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 May 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 91101-2894
(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
4,014,862 on June 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 4. Submission of Matters to a Vote of Security Holders 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 Six Months Ended
May 31, May 31,
------------------ ------------------
1998 1997 1998 1997
-------- -------- -------- --------
Net Sales $136,974 $131,525 $239,500 $239,786
Cost of Sales 100,648 96,317 178,972 176,895
-------- -------- -------- --------
Gross Profit 36,326 35,208 60,528 62,891
Selling, General and
Administrative Expenses 29,598 26,449 54,644 52,732
-------- -------- -------- --------
Operating Profit 6,728 8,759 5,884 10,159
Royalty, Equity and Other Income 3,692 2,326 5,463 4,945
-------- -------- -------- --------
Income before Interest
and Income Taxes 10,420 11,085 11,347 15,104
Interest Income 18 70 172 155
Interest Expense 3,411 3,168 6,058 5,709
-------- -------- -------- --------
Income before Income Taxes 7,027 7,987 5,461 9,550
Provision for Income Taxes 2,537 2,717 1,911 3,342
-------- -------- -------- --------
Net Income $ 4,490 $ 5,270 $ 3,550 $ 6,208
======== ======== ======== ========
Basic Net Income per Share $ 1.12 $ 1.32 $ 0.89 $ 1.55
======== ======== ======== ========
Diluted Net Income per Share $ 1.09 $ 1.30 $ 0.86 $ 1.53
======== ======== ======== ========
Weighted Average Common Shares
Outstanding 4,009,773 4,002,001 4,009,773 4,002,001
========= ========= ========= =========
Diluted Common Shares Outstanding 4,115,941 4,069,733 4,115,941 4,069,733
========= ========= ========= =========
Cash Dividends per Share $ .32 $ .32 $ .64 $ .64
======== ======== ======== ========
See accompanying notes to financial statements.
Page 3
Ameron International Corporation and Subsidiaries
Consolidated Balance Sheets
(In thousands except share and per share data)
May 31, Nov. 30,
1998 1997
-------- --------
ASSETS
Current Assets
Cash and Cash Equivalents $ 6,078 $ 9,848
Receivables, Net 129,258 122,352
Inventories 125,993 95,752
Deferred Income Tax Benefits 7,993 9,083
Prepaid Expenses and Other 5,031 4,257
-------- --------
Total Current Assets 274,353 241,292
Investments, Advances and Equity in
Undistributed Earnings of Affiliated Companies 33,689 33,777
Property, Plant and Equipment, Net 161,288 127,678
Other Assets 28,683 30,478
-------- --------
Total Assets $498,013 $433,225
======== ========
LIABILITIES and STOCKHOLDERS' EQUITY
Current Liabilities
Short-Term Borrowings $ 1,311 $ 715
Current Portion of Long-Term Debt 17,645 17,654
Trade Payables 43,106 31,988
Accrued Liabilities 31,218 32,561
Income Taxes 8,627 4,347
-------- --------
Total Current Liabilities 101,907 87,265
Deferred Income Taxes 2,047 2,907
Long-Term Debt, Less Current Portion 201,117 140,917
Other Long-Term Liabilities 41,580 49,154
-------- --------
Total Liabilities 346,651 280,243
Stockholders' Equity
Common Stock, Par Value $2.50 a Share,
Authorized, 12,000,000 Shares,
Outstanding, 4,014,862 Shares at
May 31, 1998 and 4,005,487 Shares
at November 30, 1997, Net of Treasury Shares 12,969 12,946
Additional Paid-In Capital 17,289 16,969
Retained Earnings 172,553 171,569
Accumulated Other Comprehensive Loss (8,670) (5,723)
Treasury Stock (1,172,900 shares), at Cost (42,779) (42,779)
-------- --------
Total Stockholders' Equity 151,362 152,982
-------- --------
Total Liabilities and Stockholders' Equity $498,013 $433,225
======== ========
See accompanying notes to financial statements
Page 4
Ameron International Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(In thousands)
Six Months Ended
May 31,
-------------------
1998 1997
-------- --------
Cash Flow from Operating Activities
Net Income $ 3,550 $ 6,208
Adjustments to Reconcile to Net Cash
Provided by (Used in) Operating Activities:
Depreciation 8,179 7,847
Amortization 610 160
Equity in Earnings of Affiliated Companies (2,600) (1,319)
Dividends from Affiliated Companies 2,686 2,237
Other, Net 2,901 477
Changes in Operating Assets and Liabilities:
Change in Receivables (6,188) (5,033)
Change in Inventories (14,754) (24,266)
Change in Other Current Assets 981 (732)
Change in Trade Payables and
Other Current Liabilities 12,602 (9,454)
Change in Other Assets and Liabilities, Net (6,576) 3,066
-------- --------
Net Cash Provided by (Used in)
Operating Activities 1,391 (20,809)
Cash Flow from Investing Activities
Proceeds from Sale of Assets 326 355
Additions to Property, Plant and Equipment, and
Acquisitions (61,129) (11,496)
Other (699) (1,518)
-------- --------
Net Cash Used in Investing Activities (61,502) (12,659)
Cash Flow from Financing Activities
Net Change in Debt with Maturities
of Three Months or Less 612 (423)
Issuance of Debt 59,344 37,208
Repayment of Debt (1,323) (5,510)
Dividends to Common Stockholders (2,566) (2,561)
Issuance of Common Stock 343 628
-------- --------
Net Cash Provided by Financing Activities 56,410 29,342
Effect of Exchange Rate Changes
on Cash and Cash Equivalents (69) (354)
-------- --------
Net Change in Cash and Cash Equivalents (3,770) (4,480)
Beginning Cash and Cash Equivalents Balance 9,848 18,381
-------- --------
Ending Cash and Cash Equivalents Balance $ 6,078 $ 13,901
======== ========
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)
May 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 May 31, 1998, and the consolidated
statements of income for the three- and six-month periods ended May 31, 1998
and 1997, and cash flows for the six-month periods ended May 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 May 31, 1998 and November 30, 1997 were
comprised of the following:
May 31, Nov. 30,
1998 1997
-------- --------
Finished Products $ 80,305 $ 56,989
Products in Process 24,332 18,791
Materials and Supplies 21,356 19,972
-------- --------
Total Inventories $125,993 $ 95,752
======== ========
Note 3. Other Cash Flow Information:
Six Months Ended
May 31,
-------------------
1998 1997
-------- --------
Interest Paid $ 6,422 $ 5,687
Income Taxes Paid $ 1,613 $ 3,949
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 Six Months Ended
May 31, May 31,
------------------- -------------------
1998 1997 1998 1997
-------- -------- -------- --------
Net Sales $ 19,696 $ 11,507 $ 38,998 $ 17,983
Gross Profit $ 4,349 $ 2,208 $ 9,628 $ 2,829
Net Income/(Loss) $ 719 $ (245) $ 2,326 $ (1,649)
Amounts shown above represent operating results for Gifford-Hill-American,
Inc. for the three- and six-month periods ended May 31, 1998 and 1997 and
operating results for Ameron Saudi Arabia, Ltd. for the three- and six-month
periods ended March 31, 1998 and 1997.
Summarized results of operations of Tamco, Bondstrand, Ltd., and Oasis Ameron,
Ltd. follow:
Three Months Ended Six Months Ended
May 31, May 31,
------------------- -------------------
1998 1997 1998 1997
-------- -------- -------- --------
Net Sales $ 43,424 $ 44,166 $ 79,869 $ 78,078
Gross Profit $ 9,464 $ 7,727 $ 17,911 $ 13,896
Net Income $ 3,786 $ 2,672 $ 6,722 $ 4,546
Amounts shown above include operating results for Tamco for the three- and
six-month periods ended May 31, 1998 and 1997 and operating results for
Bondstrand, Ltd. and Oasis Ameron, Ltd. for the three- and six-month periods
ended March 31, 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 $110 and $161 for the three months ended May 31, 1998 and 1997,
respectively, and losses of $2,947 and $3,805 for the six months ended May
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.
Earning per share is calculated as follow:
Three Months Ended Six Months Ended
May 31, May 31,
------------------ ------------------
1998 1997 1998 1997
-------- -------- -------- --------
Income Available to Common
Stockholders $4,490 $5,270 $3,550 $6,208
-------- -------- -------- --------
Weighted Average Common Shares
Outstanding 4,009,773 4,002,001 4,009,773 4,002,001
Options Issued to Employees
& Directors 106,168 67,732 106,168 67,732
Diluted Common Shares
Outstanding 4,115,941 4,069,733 4,115,941 4,069,733
Basic Net Income per Share $ 1.12 $ 1.32 $ 0.89 $ 1.55
======== ======== ======== ========
Diluted Net Income per Share $ 1.09 $ 1.30 $ 0.86 $ 1.53
======== ======== ======== ========
Page 8
Note 7. Debt
At May 31, 1998 and November 30, 1997, the Company's long-term debt consists
of the following:
May 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 (3.90% at May 31, 1998) 7,200 7,200
Variable-rate unsecured bank revolving credit
facilities (approximately 6.29% at May 31, 1998) 117,980 57,429
Variable-rate unsecured bank loan, payable by a
consolidated subsidiary in Dutch guilders, with
annual principal installments of approximately
$645 (4.39% at May 31, 1998) 2,582 2,942
-------- --------
218,762 158,571
Less - Current portion 17,645 17,654
-------- --------
$201,117 $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. 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 acquisition's impact on earnings was immaterial for the second quarter of
fiscal 1998.
On April 20, the Company acquired for cash the fiberglass pipe and fittings
business of Hope Composites 2000, Inc., 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 acquisition's impact on earnings was immaterial for the second 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
May 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 six-month period ended May 31, 1998, the Company generated $1.4
million of cash from operating activities compared to $20.8 million of cash
used during the six-month period ended May 31, 1997. The change in working
capital reflects 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 $25.0 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 $58.6 million plus $0.3 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 $2.6
million. Cash and cash equivalents at May 31, 1998 totaled $6.1 million, a
decrease of $3.8 million from November 30, 1997.
At May 31, 1998, the Company had approximately $83.4 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 - SECOND QUARTER
The Company earned $1.09 per diluted share and $1.12 per basic share on sales
of $137 million for the second quarter of fiscal 1998, compared to $1.30 per
diluted share and $1.32 per basic share on sales of $131.5 million for the same
period last year.
The decline in second quarter earnings was the result of lower sales of
concrete and steel pipe and the Company's traditional protective coatings.
Both the Protective Coatings and Concrete & Steel Pipe Groups were adversely
affected by weather early in the quarter. Additionally, a strike at the
Company's major steel pipe manufacturing facility during most of March delayed
sales and reduced profitability.
The Fiberglass Pipe business reported higher sales and earnings for the
quarter compared to the same period in 1997, because of improvement in the
Europe operation and strong demand for fuel-handling products used in service
station applications throughout the United States.
Results from Ameron Hawaii, the Company's construction products business,
reported higher sales and earnings compared to the same period in 1997, due
to the timing of projects in Hawaii and increased demand from the private
sector. The domestic Pole Products business reported flat sales and lower
earnings due to softness in the Southern California market.
Selling, General and Administrative (SG&A) expenses were higher for the
quarter compared to the same period in 1997, primarily because of the
acquisitions that took place in the quarter. These higher costs were
partially offset by lower pension expenses.
Royalty, Equity and Other Income was higher because of higher equity income
from affiliated companies.
RESULTS OF OPERATIONS - YEAR TO DATE
The Company earned 86 cents per diluted share and 89 cents per basic share on
sales of $239.5 million during the first half of fiscal 1998, compared to
earnings of $1.53 per diluted share and $1.55 per basic share on sales of
$239.8 million during the prior-year period.
The decline for the first half of 1998 was due primarily to lower sales of
concrete and steel pipe and the Company's traditional protective coatings as a
result of bad weather and a strike at the Company's major steel pipe
manufacturing facility in Fontana, California.
Protective Coatings sales and earnings declined in the first half of 1998 due
to U.S. weather-related problems, a slowdown in Europe caused by the continuing
decline in oil prices and delays in orders from Eastern Europe and the former
Soviet Union and competitive pressures in industrial maintenance markets in
the U.S. and Europe.
The Fiberglass Pipe business reported substantially higher sales and earnings
which came primarily from Centron and operations in the Netherlands.
Page 11
Concrete and Steel Pipe reported sales significantly below last year due to
the timing of project deliveries and 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
outlook for the construction sector in Hawaii remains sluggish. The domestic
Pole Products business reported lower sales and earnings than last year due to
softness in the Southern California market.
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 was not restricted at May 31, 1998.
Item 4. Submission of Matters to a Vote of Security Holders
The Company's Annual Meeting of Stockholders was held on March 25,
1998. Represented at the meeting, in person or by proxy, were
3,372,090 shares of common stock (84.2% of the total shares
outstanding). Stockholders voted on the following matters at this
meeting:
1. Election of Directors
The three nominees for directors named in the Company's proxy
statement, Messrs. J. Michael Hagan, Terry L. Haines, and Alan L.
Ockene, received the greatest number of votes cast and were elected;
each receiving not less than 3,339,206 votes.
Other directors whose terms of office continued after the meeting
are: Stephen W. Foss, A. Frederick Gerstell, John F. King, James S.
Marlen, Richard J. Pearson and David L. Sliney.
2. Proposal to Ratify the Appointment of Auditors
3,355,116 shares (99.5% of the shares represented at the meeting or
83.7% of the shares outstanding) voted in favor of the proposal to
ratify the appointment of Arthur Andersen LLP as independent public
accountants of the Company for fiscal year 1998. Of the shares
represented at the meeting, 11,236 shares (0.3%) voted against the
proposal.
3. Approval of Key Executive Long-Term Cash Incentive Plan
3,182,179 shares (94.4% of the shares represented at the meeting or
79.4% of the shares outstanding) voted in favor of the proposal to
approve the Key Executive Long-Term Cash Incentive Plan. Of the
shares represented at the meeting, 119,899 shares (3.6%) voted
against the proposal.
Item 6. Exhibits and Reports on Form 8-K
A Form 8-K was filed on April 2, 1998 to report the Company's first
quarter 1998 sales and earnings.
A Form 8-K was also filed on April 16, 1998 to report the
acquisition through certain of the Company's wholly-owned
subsidiaries, of the worldwide industrial coatings business of U.K.-
based Croda International 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: July 14, 1998
/s/ Gary Wagner
_________________________________
Gary Wagner
Senior Vice President,
Chief Financial Officer
Page 14
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 6-MOS
<FISCAL-YEAR-END> NOV-30-1998 NOV-30-1997
<PERIOD-END> MAY-31-1998 MAY-31-1997
<CASH> 6,078 13,901
<SECURITIES> 0 0
<RECEIVABLES> 129,258 106,743
<ALLOWANCES> 0 0
<INVENTORY> 125,993 107,553
<CURRENT-ASSETS> 274,353 243,506
<PP&E> 161,288 125,853
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 498,013 432,967
<CURRENT-LIABILITIES> 101,907 90,490
<BONDS> 0 0
0 0
0 0
<COMMON> 12,969 12,941
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 498,013 432,967
<SALES> 239,500 239,786
<TOTAL-REVENUES> 239,500 239,786
<CGS> 178,972 176,895
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 54,644 52,732
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 6,058 5,709
<INCOME-PRETAX> 5,461 9,550
<INCOME-TAX> 1,911 3,342
<INCOME-CONTINUING> 3,550 6,208
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 3,550 6,208
<EPS-PRIMARY> 0.89 1.55
<EPS-DILUTED> 0.86 1.53
</TABLE>
