Ameron International 10Q 1Q07
United
States
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
(Mark
One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE
ACT OF 1934
For
the quarterly period ended February 25, 2007
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For
the transition period from __________ to __________
Commission
File Number 1-9102
AMERON
INTERNATIONAL CORPORATION
(Exact
name of registrant as specified in its charter)
Delaware
|
77-0100596
|
(State
or other jurisdiction of
incorporation
or organization)
|
(I.R.S.
Employer Identification No.)
|
245
South Los Robles Avenue
Pasadena,
CA 91101-3638
(Address
of principal executive offices)
(626)
683-4000
(Registrant's
telephone number, including area code)
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 whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer (as defined in Rule 12b-2 of
the
Exchange Act).
Large
accelerated filer ¨
|
Accelerated
filer x
|
Non-accelerated
filer ¨
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act). Yes ¨ No
x
The
number of outstanding shares of Common Stock, $2.50 par value, was 9,109,678
on
February 25, 2007. No other class of Common Stock exists.
AMERON
INTERNATIONAL
CORPORATION AND SUBSIDIARIES
FORM
10-Q
For
the Quarter Ended February 25, 2007
AMERON
INTERNATIONAL CORPORATION AND
SUBSIDIARIES
PART
I - FINANCIAL INFORMATION
ITEM
1 - FINANCIAL STATEMENTS
CONSOLIDATED
STATEMENTS OF INCOME (UNAUDITED)
|
|
Three
Months Ended
|
|
|
|
February
25,
|
|
March
5,
|
|
(Dollars
in thousands, except per share data)
|
|
2007
|
|
2006
|
|
Sales
|
|
$
|
120,355
|
|
$
|
125,972
|
|
Cost
of sales
|
|
|
(95,035
|
)
|
|
(97,390
|
)
|
Gross
profit
|
|
|
25,320
|
|
|
28,582
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative expenses
|
|
|
(21,500
|
)
|
|
(22,964
|
)
|
Other
income, net
|
|
|
1,018
|
|
|
12
|
|
Income
from continuing operations before interest, income taxes and equity
in
earnings of joint venture
|
|
|
4,838
|
|
|
5,630
|
|
Interest
income/(expense), net
|
|
|
366
|
|
|
(950
|
)
|
Income
from continuing operations before income taxes and equity in earnings
of
joint venture
|
|
|
5,204
|
|
|
4,680
|
|
Provision
for income taxes
|
|
|
(1,920
|
)
|
|
(1,685
|
)
|
Income
from continuing operations before equity in earnings of joint
venture
|
|
|
3,284
|
|
|
2,995
|
|
Equity
in earnings of joint venture, net of taxes
|
|
|
5,028
|
|
|
780
|
|
Income
from continuing operations
|
|
|
8,312
|
|
|
3,775
|
|
Income/(loss)
from discontinued operations, net of taxes
|
|
|
156
|
|
|
(164
|
)
|
Net
income
|
|
$
|
8,468
|
|
$
|
3,611
|
|
|
|
|
|
|
|
|
|
Basic
earnings per share:
|
|
|
|
|
|
|
|
Income
from continuing operations
|
|
$
|
.92
|
|
$
|
.44
|
|
Income/(loss)
from discontinued operations, net of taxes
|
|
|
.02
|
|
|
(.02
|
)
|
Net
income
|
|
$
|
.94
|
|
$
|
.42
|
|
|
|
|
|
|
|
|
|
Diluted
earnings per share:
|
|
|
|
|
|
|
|
Income
from continuing operations
|
|
$
|
.92
|
|
$
|
.43
|
|
Income/(loss)
from discontinued operations, net of taxes
|
|
|
.02
|
|
|
(.02
|
)
|
Net
income
|
|
$
|
.94
|
|
$
|
.41
|
|
|
|
|
|
|
|
|
|
Weighted-average
shares (basic)
|
|
|
8,994,075
|
|
|
8,614,269
|
|
Weighted-average
shares (diluted)
|
|
|
9,050,525
|
|
|
8,786,041
|
|
|
|
|
|
|
|
|
|
Cash
dividends per share
|
|
$
|
.20
|
|
$
|
.20
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
AMERON
INTERNATIONAL CORPORATION AND
SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS - ASSETS (UNAUDITED)
|
|
February
25,
|
|
November
30,
|
|
(Dollars
in thousands)
|
|
2007
|
|
2006
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
Current
assets
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
127,720
|
|
$
|
139,479
|
|
Receivables,
less allowances of $5,139 in 2007 and $4,912 in 2006
|
|
|
150,627
|
|
|
160,173
|
|
Inventories
|
|
|
104,323
|
|
|
77,134
|
|
Deferred
income taxes
|
|
|
23,861
|
|
|
23,861
|
|
Prepaid
expenses and other current assets
|
|
|
9,485
|
|
|
15,921
|
|
|
|
|
|
|
|
|
|
Total
current assets
|
|
|
416,016
|
|
|
416,568
|
|
|
|
|
|
|
|
|
|
Investments
in joint ventures
|
|
|
|
|
|
|
|
Equity
method
|
|
|
20,169
|
|
|
14,501
|
|
Cost
method
|
|
|
3,784
|
|
|
3,784
|
|
|
|
|
|
|
|
|
|
Property,
plant and equipment
|
|
|
|
|
|
|
|
Land
|
|
|
33,122
|
|
|
33,327
|
|
Buildings
|
|
|
58,515
|
|
|
57,434
|
|
Machinery
and equipment
|
|
|
264,503
|
|
|
261,538
|
|
Construction
in progress
|
|
|
26,910
|
|
|
20,657
|
|
|
|
|
|
|
|
|
|
Total
property, plant and equipment at cost
|
|
|
383,050
|
|
|
372,956
|
|
Accumulated
depreciation
|
|
|
(242,258
|
)
|
|
(238,486
|
)
|
|
|
|
|
|
|
|
|
Total
property, plant and equipment, net
|
|
|
140,792
|
|
|
134,470
|
|
Goodwill
and intangible assets, net of accumulated amortization of $3,023
in 2007
and $3,017 in 2006
|
|
|
2,137
|
|
|
2,143
|
|
Other
assets
|
|
|
63,315
|
|
|
63,198
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
646,213
|
|
$
|
634,664
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
AMERON
INTERNATIONAL CORPORATION AND
SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS - LIABILITIES AND STOCKHOLDERS' EQUITY
(UNAUDITED)
|
|
February
25,
|
|
November
30,
|
|
(Dollars
in thousands, except per share data)
|
|
2007
|
|
2006
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
Current
portion of long-term debt
|
|
$
|
10,000
|
|
$
|
10,000
|
|
Trade
payables
|
|
|
53,467
|
|
|
45,650
|
|
Accrued
liabilities
|
|
|
74,106
|
|
|
68,970
|
|
Income
taxes payable
|
|
|
3,957
|
|
|
11,481
|
|
|
|
|
|
|
|
|
|
Total
current liabilities
|
|
|
141,530
|
|
|
136,101
|
|
|
|
|
|
|
|
|
|
Long-term
debt, less current portion
|
|
|
71,263
|
|
|
72,525
|
|
Other
long-term liabilities
|
|
|
60,423
|
|
|
62,813
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
273,216
|
|
|
271,439
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies
|
|
|
|
|
|
|
|
Stockholders'
equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock, par value $2.50 per share, authorized 24,000,000 shares,
outstanding 9,109,678 shares in 2007 and 9,075,094 shares in 2006,
net of
treasury shares
|
|
|
29,542
|
|
|
29,431
|
|
Additional
paid-in capital
|
|
|
42,233
|
|
|
39,500
|
|
Retained
earnings
|
|
|
378,546
|
|
|
371,894
|
|
Accumulated
other comprehensive loss
|
|
|
(25,814
|
)
|
|
(27,232
|
)
|
Treasury
stock (2,707,114 shares in 2007 and 2,697,148 shares in
2006)
|
|
|
(51,510
|
)
|
|
(50,368
|
)
|
|
|
|
|
|
|
|
|
Total
stockholders' equity
|
|
|
372,997
|
|
|
363,225
|
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders' equity
|
|
$
|
646,213
|
|
$
|
634,664
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
AMERON
INTERNATIONAL CORPORATION AND
SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS (UNAUDITED)
|
|
Three
Months Ended
|
|
|
|
February
25,
|
|
March
5,
|
|
(Dollars
in thousands)
|
|
2007
|
|
2006
|
|
OPERATING
ACTIVITIES
|
|
|
|
|
|
Net
income
|
|
$
|
8,468
|
|
$
|
3,611
|
|
Adjustments
to reconcile net income to net cash (used in)/provided by operating
activities:
|
|
|
|
|
|
|
|
Depreciation
|
|
|
3,739
|
|
|
4,646
|
|
Amortization
|
|
|
6
|
|
|
51
|
|
Net
earnings and distributions from joint ventures
|
|
|
(5,668
|
)
|
|
(596
|
)
|
Gain
from sale of property, plant and equipment
|
|
|
(19
|
)
|
|
(46
|
)
|
Stock
compensation expense
|
|
|
484
|
|
|
1,366
|
|
Other
|
|
|
2
|
|
|
(99
|
)
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
Receivables,
net
|
|
|
9,816
|
|
|
3,278
|
|
Inventories
|
|
|
(26,515
|
)
|
|
(5,939
|
)
|
Prepaid
expenses and other current assets
|
|
|
6,492
|
|
|
(759
|
)
|
Other
assets
|
|
|
(105
|
)
|
|
741
|
|
Trade
payables
|
|
|
7,730
|
|
|
(1,110
|
)
|
Accrued
liabilities and income taxes payable
|
|
|
(2,538
|
)
|
|
(3,788
|
)
|
Other
long-term liabilities
|
|
|
(2,422
|
)
|
|
58
|
|
Net
cash (used in)/provided by operating activities
|
|
|
(530
|
)
|
|
1,414
|
|
|
|
|
|
|
|
|
|
INVESTING
ACTIVITIES
|
|
|
|
|
|
|
|
Proceeds
from sale of property, plant and equipment
|
|
|
200
|
|
|
154
|
|
Additions
to property, plant and equipment
|
|
|
(9,670
|
)
|
|
(4,345
|
)
|
Net
cash used in investing activities
|
|
|
(9,470
|
)
|
|
(4,191
|
)
|
|
|
|
|
|
|
|
|
FINANCING
ACTIVITIES
|
|
|
|
|
|
|
|
Issuance
of debt
|
|
|
-
|
|
|
3,888
|
|
Repayment
of debt
|
|
|
(1,417
|
)
|
|
(22
|
)
|
Dividends
on common stock
|
|
|
(1,816
|
)
|
|
(1,749
|
)
|
Issuance
of common stock
|
|
|
405
|
|
|
213
|
|
Excess
tax benefits related to stock-based compensation
|
|
|
1,955
|
|
|
-
|
|
Purchase
of treasury stock
|
|
|
(1,142
|
)
|
|
(710
|
)
|
Net
cash (used in)/provided by financing activities
|
|
|
(2,015
|
)
|
|
1,620
|
|
|
|
|
|
|
|
|
|
Effect
of exchange rate changes on cash and cash equivalents
|
|
|
256
|
|
|
170
|
|
Net
change in cash and cash equivalents
|
|
|
(11,759
|
)
|
|
(987
|
)
|
Cash
and cash equivalents at beginning of period
|
|
|
139,479
|
|
|
44,671
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at end of period
|
|
$
|
127,720
|
|
$
|
43,684
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
AMERON
INTERNATIONAL CORPORATION AND
SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
1 - BASIS OF PRESENTATION
Consolidated
financial statements for the interim periods included herein are unaudited;
however, they contain all adjustments, including normal recurring accruals,
which in the opinion of management, are necessary to present fairly the
consolidated financial position of Ameron International Corporation and all
subsidiaries (the "Company" or "Ameron" or the "Registrant") as of February
25,
2007, and consolidated results of operations and cash flows for the three months
ended February 25, 2007. Accounting measurements at interim dates
inherently involve greater reliance on estimates than at year-end. Results
of operations for the periods presented are not necessarily indicative of the
results to be expected for the full year.
For
accounting consistency, the quarter typically ends on the Sunday closest to
the
end of the relevant calendar month. The Company’s fiscal year ends on November
30, regardless of the day of the week. Each quarter consists of approximately
13
weeks, but the number of days per quarter can change from period to period.
The
quarter ended February 25, 2007 consisted of 87 days, compared to 95 days for
the quarter ended March 5, 2006.
The
consolidated financial statements do not include certain footnote disclosures
and financial information normally included in consolidated financial statements
prepared in accordance with accounting principles generally accepted in the
United States of America and, therefore, should be read in conjunction with
the
consolidated financial statements and notes included in the Company’s Annual
Report on Form 10-K for the year ended November 30, 2006 ("2006 Annual
Report").
NOTE
2 - NEW ACCOUNTING PRONOUNCEMENTS
In
June
2006, the Financial Accounting Standards Board (“FASB”) issued Emerging Issues
Task Force (“EITF”) 06-03, "How Taxes Collected from Customers and Remitted to
Governmental Authorities Should Be Presented in the Income Statement (That
Is,
Gross Versus Net Presentation)." EITF 06-03 requires that any tax assessed
by a
governmental authority that is imposed concurrent with or subsequent to a
revenue-producing transaction between a seller and a customer should be
presented on a gross (included in revenues and costs) or a net (excluded from
revenues) basis. In addition, for any such taxes that are reported on a gross
basis, a company should disclose the amounts of those taxes in interim and
annual financial statements for each period for which an income statement is
presented if those amounts are significant. EITF 06-03 was first effective
for
the interim period ended February 25, 2007. The Company presents such taxes
on a
net basis in its income statements. The
adoption of EITF 06-03 did not have a material effect on the Company’s
consolidated financial statements.
In
July
2006, the FASB issued Interpretation (“FIN”) No. 48, “Accounting for
Uncertainty in Income Taxes - an interpretation of FASB
Statement No. 109.” FIN 48 clarifies the accounting for
uncertainty in income taxes recognized in an entity’s financial statements in
accordance with Statement
of Financial Accounting Standards (“SFAS”) No. 109
and
prescribes a recognition threshold and measurement attribute for financial
statement disclosure of tax positions taken or expected to be taken on a tax
return. FIN 48 requires the impact of a tax position to be recognized in the
financial statements if that position is more likely than not of being sustained
by the taxing authority. FIN 48 is first effective for the year ending
November 30, 2008. The Company is evaluating whether the adoption of FIN 48
will have a material effect on its consolidated
financial statements.
In
September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements,” which
formally defines fair value, creates a standardized framework for measuring
fair
value in generally accepted accounting principles (“GAAP”), and expands fair
value measurement disclosures. SFAS No. 157 will be effective for the year
ending November 30, 2008. The adoption of SFAS No. 157 is not expected to have
a
material effect on the Company’s consolidated financial statements.
In
September 2006, the FASB issued SFAS No. 158, "Employers’ Accounting for Defined
Benefit Pension and Other Postretirement Plans," amending FASB Statement
No. 87,
“Employers’ Accounting for Pensions,” FASB Statement No. 88, “Employers’
Accounting for Settlements and Curtailments of Defined Benefit Pension Plans
and
for Termination Benefits,” FASB Statement No. 106, “Employers’ Accounting for
Postretirement Benefits Other Than Pensions,” and FASB Statement No. 132,
“Employers’ Disclosures about Pensions and Other Postretirement Benefits.” SFAS
No. 158 requires companies to recognize the overfunded or underfunded status
of
a defined benefit postretirement plan (other than a multiemployer plan) as
an
asset or liability in its financial statements and to recognize changes in
that
status in the year in which the changes occur. SFAS No. 158 also requires
a
company to measure the funded status of a plan as of the date of its year-end
financial statements. SFAS No. 158 will be first effective for the year ending
November 30, 2007. If SFAS No. 158 had been applied at November 30, 2006
using
the November 30, 2006 actuarial valuation, accumulated other comprehensive
loss
would have increased by approximately $54,600,000 ($36,900,000 after tax)
representing the difference between the funded status of the Company’s pension
and other post-retirement benefit plans based on the projected and accumulated
benefit obligations, respectively, and the amounts recorded on the Company’s
balance sheet at November 30, 2006. The ultimate impact is contingent on
plan
asset returns and the assumptions that will be used to measure the funded
status
of each of Ameron’s pension and postretirement benefit plans as of November 30,
2007.
AMERON
INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTE
3 - DISCONTINUED OPERATIONS
On
August
1, 2006, the Company completed the sale of its Performance Coatings &
Finishes business (the "Coatings Business") to PPG Industries, Inc. ("PPG").
PPG
and the Company are disputing a post-closing adjustment of $3,423,000. The
Company believes it is entitled to the disputed amount under the terms of the
Purchase Agreement (the “Agreement”). The Company and PPG are in active
negotiations to resolve the dispute. If the parties are unable to resolve the
dispute the Agreement provides a process for resolution. Certain real properties
that were used in the Coatings Business were excluded from the sale. The
Company intends to sell the retained properties in the next 12 to 18 months
and
expects to generate additional proceeds of approximately $15,000,000 based
on
current estimates of market values. The retained properties are included in
other assets of the consolidated balance sheets.
The
results of discontinued operations were as follows:
|
|
Three
Months Ended
|
|
|
|
February
25,
|
|
March
5,
|
|
(In
thousands)
|
|
2007
|
|
2006
|
|
Revenue
from discontinued operations
|
|
$
|
-
|
|
$
|
49,320
|
|
|
|
|
|
|
|
|
|
Income/(loss)
from discontinued operations, before income taxes
|
|
$
|
-
|
|
$
|
(187
|
)
|
Income
taxes on income from discontinued operations
|
|
|
156
|
|
|
23
|
|
Income/(loss)
from discontinued operations, net of taxes
|
|
$
|
156
|
|
$
|
(164
|
)
|
Income
from discontinued operations, net of taxes, totaled $156,000 or $.02 per diluted
share for the quarter ended February 25, 2007, compared to a loss of $164,000,
or $.02 per diluted share, for the same period in 2006. During the first quarter
of 2007, the Company recognized a net research and development tax credit of
$156,000 related to discontinued operations. This tax credit arose from the
retroactive application of tax legislation enacted in December
2006.
Prior
period income statement amounts have been reclassified to present the operating
results of the Coatings Business as a discontinued operation. Prior period
balance sheets and cash flow statements have not been adjusted.
NOTE
4 - RECEIVABLES
The
Company’s receivables consisted of the following:
|
|
February
25,
|
|
November
30,
|
|
(In
thousands)
|
|
2007
|
|
2006
|
|
Trade
|
|
$
|
130,305
|
|
$
|
124,308
|
|
Other
|
|
|
16,686
|
|
|
31,299
|
|
Joint
ventures
|
|
|
8,775
|
|
|
9,478
|
|
Allowances
|
|
|
(5,139
|
)
|
|
(4,912
|
)
|
|
|
$
|
150,627
|
|
$
|
160,173
|
|
Trade
receivables included unbilled receivables related to percentage-of-completion
revenue recognition of $41,234,000 and $32,278,000 at February 25, 2007 and
November 30, 2006, respectively.
NOTE
5 - INVENTORIES
Inventories
are stated at the lower of cost or market. Inventories consisted of the
following:
|
|
February
25,
|
|
November
30,
|
|
(In
thousands)
|
|
2007
|
|
2006
|
|
Finished
products
|
|
$
|
42,691
|
|
$
|
30,802
|
|
Materials
and supplies
|
|
|
25,752
|
|
|
22,224
|
|
Products
in process
|
|
|
35,880
|
|
|
24,108
|
|
|
|
$
|
104,323
|
|
$
|
77,134
|
|
AMERON
INTERNATIONAL CORPORATION AND
SUBSIDIARIES
NOTE
6 - SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Supplemental
cash flow information included the following:
|
|
Three
Months Ended
|
|
|
|
February
25,
|
|
March
5,
|
|
(In
thousands)
|
|
2007
|
|
2006
|
|
Interest
paid
|
|
$
|
203
|
|
$
|
647
|
|
Income
taxes paid
|
|
|
7,762
|
|
|
277
|
|
|
|
|
|
|
|
|
|
NOTE
7 - JOINT VENTURES
Operating
results of TAMCO, an investment which is accounted for under the equity method,
were as follows:
|
|
Three
Months Ended
|
|
|
|
February
25,
|
|
March
5,
|
|
(In
thousands)
|
|
2007
|
|
2006
|
|
Net
sales
|
|
$
|
76,422
|
|
$
|
51,069
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
21,790
|
|
|
5,102
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
11,336
|
|
|
1,741
|
|
Investments
in Ameron Saudi Arabia, Ltd. ("ASAL") and Bondstrand, Ltd. ("BL") are accounted
for under the cost method due to management's current assessment of the
Company's influence over these joint ventures.
Earnings
and dividends from the Company's joint ventures were as
follows:
|
|
Three
Months Ended
|
|
|
|
February
25,
|
|
March
5,
|
|
(In
thousands)
|
|
2007
|
|
2006
|
|
Earnings
from joint ventures
|
|
|
|
|
|
Equity
in earnings of TAMCO before income taxes
|
|
$
|
5,668
|
|
$
|
871
|
|
Less
provision for income taxes
|
|
|
(640
|
)
|
|
(91
|
)
|
Equity
in earnings of TAMCO, net of taxes
|
|
$
|
5,028
|
|
$
|
780
|
|
Dividends
received from joint ventures
|
|
|
|
|
|
|
|
TAMCO
|
|
$
|
-
|
|
$
|
275
|
|
ASAL
|
|
|
-
|
|
|
-
|
|
BL
|
|
|
-
|
|
|
-
|
|
Earnings
from ASAL and BL, if any, are included in other income, net.
AMERON
INTERNATIONAL CORPORATION AND
SUBSIDIARIES
NOTE
8 - NET INCOME PER SHARE
Basic
net
income per share is computed on the basis of the weighted-average number of
common shares outstanding during the periods presented. Diluted net income
per
share is computed on the basis of the weighted-average number of common shares
outstanding plus the effect of outstanding stock options and restricted stock,
using the treasury stock method. All outstanding common stock equivalents,
consisting of restricted shares of 28,550 and 45,000, and options to purchase
98,500 and 456,783 common shares, were dilutive for the three months ended
February 25, 2007 and March 5, 2006, respectively. Following is a
reconciliation of the weighted-average number of shares used in the computation
of basic and diluted net income per share:
|
|
Three
Months Ended
|
|
|
|
February
25,
|
|
March
5,
|
|
(In
thousands, except per share data)
|
|
2007
|
|
2006
|
|
Numerator:
|
|
|
|
|
|
Income
from continuing operations
|
|
$
|
8,312
|
|
$
|
3,775
|
|
Income/(loss)
from discontinuing operations, net of taxes
|
|
|
156
|
|
|
(164
|
)
|
Net
income
|
|
$
|
8,468
|
|
$
|
3,611
|
|
|
|
|
|
|
|
|
|
Denominator
for basic income per share:
|
|
|
|
|
|
|
|
Weighted-average
shares outstanding, basic
|
|
|
8,994,075
|
|
|
8,614,269
|
|
|
|
|
|
|
|
|
|
Denominator
for diluted income per share:
|
|
|
|
|
|
|
|
Weighted-average
shares outstanding, basic
|
|
|
8,994,075
|
|
|
8,614,269
|
|
Dilutive
effect of stock options and restricted stock
|
|
|
56,450
|
|
|
171,772
|
|
Weighted-average
shares outstanding, diluted
|
|
|
9,050,525
|
|
|
8,786,041
|
|
|
|
|
|
|
|
|
|
Basic
net income per share:
|
|
|
|
|
|
|
|
Income
from continuing operations
|
|
$
|
.92
|
|
$
|
.44
|
|
Income/(loss)
from discontinued operations, net of taxes
|
|
|
.02
|
|
|
(.02
|
)
|
Net
income
|
|
$
|
.94
|
|
$
|
.42
|
|
|
|
|
|
|
|
|
|
Diluted
net income per share:
|
|
|
|
|
|
|
|
Income
from continuing operations
|
|
$
|
.92
|
|
$
|
.43
|
|
Income/(loss)
from discontinued operations, net of taxes
|
|
|
.02
|
|
|
(.02
|
)
|
Net
income
|
|
$
|
.94
|
|
$
|
.41
|
|
NOTE
9 - COMPREHENSIVE INCOME
Comprehensive
income was as follows:
|
|
Three
Months Ended
|
|
|
|
February
25,
|
|
March
5,
|
|
(In
thousands)
|
|
2007
|
|
2006
|
|
Net
income
|
|
$
|
8,468
|
|
$
|
3,611
|
|
Foreign
currency translation adjustment
|
|
|
1,418
|
|
|
557
|
|
Comprehensive
income
|
|
$
|
9,886
|
|
$
|
4,168
|
|
AMERON
INTERNATIONAL CORPORATION AND
SUBSIDIARIES
NOTE
10 - DEBT
The
Company's long-term debt consisted of the following:
|
|
February
25,
|
|
November
30,
|
|
(In
thousands)
|
|
2007
|
|
2006
|
|
Fixed-rate
notes:
|
|
|
|
|
|
5.36%,
payable in annual principal installments of $10,000
|
|
$
|
30,000
|
|
$
|
30,000
|
|
4.25%,
payable in Singapore dollars, in annual principal installments of
$6,664,
starting in 2008
|
|
|
33,320
|
|
|
33,173
|
|
Variable-rate
industrial development bonds:
|
|
|
|
|
|
|
|
payable
in 2016 (3.86% at February 25, 2007)
|
|
|
7,200
|
|
|
7,200
|
|
payable
in 2021 (3.86% at February 25, 2007)
|
|
|
8,500
|
|
|
8,500
|
|
Variable-rate
bank revolving credit facility (4.23% at February 25,
2007)
|
|
|
2,243
|
|
|
3,652
|
|
Total
long-term debt
|
|
|
81,263
|
|
|
82,525
|
|
Less
current portion
|
|
|
(10,000
|
)
|
|
(10,000
|
)
|
Long-term
debt, less current portion
|
|
$
|
71,263
|
|
$
|
72,525
|
|
The
Company maintains a $100,000,000 revolving credit facility with six banks (the
"Revolver"). Under the Revolver, the Company may, at its option, borrow at
floating interest rates (LIBOR plus a spread ranging from .75% to 1.625%
determined by the Company's financial condition and performance), at any time
until September 2010, when all borrowings under the Revolver must be
repaid. The lending agreements contain various restrictive covenants,
including the requirement to maintain specified amounts of net worth and
restrictions on cash dividends, borrowings, liens, investments, guarantees,
and
financial covenants. The Company was in compliance with all covenants as
of February 25, 2007. The Revolver, the 4.25% term notes and the
5.36% term notes are collateralized by substantially all of the Company's
assets. The industrial revenue bonds are supported by standby letters of
credit that are issued under the Revolver. The interest rate on the
industrial development bonds is based on a weekly index of tax exempt issues
plus a spread of .20%. Certain note agreements contain provisions
regarding the Company's ability to grant security interests or liens in
association with other debt instruments. If the Company grants such a
security interest or lien, then such notes will be collateralized equally and
ratably as long as such other debt shall be collateralized.
The
Company intends for short-term borrowings under certain bank facilities utilized
by the Company and its foreign subsidiaries to be refinanced on a long-term
basis via the Revolver. In addition, the amount available under the Revolver
exceeds such short-term borrowings at February 25, 2007. Accordingly, amounts
due under these bank facilities have been classified as long-term debt and
are
considered payable when the Revolver is due.
NOTE
11 - SEGMENT INFORMATION
The
Company provides certain information about operating segments in accordance
with
SFAS No. 131, “Disclosure about Segments of an Enterprise and Related
Information.” In accordance with SFAS No. 131, the Company has determined that
it has four operating and three reportable segments: Fiberglass-Composite Pipe,
Water Transmission and Infrastructure Products. Infrastructure Products
consists of two operating segments, the Pole Products and Hawaii Divisions,
which are aggregated. In the prior periods, the Company included a fourth
reportable segment, Performance Coatings & Finishes, which was sold
effective August 1, 2006. The results from this segment have been reported
as discontinued operations for all reporting periods. Each of the segments
has a dedicated management team and is managed separately, primarily because
of
differences in products. The Company's Chief Operating Decision Maker is the
Chief Executive Officer who primarily reviews sales and income before interest,
income taxes and equity in earnings of joint venture for each operating segment
in making decisions about allocating resources and assessing performance.
The Company allocates certain selling, general and administrative expenses
to
operating segments utilizing assumptions believed to be appropriate in the
circumstances. Costs of shared services (e.g., costs of Company-wide
insurance programs or benefit plans) are allocated to the operating segments
based on revenue, wages or net assets employed. Other items not related to
current operations or of an unusual nature, such as adjustments to reflect
inventory balances of certain steel inventories under the last-in, first-out
("LIFO") method, certain unusual legal costs and expenses, interest expense
and
income taxes, are not allocated to the reportable segments.
AMERON
INTERNATIONAL CORPORATION AND
SUBSIDIARIES
Following
is information related to each reportable segment included in, and in a manner
consistent with, internal management reports:
|
|
Three
Months Ended
|
|
|
|
February
25,
|
|
March
5,
|
|
(In
thousands)
|
|
2007
|
|
2006
|
|
Sales
|
|
|
|
|
|
Fiberglass-Composite
Pipe
|
|
$
|
46,509
|
|
$
|
36,592
|
|
Water
Transmission
|
|
|
29,593
|
|
|
43,181
|
|
Infrastructure
Products
|
|
|
45,287
|
|
|
46,390
|
|
Eliminations
|
|
|
(1,034
|
)
|
|
(191
|
)
|
Total
sales
|
|
$
|
120,355
|
|
$
|
125,972
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations before interest, income taxes and equity
in
earnings of Joint Venture
|
|
|
|
|
|
|
|
Fiberglass-Composite
Pipe
|
|
$
|
8,999
|
|
$
|
5,799
|
|
Water
Transmission
|
|
|
(4,131
|
)
|
|
1,898
|
|
Infrastructure
Products
|
|
|
6,727
|
|
|
6,863
|
|
Corporate
& unallocated
|
|
|
(6,757
|
)
|
|
(8,930
|
)
|
Total
Income from continuing operations before interest, income taxes
and equity
in earnings of Joint Venture
|
|
$
|
4,838
|
|
$
|
5,630
|
|
|
|
February
25,
|
|
November
30,
|
|
|
|
2007
|
|
2006
|
|
Assets
|
|
|
|
|
|
Fiberglass-Composite
Pipe
|
|
$
|
218,898
|
|
$
|
206,326
|
|
Water
Transmission
|
|
|
180,512
|
|
|
167,463
|
|
Infrastructure
Products
|
|
|
104,884
|
|
|
97,249
|
|
Corporate
& unallocated
|
|
|
270,199
|
|
|
271,023
|
|
Eliminations
|
|
|
(128,280
|
)
|
|
(107,397
|
)
|
Total
Assets
|
|
$
|
646,213
|
|
$
|
634,664
|
|
NOTE
12 - COMMITMENTS AND CONTINGENCIES
The
Company is one of numerous defendants in various asbestos-related personal
injury lawsuits. These cases generally seek unspecified damages for
asbestos-related diseases based on alleged exposure to products previously
manufactured by the Company and others, and at this time the Company is
generally not aware of the extent of injuries allegedly suffered by the
individuals or the facts supporting the claim that injuries were caused by
the
Company's products. Based upon the information available to it at this time,
the
Company is not in a position to evaluate its potential exposure, if any, as
a
result of such claims. Hence, no amounts have been accrued for loss
contingencies related to these lawsuits in accordance with SFAS No. 5,
"Accounting for Contingencies." The Company continues to vigorously defend
all
such lawsuits. As of February 25, 2007, the Company was a defendant in
asbestos-related cases involving 145 claimants, compared to 145 claimants as
of
November 30, 2006. The Company is not in a position to estimate the number
of additional claims that may be filed against it in the future. For the quarter
ended February 25, 2007, there were new claims involving four claimants,
dismissals and/or settlements involving four claimants and no judgments.
No net costs and expenses were incurred by the Company for the quarter ended
February 25, 2007 in connection with asbestos-related claims.
AMERON
INTERNATIONAL CORPORATION AND
SUBSIDIARIES
In
May
2003, Dominion Exploration and Production, Inc. and Pioneer Natural Resources
USA, Inc., (collectively "Dominion") brought an action against the Company
in
Civil District Court for the Parish of Orleans, Louisiana as owners of an
offshore production facility known as a SPAR constructed for Dominion.
Dominion seeks damages allegedly sustained by it resulting from delays in
delivery of the SPAR caused by the removal and replacement of certain coatings
containing lead and/or lead chromate for which the manufacturer of the SPAR
alleged the Company was responsible. Dominion contends that the Company
made certain misrepresentations and warranties to Dominion concerning the
lead-free nature of those coatings. Dominion's petition as filed alleged a
claim for damages in an unspecified amount; however, Dominion's economic expert
has since estimated Dominion's damages at approximately $128,000,000, a figure
which the Company contests. This matter is in discovery and no trial date
has yet been established. The Company believes that it has meritorious
defenses to this action. Based upon the information available to it
at this time, the Company is not in a position to evaluate the ultimate outcome
of this matter.
In
April
2004, Sable Offshore Energy Inc. ("Sable"), as agent for certain owners of
the
Sable Offshore Energy Project, brought an action against various coatings
suppliers and application contractors, including the Company and two of its
subsidiaries, Ameron (UK) Limited and Ameron B.V., (collectively "Ameron
Subsidiaries"), in the Supreme Court of Nova Scotia, Canada. Sable seeks
damages allegedly sustained by it resulting from performance problems with
several coating systems used on the Sable Offshore Energy Project, including
coatings products furnished by the Company and the Ameron Subsidiaries.
Sable's originating notice and statement of claim alleged a claim for damages
in
an unspecified amount; however, Sable has since alleged that its claim for
damages against all defendants is approximately 428,000,000 Canadian dollars,
a
figure which the Company and the Ameron Subsidiaries contest. This matter
is in discovery and no trial date has yet been established. The Company
believes that it has meritorious defenses to this action. Based upon the
information available to it at this time, the Company is not in a position
to
evaluate the ultimate outcome of this matter.
In
addition, certain other claims, suits and complaints that arise in the ordinary
course of business, have been filed or are pending against the Company.
Management believes that these matters are either adequately reserved, covered
by insurance, or would not have a material effect on the Company's financial
position, cash flows, or its results of operations if disposed of
unfavorably.
The
Company is subject to federal, state and local laws and regulations concerning
the environment and is currently participating in administrative proceedings
at
several sites under these laws. While the Company finds it difficult to estimate
with any certainty the total cost of remediation at the several sites, on the
basis of currently available information and reserves provided, the Company
believes that the outcome of such environmental regulatory proceedings will
not
have a material effect on the Company's financial position, cash flows, or
its
results of operations.
NOTE
13 - PRODUCT WARRANTIES AND GUARANTEES
The
Company's product warranty accrual reflects management's estimate of probable
liability associated with product warranties. The Company generally
provides a standard product warranty not exceeding one year from date of
purchase. Management establishes product warranty accruals based on
historical experience and other currently-available information. Changes
in the product warranty accrual were as follows:
|
|
Three
Months Ended
|
|
|
|
February
25,
|
|
March
5,
|
|
(In
thousands)
|
|
2007
|
|
2006
|
|
Balance,
beginning of period
|
|
$
|
3,146
|
|
$
|
4,026
|
|
Payments
|
|
|
(544
|
)
|
|
(530
|
)
|
Warranties
issued during the period
|
|
|
953
|
|
|
418
|
|
Balance,
end of period
|
|
$
|
3,555
|
|
$
|
3,914
|
|
NOTE
14 - GOODWILL AND OTHER INTANGIBLE ASSETS
SFAS
No.
142, "Goodwill and Other Intangible Assets," requires that goodwill and
intangible assets with indefinite useful lives not be amortized but instead
be
tested for impairment at least annually. SFAS No. 142 also requires that
intangible assets with definite useful lives be amortized over their respective
estimated useful lives to their estimated residual values.
AMERON
INTERNATIONAL CORPORATION AND
SUBSIDIARIES
Changes
in the Company’s carrying amount of goodwill by business segment were as
follows:
|
|
|
|
|
|
Foreign
|
|
|
|
|
|
|
|
|
|
Currency
|
|
|
|
|
|
November
30,
|
|
Acquisition/
|
|
Translation
|
|
February
25,
|
|
(In
thousands)
|
|
2006
|
|
(Disposition)
|
|
Adjustments
|
|
2007
|
|
Fiberglass-Composite
Pipe
|
|
$
|
1,440
|
|
$
|
-
|
|
$
|
-
|
|
$
|
1,440
|
|
Water
Transmission
|
|
|
390
|
|
|
-
|
|
|
-
|
|
|
390
|
|
Infrastructure
Products
|
|
|
201
|
|
|
-
|
|
|
-
|
|
|
201
|
|
|
|
$
|
2,031
|
|
$
|
-
|
|
$
|
-
|
|
$
|
2,031
|
|
The
Company's intangible assets, other than goodwill, and related accumulated
amortization consisted of the following:
|
|
February
25, 2007
|
|
November
30, 2006
|
|
|
|
Gross
Intangible
|
|
Accumulated
|
|
Gross
Intangible
|
|
Accumulated
|
|
(In
thousands)
|
|
Assets
|
|
Amortization
|
|
Assets
|
|
Amortization
|
|
Trademarks
|
|
$
|
100
|
|
$
|
(100
|
)
|
$
|
100
|
|
$
|
(100
|
)
|
Non-compete
agreements
|
|
|
252
|
|
|
(146
|
)
|
|
252
|
|
|
(140
|
)
|
Patents
|
|
|
212
|
|
|
(212
|
)
|
|
212
|
|
|
(212
|
)
|
Leasehold
interests
|
|
|
1,930
|
|
|
(1,930
|
)
|
|
1,930
|
|
|
(1,930
|
)
|
|
|
$
|
2,494
|
|
$
|
(2,388
|
)
|
$
|
2,494
|
|
$
|
(2,382
|
)
|
All
of
the Company's intangible assets, other than goodwill, are subject to
amortization. Amortization expense for the three months ended February 25,
2007
and March 5, 2006 were $6,000 and $51,000, respectively. The $51,000
amortization expense for the three months ended March 5, 2006 was related to
the
discontinued operations. At February 25, 2007, estimated future amortization
expense were as follows: $18,000 for the remaining nine months of 2007, $24,000
for 2008, $23,000 for 2009, $23,000 for 2010, $16,000 for 2011 and $2,000 for
2012.
NOTE
15 - INCENTIVE STOCK COMPENSATION PLANS
As
of
February 25, 2007, the Company had outstanding grants under the following
share-based compensation plans:
·
1994
Non-Employee Director Stock Option Plan ("1994 Plan") - The 1994 Plan was
terminated in 2001, except as to the outstanding options. A total of
240,000 new shares of common stock were made available for awards to
non-employee directors. Non-employee directors were granted options to
purchase the Company's common stock at prices not less than 100% of market
value
on the dates of grant. Such options vested in equal annual installments
over four years and terminate ten years from the dates of grant.
·
2001
Stock Incentive Plan ("2001 Plan") - The 2001 Plan was terminated in 2004,
except as to the outstanding stock options and restricted stock grants. A
total of 380,000 new shares of common stock were made available for awards
to
key employees and non-employee directors. The 2001 Plan served as the
successor to the 1994 Plan and superseded that plan. Non-employee
directors were granted options under the 2001 Plan to purchase the Company's
common stock at prices not less than 100% of market value on the dates of
grant. Such options vested in equal annual installments over four
years. Such options terminate ten years from the dates of grant. Key
employees were granted restricted stock under the 2001 Plan. Such
restricted stock grants vested in equal annual installments over four
years.
·
2004
Stock Incentive Plan ("2004 Plan") - The 2004 Plan serves as the successor
to
the 2001 Plan and supersedes that plan. A total of 525,000 new shares of
common stock were made available for awards to key employees and non-employee
directors and may include, but are not limited to, stock options and restricted
stock grants. Non-employee directors were granted options under the 2004
Plan to purchase the Company's common stock at prices not less than 100% of
market value on the date of grant. Such options vest in equal annual
installments over four years. Such options terminate ten years from the
dates of grant. Key employees were granted restricted stock under the 2004
Plan. Such restricted stock grants vest in equal annual installments over
three years. For the three months ended February 25, 2007, the Company
granted 28,550 restricted shares to key employees with fair value on the grant
date of $2,305,000.
AMERON
INTERNATIONAL CORPORATION AND
SUBSIDIARIES
In
addition to the above, on January 24, 2001, non-employee directors were granted
options to purchase the Company's common stock at prices not less than 100%
of
market value on the dates of grant. Such options vested in equal annual
installments over four years and terminate ten years from the dates of
grant. At February 25, 2007, there were 18,000 shares subject to such
stock options.
The
Company's income before income taxes and equity in earnings of joint venture
for
the three months ended February 25, 2007 and March 5, 2006 included compensation
expense of $484,000 and $1,366,000, respectively, related to stock-based
compensation arrangements. There were no capitalized share-based
compensation costs, for the three months ended February 25, 2007 and March
5,
2006.
Tax
benefits and excess tax benefits resulting from the exercise of stock options
are reflected as operating cash flows in the Company’s statements of cash
flows. For the three months ended February 25, 2007, excess tax benefits
totaled $1,955,000.
The
following table summarizes the stock option activity for the three months ended
February 25, 2007:
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
Weighted-
|
|
Average
|
|
|
|
|
|
|
|
Average
|
|
Remaining
|
|
Aggregate
|
|
|
|
Number
of
|
|
Exercise
Price
|
|
Contractual
|
|
Intrinsic
Value
|
|
Options
|
|
Options
|
|
per
Share
|
|
Term
(Years)
|
|
(in
thousands)
|
|
Outstanding
at November 30, 2006
|
|
|
120,500
|
|
$
|
27.25
|
|
|
|
|
|
|
|
Exercised
|
|
|
(22,000
|
)
|
|
23.97
|
|
|
|
|
|
|
|
Outstanding
at February 25, 2007
|
|
|
98,500
|
|
|
27.98
|
|
|
5.40
|
|
$
|
5,037
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
exercisable at February 25, 2007
|
|
|
76,000
|
|
|
26.61
|
|
|
4.73
|
|
$
|
3,991
|
|
For
the
three months ended February 25, 2007 and March 5, 2006, no options were granted,
forfeited or expired. The aggregate intrinsic value in the table above
represents the total pretax intrinsic value, which is the difference between
the
Company's closing stock price on the last trading day of the first quarter
of
2007 and the exercise price times the number of shares that would have been
received by the option holders if they had exercised their options on February
25, 2007. This amount will change based on the fair market value of the
Company's stock. The aggregate intrinsic value of stock options exercised
for the three months ended February 25, 2007 and March 5, 2006 was $1,175,000
and $352,000, respectively. As of February 25, 2007, there was $3,773,000
of total unrecognized compensation cost related to stock-based compensation
arrangements. That cost is expected to be recognized over a weighted-average
period of three years.
For
the
three months ended February 25, 2007 and March 5, 2006, 28,550 and 45,000 shares
of restricted stock, respectively, were granted. The weighted-average
grant-date fair value of such restricted stock granted was $80.73 and $54.68,
respectively. The fair value of restricted stock vested for the three
months ended February 25, 2007 and March 5, 2006 was $2,308,000 and $2,112,000,
respectively.
Net
cash
proceeds from stock option exercises for the three months ended February 25,
2007 and March 5, 2006 was $405,000 and $213,000, respectively. The
Company's policy is to issue shares from its authorized shares upon the exercise
of stock options.
AMERON
INTERNATIONAL CORPORATION AND
SUBSIDIARIES
NOTE
16 - EMPLOYEE BENEFIT PLANS
For
the
three months ended February 25, 2007 and March 5, 2006, net pension and
postretirement costs were comprised of the following:
|
|
|
|
U.S.
Postretirement
|
|
|
|
Pension
Benefits
|
|
Benefits
|
|
|
|
U.S.
Plans
|
|
Non-U.S.
Plans
|
|
|
|
|
|
|
|
Three
Months Ended February 25 and March 5,
|
|
(In
thousands)
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
|
Service
cost
|
|
$
|
753
|
|
$
|
814
|
|
$
|
122
|
|
$
|
275
|
|
$
|
88
|
|
$
|
78
|
|
Interest
cost
|
|
|
2,781
|
|
|
2,548
|
|
|
521
|
|
|
446
|
|
|
202
|
|
|
179
|
|
Expected
return on plan assets
|
|
|
(3,515
|
)
|
|
(3,053
|
)
|
|
(388
|
)
|
|
(332
|
)
|
|
(35
|
)
|
|
(27
|
)
|
Amortization
of unrecognized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
prior
service cost
|
|
|
27
|
|
|
24
|
|
|
65
|
|
|
122
|
|
|
19
|
|
|
(14
|
)
|
Curtailment
|
|
|
-
|
|
|
81
|
|
|
-
|
|
|
728
|
|
|
-
|
|
|
-
|
|
Amortization
of unrecognized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net
transition obligation
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
46
|
|
|
46
|
|
Amortization
of accumulated loss
|
|
|
924
|
|
|
1,109
|
|
|
36
|
|
|
79
|
|
|
15
|
|
|
41
|
|
Net
periodic cost
|
|
$
|
970
|
|
$
|
1,523
|
|
$
|
356
|
|
$
|
1,318
|
|
$
|
335
|
|
$
|
303
|
|
A
contribution of $21,000 was made to the non-U.S. pension plan during the quarter
ended February 25, 2007. The Company expects to contribute approximately
$3,000,000 to its U.S. pension plan and $600,000 to its non-U.S. pension plans
in 2007. Additional contributions may be made in 2007 depending on how the
funded status of plans change and as the Company gains greater clarity with
respect to the requirements of the Pension Protection Act of 2006 (“PPA”) which
was signed into law on August 17, 2006.
If
SFAS
No. 158 had been applied at November 30, 2006 using the November 30, 2006
actuarial valuation, accumulated other comprehensive loss would have increased
by approximately $54,600,000 ($36,900,000 after tax) representing the difference
between the funded status of the Company’s pension and other post-retirement
benefit plans based on the projected and accumulated benefit obligations,
respectively, and the amounts recorded on the Company’s balance sheet at
November 30, 2006. The ultimate impact is contingent on plan asset returns
and
the assumptions that will be used to measure the funded status of each of
Ameron’s pension and postretirement benefit plans as of November 30,
2007.
ITEM
2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
Ameron
International Corporation ("Ameron" or the "Company") is a multinational
manufacturer of highly-engineered products and materials for the chemical,
industrial, energy, transportation and infrastructure markets. Ameron is a
leading producer of water transmission lines; fiberglass-composite pipe for
transporting oil, chemicals and corrosive fluids and specialized materials
and
products used in infrastructure projects. The Company operates businesses
in North America, South America, Europe and Asia. The Company has three
reportable segments. The Fiberglass-Composite Pipe Group manufactures and
markets filament-wound and molded composite fiberglass pipe, tubing, fittings
and well screens. The Water Transmission Group manufactures and supplies
concrete and steel pressure pipe, concrete non-pressure pipe, protective linings
for pipe, and fabricated steel products. The Infrastructure Products Group
consists of two operating segments, which are aggregated: the Hawaii
Division which manufactures and sells ready-mix concrete, sand and aggregates,
concrete pipe and culverts and the Pole Products Division which manufactures
and
sells concrete and steel lighting and traffic poles. The markets served by
the Fiberglass-Composite Pipe Group are worldwide in scope. The Water
Transmission Group serves primarily the western U.S. The Infrastructure
Products Group's quarry and ready-mix business operates exclusively in Hawaii,
and poles are sold throughout the U.S. Ameron also participates in several
joint-venture companies, directly in the U.S. and Saudi Arabia, and indirectly
in Egypt.
During
the third quarter of 2006, the Company sold its Performance Coatings &
Finishes business ("Coatings Business"). The results from this segment
have been reported as discontinued operations for all the reporting
periods. Accordingly, the following discussions generally reflect summary
results from continuing operations unless otherwise noted. However, the
net income and net income per share discussions include the impact of
discontinued operations.
AMERON
INTERNATIONAL CORPORATION AND
SUBSIDIARIES
Management's
Discussion and Analysis should be read in conjunction with the same discussion
included in the Company's 2006 Annual Report, under Part II, Item 7.
Reference should also be made to the financial statements included in this
Form
10-Q for comparative consolidated balance sheets, statements of income and
cash
flows.
CRITICAL
ACCOUNTING POLICIES AND ESTIMATES
Management's
Discussion and Analysis of Liquidity and Capital Resources and Results of
Operations are based upon the Company's consolidated financial statements,
which
have been prepared in accordance with accounting principles generally accepted
in the United States of America. The preparation of these financial
statements requires management to make certain estimates and assumptions that
affect the reported amounts of assets, liabilities, revenues and expenses,
and
related disclosure of contingent assets and liabilities during the reporting
periods. Management bases its estimates on historical experience and on
various other assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent
from
other sources. Actual results could differ from those
estimates.
A
summary
of the Company's significant accounting policies is provided in Note (1) of
the
Notes to Consolidated Financial Statements in the Company’s 2006 Annual
Report. In addition, Management believes the following accounting policies
affect the more significant estimates used in preparing the consolidated
financial statements.
The
consolidated financial statements include the accounts of Ameron International
Corporation and all wholly-owned subsidiaries. All material intercompany
accounts and transactions have been eliminated. The functional currencies
for the Company's foreign operations are the applicable local currencies.
The translation from the applicable foreign currencies to U.S. dollars is
performed for balance sheet accounts using current exchange rates in effect
at
the balance sheet date and for revenue and expense accounts using a
weighted-average exchange rate during the period. The resulting
translation adjustments are recorded in accumulated other comprehensive
income/(loss). The Company advances funds to certain foreign subsidiaries
that are not expected to be repaid in the foreseeable future. Translation
adjustments arising from these advances are also included in accumulated other
comprehensive income/(loss). The timing of repayments of intercompany
advances could materially impact the Company's consolidated financial
statements. Additionally, earnings of foreign subsidiaries are often
permanently reinvested outside the U.S. Unforeseen repatriation of such
earnings could result in significant unrecognized U.S. tax liability.
Gains or losses resulting from foreign currency transactions are included in
other income, net.
Revenue
for the Fiberglass-Composite Pipe and Infrastructure Products segments is
recognized when risk of ownership and title pass, primarily at the time goods
are shipped, provided that an agreement exists between the customer and the
Company, the price is fixed or determinable and collection is reasonably
assured. Revenue is recognized for the Water Transmission Group primarily
under the percentage-of-completion method, typically based on completed units
of
production, since products are manufactured under enforceable and binding
construction contracts, typically are designed for specific applications, are
not interchangeable between projects, and are not manufactured for stock.
Revenue for the period is determined by multiplying total estimated contract
revenue by the percentage-of-completion of the contract and then subtracting
the
amount of previously recognized revenue. Cost of earned revenue is
computed by multiplying estimated contract completion cost by the
percentage-of-completion of the contract and then subtracting the amount of
previously recognized cost. In some cases, if products are manufactured
for stock or are not related to specific construction contracts, revenue is
recognized under the same criteria used by the other two
segments. Revenue under the percentage-of-completion method is
subject to a greater level of estimation, which affects the timing of revenue
recognition, costs and profits. Estimates are reviewed on a consistent
basis and are adjusted periodically to reflect current expectations. Costs
attributable to unpriced change orders are treated as costs of contract
performance in the period, and contract revenue is recognized if recovery is
probable. Disputed or unapproved change orders are treated as
claims. Recognition of amounts of additional contract revenue relating to
claims occurs when amounts have been received or awarded with recognition based
on the percentage-of-completion methodology.
The
Company expenses environmental clean-up costs related to existing conditions
resulting from past or current operations on a site-by-site basis.
Liabilities and costs associated with these matters, as well as other pending
litigation and asserted claims arising in the ordinary course of business,
require estimates of future costs and judgments based on the knowledge and
experience of management and its legal counsel. When the Company's
exposures can be reasonably estimated and are probable, liabilities and expenses
are recorded. The ultimate resolution of any such exposure to the Company
may differ due to subsequent developments.
Inventories
are stated at the lower of cost or market with cost determined principally
on
the first-in, first-out ("FIFO") method. Certain steel inventories used by
the Water Transmission Group are valued using the last-in, first-out ("LIFO")
method. Significant changes in steel levels or costs could materially
impact the Company's financial statements. Reserves are established for
excess, obsolete and rework inventories based on estimates of salability and
forecasted future demand. Management records an allowance for doubtful
accounts receivable based on historical experience and expected trends. A
significant reduction in demand or a significant worsening of customer credit
quality could materially impact the Company’s consolidated financial
statements.
AMERON
INTERNATIONAL CORPORATION AND
SUBSIDIARIES
Investments
in unconsolidated joint ventures or affiliates ("joint ventures") over which
the
Company has significant influence are accounted for under the equity method
of
accounting, whereby the investment is carried at the cost of acquisition, plus
the Company's equity in undistributed earnings or losses since
acquisition. Investments in joint ventures over which the Company does not
have the ability to exert significant influence over the investees' operating
and financing activities are accounted for under the cost method of
accounting. The Company's investment in TAMCO, a steel mini-mill in
California, is accounted for under the equity method. Investments in
Ameron Saudi Arabia, Ltd. and Bondstrand, Ltd. are accounted for under the
cost
method due to management's current assessment of the Company's influence
over these joint ventures.
Property,
plant and equipment is stated on the basis of cost and depreciated principally
using a straight-line method based on the estimated useful lives of the related
assets, generally three to 40 years. The Company reviews long-lived assets
for impairment whenever events or changes in circumstances indicate that the
carrying value of such assets may not be recoverable. If the estimated
future, undiscounted cash flows from the use of an asset are less than its
carrying value, a write-down is recorded to reduce the related asset to
estimated fair value. Actual cash flows may differ significantly from
estimated cash flows. Additionally, current estimates of future cash flows
may differ from subsequent estimates of future cash flows. Changes in
estimated or actual cash flows could
The
Company is self-insured for a portion of the losses and liabilities primarily
associated with workers' compensation claims and general, product and vehicle
liability. Losses are accrued based upon the Company's estimates of the
aggregate liability for claims incurred using historical experience and certain
actuarial assumptions followed in the insurance industry. The estimate of
self-insurance liability includes an estimate of incurred but not reported
claims, based on data compiled from historical experience. Actual
experience could differ significantly from these estimates and could materially
impact the Company's consolidated financial statements. The Company
purchases varying levels of insurance to cover losses in excess of the
self-insured limits. Currently, the Company's primary self-insurance
limits are $1.0 million per workers' compensation claim, $.1 million per
general, property or product liability claim, and $.25 million per vehicle
liability claim.
The
Company follows the guidance of Statement of Financial Accounting Standards
("SFAS") No. 87, Employers'
Accounting for Pensions,
and
SFAS No. 106, Employers’
Accounting for Postretirement Benefits Other Than Pensions,
when
accounting for pension and other postretirement benefits. Under these
accounting standards, assumptions are made regarding the valuation of benefit
obligations and the performance of plan assets that are controlled and invested
by third-party fiduciaries. Delayed recognition of differences between
actual results and expected or estimated results is a guiding principle of
these
standards. Such delayed recognition provides a gradual recognition of
benefit obligations and investment performance over the working lives of the
employees who benefit under the plans, based on various assumptions.
Assumed discount rates are used to calculate the present values of benefit
payments which are projected to be made in the future, including projections
of
increases in employees' annual compensation and health care costs.
Management also projects the future returns on invested assets based principally
on prior performance. These projected returns reduce the net benefit costs
the Company records in the current period. Actual results could vary
significantly from projected results, and such deviations could materially
impact the Company's consolidated financial statements. Management
consults with its actuaries when determining these assumptions.
Unforecasted program changes, including termination, freezing of benefits or
acceleration of benefits, could result in an immediate recognition of
unrecognized benefit obligations and such recognition could materially impact
the Company's consolidated financial statements.
Management
incentive compensation is accrued based on current estimates of the Company's
ability to achieve short-term and long-term performance targets.
Deferred
income tax assets and liabilities are computed for differences between the
financial statement and income tax bases of assets and liabilities. Such
deferred income tax asset and liability computations are based on enacted tax
laws and rates applicable to periods in which the differences are expected
to
reverse. Valuation allowances are established, when necessary, to reduce
deferred income tax assets to the amounts expected to be realized.
Quarterly income taxes are estimated based on the mix of income by jurisdiction
forecasted for the full fiscal year. The Company believes that it has
adequately provided for tax-related matters. The Company is subject to
examination by taxing authorities in various jurisdictions. Matters raised
upon audit may involve substantial amounts, and an adverse finding could have
a
material impact on the Company's consolidated financial statements.
LIQUIDITY
AND CAPITAL RESOURCES
The
following discussion generally combines the impact of both continuing and
discontinued operations unless otherwise noted.
As
of
February 25, 2007, the Company's working capital totaled $278.3 million,
marginally lower than the working capital of $280.5 million as of November
30,
2006. Cash and cash equivalents totaled $127.7 million as of February 25,
2007, compared to $139.5 million as of November 30, 2006.
AMERON
INTERNATIONAL CORPORATION AND
SUBSIDIARIES
In
accordance with SFAS No. 95, Statement
of Cash Flows,
the
consolidated statements of cash flows include cash flows for both continuing
and
discontinued operations. For the three months ended February 25, 2007, net
cash of $.5 million was used in operating activities of continuing and
discontinued operations, compared to $1.4 million generated in the three
months
ended March 5, 2006. The lower operating cash flow in 2007 was due in part
to increased inventories due to higher sand inventories in Hawaii and higher
steel inventories associated with wind tower orders. In the three months
ended February 25, 2007, the Company's cash from operating activities included
net income of $8.5 million, less non-cash adjustments (depreciation,
amortization, equity income from joint-ventures in excess of dividends and
stock
compensation expense) of $1.5 million, and less changes in operating assets
and
liabilities of $7.5 million. In the three months ended March 5, 2006, the
Company's cash provided by operating activities included net income of $3.6
million, plus non-cash adjustments (depreciation, amortization, equity income
from joint-ventures in excess of dividends and stock compensation expense)
of
$5.3 million, offset by corresponding changes in operating assets and
liabilities of $7.5 million. Non-cash adjustments were lower in 2007 than
in
2006 due primarily to higher equity earnings and the timing of dividend payments
from TAMCO.
Net
cash
used in investing activities totaled $9.5 million during the three months ended
February 25, 2007, compared to $4.2 million used in the three months ended
March
5, 2006. Net cash used in investing activities during the first
quarter of 2007 consisted of capital expenditures of $9.7 million, compared
to
$4.3 million in the same period of 2006. Capital expenditures were
primarily for normal replacement and upgrades of machinery and equipment in
both
2007 and 2006. Capital expenditures for 2007 also included the expansion of
the
Company’s steel fabrication plant in California to manufacture large-diameter
wind towers. During the year ending November 30, 2007, the Company anticipates
spending between $30 and $50 million on capital expenditures. Capital
expenditures are expected to be funded by existing cash balances, cash generated
from operations or additional borrowings.
Net
cash
used in financing activities totaled $2.0 million during the three months ended
February 25, 2007, compared to $1.6 million provided in the three months ended
March 5, 2006. Net cash used in 2007 consisted of net payment of debt
of $1.4 million, payment of common stock dividends of $1.8 million and treasury
stock purchases of $1.1 million related to the vesting of restricted shares,
offset by net issuance of common stock related to exercised stock options of
$.4
million and tax benefits of $2.0 million related to exercised stock
options. Net cash provided by financing activities in 2006 included net
borrowings of $3.9 million and a similar issuance of common stock of $.2
million, offset by dividends of $1.7 million and stock purchases of $.7
million.
The
Company utilizes a $100.0 million revolving credit facility with six banks
(the
"Revolver"). Under the Revolver, the Company may, at its option, borrow at
floating interest rates (LIBOR plus a spread ranging from .75% to 1.625%
determined by the Company’s financial condition and performance), at any time
until September 2010, when all borrowings under the Revolver must be
repaid.
The
Company's lending agreements contain various restrictive covenants, including
the requirement to maintain specified amounts of net worth and restrictions
on
cash dividends, borrowings, liens, investments, guarantees, and financial
covenants. The Company is required to maintain consolidated net worth of $181.4
million plus 50% of net income and 75% of proceeds from any equity issued after
January 24, 2003. The Company's consolidated net worth exceeded the covenant
amount by $124.0 million as of February 25, 2007. The Company is required to
maintain a consolidated leverage ratio of consolidated funded indebtedness
to
earnings before interest, taxes, depreciation and amortization ("EBITDA") of
no
more than 2.5 times. As of February 25, 2007, the Company maintained a
consolidated leverage ratio of 1.07 times EBITDA. Lending agreements
require that the Company maintain qualified consolidated tangible assets at
least equal to the outstanding secured funded indebtedness. As of February
25,
2007, qualifying tangible assets equaled 2.40 times funded indebtedness. Under
the most restrictive fixed charge coverage ratio, the sum of EBITDA and rental
expense less cash taxes must be at least 1.35 times the sum of interest expense,
rental expense, dividends and scheduled funded debt payments. As of February
25,
2007, the Company maintained such a fixed charge coverage ratio of 1.91
times. Under the most restrictive provisions of the Company’s lending
agreements, approximately $14.0 million of retained earnings was not restricted,
as of February 25, 2007, as to the declaration of cash dividends or the
repurchase of Company stock. At February, 25, 2007, the Company was in
compliance with all covenants.
Cash
and
cash equivalents at February 25, 2007 totaled $127.7 million, a decrease of
$11.8 million from November 30, 2006. At February 25, 2007, the Company
had total debt outstanding of $81.3 million, compared to $82.5 million at
November 30, 2006, and approximately $121.2 million in unused committed and
uncommitted credit lines available from foreign and domestic banks. The
Company's highest borrowing and the average borrowing levels during 2007 were
$83.2 million and $82.2 million, respectively.
Management
believes that cash flow from operations and current cash balances, together
with
currently available lines of credit, will be sufficient to meet operating
requirements in 2007. The Company did not contribute to the U.S. pension
plan in the first quarter of 2007. The Company expects to contribute $3.0
million to its U.S. pension plan and $.6 million to its non-U.S. pension plan
in
2007. The Company may make additional contributions in 2007 depending on
how the funded status of plans change and as the Company gains more clarity
with
respect to the Pension Protection Act of 2006 (“PPA”) that was signed into law
on August 17, 2006.
Cash
available from operations could be affected by any general economic downturn
or
any decline or adverse changes in the Company's business, such as a loss of
customers or significant raw material price increases. Management does not
believe it likely that business or economic conditions will worsen or that
costs
will increase sufficiently to materially impact short-term
liquidity.
AMERON
INTERNATIONAL CORPORATION AND SUBSIDIARIES
The
Company's contractual obligations and commercial commitments at February 25,
2007 are summarized as follows (in thousands):
|
|
Payments
Due by Period
|
|
|
|
|
|
Less
than
|
|
|
|
|
|
After
5
|
|
Contractual
Obligations
|
|
Total
|
|
1
year
|
|
1-3
years
|
|
4-5
years
|
|
years
|
|
Long-term
debt (a)
|
|
$
|
81,263
|
|
$
|
10,000
|
|
$
|
33,328
|
|
$
|
15,571
|
|
$
|
22,364
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
payments on debt (b)
|
|
|
15,996
|
|
|
3,486
|
|
|
5,258
|
|
|
3,056
|
|
|
4,196
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
leases
|
|
|
31,235
|
|
|
3,452
|
|
|
6,407
|
|
|
5,003
|
|
|
16,373
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase
obligations (c)
|
|
|
3,728
|
|
|
3,728
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
contractual obligations (d)
|
|
$
|
132,222
|
|
$
|
20,666
|
|
$
|
44,993
|
|
$
|
23,630
|
|
$
|
42,933
|
|
|
|
Commitments
Expiring Per Period
|
|
|
|
|
|
Less
than
|
|
|
|
|
|
After
|
|
Contractual
Commitments
|
|
Total
|
|
1
year
|
|
1-3
years
|
|
3-5
years
|
|
5
years
|
|
Standby
letters of credit (e)
|
|
$
|
1,946
|
|
$
|
1,946
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
commercial commitments (d)
|
|
$
|
1,946
|
|
$
|
1,946
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
(a)
Included in long-term debt is $2,243 outstanding under a foreign revolving
credit facility, which is supported by the Revolver.
(b)
Future interest payments related to debt obligations, excluding the Revolver
and
the industrial development bonds.
(c)
Obligation to purchase sand used in the Company's ready-mix operations in
Hawaii.
(d)
The
Company has no capitalized lease obligations, unconditional purchase obligations
or standby repurchases obligations.
(e)
Not
included are standby letters of credit totaling $16,065 supporting industrial
development bonds with principal of $15,700. The principal amount of the
industrial development bonds is included in long-term debt. The standby
letters of credit are issued under the Revolver.
RESULTS
OF OPERATIONS
General
Income
from continuing operations totaled $8.3 million, or $.92 per diluted share,
on
sales of $120.4 million for the quarter ended February 25, 2007, compared to
income from continuing operations of $3.8 million, or $.43 per diluted share,
on
sales of $126.0 million for the same period in 2006. The
Fiberglass-Composite Pipe Group reported higher sales and profits due primarily
to improved market conditions. The Infrastructure Products Group reported
slightly lower sales and profits due to the fewer days in the first quarter
of
2007, compared to the first quarter of 2006. The Water Transmission Group
reported much lower sales and a loss due to the timing of pipe projects and
the
start-up costs related to the wind-tower expansion. Income from continuing
operations was higher in 2007, in spite of the shorter period, due primarily
to
higher interest income and higher earnings from TAMCO, the Company’s 50%-owned
steel venture in California. Equity in earnings of TAMCO increased by $4.2
million compared to the first quarter of 2006.
Income
from discontinued operations, net of taxes, totaled $.2 million, or $.02 per
diluted share for the quarter ended February 25, 2007, compared to loss of
$.2
million, or $.02 per diluted share, for the same period in 2006. During the
first quarter of 2007, the Company recognized a net research and development
tax
credit of $.2 million related to discontinued operations. Discontinued
operations generated sales of $49.3 million for the first quarter of 2006.
Sales
Sales
decreased $5.6 million in the first quarter of 2007, compared to the similar
period in 2006, due in part to the shorter period in 2007. The
Fiberglass-Composite Pipe Group reported higher sales, while both the
Infrastructure Products Group and the Water Transmission Group reported lower
sales.
AMERON
INTERNATIONAL CORPORATION AND
SUBSIDIARIES
Fiberglass-Composite
Pipe's sales increased $9.9 million, or 27.1%, in the first quarter, compared
to
the similar period in 2006. Sales from Asian operations increased $9.1
million for the first quarter of 2007, driven mostly by increasing activity
in
the marine, industrial and offshore segments. Sales from U.S. and European
operations increased $.8 million for the first quarter of 2007 due to volume
growth in industrial and marine markets. The strong demand for oilfield
and offshore marine piping continues to be driven by high oil prices and the
high cost of steel piping, the principal substitute for fiberglass pipe.
The outlook for the Fiberglass Composite Pipe Group remains
favorable.
Water
Transmission Group's sales decreased $13.6 million, or 31.5%, in the first
quarter of 2007, compared to the similar period in 2006. The Group
continued to be impacted by the sluggish pipe market in the western U.S. and
the
timing of projects. In addition, the Group also experienced slower-than-expected
wind-tower sales due to production start-up delays, related to the new facility.
Revenue is recognized in the Water Transmission Group primarily under the
percentage-of-completion method and is subject to a certain level of estimation,
which affects the timing of revenue recognition, costs and profits.
Estimates are reviewed on a consistent basis and are adjusted when actual
results are expected to significantly differ from those estimates. Market
conditions for water pipe remain soft due to continuation of a cyclical slowdown
in water infrastructure projects in the Company's markets. However, the market
for wind towers is robust.
Infrastructure
Products' sales decreased $1.1 million, or 2.4%, in the first quarter compared
to the similar periods in 2006. Pole Products Division experienced a
slight decrease in volume due to a shorter quarter in 2007. The Company’s
Hawaiian Division had lower sales due to weather and project timing. Although
the housing market has softened, the outlook for the Infrastructure Products
Group’s other construction markets remains firm.
Gross
Profit
Gross
profit in the first quarter of 2007 was $25.3 million, or 21.0% of sales,
compared to $28.6 million, or 22.7% of sales, in the first quarter of
2006. Gross profit decreased $3.3 million in the first quarter compared to
the similar period in 2006 due to lower sales and margins. Margins
decreased due to conditions within the Water Transmission Group offset by
improvements by the Fiberglass-Composite Pipe Group.
Fiberglass-Composite
Pipe Group's gross profit increased $3.1 million in the first quarter of 2007,
compared to the same period of 2006. Profit margins were 30.4% in the
first quarter of 2007, compared to 30.1% for the same period of 2006.
Margins were higher in the first quarter due to improvements in product and
market mix and price increases. Increased sales volume generated
additional gross profit of $3.0 million while favorable product mix generated
additional gross profit of $.1 million in 2007.
Water
Transmission Group's gross profit decreased $6.0 million in the first quarter
of
2007, compared to the same period of 2006. Profit margins declined to 2.7%
in the first quarter of 2007, compared to 15.7% for the same period of
2006. Lower sales volume reduced profit by $2.1 million for the
quarter, while lower margins reduced gross profit by $2.9 million for the
quarter in 2007. Margins were unfavorably impacted by the mix of contract
margins, start-up costs associated with the introduction of wind towers and
lower efficiencies due to lower sales. In addition, during the first
quarter of 2007 the Group recognized approximately $1.0 million in repair
costs
associated with a project in Northern California which was completed in
2006.
Gross
profit in the Infrastructure Products Group decreased $.3 million in the first
quarter of 2007, compared to the same period of 2006. Profit margins
declined slightly to 23.2% in the first quarter of 2007, compared to 23.4%
for
the same period of 2006. Decreased sales volume reduced profit by $.3
million while lower margins reduced gross profit by $.1 million in
2007.
Selling,
General and Administrative Expenses
Selling,
general and administrative ("SG&A") expenses totaled $21.5 million, or 17.9%
of sales, in the first quarter of 2007, compared to $23.0 million, or 18.2%
of
sales, in the first quarter of 2006. The $1.5 million decrease included
lower incentive and stock compensation expenses of $1.4 million, lower pension
and self-insurance expenses of $1.2million, offset by higher tax-consulting
fees
and other expenses of $1.1 million.
Other
Income, Net
Other
income was $1.0 million in the first quarter of 2007, an increase of $1.0
million compared to the first quarter of 2006, due primarily to foreign exchange
gains and rental income. Other income included royalties and fees from
licensees, foreign currency transaction adjustments, and other miscellaneous
income.
Interest
Net
interest income totaled $.4 million in the first quarter of 2007, compared
net
interest expense of $1.0 million in the first quarter of 2006. The increase
in net interest income was due to higher interest income from short-term
investments, higher cash balances and lower debt levels.
AMERON
INTERNATIONAL CORPORATION AND
SUBSIDIARIES
Provision
for Income Taxes
Income
taxes increased to $1.9 million in the first quarter of 2007, compared to $1.7
million in the comparable period of 2006. The effective tax rate increased
to
36.9% in 2007 from 36.0% in 2006. The effective tax rate for the first quarter
of 2007 is based on forecasted full-year earnings and the anticipated mix of
domestic and foreign earnings. Income from certain foreign operations and joint
ventures is taxed at rates that are lower than the U.S. statutory tax rates.
The
effective tax rate for the first quarter of 2007 is not necessarily indicative
of the tax rate for the full fiscal year.
Equity
in Earnings of Joint Venture, Net of Taxes
Equity
in
earnings of joint venture increased to $5.0 million in the first quarter of
2007, compared to $.8 million in 2006. Equity income increased due to
TAMCO, the Company’s 50%-owned mini-mill in California. TAMCO's
profits in the first quarter rose due to increased demand for steel rebar and
higher selling prices. The outlook for TAMCO remains
positive.
Income
from Discontinued Operations, Net of Taxes
During
the first quarter of 2007, the Company recognized $.2 million of research
and
development tax credit that related to the Coatings Business, which was sold
in
2006, as income from discontinued operations, net of taxes, compared to net
loss
of $.2 million for the same period in 2006. This tax credit arose from the
retroactive application of tax legislation enacted in December
2006.
ITEM
3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
No
material changes have occurred in the quantitative and qualitative market risk
disclosure as presented in the Company’s 2006 Annual Report.
ITEM
4
- CONTROLS AND
PROCEDURES
Evaluation
of Disclosure Controls and Procedure - Management
has established disclosure controls and procedures to ensure that information
required to be disclosed by the Company in the reports that it files or submits
under the Exchange Act is recorded, processed, summarized and reported, within
the time periods specified in the Commission's rules and forms and that such
information relating to the Company, including its consolidated subsidiaries,
is
accumulated and communicated to management, including the Chief Executive
Officer and Chief Financial Officer, as appropriate, to allow timely decisions
regarding required disclosures
Based
on
their evaluation as of February 25, 2007, the principal executive officer and
principal financial officer of the Company have concluded that the Company's
disclosure controls and procedures (as defined in Rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934) are effective to ensure
that the information required to be disclosed by the Company in the reports
that
it files or submits under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported within the time periods specified in SEC
rules and forms, and is accumulated and communicated to management, including
the Chief Executive Officer and Chief Financial Officer, as appropriate to
allow
timely decisions regarding required disclosure.
There
has
been no change in the Company's internal control over financial reporting that
occurred during the last fiscal quarter covered by this report that has
materially affected, or is reasonably likely to materially affect, the Company's
internal control over financial reporting.
CAUTIONARY
STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995
Any
of
the statements contained in this report that refer to the Company's forecasted,
estimated or anticipated future results are forward-looking and reflect the
Company's current analysis of existing trends and information. Actual results
may differ from current expectations based on a number of factors affecting
the
Company’s businesses, including competitive conditions and changing market
conditions. In addition, matters affecting the economy generally, including
the
state of economies worldwide, can affect the Company's results. These
forward-looking statements represent the Company's judgment only as of the
date
of this report. Since actual results could differ materially, the reader is
cautioned not to rely on these forward-looking statements. Moreover, the Company
disclaims any intent or obligation to update these forward-looking
statements.
AMERON
INTERNATIONAL CORPORATION AND
SUBSIDIARIES
PART
II - OTHER INFORMATION
ITEM
1
- LEGAL
PROCEEDINGS
No
material changes have occurred in legal proceedings as presented in the
Company’s 2006 Annual Report.
No
material changes have occurred in risk factors as presented in the Company’s
2006 Annual Report.
ITEM
2 - UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS
Terms
of
lending agreements which place restrictions on cash dividends are discussed
in
Management's Discussion and Analysis of Financial Condition and Results of
Operations under Item 2, herein, and Note (10) of the Notes to Consolidated
Financial Statements, under Part I, Item 1.
ISSUER
PURCHASES OF EQUITY SECURITIES
|
|
|
|
|
|
(c)
|
|
(d)
|
|
|
|
|
|
|
Number
of Shares
|
|
Maximum
Number
|
|
|
(a)
|
|
(b)
|
|
(or
Units) Purchased
|
|
(or
Approximate Dollar Value)
|
|
|
Total
Number of
|
|
Average
Price
|
|
As
Part of Publicly
|
|
Of
Shares (or Units) that May
|
|
|
Shares
(or Units)
|
|
Paid
per
|
|
Announced
Plans or
|
|
Yet
Be Purchased Under
|
Period
|
|
Purchased
|
|
Share
(or Unit)
|
|
Programs
|
|
The
Plans or Programs**
|
12/1/06
thru 12/31/06
|
|
-
|
|
N/A
|
|
-
|
|
40,924
|
1/1/07
thru 1/28/07
|
|
5,526
|
|
$75.39
|
|
-
|
|
27,528
|
1/29/07
thru 2/25/07
|
|
6,315
|
|
$84.24
|
|
-
|
|
40,727
|
**Shares
may be repurchased by the Company to pay taxes applicable to the vesting of
restricted stock. The number of shares does not include shares which may
be repurchased to pay social security taxes applicable to the vesting of such
restricted stock.
ITEM
3 - DEFAULTS UPON SENIOR SECURITIES
None.
ITEM
4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
No
matters were submitted to a vote of security holders during the first quarter
of
2007.
ITEM
5 - OTHER INFORMATION
No
material changes have occurred in the other information disclosure as presented
in the Company’s 2006 Annual Report
EXHIBIT
|
EXHIBITS
OF AMERON
|
|
|
|
|
|
|
*
A
signed original of this written statement required by Section 906 has been
provided to Ameron International Corporation and will be retained by Ameron
International Corporation and furnished to the Securities and Exchange
Commission or its staff upon request.
AMERON
INTERNATIONAL CORPORATION AND SUBSIDIARIES
(b)
REPORTS ON FORM 8-K
Three
reports on Form 8-K were filed by the Company during the first quarter of 2007
as follows:
January
11, 2007 reporting the Company's quarterly dividend of $.20 per share and the
date of the Annual Meeting of Stockholders, as reported in a press release
dated
January 11, 2007.
February
1, 2007 reporting the Company's results of operations for the year ended
November 30, 2006, as reported in a press release dated February 1, 2007. Also
reported were actions of the Compensation Committee of the Board of Directors
with regard to the compensation of certain executive officers.
February
12, 2007 reporting actions of the Compensation Committee of the Board of
Directors with regard to the compensation of certain executive
officers.
AMERON
INTERNATIONAL CORPORATION AND
SUBSIDIARIES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
AMERON
INTERNATIONAL CORPORATION
By:
|
/s/
James R. McLaughlin
|
|
|
James
R. McLaughlin, Senior Vice President, Chief Financial Officer &
Treasurer
|
Date:
April 6, 2007