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, 2008
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. ¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer (as defined in Rule 12b-2 of the
Exchange Act).
|
Large
accelerated filer x
|
Accelerated
filer ¨
|
Non-accelerated
filer ¨
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act). Yes ¨ No
x
The
aggregate market value of voting and non-voting common equity held by
non-affiliates was approximately $1,038 million on May 30, 2008, based upon
the last reported sales price of such stock on the New York Stock Exchange on
that date.
On
January 23, 2009 there were 9,188,692 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 2009 ANNUAL MEETING OF STOCKHOLDERS
(PART III)
1
AMERON
INTERNATIONAL CORPORATION AND SUBSIDIARIES
2008
ANNUAL REPORT ON FORM 10-K
Table of Contents
2
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, 2008. All
references to the "Proxy Statement" pertain to the Company's Proxy Statement to
be filed on or about February 23, 2009 in connection with the 2009 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, prestressed concrete cylinder pipe, steel
pipe and reinforced concrete pipe for water transmission, storm and industrial
waste water and sewage collection. Products are marketed directly using the
Company's own personnel and by competitive bidding. Customers include local,
state and federal agencies, developers and general contractors. Normally, no one
customer or group of customers for the Company’s water pipe products will
account for sales equal to or greater than 10 percent of the Company's
consolidated revenue. However, occasionally, when more than one unusually large
project is in progress, combined sales to U.S., state or local government
agencies and/or general contractors for those agencies can reach those
proportions. Besides competing with several other welded-steel pipe and concrete
pipe manufacturers located in the market area, alternative products such as
ductile iron, plastic, and clay pipe compete with the Company's concrete and
steel pipe products, but ordinarily these other materials do not offer the full
diameter range produced by the Company. Principal methods of competition are
price, delivery schedule and service. The Company's technology is used in
the Middle East through affiliated companies. This segment also includes the
manufacturing and marketing, on a worldwide basis directly and through
manufacturers' representatives, of polyvinyl chloride and polyethylene sheet
lining for the protection of concrete pipe and cast-in-place concrete structures
from the corrosive effects of sewer gases, acids and industrial chemicals.
Competition is based upon quality, price and service. Manufacture of this
product is carried out in the Company's plant in
California. Additionally, the Company manufactures large-diameter
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. In 2008, Siemens Power Generation,
Inc. purchased $46.2 million of wind towers from the Company, which was
approximately 70% of the Company’s wind tower sales. Siemens Power
Generation, Inc. is expected to continue to be the Company’s principal customer
for wind towers in 2009.
c) The
Infrastructure Products Group supplies ready-mix concrete, crushed and sized
basaltic aggregates, dune sand, concrete pipe and box culverts, primarily to the
construction industry in Hawaii, and manufactures and markets concrete and steel
poles for highway, street and outdoor area lighting and for traffic signals
nationwide. Ample raw materials are available locally in Hawaii. As to rock
products, the Company has exclusive rights to quarries containing many years'
reserves. There is only one major source of supply for cement in Hawaii. Within
the market area there are competitors for each of the segment's products. No
single competitor offers the full range of products sold by the Company in
Hawaii. An appreciable portion of the segment's business in Hawaii is obtained
through competitive bidding. Sales of poles are nationwide, but with a stronger
concentration in the western and southeastern U.S. Marketing of poles is
handled by the Company's own sales force and by outside sales agents.
Competition for poles is mainly based on price and quality, but with some
consideration for service and delivery. Poles are manufactured in two plants in
California, as well as in plants in Washington, Oklahoma and
Alabama.
d) The
Company has three significant partially-owned affiliated companies ("joint
ventures"): Ameron Saudi Arabia, Ltd. ("ASAL"), Bondstrand, Ltd. ("BL")
and TAMCO. ASAL, owned 30% by the Company, manufactures and sells concrete
pressure pipe to customers in Saudi Arabia. BL, owned 40% by the Company,
manufactures and sells glass reinforced epoxy pipe and fittings in Saudi
Arabia. TAMCO, 50%-owned by the Company, operates a steel mini-mill in
California that produces reinforcing bar sold into construction markets in the
western U.S. ASAL is included in the Water Transmission Group, and BL is
included in the Fiberglass-Composite Pipe Group. TAMCO is not included in
the three operating groups.
e) Except
as individually outlined in the above descriptions of industry segments, the
following comments or situations currently apply to all segments and applied
during the three years ended November 30, 2008:
(i) Raw
material supplies are periodically constrained due to industry
capacities. However, because of the number of manufacturing locations
and the variety of raw materials essential to the business, no critical
situations exist with respect to supply of materials. The Company has multiple
sources for raw materials. The effects of increases in costs of energy are being
mitigated to the extent practical through conservation and through addition or
substitution of equipment to manage the use and reduce consumption of
energy.
(ii) The
Company owns certain patents and trademarks, both U.S. and foreign, related to
its products. The Company licenses its patents, trademarks, know-how and
technical assistance to several of its subsidiary and affiliated companies and
to various third-party licensees. It licenses these proprietary items to some
extent in the U.S., and to a greater degree abroad. These patents, trademarks,
and licenses do not constitute a material portion of the Company's total
business. No franchises or concessions exist.
(iii)
Many of the Company's products are used in connection with capital goods, water
and sewage transmission and construction of capital facilities. Favorable or
adverse effects on general sales volume and earnings can result from weather
conditions. Normally, sales volume and earnings will be lowest in the first
fiscal quarter. Seasonal effects typically accelerate or slow the business
volume and normally do not bring about severe changes in full-year
activity.
(iv) With
respect to working capital items, the Company does not encounter any
requirements which are not common to other companies engaged in similar
industries. No unusual amounts of inventory are required to meet seasonal
delivery requirements. In 2008, all of the Company's industry
segments turned inventory between four and six times
annually. Average days' sales in accounts receivable ranged between
36 and 158 for all segments. Excluding the $24.7 million of unbilled
receivables from the Water Transmission Group, the average days’ sales ranged
between 36 and 131 for all segments. Due to the
percentage-of-completion method of accounting used by the Water Transmission
Group, which is outlined in Item 7, herein, receivables of the Water
Transmission Group may be outstanding longer than would be typical.
(v) The
backlog of orders at November 30, 2008 and 2007 by industry segment is
shown below. Approximately 97% of the November 30, 2008 backlog is
expected to be converted to sales during 2009. The Water Transmission
Group’s backlog included $90.7 million of orders for large-diameter wind towers
at November 30, 2008, compared to $33.7 million at the end of
2007. The increase reflects the timing of new orders and improved
productivity at the Company’s new wind tower facility. The backlog of
concrete and steel pipe manufactured by the Water Transmission Group decreased
$37.8 million during 2008 due to the sluggish pipe market in the western
U.S. The Fiberglass-Composite Pipe Group’s backlog increased $13.9
million with growing demand for marine, offshore platform and oilfield
piping. The backlog decreased at Infrastructure Products Group due to
a decline in construction markets.
|
SEGMENT
|
2008
|
2007
|
||||||
|
(in
thousands)
|
||||||||
|
Water
Transmission Group
|
$
|
153,037
|
$
|
133,862
|
||||
|
Fiberglass-Composite
Pipe Group
|
85,290
|
71,391
|
||||||
|
Infrastructure
Products Group
|
26,904
|
28,512
|
||||||
|
Total
|
$
|
265,231
|
$
|
233,765
|
||||
(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 in recent years. 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 2008, excluding the effect of unbilled receivables
related to long-term construction contracts, trade receivables turned
approximately four 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 $6.7
million in 2008, $5.7 million in 2007, and $5.8 million in 2006, excluding
expenses incurred by the Coatings Business in 2006. Such costs, which
are included in selling, general and administrative expenses, relate primarily
to the development, design and testing of products, and are expensed as
incurred.
b) The
Company's business is not dependent on any single customer or few customers, the
loss of any one or more of whom would have a material adverse effect on its
business, except as described above.
c) For
many years the Company consistently installed or improved devices to control or
eliminate the discharge of pollutants into the environment. Accordingly,
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
2,800 persons. Of those, approximately 1,000 were covered by labor union
contracts. Five separate bargaining agreements are subject to
renegotiation in 2009.
(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
|
||||
|
2008
|
$ | 24,844 | ||
|
2007
|
34,044 | |||
|
2006
|
27,811 | |||
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, herein.
(e)
AVAILABLE INFORMATION
(1) The
Company's Internet address is www.ameron.com
(2) The
Company makes available free of charge through its Internet website, its annual
report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K
and amendments to those reports as soon as reasonably practicable after the
Company electronically files such material with, or furnishes it to, the
Securities and Exchange Commission (the "Commission").
FORWARD-LOOKING
AND CAUTIONARY STATEMENTS
All
statements and assumptions contained in this Annual Report on Form 10-K and in
the documents attached or incorporated by reference that do not directly and
exclusively relate to historical facts constitute “forward-looking statements”
within the meaning of the Safe Harbor provisions of the Private Securities
Litigation Reform Act of 1995. These statements represent current expectations
and beliefs of the Company, and no assurance can be given that the results
described in such statements will be achieved.
Forward-looking
information contained in these statements include, among other things,
statements with respect to the Company’s financial condition, results of
operations, cash flows, business strategies, operating efficiencies or
synergies, competitive positions, growth opportunities, plans and objectives of
management, and other matters. Such statements are subject to numerous
assumptions, risks, uncertainties and other factors, many of which are outside
of the Company’s control, which could cause actual results to differ materially
from the results described in such statements. These factors include without
limitation those listed below under Item 1A. Risk Factors.
Forward-looking
statements in this Annual Report on Form 10-K speak only as of the date of this
Annual Report, and forward-looking statements in documents attached or
incorporated by reference speak only as to the date of those
documents. The Company does not undertake any obligation to update or
release any revisions to any forward-looking statement or to report any events
or circumstances after the date of this Annual Report or to reflect the
occurrence of unanticipated events, except as required by
law.
ITEM 1A - RISK FACTORS
The
following information should be read in conjunction with Management's Discussion
and Analysis (“MD&A”) and the Consolidated Financial Statements and related
Notes.
The
Company's businesses routinely encounter and address risks, some of which could
cause the Company's future results to be materially different than presently
anticipated. Discussion about the important operational risks that
the Company's businesses encounter can also be found in the MD&A section and
in the business descriptions in Item 1, herein.
a) The primary markets for the Company's
products are cyclical and dependent on factors that may not necessarily
correspond to general economic cycles. The Company's Water
Transmission Group sells piping products for public works projects, which are
typically dependent on taxes and fees for funding. The
Fiberglass-Composite Pipe Group's performance is closely linked to the level of
oil 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 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. Successful
claims against the Company could materially and adversely affect its reputation,
financial condition and results of operations.
e) TAMCO's profitability could be
significantly reduced due to market conditions in the steel industry, by a sharp
increase in costs and/or a significant increase in 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, or
continued reduction in steel rebar demand or market selling prices, could result
in a dramatic decline in profitability. TAMCO's ability to raise
prices could be limited due to competitive pressures, including imports of
foreign-sourced rebar.
f) A significant part of the Company's
assets and profits are located or generated outside the U.S., with an associated
foreign exchange and country risk. The Company and 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 a limited number of
customers and future demand which could be impacted by changes in government
policy, energy prices or tax credits. The Company is
completing a major expansion program to enhance its capabilities to produce wind
towers used for wind-generated electricity. In 2009, one customer is
expected to purchase most of the wind towers produced by the
Company. The current demand for wind-generated power is driven by
high energy prices and tax credits. The demand for wind towers could
subside if the tax credits are not renewed in 2010 and/or if oil prices continue
to fall so that wind energy is less competitive. Additionally, the
Company’s entry into this new market may not meet forecasted expectations due to
entry costs and competitive pressures.
h) The Company's quarterly results are
subject to significant fluctuation. The Company's sales and
net income can fluctuate significantly from quarter to quarter due to production
and delivery schedules of major orders and the seasonal variation in demand for
certain of the Company's products, particularly in the Water Transmission
Group. Operating results in any quarterly period are not necessarily
indicative of results for any future quarterly period, and comparisons between
periods may not be meaningful. The
Company
sells products which are installed outdoors; and, therefore, demand for the
Company's products can be affected by weather conditions.
i) Limits on the Company's ability to
significantly influence or control partially-owned joint ventures could restrict
the future 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 general economic conditions and
the availability of third-party financing could affect demand for the Company’s
products. The Company’s products are sold into the capital
goods industry. The markets served by the Company and its joint
ventures could be severely impacted by a general economic
slowdown. The availability of financing for customers or for projects
could impact the overall level of demand for the Company’s products and the
timing of new orders. Additionally, existing orders in backlog are
subject to cancellation or delays if customers are unable to obtain anticipated
financing or if economic conditions worsen.
k) The Company’s relatively low trading
volume could limit a shareholder's ability to trade the Company's
shares. The
Company's shares are traded on the New York Stock Exchange; however, the average
trading volume can be considered to be relatively low. As a result,
shareholders could have difficulty in selling or buying a large number of the
Company's shares in the manner or at a price that might otherwise be possible if
the shares were more actively traded.
ITEM 1B - UNRESOLVED STAFF COMMENTS
None.
ITEM 2 - PROPERTIES
(a) The
location and general character of principal plants and other materially
important physical properties used in the Company's operations are tabulated
below. Property is owned in fee simple except where otherwise indicated by
footnote. In addition to the property shown, the Company owns vacant land
adjacent to or in the proximity of some of its operating locations and holds
this property available for use when it may be needed to accommodate expanded or
new operations. The Company also has a property formerly used in the Coatings
Business that is being held for sale. Listed properties do not include any
temporary project sites which are generally leased for the duration of the
respective projects or leased or owned warehouses that could be easily replaced.
With the exception of the Kailua, Oahu property, shown under the Infrastructure
Products Group industry segment, there are no material leases with respect to
which expiration or inability to renew would have a material adverse effect on
the Company's operations. The lease term on the Kailua property extends to 2052.
Kailua is the principal source of quarried rock and aggregates for the Company's
operations on Oahu, Hawaii, and rock reserves are 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
|
||
|
Betim,
Brazil
|
Office,
Plant
|
|
|
Ameron
Brazil
|
||
|
Betim,
Brazil
|
Office,
Plant
|
|
|
WATER
TRANSMISSION GROUP
|
||
|
Rancho
Cucamonga, CA
|
*Office
|
|
|
Rancho
Cucamonga, CA
|
Office,
Plant
|
|
|
Fontana,
CA
|
Office,
Plant
|
|
|
Lakeside,
CA
|
Office,
Plant
|
|
|
Phoenix,
AZ
|
Office,
Plant
|
|
|
Tracy,
CA
|
Office,
Plant
|
|
|
Protective
Linings Division
|
||
|
Brea,
CA
|
Office,
Plant
|
|
|
Tubos
California
|
||
|
Pasadena,
CA
|
*Office
|
|
|
Tubos
Y Activos
|
||
|
Mexicali,
Mexico
|
*Office,
Plant
|
|
|
American
Pipe & Construction International
|
||
|
Bogota,
Colombia
|
Office,
Plant
|
|
|
Cali,
Colombia
|
Office,
Plant
|
|
|
INFRASTRUCTURE
PRODUCTS GROUP
|
||
|
Hawaii
Division
|
||
|
Honolulu,
Oahu, HI
|
*Office,
Plant
|
|
|
Kailua,
Oahu, HI
|
*Plant,
Quarry
|
|
|
Barbers
Point, Oahu, HI
|
Office,
Plant
|
|
|
Puunene,
Maui, HI
|
*Office,
Plant, Quarry
|
|
|
Pole
Products Division
|
||
|
Ventura,
CA
|
*Office
|
|
|
Fillmore,
CA
|
Office,
Plant
|
|
|
Oakland,
CA
|
*Plant
|
|
|
Everett,
WA
|
*Office,
Plant
|
|
|
Tulsa,
OK
|
*Office,
Plant
|
|
|
Anniston,
AL
|
*Office,
Plant
|
|
|
CORPORATE
|
||
|
Corporate
Headquarters
|
||
|
Pasadena,
CA
|
*Office
|
|
|
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
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 the "Ameron
Subsidiaries"), in the Supreme Court of Nova Scotia, Canada. Sable
seeks damages allegedly sustained by it resulting from performance problems with
several coating systems used on the Sable Offshore Energy Project, including
coatings products furnished by the Company and the Ameron Subsidiaries.
Sable's originating notice and statement of claim alleged a claim for damages in
an unspecified amount; however, Sable has since alleged that its claim for
damages against all defendants is approximately 440 million Canadian dollars, a
figure which the Company and the Ameron Subsidiaries contest. This
matter is in discovery, and no trial date has yet been
established. The Company is vigorously defending itself in this
action. Based upon the information available to it at this time, the
Company is not able to estimate the possible range of loss with respect to this
case.
In May
2003, Dominion Exploration and Production, Inc. and Pioneer Natural Resources
USA, Inc. (collectively "Dominion") brought an action against the Company in
Civil District Court for the Parish of Orleans, Louisiana as owners of an
offshore production facility known as a SPAR. Dominion seeks damages
allegedly sustained by it resulting from delays in delivery of the SPAR caused
by the removal and replacement of certain coatings containing lead and/or lead
chromate for which the manufacturer of the SPAR alleged the Company was
responsible. Dominion contends that the Company made certain
misrepresentations and warranties to Dominion concerning the lead-free nature of
those coatings. Dominion's petition as filed alleged a claim for damages
in an unspecified amount; however, Dominion's economic expert has since
estimated Dominion's damages at approximately $128 million, a figure which the
Company contests. This matter is in discovery, and no trial date has yet
been established. The Company is vigorously defending itself in this
action. Based upon the information available to it at this time, the
Company is not able to estimate the possible range of loss with respect to this
case.
In July
2004, BP America Production Company (“BP America”) brought an action against the
Company in the 24th
Judicial District Court, Parish of Jefferson, Louisiana in connection with
fiberglass pipe sold by the Company for installation
in four offshore platforms constructed for BP America. The plaintiff
seeks damages allegedly sustained by it resulting from claimed defects in such
pipe. BP America’s petition as filed alleged a claim against the
Company for rescission, products liability, negligence, breach of contract and
warranty and for damages in an amount of not less than $20 million, a figure
which the Company contests. This matter is in discovery, and no trial
date has yet been established. The Company is vigorously defending
itself in this action. Based upon the information available to it at
this time, the Company is not able to estimate the possible range of loss with
respect to this case.
In June
2006, the Cawelo, California Water District (“Cawelo”) brought an action against
the Company in Kern County Superior Court, California in connection
with concrete pipe sold by the Company in 1995 for a wastewater
recovery pipeline in such county. Cawelo seeks damages allegedly
sustained by it resulting from the failure of such pipe in
2004. Cawelo’s petition as filed alleged a claim against the Company
for products liability, negligence, breach of express warranty and breach of
written contract and for damages in an amount of not less than $8 million, a
figure which the Company contests. This matter is in discovery, and
no trial date has yet been established. The Company is vigorously
defending itself in this action. Based upon the information available
to it at this time, the Company is not able to estimate the possible range of
loss with respect to this case.
The
Company is a defendant in a number of asbestos-related personal injury
lawsuits. These cases generally seek unspecified damages for
asbestos-related diseases based on alleged exposure to products previously
manufactured by the Company and others. As of November 30, 2008, the
Company was a defendant in 24 asbestos-related cases, compared to 36 cases (60
claimants) as of November 30, 2007. During the year ended November
30, 2008, there were 20 new asbestos-related cases, 24 cases dismissed,
eight cases settled, no judgments and aggregate net costs and expenses of
$.1 million. Based upon the information available to it at this time,
the Company is not able to estimate the possible range of loss with respect to
these cases.
The
Company is subject to federal, state and local laws and regulations concerning
the environment and is currently participating in administrative proceedings at
several sites under these laws. While the Company finds it difficult to estimate
with any certainty the total cost of remediation at the several sites, on the
basis of currently available information and reserves provided, the Company
believes that the outcome of such environmental regulatory proceedings will not
have a material effect on the Company's financial position, cash flows, or
results of operations. During the year ended November 30, 2008,
the Company incurred $1.0 million of net costs and expenses related to such
proceedings.
The U.S.
Treasury Department’s Office of Foreign Assets Control (“OFAC”) sent to the
Company a Requirement To Furnish Information regarding transactions involving
Iran. The Company intends to cooperate fully with OFAC on this
matter. Based upon the information available to it at this time, the
Company is not able to predict the 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 results of operations if disposed of
unfavorably.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
There was
no matter submitted to a vote of security holders during the fourth quarter of
2008.
Executive
Officers of the Registrant
The
following sets forth information with respect to individuals who served as
executive officers as of November 30, 2008 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
|
48
|
Vice
President, Controller
|
2006
|
||
|
Ralph
S. Friedrich
|
61
|
Vice
President-Research & Engineering
|
2003
|
||
|
Stephen
E. Johnson
|
54
|
Senior
Vice President, Secretary & General Counsel
|
2008
|
||
|
James
R. McLaughlin
|
61
|
Senior
Vice President, Chief Financial Officer & Treasurer
|
1997
|
||
|
Mark
J. Nowak
|
54
|
Vice
President; Group President, Fiberglass-Composite Pipe
Group
|
2008
|
||
|
Terrence
P. O'Shea
|
62
|
Vice
President-Human Resources
|
2003
|
||
|
Christine
Stanley
|
50
|
Vice
President-Operations Compliance
|
2008
|
||
|
Gary
Wagner
|
57
|
President
& Chief Operating Officer
|
1990
|
||
All of
the executive officers named above have held high-level managerial or executive
positions with the Company for more than the past five years, except Daniel J.
Emmett, Stephen E. Johnson and Christine Stanley. 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. Stephen E. Johnson joined the Company
and was appointed Senior Vice President Secretary & General Counsel on May
28, 2008. Prior to joining the Company, he was Deputy General Counsel
and Assistant Secretary of Computer Sciences Corporation from 1997 to 2008, and
Assistant General Counsel and Assistant Secretary from 1995 to 1996. Mark
J. Nowak was appointed Vice President; Group President, Fiberglass-Composite
Pipe Group on March 26, 2008. He served as the Group President,
Fiberglass-Composite Pipe Group since March 2004 and President,
Fiberglass-Composite Pipe Division-USA since April 2003. Christine
Stanley was appointed Vice President-Operations Compliance on September 24,
2008, after serving as Group Executive since 2006. Prior to 2006, she
served as Vice President of Technology of the worldwide Performance Coatings
& Finishes Group and held numerous senior technology and manufacturing
management positions.
PART II
ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The
Common Stock, $2.50 par value, of the Company, its only outstanding class of
common equity, is traded on the New York Stock Exchange (“NYSE”), the only
exchange on which it is presently listed. On January 7, 2009,
there were 936 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, herein.
Dividends
have been paid each quarter during the prior two years. Information as to the
amount of dividends paid during the reporting period and the high and low prices
of the Company's Common Stock during such period are set out in Supplementary
Data - Quarterly Financial Data (Unaudited) following the Notes to Consolidated
Financial Statements, under 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
(New York Stock Exchange) Market Value Index and the Peer Group Composite Index
described below for the period of the Company’s five fiscal years commencing
December 1, 2003 and ended November 30, 2008. The comparison assumes
$100 invested in stock on December 1, 2003. Total return assumes
reinvestment of dividends. The Company’s stock price performance over
the years indicated below does not necessarily track the operating performance
of the Company nor is it necessarily indicative of future stock price
performance.
The Peer
Group Composite Index is comprised of the following public
companies: Ameron, Dresser-Rand Group, Inc., Gibraltar Industries,
Inc., Lufkin Industries, Inc., Martin Marietta Materials, Inc., National Oilwell
Varco, Inc., Northwest Pipe Co., Schnitzer Steel Industries, Inc., Texas
Industries, Inc., Trinity Industries, Inc., Valmont Industries, Inc. and Vulcan
Materials Co. Grant Prideco, Inc. was included in the Peer Group
Composite Index in the Company’s 2007 Annual Report on Form 10-K; however, Grant
Prideco, Inc. was acquired by National Oilwell Varco, Inc. and is no longer a
public company.
|
Dec-03
|
Nov-04
|
Nov-05
|
Nov-06
|
Nov-07
|
Nov-08
|
|||||||
|
Ameron
|
100
|
117.76
|
142.47
|
241.51
|
343.24
|
177.60
|
||||||
|
NYSE
Market Value Index
|
100
|
114.68
|
127.65
|
148.46
|
163.39
|
100.50
|
||||||
|
Peer
Group Composite Index
|
100
|
134.25
|
179.04
|
230.78
|
297.79
|
171.04
|
ISSUER
PURCHASES OF EQUITY SECURITIES
|
(c)
|
(d)
|
|||||||
|
Number
of Shares
|
Maximum
Number
|
|||||||
|
(a)
|
(b)
|
(or
Units) Purchased
|
(or
Approximate Dollar Value)
|
|||||
|
Total
Number of
|
Average
Price
|
As
Part of Publicly
|
Of
Shares (or Units) that May
|
|||||
|
Shares
(or Units)
|
Paid
per
|
Announced
Plans or
|
Yet
Be Purchased Under
|
|||||
|
Period
|
Purchased
|
Share
(or Unit)
|
Programs
|
The
Plans or Programs**
|
||||
|
9/1/08
thru 9/28/08
|
-
|
N/A
|
-
|
39,006
|
||||
|
9/29/08
thru 10/2/08
|
-
|
N/A
|
-
|
39,006
|
||||
|
10/3/08
thru 11/30/08
|
-
|
N/A
|
-
|
39,006
|
**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)
|
2008
|
2007
|
2006
|
2005
|
2004
|
|||||||||||||||
|
PER
COMMON SHARE DATA
|
||||||||||||||||||||
|
Basic
earnings per share:
|
||||||||||||||||||||
|
Income
from continuing operations
|
$ | 6.42 | $ | 6.77 | $ | 5.73 | $ | 3.51 | $ | 1.35 | ||||||||||
|
Income
from discontinued operations, net of taxes
|
- | .68 | .25 | .37 | .28 | |||||||||||||||
|
Net
income
|
6.42 | 7.45 | 5.98 | 3.88 | 1.63 | |||||||||||||||
|
Diluted
earnings per share:
|
||||||||||||||||||||
|
Income
from continuing operations
|
6.39 | 6.73 | 5.64 | 3.44 | 1.32 | |||||||||||||||
|
Income
from discontinued operations, net of taxes
|
- | .67 | .24 | .36 | .27 | |||||||||||||||
|
Net
income
|
6.39 | 7.40 | 5.88 | 3.80 | 1.59 | |||||||||||||||
|
Weighted-average
shares (basic)
|
9,124,557 | 9,029,487 | 8,731,839 | 8,410,563 | 8,270,487 | |||||||||||||||
|
Weighted-average
shares (diluted)
|
9,169,056 | 9,090,846 | 8,871,695 | 8,579,194 | 8,448,987 | |||||||||||||||
|
Dividends
|
1.15 | .90 | .80 | .80 | .80 | |||||||||||||||
|
Stock
price - high
|
130.51 | 109.60 | 80.01 | 46.61 | 40.05 | |||||||||||||||
|
Stock
price - low
|
33.30 | 64.35 | 44.66 | 31.76 | 28.60 | |||||||||||||||
|
Price/earnings
ratio (range)
|
20-5 | 15-9 | 14-8 | 12-8 | 25-18 | |||||||||||||||
|
OPERATING
RESULTS
|
||||||||||||||||||||
|
Sales
|
$ | 667,543 | $ | 631,010 | $ | 549,180 | $ | 494,767 | $ | 406,230 | ||||||||||
|
Gross
profit
|
153,621 | 146,029 | 132,389 | 125,210 | 92,209 | |||||||||||||||
|
Interest
income/(expense), net
|
1,533 | 1,927 | (1,682 | ) | (5,520 | ) | (5,522 | ) | ||||||||||||
|
Provision
for income taxes
|
(16,955 | ) | (10,359 | ) | (10,905 | ) | (11,040 | ) | (4,789 | ) | ||||||||||
|
Equity
in earnings of joint venture, net of taxes
|
10,337 | 15,383 | 13,550 | 9,005 | 10,791 | |||||||||||||||
|
Income
from continuing operations
|
58,592 | 61,140 | 50,060 | 29,509 | 11,151 | |||||||||||||||
|
Income
from discontinued operations, net of taxes
|
- | 6,099 | 2,140 | 3,101 | 2,308 | |||||||||||||||
|
Net
income
|
58,592 | 67,239 | 52,200 | 32,610 | 13,459 | |||||||||||||||
|
Net
income/sales
|
8.8 | % | 10.7 | % | 9.5 | % | 6.6 | % | 3.3 | % | ||||||||||
|
Return
on equity
|
12.7 | % | 16.6 | % | 15.8 | % | 11.3 | % | 5.0 | % | ||||||||||
|
FINANCIAL
CONDITION AT YEAR-END (1)
|
||||||||||||||||||||
|
Working
capital
|
$ | 297,445 | $ | 314,339 | $ | 280,467 | $ | 216,126 | $ | 180,813 | ||||||||||
|
Property,
plant and equipment, net
|
206,162 | 173,731 | 134,470 | 154,665 | 153,651 | |||||||||||||||
|
Investments
in joint ventures
|
||||||||||||||||||||
|
Equity
method
|
14,428 | 14,677 | 14,501 | 13,777 | 16,042 | |||||||||||||||
|
Cost
method
|
3,784 | 3,784 | 3,784 | 5,922 | 5,922 | |||||||||||||||
|
Total
assets
|
726,322 | 705,812 | 616,351 | 578,036 | 543,937 | |||||||||||||||
|
Long-term
debt, less current portion
|
35,989 | 57,593 | 72,525 | 77,109 | 75,349 | |||||||||||||||
|
CASH
FLOW (1)
|
||||||||||||||||||||
|
Expenditures
for property, plant and equipment
|
$ | 60,697 | $ | 47,697 | $ | 35,519 | $ | 25,371 | $ | 18,312 | ||||||||||
|
Depreciation
and amortization
|
20,409 | 17,034 | 17,440 | 18,924 | 18,897 | |||||||||||||||
(1)
Amounts include both continuing and discontinued operations.
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Ameron
International Corporation ("Ameron", the "Company", the “Registrant” or the
“Corporation”) is a multinational manufacturer of highly-engineered products and
materials for the chemical, industrial, energy, transportation and
infrastructure markets. Ameron is a leading producer of water transmission
lines; fiberglass-composite pipe for transporting oil, chemicals and corrosive
fluids and specialized materials; and products used in infrastructure
projects. The Company operates businesses in North America, South America,
Europe and Asia. The Company has three reportable segments. The
Fiberglass-Composite Pipe Group manufactures and markets filament-wound and
molded composite fiberglass pipe, tubing, fittings and well screens. The
Water Transmission Group manufactures and supplies concrete and steel pressure
pipe, concrete non-pressure pipe, protective linings for pipe and fabricated
steel products, such as large-diameter wind towers. The Infrastructure
Products Group consists of two operating segments, which are
aggregated: the Hawaii Division which manufactures and sells ready-mix
concrete, sand and aggregates, concrete pipe and culverts and the Pole Products
Division which manufactures and sells concrete and steel lighting and traffic
poles. The markets served by the Fiberglass-Composite Pipe Group are
worldwide in scope. The Water Transmission Group serves primarily the
western U.S. for pipe and sells wind towers primarily west of the Mississippi
river. The Infrastructure Products Group's quarry and ready-mix business
operates exclusively in Hawaii, and poles are sold throughout the U.S.
Ameron also participates in several joint-venture companies, directly in the
U.S. and Saudi Arabia, and indirectly in Egypt.
During
the third quarter of 2006, the Company sold its Performance Coatings &
Finishes business ("Coatings Business"). The results from this segment are
reported as discontinued operations for all the reporting periods.
Accordingly, the following discussions generally reflect summary results from
continuing operations unless otherwise noted. However, the net income and
net income per share discussions include the impact of discontinued
operations.
CRITICAL
ACCOUNTING POLICIES AND ESTIMATES
Management's
Discussion and Analysis of Liquidity and Capital Resources and Results of
Operations are based upon the Company's consolidated financial statements, which
are prepared in accordance with accounting principles generally accepted in the
United States of America. The preparation of these financial statements
requires Management to make certain estimates and assumptions that affect the
reported amounts of assets, liabilities, revenues and expenses, and related
disclosure of contingent assets and
liabilities during the reporting periods. Management bases its estimates
on historical experience and on various other assumptions that are believed to
be reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results could differ from
those estimates.
A summary
of the Company's significant accounting policies is provided in Note (1) of the
Notes to Consolidated Financial Statements, under Part II, Item 8, herein.
In addition, Management believes the following accounting policies affect the
more significant estimates used in preparing the consolidated financial
statements.
The
consolidated financial statements include the accounts of Ameron and all
wholly-owned subsidiaries. All material intercompany accounts and
transactions are eliminated. The functional currencies for the Company's
foreign operations are the applicable local currencies. The translation
from the applicable foreign currencies to U.S. dollars is performed for balance
sheet accounts using current exchange rates in effect at the balance sheet date
and for revenue and expense accounts using a weighted-average exchange rate
during the period. The resulting translation adjustments are recorded in
accumulated other comprehensive income/(loss). The Company advances funds
to certain foreign subsidiaries that are not expected to be repaid in the
foreseeable future. Translation adjustments arising from these advances
are also included in accumulated other comprehensive income/(loss). The
timing of repayments of intercompany advances could materially impact the
Company's consolidated financial statements. Additionally, earnings of
foreign subsidiaries are often permanently reinvested outside the U.S.
Unforeseen repatriation of such earnings could result in significant
unrecognized U.S. tax liability. Gains or losses resulting from foreign
currency transactions are included in other income, net.
Revenue
for the Fiberglass-Composite Pipe and Infrastructure Products segments is
recognized when risk of ownership and title pass, primarily at the time goods
are shipped, provided that an agreement exists between the customer and the
Company, the price is fixed or determinable and collection is reasonably
assured. Revenue is recognized for the Water Transmission Group primarily
under the percentage-of-completion method, typically based on completed units of
production, since products are manufactured under enforceable and binding
construction contracts, typically are designed for specific applications, are
not interchangeable between projects, and are not manufactured for stock.
Revenue for the period is determined by multiplying total estimated contract
revenue by the percentage-of-completion of the contract and then subtracting the
amount of previously recognized revenue. Cost of earned revenue is
computed by multiplying estimated contract completion cost by the
percentage-of-completion of the contract and then subtracting the amount of
previously recognized cost. In some cases, if products are manufactured
for stock or are not related to specific construction contracts, revenue is
recognized under the same criteria used by the other two
segments. Revenue under the percentage-of-completion method is
subject to a greater level of estimation, which affects the timing of revenue
recognition, costs and profits. Estimates are reviewed on a consistent
basis and are adjusted periodically to reflect current expectations. Costs
attributable to unpriced change orders are treated as costs of contract
performance in the period, and contract revenue is recognized if recovery is
probable. Disputed or unapproved change orders are treated as
claims. Recognition of amounts of additional contract revenue relating to
claims occurs when amounts have been received or awarded with recognition based
on the percentage-of-completion methodology.
The
Company expenses environmental clean-up costs related to existing conditions
resulting from past or current operations on a site-by-site basis.
Liabilities and costs associated with these matters, as well as other pending
litigation and asserted claims arising in the ordinary course of business,
require estimates of future costs and judgments based on the knowledge and
experience of Management and its legal counsel. When the Company's
exposures can be reasonably estimated and are probable, liabilities and expenses
are recorded. The ultimate resolution of any such exposure to the Company
may differ due to subsequent developments.
Inventories
are stated at the lower of cost or market with cost determined principally on
the first-in, first-out ("FIFO") method. Certain steel inventories used by
the Water Transmission Group are valued using the last-in, first-out ("LIFO")
method. Significant changes in steel levels or costs could materially
impact the Company's financial statements. Reserves are established for
excess, obsolete and rework inventories based on estimates of salability and
forecasted future demand. Management records an allowance for doubtful
accounts receivable based on historical experience and expected
trends. A significant reduction in demand or a significant worsening
of customer credit quality could materially impact the Company’s consolidated
financial statements.
Investments
in unconsolidated joint ventures or affiliates ("joint ventures") over which the
Company has significant influence are accounted for under the equity method of
accounting, whereby the investment is carried at the cost of acquisition, plus
the Company's equity in undistributed earnings or losses since
acquisition. Investments in joint ventures over which the Company does not
have the ability to exert significant influence over the investees' operating
and financing activities are accounted for under the cost method of
accounting. The Company's investment in TAMCO, a steel mini-mill in
California, is accounted for under the equity method. Investments in
Ameron Saudi Arabia, Ltd. and Bondstrand, Ltd. are accounted for under the cost
method due to Management's current assessment of the Company's influence
over these joint ventures.
Property,
plant and equipment is stated on the basis of cost and depreciated principally
using a straight-line method based on the estimated useful lives of the related
assets, generally three to 40 years. The Company reviews long-lived assets
for impairment whenever events or changes in circumstances indicate that the
carrying value of such assets may not be recoverable. If the estimated
future, undiscounted cash flows from the use of an asset are less than its
carrying value, a write-down is recorded to reduce the related asset to
estimated fair value. Actual cash flows may differ significantly from
estimated cash flows. Additionally, current estimates of future cash flows
may differ from subsequent estimates of future cash flows. Changes in
estimated or actual cash flows could materially impact the Company's
consolidated financial statements.
The
Company is self-insured for a portion of the losses and liabilities primarily
associated with workers' compensation claims and general, product and vehicle
liability. Losses are accrued based upon the Company's estimates of the
aggregate liability for claims incurred using historical experience and certain
actuarial assumptions followed in the insurance industry. The estimate of
self-insurance liability includes an estimate of incurred but not reported
claims, based on data compiled from historical experience. Actual
experience could differ significantly from these estimates and could materially
impact the Company's consolidated financial statements. The Company
purchases varying levels of insurance to cover losses in excess of the
self-insured limits. Currently, the Company's primary self-insurance
limits or deductibles are $1.0 million per workers' compensation claim, $.1
million per general, property or product liability claim, and $.25 million per
vehicle liability claim.
The
Company follows the guidance of Statement of Financial Accounting Standards
("SFAS") No. 158, “Employers’ Accounting for Defined Benefit Pension and Other
Postretirement Plans,” SFAS No. 87, “Employers' Accounting for Pensions,” and
SFAS No. 106, “Employers’ Accounting for Postretirement Benefits Other Than
Pensions,” when accounting for pension and other postretirement benefits.
Under these accounting standards, assumptions are made regarding the valuation
of benefit obligations and the performance of plan assets that are controlled
and invested by third-party fiduciaries. Delayed recognition of
differences between actual results and expected or estimated results is a
guiding principle of these standards. Such delayed recognition provides a
gradual recognition of benefit obligations and investment performance over the
working lives of the employees who benefit under the plans, based on various
assumptions. Assumed discount rates are used to calculate the present
values of benefit payments which are projected to be made in the future,
including projections of increases in employees' annual compensation and health
care costs. Management also projects the future returns on invested assets
based principally on prior performance. These projected returns reduce the
net benefit costs the Company records in the current period. Actual
results could vary significantly from projected results, and such deviations
could materially impact the Company's consolidated financial statements.
Management consults with the Company’s actuaries when determining these
assumptions. Program changes, including termination, freezing of benefits
or acceleration of benefits, could result in an immediate recognition of
unrecognized benefit obligations; and such recognition could materially impact
the Company's consolidated financial statements.
The
discount rate is based on market interest rates. At November 30,
2008, the Company increased the annual discount rate from 6.15% to 7.29% 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, 2008, the Company decreased the long-term annual rate of
return on assets assumption from 8.75% to 8.50% to reflect current 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, 2008, the Company changed
the assumed annual rate of compensation increase from 3.65% to 4.25%. 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,
2008, the Company decreased the annual rate of increase in health care costs
from 10% to 9%, 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
|
$ | (21,263 | ) | $ | (866 | ) | $ | 23,697 | $ | 2,517 | ||||||
|
Other
postretirement benefits
|
(263 | ) | (23 | ) | 304 | 23 | ||||||||||
|
Expected
rate of return on assets
|
N/A | (2,139 | ) | N/A | 2,139 | |||||||||||
|
Rate
of increase in compensation levels
|
2,248 | 628 | (2,035 | ) | (562 | ) | ||||||||||
|
Rate
of increase in health care costs
|
120 | 16 | (106 | ) | (15 | ) | ||||||||||
Additional
information regarding pensions and other postretirement benefits is disclosed in
Note (16) of Notes to Consolidated Financial Statements, under Part II, Item
8.
Effective
December 1, 2007, the Company adopted SFAS No. 157, “Fair Value Measurements,”
which provides a framework for measuring fair value. As defined in
SFAS No. 157, fair value is the price that would be received to sell an asset or
paid to transfer a liability in an orderly transaction between market
participants at the measurement date (exit price). The Company
utilizes market data or assumptions that the Company believes market
participants would use in pricing assets or liabilities, including assumptions
about risk and the risks inherent in the inputs to valuation
techniques. These inputs can be readily observable, market
corroborated or generally unobservable. The Company primarily applies
the market and income approaches for recurring fair value measurements and
endeavors to utilize the best available information. Accordingly, the
Company utilizes valuation techniques that maximize the use of observable inputs
and minimize the use of unobservable inputs. The Company classifies
fair value balances based on the observability of those inputs. The
ultimate exit price could be significantly different than currently estimated by
the Company.
Management
incentive compensation is accrued based on current estimates of the Company's
ability to achieve short-term and long-term performance targets. The
Company’s actual performance could be significantly different than currently
estimated by the Company.
Deferred
income tax assets and liabilities are computed for differences between the
financial statement and income tax bases of assets and liabilities. Such
deferred income tax asset and liability computations are based on enacted tax
laws and rates applicable to periods in which the differences are expected to
reverse. Valuation allowances are established, when necessary, to reduce
deferred income tax assets to the amounts expected to be realized.
Quarterly income taxes are estimated based on the mix of income by jurisdiction
forecasted for the full fiscal year. The Company believes that it has
adequately provided for tax-related matters. Actual income, the mix
of income by jurisdiction and income taxes could be significantly different than
currently estimated.
The
amount of income taxes the Company pays is subject to ongoing audits by federal,
state and foreign tax authorities. The Company’s estimate of the
potential outcome of any uncertain tax issue is subject to Management’s
assessment of relevant risks, facts, and circumstances existing at that time,
pursuant to the Financial Accounting Standards Board (“FASB”) Interpretation
(“FIN”) No. 48, “Accounting for Uncertainty in Income Taxes - an
interpretation of FASB Statement No. 109.” FIN No. 48 requires a
more-likely-than-not threshold for financial statement recognition and
measurement of tax positions taken or expected to be taken in a tax
return. A liability is recorded for the difference between the
benefit recognized and measured pursuant to FIN No. 48 and the tax position
taken or expected to be taken on the tax return. To the extent that
the Company’s assessment of such tax positions changes, the change in estimate
is recorded in the period in which the determination is made. The
Company reports tax-related interest and penalties as a component of income tax
expense.
LIQUIDITY
AND CAPITAL RESOURCES
The
following discussion of liquidity and capital resources combines the impact of
both continuing and discontinued operations unless otherwise noted.
As of
November 30, 2008, the Company's working capital, including cash and cash
equivalents and current portion of long-term debt, totaled $297.4 million, a
decrease of $16.9 million from working capital of $314.3 million as of November
30, 2007. The decrease resulted primarily from a decrease in cash,
receivables, inventories, other prepaid assets, income taxes payable and
deferred income, partially offset by an increase in trade payables. The
reductions in receivables and inventories were primarily due to more efficient
working capital management. All of the Company's industry segments
turned inventory between four and six times per year in 2008, compared to four
and seven times in 2007. Average days' sales in accounts receivable
ranged between 36 and 131 in 2008, compared to 33 and 171 times in 2007, for all
segments. Cash and cash equivalents totaled $143.6 million as of
November 30, 2008, compared to $155.4 million as of November 30,
2007.
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 2008, net cash of $88.4 million was generated from
operating activities, compared to $63.2 million generated in 2007. The
higher operating cash flow in 2008 was primarily due to lower growth in
operating assets, offset by lower liabilities and earnings. In 2007,
the Company's cash from operating activities included net income of $67.2
million, less loss on sale of assets and gain from sale of discontinued
operations of $5.9 million, plus non-cash adjustments (depreciation,
amortization, deferred taxes, dividends from joint-ventures less than equity
income and stock compensation expense) of $28.3 million, offset by changes in
operating assets and liabilities of $26.4 million. In 2008, the Company's
cash provided by operating activities included net income of $58.6 million, plus
loss on sale of assets of $.1 million, plus similar non-cash adjustments of
$22.3 million, plus corresponding changes in operating assets and liabilities of
$7.4 million. The higher operating cash flow in 2007, compared to 2006,
was primarily due to higher earnings and lower growth in operating assets and
liabilities. In 2006, $16.8 million of cash was generated from
operating activities. 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 similar non-cash adjustments of
$14.8 million, offset by changes in operating assets and liabilities of $41.5
million.
Net cash
used in investing activities totaled $59.1 million in 2008, compared to $37.1
million in 2007. In 2008, the Company generated net proceeds of $1.6
million from the sale of assets. In 2007, the Company generated net
proceeds of $16.6 million from the sale of assets, including the sale of certain
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 $60.7 million in 2008, compared to
$47.7 million in 2007. In addition to capital expenditures for normal
replacement and upgrades of machinery and equipment, in both 2007 and 2008, the
Company spent $22.1 million and $13.7 million, respectively, to enhance the
capabilities of its steel fabrication plant in California to manufacture
large-diameter wind towers. The Company also spent $9.2 million for
the construction of a new fiberglass pipe plant in Brazil in
2008. Additionally, the Company acquired the business of Polyplaster,
Ltda. (“Polyplaster”), 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 post-acquisition performance of the acquired business. In 2006, net
cash used in investing activities included capital expenditures of $34.5
million. Additionally, the assets of a Mexican steel fabrication
operation were acquired for approximately $1.0 million in
2006. During the year ending November 30, 2009, the Company
anticipates spending between $30 and $40 million on capital
expenditures. Normal replacement expenditures are typically equal to
depreciation. In addition, the Company anticipates that it will fund from
$10 million to $35 million to support the operations and capital expenditures of
TAMCO. Capital expenditures and investments are expected to be funded
by existing cash balances, cash generated from operations or additional
borrowings.
Net cash
used in financing activities totaled $32.5 million during 2008, compared to
$16.5 million in 2007. Net cash used in 2008 consisted of net payment
of debt of $21.1 million, payment of Common Stock dividends of $10.5 million and
treasury stock purchases of $2.6 million, related to the payment of taxes
associated with the vesting of restricted shares. Also in 2008, the Company
received $.4 million from the issuance of Common Stock related to exercised
stock options and recognized tax benefits related to stock-based compensation of
$1.3 million. Net cash used in 2007 consisted of net payment of
debt of $10.2 million, payment of Common Stock dividends of $8.2 million and
similar treasury stock purchases of $1.6 million. In 2007, the
Company received $1.6 million from the issuance of Common Stock related to
exercised stock options and recognized tax benefits related to stock-based
compensation of $2.0 million. In 2006, $14.0 million was used in
financing activities. 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 issuance of Common Stock related to the
exercise of stock options and recognized tax benefits related to stock-based
compensation of $2.5 million.
The
Company utilizes a $100.0 million revolving credit facility with six banks (the
"Revolver"). Under the Revolver, the Company may, at its option, borrow at
floating interest rates (LIBOR plus a spread ranging from .75% to 1.625%,
determined based on the Company’s financial condition and performance), at any
time until September 2010, when all borrowings under the Revolver must be
repaid.
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 $167.9 million as of November 30, 2008. The Company is
required to maintain a consolidated leverage ratio of consolidated funded
indebtedness to earnings before interest, taxes, depreciation and amortization
("EBITDA") of no more than 2.5 times. At November 30, 2008, the Company
maintained a consolidated leverage ratio of .54 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, 2008, qualifying tangible assets equaled 4.15 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, 2008, the Company maintained such a fixed charge coverage ratio
of 2.68 times. Under the most restrictive provisions of the Company's
lending agreements, approximately $26.8 million of retained earnings was not
restricted at November 30, 2008, as to the declaration of cash dividends or the
repurchase of Company stock. At November 30, 2008, the Company was in
compliance with all covenants.
Cash and
cash equivalents at November 30, 2008 totaled $143.6 million, a decrease of
$11.9 million from November 30, 2007. At November 30, 2008, the Company
had total debt outstanding of $52.8 million, compared to $74.6 million at
November 30, 2007, and approximately $112.2 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 2008 were
$74.5 million and $71.1 million, respectively.
Cash
balances are held throughout the world, including substantial amounts held
outside of the U.S. Most of the amounts held outside of the U.S.
could be repatriated to the U.S. but, under current law, would be subject to
U.S. federal income taxes, less applicable foreign tax credits.
The
Company contributed $3.0 million to the U.S. defined-benefit pension plan and
$.9 million to the non-U.S. defined-benefit pension plans in 2008. The
Company expects to contribute approximately $8.5 million to its U.S.
defined-benefit pension plan and $1.8 million to the non-U.S. defined-benefit
pension plans in 2009. The increased contribution is due to the
decrease in plan assets associated with declining investment markets in 2008 and
to the funding requirement of the Pension Protection Act of 2006.
TAMCO’s
primary source of financing is a $60 million credit facility. Approximately $50
million is currently outstanding under the credit facility, which is scheduled
to expire on March 1, 2009. TAMCO has received a commitment from its bank,
subject to certain conditions precedent to closing, for a one year credit
facility that decreases to $35 million effective May 1, 2009. Separately,
TAMCO’s shareholders agreed to provide $22 million to TAMCO by February 28,
2009. The Company’s share of the funding from shareholders totals $11 million.
The Company may provide additional funding to TAMCO if TAMCO is unable to
finalize the bank facility or obtain other third-party financing.
TAMCO's ability
to issue dividends will be dependent on its future cash position and limited by
terms of its financing arrangements.
Management
believes that cash flow from operations and current cash balances, together with
currently available lines of credit, will be sufficient to meet operating
requirements in 2009. Cash available from operations could be affected by
any general economic downturn or any decline or adverse changes in the Company's
business, such as a loss of customers, competitive pricing pressures or
significant raw material price increases.
The
Company's contractual obligations and commercial commitments at November 30,
2008 are summarized as follows (in thousands):
|
Payments
Due by Period
|
||||||||||||||||||||
|
Less
than
|
After
5
|
|||||||||||||||||||
|
Contractual
Obligations
|
Total
|
1
year
|
1-3
years
|
3-5
years
|
years
|
|||||||||||||||
|
Long-term
debt
|
$ | 52,752 | $ | 16,763 | $ | 13,526 | $ | 6,763 | $ | 15,700 | ||||||||||
|
Interest
payments on debt (a)
|
5,493 | 1,891 | 1,849 | 701 | 1,052 | |||||||||||||||
|
Operating
leases
|
36,255 | 4,494 | 7,345 | 3,534 | 20,882 | |||||||||||||||
|
Pension
funding
|
10,300 | 10,300 | - | - | - | |||||||||||||||
|
Purchase
obligations (b)
|
235 | 235 | - | - | - | |||||||||||||||
|
Uncertain
tax positions
|
1,127 | 1,127 | - | - | - | |||||||||||||||
|
Total
contractual obligations (c)
|
$ | 106,162 | $ | 34,810 | $ | 22,720 | $ | 10,998 | $ | 37,634 | ||||||||||
|
Commitments
Expiring Per Period
|
||||||||||||||||||||
|
Less
than
|
After
|
|||||||||||||||||||
|
Contractual
Commitments
|
Total
|
1
year
|
1-3
years
|
3-5
years
|
5
years
|
|||||||||||||||
|
Standby
letters of credit (d)
|
$ | 2,100 | $ | 2,100 | $ | - | $ | - | $ | - | ||||||||||
|
Total
commercial commitments (c)
|
$ | 2,100 | $ | 2,100 | $ | - | $ | - | $ | - | ||||||||||
(a)
Future interest payments related to debt obligations, excluding the
Revolver.
(b)
Obligation to purchase sand used in the Company's ready-mix operations in
Hawaii.
(c) The
Company has no capitalized lease obligations, unconditional purchase obligations
or standby repurchases obligations.
(d) Not
included are standby letters of credit totaling $16,067 supporting industrial
development bonds with principal of $15,700. The principal amount of the
industrial development bonds is included in long-term debt. The standby
letters of credit are issued under the Revolver.
RESULTS
OF OPERATIONS: 2008 COMPARED WITH 2007
General
Income
from continuing operations totaled $58.6 million, or $6.39 per diluted share, on
sales of $667.5 million in the year ended November 30, 2008, compared to $61.1
million, or $6.73 per diluted share, on sales of $631.0 million in 2007.
Income from continuing operations was lower in 2008 due principally to $5.3
million of tax benefits recognized in 2007 associated with the dissolution of
the Company’s wholly-owned United Kingdom subsidiary. The
Fiberglass-Composite Pipe Group had higher sales and income due to continued
strength in energy and marine markets and the acquisition of the business of
Polyplaster. The Water Transmission Group had higher sales primarily
due to wind towers and larger losses due to the weak pipe market and inefficient
pipe and wind tower production. The Infrastructure Products Group had
lower sales and income due to declines by both the Hawaii division and the Pole
Products division due to declining construction markets. Equity in
earnings of TAMCO, Ameron's 50%-owned steel mini-mill in California, decreased
by $5.0 million in 2008, compared to 2007, due to the decline in the steel
market.
Income
from discontinued operations, net of taxes, totaled $6.1 million, or $.67 per
diluted share, in 2007. In 2007, the Company completed disposition of
several retained properties formerly used by the Coatings Business and
recognized a net gain of $5.3 million. Also in 2007, the Company
recognized a net gain of $.1 million from the final settlement of the sale of
the Coatings Business, $.2 million of research and development credits and $.7
million of tax benefits.
Sales
Sales
increased $36.5 million in 2008, compared to 2007. Sales increased due to
higher demand for fiberglass piping, the impact of foreign exchange rates on the
Company’s Asian and European operations and expansion of the Company’s
capabilities to manufacture large-diameter wind towers, offset by lower sales
into weak residential construction markets.
Fiberglass-Composite
Pipe's sales increased $36.3 million, or 15.3%, in 2008, compared to 2007.
Sales from operations in the U.S. increased $10.2 million in 2008 primarily due
to increase demand for onshore oilfield piping which more than offset a decline
in demand for industrial piping. Sales from Asian subsidiary operations
increased $22.8 million in 2008, driven by activity in the industrial, marine
and offshore segments and the impact of foreign exchange. Sales from
European operations decreased $12.2 million in 2008 primarily due to a decline
in onshore oilfield and industrial piping, partially offset by favorable foreign
exchange. The Brazilian business acquired at the end of 2007 contributed
sales of $16.8 million in 2008, compared to $1.3 million in 2007. The
strong demand for onshore oilfield, offshore, industrial and marine piping
continued to be driven by high oil prices and the high cost of steel piping, the
principal substitute for fiberglass pipe, during most of the year. The
Fiberglass-Composite Pipe Group began 2009 with a record order backlog which
should support the beginning of 2009. However, the Group’s customers
in the marine, offshore and onshore oilfield markets could be at risk given the
decline in oil prices, financing issues, lower transportation demand and
shipping rates. While the business has not been impacted to date,
oil-price volatility and general economic conditions are expected to impact the
Group in 2009.
Water
Transmission’s sales increased $25.0 million, or 13.2%, in 2008, compared to
2007. The sales increase was driven by the Company’s expansion into the
market for large-diameter wind towers and by its operation in South America,
which benefited from increased demand for water pipe in
Colombia. Sales of water pipe into domestic markets were slightly
higher. Sales of wind towers increased $19.7 million, or 42%, in
2008, compared to 2007. The water infrastructure market in the
western U.S., including California, Arizona and Nevada, remains weak, with bid
activity in some markets at the lowest levels in recent history. The
slow market is being adversely affected by a number of factors including the
normal cycle for large diameter, high pressure water transmission pipelines,
governmental budget problems and overall project costs. The
fundamental long-term factors that drive the market are demographics, population
growth and the need for new and upgraded water infrastructure to provide
adequate and reliable supplies. There are numerous projects that are
in the planning and design stages that address the water infrastructure
requirements of the region. These projects should eventually proceed,
however, the timing of orders is uncertain. The order backlog for
water pipe at November 30, 2008 totaled $62.3 million, a level which reflects
the lack of recent bid activity and represents an unusually low backlog for the
business. The wind tower order backlog at November 30, 2008 totaled
$91 million; however, a portion of the backlog may be postponed due to current
market conditions. The level of new wind tower orders recently
declined due to lack of project financing.
Infrastructure
Products' sales decreased $26.7 million, or 13.0%, in 2008, compared to
2007. The Company’s Hawaiian division had lower sales as construction
markets in Hawaii began to weaken. Pole Products was impacted by the
decline in U.S. housing markets and reduced demand for concrete lighting
poles. The Infrastructure Products Group is expected to continue to be
impacted by the slowdown in construction spending in Hawaii and the low
residential construction spending level in the western and the southeastern
U.S.
Gross
Profit
Gross
profit in 2008 was $153.6 million, or 23.0% of sales, compared to $146.0
million, or 23.1% of sales, in 2007. Gross profit increased $7.6 million
due to higher sales, as the negative impact of production inefficiencies in 2008
was offset in large part by lower LIFO reserves than in 2007. The
gross profit margin decrease related to under utilization of pole
production, competitive pricing pressures caused by soft market conditions
and inefficient production by the Water Transmission Group, substantially offset
by the Fiberglass-Composite Pipe Group’s profit margin improvement.
Fiberglass-Composite
Pipe Group's gross profit increased $22.5 million in 2008, compared to
2007. Profit margins improved to 39.5% in 2008, compared to 36.0% in
2007. Higher margins resulted from improvements in product and market
mix, price increases and improved plant utilization. Increased sales, from
higher volume and prices, generated additional gross profit of $13.1 million,
while favorable product mix and operating efficiencies generated additional
gross profit of $9.4 million in 2008.
Water
Transmission Group's gross profit decreased $10.1 million in 2008, compared to
2007. Profit margins declined to 1.8% in 2008, compared to 7.3% in
2007. Higher sales increased profit by $1.8 million in
2008. Lower margins reduced gross profit by $11.9 million due to an
unfavorable mix of projects, start-up costs associated with the expansion into
wind towers, underutilization of plant capacity, production inefficiencies and
pricing pressures due to market condition.
Gross
profit in the Infrastructure Products Group decreased $12.4 million in 2008,
compared to 2007. Profit margins declined to 21.9% in 2008, compared to
25.1% in 2007. Lower sales reduced gross profit by $6.7 million, while
unfavorable plant utilization and pricing pressures due to market conditions
lowered gross profit by $5.7 million in 2008.
Consolidated
gross profit was $5.5 million higher in 2008 than in 2007 due to decreased
reserves in 2008 associated with LIFO accounting of certain steel inventories
used by the Water Transmission Group. LIFO reserves are not allocated
to the operating segments.
Selling,
General and Administrative Expenses
Selling,
general and administrative ("SG&A") expenses totaled $98.2 million, or 14.7%
of sales, in 2008, compared to $97.9 million, or 15.5% of sales, in 2007.
The $.3 million increase in SG&A included $3.5 million from Polyplaster and
other Brazilian operations, higher stock compensation expense of $2.2
million and higher insurance expense of $1.4 million, offset by lower pension
expense of $3.9 million, primarily due to improved funding of the pension plans,
lower management incentive compensation of $1.5 million and lower auditing and
consulting fees of $1.4 million. The reduction in SG&A as a
percent of sales was due to spending controls and the leverage achieved from
higher sales.
Other
Income, Net
Other
income was $8.2 million in 2008, compared to $6.0 million in
2007. The increase in other income in 2008 was due primarily to $1.5
million higher dividend income from affiliates and $2.7 million proceeds from
insurance reimbursements, offset by $1.4 million of foreign exchange loss and
$.6 million lower miscellaneous income. Other income also included
royalties and fees from licensees, foreign currency transaction losses and other
miscellaneous income.
Interest
Net
interest income totaled $1.5 million in 2008, compared to net interest income of
$1.9 million in 2007. Net interest income was lower due to lower interest
on short-term investments due to lower overall interest rates, partially offset
by lower outstanding debt during 2008.
Provision
for Income Taxes
Income
taxes increased to $17.0 million in 2008, from $10.4 million in
2007. The effective tax rate on income from continuing operations
increased to 26.0% in 2008, from 18.5% in 2007. The effective tax
rate in 2008 was reduced by tax benefits of $2.9 million associated with tax
years no longer subject to audit and settlement of the 2005-2006 Internal
Revenue Service (“IRS”) examinations. The effective tax rate in 2007
was reduced by tax benefits of $5.3 million associated with the decision to
dissolve the Company’s wholly-owned United Kingdom subsidiary. Income
from certain foreign operations and joint ventures is taxed at rates that are
lower than the U.S. statutory tax rates. For both 2007 and 2008, the
Company provided a full valuation allowance for the net operating loss
carry-overs of its foreign subsidiaries except its subsidiary in the
Netherlands. The Company released $1.1 million in 2008 and $3.2
million in 2007 of valuation allowance for deferred tax assets related to the
Netherlands subsidiary due to profitability in 2008 and 2007 and projected
future profitability.
Equity
in Earnings of Joint Venture, Net of Taxes
Equity
income, which consists of Ameron’s share of the net income of TAMCO, decreased
to $10.3 million in 2008, compared to $15.4 million in 2007. 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%
in 2008 and 9.6% in 2007, reflecting the dividend exclusion provided to the
Company under current tax laws. The decline in TAMCO’s earnings
occurred late in 2008 and was due to the difficult conditions in the steel
market. TAMCO’s fourth-quarter results included a $9.8 million
write-down of inventory to the lower of cost or market as a result of the recent
reduction in steel rebar selling prices. Demand for steel rebar in
TAMCO’s key markets in Nevada, California and Arizona is not expected to recover
in the short term.
Income
from Discontinued Operations, Net of Taxes
Income
from discontinued operations totaled $6.1 million in 2007. In 2007,
the Company completed disposition of several retained properties formerly used
by the Coatings Business and recognized a net gain of $5.3
million. In 2007, the Company recognized a net gain of $.1 million
from the final settlement of the sale of the Coatings Business. In
addition, in 2007 the Company recognized $.2 million of research and development
tax credits related to the retroactive application of tax legislation and $.6
million of net tax benefit due to an adjustment in tax expense related to the
gain on sale of the business.
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 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
continued to be driven by high oil prices and the high cost of steel piping, the
principal substitute for fiberglass pipe.
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.
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.
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.
Selling,
General and Administrative Expenses
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 rate in 2007
was reduced by tax benefits of $5.3 million associated with the decision to
dissolve the Company’s wholly-owned United Kingdom subsidiary. 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. 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.
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. Dividends
from TAMCO were taxed at an effective rate of 9.6% in 2007 and 11.3% in 2006
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. 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.
OFF-BALANCE
SHEET FINANCING
The
Company does not have any off-balance sheet financing, other than listed in the
Liquidity and Capital Resources section herein. All of the Company's
subsidiaries are included in the financial statements, and the Company does not
have relationships with any special purpose entities.
CONTINGENCIES
In April
2004, Sable Offshore Energy Inc. ("Sable"), as agent for certain owners of the
Sable Offshore Energy Project, brought an action against various coatings
suppliers and application contractors, including the Company and two of its
subsidiaries, Ameron (UK) Limited and Ameron B.V. (collectively the "Ameron
Subsidiaries"), in the Supreme Court of Nova Scotia, Canada. Sable
seeks damages allegedly sustained by it resulting from performance problems with
several coating systems used on the Sable Offshore Energy Project, including
coatings products furnished by the Company and the Ameron Subsidiaries.
Sable's originating notice and statement of claim alleged a claim for damages in
an unspecified amount; however, Sable has since alleged that its claim for
damages against all defendants is approximately 440 million Canadian dollars, a
figure which the Company and the Ameron Subsidiaries contest. This
matter is in discovery, and no trial date has yet been
established. The Company is vigorously defending itself in this
action. Based upon the information available to it at this time, the
Company is not able to estimate the possible range of loss with respect to this
case.
In May
2003, Dominion Exploration and Production, Inc. and Pioneer Natural Resources
USA, Inc. (collectively "Dominion") brought an action against the Company in
Civil District Court for the Parish of Orleans, Louisiana as owners of an
offshore production facility known as a SPAR. Dominion seeks damages
allegedly sustained by it resulting from delays in delivery of the SPAR caused
by the removal and replacement of certain coatings containing lead and/or lead
chromate for which the manufacturer of the SPAR alleged the Company was
responsible. Dominion contends that the Company made certain
misrepresentations and warranties to Dominion concerning the lead-free nature of
those coatings. Dominion's petition as filed alleged a claim for damages
in an unspecified amount; however, Dominion's economic expert has since
estimated Dominion's damages at approximately $128 million, a figure which the
Company contests. This matter is in discovery, and no trial date has yet
been established. The Company is vigorously defending itself in this
action. Based upon the information available to it at this time, the
Company is not able to estimate the possible range of loss with respect to this
case.
In July
2004, BP America Production Company (“BP America”) brought an action against the
Company in the 24th
Judicial District Court, Parish of Jefferson, Louisiana in connection with
fiberglass pipe sold by the Company for installation in four offshore platforms
constructed for BP America. The plaintiff seeks damages allegedly
sustained by it resulting from claimed defects in such pipe. BP
America’s petition as filed alleged a claim against the Company for rescission,
products liability, negligence, breach of contract and warranty and for damages
in an amount of not less than $20 million, a figure which the Company
contests. This matter is in discovery, and no trial date has yet been
established. The Company is vigorously defending itself in this
action. Based upon the information available to it at this time, the
Company is not able to estimate the possible range of loss with respect to this
case.
In June
2006, the Cawelo, California Water District (“Cawelo”) brought an action against
the Company in Kern County Superior Court, California in connection
with concrete pipe sold by the Company in 1995 for a wastewater
recovery pipeline in such county. Cawelo seeks damages allegedly
sustained by it resulting from the failure of such pipe in
2004. Cawelo’s petition as filed alleged a claim against the Company
for products liability, negligence, breach of express warranty and breach of
written contract and for damages in an amount of not less than $8 million, a
figure which the Company contests. This matter is in discovery, and
no trial date has yet been established. The Company is vigorously
defending itself in this action. Based upon the information available
to it at this time, the Company is not able to estimate the possible range of
loss with respect to this case.
The
Company is a defendant in a number of asbestos-related personal injury
lawsuits. These cases generally seek unspecified damages for
asbestos-related diseases based on alleged exposure to products previously
manufactured by the Company and others. As of November 30, 2008, the
Company was a defendant in 24 asbestos-related cases, compared to 36 cases (60
claimants) as of November 30, 2007. During the year ended November
30, 2008, there were 20 new asbestos-related cases, 24 cases dismissed,
eight cases settled, no judgments and aggregate net costs and
expenses of $.1 million. Based upon the information available to it
at this time, the Company is not able to estimate the possible range of loss
with respect to these cases.
The
Company is subject to federal, state and local laws and regulations concerning
the environment and is currently participating in administrative proceedings at
several sites under these laws. While the Company finds it difficult to estimate
with any certainty the total cost of remediation at the several sites, on the
basis of currently available information and reserves provided, the Company
believes that the outcome of such environmental regulatory proceedings will not
have a material effect on the Company's financial position, cash flows, or
results of operations. During the year ended November 30, 2008,
the Company incurred $1.0 million of net costs and expenses related to such
proceedings.
The U.S.
Treasury Department’s Office of Foreign Assets Control (“OFAC”) sent to the
Company a Requirement To Furnish Information regarding transactions involving
Iran. The Company intends to cooperate fully with OFAC on this
matter. Based upon the information available to it at this time, the
Company is not able to predict the 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 results of operations if disposed of
unfavorably.
NEW
ACCOUNTING PRONOUNCEMENTS
In July
2006, the FASB issued 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 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 50 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 was effective for the first quarter of the
Company’s 2008 fiscal year. Prior to December 1, 2007, the Company
recorded reserves related to uncertain tax positions as a current
liability. Upon adoption of FIN No. 48, the Company reclassified tax
reserves related to uncertain tax positions for which a cash payment was not
expected within the next 12 months to noncurrent liabilities. The
Company’s adoption of FIN No. 48 did not require a cumulative adjustment to the
opening balance of retained earnings.
In
September 2006, the FASB issued SFAS No. 157, “Fair Value
Measurements.” SFAS No. 157 establishes a framework for measuring
fair value in accordance with U.S. generally accepted accounting principles, and
expands disclosure about fair value measurements. SFAS No. 157 is
effective for financial statements issued for fiscal years beginning after
November 15, 2007. Relative to SFAS No. 157, the FASB
issued FASB Staff Position (“FSP”) FASB Statements (“FAS”) 157-1, FAS 157-2 and
FAS 157-3 in 2008. FSP FAS 157-1 amends SFAS No. 157 to exclude
SFAS No. 13, “Accounting for Leases,” and its related interpretive
accounting pronouncements that address leasing transactions. FSP
FAS 157-2 delays the effective date of SFAS No. 157 to fiscal years
beginning after November 15, 2008 for all non-financial assets and non-financial
liabilities, except those that are recognized or disclosed at fair value in the
financial statements on a recurring basis. FSP FAS 157-3 clarifies
how SFAS No. 157 should be applied when valuing securities in markets that are
not active. The Company adopted SFAS No. 157, as amended,
effective December 1, 2007 with the exception of the application of SFAS No. 157
to non-recurring non-financial assets and non-financial
liabilities. The adoption of SFAS No. 157 did not have a
significant impact on the Company’s financial results of operations or financial
position.
In
September 2006, the FASB issued 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 2008. 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 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, 2008. EITF Issue No. 06-4
requires that, for split-dollar life insurance arrangements providing a benefit
to an employee extending to postretirement periods, an employer should recognize
a liability for future benefits in accordance with SFAS No. 106,
“Employers’ Accounting For Postretirement Benefits Other Than
Pensions.” EITF Issue No. 06-4 requires that recognition of the
effects of adoption should be either by (a) a change in accounting
principle through a cumulative-effect adjustment to retained earnings as of the
beginning of the year of adoption or (b) a change in accounting principle
through retrospective application to all prior periods. The adoption
of EITF Issue No. 06-4 is not expected to have a material effect on the
Company’s consolidated financial statements. The Company will adopt
EITF Issue No. 06-4 in the first quarter of the fiscal year beginning December
1, 2008.
In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities.” SFAS No. 159 allows an
entity the irrevocable option to elect fair value for the initial and subsequent
measurement for certain financial assets and liabilities on a
contract-by-contract basis. SFAS No. 159 also provides companies the
opportunity to mitigate volatility in reported earnings caused by measuring
related assets and liabilities differently without having to apply complex hedge
accounting provisions. SFAS No. 159 was adopted by the Company as of
December 1, 2007. The Company irrevocably elected not to exercise the
fair value option. The adoption of SFAS No. 159 did not have a
material effect on the Company’s consolidated financial statements.
In June
2007, the FASB issued EITF Issue No. 06-11, “Accounting for Income Tax Benefits
of Dividends on Share-Based Payment Awards,” effective for fiscal years
beginning after December 15, 2007. EITF Issue No. 06–11 requires
on a prospective basis that the tax benefit related to dividend equivalents paid
on restricted stock and restricted stock units which are expected to vest, be
recorded as an increase to additional paid-in capital. The adoption of
EITF Issue No. 06-11 is not expected to have a material effect on the
Company’s consolidated financial statements. The Company will adopt
EITF Issue No. 06-11 in the first quarter of the fiscal year beginning December
1, 2008.
In
December 2007, the FASB issued SFAS No. 141(R), “Business
Combinations.” SFAS No. 141(R) amends accounting and reporting
standards associated with business combinations and requires the acquiring
entity to recognize the assets acquired, liabilities assumed and noncontrolling
interests in the acquired entity at the date of acquisition at their fair
values. In addition, SFAS No. 141(R) requires that direct costs
associated with an acquisition be expensed as incurred and sets forth various
other changes in accounting and reporting related to business
combinations. SFAS No. 141(R) applies prospectively to business
combinations for which the acquisition date is on or after the beginning of the
first annual reporting period beginning on or after December 15, 2008. An
entity may not apply SFAS No. 141(R) before that date. The first such
reporting period for the Company will be the fiscal year beginning December 1,
2009.
In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests
in Consolidated Financial Statements, an amendment of ARB
No. 51.” SFAS No. 160 amends the accounting and reporting for
noncontrolling interests in a consolidated subsidiary and the deconsolidation of
a subsidiary. Included in this statement is the requirement that
noncontrolling interests be reported in the equity section of the balance
sheet. SFAS No. 160 is effective for fiscal years, and interim
periods within those fiscal years, beginning on or after December 15,
2008. Earlier adoption is prohibited. The first such
reporting period for the Company will be the fiscal year beginning December 1,
2009.
In March
2008, the FASB issued SFAS No. 161, “Disclosures about Derivative
Instruments and Hedging Activities – an amendment of FASB Statement
No. 133,” effective for fiscal years beginning after November 15,
2008, with early application encouraged. SFAS No. 161 amends and
expands the disclosure requirements for derivative instruments and hedging
activities by requiring enhanced disclosures about how and why the Company uses
derivative instruments, how derivative instruments and related hedged items are
accounted for, and how derivative instruments and related hedged items affect
the Company’s financial position, financial performance and cash
flows. The adoption of SFAS No. 161 is not expected to have a
material effect on the Company’s consolidated financial
statements. The Company will adopt SFAS No. 161 in the first quarter
of the fiscal year beginning December 1, 2008.
In June
2008, the FASB issued FSP EITF 03-6-1, “Determining Whether Instruments
Granted in Share-Based Payment Transactions Are Participating Securities,” which
addresses whether unvested instruments granted in share-based payment
transactions that contain nonforfeitable rights to dividends or dividend
equivalents are participating securities subject to the two-class method of
computing earnings per share under SFAS No. 128, “Earnings Per
Share.” FSP EITF 03-6-1 is effective for financial statements
issued for fiscal years, and interim periods within those fiscal years,
beginning on or after December 15, 2008. Earlier adoption is
prohibited. The adoption of FSP EITF 03-6-1 is not expected to have a
material effect on the Company’s consolidated financial statements.
In
December 2008, the FASB issued EITF Issue No. 08-6, “Equity Method Investment
Accounting Consideration,” effective for fiscal years beginning after
December 15, 2008. EITF Issue No. 08-6 requires an equity method
investor to account for its initial investment at cost and shall not separately
test an investee’s underlying indefinite-lived intangible assets for
impairment. It also requires an equity method investor to account for
share issuance by an investee as if the investor had sold a proportionate share
of its investment. The resulting gain or loss shall be recognized in
earnings. The Company is evaluating whether the adoption of EITF
Issue No. 08-6 will have a material effect on its consolidated financial
statements.
In
December 2008, the FASB issued FSP FAS 132(R)-1, “Employers’ Disclosures about
Postretirement Benefit Plan Assets,” amending FASB Statement No. 132(R),
“Employers’ Disclosures about Pensions and Other Postretirement Benefits,”
effective for fiscal years ending after December 15, 2009. FSP FAS
132(R)-1 requires an employer to disclose investment policies and strategies,
categories, fair value measurements, and significant concentration of risk among
its postretirement benefit plan assets. The adoption of FSP FAS
132(R)-1 is not expected to have a material effect on the Company’s consolidated
financial statements.
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, 2008,
the Company had three foreign currency forward contracts expiring at various
dates through January, 2009, with an aggregate fair value of $.1
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, 2008, the estimated fair value of notes payable by the Company
totaling $10.0 million, with a fixed rate of 5.36% per annum, was $9.9 million.
The Company is required to repay these notes in annual installments of $10.0
million in 2009. At November 30, 2008, the estimated fair value of notes
payable by the Company's wholly-owned subsidiary in Singapore totaling
approximately $27.1 million, with a fixed rate of 4.25% per annum, was $25.7
million. These notes must be repaid in installments of approximately $6.8
million per year beginning in 2008. The Company had $7.2 million of
variable-rate industrial development bonds payable at a rate of 1.32% per annum
at November 30, 2008, payable in 2016. The Company also had $8.5 million of
variable-rate industrial development bonds payable at a rate of 1.32% per annum
at November 30, 2008, payable in 2021. The industrial revenue bonds are
supported by the Revolver.
|
Total
Outstanding
|
||||||||||||||||||||||||||||||||
|
As
of November 30, 2008
|
||||||||||||||||||||||||||||||||
|
Expected
Maturity Date
|
Recorded
|
Fair
|
||||||||||||||||||||||||||||||
|
(Dollars
in thousands)
|
2009
|
2010
|
2011
|
2012
|
2013
|
Thereafter
|
Value
|
Value
|
||||||||||||||||||||||||
|
Liabilities
|
||||||||||||||||||||||||||||||||
|
Long-term
debt:
|
||||||||||||||||||||||||||||||||
|
Fixed-rate
secured notes, payable in US$
|
$ | 10,000 | $ | - | $ | - | $ | - | $ | - | $ | - | $ | 10,000 | $ | 9,869 | ||||||||||||||||
|
Average
interest rate
|
5.36 | % | - | - | - | - | - | 5.36 | % | |||||||||||||||||||||||
|
Fixed-rate
secured notes, payable in Singapore dollars
|
6,763 | 6,763 | 6,763 | 6,763 | - | - | 27,052 | 25,676 | ||||||||||||||||||||||||
|
Average
interest rate
|
4.25 | % | 4.25 | % | 4.25 | % | 4.25 | % | - | - | 4.25 | % | ||||||||||||||||||||
|
Variable-rate
industrial development bonds, payable in US$
|
- | - | - | - | - | 7,200 | 7,200 | 7,200 | ||||||||||||||||||||||||
|
Average
interest rate
|
- | - | - | - | - | 1.32 | % | 1.32 | % | |||||||||||||||||||||||
|
Variable-rate
industrial development bonds, payable in US$
|
- | - | - | - | - | 8,500 | 8,500 | 8,500 | ||||||||||||||||||||||||
|
Average
interest rate
|
- | - | - | - | - | 1.32 | % | 1.32 | % | |||||||||||||||||||||||
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA
CONSOLIDATED
STATEMENTS OF INCOME
|
Year
ended November 30,
|
||||||||||||
|
(Dollars
in thousands, except per share data)
|
2008
|
2007
|
2006
|
|||||||||
|
Sales
|
$ | 667,543 | $ | 631,010 | $ | 549,180 | ||||||
|
Cost
of sales
|
(513,922 | ) | (484,981 | ) | (416,791 | ) | ||||||
|
Gross
profit
|
153,621 | 146,029 | 132,389 | |||||||||
|
Selling,
general and administrative expenses
|
(98,166 | ) | (97,870 | ) | (94,689 | ) | ||||||
|
Other
income, net
|
8,222 | 6,030 | 11,397 | |||||||||
|
Income
from continuing operations before interest, income taxes and equity in
earnings of joint venture
|
63,677 | 54,189 | 49,097 | |||||||||
|
Interest
income/(expense), net
|
1,533 | 1,927 | (1,682 | ) | ||||||||
|
Income
from continuing operations before income taxes and equity in earnings of
joint venture
|
65,210 | 56,116 | 47,415 | |||||||||
|
Provision
for income taxes
|
(16,955 | ) | (10,359 | ) | (10,905 | ) | ||||||
|
Income
from continuing operations before equity in earnings of joint
venture
|
48,255 | 45,757 | 36,510 | |||||||||
|
Equity
in earnings of joint venture, net of taxes
|
10,337 | 15,383 | 13,550 | |||||||||
|
Income
from continuing operations
|
58,592 | 61,140 | 50,060 | |||||||||
|
Income
from discontinued operations, net of taxes
|
- | 6,099 | 2,140 | |||||||||
|
Net
income
|
$ | 58,592 | $ | 67,239 | $ | 52,200 | ||||||
|
Basic
earnings per share:
|
||||||||||||
|
Income
from continuing operations
|
$ | 6.42 | $ | 6.77 | $ | 5.73 | ||||||
|
Income
from discontinued operations, net of taxes
|
- | .68 | .25 | |||||||||
|
Net
income
|
$ | 6.42 | $ | 7.45 | $ | 5.98 | ||||||
|
Diluted
earnings per share:
|
||||||||||||
|
Income
from continuing operations
|
$ | 6.39 | $ | 6.73 | $ | 5.64 | ||||||
|
Income
from discontinued operations, net of taxes
|
- | .67 | .24 | |||||||||
|
Net
income
|
$ | 6.39 | $ | 7.40 | $ | 5.88 | ||||||
|
Weighted-average
shares (basic)
|
9,124,557 | 9,029,487 | 8,731,839 | |||||||||
|
Weighted-average
shares (diluted)
|
9,169,056 | 9,090,846 | 8,871,695 | |||||||||
The
accompanying notes are an integral part of these consolidated financial
statements.
CONSOLIDATED
BALANCE SHEETS - ASSETS
|
As
of November 30,
|
||||||||
|
(Dollars
in thousands)
|
2008
|
2007
|
||||||
|
ASSETS
|
||||||||
|
Current
assets
|
||||||||
|
Cash
and cash equivalents
|
$ | 143,561 | $ | 155,433 | ||||
|
Receivables,
less allowances of $7,009 in 2008 and $6,235 in 2007
|
181,961 | 185,335 | ||||||
|
Inventories
|
95,645 | 97,717 | ||||||
|
Deferred
income taxes
|
25,582 | 22,446 | ||||||
|
Prepaid
expenses and other current assets
|
10,053 | 12,100 | ||||||
|
Total
current assets
|
456,802 | 473,031 | ||||||
|
Investments
in joint ventures
|
||||||||
|
Equity
method
|
14,428 | 14,677 | ||||||
|
Cost
method
|
3,784 | 3,784 | ||||||
|
Property,
plant and equipment
|
||||||||
|
Land
|
38,679 | 35,860 | ||||||
|
Buildings
|
85,555 | 75,245 | ||||||
|
Machinery
and equipment
|
306,177 | 292,563 | ||||||
|
Construction
in progress
|
37,386 | 24,655 | ||||||
|
Total
property, plant and equipment at cost
|
467,797 | 428,323 | ||||||
|
Accumulated
depreciation
|
(261,635 | ) | (254,592 | ) | ||||
|
Total
property, plant and equipment, net
|
206,162 | 173,731 | ||||||
|
Deferred
income taxes
|
4,763 | 4,202 | ||||||
|
Goodwill
and intangible assets, net of accumulated amortization of $1,197 in 2008
and $1,130 in 2007
|
2,108 | 2,243 | ||||||
|
Other
assets
|
38,275 | 34,144 | ||||||
|
Total
assets
|
$ | 726,322 | $ | 705,812 | ||||
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)
|
2008
|
2007
|
||||||
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
||||||||
|
Current
liabilities
|
||||||||
|
Current
portion of long-term debt
|
$ | 16,763 | $ | 17,055 | ||||
|
Trade
payables
|
52,613 | 45,216 | ||||||
|
Accrued
liabilities
|
79,538 | 84,436 | ||||||
|
Income
taxes payable
|
10,443 | 11,985 | ||||||
|
Total
current liabilities
|
159,357 | 158,692 | ||||||
|
Long-term
debt, less current portion
|
35,989 | 57,593 | ||||||
|
Deferred
income taxes
|
3,806 | 15,740 | ||||||
|
Other
long-term liabilities
|
50,050 | 28,414 | ||||||
|
Total
liabilities
|
249,202 | 260,439 | ||||||
|
Commitments
and contingencies
|
||||||||
|
Stockholders'
equity
|
||||||||
|
Common
Stock, par value $2.50 per share, authorized 24,000,000 shares,
outstanding 9,188,692 shares in 2008 and 9,138,563 shares in 2007, net of
treasury shares
|
29,805 | 29,623 | ||||||
|
Additional
paid-in capital
|
54,447 | 46,675 | ||||||
|
Retained
earnings
|
478,968 | 430,925 | ||||||
|
Accumulated
other comprehensive loss
|
(31,475 | ) | (9,870 | ) | ||||
|
Treasury
Stock (2,733,300 shares in 2008 and 2,710,479 shares in
2007)
|
(54,625 | ) | (51,980 | ) | ||||
|
Total
stockholders' equity
|
477,120 | 445,373 | ||||||
|
Total
liabilities and stockholders' equity
|
$ | 726,322 | $ | 705,812 | ||||
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, 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 | ||||||||||||||||||||||
|
Net
Income - 2008
|
- | - | - | - | 58,592 | - | - | 58,592 | ||||||||||||||||||||||||
|
Exercise
of stock options
|
28,750 | 72 | 348 | - | - | - | - | 420 | ||||||||||||||||||||||||
|
Foreign
currency translation adjustment
|
- | - | - | - | - | (11,860 | ) | - | (11,860 | ) | ||||||||||||||||||||||
|
Defined
benefit pension plans, net of tax
|
||||||||||||||||||||||||||||||||
|
Net
prior service cost
|
- | - | - | - | - | (200 | ) | - | (200 | ) | ||||||||||||||||||||||
|
Net
actuarial loss
|
- | - | - | - | - | (8,666 | ) | - | (8,666 | ) | ||||||||||||||||||||||
|
Forfeiture
of restricted stock
|
- | - | 91 | - | - | - | (91 | ) | - | |||||||||||||||||||||||
|
Comprehensive
income from joint venture
|
- | - | - | - | - | (879 | ) | - | (879 | ) | ||||||||||||||||||||||
|
Cash
dividends on Common Stock
|
- | - | - | - | (10,549 | ) | - | - | (10,549 | ) | ||||||||||||||||||||||
|
Stock
compensation expense
|
- | - | 76 | - | - | - | - | 76 | ||||||||||||||||||||||||
|
Issuance
of restricted stock
|
44,200 | 110 | (110 | ) | - | - | - | - | - | |||||||||||||||||||||||
|
Excess
tax benefit related to stock-based compensation
|
- | - | 1,330 | - | - | - | - | 1,330 | ||||||||||||||||||||||||
|
Restricted
stock compensation expense
|
- | - | 6,037 | - | - | - | - | 6,037 | ||||||||||||||||||||||||
|
Treasury
stock purchase
|
(22,821 | ) | - | - | - | - | - | (2,554 | ) | (2,554 | ) | |||||||||||||||||||||
|
Balance,
November 30, 2008
|
9,188,692 | $ | 29,805 | $ | 54,447 | $ | - | $ | 478,968 | $ | (31,475 | ) | $ | (54,625 | ) | $ | 477,120 | |||||||||||||||
The
accompanying notes are an integral part of these consolidated financial
statements.
CONSOLIDATED
STATEMENTS OF COMPREHENSIVE INCOME
|
Year
ended November 30,
|
||||||||||||
|
(In
thousands)
|
2008
|
2007
|
2006
|
|||||||||
|
Net
income
|
$ | 58,592 | $ | 67,239 | $ | 52,200 | ||||||
|
Foreign
currency translation adjustment
|
(11,860 | ) | 8,210 | 2,330 | ||||||||
|
Defined
benefit pension plans
|
15,237 | 6,314 | ||||||||||
|
Net
prior service cost
|
(200 | ) | - | - | ||||||||
|
Net
actuarial loss
|
(8,666 | ) | - | - | ||||||||
|
Comprehensive
(loss)/income from joint venture
|
(879 | ) | (50 | ) | 448 | |||||||
|
Comprehensive
income
|
$ | 36,987 | $ | 90,636 | $ | 61,292 | ||||||
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
Year
ended November 30,
|
||||||||||||
|
(In
thousands)
|
2008
|
2007
|
2006
|
|||||||||
|
OPERATING
ACTIVITIES
|
||||||||||||
|
Net
income
|
$ | 58,592 | $ | 67,239 | $ | 52,200 | ||||||
|
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
||||||||||||
|
Depreciation
|
20,320 | 16,993 | 17,270 | |||||||||
|
Amortization
|
89 | 41 | 170 | |||||||||
|
(Benefit)/provision
for deferred income taxes
|
(3,509 | ) | 7,016 | (5,631 | ) | |||||||
|
Earnings
in excess of distributions from joint ventures
|
(630 | ) | (227 | ) | (276 | ) | ||||||
|
Loss/(gain)
from sale of property, plant and equipment
|
68 | 17 | (8,864 | ) | ||||||||
|
(Gain)/loss
from sale of discontinued operations
|
- | (5,943 | ) | 157 | ||||||||
|
Stock
compensation expense
|
6,113 | 3,850 | 3,275 | |||||||||
|
Non-cash
write-down of assets
|
- | 643 | - | |||||||||
|
Changes
in operating assets and liabilities:
|
||||||||||||
|
Receivables,
net
|
1,381 | (21,747 | ) | (23,284 | ) | |||||||
|
Inventories
|
3,846 | (19,200 | ) | (25,906 | ) | |||||||
|
Prepaid
expenses and other current assets
|
1,802 | 3,847 | (5,890 | ) | ||||||||
|
Other
assets
|
(5,473 | ) | (440 | ) | 6,323 | |||||||
|
Trade
payables
|
8,688 | (1,626 | ) | 6,937 | ||||||||
|
Accrued
liabilities and income taxes payable
|
(6,129 | ) | 14,024 | 22,330 | ||||||||
|
Other
long-term liabilities and deferred income taxes
|
3,272 | (1,284 | ) | (21,968 | ) | |||||||
|
Net
cash provided by operating activities
|
88,430 | 63,203 | 16,843 | |||||||||
|
INVESTING
ACTIVITIES
|
||||||||||||
|
Proceeds
from sale of property, plant and equipment
|
1,575 | 288 | 10,253 | |||||||||
|
Proceeds
from sale of discontinued operations
|
- | 16,319 | 115,000 | |||||||||
|
Acquisitions
|
- | (5,977 | ) | (989 | ) | |||||||
|
Additions
to property, plant and equipment
|
(60,697 | ) | (47,697 | ) | (34,530 | ) | ||||||
|
Net
cash (used in)/provided by investing activities
|
(59,122 | ) | (37,067 | ) | 89,734 | |||||||
|
FINANCING
ACTIVITIES
|
||||||||||||
|
Net
change in short-term borrowings
|
- | - | (8,333 | ) | ||||||||
|
Issuance
of debt
|
- | 2,483 | 3,279 | |||||||||
|
Repayment
of debt
|
(21,126 | ) | (12,708 | ) | (11,069 | ) | ||||||
|
Dividends
on Common Stock
|
(10,549 | ) | (8,208 | ) | (7,101 | ) | ||||||
|
Issuance
of Common Stock
|
420 | 1,562 | 7,994 | |||||||||
|
Excess
tax benefits related to stock-based compensation
|
1,330 | 1,955 | 2,469 | |||||||||
|
Purchase
of treasury stock
|
(2,554 | ) | (1,612 | ) | (1,202 | ) | ||||||
|
Net
cash used in financing activities
|
(32,479 | ) | (16,528 | ) | (13,963 | ) | ||||||
|
Effect
of exchange rate changes on cash and cash equivalents
|
(8,701 | ) | 6,346 | 2,194 | ||||||||
|
Net
change in cash and cash equivalents
|
(11,872 | ) | 15,954 | 94,808 | ||||||||
|
Cash
and cash equivalents at beginning of year
|
155,433 | 139,479 | 44,671 | |||||||||
|
Cash
and cash equivalents at end of year
|
$ | 143,561 | $ | 155,433 | $ | 139,479 | ||||||
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
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 $6,723,000 in 2008,
$5,724,000 in 2007, and $5,790,000 in 2006.
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.
The
Company is subject to income taxes in the U.S. and in numerous foreign
jurisdictions. Judgments, estimates and assumptions are required in
determining tax return reporting positions and in calculating provisions for
income taxes, which are based on interpretations of tax regulations and
accounting pronouncements. Liabilities are established for uncertain
tax positions when it is more likely than not that such positions will be
challenged and may not be sustained upon review by taxing
authorities. These liabilities are established through the income tax
provisions and are recorded as liabilities on the consolidated balance
sheets. These liabilities are recalculated as governing laws and
facts and circumstances change, such as the closing of a tax audit or the
expiration of the statute of limitations for a specific exposure.
Net
Income Per Share
Basic net
income per share is computed on the basis of the weighted-average number of
common shares outstanding during the periods presented. Diluted net income per
share is computed on the basis of the weighted-average number of common shares
outstanding plus the effect of outstanding stock options and restricted stock,
using the treasury stock method. Following is a reconciliation of the
weighted-average number of shares used in the computation of basic and diluted
net income per share:
|
(Dollars
In thousands, except per share data)
|
2008
|
2007
|
2006
|
|||||||||
|
Numerator:
|
||||||||||||
|
Income
from continuing operations
|
$ | 58,592 | $ | 61,140 | $ | 50,060 | ||||||
|
Income
from discontinued operations, net of taxes
|
- | 6,099 | 2,140 | |||||||||
|
Net
income
|
$ | 58,592 | $ | 67,239 | $ | 52,200 | ||||||
|
Denominator
for basic income per share:
|
||||||||||||
|
Weighted-average
shares outstanding, basic
|
9,124,557 | 9,029,487 | 8,731,839 | |||||||||
|
Denominator
for diluted income per share:
|
||||||||||||
|
Weighted-average
shares outstanding, basic
|
9,124,557 | 9,029,487 | 8,731,839 | |||||||||
|
Dilutive
effect of stock options and restricted stock
|
44,499 | 61,359 | 139,856 | |||||||||
|
Weighted-average
shares outstanding, diluted
|
9,169,056 | 9,090,846 | 8,871,695 | |||||||||
|
Basic
net income per share:
|
||||||||||||
|
Income
from continuing operations
|
$ | 6.42 | $ | 6.77 | $ | 5.73 | ||||||
|
Income
from discontinued operations, net of taxes
|
- | .68 | .25 | |||||||||
|
Net
income
|
$ | 6.42 | $ | 7.45 | $ | 5.98 | ||||||
|
Diluted
net income per share:
|
||||||||||||
|
Income
from continuing operations
|
$ | 6.39 | $ | 6.73 | $ | 5.64 | ||||||
|
Income
from discontinued operations, net of taxes
|
- | .67 | .24 | |||||||||
|
Net
income
|
$ | 6.39 | $ | 7.40 | $ | 5.88 | ||||||
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 (deductibles 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, 2008 and 2007, the Company had foreign
currency forward contracts with an aggregate fair value of $63,000 and $2,000,
respectively. The Company does not apply hedge accounting for these
derivative financial instruments. These derivatives are not
designated as hedges for accounting purposes. Net changes in fair
values of the underlying instruments are recognized in earnings.
Fair
Value of Financial Instruments
The fair
value of financial instruments, other than long-term debt or derivatives,
approximates the carrying value because of the short-term nature of such
instruments.
Concentration
of Credit Risk
Financial
instruments that subject the Company to credit risk consist primarily of cash
equivalents, trade accounts receivable, and forward foreign exchange
contracts. The Company records an allowance for doubtful accounts
based on historical experience and expected trends. Credit risk with
respect to trade accounts receivable is generally distributed over a large
number of entities comprising the Company's customer base and is geographically
dispersed. The Company performs ongoing credit evaluations of its
customers, maintains an allowance for doubtful accounts and, in certain
instances, maintains credit insurance. The Company actively evaluates
the creditworthiness of the financial institutions with which it conducts
business. If the financial condition of the Company’s customers were
to deteriorate, resulting in an inability to make payment, additional allowances
may be required.
Stock-Based
Compensation
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, herein. 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 at November 30, were as
follows:
|
2008
|
2007
|
|||||||||||||||||||||||
|
Tax
|
Tax
|
|||||||||||||||||||||||
|
(In
thousands)
|
Before
Tax
|
Benefit
|
Net
of Tax
|
Before
Tax
|
Benefit
|
Net
of Tax
|
||||||||||||||||||
|
Foreign
currency translation adjustment
|
$ | (3,732 | ) | $ | - | $ | (3,732 | ) | $ | 8,128 | $ | - | $ | 8,128 | ||||||||||
|
Comprehensive
loss from TAMCO
|
(2,025 | ) | - | (2,025 | ) | (1,146 | ) | - | (1,146 | ) | ||||||||||||||
|
Defined
benefit pension plans
|
||||||||||||||||||||||||
|
Net
actuarial loss
|
(45,010 | ) | 21,322 | (23,688 | ) | (24,626 | ) | 9,604 | (15,022 | ) | ||||||||||||||
|
Net
prior service cost
|
(2,312 | ) | 282 | (2,030 | ) | (3,000 | ) | 1,170 | (1,830 | ) | ||||||||||||||
|
Accumulated
other comprehensive loss
|
$ | (53,079 | ) | $ | 21,604 | $ | (31,475 | ) | $ | (20,644 | ) | $ | 10,774 | $ | (9,870 | ) | ||||||||
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 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 50 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 was effective for the first quarter of the
Company’s 2008 fiscal year. Prior to December 1, 2007, the Company
recorded reserves related to uncertain tax positions as a current
liability. Upon adoption of FIN No. 48, the Company reclassified tax
reserves related to uncertain tax positions for which a cash payment was not
expected within the next 12 months to noncurrent liabilities. The
Company’s adoption of FIN No. 48 did not require a cumulative adjustment to the
opening balance of retained earnings.
In
September 2006, the FASB issued SFAS No. 157, “Fair Value
Measurements.” SFAS No. 157 establishes a framework for measuring
fair value in accordance with U.S. generally accepted accounting principles, and
expands disclosure about fair value measurements. SFAS No. 157 is
effective for financial statements issued for fiscal years beginning after
November 15, 2007. Relative to SFAS No. 157, the FASB
issued FASB Staff Position (“FSP”) FASB Statements (“FAS”) 157-1, FAS 157-2 and
FAS 157-3 in 2008. FSP FAS 157-1 amends SFAS No. 157 to exclude
SFAS No. 13, “Accounting for Leases,” and its related interpretive
accounting pronouncements that address leasing transactions. FSP
FAS 157-2 delays the effective date of SFAS No. 157 to fiscal years
beginning after November 15, 2008 for all non-financial assets and non-financial
liabilities, except those that are recognized or disclosed at fair value in the
financial statements on a recurring basis. FSP FAS 157-3 clarifies
how SFAS No. 157 should be applied when valuing securities in markets that are
not active. The Company adopted SFAS No. 157, as amended,
effective December 1, 2007 with the exception of the application of SFAS No. 157
to non-recurring non-financial assets and non-financial
liabilities. The adoption of SFAS No. 157 did not have a
significant impact on the Company’s financial results of operations or financial
position. Further information about the application of SFAS No. 157
may be found in Note (19), herein.
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
2008. See Note (16), herein, 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
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,
“Employers’ Accounting For Postretirement Benefits Other Than
Pensions.” EITF Issue No. 06-4 requires that recognition of the
effects of adoption should be either by (a) a change in accounting
principle through a cumulative-effect adjustment to retained earnings as of the
beginning of the year of adoption or (b) a change in accounting principle
through retrospective application to all prior periods. The Company
is evaluating whether the adoption of EITF Issue No. 06-4 will have a material
effect on its consolidated financial statements. The Company will
adopt EITF Issue No. 06-4 in the first quarter of the fiscal year beginning
December 1, 2008.
In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities.” SFAS No. 159 allows an
entity the irrevocable option to elect fair value for the initial and subsequent
measurement for certain financial assets and liabilities on a
contract-by-contract basis. SFAS No. 159 also provides companies the
opportunity to mitigate volatility in reported earnings caused by measuring
related assets and liabilities differently without having to apply complex hedge
accounting provisions. SFAS No. 159 was adopted by the Company as of
December 1, 2007. The Company irrevocably elected not to exercise the
fair value option. The adoption of SFAS No. 159 did not have a
material effect on the Company’s consolidated financial statements.
In June
2007, the FASB issued EITF Issue No. 06-11, “Accounting for Income Tax Benefits
of Dividends on Share-Based Payment Awards,” effective for fiscal years
beginning after December 15, 2007. EITF Issue No. 06–11 requires
on a prospective basis that the tax benefit related to dividend equivalents paid
on restricted stock and restricted stock units which are expected to vest, be
recorded as an increase to additional paid-in capital. The adoption of
EITF Issue No. 06-11 is not expected to have a material effect on the
Company’s consolidated financial statements. The Company will adopt
EITF Issue No. 06-11 in the first quarter of the fiscal year beginning December
1, 2008.
In
December 2007, the FASB issued SFAS No. 141(R), “Business
Combinations.” SFAS No. 141(R) amends accounting and reporting
standards associated with business combinations and requires the acquiring
entity to recognize the assets acquired, liabilities assumed and noncontrolling
interests in the acquired entity at the date of acquisition at their fair
values. In addition, SFAS No. 141(R) requires that direct costs
associated with an acquisition be expensed as incurred and sets forth various
other changes in accounting and reporting related to business
combinations. SFAS No. 141(R) applies prospectively to business
combinations for which the acquisition date is on or after the beginning of the
first annual reporting period beginning on or after December 15, 2008. An
entity may not apply SFAS No. 141(R) before that date. The first such
reporting period for the Company will be the fiscal year beginning December 1,
2009.
In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests
in Consolidated Financial Statements, an amendment of ARB
No. 51.” SFAS No. 160 amends the accounting and reporting for
noncontrolling interests in a consolidated subsidiary and the deconsolidation of
a subsidiary. Included in this statement is the requirement that
noncontrolling interests be reported in the equity section of the balance
sheet. SFAS No. 160 is effective for fiscal years, and interim
periods within those fiscal years, beginning on or after December 15,
2008. Earlier adoption is prohibited. The first such
reporting period for the Company will be the fiscal year beginning December 1,
2009.
In March
2008, the FASB issued SFAS No. 161, “Disclosures about Derivative
Instruments and Hedging Activities – an amendment of FASB Statement
No. 133,” effective for fiscal years beginning after November 15,
2008, with early application encouraged. SFAS No. 161 amends and
expands the disclosure requirements for derivative instruments and hedging
activities by requiring enhanced disclosures about how and why the Company uses
derivative instruments, how derivative instruments and related hedged items are
accounted for, and how derivative instruments and related hedged items affect
the Company’s financial position, financial performance and cash
flows. The adoption of SFAS No. 161 is not expected to have a
material effect on the Company’s consolidated financial
statements. The Company will adopt SFAS No. 161 in the first quarter
of the fiscal year beginning December 1, 2008.
In June
2008, the FASB issued FSP EITF 03-6-1, “Determining Whether Instruments
Granted in Share-Based Payment Transactions Are Participating Securities,” which
addresses whether unvested instruments granted in share-based payment
transactions that contain nonforfeitable rights to dividends or dividend
equivalents are participating securities subject to the two-class method of
computing earnings per share under SFAS No. 128, “Earnings Per
Share.” FSP EITF 03-6-1 is effective for financial statements
issued for fiscal years, and interim periods within those fiscal years,
beginning on or after December 15, 2008. Earlier adoption is
prohibited. The adoption of FSP EITF 03-6-1 is not expected to have a
material effect on the Company’s consolidated financial statements.
In
December 2008, the FASB issued EITF Issue No. 08-6, “Equity Method Investment
Accounting Consideration,” effective for fiscal years beginning after
December 15, 2008. EITF Issue No. 08-6 requires an equity method
investor to account for its initial investment at cost and shall not separately
test an investee’s underlying indefinite-lived intangible assets for
impairment. It also requires an equity method investor to account for
share issuance by an investee as if the investor had sold a proportionate share
of its investment. The resulting gain or loss shall be recognized in
earnings. The Company is evaluating whether the adoption of EITF
Issue No. 08-6 will have a material effect on its consolidated financial
statements.
In
December 2008, the FASB issued FSP FAS 132(R)-1, “Employers’ Disclosures about
Postretirement Benefit Plan Assets,” amending FASB Statement No. 132(R),
“Employers’ Disclosures about Pensions and Other Postretirement Benefits,”
effective for fiscal years ending after December 15, 2009. FSP FAS
132(R)-1 requires an employer to disclose investment policies and strategies,
categories, fair value measurements, and significant concentration of risk among
its postretirement benefit plan assets. The adoption of FSP FAS
132(R)-1 is not expected to have a material effect on the Company’s consolidated
financial statements.
Supplemental
Cash Flow Information
|
(In
thousands)
|
2008
|
2007
|
2006
|
|||||||||
|
Interest
paid
|
$ | 3,256 | $ | 3,996 | $ | 4,891 | ||||||
|
Income
taxes paid
|
14,862 | 18,687 | 9,663 | |||||||||
Business
Acquisitions
The
Company made no acquisitions in the fiscal year ending November 30,
2008. In October 2007, the Company acquired the business of
Polyplaster, Ltda. (“Polyplaster”) for $5,977,000 plus an earn out that could
total $1,500,000 based on the post-acquisition performance of the acquired
business. 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 the assets of 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. Income taxes on gain from sale of discontinued
operations in 2006 reflected the allocation of sale proceeds to various taxing
jurisdictions, which resulted in certain tax losses without tax
benefits.
The
results of operations for the discontinued business were as follows for the year
ended November 30:
|
(In
thousands)
|
2007
|
2006
|
||||||
|
Revenue
from discontinued operations
|
$ | - | $ | 152,190 | ||||
|
Income
from discontinued operations before disposal, before income
taxes
|
$ | - | $ | 5,308 | ||||
|
Income
taxes on income from discontinued operations
|
156 | (3,011 | ) | |||||
|
Income
from discontinued operations before disposal, net of taxes
|
156 | 2,297 | ||||||
|
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 | ||||
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)
|
2008
|
2007
|
2006
|
|||||||||
|
Dividends
from joint ventures-cost method
|
$ | 4,010 | $ | 2,451 | $ | - | ||||||
|
Royalties,
fees and other income
|
1,361 | 751 | 887 | |||||||||
|
(Loss)/gain
on sale of property, plant and equipment
|
(68 | ) | (17 | ) | 8,837 | |||||||
|
Foreign
currency loss
|
(1,339 | ) | (116 | ) | (1,089 | ) | ||||||
|
Other
|
4,258 | 2,961 | 2,762 | |||||||||
| $ | 8,222 | $ | 6,030 | $ | 11,397 | |||||||
NOTE
4 - RECEIVABLES
Receivables
were as follows at November 30:
|
(In
thousands)
|
2008
|
2007
|
||||||
|
Trade
|
$ | 155,061 | $ | 156,562 | ||||
|
Joint
ventures
|
1,380 | 2,714 | ||||||
|
Other
|
32,529 | 32,294 | ||||||
|
Allowances
|
(7,009 | ) | (6,235 | ) | ||||
| $ | 181,961 | $ | 185,335 | |||||
The
Company’s provision for bad debts was $4,419,000 in 2008, $3,248,000 in 2007,
and $1,351,000 in 2006. Trade receivables included unbilled
receivables related to the percentage-of-completion method of revenue
recognition of $24,706,000 and $45,578,000 at November 30, 2008 and 2007,
respectively.
NOTE
5 – INVENTORIES
Inventories
were as follows at November 30:
|
(In
thousands)
|
2008
|
2007
|
||||||
|
Finished
products
|
$ | 44,033 | $ | 41,580 | ||||
|
Materials
and supplies
|
33,485 | 28,246 | ||||||
|
Products
in process
|
18,127 | 27,891 | ||||||
| $ | 95,645 | $ | 97,717 | |||||
Certain
steel inventories used by the Water Transmission Group are valued using the LIFO
method. Inventories valued using the LIFO method comprised 21.5% and
17.5% of consolidated inventories at November 30, 2008 and 2007,
respectively. During 2008, inventory quantities subject to valuation using
the LIFO method declined; while steel prices increased
significantly. The decrease in cost of goods sold of approximately
$8,233,000 associated with the liquidation of LIFO inventory quantities carried
at historically lower costs was offset by an increase in cost of goods sold of
approximately $6,390,000 due to the increase in steel prices. The
impact was a net decrease in LIFO reserve of $1,843,000. If
inventories valued using the LIFO method were valued using the FIFO method,
total inventories would have increased by $7,906,000 and $9,749,000 at November
30, 2008 and 2007, respectively.
NOTE
6 - JOINT VENTURES
Investments,
advances and equity in undistributed earnings of joint ventures were as follows
at November 30:
|
(In
thousands)
|
2008
|
2007
|
||||||
|
Investment--equity
method
|
$ | 14,428 | $ | 14,677 | ||||
|
Investments--cost
method
|
3,784 | 3,784 | ||||||
| $ | 18,212 | $ | 18,461 | |||||
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
|
- | - | (2,025 | ) | (2,025 | ) | ||||||||||
|
Accumulated
equity in undistributed earnings
|
- | - | 7,971 | 7,971 | ||||||||||||
|
Investment,
November 30, 2008
|
$ | 3,784 | $ | - | $ | 14,428 | $ | 18,212 | ||||||||
|
2008
Dividends
|
$ | 2,514 | $ | 1,496 | $ | 10,808 | $ | 14,818 | ||||||||
|
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 | ||||||||
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, 2008. Condensed financial data of TAMCO, an investment
which is accounted for under the equity method, were as follows:
Financial
Condition (at November 30,)
|
(In
thousands)
|
2008
|
2007
|
||||||
|
Current
assets
|
$ | 64,168 | $ | 80,167 | ||||
|
Noncurrent
assets
|
47,978 | 40,215 | ||||||
| $ | 112,146 | $ | 120,382 | |||||
|
Current
liabilities
|
$ | 58,691 | $ | 67,147 | ||||
|
Noncurrent
liabilities
|
8,855 | 8,140 | ||||||
|
Stockholders'
equity
|
44,600 | 45,095 | ||||||
| $ | 112,146 | $ | 120,382 | |||||
Results
of Operations (year ended November 30,)
|
(In
thousands)
|
2008
|
2007
|
2006
|
|||||||||
|
Net
sales
|
$ | 365,957 | $ | 268,208 | $ | 273,036 | ||||||
|
Gross
profit
|
49,927 | 66,494 | 61,336 | |||||||||
|
Net
income
|
22,877 | 34,037 | 30,559 | |||||||||
TAMCO’s
2008 fourth-quarter results included a $9,800,000 pretax write-down of inventory
to the lower of cost or market as a result of the recent reduction in steel
rebar selling prices. The Company recognized $2,025,000 and
$1,146,000 in accumulated other comprehensive
loss at November 30, 2008 and 2007, respectively, which represents its
proportionate share of TAMCO’s accumulated other comprehensive
loss.
TAMCO’s
primary source of financing is a $60,000,000 credit facility.
Approximately $50,000,000 is currently outstanding under the credit facility,
which is scheduled to expire on March 1, 2009. TAMCO has received a
commitment from its bank, subject to certain conditions precedent to closing,
for a one year credit facility that decreases to $35,000,000 effective May 1,
2009. Separately, TAMCO’s shareholders agreed to provide $22,000,000 to
TAMCO by February 28, 2009. The Company’s share of the funding from
shareholders totals $11,000,000. The Company may provide additional
funding to TAMCO if TAMCO is unable to finalize the bank facility or obtain
other third-party financing. TAMCO's ability
to issue dividends will be dependent on its future cash position and limited by
terms of its financing arrangements.
Sales to
joint ventures totaled $4,365,000 in 2008, $3,873,000 in 2007, and $5,888,000 in
2006.
NOTE
7 - OTHER ASSETS
Other
assets were as follows at November 30:
|
(In
thousands)
|
2008
|
2007
|
||||||
|
Cash
surrender value of insurance policies
|
$ | 25,584 | $ | 25,294 | ||||
|
Assets
held for sale
|
2,302 | 3,599 | ||||||
|
Other
|
10,389 | 5,251 | ||||||
| $ | 38,275 | $ | 34,144 | |||||
NOTE
8 - ACCRUED LIABILITIES
Accrued
liabilities were as follows at November 30:
|
(In
thousands)
|
2008
|
2007
|
||||||
|
Self
insurance reserves
|
$ | 38,159 | $ | 29,877 | ||||
|
Compensation
and benefits
|
21,121 | 22,843 | ||||||
|
Commissions
and royalties
|
3,498 | 1,866 | ||||||
|
Reserves
for pending claims and litigation
|
3,328 | 2,331 | ||||||
|
Product
warranties and guarantees
|
3,238 | 3,590 | ||||||
|
Taxes
(other than income taxes)
|
3,090 | 3,363 | ||||||
|
Deferred
Income
|
1,461 | 13,759 | ||||||
|
Interest
|
44 | 172 | ||||||
|
Other
|
5,599 | 6,635 | ||||||
| $ | 79,538 | $ | 84,436 | |||||
Deferred
income related to prepayments made by customers. The net decrease
from 2007 to 2008 reflected revenue recognized by the Company’s Water
Transmission Group as projects were completed during 2008. 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)
|
2008
|
2007
|
||||||
|
Balance,
beginning of period
|
$ | 3,590 | $ | 3,146 | ||||
|
Payments
|
(1,925 | ) | (2,594 | ) | ||||
|
Warranty
adjustment
|
(162 | ) | 130 | |||||
|
Warranties
issued during the period
|
1,735 | 2,908 | ||||||
|
Balance,
end of period
|
$ | 3,238 | $ | 3,590 | ||||
NOTE
9 - OTHER LONG-TERM LIABILITIES
Other
long-term liabilities were as follows at November 30:
|
(In
thousands)
|
2008
|
2007
|
||||||
|
Accrued
pension cost
|
$ | 39,261 | $ | 23,345 | ||||
|
Taxes
payable
|
7,393 | - | ||||||
|
Compensation
and benefits
|
3,206 | 3,336 | ||||||
|
Other
|
190 | 1,733 | ||||||
| $ | 50,050 | $ | 28,414 | |||||
During
2008, the Company adopted FIN 48 which resulted in a reclassification of
$7,393,000 of tax reserves related to uncertain tax positions for which a cash
payment is not expected within the next 12 months to noncurrent
liabilities.
NOTE
10 - INCOME TAXES
The
provision for income taxes included the following for the year ended November
30:
|
(In
thousands)
|
2008
|
2007
|
2006
|
|||||||||
|
Current
|
||||||||||||
|
Federal
|
$ | 6,605 | $ | (2,678 | ) | $ | 14,615 | |||||
|
Foreign
|
12,329 | 7,413 | 5,364 | |||||||||
|
State
|
1,530 | (1,392 | ) | 3,459 | ||||||||
| $ | 20,464 | $ | 3,343 | $ | 23,438 | |||||||
|
Deferred
|
||||||||||||
|
Federal
|
$ | (1,590 | ) | $ | 10,646 | $ | (10,309 | ) | ||||
|
Foreign
|
(1,617 | ) | (5,078 | ) | (386 | ) | ||||||
|
State
|
(302 | ) | 1,448 | (1,838 | ) | |||||||
| (3,509 | ) | 7,016 | (12,533 | ) | ||||||||
|
Provision
for income taxes
|
$ | 16,955 | $ | 10,359 | $ | 10,905 | ||||||
Deferred
income tax assets/(liabilities) were comprised of the following as of November
30:
|
(In
thousands)
|
2008
|
2007
|
||||||
|
Current
deferred income taxes
|
||||||||
|
Self-insurance
and claims reserves
|
$ | 12,216 | $ | 10,572 | ||||
|
Inventories
|
5,967 | 5,541 | ||||||
|
Employee
benefits
|
4,414 | 4,406 | ||||||
|
Accounts
receivable
|
848 | 1,731 | ||||||
|
Valuation
allowances
|
(2,518 | ) | (2,641 | ) | ||||
|
Other
|
4,655 | 2,837 | ||||||
|
Net
current deferred income tax assets
|
$ | 25,582 | $ | 22,446 | ||||
|
Noncurrent
deferred income taxes
|
||||||||
|
Net
operating loss carry-overs
|
$ | 9,556 | $ | 12,597 | ||||
|
Pension
benefit costs
|
13,924 | 6,134 | ||||||
|
Employee
benefits
|
1,549 | 1,661 | ||||||
|
Investments
|
(536 | ) | (227 | ) | ||||
|
Valuation
allowances
|
(7,730 | ) | (12,969 | ) | ||||
|
Property,
plant and equipment
|
(16,296 | ) | (17,277 | ) | ||||
|
Other
|
490 | (1,457 | ) | |||||
|
Net
noncurrent deferred income tax assets/(liabilities)
|
$ | 957 | $ | (11,538 | ) | |||
|
Net
deferred income tax assets
|
$ | 26,539 | $ | 10,908 | ||||
As of
November 30, 2008, the Company had foreign net operating loss carry-overs of
approximately $34,900,000. A full valuation allowance has been provided against
these net operating losses except for $17,000,000 of net operating losses
generated by the Company’s 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
$5,363,000 in 2008, compared to 2007. This net decrease included a
$6,479,000 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 $1,100,000 in
2008 and $3,200,000 in 2007 of valuation allowance related to the Company’s
subsidiary in the Netherlands due to profitability in 2007 and 2008, and
projected profitability in the future. The decrease in 2008 was
partially offset by a net increase in the valuation allowance related to
executive compensation deductions.
The tax
provision represents effective tax rates of 26.0%, 18.5% and 23.0% of income
before income taxes for the years ended November 30, 2008, 2007 and 2006,
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)
|
2008
|
2007
|
2006
|
|||||||||
|
Domestic
pretax income
|
$ | 9,883 | $ | 6,721 | $ | 30,036 | ||||||
|
Foreign
pretax income
|
55,327 | 49,395 | 17,379 | |||||||||
| $ | 65,210 | $ | 56,116 | $ | 47,415 | |||||||
|
Taxes
at federal statutory rate
|
$ | 22,823 | $ | 19,641 | $ | 16,596 | ||||||
|
State
taxes, net of federal tax benefit
|
798 | (293 | ) | 1,053 | ||||||||
|
Foreign
earnings taxed at different rates, including withholding
taxes
|
(4,010 | ) | (4,782 | ) | 1,264 | |||||||
|
Percentage
depletion
|
(587 | ) | (618 | ) | (558 | ) | ||||||
|
Non-deductible
compensation
|
2,462 | 2,612 | 1,702 | |||||||||
|
Research
and development credits
|
(398 | ) | (449 | ) | (28 | ) | ||||||
|
Section
199 deduction
|
(521 | ) | (262 | ) | (490 | ) | ||||||
|
Settlement
of tax examinations
|
(2,920 | ) | (1,285 | ) | (7,233 | ) | ||||||
|
Investment
write-off
|
- | (4,723 | ) | - | ||||||||
|
Other,
net
|
(692 | ) | 518 | (1,401 | ) | |||||||
| $ | 16,955 | $ | 10,359 | $ | 10,905 | |||||||
The
Company files tax returns in numerous jurisdictions and is subject to audit in
these jurisdictions. During the year ended November 30, 2008, the
Company was audited by the Internal Revenue Service (“IRS”) for 2005 and 2006,
with no material assessment; and the statute of limitations for 2004
expired. Although the 2005 and 2006 examinations were completed, the
statutes are still open for 2005 and forward. In addition, the
financial statements reflect settlements with other local and foreign
jurisdictions. The net impact to the Company’s financial statements
as a result of these federal, foreign and local jurisdiction settlements was a
reduction of $2,920,000 in income taxes payable.
During
the year ended November 30, 2007, the Company was not under federal audit; and
the statute of limitations for 2003 expired. In 2006, the IRS
finalized its examination of the Company’s 1996 through 1998 federal income tax
returns as well as its returns for 1999 through 2002. The results of
these examinations, which included a concurrent review of the Company’s claims
for research and development credits for tax years 1998-2000, are reflected in
the financial statements. In addition, the financial statements
reflect settlements with other local and foreign jurisdictions. The
net impact to the Company’s financial statements as a result of these federal,
foreign and local jurisdiction settlements was a reduction of $7,233,000 in
income taxes payable in 2006.
The
Company intends to permanently reinvest its unrepatriated foreign
earnings. The cumulative amount of undistributed earnings of foreign
subsidiaries was $94,000,000 at November 30, 2008. The Company has
not provided deferred taxes on the earnings, and the additional U.S. income tax
on the unremitted foreign earnings, if repatriated, may be offset in whole or in
part by foreign tax credits.
Prior to
December 1, 2007, the Company recorded reserves related to uncertain tax
positions as a current liability. Upon adoption of FIN No. 48, the
Company reclassified tax reserves related to uncertain tax positions for which a
cash payment is not expected within the next 12 months to noncurrent
liabilities. The Company’s adoption of FIN No. 48 did not require a
cumulative adjustment to the opening balance of retained earnings.
A
reconciliation of unrecognized tax benefits from December 1, 2007 to November
30, 2008 follows:
|
(In
thousands)
|
2008
|
|||
|
Unrecognized
tax benefits at December 1, 2007
|
$ | 13,102 | ||
|
Increases
for positions taken in current year
|
1,157 | |||
|
Increases
for positions taken in prior years
|
658 | |||
|
Decreases
for positions taken in prior years
|
(6,557 | ) | ||
|
Decreases
for settlements with taxing authorities
|
(145 | ) | ||
|
Decreases
for lapses in the applicable statute of limitations
|
(799 | ) | ||
|
Unrecognized
tax benefits at November 30, 2008
|
$ | 7,416 | ||
At
November 30, 2008, the total amount of gross unrecognized tax benefits,
excluding interest, was $7,416,000. This amount is not reduced for
offsetting benefits in other tax jurisdictions and for the benefit of future tax
deductions that would arise as a result of settling such liabilities as
recorded. Of this amount, $3,951,000 would reduce the Company’s
income tax expense and effective tax rate, after giving effect to offsetting
benefits from other tax jurisdictions and resulting future
deductions. At December 1, 2007, the total amount of gross
unrecognized tax benefits, excluding interest, was $13,102,000.
The
Company anticipates that it is reasonably possible that the total amount of
unrecognized tax benefits may significantly change within the succeeding 12
months as a result of the expiration of certain state statutes of limitations
for examination and the settlement of certain state audits. The
Company estimates that these events could reasonably result in a possible
decrease in unrecognized tax benefits of $1,233,000.
The
Company accrues interest and penalties related to unrecognized tax benefits as
income tax expense. Accruals totaling $1,098,000 were recorded
as a liability in the Company’s consolidated balance sheet at November 30, 2008,
compared to $1,415,000 as of December 1, 2007.
The
Company’s federal income tax returns remain subject to examination for 2007 and
forward. The Company files multiple state income tax returns,
including California, Hawaii, Arizona and Texas, with open statutes ranging from
2000 through 2008. The Company also files multiple foreign income tax
returns and remains subject to examination in multiple foreign jurisdictions,
including the Netherlands, Brazil, Singapore and Malaysia, for years ranging
from 1996 through 2008.
NOTE
11 - DEBT
Short-term
borrowings consist of loans payable under bank credit lines. There were no
short-term borrowings outstanding at November 30, 2008 and at November 30,
2007. At November 30, 2008, the equivalent of $12,573,000 was
available under short-term credit lines.
Domestically,
as of November 30, 2008, the Company maintained a $100,000,000 revolving credit
facility with six banks (the "Revolver"). At November 30, 2008,
$18,167,000 of the Revolver was utilized for standby letters of credit;
therefore, $81,833,000 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
$17,800,000. At November 30, 2008, there were no borrowings under
these facilities.
The
Company intends for short-term borrowing under certain bank facilities utilized
by the Company and its foreign subsidiaries to be refinanced on a long-term
basis via the Revolver. The amount available under the Revolver
exceeded such short-term borrowing at November 30, 2007.
Long-term
debt consisted of the following as of November 30:
|
(In
thousands)
|
2008
|
2007
|
||||||
|
Fixed-rate
notes:
|
||||||||
|
5.36%,
payable in annual principal installments of $10,000
|
$ | 10,000 | $ | 20,000 | ||||
|
4.25%,
payable in Singapore Dollars, in annual principal installments of
$6,763
|
27,052 | 35,274 | ||||||
|
Variable-rate
industrial development bonds:
|
||||||||
|
payable
in 2016 (1.32% at November 30, 2008)
|
7,200 | 7,200 | ||||||
|
payable
in 2021 (1.32% at November 30, 2008)
|
8,500 | 8,500 | ||||||
|
Variable-rate
bank revolving credit facility
|
- | 3,674 | ||||||
| 52,752 | 74,648 | |||||||
|
Less
current portion
|
(16,763 | ) | (17,055 | ) | ||||
| $ | 35,989 | $ | 57,593 | |||||
Future
maturities of long-term debt were as follows as of November 30,
2008:
|
Year
ending
|
||||||
|
(In
thousands)
|
November
30,
|
Amount
|
||||
|
2009
|
$ | 16,763 | ||||
|
2010
|
6,763 | |||||
|
2011
|
6,763 | |||||
|
2012
|
6,763 | |||||
|
2013
|
- | |||||
|
Thereafter
|
15,700 | |||||
| $ | 52,752 | |||||
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 $167.9 million as of November 30, 2008. The Company is required to
maintain a consolidated leverage ratio of consolidated funded indebtedness to
earnings before interest, taxes, depreciation and amortization ("EBITDA") of no
more than 2.5 times. At November 30, 2008, the Company maintained a consolidated
leverage ratio of .54 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, 2008, qualifying
tangible assets equaled 4.15 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, 2008, the
Company maintained such a fixed charge coverage ratio of 2.68 times. Under
the most restrictive provisions of the Company's lending agreements,
approximately $26.8 million of retained earnings was not restricted, at November
30, 2008, as to the declaration of cash dividends or the repurchase of Company
stock. At November 30, 2008, 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)
|
2008
|
2007
|
2006
|
|||||||||
|
Interest
income
|
$ | 3,871 | $ | 5,161 | $ | 2,899 | ||||||
|
Interest
expense
|
(2,338 | ) | (3,234 | ) | (4,581 | ) | ||||||
|
Interest
income/(expense), net
|
$ | 1,533 | $ | 1,927 | $ | (1,682 | ) | |||||
The
following disclosure of the estimated fair value of the Company's debt is
prepared in accordance with the requirements of SFAS No. 157, "Fair Value
Measurements." SFAS No. 157 defines fair value, establishes a
framework for measuring fair value, establishes a fair value hierarchy based on
the inputs used to measure fair value and enhances disclosure requirements for
fair value measurements. The estimated fair value amounts were
determined by the Company using available market information and appropriate
valuation methodologies. Considerable judgment is required to develop
the estimated fair value, thus the estimates provided herein are not necessarily
indicative of the amounts that could be realized in a current market
exchange.
|
Carrying
|
Fair
|
|||||||
|
(In
thousands)
|
Amount
|
Value
|
||||||
|
November
30, 2008
|
||||||||
|
Fixed-rate,
long-term debt
|
$ | 37,052 | $ | 35,545 | ||||
|
Variable-rate,
long-term debt
|
15,700 | 15,700 | ||||||
|
November
30, 2007
|
||||||||
|
Fixed-rate,
long-term debt
|
$ | 55,274 | $ | 55,444 | ||||
|
Variable-rate,
long-term debt
|
19,374 | 19,374 | ||||||
The
Company used a discounted cash flow technique that incorporates a market
interest yield curve with adjustments for duration, optionality and risk
profile. The estimated fair value of the Company's fixed-rate,
long-term debt is based on U.S. government notes at November 30, 2008 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 $4,633,000 in 2008, $4,039,000 in 2007, and $3,774,000 in
2006. Future rental commitments were as follows as of November 30,
2008:
|
Year
ending
|
||||||
|
(In
thousands)
|
November
30,
|
Amount
|
||||
|
2009
|
$ | 4,494 | ||||
|
2010
|
4,031 | |||||
|
2011
|
3,314 | |||||
|
2012
|
2,206 | |||||
|
2013
|
1,328 | |||||
|
Thereafter
|
20,882 | |||||
| $ | 36,255 | |||||
Future
rental commitments for leases are not reduced by minimum non-cancelable sublease
rentals aggregating $2,428,000 at November 30, 2008.
NOTE
13 - INCENTIVE STOCK COMPENSATION PLANS
As of
November 30, 2008, the Company had outstanding grants under the following
share-based compensation plans:
· 1994
Non-Employee Director Stock Option Plan ("1994 Plan") - The 1994 Plan was
terminated in 2001, except as to the outstanding options. A total of
240,000 new shares of Common Stock were made available for awards to
non-employee directors. Non-employee directors were granted options to
purchase the Company's Common Stock at prices not less than 100% of market value
on the date of grant. Such options vested in equal annual installments
over four years and terminate ten years from the date of grant.
· 2001
Stock Incentive Plan ("2001 Plan") - The 2001 Plan was terminated in 2004,
except as to the outstanding stock options and restricted stock grants. A
total of 380,000 new shares of Common Stock were made available for awards to
key employees and non-employee directors. The 2001 Plan served as the
successor to the 1994 Plan and superseded that plan. Non-employee
directors were granted options under the 2001 Plan to purchase the Company's
Common Stock at prices not less than 100% of market value on the date of
grant. Such options vested in equal annual installments over four
years. Such options terminate ten years from the date of grant. Key
employees were granted restricted stock under the 2001 Plan. Such
restricted stock grants vested in equal annual installments over four
years.
· 2004
Stock Incentive Plan ("2004 Plan") - The 2004 Plan serves as the successor to
the 2001 Plan and supersedes that plan. A total of 525,000 new shares of
Common Stock were made available for awards to key employees and non-employee
directors and may include, but are not limited to, stock options and restricted
stock grants. Non-employee directors were granted options under the 2004
Plan to purchase the Company's Common Stock at prices not less than 100% of
market value on the date of grant. Such options vest in equal annual
installments over four years and terminate ten years from the date of
grant. Key employees and non-employee directors were granted restricted
stock under the 2004 Plan. Such restricted stock grants typically vest in
equal annual installments over three years. During the 12 months ended
November 30, 2008, the Company granted 3,802 stock options to non-employee
directors with a fair value on the grant date of $101,000. The
Company also granted 7,200 restricted shares to non-employee directors with a
fair value on the grant dates of $675,000 and 19,000 restricted shares to key
employees with a fair value on the grant dates of $1,976,000. In
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 the grant date was $2,055,000, to
be recognized ratably as stock compensation expense through March 31,
2010.
In
addition to the above, in 2001, non-employee directors were granted options to
purchase the Company's Common Stock at prices not less than 100% of market value
on the date of grant. Such options vested in equal annual installments
over four years and terminate ten years from the date of grant. At
November 30, 2008, there were 7,000 shares subject to such stock
options.
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, 2008 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, 2008 included
compensation expense of $6,113,000, related to stock-based compensation
arrangements, compared to $3,850,000 in 2007 and $3,275,000 in
2006. Tax benefit related to this expense was $2,384,000 in 2008,
compared to $1,502,000 in 2007 and $1,277,000 in 2006. There were no
capitalized share-based compensation costs for the year ended November 30,
2008.
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, 2008, excess tax benefits
totaled $1,330,000, compared to $1,955,000 in 2007.
The
following table summarizes the stock option activity for the year ended November
30, 2008:
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, 2007
|
67,250 | $ | 28.77 | |||||||||||||
|
Granted
|
3,802 | 101.23 | ||||||||||||||
|
Exercised
|
(34,750 | ) | 27.46 | |||||||||||||
|
Outstanding
at November 30, 2008
|
36,302 | 27.00 | 4.61 | $ | 771 | |||||||||||
|
Options
exercisable at November 30, 2008
|
31,000 | 30.01 | 3.96 | $ | 740 | |||||||||||
In the
year ended November 30, 2008, 3,802 options were granted; and no options were
forfeited or expired. The aggregate intrinsic value in the table
above represents the total pretax intrinsic value, which is the difference
between the Company's closing stock price on the last trading day of fiscal 2008
and the exercise price times the number of shares that would have been received
by the option holders if they exercised their options on November 30,
2008. This amount will change based on the fair market value of the
Company's Common Stock. The aggregate intrinsic value of stock
options exercised in the years ended November 30, 2008, 2007 and 2006 was
$2,414,000, $3,050,000, and $13,870,000, respectively.
As of
November 30, 2008, there was $4,821,000 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, 2008, 2007 and 2006, 26,200, 88,550, and 51,000 shares
of restricted stock were granted, respectively. The weighted-average,
grant-date fair value of such restricted stock was $101.18, $90.76, and $55.31,
respectively. The fair value of vested restricted stock for the years
ended November 30, 2008, 2007 and 2006 was $5,844,000, $3,562,000, and
$3,973,000, respectively. In 2008, 1,667 shares of restricted stock
were forfeited, with a fair value of $91,000.
Net cash
proceeds from stock options exercised in the years ended November 30, 2008, 2007
and 2006 were $420,000, $1,562,000, and $7,994,000, 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
During
2008, 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)
|
2007
|
Adjustments
|
2008
|
|||||||||
|
Fiberglass-Composite
Pipe
|
$ | 1,440 | $ | 1,440 | ||||||||
|
Water
Transmission
|
392 | (32 | ) | 360 | ||||||||
|
Infrastructure
Products
|
201 | - | 201 | |||||||||
| $ | 2,033 | $ | (32 | ) | $ | 2,001 | ||||||
The
Company's intangible assets, other than goodwill, and related accumulated
amortization consisted of the following:
|
November
30, 2008
|
November
30, 2007
|
|||||||||||||||
|
Gross
Intangible
|
Accumulated
|
Gross
Intangible
|
Accumulated
|
|||||||||||||
|
(In
thousands)
|
Assets
|
Amortization
|
Assets
|
Amortization
|
||||||||||||
|
Trademarks
|
$ | 111 | $ | (106 | ) | $ | 113 | $ | (101 | ) | ||||||
|
Non-compete
agreements
|
282 | (186 | ) | 299 | (163 | ) | ||||||||||
|
Patents
|
212 | (212 | ) | 212 | (212 | ) | ||||||||||
|
Other
|
64 | (58 | ) | 79 | (17 | ) | ||||||||||
| $ | 669 | $ | (562 | ) | $ | 703 | $ | (493 | ) | |||||||
All of
the Company's intangible assets, other than goodwill, are subject to
amortization. Amortization expense related to intangible assets for
the years ended November 30, 2008, 2007, and 2006 was $89,000, $41,000, and
$170,000, respectively. At November 30, 2008, estimated future
amortization expense for each year in the four-year period ending November 30,
2012 was as follows: $45,000 for 2009, $35,000 for 2010, $17,000 for 2011, and
$10,000 for 2012. Amortizing intangible assets will be fully
amortized by November 30, 2012.
NOTE
15 - COMMITMENTS AND CONTINGENCIES
In April
2004, Sable Offshore Energy Inc. ("Sable"), as agent for certain owners of the
Sable Offshore Energy Project, brought an action against various coatings
suppliers and application contractors, including the Company and two of its
subsidiaries, Ameron (UK) Limited and Ameron B.V. (collectively the "Ameron
Subsidiaries"), in the Supreme Court of Nova Scotia, Canada. Sable
seeks damages allegedly sustained by it resulting from performance problems with
several coating systems used on the Sable Offshore Energy Project, including
coatings products furnished by the Company and the Ameron Subsidiaries.
Sable's originating notice and statement of claim alleged a claim for damages in
an unspecified amount; however, Sable has since alleged that its claim for
damages against all defendants is approximately 440,000,000 Canadian dollars, a
figure which the Company and the Ameron Subsidiaries contest. This
matter is in discovery, and no trial date has yet been
established. The Company is vigorously defending itself in this
action. Based upon the information available to it at this time, the
Company is not able to estimate the possible range of loss with respect to this
case.
In May
2003, Dominion Exploration and Production, Inc. and Pioneer Natural Resources
USA, Inc. (collectively "Dominion") brought an action against the Company in
Civil District Court for the Parish of Orleans, Louisiana as owners of an
offshore production facility known as a SPAR. Dominion seeks damages
allegedly sustained by it resulting from delays in delivery of the SPAR caused
by the removal and replacement of certain coatings containing lead and/or lead
chromate for which the manufacturer of the SPAR alleged the Company was
responsible. Dominion contends that the Company made certain
misrepresentations and warranties to Dominion concerning the lead-free nature of
those coatings. Dominion's petition as filed alleged a claim for damages
in an unspecified amount; however, Dominion's economic expert has since
estimated Dominion's damages at approximately $128,000,000, a figure which the
Company contests. This matter is in discovery, and no trial date has yet
been established. The Company is vigorously defending itself in this
action. Based upon the information available to it at this time, the
Company is not able to estimate the possible range of loss with respect to this
case.
In July
2004, BP America Production Company (“BP America”) brought an action against the
Company in the 24th
Judicial District Court, Parish of Jefferson, Louisiana in connection with
fiberglass pipe sold by the Company for installation in four offshore platforms
constructed for BP America. The plaintiff seeks damages allegedly
sustained by it resulting from claimed defects in such pipe. BP
America’s petition as filed alleged a claim against the Company for rescission,
products liability, negligence, breach of contract and warranty and for damages
in an amount of not less than $20,000,000, a figure which the Company
contests. This matter is in discovery, and no trial date has yet been
established. The Company is vigorously defending itself in this
action. Based upon the information available to it at this time, the
Company is not able to estimate the possible range of loss with respect to this
case.
In June
2006, the Cawelo, California Water District (“Cawelo”) brought an action against
the Company in Kern County Superior Court, California in connection
with concrete pipe sold by the Company in 1995 for a wastewater
recovery pipeline in such county. Cawelo seeks damages allegedly
sustained by it resulting from the failure of such pipe in
2004. Cawelo’s petition as filed alleged a claim against the Company
for products liability, negligence, breach of express warranty and breach of
written contract and for damages in an amount of not less than $8,000,000, a
figure which the Company contests. This matter is in discovery, and
no trial date has yet been established. The Company is vigorously
defending itself in this action. Based upon the information available
to it at this time, the Company is not able to estimate the possible range of
loss with respect to this case.
The
Company is a defendant in a number of asbestos-related personal injury
lawsuits. These cases generally seek unspecified damages for
asbestos-related diseases based on alleged exposure to products previously
manufactured by the Company and others. As of November 30, 2008, the
Company was a defendant in 24 asbestos-related cases, compared to 36 cases (60
claimants) as of November 30, 2007. During the year ended November
30, 2008, there were 20 new asbestos-related cases, 24 cases dismissed,
eight cases settled, no judgments and aggregate net costs and expenses of
$83,000. Based upon the information available to it at this time, the
Company is not able to estimate the possible range of loss with respect to these
cases.
The
Company is subject to federal, state and local laws and regulations concerning
the environment and is currently participating in administrative proceedings at
several sites under these laws. While the Company finds it difficult to estimate
with any certainty the total cost of remediation at the several sites, on the
basis of currently available information and reserves provided, the Company
believes that the outcome of such environmental regulatory proceedings will not
have a material effect on the Company's financial position, cash flows, or
results of operations. During the year ended November 30, 2008,
the Company incurred $1,000,000 of net costs and expenses related to such
proceedings.
The U.S.
Treasury Department’s Office of Foreign Assets Control (“OFAC”) sent to the
Company a Requirement To Furnish Information regarding transactions involving
Iran. The Company intends to cooperate fully with OFAC on this
matter. Based upon the information available to it at this time, the
Company is not able to predict the 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 results of operations if disposed of
unfavorably.
NOTE
16 - EMPLOYEE BENEFIT PLANS
The
Company has a qualified, defined benefit, noncontributory pension plan for
certain U.S. employees not covered by union pension plans. The
Company’s subsidiary in the Netherlands provides defined retirement benefits to
eligible employees. The Company also provides health and life
insurance to a limited number of eligible retirees and eligible survivors of
retirees.
The
Company’s defined benefit pension and other postretirement benefit costs and
obligations are dependent on assumptions used by actuaries in calculating such
amounts. These assumptions, which are reviewed annually, include
discount rates, long-term expected rates of return on plan assets and expected
rates of increase in compensation. Assumed discount rates, based on
market interest rates on long-term fixed income debt securities of highly-rated
corporations, are used to calculate the present value of benefit payments which
are projected to be made in the future, including projections of increases in
employees’ annual compensation and health care costs. A decrease in
the discount rate would increase the Company’s obligation and
expense. The long-term expected rate of return on plan assets is
based principally on prior performance and future expectations for various types
of investments as well as the expected long-term allocation of
assets. Changes in the allocation of plan assets would impact the
expected rate of return. The expected rate of increase in
compensation is based upon movements in inflation rates as reflected by market
interest rates. Benefits paid to participants are based upon age,
years of credited service and average compensation or negotiated benefit
rates.
Assets of
the Company’s U.S. defined benefit plan are invested in a directed trust. Assets
in the trust are invested in domestic and foreign equity securities of
corporations (including $4,310,400 of the Company’s Common Stock at November 30,
2008), U.S. government obligations, derivative securities, corporate bonds and
money market funds. The subsidiary in the Netherlands contracts with third-party
insurance companies to pay benefits to retirees.
PENSION
BENEFITS
The
following sets forth the change in benefit obligation, change in plan assets,
funded status and amounts recognized in the balance sheets as of November 30,
2008 and 2007 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)
|
2008
|
2007
|
2008
|
2007
|
||||||||||||
|
Change
in Benefit Obligation
|
||||||||||||||||
|
Projected
benefit obligation-beginning of year
|
$ | 192,410 | $ | 192,504 | $ | 45,908 | $ | 49,066 | ||||||||
|
Service
cost
|
2,974 | 2,928 | 439 | 529 | ||||||||||||
|
Interest
cost
|
11,553 | 11,178 | 2,541 | 2,260 | ||||||||||||
|
Participant
contributions
|
- | - | 185 | 163 | ||||||||||||
|
Amendments
|
46 | - | - | - | ||||||||||||
|
Actuarial
(gain)/loss
|
(19,861 | ) | (2,829 | ) | (7,429 | ) | (9,227 | ) | ||||||||
|
Foreign
currency exchange rate changes
|
- | - | (6,039 | ) | 4,333 | |||||||||||
|
Benefit
payments
|
(11,749 | ) | (11,371 | ) | (1,494 | ) | (1,216 | ) | ||||||||
|
Projected
benefit obligation-end of year
|
$ | 175,373 | $ | 192,410 | $ | 34,111 | $ | 45,908 | ||||||||
|
Accumulated
Benefit Obligation
|
$ | 167,318 | $ | 184,724 | $ | 33,663 | $ | 45,370 | ||||||||
|
Change
in Plan Assets
|
||||||||||||||||
|
Plan
assets at fair value-beginning of year
|
$ | 183,940 | $ | 166,138 | $ | 34,310 | $ | 31,973 | ||||||||
|
Actual
return on plan assets
|
(34,775 | ) | 26,142 | 4,423 | (324 | ) | ||||||||||
|
Foreign
currency exchange rate changes
|
- | - | (5,810 | ) | 3,049 | |||||||||||
|
Employer
contributions
|
3,031 | 3,031 | 940 | 665 | ||||||||||||
|
Participant
contributions
|
- | - | 185 | 163 | ||||||||||||
|
Settlement
|
- | - | - | - | ||||||||||||
|
Benefit
payments
|
(11,749 | ) | (11,371 | ) | (1,494 | ) | (1,216 | ) | ||||||||
|
Plan
assets at fair value-end of year
|
$ | 140,447 | $ | 183,940 | $ | 32,554 | $ | 34,310 | ||||||||
|
Funded
Status
|
$ | (34,926 | ) | $ | (8,470 | ) | $ | (1,557 | ) | $ | (11,598 | ) | ||||
|
Balance
Sheet Amounts
|
||||||||||||||||
|
Noncurrent
assets
|
$ | - | $ | - | $ | - | $ | 167 | ||||||||
|
Current
liabilities
|
(30 | ) | (30 | ) | - | - | ||||||||||
|
Noncurrent
liabilities
|
(34,896 | ) | (8,440 | ) | (1,557 | ) | (11,765 | ) | ||||||||
|
Net
amount recognized
|
$ | (34,926 | ) | $ | (8,470 | ) | $ | (1,557 | ) | $ | (11,598 | ) | ||||
The
pretax amounts recognized in accumulated other comprehensive income include the
following as of November 30, 2008:
|
Pension
Benefits
|
U.S.
Postretirement
|
|||||||||||
|
(In
thousands)
|
U.S.
|
Non-U.S.
|
Benefits
|
|||||||||
|
Net
actuarial loss
|
$ | 54,908 | $ | (9,662 | ) | $ | (236 | ) | ||||
|
Prior
service cost/(credit)
|
288 | 1,587 | 437 | |||||||||
|
Net
amount recognized
|
$ | 55,196 | $ | (8,075 | ) | $ | 201 | |||||
The
Company’s estimates of 2009 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
|
$ | 5,802 | $ | (674 | ) | $ | - | |||||
|
Prior
service cost/(credit)
|
72 | (263 | ) | - | ||||||||
|
Net
amount recognized
|
$ | 5,874 | $ | (937 | ) | $ | - | |||||
The
Company contributed $3,000,000 to the U.S. pension plan and $940,000 to the
non-U.S. pension plans in 2008. The Company expects to contribute
approximately $8,500,000 to its U.S. pension plan and $1,800,000 to the non-U.S.
pension plans in 2009. The increased contribution is due to the
decrease in plan assets associated with declining investment markets in 2008 and
to the requirement of the Pension Protection Act of 2006.
Expected
future pension benefit payments, which reflect expected future service, were as
follows as of November 30, 2008:
|
Year
Ending
|
U.S.
Pension
|
Non-U.S.
Pension
|
|||||||
|
(In
thousands)
|
November
30,
|
Benefits
|
Benefits
|
||||||
|
2009
|
$ | 11,927 | $ | 1,299 | |||||
|
2010
|
12,431 | 1,538 | |||||||
|
2011
|
12,980 | 1,575 | |||||||
|
2012
|
13,367 | 1,686 | |||||||
|
2013
|
13,743 | 1,823 | |||||||
|
2014-2018
|
73,222 | 10,291 | |||||||
Net
periodic benefit costs for the Company's defined benefit retirement plans for
2008, 2007 and 2006 included the following components:
|
U.S.
Pension Benefits
|
Non-U.S.
Pension Benefits
|
|||||||||||||||||||||||
|
(In
thousands)
|
2008
|
2007
|
2006
|
2008
|
2007
|
2006
|
||||||||||||||||||
|
Service
cost
|
$ | 2,974 | $ | 2,928 | $ | 3,255 | $ | 439 | $ | 529 | $ | 1,101 | ||||||||||||
|
Interest
cost
|
11,553 | 11,178 | 10,198 | 2,541 | 2,260 | 1,870 | ||||||||||||||||||
|
Expected
return on plan assets
|
(15,713 | ) | (14,172 | ) | (12,210 | ) | (1,692 | ) | (1,680 | ) | (1,433 | ) | ||||||||||||
|
Amortization
of unrecognized prior service cost
|
117 | 113 | 104 | 306 | 281 | 488 | ||||||||||||||||||
|
Curtailment
|
- | - | 325 | - | - | 2,911 | ||||||||||||||||||
|
Amortization
of unrecognized net transition obligation
|
- | - | - | - | 151 | 317 | ||||||||||||||||||
|
Amortization
of accumulated loss
|
1,134 | 3,904 | 4,434 | - | - | - | ||||||||||||||||||
|
Other,
net
|
- | - | - | - | - | 610 | ||||||||||||||||||
|
Net
periodic cost
|
$ | 65 | $ | 3,951 | $ | 6,106 | $ | 1,594 | $ | 1,541 | $ | 5,864 | ||||||||||||
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
|
|||||||||||
|
2008
|
2007
|
2006
|
2008
|
2007
|
2006
|
|||||||
|
Weighted-average
discount rate
|
7.29%
|
6.15%
|
5.95%
|
6.70%
|
5.60%
|
4.50%
|
||||||
|
Rate
of increase in compensation levels
|
4.25%
|
3.65%
|
3.45%
|
2.25%
|
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
|
|||||||||||
|
2008
|
2007
|
2006
|
2008
|
2007
|
2006
|
|||||||
|
Weighted-average
discount rate
|
6.15%
|
5.95%
|
5.60%
|
5.60%
|
4.50%
|
4.00%
|
||||||
|
Expected
long-term rate of return on plan assets
|
8.75%
|
8.75%
|
8.75%
|
4.80%
|
5.00%
|
5.20%
|
||||||
|
Rate
of increase in compensation levels
|
3.65%
|
3.45%
|
3.10%
|
2.00%
|
2.00%
|
2.00%
|
||||||
The
discount rate was determined by projecting the plan’s expected future benefit
payments as defined for the projected benefit obligation, discounting those
expected payments using a theoretical zero-coupon spot yield curve derived from
high-quality corporate bonds currently available as of the plan measurement
date, and solving for the single equivalent discount rate that resulted in the
same projected benefit obligation.
The
expected long-term rate of return on plan assets was determined based on
historical and expected future returns of the various asset classes in which the
Company expects the pension funds to be invested. The expected
returns by asset class were as follows, as of November 30, 2008:
|
U.S.
Pension
|
Non-U.S.
Pension
|
|||
|
Benefits
|
Benefits
|
|||
|
Equity
securities
|
10%
|
8%
|
||
|
Debt
securities
|
5%
|
5%
|
||
|
Real
estate
|
-
|
7%
|
||
|
Other
|
-
|
5%
|
At
November 30, 2008, the Company decreased the long-term rate of return on assets
assumption to 8.50% to reflect current expectations for future returns in the
equity markets.
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
|
2008
|
2007
|
|||
|
Domestic
equities
|
65%
|
64%
|
71%
|
||
|
International
equities
|
10%
|
9%
|
11%
|
||
|
Fixed-income
securities
|
25%
|
27%
|
18%
|
||
|
Total
|
100%
|
100%
|
100%
|
Approximately 14% of the Company’s employees are covered by union-sponsored, collectively-bargained, multi-employer pension plans. Related to these plans, the Company contributed and charged to expense $1,000,000, $2,000,000, and $3,000,000 in 2008, 2007, and 2006, 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 2008, 2007, and 2006, the Company recorded expense for
matching contributions of $296,000, $648,000, and $1,387,000
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,
2008 and 2007 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)
|
2008
|
2007
|
||||||
|
Change
in Benefit Obligation
|
||||||||
|
Projected
benefit obligation-beginning of year
|
$ | 3,504 | $ | 3,492 | ||||
|
Service
cost
|
96 | 88 | ||||||
|
Interest
cost
|
209 | 202 | ||||||
|
Actuarial
gain
|
(522 | ) | (149 | ) | ||||
|
Benefit
payments
|
(139 | ) | (129 | ) | ||||
|
Projected
benefit obligation-end of year
|
$ | 3,148 | $ | 3,504 | ||||
|
Change
in Plan Assets
|
||||||||
|
Plan
assets at fair value-beginning of year
|
$ | 365 | $ | 396 | ||||
|
Actual
return on plan assets
|
10 | 1 | ||||||
|
Benefit
payments
|
(33 | ) | (32 | ) | ||||
|
Plan
assets at fair value-end of year
|
$ | 342 | $ | 365 | ||||
|
Funded
Status
|
$ | (2,806 | ) | $ | (3,139 | ) | ||
|
Balance
Sheet Amounts
|
||||||||
|
Noncurrent
liabilities
|
$ | (2,806 | ) | $ | (3,139 | ) | ||
Expected
future benefit payments, which reflect expected future service, were as follows
as of November 30, 2008:
|
U.S.
Post-
|
|||||
|
Year
Ending
|
Retirement
|
||||
|
(In
thousands)
|
November
30,
|
Benefits
|
|||
|
2009
|
$ | 225 | |||
|
2010
|
233 | ||||
|
2011
|
230 | ||||
|
2012
|
214 | ||||
|
2013
|
232 | ||||
|
2014
- 2018
|
1,415 | ||||
Net
periodic benefit costs for the Company's postretirement health care and life
insurance benefits for 2008, 2007 and 2006 included the following
components:
|
U.S.
Postretirement Benefits
|
||||||||||||
|
(In
thousands)
|
2008
|
2007
|
2006
|
|||||||||
|
Service
cost
|
$ | 96 | $ | 88 | $ | 78 | ||||||
|
Interest
cost
|
209 | 202 | 179 | |||||||||
|
Expected
return on plan assets
|
(32 | ) | (35 | ) | (27 | ) | ||||||
|
Amortization
of unrecognized prior service cost/(gain)
|
19 | 19 | (14 | ) | ||||||||
|
Amortization
of unrecognized net transition obligation
|
46 | 46 | 46 | |||||||||
|
Amortization
of accumulated loss
|
11 | 15 | 41 | |||||||||
|
Net
periodic cost
|
$ | 349 | $ | 335 | $ | 303 | ||||||
The
following table provides the weighted-average assumptions used to compute the
actuarial present value of projected benefit obligations:
|
U.S.
Postretirement Benefits
|
||||||
|
2008
|
2007
|
2006
|
||||
|
Weighted-average
discount rate
|
7.29%
|
6.15%
|
5.95%
|
|||
|
Rate
of increase in compensation levels
|
4.25%
|
3.65%
|
3.45%
|
|||
The following table provides the weighted-average assumptions used to compute the actuarial net periodic benefit cost:
|
U.S.
Postretirement Benefits
|
||||||
|
2008
|
2007
|
2006
|
||||
|
Weighted-average
discount rate
|
6.15%
|
5.95%
|
5.60%
|
|||
|
Rate
of increase in compensation levels
|
3.65%
|
3.45%
|
3.10%
|
|||
The assumed health care cost trend decreased from 10% to 9% in 2008, 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 2008, as follows:
|
1
%
|
1
%
|
|||||||
|
(In
thousands)
|
Increase
|
Decrease
|
||||||
|
Effect
on total of service and interest cost components of net periodic
expense
|
$ | 16 | $ | (15 | ) | |||
|
Effect
on postretirement benefit obligation
|
120 | (106 | ) | |||||
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 2008, 2007, or
2006.
The
Company has severance agreements with certain key employees that could provide
benefits upon termination of up to three 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, 2008, no
shares of preferred stock or series A junior participating cumulative preferred
stock were outstanding.
As of
November 30, 2008, 9,188,692 shares of Common Stock were issued and outstanding,
including 65,770 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:
34,435 shares will become unrestricted in 2009, 21,101 shares in 2010, and
10,234 shares in 2011.
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 are reported as discontinued operations for all reporting
periods. Each of these segments has a dedicated management team and
is managed separately, primarily because of differences in products.
TAMCO, the Company's equity method investment, is not included in any of these
segments. The Company’s Chief Operating Decision Maker is the Chief
Executive Officer who primarily reviews sales and income before interest, income
taxes and equity in earnings of joint venture for each operating segment in
making decisions about allocating resources and assessing
performance. The Company allocates certain selling, general and
administrative expenses to operating segments utilizing assumptions believed to
be appropriate in the circumstances. Costs of shared services (e.g.,
costs of Company-wide insurance programs or benefit plans) are allocated to the
operating segments based on revenue, wages or net assets
employed. Other items not related to current operations or of an
unusual nature, such as adjustments to reflect inventory balances of certain
steel inventories under the last-in, first-out (“LIFO”) method, certain unusual
legal costs and expenses, interest expense and income taxes, are not allocated
to the reportable segments.
The
markets served by the Fiberglass-Composite Pipe Group are worldwide in scope.
The Water Transmission Group serves primarily the western U.S. The
Infrastructure Products Group's quarry and ready-mix business operates
exclusively in Hawaii, and poles are sold throughout the U.S. Sales
for export or to any individual customer did not exceed 10% of consolidated
sales in 2008, 2007 or 2006.
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
|
|||||||||||||||||||||
|
2008
|
||||||||||||||||||||||||||||
|
Sales
|
$ | 274,129 | $ | 215,308 | $ | 179,059 | $ | - | $ | - | $ | (953 | ) | $ | 667,543 | |||||||||||||
|
Income
from continuing operations before
|
||||||||||||||||||||||||||||
|
interest,
income taxes and equity in earnings of joint venture
|
80,994 | (9,212 | ) | 25,535 | (33,640 | ) | - | - | 63,677 | |||||||||||||||||||
|
Equity
in earnings of joint venture, net of taxes
|
- | - | - | 10,337 | - | - | 10,337 | |||||||||||||||||||||
|
Income
from joint ventures - cost method
|
2,514 | 1,496 | - | - | - | - | 4,010 | |||||||||||||||||||||
|
Investments
in joint ventures
|
||||||||||||||||||||||||||||
|
Equity method
|
- | - | - | 14,428 | - | - | 14,428 | |||||||||||||||||||||
|
Cost method
|
3,784 | - | - | - | - | - | 3,784 | |||||||||||||||||||||
|
Long-lived
assets
|
52,314 | 94,518 | 60,581 | 37,131 | (107 | ) | - | 244,437 | ||||||||||||||||||||
|
Total
assets
|
303,672 | 235,664 | 107,792 | 227,399 | 144 | (148,349 | ) | 726,322 | ||||||||||||||||||||
|
Capital
expenditures
|
23,269 | 25,457 | 10,548 | 1,897 | (474 | ) | - | 60,697 | ||||||||||||||||||||
|
Depreciation
and amortization
|
5,833 | 7,729 | 5,987 | 860 | - | - | 20,409 | |||||||||||||||||||||
|
2007
|
||||||||||||||||||||||||||||
|
Sales
|
237,850 | 190,261 | 205,711 | - | - | (2,812 | ) | 631,010 | ||||||||||||||||||||
|
Income
from continuing operations before
|
||||||||||||||||||||||||||||
|
interest,
income taxes and equity in earnings of joint venture
|
62,347 | (6,026 | ) | 35,929 | (38,061 | ) | - | - | 54,189 | |||||||||||||||||||
|
Equity
in earnings of joint venture, net of taxes
|
- | - | - | 15,383 | - | - | 15,383 | |||||||||||||||||||||
|
Income
from joint ventures - cost method
|
2,451 | - | - | - | - | - | 2,451 | |||||||||||||||||||||
|
Investments
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 | |||||||||||||||||||||
|
GEOGRAPHIC
AREAS
|
||||||||||||||||||||||||
|
United
|
||||||||||||||||||||||||
|
(In
thousands)
|
States
|
Europe
|
Asia
|
Other
|
Eliminations
|
Total
|
||||||||||||||||||
|
2008
|
||||||||||||||||||||||||
|
Sales
to external customers
|
$ | 459,840 | $ | 35,694 | $ | 135,057 | $ | 37,905 | $ | (953 | ) | $ | 667,543 | |||||||||||
|
Long-lived
assets
|
197,159 | 7,811 | 25,764 | 13,703 | - | 244,437 | ||||||||||||||||||
|
Total
assets
|
610,102 | 44,463 | 198,491 | 21,615 | (148,349 | ) | 726,322 | |||||||||||||||||
|
2007
|
||||||||||||||||||||||||
|
Sales
to external customers
|
453,705 | 47,844 | 112,306 | 19,967 | (2,812 | ) | 631,010 | |||||||||||||||||
|
Long-lived
assets
|
165,144 | 10,110 | 24,115 | 8,506 | - | 207,875 | ||||||||||||||||||
|
Total
assets
|
452,697 | 53,718 | 246,742 | 56,033 | (103,378 | ) | 705,812 | |||||||||||||||||
|
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 | ||||||||||||||||
NOTE
19 – FAIR VALUE MEASUREMENT
Effective
December 1, 2007, the Company adopted SFAS No. 157, which provides a
framework for measuring fair value under GAAP. As defined in SFAS No.
157, fair value is the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants at
the measurement date (exit price). The Company utilizes market data
or assumptions that the Company believes market participants would use in
pricing the asset or liability, including assumptions about risk and the risks
inherent in the inputs to the valuation technique. These inputs can
be readily observable, market corroborated or generally
unobservable.
The
Company primarily applies the market approach for recurring fair value
measurements and endeavors to utilize the best available
information. Accordingly, the Company utilizes valuation techniques
that maximize the use of observable inputs and minimize the use of unobservable
inputs. The Company is able to classify fair value balances based on
the observability of those inputs.
SFAS No.
157 establishes a fair value hierarchy that prioritizes the inputs used to
measure fair value. The hierarchy gives the highest priority to unadjusted
quoted prices in active markets for identical assets or liabilities (Level 1
measurement) and the lowest priority to unobservable inputs (Level 3
measurement). The three levels of the fair value hierarchy defined by
SFAS No. 157 are as follows:
|
Level 1
|
Quoted
prices are available in active markets for identical assets or liabilities
as of the reporting date. Active markets are those in which
transactions for the asset or liability occur in sufficient frequency and
volume to provide pricing information on an ongoing
basis. Level 1 primarily consists of financial instruments such
as exchange-traded derivatives, listed equities and U.S. government
treasury securities.
|
|
Level 2
|
Pricing
inputs are other than quoted prices in active markets included in Level 1,
which are either directly or indirectly observable as of the reporting
date. Level 2 includes those financial instruments that are
valued using models or other valuation methodologies. These
models are primarily industry-standard models that consider various
assumptions, including quoted forward prices for commodities, time value,
volatility factors, and current market and contractual prices for the
underlying instruments, as well as other relevant economic
measures. Substantially all of these assumptions are observable
in the marketplace throughout the full term of the instrument, can be
derived from observable data or are supported by observable levels at
which transactions are executed in the marketplace. Instruments
in this category include non-exchange-traded derivatives such as
over-the-counter forwards, options and repurchase
agreements.
|
|
Level 3
|
Pricing
inputs include significant inputs that are generally less observable from
objective sources. These inputs may be used with internally
developed methodologies that result in Management’s best estimate of fair
value from the perspective of a market participant. Level 3
instruments include those that may be more structured or otherwise
tailored to customers’ needs. At each balance sheet date, the
Company performs an analysis of all instruments subject to SFAS No. 157
and includes in Level 3 all of those whose fair value is based on
significant unobservable inputs.
|
Assets
and liabilities measured at fair value on a recurring basis include the
following as of November 30, 2008:
|
Fair
Value Measurements Using
|
Liabilities
|
|||||||||||||||
|
(In
thousands)
|
Level
1
|
Level
2
|
Level
3
|
At
Fair Value
|
||||||||||||
|
Liabilities
|
||||||||||||||||
|
Derivative
liabilities
|
$
|
-
|
$
|
63
|
$
|
-
|
$
|
63
|
||||||||
|
Total
liabilities
|
$
|
-
|
$
|
63
|
$
|
-
|
$
|
63
|
||||||||
Derivatives
The
Company and its subsidiaries complete transactions in currencies other than
their functional currencies. The Company’s primary objective with
respect to currency risk is to reduce net income volatility that would otherwise
occur due to exchange-rate fluctuations. In order to minimize the
risk of gain or loss due to exchange rates, the Company uses foreign currency
derivatives. As of November 30, 2008, the Company held one foreign
currency forward contract aggregating $500,000, hedging U.S. dollars
to Singapore dollars, and two contracts aggregating $769,000, hedging U.S.
dollars to Euros. As of November 30, 2008, such instruments had a
combined fair value loss of $63,000 based on quotations from financial
institutions.
SUPPLEMENTARY
DATA - QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized
quarterly financial data for the years ended November 30, 2008 and 2007,
follow:
|
(In
thousands,
except
per share data)
|
First
Quarter
|
Second
Quarter
|
Third
Quarter
|
Fourth
Quarter
|
||||||||||||
|
2008
|
||||||||||||||||
|
Sales
|
$ | 149,769 | $ | 159,793 | $ | 170,107 | $ | 187,874 | ||||||||
|
Gross
profit
|
33,452 | 39,746 | 37,455 | 42,968 | ||||||||||||
|
Income
from continuing operations, net of taxes
|
9,737 | 16,333 | 14,998 | 17,524 | ||||||||||||
|
Income
from discontinued operations, net of taxes
|
- | - | - | - | ||||||||||||
|
Net
income
|
9,737 | 16,333 | 14,998 | 17,524 | ||||||||||||
|
Diluted
net income per share:
|
||||||||||||||||
|
Income
from continuing operations, net of taxes
|
1.07 | 1.78 | 1.63 | 1.91 | ||||||||||||
|
Income
from discontinued operations, net of taxes
|
- | - | - | - | ||||||||||||
|
Net
income
|
1.07 | 1.78 | 1.63 | 1.91 | ||||||||||||
|
Stock
price per share-high
|
110.84 | 122.79 | 130.51 | 117.38 | ||||||||||||
|
Stock
price per share-low
|
79.06 | 88.52 | 109.50 | 33.30 | ||||||||||||
|
Dividends
per share
|
.25 | .30 | .30 | .30 | ||||||||||||
|
2007
|
||||||||||||||||
|
Sales
|
120,355 | 156,756 | 165,048 | 188,851 | ||||||||||||
|
Gross
profit
|
25,320 | 40,762 | 37,001 | 42,946 | ||||||||||||
|
Income
from continuing operations, net of taxes
|
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, net of taxes
|
.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 | ||||||||||||
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,
2008 and 2007, and the results of their operations and their cash flows for each of
the three years in the period ended November 30, 2008 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, 2008, based on criteria established in “Internal Control -
Integrated Framework” issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). The Company's Management is responsible
for these financial statements and financial statement schedule, for maintaining
effective internal control over financial reporting and for its assessment of
the effectiveness of internal control over financial reporting, included in the
accompanying Management's Report on Internal Control over Financial
Reporting. Our responsibility is to express opinions on these
financial statements, on the financial statement schedule, and on the Company's
internal control over financial reporting based on our integrated
audits. We conducted our audits in accordance with the standards of
the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audits to obtain reasonable
assurance about whether the financial statements are free of material
misstatement and whether effective internal control over financial reporting was
maintained in all material respects. Our audits of the financial
statements included examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by Management, and evaluating the overall
financial statement presentation. Our audit of internal control over
financial reporting included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, and
testing and evaluating the design and operating effectiveness of internal
control based on the assessed risk. Our audits also included
performing such other procedures as we considered necessary in the
circumstances. We believe that our audits provide a reasonable basis for our
opinions.
As
discussed in Note 1 and Note 10 to the consolidated financial statements, the
Company changed the manner in which it accounts for income taxes in
2008. As discussed in Note 1 and Note 16 to the consolidated
financial statements, the Company changed the manner in which it accounts for
defined benefit pension and other postretirement benefit plans in
2007.
A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal
control over financial reporting includes those policies and procedures that
(i) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of
the company; (ii) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and
(iii) provide reasonable assurance regarding prevention or timely detection
of unauthorized acquisition, use, or disposition of the company’s assets that
could have a material effect on the financial statements.
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
/s/
PricewaterhouseCoopers LLP
Los
Angeles, California
January
29, 2009
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A - CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and
Procedures. Management established disclosure controls and
procedures to ensure that material information relating to the Company,
including its consolidated subsidiaries, is made known to the officers who
certify the Company's financial reports and to other members of senior
management and the Board of Directors.
The
Company carried out an evaluation, under the supervision and with the
participation of the Company's Management, including the Company's Chief
Executive Officer and Chief Financial Officer, of the effectiveness of the
design and operation of the Company's disclosure controls and procedures as of
November 30, 2008 pursuant to Exchange Act Rule 13a-14. Based upon that
evaluation, the Chief Executive Officer and Chief Financial Officer concluded
that the Company's disclosure controls and procedures (as defined in
Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934)
are effective. “Disclosure controls and procedures” are the controls and
other procedures of an issuer that are designed to ensure that information
required to be disclosed by the issuer in the reports filed or submitted by it
under the Securities Exchange Act of 1934, as amended (Exchange Act) is
recorded, processed, summarized and reported, within the time periods specified
in the Securities and Exchange Commission’s rules and forms. “Disclosure
controls and procedures” include, without limitation, controls and procedures
designed to ensure that information required to be disclosed by an issuer in its
Exchange Act reports is accumulated and communicated to the issuer’s management,
including its principal executive and financial officers, as appropriate to
allow timely decisions regarding required disclosure. No changes were
made in the Company's internal control over financial reporting during the
fiscal quarter ended November 30, 2008 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, 2008. The effectiveness of the
Company’s internal control over financial reporting as of November 30, 2008 was
audited by PricewaterhouseCoopers LLP, an independent registered public
accounting firm, as stated in their report which appears herein.
ITEM 9B - OTHER INFORMATION
None.
PART III
ITEM 10 - DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE
Information
with respect to the directors, the Audit Committee of the Board of Directors,
and the audit committee financial expert, is contained in the Company's Proxy
Statement. Such information is incorporated herein by reference. The Board
of Directors of the Company has a separately-designated standing audit committee
established in accordance with section 3(a)(58)(A) of the Securities
Exchange Act. The members of that audit committee are identified in the
Company's Proxy Statement under the section captioned "The Board and Its
Committees." Such information is incorporated herein by reference. The Board of
Directors has determined that one of the members of its Audit Committee, William
D. Horsfall, is an "audit committee financial expert" as defined in Item
407(d)(5) of Regulation S-K.
Information
with respect to the executive officers who are not directors of the Company is
located in 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)
CONSOLIDATED FINANCIAL STATEMENTS:
The
following financial statements are included in this Annual Report on Form 10-K
in Part II, Item 8:
|
Consolidated
Statements of Income for the years ended November 30, 2008, 2007 and
2006.
|
|
Consolidated
Balance Sheets as of November 30, 2008 and 2007.
|
|
Consolidated
Statements of Stockholders' Equity for the years ended November 30, 2008,
2007 and 2006.
|
|
Consolidated
Statements of Comprehensive Income for the years ended November 30, 2008,
2007 and 2006.
|
|
Consolidated
Statements of Cash Flows for the years ended November 30, 2008, 2007 and
2006.
|
|
Notes
to Consolidated Financial Statements
|
|
Report
of Independent Registered Public Accounting
Firm
|
(2)
FINANCIAL STATEMENT SCHEDULES
The
following additional financial data should be read in conjunction with the
Consolidated Financial Statements. Schedules not included with this additional
financial data are omitted because they are either not applicable, not required,
not significant, or the required information is provided in the Consolidated
Financial Statements under Financial Statements and Supplementary Data, under
Part II, Item 8.
|
SCHEDULE NO.
|
DESCRIPTION OF SCHEDULE
|
|
II
|
Valuation
and Qualifying Accounts and
Reserves
|
(3) EXHIBITS:
The following exhibits are filed with
this Annual Report on Form 10-K:
|
EXHIBIT NO.
|
DESCRIPTION OF EXHIBIT
|
|
3.1
|
Certificate
of Incorporation, effective March 29,2004
|
|
3.2
|
Bylaws
(incorporated by reference to Exhibit 3.2 to the Company’s Current Report
on Form 8-K dated September 26, 2008)
|
|
4.1
|
Credit
Agreement dated as of January 24, 2003*
|
|
4.2
|
Amended
and Restated Note Purchase Agreement dated January 24, 2003, re:
$50,000,000 5.36% Senior Secured Notes due November 30,
2009*
|
|
4.3
|
Note
Purchase Agreement dated November 25, 2005, re: SGD 51,000,000 4.25%
Senior Secured Notes due November 25, 2012*
|
|
4.4
|
Agreement
to furnish to the Securities and Exchange Commission upon request a copy
of instruments defining the rights of holders of certain long-term debt of
the Company and consolidated subsidiaries.*
|
|
10.1
|
Amended
and Restated Employment Agreement between James S. Marlen and the Company
(incorporated by reference to Exhibit 10(1) to the Company’s Annual Report
on Form 10-K for the year ended November 30, 2003)**
|
|
10.2
|
First
Amendment to Amended and Restated Employment Agreement between James S.
Marlen and the Company (incorporated by reference to Exhibit 99.1 to the
Company’s Current Report on Form 8-K dated September 21,
2007)**
|
|
10.3
|
Performance
Stock Unit Agreement between James S. Marlen and the Company (incorporated
by reference to Exhibit 99.2 to the Company’s Current Report on Form 8-K
dated September 21, 2007)**
|
|
10.4
|
Change
of Control Agreement between Javier Solis and the Company (incorporated by
reference to Exhibit 10(2) to the Company’s Annual Report on Form 10-K for
the year ended November 30, 1998)**
|
|
10.5
|
Amendment
to Change of Control Agreement between Javier Solis and the Company
(incorporated by reference to Exhibit 10.3 to the Company’s Current Report
on Form 8-K dated December 17, 2008)**
|
|
10.6
|
Change
of Control Agreement between Gary Wagner and the Company (incorporated by
reference to Exhibit 10(3) to the Company’s Annual Report on Form 10-K for
the year ended November 30, 1998)**
|
|
10.7
|
Amendment
to Change of Control Agreement between Gary Wagner and the Company
(incorporated by reference to Exhibit 10.1 to the Company’s Current Report
on Form 8-K dated December 17, 2008)**
|
|
10.8
|
Change
of Control Agreement between James R. McLaughlin and the Company
(incorporated by reference to Exhibit 10(5) to the Company’s Annual Report
on Form 10-K for the year ended November 30, 2000)**
|
|
10.9
|
Amendment
to Change of Control Agreement between James R. McLaughlin and the Company
(incorporated by reference to Exhibit 10.2 to the Company’s Current Report
on Form 8-K dated December 17, 2008)**
|
|
10.10
|
Change
of Control Agreement between Stephen E. Johnson and the Company
(incorporated by reference to Exhibit 10.4 to the Company’s Current Report
on Form 8-K dated December 17, 2008)**
|
|
10.11
|
2001
Stock Incentive Plan (incorporated by reference to Exhibit 2 to the
Company’s Proxy Statement for the Annual Meeting of Stockholders held on
March 21, 2001)**
|
|
10.12
|
2004
Stock Incentive Plan (incorporated by reference to Exhibit E to the
Company’s Proxy Statement for the Annual Meeting of Stockholders held on
March 24, 2004)**
|
|
10.13
|
Key
Executive Long-Term Cash Incentive Plan (incorporated by reference to
Exhibit C to the Company’s Proxy Statement for the Annual Meeting of
Stockholders held on March 26, 2008)**
|
|
10.14
|
Form
of Restricted Stock Agreement for Employees (incorporated by reference to
Exhibit 99.1 to the Company’s Current Report on Form 8-K dated January 27,
2006)**
|
|
10.15
|
Form
of Restricted Stock Agreement for Non-Employee Directors (incorporated by
reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K
dated March 23, 2006)**
|
|
21
|
Subsidiaries
of the Registrant
|
|
23.1
|
Consent
of PricewaterhouseCoopers LLP
|
|
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
|
** Filed
herewith
** Compensatory
plan or arrangement
SCHEDULE II
- VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR
THE YEAR ENDED NOVEMBER 30, 2008
(In
thousands)
|
Additions
|
Deductions,
|
||||
|
Balance
at
|
Charged
to
|
Payments
|
Balance
|
||
|
Beginning
|
Costs
and
|
And
|
Reclassifications
|
at
End of
|
|
|
Classification
|
of
Year
|
Expenses
|
Write-offs
|
and
Other
|
Year
|
|
DEDUCTED FROM ASSET
ACCOUNTS
|
|||||
|
Allowance
for doubtful accounts
|
$6,235
|
$4,419
|
$(3,533)
|
$(112) * |
$7,009
|
*
Translation adjustment.
FOR
THE YEAR ENDED NOVEMBER 30, 2007
(In
thousands)
|
Additions
|
Deductions,
|
||||
|
Balance
at
|
Charged
to
|
Payments
|
Balance
|
||
|
Beginning
|
Costs
and
|
And
|
Reclassifications
|
at
End of
|
|
|
Classification
|
of
Year
|
Expenses
|
Write-offs
|
and
Other
|
Year
|
|
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 consisted of allowance for doubtful accounts eliminated due to the
sale of the discontinued operations.
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
AMERON
INTERNATIONAL CORPORATION
|
By:
|
/s/
Stephen E. Johnson
|
|
|
Stephen
E. Johnson, Senior Vice President &
Secretary
|
||
Date:
January 29, 2009
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
|
Date:
1-29-09
|
/s/
James S. Marlen
|
Director,
Chairman of the Board,
|
|
|
James
S. Marlen
|
and
Chief Executive Officer
|
||
|
(Principal
Executive Officer)
|
|||
|
Date:
1-29-09
|
/s/
James R. McLaughlin
|
Senior
Vice President, Chief Financial Officer & Treasurer
|
|
|
James
R. McLaughlin
|
(Principal
Financial & Accounting Officer)
|
||
|
Date:
1-29-09
|
/s/David
Davenport
|
Director
|
|
|
David
Davenport
|
|||
|
Date:
1-29-09
|
/s/J.
Michael Hagan
|
Director
|
|
|
J.
Michael Hagan
|
|||
|
Date:
1-29-09
|
/s/Terry
L.Haines
|
Director
|
|
|
Terry
L. Haines
|
|||
|
Date:
1-29-09
|
/s/William
D. Horsfall
|
Director
|
|
|
William
D. Horsfall
|
|||
|
Date:
1-29-09
|
/s/John
E. Peppercorn
|
Director
|
|
|
John
E. Peppercorn
|
|||
|
Date:
1-29-09
|
/s/Dennis
C. Poulsen
|
Director
|
|
|
Dennis
C. Poulsen
|