FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
/ X / QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended August 31, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from...............to..................
Commission File No. 1 - 9102
AMERON INTERNATIONAL CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 77-0100596
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
245 South Los Robles Avenue
Pasadena, California 91101-2894
(Address of principal executive offices)
Telephone Number (818) 683-4000
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
The number of shares outstanding of Common Stock, $2.50 par value, was
3,964,037 on September 30, 1996. No other class of Common Stock exists.
Page 1
AMERON INTERNATIONAL CORPORATION
INDEX
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Income 3
Consolidated Balance Sheets 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 2. Changes in Securities 13
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURE PAGE 14
Page 2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Ameron International Corporation and Subsidiaries
Consolidated Statements of Income
(In thousands, except share and per share data)
Three Months Ended Nine Months Ended
August 31, August 31,
------------------ ------------------
1996 1995 1996 1995
-------- -------- -------- --------
Net Sales $133,622 $137,421 $366,006 $353,978
Cost of Sales 97,402 103,990 273,571 267,379
-------- -------- -------- --------
Gross Profit 36,220 33,431 92,435 86,599
Selling, General and
Administrative Expenses 26,274 25,664 73,723 71,173
-------- -------- -------- --------
Operating Profit 9,946 7,767 18,712 15,426
Royalty, Equity and Other Income 1,590 1,796 5,694 5,563
-------- -------- -------- --------
Income before Interest
and Income Taxes 11,536 9,563 24,406 20,989
Interest Income 69 48 170 278
Interest Expense 2,418 3,034 7,966 9,191
-------- -------- -------- --------
Income before Income Taxes 9,187 6,577 16,610 12,076
Provision for Income Taxes 3,215 2,000 5,813 3,382
-------- -------- -------- --------
Net Income $ 5,972 $ 4,577 $ 10,797 $ 8,694
======== ======== ======== ========
Net Income per Share $ 1.50 $ 1.16 $ 2.71 $ 2.20
======== ======== ======== ========
Cash Dividends per Share $ .32 $ .32 $ .96 $ .96
======== ======== ======== ========
Average Common and Equivalent
Shares Outstanding 3,977,481 3,951,549 3,977,481 3,951,549
========= ========= ========= =========
See accompanying notes to financial statements.
Page 3
Ameron International Corporation and Subsidiaries
Consolidated Balance Sheets
(In thousands except share and per share data)
Aug. 31, Nov. 30,
1996 1995
-------- --------
ASSETS
Current Assets
Cash and cash equivalents $ 49,440 $ 12,923
Receivables, net 108,012 105,019
Inventories 72,781 76,426
Deferred income tax benefits 7,315 7,315
Prepaid expenses and other 5,218 5,155
-------- --------
Total current assets 242,766 206,838
Investments, Advances and Equity in
Undistributed Earnings of Affiliated Companies 35,330 36,197
Property, Plant and Equipment, net 114,418 114,116
Other Assets 18,536 14,230
-------- --------
Total Assets $411,050 $371,381
======== ========
LIABILITIES and STOCKHOLDERS' EQUITY
Current Liabilities
Short-term borrowings $ 1,157 $ 1,718
Current portion of long-term debt 17,782 17,803
Trade payables 33,054 32,219
Accrued liabilities 37,973 37,427
Income taxes 2,009 3,213
-------- --------
Total current liabilities 91,975 92,380
Deferred Income Taxes 3,603 4,040
Long-term Debt, less current portion 121,982 91,565
Other Long-term Liabilities 51,635 48,824
-------- --------
Total liabilities 269,195 236,809
Stockholders' Equity
Common stock, par value $2.50 a share,
Authorized, 12,000,000 shares,
Outstanding, 3,964,037 shares at
August 31, 1996 and 3,956,497 shares
at November 30, 1995, net of treasury shares 12,842 12,823
Additional paid-in capital 15,579 15,322
Retained earnings 153,982 146,987
Cumulative foreign currency translation adjustment 2,231 2,219
Treasury stock (1,172,900 shares), at cost (42,779) (42,779)
-------- --------
Total stockholders' equity 141,855 134,572
-------- --------
Total Liabilities and Stockholders' Equity $411,050 $371,381
======== ========
See accompanying notes to financial statements
Page 4
Ameron International Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(In thousands)
Nine Months Ended
August 31,
-------------------
1996 1995
-------- --------
Cash Flow from Operating Activities
Net income $ 10,797 $ 8,694
Adjustments to reconcile to net cash
provided by (used in) operating activities:
Depreciation 12,509 11,906
Equity in earnings of affiliated companies (1,952) (2,948)
Dividends from affiliated companies 2,740 4,847
Other, net (698) 440
Changes in operating assets and liabilities:
Change in receivables (2,888) (19,207)
Change in inventories 6,178 (12,993)
Change in other current assets (52) 769
Change in trade payables and
other current liabilities 606 3,734
Change in other assets and liabilities, net 3,733 2,503
-------- --------
Net cash provided by (used in)
operating activities 30,973 (2,255)
Cash Flow from Investing Activities
Proceeds from sale of assets 987 427
Additions to property, plant and equipment, and
acquisition of Centron (19,700) (11,447)
Other (1,959) (1,857)
-------- --------
Net cash used in investing activities (20,672) (12,877)
Cash Flow from Financing Activities
Net change in debt with maturities
of three months or less (541) (1,249)
Issuance of debt 56,706 23,809
Repayment of debt (26,085) (4,603)
Dividends to common stockholders (3,802) (3,786)
Issuance of common stock 88 9
-------- --------
Net cash provided by financing activities 26,366 14,180
Effect of Exchange Rate Changes
on Cash and Equivalents (150) 282
-------- --------
Net Change in Cash and Equivalents 36,517 (670)
Beginning Cash and Equivalents Balance 12,923 9,030
-------- --------
Ending Cash and Equivalents Balance $ 49,440 $ 8,360
======== ========
See accompanying notes to financial statements
Page 5
Ameron International Corporation and Subsidiaries
Notes to Consolidated Financial Statements
August 31, 1996
Note 1. Basis Of Presentation
The consolidated financial statements for the interim periods included herein
are unaudited, however, they contain all normal recurring accruals which, in the
opinion of management, are necessary to present fairly the consolidated
financial position of the Company at August 31, 1996 and the consolidated
results of operations for the three- and nine-month periods ended August 31,
1996 and 1995, and cash flows for the nine-month periods ended August 31, 1996
and 1995. Accounting measurements at interim dates inherently involve greater
reliance on estimates than at year end, thus the results of operations for the
period presented, are not necessarily indicative of the results to be expected
for the full year.
Certain prior year balances have been reclassified to conform with the current
year presentation.
The accompanying consolidated financial statements do not include footnotes
and certain financial presentations normally required under generally accepted
accounting principles and, therefore, should be read in conjunction with the
Annual Report on Form 10-K for the year ended November 30, 1995.
Note 2. Inventories
Inventories are stated at the lower of cost (principally first-in, first-out)or
market. Inventories at August 31, 1996 and November 30, 1995 were comprised of
the following (in thousands):
Aug. 31, Nov. 30,
1996 1995
-------- --------
Finished products $ 37,652 $ 32,210
Products in process 18,999 26,128
Materials and supplies 16,130 18,088
-------- --------
Total Inventories $ 72,781 $ 76,426
======== ========
Note 3. Other Cash Flow Information:
Nine Months Ended
August 31,
-------------------
1996 1995
-------- --------
Interest paid $ 5,391 $ 9,187
======== ========
Income taxes paid $ 7,438 $ 8,198
======== ========
Page 6
Note 4. Affiliated Companies
Equity in earnings of affiliated companies is recognized in the Company's net
income partly on a lag basis only to the extent that cash dividends are
anticipated.
Summarized operating results of affiliated companies in the Concrete and Steel
Pipe Products segment follow, U.S. dollars in thousands:
Three Months Ended Nine Months Ended
August 31, August 31,
------------------- -------------------
1996 1995 1996 1995
-------- -------- -------- --------
Net Sales $ 10,763 $ 10,456 $ 33,192 $ 31,782
Gross Profit $ 2,595 $ 1,919 $ 8,754 $ 6,306
Net Loss $ (491) $ (1,128) $ (536) $ (1,843)
Amounts shown above represent operating results for Gifford-Hill-American,
Inc. for the three- and nine-month periods ended July 31, 1996 and 1995 and
operating results for Ameron Saudi Arabia, Ltd. for the three- and nine-month
periods ended June 30, 1996 and 1995.
Summarized results of operations of Tamco, Bondstrand, Ltd., and Oasis Ameron,
Ltd. follow, U.S. dollars in thousands:
Three Months Ended Nine Months Ended
August 31, August 31,
------------------- -------------------
1996 1995 1996 1995
-------- -------- -------- --------
Net Sales $ 43,417 $ 40,155 $115,015 $102,509
Gross Profit $ 8,936 $ 6,402 $ 18,762 $ 16,684
Net Income $ 4,171 $ 2,170 $ 6,358 $ 5,557
Amounts shown above include operating results for Tamco for the three- and
nine-month periods stated, and operating results for Bondstrand, Ltd. and
Oasis Ameron, Ltd. for the three- and nine-month periods ended June 30, 1996
and 1995.
Page 7
Note 5. Income Taxes
The deferred tax assets and deferred tax liabilities recorded on the balance
sheet as of August 31, 1996 are as follows, U.S. Dollars in thousands:
Non-
Current Current
-------- --------
Deferred Tax Assets
Self-insurance & contingency reserves $ 1,309 $ 8,290
Employee benefits 1,683 8,644
Accounts receivable 1,445 -
Inventory 2,728 -
Federal and State tax credits and
loss carryovers - 2,347
Miscellaneous 150 781
-------- --------
Total Deferred Tax Asset 7,315 20,062
Deferred Tax Liabilities
Investments - (3,000)
Fixed Assets - (20,665)
-------- --------
Total Deferred Tax Liability - (23,665)
-------- --------
Net Deferred Tax Asset (Liability) $ 7,315 $ (3,603)
======== ========
Note 6. Debt
At August 31, 1996 and November 30, 1995, the Company's long-term debt consisted
of the following, U.S. Dollars in thousands:
Aug. 31, Nov. 30,
1996 1995
-------- --------
Unsecured notes payable to insurance companies:
8.63% payable in annual installments of $5,000,
plus accrued interest $ 15,000 $ 15,000
9.79% payable in annual installments of $12,000,
plus accrued interest 60,000 60,000
7.92% payable in annual installments of $8,333
commencing in 2001, plus accrued interest 50,000 -
Variable-rate unsecured bank revolving credit
facilities (approximately 4.5% at August 31, 1996) 5,810 29,148
Variable-rate unsecured bank loan, payable by a
consolidated subsidiary in Dutch guilders, with
annual installments of approximately $782
plus accrued interest through 2002
(3.51% at August 31, 1996) 4,498 5,220
Variable-rate Industrial Development Bonds, Payable
in 2016 (3.60% at August 31, 1996) 4,456 -
-------- --------
139,764 109,368
Less - Current portion 17,782 17,803
-------- --------
$121,982 $ 91,565
======== ========
Page 8
Note 7. Contingencies
Please refer to Part II, Other Information, Item I, Legal Proceedings.
Note 8. Subsequent Events
On August 7, Ameron entered into an agreement to acquire the worldwide Devoe
marine coatings business of Imperial Chemical Industries, PLC (ICI). The North
American portion of that acquisition was completed in early September. The
remainder of the acquisition is expected to be completed in late October.
Purchased tangible assets will consist mainly of inventories and receivables.
Any amount of the purchase price greater than the fair market value of the
tangible assets will be allocated to intangible assets and amortized over their
economic lives, not to exceed 40 years. The acquistion will be accounted for as
a purchase and the results of operations of the acquired business will be
included in the Company's consolidated financial statements commencing September
1996.
Page 9
PART I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial
Conditions and Results of Operations
Ameron International Corporation and Subsidiaries
August 31, 1996
INTRODUCTION
Management's Discussion and Analysis should be read in conjunction with the same
discussion included in the Company's 1995 Annual Report on Form 10-K. Reference
should also be made to the financial statements included in this Form 10-Q for
comparative consolidated balance sheets and statements of income and cash flows.
LIQUIDITY AND CAPITAL RESOURCES
During the nine month period ended August 31, 1996, the Company generated $31.0
million of cash from operations. These funds were used for capital expenditures
and the acquisition of Centron of $19.7 million and the payment of common
dividends of $3.8 million. Cash and cash equivalents at August 31, 1996 totaled
$49.4 million, an increase of $36.5 million from November 30, 1995. The
significant increase in cash occurred as a result of the Company issuing $50
million of long-term notes just prior to the close of the third quarter (see
below).
The Company generated cash from operating activities during the nine months
ended August 31, 1996 versus using cash during the prior year period. This was
the result of improved earnings versus last year, a reduction in inventory as
opposed to an increase in 1995 and a smaller increase in receivables as compared
to the prior year. Receivables and inventories increased significantly in 1995
due to the level of sales growth. The growth in receivables decreased in 1996
reflecting lower overall sales growth. Inventories declined in 1996 due to
timing of deliveries.
Cash used in investing activities consisted of capital expenditures for normal
replacement and upgrades of machinery and equipment plus the acquisition of
Centron, a manufacturer of fiberglass pipe for the worldwide oilfield market.
Management estimates that capital expenditures by the Company during the fiscal
year will be between $15.0 and $30.0 million. Capital expenditures and
acquisitions will be funded from existing cash balances, cash generated from
operations and existing lines of credit.
On August 7, Ameron entered into an agreement to acquire the worldwide Devoe
marine coatings business of Imperial Chemical Industries, PLC (ICI). The North
American portion of that acquisition was completed in early September. The
remainder of the acquisition is expected to be completed in late October. In
addition, Ameron will manufacture and sell Devoe coatings to industrial
maintenance markets in Europe, the Middle East and parts of Africa. The total
Devoe business being acquired by Ameron generated sales of approximately $50
million in 1995.
Page 10
During the quarter the Company obtained financing from the Industrial
Development Corporation of Mineral Wells, TX to fund the purchase, construction
and equipping of facilities related to the Company's acquisition of Centron. A
total of $7.2 million is available at a variable interest rate with final
maturity in the year 2016. Also, late in the third quarter the Company completed
a $50 million private placement with two insurance companies. The final
maturity of the loan is ten years with an interest rate of 7.92%. Proceeds from
the loan will be used for acquisitions, capital expenditures and the repayment
of other debt. At August 31, 1996 the Company had approximately $115.8 million
in unused credit lines available from foreign and domestic banks.
The Company believes that cash and cash equivalents on hand, anticipated cash
flows from operations and funds from existing lines of credit will be sufficient
to meet future operating requirements.
In June of 1996 a settlement of the previously reported litigation with the City
& County of San Francisco was reached by the Company. Refer to Part II, Item
I., Legal Proceedings.
RESULTS OF OPERATIONS - THIRD QUARTER
Ameron International Corporation achieved especially strong third-quarter
earnings: $1.50 per share on sales of $134 million, compared to $1.16 per share
on sales of $137 million for the similar period in 1995. Sales last year were
higher due mainly to the commencement of deliveries to the Los Vaqueros project
in Northern California, the largest concrete pipe project in the Company's
history. In addition, sales of construction products in Hawaii were lower this
year, however these reductions were partially offset by increased sales of
fiberglass pipe and protective coatings. Despite slightly lower sales,
operating profit and net income improved over the prior year quarter, reflecting
significantly improved profitability in the concrete and steel pipe, protective
coatings and fiberglass pipe businesses.
Quarterly earnings were up sharply for Ameron's domestic concrete and steel pipe
operations. Demand for water transmission piping remains strong. Adding to the
results were significant improvements in manufacturing due to an ongoing total
quality management program.
Ameron's worldwide protective coatings business also had higher sales and
significantly improved income. Operations in the United States, Europe and Hong
Kong all reported increased earnings. Operating results were positively
influenced by product streamlining and higher manufacturing yields in both the
United States and Europe.
Ameron's worldwide fiberglass pipe business reported appreciable improvements in
sales and earnings for the quarter, primarily because of positive performance by
U.S. operations.
While still quite profitable, Ameron Hawaii, the construction products business,
continued to report substantially lower sales and earnings than in 1995 because
of the ongoing economic slowdown in the Islands. Results from Ameron's domestic
pole products business were slightly lower for the quarter.
Page 11
RESULTS OF OPERATIONS - YEAR TO DATE
The Company earned $2.71 per share on sales of $366 million during the nine
months ended August 31, 1996, which compares favorably to earnings of $2.20 per
share on sales of $354 million during the prior year period.
The improved results can be attributed to continuing deliveries of concrete and
steel pipe to jobsites in the western states. Demand for water transmission
piping remains strong in the western United States as water agencies continue
long-term expansion of water transmission pipelines. This increased demand
coupled with manufacturing cost reductions and improved efficiencies has had a
favorable impact on this segment's margins.
Sales and earnings increased for the Company's global protective coatings
business, which was severely impacted last year by higher raw material costs
that affected the entire coatings industry. Increased sales and production
volume coupled with product streamlining had a favorable impact this year on
earnings in both the United States and Europe. Sales of Ameron's PSX line of
patented "engineered siloxane" products continued to grow worldwide.
The Company's worldwide fiberglass pipe business posted higher sales and
earnings as compared to last year due principally to positive results by U.S.
operations. However, European results, which were impacted by project delays
and market sluggishness were down from last year.
Results from the construction products business in Hawaii continued to be
substantially lower than in 1995. Sales and earnings from the pole products
business improved slightly for the year-to-date period.
Net interest expense for the nine-month period was lower than the same period
last year due primarily to reduced borrowing levels. Interest expense will
increase in the fourth quarter of fiscal 1996 as compared to the first three
quarters as a result of the $50 million loan obtained by the Company as
disclosed above.
Page 12
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
As previously reported, in July 1992 the Company was served with a
complaint in an action brought by the City and County of San Francisco
in Superior Court of the State of California against the Company and
two co-defendants, in connection with a pipeline referred to as the
San Andreas Pipeline No. 3, a water transmission pipeline, which was
installed between 1980 and 1982. The Company furnished the pipe used
in that pipeline. The amounts claimed by the plaintiff were
substantial. In June of 1996 a settlement of this litigation was
reached by the Company. The terms of this settlement were considered
by management to be favorable to the Company, and did not have a
material effect on the Company's financial position or its results of
operations.
Item 2. Changes in Securities
Terms of lending agreements place restrictions on cash dividends,
borrowings, investments and guarantees, and require maintenance of
specified minimum working capital and certain current ratios. Under
the most restrictive provisions of these agreements, approximately
$17.4 million of consolidated retained earnings was not restricted at
August 31, 1996.
Item 6. Exhibits and Reports on Form 8-K
A report on Form 8-K was filed on June 28, 1996, related to a news
release disclosing the Company's financial results for the second
quarter, which ended May 31, 1996.
A report on Form 8-K was filed on August 9, 1996, related to a news
release announcing that the Company signed an agreement to acquire the
Devoe marine coatings business from Imperial Chemical Industries, PLC.
Page 13
Signature Page
Pursuant to the requirements 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
Date: October 14, 1996
/s/ Gary Wagner
_________________________________
Gary Wagner
Senior Vice President,
Chief Financial Officer and
Treasurer
Page 14
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