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 August 31, 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 9,181,192 on
August 31, 2008. No other class of Common Stock exists.
AMERON
INTERNATIONAL CORPORATION AND SUBSIDIARIES
FORM
10-Q
For
the Quarter Ended August 31, 2008
Table
of Contents
|
|
|
3
|
|
20
|
|
29
|
|
29
|
|
|
|
30
|
|
31
|
|
31
|
|
31
|
|
31
|
|
31
|
AMERON
INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF INCOME (UNAUDITED)
|
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
|
|
August
31,
|
|
|
August
26,
|
|
|
August
31,
|
|
|
August
26,
|
|
(Dollars
in thousands, except per share data)
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Sales
|
|
$
|
170,107
|
|
|
$
|
165,048
|
|
|
$
|
479,669
|
|
|
$
|
442,159
|
|
Cost
of sales
|
|
|
(132,652
|
)
|
|
|
(128,047
|
)
|
|
|
(369,016
|
)
|
|
|
(339,076
|
)
|
Gross
profit
|
|
|
37,455
|
|
|
|
37,001
|
|
|
|
110,653
|
|
|
|
103,083
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative expenses
|
|
|
(25,795
|
)
|
|
|
(21,669
|
)
|
|
|
(77,462
|
)
|
|
|
(69,128
|
)
|
Other
income, net
|
|
|
2,252
|
|
|
|
1,760
|
|
|
|
5,802
|
|
|
|
3,715
|
|
Income
from continuing operations before interest, income taxes and equity in
earnings of joint venture
|
|
|
13,912
|
|
|
|
17,092
|
|
|
|
38,993
|
|
|
|
37,670
|
|
Interest
(expense)/income, net
|
|
|
(19
|
)
|
|
|
62
|
|
|
|
412
|
|
|
|
410
|
|
Income
from continuing operations before income taxes and equity in earnings of
joint venture
|
|
|
13,893
|
|
|
|
17,154
|
|
|
|
39,405
|
|
|
|
38,080
|
|
Provision
for income taxes
|
|
|
(3,079
|
)
|
|
|
426
|
|
|
|
(12,008
|
)
|
|
|
(6,631
|
)
|
Income
from continuing operations before equity in earnings of joint
venture
|
|
|
10,814
|
|
|
|
17,580
|
|
|
|
27,397
|
|
|
|
31,449
|
|
Equity
in earnings of joint venture, net of taxes
|
|
|
4,184
|
|
|
|
3,079
|
|
|
|
13,671
|
|
|
|
12,335
|
|
Income
from continuing operations
|
|
|
14,998
|
|
|
|
20,659
|
|
|
|
41,068
|
|
|
|
43,784
|
|
Income
from discontinued operations, net of taxes
|
|
|
-
|
|
|
|
463
|
|
|
|
-
|
|
|
|
1,609
|
|
Net
income
|
|
$
|
14,998
|
|
|
$
|
21,122
|
|
|
$
|
41,068
|
|
|
$
|
45,393
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations
|
|
$
|
1.64
|
|
|
$
|
2.28
|
|
|
$
|
4.50
|
|
|
$
|
4.85
|
|
Income
from discontinued operations, net of taxes
|
|
|
-
|
|
|
|
.05
|
|
|
|
-
|
|
|
|
.18
|
|
Net
income
|
|
$
|
1.64
|
|
|
$
|
2.33
|
|
|
$
|
4.50
|
|
|
$
|
5.03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations
|
|
$
|
1.63
|
|
|
$
|
2.27
|
|
|
$
|
4.48
|
|
|
$
|
4.83
|
|
Income
from discontinued operations, net of taxes
|
|
|
-
|
|
|
|
.05
|
|
|
|
-
|
|
|
|
.18
|
|
Net
income
|
|
$
|
1.63
|
|
|
$
|
2.32
|
|
|
$
|
4.48
|
|
|
$
|
5.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average
shares (basic)
|
|
|
9,134,672
|
|
|
|
9,044,129
|
|
|
|
9,118,768
|
|
|
|
9,020,798
|
|
Weighted-average
shares (diluted)
|
|
|
9,208,536
|
|
|
|
9,089,574
|
|
|
|
9,171,103
|
|
|
|
9,068,593
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
dividends per share
|
|
$
|
.30
|
|
|
$
|
.25
|
|
|
$
|
.85
|
|
|
$
|
.65
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
AMERON
INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS – ASSETS (UNAUDITED)
|
|
August
31,
|
|
|
November
30,
|
|
(Dollars
in thousands)
|
|
2008
|
|
|
2007
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
assets
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
158,277
|
|
|
$
|
155,433
|
|
Receivables,
less allowances of $6,452 in 2008 and $6,235 in 2007
|
|
|
171,600
|
|
|
|
185,335
|
|
Inventories
|
|
|
97,253
|
|
|
|
97,717
|
|
Deferred
income taxes
|
|
|
23,062
|
|
|
|
22,446
|
|
Prepaid
expenses and other current assets
|
|
|
12,232
|
|
|
|
12,100
|
|
|
|
|
|
|
|
|
|
|
Total
current assets
|
|
|
462,424
|
|
|
|
473,031
|
|
|
|
|
|
|
|
|
|
|
Investments
in joint ventures
|
|
|
|
|
|
|
|
|
Equity
method
|
|
|
18,989
|
|
|
|
14,677
|
|
Cost
method
|
|
|
3,784
|
|
|
|
3,784
|
|
|
|
|
|
|
|
|
|
|
Property,
plant and equipment
|
|
|
|
|
|
|
|
|
Land
|
|
|
38,933
|
|
|
|
35,860
|
|
Buildings
|
|
|
82,922
|
|
|
|
75,245
|
|
Machinery
and equipment
|
|
|
302,587
|
|
|
|
292,563
|
|
Construction
in progress
|
|
|
38,747
|
|
|
|
24,655
|
|
|
|
|
|
|
|
|
|
|
Total
property, plant and equipment at cost
|
|
|
463,189
|
|
|
|
428,323
|
|
Accumulated
depreciation
|
|
|
(260,114
|
)
|
|
|
(254,592
|
)
|
|
|
|
|
|
|
|
|
|
Total
property, plant and equipment, net
|
|
|
203,075
|
|
|
|
173,731
|
|
Deferred
income taxes
|
|
|
5,260
|
|
|
|
4,202
|
|
Goodwill
and intangible assets, net of accumulated amortization of $1,215 in 2008
and $1,130 in 2007
|
|
|
2,181
|
|
|
|
2,243
|
|
Other
assets
|
|
|
39,069
|
|
|
|
34,144
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
734,782
|
|
|
$
|
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)
|
|
August
31,
|
|
|
November
30,
|
|
(Dollars
in thousands, except per share data)
|
|
2008
|
|
|
2007
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
|
|
|
Current
portion of long-term debt
|
|
$
|
17,196
|
|
|
$
|
17,055
|
|
Trade
payables
|
|
|
53,329
|
|
|
|
45,216
|
|
Accrued
liabilities
|
|
|
74,404
|
|
|
|
84,436
|
|
Income
taxes payable
|
|
|
-
|
|
|
|
11,985
|
|
|
|
|
|
|
|
|
|
|
Total
current liabilities
|
|
|
144,929
|
|
|
|
158,692
|
|
|
|
|
|
|
|
|
|
|
Long-term
debt, less current portion
|
|
|
54,486
|
|
|
|
57,593
|
|
Other
long-term liabilities
|
|
|
52,009
|
|
|
|
44,154
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
251,424
|
|
|
|
260,439
|
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders'
equity
|
|
|
|
|
|
|
|
|
Common
stock, par value $2.50 per share, authorized 24,000,000 shares,
outstanding 9,181,192 shares in 2008 and 9,138,563 shares in 2007, net of
treasury shares
|
|
|
29,801
|
|
|
|
29,623
|
|
Additional
paid-in capital
|
|
|
53,069
|
|
|
|
46,675
|
|
Retained
earnings
|
|
|
464,201
|
|
|
|
430,925
|
|
Accumulated
other comprehensive loss
|
|
|
(8,979
|
)
|
|
|
(9,870
|
)
|
Treasury
stock (2,739,300 shares in 2008 and 2,710,479 shares in
2007)
|
|
|
(54,734
|
)
|
|
|
(51,980
|
)
|
|
|
|
|
|
|
|
|
|
Total
stockholders' equity
|
|
|
483,358
|
|
|
|
445,373
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders' equity
|
|
$
|
734,782
|
|
|
$
|
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)
|
|
Nine
Months Ended
|
|
|
|
August
31,
|
|
|
August
26,
|
|
(Dollars
in thousands)
|
|
2008
|
|
|
2007
|
|
OPERATING
ACTIVITIES
|
|
|
|
|
|
|
Net
income
|
|
$
|
41,068
|
|
|
$
|
45,393
|
|
Adjustments
to reconcile net income to net cash provided by/(used in) operating
activities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
14,733
|
|
|
|
11,958
|
|
Amortization
|
|
|
82
|
|
|
|
19
|
|
Earnings
in excess of distributions from joint ventures
|
|
|
(4,316
|
)
|
|
|
(2,927
|
)
|
Loss/(gain)
from sale of property, plant and equipment
|
|
|
15
|
|
|
|
(44
|
)
|
Gain
from sale of discontinued operations
|
|
|
-
|
|
|
|
(1,453
|
)
|
Stock
compensation expense
|
|
|
4,873
|
|
|
|
1,793
|
|
Other
|
|
|
-
|
|
|
|
(166
|
)
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Receivables,
net
|
|
|
15,168
|
|
|
|
1,032
|
|
Inventories
|
|
|
3,194
|
|
|
|
(34,191
|
)
|
Prepaid
expenses and other current assets
|
|
|
(163
|
)
|
|
|
2,455
|
|
Other
assets
|
|
|
(5,500
|
)
|
|
|
(2,674
|
)
|
Trade
payables
|
|
|
7,802
|
|
|
|
(5,721
|
)
|
Accrued
liabilities and income taxes payable
|
|
|
(24,490
|
)
|
|
|
7,936
|
|
Other
long-term liabilities
|
|
|
7,048
|
|
|
|
(4,045
|
)
|
Net
cash provided by operating activities
|
|
|
59,514
|
|
|
|
19,365
|
|
|
|
|
|
|
|
|
|
|
INVESTING
ACTIVITIES
|
|
|
|
|
|
|
|
|
Proceeds
from sale of property, plant and equipment
|
|
|
1,290
|
|
|
|
385
|
|
Proceeds
from sale of discontinued operations
|
|
|
-
|
|
|
|
5,910
|
|
Additions
to property, plant and equipment
|
|
|
(44,539
|
)
|
|
|
(33,301
|
)
|
Net
cash used in investing activities
|
|
|
(43,249
|
)
|
|
|
(27,006
|
)
|
|
|
|
|
|
|
|
|
|
FINANCING
ACTIVITIES
|
|
|
|
|
|
|
|
|
Issuance
of debt
|
|
|
-
|
|
|
|
1,036
|
|
Repayment
of debt
|
|
|
(4,073
|
)
|
|
|
(2,665
|
)
|
Dividends
on common stock
|
|
|
(7,792
|
)
|
|
|
(5,924
|
)
|
Issuance
of common stock
|
|
|
846
|
|
|
|
1,136
|
|
Excess
tax benefits related to stock-based compensation
|
|
|
1,251
|
|
|
|
1,955
|
|
Purchase
of treasury stock
|
|
|
(2,754
|
)
|
|
|
(1,595
|
)
|
Net
cash used in financing activities
|
|
|
(12,522
|
)
|
|
|
(6,057
|
)
|
|
|
|
|
|
|
|
|
|
Effect
of exchange rate changes on cash and cash equivalents
|
|
|
(899
|
)
|
|
|
782
|
|
Net
change in cash and cash equivalents
|
|
|
2,844
|
|
|
|
(12,916
|
)
|
Cash
and cash equivalents at beginning of period
|
|
|
155,433
|
|
|
|
139,479
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at end of period
|
|
$
|
158,277
|
|
|
$
|
126,563
|
|
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 August 31,
2008, and consolidated results of operations and cash flows for the nine months
ended August 31, 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 quarters ended August 31, 2008 and August 26,
2007 consisted of 91 days each. The nine months ended August 31, 2008
and August 26, 2007 consisted of 275 days and 269 days,
respectively.
The
consolidated financial statements do not include certain footnote disclosures
and financial information normally included in consolidated financial statements
prepared in accordance with accounting principles generally accepted in the
United States of America (“GAAP”) 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 Standards (“SFAS”) No. 109 and prescribes a recognition threshold and
measurement attribute for financial statement disclosure of tax positions taken
or expected to be taken on a tax return. 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 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.” SFAS No. 157 establishes a framework for measuring
fair value in accordance with U.S. generally accepted accounting principles, and
expands disclosure about fair value measurements. SFAS No. 157 is
effective for financial statements issued for fiscal years beginning after
November 15, 2007. Relative to SFAS No. 157, the FASB
issued FASB Staff Position (“FSP”) FASB Statements (“FAS”) 157-1 and FAS
157-2. FSP FAS 157-1 amends SFAS No. 157 to exclude SFAS
No. 13, “Accounting for Leases,” and its related interpretive accounting
pronouncements that address leasing transactions. FSP FAS 157-2
delays the effective date of SFAS No. 157 to fiscal years beginning after
November 15, 2008 for all non-financial assets and non-financial liabilities,
except those that are recognized or disclosed at fair value in the financial
statements on a recurring basis. The Company adopted SFAS
No. 157, as amended, effective December 1, 2007 with the exception of the
application of SFAS No. 157 to non-recurring non-financial assets and
non-financial liabilities. The adoption of SFAS No. 157 did not
have a significant impact on the Company’s financial results of operations or
financial position. See Note 18, herein, “Fair Value Measurements,”
for further discussion.
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,
“Employers’ Accounting For Postretirement Benefits Other Than
Pensions.” 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. The Company will
adopt EITF Issue No. 06-4 in the first quarter of the fiscal year beginning
December 1, 2008.
AMERON
INTERNATIONAL CORPORATION AND SUBSIDIARIES
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
irrevocably elected not to exercise the fair value option. The
adoption of SFAS No. 159 did not have a material effect on the Company’s
consolidated financial statements.
In June
2007, the FASB issued EITF Issue No. 06-11, “Accounting for Income Tax Benefits
of Dividends on Share-Based Payment Awards,” effective for fiscal years
beginning after December 15, 2007. EITF Issue No. 06–11 requires
on a prospective basis that the tax benefit related to dividend equivalents paid
on restricted stock and restricted stock units which are expected to vest, be
recorded as an increase to additional paid-in capital. The adoption of
EITF Issue No. 06-11 is not expected to have a material effect on the
Company’s consolidated financial statements. The Company will adopt
EITF Issue No. 06-11 in the first quarter of the fiscal year beginning December
1, 2008.
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. The first such
reporting period for the Company will be the fiscal year beginning December 1,
2010.
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. The first such
reporting period for the Company will be the fiscal year beginning December 1,
2010.
In March
2008, the FASB issued SFAS No. 161, “Disclosures about Derivative
Instruments and Hedging Activities – an amendment of FASB Statement
No. 133,” effective for fiscal years beginning after November 15,
2008, with early application encouraged. SFAS No. 161 amends and
expands the disclosure requirements for derivative instruments and hedging
activities by requiring enhanced disclosures about how and why the Company uses
derivative instruments, how derivative instruments and related hedged items are
accounted for, and how derivative instruments and related hedged items affect
the Company’s financial position, financial performance and cash
flows. The adoption of SFAS No. 161 is not expected to have a
material effect on the Company’s consolidated financial
statements. The Company will adopt SFAS No. 161 in the first quarter
of the fiscal year beginning December 1, 2009.
In April
2008, the FASB issued FSP FAS 142-3, “Determination of the Useful Life of
Intangible Assets.” FSP FAS 142-3 amends the factors that should be
considered in developing renewal or extension assumptions used to determine the
useful life of a recognized intangible asset under SFAS No. 142. FSP
FAS 142-3 is effective for fiscal years beginning on or after December 15,
2008. The Company is evaluating whether the adoption of FSP FAS 142-3
will have a material effect on its consolidated financial
statements.
In June
2008, the FASB issued FSP EITF 03-6-1, “Determining Whether Instruments
Granted in Share-Based Payment Transactions Are Participating Securities,” which
addresses whether unvested instruments granted in share-based payment
transactions that contain nonforfeitable rights to dividends or dividend
equivalents are participating securities subject to the two-class method of
computing earnings per share under SFAS No. 128, “Earnings Per
Share.” FSP EITF 03-6-1 is effective for financial statements
issued for fiscal years, and interim periods within those fiscal years,
beginning on or after December 15, 2008. Earlier adoption is
prohibited. The adoption of FSP EITF 03-6-1 is not expected to have a
material effect on the Company’s consolidated financial
statements.
AMERON
INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTE
3 – DISCONTINUED OPERATIONS
On August
1, 2006, the Company completed the sale of its Performance Coatings &
Finishes business (the "Coatings Business") to PPG Industries, Inc.
("PPG"). Certain real properties that were used in the Coatings Business
were excluded from the sale. During the third quarter of 2007, two of
the properties were sold for a gain of $463,000, net of taxes. The
Company recognized a gain of $1,453,000, net of taxes, on the sale of properties
in the nine months ended August 26, 2007. During the first quarter of
2007, the Company recognized $156,000 of research and development tax credits
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
|
|
|
Nine
Months Ended
|
|
|
|
August
31,
|
|
|
August
26,
|
|
|
August
31,
|
|
|
August
26,
|
|
(In
thousands)
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Tax
credits from discontinued operations
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
156
|
|
Gain
on sale of discontinued operations, net of taxes
|
|
|
-
|
|
|
|
463
|
|
|
|
-
|
|
|
|
1,453
|
|
Income
from discontinued operations, net of taxes
|
|
$
|
-
|
|
|
$
|
463
|
|
|
$
|
-
|
|
|
$
|
1,609
|
|
Income
from discontinued operations, net of taxes, was $.05 per diluted share and $.18
per diluted share, for the three and nine months ended August 26, 2007,
respectively.
NOTE 4 -
RECEIVABLES
The
Company’s receivables consisted of the following:
|
|
August
31,
|
|
|
November
30,
|
|
(In
thousands)
|
|
2008
|
|
|
2007
|
|
Trade
|
|
$
|
154,780
|
|
|
$
|
156,562
|
|
Joint
ventures
|
|
|
1,829
|
|
|
|
2,714
|
|
Other
|
|
|
21,443
|
|
|
|
32,294
|
|
Allowances
|
|
|
(6,452
|
)
|
|
|
(6,235
|
)
|
|
|
$
|
171,600
|
|
|
$
|
185,335
|
|
Trade
receivables included unbilled receivables related to percentage-of-completion
revenue recognition of $29,882,000 and $45,578,000 at August 31, 2008 and
November 30, 2007, respectively.
NOTE
5 – INVENTORIES
Inventories
are stated at the lower of cost or market. Inventories consisted of the
following:
|
|
August
31,
|
|
|
November
30,
|
|
(In
thousands)
|
|
2008
|
|
|
2007
|
|
Finished
products
|
|
$
|
42,284
|
|
|
$
|
41,580
|
|
Materials
and supplies
|
|
|
21,216
|
|
|
|
28,246
|
|
Products
in process
|
|
|
33,753
|
|
|
|
27,891
|
|
|
|
$
|
97,253
|
|
|
$
|
97,717
|
|
Certain
steel inventories are valued using the last-in, first-out ("LIFO") method.
During 2008, inventory quantities subject to valuation using the LIFO method
declined while steel prices increased sharply. The net
impact was negligible. The decrease in cost of goods sold of
approximately $5,500,000 associated with the liquidation of LIFO inventory
quantities carried at historically lower costs was offset by an increase in cost
of goods sold of approximately $5,500,000 due to the increase in steel
prices.
AMERON
INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTE
6 – SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Supplemental
cash flow information included the following:
|
|
Nine
Months Ended
|
|
|
|
August
31,
|
|
|
August
26,
|
|
(In
thousands)
|
|
2008
|
|
|
2007
|
|
Interest
paid
|
|
$
|
1,827
|
|
|
$
|
2,178
|
|
Income
taxes paid
|
|
|
14,808
|
|
|
|
19,793
|
|
NOTE
7 – JOINT VENTURES
Operating
results of TAMCO, an investment which is accounted for under the equity method,
were as follows:
|
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
|
|
August
31,
|
|
|
August
26,
|
|
|
August
31,
|
|
|
August
26,
|
|
(In
thousands)
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Net
sales
|
|
$
|
113,762
|
|
|
$
|
63,251
|
|
|
$
|
332,220
|
|
|
$
|
211,122
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
18,721
|
|
|
|
15,064
|
|
|
|
61,520
|
|
|
|
55,974
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
9,258
|
|
|
|
6,944
|
|
|
|
30,247
|
|
|
|
27,819
|
|
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. Income recognized from
ASAL and BL, if any, is included in other income, net.
Earnings
and dividends from the Company's joint ventures were as
follows:
|
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
|
|
August
31,
|
|
|
August
26,
|
|
|
August
31,
|
|
|
August
26,
|
|
(In
thousands)
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Earnings
from joint ventures
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
in earnings of TAMCO before income taxes
|
|
$
|
4,629
|
|
|
$
|
3,472
|
|
|
$
|
15,124
|
|
|
$
|
13,910
|
|
Less
provision for income taxes
|
|
|
(445
|
)
|
|
|
(393
|
)
|
|
|
(1,453
|
)
|
|
|
(1,575
|
)
|
Equity
in earnings of TAMCO, net of taxes
|
|
$
|
4,184
|
|
|
$
|
3,079
|
|
|
$
|
13,671
|
|
|
$
|
12,335
|
|
Dividends
received from joint ventures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TAMCO
|
|
$
|
5,748
|
|
|
$
|
3,998
|
|
|
$
|
10,808
|
|
|
$
|
10,983
|
|
ASAL
|
|
|
-
|
|
|
|
-
|
|
|
|
1,496
|
|
|
|
-
|
|
BL
|
|
|
1,227
|
|
|
|
1,254
|
|
|
|
1,227
|
|
|
|
1,254
|
|
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 dilutive effect of outstanding stock options
and restricted stock, using the treasury stock method. Outstanding
common stock equivalents, consisting of 45,520 and 62,517 restricted shares
and options to purchase 43,802 and 67,250 common shares, were dilutive for
the nine months ended August 31, 2008 and August 26, 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
|
|
|
Nine
Months Ended
|
|
|
|
August
31,
|
|
|
August
26,
|
|
|
August
31,
|
|
|
August
26,
|
|
(Dollars
in thousands, except per share data)
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations
|
|
$
|
14,998
|
|
|
$
|
20,659
|
|
|
$
|
41,068
|
|
|
$
|
43,784
|
|
Income
from discontinued operations, net of taxes
|
|
|
-
|
|
|
|
463
|
|
|
|
-
|
|
|
|
1,609
|
|
Net
income
|
|
$
|
14,998
|
|
|
$
|
21,122
|
|
|
$
|
41,068
|
|
|
$
|
45,393
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator
for basic income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average
shares outstanding, basic
|
|
|
9,134,672
|
|
|
|
9,044,129
|
|
|
|
9,118,768
|
|
|
|
9,020,798
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator
for diluted income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average
shares outstanding, basic
|
|
|
9,134,672
|
|
|
|
9,044,129
|
|
|
|
9,118,768
|
|
|
|
9,020,798
|
|
Dilutive
effect of stock options and restricted stock
|
|
|
73,864
|
|
|
|
45,445
|
|
|
|
52,335
|
|
|
|
47,795
|
|
Weighted-average
shares outstanding, diluted
|
|
|
9,208,536
|
|
|
|
9,089,574
|
|
|
|
9,171,103
|
|
|
|
9,068,593
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations
|
|
$
|
1.64
|
|
|
$
|
2.28
|
|
|
$
|
4.50
|
|
|
$
|
4.85
|
|
Income
from discontinued operations, net of taxes
|
|
|
-
|
|
|
|
.05
|
|
|
|
-
|
|
|
|
.18
|
|
Net
income
|
|
$
|
1.64
|
|
|
$
|
2.33
|
|
|
$
|
4.50
|
|
|
$
|
5.03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations
|
|
$
|
1.63
|
|
|
$
|
2.27
|
|
|
$
|
4.48
|
|
|
$
|
4.83
|
|
Income
from discontinued operations, net of taxes
|
|
|
-
|
|
|
|
.05
|
|
|
|
-
|
|
|
|
.18
|
|
Net
income
|
|
$
|
1.63
|
|
|
$
|
2.32
|
|
|
$
|
4.48
|
|
|
$
|
5.01
|
|
NOTE
9 – COMPREHENSIVE INCOME
Comprehensive
income was as follows:
|
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
|
|
August
31,
|
|
|
August
26,
|
|
|
August
31,
|
|
|
August
26,
|
|
(In
thousands)
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Net
income
|
|
$
|
14,998
|
|
|
$
|
21,122
|
|
|
$
|
41,068
|
|
|
$
|
45,393
|
|
Foreign
currency translation adjustment
|
|
|
(6,354
|
)
|
|
|
155
|
|
|
|
896
|
|
|
|
2,936
|
|
Comprehensive
income from joint venture
|
|
|
(5
|
)
|
|
|
-
|
|
|
|
(5
|
)
|
|
|
-
|
|
Comprehensive
income
|
|
$
|
8,639
|
|
|
$
|
21,277
|
|
|
$
|
41,959
|
|
|
$
|
48,329
|
|
AMERON
INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTE
10 – DEBT
The
Company's long-term debt consisted of the following:
|
|
August
31,
|
|
|
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 $7,196,
beginning November 25, 2008
|
|
|
35,982
|
|
|
|
35,274
|
|
Variable-rate
industrial development bonds:
|
|
|
|
|
|
|
|
|
payable
in 2016 (1.86% at August 31, 2008)
|
|
|
7,200
|
|
|
|
7,200
|
|
payable
in 2021 (1.86% at August 31, 2008)
|
|
|
8,500
|
|
|
|
8,500
|
|
Variable-rate
bank revolving credit facility
|
|
|
-
|
|
|
|
3,674
|
|
Total
long-term debt
|
|
|
71,682
|
|
|
|
74,648
|
|
Less
current portion
|
|
|
(17,196
|
)
|
|
|
(17,055
|
)
|
Long-term
debt, less current portion
|
|
$
|
54,486
|
|
|
$
|
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 requirements to maintain specified amounts of net worth and
restrictions on cash dividends, borrowings, liens, investments, guarantees, and
financial covenants. The Company was in compliance with all covenants as
of August 31, 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 exceeded such short-term borrowings at November 30,
2007. Accordingly, amounts due under these bank facilities are
classified as long-term debt and are considered payable when the Revolver is
due. No borrowings were outstanding under the Revolver as of August
31, 2008.
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 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 prior periods, the Company included a
fourth reportable segment, Performance Coatings & Finishes, which was sold
effective August 1, 2006. The results from this segment are 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 are not
allocated to the reportable segments, such as adjustments to reflect inventory
balances of certain steel inventories under the LIFO method, certain unusual
legal costs and expenses, interest expense and income taxes.
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
|
|
|
Nine
Months Ended
|
|
|
|
August
31,
|
|
|
August
26,
|
|
|
August
31,
|
|
|
August
26,
|
|
(In
thousands)
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiberglass-Composite
Pipe
|
|
$
|
69,956
|
|
|
$
|
62,554
|
|
|
$
|
205,187
|
|
|
$
|
170,183
|
|
Water
Transmission
|
|
|
53,420
|
|
|
|
48,959
|
|
|
|
138,430
|
|
|
|
121,810
|
|
Infrastructure
Products
|
|
|
46,862
|
|
|
|
53,528
|
|
|
|
136,981
|
|
|
|
152,460
|
|
Eliminations
|
|
|
(131
|
)
|
|
|
7
|
|
|
|
(929
|
)
|
|
|
(2,294
|
)
|
Total
Sales
|
|
$
|
170,107
|
|
|
$
|
165,048
|
|
|
$
|
479,669
|
|
|
$
|
442,159
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from Continuing Operations Before Interest, Income Taxes and Equity in
Earnings of Joint Venture
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiberglass-Composite
Pipe
|
|
$
|
22,015
|
|
|
$
|
18,850
|
|
|
$
|
56,515
|
|
|
$
|
44,588
|
|
Water
Transmission
|
|
|
(5,299
|
)
|
|
|
(2,999
|
)
|
|
|
(11,013
|
)
|
|
|
(6,330
|
)
|
Infrastructure
Products
|
|
|
6,230
|
|
|
|
9,250
|
|
|
|
19,164
|
|
|
|
25,981
|
|
Corporate
and unallocated
|
|
|
(9,034
|
)
|
|
|
(8,009
|
)
|
|
|
(25,673
|
)
|
|
|
(26,569
|
)
|
Total
Income from Continuing Operations Before Interest, Income Taxes and Equity
in Earnings of Joint Venture
|
|
$
|
13,912
|
|
|
$
|
17,092
|
|
|
$
|
38,993
|
|
|
$
|
37,670
|
|
|
|
August
31,
|
|
|
November
30,
|
|
(In
thousands)
|
|
2008
|
|
|
2007
|
|
Assets
|
|
|
|
|
|
|
|
|
Fiberglass-Composite
Pipe
|
|
$
|
303,534
|
|
|
$
|
260,567
|
|
Water
Transmission
|
|
|
231,949
|
|
|
|
218,247
|
|
Infrastructure
Products
|
|
|
112,453
|
|
|
|
103,993
|
|
Corporate
and unallocated
|
|
|
231,384
|
|
|
|
226,383
|
|
Eliminations
|
|
|
(144,538
|
)
|
|
|
(103,378
|
)
|
Total
Assets
|
|
$
|
734,782
|
|
|
$
|
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 August 31, 2008, the Company was a defendant in
asbestos-related cases involving 31 claimants, compared to 29 claimants as of
June 1, 2008. The Company is not in a position to estimate the number of
additional claims that may be filed against it in the future. For the
quarter ended August 31, 2008, there were new claims involving five claimants,
dismissals and/or settlements involving three claimants and no
judgments. No net costs or expenses were incurred by the Company for
the quarter ended August 31, 2008 in connection with asbestos-related
claims.
AMERON
INTERNATIONAL CORPORATION AND SUBSIDIARIES
In May
2003, Dominion Exploration and Production, Inc. and Pioneer Natural Resources
USA, Inc. (collectively "Dominion") brought an action against the Company in
Civil District Court for the Parish of Orleans, Louisiana as owners of an
offshore production facility known as a SPAR. Dominion seeks damages
allegedly sustained by it resulting from delays in delivery of the SPAR caused
by the removal and replacement of certain coatings containing lead and/or lead
chromate for which the manufacturer of the SPAR alleged the Company was
responsible. Dominion contends that the Company made certain
misrepresentations and warranties to Dominion concerning the lead-free nature of
those coatings. Dominion's petition as filed alleged a claim for damages
in an unspecified amount; however, Dominion's economic expert has since
estimated Dominion's damages at approximately $128,000,000, a figure which the
Company contests. This matter is in discovery and no trial date has yet
been established. The Company believes that it has meritorious defenses to
this action. Based upon the information available to it at this
time, the Company is not in a position to evaluate the ultimate outcome of this
matter.
In April
2004, Sable Offshore Energy Inc. ("Sable"), as agent for certain owners of the
Sable Offshore Energy Project, brought an action against various coatings
suppliers and application contractors, including the Company and two of its
subsidiaries, Ameron (UK) Limited and Ameron B.V. (collectively "Ameron
Subsidiaries") in the Supreme Court of Nova Scotia, Canada. Sable seeks
damages allegedly sustained by it resulting from performance problems with
several coating systems used on the Sable Offshore Energy Project, including
coatings products furnished by the Company and the Ameron Subsidiaries.
Sable's originating notice and statement of claim alleged a claim for damages in
an unspecified amount; however, Sable has since alleged that its claim for
damages against all defendants is approximately 440,000,000 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:
|
|
Nine
Months Ended
|
|
|
|
August
31,
|
|
|
August
26,
|
|
(In
thousands)
|
|
2008
|
|
|
2007
|
|
Balance,
beginning of period
|
|
$
|
3,590
|
|
|
$
|
3,146
|
|
Payments
|
|
|
(626
|
)
|
|
|
(775
|
)
|
Warranties
issued during the period
|
|
|
(395
|
)
|
|
|
876
|
|
Balance,
end of period
|
|
$
|
2,569
|
|
|
$
|
3,247
|
|
AMERON
INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTE
14 – GOODWILL AND OTHER INTANGIBLE ASSETS
Changes
in the Company’s carrying amount of goodwill by business segment were as
follows:
|
|
|
|
|
Foreign
|
|
|
|
|
|
|
|
|
|
Currency
|
|
|
|
|
|
|
November
30,
|
|
|
Translation
|
|
|
August
31,
|
|
(In
thousands)
|
|
2007
|
|
|
Adjustments
|
|
|
2008
|
|
Fiberglass-Composite
Pipe
|
|
$
|
1,440
|
|
|
$
|
-
|
|
|
$
|
1,440
|
|
Water
Transmission
|
|
|
392
|
|
|
|
10
|
|
|
|
402
|
|
Infrastructure
Products
|
|
|
201
|
|
|
|
-
|
|
|
|
201
|
|
|
|
$
|
2,033
|
|
|
$
|
10
|
|
|
$
|
2,043
|
|
The
Company's intangible assets, other than goodwill, and related accumulated
amortization consisted of the following:
|
|
August
31, 2008
|
|
|
November
30, 2007
|
|
|
|
Gross
Intangible
|
|
|
Accumulated
|
|
|
Gross
Intangible
|
|
|
Accumulated
|
|
(In
thousands)
|
|
Assets
|
|
|
Amortization
|
|
|
Assets
|
|
|
Amortization
|
|
Trademarks
|
|
$
|
113
|
|
|
$
|
(106
|
)
|
|
$
|
113
|
|
|
$
|
(101
|
)
|
Non-compete
agreements
|
|
|
300
|
|
|
|
(182
|
)
|
|
|
299
|
|
|
|
(163
|
)
|
Patents
|
|
|
212
|
|
|
|
(212
|
)
|
|
|
212
|
|
|
|
(212
|
)
|
Other
|
|
|
93
|
|
|
|
(80
|
)
|
|
|
79
|
|
|
|
(17
|
)
|
|
|
$
|
718
|
|
|
$
|
(580
|
)
|
|
$
|
703
|
|
|
$
|
(493
|
)
|
All of
the Company's intangible assets, other than goodwill, are subject to
amortization. Amortization expense for the three and nine months
ended August 31, 2008 was $11,000 and $82,000,
respectively. Amortization expense for the three and nine months
ended August 26, 2007 was $7,000 and $19,000, respectively. At August
31, 2008, estimated future amortization expense was as follows: $11,000 in the
remaining three months of 2008, $46,000 in 2009, $33,000 in 2010, $33,000 in
2011, and $15,000 in 2012.
NOTE
15 – INCENTIVE STOCK COMPENSATION PLANS
As of
August 31, 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.
AMERON
INTERNATIONAL CORPORATION AND SUBSIDIARIES
· 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 and non-employee directors were granted restricted
stock under the 2004 Plan. Such restricted stock grants typically vest in
equal annual installments over three years. During the nine months ended
August 31, 2008, the Company granted 3,802 stock options to non-employee
directors with a fair value on the grant date of $101,000. The
Company also granted 7,200 restricted shares to non-employee directors with a
fair value on the grant dates of $675,000 and 19,000 restricted shares to key
employees with fair value on the grant dates
of $1,976,000.
In
addition to the above, on January 24, 2001, non-employee directors were granted
options to purchase the Company's Common Stock at prices not less than 100% of
market value on the date of grant. Such options vested in equal annual
installments over four years and terminate ten years from the date of
grant. At August 31, 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 August 31, 2008 and August
26, 2007 included compensation expense of $1,240,000 and $529,000, respectively,
related to stock-based compensation arrangements. Related tax
benefits were $484,000 and $206,000, respectively. For the nine
months ended August 31, 2008 and August 26, 2007 compensation expense was
$4,873,000 and $1,793,000, respectively, related to stock-based compensation
arrangements. Related tax benefits were $1,900,000 and $699,000,
respectively. There were no capitalized share-based compensation
costs for the three and nine months ended August 31, 2008 and August 26,
2007. As of August 31, 2008, unrecognized compensation expense
related to stock-based compensation arrangements totaled $6,061,000, which is
expected to be recognized over a weighted-average period of three
years.
The
following table summarizes the stock option activity for the nine months ended
August 31, 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
|
|
|
(27,250
|
)
|
|
|
28.70
|
|
|
|
|
|
|
|
Outstanding
at August 31, 2008
|
|
|
43,802
|
|
|
|
26.31
|
|
|
|
4.56
|
|
|
$
|
3,581
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
exercisable at August 31, 2008
|
|
|
38,500
|
|
|
|
28.64
|
|
|
|
4.00
|
|
|
$
|
3,397
|
|
For the
three and nine months ended August 31, 2008, 3,802 options were granted; and no
options were forfeited or expired. For the three and nine months ended
August 26, 2007, no options were granted, forfeited or expired. The
aggregate intrinsic value in the table above represents the total pretax
intrinsic value, which is the difference between the closing price of the
Company’s Common Stock on the last trading day of the third 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 Common Stock. The aggregate intrinsic value of stock options
exercised during the three and nine months ended August 31, 2008 were $217,000
and $2,006,000, respectively. The aggregate intrinsic value of stock
options exercised during the three and nine months ended August 26, 2007 were $
1,500,000 and $3,050,000, respectively.
AMERON
INTERNATIONAL CORPORATION AND SUBSIDIARIES
No shares
of restricted stock were granted during the third quarter of 2008, and
26,200 shares of restricted stock were granted for the nine months ended August
31, 2008. The weighted-average grant-date, fair value of such restricted
stock was $101.70 per share. The fair value of restricted stock which
vested during the nine months ended August 31, 2008 was
$5,844,000. No shares of restricted stock were granted during the
third quarter of 2007. For the nine months ended August 26,
2007, 34,550 shares of restricted stock were granted. The weighted-average
grant-date, fair value of such restricted stock was $76.47 per share.
The fair value of restricted stock which vested during the nine months
ended August 26, 2007 was $3,562,000.
Cash
proceeds from the exercise of stock options during the three and nine months
ended August 31, 2008 were $36,000 and $846,000, respectively. Cash
proceeds from the exercise of stock options during the three and nine months
ended August 26, 2007 were $625,000 and $1,136,000, respectively. The
Company's policy is to issue shares from its authorized shares upon the exercise
of stock options.
NOTE
16 – EMPLOYEE BENEFIT PLANS
For the
three and nine months ended August 31, 2008 and August 26, 2007, net pension and
postretirement costs were comprised of the following:
Employee
Benefits (Three Months Ended August 31, 2008 and August 26,
2007)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Postretirement
|
|
|
|
Pension
Benefits
|
|
|
Benefits
|
|
|
|
U.S.
Plans
|
|
|
Non-U.S.
Plans
|
|
|
|
|
|
|
|
(In
thousands)
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Service
cost
|
|
$
|
757
|
|
|
$
|
732
|
|
|
$
|
109
|
|
|
$
|
132
|
|
|
$
|
24
|
|
|
$
|
22
|
|
Interest
cost
|
|
|
2,871
|
|
|
|
2,795
|
|
|
|
638
|
|
|
|
565
|
|
|
|
52
|
|
|
|
51
|
|
Expected
return on plan assets
|
|
|
(3,900
|
)
|
|
|
(3,543
|
)
|
|
|
(429
|
)
|
|
|
(420
|
)
|
|
|
(8
|
)
|
|
|
(9
|
)
|
Amortization
of unrecognized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
prior
service cost
|
|
|
28
|
|
|
|
28
|
|
|
|
76
|
|
|
|
70
|
|
|
|
5
|
|
|
|
5
|
|
Amortization
of unrecognized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net
transition obligation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
38
|
|
|
|
12
|
|
|
|
12
|
|
Amortization
of accumulated loss
|
|
|
233
|
|
|
|
976
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3
|
|
|
|
4
|
|
Net
periodic cost
|
|
$
|
(11
|
)
|
|
$
|
988
|
|
|
$
|
394
|
|
|
$
|
385
|
|
|
$
|
88
|
|
|
$
|
85
|
|
Employee
Benefits (Nine Months Ended August 31, 2008 and August 26,
2007)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Postretirement
|
|
|
|
Pension
Benefits
|
|
|
Benefits
|
|
|
|
U.S.
Plans
|
|
|
Non-U.S.
Plans
|
|
|
|
|
|
|
|
(In
thousands)
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Service
cost
|
|
$
|
2,271
|
|
|
$
|
2,196
|
|
|
$
|
327
|
|
|
$
|
396
|
|
|
$
|
72
|
|
|
$
|
66
|
|
Interest
cost
|
|
|
8,613
|
|
|
|
8,385
|
|
|
|
1,914
|
|
|
|
1,695
|
|
|
|
157
|
|
|
|
153
|
|
Expected
return on plan assets
|
|
|
(11,700
|
)
|
|
|
(10,629
|
)
|
|
|
(1,287
|
)
|
|
|
(1,260
|
)
|
|
|
(24
|
)
|
|
|
(27
|
)
|
Amortization
of unrecognized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
prior
service cost
|
|
|
84
|
|
|
|
84
|
|
|
|
228
|
|
|
|
210
|
|
|
|
15
|
|
|
|
15
|
|
Amortization
of unrecognized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net
transition obligation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
114
|
|
|
|
35
|
|
|
|
36
|
|
Amortization
of accumulated loss
|
|
|
699
|
|
|
|
2,928
|
|
|
|
-
|
|
|
|
-
|
|
|
|
9
|
|
|
|
12
|
|
Net
periodic cost
|
|
$
|
(33
|
)
|
|
$
|
2,964
|
|
|
$
|
1,182
|
|
|
$
|
1,155
|
|
|
$
|
264
|
|
|
$
|
255
|
|
The
Company contributed $1,124,000 to the non-U.S. defined benefit pension plans and
$3,000,000 to its U.S. defined benefit pension plan in the first nine 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 an additional $61,000 to the non-U.S. pension
plan during the remainder of fiscal year 2008.
AMERON
INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTE
17 – PROVISION FOR INCOME TAXES
Income
taxes increased to $3,079,000 in the third quarter of 2008, from a benefit of
$426,000 in the same period of 2007. Income taxes increased to
$12,008,000 in the first nine months of 2008, from $6,631,000 in the comparable
period in 2007. The year-to-date effective tax rate on income from
continuing operations increased to 30.5% in 2008, from 17.4% in
2007. The effective tax rate in 2007 was reduced by tax benefits of
$5,263,000 recorded in the third quarter of 2007 associated with the decision in
that quarter to wind down and dissolve the Company’s wholly-owned United Kingdom
subsidiary. The effective tax rate for the first nine months of 2008
is based on forecasted full-year earnings and the anticipated mix of domestic
and foreign earnings, and was reduced by tax benefits of $996,000 recorded in
the third quarter associated with tax years no longer subject to audit and the
settlement of certain state audits. 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 nine months
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 retained earnings.
At August
31, 2008, the total amount of gross unrecognized tax benefits, excluding
interest, was $13,600,000. This amount is not 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, $5,891,000 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. At December 1, 2007, the total amount of gross
unrecognized tax benefits, excluding interest, was $13,102,000.
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 reasonably
result in a possible decrease in unrecognized tax benefits of
$1,269,000.
The
Company accrues interest and penalties related to unrecognized tax benefits as
income tax expense. Accruals totaling $1,930,000 were recorded
as a liability in the Company’s consolidated balance sheet at August 31, 2008,
compared to $1,415,000 as of December 1, 2007.
The
Company’s federal income tax returns remain subject to examination for the 2005
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 MEASUREMENTS
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 August 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
Value Measurements Using
|
|
|
Liabilities
|
|
(In
thousands)
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
At
Fair Value
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative
liabilities
|
|
$
|
-
|
|
|
$
|
364
|
|
|
$
|
-
|
|
|
$
|
364
|
|
Total
liabilities
|
|
$
|
-
|
|
|
$
|
364
|
|
|
$
|
-
|
|
|
$
|
364
|
|
Derivatives
The
Company and its subsidiaries complete transactions in currencies other than
their functional currencies. 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 due to exchange rates, the Company uses foreign currency
derivatives. As of August 31, 2008, the Company held 20 foreign
currency forward contracts aggregating $10,000,000 U.S. dollars, hedging
Singapore dollars, and two contracts aggregating $1,098,000 U.S. dollars,
hedging Euros. As of August 31, 2008, such instruments had a combined
fair value loss of $364,000 based on quotations from the financial
institutions.
AMERON
INTERNATIONAL CORPORATION AND SUBSIDIARIES
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 and energy 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 are
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
are 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 for fiscal year ended November 30, 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 are 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 are 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 are stated at 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 values 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 liabilities 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 a portion of the 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. 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 techniques. 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. The ultimate exit price could be
significantly different than currently estimated by the Company.
Management
incentive compensation is accrued based on current estimates of the Company's
ability to achieve short-term and long-term performance targets. The
Company’s actual performance could be significantly different than currently
estimated by the Company.
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. Actual income and the mix of income
by jurisdiction could be significantly different than currently
estimated. 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. A liability is recorded for the difference between the
benefit recognized and measured pursuant to FIN No. 48 and tax position taken or
expected to be taken on the 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.
AMERON
INTERNATIONAL CORPORATION AND SUBSIDIARIES
LIQUIDITY
AND CAPITAL RESOURCES
As of
August 31, 2008, the Company's working capital, including cash and cash
equivalents, totaled $317.5 million, an increase of $3.2 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 income taxes payable, partially offset by an increase in trade payables, an
increase in cash and a decrease in receivables. Cash and cash
equivalents totaled $158.3 million as of August 31, 2008, compared to $155.4
million as of November 30, 2007.
For the
nine months ended August 31, 2008, net cash of $59.5 million was generated from
operating activities, compared to $19.4 million in the similar period in
2007. In the nine months ended August 31, 2008, the Company's cash
provided by operating activities included net income of $41.1 million, plus
non-cash adjustments (depreciation, amortization, equity income from joint
ventures in excess of dividends and stock compensation expense) of $15.4
million, plus net changes in operating assets and liabilities of $3.0
million. In the nine months ended August 26, 2007, the Company’s cash
from operating activities included net income of $45.4 million, plus similar
non-cash adjustments of $10.7 million and less gain from sale of property, plant
and equipment of $1.5 million and less changes in operating assets and
liabilities of $35.2 million. The non-cash adjustments in 2008 were
higher due primarily to higher stock compensation expense, offset by higher
equity in earnings in excess of dividends received from TAMCO. The
positive change in operating assets and liabilities in 2008 was primarily due to
a decrease of receivables in 2008 and the growth of inventories in 2007
partially offset by a net reduction in liabilities in
2008. Receivables declined in 2008 due to the timing of production
and sales by the Water Transmission Group. Inventories grew in 2007
due to the Company’s entry into the wind tower business.
Net cash
used in investing activities totaled $43.2 million in the nine months ended
August 31, 2008, compared to $27.0 million used in the nine months ended August
26, 2007. Net cash used in investing activities during the first nine
months of 2008 consisted of capital expenditures of $44.5 million, compared to
$33.3 million in the same period in 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 $50 and $65 million on capital
expenditures. In
addition, the Company anticipates that within the next 12 months it will fund up
to $35 million of a capacity expansion program at TAMCO. 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 $12.5 million during the nine months ended
August 31, 2008, compared to $6.1 million used in the nine months ended August
26, 2007. Net cash used in 2008 consisted of net repayment of debt of
$4.1 million, payment of Common Stock dividends of $7.8 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 $1.6 million, payment of Common Stock dividends of $5.9 million and
treasury stock purchases of $1.6 million. In 2007, the Company
received $1.1 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.
AMERON
INTERNATIONAL CORPORATION AND SUBSIDIARIES
The
Company's lending agreements contain various restrictive covenants, including
the requirements 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 $175.1 million as of August 31, 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 August 31, 2008, the Company maintained a consolidated
leverage ratio of .74 times EBITDA. Lending agreements require that the
Company maintain qualified consolidated tangible assets at least equal to the
outstanding secured funded indebtedness. At August 31, 2008, qualifying tangible
assets equaled 3.03 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 August 31, 2008, the Company maintained such
a fixed charge coverage ratio of 3.31 times. Under the most restrictive
provisions of the Company's lending agreements, approximately $32.7 million of
retained earnings was not restricted, at August 31, 2008, as to the declaration
of cash dividends or the repurchase of Company stock. At August 31,
2008, the Company was in compliance with all covenants.
At August
31, 2008, the Company had total debt outstanding of $71.7 million, compared to
$74.6 million at November 30, 2007, and approximately $115.1 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 $73.3 million, respectively.
The
Company contributed $1.1 million to the non-U.S. defined benefit pension plans
and $3.0 million to the U.S. defined benefit pension plan during the first nine
months of 2008. The Company expects to contribute approximately an
additional $.1 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.
AMERON
INTERNATIONAL CORPORATION AND SUBSIDIARIES
The
Company's contractual obligations and commercial commitments at August 31, 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
|
|
$
|
71,682
|
|
|
$
|
17,196
|
|
|
$
|
24,392
|
|
|
$
|
14,394
|
|
|
$
|
15,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
payments on debt (a)
|
|
|
8,543
|
|
|
|
1,473
|
|
|
|
3,794
|
|
|
|
1,501
|
|
|
|
1,775
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
leases
|
|
|
41,492
|
|
|
|
5,377
|
|
|
|
9,604
|
|
|
|
5,362
|
|
|
|
21,149
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase
obligations (b)
|
|
|
53
|
|
|
|
53
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Uncertain
tax positions
|
|
|
432
|
|
|
|
432
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
contractual obligations (c)
|
|
$
|
122,202
|
|
|
$
|
24,531
|
|
|
$
|
37,790
|
|
|
$
|
21,257
|
|
|
$
|
38,624
|
|
|
|
Commitments
Expiring Per Period
|
|
|
|
|
|
|
Less
than
|
|
|
|
|
|
|
|
|
After
|
|
Contractual
Commitments
|
|
Total
|
|
|
1
year
|
|
|
1-3
years
|
|
|
3-5
years
|
|
|
5
years
|
|
Standby
letters of credit (d)
|
|
$
|
2,100
|
|
|
$
|
2,100
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
commercial commitments (c)
|
|
$
|
2,100
|
|
|
$
|
2,100
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
(a)
Future interest payments related to debt obligations, excluding the
Revolver.
(b)
Obligation to purchase sand used in the Company's ready-mix operations in
Hawaii.
(c) The
Company has no capitalized lease obligations, unconditional purchase obligations
or standby repurchases obligations.
(d) Not
included are standby letters of credit totaling $16,067 supporting industrial
development bonds with principal of $15,700. The principal amount of the
industrial development bonds is included in long-term debt. The standby
letters of credit are issued under the Revolver.
RESULTS
OF OPERATIONS: 2008 COMPARED WITH 2007
General
Income
from continuing operations totaled $15.0 million, or $1.63 per diluted share, on
sales of $170.1 million in the quarter ended August 31, 2008, compared to income
from continuing operations of $20.7 million, or $2.27 per diluted share, on
sales of $165.0 million in the same period in 2007. Income from continuing
operations was lower in 2008 due to $5.3 million of tax benefits recognized in
the third quarter of 2007 associated with the dissolution of the Company’s
wholly-owned United Kingdom subsidiary and the 2008 decline in profits from
consolidated operations offset by higher earnings from TAMCO, the Company’s
50%-owned steel venture in California. The Fiberglass-Composite Pipe
Group had higher sales and profits due primarily to continued strong market
conditions and the acquisition of the business of Polyplaster, Ltda.
(“Polyplaster”) in Brazil in the fourth quarter of 2007. The Water
Transmission Group had higher sales and continuing losses due to underutilized
plant capacity, low project margins and manufacturing
inefficiencies. The Infrastructure Products Group had lower
sales and income due to weaker markets and higher costs in Hawaii and due to the
decline in pole sales associated with weak residential construction throughout
the U.S.
AMERON
INTERNATIONAL CORPORATION AND SUBSIDIARIES
Income
from continuing operations totaled $41.1 million, or $4.48 per diluted share, on
sales of $479.7 million in the nine months ended August 31, 2008, compared to
income from continuing operations of $43.8 million, or $4.83 per diluted share,
on sales of $442.2 million in the same period in 2007. Income from
continuing operations was lower in 2008 due to the $5.3 million tax benefits
recorded in the third quarter of 2007 associated with the decision in that
quarter to wind up and dissolve the Company’s wholly-owned United Kingdom
subsidiary. The Fiberglass-Composite Pipe Group had higher sales and
income due to continued strength in all markets and the acquisition of
Polyplaster. The Water Transmission Group had higher sales and larger
losses due to the weak pipe market and inefficient pipe and wind-tower
production. The Infrastructure Products Group had lower sales and
income due to declines by both the Hawaii division and the Pole Products
division. Equity in earnings of TAMCO increased by $1.3 million in
the first nine months of 2008, compared to the same period in 2007.
Income
from discontinued operations, net of taxes, totaled $.5 million, or $.05 per
diluted share, in the quarter, and $1.6 million, or $.18 per diluted share, in
the nine months ended August 26, 2007. During the third quarter of
2007, two of the retained properties formerly used by the Coatings Business,
were sold for a net gain of $.5 million. During the first nine months
of 2007, several properties were sold for a gain totaling $1.4
million. In addition to the gain on the sale of the properties during
the first nine months of 2007, the
Company recognized $.2 million 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.
Sales
Sales
increased $5.1 million in the third quarter of 2008, compared to the similar
period in 2007, due to the change in currency exchange
rates. Year-to-date sales in 2008 increased $37.5 million, compared
to the first nine months of 2007. The Fiberglass-Composite Pipe and
Water Transmission Groups had higher sales, while the Infrastructure Products
Group had lower sales in the third quarter and the first nine months of
2008.
Fiberglass-Composite
Pipe's sales increased $7.4 million, or 11.8%, in the third quarter and $35.0
million, or 20.6%, in the first nine months of 2008, compared to the similar
periods in 2007. Sales by Asian operations increased $7.8 million and
$21.4 million, respectively, in the third quarter and first nine months of 2008,
driven by increased activity in the industrial, marine and offshore segments and
the impact of foreign exchange. Sales by European operations decreased
$5.7 million and $3.7 million, respectively, in the third quarter and first nine
months of 2008 despite favorable exchange rates. The decreases in
sales were related to the timing of orders and a large project in 2007 that did
not repeat in 2008. Sales in the U.S. increased $.6 million and $2.6
million, respectively, in the third quarter and first nine months of 2008,
driven by increased activity in the onshore oilfield segment. The
Brazilian business acquired in October 2007 contributed sales of $4.7 million
and $14.7 million, respectively, for the third quarter and first nine months of
2008, due to strong demand for water and industrial piping in
Brazil. The demand for onshore oilfield, offshore, 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.
The Water
Transmission Group's sales increased $4.5 million, or 9.1%, in the third quarter
and $16.6 million, or 13.6%, in the first nine months of 2008, compared to the
similar periods in 2007. The third-quarter increase was due to higher
sales of water pipe in the U.S., offsetting a decline in South
America. The nine-month sales increase in 2008 was driven by the
Company’s entry into the market for large-diameter wind towers and by operations
in South America, which benefited from increased demand for water pipe in
Colombia, offsetting a decline of domestic sales of water
pipe. Throughout 2008, the Group continued to be impacted by the
sluggish pipe market in the western U.S. As expected, sales of water
pipe increased in the third quarter of 2008 due to project timing;
however, the water infrastructure market in the western U.S. is not
expected to show significant improvement beyond current levels until
2009. The market for wind towers is expected to remain
strong.
AMERON
INTERNATIONAL CORPORATION AND SUBSIDIARIES
Infrastructure
Products' sales decreased $6.7 million, or 12.5%, in the third quarter and $15.5
million, or 10.2%, in the first nine months of 2008, compared to the similar
periods in 2007. The Company’s Hawaiian division had lower sales in the
third quarter as construction markets in Hawaii began to weaken, and higher
sales in the first nine months due primarily to improved pricing and the level
of governmental and commercial construction on Oahu and Maui. Pole
Products was impacted by the decline in the U.S. residential construction
markets which resulted in a reduction in demand for concrete lighting poles in
the third quarter and first nine months. The housing market remains
soft and continues to impact the demand for concrete poles. The
construction markets in Hawaii are also beginning to weaken.
Gross
Profit
Gross
profit in the third quarter of 2008 was $37.5 million, or 22.0% of sales,
compared to $37.0 million, or 22.4% of sales, in the third quarter of
2007. Year-to-date gross profit in 2008 was $110.7 million, or 23.1% of
sales, compared to $103.1 million, or 23.3% of sales, in the similar period of
2007. Gross profit increased $.5 million and $7.6 million,
respectively, in the third quarter and the first nine months of 2008, compared
to the similar periods in 2007. Gross profit increases were due
primarily to higher sales. The gross profit margin decreases were
related to under utilization of pole production, competitive pricing pressures
caused by soft market conditions and inefficient production by the Water
Transmission Group.
Fiberglass-Composite
Pipe Group's gross profit increased $4.8 million in the third quarter and $18.2
million in the first nine months of 2008, compared to the similar periods in
2007. Profit margins were 41.0% in the third quarter and 38.3% in the
first nine months of 2008, compared to 38.3% in the third quarter and 35.5% in
the first nine months of 2007. Margins were higher in 2008 due to
improvements in product and market mix and selling price increases. Higher
sales generated additional gross profit of $2.9 million and $12.4 million,
respectively, in the third quarter and the first nine months of 2008, while
improved margins generated additional gross profit of $1.9 million and $5.8
million, respectively, in the third quarter and the first nine months of
2008.
Water
Transmission Group's gross profit decreased $2.9 million in the third quarter
and $7.1 million in the first nine months of 2008, compared to the similar
periods in 2007. Profit margins were negative 2.6% in the third quarter
and .7% in the first nine months of 2008, compared to 3.2% in the third quarter
and 6.6% in the first nine months of 2007. Increased sales generated
additional gross profit of $.1 million in the third quarter and $1.1 million in
the first nine months of 2008. Margins were unfavorably
impacted by the mix of contracts, start-up costs associated with the
introduction of wind towers, underutilization of plant capacity, production
inefficiencies and pricing pressures due to market conditions.
Gross
profit in the Infrastructure Products Group decreased $3.4 million in the third
quarter and $7.6 million in the first nine months of 2008, compared to the
similar periods in 2007. Profit margins were 21.6% in the third quarter
and 22.2% in the first nine months of 2008, compared to 25.3% and 25.0%,
respectively, in the similar periods in 2007. Margins were lower
throughout 2008 due to lower pole sales, lower plant utilization and pricing
pressures due to market conditions. Additionally, in the third
quarter, margins in Hawaii declined due to lower sales, pricing pressures,
higher energy costs and a shift in product mix. Lower sales
negatively impacted gross profit by $1.7 million and $3.8 million, respectively,
in the third quarter and the first nine months of 2008, while unfavorable plant
utilization and pricing pressures decreased gross profit by $1.7 million and
$3.8 million, respectively, in the third quarter and the first nine months of
2008.
Certain
steel inventories are valued using the LIFO method. During 2008, inventory
quantities subject to valuation using the LIFO method declined while steel
prices increased sharply. The net
impact was negligible. The decrease in cost of goods sold of
approximately $5.5 million associated with the liquidation of LIFO inventory
quantities carried at historically lower costs was offset by an increase in cost
of goods sold of approximately $5.5 million due to the increase in steel
prices.
Selling, General and Administrative
Expenses
Selling,
general and administrative ("SG&A") expenses totaled $25.8 million, or 15.2%
of sales, in the third quarter of 2008, compared to $21.7 million, or 13.1% of
sales, in the third quarter of 2007. In the nine months ended August 31,
2008, SG&A expenses totaled $77.5 million, or 16.1% of sales, compared to
$69.1 million, 15.6% of sales, in the same period in 2007. The $4.1
million increase in the third quarter of 2008, compared to the third quarter of
2007, was due to higher stock compensation expense, sales commissions and
increased environmental costs. The $8.4 million increase in the first
nine months was due in part to higher stock compensation expense and sales
commissions related to higher sales, higher environmental costs and the
acquisition of Polyplaster in Brazil in the fourth quarter of
2007.
AMERON
INTERNATIONAL CORPORATION AND SUBSIDIARIES
Other
Income, Net
Other
income totaled $2.3 million in the third quarter of 2008, an increase of $.5
million, compared to other income in the third quarter of 2007. Other
income was $5.8 million in the nine months ended August 31, 2008, an
increase of $2.1 million, compared to other income in the similar period of
2007. The nine-month increase 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 included royalties and fees from
licensees, foreign currency transaction adjustments and other miscellaneous
income.
Interest
Net
interest expense was negligible in the third quarter of 2008, compared to $.1
million of interest income in the third quarter of 2007. Interest
income was $.4 million in the nine months ended August 31, 2008 and in the
similar period in 2007. Interest expense was offset by interest
income on short-term investments.
Provision
for Income Taxes
Income
taxes increased to $3.1 million in the third quarter of 2008, from a tax benefit
of $.4 million in the same period in 2007. Income taxes increased to $12.0
million in the first nine months of 2008, from $6.6 million in the comparable
period in 2007. The effective tax rate increased to 30.5% in first nine months
of 2008, from 17.4% in the same period of 2007. The effective tax rate in 2007
was reduced by tax benefits of $5.3 million recorded in the third quarter of
2007 associated with the decision in that quarter to wind down and dissolve the
Company’s wholly-owned United Kingdom subsidiary. The effective tax
rate in the first nine months of 2008 is based on forecasted full-year earnings
and the anticipated mix of domestic and foreign earnings, and was reduced by tax
benefits of $996,000 recorded in the third quarter associated with tax years no
longer subject to audit and the settlement of certain state
audits. Income from certain foreign operations and joint ventures is
taxed at rates that are lower than the U.S. statutory tax rates. The effective
tax rate in the first nine months of 2008 is not necessarily indicative of the
effective tax rate for the full fiscal year.
Equity
in Earnings of Joint Venture, Net of Taxes
Equity in
earnings of joint venture totaled to $4.2 million in the third quarter of 2008,
compared to $3.1 million in the third quarter of 2007. Equity income was
$13.7 million in the first nine months of 2008, compared to $12.3 million in the
same period of 2007. Equity income is related to TAMCO, Ameron's
50%-owned mini-mill in California. TAMCO's profits in the third quarter
and first nine months of 2008 rose due to increased demand for steel rebar and
higher selling prices. While the outlook for TAMCO remains positive,
declining scrap costs could put downward pressure on market
pricing.
Income
from Discontinued Operations, Net of Taxes
During
the third quarter of 2007, the Company recognized a gain of $.5 million on the
sale of two properties which were formerly used by the Coatings
Business. In the nine months ended August 26, 2007, the Company
recognized a gain of $1.5 million on the sale of properties that were formerly
used by the Coatings Business. In addition to the gain on the sale of
the properties, the Company recognized $.2 million of research and development
tax credits that related to the Coatings Business in 2007. The 2007
tax credit was attributable to the retroactive application of tax legislation
enacted in December 2006.
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.
Evaluation of Disclosure Controls and
Procedure – Management has established disclosure controls and procedures
to ensure that information required to be disclosed by the Company in the
reports that it files or submits under the Exchange Act is recorded, processed,
summarized and reported, within the time periods specified in the Commission's
rules and forms and that such information relating to the Company, including its
consolidated subsidiaries, is accumulated and communicated to management,
including the Chief Executive Officer and Chief Financial Officer, as
appropriate, to allow timely decisions regarding required
disclosures.
Based on
their evaluation as of August 31, 2008, the principal executive officer and
principal financial officer of the Company 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 was
no change in the Company's internal control over financial reporting that
occurred during the last fiscal quarter covered by this report that materially
affected, or is reasonably likely to materially affect, the Company's internal
control over financial reporting.
CAUTIONARY
STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995
Any of
the statements contained in this report that refer to the Company's forecasted,
estimated or anticipated future results are forward-looking and reflect the
Company's current analysis of existing trends and information. Actual results
may differ from current expectations based on a number of factors affecting the
Company’s businesses, including competitive conditions and changing market
conditions. In addition, matters affecting the economy generally, including the
state of economies worldwide, can affect the Company's results. These
forward-looking statements represent the Company's judgment only as of the date
of this report. Since actual results could differ materially, the reader is
cautioned not to rely on these forward-looking statements. Moreover, the Company
disclaims any intent or obligation to update these forward-looking
statements.
AMERON
INTERNATIONAL CORPORATION AND SUBSIDIARIES
The
Company is one of numerous defendants in various asbestos-related personal
injury lawsuits. These cases generally seek unspecified damages for
asbestos-related diseases based on alleged exposure to products previously
manufactured by the Company and others, and at this time the Company is
generally not aware of the extent of injuries allegedly suffered by the
individuals or the facts supporting the claim that injuries were caused by the
Company's products. Based upon the information available to it at
this time, the Company is not in a position to evaluate its potential exposure,
if any, as a result of such claims 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 August 31, 2008, the Company was a defendant in
asbestos-related cases involving 31 claimants, compared to 29 claimants as of
June 1, 2008. The Company is not in a position to estimate the number of
additional claims that may be filed against it in the future. For the
quarter ended August 31, 2008, there were new claims involving five claimants,
dismissals and/or settlements involving three claimants and no
judgments. No net costs or expenses were incurred by the Company for
the quarter ended August 31, 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 million, a figure which the
Company contests. This matter is in discovery and no trial date has yet
been established. The Company believes that it has meritorious defenses to
this action. Based upon the information available to it at this
time, the Company is not in a position to evaluate the ultimate outcome of this
matter.
In April
2004, Sable Offshore Energy Inc. ("Sable"), as agent for certain owners of the
Sable Offshore Energy Project, brought an action against various coatings
suppliers and application contractors, including the Company and two of its
subsidiaries, Ameron (UK) Limited and Ameron B.V. (collectively "Ameron
Subsidiaries") in the Supreme Court of Nova Scotia, Canada. Sable seeks
damages allegedly sustained by it resulting from performance problems with
several coating systems used on the Sable Offshore Energy Project, including
coatings products furnished by the Company and the Ameron Subsidiaries.
Sable's originating notice and statement of claim alleged a claim for damages in
an unspecified amount; however, Sable has since alleged that its claim for
damages against all defendants is approximately 440 million Canadian dollars, a
figure which the Company and the Ameron Subsidiaries contest. This matter
is in discovery, and no trial date has yet been established. The Company
believes that it has meritorious defenses to this action. Based upon the
information available to it at this time, the Company is not in a position to
evaluate the ultimate outcome of this matter.
In
addition, certain other claims, suits and complaints that arise in the ordinary
course of business, have been filed or are pending against the Company.
Management believes that these matters are either adequately reserved, covered
by insurance, or would not have a material effect on the Company's financial
position, cash flows, or its results of operations if disposed of
unfavorably.
The
Company is subject to federal, state and local laws and regulations concerning
the environment and is currently participating in administrative proceedings at
several sites under these laws. While the Company finds it difficult to estimate
with any certainty the total cost of remediation at the several sites, on the
basis of currently available information and reserves provided, the Company
believes that the outcome of such environmental regulatory proceedings will not
have a material effect on the Company's financial position, cash flows, or its
results of operations.
AMERON
INTERNATIONAL CORPORATION AND SUBSIDIARIES
The
returns from the Company's new investment in wind-tower capabilities are
dependent on a limited number of customers and future demand which could be
impacted by changes in government policy, energy prices or tax
credits. The Company is completing a major expansion program to
enhance its capabilities to produce wind towers used for wind-generated
electricity. In 2008, one customer is expected to purchase almost 70%
of the wind towers produced by the Company. The current demand for
wind-generated power is driven by high energy prices and tax
credits. The demand for wind towers could subside if the tax credits
are not renewed at the end of 2008 and/or if oil prices fall significantly so
that wind energy is less competitive. Additionally, the Company’s
entry into this new market may not meet forecasted expectations due to entry
costs and competitive pressures.
Otherwise,
no material changes have occurred in risk factors as presented in the Company’s
2007 Annual Report.
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), herein, 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**
|
|
6/2/08
thru 6/29/08
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
39,006
|
|
6/30/08
thru 8/3/08
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
39,006
|
|
8/4/08
thru 8/31/08
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
39,006
|
|
**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.
No
matters were submitted to a vote of security holders during the third quarter of
2008.
No
material changes have occurred in the other information disclosure as presented
in the Company’s 2007 Annual Report.
EXHIBIT
|
EXHIBITS
OF AMERON
|
3.1
|
Certificate
of Incorporation (incorporated by reference to the Company’s Quarterly
Report on Form 10-Q for the fiscal quarter ended May 29,
2005)
|
3.2
|
Bylaws
(incorporated by reference to the Company’s Current Report on Form 8-K
dated June 26, 2008)
|
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
|
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:
September 26, 2008