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, 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 September 30, 1999. No other class of Common Stock exists.
Page 1
AMERON INTERNATIONAL CORPORATION
INDEX
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Consolidated 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 9
PART II. OTHER INFORMATION
Item 2. Changes in Securities 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 Nine Months Ended
August 31, August 31,
------------------ ------------------
1999 1998 1999 1998
-------- -------- -------- --------
Net Sales $138,795 $155,707 $411,162 $395,207
Cost of Sales (100,708) (117,565) (302,635) (296,537)
-------- -------- -------- --------
Gross Profit 38,087 38,142 108,527 98,670
Selling, General and
Administrative Expenses (26,700) (24,473) (86,003) (79,117)
Royalty, Equity and Other Income 3,804 2,899 9,923 8,362
-------- -------- -------- --------
Operating Profit 15,191 16,568 32,447 27,915
Asset Write-Downs and Other Charges - (1,803) - (1,803)
-------- -------- -------- --------
Income before Interest
and Income Taxes 15,191 14,765 32,447 26,112
Interest Income 53 149 151 321
Interest Expense (3,499) (5,409) (10,524) (11,467)
-------- -------- -------- --------
Income before Income Taxes 11,745 9,505 22,074 14,966
Provision for Income Taxes (3,759) (3,327) (7,064) (5,238)
-------- -------- -------- --------
Net Income $ 7,986 $ 6,178 $ 15,010 $ 9,728
======== ======== ======== ========
Basic Net Income per Share $ 2.00 $ 1.54 $ 3.75 $ 2.42
======== ======== ======== ========
Diluted Net Income per Share $ 1.98 $ 1.51 $ 3.74 $ 2.37
======== ======== ======== ========
Weighted Average Common Shares
Outstanding 3,991,912 4,012,875 3,997,679 4,012,875
========= ========= ========= =========
Diluted Common Shares Outstanding 4,024,412 4,098,610 4,016,818 4,098,610
========= ========= ========= =========
Cash Dividends per Share $ .32 $ .32 $ .96 $ .96
======== ======== ======== ========
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)
Aug. 31, Nov. 30,
1999 1998
(Unaudited)
-------- --------
ASSETS
Current Assets
Cash and Cash Equivalents $ 9,675 $ 16,376
Receivables, Net 128,261 136,380
Inventories 98,681 106,654
Deferred Income Tax Benefits 7,723 7,726
Prepaid Expenses and Other 8,492 6,554
-------- --------
Total Current Assets 252,832 273,690
Investments, Advances and Equity in
Undistributed Earnings of Affiliated Companies 22,189 22,182
Property, Plant and Equipment, Net 151,900 157,918
Other Assets 45,776 46,429
-------- --------
Total Assets $472,697 $500,219
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Short-Term Borrowings $ 3,615 $ 3,024
Current Portion of Long-Term Debt 12,624 12,681
Trade Payables 39,597 37,273
Accrued Liabilities 48,931 50,353
Income Taxes 13,171 23,499
-------- --------
Total Current Liabilities 117,938 126,830
Long-Term Debt, Less Current Portion 141,973 165,308
Other Long-Term Liabilities 39,741 40,913
-------- --------
Total Liabilities 299,652 333,051
-------- --------
Stockholders' Equity
Common Stock, Par Value $2.50 a Share,
Authorized 12,000,000 Shares,
Outstanding 3,991,912 Shares at
August 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 198,349 187,174
Accumulated Other Comprehensive Income (11,945) (8,062)
Treasury Stock (1,211,100 shares at August 31,
1999 and 1,172,900 shares at November
30, 1998), at Cost (44,194) (42,779)
-------- --------
Total Stockholders' Equity 173,045 167,168
-------- --------
Total Liabilities and Stockholders' Equity $472,697 $500,219
======== ========
See accompanying notes to consolidated financial statements
Page 4
Ameron International Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Nine Months Ended
Aug. 31,
-------------------
1999 1998
-------- --------
Cash Flows from Operating Activities
Net Income $ 15,010 $ 9,728
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation 13,506 12,931
Amortization 1,431 883
Equity in Earnings of Affiliated Companies (5,772) (4,367)
Dividends from Affiliated Companies 5,731 4,453
Other, Net 1,581 (103)
Changes in Operating Assets and Liabilities:
Change in Receivables 5,401 (15,205)
Change in Inventories 5,576 (13,626)
Change in Other Current Assets (2,534) 2,055
Change in Trade Payables and
Other Current Liabilities (13,895) 16,180
Change in Other Assets and Liabilities, Net 8,024 (9,597)
-------- --------
Net Cash Provided by Operating Activities 34,059 3,332
-------- --------
Cash Flows from Investing Activities
Proceeds from Sale of Assets 1,790 732
Additions to Property, Plant and Equipment (11,901) (19,520)
Business Acquisitions - (45,277)
Other (3,755) (1,065)
-------- --------
Net Cash Used by Investing Activities (13,866) (65,130)
-------- --------
Cash Flows from Financing Activities
Net Change in Short-Term Borrowings 1,268 3,176
Issuance of Debt 1,283 64,116
Repayment of Debt (23,718) (1,892)
Dividends to Common Stockholders (3,835) (3,851)
Issuance of Common Stock - 920
Purchase of Treasury Stock (1,415) -
-------- --------
Net Cash (Used) Provided
by Financing Activities (26,417) 62,469
-------- --------
Effect of Exchange Rate Changes
on Cash and Cash Equivalents (477) (370)
-------- --------
Net Change in Cash and Cash Equivalents (6,701) 301
Beginning Cash and Cash Equivalents Balance 16,376 9,848
-------- --------
Ending Cash and Cash Equivalents Balance $ 9,675 $ 10,149
======== ========
See accompanying notes to consolidated financial statements
Page 5
Ameron International Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(In thousands)
August 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 August 31, 1999, and the consolidated
results of operations for the three- and nine-month periods ended August 31,
1999 and 1998, and consolidated cash flows for the nine-month periods ended
August 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:
Aug. 31, Nov. 30,
1999 1998
-------- --------
Finished Products $ 63,397 $ 62,888
Products in Process 15,975 20,988
Materials and Supplies 19,309 22,778
-------- --------
Total Inventories $ 98,681 $106,654
======== ========
Note 3. Other Cash Flow Information:
Nine Months Ended
Aug. 31,
-------------------
1999 1998
-------- --------
Interest Paid $ 8,187 $ 8,836
Income Taxes Paid $ 14,344 $ 2,893
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,
------------------- -------------------
1999 1998 1999 1998
-------- -------- -------- --------
Net Sales $ 9,242 $ 8,857 $ 31,777 $ 47,855
Gross Profit $ 4,743 $ 934 $ 16,682 $ 10,562
Net Income/(Loss) $ 2,859 $ (1,115) $ 10,903 $ 1,211
Amounts shown above represent operating results for Ameron Saudi Arabia, Ltd.
for the three- and nine-month periods ended June 30, 1999 and 1998 and
Gifford-Hill-American, Inc. for the three- and nine-month periods ended August
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 Nine Months Ended
Aug. 31, Aug. 31,
------------------- -------------------
1999 1998 1999 1998
-------- -------- -------- --------
Net Sales $ 43,166 $ 47,691 $120,855 $127,560
Gross Profit $ 13,567 $ 11,187 $ 32,273 $ 29,098
Net Income $ 6,124 $ 4,702 $ 14,608 $ 11,424
Amounts shown above include operating results for Tamco for the three- and
nine-month periods ended August 31, 1999 and 1998 and operating results for
Bondstrand, Ltd. and Oasis Ameron, Ltd. for the three- and nine-month periods
ended June 30, 1999 and 1998.
Note 5. Earnings Per Share
The basic net income per share is computed on the basis of the weighted average
number of common shares outstanding each quarter and year-to-date. The diluted
net income per share is computed on the basis of the weighted average total of
common shares outstanding each quarter and year-to-date 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 $100
and $2,650 for the three months ended August 31, 1999 and 1998, and losses of
$3,883 and $5,597 for the nine months ended August 31, 1999 and 1998,
respectively. Accumulated other comprehensive income included $502 minimum
pension liability as of August 31, 1999 and November 30, 1998.
Note 7. Debt
The Company's long-term debt consisted of the following:
Aug. 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 (3.30% at August 31, 1999) 7,200 7,200
Variable-rate unsecured bank revolving credit
facilities (approximately 5.60% at August 31, 1999) 71,682 94,406
Variable-rate unsecured bank loan, payable by a
consolidated subsidiary in Dutch guilders, with
annual principal installments of approximately
$624 (4.17% at August 31, 1999) 1,715 2,383
-------- --------
Total Long-Term Debt 154,597 177,989
Current portion 12,624 12,681
-------- --------
Long-Term Debt, Less Current Portion $141,973 $165,308
======== ========
Note 8. Business Restructuring
For the nine months ended August 31, 1999, $1,131 was charged to the 1998
restructuring reserve. The remaining reserve for business restructuring at
August 31, 1999 was $191.
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
August 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 nine-month period ended August 31, 1999, the Company generated
$34.1 million of cash from operating activities compared to $3.3 million of
cash generated during the nine-month period ended August 31, 1998. The
improved cash position was a result of improved earnings and better working
capital management.
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
$20.0 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,
repayment of debts of $21.2 million, payment of common dividends of $3.8 million
and repurchase of the Company's shares of $1.4 million. Cash and cash
equivalents at August 31, 1999 totaled $9.7 million, a decrease of $6.7 million
from November 30, 1998.
At August 31, 1999, the Company had approximately $124 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 - THIRD QUARTER
The Company earned $1.98 per diluted share on sales of $138.8 million during the
third quarter of fiscal 1999, compared to $1.51 per diluted share on sales of
$155.7 million for the same period last year. The improvement was attributed
primarily to higher profit margins and lower interest.
Sales of the Concrete & Steel Pipe business decreased slightly with higher
profitability than in the same quarter of 1998 because of a favorable change in
product mix and the benefits of the 1998 cost reduction program.
The Company's worldwide Fiberglass-Composite Pipe business had lower sales and
profitability than in the same quarter of 1998, as the business continued to
suffer because of depressed spending in the oil industry. While oil prices
have increased to a level which should stimulate demand for the Company's
fiberglass pipe, the recent increases have not yet been reflected in customers'
maintenance and capital programs. As anticipated, sales of fuel handling
piping declined in the third quarter. Ameron's Asian operations continued to
strengthen during the quarter.
The Company's worldwide Coatings business had lower sales and profitability
than in the third quarter of 1998. The decline reflected the condition of the
worldwide, industrial coatings market, which remains soft because of depressed
spending in the oil industry and low commodity prices.
Ameron's Construction & Allied Products business reported higher sales and
profits. The improvement came from Ameron's pole business, which benefitted
from the strength of construction in the western U.S. Ameron's Hawaiian
operations remained flat.
Selling, General and Administrative (SG&A) expenses were higher for the quarter
compared to the same period in 1998 because of higher product warranty and
employee benefit costs.
Royalty, Equity and Other Income was higher because of higher equity income
from affiliated companies and higher royalties from licensees.
RESULTS OF OPERATIONS - YEAR TO DATE
The Company earned $3.74 per diluted share on sales of $411.2 million during
the first nine months of fiscal 1999, compared to earnings of $2.37 per diluted
share on sales of $395.2 million during the same period in 1998.
The improvement in sales for the first nine months of 1999 was due primarily to
higher sales of the Concrete & Steel Pipe Group and the acquisition of the
Croda Coatings operations in April 1998. The profitability of all businesses
improved except for the Fiberglass-Composite Pipe business which suffered from
depressed spending in the oil industry, in the first nine months of 1999,
compared to the first nine months of 1998.
Sales of the Concrete & Steel Pipe business significantly increased because of
the healthy backlog at the start of the year and the relatively mild weather
during the first nine months 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 depressed
spending in the oil industry. Profits of fiberglass-composite pipe declined
slightly in spite of a larger sales decline because of the cost reduction steps
taken in 1998.
Coatings reported lower sales and relatively flat earnings in the first nine
months of 1999, compared to the same period of 1998. The sales decline
reflected the condition of the worldwide, industrial coatings market, which
remained soft because of depressed spending in the oil industry and low
commodity prices. Profits from sales of Coatings remained flat in spite of the
sales decline because of the cost reduction steps taken in 1998.
Ameron's Construction & Allied Products business reported slightly higher sales
and higher profits. The improvement was primarily due to the Company's
Page 10
Pole business. Hawaiian operations remained flat because of the economic
situation in Hawaii.
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, such costs are not expected to have a
significant effect on the Company's financial position or results of
operations. 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. However, due to the general uncertainty inherent in the Y2K
problem, resulting in part from the uncertainty of the Y2K readiness of third-
party suppliers and customers, the Company is unable to determine at this time
whether the consequences of Y2K failures will have a material impact on the
Company's results of operations, liquidity or financial condition. 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 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 a 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 $12 million of
consolidated retained earnings was not restricted at August 31, 1999.
Item 6. Exhibits and Reports on Form 8-K
A Form 8-K was filed on June 24, 1999 to report the Company's second
quarter 1999 sales and earnings.
A Form 8-K was filed on June 30, 1999 to report the change in the
Company's independent accountants from Arthur Andersen LLP to
Deloitte & Touche LLP.
A Form 8-K was filed on July 7, 1999 to report that Mr. Peter K.
Barker joined the Company's board of directors.
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: October 14, 1999
/s/ Gary Wagner
_________________________________
Gary Wagner
Senior Vice President,
Chief Financial Officer
Page 13
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<PERIOD-TYPE> 9-MOS 9-MOS
<FISCAL-YEAR-END> NOV-30-1999 NOV-30-1998
<PERIOD-END> AUG-31-1999 AUG-31-1998
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