Ameron International 10-K Year End Nov 2006
United
States
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE
ACT OF 1934
For
the fiscal year ended November 30, 2006
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission
file number 1-9102
AMERON
INTERNATIONAL CORPORATION
(Exact
name of registrant as specified in its charter)
Delaware
|
77-0100596
|
(State
of Incorporation)
|
(I.R.S.
Employer Identification No.)
|
245
South Los Robles Avenue
Pasadena,
CA 91101-3638
(Address
and Zip Code of principal executive offices)
Registrant's
telephone number, including area code: (626) 683-4000
SECURITIES
REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title
of each class
|
|
Name
of each exchange on which registered
|
Common
Stock $2.50 par value
|
|
New
York Stock Exchange
|
SECURITIES
REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined
in
Rule 405 of the Securities Act. Yes ¨ No
x
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes ¨ No
x
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 if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this
Form 10-K. x
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer (as defined in Rule 12b-2 of
the
Exchange Act).
Large
accelerated filer ¨
|
Accelerated
filer x
|
Non-accelerated
filer ¨
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act). Yes ¨ No
x
The
aggregate market value of voting and non-voting common equity held by
non-affiliates was approximately $503 million on June 4, 2006, based upon the
last reported sales price of such stock on the New York Stock Exchange on that
date.
On
February 1, 2007 there were 9,076,128 shares of Common Stock, $2.50 par
value, outstanding. No other class of Common Stock exists.
DOCUMENTS
INCORPORATED BY REFERENCE
1.
PORTIONS OF AMERON'S PROXY STATEMENT FOR THE 2007 ANNUAL MEETING OF STOCKHOLDERS
(PART III)
AMERON
INTERNATIONAL
CORPORATION AND
SUBSIDIARIES
2006
ANNUAL REPORT ON FORM 10-K
Table
of Contents
AMERON
INTERNATIONAL CORPORATION
AMERON
INTERNATIONAL CORPORATION, a Delaware corporation, and its consolidated
subsidiaries are collectively referred to herein as "Ameron", the "Company",
the
"Registrant" or the "Corporation" unless the context clearly indicates
otherwise. The business of the Company has been divided into business segments
in Item 1(c)(1), herein. Substantially all activities relate to the manufacture
of highly engineered products for sale to the industrial, chemical, energy
and
construction markets. All references to "the year" or "the fiscal year" pertain
to the 12 months ended November 30, 2006. All references to the "Proxy
Statement" pertain to the Company's Proxy Statement to be filed on or about
February 8, 2007 in connection with the 2007 Annual Meeting of
Stockholders.
(a)
GENERAL DEVELOPMENT OF BUSINESS.
Although
the Company's antecedents date back to 1907, it evolved directly from the merger
of two separate firms in 1929, resulting in the incorporation of American
Concrete Pipe Company on April 22, 1929. Various name changes occurred
between that time and 1942, at which time the Company's name became American
Pipe and Construction Co. By the late 1960's the Company was almost exclusively
engaged in manufacturing and had expanded its product lines to include not
only
concrete and steel pipe but also high-performance protective coatings, ready-mix
concrete, aggregates and fiberglass pipe and fittings. At the beginning of
1970, the Company's name was changed to Ameron, Inc. In the meantime, other
manufactured product lines were added, including concrete and steel poles for
street and area lighting and steel poles for traffic signals. In 1996, the
Company's name was changed to Ameron International Corporation. In 2006, the
Company sold its Performance Coatings & Finishes business (“Coatings
Business”).
(b)
FINANCIAL INFORMATION AS TO INDUSTRY SEGMENTS.
Financial
information on segments and joint ventures may be found in Notes (1), (6) and
(18) of the Notes to Consolidated Financial Statements, under Part II, Item
8,
herein.
(c)
NARRATIVE DESCRIPTION OF BUSINESS.
(1)
For
geographical and operational convenience, the Company is organized into
divisions. These divisions are combined into groups serving various industry
segments, as follows:
a)
The
Fiberglass-Composite Pipe Group develops, manufactures and markets
filament-wound and molded fiberglass pipe and fittings. These products are
used
by a wide range of process industries, including industrial, petroleum, chemical
processing and petrochemical industries, for service station piping systems,
aboard marine vessels and offshore oil platforms, and are marketed as an
alternative to metallic piping systems which ultimately fail under corrosive
operating conditions. These products are marketed directly, as well as through
manufacturers' representatives, distributors and licensees. Competition is
based
upon quality, price and service. Manufacture of these products is carried out
in
the Company's plant in Texas, by its wholly-owned domestic subsidiary, Centron
International Inc. ("Centron"), at a plant in Texas, by wholly-owned
subsidiaries in the Netherlands, Singapore, and Malaysia, and by a joint venture
in Saudi Arabia.
b)
The
Water Transmission Group supplies products and services used in the construction
of water pipelines. Five pipe manufacturing plants are located in Arizona and
California. Also included within this group is American Pipe & Construction
International, a wholly-owned subsidiary, with two plants in Colombia. These
plants manufacture concrete cylinder pipe, prestressed concrete cylinder pipe,
steel pipe and reinforced concrete pipe for water transmission, storm and
industrial waste water and sewage collection. These products are marketed
directly using the Company's own personnel and by competitive bidding. Customers
include local, state and federal agencies, developers and general contractors.
Normally no one customer or group of customers will account for sales equal
to
or greater than 10 percent of the Company's consolidated revenue. However,
occasionally, when more than one unusually large project is in progress,
combined sales to U.S., state or local government agencies and/or general
contractors for those agencies can reach those proportions. Besides competing
with several other welded-steel pipe and concrete pipe manufacturers located
in
the market area, alternative products such as ductile iron, plastic, and clay
pipe compete with the Company's concrete and steel pipe products, but ordinarily
these other materials do not offer the full diameter range produced by the
Company. Principal methods of competition are price, delivery schedule and
service. The Company's technology is used in the Middle East through affiliated
companies. This segment also includes the manufacturing and marketing, on a
worldwide basis directly and through manufacturers' representatives, of
polyvinyl chloride and polyethylene sheet lining for the protection of concrete
pipe and cast-in-place concrete structures from the corrosive effects of sewer
gases, acids and industrial chemicals. Competition is based upon quality, price
and service. Manufacture of this product is carried out in the Company's plant
in California. Additionally, the Company manufactures large-diameter wind towers
at one of its California plants for the U.S. wind-energy market. Wind towers
are
sold to wind turbine manufacturers based on price, quality and availability.
This segment also includes engineered design, fabrication and direct sale of
specialized proprietary equipment which is outside the regular business of
the
Company's other business segments. Competition for such work is based upon
quality, price and service.
c)
The
Infrastructure Products Group supplies ready-mix concrete, crushed and sized
basaltic aggregates, dune sand, concrete pipe and box culverts, primarily to
the
construction industry in Hawaii, and manufactures and markets concrete and
steel
poles for highway, street and outdoor area lighting and for traffic signals
nationwide. Ample raw materials are available locally in Hawaii. As to rock
products, the Company has exclusive rights to quarries containing many years'
reserves. There is only one major source of supply for cement in Hawaii. Within
the market area there are competitors for each of the segment's products. No
single competitor offers the full range of products sold by the Company in
Hawaii. An appreciable portion of the segment's business is obtained through
competitive bidding. Sales of poles are nationwide, but with a stronger
concentration in the western U.S. Marketing is handled by the Company's
own sales force and by outside sales agents for poles. Competition for such
products is mainly based on price and quality, but with some consideration
for
service and delivery. Poles are manufactured in two plants in California, as
well as in plants in Washington, Oklahoma and Alabama.
d)
The
Company has three partially-owned affiliated companies ("joint ventures"):
Ameron Saudi Arabia, Ltd. ("ASAL"), Bondstrand, Ltd. ("BL") and TAMCO.
ASAL, owned 30% by the Company, manufactures and sells concrete pressure pipe
to
customers in Saudi Arabia. BL, owned 40% by Ameron, manufactures and sells
glass reinforced epoxy pipe and fittings in Saudi Arabia. TAMCO, 50%-owned
by the Company, operates a steel mini-mill in California, used for the
production of reinforcing bar sold into construction markets in the western
U.S. ASAL is included under the Water Transmission Group, and BL is in the
Fiberglass-Composite Pipe Group. TAMCO is not included in the three
operating groups.
e)
Except
as individually shown in the above descriptions of industry segments, the
following comments or situations currently apply to all segments and applied
during the three years ended November 30, 2006:
(i)
Raw
material supplies are periodically constrained due to industry capacities.
However, because of the number of manufacturing locations and the variety of
raw
materials essential to the business, no critical situations exist with respect
to supply of materials. The Company has multiple sources for raw materials.
The
effects of increases in costs of energy are being mitigated to the extent
practical through conservation and through addition or substitution of equipment
to manage the use and reduce consumption of energy.
(ii)
The
Company owns certain patents and trademarks, both U.S. and foreign, related
to
its products. The Company licenses its patents, trademarks, know-how and
technical assistance to various of its subsidiary and affiliated companies
and
to various third-party licensees. It licenses these proprietary items to some
extent in the U.S., and to a greater degree abroad. These patents, trademarks,
and licenses do not constitute a material portion of the Company's total
business. No franchises or concessions exist.
(iii)
Many of the Company's products are used in connection with capital goods, water
and sewage transmission and construction of capital facilities. Favorable or
adverse effects on general sales volume and earnings can result from weather
conditions. Normally, sales volume and earnings will be lowest in the first
fiscal quarter. Seasonal effects typically accelerate or slow the business
volume and normally do not bring about severe changes in full-year
activity.
(iv)
With
respect to working capital items, the Company does not encounter any
requirements which are not common to other companies engaged in similar
industries. No unusual amounts of inventory are required to meet seasonal
delivery requirements. All of the Company's industry segments turn their
inventory between four and nine times annually. Average days' sales in accounts
receivable range between 34 and 160 for all segments.
(v)
The
backlog of orders at November 30, 2006 and 2005 by industry segment is
shown below. Approximately 80% of the November 30, 2006 backlog is expected
to be converted to sales during 2007. The Water Transmission Group’s backlog
included $97.1 million of orders for large-diameter wind towers at November
30,
2006, compared to $1.5 million at the end of 2005. The backlog of concrete
and
steel pipe manufactured by the Water Transmission Group declined $36.7 million
during 2006 due to a lull in the water and sewer pipe market. The
Fiberglss-Composite Pipe Group’s backlog increased $8.1 million with the surge
in demand for oilfield piping. The backlog increased at Infrastructure Products
Group due to overall demand in construction markets.
SEGMENT
|
|
2006
|
|
2005
|
|
|
|
(in
thousands)
|
|
Water
Transmission Group
|
|
$
|
183,802
|
|
$
|
129,321
|
|
Fiberglass-Composite
Pipe Group
|
|
|
51,310
|
|
|
43,240
|
|
Infrastructure
Products Group
|
|
|
34,866
|
|
|
30,222
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
269,978
|
|
$
|
202,783
|
|
(vi)
Except for the sale of the Coatings Business, the Company believes there was
no
significant change in competitive conditions or the competitive position of
the
Company in the industries and localities in which it operates. The Company
is
not aware of any change in the competitive situation which would be material
to
an understanding of the business.
(vii)
Sales contracts in all of the Company's business segments normally consist
of
purchase orders, which in some cases are issued pursuant to master purchase
agreements. Contracts seldom involve commitments of more than one year by the
Company. In those instances when the Company commits to sell products
under longer-term contracts, the Company will typically contractually arrange
to
fix a portion of the associated costs. Payment is normally due from
30 to 60 days after shipment, with progress payments prior to shipment in some
circumstances. It is the Company's practice to require letters of credit prior
to shipment of foreign orders, subject to limited exceptions. The Company does
not typically extend long-term credit to purchasers of its products. For 2006,
excluding the effect of unbilled receivables related to long-term construction
contracts, trade receivable turnover was approximately five times.
(viii)
A
number of the Company's operations operate outside the U.S. and are affected
by
changes in foreign exchange rates. Sales, profits, assets and liabilities
could be materially impacted by changes in foreign exchange rates. From
time to time, the Company borrows in various currencies to reduce the level
of
net assets subject to changes in foreign exchange rates or purchases foreign
exchange forward and option contracts to hedge firm commitments, such as
receivables and payables, denominated in foreign currencies. The Company does
not typically hedge forecasted sales or items subject to translation
adjustments, such as intercompany transactions of a long-term investment
nature.
(2)
a)
Costs during each of the last three years for research and development were
$5,790,000 in 2006, $4,567,000 in 2005, and $3,667,000 in 2004. These costs,
which are included in selling, general and administrative expenses, relate
primarily to the development, design and testing of products, and are expensed
as incurred and do not include expenses incurred by the Coatings
Business.
b)
The
Company's business is not dependent on any single customer or few customers,
the
loss of any one or more of whom would have a material adverse effect on its
business, except as described above.
c)
For
many years the Company has been consistently installing or improving devices
to
control or eliminate the discharge of pollutants into the environment.
Accordingly, compliance with federal, state, and locally-enacted provisions
relating to protection of the environment did not have, and is not expected
to
have, a material effect upon the Company's capital expenditures, earnings,
or
competitive position.
d)
At
year-end the Company and its consolidated subsidiaries employed approximately
2,500 persons. Of those, approximately 1,000 were covered by labor union
contracts. Two separate bargaining agreements are subject to renegotiation
in 2007.
(d)
FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT
SALES.
Aggregate
export sales from U.S. operations during the last three years were:
|
|
In
thousands
|
|
2006
|
|
$
|
27,811
|
|
2005
|
|
|
22,858
|
|
2004
|
|
|
20,824
|
|
Financial
information about foreign and domestic operations may be found in Notes (1),
(6), and (18) of the Notes to Consolidated Financial Statements, under Part
II,
Item 8.
(e)
AVAILABLE INFORMATION
(1)
The
Company's Internet address is www.ameron.com
(2)
The
Company makes available free of charge through its Internet website, its annual
report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form
8-K
and amendments to those reports as soon as reasonably practicable after the
Company electronically files such material with, or furnishes it to, the
Securities and Exchange Commission (the "Commission").
The
following discussion of risk factors may be important to understanding any
statement in this Annual Report on Form 10-K. The following information should
be read in conjunction with Management's Discussion and Analysis (“MD&A”)
and the Consolidated Financial Statements and related Notes.
The
Company's businesses routinely encounter and address risks, some of which could
cause the Company's future results to be materially different than presently
anticipated. Discussion about the important operational risks that the Company's
businesses encounter can also be found in the MD&A section and in the
business descriptions in Item 1, herein.
a)
The
primary markets for the Company's products are cyclical and dependent on factors
that may not necessarily correspond to general economic
cycles.
The
Company's Water Transmission Group sells piping products for public works
projects, which are typically dependent on taxes and fees for funding. The
Fiberglass-Composite Pipe Group's performance is closely linked to the level
of
oil prices and the corresponding impact on oil production, processing and
transport. The Infrastructure Products Group is dependent on the level of
construction, especially for the sale of poles associated with construction
of
new homes. Therefore, the Company's activities can be materially impacted by
changes in interest rates, construction cycles, changes in oil prices and
constraints on governmental budgets and spending.
b)
The
availability and price of key raw materials can fluctuate
dramatically.
The
Company consumes significant amounts of steel, cement, epoxy resin and
fiberglass. The availability of these raw materials is subject to periodic
shortages, and future allocations may not be sufficient to prevent disruption
to
sales of the Company and its subsidiaries. Additionally, significant increases
in the cost of these raw materials could lead to significantly lower operating
margins if the Company is unable to recover these cost increases through price
increases to its customers.
c)
Labor
disruptions or labor shortages could materially impact the Company’s
operations.
The
Company's businesses are involved with heavy-duty manufacturing and materials
handling. Labor is a key component of such operations, and disruptions, such
as
disputes and strikes, could have a material impact on the Company and its
subsidiaries. Additionally, shortages of skilled labor, such as welders, could
periodically impact the Company's costs and profitability.
d)
Claims
associated with the Company's performance can be relatively
large.
The
Company sells products that may be essential to the use of large,
multi-million-dollar, infrastructure projects, such as water and sewer systems,
offshore platforms, marine vessels, petrochemical plants, roads, and large
construction projects. Additionally, the Company sells products used in critical
applications, such as to protect against corrosion or to convey hazardous
materials. The Company's products are often used in applications that could
expose the Company to large potential product liability risks which are inherent
in the design, manufacture and sale of such products. A series of successful
claims against the Company could materially and adversely affect its reputation,
financial condition and results of operations.
e)
TAMCO's
profitability could be significantly reduced by a sharp increase in costs and/or
a significant increase in foreign imports of rebar into TAMCO's markets in
the
western U.S.
TAMCO,
the Company's 50%-owned joint venture that manufactures steel rebar in
California, has historically contributed to the Company's earnings and paid
significant dividends to the Company. TAMCO uses large quantities of natural
gas, electricity, and scrap metal. A major spike in energy or scrap costs
without a corresponding increase in TAMCO's selling price of its rebar could
result in a dramatic decline in profitability. TAMCO's ability to raise prices
could be limited due to competitive pressures, including imports of
foreign-sourced rebar.
f)
A
significant part of the Company's assets and profits are located or generated
outside the U.S., with an associated foreign exchange and country
risk.
The
Company and it subsidiaries operate in several countries outside the U.S. A
significant change in the value of foreign currencies, political stability,
trade restrictions, the impact of foreign government regulations, or economic
cycles in foreign countries could materially impact the Company.
g)
The
returns from the Company's new investment in wind-tower capabilities are
dependent on 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. 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.
h)
The
Company's quarterly results are subject to significant
fluctuation.
The
Company's sales and net income can fluctuate significantly from quarter to
quarter due to production and delivery schedules of major orders and the
seasonal variation in demand for certain of the Company's products, particularly
in the Water Transmission Group. Operating results in any quarterly period
are
not necessarily indicative of results for any future quarterly period, and
comparisons between periods may not be meaningful. The Company sells products
which are installed outdoors, and, therefore, demand for the Company's products
can be affected by weather conditions.
i)
Limits
on the Company's ability to control partially-owned joint ventures could
restrict the future operations of such ventures and the amount of cash available
to the Company from such joint ventures.
Without
control, the Company cannot solely dictate the dividend or operating policies
of
joint ventures without the cooperation of the respective joint-venture partners.
j)
The
Company’s relatively low trading volume could limit a shareholder's ability to
trade the Company's shares. The
Company's shares are traded on the New York Stock Exchange, however, the average
trading volume can be considered to be relatively low. As a result, shareholders
could have difficulty in selling or buying a large number of the Company's
shares in the manner or at a price that might otherwise be possible if the
shares were more actively traded.
ITEM
1B
- UNRESOLVED STAFF COMMENTS
None.
(a)
The
location and general character of principal plants and other materially
important physical properties used in the Company's operations are tabulated
below. Property is owned in fee simple except where otherwise indicated by
footnote. In addition to the property shown, the Company owns vacant land
adjacent to or in the proximity of some of its operating locations and holds
this property available for use when it may be needed to accommodate expanded
or
new operations. The Company also has properties formerly used in the Coatings
Business that are being held for sale. Properties listed do not include any
temporary project sites which are generally leased for the duration of the
respective projects or leased or owned warehouses that could be easily replaced.
With the exception of the Kailua, Oahu property, shown under the Infrastructure
Products Group industry segment, there are no material leases with respect
to
which expiration or inability to renew would have any material adverse effect
on
the Company's operations. The lease term on the Kailua property extends to
the
year 2052. Kailua is the principal source of quarried rock and aggregates for
the Company's operations on Oahu, Hawaii; and, in management's opinion, rock
reserves are adequate for its requirements during the term of the
lease.
(b)
The
Company believes that its existing facilities are adequate for current and
presently foreseeable operations. Because of the cyclical nature of certain
of
the Company's operations, and the substantial amounts involved in some
individual orders, the level of utilization of particular facilities may vary
significantly from time to time in the normal course of operations.
INDUSTRY
SEGMENT - GROUP
Division
- Location
|
|
Description
|
FIBERGLASS-COMPOSITE
PIPE GROUP
|
|
|
Fiberglass
Pipe Division - USA
|
|
|
Houston,
TX
|
|
*Office
|
Burkburnett,
TX
|
|
Office,
Plant
|
Centron
International, Inc.
|
|
|
Mineral
Wells, TX
|
|
Office,
Plant
|
Ameron
B.V.
|
|
|
Geldermalsen,
the Netherlands
|
|
Office,
Plant
|
Ameron
(Pte) Ltd.
|
|
|
Singapore
|
|
*Office,
Plant
|
Ameron
Malaysia Sdn. Bhd.
|
|
|
Malaysia
|
|
*Office,
Plant
|
|
|
|
WATER
TRANSMISSION GROUP
|
|
|
Rancho
Cucamonga, CA
|
|
*Office
|
Etiwanda,
CA
|
|
Office,
Plant
|
Fontana,
CA
|
|
Office,
Plant
|
Lakeside,
CA
|
|
Office,
Plant
|
Phoenix,
AZ
|
|
Office,
Plant
|
Tracy,
CA
|
|
Office,
Plant
|
|
|
|
Protective
Linings Division
|
|
|
Brea,
CA
|
|
Office,
Plant
|
American
Pipe & Construction International
|
|
|
Bogota,
Colombia
|
|
Office,
Plant
|
Cali,
Colombia
|
|
Office,
Plant
|
|
|
|
INFRASTRUCTURE
PRODUCTS GROUP
|
|
|
Hawaii
Division
|
|
|
Honolulu,
Oahu, HI
|
|
*Office,
Plant
|
Kailua,
Oahu, HI
|
|
*Plant,
Quarry
|
Barbers
Point, Oahu, HI
|
|
Office,
Plant
|
Puunene,
Maui, HI
|
|
*Office,
Plant, Quarry
|
Pole
Products Division
|
|
|
Ventura,
CA
|
|
*Office
|
Fillmore,
CA
|
|
Office,
Plant
|
Oakland,
CA
|
|
*Plant
|
Everett,
WA
|
|
*Office,
Plant
|
Tulsa,
OK
|
|
*Office,
Plant
|
Anniston,
AL
|
|
*Office,
Plant
|
|
|
|
CORPORATE
|
|
|
Corporate
Headquarters
|
|
|
Pasadena,
CA
|
|
*Office
|
Houston,
TX
|
|
**Warehouse
|
Huthwaite,
UK
|
|
**Office,
Plant
|
Hull,
UK
|
|
**Office,
Plant
|
Sydney,
Australia
|
|
**Office,
Plant
|
Adelaide,
Australia
|
|
**Plant
|
Melbourne,
Australia
|
|
**Warehouse
|
|
|
|
Corporate
Research & Engineering
|
|
|
Long
Beach, CA
|
|
*Office
|
South
Gate, CA
|
|
Office,
Laboratory
|
*Leased
**Held
for Sale
ITEM
3
- LEGAL PROCEEDINGS
The
Company is one of numerous defendants in various asbestos-related personal
injury lawsuits. These cases generally seek unspecified damages for
asbestos-related diseases based on alleged exposure to products previously
manufactured by the Company and others, and at this time the Company is
generally not aware of the extent of injuries allegedly suffered by the
individuals or the facts supporting the claim that injuries were caused by
the
Company's products. Based upon the information available to it at this time,
the
Company is not in a position to evaluate its potential exposure, if any, as
a
result of such claims 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 Statements of Financial Accounting Standards
("SFAS") No. 5, "Accounting for Contingencies." The Company continues to
vigorously defend all such lawsuits. As of November 30, 2006, the Company was
a
defendant in asbestos-related cases involving 145 claimants, compared to 8,906
claimants as of November 30, 2005. 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 year ended November 30, 2006, there were new claims involving
18
claimants, dismissals and/or settlements involving 8,779 claimants and no
judgments. No net costs and expenses were incurred by the Company for the year
ended November 30, 2006 in connection with asbestos-related claims.
The
Company is one of numerous defendants in various silica-related personal injury
lawsuits. These cases generally seek unspecified damages for silica-related
diseases based on alleged exposure to products previously manufactured by the
Company and others, and at this time the Company is 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. The Company continues to vigorously defend all such lawsuits.
As of November 30, 2006, the Company was a defendant in silica-related cases
involving seven claimants, compared to 7,447 claimants as of November 30,
2005. 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 year
ended November 30, 2006, there were new claims involving four claimants,
dismissals and/or settlements involving 7,444 claimants and no judgments.
Net costs and expenses incurred by the Company for the year ended November
30,
2006 in connection with silica-related claims were approximately $.2
million.
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 428 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.
ITEM
4
- SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
There
was
no matter submitted to a vote of security holders during the fourth quarter
of
2006.
Executive
Officers of the Registrant
The
following sets forth information with respect to individuals who served as
executive officers as of November 30, 2006 and who are not directors of the
Company. All executive officers are appointed by the Board of Directors to
serve
at the discretion of the Board of Directors.
Name
|
|
Age
|
|
Title
and Year Elected as Officer
|
Daniel
J. Emmett
|
|
46
|
|
Vice
President, Controller
|
2006
|
|
|
|
|
|
|
Ralph
S. Friedrich
|
|
59
|
|
Vice
President-Research & Engineering
|
2003
|
|
|
|
|
|
|
Thomas
P. Giese
|
|
62
|
|
Vice
President; Group President, Water Transmission Group
|
1997
|
|
|
|
|
|
|
James
R. McLaughlin
|
|
59
|
|
Senior
Vice President-Chief Financial Officer & Treasurer
|
1997
|
|
|
|
|
|
|
Terrence
P. O'Shea
|
|
60
|
|
Vice
President-Human Resources
|
2003
|
|
|
|
|
|
|
Javier
Solis
|
|
60
|
|
Senior
Vice President of Administration, Secretary & General
Counsel
|
1984
|
|
|
|
|
|
|
Gary
Wagner
|
|
55
|
|
Executive
Vice President & Chief Operating Officer
|
1990
|
All
of
the executive officers named above, except Daniel J. Emmett, have held
high-level managerial or executive positions with the Company for more than
the
past five years. Daniel J. Emmett was appointed Vice President, Controller
on
January 11, 2006, after having served as Group Controller for the
Fiberglass-Composite Pipe Group since July 2004. Prior to joining the Company,
he was Corporate Controller for Bearcom from 2002 to 2004 and Director of
International Accounting for Blockbuster from 2000 to 2002.
ITEM
5
- MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The
Common Stock, $2.50 par value, of the Company, its only outstanding class of
common equity, is traded on the New York Stock Exchange, the only exchange
on
which it is presently listed. On February 1, 2007, there were
1,034 stockholders
of record of such stock. Information regarding incentive stock compensation
plans may be found in Note (13) of the Notes to Consolidated Financial
Statements, under Part II, Item 8.
Dividends
have been paid each quarter during the prior two years. Information as to the
amount of dividends paid during the reporting period and the high and low prices
of the Company's common stock during such period are set out in Supplementary
Data - Quarterly Financial Data (Unaudited) following the Notes to Consolidated
Financial Statements, under Part II, Item 8.
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 7, herein, and Note (11) of the Notes to Consolidated
Financial Statements, under Part II, Item 8.
ISSUER
PURCHASES OF EQUITY SECURITIES
|
|
|
|
|
|
(c)
|
|
(d)
|
|
|
|
|
|
|
Number
of Shares
|
|
Maximum
Number
|
|
|
(a)
|
|
(b)
|
|
(or
Units) Purchased
|
|
(or
Approximate Dollar Value)
|
|
|
Total
Number of
|
|
Average
Price
|
|
As
Part of Publicly
|
|
Of
Shares (or Units) that May
|
|
|
Shares
(or Units)
|
|
Paid
per
|
|
Announced
Plans or
|
|
Yet
Be Purchased Under
|
Period
|
|
Purchased
|
|
Share
(or Unit)
|
|
Programs
|
|
The
Plans or Programs**
|
9/4/06
thru 10/1/06
|
|
-
|
|
N/A
|
|
-
|
|
40,924
|
10/2/06
thru 11/5/06
|
|
-
|
|
N/A
|
|
-
|
|
40,924
|
11/6/06
thru 11/30/06
|
|
-
|
|
N/A
|
|
-
|
|
40,924
|
**Shares
may be repurchased by the Company to pay taxes applicable to the vesting of
restricted stock. The number of shares does not include shares which may
be repurchased to pay social security taxes applicable to the vesting of such
restricted stock.
ITEM
6
- SELECTED FINANCIAL DATA
SELECTED
CONSOLIDATED FINANCIAL INFORMATION
|
|
Year
ended November 30,
|
|
(Dollars
in thousands, except per share data)
|
|
2006
|
|
2005
|
|
2004
|
|
2003
|
|
2002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PER
COMMON SHARE DATA (1)
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations
|
|
$
|
5.73
|
|
$
|
3.51
|
|
$
|
1.35
|
|
$
|
3.00
|
|
$
|
3.00
|
|
Income
from discontinued operations, net of taxes
|
|
|
.25
|
|
|
.37
|
|
|
.28
|
|
|
.77
|
|
|
.61
|
|
Net
income
|
|
|
5.98
|
|
|
3.88
|
|
|
1.63
|
|
|
3.77
|
|
|
3.61
|
|
Diluted
earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations
|
|
|
5.64
|
|
|
3.44
|
|
|
1.32
|
|
|
2.92
|
|
|
2.90
|
|
Income
from discontinued operations, net of taxes
|
|
|
.24
|
|
|
.36
|
|
|
.27
|
|
|
.75
|
|
|
.59
|
|
Net
income
|
|
|
5.88
|
|
|
3.80
|
|
|
1.59
|
|
|
3.67
|
|
|
3.49
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average
shares (basic)
|
|
|
8,731,839
|
|
|
8,410,563
|
|
|
8,270,487
|
|
|
7,925,229
|
|
|
7,772,032
|
|
Weighted-average
shares (diluted)
|
|
|
8,871,695
|
|
|
8,579,194
|
|
|
8,448,987
|
|
|
8,149,460
|
|
|
8,052,164
|
|
Dividends
|
|
|
.80
|
|
|
.80
|
|
|
.80
|
|
|
.76
|
|
|
.64
|
|
Stock
price - high
|
|
|
80.01
|
|
|
46.61
|
|
|
40.05
|
|
|
35.53
|
|
|
38.74
|
|
Stock
price - low
|
|
|
44.66
|
|
|
31.76
|
|
|
28.60
|
|
|
24.89
|
|
|
22.26
|
|
Price/earnings
ratio (range)
|
|
|
14-8
|
|
|
12-8
|
|
|
25-18
|
|
|
10-7
|
|
|
11-6
|
|
OPERATING
RESULTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
549,180
|
|
$
|
494,767
|
|
$
|
406,230
|
|
$
|
410,215
|
|
$
|
356,162
|
|
Gross
profit
|
|
|
132,389
|
|
|
125,210
|
|
|
92,209
|
|
|
110,221
|
|
|
88,397
|
|
Interest
expense, net
|
|
|
(1,682
|
)
|
|
(5,520
|
)
|
|
(5,522
|
)
|
|
(6,755
|
)
|
|
(6,855
|
)
|
Provision
for income taxes
|
|
|
(10,905
|
)
|
|
(11,040
|
)
|
|
(4,789
|
)
|
|
(9,474
|
)
|
|
(11,244
|
)
|
Equity
in earnings of joint venture, net of taxes
|
|
|
13,550
|
|
|
9,005
|
|
|
10,791
|
|
|
614
|
|
|
3,309
|
|
Income
from continuing operations
|
|
|
50,060
|
|
|
29,509
|
|
|
11,151
|
|
|
23,808
|
|
|
23,297
|
|
Income
from discontinued operations, net of taxes
|
|
|
2,140
|
|
|
3,101
|
|
|
2,308
|
|
|
6,092
|
|
|
4,760
|
|
Net
income
|
|
|
52,200
|
|
|
32,610
|
|
|
13,459
|
|
|
29,900
|
|
|
28,059
|
|
Net
income/sales
|
|
|
9.5
|
%
|
|
6.6
|
%
|
|
3.3
|
%
|
|
7.3
|
%
|
|
7.9
|
%
|
Return
on equity
|
|
|
15.8
|
%
|
|
11.3
|
%
|
|
5.0
|
%
|
|
12.8
|
%
|
|
13.5
|
%
|
FINANCIAL
CONDITION AT YEAR-END (2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Working
capital
|
|
$
|
280,467
|
|
$
|
216,126
|
|
$
|
180,813
|
|
$
|
177,009
|
|
$
|
149,205
|
|
Property,
plant and equipment, net
|
|
|
134,470
|
|
|
154,665
|
|
|
153,651
|
|
|
150,586
|
|
|
145,242
|
|
Investments
in joint ventures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
method
|
|
|
14,501
|
|
|
13,777
|
|
|
16,042
|
|
|
13,064
|
|
|
12,940
|
|
Cost
method
|
|
|
3,784
|
|
|
5,922
|
|
|
5,922
|
|
|
5,479
|
|
|
5,987
|
|
Total
assets
|
|
|
634,664
|
|
|
578,036
|
|
|
543,937
|
|
|
533,492
|
|
|
462,942
|
|
Long-term
debt, less current portion
|
|
|
72,525
|
|
|
77,109
|
|
|
75,349
|
|
|
86,044
|
|
|
102,823
|
|
CASH
FLOW (2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenditures
for property, plant and equipment
|
|
$
|
35,519
|
|
$
|
25,371
|
|
$
|
18,312
|
|
$
|
17,107
|
|
$
|
14,514
|
|
Depreciation
and amortization
|
|
|
17,440
|
|
|
18,924
|
|
|
18,897
|
|
|
18,371
|
|
|
18,572
|
|
(1)
Share and per share data reflect a two-for-one stock split declared in
2003.
(2)
Amounts include both continuing and discontinued operations.
ITEM
7
- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Ameron
International Corporation ("Ameron" or the "Company") is a multinational
manufacturer of highly-engineered products and materials for the chemical,
industrial, energy, transportation and infrastructure markets. Ameron is a
leading producer of water transmission lines; fiberglass-composite pipe for
transporting oil, chemicals and corrosive fluids and specialized materials
and
products used in infrastructure projects. The Company operates businesses
in North America, South America, Europe and Asia. The Company has three
reportable segments. The Fiberglass-Composite Pipe Group manufactures and
markets filament-wound and molded composite fiberglass pipe, tubing, fittings
and well screens. The Water Transmission Group manufactures and supplies
concrete and steel pressure pipe, concrete non-pressure pipe, protective linings
for pipe, and fabricated steel products. The Infrastructure Products Group
consists of two operating segments, which are aggregated: the Hawaii
Division which manufactures and sells ready-mix concrete, sand and aggregates,
concrete pipe and culverts and the Pole Products Division which manufactures
and
sells concrete and steel lighting and traffic poles. The markets served by
the Fiberglass-Composite Pipe Group are worldwide in scope. The Water
Transmission Group serves primarily the western U.S. The Infrastructure
Products Group's quarry and ready-mix business operates exclusively in Hawaii,
and poles are sold throughout the U.S. Ameron also participates in several
joint-venture companies, directly in the U.S. and Saudi Arabia, and indirectly
in Egypt.
During
the third quarter of 2006, the Company sold its Performance Coatings &
Finishes business ("Coatings Business"). The results from this segment
have been reported as discontinued operations for all the reporting
periods. Accordingly, the following discussions generally reflect summary
results from continuing operations unless otherwise noted. However, the
net income and net income per share discussions include the impact of
discontinued operations.
CRITICAL
ACCOUNTING POLICIES AND ESTIMATES
Management's
Discussion and Analysis of Liquidity and Capital Resources and Results of
Operations are based upon the Company's consolidated financial statements,
which
have been prepared in accordance with accounting principles generally accepted
in the United States of America. The preparation of these financial
statements requires management to make certain estimates and assumptions that
affect the reported amounts of assets, liabilities, revenues and expenses,
and
related disclosure of contingent assets and liabilities during the reporting
periods. Management bases its estimates on historical experience and on
various other assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent
from
other sources. Actual results could differ from those
estimates.
A
summary
of the Company's significant accounting policies is provided in Note (1) of
the
Notes to Consolidated Financial Statements. In addition, Management
believes the following accounting policies affect the more significant estimates
used in preparing the consolidated financial statements.
The
consolidated financial statements include the accounts of Ameron International
Corporation and all wholly-owned subsidiaries. All material intercompany
accounts and transactions have been eliminated. The functional currencies
for the Company's foreign operations are the applicable local currencies.
The translation from the applicable foreign currencies to U.S. dollars is
performed for balance sheet accounts using current exchange rates in effect
at
the balance sheet date and for revenue and expense accounts using a
weighted-average exchange rate during the period. The resulting
translation adjustments are recorded in accumulated other comprehensive
income/(loss). The Company advances funds to certain foreign subsidiaries
that are not expected to be repaid in the foreseeable future. Translation
adjustments arising from these advances are also included in accumulated other
comprehensive income/(loss). The timing of repayments of intercompany
advances could materially impact the Company's consolidated financial
statements. Additionally, earnings of foreign subsidiaries are often
permanently reinvested outside the U.S. Unforeseen repatriation of such
earnings could result in significant unrecognized U.S. tax liability.
Gains or losses resulting from foreign currency transactions are included in
other income, net.
Revenue
for the Fiberglass-Composite Pipe and Infrastructure Products segments is
recognized when risk of ownership and title pass, primarily at the time goods
are shipped, provided that an agreement exists between the customer and the
Company, the price is fixed or determinable and collection is reasonably
assured. Revenue is recognized for the Water Transmission Group primarily
under the percentage-of-completion method, typically based on completed units
of
production, since products are manufactured under enforceable and binding
construction contracts, typically are designed for specific applications, are
not interchangeable between projects, and are not manufactured for stock.
Revenue for the period is determined by multiplying total estimated contract
revenue by the percentage of completion of the contract and then subtracting
the
amount of previously recognized revenue. Cost of earned revenue is
computed by multiplying estimated contract completion cost by the percentage
of
completion of the contract and then subtracting the amount of previously
recognized cost. In some cases, if products are manufactured for stock or
are not related to specific construction contracts, revenue is recognized under
the same criteria used by the other two segments. Revenue under the
percentage-of-completion method is subject to a greater level of estimation,
which affects the timing of revenue recognition, costs and profits.
Estimates are reviewed on a consistent basis and are adjusted periodically
to
reflect current expectations. Costs attributable to unpriced change orders
are treated as costs of contract performance in the period, and contract revenue
is recognized if recovery is probable. Disputed or unapproved change
orders are treated as claims. Recognition of amounts of additional
contract revenue relating to claims occurs when amounts have been received
or
awarded with recognition based on the percentage-of-completion
methodology.
The
Company expenses environmental clean-up costs related to existing conditions
resulting from past or current operations on a site-by-site basis.
Liabilities and costs associated with these matters, as well as other pending
litigation and asserted claims arising in the ordinary course of business,
require estimates of future costs and judgments based on the knowledge and
experience of management and its legal counsel. When the Company's
exposures can be reasonably estimated and are probable, liabilities and expenses
are recorded. The ultimate resolution of any such exposure to the Company
may differ due to subsequent developments.
Inventories
are stated at the lower of cost or market with cost determined principally
on
the first-in, first-out ("FIFO") method. Certain steel inventories used by
the Water Transmission Group are valued using the last-in, first-out ("LIFO")
method. Significant changes in steel levels or costs could materially
impact the Company's financial statements. Reserves are established for
excess, obsolete and rework inventories based on estimates of salability and
forecasted future demand. Management records an allowance for doubtful
accounts receivable based on historical experience and expected trends. A
significant reduction in demand or a significant worsening of customer credit
quality could materially impact the Company’s consolidated financial
statements.
Investments
in unconsolidated joint ventures or affiliates ("joint ventures") over which
the
Company has significant influence are accounted for under the equity method
of
accounting, whereby the investment is carried at the cost of acquisition, plus
the Company's equity in undistributed earnings or losses since
acquisition. Investments in joint ventures over which the Company does not
have the ability to exert significant influence over the investees' operating
and financing activities are accounted for under the cost method of
accounting. The Company's investment in TAMCO, a steel mini-mill in
California, is accounted for under the equity method. Investments in
Ameron Saudi Arabia, Ltd. and Bondstrand, Ltd. are accounted for under the
cost
method due to management's current assessment of the Company's influence
over these joint ventures.
Property,
plant and equipment is stated on the basis of cost and depreciated principally
using a straight-line method based on the estimated useful lives of the related
assets, generally three to 40 years. The Company reviews long-lived assets
for impairment whenever events or changes in circumstances indicate that the
carrying value of such assets may not be recoverable. If the estimated
future, undiscounted cash flows from the use of an asset are less than its
carrying value, a write-down is recorded to reduce the related asset to
estimated fair value. The Company also reviews intangible assets for
impairment at least annually, based on the estimated future, discounted cash
flows associated with such assets. Actual cash flows may differ
significantly from estimated cash flows. Additionally, current estimates
of future cash flows may differ from subsequent estimates of future cash
flows. Changes in estimated or actual cash flows could materially impact
the Company's consolidated financial statements.
The
Company is self-insured for a portion of the losses and liabilities primarily
associated with workers' compensation claims and general, product and vehicle
liability. Losses are accrued based upon the Company's estimates of the
aggregate liability for claims incurred using historical experience and certain
actuarial assumptions followed in the insurance industry. The estimate of
self-insurance liability includes an estimate of incurred but not reported
claims, based on data compiled from historical experience. Actual
experience could differ significantly from these estimates and could materially
impact the Company's consolidated financial statements. The Company
purchases varying levels of insurance to cover losses in excess of the
self-insured limits. Currently, the Company's primary self-insurance
limits are $1.0 million per workers' compensation claim, $.1 million per
general, property or product liability claim, and $.25 million per vehicle
liability claim.
The
Company follows the guidance of Statement of Financial Accounting Standards
("SFAS") No. 87, Employers'
Accounting for Pensions,
and
SFAS No. 106, Employers
‘ Accounting for Postretirement Benefits Other Than Pensions,
when
accounting for pension and other postretirement benefits. Under these
accounting standards, assumptions are made regarding the valuation of benefit
obligations and the performance of plan assets that are controlled and invested
by third-party fiduciaries. Delayed recognition of differences between
actual results and expected or estimated results is a guiding principle of
these
standards. Such delayed recognition provides a gradual recognition of
benefit obligations and investment performance over the working lives of the
employees who benefit under the plans, based on various assumptions.
Assumed discount rates are used to calculate the present values of benefit
payments which are projected to be made in the future, including projections
of
increases in employees' annual compensation and health care costs.
Management also projects the future returns on invested assets based principally
on prior performance. These projected returns reduce the net benefit costs
the Company records in the current period. Actual results could vary
significantly from projected results, and such deviation could materially impact
the Company's consolidated financial statements. Management consults with
its actuaries when determining these assumptions. Unforecasted program
changes, including termination, freezing of benefits or acceleration of
benefits, could result in an immediate recognition of unrecognized benefit
obligations and such recognition could materially impact the Company's
consolidated financial statements.
During
2006, the Company changed the assumed discount rate, and projected rates of
increase in compensation levels and health care costs. The discount rate is
based on market interest rates. At November 30, 2006, the Company increased
the
discount rate from 5.60% to 5.95% as a result of the then-current market
interest rates on long-term, fixed-income debt securities of highly-rated
corporations. In estimating the expected return on assets, the Company considers
past performance and future expectations for various types of investments as
well as the expected long-term allocation of assets. At November 30, 2006,
the
Company maintained the expected long-term rate of return on assets assumption
at
8.75 % to reflect the expectations for future returns in the equity markets.
In
projecting the rate of increase in compensation levels, the Company considers
movements in inflation rates as reflected by market interest rates. At November
30, 2006, the Company decreased the assumed annual rate of compensation increase
from 3.35% to 3.10%. In selecting the rate of increase in health care costs,
the
Company considers past performance and forecasts of future health care cost
trends. At November 30, 2006, the Company maintained the rate of increase in
health care costs at 10%, decreasing ratably until reaching 5% in 2011 and
beyond.
Different
assumptions would impact the Company’s projected benefit obligations and annual
net periodic benefit costs related to pensions, and the accrued other benefit
obligations and benefit costs related to postretirement benefits. The following
reflects the impact associated with a change in certain assumptions (in
thousands):
|
|
1%
Increase
|
|
1%
Decrease
|
|
|
|
Increase/
|
|
Increase/
|
|
Increase/
|
|
Increase/
|
|
|
|
(Decrease)
|
|
(Decrease)
|
|
(Decrease)
|
|
(Decrease)
|
|
|
|
in
Benefit
|
|
in
Benefit
|
|
in
Benefit
|
|
in
Benefit
|
|
|
|
Obligations
|
|
Costs
|
|
Obligations
|
|
Costs
|
|
Discount
Rate:
|
|
|
|
|
|
|
|
|
|
Pensions
|
|
$
|
(7,635
|
)
|
$
|
(1,404
|
)
|
$
|
9,359
|
|
$
|
1,971
|
|
Other
postretirement benefits
|
|
|
(316
|
)
|
|
(21
|
)
|
|
373
|
|
|
20
|
|
Expected
rate of return on assets
|
|
|
N/A
|
|
|
(498
|
)
|
|
N/A
|
|
|
498
|
|
Rate
of increase in compensation levels
|
|
|
344
|
|
|
934
|
|
|
(323
|
)
|
|
(820
|
)
|
Rate
of increase in health care costs
|
|
|
173
|
|
|
19
|
|
|
(147
|
)
|
|
(17
|
)
|
Additional
information regarding pensions and other postretirement benefits is disclosed
in
Note 15 of Notes to Consolidated Financial Statements.
Management
incentive compensation is accrued based on current estimates of the Company's
ability to achieve short-term and long-term performance targets.
Deferred
income tax assets and liabilities are computed for differences between the
financial statement and income tax bases of assets and liabilities. Such
deferred income tax asset and liability computations are based on enacted tax
laws and rates applicable to periods in which the differences are expected
to
reverse. Valuation allowances are established, when necessary, to reduce
deferred income tax assets to the amounts expected to be realized.
Quarterly income taxes are estimated based on the mix of income by jurisdiction
forecasted for the full fiscal year. The Company believes that it has
adequately provided for tax-related matters. The Company is subject to
examination by taxing authorities in various jurisdictions. Matters raised
upon audit may involve substantial amounts, and an adverse finding could have
a
material impact on the Company's consolidated financial statements.
LIQUIDITY
AND CAPITAL RESOURCES
The
following discussion combines the impact of both continuing and discontinued
operations unless otherwise noted.
As
of
November 30, 2006, the Company's working capital totaled $280.5 million, an
increase of $64.3 million, from working capital of $216.1 million as of November
30, 2005. The increase was caused by higher business activity and the sale
of the Coatings Business for cash. All of the Company's industry segments
turned their inventory between four and nine times annually. Average days'
sales
in accounts receivable ranged between 34 and 160 for all segments. Cash and
cash
equivalents totaled $139.5 million as of November 30, 2006, compared to $44.7
million as of November 30, 2005.
In
accordance with SFAS No. 95, Statement
of Cash Flows,
the
consolidated statements of cash flows include cash flows for both continuing
and
discontinued operations. During 2006, net cash of $16.8 million was
generated from operating activities of continuing and discontinued operations,
compared to $37.2 million generated in 2005. The lower operating cash flow
in 2006 was primarily due to higher earnings that were more than offset by
increased inventories, higher other assets and lower liabilities. In 2005,
the Company's cash from operating activities included net income of $32.6
million, less gain on sale of assets of $1.6 million, plus non-cash adjustments
(depreciation, amortization, deferred taxes, dividends from joint-ventures
in
excess of equity income and stock compensation expense) of $24.2 million, offset
by changes in operating assets and liabilities of $18.0 million. In
2006, the Company's cash provided by operating activities included net income
of
$52.2 million, less gain on sale of assets and loss from sale of discontinued
operations of $8.7 million, plus similar non-cash adjustments of $14.8 million,
offset by corresponding changes in operating assets and liabilities of $41.5
million. The higher operating cash flow in 2005, compared to 2004, was
primarily due to higher earnings, excluding the gains on property sales in
both
years, partially offset by an increase in net operating capital related to
higher sales in 2005. In 2004, $10.1 million was generated from operating
activities. Cash from operating activities included net income of $13.5 million,
less gain on sale of assets, of $13.1 million, plus non-cash adjustments of
$22.3 million, offset by changes in operating assets and liabilities of $12.5
million.
Net
cash
generated from investing activities totaled $89.7 million in 2006, compared
to
$21.5 million used in 2005. In 2006, the Company generated net proceeds of
$9.0 million from the sale of real property in Brea, California. In
addition, the Company generated $115.0 million from the sale of the Coatings
Business in 2006. In 2005, certain properties held by the Coatings
Business’ European operations were sold for a gain of $1.8 million. Net cash
used in investing activities consisted of capital expenditures of $35.5 million,
compared to $25.4 million in the same period of 2005. In addition to
capital expenditures for normal replacement and upgrades of machinery and
equipment in both 2005 and 2006, a new fiberglass pipe plant in Malaysia was
built in 2005. In 2006, the Company spent $10.8 million to enhance the
capabilities of its steel fabrication plant in California to manufacture
large-diameter wind towers. Additionally, the assets of a Mexican steel
fabrication operation were acquired in 2006 for approximately $1.0
million. Net cash provided by investing activities totaled $4.2 million in
2004 which consisted of proceeds from the sale of assets, including $15.3
million from the sale of property vacated as part of a plant consolidation
within the Water Transmission Group, and $7.2 million from the liquidation
of
life insurance policies, offset by capital expenditures of $18.8 million. During
the year ending November 30, 2007, the Company anticipates spending between
$30
and $50 million on capital expenditures. Capital expenditures are expected
to be funded by existing cash balances, cash generated from operations or
additional borrowings.
Net
cash
used in financing activities totaled $14.0 million during 2006, compared to
zero
in 2005. Net cash used in 2006 consisted of net payment of debt of
$16.1 million, payment of common stock dividends of $7.1 million and treasury
stock purchases of $1.2 million, related to the payment of taxes associated
with
the vesting of restricted shares. Also in 2006, the Company received $8.0
million from the issuance of common stock related to exercised stock
options. Cash used in 2005 consisted of payment of common stock dividends
of $6.8 million, debt issuance costs of $.3 million, offset by net issuance
of
debt of $2.4 million, and a net $4.8 million from issuance of common stock
related to the exercise of stock options and treasury shares used to pay
withholding taxes on vested restricted shares. Net borrowings were higher in
2005 than in 2006 because of the timing of scheduled debt
repayments. Net cash used in financing activities totaled $5.0
million in 2004 which consisted of the net repayment of debt of $.8 million,
debt issuance costs of $.5 million, and payment of common stock dividends of
$6.7 million, offset by the issuance of common stock related to the exercise
of
stock options and treasury shares used to pay withholding taxes on vested
restricted shares, totaling $3.0 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 by the Company’s financial condition and performance), at any time
until September 2010, when all borrowings under the Revolver must be
repaid.
The
Company's lending agreements contain various restrictive covenants, including
the requirement to maintain specified amounts of net worth and restrictions
on
cash dividends, borrowings, liens, investments, guarantees, and financial
covenants. The Company is required to maintain consolidated net worth of $181.4
million plus 50% of net income and 75% of proceeds from any equity issued after
January 24, 2003. The Company's consolidated net worth exceeded the covenant
amount by $118.7 million as of November 30, 2006. The Company is required to
maintain a consolidated leverage ratio of consolidated funded indebtedness
to
earnings before interest, taxes, depreciation and amortization ("EBITDA") of
no
more than 2.5 times. As of November 30, 2006, the Company maintained a
consolidated leverage ratio of 1.07 times EBITDA. Lending agreements
require that the Company maintain qualified consolidated tangible assets at
least equal to the outstanding secured funded indebtedness. As of November
30,
2006, qualifying tangible assets equaled 2.21 times funded indebtedness. Under
the most restrictive fixed charge coverage ratio, the sum of EBITDA and rental
expense less cash taxes must be at least 1.35 times the sum of interest expense,
rental expense, dividends and scheduled funded debt payments. As of November
30,
2006, the Company maintained such a fixed charge coverage ratio of 2.17
times. Under the most restrictive provisions of the Company's lending
agreements, approximately $20.5 million of retained earnings was not restricted,
as of November 30, 2006, as to the declaration of cash dividends or the
repurchase of Company stock. At November 30, 2006, the Company was in compliance
with all covenants.
Cash
and
cash equivalents at November 30, 2006 totaled $139.5 million, an increase of
$94.8 million from November 30, 2005. At November 30, 2006, the Company
had total debt outstanding of $82.5 million, compared to $95.4 million at
November 30, 2005, and approximately $117.6 million in unused committed and
uncommitted credit lines available from foreign and domestic banks. The
Company's highest borrowing and the average borrowing levels during 2006 were
$105.8 million and $98.2 million, respectively.
The
Company contributed $21.6 million to the U.S. pension plan in 2006. The
Company contributed $1.0 million to the non-U.S. pension plans in 2006.
The Company expects to contribute approximately $3.0 million to its U.S. pension
plan and $.6 million to the non-U.S. pension plans in 2007.
Management
believes that cash flow from operations and current cash balances, together
with
currently available lines of credit, will be sufficient to meet operating
requirements in 2007. Cash available from operations could be affected by
any general economic downturn or any decline or adverse changes in the Company's
business, such as a loss of customers or significant raw material price
increases. Management does not believe it likely that business or economic
conditions will worsen or that costs will increase sufficiently to impact
short-term liquidity.
The
Company's contractual obligations and commercial commitments at November 30,
2006 are summarized as follows (in thousands):
|
|
Payments
Due by Period
|
|
|
|
|
|
Less
than
|
|
|
|
|
|
After
5
|
|
Contractual
Obligations
|
|
Total
|
|
1
year
|
|
1-3
years
|
|
3-5
years
|
|
years
|
|
Long-Term
Debt (a)
|
|
$
|
82,525
|
|
$
|
10,000
|
|
$
|
33,268
|
|
$
|
16,920
|
|
$
|
22,337
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
Payments on Debt
|
|
|
16,119
|
|
|
3,720
|
|
|
5,350
|
|
|
2,616
|
|
|
4,433
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Leases
|
|
|
32,517
|
|
|
3,682
|
|
|
6,942
|
|
|
5,067
|
|
|
16,826
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase
Obligations (b)
|
|
|
6,403
|
|
|
6,403
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Contractual Obligations (c)
|
|
$
|
137,564
|
|
$
|
23,805
|
|
$
|
45,560
|
|
$
|
24,603
|
|
$
|
43,596
|
|
|
|
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)
|
|
$
|
2,018
|
|
$
|
2,018
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Commercial Commitments (c)
|
|
$
|
2,018
|
|
$
|
2,018
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
(a)
Included in long-term debt is $3,652 outstanding under a revolving credit
facility, due in 2010, supported by 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 $16,065 supporting
industrial development bonds with principal of $15,700. The principal
amount of the industrial development bonds is included in long-term debt.
The standby letters of credit are issued under the Revolver.
RESULTS
OF OPERATIONS: 2006 COMPARED WITH 2005
General
Income
from continuing operations totaled $50.1 million, or $5.64 per diluted share,
on
sales of $549.2 million for the year ended November 30, 2006, compared to $29.5
million, or $3.44 per diluted share, on sales of $494.8 million for the same
period in 2005. All segments had significantly higher sales and profits,
except the Water Transmission Group, due to generally-improved market
conditions. Income from continuing operations was higher due primarily to
sales growth, the gain from the sale of the Brea property, lower interest,
higher equity income and a lower effective tax rate. Equity in earnings of
TAMCO, Ameron's 50%-owned steel venture in California, increased by $4.5
million, compared to the same period in 2005.
Income
from discontinued operations, net of taxes, totaled $2.1 million, or $.24 per
diluted share, for the year ended November 30, 2006, compared to $3.1 million,
or $.36 per diluted share, for the same period in 2005. During the third
quarter of 2006, the Company completed the sale of its Coatings Business and
recognized a pretax gain of $.9 million. The Coatings Business generated sales
of $152.2 million and $209.8 million for 2006 and 2005,
respectively.
The
Fiberglass-Composite Pipe Group achieved record sales and profits in 2006 as
a
result of the increased demand for oilfield piping in North America, continued
strong demand in the marine market worldwide and increased shipments to the
Middle East from the Company’s Asian subsidiary operations. The Infrastructure
Products Group had significantly higher sales and profits due to the strong
construction sector in Hawaii and throughout the U.S. The Water Transmission
Group reported lower sales and profits due to a cyclical slowdown in the market
and a major piping project in Northern California that was completed in
2005.
Sales
Sales
increased $54.4 million in 2006, compared to 2005. Sales increased due to
higher demand for onshore oilfield and marine piping, the impact of foreign
exchange rates on the Company’s Asian fiberglass pipe subsidiary operations,
higher demand for construction materials in Hawaii, and higher demand for
concrete and steel poles due to the continued strength of housing construction
throughout the U.S.
Fiberglass-Composite
Pipe's sales increased $42.7 million, or 31.8%, in 2006, compared to 2005.
Sales from operations in the U.S. increased $17.7 million in 2006 primarily
due
to increased demand for onshore oilfield piping. Sales from Asian
subsidiary operations increased $18.6 million in 2006, driven by activity in
the
industrial, marine and offshore segments and the impact of foreign
exchange. Sales in Europe increased $6.4 million in 2006 due to volume
growth in industrial and marine markets. The strong demand for oilfield
and marine piping continues to be driven by high oil prices and the high cost
of
steel piping, the principal substitute for fiberglass pipe. The outlook
for the Fiberglass Composite Pipe Group remains favorable.
Water
Transmission’s sales decreased $17.7 million, or 9.2%, in 2006, compared to
2005. The Water Transmission Group benefited from a major pipe project in
Northern California throughout 2005, which was completed in the first quarter
of
2006. The demand for large-diameter pipe in the western U.S. has been soft
due
to completion of projects and a cyclical lull in the building of new projects.
To maintain activity during the current downturn, the Company expanded its
manufacture of wind towers used in wind energy generation. The Water
Transmission Group entered 2007 with a higher backlog due to orders for wind
towers. Revenue is recognized in the Water Transmission Group primarily
under the percentage-of-completion method and is subject to a certain level
of
estimation, which affects the timing of revenue recognition, costs and
profits. Estimates are reviewed on a consistent basis and are adjusted
when actual results are expected to significantly differ from those
estimates. Market conditions for water pipe remain soft due to
continuation of a cyclical slowdown in water infrastructure projects in the
Company's markets. However, the market for wind towers is robust.
Infrastructure
Products' sales increased $29.2 million, or 17.3%, in 2006, compared to
2005. Higher demand for concrete and steel poles was due principally to
the continued strong housing market and improved market penetration,
particularly in the southeast U.S. The Company’s Hawaiian division had
higher sales due to the continued strength of the governmental, commercial
and
residential construction markets on Oahu and Maui. Although the housing
market has softened, the outlook for the Infrastructure Products Group’s other
construction markets remains firm.
Gross
Profit
Gross
profit in 2006 was $132.4 million, or 24.1% of sales, compared to $125.2
million, or 25.3% of sales, in 2005. Gross profit increased $7.2 million
due to higher sales.
Fiberglass-Composite
Pipe Group's gross profit increased $17.2 million in 2006, compared to 2005.
Profit margins improved to 33.3% for 2006, compared to 31.0% for 2005. Higher
margins resulted from improvements in product and market mix, and price
increases. Increased sales volume generated additional gross profit of
$13.2 million while favorable product mix generated additional gross profit
of
$4.0 million in 2006.
Water
Transmission Group's gross profit decreased $20.1 million in 2006, compared
to
2005. Profit margins declined to 15.0% for 2006, compared to 24.1% in
2005. Lower sales volume reduced profit by $4.3 million in 2006.
Lower margins from unfavorable mix of projects, start-up costs associated with
the introduction of wind towers and lower efficiencies due to lower sales
negatively impacted gross profit by $15.8 million.
Gross
profit in the Infrastructure Products Group increased $10.5 million in 2006,
compared to 2005. Profit margins improved to 23.7% for 2006, compared to
21.6% in 2005. Increased sales volume generated additional gross profit of
$6.3 million while higher margins generated additional gross profit of $4.2
million for 2006. Higher margins resulted from price increases and
operating efficiencies due to increased production levels.
Selling,
General and Administrative Expenses
Selling,
general and administrative ("SG&A") expenses totaled $94.7 million, or 17.2%
of sales, in 2006, compared to $90.3 million, or 18.2% of sales, in 2005.
The $4.4 million increase included higher incentive and stock compensation
expenses of $4.9 million, higher employee benefit costs of $1.4 million, and
higher commission and administrative expenses of $7.5 million associated with
higher sales, offset by higher legal fees and settlement costs of $6.8 million
and self-insurance expenses of $2.6 million in 2005.
Other
Income, Net
Other
income increased from $2.1 million in 2005 to $11.4 million in 2006 due
primarily to the $9.0 million gain from the sale of the Brea property. Other
income included royalties and fees from licensees, foreign currency transaction
losses, and other miscellaneous income.
Interest
Net
interest expense totaled $1.7 million in 2006, compared to $5.5 million in
2005. The decrease in net interest expense was due to higher interest
income from short-term investments and the lower average outstanding debt and
less higher-rate, fixed-rate debt.
Provision
for Income Taxes
Income
taxes decreased to $10.9 million in 2006 from $11.0 million in 2005. The
effective tax rate on income from continuing operations decreased to 23% in
2006
from 35% for the same period of 2005. The effective tax in 2006 was lower than
the tax at the statutory rate, with the difference of $7.2 million due to
settlement of the 1996-1998 and 1999-2002 IRS examinations, final approval
of
the Company's 1998-2000 research and development credit refund claims, and
settlements with other foreign and local jurisdictions. Income from certain
foreign operations and joint ventures is taxed at rates that are lower than
the
U.S. statutory tax rates. Also, the rate in 2005 was higher as a result of
the
one-time repatriation of foreign earnings under the American Jobs Creation
Act
of 2004.
Equity
in Earnings of Joint Venture, Net of Taxes
Equity
income, which consists of Ameron’s share of the results of TAMCO, increased to
$13.6 million in 2006, compared to $9.0 million in 2005. Ameron owns 50%
of TAMCO, a mini-mill that produces steel rebar for the construction industry
in
the western U.S. Equity income is shown net of income taxes. Dividends from
TAMCO were taxed at an effective rate of 11.32% and 10.41 %, respectively,
in
2006 and 2005, reflecting the dividend exclusion provided to the Company under
current tax laws. The improvement in TAMCO’s earnings was attributable to
increased demand for steel rebar and higher selling prices, reflecting the
continued strong construction market and the high prices of steel
worldwide.
Income
from Discontinued Operations, Net of Taxes
During
the third quarter of 2006, the Company completed the sale of the Coatings
Business and recognized a pretax gain of $.9 million. Provision for income
taxes related to the gain was $1.0 million, which resulted in a net loss of
$.2
million in 2006. Income from discontinued operations before the loss
on the sale of the Coatings Business, net of taxes, totaled $2.3 million for
the
year ended November 30, 2006, compared to $3.1 million for the same period
in
2005. The Coatings Business generated $152.2 million and $209.8 million in
net
sales in 2006 and 2005, respectively.
RESULTS
OF OPERATIONS: 2005 COMPARED WITH 2004
General
Income
from continuing operations totaled $29.5 million, or $3.44 per diluted share,
on
sales of $494.8 million for the year ended November 30, 2005, compared to $11.2
million, or $1.32 per diluted share, on sales of $406.2 million for the same
period in 2004. Income from continuing operations rose in 2005 primarily
due to higher sales and improved gross margins. Additionally, income from
continuing operations in 2004 was adversely impacted by labor strikes, the
costs
associated with the termination of two executive benefit plans and increased
reserves associated with LIFO accounting of certain steel inventories, partially
offset by the gain on the sale of property.
All
segments had significantly higher sales and profits in 2005 compared to 2004.
The Water Transmission Group had record sales in 2005 due principally to a
major
sewer upgrade project in Northern California. The Infrastructure Products
Group had significantly higher sales and profits due to the strong construction
sector in Hawaii and throughout the U.S. In 2004, the Water Transmission
and Infrastructure Products Groups were disrupted by labor strikes. The
Fiberglass-Composite Pipe Group achieved record sales and profits in 2005 as
a
result of the increased demand for oilfield piping in North America, continued
strong demand in the marine market worldwide and increased shipments to the
Middle East from the Company’s Asian subsidiary operations. Equity income
from TAMCO, the Company’s 50%-owned steel mini-mill in Southern California,
declined $1.8 million from 2004. The decline was attributable to higher
conversion costs, primarily energy costs.
Income
from discontinued operations, net of taxes, totaled $3.1 million, or $.36 per
diluted share, for the year ended November 30, 2005, compared to $2.3 million,
or $.27 per diluted share, for the same period in 2004. The Performance
Coatings & Finishes Group generated sales of $209.8 million and $199.6
million for 2005 and 2004, respectively. Higher sales came primarily from U.S.
operations, due to improved market conditions, and from subsidiary operations
in
Australia and New Zealand, due to volume gains and favorable currency
translation.
Sales
Sales
increased $88.5 million in 2005, compared to 2004. Sales increased due to
a large sewer pipe project, increased demand for protective lining products,
higher demand for onshore oilfield piping, the impact of foreign exchange rates
on the Company's foreign fiberglass pipe operations and higher demand for
concrete and steel poles due to the continued strength of housing construction
throughout the U.S. The 2004 sales were adversely impacted by the
labor strikes within the Water Transmission and Infrastructure Products
Groups.
The
Fiberglass-Composite Pipe Group's sales increased $17.8 million in 2005 due
primarily to demand for onshore oilfield piping in the U.S. and Canada, higher
fiberglass pipe demand for marine applications and increased shipments from
the
Company’s Asian subsidiary operations of fiberglass pipe to the Middle East for
industrial projects. Sales of piping supplied by the Company’s subsidiary
operations in Europe declined due to market conditions and the impact of the
appreciated euro on exports into the Middle East and the former Soviet
Union. The strength of demand for oilfield and marine piping continued to
be driven by high oil prices and the high cost of steel piping, the principal
substitute for fiberglass pipe. The backlog for the Fiberglass-Composite
Pipe Group increased compared to the level at year-end 2004.
The
Water
Transmission Group's sales increased $38.5 million in 2005 compared to the
same
period in 2004. The sales improvement was primarily due to pipe sales for
a major sewer upgrade project in Northern California, higher demand for
protective linings products that are used to provide corrosion protection of
concrete sewer pipe, and sales of towers used for wind-powered electrical
generation. Also, the Group's operations and sales were adversely affected
by labor disputes at two plants in 2004.
Infrastructure
Products Group’s sales increased $32.7 million in 2005 compared to 2004 due to
higher housing and commercial construction spending in Hawaii and throughout
the
U.S. In addition, the Company’s Hawaiian division recovered from a
labor dispute in 2004 at the Company's principal aggregates and ready-mix
concrete operations on Oahu in Hawaii. Sales of steel and concrete poles
increased due to the continued strength of housing construction throughout
the
U.S. Additionally, the Company benefited from a major
pole-replacement program sponsored by a utility in Southern California.
Gross
Profit
Gross
profit in 2005 was $125.2 million, or 25.3% of sales, compared to gross profit
of $92.2 million, or 22.7% of sales, in 2004. Gross profit increased $33.0
million due to higher sales and improved margins due to a favorable mix of
projects.
The
Fiberglass-Composite Pipe Group's gross profit increased $.8 million in 2005
compared to gross profit in 2004 due to higher sales. Higher sales
generated $6.2 million higher gross profit, offset by lower margins of $5.4
million due to an unfavorable shift in product mix to industrial and onshore
oilfield from higher margin offshore applications, higher raw material costs
and
lower plant utilization in Europe.
Gross
profit of the Water Transmission Group increased $16.0 million in 2005 compared
to gross profit in 2004. Gross profit increased $7.6 million because of
higher sales and $8.4 million due to higher margins. Profit margins were
higher largely due to a favorable change in product and project mix due
primarily to the large sewer project. Profits were impacted in 2004 by
inefficient plant utilization caused by two labor strikes, higher workers'
compensation costs and weak market conditions.
The
Infrastructure Products Group's gross profit increased $8.4 million compared
to
gross profit in 2004. Gross profit increased $6.7 million from higher
sales and $1.7 million due to higher margins. Profit margins were higher
due to improved plant utilization, improved pricing, and a favorable change
in
product mix. Plant operating efficiency had been adversely affected by a
labor strike in Hawaii in 2004.
Additionally,
consolidated gross profit was $8.4 million lower in 2004 compared to the same
period in 2005 due primarily to increased reserves in 2004 associated with
LIFO
accounting of certain steel inventories used by the Water Transmission
Group. The LIFO method is used to defer income taxes on operating profit
of the Water Transmission Group. Income taxes and the LIFO reserves are
not allocated to the operating segments.
Selling,
General and Administrative Expenses
SG&A
totaled $90.3 million, or 18.2% of sales, in 2005, compared to $83.6 million,
or
20.6%, in 2004. SG&A increased $6.7 million primarily due to higher
legal expenses of $5.1 million, higher stock and incentive compensation expense
of $3.4 million, offset by insurance recoveries of $1.5 million.
Pension
Plan Curtailment/Settlement
In
June
2004, the Company terminated two executive benefit plans and incurred a pretax
expense of $12.8 million due to the termination of the plans and distribution
to
plan participants.
Other
Income, Net
Other
income decreased to $2.1 million in 2005 from $14.8 million in 2004. Other
income included royalties and fees from licensees, foreign currency transaction
gains and losses, and other miscellaneous income. Included in 2004 was a
gain of $13.1 million on the sale of excess property vacated as part of a
program to streamline pipe manufacturing operations within the Water
Transmission Group. Income from investments accounted for under the cost
method increased from zero in 2004 to $1.3 million in 2005 due to the timing
of
dividend payments. The fiberglass pipe ventures continued to perform well
due to the strength of oilfield and infrastructure markets in Saudi
Arabia. The concrete pipe venture experienced a cyclical lull and
increased competition from alternative products.
Interest
Net
interest expense was flat at $5.5 million in 2005, compared to 2004.
Provision
for Income Taxes
Income
taxes increased to $11.0 million compared to $4.8 million in 2004. The
effective tax rate decreased from 93% in 2004 to 35% in 2005. The
effective tax rate was significantly higher in 2004 due to IRS limitations
on
the deductibility of a portion of the settlements associated with the executive
benefit plan termination. Approximately $18.5 million of the $24.7 million
paid to participants of the terminated plans did not receive an associated
tax
benefit. Excluding the impact of the termination of the benefit plans, the
effective rate in 2005 would have been higher than in 2004 due to higher levels
of earnings from domestic operations. Income from certain foreign
operations is taxed at rates that are lower than the U.S. statutory tax
rates. Also, the rate in 2005 was higher as a result of the one-time
repatriation of foreign earnings under the American Jobs Creation Act of
2004.
Equity
in Earnings of Joint Venture, Net of Taxes
Equity
income in the results of TAMCO, decreased from $10.8 million in 2004 to $9.0
million in 2005. The decline in TAMCO's earnings was attributable
principally to higher conversion costs, primarily energy. TAMCO’s sales in
2005 reflected the continued strong construction market and the high prices
of
steel worldwide.
Income
from Discontinued Operations, Net of Taxes
Income
from discontinued operations, net of taxes, totaled $3.1 million for the year
ended November 30, 2005, compared to $2.3 million for the same period in 2004.
The Performance Coatings & Finishes Group benefited from improved market
conditions in the U.S., higher selling prices, higher shipments of lighter-duty
product finishes by the Company’s Australian and New Zealand subsidiary
operations, and favorable foreign currency exchange rates. Discontinued
operations generated sales of $209.8 million and $199.6 million in 2005 and
2004, respectively.
OFF-BALANCE
SHEET FINANCING
The
Company does not have any off-balance sheet financing, other than listed in
the
Liquidity and Capital Resources section herein. All of the Company's
subsidiaries are included in the financial statements, and the Company does
not
have relationships with any special purpose entities.
CONTINGENCIES
The
Company is one of numerous defendants in various asbestos-related personal
injury lawsuits. These cases generally seek unspecified damages for
asbestos-related diseases based on alleged exposure to products previously
manufactured by the Company and others, and at this time the Company is
generally not aware of the extent of injuries allegedly suffered by the
individuals or the facts supporting the claim that injuries were caused by
the
Company's products. Based upon the information available to it at this time,
the
Company is not in a position to evaluate its potential exposure, if any, as
a
result of such claims. Hence, no amounts have been accrued for loss
contingencies related to these lawsuits in accordance with SFAS No. 5,
"Accounting for Contingencies." The Company continues to vigorously defend
all
such lawsuits. As of November 30, 2006, the Company was a defendant in
asbestos-related cases involving 145 claimants, compared to 8,906 claimants
as
of November 30, 2005. 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
fiscal year ended November 30, 2006, there were new claims involving 18
claimants, dismissals and/or settlements involving 8,779 claimants and no
judgments. No net costs and expenses were incurred by the Company for the
fiscal year ended November 30, 2006 in connection with asbestos-related
claims.
The
Company is one of numerous defendants in various silica-related personal injury
lawsuits. These cases generally seek unspecified damages for silica-related
diseases based on alleged exposure to products previously manufactured by the
Company and others, and at this time the Company is not aware of the extent
of
injuries allegedly suffered by the individuals or the facts supporting the
claim
that injuries were caused by the Company's products. Based upon the
information available to it at this time, the Company is not in a position
to
evaluate its potential exposure, if any, as a result of such claims.
Hence, no amounts have been accrued for loss contingencies related to these
lawsuits in accordance with SFAS No. 5. The Company continues to
vigorously defend all such lawsuits. As of November 30, 2006, the Company
was a defendant in silica-related cases involving seven claimants, compared
to
7,447 claimants as of November 30, 2005. 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 fiscal year ended November 30, 2006, there were new claims
involving four claimants, dismissals and/or settlements involving 7,444
claimants and no judgments. Net costs and expenses incurred by the Company
for the fiscal year ended November 30, 2006 in connection with silica-related
claims were approximately $.2 million.
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 the
SPAR
constructed for Dominion. Dominion seeks damages allegedly sustained by it
resulting from delays in delivery of the SPAR caused by the removal and
replacement of certain coatings containing lead and/or lead chromate for which
the manufacturer of the SPAR alleged the Company was responsible. Dominion
contends that the Company made certain misrepresentations and warranties to
Dominion concerning the lead-free nature of those coatings. Dominion's
petition as filed alleged a claim for damages in an unspecified amount; however,
Dominion's economic expert has since estimated Dominion's damages at
approximately $128 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 428 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.
NEW
ACCOUNTING PRONOUNCEMENTS
In
June
2006, the Financial Accounting Standards Board (“FASB”) issued Emerging Issues
Task Force (“EITF”) 06-03, "How Taxes Collected from Customers and Remitted to
Governmental Authorities Should Be Presented in the Income Statement (That
Is,
Gross Versus Net Presentation)." EITF 06-03 requires that any tax assessed
by a
governmental authority that is imposed concurrent with or subsequent to a
revenue-producing transaction between a seller and a customer should be
presented on a gross (included in revenues and costs) or a net (excluded from
revenues) basis. In addition, for any such taxes that are reported on a gross
basis, a company should disclose the amounts of those taxes in interim and
annual financial statements for each period for which an income statement is
presented if those amounts are significant. EITF 06-03 will be effective for
interim and annual reporting periods beginning after December 15, 2006.
The
adoption of EITF 06-03 is not expected to have a material effect on its
consolidated financial statements.
In
July
2006, the FASB issued Interpretation (“FIN”) No. 48, “Accounting for
Uncertainty in Income Taxes - an interpretation of FASB
Statement No. 109.” FIN 48 clarifies the accounting for
uncertainty in income taxes recognized in an entity’s financial statements in
accordance with SFAS 109 and prescribes a recognition threshold and
measurement attribute for financial statement disclosure of tax positions taken
or expected to be taken on a tax return. FIN 48 requires the impact of a tax
position to be recognized in the financial statements if that position is more
likely than not of being sustained by the taxing authority. FIN 48 is
effective for fiscal years beginning after December 15, 2006, with early
adoption permitted. The Company is evaluating whether the adoption of
FIN 48 will have a material effect on its consolidated
financial statements.
In
September 2006, the FASB issued Statement of Financial Accounting Standards
(“SFAS”) No. 157, “Fair Value Measurements,” which formally defines fair value,
creates a standardized framework for measuring fair value in generally accepted
accounting principles (“GAAP”), and expands fair value measurement disclosures.
SFAS No. 157 will be effective for fiscal years beginning after November 15,
2007. The adoption of SFAS No. 157 is not expected to have a material effect
on
its consolidated financial statements.
In
September 2006, the FASB issued SFAS No. 158, "Employers’ Accounting for Defined
Benefit Pension and Other Postretirement Plans," amending FASB Statement No.
87,
“Employers’ Accounting for Pensions,” FASB Statement No. 88, “Employers’
Accounting for Settlements and Curtailments of Defined Benefit Pension Plans
and
for Termination Benefits,” FASB Statement No. 106, “Employers’ Accounting for
Postretirement Benefits Other Than Pensions,” and FASB Statement No. 132,
“Employers’ Disclosures about Pensions and Other Postretirement Benefits.” SFAS
No. 158 requires companies to recognize the overfunded or underfunded status
of
a defined benefit postretirement plan (other than a multiemployer plan) as
an
asset or liability in its financial statements and to recognize changes in
that
status in the year in which the changes occur. SFAS No. 158 also requires a
company to measure the funded status of a plan as of the date of its year-end
financial statements. SFAS No. 158 will be effective as of the end of the fiscal
year ending after December 15, 2006. The adoption of SFAS No. 158 is expected
to
have a significant effect on the Company’s consolidated balance sheet. The
Company is in the process of quantifying the effect of adoption.
In
September 2006, the SEC issued Staff Accounting Bulletin (“SAB”) No, 108
“Considering the Effects of Prior Year Misstatements when Quantifying
Misstatements in Current Year Financial Statements” (“SAB
108”). SAB 108 provides interpretive guidance on how the effects of the
carryover or reversal of prior year misstatements should be considered in
quantifying a current year misstatement. The SEC staff believes that registrants
should quantify errors using both a balance sheet and income statement approach
and evaluate whether either approach results in quantifying a misstatement
that,
when all relevant quantitative and qualitative factors considered, is material.
SAB 108 is effective for fiscal years ending on or after November 15, 2006.
The
Company’s adoption of SAB 108
did
not have a material impact on its financial position or results of
operations.
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
Ameron'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.
ITEM
7A
- QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
Foreign
Currency Risk
The
Company operates internationally, giving rise to exposure to market risks from
changes in foreign exchange rates. From time to time, the Company borrows in
various currencies to reduce the level of net assets subject to changes in
foreign exchange rates or purchases foreign exchange forward and option
contracts to hedge firm commitments, such as receivables and payables,
denominated in foreign currencies. The Company does not use the contracts for
speculative or trading purposes. At November 30, 2006, the Company had eight
foreign currency forward contracts expiring at various dates through March
2007,
with an aggregate notional value and fair value of $1.7 million. Such
instruments are carried at fair value, with related adjustments recorded in
other income.
Debt
Risk
The
Company has variable-rate, short-term and long-term debt as well as fixed-rate,
long-term debt. The fair value of the Company's fixed-rate debt is subject
to
changes in interest rates. The estimated fair value of the Company's
variable-rate debt approximates the carrying value of such debt since the
variable interest rates are market-based, and the Company believes such debt
could be refinanced on materially similar terms. The Company is subject to
the
availability of credit to support new requirements and to refinance long-term
and short-term debt.
As
of
November 30, 2006, the estimated fair value of notes payable by the Company
totaling $30.0 million, with a fixed rate of 5.36% per annum, was $30.0 million.
The Company is required to repay these notes in annual installments of $10.0
million from 2006 to 2009, inclusive. As of November 30, 2006, the
estimated fair value of notes payable by the Company's wholly-owned subsidiary
in Singapore totaling approximately $33.2 million, with a fixed rate of 4.25%
per annum, was $33.4 million. These notes must be repaid in installments
of approximately $6.6 million per year beginning in 2008. The Company had
$7.2 million of variable-rate industrial development bonds payable at a rate
of
3.85% per annum as of November 30, 2006, payable in 2016. The Company also
had
$8.5 million of variable-rate industrial development bonds payable at a rate
of
3.85% per annum as of November 30, 2006, payable in 2021. The industrial revenue
bonds are supported by the Revolver. The Company borrowed $3.7 million
under various foreign short-term bank facilities, that are supported by the
Revolver which permits borrowings up to $100.0 million through September
2010. The average interest rate of such borrowings by foreign subsidiaries
was 6.34% per annum as of November 30, 2006.
|
|
|
|
Total
Outstanding
|
|
|
|
|
|
As
of November 30, 2006
|
|
|
|
Expected
Maturity Date
|
|
Recorded
|
|
Fair
|
|
(Dollars
in thousands)
|
|
2007
|
|
2008
|
|
2009
|
|
2010
|
|
2011
|
|
Thereafter
|
|
Value
|
|
Value
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-Term
Debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed-rate
secured notes, payable in US$
|
|
$
|
10,000
|
|
$
|
10,000
|
|
$
|
10,000
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
30,000
|
|
$
|
29,983
|
|
Average
interest rate
|
|
|
5.36
|
%
|
|
5.36
|
%
|
|
5.36
|
%
|
|
-
|
|
|
-
|
|
|
-
|
|
|
5.36
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed-rate
secured notes, payable in Singapore dollars
|
|
|
-
|
|
|
6,634
|
|
|
6,634
|
|
|
6,634
|
|
|
6,634
|
|
|
6,637
|
|
|
33,173
|
|
|
33,414
|
|
Average
interest rate
|
|
|
-
|
|
|
4.25
|
%
|
|
4.25
|
%
|
|
4.25
|
%
|
|
4.25
|
%
|
|
4.25
|
%
|
|
4.25
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable-rate
bank revolving credit facilities, payable in local
currencies
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
3,652
|
|
|
-
|
|
|
-
|
|
|
3,652
|
|
|
3,652
|
|
Average
interest rate
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
6.34
|
%
|
|
-
|
|
|
-
|
|
|
6.34
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable-rate
industrial development bonds, payable in US$
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
7,200
|
|
|
7,200
|
|
|
7,200
|
|
Average
interest rate
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
3.85
|
%
|
|
3.85
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable-rate
industrial development bonds, payable in US$
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
8,500
|
|
|
8,500
|
|
|
8,500
|
|
Average
interest rate
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
3.85
|
%
|
|
3.85
|
%
|
|
|
|
ITEM
8
- FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA
CONSOLIDATED
STATEMENTS OF INCOME
|
|
Year
ended November 30,
|
|
|
|
|
|
|
|
|
|
(Dollars
in thousands, except per share data)
|
|
2006
|
|
2005
|
|
2004
|
|
Sales
|
|
$
|
549,180
|
|
$
|
494,767
|
|
$
|
406,230
|
|
Cost
of sales
|
|
|
(416,791
|
)
|
|
(369,557
|
)
|
|
(314,021
|
)
|
Gross
profit
|
|
|
132,389
|
|
|
125,210
|
|
|
92,209
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative expenses
|
|
|
(94,689
|
)
|
|
(90,283
|
)
|
|
(83,553
|
)
|
Pension
plan curtailment/settlement
|
|
|
-
|
|
|
-
|
|
|
(12,817
|
)
|
Other
income, net
|
|
|
11,397
|
|
|
2,137
|
|
|
14,832
|
|
Income
from continuing operations before interest, income taxes and equity
in
earnings of joint venture
|
|
|
49,097
|
|
|
37,064
|
|
|
10,671
|
|
Interest
expense, net
|
|
|
(1,682
|
)
|
|
(5,520
|
)
|
|
(5,522
|
)
|
Income
from continuing operations before income taxes and equity in earnings
of
joint venture
|
|
|
47,415
|
|
|
31,544
|
|
|
5,149
|
|
Provision
for income taxes
|
|
|
(10,905
|
)
|
|
(11,040
|
)
|
|
(4,789
|
)
|
Income
from continuing operations before equity in earnings of joint
venture
|
|
|
36,510
|
|
|
20,504
|
|
|
360
|
|
Equity
in earnings of joint venture, net of taxes
|
|
|
13,550
|
|
|
9,005
|
|
|
10,791
|
|
Income
from continuing operations
|
|
|
50,060
|
|
|
29,509
|
|
|
11,151
|
|
Income
from discontinued operations, net of taxes
|
|
|
2,140
|
|
|
3,101
|
|
|
2,308
|
|
Net
income
|
|
$
|
52,200
|
|
$
|
32,610
|
|
$
|
13,459
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings per share:
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations
|
|
$
|
5.73
|
|
$
|
3.51
|
|
$
|
1.35
|
|
Income
from discontinued operations, net of taxes
|
|
|
.25
|
|
|
.37
|
|
|
.28
|
|
Net
income
|
|
$
|
5.98
|
|
$
|
3.88
|
|
$
|
1.63
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
earnings per share:
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations
|
|
$
|
5.64
|
|
$
|
3.44
|
|
$
|
1.32
|
|
Income
from discontinued operations, net of taxes
|
|
|
.24
|
|
|
.36
|
|
|
.27
|
|
Net
income
|
|
$
|
5.88
|
|
$
|
3.80
|
|
$
|
1.59
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average
shares (basic)
|
|
|
8,731,839
|
|
|
8,410,563
|
|
|
8,270,487
|
|
Weighted-average
shares (diluted)
|
|
|
8,871,695
|
|
|
8,579,194
|
|
|
8,448,987
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
CONSOLIDATED
BALANCE SHEETS - ASSETS
|
|
As
of November 30,
|
|
|
|
|
|
|
|
(Dollars
in thousands, except per share data)
|
|
2006
|
|
2005
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
Current
assets
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
139,479
|
|
$
|
44,671
|
|
Receivables,
less allowances of $4,912 in 2006 and $7,693 in 2005
|
|
|
160,173
|
|
|
180,558
|
|
Inventories
|
|
|
77,134
|
|
|
98,389
|
|
Deferred
income taxes
|
|
|
23,861
|
|
|
17,598
|
|
Prepaid
expenses and other current assets
|
|
|
15,921
|
|
|
11,714
|
|
|
|
|
|
|
|
|
|
Total
current assets
|
|
|
416,568
|
|
|
352,930
|
|
|
|
|
|
|
|
|
|
Investments
in joint ventures
|
|
|
|
|
|
|
|
Equity
method
|
|
|
14,501
|
|
|
13,777
|
|
Cost
method
|
|
|
3,784
|
|
|
5,922
|
|
|
|
|
|
|
|
|
|
Property,
plant and equipment
|
|
|
|
|
|
|
|
Land
|
|
|
33,327
|
|
|
38,959
|
|
Buildings
|
|
|
57,434
|
|
|
88,606
|
|
Machinery
and equipment
|
|
|
261,538
|
|
|
284,593
|
|
Construction
in progress
|
|
|
20,657
|
|
|
15,500
|
|
|
|
|
|
|
|
|
|
Total
property, plant and equipment at cost
|
|
|
372,956
|
|
|
427,658
|
|
Accumulated
depreciation
|
|
|
(238,486
|
)
|
|
(272,993
|
)
|
|
|
|
|
|
|
|
|
Total
property, plant and equipment, net
|
|
|
134,470
|
|
|
154,665
|
|
Deferred
income taxes
|
|
|
-
|
|
|
143
|
|
Intangible
assets, net of accumulated amortization of $3,017 in 2006 and $10,142
in
2005
|
|
|
2,143
|
|
|
13,259
|
|
Other
assets
|
|
|
63,198
|
|
|
37,340
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
634,664
|
|
$
|
578,036
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
CONSOLIDATED
BALANCE SHEETS - LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
As
of November 30,
|
|
|
|
|
|
|
|
(Dollars
in thousands, except per share data)
|
|
2006
|
|
2005
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
Current
portion of long-term debt
|
|
$
|
10,000
|
|
$
|
18,333
|
|
Trade
payables
|
|
|
45,650
|
|
|
54,349
|
|
Accrued
liabilities
|
|
|
68,970
|
|
|
63,071
|
|
Income
taxes payable
|
|
|
11,481
|
|
|
1,051
|
|
|
|
|
|
|
|
|
|
Total
current liabilities
|
|
|
136,101
|
|
|
136,804
|
|
|
|
|
|
|
|
|
|
Long-term
debt, less current portion
|
|
|
72,525
|
|
|
77,109
|
|
Other
long-term liabilities
|
|
|
62,813
|
|
|
67,625
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
271,439
|
|
|
281,538
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies
|
|
|
|
|
|
|
|
Stockholders'
equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock, par value $2.50 per share, authorized 24,000,000 shares,
outstanding 9,075,094 shares in 2006 and 8,698,148 shares in 2005,
net of
treasury shares
|
|
|
29,431
|
|
|
28,450
|
|
Additional
paid-in capital
|
|
|
39,500
|
|
|
28,936
|
|
Unearned
restricted stock
|
|
|
-
|
|
|
(2,084
|
)
|
Retained
earnings
|
|
|
371,894
|
|
|
326,795
|
|
Accumulated
other comprehensive loss
|
|
|
(27,232
|
)
|
|
(36,324
|
)
|
Treasury
stock (2,697,148 shares in 2006 and 2,681,811 shares in
2005)
|
|
|
(50,368
|
)
|
|
(49,275
|
)
|
|
|
|
|
|
|
|
|
Total
stockholders' equity
|
|
|
363,225
|
|
|
296,498
|
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders' equity
|
|
$
|
634,664
|
|
$
|
578,036
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS' EQUITY
|
|
Common
Stock
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
Unearned
|
|
|
|
Other
|
|
|
|
|
|
|
|
Shares
|
|
|
|
Paid-in
|
|
Restricted
|
|
Retained
|
|
Comprehensive
|
|
Treasury
|
|
|
|
(Dollars
in thousands)
|
|
Outstanding
|
|
Amount
|
|
Capital
|
|
Stock
|
|
Earnings
|
|
Loss
|
|
Stock
|
|
Total
|
|
Balance,
November 30, 2003
|
|
|
8,214,563
|
|
$
|
27,186
|
|
$
|
16,443
|
|
$
|
(1,481
|
)
|
$
|
294,255
|
|
$
|
(31,768
|
)
|
$
|
(48,523
|
)
|
$
|
256,112
|
|
Net
Income - 2004
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
13,459
|
|
|
-
|
|
|
-
|
|
|
13,459
|
|
Exercise
of stock options
|
|
|
167,768
|
|
|
419
|
|
|
2,896
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
3,315
|
|
Foreign
currency translation adjustment
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
10,175
|
|
|
-
|
|
|
10,175
|
|
Minimum
pension liability adjustment, net of tax
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
411
|
|
|
-
|
|
|
411
|
|
Comprehensive
income from joint venture
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
762
|
|
|
-
|
|
|
762
|
|
Cash
dividends on common stock
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(6,701
|
)
|
|
-
|
|
|
-
|
|
|
(6,701
|
)
|
Stock
compensation expense
|
|
|
-
|
|
|
-
|
|
|
772
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
772
|
|
Issuance
of restricted stock
|
|
|
56,000
|
|
|
140
|
|
|
1,792
|
|
|
(1,932
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Restricted
stock compensation expense
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
1,113
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
1,113
|
|
Treasury
stock purchase
|
|
|
(6,860
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(251
|
)
|
|
(251
|
)
|
Balance,
November 30, 2004
|
|
|
8,431,471
|
|
|
27,745
|
|
|
21,903
|
|
|
(2,300
|
)
|
|
301,013
|
|
|
(20,420
|
)
|
|
(48,774
|
)
|
|
279,167
|
|
Net
Income - 2005
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
32,610
|
|
|
-
|
|
|
-
|
|
|
32,610
|
|
Exercise
of stock options
|
|
|
239,318
|
|
|
599
|
|
|
4,701
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
5,300
|
|
Foreign
currency translation adjustment
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(10,329
|
)
|
|
-
|
|
|
(10,329
|
)
|
Minimum
pension liability adjustment, net of tax
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(5,209
|
)
|
|
-
|
|
|
(5,209
|
)
|
Comprehensive
income from joint venture
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(366
|
)
|
|
-
|
|
|
(366
|
)
|
Cash
dividends on common stock
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(6,828
|
)
|
|
-
|
|
|
-
|
|
|
(6,828
|
)
|
Stock
compensation expense
|
|
|
-
|
|
|
-
|
|
|
899
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
899
|
|
Issuance
of restricted stock
|
|
|
42,500
|
|
|
106
|
|
|
1,433
|
|
|
(1,539
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Restricted
stock compensation expense
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
1,755
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
1,755
|
|
Treasury
stock purchase
|
|
|
(15,141
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(501
|
)
|
|
(501
|
)
|
Balance,
November 30, 2005
|
|
|
8,698,148
|
|
|
28,450
|
|
|
28,936
|
|
|
(2,084
|
)
|
|
326,795
|
|
|
(36,324
|
)
|
|
(49,275
|
)
|
|
296,498
|
|
Net
Income - 2006
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
52,200
|
|
|
-
|
|
|
-
|
|
|
52,200
|
|
Exercise
of stock options
|
|
|
347,283
|
|
|
853
|
|
|
7,032
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
109
|
|
|
7,994
|
|
Foreign
currency translation adjustment
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
2,330
|
|
|
-
|
|
|
2,330
|
|
Minimum
pension liability adjustment, net of tax
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
6,314
|
|
|
-
|
|
|
6,314
|
|
Comprehensive
income from joint venture
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
448
|
|
|
-
|
|
|
448
|
|
Cash
dividends on common stock
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(7,101
|
)
|
|
-
|
|
|
-
|
|
|
(7,101
|
)
|
Stock
compensation expense
|
|
|
-
|
|
|
-
|
|
|
151
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
151
|
|
Issuance
of restricted stock
|
|
|
51,000
|
|
|
128
|
|
|
(128
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Excess
Tax Benefit related to stock-based compensation
|
|
|
-
|
|
|
-
|
|
|
2,469
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
2,469
|
|
Restricted
stock compensation expense
|
|
|
-
|
|
|
-
|
|
|
3,124
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
3,124
|
|
Treasury
stock purchase
|
|
|
(21,337
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(1,202
|
)
|
|
(1,202
|
)
|
Reclassification
of unearned restricted stock under FAS123(R)
|
|
|
-
|
|
|
-
|
|
|
(2,084
|
)
|
|
2,084
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Balance,
November 30, 2006
|
|
|
9,075,094
|
|
$
|
29,431
|
|
$
|
39,500
|
|
$
|
-
|
|
$
|
371,894
|
|
$
|
(27,232
|
)
|
$
|
(50,368
|
)
|
$
|
363,225
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
CONSOLIDATED
STATEMENTS OF COMPREHENSIVE INCOME
|
|
Year
ended November 30,
|
|
(In
thousands)
|
|
2006
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
52,200
|
|
$
|
32,610
|
|
$
|
13,459
|
|
Foreign
currency translation adjustment
|
|
|
2,330
|
|
|
(10,329
|
)
|
|
10,175
|
|
Minimum
pension liability adjustment, net of tax
|
|
|
6,314
|
|
|
(5,209
|
)
|
|
411
|
|
Comprehensive
income/(loss) from joint venture
|
|
|
448
|
|
|
(366
|
)
|
|
762
|
|
Comprehensive
income
|
|
$
|
61,292
|
|
$
|
16,706
|
|
$
|
24,807
|
|
The
accompanying notes are an integral part of these
consolidated financial statements.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
Year
ended November 30,
|
|
(In
thousands)
|
|
2006
|
|
2005
|
|
2004
|
|
OPERATING
ACTIVITIES
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
52,200
|
|
$
|
32,610
|
|
$
|
13,459
|
|
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
17,270
|
|
|
18,718
|
|
|
18,673
|
|
Amortization
|
|
|
170
|
|
|
206
|
|
|
224
|
|
(Benefit)/provision
for deferred income taxes
|
|
|
(5,631
|
)
|
|
701
|
|
|
3,689
|
|
Net
earnings and distributions from joint ventures
|
|
|
(276
|
)
|
|
1,901
|
|
|
(2,217
|
)
|
Gain
from sale of investments, property, plant and equipment
|
|
|
(8,864
|
)
|
|
(1,634
|
)
|
|
(13,140
|
)
|
Loss
from sale of discontinued operations
|
|
|
157
|
|
|
-
|
|
|
-
|
|
Stock
compensation expense
|
|
|
3,275
|
|
|
2,654
|
|
|
1,885
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
Receivables,
net
|
|
|
(23,284
|
)
|
|
(23,649
|
)
|
|
(1,690
|
)
|
Inventories
|
|
|
(25,906
|
)
|
|
(10,624
|
)
|
|
3,665
|
|
Prepaid
expenses and other current assets
|
|
|
(5,890
|
)
|
|
(884
|
)
|
|
(1,792
|
)
|
Other
assets
|
|
|
(11,990
|
)
|
|
1,894
|
|
|
2,789
|
|
Trade
payables
|
|
|
6,937
|
|
|
6,686
|
|
|
64
|
|
Accrued
liabilities and income taxes payable
|
|
|
22,330
|
|
|
3,660
|
|
|
(2,597
|
)
|
Other
long-term liabilities
|
|
|
(3,655
|
)
|
|
4,945
|
|
|
(12,949
|
)
|
Net
cash provided by operating activities
|
|
|
16,843
|
|
|
37,184
|
|
|
10,063
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING
ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from sale of property, plant and equipment
|
|
|
10,253
|
|
|
3,855
|
|
|
15,702
|
|
Proceeds
from sale of discontinued operations
|
|
|
115,000
|
|
|
-
|
|
|
-
|
|
Proceeds
from sale of other investments
|
|
|
-
|
|
|
-
|
|
|
7,214
|
|
Additions
to investments, property, plant and equipment
|
|
|
(35,519
|
)
|
|
(25,371
|
)
|
|
(18,755
|
)
|
Net
cash provided by (used in) investing activities
|
|
|
89,734
|
|
|
(21,516
|
)
|
|
4,161
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING
ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
Issuance
of debt
|
|
|
3,279
|
|
|
59,424
|
|
|
11,033
|
|
Repayment
of debt
|
|
|
(19,402
|
)
|
|
(57,073
|
)
|
|
(11,874
|
)
|
Debt
issuance costs
|
|
|
-
|
|
|
(322
|
)
|
|
(477
|
)
|
Dividends
on common stock
|
|
|
(7,101
|
)
|
|
(6,828
|
)
|
|
(6,701
|
)
|
Issuance
of common stock
|
|
|
7,994
|
|
|
5,300
|
|
|
3,315
|
|
Excess
tax benefits related to stock-based compensation
|
|
|
2,469
|
|
|
-
|
|
|
-
|
|
Change
in treasury stock
|
|
|
(1,202
|
)
|
|
(501
|
)
|
|
(251
|
)
|
Net
cash used in financing activities
|
|
|
(13,963
|
)
|
|
-
|
|
|
(4,955
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Effect
of exchange rate changes on cash and cash equivalents
|
|
|
2,194
|
|
|
(1,121
|
)
|
|
465
|
|
Net
change in cash and cash equivalents
|
|
|
94,808
|
|
|
14,547
|
|
|
9,734
|
|
Cash
and cash equivalents at beginning of year
|
|
|
44,671
|
|
|
30,124
|
|
|
20,390
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at end of year
|
|
$
|
139,479
|
|
$
|
44,671
|
|
$
|
30,124
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
NOTE
1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles
of Consolidation
The
consolidated financial statements include the accounts of Ameron International
Corporation and all wholly-owned subsidiaries ("Ameron" or the "Company").
All
material intercompany accounts and transactions have been
eliminated.
Use
of Estimates
The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make certain estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities and the reported amounts of
revenues and expenses. Significant estimates include revenue and costs recorded
under percentage-of-completion accounting, assumptions related to benefit plans,
goodwill, and reserves associated with management incentives, receivables,
inventories, income taxes, self insurance and environmental and legal
contingencies. Actual results could differ from those estimates.
Revenue
Recognition
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, are typically designed for specific applications, are
not interchangeable between projects, and are not manufactured for stock. In
those cases in which products are manufactured for stock or are not related
to
specific construction contracts, revenue is recognized under the same criteria
used by the other three segments. Revenue under the percentage-of-completion
method is subject to a greater level of estimation, which affects the timing
of
revenue recognition, costs and profits. Estimates are reviewed on a consistent
basis and are adjusted periodically to reflect current expectations. Costs
attributable to unpriced change orders are treated as costs of contract
performance in the period, and contract revenue is recognized if recovery is
probable. Disputed or unapproved change orders are treated as
claims. Recognition of amounts of additional contract revenue relating to
claims occurs when amounts have been received or awarded with recognition based
on the percentage-of-completion methodology.
Research
and Development Costs
Research
and development costs, which relate primarily to the development, design and
testing of products, are expensed as incurred. Such costs, which are included
in
selling, general and administrative expenses, were $5,790,000 in 2006,
$4,567,000 in 2005, and $3,667,000 in 2004.
Environmental
Clean-up Costs
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.
Income
Taxes
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 to reduce deferred income tax
assets to the amounts expected to be realized.
Net
Income Per Share
Basic
net
income per share is computed on the basis of the weighted-average number of
common shares outstanding during the periods presented. Diluted net income
per
share is computed on the basis of the weighted-average number of common shares
outstanding plus the effect of outstanding stock options and restricted stock,
using the treasury stock method as follows:
(In
thousands, except per share data)
|
|
2006
|
|
2005
|
|
2004
|
|
Numerator:
|
|
|
|
|
|
|
|
Income
from continuing operations
|
|
$
|
50,060
|
|
$
|
29,509
|
|
$
|
11,151
|
|
Income
from discontinuing operations, net of taxes
|
|
|
2,140
|
|
|
3,101
|
|
|
2,308
|
|
Net
income
|
|
$
|
52,200
|
|
$
|
32,610
|
|
$
|
13,459
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator
for basic income per share:
|
|
|
|
|
|
|
|
|
|
|
Weighted-average
shares outstanding, basic
|
|
|
8,731,839
|
|
|
8,410,563
|
|
|
8,270,487
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator
for diluted income per share:
|
|
|
|
|
|
|
|
|
|
|
Weighted-average
shares outstanding, basic
|
|
|
8,731,839
|
|
|
8,410,563
|
|
|
8,270,487
|
|
Dilutive
effect of stock options and restricted stock
|
|
|
139,856
|
|
|
168,631
|
|
|
178,500
|
|
Weighted-average
shares outstanding, diluted
|
|
|
8,871,695
|
|
|
8,579,194
|
|
|
8,448,987
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
net income per share:
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations
|
|
$
|
5.73
|
|
$
|
3.51
|
|
$
|
1.35
|
|
Income
from discontinued operations, net of taxes
|
|
|
.25
|
|
|
.37
|
|
|
.28
|
|
Net
income
|
|
$
|
5.98
|
|
$
|
3.88
|
|
$
|
1.63
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
net income per share:
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations
|
|
$
|
5.64
|
|
$
|
3.44
|
|
$
|
1.32
|
|
Income
from discontinued operations, net of taxes
|
|
|
.24
|
|
|
.36
|
|
|
.27
|
|
Net
income
|
|
$
|
5.88
|
|
$
|
3.80
|
|
$
|
1.59
|
|
Cash
and Cash Equivalents
Cash
equivalents represent highly liquid investments with maturities of three months
or less when purchased.
Inventory
Valuation
Inventories
are stated at the lower of cost or market with cost determined principally
on
the first-in, first-out ("FIFO") method except for certain steel inventories
used by the Water Transmission Group that 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.
Joint
Ventures
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
Items
capitalized as property, plant and equipment, including improvements to existing
facilities, are recorded at cost. Construction in progress represents capital
expenditures incurred for assets not yet placed in service. Capitalized interest
was not material for the periods presented.
Depreciation
is computed principally using the straight-line method based on estimated useful
lives of the assets. Leasehold improvements are amortized over the shorter
of
the life of the improvement or the term of the lease. Useful lives are as
follows:
|
Useful
Lives
|
|
in
Years
|
Buildings
|
10-40
|
Machinery
and equipment
|
|
Autos,
trucks and trailers
|
3-8
|
Cranes
and tractors
|
5-15
|
Manufacturing
equipment
|
3-15
|
Other
|
3-20
|
Goodwill
and Intangible Assets
Intangible
assets are amortized on a straight-line basis over periods ranging from three
to
15 years.
The
cost
of an acquired business is allocated to the acquired net assets based on the
estimated fair values at the date of acquisition. The excess of the cost of
an
acquired business over the aggregate fair value is recorded as goodwill.
Goodwill is not amortized, but instead tested for impairment at least annually.
Such tests require management to make estimates about future cash flows and
other factors to determine the fair value of the respective assets.
The
Company reviews the recoverability of intangible and other long-lived assets
for
impairment whenever events or changes in circumstances indicate that the
carrying value of such assets may not be recoverable. If the estimated future,
undiscounted cash flows from the use of an asset are less than its carrying
value, a write-down is recorded to reduce the related asset to estimated fair
value.
Self
Insurance
The
Company typically utilizes third-party insurance subject to varying retention
levels or self insurance and aggregate limits. The Company is self insured
for a
portion of the losses and liabilities primarily associated with workers'
compensation claims and general, product and vehicle liability. Losses are
accrued based upon the Company's estimates of the aggregate liability for claims
incurred using historical experience and certain actuarial assumptions followed
in the insurance industry. The estimate of self insurance liability includes
an
estimate of incurred but not reported claims, based on data compiled from
historical experience.
Foreign
Currency Translation
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).
Translation adjustments arising from intercompany advances that are permanent
in
nature are also included in accumulated other comprehensive income (loss).
Gains
or losses resulting from foreign currency transactions are included in other
income, net.
Derivative
Financial Instruments and Risk Management
The
Company operates internationally, giving rise to exposure to market risks from
changes in foreign exchange rates. From time to time, derivative financial
instruments, primarily foreign exchange contracts, are used by the Company
to
reduce those risks. The Company does not hold or issue financial or derivative
financial instruments for trading or speculative purposes. As of November 30,
2006 and 2005, the Company had foreign currency forward contracts with an
aggregate notional value of $1,719,000 and $5,096,000,
respectively.
Fair
Value of Financial Instruments
The
fair
value of financial instruments, other than long-term debt or derivatives,
approximates the carrying value because of the short-term nature of such
instruments.
Concentration
of Credit Risk
Financial
instruments that subject the Company to credit risk consist primarily of cash
equivalents, trade accounts receivable, and forward foreign exchange contracts.
The Company records an allowance for doubtful accounts based on historical
experience and expected trends. Credit risk with respect to trade accounts
receivable is generally distributed over a large number of entities comprising
the Company's customer base and is geographically dispersed. The Company
performs ongoing credit evaluations of its customers, maintains an allowance
for
doubtful accounts and, in certain instances, maintains credit insurance. The
Company actively evaluates the creditworthiness of the financial institutions
with which it conducts business.
Stock-Based
Compensation
Prior
to
December 1, 2005, the Company applied Accounting Principles Board Opinion No.
25, Accounting
for Stock Issued to Employees,
and
related interpretations in accounting for its various stock compensation
plans. Effective December 1, 2005, the Company adopted Statement of
Financial Accounting Standards (“SFAS”) No. 123 (revised 2004), Share-Based
Payments,
using
the Modified Prospective Application method. SFAS No. 123 (R) requires the
Company to measure all employee stock-based compensation awards using the
fair-value method and to record such expense in its consolidated financial
statements (described in Note 13). Under the Modified Prospective
Application method, financial results for the prior periods have not been
adjusted.
New
Accounting Pronouncements
In
June
2006, the Financial Accounting Standards Board (“FASB”) issued Emerging Issues
Task Force (“EITF”) 06-03, "How Taxes Collected from Customers and Remitted to
Governmental Authorities Should Be Presented in the Income Statement (That
Is,
Gross Versus Net Presentation)." EITF 06-03 requires that any tax assessed
by a
governmental authority that is imposed concurrent with or subsequent to a
revenue-producing transaction between a seller and a customer should be
presented on a gross (included in revenues and costs) or a net (excluded from
revenues) basis. In addition, for any such taxes that are reported on a gross
basis, a company should disclose the amounts of those taxes in interim and
annual financial statements for each period for which an income statement is
presented if those amounts are significant. EITF 06-03 will be effective for
interim and annual reporting periods beginning after December 15, 2006. The
adoption
of EITF 06-03 is not expected to have a material effect on its consolidated
financial statements.
In
July
2006, the FASB issued Interpretation (“FIN”) No. 48, “Accounting for
Uncertainty in Income Taxes - an interpretation of FASB
Statement No. 109.” FIN 48 clarifies the accounting for
uncertainty in income taxes recognized in an entity’s financial statements in
accordance with SFAS 109 and prescribes a recognition threshold and
measurement attribute for financial statement disclosure of tax positions taken
or expected to be taken on a tax return. FIN 48 requires the impact of a tax
position to be recognized in the financial statements if that position is more
likely than not of being sustained by the taxing authority. FIN 48 is
effective for fiscal years beginning after December 15, 2006, with early
adoption permitted. The Company is evaluating whether the adoption of
FIN 48 will have a material effect on its consolidated
financial statements.
In
September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements,” which
formally defines fair value, creates a standardized framework for measuring
fair
value in generally accepted accounting principles (“GAAP”), and expands fair
value measurement disclosures. SFAS No. 157 will be effective for fiscal years
beginning after November 15, 2007. The adoption of SFAS No. 157 is not expected
to have a material effect on its consolidated financial statements.
In
September 2006, the FASB issued SFAS No. 158, "Employers’ Accounting for Defined
Benefit Pension and Other Postretirement Plans," amending FASB Statement No.
87,
“Employers’ Accounting for Pensions,” FASB Statement No. 88, “Employers’
Accounting for Settlements and Curtailments of Defined Benefit Pension Plans
and
for Termination Benefits,” FASB Statement No. 106, “Employers’ Accounting for
Postretirement Benefits Other Than Pensions,” and FASB Statement No. 132,
“Employers’ Disclosures about Pensions and Other Postretirement Benefits.” SFAS
No. 158 requires companies to recognize the overfunded or underfunded status
of
a defined benefit postretirement plan (other than a multiemployer plan) as
an
asset or liability in its financial statements and to recognize changes in
that
status in the year in which the changes occur. SFAS No. 158 also requires
companies to measure the funded status of a plan as of the date of its year-end
financial statements. SFAS No. 158 will be effective as of the end of the fiscal
year ending after December 15, 2006. The adoption of SFAS No. 158 is expected
to
have a significant effect on the Company’s consolidated balance sheet. The
Company is in the process of quantifying the effect of adoption.
In
September 2006, the SEC issued Staff Accounting Bulletin No, 108 “Considering
the Effects of Prior Year Misstatements when Quantifying Misstatements in
Current Year Financial Statements” (“SAB 108”). SAB 108 provides interpretive
guidance on how the effects of the carryover or reversal of prior year
misstatements should be considered in quantifying a current year misstatement.
The SEC staff believes that registrants should quantify errors using both a
balance sheet and income statement approach and evaluate whether either approach
results in quantifying a misstatement that, when all relevant quantitative
and
qualitative factors considered, is material. SAB 108 is effective for fiscal
years ending on or after November 15, 2006. The Company’s adoption of SAB 108
did not have a material impact on its financial position or results of
operations.
Supplemental
Cash Flow Information
(In
thousands)
|
|
2006
|
|
2005
|
|
2004
|
|
Interest
paid
|
|
$
|
4,891
|
|
$
|
5,863
|
|
$
|
6,509
|
|
Income
taxes paid
|
|
|
8,787
|
|
|
17,482
|
|
|
6,103
|
|
NOTE
2 - 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")
for
$115,000,000 in cash upon the closing, plus a post-closing adjustment. As part
of the post-closing adjustment PPG has paid $11,308,000, which includes interest
through the payment date, and is disputing $3,423,000. The Company believes
it
is entitled to the disputed amount under the terms of the Purchase Agreement
(the “Agreement”). The Company and PPG are in active negotiations to resolve the
dispute. If the parties are unable to resolve the dispute the Agreement provides
a process for resolution. Certain assets were excluded from the sale, including
cash and cash equivalents and certain real properties that were used in the
Coatings Business. The Company intends to sell the retained properties in
the next 12 to 18 months and expects to generate additional proceeds of
approximately $15,000,000 based on current estimates of market values. The
gain
or loss on such sales is not expected to be material. The retained properties
are included in other assets (Note 7).
Pursuant
to the Agreement, PPG assumed certain liabilities related to the Coatings
Business, including, without limitation, (i) warranty and guaranty obligations
and liabilities for products sold or manufactured by the Company, (ii) all
environmental liabilities associated with the real properties that PPG acquired
and (iii) general tort liability. PPG also agreed to a cost-sharing arrangement
with respect to any product liability claims relating to the Company’s operation
of the Coatings Business prior to the closing of the transaction.
Pursuant
to the Agreement, PPG did not assume certain other liabilities related to the
Company’s operations of the Coatings Business prior to the closing of the
transaction, including, without limitation, (i) any liability of the Coatings
Business arising out of asbestos, silica or lead and (ii) any pre-closing
environmental liabilities related to the real properties that the Company
retained. Additionally, PPG will not be assuming any liabilities related to
the
Company’s lawsuits with Dominion Exploration and Production, Inc. and Pioneer
Natural Resources USA, Inc. and with Sable Offshore Energy, Inc. more fully
described in Note 15.
The
results of discontinued operations were as follows for the years ended November
30:
(In
thousands)
|
|
2006
|
|
2005
|
|
2004
|
|
Revenue
from discontinued operations
|
|
$
|
152,190
|
|
$
|
209,807
|
|
$
|
199,623
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from discontinued operations before disposal, before income
taxes
|
|
$
|
5,308
|
|
$
|
6,531
|
|
$
|
5,525
|
|
Income
taxes on income from discontinued operations
|
|
|
(3,011
|
)
|
|
(3,430
|
)
|
|
(3,217
|
)
|
Income
from discontinued operations, before disposal, net of
taxes
|
|
|
2,297
|
|
|
3,101
|
|
|
2,308
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain
from sale of discontinued operations, before income taxes
|
|
|
862
|
|
|
-
|
|
|
-
|
|
Income
taxes on gain from sale of discontinued operations
|
|
|
(1,019
|
)
|
|
-
|
|
|
-
|
|
Loss
on sale of discontinued operations, net of taxes
|
|
|
(157
|
)
|
|
-
|
|
|
-
|
|
Income
from discontinued operations, net of taxes
|
|
$
|
2,140
|
|
$
|
3,101
|
|
$
|
2,308
|
|
The
income taxes on gain from sale of discontinued operations reflects the
allocation of sales proceeds to various taxing jurisdictions, which resulted
in
certain tax losses without tax benefits. Prior period income statement amounts
have been reclassified to present the operating results of the Coatings Business
as a discontinued operation. Prior period balance sheets and cash flow
statements have not been adjusted.
NOTE
3 - OTHER INCOME, NET
Other
income, net was as follows for the year ended November 30:
(In
thousands)
|
|
2006
|
|
2005
|
|
2004
|
|
Gain/(loss)
on sale of property, plant and equipment
|
|
$
|
8,837
|
|
$
|
(220
|
)
|
$
|
13,082
|
|
Other
|
|
|
2,762
|
|
|
(65
|
)
|
|
927
|
|
Royalties,
fees and other income
|
|
|
887
|
|
|
602
|
|
|
758
|
|
Dividends
from joint ventures-cost method
|
|
|
-
|
|
|
1,300
|
|
|
-
|
|
Foreign
currency (loss)/gain
|
|
|
(1,089
|
)
|
|
520
|
|
|
65
|
|
|
|
$
|
11,397
|
|
$
|
2,137
|
|
$
|
14,832
|
|
NOTE
4 - RECEIVABLES
Receivables
were as follows at November 30:
(In
thousands)
|
|
2006
|
|
2005
|
|
Trade
|
|
$
|
124,308
|
|
$
|
175,586
|
|
Other
|
|
|
31,299
|
|
|
10,761
|
|
Joint
venture
|
|
|
9,478
|
|
|
1,904
|
|
Allowances
|
|
|
(4,912
|
)
|
|
(7,693
|
)
|
|
|
$
|
160,173
|
|
$
|
180,558
|
|
Trade
receivables included unbilled receivables related to the
percentage-of-completion method of revenue recognition of $32,278,000 and
$29,667,000 at November 30, 2006 and 2005, respectively.
NOTE
5 - INVENTORIES
Inventories
were as follows at November 30:
(In
thousands)
|
|
2006
|
|
2005
|
|
Finished
products
|
|
$
|
30,802
|
|
$
|
54,661
|
|
Materials
and supplies
|
|
|
22,224
|
|
|
23,636
|
|
Products
in process
|
|
|
24,108
|
|
|
20,092
|
|
|
|
$
|
77,134
|
|
$
|
98,389
|
|
Certain
steel inventories are valued using the LIFO method. Inventories valued using
the
LIFO method comprised 24.1% and 7.8% of consolidated inventories at November
30,
2006 and 2005, respectively. The percentage increase from 2005 was due to
lower inventories as a result of the sale of the Coatings Business offset by
an
increase of $10,182,000 in steel inventories. If inventories valued using the
LIFO method had been valued using the FIFO method, total inventories would
have
increased by $6,085,000 and $6,864,000 at November 30, 2006 and 2005,
respectively.
NOTE
6 - JOINT VENTURES
Investments,
advances and equity in undistributed earnings of joint ventures were as follows
at November 30:
(In
thousands)
|
|
2006
|
|
2005
|
|
Investment--equity
method
|
|
$
|
14,501
|
|
$
|
13,777
|
|
Investments--cost
method
|
|
|
3,784
|
|
|
5,922
|
|
|
|
$
|
18,285
|
|
$
|
19,699
|
|
The
Company's ownership of joint ventures is summarized below:
|
|
|
|
Ownership
|
Products
|
|
Joint
Ventures
|
|
Interest
|
Fiberglass
pipe
|
|
Bondstrand,
Ltd.
|
|
40%
|
Concrete
pipe
|
|
Ameron
Saudi Arabia, Ltd.
|
|
30%
|
Steel
products
|
|
TAMCO
|
|
50%
|
Investments
in joint ventures and the amount of undistributed earnings were as
follows:
|
|
Discontinued
|
|
Fiberglass
|
|
Concrete
|
|
Steel
|
|
|
|
(In
thousands)
|
|
Operations
|
|
Pipe
|
|
Pipe
|
|
Products
|
|
Total
|
|
Cost
|
|
$
|
-
|
|
$
|
3,784
|
|
$
|
-
|
|
$
|
8,482
|
|
$
|
12,266
|
|
Comprehensive
loss from joint venture
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(1,096
|
)
|
|
(1,096
|
)
|
Accumulated
equity in undistributed earnings
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
7,115
|
|
|
7,115
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment,
November 30, 2006
|
|
$
|
-
|
|
$
|
3,784
|
|
$
|
-
|
|
$
|
14,501
|
|
$
|
18,285
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
Dividends
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
15,004
|
|
$
|
15,004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
|
|
$
|
2,138
|
|
$
|
3,784
|
|
$
|
-
|
|
$
|
8,482
|
|
$
|
14,404
|
|
Comprehensive
loss from joint venture
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(1,544
|
)
|
|
(1,544
|
)
|
Accumulated
equity in undistributed earnings
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
6,839
|
|
|
6,839
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment,
November 30, 2005
|
|
$
|
2,138
|
|
$
|
3,784
|
|
$
|
-
|
|
$
|
13,777
|
|
$
|
19,699
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
Dividends
|
|
$
|
540
|
|
$
|
1,300
|
|
$
|
-
|
|
$
|
11,952
|
|
$
|
13,792
|
|
As
part
of the sale of the Coatings Business, the Company sold its 40% ownership
interest in Oasis-Ameron, Ltd.
The
Company provides for income taxes on the undistributed earnings of its joint
ventures to the extent such earnings are included in the consolidated statements
of income.
The
investment in TAMCO was recorded based on audited financial statements as of
November 30, 2006. Condensed financial data of TAMCO, an investment which is
accounted for under the equity method, were as follows:
Financial
Condition
(In
thousands)
|
|
2006
|
|
2005
|
|
Current
assets
|
|
$
|
64,766
|
|
$
|
65,170
|
|
Noncurrent
assets
|
|
|
34,189
|
|
|
28,118
|
|
|
|
$
|
98,955
|
|
$
|
93,288
|
|
|
|
|
|
|
|
|
|
Current
liabilities
|
|
$
|
46,434
|
|
$
|
41,605
|
|
Noncurrent
liabilities
|
|
|
7,780
|
|
|
8,388
|
|
Stockholders'
equity
|
|
|
44,741
|
|
|
43,295
|
|
|
|
$
|
98,955
|
|
$
|
93,288
|
|
Results
of Operations
(In
thousands)
|
|
2006
|
|
2005
|
|
2004
|
|
Net
sales
|
|
$
|
273,036
|
|
$
|
252,435
|
|
$
|
215,849
|
|
Gross
profit
|
|
|
61,336
|
|
|
42,188
|
|
|
45,885
|
|
Net
income
|
|
|
30,559
|
|
|
20,391
|
|
|
23,427
|
|
The
Company recognized $1,096,000 and $1,544,000 in accumulated other comprehensive
loss at November 30, 2006 and 2005, respectively, which represents its
proportionate share of amounts recognized by TAMCO to record minimum pension
liability.
Sales
to
joint ventures totaled $5,888,000 in 2006, $1,524,000 in 2005, and $1,613,000
in
2004.
NOTE
7 - OTHER ASSETS
Other
assets were as follows at November 30:
(In
thousands)
|
|
2006
|
|
2005
|
|
Cash
surrender value of insurance policies
|
|
$
|
24,828
|
|
$
|
24,660
|
|
Pension-related
assets
|
|
|
20,990
|
|
|
8,848
|
|
Assets
held for sale
|
|
|
14,737
|
|
|
-
|
|
Other
|
|
|
2,643
|
|
|
3,832
|
|
|
|
$
|
63,198
|
|
$
|
37,340
|
|
NOTE
8 - ACCRUED LIABILITIES
Accrued
liabilities were as follows at November 30:
(In
thousands)
|
|
2006
|
|
2005
|
|
Self
insurance reserves
|
|
$
|
30,088
|
|
$
|
23,620
|
|
Compensation
and benefits
|
|
|
21,331
|
|
|
21,454
|
|
Commissions
and royalties
|
|
|
6,562
|
|
|
2,955
|
|
Product
warranties and guarantees
|
|
|
3,146
|
|
|
4,026
|
|
Taxes
(other than income taxes)
|
|
|
1,382
|
|
|
3,992
|
|
Reserves
for pending claims and litigation
|
|
|
1,231
|
|
|
1,702
|
|
Advances
from customers
|
|
|
475
|
|
|
508
|
|
Interest
|
|
|
153
|
|
|
238
|
|
Other
|
|
|
4,602
|
|
|
4,576
|
|
|
|
$
|
68,970
|
|
$
|
63,071
|
|
The
Company's product warranty accrual reflects management's estimate of probable
liability associated with product warranties. The Company generally
provides a standard product warranty not exceeding one year from date of
purchase. Management establishes product warranty accruals based on
historical experience and other currently-available information. Changes
in the product warranty accrual for the years ended November 30 were as
follows:
(In
thousands)
|
|
2006
|
|
2005
|
|
Balance,
beginning of period
|
|
$
|
4,026
|
|
$
|
4,297
|
|
Payments
|
|
|
(1,680
|
)
|
|
(3,738
|
)
|
Warranties
adjustment related to discontinued operations
|
|
|
(1,675
|
)
|
|
-
|
|
Warranties
issued during the period
|
|
|
2,475
|
|
|
3,467
|
|
Balance,
end of period
|
|
$
|
3,146
|
|
$
|
4,026
|
|
NOTE
9 - OTHER LONG-TERM LIABILITIES
Other
long-term liabilities were as follows at November 30:
(In
thousands)
|
|
2006
|
|
2005
|
|
Accrued
pension cost
|
|
$
|
54,140
|
|
$
|
61,906
|
|
Deferred
income
|
|
|
3,167
|
|
|
-
|
|
Compensation
and benefits
|
|
|
4,618
|
|
|
3,025
|
|
Deferred
income tax liabilities
|
|
|
785
|
|
|
-
|
|
Other
|
|
|
103
|
|
|
2,694
|
|
|
|
$
|
62,813
|
|
$
|
67,625
|
|
NOTE
10 - INCOME TAXES
The
provision for income taxes included the following for the year ended November
30:
(In
thousands)
|
|
2006
|
|
2005
|
|
2004
|
|
Current
|
|
|
|
|
|
|
|
Federal
|
|
$
|
14,615
|
|
$
|
2,260
|
|
$
|
(1,035
|
)
|
Foreign
|
|
|
5,364
|
|
|
3,449
|
|
|
3,087
|
|
State
|
|
|
3,459
|
|
|
797
|
|
|
(621
|
)
|
|
|
$
|
23,438
|
|
$
|
6,506
|
|
$
|
1,431
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
(10,309
|
)
|
$
|
3,573
|
|
$
|
3,086
|
|
Foreign
|
|
|
(386
|
)
|
|
173
|
|
|
(157
|
)
|
State
|
|
|
(1,838
|
)
|
|
788
|
|
|
429
|
|
|
|
|
(12,533
|
)
|
|
4,534
|
|
|
3,358
|
|
|
|
$
|
10,905
|
|
$
|
11,040
|
|
$
|
4,789
|
|
Deferred
income tax assets/(liabilities) were comprised of the following as of November
30:
(In
thousands)
|
|
2006
|
|
2005
|
|
Current
deferred income taxes
|
|
|
|
|
|
Self-insurance
and claims reserves
|
|
$
|
15,142
|
|
$
|
11,516
|
|
Inventories
|
|
|
4,998
|
|
|
5,278
|
|
Employee
benefits
|
|
|
5,631
|
|
|
3,350
|
|
Accounts
receivable
|
|
|
1,097
|
|
|
1,164
|
|
Valuation
allowances
|
|
|
(3,708
|
)
|
|
(2,763
|
)
|
Other
|
|
|
701
|
|
|
(947
|
)
|
|
|
|
|
|
|
|
|
Net
current deferred income tax assets
|
|
|
23,861
|
|
|
17,598
|
|
|
|
|
|
|
|
|
|
Noncurrent
deferred income taxes
|
|
|
|
|
|
|
|
Net
operating loss carry-overs
|
|
|
17,138
|
|
|
19,084
|
|
Prepaid
pension benefit costs
|
|
|
12,854
|
|
|
13,797
|
|
Employee
benefits
|
|
|
831
|
|
|
860
|
|
Investments
|
|
|
3,234
|
|
|
3,255
|
|
Valuation
allowances
|
|
|
(18,193
|
)
|
|
(19,560
|
)
|
Property,
plant and equipment
|
|
|
(16,341
|
)
|
|
(16,524
|
)
|
Other
|
|
|
(308
|
)
|
|
(769
|
)
|
|
|
|
|
|
|
|
|
Net
noncurrent deferred income tax (liabilities)/assets
|
|
|
(785
|
)
|
|
143
|
|
|
|
|
|
|
|
|
|
Net
deferred income tax assets
|
|
$
|
23,076
|
|
$
|
17,741
|
|
As
of
November 30, 2006, the Company had foreign net operating loss carry-overs of
approximately $63,200,000. A full valuation allowance has been provided against
these net operating losses. The balance of the valuation allowance applies
to
certain foreign deferred tax assets and certain other deferred tax assets that
will likely not result in a tax benefit. The net valuation allowance decreased
by $422,000 in 2006, compared to 2005. This net decrease included a $1,700,000
increase related to executive compensation deductions, offset by a net decrease
in foreign net operating loss carry-overs and other foreign deferred tax assets
for which no benefit has been recognized.
The
tax provision represents effective tax rates of
23%, 35% and 93% of income before income taxes for the years ended November
30,
2006, 2005 and 2004, respectively. A reconciliation of income taxes provided
at
the effective income tax rate and the amount computed at the federal statutory
income tax rate of 35% is as follows for the years ended November
30:
(In
thousands)
|
|
2006
|
|
2005
|
|
2004
|
|
Domestic
pretax income
|
|
$
|
30,036
|
|
$
|
19,532
|
|
$
|
(8,892
|
)
|
Foreign
pretax income
|
|
|
17,379
|
|
|
12,012
|
|
|
14,041
|
|
|
|
$
|
47,415
|
|
$
|
31,544
|
|
$
|
5,149
|
|
Taxes
at federal statutory rate
|
|
$
|
16,596
|
|
$
|
11,040
|
|
$
|
1,802
|
|
State
taxes, net of federal tax benefit
|
|
|
1,053
|
|
|
942
|
|
|
(563
|
)
|
Foreign
earnings taxed at different rates, including withholding
taxes
|
|
|
1,264
|
|
|
(484
|
)
|
|
(2,213
|
)
|
Percentage
depletion
|
|
|
(558
|
)
|
|
(449
|
)
|
|
(421
|
)
|
Non-deductible
compensation
|
|
|
1,702
|
|
|
693
|
|
|
7,709
|
|
Research
and development credits
|
|
|
(28
|
)
|
|
(329
|
)
|
|
(259
|
)
|
Section
199 deduction
|
|
|
(490
|
)
|
|
-
|
|
|
-
|
|
Adjustments
to previously accrued taxes
|
|
|
(7,233
|
)
|
|
-
|
|
|
-
|
|
Repatriation
of foreign earnings under the AJCA
|
|
|
-
|
|
|
1,077
|
|
|
-
|
|
Other,
net
|
|
|
(1,401
|
)
|
|
(1,450
|
)
|
|
(1,266
|
)
|
|
|
$
|
10,905
|
|
$
|
11,040
|
|
$
|
4,789
|
|
The
Company files tax returns in numerous jurisdictions and is subject to audit
in
these jurisdictions. In 2006, the Internal Revenue Service (“IRS”) finalized its
examination of the Company’s 1996 through 1998 federal income tax returns as
well as its returns for 1999 through 2002. The results of these examinations,
which included a concurrent review of the Company’s claims for research and
development credits for tax years 1998-2000, are reflected in the financial
statements. In addition, the financial statements reflect settlements with
other
local and foreign jurisdictions. The net impact to the Company’s financial
statements as a result of these federal, foreign and local jurisdiction
settlements was a reduction of $7.2 million in income taxes
payable.
In
November 2005, the Company repatriated approximately $36,000,000 of earnings
from three of its foreign subsidiaries under the provisions of the 2004 American
Jobs Creation Act ("AJCA"). The AJCA created a one-time incentive for U.S.
corporations to repatriate accumulated income earned abroad by providing an
85
percent dividends received deduction for certain dividends from controlled
foreign corporations.
In
November 2006, the Company repatriated approximately $13,000,000 of earnings
from its subsidiary in New Zealand (funds generated by this subsidiary’s portion
of the sale of the Coatings Business). The Company intends to permanently
reinvest the remaining unrepatriated foreign earnings. The cumulative amount
of
undistributed earnings of foreign subsidiaries is $61,578,000 at November 30,
2006. The Company has provided no deferred taxes on the earnings, and the
additional U.S. income tax on the unremitted foreign earnings, if repatriated,
may be offset in whole or in part by foreign tax credits.
NOTE
11 - DEBT
Short-term
borrowings consist of loans payable under bank credit lines. There were no
short-term borrowings outstanding at November 30, 2006 and at November 30,
2005.
At November 30, 2006, the equivalent of $14,982,000 was available under
short-term credit lines.
Domestically,
as of November 30, 2006, the Company maintained a $100,000,000 revolving credit
facility with six banks (the "Revolver"). At November 30, 2006, $18,013,000
of
the Revolver was utilized for standby letters of credit; therefore, $81,987,000
was available. 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.
Foreign
subsidiaries also maintain unsecured revolving credit facilities and short-term
facilities with banks. Foreign subsidiaries may borrow in various currencies,
at
interest rates based upon specified margins over money market rates. Short-term
lines permit borrowings up to $24,200,000. At November 30, 2006, $3,652,000
was
borrowed under these facilities.
Borrowings
under certain bank facilities by the Company and its foreign subsidiaries are
supported by the Revolver and, accordingly, have been classified as long-term
debt and are considered payable when the Revolver is due.
Long-term
debt consisted of the following as of November 30:
(In
thousands)
|
|
2006
|
|
2005
|
|
Fixed-rate
notes:
|
|
|
|
|
|
7.92%
|
|
$
|
-
|
|
$
|
8,333
|
|
5.36%,
payable in annual principal installments of $10,000
|
|
|
30,000
|
|
|
40,000
|
|
4.25%,
payable in Singapore Dollars, in annual principal installments of
$6,634
|
|
|
33,173
|
|
|
30,158
|
|
Variable-rate
industrial development bonds:
|
|
|
|
|
|
|
|
payable
in 2016 (3.85% at November 30, 2006)
|
|
|
7,200
|
|
|
7,200
|
|
payable
in 2021 (3.85% at November 30, 2006)
|
|
|
8,500
|
|
|
8,500
|
|
Variable-rate
bank revolving credit facility (6.34% at November 30,
2006)
|
|
|
3,652
|
|
|
1,251
|
|
|
|
|
82,525
|
|
|
95,442
|
|
Less
current portion
|
|
|
(10,000
|
)
|
|
(18,333
|
)
|
|
|
$
|
72,525
|
|
$
|
77,109
|
|
Future
maturities of long-term debt were as follows as of November 30,
2006:
|
|
Year
ending
|
|
|
|
(In
thousands)
|
|
November
30,
|
|
Amount
|
|
|
|
|
2007
|
|
$
|
10,000
|
|
|
|
|
2008
|
|
|
16,634
|
|
|
|
|
2009
|
|
|
16,634
|
|
|
|
|
2010
|
|
|
10,286
|
|
|
|
|
2011
|
|
|
6,634
|
|
|
|
|
Thereafter |
|
|
22,337
|
|
|
|
|
|
|
$
|
82,525
|
|
The
lending agreements contain various restrictive covenants, including the
requirement to maintain specified amounts of net worth and restrictions on
cash
dividends, borrowings, liens, investments and guarantees. Under the most
restrictive provisions of the Company's lending agreements, approximately
$20,484,000 of retained earnings was not restricted, as of November 30, 2006,
as
to the declaration of cash dividends or the repurchase of Company stock. At
November 30, 2006, the Company was in compliance with all
covenants.
The
Revolver, the 5.36% term notes and the 4.25% term notes are collateralized
by
substantially all of the Company's assets. The industrial revenue bonds are
supported by standby letters of credit that are issued under the Revolver.
The
interest rate on the industrial development bonds is based on a weekly index
of
tax-exempt issues plus a spread of .20%. Certain note agreements contain
provisions regarding the Company's ability to grant security interests or liens
in association with other debt instruments. If the Company grants such a
security interest or lien, then such notes will be secured equally and ratably
as long as such other debt shall be secured.
Interest
income and expense were as follows for the year ended November 30:
(In
thousands)
|
|
2006
|
|
2005
|
|
2004
|
|
Interest
expense
|
|
$
|
4,581
|
|
$
|
5,779
|
|
$
|
5,630
|
|
Interest
income
|
|
|
(2,899
|
)
|
|
(259
|
)
|
|
(108
|
)
|
Interest
expense, net
|
|
$
|
1,682
|
|
$
|
5,520
|
|
$
|
5,522
|
|
The
following disclosure of the estimated fair value of the Company's debt is
prepared in accordance with the requirements of SFAS 107, "Disclosures about
Fair Value of Financial Instruments." The estimated fair value amounts have
been
determined by the Company using available market information and appropriate
valuation methodologies. Considerable judgment is required to develop the
estimated fair value, thus the estimates provided herein are not necessarily
indicative of the amounts that could be realized in a current market
exchange.
|
|
Carrying
|
|
Fair
|
|
(In
thousands)
|
|
Amount
|
|
Value
|
|
November
30, 2006
|
|
|
|
|
|
Fixed-rate,
long-term debt
|
|
$
|
63,173
|
|
$
|
63,397
|
|
Variable-rate,
long-term debt
|
|
|
19,352
|
|
|
19,352
|
|
|
|
|
|
|
|
|
|
November
30, 2005
|
|
|
|
|
|
|
|
Fixed-rate,
long-term debt
|
|
|
78,491
|
|
|
78,983
|
|
Variable-rate,
long-term debt
|
|
|
16,951
|
|
|
16,951
|
|
The
estimated fair value of the Company's variable-rate debt approximates the
carrying value of the debt since the variable interest rates are market-based,
and the Company believes such debt could be refinanced on materially similar
terms. The estimated fair value of the Company's fixed-rate, long-term debt
is
based on U.S. government notes at November 30, 2006 plus an estimated spread
for
similar securities with similar credit risks and remaining
maturities.
NOTE
12 - LEASE COMMITMENTS
The
Company leases facilities and equipment under non-cancelable operating leases.
Rental expense under long-term operating leases of real property, vehicles
and
other equipment was $3,774,000 in 2006, $3,786,000 in 2005, and $3,782,000
in
2004. Future rental commitments were as follows as of November 30,
2006:
|
|
Year
ending
|
|
|
|
(In
thousands)
|
|
November
30,
|
|
Amount
|
|
|
|
|
2007
|
|
$
|
3,682
|
|
|
|
|
2008
|
|
|
3,506
|
|
|
|
|
2009
|
|
|
3,436
|
|
|
|
|
2010
|
|
|
2,991
|
|
|
|
|
2011
|
|
|
2,076
|
|
|
|
|
Thereafter |
|
|
16,826
|
|
|
|
|
|
|
$
|
32,517
|
|
Future
rental commitments for leases are not reduced by minimum non-cancelable sublease
rentals aggregating $1,297,000 at November 30, 2006.
NOTE
13 - INCENTIVE STOCK COMPENSATION PLANS
As
of
November 30, 2006, 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 dates of grant.
·
2001
Stock Incentive Plan ("2001 Plan") - The 2001 Plan was terminated in 2004,
except as to the outstanding stock options and restricted stock grants. A
total of 380,000 new shares of common stock were made available for awards
to
key employees and non-employee directors. The 2001 Plan served as the
successor to the 1994 Plan and superseded that plan. Non-employee
directors were granted options under the 2001 Plan to purchase the Company's
common stock at prices not less than 100% of market value on the date of
grant. Such options vested in equal annual installments over four
years. Such options terminate ten years from the date of grant. Key
employees were granted restricted stock under the 2001 Plan. Such
restricted stock grants vested in equal annual installments over four
years.
·
2004
Stock Incentive Plan ("2004 Plan") - The 2004 Plan serves as the successor
to
the 2001 Plan and supersedes that plan. A total of 525,000 new shares of
common stock were made available for awards to key employees and non-employee
directors and may include, but are not limited to, stock options and restricted
stock grants. Non-employee directors were granted options under the 2004
Plan to purchase the Company's common stock at prices not less than 100% of
market value on the date of grant. Such options vest in equal annual
installments over four years and terminate ten years from the date of
grant. Key employees were granted restricted stock under the 2004
Plan. Such restricted stock grants vest in equal annual installments over
three years. During the twelve months ended November 30, 2006, the Company
granted 45,000 restricted shares to key employees with fair value of $2,461,000
and 6,000 restricted shares to non-employee directors with fair value of
$360,000.
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 dates of grant. Such options vested in equal annual
installments over four years and terminate ten years from the dates of
grant. At November 30, 2006, there were 24,000 shares subject to such
stock options.
Prior
to
December 1, 2005, the Company applied Accounting Principles Board Opinion No.
25, Accounting
for Stock Issued to Employees,
and
related interpretations in accounting for its various stock option plans.
Effective December 1, 2005, the Company adopted SFAS No. 123 (revised 2004),
Share-Based
Payments,
using
the Modified Prospective Application method. SFAS No. 123 (R) requires the
Company to measure all employee stock-based compensation awards using the
fair-value method and to record such expense in its consolidated financial
statements. Under the Modified Prospective Application method, financial
results for the prior periods have not been adjusted. Stock-based compensation
expense for the year ended November 30, 2006 includes: (a) compensation expense
for all stock-based compensation awards granted prior to, but not yet vested,
as
of December 1, 2005, based on the grant-date fair value estimated in accordance
with the original provisions of SFAS No. 123, Accounting
for Stock-Based Compensation,
and (b)
compensation expense for all stock-based compensation awards granted subsequent
to November 30, 2005, based on the grant-date fair value estimated in accordance
with the provisions of SFAS No. 123 (R).
As
a
result of adopting SFAS No. 123 (R), the Company's income from continuing
operations before income taxes and equity in earnings of joint venture for
the
year ended November 30, 2006 included compensation expense of $111,000, net
of
taxes of $40,000, related to stock-based compensation arrangements. This
amount reduced basic earnings per share and diluted earnings per share from
continuing operations by $.01 for the year ended November 30, 2006. There were
no capitalized share-based compensation costs for the year ended November 30,
2006.
Prior
to
the adoption of SFAS No. 123 (R), the Company reported all tax benefits
resulting from the exercise of stock options as operating cash flows in its
consolidated statements of cash flows. In accordance with SFAS No. 123
(R), the Company will present excess tax benefits from the exercise of stock
options as financing cash flows. For the year ended November 30, 2006,
excess tax benefits totaled $2,469,000.
The
following table illustrates the effect on net income and earnings per share
as
if the Company had applied the fair value recognition provisions of SFAS No.
123
to stock-based compensation for the year ended November 30:
(In
thousands, except per share data)
|
|
2005
|
|
2004
|
|
Reported
net income
|
|
$
|
32,610
|
|
$
|
13,459
|
|
Add:
stock-based employee compensation expense included in reported net
income,
net of tax
|
|
|
1,645
|
|
|
1,149
|
|
Deduct:
stock-based employee compensation expense determined under SFAS No.
123,
net of tax
|
|
|
(1,212
|
)
|
|
(889
|
)
|
Pro
forma net income
|
|
$
|
33,043
|
|
$
|
13,719
|
|
|
|
|
|
|
|
|
|
Earnings
per share (basic)
|
|
|
|
|
|
|
|
As
reported
|
|
$
|
3.88
|
|
$
|
1.63
|
|
Pro
forma
|
|
|
3.93
|
|
|
1.66
|
|
|
|
|
|
|
|
|
|
Earnings
per share (diluted)
|
|
|
|
|
|
|
|
As
reported
|
|
|
3.80
|
|
|
1.59
|
|
Pro
forma
|
|
|
3.85
|
|
|
1.62
|
|
The
following table summarizes the stock option activity for the year ended November
30, 2006:
Current
Year Stock-Based Compensation
|
|
|
|
|
|
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, 2005
|
|
|
467,783
|
|
$
|
24.11
|
|
|
|
|
|
|
|
Exercised
|
|
|
(347,283
|
)
|
|
23.02
|
|
|
|
|
|
|
|
Outstanding
at November 30, 2006
|
|
|
120,500
|
|
|
27.25
|
|
|
4.93
|
|
$
|
5,779
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
exercisable at November 30, 2006
|
|
|
98,000
|
|
|
26.01
|
|
|
4.30
|
|
$
|
4,821
|
|
For
the
fiscal year ended November 30, 2006, no options were granted, forfeited or
expired. The aggregate intrinsic value in the table above represents the total
pretax intrinsic value, which is the difference between the Company's closing
stock price on the last trading day of fiscal 2006 and the exercise price times
the number of shares that would have been received by the option holders if
they
had exercised their options on November 30, 2006. This amount will change based
on the fair market value of the Company's stock. The aggregate intrinsic value
of stock options exercised for the years ended November 30, 2006, 2005 and
2004
was $13,870,000, $4,781,000 and $2,481,000, respectively. As of November 30,
2006, there was $1,952,000 of total unrecognized compensation cost related
to
stock-based compensation arrangements. That cost is expected to be recognized
over a weighted-average period of 2.5 years.
For
the
years ended November 30, 2006, 2005 and 2004, 51,000, 42,500 and 56,000 shares
of restricted stock were granted, respectively. The weighted-average grant-date
fair value of such restricted stock granted was $55.31, $36.20 and $34.50,
respectively. The fair value of restricted stock vested for the years ended
November 30, 2006, 2005 and 2004 was $3,973,000, $1,738,000 and $760,000,
respectively.
Net
cash
proceeds from stock option exercises for the years ended November 30, 2006,
2005
and 2004 was $7,994,000, $5,300,000 and $3,315,000, respectively. The Company's
policy is to issue shares from its authorized shares upon the exercise of stock
options.
NOTE
14 - GOODWILL AND OTHER INTANGIBLE ASSETS
SFAS
No.
142, "Goodwill and Other Intangible Assets," requires that goodwill and
intangible assets with indefinite useful lives not be amortized but instead
be
tested for impairment at least annually. SFAS No. 142 also requires that
intangible assets with definite useful lives be amortized over their respective
estimated useful lives to their estimated residual values.
During
2006, the Company completed the required goodwill and intangible asset
impairment tests. No impairment losses were identified as a result of
these tests. The changes in the carrying amount of goodwill by business
segment were as follows:
|
|
|
|
|
|
Foreign
|
|
|
|
|
|
|
|
|
|
Currency
|
|
|
|
|
|
November
30,
|
|
Acquisition/
|
|
Translation
|
|
November
30,
|
|
(In
thousands)
|
|
2005
|
|
(Disposition)
|
|
Adjustments
|
|
2006
|
|
Continuing
operations:
|
|
|
|
|
|
|
|
|
|
Fiberglass-Composite
Pipe
|
|
$
|
1,440
|
|
$
|
-
|
|
$
|
-
|
|
$
|
1,440
|
|
Water
Transmission
|
|
|
-
|
|
|
390
|
|
|
-
|
|
|
390
|
|
Infrastructure
Products
|
|
|
201
|
|
|
-
|
|
|
-
|
|
|
201
|
|
|
|
$
|
1,641
|
|
$
|
390
|
|
$
|
-
|
|
$
|
2,031
|
|
Discontinued
operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance
Coatings & Finishes
|
|
$
|
11,441
|
|
$
|
(11,578
|
)
|
$
|
137
|
|
$
|
-
|
|
The
goodwill of $390,000 is related to the acquisition of a steel fabrication
operation in Mexico by the Water Transmission Group in 2006.
The
Company's intangible assets, other than goodwill, and related accumulated
amortization consisted of the following at November 30:
|
|
2006
|
|
2005
|
|
|
|
Gross
Intangible
|
|
Accumulated
|
|
Gross
Intangible
|
|
Accumulated
|
|
(In
thousands)
|
|
Assets
|
|
Amortization
|
|
Assets
|
|
Amortization
|
|
Continuing
operations
|
|
|
|
|
|
|
|
|
|
Trademarks
|
|
$
|
100
|
|
$
|
(100
|
)
|
$
|
100
|
|
$
|
(100
|
)
|
Non-compete
agreements
|
|
|
252
|
|
|
(140
|
)
|
|
105
|
|
|
(105
|
)
|
Patents
|
|
|
212
|
|
|
(212
|
)
|
|
212
|
|
|
(212
|
)
|
Leasehold
interests
|
|
|
1,930
|
|
|
(1,930
|
)
|
|
1,930
|
|
|
(1,930
|
)
|
|
|
$
|
2,494
|
|
$
|
(2,382
|
)
|
$
|
2,347
|
|
$
|
(2,347
|
)
|
Discontinued
operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks
|
|
$
|
-
|
|
$
|
-
|
|
$
|
2,019
|
|
$
|
(1,962
|
)
|
Non-compete
agreements
|
|
|
-
|
|
|
-
|
|
|
2,000
|
|
|
(1,880
|
)
|
|
|
$
|
-
|
|
$
|
-
|
|
$
|
4,019
|
|
$
|
(3,842
|
)
|
All
of
the Company’s intangible assets, other than goodwill, are subject to
amortization. Amortization expense related to intangible assets for the years
ended November 30, 2006, 2005, and 2004 was $170,000, $206,000, and $224,000,
respectively. At November 30, 2006, estimated future amortization expense for
each of the years in the six-year period ending November 30, 2012 was as
follows: $24,000 for 2007, $24,000 for 2008, $23,000 for 2009, $23,000 for
2010,
$16,000 for 2011, and $2,000 for 2012.
NOTE
15 - COMMITMENTS AND CONTINGENCIES
The
Company is one of numerous defendants in various asbestos-related personal
injury lawsuits. These cases generally seek unspecified damages for
asbestos-related diseases based on alleged exposure to products previously
manufactured by the Company and others, and at this time the Company is
generally not aware of the extent of injuries allegedly suffered by the
individuals or the facts supporting the claim that injuries were caused by
the
Company's products. Based upon the information available to it at this time,
the
Company is not in a position to evaluate its potential exposure, if any, as
a
result of such claims. Hence, no amounts have been accrued for loss
contingencies related to these lawsuits in accordance with SFAS No. 5,
"Accounting for Contingencies." The Company continues to vigorously defend
all
such lawsuits. As of November 30, 2006, the Company was a defendant in
asbestos-related cases involving 145 claimants, compared to 8,906 claimants
as
of November 30, 2005. 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
year ended November 30, 2006, there were new claims involving 18 claimants,
dismissals and/or settlements involving 8,779 claimants and no judgments.
No net costs and expenses were incurred by the Company for the year ended
November 30, 2006 in connection with asbestos-related claims.
The
Company is one of numerous defendants in various silica-related personal injury
lawsuits. These cases generally seek unspecified damages for silica-related
diseases based on alleged exposure to products previously manufactured by the
Company and others, and at this time the Company is not aware of the extent
of
injuries allegedly suffered by the individuals or the facts supporting the
claim
that injuries were caused by the Company's products. Based upon the
information available to it at this time, the Company is not in a position
to
evaluate its potential exposure, if any, as a result of such claims.
Hence, no amounts have been accrued for loss contingencies related to these
lawsuits in accordance with SFAS No. 5. The Company continues to
vigorously defend all such lawsuits. As of November 30, 2006, the Company
was a defendant in silica-related cases involving seven claimants, compared
to
7,447 claimants as of November 30, 2005. 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 year ended November 30, 2006, there were new claims
involving four claimants, dismissals and/or settlements involving 7,444
claimants and no judgments. Net costs and expenses incurred by the Company
for the year ended November 30, 2006 in connection with silica-related claims
were approximately $200,000.
In
May
2003, Dominion Exploration and Production, Inc. and Pioneer Natural Resources
USA, Inc., (collectively "Dominion") brought an action against the Company
in
Civil District Court for the Parish of Orleans, Louisiana as owners of an
offshore production facility known as a SPAR constructed for Dominion.
Dominion seeks damages allegedly sustained by it resulting from delays in
delivery of the SPAR caused by the removal and replacement of certain coatings
containing lead and/or lead chromate for which the manufacturer of the SPAR
alleged the Company was responsible. Dominion contends that the Company
made certain misrepresentations and warranties to Dominion concerning the
lead-free nature of those coatings. Dominion's petition as filed alleged a
claim for damages in an unspecified amount; however, Dominion's economic expert
has since estimated Dominion's damages at approximately $128,000,000, a figure
which the Company contests. This matter is in discovery and no trial date
has yet been established. The Company believes that it has meritorious
defenses to this action. Based upon the information available to it
at this time, the Company is not in a position to evaluate the ultimate outcome
of this matter.
In
April
2004, Sable Offshore Energy Inc. ("Sable"), as agent for certain owners of
the
Sable Offshore Energy Project, brought an action against various coatings
suppliers and application contractors, including the Company and two of its
subsidiaries, Ameron (UK) Limited and Ameron B.V., (collectively "Ameron
Subsidiaries"), in the Supreme Court of Nova Scotia, Canada. Sable seeks
damages allegedly sustained by it resulting from performance problems with
several coating systems used on the Sable Offshore Energy Project, including
coatings products furnished by the Company and the Ameron Subsidiaries.
Sable's originating notice and statement of claim alleged a claim for damages
in
an unspecified amount; however, Sable has since alleged that its claim for
damages against all defendants is approximately 428,000,000 Canadian dollars,
a
figure which the Company and the Ameron Subsidiaries contest. This matter
is in discovery and no trial date has yet been established. The Company
believes that it has meritorious defenses to this action. Based upon the
information available to it at this time, the Company is not in a position
to
evaluate the ultimate outcome of this matter.
In
addition, certain other claims, suits and complaints that arise in the ordinary
course of business, have been filed or are pending against the Company.
Management believes that these matters are either adequately reserved, covered
by insurance, or would not have a material effect on the Company's financial
position, cash flows, or its results of operations if disposed of
unfavorably.
The
Company is subject to federal, state and local laws and regulations concerning
the environment and is currently participating in administrative proceedings
at
several sites under these laws. While the Company finds it difficult to estimate
with any certainty the total cost of remediation at the several sites, on the
basis of currently available information and reserves provided, the Company
believes that the outcome of such environmental regulatory proceedings will
not
have a material effect on the Company's financial position, cash flows, or
its
results of operations.
NOTE
16 - EMPLOYEE BENEFIT PLANS
The
Company has a qualified, defined benefit, noncontributory pension plan for
certain U.S. employees not covered by union pension plans. The Company's
subsidiary in the Netherlands provides defined retirement benefits to its
employees. The Company also provides health and life insurance to a limited
number of eligible retirees and eligible survivors of retirees.
The
Company's defined benefit pension and other postretirement benefit costs and
obligations are dependent on assumptions used by actuaries in calculating such
amounts. These assumptions, which are reviewed annually, include discount rates,
long-term expected rates of return on plan assets and expected rates of increase
in compensation. Assumed discount rates are used to calculate the present value
of benefit payments which are projected to be made in the future, including
projections of increases in employees annual compensation and health care costs.
A decrease in the discount rate would increase the Company's obligation and
expense. The long-term expected rate of return on plan assets is based
principally on prior performance and future expectations for various types
of
investments as well as the expected long-term allocation of assets. Changes
in
the allocation of plan assets would impact the expected rate of return. The
expected rate of increase in compensation is based upon movements in inflation
rates as reflected by market interest rates. Benefits paid to participants
are
based upon age, years of credited service and average compensation or negotiated
benefit rates.
Assets
of
the Company's U.S. defined benefit plan are invested in a directed trust. Assets
in the trust are invested in domestic and foreign equity securities of
corporations (including $7,521,000 of the Company's common stock at November
30,
2006), U.S. government obligations, derivative securities, corporate bonds
and
money market funds. The Dutch subsidiary contracts with a third-party insurance
company to pay benefits to retirees.
PENSION
BENEFITS
The
following sets forth the change in benefit obligation, change in plan assets,
funded status and amounts recognized in the balance sheets as of November 30,
2006 and 2005 for the Company's U.S. and non-U.S. defined benefit retirement
plans:
|
|
U.S.
Pension Benefits
|
|
Non-U.S.
Pension Benefits
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
Change
in Benefit Obligation
|
|
|
|
|
|
|
|
|
|
Projected
benefit obligation-beginning of year
|
|
$
|
184,649
|
|
$
|
174,972
|
|
$
|
46,363
|
|
$
|
41,450
|
|
Service
cost
|
|
|
3,255
|
|
|
3,122
|
|
|
1,101
|
|
|
1,334
|
|
Interest
cost
|
|
|
10,193
|
|
|
10,076
|
|
|
1,784
|
|
|
1,850
|
|
Participant
contributions
|
|
|
-
|
|
|
-
|
|
|
295
|
|
|
428
|
|
Amendments
|
|
|
208
|
|
|
-
|
|
|
(333
|
)
|
|
-
|
|
Curtailment
|
|
|
(1,997
|
)
|
|
-
|
|
|
(4,156
|
)
|
|
-
|
|
Settlements
|
|
|
-
|
|
|
-
|
|
|
(757
|
)
|
|
-
|
|
Special
termination benefit
|
|
|
268
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Actuarial
loss/(gain)
|
|
|
6,738
|
|
|
7,211
|
|
|
(5,449
|
)
|
|
7,301
|
|
Foreign
currency exchange rate changes
|
|
|
-
|
|
|
-
|
|
|
5,261
|
|
|
(5,350
|
)
|
Benefit
payments
|
|
|
(10,907
|
)
|
|
(10,733
|
)
|
|
(644
|
)
|
|
(650
|
)
|
Projected
benefit obligation-end
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of
year
|
|
$
|
192,407
|
|
$
|
184,648
|
|
$
|
43,465
|
|
$
|
46,363
|
|
Change
in Plan Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan
assets at fair value-beginning of year
|
|
$
|
134,758
|
|
$
|
131,534
|
|
$
|
27,145
|
|
$
|
28,090
|
|
Actual
return on plan assets
|
|
|
20,667
|
|
|
10,220
|
|
|
(724
|
)
|
|
1,315
|
|
Foreign
currency exchange rate changes
|
|
|
-
|
|
|
-
|
|
|
3,175
|
|
|
(3,335
|
)
|
Employer
contributions
|
|
|
21,620
|
|
|
3,737
|
|
|
887
|
|
|
1,297
|
|
Participant
contributions
|
|
|
-
|
|
|
-
|
|
|
295
|
|
|
428
|
|
Settlement
|
|
|
-
|
|
|
-
|
|
|
(3,126
|
)
|
|
-
|
|
Benefit
payments
|
|
|
(10,907
|
)
|
|
(10,733
|
)
|
|
(644
|
)
|
|
(650
|
)
|
Plan
assets at fair value-end of year
|
|
$
|
166,138
|
|
$
|
134,758
|
|
$
|
27,008
|
|
$
|
27,145
|
|
Funded
Status
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded
status
|
|
$
|
(26,268
|
)
|
$
|
(49,890
|
)
|
$
|
(16,457
|
)
|
$
|
(19,217
|
)
|
Unrecognized
actuarial loss
|
|
|
44,110
|
|
|
52,261
|
|
|
6,222
|
|
|
10,948
|
|
Unrecognized
prior service cost
|
|
|
385
|
|
|
331
|
|
|
2,206
|
|
|
5,633
|
|
Net
amount recognized
|
|
$
|
18,227
|
|
$
|
2,702
|
|
$
|
(8,029
|
)
|
$
|
(2,636
|
)
|
Balance
Sheet Amounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued
cost
|
|
$
|
(19,218
|
)
|
$
|
(42,511
|
)
|
$
|
(15,880
|
)
|
$
|
(16,214
|
)
|
Intangible
asset
|
|
|
386
|
|
|
331
|
|
|
2,206
|
|
|
5,633
|
|
Accumulated
other comprehensive
|
|
|
|
|
|
|
|
|
|
|
|
|
|
loss,
pretax
|
|
|
37,059
|
|
|
44,882
|
|
|
5,645
|
|
|
7,945
|
|
Net
amount recognized
|
|
$
|
18,227
|
|
$
|
2,702
|
|
$
|
(8,029
|
)
|
$
|
(2,636
|
)
|
The
Company contributed $21,599,000 to the U.S. pension plan and $1,049,000 to
the
non-U.S. pension plans in 2006. The Company expects to contribute approximately
$3,000,000 to its U.S. pension plan and $600,000 to the non-U.S. pension plans
in 2007.
Expected
future pension benefit payments, which reflect expected future service, were
as
follows as of November 30, 2006:
|
|
Year
Ending
|
|
U.S.
Pension
|
|
Non-U.S.
Pension
|
|
(In
thousands)
|
|
November
30,
|
|
Benefits
|
|
Benefits
|
|
|
|
|
2007
|
|
$
|
12,029
|
|
$
|
937
|
|
|
|
|
2008
|
|
|
12,461
|
|
|
1,055
|
|
|
|
|
2009
|
|
|
13,012
|
|
|
1,212
|
|
|
|
|
2010
|
|
|
13,364
|
|
|
1,241
|
|
|
|
|
2011-2015
|
|
|
71,932
|
|
|
7,817
|
|
Net
periodic benefit costs for the Company's defined benefit retirement plans for
2006, 2005 and 2004 included the following components:
|
|
U.S.
Pension Benefits
|
|
Non-U.S.
Pension Benefits
|
|
(In
thousands)
|
|
2006
|
|
2005
|
|
2004
|
|
2006
|
|
2005
|
|
2004
|
|
Service
cost
|
|
$
|
3,255
|
|
$
|
3,122
|
|
$
|
3,171
|
|
$
|
1,101
|
|
$
|
1,334
|
|
$
|
1,150
|
|
Interest
cost
|
|
|
10,193
|
|
|
10,076
|
|
|
10,563
|
|
|
1,784
|
|
|
1,850
|
|
|
1,802
|
|
Expected
return on plan assets
|
|
|
(12,210
|
)
|
|
(11,203
|
)
|
|
(10,628
|
)
|
|
(1,327
|
)
|
|
(1,382
|
)
|
|
(1,352
|
)
|
Amortization
of unrecognized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
prior
service cost
|
|
|
97
|
|
|
99
|
|
|
565
|
|
|
488
|
|
|
656
|
|
|
640
|
|
Curtailment
|
|
|
325
|
|
|
-
|
|
|
1,916
|
|
|
2,911
|
|
|
-
|
|
|
-
|
|
Settlement
|
|
|
-
|
|
|
-
|
|
|
10,901
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Amortization
of unrecognized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net
transition obligation
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
317
|
|
|
76
|
|
|
-
|
|
Amortization
of accumulated loss
|
|
|
4,434
|
|
|
4,954
|
|
|
5,638
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Net
periodic cost
|
|
$
|
6,094
|
|
$
|
7,048
|
|
$
|
22,126
|
|
$
|
5,274
|
|
$
|
2,534
|
|
$
|
2,240
|
|
The
following table provides the weighted-average assumptions used to compute the
actuarial present value of projected benefit obligations:
|
|
U.S.
Pension Benefits
|
|
Non-U.S.
Pension Benefits
|
|
|
2006
|
|
2005
|
|
2004
|
|
2006
|
|
2005
|
|
2004
|
Weighted-average
discount rate
|
|
5.95%
|
|
5.60%
|
|
5.85%
|
|
4.50%
|
|
4.00%
|
|
4.75%
|
Rate
of increase in compensation levels
|
|
3.45%
|
|
3.10%
|
|
3.35%
|
|
2.00%
|
|
2.00%
|
|
2.00%
|
The
following table provides the weighted-average assumptions used to compute the
actuarial net periodic benefit cost:
|
|
U.S.
Pension Benefits
|
|
Non-U.S.
Pension Benefits
|
|
|
2006
|
|
2005
|
|
2004
|
|
2006
|
|
2005
|
|
2004
|
Weighted-average
discount rate
|
|
5.60%
|
|
5.85%
|
|
6.00%
|
|
4.00%
|
|
4.75%
|
|
5.50%
|
Expected
long-term rate of return on plan assets
|
|
8.75%
|
|
8.75%
|
|
8.75%
|
|
5.20%
|
|
5.40%
|
|
5.40%
|
Rate
of increase in compensation levels
|
|
3.10%
|
|
3.35%
|
|
3.50%
|
|
2.00%
|
|
2.00%
|
|
2.50%
|
The
following table shows the Company's target allocation range for the U.S. defined
benefit pension plan, along with the actual allocations:
|
Target
|
|
2006
|
|
2005
|
Domestic
equities
|
65%
|
|
70%
|
|
70%
|
International
equities
|
10%
|
|
10%
|
|
9%
|
Fixed-income
securities
|
25%
|
|
20%
|
|
21%
|
Total
|
100%
|
|
100%
|
|
100%
|
The
following shows the Company's accumulated benefit obligation in excess of plan
assets at November 30:
|
|
U.S.
Pension Benefits
|
|
Non-U.S.
Pension Benefits
|
|
(In
thousands)
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
Projected
benefit obligation
|
|
$
|
192,407
|
|
$
|
184,648
|
|
$
|
43,465
|
|
$
|
46,363
|
|
Accumulated
benefit obligation
|
|
|
185,356
|
|
|
177,270
|
|
|
42,888
|
|
|
43,359
|
|
Fair
value of plan assets
|
|
|
166,138
|
|
|
134,758
|
|
|
27,008
|
|
|
27,145
|
|
(Decrease)
increase in minimum liability
|
|
|
|
|
|
|
|
|
|
|
|
|
|
included
in other comprehensive income
|
|
|
(7,822
|
)
|
|
3,028
|
|
|
(2,300
|
)
|
|
5,420
|
|
The
Company also has a defined benefit retirement plan in the United Kingdom related
to the discontinued operations. The projected benefit obligation and plan assets
at November 30, 2006 were $5,601,000 and $4,965,000, respectively. Net accrued
pension liability at November 30, 2006 was $636,000. Annual pension expense
related to this plan was not significant.
Approximately
21% of the Company's employees are covered by union-sponsored,
collectively-bargained, multi-employer pension plans. Related to these plans,
the Company contributed and charged to expense $3,000,000, $2,650,000 and
$2,161,000 in 2006, 2005 and 2004, respectively. These contributions are
determined in accordance with the provisions of negotiated labor contracts
and
generally are based on the number of hours worked. The Company has no intention
of withdrawing from any of these plans, nor is there any intention to terminate
such plans.
Prior
to
June 2004, the Company had a supplemental retirement plan and an income deferral
plan for certain U.S. executives. In June 2004, the Company terminated the
two executive benefit plans in consideration of ongoing costs, anticipated
legislative restrictions on such programs, and a preference for executive
benefit plans having more predictable costs. The Company incurred a pretax
expense of $12,817,000 due to the termination of the plans and distributions
to
plan participants. The Company recorded this expense in accordance with
SFAS No. 88, "Employers' Accounting for Settlements and Curtailments of Defined
Benefit Pension Plans and for Termination Benefits." The Company had
previously purchased life insurance policies to cover benefits under the plans.
At the time of termination of the plans, the cash surrender value of such life
insurance policies totaled approximately $26,900,000 and exceeded the amount
that was required if immediate lump-sum payments were elected by all
participants, which totaled $25,600,000. In addition to the termination and
settlement costs, the Company expensed approximately $1,800,000 in 2004 under
the plans.
As
of
June 28, 2006, due to the divestiture of the Coatings Business, the Company
recorded curtailments and settlements as required by SFAS No. 88, “Employers’
Accounting for Settlements and Curtailments of Defined Benefit Pension Plans
and
for termination Benefits.” The impact to the U.S. Plans was a curtailment cost
of $57,000 and a special plan termination benefit cost of $268,000. The impact
on the Non-U.S. Plans was a curtailment cost of $2,911,000.
The
Company provides to certain employees a savings plan under Section 401(k) of
the
U.S. Internal Revenue Code. The savings plan allows for deferral of income
up to
a certain percentage through contributions to the plan, within certain
restrictions. Company matching contributions are in the form of cash. In 2006,
2005 and 2004, the Company recorded expenses for matching contributions of
$1,387,000, $422,000 and $436,000, respectively.
POST-RETIREMENT
BENEFITS
The
following sets forth the change in benefit obligation, change in plan assets,
funded status and amounts recognized in the balance sheets as of November 30,
2006 and 2005 for the Company's U.S. postretirement health care and life
insurance benefits. The measurement date of plan assets and obligations is
as of
October 1 for each year presented.
|
|
U.S.
Postretirement Benefits
|
|
(In
thousands)
|
|
2006
|
|
2005
|
|
Change
in Benefit Obligation
|
|
|
|
|
|
Projected
benefit obligation-beginning of year
|
|
$
|
3,315
|
|
$
|
3,617
|
|
Service
cost
|
|
|
78
|
|
|
118
|
|
Interest
cost
|
|
|
179
|
|
|
204
|
|
Actuarial
gain
|
|
|
(167
|
)
|
|
(174
|
)
|
Amendments
|
|
|
324
|
|
|
(205
|
)
|
Benefit
payments
|
|
|
(237
|
)
|
|
(245
|
)
|
Projected
benefit obligation-end of year
|
|
$
|
3,492
|
|
$
|
3,315
|
|
Change
in Plan Assets
|
|
|
|
|
|
|
|
Plan
assets at fair value-beginning of year
|
|
$
|
324
|
|
$
|
349
|
|
Actual
return on plan assets
|
|
|
106
|
|
|
1
|
|
Benefit
payments
|
|
|
(34
|
)
|
|
(26
|
)
|
Plan
assets at fair value-end of year
|
|
$
|
396
|
|
$
|
324
|
|
Funded
Status
|
|
|
|
|
|
|
|
Funded
status
|
|
$
|
(3,096
|
)
|
$
|
(2,991
|
)
|
Unrecognized
actuarial loss
|
|
|
405
|
|
|
692
|
|
Unrecognized
transition obligation
|
|
|
321
|
|
|
367
|
|
Unrecognized
prior service cost/(benefit)
|
|
|
246
|
|
|
(92
|
)
|
Net
amount recognized
|
|
$
|
(2,124
|
)
|
$
|
(2,024
|
)
|
Balance
Sheet Amounts
|
|
|
|
|
|
|
|
Accrued
benefit liability
|
|
|
(2,124
|
)
|
|
(2,024
|
)
|
Net
amount recognized
|
|
$
|
(2,124
|
)
|
$
|
(2,024
|
)
|
Expected
future benefit payments, which reflect expected future service, were as follows
as of November 30, 2006:
|
|
|
|
U.S.
Post-
|
|
|
|
Year
Beginning
|
|
Retirement
|
|
(In
thousands)
|
|
December
1,
|
|
Benefits
|
|
|
|
|
2006
|
|
$
|
208
|
|
|
|
|
2007
|
|
|
236
|
|
|
|
|
2008
|
|
|
222
|
|
|
|
|
2009
|
|
|
214
|
|
|
|
|
2010
|
|
|
217
|
|
|
|
|
2011-2015 |
|
|
1,360
|
|
Net
periodic benefit costs for the Company's defined benefit retirement plans
for
2006, 2005 and 2004 included the following components:
|
|
U.S.
Postretirement Benefits
|
|
(In
thousands)
|
|
2006
|
|
2005
|
|
2004
|
|
Service
cost
|
|
$
|
78
|
|
$
|
118
|
|
$
|
112
|
|
Interest
cost
|
|
|
179
|
|
|
204
|
|
|
201
|
|
Expected
return on plan assets
|
|
|
(27
|
)
|
|
(31
|
)
|
|
(30
|
)
|
Amortization
of unrecognized
|
|
|
|
|
|
|
|
|
|
|
prior
service gain
|
|
|
(14
|
)
|
|
(14
|
)
|
|
(14
|
)
|
Amortization
of unrecognized
|
|
|
|
|
|
|
|
|
|
|
net
transition obligation
|
|
|
46
|
|
|
71
|
|
|
71
|
|
Amortization
of accumulated loss
|
|
|
41
|
|
|
59
|
|
|
51
|
|
Net
periodic cost
|
|
$
|
303
|
|
$
|
407
|
|
$
|
391
|
|
The
following table provides the weighted-average assumptions used to compute
the
actuarial present value of projected benefit
obligations:
|
|
U.S.
Postretirement Benefits
|
|
|
2006
|
|
2005
|
|
2004
|
Weighted-average
discount rate
|
|
5.95%
|
|
5.60%
|
|
5.85%
|
Rate
of increase in compensation levels
|
|
3.45%
|
|
3.10%
|
|
3.35%
|
The
following table provides the weighted-average assumptions used to compute the
actuarial net periodic benefit cost:
|
|
U.S.
Postretirement Benefits
|
|
|
2006
|
|
2005
|
|
2004
|
Weighted-average
discount rate
|
|
5.60%
|
|
5.85%
|
|
6.00%
|
Rate
of increase in compensation levels
|
|
3.10%
|
|
3.35%
|
|
3.50%
|
In
2003,
the Medicare Prescription Drug Improvement and Modernization Act of 2003 (the
"Act") was signed into law. The Act introduces a Medicare prescription drug
benefit beginning in 2006 as well as a federal subsidy to sponsors of retirement
health care plans that provide a benefit at least actuarially equivalent to
the
Medicare benefit. The effect of the Act did not have a material impact on the
Company's consolidated financial statements.
The
assumed health care cost trend decreased from 10% to 9% in 2006, and it is
assumed that the rate will decline gradually to 5% by 2011 and beyond. The
effect of a one-percentage-point change in the assumed health care cost trend
would have changed the amounts of the benefit obligation and the sum of the
service cost and interest cost components of postretirement benefit expense
for
2006, as follows:
|
|
1%
|
|
1%
|
|
(In
thousands)
|
|
Increase
|
|
Decrease
|
|
Effect
on total of service and interest cost components of net periodic
expense
|
|
$
|
19
|
|
$
|
(17
|
)
|
Effect
on post-retirement benefit obligation
|
|
|
173
|
|
|
(147
|
)
|
The
Company has a life insurance plan which provides eligible executives with life
insurance protection equal to three times base salary. Upon retirement, the
executive is provided with life insurance protection equal to final base salary.
There were no expenses related to this plan in 2006 and $66,800 in 2005, and
$267,000 in 2004.
The
Company has severance agreements with certain key employees that could provide
benefits upon termination of up to 3.5 times total annual compensation of such
employees.
NOTE
17 - CAPITAL STOCK
The
Company is incorporated in Delaware. The articles of incorporation authorize
24,000,000 shares of $2.50 par value common stock, 1,000,000 shares of $1.00
par
value preferred stock and 100,000 shares of $1.00 par value series A junior
participating cumulative preferred stock. The preferred stock may be issued
in
series, with the rights and preferences of each series to be established by
the
Board of Directors. As of November 30, 2006, no shares of preferred stock or
series A junior participating cumulative preferred stock were
outstanding.
As
of
November 30, 2006, 9,075,094 shares of common stock were issued and outstanding,
including 98,002 restricted shares. Restrictions limit the sale and transfer
of
these shares. On each anniversary of the grant date, a percentage of the shares
(determined at the time of the grant) becomes unrestricted. The restrictions
are
scheduled to lapse as follows: 49,335 shares will become unrestricted in 2007,
30,667 shares in 2008, 16,500 shares in 2009, and 1,500 shares in
2010.
As
of
November 30, 2006 the Company’s Stockholders Rights Plan provided, among other
things, that stockholders were entitled to purchase common stock at a
significant discount if a party acquired 15% or more of the Company's common
stock or announced a tender offer for at least 15% of the Company's common
stock
outstanding.
NOTE
18 - SEGMENT INFORMATION
SFAS
No.
131, "Disclosure about Segments of an Enterprise and Related Information"
requires disclosure of certain information about operating segments, geographic
areas in which the Company operates, major customers, and products and services.
In accordance with SFAS No. 131, the Company has determined it has four
operating and three reportable segments: Fiberglass-Composite Pipe, Water
Transmission and Infrastructure Products. 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 products including wind towers.
The
Infrastructure Products Group consists of two operating segments, the Pole
Products and Hawaii Divisions, and manufactures and sells ready-mix concrete,
sand and aggregates, concrete pipe and culverts, and concrete and steel lighting
and traffic poles. In the prior periods, the Company included a fourth
reportable segment, Performance Coatings & Finishes, which was sold
effective August 1, 2006. The results from this segment have been reported
as
discontinued operations for all reporting periods. Each of these segments has
a
dedicated management team and is managed separately, primarily because of
differences in products. TAMCO, the Company's equity method investment, is
not included in any of these segments. The Company’s Chief Operating Decision
Maker is the Chief Executive Officer who primarily reviews sales and income
before interest, income taxes and equity in earnings of joint venture for each
operating segment in making decisions about allocating resources and assessing
performance. The Company allocates certain selling, general and administrative
expenses to operating segments utilizing assumptions believed to be appropriate
in the circumstances. Costs of shared services (e.g., costs of Company-wide
insurance programs or benefit plans) are allocated to the operating segments
based on revenue, wages or net assets employed. Other items not related to
current operations or of an unusual nature, such as adjustments to reflect
inventory balances of certain steel inventories under the last-in, first-out
(“LIFO”) method, certain unusual legal costs and expenses, interest expense and
income taxes, are not allocated to the reportable segments.
The
markets served by the Fiberglass-Composite Pipe Group are worldwide in scope.
The Water Transmission Group serves primarily the western U.S. The
Infrastructure Products Group's quarry and ready-mix business operates
exclusively in Hawaii, and poles are sold throughout the U.S. Sales for export
or to any individual customer did not exceed 10% of consolidated sales in 2006,
2005 or 2004.
In
accordance with SFAS No. 131, the following table presents information related
to each operating segment included in, and in a manner consistent with, internal
management reports. Inter-segment sales were not significant. Total assets
by
segment are those assets that are used exclusively by such segment. Unallocated
assets are principally cash, corporate property and equipment, and investments.
Long-lived assets consist of all long-term assets, excluding investments,
goodwill, intangible assets, and deferred tax assets.
|
|
SEGMENT
INFORMATION
|
|
|
|
Fiberglass-
|
|
Water
|
|
Infrastructure
|
|
|
|
Discontinued
|
|
|
|
|
|
(In
thousands)
|
|
Composite
Pipe
|
|
Transmission
|
|
Products
|
|
Other
|
|
Operations
|
|
Eliminations
|
|
Total
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
176,721
|
|
$
|
174,986
|
|
$
|
198,177
|
|
$
|
-
|
|
$
|
-
|
|
$
|
(704
|
)
|
$
|
549,180
|
|
Income
from continuing operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
before
interest, income taxes and equity in earnings of joint
venture
|
|
|
37,804
|
|
|
7,577
|
|
|
30,607
|
|
|
(26,891
|
)
|
|
-
|
|
|
-
|
|
|
49,097
|
|
Equity
in earnings of joint venture, net of taxes
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
13,550
|
|
|
-
|
|
|
-
|
|
|
13,550
|
|
Income
from joint ventures - cost method
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Investments
in joint ventures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity method
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
14,501
|
|
|
-
|
|
|
-
|
|
|
14,
501
|
|
Cost method
|
|
|
3,784
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
3,784
|
|
Long-lived
assets
|
|
|
31,957
|
|
|
51,041
|
|
|
48,796
|
|
|
65,874
|
|
|
-
|
|
|
-
|
|
|
197,668
|
|
Total
assets
|
|
|
206,326
|
|
|
167,463
|
|
|
97,249
|
|
|
271,023
|
|
|
-
|
|
|
(107,397
|
)
|
|
634,664
|
|
Capital
expenditures
|
|
|
4,558
|
|
|
16,502
|
|
|
10,659
|
|
|
(236
|
)
|
|
4,036
|
|
|
-
|
|
|
35,519
|
|
Depreciation
and amortization
|
|
|
4,685
|
|
|
4,000
|
|
|
4,509
|
|
|
609
|
|
|
3,637
|
|
|
-
|
|
|
17,440
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
134,071
|
|
$
|
192,731
|
|
$
|
168,990
|
|
$
|
-
|
|
$
|
-
|
|
$
|
(1,025
|
)
|
$
|
494,767
|
|
Income
from continuing operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
before
interest, income taxes and equity in earnings of joint
venture
|
|
|
24,482
|
|
|
25,845
|
|
|
22,127
|
|
|
(35,390
|
)
|
|
-
|
|
|
-
|
|
|
37,064
|
|
Equity
in earnings of joint venture, net of taxes
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
9,005
|
|
|
-
|
|
|
-
|
|
|
9,005
|
|
Income
from joint ventures - cost method
|
|
|
1,300
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
1,300
|
|
Investments
in joint ventures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity method
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
13,777
|
|
|
-
|
|
|
-
|
|
|
13,777
|
|
Cost method
|
|
|
3,784
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
2,138
|
|
|
-
|
|
|
5,922
|
|
Long-lived
assets
|
|
|
30,199
|
|
|
38,520
|
|
|
43,553
|
|
|
39,048
|
|
|
40,685
|
|
|
-
|
|
|
192,005
|
|
Total
assets
|
|
|
176,713
|
|
|
132,803
|
|
|
83,053
|
|
|
162,979
|
|
|
170,784
|
|
|
(148,296
|
)
|
|
578,036
|
|
Capital
expenditures
|
|
|
8,919
|
|
|
5,567
|
|
|
4,607
|
|
|
1,170
|
|
|
5,108
|
|
|
-
|
|
|
25,371
|
|
Depreciation
and amortization
|
|
|
4,070
|
|
|
3,910
|
|
|
4,444
|
|
|
710
|
|
|
5,790
|
|
|
-
|
|
|
18,924
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
116,289
|
|
$
|
154,231
|
|
$
|
136,312
|
|
$
|
-
|
|
$
|
-
|
|
$
|
(602
|
)
|
$
|
406,230
|
|
Income
from continuing operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
before
interest, income taxes and equity in earnings of joint
venture
|
|
|
21,429
|
|
|
13,458
|
|
|
14,519
|
|
|
(38,735
|
)
|
|
-
|
|
|
-
|
|
|
10,671
|
|
Equity
in earnings of joint venture, net of taxes
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
10,791
|
|
|
-
|
|
|
-
|
|
|
10,791
|
|
Income
from joint ventures - cost method
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Investments
in joint ventures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity method
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
16,042
|
|
|
-
|
|
|
-
|
|
|
16,042
|
|
Cost method
|
|
|
3,784
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
2,138
|
|
|
-
|
|
|
5,922
|
|
Long-lived
assets
|
|
|
26,353
|
|
|
37,970
|
|
|
40,564
|
|
|
41,481
|
|
|
46,166
|
|
|
-
|
|
|
192,534
|
|
Total
assets
|
|
|
155,390
|
|
|
120,921
|
|
|
74,623
|
|
|
198,797
|
|
|
173,807
|
|
|
(179,601
|
)
|
|
543,937
|
|
Capital
expenditures
|
|
|
4,777
|
|
|
2,693
|
|
|
5,045
|
|
|
506
|
|
|
5,291
|
|
|
-
|
|
|
18,312
|
|
Depreciation
and amortization
|
|
|
4,115
|
|
|
3,977
|
|
|
4,507
|
|
|
701
|
|
|
5,597
|
|
|
-
|
|
|
18,897
|
|
|
|
GEOGRAPHIC
AREAS
|
|
|
|
United
|
|
|
|
|
|
|
|
Discontinued
|
|
|
|
|
|
(In
thousands)
|
|
States
|
|
Europe
|
|
Asia
|
|
Other
|
|
Operations
|
|
Eliminations
|
|
Total
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
to external customers
|
|
$
|
432,670
|
|
$
|
26,545
|
|
$
|
80,726
|
|
$
|
9,239
|
|
$
|
-
|
|
$
|
-
|
|
$
|
549,180
|
|
Long-lived
assets
|
|
|
154,882
|
|
|
15,229
|
|
|
20,866
|
|
|
6,691
|
|
|
-
|
|
|
-
|
|
|
197,668
|
|
Total
assets
|
|
|
538,254
|
|
|
50,785
|
|
|
139,514
|
|
|
13,508
|
|
|
-
|
|
|
(107,397
|
)
|
|
634,664
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
to external customers
|
|
$
|
406,939
|
|
$
|
20,157
|
|
$
|
62,155
|
|
$
|
5,516
|
|
$
|
-
|
|
$
|
-
|
|
$
|
494,767
|
|
Long-lived
assets
|
|
|
125,310
|
|
|
6,046
|
|
|
19,202
|
|
|
762
|
|
|
40,685
|
|
|
-
|
|
|
192,005
|
|
Total
assets
|
|
|
419,103
|
|
|
20,907
|
|
|
110,602
|
|
|
4,936
|
|
|
170,784
|
|
|
(148,296
|
)
|
|
578,036
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
to external customers
|
|
$
|
325,425
|
|
$
|
21,694
|
|
$
|
55,124
|
|
$
|
3,987
|
|
$
|
-
|
|
$
|
-
|
|
$
|
406,230
|
|
Long-lived
assets
|
|
|
125,065
|
|
|
7,543
|
|
|
13,133
|
|
|
627
|
|
|
46,166
|
|
|
-
|
|
|
192,534
|
|
Total
assets
|
|
|
423,829
|
|
|
26,876
|
|
|
94,433
|
|
|
4,593
|
|
|
173,807
|
|
|
(179,601
|
)
|
|
543,937
|
|
SUPPLEMENTARY
DATA - QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized
quarterly financial data for the years ended November 30, 2006 and 2005,
follow:
|
|
First
|
|
Second
|
|
Third
|
|
Fourth
|
|
(In
thousands except per share data)
|
|
Quarter
|
|
Quarter
|
|
Quarter
|
|
Quarter
|
|
2006
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
125,972
|
|
$
|
132,657
|
|
$
|
139,941
|
|
$
|
150,610
|
|
Gross
profit
|
|
|
28,582
|
|
|
34,771
|
|
|
36,082
|
|
|
32,954
|
|
Income
from continuing operations
|
|
|
3,962
|
|
|
16,998
|
|
|
16,982
|
|
|
12,118
|
|
Income
from discontinued operations, net of taxes
|
|
|
(351
|
)
|
|
1,704
|
|
|
997
|
|
|
(210
|
)
|
Net
income
|
|
|
3,611
|
|
|
18,702
|
|
|
17,979
|
|
|
11,908
|
|
Diluted
net income/(loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations
|
|
|
.45
|
|
|
1.92
|
|
|
1.91
|
|
|
1.35
|
|
Income
from discontinued operations, net of taxes
|
|
|
(.04
|
)
|
|
.19
|
|
|
.11
|
|
|
(.02
|
)
|
Net
income
|
|
|
.41
|
|
|
2.11
|
|
|
2.02
|
|
|
1.33
|
|
Stock
price per share-high
|
|
|
61.81
|
|
|
76.04
|
|
|
70.70
|
|
|
80.01
|
|
Stock
price per share-low
|
|
|
44.66
|
|
|
54.54
|
|
|
50.63
|
|
|
64.03
|
|
Dividends
per share
|
|
|
.20
|
|
|
.20
|
|
|
.20
|
|
|
.20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
96,867
|
|
$
|
122,138
|
|
$
|
136,555
|
|
$
|
139,207
|
|
Gross
profit
|
|
|
22,946
|
|
|
30,474
|
|
|
37,542
|
|
|
34,248
|
|
Income
from continuing operations
|
|
|
2,026
|
|
|
4,843
|
|
|
11,588
|
|
|
11,052
|
|
Income
from discontinued operations, net of taxes
|
|
|
(1,546
|
)
|
|
428
|
|
|
1,940
|
|
|
2,279
|
|
Net
income/(loss)
|
|
|
480
|
|
|
5,271
|
|
|
13,528
|
|
|
13,331
|
|
Diluted
net income/(loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations
|
|
|
.24
|
|
|
.57
|
|
|
1.35
|
|
|
1.27
|
|
Income
from discontinued operations, net of taxes
|
|
|
(.18
|
)
|
|
.05
|
|
|
.23
|
|
|
.26
|
|
Net
income/(loss)
|
|
|
.06
|
|
|
.62
|
|
|
1.58
|
|
|
1.53
|
|
Stock
price per share-high
|
|
|
38.85
|
|
|
36.96
|
|
|
39.11
|
|
|
46.61
|
|
Stock
price per share-low
|
|
|
31.96
|
|
|
31.76
|
|
|
33.00
|
|
|
38.91
|
|
Dividends
per share
|
|
|
.20
|
|
|
.20
|
|
|
.20
|
|
|
.20
|
|
The
Company traditionally experiences lower sales during the first fiscal quarter
because of seasonal patterns associated with weather and contractor schedules.
Operating results for the fourth quarter of fiscal year 2006 included a charge
of $1,505,000 to adjust year end LIFO reserve.
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the Board of Directors and Stockholders of Ameron International
Corporation
We
have
completed integrated audits of Ameron International Corporation's consolidated
financial statements and of its internal control over financial reporting as
of
November 30, 2006, in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Our opinions, based on our audits,
are presented below.
Consolidated
financial statements and financial statement schedule
In
our
opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, of stockholders’ equity, of comprehensive
income and of cash flows present fairly, in all material respects, the financial
position of Ameron International Corporation and its subsidiaries at November
30, 2006 and 2005, and the results of their operations and their cash flows
for
each of the three years in the period ended November 30, 2006 in conformity
with
accounting principles generally accepted in the United States of America.
In addition, in our opinion, the financial statement schedule listed in the
index appearing under Item 15(a)(1) presents fairly, in all material respects,
the information set forth therein when read in conjunction with the consolidated
financial statements. These financial statements and financial statement
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and financial statement
schedule based on our audits. We conducted our audits of these statements in
accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit
to
obtain reasonable assurance about whether the financial statements are free
of
material misstatement. An audit of financial statements includes examining,
on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.
As
discussed in Note 2 to the consolidated financial statements, the Company
adopted Statement of Financial Accounting Standards No. 123 (revised 2004),
Share-Based
Payment,
effective December 1, 2005.
Internal
control over financial reporting
Also,
in
our opinion, management's assessment, included in Management's Report on
Internal Control Over Financial Reporting appearing under Item 9(A), that the
Company maintained effective internal control over financial reporting as of
November 30, 2006 based on criteria established in Internal
Control - Integrated Framework
issued
by the Committee of Sponsoring Organizations of the Treadway Commission
("COSO"), is fairly stated, in all material respects, based on those criteria.
Furthermore, in our opinion, the Company maintained, in all material respects,
effective internal control over financial reporting as of November 30, 2006
based on criteria established in Internal
Control - Integrated Framework
issued
by COSO. The Company's management is responsible for maintaining effective
internal control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting. Our responsibility
is to express opinions on management's assessment and on the effectiveness
of
the Company's internal control over financial reporting based on our audit.
We
conducted our audit of internal control over financial reporting in accordance
with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over financial
reporting was maintained in all material respects. An audit of internal control
over financial reporting includes obtaining an understanding of internal control
over financial reporting, evaluating management's assessment, testing and
evaluating the design and operating effectiveness of internal control, and
performing such other procedures as we consider necessary in the circumstances.
We believe that our audit provides a reasonable basis for our
opinions.
A
company's internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company's internal control
over
financial reporting includes those policies and procedures that (i) pertain
to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (ii)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors
of
the company; and (iii) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use, or disposition of the
company's assets that could have a material effect on the financial statements.
Because
of its inherent limitations, internal control over financial reporting may
not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
/s/
PricewaterhouseCoopers LLP
Los
Angeles, California
January
30, 2007
ITEM
9
- CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM
9A
- CONTROLS AND PROCEDURES
Evaluation
of Disclosure Controls and Procedures.
Management has established disclosure controls and procedures to ensure that
material information relating to the Company, including its consolidated
subsidiaries, is made known to the officers who certify the Company's financial
reports and to other members of senior management and the Board of Directors.
The
Company carried out an evaluation, under the supervision and with the
participation of the Company's management, including the Company's Chief
Executive Officer and Chief Financial Officer, of the effectiveness of the
design and operation of the Company's disclosure controls and procedures as
of
November 30, 2006 pursuant to Exchange Act Rule 13a-14. Based upon that
evaluation, the Chief Executive Officer and Chief Financial Officer 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 in timely alerting them to material information relating to the
Company (including its consolidated subsidiaries) required to be included in
the
Company's periodic Commission filings. No changes were made in the
Company's internal control over financial reporting during the fiscal quarter
ended November 30, 2006 that have materially affected, or are reasonably likely
to materially affect, the Company's internal control over financial
reporting.
Management's
Report on Internal Control Over Financial Reporting.
Management is responsible for establishing and maintaining adequate internal
control over financial reporting, as such term is defined in Exchange Act
Rule 13a-15(f) and 15d-15(f). Under the supervision and with the
participation of management, including the principal executive officer and
principal financial officer, management conducted an evaluation of the
effectiveness of internal control over financial reporting based on the
framework in Internal
Control - Integrated Framework
issued
by the Committee of Sponsoring Organizations of the Treadway Commission. Based
on management's evaluation under the framework in Internal
Control - Integrated Framework,
management concluded that internal control over financial reporting was
effective as of November 30, 2006. Management's assessment of the effectiveness
of internal control over financial reporting as of November 30, 2006 has
been audited by PricewaterhouseCoopers LLP, an independent registered public
accounting firm, as stated in its report which is included herein.
ITEM
9B
- OTHER INFORMATION
None.
ITEM
10
- DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE
Information
with respect to the directors, the Audit Committee of the Board of Directors,
and the audit committee financial expert, is contained in the Company's Proxy
Statement. Such information is incorporated herein by reference. The Board
of Directors of the Company has a separately-designated standing audit committee
established in accordance with section 3(a)(58)(A) of the Securities
Exchange Act. The members of that audit committee are identified in the
Company's Proxy Statement under the section captioned "The Board and Its
Committees." Such information is incorporated herein by reference. The Board
of
Directors has determined that one of the members of its Audit Committee, William
D. Horsfall, is an "audit committee financial expert" as defined in Item
401(h)(2) of Regulation S-K.
Information
with respect to the executive officers who are not directors of the Company
is
located in Part I, Item 4 of this report.
The
Company has adopted a Code of Business Conduct and Ethics (the "Code") that
applies to directors, officers and employees of the Company, including its
principal executive officer, principal financial officer, principal accounting
officer or controller, or persons performing similar functions. Copies of
the Code, as well as each of the Company's Corporate Governance Guidelines
and
charters of the Audit, the Compensation and the Nominating & Corporate
Governance committees of its Board of Directors are available on the Company's
website, located at www.ameron.com,
and are
available in print to stockholders upon written request to the Secretary of
the
Company at the Company's headquarters address.
ITEM
11
- EXECUTIVE COMPENSATION
ITEM
12
- SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS
ITEM
13
- CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND
DIRECTOR INDEPENDENCE
ITEM
14
- PRINCIPAL ACCOUNTING FEES AND
SERVICES
*
The
information required by Items 11, 12, 13 and 14 is contained in the Company's
Proxy Statement. Such information is incorporated herein by
reference.
ITEM
15
- EXHIBITS, FINANCIAL STATEMENT
SCHEDULES
(a)
(1)
FINANCIAL STATEMENT SCHEDULES:
The
following financial statements are included in this Annual Report on Form
10-K:
Consolidated
Statements of Income for the years ended November 30, 2006, 2005
and
2004.
|
Consolidated
Balance Sheets as of November 30, 2006 and 2005.
|
Consolidated
Statements of Stockholders' Equity for the years ended November 30,
2006,
2005 and 2004.
|
Consolidated
Statements of Comprehensive Income for the years ended November 30,
2006,
2005 and 2004.
|
Consolidated
Statements of Cash Flows for the years ended November 30, 2006, 2005
and
2004.
|
Notes
to Consolidated Financial Statements
|
Report
of Independent Registered Public Accounting
Firm
|
The
following additional financial data should be read in conjunction with the
Consolidated Financial Statements. Schedules not included with this additional
financial data have been omitted because they are either not applicable, not
required, not significant, or the required information is provided in the
Consolidated Financial Statements under Financial Statements and Supplementary
Data, under Part II, Item 8.
SCHEDULE
|
SCHEDULES
OF AMERON
|
II
|
Valuation
and Qualifying Accounts and
Reserves
|
(2)
EXHIBITS:
EXHIBIT
|
EXHIBITS
OF AMERON
|
3(i)
|
Certificate
of Incorporation (1)
|
3(ii)
|
Bylaws
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(b)
REPORTS ON FORM 8-K
Two
reports on Form 8-K were filed by the Company during the last quarter of the
fiscal year ended November 30, 2006 as follows:
September 22,
2006 reporting under Item 2.02, the financial results for the Company's third
quarter ended September 3, 2006.
September 25,
2006 reporting under Item 8.01, the declaration of a quarterly dividend of
20
cents per share of common stock for the Company's third quarter ended September
3, 2006.
(1)
The
Certificate of Incorporation is incorporated by reference to the Quarterly
Report on Form 10-Q of the Company filed June 24, 2005.
(2)
The
Bylaws are incorporated by reference to the Report on Form 8-K of the Company
filed March 24, 2005.
SCHEDULE II
- VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR
THE YEAR ENDED NOVEMBER 30, 2006
(In
thousands)
|
|
|
|
Additions
|
|
Deductions,
|
|
|
|
|
|
|
|
Balance
at
|
|
Charged
to
|
|
Payments
|
|
|
|
Balance
|
|
|
|
Beginning
|
|
Costs
and
|
|
And
|
|
Reclassifications
|
|
at
End of
|
|
Classification
|
|
of
Years
|
|
Expenses
|
|
Write-offs
|
|
and
Others *
|
|
Years
|
|
DEDUCTED
FROM ASSET ACCOUNTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
for doubtful accounts
|
|
$
|
7,693
|
|
$
|
1,351
|
|
$
|
(1,339
|
)
|
$
|
(2,793
|
)
|
$
|
4,912
|
|
*
Amount
primarily consists of allowance for doubtful accounts eliminated due to the
sale
of the discontinued operations.
FOR
THE YEAR ENDED NOVEMBER 30, 2005
(In
thousands)
|
|
|
|
Additions
|
|
Deductions,
|
|
|
|
|
|
|
|
Balance
at
|
|
Charged
to
|
|
Payments
|
|
|
|
Balance
|
|
|
|
Beginning
|
|
Costs
and
|
|
And
|
|
Reclassifications
|
|
at
End of
|
|
Classification
|
|
of
Years
|
|
Expenses
|
|
Write-offs
|
|
and
Others
|
|
Years
|
|
DEDUCTED
FROM ASSET ACCOUNTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
for doubtful accounts
|
|
$
|
7,984
|
|
$
|
2,502
|
|
$
|
(2,362
|
)
|
$
|
(431
|
)
|
$
|
7,693
|
|
FOR
THE YEAR ENDED NOVEMBER 30, 2004
(In
thousands)
|
|
|
|
Additions
|
|
Deductions,
|
|
|
|
|
|
|
|
Balance
at
|
|
Charged
to
|
|
Payments
|
|
|
|
Balance
|
|
|
|
Beginning
|
|
Costs
and
|
|
And
|
|
Reclassifications
|
|
at
End of
|
|
Classification
|
|
of
Years
|
|
Expenses
|
|
Write-offs
|
|
and
Others
|
|
Years
|
|
DEDUCTED
FROM ASSET ACCOUNTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
for doubtful accounts
|
|
$
|
8,168
|
|
$
|
1,991
|
|
$
|
(3,032
|
)
|
$
|
857
|
|
$
|
7,984
|
|
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/
Javier Solis
|
|
|
Javier
Solis, Senior Vice President &
Secretary
|
Date:
February 8, 2007
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has
been
signed below by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
|
|
|
|
Date:
2-8-07
|
/s/
James S. Marlen
|
|
Director,
Chairman of the Board,
|
|
James
S. Marlen
|
|
President
and Chief Executive
|
|
|
|
Officer
(Principal Executive Officer)
|
|
|
|
|
Date:
2-8-07
|
/s/
James R. McLaughlin
|
|
Senior
Vice President, Chief Financial Officer &
Treasurer
|
|
James
R. McLaughlin
|
|
(Principal
Financial & Accounting Officer)
|
|
|
|
|
Date:
2-8-07
|
/s/
Daniel J. Emmett
|
|
Vice
President, Controller
|
|
Daniel
J. Emmett
|
|
|
|
|
|
|
Date:
2-8-07
|
/s/David
Davenport
|
|
Director
|
|
David
Davenport
|
|
|
|
|
|
|
Date:
2-8-07
|
/s/Michael
Hagan
|
|
Director
|
|
J.
Michael Hagan
|
|
|
|
|
|
|
Date:
2-8-07
|
/s/Terry
Haines
|
|
Director
|
|
Terry
L. Haines
|
|
|
|
|
|
|
Date:
2-8-07
|
/s/William
D. Horsfall
|
|
Director
|
|
William
D. Horsfall
|
|
|
|
|
|
|
Date:
2-8-07
|
/s/John
Peppercorn
|
|
Director
|
|
John
E. Peppercorn
|
|
|
|
|
|
|
Date:
2-8-07
|
/s/Dennis
Poulsen
|
|
Director
|
|
Dennis
C. Poulsen
|
|
|