<PAGE>
United States
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended November 30, 1999 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 1-9102
AMERON INTERNATIONAL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 77-0100596
(State of Incorporation) (I.R.S. Employer Identification No.)
245 South Los Robles Avenue
Pasadena, CA 91101
(Address and Zip Code of principal executive offices)
Registrant's telephone number, including area code: (626) 683-4000
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
Name of each exchange
Title of each class on which registered
- ---------------------------- -----------------------
Common Stock $2.50 par value New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: None
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 ___
---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. X
---
The Registrant estimates that as of February 14, 2000 the aggregate
market value of the shares of its Common Stock, $2.50 par value, held by
non-affiliates of the Registrant (that is, shares beneficially owned by other
than executive officers and directors) was in excess of $138 million.
On February 14, 2000 there were 3,991,912 shares of Common Stock, $2.50
par value outstanding. This is the only class of Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
1. PORTIONS OF AMERON'S 1999 ANNUAL REPORT TO STOCKHOLDERS (PARTS I, II AND IV).
2. PORTIONS OF AMERON'S PROXY STATEMENT FOR THE 2000 ANNUAL MEETING OF
STOCKHOLDERS (PART III).
<PAGE>
PART I
AMERON INTERNATIONAL CORPORATION
AMERON INTERNATIONAL CORPORATION, a Delaware corporation, and its consolidated
subsidiaries are collectively referred to herein as "Ameron", the "Company", the
"Registrant" or the "Corporation" unless the context clearly indicates
otherwise. The business of the Company has been divided into business segments
in Item 1(c)(1). Substantially all activities relate to the manufacture of
highly engineered products for sale to the industrial, chemical, energy and
construction markets. All references to "the year" or "the fiscal year" pertain
to the twelve months ended November 30, 1999. All references to the "Annual
Report" pertain to the Company's 1999 Annual Report to Stockholders.
ITEM 1 - BUSINESS
(a) GENERAL DEVELOPMENT OF BUSINESS.
Although the Company's antecedents date back to 1907, it evolved
directly from the merger of two separate firms in 1929, resulting in
the incorporation of American Concrete Pipe Co. on April 22, 1929.
Various name changes occurred between that time and 1942, at which
time the Company's name became American Pipe and Construction Co. By
the late 1960s the Company was almost exclusively engaged in
manufacturing and had expanded its product lines to include not only
concrete and steel pipe but also high-performance protective coatings,
ready-mix concrete, aggregates and reinforced thermosetting resin pipe
and fittings.
At the beginning of 1970, the Company's name was changed to Ameron,
Inc. In the meantime, other manufactured products had been added to
its product lines. These included concrete and steel poles for street
and area lighting, and steel poles for traffic signals.
In 1996, the Company's name was changed to Ameron International
Corporation in order to better reflect its expanded, global focus.
Also in 1996, the Company acquired assets of Centron, a leading
manufacturer of fiberglass pipe for the worldwide oil field market, as
well as the worldwide Devoe marine coatings business of Imperial
Chemical Industries Plc ("ICI"). In 1998, the Company acquired the
protective coatings and light industrial product finishes businesses
of Croda International Plc in the United Kingdom, Australia and New
Zealand.
Further details or commentary on the year's operations can be found in
the Annual Report, which is Exhibit 13 to this report on Form 10-K,
and which should be read in conjunction with this report.
(b) FINANCIAL INFORMATION AS TO INDUSTRY SEGMENTS.
The information contained in Notes (1), (6) and (18) of Notes to
Consolidated Financial Statements on pages 30, 31, 32, 33, 40 and 41
of the Annual Report is incorporated herein by reference.
(c) NARRATIVE DESCRIPTION OF BUSINESS.
(1) For geographical and operational convenience, the Company is
organized into divisions. These divisions are combined into
the following groups serving the following-described industry
segments.
1
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a) The Coatings Group develops, manufactures and markets
high-performance coatings and surfacer systems on a world-wide
basis. These products are utilized for the preservation of
structures, such as metallic and concrete facilities and
equipment, to prevent their degradation by corrosion, abrasion,
marine fouling and other forms of chemical and physical attack.
The primary markets served include marine, offshore,
petrochemical, power generation, petroleum, chemical, steel, pulp
and paper, railroad, bridges, mining, metal processing and
original equipment manufacturing. These products are marketed by
direct sales, as well as through manufacturers' representatives,
distributors and licensees. Competition is based upon quality,
price and service. Manufacture of these products is carried out in
the Company's plant in Arkansas, by wholly-owned subsidiaries in
The Netherlands, the United Kingdom, Australia and New Zealand, by
jointly-owned operations in Mexico and Saudi Arabia and by various
third-party licensees.
b) The Fiberglass - Composite Pipe Group develops, manufactures and
markets filament-wound and molded fiberglass pipe and fittings.
These products are used by a wide range of process industries,
including industrial, petroleum, chemical processing and
petrochemical industries, for service station replacement piping
systems, aboard marine vessels and on offshore oil platforms, and
are marketed as an alternative to metallic piping systems which
ultimately fail under corrosive operating conditions. These
products are marketed by direct sales, as well as through
manufacturers' representatives, distributors and licensees.
Competition is based upon quality, price and service. Manufacture
of these products is carried out in the Company's plants in Texas
and Georgia, by its wholly-owned domestic subsidiary, Centron
International Inc. ("Centron"), at its plant in Texas, by
wholly-owned subsidiaries in The Netherlands, Singapore, and
Malaysia, by a jointly-owned affiliate in Saudi Arabia and by
third-party licensees.
c) The Concrete & Steel Pipe Group supplies products and services
used in the construction of water pipelines. Five plants are
located in Arizona and California. Also included within this
group is American Pipe & Construction International, a
wholly-owned subsidiary, with two plants in Colombia. These
plants manufacture concrete cylinder pipe, prestressed concrete
cylinder pipe, steel pipe and reinforced concrete pipe for
water transmission, storm and industrial waste water and sewage
collection. These products are marketed by direct selling using
the Company's own personnel and by competitive bidding.
Customers include local, state and federal agencies, developers
and general contractors. Normally no one customer or group of
customers will account for sales equal to or greater than 10
percent of the Company's consolidated revenue. However,
occasionally, when more than one unusually large project is in
progress, combined sales to all U.S. government agencies and/or
general contractors for those agencies can reach those
proportions. Besides competing with several other welded steel
pipe and concrete pipe manufacturers located in the market
area, alternative products such as ductile iron, asbestos
cement, and clay pipe compete with the Company's concrete and
steel pipe products, but ordinarily these other materials do
not offer the full diameter range produced by the Company.
Principal methods of competition are price, delivery schedule
and service. The Company's technology is used in the Middle
East through affiliated companies. This segment also includes
the manufacturing and marketing on a world-wide basis through
direct sales and manufacturing representatives of polyvinyl
chloride and polyethylene sheet lining for the protection of
concrete pipe and cast-in-place concrete structures from the
corrosive effects of sewer gases, acids and industrial
chemicals. Competition is based upon quality, price and
service. Manufacture of this product is carried out in the
Company's plant in California. This segment also includes
engineered design, fabrication and direct sale of specialized
proprietary equipment which is outside the regular business of
the other segments of the Company's businesses. Competition for
such work is based upon quality, price and service. Manufacture
of such equipment is carried out in the Company's plant in
California.
2
<PAGE>
d) The Construction & Allied Products Group includes the Ameron
Hawaii Division, which supplies ready-mix concrete, crushed and
sized basaltic aggregates, dune sand, concrete pipe and box
culverts, primarily to the construction industry in Hawaii.
These products are marketed through direct sales. Ample raw
materials are available locally in Hawaii. As to rock products,
the Company has exclusive rights to a quarry containing many
years' reserves. There is only one major source of supply for
cement in Hawaii. Within the market area there are competitors
for each of the segment's products. No single competitor offers
the full range of products sold by the Company in Hawaii. The
principal methods of competition are based upon quality, price
and service. An appreciable portion of the segment's business
is obtained through competitive bidding. This segment also
includes the operations of the Pole Products Division, which
manufactures and markets concrete and steel poles for highway,
street and outdoor area lighting and for traffic signals. Sales
are nationwide, but with a stronger concentration in the western
states. Marketing is handled by the Company's own sales force
and by outside sales agents. Competition for such products is
mainly based on price and quality, but with some consideration
for service and delivery. Manufacture of these products is
carried out in two plants in California, as well as plants in
Washington and Oklahoma.
e) Except as individually shown in the above descriptions of industry
segments, the following comments or situations apply to all
segments:
(i) Because of the number of manufacturing locations and the
variety of raw materials essential to the business, no
critical situations exist with respect to supply of
materials. The Company has multiple sources for raw
materials. The effects of increases in costs of energy are
being mitigated to the extent practical through
conservation and through addition or substitution of
equipment to manage the use and reduce consumption of
energy.
(ii) The Company owns certain patents and trademarks, both U.S.
and foreign, related to its products. The Company licenses
its patents, trademarks, know-how and technical assistance
to various of its subsidiary and affiliated companies and
to various third-party licensees. It licenses these
proprietary items to some extent in the U.S., and to a
greater degree abroad. These patents, trademarks, and
licenses do not constitute a material portion of the
Company's total business. No franchises or concessions
exist.
(iii) Many of the Company's products are used in connection with
capital goods, water and sewage transmission and
construction of capital facilities. Favorable or adverse
effects on general sales volume and earnings can result
from weather conditions. Normally, sales volume and
earnings will be lowest in the first fiscal quarter.
Seasonal effects simply accelerate or slow the business
volume and normally do not bring about severe changes in
full-year activity.
(iv) With respect to working capital items, the Company does not
encounter any requirements which are not common to other
companies engaged in the same industries. No unusual
amounts of inventory are required to meet seasonal delivery
requirements. All of the Company's industry segments turn
their inventory between three and eight times annually.
Average days' sales in accounts receivable range between 41
and 108 for all segments.
(v) The value of backlog orders at November 30, 1999 and 1998
by industry segment is shown below. A substantial portion
of the November 30, 1999 backlog is expected to be billed
and recorded as sales during the fiscal year 2000.
3
<PAGE>
<TABLE>
<CAPTION>
INDUSTRY SEGMENT 1999 1998
---------------- --------- --------
(in thousands)
<S> <C> <C>
Coatings Group $ 4,599 $ 5,355
Fiberglass - Composite Pipe Group 29,924 25,721
Concrete & Steel Pipe Group 84,264 135,152
Construction & Allied Products Group 18,167 20,623
-------- --------
Total $136,954 $186,851
======== ========
</TABLE>
(vi) There was no significant change in competitive conditions or
the competitive position of the Company in the industries and
localities in which it operates. There is no knowledge of any
competitive situation which would be material to an
understanding of the business.
(vii) Sales contracts in all of the Company's business segments
normally consist of purchase orders, which in some cases are
issued pursuant to master purchase agreements. Longer term
contracts seldom involve commitments of more than one year by
the Company, and exceptions are not deemed material by
management. Payment is normally due from 30 to 60 days after
shipment, with progress payments prior to shipment in some
circumstances. It is the Company's practice to require letters
of credit prior to shipment of foreign orders, subject to
limited exceptions. The Company does not typically extend
long-term credit to purchasers of its products.
(2) a) Approximate expense during each of the last three fiscal years for
Research and Development costs is shown under the caption in Note (1)
of Notes to Consolidated Financial Statements on page 30 of the Annual
Report, which information is incorporated herein by reference.
b) The Company's business is not dependent on any single customer or few
customers, the loss of any one or more of whom would have a material
adverse effect on its business.
c) For many years the Company has been consistently installing or
improving devices to control or eliminate the discharge of pollutants
into the environment. Accordingly, compliance with federal, state, and
locally enacted provisions relating to protection of the environment
is not having, and is not expected to have, a material effect upon the
Company's capital expenditures, earnings, or competitive position.
d) At year-end the Company and its consolidated subsidiaries employed
approximately 3,100 persons. Of those, approximately 1,000 covered by
labor union contracts. There are five separate bargaining agreements
subject to renegotiation in 2000.
(d) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT
SALES.
The information contained in Notes (1), (6) and (18) of Notes to
Consolidated Financial Statements on pages 30, 31, 32, 33, 40 and 41 of the
Annual Report is incorporated herein by reference.
4
<PAGE>
Export sales in the aggregate from U.S. operations during the last three
fiscal years were:
<TABLE>
<CAPTION>
IN THOUSANDS
------------
<S> <C>
1999 $ 22,697
1998 34,350
1997 38,815
</TABLE>
ITEM 2 - DESCRIPTION OF PROPERTY
(a) The location and general character of principal plants and other
materially important physical properties used in the Company's
operations are tabulated below. Property is owned in fee simple
except where otherwise indicated by footnote. In addition to the
property shown, the Company owns vacant land adjacent to or in the
proximity of some of its operating locations and holds this property
available for use when it may be needed to accommodate expanded or
new operations. Property listed does not include any temporary
project sites which are generally leased for the duration of the
respective projects. With the exception of the Kailua, Oahu
property, shown under the Construction & Allied Products industry
segment, there are no material leases with respect to which
expiration or inability to renew would have any material adverse
effect on the Company's operations. The lease term on the Kailua
property extends to the year 2052. Kailua is the principal source of
quarried rock and aggregates for the Company's operations on Oahu,
Hawaii and, in management's opinion, reserves are adequate for its
requirements during the term of the lease.
(b) The Company believes that its existing facilities are adequate for
current and presently foreseeable operations. Because of the cyclical
nature of certain of the Company's operations, and the substantial
amounts involved in some individual orders, the level of utilization of
particular facilities may vary significantly from time to time in the
normal course of operations.
INDUSTRY SEGMENT - GROUP
DIVISION - LOCATION DESCRIPTION
------------------- -----------
COATINGS GROUP
Coatings division - USA
Brea, CA Office, Laboratory
Little Rock, AR Office, Plant
Ameron B.V.
Geldermalsen, The Netherlands Office, Plant
Huthwaite, UK Office, Plant
Ameron (UK) Limited
Hull, UK Office, Plant
Ameron (Australia) Pty. Limited
Sydney, Australia Office, Plant
Adelaide, Australia Plant
5
<PAGE>
Ameron (New Zealand) Limited
Auckland, New Zealand Office, Plant
FIBERGLASS - COMPOSITE PIPE GROUP
Fiberglass Pipe division - USA
Houston, TX *Office
Burkburnett, TX Office, Plant
Ameron Composites Inc.
Newnan, GA Office, Plant
Centron International, Inc.
Mineral Wells, TX Office, Plant
Ameron B.V.
Geldermalsen, The Netherlands Office, Plant
Ameron (Pte) Ltd.
Singapore *Office, Plant
Ameron Malaysia Sdn. Bhd.
Malaysia *Office, Plant
CONCRETE AND STEEL PIPE GROUP
Rancho Cucamonga, CA *Office
Etiwanda, CA Office, Plant
Fontana, CA Office, Plant
Lakeside, CA Office, Plant
Phoenix, AZ Office, Plant
Tracy, CA Office, Plant
Protective Linings division
Brea, CA Office, Plant
Fabrication Plant
South Gate, CA Office, Plant
American Pipe & Construction International
Bogota, Colombia Office, Plant
Cali, Colombia Plant
CONSTRUCTION & ALLIED PRODUCTS GROUP
Hawaii division
Honolulu, Oahu, HI *Office, Plant
Kailua, Oahu, HI *Plant, Quarry
Barbers Point, Oahu, HI Office, Plant
Puunene, Maui, HI *Office, Plant, Quarry
6
<PAGE>
Pole Products division
Ventura, CA *Office
Fillmore, CA Office, Plant
Oakland, CA *Plant
Everett, WA *Office, Plant
Tulsa, OK *Office, Plant
CORPORATE
Corporate Headquarters
Pasadena, CA *Office
Corporate Research & Engineering
South Gate, CA Office, Laboratory
*Leased
ITEM 3 - LEGAL PROCEEDINGS
An action was filed in 1992 in the U.S. District for the District of Arizona by
the Central Arizona Water Conservation District ("CAWCD") seeking damages
against several parties, including the Company and the Company's customer, Peter
Kiewit Sons' Company ("Kiewit"), in connection with six prestressed concrete
pipe siphons furnished and installed in the 1970's as part of the Central
Arizona Project ("CAP"), a federal project to bring water from the Colorado
River to Arizona. The CAWCD also filed separate actions against the U.S. Bureau
of Reclamation ("USBR") in the U.S. Court of Claims and with the Arizona
Projects Office of the USBR in connection with the CAP siphons. The CAWCD
alleged that the six CAP siphons were defective and that the USBR and the
defendants in the U.S. District Court action were liable for the repair or
replacement of those siphons at a claimed estimated cost of $146.7 million. On
September 14, 1994 the U.S. District granted the Company's motion to dismiss the
CAWCD action and entered judgment against the CAWCD and in favor of the Company
and its co-defendants. CAWCD has filed a notice of appeal with the Ninth Circuit
Court of Appeals.
Separately, on September 28, 1995 the Contracting Officer for the USBR issued a
final decision claiming for the USBR approximately $40 million in damages
against Kiewit, based in part on the Contracting Officer's finding that the
siphons supplied by the Company were defective. That claim amount is considered
by the Company to be duplicative of the damages sought by the CAWCD for the
repair or replacement of the siphons in its aforementioned action in the U.S.
District for the District of Arizona. The Contracting Officer's final decision
has been appealed by Kiewit to the U.S. Department of the Interior Board of
Contract Appeals ("IBCA"). The Company is actively cooperating with, and
assisting, Kiewit in the administrative appeal of that final decision before the
IBCA.
The Company internally, as well as through independent third party
consultants, has conducted engineering analyses regarding the allegations
that the CAP siphons were defective and believes that the siphons were
manufactured in accordance with the project specifications and other contract
requirements, and therefore it is not liable for any claims relating to the
siphons, whether by the CAWCD or by the USBR. The Company believes that it
has meritorious defenses to these actions and that resultant liability, if
any, should not have a material effect on the financial position of the
Company or its results of operations.
7
<PAGE>
In addition, certain other claims, suits and complaints, which arise in the
ordinary course of business, have been filed or are pending against the
Company. Management believes that these matters, and the matters discussed
above, are either adequately reserved, covered by insurance, or would not
have a material effect on the financial position of the Company and its
results of operations if disposed of unfavorably. It is difficult to estimate
with any certainty the total cost of remediation, the timing and extent of
remedial actions required by governmental authorities, and the amount of the
Company's liability, if any, in proportion to that of other potentially
responsible parties. The Company is also subject to federal, state and local
laws and regulations concerning the environment and is currently
participating in administrative proceedings at several sites under these
laws. While the Company finds it difficult to estimate with any certainty the
total cost of remediation at the several sites, on the basis of currently
available information and reserves provided, the Company believes that the
outcome of such environmental regulatory proceedings will not have a material
effect on the Company's financial position or its results of operations.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(Not Applicable)
ITEM 4A - EXECUTIVE OFFICERS OF THE REGISTRANT
The following sets forth information with respect to individuals who served as
executive officers as of November 30, 1999 and who are not directors of the
Company. All executive officers are appointed by the Board of Directors to serve
at the discretion of the Board of Directors.
<TABLE>
<CAPTION>
NAME AGE TITLE AND YEAR ELECTED AS OFFICER
- ------------------ --- -------------------------------------
<S> <C> <C> <C>
Thomas P. Giese 55 Vice President; Group President Concrete
& Steel Pipe Group 1997
James R. McLaughlin 52 Vice President & Treasurer 1997
Gordon G. Robertson 60 Vice President; Group President
Fiberglass - Composite Pipe Group 1997
Dennis L. Shogren 46 Vice President, Controller 1999
Javier Solis 53 Senior Vice President of Administration,
Secretary & General Counsel 1984
Gary Wagner 48 Senior Vice President & Chief Financial
Officer 1990
Robert F. Wilkinson 60 Vice President; President Ameron Hawaii
& Pole Products Division 1997
</TABLE>
8
<PAGE>
All of the executive officers named above have held high level managerial or
executive positions with the Company for more than the past five years except
Messrs. Shogren and Wilkinson.
Mr. Shogren joined the Company in 1997 as Director of Finance and Administration
for the Concrete & Steel Pipe Group. In 1999 he was named Vice President,
Controller. Prior to joining the Company, he served in senior accounting and
finance positions with Corning, Inc. and Manufacturing Technology, Inc.
Mr. Wilkinson joined the Company in 1996 and was named President of Ameron
Hawaii in December of that year. In 1998, he was also named President of the
Pole Products Division. Prior to that time he served as President and Chief
Executive Officer of Sinclair Paint Company and as President and Chief Operating
Officer of Frazee Paint Company.
PART II
ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Common Stock, $2.50 Par Value, of the Company, its only outstanding class of
common equity, is traded on the New York Stock Exchange, the only exchange on
which it is presently listed. On February 8, 2000, there were 1,420 stockholders
of record of such stock.
Dividends have been paid each quarter during the prior two years and for many
years in the past. Information as to the amount of dividends paid during the
reporting period and the high and low prices of the Company's Common Stock
during that period are set out under the caption Quarterly Financial Data shown
on page 40 of the Annual Report, which information is incorporated herein by
reference.
Terms of lending agreements which place restrictions on cash dividends are
discussed in Note (11) of Notes to Consolidated Financial Statements on pages 34
and 35 of the Annual Report, which are incorporated herein by reference.
ITEM 6 - SELECTED FINANCIAL DATA
The information required by this item is contained in the Selected Consolidated
Financial Information shown on page 20 of the Annual Report, which information
is incorporated herein by reference.
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The information required by this item is contained in the Ameron
International 1999 Financial Overview on pages 21-24 of the Annual Report,
which information is incorporated herein by reference.
ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The information required by this Item is contained on page 24 of the Annual
Report under the caption Market Risks and is incorporated herein by reference.
9
<PAGE>
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements for the year ended November 30, 1999,
the report thereon of Deloitte & Touche LLP dated January 24, 2000 and Notes
to Consolidated Financial Statements comprising pages 25 through 42 of the
Annual Report, are incorporated herein by reference. The Consolidated
Financial Statements for the years ended November 30, 1998 and 1997 and the
Notes to such financial statements are also included on pages 25 through 42
of the Annual Report and are incorporated herein by reference. The report
of Arthur Andersen LLP dated January 21, 1999, on such 1998 and 1997
financial statements, is included herein as Exhibit 99.
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Effective June 23, 1999, the Company replaced Arthur Andersen LLP ("AA") as its
independent accountants.
The reports of AA on the Company's financial statements for fiscal years 1998
and 1997 did not contain an adverse opinion or a disclaimer of opinion, nor were
they qualified or modified as to uncertainty, audit scope, or accounting
principles.
The decision to replace AA was recommended by the Company's Audit Committee and
approved by its Board of Directors.
During fiscal years 1998 and 1997 and the subsequent interim periods, there were
no disagreements with AA on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure, which
disagreements, if not resolved to the satisfaction of AA would have caused it to
make reference to the subject matter of the disagreement(s) in connection with
its report.
During fiscal years 1998 and 1997 there were no reportable events (as defined in
Item 304(a)(1)(v) of Securities and Exchange Commission Regulation S-K).
Effective, June 23, 1999, the Board of Directors of the Company engaged Deloitte
& Touche LLP as the principal accountants to audit the Company's financial
statements for the fiscal year ended November 30, 1999. No other event requiring
disclosure has occurred.
10
<PAGE>
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information with respect to the directors is contained under the section
entitled, "Election of Directors" in the Company's Proxy Statement which was
filed on February 22, 2000 in connection with the Annual Meeting of Stockholders
to be held on March 22, 2000. Such information is incorporated herein by
reference.
Information with respect to the executive officers who are not directors of the
Company is located in Part I, Item 4A of this report.
ITEM 11 - EXECUTIVE COMPENSATION*
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT*
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS*
*The information required by Items 11, 12 and 13 is contained in the Company's
Proxy Statement which was filed on February 22, 2000 in connection with the 2000
Annual Meeting of Stockholders to be held on March 22, 2000. Such information is
incorporated herein by reference.
11
<PAGE>
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(A) (1) FINANCIAL STATEMENTS:
The financial statements to be filed hereunder are cross-referenced,
in the index immediately following, to the Annual Report, as to
sections incorporated herein by reference.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page Reference
Statement to Annual Report
--------- ----------------
<S> <C>
Consolidated Statements of Operations for the years
ended November 30, 1999, 1998 and 1997 25
Consolidated Balance Sheets at November 30, 1999
and 1998 26-27
Consolidated Statements of Cash Flows for the years
ended November 30, 1999, 1998 and 1997 28
Consolidated Statements of Stockholders' Equity
for the years ended November 30, 1999, 1998 and 1997 29
Consolidated Statements of Comprehensive Income
for the years ended November 30, 1999, 1998 and 1997 29
Notes to Consolidated Financial Statements 30-41
</TABLE>
(i) Summarized information as to the financial condition and
results of operations for Ameron Saudi Arabia, Ltd.,
Bondstrand, Ltd, Oasis-Ameron, Ltd. and TAMCO are presented in
Note (6) of Notes to Consolidated Financial Statements on
pages 32-33 of the Annual Report, which information is
incorporated herein by reference.
(a)(2) FINANCIAL STATEMENT SCHEDULES:
The following additional financial data should be read in conjunction
with the consolidated financial statements in the 1999 Annual Report.
Schedules not included with this additional financial data have been
omitted because they are either not applicable, not required, not
significant, or the required information is provided in the
consolidated financial statements or notes thereto.
12
<PAGE>
<TABLE>
<CAPTION>
Schedule Schedules of Ameron International and Subsidiaries
-------- --------------------------------------------------
<S> <C>
Report of Independent Public Accountants
II Valuation and Qualifying Accounts and Reserves
(a)(3) EXHIBITS
3(i) Certificate of Incorporation
3(ii) Bylaws
4 Instruments Defining the Rights of Security Holders,
Including Indentures
10 Material Contracts
13 Annual Report
21 Subsidiaries of the Registrant
23 Consent of Independent Public Accountants
99 Report of Previous Independent Public Accountants
</TABLE>
(b) REPORTS ON FORM 8-K
One report on Form 8-K was filed by the Company during the last quarter of
the fiscal year ending November 30, 1999 as follows:
September 29, 1999 reporting under Item 5, the financial results for
the Company's third quarter ended August 31, 1999
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Ameron International Corporation:
We have audited the consolidated financial statements of Ameron International
Corporation and subsidiaries (the "Company") as of November 30, 1999, and for
the year then ended, and have issued our report thereon dated January 24,
2000. Such financial statements and report are included in your 1999 Annual
Report to Shareholders and are incorporated herein by reference. Our audit
also included the financial statement schedule for the year ended November
30, 1999 listed in Item 14(a)2. This financial statement schedule is the
responsibility of the Company's management. Our responsibility is to express
an opinion based on our audit. In our opinion, such financial statement
schedule, when considered in relation to the basic 1999 financial statements
taken as a whole, presents fairly in all material respects the information
set forth therein.
Deloitte & Touche LLP
Los Angeles, California
January 24, 2000
13
<PAGE>
AMERON INTERNATIONAL CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR THE YEAR ENDED NOVEMBER 30, 1999
(In thousands)
<TABLE>
<CAPTION>
Addi- Deduc-
tions tions,
Balance Charged Pay- Reclas-
at to ments sifica- Balance
Begin- Costs and tions at
ning and Write- and End
Classification of Year Expense offs Others of Year
- --------------------------------- --------- --------- --------- -------- ----------
<S> <C> <C> <C> <C> <C>
DEDUCTED FROM ASSET ACCOUNTS
Allowance for
doubtful accounts $ 5,106 $4,628 $(2,490) $ (307) $ 6,937
Reserve for realization
of investments in
affiliates 18,986 5,702 - - 24,688
Reserve for write-down
of assets related to
certain foreign
affiliates 2,968 - (270) - 2,698
INCLUDED IN CURRENT LIABILITIES
Reserve for pending
claims and litigation $ 4,413 $1,609 $(1,873) $ 159 $ 4,308
Severance reserve 1,322 - (1,318) (4) -
Reserve associated with
acquisition 2,259 334 (1,723) (740) 130
Other reserves 243 778 795 (104) 122
Reserve for self-insured
programs 3,843 2,831 (1,785) (650) 4,239
INCLUDED IN LONG-TERM LIABILITIES
Reserve for pending
claims and litigation $11,724 $4,910 $(4,572) - $12,062
Other reserves 560 238 (161) 13 650
Reserve for self-insured
programs 7,171 - - (171) 7,000
</TABLE>
14
<PAGE>
AMERON INTERNATIONAL CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR THE YEAR ENDED NOVEMBER 30, 1998
(In thousands)
<TABLE>
<CAPTION>
Addi- Deduc-
tions tions,
Balance Charged Pay- Reclas-
at to ments sifica- Balance
Begin- Costs and tions at
ning and Write- and End
Classification of Year Expense offs Others of Year
- --------------------------------- --------- --------- --------- -------- ----------
<S> <C> <C> <C> <C> <C>
DEDUCTED FROM ASSET ACCOUNTS
Allowance for
doubtful accounts $ 5,402 $ 2,169 $(2,590) $ 125 $ 5,106
Reserve for realization
of investments in
affiliates 11,295 13,164 (5,473) - 18,986
Reserve for write-down
of assets related to
certain foreign
affiliates 3,853 - (885) - 2,968
INCLUDED IN CURRENT LIABILITIES
Reserve for pending
claims and litigation $ 3,342 $ 2,314 $(1,244) $ 1 $ 4,413
Severance reserve - 2,500 (1,178) - 1,322
Reserve associated with
acquisition - 4,594 (2,359) 24 2,259
Other reserves 376 495 (594) (34) 243
Reserve for self-insured
programs 2,053 5,341 (4,139) 588 3,843
INCLUDED IN LONG-TERM LIABILITIES
Reserve for pending
claims and litigation $15,887 $ 304 $(4,467) $ - $11,724
Other reserves 41 767 (256) 8 560
Reserve for self-insured
programs 7,671 - - (500) 7,171
</TABLE>
15
<PAGE>
AMERON INTERNATIONAL CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR THE YEAR ENDED NOVEMBER 30, 1997
(In thousands)
<TABLE>
<CAPTION>
Addi- Deduc-
tions tions,
Balance Charged Pay- Reclas-
at to ments sifica- Balance
Begin- Costs and tions at
ning and Write- and End
Classification of Year Expense offs Others of Year
- --------------------------------- --------- --------- --------- -------- ----------
<S> <C> <C> <C> <C> <C>
DEDUCTED FROM ASSET ACCOUNTS
Allowance for
doubtful accounts $ 5,939 $1,798 $(1,692) $(643) $ 5,402
Reserve for realization
of investments in
affiliates 9,595 1,700 - - 11,295
Reserve for write-down
of assets related to
certain foreign
affiliates 3,853 - - - 3,853
INCLUDED IN CURRENT LIABILITIES
Reserve for pending
claims and litigation $ 5,188 $1,409 $(3,140) $(115) $ 3,342
Restructuring reserve 346 62 (410) 2 -
Other reserves 679 620 (938) 15 376
Reserve for self-insured
programs 6,317 443 (4,010) (697) 2,053
INCLUDED IN LONG-TERM LIABILITIES
Reserve for pending
claims and litigation $14,927 $1,850 $ (947) $ 57 $15,887
Other reserves - 125 (84) - 41
Reserve for self-insured
programs 6,771 - - 900 7,671
</TABLE>
16
<PAGE>
Pursuant to the requirements of Section 13 or 15(d) 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
By: /s/ JAVIER SOLIS
----------------------------------------
Javier Solis,
Senior Vice President & Secretary
Date: February 25, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
/s/ JAMES S. MARLEN Director, Chairman of the Board, February 25, 2000
- ---------------------------- President and Chief Executive Officer
James S. Marlen (Principal Executive Officer)
/s/ GARY WAGNER Senior Vice President & Chief February 25, 2000
- ----------------------------- Financial Officer, (Principal Financial
Gary Wagner & Accounting Officer)
/s/ PETER K. BARKER Director February 25, 2000
- -----------------------------
Peter K. Barker
/s/ STEPHEN W. FOSS Director February 28, 2000
- -----------------------------
Stephen W. Foss
/s/ J. MICHAEL HAGAN Director February 25, 2000
- -----------------------------
J. Michael Hagan
/s/ TERRY L. HAINES Director February 25, 2000
- ------------------------------
Terry L. Haines
/s/ JOHN F. KING Director February 25, 2000
- ------------------------------
John F. King
/s/ ALAN L. OCKENE Director February 25, 2000
- ------------------------------
Alan L. Ockene
/s/ RICHARD J. PEARSON Director February 25, 2000
- ------------------------------
Richard J. Pearson
/s/ JOHN E. PEPPERCORN Director February 26, 2000
- ------------------------------
John E. Peppercorn
</TABLE>
17
<PAGE>
CERTIFICATE OF INCORPORATION
Certificate of Incorporation as amended through April 16, 1996, which
document is incorporated by reference to Annual Report on Form 10-K filed
with the Commission for Registrant's fiscal year ended November 30, 1996.
EXHIBIT 3(i)
<PAGE>
EXHIBIT 3(ii)
AMERON INTERNATIONAL CORPORATION
(a Delaware corporation)
BYLAWS
(Restated with amendments through
June 23, 1999 )
ARTICLE I
Offices
SECTION 1.01. Registered Office. The registered office of AMERON
INTERNATIONAL CORPORATION (hereinafter called the Corporation) in the State of
Delaware shall be at 1209 Orange Street, City of Wilmington, County of New
Castle, and the name of the registered agent in charge thereof shall be The
Corporation Trust Company.
SECTION 1.02. Other Offices. The Corporation may also have an
office or offices at such other place or places, either within or without the
State of Delaware, as the Board of Directors (hereinafter called the Board) may
from time to time determine or as the business of the Corporation may require.
ARTICLE II
Meetings of Stockholders
SECTION 2.01. Annual Meetings. Annual Meetings of the stockholders
of the Corporation for the purpose of electing directors and for the transaction
of such other proper business as may come before such meetings may be held at
such time, date and place as the Board shall determine by resolution.
SECTION 2.02. Special Meetings. Special meetings of the
stockholders of the Corporation for any purpose may only be called in accordance
with the provisions of the Certificate of Incorporation.
SECTION 2.03. Place of Meetings. All meetings of the stockholders
shall be held at such places, within or without the State of Delaware, as may be
designated by the Board.
<PAGE>
SECTION 2.04. Notice of Meetings. Except as otherwise required by
law, notice of each meeting of the stockholders, whether annual or special,
shall be given not less than ten (10) nor more than sixty (60) days before the
date of the meeting to each stockholder of record entitled to vote at such
meeting by delivering a typewritten or printed notice thereof to him personally,
or by depositing such notice in the United States mail, in a postage prepaid
envelope, directed to him at his post office address furnished by him to the
Secretary of the Corporation for such purpose or, if he shall not have furnished
to the Secretary his address for such purpose, then at his post office address
last known to the Secretary, or by transmitting a notice thereof to him at such
address by telegraph, cable, or wireless. Except as otherwise expressly required
by law, no publication of any notice of a meeting of the stockholders shall be
required. Every notice of a meeting of the stockholders shall state the place,
date and hour of the meeting, and, in the case of a special meeting, shall also
state the purpose or purposes for which the meeting is called. Notice of any
meeting of stockholders shall not be required to be given to any stockholder to
whom notice may be omitted pursuant to applicable Delaware law or who shall have
waived such notice and such notice shall be deemed waived by any stockholder who
shall attend such meeting in person or by proxy, except as a stockholder who
shall attend such meeting for the express purpose of objecting, at the beginning
of the meeting, to the transaction of any business because the meeting is not
lawfully called or convened. Except as otherwise expressly required by law,
notice of any adjourned meeting of the stockholders need not be given if the
time and place thereof are announced at the meeting at which the adjournment is
taken.
SECTION 2.05. Quorum. Except as otherwise required by law, the
holders of record of a majority in voting interest of the shares of stock of the
Corporation entitled to be voted thereat, present in person or by proxy, shall
constitute a quorum for the transaction of business at any meeting of the
stockholders of the Corporation or any adjournment thereof. In the absence of a
quorum at any meeting or any adjournment thereof, a majority in voting interest
of the stockholders present in person or by proxy and entitled to vote thereat
or, in the absence therefrom of all the stockholders, any officer entitled to
preside at, or to act as secretary of, such meeting may adjourn such meeting
from time to time. At any such adjourned meeting at which a quorum is present
any business may be transacted which might have been transacted at the meeting
as originally called.
SECTION 2.06. Voting.
(a) Each stockholder shall, at each meeting of the stockholders,
be entitled to vote in person or by proxy each share or fractional share of the
stock of the Corporation having voting rights on the matter in question and
which shall have been held by him and registered in his name on the books of the
Corporation:
-2-
<PAGE>
(i) on the date fixed pursuant to Section 6.05 of these
Bylaws as the record date for the determination of stockholders
entitled to notice of and to vote at such meeting, or
(ii) if no such record date shall have been so fixed, then
(a) at the close of business on the day next preceding the day on
which notice of the meeting shall be given or (b) if notice of the
meeting shall be waived, at the close of business on the day next
preceding the day on which the meeting shall be held.
(b) Shares of its own stock belonging to the Corporation or to
another corporation, if a majority of the shares entitled to vote in the
election of directors in such other corporation is held, directly or indirectly,
by the Corporation, shall neither be entitled to vote nor be counted for quorum
purposes. Persons holding stock of the Corporation in a fiduciary capacity shall
be entitled to vote such stock. Persons whose stock is pledged shall be entitled
to vote, unless in the transfer by the pledgor on the books of the Corporation
he shall have expressly empowered the pledges to vote thereon, in which case
only the pledges, or his proxy, may represent such stock and vote thereon. Stock
having voting power standing of record in the names of two or more persons,
whether fiduciaries, members of a partnership, joint tenants in common, tenants
by entirety or otherwise, or with respect to which two or more persons have the
same fiduciary relationship, shall be voted in accordance with the provisions of
the General Corporation Law of the State of Delaware.
(c) Any such voting rights may be exercised by the stockholder
entitled thereto in person or by his proxy appointed by an instrument in
writing, subscribed by such stockholder or by his attorney thereunto authorized
and delivered to the secretary of the meeting; provided, however, that no proxy
shall be voted or acted upon after three years from its date unless said proxy
shall provide for a longer period. The attendance at any meeting of a
stockholder who may theretofore have given a proxy shall not have the effect of
revoking the same unless he shall in writing so notify the secretary of the
meeting prior to the voting of the proxy. At any meeting of the stockholders all
matters, except as otherwise provided in the Certificate of Incorporation, in
these Bylaws or by law, shall be decided by the vote of a majority in voting
interest of the stockholders present in person or by proxy and entitled to vote
thereat and thereon, a quorum being present. The vote at any meeting of the
stockholders on any question need not be by ballot, unless so directed by the
chairman of the meeting. On a vote by ballot each ballot shall be signed by the
stockholder voting, or by his proxy, if there be such proxy, and it shall state
the number of shares voted.
-3-
<PAGE>
SECTION 2.07. List of Stockholders. The Secretary of the
Corporation shall prepare and make, at least ten (10) days before every meeting
of stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten (10) days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present.
SECTION 2.08. Judges. If at any meeting of the stockholders a vote
by written ballot shall be taken on any question, the chairman of such meeting
may appoint a judge or judges to act with respect to such vote. Each judge so
appointed shall first subscribe an oath faithfully to execute the duties of a
judge at such meeting with strict impartiality and according to the best of his
ability. Such judges shall decide upon the qualifications of the voters and
shall report the number of shares represented at the meeting and entitled to
vote on such question, shall conduct and accept the votes, and, when the voting
is completed, shall ascertain and report the number of shares voted respectively
for and against the question. Reports of judges shall be in writing and
subscribed and delivered by them to the Secretary of the Corporation. The judges
need not be stockholders of the Corporation, and any officer of the Corporation
may be a judge on any question other than a vote for or against a proposal in
which he shall have a material interest.
SECTION 2.09. Action Without Meeting. No action shall be taken by
the stockholders except at an annual or special meeting of stockholders. No
action shall be taken by stockholders by written consent.
SECTION 2.10 Notice of Stockholder Business. At any annual
stockholders' meeting, only such business shall be conducted as shall have been
properly brought before the meeting. To be properly brought before an annual
stockholders' meeting, business must be (i) specified in the notice of meeting
(or any supplement thereto) given by or at the direction of the Board of
Directors; (ii) otherwise properly brought before the meeting by or at the
direction of the Board of Directors; or (iii) otherwise properly brought before
the meeting by a stockholder. For business to be properly brought before an
annual meeting by a stockholder, the stockholder must have given timely notice
thereof in writing to the Secretary of the Corporation. To be timely, a
stockholder's notice must be received at the principal office of the Corporation
not less than sixty (60) days nor more than one hundred and twenty (120) days
-4-
<PAGE>
prior to the meeting; provided, however, that in the event that the first
public disclosure (whether by mailing of a notice to shareholders, press
release or otherwise) of the date of the meeting is made less than sixty-five
(65) days prior to the date of the meeting, notice by the stockholder will be
timely if received not later than the close of business on the tenth day
following the day on which such first public disclosure was made. A
stockholder's notice to the Secretary shall set forth, as to each matter the
stockholder proposes to bring before the annual meeting, (i) the reasons for
conducting such business at the annual meeting; (ii) the name and address as
they appear on the Corporation's stock register, of the stockholder proposing
such business; (iii) the number of shares of capital stock of the Corporation
which are beneficially owned by the stockholder; and (iv) any material
interest of the stockholder in such business. Notwithstanding any other
provision of these Bylaws, no business shall be conducted at an annual
stockholders' meeting except in accordance with the procedures set forth in
this Section 2.10. If the presiding officer of an annual stockholders'
meeting determines and declares that business was not properly brought before
the meeting in accordance with this Section 2.10, any such business shall not
be transacted.
ARTICLE III
Board of Directors
SECTION 3.01. General Powers. The property, business and affairs
of the Corporation shall be managed by the Board.
SECTION 3.02. Number and Term of Office. The number of directors
shall not be less than six (6) nor more than eleven (11), the exact number of
which shall be fixed by Bylaw duly adopted by the Board. The number of directors
of the Corporation shall be nine (9). The Board shall be divided into three
classes, Class I, Class II and Class III. Such classes shall be as nearly equal
in number of directors as possible. Each director shall serve for a term ending
on the third annual meeting following the annual meeting at which such director
was elected; provided, however, that the directors first elected to Class I
shall serve for a term ending at the annual meeting to be held in 1987, the
directors first elected to Class II shall serve for a term ending at the annual
meeting to be held in 1988 and the directors first elected to Class III shall
serve for a term ending at the annual meeting to be held in 1989. Directors need
not be stockholders. Each of the directors of the Corporation shall hold office
until his successor shall have been duly elected and shall qualify or until he
shall resign or shall have been removed in the manner hereinafter provided.
SECTION 3.03. Election of Directors. In any election of directors
of the Corporation, a holder of any class or series of stock then entitled to
vote in such election shall
-5-
<PAGE>
be entitled to as many votes as shall equal (i) the number of votes which
(except for this Section as to cumulative voting) he would be entitled to cast
for the election of directors with respect to his shares of stock multiplied by
(ii) the number of directors to be elected in the election in which his class or
series of shares is entitled to vote, and each stockholder may cast all of such
votes for a single director or for any two or more of them as he may see fit.
SECTION 3.04. Resignations. Any director of the Corporation may
resign at any time by giving written notice to the Board or to the Secretary of
the Corporation. Any such resignation shall take effect at the time specified
therein, or, if the time be not specified, it shall take effect immediately upon
its receipt; and unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective.
SECTION 3.05. Vacancies. Except as otherwise provided in the
Certificate of Incorporation, any vacancy in the Board, whether because of
death, resignation, disqualification, an increase in the number of directors, or
any other cause, may be filled by vote of the majority of the remaining
directors, although less than a quorum. Each director so chosen to fill a
vacancy shall hold office for the unexpired term of his predecessor or until his
successor shall have been elected and shall qualify or until he shall resign or
shall have been removed in the manner hereinafter provided.
SECTION 3.06. Place of Meeting, Etc. The Board may hold any of its
meetings at such place or places within or without the State of Delaware as the
Board may from time to time by resolution designate or as shall be designated by
the person or persons calling the meeting or in the notice or a waiver of notice
of any such meeting. Directors may participate in any regular or special meeting
of the Board by means of conference telephone or similar communications
equipment pursuant to which all persons participating in the meeting of the
Board can hear each other, and such participation shall constitute presence in
person at such meeting.
SECTION 3.07. First Meeting. The Board shall meet as soon as
practicable after each annual election of directors and notice of such first
meeting shall not be required.
SECTION 3.08. Regular Meetings. Regular meetings of the Board may
be held at such times as the Board shall from time to time by resolution
determine. If any day fixed for a regular meeting shall be a legal holiday at
the place where the meeting is to be held, then the meeting shall be held at the
same hour and place on the next succeeding business day not a legal holiday.
Except as provided by law, notice of regular meetings need not be given.
SECTION 3.09. Special Meetings. Special meetings of the Board
shall be held whenever called by the Chairman of the Board, the President or a
majority of the authorized number of directors. Except as otherwise provided by
law or by these Bylaws, notice of
-6-
<PAGE>
the time and place of each such special meeting shall be mailed to each
director, addressed to him at his residence or usual place of business, at least
five (5) days before the day on which the meeting is to be held, or shall be
sent to him at such place by telegraph or cable or be delivered personally not
less than twenty-four (24) hours before the time at which the meeting is to be
held. Except where otherwise required by law or by these Bylaws, notice of the
purpose of a special meeting need not be given. Notice of any meeting of the
Board shall not be required to be given to any director who is present at such
meeting, except a director who shall attend such meeting for the express purpose
of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened.
SECTION 3.10. Quorum and Manner of Acting. Except as otherwise
provided in these Bylaws or by law, the presence of a majority of the number of
directors then currently specified as the size of the Board pursuant to Section
3.02 of these Bylaws shall be required to constitute a quorum for the
transaction of business at any meeting of the Board, and all matters shall be
decided at any such meeting, a quorum being present, by the affirmative votes of
a majority of the directors present. In the absence of a quorum, a majority of
directors present at any meeting may adjourn the same from time to time until a
quorum shall be present. Notice of any adjourned meeting need not be given. The
directors shall act only as a Board, and the individual directors shall have no
power as such.
SECTION 3.11. Action by Consent. Any action required or permitted
to be taken at any meeting of the Board or of any committee thereof may be taken
without a meeting if a written consent thereto is signed by all members of the
Board or of such committee, as the case may be, and such written consent is
filed with the minutes of proceedings of the Board or committee.
SECTION 3.12. Removal of Directors. Subject to the provisions of
the Certificate of Incorporation, a director may be removed at any time, for
cause only.
SECTION 3.13. Compensation. The directors shall receive only such
compensation for their services as directors as may be allowed by resolution of
the Board. The Board may also provide that the Corporation shall reimburse each
such director for any expense incurred by him on account of his attendance at
any meetings of the Board or Committees of the Board. Neither the payment of
such compensation nor the reimbursement of such expenses shall be construed to
preclude any director from serving the Corporation or its subsidiaries in any
other capacity and receiving compensation therefor.
-7-
<PAGE>
SECTION 3.14. Committees. The Board may, by resolution passed by a
majority of the whole Board, designate one or more committees, each committee to
consist of one or more of the directors of the Corporation. Any such committee,
to the extent provided in the resolution of the Board and except as otherwise
limited by law, shall have and may exercise all the powers and authority of the
Board in the management of the business and affairs of the Corporation, and may
authorize the seal of the Corporation to be affixed to all papers which may
require it. Any such committee shall keep written minutes of its meetings and
report the same to the Board at the next regular meeting of the Board. In the
absence or disqualification of a member of a committee, the member or members
thereof present at any meeting and not disqualified from voting, whether or not
he or they constitute a quorum, may unanimously appoint another member of such
absent or disqualified member.
SECTION 3.15. Notice of Director Nominations. Only persons who are
nominated in accordance with the procedures set forth in this Section 3.15 shall
be eligible for election as Director at annual meeting of the stockholders.
Nominations of candidates for election to the Board of Directors of the
Corporation at any annual meeting may be made only by or at the direction of the
Board of Directors or by a stockholder entitled to vote at such annual meeting.
All such nominations, except those made by or at the direction of the Board of
Directors, shall be made pursuant to timely notice in writing to the Secretary
of the Corporation of the stockholder's intention to make such nomination. To be
timely, any such notice must be received at the principal office of the
Corporation not less than sixty (60) no more than one hundred twenty (120) days
prior to the date of such annual meeting; provided, however, that in the event
that the first public disclosure (whether by mailing of a notice to
stockholders, press release or otherwise) of the date of such annual meeting is
made less than sixty-five (65) days prior to the date of such annual meeting,
notice by the stockholder will be timely if received not later than the close of
business on the tenth day following the day on which such first public
disclosure was made. Such stockholder's notice with respect to a proposed
nomination shall set forth (i) the name, age, business and residence address and
principal occupation or employment of each nominee proposed in such notice; (ii)
the name and address of the stockholder giving the notice as the same appears in
the Corporation's stock register; (iii) the number of shares of capital stock of
the Corporation which are beneficially owned by each such nominee and by such
stockholder; and (iv) such other information concerning each such nominee as
would be required, under the rules of the Securities and Exchange Commission, in
a proxy statement soliciting proxies for the election of such nominee. Such
notice must also include a signed consent of each such nominee to serve as a
director of the Corporation, if elected.
-8-
<PAGE>
In the event that a person is validly designated as a nominee in
accordance with the procedures specified above and shall thereafter become
unable or unwilling to stand for election to the Board of Directors, the Board
of Directors or the stockholder who proposed such nominee, as the case may be,
may designate a substitute nominee; provided, however, that in the case of
persons not nominated by the Board of Directors, such a substitution may only be
made if notice as provided above in this Section 3.15 is received at the
principal office of the Corporation not later than the later of (i) thirty (30)
days prior to the date of the annual meeting or (ii) five (5) days after the
stockholder proposing the original nominee first learned that such original
nominee has become unable or unwilling to stand for election.
ARTICLE IV
Officers
SECTION 4.01. Officers, Election and Removal. The officers of the
Corporation shall be a President, a Vice President, a Secretary, and a
Treasurer. The Corporation may also have at the discretion of the Board of
Directors an Executive Vice President, one or more additional Vice Presidents,
one or more Assistant Secretaries, one or more Assistant Treasurers, and such
other officers as may be elected by the Board of Directors. Any two or more
offices may be held by the same person except that the office of President and
the office of Secretary may not be held by the same person.
The officers of the Corporation shall be elected annually by the
Board of Directors at their first meeting after the annual meeting of the
stockholders and, unless they shall sooner resign, be removed or become
disqualified, shall hold office until their respective successors shall be
elected and qualify.
The Chairman of the Board and the President shall be elected from
among the Directors but the other officers need not be Directors.
Any officer may be removed either with or without cause by a
majority of the Directors at the time in office at any regular or special
meeting of the Board of Directors.
SECTION 4.02. Chairman of the Board. The Chairman of the Board, if
there shall be one, shall preside at all meetings of the stockholders and of the
Board of Directors. He shall, ex officio, be a member of all committees
appointed or constituted by the Board of Directors, including the Executive
Committee.
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<PAGE>
SECTION 4.03. President, Executive Vice President and Vice
President. The President shall be responsible to the Board of Directors for all
actions and activities of the Corporation.
The Executive Vice President, if there shall be one, shall act for
the President in the President's absence. He shall have such other powers and be
required to perform such other duties as the President and the Board of
Directors shall prescribe.
The Vice President, or if there shall be more than one such
officer elected, shall have such powers and perform such duties as may be
delegated to him or them by the President or the Board of Directors.
SECTION 4.04. Secretary. The Secretary shall issue notices for all
meetings, shall keep their minutes, shall have charge of the seal and the
Corporate books, and shall make such reports and perform such other duties as
are incident to his office, or are properly required of him by the Board of
Directors. He shall also keep at the principal office of the corporation or
cause to be kept at the office of the Corporation's transfer agent, a stock
transfer book, and he shall keep or cause to be kept by the Corporation's
registrar, a share registry book. The Secretary may be required to perform such
duties of the Treasurer as may be assigned to him from time to time.
SECTION 4.05. Treasurer. The Treasurer shall have the custody of
all moneys and securities of the Corporation and shall keep regular books of
account. He shall disburse the funds of the Corporation in payment of the just
demands against the Corporation or as may be ordered by the Board of Directors,
taking proper vouchers for such disbursements, and shall render to the President
and to the Board of Directors from time to time as may be required of him, an
account of all his transactions as Treasurer and of the financial condition of
the Corporation. He shall perform all other duties incident to his office or
that are properly required of him by the Board. He shall give the Corporation a
bond, if required by the Board of Directors, in a sum, and with one or more
sureties, satisfactory to the Board of Directors, for the faithful performance
of the duties of his office, and for the restoration to the Corporation, in case
of his death, resignation, retirement, or removal from office, of all books,
papers, vouchers, money and other property of whatever kind in his possession or
under his control belonging to the Corporation.
SECTION 4.06. Incapacity. In case of the absence or inability of
any officer of the Corporation to act and of any person herein authorized to act
in his place, the Board of Directors may from time to time delegate the powers
or duties of such officer to any other officer or any Director or other person
whom they may select.
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<PAGE>
SECTION 4.07. Vacancies. Vacancies in any office arising from any
cause may be filled by the Directors at any regular or special meeting.
SECTION 4.08. Other officers. The Board of Directors may appoint
such other officers and agents as it shall deem necessary or expedient, who
shall hold their offices for such terms and shall exercise such powers and
perform such duties as shall be determined from time to time by the Board of
Directors.
SECTION 4.09. Salaries. The salaries of all officers and agents of
the Corporation shall be fixed by the Board of Directors. Nothing contained
herein shall preclude any officer from serving the Corporation, or any
subsidiary corporation, in any other capacity and receiving proper compensation
therefor.
ARTICLE V
Contracts, Checks, Drafts, Bank Accounts, Etc.
SECTION 5.01. Execution of Contracts. The Board, except as in
these Bylaws otherwise provided, may authorize any officer or officers, agent or
agents, to enter into any contract or execute any instrument in the name of and
on behalf of the Corporation, and such authority may be general or confined to
specific instances; and unless so authorized by the Board or by these Bylaws, no
officer, agent or employee shall have any power or authority to bind the
Corporation by any contract or engagement or to pledge its credit or to render
it liable for any purpose or in any amount.
SECTION 5.02. Checks, Drafts, Etc. All checks, drafts or other
orders for payment of money, notes or other evidence of indebtedness, issued in
the name of or payable to the Corporation, shall be signed or endorsed by such
person or persons and in such manner as, from time to time, shall be determined
by resolution of the Board. Each such officer, assistant, agent or attorney
shall give such bond, if any, as the Board may require.
SECTION 5.03. Deposits. All funds of the Corporation not otherwise
employed shall be deposited from time to time to the credit of the Corporation
in such banks, trust companies or other depositories as the Board may select, or
as may be selected by any officer or officers, assistant or assistants, agent or
agents, or attorney or attorneys of the Corporation to whom such power shall
have been delegated by the Board and shall be drawn out only by check signed by
persons designated, from time to time, by resolution of the Board of Directors.
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<PAGE>
SECTION 5.04. General and Special Bank Accounts. The Board may
from time to time authorize the opening and keeping of general and special bank
accounts with such banks, trust companies or other depositories as the Board may
select or as may be selected by any officer or officers, assistant or
assistants, agent or agents, or attorney or attorneys of the Corporation to whom
such power shall have been delegated by the Board. The Board may make such
special rules and regulations with respect to such bank accounts, not
inconsistent with the provisions of these Bylaws, as it may deem expedient.
ARTICLE VI
Shares and Their Transfer
SECTION 6.01. Certificates for Stock. Every owner of stock of the
Corporation shall be entitled to have a certificate or certificates, to be in
such form as the Board shall prescribe, certifying the number and class of
shares of the stock of the Corporation owned by him. The certificates
representing shares of such stock shall be numbered in the order in which they
shall be issued and shall be signed in the name of the Corporation by the
President or a Vice President, and by the Secretary or an Assistant Secretary or
by the Treasurer or an Assistant Treasurer. Any of or all of the signatures on
the certificates may be a facsimile. In case any officer, transfer agent or
registrar who has signed, or whose facsimile signature has been placed upon, any
such certificate, shall have ceased to be such officer, transfer agent or
registrar before such certificate is issued, such certificate may nevertheless
be issued by the Corporation with the same effect as though the person who
signed such certificate, or whose facsimile signature shall have been placed
thereupon, were such officer, transfer agent or registrar at the date of issue.
A record shall be kept of the respective names of the persons, firms or
corporations owning the stock represented by such certificates, the number and
class of shares represented by such certificates, respectively, and the
respective dates thereof, and in case of cancellation, the respective dates of
cancellation. Every certificate surrendered to the Corporation for exchange or
transfer shall be cancelled, and no new certificate or certificates shall be
issued in exchange for any existing certificate until such existing certificate
shall have been so cancelled, except in cases provided for in Section 6.04.
SECTION 6.02. Transfers of Stock. Transfers of shares of stock of
the Corporation shall be made only on the books of the Corporation by the
registered holder thereof, or by his attorney thereunto authorized by power of
attorney duly executed and filed with the Secretary, or with a transfer clerk or
a transfer agent appointed as provided in Section 6.03, and upon surrender of
the certificate or certificates for such shares properly endorsed and the
payment of all taxes thereon. The person in whose name shares of stock stand on
the books of the Corporation shall be deemed the owner thereof for all purposes
as regards the
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<PAGE>
Corporation. Whenever any transfer of shares shall be made for collateral
security, and not absolutely, such fact shall be so expressed in the entry of
transfer if, when the certificate or certificates shall be presented to the
Corporation for transfer, both the transferor and the transferee request the
Corporation to do so.
SECTION 6.03. Regulations. The Board may make such rules and
regulations as it may deem expedient, not inconsistent with these Bylaws,
concerning the issue, transfer and registration of certificates for shares of
the stock of the Corporation. It may appoint, or authorize any officer or
officers to appoint, one or more transfer clerks or one or more transfer agents
and one or more registrars, and may require all certificates for stock to bear
the signature or signatures of any of them.
SECTION 6.04. Lost, Stolen, Destroyed, and Mutilated Certificates.
In any case of loss, theft, destruction, or mutilation of any certificate of
stock, another may be issued in its place upon proof of such loss, theft,
destruction, or mutilation and upon the giving of a bond of indemnity to the
Corporation in such form and in such sum as the Board may direct; provided,
however, that a new certificate may be issued without requiring any bond when,
in the judgment of the Board, it is proper so to do.
SECTION 6.05. Fixing Date for Determination of Stockholders of
Record. In order that the Corporation may determine the stockholders entitled to
notice of or to vote at any meeting of stockholders or any adjournment thereof,
or entitled to receive payment of any dividend or other distribution or
allotment of any rights, or entitled to exercise any rights in respect of any
other change, conversion or exchange of stock or for the purpose of any other
lawful action, the Board may fix, in advance, a record date, which shall not be
more than sixty (60) nor less than ten (10) days before the date of such
meeting, nor more than sixty (60) days prior to any other action. If in any case
involving the determination of stockholders for any purpose other than notice of
or voting at a meeting of stockholders, the Board shall not fix such a record
date, the record date for determining stockholders for such purpose shall be the
close of business on the day on which the Board shall adopt the resolution
relating thereto. A determination of stockholders entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of such
meeting; provided, however, that the Board may fix a new record date for the
adjourned meeting.
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ARTICLE VII
Indemnification
SECTION 7.01. (DELETED MARCH 30, 1987)
ARTICLE VIII
Executive Committee
SECTION 8.01. Members and Powers. The Board, by resolution adopted
by majority of its total number, may annually elect three or more of its number
to constitute an Executive Committee of the Board to have authority to exercise
to the extent permitted by law, in the intervals between meetings of the Board,
all powers of the Board, except to amend or repeal these Bylaws, or to fill
vacancies in its own membership or in the Board, or to declare dividends. The
actions of the Executive Committee shall be ratified at the next succeeding
meeting of the Board.
SECTION 8.02. Meetings. The Executive Committee may adopt rules
governing the method of the notice of the time and place of its meetings and the
conduct of the proceedings thereat; but, in the absence of such rules, meetings
of the Executive Committee may be called by any member of the Committee. Notice
to each member, regarding the time and place of holding the proposed meeting,
shall be given to each member verbally or by mail at least twenty-four (24)
hours before the time of the meeting. No notice of a meeting will be required if
all members of the Committee are in attendance, or if notice is waived. The
Executive Committee shall keep a record of its acts and proceedings.
SECTION 8.03. Quorum. To constitute a quorum of the Executive
Committee for the transaction of business at any meeting, a majority shall be
present and the act of a majority of the whole Committee shall be necessary to
constitute the act of the Committee.
SECTION 8.04. Removal of Members. Any member of the Executive
Committee may be removed with or without cause by resolution of the Board,
adopted by a majority of its total number then in office.
SECTION 8.05. Vacancies. Vacancies in the Executive Committee
shall be filled in the same manner as for the original appointment to
membership.
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ARTICLE IX
Miscellaneous
SECTION 9.01. Seal. The Corporate seal of the Corporation shall
consist of two concentric circles, between which is the name of the Corporation,
and in the center shall be inscribed the year of its incorporation and the
words, "Corporate Seal, Delaware."
SECTION 9.02. Waiver of Notices. Whenever notice is required to be
given by these Bylaws or the Certificate of Incorporation or by law, the person
entitled to said notice may waive such notice in writing, either before or after
the time stated therein, and such waiver shall be deemed equivalent to notice.
SECTION 9.03. Amendments. Except as otherwise provided herein or
in the Certificate of Incorporation, these Bylaws or any of them, may be
altered, amended, repealed or rescinded and new Bylaws may be adopted, (i) by
the Board, or (ii) by the stockholders, at any annual meeting of stockholders,
or at any special meeting of stockholders, provided that notice of such proposed
alteration, amendment, repeal, rescission or adoption is given in the notice of
meeting.
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INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING INDENTURES
1. Note Agreement dated September 1, 1990 re: Senior Notes due September 15,
2000, which document is incorporated by reference to Annual Report on Form
10-K filed with the Commission for Registrant's fiscal year ended November
30, 1990.
2. Note Purchase Agreement dated August 28, 1996 re: Senior Notes due
September 1, 2006, which document is incorporated by reference to Annual
Report on Form 10-K filed with the Commission for Registrant's fiscal year
ended November 30, 1996.
3. Amended and Restated Rights Agreement dated December 16, 1996, which
document is incorporated by reference to Form 8-A/A, Amendment No. 3 filed
with the Commission on February 5, 1997.
The Company agrees to provide to the Securities and Exchange Commission, on
request, copies of instruments defining the rights of security holders of
long-term debt of the Company.
EXHIBIT 4
<PAGE>
MATERIAL CONTRACTS
Exhibit 10 is:
(1) Employment Agreement between James S. Marlen and the Company.
(2) Amendment to Employment Agreement between James S. Marlen and the Company.
(3) Change of Control Agreement between Javier Solis and the Company.
(4) Change of Control Agreement between Gary Wagner and the Company.
Exhibit 10, Item 1 is incorporated by reference to Annual Report on Form 10-K
filed with the Commission for Registrant's fiscal year ended November 30, 1997.
Exhibit 10, Items 2, 3 and 4 are incorporated by reference to Annual Report on
Form 10-K filed with the Commission for Registrant's fiscal year ended November
30, 1998.
EXHIBIT 10
<PAGE>
[LOGO]
CONTENTS
<TABLE>
<S> <C>
Selected Consolidated Financial Information 20
Management's Discussion & Analysis of
Financial Condition & Results of Operations 21
Consolidated Statements of Income 25
Consolidated Balance Sheets 26
Consolidated Statements of Cash Flows 28
Consolidated Statements of Stockholders' Equity 29
Consolidated Statements of Comprehensive Income 29
Notes to Consolidated Financial Statements 30
Independent Auditors' Report 42
Management's Letter 42
</TABLE>
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<PAGE>
SELECTED CONSOLIDATED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Year ended November 30
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA) 1999 1998 1997 1996 1995
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<S> <C> <C> <C> <C> <C>
PER COMMON SHARE DATA
Net income--basic $ 5.57(1) $ 5.17(2) $ 4.84 $ 3.89 $ 3.16
Net income--diluted 5.54(1) 5.08(2) 4.73 3.87 3.15
Dividends 1.28 1.28 1.28 1.28 1.28
Weighted average shares (basic) 3,996,237 4,016,852 4,003,452 3,966,490 3,944,363
Weighted average shares (diluted) 4,023,248 4,084,377 4,094,885 3,982,006 3,954,544
Stock price - high 47 3/4 64 5/8 70 50 37 7/8
Stock price - low 34 11/16 33 3/8 46 3/8 34 1/8 29
Price/earnings ratio (range) 9-7 13-7 15-10 13-9 12-9
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OPERATING RESULTS
Sales $ 545,081 $ 552,146 $ 533,506 $ 496,940 $ 481,405
Gross profit 142,982 139,212 135,683 129,263 116,731
Interest expense (13,153) (15,646) (12,433) (11,134) (11,715)
Provision for income taxes (10,482) (11,171) (11,874) (8,297) (5,190)
Net income 22,273(1) 20,746(2) 19,372 15,410 12,452
Net income/sales 4.1% 3.8% 3.6% 3.1% 2.6%
Return on equity 12.9% 13.0% 13.0% 11.0% 9.6%
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FINANCIAL CONDITION AT YEAR END
Working capital $ 127,513 $ 146,860 $ 154,027 $ 121,858 $ 114,458
Property, plant and equipment, net 149,597 157,918 127,678 125,687 114,116
Investments, advances and
equity in affiliated companies 23,046 22,712 34,307 34,655 36,726
Total assets 458,967 500,219 433,225 411,666 371,381
Long-term debt, less current portion 135,237 165,308 140,917 112,598 91,565
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CASH FLOW
Expenditures for property, plant and equipment $ 19,672 $ 32,744 $ 24,860 $ 25,227 $ 16,154
Depreciation and amortization 18,986 18,699 16,676 16,445 16,226
Business acquisitions -- 46,419 -- 29,032 --
</TABLE>
(1) INCLUDES $.8 MILLION GAIN, NET OF INCOME TAXES, ON SALES OF ASSETS.
(2) INCLUDES $17.5 MILLION GAIN, NET OF INCOME TAXES, ON SALES OF ASSETS AND
$14.1 MILLION CHARGES, NET OF INCOME TAXES, ON ASSET WRITE-DOWNS AND OTHER
CHARGES.
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<PAGE>
MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF
OPERATIONS
LIQUIDITY & CAPITAL RESOURCES
During 1999, the Company generated $45.1 million of cash from operations,
compared to $38.6 million in 1998. Cash provided by operating activities in
1999 increased over the level of 1998 because of higher net income and lower
working capital requirements. Inventories and receivables declined during
1999 because of improved working capital management and slightly lower sales.
In 1999, capital expenditures totaled $19.7 million, compared to $32.7
million in 1998. Capital expenditures in 1999 were primarily for replacement
and refurbishment of machinery and equipment at existing facilities. During
1998, the Company acquired the worldwide Croda Coatings business from
U.K.-based Croda International Plc and Hope Composites 2000, Inc., a
manufacturer of fiberglass pipe and fittings in Georgia. Both transactions
totaled $46.4 million. Capital expenditures of $32.7 million in 1998 included
the purchase of previously-leased property in California, on which is located
the Company's largest steel pipe facility, for $9.4 million. During the
fiscal year ending November 30, 2000, the Company anticipates spending
approximately $15 million to $25 million for capital expenditures, which will
be funded from existing cash balances and lines of credit, as well as funds
generated from operations. In addition, $3.5 million was received from the
sales of assets in 1999, compared to $31.4 million in 1998.
Net debt repayments in 1999 were $27.7 million, compared to net borrowings of
$19.8 million in 1998. Common dividends totaled $5.1 million in both 1999 and
1998.
Cash and cash equivalents at November 30, 1999 totaled $10.5 million, a
decrease of $5.9 million from November 30, 1998. At November 30, 1999, the
Company had total debt outstanding of $151.3 million and $108.8 million in
unused credit lines available to fund operating and investing activities
worldwide. Management believes that cash flows from operations and current
cash balances, together with currently available lines of credit, will be
sufficient to meet future operating requirements in 2000.
RESULTS OF OPERATIONS: 1999 COMPARED WITH 1998
GENERAL
Earnings per diluted share for the fiscal year ended November 30, 1999 were
$5.54 on sales of $545.1 million, compared to $5.08 per share on sales of
$552.1 million in fiscal 1998.
SALES
Sales decreased by $7.0 million in 1999 primarily because of lower sales of
coatings and fiberglass pipe than in 1998. The overall sales decline was a
result of the impact of oil prices on maintenance and capital spending by
Ameron's customers. Increased sales by the Concrete & Steel Pipe and
Construction & Allied Products Groups partially offset the declines.
Sales of the Coatings Group declined to $199.4 million in 1999, versus $214.0
million in 1998. The Coatings Group was impacted by depressed market
conditions related primarily to the lingering impact of the oil-price decline
in 1998 and to the weak economic conditions outside the U.S. in 1999. The
outlook for Coatings is expected to improve as customers react to higher oil
prices by increasing spending on capital and maintenance programs.
The Fiberglass-Composite Pipe Group's sales decreased to $95.5 million in
1999, down from $105.6 million in 1998. The lingering effect of oil prices
also impacted the Fiberglass-Composite Pipe Group. The Fiberglass-Composite
Pipe Group should also benefit from the higher level of oil prices.
The Concrete & Steel Pipe Group had sales of $142.5 million in 1999, up from
$131.6 million in 1998 when weather and a strike delayed sales. The
performance of the Concrete & Steel Pipe Group is expected to moderate based
on the timing of new orders. Order backlog for this Group, at November 30,
1999, was nearly $85 million, compared to $135 million at the end of fiscal
1998.
The Construction & Allied Products Group had 1999 sales of $108.6 million,
compared to $102.1 million in 1998. The increase came from higher pole sales,
partially offset by lower sales of construction products in Hawaii. The
Construction & Allied Products Group is expected to grow steadily in the near
term.
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<PAGE>
GROSS PROFIT
Gross Profit in 1999 was $143.0 million or 26.2% of sales, compared to gross
profit of $139.2 million or 25.2% of sales in 1998. The increase in 1999
reflected the impact of improved manufacturing efficiencies and a change of
product mix.
SELLING, GENERAL & ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses totaled $113.2 million or 20.8%
of sales in 1999, compared to $109.3 million or 19.8% in 1998. Selling,
general and administrative expenses included a full year of expenses related
to Croda Coatings, which was acquired in April 1998. Additionally, expenses
increased in 1999 because of higher product claims and employee benefit costs.
OTHER INCOME
Other income included equity in earnings of affiliated companies. Equity in
earnings of affiliated companies totaled $8.5 million in 1999, $2.0 million
higher than in 1998. Ameron's affiliates in the U.S. and Saudi Arabia
reported improved results.
Other income also included royalties and fees from affiliated companies and
licensees, currency gains and losses, and other miscellaneous income. Royalty
and fee income increased to $5.4 million in 1999, compared to $5.2 million in
1998.
In 1999, Ameron sold two idle properties, for a pretax gain of $1.2 million.
Ameron also sold two idle concrete pipe manufacturing facilities in 1998 for
a pretax gain of $2.8 million.
GAIN ON SALE OF INVESTMENT
In 1998, the Company sold its 50% ownership of Gifford-Hill-American, Inc.
("GHA") for a pretax gain of $24.0 million.
ASSET WRITE-DOWNS AND OTHER CHARGES
During 1998, the Company recorded pretax asset write-downs of $18.7 million
and other charges of $3.0 million. The asset write-downs included the
Company's investment in a concrete pipe venture in Saudi Arabia, certain idle
concrete and steel pipe assets in the U.S. and two idle properties held by
the Company in California and Hawaii. Other charges included the costs of
consolidating certain facilities used by the Company's coatings business in
the U.K. prior to the acquisition of Croda Coatings and severance costs
associated with the elimination of approximately 200 positions in the U.S.
INTEREST
Interest expense totaled $13.2 million in 1999 compared to $15.6 million in
1998. The decrease reflected lower borrowing levels throughout 1999,
principally because of higher cash from operations, the sale of GHA and lower
working capital requirements.
PROVISION FOR INCOME TAXES
The Company's effective tax rate decreased to 32% in 1999 from 35% in 1998.
The lower effective rate was attributed to higher earnings from foreign
subsidiaries where the income tax rates were lower than the domestic tax
rates and higher equity income from TAMCO, which is taxed at a lower tax rate.
RESULTS OF OPERATIONS: 1998 COMPARED WITH 1997
GENERAL
Diluted earnings per share for the fiscal year ended November 30, 1998, were
$5.08 on sales of $552.1 million, compared to $4.73 per share on sales of
$533.5 million in 1997. Excluding the effects of non-recurring charges and
gains on asset sales, earnings from operations were $4.25 per diluted share
in 1998. Return on average stockholder's equity remained at 13% for both
years.
SALES
Sales increased by $18.6 million to $552.1 million in 1998 primarily due to
the acquisition of Croda Coatings earlier in the year. Partially offsetting
these increases were lower sales of the Company's traditional coatings due to
the dramatic decline in oil prices and increased competition. Deliveries of
concrete and steel pipe were also down from the prior year due to weather
conditions early in the year and the effect of a six-week strike at a major
facility.
Coatings Group's sales increased to $214.0 million in 1998, versus $190.7
million in 1997. Sales increased due to the acquisition of Croda Coatings
that took place in April 1998. Through the Croda Coatings acquisition, the
Company acquired operations in the U.K., Australia and New Zealand.
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<PAGE>
Fiberglass-Composite Pipe Group's sales increased to $105.6 million in 1998,
compared to $102.7 million in 1997. The increase was attributed to the
strength in the U.S. fuel-handling market and international demand for
industrial and offshore applications that more than offset the slowdown in
the worldwide oil field markets.
Concrete and Steel Pipe Group's sales were $131.6 million in 1998, down from
$146.1 million in 1997. The decrease was due primarily to weather-related
delays that affected the timing of deliveries and to a six-week strike.
Construction and Allied Products Group's sales totaled $102.1 million in
1998, versus $94.9 million in 1997. The Company's construction products
business in Hawaii reported higher sales in 1998 compared to 1997 due to
higher government and military construction spending. Sales for the Company's
Pole Products Division improved slightly in 1998.
GROSS PROFIT
Gross profit in 1998 was $139.2 million or 25.2% of sales, compared to gross
profit of $135.7 million or 25.4% of sales in 1997. The slight decrease in
gross profit margin was attributed mainly to lower margins on sales of
protective coatings due to competitive pricing.
SELLING, GENERAL & ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses totaled $109.3 million in 1998
or 19.8% of sales, compared to $103.1 million or 19.3% of sales in 1997.
Selling, general and administrative expenses included increased costs
resulting from the acquisition of Croda Coatings in 1998 offset by lower
employee benefit costs and lower accruals for environmental cleanup.
OTHER INCOME
Other income included equity in earnings of affiliated companies. Equity in
earnings of affiliated companies totaled $6.5 million in 1998, $2.5 million
higher than the previous year. TAMCO, GHA, Ameron Saudi Arabia, Ltd.,
Bondstrand, Ltd. and Oasis-Ameron, Ltd. all reported earnings.
Other income also included royalties and fees from affiliated companies and
licensees, currency gains and losses, and other miscellaneous income. Royalty
and fee income decreased by $.8 million in 1998 compared to 1997 due to the
worldwide slump in the coatings industry.
In 1998, Ameron sold two idle Concrete Pipe manufacturing facilities for a
pretax gain of $2.8 million.
GAIN ON SALE OF INVESTMENT
In 1998, the Company sold its 50% ownership of GHA for a pretax gain of $24.0
million.
ASSET WRITE-DOWNS AND OTHER CHARGES
During the second half of fiscal 1998, the Company recorded pretax asset
write-downs of $18.7 million and other charges of $3.0 million. The asset
write-downs included the Company's investment in a concrete pipe venture in
Saudi Arabia, certain idle concrete and steel pipe assets in the U.S. and two
idle properties held by the Company in California and Hawaii. Other charges
included the costs of consolidating certain facilities used by the Company's
coatings business in the U.K. prior to the acquisition of Croda Coatings and
severance costs associated with the elimination of approximately 200
positions in the U.S.
INTEREST
Interest expense totaled $15.6 million in 1998 compared to $12.4 million in
1997. The increase was the result of higher borrowing levels throughout 1998,
principally as a result of the Croda Coatings acquisition.
PROVISION FOR INCOME TAXES
The Company's effective tax rate decreased to 35% in 1998 from 38% in 1997.
The lower effective rate was attributed to higher earnings from foreign
subsidiaries where the income tax rates were lower than the domestic tax
rates.
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 resource 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. Remediation
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<PAGE>
efforts are estimated to be 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 operations.
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. The Company has
not experienced any significant Y2K disruptions. 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 has developed contingency plans that are designed to mitigate, in
part, the impact on its operations of certain Y2K problems. These plans,
however, cannot cover all eventualities.
MARKET RISKS
FOREIGN CURRENCY RISK
The Company operates internationally, giving rise to exposure to market risks
from changes in foreign exchange rates. The Company borrows in various
currencies to reduce the level of net assets subject to changes in foreign
exchange rates. In addition, the Company purchases foreign exchange forward
and option contracts to hedge firm commitments, such as receivables and
payables, denominated in foreign currencies. The Company does not use the
contracts for speculative or trading purposes. The Company's market risk with
respect to such instruments is not material.
LONG-TERM DEBT
The Company is subject to interest rate risk on its long-term, fixed-rate
debt. As of November 30, 1999, the fair value of the Company's $12,000,000
note payable, which bears interest at 9.79%, was $12,334,000. This note will
be repaid in full during the year ending November 30, 2000. As of November
30, 1999, the fair value of the Company's $50,000,000 note payable, which
bears interest at 7.92%, was $51,098,000. This note will be repaid in annual
installments of $8,333,000 from 2001 to 2006, inclusive.
Amounts outstanding under the Company's variable-rate, short-term borrowings,
$3,479,000 as of November 30, 1999, bear interest at 24.53% and will be
repaid in full during the year ending November 30, 2000. The Company's
$7,200,000 variable-rate industrial development bonds, which bear interest at
3.95%, will be repaid in 2016. The Company's $1,488,000 variable-rate bank
loan bears interest at 4.17% and will be repaid $595,000 in 2000, $595,000 in
2001, and $298,000 in 2002. Amounts outstanding under the Company's
variable-rate, domestic, uncommitted, short-term facilities, $4,100,000 as of
November 30, 1999, which bear interest at 6.20%, and foreign credit
facilities, $10,044,000 at November 30, 1999, which bear interest at 4.20%,
are expected to be repaid in 2003. Amounts outstanding under the Company's
$150,000,000 variable-rate revolving credit facility, $63,000,000 as of
November 30, 1999, bear interest at 5.89% and are expected to be repaid in
2003. The carrying value of the Company's variable-rate debt instruments is a
reasonable estimate of fair value as interest rates are tied to market rates
and the Company believes it could refinance these instruments at similar
terms as of November 30, 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. In addition, 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 Annual Report. Actual results could differ materially, and, as a
result, the reader is cautioned not to rely on these forward looking
statements. The Company disclaims, however, any intent or obligation to
update these forward looking statements.
|24|
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year ended November 30
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA) 1999 1998 1997
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales $545,081 $ 552,146 $ 533,506
Cost of sales (402,099) (412,934) (397,823)
-----------------------------------------------------------
Gross profit 142,982 139,212 135,683
Selling, general and administrative expenses (113,165) (109,345) (103,075)
Asset write-downs and other charges -- (21,669) --
Other income, net 15,876 14,796 10,493
Gain from sale of investment -- 24,000 --
-----------------------------------------------------------
Income before interest and income taxes 45,693 46,994 43,101
Interest expense, net (12,938) (15,077) (11,855)
-----------------------------------------------------------
Income before income taxes 32,755 31,917 31,246
Provision for income taxes (10,482) (11,171) (11,874)
-----------------------------------------------------------
Net income $ 22,273 $ 20,746 $ 19,372
===========================================================
Net income per share (basic) $ 5.57 $ 5.17 $ 4.84
===========================================================
Net income per share (diluted) $ 5.54 $ 5.08 $ 4.73
===========================================================
Weighted average shares (basic) 3,996,237 4,016,852 4,003,452
Weighted average shares (diluted) 4,023,248 4,084,377 4,094,885
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
|25|
<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
As of November 30
(DOLLARS IN THOUSANDS) 1999 1998
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 10,521 $ 16,376
Receivables, less allowances of $6,937
in 1999 and $5,106 in 1998 118,900 136,380
Inventories 95,488 106,654
Deferred income taxes 11,054 7,726
Prepaid expenses and other current assets 6,691 6,554
-----------------------------------
Total current assets 242,654 273,690
Investments, advances and equity in undistributed
earnings of affiliated companies 23,046 22,712
Property, plant and equipment
Land 36,656 37,361
Buildings 66,015 70,736
Machinery and equipment 239,790 237,111
Construction in progress 7,599 13,546
-----------------------------------
Total property, plant and equipment at cost 350,060 358,754
Less accumulated depreciation (200,463) (200,836)
-----------------------------------
Total property, plant and equipment, net 149,597 157,918
Deferred income taxes 7,093 8,763
Intangible assets, net of accumulated amortization
of $6,288 in 1999 and $5,220 in 1998 15,772 17,964
Other assets 20,805 19,172
-----------------------------------
Total assets $458,967 $ 500,219
===================================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
|26|
<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
As of November 30
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA) 1999 1998
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Short-term borrowings $ 3,479 $ 3,024
Current portion of long-term debt 12,595 12,681
Trade payables 36,667 37,273
Accrued liabilities 43,552 50,353
Income taxes payable 18,848 23,499
-------------------------------------
Total current liabilities 115,141 126,830
Long-term debt, less current portion 135,237 165,308
Other long-term liabilities 30,469 40,913
-------------------------------------
Total liabilities 280,847 333,051
Commitments and Contingencies
Stockholders' equity
Common stock, par value $2.50 a share,
authorized 12,000,000 shares,
outstanding 3,991,912 shares in 1999 and
4,030,112 shares in 1998, net of treasury shares 13,007 13,007
Additional paid-in capital 17,857 17,828
Retained earnings 204,336 187,174
Accumulated other comprehensive loss (12,886) (8,062)
Less treasury stock (1,211,100 shares in 1999 and
1,172,900 shares in 1998) (44,194) (42,779)
-------------------------------------
Total stockholders' equity 178,120 167,168
-------------------------------------
Total liabilities and stockholders' equity $458,967 $500,219
=====================================
</TABLE>
|27|
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended November 30
(DOLLARS IN THOUSANDS) 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 22,273 $ 20,746 $19,372
Adjustments to reconcile net income to
net cash provided by (used in) operating activities:
Depreciation 18,017 17,671 15,729
Amortization 969 1,028 947
(Benefit) provision for deferred income taxes (1,659) (10,313) 809
Equity in earnings of affiliated companies (8,499) (6,513) (3,990)
Dividends from affiliated companies 7,048 6,599 5,056
(Gain) loss from sale of property, plant, equipment
and investment (1,223) (26,853) 64
Non-cash asset write-downs and other charges -- 21,669 --
Other, net -- (962) 1,789
Changes in operating assets and liabilities,
net of business acquisitions:
Receivables 14,558 (11,681) (22,801)
Inventories 13,369 3,986 (13,825)
Prepaid expenses and other current assets (597) (2,279) 1,151
Other assets (1,960) 1,388 (2,836)
Trade payables, accrued liabilities and income taxes payable (7,395) 39,301 (11,264)
Other long-term liabilities (9,835) (15,145) (965)
---------------------------------------------------------
Net cash provided by (used in) operating activities 45,066 38,642 (10,764)
---------------------------------------------------------
INVESTING ACTIVITIES
Proceeds from sale of investment -- 25,000 --
Proceeds from sale of property, plant and equipment 3,487 6,395 2,287
Additions to property, plant and equipment (19,672) (32,744) (24,860)
Business acquisitions, net of cash acquired -- (46,419) --
Other (96) -- --
---------------------------------------------------------
Net cash used in investing activities (16,281) (47,768) (22,573)
---------------------------------------------------------
FINANCING ACTIVITIES
Net increase (decrease) of debt with maturities of
three months or less 910 2,322 (525)
Issuance of debt 1,981 37,200 47,201
Repayment of debt (30,620) (19,700) (17,000)
Dividends on common stock (5,111) (5,141) (5,124)
Issuance of common stock -- 920 808
Purchase of treasury stock (1,415) -- --
---------------------------------------------------------
Net cash (used in) provided by financing activities (34,255) 15,601 25,360
---------------------------------------------------------
Effect of exchange rate changes on cash
and cash equivalents (385) 53 (556)
---------------------------------------------------------
Net change in cash and cash equivalents (5,855) 6,528 (8,533)
Cash and cash equivalents at beginning of year 16,376 9,848 18,381
---------------------------------------------------------
Cash and cash equivalents at end of year $10,521 $ 16,376 $ 9,848
=========================================================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
|28|
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
Common Stock
---------------------
Accumulated
Additional Other
Shares Paid-in Retained Comprehensive Treasury
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA) Outstanding Amount Capital Earnings Income(Loss) Stock Total
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, November 30, 1996 3,985,112 $12,895 $16,212 $157,321 $ 1,149 $(42,779) $144,798
Net income--1997 19,372 19,372
Exercise of stock options 20,375 51 757 808
Foreign currency translation adjustment (6,872) (6,872)
Dividends on common stock of $1.28 per share (5,124) (5,124)
---------------------------------------------------------------------------------
Balance, November 30, 1997 4,005,487 12,946 16,969 171,569 (5,723) (42,779) 152,982
Net income--1998 20,746 20,746
Exercise of stock options 24,625 61 859 920
Minimum pension liability adjustment (502) (502)
Foreign currency translation adjustment (1,837) (1,837)
Dividends on common stock of $1.28 per share (5,141) (5,141)
---------------------------------------------------------------------------------
Balance, November 30, 1998 4,030,112 13,007 17,828 187,174 (8,062) (42,779) 167,168
Net income--1999 22,273 22,273
Minimum pension liability adjustment 502 502
Foreign currency translation adjustment (5,326) (5,326)
Dividends on common stock of $1.28 per share (5,111) (5,111)
Treasury stock purchase (38,200) (1,415) (1,415)
Stock compensation expense 29 29
---------------------------------------------------------------------------------
Balance, November 30, 1999 3,991,912 $13,007 $17,857 $204,336 $(12,886) $(44,194) $178,120
=================================================================================
</TABLE>
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
Year ended November 30
(DOLLARS IN THOUSANDS) 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Income $22,273 $20,746 $19,372
Foreign currency translation adjustment, net of taxes (5,326) (1,837) (6,872)
Minimum pension liability adjustment, net of taxes 502 (502) 0
-----------------------------------
Comprehensive income $17,449 $18,407 $12,500
===================================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
|29|
<PAGE>
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Ameron
International Corporation and all wholly-owned subsidiaries (the "Company").
All material intercompany accounts and transactions have been eliminated.
RECLASSIFICATIONS
Certain prior year balances have been reclassified to conform with the
current year presentation.
USE OF ESTIMATES
The preparation of financial statements in conformity with accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
REVENUE RECOGNITION
Revenue from sales of coatings, fiberglass-composite pipe, construction
products and certain other products is recorded at the time the goods are
shipped. Revenue from sales of concrete and steel pipe is recognized either
at shipment, at the time the pipe is inspected and accepted by the customer
or, in certain situations, under the percentage of completion method.
RESEARCH & DEVELOPMENT COSTS
Research and development costs, related primarily to the development, design
and testing of products, are expensed as incurred. Such costs were
approximately $4,258,000 in 1999, $5,155,000 in 1998 and $5,534,000 in 1997.
ENVIRONMENTAL CLEAN-UP COSTS
The Company expenses environmental clean-up costs related to existing
conditions resulting from past or current operations and from which no
current or future benefit is anticipated. Expenditures that extend the life
of the related property or mitigate or prevent future environmental
contamination are capitalized. The Company determines its liability on a
site-by-site basis and records a liability at the time when it is probable
and can be reasonably estimated. The estimated liability of the Company is
not discounted or reduced for possible recoveries from insurance carriers.
INCOME TAXES
Deferred income tax assets and liabilities are computed for differences
between the financial statement and income tax bases of assets and
liabilities. Such deferred income tax asset and liability computations are
based on enacted tax laws and rates applicable to periods in which the
differences are expected to reverse. Valuation allowances are established,
when necessary, to reduce deferred income tax assets to the amounts expected
to be realized.
NET INCOME PER SHARE
Basic earnings per share is computed on the basis of the weighted average
number of common shares outstanding during the periods presented. Diluted
earnings per share is computed on the basis of the weighted average number of
common shares outstanding plus the effect of outstanding stock options, using
the treasury stock method.
COMPREHENSIVE INCOME
Components of comprehensive income are presented net of tax. The related tax
effect of foreign currency translation adjustments was $2,506,000, $989,000
and $4,212,000 in 1999, 1998 and 1997, respectively. The related tax effect
of minimum pension liability adjustment was $(236,000) in 1999 and $270,000
in 1998.
CASH & CASH EQUIVALENTS
Cash equivalents represent liquid investments with maturities of three months
or less when purchased.
INVENTORY VALUATION
Inventories are valued at the lower of cost or market. Cost is principally
determined under the first-in, first-out method. Such cost includes raw
materials, direct labor and manufacturing overhead. Certain steel inventories
are valued using the last-in, first-out method.
EQUITY METHOD OF ACCOUNTING
Investments in affiliates over which the Company has significant influence
are accounted for under the equity method of accounting, whereby the
investment is carried at cost of acquisition, plus the Company's equity in
undistributed earnings or losses since acquisition. Reserves are provided
where management determines that the investment is not realizable.
PROPERTY, PLANT & EQUIPMENT
Items capitalized as property, plant and equipment, including improvements to
existing facilities, are recorded at cost. Upon sale or retirement, the cost
and related accumulated depreciation are removed from the respective
accounts, and any gain or loss is included in income. Maintenance and repair
costs are expensed as incurred. Interest costs applicable to the construction
of major plant and expansion projects were immaterial for the periods
presented.
DEPRECIATION METHOD
Depreciation is computed principally using the straight-line method based on
estimated useful lives of the assets. Annual rates of depreciation are as
follows:
<TABLE>
<CAPTION>
Percentage of Cost
- -----------------------------------------------------
<S> <C>
Buildings 2.50 - 10.00
Machinery and equipment
Autos, trucks and trailers 6.67 - 50.00
Cranes and tractors 10.00 - 15.00
Manufacturing equipment 6.67 - 33.33
Other 5.00 - 66.67
</TABLE>
AMORTIZATION OF INTANGIBLES
Costs in excess of net assets acquired and other intangible assets are
amortized on a straight-line basis over periods ranging up to 40 years.
|30|
<PAGE>
LONG-LIVED ASSETS
The Company evaluates the carrying value of long-lived assets for impairment
whenever events or changes in circumstances indicate that the carrying value
of such assets may not be recoverable. If the estimated future, undiscounted
cash flows from the use of an asset are less than its carrying value, a
write-down would be recorded to reduce the related assets to estimated fair
value.
SELF INSURANCE
The Company utilizes third-party insurance subject to varying retention
levels or self insurance. Such self insurance relates to losses and
liabilities primarily associated with workers' compensation claims and
general, product and vehicle liability. Losses are accrued based upon the
Company's estimates of the aggregate liability for claims incurred using
certain actuarial assumptions followed in the insurance industry and based on
Company experience.
FOREIGN CURRENCY TRANSLATION
The functional currency for the Company's foreign operations is the
applicable local currency. The translation from the applicable foreign
currencies to U.S. dollars is performed for balance sheet accounts using
current exchange rates in effect at the balance sheet date and for revenue
and expense accounts using a weighted average exchange rate during the
period. The resulting translation adjustments are recorded in accumulated
other comprehensive income. In addition, the Company advances funds to
certain foreign subsidiaries that are not expected to be repaid in the
foreseeable future. Translation adjustments arising from these advances are
also included in accumulated other comprehensive income. Gains or losses
resulting from foreign currency transactions are included in other income.
DERIVATIVE FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
The Company operates internationally, giving rise to exposure to market risks
from changes in foreign exchange rates. Derivative financial instruments,
primarily foreign exchange contracts, are used by the Company to reduce those
risks. The magnitude and volume of such transactions were not material for
the periods presented. The Company does not hold or issue financial or
derivative financial instruments for trading or speculative purposes.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of financial instruments, other than long-term debt, closely
approximates the carrying value because of the short-term nature of such
instruments.
CONCENTRATION OF CREDIT RISK
Financial instruments that subject the Company to credit risk consist
primarily of cash equivalents, trade accounts receivable, and forward foreign
currency exchange contracts. Credit risk with respect to trade accounts
receivable is generally not concentrated due to the large number of entities
comprising the Company's customer base and their geographic dispersion. The
Company performs ongoing credit evaluations of its customers, maintains an
allowance for potential credit losses and maintains credit insurance for
certain receivables. The Company actively evaluates the creditworthiness of
the financial institutions with which it conducts business.
PENDING ACCOUNTING CHANGES
In 1998, Statement of Financial Accounting Standards No. 133 ("SFAS 133"),
"Accounting for Derivative Instruments and Hedging Activities," was issued.
The Company is required to adopt SFAS 133 beginning December 1, 2000. The
Company is currently evaluating the impact of adopting SFAS 133.
SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
(IN THOUSANDS) 1999 1998 1997
- ------------------------------------------------------------------------
<S> <C> <C> <C>
Interest paid $12,720 $ 15,085 $ 12,428
==============================
Income taxes paid $18,007 $ 4,536 $ 16,919
==============================
Business acquisitions:
Fair value of assets acquired $ -- $ 55,466 $ --
Fair value of assumed
liabilities -- (9,047) --
------------------------------
Total business acquisitions $ -- $ 46,419 $ --
==============================
</TABLE>
NOTE 2 OTHER INCOME
Other income was as follows for the years ended November 30:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1999 1998 1997
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Royalties and fees from affiliated
companies and licensees $ 5,406 $ 5,201 $ 6,051
Equity in earnings of
affiliated companies 8,499 6,513 3,990
Foreign currency loss (647) (535) (481)
Gain (loss) from sale of
property and equipment 1,223 2,853 (64)
Miscellaneous 1,395 764 997
------------------------------
$15,876 $14,796 $10,493
==============================
</TABLE>
The Company provides technical services and receives fees, royalties and
other income from several of its affiliates and licensees, which are included
in other income.
NOTE 3 ASSET WRITE-DOWNS AND OTHER CHARGES
In the second half of fiscal 1998, the Company recorded pretax asset
write-downs of $18.7 million and other charges of $3.0 million. These charges
included revaluation of under-performing assets to their estimated realizable
values, facility consolidations and related severance costs for approximately
200 positions.
Asset write-downs and other charges incurred by the Company were as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1998
- -----------------------------------------------------
<S> <C>
Investment write-down $10,505
Property and equipment write-downs 8,195
Employee severance costs 2,500
Facility consolidations 469
-------
Total $21,669
=======
</TABLE>
During the fourth quarter of 1998, the Company determined certain investment
and asset write-downs were required.
Management reviewed the recoverability of the Company's investment in Ameron
Saudi Arabia Ltd. ("ASAL"), given the significant decline in oil prices that
occurred in 1998 and related anticipated reduction in infrastructure spending
in Saudi Arabia. ASAL recorded losses for several years prior to 1998. As a
result of the economic events earlier in 1998, management determined that the
investment in ASAL was impaired. The charge of $10.5 million represented a
write-off of the Company's net investment in ASAL.
The property and equipment write-downs related to real property held for sale
in California and Hawaii, as well as the write-down of manufacturing
equipment associated with a discontinued product line. The California
property was originally purchased in 1990 as a manufacturing site and is
currently held for sale. The write-down to
|31|
<PAGE>
estimated net realizable value was based upon independent third-party offers
to purchase the property. The portion of the total charge attributed to the
California property was $1 million.
Land was purchased in 1991 for the development of a quarry in Hawaii. The
overall market failed to expand in Hawaii because of the economic downturn in
the Pacific Rim during 1998. As a result, management determined that an
adjustment of $3.8 million was required to record the land at estimated
current market value.
During the fourth quarter of 1998, the Company discontinued certain
pre-stressed concrete pipe and thick-walled reinforced concrete pipe product
lines. The portion of the charge associated with the write-down of equipment
used exclusively to manufacture these products was $3.4 million.
The severance cost of $2.5 million related to the elimination of
approximately 200 positions throughout the Company's domestic operations.
Initial severance and benefit payments totaled approximately $1.2 million in
1998. Remaining payments of approximately $1.3 million were paid in 1999. The
facility consolidations included the shutdown of the Portland, Oregon
concrete pipe plant and the closure of warehouses in the United Kingdom,
which were operated by a subsidiary of the Company prior to the Croda
Coatings acquisition. The costs associated with the closures totaled $469,000.
The following details the asset write-downs and other charges by~ business
segment:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1998
- ---------------------------------------------------
<S> <C>
Coatings $ 905
Fiberglass-Composite Pipe 248
Concrete & Steel Pipe 4,235
Construction & Allied Products 4,065
Investment 10,505
Corporate 1,711
-------
$21,669
=======
</TABLE>
NOTE 4 RECEIVABLES
Receivables were as follows at November 30:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1999 1998
- -------------------------------------------------------
<S> <C>
Trade $116,205 $133,745
Affiliated companies 3,512 2,435
Other 6,120 5,306
Allowances (6,937) (5,106)
-------------------
$118,900 $136,380
===================
</TABLE>
The Company's provision for bad debts was $4,628,000 in 1999, $2,169,000 in
1998 and $1,798,000 in 1997.
NOTE 5 INVENTORIES
Inventories were as follows at November 30:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1999 1998
- ----------------------------------------------------------
<S> <C> <C>
Finished products $56,122 $62,888
Products in process 17,382 20,988
Materials and supplies 21,984 22,778
---------------------
$95,488 $106,654
=====================
</TABLE>
Certain steel inventories are valued using the last-in, first-out method.
These items comprised 4.5% and 2.7% of consolidated inventories at November
30, 1999 and 1998. If such inventories had been valued using the first-in,
first-out method, total inventories would have increased by $1,120,000 and
$1,472,000 at November 30, 1999 and 1998, respectively.
NOTE 6 AFFILIATED COMPANIES
Investments were as follows at November 30:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1999 1998
- --------------------------------------------------------
<S> <C> <C>
Investments--cost method $ 508 $ 530
Investments--equity method 22,538 22,182
-------------------
$23,046 $22,712
===================
</TABLE>
The Company's investments which were accounted for by the equity method are
summarized below:
<TABLE>
<CAPTION>
Ownership
Products Affiliate Interest
- ---------------------------------------------------------------
<S> <C> <C>
Concrete pipe products Gifford-Hill-American, Inc. 50%
Ameron Saudi Arabia, Ltd. 30%
Steel products TAMCO 50%
Other Bondstrand, Ltd. 40%
Oasis-Ameron, Ltd. 40%
</TABLE>
The Company's investment in Gifford-Hill-American, Inc. was sold in the
fourth quarter of 1998; and the Company's investment in ASAL was written down
to zero value, as discussed in Note Three.
Investments in affiliated companies and the amount of undistributed earnings
were as follows:
<TABLE>
<CAPTION>
Concrete
pipe Steel
(IN THOUSANDS) products products Other Total
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cost $ 6,094 $ 8,482 $3,706 $18,282
Accumulated equity in
undistributed earnings 10,056 15,256 3,632 28,944
Reserves (16,150) (6,612) (1,926) (24,688)
---------------------------------------------
Investment, November 30, 1999 $ 0 $17,126 $5,412 $22,538
=============================================
Dividends Received in Fiscal 1999 $ 1,211 $ 4,400 $1,437 $ 7,048
=============================================
Cost $ 6,094 $ 8,482 $3,706 $18,282
Accumulated equity in
undistributed earnings 7,019 12,905 2,962 22,886
Reserves (13,113) (4,612) (1,261) (18,986)
---------------------------------------------
Investment, November 30, 1998 $ 0 $16,775 $5,407 $22,182
=============================================
Dividends Received in Fiscal 1998 $ 2,250 $ 3,025 $1,324 $ 6,599
=============================================
</TABLE>
The Company has provided for income taxes on the undistributed earnings of
its affiliated companies, to the extent such earnings have been included in
the consolidated statements of income.
The Company's investments in ASAL, Bondstrand, Ltd. and Oasis-Ameron, Ltd.
were recorded based on audited financial statements as of December 31, 1998,
and unaudited financial statements as of September 30, 1999. The investment
in TAMCO was recorded based on audited financial statements as of November
30, 1999.
|32|
<PAGE>
Summarized and combined financial information for affiliates in the concrete
pipe products business follows:
Financial Condition
<TABLE>
<CAPTION>
(IN THOUSANDS) 1999 1998
- --------------------------------------------------------
<S> <C> <C>
Current assets $52,880 $51,260
Non-current assets 25,244 24,577
-------------------
$78,124 $75,837
===================
Current liabilities $25,036 $32,842
Non-current liabilities 1,209 1,124
Stockholders' equity 51,879 41,871
-------------------
$78,124 $75,837
===================
</TABLE>
Results of Operations
<TABLE>
<CAPTION>
(IN THOUSANDS) 1999 1998 1997
- -----------------------------------------------------
<S> <C> <C> <C>
Net sales $42,519 $69,041 $56,295
Gross profit 21,656 11,092 12,151
Net income 14,023 3,864 207
</TABLE>
Summarized and combined financial information for TAMCO, Bondstrand, Ltd. and
Oasis-Ameron, Ltd. follows:
Financial Condition
<TABLE>
<CAPTION>
(IN THOUSANDS) 1999 1998
- --------------------------------------------------------
<S> <C> <C>
Current assets $ 70,782 $61,442
Non-current assets 33,118 33,281
--------------------
$103,900 $94,723
====================
Current liabilities $ 29,796 $29,337
Non-current liabilities 5,888 5,829
Stockholders' equity 68,216 59,557
--------------------
$103,900 $94,723
====================
</TABLE>
Results of Operations
<TABLE>
<CAPTION>
(IN THOUSANDS) 1999 1998 1997
- -------------------------------------------------------------
<S> <C> <C> <C>
Net sales $175,926 $168,393 $173,041
Gross profit 49,291 41,186 29,949
Net income 21,517 15,414 10,017
</TABLE>
The amount of investments and accumulated equity in the undistributed
earnings in the Middle Eastern affiliates was approximately $5,500,000 at
November 30, 1999 and 1998.
Sales and technical services provided by the Company to affiliates in the
Middle East totaled approximately $5,100,000 in 1999, $2,100,000 in 1998 and
$2,300,000 in 1997, and related receivables aggregated approximately
$3,400,000 at November 30, 1999 and $2,200,000 at November 30, 1998. The
Company has 25% ownership in Amercoat Mexicana, which has been accounted for
by the cost method.
NOTE 7 BUSINESS ACQUISITIONS
During 1997, the Company acquired the maintenance coatings business of The
Valspar Corporation for the assets of the Company's product finishes
business. The transaction was accounted for as a purchase, and the results of
operations were included in the Company's consolidated financial statements
beginning in the second quarter of fiscal 1997.
During 1998, the Company acquired for cash the worldwide Croda Coatings
business of Croda International Plc.This acquisition was accounted for as a
purchase, and the results of operations were included in the Company's
consolidated financial statements beginning in the second quarter of fiscal
1998.
During 1998, the Company acquired for cash Hope Composites 2000, Inc., a
privately-owned manufacturer of fiberglass pipe and fittings in Georgia. This
acquisition was accounted for as a purchase, and the results of operations
were included in the Company's consolidated financial statements beginning in
the second quarter of fiscal 1998.
The above acquisitions totaled $52,491,000. The excess of the purchase price
over the fair value of the assets acquired was $10,798,000. The Company
recorded $6,726,000 as costs in excess of net assets acquired and $4,072,000
as other intangibles, consisting primarily of trademarks and know-how. Costs
in excess of net assets acquired are being amortized on a straight-line basis
over 40 years. Other intangible assets are being amortized on a straight-line
basis over periods ranging from 3 to 10 years.
NOTE 8 ACCRUED LIABILITIES
Accrued liabilities were as follows at November 30:
<TABLE>
<CAPTION>
(In thousands) 1999 1998
- --------------------------------------------------------------------
<S> <C> <C>
Compensation and benefits $15,809 $14,603
Interest 6,928 6,615
Advances from customers 4,474 9,156
Reserves for pending claims and litigation 4,308 4,413
Self-insurance reserves 4,239 4,271
Taxes (other than income taxes) 3,320 3,652
Commissions and royalties 978 1,353
Other 3,496 6,290
-------------------
$43,552 $50,353
===================
</TABLE>
NOTE 9 OTHER LONG-TERM LIABILITIES
Other long-term liabilities were as follows at November 30:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1999 1998
- -------------------------------------------------------------------
<S> <C> <C>
Reserves for pending claims and litigation $12,062 $11,724
Interest and self-insurance reserves 8,250 8,421
Compensation and benefits 6,063 8,942
Other 4,094 11,826
---------------------
$30,469 $40,913
=====================
</TABLE>
NOTE 10 INCOME TAXES
The provision for income taxes included the following for the years ended
November 30:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1999 1998 1997
- -----------------------------------------------------------
<S> <C> <C> <C>
Current
Federal $ 4,932 $ 14,993 $ 9,875
Foreign 5,132 3,110 (82)
State 2,077 3,381 1,272
---------------------------------
12,141 21,484 11,065
Deferred
Federal (1,092) (8,352) 676
Foreign (362) (397) (63)
State (205) (1,564) 196
---------------------------------
(1,659) (10,313) 809
---------------------------------
$ 10,482 $ 11,171 $ 11,874
=================================
</TABLE>
|33|
<PAGE>
Deferred income tax assets (liabilities) were comprised of the following as
of November 30:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1999 1998
- ------------------------------------------------------------------
<S> <C> <C>
Non-current deferred income taxes
Employee benefits $ 6,108 $ 7,059
Self insurance/claims reserves 10,329 15,071
Other reserves 6,481 1,158
Investments (958) --
Property, plant and equipment (15,340) (15,069)
Other 473 544
----------------------
Net non-current deferred income
tax assets 7,093 8,763
Current deferred income taxes
Employee benefits 2,607 2,252
Self-insurance/claims reserves 1,362 1,353
Accounts receivable 2,426 1,435
Inventory 5,777 2,910
Other (1,118) (224)
----------------------
Net current deferred income tax assets 11,054 7,726
----------------------
Net deferred income tax assets $18,147 $16,489
======================
</TABLE>
The tax provision represents effective tax rates of 32%, 35% and 38% of
income before income taxes for the years ended November 30, 1999, 1998 and
1997, respectively. A reconciliation of income taxes provided at the
effective income tax rate and the amount computed at the federal statutory
income tax rate of 35% is as follows for the years ended November 30:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1999 1998 1997
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Domestic income,
before income taxes $26,893 $21,497 $24,746
Foreign income,
before income taxes 5,862 10,420 6,500
----------------------------------
$32,755 $31,917 $31,246
==================================
Taxes at federal statutory rate $11,465 $11,171 $10,936
State taxes (net of federal tax benefit) 1,282 1,181 954
Foreign losses with no federal benefit 3,446 460 87
Foreign income taxed at lower rates (2,270) (1,922) (629)
Foreign tax credit (1,457) (803) (74)
Foreign branch and withholding taxes 1,705 420 571
Equity in earnings of
affiliated companies (1,676) (60) (184)
Percentage depletion (387) (350) (379)
Other, net (1,626) 1,074 592
----------------------------------
$10,482 $11,171 $11,874
==================================
</TABLE>
In 1998, the Company settled items disputed with the Internal Revenue Service
relating to the audit of fiscal years 1987 through 1989. The related refund
received was not material to the Company's financial statements.
In 1996, the Internal Revenue Service completed the examination of the
Company's 1990 through 1992 Federal income tax returns, and issued an
assessment. The Company agreed and paid the tax on a portion of the
assessment, and filed an appeal with respect to the portion that was in
dispute. In 1999, a portion of the disputed items was settled. The Internal
Revenue Service is now in the process of reviewing the remainder of the
disputed items. The resolution of these matters is not expected to have a
material effect on the Company's financial position or its results of
operations.
NOTE 11 DEBT
Short-term borrowings consisted of loans payable under bank credit lines by
consolidated foreign subsidiaries totaling $3,479,000 and $3,024,000 as of
November 30, 1999 and 1998, respectively. At November 30, 1999, the
equivalent of $10,300,000 was available under these short-term credit lines.
The effective interest rate on these loans was approximately 24.53% at
November 30, 1999 and 7.25% at November 30, 1998. The higher interest rate in
1999 related to borrowings by the Company's Colombian subsidiary.
Domestically, the Company has uncommitted, short-term bank credit lines
totaling $8,900,000 with interest at various money market rates. The Company
also maintains a $150,000,000 revolving credit facility with five banks
("Revolver"). Under the Revolver, the Company may, at its option, borrow at
interest rates based on specified margins over money market rates, at any
time until April 2003, when all borrowings under the Revolver must be repaid.
At November 30, 1999, $67,100,000 was borrowed domestically under these
facilities.
A foreign consolidated subsidiary maintains revolving credit facilities and
short-term facilities with banks. The subsidiary may borrow in various
currencies, at interest rates based on specified margins over money market
rates. The subsidiary is able to borrow up to the equivalent of $6,000,000 at
any time through October 2001 under one facility. A second arrangement
permits borrowings up to $4,400,000, declining by $500,000 semi-annually.
Other short-term lines permit borrowings up to $6,400,000. At November 30,
1999, $10,044,000 was borrowed under these facilities.
Long-term debt consisted of the following as of November 30:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1999 1998
- ------------------------------------------------------------------------------
<S> <C> <C>
Fixed-rate unsecured notes payable:
9.79%, payable in annual principal
installments of $12,000 $ 12,000 $ 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 (3.95% at November 30, 1999) 7,200 7,200
Variable-rate unsecured bank
revolving credit facilities
(approximately 5.89% at November 30, 1999) 77,144 94,406
Variable-rate unsecured bank loan,
payable by a consolidated subsidiary in
Dutch guilders, with annual principal
installments of approximately $595
(4.17% at November 30, 1999) 1,488 2,383
--------------------------
147,832 177,989
Less current portion (12,595) (12,681)
--------------------------
$135,237 $165,308
==========================
</TABLE>
|34|
<PAGE>
Future maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
Year ending
(IN THOUSANDS) November 30 Amount
- -----------------------------------------------------
<S> <C> <C>
2000 $ 12,595
2001 8,928
2002 8,631
2003 84,401
2004 8,333
Thereafter 24,944
--------
$147,832
========
</TABLE>
Borrowings under bank facilities are supported by the Revolver and,
accordingly, have been classified as long term.
The lending agreements contain various restrictive covenants, including the
requirement to maintain specified amounts of working capital and net worth
and restrictions on cash dividends, borrowings, liens, investments and
guarantees. Under the most restrictive provisions of the Company's lending
agreements, approximately $12,840,000 of retained earnings was not restricted
at November 30, 1999, as to the declaration of cash dividends or the
repurchase of Company stock. At November 30, 1999, the Company was in
compliance with all financial covenants.
Certain note agreements contain provisions regarding the Company's ability to
grant security interests or liens in association with other debt instruments.
If the Company grants such a security interest or lien, then such notes will
be secured equally and ratably as long as such other debt shall be secured.
Interest income and expense were as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1999 1998 1997
- ---------------------------------------------------------------
<S> <C> <C> <C>
Interest expense $13,153 $15,646 $12,433
Interest income (215) (569) (578)
-----------------------------------
Interest expense, net $12,938 $15,077 $11,855
===================================
</TABLE>
The following disclosure of the estimated fair value of the Company's debt is
made in accordance with the requirements of Statement of Financial Accounting
Standards No. 107, "Disclosures about Fair Value of Financial Instruments."
The estimated fair value amounts have been determined by the Company using
available market information and appropriate valuation methodologies.
Considerable judgment is required to develop the estimates of fair value,
thus the estimates provided herein are not necessarily indicative of the
amounts that could be realized in a current market exchange.
<TABLE>
<CAPTION>
NOVEMBER 30, 1999
-----------------
CARRYING FAIR
(IN THOUSANDS) AMOUNT VALUE
- ------------------------------------------------------
<S> <C> <C>
Short-term borrowings $ 3,479 $ 3,479
Fixed-rate, long-term debt 62,000 63,432
Variable-rate, long-term debt 85,832 85,832
November 30, 1998
-----------------
Carrying Fair
(In thousands) Amount Value
- -------------------------------------------------------
Short-term borrowings $ 3,024 $ 3,024
Fixed-rate, long-term debt 74,000 80,009
Variable-rate, long-term debt 103,989 103,989
</TABLE>
The carrying value of short-term and variable-rate, long-term debt is a
reasonable estimate of fair value as interest rates are tied to market rates
and the Company believes it could refinance on similar terms. The estimated
fair value of the Company's fixed-rate long-term debt is based on U.S.
government notes plus an estimated spread for similar securities with similar
remaining maturities.
NOTE 12 LEASE COMMITMENTS
The Company leases facilities and equipment under non-cancelable operating
leases. Rental expense under long-term operating leases of property, vehicles
and other equipment was $5,355,000 in 1999, $6,216,000 in 1998 and $6,170,000
in 1997. At November 30, 1999, future rental commitments under these leases
totaled $45,045,000. Future rental commitments are payable as follows:
<TABLE>
<CAPTION>
Year ending
(IN THOUSANDS) November 30 Amount
- -----------------------------------------------------
<S> <C> <C>
2000 $ 5,215
2001 4,407
2002 3,249
2003 2,047
2004 1,916
Thereafter 28,211
-------
$45,045
=======
</TABLE>
Future rental commitments for leases have not been reduced by minimum
non-cancelable sublease rentals aggregating $3,219,000 for operating leases.
NOTE 13 INCENTIVE STOCK COMPENSATION PLANS
The Company applies Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees," and related interpretations in accounting for
its various stock option plans. The Company has only adopted the disclosure
provisions of Statement of Financial Accounting Standards No. 123 ("SFAS
123"), "Accounting for Stock-Based Compensation."
On January 27, 1992, the Board of Directors of the Company adopted the
Incentive Stock Compensation Plan ("1992 Incentive Plan"). Under the terms of
the 1992 Incentive Plan, 1.5% of the total number of shares of common stock
outstanding on the preceding December 31 are available for grant of awards in
the following calendar year to key employees. Awards under the 1992 Incentive
Plan may include but are not limited to stock bonuses, stock options,
convertible securities and restricted stock grants. Restrictions may limit
the sale, transfer, voting rights and dividends on these shares.
The Company has 393,409 options outstanding under the 1992 Incentive Plan at
November 30, 1999. The plan provides for the issuance of additional options
to purchase not more than 250,000 shares of common stock in the form of
incentive options under the provisions of Section 422 of the Internal Revenue
Code. Options can be incentive options or non-qualified options and may be
granted for up to 10 years. At November 30, 1999, 24,746 options were
available for future grants.
On June 27, 1994, the Board of Directors of the Company adopted the 1994
Non-employee Director Stock Option Plan ("Non-employee Director Plan"). On
March 27, 1995, the Non-employee Director Plan
|35|
<PAGE>
was approved by the stockholders at the Annual Stockholder's Meeting. Under
the terms of the Non-employee Director Plan, each non-employee director shall
automatically be granted 1,000 options on the first business day following
the date of the annual meeting of the stockholders of the Company at which
the directors of the Company are elected. The aggregate number of shares
issued and issuable shall not exceed 120,000. As of November 30, 1999, the
Company had 27,000 options outstanding under the Non-employee Director Plan.
For both the 1992 Incentive Plan and the Non-employee Director Plan, the
exercise price of each option equals the market price of the Company's stock
on the date of grant, and an option's maximum term is 10 years. Options are
granted at various times during the fiscal year under both plans and vest
over 5 years.
SFAS 123 requires pro forma information regarding net income and earnings per
share as if compensation cost for stock options had been determined based on
the fair value of the options on the grant date. The Company estimates the
fair value of stock options at the grant date by using the Black Scholes
option pricing model with the following weighted average assumptions used for
grants in 1997, 1998 and 1999, respectively: dividend yield of .19%, .04% and
.05%; an expected volatility of 20.0%, 21.6% and 17.0%; risk-free rates of
6.22% and 6.36%, 5.48% and 5.50%, and 4.56% for the 1992 Incentive Plan and
risk-free rates of 6.66%, 5.62% and 5.11% for the Non-employee Director Plan;
an expected life of 5 years.
Under the accounting provisions of SFAS 123, the Company's net income and
earnings per share would have been reduced as indicated below for the years
ended November 30:
<TABLE>
<CAPTION>
(In thousands except per share data) 1999 1998 1997
- -----------------------------------------------------------------
<S> <C> <C> <C>
Net Income
As reported $22,273 $20,746 $19,372
Pro forma 21,734 20,275 19,087
Earnings per share (diluted)
As reported 5.54 5.08 4.73
Pro forma 5.40 4.96 4.66
</TABLE>
A summary of the Company's stock option plans as of November 30, 1997, 1998
and 1999, and changes during the years then ended, follows:
<TABLE>
<CAPTION>
Number of Weighted Average
Shares Exercise Price
- ---------------------------------------------------------------
<S> <C> <C>
Outstanding at November 30, 1996 292,259 $39.22
Granted 55,000 48.54
Exercised (20,375) 33.86
Forfeited (5,150) 38.60
--------
Outstanding at November 30, 1997 321,734 39.57
--------
Options Exercisable at Year-end 172,359 36.96
--------
Weighted-Average
Fair Value of Options
Granted During the Year 15.27
</TABLE>
<TABLE>
<CAPTION>
Number of Weighted Average
Shares Exercise Price
- --------------------------------------------------------------------
<S> <C> <C>
Outstanding at November 30, 1997 321,734 $39.57
Granted 78,500 57.14
Exercised (24,625) 37.38
Forfeited (7,125) 42.50
-------
Outstanding at November 30, 1998 368,484 43.40
-------
Options Exercisable at Year-end 197,359 38.11
-------
Weighted-Average
Fair Value of Options
Granted During the Year 18.27
OUTSTANDING AT NOVEMBER 30, 1998 368,484 43.40
GRANTED 58,500 37.78
EXERCISED 0 0
FORFEITED (6,575) 46.32
-------
OUTSTANDING AT NOVEMBER 30, 1999 420,409 42.57
=======
OPTIONS EXERCISABLE AT YEAR-END 254,034 40.14
=======
WEIGHTED-AVERAGE
FAIR VALUE OF OPTIONS
GRANTED DURING THE YEAR 10.25
</TABLE>
The following table summarizes information about stock options outstanding as
of November 30, 1999:
<TABLE>
<CAPTION>
Weighted Average
Number Remaining Weighted
Range of Outstanding at Contractual Life Average
Exercised Prices November 30, 1999 (in years) Exercise Price
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
$25.00 to $35.00 46,350 4.82 $32.66
35.00 to 45.00 253,559 6.28 38.77
45.00 to 55.00 44,500 7.19 49.75
55.00 to 65.00 76,000 8.49 57.12
-------
$25.00 to 65.00 420,409 6.61 42.57
=======
</TABLE>
<TABLE>
<CAPTION>
Number Weighted
Range of Exercisable at Average
Exercised Prices November 30, 1999 Exercise Price
- ---------------------------------------------------------------
<S> <C> <C>
$25.00 to $35.00 40,350 $32.35
35.00 to 45.00 172,434 38.86
45.00 to 55.00 22,250 49.75
55.00 to 65.00 19,000 57.12
$25.00 to 65.00 254,034 40.14
</TABLE>
NOTE 14 COMMITMENTS & CONTINGENCIES
An action was filed in 1992 in the U.S. District for the District of Arizona
by the Central Arizona Water Conservation District ("CAWCD") seeking damages
against several parties, including the Company and the Company's customer,
Peter Kiewit Sons' Company ("Kiewit"), in connection with six prestressed
concrete pipe siphons furnished and installed in the 1970's as part of the
Central Arizona Project ("CAP"), a federal project to bring water from the
Colorado River to Arizona. The CAWCD also filed separate actions against the
U.S. Bureau of Reclamation ("USBR") in the U.S. Court of Claims and with the
Arizona Projects Office of the USBR in connection with the CAP siphons. The
CAWCD alleged that the six CAP siphons were defective and that the USBR and
the defendants in the U.S. District Court action were liable for the repair
or replacement of those siphons at a claimed estimated cost of $146.7
million. On September 14, 1994, the U.S. District Court granted the Company's
motion to dismiss the CAWCD action and entered judgment against the CAWCD and
in favor of the Company and its co-defendants. CAWCD has filed a notice of
appeal with the Ninth Circuit Court of Appeals.
|36|
<PAGE>
Separately, on September 28, 1995, the Contracting Officer for the USBR
issued a final decision claiming for the USBR approximately $40 million in
damages against Kiewit, based in part on the Contracting Officer's finding
that the siphons supplied by the Company were defective. That claim amount is
considered by the Company to be duplicative of the damages sought by the
CAWCD for the repair or replacement of the siphons in its aforementioned
action in the U.S. District for the District of Arizona. The Contracting
Officer's final decision has been appealed by Kiewit to the U.S. Department
of the Interior Board of Contract Appeals ("IBCA"). The Company is actively
cooperating with and assisting Kiewit in the administrative appeal of that
final decision before the IBCA.
The Company internally, as well as through independent third-party
consultants, has conducted engineering analysis regarding the allegations
that the CAP siphons were defective and believes that the siphons were
manufactured in accordance with the project specifications and other contract
requirements, and therefore it is not liable for any claims relating to the
siphons, whether by the CAWCD or by the USBR. The Company believes that it
has meritorious defenses to these actions and that resultant liability, if
any, should not have a material effect on the financial position of the
Company or its results of operations.
In addition, certain other claims, suits and complaints that arise in the
ordinary course of business, have been filed or are pending against the
Company. Management believes that these matters, and the matters discussed
above, are either adequately reserved, covered by insurance, or would not
have a material effect on the financial position of the Company or its
results of operations if disposed of unfavorably. The Company is also subject
to federal, state and local laws and regulations concerning the environment
and is currently participating in administrative proceedings at several sites
under these laws. While the Company finds it difficult to estimate with any
certainty the total cost of remediation at the several sites, on the basis of
currently available information and reserves provided, the Company believes
that the outcome of such environmental regulatory proceedings will not have a
material effect on the Company's financial position or its results of
operations.
NOTE 15 EMPLOYEE BENEFIT PLANS
The Company has a qualified, defined benefit, noncontributory pension plan
for employees not covered by union pension plans. Benefits paid to retirees
are based upon age at retirement, years of credited service and average
compensation or negotiated benefit rates. The Company's funding policy is to
make contributions to the plan sufficient to meet the minimum funding
requirements of applicable laws and regulations, plus such additional
amounts, if any, as the Company's actuarial consultants recommend. During
1999, the Company adopted Statement of Financial Accounting Standards No. 132
("SFAS 132"), "Employers' Disclosures about Pensions and Post-retirement
Benefits," which standardizes the disclosure requirements for pension and
other post-retirement benefits. The Statement addresses disclosure only. It
does not address liability measurement or expense recognition.
Assets of the defined benefit plan are invested in a directed trust. Assets
in the trust are invested in equity securities of corporations (including
$7,648,000 of the Company's common stock at November 30, 1999), U.S.
government obligations, derivative securities, corporate bonds and money
market funds.
The Company has a supplemental non-qualified, non-funded retirement plan, for
which the Company has purchased cost recovery life insurance on the lives of
the participants. The Company is the sole owner and beneficiary of such
policies. The amount of the coverage is designed to provide sufficient
revenues to cover all costs of the plan if assumptions made as to mortality
experience, policy earnings and other factors are realized. As of November
30, 1999 and 1998, the cash surrender value of these policies was $7,308,000
and $6,800,000, respectively.
The following tables set forth the change in benefit obligations, change in
plan assets and funded status as of November 30, 1999 and 1998 for the
Company's defined benefit retirement plan and supplemental retirement plan:
<TABLE>
<CAPTION>
IN THOUSANDS DEFINED BENEFIT RETIREMENT PLAN SUPPLEMENTAL RETIREMENT PLAN
- ------------------------------------------------------------------------------------------------------------------
1999 1998 1999 1998
----------------------------------------------------------------
<S> <C> <C> <C> <C>
CHANGE IN BENEFIT OBLIGATION
Projected benefit obligation-beginning of year $140,228 $121,205 $5,746 $4,339
Service cost 2,263 2,102 367 306
Interest cost 8,511 8,785 373 347
Actuarial (gain) loss (16,287) 15,976 (298) 999
Benefit payments (8,351) (7,840) (281) (245)
----------------------------------------------------------------
Projected benefit obligation-end of year $126,364 $140,228 $5,907 $5,746
================================================================
CHANGE IN PLAN ASSETS
Plan assets at fair value-beginning of year $151,755 $150,454 $ -- $ --
Actual return on plan assets 13,877 9,141 -- --
Employer contribution -- -- 281 245
Plan participants' contributions -- -- -- --
Benefit payments (8,351) (7,840) (281) (245)
----------------------------------------------------------------
Plan assets at fair value-end of year $157,281 $151,755 $ -- $ --
================================================================
FUNDED STATUS
Funded status $ 30,917 $ 11,527 $(5,907) $(5,746)
Unrecognized actuarial (gain) loss (25,645) (9,870) 962 1,468
Unrecognized transition (asset) obligation (265) (380) -- --
Unrecognized prior service cost 484 704 240 371
----------------------------------------------------------------
Net amount recognized $ 5,491 $ 1,981 $(4,705) $(3,907)
================================================================
</TABLE>
|37|
<PAGE>
Amounts recognized in the Company's balance sheet consisted of the following:
<TABLE>
<CAPTION>
IN THOUSANDS DEFINED BENEFIT RETIREMENT PLAN SUPPLEMENTAL RETIREMENT PLAN
- -------------------------------------------------------------------------------------------------------------------
1999 1998 1999 1998
---------------------------------------------------------------
<S> <C> <C> <C> <C>
Prepaid benefit cost $5,491 $1,981 $ -- $ --
Accrued benefit liability -- -- (4,790) (4,780)
Intangible asset -- -- 85 371
Accumulated other comprehensive income -- -- -- 502
---------------------------------------------------------------
Net amount recognized $5,491 $1,981 $ (4,705) $ (3,907)
===============================================================
</TABLE>
Net periodic benefit costs for the Company's defined benefit retirement plan and
supplemental retirement plan for 1999, 1998 and 1997 included the following
components:
<TABLE>
<CAPTION>
IN THOUSANDS DEFINED BENEFIT RETIREMENT PLAN SUPPLEMENTAL RETIREMENT PLAN
- --------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1999 1998 1997
-----------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Service cost $ 2,263 $ 2,102 $ 1,912 $ 367 $ 306 $ 247
Interest cost 8,511 8,785 8,707 373 347 300
Expected return on plan assets (14,389) (14,287) (11,590) -- -- --
Amortization of unrecognized prior service cost 220 454 623 131 131 339
Amortization of unrecognized net transition (asset)
obligation (115) (114) (114) -- -- --
Amortization of accumulated (gain) loss -- (2,802) (530) 208 83 --
-----------------------------------------------------------
Net periodic benefit cost $(3,510) $(5,862) $ (992) $ 1,079 $ 867 $ 886
===========================================================
</TABLE>
The following weighted-average assumptions were used to develop net periodic
cost and the actuarial present value of projected benefit obligations:
<TABLE>
<CAPTION>
DEFINED BENEFIT RETIREMENT PLAN SUPPLEMENTAL RETIREMENT PLAN
- --------------------------------------------------------------------------------------------------------------
1999 1998 1997 1999 1998 1997
---------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Weighted average discount rate 7.50% 6.25% 7.50% 7.50% 6.25% 7.50%
Expected long-term rate of return on plan assets 9.75% 9.75% 9.75% N/A N/A N/A
Rate of increase in compensation levels 5.00% 3.75% 5.00% 5.00% 3.75% 5.00%
</TABLE>
Approximately 18% of the Company's employees are covered by union-sponsored,
collectively bargained, multi-employer pension plans. The Company contributed
and charged to expense $1,800,000, $2,900,000 and $2,700,000 in 1999, 1998
and 1997, respectively. These contributions are determined in accordance with
the provisions of negotiated labor contracts and generally are based on the
number of hours worked. The Company has no intention of withdrawing from any
of these plans, nor is there any intention to terminate such plans.
The Company provides health and life insurances benefits to a limited number
of U.S. eligible retirees and eligible survivors of retirees. These benefits
are unfunded.
Changes in the Company's benefit obligation and funded status are as follows:
<TABLE>
<CAPTION>
IN THOUSANDS SALARIED BENEFLEX UNION MEDICAL EXECUTIVE LIFE INSURANCE
- -------------------------------------------------------------------------------------------------------------------------
1999 1998 1999 1998 1999 1998
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CHANGE IN BENEFIT OBLIGATION
Projected benefit obligation--beginning of year $ 283 $ 264 $ 903 $ 818 $1,133 $ 849
Service cost 18 15 60 28 26 12
Interest cost 18 20 63 58 69 69
Actuarial (gain) loss (17) 25 (35) 49 (215) 235
Benefit payments (46) (41) (53) (50) (34) (32)
-----------------------------------------------------------------------
Projected benefit obligation-end of year $ 256 $ 283 $ 938 $ 903 $ 979 $ 1,133
=======================================================================
FUNDED STATUS
Funded status $(256) $(283) $(938) $(903) $ (979) $(1,133)
Unrecognized actuarial (gain) loss (33) (16) 255 312 31 258
Unrecognized transition obligation 231 248 355 380 412 441
Unrecognized prior service cost -- -- -- -- -- --
-----------------------------------------------------------------------
Net amount recognized $ (58) $ (51) $(328) $(211) $ (536) $ (434)
=======================================================================
</TABLE>
|38|
<PAGE>
Amounts recognized in the balance sheet consisted of the following:
<TABLE>
<CAPTION>
IN THOUSANDS SALARIED BENEFLEX UNION MEDICAL EXECUTIVE LIFE INSURANCE
- -------------------------------------------------------------------------------------------------------------------
1999 1998 1999 1998 1999 1998
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Prepaid benefit cost $ -- $ -- $ -- $ -- $ -- $ --
Accrued benefit liability (58) (51) (328) (211) (536) (434)
Additional minimum liability -- -- -- -- -- --
Intangible asset -- -- -- -- -- --
Accumulated other comprehensive income -- -- -- -- -- --
---------------------------------------------------------------------
Net amount recognized $(58) $(51) $(328) $(211) $(536) $(434)
=====================================================================
</TABLE>
Net periodic benefit costs were as follows:
<TABLE>
<CAPTION>
IN THOUSANDS SALARIED BENEFLEX UNION MEDICAL EXECUTIVE LIFE INSURANCE
- ----------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1999 1998 1997 1999 1998 1997
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Service cost $18 $15 $15 $ 60 $ 28 $ 38 $ 26 $ 12 $ 22
Interest cost 18 20 21 63 58 60 69 69 60
Expected Return on plan assets -- -- -- -- -- -- -- -- --
Amortization of unrecognized prior service cost -- -- -- -- -- -- -- -- --
Amortization of unrecognized net transition
obligation (asset) 17 17 17 25 25 25 29 29 29
Amortization of accumulated (gain) loss -- (1) (2) 22 11 13 12 1 --
-----------------------------------------------------------------------------
Net periodic benefit cost $53 $51 $51 $170 $122 $136 $136 $111 $111
=============================================================================
</TABLE>
Weighted-average assumptions were as follows:
<TABLE>
<CAPTION>
SALARIED BENEFLEX UNION MEDICAL EXECUTIVE LIFE INSURANCE
- ---------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1999 1998 1997 1999 1998 1997
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Weighted average discount rate 7.50% 6.25% 7.50% 7.50% 6.25% 7.50% 7.50% 6.25% 7.50%
Expected long-term rate of return on plan assets N/A N/A N/A N/A N/A N/A N/A N/A N/A
Rate of increase in compensation levels N/A N/A N/A N/A N/A N/A 5.00% 5.00% 5.00%
</TABLE>
The assumed health care cost trend used in measuring the projected benefit
obligation was 7% in 1999, with the assumption that the rate will decline to
6% beyond 2000.
The Company has a deferred compensation plan providing key executives with
the opportunity to participate in an unfunded, deferred compensation program.
Under the program, participants may defer base compensation and bonuses and
earn interest on their deferred amounts. The program is not qualified under
Section 401 of the Internal Revenue Code. The total of participant deferrals
and earnings thereon was $7,299,000 at November 30, 1999, and $6,865,000 at
November 30, 1998. The participant deferrals earn interest at a rate based on
U.S. Government Treasury rates. The interest expense related to this plan was
$603,000 in 1999, $610,000 in 1998 and $550,000 in 1997.
The Company has a life insurance plan wherein eligible executives are
provided with life insurance protection based upon three times base salary.
Upon retirement, the executive is provided with life insurance protection
based upon final base salary. Benefits may be paid as a lump sum or as an
annual income to the identified survivor over ten years. The expense related
to this plan was $371,000 in 1999, $394,000 in 1998 and, $361,000 in 1997.
In connection with the above two plans, whole life insurance contracts were
purchased on the related participants. At November 30, 1999 and 1998, the
cash surrender value of these policies was $13,076,000 and $10,731,000,
respectively, net of loans of $1,000,000 each year.
The Company provides to certain employees a savings plan under Section 401(k)
of the Internal Revenue Code. The savings plan allows for deferral of income
up to a certain percentage through contributions to the plan and, within
certain restrictions, Company matching contributions are in the form of cash.
In 1999, 1998 and 1997, the Company recorded expense for matching
contributions of $322,000, $482,000 and $286,000, respectively.
|39|
<PAGE>
NOTE 16 CAPITAL STOCK
The certificate of incorporation in Delaware authorizes 12,000,000 shares of
$2.50 par value common stock, 1,000,000 shares of $1.00 par value preferred
stock and 100,00 shares of $1.00 par value series A junior participating
cumulative preferred stock. The preferred stock may be issued in series, with
the rights and preferences of each series to be established by the Board of
Directors. As of November 30, 1999, the Company had no shares of preferred
stock or series A junior participating cumulative preferred stock outstanding.
The Company has a Stockholders' Rights Agreement, which entitles stockholders
to purchase common stock if a party acquires 15% or more of the Company's
common shares or announces a tender offer for at least 15% of its common
shares outstanding.
NOTE 17 QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data for the years ended November 30, 1999 and
1998, follow:
<TABLE>
<CAPTION>
1999
------------------------------------------
FIRST SECOND THIRD FOURTH
(IN THOUSANDS
EXCEPT PER SHARE DATA) QUARTER QUARTER QUARTER QUARTER
- ------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales $122,899 $149,468 $138,795 $133,919
Gross profit 30,881 39,559 38,087 34,455
Net income 1,004 6,020 7,986 7,263
Diluted net income
per share 0.25 1.50 1.98 1.80
Stock price per share--high 40 7/8 45 3/4 46 13/16 47 3/4
Stock price per share--low 36 7/16 34 11/16 38 1/16 42 3/16
Dividends 0.32 0.32 0.32 0.32
1998
------------------------------------------
First Second Third Fourth
(IN THOUSANDS
EXCEPT PER SHARE DATA) Quarter Quarter Quarter Quarter
- ------------------------------------------------------------------
Sales $102,526 $136,974 $155,707 $156,939
Gross profit 24,202 36,326 38,142 40,542
Net (loss) income (940) 4,490 6,178 11,018
Diluted net (loss) income
per share (.23) 1.09 1.51 2.71
Stock price per share--high 64 5/8 62 3/4 60 1/8 39 9/16
Stock price per share--low 57 1/8 54 3/4 37 5/8 33 3/8
Dividends 0.32 0.32 0.32 0.32
</TABLE>
The Company traditionally experiences lower sales during the first fiscal
quarter because of seasonal patterns associated with weather and contractor
schedules.
NOTE 18 SEGMENT INFORMATION
In 1999, the Company adopted Statement of Financial Accounting Standards No.
131 ("SFAS 131"), "Disclosure about Segments of an Enterprise and Related
Information." SFAS 131 requires disclosure of certain information about
operating segments, geographic areas in which the Company operates, major
customers, and products and services. In accordance with SFAS 131, the
Company has determined it has four operating segments. The Coatings Group
manufactures and markets high-performance industrial and marine coatings. The
Fiberglass-Composite Pipe Group manufactures and markets filament-wound and
molded composite fiberglass pipe, tubing, fittings and well screens. The
Concrete & Steel Pipe Group manufactures and supplies concrete and steel
pressure pipe, concrete non-pressure pipe, protective linings for pipe, and
fabricated products. The Construction & Allied Products Group manufactures
and sells ready-mix concrete, sand and aggregates, concrete pipe and
culverts, and concrete and steel lighting and traffic poles. Each of these
segments has a dedicated management team and is managed separately, primarily
because of differences in products.
The markets served by the Coatings Group and the Fiberglass-Composite Pipe
Group are worldwide in scope. The Concrete & Steel Pipe Group serves
primarily the western United States. The Construction and Allied Products
Group operates exclusively in the State of Hawaii and the continental United
States. Sales for export or to any individual customer did not exceed 10% of
consolidated sales.
The Company does not maintain separate stand-alone financial statements
prepared in accordance with generally accepted accounting principles for each
of its operating segments. In accordance with SFAS 131, the following table
presents information related to each operating segment included in, and in a
manner consistent with, internal management reports.
Inter-segment sales were not significant. Income from reportable segments is
exclusive of certain unallocated income and expense, including interest
expense and income expense. Identifiable assets by segment are those assets
that are used exclusively by such segment. Unallocated assets are principally
cash, corporate property and equipment, and investments. Capital expenditures
do not include plant and equipment for business acquisitions.
|40|
<PAGE>
<TABLE>
<CAPTION>
SEGMENT INFORMATION
------------------------------------------------------------------------------------------------
Fiberglass- Concrete & Construction & Corporate &
(DOLLARS IN THOUSANDS) Coatings Composite Pipe Steel Pipe Allied Products Unallocated Eliminations Consolidated
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
<C>
1999
SALES $ 199,357 $ 95,524 $ 142,468 $108,559 $ -- $ (827) $ 545,081
INCOME (LOSS) BEFORE INTEREST
AND INCOME TAXES 9,185 12,055 23,022 17,155 (15,724)(1) -- 45,693
EQUITY INCOME 216 1,221 1,211 -- 5,851 -- 8,499
LONG-LIVED ASSETS 51,570 26,795 46,774 33,183 29,833 (1,981) 186,174
INVESTMENTS 2,136 3,784 -- -- 17,126 -- 23,046
TOTAL ASSETS 148,436 117,561 100,177 57,208 159,077 (123,492) 458,967
CAPITAL EXPENDITURES 6,041 4,672 5,259 3,627 73 -- 19,672
DEPRECIATION AND AMORTIZATION 6,765 3,601 4,000 3,755 865 -- 18,986
- ---------------------------------------------------------------------------------------------------------------------------------
1998
Sales $ 213,961 $ 105,633 $ 131,633 $ 102,066 $ -- $(1,147) $ 552,146
Income (loss) before interest
and income taxes 8,451 16,467 21,082 10,309 (9,315)(2) -- 46,994
Equity income 382 942 2,250 (86) 3,025 -- 6,513
Long-lived assets 56,046 27,156 49,967 37,401 30,470 (5,986) 195,054
Investments 2,131 3,806 -- -- 16,775 -- 22,712
Total assets 167,811 116,415 114,503 55,217 159,618 (113,345) 500,219
Capital expenditures 4,755 5,700 19,365 2,898 26 -- 32,744
Depreciation and amortization 5,677 3,630 4,121 4,183 1,088 -- 18,699
- ---------------------------------------------------------------------------------------------------------------------------------
1997
Sales $ 190,690 $ 102,690 $ 146,069 $ 94,858 $ -- $ (801) $533,506
Income (loss) before interest
and income taxes 16,604 14,427 16,675 8,227 (12,832) -- 43,101
Equity income 293 826 31 (185) 3,025 -- 3,990
Long-lived assets 24,687 27,003 37,405 39,363 29,145 23 157,626
Investments 2,134 3,806 11,505 87 16,775 -- 34,307
Total assets 120,342 98,549 91,088 60,954 139,968 (77,676) 433,225
Capital expenditures 4,259 8,466 7,383 3,253 1,499 -- 24,860
Depreciation and amortization 3,802 3,751 3,972 4,208 943 -- 16,676
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) INCLUDES $1,223 GAIN ON SALES OF ASSETS.
(2) INCLUDES ASSET WRITE-DOWNS AND OTHER CHARGES OF $21,669 AND GAIN ON SALES OF
INVESTMENT AND OTHER ASSETS OF
<TABLE>
<CAPTION>
GEOGRAPHIC AREAS
------------------------------------------------------------------------
United
(DOLLARS IN THOUSANDS ) States Europe Asia Other Eliminations Consolidated
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1999
SALES TO UNAFFILIATED CUSTOMERS $374,543 $ 88,788 $ 38,436 $ 43,314 $ -- $545,081
INTERCOMPANY SALES BETWEEN GEOGRAPHIC AREAS 7,369 1,530 5,409 -- (14,308) --
------------------------------------------------------------------------
TOTAL SALES 381,912 90,318 43,845 43,314 (14,308) 545,081
INCOME BEFORE INTEREST AND INCOME TAXES 32,229 316 12,587 561 -- 45,693
LONG-LIVED ASSETS 130,792 31,042 10,309 16,012 (1,981) 186,174
TOTAL ASSETS 397,570 82,269 63,498 39,122 (123,492) 458,967
- --------------------------------------------------------------------------------------------------------------------------
1998
Sales to unaffiliated customers $401,580 $101,727 $ 23,675 $ 25,164 $ -- $ 552,146
Intercompany sales between geographic areas 9,748 1,389 9,685 -- (20,822) --
------------------------------------------------------------------------
Total sales 411,328 103,116 33,360 25,164 (20,822) 552,146
Income before interest and income taxes 33,391 6,983 6,890 (270) -- 46,994
Long-lived assets 139,371 34,545 9,771 17,353 (5,986) 195,054
Total assets 422,684 99,638 51,396 39,846 (113,345) 500,219
- --------------------------------------------------------------------------------------------------------------------------
1997
Sales to unaffiliated customers $434,839 $ 67,328 $ 27,552 $ 3,787 $ -- $ 533,506
Intercompany sales between geographic areas 1,829 7,189 2,507 -- (11,525) --
------------------------------------------------------------------------
Total sales 436,668 74,517 30,059 3,787 (11,525) 533,506
Income before interest and income taxes 33,628 2,838 6,359 276 -- 43,101
Long-lived assets 131,629 16,534 9,031 409 23 157,626
Total assets 402,124 61,703 40,329 6,745 (77,676) 433,225
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
|41|
<PAGE>
SUBSIDIARIES OF THE REGISTRANT
PARENTS
None
<TABLE>
<CAPTION>
JURISDICTION OF PERCENT OF
SUBSIDIARIES CONSOLIDATED INCORPORATION STOCK OWNED
- ------------------------- --------------- -----------
<S> <C> <C>
Amercoat Japan Company, Limited Japan 100
American Pipe & Construction International California 100
Ameron (Australia) Pty. Limited Australia 100
Ameron B.V. The Netherlands 100
Ameron Composites Inc. Delaware 100
Ameron FSC Guam 100
Ameron (Hong Kong) Ltd. Hong Kong 100
Ameron Malaysia Sdn. Bhd. Malaysia 100
Ameron (New Zealand) Limited New Zealand 100
Ameron (Pte) Ltd. Singapore 100
Ameron (UK) Limited United Kingdom 100
Centron International, Inc. Delaware 100
Island Ready-Mix Concrete, Inc. Hawaii 100
SUBSIDIARIES NOT CONSOLIDATED AND
FIFTY-PERCENT OR LESS OWNED COMPANIES
- -------------------------------------
TAMCO California 50
Bondstrand, Ltd. Saudi Arabia 40
Oasis-Ameron, Ltd. Saudi Arabia 40
Ameron Saudi Arabia, Ltd. Saudi Arabia 30
</TABLE>
Names of other subsidiaries not consolidated and fifty-percent or less owned
companies are omitted because when considered in the aggregate as a single
subsidiary they do not constitute a significant subsidiary.
EXHIBIT 21
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement No.
33-3400, No. 33-57308, No. 33-59697 and No. 333-36497 of Ameron International
Corporation on Form S-8 of our reports dated January 24, 2000, appearing in
and incorporated by reference in this Annual Report on Form 10-K of Ameron
International Corporation for the year ended November 30, 1999.
DELOITTE & TOUCHE LLP
Los Angeles, California
February 24, 2000
As independent public accountants, we hereby consent to the incorporation of
our reports included and incorporated by reference in this Form 10-K, into
the Company's previously filed Registration Statements (File No. 33-3400,
33-57308, 33-59697, and 333-36497).
ARTHUR ANDERSEN LLP
Los Angeles, California
February 24, 2000
EXHIBIT 23
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> NOV-30-1999 NOV-30-1998
<PERIOD-START> DEC-01-1998 DEC-01-1997
<PERIOD-END> NOV-30-1999 NOV-30-1998
<CASH> 10,521 16,376
<SECURITIES> 0 0
<RECEIVABLES> 125,837 141,486
<ALLOWANCES> 6,937 5,106
<INVENTORY> 95,488 106,654
<CURRENT-ASSETS> 242,654 273,690
<PP&E> 350,060 358,754
<DEPRECIATION> 200,463 200,836
<TOTAL-ASSETS> 458,967 500,219
<CURRENT-LIABILITIES> 115,141 126,830
<BONDS> 135,237 165,308
0 0
0 0
<COMMON> 13,007 13,007
<OTHER-SE> 165,113 154,161
<TOTAL-LIABILITY-AND-EQUITY> 458,967 500,219
<SALES> 545,081 552,146
<TOTAL-REVENUES> 545,081 552,146
<CGS> 402,099 412,934
<TOTAL-COSTS> 402,099 412,934
<OTHER-EXPENSES> 113,165 109,345
<LOSS-PROVISION> 4,628 2,169
<INTEREST-EXPENSE> 13,153 15,646
<INCOME-PRETAX> 32,755 31,917
<INCOME-TAX> 10,482 11,171
<INCOME-CONTINUING> 22,273 20,746
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 22,273 20,746
<EPS-BASIC> 5.57 5.17
<EPS-DILUTED> 5.54 5.08
</TABLE>
<PAGE>
EXHIBIT 99
OTHER EXHIBITS
Exhibit 99 is the report of Arthur Andersen LLP relating to their audit of
Ameron's financial statements for the periods ended November 30, 1997 and 1998.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and the Board of Directors, Ameron International
Corporation:
We have audited the accompanying consolidated balance sheets of Ameron
International Corporation (a Delaware corporation) and subsidiaries as of
November 30, 1998 and 1997, and the related consolidated statements of income,
comprehensive income, stockholders' equity and cash flows for each of the two
years in the period ended November 30, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits in accordance with generally accepted auditing standards. Those
standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion. In our
opinion the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Ameron International
Corporation and subsidiaries as of November 30, 1998 and 1997, and the results
of their operations and their cash flows for each of the two years in the period
ended November 30, 1998, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Los Angeles, California
January 21, 1999
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and the Board of Directors, Ameron International Corporation
We have audited in accordance with generally accepted auditing standards, the
consolidated financial statements included in Ameron's Annual Report to
Stockholders incorporated by reference in this Form 10-K, and have issued our
report thereon dated January 21, 1999. Our audits were made for the purpose
of forming an opinion on those statements taken as a whole. The schedule
listed in Item 14(a)2 is the responsibility of the Company's management and
is presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audits
of the basic financial statements and, in our opinion, fairly states in all
material respects, the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Los Angeles, California
January 21, 1999
EXHIBIT 99
