ameron_10q209.htm
United
States
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
(Mark
One)
x QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE
ACT OF 1934
For
the quarterly period ended May 31, 2009
OR
¨ TRANSITION REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For
the transition period from __________ to __________
Commission
File Number 1-9102
AMERON
INTERNATIONAL CORPORATION
(Exact
name of registrant as specified in its charter)
Delaware
|
77-0100596
|
(State
or other jurisdiction of
incorporation
or organization)
|
(I.R.S.
Employer Identification No.)
|
245
South Los Robles Avenue
Pasadena,
CA 91101-3638
(Address
of principal executive offices)
(626)
683-4000
(Registrant's
telephone number, including area code)
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes x No ¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company (as
defined in Rule 12b-2 of the Exchange Act).
Large
accelerated filer x
|
Accelerated
filer ¨
|
Non-accelerated
filer ¨
|
Smaller
reporting company ¨
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act). Yes ¨ No
x
The
number of outstanding shares of Common Stock, $2.50 par value, was 9,215,491 on
May 31, 2009. No other class of Common Stock exists.
AMERON INTERNATIONAL CORPORATION AND SUBSIDIARIES
FORM
10-Q
For
the Quarter Ended May 31, 2009
Table
of Contents
|
|
3
|
|
|
3
|
|
|
18
|
|
|
25
|
|
|
25
|
|
|
26
|
|
|
26
|
|
|
27
|
|
|
28
|
|
|
28
|
|
|
28
|
|
|
29
|
AMERON
INTERNATIONAL CORPORATION AND SUBSIDIARIES
PART I – FINANCIAL INFORMATION
ITEM 1 – FINANCIAL STATEMENTS
CONSOLIDATED
STATEMENTS OF INCOME (UNAUDITED)
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
|
|
May
31,
|
|
|
June
1,
|
|
|
May
31,
|
|
|
June
1,
|
|
(Dollars
in thousands, except per share data)
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
Sales
|
|
$
|
132,920
|
|
|
$
|
159,793
|
|
|
$
|
278,922
|
|
|
$
|
309,562
|
|
Cost
of sales
|
|
|
(96,370
|
)
|
|
|
(120,047
|
)
|
|
|
(207,451
|
)
|
|
|
(236,364
|
)
|
Gross
profit
|
|
|
36,550
|
|
|
|
39,746
|
|
|
|
71,471
|
|
|
|
73,198
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative expenses
|
|
|
(25,877
|
)
|
|
|
(25,865
|
)
|
|
|
(52,285
|
)
|
|
|
(51,667
|
)
|
Other
income, net
|
|
|
2,431
|
|
|
|
575
|
|
|
|
2,902
|
|
|
|
3,550
|
|
Income
before interest, income taxes and equity in (loss)/earnings of joint
venture
|
|
|
13,104
|
|
|
|
14,456
|
|
|
|
22,088
|
|
|
|
25,081
|
|
Interest
(expense)/income, net
|
|
|
(148
|
)
|
|
|
142
|
|
|
|
(319
|
)
|
|
|
431
|
|
Income
before income taxes and equity in (loss)/earnings of joint
venture
|
|
|
12,956
|
|
|
|
14,598
|
|
|
|
21,769
|
|
|
|
25,512
|
|
Provision
for income taxes
|
|
|
(1,975
|
)
|
|
|
(5,000
|
)
|
|
|
(4,619
|
)
|
|
|
(8,929
|
)
|
Income
before equity in (loss)/earnings of joint venture
|
|
|
10,981
|
|
|
|
9,598
|
|
|
|
17,150
|
|
|
|
16,583
|
|
Equity
in (loss)/earnings of joint venture, net of taxes
|
|
|
(1,555
|
)
|
|
|
6,735
|
|
|
|
(3,898
|
)
|
|
|
9,487
|
|
Net
income
|
|
$
|
9,426
|
|
|
$
|
16,333
|
|
|
$
|
13,252
|
|
|
$
|
26,070
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
net income per share
|
|
$
|
1.03
|
|
|
$
|
1.79
|
|
|
$
|
1.45
|
|
|
$
|
2.86
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
net income per share
|
|
$
|
1.03
|
|
|
$
|
1.78
|
|
|
$
|
1.44
|
|
|
$
|
2.85
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average
shares (basic)
|
|
|
9,171,645
|
|
|
|
9,132,172
|
|
|
|
9,159,161
|
|
|
|
9,110,712
|
|
Weighted-average
shares (diluted)
|
|
|
9,185,143
|
|
|
|
9,186,649
|
|
|
|
9,172,470
|
|
|
|
9,151,897
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
dividends per share
|
|
$
|
.30
|
|
|
$
|
.30
|
|
|
$
|
.60
|
|
|
$
|
.55
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
AMERON
INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS – ASSETS (UNAUDITED)
|
|
May
31,
|
|
|
November
30,
|
|
(Dollars
in thousands)
|
|
2009
|
|
|
2008
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
assets
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
185,580
|
|
|
$
|
143,561
|
|
Receivables,
less allowances of $6,343 in 2009 and $7,009 in 2008
|
|
|
138,689
|
|
|
|
181,961
|
|
Inventories
|
|
|
81,543
|
|
|
|
95,645
|
|
Deferred
income taxes
|
|
|
26,605
|
|
|
|
25,582
|
|
Prepaid
expenses and other current assets
|
|
|
10,572
|
|
|
|
10,053
|
|
|
|
|
|
|
|
|
|
|
Total
current assets
|
|
|
442,989
|
|
|
|
456,802
|
|
|
|
|
|
|
|
|
|
|
Investments
in joint ventures
|
|
|
|
|
|
|
|
|
Equity
method
|
|
|
20,115
|
|
|
|
14,428
|
|
Cost
method
|
|
|
3,784
|
|
|
|
3,784
|
|
|
|
|
|
|
|
|
|
|
Property,
plant and equipment
|
|
|
|
|
|
|
|
|
Land
|
|
|
42,479
|
|
|
|
38,679
|
|
Buildings
|
|
|
94,089
|
|
|
|
85,555
|
|
Machinery
and equipment
|
|
|
317,666
|
|
|
|
306,177
|
|
Construction
in progress
|
|
|
43,319
|
|
|
|
37,386
|
|
|
|
|
|
|
|
|
|
|
Total
property, plant and equipment at cost
|
|
|
497,553
|
|
|
|
467,797
|
|
Accumulated
depreciation
|
|
|
(270,850
|
)
|
|
|
(261,635
|
)
|
|
|
|
|
|
|
|
|
|
Total
property, plant and equipment, net
|
|
|
226,703
|
|
|
|
206,162
|
|
Deferred
income taxes
|
|
|
4,763
|
|
|
|
4,763
|
|
Goodwill
and intangible assets, net of accumulated amortization of $1,228 in 2009
and $1,197 in 2008
|
|
|
2,098
|
|
|
|
2,108
|
|
Other
assets
|
|
|
38,512
|
|
|
|
38,275
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
738,964
|
|
|
$
|
726,322
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
AMERON
INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS – LIABILITIES AND STOCKHOLDERS' EQUITY (UNAUDITED)
|
|
May
31,
|
|
|
November
30,
|
|
(Dollars
in thousands, except per share data)
|
|
2009
|
|
|
2008
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
|
Current
portion of long-term debt
|
|
$
|
17,056
|
|
|
$
|
16,763
|
|
Trade
payables
|
|
|
46,037
|
|
|
|
52,613
|
|
Accrued
liabilities
|
|
|
75,454
|
|
|
|
79,538
|
|
Income
taxes payable
|
|
|
12,355
|
|
|
|
10,443
|
|
|
|
|
|
|
|
|
|
|
Total
current liabilities
|
|
|
150,902
|
|
|
|
159,357
|
|
|
|
|
|
|
|
|
|
|
Long-term
debt, less current portion
|
|
|
37,334
|
|
|
|
35,989
|
|
Other
long-term liabilities
|
|
|
53,207
|
|
|
|
53,856
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
241,443
|
|
|
|
249,202
|
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders'
equity
|
|
|
|
|
|
|
|
|
Common
Stock, par value $2.50 per share, authorized 24,000,000 shares,
outstanding 9,215,491 shares in 2009 and 9,188,692 shares in 2008, net of
treasury shares
|
|
|
29,920
|
|
|
|
29,805
|
|
Additional
paid-in capital
|
|
|
57,512
|
|
|
|
54,447
|
|
Retained
earnings
|
|
|
486,699
|
|
|
|
478,968
|
|
Accumulated
other comprehensive loss
|
|
|
(20,993
|
)
|
|
|
(31,475
|
)
|
Treasury
Stock (2,752,701 shares in 2009 and 2,733,300 shares in
2008)
|
|
|
(55,617
|
)
|
|
|
(54,625
|
)
|
|
|
|
|
|
|
|
|
|
Total
stockholders' equity
|
|
|
497,521
|
|
|
|
477,120
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders' equity
|
|
$
|
738,964
|
|
|
$
|
726,322
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
AMERON
INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS (UNAUDITED)
|
|
Six
Months Ended
|
|
|
|
May
31,
|
|
|
June
1,
|
|
(Dollars
in thousands)
|
|
2009
|
|
|
2008
|
|
OPERATING
ACTIVITIES
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
13,252
|
|
|
$
|
26,070
|
|
Adjustments
to reconcile net income to net cash provided by/(used in) operating
activities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
10,657
|
|
|
|
9,688
|
|
Amortization
|
|
|
19
|
|
|
|
71
|
|
Loss/(earnings
in excess of distributions) from joint ventures
|
|
|
4,313
|
|
|
|
(5,435
|
)
|
Loss
from sale of property, plant and equipment
|
|
|
16
|
|
|
|
22
|
|
Stock
compensation expense
|
|
|
2,362
|
|
|
|
3,633
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Receivables,
net
|
|
|
45,120
|
|
|
|
28,767
|
|
Inventories
|
|
|
15,873
|
|
|
|
(2,959
|
)
|
Prepaid
expenses and other current assets
|
|
|
(246
|
)
|
|
|
(2,021
|
)
|
Other
assets
|
|
|
(87
|
)
|
|
|
(5,296
|
)
|
Trade
payables
|
|
|
(7,675
|
)
|
|
|
838
|
|
Accrued
liabilities and income taxes payable
|
|
|
(3,637
|
)
|
|
|
(30,966
|
)
|
Other
long-term liabilities and deferred income taxes
|
|
|
(1,221
|
)
|
|
|
13,456
|
|
Net
cash provided by operating activities
|
|
|
78,746
|
|
|
|
35,868
|
|
|
|
|
|
|
|
|
|
|
INVESTING
ACTIVITIES
|
|
|
|
|
|
|
|
|
Proceeds
from sale of property, plant and equipment
|
|
|
431
|
|
|
|
1,433
|
|
Additions
to property, plant and equipment
|
|
|
(26,471
|
)
|
|
|
(28,638
|
)
|
Investment
in joint venture
|
|
|
(10,000
|
)
|
|
|
-
|
|
Net
cash used in investing activities
|
|
|
(36,040
|
)
|
|
|
(27,205
|
)
|
|
|
|
|
|
|
|
|
|
FINANCING
ACTIVITIES
|
|
|
|
|
|
|
|
|
Issuance
of debt
|
|
|
427
|
|
|
|
-
|
|
Repayment
of debt
|
|
|
-
|
|
|
|
(4,001
|
)
|
Dividends
on common stock
|
|
|
(5,521
|
)
|
|
|
(5,038
|
)
|
Issuance
of common stock
|
|
|
(1
|
)
|
|
|
810
|
|
Excess
tax benefits related to stock-based compensation
|
|
|
819
|
|
|
|
1,251
|
|
Purchase
of treasury stock
|
|
|
(992
|
)
|
|
|
(2,754
|
)
|
Net
cash used in financing activities
|
|
|
(5,268
|
)
|
|
|
(9,732
|
)
|
|
|
|
|
|
|
|
|
|
Effect
of exchange rate changes on cash and cash equivalents
|
|
|
4,581
|
|
|
|
5,217
|
|
Net
change in cash and cash equivalents
|
|
|
42,019
|
|
|
|
4,148
|
|
Cash
and cash equivalents at beginning of period
|
|
|
143,561
|
|
|
|
155,433
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at end of period
|
|
$
|
185,580
|
|
|
$
|
159,581
|
|
The accompanying notes
are an integral part of these consolidated financial statements.
AMERON
INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
1 – BASIS OF PRESENTATION
Consolidated
financial statements for the interim periods included herein are unaudited;
however, such financial statements contain all adjustments, including normal
recurring accruals, which, in the opinion of Management, are necessary for the
fair statement of the consolidated financial position of Ameron International
Corporation and all subsidiaries (the "Company" or "Ameron" or the "Registrant")
as of May 31, 2009, and consolidated results of operations and cash flows for
the six months ended May 31, 2009. Accounting measurements at interim
dates inherently involve greater reliance on estimates than at year-end.
Results of operations for the periods presented are not necessarily indicative
of the results to be expected for the full year.
For
accounting consistency, the quarter typically ends on the Sunday closest to the
end of the relevant calendar month. The Company’s fiscal year ends on
November 30, regardless of the day of the week. Each quarter consists
of approximately 13 weeks, but the number of days per quarter can change from
period to period. The quarters ended May 31, 2009 and June 1, 2008
consisted of 91 days each. The six months ended May 31, 2009 and June
1, 2008 consisted of 182 days and 184 days, respectively.
The
consolidated financial statements do not include certain footnote disclosures
and financial information normally included in consolidated financial statements
prepared in accordance with accounting principles generally accepted in the
United States of America and, therefore, should be read in conjunction with the
consolidated financial statements and notes included in the Company’s Annual
Report on Form 10-K for the year ended November 30, 2008 ("2008 Annual
Report").
NOTE
2 – RECENT ACCOUNTING PRONOUNCEMENTS
In
September 2006, the Financial Accounting Standards Board (“FASB”) issued
Statement of Financial Accounting Standards (“SFAS”) No. 157, “Fair Value
Measurements.” SFAS No. 157 establishes a framework for measuring
fair value in accordance with U.S. generally accepted accounting principles, and
expands disclosure about fair value measurements. SFAS No. 157 is
effective for financial statements issued for fiscal years beginning after
November 15, 2007. Relative to SFAS No. 157, the FASB
issued FASB Staff Position (“FSP”) FASB Statements (“FAS”) 157-1, FAS 157-2 and
FAS 157-3 in 2008. FSP FAS 157-1 amends SFAS No. 157 to exclude
SFAS No. 13, “Accounting for Leases,” and its related interpretive
accounting pronouncements that address leasing transactions. FSP
FAS 157-2 delays the effective date of SFAS No. 157 to fiscal years
beginning after November 15, 2008 for all non-financial assets and non-financial
liabilities, except those that are recognized or disclosed at fair value in the
financial statements on a recurring basis. FSP FAS 157-3 clarifies
how SFAS No. 157 should be applied when valuing securities in markets that are
not active. The Company adopted SFAS No. 157, as amended,
effective December 1, 2007 with the exception of the application of SFAS No. 157
to non-recurring, non-financial assets and non-financial liabilities which was
adopted as of December 1, 2008. The adoption of SFAS No. 157 did
not have a significant impact on the Company’s financial results of operations
or financial position.
In
September 2006, the FASB issued Emerging Issues Task Force (“EITF”) Issue No.
06-4, “Accounting for Deferred Compensation and Postretirement Benefit Aspects
of Endorsement Split-Dollar Life Insurance Arrangements,” effective for fiscal
years beginning after December 15, 2007. EITF Issue No. 06-4
requires that, for split-dollar life insurance arrangements providing a benefit
to an employee extending to postretirement periods, an employer should recognize
a liability for future benefits in accordance with SFAS
No. 106. EITF Issue No. 06-4 requires that recognition of the
effects of adoption should be either by (a) a change in accounting
principle through a cumulative-effect adjustment to retained earnings as of the
beginning of the year of adoption or (b) a change in accounting principle
through retrospective application to all prior periods. The Company
adopted EITF Issue No. 06-4 as of December 1, 2008, and adoption did not
have a material effect on the Company’s consolidated financial
statements.
In March
2008, the FASB issued SFAS No. 161, “Disclosures about Derivative
Instruments and Hedging Activities – an amendment of FASB Statement
No. 133,” effective for fiscal years beginning after November 15,
2008, with early application encouraged. SFAS No. 161 amends and
expands the disclosure requirements for derivative instruments and hedging
activities by requiring enhanced disclosures about how and why the Company uses
derivative instruments, how derivative instruments and related hedged items are
accounted for, and how derivative instruments and related hedged items affect
the Company’s financial position, financial performance and cash
flows. The Company adopted SFAS No. 161 as of December 1, 2008, and
adoption did not have a material effect on the Company’s consolidated financial
statements.
AMERON
INTERNATIONAL CORPORATION AND SUBSIDIARIES
In June
2008, the FASB issued FSP EITF 03-6-1, “Determining Whether Instruments
Granted in Share-Based Payment Transactions Are Participating Securities,” which
addresses whether unvested instruments granted in share-based payment
transactions that contain nonforfeitable rights to dividends or dividend
equivalents are participating securities subject to the two-class method of
computing earnings per share under SFAS No. 128, “Earnings Per
Share.” FSP EITF 03-6-1 is effective for financial statements
issued for fiscal years, and interim periods within those fiscal years,
beginning on or after December 15, 2008. Earlier adoption is
prohibited. The adoption of FSP EITF 03-6-1 is not expected to have a
material effect on the Company’s consolidated financial statements.
In
December 2008, the FASB issued FSP FAS 132(R)-1, “Employers’ Disclosures about
Postretirement Benefit Plan Assets,” amending SFAS No. 132(R), “Employers’
Disclosures about Pensions and Other Postretirement Benefits,” effective for
fiscal years ending after December 15, 2009. FSP FAS 132(R)-1
requires an employer to disclose investment policies and strategies, categories,
fair value measurements, and significant concentration of risk among its
postretirement benefit plan assets. The adoption of FSP FAS 132(R)-1
is not expected to have a material effect on the Company’s consolidated
financial statements.
In April
2009, the FASB issued FSP FAS 107-1 and Accounting Principles Board (“APB”) 28-1
which amended SFAS No. 107, “Disclosures about Fair Value of Financial
Instruments,” to require disclosures about fair value of financial instruments
for interim reporting periods of publicly traded companies as well as in annual
financial statements. FSP FAS 107-1 and APB 28-1 also amend APB
Opinion No. 28, “Interim Financial Reporting,” to require those disclosures in
summarized financial information at interim reporting periods. FSP FAS
107-1 and APB 28-1 shall be effective for interim reporting periods ending after
June 15, 2009, with early adoption permitted for periods ending after March 15,
2009. The Company will adopt FSP FAS 107-1 and APB 28-1 in its third
quarter of 2009, and adoption is not expected to have a material effect on the
Company’s consolidated financial statements.
In June
2009, the FASB issued SFAS No. 167, “Amendments to FASB Interpretation No.
46(R).” SFAS No. 167 was issued to amend FASB Interpretation No. 46(R) to
require an enterprise to perform an analysis to determine whether the
enterprise’s variable interest or interests give it a controlling financial
interest in a variable interest entity. SFAS No. 167 shall be
effective as of the Company’s first annual reporting period and interim
reporting periods beginning after November 15, 2009. Earlier
application is prohibited. The first such reporting period for the Company
will be the fiscal year beginning December 1, 2009. The Company is
evaluating whether the adoption of SFAS No. 167 will have a material effect on
its consolidated financial statements.
NOTE
3 - RECEIVABLES
The
Company’s receivables consisted of the following:
|
|
May
31,
|
|
|
November
30,
|
|
(In
thousands)
|
|
2009
|
|
|
2008
|
|
Trade
|
|
$
|
116,889
|
|
|
$
|
155,061
|
|
Joint
ventures
|
|
|
1,406
|
|
|
|
1,380
|
|
Other
|
|
|
26,737
|
|
|
|
32,529
|
|
Allowances
|
|
|
(6,343
|
)
|
|
|
(7,009
|
)
|
|
|
$
|
138,689
|
|
|
$
|
181,961
|
|
Trade
receivables included unbilled receivables related to percentage-of-completion
revenue recognition of $33,919,000 and $24,706,000 at May 31, 2009 and November
30, 2008, respectively.
NOTE
4 – INVENTORIES
Inventories
are stated at the lower of cost or market. Inventories consisted of the
following:
|
|
May
31,
|
|
|
November
30,
|
|
(In
thousands)
|
|
2009
|
|
|
2008
|
|
Finished
products
|
|
$
|
39,389
|
|
|
$
|
44,033
|
|
Materials
and supplies
|
|
|
21,176
|
|
|
|
33,485
|
|
Products
in process
|
|
|
20,978
|
|
|
|
18,127
|
|
|
|
$
|
81,543
|
|
|
$
|
95,645
|
|
AMERON
INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTE
5 – SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Supplemental
cash flow information included the following:
|
|
Six
Months Ended
|
|
|
|
May
31,
|
|
|
June
1,
|
|
(In
thousands)
|
|
2009
|
|
|
2008
|
|
Interest
paid
|
|
$
|
681
|
|
|
$
|
1,181
|
|
Income
taxes paid
|
|
|
5,497
|
|
|
|
8,588
|
|
NOTE
6 – JOINT VENTURES
Operating
results of TAMCO, an investment which is accounted for under the equity method,
were as follows:
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
|
|
May
31,
|
|
|
June
1,
|
|
|
May
31,
|
|
|
June
1,
|
|
(In
thousands)
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
Net
sales
|
|
$
|
22,460
|
|
|
$
|
135,742
|
|
|
$
|
40,257
|
|
|
$
|
218,458
|
|
Gross
(loss)/profit
|
|
|
(3,645
|
)
|
|
|
28,976
|
|
|
|
(11,278
|
)
|
|
|
42,799
|
|
Net
(loss)/income
|
|
|
(3,442
|
)
|
|
|
14,900
|
|
|
|
(8,626
|
)
|
|
|
20,989
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments
in Ameron Saudi Arabia, Ltd. ("ASAL") and Bondstrand, Ltd. ("BL") are accounted
for under the cost method due to Management's current assessment of the
Company's influence over these joint ventures. Earnings from ASAL and
BL, if any, are included in other income, net.
Earnings
and dividends from the Company's joint ventures were as
follows:
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
|
|
May
31,
|
|
|
June
1,
|
|
|
May
31,
|
|
|
June
1,
|
|
(In
thousands)
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
Earnings
from joint ventures
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
(loss)/earnings of TAMCO before income taxes
|
|
$
|
(1,721
|
)
|
|
$
|
7,450
|
|
|
$
|
(4,313
|
)
|
|
$
|
10,495
|
|
Less
benefit/(provision) for income taxes
|
|
|
166
|
|
|
|
(715
|
)
|
|
|
415
|
|
|
|
(1,008
|
)
|
Equity
(loss)/earnings of TAMCO, net of taxes
|
|
$
|
(1,555
|
)
|
|
$
|
6,735
|
|
|
$
|
(3,898
|
)
|
|
$
|
9,487
|
|
Dividends
received from joint ventures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TAMCO
|
|
$
|
-
|
|
|
$
|
4,510
|
|
|
$
|
-
|
|
|
$
|
5,060
|
|
ASAL
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,496
|
|
BL
|
|
|
2,207
|
|
|
|
-
|
|
|
|
2,207
|
|
|
|
-
|
|
TAMCO’s
shareholders made a $20,000,000 capital contribution to TAMCO in February,
2009. The Company’s share of the funding from TAMCO’s shareholders totaled
$10,000,000. The Company continues to have a 50% ownership interest in
TAMCO and accounts for its investment under the equity method of
accounting. TAMCO’s primary source of external financing is currently a
$35,000,000 credit facility, of which $15,000,000 was utilized as of May 31,
2009. TAMCO is in violation of its debt covenants. As a
result, the Company expects to provide additional funding to TAMCO in the third
quarter of 2009. To resolve the default, TAMCO’s shareholders intend to
provide funding of up to $30,000,000 in the form of shareholder loans of which
the Company’s share would be up to $15,000,000. In addition, TAMCO’s
lender will provide a credit facility of $10,000,000. The terms of
TAMCO’s revised credit facility would prohibit TAMCO from paying dividends to
its shareholders until the expiration of the facility.
NOTE
7 – 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.
AMERON
INTERNATIONAL CORPORATION AND SUBSIDIARIES
The
computations of earnings per share for the quarter and six months ended May 31,
2009 do not include 45,138 shares reserved for issuance upon exercise of stock
options and for restricted shares because their inclusion would have been
anti-dilutive. The computations of earnings per share for the quarter and six
months ended June 1, 2008 do not include 3,000 and 22,802 shares,
respectively, reserved for issuance upon exercise of stock options and for
restricted shares because their inclusion would have been
anti-dilutive. Following is a reconciliation of the weighted-average
number of shares used in the computation of basic and diluted net income per
share:
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
|
|
May
31,
|
|
|
June
1,
|
|
|
May
31,
|
|
|
June
1,
|
|
(In
thousands, except per share data)
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
9,426
|
|
|
$
|
16,333
|
|
|
$
|
13,252
|
|
|
$
|
26,070
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator
for basic income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average
shares outstanding, basic
|
|
|
9,171,645
|
|
|
|
9,132,172
|
|
|
|
9,159,161
|
|
|
|
9,110,712
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator
for diluted income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average
shares outstanding, basic
|
|
|
9,171,645
|
|
|
|
9,132,172
|
|
|
|
9,159,161
|
|
|
|
9,110,712
|
|
Dilutive
effect of stock options and restricted stock
|
|
|
13,498
|
|
|
|
54,477
|
|
|
|
13,309
|
|
|
|
41,185
|
|
Weighted-average
shares outstanding, diluted
|
|
|
9,185,143
|
|
|
|
9,186,649
|
|
|
|
9,172,470
|
|
|
|
9,151,897
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
net income per share
|
|
$
|
1.03
|
|
|
$
|
1.79
|
|
|
$
|
1.45
|
|
|
$
|
2.86
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
net income per share
|
|
$
|
1.03
|
|
|
$
|
1.78
|
|
|
$
|
1.44
|
|
|
$
|
2.85
|
|
NOTE
8 – COMPREHENSIVE INCOME
Comprehensive
income was as follows:
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
|
|
May
31,
|
|
|
June
1,
|
|
|
May
31,
|
|
|
June
1,
|
|
(In
thousands)
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
Net
income
|
|
$
|
9,426
|
|
|
$
|
16,333
|
|
|
$
|
13,252
|
|
|
$
|
26,070
|
|
Foreign
currency translation adjustment
|
|
|
13,884
|
|
|
|
2,448
|
|
|
|
10,482
|
|
|
|
7,250
|
|
Comprehensive
income
|
|
$
|
23,310
|
|
|
$
|
18,781
|
|
|
$
|
23,734
|
|
|
$
|
33,320
|
|
NOTE
9 – DEBT
The
Company's long-term debt consisted of the following:
|
|
May
31,
|
|
|
November
30,
|
|
(In
thousands)
|
|
2009
|
|
|
2008
|
|
Fixed-rate
notes:
|
|
|
|
|
|
|
|
|
5.36%,
payable in annual principal installments of $10,000
|
|
$
|
10,000
|
|
|
$
|
10,000
|
|
4.25%,
payable in Singapore dollars, in annual principal installments of
$7,056
|
|
|
28,223
|
|
|
|
27,052
|
|
Variable-rate
industrial development bonds:
|
|
|
|
|
|
|
|
|
payable
in 2016 (1.05% at May 31, 2009)
|
|
|
7,200
|
|
|
|
7,200
|
|
payable
in 2021 (1.05% at May 31, 2009)
|
|
|
8,500
|
|
|
|
8,500
|
|
Variable-rate
bank revolving credit facility (10.15% at May 31, 2009)
|
|
|
467
|
|
|
|
-
|
|
Total
long-term debt
|
|
|
54,390
|
|
|
|
52,752
|
|
Less
current portion
|
|
|
(17,056
|
)
|
|
|
(16,763
|
)
|
Long-term
debt, less current portion
|
|
$
|
37,334
|
|
|
$
|
35,989
|
|
The
Company maintains a $100,000,000 revolving credit facility with six banks (the
"Revolver"). At May 31, 2009, $18,167,000 of the Revolver was utilized for
standby letters of credit; therefore, $81,833,000 was available under the
Revolver. Under the Revolver, the Company may, at its option, borrow
up to the available amount at floating interest rates (LIBOR plus a spread
ranging from .75% to 1.625%, based on the Company's financial condition and
performance), at any time until September 2010, when all borrowings under the
Revolver must be repaid.
AMERON
INTERNATIONAL CORPORATION AND SUBSIDIARIES
The
lending agreements contain various restrictive covenants, including the
requirement to maintain specified amounts of net worth and restrictions on cash
dividends, borrowings, liens, capital expenditures, investments, guarantees, and
financial covenants. The Company was in compliance with all covenants as
of May 31, 2009. The Revolver, the 4.25% term notes and the 5.36%
term notes are collateralized by substantially all of the Company's
assets. The industrial development bonds are supported by standby letters
of credit that are issued under the Revolver. The interest rate on
the industrial development bonds is based on the Securities Industry and
Financial Markets Association (“SIFMA”) Index plus a spread of .60%.
Certain note agreements contain provisions regarding the Company's ability
to grant security interests or liens in association with other debt
instruments. If the Company grants such a security interest or lien, then
such notes will be collateralized equally and ratably as long as such other debt
shall be collateralized.
NOTE
10 – SEGMENT INFORMATION
The
Company provides certain information about operating segments in accordance with
SFAS No. 131, “Disclosure about Segments of an Enterprise and Related
Information.” In accordance with SFAS No. 131, the Company has
determined that it has four operating and three reportable segments:
Fiberglass-Composite Pipe, Water Transmission and Infrastructure Products.
Infrastructure Products consists of two operating segments, the Pole
Products and Hawaii Divisions, which are aggregated. Each of the segments
has a dedicated management team and is managed separately, primarily because of
differences in products. The Company's Chief Operating Decision Maker
is the Chief Executive Officer who primarily reviews sales and income before
interest, income taxes and equity in earnings of joint venture for each
operating segment in making decisions about allocating resources and assessing
performance. The Company allocates certain selling, general and
administrative expenses to operating segments utilizing assumptions believed to
be appropriate in the circumstances. Costs of shared services (e.g., costs
of Company-wide insurance programs or benefit plans) are allocated to the
operating segments based on revenue, wages or net assets employed. Other
items not related to current operations or of an unusual nature are not
allocated to the reportable segments, such as adjustments to reflect inventory
balances of certain steel inventories under the last-in, first-out ("LIFO")
method, certain unusual legal costs and expenses, interest expense and income
taxes.
Following
is information related to each reportable segment included in, and in a manner
consistent with, internal management reports:
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
|
|
May
31,
|
|
|
June
1,
|
|
|
May
31,
|
|
|
June
1,
|
|
(In
thousands)
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiberglass-Composite
Pipe
|
|
$
|
55,532
|
|
|
$
|
69,388
|
|
|
$
|
112,273
|
|
|
$
|
135,231
|
|
Water
Transmission
|
|
|
42,251
|
|
|
|
44,026
|
|
|
|
93,794
|
|
|
|
85,010
|
|
Infrastructure
Products
|
|
|
35,147
|
|
|
|
46,791
|
|
|
|
72,866
|
|
|
|
90,119
|
|
Eliminations
|
|
|
(10
|
)
|
|
|
(412
|
)
|
|
|
(11
|
)
|
|
|
(798
|
)
|
Total
Sales
|
|
$
|
132,920
|
|
|
$
|
159,793
|
|
|
$
|
278,922
|
|
|
$
|
309,562
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
Before Interest, Income Taxes and Equity in (Loss)/Earnings of Joint
Venture
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiberglass-Composite
Pipe
|
|
$
|
16,490
|
|
|
$
|
17,865
|
|
|
$
|
31,136
|
|
|
$
|
34,500
|
|
Water
Transmission
|
|
|
2,182
|
|
|
|
(1,775
|
)
|
|
|
2,695
|
|
|
|
(5,714
|
)
|
Infrastructure
Products
|
|
|
3,059
|
|
|
|
6,640
|
|
|
|
6,843
|
|
|
|
12,934
|
|
Corporate
and unallocated
|
|
|
(8,627
|
)
|
|
|
(8,274
|
)
|
|
|
(18,586
|
)
|
|
|
(16,639
|
)
|
Total
Income Before Interest, Income Taxes and Equity in (Loss)/Earnings of
Joint Venture
|
|
$
|
13,104
|
|
|
$
|
14,456
|
|
|
$
|
22,088
|
|
|
$
|
25,081
|
|
|
|
May
31,
|
|
|
November
30,
|
|
(In
thousands)
|
|
2009
|
|
|
2008
|
|
Assets
|
|
|
|
|
|
|
|
|
Fiberglass-Composite
Pipe
|
|
$
|
286,905
|
|
|
$
|
303,672
|
|
Water
Transmission
|
|
|
198,771
|
|
|
|
235,664
|
|
Infrastructure
Products
|
|
|
97,186
|
|
|
|
107,792
|
|
Corporate
and unallocated
|
|
|
305,630
|
|
|
|
227,543
|
|
Eliminations
|
|
|
(149,528
|
)
|
|
|
(148,349
|
)
|
Total
Assets
|
|
$
|
738,964
|
|
|
$
|
726,322
|
|
AMERON
INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTE
11 – COMMITMENTS AND CONTINGENCIES
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 its subsidiary,
Ameron B.V., 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 Ameron B.V. Sable's
originating notice and statement of claim alleged a claim for damages in an
unspecified amount; however, Sable has since alleged that its claim for damages
against all defendants is approximately 440,000,000 Canadian dollars, a figure
which the Company and Ameron B.V. contest. This matter is in
discovery, and no trial date has yet been established. The Company is
vigorously defending itself in this action. Based upon the information
available to it at this time, the Company is not able to estimate the possible
range of loss with respect to this case.
In May
2003, Dominion Exploration and Production, Inc. and Pioneer Natural Resources
USA, Inc. (collectively "Dominion") brought an action against the Company in
Civil District Court for the Parish of Orleans, Louisiana as owners of an
offshore production facility known as a SPAR. Dominion seeks damages
allegedly sustained by it resulting from delays in delivery of the SPAR caused
by the removal and replacement of certain coatings containing lead and/or lead
chromate for which the manufacturer of the SPAR alleged the Company was
responsible. Dominion contends that the Company made certain
misrepresentations and warranties to Dominion concerning the lead-free nature of
those coatings. Dominion's petition as filed alleged a claim for damages
in an unspecified amount; however, Dominion's economic expert has since
estimated Dominion's damages at approximately $128,000,000, a figure which the
Company contests. Although this matter is still in discovery, trial is
currently scheduled to commence on October 26, 2009. The Company is
vigorously defending itself in this action. Based upon the
information available to it at this time, the Company is not able to estimate
the possible range of loss with respect to this case.
In July
2004, BP America Production Company (“BP America”) brought an action against the
Company in the 24th
Judicial District Court, Parish of Jefferson, Louisiana in connection with
fiberglass pipe sold by the Company for installation in four offshore platforms
constructed for BP America. The plaintiff seeks damages allegedly
sustained by it resulting from claimed defects in such pipe. BP
America’s petition as filed alleged a claim against the Company for rescission,
products liability, negligence, breach of contract and warranty and for damages
in an amount of not less than $20,000,000, a figure which the Company
contests. This matter is in discovery, and no trial date has yet been
established. The Company is vigorously defending itself in this
action. Based upon the information available to it at this time, the
Company is not able to estimate the possible range of loss with respect to this
case.
In June
2006, the Cawelo, California Water District (“Cawelo”) brought an action against
the Company in Kern County Superior Court, California in connection
with concrete pipe sold by the Company in 1995 for a wastewater
recovery pipeline in such county. Cawelo seeks damages allegedly
sustained by it resulting from the failure of such pipe in
2004. Cawelo’s petition as filed alleged a claim against the Company
for products liability, negligence, breach of express warranty and breach of
written contract and for damages in an amount of not less than $8,000,000, a
figure which the Company contests. This matter is in discovery, and
no trial date has yet been established. The Company is vigorously
defending itself in this action. Based upon the information available
to it at this time, the Company is not able to estimate the possible range of
loss with respect to this case.
The
Company is a defendant in a number of 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. As of May 31, 2009, the
Company was a defendant in 26 asbestos-related cases, compared to 24 cases as of
March 1, 2009. During the quarter ended May 31, 2009, there were five
new asbestos-related cases, one case dismissed, two cases settled, no
judgments and aggregate net costs and expenses of $141,000. Based
upon the information available to it at this time, the Company is not able to
estimate the possible range of loss with respect to these cases.
In
December, 2008, the Company received from the U.S. Treasury Department’s Office
of Foreign Assets Control (“OFAC”) a Requirement To Furnish Information
regarding transactions involving Iran. The Company intends to
cooperate fully with OFAC on this matter. With the assistance of
outside counsel, the Company is conducting an internal inquiry to enable it to
respond to OFAC. In the six months ended May 31, 2009, the Company
incurred $2,400,000 for legal and professional fees in connection with this
inquiry. Based upon the information available to it at this time, the
Company is not able to predict the outcome of this matter. If the
Company violated governmental regulations, material fines and penalties could be
imposed.
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
results of operations.
AMERON
INTERNATIONAL CORPORATION AND SUBSIDIARIES
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 results of operations if disposed of
unfavorably.
NOTE
12 – PRODUCT WARRANTIES AND GUARANTEES
The
Company's product warranty accrual reflects Management's estimate of probable
liability associated with product warranties. The Company generally
provides a standard product warranty covering defects for a period not exceeding
one year from date of purchase. Management establishes product warranty
accruals based on historical experience and other currently-available
information. Changes in the product warranty accrual were as
follows:
|
|
Six
Months Ended
|
|
|
|
May
31,
|
|
|
June
1,
|
|
(In
thousands)
|
|
2009
|
|
|
2008
|
|
Balance,
beginning of period
|
|
$
|
3,238
|
|
|
$
|
3,590
|
|
Payments
|
|
|
(1,992
|
)
|
|
|
(534
|
)
|
Warranties
issued during the period
|
|
|
1,699
|
|
|
|
(676
|
)
|
Balance,
end of period
|
|
$
|
2,945
|
|
|
$
|
2,380
|
|
NOTE
13 – GOODWILL
Changes
in the Company’s carrying amount of goodwill by business segment were as
follows:
|
|
|
|
|
Foreign
|
|
|
|
|
|
|
|
|
|
Currency
|
|
|
|
|
|
|
November
30,
|
|
|
Translation
|
|
|
May
31,
|
|
(In
thousands)
|
|
2008
|
|
|
Adjustments
|
|
|
2009
|
|
Fiberglass-Composite
Pipe
|
|
$
|
1,440
|
|
|
$
|
-
|
|
|
$
|
1,440
|
|
Water
Transmission
|
|
|
360
|
|
|
|
3
|
|
|
|
363
|
|
Infrastructure
Products
|
|
|
201
|
|
|
|
-
|
|
|
|
201
|
|
|
|
$
|
2,001
|
|
|
$
|
3
|
|
|
$
|
2,004
|
|
NOTE
14 – INCENTIVE STOCK COMPENSATION PLANS
As of May
31, 2009, the Company had outstanding grants under the following share-based
compensation plans:
· 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. 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.
· 2004
Stock Incentive Plan ("2004 Plan") - The 2004 Plan serves as the successor to
the 2001 Plan and supersedes that plan. A total of 525,000 new shares of
Common Stock were made available for awards to key employees and non-employee
directors and may include, but are not limited to, stock options and restricted
stock grants. Non-employee directors were granted options under the 2004
Plan to purchase the Company's Common Stock at prices not less than 100% of
market value on the date of grant. Such options vest in equal annual
installments over four years and terminate ten years from the date of
grant. Key employees and non-employee directors were granted restricted
stock under the 2004 Plan. Such restricted stock grants typically vest in
equal annual installments over three years. During the six months ended
May 31, 2009, the Company granted 16,200 restricted shares to key employees with
a fair value on the grant date of $806,000 and 12,000 restricted shares to
non-employee directors with a fair value on the grant date of
$575,000. During the six months ended June 1, 2008, the Company
granted 19,000 restricted shares to key employees with a fair value on the grant
date of $1,976,000 and 7,200 restricted shares and 3,802 stock options to
non-employee directors with fair values on the grant dates of $675,000 and
$101,000, respectively.
AMERON
INTERNATIONAL CORPORATION AND SUBSIDIARIES
In
addition to the above, in 2001, non-employee directors were granted options to
purchase the Company's Common Stock at prices not less than 100% of market value
on the date of grant. Such options vested in equal annual installments
over four years and terminate ten years from the date of grant. At May 31,
2009, there were 7,000 shares subject to such stock options.
The
Company's income before income taxes and equity in earnings of joint venture for
the three months ended May 31, 2009 and June 1, 2008 included compensation
expenses of $1,347,000 and $1,777,000, respectively, related to stock-based
compensation arrangements. Tax benefits related to these expenses
were $525,000 and $693,000, respectively. For the six months ended
May 31, 2009 and June 1, 2008, compensation expenses were $2,362,000 and
$3,633,000, respectively, related to stock-based compensation
arrangements. Tax benefits related to these expenses were $921,000
and $1,417,000, respectively. There were no capitalized share-based
compensation costs for the three and six months ended May 31, 2009 and June
1, 2008.
The
following table summarizes the stock option activity for the six months ended
May 31, 2009:
|
|
|
|
|
|
|
|
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, 2008
|
|
|
36,302
|
|
|
$
|
37.61
|
|
|
|
|
|
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
Outstanding
at May 31, 2009
|
|
|
36,302
|
|
|
|
37.61
|
|
|
|
4.11
|
|
|
$
|
822
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
exercisable at May 31, 2009
|
|
|
33,451
|
|
|
|
32.18
|
|
|
|
3.72
|
|
|
$
|
822
|
|
For the
three and six months ended May 31, 2009, no options were granted, forfeited
or expired. For the three and six months ended June 1, 2008, 3,802 options
were granted and no options were forfeited or expired. The aggregate
intrinsic value in the table above represents the total pretax intrinsic value,
which is the difference between the closing price of the Company’s Common Stock
on the last trading day of the second quarter of 2009 and the exercise price
times the number of shares that would have been received by the option holders
if the options were exercised on such trading day. This amount will
change based on the fair market value of the Company's Common Stock. The
aggregate intrinsic value of stock options exercised during the three and six
months ended June 1, 2008 were $87,000 and $1,789,000,
respectively. As of May 31, 2009, unrecognized compensation cost
related to stock-based compensation arrangements totaled $3,839,000, which is
expected to be recognized over a weighted-average period of 2.75
years.
For the
three and six months ended May 31, 2009, 12,000 and 28,200 shares of
restricted stock were granted. The weighted-average grant-date, fair value
of such restricted stock was $47.90 and $49.29 per share, respectively.
The fair value of restricted stock, which vested during the three and six
months ended May 31, 2009, was $326,000 and $2,678,000,
respectively. For the three and six months ended June 1, 2008, 10,200
and 26,200 shares of restricted stock, respectively were granted. The
weighted-average grant-date, fair value of such restricted stock was $99.21 and
$101.70 per share, respectively. The fair value of restricted
stock, which vested during the three and six months ended June 1, 2008, was
$356,550 and $5,844,000, respectively.
Net cash
proceeds from the exercise of stock options during the three and six months
ended June 1, 2008 was $50,000 and $810,000, respectively. The
Company's policy is to issue shares from its authorized shares upon the exercise
of stock options.
AMERON
INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTE
15 – EMPLOYEE BENEFIT PLANS
For the
three and six months ended May 31, 2009 and June 1, 2008, net pension and
postretirement costs were comprised of the following:
Employee
Benefit Plans (Three Months Ended May 31, 2009 and June 1, 2008)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Postretirement
|
|
|
|
Pension
Benefits
|
|
|
Benefits
|
|
|
|
U.S.
Plans
|
|
|
Non-U.S.
Plans
|
|
|
|
|
|
|
|
(In
thousands)
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
Service
cost
|
|
$
|
690
|
|
|
$
|
744
|
|
|
$
|
67
|
|
|
$
|
110
|
|
|
$
|
20
|
|
|
$
|
24
|
|
Interest
cost
|
|
|
3,089
|
|
|
|
2,888
|
|
|
|
561
|
|
|
|
636
|
|
|
|
56
|
|
|
|
52
|
|
Expected
return on plan assets
|
|
|
(2,860
|
)
|
|
|
(3,928
|
)
|
|
|
(404
|
)
|
|
|
(423
|
)
|
|
|
(7
|
)
|
|
|
(8
|
)
|
Amortization
of unrecognized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
prior
service cost
|
|
|
18
|
|
|
|
29
|
|
|
|
66
|
|
|
|
77
|
|
|
|
5
|
|
|
|
5
|
|
Amortization
of unrecognized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net
transition obligation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
12
|
|
|
|
12
|
|
Amortization
of accumulated loss
|
|
|
1,451
|
|
|
|
284
|
|
|
|
(167
|
)
|
|
|
-
|
|
|
|
1
|
|
|
|
3
|
|
Net
periodic cost
|
|
$
|
2,388
|
|
|
$
|
17
|
|
|
$
|
123
|
|
|
$
|
400
|
|
|
$
|
87
|
|
|
$
|
88
|
|
Employee
Benefit Plans (Six Months Ended May 31, 2009 and June 1, 2008)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Postretirement
|
|
|
|
Pension
Benefits
|
|
|
Benefits
|
|
|
|
U.S.
Plans
|
|
|
Non-U.S.
Plans
|
|
|
|
|
|
|
|
(In
thousands)
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
Service
cost
|
|
$
|
1,380
|
|
|
$
|
1,488
|
|
|
$
|
134
|
|
|
$
|
220
|
|
|
$
|
40
|
|
|
$
|
48
|
|
Interest
cost
|
|
|
6,178
|
|
|
|
5,776
|
|
|
|
1,122
|
|
|
|
1,272
|
|
|
|
112
|
|
|
|
104
|
|
Expected
return on plan assets
|
|
|
(5,720
|
)
|
|
|
(7,856
|
)
|
|
|
(808
|
)
|
|
|
(846
|
)
|
|
|
(14
|
)
|
|
|
(16
|
)
|
Amortization
of unrecognized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
prior
service cost
|
|
|
36
|
|
|
|
58
|
|
|
|
132
|
|
|
|
154
|
|
|
|
10
|
|
|
|
10
|
|
Amortization
of unrecognized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net
transition obligation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
24
|
|
|
|
24
|
|
Amortization
of accumulated loss
|
|
|
2,902
|
|
|
|
568
|
|
|
|
(334
|
)
|
|
|
-
|
|
|
|
2
|
|
|
|
6
|
|
Net
periodic cost
|
|
$
|
4,776
|
|
|
$
|
34
|
|
|
$
|
246
|
|
|
$
|
800
|
|
|
$
|
174
|
|
|
$
|
176
|
|
The
Company contributed $2,500,000 to the non-U.S. pension plans and did not make
any material contributions to the U.S. pension plan in the first six months of
2009. The Company expects to contribute up to $8,500,000 to its U.S
pension plan and an additional $90,000 to its non-US pension plans during the
remainder of 2009.
NOTE
16 – PROVISION FOR INCOME TAXES
Income
taxes decreased to $1,975,000 in the second quarter of 2009, from $5,000,000 in
the same period of 2008. Income taxes decreased to $4,619,000 in the
first six months of 2009 from $8,929,000 in the comparable period in
2008. The effective tax rate decreased to 21.0% in 2009, from 35.0%
in 2008. The effective rate in 2009 was reduced by tax benefits of
$1,476,000 recorded in the second quarter of 2009 of which $1,199,000 was
associated with the adjustment to a deferred tax liability related to earnings
and profits from the Company’s New Zealand subsidiary and $277,000 was related
to a decrease in the valuation allowance related to net operating losses of the
Company’s Netherlands subsidiary. This $1,199,000 represented a
correction of an amount recorded in prior period financial
statements. Management believes this amount to be immaterial to prior
interim and annual financial statements. The effective tax rates for
the first six months of 2009 and 2008 were based on forecasted full-year
earnings and the anticipated mix of domestic and foreign earnings and the above
discrete items. Income from certain foreign operations and joint
ventures is taxed at rates that are lower than the U.S. statutory tax
rates. The effective tax rate for the first half of 2009 is not
necessarily indicative of the tax rate for the full fiscal year.
AMERON
INTERNATIONAL CORPORATION AND SUBSIDIARIES
At May
31, 2009, the total amount of gross unrecognized tax benefits, excluding
interest, was $8,199,000. This amount is not reduced for offsetting
benefits in other tax jurisdictions and for the benefit of future tax deductions
that would arise as a result of settling such liabilities as
recorded. Of this amount, $4,420,000 would reduce the Company’s
income tax expense and effective tax rate, after giving effect to offsetting
benefits from other tax jurisdictions and resulting future
deductions. At November 30, 2008, the total amount of gross
unrecognized tax benefits, excluding interest, was $7,416,000.
The
Company anticipates that it is reasonably possible that the total amount of
unrecognized tax benefits may significantly change within the succeeding 12
months as a result of the expiration of certain state statutes of limitations
for examination and the settlement of certain state audits. The
Company estimates that these events could reasonably result in a possible
decrease in unrecognized tax benefits of $1,315,000.
The
Company accrues interest and penalties related to unrecognized tax benefits as
income tax expense. Accruals totaling $1,359,000 were recorded
as a liability in the Company’s consolidated balance sheet at May 31, 2009,
compared to $1,098,000 as of November 30, 2008.
The
Company’s federal income tax returns remain subject to examination for the 2007
and forward tax years. The Company files multiple state income tax
returns, including California, Hawaii, Arizona and Texas, with open statutes
ranging from 2000 through 2008. The Company also files multiple
foreign income tax returns and remains subject to examination in major foreign
jurisdictions, including the Netherlands, Singapore and Malaysia, for years
ranging from 1996 through 2008.
NOTE
17 – FAIR VALUE MEASURMENTS
As
defined in SFAS No. 157, fair value is the price that would be received to sell
an asset or paid to transfer a liability in an orderly transaction between
market participants at the measurement date (exit price). The Company
utilizes market data or assumptions that the Company believes market
participants would use in pricing the asset or liability, including assumptions
about risk and the risks inherent in the inputs to the valuation
technique. These inputs can be readily observable, market
corroborated or generally unobservable.
The
Company primarily applies the market approach for recurring fair value
measurements and endeavors to utilize the best available
information. Accordingly, the Company utilizes valuation techniques
that maximize the use of observable inputs and minimize the use of unobservable
inputs. The Company is able to classify fair value balances based on
the observability of those inputs.
SFAS No.
157 establishes a fair value hierarchy that prioritizes the inputs used to
measure fair value. The hierarchy gives the highest priority to unadjusted
quoted prices in active markets for identical assets or liabilities (Level 1
measurement) and the lowest priority to unobservable inputs (Level 3
measurement). The three levels of the fair value hierarchy defined by
SFAS No. 157 are as follows:
Level 1
|
Quoted
prices are available in active markets for identical assets or liabilities
as of the reporting date. Active markets are those in which
transactions for the asset or liability occur in sufficient frequency and
volume to provide pricing information on an ongoing
basis. Level 1 primarily consists of financial instruments such
as exchange-traded derivatives, listed equities and U.S. government
treasury securities.
|
Level 2
|
Pricing
inputs are other than quoted prices in active markets included in Level 1,
which are either directly or indirectly observable as of the reporting
date. Level 2 includes those financial instruments that are
valued using models or other valuation methodologies. These
models are primarily industry-standard models that consider various
assumptions, including quoted forward prices for commodities, time value,
volatility factors, and current market and contractual prices for the
underlying instruments, as well as other relevant economic
measures. Substantially all of these assumptions are observable
in the marketplace throughout the full term of the instrument, can be
derived from observable data or are supported by observable levels at
which transactions are executed in the marketplace. Instruments
in this category include non-exchange-traded derivatives such as over the
counter forwards, options and repurchase
agreements.
|
Level 3
|
Pricing
inputs include significant inputs that are generally less observable from
objective sources. These inputs may be used with internally
developed methodologies that result in Management’s best estimate of fair
value from the perspective of a market participant. Level 3
instruments include those that may be more structured or otherwise
tailored to customers’ needs. At each balance sheet date, the
Company performs an analysis of all instruments subject to SFAS No. 157
and includes in Level 3 all of those whose fair value is based on
significant unobservable inputs.
|
AMERON
INTERNATIONAL CORPORATION AND SUBSIDIARIES
Assets
and liabilities measured at fair value on a recurring basis included the
following as of May 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
Value Measurements Using
|
|
|
Assets
|
|
(In
thousands)
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
At
Fair Value
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative
assets
|
|
$
|
-
|
|
|
$
|
3
|
|
|
$
|
-
|
|
|
$
|
3
|
|
Total
assets
|
|
$
|
-
|
|
|
$
|
3
|
|
|
$
|
-
|
|
|
$
|
3
|
|
Assets
and liabilities measured at fair value on a recurring basis included the
following as of June 1, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
Value Measurements Using
|
|
|
Liabilities
|
|
(In
thousands)
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
At
Fair Value
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative
liabilities
|
|
$
|
-
|
|
|
$
|
13
|
|
|
$
|
-
|
|
|
$
|
13
|
|
Total
liabilities
|
|
$
|
-
|
|
|
$
|
13
|
|
|
$
|
-
|
|
|
$
|
13
|
|
Derivatives
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. The
Company and its subsidiaries complete transactions in currencies other than
their functional currencies. The Company’s primary objective with
respect to currency risk is to reduce net income volatility that would otherwise
occur due to exchange-rate fluctuations.
In order
to minimize the risk of gain or loss due to exchange rates, the Company uses
foreign currency derivatives. As of May 31, 2009, the Company held
one foreign currency forward contract aggregating $3,000,000 U.S. dollars,
hedging Singapore dollars, and no other contracts. Such contract had
a fair value gain of $2,500 as of May 31, 2009 based on quotations from
financial institutions. As of June 1, 2008, the Company held 19
foreign currency forward contracts in the amount of $10,000,000 U.S. dollars,
hedging Singapore dollars, and such instruments had a fair value loss of $13,000
based on quotations from the financial institutions as of June 1,
2008. Derivatives are reported as receivables on the balance sheet
and recognized as other income, net, on the income statement.
AMERON
INTERNATIONAL CORPORATION AND SUBSIDIARIES
ITEM 2 – MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
Ameron
International Corporation ("Ameron", the "Company", the “Registrant” or the
“Corporation”) is a multinational manufacturer of highly-engineered products and
materials for the chemical, industrial, energy, transportation and
infrastructure markets. Ameron is a leading producer of water transmission
lines; fiberglass-composite pipe for transporting oil, chemicals and corrosive
fluids and specialized materials; and products used in infrastructure
projects. The Company operates businesses in North America, South America,
Europe and Asia. The Company has three reportable segments. The
Fiberglass-Composite Pipe Group manufactures and markets filament-wound and
molded composite fiberglass pipe, tubing, fittings and well screens. The
Water Transmission Group manufactures and supplies concrete and steel pressure
pipe, concrete non-pressure pipe, protective linings for pipe and fabricated
steel products, such as large-diameter wind towers. The Infrastructure
Products Group consists of two operating segments, which are
aggregated: the Hawaii Division which manufactures and sells ready-mix
concrete, sand, aggregates, concrete pipe and culverts and the Pole Products
Division which manufactures and sells concrete and steel lighting and traffic
poles. The markets served by the Fiberglass-Composite Pipe Group are
worldwide in scope. The Water Transmission Group serves primarily the
western U.S. for pipe and sells wind towers primarily west of the Mississippi
river. The Infrastructure Products Group's quarry and ready-mix business
operates exclusively in Hawaii, and poles are sold throughout the U.S.
Ameron also participates in several joint-venture companies, directly in the
U.S. and Saudi Arabia, and indirectly in Egypt.
CRITICAL
ACCOUNTING POLICIES AND ESTIMATES
Management's
Discussion and Analysis of Liquidity and Capital Resources and Results of
Operations are based upon the Company's consolidated financial statements, which
are prepared in accordance with accounting principles generally accepted in the
United States of America. The preparation of these financial statements
requires Management to make certain estimates and assumptions that affect the
reported amounts of assets, liabilities, revenues and expenses, and related
disclosure of contingent assets and liabilities during the reporting
periods. Management bases its estimates on historical experience and on
various other assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results could differ from those
estimates.
A summary
of the Company's significant accounting policies is provided in Note (1) of the
Notes to Consolidated Financial Statements, under Part II, Item 8, in the
Company’s Annual Report on Form 10-K for the fiscal year ended November 30, 2008
(“2008 Annual Report”). In addition, Management believes the following
accounting policies affect the more significant estimates used in preparing the
consolidated financial statements.
The
consolidated financial statements include the accounts of Ameron and all
wholly-owned subsidiaries. All material intercompany accounts and
transactions are eliminated. The functional currencies for the Company's
foreign operations are the applicable local currencies. The translation
from the applicable foreign currencies to U.S. dollars is performed for balance
sheet accounts using current exchange rates in effect at the balance sheet date
and for revenue and expense accounts using a weighted-average exchange rate
during the period. The resulting translation adjustments are recorded in
accumulated other comprehensive income/(loss). The Company advances funds
to certain foreign subsidiaries that are not expected to be repaid in the
foreseeable future. Translation adjustments arising from these advances
are also included in accumulated other comprehensive income/(loss). The
timing of repayments of intercompany advances could materially impact the
Company's consolidated financial statements. Additionally, earnings of
foreign subsidiaries are often permanently reinvested outside the U.S.
Unforeseen repatriation of such earnings could result in significant
unrecognized U.S. tax liability. Gains or losses resulting from foreign
currency transactions are included in other income, net.
AMERON
INTERNATIONAL CORPORATION AND SUBSIDIARIES
Revenue
for the Fiberglass-Composite Pipe and Infrastructure Products segments is
recognized when risk of ownership and title pass, primarily at the time goods
are shipped, provided that an agreement exists between the customer and the
Company, the price is fixed or determinable and collection is reasonably
assured. Revenue is recognized for the Water Transmission Group primarily
under the percentage-of-completion method, typically based on completed units of
production, since products are manufactured under enforceable and binding
construction contracts, typically are designed for specific applications, are
not interchangeable between projects, and are not manufactured for stock.
Revenue for the period is determined by multiplying total estimated contract
revenue by the percentage-of-completion of the contract and then subtracting the
amount of previously recognized revenue. Cost of earned revenue is
computed by multiplying estimated contract completion cost by the
percentage-of-completion of the contract and then subtracting the amount of
previously recognized cost. In some cases, if products are manufactured
for stock or are not related to specific construction contracts, revenue is
recognized under the same criteria used by the other two
segments. Revenue under the percentage-of-completion method is
subject to a greater level of estimation, which affects the timing of revenue
recognition, costs and profits. Estimates are reviewed on a consistent
basis and are adjusted periodically to reflect current expectations. Costs
attributable to unpriced change orders are treated as costs of contract
performance in the period, and contract revenue is recognized if recovery is
probable. Disputed or unapproved change orders are treated as
claims. Recognition of amounts of additional contract revenue relating to
claims occurs when amounts have been received or awarded with recognition based
on the percentage-of-completion methodology.
The
Company expenses environmental clean-up costs related to existing conditions
resulting from past or current operations on a site-by-site basis.
Liabilities and costs associated with these matters, as well as other pending
litigation and asserted claims arising in the ordinary course of business,
require estimates of future costs and judgments based on the knowledge and
experience of Management and its legal counsel. When the Company's
exposures can be reasonably estimated and are probable, liabilities and expenses
are recorded. The ultimate resolution of any such exposure to the Company
may differ due to subsequent developments.
Inventories
are stated at the lower of cost or market with cost determined principally on
the first-in, first-out ("FIFO") method. Certain steel inventories used by
the Water Transmission Group are valued using the last-in, first-out ("LIFO")
method. Significant changes in steel levels or costs could materially
impact the Company's financial statements. Reserves are established for
excess, obsolete and rework inventories based on estimates of salability and
forecasted future demand. Management records an allowance for doubtful
accounts receivable based on historical experience and expected
trends. A significant reduction in demand or a significant worsening
of customer credit quality could materially impact the Company’s consolidated
financial statements.
Investments
in unconsolidated joint ventures or affiliates ("joint ventures") over which the
Company has significant influence are accounted for under the equity method of
accounting, whereby the investment is carried at the cost of acquisition, plus
the Company's equity in undistributed earnings or losses since
acquisition. Investments in joint ventures over which the Company does not
have the ability to exert significant influence over the investees' operating
and financing activities are accounted for under the cost method of
accounting. The Company's investment in TAMCO, a steel mini-mill in
California, is accounted for under the equity method. Investments in
Ameron Saudi Arabia, Ltd. and Bondstrand, Ltd. are accounted for under the cost
method due to Management's current assessment of the Company's influence
over these joint ventures.
Property,
plant and equipment is stated on the basis of cost and depreciated principally
using a straight-line method based on the estimated useful lives of the related
assets, generally three to 40 years. The Company reviews long-lived assets
for impairment whenever events or changes in circumstances indicate that the
carrying value of such assets may not be recoverable. If the estimated
future, undiscounted cash flows from the use of an asset are less than its
carrying value, a write-down is recorded to reduce the related asset to
estimated fair value. Actual cash flows may differ significantly from
estimated cash flows. Additionally, current estimates of future cash flows
may differ from subsequent estimates of future cash flows. Changes in
estimated or actual cash flows could materially impact the Company's
consolidated financial statements.
The
Company is self-insured for a portion of the losses and liabilities primarily
associated with workers' compensation claims and general, product and vehicle
liability. Losses are accrued based upon the Company's estimates of the
aggregate liability for claims incurred using historical experience and certain
actuarial assumptions followed in the insurance industry. The estimate of
self-insurance liability includes an estimate of incurred but not reported
claims, based on data compiled from historical experience. Actual
experience could differ significantly from these estimates and could materially
impact the Company's consolidated financial statements. The Company
purchases varying levels of insurance to cover losses in excess of the
self-insured limits. Currently, the Company's primary self-insurance
limits or deductibles are $1.0 million per workers' compensation claim, $.1
million per general, property or product liability claim, and $.25 million per
vehicle liability claim.
AMERON
INTERNATIONAL CORPORATION AND SUBSIDIARIES
The
Company follows the guidance of Statement of Financial Accounting Standards
("SFAS") No. 158, “Employers’ Accounting for Defined Benefit Pension and Other
Postretirement Plans,” SFAS No. 87, “Employers' Accounting for Pensions,” and
SFAS No. 106, “Employers’ Accounting for Postretirement Benefits Other Than
Pensions,” when accounting for pension and other postretirement benefits.
Under these accounting standards, assumptions are made regarding the valuation
of benefit obligations and the performance of plan assets that are controlled
and invested by third-party fiduciaries. Delayed recognition of
differences between actual results and expected or estimated results is a
guiding principle of these standards. Such delayed recognition provides a
gradual recognition of benefit obligations and investment performance over the
working lives of the employees who benefit under the plans, based on various
assumptions. Assumed discount rates are used to calculate the present
values of benefit payments which are projected to be made in the future,
including projections of increases in employees' annual compensation and health
care costs. Management also projects the future returns on invested assets
based principally on prior performance. These projected returns reduce the
net benefit costs the Company records in the current period. Actual
results could vary significantly from projected results, and such deviations
could materially impact the Company's consolidated financial statements.
Management consults with the Company’s actuaries when determining these
assumptions. Program changes, including termination, freezing of benefits
or acceleration of benefits, could result in an immediate recognition of
unrecognized benefit obligations; and such recognition could materially impact
the Company's consolidated financial statements.
The
Company adopted SFAS No. 157, “Fair Value Measurements,” which provides a
framework for measuring fair value. As defined in SFAS No. 157, fair
value is the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at the
measurement date (exit price). The Company utilizes market data or
assumptions that the Company believes market participants would use in pricing
assets or liabilities, including assumptions about risk and the risks inherent
in the inputs to valuation techniques. These inputs can be readily
observable, market corroborated or generally unobservable. The
Company primarily applies the market and income approaches for recurring fair
value measurements and endeavors to utilize the best available
information. Accordingly, the Company utilizes valuation techniques
that maximize the use of observable inputs and minimize the use of unobservable
inputs. The Company classifies fair value balances based on the
observability of those inputs. The ultimate exit price could be
significantly different than currently estimated by the Company.
Management
incentive compensation is accrued based on current estimates of the Company's
ability to achieve short-term and long-term performance targets. The
Company’s actual performance could be significantly different than currently
estimated by the Company.
Deferred
income tax assets and liabilities are computed for differences between the
financial statement and income tax bases of assets and liabilities. Such
deferred income tax asset and liability computations are based on enacted tax
laws and rates applicable to periods in which the differences are expected to
reverse. Valuation allowances are established, when necessary, to reduce
deferred income tax assets to the amounts expected to be realized.
Quarterly income taxes are estimated based on the mix of income by jurisdiction
forecasted for the full fiscal year. The Company believes that it has
adequately provided for tax-related matters. Actual income, the mix
of income by jurisdiction and income taxes could be significantly different than
currently estimated.
The
amount of income taxes the Company pays is subject to ongoing audits by federal,
state and foreign tax authorities. The Company’s estimate of the
potential outcome of any uncertain tax issue is subject to Management’s
assessment of relevant risks, facts, and circumstances existing at that time,
pursuant to the Financial Accounting Standards Board (“FASB”) Interpretation
(“FIN”) No. 48, “Accounting for Uncertainty in Income Taxes - an
interpretation of FASB Statement No. 109.” FIN No. 48 requires a
more-likely-than-not threshold for financial statement recognition and
measurement of tax positions taken or expected to be taken in a tax
return. A liability is recorded for the difference between the
benefit recognized and measured pursuant to FIN No. 48 and the tax position
taken or expected to be taken on the tax return. To the extent that
the Company’s assessment of such tax positions changes, the change in estimate
is recorded in the period in which the determination is made. The
Company reports tax-related interest and penalties as a component of income tax
expense.
LIQUIDITY
AND CAPITAL RESOURCES
As of May
31, 2009, the Company's working capital, including cash and cash equivalents and
current portion of long-term debt, totaled $288.6 million, a decrease of $8.8
million from working capital of $297.4 million as of November 30,
2008. The decrease resulted primarily from a decrease in receivables
and inventories and an increase in income taxes payable, partially offset by an
increase in cash and decreases in trade payables and accrued liabilities.
The reductions in receivables and inventories were primarily due to a slowdown
in business activity. Cash and cash equivalents totaled $185.6
million as of May 31, 2009, compared to $143.6 million as of November 30,
2008.
AMERON
INTERNATIONAL CORPORATION AND SUBSIDIARIES
For the
six months ended May 31, 2009, net cash of $78.7 million was generated from
operating activities, compared to $35.9 million generated in the similar period
in 2008. The higher operating cash flow in 2009 was primarily due to a
sharper decline in operating assets, partially offset by lower liabilities and
earnings. In the six months ended May 31, 2009, the Company's cash
provided by operating activities included net income of $13.3 million, plus
non-cash adjustments (depreciation, amortization, loss from joint venture and
stock compensation expense) of $17.4 million, plus changes in operating assets
and liabilities of $48.1 million. In the six months ended June 1,
2008, the Company’s cash from operating activities included net income of $26.1
million, less similar non-cash adjustments (depreciation, amortization, equity
income from joint ventures in excess of dividends and stock compensation
expense) of $8.0 million, plus changes in operating assets and liabilities of
$1.8 million. The non-cash adjustments in 2009 were higher due
primarily to the Company’s equity in losses of TAMCO. The positive
change in operating assets and liabilities in 2009 was primarily due to
decreases in receivables and inventories.
Net cash
used in investing activities totaled $36.0 million for the six months ended May
31, 2009, compared to $27.2 million used in the six months ended June 1,
2008. Net cash used in investing activities during the first six month of
2009 consisted of capital expenditures of $26.5 million, compared to $28.6
million in the same period of 2008. In addition to normal replacement
and upgrades of machinery and equipment, the Company expanded a wind tower
manufacturing facility in 2008 and fiberglass pipe plants in Texas and Brazil in
2009 and 2008. Normal replacement expenditures are typically equal to
depreciation. During the year ending November 30, 2009, the Company
anticipates spending between $40 and $50 million on capital expenditures.
Capital expenditures are expected to be funded by existing cash balances, cash
generated from operations or additional borrowings. During the first
quarter of 2009, the Company contributed capital of $10.0 million to TAMCO, the
Company’s 50%-owned steel mini-mill in California. The Company
anticipates contributing/loaning an additional $10.0 to $15.0 million to TAMCO
in the second half of 2009.
Net cash
used in financing activities totaled $5.3 million during the six months ended
May 31, 2009, compared to $9.7 million used in the six months ended June 1,
2008. Net cash used in 2009 consisted of payment of Common Stock
dividends of $5.5 million and treasury stock purchases of $1.0 million, related
to the payment of taxes associated with the vesting of restricted
shares. Also in 2009, the Company recognized tax benefits related to
stock-based compensation of $.8 million. Net cash used in 2008
consisted of net repayment of debt of $4.0 million, payment of Common Stock
dividends of $5.0 million and treasury stock purchases of $2.8
million. In 2008, the Company received $.8 million from the
issuance of Common Stock related to exercised stock options and recognized tax
benefits related to stock-based compensation of $1.3 million.
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 up
to the available amount at floating interest rates (LIBOR plus a spread ranging
from .75% to 1.625%, determined based on the Company’s financial condition and
performance), at any time until September 2010, when all borrowings under the
Revolver must be repaid. At May 31, 2009, $81.8 million was available
to be borrowed under the Revolver.
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, capital expenditures,
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 $180.8 million as of May
31, 2009. The Company is required to maintain a consolidated leverage
ratio of consolidated funded indebtedness to earnings before interest, taxes,
depreciation and amortization ("EBITDA") of no more than 2.5
times. At May 31, 2009, the Company maintained a consolidated
leverage ratio of .59 times EBITDA. Lending agreements require
that the Company maintain qualified consolidated tangible assets at least equal
to the outstanding secured funded indebtedness. At May 31, 2009,
qualifying tangible assets equaled 3.31 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 1.50 times
the sum of interest expense, rental expense, dividends and scheduled funded debt
payments. At May 31, 2009, the Company maintained such a fixed charge
coverage ratio of 2.58 times. Under the most restrictive provisions of the
Company's lending agreements, $24.5 million of retained earnings were not
restricted at May 31, 2009, as to the declaration of cash dividends or the
repurchase of Company stock. At May 31, 2009, the Company was in
compliance with all covenants.
Cash and
cash equivalents at May 31, 2009 totaled $185.6 million, an increase of $42.0
million from November 30, 2008. At May 31, 2009, the Company had total
debt outstanding of $54.4 million, compared to $52.8 million at November 30,
2008, and approximately $107.7 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 2009 were $54.4
million and $53.2 million, respectively.
Cash
balances are held throughout the world, including $101.6 million held outside of
the U.S. at May 31, 2009. Most of the amounts held outside of the
U.S. could be repatriated to the U.S. but, under current law, would be subject
to U.S. federal income taxes, less applicable foreign tax credits.
AMERON
INTERNATIONAL CORPORATION AND SUBSIDIARIES
The
Company contributed $2.5 million to the non-U.S. pension plans and did not
contribute to the U.S. defined benefit pension plan during the first six months
of 2009. The Company expects to contribute approximately $8.5 million to
its U.S. defined benefit pension plan and an additional $.1 million to the
non-U.S. pension plans during the remainder of 2009.
TAMCO’s
shareholders made a $20,000,000 capital contribution to TAMCO in February,
2009. The Company’s share of the funding from TAMCO’s shareholders totaled
$10,000,000. The Company continues to have a 50% ownership interest in
TAMCO and accounts for its investment under the equity method of
accounting. TAMCO’s primary source of external financing is currently a
$35,000,000 credit facility, of which $15,000,000 was utilized as of May 31,
2009. TAMCO is in violation of its debt covenants. As a
result, the Company expects to provide additional funding to TAMCO in the third
quarter of 2009. To resolve the default, TAMCO’s shareholders intend to
provide funding of up to $30,000,000 in the form of shareholder loans of which
the Company’s share would be up to $15,000,000. In addition, TAMCO’s
lender will provide a credit facility of $10,000,000. The terms of
TAMCO’s revised credit facility would prohibit TAMCO from paying dividends to
its shareholders until the expiration of the facility.
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 2009. 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, competitive pricing pressures or
significant raw material price increases.
The
Company's contractual obligations and commercial commitments at May 31, 2009 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
|
|
$
|
54,390
|
|
|
$
|
17,056
|
|
|
$
|
14,579
|
|
|
$
|
7,055
|
|
|
$
|
15,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
payments on debt (a)
|
|
|
4,561
|
|
|
|
1,267
|
|
|
|
1,828
|
|
|
|
629
|
|
|
|
837
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
leases
|
|
|
38,548
|
|
|
|
4,456
|
|
|
|
7,019
|
|
|
|
3,300
|
|
|
|
23,773
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension
funding
|
|
|
8,600
|
|
|
|
8,600
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Uncertain
tax positions
|
|
|
1,131
|
|
|
|
1,131
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
contractual obligations (b)
|
|
$
|
107,230
|
|
|
$
|
32,510
|
|
|
$
|
23,426
|
|
|
$
|
10,984
|
|
|
$
|
40,310
|
|
|
|
Commitments
Expiring Per Period
|
|
|
|
|
|
|
Less
than
|
|
|
|
|
|
|
|
|
After
|
|
Contractual
Commitments
|
|
Total
|
|
|
1
year
|
|
|
1-3
years
|
|
|
3-5
years
|
|
|
5
years
|
|
Standby
letters of credit (c)
|
|
$
|
2,100
|
|
|
$
|
2,100
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
commercial commitments (b)
|
|
$
|
2,100
|
|
|
$
|
2,100
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
(a)
Future interest payments related to debt obligations, excluding the
Revolver.
(b) The
Company has no capitalized lease obligations, unconditional purchase obligations
or standby repurchases obligations.
(c) Not
included are standby letters of credit totaling $16,067 supporting industrial
development bonds with principal of $15,700. The principal amount of the
industrial development bonds is included in long-term debt. The standby
letters of credit are issued under the Revolver.
AMERON
INTERNATIONAL CORPORATION AND SUBSIDIARIES
RESULTS
OF OPERATIONS: 2009 COMPARED WITH 2008
General
Net
income totaled $9.4 million, or $1.03 per diluted share, on sales of $132.9
million in the quarter ended May 31, 2009, compared to $16.3 million, or $1.78
per diluted share, on sales of $159.8 million in the same period in 2008.
The Fiberglass-Composite Pipe Group had lower sales and profits due primarily to
continued soft market conditions. The Water Transmission Group had
lower sales but improved profitability due principally to better cost control
and plant efficiencies. The Infrastructure Products Group had
lower sales and income due to the decline in both the Pole Products division and
the Hawaiian division associated with continued weak construction spending
throughout the U.S. Net income was lower in 2009 due to the
significant decline in earnings from TAMCO, the Company’s 50%-owned steel
mini-mill in California.
Net
income totaled $13.3 million, or $1.44 per diluted share, on sales of $278.9
million in the six months ended May 31, 2009, compared to $26.1 million, or
$2.85 per diluted share, on sales of $309.6 million in the same period in
2008. The Fiberglass-Composite Pipe Group and the Infrastructure Products
Group had lower sales and income due to generally softer market
conditions. The Water Transmission Group reported higher sales and
improved profitability due principally to the higher wind tower sales and
improved plant efficiencies and cost control. Net income was
significantly lower in 2009 due to TAMCO’s loss.
Sales
Total
consolidated sales decreased $26.9 million, or 16.8%, in the second quarter of
2009, compared to the similar period in 2008. Total consolidated
sales for the six months ending May 31, 2009 decreased $30.6 million, or 9.9%,
compared to the similar period in the prior year. In general, total
consolidated sales were down due to weak economic conditions.
Fiberglass-Composite
Pipe's sales decreased $13.9 million, or 20%, in the second quarter and $23.0
million, or 17.0%, in the first six months of 2009, compared to the similar
periods in 2008. Foreign currencies accounted for $4.4 million and $7.2
million of the sales decline in the second quarter and first six months of 2009,
respectively. Sales in the U.S. decreased $5.5 million and $4.1
million, respectively, in the second quarter and first six months of 2009
largely due to weaker oilfield piping demand and weak industrial markets
worldwide. Sales from Asian operations decreased $3.1 million and $8.0 million,
respectively, in the second quarter and first six months of 2009, driven by
weaker economic conditions and the impact of foreign exchange. Sales from
European operations decreased $2.0 million and $4.3 million, respectively, in
the second quarter and first six months of 2009. The declines were
related to softer market conditions, the timing of orders, and foreign
exchange. Sales from Brazilian operations decreased $3.2
million and $6.6 million, respectively, in the second quarter and first six
months of 2009, due to the impact of foreign exchange, project delays in
municipal water markets, and a halt in activity in the pulp and paper
market. The Group’s customers in the industrial, marine, offshore and
onshore oilfield markets are being impacted by the decline in oil prices,
financing issues, lower transportation demand and shipping rates. The
Fiberglass-Composite Pipe Group is expected to remain steady for the balance of
2009 due to the overall economic climate, the effect of oil prices and energy
demand on oil production and the impact of tight credit markets.
The Water
Transmission Group's sales decreased $ 1.8 million, or 4.0%, in the second
quarter and increased $8.8 million, or 10.3%, in the first six months of 2009,
compared to similar periods in 2008. The decrease in sales in the second
quarter of 2009 was due to weaker demand for water pipe in
Colombia. The sales improvement for the first six months was driven
by increased production of wind towers. While wind tower sales are
higher than in the prior year periods, sales of wind towers in the second
quarter of 2009 decreased compared to the first quarter of 2009 due to the lack
of project financing available to wind farm developers. While there
is a lack of incoming orders, some previously postponed orders are
proceeding. Until financing and incentives are provided to the wind
energy industry, wind tower activity will remain depressed. Near
term, the water pipe business will also continue to experience soft market
demand as order backlogs are well below historical levels; and the timing of bid
activity has been negatively affected by the economy, municipal budgets and
availability of financing.
Infrastructure
Products' sales decreased $11.6 million, or 24.9%, in the second quarter and
$17.3 million, or 19.1%, in the first six months of 2009, compared to the
similar periods in 2008. The Company’s Hawaiian division had lower sales
as residential and commercial construction markets in Hawaii continued to
weaken. The Pole Products division continued to be impacted by the
decline in U.S. housing markets and reduced demand for concrete lighting poles
and steel traffic poles. The Infrastructure Products Group is expected to
continue to be impacted by the slowdown in construction spending in Hawaii and
the low residential construction spending throughout the U.S. An
improvement for the Infrastructure Products Group is not anticipated in
2009.
AMERON
INTERNATIONAL CORPORATION AND SUBSIDIARIES
Gross
Profit
Gross
profit in the second quarter of 2009 was $36.6 million, or 27.5% of sales,
compared to $39.7 million, or 24.9% of sales, in the second quarter of
2008. Year-to-date gross profit in 2009 was $71.5 million, or 25.6% of
sales, compared to $73.2 million, or 23.6% of sales, in the similar period of
2008. Gross profit decreased $3.2 million and $1.7 million,
respectively, in the second quarter and the first six months of 2009, compared
to the similar periods in 2008, due to lower sales. The gross margin
increases were related to better cost control and improved plant efficiencies in
the Water Transmission Group and lower raw material costs.
Fiberglass-Composite
Pipe Group's gross profit decreased $3.6 million and $5.5 million, respectively,
in the second quarter and in the first six months of 2009, compared to the
similar periods in 2008, due to lower sales. Profit margins were 40.2% in
the second quarter and 39.5% in the first six months of 2009, compared to 37.3%
in the second quarter and 36.9% in the first six months of 2008. Margins
were higher in 2009 due to favorable product mix and lower raw material costs
which generated additional gross profit of $1.6 million and $2.9 million,
respectively, in the second quarter and the first six months of
2009.
Water
Transmission Group's gross profit increased $3.6 million in the second quarter
and $9.7 million in the first six months of 2009, compared to the similar
periods in 2008. Profit margins were 15.9% in the second quarter and 12.9%
in the first six months of 2009, compared to 7.1% in the second quarter and 2.7%
in the first six months of 2008. Margins were favorably enhanced by
improved plant efficiencies and cost controls and completion of low-margin
projects in 2008.
Gross
profit in the Infrastructure Products Group decreased $4.0 million in the second
quarter and $6.1 million in the first six months of 2009, compared to the
similar periods in 2008. Profit margins were 18.8% in the second quarter
and 19.5% in the first six months of 2009, compared to 22.5% for both similar
periods in 2008. Margins were lower in 2009 due to lower sales and
challenging market conditions. Lower sales negatively impacted gross
profit by $2.6 million and $3.9 million, respectively, in the second quarter and
the first six months of 2009, while unfavorable plant utilization decreased
gross profit by $1.3 million and $2.2 million, respectively, in the second
quarter and the first six months of 2009.
Selling,
General and Administrative Expenses
Selling,
general and administrative ("SG&A") expenses totaled $25.9 million, or 19.5%
of sales, in the second quarter of 2009, compared to $25.9 million, or 16.2% of
sales, in the second quarter of 2008. In the six months ended May 31,
2009, SG&A expenses totaled $52.3 million, or 18.7% of sales, compared to
$51.7 million, 16.7% of sales, in the same period in 2008. The $.6 million
increase in the first half was due in part to higher pension expense of $4.0
million and legal expenses of $2.6 million, due primarily to the U.S. Treasury
Department’s Office of Foreign Assets Control (“OFAC”) inquiry, offset by lower
management incentive compensation of $2.0 million, foreign exchange impact of
$1.7 million, stock compensation expense of $1.3 million and other expenses of
$1.0 million.
Other Income,
Net
Other
income totaled $2.4 million in the second quarter of 2009, an increase of $1.8
million, compared to other income in the second quarter of
2008. Other income was $2.9 million in the six months ended May
31, 2009, a decrease of $.6 million, compared to other income in the similar
period of 2008. The second quarter increase was due primarily to
dividend income received from the Company’s joint venture, Bondstrand, Ltd., of
$2.2 million. Other income in the first six months of 2008 included
dividend income of $1.5 million from another joint venture, Ameron Saudi Arabia,
Ltd. Other income included royalties and fees from licensees, foreign
currency transaction adjustments and other miscellaneous income.
Interest
Interest
income was $.3 million in the second quarter of 2009, compared to $1.0 million
in the second quarter of 2008. Interest income was $.7 million in the
six months ended May 31, 2009, a decrease of $1.5 million compared to the
similar period in 2008. The decrease was due primarily to lower
interest rates on short-term investments. Interest expense was $.5
million in the second quarter of 2009, compared to $.9 million, in the second
quarter of 2008. In the six months ended May 31, 2009, interest
expense totaled $1.0 million, compared to $1.8 million in the same period in
2008. The decrease in interest expense was due to lower debt
levels.
AMERON
INTERNATIONAL CORPORATION AND SUBSIDIARIES
Provision
for Income Taxes
Income
taxes decreased to $2.0 million in the second quarter of 2009, from $5.0 million
in the same period of 2008. Income taxes decreased to $4.6 million in
the first six months of 2009 from $8.9 million in the comparable period in
2008. The effective
tax rate decreased to 21.0% in 2009, from 35.0% in 2008. The
effective rate in 2009 was reduced by tax benefits of $1.5 million recorded in
the second quarter of 2009 of which $1.2 million was associated with the
adjustment to a deferred tax liability related to earnings and profits from the
Company’s New Zealand subsidiary and $.3 million was related to a decrease in
the valuation allowance related to net operating losses of the Company’s
Netherlands subsidiary. This $1.2 million represented a correction of
amount recorded in prior period financial statements. Management
believes this amount to be immaterial to prior interim and annual financial
statements. The effective tax rates for the first six months of 2009
and 2008 were based on forecasted full-year earnings and the anticipated mix of
domestic and foreign earnings and the above discrete items. Income
from certain foreign operations and joint ventures is taxed at rates that are
lower than the U.S. statutory tax rates. The effective tax rate for
the first six months of 2009 is not necessarily indicative of the tax rate for
the full year.
Equity
in Earnings of Joint Venture, Net of Taxes
Equity in
earnings of joint venture, which consists of the Company’s share of the net
income or loss of TAMCO, decreased to a loss of $1.6 million in the second
quarter of 2009, compared to income of $6.7 million in the similar period of
2008. For the first six months of 2009, the Company’s equity in TAMCO’s
loss totaled $3.9 million, compared to equity in earnings of $9.5 million in
2008. Equity income is shown net of income taxes. Losses
and earnings from TAMCO were taxed at an effective rate of 9.6%, for the periods
in 2009 and 2008, reflecting the dividend exclusion provided to the Company
under current tax laws. The reduction in TAMCO’s earnings was due to
the collapse of infrastructure spending for steel rebar in California, Arizona
and Nevada. TAMCO halted production in the first quarter and began limited
production during the second quarter of 2009. Demand for steel rebar in
TAMCO’s key markets in the western U.S. is not expected to recover in the short
term.
ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
No
material changes have occurred in the quantitative and qualitative market risk
disclosure as presented in the Company’s 2008 Annual Report.
ITEM 4 – CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and
Procedures. Management 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
May 31, 2009 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. “Disclosure controls and procedures” are the controls and
other procedures of an issuer that are designed to ensure that information
required to be disclosed by the issuer in the reports filed or submitted by it
under the Securities Exchange Act of 1934, as amended (Exchange Act) is
recorded, processed, summarized and reported, within the time periods specified
in the Securities and Exchange Commission’s rules and forms. “Disclosure
controls and procedures” include, without limitation, controls and procedures
designed to ensure that information required to be disclosed by an issuer in its
Exchange Act reports is accumulated and communicated to the issuer’s Management,
including its principal executive and financial officers, as appropriate to
allow timely decisions regarding required disclosure.
There was
no change in the Company's internal control over financial reporting that
occurred during the fiscal quarter covered by this report that has materially
affected, or is reasonably likely to materially affect, the Company's internal
control over financial reporting.
AMERON
INTERNATIONAL CORPORATION AND SUBSIDIARIES
FORWARD-LOOKING
AND CAUTIONARY STATEMENTS
All
statements and assumptions contained in this Quarterly Report on Form 10-Q and
in any documents attached or incorporated by reference that do not directly and
exclusively relate to historical facts constitute “forward-looking statements”
within the meaning of the Safe Harbor provisions of the Private Securities
Litigation Reform Act of 1995. These statements represent current expectations
and beliefs of the Company, and no assurance can be given that the results
described in such statements will be achieved.
Forward-looking
information contained in these statements include, among other things,
statements with respect to the Company’s financial condition, results of
operations, cash flows, business strategies, operating efficiencies or
synergies, competitive positions, growth opportunities, plans and objectives of
Management, and other matters. Such statements are subject to numerous
assumptions, risks, uncertainties and other factors, many of which are outside
of the Company’s control, which could cause actual results to differ materially
from the results described in such statements. These factors include without
limitation those listed below under Item 1A, Risk Factors, in the Company’s 2008
Annual Report on Form 10-K and Part II, Item 1A, herein.
Forward-looking
statements in this Quarterly Report on Form 10-Q speak only as of the date of
this Quarterly Report, and forward-looking statements in documents attached or
incorporated by reference speak only as to the date of those
documents. The Company does not undertake any obligation to update or
release any revisions to any forward-looking statement or to report any events
or circumstances after the date of this Quarterly Report or to reflect the
occurrence of unanticipated events, except as required by law.
PART II – OTHER INFORMATION
ITEM 1 – LEGAL PROCEEDINGS
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 its subsidiary,
Ameron B.V., 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 Ameron B.V. Sable's
originating notice and statement of claim alleged a claim for damages in an
unspecified amount; however, Sable has since alleged that its claim for damages
against all defendants is approximately 440 million Canadian dollars, a figure
which the Company and Ameron B.V. contest. This matter is in
discovery, and no trial date has yet been established. The Company is
vigorously defending itself in this action. Based upon the information
available to it at this time, the Company is not able to estimate the possible
range of loss with respect to this case.
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. Although this matter is still in discovery, trial is
currently scheduled to commence on October 26, 2009. The Company is
vigorously defending itself in this action. Based upon the
information available to it at this time, the Company is not able to estimate
the possible range of loss with respect to this case.
In July
2004, BP America Production Company (“BP America”) brought an action against the
Company in the 24th
Judicial District Court, Parish of Jefferson, Louisiana in connection with
fiberglass pipe sold by the Company for installation in four offshore platforms
constructed for BP America. The plaintiff seeks damages allegedly
sustained by it resulting from claimed defects in such pipe. BP
America’s petition as filed alleged a claim against the Company for rescission,
products liability, negligence, breach of contract and warranty and for damages
in an amount of not less than $20 million, a figure which the Company
contests. This matter is in discovery, and no trial date has yet been
established. The Company is vigorously defending itself in this
action. Based upon the information available to it at this time, the
Company is not able to estimate the possible range of loss with respect to this
case.
AMERON
INTERNATIONAL CORPORATION AND SUBSIDIARIES
In June
2006, the Cawelo, California Water District (“Cawelo”) brought an action against
the Company in Kern County Superior Court, California in connection
with concrete pipe sold by the Company in 1995 for a wastewater
recovery pipeline in such county. Cawelo seeks damages allegedly
sustained by it resulting from the failure of such pipe in
2004. Cawelo’s petition as filed alleged a claim against the Company
for products liability, negligence, breach of express warranty and breach of
written contract and for damages in an amount of not less than $8 million, a
figure which the Company contests. This matter is in discovery, and
no trial date has yet been established. The Company is vigorously
defending itself in this action. Based upon the information available
to it at this time, the Company is not able to estimate the possible range of
loss with respect to this case.
The
Company is a defendant in a number of 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. As of May 31, 2009, the
Company was a defendant in 26 asbestos-related cases, compared to 24 cases as of
March 1, 2009. During the quarter ended May 31, 2009, there were five
new asbestos-related cases, one case dismissed, two cases settled, no
judgments and aggregate net costs and expenses of $.1 million. Based
upon the information available to it at this time, the Company is not able to
estimate the possible range of loss with respect to these cases.
In
December, 2008, the Company received from the U.S. Treasury Department’s Office
of Foreign Assets Control (“OFAC”) a Requirement To Furnish Information
regarding transactions involving Iran. The Company intends to
cooperate fully with OFAC on this matter. With the assistance of
outside counsel, the Company is conducting an internal inquiry to enable it to
respond to OFAC. In the six months ended May 31, 2009, the Company
incurred $2.4 million for legal and professional fees in connection with this
inquiry. Based upon the information available to it at this time, the
Company is not able to predict the outcome of this matter. If the
Company violated governmental regulations, material fines and penalties could be
imposed.
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
results of operations.
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 results of operations if disposed of
unfavorably.
There are
no material changes from the risk factors previously disclosed in the Company’s
2008 Annual Report, except that risk factor (d) has been revised to read in its
entirety as follows:
d) Litigation and governmental
investigations could result in a material adverse impact on the Company’s
profitability. As described in the Company’s annual reports on
Form 10-K and quarterly reports on Form 10-Q, the Company is currently a
defendant in a number of cases, and is the subject of an inquiry by the U.S.
Treasury Department’s Office of Foreign Assets Control. Based upon
the information available to it at this time, the Company is not able to predict
the outcome of these matters. The resolution of these matters could
materially and adversely affect the Company’s reputation, financial condition
and results of operations.
In
addition, the Company may in the future receive other claims related to its
performance, and such claims could be 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. Use of the Company's products in such applications could
expose the Company to large potential product liability risks which are inherent
in the design, manufacture and sale of such products. Successful
claims against the Company could materially and adversely affect its reputation,
financial condition and results of operations.
AMERON
INTERNATIONAL CORPORATION AND SUBSIDIARIES
ITEM 2 – UNREGISTERED SALES OF EQUITY SECURITIES AND USE
OF PROCEEDS
Terms of
lending agreements which place restrictions on cash dividends are discussed in
Management's Discussion and Analysis of Financial Condition and Results of
Operations under Item 2, herein, and Note (9) of the Notes to Consolidated
Financial Statements, under Part I, Item 1, herein.
ISSUER
PURCHASES OF EQUITY SECURITIES
|
|
|
|
|
|
|
|
(c)
|
|
|
(d)
|
|
|
|
|
|
|
|
|
|
Number
of Shares
|
|
|
Maximum
Number (or
|
|
|
|
(a)
|
|
|
(b)
|
|
|
(or
Units) Purchased
|
|
|
Approximate
Dollar Value)
|
|
|
|
Total
Number of
|
|
|
Average
Price
|
|
|
As
Part of Publicly
|
|
|
of
Shares (or Units) that
|
|
|
|
Shares
(or Units)
|
|
|
Paid
per
|
|
|
Announced
Plans or
|
|
|
May
Yet Be Purchased Under
|
|
Period
|
|
Purchased
|
|
|
Share
(or Unit)
|
|
|
Programs
|
|
|
the
Plans or Programs**
|
|
3/2/09
thru 3/29/09
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
|
25,937
|
|
3/30/09
thru 5/3/09
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
25,937
|
|
5/4/09
thru 5/31/09
|
|
|
358
|
|
|
|
54.44
|
|
|
|
-
|
|
|
|
25,480
|
|
**Shares
may be repurchased by the Company to pay taxes applicable to the vesting of
restricted stock. The number of shares does not include shares which may
be repurchased to pay social security taxes applicable to the vesting of such
restricted stock.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
The
following matters were submitted to a vote of security holders during the
Company’s annual meeting of shareholders held on March 25, 2009, and the results
were as follows:
Election
of Directors
|
|
Votes
Cast For
|
|
Votes
Withheld
|
Terry
L. Haines
|
|
7,913,381
|
|
111,293
|
John
E. Peppercorn
|
|
7,909,522
|
|
115,152
|
William
D. Horsfall
|
|
7,947,292
|
|
77,382
|
Other
directors whose terms of office continued after the meeting
are: James S. Marlen, David Davenport, J. Michael Hagan, and Dennis
C. Poulsen.
Ratification
of Independent Registered Public Accountants
Ratification
of PricewaterhouseCoopers LLP, as independent registered public
accountants:
|
|
Votes
|
For:
|
|
7,951,473
|
Against:
|
|
52,082
|
Abstentions:
|
|
21,118
|
ITEM 5 – OTHER INFORMATION
No
material changes have occurred in the other information disclosure as presented
in the Company’s 2008 Annual Report.
AMERON
INTERNATIONAL CORPORATION AND SUBSIDIARIES
The
following exhibits are filed with this Quarterly Report on Form
10-Q:
EXHIBIT
NO.
|
DESCRIPTION
OF EXHIBIT
|
3.1
|
Restated
Certificate of Incorporation, effective May 4, 2009
|
3.2
|
Bylaws
(incorporated by reference to Exhibit 3.2 to the Company’s Current Report
on Form 8-K dated September 26, 2008)
|
4.1
|
Credit
Agreement dated as of January 24, 2003 (incorporated by reference to
Exhibit 4.1 to the Company’s Annual Report on Form 10-K for the year ended
November 30, 2008)
|
4.2
|
Amended
and Restated Note Purchase Agreement dated January 24, 2003, re:
$50,000,000 5.36% Senior Secured Notes due November 30, 2009
(incorporated by reference to Exhibit 4.2 to the Company’s Annual Report
on Form 10-K for the year ended November 30, 2008)
|
4.3
|
Note
Purchase Agreement dated November 25, 2005, re: SGD 51,000,000 4.25%
Senior Secured Notes due November 25, 2012 (incorporated by reference to
Exhibit 4.3 to the Company’s Annual Report on Form 10-K for the year ended
November 30, 2008)
|
4.4
|
Agreement
to furnish to the Securities and Exchange Commission upon request a copy
of instruments defining the rights of holders of certain long-term debt of
the Company and consolidated subsidiaries (incorporated by reference to
Exhibit 4.4 to the Company’s Annual Report on Form 10-K for the year ended
November 30, 2008)
|
10.1
|
Amended
and Restated Employment Agreement between James S. Marlen and the Company
(incorporated by reference to Exhibit 10(1) to the Company’s Annual Report
on Form 10-K for the year ended November 30, 2003)**
|
10.2
|
First
Amendment to Amended and Restated Employment Agreement between James S.
Marlen and the Company (incorporated by reference to Exhibit 99.1 to the
Company’s Current Report on Form 8-K dated September 21,
2007)**
|
10.3
|
Performance
Stock Unit Agreement between James S. Marlen and the Company (incorporated
by reference to Exhibit 99.2 to the Company’s Current Report on Form 8-K
dated September 21, 2007)**
|
10.4
|
Change
of Control Agreement between Javier Solis and the Company (incorporated by
reference to Exhibit 10(2) to the Company’s Annual Report on Form 10-K for
the year ended November 30, 1998)**
|
10.5
|
Amendment
to Change of Control Agreement between Javier Solis and the Company
(incorporated by reference to Exhibit 10.3 to the Company’s Current Report
on Form 8-K dated December 17, 2008)**
|
10.6
|
Change
of Control Agreement between Gary Wagner and the Company (incorporated by
reference to Exhibit 10(3) to the Company’s Annual Report on Form 10-K for
the year ended November 30, 1998)**
|
10.7
|
Amendment
to Change of Control Agreement between Gary Wagner and the Company
(incorporated by reference to Exhibit 10.1 to the Company’s Current Report
on Form 8-K dated December 17, 2008)**
|
10.8
|
Change
of Control Agreement between James R. McLaughlin and the Company
(incorporated by reference to Exhibit 10(5) to the Company’s Annual Report
on Form 10-K for the year ended November 30, 2000)**
|
10.9
|
Amendment
to Change of Control Agreement between James R. McLaughlin and the Company
(incorporated by reference to Exhibit 10.2 to the Company’s Current Report
on Form 8-K dated December 17, 2008)**
|
10.10
|
Change
of Control Agreement between Stephen E. Johnson and the Company
(incorporated by reference to Exhibit 10.4 to the Company’s Current Report
on Form 8-K dated December 17, 2008)**
|
10.11
|
2001
Stock Incentive Plan (incorporated by reference to Exhibit 2 to the
Company’s Proxy Statement for the Annual Meeting of Stockholders held on
March 21, 2001)**
|
10.12
|
2004
Stock Incentive Plan (incorporated by reference to Exhibit E to the
Company’s Proxy Statement for the Annual Meeting of Stockholders held on
March 24, 2004)**
|
10.13
|
Key
Executive Long-Term Cash Incentive Plan (incorporated by reference to
Exhibit C to the Company’s Proxy Statement for the Annual Meeting of
Stockholders held on March 26, 2008)**
|
10.14
|
Form
of Restricted Stock Agreement for Employees (incorporated by reference to
Exhibit 99.1 to the Company’s Current Report on Form 8-K dated January 27,
2006)**
|
10.15
|
Form
of Restricted Stock Agreement for Non-Employee Directors (incorporated by
reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K
dated March 23, 2006)**
|
31.1
|
Section 302
Certification of Chief Executive Officer
|
31.2
|
Section 302
Certification of Chief Financial Officer
|
32
|
Section 906
Certification of Chief Executive Officer and Chief Financial
Officer
|
** Compensatory
plan or arrangement
AMERON
INTERNATIONAL CORPORATION AND SUBSIDIARIES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
AMERON
INTERNATIONAL CORPORATION
By:
|
/s/
James R. McLaughlin
|
|
|
James
R. McLaughlin, Senior Vice President, Chief Financial Officer &
Treasurer
|
Date:
June 26, 2009