.7 255.5 CRSP Index for NYSE Stock Market (US Companies) 100.0 111.1 120.8 127.8 170.2 209.7 CRSP Index for NYSE Stocks (SIC 5000-5099 US Companies) 100.0 121.5 152.4 145.1 168.5 189.8 Wholesale trade - durable goods
ACTION TO BE TAKEN UNDER THE PROXY - ---------------------------------- Unless otherwise specified in the accompanying proxy, the proxy holders will vote the shares represented thereby "FOR" the election of Robert H. Johnson, Dana L. Perry and W.C. Walker as directors for a three year term expiring at the 2000 Annual Meeting of Shareholders, and "FOR" the approval of the appointment of Ernst & Young LLP as the independent auditors of the Company for its fiscal year ending February 28, 1998. _______ 8 The accompanying proxy will also be voted in connection with the transaction of such other business as may properly come before the meeting or any adjournment or adjournments thereof. Management knows of no other matters, other than as set forth above, to be considered at the meeting. If, however, any other matters properly come before the meeting, or any adjournment or adjournments thereof, the persons named in the accompanying proxy will vote such proxy in accordance with their best judgment on any such matter. SHAREHOLDER PROPOSALS - --------------------- Shareholder proposals for inclusion in the Proxy Statement for the 1998 Annual Meeting of Shareholders must be received at the executive office of the Company on or before January 31, 1998. ANNUAL REPORTS - -------------- The Company's 1997 Annual Report to Shareholders, covering the fiscal year ended February 28, 1997, including audited financial statements, is enclosed with this Proxy Statement. Neither the Annual Report nor the financial statements are incorporated into this Proxy Statement or are deemed to be a part of the material for the solicitation of proxies. A COPY OF THE COMPANY'S 1997 ANNUAL REPORT ON FORM 10-K, INCLUDING THE FINANCIAL STATEMENTS AND SCHEDULES THERETO, REQUIRED TO BE FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, MAY BE OBTAINED WITHOUT CHARGE BY ANY SHAREHOLDER WHOSE PROXY IS SOLICITED UPON WRITTEN REQUEST TO: Aztec Manufacturing Co. 400 North Tarrant Street Crowley, Texas 76036 Attention: Dana Perry BY ORDER OF THE BOARD OF DIRECTORS Sam Rosen, Secretary Crowley, Texas June 1, 1997 ________________________________________________________________________________ 1997 ANNUAL MEETING OF SHAREHOLDERS 10:00 a.m., July 8, 1997 Petroleum Club Derrick I Room 39th Floor of the Continental Plaza 777 Main Street Fort Worth, Texas _______ 9 AZTEC MANUFACTURING CO. ANNUAL MEETING (CONTINUED FROM OTHER SIDE) JULY 8, 1997 P This proxy when properly executed will be voted in the manner directed R herein by the above signed shareholder. If no direction is made, this proxy will be voted for Director nominees and for proposal 2. O 1. ELECTION OF DIRECTORS. (MARK ONLY ONE) X Nominees: Robert H. Johnson, Dana L. Perry, W.C. Walker Y [ ] VOTE FOR all nominees listed, [ ] VOTE WITHHELD from all except as marked to the contrary nominees. above(if any). (TO WITHHOLD YOUR VOTE FOR ANY INDIVIDUAL NOMINEE, STRIKE A LINE THROUGH THE NOMINEE'S NAME IN THE LIST ABOVE). 2. APPROVAL OF AUDITORS. FOR [ ] AGAINST [ ] ABSTAIN [ ] 3. In their discretion, upon other matters as may properly come before the meeting. THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE AZTEC MANUFACTURING CO. ANNUAL MEETING 400 N. Tarrant . Crowley, TX 76036 JULY 8, 1997 P THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. R The undersigned, having received the notice and accompanying Proxy O Statement and revoking all prior proxies, hereby appoints L.C. MARTIN, SAM ROSEN and D.L. PERRY and each of them with power of substitution in each, X proxies to vote at the annual meeting to be held on July 8, 1997 at 10:00 a.m. in Fort Worth, Texas, or at any adjournment thereof, all shares of Y Aztec Manufacturing Co. which the undersigned may be entitled to vote. Said proxies are authorized to vote as directed on the reverse side of this card. This proxy must be dated and signed exactly as shown Shares in Your Name hereon. DATED:________________________________________, 1997 ____________________________________________________ ____________________________________________________ Executors, administrators, trustees, etc., should give full title as such. If the signer is a corporation, please sign full corporate name by duly authorized officer. EX-21 3 AZTEC MANUFACTURING COMPANY 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, Processing, Inc. Company Inc. ------------------------ ------------------------ ----------- --------------- ------------------------ The Calvert Co., Inc. 1% 99% ------------------------ ------------------------ ------------------------ Aztec Manufacturing Partnership, Ltd. Gulf Coast ------------------------ Galvanizing, Inc. ------------------------ ------------------------ ------------------------ Aztec Manufacturing Waskom Partnership, Ltd. Arkansas ------------------------ Galvanizing, Inc. ------------------------ ------------------------ Rig-A-Lite Partnership, Ltd. ------------------------ Exhibit 21 ---------- (Page 1 of 1) EX-23 4 CONSENT OF ERNST AND YOUNG LLP EXHIBIT 23 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 31, 1997, included in the 1997 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. Nonstatutory Stock Option Plan, No. 33-49158 pertaining to the Aztec Manufacturing Co. Nonstatutory Stock Option Plan, and No. 33-49164 pertaining to the 1991 Incentive Stock Option Plan of Aztec Manufacturing Co. of our report dated March 31, 1997, with respect to the consolidated financial statements of Aztec Manufacturing Co., incorporated by reference in the Annual Report (Form 10-K) for the year ended February 28, 1997. ERNST & YOUNG, LLP /s/ Ernst & Young, LLP ---------------------- Fort Worth, Texas May 23, 1997 Exhibit 23 ---------- (Page 1 of 1) EX-24 5 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 any capacity) the Annual Report on Form 10-K of AZTEC MANUFACTURING CO. ("Form 10- K") for the fiscal year ended February 28, 1997, 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 20 day of May, 1997. -- --- /s/ L.C. Martin ----------------------------------- L. C. MARTIN /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/ John G. Richards ----------------------------------- JOHN G. RICHARDS /s/ Dana L. Perry ----------------------------------- DANA L. PERRY /s/ R.J. Schumacher ----------------------------------- R. J. SCHUMACHER /s/ W.C. Walker ---------------------------------- W. C. WALKER Exhibit 24 ---------- (Page 1 of 3) 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 15, 1997, and that such resolutions have not been revoked or amended in any manner: WHEREAS, the officers of the Company with the assistance of its accountants, Ernst & Young LLP, and counsel 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, 1997; 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, 1997; 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 2 day of May, 1997. /s/ Dana L. Perry --------------------------------------------- DANA L. PERRY, Assistant Secretary Exhibit 24 ---------- (Page 2 of 3) 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 2 day of May 1997. /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 3 of 3) EX-27 6 FINANCIAL DATA SCHEDULE
5 12-MOS FEB-28-1997 MAR-01-1996 FEB-28-1997 5,583,720 0 9,916,012 (385,900) 6,314,692 21,621,426 29,126,354 12,584,177 45,994,764 9,401,523 7,527,221 0 0 6,145,009 22,428,323 45,994,764 57,703,287 57,703,287 41,305,269 49,676,078 0 0 874,209 7,153,000 2,825,435 4,327,565 0 0 0 4,327,565 .75 .74
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