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. The Company made three acquisitions in fiscal 1998. Hobson Galvanizing, Inc. located in Belle Chase, Louisiana was acquired in March 1997, and International Galvanizers, Inc. located in Beaumont, Texas was acquired in December 1997. Drilling Rig Electrical Systems, Inc. located in Houston, Texas was acquired and added to the Company's Electrical Segment in February 1998. The Company now operates ten galvanizing facilities in six states, four electrical facilities and one oil field products facility.
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 25 of the Registrant's 1998 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. Drilling Rig Electrical Systems, Inc. (DRESCO) designs, furnishes and contracts the installation of electrical systems for oil field drilling rigs, drilling barges, etc. used for the production of oil and natural gas. DRESCO, acquired in February 1998, operates in conjunction with Rig-A-Lite, utilizing their lighting products. Also in this segment is The Calvert Company, which designs, manufactures and installs electrical bus duct systems for the power generation industry. A bus duct consists of insulated power conductors housed in a metal enclosure. Individual pieces of bus duct are arranged in a variety of physical configurations that may be required to distribute electrical power to or from a generator, transformer, switching device or other electrical apparatus. Bus duct systems that can be provided are non-segregated phase, segregated phase and isolated phase styles with numerous amperage and voltage ratings. Atkinson 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
I-1
primarily on product quality, range of product line, price and service. The Company believes that it can compete favorably with regard to each of these factors. Copper, aluminum and steel are the primary raw materials used in this segment and are readily available. This segment's products are sold through manufacturers' representatives and its internal sales force. This segment is not dependent on any single customer or limited number of customers for sales, and the loss of any single customer would not have a material adverse effect on consolidated revenues. Backlog of orders was approximately $14,082,000 at February 28, 1998, $10,315,000 at February 28, 1997, and $7,600,000 at February 29, 1996. All of the year end 1998 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, rights to return merchandise, and extended payment terms to customers. Total employment in this segment is 281 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. Aztec is limited to some extent in its galvanizing market to areas within a close proximity of its existing locations, due to freight cost. Zinc, the principal raw material used in the galvanizing process, is readily available but has volatile pricing. Aztec has a broad customer base in galvanizing. No one customer represented as much as 10 percent of consolidated revenues. The backlog of galvanizing orders generally is nominal due to the short time requirement involved in the process. 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 294 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 manufactures 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. This segment is unpredictable due to the volatility of oil and natural gas prices. The Company closed its Houston Tubing facility in March 1989. The low level of activity in the Company's screw machine operation prompted the Company to liquidate 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 $5,854,000 at February 28, 1998, $630,000 at February 28, 1997, and $137,000 at February 29, 1996. Backlog is 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 104 persons
GENERAL In fiscal 1998 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 $423,000 reserve at the end of fiscal 1998 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 renegotiations of profits or termination of contracts or subcontracts at the election of the government. There were no material amounts spent on research and development activities during the preceding three fiscal years.
I-2
ENVIRONMENTAL The Company complies, in all material respects, with the relevant legislation and regulations affecting its operations and the discharge of waste material. To date, the Company has not expended any material amounts to comply with such regulations and management does not currently anticipate that future compliance will have a material adverse effect on the consolidated financial position or results of operations of the Company.
FORWARD-LOOKING 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, including zinc which is used in the galvanizing segment; changes in the economic conditions of the various markets the company serves, including the market price for oil and natural gas; as well as the other risks detailed herein and in the Company's reports filed with the Securities and Exchange Commission.
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.
ITEM 2. PROPERTIES
The following table sets forth information about the Company's principal facilities owned on February 28, 1998:
I-3
ITEM 3.
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.
The registrant is not a party to, nor is its property the subject of, any material pending legal proceedings. The registrant is involved in ordinary routine litigation incidental to business. For additional information relating to contingencies, see Note 11 to the Consolidated Financial Statements on page 27 of the Registrant's 1998 Annual Report to Shareholders.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted during the fiscal year ended February 28, 1998, to a vote of security holders through the solicitation of proxies or otherwise.
I-4
PART II
ITEM 5.
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 11 of Registrant's 1998 Annual Report to Shareholders is incorporated herein by reference.
The approximate number of holders of record of common stock of Registrant at May 4, 1998 was 986.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
The information contained under the caption "Selected Financial Information" on page 1 of Registrant's 1998 Annual Report to Shareholders is incorporated herein by reference.
ITEM 7.
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 12, 13, 14 and 15 of Registrant's 1998 Annual Report to Shareholders is incorporated herein by reference.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated balance sheets of Aztec Manufacturing Co. as of February 28, 1998 and February 28, 1997, and the related consolidated statements of income, shareholders' equity, and cash flows for each of the three years in the period ended February 28, 1998, and the report of independent auditors and the information required by item 302 of Regulation of S-K are on pages 16 through 28 of Registrant's 1998 Annual Report to Shareholders and are incorporated herein by reference.
ITEM 9.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
No changes in accountants or disagreements with accountants on accounting and/or financial disclosure have arisen.
II-1
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
The information required by this item with regard to executive officers is included in Part I, Item 1 of this report under the heading "Executive Officers of the Registrant."
The other information required by this item is incorporated herein by reference to the Registrant's Proxy Statement for the 1998 Annual Meeting of Shareholders.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated herein by reference to the Registrant's Proxy Statement for the 1998 Annual Meeting of Shareholders.
ITEM 12.
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 1998 Annual Meeting of Shareholders.
ITEM 13.
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 1998 Annual Meeting of Shareholders.
III-1
PART IV
ITEM 14.
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 16 through 28 of Registrant's 1998 Annual Report to Shareholders.
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).
10k - 1998 Incentive Stock Option plan of Aztec Manufacturing Co. (incorporated by reference to Exhibit 10k of the Annual Report on Form 10-K filed by Registrant for the fiscal year ended February 28, 1998). *
10l- 1998 Nonstatutory Stock Option plan of Aztec Manufacturing Co. (incorporated by reference to Exhibit 10l of the Annual Report on Form 10-K filed by Registrant for the fiscal year ended February 28, 1998). *
10m- 1997 Nonstatutory Stock Option Grants of Aztec Manufacturing Co. (incorporated by reference to Exhibit 10m of the Annual Report on Form 10-K filed by Registrant for the fiscal year ended February 28, 1998). *
13 - Annual Report to Shareholders for the fiscal year ended February 28, 1998 (including the Registrant Proxy Statement for the 1998 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, 1998.
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: 5/27/98 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* Kevern R. Joyce* - --------------------------------- ------------------------------------------ Martin C. Bowen, Director Kevern R. Joyce, Director
W.C. Walker* - --------------------------------- W. C. Walker, Director
* /s/ L.C. Martin - --------------------------------- L. C. Martin, Attorney-in-Fact
IV-3
EXHIBIT INDEX
- ------------------- *FILED HEREWITH