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 August
26,
2007, and consolidated results of operations and cash flows for the nine
months
ended August 26, 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 quarters ended August 26, 2007 and September 3,
2006 consisted of 91 days each. The nine months ended August 26, 2007
and September 3, 2006 consisted of 269 days and 277 days,
respectively.
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”) Issue No. 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 Standard (“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 first quarter of 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.
AMERON
INTERNATIONAL CORPORATION AND
SUBSIDIARIES
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 as of 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.
In
February 2007 the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities.” SFAS 159 permits
companies to choose to measure many financial instruments and certain other
items at fair value. SFAS 159 seeks to improve the overall quality of
financial reporting by providing companies the opportunity to mitigate
volatility in reported earnings caused by measuring related assets and
liabilities differently without having to apply complex hedge accounting
provisions. SFAS 159 will be effective for the year ending
November 30, 2008. The Company is evaluating whether the
adoption of SFAS 159 will have a material effect on its consolidated financial
statements.
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.
During
the third quarter of 2007, the Company recognized a gain of $463,000 on the
sale
of two properties which were formerly used by the Coatings
Business. In the nine months ended August 26, 2007, the Company
recognized a gain of $1,453,000 on the sale of properties that were formerly
used by the Coatings Business. In addition to the gain on the
sale of the properties, the Company recognized $156,000 of research and
development tax credits that related to the Coatings Business in
2007. The 2007 tax credit was attributable to the retroactive
application of tax legislation enacted in December 2006. Results for
the nine months ended September 3, 2006 represented the net income from normal
operations of the Coatings Business prior to the divestiture. During
the third quarter of 2006, the Company completed the sale of its Coatings
Business and recognized a pretax gain of $1,162,000. Provision for
income taxes related to the gain was $947,000, which resulted in a net gain
of
$215,000 in the third quarter and first nine months of 2006.
The
results of discontinued operations were as follows:
|
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
|
|
August
26,
|
|
|
September
3,
|
|
|
August
26,
|
|
|
September
3,
|
|
(In
thousands)
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
Revenue
from discontinued operations
|
|
$
|
-
|
|
|
$
|
41,828
|
|
|
$
|
-
|
|
|
$
|
152,190
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from discontinued operations before disposal, before income
taxes
|
|
$
|
-
|
|
|
$
|
2,187
|
|
|
$
|
-
|
|
|
$
|
5,202
|
|
Income
taxes on income from discontinued operations
|
|
|
-
|
|
|
|
(1,405
|
)
|
|
|
156
|
|
|
|
(3,067
|
)
|
Income
from discontinued operations before disposal, net of taxes
|
|
|
-
|
|
|
|
782
|
|
|
|
156
|
|
|
|
2,135
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain
on sale of discontinued operations, before income taxes
|
|
|
463
|
|
|
|
1,162
|
|
|
|
1,453
|
|
|
|
1,162
|
|
Income
taxes on gain on sale of discontinued operations
|
|
|
-
|
|
|
|
(947
|
)
|
|
|
-
|
|
|
|
(947
|
)
|
Gain
on sale of discontinued operations, net of taxes
|
|
|
463
|
|
|
|
215
|
|
|
|
1,453
|
|
|
|
215
|
|
Income
from discontinued operations, net of taxes
|
|
$
|
463
|
|
|
$
|
997
|
|
|
$
|
1,609
|
|
|
$
|
2,350
|
|
AMERON
INTERNATIONAL CORPORATION AND
SUBSIDIARIES
Income
from discontinued operations, net of taxes, totaled $463,000, or $.05 per
diluted share, and $1,609,000, or $.18 per diluted share, for the three and
nine
months ended August 26, 2007, respectively, compared to income of $997,000,
or
$.11 per diluted share, and $2,350,000, or $.27 per diluted share, for the
same
periods in 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:
|
|
August
26,
|
|
|
November
30,
|
|
(In
thousands)
|
|
2007
|
|
|
2006
|
|
Trade
|
|
$
|
140,046
|
|
|
$
|
124,308
|
|
Other
|
|
|
21,660
|
|
|
|
31,299
|
|
Joint
ventures
|
|
|
4,155
|
|
|
|
9,478
|
|
Allowances
|
|
|
(5,881
|
)
|
|
|
(4,912
|
)
|
|
|
$
|
159,980
|
|
|
$
|
160,173
|
|
Trade
receivables included unbilled receivables related to percentage-of-completion
revenue recognition of $28,236,000 and $32,278,000 at August 26, 2007 and
November 30, 2006, respectively.
NOTE
5 – INVENTORIES
Inventories
are stated at the lower of cost or market. Inventories consisted of the
following:
|
|
August
26,
|
|
|
November
30,
|
|
(In
thousands)
|
|
2007
|
|
|
2006
|
|
Finished
products
|
|
$
|
41,224
|
|
|
$
|
30,802
|
|
Materials
and supplies
|
|
|
35,576
|
|
|
|
22,224
|
|
Products
in process
|
|
|
35,460
|
|
|
|
24,108
|
|
|
|
$
|
112,260
|
|
|
$
|
77,134
|
|
NOTE
6 – SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Supplemental
cash flow information included the following:
|
|
Nine
Months Ended
|
|
|
|
August
26,
|
|
|
September
3,
|
|
(In
thousands)
|
|
2007
|
|
|
2006
|
|
Interest
paid
|
|
$
|
2,178
|
|
|
$
|
3,452
|
|
Income
taxes paid
|
|
|
18,873
|
|
|
|
6,624
|
|
NOTE
7 – JOINT VENTURES
Operating
results of TAMCO, an investment which is accounted for under the equity method,
were as follows:
|
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
|
|
August
26,
|
|
|
September
3,
|
|
|
August
26,
|
|
|
September
3,
|
|
(In
thousands)
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
Net
sales
|
|
$
|
63,251
|
|
|
$
|
69,521
|
|
|
$
|
211,122
|
|
|
$
|
193,293
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
15,064
|
|
|
|
21,258
|
|
|
|
55,974
|
|
|
|
43,353
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
6,944
|
|
|
|
10,960
|
|
|
|
27,819
|
|
|
|
21,191
|
|
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.
AMERON
INTERNATIONAL CORPORATION AND
SUBSIDIARIES
Earnings
and dividends from the Company's joint ventures were as
follows:
|
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
|
|
August
26,
|
|
|
September
3,
|
|
|
August
26,
|
|
|
September
3,
|
|
(In
thousands)
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
Earnings
from joint ventures
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
in earnings of TAMCO before income taxes
|
|
$
|
3,472
|
|
|
$
|
5,481
|
|
|
$
|
13,910
|
|
|
$
|
10,596
|
|
Less
provision for income taxes
|
|
|
(393
|
)
|
|
|
(571
|
)
|
|
|
(1,575
|
)
|
|
|
(1,103
|
)
|
Equity
in earnings of TAMCO, net of taxes
|
|
$
|
3,079
|
|
|
$
|
4,910
|
|
|
$
|
12,335
|
|
|
$
|
9,493
|
|
Dividends
received from joint ventures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TAMCO
|
|
$
|
3,998
|
|
|
$
|
2,998
|
|
|
$
|
10,983
|
|
|
$
|
7,288
|
|
ASAL
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
BL
|
|
|
1,254
|
|
|
|
-
|
|
|
|
1,254
|
|
|
|
-
|
|
Earnings
from ASAL and BL, if any, are included in other income, net. During
the third quarter of 2007, earnings from BL totaled $1,254,000.
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 62,517 and 98,002, and
options to purchase 67,250 and 301,068 common shares, were dilutive for the
three and nine months ended August 26, 2007 and September 3, 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
|
|
|
Nine
Months Ended
|
|
|
|
August
26,
|
|
|
September
3,
|
|
|
August
26,
|
|
|
September
3,
|
|
(In
thousands, except per share data)
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations
|
|
$
|
20,659
|
|
|
$
|
16,982
|
|
|
$
|
43,784
|
|
|
$
|
37,942
|
|
Income
from discontinued operations, net of taxes
|
|
|
463
|
|
|
|
997
|
|
|
|
1,609
|
|
|
|
2,350
|
|
Net
income
|
|
$
|
21,122
|
|
|
$
|
17,979
|
|
|
$
|
45,393
|
|
|
$
|
40,292
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator
for basic income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average
shares outstanding, basic
|
|
|
9,044,129
|
|
|
|
8,748,617
|
|
|
|
9,020,798
|
|
|
|
8,677,515
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator
for diluted income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average
shares outstanding, basic
|
|
|
9,044,129
|
|
|
|
8,748,617
|
|
|
|
9,020,798
|
|
|
|
8,677,515
|
|
Dilutive
effect of stock options and restricted stock
|
|
|
45,445
|
|
|
|
142,302
|
|
|
|
47,795
|
|
|
|
162,591
|
|
Weighted-average
shares outstanding, diluted
|
|
|
9,089,574
|
|
|
|
8,890,919
|
|
|
|
9,068,593
|
|
|
|
8,840,106
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations
|
|
$
|
2.28
|
|
|
$
|
1.94
|
|
|
$
|
4.85
|
|
|
$
|
4.37
|
|
Income
from discontinued operations, net of taxes
|
|
|
.05
|
|
|
|
.11
|
|
|
|
.18
|
|
|
|
.27
|
|
Net
income
|
|
$
|
2.33
|
|
|
$
|
2.05
|
|
|
$
|
5.03
|
|
|
$
|
4.64
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations
|
|
$
|
2.27
|
|
|
$
|
1.91
|
|
|
$
|
4.83
|
|
|
$
|
4.29
|
|
Income
from discontinued operations, net of taxes
|
|
|
.05
|
|
|
|
.11
|
|
|
|
.18
|
|
|
|
.27
|
|
Net
income
|
|
$
|
2.32
|
|
|
$
|
2.02
|
|
|
$
|
5.01
|
|
|
$
|
4.56
|
|
AMERON
INTERNATIONAL CORPORATION AND
SUBSIDIARIES
NOTE
9 – COMPREHENSIVE INCOME
Comprehensive
income was as follows:
|
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
|
|
August
26,
|
|
|
September
3,
|
|
|
August
26,
|
|
|
September
3,
|
|
(In
thousands)
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
Net
income
|
|
$
|
21,122
|
|
|
$
|
17,979
|
|
|
$
|
45,393
|
|
|
$
|
40,292
|
|
Foreign
currency translation adjustment
|
|
|
155
|
|
|
|
(4,066
|
)
|
|
|
2,936
|
|
|
|
421
|
|
Comprehensive
income
|
|
$
|
21,277
|
|
|
$
|
13,913
|
|
|
$
|
48,329
|
|
|
$
|
40,713
|
|
NOTE
10 – DEBT
The
Company's long-term debt consisted of the following:
|
|
August
26,
|
|
|
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 $6,704,
starting in 2008
|
|
|
33,522
|
|
|
|
33,173
|
|
Variable-rate
industrial development bonds:
|
|
|
|
|
|
|
|
|
payable
in 2016 (3.90% at August 26, 2007)
|
|
|
7,200
|
|
|
|
7,200
|
|
payable
in 2021 (3.90% at August 26, 2007)
|
|
|
8,500
|
|
|
|
8,500
|
|
Variable-rate
bank revolving credit facility (12.95% at August 26, 2007)
|
|
|
2,116
|
|
|
|
3,652
|
|
Total
long-term debt
|
|
|
81,338
|
|
|
|
82,525
|
|
Less
current portion
|
|
|
(10,000
|
)
|
|
|
(10,000
|
)
|
Long-term
debt, less current portion
|
|
$
|
71,338
|
|
|
$
|
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 August 26, 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 development
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 August 26,
2007. Accordingly, amounts due under these bank facilities have been
classified as long-term debt and are considered payable when the Revolver
is
due.
AMERON
INTERNATIONAL CORPORATION AND
SUBSIDIARIES
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.
Following
is information related to each reportable segment included in, and in a manner
consistent with, internal management reports:
|
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
|
|
August
26,
|
|
|
September
3,
|
|
|
August
26,
|
|
|
September
3,
|
|
(In
thousands)
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiberglass-Composite
Pipe
|
|
$
|
62,554
|
|
|
$
|
48,477
|
|
|
$
|
170,183
|
|
|
$
|
131,326
|
|
Water
Transmission
|
|
|
48,959
|
|
|
|
36,999
|
|
|
|
121,810
|
|
|
|
118,086
|
|
Infrastructure
Products
|
|
|
53,528
|
|
|
|
54,580
|
|
|
|
152,460
|
|
|
|
149,857
|
|
Eliminations
|
|
|
7
|
|
|
|
(115
|
)
|
|
|
(2,294
|
)
|
|
|
(699
|
)
|
Total
sales
|
|
$
|
165,048
|
|
|
$
|
139,941
|
|
|
$
|
442,159
|
|
|
$
|
398,570
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from Continuing Operations Before Interest, Income Taxes and Equity
in
Earnings of Joint Venture
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiberglass-Composite
Pipe
|
|
$
|
18,850
|
|
|
$
|
10,850
|
|
|
$
|
44,588
|
|
|
$
|
26,746
|
|
Water
Transmission
|
|
|
(2,999
|
)
|
|
|
668
|
|
|
|
(6,330
|
)
|
|
|
4,099
|
|
Infrastructure
Products
|
|
|
9,250
|
|
|
|
9,063
|
|
|
|
25,981
|
|
|
|
23,442
|
|
Corporate
& unallocated
|
|
|
(8,009
|
)
|
|
|
(5,343
|
)
|
|
|
(26,569
|
)
|
|
|
(12,841
|
)
|
Total
Income from Continuing Operations Before Interest, Income Taxes
and Equity
in Earnings of Joint Venture
|
|
$
|
17,092
|
|
|
$
|
15,238
|
|
|
$
|
37,670
|
|
|
$
|
41,446
|
|
The
Corporate and unallocated amounts for the first nine months of 2006 included
a
pretax gain of $9,052,000 related to the sale of property.
|
|
August
26,
|
|
|
November
30,
|
|
|
|
2007
|
|
|
2006
|
|
Assets
|
|
|
|
|
|
|
Fiberglass-Composite
Pipe
|
|
$
|
229,642
|
|
|
$
|
206,326
|
|
Water
Transmission
|
|
|
208,743
|
|
|
|
167,463
|
|
Infrastructure
Products
|
|
|
108,804
|
|
|
|
97,249
|
|
Corporate
& unallocated
|
|
|
244,251
|
|
|
|
271,023
|
|
Eliminations
|
|
|
(113,639
|
)
|
|
|
(107,397
|
)
|
Total
Assets
|
|
$
|
677,801
|
|
|
$
|
634,664
|
|
AMERON
INTERNATIONAL CORPORATION AND
SUBSIDIARIES
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 August 26, 2007, the Company was a defendant in
asbestos-related cases involving 131 claimants, compared to 132 claimants
as of
May 27, 2007. 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 August 26, 2007, there were new claims involving 3 claimants, dismissals
and/or settlements involving 4 claimants and no judgments. Net costs and
expenses incurred by the Company for the quarter ended August 26, 2007 in
connection with asbestos-related claims were $425,000.
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.
AMERON
INTERNATIONAL CORPORATION AND
SUBSIDIARIES
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 covering defects for a period 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:
|
|
Nine
Months Ended
|
|
|
|
August
26,
|
|
|
September
3,
|
|
(In
thousands)
|
|
2007
|
|
|
2006
|
|
Balance,
beginning of period
|
|
$
|
3,146
|
|
|
$
|
4,026
|
|
Payments
|
|
|
(775
|
)
|
|
|
(599
|
)
|
Warranties
issued during the period
|
|
|
876
|
|
|
|
1,456
|
|
Warranties
extinguished upon sale of discontinued operations
|
|
|
-
|
|
|
|
(1,969
|
)
|
Balance,
end of period
|
|
$
|
3,247
|
|
|
$
|
2,914
|
|
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.
Changes
in the Company’s carrying amount of goodwill by business segment were as
follows:
|
|
|
|
|
|
|
|
Foreign
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency
|
|
|
|
|
|
|
November
30,
|
|
|
Acquisition/
|
|
|
Translation
|
|
|
August
26,
|
|
(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:
|
|
August
26, 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
|
|
|
|
(159
|
)
|
|
|
252
|
|
|
|
(140
|
)
|
Patents
|
|
|
212
|
|
|
|
(212
|
)
|
|
|
212
|
|
|
|
(212
|
)
|
Leasehold
interests
|
|
|
-
|
|
|
|
-
|
|
|
|
1,930
|
|
|
|
(1,930
|
)
|
|
|
$
|
564
|
|
|
$
|
(471
|
)
|
|
$
|
2,494
|
|
|
$
|
(2,382
|
)
|
All
of
the Company's intangible assets, other than goodwill, are subject to
amortization. Amortization expenses for the three and nine months
ended August 26, 2007 were $7,000 and $19,000,
respectively. Amortization expenses for the three and nine months
ended September 3, 2006 were $35,000 and $134,000, respectively. At
August 26, 2007, estimated future amortization expenses were as follows:
$5,000
for the remaining three months of 2007, $23,000 for 2008, $24,000 for 2009,
$23,000 for 2010, $16,000 for 2011 and $2,000 for 2012.
AMERON
INTERNATIONAL CORPORATION AND
SUBSIDIARIES
NOTE
15 – INCENTIVE STOCK COMPENSATION PLANS
As
of
August 26, 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 dates 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 nine months ended August 26, 2007, the Company
granted 28,550 restricted shares to key employees with fair value on the
grant
date of $2,305,000 and 6,000 restricted shares to non-employee directors
with
fair value on the grant date of $417,000.
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 date of grant. Such options vested in equal annual
installments over four years and terminate ten years from the date of
grant. At August 26, 2007, there were 13,000 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 August 26, 2007 and September 3, 2006 included
compensation expense of $529,000 and $446,000, respectively, related to
stock-based compensation arrangements. For the nine months ended August
26, 2007 and September 3, 2006, compensation expenses were $1,793,000 and
$2,829,000, respectively, related to stock-based compensation
arrangements. There were no capitalized share-based compensation
costs, for the three and nine months ended August 26, 2007 and September
3,
2006.
Tax
benefits and excess tax benefits resulting from the exercise of stock options
are reflected as financing cash flows in the Company’s statements of cash
flows. For the nine months ended August 26, 2007, excess tax benefits
totaled $1,955,000.
AMERON
INTERNATIONAL CORPORATION AND SUBSIDIARIES
The
following table summarizes the stock option activity for the nine months
ended
August 26, 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
|
|
Exercised
|
|
|
(8,500
|
)
|
|
|
23.77
|
|
|
|
|
|
|
|
|
|
Outstanding
at May 27, 2007
|
|
|
90,000
|
|
|
|
28.43
|
|
|
|
5.07
|
|
|
$
|
4,416
|
|
Exercised
|
|
|
(22,750
|
)
|
|
|
27.42
|
|
|
|
|
|
|
|
|
|
Outstanding
at August 26, 2007
|
|
|
67,250
|
|
|
|
28.77
|
|
|
|
4.97
|
|
|
$
|
4,222
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
exercisable at August 26, 2007
|
|
|
62,750
|
|
|
|
28.43
|
|
|
|
4.80
|
|
|
$
|
3,961
|
|
For
the
three and nine months ended August 26, 2007, 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 closing
price of the Company’s stock on the last trading day of the third quarter of
2007 and the exercise price times the number of shares that would have been
received by the option holders if the options were exercised on such trading
day. This amount will change based on the fair market value of the
Company's stock. The aggregate intrinsic value of stock options exercised
during the three and nine months ended August 26, 2007 was $1,500,000 and
$3,050,000, respectively. As of August 26, 2007, unrecognized compensation
cost related to stock-based compensation arrangements totaled $2,880,000
which
is expected to be recognized over a weighted-average period of three
years.
No
shares
of restricted stock were granted during the third quarter of
2007. For the nine months ended August 26, 2007, 34,550 shares
of restricted stock were granted. The weighted-average grant-date, fair
value of such restricted stock was $76.47 per share. The fair value
of restricted stock which vested during the nine months ended August 26,
2007
was $3,562,000. For the nine months ended September 3, 2006, 51,000
shares of restricted stock were granted. The weighted-average
grant-date, fair value of such restricted stock was $55.31 per
share. The fair value of restricted stock which vested during the
nine months ended September 3, 2006 was $2,969,000.
Net
cash
proceeds from the exercise of stock options during the three and nine months
ended August 26, 2007 were $625,000 and $1,136,000, respectively. Net
cash proceeds from the exercise of stock options during the three and nine
months ended September 3, 2006 were $2,777,000 and $4,186,000,
respectively. The Company's policy is to issue shares from its authorized
shares upon the exercise of stock options.
NOTE
16 – EMPLOYEE BENEFIT PLANS
For
the
three and nine months ended August 26, 2007 and September 3, 2006, net pension
and postretirement costs were comprised of the following:
Employee
Benefits (Three Months)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Postretirement
|
|
|
|
Pension
Benefits
|
|
|
Benefits
|
|
|
|
U.S.
Plans
|
|
|
Non-U.S.
Plans
|
|
|
|
|
|
|
|
|
|
Three
Months Ended August 26 and September 3,
|
|
|
Three
Months Ended August 26 and September 3,
|
|
(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
|
|
|
-
|
|
|
|
325
|
|
|
|
-
|
|
|
|
2,911
|
|
|
|
-
|
|
|
|
-
|
|
Amortization
of unrecognized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net
transition obligation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
46
|
|
|
|
46
|
|
Amortization
of accumulated loss
|
|
|
924
|
|
|
|
1,108
|
|
|
|
36
|
|
|
|
79
|
|
|
|
15
|
|
|
|
41
|
|
Net
periodic cost
|
|
$
|
970
|
|
|
$
|
1,766
|
|
|
$
|
356
|
|
|
$
|
3,501
|
|
|
$
|
335
|
|
|
$
|
303
|
|
AMERON
INTERNATIONAL CORPORATION AND SUBSIDIARIES
Employee
Benefits (Nine Months)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Postretirement
|
|
|
|
Pension
Benefits
|
|
|
Benefits
|
|
|
|
U.S.
Plans
|
|
|
Non-U.S.
Plans
|
|
|
|
|
|
|
|
|
|
Nine
Months Ended August 26 and September 3,
|
|
|
Nine
Months Ended August 26 and September 3,
|
|
(In
thousands)
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
Service
cost
|
|
$
|
2,259
|
|
|
$
|
2,441
|
|
|
$
|
366
|
|
|
$
|
825
|
|
|
$
|
264
|
|
|
$
|
234
|
|
Interest
cost
|
|
|
8,343
|
|
|
|
7,645
|
|
|
|
1,563
|
|
|
|
1,338
|
|
|
|
606
|
|
|
|
537
|
|
Expected
return on plan assets
|
|
|
(10,545
|
)
|
|
|
(9,158
|
)
|
|
|
(1,164
|
)
|
|
|
(996
|
)
|
|
|
(104
|
)
|
|
|
(81
|
)
|
Amortization
of unrecognized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
prior
service cost
|
|
|
81
|
|
|
|
72
|
|
|
|
195
|
|
|
|
366
|
|
|
|
57
|
|
|
|
(42
|
)
|
Curtailment
|
|
|
-
|
|
|
|
325
|
|
|
|
-
|
|
|
|
2,911
|
|
|
|
-
|
|
|
|
-
|
|
Amortization
of unrecognized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net
transition obligation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
138
|
|
|
|
138
|
|
Amortization
of accumulated loss
|
|
|
2,772
|
|
|
|
3,325
|
|
|
|
108
|
|
|
|
237
|
|
|
|
45
|
|
|
|
123
|
|
Net
periodic cost
|
|
$
|
2,910
|
|
|
$
|
4,650
|
|
|
$
|
1,068
|
|
|
$
|
4,681
|
|
|
$
|
1,006
|
|
|
$
|
909
|
|
As
of
June 28, 2006, due to the divestiture of the Coatings Business, the Company
recorded curtailments and settlements as required by SFAS No. 88, “Employers’
Accounting for Settlements and Curtailments of Defined Benefit Pension Plans
and
for Termination Benefits.” The impact to the U.S. Plans was a
curtailment cost of $57,000 and a special plan termination benefit cost of
$268,000. The impact on the Non-U.S. Plans was a curtailment cost of
$2,911,000.
The
Company contributed $3,000,000 to its U.S. defined benefit pension plan and
$1,022,500 to its non-U.S. defined benefit pension plan in the first nine
months
of 2007. The Company expects to contribute an additional $62,000 to its
non-U.S. plan in 2007. The Company may make additional contributions in
2007 depending on the funded status of the plans and the requirements of
the
Pension Protection Act of 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 the Company’s pension and postretirement benefit plans
as of November 30, 2007.
NOTE
17 – PROVISION FOR INCOME TAXES
Income
taxes decreased to $426,000 benefit in the third quarter of 2007 from $2,538,000
expense in the third quarter of 2006. Income taxes decreased to $6,631,000
in
the first nine months of 2007, compared to $10,450,000 in the comparable
period
of 2006. The effective tax rate decreased to 17.4% in first nine months of
2007,
from 26.9% in the same period of 2006. The effective tax in 2007 was
reduced by tax benefits of $5,263,000 recorded in the third quarter of 2007
associated with the decision in that quarter to wind up and dissolve the
Company’s wholly-owned United Kingdom subsidiary. The effective tax
in 2006 was reduced by tax benefits of $3,554,000 primarily as a result
of settlements of the 1996 – 1998 and 1999 – 2002 IRS examinations and
approval of the Company's research and development credit refund claims by
the
Congressional Joint Committee on Taxation. The effective tax rate in the
first
nine months of 2007 is based on forecasted full-year earnings and the
anticipated mix of domestic and foreign earnings, and discrete items. 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 in the first
nine months of 2007 is not necessarily indicative of the effective tax rate
in
the full fiscal year.
AMERON
INTERNATIONAL CORPORATION AND SUBSIDIARIES
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. for pipe and sells
wind-towers primarily west of the Mississippi river. 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.
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.
AMERON
INTERNATIONAL CORPORATION AND SUBSIDIARIES
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.
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 materially impact the Company's
consolidated financial statements
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.
AMERON
INTERNATIONAL CORPORATION AND SUBSIDIARIES
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 the Company’s actuaries when determining these assumptions.
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
August 26, 2007, the Company's working capital totaled $297.6 million, $17.1
million higher than the working capital of $280.5 million as of November
30,
2006. Working capital increased due to higher business activity, higher
sand inventories in Hawaii and higher steel inventories associated with
water-pipe and wind-tower orders partially offset by advance payments from
customers.
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 nine months ended August 26, 2007, net cash of $19.4
million was generated from operating activities of continuing and discontinued
operations, compared to $2.4 million in the nine months ended September 3,
2006. Operating cash flows increased in 2007 due to higher net income,
lower gain on the sale of property and slower growth in working capital than
in
the same period in 2006. In the nine months ended August 26, 2007,
the Company's cash from operating activities included net income of $45.4
million, plus non-cash adjustments (depreciation, amortization, equity income
from joint-ventures in excess of dividends, gain from sales of assets, and
stock
compensation expense) of $9.2 million, less changes in operating assets and
liabilities of $35.2 million. In the nine months ended September 3, 2006,
the Company's cash provided by operating activities included net income of
$40.3
million, plus similar non-cash adjustments of $4.2 million, offset by
corresponding changes in operating assets and liabilities of $42.1
million.
Net
cash
used in investing activities totaled $27.0 million during the nine months
ended
August 26, 2007, compared to $97.5 million generated in the nine months ended
September 3, 2006. The Company received $115.0 million from the sale
of the Coatings Business in 2006. Net cash used in investing
activities during the first nine months of 2007 consisted of capital
expenditures of $33.3 million, compared to $18.1 million in the same period
of
2006. Capital expenditures included 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 $40 and $50 million on capital expenditures. Capital expenditures
are expected to be funded by existing cash balances, cash generated from
operations or additional borrowings.
AMERON
INTERNATIONAL CORPORATION AND
SUBSIDIARIES
Net
cash
used in financing activities totaled $6.1 million during the nine months
ended
August 26, 2007, compared to $4.5 million used in the nine months ended
September 3, 2006. Net cash used in 2007 consisted of net debt
payment of $1.6 million, payment of common stock dividends of $5.9 million
and
treasury stock purchases of $1.6 million related to the vesting of restricted
shares, offset by net issuance of common stock related to exercised stock
options of $1.1 million and tax benefits of $2.0 million related to exercised
stock options. Net cash used in financing activities in 2006 included net
debt payment of $2.2 million and a similar issuance of common stock of $4.2
million, offset by dividends of $5.3 million and stock purchases of $1.2
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 $140.9 million as of August 26, 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 August 26, 2007, the Company maintained a
consolidated leverage ratio of 1.01 times EBITDA. Lending agreements
require that the Company maintain qualified consolidated tangible assets
at
least equal to the outstanding secured funded indebtedness. As of August
26,
2007, qualifying tangible assets equaled 2.46 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 August
26,
2007, the Company maintained such a fixed charge coverage ratio of 1.92
times. Under the most restrictive provisions of the Company’s lending
agreements, approximately $14.4 million of retained earnings was not restricted,
as of August 26, 2007, as to the declaration of cash dividends or the repurchase
of Company stock. At August 26, 2007, the Company was in compliance
with all covenants.
Cash
and
cash equivalents at August 26, 2007 totaled $126.6 million, a decrease of
$12.9
million from November 30, 2006. At August 26, 2007, the Company had total
debt outstanding of $81.3 million, compared to $82.5 million at November
30,
2006, and approximately $112.6 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 $81.5 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 contributed $3.0 million to its U.S.
defined benefit pension plan and $1.0 million to its non-U.S. defined benefit
pension plan in the first nine months of 2007. The Company expects to
contribute an additional $.1 million to its non-U.S. plan in 2007. The
Company may make additional contributions in 2007 depending on the funded
status
of the plans and the requirements of the Pension Protection Act of
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 August 26,
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)
|
|
$
|
81,338
|
|
|
$
|
10,000
|
|
|
$
|
33,408
|
|
|
$
|
15,524
|
|
|
$
|
22,406
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
payments on debt (b)
|
|
|
14,431
|
|
|
|
1,768
|
|
|
|
5,395
|
|
|
|
2,649
|
|
|
|
4,619
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
leases
|
|
|
31,679
|
|
|
|
3,728
|
|
|
|
7,352
|
|
|
|
4,934
|
|
|
|
15,665
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase
obligations (c)
|
|
|
676
|
|
|
|
676
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
contractual obligations (d)
|
|
$
|
128,124
|
|
|
$
|
16,172
|
|
|
$
|
46,155
|
|
|
$
|
23,107
|
|
|
$
|
42,690
|
|
|
|
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)
|
|
$
|
3,048
|
|
|
$
|
3,048
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
commercial commitments (d)
|
|
$
|
3,048
|
|
|
$
|
3,048
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
(a)
Included in long-term debt is $2,116 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 which is resold or 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 $16,067 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 $20.7 million, or $2.27 per diluted share,
on
sales of $165.0 million in the quarter ended August 26, 2007, compared to
income
from continuing operations of $17.0 million, or $1.91 per diluted share,
on
sales of $139.9 million in the same period in 2006. The
Fiberglass-Composite Pipe had higher sales and higher income due primarily
to
improved market conditions. The Water Transmission Group had higher
sales and a loss. The decline in profitability of the Water
Transmission Group was due principally to continued start-up costs related
to
wind-tower production and uneven pipe plant utilization due to soft pipe
market
conditions. The Infrastructure Products Group had lower sales but
higher income due to a decline in the concrete pole market offset by
improvements in Hawaii. Income from continuing operations was higher
in 2007 due primarily to the strong performance of the Fiberglass-Composite
Pipe
Group, lower interest and income taxes, partially offset by lower earnings
from
TAMCO, the Company’s 50%-owned steel venture in California.
Income
from continuing operations totaled $43.8 million, or $4.83 per diluted share,
on
sales of $442.2 million in the nine months ended August 26, 2007, compared
to
income from continuing operations of $37.9 million, or $4.29 per diluted
share,
on sales of $398.6 million in the same period in 2006. The
Fiberglass-Composite Pipe and Infrastructure Products Groups had higher sales
and income due primarily to improved market conditions. The Water
Transmission Group had higher sales and a loss due to the timing of pipe
projects and the start-up costs related to wind-tower
production. Income from continuing operations was higher in 2007
despite the $9.0 million gain from the sale of property in 2006, due to lower
interest and income taxes, and higher earnings from TAMCO. Equity in
earnings of TAMCO increased by $2.8 million, compared to the same period
in
2006.
AMERON
INTERNATIONAL CORPORATION AND
SUBSIDIARIES
Income
from discontinued operations, net of taxes, totaled $.5 million, or $.05
per
diluted share, in the quarter ended August 26, 2007, compared to $1.0 million,
or $.11 per diluted share, in the same period in 2006. Income from
discontinued operations, net of taxes, totaled $1.6 million, or $.18 per
diluted
share, in the nine months ended August 26, 2007, compared to $2.4 million,
or
$.27 per diluted share, in the same period in 2006. During the third quarter
of
2007, two of the retained properties formerly used by the Coatings Business
were
sold for a net gain of $.5 million. Discontinued operations generated
sales of $41.8 million and $152.2 million respectively, in the third quarter
and
nine months ended September 3, 2006.
Sales
Sales
increased $25.1 million in the third quarter of 2007, compared to the similar
period in 2006. Year-to-date sales increased $43.6 million, compared
to sales in the first nine months of 2006. Sales increased due to
improved demand, price increases and continued growth in large-diameter
wind-tower sales.
Fiberglass-Composite
Pipe's sales increased $14.1 million, or 29.0%, in the third quarter and
$38.9
million, or 29.6%, in the first nine months of 2007, compared to the similar
periods in 2006. Sales from Asian operations increased $6.7 million and
$23.1 million respectively, in the third quarter and the first nine months
of
2007, driven by increased activity in the industrial and marine segments.
Sales from European operations increased $8.9 million and $12.0 million,
respectively, in the third quarter and the first nine months of 2007, due
to
growth in the industrial and oil and gas markets. Sales from U.S.
operations decreased $1.5 million and increased $3.8 million, respectively,
in
the third quarter and the first nine months of 2007. Sales of
on-shore oilfield piping manufactured in the U.S. declined in the third quarter
due to project timing and customers’ inventories of pipe. The strong
demand for on-shore oilfield, offshore and 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’s sales increased $12.0 million, or 32.3%, in the third quarter and
$3.7 million, or 3.2%, in the first nine months of 2007, compared to the
similar
periods in 2006. The sales increase was driven by the Company’s entry into
the market for large-diameter wind towers and the Group’s operation in South
America. The Group continued to be impacted by the sluggish pipe
market in the western U.S. and the timing of projects. 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 1.9%, in the third quarter and
increased by $2.6 million, or 1.7%, in the first nine months of 2007, compared
to the similar periods in 2006. The Hawaiian Division generated higher
sales due primarily to increased deliveries of aggregates and improved
pricing. Pole Products was impacted by the decline in U.S. housing
markets and reduced demand for concrete lighting poles. Although the
housing market has worsened, the outlook for the Infrastructure Products
Group’s
other construction markets remains firm.
Gross
Profit
Gross
profit in the third quarter of 2007 was $37.0 million, or 22.4% of sales,
compared to $36.1 million, or 25.8% of sales, in the third quarter of
2006. Year-to-date gross profit in 2007 was $103.1 million, or 23.3% of
sales, compared to $99.4 million, or 24.9% of sales, in the similar period
of
2006. Gross profit increased $.9 million and $3.6 million,
respectively, in the third quarter and the first nine months of 2007, compared
to the similar periods in 2006, primarily due to volume and selling price
increases and favorable product mix. Third-quarter and year-to-date
profit margins declined due to the weak performance of the Water Transmission
Group.
Fiberglass-Composite
Pipe’s gross profit increased $7.4 million in the third quarter and $17.1
million in the first nine months of 2007, compared to the similar periods
of
2006. Profit margins were 38.3% in the third quarter and 35.5% in the
first nine months of 2007, compared to 34.1% in the third quarter and 32.9%
in
the first nine months of 2006. Margins were higher in 2007 due to
improvements in product and market mix and selling price increases.
Increased sales generated additional gross profit of $4.8 million and
$12.8 million, respectively, in the quarter and the first nine months of
2007,
while favorable product mix generated additional gross profit of $2.6 million
and $4.3 million, respectively, for the quarter and the first nine months
of
2007.
AMERON
INTERNATIONAL CORPORATION AND
SUBSIDIARIES
Water
Transmission Group's gross profit decreased $3.6 million in the third quarter
and $10.1 million in the first nine months of 2007, compared to the similar
periods of 2006. Profit margins were 3.2% in the third quarter, and 6.6%
in the first nine months of 2007, compared to 13.9% in the third quarter,
and
15.4% in the first nine months of 2006. Margins were lower in 2007 partly
due to lower-than-expected wind-tower sales and production start-up costs,
related to delays in construction of a new wind-tower manufacturing
facility. Additionally, margins on pipe projects were lower due to
weak market conditions and uneven plant utilization. Increased sales
volume generated additional gross profit of $1.6 million and $.6 million,
respectively, in the quarter and the first nine months of 2007. Lower
margins reduced gross profit by $5.2 million and $10.7 million, respectively,
in
the quarter and the first nine months of 2007.
Gross
profit in the Infrastructure Products Group increased $.1 million in the
third
quarter and $2.4 million in the first nine months of 2007, compared to the
similar periods of 2006. Profit margins were 25.3% in the third quarter
and 25.0% in the first nine months of 2007, compared to 24.6% in the third
quarter and 23.8% in the first nine months of 2006. Margins were higher in
2007 due to changes in product mix and selling-price increases. Gross
profit declined by $.3 million and increased by $.6 million, respectively,
in
the
quarter
and the first nine months of 2007 due to changes in sales volume, while
favorable product mix generated additional gross profit of $.4 million and
$1.8
million, respectively, in the quarter and the first nine months of
2007.
Selling,
General and Administrative Expenses
Selling,
general and administrative ("SG&A") expenses totaled $21.7 million, or 13.1%
of sales, in the third quarter of 2007, compared to $22.3 million, or 15.9%
of
sales, in the third quarter of 2006. The $.6 million decrease related
primarily to lower management incentive accruals. In the nine months
ended August 26, 2007, SG&A expenses totaled $69.1 million, or 15.6% of
sales, compared to $68.8 million, or 17.3% of sales in the same period in
2006.
The $.3 million increase was primarily due to higher legal
expenses.
Other
Income, Net
Other
income was $1.8 million in the third quarter of 2007, an increase of $.3
million
compared to the third quarter of 2006. The increase for the quarter
was due to the receipt of a dividend of $1.2 million from a joint venture,
Bondstrand, Ltd., offset by lower foreign exchange gains. Other
income was $3.7 million in the nine months ended August 26, 2007, a
decrease of $7.1 million compared to the similar period in 2006. The
decrease was due primarily to a $9.0 million gain on sale of property in
the
first half of 2006. Other income included royalties and fees from
licensees, foreign currency transaction adjustments, and other miscellaneous
income.
Interest
Net
interest income was $.1 million in the third quarter of 2007, compared to
net
interest expense of $.6 million in the third quarter of 2006. Net interest
income was $.4 million in the first nine months of 2007, compared to net
interest expense of $2.5 million in the first nine months 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.
Provision
for Income Taxes
Income
taxes decreased to $.4 million benefit in the third quarter of 2007 from
$2.5
million expense in the third quarter of 2006. Income taxes decreased to $6.6
million in the first nine months of 2007, compared to $10.5 million in the
comparable period of 2006. The effective tax rate decreased to 17.4% in first
nine months of 2007, from 26.9% in the same period of 2006. The
effective tax in 2007 was reduced by tax benefits of $5.3 million recorded
in
the third quarter of 2007 associated with the decision in that quarter to
wind
up and dissolve the Company’s wholly-owned United Kingdom
subsidiary. The effective tax in 2006 was reduced by tax benefits of
$3.6 million primarily as a result of settlements of the 1996 – 1998 and
1999 – 2002 IRS examinations and approval of the Company's research and
development credit refund claims by the Congressional Joint Committee on
Taxation. The effective tax rate in the first nine months of 2007 is based
on
forecasted full-year earnings and the anticipated mix of domestic and foreign
earnings, and discrete items. 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 in the first nine months of 2007 is not necessarily
indicative of the effective tax rate in the full fiscal year.
AMERON
INTERNATIONAL CORPORATION AND
SUBSIDIARIES
Equity
in Earnings of Joint Venture, Net of Taxes
Equity
in
earnings of joint venture decreased to $3.1 million in the third quarter
of
2007, compared to $4.9 million in 2006. Equity income increased to $12.3
million in the first nine months of 2007, compared to $9.5 million in the
same
period of 2006. Equity income is associated with TAMCO, Ameron's
50%-owned steel mini-mill in California. TAMCO's profits in the third
quarter decreased due to timing of projects and increased during the first
nine
months 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 third quarter of 2007, the Company recognized a gain of $.5 million on
the
sale of two properties which were formerly used by the Coatings
Business. In the nine months ended August 26, 2007, the Company
recognized a gain of $1.5 million on the sale of properties that were formerly
used by the Coatings Business. In addition to the gain on the
sale of the properties, the Company recognized $.1 million of research and
development tax credits that related to the Coatings Business in
2007. The 2007 tax credit was attributable to the retroactive
application of tax legislation enacted in December 2006. Results for
the nine months ended September 3, 2006 represented the net income from normal
operations of the Coatings Business prior to the divestiture. During
the third quarter of 2006, the Company completed the sale of its Coatings
Business and recognized a pretax gain of $1.1 million. Provision for
income taxes related to the gain was $.9 million, which resulted in a net
gain
of $.2 million in the third quarter and first nine months of 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 August 26, 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
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 August 26, 2007, the Company was a defendant in
asbestos-related cases involving 131 claimants, compared to 132 claimants
as of
May 27, 2007. 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 August 26, 2007, there were new claims involving 3 claimants, dismissals
and/or settlements involving 4 claimants and no judgments. Net costs and
expenses incurred by the Company for the quarter ended August 26, 2007 in
connection with asbestos-related claims were $.4 million.
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**
|
5/28/07
thru 6/24/07
|
|
-
|
|
NA
|
|
-
|
|
32,520
|
6/25/07
thru 7/29/07
|
|
-
|
|
NA
|
|
-
|
|
32,520
|
7/30/07
thru 8/26/07
|
|
-
|
|
NA
|
|
-
|
|
32,520
|
**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.
AMERON
INTERNATIONAL CORPORATION AND SUBSIDIARIES
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.
(b)
REPORTS ON FORM 8-K
Two
reports on Form 8-K were filed by the Company during the third quarter of
2007
as follows:
June
21,
2007 reporting the Company's results of operations for the second quarter
ended
May 27, 2007, as reported in a press release dated June 21, 2007.
June
22,
2007 reporting the Company's quarterly dividend of $.25 per share, as reported
in a press release dated June 22, 2007.
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:
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/s/
James R. McLaughlin
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|
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James
R. McLaughlin, Senior Vice President, Chief Financial Officer &
Treasurer
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Date:
September 21, 2007