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, 1999
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
3,991,912 on June 30, 1999. 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 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURE PAGE 13
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)
(Unaudited)
Three Months Ended Six Months Ended
May 31, May 31,
------------------ ------------------
1999 1998 1999 1998
-------- -------- -------- --------
Net Sales $149,468 $136,974 $272,367 $239,500
Cost of Sales (109,909) (100,648) (201,927) (178,972)
-------- -------- -------- --------
Gross Profit 39,559 36,326 70,440 60,528
Selling, General and
Administrative Expenses (29,543) (29,598) (59,303) (54,644)
-------- -------- -------- --------
Operating Income 10,016 6,728 11,137 5,884
Royalty, Equity and Other Income 2,295 3,692 6,119 5,463
-------- -------- -------- --------
Income before Interest
and Income Taxes 12,311 10,420 17,256 11,347
Interest Income 42 18 98 172
Interest Expense (3,500) (3,411) (7,025) (6,058)
-------- -------- -------- --------
Income before Income Taxes 8,853 7,027 10,329 5,461
Provision for Income Taxes (2,833) (2,537) (3,305) (1,911)
-------- -------- -------- --------
Net Income $ 6,020 $ 4,490 $ 7,024 $ 3,550
======== ======== ======== ========
Basic Net Income per Share $ 1.50 $ 1.12 $ 1.75 $ 0.89
======== ======== ======== ========
Diluted Net Income per Share $ 1.50 $ 1.09 $ 1.75 $ 0.86
======== ======== ======== ========
Weighted Average Common Shares
Outstanding 4,006,798 4,009,773 4,006,798 4,009,773
========= ========= ========= =========
Diluted Common Shares Outstanding 4,019,270 4,115,941 4,019,270 4,115,941
========= ========= ========= =========
Cash Dividends per Share $ .32 $ .32 $ .64 $ .64
======== ======== ======== ========
See accompanying notes to consolidated financial statements.
Page 3
Ameron International Corporation and Subsidiaries
Consolidated Balance Sheets
(In thousands, except share and per share data)
May 31, Nov. 30,
1999 1998
(Unaudited)
-------- --------
ASSETS
Current Assets
Cash and Cash Equivalents $ 12,133 $ 16,376
Receivables, Net 132,144 136,380
Inventories 105,643 106,654
Deferred Income Tax Benefits 7,727 7,726
Prepaid Expenses and Other 8,189 6,554
-------- --------
Total Current Assets 265,836 273,690
Investments, Advances and Equity in
Undistributed Earnings of Affiliated Companies 22,189 22,182
Property, Plant and Equipment, Net 150,760 157,918
Other Assets 46,795 46,429
-------- --------
Total Assets $485,580 $500,219
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Short-Term Borrowings $ 4,213 $ 3,024
Current Portion of Long-Term Debt 12,615 12,681
Trade Payables 35,716 37,273
Accrued Liabilities 48,381 50,353
Income Taxes 15,627 23,499
-------- --------
Total Current Liabilities 116,552 126,830
Long-Term Debt, Less Current Portion 162,723 165,308
Other Long-Term Liabilities 39,869 40,913
-------- --------
Total Liabilities 319,144 333,051
-------- --------
Stockholders' Equity
Common Stock, Par Value $2.50 a Share,
Authorized 12,000,000 Shares,
Outstanding 3,991,912 Shares at
May 31, 1999 and 4,030,112 Shares
at November 30, 1998, Net of Treasury Shares 13,007 13,007
Additional Paid-In Capital 17,828 17,828
Retained Earnings 191,640 187,174
Accumulated Other Comprehensive Income (11,845) (8,062)
Treasury Stock (1,211,100 shares at May 31,
1999 and 1,172,900 shares at November
30, 1998), at Cost (44,194) (42,779)
-------- --------
Total Stockholders' Equity 166,436 167,168
-------- --------
Total Liabilities and Stockholders' Equity $485,580 $500,219
======== ========
See accompanying notes to consolidated financial statements
Page 4
Ameron International Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Six Months Ended
May 31,
-------------------
1999 1998
-------- --------
Cash Flows from Operating Activities
Net Income $ 7,024 $ 3,550
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation 8,852 8,179
Amortization 939 610
Equity in Earnings of Affiliated Companies (3,341) (2,600)
Dividends from Affiliated Companies 3,300 2,686
Other, Net 3,872 2,901
Changes in Operating Assets and Liabilities:
Change in Receivables 1,072 (6,188)
Change in Inventories (733) (14,754)
Change in Other Current Assets (1,991) 981
Change in Trade Payables and
Other Current Liabilities (16,568) 12,602
Change in Other Assets and Liabilities, Net 6,797 (6,576)
-------- --------
Net Cash Provided by Operating Activities 9,223 1,391
-------- --------
Cash Flows from Investing Activities
Proceeds from Sale of Assets 1,910 326
Additions to Property, Plant and Equipment (7,828) (15,852)
Business Acquisitions - (45,277)
Other (3,174) (699)
-------- --------
Net Cash Used by Investing Activities (9,092) (61,502)
-------- --------
Cash Flows from Financing Activities
Net Change in Short-Term Borrowings 1,502 612
Issuance of Debt 284 59,344
Repayment of Debt (1,741) (1,323)
Dividends to Common Stockholders (2,558) (2,566)
Issuance of Common Stock - 343
Purchase of Treasury Stock (1,415) -
-------- --------
Net Cash (Used) Provided
by Financing Activities (3,928) 56,410
-------- --------
Effect of Exchange Rate Changes
on Cash and Cash Equivalents (446) (69)
-------- --------
Net Change in Cash and Cash Equivalents (4,243) (3,770)
Beginning Cash and Cash Equivalents Balance 16,376 9,848
-------- --------
Ending Cash and Cash Equivalents Balance $ 12,133 $ 6,078
======== ========
See accompanying notes to consolidated financial statements
Page 5
Ameron International Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(In thousands)
May 31, 1999
Note 1. Basis Of Presentation
The consolidated financial statements for the interim periods included herein
are unaudited; however, they contain all adjustments, including normal
recurring accruals, which in the opinion of management, are necessary to
present fairly the consolidated financial position of Ameron International
Corporation ("Company" or "Ameron") at May 31, 1999, and the consolidated
statements of income for the three- and six-month periods ended May 31, 1999
and 1998, and cash flows for the six-month periods ended May 31, 1999 and 1998.
Accounting measurements at interim dates inherently involve greater reliance on
estimates than at year end. 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 financial statements and notes included in the Annual Report on Form
10-K for the year ended November 30, 1998.
Note 2. Inventories
Inventories are stated at the lower of cost (principally first-in, first-out)or
market. Inventories were comprised of the following:
May 31, Nov. 30,
1999 1998
-------- --------
Finished Products $ 61,223 $ 62,888
Products in Process 23,950 20,988
Materials and Supplies 20,470 22,778
-------- --------
Total Inventories $105,643 $106,654
======== ========
Note 3. Other Cash Flow Information:
Six Months Ended
May 31,
-------------------
1999 1998
-------- --------
Interest Paid $ 6,585 $ 6,422
Income Taxes Paid $ 9,982 $ 1,613
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,
------------------- -------------------
1999 1998 1999 1998
-------- -------- -------- --------
Net Sales $ 10,036 $ 19,696 $ 22,535 $ 38,998
Gross Profit $ 5,519 $ 4,349 $ 11,939 $ 9,628
Net Income/(Loss) $ 3,616 $ 719 $ 8,044 $ 2,326
Amounts shown above represent operating results for Ameron Saudi Arabia, Ltd.
for the three- and six-month periods ended March 31, 1999 and 1998 and
Gifford-Hill-American, Inc. for the three- and six-month periods ended May 31,
1998. The Company sold its 50% ownership of Gifford-Hill-American, Inc. in
late 1998.
Summarized results of operations of Tamco, Bondstrand, Ltd., and Oasis Ameron,
Ltd. follow:
Three Months Ended Six Months Ended
May 31, May 31,
------------------- -------------------
1999 1998 1999 1998
-------- -------- -------- --------
Net Sales $ 41,976 $ 43,424 $ 77,689 $ 79,869
Gross Profit $ 10,017 $ 9,464 $ 18,706 $ 17,911
Net Income $ 4,549 $ 3,786 $ 8,484 $ 6,722
Amounts shown above include operating results for Tamco for the three- and six-
month periods ended May 31, 1999 and 1998 and operating results for Bondstrand,
Ltd. and Oasis Ameron, Ltd. for the three- and six-month periods ended March
31, 1999 and 1998.
Note 5. Earnings Per Share
The basic earnings per share is computed on the basis of the weighted average
number of common shares outstanding each year. The diluted earnings per share
is computed on the basis of the weighted average number of common shares
outstanding each year, plus common stock equivalents related to dilutive stock
options.
Page 7
Note 6. Other Comprehensive Income
The Company recognized unrealized foreign currency translation losses of $1,054
and $110 for the three months ended May 31, 1999 and 1998, and losses of $3,783
and $2,947 for the six months ended May 31, 1999 and 1998, respectively.
Accumulated other comprehensive income included $502 minimum pension liability
as of May 31, 1999 and November 30, 1998.
Note 7. Debt
The Company's long-term debt consists of the following:
May 31, Nov. 30,
1999 1998
-------- --------
Fixed-rate unsecured notes payable:
9.79% payable in annual principal
installments of $12,000 $ 24,000 $ 24,000
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 May 31, 1999) 7,200 7,200
Variable-rate unsecured bank revolving credit
facilities (approximately 5.27% at May 31, 1999) 92,294 94,406
Variable-rate unsecured bank loan, payable by a
consolidated subsidiary in Dutch guilders, with
annual principal installments of approximately
$615 (4.17% at May 31, 1999) 1,844 2,383
-------- --------
Total Long-Term Debt 175,338 177,989
Current portion 12,615 12,681
-------- --------
Long-Term Debt, Less Current Portion $162,723 $165,308
======== ========
Note 8. Business Restructuring
For the six months ended May 31, 1999, $974 was charged to the 1998
restructuring reserve. The remaining reserve for business restructuring at May
31, 1999 was $348.
Page 8
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, 1999
INTRODUCTION
Management's Discussion and Analysis should be read in conjunction with the
discussion included in the Company's 1998 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, 1999, the Company generated $9.2
million of cash from operating activities compared to $1.4 million of cash
generated during the six-month period ended May 31, 1998. The improved cash
position was a result of improved earnings and lower working capital
requirements.
Cash used by investing activities included capital expenditures for normal
replacement and upgrades of machinery and equipment. Management estimates that
capital expenditures during this fiscal year will be between $15.0 million and
$25.0 million. Capital expenditures will be funded from existing cash balances,
cash generated from operations and existing lines of credit.
Cash generated from operating activities was used for capital expenditures,
payment of common dividends of $2.6 million and repurchase of the Company's
shares of $1.4 million. Cash and cash equivalents at May 31, 1999 totaled $12.1
million, a decrease of $4.2 million from November 30, 1998.
At May 31, 1999, the Company had approximately $108 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.
RESULTS OF OPERATIONS - SECOND QUARTER
The Company earned $1.50 per diluted share on sales of $149.5 million during the
second quarter of fiscal 1999, compared to $1.09 per diluted share on sales of
$137.0 million for the same period last year. The improvement was attributed
primarily to higher sales of the Concrete and Steel Pipe Group.
Sales of the Concrete and Steel Pipe business significantly increased because of
the healthy backlog and the relatively mild weather during the second quarter of
1999. The Company's second quarter of 1998 was adversely impacted by unusually
wet weather and a strike at the Company's major steel pipe facility. Operating
profit in 1999 increased proportionally to the sales increase.
Page 9
The Company's worldwide Fiberglass-Composite Pipe business had slightly lower
sales than in the same quarter of 1998, as the business continued to suffer
because of the depressed oil industry. Sales from Ameron's Asian operations
continued to strengthen. Profits from sales of fiberglass-composite pipe
improved in spite of the sales decline because of the cost reduction steps
taken in 1998 and a favorable change in product mix.
The Company's worldwide Coatings business had lower sales and profitability
than in the same quarter of 1998. The decline reflected the condition of the
worldwide, industrial coatings market, which remains soft because of the
depressed oil industry and low commodity prices.
Ameron's Construction and Allied Products business reported higher sales and
profits. The improvement came from Ameron's pole business, which benefitted
from the mild weather and strong development in the western U.S. Ameron's
Hawaiian operations declined because of the continued impact of the Asian
economic situation on the Hawaiian economy.
Selling, General and Administrative (SG&A) expenses were flat for the quarter
compared to the same period in 1998.
Royalty, Equity and Other Income was lower because of lower equity income from
affiliated companies.
RESULTS OF OPERATIONS - YEAR TO DATE
The Company earned $1.75 per diluted share on sales of $272.4 million during
the first half of fiscal 1999, compared to earnings of 86 cents per diluted
share on sales of $239.5 million during the same prior-year period.
The improvement in sales for the first half of 1999 was due primarily to higher
sales of the Concrete and Steel Pipe Group and the acquisition of the Croda
Coatings operations in April 1998. The profitability of all businesses
improved in the first half of 1999, compared to the first half of 1998.
Sales of the Concrete and Steel Pipe business significantly increased because
of the healthy backlog at the start of the year and the relatively mild weather
during the first half of 1999. The Company's first six-months of 1998 were
adversely impacted by unusually wet weather and a strike at the Company's major
steel pipe facility. Operating profit increased proportionally to the sales
increase.
The Fiberglass-Composite Pipe business reported lower sales than in the same
period of 1998, as the business continued to suffer because of the depressed
oil industry. Profits from sales of fiberglass-composite pipe improved in
spite of the sales decline because of the cost reduction steps taken in 1998
and improved productivity worldwide.
Coatings reported higher sales and earnings in the first half of 1999 than in
the same period of 1998. The increase came from the former Croda Coatings
businesses in England, Australia and New Zealand. The worldwide market for
Ameron's coatings remains soft.
Ameron's Construction and Allied Products business reported slightly higher
sales and higher profits. Hawaiian operations declined because of the
continued impact of the Asian economic situation on the Hawaiian economy. The
decline in Hawaii was offset by an improvement in Ameron's pole business.
Page 10
Selling, General and Administrative expenses were higher compared to the same
period in 1998, primarily because of the Croda Coatings acquisition and higher
insurance, employee benefit and product warranty costs.
YEAR 2000
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 completed. The data are continuously updated as new
information becomes available, and we expect this to continue. Overall
remediation efforts are estimated at approximately 95 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. The costs are being expensed or capitalized as
part of normal operation. 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 not
material. In the event of the failure to correct all compliance issues related
to manufacturing control systems, the Company's plants have the ability, in
most instances, to continue operations mechanically, rather than
electronically. The Company believes its most reasonably likely worst-case
scenario is that its operations will experience delays because of failures by
third parties, such as suppliers of utilities and major raw materials, to
correct Y2K problems.
The Company is developing contingency plans that are designed to mitigate, in
part, the impact on its operations of certain Y2K problems. These plans,
however, can not cover all eventualities, such as power outages. The Company
expects these plans to be in place by the fourth quarter of 1999.
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 11
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 $10
million of consolidated retained earnings was not restricted at
May 31, 1999.
Item 4. Submission of Matters to a Vote of Security Holders
The Company's Annual Meeting of Stockholders was held on
March 24, 1999. Represented at the meeting, in person or by proxy,
were 3,116,208 shares of common stock (77.9% of the total shares
outstanding). Stockholders voted on the following matters at this
meeting:
1. Election of Directors
The two nominees for directors named in the Company's proxy
statement, Messrs. Stephen W. Foss and James S. Marlen having
received the greatest number of votes cast, were re-elected to serve
for another term with each receiving not less than 3,082,752 votes.
Other directors whose terms of office continued after the
meeting are: J. Michael Hagan, Terry L. Haines, John F. King, Alan L.
Ockene, and Richard J. Pearson.
2. Proposal to Ratify the Appointment of Auditors
3,105,493 shares (99.7% of the shares represented at the
meeting or 77.7% 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 1999.
Of the shares represented at the meeting, 6,042 shares (0.2%) voted
against the proposal.
Item 6. Exhibits and Reports on Form 8-K
No report on Form 8-K was filed for the Company in the
second quarter of 1999.
Page 12
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, 1999
/s/ Gary Wagner
_________________________________
Gary Wagner
Senior Vice President,
Chief Financial Officer
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