ameron_10q108.htm
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 March 2, 2008
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, a non-accelerated filer or a smaller reporting company (as
defined in Rule 12b-2 of the Exchange Act).
Large
accelerated filer _
|
|
Accelerated
filer X
|
|
Non-accelerated
filer _
|
|
Smaller
reporting company _
|
|
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 9,167,492 on
March 2, 2008. No other class of Common Stock exists.
AMERON
INTERNATIONAL CORPORATION AND SUBSIDIARIES
For
the Quarter Ended March 2, 2008
Table
of Contents
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3
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18
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25
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25
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26
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26 |
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26
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26
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27
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27
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AMERON
INTERNATIONAL CORPORATION AND SUBSIDIARIES
PART I – FINANCIAL INFORMATION
ITEM 1 – FINANCIAL STATEMENTS
CONSOLIDATED
STATEMENTS OF INCOME (UNAUDITED)
|
|
Three
Months Ended
|
|
|
|
March
2,
|
|
|
February
25,
|
|
(Dollars
in thousands, except per share data)
|
|
2008
|
|
|
2007
|
|
Sales
|
|
$
|
149,769
|
|
|
$
|
120,355
|
|
Cost
of sales
|
|
|
(116,317
|
)
|
|
|
(95,035
|
)
|
Gross
profit
|
|
|
33,452
|
|
|
|
25,320
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative expenses
|
|
|
(25,802
|
)
|
|
|
(21,500
|
)
|
Other
income, net
|
|
|
2,975
|
|
|
|
1,018
|
|
Income
from continuing operations before interest, income taxes and equity in
earnings of joint venture
|
|
|
10,625
|
|
|
|
4,838
|
|
Interest
income, net
|
|
|
289
|
|
|
|
366
|
|
Income
from continuing operations before income taxes and equity in earnings of
joint venture
|
|
|
10,914
|
|
|
|
5,204
|
|
Provision
for income taxes
|
|
|
(3,929
|
)
|
|
|
(1,920
|
)
|
Income
from continuing operations before equity in earnings of joint
venture
|
|
|
6,985
|
|
|
|
3,284
|
|
Equity
in earnings of joint venture, net of taxes
|
|
|
2,752
|
|
|
|
5,028
|
|
Income
from continuing operations
|
|
|
9,737
|
|
|
|
8,312
|
|
Income
from discontinued operations, net of taxes
|
|
|
-
|
|
|
|
156
|
|
Net
income
|
|
$
|
9,737
|
|
|
$
|
8,468
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings per share:
|
|
|
|
|
|
|
|
|
Income
from continuing operations
|
|
$
|
1.07
|
|
|
$
|
.92
|
|
Income
from discontinued operations, net of taxes
|
|
|
-
|
|
|
|
.02
|
|
Net
income
|
|
$
|
1.07
|
|
|
$
|
.94
|
|
|
|
|
|
|
|
|
|
|
Diluted
earnings per share:
|
|
|
|
|
|
|
|
|
Income
from continuing operations
|
|
$
|
1.07
|
|
|
$
|
.92
|
|
Income
from discontinued operations, net of taxes
|
|
|
-
|
|
|
|
.02
|
|
Net
income
|
|
$
|
1.07
|
|
|
$
|
.94
|
|
|
|
|
|
|
|
|
|
|
Weighted-average
shares (basic)
|
|
|
9,075,086
|
|
|
|
8,994,075
|
|
Weighted-average
shares (diluted)
|
|
|
9,102,978
|
|
|
|
9,050,525
|
|
|
|
|
|
|
|
|
|
|
Cash
dividends per share
|
|
$
|
.25
|
|
|
$
|
.20
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
AMERON
INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS – ASSETS (UNAUDITED)
|
|
March
2,
|
|
|
November
30,
|
|
(Dollars
in thousands)
|
|
2008
|
|
|
2007
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
assets
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
159,857
|
|
|
$
|
155,433
|
|
Receivables,
less allowances of $6,699 in 2008 and $6,235 in 2007
|
|
|
169,764
|
|
|
|
185,335
|
|
Inventories
|
|
|
98,781
|
|
|
|
97,717
|
|
Deferred
income taxes
|
|
|
22,691
|
|
|
|
22,446
|
|
Prepaid
expenses and other current assets
|
|
|
12,337
|
|
|
|
12,100
|
|
|
|
|
|
|
|
|
|
|
Total
current assets
|
|
|
463,430
|
|
|
|
473,031
|
|
|
|
|
|
|
|
|
|
|
Investments
in joint ventures
|
|
|
|
|
|
|
|
|
Equity
method
|
|
|
17,172
|
|
|
|
14,677
|
|
Cost
method
|
|
|
3,784
|
|
|
|
3,784
|
|
|
|
|
|
|
|
|
|
|
Property,
plant and equipment
|
|
|
|
|
|
|
|
|
Land
|
|
|
37,410
|
|
|
|
35,860
|
|
Buildings
|
|
|
77,908
|
|
|
|
75,245
|
|
Machinery
and equipment
|
|
|
297,530
|
|
|
|
292,563
|
|
Construction
in progress
|
|
|
28,061
|
|
|
|
24,655
|
|
|
|
|
|
|
|
|
|
|
Total
property, plant and equipment at cost
|
|
|
440,909
|
|
|
|
428,323
|
|
Accumulated
depreciation
|
|
|
(258,759
|
)
|
|
|
(254,592
|
)
|
|
|
|
|
|
|
|
|
|
Total
property, plant and equipment, net
|
|
|
182,150
|
|
|
|
173,731
|
|
Deferred
income taxes
|
|
|
5,128
|
|
|
|
4,202
|
|
Goodwill
and intangible assets, net of accumulated amortization of $1,170 in 2008
and $1,130 in 2007
|
|
|
2,214
|
|
|
|
2,243
|
|
Other
assets
|
|
|
38,385
|
|
|
|
34,144
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
712,263
|
|
|
$
|
705,812
|
|
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)
|
|
March
2,
|
|
|
November
30,
|
|
(Dollars
in thousands, except per share data)
|
|
2008
|
|
|
2007
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
|
|
|
Current
portion of long-term debt
|
|
$
|
17,320
|
|
|
$
|
17,055
|
|
Trade
payables
|
|
|
44,327
|
|
|
|
45,216
|
|
Accrued
liabilities
|
|
|
69,504
|
|
|
|
84,436
|
|
Income
taxes payable
|
|
|
12,854
|
|
|
|
11,985
|
|
|
|
|
|
|
|
|
|
|
Total
current liabilities
|
|
|
144,005
|
|
|
|
158,692
|
|
|
|
|
|
|
|
|
|
|
Long-term
debt, less current portion
|
|
|
56,284
|
|
|
|
57,593
|
|
Other
long-term liabilities
|
|
|
53,632
|
|
|
|
44,154
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
253,921
|
|
|
|
260,439
|
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders'
equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock, par value $2.50 per share, authorized 24,000,000 shares,
outstanding 9,167,492 shares in 2008 and 9,138,563 shares in 2007, net of
treasury shares
|
|
|
29,767
|
|
|
|
29,623
|
|
Additional
paid-in capital
|
|
|
50,000
|
|
|
|
46,675
|
|
Retained
earnings
|
|
|
438,377
|
|
|
|
430,925
|
|
Accumulated
other comprehensive loss
|
|
|
(5,068
|
)
|
|
|
(9,870
|
)
|
Treasury
stock (2,739,300 shares in 2008 and 2,710,479 shares in
2007)
|
|
|
(54,734
|
)
|
|
|
(51,980
|
)
|
|
|
|
|
|
|
|
|
|
Total
stockholders' equity
|
|
|
458,342
|
|
|
|
445,373
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders' equity
|
|
$
|
712,263
|
|
|
$
|
705,812
|
|
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
|
|
|
|
March
2,
|
|
|
February
25,
|
|
(Dollars
in thousands)
|
|
2008
|
|
|
2007
|
|
OPERATING
ACTIVITIES
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
9,737
|
|
|
$
|
8,468
|
|
Adjustments
to reconcile net income to net cash provided by/(used in) operating
activities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
4,773
|
|
|
|
3,739
|
|
Amortization
|
|
|
38
|
|
|
|
6
|
|
Net
earnings in excess of distributions from joint ventures
|
|
|
(2,495
|
)
|
|
|
(5,668
|
)
|
Loss/(gain)
from sale of property, plant and equipment
|
|
|
58
|
|
|
|
(19
|
)
|
Stock
compensation expense
|
|
|
1,856
|
|
|
|
484
|
|
Other
|
|
|
-
|
|
|
|
2
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Receivables,
net
|
|
|
17,738
|
|
|
|
9,816
|
|
Inventories
|
|
|
68
|
|
|
|
(26,515
|
)
|
Prepaid
expenses and other current assets
|
|
|
(96
|
)
|
|
|
6,492
|
|
Other
assets
|
|
|
(4,491
|
)
|
|
|
(105
|
)
|
Trade
payables
|
|
|
(1,596
|
)
|
|
|
7,730
|
|
Accrued
liabilities and income taxes payable
|
|
|
(20,511
|
)
|
|
|
(2,538
|
)
|
Other
long-term liabilities
|
|
|
13,309
|
|
|
|
(2,422
|
)
|
Net
cash provided by/(used in) operating activities
|
|
|
18,388
|
|
|
|
(530
|
)
|
|
|
|
|
|
|
|
|
|
INVESTING
ACTIVITIES
|
|
|
|
|
|
|
|
|
Proceeds
from sale of property, plant and equipment
|
|
|
724
|
|
|
|
200
|
|
Additions
to property, plant and equipment
|
|
|
(12,006
|
)
|
|
|
(9,670
|
)
|
Net
cash used in investing activities
|
|
|
(11,282
|
)
|
|
|
(9,470
|
)
|
|
|
|
|
|
|
|
|
|
FINANCING
ACTIVITIES
|
|
|
|
|
|
|
|
|
Repayment
of debt
|
|
|
(2,610
|
)
|
|
|
(1,417
|
)
|
Dividends
on common stock
|
|
|
(2,285
|
)
|
|
|
(1,816
|
)
|
Issuance
of common stock
|
|
|
760
|
|
|
|
405
|
|
Excess
tax benefits related to stock-based compensation
|
|
|
1,251
|
|
|
|
1,955
|
|
Purchase
of treasury stock
|
|
|
(2,754
|
)
|
|
|
(1,142
|
)
|
Net
cash used in financing activities
|
|
|
(5,638
|
)
|
|
|
(2,015
|
)
|
|
|
|
|
|
|
|
|
|
Effect
of exchange rate changes on cash and cash equivalents
|
|
|
2,956
|
|
|
|
256
|
|
Net
change in cash and cash equivalents
|
|
|
4,424
|
|
|
|
(11,759
|
)
|
Cash
and cash equivalents at beginning of period
|
|
|
155,433
|
|
|
|
139,479
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at end of period
|
|
$
|
159,857
|
|
|
$
|
127,720
|
|
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 March 2,
2008, and consolidated results of operations and cash flows for the three months
ended March 2, 2008. 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 March 2, 2008 consisted of 93
days, compared to 87 days for the quarter ended February 25, 2007.
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, 2007 ("2007 Annual
Report").
NOTE
2 – RECENT ACCOUNTING PRONOUNCEMENTS
In July
2006, the Financial Accounting Standards Board (“FASB”) issued Interpretation
(“FIN”) No. 48, “Accounting for Uncertainty in Income Taxes - an
interpretation of FASB Statement No. 109.” FIN No. 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. The minimum threshold is
defined in FIN No. 48 as a tax position that is more likely than not to be
sustained upon examination by the applicable taxing authority, including
resolution of any related appeals or litigation processes, based on the
technical merits of the position. The tax benefit to be recognized is measured
as the largest amount of benefit that is greater than fifty percent likely of
being realized upon ultimate settlement. FIN No. 48 must be applied to all
existing tax positions upon initial adoption. The cumulative effect of applying
FIN No. 48 at adoption is to be reported as an adjustment to beginning retained
earnings for the year of adoption. FIN No. 48 is effective for
the current fiscal year and was adopted by the Company as of December 1,
2007. Further information about the application of FIN No. 48 may be
found in Note 17, herein.
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 is effective for the
current fiscal year and was adopted by the Company as of December 1,
2007. Further information about the application of SFAS No. 157 may
be found in Note 18, herein.
In
September 2006, the FASB issued Emerging Issues Task Force (“EITF”) Issue No.
06-4, “Accounting for Deferred Compensation and Postretirement Benefit Aspects
of Endorsement Split-Dollar Life Insurance Arrangements,” effective for fiscal
years beginning after December 15, 2007. EITF Issue No. 06-4
requires that, for split-dollar life insurance arrangements providing a benefit
to an employee extending to postretirement periods, an employer should recognize
a liability for future benefits in accordance with SFAS
No. 106. EITF Issue No. 06-4 requires that recognition of the
effects of adoption should be either by (a) a change in accounting
principle through a cumulative-effect adjustment to retained earnings as of the
beginning of the year of adoption or (b) a change in accounting principle
through retrospective application to all prior periods. The Company
is evaluating whether the adoption of EITF Issue No. 06-4 will have a material
effect on its consolidated financial statements.
In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities.” SFAS No. 159 allows an
entity the irrevocable option to elect fair value for the initial and subsequent
measurement for certain financial assets and liabilities on a
contract-by-contract basis. SFAS No. 159 also provides 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 No. 159 is effective for the current year
and was adopted by the Company as of December 1, 2007. The Company
has not elected to exercise the fair value irrevocable option. The
adoption of SFAS No. 159 did not have a material effect on the Company’s
consolidated financial statements.
AMERON
INTERNATIONAL CORPORATION AND SUBSIDIARIES
In
December 2007, the FASB issued SFAS No. 141(R), “Business
Combinations.” SFAS No. 141(R) amends accounting and reporting
standards associated with business combinations and requires the acquiring
entity to recognize the assets acquired, liabilities assumed and noncontrolling
interests in the acquired entity at the date of acquisition at their fair
values. In addition, SFAS No. 141(R) requires that direct costs
associated with an acquisition be expensed as incurred and sets forth various
other changes in accounting and reporting related to business
combinations. SFAS No. 141(R) applies prospectively to business
combinations for which the acquisition date is on or after the beginning of the
first annual reporting period beginning on or after December 15, 2008. An
entity may not apply SFAS No. 141(R) before that date.
In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests
in Consolidated Financial Statements, an amendment of ARB
No. 51.” SFAS No. 160 amends the accounting and
reporting for noncontrolling interests in a consolidated subsidiary and the
deconsolidation of a subsidiary. Included in this statement is the
requirement that noncontrolling interests be reported in the equity section of
the balance sheet. SFAS No. 160 is effective for fiscal years,
and interim periods within those fiscal years, beginning on or after December
15, 2008. Earlier adoption is prohibited.
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"). During the first quarter of 2007, the Company recognized
$156,000 of research and development tax credits that related to the Coatings
Business. The tax credits were attributable to the retroactive
application of tax legislation enacted in 2007.
The
results of discontinued operations were as follows:
|
|
Three
Months Ended
|
|
|
|
March
2,
|
|
|
February
25,
|
|
(In
thousands)
|
|
2008
|
|
|
2007
|
|
Income
taxes on income from discontinued operations
|
|
$
|
-
|
|
|
$
|
156
|
|
Income
from discontinued operations, net of taxes
|
|
$
|
-
|
|
|
$
|
156
|
|
Income
from discontinued operations, net of taxes, was zero for the three months ended
March 2, 2008 and $156,000, or $.02 per diluted share, for the same period in
2007.
NOTE 4 -
RECEIVABLES
The
Company’s receivables consisted of the following:
|
|
March
2,
|
|
|
November
30,
|
|
(In
thousands)
|
|
2008
|
|
|
2007
|
|
Trade
|
|
$
|
145,947
|
|
|
$
|
156,562
|
|
Joint
ventures
|
|
|
3,207
|
|
|
|
2,714
|
|
Other
|
|
|
27,309
|
|
|
|
32,294
|
|
Allowances
|
|
|
(6,699
|
)
|
|
|
(6,235
|
)
|
|
|
$
|
169,764
|
|
|
$
|
185,335
|
|
Trade
receivables included unbilled receivables related to percentage-of-completion
revenue recognition of $37,720,000 and $45,578,000 at March 2, 2008 and November
30, 2007, respectively.
NOTE
5 – INVENTORIES
Inventories
are stated at the lower of cost or market. Inventories consisted of the
following:
|
|
March
2,
|
|
|
November
30,
|
|
(In
thousands)
|
|
2008
|
|
|
2007
|
|
Finished
products
|
|
$
|
40,981
|
|
|
$
|
41,580
|
|
Materials
and supplies
|
|
|
27,274
|
|
|
|
28,246
|
|
Products
in process
|
|
|
30,526
|
|
|
|
27,891
|
|
|
|
$
|
98,781
|
|
|
$
|
97,717
|
|
AMERON
INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTE
6 – SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Supplemental
cash flow information included the following:
|
|
Three
Months Ended
|
|
|
|
March
2,
|
|
|
February
25,
|
|
(In
thousands)
|
|
2008
|
|
|
2007
|
|
Interest
paid
|
|
$
|
247
|
|
|
$
|
203
|
|
Income
taxes paid
|
|
|
523
|
|
|
|
8,011
|
|
NOTE
7 – JOINT VENTURES
Operating
results of TAMCO, an investment which is accounted for under the equity method,
were as follows:
|
|
Three
Months Ended
|
|
|
|
March
2,
|
|
|
February
25,
|
|
(In
thousands)
|
|
2008
|
|
|
2007
|
|
Net
sales
|
|
$
|
82,715
|
|
|
$
|
76,422
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
13,821
|
|
|
|
21,790
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
6,089
|
|
|
|
11,336
|
|
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
|
|
|
|
March
2,
|
|
|
February
25,
|
|
(In
thousands)
|
|
2008
|
|
|
2007
|
|
Earnings
from joint ventures
|
|
|
|
|
|
|
Equity
in earnings of TAMCO before income taxes
|
|
$
|
3,045
|
|
|
$
|
5,668
|
|
Less
provision for income taxes
|
|
|
(293
|
)
|
|
|
(640
|
)
|
Equity
in earnings of TAMCO, net of taxes
|
|
$
|
2,752
|
|
|
$
|
5,028
|
|
Dividends
received from joint ventures
|
|
|
|
|
|
|
|
|
TAMCO
|
|
$
|
550
|
|
|
$
|
-
|
|
ASAL
|
|
|
1,496
|
|
|
|
-
|
|
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 25,570 and 28,550, and
options to purchase 43,500 and 98,500 common shares, were dilutive for the
three months ended March 2, 2008 and February 25, 2007,
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
|
|
|
|
March
2,
|
|
|
February
25,
|
|
(In
thousands, except per share data)
|
|
2008
|
|
|
2007
|
|
Numerator:
|
|
|
|
|
|
|
Income
from continuing operations
|
|
$
|
9,737
|
|
|
$
|
8,312
|
|
Income
from discontinued operations, net of taxes
|
|
|
-
|
|
|
|
156
|
|
Net
income
|
|
$
|
9,737
|
|
|
$
|
8,468
|
|
|
|
|
|
|
|
|
|
|
Denominator
for basic income per share:
|
|
|
|
|
|
|
|
|
Weighted-average
shares outstanding, basic
|
|
|
9,075,086
|
|
|
|
8,994,075
|
|
|
|
|
|
|
|
|
|
|
Denominator
for diluted income per share:
|
|
|
|
|
|
|
|
|
Weighted-average
shares outstanding, basic
|
|
|
9,075,086
|
|
|
|
8,994,075
|
|
Dilutive
effect of stock options and restricted stock
|
|
|
27,892
|
|
|
|
56,450
|
|
Weighted-average
shares outstanding, diluted
|
|
|
9,102,978
|
|
|
|
9,050,525
|
|
|
|
|
|
|
|
|
|
|
Basic
net income per share:
|
|
|
|
|
|
|
|
|
Income
from continuing operations
|
|
$
|
1.07
|
|
|
$
|
.92
|
|
Income
from discontinued operations, net of taxes
|
|
|
-
|
|
|
|
.02
|
|
Net
income
|
|
$
|
1.07
|
|
|
$
|
.94
|
|
|
|
|
|
|
|
|
|
|
Diluted
net income per share:
|
|
|
|
|
|
|
|
|
Income
from continuing operations
|
|
$
|
1.07
|
|
|
$
|
.92
|
|
Income
from discontinued operations, net of taxes
|
|
|
-
|
|
|
|
.02
|
|
Net
income
|
|
$
|
1.07
|
|
|
$
|
.94
|
|
NOTE
9 – COMPREHENSIVE INCOME
Comprehensive
income was as follows:
|
|
Three
Months Ended
|
|
|
|
March
2,
|
|
|
February
25,
|
|
(In
thousands)
|
|
2008
|
|
|
2007
|
|
Net
income
|
|
$
|
9,737
|
|
|
$
|
8,468
|
|
Foreign
currency translation adjustment
|
|
|
4,802
|
|
|
|
1,418
|
|
Comprehensive
income
|
|
$
|
14,539
|
|
|
$
|
9,886
|
|
AMERON
INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTE
10 – DEBT
The
Company's long-term debt consisted of the following:
|
|
March
2,
|
|
|
November
30,
|
|
(In
thousands)
|
|
2008
|
|
|
2007
|
|
Fixed-rate
notes:
|
|
|
|
|
|
|
|
|
5.36%,
payable in annual principal installments of $10,000
|
|
$
|
20,000
|
|
|
$
|
20,000
|
|
4.25%,
payable in Singapore dollars, in annual principal installments of
$7,320
|
|
|
36,598
|
|
|
|
35,274
|
|
Variable-rate
industrial development bonds:
|
|
|
|
|
|
|
|
|
payable
in 2016 (2.45% at March 2, 2008)
|
|
|
7,200
|
|
|
|
7,200
|
|
payable
in 2021 (2.45% at March 2, 2008)
|
|
|
8,500
|
|
|
|
8,500
|
|
Variable-rate
bank revolving credit facility (13.24% at March 2, 2008)
|
|
|
1,306
|
|
|
|
3,674
|
|
Total
long-term debt
|
|
|
73,604
|
|
|
|
74,648
|
|
Less
current portion
|
|
|
(17,320
|
)
|
|
|
(17,055
|
)
|
Long-term
debt, less current portion
|
|
$
|
56,284
|
|
|
$
|
57,593
|
|
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 March 2, 2008. 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 March 2,
2008. 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
|
|
|
|
March
2,
|
|
|
February
25,
|
|
(In
thousands)
|
|
2008
|
|
|
2007
|
|
Sales
|
|
|
|
|
|
|
|
|
Fiberglass-Composite
Pipe
|
|
$
|
65,843
|
|
|
$
|
46,509
|
|
Water
Transmission
|
|
|
40,984
|
|
|
|
29,593
|
|
Infrastructure
Products
|
|
|
43,328
|
|
|
|
45,287
|
|
Eliminations
|
|
|
(386
|
)
|
|
|
(1,034
|
)
|
Total
sales
|
|
$
|
149,769
|
|
|
$
|
120,355
|
|
|
|
|
|
|
|
|
|
|
Income
from Continuing Operations Before Interest, Income Taxes and Equity in
Earnings of Joint Venture
|
|
|
|
|
|
|
|
|
Fiberglass-Composite
Pipe
|
|
$
|
16,635
|
|
|
$
|
8,999
|
|
Water
Transmission
|
|
|
(3,939
|
)
|
|
|
(4,131
|
)
|
Infrastructure
Products
|
|
|
6,294
|
|
|
|
6,727
|
|
Corporate
and unallocated
|
|
|
(8,365
|
)
|
|
|
(6,757
|
)
|
Total
Income from Continuing Operations Before Interest, Income Taxes and Equity
in Earnings of Joint Venture
|
|
$
|
10,625
|
|
|
$
|
4,838
|
|
|
|
March
2,
|
|
|
November
30,
|
|
(In
thousands)
|
|
2008
|
|
|
2007
|
|
Assets
|
|
|
|
|
|
|
|
|
Fiberglass-Composite
Pipe
|
|
$
|
283,792
|
|
|
$
|
260,567
|
|
Water
Transmission
|
|
|
212,714
|
|
|
|
218,247
|
|
Infrastructure
Products
|
|
|
107,925
|
|
|
|
103,993
|
|
Corporate
and unallocated
|
|
|
261,791
|
|
|
|
226,383
|
|
Eliminations
|
|
|
(153,959
|
)
|
|
|
(103,378
|
)
|
Total
Assets
|
|
$
|
712,263
|
|
|
$
|
705,812
|
|
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 or future similar claims, if any, that may be filed.
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 March 2, 2008,
the Company was a defendant in asbestos-related cases involving 25 claimants,
compared to 60 claimants as of November 30, 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 March 2, 2008, there were new
claims involving three claimants, dismissals and/or settlements involving 38
claimants and no judgments. No net costs or expenses were incurred by
the Company for the quarter ended March 2, 2008 in connection with
asbestos-related claims.
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. 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.
AMERON
INTERNATIONAL CORPORATION AND SUBSIDIARIES
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 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:
|
|
Three
Months Ended
|
|
|
|
March
2,
|
|
|
February
25,
|
|
(In
thousands)
|
|
2008
|
|
|
2007
|
|
Balance,
beginning of period
|
|
$
|
3,590
|
|
|
$
|
3,146
|
|
Payments
|
|
|
(20
|
)
|
|
|
(544
|
)
|
Warranties
issued during the period
|
|
|
(211
|
)
|
|
|
953
|
|
Balance,
end of period
|
|
$
|
3,359
|
|
|
$
|
3,555
|
|
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,
|
|
|
Translation
|
|
|
March
2,
|
|
(In
thousands)
|
|
2007
|
|
|
Adjustments
|
|
|
2008
|
|
Fiberglass-Composite
Pipe
|
|
$
|
1,440
|
|
|
$
|
-
|
|
|
$
|
1,440
|
|
Water
Transmission
|
|
|
392
|
|
|
|
3
|
|
|
|
395
|
|
Infrastructure
Products
|
|
|
201
|
|
|
|
-
|
|
|
|
201
|
|
|
|
$
|
2,033
|
|
|
$
|
3
|
|
|
$
|
2,036
|
|
AMERON
INTERNATIONAL CORPORATION AND SUBSIDIARIES
The
Company's intangible assets, other than goodwill, and related accumulated
amortization consisted of the following:
|
|
March
2, 2008
|
|
|
November
30, 2007
|
|
|
|
Gross
Intangible
|
|
|
Accumulated
|
|
|
Gross
Intangible
|
|
|
Accumulated
|
|
(In
thousands)
|
|
Assets
|
|
|
Amortization
|
|
|
Assets
|
|
|
Amortization
|
|
Trademarks
|
|
$
|
113
|
|
|
$
|
(103
|
)
|
|
$
|
113
|
|
|
$
|
(101
|
)
|
Non-compete
agreements
|
|
|
299
|
|
|
|
(170
|
)
|
|
|
299
|
|
|
|
(163
|
)
|
Patents
|
|
|
212
|
|
|
|
(212
|
)
|
|
|
212
|
|
|
|
(212
|
)
|
Other
|
|
|
90
|
|
|
|
(51
|
)
|
|
|
79
|
|
|
|
(17
|
)
|
|
|
$
|
714
|
|
|
$
|
(536
|
)
|
|
$
|
703
|
|
|
$
|
(493
|
)
|
All of
the Company's intangible assets, other than goodwill, are subject to
amortization. Amortization expense for the three months ended March
2, 2008 and February 25, 2007 was $38,000 and $6,000,
respectively. At March 2, 2008, estimated future amortization expense
was as follows: $46,000 for the remaining nine months of 2008, $41,000 for 2009,
$33,000 for 2010, $30,000 for 2011, and $28,000 for 2012.
NOTE
15 – INCENTIVE STOCK COMPENSATION PLANS
As of
March 2, 2008, 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 date of grant. Such options vested in equal annual installments
over four years and terminate ten years from the date 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 date of
grant. Such options vested in equal annual installments over four
years. Such options terminate ten years from the date 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 and terminate ten years from the date of
grant. Key employees were granted restricted stock under the 2004
Plan. Such restricted stock grants typically vest in equal annual
installments over three years. During the three months ended March 2,
2008, the Company granted 3,802 stock options to non-employee directors with a
fair value on the grant date of $101,000 and 16,000 restricted shares to key
employees with fair value on the grant date of $1,639,000.
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 March 2, 2008, there were 13,000 shares subject to such stock
options.
The
Company's income from continuing operations before income taxes and equity in
earnings of joint venture for the three months ended March 2, 2008 and February
25, 2007 included compensation expenses of $1,856,000 and $484,000,
respectively, related to stock-based compensation arrangements. Tax
benefits related to these expenses were $724,000 and $189,000,
respectively. There were no capitalized share-based compensation
costs for the three months ended March 2, 2008.
AMERON
INTERNATIONAL CORPORATION AND SUBSIDIARIES
The
following table summarizes the stock option activity for the three months ended
March 2, 2008:
|
|
|
|
|
|
|
|
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, 2007
|
|
|
67,250 |
|
|
$ |
28.77 |
|
|
|
|
|
|
|
Granted
|
|
|
3,802 |
|
|
|
101.23 |
|
|
|
|
|
|
|
Exercised
|
|
|
(23,750
|
) |
|
|
29.34 |
|
|
|
|
|
|
|
Outstanding
at March 2, 2008
|
|
|
47,302 |
|
|
|
26.16 |
|
|
|
4.50 |
|
|
$ |
3,563 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
exercisable at March 2, 2008
|
|
|
39,000 |
|
|
|
27.87 |
|
|
|
4.24 |
|
|
$ |
3,218 |
|
For the
three months ended March 2, 2008, 3,802 options were granted and no options were
forfeited or expired. For the three months ended February 25, 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 first quarter of 2008 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 months ended March 2, 2008 and
February 25, 2007 were $1,702,000 and $1,175,000, respectively. As of
March 2, 2008, unrecognized compensation cost related to stock-based
compensation arrangements totaled $8,864,000, which is expected to be recognized
over a weighted-average period of three years.
For the
three months ended March 2, 2008, 16,000 shares of restricted stock were
granted. The weighted-average grant-date, fair value of such restricted
stock was $102.44 per share. The fair value of restricted stock,
which vested during the three months ended March 2, 2008, was
$5,488,000. The fair value of restricted stock, which vested during
the three months ended February 25, 2007, was $2,308,000.
Net cash
proceeds from the exercise of stock options during the three months ended March
2, 2008 and February 25, 2007 were $760,000 and $405,000,
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 months ended March 2, 2008 and February 25, 2007, 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 March 2 and February 25,
|
|
|
Three
Months Ended March 2 and February 25,
|
|
(In
thousands)
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Service
cost
|
|
$
|
757
|
|
|
$
|
732
|
|
|
$
|
109
|
|
|
$
|
132
|
|
|
$
|
96
|
|
|
$
|
88
|
|
Interest
cost
|
|
|
2,871
|
|
|
|
2,795
|
|
|
|
638
|
|
|
|
565
|
|
|
|
209
|
|
|
|
202
|
|
Expected
return on plan assets
|
|
|
(3,900
|
)
|
|
|
(3,543
|
)
|
|
|
(429
|
)
|
|
|
(420
|
)
|
|
|
(32
|
)
|
|
|
(35
|
)
|
Amortization
of unrecognized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
prior
service cost
|
|
|
28
|
|
|
|
28
|
|
|
|
76
|
|
|
|
70
|
|
|
|
19
|
|
|
|
19
|
|
Amortization
of unrecognized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net
transition obligation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
46
|
|
|
|
46
|
|
Amortization
of accumulated loss
|
|
|
233
|
|
|
|
976
|
|
|
|
-
|
|
|
|
38
|
|
|
|
11
|
|
|
|
15
|
|
Net
periodic cost
|
|
$
|
(11
|
)
|
|
$
|
988
|
|
|
$
|
394
|
|
|
$
|
385
|
|
|
$
|
349
|
|
|
$
|
335
|
|
AMERON
INTERNATIONAL CORPORATION AND SUBSIDIARIES
The
Company contributed approximately $1,000,000 to the non-U.S. defined benefit
pension plans and made no payment to its U.S. defined benefit pension plan in
the first three months of 2008. Based on current actuarial projections,
the Company anticipates that the funded status of the U.S. pension plan will be
sufficient so that the Company will not be required to make contributions in
2008 under the funding regulations of the Pension Protection Act of 2006
(“PPA”). However, the Company expects to contribute approximately
$3,000,000 to its U.S. defined benefit pension plan and an additional $200,000
to the non-U.S. pension plans during the remainder of fiscal year
2008.
NOTE
17 – PROVISION FOR INCOME TAXES
Income
taxes increased to $3,929,000 in the first quarter of 2008, from $1,920,000 in
the same period of 2007. The effective tax rate on income from
continuing operations decreased to 36.0% in 2008, from 36.9% in
2007. The effective tax rate for the first quarter of 2008 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 2008 is not
necessarily indicative of the tax rate for the full fiscal year.
Prior to
December 1, 2007, the Company recorded reserves related to uncertain tax
positions as a current liability. Upon adoption of FIN No. 48, the
Company reclassified tax reserves related to uncertain tax positions for which a
cash payment is not expected within the next 12 months to noncurrent
liabilities. The Company’s adoption of FIN No. 48 did not require a
cumulative adjustment to the opening balance of its retained
earnings.
At
December 1, 2007, the total amount of gross unrecognized tax benefits, excluding
interest, was $13,102,000. This amount has not been reduced for
offsetting benefits in other tax jurisdictions and for the benefit of future tax
deductions that would arise as a result of settling such liabilities as
recorded. Of this amount, $5,836,000 would reduce the Company’s
income tax expense and effective tax rate, after giving effect to offsetting
benefits from other tax jurisdictions and resulting future
deductions. There have been no material changes to these amounts
during the quarter ended March 2, 2008.
The
Company anticipates that it is reasonably possible that the total amount of
unrecognized tax benefits may significantly change within the succeeding 12
months as a result of the expiration of certain federal and state statutes of
limitations for examination and the settlement of certain state
audits. The Company estimates that these events could result in a
reasonably possible decrease in unrecognized tax benefits of
$1,887,000.
The
Company accrues interest and penalties related to unrecognized tax benefits as
income tax expense. Accruals totaling $1,415,000 were
recorded as a liability in the Company’s consolidated balance sheet at December
1, 2007. There were no material changes to these amounts during the
quarter ended March 2, 2008.
The
Company’s federal income tax returns remain subject to examination for the 2004
through 2007 tax years. The Company files multiple state income tax
returns, including California, Hawaii, Arizona and Texas, with open statutes
ranging from 2000 through 2007. The Company also files multiple
foreign income tax returns and remains subject to examination in major foreign
jurisdictions, including the Netherlands, Singapore and Malaysia, for years
ranging from 1996 through 2007.
NOTE
18 – FAIR VALUE MEASURMENTS
Effective
December 1, 2007, the Company adopted SFAS No. 157, which provides a
framework for measuring fair value under GAAP. As defined in SFAS No.
157, fair value is the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants at
the measurement date (exit price). The Company utilizes market data
or assumptions that the Company believes market participants would use in
pricing the asset or liability, including assumptions about risk and the risks
inherent in the inputs to the valuation technique. These inputs can
be readily observable, market corroborated or generally
unobservable.
The
Company primarily applies the market approach for recurring fair value
measurements and endeavors to utilize the best available
information. Accordingly, the Company utilizes valuation techniques
that maximize the use of observable inputs and minimize the use of unobservable
inputs. The Company is able to classify fair value balances based on
the observability of those inputs.
AMERON
INTERNATIONAL CORPORATION AND SUBSIDIARIES
SFAS No.
157 establishes a fair value hierarchy that prioritizes the inputs used to
measure fair value. The hierarchy gives the highest priority to unadjusted
quoted prices in active markets for identical assets or liabilities (Level 1
measurement) and the lowest priority to unobservable inputs (Level 3
measurement). The three levels of the fair value hierarchy defined by
SFAS No. 157 are as follows:
Level 1
|
Quoted
prices are available in active markets for identical assets or liabilities
as of the reporting date. Active markets are those in which
transactions for the asset or liability occur in sufficient frequency and
volume to provide pricing information on an ongoing
basis. Level 1 primarily consists of financial instruments such
as exchange-traded derivatives, listed equities and U.S. government
treasury securities.
|
Level 2
|
Pricing
inputs are other than quoted prices in active markets included in Level 1,
which are either directly or indirectly observable as of the reporting
date. Level 2 includes those financial instruments that are
valued using models or other valuation methodologies. These
models are primarily industry-standard models that consider various
assumptions, including quoted forward prices for commodities, time value,
volatility factors, and current market and contractual prices for the
underlying instruments, as well as other relevant economic
measures. Substantially all of these assumptions are observable
in the marketplace throughout the full term of the instrument, can be
derived from observable data or are supported by observable levels at
which transactions are executed in the marketplace. Instruments
in this category include non-exchange-traded derivatives such as over the
counter forwards, options and repurchase
agreements.
|
Level 3
|
Pricing
inputs include significant inputs that are generally less observable from
objective sources. These inputs may be used with internally
developed methodologies that result in management’s best estimate of fair
value from the perspective of a market participant. Level 3
instruments include those that may be more structured or otherwise
tailored to customers’ needs. At each balance sheet date, the
Company performs an analysis of all instruments subject to SFAS No. 157
and includes in Level 3 all of those whose fair value is based on
significant unobservable inputs.
|
Assets
and liabilities measured at fair value on a recurring basis include the
following as of March 2, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
Value Measurements Using
|
|
|
Assets/Liabilities
|
|
(In
thousands)
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
At
Fair Value
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative
assets
|
|
$
|
-
|
|
|
$
|
107
|
|
|
$
|
-
|
|
|
$
|
107
|
|
Total
assets
|
|
$
|
-
|
|
|
$
|
107
|
|
|
$
|
-
|
|
|
$
|
107
|
|
Derivatives
The
Company conducts business in several countries where transactions are completed
in currencies other than the U.S. dollar. The Company’s primary
objective with respect to currency risk is to reduce net income volatility that
would otherwise occur due to exchange-rate fluctuations. In order to
minimize the risk of gain or loss to cash flows due to exchange rates, the
Company uses foreign currency derivatives. As of March 2, 2008, the
Company held 14 foreign currency forward contracts in the amount of $7,000,000
U.S. dollars, hedging Singapore dollars. As of March 2, 2008, such
instruments had a fair value of $107,000 based on quotations from the financial
institutions.
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, such as large-diameter wind
towers. 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.
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, under Part I, Item 1 in the
Company’s report on Form 10-K in 2007. 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. 158, “Employers’ Accounting for Defined Benefit Pension and Other
Postretirement Plans,” 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.
The
Company adopted SFAS No. 157, “Fair Value Measurements,” which provides a
framework for measuring fair value under GAAP. As defined in SFAS No.
157, fair value is the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants at
the measurement date (exit price). The Company utilizes market data
or assumptions that the Company believes market participants would use in
pricing assets or liabilities, including assumptions about risk and the risks
inherent in the inputs to valuation technique. These inputs can be
readily observable, market corroborated or generally
unobservable. The Company primarily applies the market approach for
recurring fair value measurements and endeavors to utilize the best available
information. Accordingly, the Company utilizes valuation techniques
that maximize the use of observable inputs and minimize the use of unobservable
inputs. The Company classifies fair value balances based on the
observability of those inputs.
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
amount of income taxes the Company pays is subject to ongoing audits by federal,
state and foreign tax authorities. The Company’s estimate of the
potential outcome of any uncertain tax issue is subject to management’s
assessment of relevant risks, facts, and circumstances existing at that time,
pursuant to the Financial Accounting Standards Board (“FASB”) Interpretation
(“FIN”) No. 48, “Accounting for Uncertainty in Income Taxes - an
interpretation of FASB Statement No. 109.” FIN No. 48 requires a
more-likely-than-not threshold for financial statement recognition and
measurement of tax positions taken or expected to be taken in a tax
return. We record a liability for the difference between the benefit
recognized and measured pursuant to FIN No. 48 and tax position taken or
expected to be taken on our tax return. To the extent that the
Company’s assessment of such tax positions changes, the change in estimate is
recorded in the period in which the determination is made. The
Company reports tax-related interest and penalties as a component of income tax
expense.
LIQUIDITY
AND CAPITAL RESOURCES
As of
March 2, 2008, the Company's working capital, including cash and cash
equivalents, totaled $319.4 million, an increase of $5.1 million from working
capital of $314.3 million as of November 30, 2007. Higher working
capital resulted primarily from a decrease in accrued wages, employee benefits,
and other current liabilities and an increase in cash, offset by a decrease in
receivables. Cash and cash equivalents totaled $159.9 million as of
March 2, 2008, compared to $155.4 million as of November 30, 2007.
AMERON
INTERNATIONAL CORPORATION AND SUBSIDIARIES
For the
three months ended March 2, 2008, net cash of $18.4 million was generated from
operating activities, compared to $.5 million used in the similar period in
2007. The higher operating cash flow in 2008 was primarily due to higher
earnings, excluding non-cash items and asset sales, and a net decrease in
operating assets and liabilities. In the three months ended March 2, 2008,
the Company's cash provided by operating activities included net income of $9.7
million, plus non-cash adjustments (depreciation, amortization, equity income
from joint ventures in excess of dividends and stock compensation expense) of
$4.2 million, plus changes in operating assets and liabilities of $4.4
million. In the three months ended February 25, 2007, the Company’s
cash from operating activities included net income of $8.5 million, less similar
non-cash adjustments of $1.5 million, and less changes in operating assets and
liabilities of $7.5 million. The non-cash adjustments in 2008 were
higher due primarily to higher stock compensation expense and lower equity in
earnings of TAMCO. The positive change in operating assets and
liabilities in 2008 was due to a decrease of receivables in 2008 and an increase
of inventories in 2007.
Net cash
used in investing activities totaled $11.3 million in three months ended March
2, 2008, compared to $9.5 million used in the three months ended February 25,
2007. Net cash used in investing activities during the first quarter of
2008 consisted of capital expenditures of $12.0 million, compared to $9.7
million in the same period of 2007. Capital expenditures were
primarily for normal replacement and upgrades of machinery and equipment in both
2008 and 2007. Capital expenditures for both years 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, 2008,
the Company anticipates spending between $30 and $80 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 $5.6 million during the three months ended
March 2, 2008, compared to $2.0 million used in the three months ended February
25, 2007. Net cash used in 2008 consisted of net repayment of debt of
$2.6 million, payment of Common Stock dividends of $2.3 million and treasury
stock purchases of $2.8 million, related to the payment of taxes associated with
the vesting of restricted shares. Also in 2008, the Company received $.8
million from the issuance of Common Stock related to exercised stock options and
recognized tax benefits related to stock-based compensation of $1.3
million. Net cash used in 2007 consisted of net repayment of
debt of $1.4 million, payment of Common Stock dividends of $1.8 million and
treasury stock purchases of $1.1 million. In 2007, the Company
received $.4 million from the issuance of Common Stock related to exercised
stock options and recognized tax benefits related to stock-based compensation of
$2.0 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 based on 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 $166.1 million as of March 2, 2008. 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. At March 2, 2008, the Company maintained a consolidated
leverage ratio of .73 times EBITDA. Lending agreements require that the
Company maintain qualified consolidated tangible assets at least equal to the
outstanding secured funded indebtedness. At March 2, 2008, qualifying tangible
assets equaled 2.72 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 1.5 times the sum of interest expense, rental expense, dividends and
scheduled funded debt payments. At March 2, 2008, the Company maintained such a
fixed charge coverage ratio of 3.69 times. Under the most restrictive
provisions of the Company's lending agreements, approximately $38.1 million of
retained earnings was not restricted, at March 2, 2008, as to the declaration of
cash dividends or the repurchase of Company stock. At March 2, 2008,
the Company was in compliance with all covenants.
Cash and
cash equivalents at March 2, 2008 totaled $159.9 million, an increase of $4.4
million from November 30, 2007. At March 2, 2008, the Company had total
debt outstanding of $73.6 million, compared to $74.6 million at November 30,
2007, and approximately $114.4 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 2008 were $74.5
million and $73.9 million, respectively.
AMERON
INTERNATIONAL CORPORATION AND SUBSIDIARIES
The
Company contributed $1.0 million to the non-U.S. pension plans and did not
contribute to the U.S. defined benefit pension plan during the first quarter of
2008. The Company expects to contribute approximately $3.0 million to its
U.S. defined benefit pension plan and an additional $.2 million to the non-U.S.
pension plans during the remainder of fiscal year 2008.
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 2008. 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 currently believe it likely that business
or economic conditions will worsen or that costs will increase sufficiently to
impact short-term liquidity.
The
Company's contractual obligations and commercial commitments at March 2, 2008
are summarized as follows (in thousands):
|
|
Payments
Due by Period
|
|
|
|
|
|
|
Less
than
|
|
|
|
|
|
|
|
|
After
5
|
|
Contractual
Obligations
|
|
Total
|
|
|
1
year
|
|
|
1-3
years
|
|
|
3-5
years
|
|
|
years
|
|
Long-term
debt (a)
|
|
$
|
73,604
|
|
|
$
|
17,320
|
|
|
$
|
25,946
|
|
|
$
|
7,320
|
|
|
$
|
23,018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
payments on debt (b)
|
|
|
10,634
|
|
|
|
2,578
|
|
|
|
4,017
|
|
|
|
1,701
|
|
|
|
2,338
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
leases
|
|
|
39,017
|
|
|
|
4,513
|
|
|
|
8,623
|
|
|
|
4,206
|
|
|
|
21,675
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase
obligations (c)
|
|
|
975
|
|
|
|
975
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Uncertain
tax positions
|
|
|
702
|
|
|
|
702
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
contractual obligations (d)
|
|
$
|
117,940
|
|
|
$
|
25,584
|
|
|
$
|
38,105
|
|
|
$
|
20,563
|
|
|
$
|
33,688
|
|
|
|
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)
|
|
$
|
2,100
|
|
|
$
|
2,100
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
commercial commitments (d)
|
|
$
|
2,100
|
|
|
$
|
2,100
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
(a)
Included in long-term debt is $1,306 outstanding under a revolving credit
facility, due in 2010, 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 $16,067 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.
AMERON
INTERNATIONAL CORPORATION AND SUBSIDIARIES
RESULTS
OF OPERATIONS: 2008 COMPARED WITH 2007
General
Income
from continuing operations totaled $9.7 million, or $1.07 per diluted share, on
sales of $149.8 million in the quarter ended March 2, 2008, compared to $8.3
million, or $.92 per diluted share, on sales of $120.4 million in the same
period in 2007. Sales and income from continuing operations increased due
to higher business activity and the longer period in 2008. The
Fiberglass-Composite Pipe Group had higher sales and profits due to continued
strength in all markets. The Infrastructure Products Group had lower
sales and slightly lower profits due to the slow down in pole sales associated
with residential construction. The Water Transmission Group had
higher sales and continuing loses. Income from continuing operations
was higher due primarily to the strong results of the Fiberglass-Composite Pipe
Group and the Hawaiian division of the Infrastructure Products Group.
Offsetting the increase in operating income was a $2.3 million reduction
in equity in earnings of TAMCO, Ameron's 50%-owned steel mini-mill in
California, in the first quarter of 2008, compared to the same period in
2007.
No income
from discontinued operations was recorded in the quarter ended March 2, 2008,
compared to $.2 million, or $.02 per diluted share, for the same period in
2007. During the first quarter of 2007, the Company recognized a net
research and development tax credit of $.2 million related to discontinued
operations.
Sales
Sales
increased $29.4 million in the first quarter of 2008, compared to the similar
period in 2007. The Fiberglass-Composite Pipe and Water Transmission
Groups had higher sales, while the Infrastructure Products Group had lower
sales. The total sales increase was partly due to the longer period
in 2008 and to the impact of stronger foreign currencies.
Fiberglass-Composite
Pipe's sales increased $19.3 million, or 41.6%, in the first quarter of 2008,
compared to the similar period in 2007. Sales from operations in the U.S.
increased $3.6 million in the first quarter of 2008 primarily due to increased
demand for onshore oilfield and industrial piping. Sales from the Asian
subsidiaries increased $6.9 million in the first quarter of 2008, driven by
activity in the industrial, marine and offshore segments and the impact of
foreign exchange. Sales from European operations increased $4.0 million in
the first quarter of 2008 due to growth in industrial, oilfield and marine
markets and the impact of foreign exchange. The Brazilian business
acquired in October 2007 contributed sales of $4.8 million. The
strong demand for oilfield, industrial 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 $11.4 million, or 38.5%, in the first quarter of
2008, compared to the similar period in 2007. The sales increase was
driven by the Company’s entry into the market for large-diameter wind towers and
operations in South America which benefited from increased demand for water pipe
in Colombia. Sales of water pipe in the U.S. declined due to wet
weather and soft market conditions. The demand for large-diameter
water pipe in the western U.S. remained soft due to a cyclical lull in the water
infrastructure market. The market for wind towers is expected to
remain strong, while the water infrastructure market in the western U.S. region
is expected to remain slow.
Infrastructure
Products' sales decreased $2.0 million, or 4.3%, in the first quarter of 2008,
compared to the similar period in 2007. The Company’s Hawaiian division
had higher sales due to improved pricing and the continued strength of the
governmental, commercial and resort/timeshare construction markets on Oahu and
Maui. Pole Products was impacted by the decline in U.S. residential
construction markets which resulted in a reduction in demand for concrete
lighting poles. Sales of steel poles for highway and traffic applications
also decreased due to weather and project timing. Although the
housing market has softened, primarily impacting the demand for concrete poles,
the outlook for the Infrastructure Products Group’s other construction markets
remains firm.
Gross
Profit
Gross
profit in the first quarter of 2008 was $33.4 million, or 22.3% of sales,
compared to $25.3 million, or 21.0% of sales, in the first quarter of
2007. Gross profit increased $8.1 million due to higher sales and higher
gross profit margins. Margins increased due to the increased
profitability of the Fiberglass-Composite Pipe Group.
AMERON
INTERNATIONAL CORPORATION AND SUBSIDIARIES
Fiberglass-Composite
Pipe Group's gross profit increased $9.8 million in the first quarter of 2008,
compared to the similar period in 2007. Profit margins improved to
36.4% in 2008, compared to 30.5% in 2007. Higher margins resulted
from improvements in product and market mix, prices and plant utilization.
Increased sales volume and prices generated additional gross profit of
$5.9 million, while favorable product mix and operating efficiencies generated
additional gross profit of $3.9 million in 2008.
Water
Transmission Group's gross profit decreased $2.0 million in the first quarter of
2008, compared to the similar period in 2007. The profit margin was
negative 1.9% in 2008, compared to a profit margin of 4.0% in 2007. Higher
sales volume increased profit by $.5 million in 2008. Lower
margins negatively impacted gross profit by $2.5 million due to an unfavorable
mix of projects, start-up costs associated with the introduction of wind towers
and lower efficiencies due to lower pipe sales.
Gross
profit in the Infrastructure Products Group decreased $.8 million in the first
quarter of 2008, compared to the similar period in 2007. Profit margins
declined to 22.5% in the first quarter of 2008, compared to 23.2% in 2007.
The decrease in sales volume reduced gross profit by $.5 million and lower
margins reduced gross profit by $.3 million in 2008.
Selling,
General and Administrative Expenses
Selling,
general and administrative ("SG&A") expenses totaled $25.8 million, or 17.2%
of sales, in the first quarter of 2008, compared to $21.5 million, or 17.9% of
sales, in the similar period of 2007. The $4.3 million increase included
higher stock compensation expense of $1.4 million, $.9 million associated with
the newly-acquired Brazilian operations and commissions and administrative
expense of $2.0 million associated with higher sales. The reduction
in SG&A as a percent of sales was due to spending controls and the leverage
achieved from higher sales.
Other
Income, Net
Other
income was $3.0 million in the first quarter of 2008, compared to $1.0 million
in the similar period of 2007. The increase in other income in 2008
was due primarily to dividend income received from the Company’s concrete pipe
joint venture, Ameron Saudi Arabia, Ltd., of $1.5 million. Other
income also included royalties and fees from licensees, foreign currency
transaction losses and other miscellaneous income.
Interest
Net
interest income totaled $.3 million in the first quarter of 2008, compared to
net interest income of $.4 million in the same period of 2007. Lower
interest income was due to lower rates of return from short-term
investments.
Provision
for Income Taxes
Income
taxes increased to $3.9 million in the first quarter of 2008, from $1.9 million
in the same period of 2007. The effective tax rate on income from
continuing operations decreased to 36.0% in 2008, from 36.9% in
2007. The effective tax rate for the first quarter of 2008 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 2008 is not
necessarily indicative of the tax rate for the full year.
Equity
in Earnings of Joint Venture, Net of Taxes
Equity in
earnings of joint venture, which consists of the Company’s share of the net
income of TAMCO, decreased to $2.8 million in the first quarter of 2008,
compared to $5.0 million in the similar period of 2007. Equity income is
shown net of income taxes. Dividends from TAMCO were taxed at an
effective rate of 9.6% and 11.3%, respectively for the first quarter of 2008 and
2007, reflecting the dividend exclusion provided to the Company under current
tax laws. The reduction in TAMCO’s earnings was due to higher
production costs and increased raw material costs.
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. The tax
credit arose from the retroactive application of tax legislation enacted in
2007.
AMERON
INTERNATIONAL CORPORATION AND SUBSIDIARIES
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 2007 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 March 2, 2008, 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
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 March 2, 2008, the Company was a defendant in
asbestos-related cases involving 25 claimants, compared to 60 claimants as of
November 30, 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 March 2, 2008, there were new claims involving three
claimants, dismissals and/or settlements involving 38 claimants and no
judgments. No net costs or expenses were incurred by the Company for
the quarter ended March 2, 2008 in connection with asbestos-related
claims.
No
material changes have occurred in risk factors as presented in the Company’s
2007 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 (or
|
|
|
|
(a)
|
|
|
(b)
|
|
|
(or
Units) Purchased
|
|
|
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**
|
|
12/1/07
thru 12/30/07
|
|
|
- |
|
|
$ |
- |
|
|
|
- |
|
|
|
57,050 |
|
12/31/07
thru 2/3/08
|
|
|
19,628 |
|
|
|
97.17 |
|
|
|
- |
|
|
|
39,741 |
|
2/4/08
thru 3/2/08
|
|
|
3,724 |
|
|
|
99.71 |
|
|
|
- |
|
|
|
35,896 |
|
**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 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
2008.
AMERON
INTERNATIONAL CORPORATION AND SUBSIDIARIES
ITEM 5 – OTHER INFORMATION
No
material changes have occurred in the other information disclosure as presented
in the Company’s 2007 Annual Report
EXHIBIT
|
EXHIBITS
OF AMERON
|
31.1
|
Section 302
Certification of Chief Executive Officer
|
31.2
|
Section 302
Certification of Chief Financial Officer
|
32
|
Section 906
Certification of Chief Executive Officer and Chief Financial
Officer*
|
* 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
Four
reports on Form 8-K were filed by the Company during the first quarter of 2008
as follows:
January
14, 2008 reporting the Company’s quarterly dividend of $.25 per share and the
date of the Annual Meeting of Stockholders, as reported in a press release dated
January 14, 2008.
February
1, 2008 reporting the Company’s results of operations for the year ended
November 30, 2007, as reported in a press release dated January 31,
2008.
February
4, 2008 reporting the appointment of principal officers effective February 1,
2008, as reported in a press release dated February 4, 2008, and reporting
principal officer changes and actions of the Compensation Committee of the Board
of Directors with regard to the compensation of certain executive
officers.
February
6, 2008 reporting the appointment of principal officers effective February 1,
2008, as reported in a press release dated February 5, 2008.
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:
March 27, 2008