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, 1998
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 91101-2820
(Address of principal executive offices)
Telephone Number (626) 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
4,030,112 on September 30, 1998. 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 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,
------------------ ------------------
1998 1997 1998 1997
-------- -------- -------- --------
Net Sales $155,707 $146,323 $395,207 $386,109
Cost of Sales 117,565 107,833 296,537 284,728
-------- -------- -------- --------
Gross Profit 38,142 38,490 98,670 101,381
Selling, General and
Administrative Expenses 26,276 27,375 80,920 80,107
-------- -------- -------- --------
Operating Profit 11,866 11,115 17,750 21,274
Royalty, Equity and Other Income 2,899 3,128 8,362 8,073
-------- -------- -------- --------
Income before Interest
and Income Taxes 14,765 14,243 26,112 29,347
Interest Income 149 36 321 191
Interest Expense 5,409 3,432 11,467 9,141
-------- -------- -------- --------
Income before Income Taxes 9,505 10,847 14,966 20,397
Provision for Income Taxes 3,327 3,797 5,238 7,139
-------- -------- -------- --------
Net Income $ 6,178 $ 7,050 $ 9,728 $ 13,258
======== ======== ======== ========
Basic Net Income per Share $ 1.54 $ 1.76 $ 2.42 $ 3.31
======== ======== ======== ========
Diluted Net Income per Share $ 1.51 $ 1.72 $ 2.37 $ 3.25
======== ======== ======== ========
Weighted Average Common Shares
Outstanding 4,012,875 4,002,830 4,012,875 4,002,830
========= ========= ========= =========
Diluted Common Shares Outstanding 4,098,610 4,082,831 4,098,610 4,082,831
========= ========= ========= =========
Cash Dividends per Share $ .32 $ .32 $ .96 $ .96
======== ======== ======== ========
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,
1998 1997
-------- --------
ASSETS
Current Assets
Cash and Cash Equivalents $ 10,149 $ 9,848
Receivables, Net 138,079 122,352
Inventories 124,166 95,752
Deferred Income Tax Benefits 7,568 9,083
Prepaid Expenses and Other 4,309 4,257
-------- --------
Total Current Assets 284,271 241,292
Investments, Advances and Equity in
Undistributed Earnings of Affiliated Companies 33,689 33,777
Property, Plant and Equipment, Net 160,773 127,678
Other Assets 28,715 30,478
-------- --------
Total Assets $507,448 $433,225
======== ========
LIABILITIES and STOCKHOLDERS' EQUITY
Current Liabilities
Short-Term Borrowings $ 3,949 $ 715
Current Portion of Long-Term Debt 17,654 17,654
Trade Payables 36,983 31,988
Accrued Liabilities 39,554 32,561
Income Taxes 9,308 4,347
-------- --------
Total Current Liabilities 107,448 87,265
Deferred Income Taxes 2,868 2,907
Long-Term Debt, Less Current Portion 205,373 140,917
Other Long-Term Liabilities 37,577 49,154
-------- --------
Total Liabilities 353,266 280,243
Stockholders' Equity
Common Stock, Par Value $2.50 a Share,
Authorized, 12,000,000 Shares,
Outstanding, 4,030,112 Shares at
August 31, 1998 and 4,005,487 Shares
at November 30, 1997, Net of Treasury Shares 13,007 12,946
Additional Paid-In Capital 17,828 16,969
Retained Earnings 177,446 171,569
Accumulated Other Comprehensive Loss (11,320) (5,723)
Treasury Stock (1,172,900 shares), at Cost (42,779) (42,779)
-------- --------
Total Stockholders' Equity 154,182 152,982
-------- --------
Total Liabilities and Stockholders' Equity $507,448 $433,225
======== ========
See accompanying notes to financial statements
Page 4
Ameron International Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(In thousands)
Nine Months Ended
Aug. 31,
-------------------
1998 1997
-------- --------
Cash Flow from Operating Activities
Net Income $ 9,728 $ 13,258
Adjustments to Reconcile to Net Cash
Provided by (Used in) Operating Activities:
Depreciation 12,931 11,884
Amortization 883 199
Equity in Earnings of Affiliated Companies (4,367) (2,749)
Dividends from Affiliated Companies 4,453 2,787
Other, Net (103) 1,493
Changes in Operating Assets and Liabilities:
Change in Receivables (15,205) (12,497)
Change in Inventories (13,626) (24,545)
Change in Other Current Assets 2,055 (391)
Change in Trade Payables and
Other Current Liabilities 16,180 (5,200)
Change in Other Assets and Liabilities, Net (9,597) (872)
-------- --------
Net Cash Provided by (Used in)
Operating Activities 3,332 (16,633)
Cash Flow from Investing Activities
Proceeds from Sale of Assets 732 532
Additions to Property, Plant and Equipment, and
Acquisitions (64,797) (17,607)
Other (1,065) (2,277)
-------- --------
Net Cash Used in Investing Activities (65,130) (19,352)
Cash Flow from Financing Activities
Net Change in Debt with Maturities
of Three Months or Less 3,176 128
Issuance of Debt 64,116 51,653
Repayment of Debt (1,892) (7,705)
Dividends to Common Stockholders (3,851) (3,843)
Issuance of Common Stock 920 667
-------- --------
Net Cash Provided by Financing Activities 62,469 40,900
Effect of Exchange Rate Changes
on Cash and Cash Equivalents (370) (794)
-------- --------
Net Change in Cash and Cash Equivalents 301 4,121
Beginning Cash and Cash Equivalents Balance 9,848 18,381
-------- --------
Ending Cash and Cash Equivalents Balance $ 10,149 $ 22,502
======== ========
See accompanying notes to financial statements
Page 5
Ameron International Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(In thousands except share and per share data)
August 31, 1998
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, 1998, and the consolidated
statements of income for the three- and nine-month periods ended August 31, 1998
and 1997, and cash flows for the nine-month periods ended August 31, 1998 and
1997. Accounting measurements at interim dates inherently involve greater
reliance on estimates than at year end, thus the results of operations for the
periods presented are not necessarily indicative of the results to be expected
for the full year.
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, 1997.
Note 2. Inventories
Inventories are stated at the lower of cost (principally first-in, first-out)or
market. Inventories at August 31, 1998 and November 30, 1997 were comprised of
the following:
Aug. 31, Nov. 30,
1998 1997
-------- --------
Finished Products $ 75,732 $ 56,989
Products in Process 25,869 18,791
Materials and Supplies 22,565 19,972
-------- --------
Total Inventories $124,166 $ 95,752
======== ========
Note 3. Other Cash Flow Information:
Nine Months Ended
Aug. 31,
-------------------
1998 1997
-------- --------
Interest Paid $ 8,836 $ 6,703
Income Taxes Paid $ 2,893 $ 10,694
Page 6
Note 4. Unconsolidated Affiliated Companies
Summarized operating results of affiliated companies in the Concrete and Steel
Pipe Products segment follow:
Three Months Ended Nine Months Ended
Aug. 31, Aug. 31,
------------------- -------------------
1998 1997 1998 1997
-------- -------- -------- --------
Net Sales $ 8,857 $ 18,104 $ 47,855 $ 36,087
Gross Profit $ 934 $ 3,679 $ 10,562 $ 6,508
Net Income/(Loss) $ (1,115) $ 428 $ 1,211 $ (1,221)
Amounts shown above represent operating results for Gifford-Hill-American,
Inc. for the three- and nine-month periods ended August 31, 1998 and 1997 and
operating results for Ameron Saudi Arabia, Ltd. for the three- and nine-month
periods ended June 30, 1998 and 1997.
Summarized results of operations of Tamco, Bondstrand, Ltd., and Oasis Ameron,
Ltd. follow:
Three Months Ended Nine Months Ended
Aug. 31, Aug. 31,
------------------- -------------------
1998 1997 1998 1997
-------- -------- -------- --------
Net Sales $ 47,691 $ 49,509 $127,560 $127,587
Gross Profit $ 11,187 $ 8,568 $ 29,098 $ 22,464
Net Income $ 4,702 $ 3,286 $ 11,424 $ 7,832
Amounts shown above include operating results for Tamco for the three- and nine-
month periods ended August 31, 1998 and 1997 and operating results for
Bondstrand, Ltd. and Oasis Ameron, Ltd. for the three- and nine-month periods
ended June 30, 1998 and 1997.
Page 7
Note 5. Comprehensive Income
The Company adopted Statement of Financial Accounting Standards No. 130 (SFAS
130), "Reporting Comprehensive Income" in the first quarter of fiscal year
1998. The Company recognized unrealized foreign currency translation losses
of $2,650 and $2,845 for the three months ended August 31, 1998 and 1997, and
losses of $5,597 and $6,650 for the nine months ended August 31, 1998 and
1997, respectively.
Note 6. Earnings Per Share
The Company adopted Statement of Financial Accounting Standards No. 128 (SFAS
128), "Earnings per Share" in the first quarter of fiscal year 1998. As a
result, the Company's reported earnings per share for 1997 were restated.
Earnings per share are calculated as follow:
Three Months Ended Nine Months Ended
Aug. 31, Aug. 31,
------------------ ------------------
1998 1997 1998 1997
-------- -------- -------- --------
Income Available to Common
Stockholders $ 6,178 $ 7,050 $ 9,728 $ 13,258
-------- -------- -------- --------
Weighted Average Common Shares
Outstanding 4,012,875 4,002,830 4,012,875 4,002,830
Options Issued to Employees
& Directors Outstanding 85,735 80,001 85,735 80,001
Diluted Common Shares
Outstanding 4,098,610 4,082,831 4,098,610 4,082,831
Basic Net Income per Share $ 1.54 $ 1.76 $ 2.42 $ 3.31
======== ======== ======== ========
Diluted Net Income per Share $ 1.51 $ 1.72 $ 2.37 $ 3.25
======== ======== ======== ========
Page 8
Note 7. Debt
At August 31, 1998 and November 30, 1997, the Company's long-term debt consists
of the following:
Aug. 31, Nov. 30,
1998 1997
-------- --------
Fixed-rate unsecured notes payable:
8.63% payable in annual principal
installments of $5,000 $ 5,000 $ 5,000
9.79% payable in annual principal
installments of $12,000 36,000 36,000
7.92% payable in annual principal
installments of $8,333, commencing
in 2001 50,000 50,000
Variable-rate Industrial Development Bonds,
Payable in 2016 (3.35% at August 31, 1998) 7,200 7,200
Variable-rate unsecured bank revolving credit
facilities (approximately 6.33% at August 31, 1998) 122,374 57,429
Variable-rate unsecured bank loan, payable by a
consolidated subsidiary in Dutch guilders, with
annual principal installments of approximately
$654 (4.39% at August 31, 1998) 2,453 2,942
-------- --------
Total Long-Term Debt 223,027 158,571
Current portion 17,654 17,654
-------- --------
Long-Term Debt, Less Current Portion $205,373 $140,917
======== ========
Note 8. Acquisition
On April 9, the Company acquired for cash totaling approximately $45,000 the
worldwide industrial coatings business of United Kingdom-based Croda
International Plc ("Croda Coatings"). The acquisition was accounted for as a
purchase and its results of operations were included in the Company's
consolidated financial statements from the date of acquisition in the second
quarter of fiscal 1998. The Croda Coatings' impact on earnings was immaterial
for the third quarter of fiscal 1998.
On April 20, the Company acquired for cash the fiberglass pipe and fittings
business of Hope Composites 2000, Inc. ("Hope"), a privately-owned company based
in Atlanta, Georgia. The acquisition was accounted for as a purchase and its
results of operations were included in the Company's consolidated financial
statements from the date of acquisition in the second quarter of fiscal 1998.
The Hope's impact on earnings was immaterial for the third quarter of fiscal
1998.
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, 1998
INTRODUCTION
Management's Discussion and Analysis should be read in conjunction with the same
discussion included in the Company's 1997 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, 1998, the Company generated $3.3
million of cash from operating activities compared to $16.6 million of cash used
during the nine-month period ended August 31, 1997. Working capital increased
during 1998 because of higher inventory levels and receivables caused by the
Croda Coatings acquisition and the seasonal demands of the Concrete and Steel
Pipe and Protective Coatings businesses.
Cash used in investing activities consisted of business acquisitions and capital
expenditures for normal replacement and upgrades of machinery and equipment.
Management estimates that capital expenditures during this fiscal year will be
between $30.0 million and $35.0 million. Capital expenditures will be funded
from existing cash balances, cash generated from operations and existing lines
of credit.
Additional net borrowings of $65.4 million plus $0.9 million from the issuance
of common stock were used for the business acquisitions, capital expenditures,
increased working capital requirements and payment of common dividends of $3.9
million. Cash and cash equivalents at August 31, 1998 totaled $10.1 million, an
increase of $0.3 million from November 30, 1997.
At August 31, 1998, the Company had approximately $86.1 million in unused
committed and uncommitted 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.
Page 10
RESULTS OF OPERATIONS - THIRD QUARTER
The Company earned $1.51 per diluted share and $1.54 per basic share on sales of
$155.7 million for the third quarter of fiscal 1998, compared to $1.72 per
diluted share and $1.76 per basic share on sales of $146.3 million for the
same period last year.
The reduction in third quarter earnings was caused by a decline in the
Protective Coatings business. The market for the Company's traditional
protective coatings continued to soften, reducing sales and increasing
competitive pressures on margins. Worldwide sales of protective coatings
increased because of the Croda Coatings acquisition in 1998.
The Fiberglass Pipe business reported slightly higher sales and earnings for
the quarter compared to the same period in 1997, because of improvement in
European operations and strong demand for fuel-handling products used in
service station applications throughout the United States.
Sales of concrete and steel pipe were lower than in the same period of 1997,
because of the timing of production start-up on several major orders. Earnings
were higher due to a favorable product mix and improved manufacturing
efficiencies.
The Company's construction products business in Hawaii reported lower sales and
higher earnings compared to the same period in 1997, due to cost reduction
programs implemented in the later part of 1997. The domestic Pole Products
business reported higher sales but lower earnings due to competitive pricing
pressures.
Selling, General and Administrative (SG&A) expenses were lower for the quarter
compared to the same period in 1997, primarily because of lower pension
expenses.
Royalty, Equity and Other Income was lower because of lower royalty income from
foreign licensees.
RESULTS OF OPERATIONS - YEAR TO DATE
The Company earned $2.37 per diluted share and $2.42 per basic share on sales of
$395.2 million during the nine-month period of fiscal 1998, compared to earnings
of $3.25 per diluted share and $3.31 per basic share on sales of $386.1 million
during the prior-year period.
The decline in earnings for the nine-month period of 1998 was due primarily to
lower sales of the Company's traditional protective coatings, and a slow first
half in the Concrete and Steel Pipe business that was impacted by severe weather
and a six-week strike at the Company's major steel pipe manufacturing facility
in Fontana, California.
Protective Coatings sales increased because of the Croda Coatings acquisition.
However, earnings declined in 1998 due to a slowdown in domestic markets,
increased competitive pressures and the impact on customers of lower oil prices.
Page 11
The Fiberglass Pipe business reported higher sales and earnings due to higher
demand for fuel-handling pipe systems, including the Company's new rigid coaxial
products. The decline in oil prices curtailed demand for high-pressure
fiberglass pipe supplied to worldwide oilfield markets by Centron, a wholly-
owned subsidiary.
Concrete and Steel Pipe reported sales significantly below last year due to the
timing of project deliveries, the impact of weather and the strike. Profits
were negatively impacted by the reduced sales volume.
The construction products business in Hawaii posted higher sales and earnings
because of the timing of projects and increased demand from the private sector.
Earnings improved also because of higher efficiency as a result of a
reorganization that was implemented during the second half of 1997. The
domestic Pole Products business reported lower sales and earnings than last year
due to competitive pressures on pricing.
The Company's efforts to address Year 2000 (Y2K) issues began in 1997. In
addressing the issues, the Company has employed a five-step process consisting
of 1) conducting a company-wide inventory, 2) assessing Y2K compliance, 3)
remediating non-compliant hardware and software, 4) testing remediated hardware
and software and 5) certifying Y2K compliance. Personnel from operations and
from functional disciplines, as well as information technology professionals,
are involved in the process. Outside consultants have also been retained to
participate in the inventory and assessment process, provide support resources
on a company-wide basis and minimize duplication of efforts. Inventory and
assessment activities are estimated at approximately 95 percent complete. This
data is continuously updated as new information becomes available and we expect
this to continue. Overall remediation efforts are estimated at approximately 65
percent complete. Communication with customers and suppliers to determine the
extent of their Y2K efforts is an integral part of the program. Costs for Y2K
efforts are not being accumulated separately. Much of the cost is being
accounted for as part of normal operating budgets. Overall, the costs are not
expected to have a significant effect on the Company's financial position or
results of operations. The Company believes it will not have significant
exposure to Y2K issues and that the risk to its operations and financial
condition is remote.
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
Any of the above statements that refer to the Company's estimated or anticipated
future results are forward-looking and reflect the Company's current analysis of
existing trends and information. Actual results may differ from current
expectations based on a number of factors affecting Ameron's businesses,
including competitive conditions and changing market conditions. Matters
affecting the economy generally, including the state of economies worldwide, can
affect the Company's results. These forward-looking statements represent the
Company's judgment only as of the date of this report. Since actual results
could differ materially, the reader is cautioned not to rely on these forward-
looking statements. Moreover, the Company disclaims any intent or obligation to
update these forward looking statements.
Page 12
Part II. OTHER INFORMATION
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. Under the most
restrictive provisions of these agreements, approximately $11 million
of consolidated retained earnings were not restricted at August 31,
1998.
Item 6. Exhibits and Reports on Form 8-K
A Form 8-K was filed on June 24, 1998 to report the
Company's second quarter 1998 sales and earnings.
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, 1998
/s/ Gary Wagner
_________________________________
Gary Wagner
Senior Vice President,
Chief Financial Officer
Page 14
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