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 February 28, 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 91101-2820
(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
3,996,912 on March 31, 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 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)
Three Months Ended
February 28,
------------------
1999 1998
-------- --------
Net Sales $122,899 $102,526
Cost of Sales (92,018) (78,324)
-------- --------
Gross Profit 30,881 24,202
Selling, General and
Administrative Expenses (29,760) (25,046)
Royalty, Equity and Other Income 3,824 1,771
-------- --------
Income before Interest
and Income Taxes 4,945 927
Interest Income 56 154
Interest Expense (3,525) (2,647)
-------- --------
Income/(Loss) before Income Taxes 1,476 (1,566)
(Provision)/Benefit for Income Taxes (472) 626
-------- --------
Net Income/(Loss) $ 1,004 $ (940)
======== ========
Basic Net Income/(Loss) per Share $ .25 $ (.23)
======== ========
Diluted Net Income/(Loss) per Share $ .25 $ (.23)
======== ========
Weighted Average Common Shares
Outstanding 4,016,712 4,005,956
========= =========
Diluted Common Shares Outstanding 4,026,602 4,005,956
========= =========
Cash Dividends per Share $ .32 $ .32
======== ========
See accompanying notes to financial statements.
Page 3
Ameron International Corporation and Subsidiaries
Consolidated Balance Sheets
(In thousands, except share and per share data)
Feb. 28, Nov. 30,
1999 1998
-------- --------
ASSETS
Current Assets
Cash and Cash Equivalents $ 12,849 $ 16,376
Receivables, Net 128,378 136,380
Inventories 110,685 106,654
Deferred Income Tax Benefits 7,724 7,726
Prepaid Expenses and Other 8,141 6,554
-------- --------
Total Current Assets 267,777 273,690
Investments, Advances and Equity in
Undistributed Earnings of Affiliated Companies 22,186 22,182
Property, Plant and Equipment, Net 153,165 157,918
Other Assets 46,334 46,429
-------- --------
Total Assets $489,462 $500,219
======== ========
LIABILITIES and STOCKHOLDERS' EQUITY
Current Liabilities
Short-Term Borrowings $ 2,656 $ 3,024
Current Portion of Long-Term Debt 12,650 12,681
Trade Payables 33,754 37,273
Accrued Liabilities 50,485 50,353
Income Taxes 15,782 23,499
-------- --------
Total Current Liabilities 115,327 126,830
Long-Term Debt, Less Current Portion 172,358 165,308
Other Long-Term Liabilities 38,848 40,913
-------- --------
Total Liabilities 326,533 333,051
Stockholders' Equity
Common Stock, Par Value $2.50 a Share,
Authorized, 12,000,000 Shares,
Outstanding, 3,996,912 Shares at
February 28, 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 186,899 187,174
Accumulated Other Comprehensive Income (10,791) (8,062)
Treasury Stock (1,206,100 shares in 1999
and 1,172,900 shares in 1998), at Cost (44,014) (42,779)
-------- --------
Total Stockholders' Equity 162,929 167,168
-------- --------
Total Liabilities and Stockholders' Equity $489,462 $500,219
======== ========
See accompanying notes to financial statements
Page 4
Ameron International Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(In thousands)
Three Months Ended
Feb. 28,
-------------------
1999 1998
-------- --------
Cash Flow from Operating Activities
Net Income/(Loss) $ 1,004 $ (940)
Adjustments to Reconcile to Net Cash
Provided by (Used in) Operating Activities:
Depreciation 4,449 3,916
Amortization 542 308
Equity in Earnings of Affiliated Companies (2,200) (372)
Dividends from Affiliated Companies 2,200 611
Other, Net 2,193 277
Changes in Operating Assets and Liabilities:
Change in Receivables 6,341 16,310
Change in Inventories (5,173) (12,711)
Change in Other Current Assets (1,708) (281)
Change in Trade Payables and
Other Current Liabilities (10,031) 707
Change in Other Assets and Liabilities, Net (488) (4,292)
-------- --------
Net Cash Provided by (Used in)
Operating Activities (2,871) 3,533
Cash Flow from Investing Activities
Proceeds from Sale of Assets 1,069 58
Additions to Property, Plant and Equipment (3,787) (6,832)
Other (2,513) (333)
-------- --------
Net Cash Used in Investing Activities (5,231) (7,107)
Cash Flow from Financing Activities
Net Change in Debt with Maturities
of Three Months or Less (324) (130)
Issuance of Debt 9,055 2,312
Repayment of Debt (1,449) (160)
Dividends to Common Stockholders (1,279) (1,282)
Issuance of Common Stock - 31
Purchase of Treasury Stock (1,235) -
-------- --------
Net Cash Provided by Financing Activities 4,768 771
Effect of Exchange Rate Changes
on Cash and Cash Equivalents (193) (72)
-------- --------
Net Change in Cash and Cash Equivalents (3,527) (2,875)
Beginning Cash and Cash Equivalents Balance 16,376 9,848
-------- --------
Ending Cash and Cash Equivalents Balance $ 12,849 $ 6,973
======== ========
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)
February 28, 1999
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 Ameron International Corporation ("Company" or "Ameron")
at February 28, 1999, and the consolidated statements of income for the three-
month periods ended February 28, 1999 and 1998, and cash flows for the
three-month periods ended February 28, 1999 and 1998. 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, 1998.
Note 2. Inventories
Inventories are stated at the lower of cost (principally first-in, first-out)or
market. Inventories at February 28, 1999 and November 30, 1998 were comprised
of the following:
Feb. 28, Nov. 30,
1999 1998
-------- --------
Finished Products $ 64,966 $ 62,888
Products in Process 24,035 20,988
Materials and Supplies 21,684 22,778
-------- --------
Total Inventories $110,685 $106,654
======== ========
Note 3. Other Cash Flow Information:
Three Months Ended
Feb. 28,
-------------------
1999 1998
-------- --------
Interest Paid $ 508 $ 1,073
Income Taxes Paid $ 7,188 $ 333
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
Feb. 28,
-------------------
1999 1998
-------- --------
Net Sales $ 12,499 $ 19,302
Gross Profit $ 6,420 $ 5,279
Net Income $ 4,428 $ 1,607
Amounts shown above represent operating results for Ameron Saudi Arabia, Ltd.,
for the three-month periods ended December 31, 1998 and 1997 and Gifford-Hill-
American, Inc. for the three-month period ended February 28, 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
Feb. 28,
-------------------
1999 1998
-------- --------
Net Sales $ 35,713 $ 36,445
Gross Profit $ 8,689 $ 8,447
Net Income $ 3,935 $ 2,936
Amounts shown above include operating results for Tamco for the three-month
periods ended February 28, 1999 and 1998 and operating results for Bondstrand,
Ltd. and Oasis Ameron, Ltd. for the three-month periods ended December 31, 1998
and 1997.
Note 5. Net Income 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 which
requires the company to disclose both basic and diluted earnings per share.
The basic earnings per share is computed on the basis of the weighted average
number of common shares outstanding. 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 diluted stock
options.
Page 7
Note 6. Other 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
$2,729 and $2,837 for the three months ended February 28, 1999 and 1998.
Accumulated other comprehensive income included $502 minimum pension liability
as of February 28, 1999 and November 30, 1998.
Note 7. Debt
At February 28, 1999 and November 30, 1998, the Company's long-term debt
consists of the following:
Feb. 28, 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 (2.90% at Feb. 28, 1999) 7,200 7,200
Variable-rate unsecured bank revolving credit
facilities (approximately 5.18% at Feb. 28, 1999) 101,694 94,406
Variable-rate unsecured bank loan, payable by a
consolidated subsidiary in Dutch guilders, with
annual principal installments of approximately
$650 (4.17% at Feb. 28, 1999) 2,114 2,383
-------- --------
Total Long-Term Debt 185,008 177,989
Current portion 12,650 12,681
-------- --------
Long-Term Debt, Less Current Portion $172,358 $165,308
======== ========
Note 8. Business Restructuring
For the three months ended February 28, 1999, $388 was charged to the 1998
restructuring reserve. The remaining reserve for business restructuring at
February 28, 1999 was $934.
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
February 28, 1999
INTRODUCTION
Management's Discussion and Analysis should be read in conjunction with the
same 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 first quarter of fiscal 1999 the Company used $2.9 million of cash
for operating activities, principally as a result of higher working capital
requirements. The change in working capital reflected the increased sales
volume in the Coatings and Concrete and Steel Pipe businesses, and the payment
of income taxes.
Cash used in investing activities consisted of 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.
Additional net borrowings of $7.3 million were used for capital expenditures,
increased working capital requirements, payment of common dividends of $1.3
million and the repurchase of the Company's shares of $1.2 million. Cash and
cash equivalents at February 28, 1999 totaled $12.8 million, a decrease of $3.5
million from November 30, 1998.
At February 28, 1999 the Company had approximately $96.3 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 9
RESULTS OF OPERATIONS - FIRST QUARTER
The Company earned 25 cents per diluted share on sales of $122.9 million for the
first quarter of fiscal 1999, compared to a loss of 23 cents per diluted share
on sales of $102.5 million for the same period last year. The improvement was
attributed primarily to higher sales of the Concrete and Steel Pipe Group and
greater profitability from all businesses.
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 quarter of 1999. The Company's first quarter of 1998 was
adversely impacted by unusually wet weather and a strike at a major steel pipe
facility. Operating profit in 1999 increased proportionally to the sales
increase. The near-term outlook for Concrete and Steel Pipe remains strong.
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 from
depressed oil prices. Pipe sales to the U.S. fuel-handling market were stronger
than expected. Additionally, 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
improved productivity worldwide.
The Company's worldwide Coatings businesses had higher sales and profitability
than in the first quarter of 1998. The sales increase came from the former
Croda Coatings businesses in England, Australia and New Zealand, which were
acquired in April 1998. The worldwide market for Ameron's coatings remains
soft because of depressed commodity and oil prices. Profits improved because
of the cost reduction steps taken in 1998.
Ameron's Construction and Allied Products business reported lower sales but
higher profits. Hawaiian operations declined in the first quarter 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,
which benefitted from the mild weather in the western U.S.
Selling, General and Administrative expenses were higher for the quarter
compared to the same period in 1998, primarily due to the Croda acquisition
that took place in the second quarter of 1998 and higher insurance costs.
Royalty, Equity and Other Income was higher because of higher dividends from an
affiliated company.
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
Page 10
updated as new information becomes available and we expect this to continue.
Overall remediation efforts are estimated at approximately 85 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.
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, stock repurchases, borrowings, investments and guarantees
and require maintenance of specified minimum working capital. Under
the most restrictive provisions of these agreements, approximately
$5.7 million of consolidated retained earnings were not restricted
at February 28, 1999.
Item 6. Exhibits and Reports on Form 8-K
A Form 8-K was filed on February 2, 1999 to report the
Company's financial results for the year which ended November 30,
1998.
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: April 14, 1999
/s/ Gary Wagner
_________________________________
Gary Wagner
Senior Vice President,
Chief Financial Officer
Page 13<PAGE>
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<FISCAL-YEAR-END> NOV-30-1999 NOV-30-1998
<PERIOD-END> FEB-28-1999 FEB-28-1998
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<SECURITIES> 0 0
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