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, 2007
OR
¨ TRANSITION REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
Commission
File Number 1-9102
AMERON
INTERNATIONAL CORPORATION
(Exact
name of registrant as specified in its charter)
|
Delaware
|
77-0100596
|
|
(State
of Incorporation)
|
(I.R.S.
Employer Identification No.)
|
245
South Los Robles Avenue
Pasadena,
CA 91101-3638
(Address
and Zip Code of principal executive offices)
Registrant's
telephone number, including area code: (626) 683-4000
SECURITIES
REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
|
Title
of each class
|
Name
of each exchange on which registered
|
|
|
Common
Stock $2.50 par value
|
New
York Stock Exchange
|
SECURITIES
REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes ¨ No
x
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes ¨ No
x
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes x No ¨
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. x
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer (as defined in Rule 12b-2 of the
Exchange Act).
|
Large
accelerated filer ¨
|
Accelerated
filer x
|
Non-accelerated
filer ¨
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act). Yes ¨ No
x
AMERON
INTERNATIONAL CORPORATION AND SUBSIDIARIES
The
aggregate market value of voting and non-voting common equity held by
non-affiliates was approximately $695 million on May 25, 2007, based upon the
last reported sales price of such stock on the New York Stock Exchange on that
date.
On
February 1, 2008 there were 9,154,935 shares of Common Stock, $2.50 par value,
outstanding. No other class of Common Stock exists.
DOCUMENTS
INCORPORATED BY REFERENCE
1.
PORTIONS OF AMERON'S PROXY STATEMENT FOR THE 2008 ANNUAL MEETING OF STOCKHOLDERS
(PART III)
2
AMERON INTERNATIONAL CORPORATION AND SUBSIDIARIES
2007
ANNUAL REPORT ON FORM 10-K
Table
of Contents
3
AMERON
INTERNATIONAL CORPORATION AND SUBSIDIARIES
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 has been divided into business
segments in Item 1(c)(1), herein. Substantially all activities relate to the
manufacture of highly-engineered products for sale to the industrial, chemical,
energy and construction markets. All references to "the year" or "the
fiscal year" pertain to the 12 months ended November 30, 2007. All
references to the "Proxy Statement" pertain to the Company's Proxy Statement to
be filed on or about February 25, 2008 in connection with the 2008 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”). 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 Part II, Item 8,
herein.
(c)
NARRATIVE DESCRIPTION OF BUSINESS.
(1) For
geographical and operational convenience, the Company is organized into
divisions. These divisions are combined into groups serving various industry
segments, as follows:
a) The
Fiberglass-Composite Pipe Group develops, manufactures and markets
filament-wound and molded fiberglass pipe and fittings. These products are used
by a wide range of process industries, including industrial, petroleum, chemical
processing and petrochemical industries, for service station piping systems,
aboard marine vessels and offshore oil platforms, and are marketed as an
alternative to metallic piping systems which ultimately fail under corrosive
operating conditions. These products are marketed directly, as well as through
manufacturers' representatives, distributors and licensees. Competition is based
upon quality, price and service. Manufacture of these products is carried out in
the Company's plant in 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, pre-stressed 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 and by competitive bidding. Customers include local,
state and federal agencies, developers and general contractors. Normally no one
customer or group of customers will account for sales equal to or greater than
10 percent of the Company's consolidated revenue. However, occasionally, when
more than one unusually large project is in progress, combined sales to U.S.,
state or local government agencies and/or general contractors for those agencies
can reach those proportions. Besides competing with several other welded-steel
pipe and concrete pipe manufacturers located in the market area, alternative
products such as ductile iron, plastic, and clay pipe compete with the Company's
concrete and steel pipe products, but ordinarily these other materials do not
offer the full diameter range produced by the Company. Principal methods of
competition are price, delivery schedule and service. The Company's
technology is used in the Middle East through affiliated companies. This segment
also includes the manufacturing and marketing, on a worldwide basis directly and
through manufacturers' representatives, of polyvinyl chloride and polyethylene
sheet lining for the protection of concrete pipe and cast-in-place concrete
structures from the corrosive effects of sewer gases, acids and industrial
chemicals. Competition is based upon quality, price and service. Manufacture of
this product is carried out in the Company's plant in
California. Additionally, the Company manufactures large-diameter
wind towers at one of its California plants for the U.S. wind-energy
market. Wind towers are sold to wind turbine manufacturers based on
price, quality and availability.
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 Ameron,
manufactures and sells glass reinforced epoxy pipe and fittings in Saudi
Arabia. TAMCO, 50%-owned by the Company, operates a steel mini-mill in
California 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, 2007:
(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. All of the Company's industry segments turn
their inventory between four and seven times annually. Average days'
sales in accounts receivable range between 33 and 171 for all
segments. Excluding
the $45.6 million of unbilled receivables from the Water Transmission Group, the
average days’ sales would be 109 instead of 171. Due to the
percentage-of-completion method of accounting used by the Water Transmission
Group, which is outlined in Item 7, receivables of the Water Transmission Group
may be outstanding longer than would be typical.
(v) The
backlog of orders at November 30, 2007 and 2006 by industry segment is
shown below. Approximately 96% of the November 30, 2007 backlog
is expected to be converted to sales during 2008. The Water
Transmission Group’s backlog included $33.7 million of orders for large-diameter
wind towers at November 30, 2007, compared to $97.1 million at the end of
2006. The decline reflects the start-up delays related to the
construction of the Company’s new wind tower facilities and the timing of
incoming new orders scheduled for 2008 production. The backlog of
concrete and steel pipe manufactured by the Water Transmission Group increased
$13.4 million during 2007 due to an increase in activities in Northern
California. The Fiberglass-Composite Pipe Group’s backlog increased
$20.1 million with growing demand for marine and oilfield piping. The
backlog decreased at Infrastructure Products Group due to a decline in the
residential construction markets.
|
SEGMENT
|
2007
|
2006
|
||||||
|
(in
thousands)
|
||||||||
|
Water
Transmission Group
|
$ | 133,862 | $ | 183,802 | ||||
|
Fiberglass-Composite
Pipe Group
|
71,391 | 51,310 | ||||||
|
Infrastructure
Products Group
|
28,512 | 34,866 | ||||||
|
Total
|
$ | 233,765 | $ | 269,978 | ||||
(vi)
Except for the sale of the Coatings Business and the introduction of wind
towers, the Company believes there was no significant change in competitive
conditions or the competitive position of the Company in the industries and
localities in which it operates. The Company is not aware of any
change in the competitive situation which would be material to an understanding
of the business.
(vii)
Sales contracts in all of the Company's business segments normally consist of
purchase orders, which in some cases are issued pursuant to master purchase
agreements. Contracts seldom involve commitments of more than one year by the
Company. In those instances when the Company commits to sell products
under longer-term contracts, the Company will typically contractually arrange to
fix a portion of the associated costs. Payment is normally due from
30 to 60 days after shipment, with progress payments prior to shipment in some
circumstances. It is the Company's practice to require letters of credit prior
to shipment of foreign orders, subject to limited exceptions. The Company does
not typically extend long-term credit to purchasers of its
products. For 2007, excluding the effect of unbilled receivables
related to long-term construction contracts, trade receivable turnover was
approximately five times.
(viii) A
number of the Company's operations operate outside the U.S. and are affected by
changes in foreign exchange rates. Sales, profits, assets and liabilities
could be materially impacted by changes in foreign exchange rates. From
time to time, the Company borrows in various currencies to reduce the level of
net assets subject to changes in foreign exchange rates or purchases foreign
exchange forward and option contracts to hedge firm commitments, such as
receivables and payables, denominated in foreign currencies. The Company does
not typically hedge forecasted sales or items subject to translation
adjustments, such as intercompany transactions of a long-term investment
nature.
(2) a)
Costs during each of the last three years for research and development were
$5,724,000 in 2007, $5,790,000 in 2006, and $4,567,000 in 2005, and did not
include expenses incurred by the Coatings Business in 2006 and
2005. 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 has been consistently installing or improving devices to
control or eliminate the discharge of pollutants into the environment.
Accordingly, compliance with federal, state, and locally-enacted provisions
relating to protection of the environment did not have, and is not expected to
have, a material effect upon the Company's capital expenditures, earnings, or
competitive position.
d) At
year-end the Company and its consolidated subsidiaries employed approximately
2,600 persons. Of those, approximately 1,000 were covered by labor union
contracts. Two separate bargaining agreements are subject to renegotiation
in 2008.
(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
|
||||
|
2007
|
$ | 34,044 | ||
|
2006
|
27,811 | |||
|
2005
|
22,858 | |||
Financial
information about foreign and domestic operations may be found in Notes (1),
(6), and (18) of the Notes to Consolidated Financial Statements, under Part II,
Item 8.
(e)
AVAILABLE INFORMATION
(1) The
Company's Internet address is www.ameron.com
(2) The
Company makes available free of charge through its Internet website, its annual
report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K
and amendments to those reports as soon as reasonably practicable after the
Company electronically files such material with, or furnishes it to, the
Securities and Exchange Commission (the "Commission").
ITEM 1A - RISK FACTORS
The
following discussion of risk factors may be important to understanding any
statement in this Annual Report on Form 10-K. The following
information should be read in conjunction with Management's Discussion and
Analysis (“MD&A”) and the Consolidated Financial Statements and related
Notes.
The
Company's businesses routinely encounter and address risks, some of which could
cause the Company's future results to be materially different than presently
anticipated. Discussion about the important operational risks that
the Company's businesses encounter can also be found in the MD&A section and
in the business descriptions in Item 1, herein.
a) The primary markets for the Company's
products are cyclical and dependent on factors that may not necessarily
correspond to general economic cycles. The Company's Water
Transmission Group sells piping products for public works projects, which are
typically dependent on taxes and fees for funding. The
Fiberglass-Composite Pipe Group's performance is closely linked to the level of
oil prices and the corresponding impact on oil production, processing and
transport. The Infrastructure Products Group is dependent on the
level of construction, especially the level of construction in Hawaii and
construction of new homes for the sale of concrete poles. Therefore,
the Company's activities can be materially impacted by changes in interest
rates, construction cycles, changes in oil prices and constraints on
governmental budgets and spending.
b) The availability and price of key raw
materials can fluctuate dramatically. The Company consumes
significant amounts of steel, cement, epoxy resin and fiberglass. The
availability of these raw materials is subject to periodic shortages, and future
allocations may not be sufficient to prevent disruption to sales of the Company
and its subsidiaries. Additionally, significant increases in the cost
of these raw materials could lead to significantly lower operating margins if
the Company is unable to recover these cost increases through price increases to
its customers.
c) Labor disruptions or labor shortages
could materially impact the Company’s operations. The
Company's businesses are involved with heavy-duty manufacturing and materials
handling. Labor is a key component of such operations, and
disruptions, such as disputes and strikes, could have a material impact on the
Company and its subsidiaries. Additionally, shortages of skilled
labor, such as welders, could periodically impact the Company's costs and
profitability.
d) Claims associated with the Company's
performance can be relatively large. The Company sells
products that may be essential to the use of large, multi-million-dollar,
infrastructure projects, such as water and sewer systems, offshore platforms,
marine vessels, petrochemical plants, roads, and large construction
projects. Additionally, the Company sells products used in critical
applications, such as to protect against corrosion or to convey hazardous
materials. 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. A series of
successful claims against the Company could materially and adversely affect its
reputation, financial condition and results of operations.
e) TAMCO's profitability could be
significantly reduced by a sharp increase in costs and/or a significant increase
in foreign imports of rebar into TAMCO's markets in the western
U.S. TAMCO, the Company's 50%-owned joint venture that
manufactures steel rebar in California, has historically contributed to the
Company's earnings and paid significant dividends to the
Company. TAMCO uses large quantities of natural gas, electricity, and
scrap metal. A major spike in energy or scrap costs without a
corresponding increase in TAMCO's selling price of its rebar could result in a
dramatic decline in profitability. TAMCO's ability to raise prices
could be limited due to competitive pressures, including imports of
foreign-sourced rebar.
f) A significant part of the Company's
assets and profits are located or generated outside the U.S., with an associated
foreign exchange and country risk. The Company and it
subsidiaries operate in several countries outside the U.S. A
significant change in the value of foreign currencies, political stability,
trade restrictions, the impact of foreign government regulations, or economic
cycles in foreign countries could materially impact the Company.
g) The returns from the Company's new
investment in wind-tower capabilities are dependent on future demand which could
be impacted by changes in government policy, energy prices or tax
credits. The Company is completing a major expansion program
to enhance its capabilities to produce wind towers used for wind-generated
electricity. The current demand for wind-generated power is driven by
high energy prices and tax credits. The demand for wind towers could
subside if the tax credits are not renewed at the end of 2008 and/or if oil
prices fall significantly so that wind energy is less
competitive. 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 operations of such ventures and the amount of cash available to the
Company from such joint ventures. Without control, the Company
cannot solely dictate the dividend or operating policies of joint ventures
without the cooperation of the respective joint-venture partners.
j) The Company’s relatively low trading
volume could limit a shareholder's ability to trade the Company's
shares. The
Company's shares are traded on the New York Stock Exchange; however, the average
trading volume can be considered to be relatively low. As a result,
shareholders could have difficulty in selling or buying a large number of the
Company's shares in the manner or at a price that might otherwise be possible if
the shares were more actively traded.
ITEM 1B - UNRESOLVED STAFF COMMENTS
None.
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 properties formerly used in the Coatings
Business that are 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, in management's opinion, rock reserves are
adequate for its requirements during the term of the lease.
(b) The
Company believes that its existing facilities are adequate for current and
presently foreseeable operations. Because of the cyclical nature of certain of
the Company's operations and the substantial amounts involved in some individual
orders, the level of utilization of particular facilities may vary significantly
from time to time in the normal course of operations.
INDUSTRY
SEGMENT - GROUP
|
Division
- Location
|
Description
|
|
|
FIBERGLASS-COMPOSITE
PIPE GROUP
|
||
|
Fiberglass
Pipe Division - USA
|
||
|
Houston,
TX
|
*Office
|
|
|
Burkburnett,
TX
|
Office,
Plant
|
|
|
Centron
International, Inc.
|
||
|
Mineral
Wells, TX
|
Office,
Plant
|
|
|
Ameron
B.V.
|
||
|
Geldermalsen,
the Netherlands
|
Office,
Plant
|
|
|
Ameron
(Pte) Ltd.
|
||
|
Singapore
|
*Office,
Plant
|
|
|
Ameron
Malaysia Sdn. Bhd.
|
||
|
Malaysia
|
*Office,
Plant
|
|
|
Ameron
Polyplaster
|
||
|
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
|
|
|
Houston,
TX
|
Warehouse
|
|
|
Hull,
UK
|
**Office,
Plant
|
|
|
Corporate
Research & Engineering
|
||
|
Long
Beach, CA
|
*Office
|
|
|
South
Gate, CA
|
Office,
Laboratory
|
*Leased
**Held
for Sale
ITEM 3 - LEGAL PROCEEDINGS
The
Company is one of numerous defendants in various asbestos-related personal
injury lawsuits. These cases generally seek unspecified damages for
asbestos-related diseases based on alleged exposure to products previously
manufactured by the Company and others, and at this time the Company is
generally not aware of the extent of injuries allegedly suffered by the
individuals or the facts supporting the claim that injuries were caused by the
Company's products. Based upon the information available to it at this time, the
Company is not in a position to evaluate its potential exposure, if any, as a
result of such claims or future similar claims, if any, that may be filed.
Hence, no amounts have been accrued for loss contingencies related to these
lawsuits in accordance with Statements of Financial Accounting Standards
("SFAS") No. 5, "Accounting for Contingencies." The Company continues to
vigorously defend all such lawsuits. As of November 30, 2007, the Company was a
defendant in asbestos-related cases involving 60 claimants, compared to 145
claimants as of November 30, 2006. The Company is not in a position to
estimate the number of additional claims that may be filed against it in the
future. For the year ended November 30, 2007, there were new claims involving 19
claimants, dismissals and/or settlements involving 104 claimants and no
judgments. Net costs and expenses incurred by the Company for the
year ended November 30, 2007 in connection with asbestos-related claims were
approximately $.2 million.
As of
November 30, 2006, the Company was one of numerous defendants in various
silica-related personal injury lawsuits involving seven claimants. As
of November 30, 2007, the Company was no longer a defendant in any
silica-related cases. No net costs and expenses were incurred by the
Company for the year ended November 30, 2007 in connection with silica-related
claims.
In May
2003, Dominion Exploration and Production, Inc. and Pioneer Natural Resources
USA, Inc. (collectively "Dominion") brought an action against the Company in
Civil District Court for the Parish of Orleans, Louisiana as owners of an
offshore production facility known as a SPAR. Dominion seeks damages
allegedly sustained by it resulting from delays in delivery of the SPAR caused
by the removal and replacement of certain coatings containing lead and/or lead
chromate for which the manufacturer of the SPAR alleged the Company was
responsible. Dominion contends that the Company made certain
misrepresentations and warranties to Dominion concerning the lead-free nature of
those coatings. Dominion's petition as filed alleged a claim for damages
in an unspecified amount; however, Dominion's economic expert has since
estimated Dominion's damages at approximately $128 million, a figure which the
Company contests. This matter is in discovery and no trial date has yet
been established. The Company believes that it has meritorious defenses to
this action. Based upon the information available to it at this
time, the Company is not in a position to evaluate the ultimate outcome of this
matter.
In April
2004, Sable Offshore Energy Inc. ("Sable"), as agent for certain owners of the
Sable Offshore Energy Project, brought an action against various coatings
suppliers and application contractors, including the Company and two of its
subsidiaries, Ameron (UK) Limited and Ameron B.V. (collectively "Ameron
Subsidiaries") in the Supreme Court of Nova Scotia, Canada. Sable seeks
damages allegedly sustained by it resulting from performance problems with
several coating systems used on the Sable Offshore Energy Project, including
coatings products furnished by the Company and the Ameron Subsidiaries.
Sable's originating notice and statement of claim alleged a claim for damages in
an unspecified amount; however, Sable has since alleged that its claim for
damages against all defendants is approximately 428 million Canadian dollars, a
figure which the Company and the Ameron Subsidiaries contest. This matter
is in discovery, and no trial date has yet been established. The Company
believes that it has meritorious defenses to this action. Based upon the
information available to it at this time, the Company is not in a position to
evaluate the ultimate outcome of this matter.
In
addition, certain other claims, suits and complaints that arise in the ordinary
course of business, have been filed or are pending against the Company.
Management believes that these matters are either adequately reserved, covered
by insurance, or would not have a material effect on the Company's financial
position, cash flows, or its results of operations if disposed of
unfavorably.
The
Company is subject to federal, state and local laws and regulations concerning
the environment and is currently participating in administrative proceedings at
several sites under these laws. While the Company finds it difficult to estimate
with any certainty the total cost of remediation at the several sites, on the
basis of currently available information and reserves provided, the Company
believes that the outcome of such environmental regulatory proceedings will not
have a material effect on the Company's financial position, cash flows, or its
results of operations.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
There was
no matter submitted to a vote of security holders during the fourth quarter of
2007.
Executive
Officers of the Registrant
The
following sets forth information with respect to individuals who served as
executive officers as of November 30, 2007 and who are not directors of the
Company. All executive officers are appointed by the Board of
Directors to serve at the discretion of the Board of Directors.
|
Name
|
Age
|
Title
and Year Elected as Officer
|
|||
|
Daniel
J. Emmett
|
47
|
Vice
President, Controller
|
2006
|
||
|
Ralph
S. Friedrich
|
60
|
Vice
President-Research & Engineering
|
2003
|
||
|
James
R. McLaughlin
|
60
|
Senior
Vice President-Chief Financial Officer & Treasurer
|
1997
|
||
|
Terrence
P. O'Shea
|
61
|
Vice
President-Human Resources
|
2003
|
||
|
Javier
Solis
|
61
|
Senior
Vice President of Administration, Secretary & General
Counsel
|
1984
|
||
|
Gary
Wagner
|
56
|
Executive
Vice President & Chief Operating Officer
|
1990
|
||
All of
the executive officers named above, except Daniel J. Emmett, have held
high-level managerial or executive positions with the Company for more than the
past five years. Daniel J. Emmett was appointed Vice President,
Controller on January 11, 2006, after having served as Group Controller for the
Fiberglass-Composite Pipe Group since July 2004. Prior to joining the
Company, he was Corporate Controller for Bearcom from 2002 to 2004 and Director
of International Accounting for Blockbuster from 2000 to 2002.
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 24, 2008,
there were 984 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 Part II, Item 8.
Dividends
have been paid each quarter during the prior two years. Information as to the
amount of dividends paid during the reporting period and the high and low prices
of the Company's Common Stock during such period are set out in Supplementary
Data - Quarterly Financial Data (Unaudited) following the Notes to Consolidated
Financial Statements, under Part II, Item 8.
Terms of
lending agreements which place restrictions on cash dividends are discussed in
Management's Discussion and Analysis of Financial Condition and Results of
Operations under Item 7, herein, and Note (11) of the Notes to Consolidated
Financial Statements, under Part II, Item 8.
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
Market Value Index and the Peer Group Composite Index described below for the
period of the Company’s five fiscal years commencing December 1, 2002 and ended
November 30, 2007. The comparison assumes $100 invested in stock on
December 1, 2002. 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.
In 2007
the Company changed the companies comprising its Peer Group Composite Index due
to the sale of its Coatings Business in 2006, which represented 30% of the
companies in the old Peer Group Composite Index. The new Peer Group
Composite Index is comprised of the following companies: Ameron
International, Dresser-Rand Group, Inc., Gibraltar Industries, Inc., Grant
Prideco Inc., Lufkin Industries Inc., Martin Marietta Material, National Oilwell
Varco, Inc., Northwest Pipe Co., Schnitzer Steel Industries, Inc. Texas
Industries Inc., Trinity Industries Inc., Valmont Industries, Inc. and Vulcan
Materials Co.
|
Dec-02
|
Nov-03
|
Nov-04
|
Nov-05
|
Nov-06
|
Nov-07
|
|||||||
|
Ameron
International Corporation
|
100
|
118.54
|
139.59
|
168.89
|
286.28
|
406.88
|
||||||
|
NYSE
Market Value Index
|
100
|
117.77
|
135.05
|
150.32
|
174.84
|
192.41
|
||||||
|
New
Peer Group Composite Index
|
100
|
121.36
|
169.73
|
237.43
|
301.84
|
376.30
|
||||||
|
Old
Peer Group Composite Index (1)
|
100
|
120.86
|
156.77
|
195.79
|
242.95
|
258.02
|
(1) The
old Peer Group Composite Index is based upon a 70% Buildings Materials Companies
Component and a 30% Protective Coatings Companies Component. The
Buildings Materials Companies Component is comprised of the following
companies: Advanced Environ Recycle, American Woodmark Corp., Ameron,
Armstrong Holdings Inc., Bairnco Corp., Ceradyne, Inc., Griffon Corp.,
Insituform Technols CLA, Martin Marietta Material, NCI Building Systems Inc.,
Shaw Group Inc., Southwall Technologies, T-3 Energy Services Inc., USG Corp. and
Vulcan Materials Co. The Protective Coatings Companies Component is
comprised of the following companies: Ameron, PPG Industries, Inc.,
RPM International, Inc., Sherwin-Williams Co. and Valspar Corp.
ISSUER
PURCHASES OF EQUITY SECURITIES
|
(c)
|
(d)
|
|||||||
|
Number
of Shares
|
Maximum
Number
|
|||||||
|
(a)
|
(b)
|
(or
Units) Purchased
|
(or
Approximate Dollar Value)
|
|||||
|
Total
Number of
|
Average
Price
|
As
Part of Publicly
|
Of
Shares (or Units) that May
|
|||||
|
Shares
(or Units)
|
Paid
per
|
Announced
Plans or
|
Yet
Be Purchased Under
|
|||||
|
Period
|
Purchased
|
Share
(or Unit)
|
Programs
|
The
Plans or Programs**
|
||||
|
8/27/07
thru 9/23/07
|
-
|
N/A
|
-
|
32,520
|
||||
|
9/24/07
thru 10/28/07
|
-
|
N/A
|
-
|
32,520
|
||||
|
10/29/07
thru 11/30/07
|
158
|
$105.78
|
-
|
32,345
|
**Shares
may be repurchased by the Company to pay taxes applicable to the vesting of
restricted stock. The number of shares assumes an average statutory
withholding rate of 40.6% and does not include shares which may be repurchased
to pay social security taxes applicable to the vesting of such restricted
stock.
ITEM 6 - SELECTED FINANCIAL DATA
SELECTED
CONSOLIDATED FINANCIAL INFORMATION
|
Year
ended November 30,
|
||||||||||||||||||||
|
(Dollars
in thousands, except per share data)
|
2007
|
2006
|
2005
|
2004
|
2003
|
|||||||||||||||
|
PER
COMMON SHARE DATA (1)
|
||||||||||||||||||||
|
Basic
earnings per share:
|
||||||||||||||||||||
|
Income
from continuing operations
|
$ | 6.77 | $ | 5.73 | $ | 3.51 | $ | 1.35 | $ | 3.00 | ||||||||||
|
Income
from discontinued operations, net of taxes
|
.68 | .25 | .37 | .28 | .77 | |||||||||||||||
|
Net
income
|
7.45 | 5.98 | 3.88 | 1.63 | 3.77 | |||||||||||||||
|
Diluted
earnings per share:
|
||||||||||||||||||||
|
Income
from continuing operations
|
6.73 | 5.64 | 3.44 | 1.32 | 2.92 | |||||||||||||||
|
Income
from discontinued operations, net of taxes
|
.67 | .24 | .36 | .27 | .75 | |||||||||||||||
|
Net
income
|
7.40 | 5.88 | 3.80 | 1.59 | 3.67 | |||||||||||||||
|
Weighted-average
shares (basic)
|
9,029,487 | 8,731,839 | 8,410,563 | 8,270,487 | 7,925,229 | |||||||||||||||
|
Weighted-average
shares (diluted)
|
9,090,846 | 8,871,695 | 8,579,194 | 8,448,987 | 8,149,460 | |||||||||||||||
|
Dividends
|
.90 | .80 | .80 | .80 | .76 | |||||||||||||||
|
Stock
price - high
|
109.60 | 80.01 | 46.61 | 40.05 | 35.53 | |||||||||||||||
|
Stock
price - low
|
64.35 | 44.66 | 31.76 | 28.60 | 24.89 | |||||||||||||||
|
Price/earnings
ratio (range)
|
15-9 | 14-8 | 12-8 | 25-18 | 10-7 | |||||||||||||||
|
OPERATING
RESULTS
|
||||||||||||||||||||
|
Sales
|
$ | 631,010 | $ | 549,180 | $ | 494,767 | $ | 406,230 | $ | 410,215 | ||||||||||
|
Gross
profit
|
146,029 | 132,389 | 125,210 | 92,209 | 110,221 | |||||||||||||||
|
Interest
income/(expense), net
|
1,927 | (1,682 | ) | (5,520 | ) | (5,522 | ) | (6,755 | ) | |||||||||||
|
Provision
for income taxes
|
(10,359 | ) | (10,905 | ) | (11,040 | ) | (4,789 | ) | (9,474 | ) | ||||||||||
|
Equity
in earnings of joint venture, net of taxes
|
15,383 | 13,550 | 9,005 | 10,791 | 614 | |||||||||||||||
|
Income
from continuing operations
|
61,140 | 50,060 | 29,509 | 11,151 | 23,808 | |||||||||||||||
|
Income
from discontinued operations, net of taxes
|
6,099 | 2,140 | 3,101 | 2,308 | 6,092 | |||||||||||||||
|
Net
income
|
67,239 | 52,200 | 32,610 | 13,459 | 29,900 | |||||||||||||||
|
Net
income/sales
|
10.7 | % | 9.5 | % | 6.6 | % | 3.3 | % | 7.3 | % | ||||||||||
|
Return
on equity
|
16.6 | % | 15.8 | % | 11.3 | % | 5.0 | % | 12.8 | % | ||||||||||
|
FINANCIAL
CONDITION AT YEAR-END (2)
|
||||||||||||||||||||
|
Working
capital
|
$ | 314,339 | $ | 280,467 | $ | 216,126 | $ | 180,813 | $ | 177,009 | ||||||||||
|
Property,
plant and equipment, net
|
173,731 | 134,470 | 154,665 | 153,651 | 150,586 | |||||||||||||||
|
Investments
in joint ventures
|
||||||||||||||||||||
|
Equity
method
|
14,677 | 14,501 | 13,777 | 16,042 | 13,064 | |||||||||||||||
|
Cost
method
|
3,784 | 3,784 | 5,922 | 5,922 | 5,479 | |||||||||||||||
|
Total
assets
|
705,812 | 616,351 | 578,036 | 543,937 | 533,492 | |||||||||||||||
|
Long-term
debt, less current portion
|
57,593 | 72,525 | 77,109 | 75,349 | 86,044 | |||||||||||||||
|
CASH
FLOW (2)
|
||||||||||||||||||||
|
Expenditures
for property, plant and equipment
|
$ | 47,697 | $ | 35,519 | $ | 25,371 | $ | 18,312 | $ | 17,107 | ||||||||||
|
Depreciation
and amortization
|
17,034 | 17,440 | 18,924 | 18,897 | 18,371 | |||||||||||||||
(1)
Share and per share data reflect a two-for-one stock split declared in
2003.
(2)
Amounts include both continuing and discontinued operations.
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Ameron
International Corporation ("Ameron" or the "Company") is a multinational
manufacturer of highly-engineered products and materials for the chemical,
industrial, energy, transportation and infrastructure markets. Ameron is a
leading producer of water transmission lines; fiberglass-composite pipe for
transporting oil, chemicals and corrosive fluids and specialized materials and
products used in infrastructure projects. The Company operates businesses
in North America, South America, Europe and Asia. The Company has three
reportable segments. The Fiberglass-Composite Pipe Group manufactures and
markets filament-wound and molded composite fiberglass pipe, tubing, fittings
and well screens. The Water Transmission Group manufactures and supplies
concrete and steel pressure pipe, concrete non-pressure pipe, protective linings
for pipe and fabricated steel products, such as large-diameter wind
towers. The Infrastructure Products Group consists of two operating
segments, which are aggregated: the Hawaii Division which manufactures and
sells ready-mix concrete, sand and aggregates, concrete pipe and culverts and
the Pole Products Division which manufactures and sells concrete and steel
lighting and traffic poles. The markets served by the Fiberglass-Composite
Pipe Group are worldwide in scope. The Water Transmission Group serves
primarily the western U.S. for pipe and sells wind-towers primarily west of the
Mississippi river. The Infrastructure Products Group's quarry and
ready-mix business operates exclusively in Hawaii, and poles are sold throughout
the U.S. Ameron also participates in several joint-venture companies,
directly in the U.S. and Saudi Arabia, and indirectly in Egypt.
During
the third quarter of 2006, the Company sold its Performance Coatings &
Finishes business ("Coatings Business"). The results from this segment
have been reported as discontinued operations for all the reporting
periods. Accordingly, the following discussions generally reflect summary
results from continuing operations unless otherwise noted. However, the
net income and net income per share discussions include the impact of
discontinued operations.
CRITICAL
ACCOUNTING POLICIES AND ESTIMATES
Management's
Discussion and Analysis of Liquidity and Capital Resources and Results of
Operations are based upon the Company's consolidated financial statements, which
have been prepared in accordance with accounting principles generally accepted
in the United States of America. The preparation of these financial
statements requires Management to make certain estimates and assumptions that
affect the reported amounts of assets, liabilities, revenues and expenses, and
related disclosure of contingent assets and liabilities during the reporting
periods. Management bases its estimates on historical experience and on
various other assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results could differ from those
estimates.
A summary
of the Company's significant accounting policies is provided in Note (1) of the
Notes to Consolidated Financial Statements, under Part II, Item 8. In
addition, Management believes the following accounting policies affect the more
significant estimates used in preparing the consolidated financial
statements.
The
consolidated financial statements include the accounts of Ameron International
Corporation and all wholly-owned subsidiaries. All material intercompany
accounts and transactions have been eliminated. The functional currencies
for the Company's foreign operations are the applicable local currencies.
The translation from the applicable foreign currencies to U.S. dollars is
performed for balance sheet accounts using current exchange rates in effect at
the balance sheet date and for revenue and expense accounts using a
weighted-average exchange rate during the period. The resulting
translation adjustments are recorded in accumulated other comprehensive
income/(loss). The Company advances funds to certain foreign subsidiaries
that are not expected to be repaid in the foreseeable future. Translation
adjustments arising from these advances are also included in accumulated other
comprehensive income/(loss). The timing of repayments of intercompany
advances could materially impact the Company's consolidated financial
statements. Additionally, earnings of foreign subsidiaries are often
permanently reinvested outside the U.S. Unforeseen repatriation of such
earnings could result in significant unrecognized U.S. tax liability.
Gains or losses resulting from foreign currency transactions are included in
other income, net.
Revenue
for the Fiberglass-Composite Pipe and Infrastructure Products segments is
recognized when risk of ownership and title pass, primarily at the time goods
are shipped, provided that an agreement exists between the customer and the
Company, the price is fixed or determinable and collection is reasonably
assured. Revenue is recognized for the Water Transmission Group primarily
under the percentage-of-completion method, typically based on completed units of
production, since products are manufactured under enforceable and binding
construction contracts, typically are designed for specific applications, are
not interchangeable between projects, and are not manufactured for stock.
Revenue for the period is determined by multiplying total estimated contract
revenue by the percentage-of-completion of the contract and then subtracting the
amount of previously recognized revenue. Cost of earned revenue is
computed by multiplying estimated contract completion cost by the
percentage-of-completion of the contract and then subtracting the amount of
previously recognized cost. In some cases, if products are manufactured
for stock or are not related to specific construction contracts, revenue is
recognized under the same criteria used by the other two
segments. Revenue under the percentage-of-completion method is
subject to a greater level of estimation, which affects the timing of revenue
recognition, costs and profits. Estimates are reviewed on a consistent
basis and are adjusted periodically to reflect current expectations. Costs
attributable to unpriced change orders are treated as costs of contract
performance in the period, and contract revenue is recognized if recovery is
probable. Disputed or unapproved change orders are treated as
claims. Recognition of amounts of additional contract revenue relating to
claims occurs when amounts have been received or awarded with recognition based
on the percentage-of-completion methodology.
The
Company expenses environmental clean-up costs related to existing conditions
resulting from past or current operations on a site-by-site basis.
Liabilities and costs associated with these matters, as well as other pending
litigation and asserted claims arising in the ordinary course of business,
require estimates of future costs and judgments based on the knowledge and
experience of management and its legal counsel. When the Company's
exposures can be reasonably estimated and are probable, liabilities and expenses
are recorded. The ultimate resolution of any such exposure to the Company
may differ due to subsequent developments.
Inventories
are stated at the lower of cost or market with cost determined principally on
the first-in, first-out ("FIFO") method. Certain steel inventories used by
the Water Transmission Group are valued using the last-in, first-out ("LIFO")
method. Significant changes in steel levels or costs could materially
impact the Company's financial statements. Reserves are established for
excess, obsolete and rework inventories based on estimates of salability and
forecasted future demand. Management records an allowance for doubtful
accounts receivable based on historical experience and expected
trends. A significant reduction in demand or a significant worsening
of customer credit quality could materially impact the Company’s consolidated
financial statements.
Investments
in unconsolidated joint ventures or affiliates ("joint ventures") over which the
Company has significant influence are accounted for under the equity method of
accounting, whereby the investment is carried at the cost of acquisition, plus
the Company's equity in undistributed earnings or losses since
acquisition. Investments in joint ventures over which the Company does not
have the ability to exert significant influence over the investees' operating
and financing activities are accounted for under the cost method of
accounting. The Company's investment in TAMCO, a steel mini-mill in
California, is accounted for under the equity method. Investments in
Ameron Saudi Arabia, Ltd. and Bondstrand, Ltd. are accounted for under the cost
method due to management's current assessment of the Company's influence
over these joint ventures.
Property,
plant and equipment is stated on the basis of cost and depreciated principally
using a straight-line method based on the estimated useful lives of the related
assets, generally three to 40 years. The Company reviews long-lived assets
for impairment whenever events or changes in circumstances indicate that the
carrying value of such assets may not be recoverable. If the estimated
future, undiscounted cash flows from the use of an asset are less than its
carrying value, a write-down is recorded to reduce the related asset to
estimated fair value. Actual cash flows may differ significantly from
estimated cash flows. Additionally, current estimates of future cash flows
may differ from subsequent estimates of future cash flows. Changes in
estimated or actual cash flows could materially impact the Company's
consolidated financial statements.
The
Company is self-insured for a portion of the losses and liabilities primarily
associated with workers' compensation claims and general, product and vehicle
liability. Losses are accrued based upon the Company's estimates of the
aggregate liability for claims incurred using historical experience and certain
actuarial assumptions followed in the insurance industry. The estimate of
self-insurance liability includes an estimate of incurred but not reported
claims, based on data compiled from historical experience. Actual
experience could differ significantly from these estimates and could materially
impact the Company's consolidated financial statements. The Company
purchases varying levels of insurance to cover losses in excess of the
self-insured limits. Currently, the Company's primary self-insurance
limits are $1.0 million per workers' compensation claim, $.1 million per
general, property or product liability claim, and $.25 million per vehicle
liability claim.
The
Company follows the guidance of Statement of Financial Accounting Standards
("SFAS") No. 158, Employers’
Accounting for Defined Benefit Pension and Other Postretirement Plans,
SFAS No. 87, Employers'
Accounting for Pensions, and SFAS No. 106, Employers’ Accounting for
Postretirement Benefits Other Than Pensions, when accounting for pension
and other postretirement benefits. Under these accounting standards,
assumptions are made regarding the valuation of benefit obligations and the
performance of plan assets that are controlled and invested by third-party
fiduciaries. Delayed recognition of differences between actual results and
expected or estimated results is a guiding principle of these standards.
Such delayed recognition provides a gradual recognition of benefit obligations
and investment performance over the working lives of the employees who benefit
under the plans, based on various assumptions. Assumed discount rates are
used to calculate the present values of benefit payments which are projected to
be made in the future, including projections of increases in employees' annual
compensation and health care costs. Management also projects the future
returns on invested assets based principally on prior performance. These
projected returns reduce the net benefit costs the Company records in the
current period. Actual results could vary significantly from projected
results, and such deviations could materially impact the Company's consolidated
financial statements. Management consults with the Company’s actuaries
when determining these assumptions. Program changes, including
termination, freezing of benefits or acceleration of benefits, could result in
an immediate recognition of unrecognized benefit obligations and such
recognition could materially impact the Company's consolidated financial
statements.
During
2007, the Company changed the assumed discount rate, and projected rates of
increase in compensation levels and health care costs. The discount rate is
based on market interest rates. At November 30, 2007, the Company increased the
discount rate from 5.95% to 6.15% 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, 2007, the
Company maintained the expected long-term rate of return on assets assumption at
8.75% to reflect the expectations for future returns in the equity markets. In
projecting the rate of increase in compensation levels, the Company considers
movements in inflation rates as reflected by market interest rates. At November
30, 2007, the Company increased the assumed annual rate of compensation increase
from 3.45% to 3.65%. 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, 2007, the Company increased the rate of increase in
health care costs from 9% to 10%, decreasing ratably until reaching 5% in 2012
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
|
$ | (26,323 | ) | $ | (2,941 | ) | $ | 31,826 | $ | 3,905 | ||||||
|
Other
postretirement benefits
|
(333 | ) | (27 | ) | 393 | 25 | ||||||||||
|
Expected
rate of return on assets
|
N/A | (1,898 | ) | N/A | 1,898 | |||||||||||
|
Rate
of increase in compensation levels
|
2,597 | 637 | (2,357 | ) | (576 | ) | ||||||||||
|
Rate
of increase in health care costs
|
182 | 25 | (154 | ) | (20 | ) | ||||||||||
Additional
information regarding pensions and other postretirement benefits is disclosed in
Note (16) of Notes to Consolidated Financial Statements, under Part II, Item
8.
Management
incentive compensation is accrued based on current estimates of the Company's
ability to achieve short-term and long-term performance targets.
Deferred
income tax assets and liabilities are computed for differences between the
financial statement and income tax bases of assets and liabilities. Such
deferred income tax asset and liability computations are based on enacted tax
laws and rates applicable to periods in which the differences are expected to
reverse. Valuation allowances are established, when necessary, to reduce
deferred income tax assets to the amounts expected to be realized.
Quarterly income taxes are estimated based on the mix of income by jurisdiction
forecasted for the full fiscal year. The Company believes that it has
adequately provided for tax-related matters. The Company is subject to
examination by taxing authorities in various jurisdictions. Matters raised
upon audit may involve substantial amounts, and an adverse finding could have a
material impact on the Company's consolidated financial statements.
LIQUIDITY
AND CAPITAL RESOURCES
The
following discussion combines the impact of both continuing and discontinued
operations unless otherwise noted.
As of
November 30, 2007, the Company's working capital, including cash and cash
equivalents, totaled $314.3 million, an increase of $33.8 million, from working
capital of $280.5 million as of November 30, 2006. The increase was caused
by higher business activity. All of the Company's industry segments had
inventory turns of between four and seven times per year. Average days' sales in
accounts receivable ranged between 33 and 171 for all segments. Cash
and cash equivalents totaled $155.4 million as of November 30, 2007, compared to
$139.5 million as of November 30, 2006.
In
accordance with SFAS No. 95, Statement of Cash Flows, the
consolidated statements of cash flows include cash flows for both continuing and
discontinued operations. During 2007, net cash of $63.2 million was
generated from operating activities of continuing and discontinued operations,
compared to $16.8 million generated in 2006. The higher operating cash
flow in 2007 was primarily due to higher earnings, excluding non-cash items and
asset sales, and lower growth in operating assets and liabilities. In
2006, the Company's cash from operating activities included net income of $52.2
million, less gain on sale of assets and loss from sale of discontinued
operations of $8.7 million, plus non-cash adjustments (depreciation,
amortization, deferred taxes, dividends from joint-ventures less than equity
income and stock compensation expense) of $14.8 million, offset by changes in
operating assets and liabilities of $41.5 million. In 2007, the Company's
cash provided by operating activities included net income of $67.2 million, less
gain on sale of assets and discontinued operations of $5.9 million, plus similar
non-cash adjustments of $28.3 million, offset by corresponding changes in
operating assets and liabilities of $26.4 million. The lower operating
cash flow in 2006, compared to 2005, was primarily due to higher earnings,
excluding the gains on property sales in both years, that were more than offset
by an increase in net operating capital related to higher sales in
2006. In 2005, $37.2 million of cash was generated from operating
activities. Cash from operating activities included net income of
$32.6 million, less gain on sale of assets of $1.6 million, plus similar
non-cash adjustments of $24.2 million, offset by changes in operating assets and
liabilities of $18.0 million.
Net cash
used in investing activities totaled $37.1 million in 2007, compared to $89.7
million generated in 2006. In 2007, the Company generated net proceeds of
$16.6 million from the sale of assets, including certain retained properties
used by the former Coatings Business. In 2006, the Company generated
net proceeds of $10.3 million from the sale of assets. In addition, the
Company generated proceeds of $115.0 million from the sale of the Coatings
Business in 2006. Net cash used in investing activities
included capital expenditures of $47.7 million in 2007, compared to $34.5
million in 2006. In addition to capital expenditures for normal
replacement and upgrades of machinery and equipment in both 2006 and 2007, the
Company spent $10.8 million and $22.1 million, respectively, to enhance the
capabilities of its steel fabrication plant in California to manufacture
large-diameter wind towers. Additionally, the Company acquired a
Brazilian fiberglass-pipe operation in 2007 for approximately $6.0 million, plus
an earn out that could total $1.5 million based on the future performance of the
acquired business. In 2006, the assets of a Mexican steel fabrication
operation were acquired for approximately $1.0 million. Net cash used
in investing activities totaled $21.5 million in 2005, which consisted of $3.9
million from the sale of assets, offset by capital expenditures of $25.4
million. During the year ending November 30, 2008, the Company
anticipates spending between $30 and $80 million on capital expenditures.
Capital expenditures are expected to be funded by existing cash balances, cash
generated from operations or additional borrowings.
Net cash
used in financing activities totaled $16.5 million during 2007, compared to
$14.0 million in 2006. 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
treasury stock purchases of $1.6 million, related to the payment of taxes
associated with the vesting of restricted shares. 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. Net cash used in 2006 consisted of net payment of
debt of $16.1 million, payment of Common Stock dividends of $7.1 million and
similar treasury stock purchases of $1.2 million. In 2006, the
Company received $8.0 million from the issuance of Common Stock related to
exercised stock options and recognized tax benefits related to stock-based
compensation of $2.5 million. No net cash was provided by financing
activities in 2005. Cash used in 2005 consisted of payment of Common
Stock dividends of $6.8 million, debt issuance costs of $.3 million, offset by
net issuance of debt of $2.4 million, and a total of $4.8 million from issuance
of Common Stock related to the exercise of stock options and treasury shares
used to pay withholding taxes on vested restricted shares.
The
Company utilizes a $100.0 million revolving credit facility with six banks (the
"Revolver"). Under the Revolver, the Company may, at its option, borrow at
floating interest rates (LIBOR plus a spread ranging from .75% to 1.625%,
determined based on the Company’s financial condition and performance), at any
time until September 2010, when all borrowings under the Revolver must be
repaid.
The
Company's lending agreements contain various restrictive covenants, including
the requirement to maintain specified amounts of net worth and restrictions on
cash dividends, borrowings, liens, investments, guarantees, and financial
covenants. The Company is required to maintain consolidated net worth of $181.4
million plus 50% of net income and 75% of proceeds from any equity issued after
January 24, 2003. The Company's consolidated net worth exceeded the covenant
amount by $157.1 million as of November 30, 2007. The Company is required to
maintain a consolidated leverage ratio of consolidated funded indebtedness to
earnings before interest, taxes, depreciation and amortization ("EBITDA") of no
more than 2.5 times. At November 30, 2007, the Company maintained a consolidated
leverage ratio of .83 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, 2007, qualifying
tangible assets equaled 2.68 times funded indebtedness. Under the most
restrictive fixed charge coverage ratio, the sum of EBITDA and rental expense
less cash taxes must be at least 1.50 times the sum of interest expense, rental
expense, dividends and scheduled funded debt payments. At November 30, 2007, the
Company maintained such a fixed charge coverage ratio of 3.09 times. Under
the most restrictive provisions of the Company's lending agreements,
approximately $27.3 million of retained earnings was not restricted, at November
30, 2007, as to the declaration of cash dividends or the repurchase of Company
stock. At November 30, 2007, the Company was in compliance with all
covenants.
Cash and
cash equivalents at November 30, 2007 totaled $155.4 million, an increase of
$16.0 million from November 30, 2006. At November 30, 2007, the Company
had total debt outstanding of $74.6 million, compared to $82.5 million at
November 30, 2006, and approximately $109.2 million in unused committed and
uncommitted credit lines available from foreign and domestic banks. The
Company's highest borrowing and the average borrowing levels during 2007 were
$84.3 million and $81.3 million, respectively.
The
Company contributed $3.0 million to the U.S. pension and $.7 million to the
non-U.S. pension plans in 2007. The Company expects to contribute
approximately $3.0 million to its U.S. pension plan and $1.2 million to the
non-U.S. pension plans in 2008.
Management
believes that cash flow from operations and current cash balances, together with
currently available lines of credit, will be sufficient to meet operating
requirements in 2008. Cash available from operations could be affected by
any general economic downturn or any decline or adverse changes in the Company's
business, such as a loss of customers or significant raw material price
increases. Management does not believe it likely that business or economic
conditions will worsen or that costs will increase sufficiently to impact
short-term liquidity.
The
Company's contractual obligations and commercial commitments at November 30,
2007 are summarized as follows (in thousands):
|
Payments
Due by Period
|
||||||||||||||||||||
|
Less
than
|
After
5
|
|||||||||||||||||||
|
Contractual
Obligations
|
Total
|
1
year
|
1-3
years
|
3-5
years
|
years
|
|||||||||||||||
|
Long-term
debt (a)
|
$ | 74,648 | $ | 17,055 | $ | 27,784 | $ | 14,109 | $ | 15,700 | ||||||||||
|
Interest
payments on debt (b)
|
13,077 | 2,981 | 4,365 | 2,095 | 3,636 | |||||||||||||||
|
Operating
leases
|
38,455 | 4,289 | 7,665 | 4,574 | 21,927 | |||||||||||||||
|
Purchase
obligations (c)
|
528 | 528 | - | - | - | |||||||||||||||
|
Total
contractual obligations (d)
|
$ | 126,708 | $ | 24,853 | $ | 39,814 | $ | 20,778 | $ | 41,263 | ||||||||||
|
Commitments
Expiring Per Period
|
||||||||||||||||||||
|
Less
than
|
After
|
|||||||||||||||||||
|
Contractual
Commitments
|
Total
|
1
year
|
1-3
years
|
3-5
years
|
5
years
|
|||||||||||||||
|
Standby
letters of credit (e)
|
$ | 3,123 | $ | 3,123 | $ | - | $ | - | $ | - | ||||||||||
|
Total
commercial commitments (d)
|
$ | 3,123 | $ | 3,123 | $ | - | $ | - | $ | - | ||||||||||
(a)
Included in long-term debt is $3,674 outstanding under a revolving credit
facility, due in 2010, supported by the Revolver.
(b)
Future interest payments related to debt obligations, excluding the Revolver and
the industrial development bonds.
(c)
Obligation to purchase sand used in the Company's ready-mix operations in
Hawaii.
(d) The
Company has no capitalized lease obligations, unconditional purchase obligations
or standby repurchases obligations.
(e) Not
included are standby letters of credit totaling $16,067 supporting industrial
development bonds with principal of $15,700. The principal amount of the
industrial development bonds is included in long-term debt. The standby
letters of credit are issued under the Revolver.
RESULTS
OF OPERATIONS: 2007 COMPARED WITH 2006
General
Income
from continuing operations totaled $61.1 million, or $6.73 per diluted share, on
sales of $631.0 million for the year ended November 30, 2007, compared to $50.1
million, or $5.64 per diluted share, on sales of $549.2 million in 2006.
All segments had higher sales, and all segments had higher profits due to
generally-improved market conditions, except the Water Transmission Group.
Income from continuing operations was higher due primarily to sales growth,
interest income, higher equity income and a lower effective tax rate.
Equity in earnings of TAMCO, Ameron's 50%-owned steel mini-mill in
California, increased by $1.8 million in 2007, compared to 2006.
Income
from discontinued operations, net of taxes, totaled $6.1 million, or $.67 per
diluted share, in 2007, compared to $2.1 million, or $.24 per diluted share, in
2006.
The
Fiberglass-Composite Pipe Group achieved record sales and profits in 2007 as a
result of continued strong demand in the oilfield, industrial and marine piping
markets worldwide. The Infrastructure Products Group had higher sales
and profits due to the strong construction sector in Hawaii, which more than
offset a decline in sales and profits from the Pole Products
Division. The Water Transmission Group reported higher sales but a
loss due to the timing of water pipe projects and the start-up costs and delays
in the construction of a new wind tower manufacturing facility.
Sales
Sales
increased $81.8 million in 2007, compared to 2006. Sales increased due to
higher demand for marine piping, the impact of foreign exchange rates on the
Company’s Asian and European operations and higher demand for construction
materials in Hawaii due to the continued strength in governmental and commercial
construction spending.
Fiberglass-Composite
Pipe's sales increased $61.1 million, or 34.6%, in 2007, compared to 2006.
Sales from operations in the U.S. increased $6.9 million in 2007 primarily due
to increased demand for industrial piping, which offset a decline in demand for
onshore oilfield piping. Sales from Asian subsidiary operations increased
$31.6 million in 2007, driven by activity in the industrial, marine and offshore
segments and the impact of foreign exchange. Sales from European
operations increased $21.3 million in 2007 due to growth in industrial, oilfield
and marine markets and the impact of foreign exchange. The Brazilian
business acquired in October 2007 contributed sales of $1.3
million. The strong demand for oilfield, industrial and marine piping
continues to be driven by high oil prices and the high cost of steel piping, the
principal substitute for fiberglass pipe. The outlook for the Fiberglass
Composite Pipe Group remains favorable.
Water
Transmission’s sales increased $15.3 million, or 8.7%, in 2007, compared to
2006. The sales increase was driven by the Company’s entry into the market
for large-diameter wind towers and the Group’s operation in South America which
benefited from increased demand for water pipe in Colombia. The
demand for large-diameter water pipe in the western U.S. remained soft due to
completion of projects and a cyclical lull in the building of new
projects. Market conditions for water pipe remain soft due to
continuation of a cyclical slowdown in water infrastructure projects in the
Company's markets. However, the market for wind towers is
robust.
Infrastructure
Products' sales increased $7.5 million, or 3.8%, in 2007, compared to
2006. The Company’s Hawaiian division had higher sales due to improved
pricing and the continued strength of the governmental, commercial and
residential construction markets on Oahu and Maui. Pole Products was
impacted by the decline in U.S. housing markets and reduced demand for concrete
lighting poles. Sales of steel poles for highway and traffic applications
increased. Although the housing market has softened, primarily
impacting the demand for concrete poles, the outlook for the Infrastructure
Products Group’s other construction markets remains firm.
Gross
Profit
Gross
profit in 2007 was $146.0 million, or 23.1% of sales, compared to $132.4
million, or 24.1% of sales, in 2006. Gross profit increased $13.6 million
due to higher sales while the gross profit margin declined due to the reduced
profitability of the Water Transmission Group.
Fiberglass-Composite
Pipe Group's gross profit increased $26.9 million in 2007, compared to
2006. Profit margins improved to 36.0% in 2007, compared to 33.3% in
2006. Higher margins resulted from improvements in product and market
mix, price increases and plant utilization. Increased sales volume and
prices generated additional gross profit of $20.3 million while favorable
product mix and operating efficiencies generated additional gross profit of $6.6
million in 2007.
Water
Transmission Group's gross profit decreased $12.4 million in 2007, compared to
2006. Profit margins declined to 7.3% in 2007, compared to 15.0% in
2006. Higher sales volume increased profit by $2.3 million in
2007. Lower margins negatively impacted gross profit by $14.7 million
due to an unfavorable mix of projects, start-up costs associated with the
introduction of wind towers and lower efficiencies due to lower pipe sales and
the delay in construction of the wind tower plant.
Gross
profit in the Infrastructure Products Group increased $4.6 million in 2007,
compared to 2006. Profit margins improved to 25.1% in 2007, compared to
23.7% in 2006. Increased sales volume and prices generated additional
gross profit of $1.8 million, while higher margins generated additional gross
profit of $2.8 million for 2007. Higher margins resulted from price
increases and operating efficiencies due to increased production levels in
Hawaii.
Additionally,
consolidated gross profit was $5.5 million lower in 2007 compared to the same
period in 2006 due primarily to increased reserves in 2007 associated with LIFO
accounting of certain steel inventories used by the Water Transmission
Group. LIFO reserves are not allocated to the operating
segments.
Selling,
General and Administrative Expenses
Selling,
general and administrative ("SG&A") expenses totaled $97.9 million, or 15.5%
of sales, in 2007, compared to $94.7 million, or 17.2% of sales, in 2006.
The $3.2 million increase included higher legal fees and claims of $3.1 million,
self-insurance reserves of $1.4 million, stock compensation expense of $.6
million, and commissions and administrative expense of $1.9 million associated
with higher sales, offset by lower pension expense of $3.8 million primarily due
to the sale of the Coatings Business and improved funding of the pension
plans. 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 $6.0 million in 2007, compared to $11.4 million in
2006. The decrease in other income in 2007 was due primarily to a
$9.0 million gain from the sale of property in Brea, California in
2006. Other income also included royalties and fees from licensees,
foreign currency transaction losses, and other miscellaneous
income.
Interest
Net
interest income totaled $1.9 million in 2007, compared to net interest expense
of $1.7 million in 2006. Net interest income was due to higher interest
income from short-term investments, lower average outstanding debt and less
higher-rate, fixed-rate debt than in 2006.
Provision
for Income Taxes
Income
taxes decreased to $10.4 million in 2007, from $10.9 million in
2006. The effective tax rate on income from continuing operations
decreased to 18.5% in 2007, from 23.0% in 2006. The effective tax 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. The effective
tax in 2006 was reduced by tax benefits of $7.2 million primarily as a result
of settlements of the 1996 – 1998 and 1999 – 2002 IRS examinations and
approval of the Company's research and development credit refund claims by the
Congressional Joint Committee on Taxation. Income from certain
foreign operations and joint ventures is taxed at rates that are lower than the
U.S. statutory tax rates. For both 2006 and 2007, the Company
provided a full valuation allowance for the net operating loss carry-overs of
its foreign subsidiaries except its subsidiary in the Netherlands. In
2007, the Company released $3.2 million of valuation allowance related to this
subsidiary due to profitability in 2007 and a change in projected profitability
in the future. During the fourth quarter of 2007, the Company
recognized a charge to income from continuing operations of approximately $1.2
million primarily related to an additional valuation allowance for deferred tax
assets associated with the Company’s subsidiary in the Netherlands. This charge
represents a correction, rather than a change in estimate, of amounts recorded
in prior period financial statements. Management believes this to be
immaterial to prior interim and annual financial statements.
Equity
in Earnings of Joint Venture, Net of Taxes
Equity
income, which consists of Ameron’s share of the net income of TAMCO, increased
to $15.4 million in 2007, compared to $13.6 million in 2006. Ameron owns
50% of TAMCO, a mini-mill that produces steel rebar for the construction
industry in the western U.S. Equity income is shown net of income
taxes. Dividends from TAMCO were taxed at an effective rate of 9.6%,
reflecting the dividend exclusion provided to the Company under current tax
laws. The improvement in TAMCO’s earnings was due to increased demand
for steel rebar and higher selling prices, reflecting the continued strong
construction market and the high price of steel worldwide.
Income
from Discontinued Operations, Net of Taxes
Income
from discontinued operations totaled $6.1 million in 2007, compared to $2.1
million, in 2006. 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, the Company recognized $.2
million of research and development tax credits related to the retroactive
application of tax legislation enacted in December 2006 and $.6 million of net
tax benefit due to an adjustment in tax expense related to the gain on sale of
the business. This benefit represented a correction, rather than a
change in estimate, of amounts recorded in prior period financial
statements. Management believes this to be immaterial to prior interim and
annual financial statements. In 2006, the Company
completed the sale of the Coatings Business, subject to final settlement of
certain disputed items which were resolved in 2007, and recognized a pretax gain
of $.9 million. Provision for income taxes related to the gain was $1.0
million, which resulted in a net loss on the sale of $.2 million in
2006. Income from discontinued operations before the loss on the sale
of the Coatings Business, net of taxes, totaled $2.3 million for the year ended
November 30, 2006. The Coatings Business generated $152.2 million of
net sales in 2006.
.
RESULTS
OF OPERATIONS: 2006 COMPARED WITH 2005
General
Income
from continuing operations totaled $50.1 million, or $5.64 per diluted share, on
sales of $549.2 million in the year ended November 30, 2006, compared to $29.5
million, or $3.44 per diluted share, on sales of $494.8 million for the same
period in 2005. All segments had significantly higher sales and profits,
except the Water Transmission Group, due to generally-improved market
conditions. Income from continuing operations was higher due primarily to
sales growth, the gain from the sale of the Brea property, lower interest,
higher equity income and a lower effective tax rate. Equity in earnings of
TAMCO, Ameron's 50%-owned steel venture in California, increased by $4.5
million, compared to the same period in 2005.
Income
from discontinued operations, net of taxes, totaled $2.1 million, or $.24 per
diluted share, in 2006, compared to $3.1 million, or $.36 per diluted share, in
2005. During the third quarter of 2006, the Company completed the sale of
its Coatings Business and recognized a pretax gain of $.9
million. The Coatings Business generated sales of $152.2 million and
$209.8 million in 2006 and 2005, respectively.
The
Fiberglass-Composite Pipe Group achieved record sales and profits in 2006 as a
result of the increased demand for oilfield piping in North America, continued
strong demand in the marine market worldwide and increased shipments to the
Middle East from the Company’s Asian subsidiary operations. The
Infrastructure Products Group had significantly higher sales and profits due to
the strong construction sector in Hawaii and throughout the U.S. The
Water Transmission Group reported lower sales and profits due to a cyclical
slowdown in the market and a major piping project in Northern California that
was completed in early 2006.
Sales
Sales
increased $54.4 million in 2006, compared to 2005. Sales increased due to
higher demand for onshore oilfield and marine piping, the impact of foreign
exchange rates on the Company’s Asian fiberglass pipe subsidiary operations,
higher demand for construction materials in Hawaii, and higher demand for
concrete and steel poles due to the continued strength of housing construction
throughout the U.S.
Fiberglass-Composite
Pipe's sales increased $42.7 million, or 31.8%, in 2006, compared to 2005.
Sales from operations in the U.S. increased $17.7 million in 2006 primarily due
to increased demand for onshore oilfield piping. Sales from Asian
subsidiary operations increased $18.6 million in 2006, driven by activity in the
industrial, marine and offshore segments and the impact of foreign
exchange. Sales in Europe increased $6.4 million in 2006 due to volume
growth in industrial and marine markets.
Water
Transmission’s sales decreased $17.7 million, or 9.2%, in 2006, compared to
2005. The Water Transmission Group benefited from a major pipe project in
Northern California throughout 2005, which was completed in the first quarter of
2006.
Infrastructure
Products' sales increased $29.2 million, or 17.3%, in 2006, compared to
2005. Higher demand for concrete and steel poles was due principally to
the continued strong housing market and improved market penetration,
particularly in the southeast U.S. The Company’s Hawaiian division had
higher sales due to the continued strength of the governmental, commercial and
residential construction markets on Oahu and Maui.
Gross
Profit
Gross
profit in 2006 was $132.4 million, or 24.1% of sales, compared to $125.2
million, or 25.3% of sales, in 2005. Gross profit increased $7.2 million
due to higher sales.
Fiberglass-Composite
Pipe Group's gross profit increased $17.2 million in 2006, compared to
2005. Profit margins improved to 33.3% for 2006, compared to 31.0%
for 2005. Higher margins resulted from improvements in product and
market mix, and price increases. Increased sales volume generated
additional gross profit of $13.2 million while favorable product mix generated
additional gross profit of $4.0 million in 2006.
Water
Transmission Group's gross profit decreased $20.1 million in 2006, compared to
2005. Profit margins declined to 15.0% for 2006, compared to 24.1% in
2005. Lower sales volume reduced profit by $4.3 million in
2006. Water
Transmission Group's gross profit decreased $20.1 million in 2006, compared to
2005. Profit margins declined to 15.0% for 2006, compared to 24.1% in
2005. Lower sales volume reduced profit by $4.3 million in
2006. Lower margins negatively impacted gross profit by $15.8 million
due to an unfavorable mix of projects, start-up costs associated with the
introduction of wind towers and lower efficiencies due to lower
sales.
Gross
profit in the Infrastructure Products Group increased $10.5 million in 2006,
compared to 2005. Profit margins improved to 23.7% for 2006, compared to
21.6% in 2005. Increased sales volume generated additional gross profit of
$6.3 million, while higher margins generated additional gross profit of $4.2
million in 2006. Higher margins resulted from price increases and
operating efficiencies due to increased production levels.
Selling,
General and Administrative Expenses
Selling,
general and administrative ("SG&A") expenses totaled $94.7 million, or 17.2%
of sales, in 2006, compared to $90.3 million, or 18.2% of sales, in 2005.
The $4.4 million increase included higher incentive and stock compensation
expense of $4.9 million, higher employee benefit costs of $1.4 million, and
higher commission and administrative expense of $7.5 million associated with
higher sales, offset by higher legal fees and settlement costs of $6.8 million
and self-insurance expense of $2.6 million in 2005.
Other
Income, Net
Other
income increased from $2.1 million in 2005 to $11.4 million in 2006 due
primarily to the $9.0 million gain from the sale of the Brea
property. Other income included royalties and fees from licensees,
foreign currency transaction losses, and other miscellaneous
income.
Interest
Net
interest expense totaled $1.7 million in 2006, compared to $5.5 million in
2005. The decrease in net interest expense was due to higher interest
income from short-term investments and the lower average outstanding debt and
less higher-rate, fixed-rate debt.
Provision
for Income Taxes
Income
taxes decreased to $10.9 million in 2006 from $11.0 million in
2005. The effective tax rate on income from continuing operations
decreased to 23% in 2006 from 35% for the same period in 2005. The effective tax
in 2006 was lower than the tax at the statutory rate, with the difference of
$7.2 million due to settlement of the 1996-1998 and 1999-2002 IRS examinations,
final approval of the Company's 1998-2000 research and development credit refund
claims, and settlements with other foreign and local
jurisdictions. Also, the rate in 2005 was higher as a result of the
one-time repatriation of foreign earnings under the American Jobs Creation Act
of 2004.
Equity
in Earnings of Joint Venture, Net of Taxes
Equity
income, which consists of Ameron’s share of the results of TAMCO, increased to
$13.6 million in 2006, compared to $9.0 million in 2005. Dividends from
TAMCO were taxed at an effective rate of 11.3% and 10.4 %, respectively, in 2006
and 2005, reflecting the dividend exclusion provided to the Company under
current tax laws. The improvement in TAMCO’s earnings was due to
increased demand for steel rebar and higher selling prices, reflecting the
continued strong construction market and the high prices of steel
worldwide.
Income
from Discontinued Operations, Net of Taxes
During
the third quarter of 2006, the Company completed the sale of the Coatings
Business and recognized a pretax gain of $.9 million. Provision for income
taxes related to the gain was $1.0 million, which resulted in a net loss of $.2
million in 2006. Income from discontinued operations before the loss
on the sale of the Coatings Business, net of taxes, totaled $2.3 million in
2006, compared to $3.1 million in 2005. The Coatings Business
generated $152.2 million and $209.8 million in net sales in 2006 and 2005,
respectively.
OFF-BALANCE
SHEET FINANCING
The
Company does not have any off-balance sheet financing, other than listed in the
Liquidity and Capital Resources section herein. All of the Company's
subsidiaries are included in the financial statements, and the Company does not
have relationships with any special purpose entities.
CONTINGENCIES
The
Company is one of numerous defendants in various asbestos-related personal
injury lawsuits. These cases generally seek unspecified damages for
asbestos-related diseases based on alleged exposure to products previously
manufactured by the Company and others, and at this time the Company is
generally not aware of the extent of injuries allegedly suffered by the
individuals or the facts supporting the claim that injuries were caused by the
Company's products. Based upon the information available to it at this time, the
Company is not in a position to evaluate its potential exposure, if any, as a
result of such claims or future similar claims, if any, that may be filed.
Hence, no amounts have been accrued for loss contingencies related to these
lawsuits in accordance with Statements of Financial Accounting Standards
("SFAS") No. 5, "Accounting for Contingencies." The Company continues to
vigorously defend all such lawsuits. As of November 30, 2007, the Company was a
defendant in asbestos-related cases involving 60 claimants, compared to 145
claimants as of November 30, 2006. The Company is not in a position to
estimate the number of additional claims that may be filed against it in the
future. For the year ended November 30, 2007, there were new claims involving 19
claimants, dismissals and/or settlements involving 104 claimants and no
judgments. Net costs and expenses incurred by the Company for the
year ended November 30, 2007 in connection with asbestos-related claims were
approximately $.2 million.
As of
November 30, 2006, the Company was one of numerous defendants in various
silica-related personal injury lawsuits involving seven claimants. As
of November 30, 2007, the Company was no longer a defendant in any
silica-related cases. No net costs and expenses were incurred by the
Company for the year ended November 30, 2007 in connection with silica-related
claims.
In May
2003, Dominion Exploration and Production, Inc. and Pioneer Natural Resources
USA, Inc. (collectively "Dominion") brought an action against the Company in
Civil District Court for the Parish of Orleans, Louisiana as owners of an
offshore production facility known as a SPAR. Dominion seeks damages
allegedly sustained by it resulting from delays in delivery of the SPAR caused
by the removal and replacement of certain coatings containing lead and/or lead
chromate for which the manufacturer of the SPAR alleged the Company was
responsible. Dominion contends that the Company made certain
misrepresentations and warranties to Dominion concerning the lead-free nature of
those coatings. Dominion's petition as filed alleged a claim for damages
in an unspecified amount; however, Dominion's economic expert has since
estimated Dominion's damages at approximately $128 million, a figure which the
Company contests. This matter is in discovery and no trial date has yet
been established. The Company believes that it has meritorious defenses to
this action. Based upon the information available to it at this
time, the Company is not in a position to evaluate the ultimate outcome of this
matter.
In April
2004, Sable Offshore Energy Inc. ("Sable"), as agent for certain owners of the
Sable Offshore Energy Project, brought an action against various coatings
suppliers and application contractors, including the Company and two of its
subsidiaries, Ameron (UK) Limited and Ameron B.V. (collectively "Ameron
Subsidiaries") in the Supreme Court of Nova Scotia, Canada. Sable seeks
damages allegedly sustained by it resulting from performance problems with
several coating systems used on the Sable Offshore Energy Project, including
coatings products furnished by the Company and the Ameron Subsidiaries.
Sable's originating notice and statement of claim alleged a claim for damages in
an unspecified amount; however, Sable has since alleged that its claim for
damages against all defendants is approximately 428 million Canadian dollars, a
figure which the Company and the Ameron Subsidiaries contest. This matter
is in discovery, and no trial date has yet been established. The Company
believes that it has meritorious defenses to this action. Based upon the
information available to it at this time, the Company is not in a position to
evaluate the ultimate outcome of this matter.
In
addition, certain other claims, suits and complaints that arise in the ordinary
course of business, have been filed or are pending against the Company.
Management believes that these matters are either adequately reserved, covered
by insurance, or would not have a material effect on the Company's financial
position, cash flows, or its results of operations if disposed of
unfavorably.
The
Company is subject to federal, state and local laws and regulations concerning
the environment and is currently participating in administrative proceedings at
several sites under these laws. While the Company finds it difficult to estimate
with any certainty the total cost of remediation at the several sites, on the
basis of currently available information and reserves provided, the Company
believes that the outcome of such environmental regulatory proceedings will not
have a material effect on the Company's financial position, cash flows, or its
results of operations.
NEW
ACCOUNTING PRONOUNCEMENTS
In July
2006, the Financial Accounting Standards Board (“FASB”) issued Interpretation
(“FIN”) No. 48, “Accounting for Uncertainty in Income Taxes - an
interpretation of FASB Statement No. 109.” FIN No. 48
clarifies the accounting for uncertainty in income taxes recognized in an
entity’s financial statements in accordance with Statement of Financial
Accounting Standard (“SFAS”) No. 109 and prescribes a recognition threshold and
measurement attribute for financial statement disclosure of tax positions taken
or expected to be taken on a tax return. The minimum threshold is
defined in FIN No. 48 as a tax position that is more likely than not to be
sustained upon examination by the applicable taxing authority, including
resolution of any related appeals or litigation processes, based on the
technical merits of the position. The tax benefit to be recognized is measured
as the largest amount of benefit that is greater than fifty percent likely of
being realized upon ultimate settlement. FIN No. 48 must be applied to all
existing tax positions upon initial adoption. The cumulative effect of applying
FIN No. 48 at adoption is to be reported as an adjustment to beginning retained
earnings for the year of adoption. FIN No. 48 is effective for the
first quarter of the Company’s 2008 fiscal year and is not expected to have a
material effect on the Company’s consolidated financial statements.
In
September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements,” which
formally defines fair value, creates a standardized framework for measuring fair
value in generally accepted accounting principles (“GAAP”), and expands fair
value measurement disclosures. SFAS No. 157 will be effective for the
first quarter of the year ending November 30, 2008. The Company is
evaluating whether the adoption of SFAS No. 157 will have a material effect on
its consolidated financial statements.
In
September 2006, the FASB issued SFAS No. 158, "Employers’ Accounting for Defined
Benefit Pension and Other Postretirement Plans," amending FASB Statement No. 87,
“Employers’ Accounting for Pensions,” FASB Statement No. 88, “Employers’
Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and
for Termination Benefits,” FASB Statement No. 106, “Employers’ Accounting for
Postretirement Benefits Other Than Pensions,” and FASB Statement No. 132,
“Employers’ Disclosures about Pensions and Other Postretirement
Benefits.” SFAS No. 158 requires companies to recognize the
overfunded or underfunded status of a defined benefit postretirement plan (other
than a multiemployer plan) as an asset or liability in its financial statements
and to recognize changes in that status in the year in which the changes
occur. SFAS No. 158 also requires a company to measure the funded
status of a plan as of the date of its year-end financial statements. The
Company adopted the recognition provisions of SFAS No. 158 in fiscal year 2007.
See Note (16) of the Notes to Consolidated Financial Statements, under Part II,
Item 8, for information regarding the impact of adopting the recognition
provisions of SFAS No. 158. The Company has not yet adopted the measurement
provisions which are not effective until fiscal 2009. The Company is
evaluating whether the adoption of the measurement provision of SFAS No. 158
will have a material effect on its consolidated financial
statements.
In
September 2006, the FASB issued Emerging Issues Task Force (“EITF”) Issue No.
06-4, “Accounting for Deferred Compensation and Postretirement Benefit Aspects
of Endorsement Split-Dollar Life Insurance Arrangements,” effective for fiscal
years beginning after December 15, 2007. EITF Issue No. 06-4
requires that, for split-dollar life insurance arrangements providing a benefit
to an employee extending to postretirement periods, an employer should recognize
a liability for future benefits in accordance with SFAS
No. 106. EITF Issue No. 06-4 requires that recognition of the
effects of adoption should be either by (a) a change in accounting
principle through a cumulative-effect adjustment to retained earnings as of the
beginning of the year of adoption or (b) a change in accounting principle
through retrospective application to all prior periods. The Company
is evaluating whether the adoption of EITF Issue No. 06-4 will have a material
effect on its consolidated financial statements.
In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities.” SFAS No. 159 permits
companies to choose to measure many financial instruments and certain other
items at fair value. SFAS No. 159 seeks to improve the overall
quality of financial reporting by providing companies the opportunity to
mitigate volatility in reported earnings caused by measuring related assets and
liabilities differently without having to apply complex hedge accounting
provisions. SFAS No. 159 will be effective for the year ending
November 30, 2008. The Company is evaluating whether the
adoption of SFAS No. 159 will have a material effect on its consolidated
financial statements.
CAUTIONARY
STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995
Any of
the statements contained in this report that refer to the Company's forecasted,
estimated or anticipated future results are forward-looking and reflect the
Company's current analysis of existing trends and information. Actual results
may differ from current expectations based on a number of factors affecting
Ameron's businesses, including competitive conditions and changing market
conditions. In addition, matters affecting the economy generally, including the
state of economies worldwide, can affect the Company's results. These
forward-looking statements represent the Company's judgment only as of the date
of this report. Since actual results could differ materially, the reader is
cautioned not to rely on these forward-looking statements. Moreover, the Company
disclaims any intent or obligation to update these forward-looking
statements.
ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
Foreign
Currency Risk
The
Company operates internationally, giving rise to exposure to market risks from
changes in foreign exchange rates. From time to time, the Company borrows in
various currencies to reduce the level of net assets subject to changes in
foreign exchange rates or purchases foreign exchange forward and option
contracts to hedge firm commitments, such as receivables and payables,
denominated in foreign currencies. The Company does not use the contracts for
speculative or trading purposes. At November 30, 2007, the Company had 12
foreign currency forward contracts expiring at various dates through February
2008, with an aggregate notional value of $6.3 million and fair value of $6.3
million. Such instruments are carried at fair value, with related adjustments
recorded in other income.
Debt
Risk
The
Company has variable-rate, short-term and long-term debt as well as fixed-rate,
long-term debt. The fair value of the Company's fixed-rate debt is subject to
changes in interest rates. The estimated fair value of the Company's
variable-rate debt approximates the carrying value of such debt since the
variable interest rates are market-based, and the Company believes such debt
could be refinanced on materially similar terms. The Company is subject to the
availability of credit to support new requirements and to refinance long-term
and short-term debt.
At
November 30, 2007, the estimated fair value of notes payable by the Company
totaling $20.0 million, with a fixed rate of 5.36% per annum, was $20.1 million.
The Company is required to repay these notes in annual installments of $10.0
million in 2008 and 2009. At November 30, 2007, the estimated fair value
of notes payable by the Company's wholly-owned subsidiary in Singapore totaling
approximately $35.3 million, with a fixed rate of 4.25% per annum, was $35.3
million. These notes must be repaid in installments of approximately $7.1
million per year beginning in 2008. The Company had $7.2 million of
variable-rate industrial development bonds payable at a rate of 3.81% per annum
at November 30, 2007, payable in 2016. The Company also had $8.5 million of
variable-rate industrial development bonds payable at a rate of 3.81% per annum
at November 30, 2007, payable in 2021. The industrial revenue bonds are
supported by the Revolver. The Company borrowed $3.7 million under various
foreign short-term bank facilities that are supported by the Revolver, which
permits borrowings up to $100.0 million through September 2010. The average
interest rate of such borrowings by foreign subsidiaries was 13.51% per annum at
November 30, 2007.
|
Total
Outstanding
|
||||||||||||||||||||||||||||||||
|
As
of November 30, 2007
|
||||||||||||||||||||||||||||||||
|
Expected
Maturity Date
|
Recorded
|
Fair
|
||||||||||||||||||||||||||||||
|
(Dollars
in thousands)
|
2008
|
2009
|
2010
|
2011
|
2012
|
Thereafter
|
Value
|
Value
|
||||||||||||||||||||||||
|
Liabilities
|
||||||||||||||||||||||||||||||||
|
Long-term
debt:
|
||||||||||||||||||||||||||||||||
|
Fixed-rate
secured notes, payable in US$
|
$ | 10,000 | $ | 10,000 | $ | - | $ | - | $ | - | $ | - | $ | 20,000 | $ | 20,114 | ||||||||||||||||
|
Average
interest rate
|
5.36 | % | 5.36 | % | - | - | - | - | 5.36 | % | ||||||||||||||||||||||
|
Fixed-rate
secured notes, payable in Singapore dollars
|
7,055 | 7,055 | 7,055 | 7,055 | 7,054 | - | 35,274 | 35,330 | ||||||||||||||||||||||||
|
Average
interest rate
|
4.25 | % | 4.25 | % | 4.25 | % | 4.25 | % | 4.25 | % | - | 4.25 | % | |||||||||||||||||||
|
Variable-rate
bank revolving credit facilities, payable in local
currencies
|
- | - | 3,674 | - | - | - | 3,674 | 3,674 | ||||||||||||||||||||||||
|
Average
interest rate
|
- | - | 13.51 | % | - | - | - | 13.51 | % | |||||||||||||||||||||||
|
Variable-rate
industrial development bonds, payable in US$
|
- | - | - | - | - | 7,200 | 7,200 | 7,200 | ||||||||||||||||||||||||
|
Average
interest rate
|
- | - | - | - | - | 3.81 | % | 3.81 | % | |||||||||||||||||||||||
|
Variable-rate
industrial development bonds, payable in US$
|
- | - | - | - | - | 8,500 | 8,500 | 8,500 | ||||||||||||||||||||||||
|
Average
interest rate
|
- | - | - | - | - | 3.81 | % | 3.81 | % | |||||||||||||||||||||||
CONSOLIDATED
STATEMENTS OF INCOME
|
Year
ended November 30,
|
||||||||||||
|
(Dollars
in thousands, except per share data)
|
2007
|
2006
|
2005
|
|||||||||
|
Sales
|
$ | 631,010 | $ | 549,180 | $ | 494,767 | ||||||
|
Cost
of sales
|
(484,981 | ) | (416,791 | ) | (369,557 | ) | ||||||
|
Gross
profit
|
146,029 | 132,389 | 125,210 | |||||||||
|
Selling,
general and administrative expenses
|
(97,870 | ) | (94,689 | ) | (90,283 | ) | ||||||
|
Other
income, net
|
6,030 | 11,397 | 2,137 | |||||||||
|
Income
from continuing operations before interest, income taxes and equity in
earnings of joint venture
|
54,189 | 49,097 | 37,064 | |||||||||
|
Interest
income/(expense), net
|
1,927 | (1,682 | ) | (5,520 | ) | |||||||
|
Income
from continuing operations before income taxes and equity in earnings of
joint venture
|
56,116 | 47,415 | 31,544 | |||||||||
|
Provision
for income taxes
|
(10,359 | ) | (10,905 | ) | (11,040 | ) | ||||||
|
Income
from continuing operations before equity in earnings of joint
venture
|
45,757 | 36,510 | 20,504 | |||||||||
|
Equity
in earnings of joint venture, net of taxes
|
15,383 | 13,550 | 9,005 | |||||||||
|
Income
from continuing operations
|
61,140 | 50,060 | 29,509 | |||||||||
|
Income
from discontinued operations, net of taxes
|
6,099 | 2,140 | 3,101 | |||||||||
|
Net
income
|
$ | 67,239 | $ | 52,200 | $ | 32,610 | ||||||
|
Basic
earnings per share:
|
||||||||||||
|
Income
from continuing operations
|
$ | 6.77 | $ | 5.73 | $ | 3.51 | ||||||
|
Income
from discontinued operations, net of taxes
|
.68 | .25 | .37 | |||||||||
|
Net
income
|
$ | 7.45 | $ | 5.98 | $ | 3.88 | ||||||
|
Diluted
earnings per share:
|
||||||||||||
|
Income
from continuing operations
|
$ | 6.73 | $ | 5.64 | $ | 3.44 | ||||||
|
Income
from discontinued operations, net of taxes
|
.67 | .24 | .36 | |||||||||
|
Net
income
|
$ | 7.40 | $ | 5.88 | $ | 3.80 | ||||||
|
Weighted-average
shares (basic)
|
9,029,487 | 8,731,839 | 8,410,563 | |||||||||
|
Weighted-average
shares (diluted)
|
9,090,846 | 8,871,695 | 8,579,194 | |||||||||
The
accompanying notes are an integral part of these consolidated financial
statements.
CONSOLIDATED
BALANCE SHEETS - ASSETS
|
As
of November 30,
|
||||||||
|
(Dollars
in thousands, except per share data)
|
2007
|
2006
|
||||||
|
ASSETS
|
||||||||
|
Current
assets
|
||||||||
|
Cash
and cash equivalents
|
$ | 155,433 | $ | 139,479 | ||||
|
Receivables,
less allowances of $6,235 in 2007 and $4,912 in 2006
|
185,335 | 160,173 | ||||||
|
Inventories
|
97,717 | 77,134 | ||||||
|
Deferred
income taxes
|
22,446 | 23,861 | ||||||
|
Prepaid
expenses and other current assets
|
12,100 | 15,921 | ||||||
|
Total
current assets
|
473,031 | 416,568 | ||||||
|
Investments
in joint ventures
|
||||||||
|
Equity
method
|
14,677 | 14,501 | ||||||
|
Cost
method
|
3,784 | 3,784 | ||||||
|
Property,
plant and equipment
|
||||||||
|
Land
|
35,860 | 33,327 | ||||||
|
Buildings
|
75,245 | 57,434 | ||||||
|
Machinery
and equipment
|
292,563 | 261,538 | ||||||
|
Construction
in progress
|
24,655 | 20,657 | ||||||
|
Total
property, plant and equipment at cost
|
428,323 | 372,956 | ||||||
|
Accumulated
depreciation
|
(254,592 | ) | (238,486 | ) | ||||
|
Total
property, plant and equipment, net
|
173,731 | 134,470 | ||||||
|
Deferred
income taxes
|
4,202 | - | ||||||
|
Intangible
assets, net of accumulated amortization of $1,130 in 2007 and $3,017 in
2006
|
2,243 | 2,143 | ||||||
|
Other
assets
|
34,144 | 44,885 | ||||||
|
Total
assets
|
$ | 705,812 | $ | 616,351 | ||||
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)
|
2007
|
2006
|
||||||
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
||||||||
|
Current
liabilities
|
||||||||
|
Current
portion of long-term debt
|
$ | 17,055 | $ | 10,000 | ||||
|
Trade
payables
|
45,216 | 45,650 | ||||||
|
Accrued
liabilities
|
84,436 | 68,970 | ||||||
|
Income
taxes payable
|
11,985 | 11,481 | ||||||
|
Total
current liabilities
|
158,692 | 136,101 | ||||||
|
Long-term
debt, less current portion
|
57,593 | 72,525 | ||||||
|
Other
long-term liabilities
|
44,154 | 44,500 | ||||||
|
Total
liabilities
|
260,439 | 253,126 | ||||||
|
Commitments
and contingencies
|
||||||||
|
Stockholders'
equity
|
||||||||
|
Common
Stock, par value $2.50 per share, authorized 24,000,000 shares,
outstanding 9,138,563 shares in 2007 and 9,075,094 shares in 2006, net of
treasury shares
|
29,623 | 29,431 | ||||||
|
Additional
paid-in capital
|
46,675 | 39,500 | ||||||
|
Retained
earnings
|
430,925 | 371,894 | ||||||
|
Accumulated
other comprehensive loss
|
(9,870 | ) | (27,232 | ) | ||||
|
Treasury
Stock (2,710,479 shares in 2007 and 2,697,148 shares in
2006)
|
(51,980 | ) | (50,368 | ) | ||||
|
Total
stockholders' equity
|
445,373 | 363,225 | ||||||
|
Total
liabilities and stockholders' equity
|
$ | 705,812 | $ | 616,351 | ||||
The
accompanying notes are an integral part of these consolidated financial
statements.
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS' EQUITY
|
Common
Stock
|
Accumulated
|
|||||||||||||||||||||||||||||||
|
Additional
|
Unearned
|
Other
|
||||||||||||||||||||||||||||||
|
Shares
|
Paid-in
|
Restricted
|
Retained
|
Comprehensive
|
Treasury
|
|||||||||||||||||||||||||||
|
(Dollars
in thousands)
|
Outstanding
|
Amount
|
Capital
|
Stock
|
Earnings
|
Loss
|
Stock
|
Total
|
||||||||||||||||||||||||
|
Balance,
November 30, 2004
|
8,431,471 | $ | 27,745 | $ | 21,903 | $ | (2,300 | ) | $ | 301,013 | $ | (20,420 | ) | $ | (48,774 | ) | $ | 279,167 | ||||||||||||||
|
Net
Income - 2005
|
- | - | - | - | 32,610 | - | - | 32,610 | ||||||||||||||||||||||||
|
Exercise
of stock options
|
239,318 | 599 | 4,701 | - | - | - | - | 5,300 | ||||||||||||||||||||||||
|
Foreign
currency translation adjustment
|
- | - | - | - | - | (10,329 | ) | - | (10,329 | ) | ||||||||||||||||||||||
|
Minimum
pension liability adjustment, net of tax
|
- | - | - | - | - | (5,209 | ) | - | (5,209 | ) | ||||||||||||||||||||||
|
Comprehensive
income from joint venture
|
- | - | - | - | - | (366 | ) | - | (366 | ) | ||||||||||||||||||||||
|
Cash
dividends on Common Stock
|
- | - | - | - | (6,828 | ) | - | - | (6,828 | ) | ||||||||||||||||||||||
|
Stock
compensation expense
|
- | - | 899 | - | - | - | - | 899 | ||||||||||||||||||||||||
|
Issuance
of restricted stock
|
42,500 | 106 | 1,433 | (1,539 | ) | - | - | - | - | |||||||||||||||||||||||
|
Restricted
stock compensation expense
|
- | - | - | 1,755 | - | - | - | 1,755 | ||||||||||||||||||||||||
|
Treasury
stock purchase
|
(15,141 | ) | - | - | - | - | - | (501 | ) | (501 | ) | |||||||||||||||||||||
|
Balance,
November 30, 2005
|
8,698,148 | 28,450 | 28,936 | (2,084 | ) | 326,795 | (36,324 | ) | (49,275 | ) | 296,498 | |||||||||||||||||||||
|
Net
Income - 2006
|
- | - | - | - | 52,200 | - | - | 52,200 | ||||||||||||||||||||||||
|
Exercise
of stock options
|
347,283 | 853 | 7,032 | - | - | - | 109 | 7,994 | ||||||||||||||||||||||||
|
Foreign
currency translation adjustment
|
- | - | - | - | - | 2,330 | - | 2,330 | ||||||||||||||||||||||||
|
Minimum
pension liability adjustment, net of tax
|
- | - | - | - | - | 6,314 | - | 6,314 | ||||||||||||||||||||||||
|
Comprehensive
income from joint venture
|
- | - | - | - | - | 448 | - | 448 | ||||||||||||||||||||||||
|
Cash
dividends on Common Stock
|
- | - | - | - | (7,101 | ) | - | - | (7,101 | ) | ||||||||||||||||||||||
|
Stock
compensation expense
|
- | - | 151 | - | - | - | - | 151 | ||||||||||||||||||||||||
|
Issuance
of restricted stock
|
51,000 | 128 | (128 | ) | - | - | - | - | - | |||||||||||||||||||||||
|
Excess
Tax Benefit related to stock-based compensation
|
- | - | 2,469 | - | - | - | - | 2,469 | ||||||||||||||||||||||||
|
Restricted
stock compensation expense
|
- | - | 3,124 | - | - | - | - | 3,124 | ||||||||||||||||||||||||
|
Treasury
stock purchase
|
(21,337 | ) | - | - | - | - | - | (1,202 | ) | (1,202 | ) | |||||||||||||||||||||
|
Reclassification
of unearned restricted stock under SFAS No. 123(R)
|
- | - | (2,084 | ) | 2,084 | - | - | - | - | |||||||||||||||||||||||
|
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
income 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 | |||||||||||||||
Table of Contents The accompanying notes are
an integral part of these consolidated financial
statements.
29
AMERON
INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF COMPREHENSIVE INCOME
|
Year
ended November 30,
|
||||||||||||
|
(In
thousands)
|
2007
|
2006
|
2005
|
|||||||||
|
Net
income
|
$ | 67,239 | $ | 52,200 | $ | 32,610 | ||||||
|
Foreign
currency translation adjustment
|
8,210 | 2,330 | (10,329 | ) | ||||||||
|
Minimum
pension liability adjustment, net of tax
|
15,237 | 6,314 | (5,209 | ) | ||||||||
|
Comprehensive
income/(loss) from joint venture
|
(50 | ) | 448 | (366 | ) | |||||||
|
Comprehensive
income
|
$ | 90,636 | $ | 61,292 | $ | 16,706 | ||||||
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
Year
ended November 30,
|
||||||||||||
|
(In
thousands)
|
2007
|
2006
|
2005
|
|||||||||
|
OPERATING
ACTIVITIES
|
||||||||||||
|
Net
income
|
$ | 67,239 | $ | 52,200 | $ | 32,610 | ||||||
|
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
||||||||||||
|
Depreciation
|
16,993 | 17,270 | 18,718 | |||||||||
|
Amortization
|
41 | 170 | 206 | |||||||||
|
Provision/(benefit)
for deferred income taxes
|
7,016 | (5,631 | ) | 701 | ||||||||
|
Net
earnings in excess of distributions from joint ventures
|
(227 | ) | (276 | ) | 1,901 | |||||||
|
Loss/(gain)
from sale of property, plant and equipment
|
17 | (8,864 | ) | (1,634 | ) | |||||||
|
(Gain)/loss
from sale of discontinued operations
|
(5,943 | ) | 157 | - | ||||||||
|
Stock
compensation expense
|
3,850 | 3,275 | 2,654 | |||||||||
|
Non-cash
write-down of assets
|
643 | - | - | |||||||||
|
Changes
in operating assets and liabilities:
|
||||||||||||
|
Receivables,
net
|
(21,747 | ) | (23,284 | ) | (23,649 | ) | ||||||
|
Inventories
|
(19,200 | ) | (25,906 | ) | (10,624 | ) | ||||||
|
Prepaid
expenses and other current assets
|
3,847 | (5,890 | ) | (884 | ) | |||||||
|
Other
assets
|
(440 | ) | 6,323 | 1,894 | ||||||||
|
Trade
payables
|
(1,626 | ) | 6,937 | 6,686 | ||||||||
|
Accrued
liabilities and income taxes payable
|
14,024 | 22,330 | 3,660 | |||||||||
|
Other
long-term liabilities
|
(1,284 | ) | (21,968 | ) | 4,945 | |||||||
|
Net
cash provided by operating activities
|
63,203 | 16,843 | 37,184 | |||||||||
|
INVESTING
ACTIVITIES
|
||||||||||||
|
Proceeds
from sale of property, plant and equipment
|
288 | 10,253 | 3,855 | |||||||||
|
Proceeds
from sale of discontinued operations
|
16,319 | 115,000 | - | |||||||||
|
Acquisitions
|
(5,977 | ) | (989 | ) | - | |||||||
|
Additions
to property, plant and equipment
|
(47,697 | ) | (34,530 | ) | (25,371 | ) | ||||||
|
Net
cash (used in)/provided by investing activities
|
(37,067 | ) | 89,734 | (21,516 | ) | |||||||
|
FINANCING
ACTIVITIES
|
||||||||||||
|
Net
change in short-term borrowings
|
- | (8,333 | ) | - | ||||||||
|
Issuance
of debt
|
2,483 | 3,279 | 59,424 | |||||||||
|
Repayment
of debt
|
(12,708 | ) | (11,069 | ) | (57,073 | ) | ||||||
|
Debt
issuance costs
|
- | - | (322 | ) | ||||||||
|
Dividends
on Common Stock
|
(8,208 | ) | (7,101 | ) | (6,828 | ) | ||||||
|
Issuance
of Common Stock
|
1,562 | 7,994 | 5,300 | |||||||||
|
Excess
tax benefits related to stock-based compensation
|
1,955 | 2,469 | - | |||||||||
|
Purchase
of treasury stock
|
(1,612 | ) | (1,202 | ) | (501 | ) | ||||||
|
Net
cash used in financing activities
|
(16,528 | ) | (13,963 | ) | - | |||||||
|
Effect
of exchange rate changes on cash and cash equivalents
|
6,346 | 2,194 | (1,121 | ) | ||||||||
|
Net
change in cash and cash equivalents
|
15,954 | 94,808 | 14,547 | |||||||||
|
Cash
and cash equivalents at beginning of year
|
139,479 | 44,671 | 30,124 | |||||||||
|
Cash
and cash equivalents at end of year
|
$ | 155,433 | $ | 139,479 | $ | 44,671 | ||||||
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 generally accepted
accounting principles requires management to make certain estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities and the reported amounts of
revenues and expenses. Significant estimates include revenue and costs recorded
under percentage-of-completion accounting, assumptions related to benefit plans,
goodwill, and reserves associated with management incentives, receivables,
inventories, income taxes, self insurance and environmental and legal
contingencies. Actual results could differ from those estimates.
Revenue
Recognition
Revenue
for the Fiberglass-Composite Pipe and Infrastructure Products segments is
recognized when risk of ownership and title pass, primarily at the time goods
are shipped, provided that an agreement exists between the customer and the
Company, the price is fixed or determinable and collection is reasonably
assured. Revenue is recognized for the Water Transmission Group
primarily under the percentage-of-completion method, typically based on
completed units of production, since products are manufactured under enforceable
and binding construction contracts, are typically designed for specific
applications, are not interchangeable between projects, and are not manufactured
for stock. In those cases in which products are manufactured for stock or are
not related to specific construction contracts, revenue is recognized under the
same criteria used by the other 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 approximately $5,724,000 in
2007, $5,790,000 in 2006, and $4,567,000 in 2005.
Environmental
Clean-up Costs
The
Company expenses environmental clean-up costs related to existing conditions
resulting from past or current operations on a site-by-site basis.
Liabilities and costs associated with these matters, as well as other pending
litigation and asserted claims arising in the ordinary course of business,
require estimates of future costs and judgments based on the knowledge and
experience of management and 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.
Net
Income Per Share
Basic net
income per share is computed on the basis of the weighted-average number of
common shares outstanding during the periods presented. Diluted net income per
share is computed on the basis of the weighted-average number of common shares
outstanding plus the effect of outstanding stock options and restricted stock,
using the treasury stock method as follows:
|
(In
thousands, except per share data)
|
2007
|
2006
|
2005
|
|||||||||
|
Numerator:
|
||||||||||||
|
Income
from continuing operations
|
$ | 61,140 | $ | 50,060 | $ | 29,509 | ||||||
|
Income
from discontinued operations, net of taxes
|
6,099 | 2,140 | 3,101 | |||||||||
|
Net
income
|
$ | 67,239 | $ | 52,200 | $ | 32,610 | ||||||
|
Denominator
for basic income per share:
|
||||||||||||
|
Weighted-average
shares outstanding, basic
|
9,029,487 | 8,731,839 | 8,410,563 | |||||||||
|
Denominator
for diluted income per share:
|
||||||||||||
|
Weighted-average
shares outstanding, basic
|
9,029,487 | 8,731,839 | 8,410,563 | |||||||||
|
Dilutive
effect of stock options and restricted stock
|
61,359 | 139,856 | 168,631 | |||||||||
|
Weighted-average
shares outstanding, diluted
|
9,090,846 | 8,871,695 | 8,579,194 | |||||||||
|
Basic
net income per share:
|
||||||||||||
|
Income
from continuing operations
|
$ | 6.77 | $ | 5.73 | $ | 3.51 | ||||||
|
Income
from discontinued operations, net of taxes
|
.68 | .25 | .37 | |||||||||
|
Net
income
|
$ | 7.45 | $ | 5.98 | $ | 3.88 | ||||||
|
Diluted
net income per share:
|
||||||||||||
|
Income
from continuing operations
|
$ | 6.73 | $ | 5.64 | $ | 3.44 | ||||||
|
Income
from discontinued operations, net of taxes
|
.67 | .24 | .36 | |||||||||
|
Net
income
|
$ | 7.40 | $ | 5.88 | $ | 3.80 | ||||||
Cash
and Cash Equivalents
Cash
equivalents represent highly liquid investments with maturities of three months
or less when purchased.
Inventory
Valuation
Inventories
are stated at the lower of cost or market with cost determined principally on
the first-in, first-out ("FIFO") method except for certain steel inventories
used by the Water Transmission Group that are valued using the last-in,
first-out ("LIFO") method. Significant changes in steel levels or costs
could materially impact the Company's financial statements. Reserves are
established for excess, obsolete and rework inventories based on estimates of
salability and forecasted future demand.
Joint
Ventures
Investments
in unconsolidated joint ventures or affiliates ("joint ventures") over which the
Company has significant influence are accounted for under the equity method of
accounting, whereby the investment is carried at the cost of acquisition, plus
the Company's equity in undistributed earnings or losses since
acquisition. Investments in joint ventures over which the Company does not
have the ability to exert significant influence over the investees' operating
and financing activities are accounted for under the cost method of
accounting. The Company's investment in TAMCO, a steel mini-mill in
California, is accounted for under the equity method. Investments in
Ameron Saudi Arabia, Ltd. and Bondstrand, Ltd. are accounted for under the cost
method due to management's current assessment of the Company's influence
over these joint ventures.
Property,
Plant and Equipment
Items
capitalized as property, plant and equipment, including improvements to existing
facilities, are recorded at cost. Construction in progress represents capital
expenditures incurred for assets not yet placed in service. Capitalized interest
was not material for the periods presented.
Depreciation
is computed principally using the straight-line method based on estimated useful
lives of the assets. Leasehold improvements are amortized over the shorter of
the life of the improvement or the term of the lease. Useful lives are as
follows:
|
Useful
Lives
|
|
|
in
Years
|
|
|
Buildings
|
10-40
|
|
Machinery
and equipment
|
|
|
Autos,
trucks and trailers
|
3-8
|
|
Cranes
and tractors
|
5-15
|
|
Manufacturing
equipment
|
3-15
|
|
Other
|
3-20
|
Goodwill and Intangible Assets
Intangible
assets are amortized on a straight-line basis over periods ranging from three to
15 years.
The cost
of an acquired business is allocated to the acquired net assets based on the
estimated fair values at the date of acquisition. The excess of the
cost of an acquired business over the aggregate fair value is recorded as
goodwill. Goodwill is not amortized, but instead tested for
impairment at least annually. Such tests require management to make
estimates about future cash flows and other factors to determine the fair value
of the respective assets.
The
Company reviews the recoverability of intangible and other long-lived assets for
impairment whenever events or changes in circumstances indicate that the
carrying value of such assets may not be recoverable. If the
estimated future, undiscounted cash flows from the use of an asset are less than
its carrying value, a write-down is recorded to reduce the related asset to
estimated fair value.
Self
Insurance
The
Company typically utilizes third-party insurance subject to varying retention
levels or self insurance and aggregate limits. The Company is self
insured for a portion of the losses and liabilities primarily associated with
workers' compensation claims and general, product and vehicle
liability. Losses are accrued based upon the Company's estimates of
the aggregate liability for claims incurred using historical experience and
certain actuarial assumptions followed in the insurance industry. The
estimate of self insurance liability includes an estimate of incurred but not
reported claims, based on data compiled from historical experience.
Foreign
Currency Translation
The
functional currencies for the Company's foreign operations are the applicable
local currencies. The translation from the applicable foreign
currencies to U.S. dollars is performed for balance sheet accounts using current
exchange rates in effect at the balance sheet date and for revenue and expense
accounts using a weighted-average exchange rate during the period. The resulting
translation adjustments are recorded in accumulated other comprehensive income
(loss). Translation adjustments arising from intercompany advances that are
permanent in nature are also included in accumulated other comprehensive income
(loss). Gains or losses resulting from foreign currency transactions are
included in other income, net.
Derivative
Financial Instruments and Risk Management
The
Company operates internationally, giving rise to exposure to market risks from
changes in foreign exchange rates. From time to time, derivative financial
instruments, primarily foreign exchange contracts, are used by the Company to
reduce those risks. The Company does not hold or issue financial or
derivative financial instruments for trading or speculative
purposes. As of November 30, 2007 and 2006, the Company had foreign
currency forward contracts with an aggregate notional value of $6,299,000 and
$1,803,000, and fair value of $6,301,000 and $1,794,000,
respectively. The Company does not apply hedge accounting for these
derivative financial instruments. These derivatives are not
designated as hedges. 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.
Stock-Based
Compensation
Prior to
December 1, 2005, the Company applied Accounting Principles Board Opinion No.
25, Accounting for Stock
Issued to Employees, and related interpretations in accounting for its
various stock compensation plans. Effective December 1, 2005, the Company
adopted Statement of Financial Accounting Standards (“SFAS”) No. 123 (revised
2004), Share-Based
Payments, using the Modified Prospective Application method. SFAS
No. 123 (R) requires the Company to measure all employee stock-based
compensation awards using the fair-value method and to record such expense in
its consolidated financial statements as described in Note (13). Under the
Modified Prospective Application method, financial results for the prior periods
have not been adjusted.
Other
Comprehensive Loss
The
components of accumulated other comprehensive loss (net of tax, except for
foreign currency translation) at November 30, were as follows:
|
(In
thousands)
|
2007
|
2006
|
||||||
|
Foreign
currency translation adjustment
|
$ | 8,128 | $ | (82 | ) | |||
|
Comprehensive
loss from TAMCO
|
(1,146 | ) | (1,096 | ) | ||||
|
Unrecognized
pension and postretirement expense
|
(6,035 | ) | - | |||||
|
Minimum
pension liability adjustment
|
(10,817 | ) | (26,054 | ) | ||||
|
Accumulated
other comprehensive loss
|
$ | (9,870 | ) | $ | (27,232 | ) | ||
New
Accounting Pronouncements
In July
2006, the Financial Accounting Standards Board (“FASB”) issued Interpretation
(“FIN”) No. 48, “Accounting for Uncertainty in Income Taxes - an
interpretation of FASB Statement No. 109.” FIN No. 48
clarifies the accounting for uncertainty in income taxes recognized in an
entity’s financial statements in accordance with Statement of Financial
Accounting Standard (“SFAS”) No. 109 and prescribes a recognition threshold and
measurement attribute for financial statement disclosure of tax positions taken
or expected to be taken on a tax return. The minimum threshold is
defined in FIN No. 48 as a tax position that is more likely than not to be
sustained upon examination by the applicable taxing authority, including
resolution of any related appeals or litigation processes, based on the
technical merits of the position. The tax benefit to be recognized is measured
as the largest amount of benefit that is greater than fifty percent likely of
being realized upon ultimate settlement. FIN No. 48 must be applied to all
existing tax positions upon initial adoption. The cumulative effect of applying
FIN No. 48 at adoption is to be reported as an adjustment to beginning retained
earnings for the year of adoption. FIN No. 48 is effective for the first
quarter of the Company’s 2008 fiscal year and is not expected to have a material
effect on the Company’s consolidated financial statements.
In
September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements,” which
formally defines fair value, creates a standardized framework for measuring fair
value in generally accepted accounting principles (“GAAP”), and expands fair
value measurement disclosures. SFAS No. 157 will be effective for the
first quarter of the year ending November 30, 2008. The Company is
evaluating whether the adoption of SFAS No. 157 will have a material effect on
its consolidated financial statements.
In
September 2006, the FASB issued SFAS No. 158, "Employers’ Accounting for Defined
Benefit Pension and Other Postretirement Plans," amending FASB Statement No. 87,
“Employers’ Accounting for Pensions,” FASB Statement No. 88, “Employers’
Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and
for Termination Benefits,” FASB Statement No. 106, “Employers’ Accounting for
Postretirement Benefits Other Than Pensions,” and FASB Statement No. 132,
“Employers’ Disclosures about Pensions and Other Postretirement
Benefits.” SFAS No. 158 requires companies to recognize the
overfunded or underfunded status of a defined benefit postretirement plan (other
than a multiemployer plan) as an asset or liability in its financial statements
and to recognize changes in that status in the year in which the changes
occur. SFAS No. 158 also requires a company to measure the funded
status of a plan as of the date of its year-end financial statements. The
Company adopted the recognition provisions of SFAS 158 in fiscal year 2007. See
Note (16) for information regarding the impact of adopting the recognition
provisions of SFAS No. 158. The Company has not yet adopted the
measurement provisions which are not effective until fiscal year
2009. The Company is evaluating whether the adoption of the
measurement provision of SFAS No. 158 will have a material effect on its
consolidated financial statements.
In
September 2006, the FASB issued Emerging Issues Task Force (“EITF”) Issue No.
06-4, “Accounting for Deferred Compensation and Postretirement Benefit Aspects
of Endorsement Split-Dollar Life Insurance Arrangements,” effective for fiscal
years beginning after December 15, 2007. EITF Issue No. 06-4
requires that, for split-dollar life insurance arrangements providing a benefit
to an employee extending to postretirement periods, an employer should recognize
a liability for future benefits in accordance with SFAS
No. 106. EITF Issue No. 06-4 requires that recognition of the
effects of adoption should be either by (a) a change in accounting
principle through a cumulative-effect adjustment to retained earnings as of the
beginning of the year of adoption or (b) a change in accounting principle
through retrospective application to all prior periods. The Company
is evaluating whether the adoption of EITF Issue No. 06-4 will have a material
effect on its consolidated financial statements.
In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities.” SFAS No. 159 permits
companies to choose to measure many financial instruments and certain other
items at fair value. SFAS No. 159 seeks to improve the overall
quality of financial reporting by providing companies the opportunity to
mitigate volatility in reported earnings caused by measuring related assets and
liabilities differently without having to apply complex hedge accounting
provisions. SFAS No. 159 will be effective for the year ending
November 30, 2008. The Company is evaluating whether the
adoption of SFAS No. 159 will have a material effect on its consolidated
financial statements.
Supplemental
Cash Flow Information
|
(In
thousands)
|
2007
|
2006
|
2005
|
|||||||||
|
Interest
paid
|
$ | 3,996 | $ | 4,891 | $ | 5,863 | ||||||
|
Income
taxes paid
|
18,687 | 9,663 | 18,244 | |||||||||
Business
Acquisitions
In
October 2007, the Company acquired Polyplaster, Ltda. (“Polyplaster”) for
$5,977,000 plus an earn out that could total $1,500,000 based on the future
performance of the acquired business. 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 expands the
Company’s operations in South America. In 2006, the Company acquired
Tubos Y Activos (“Tubos”), a steel fabrication operation located in Mexicali,
Mexico, for $989,000. Polyplaster is included in the
Fiberglass-Composite Pipe Group; Tubos is included in the Water Transmission
Group.
NOTE
2 - DISCONTINUED OPERATIONS
On August
1, 2006, the Company completed the sale of its Performance Coatings &
Finishes business (the "Coatings Business") to PPG Industries, Inc. ("PPG") for
$115,000,000 in cash upon the closing, plus post-closing adjustments of
$13,663,000, not including interest. In 2006, the Company recognized
a pretax gain of $862,000 subject to the final purchase price
adjustment. Provision for income tax related to the gain was
$1,019,000 which resulted in a net loss of $157,000.
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
the fourth quarter of 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. This benefit represented a correction, rather than
a change in estimate, of amounts recorded in prior period financial
statements. Management believes this to be immaterial to prior interim and
annual financial statements.
The
results of operations for the discontinued business were as follows for the year
ended November 30:
|
(In
thousands)
|
2007
|
2006
|
2005
|
|||||||||
|
Revenue
from discontinued operations
|
$ | - | $ | 152,190 | $ | 209,807 | ||||||
|
Income
from discontinued operations before disposal, before income
taxes
|
$ | - | $ | 5,308 | $ | 6,531 | ||||||
|
Income
taxes on income from discontinued operations
|
156 | (3,011 | ) | (3,430 | ) | |||||||
|
Income
from discontinued operations before disposal, net of taxes
|
156 | 2,297 | 3,101 | |||||||||
|
Gain
from sale of discontinued operations, before income taxes
|
5,358 | 862 | - | |||||||||
|
Income
taxes on gain from sale of discontinued operations
|
585 | (1,019 | ) | - | ||||||||
|
Gain/(loss)
on sale of discontinued operations, net of taxes
|
5,943 | (157 | ) | - | ||||||||
|
Income
from discontinued operations, net of taxes
|
$ | 6,099 | $ | 2,140 | $ | 3,101 | ||||||
The
income taxes on gain from sale of discontinued operations in 2006 reflects the
allocation of sale proceeds to various taxing jurisdictions, which resulted in
certain tax losses without tax benefits. Prior period income
statement amounts have been reclassified to present the operating results of the
Coatings Business as a discontinued operation. Prior period balance
sheets and cash flow statements have not been adjusted.
NOTE
3 - OTHER INCOME, NET
Other
income, net was as follows for the year ended November 30:
|
(In
thousands)
|
2007
|
2006
|
2005
|
|||||||||
|
Dividends
from joint ventures-cost method
|
$ | 2,451 | $ | - | $ | 1,300 | ||||||
|
Royalties,
fees and other income
|
751 | 887 | 602 | |||||||||
|
(Loss)/gain
on sale of property, plant and equipment
|
(17 | ) | 8,837 | (220 | ) | |||||||
|
Foreign
currency (loss)/gain
|
(116 | ) | (1,089 | ) | 520 | |||||||
|
Other
|
2,961 | 2,762 | (65 | ) | ||||||||
| $ | 6,030 | $ | 11,397 | $ | 2,137 | |||||||
NOTE
4 - RECEIVABLES
Receivables
were as follows at November 30:
|
(In
thousands)
|
2007
|
2006
|
||||||
|
Trade
|
$ | 156,562 | $ | 124,308 | ||||
|
Joint
ventures
|
2,714 | 9,478 | ||||||
|
Other
|
32,294 | 31,299 | ||||||
|
Allowances
|
(6,235 | ) | (4,912 | ) | ||||
| $ | 185,335 | $ | 160,173 | |||||
The
Company’s provision for bad debts was $3,248,000 in 2007, $1,351,000 in 2006,
and $2,502,000 in 2005. Trade receivables included unbilled
receivables related to the percentage-of-completion method of revenue
recognition of $45,578,000 and $32,278,000 at November 30, 2007 and 2006,
respectively.
NOTE
5 - INVENTORIES
Inventories
were as follows at November 30:
|
(In
thousands)
|
2007
|
2006
|
||||||
|
Finished
products
|
$ | 41,580 | $ | 30,802 | ||||
|
Materials
and supplies
|
28,246 | 22,224 | ||||||
|
Products
in process
|
27,891 | 24,108 | ||||||
| $ | 97,717 | $ | 77,134 | |||||
Certain
steel inventories are valued using the LIFO method. Inventories
valued using the LIFO method comprised 17.5% and 24.1% of consolidated
inventories at November 30, 2007 and 2006, respectively. If inventories
valued using the LIFO method had been valued using the FIFO method, total
inventories would have increased by $9,749,000 and $6,085,000 at November 30,
2007 and 2006, respectively. The increase in LIFO reserve for 2007
was due to increases in steel prices and steel inventories within the Water
Transmission Group.
NOTE
6 - JOINT VENTURES
Investments,
advances and equity in undistributed earnings of joint ventures were as follows
at November 30:
|
(In
thousands)
|
2007
|
2006
|
||||||
|
Investment--equity
method
|
$ | 14,677 | $ | 14,501 | ||||
|
Investments--cost
method
|
3,784 | 3,784 | ||||||
| $ | 18,461 | $ | 18,285 | |||||
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
|
$ | 3,784 | $ | - | $ | 8,482 | $ | 12,266 | ||||||||
|
Accumulated
comprehensive loss from joint venture
|
- | - | (1,146 | ) | (1,146 | ) | ||||||||||
|
Accumulated
equity in undistributed earnings
|
- | - | 7,341 | 7,341 | ||||||||||||
|
Investment,
November 30, 2007
|
$ | 3,784 | $ | - | $ | 14,677 | $ | 18,461 | ||||||||
|
2007
Dividends
|
$ | 2,451 | $ | - | $ | 16,792 | $ | 19,243 | ||||||||
|
Cost
|
$ | 3,784 | $ | - | $ | 8,482 | $ | 12,266 | ||||||||
|
Accumulated
comprehensive loss from joint venture
|
- | - | (1,096 | ) | (1,096 | ) | ||||||||||
|
Accumulated
equity in undistributed earnings
|
- | - | 7,115 | 7,115 | ||||||||||||
|
Investment,
November 30, 2006
|
$ | 3,784 | $ | - | $ | 14,501 | $ | 18,285 | ||||||||
|
2006
Dividends
|
$ | - | $ | - | $ | 15,004 | $ | 15,004 | ||||||||
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, 2007. 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)
|
2007
|
2006
|
||||||
|
Current
assets
|
$ | 80,167 | $ | 64,766 | ||||
|
Noncurrent
assets
|
40,215 | 34,189 | ||||||
| $ | 120,382 | $ | 98,955 | |||||
|
Current
liabilities
|
$ | 67,147 | $ | 46,434 | ||||
|
Noncurrent
liabilities
|
8,140 | 7,780 | ||||||
|
Stockholders'
equity
|
45,095 | 44,741 | ||||||
| $ | 120,382 | $ | 98,955 | |||||
Results
of Operations (year ended November 30,)
|
(In
thousands)
|
2007
|
2006
|
2005
|
|||||||||
|
Net
sales
|
$ | 268,208 | $ | 273,036 | $ | 252,435 | ||||||
|
Gross
profit
|
66,494 | 61,336 | 42,188 | |||||||||
|
Net
income
|
34,037 | 30,559 | 20,391 | |||||||||
The
Company recognized $1,146,000 and $1,096,000 in accumulated other comprehensive
loss at November 30, 2007 and 2006, respectively, which represents its
proportionate share of TAMCO’s accumulated other comprehensive
loss.
Sales to
joint ventures totaled $3,873,000 in 2007, $5,888,000 in 2006, and $1,524,000 in
2005.
NOTE
7 - OTHER ASSETS
Other
assets were as follows at November 30:
|
(In
thousands)
|
2007
|
2006
|
||||||
|
Cash
surrender value of insurance policies
|
$ | 25,294 | $ | 24,828 | ||||
|
Assets
held for sale
|
3,599 | 14,737 | ||||||
|
Other
|
5,251 | 5,320 | ||||||
| $ | 34,144 | $ | 44,885 | |||||
NOTE
8 - ACCRUED LIABILITIES
Accrued
liabilities were as follows at November 30:
|
(In
thousands)
|
2007
|
2006
|
||||||
|
Self
insurance reserves
|
$ | 29,877 | $ | 30,088 | ||||
|
Compensation
and benefits
|
22,843 | 21,331 | ||||||
|
Deferred
Income
|
13,759 | 475 | ||||||
|
Product
warranties and guarantees
|
3,590 | 3,146 | ||||||
|
Taxes
(other than income taxes)
|
3,363 | 1,382 | ||||||
|
Reserves
for pending claims and litigation
|
2,331 | 1,231 | ||||||
|
Commissions
and royalties
|
1,866 | 6,562 | ||||||
|
Interest
|
172 | 153 | ||||||
|
Other
|
6,635 | 4,602 | ||||||
| $ | 84,436 | $ | 68,970 | |||||
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)
|
2007
|
2006
|
||||||
|
Balance,
beginning of period
|
$ | 3,146 | $ | 4,026 | ||||
|
Payments
|
(2,594 | ) | (1,680 | ) | ||||
|
Warranty
adjustment related to discontinued operations
|
130 | (1,675 | ) | |||||
|
Warranties
issued during the period
|
2,908 | 2,475 | ||||||
|
Balance,
end of period
|
$ | 3,590 | $ | 3,146 | ||||
NOTE
9 - OTHER LONG-TERM LIABILITIES
Other
long-term liabilities were as follows at November 30:
|
(In
thousands)
|
2007
|
2006
|
||||||
|
Accrued
pension cost
|
$ | 23,345 | $ | 35,827 | ||||
|
Deferred
income tax liabilities
|
15,740 | 785 | ||||||
|
Compensation
and benefits
|
3,336 | 4,618 | ||||||
|
Deferred
income
|
- | 3,167 | ||||||
|
Other
|
1,733 | 103 | ||||||
| $ | 44,154 | $ | 44,500 | |||||
Accrued
pension cost at November 30, 2006 has been revised from $54,140,000 to
$35,827,000 to properly record the accrued pension cost net of prepaid pension
cost of $18,313,000 that was previously included as other assets.
NOTE
10 - INCOME TAXES
The
provision for income taxes included the following for the year ended November
30:
|
(In
thousands)
|
2007
|
2006
|
2005
|
|||||||||
|
Current
|
||||||||||||
|
Federal
|
$ | (2,678 | ) | $ | 14,615 | $ | 2,260 | |||||
|
Foreign
|
7,413 | 5,364 | 3,449 | |||||||||
|
State
|
(1,392 | ) | 3,459 | 797 | ||||||||
| $ | 3,343 | $ | 23,438 | $ | 6,506 | |||||||
|
Deferred
|
||||||||||||
|
Federal
|
$ | 10,646 | $ | (10,309 | ) | $ | 3,573 | |||||
|
Foreign
|
(5,078 | ) | (386 | ) | 173 | |||||||
|
State
|
1,448 | (1,838 | ) | 788 | ||||||||
| 7,016 | (12,533 | ) | 4,534 | |||||||||
| $ | 10,359 | $ | 10,905 | $ | 11,040 | |||||||
Deferred
income tax assets/(liabilities) were comprised of the following as of November
30:
|
(In
thousands)
|
2007
|
2006
|
||||||
|
Current
deferred income taxes
|
||||||||
|
Self-insurance
and claims reserves
|
$ | 10,572 | $ | 15,142 | ||||
|
Inventories
|
5,541 | 4,998 | ||||||
|
Employee
benefits
|
4,406 | 5,631 | ||||||
|
Accounts
receivable
|
1,731 | 1,097 | ||||||
|
Valuation
allowances
|
(2,641 | ) | (3,708 | ) | ||||
|
Other
|
2,837 | 701 | ||||||
|
Net
current deferred income tax assets
|
22,446 | 23,861 | ||||||
|
Noncurrent
deferred income taxes
|
||||||||
|
Net
operating loss carry-overs
|
12,597 | 17,138 | ||||||
|
Pension
benefit costs
|
6,134 | 12,854 | ||||||
|
Employee
benefits
|
1,661 | 831 | ||||||
|
Investments
|
(227 | ) | 3,234 | |||||
|
Valuation
allowances
|
(12,969 | ) | (18,193 | ) | ||||
|
Property,
plant and equipment
|
(17,277 | ) | (16,341 | ) | ||||
|
Other
|
(1,457 | ) | (308 | ) | ||||
|
Net
noncurrent deferred income tax liabilities
|
(11,538 | ) | (785 | ) | ||||
|
Net
deferred income tax assets
|
$ | 10,908 | $ | 23,076 | ||||
As of
November 30, 2007, the Company had foreign net operating loss carry-overs of
approximately $46,100,000. A full valuation allowance has been provided against
these net operating losses except for $18,300,000 of net operating losses
generated by its subsidiary in the Netherlands, which has shown recent
profitability. 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
$6,291,000 in 2007, compared to 2006. This net decrease included a
$7,782,000 decrease in the valuation allowance for foreign net operating loss
carry-overs and other foreign deferred tax assets for which no benefit has been
recognized. Included in this decrease was a release of $3,200,000 of
valuation allowance related to the Company’s subsidiary in the Netherlands due
to profitability in 2007 and a change in projected profitability in the
future. The decrease was offset by a net increase in the valuation
allowance related to executive compensation deductions. During the
fourth quarter of 2007, the Company recognized a charge to income from
continuing operations of approximately $1,200,000 primarily related to an
additional valuation allowance for deferred tax assets associated with the
Company’s subsidiary in the Netherlands. This charge represents a
correction, rather than a change in estimate, of amounts recorded in prior
period financial statements. Management believes this to be
immaterial to prior interim and annual financial statements.
The tax
provision represents effective tax rates of 18.5%, 23.0% and 35.0% of income
before income taxes for the years ended November 30, 2007, 2006 and 2005,
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)
|
2007
|
2006
|
2005
|
|||||||||
|
Domestic
pretax income
|
$ | 6,721 | $ | 30,036 | $ | 19,532 | ||||||
|
Foreign
pretax income
|
49,395 | 17,379 | 12,012 | |||||||||
| $ | 56,116 | $ | 47,415 | $ | 31,544 | |||||||
|
Taxes
at federal statutory rate
|
$ | 19,641 | $ | 16,596 | $ | 11,040 | ||||||
|
State
taxes, net of federal tax benefit
|
(293 | ) | 1,053 | 942 | ||||||||
|
Foreign
earnings taxed at different rates, including withholding
taxes
|
(4,782 | ) | 1,264 | (484 | ) | |||||||
|
Percentage
depletion
|
(618 | ) | (558 | ) | (449 | ) | ||||||
|
Non-deductible
compensation
|
2,612 | 1,702 | 693 | |||||||||
|
Research
and development credits
|
(449 | ) | (28 | ) | (329 | ) | ||||||
|
Section
199 deduction
|
(262 | ) | (490 | ) | - | |||||||
|
Settlement
of tax examinations
|
(1,285 | ) | (7,233 | ) | - | |||||||
|
Repatriation
of foreign earnings under the AJCA
|
- | - | 1,077 | |||||||||
|
Investment
write-off
|
(4,723 | ) | - | - | ||||||||
|
Other,
net
|
518 | (1,401 | ) | (1,450 | ) | |||||||
| $ | 10,359 | $ | 10,905 | $ | 11,040 | |||||||
The
Company files tax returns in numerous jurisdictions and is subject to audit in
these jurisdictions. During the year ended November 30, 2007, the
Company was not under federal audit; and the statute of limitations for 2003
expired. The statute is still open for 2004 and
forward. In December 2007, the Internal Revenue Service began an
examination of the Company’s 2005-2006 federal income tax returns. No
assessments have been issued. Although it cannot predict with
certainty the ultimate outcome of this examination, the Company believes it has
adequately provided for any potential liabilities that may result.
In 2006,
the Internal Revenue Service (“IRS”) finalized its examination of the Company’s
1996 through 1998 federal income tax returns as well as its returns for 1999
through 2002. The results of these examinations, which included a
concurrent review of the Company’s claims for research and development credits
for tax years 1998-2000, are reflected in the financial
statements. In addition, the financial statements reflect settlements
with other local and foreign jurisdictions. The net impact to the
Company’s financial statements as a result of these federal, foreign and local
jurisdiction settlements was a reduction of approximately $7,200,000 in income
taxes payable.
In
November 2005, the Company repatriated approximately $36,000,000 of earnings
from three of its foreign subsidiaries under the provisions of the 2004 American
Jobs Creation Act ("AJCA"). The AJCA created a one-time incentive for
U.S. corporations to repatriate accumulated income earned abroad by providing an
85 percent dividends received deduction for certain dividends from controlled
foreign corporations. In November 2006, the Company repatriated
approximately $13,000,000 of earnings from its subsidiary in New Zealand with
funds generated by this subsidiary’s portion of the sale of the Coatings
Business.
The
Company intends to permanently reinvest the remaining unrepatriated foreign
earnings. The cumulative amount of undistributed earnings of foreign
subsidiaries was $98,000,000 at November 30, 2007. The Company has
provided no deferred taxes on the earnings; and the additional U.S. income tax
on the unremitted foreign earnings, if repatriated, may be offset in whole or in
part by foreign tax credits.
NOTE 11 - DEBT
Short-term
borrowings consist of loans payable under bank credit lines. There were no
short-term borrowings outstanding at November 30, 2007 and at November 30,
2006. At November 30, 2007, the equivalent of $15,411,000 was
available under short-term credit lines.
Domestically,
as of November 30, 2007, the Company maintained a $100,000,000 revolving credit
facility with six banks (the "Revolver"). At November 30, 2007,
$19,115,000 of the Revolver was utilized for standby letters of credit;
therefore, $80,885,000 was available. Under the Revolver, the Company
may, at its option, borrow at floating interest rates (LIBOR plus a spread
ranging from .75% to 1.625% based on the Company’s financial condition and
performance), at any time until September 2010, when all borrowings under the
Revolver must be repaid.
Foreign
subsidiaries also maintain unsecured revolving credit facilities and short-term
facilities with banks. Foreign subsidiaries may borrow in various
currencies, at interest rates based upon specified margins over money market
rates. Short-term lines permit borrowings up to
$16,500,000. At November 30, 2007, $3,674,000 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. In addition, the amount available under the
Revolver exceeds such short-term borrowing at November 30,
2007. Accordingly, amounts due under these bank facilities have been
classified as long-term debt and are considered payable when the Revolver is
due.
Long-term
debt consisted of the following as of November 30:
|
(In
thousands)
|
2007
|
2006
|
||||||
|
Fixed-rate
notes:
|
||||||||
|
5.36%,
payable in annual principal installments of $10,000
|
$ | 20,000 | $ | 30,000 | ||||
|
4.25%,
payable in Singapore Dollars, in annual principal installments of
$7,055
|
35,274 | 33,173 | ||||||
|
Variable-rate
industrial development bonds:
|
||||||||
|
payable
in 2016 (3.81% at November 30, 2007)
|
7,200 | 7,200 | ||||||
|
payable
in 2021 (3.81% at November 30, 2007)
|
8,500 | 8,500 | ||||||
|
Variable-rate
bank revolving credit facility (13.51% at November 30,
2007)
|
3,674 | 3,652 | ||||||
| 74,648 | 82,525 | |||||||
|
Less
current portion
|
(17,055 | ) | (10,000 | ) | ||||
| $ | 57,593 | $ | 72,525 | |||||
Future
maturities of long-term debt were as follows as of November 30,
2007:
|
Year
ending
|
|||||
|
(In
thousands)
|
November
30,
|
Amount
|
|||
|
2008
|
$ | 17,055 | |||
|
2009
|
17,055 | ||||
|
2010
|
10,729 | ||||
|
2011
|
7,055 | ||||
|
2012
|
7,054 | ||||
|
Thereafter
|
15,700 | ||||
| $ | 74,648 | ||||
The
Company's lending agreements contain various restrictive covenants, including
the requirement to maintain specified amounts of net worth and restrictions on
cash dividends, borrowings, liens, investments, guarantees, and financial
covenants. The Company is required to maintain consolidated net worth of $181.4
million plus 50% of net income and 75% of proceeds from any equity issued after
January 24, 2003. The Company's consolidated net worth exceeded the covenant
amount by $157.1 million as of November 30, 2007. The Company is required to
maintain a consolidated leverage ratio of consolidated funded indebtedness to
earnings before interest, taxes, depreciation and amortization ("EBITDA") of no
more than 2.5 times. At November 30, 2007, the Company maintained a consolidated
leverage ratio of .83 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, 2007, qualifying
tangible assets equaled 2.68 times funded indebtedness. Under the most
restrictive fixed charge coverage ratio, the sum of EBITDA and rental expense
less cash taxes must be at least 1.50 times the sum of interest expense, rental
expense, dividends and scheduled funded debt payments. At November 30, 2007, the
Company maintained such a fixed charge coverage ratio of 3.09 times. Under
the most restrictive provisions of the Company's lending agreements,
approximately $27.3 million of retained earnings was not restricted, at November
30, 2007, as to the declaration of cash dividends or the repurchase of Company
stock. At November 30, 2007, the Company was in compliance with all
covenants.
The
Revolver, the 5.36% term notes and the 4.25% term notes are collateralized by
substantially all of the Company's assets. The industrial revenue
bonds are supported by standby letters of credit that are issued under the
Revolver. The interest rate on the industrial development bonds is
based on a weekly index of tax-exempt issues plus a spread of
..20%. Certain note agreements contain provisions regarding the
Company's ability to grant security interests or liens in association with other
debt instruments. If the Company grants such a security interest or
lien, then such notes will be secured equally and ratably as long as such other
debt shall be secured.
Interest
income and expense were as follows for the year ended November 30:
|
(In
thousands)
|
2007
|
2006
|
2005
|
|||||||||
|
Interest
income
|
$ | 5,161 | $ | 2,899 | $ | 259 | ||||||
|
Interest
expense
|
(3,234 | ) | (4,581 | ) | (5,779 | ) | ||||||
|
Interest
income/(expense), net
|
$ | 1,927 | $ | (1,682 | ) | $ | (5,520 | ) | ||||
The
following disclosure of the estimated fair value of the Company's debt is
prepared in accordance with the requirements of SFAS No. 107, "Disclosures about
Fair Value of Financial Instruments." The estimated fair value
amounts have been determined by the Company using available market information
and appropriate valuation methodologies. Considerable judgment is
required to develop the estimated fair value, thus the estimates provided herein
are not necessarily indicative of the amounts that could be realized in a
current market exchange.
|
Carrying
|
Fair
|
|||||||
|
(In
thousands)
|
Amount
|
Value
|
||||||
|
November
30, 2007
|
||||||||
|
Fixed-rate,
long-term debt
|
$ | 55,274 | $ | 55,444 | ||||
|
Variable-rate,
long-term debt
|
19,374 | 19,374 | ||||||
|
November
30, 2006
|
||||||||
|
Fixed-rate,
long-term debt
|
$ | 63,173 | $ | 63,397 | ||||
|
Variable-rate,
long-term debt
|
19,352 | 19,352 | ||||||
The
estimated fair value of the Company's variable-rate debt approximates the
carrying value of the debt since the variable interest rates are market-based,
and the Company believes such debt could be refinanced on materially similar
terms. The estimated fair value of the Company's fixed-rate, long-term debt is
based on U.S. government notes at November 30, 2007 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 $4,039,000 in 2007, $3,774,000 in 2006, and $3,786,000 in
2005. Future rental commitments were as follows as of November 30,
2007:
|
Year
ending
|
|||||
|
(In
thousands)
|
November
30,
|
Amount
|
|||
|
2008
|
$ | 4,289 | |||
|
2009
|
4,144 | ||||
|
2010
|
3,521 | ||||
|
2011
|
2,639 | ||||
|
2012
|
1,935 | ||||
|
Thereafter
|
21,927 | ||||
| $ | 38,455 | ||||
Future
rental commitments for leases are not reduced by minimum non-cancelable sublease
rentals aggregating $3,051,000 at November 30, 2007.
NOTE
13 - INCENTIVE STOCK COMPENSATION PLANS
As of
November 30, 2007, the Company had outstanding grants under the following
share-based compensation plans:
· 1994
Non-Employee Director Stock Option Plan ("1994 Plan") - The 1994 Plan was
terminated in 2001, except as to the outstanding options. A total of
240,000 new shares of Common Stock were made available for awards to
non-employee directors. Non-employee directors were granted options to
purchase the Company's Common Stock at prices not less than 100% of market value
on the date of grant. Such options vested in equal annual installments
over four years and terminate ten years from the date of grant.
· 2001
Stock Incentive Plan ("2001 Plan") - The 2001 Plan was terminated in 2004,
except as to the outstanding stock options and restricted stock grants. A
total of 380,000 new shares of Common Stock were made available for awards to
key employees and non-employee directors. The 2001 Plan served as the
successor to the 1994 Plan and superseded that plan. Non-employee
directors were granted options under the 2001 Plan to purchase the Company's
Common Stock at prices not less than 100% of market value on the date of
grant. Such options vested in equal annual installments over four
years. Such options terminate ten years from the date of grant. Key
employees were granted restricted stock under the 2001 Plan. Such
restricted stock grants vested in equal annual installments over four
years.
· 2004
Stock Incentive Plan ("2004 Plan") - The 2004 Plan serves as the successor to
the 2001 Plan and supersedes that plan. A total of 525,000 new shares of
Common Stock were made available for awards to key employees and non-employee
directors and may include, but are not limited to, stock options and restricted
stock grants. Non-employee directors were granted options under the 2004
Plan to purchase the Company's Common Stock at prices not less than 100% of
market value on the date of grant. Such options vest in equal annual
installments over four years and terminate ten years from the date of
grant. Key employees were granted restricted stock under the 2004
Plan. Such restricted stock grants vest in equal annual installments over
three years. During the 12 months ended November 30, 2007, the Company
granted 28,550 restricted shares to key employees with fair value on the grant
date of $2,305,000 and 6,000 restricted shares to non-employee directors with
fair value of $417,000. On September 19, 2007, the Company also
granted to a key employee 54,000 shares of restricted stock that will vest in
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. The fair value on the grant
date of those restricted shares was $5,395,000. Additionally, the key
employee received a grant of performance stock units, pursuant to which a
maximum of 24,000 shares of the Company’s Common Stock may be issued depending
on the Company’s per share stock price 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
September 19, 2007 was $2,055,000, which will be recognized ratably as stock
compensation expense through March 31, 2010.
In
addition to the above, on January 24, 2001, non-employee directors were granted
options to purchase the Company's Common Stock at prices not less than 100% of
market value on the date of grant. Such options vested in equal annual
installments over four years and terminate ten years from the date of
grant. At November 30, 2007, there were 13,000 shares of Common Stock
subject to such stock options.
Prior to
December 1, 2005, the Company applied Accounting Principles Board Opinion No.
25, Accounting for Stock
Issued to Employees, and related interpretations in accounting for its
various stock option plans. Effective December 1, 2005, the Company
adopted SFAS No. 123 (revised 2004), Share-Based Payments, using
the Modified Prospective Application method. SFAS No. 123(R) requires the
Company to measure all employee stock-based compensation awards using the
fair-value method and to record such expense in its consolidated financial
statements. Under the Modified Prospective Application method, financial
results for the prior periods have not been adjusted. Stock-based
compensation expense for the year ended November 30, 2007 includes: (a)
compensation expense for all stock-based compensation awards granted prior to,
but not yet vested, as of December 1, 2005, based on the grant-date fair value
estimated in accordance with the original provisions of SFAS No. 123, Accounting for Stock-Based
Compensation, and (b) compensation expense for all stock-based
compensation awards granted subsequent to November 30, 2005, based on the
grant-date fair value estimated in accordance with the provisions of SFAS No.
123(R).
The
Company's income from continuing operations before income taxes and equity in
earnings of joint venture for the year ended November 30, 2007 included
compensation expense of $3,850,000, related to stock-based compensation
arrangements. Tax benefit related to this expense was
$1,502,000. There were no capitalized share-based compensation costs
for the year ended November 30, 2007.
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. For the 12 months ended November 30, 2007, excess tax benefits
totaled $1,955,000.
The
following table illustrates the effect on net income and earnings per share as
if the Company had applied the fair value recognition provisions of SFAS No. 123
to stock-based compensation for the year ended November 30:
|
(In
thousands, except per share data)
|
2005
|
|||
|
Reported
net income
|
$ | 32,610 | ||
|
Add:
stock-based employee compensation expense included in reported net income,
net of tax
|
1,645 | |||
|
Deduct:
stock-based employee compensation expense determined under SFAS No. 123,
net of tax
|
(1,212 | ) | ||
|
Pro
forma net income
|
$ | 33,043 | ||
|
Earnings
per share (basic)
|
||||
|
As
reported
|
$ | 3.88 | ||
|
Pro
forma
|
3.93 | |||
|
Earnings
per share (diluted)
|
||||
|
As
reported
|
3.80 | |||
|
Pro
forma
|
3.85 | |||
The
following table summarizes the stock option activity for the year ended November
30, 2007:
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, 2006
|
120,500 | $ | 27.25 | |||||||||||||
|
Exercised
|
(53,250 | ) | 25.33 | |||||||||||||
|
Outstanding
at November 30, 2007
|
67,250 | 28.77 | 4.54 | $ | 5,179 | |||||||||||
|
Options
exercisable at November 30, 2007
|
62,750 | 28.43 | 4.70 | $ | 4,854 | |||||||||||
In the
year ended November 30, 2007, no options were granted, forfeited or
expired. The aggregate intrinsic value in the table above represents
the total pretax intrinsic value, which is the difference between the Company's
closing stock price on the last trading day of fiscal 2007 and the exercise
price times the number of shares that would have been received by the option
holders if they had exercised their options on November 30,
2007. This amount will change based on the fair market value of the
Company's stock. The aggregate intrinsic value of stock options
exercised in the years ended November 30, 2007, 2006 and 2005 was $3,050,000,
$13,870,000, and $4,781,000, respectively. As of November 30, 2007,
there was $8,273,000 of total unrecognized compensation cost related to
stock-based compensation arrangements. That cost is expected to be
recognized over a weighted-average period of 2.5 years.
In the
years ended November 30, 2007, 2006 and 2005, 88,550, 51,000, and 42,500 shares
of restricted stock were granted, respectively. The weighted-average
grant-date fair value of such restricted stock was $90.76, $55.31, and $36.20,
respectively. The fair value of vested restricted stock for the years
ended November 30, 2007, 2006 and 2005 was $3,562,000, $3,973,000, and
$1,738,000, respectively.
Net cash
proceeds from stock option exercises in the years ended November 30, 2007, 2006
and 2005 were $1,562,000, $7,994,000, and $5,300,000,
respectively. The Company's policy is to issue shares from its
authorized shares upon the exercise of stock options.
NOTE
14 - GOODWILL AND OTHER INTANGIBLE ASSETS
SFAS No.
142, "Goodwill and Other Intangible Assets," requires that goodwill and
intangible assets with indefinite useful lives not be amortized but instead be
tested for impairment at least annually. SFAS No. 142 also requires that
intangible assets with definite useful lives be amortized over their respective
estimated useful lives to their estimated residual values.
During
2007, 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
|
||||||||||||
|
Currency
|
||||||||||||
|
November
30,
|
Translation
|
November
30,
|
||||||||||
|
(In
thousands)
|
2006
|
Adjustments
|
2007
|
|||||||||
|
Fiberglass-Composite
Pipe
|
$ | 1,440 | $ | - | $ | 1,440 | ||||||
|
Water
Transmission
|
390 | 2 | 392 | |||||||||
|
Infrastructure
Products
|
201 | - | 201 | |||||||||
| $ | 2,031 | $ | 2 | $ | 2,033 | |||||||
The
Company's intangible assets, other than goodwill, and related accumulated
amortization consisted of the following:
|
November
30, 2007
|
November
30, 2006
|
|||||||||||||||
|
Gross
Intangible
|
Accumulated
|
Gross
Intangible
|
Accumulated
|
|||||||||||||
|
(In
thousands)
|
Assets
|
Amortization
|
Assets
|
Amortization
|
||||||||||||
|
Trademarks
|
$ | 113 | $ | (101 | ) | $ | 100 | $ | (100 | ) | ||||||
|
Non-compete
agreements
|
299 | (163 | ) | 252 | (140 | ) | ||||||||||
|
Patents
|
212 | (212 | ) | 212 | (212 | ) | ||||||||||
|
Leasehold
interests
|
- | - | 1,930 | (1,930 | ) | |||||||||||
|
Other
|
79 | (17 | ) | - | - | |||||||||||
| $ | 703 | $ | (493 | ) | $ | 2,494 | $ | (2,382 | ) | |||||||
All of
the Company’s intangible assets, other than goodwill, are subject to
amortization. Amortization expense related to intangible assets in
the years ended November 30, 2007, 2006, and 2005 was $41,000, $170,000, and
$206,000, respectively. At November 30, 2007, estimated future
amortization expense for each of the years in the five-year period ending
November 30, 2012 was as follows: $88,000 for 2008, $41,000 for 2009,
$33,000 for 2010, $30,000 for 2011, and $18,000 for 2012.
NOTE
15 - COMMITMENTS AND CONTINGENCIES
The
Company is one of numerous defendants in various asbestos-related personal
injury lawsuits. These cases generally seek unspecified damages for
asbestos-related diseases based on alleged exposure to products previously
manufactured by the Company and others, and at this time the Company is
generally not aware of the extent of injuries allegedly suffered by the
individuals or the facts supporting the claim that injuries were caused by the
Company's products. Based upon the information available to it at this time, the
Company is not in a position to evaluate its potential exposure, if any, as a
result of such claims or future similar claims, if any, that may be filed.
Hence, no amounts have been accrued for loss contingencies related to these
lawsuits in accordance with Statements of Financial Accounting Standards
("SFAS") No. 5, "Accounting for Contingencies." The Company continues to
vigorously defend all such lawsuits. As of November 30, 2007, the Company was a
defendant in asbestos-related cases involving 60 claimants, compared to 145
claimants as of November 30, 2006. The Company is not in a position to
estimate the number of additional claims that may be filed against it in the
future. For the year ended November 30, 2007, there were new claims involving 19
claimants, dismissals and/or settlements involving 104 claimants and no
judgments. Net costs and expenses incurred by the Company for the
year ended November 30, 2007 in connection with asbestos-related claims were
approximately $200,000.
As of
November 30, 2006, the Company was one of numerous defendants in various
silica-related personal injury lawsuits involving seven claimants. As
of November 30, 2007, the Company was no longer a defendant in any
silica-related cases. No net costs and expenses were incurred by the
Company for the year ended November 30, 2007 in connection with silica-related
claims.
In May
2003, Dominion Exploration and Production, Inc. and Pioneer Natural Resources
USA, Inc. (collectively "Dominion") brought an action against the Company in
Civil District Court for the Parish of Orleans, Louisiana as owners of an
offshore production facility known as a SPAR. Dominion seeks damages
allegedly sustained by it resulting from delays in delivery of the SPAR caused
by the removal and replacement of certain coatings containing lead and/or lead
chromate for which the manufacturer of the SPAR alleged the Company was
responsible. Dominion contends that the Company made certain
misrepresentations and warranties to Dominion concerning the lead-free nature of
those coatings. Dominion's petition as filed alleged a claim for damages
in an unspecified amount; however, Dominion's economic expert has since
estimated Dominion's damages at approximately $128,000,000, a figure which the
Company contests. This matter is in discovery and no trial date has yet
been established. The Company believes that it has meritorious defenses to
this action. Based upon the information available to it at this
time, the Company is not in a position to evaluate the ultimate outcome of this
matter.
In April
2004, Sable Offshore Energy Inc. ("Sable"), as agent for certain owners of the
Sable Offshore Energy Project, brought an action against various coatings
suppliers and application contractors, including the Company and two of its
subsidiaries, Ameron (UK) Limited and Ameron B.V. (collectively "Ameron
Subsidiaries") in the Supreme Court of Nova Scotia, Canada. Sable seeks
damages allegedly sustained by it resulting from performance problems with
several coating systems used on the Sable Offshore Energy Project, including
coatings products furnished by the Company and the Ameron Subsidiaries.
Sable's originating notice and statement of claim alleged a claim for damages in
an unspecified amount; however, Sable has since alleged that its claim for
damages against all defendants is approximately 428,000,000 Canadian dollars, a
figure which the Company and the Ameron Subsidiaries contest. This matter
is in discovery, and no trial date has yet been established. The Company
believes that it has meritorious defenses to this action. Based upon the
information available to it at this time, the Company is not in a position to
evaluate the ultimate outcome of this matter.
In
addition, certain other claims, suits and complaints that arise in the ordinary
course of business, have been filed or are pending against the Company.
Management believes that these matters are either adequately reserved, covered
by insurance, or would not have a material effect on the Company's financial
position, cash flows, or its results of operations if disposed of
unfavorably.
The
Company is subject to federal, state and local laws and regulations concerning
the environment and is currently participating in administrative proceedings at
several sites under these laws. While the Company finds it difficult to estimate
with any certainty the total cost of remediation at the several sites, on the
basis of currently available information and reserves provided, the Company
believes that the outcome of such environmental regulatory proceedings will not
have a material effect on the Company's financial position, cash flows, or its
results of operations.
NOTE
16 - EMPLOYEE BENEFIT PLANS
The
Company has a qualified, defined benefit, noncontributory pension plan for
certain U.S. employees not covered by union pension plans. The
Company’s subsidiaries in the Netherlands and the United Kingdom provide 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 $8,462,400 of the Company’s Common Stock at November 30,
2007), U.S. government obligations, derivative securities, corporate bonds and
money market funds. The subsidiaries in the Netherlands and the United Kingdom
contract with third-party insurance companies to pay benefits to
retirees.
During
the year ended November 30, 2007, the Company adopted the provisions of SFAS No.
158, "Employers’ Accounting for Defined Benefit Pension and Other Postretirement
Plans," amending FASB Statement No. 87, “Employers’ Accounting for Pensions,”
FASB Statement No. 88, “Employers’ Accounting for Settlements and Curtailments
of Defined Benefit Pension Plans and for Termination Benefits,” FASB Statement
No. 106, “Employers’ Accounting for Postretirement Benefits Other Than
Pensions,” and FASB Statement No. 132, “Employers’ Disclosures about Pensions
and Other Postretirement Benefits.” SFAS No. 158 requires a company
to recognize the overfunded or underfunded status of a defined benefit
postretirement plan (other than a multiemployer plan) as an asset or liability
in its financial statements and to recognize changes in that status in the year
in which the changes occur. SFAS No. 158 also requires a company to
measure the funded status of a plan as of the date of its year-end financial
statements. The incremental effect of applying SFAS No. 158 on
individual line items to the Company’s balance sheet as of November 30, 2007,
including tax effects, was as follows:
|
Before
|
Effect
of
|
As
Reported
|
||||||||||
|
Adoption
of
|
Adopting
|
Under
|
||||||||||
|
(In
thousands)
|
SFAS
No. 158
|
SFAS
No. 158
|
SFAS
No. 158
|
|||||||||
|
Intangible
assets
|
$ | 1,225 | $ | (1,225 | ) | $ | - | |||||
|
Accrued
pension liability
|
(14,705 | ) | (8,670 | ) | (23,375 | ) | ||||||
|
Deferred
income tax asset
|
6,915 | 3,860 | 10,775 | |||||||||
|
Accumulated
other comprehensive loss, net of taxes
|
10,817 | 6,035 | 16,852 | |||||||||
The
pretax amounts recognized in accumulated other comprehensive income after the
adoption of SFAS No. 158 include the following as of November 30,
2007:
|
Pension
Benefits
|
U.S.
Postretirement
|
|||||||||||
|
(In
thousands)
|
U.S.
|
Non-U.S.
|
Benefits
|
|||||||||
|
Net
actuarial loss
|
$ | 25,416 | $ | (1,064 | ) | $ | 275 | |||||
|
Prior
service cost/(credit)
|
358 | 2,140 | 227 | |||||||||
|
Net
transition asset
|
- | - | 275 | |||||||||
|
Net
amount recognized
|
$ | 25,774 | $ | 1,076 | $ | 777 | ||||||
The
Company’s estimates of 2008 amortization of amounts included in accumulated
other comprehensive income are as follows:
|
Pension
Benefits
|
U.S.
Postretirement
|
|||||||||||
|
(In
thousands)
|
U.S.
|
Non-U.S.
|
Benefits
|
|||||||||
|
Net
actuarial loss
|
$ | 931 | $ | - | $ | - | ||||||
|
Prior
service cost/(credit)
|
111 | (304 | ) | - | ||||||||
|
Net
amount recognized
|
$ | 1,042 | $ | (304 | ) | $ | - | |||||
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,
2007 and 2006 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)
|
||||||||||||||||
|
2007
|
2006
|
2007
|
2006
|
|||||||||||||
|
Change
in Benefit Obligation
|
||||||||||||||||
|
Projected
benefit obligation-beginning of year
|
$ | 192,504 | $ | 184,747 | $ | 49,066 | $ | 51,546 | ||||||||
|
Service
cost
|
2,928 | 3,255 | 529 | 1,101 | ||||||||||||
|
Interest
cost
|
11,178 | 10,198 | 2,260 | 1,870 | ||||||||||||
|
Participant
contributions
|
- | - | 163 | 295 | ||||||||||||
|
Amendments
|
- | 208 | - | (333 | ) | |||||||||||
|
Curtailment
|
- | (1,997 | ) | - | (4,156 | ) | ||||||||||
|
Settlement
|
- | - | - | (757 | ) | |||||||||||
|
Special
termination benefit
|
- | 268 | - | - | ||||||||||||
|
Actuarial
(gain)/loss
|
(2,829 | ) | 6,742 | (9,227 | ) | (5,449 | ) | |||||||||
|
Foreign
currency exchange rate changes
|
- | - | 4,333 | 5,666 | ||||||||||||
|
Benefit
payments
|
(11,371 | ) | (10,917 | ) | (1,216 | ) | (717 | ) | ||||||||
|
Projected
benefit obligation-end of year
|
$ | 192,410 | $ | 192,504 | $ | 45,908 | $ | 49,066 | ||||||||
|
Accumulated
Benefit Obligation
|
$ | 184,724 | $ | 185,453 | $ | 45,370 | $ | 48,489 | ||||||||
|
Change
in Plan Assets
|
||||||||||||||||
|
Plan
assets at fair value-beginning of year
|
$ | 166,138 | $ | 134,758 | $ | 31,973 | $ | 31,718 | ||||||||
|
Actual
return on plan assets
|
26,142 | 20,667 | (324 | ) | (618 | ) | ||||||||||
|
Foreign
currency exchange rate changes
|
- | - | 3,049 | 3,534 | ||||||||||||
|
Employer
contributions
|
3,031 | 21,630 | 665 | 887 | ||||||||||||
|
Participant
contributions
|
- | - | 163 | 295 | ||||||||||||
|
Settlement
|
- | - | - | (3,126 | ) | |||||||||||
|
Benefit
payments
|
(11,371 | ) | (10,917 | ) | (1,216 | ) | (717 | ) | ||||||||
|
Plan
assets at fair value-end of year
|
$ | 183,940 | $ | 166,138 | $ | 34,310 | $ | 31,973 | ||||||||
|
Funded
Status
|
||||||||||||||||
|
Funded
status
|
$ | (8,470 | ) | $ | (26,366 | ) | $ | (11,598 | ) | $ | (17,093 | ) | ||||
|
Unrecognized
actuarial loss
|
44,118 | 6,222 | ||||||||||||||
|
Unrecognized
prior service cost
|
471 | 2,206 | ||||||||||||||
|
Net
amount recognized
|
$ | 18,223 | $ | (8,665 | ) | |||||||||||
|
Balance
Sheet Amounts
|
||||||||||||||||
|
Before
Adoption of SFAS No. 158
|
||||||||||||||||
|
Accrued
cost
|
$ | (787 | ) | $ | (19,315 | ) | $ | (11,557 | ) | $ | (16,516 | ) | ||||
|
Intangible
asset
|
358 | 472 | 1,034 | 2,206 | ||||||||||||
|
Accumulated
other comprehensive loss, pretax
|
17,732 | 37,066 | - | 5,645 | ||||||||||||
|
Net
amount recognized
|
$ | 17,303 | $ | 18,223 | $ | (10,523 | ) | $ | (8,665 | ) | ||||||
|
After
Adoption of SFAS No. 158
|
||||||||||||||||
|
Noncurrent
assets
|
$ | - | $ | 167 | ||||||||||||
|
Current
liabilities
|
(30 | ) | - | |||||||||||||
|
Noncurrent
liabilities
|
(8,440 | ) | (11,765 | ) | ||||||||||||
|
Net
amount recognized
|
$ | (8,470 | ) | $ | (11,598 | ) | ||||||||||
The
Company contributed $3,000,000 to the U.S. pension plan and $719,000 to the
non-U.S. pension plans in 2007. The Company expects to contribute
approximately $3,000,000 to its U.S. pension plan and $1,200,000 to the non-U.S.
pension plans in 2008.
Expected
future pension benefit payments, which reflect expected future service, were as
follows as of November 30, 2007:
|
Year
Ending
|
U.S.
Pension
|
Non-U.S.
Pension
|
|||||||
|
(In
thousands)
|
November
30,
|
Benefits
|
Benefits
|
||||||
|
2008
|
$ | 11,553 | $ | 1,454 | |||||
|
2009
|
11,969 | 1,605 | |||||||
|
2010
|
12,410 | 1,830 | |||||||
|
2011
|
12,962 | 1,867 | |||||||
|
2012
|
13,334 | 1,935 | |||||||
|
2013-2017
|
71,339 | 12,013 | |||||||
Net
periodic benefit costs for the Company's defined benefit retirement plans for
2007, 2006 and 2005 included the following components:
|
U.S.
Pension Benefits
|
Non-U.S.
Pension Benefits
|
|||||||||||||||||||||||
|
(In
thousands)
|
2007
|
2006
|
2005
|
2007
|
2006
|
2005
|
||||||||||||||||||
|
Service
cost
|
$ | 2,928 | $ | 3,255 | $ | 3,122 | $ | 529 | $ | 1,101 | $ | 1,334 | ||||||||||||
|
Interest
cost
|
11,178 | 10,198 | 10,082 | 2,260 | 1,870 | 1,850 | ||||||||||||||||||
|
Expected
return on plan assets
|
(14,172 | ) | (12,210 | ) | (11,203 | ) | (1,680 | ) | (1,433 | ) | (1,382 | ) | ||||||||||||
|
Amortization
of unrecognized prior service cost
|
113 | 104 | 106 | 281 | 488 | 656 | ||||||||||||||||||
|
Curtailment
|
- | 325 | - | - | 2,911 | - | ||||||||||||||||||
|
Amortization
of unrecognized net transition obligation
|
- | - | - | 151 | 317 | 76 | ||||||||||||||||||
|
Amortization
of accumulated loss
|
3,904 | 4,434 | 4,954 | - | - | - | ||||||||||||||||||
|
Other,
net
|
- | - | - | - | 610 | - | ||||||||||||||||||
|
Net
periodic cost
|
$ | 3,951 | $ | 6,106 | $ | 7,061 | $ | 1,541 | $ | 5,864 | $ | 2,534 | ||||||||||||
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
|
|||||||||||||||||||||||
|
2007
|
2006
|
2005
|
2007
|
2006
|
2005
|
|||||||||||||||||||
|
Weighted-average
discount rate
|
6.15 | % | 5.95 | % | 5.60 | % | 5.60 | % | 4.50 | % | 4.00 | % | ||||||||||||
|
Rate
of increase in compensation levels
|
3.65 | % | 3.45 | % | 3.10 | % | 2.00 | % | 2.00 | % | 2.00 | % | ||||||||||||
The
following table provides the weighted-average assumptions used to compute the
actuarial net periodic benefit cost:
|
U.S.
Pension Benefits
|
Non-U.S.
Pension Benefits
|
|||||||||||||||||||||||
|
2007
|
2006
|
2005
|
2007
|
2006
|
2005
|
|||||||||||||||||||
|
Weighted-average
discount rate
|
5.95 | % | 5.60 | % | 5.85 | % | 4.50 | % | 4.00 | % | 4.75 | % | ||||||||||||
|
Expected
long-term rate of return on plan assets
|
8.75 | % | 8.75 | % | 8.75 | % | 5.00 | % | 5.20 | % | 5.40 | % | ||||||||||||
|
Rate
of increase in compensation levels
|
3.45 | % | 3.10 | % | 3.35 | % | 2.00 | % | 2.00 | % | 2.00 | % | ||||||||||||
The
following table shows the Company's target allocation range for the U.S. defined
benefit pension plan, along with the actual allocations, as of November
30,:
|
Target
|
2007
|
2006
|
||||||||||
|
Domestic
equities
|
65 | % | 71 | % | 70 | % | ||||||
|
International
equities
|
10 | % | 11 | % | 10 | % | ||||||
|
Fixed-income
securities
|
25 | % | 18 | % | 20 | % | ||||||
|
Total
|
100 | % | 100 | % | 100 | % | ||||||
Approximately
13% 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 $2,000,000,
$3,000,000, and $2,650,000 in 2007, 2006, and 2005, 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, within certain restrictions. Company matching
contributions are in the form of cash. In 2007, 2006, and 2005, the Company
recorded expense for matching contributions of $648,000, $1,387,000, and
$422,000 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,
2007 and 2006 for the Company's U.S. postretirement health care and life
insurance benefits. The measurement date of plan assets and obligations is
October 1 for each year presented:
|
U.S.
Postretirement Benefits
|
||||||||
|
(In
thousands)
|
2007
|
2006
|
||||||
|
Change
in Benefit Obligation
|
||||||||
|
Projected
benefit obligation-beginning of year
|
$ | 3,492 | $ | 3,315 | ||||
|
Service
cost
|
88 | 78 | ||||||
|
Interest
cost
|
202 | 179 | ||||||
|
Actuarial
gain
|
(149 | ) | (167 | ) | ||||
|
Amendments
|
- | 324 | ||||||
|
Benefit
payments
|
(129 | ) | (237 | ) | ||||
|
Projected
benefit obligation-end of year
|
$ | 3,504 | $ | 3,492 | ||||
|
Change
in Plan Assets
|
||||||||
|
Plan
assets at fair value-beginning of year
|
$ | 396 | $ | 324 | ||||
|
Actual
return on plan assets
|
1 | 106 | ||||||
|
Benefit
payments
|
(32 | ) | (34 | ) | ||||
|
Plan
assets at fair value-end of year
|
$ | 365 | $ | 396 | ||||
|
Funded
Status
|
||||||||
|
Funded
status
|
$ | (3,139 | ) | $ | (3,096 | ) | ||
|
Unrecognized
actuarial loss
|
405 | |||||||
|
Unrecognized
transition obligation
|
321 | |||||||
|
Unrecognized
prior service cost
|
246 | |||||||
|
Net
amount recognized
|
$ | (2,124 | ) | |||||
|
Balance
Sheet Amounts
|
||||||||
|
Before
Adoption of SFAS No. 158
|
||||||||
|
Accrued
benefit liability
|
$ | (2,362 | ) | $ | (2,124 | ) | ||
|
Net
amount recognized
|
$ | (2,362 | ) | $ | (2,124 | ) | ||
|
After
Adoption of SFAS No. 158
|
||||||||
|
Noncurrent
liabilities
|
$ | (3,139 | ) | |||||
|
Net
amount recognized
|
$ | (3,139 | ) | |||||
Expected
future benefit payments, which reflect expected future service, were as follows
as of November 30, 2007:
|
U.S.
Post-
|
|||||
|
Year
Ending
|
Retirement
|
||||
|
(In
thousands)
|
November
30,
|
Benefits
|
|||
|
2008
|
$ | 222 | |||
|
2009
|
225 | ||||
|
2010
|
226 | ||||
|
2011
|
216 | ||||
|
2012
|
229 | ||||
|
2013
- 2017
|
1,425 | ||||
Net
periodic benefit costs for the Company's postretirement health care and life
insurance benefits for 2007, 2006 and 2005 included the following
components:
|
U.S.
Postretirement Benefits
|
||||||||||||
|
(In
thousands)
|
2007
|
2006
|
2005
|
|||||||||
|
Service
cost
|
$ | 88 | $ | 78 | $ | 118 | ||||||
|
Interest
cost
|
202 | 179 | 204 | |||||||||
|
Expected
return on plan assets
|
(35 | ) | (27 | ) | (31 | ) | ||||||
|
Amortization
of unrecognized
|
||||||||||||
|
prior
service cost/(gain)
|
19 | (14 | ) | (14 | ) | |||||||
|
Amortization
of unrecognized
|
||||||||||||
|
net
transition obligation
|
46 | 46 | 71 | |||||||||
|
Amortization
of accumulated loss
|
15 | 41 | 59 | |||||||||
|
Net
periodic cost
|
$ | 335 | $ | 303 | $ | 407 | ||||||
The
following table provides the weighted-average assumptions used to compute the
actuarial present value of projected benefit obligations:
|
U.S.
Postretirement Benefits
|
||||||||||||
|
2007
|
2006
|
2005
|
||||||||||
|
Weighted-average
discount rate
|
6.15 | % | 5.95 | % | 5.60 | % | ||||||
|
Rate
of increase in compensation levels
|
3.65 | % | 3.45 | % | 3.10 | % | ||||||
The
following table provides the weighted-average assumptions used to compute the
actuarial net periodic benefit cost:
|
U.S.
Postretirement Benefits
|
||||||||||||
|
2007
|
2006
|
2005
|
||||||||||
|
Weighted-average
discount rate
|
5.95 | % | 5.60 | % | 5.85 | % | ||||||
|
Rate
of increase in compensation levels
|
3.45 | % | 3.10 | % | 3.35 | % | ||||||
In 2003,
the Medicare Prescription Drug Improvement and Modernization Act of 2003 (the
"Act") was signed into law. The Act introduces a Medicare prescription drug
benefit beginning in 2006 as well as a federal subsidy to sponsors of retirement
health care plans that provide a benefit at least actuarially equivalent to the
Medicare benefit. The effect of the Act did not have a material impact on the
Company's consolidated financial statements.
The
assumed health care cost trend increased from 9% to 10% in 2007, and it is
assumed that the rate will decline gradually to 5% by 2012 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
2007, as follows:
| 1 | % | 1 | % | |||||
|
(In
thousands)
|
Increase
|
Decrease
|
||||||
|
Effect
on total of service and interest cost components of net periodic
expense
|
$ | 21 | $ | (19 | ) | |||
|
Effect
on postretirement benefit obligation
|
182 | (154 | ) | |||||
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 2007 or 2006,
and $66,800 in 2005.
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, 2007, no
shares of preferred stock or series A junior participating cumulative preferred
stock were outstanding.
As of
November 30, 2007, 9,138,563 shares of Common Stock were issued and outstanding,
including 82,770 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:
41,535 shares will become unrestricted in 2008, 27,368 shares in 2009, 12,367
shares in 2010, and 1,500 shares in 2011.
On
November 12, 2007, the Company entered into a Rights Agreement with
Computershare Trust Company, N.A. as Rights agent. That agreement
provides, among other things, that upon certain triggering events, including the
acquisition by a party of 20% or more or the Company's Common Stock, or the
announcement of an intention to make an acquisition offer which would result in
such party acquiring 20% or more of the Company's Common Stock, the shareholders
of the Company, other than such party, would have rights to purchase Common
Stock of the Company at a significant discount, unless such rights were to be
redeemed by the Company or unless such acquisition offer were to meet certain
minimum requirements as more completely described in such Rights
Agreement.
NOTE
18 - SEGMENT INFORMATION
SFAS No.
131, "Disclosure about Segments of an Enterprise and Related Information"
requires disclosure of certain information about operating segments, geographic
areas in which the Company operates, major customers, and products and
services. In accordance with SFAS No. 131, the Company has determined
it has four operating and three reportable segments: Fiberglass-Composite Pipe,
Water Transmission and Infrastructure Products. The
Fiberglass-Composite Pipe Group manufactures and markets filament-wound and
molded composite fiberglass pipe, tubing, fittings and well screens. The Water
Transmission Group manufactures and supplies concrete and steel pressure pipe,
concrete non-pressure pipe, protective linings for pipe, and fabricated products
including wind towers. The Infrastructure Products Group consists of two
operating segments, the Pole Products and Hawaii Divisions, and manufactures and
sells ready-mix concrete, sand and aggregates, concrete pipe and culverts, and
concrete and steel lighting and traffic poles. In the prior periods,
the Company included a fourth reportable segment, Performance Coatings &
Finishes, which was sold August 1, 2006. The results from this
segment have been reported as discontinued operations for all reporting
periods. Each of these segments has a dedicated management team and
is managed separately, primarily because of differences in products.
TAMCO, the Company's equity method investment, is not included in any of these
segments. The Company’s Chief Operating Decision Maker is the Chief
Executive Officer who primarily reviews sales and income before interest, income
taxes and equity in earnings of joint venture for each operating segment in
making decisions about allocating resources and assessing
performance. The Company allocates certain selling, general and
administrative expenses to operating segments utilizing assumptions believed to
be appropriate in the circumstances. Costs of shared services (e.g.,
costs of Company-wide insurance programs or benefit plans) are allocated to the
operating segments based on revenue, wages or net assets
employed. Other items not related to current operations or of an
unusual nature, such as adjustments to reflect inventory balances of certain
steel inventories under the last-in, first-out (“LIFO”) method, certain unusual
legal costs and expenses, interest expense and income taxes, are not allocated
to the reportable segments.
The
markets served by the Fiberglass-Composite Pipe Group are worldwide in scope.
The Water Transmission Group serves primarily the western U.S. The
Infrastructure Products Group's quarry and ready-mix business operates
exclusively in Hawaii, and poles are sold throughout the U.S. Sales
for export or to any individual customer did not exceed 10% of consolidated
sales in 2007, 2006 or 2005.
In
accordance with SFAS No. 131, the following table presents information related
to each operating segment included in, and in a manner consistent with, internal
management reports. Inter-segment sales were not significant. Total
assets by segment are those assets that are used exclusively by such
segment. Unallocated assets are principally cash, corporate property
and equipment, and investments. Long-lived assets consist of all
long-term assets, excluding investments, goodwill, intangible assets, and
deferred tax assets.
|
SEGMENT
INFORMATION
|
||||||||||||||||||||||||||||
|
Fiberglass-
|
Water
|
Infrastructure
|
Discontinued
|
|||||||||||||||||||||||||
|
(In
thousands)
|
Composite
Pipe
|
Transmission
|
Products
|
Other
|
Operations
|
Eliminations
|
Total
|
|||||||||||||||||||||
|
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
in joint ventures
|
||||||||||||||||||||||||||||
|
Equity method
|
- | - | - | 14,677 | - | - | 14,677 | |||||||||||||||||||||
|
Cost method
|
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 | |||||||||||||||||||||
|
2006
|
||||||||||||||||||||||||||||
|
Sales
|
$ | 176,721 | $ | 174,986 | $ | 198,177 | $ | - | $ | - | $ | (704 | ) | $ | 549,180 | |||||||||||||
|
Income
from continuing operations
|
||||||||||||||||||||||||||||
|
before
interest, income taxes and equity in earnings of joint
venture
|
37,804 | 7,577 | 30,607 | (26,891 | ) | - | - | 49,097 | ||||||||||||||||||||
|
Equity
in earnings of joint venture, net of taxes
|
- | - | - | 13,550 | - | - | 13,550 | |||||||||||||||||||||
|
Income
from joint ventures - cost method
|
- | - | - | - | - | - | - | |||||||||||||||||||||
|
Investments
in joint ventures
|
||||||||||||||||||||||||||||
|
Equity method
|
- | - | - | 14,501 | - | - | 14, 501 | |||||||||||||||||||||
|
Cost method
|
3,784 | - | - | - | - | - | 3,784 | |||||||||||||||||||||
|
Long-lived
assets
|
31,957 | 51,041 | 48,796 | 47,561 | - | - | 179,355 | |||||||||||||||||||||
|
Total
assets
|
206,326 | 167,463 | 97,249 | 252,710 | - | (107,397 | ) | 616,351 | ||||||||||||||||||||
|
Capital
expenditures
|
4,558 | 16,502 | 10,659 | (236 | ) | 4,036 | - | 35,519 | ||||||||||||||||||||
|
Depreciation
and amortization
|
4,685 | 4,000 | 4,509 | 609 | 3,637 | - | 17,440 | |||||||||||||||||||||
|
2005
|
||||||||||||||||||||||||||||
|
Sales
|
$ | 134,071 | $ | 192,731 | $ | 168,990 | $ | - | $ | - | $ | (1,025 | ) | $ | 494,767 | |||||||||||||
|
Income
from continuing operations
|
||||||||||||||||||||||||||||
|
before
interest, income taxes and equity in earnings of joint
venture
|
24,482 | 25,845 | 22,127 | (35,390 | ) | - | - | 37,064 | ||||||||||||||||||||
|
Equity
in earnings of joint venture, net of taxes
|
- | - | - | 9,005 | - | - | 9,005 | |||||||||||||||||||||
|
Income
from joint ventures - cost method
|
1,300 | - | - | - | - | - | 1,300 | |||||||||||||||||||||
|
Investments
in joint ventures
|
||||||||||||||||||||||||||||
|
Equity method
|
- | - | - | 13,777 | - | - | 13,777 | |||||||||||||||||||||
|
Cost method
|
3,784 | - | - | - | 2,138 | - | 5,922 | |||||||||||||||||||||
|
Long-lived
assets
|
30,199 | 38,520 | 43,553 | 39,048 | 40,685 | - | 192,005 | |||||||||||||||||||||
|
Total
assets
|
176,713 | 132,803 | 83,053 | 162,979 | 170,784 | (148,296 | ) | 578,036 | ||||||||||||||||||||
|
Capital
expenditures
|
8,919 | 5,567 | 4,607 | 1,170 | 5,108 | - | 25,371 | |||||||||||||||||||||
|
Depreciation
and amortization
|
4,070 | 3,910 | 4,444 | 710 | 5,790 | - | 18,924 | |||||||||||||||||||||
|
GEOGRAPHIC
AREAS
|
||||||||||||||||||||||||||||
|
United
|
Discontinued
|
|||||||||||||||||||||||||||
|
(In
thousands)
|
States
|
Europe
|
Asia
|
Other
|
Operations
|
Eliminations
|
Total
|
|||||||||||||||||||||
|
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 | ||||||||||||||||||||
|
2006
|
||||||||||||||||||||||||||||
|
Sales
to external customers
|
$ | 432,670 | $ | 26,545 | $ | 80,726 | $ | 9,239 | $ | - | $ | - | $ | 549,180 | ||||||||||||||
|
Long-lived
assets
|
154,882 | 15,229 | 20,866 | (11,622 | ) | - | - | 179,355 | ||||||||||||||||||||
|
Total
assets
|
538,254 | 50,785 | 139,514 | (4,805 | ) | - | (107,397 | ) | 616,351 | |||||||||||||||||||
|
2005
|
||||||||||||||||||||||||||||
|
Sales
to external customers
|
$ | 406,939 | $ | 20,157 | $ | 62,155 | $ | 5,516 | $ | - | $ | - | $ | 494,767 | ||||||||||||||
|
Long-lived
assets
|
125,310 | 6,046 | 19,202 | 762 | 40,685 | - | 192,005 | |||||||||||||||||||||
|
Total
assets
|
419,103 | 20,907 | 110,602 | 4,936 | 170,784 | (148,296 | ) | 578,036 | ||||||||||||||||||||
SUPPLEMENTARY
DATA - QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized
quarterly financial data for the years ended November 30, 2007 and 2006,
follow:
|
First
|
Second
|
Third
|
Fourth
|
|||||||||||||
|
(In
thousands except per share data)
|
Quarter
|
Quarter
|
Quarter
|
Quarter
|
||||||||||||
|
2007
|
||||||||||||||||
|
Sales
|
$ | 120,355 | $ | 156,756 | $ | 165,048 | $ | 188,851 | ||||||||
|
Gross
profit
|
25,320 | 40,762 | 37,001 | 42,946 | ||||||||||||
|
Income
from continuing operations
|
8,312 | 14,813 | 20,659 | 17,356 | ||||||||||||
|
Income
from discontinued operations, net of taxes
|
156 | 990 | 463 | 4,490 | ||||||||||||
|
Net
income
|
8,468 | 15,803 | 21,122 | 21,846 | ||||||||||||
|
Diluted
net income per share:
|
||||||||||||||||
|
Income
from continuing operations
|
.92 | 1.63 | 2.27 | 1.90 | ||||||||||||
|
Income
from discontinued operations, net of taxes
|
.02 | .11 | .05 | .49 | ||||||||||||
|
Net
income
|
.94 | 1.74 | 2.32 | 2.39 | ||||||||||||
|
Stock
price per share-high
|
84.25 | 81.28 | 109.60 | 109.16 | ||||||||||||
|
Stock
price per share-low
|
71.57 | 64.35 | 76.02 | 85.10 | ||||||||||||
|
Dividends
per share
|
.20 | .20 | .25 | .25 | ||||||||||||
|
2006
|
||||||||||||||||
|
Sales
|
$ | 125,972 | $ | 132,657 | $ | 139,941 | $ | 150,610 | ||||||||
|
Gross
profit
|
28,582 | 34,771 | 36,082 | 32,954 | ||||||||||||
|
Income
from continuing operations
|
3,962 | 16,998 | 16,982 | 12,118 | ||||||||||||
|
Income
from discontinued operations, net of taxes
|
(351 | ) | 1,704 | 997 | (210 | ) | ||||||||||
|
Net
income
|
3,611 | 18,702 | 17,979 | 11,908 | ||||||||||||
|
Diluted
net income/(loss) per share:
|
||||||||||||||||
|
Income
from continuing operations
|
.45 | 1.92 | 1.91 | 1.35 | ||||||||||||
|
Income
from discontinued operations, net of taxes
|
(.04 | ) | .19 | .11 | (.02 | ) | ||||||||||
|
Net
income
|
.41 | 2.11 | 2.02 | 1.33 | ||||||||||||
|
Stock
price per share-high
|
61.81 | 76.04 | 70.70 | 80.01 | ||||||||||||
|
Stock
price per share-low
|
44.66 | 54.54 | 50.63 | 64.03 | ||||||||||||
|
Dividends
per share
|
.20 | .20 | .20 | .20 | ||||||||||||
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, 2007 and 2006, and the results of their operations and their cash flows for
each of the three years in the period ended November 30, 2007 in conformity with
accounting principles generally accepted in the United States of
America. In addition, in our opinion, the financial statement
schedule listed in the index appearing under Item 15(a)(1) presents fairly, in
all material respects, the information set forth therein when read in
conjunction with the 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, 2007, 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 16 to the consolidated financial statements, the
Company adopted Statement of Financial Accounting Standards No. 158, Employers' Accounting for Defined
Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements
No. 87, 88, 106, and 132(R), effective November 30, 2007. As discussed in
Note 1 and 13 to the consolidated financial statements, the Company adopted
Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payments,
effective December 1, 2005.
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
February 8,
2008
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A - CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and
Procedures. Management has established disclosure controls and
procedures to ensure that material information relating to the Company,
including its consolidated subsidiaries, is made known to the officers who
certify the Company's financial reports and to other members of senior
management and the Board of Directors.
The
Company carried out an evaluation, under the supervision and with the
participation of the Company's management, including the Company's Chief
Executive Officer and Chief Financial Officer, of the effectiveness of the
design and operation of the Company's disclosure controls and procedures as of
November 30, 2007 pursuant to Exchange Act Rule 13a-14. Based upon that
evaluation, the Chief Executive Officer and Chief Financial Officer concluded
that the Company's disclosure controls and procedures (as defined in
Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934)
are effective in timely alerting them to material information relating to the
Company (including its consolidated subsidiaries) required to be included in the
Company's periodic Commission filings. No changes were made in the
Company's internal control over financial reporting during the fiscal quarter
ended November 30, 2007 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, 2007. The effectiveness of the
Company’s internal control over financial reporting as of November 30, 2007 has
been 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 Part I, Item 4 of this report.
The
Company has adopted a Code of Business Conduct and Ethics (the "Code") that
applies to directors, officers and employees of the Company, including its
principal executive officer, principal financial officer, principal accounting
officer or controller, or persons performing similar functions. Copies of
the Code, as well as each of the Company's Corporate Governance Guidelines and
charters of the Audit, the Compensation and the Nominating & Corporate
Governance committees of its Board of Directors are available on the Company's
website, located at www.ameron.com, and
are available in print to stockholders upon written request to the Secretary of
the Company at the Company's headquarters address.
ITEM 11 - EXECUTIVE COMPENSATION
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND
DIRECTOR INDEPENDENCE
ITEM 14 - PRINCIPAL ACCOUNTING FEES AND SERVICES
* The
information required by Items 11, 12, 13 and 14 is contained in the Company's
Proxy Statement. Such information is incorporated herein by
reference.
PART IV
ITEM 15 - EXHIBITS, FINANCIAL STATEMENT
SCHEDULES
(a) (1)
FINANCIAL STATEMENT SCHEDULES:
The
following financial statements are included in this Annual Report on Form
10-K:
|
Consolidated
Statements of Income for the years ended November 30, 2007, 2006 and
2005.
|
|
Consolidated
Balance Sheets as of November 30, 2007 and 2006.
|
|
Consolidated
Statements of Stockholders' Equity for the years ended November 30, 2007,
2006 and 2005.
|
|
Consolidated
Statements of Comprehensive Income for the years ended November 30, 2007,
2006 and 2005.
|
|
Consolidated
Statements of Cash Flows for the years ended November 30, 2007, 2006 and
2005.
|
|
Notes
to Consolidated Financial Statements
|
|
Report
of Independent Registered Public Accounting
Firm
|
The
following additional financial data should be read in conjunction with the
Consolidated Financial Statements. Schedules not included with this additional
financial data have been omitted because they are either not applicable, not
required, not significant, or the required information is provided in the
Consolidated Financial Statements under Financial Statements and Supplementary
Data, under Part II, Item 8.
|
SCHEDULE
|
SCHEDULES OF AMERON
|
|
II
|
Valuation
and Qualifying Accounts and
Reserves
|
(2) EXHIBITS:
|
EXHIBIT
|
EXHIBITS OF AMERON
|
|
3(i)
|
Certificate
of Incorporation (1)
|
|
3(ii)
|
Bylaws
(2)
|
|
4
|
Instruments
Defining the Rights of Security Holders, Including
Indentures
|
|
10
|
Material
Contracts
|
|
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, 2007, and for each of the three
years in the period ended November 30, 2007 and Report of Independent
Registered Public Accounting Firm
|
(b)
REPORTS ON FORM 8-K
Six
reports on Form 8-K were filed by the Company during the last quarter of the
fiscal year ended November 30, 2007 as follows:
September 20,
2007 reporting the amendment of the Company’s Bylaws and the results of
operations for the third quarter ended August 26, 2007, as reported in a press
release dated September 20, 2007.
September
21, 2007 reporting the declaration of a quarterly dividend of $.25 per share of
Common Stock for the Company’s third quarter ended August 26, 2007, as reported
in a press release dated September 21, 2007.
September
21, 2007 reporting the extension of employment of the Chief Executive Officer,
amendment to the employment agreement and grant of performance stock units, as
reported in a press release dated September 19, 2007.
October
9, 2007 reporting the acquisition of a new subsidiary in Brazil, as reported in
a press release dated October 5, 2007.
November
13, 2007 reporting the establishment of a Shareholder Rights Agreement, as
reported in a press release dated November 12, 2007.
November
20, 2007 reporting the resignation of an executive officer effective November
15, 2007.
(1) The
Certificate of Incorporation is incorporated by reference to the Quarterly
Report on Form 10-Q of the Company filed June 24, 2005.
(2) The
Bylaws are incorporated by reference to the Report on Form 8-K of the Company
filed September 20, 2007.
AMERON
INTERNATIONAL CORPORATION AND CONSOLIDATED SUBSIDIARIES
SCHEDULE II
- VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
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
|
|||||
|
DEDUCTED FROM ASSET
ACCOUNTS
|
||||||||||
|
Allowance
for doubtful accounts
|
$4,912
|
$3,248
|
$(2,212)
|
$287
|
*
|
$6,235
|
*
Translation adjustment.
FOR
THE YEAR ENDED NOVEMBER 30, 2006
(In
thousands)
|
Additions
|
Deductions,
|
|||||||||
|
Balance
at
|
Charged
to
|
Payments
|
Balance
|
|||||||
|
Beginning
|
Costs
and
|
And
|
Reclassifications
|
at
End of
|
||||||
|
Classification
|
of
Year
|
Expenses
|
Write-offs
|
and
Other
|
Year
|
|||||
|
DEDUCTED FROM ASSET
ACCOUNTS
|
||||||||||
|
Allowance
for doubtful accounts
|
$7,693
|
$1,351
|
$(1,339)
|
$(2,793)
|
**
|
$4,912
|
** Amount
primarily consists of allowance for doubtful accounts eliminated due to the sale
of the discontinued operations.
FOR
THE YEAR ENDED NOVEMBER 30, 2005
(In
thousands)
|
Additions
|
Deductions,
|
|||||||||
|
Balance
at
|
Charged
to
|
Payments
|
Balance
|
|||||||
|
Beginning
|
Costs
and
|
And
|
Reclassifications
|
at
End of
|
||||||
|
Classification
|
of
Year
|
Expenses
|
Write-offs
|
and
Other
|
Year
|
|||||
|
DEDUCTED FROM ASSET
ACCOUNTS
|
||||||||||
|
Allowance
for doubtful accounts
|
$7,984
|
$2,502
|
$(2,362)
|
$(431)
|
*
|
$7,693
|
*
Translation adjustment.
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
AMERON
INTERNATIONAL CORPORATION
|
By:
|
/s/
Javier Solis
|
|
|
Javier
Solis, Executive Vice President &
Secretary
|
||
Date:
February 8, 2008
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
|
Date:
2-8-08
|
/s/
James S. Marlen
|
Director,
Chairman of the Board,
|
|
|
James
S. Marlen
|
and
Chief Executive Officer
|
||
|
(Principal
Executive Officer)
|
|||
|
Date:
2-8-08
|
/s/
James R. McLaughlin
|
Senior
Vice President, Chief Financial Officer & Treasurer
|
|
|
James
R. McLaughlin
|
(Principal
Financial & Accounting Officer)
|
||
|
Date:
2-8-08
|
/s/
Daniel J. Emmett
|
Vice
President, Controller
|
|
|
Daniel
J. Emmett
|
|||
|
Date:
2-8-08
|
/s/David
Davenport
|
Director
|
|
|
David
Davenport
|
|||
|
Date:
2-8-08
|
/s/J.
Michael Hagan
|
Director
|
|
|
J.
Michael Hagan
|
|||
|
Date:
2-8-08
|
/s/Terry
L.Haines
|
Director
|
|
|
Terry
L. Haines
|
|||
|
Date:
2-8-08
|
/s/William
D. Horsfall
|
Director
|
|
|
William
D. Horsfall
|
|||
|
Date:
2-8-08
|
/s/John
E. Peppercorn
|
Director
|
|
|
John
E. Peppercorn
|
|||
|
Date:
2-8-08
|
/s/Dennis
C. Poulsen
|
Director
|
|
|
Dennis
C. Poulsen
|