United
States
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
x ANNUAL REPORT PURSUANT
TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE
ACT OF 1934
For
the fiscal year ended November 30, 2009
OR
¨ TRANSITION REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
Commission
File Number 1-9102
AMERON
INTERNATIONAL CORPORATION
(Exact
name of registrant as specified in its charter)
|
Delaware
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77-0100596
|
|
(State
of Incorporation)
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(I.R.S.
Employer Identification No.)
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245
South Los Robles Avenue
Pasadena,
CA 91101-3638
(Address
and Zip Code of principal executive offices)
Registrant's
telephone number, including area code: (626) 683-4000
SECURITIES
REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
|
Title
of each class
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Name
of each exchange on which registered
|
|
|
Common
Stock $2.50 par value
|
New
York Stock Exchange
|
SECURITIES
REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes ¨ No
x
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes ¨ No
x
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes x No ¨
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. x
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer (as defined in Rule 12b-2 of the
Exchange Act).
|
Large
accelerated filer x
|
Accelerated
filer ¨
|
Non-accelerated
filer ¨
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act). Yes ¨ No
x
AMERON
INTERNATIONAL CORPORATION AND SUBSIDIARIES
The
aggregate market value of voting and non-voting common equity held by
non-affiliates was approximately $504 million on May 29, 2009, based upon
the last reported sales price of such stock on the New York Stock Exchange on
that date.
On
January 22, 2010 there were 9,203,836 shares of Common Stock, $2.50 par
value, outstanding. No other class of Common Stock
exists.
DOCUMENTS
INCORPORATED BY REFERENCE
1.
PORTIONS OF AMERON INTERNATIONAL CORPORATION'S PROXY STATEMENT FOR THE 2010
ANNUAL MEETING OF STOCKHOLDERS (PART III)
AMERON INTERNATIONAL CORPORATION AND SUBSIDIARIES
2009
ANNUAL REPORT ON FORM 10-K
Table
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PART I
AMERON
INTERNATIONAL CORPORATION, a Delaware corporation, and its consolidated
subsidiaries are collectively referred to herein as "Ameron", the "Company", the
"Registrant" or the "Corporation" unless the context clearly indicates
otherwise. The business of the Company is divided into business
segments, as described in Item 1(c)(1), herein. Substantially all activities
relate to the manufacture of highly-engineered products for sale to the
industrial, chemical, energy and construction markets. All references
to "the year" or "the fiscal year" pertain to the 12 months ended November 30,
2009. All references to the "Proxy Statement" pertain to the Company's
Proxy Statement to be filed on or about February 22, 2010 in connection
with the 2010 Annual Meeting of Stockholders.
ITEM 1 - BUSINESS
(a)
GENERAL DEVELOPMENT OF BUSINESS.
Although
the Company's antecedents date back to 1907, the Company evolved directly from
the merger of two separate firms in 1929, resulting in the incorporation of
American Concrete Pipe Company on April 22, 1929. Various name changes
occurred between that time and 1942, at which time the Company's name became
American Pipe and Construction Co. By the late 1960's the Company was almost
exclusively engaged in manufacturing and had expanded its product lines to
include not only concrete and steel pipe but also high-performance protective
coatings, ready-mix concrete, aggregates and fiberglass pipe and fittings.
At the beginning of 1970, the Company's name was changed to Ameron,
Inc. In the meantime, other manufactured product lines were added,
including concrete and steel poles for street and area lighting and steel poles
for traffic signals. In 1996, the Company's name was changed to Ameron
International Corporation. In 2006, the Company sold its Performance
Coatings & Finishes business (“Coatings Business”). Also in 2006,
the Company began manufacturing large, steel towers that are used with wind
turbines for generating electricity.
(b)
FINANCIAL INFORMATION AS TO INDUSTRY SEGMENTS.
Financial
information on segments and joint ventures may be found in Notes (1), (6) and
(18) of the Notes to Consolidated Financial Statements, under Item 8,
herein.
(c)
NARRATIVE DESCRIPTION OF BUSINESS.
(1) For
geographical and operational convenience, the Company is organized into
divisions. These divisions are combined into groups serving various industry
segments, as follows:
a) The
Fiberglass-Composite Pipe Group develops, manufactures and markets
filament-wound and molded fiberglass pipe and fittings. These products are used
by a wide range of process industries, including industrial, petroleum, chemical
processing and petrochemical industries, for service station piping systems,
aboard marine vessels and offshore oil platforms, and are marketed as an
alternative to metallic piping systems which ultimately fail under corrosive
operating conditions. These products are marketed directly, as well
as through manufacturers' representatives, distributors and
licensees. Competition is based upon quality, price and
service. Manufacture of these products is carried out in the
Company's plant in Burkburnett, Texas, by its wholly-owned domestic subsidiary,
Centron International Inc. ("Centron"), at its plant in Mineral Wells, Texas, by
wholly-owned subsidiaries in the Netherlands, Brazil, Singapore and Malaysia,
and by a joint venture in Saudi Arabia.
b) The
Water Transmission Group supplies products and services used in the construction
of water pipelines. Five pipe manufacturing plants are located in
Arizona and California. Also included within this group is American
Pipe & Construction International, a wholly-owned subsidiary, with two
plants in Colombia, and Tubos Y Activos, a wholly-owned subsidiary, with a plant
in Mexico. These plants manufacture concrete cylinder pipe, prestressed concrete
cylinder pipe, steel pipe and reinforced concrete pipe for water transmission,
storm and industrial waste water and sewage collection. Products are
marketed directly using the Company's own personnel, typically through
competitive bidding. Customers include local, state and federal
agencies, developers and general contractors. Normally, no one customer or group
of customers for the Company’s water pipe products will account for sales equal
to or greater than 10 percent of the Company's consolidated
revenue. However, occasionally, when more than one unusually large
project is in progress, combined sales to U.S., state or local government
agencies and/or general contractors for those agencies can reach those
proportions. Besides competing with several other welded-steel pipe
and concrete pipe manufacturers located in the market area, alternative products
such as ductile iron, plastic, and clay pipe compete with the Company's concrete
and steel pipe products; but ordinarily these other materials do not offer the
full diameter range produced by the Company. Principal methods of
competition are price, delivery schedule and service. The
Company's technology is used in the Middle East through affiliated
companies. This segment also includes the manufacturing and
marketing, on a worldwide basis directly and through manufacturers'
representatives, of polyvinyl chloride and polyethylene sheet lining for the
protection of concrete pipe and cast-in-place concrete structures from the
corrosive effects of sewer gases, acids and industrial
chemicals. Competition is based upon quality, price and
service. Manufacture of this product is carried out in the Company's
plant in California. Additionally, the Company manufactures
large-diameter towers for the U.S. wind-energy market at one of its California
plants. Wind towers are sold to wind turbine manufacturers based on
price, quality and availability. In 2009, Siemens Power Generation,
Inc. purchased $66.4 million of wind towers from the Company, which was
approximately 12% of the Company’s total consolidated sales and all of the
Company’s wind tower sales. Siemens Power Generation, Inc. is
expected to continue to be the Company’s principal customer for wind towers in
2010.
c) The
Infrastructure Products Group supplies ready-mix concrete, crushed and sized
basaltic aggregates, dune sand, concrete pipe and box culverts, primarily to the
construction industry in Hawaii, and manufactures and markets concrete and steel
poles for highway, street and outdoor area lighting and for traffic signals
nationwide. Ample raw materials are available locally in
Hawaii. As to rock products, the Company has exclusive rights to
quarries containing many years' reserves. There is only one major
source of supply for cement in Hawaii. Within the market area there
are competitors for each of the segment's products. No single
competitor offers the full range of products sold by the Company in
Hawaii. An appreciable portion of the segment's business in Hawaii is
obtained through competitive bidding. Sales of poles are nationwide,
but with a stronger concentration in the western and southeastern U.S.
Marketing of poles is handled by the Company's own sales force and by outside
sales agents. Competition for poles is mainly based on price and
quality, but with some consideration for service and delivery. Poles
are manufactured in two plants in California, as well as in plants in
Washington, Oklahoma and Alabama.
d) The
Company has three significant partially-owned affiliated companies ("joint
ventures"): Ameron Saudi Arabia, Ltd. ("ASAL"), Bondstrand, Ltd. ("BL")
and TAMCO. ASAL, owned 30% by the Company, manufactures and sells concrete
pressure pipe to customers in Saudi Arabia. BL, owned 40% by the Company,
manufactures and sells glass reinforced epoxy pipe and fittings in Saudi
Arabia. TAMCO, 50%-owned by the Company, operates a steel mini-mill in
California that produces reinforcing bar sold into construction markets in the
western U.S. ASAL is included in the Water Transmission Group, and BL is
included in the Fiberglass-Composite Pipe Group. TAMCO is not included in
the three operating groups.
e) Except
as individually outlined in the above descriptions of industry segments, the
following comments or situations currently apply to all segments and applied
during the three years ended November 30, 2009:
(i) Raw
material supplies are periodically constrained due to industry
capacities. However, because of the number of manufacturing locations
and the variety of raw materials essential to the business, no critical
situations exist with respect to supply of materials. The Company has
multiple sources for raw materials. The effects of increases in costs
of energy are being mitigated to the extent practical through conservation and
through addition or substitution of equipment to manage the use and reduce
consumption of energy.
(ii) The
Company owns certain patents and trademarks, both U.S. and foreign, related to
its products. The Company licenses its patents, trademarks, know-how
and technical assistance to several of its subsidiary and affiliated companies
and to various third-party licensees. It licenses these proprietary
items to some extent in the U.S., and to a greater degree
abroad. These patents, trademarks, and licenses do not constitute a
material portion of the Company's total business. No franchises or
concessions exist.
(iii) Many of the Company's products are used in
connection with capital goods, water and sewage transmission and construction of
capital facilities. Favorable or adverse effects on general sales
volume and earnings can result from weather conditions. Normally,
sales volume and earnings will be lowest in the first fiscal
quarter. Seasonal effects typically accelerate or slow the business
volume and normally do not bring about severe changes in full-year
activity.
(iv) With
respect to working capital items, the Company does not encounter any
requirements which are not common to other companies engaged in similar
industries. No unusual amounts of inventory are required to meet
seasonal delivery requirements. In 2009, all of the Company's
industry segments turned inventory between four and six times
annually. At November 30, 2009, average days' sales in accounts
receivable ranged between 32 and 142 for all segments. Excluding the
$33.7 million of unbilled receivables from the Water Transmission Group, the
November 30, 2009 average days’ sales ranged between 32 and 89 for all
segments. Due to the percentage-of-completion method of accounting
used by the Water Transmission Group, which is outlined in Item 7, herein,
receivables, including unbilled receivables, of the Water Transmission Group may
be outstanding longer than if the percentage-of-completion method was not
used.
(v) The
backlog of orders at November 30, 2009 and 2008 by industry segment is
shown below. Approximately 99% of the November 30, 2009 backlog is
expected to be converted to sales during 2010. The Water Transmission
Group’s backlog included $28.9 million of orders for large-diameter wind towers
at November 30, 2009, compared to $90.7 million at the end of
2008. The decrease in the wind tower backlog reflects the challenging
market conditions being experienced in the wind industry due to lack of project
financing. The Fiberglass-Composite Pipe Group’s backlog decreased
$20.9 million primarily due to reduced demand for onshore oilfield
piping. The backlog decreased at Infrastructure Products Group due to
a continuing decline in commercial and residential construction
markets.
|
SEGMENT
|
2009
|
2008
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||||||
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(in
thousands)
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||||||||
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Water
Transmission Group
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$ | 88,296 | $ | 153,037 | ||||
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Fiberglass-Composite
Pipe Group
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64,405 | 85,290 | ||||||
|
Infrastructure
Products Group
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23,046 | 26,904 | ||||||
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Total
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$ | 175,747 | $ | 265,231 | ||||
(vi)
Except for the sale of the Coatings Business, the introduction of the wind tower
product line and the expansion of the Fiberglass-Composite Pipe Group in Brazil,
there were no significant changes in the industries and localities in which the
Company operated in recent years. TAMCO’s competitors announced plans
to add additional capacity to manufacture rebar for sale into TAMCO’s
markets. The Company is not aware of any other changes in the
competitive situation which would be material to an understanding of the
Company’s businesses.
(vii)
Sales contracts in all of the Company's business segments normally consist of
purchase orders, which in some cases are issued pursuant to master purchase
agreements. Contracts seldom involve commitments of more than one
year by the Company. In those instances when the Company commits to sell
products under longer-term contracts, the Company will typically contractually
arrange to fix a portion of its associated costs. Payment is normally due
from 30 to 60 days after shipment, with progress payments prior to shipment in
some circumstances. The Company does not typically extend long-term
credit to purchasers of its products. For 2009, excluding the effect
of unbilled receivables related to the percentage-of-completion method of
accounting, trade receivables turned approximately an average of five
times.
(viii) A
number of the Company's operations operate outside the U.S. and are affected by
changes in foreign exchange rates. Sales, profits, assets and liabilities
could be materially impacted by changes in foreign exchange rates. From
time to time, the Company borrows in various currencies to reduce the level of
net assets subject to changes in foreign exchange rates or purchases foreign
exchange forward and option contracts to hedge firm commitments, such as
receivables and payables, denominated in foreign currencies. The
Company does not typically hedge forecasted sales or items subject to
translation adjustments, such as intercompany transactions of a long-term
investment nature.
(2) a)
Costs during each of the last three years for research and development were $8.0
million in 2009, $6.7 million in 2008, and $5.7 million in 2007. Such
costs, which are included in selling, general and administrative expenses,
relate primarily to the development, design and testing of products, and are
expensed as incurred.
b) The
Company's business is not dependent on any single customer or few customers, the
loss of any one or more of whom would have a material adverse effect on its
business, except as described above.
c) For
many years the Company consistently installed or improved devices to control or
eliminate the discharge of pollutants into the
environment. Accordingly, in 2009, compliance with federal, state,
and locally-enacted provisions relating to protection of the environment did not
have, and is not expected to have, a material effect upon the Company's capital
expenditures, earnings, or competitive position.
d) At
year-end the Company and its consolidated subsidiaries employed approximately
2,400 persons. Of those, approximately 900 were covered by labor
union contracts. Three separate bargaining agreements are subject to
renegotiation in 2010.
(d)
FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT
SALES.
Aggregate
export sales from U.S. operations during each of the last three years
were:
|
In
thousands
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||||
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2009
|
$ | 36,246 | ||
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2008
|
24,844 | |||
|
2007
|
34,044 | |||
Financial
information about foreign and domestic operations may be found in Notes (1),
(6), and (18) of the Notes to Consolidated Financial Statements, under Item 8,
herein.
(e)
AVAILABLE INFORMATION
(1) The
Company's Internet address is www.ameron.com
(2) The
Company makes available free of charge through its Internet website, its annual
report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K
and amendments to those reports as soon as reasonably practicable after the
Company electronically files such material with, or furnishes it to, the
Securities and Exchange Commission (the "Commission").
FORWARD-LOOKING
AND CAUTIONARY STATEMENTS
All
statements and assumptions contained in this Annual Report on Form 10-K and in
the 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.
Forward-looking
statements in this Annual Report on Form 10-K speak only as of the date of this
Annual 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 Annual Report or to reflect the
occurrence of unanticipated events, except as required by law.
ITEM 1A - RISK FACTORS
The
following information should be read in conjunction with Management's Discussion
and Analysis (“MD&A”) and the Consolidated Financial Statements and related
Notes.
The
Company's businesses routinely encounter and address risks, some of which could
cause the Company's future results to be materially different than presently
anticipated. Discussion about the important operational risks that
the Company's businesses encounter can also be found in the MD&A section and
in the business descriptions in Item 1, herein.
a) The primary markets for the Company's
products are cyclical and dependent on factors that may not necessarily
correspond to general economic cycles. The Company's Water
Transmission Group sells piping products for public works projects, which are
typically dependent on taxes and fees for funding. The
Fiberglass-Composite Pipe Group's performance is closely linked to the level of
oil and energy prices and the corresponding impact on oil production, processing
and transport. The Infrastructure Products Group is dependent on the
level of construction, especially the level of construction in Hawaii and
construction of new homes for the sale of concrete poles in the U.S.
nationwide. Therefore, the Company's activities can be materially
impacted by changes in interest rates, construction cycles, changes in oil
prices and constraints on governmental budgets and spending.
b) The availability and price of key raw
materials can fluctuate dramatically. The Company consumes
significant amounts of steel, cement, epoxy resin and fiberglass. The
availability of these raw materials is subject to periodic shortages, and future
allocations may not be sufficient to prevent disruption to sales of the Company
and its subsidiaries. Additionally, significant increases in the cost
of these raw materials could lead to significantly lower operating margins if
the Company is unable to recover these cost increases through price increases to
its customers.
c) Labor disruptions or labor shortages
could materially impact the Company’s operations. The
Company's businesses are involved with heavy-duty manufacturing and materials
handling. Labor is a key component of such operations, and
disruptions, such as disputes and strikes, could have a material impact on the
Company and its subsidiaries. Additionally, shortages of skilled
labor could periodically impact the Company's costs and
profitability.
d) Claims associated with the Company's
product performance can be relatively large. The Company sells
products that may be essential to the use of large, multi-million-dollar,
infrastructure projects, such as water and sewer systems, offshore platforms,
marine vessels, petrochemical plants, roads, and large construction
projects. Additionally, the Company sells products used in critical
applications, such as to protect against corrosion or to convey hazardous
materials. 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.
e) TAMCO's profitability could be
significantly reduced due to market conditions in the steel industry, by a sharp
increase in costs and/or a significant increase in supply of rebar into TAMCO's
markets in the western U.S. TAMCO, the Company's 50%-owned
joint venture that manufactures steel rebar in California, has historically
contributed to the Company's earnings and paid significant dividends to the
Company. TAMCO uses large quantities of natural gas, electricity, and
scrap metal. A major spike in energy or scrap costs without a
corresponding increase in TAMCO's selling price of its rebar, or continued
reduction in steel rebar demand or market selling prices, could result in a
dramatic decline in profitability. TAMCO's ability to raise prices
could be limited due to competitive pressures, including imports of
foreign-sourced rebar.
f) A significant part of the Company's
assets and profits are located or generated outside the U.S., with an associated
foreign exchange and country risk. The Company and its
subsidiaries operate in several countries outside the U.S. A
significant change in the value of foreign currencies, political stability,
trade restrictions, the impact of foreign government regulations, or economic
cycles in foreign countries could materially impact the Company.
g) The returns from the Company's
investment in wind tower manufacturing are dependent on a limited number of
customers and future demand which could be impacted by changes in project
financing, government policy, energy prices or tax
incentives. The Company completed a major expansion program to
enhance its capabilities to produce wind towers used for wind-generated
electricity in 2009. In 2010, one customer is expected to purchase
most of the wind towers produced by the Company. The current demand
for wind-generated power is driven by regulation, energy prices and tax
incentives. The demand for wind towers could subside if the tax
incentives are not renewed, if project financing availability does not improve
and/or if prices for competing fuels fall so that wind energy is less
competitive. Additionally, the Company’s entry into this new market
may not meet forecasted expectations due to entry costs and competitive
pressures.
h) The Company's quarterly results are
subject to significant fluctuation. The Company's sales and
net income can fluctuate significantly from quarter to quarter due to production
and delivery schedules of major orders and the seasonal variation in demand for
certain of the Company's products, particularly in the Water Transmission
Group. Operating results in any quarterly period are not necessarily
indicative of results for any future quarterly period, and comparisons between
periods may not be meaningful. The Company sells products which are
installed outdoors; and, therefore, demand for the Company's products can be
affected by weather conditions.
i) Limits on the Company's ability to
significantly influence or control partially-owned joint ventures could restrict
the future operation of such ventures and the amount of cash available to the
Company from such joint ventures. Without significant
influence or control, the Company cannot solely dictate the dividend or
operating policies of joint ventures without the cooperation of the respective
joint-venture partners.
j) The general economic conditions and
the availability of third-party financing could affect demand for the Company’s
products. The Company’s products are sold into the capital
goods industry. The markets served by the Company and its joint
ventures could be severely impacted by a general economic
slowdown. The availability of financing for customers or for projects
could impact the overall level of demand for the Company’s products and the
timing of new orders. Additionally, existing orders in backlog are
subject to cancellation or delays if customers are unable to obtain anticipated
financing or if economic conditions worsen.
k) The Company’s relatively low trading
volume could limit a shareholder's ability to trade the Company's
shares.
The Company's shares are traded on the
New York Stock Exchange; however, the average trading volume can be considered
to be relatively low. As a result, shareholders could have difficulty
in selling or buying a large number of the Company's shares in the manner or at
a price that might otherwise be possible if the shares were more actively
traded.
l) Tax law changes relative to
foreign-based income could significantly impact the Company’s
profitability. The Company
maintains substantial accumulated earnings outside the U.S. A change
in tax laws that requires U.S. income tax on unrepatriated foreign earnings
could result in a significant reduction in the Company’s net income and cash
flow.
ITEM 1B - UNRESOLVED STAFF COMMENTS
None.
ITEM 2 - PROPERTIES
(a) The
location and general character of principal plants and other materially
important physical properties used in the Company's operations are tabulated
below. Property is owned in fee simple except where otherwise indicated by
footnote. In addition to the property shown, the Company owns vacant
land adjacent to or in the proximity of some of its operating locations and
holds this property available for use when it may be needed to accommodate
expanded or new operations. The Company also has a property formerly
used in the Coatings Business that is being held for sale. Listed
properties do not include any temporary project sites which are generally leased
for the duration of the respective projects or leased or owned warehouses that
could be easily replaced. With the exception of the Kailua, Oahu
property, shown under the Infrastructure Products Group industry segment, there
are no material leases with respect to which expiration or inability to renew
would have a material adverse effect on the Company's operations. The
lease term on the Kailua property extends to 2052. Kailua is the
principal source of quarried rock and aggregates for the Company's operations on
Oahu, Hawaii, and rock reserves are believed to be adequate for its requirements
during the term of the lease.
(b)
The Company believes that its existing facilities are adequate for current and
presently foreseeable operations. Because of the cyclical nature of
certain of the Company's operations and the substantial amounts involved in some
individual orders, the level of utilization of particular facilities may vary
significantly from time to time in the normal course of operations.
|
Division
- Location
|
Description
|
|
|
FIBERGLASS-COMPOSITE
PIPE GROUP
|
||
|
Fiberglass
Pipe Division - USA
|
||
|
Houston,
TX
|
*Office
|
|
|
Burkburnett,
TX
|
Office,
Plant
|
|
|
Centron
International, Inc.
|
||
|
Mineral
Wells, TX
|
Office,
Plant
|
|
|
Ameron
B.V.
|
||
|
Geldermalsen,
the Netherlands
|
Office,
Plant
|
|
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Ameron
(Pte) Ltd.
|
||
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Singapore
|
*Office,
Plant
|
|
|
Ameron
Malaysia Sdn. Bhd.
|
||
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Malaysia
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*Office,
Plant
|
|
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Ameron
Polyplaster
|
||
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Betim,
Brazil
|
Office,
Plant
|
|
|
Ameron
Brazil
|
||
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Betim,
Brazil
|
Office,
Plant
|
|
|
WATER
TRANSMISSION GROUP
|
||
|
Rancho
Cucamonga, CA
|
*Office
|
|
|
Rancho
Cucamonga, CA
|
Office,
Plant
|
|
|
Fontana,
CA
|
Office,
Plant
|
|
|
Lakeside,
CA
|
Office,
Plant
|
|
|
Phoenix,
AZ
|
Office,
Plant
|
|
|
Tracy,
CA
|
Office,
Plant
|
|
|
Protective
Linings Division
|
||
|
Brea,
CA
|
Office,
Plant
|
|
|
Tubos
California
|
||
|
Pasadena,
CA
|
*Office
|
|
|
Tubos
Y Activos
|
||
|
Mexicali,
Mexico
|
*Office,
Plant
|
|
|
American
Pipe & Construction International
|
||
|
Bogota,
Colombia
|
Office,
Plant
|
|
|
Cali,
Colombia
|
Office,
Plant
|
|
|
INFRASTRUCTURE
PRODUCTS GROUP
|
||
|
Hawaii
Division
|
||
|
Honolulu,
Oahu, HI
|
*Office,
Plant
|
|
|
Kailua,
Oahu, HI
|
*Plant,
Quarry
|
|
|
Barbers
Point, Oahu, HI
|
Office,
Plant
|
|
|
Puunene,
Maui, HI
|
*Office,
Plant, Quarry
|
|
|
Pole
Products Division
|
||
|
Ventura,
CA
|
*Office
|
|
|
Fillmore,
CA
|
Office,
Plant
|
|
|
Oakland,
CA
|
*Plant
|
|
|
Everett,
WA
|
*Office,
Plant
|
|
|
Tulsa,
OK
|
*Office,
Plant
|
|
|
Anniston,
AL
|
*Office,
Plant
|
|
|
CORPORATE
|
||
|
Corporate
Headquarters
|
||
|
Pasadena,
CA
|
*Office
|
|
|
Hull,
UK
|
**Office,
Plant
|
|
|
Corporate
Research & Engineering
|
||
|
Long
Beach, CA
|
*Office
|
|
|
South
Gate, CA
|
Office,
Laboratory
|
*
Leased
** Held
for Sale
ITEM 3 - 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 $60 million, a figure which the
Company contests. This matter is in discovery, and trial is currently
scheduled to commence on April 12, 2010. 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.
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
trial is currently scheduled to commence on October 12, 2010. 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 November 30, 2009, the
Company was a defendant in 20 asbestos-related cases, compared to 23 cases as of
August 30, 2009. During the quarter ended November 30, 2009, there
were four new asbestos-related cases, seven cases dismissed, no 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 conducted an internal inquiry and responded to
OFAC. In the year ended November 30, 2009, the Company incurred $3.8
million for legal and professional fees in connection with this
matter. 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.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
There was
no matter submitted to a vote of security holders during the fourth quarter of
2009.
Executive
Officers of the Registrant
The
following sets forth information with respect to individuals who served as
executive officers as of November 30, 2009 and who are not directors of the
Company. All executive officers are appointed by the Board of
Directors to serve at the discretion of the Board of Directors.
|
Name
|
Age
|
Title
and Year Elected as Officer
|
|||
|
James
L. Balas
|
39
|
Vice
President, Controller
|
2009
|
||
|
Ralph
S. Friedrich
|
62
|
Senior
Vice President-Technology
|
2003
|
||
|
Stephen
E. Johnson
|
55
|
Senior
Vice President, Secretary & General Counsel
|
2008
|
||
|
James
R. McLaughlin
|
62
|
Senior
Vice President, Corporate Development & Treasurer
|
1997
|
||
|
Mark
J. Nowak
|
55
|
Vice
President; Group President, Fiberglass-Composite Pipe
Group
|
2008
|
||
|
Terrence
P. O'Shea
|
63
|
Vice
President-Human Resources
|
2003
|
||
|
Christine
Stanley
|
51
|
Vice
President-Operations Compliance
|
2008
|
||
|
Gary
Wagner
|
58
|
Senior
Vice President, Finance and Administration & Chief Financial
Officer
|
1990
|
||
All of
the executive officers named above have held high-level managerial or executive
positions with the Company for more than the past five years, except James L.
Balas, Stephen E. Johnson and Christine Stanley. James L. Balas
joined the Company and was appointed Vice President, Controller on April 6,
2009. Prior to joining the Company, he was Chief Financial Officer of
Solar Integrated Technologies from 2008 to 2009 and Vice President of Finance
from 2006 to 2008. Previously he was Director of Finance and
Corporate Development of Keystone Automotive Industries from 2003 to
2006. Stephen E. Johnson joined the Company and was appointed Senior
Vice President Secretary & General Counsel on May 28, 2008. Prior
to joining the Company, he was Deputy General Counsel and Assistant Secretary of
Computer Sciences Corporation from 1997 to 2008, and Assistant General Counsel
and Assistant Secretary from 1995 to 1996. Mark J. Nowak was appointed Vice
President; Group President, Fiberglass-Composite Pipe Group on March 26,
2008. He served as the Group President, Fiberglass-Composite Pipe
Group since March 2004 and President, Fiberglass-Composite Pipe Division-USA
since April 2003. Christine Stanley was appointed Vice
President-Operations Compliance on September 24, 2008, after serving as Group
Executive since 2006. Prior to 2006, she served as Vice President of
Technology of the worldwide Performance Coatings & Finishes Group and held
numerous senior technology and manufacturing management positions.
PART II
ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The
Common Stock, $2.50 par value, of the Company, its only outstanding class of
common equity, is traded on the New York Stock Exchange (“NYSE”), the only
exchange on which it is presently listed. On January 15, 2010,
there were 895 stockholders of record of such stock, based on the information
provided by the Company’s transfer agent, Computershare. Information
regarding incentive stock compensation plans may be found in Note (13) of the
Notes to Consolidated Financial Statements, under Item 8, herein.
Dividends
have been paid each quarter during the prior two years. Information as to the
amount of dividends paid during the reporting period and the high and low prices
of the Company's Common Stock during such period are set out in Supplementary
Data - Quarterly Financial Data (Unaudited) following the Notes to Consolidated
Financial Statements, under Item 8, herein.
Terms
of lending agreements which place restrictions on cash dividends are discussed
in Management's Discussion and Analysis of Financial Condition and Results of
Operations under Item 7 and Note (11) of the Notes to Consolidated Financial
Statements, under Item 8, herein.
STOCK
PRICE PERFORMANCE GRAPH
The
following line graph compares the yearly changes in the cumulative total return
of the Company’s Common Stock against the cumulative total return of the NYSE
(New York Stock Exchange) Market Value Index and the Peer Group Composite Index
described below for the period of the Company’s five fiscal years commencing
December 1, 2004 and ended November 30, 2009. The comparison assumes
$100 invested in stock on December 1, 2004. Total return assumes
reinvestment of dividends. The Company’s stock price performance over
the years indicated below does not necessarily track the operating performance
of the Company nor is it necessarily indicative of future stock price
performance.
The Peer
Group Composite Index is comprised of the following
companies: Ameron, Dresser-Rand Group, Inc., Gibraltar Industries,
Inc., Lufkin Industries Inc., Martin Marietta Material, Inc., National Oilwell
Varco, Inc., Northwest Pipe Co., Schnitzer Steel Industries, Inc., Texas
Industries Inc., Trinity Industries, Inc., Valmont Industries, Inc. and Vulcan
Materials Co.
|
12/1/04
|
11/30/05
|
11/30/06
|
11/30/07
|
11/30/08
|
11/30/09
|
|||||||||||||||||||
|
Ameron
|
$ | 100.00 | $ | 120.99 | $ | 205.09 | $ | 291.48 | $ | 150.82 | $ | 162.76 | ||||||||||||
|
NYSE
Market Value Index
|
100.00 | 111.31 | 129.46 | 142.47 | 87.63 | 110.94 | ||||||||||||||||||
|
Peer
Group Composite Index
|
100.00 | 132.75 | 170.88 | 219.53 | 125.90 | 148.01 | ||||||||||||||||||
ISSUER
PURCHASES OF EQUITY SECURITIES
|
(c)
|
(d)
|
|||||||
|
Number
of Shares
|
Maximum
Number
|
|||||||
|
(a)
|
(b)
|
(or
Units) Purchased
|
(or
Approximate Dollar Value)
|
|||||
|
Total
Number of
|
Average
Price
|
As
Part of Publicly
|
of
Shares (or Units) that May
|
|||||
|
Shares
(or Units)
|
Paid
per
|
Announced
Plans or
|
Yet
Be Purchased Under
|
|||||
|
Period
|
Purchased
|
Share
(or Unit)
|
Programs
|
Plans
or Programs**
|
||||
|
8/31/09
thru 9/27/09
|
-
|
N/A
|
-
|
-
|
||||
|
9/28/09
thru 11/1/09
|
-
|
N/A
|
-
|
-
|
||||
|
11/2/09
thru 11/30/09
|
-
|
N/A
|
-
|
-
|
** Does
not include shares that may be repurchased by the Company to pay taxes
applicable to the vesting of restricted stock.
ITEM 6 - SELECTED FINANCIAL DATA
SELECTED
CONSOLIDATED FINANCIAL INFORMATION
|
Year
ended November 30,
|
||||||||||||||||||||
|
(Dollars
in thousands, except per share data)
|
2009
|
2008
|
2007
|
2006
|
2005
|
|||||||||||||||
|
PER
COMMON SHARE DATA
|
||||||||||||||||||||
|
Basic
earnings per share:
|
||||||||||||||||||||
|
Income
from continuing operations
|
$ | 3.54 | $ | 6.42 | $ | 6.77 | $ | 5.73 | $ | 3.51 | ||||||||||
|
Income
from discontinued operations, net of taxes
|
.09 | - | .68 | .25 | .37 | |||||||||||||||
|
Net
income
|
3.63 | 6.42 | 7.45 | 5.98 | 3.88 | |||||||||||||||
|
Diluted
earnings per share:
|
||||||||||||||||||||
|
Income
from continuing operations
|
3.54 | 6.39 | 6.73 | 5.64 | 3.44 | |||||||||||||||
|
Income
from discontinued operations, net of taxes
|
.09 | - | .67 | .24 | .36 | |||||||||||||||
|
Net
income
|
3.63 | 6.39 | 7.40 | 5.88 | 3.80 | |||||||||||||||
|
Weighted-average
shares (basic)
|
9,166,558 | 9,124,557 | 9,029,487 | 8,731,839 | 8,410,563 | |||||||||||||||
|
Weighted-average
shares (diluted)
|
9,184,771 | 9,169,056 | 9,090,846 | 8,871,695 | 8,579,194 | |||||||||||||||
|
Dividends
|
1.20 | 1.15 | .90 | .80 | .80 | |||||||||||||||
|
Stock
price - high
|
89.00 | 130.51 | 109.60 | 80.01 | 46.61 | |||||||||||||||
|
Stock
price - low
|
41.86 | 33.30 | 64.35 | 44.66 | 31.76 | |||||||||||||||
|
Price/earnings
ratio (range)
|
25-12 | 20-5 | 15-9 | 14-8 | 12-8 | |||||||||||||||
|
OPERATING
RESULTS
|
||||||||||||||||||||
|
Sales
|
$ | 546,944 | $ | 667,543 | $ | 631,010 | $ | 549,180 | $ | 494,767 | ||||||||||
|
Gross
profit
|
145,452 | 153,621 | 146,029 | 132,389 | 125,210 | |||||||||||||||
|
Interest
income/(expense), net
|
588 | 1,533 | 1,927 | (1,682 | ) | (5,520 | ) | |||||||||||||
|
Provision
for income taxes
|
(15,517 | ) | (16,955 | ) | (10,359 | ) | (10,905 | ) | (11,040 | ) | ||||||||||
|
Equity
in earnings of joint venture, net of taxes
|
(5,512 | ) | 10,337 | 15,383 | 13,550 | 9,005 | ||||||||||||||
|
Income
from continuing operations
|
32,483 | 58,592 | 61,140 | 50,060 | 29,509 | |||||||||||||||
|
Income
from discontinued operations, net of taxes
|
817 | - | 6,099 | 2,140 | 3,101 | |||||||||||||||
|
Net
income
|
33,300 | 58,592 | 67,239 | 52,200 | 32,610 | |||||||||||||||
|
Net
income/sales
|
6.1 | % | 8.8 | % | 10.7 | % | 9.5 | % | 6.6 | % | ||||||||||
|
Return
on equity
|
6.9 | % | 12.7 | % | 16.6 | % | 15.8 | % | 11.3 | % | ||||||||||
|
FINANCIAL
CONDITION AT YEAR-END (1)
|
||||||||||||||||||||
|
Working
capital
|
$ | 287,467 | $ | 297,445 | $ | 314,339 | $ | 280,467 | $ | 216,126 | ||||||||||
|
Property,
plant and equipment, net
|
238,508 | 206,162 | 173,731 | 134,470 | 154,665 | |||||||||||||||
|
Investments
|
||||||||||||||||||||
|
Equity
method venture
|
30,626 | 14,428 | 14,677 | 14,501 | 13,777 | |||||||||||||||
|
Cost
method ventures
|
3,784 | 3,784 | 3,784 | 3,784 | 5,922 | |||||||||||||||
|
Total
assets
|
762,549 | 726,322 | 705,812 | 616,351 | 578,036 | |||||||||||||||
|
Long-term
debt, less current portion
|
30,933 | 35,989 | 57,593 | 72,525 | 77,109 | |||||||||||||||
|
CASH
FLOW (1)
|
||||||||||||||||||||
|
Expenditures
for property, plant and equipment
|
$ | 46,874 | $ | 60,697 | $ | 47,697 | $ | 35,519 | $ | 25,371 | ||||||||||
|
Depreciation
and amortization
|
22,108 | 20,409 | 17,034 | 17,440 | 18,924 | |||||||||||||||
(1)
Amounts include both continuing and discontinued operations.
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Ameron
International Corporation ("Ameron", 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 and aggregates, concrete pipe and culverts and the Pole Products
Division which manufactures and sells concrete and steel lighting and traffic
poles. The markets served by the Fiberglass-Composite Pipe Group are
worldwide in scope. The Water Transmission Group serves primarily the
western U.S. for pipe and sells wind towers primarily west of the Mississippi
River. The Infrastructure Products Group's quarry and ready-mix business
operates exclusively in Hawaii, and poles are sold throughout the U.S.
Ameron also participates in several joint-venture companies, directly in the
U.S. and Saudi Arabia, and indirectly in Egypt.
During
the third quarter of 2006, the Company sold its Performance Coatings &
Finishes business ("Coatings Business"). The results from this segment are
reported as discontinued operations for all the reporting periods.
Accordingly, the following discussions generally reflect summary results from
continuing operations unless otherwise noted. However, the net income and
net income per share discussions include the impact of discontinued
operations.
CRITICAL
ACCOUNTING POLICIES AND ESTIMATES
Management's
Discussion and Analysis of Liquidity and Capital Resources and Results of
Operations are based upon the Company's consolidated financial statements, which
are prepared in accordance with accounting principles generally accepted in the
United States of America. The preparation of these financial statements
requires Management to make certain estimates and assumptions that affect the
reported amounts of assets, liabilities, revenues and expenses, and related
disclosure of contingent assets and liabilities during the reporting
periods. Management bases its estimates on historical experience and on
various other assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results could differ from those
estimates.
A summary
of the Company's significant accounting policies is provided in Note (1) of the
Notes to Consolidated Financial Statements, under Item 8, herein. 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.
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 from expectations 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 steel prices 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,
including subsequent capital contributions and loans from the Company, plus the
Company's equity in undistributed earnings or losses since acquisition.
Investments in joint ventures 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
typically purchases varying levels of third-party insurance to cover losses
subject to retention levels (deductibles or primary self-insurance) and
aggregate limits. Currently, the Company's retention levels are $1.0
million per workers' compensation claim, $.1 million per general, property or
product liability claim, and $.25 million per vehicle liability
claim.
When
accounting for pension and other postretirement benefits, 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
discount rate is based on market interest rates. At November 30,
2009, the Company decreased the annual discount rate from 7.29% to 5.70% as a
result of the then-current market interest rates on long-term, fixed-income debt
securities of highly-rated corporations. In estimating the expected
return on assets, the Company considers past performance and future expectations
for various types of investments as well as the expected long-term allocation of
assets. At November 30, 2009, the Company maintained the long-term
annual rate of return on assets assumption of 8.50% reflecting current
expectations for future returns in the investment markets. In
projecting the rate of increase in compensation levels, the Company considers
movements in inflation rates as reflected by market interest
rates. At November 30, 2009, the Company decreased the assumed annual
rate of compensation from 4.25% to 3.50%. In selecting the rate of
increase in health care costs, the Company considers past performance and
forecasts of future health care cost trends. At November 30, 2009,
the Company retained the annual rate of increase in health care costs at 9%,
decreasing ratably until reaching 5.00% in 2013 and beyond.
Different
assumptions would impact the Company’s projected benefit obligations and annual
net periodic benefit costs related to pensions and the accrued other benefit
obligations and benefit costs related to postretirement benefits. The
following reflects the impact associated with a change in certain
assumptions:
|
1%
Increase
|
1%
Decrease
|
|||||||||||||||
|
Increase/
|
Increase/
|
Increase/
|
Increase/
|
|||||||||||||
|
(Decrease)
|
(Decrease)
|
(Decrease)
|
(Decrease)
|
|||||||||||||
|
in
Benefit
|
in
Benefit
|
in
Benefit
|
in
Benefit
|
|||||||||||||
|
(In
thousands)
|
Obligations
|
Costs
|
Obligations
|
Costs
|
||||||||||||
|
Discount
rate:
|
||||||||||||||||
|
Pensions
|
$ | (27,906 | ) | $ | (3,259 | ) | $ | 34,080 | $ | 3,567 | ||||||
|
Other
postretirement benefits
|
(330 | ) | (29 | ) | 384 | 9 | ||||||||||
|
Expected
rate of return on assets
|
N/A | (1,955 | ) | N/A | 1,955 | |||||||||||
|
Rate
of increase in compensation levels
|
3,031 | 685 | (2,732 | ) | (622 | ) | ||||||||||
|
Rate
of increase in health care costs
|
151 | 19 | (134 | ) | (16 | ) | ||||||||||
Additional
information regarding pensions and other postretirement benefits is disclosed in
Note (16) of Notes to Consolidated Financial Statements, under Item
8.
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,
with 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
measured benefit recognized 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
The
following discussion of liquidity and capital resources combines the impact of
both continuing and discontinued operations unless otherwise noted.
As of
November 30, 2009, the Company's working capital, including cash and cash
equivalents and current portion of long-term debt, totaled $287.5 million, a
decrease of $9.9 million from working capital of $297.4 million as of November
30, 2008. The decrease resulted from a decrease in receivables,
inventories and deferred taxes, partially offset by an increase in cash and cash
equivalents and decreases in all current liabilities. The reductions in
receivables and inventories were primarily due to a slowdown in business
activity compared to the prior year. Cash and cash equivalents
totaled $181.1 million as of November 30, 2009, compared to $143.6 million as of
November 30, 2008.
During
2009, net cash of $125.9 million was generated from operating
activities compared to $88.4 million generated in 2008. In 2009, cash
from operating activities included net income of $33.3 million, plus non-cash
adjustments (depreciation, amortization, deferred income taxes, loss from joint
venture, gain from sale of assets and stock compensation expense) of $44.9
million, plus changes in operating assets and liabilities of $47.7
million. In 2008, cash from operating activities included net income
of $58.6 million, plus similar non-cash adjustments of $22.5 million, plus
changes in operating assets and liabilities of $7.4 million. Non-cash
adjustments in 2009 were higher due primarily to the Company’s equity in losses
of TAMCO. The lower net operating assets in 2009 were primarily due
to a decline in accounts receivable and inventory, which reflected the decreased
business activity in 2009. In 2007, the Company’s cash from operating
activities included net income of $67.2 million, less loss on sale of assets and
gain from sale of discontinued operations of $5.9 million, plus non-cash
adjustments (depreciation, amortization, deferred taxes, dividends from joint
ventures less than equity income, stock compensation expense and asset write
down) of $28.3 million, offset by changes in operating assets and liabilities of
$26.4 million. The higher operating cash flow in 2008, compared to
2007, was primarily due to lower growth in operating assets, partially offset by
lower liabilities and earnings.
Net cash
used in investing activities totaled $69.9 million in 2009, compared to $59.1
million used in 2008. In 2009, net cash used in investing activities
consisted of capital expenditures of $46.9 million, which included the normal
replacement and upgrades of machinery and expenditures for construction of new
fiberglass pipe plants in Texas and Brazil, and $25.0 million of capital and
loans to support TAMCO, the Company’s 50%-owned steel mini-mill in
California. Net cash used in investing activities in 2009 was offset
by net proceeds of $2.0 million from the sale of assets. In 2008, net
cash used in investing activities included capital expenditures of $60.7
million, which included the normal replacement and upgrades of machinery, the
expansion of a wind tower manufacturing facility and expenditures for
construction of new fiberglass pipe plants in Brazil. Net cash used in investing
activities in 2008 was offset by net proceeds of $1.6 million from the sale of
assets. In 2007, net cash used in investing activities included
capital expenditures of $47.7 million, for normal replacement and upgrades of
machinery and the expansion of a wind tower manufacturing
facility. Net cash used in investing activities in 2007 was offset by
net proceeds of $16.6 million from the sale of assets, including the sale of
certain properties used by the former Coatings Business. Also in
2007, the Company acquired the business of Polyplaster, Ltda. (“Polyplaster”), a
Brazilian fiberglass-pipe operation, for approximately $6.0
million. Normal replacement expenditures are typically equal to
depreciation. During the year ending November 30, 2010, the Company
anticipates spending between $40.0 and $50.0 million on capital
expenditures. Capital expenditures are expected to be funded by existing
cash balances, cash generated from operations or additional
borrowings.
During 2009, the Company contributed capital of $10.0 million to TAMCO, and provided $15.0 million in loans to TAMCO as part of a $40.0 million senior secured credit facility provided by TAMCO’s shareholders. In 2009, TAMCO entered into a senior secured credit facility with TAMCO’s shareholders which provided TAMCO up to $40.0 million for operating needs and to replace an existing bank line. The shareholder credit facility bears interest at a rate of LIBOR plus 3.25% per annum and is scheduled to mature January 31, 2011. As of November 30, 2009, TAMCO borrowed $30.0 million under the facility, of which $15.0 million was provided by the Company. The Company continues to have a 50% ownership interest in TAMCO and accounts for its investment under the equity method of accounting.
Net cash
used in financing activities totaled $28.8 million during 2009, compared to
$32.5 million in 2008. Net cash used in 2009 consisted of net payment
of debt of $16.5 million, payment of Common Stock dividends of $11.1 million,
payments for debt issuance costs of $1.1 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 payments of debt of $21.1 million, payment of Common Stock
dividends of $10.5 million and similar treasury stock purchases of $2.6 million.
Also in 2008, the Company received $.4 million from the issuance of Common Stock
related to exercised stock options and recognized tax benefits related to
stock-based compensation of $1.3 million. Net cash used in 2007
consisted of net payment of debt of $10.2 million, payment of Common Stock
dividends of $8.2 million and similar treasury stock purchases of $1.6
million. Also in 2007, the Company received $1.6 million from the
issuance of Common Stock related to exercised stock options and recognized tax
benefits related to stock-based compensation of $2.0 million.
In 2009,
the Company extended 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 (at a rate of LIBOR
plus a spread ranging from 2.75% to 3.75%, determined based on the Company’s
financial condition and performance) or utilize for letters of credit, at any
time until August 2012, when all borrowings under the Revolver must be repaid
and letters of credit cancelled. At November 30, 2009, $82.1 million
was available under the Revolver.
The
Revolver contains 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 $375.5
million plus 50% of net income and 75% of proceeds from any equity issued after
November 30, 2008. The Company's consolidated net worth exceeded the
covenant amount by $149.7 million as of November 30, 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 2.50 times. At November 30,
2009, the Company maintained a consolidated leverage ratio of .53 times
EBITDA. The Revolver requires the Company to maintain qualified
consolidated tangible assets at least equal to the outstanding secured funded
indebtedness. At November 30, 2009, qualifying tangible assets
equaled 4.56 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 1.30 times the sum of interest expense, rental expense,
dividends and scheduled funded debt payments. At November 30, 2009,
the Company maintained such a fixed charge coverage ratio of 2.08 times.
Under the most restrictive provisions of the Company's lending agreements, $20.1
million of retained earnings were not restricted at November 30, 2009, as to the
declaration of cash dividends or the repurchase of Company stock. At
November 30, 2009, the Company was in compliance with all
covenants.
Cash and
cash equivalents at November 30, 2009 totaled $181.1 million, an increase of
$37.6 million from November 30, 2008. At November 30, 2009, the Company
had total debt outstanding of $38.3 million, compared to $52.8 million at
November 30, 2008, and approximately $110.9 million in unused committed and
uncommitted credit lines available from foreign and domestic banks. Debt
outstanding declined due to the scheduled amortization of term
debt. The Company's highest borrowing and the average borrowing
levels during 2009 were $55.4 million and $52.6 million,
respectively.
Cash
balances are held throughout the world, including $111.7 million held outside of
the U.S. at November 30, 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. The Company currently plans to indefinitely maintain
significant cash balances outside the U.S.
The
Company contributed $8.5 million to the U.S. defined-benefit pension plan and
$1.7 million to the non-U.S. defined-benefit pension plans in 2009. The
Company expects to contribute approximately $12.0 million to its U.S.
defined-benefit pension plan and $2.4 million to the non-U.S. defined-benefit
pension plans in 2010. The increased contribution is due to increased
plan liabilities associated with declining interest rates and returns on plan
assets.
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 2010. 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 November 30,
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
|
$ | 38,299 | $ | 7,366 | $ | 15,233 | $ | - | $ | 15,700 | ||||||||||
|
Interest
payments on debt (a)
|
2,709 | 1,074 | 1,110 | 173 | 352 | |||||||||||||||
|
Operating
leases
|
36,080 | 4,224 | 6,168 | 2,617 | 23,071 | |||||||||||||||
|
Pension
funding
|
14,400 | 14,400 | - | - | - | |||||||||||||||
|
Uncertain
tax positions
|
390 | 390 | - | - | - | |||||||||||||||
|
Total
contractual obligations (b)
|
$ | 91,878 | $ | 27,454 | $ | 22,511 | $ | 2,790 | $ | 39,123 | ||||||||||
|
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)
|
$ | 1,865 | $ | 1,865 | $ | - | $ | - | $ | - | ||||||||||
|
Total
commercial commitments
|
$ | 1,865 | $ | 1,865 | $ | - | $ | - | $ | - | ||||||||||
(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.
RESULTS
OF OPERATIONS: 2009 COMPARED WITH 2008
General
Net
income totaled $33.3 million, or $3.63 per diluted share, on sales of $546.9
million in the year ended November 30, 2009, compared to $58.6 million, or $6.39
per diluted share, on sales of $667.5 million in 2008. The
Fiberglass-Composite Pipe Group had lower sales and profits due primarily to
continued soft market conditions and foreign exchange. Water
Transmission Group’s sales declined due to weak demand, but profitability
improved due principally to better project 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 Hawaii
Division associated with continued weak construction spending throughout the
U.S. Equity in earnings of TAMCO, Ameron’s 50%-owned steel
mini-mill in California, decreased by $15.8 million in 2009, compared to 2008,
due to the decline in the steel rebar market in California, Arizona and
Nevada.
Sales
Sales
decreased $120.6 million, or 18.1%, in 2009, compared to 2008. Sales
decreased due to generally weaker economic conditions affecting all of the
Company’s businesses.
Fiberglass-Composite
Pipe's sales decreased $48.7 million, or 17.8%, in 2009, compared to
2008. Sales from operations in the U.S. decreased $21.7 million in
2009 primarily due to weaker oilfield piping demand and weak industrial markets.
Sales from Asian subsidiaries decreased $13.7 million in 2009, driven by weaker
conditions in Middle Eastern industrial markets and the impact of foreign
exchange. Sales from European operations decreased $8.7 million in
2009 primarily due to softer market conditions in Europe, North Africa and
Russia and weaker foreign currencies in 2009 than in 2008. Sales from
Brazilian operations decreased $4.6 million in 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. Worldwide demand declined in
key onshore oilfield, chemical and industrial market
segments. However, marine and offshore markets remained strong,
sustained by new vessel construction at Asian shipyards. Onshore
oilfield demand remains weak due to the lack of financing and volatile energy
prices. Chemical and industrial markets continue to be impacted by
the recessionary environment. Marine and offshore markets remain
relatively healthy. While the total Group is operating at historically
high levels, the Fiberglass-Composite Pipe Group will continue to be impacted by
the economic environment in 2010.
Water
Transmission Group's sales decreased $38.0 million, or 17.7%, in 2009, compared
to 2008. The sales decrease was primarily due to weaker demand for
water pipe in the western United States and completion of large orders in
Columbia during 2008. Wind tower sales remained steady in 2009,
compared to prior year. Sales of wind towers remain challenged by the
lack of project financing available to wind farm developers. Until
more financing becomes available to the wind energy industry, wind tower
activity is expected to remain depressed. Near term, the water pipe
business is also expected to continue to experience soft market demand as order
backlogs remain well below historical levels. The timing of bid
activity has been negatively affected by the economy, municipal budgets and
availability of financing.
Infrastructure
Products' sales decreased $34.8 million, or 19.4%, in 2009, compared to
2008. The Company’s Hawaii Division had lower sales as residential
and commercial construction markets in Hawaii contracted. Demand for
aggregates and ready-mix concrete on both Oahu and Maui declined as construction
spending continued to soften due to the recessionary
economy. Military and governmental spending held steady in
Hawaii. 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. Housing starts and permits in the U.S. remain at historically
low levels, and recovery of the residential market is not expected in the short
term.
Gross
Profit
Gross
profit in 2009 was $145.5 million, or 26.6% of sales, compared to $153.6
million, or 23.0% of sales, in 2008. Gross profit decreased $8.2
million in 2009, compared to 2008, due to lower sales offset by better cost
control, improved plant efficiencies, lower LIFO reserves, favorable product mix
and lower raw material costs.
Fiberglass-Composite
Pipe Group's gross profit decreased $14.8 million in 2009, compared to
2008. Profit margins improved to 41.4% in 2009, compared to 39.5% in
2008. Margins were higher in 2009 due to favorable product mix, plant
efficiencies and lower raw material costs. Decreased sales, from lower volume
and prices, reduced gross profit by $19.2 million, offset by favorable product
mix and operating efficiencies of $4.4 million in 2009.
Water
Transmission Group's gross profit increased $17.3 million in 2009, compared to
2008. Profit margins increased to 11.9% in 2009, compared to 1.8% in
2008. Improved profit margins resulted from plant efficiencies with
the completion of newly-constructed wind tower facility, cost controls and
completion of low-margin pipe projects in 2008.
Gross
profit in the Infrastructure Products Group decreased $11.5 million in 2009,
compared to 2008. Profit margins declined to 19.2% in 2009, compared
to 21.9% in 2008. Margins were lower in 2009 due to pricing pressures
related to challenging market conditions. Lower sales negatively
impacted gross profit by $7.6 million in 2009, while lower margins primarily
related to unfavorable plant utilization decreased gross profit by an additional
$3.9 million in 2009.
Consolidated
gross profit was $2.1 million higher in 2009 than in 2008 due to decreased
reserves in 2009 associated with LIFO accounting of certain steel inventories
used by the Water Transmission Group due to lower LIFO inventory quantities and
a decrease in steel prices. LIFO reserves are not allocated to the
operating segments.
Selling,
General and Administrative Expenses
Selling,
general and administrative ("SG&A") expenses totaled $100.0 million, or
18.3% of sales, in 2009, compared to $98.2 million, or 14.7% of sales, in
2008. The $1.8 million increase in SG&A was due to higher pension
expense of $8.0 million, higher legal expenses of $1.9 million, due primarily to
the U.S. Treasury Department’s Office of Foreign Assets Control (“OFAC”)
inquiry, offset by lower stock compensation costs of approximately $2.2 million,
favorable foreign exchange impact of $1.8 million, lower insurance premiums of
$1.6 million and lower other expenses of $2.5 million.
Other
Income, Net
Other
income totaled $7.4 million in 2009, compared to $8.2 million in
2008. The decrease in other income in 2009 was due primarily to
higher dividends from joint ventures of $.8 million, higher gains on asset sales
of $.5 million, and lower foreign currency losses of $.2 million, more than
offset by $.5 million lower royalties and $1.8 million lower scrap inventory
sales.
Interest
Net
interest totaled $.6 million in 2009, compared to $1.5 million in 2008. Interest
income was $1.1 million in 2009, a decrease of $2.7 million compared to 2008,
due to lower interest rates on short-term investments. Interest
expense declined from $.5 million in 2009 to $2.3 million in 2008, due to lower
debt levels.
Provision
for Income Taxes
Income
taxes decreased to $15.5 million in 2009, from $17.0 million in
2008. The effective tax rate on income from continuing operations
increased to 29.0% in 2009, from 26.0% in 2008. The effective tax
rate in 2009 was reduced by tax benefits of $1.2 million associated with the
adjustment to a deferred tax liability related to earnings and profits from the
Company’s former New Zealand subsidiary. The $1.2 million adjustment
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 rate in
2008 was reduced by tax benefits of $2.9 million associated with tax years no
longer subject to audit and settlement of the 2005-2006 Internal Revenue Service
(“IRS”) examinations. Income from certain foreign operations and
joint ventures is taxed at rates that are lower than the U.S. statutory tax
rates. For both 2008 and 2009, the Company provided a full valuation
allowance for the net operating loss carry-overs of its foreign subsidiaries
except its subsidiary in the Netherlands. The Company released $1.3
million in 2009 and $1.1 million in 2008 of valuation allowance for deferred tax
assets related to the Netherlands subsidiary due to profitability in 2008 and
projected future profitability.
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 $5.5 million in 2009, compared
to income of $10.3 million in 2008. Equity income is shown net of
income taxes at an effective rate of 7.8% and 9.6% in 2009 and 2008,
respectively, reflecting the dividend exclusion provided to the Company under
tax laws. The decline 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 of 2009 and had
limited production during the remainder of 2009. Given the low level
of demand, TAMCO will continue to operate its plant intermittently as incoming
orders and inventory levels warrant. Demand for steel rebar in
TAMCO’s key markets in the western U.S. is not expected to recover in the short
term.
Income
from Discontinued Operations, Net of Taxes
Income
from discontinued operations totaled $.8 million in 2009, net of
taxes. In 2006, the Company completed the sale of the Coatings
Business to PPG Industries, Inc. ("PPG"). As part of the sale, PPG
agreed to pay to the Company future dividends from Oasis-Ameron, Ltd. (“OAL”), a
former joint venture of the Company held by the Coatings Business, up to the
amount of OAL’s unremitted earnings at the time of the sale of the Coatings
Business to PPG. In 2009, the Company recorded $1.2 million, net of
tax, from PPG in exchange for any claims on OAL’s dividends. Also in
2009, the Company wrote down by $.4 million, net of tax, real property formerly
used by the Coatings Business and currently held for sale. The write
down was due to declining real estate values.
RESULTS
OF OPERATIONS: 2008 COMPARED WITH 2007
General
Income
from continuing operations totaled $58.6 million, or $6.39 per diluted share, on
sales of $667.5 million in the year ended November 30, 2008, compared to $61.1
million, or $6.73 per diluted share, on sales of $631.0 million in 2007.
Income from continuing operations was lower in 2008 due principally to $5.3
million of tax benefits recognized in 2007 associated with the dissolution of
the Company’s wholly-owned United Kingdom subsidiary. The
Fiberglass-Composite Pipe Group had higher sales and income due to continued
strength in energy and marine markets and the acquisition of the business of
Polyplaster. The Water Transmission Group had higher sales primarily
due to wind towers and larger losses due to the weak pipe market and inefficient
pipe and wind tower production. The Infrastructure Products Group had
lower sales and income due to declines by both the Hawaii division and the Pole
Products division due to declining construction markets. Equity in
earnings of TAMCO, Ameron's 50%-owned steel mini-mill in California, decreased
by $5.0 million in 2008, compared to 2007, due to the decline in the steel
market.
Income
from discontinued operations, net of taxes, totaled $6.1 million, or $.67 per
diluted share, in 2007. In 2007, the Company completed disposition of
several retained properties formerly used by the Coatings Business and
recognized a net gain of $5.3 million. Also in 2007, the Company
recognized a net gain of $.1 million from the final settlement of the sale of
the Coatings Business, $.2 million of research and development credits and $.7
million of tax benefits.
Sales
Sales
increased $36.5 million in 2008, compared to 2007. Sales increased due to
higher demand for fiberglass piping, the impact of foreign exchange rates on the
Company’s Asian and European operations and expansion of the Company’s
capabilities to manufacture large-diameter wind towers, offset by lower sales
into weak residential construction markets.
Fiberglass-Composite
Pipe's sales increased $36.3 million, or 15.3%, in 2008, compared to 2007.
Sales from operations in the U.S. increased $10.2 million in 2008 primarily due
to increase demand for onshore oilfield piping which more than offset a decline
in demand for industrial piping. Sales from Asian subsidiary operations
increased $22.8 million in 2008, driven by activity in the industrial, marine
and offshore segments and the impact of foreign exchange. Sales from
European operations decreased $12.2 million in 2008 primarily due to a decline
in onshore oilfield and industrial piping, partially offset by favorable foreign
exchange. The Brazilian business acquired at the end of 2007 contributed
sales of $16.8 million in 2008, compared to $1.3 million in 2007. The
strong demand for onshore oilfield, offshore, industrial and marine piping
continued to be driven by high oil prices and the high cost of steel piping, the
principal substitute for fiberglass pipe, during most of the year.
Water
Transmission’s sales increased $25.0 million, or 13.2%, in 2008, compared to
2007. The sales increase was driven by the Company’s expansion into the
market for large-diameter wind towers and by its operation in South America,
which benefited from increased demand for water pipe in
Colombia. Sales of water pipe into domestic markets were slightly
higher. Sales of wind towers increased $19.7 million, or 42%, in
2008, compared to 2007. The water infrastructure market in the
western U.S., including California, Arizona and Nevada, remained weak, with bid
activity in some markets at the lowest levels in recent history. The
slow market was adversely affected by a number of factors including the normal
cycle for large diameter, high pressure water transmission pipelines,
governmental budget problems and overall project costs.
Infrastructure
Products' sales decreased $26.7 million, or 13.0%, in 2008, compared to
2007. The Company’s Hawaiian division had lower sales as construction
markets in Hawaii began to weaken. Pole Products was impacted by the
decline in U.S. housing markets and reduced demand for concrete lighting
poles.
Gross
Profit
Gross
profit in 2008 was $153.6 million, or 23.0% of sales, compared to $146.0
million, or 23.1% of sales, in 2007. Gross profit increased $7.6 million
due to higher sales, as the negative impact of production inefficiencies in 2008
was offset in large part by lower LIFO reserves than in 2007. The
gross profit margin decrease related to under utilization of pole production,
competitive pricing pressures caused by soft market conditions and inefficient
production by the Water Transmission Group, substantially offset by the
Fiberglass-Composite Pipe Group’s profit margin improvement.
Fiberglass-Composite
Pipe Group's gross profit increased $22.5 million in 2008, compared to
2007. Profit margins improved to 39.5% in 2008, compared to 36.0% in
2007. Higher margins resulted from improvements in product and market
mix, price increases and improved plant utilization. Increased sales, from
higher volume and prices, generated additional gross profit of $13.1 million,
while favorable product mix and operating efficiencies generated additional
gross profit of $9.4 million in 2008.
Water
Transmission Group's gross profit decreased $10.1 million in 2008, compared to
2007. Profit margins declined to 1.8% in 2008, compared to 7.3% in
2007. Higher sales increased profit by $1.8 million in
2008. Lower margins reduced gross profit by $11.9 million due to an
unfavorable mix of projects, start-up costs associated with the expansion into
wind towers, underutilization of plant capacity, production inefficiencies and
pricing pressures due to market condition.
Gross
profit in the Infrastructure Products Group decreased $12.4 million in 2008,
compared to 2007. Profit margins declined to 21.9% in 2008, compared to
25.1% in 2007. Lower sales reduced gross profit by $6.7 million, while
unfavorable plant utilization and pricing pressures due to market conditions
lowered gross profit by $5.7 million in 2008.
Consolidated
gross profit was $5.5 million higher in 2008 than in 2007 due to decreased
reserves in 2008 associated with LIFO accounting of certain steel inventories
used by the Water Transmission Group.
Selling,
General and Administrative Expenses
SG&A
expenses totaled $98.2 million, or 14.7% of sales, in 2008, compared to $97.9
million, or 15.5% of sales, in 2007. The $.3 million increase in SG&A
included $3.5 million from Polyplaster and other Brazilian operations, higher
stock compensation expense of $2.2 million and higher insurance expense of $1.4
million, offset by lower pension expense of $3.9 million, primarily due to
improved funding of the pension plans, lower management incentive compensation
of $1.5 million and lower auditing and consulting fees of $1.4
million. The reduction in SG&A as a percent of sales was due to
spending controls and the leverage achieved from higher sales.
Other
Income, Net
Other
income was $8.2 million in 2008, compared to $6.0 million in
2007. The increase in other income in 2008 was due primarily to $1.5
million higher dividend income from affiliates and $2.7 million proceeds from
insurance reimbursements, offset by $1.4 million of foreign exchange loss and
$.6 million lower miscellaneous income. Other income also included
royalties and fees from licensees, foreign currency transaction losses and other
miscellaneous income.
Interest
Net
interest income totaled $1.5 million in 2008, compared to net interest income of
$1.9 million in 2007. Net interest income was lower due to lower interest
on short-term investments due to lower overall interest rates, partially offset
by lower outstanding debt during 2008.
Provision
for Income Taxes
Income
taxes increased to $17.0 million in 2008, from $10.4 million in
2007. The effective tax rate on income from continuing operations
increased to 26.0% in 2008, from 18.5% in 2007. The effective tax
rate in 2008 was reduced by tax benefits of $2.9 million associated with tax
years no longer subject to audit and settlement of the 2005-2006 IRS
examinations. The effective tax rate in 2007 was reduced by tax
benefits of $5.3 million associated with the decision to dissolve the Company’s
wholly-owned United Kingdom subsidiary. For both 2007 and 2008, the
Company provided a full valuation allowance for the net operating loss
carry-overs of its foreign subsidiaries except its subsidiary in the
Netherlands. The Company released $1.1 million in 2008 and $3.2
million in 2007 of valuation allowance for deferred tax assets related to the
Netherlands subsidiary due to profitability in 2008 and 2007 and projected
future profitability.
Equity
in Earnings of Joint Venture, Net of Taxes
Equity
income decreased to $10.3 million in 2008, compared to $15.4 million in
2007. Dividends from TAMCO were taxed at an effective rate of 9.6% in 2008
and 2007, reflecting the dividend exclusion provided to the Company under
current tax laws. The decline in TAMCO’s earnings was due to the
difficult conditions in the steel market.
Income
from Discontinued Operations, Net of Taxes
Income
from discontinued operations totaled $6.1 million in 2007. In 2007,
the Company completed disposition of several retained properties formerly used
by the Coatings Business and recognized a net gain of $5.3
million. In 2007, the Company recognized a net gain of $.1 million
from the final settlement of the sale of the Coatings Business. In
addition, in 2007 the Company recognized $.2 million of research and development
tax credits related to the retroactive application of tax legislation and $.6
million of net tax benefit due to an adjustment in tax expense related to the
gain on sale of the business.
OFF-BALANCE
SHEET FINANCING
The
Company does not have any off-balance sheet financing, other than listed in the
Liquidity and Capital Resources section herein. All of the Company's
subsidiaries are included in the financial statements, and the Company does not
have relationships with any special purpose entities.
CONTINGENCIES
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 440.0 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 $60.0 million, a figure which the
Company contests. This matter is in discovery, and trial is currently
scheduled to commence on April 12, 2010. 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 $20.0 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.
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 $8.0 million, a
figure which the Company contests. This matter is in discovery, and
trial is currently scheduled to commence on October 12, 2010. 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 November 30, 2009, the
Company was a defendant in 20 asbestos-related cases, compared to 23 cases as of
August 30, 2009. During the quarter ended November 30, 2009, there
were four new asbestos-related cases, seven cases dismissed, no 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 conducted an internal inquiry and responded to
OFAC. In the year ended November 30, 2009, the Company incurred $3.8
million for legal and professional fees in connection with this
matter. 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.
NEW
ACCOUNTING PRONOUNCEMENTS
In July
2006, the Financial Accounting Standards Board (“FASB”) clarified the accounting
for uncertainty in income taxes recognized in an entity’s financial statements
and prescribes a recognition threshold and measurement attribute for financial
statement disclosure of tax positions taken or expected to be taken on a tax
return. The minimum threshold is defined as a tax position that is more
likely than not to be sustained upon examination by the applicable taxing
authority, including resolution of any related appeals or litigation processes,
based on the technical merits of the position. The tax benefit to be
recognized is measured as the largest amount of benefit that is greater than 50
percent likely of being realized upon ultimate settlement. The
guidance must be applied to all existing tax positions upon initial
adoption. The cumulative effect of applying the guidance at adoption
is to be reported as an adjustment to beginning retained earnings for the year
of adoption. The accounting for uncertainty in income taxes was effective
for the first quarter of 2008. Prior to December 1, 2007, the Company
recorded reserves related to uncertain tax positions as a current
liability. Upon adoption, the Company reclassified tax reserves related to
uncertain tax positions for which a cash payment was not expected within the
next 12 months to noncurrent liabilities. The Company’s adoption of
accounting for uncertainty in income taxes did not require a cumulative
adjustment to the opening balance of retained earnings.
In
September 2006, the FASB established a framework for measuring fair value
in accordance with United States Generally Accepted Accounting Principles
(“GAAP”) and expanded disclosure about fair value measurements including valuing
securities in markets that are not active. The Company adopted the
framework for measuring fair value effective December 1, 2007 with the exception
of the application of the framework to non-recurring, non-financial assets and
non-financial liabilities which was adopted as of December 1,
2008. The adoption of the framework for measuring fair value did not
have a significant impact on the Company’s results of operations or financial
position.
In
September 2006, the FASB issued guidance for accounting for deferred
compensation and postretirement benefit aspects of endorsement split-dollar life
insurance arrangements, effective for fiscal years beginning after
December 15, 2007. The guidance 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. 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 adoption of the guidance related to accounting for
deferred compensation and postretirement benefit aspects of endorsement
split-dollar life insurance arrangements did not have a material effect on the
Company’s consolidated financial statements.
In
September 2006, the FASB required companies to recognize the overfunded or
underfunded status of a defined benefit postretirement plan (other than a
multiemployer plan) as an asset or liability in its financial statements and to
recognize changes in that status in the year in which the changes
occur. The guidance also requires a company to measure the funded
status of a plan as of the date of its year-end financial statements. The
Company adopted the recognition provisions in 2008 and the measurement
provisions in 2009. See Note (16) of the Notes to Consolidated
Financial Statements, under Item 8, for information regarding the impact of
adopting the recognition and measurement provisions when accounting for defined
benefit pension and other postretirement plans.
In March
2008, the FASB amended and expanded 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. These requirements were effective for
fiscal years beginning after November 15, 2008. The Company adopted the
amended and expanded disclosure requirements for derivatives instruments and
hedging activities as of December 1, 2008, and adoption did not have a material
effect on the Company’s consolidated financial statements.
In June
2008, the FASB issued guidance requiring that 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. This guidance 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, and the Company will adopt as
of the fiscal year beginning December 1, 2009. The adoption is not
expected to have a material effect on the Company’s consolidated financial
statements.
In
December 2008, the FASB issued revised guidance for employers’ disclosures about
postretirement benefit plan assets effective for fiscal years ending after
December 15, 2009. The FASB 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 Company will adopt the revised guidance as of the fiscal
year ending November 30, 2010. Adoption is not expected to have a
material effect on the Company’s consolidated financial statements.
In April
2009, the FASB required disclosures about fair value of financial instruments
for interim reporting periods of publicly traded companies as well as in annual
financial statements, effective for interim reporting periods ending after June
15, 2009, and required those disclosures in summarized financial information at
interim reporting periods. The Company adopted the new disclosure guidance
over fair value of financial instruments, and adoption did not have a material
effect on the Company’s consolidated financial statements.
In April
2009, the FASB issued guidance which establishes general standards of accounting
for and disclosures of events that occur after the balance sheet date but before
financial statements are issued or are available to be issued (“subsequent
events”). Under the new guidance, entities are required to disclose
the date through which subsequent events were evaluated, as well as the
rationale for why that date was selected. The guidance is effective
for interim and annual periods ending after June 15, 2009. The
Company adopted the provisions of this new guidance as of June 1, 2009, and
adoption did not have a material effect on our consolidated financial
statements. The Company evaluated subsequent events through January
29, 2010.
In June
2009, the FASB issued guidance to revise the approach to determine when a
variable interest entity (“VIE”) should be consolidated. The new
consolidation model for VIE’s considers whether the Company has the power to
direct the activities that most significantly impact the VIE’s economic
performance and shares in the significant risks and rewards of the
entity. The guidance on VIE’s requires companies to continually
reassess VIE’s to determine if consolidation is appropriate and provide
additional disclosures. The guidance is effective for the Company’s
2010 fiscal year. The Company is assessing the potential effect of
this guidance on the consolidated financial statements.
In June
2009, the FASB established the Accounting Standards
Codification ("Codification") as the single source of authoritative
GAAP to be applied by nongovernmental entities, except for the rules
and interpretive releases of the Securities and Exchange Commission (“SEC”)
under authority of federal securities laws, which are sources of
authoritative GAAP for SEC registrants. While not intended to change
GAAP, the Codification significantly changes the way in which the accounting
literature is referenced and organized. The Codification is effective for
financial statements issued for interim and annual periods ending after
September 15, 2009. The Codification was adopted as of August 31,
2009. Adoption did not have a material effect on the Company’s
consolidated financial statements.
ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
Foreign
Currency Risk
The
Company operates internationally, giving rise to exposure to market risks from
changes in foreign exchange rates. From time to time, the Company
borrows in various currencies to reduce the level of net assets subject to
changes in foreign exchange rates or purchases foreign exchange forward and
option contracts to hedge firm commitments, such as receivables and payables,
denominated in foreign currencies. The Company does not use the
contracts for speculative or trading purposes. At November 30, 2009,
the Company had three foreign currency forward contracts expiring at various
dates through September 8, 2010 with a fair value loss of
$16,000. Such instruments are carried at fair value, with related
adjustments recorded in other income.
Debt
Risk
The
Company has variable-rate, short-term and long-term debt as well as fixed-rate,
long-term debt. The fair value of the Company's fixed-rate debt is
subject to changes in interest rates. The estimated fair value of the Company's
variable-rate debt approximates the carrying value of such debt since the
variable interest rates are market-based and the Company believes such debt
could be refinanced on materially similar terms. The Company is
subject to the availability of credit to support new requirements and to
refinance long-term and short-term debt.
At
November 30, 2009, the estimated fair value of notes payable by the Company's
wholly-owned subsidiary in Singapore totaling approximately $22.1 million, with
a fixed rate of 4.25% per annum, was $22.7 million. These notes must be
repaid in installments of approximately $7.4 million per year, and payments
began in 2008. The Company had $7.2 million of variable-rate industrial
development bonds payable at an interest rate of .55% per annum at November 30,
2009, payable in 2016. The Company also had $8.5 million of
variable-rate industrial development bonds payable at an interest rate of .55%
per annum at November 30, 2009, payable in 2021. The industrial
revenue bonds are supported by standby letters of credit issued under the
Revolver, which has a scheduled maturity of August 2012.
|
Total
Outstanding
|
||||||||||||||||||||||||||||||||
|
As
of November 30, 2009
|
||||||||||||||||||||||||||||||||
|
Expected
Maturity Date
|
Recorded
|
Fair
|
||||||||||||||||||||||||||||||
|
(Dollars
in thousands)
|
2010
|
2011
|
2012
|
2013
|
2014
|
Thereafter
|
Value
|
Value
|
||||||||||||||||||||||||
|
Liabilities
|
||||||||||||||||||||||||||||||||
|
Long-term
debt:
|
||||||||||||||||||||||||||||||||
|
Fixed-rate
secured notes, payable in Singapore dollars
|
$ | 7,366 | $ | 7,366 | $ | 7,366 | $ | - | $ | - | $ | - | $ | 22,098 | $ | 22,741 | ||||||||||||||||
|
Average
interest rate
|
4.25 | % | 4.25 | % | 4.25 | % | - | - | - | 4.25 | % | |||||||||||||||||||||
|
Variable-rate
bank revolving credit facilities, payable in Colombian
pesos
|
- | - | 501 | - | - | - | 501 | 501 | ||||||||||||||||||||||||
|
Average
interest rate
|
- | - | 7.10 | % | - | - | - | 7.10 | % | |||||||||||||||||||||||
|
Variable-rate
industrial development bonds, payable in US$
|
- | - | - | - | - | 7,200 | 7,200 | 7,200 | ||||||||||||||||||||||||
|
Average
interest rate
|
- | - | - | - | - | .55 | % | .55 | % | |||||||||||||||||||||||
|
Variable-rate
industrial development bonds, payable in US$
|
- | - | - | - | - | 8,500 | 8,500 | 8,500 | ||||||||||||||||||||||||
|
Average
interest rate
|
- | - | - | - | - | .55 | % | .55 | % | |||||||||||||||||||||||
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA
CONSOLIDATED
STATEMENTS OF INCOME
|
Year
ended November 30,
|
||||||||||||
|
(Dollars
in thousands, except per share data)
|
2009
|
2008
|
2007
|
|||||||||
|
Sales
|
$ | 546,944 | $ | 667,543 | $ | 631,010 | ||||||
|
Cost
of sales
|
(401,492 | ) | (513,922 | ) | (484,981 | ) | ||||||
|
Gross
profit
|
145,452 | 153,621 | 146,029 | |||||||||
|
Selling,
general and administrative expenses
|
(99,976 | ) | (98,166 | ) | (97,870 | ) | ||||||
|
Other
income, net
|
7,448 | 8,222 | 6,030 | |||||||||
|
Income
from continuing operations before interest, income taxes and equity in
(loss)/earnings of joint venture
|
52,924 | 63,677 | 54,189 | |||||||||
|
Interest
income, net
|
588 | 1,533 | 1,927 | |||||||||
|
Income
from continuing operations before income taxes and equity in
(loss)/earnings of joint venture
|
53,512 | 65,210 | 56,116 | |||||||||
|
Provision
for income taxes
|
(15,517 | ) | (16,955 | ) | (10,359 | ) | ||||||
|
Income
from continuing operations before equity in (loss)/earnings of joint
venture
|
37,995 | 48,255 | 45,757 | |||||||||
|
Equity
in (loss)/earnings of joint venture, net of taxes
|
(5,512 | ) | 10,337 | 15,383 | ||||||||
|
Income
from continuing operations
|
32,483 | 58,592 | 61,140 | |||||||||
|
Income
from discontinued operations, net of taxes
|
817 | - | 6,099 | |||||||||
|
Net
income
|
$ | 33,300 | $ | 58,592 | $ | 67,239 | ||||||
|
Basic
earnings per share:
|
||||||||||||
|
Income
from continuing operations
|
$ | 3.54 | $ | 6.42 | $ | 6.77 | ||||||
|
Income
from discontinued operations, net of taxes
|
.09 | - | .68 | |||||||||
|
Net
income
|
$ | 3.63 | $ | 6.42 | $ | 7.45 | ||||||
|
Diluted
earnings per share:
|
||||||||||||
|
Income
from continuing operations
|
$ | 3.54 | $ | 6.39 | $ | 6.73 | ||||||
|
Income
from discontinued operations, net of taxes
|
.09 | - | .67 | |||||||||
|
Net
income
|
$ | 3.63 | $ | 6.39 | $ | 7.40 | ||||||
|
Weighted-average
shares (basic)
|
9,166,558 | 9,124,557 | 9,029,487 | |||||||||
|
Weighted-average
shares (diluted)
|
9,184,771 | 9,169,056 | 9,090,846 | |||||||||
The
accompanying notes are an integral part of these consolidated financial
statements.
CONSOLIDATED
BALANCE SHEETS - ASSETS
|
As
of November 30,
|
||||||||
|
(Dollars
in thousands)
|
2009
|
2008
|
||||||
|
ASSETS
|
||||||||
|
Current
assets
|
||||||||
|
Cash
and cash equivalents
|
$ | 181,114 | $ | 143,561 | ||||
|
Receivables,
less allowances of $5,351in 2009 and $7,009 in 2008
|
151,210 | 181,961 | ||||||
|
Inventories
|
62,700 | 95,645 | ||||||
|
Deferred
income taxes
|
19,795 | 25,582 | ||||||
|
Prepaid
expenses and other current assets
|
11,585 | 10,053 | ||||||
|
Total
current assets
|
426,404 | 456,802 | ||||||
|
Investments
|
||||||||
|
Equity
method venture
|
30,626 | 14,428 | ||||||
|
Cost
method ventures
|
3,784 | 3,784 | ||||||
|
Property,
plant and equipment
|
||||||||
|
Land
|
46,029 | 38,679 | ||||||
|
Buildings
|
100,583 | 85,555 | ||||||
|
Machinery
and equipment
|
345,604 | 306,177 | ||||||
|
Construction
in progress
|
32,306 | 37,386 | ||||||
|
Total
property, plant and equipment at cost
|
524,522 | 467,797 | ||||||
|
Accumulated
depreciation
|
(286,014 | ) | (261,635 | ) | ||||
|
Total
property, plant and equipment, net
|
238,508 | 206,162 | ||||||
|
Deferred
income taxes
|
14,321 | 4,763 | ||||||
|
Goodwill
and intangible assets, net of accumulated amortization of $1,257 in 2009
and $1,197 in 2008
|
2,088 | 2,108 | ||||||
|
Other
assets
|
46,818 | 38,275 | ||||||
|
Total
assets
|
$ | 762,549 | $ | 726,322 | ||||
The
accompanying notes are an integral part of these consolidated financial
statements.
CONSOLIDATED
BALANCE SHEETS - LIABILITIES AND STOCKHOLDERS' EQUITY
|
As
of November 30,
|
||||||||
|
(Dollars
in thousands, except per share data)
|
2009
|
2008
|
||||||
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
||||||||
|
Current
liabilities
|
||||||||
|
Current
portion of long-term debt
|
$ | 7,366 | $ | 16,763 | ||||
|
Trade
payables
|
44,052 | 52,613 | ||||||
|
Accrued
liabilities
|
77,515 | 79,538 | ||||||
|
Income
taxes payable
|
10,004 | 10,443 | ||||||
|
Total
current liabilities
|
138,937 | 159,357 | ||||||
|
Long-term
debt, less current portion
|
30,933 | 35,989 | ||||||
|
Deferred
income taxes
|
1,710 | 3,806 | ||||||
|
Other
long-term liabilities
|
99,379 | 50,050 | ||||||
|
Total
liabilities
|
270,959 | 249,202 | ||||||
|
Commitments
and contingencies
|
||||||||
|
Stockholders'
equity
|
||||||||
|
Common
Stock, par value $2.50 per share, authorized 24,000,000 shares,
outstanding 9,209,836 shares in 2009 and 9,188,692 shares in 2008, net of
treasury shares
|
29,920 | 29,805 | ||||||
|
Additional
paid-in capital
|
59,531 | 54,447 | ||||||
|
Retained
earnings
|
500,224 | 478,968 | ||||||
|
Accumulated
other comprehensive loss
|
(42,036 | ) | (31,475 | ) | ||||
|
Treasury
Stock (2,758,356 shares in 2009 and 2,733,300 shares in
2008)
|
(56,049 | ) | (54,625 | ) | ||||
|
Total
stockholders' equity
|
491,590 | 477,120 | ||||||
|
Total
liabilities and stockholders' equity
|
$ | 762,549 | $ | 726,322 | ||||
The
accompanying notes are an integral part of these consolidated financial
statements.
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS' EQUITY
|
Common
Stock
|
Accumulated
|
|||||||||||||||||||||||||||
|
Additional
|
Other
|
|||||||||||||||||||||||||||
|
Shares
|
Paid-in
|
Retained
|
Comprehensive
|
Treasury
|
||||||||||||||||||||||||
|
(Dollars
in thousands)
|
Outstanding
|
Amount
|
Capital
|
Earnings
|
Loss
|
Stock
|
Total
|
|||||||||||||||||||||
|
Balance,
November 30, 2006
|
9,075,094 | $ | 29,431 | $ | 39,500 | $ | 371,894 | $ | (27,232 | ) | $ | (50,368 | ) | $ | 363,225 | |||||||||||||
|
Net
Income - 2007
|
- | - | - | 67,239 | - | - | 67,239 | |||||||||||||||||||||
|
Exercise
of stock options
|
49,125 | 106 | 1,456 | - | - | - | 1,562 | |||||||||||||||||||||
|
Foreign
currency translation adjustment
|
- | - | - | - | 8,210 | - | 8,210 | |||||||||||||||||||||
|
Minimum
pension liability adjustment, net of tax
|
- | - | - | - | 15,237 | - | 15,237 | |||||||||||||||||||||
|
Adjustment
for initial adoption of SFAS No. 158, net of tax
|
- | - | - | - | (6,035 | ) | - | (6,035 | ) | |||||||||||||||||||
|
Comprehensive
loss from joint venture
|
- | - | - | - | (50 | ) | - | (50 | ) | |||||||||||||||||||
|
Cash
dividends on Common Stock
|
- | - | - | (8,208 | ) | - | - | (8,208 | ) | |||||||||||||||||||
|
Stock
compensation expense
|
- | - | 103 | - | - | - | 103 | |||||||||||||||||||||
|
Issuance
of restricted stock
|
34,550 | 86 | (86 | ) | - | - | - | - | ||||||||||||||||||||
|
Excess
tax benefit related to stock-based compensation
|
- | - | 1,955 | - | - | - | 1,955 | |||||||||||||||||||||
|
Restricted
stock compensation expense
|
- | - | 3,747 | - | - | - | 3,747 | |||||||||||||||||||||
|
Treasury
stock purchase
|
(20,206 | ) | - | - | - | - | (1,612 | ) | (1,612 | ) | ||||||||||||||||||
|
Balance,
November 30, 2007
|
9,138,563 | 29,623 | 46,675 | 430,925 | (9,870 | ) | (51,980 | ) | 445,373 | |||||||||||||||||||
|
Net
Income - 2008
|
- | - | - | 58,592 | - | - | 58,592 | |||||||||||||||||||||
|
Exercise
of stock options
|
28,750 | 72 | 348 | - | - | - | 420 | |||||||||||||||||||||
|
Foreign
currency translation adjustment
|
- | - | - | - | (11,860 | ) | - | (11,860 | ) | |||||||||||||||||||
|
Defined
benefit pension plans, net of tax
|
||||||||||||||||||||||||||||
|
Net
prior service cost
|
- | - | - | - | (200 | ) | - | (200 | ) | |||||||||||||||||||
|
Net
actuarial loss
|
- | - | - | - | (8,666 | ) | - | (8,666 | ) | |||||||||||||||||||
|
Forfeiture
of restricted stock
|
- | - | 91 | - | - | (91 | ) | - | ||||||||||||||||||||
|
Comprehensive
loss from joint venture
|
- | - | - | - | (879 | ) | - | (879 | ) | |||||||||||||||||||
|
Cash
dividends on Common Stock
|
- | - | - | (10,549 | ) | - | - | (10,549 | ) | |||||||||||||||||||
|
Stock
compensation expense
|
- | - | 76 | - | - | - | 76 | |||||||||||||||||||||
|
Issuance
of restricted stock
|
44,200 | 110 | (110 | ) | - | - | - | - | ||||||||||||||||||||
|
Excess
tax benefit related to stock-based compensation
|
- | - | 1,330 | - | - | - | 1,330 | |||||||||||||||||||||
|
Restricted
stock compensation expense
|
- | - | 6,037 | - | - | - | 6,037 | |||||||||||||||||||||
|
Treasury
stock purchase
|
(22,821 | ) | - | - | - | - | (2,554 | ) | (2,554 | ) | ||||||||||||||||||
|
Balance,
November 30, 2008
|
9,188,692 | 29,805 | 54,447 | 478,968 | (31,475 | ) | (54,625 | ) | 477,120 | |||||||||||||||||||
|
Net
Income – 2009
|
- | - | - | 33,300 | - | - | 33,300 | |||||||||||||||||||||
|
Foreign
currency translation adjustment
|
- | - | - | - | 18,557 | - | 18,557 | |||||||||||||||||||||
|
Defined
benefit pension plans, net of tax
|
||||||||||||||||||||||||||||
|
Net
prior service cost
|
- | - | - | (993 | ) | 113 | - | (880 | ) | |||||||||||||||||||
|
Net
actuarial loss
|
- | - | - | - | (26,785 | ) | - | (26,785 | ) | |||||||||||||||||||
|
Forfeiture
of restricted stock
|
(5,655 | ) | 432 | (432 | ) | - | ||||||||||||||||||||||
|
Comprehensive
loss from joint venture
|
- | - | - | - | (2,446 | ) | - | (2,446 | ) | |||||||||||||||||||
|
Cash
dividends on Common Stock
|
- | - | - | (11,051 | ) | - | - | (11,051 | ) | |||||||||||||||||||
|
Stock
compensation expense
|
- | - | 38 | - | - | - | 38 | |||||||||||||||||||||
|
Issuance
of restricted stock
|
46,200 | 115 | (115 | ) | - | - | - | - | ||||||||||||||||||||
|
Excess
tax benefit related to stock-based compensation
|
- | - | 831 | - | - | - | 831 | |||||||||||||||||||||
|
Restricted
stock compensation expense
|
- | - | 3,898 | - | - | - | 3,898 | |||||||||||||||||||||
|
Treasury
stock purchase
|
(19,401 | ) | - | - | - | - | (992 | ) | (992 | ) | ||||||||||||||||||
|
Balance,
November 30, 2009
|
9,209,836 | $ | 29,920 | $ | 59,531 | $ | 500,224 | $ | (42,036 | ) | $ | (56,049 | ) | $ | 491,590 | |||||||||||||
The
accompanying notes are an integral part of these consolidated financial
statements.
CONSOLIDATED
STATEMENTS OF COMPREHENSIVE INCOME
|
Year
ended November 30,
|
||||||||||||
|
(In
thousands)
|
2009
|
2008
|
2007
|
|||||||||
|
Net
income
|
$ | 33,300 | $ | 58,592 | $ | 67,239 | ||||||
|
Foreign
currency translation adjustment
|
18,557 | (11,860 | ) | 8,210 | ||||||||
|
Defined
benefit pension plans, net of tax
|
15,237 | |||||||||||
|
Net
prior service cost
|
113 | (200 | ) | - | ||||||||
|
Net
actuarial loss
|
(26,785 | ) | (8,666 | ) | - | |||||||
|
Comprehensive
loss from joint venture, net of tax
|
(2,446 | ) | (879 | ) | (50 | ) | ||||||
|
Comprehensive
income
|
$ | 22,739 | $ | 36,987 | $ | 90,636 | ||||||
The
accompanying notes are an integral part of these consolidated financial
statements.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
Year
ended November 30,
|
||||||||||||
|
(In
thousands)
|
2009
|
2008
|
2007
|
|||||||||
|
OPERATING
ACTIVITIES
|
||||||||||||
|
Net
income
|
$ | 33,300 | $ | 58,592 | $ | 67,239 | ||||||
|
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
||||||||||||
|
Depreciation
|
22,072 | 20,320 | 16,993 | |||||||||
|
Amortization
|
36 | 89 | 41 | |||||||||
|
(Benefit)/provision
for deferred income taxes
|
13,334 | (3,509 | ) | 7,016 | ||||||||
|
Loss/(earnings
in excess of distributions) from joint ventures
|
5,978 | (630 | ) | (227 | ) | |||||||
|
(Gain)/loss
from sale of property, plant and equipment
|
(451 | ) | 68 | 17 | ||||||||
|
(Gain)/loss
from sale of discontinued operations
|
- | - | (5,943 | ) | ||||||||
|
Stock
compensation expense
|
3,936 | 6,113 | 3,850 | |||||||||
|
Non-cash
write-down of assets
|
- | - | 643 | |||||||||
|
Changes
in operating assets and liabilities:
|
||||||||||||
|
Receivables,
net
|
34,343 | 1,381 | (21,747 | ) | ||||||||
|
Inventories
|
35,910 | 3,846 | (19,200 | ) | ||||||||
|
Prepaid
expenses and other current assets
|
(1,118 | ) | 1,802 | 3,847 | ||||||||
|
Other
assets
|
(7,304 | ) | (5,473 | ) | (440 | ) | ||||||
|
Trade
payables
|
(10,675 | ) | 8,688 | (1,626 | ) | |||||||
|
Accrued
liabilities and income taxes payable
|
(5,317 | ) | (6,129 | ) | 14,024 | |||||||
|
Other
long-term liabilities and deferred income taxes
|
1,813 | 3,272 | (1,284 | ) | ||||||||
|
Net
cash provided by operating activities
|
125,857 | 88,430 | 63,203 | |||||||||
|
INVESTING
ACTIVITIES
|
||||||||||||
|
Proceeds
from sale of property, plant and equipment
|
1,951 | 1,575 | 288 | |||||||||
|
Proceeds
from sale of discontinued operations
|
- | - | 16,319 | |||||||||
|
Acquisitions
|
- | - | (5,977 | ) | ||||||||
|
Additions
to property, plant and equipment
|
(46,874 | ) | (60,697 | ) | (47,697 | ) | ||||||
|
Investment
in joint venture
|
(10,000 | ) | - | - | ||||||||
|
Loan
to joint venture
|
(15,000 | ) | - | - | ||||||||
|
Net
cash used in investing activities
|
(69,923 | ) | (59,122 | ) | (37,067 | ) | ||||||
|
FINANCING
ACTIVITIES
|
||||||||||||
|
Issuance
of debt
|
463 | - | 2,483 | |||||||||
|
Repayment
of debt
|
(16,985 | ) | (21,126 | ) | (12,708 | ) | ||||||
|
Debt
issuance costs
|
(1,049 | ) | - | - | ||||||||
|
Dividends
on Common Stock
|
(11,051 | ) | (10,549 | ) | (8,208 | ) | ||||||
|
Issuance
of Common Stock
|
- | 420 | 1,562 | |||||||||
|
Excess
tax benefits related to stock-based compensation
|
831 | 1,330 | 1,955 | |||||||||
|
Purchase
of treasury stock
|
(992 | ) | (2,554 | ) | (1,612 | ) | ||||||
|
Net
cash used in financing activities
|
(28,783 | ) | (32,479 | ) | (16,528 | ) | ||||||
|
Effect
of exchange rate changes on cash and cash equivalents
|
10,402 | (8,701 | ) | 6,346 | ||||||||
|
Net
change in cash and cash equivalents
|
37,553 | (11,872 | ) | 15,954 | ||||||||
|
Cash
and cash equivalents at beginning of year
|
143,561 | 155,433 | 139,479 | |||||||||
|
Cash
and cash equivalents at end of year
|
$ | 181,114 | $ | 143,561 | $ | 155,433 | ||||||
The
accompanying notes are an integral part of these consolidated financial
statements.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles
of Consolidation
The
consolidated financial statements include the accounts of Ameron International
Corporation and all wholly-owned subsidiaries ("Ameron" or the
"Company"). All material intercompany accounts and transactions have
been eliminated.
Reclassifications
Certain
prior-year balances have been reclassified to conform with the current-year
presentation.
Use
of Estimates
The
preparation of financial statements in conformity with United States Generally
Accepted Accounting Principles (“GAAP”) requires Management to make certain
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities and the reported
amounts of revenues and expenses. Significant estimates include
revenue and costs recorded under percentage-of-completion accounting,
assumptions related to benefit plans and reserves associated with management
incentives, receivables, inventories, income taxes, self insurance and
environmental and legal contingencies. Actual results could differ
from those estimates.
Revenue
Recognition
Revenue
for the Fiberglass-Composite Pipe and Infrastructure Products segments is
recognized when risk of ownership and title pass, primarily at the time goods
are shipped, provided that an agreement exists between the customer and the
Company, the price is fixed or determinable and collection is reasonably
assured. Revenue is recognized for the Water Transmission Group
primarily under the percentage-of-completion method, typically based on
completed units of production, since products are manufactured under enforceable
and binding construction contracts, are typically designed for specific
applications, are not interchangeable between projects, and are not manufactured
for stock. In those cases in which products are manufactured for
stock or are not related to specific construction contracts, revenue is
recognized under the same criteria used by the other 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.
Research
and Development Costs
Research
and development costs, which relate primarily to the development, design and
testing of products, are expensed as incurred. Such costs, which are included in
selling, general and administrative expenses, were $8,041,000 in 2009,
$6,723,000 in 2008, and $5,724,000 in 2007.
Environmental
Clean-up Costs and Other Claims
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 the Company’s legal counsel. When the
Company's exposures can be reasonably estimated and are probable, liabilities
and expenses are recorded.
Income
Taxes
Deferred
income tax assets and liabilities are computed for differences between the
financial statement and income tax bases of assets and
liabilities. Such deferred income tax asset and liability
computations are based on enacted tax laws and rates applicable to periods in
which the differences are expected to reverse. Valuation allowances
are established to reduce deferred income tax assets to the amounts expected to
be realized.
The Company is subject to income taxes in the U.S. and in numerous foreign jurisdictions. Judgments, estimates and assumptions are required in determining tax return reporting positions and in calculating provisions for income taxes, which are based on interpretations of tax regulations and accounting pronouncements. Liabilities are established for uncertain tax positions when it is more likely than not that such positions will be challenged and may not be sustained upon review by taxing authorities. These liabilities are established through the income tax provisions and are recorded as liabilities on the consolidated balance sheets. These liabilities are recalculated as governing laws and facts and circumstances change, such as the closing of a tax audit or the expiration of the statute of limitations for a specific exposure.
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. Following is a
reconciliation of the weighted-average number of shares used in the computation
of basic and diluted net income per share:
|
(Dollars
In thousands, except per share data)
|
2009
|
2008
|
2007
|
|||||||||
|
Numerator:
|
||||||||||||
|
Income
from continuing operations
|
$ | 32,483 | $ | 58,592 | $ | 61,140 | ||||||
|
Income
from discontinued operations, net of taxes
|
817 | - | 6,099 | |||||||||
|
Net
income
|
$ | 33,300 | $ | 58,592 | $ | 67,239 | ||||||
|
Denominator
for basic income per share:
|
||||||||||||
|
Weighted-average
shares outstanding, basic
|
9,166,558 | 9,124,557 | 9,029,487 | |||||||||
|
Denominator
for diluted income per share:
|
||||||||||||
|
Weighted-average
shares outstanding, basic
|
9,166,558 | 9,124,557 | 9,029,487 | |||||||||
|
Dilutive
effect of stock options and restricted stock
|
18,213 | 44,499 | 61,359 | |||||||||
|
Weighted-average
shares outstanding, diluted
|
9,184,771 | 9,169,056 | 9,090,846 | |||||||||
|
Basic
net income per share:
|
||||||||||||
|
Income
from continuing operations
|
$ | 3.54 | $ | 6.42 | $ | 6.77 | ||||||
|
Income
from discontinued operations, net of taxes
|
.09 | - | .68 | |||||||||
|
Net
income
|
$ | 3.63 | $ | 6.42 | $ | 7.45 | ||||||
|
Diluted
net income per share:
|
||||||||||||
|
Income
from continuing operations
|
$ | 3.54 | $ | 6.39 | $ | 6.73 | ||||||
|
Income
from discontinued operations, net of taxes
|
.09 | - | .67 | |||||||||
|
Net
income
|
$ | 3.63 | $ | 6.39 | $ | 7.40 | ||||||
Stock
options for the purchase of 39,483, 58,802 and 19,350 shares of Common Stock
were excluded from the above calculation for the years ended November 30, 2009,
2008 and 2007, respectively, as the effect of those options was
anti-dilutive.
Cash
and Cash Equivalents
Cash
equivalents represent highly liquid investments with original maturities of
three months or less when purchased.
Inventory Valuation
Inventories
are stated at the lower of cost or market with cost determined principally on
the first-in, first-out ("FIFO") method except for certain steel inventories
used by the Water Transmission Group that are valued using the last-in,
first-out ("LIFO") method. Significant changes in steel levels or costs
could materially impact the Company's financial statements. Reserves are
established for excess, obsolete and rework inventories based on estimates of
salability and forecasted future demand.
Joint
Ventures
Investments
in unconsolidated joint ventures or affiliates ("joint ventures") over which the
Company has significant influence are accounted for under the equity method of
accounting, whereby the investment is carried at the cost of acquisition,
including subsequent capital contributions and loans from the Company, plus the
Company's equity in undistributed earnings or losses since acquisition.
Investments in joint ventures which the Company does not have the ability to
exert significant influence over the investees' operating and financing
activities are accounted for under the cost method of accounting. The
Company's investment in TAMCO, a steel mini-mill in California, is accounted for
under the equity method. Investments in Ameron Saudi Arabia, Ltd. and
Bondstrand, Ltd. are accounted for under the cost method due to Management's
current assessment of the Company's influence over these joint
ventures.
Property,
Plant and Equipment
Items
capitalized as property, plant and equipment, including improvements to existing
facilities, are recorded at cost. Construction in progress represents
capital expenditures incurred for assets not yet placed in
service. Capitalized interest was $1,600,000 and $1,000,000 for the
years ended November 30, 2009 and 2008, respectively. Depreciation is
computed principally using the straight-line method based on estimated useful
lives of the assets. Leasehold improvements are amortized over the shorter of
the life of the improvement or the term of the lease. Useful lives
are as follows:
|
Useful
Lives
|
|
|
(in
years)
|
|
|
Buildings
|
10-40
|
|
Machinery
and equipment
|
|
|
Autos,
trucks and trailers
|
3-8
|
|
Cranes
and tractors
|
5-15
|
|
Manufacturing
equipment
|
3-15
|
|
Other
|
3-20
|
Goodwill
and Intangible Assets
Intangible
assets are amortized on a straight-line basis over periods ranging from three to
15 years.
The cost
of an acquired business is allocated to the acquired net assets based on the
estimated fair values at the date of acquisition. The excess of the
cost of an acquired business over the aggregate fair value is recorded as
goodwill. Goodwill is not amortized, but instead tested for
impairment at least annually. Such tests require Management to make
estimates about future cash flows and other factors to determine the fair value
of the respective assets.
The
Company reviews the recoverability of intangible and other long-lived assets for
impairment whenever events or changes in circumstances indicate that the
carrying value of such assets may not be recoverable. If the
estimated, future, undiscounted cash flows from the use of an asset are less
than its carrying value, a write-down is recorded to reduce the related asset to
estimated fair value.
Self
Insurance
The
Company typically utilizes third-party insurance subject to varying retention
levels (deductibles or primary self insurance) and aggregate
limits. The Company is self insured for a portion of the losses and
liabilities primarily associated with workers' compensation claims and general,
product and vehicle liability. Losses are accrued based upon the
Company's estimates of the aggregate liability for claims incurred using
historical experience and certain actuarial assumptions followed in the
insurance industry. The estimate of self insurance liability includes
an estimate of incurred but not reported claims, based on data compiled from
historical experience.
Foreign Currency Translation
The
functional currencies for the Company's foreign operations are the applicable
local currencies. The translation from the applicable foreign
currencies to U.S. dollars is performed for balance sheet accounts using current
exchange rates in effect at the balance sheet date and for revenue and expense
accounts using a weighted-average exchange rate during the
period. The resulting translation adjustments are recorded in
accumulated other comprehensive income/(loss). Translation
adjustments arising from intercompany advances that are permanent in nature are
also included in accumulated other comprehensive income/(loss). Gains
or losses resulting from foreign currency transactions are included in other
income, net.
Derivative
Financial Instruments and Risk Management
The
Company operates internationally, giving rise to exposure to market risks from
changes in foreign exchange rates. From time to time, derivative
financial instruments, primarily foreign exchange contracts, are used by the
Company to reduce those risks. The Company does not hold or issue
financial or derivative financial instruments for trading or speculative
purposes. As of November 30, 2009 and 2008, the Company had foreign
currency forward contracts with fair value losses of $16,000 and $63,000,
respectively. The Company does not apply hedge accounting for these
derivative financial instruments. Net changes in fair values of the
underlying instruments are recognized in earnings.
Fair
Value of Financial Instruments
The fair
value of financial instruments, other than long-term debt or derivatives,
approximates the carrying value because of the short-term nature of such
instruments.
Concentration
of Credit Risk
Financial
instruments that subject the Company to credit risk consist primarily of cash
equivalents, trade accounts receivable, and forward foreign exchange
contracts. The Company records an allowance for doubtful accounts
based on historical experience and expected trends. Credit risk with
respect to trade accounts receivable is generally distributed over a large
number of entities comprising the Company's customer base and is geographically
dispersed. The Company performs ongoing credit evaluations of its
customers, maintains an allowance for doubtful accounts and, in certain
instances, maintains credit insurance. The Company actively evaluates
the creditworthiness of the financial institutions with which it conducts
business. If the financial condition of the Company’s customers were
to deteriorate, resulting in an inability to make payment, additional allowances
may be required.
In 2009,
one customer individually accounted for approximately 12% of the Company’s total
consolidated sales. No customer individually accounted for 10% or
more of total consolidated sales in 2008 or 10% or more of gross accounts
receivable as of November 30, 2009 and 2008, respectively.
Other
Comprehensive Loss
The
components of accumulated other comprehensive loss at November 30, were as
follows:
|
2009
|
2008
|
|||||||||||||||||||||||
|
Tax
|
Tax
|
|||||||||||||||||||||||
|
(In
thousands)
|
Before
Tax
|
Benefit
|
Net
of Tax
|
Before
Tax
|
Benefit
|
Net
of Tax
|
||||||||||||||||||
|
Foreign
currency translation adjustment
|
$ | 14,825 | $ | - | $ | 14,825 | $ | (3,732 | ) | $ | - | $ | (3,732 | ) | ||||||||||
|
Comprehensive
loss from TAMCO
|
(4,849 | ) | 378 | (4,471 | ) | (2,025 | ) | - | (2,025 | ) | ||||||||||||||
|
Defined
benefit pension plans
|
||||||||||||||||||||||||
|
Net
actuarial loss
|
(88,588 | ) | 38,116 | (50,472 | ) | (45,010 | ) | 21,322 | (23,688 | ) | ||||||||||||||
|
Net
prior service cost
|
(2,143 | ) | 225 | (1,918 | ) | (2,312 | ) | 282 | (2,030 | ) | ||||||||||||||
|
Accumulated
other comprehensive loss
|
$ | (80,755 | ) | $ | 38,719 | $ | (42,036 | ) | $ | (53,079 | ) | $ | 21,604 | $ | (31,475 | ) | ||||||||
New
Accounting Pronouncements
In July
2006, the Financial Accounting Standards Board (“FASB”) clarified the accounting
for uncertainty in income taxes recognized in an entity’s financial statements
and prescribes a recognition threshold and measurement attribute for financial
statement disclosure of tax positions taken or expected to be taken on a tax
return. The minimum threshold is defined as a tax position that is more
likely than not to be sustained upon examination by the applicable taxing
authority, including resolution of any related appeals or litigation processes,
based on the technical merits of the position. The tax benefit to be
recognized is measured as the largest amount of benefit that is greater than 50
percent likely of being realized upon ultimate settlement. The
guidance must be applied to all existing tax positions upon initial
adoption. The cumulative effect of applying the guidance at adoption
is to be reported as an adjustment to beginning retained earnings for the year
of adoption. The accounting for uncertainty in income taxes was effective
for the first quarter of 2008. Prior to December 1, 2007, the Company
recorded reserves related to uncertain tax positions as a current
liability. Upon adoption, the Company reclassified tax reserves related to
uncertain tax positions for which a cash payment was not expected within the
next 12 months to noncurrent liabilities. The Company’s adoption of
accounting for uncertainty in income taxes did not require a cumulative
adjustment to the opening balance of retained earnings.
In
September 2006, the FASB established a framework for measuring fair value
in accordance with GAAP and expanded disclosure about fair value measurements
including valuing securities in markets that are not active. The
Company adopted the framework for measuring fair value effective December 1,
2007 with the exception of the application of the framework to non-recurring,
non-financial assets and non-financial liabilities which was adopted as of
December 1, 2008. The adoption of the framework for measuring fair
value did not have a significant impact on the Company’s financial results of
operations or financial position.
In
September 2006, the FASB issued guidance for accounting for deferred
compensation and postretirement benefit aspects of endorsement split-dollar life
insurance arrangements, effective for fiscal years beginning after
December 15, 2007. The guidance 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. 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 adoption of the guidance related to accounting for
deferred compensation and postretirement benefit aspects of endorsement
split-dollar life insurance arrangements did not have a material effect on the
Company’s consolidated financial statements.
In
September 2006, the FASB required companies to recognize the overfunded or
underfunded status of a defined benefit postretirement plan (other than a
multiemployer plan) as an asset or liability in its financial statements and to
recognize changes in that status in the year in which the changes
occur. The guidance also requires a company to measure the funded
status of a plan as of the date of its year-end financial statements. The
Company adopted the recognition provisions in 2008 and the measurement
provisions in 2009.
In March
2008, the FASB amended and expanded 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. These requirements were effective for
fiscal years beginning after November 15, 2008. The Company adopted the
amended and expanded disclosure requirements for derivatives instruments and
hedging activities as of December 1, 2008, and adoption did not have a material
effect on the Company’s consolidated financial statements.
In June
2008, the FASB issued guidance requiring that 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. This guidance 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, and the Company will adopt as
of the fiscal year beginning December 1, 2009. The adoption is not
expected to have a material effect on the Company’s consolidated financial
statements.
In
December 2008, the FASB issued revised guidance for employers’ disclosures about
postretirement benefit plan assets effective for fiscal years ending after
December 15, 2009. The FASB 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 Company will adopt the revised guidance as of the fiscal
year ending November 30, 2010. Adoption is not expected to have a
material effect on the Company’s consolidated financial statements.
In April
2009, the FASB required disclosures about fair value of financial instruments
for interim reporting periods of publicly traded companies as well as in annual
financial statements, effective for interim reporting periods ending after June
15, 2009, and required those disclosures in summarized financial information at
interim reporting periods. The Company adopted the new disclosure guidance
over fair value of financial instruments, and adoption did not have a material
effect on the Company’s consolidated financial statements.
In April
2009, the FASB issued guidance which establishes general standards of accounting
for and disclosures of events that occur after the balance sheet date but before
financial statements are issued or are available to be issued (“subsequent
events”). Under the new guidance, entities are required to disclose
the date through which subsequent events were evaluated, as well as the
rationale for why that date was selected. The guidance is effective
for interim and annual periods ending after June 15, 2009. The
Company adopted the provisions of this new guidance as of June 1, 2009, and
adoption did not have a material effect on our consolidated financial
statements. The Company evaluated subsequent events through January
29, 2010.
In June
2009, the FASB issued guidance to revise the approach to determine when a
variable interest entity (“VIE”) should be consolidated. The new
consolidation model for VIE’s considers whether the Company has the power to
direct the activities that most significantly impact the VIE’s economic
performance and shares in the significant risks and rewards of the
entity. The guidance on VIE’s requires companies to continually
reassess VIE’s to determine if consolidation is appropriate and provide
additional disclosures. The guidance is effective for the Company’s
2010 fiscal year. The Company is assessing the potential effect of
this guidance on the consolidated financial statements.
In June
2009, the FASB established the Accounting Standards
Codification ("Codification") as the single source of
authoritative GAAP to be applied by nongovernmental entities, except for
the rules and interpretive releases of the Securities and Exchange
Commission (“SEC”) under authority of federal securities laws, which
are sources of authoritative GAAP for SEC registrants. While not
intended to change GAAP, the Codification significantly changes the way in which
the accounting literature is referenced and organized. The Codification is
effective for financial statements issued for interim and annual periods ending
after September 15, 2009. The Codification was adopted as of August 31,
2009. Adoption did not have a material effect on the Company’s
consolidated financial statements.
Supplemental
Cash Flow Information
|
(In
thousands)
|
2009
|
2008
|
2007
|
|||||||||
|
Interest
paid
|
$ | 1,926 | $ | 3,256 | $ | 3,996 | ||||||
|
Income
taxes paid
|
10,179 | 14,862 | 18,687 | |||||||||
Business
Acquisitions
The
Company made no acquisitions in the years ending November 30, 2009 and
2008. In October 2007, the Company acquired the business of
Polyplaster, Ltda. (“Polyplaster”) for $5,977,000 plus an earn out that could
total $1,500,000 based on the post-acquisition performance of the acquired
business. Approximately $458,000 of the earn out was paid as of
November 30, 2009. The purchase price was assigned primarily to
property, plant and equipment, and inventory. Results of operations
would not have been significantly different had the acquisition been completed
at the beginning of periods presented. Polyplaster is a
fiberglass-pipe manufacturer located in Betim, Brazil, near the city of Belo
Horizonte, which supplies polyester, fiberglass-pipe systems to the water,
wastewater and industrial markets. This acquisition expanded the
Company’s operations in South America. Polyplaster is included in the
Fiberglass-Composite Pipe Group.
NOTE
2 - DISCONTINUED OPERATIONS
In 2006,
the Company completed the sale of its Performance Coatings & Finishes
business (the "Coatings Business") to PPG Industries, Inc.
("PPG"). As part of the sale, PPG agreed to pay to the Company future
dividends from Oasis-Ameron, Ltd. (“OAL”), a former joint venture of the Company
held by the Coatings Business, up to the amount of OAL’s unremitted earnings at
the time of the sale of the Coatings Business to PPG. In 2009, the
Company recorded $1,232,000, net of tax, from PPG in exchange for any claims on
OAL’s dividends. Also in 2009, the Company wrote down by $415,000,
net of tax, real property formerly used by the Coatings Business and currently
held for sale. The write down was due to declining real estate
values.
During
2007, the Company completed disposition of several retained properties formerly
used by the Coatings Business and recognized a net gain of
$5,251,000. In 2007, the Company also recognized a net gain of
$107,000 resulting from the final settlement with PPG. In addition,
the Company recognized $156,000 of research and development tax credits related
to the Coatings Business in 2007. The 2007 tax credit was due to the
retroactive application of tax legislation enacted in 2007. During
2007, the Company recognized a net tax benefit of $585,000 due to an adjustment
in tax expense related to the gain on the sale of the Coatings
Business.
Results
of discontinued operations were as follows for the year ended November
30:
|
(In
thousands)
|
2009
|
2008
|
2007
|
|||||||||
|
Revenue
from discontinued operations
|
$ | - | $ | - | $ | - | ||||||
|
Income
from discontinued operations, before income taxes
|
$ | 985 | $ | - | $ | - | ||||||
|
Income
taxes on income from discontinued operations
|
(168 | ) | - | 156 | ||||||||
|
Income
from discontinued operations before disposal, net of taxes
|
817 | - | 156 | |||||||||
|
Gain
from sale of discontinued operations, before income taxes
|
- | - | 5,358 | |||||||||
|
Income
taxes on gain from sale of discontinued operations
|
- | - | 585 | |||||||||
|
Gain
on sale of discontinued operations, net of taxes
|
- | - | 5,943 | |||||||||
|
Income
from discontinued operations, net of taxes
|
$ | 817 | $ | - | $ | 6,099 | ||||||
Prior
period income statement amounts have been reclassified to present the operating
results of the Coatings Business as a discontinued operation. Prior
period balance sheets and cash flow statements have not been
adjusted.
NOTE
3 - OTHER INCOME, NET
Other
income, net was as follows for the year ended November 30:
|
(In
thousands)
|
2009
|
2008
|
2007
|
|||||||||
|
Dividends
from joint ventures-cost method
|
$ | 4,764 | $ | 4,010 | $ | 2,451 | ||||||
|
Royalties,
fees and other income
|
884 | 1,361 | 751 | |||||||||
|
Gain/(loss)
on sale of property, plant and equipment
|
451 | (68 | ) | (17 | ) | |||||||
|
Foreign
currency loss
|
(1,109 | ) | (1,339 | ) | (116 | ) | ||||||
|
Other
|
2,458 | 4,258 | 2,961 | |||||||||
| $ | 7,448 | $ | 8,222 | $ | 6,030 | |||||||
NOTE
4 - RECEIVABLES
Receivables
were as follows at November 30:
|
(In
thousands)
|
2009
|
2008
|
||||||
|
Trade
|
$ | 121,822 | $ | 155,061 | ||||
|
Joint
ventures
|
960 | 1,380 | ||||||
|
Other
|
33,779 | 32,529 | ||||||
|
Allowances
|
(5,351 | ) | (7,009 | ) | ||||
| $ | 151,210 | $ | 181,961 | |||||
The
Company’s provision for bad debts was $1,487,000 in 2009, $4,419,000 in 2008,
and $3,248,000 in 2007. Trade receivables included unbilled
receivables related to the percentage-of-completion method of revenue
recognition of $33,705,000 and $24,706,000 at November 30, 2009 and 2008,
respectively.
NOTE
5 – INVENTORIES
Inventories
were as follows at November 30:
|
(In
thousands)
|
2009
|
2008
|
||||||
|
Finished
products
|
$ | 30,100 | $ | 44,033 | ||||
|
Materials
and supplies
|
22,952 | 33,485 | ||||||
|
Products
in process
|
9,648 | 18,127 | ||||||
| $ | 62,700 | $ | 95,645 | |||||
Certain
steel inventories used by the Water Transmission Group are valued using the LIFO
method. Inventories valued using the LIFO method comprised 14.8% and
21.5% of consolidated inventories at November 30, 2009 and 2008,
respectively. During 2009, both inventory quantities and steel prices
subject to valuation using the LIFO method declined. The impact of
the decrease in steel inventory quantities resulted in a decrease in cost of
goods sold of approximately $2,141,000, while the impact of lower steel prices
resulted in a decrease in cost of goods sold of approximately $1,843,000. The impact
was a net decrease in LIFO reserve of $3,984,000. If inventories
valued using the LIFO method were valued using the FIFO method, total
inventories would have increased by $3,922,000 and increased by $7,906,000 at
November 30, 2009 and 2008, respectively.
NOTE
6 - JOINT VENTURES
Investments,
advances and equity in undistributed earnings of joint ventures were as follows
at November 30:
|
(In
thousands)
|
2009
|
2008
|
||||||
|
Investment--equity
method venture
|
$ | 30,626 | $ | 14,428 | ||||
|
Investments--cost
method ventures
|
3,784 | 3,784 | ||||||
| $ | 34,410 | $ | 18,212 | |||||
The
Company's ownership of joint ventures is summarized below:
|
Ownership
|
||||
|
Products
|
Joint
Ventures
|
Interest
|
||
|
Fiberglass
pipe
|
Bondstrand,
Ltd.
|
40%
|
||
|
Concrete
pipe
|
Ameron
Saudi Arabia, Ltd.
|
30%
|
||
|
Steel
products
|
TAMCO
|
50%
|
Investments
in joint ventures and the amount of undistributed earnings were as
follows:
|
Fiberglass
|
Concrete
|
Steel
|
||||||||||||||
|
(In
thousands)
|
Pipe
|
Pipe
|
Products
|
Total
|
||||||||||||
|
Cost
and outstanding loans
|
$ | 3,784 | $ | - | $ | 33,482 | $ | 37,266 | ||||||||
|
Accumulated
comprehensive loss from joint venture
|
- | - | (4,849 | ) | (4,849 | ) | ||||||||||
|
Accumulated
equity in undistributed earnings
|
- | - | 1,993 | 1,993 | ||||||||||||
|
Investment,
November 30, 2009
|
$ | 3,784 | $ | - | $ | 30,626 | $ | 34,410 | ||||||||
|
2009
Dividends
|
$ | 4,764 | $ | - | $ | - | $ | 4,764 | ||||||||
|
Cost
|
$ | 3,784 | $ | - | $ | 8,482 | $ | 12,266 | ||||||||
|
Accumulated
comprehensive loss from joint venture
|
- | - | (2,025 | ) | (2,025 | ) | ||||||||||
|
Accumulated
equity in undistributed earnings
|
- | - | 7,971 | 7,971 | ||||||||||||
|
Investment,
November 30, 2008
|
$ | 3,784 | $ | - | $ | 14,428 | $ | 18,212 | ||||||||
|
2008
Dividends
|
$ | 2,514 | $ | 1,496 | $ | 10,808 | $ | 14,818 | ||||||||
The
Company provides for income taxes on the undistributed earnings of its joint
ventures to the extent such earnings are included in the consolidated statements
of income.
The
investment in TAMCO was recorded based on audited financial statements as of
November 30, 2009 and 2008. Condensed financial data of TAMCO, an
investment which is accounted for under the equity method, were as
follows:
Financial
Condition (at November 30,)
|
(In
thousands)
|
2009
|
2008
|
||||||
|
Current
assets
|
$ | 47,858 | $ | 64,168 | ||||
|
Noncurrent
assets
|
51,010 | 47,978 | ||||||
| $ | 98,868 | $ | 112,146 | |||||
|
Current
liabilities
|
$ | 6,993 | $ | 58,691 | ||||
|
Noncurrent
liabilities
|
45,155 | 8,855 | ||||||
|
Stockholders'
equity
|
46,720 | 44,600 | ||||||
| $ | 98,868 | $ | 112,146 | |||||
Results
of Operations (year ended November 30,)
|
(In
thousands)
|
2009
|
2008
|
2007
|
|||||||||
|
Net
sales
|
$ | 85,740 | $ | 365,957 | $ | 268,208 | ||||||
|
Gross
(loss)/profit
|
(12,740 | ) | 49,927 | 66,494 | ||||||||
|
Net
(loss)/income
|
(11,955 | ) | 22,877 | 34,037 | ||||||||
The
Company recognized $4,849,000 and $2,025,000 in accumulated other comprehensive
loss at November 30, 2009 and 2008, respectively, which represents its
proportionate share of TAMCO’s accumulated other comprehensive
loss.
TAMCO’s
shareholders made a $20,000,000 capital contribution to TAMCO in 2009. The
Company’s share of the funding from TAMCO’s shareholders totaled
$10,000,000. Also in 2009, TAMCO entered into a senior secured credit
facility with TAMCO’s shareholders which provided TAMCO up to $40,000,000 for
operating needs and to replace an existing bank line. The shareholder
credit facility bears interest at a rate of LIBOR plus 3.25% per annum and is
scheduled to mature January 31, 2011. As of November 30, 2009, TAMCO
borrowed $30,000,000 under the facility, of which $15,000,000 was provided by
the Company. The Company continues to have a 50% ownership interest
in TAMCO and accounts for its investment under the equity method of
accounting.
Ameron
sales to joint ventures totaled $4,459,000 in 2009, $4,365,000 in 2008, and
$3,873,000 in 2007.
NOTE
7 - OTHER ASSETS
Other
assets were as follows at November 30:
|
(In
thousands)
|
2009
|
2008
|
||||||
|
Cash
surrender value of insurance policies
|
$ | 26,121 | $ | 25,584 | ||||
|
Assets
held for sale
|
2,051 | 2,302 | ||||||
|
Other
|
18,646 | 10,389 | ||||||
| $ | 46,818 | $ | 38,275 | |||||
NOTE
8 - ACCRUED LIABILITIES
Accrued
liabilities were as follows at November 30:
|
(In
thousands)
|
2009
|
2008
|
||||||
|
Self
insurance reserves
|
$ | 37,393 | $ | 38,159 | ||||
|
Compensation
and benefits
|
20,333 | 21,121 | ||||||
|
Product
warranties and guarantees
|
3,396 | 3,238 | ||||||
|
Taxes
(other than income taxes)
|
3,170 | 3,090 | ||||||
|
Reserves
for pending claims and litigation
|
2,339 | 3,328 | ||||||
|
Commissions
and royalties
|
2,283 | 3,498 | ||||||
|
Deferred
revenue
|
1,960 | 1,461 | ||||||
|
Interest
|
33 | 44 | ||||||
|
Other
|
6,608 | 5,599 | ||||||
| $ | 77,515 | $ | 79,538 | |||||
Deferred
revenue is related to prepayments made by customers to the Company’s Water
Transmission Group. The Company's product warranty accrual reflects
Management's estimate of probable liability associated with product
warranties. The Company generally provides a standard product warranty not
exceeding one year from date of purchase. Management establishes product
warranty accruals based on historical experience and other currently-available
information. Changes in the product warranty accrual for the year ended
November 30 were as follows:
|
(In
thousands)
|
2009
|
2008
|
||||||
|
Balance,
beginning of period
|
$ | 3,238 | $ | 3,590 | ||||
|
Payments
|
(3,643 | ) | (1,925 | ) | ||||
|
Warranty
adjustment
|
31 | (162 | ) | |||||
|
Warranties
issued during the period
|
3,770 | 1,735 | ||||||
|
Balance,
end of period
|
$ | 3,396 | $ | 3,238 | ||||
NOTE
9 - OTHER LONG-TERM LIABILITIES
Other
long-term liabilities were as follows at November 30:
|
(In
thousands)
|
2009
|
2008
|
||||||
|
Accrued
pension and postretirement benefits cost
|
$ | 86,568 | $ | 39,261 | ||||
|
Taxes
payable
|
9,974 | 7,393 | ||||||
|
Compensation
and benefits
|
1,904 | 3,206 | ||||||
|
Other
|
933 | 190 | ||||||
| $ | 99,379 | $ | 50,050 | |||||
NOTE
10 - INCOME TAXES
The
provision/(benefit) for income taxes included the following for the year ended
November 30:
|
(In
thousands)
|
2009
|
2008
|
2007
|
|||||||||
|
Current
|
||||||||||||
|
Federal
|
$ | (6,480 | ) | $ | 6,605 | $ | (2,678 | ) | ||||
|
Foreign
|
8,437 | 12,329 | 7,413 | |||||||||
|
State
|
226 | 1,530 | (1,392 | ) | ||||||||
| 2,183 | 20,464 | 3,343 | ||||||||||
|
Deferred
|
||||||||||||
|
Federal
|
12,598 | (1,590 | ) | 10,646 | ||||||||
|
Foreign
|
(831 | ) | (1,617 | ) | (5,078 | ) | ||||||
|
State
|
1,567 | (302 | ) | 1,448 | ||||||||
| 13,334 | (3,509 | ) | 7,016 | |||||||||
|
Taxes
on income from continuing operations
|
15,517 | 16,955 | 10,359 | |||||||||
|
Taxes
on income from discontinued operations
|
168 | - | (741 | ) | ||||||||
|
Provision
for income taxes
|
$ | 15,685 | $ | 16,955 | $ | 9,618 | ||||||
Deferred
income tax assets/(liabilities) consisted of the following as of November
30:
|
(In
thousands)
|
2009
|
2008
|
||||||
|
Current
deferred income taxes
|
||||||||
|
Self-insurance
and claims reserves
|
$ | 11,157 | $ | 12,216 | ||||
|
Employee
benefits
|
3,889 | 4,414 | ||||||
|
Inventories
|
2,335 | 5,967 | ||||||
|
Accounts
receivable
|
801 | 848 | ||||||
|
Valuation
allowances
|
(2,536 | ) | (2,518 | ) | ||||
|
Other
|
4,149 | 4,655 | ||||||
|
Net
current deferred income tax assets
|
19,795 | 25,582 | ||||||
|
Noncurrent
deferred income taxes
|
||||||||
|
Net
operating loss carry-overs
|
8,031 | 9,556 | ||||||
|
Pension
benefit costs
|
26,782 | 13,924 | ||||||
|
Investments
|
3,752 | (536 | ) | |||||
|
Employee
benefits
|
1,788 | 1,549 | ||||||
|
Valuation
allowances
|
(4,523 | ) | (7,730 | ) | ||||
|
Property,
plant and equipment
|
(25,368 | ) | (16,296 | ) | ||||
|
Other
|
2,149 | 490 | ||||||
|
Net
noncurrent deferred income tax assets
|
12,611 | 957 | ||||||
|
Net
deferred income tax assets
|
$ | 32,406 | $ | 26,539 | ||||
As of
November 30, 2009, the Company had foreign net operating loss carry-overs of
approximately $30,100,000. A full valuation allowance has been
provided against these net operating losses except for $24,900,000 of net
operating losses generated by the Company’s subsidiary in the Netherlands (these
net operating loss carry-overs expire between 2012 and 2018). The balance
of the valuation allowance applies to certain foreign deferred tax assets and
certain other deferred tax assets that will likely not result in a tax
benefit. The net valuation allowance decreased by $3,200,000 in 2009,
compared to 2008. This net decrease included a $2,900,000 decrease in
the valuation allowance for foreign net operating loss carry-overs and other
foreign deferred tax assets for which no benefit had been
recognized. Included in this decrease was a release that reduced tax
expense of $1,300,000 in 2009 and $1,100,000 in 2008 of valuation allowance
related to the Company’s subsidiary in the Netherlands due to profitability in
2008 and projected profitability in the future due in part to a tax planning
strategy that is being implemented to prevent the net operating loss carry-overs
from expiring unutilized. The decrease in 2008 was partially offset
by net increases (that increased tax expense) in the valuation allowance related
to executive compensation deductions.
The tax
provision from continuing operations represents effective tax rates of 29.0%,
26.0% and 18.5% of income from continuing operations before income taxes for the
years ended November 30, 2009, 2008 and 2007, respectively. A reconciliation of
income taxes provided at the effective income tax rate and the amount computed
at the federal statutory income tax rate of 35.0% is as follows for the year
ended November 30:
|
(In
thousands)
|
2009
|
2008
|
2007
|
|||||||||
|
Domestic
pretax income
|
$ | 661 | $ | 9,883 | $ | 6,721 | ||||||
|
Foreign
pretax income
|
52,851 | 55,327 | 49,395 | |||||||||
|
Pretax
Income from continuing operations
|
53,512 | 65,210 | 56,116 | |||||||||
|
Pretax
Income from discontinued operations
|
985 | - | 5,358 | |||||||||
| $ | 54,497 | $ | 65,210 | $ | 61,474 | |||||||
|
Taxes
at federal statutory rate
|
$ | 18,728 | $ | 22,823 | $ | 19,641 | ||||||
|
State
taxes, net of federal tax benefit
|
1,165 | 798 | (293 | ) | ||||||||
|
Foreign
earnings taxed at different rates, including withholding
taxes
|
(6,341 | ) | (4,010 | ) | (4,782 | ) | ||||||
|
Percentage
depletion
|
(722 | ) | (587 | ) | (618 | ) | ||||||
|
Non-deductible
compensation
|
2,005 | 2,462 | 2,612 | |||||||||
|
Research
and development credits
|
(453 | ) | (398 | ) | (449 | ) | ||||||
|
Section
199 deduction
|
- | (521 | ) | (262 | ) | |||||||
|
Settlement
of tax examinations
|
(187 | ) | (2,920 | ) | (1,285 | ) | ||||||
|
Investment
write-off
|
- | - | (4,723 | ) | ||||||||
|
Other,
net
|
1,322 | (692 | ) | 518 | ||||||||
|
Taxes
on income from continuing operations
|
15,517 | 16,955 | 10,359 | |||||||||
|
Taxes
on income from discontinued operations
|
168 | - | (741 | ) | ||||||||
|
Taxes
on income
|
$ | 15,685 | $ | 16,955 | $ | 9,618 | ||||||
In 2009
the Company recorded a tax benefit of $1,199,000 (included in foreign earnings
taxed at different rates) associated with the adjustment to a deferred tax
liability related to earnings and profits from the Company’s New Zealand
subsidiary. The $1,199,000 adjustment represents 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. In 2007, the Company recorded a tax benefit of $5,300,000
($4,700,000 federal and $600,000 state) associated with the decision to dissolve
the Company’s wholly-owned United Kingdom subsidiary.
The
Company files tax returns in numerous jurisdictions and is subject to audit in
these jurisdictions. During 2008, the Company was audited by the
Internal Revenue Service (“IRS”) for 2005 and 2006, with no material assessment;
and the statute of limitations for 2004 expired. The U.S. federal
statue of limitations for 2005 expired in 2009. Although the 2006
examination was completed, the statutes are still open for 2006 and
forward. In addition, the financial statements reflect settlements
with other local and foreign jurisdictions. The net impact to the
Company’s financial statements as a result of these federal, foreign and local
jurisdiction settlements was not material in 2009, but resulted in a reduction
of $2,920,000 in income taxes payable in 2008. No Federal audits are
in progress at this time.
The
Company intends to permanently reinvest its unrepatriated foreign
earnings. The cumulative amount of undistributed earnings of foreign
subsidiaries was $134,000,000 at November 30, 2009. The Company has
not provided deferred taxes on the earnings, and the additional U.S. income tax
on the unremitted foreign earnings, if repatriated, may be offset in whole or in
part by foreign tax credits.
A
reconciliation of unrecognized tax benefits follows:
|
(In
thousands)
|
2009
|
2008
|
||||||
|
Unrecognized
tax benefits at the beginning of the year
|
$ | 7,416 | $ | 13,102 | ||||
|
Increases
for positions taken in current year
|
1,983 | 1,157 | ||||||
|
Increases
for positions taken in prior years
|
1,137 | 658 | ||||||
|
Decreases
for positions taken in prior years
|
(244 | ) | (6,557 | ) | ||||
|
Decreases
for settlements with taxing authorities
|
(502 | ) | (145 | ) | ||||
|
Decreases
for lapses in the applicable statute of limitations
|
(560 | ) | (799 | ) | ||||
|
Unrecognized
tax benefits at the end of the year
|
$ | 9,230 | $ | 7,416 | ||||
At
November 30, 2009, the total amount of gross unrecognized tax benefits,
excluding interest, was $9,230,000. 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, $4,743,000 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 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 $390,000.
The
Company accrues interest and penalties related to unrecognized tax benefits as
income tax expense. Accruals totaling $1,030,000 were recorded
as a liability in the Company’s consolidated balance sheet at November 30, 2009,
compared to $1,098,000 as of November 30, 2008.
The
Company’s federal income tax returns remain subject to examination for 2007 and
forward. The Company files multiple state income tax returns,
including California, Hawaii, Arizona and Texas, with open statutes ranging from
2000 through 2009. The Company also files multiple foreign income tax
returns and remains subject to examination in multiple foreign jurisdictions,
including the Netherlands, Brazil, Singapore and Malaysia, for years ranging
from 2002 through 2009.
NOTE
11 - DEBT
Short-term
borrowings consist of loans payable under bank credit lines. There were no
short-term borrowings outstanding at November 30, 2009 and at November 30,
2008. At November 30, 2009, the equivalent of $15,124,000 was
available under short-term credit lines.
Domestically,
as of November 30, 2009, the Company maintained a $100,000,000 revolving credit
facility with six banks (the "Revolver"). At November 30, 2009,
$17,932,000 of the Revolver was utilized for standby letters of credit;
therefore, $82,068,000 was available. Under the Revolver, the Company
may, at its option, borrow at floating interest rates (LIBOR plus a spread
ranging from 2.75% to 3.75% based on the Company’s financial condition and
performance), at any time until maturity, when all borrowings under the Revolver
must be repaid. In August 2009, the maturity of the Revolver was
extended from September 2010 to August 2012.
Foreign
subsidiaries also maintain unsecured revolving credit facilities and short-term
facilities with banks. Foreign subsidiaries may borrow in various
currencies, at interest rates based upon specified margins over money market
rates. Short-term lines permit borrowings up to
$14,200,000. At November 30, 2009, $501,000 was borrowed under these
facilities.
The
Company intends for short-term borrowing under certain bank facilities utilized
by the Company and its foreign subsidiaries to be refinanced on a long-term
basis via the Revolver. The amount available under the Revolver
exceeded such short-term borrowing at November 30, 2009.
Long-term
debt consisted of the following as of November 30:
|
(In
thousands)
|
2009
|
2008
|
||||||
|
Fixed-rate
notes:
|
||||||||
|
5.36%,
payable in annual principal installments of $10,000
|
$ | - | $ | 10,000 | ||||
|
4.25%,
payable in Singapore Dollars, in annual principal installments of
$7,366
|
22,098 | 27,052 | ||||||
|
Variable-rate
industrial development bonds:
|
||||||||
|
payable
in 2016 (.55% at November 30, 2009)
|
7,200 | 7,200 | ||||||
|
payable
in 2021 (.55% at November 30, 2009)
|
8,500 | 8,500 | ||||||
|
Variable-rate
bank revolving credit facility (7.1% at November 30, 2009)
|
501 | - | ||||||
| 38,299 | 52,752 | |||||||
|
Less
current portion
|
(7,366 | ) | (16,763 | ) | ||||
| $ | 30,933 | $ | 35,989 | |||||
Future
maturities of long-term debt were as follows as of November 30, 2009 (in
thousands):
|
Year
ending November 30,
|
Amount
|
|||
|
2010
|
$ | 7,366 | ||
|
2011
|
7,366 | |||
|
2012
|
7,867 | |||
|
2013
|
- | |||
|
2014
|
- | |||
|
Thereafter
|
15,700 | |||
| $ | 38,299 | |||
The Company's lending agreements contain various restrictive covenants, including the requirement to maintain specified amounts of net worth and restrictions on cash dividends, borrowings, liens, investments, guarantees, and financial covenants. The Company is required to maintain consolidated net worth of $375,500,000 plus 50% of net income and 75% of proceeds from any equity issued after November 30, 2008. The Company's consolidated net worth exceeded the covenant amount by $149,700,000 as of November 30, 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 2.50 times. At November 30, 2009, the Company maintained a consolidated leverage ratio of .53 times EBITDA. Lending agreements require that the Company maintain qualified consolidated tangible assets at least equal to the outstanding secured funded indebtedness. At November 30, 2009, qualifying tangible assets equaled 4.56 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 1.30 times the sum of interest expense, rental expense, dividends and scheduled funded debt payments. At November 30, 2009, the Company maintained such a fixed charge coverage ratio of 2.08 times. Under the most restrictive provisions of the Company's lending agreements, $20,093,000 of retained earnings was not restricted, at November 30, 2009, as to the declaration of cash dividends or the repurchase of Company stock. At November 30, 2009, the Company was in compliance with all financial covenants.
The
Revolver and the 4.25% term notes are collateralized by substantially all of the
Company's assets. The industrial revenue bonds are supported by
standby letters of credit that are issued under the Revolver. The
interest rate on the industrial development bonds is based on the Securities
Industry and Financial Markets Association (“SIFMA”) index plus a spread of
..20%. Certain note agreements contain provisions regarding the
Company's ability to grant security interests or liens in association with other
debt instruments. If the Company grants such a security interest or
lien, then such notes will be collateralized equally and ratably as long as such
other debt shall be collateralized.
Interest
income and expense were as follows for the year ended November 30:
|
(In
thousands)
|
2009
|
2008
|
2007
|
|||||||||
|
Interest
income
|
$ | 1,130 | $ | 3,871 | $ | 5,161 | ||||||
|
Interest
expense
|
(542 | ) | (2,338 | ) | (3,234 | ) | ||||||
|
Interest
income, net
|
$ | 588 | $ | 1,533 | $ | 1,927 | ||||||
Estimated
fair value of the Company's debt is prepared in accordance with FASB’s fair
value disclosure requirements. These requirements establish an
enhanced framework for measuring the fair value of financial instruments
including a disclosure hierarchy based on the inputs used to measure fair
value. The estimated fair value amounts were determined by the
Company using available market information and appropriate valuation
methodologies. Considerable judgment is required to develop the
estimated fair value, thus the estimates provided herein are not necessarily
indicative of the amounts that could be realized in a current market
exchange.
|
Carrying
|
Fair
|
|||||||
|
(In
thousands)
|
Amount
|
Value
|
||||||
|
November
30, 2009
|
||||||||
|
Fixed-rate,
long-term debt
|
$ | 22,098 | $ | 22,741 | ||||
|
Variable-rate,
long-term debt
|
16,201 | 16,201 | ||||||
|
November
30, 2008
|
||||||||
|
Fixed-rate,
long-term debt
|
37,052 | 35,545 | ||||||
|
Variable-rate,
long-term debt
|
15,700 | 15,700 | ||||||
The
Company used a discounted cash flow technique that incorporates a market
interest yield curve with adjustments for duration, optionality and risk
profile. The estimated fair value of the Company's fixed-rate,
long-term debt is based on U.S. government notes at November 30, 2009 plus an
estimated spread for similar securities with similar credit risks and remaining
maturities.
NOTE
12 - LEASE COMMITMENTS
The
Company leases facilities and equipment under non-cancelable operating leases.
Rental expense under long-term operating leases of real property, vehicles and
other equipment was $4,752,000 in 2009, $4,633,000 in 2008, and $4,039,000 in
2007. Future rental commitments were as follows as of November 30,
2009 (in thousands):
|
Year
ending November 30,
|
Amount
|
|||
|
2010
|
$ | 4,224 | ||
|
2011
|
3,526 | |||
|
2012
|
2,642 | |||
|
2013
|
1,356 | |||
|
2014
|
1,261 | |||
|
Thereafter
|
23,071 | |||
| $ | 36,080 | |||
Future rental commitments for leases are not reduced by minimum non-cancelable sublease rentals aggregating $1,916,000 at November 30, 2009.
NOTE
13 - INCENTIVE STOCK COMPENSATION PLANS
As of
November 30, 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 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 dates of $575,000. During 2008, the Company
granted 19,000 restricted shares to key employees with a fair value on the grant
dates 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. In 2007, the Company agreed to provide to a
key employee 18,000 shares of stock to be granted each February of 2008, 2009,
and 2010, so long as a change of control of the Company has not occurred prior
to the applicable grant date and the key employee continues to be employed by
the Company on such grant date. The fair value of those shares on the
date promised was $5,395,000. Additionally, the key employee received
a grant of performance stock units, pursuant to which from 8,000 to 24,000
shares of the Company’s Common Stock may be issued depending on the price of the
Common Stock on the date the award vests, no later than November 30,
2010. A lattice model was used with volatility rate of 38% and risk
free rate of 4.04% in determining the fair value of the performance stock
units. The volatility rate was calculated based on historical trading
data with the anticipated life of 2.5 years. The risk-free rate was
based on the contemporary yield curve between the two and three year
rate. The fair value of the performance stock units on the grant date
was $2,055,000, which is being recognized ratably as stock compensation expense
through March 31, 2010.
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
November 30, 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 year ended November 30, 2009 included compensation expense of $3,936,000,
related to stock-based compensation arrangements, compared to $6,113,000 in 2008
and $3,850,000 in 2007. Tax benefit related to this expense was
$1,535,000 in 2009, compared to $2,384,000 in 2008 and $1,502,000 in
2007. There were no capitalized share-based compensation costs for
the three years ended November 30, 2009.
Tax
benefits and excess tax benefits resulting from the exercise of stock options
are reflected as financing cash flows in the Company’s statements of cash
flows. Excess tax benefits totaled $831,000, $1,330,000, and $1,955,000 in
2009, 2008 and 2007, respectively.
The
following table summarizes the stock option activity for the year ended November
30, 2009:
Current
Year Stock-Based Compensation
|
Weighted-
|
||||||||||||||||
|
Weighted-
|
Average
|
|||||||||||||||
|
Average
|
Remaining
|
Aggregate
|
||||||||||||||
|
Number
of
|
Exercise
Price
|
Contractual
|
Intrinsic
Value
|
|||||||||||||
|
Options
|
Options
|
per
Share
|
Term
(Years)
|
(in
thousands)
|
||||||||||||
|
Outstanding
at November 30, 2008
|
36,302 | $ | 37.61 | |||||||||||||
|
Granted
|
- | |||||||||||||||
|
Exercised
|
- | |||||||||||||||
|
Outstanding
at November 30, 2009
|
36,302 | 37.61 | 3.61 | $ | 871 | |||||||||||
|
Options
exercisable at November 30, 2009
|
33,451 | 32.18 | 3.22 | $ | 871 | |||||||||||
In 2009,
no options were granted, forfeited, exercised or expired. In 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 2009 and the
exercise price times the number of shares that would have been received by the
option holders if they exercised their options on November 30,
2009. This amount will change based on the fair market value of the
Company's Common Stock. The aggregate intrinsic value of stock
options exercised in 2008 and 2007 was $2,414,000, and $3,050,000,
respectively.
As of
November 30, 2009, there was $1,851,000 of total unrecognized compensation cost
related to stock-based compensation arrangements. That cost is
expected to be recognized over a weighted-average period of 2.3
years.
In 2009,
2008 and 2007, 28,200, 26,200, and 88,550 shares of restricted stock were
granted or shares agreed to be granted, respectively. The
weighted-average, grant-date or promised-date fair value of such stock was
$48.98, $101.18, and $90.76, respectively. The fair value of vested
restricted stock and granted promised stock for 2009, 2008 and 2007 was
$2,678,000, $5,844,000, and $3,562,000, respectively. In 2009 and
2008, 5,655 and 1,667 shares of restricted stock were forfeited, with a fair
value of $432,000 and $91,000, respectively.
Net cash
proceeds from stock options exercised in 2008 and 2007 were $420,000, and
$1,562,000, respectively. The Company's policy is to issue shares
from its authorized shares upon the exercise of stock options.
NOTE
14 - GOODWILL
During
2009, the Company completed the required goodwill and intangible asset
impairment tests. No impairment losses were identified as a result of
these tests. Changes in the Company’s carrying amount of goodwill by
business segment were as follows:
|
Foreign
|
Foreign
|
|||||||||||||||||||
|
Currency
|
Currency
|
|||||||||||||||||||
|
November
30,
|
Translation
|
November
30,
|
Translation
|
November
30,
|
||||||||||||||||
|
(In
thousands)
|
2007
|
Adjustments
|
2008
|
Adjustments
|
2009
|
|||||||||||||||
|
Fiberglass-Composite
Pipe
|
$ | 1,440 | $ | - | $ | 1,440 | $ | - | $ | 1,440 | ||||||||||
|
Water
Transmission
|
392 | (32 | ) | 360 | 6 | 366 | ||||||||||||||
|
Infrastructure
Products
|
201 | - | 201 | - | 201 | |||||||||||||||
| $ | 2,033 | (32 | ) | $ | 2,001 | $ | 6 | $ | 2,007 | |||||||||||
NOTE
15 - 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 $60,000,000, a figure which the
Company contests. This matter is in discovery, and trial is currently
scheduled to commence on April 12, 2010. 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
trial is currently scheduled to commence on October 12, 2010. 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 November 30, 2009, the
Company was a defendant in 20 asbestos-related cases, compared to 23 cases as of
August 30, 2009. During the quarter ended November 30, 2009, there
were four new asbestos-related cases, seven cases dismissed, no cases settled,
no judgments and aggregate net costs and expenses of $134,000. 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 conducted an internal inquiry and responded to
OFAC. In the year ended November 30, 2009, the Company incurred
$3,810,000 for legal and professional fees in connection with this
matter. 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.
NOTE
16 - EMPLOYEE BENEFIT PLANS
The
Company has a qualified, defined benefit, noncontributory pension plan for
certain U.S. employees. The Company’s subsidiary in the Netherlands
provides defined retirement benefits to eligible employees. The
Company also provides health and life insurance to a limited number of eligible
retirees and eligible survivors of retirees.
The
Company’s defined benefit pension and other postretirement benefit costs and
obligations are dependent on assumptions used by actuaries in calculating such
amounts. These assumptions, which are reviewed annually, include
discount rates, long-term expected rates of return on plan assets and expected
rates of increase in compensation. Assumed discount rates, based on
market interest rates on long-term fixed income debt securities of highly-rated
corporations, are used to calculate the present value of benefit payments which
are projected to be made in the future, including projections of increases in
employees’ annual compensation and health care costs. A decrease in
the discount rate would increase the Company’s obligation and
expense. The long-term expected rate of return on plan assets is
based principally on prior performance and future expectations for various types
of investments as well as the expected long-term allocation of
assets. Changes in the allocation of plan assets would impact the
expected rate of return. The expected rate of increase in
compensation is based upon movements in inflation rates as reflected by market
interest rates. Benefits paid to participants are based upon age,
years of credited service and average compensation or negotiated benefit
rates.
Assets of
the Company’s U.S. defined benefit plan are invested in a directed
trust. Assets in the trust are invested in domestic and foreign
equity securities of corporations (including $4,556,800 of the Company’s Common
Stock at November 30, 2009), U.S. government obligations, derivative securities,
corporate bonds and money market funds. The subsidiary in the
Netherlands contracts with third-party insurance companies to pay benefits to
retirees.
PENSION
BENEFITS
The
following sets forth the change in benefit obligation, change in plan assets,
funded status and amounts recognized in the balance sheets as of November 30,
2009 and 2008 for the Company's U.S. and non-U.S. defined benefit retirement
plans:
|
U.S.
Pension Benefits
|
Non-U.S.
Pension Benefits
|
|||||||||||||||
|
(In
thousands)
|
2009
|
2008
|
2009
|
2008
|
||||||||||||
|
Change
in Benefit Obligation
|
||||||||||||||||
|
Projected
benefit obligation-beginning of year
|
$ | 175,373 | $ | 192,410 | $ | 34,111 | $ | 45,908 | ||||||||
|
Service
cost
|
3,439 | 2,974 | 342 | 439 | ||||||||||||
|
Interest
cost
|
14,706 | 11,553 | 2,335 | 2,541 | ||||||||||||
|
Participant
contributions
|
- | - | 188 | 185 | ||||||||||||
|
Amendments
|
- | 46 | - | - | ||||||||||||
|
Actuarial
loss/(gain)
|
31,393 | (19,861 | ) | 6,590 | (7,429 | ) | ||||||||||
|
Foreign
currency exchange rate changes
|
- | - | 6,430 | (6,039 | ) | |||||||||||
|
Benefit
payments
|
(14,049 | ) | (11,749 | ) | (1,165 | ) | (1,494 | ) | ||||||||
|
Projected
benefit obligation-end of year
|
$ | 210,862 | $ | 175,373 | $ | 48,831 | $ | 34,111 | ||||||||
|
Accumulated
Benefit Obligation
|
$ | 202,227 | $ | 167,318 | $ | 46,545 | $ | 33,663 | ||||||||
|
Change
in Plan Assets
|
||||||||||||||||
|
Plan
assets at fair value-beginning of year
|
$ | 140,447 | $ | 183,940 | $ | 32,554 | $ | 34,310 | ||||||||
|
Actual
return on plan assets
|
(766 | ) | (34,775 | ) | 3,181 | 4,423 | ||||||||||
|
Foreign
currency exchange rate changes
|
- | - | 5,860 | (5,810 | ) | |||||||||||
|
Employer
contributions
|
8,536 | 3,031 | 1,738 | 940 | ||||||||||||
|
Participant
contributions
|
- | - | 188 | 185 | ||||||||||||
|
Benefit
payments
|
(14,049 | ) | (11,749 | ) | (1,165 | ) | (1,494 | ) | ||||||||
|
Plan
assets at fair value-end of year
|
$ | 134,168 | $ | 140,447 | $ | 42,356 | $ | 32,554 | ||||||||
|
Funded
Status
|
$ | (76,694 | ) | $ | (34,926 | ) | $ | (6,475 | ) | $ | (1,557 | ) | ||||
|
Balance
Sheet Amounts
|
||||||||||||||||
|
Noncurrent
assets
|
$ | - | $ | - | $ | - | $ | - | ||||||||
|
Current
liabilities
|
(30 | ) | (30 | ) | - | - | ||||||||||
|
Noncurrent
liabilities
|
(76,664 | ) | (34,896 | ) | (6,475 | ) | (1,557 | ) | ||||||||
|
Net
amount recognized
|
$ | (76,694 | ) | $ | (34,926 | ) | $ | (6,475 | ) | $ | (1,557 | ) | ||||
In 2009,
the Company changed the U.S. defined benefit plan measurement date from October
1 to November 30 to match its fiscal year-end. The changes shown
above for 2008 include 12 months, while the changes for 2009 include 14
months.
The
pretax amounts recognized in accumulated other comprehensive loss/(gain)
included the following as of November 30, 2009:
|
Pension
Benefits
|
U.S.
Postretirement
|
|||||||||||
|
(In
thousands)
|
U.S.
|
Non-U.S.
|
Benefits
|
|||||||||
|
Net
actuarial loss/(gain)
|
$ | 93,825 | $ | (5,446 | ) | $ | 209 | |||||
|
Prior
service cost
|
207 | 1,564 | 372 | |||||||||
|
Net
amount recognized
|
$ | 94,032 | $ | (3,882 | ) | $ | 581 | |||||
The
pretax amounts recognized in accumulated other comprehensive loss/(gain)
included the following as of November 30, 2008:
|
Pension
Benefits
|
U.S.
Postretirement
|
|||||||||||
|
(In
thousands)
|
U.S.
|
Non-U.S.
|
Benefits
|
|||||||||
|
Net
actuarial loss/(gain)
|
$ | 54,908 | $ | (9,662 | ) | $ | (236 | ) | ||||
|
Prior
service cost
|
288 | 1,587 | 437 | |||||||||
|
Net
amount recognized
|
$ | 55,196 | $ | (8,075 | ) | $ | 201 | |||||
The
Company’s estimate of 2010 amortization of amounts included in accumulated other
comprehensive loss was as follows at November 30, 2009:
|
Pension
Benefits
|
U.S.
Postretirement
|
|||||||||||
|
(In
thousands)
|
U.S.
|
Non-U.S.
|
Benefits
|
|||||||||
|
Net
actuarial loss
|
$ | 10,807 | $ | (301 | ) | $ | - | |||||
|
Prior
service cost/(credit)
|
52 | (310 | ) | 19 | ||||||||
|
Net
transition asset
|
- | - | 46 | |||||||||
|
Net
amount recognized
|
$ | 10,859 | $ | (611 | ) | $ | 65 | |||||
The
Company contributed $8,536,000 to the U.S. pension plan and $1,738,000 to the
non-U.S. pension plans in 2009. The Company expects to contribute
approximately $12,000,000 to its U.S. pension plan and $2,400,000 to the
non-U.S. pension plans in 2010.
Expected
future pension benefit payments, which reflect expected future service, were as
follows as of November 30, 2009, in thousands:
|
U.S.
Pension
|
Non-U.S.
Pension
|
|||||||
|
Year
ending November 30,
|
Benefits
|
Benefits
|
||||||
|
2010
|
$ | 12,267 | $ | 1,554 | ||||
|
2011
|
12,829 | 1,603 | ||||||
|
2012
|
13,215 | 1,769 | ||||||
|
2013
|
13,571 | 1,946 | ||||||
|
2014
|
13,785 | 2,098 | ||||||
|
2015
- 2019
|
71,997 | 12,331 | ||||||
Net
periodic benefit costs for the Company's defined benefit retirement plans for
2009, 2008 and 2007 included the following components:
|
U.S.
Pension Benefits
|
Non-U.S.
Pension Benefits
|
|||||||||||||||||||||||
|
(In
thousands)
|
2009
|
2008
|
2007
|
2009
|
2008
|
2007
|
||||||||||||||||||
|
Service
cost
|
$ | 3,439 | $ | 2,974 | $ | 2,928 | $ | 342 | $ | 439 | $ | 529 | ||||||||||||
|
Interest
cost
|
14,706 | 11,553 | 11,178 | 2,335 | 2,541 | 2,260 | ||||||||||||||||||
|
Expected
return on plan assets
|
(13,768 | ) | (15,713 | ) | (14,172 | ) | (1,571 | ) | (1,692 | ) | (1,680 | ) | ||||||||||||
|
Amortization
of unrecognized prior service cost
|
81 | 117 | 113 | 286 | 306 | 281 | ||||||||||||||||||
|
Amortization
of unrecognized net transition obligation
|
- | - | - | - | - | 151 | ||||||||||||||||||
|
Amortization
of accumulated loss/(gain)
|
7,010 | 1,134 | 3,904 | (439 | ) | - | - | |||||||||||||||||
|
Net
periodic cost adjustment to retained earnings, pre-tax
|
(1,631 | ) | - | - | - | - | - | |||||||||||||||||
|
Net
periodic cost
|
$ | 9,837 | $ | 65 | $ | 3,951 | $ | 953 | $ | 1,594 | $ | 1,541 | ||||||||||||
The above
table includes net periodic costs for 12 months for all periods.
Additionally in 2009, the Company recorded to retained earnings two months of
net periodic costs of $1,631,000 ($993,000 net of tax) relating to the change in
measurement date for the Company's U.S. defined benefit plan.
The
following table provides the weighted-average assumptions used to compute the
actuarial present value of projected benefit obligations:
|
U.S.
Pension Benefits
|
Non-U.S.
Pension Benefits
|
|||||||||||||||||||||||
|
2009
|
2008
|
2007
|
2009
|
2008
|
2007
|
|||||||||||||||||||
|
Weighted-average
discount rate
|
5.70 | % | 7.29 | % | 6.15 | % | 5.20 | % | 6.70 | % | 5.60 | % | ||||||||||||
|
Rate
of increase in compensation levels
|
3.50 | % | 4.25 | % | 3.65 | % | 2.25 | % | 2.25 | % | 2.00 | % | ||||||||||||
The
following table provides the weighted-average assumptions used to compute the
actuarial net periodic benefit cost:
|
U.S.
Pension Benefits
|
Non-U.S.
Pension Benefits
|
|||||||||||||||||||||||
|
2009
|
2008
|
2007
|
2009
|
2008
|
2007
|
|||||||||||||||||||
|
Weighted-average
discount rate
|
7.29 | % | 6.15 | % | 5.95 | % | 6.70 | % | 5.60 | % | 4.50 | % | ||||||||||||
|
Expected
long-term rate of return on plan assets
|
8.50 | % | 8.75 | % | 8.75 | % | 4.90 | % | 4.80 | % | 5.00 | % | ||||||||||||
|
Rate
of increase in compensation levels
|
4.25 | % | 3.65 | % | 3.45 | % | 2.25 | % | 2.00 | % | 2.00 | % | ||||||||||||
The
respective discount rate was determined by projecting the plan’s expected future
benefit payments as defined for the projected benefit obligation, discounting
those expected payments using a theoretical zero-coupon spot yield curve derived
from high-quality corporate bonds currently available as of the plan measurement
date, and solving for the single equivalent discount rate that resulted in the
same projected benefit obligation.
The
respective expected long-term rate of return on plan assets was determined based
on historical and expected future returns of the various asset classes in which
the Company expects the pension funds to be invested. The expected
returns by asset class were as follows, as of November 30, 2009:
|
U.S.
Pension
|
Non-U.S.
Pension
|
|||||||
|
Benefits
|
Benefits
|
|||||||
|
Equity
securities
|
10 | % | 7 | % | ||||
|
Debt
securities
|
5 | % | 5 | % | ||||
|
Real
estate
|
- | 8 | % | |||||
|
Other
|
- | 4 | % | |||||
The
following table shows the Company's target allocation range for the U.S. defined
benefit pension plan, along with the actual allocations for the U.S. and
non-U.S. plans, as of November 30:
|
U.S.
Pension Benefits
|
Non-U.S.
Pension Benefits
|
|||||||||||||||||||
|
Target
|
2009
|
2008
|
2009
|
2008
|
||||||||||||||||
|
Domestic
equities
|
65 | % | 61 | % | 64 | % | 8 | % | 20 | % | ||||||||||
|
International
equities
|
10 | % | 11 | % | 9 | % | 10 | % | - | |||||||||||
|
Fixed-income
securities
|
25 | % | 28 | % | 27 | % | 82 | % | 80 | % | ||||||||||
|
Total
|
100 | % | 100 | % | 100 | % | 100 | % | 100 | % | ||||||||||
Approximately
12% of the Company’s employees are covered by union-sponsored,
collectively-bargained, multi-employer pension plans. Related to
these plans, the Company contributed and charged to expense $1,000,000,
$1,000,000, and $2,000,000 in 2009, 2008, and 2007,
respectively. These contributions are determined in accordance with
the provisions of negotiated labor contracts and generally are based on the
number of hours worked. The Company has no intention of withdrawing
from any of these plans, nor is there any intention to terminate such
plans.
The
Company provides to certain employees a savings plan under Section 401(k) of the
U.S. Internal Revenue Code. The savings plan allows for deferral of
income through contributions to the plan, with certain
restrictions. Company matching contributions are in the form of
cash. In 2009, 2008, and 2007, the Company recorded expense for
matching contributions of $488,000, $296,000, and $648,000
respectively.
POSTRETIREMENT
BENEFITS
The
following sets forth the change in benefit obligation, change in plan assets,
funded status and amounts recognized in the balance sheets as of November 30,
2009 and 2008 for the Company's U.S. postretirement health care and life
insurance benefits.
|
U.S.
Postretirement Benefits
|
||||||||
|
(In
thousands)
|
2009
|
2008
|
||||||
|
Change
in Benefit Obligation
|
||||||||
|
Projected
benefit obligation-beginning of year
|
$ | 3,148 | $ | 3,504 | ||||
|
Service
cost
|
81 | 96 | ||||||
|
Interest
cost
|
222 | 209 | ||||||
|
Actuarial
loss/(gain)
|
445 | (522 | ) | |||||
|
Benefit
payments
|
(137 | ) | (139 | ) | ||||
|
Projected
benefit obligation-end of year
|
$ | 3,759 | $ | 3,148 | ||||
|
Change
in Plan Assets
|
||||||||
|
Plan
assets at fair value-beginning of year
|
$ | 342 | $ | 365 | ||||
|
Actual
return on plan assets
|
23 | 10 | ||||||
|
Benefit
payments
|
(35 | ) | (33 | ) | ||||
|
Plan
assets at fair value-end of year
|
$ | 330 | $ | 342 | ||||
|
Funded
Status
|
$ | (3,429 | ) | $ | (2,806 | ) | ||
|
Balance
Sheet Amounts
|
||||||||
|
Noncurrent
liabilities
|
$ | (3,429 | ) | $ | (2,806 | ) | ||
Expected
future benefit payments, which reflect expected future service, were as follows
as of November 30, 2009, in thousands:
|
U.S.
Post-
|
||||
|
Retirement
|
||||
|
Year
ending November 30,
|
Benefits
|
|||
|
2010
|
$ | 264 | ||
|
2011
|
251 | |||
|
2012
|
259 | |||
|
2013
|
260 | |||
|
2014
|
282 | |||
|
2015
- 2019
|
1,648 | |||
Net
periodic benefit costs for the Company's postretirement health care and life
insurance benefits for 2009, 2008 and 2007 included the following
components:
|
U.S.
Postretirement Benefits
|
||||||||||||
|
(In
thousands)
|
2009
|
2008
|
2007
|
|||||||||
|
Service
cost
|
$ | 81 | $ | 96 | $ | 88 | ||||||
|
Interest
cost
|
222 | 209 | 202 | |||||||||
|
Expected
return on plan assets
|
(29 | ) | (32 | ) | (35 | ) | ||||||
|
Amortization
of unrecognized prior service cost
|
19 | 19 | 19 | |||||||||
|
Amortization
of unrecognized net transition obligation
|
46 | 46 | 46 | |||||||||
|
Amortization
of accumulated loss
|
5 | 11 | 15 | |||||||||
|
Net
periodic cost
|
$ | 344 | $ | 349 | $ | 335 | ||||||
The
following table provides the weighted-average assumptions used to compute the
actuarial present value of projected benefit obligations:
|
U.S.
Postretirement Benefits
|
||||||||||||
|
2009
|
2008
|
2007
|
||||||||||
|
Weighted-average
discount rate
|
5.70 | % | 7.29 | % | 6.15 | % | ||||||
|
Rate
of increase in compensation levels
|
3.50 | % | 4.25 | % | 3.65 | % | ||||||
The
following table provides the weighted-average assumptions used to compute the
actuarial net periodic benefit cost:
|
U.S.
Postretirement Benefits
|
||||||||||||
|
2009
|
2008
|
2007
|
||||||||||
|
Weighted-average
discount rate
|
7.29 | % | 6.15 | % | 5.95 | % | ||||||
|
Rate
of increase in compensation levels
|
4.25 | % | 3.65 | % | 3.45 | % | ||||||
The
assumed health care cost trend remained at 9% in 2009, and the rate is assumed
to decline gradually to 5% by 2013 and beyond. The effect of a
one-percentage-point change in the assumed health care cost trend would have
changed the amounts of the benefit obligation and the sum of the service cost
and interest cost components of postretirement benefit expense for 2009, as
follows:
| 1% |
1%
|
|||||||
|
(In
thousands)
|
Increase
|
Decrease
|
||||||
|
Effect
on total of service and interest cost components of net periodic
expense
|
$ | 19 | $ | (16 | ) | |||
|
Effect
on postretirement benefit obligation
|
151 | (134 | ) | |||||
The
Company provides life insurance to eligible executives with life insurance
protection equal to three times base salary. Upon retirement, the
executive is provided with life insurance protection equal to final base
salary. There were no expenses related to this plan in 2009, 2008 or
2007.
The
Company has severance agreements with certain key employees that could provide
benefits upon termination of up to 3.5 times total annual compensation of such
employees.
NOTE
17 - CAPITAL STOCK
The
Company is incorporated in Delaware. The articles of incorporation
authorize 24,000,000 shares of $2.50 par value Common Stock, 1,000,000 shares of
$1.00 par value preferred stock and 100,000 shares of $1.00 par value series A
junior participating cumulative preferred stock. The preferred stock
may be issued in series, with the rights and preferences of each series to be
established by the Board of Directors. As of November 30, 2009, no
shares of preferred stock or series A junior participating cumulative preferred
stock were outstanding.
As of
November 30, 2009, 9,209,836 shares of Common Stock were issued and outstanding,
including 53,881 restricted shares. Restrictions limit the sale and
transfer of these shares. On each anniversary of the grant date, a
percentage of the shares (determined at the time of the grant) become
unrestricted. The restrictions are scheduled to lapse as follows:
26,850 shares will become unrestricted in 2010 and 17,636 shares in 2011 and
9,395 shares in 2012.
NOTE
18 - SEGMENT INFORMATION
The
Company has determined it has four operating and three reportable segments:
Fiberglass-Composite Pipe, Water Transmission and Infrastructure
Products. The Fiberglass-Composite Pipe Group manufactures and
markets filament-wound and molded composite fiberglass pipe, tubing, fittings
and well screens. The Water Transmission Group manufactures and supplies
concrete and steel pressure pipe, concrete non-pressure pipe, protective linings
for pipe, and fabricated products including wind towers. The Infrastructure
Products Group consists of two operating segments, the Pole Products and Hawaii
Divisions, and manufactures and sells ready-mix concrete, sand and aggregates,
concrete pipe and culverts, and concrete and steel lighting and traffic
poles. In the prior periods, the Company included a fourth reportable
segment, Performance Coatings & Finishes, which was sold August 1,
2006. The results from this segment are reported as discontinued
operations for all reporting periods. Each of these segments has a
dedicated management team and is managed separately, primarily because of
differences in products. TAMCO, the Company's equity method investment, is
not included in any of these segments. The Company’s Chief Operating
Decision Maker is the Chief Executive Officer who primarily reviews sales and
income before interest, income taxes and equity in earnings of joint venture for
each operating segment in making decisions about allocating resources and
assessing performance. The Company allocates certain selling, general
and administrative expenses to operating segments utilizing assumptions believed
to be appropriate in the circumstances. Costs of shared services
(e.g., costs of Company-wide insurance programs or benefit plans) are allocated
to the operating segments based on revenue, wages or net assets
employed. Other items not related to current operations or of an
unusual nature, such as adjustments to reflect inventory balances of certain
steel inventories under the last-in, first-out (“LIFO”) method, certain unusual
legal costs and expenses, interest expense and income taxes, are not allocated
to the reportable segments.
The
markets served by the Fiberglass-Composite Pipe Group are worldwide in scope.
The Water Transmission Group serves primarily the western U.S. The
Infrastructure Products Group's quarry and ready-mix business operates
exclusively in Hawaii, and poles are sold throughout the U.S. Sales
for export did not exceed 10% of consolidated sales in 2009, 2008 or
2007. In 2009, Siemens Power Generation, Inc. purchased $66.4 million
of wind towers from the Company, which was approximately 12% of the Company’s
total consolidated sales. Sales to any individual customer did not
exceed 10% of consolidated sales in 2008 or 2007.
The
following table presents information related to each operating segment included
in, and in a manner consistent with, internal management reports. Inter-segment
sales were not significant. Total assets by segment are those assets
that are used exclusively by such segment. Unallocated assets are
principally cash, corporate property and equipment, and
investments. Long-lived assets consist of all long-term assets,
excluding investments, goodwill, intangible assets, and deferred tax
assets.
|
SEGMENT
INFORMATION
|
||||||||||||||||||||||||||||
|
Fiberglass-
|
Water
|
Infrastructure
|
Discontinued
|
|||||||||||||||||||||||||
|
(In
thousands)
|
Composite
Pipe
|
Transmission
|
Products
|
Other
|
Operations
|
Eliminations
|
Total
|
|||||||||||||||||||||
|
2009
|
||||||||||||||||||||||||||||
|
Sales
|
$ | 225,444 | $ | 177,281 | $ | 144,235 | $ | - | $ | - | $ | (16 | ) | $ | 546,944 | |||||||||||||
|
Income
from continuing operations
|
||||||||||||||||||||||||||||
|
before
interest, income taxes and equity in earnings of joint
venture
|
68,172 | 1,941 | 13,216 | (30,405 | ) | - | - | 52,924 | ||||||||||||||||||||
|
Equity
in earnings of joint venture, net of taxes
|
- | - | - | (5,512 | ) | - | - | (5,512 | ) | |||||||||||||||||||
|
Income
from joint ventures - cost method
|
4,764 | - | - | - | - | - | 4,764 | |||||||||||||||||||||
|
Investments
|
||||||||||||||||||||||||||||
|
Equity method venture
|
- | - | - | 30,626 | - | - | 30,626 | |||||||||||||||||||||
|
Cost method ventures
|
3,784 | - | - | - | - | - | 3,784 | |||||||||||||||||||||
|
Long-lived
assets
|
81,915 | 98,147 | 66,232 | 37,088 | 1,944 | - | 285,326 | |||||||||||||||||||||
|
Total
assets
|
314,980 | 191,981 | 95,311 | 307,071 | - | (146,794 | ) | 762,549 | ||||||||||||||||||||
|
Capital
expenditures
|
27,473 | 13,109 | 4,256 | 2,036 | - | - | 46,874 | |||||||||||||||||||||
|
Depreciation
and amortization
|
6,639 | 9,631 | 5,187 | 651 | - | - | 22,108 | |||||||||||||||||||||
|
2008
|
||||||||||||||||||||||||||||
|
Sales
|
274,129 | 215,308 | 179,059 | - | - | (953 | ) | 667,543 | ||||||||||||||||||||
|
Income
from continuing operations
|
||||||||||||||||||||||||||||
|
before
interest, income taxes and equity in earnings of joint
venture
|
80,994 | (9,212 | ) | 25,535 | (33,640 | ) | - | - | 63,677 | |||||||||||||||||||
|
Equity
in earnings of joint venture, net of taxes
|
- | - | - | 10,337 | - | - | 10,337 | |||||||||||||||||||||
|
Income
from joint ventures - cost method
|
2,514 | 1,496 | - | - | - | - | 4,010 | |||||||||||||||||||||
|
Investments
|
||||||||||||||||||||||||||||
|
Equity method venture
|
- | - | - | 14,428 | - | - | 14,428 | |||||||||||||||||||||
|
Cost method ventures
|
3,784 | - | - | - | - | - | 3,784 | |||||||||||||||||||||
|
Long-lived
assets
|
52,314 | 94,518 | 60,581 | 37,131 | (107 | ) | - | 244,437 | ||||||||||||||||||||
|
Total
assets
|
303,672 | 235,664 | 107,792 | 227,399 | 144 | (148,349 | ) | 726,322 | ||||||||||||||||||||
|
Capital
expenditures
|
23,269 | 25,457 | 10,548 | 1,897 | (474 | ) | - | 60,697 | ||||||||||||||||||||
|
Depreciation
and amortization
|
5,833 | 7,729 | 5,987 | 860 | - | - | 20,409 | |||||||||||||||||||||
|
2007
|
||||||||||||||||||||||||||||
|
Sales
|
237,850 | 190,261 | 205,711 | - | - | (2,812 | ) | 631,010 | ||||||||||||||||||||
|
Income
from continuing operations
|
||||||||||||||||||||||||||||
|
before
interest, income taxes and equity in earnings of joint
venture
|
62,347 | (6,026 | ) | 35,929 | (38,061 | ) | - | - | 54,189 | |||||||||||||||||||
|
Equity
in earnings of joint venture, net of taxes
|
- | - | - | 15,383 | - | - | 15,383 | |||||||||||||||||||||
|
Income
from joint ventures - cost method
|
2,451 | - | - | - | - | - | 2,451 | |||||||||||||||||||||
|
Investments
|
||||||||||||||||||||||||||||
|
Equity method venture
|
- | - | - | 14,677 | - | - | 14,677 | |||||||||||||||||||||
|
Cost method ventures
|
3,784 | - | - | - | - | - | 3,784 | |||||||||||||||||||||
|
Long-lived
assets
|
42,270 | 77,429 | 53,747 | 34,536 | (107 | ) | - | 207,875 | ||||||||||||||||||||
|
Total
assets
|
260,567 | 218,247 | 103,993 | 226,239 | 144 | (103,378 | ) | 705,812 | ||||||||||||||||||||
|
Capital
expenditures
|
6,810 | 31,219 | 8,675 | 993 | - | - | 47,697 | |||||||||||||||||||||
|
Depreciation
and amortization
|
5,294 | 4,911 | 5,891 | 938 | - | - | 17,034 | |||||||||||||||||||||
|
GEOGRAPHIC
AREAS
|
||||||||||||||||||||||||
|
United
|
||||||||||||||||||||||||
|
(In
thousands)
|
States
|
Europe
|
Asia
|
Other
|
Eliminations
|
Total
|
||||||||||||||||||
|
2009
|
||||||||||||||||||||||||
|
Sales
to external customers
|
$ | 375,297 | $ | 27,014 | $ | 121,341 | $ | 23,308 | $ | (16 | ) | $ | 546,944 | |||||||||||
|
Long-lived
assets
|
230,705 | 8,647 | 27,619 | 18,355 | - | 285,326 | ||||||||||||||||||
|
Total
assets
|
621,667 | 47,427 | 185,462 | 55,469 | (147,476 | ) | 762,549 | |||||||||||||||||
|
2008
|
||||||||||||||||||||||||
|
Sales
to external customers
|
459,840 | 35,694 | 135,057 | 37,905 | (953 | ) | 667,543 | |||||||||||||||||
|
Long-lived
assets
|
197,159 | 7,811 | 25,764 | 13,703 | - | 244,437 | ||||||||||||||||||
|
Total
assets
|
610,102 | 44,463 | 198,491 | 21,615 | (148,349 | ) | 726,322 | |||||||||||||||||
|
2007
|
||||||||||||||||||||||||
|
Sales
to external customers
|
453,705 | 47,844 | 112,306 | 19,967 | (2,812 | ) | 631,010 | |||||||||||||||||
|
Long-lived
assets
|
165,144 | 10,110 | 24,115 | 8,506 | - | 207,875 | ||||||||||||||||||
|
Total
assets
|
452,697 | 53,718 | 246,742 | 56,033 | (103,378 | ) | 705,812 | |||||||||||||||||
NOTE
19 – FAIR VALUE MEASUREMENT
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 income and 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.
A fair
value hierarchy 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 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 and includes in Level 3
all of those whose fair value is based on significant unobservable
inputs.
|
Assets
and liabilities measured at fair value on a recurring basis included the
following as of November 30, 2009:
|
Fair
Value Measurements Using
|
Liabilities
|
|||||||||||||||
|
(In
thousands)
|
Level
1
|
Level
2
|
Level
3
|
At
Fair Value
|
||||||||||||
|
Liabilities
|
||||||||||||||||
|
Derivative
liabilities
|
$ | - | $ | 16 | $ | - | $ | 16 | ||||||||
|
Total
liabilities
|
$ | - | $ | 16 | $ | - | $ | 16 | ||||||||
Assets
and liabilities measured at fair value on a recurring basis include the
following as of November 30, 2008:
|
Fair
Value Measurements Using
|
Liabilities
|
|||||||||||||||
|
(In
thousands)
|
Level
1
|
Level
2
|
Level
3
|
At
Fair Value
|
||||||||||||
|
Liabilities
|
||||||||||||||||
|
Derivative
liabilities
|
$ | - | $ | 63 | $ | - | $ | 63 | ||||||||
|
Total
liabilities
|
$ | - | $ | 63 | $ | - | $ | 63 | ||||||||
In
addition to the liabilities listed above, the Company’s financial instruments
also include cash and cash equivalents.
Derivatives
The
Company and its subsidiaries complete transactions in currencies other than
their functional currencies. The Company’s primary objective with
respect to currency risk is to reduce net income volatility that would otherwise
occur due to exchange-rate fluctuations. In order to minimize the
risk of gain or loss due to exchange rates, the Company uses foreign currency
derivatives. As of November 30, 2009, the Company held one foreign
currency forward contract aggregating $6,000,000 U.S. dollars, hedging Singapore
dollars, and two contracts aggregating $660,000 U.S. dollars, hedging Euros
compared to holding one foreign currency forward contract aggregating $500,000,
hedging U.S. dollars to Singapore dollars, and two contracts aggregating
$769,000, hedging U.S. dollars to Euros at November 30, 2008. Such
instruments had a combined fair value loss of $16,000 and $63,000 as of November
30, 2009 and 2008, respectively, based on quotations from financial
institutions.
SUPPLEMENTARY
DATA - QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized
quarterly financial data for the years ended November 30, 2009 and 2008,
follow:
|
(In
thousands, except per share data)
|
First
Quarter
|
Second
Quarter
|
Third
Quarter
|
Fourth
Quarter
|
||||||||||||
|
2009
|
||||||||||||||||
|
Sales
|
$ | 146,002 | $ | 132,920 | $ | 131,378 | $ | 136,644 | ||||||||
|
Gross
profit
|
34,921 | 36,550 | 35,618 | 38,363 | ||||||||||||
|
Income
from continuing operations, net of taxes
|
3,826 | 9,426 | 5,948 | 13,283 | ||||||||||||
|
Income
from discontinued operations, net of taxes
|
- | - | - | 817 | ||||||||||||
|
Net
income
|
3,826 | 9,426 | 5,948 | 14,100 | ||||||||||||
|
Diluted
net income per share:
|
||||||||||||||||
|
Income
from continuing operations, net of taxes
|
.42 | 1.03 | .65 | 1.44 | ||||||||||||
|
Income
from discontinued operations, net of taxes
|
- | - | - | .09 | ||||||||||||
|
Net
income
|
.42 | 1.03 | .65 | 1.53 | ||||||||||||
|
Stock
price per share-high
|
66.25 | 60.21 | 79.20 | 89.00 | ||||||||||||
|
Stock
price per share-low
|
44.84 | 41.86 | 50.81 | 56.96 | ||||||||||||
|
Dividends
per share
|
.30 | .30 | .30 | .30 | ||||||||||||
|
2008
|
||||||||||||||||
|
Sales
|
149,769 | 159,793 | 170,107 | 187,874 | ||||||||||||
|
Gross
profit
|
33,452 | 39,746 | 37,455 | 42,968 | ||||||||||||
|
Income
from continuing operations, net of taxes
|
9,737 | 16,333 | 14,998 | 17,524 | ||||||||||||
|
Income
from discontinued operations, net of taxes
|
- | - | - | - | ||||||||||||
|
Net
income
|
9,737 | 16,333 | 14,998 | 17,524 | ||||||||||||
|
Diluted
net income per share:
|
||||||||||||||||
|
Income
from continuing operations, net of taxes
|
1.07 | 1.78 | 1.63 | 1.91 | ||||||||||||
|
Income
from discontinued operations, net of taxes
|
- | - | - | - | ||||||||||||
|
Net
income
|
1.07 | 1.78 | 1.63 | 1.91 | ||||||||||||
|
Stock
price per share-high
|
110.84 | 122.79 | 130.51 | 117.38 | ||||||||||||
|
Stock
price per share-low
|
79.06 | 88.52 | 109.50 | 33.30 | ||||||||||||
|
Dividends
per share
|
.25 | .30 | .30 | .30 | ||||||||||||
The
Company traditionally experiences lower sales during the first fiscal quarter
because of seasonal patterns associated with weather and contractor
schedules.
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the Board of Directors and Stockholders of Ameron International
Corporation
In our
opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, of stockholders' equity, of comprehensive
income, and of cash flows present fairly, in all material respects, the
financial position of Ameron International Corporation and its subsidiaries at
November 30, 2009 and 2008, and the results of their operations and their cash
flows for each of the three years in the period ended November 30, 2009 in
conformity with accounting principles generally accepted in the United States of
America. In addition, in our opinion, the financial statement
schedule listed in the accompanying index appearing under Item 15(a)(2) presents
fairly, in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements. Also
in our opinion, the Company maintained, in all material respects, effective
internal control over financial reporting as of November 30, 2009, based on
criteria established in Internal Control - Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). The Company's management is responsible
for these financial statements and financial statement schedule, for maintaining
effective internal control over financial reporting and for its assessment of
the effectiveness of internal control over financial reporting, included in the
accompanying Management's Report on Internal Control over Financial
Reporting. Our responsibility is to express opinions on these
financial statements, on the financial statement schedule, and on the Company's
internal control over financial reporting based on our integrated
audits. We conducted our audits in accordance with the standards of
the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audits to obtain reasonable
assurance about whether the financial statements are free of material
misstatement and whether effective internal control over financial reporting was
maintained in all material respects. Our audits of the financial
statements included examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. Our audit of internal control over
financial reporting included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, and
testing and evaluating the design and operating effectiveness of internal
control based on the assessed risk. Our audits also included
performing such other procedures as we considered necessary in the
circumstances. We believe that our audits provide a reasonable basis for our
opinions.
As
discussed in Note 1 and Note 10 to the consolidated financial statements, the
Company changed the manner in which it accounts for income taxes in
2008. As discussed in Note 1 and Note 16 to the consolidated
financial statements, the Company changed the manner in which it accounts for
defined benefit pension and other postretirement benefit plans in 2007 and
2009.
A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal
control over financial reporting includes those policies and procedures that
(i) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of
the company; (ii) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and
(iii) provide reasonable assurance regarding prevention or timely detection
of unauthorized acquisition, use, or disposition of the company’s assets that
could have a material effect on the financial statements.
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
/s/
PricewaterhouseCoopers LLP
Los
Angeles, California
January
29, 2010
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A - CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and
Procedures. Management established disclosure controls and
procedures to ensure that material information relating to the Company,
including its consolidated subsidiaries, is made known to the officers who
certify the Company's financial reports and to other members of senior
management and the Board of Directors.
The
Company carried out an evaluation, under the supervision and with the
participation of the Company's Management, including the Company's Chief
Executive Officer and Chief Financial Officer, of the effectiveness of the
design and operation of the Company's disclosure controls and procedures as of
November 30, 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. No changes were
made in the Company's internal control over financial reporting during the
fiscal quarter ended November 30, 2009 that have materially affected, or are
reasonably likely to materially affect, the Company's internal control over
financial reporting.
Management's Report on Internal
Control Over Financial Reporting. Management is responsible
for establishing and maintaining adequate internal control over financial
reporting, as such term is defined in Exchange Act Rule 13a-15(f) and
15d-15(f). Under the supervision and with the participation of Management,
including the principal executive officer and principal financial officer,
Management conducted an evaluation of the effectiveness of internal control over
financial reporting based on the framework in “Internal Control - Integrated
Framework” issued by the Committee of Sponsoring Organizations of the Treadway
Commission. Based on Management's evaluation under the framework in
“Internal Control - Integrated Framework”, Management concluded that
internal control over financial reporting was effective as of November 30,
2009. The effectiveness of the Company’s internal control over
financial reporting as of November 30, 2009 was audited by
PricewaterhouseCoopers LLP, an independent registered public accounting firm, as
stated in their report which appears herein.
ITEM 9B - OTHER INFORMATION
None.
PART III
ITEM 10 - DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE
Information
with respect to the directors, the Audit Committee of the Board of Directors,
and the audit committee financial expert, is contained in the Company's Proxy
Statement. Such information is incorporated herein by
reference. The Board of Directors of the Company has a
separately-designated standing audit committee established in accordance with
section 3(a)(58)(A) of the Securities Exchange Act. The members of
that audit committee are identified in the Company's Proxy Statement under the
section captioned "The Board and Its Committees." Such information is
incorporated herein by reference. The Board of Directors has
determined that one of the members of its Audit Committee, William D. Horsfall,
is an "audit committee financial expert" as defined in Item 407(d)(5) of
Regulation S-K.
Information
with respect to the executive officers who are not directors of the Company is
located in Item 4 of this report.
The
Company has adopted a Code of Business Conduct and Ethics (the "Code") that
applies to directors, officers and employees of the Company, including its
principal executive officer, principal financial officer, principal accounting
officer or controller, or persons performing similar functions. Copies of
the Code, as well as each of the Company's Corporate Governance Guidelines and
charters of the Audit, the Compensation and the Nominating & Corporate
Governance committees of its Board of Directors are available on the Company's
website, located at www.ameron.com, and
are available in print to stockholders upon written request to the Secretary of
the Company at the Company's headquarters address.
ITEM 11 - EXECUTIVE COMPENSATION *
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS *
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND
DIRECTOR INDEPENDENCE *
ITEM 14 - PRINCIPAL ACCOUNTING FEES AND SERVICES
*
* The
information required by Items 11, 12, 13 and 14 is contained in the Company's
Proxy Statement. Such information is incorporated herein by
reference.
PART IV
ITEM 15 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a) (1) CONSOLIDATED FINANCIAL STATEMENTS:
The following financial statements are
included in this Annual Report on Form 10-K in Item 8:
|
Consolidated
Statements of Income for the years ended November 30, 2009, 2008 and
2007.
|
|
Consolidated
Balance Sheets as of November 30, 2009 and 2008.
|
|
Consolidated
Statements of Stockholders' Equity for the years ended November 30, 2009,
2008 and 2007.
|
|
Consolidated
Statements of Comprehensive Income for the years ended November 30, 2009,
2008 and 2007.
|
|
Consolidated
Statements of Cash Flows for the years ended November 30, 2009, 2008 and
2007.
|
|
Notes
to Consolidated Financial Statements
|
|
Report
of Independent Registered Public Accounting
Firm
|
(2) FINANCIAL STATEMENT
SCHEDULES
The
following additional financial data should be read in conjunction with the
Consolidated Financial Statements. Schedules not included with this additional
financial data are omitted because they are either not applicable, not required,
not significant, or the required information is provided in the Consolidated
Financial Statements under Financial Statements and Supplementary Data, under
Item 8.
|
SCHEDULE
NO.
|
DESCRIPTION
OF SCHEDULE
|
|
II
|
Valuation
and Qualifying Accounts and
Reserves
|
(3) EXHIBITS:
The following exhibits are filed with
this Annual Report on Form 10-K:
|
EXHIBIT
NO.
|
DESCRIPTION
OF EXHIBIT
|
|
3.1
|
Restated
Certificate of Incorporation, effective May 4, 2009 (incorporated by
reference to the Company’s Quarterly Report on Form 10-Q for the period
ended May 31, 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
|
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)
|
|
4.2
|
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
|
Seventh
Amendment to Credit Agreement dated August 28, 2009 (incorporated by
reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q
for the period ended August 30, 2009)
|
|
10.2
|
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)**
|
|
10.3
|
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)**
|
|
10.4
|
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)**
|
|
10.5
|
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)**
|
|
10.6
|
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)**
|
|
10.7
|
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)**
|
|
10.8
|
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)**
|
|
10.9
|
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)**
|
|
10.10
|
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)**
|
|
10.11
|
Letter
Agreement dated October 19, 2009 between the Company and James R.
McLaughlin (incorporated by reference to Exhibit 10.1 to the Company's
Current Report on Form 8-K dated October 19, 2009)**
|
|
10.12
|
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)**
|
|
10.13
|
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)**
|
|
10.14
|
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)**
|
|
10.15
|
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)**
|
|
10.16
|
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)**
|
|
10.17
|
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)**
|
|
21
|
Subsidiaries
of the Registrant *
|
|
23.1
|
Consent
of PricewaterhouseCoopers LLP *
|
|
23.2
|
Consent
of PricewaterhouseCoopers LLP regarding TAMCO *
|
|
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
*
|
|
99.1
|
TAMCO
Financial Statements as of November 30, 2009, and for each of the three
years in the period ended November 30, 2009 and associated Report of
Independent Registered Public Accounting Firm
*
|
* Filed
herewith
** Compensatory
plan or arrangement
AMERON
INTERNATIONAL CORPORATION AND CONSOLIDATED SUBSIDIARIES
SCHEDULE II
- VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR
THE YEAR ENDED NOVEMBER 30, 2009
(In
thousands)
|
Additions
|
Deductions,
|
|||||||||||||||||||
|
Balance
at
|
Charged
to
|
Payments
|
Balance
|
|||||||||||||||||
|
Beginning
|
Costs
and
|
And
|
Reclassifications
|
at
End of
|
||||||||||||||||
|
Classification
|
of
Year
|
Expenses
|
Write-offs
|
and
Other
|
Year
|
|||||||||||||||
|
Allowance
for doubtful accounts
|
$ | 7,009 | $ | 1,487 | $ | (2,191 | ) | $ | (954 | ) * | $ | 5,351 | ||||||||
|
Valuation
allowance
|
10,248 | (1,579 | ) | - | (1,596 | ) | 7,073 | |||||||||||||
*
Translation adjustment.
FOR
THE YEAR ENDED NOVEMBER 30, 2008
(In
thousands)
|
Additions
|
Deductions,
|
|||||||||||||||||||
|
Balance
at
|
Charged
to
|
Payments
|
Balance
|
|||||||||||||||||
|
Beginning
|
Costs
and
|
And
|
Reclassifications
|
at
End of
|
||||||||||||||||
|
Classification
|
of
Year
|
Expenses
|
Write-offs
|
and
Other
|
Year
|
|||||||||||||||
|
Allowance
for doubtful accounts
|
$ | 6,235 | $ | 4,419 | $ | (3,533 | ) | $ | (112 | ) * | $ | 7,009 | ||||||||
|
Valuation
allowance
|
15,611 | 24 | - | (5,387 | ) | 10,248 | ||||||||||||||
*
Translation adjustment.
FOR
THE YEAR ENDED NOVEMBER 30, 2007
(In
thousands)
|
Additions
|
Deductions,
|
|||||||||||||||||||
|
Balance
at
|
Charged
to
|
Payments
|
Balance
|
|||||||||||||||||
|
Beginning
|
Costs
and
|
And
|
Reclassifications
|
at
End of
|
||||||||||||||||
|
Classification
|
of
Year
|
Expenses
|
Write-offs
|
and
Other
|
Year
|
|||||||||||||||
|
Allowance
for doubtful accounts
|
$ | 4,912 | $ | 3,248 | $ | (2,212 | ) | $ | 287 | * | $ | 6,235 | ||||||||
|
Valuation
allowance
|
21,900 | (3,313 | ) | - | (2,976 | ) | 15,611 | |||||||||||||
*
Translation adjustment.
SIGNATURES
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/
Gary Wagner
|
|
|
Chief
Financial Officer
|
||
Date:
January 29, 2010
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
|
Date: 1-29-10
|
/s/
James S. Marlen
|
Director,
Chairman of the Board, President
|
|
|
James
S. Marlen
|
and
Chief Executive Officer
|
||
|
(Principal
Executive Officer)
|
|||
|
Date: 1-29-10
|
/s/
Gary Wagner
|
Senior
Vice President, Finance and Administration,
|
|
|
Gary
Wagner
|
and
Chief Financial Officer
|
||
|
(Principal
Financial & Accounting Officer)
|
|||
|
Date: 1-29-10
|
/s/David
Davenport
|
Director
|
|
|
David
Davenport
|
|||
|
Date: 1-29-10
|
/s/J.
Michael Hagan
|
Director
|
|
|
J.
Michael Hagan
|
|||
|
Date: 1-29-10
|
/s/Terry
L.Haines
|
Director
|
|
|
Terry
L. Haines
|
|||
|
Date: 1-29-10
|
/s/William
D. Horsfall
|
Director
|
|
|
William
D. Horsfall
|
|||
|
Date: 1-29-10
|
/s/John
E. Peppercorn
|
Director
|
|
|
John
E. Peppercorn
|
|||