United
States
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
x ANNUAL REPORT PURSUANT
TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE
ACT OF 1934
For
the fiscal year ended November 30, 2009
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
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77-0100596
|
|
(State
of Incorporation)
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(I.R.S.
Employer Identification No.)
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245
South Los Robles Avenue
Pasadena,
CA 91101-3638
(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:
|
Title
of each class
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Name
of each exchange 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 if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes ¨ No
x
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes ¨ No
x
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
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer (as defined in Rule 12b-2 of the
Exchange Act).
|
Large
accelerated filer x
|
Accelerated
filer ¨
|
Non-accelerated
filer ¨
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act). Yes ¨ No
x
AMERON
INTERNATIONAL CORPORATION AND SUBSIDIARIES
The
aggregate market value of voting and non-voting common equity held by
non-affiliates was approximately $504 million on May 29, 2009, based upon
the last reported sales price of such stock on the New York Stock Exchange on
that date.
On
January 22, 2010 there were 9,203,836 shares of Common Stock, $2.50 par
value, outstanding. No other class of Common Stock
exists.
DOCUMENTS
INCORPORATED BY REFERENCE
1.
PORTIONS OF AMERON INTERNATIONAL CORPORATION'S PROXY STATEMENT FOR THE 2010
ANNUAL MEETING OF STOCKHOLDERS (PART III)
AMERON INTERNATIONAL CORPORATION AND SUBSIDIARIES
2009
ANNUAL REPORT ON FORM 10-K
Table
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PART I
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 is divided into business
segments, as described in Item 1(c)(1), herein. 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 12 months ended November 30,
2009. All references to the "Proxy Statement" pertain to the Company's
Proxy Statement to be filed on or about February 22, 2010 in connection
with the 2010 Annual Meeting of Stockholders.
ITEM 1 - BUSINESS
(a)
GENERAL DEVELOPMENT OF BUSINESS.
Although
the Company's antecedents date back to 1907, the Company evolved directly from
the merger of two separate firms in 1929, resulting in the incorporation of
American Concrete Pipe Company 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 1960's 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 fiberglass pipe and fittings.
At the beginning of 1970, the Company's name was changed to Ameron,
Inc. In the meantime, other manufactured product lines were added,
including 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 2006, the Company sold its Performance
Coatings & Finishes business (“Coatings Business”). Also in 2006,
the Company began manufacturing large, steel towers that are used with wind
turbines for generating electricity.
(b)
FINANCIAL INFORMATION AS TO INDUSTRY SEGMENTS.
Financial
information on segments and joint ventures may be found in Notes (1), (6) and
(18) of the Notes to Consolidated Financial Statements, under Item 8,
herein.
(c)
NARRATIVE DESCRIPTION OF BUSINESS.
(1) For
geographical and operational convenience, the Company is organized into
divisions. These divisions are combined into groups serving various industry
segments, as follows:
a) 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 piping systems,
aboard marine vessels and offshore oil platforms, and are marketed as an
alternative to metallic piping systems which ultimately fail under corrosive
operating conditions. These products are marketed directly, 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 Burkburnett, Texas, by its wholly-owned domestic subsidiary,
Centron International Inc. ("Centron"), at its plant in Mineral Wells, Texas, by
wholly-owned subsidiaries in the Netherlands, Brazil, Singapore and Malaysia,
and by a joint venture in Saudi Arabia.
b) The
Water Transmission Group supplies products and services used in the construction
of water pipelines. Five pipe manufacturing 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, and Tubos Y Activos, a wholly-owned subsidiary, with a plant
in Mexico. 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. Products are
marketed directly using the Company's own personnel, typically through
competitive bidding. Customers include local, state and federal
agencies, developers and general contractors. Normally, no one customer or group
of customers for the Company’s water pipe products 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 U.S., state or local 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, plastic, 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 worldwide basis directly and through manufacturers'
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. Additionally, the Company manufactures
large-diameter towers for the U.S. wind-energy market at one of its California
plants. Wind towers are sold to wind turbine manufacturers based on
price, quality and availability. In 2009, Siemens Power Generation,
Inc. purchased $66.4 million of wind towers from the Company, which was
approximately 12% of the Company’s total consolidated sales and all of the
Company’s wind tower sales. Siemens Power Generation, Inc. is
expected to continue to be the Company’s principal customer for wind towers in
2010.
c) The
Infrastructure Products Group supplies ready-mix concrete, crushed and sized
basaltic aggregates, dune sand, concrete pipe and box culverts, primarily to the
construction industry in Hawaii, and manufactures and markets concrete and steel
poles for highway, street and outdoor area lighting and for traffic signals
nationwide. Ample raw materials are available locally in
Hawaii. As to rock products, the Company has exclusive rights to
quarries 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. An appreciable portion of the segment's business in Hawaii is
obtained through competitive bidding. Sales of poles are nationwide,
but with a stronger concentration in the western and southeastern U.S.
Marketing of poles is handled by the Company's own sales force and by outside
sales agents. Competition for poles is mainly based on price and
quality, but with some consideration for service and delivery. Poles
are manufactured in two plants in California, as well as in plants in
Washington, Oklahoma and Alabama.
d) The
Company has three significant partially-owned affiliated companies ("joint
ventures"): Ameron Saudi Arabia, Ltd. ("ASAL"), Bondstrand, Ltd. ("BL")
and TAMCO. ASAL, owned 30% by the Company, manufactures and sells concrete
pressure pipe to customers in Saudi Arabia. BL, owned 40% by the Company,
manufactures and sells glass reinforced epoxy pipe and fittings in Saudi
Arabia. TAMCO, 50%-owned by the Company, operates a steel mini-mill in
California that produces reinforcing bar sold into construction markets in the
western U.S. ASAL is included in the Water Transmission Group, and BL is
included in the Fiberglass-Composite Pipe Group. TAMCO is not included in
the three operating groups.
e) Except
as individually outlined in the above descriptions of industry segments, the
following comments or situations currently apply to all segments and applied
during the three years ended November 30, 2009:
(i) Raw
material supplies are periodically constrained due to industry
capacities. However, 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 several 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 typically 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 similar
industries. No unusual amounts of inventory are required to meet
seasonal delivery requirements. In 2009, all of the Company's
industry segments turned inventory between four and six times
annually. At November 30, 2009, average days' sales in accounts
receivable ranged between 32 and 142 for all segments. Excluding the
$33.7 million of unbilled receivables from the Water Transmission Group, the
November 30, 2009 average days’ sales ranged between 32 and 89 for all
segments. Due to the percentage-of-completion method of accounting
used by the Water Transmission Group, which is outlined in Item 7, herein,
receivables, including unbilled receivables, of the Water Transmission Group may
be outstanding longer than if the percentage-of-completion method was not
used.
(v) The
backlog of orders at November 30, 2009 and 2008 by industry segment is
shown below. Approximately 99% of the November 30, 2009 backlog is
expected to be converted to sales during 2010. The Water Transmission
Group’s backlog included $28.9 million of orders for large-diameter wind towers
at November 30, 2009, compared to $90.7 million at the end of
2008. The decrease in the wind tower backlog reflects the challenging
market conditions being experienced in the wind industry due to lack of project
financing. The Fiberglass-Composite Pipe Group’s backlog decreased
$20.9 million primarily due to reduced demand for onshore oilfield
piping. The backlog decreased at Infrastructure Products Group due to
a continuing decline in commercial and residential construction
markets.
|
SEGMENT
|
2009
|
2008
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||||||
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(in
thousands)
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||||||||
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Water
Transmission Group
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$ | 88,296 | $ | 153,037 | ||||
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Fiberglass-Composite
Pipe Group
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64,405 | 85,290 | ||||||
|
Infrastructure
Products Group
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23,046 | 26,904 | ||||||
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Total
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$ | 175,747 | $ | 265,231 | ||||
(vi)
Except for the sale of the Coatings Business, the introduction of the wind tower
product line and the expansion of the Fiberglass-Composite Pipe Group in Brazil,
there were no significant changes in the industries and localities in which the
Company operated in recent years. TAMCO’s competitors announced plans
to add additional capacity to manufacture rebar for sale into TAMCO’s
markets. The Company is not aware of any other changes in the
competitive situation which would be material to an understanding of the
Company’s businesses.
(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. Contracts seldom involve commitments of more than one
year by the Company. In those instances when the Company commits to sell
products under longer-term contracts, the Company will typically contractually
arrange to fix a portion of its associated costs. Payment is normally due
from 30 to 60 days after shipment, with progress payments prior to shipment in
some circumstances. The Company does not typically extend long-term
credit to purchasers of its products. For 2009, excluding the effect
of unbilled receivables related to the percentage-of-completion method of
accounting, trade receivables turned approximately an average of five
times.
(viii) A
number of the Company's operations operate outside the U.S. and are affected by
changes in foreign exchange rates. Sales, profits, assets and liabilities
could be materially impacted by changes in foreign exchange rates. From
time to time, the Company borrows in various currencies to reduce the level of
net assets subject to changes in foreign exchange rates or purchases foreign
exchange forward and option contracts to hedge firm commitments, such as
receivables and payables, denominated in foreign currencies. The
Company does not typically hedge forecasted sales or items subject to
translation adjustments, such as intercompany transactions of a long-term
investment nature.
(2) a)
Costs during each of the last three years for research and development were $8.0
million in 2009, $6.7 million in 2008, and $5.7 million in 2007. Such
costs, which are included in selling, general and administrative expenses,
relate primarily to the development, design and testing of products, and are
expensed as incurred.
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, except as described above.
c) For
many years the Company consistently installed or improved devices to control or
eliminate the discharge of pollutants into the
environment. Accordingly, in 2009, compliance with federal, state,
and locally-enacted provisions relating to protection of the environment did not
have, 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
2,400 persons. Of those, approximately 900 were covered by labor
union contracts. Three separate bargaining agreements are subject to
renegotiation in 2010.
(d)
FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT
SALES.
Aggregate
export sales from U.S. operations during each of the last three years
were:
|
In
thousands
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||||
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2009
|
$ | 36,246 | ||
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2008
|
24,844 | |||
|
2007
|
34,044 | |||
Financial
information about foreign and domestic operations may be found in Notes (1),
(6), and (18) of the Notes to Consolidated Financial Statements, under Item 8,
herein.
(e)
AVAILABLE INFORMATION
(1) The
Company's Internet address is www.ameron.com
(2) The
Company makes available free of charge through its Internet website, its annual
report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K
and amendments to those reports as soon as reasonably practicable after the
Company electronically files such material with, or furnishes it to, the
Securities and Exchange Commission (the "Commission").
FORWARD-LOOKING
AND CAUTIONARY STATEMENTS
All
statements and assumptions contained in this Annual Report on Form 10-K and in
the documents attached or incorporated by reference that do not directly and
exclusively relate to historical facts constitute “forward-looking statements”
within the meaning of the Safe Harbor provisions of the Private Securities
Litigation Reform Act of 1995. These statements represent current expectations
and beliefs of the Company, and no assurance can be given that the results
described in such statements will be achieved.
Forward-looking
information contained in these statements include, among other things,
statements with respect to the Company’s financial condition, results of
operations, cash flows, business strategies, operating efficiencies or
synergies, competitive positions, growth opportunities, plans and objectives of
management, and other matters. Such statements are subject to
numerous assumptions, risks, uncertainties and other factors, many of which are
outside of the Company’s control, which could cause actual results to differ
materially from the results described in such statements. These
factors include without limitation those listed below under Item 1A. Risk
Factors.
Forward-looking
statements in this Annual Report on Form 10-K speak only as of the date of this
Annual Report, and forward-looking statements in documents attached or
incorporated by reference speak only as to the date of those
documents. The Company does not undertake any obligation to update or
release any revisions to any forward-looking statement or to report any events
or circumstances after the date of this Annual Report or to reflect the
occurrence of unanticipated events, except as required by law.
ITEM 1A - RISK FACTORS
The
following information should be read in conjunction with Management's Discussion
and Analysis (“MD&A”) and the Consolidated Financial Statements and related
Notes.
The
Company's businesses routinely encounter and address risks, some of which could
cause the Company's future results to be materially different than presently
anticipated. Discussion about the important operational risks that
the Company's businesses encounter can also be found in the MD&A section and
in the business descriptions in Item 1, herein.
a) The primary markets for the Company's
products are cyclical and dependent on factors that may not necessarily
correspond to general economic cycles. The Company's Water
Transmission Group sells piping products for public works projects, which are
typically dependent on taxes and fees for funding. The
Fiberglass-Composite Pipe Group's performance is closely linked to the level of
oil and energy prices and the corresponding impact on oil production, processing
and transport. The Infrastructure Products Group is dependent on the
level of construction, especially the level of construction in Hawaii and
construction of new homes for the sale of concrete poles in the U.S.
nationwide. Therefore, the Company's activities can be materially
impacted by changes in interest rates, construction cycles, changes in oil
prices and constraints on governmental budgets and spending.
b) The availability and price of key raw
materials can fluctuate dramatically. The Company consumes
significant amounts of steel, cement, epoxy resin and fiberglass. The
availability of these raw materials is subject to periodic shortages, and future
allocations may not be sufficient to prevent disruption to sales of the Company
and its subsidiaries. Additionally, significant increases in the cost
of these raw materials could lead to significantly lower operating margins if
the Company is unable to recover these cost increases through price increases to
its customers.
c) Labor disruptions or labor shortages
could materially impact the Company’s operations. The
Company's businesses are involved with heavy-duty manufacturing and materials
handling. Labor is a key component of such operations, and
disruptions, such as disputes and strikes, could have a material impact on the
Company and its subsidiaries. Additionally, shortages of skilled
labor could periodically impact the Company's costs and
profitability.
d) Claims associated with the Company's
product performance can be relatively large. The Company sells
products that may be essential to the use of large, multi-million-dollar,
infrastructure projects, such as water and sewer systems, offshore platforms,
marine vessels, petrochemical plants, roads, and large construction
projects. Additionally, the Company sells products used in critical
applications, such as to protect against corrosion or to convey hazardous
materials. Use of the Company's products in such applications could
expose the Company to large potential product liability risks which are inherent
in the design, manufacture and sale of such products. Successful
claims against the Company could materially and adversely affect its reputation,
financial condition and results of operations.
e) TAMCO's profitability could be
significantly reduced due to market conditions in the steel industry, by a sharp
increase in costs and/or a significant increase in supply of rebar into TAMCO's
markets in the western U.S. TAMCO, the Company's 50%-owned
joint venture that manufactures steel rebar in California, has historically
contributed to the Company's earnings and paid significant dividends to the
Company. TAMCO uses large quantities of natural gas, electricity, and
scrap metal. A major spike in energy or scrap costs without a
corresponding increase in TAMCO's selling price of its rebar, or continued
reduction in steel rebar demand or market selling prices, could result in a
dramatic decline in profitability. TAMCO's ability to raise prices
could be limited due to competitive pressures, including imports of
foreign-sourced rebar.
f) A significant part of the Company's
assets and profits are located or generated outside the U.S., with an associated
foreign exchange and country risk. The Company and its
subsidiaries operate in several countries outside the U.S. A
significant change in the value of foreign currencies, political stability,
trade restrictions, the impact of foreign government regulations, or economic
cycles in foreign countries could materially impact the Company.
g) The returns from the Company's
investment in wind tower manufacturing are dependent on a limited number of
customers and future demand which could be impacted by changes in project
financing, government policy, energy prices or tax
incentives. The Company completed a major expansion program to
enhance its capabilities to produce wind towers used for wind-generated
electricity in 2009. In 2010, one customer is expected to purchase
most of the wind towers produced by the Company. The current demand
for wind-generated power is driven by regulation, energy prices and tax
incentives. The demand for wind towers could subside if the tax
incentives are not renewed, if project financing availability does not improve
and/or if prices for competing fuels fall so that wind energy is less
competitive. Additionally, the Company’s entry into this new market
may not meet forecasted expectations due to entry costs and competitive
pressures.
h) The Company's quarterly results are
subject to significant fluctuation. The Company's sales and
net income can fluctuate significantly from quarter to quarter due to production
and delivery schedules of major orders and the seasonal variation in demand for
certain of the Company's products, particularly in the Water Transmission
Group. Operating results in any quarterly period are not necessarily
indicative of results for any future quarterly period, and comparisons between
periods may not be meaningful. The Company sells products which are
installed outdoors; and, therefore, demand for the Company's products can be
affected by weather conditions.
i) Limits on the Company's ability to
significantly influence or control partially-owned joint ventures could restrict
the future operation of such ventures and the amount of cash available to the
Company from such joint ventures. Without significant
influence or control, the Company cannot solely dictate the dividend or
operating policies of joint ventures without the cooperation of the respective
joint-venture partners.
j) The general economic conditions and
the availability of third-party financing could affect demand for the Company’s
products. The Company’s products are sold into the capital
goods industry. The markets served by the Company and its joint
ventures could be severely impacted by a general economic
slowdown. The availability of financing for customers or for projects
could impact the overall level of demand for the Company’s products and the
timing of new orders. Additionally, existing orders in backlog are
subject to cancellation or delays if customers are unable to obtain anticipated
financing or if economic conditions worsen.
k) The Company’s relatively low trading
volume could limit a shareholder's ability to trade the Company's
shares.
The Company's shares are traded on the
New York Stock Exchange; however, the average trading volume can be considered
to be relatively low. As a result, shareholders could have difficulty
in selling or buying a large number of the Company's shares in the manner or at
a price that might otherwise be possible if the shares were more actively
traded.
l) Tax law changes relative to
foreign-based income could significantly impact the Company’s
profitability. The Company
maintains substantial accumulated earnings outside the U.S. A change
in tax laws that requires U.S. income tax on unrepatriated foreign earnings
could result in a significant reduction in the Company’s net income and cash
flow.
ITEM 1B - UNRESOLVED STAFF COMMENTS
None.
ITEM 2 - PROPERTIES
(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. The Company also has a property formerly
used in the Coatings Business that is being held for sale. Listed
properties do not include any temporary project sites which are generally leased
for the duration of the respective projects or leased or owned warehouses that
could be easily replaced. With the exception of the Kailua, Oahu
property, shown under the Infrastructure Products Group industry segment, there
are no material leases with respect to which expiration or inability to renew
would have a material adverse effect on the Company's operations. The
lease term on the Kailua property extends to 2052. Kailua is the
principal source of quarried rock and aggregates for the Company's operations on
Oahu, Hawaii, and rock reserves are believed to be 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.
|
Division
- Location
|
Description
|
|
|
FIBERGLASS-COMPOSITE
PIPE GROUP
|
||
|
Fiberglass
Pipe Division - USA
|
||
|
Houston,
TX
|
*Office
|
|
|
Burkburnett,
TX
|
Office,
Plant
|
|
|
Centron
International, Inc.
|
||
|
Mineral
Wells, TX
|
Office,
Plant
|
|
|
Ameron
B.V.
|
||
|
Geldermalsen,
the Netherlands
|
Office,
Plant
|
|
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Ameron
(Pte) Ltd.
|
||
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Singapore
|
*Office,
Plant
|
|
|
Ameron
Malaysia Sdn. Bhd.
|
||
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Malaysia
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*Office,
Plant
|
|
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Ameron
Polyplaster
|
||
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Betim,
Brazil
|
Office,
Plant
|
|
|
Ameron
Brazil
|
||
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Betim,
Brazil
|
Office,
Plant
|
|
|
WATER
TRANSMISSION GROUP
|
||
|
Rancho
Cucamonga, CA
|
*Office
|
|
|
Rancho
Cucamonga, 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
|
|
|
Tubos
California
|
||
|
Pasadena,
CA
|
*Office
|
|
|
Tubos
Y Activos
|
||
|
Mexicali,
Mexico
|
*Office,
Plant
|
|
|
American
Pipe & Construction International
|
||
|
Bogota,
Colombia
|
Office,
Plant
|
|
|
Cali,
Colombia
|
Office,
Plant
|
|
|
INFRASTRUCTURE
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
|
|
|
Pole
Products Division
|
||
|
Ventura,
CA
|
*Office
|
|
|
Fillmore,
CA
|
Office,
Plant
|
|
|
Oakland,
CA
|
*Plant
|
|
|
Everett,
WA
|
*Office,
Plant
|
|
|
Tulsa,
OK
|
*Office,
Plant
|
|
|
Anniston,
AL
|
*Office,
Plant
|
|
|
CORPORATE
|
||
|
Corporate
Headquarters
|
||
|
Pasadena,
CA
|
*Office
|
|
|
Hull,
UK
|
**Office,
Plant
|
|
|
Corporate
Research & Engineering
|
||
|
Long
Beach, CA
|
*Office
|
|
|
South
Gate, CA
|
Office,
Laboratory
|
*
Leased
** Held
for Sale
ITEM 3 - LEGAL PROCEEDINGS
In April
2004, Sable Offshore Energy Inc. ("Sable"), as agent for certain owners of the
Sable Offshore Energy Project, brought an action against various coatings
suppliers and application contractors, including the Company and its subsidiary,
Ameron B.V., in the Supreme Court of Nova Scotia, Canada. Sable seeks
damages allegedly sustained by it resulting from performance problems with
several coating systems used on the Sable Offshore Energy Project, including
coatings products furnished by the Company and Ameron B.V. Sable's
originating notice and statement of claim alleged a claim for damages in an
unspecified amount; however, Sable has since alleged that its claim for damages
against all defendants is approximately 440 million Canadian dollars, a figure
which the Company and Ameron B.V. contest. This matter is in
discovery, and no trial date has yet been established. The Company is
vigorously defending itself in this action. Based upon the information
available to it at this time, the Company is not able to estimate the possible
range of loss with respect to this case.
In May
2003, Dominion Exploration and Production, Inc. and Pioneer Natural Resources
USA, Inc. (collectively "Dominion") brought an action against the Company in
Civil District Court for the Parish of Orleans, Louisiana as owners of an
offshore production facility known as a SPAR. Dominion seeks damages
allegedly sustained by it resulting from delays in delivery of the SPAR caused
by the removal and replacement of certain coatings containing lead and/or lead
chromate for which the manufacturer of the SPAR alleged the Company was
responsible. Dominion contends that the Company made certain
misrepresentations and warranties to Dominion concerning the lead-free nature of
those coatings. Dominion's petition as filed alleged a claim for damages
in an unspecified amount; however, Dominion's economic expert has since
estimated Dominion's damages at approximately $60 million, a figure which the
Company contests. This matter is in discovery, and trial is currently
scheduled to commence on April 12, 2010. The Company is vigorously
defending itself in this action. Based upon the information available
to it at this time, the Company is not able to estimate the possible range of
loss with respect to this case.
In July
2004, BP America Production Company (“BP America”) brought an action against the
Company in the 24th
Judicial District Court, Parish of Jefferson, Louisiana in connection with
fiberglass pipe sold by the Company for installation in four offshore platforms
constructed for BP America. The plaintiff seeks damages allegedly
sustained by it resulting from claimed defects in such pipe. BP
America’s petition as filed alleged a claim against the Company for rescission,
products liability, negligence, breach of contract and warranty and for damages
in an amount of not less than $20 million, a figure which the Company
contests. This matter is in discovery, and no trial date has yet been
established. The Company is vigorously defending itself in this
action. Based upon the information available to it at this time, the
Company is not able to estimate the possible range of loss with respect to this
case.
In June
2006, the Cawelo, California Water District (“Cawelo”) brought an action against
the Company in Kern County Superior Court, California in connection
with concrete pipe sold by the Company in 1995 for a wastewater
recovery pipeline in such county. Cawelo seeks damages allegedly
sustained by it resulting from the failure of such pipe in
2004. Cawelo’s petition as filed alleged a claim against the Company
for products liability, negligence, breach of express warranty and breach of
written contract and for damages in an amount of not less than $8 million, a
figure which the Company contests. This matter is in discovery, and
trial is currently scheduled to commence on October 12, 2010. The
Company is vigorously defending itself in this action. Based upon the
information available to it at this time, the Company is not able to estimate
the possible range of loss with respect to this case.
The
Company is a defendant in a number of asbestos-related personal injury
lawsuits. These cases generally seek unspecified damages for
asbestos-related diseases based on alleged exposure to products previously
manufactured by the Company and others. As of November 30, 2009, the
Company was a defendant in 20 asbestos-related cases, compared to 23 cases as of
August 30, 2009. During the quarter ended November 30, 2009, there
were four new asbestos-related cases, seven cases dismissed, no cases settled,
no judgments and aggregate net costs and expenses of $.1
million. Based upon the information available to it at this time, the
Company is not able to estimate the possible range of loss with respect to these
cases.
In
December, 2008, the Company received from the U.S. Treasury Department’s Office
of Foreign Assets Control (“OFAC”) a Requirement to Furnish Information
regarding transactions involving Iran. The Company intends to
cooperate fully with OFAC on this matter. With the assistance of
outside counsel, the Company conducted an internal inquiry and responded to
OFAC. In the year ended November 30, 2009, the Company incurred $3.8
million for legal and professional fees in connection with this
matter. Based upon the information available to it at this time, the
Company is not able to predict the outcome of this matter. If the
Company violated governmental regulations, material fines and penalties could be
imposed.
The
Company is 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, cash flows, or
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 are either adequately
reserved, covered by insurance, or would not have a material effect on the
Company's financial position, cash flows or results of operations if disposed of
unfavorably.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
There was
no matter submitted to a vote of security holders during the fourth quarter of
2009.
Executive
Officers of the Registrant
The
following sets forth information with respect to individuals who served as
executive officers as of November 30, 2009 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.
|
Name
|
Age
|
Title
and Year Elected as Officer
|
|||
|
James
L. Balas
|
39
|
Vice
President, Controller
|
2009
|
||
|
Ralph
S. Friedrich
|
62
|
Senior
Vice President-Technology
|
2003
|
||
|
Stephen
E. Johnson
|
55
|
Senior
Vice President, Secretary & General Counsel
|
2008
|
||
|
James
R. McLaughlin
|
62
|
Senior
Vice President, Corporate Development & Treasurer
|
1997
|
||
|
Mark
J. Nowak
|
55
|
Vice
President; Group President, Fiberglass-Composite Pipe
Group
|
2008
|
||
|
Terrence
P. O'Shea
|
63
|
Vice
President-Human Resources
|
2003
|
||
|
Christine
Stanley
|
51
|
Vice
President-Operations Compliance
|
2008
|
||
|
Gary
Wagner
|
58
|
Senior
Vice President, Finance and Administration & Chief Financial
Officer
|
1990
|
||
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 James L.
Balas, Stephen E. Johnson and Christine Stanley. James L. Balas
joined the Company and was appointed Vice President, Controller on April 6,
2009. Prior to joining the Company, he was Chief Financial Officer of
Solar Integrated Technologies from 2008 to 2009 and Vice President of Finance
from 2006 to 2008. Previously he was Director of Finance and
Corporate Development of Keystone Automotive Industries from 2003 to
2006. Stephen E. Johnson joined the Company and was appointed Senior
Vice President Secretary & General Counsel on May 28, 2008. Prior
to joining the Company, he was Deputy General Counsel and Assistant Secretary of
Computer Sciences Corporation from 1997 to 2008, and Assistant General Counsel
and Assistant Secretary from 1995 to 1996. Mark J. Nowak was appointed Vice
President; Group President, Fiberglass-Composite Pipe Group on March 26,
2008. He served as the Group President, Fiberglass-Composite Pipe
Group since March 2004 and President, Fiberglass-Composite Pipe Division-USA
since April 2003. Christine Stanley was appointed Vice
President-Operations Compliance on September 24, 2008, after serving as Group
Executive since 2006. Prior to 2006, she served as Vice President of
Technology of the worldwide Performance Coatings & Finishes Group and held
numerous senior technology and manufacturing management positions.
PART II
ITEM 5 - MARKET FOR 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 (“NYSE”), the only
exchange on which it is presently listed. On January 15, 2010,
there were 895 stockholders of record of such stock, based on the information
provided by the Company’s transfer agent, Computershare. Information
regarding incentive stock compensation plans may be found in Note (13) of the
Notes to Consolidated Financial Statements, under Item 8, herein.
Dividends
have been paid each quarter during the prior two years. 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 such period are set out in Supplementary
Data - Quarterly Financial Data (Unaudited) following the Notes to Consolidated
Financial Statements, under Item 8, herein.
Terms
of lending agreements which place restrictions on cash dividends are discussed
in Management's Discussion and Analysis of Financial Condition and Results of
Operations under Item 7 and Note (11) of the Notes to Consolidated Financial
Statements, under Item 8, herein.
STOCK
PRICE PERFORMANCE GRAPH
The
following line graph compares the yearly changes in the cumulative total return
of the Company’s Common Stock against the cumulative total return of the NYSE
(New York Stock Exchange) Market Value Index and the Peer Group Composite Index
described below for the period of the Company’s five fiscal years commencing
December 1, 2004 and ended November 30, 2009. The comparison assumes
$100 invested in stock on December 1, 2004. Total return assumes
reinvestment of dividends. The Company’s stock price performance over
the years indicated below does not necessarily track the operating performance
of the Company nor is it necessarily indicative of future stock price
performance.
The Peer
Group Composite Index is comprised of the following
companies: Ameron, Dresser-Rand Group, Inc., Gibraltar Industries,
Inc., Lufkin Industries Inc., Martin Marietta Material, Inc., National Oilwell
Varco, Inc., Northwest Pipe Co., Schnitzer Steel Industries, Inc., Texas
Industries Inc., Trinity Industries, Inc., Valmont Industries, Inc. and Vulcan
Materials Co.
|
12/1/04
|
11/30/05
|
11/30/06
|
11/30/07
|
11/30/08
|
11/30/09
|
|||||||||||||||||||
|
Ameron
|
$ | 100.00 | $ | 120.99 | $ | 205.09 | $ | 291.48 | $ | 150.82 | $ | 162.76 | ||||||||||||
|
NYSE
Market Value Index
|
100.00 | 111.31 | 129.46 | 142.47 | 87.63 | 110.94 | ||||||||||||||||||
|
Peer
Group Composite Index
|
100.00 | 132.75 | 170.88 | 219.53 | 125.90 | 148.01 | ||||||||||||||||||
ISSUER
PURCHASES OF EQUITY SECURITIES
|
(c)
|
(d)
|
|||||||
|
Number
of Shares
|
Maximum
Number
|
|||||||
|
(a)
|
(b)
|
(or
Units) Purchased
|
(or
Approximate Dollar Value)
|
|||||
|
Total
Number of
|
Average
Price
|
As
Part of Publicly
|
of
Shares (or Units) that May
|
|||||
|
Shares
(or Units)
|
Paid
per
|
Announced
Plans or
|
Yet
Be Purchased Under
|
|||||
|
Period
|
Purchased
|
Share
(or Unit)
|
Programs
|
Plans
or Programs**
|
||||
|
8/31/09
thru 9/27/09
|
-
|
N/A
|
-
|
-
|
||||
|
9/28/09
thru 11/1/09
|
-
|
N/A
|
-
|
-
|
||||
|
11/2/09
thru 11/30/09
|
-
|
N/A
|
-
|
-
|
** Does
not include shares that may be repurchased by the Company to pay taxes
applicable to the vesting of restricted stock.
ITEM 6 - SELECTED FINANCIAL DATA
SELECTED
CONSOLIDATED FINANCIAL INFORMATION
|
Year
ended November 30,
|
||||||||||||||||||||
|
(Dollars
in thousands, except per share data)
|
2009
|
2008
|
2007
|
2006
|
2005
|
|||||||||||||||
|
PER
COMMON SHARE DATA
|
||||||||||||||||||||
|
Basic
earnings per share:
|
||||||||||||||||||||
|
Income
from continuing operations
|
$ | 3.54 | $ | 6.42 | $ | 6.77 | $ | 5.73 | $ | 3.51 | ||||||||||
|
Income
from discontinued operations, net of taxes
|
.09 | - | .68 | .25 | .37 | |||||||||||||||
|
Net
income
|
3.63 | 6.42 | 7.45 | 5.98 | 3.88 | |||||||||||||||
|
Diluted
earnings per share:
|
||||||||||||||||||||
|
Income
from continuing operations
|
3.54 | 6.39 | 6.73 | 5.64 | 3.44 | |||||||||||||||
|
Income
from discontinued operations, net of taxes
|
.09 | - | .67 | .24 | .36 | |||||||||||||||
|
Net
income
|
3.63 | 6.39 | 7.40 | 5.88 | 3.80 | |||||||||||||||
|
Weighted-average
shares (basic)
|
9,166,558 | 9,124,557 | 9,029,487 | 8,731,839 | 8,410,563 | |||||||||||||||
|
Weighted-average
shares (diluted)
|
9,184,771 | 9,169,056 | 9,090,846 | 8,871,695 | 8,579,194 | |||||||||||||||
|
Dividends
|
1.20 | 1.15 | .90 | .80 | .80 | |||||||||||||||
|
Stock
price - high
|
89.00 | 130.51 | 109.60 | 80.01 | 46.61 | |||||||||||||||
|
Stock
price - low
|
41.86 | 33.30 | 64.35 | 44.66 | 31.76 | |||||||||||||||
|
Price/earnings
ratio (range)
|
25-12 | 20-5 | 15-9 | 14-8 | 12-8 | |||||||||||||||
|
OPERATING
RESULTS
|
||||||||||||||||||||
|
Sales
|
$ | 546,944 | $ | 667,543 | $ | 631,010 | $ | 549,180 | $ | 494,767 | ||||||||||
|
Gross
profit
|
145,452 | 153,621 | 146,029 | 132,389 | 125,210 | |||||||||||||||
|
Interest
income/(expense), net
|
588 | 1,533 | 1,927 | (1,682 | ) | (5,520 | ) | |||||||||||||
|
Provision
for income taxes
|
(15,517 | ) | (16,955 | ) | (10,359 | ) | (10,905 | ) | (11,040 | ) | ||||||||||
|
Equity
in earnings of joint venture, net of taxes
|
(5,512 | ) | 10,337 | 15,383 | 13,550 | 9,005 | ||||||||||||||
|
Income
from continuing operations
|
32,483 | 58,592 | 61,140 | 50,060 | 29,509 | |||||||||||||||
|
Income
from discontinued operations, net of taxes
|
817 | - | 6,099 | 2,140 | 3,101 | |||||||||||||||
|
Net
income
|
33,300 | 58,592 | 67,239 | 52,200 | 32,610 | |||||||||||||||
|
Net
income/sales
|
6.1 | % | 8.8 | % | 10.7 | % | 9.5 | % | 6.6 | % | ||||||||||
|
Return
on equity
|
6.9 | % | 12.7 | % | 16.6 | % | 15.8 | % | 11.3 | % | ||||||||||
|
FINANCIAL
CONDITION AT YEAR-END (1)
|
||||||||||||||||||||
|
Working
capital
|
$ | 287,467 | $ | 297,445 | $ | 314,339 | $ | 280,467 | $ | 216,126 | ||||||||||
|
Property,
plant and equipment, net
|
238,508 | 206,162 | 173,731 | 134,470 | 154,665 | |||||||||||||||
|
Investments
|
||||||||||||||||||||
|
Equity
method venture
|
30,626 | 14,428 | 14,677 | 14,501 | 13,777 | |||||||||||||||
|
Cost
method ventures
|
3,784 | 3,784 | 3,784 | 3,784 | 5,922 | |||||||||||||||
|
Total
assets
|
762,549 | 726,322 | 705,812 | 616,351 | 578,036 | |||||||||||||||
|
Long-term
debt, less current portion
|
30,933 | 35,989 | 57,593 | 72,525 | 77,109 | |||||||||||||||
|
CASH
FLOW (1)
|
||||||||||||||||||||
|
Expenditures
for property, plant and equipment
|
$ | 46,874 | $ | 60,697 | $ | 47,697 | $ | 35,519 | $ | 25,371 | ||||||||||
|
Depreciation
and amortization
|
22,108 | 20,409 | 17,034 | 17,440 | 18,924 | |||||||||||||||
(1)
Amounts include both continuing and discontinued operations.
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Ameron
International Corporation ("Ameron", the "Company", the “Registrant” or the
“Corporation”) is a multinational manufacturer of highly-engineered products and
materials for the chemical, industrial, energy, transportation and
infrastructure markets. Ameron is a leading producer of water transmission
lines; fiberglass-composite pipe for transporting oil, chemicals and corrosive
fluids and specialized materials; and products used in infrastructure
projects. The Company operates businesses in North America, South America,
Europe and Asia. The Company has three reportable segments. The
Fiberglass-Composite Pipe Group manufactures and markets filament-wound and
molded composite fiberglass pipe, tubing, fittings and well screens. The
Water Transmission Group manufactures and supplies concrete and steel pressure
pipe, concrete non-pressure pipe, protective linings for pipe and fabricated
steel products, such as large-diameter wind towers. The Infrastructure
Products Group consists of two operating segments, which are
aggregated: the Hawaii Division which manufactures and sells ready-mix
concrete, sand and aggregates, concrete pipe and culverts and the Pole Products
Division which manufactures and sells concrete and steel lighting and traffic
poles. The markets served by the Fiberglass-Composite Pipe Group are
worldwide in scope. The Water Transmission Group serves primarily the
western U.S. for pipe and sells wind towers primarily west of the Mississippi
River. The Infrastructure Products Group's quarry and ready-mix business
operates exclusively in Hawaii, and poles are sold throughout the U.S.
Ameron also participates in several joint-venture companies, directly in the
U.S. and Saudi Arabia, and indirectly in Egypt.
During
the third quarter of 2006, the Company sold its Performance Coatings &
Finishes business ("Coatings Business"). The results from this segment are
reported as discontinued operations for all the reporting periods.
Accordingly, the following discussions generally reflect summary results from
continuing operations unless otherwise noted. However, the net income and
net income per share discussions include the impact of discontinued
operations.
CRITICAL
ACCOUNTING POLICIES AND ESTIMATES
Management's
Discussion and Analysis of Liquidity and Capital Resources and Results of
Operations are based upon the Company's consolidated financial statements, which
are prepared in accordance with accounting principles generally accepted in the
United States of America. The preparation of these financial statements
requires Management to make certain estimates and assumptions that affect the
reported amounts of assets, liabilities, revenues and expenses, and related
disclosure of contingent assets and liabilities during the reporting
periods. Management bases its estimates on historical experience and on
various other assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results could differ from those
estimates.
A summary
of the Company's significant accounting policies is provided in Note (1) of the
Notes to Consolidated Financial Statements, under Item 8, herein. In
addition, Management believes the following accounting policies affect the more
significant estimates used in preparing the consolidated financial
statements.
The
consolidated financial statements include the accounts of Ameron and all
wholly-owned subsidiaries. All material intercompany accounts and
transactions are eliminated. The functional currencies for the Company's
foreign operations are the applicable local currencies. 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/(loss). 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/(loss). The
timing of repayments of intercompany advances could materially impact the
Company's consolidated financial statements. Additionally, earnings of
foreign subsidiaries are often permanently reinvested outside the U.S.
Unforeseen repatriation of such earnings could result in significant
unrecognized U.S. tax liability. Gains or losses resulting from foreign
currency transactions are included in other income, net.
Revenue
for the Fiberglass-Composite Pipe and Infrastructure Products segments is
recognized when risk of ownership and title pass, primarily at the time goods
are shipped, provided that an agreement exists between the customer and the
Company, the price is fixed or determinable and collection is reasonably
assured. Revenue is recognized for the Water Transmission Group primarily
under the percentage-of-completion method, typically based on completed units of
production, since products are manufactured under enforceable and binding
construction contracts, typically are designed for specific applications, are
not interchangeable between projects, and are not manufactured for stock.
Revenue for the period is determined by multiplying total estimated contract
revenue by the percentage-of-completion of the contract and then subtracting the
amount of previously recognized revenue. Cost of earned revenue is
computed by multiplying estimated contract completion cost by the
percentage-of-completion of the contract and then subtracting the amount of
previously recognized cost. In some cases, if products are manufactured
for stock or are not related to specific construction contracts, revenue is
recognized under the same criteria used by the other two
segments. Revenue under the percentage-of-completion method is
subject to a greater level of estimation, which affects the timing of revenue
recognition, costs and profits. Estimates are reviewed on a consistent
basis and are adjusted periodically to reflect current expectations. Costs
attributable to unpriced change orders are treated as costs of contract
performance in the period, and contract revenue is recognized if recovery is
probable. Disputed or unapproved change orders are treated as
claims. Recognition of amounts of additional contract revenue relating to
claims occurs when amounts have been received or awarded with recognition based
on the percentage-of-completion methodology.
The
Company expenses environmental clean-up costs related to existing conditions
resulting from past or current operations on a site-by-site basis.
Liabilities and costs associated with these matters, as well as other pending
litigation and asserted claims arising in the ordinary course of business,
require estimates of future costs and judgments based on the knowledge and
experience of Management and its legal counsel. When the Company's
exposures can be reasonably estimated and are probable, liabilities and expenses
are recorded. The ultimate resolution of any such exposure to the Company
may differ from expectations due to subsequent developments.
Inventories
are stated at the lower of cost or market with cost determined principally on
the first-in, first-out ("FIFO") method. Certain steel inventories used by
the Water Transmission Group are valued using the last-in, first-out ("LIFO")
method. Significant changes in steel levels or steel prices could
materially impact the Company's financial statements. Reserves are
established for excess, obsolete and rework inventories based on estimates of
salability and forecasted future demand. Management records an allowance
for doubtful accounts receivable based on historical experience and expected
trends. A significant reduction in demand or a significant worsening
of customer credit quality could materially impact the Company’s consolidated
financial statements.
Investments
in unconsolidated joint ventures or affiliates ("joint ventures") over which the
Company has significant influence are accounted for under the equity method of
accounting, whereby the investment is carried at the cost of acquisition,
including subsequent capital contributions and loans from the Company, plus the
Company's equity in undistributed earnings or losses since acquisition.
Investments in joint ventures which the Company does not have the ability to
exert significant influence over the investees' operating and financing
activities are accounted for under the cost method of accounting. The
Company's investment in TAMCO, a steel mini-mill in California, is accounted for
under the equity method. Investments in Ameron Saudi Arabia, Ltd. and
Bondstrand, Ltd. are accounted for under the cost method due to Management's
current assessment of the Company's influence over these joint
ventures.
Property,
plant and equipment is stated on the basis of cost and depreciated principally
using a straight-line method based on the estimated useful lives of the related
assets, generally three to 40 years. The Company reviews 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 is recorded to reduce the related asset to
estimated fair value. Actual cash flows may differ significantly from
estimated cash flows. Additionally, current estimates of future cash flows
may differ from subsequent estimates of future cash flows. Changes in
estimated or actual cash flows could materially impact the Company's
consolidated financial statements.
The
Company is self-insured for a portion of the 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 historical experience and certain
actuarial assumptions followed in the insurance industry. The estimate of
self-insurance liability includes an estimate of incurred but not reported
claims, based on data compiled from historical experience. Actual
experience could differ significantly from these estimates and could materially
impact the Company's consolidated financial statements. The Company
typically purchases varying levels of third-party insurance to cover losses
subject to retention levels (deductibles or primary self-insurance) and
aggregate limits. Currently, the Company's retention levels are $1.0
million per workers' compensation claim, $.1 million per general, property or
product liability claim, and $.25 million per vehicle liability
claim.
When
accounting for pension and other postretirement benefits, assumptions are made
regarding the valuation of benefit obligations and the performance of plan
assets that are controlled and invested by third-party fiduciaries.
Delayed recognition of differences between actual results and expected or
estimated results is a guiding principle of these standards. Such delayed
recognition provides a gradual recognition of benefit obligations and investment
performance over the working lives of the employees who benefit under the plans,
based on various assumptions. Assumed discount rates are used to calculate
the present values of benefit payments which are projected to be made in the
future, including projections of increases in employees' annual compensation and
health care costs. Management also projects the future returns on invested
assets based principally on prior performance. These projected returns
reduce the net benefit costs the Company records in the current period.
Actual results could vary significantly from projected results, and such
deviations could materially impact the Company's consolidated financial
statements. Management consults with the Company’s actuaries when
determining these assumptions. Program changes, including termination,
freezing of benefits or acceleration of benefits, could result in an immediate
recognition of unrecognized benefit obligations; and such recognition could
materially impact the Company's consolidated financial statements.
The
discount rate is based on market interest rates. At November 30,
2009, the Company decreased the annual discount rate from 7.29% to 5.70% as a
result of the then-current market interest rates on long-term, fixed-income debt
securities of highly-rated corporations. In estimating the expected
return on assets, the Company considers past performance and future expectations
for various types of investments as well as the expected long-term allocation of
assets. At November 30, 2009, the Company maintained the long-term
annual rate of return on assets assumption of 8.50% reflecting current
expectations for future returns in the investment markets. In
projecting the rate of increase in compensation levels, the Company considers
movements in inflation rates as reflected by market interest
rates. At November 30, 2009, the Company decreased the assumed annual
rate of compensation from 4.25% to 3.50%. In selecting the rate of
increase in health care costs, the Company considers past performance and
forecasts of future health care cost trends. At November 30, 2009,
the Company retained the annual rate of increase in health care costs at 9%,
decreasing ratably until reaching 5.00% in 2013 and beyond.
Different
assumptions would impact the Company’s projected benefit obligations and annual
net periodic benefit costs related to pensions and the accrued other benefit
obligations and benefit costs related to postretirement benefits. The
following reflects the impact associated with a change in certain
assumptions:
|
1%
Increase
|
1%
Decrease
|
|||||||||||||||
|
Increase/
|
Increase/
|
Increase/
|
Increase/
|
|||||||||||||
|
(Decrease)
|
(Decrease)
|
(Decrease)
|
(Decrease)
|
|||||||||||||
|
in
Benefit
|
in
Benefit
|
in
Benefit
|
in
Benefit
|
|||||||||||||
|
(In
thousands)
|
Obligations
|
Costs
|
Obligations
|
Costs
|
||||||||||||
|
Discount
rate:
|
||||||||||||||||
|
Pensions
|
$ | (27,906 | ) | $ | (3,259 | ) | $ | 34,080 | $ | 3,567 | ||||||
|
Other
postretirement benefits
|
(330 | ) | (29 | ) | 384 | 9 | ||||||||||
|
Expected
rate of return on assets
|
N/A | (1,955 | ) | N/A | 1,955 | |||||||||||
|
Rate
of increase in compensation levels
|
3,031 | 685 | (2,732 | ) | (622 | ) | ||||||||||
|
Rate
of increase in health care costs
|
151 | 19 | (134 | ) | (16 | ) | ||||||||||
Additional
information regarding pensions and other postretirement benefits is disclosed in
Note (16) of Notes to Consolidated Financial Statements, under Item
8.
Fair
value is the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at the
measurement date (exit price). The Company utilizes market data or
assumptions that the Company believes market participants would use in pricing
assets or liabilities, including assumptions about risk and the risks inherent
in the inputs to valuation techniques. These inputs can be readily
observable, market corroborated or generally unobservable. The
Company primarily applies the market and income approaches for recurring fair
value measurements and endeavors to utilize the best available
information. Accordingly, the Company utilizes valuation techniques that
maximize the use of observable inputs and minimize the use of unobservable
inputs. The Company classifies fair value balances based on the
observability of those inputs. The ultimate exit price could be
significantly different than currently estimated by the Company.
Management
incentive compensation is accrued based on current estimates of the Company's
ability to achieve short-term and long-term performance targets. The
Company’s actual performance could be significantly different than currently
estimated by the Company.
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.
Quarterly income taxes are estimated based on the mix of income by jurisdiction
forecasted for the full fiscal year. The Company believes that it has
adequately provided for tax-related matters. Actual income, the mix
of income by jurisdiction and income taxes could be significantly different than
currently estimated.
The
amount of income taxes the Company pays is subject to ongoing audits by federal,
state and foreign tax authorities. The Company’s estimate of the
potential outcome of any uncertain tax issue is subject to Management’s
assessment of relevant risks, facts, and circumstances existing at that time,
with a more-likely-than-not threshold for financial statement recognition and
measurement of tax positions taken or expected to be taken in a tax
return. A liability is recorded for the difference between the
measured benefit recognized and the tax position taken or expected to be taken
on the tax return. To the extent that the Company’s assessment of
such tax positions changes, the change in estimate is recorded in the period in
which the determination is made. The Company reports tax-related
interest and penalties as a component of income tax expense.
LIQUIDITY
AND CAPITAL RESOURCES
The
following discussion of liquidity and capital resources combines the impact of
both continuing and discontinued operations unless otherwise noted.
As of
November 30, 2009, the Company's working capital, including cash and cash
equivalents and current portion of long-term debt, totaled $287.5 million, a
decrease of $9.9 million from working capital of $297.4 million as of November
30, 2008. The decrease resulted from a decrease in receivables,
inventories and deferred taxes, partially offset by an increase in cash and cash
equivalents and decreases in all current liabilities. The reductions in
receivables and inventories were primarily due to a slowdown in business
activity compared to the prior year. Cash and cash equivalents
totaled $181.1 million as of November 30, 2009, compared to $143.6 million as of
November 30, 2008.
During
2009, net cash of $125.9 million was generated from operating
activities compared to $88.4 million generated in 2008. In 2009, cash
from operating activities included net income of $33.3 million, plus non-cash
adjustments (depreciation, amortization, deferred income taxes, loss from joint
venture, gain from sale of assets and stock compensation expense) of $44.9
million, plus changes in operating assets and liabilities of $47.7
million. In 2008, cash from operating activities included net income
of $58.6 million, plus similar non-cash adjustments of $22.5 million, plus
changes in operating assets and liabilities of $7.4 million. Non-cash
adjustments in 2009 were higher due primarily to the Company’s equity in losses
of TAMCO. The lower net operating assets in 2009 were primarily due
to a decline in accounts receivable and inventory, which reflected the decreased
business activity in 2009. In 2007, the Company’s cash from operating
activities included net income of $67.2 million, less loss on sale of assets and
gain from sale of discontinued operations of $5.9 million, plus non-cash
adjustments (depreciation, amortization, deferred taxes, dividends from joint
ventures less than equity income, stock compensation expense and asset write
down) of $28.3 million, offset by changes in operating assets and liabilities of
$26.4 million. The higher operating cash flow in 2008, compared to
2007, was primarily due to lower growth in operating assets, partially offset by
lower liabilities and earnings.
Net cash
used in investing activities totaled $69.9 million in 2009, compared to $59.1
million used in 2008. In 2009, net cash used in investing activities
consisted of capital expenditures of $46.9 million, which included the normal
replacement and upgrades of machinery and expenditures for construction of new
fiberglass pipe plants in Texas and Brazil, and $25.0 million of capital and
loans to support TAMCO, the Company’s 50%-owned steel mini-mill in
California. Net cash used in investing activities in 2009 was offset
by net proceeds of $2.0 million from the sale of assets. In 2008, net
cash used in investing activities included capital expenditures of $60.7
million, which included the normal replacement and upgrades of machinery, the
expansion of a wind tower manufacturing facility and expenditures for
construction of new fiberglass pipe plants in Brazil. Net cash used in investing
activities in 2008 was offset by net proceeds of $1.6 million from the sale of
assets. In 2007, net cash used in investing activities included
capital expenditures of $47.7 million, for normal replacement and upgrades of
machinery and the expansion of a wind tower manufacturing
facility. Net cash used in investing activities in 2007 was offset by
net proceeds of $16.6 million from the sale of assets, including the sale of
certain properties used by the former Coatings Business. Also in
2007, the Company acquired the business of Polyplaster, Ltda. (“Polyplaster”), a
Brazilian fiberglass-pipe operation, for approximately $6.0
million. Normal replacement expenditures are typically equal to
depreciation. During the year ending November 30, 2010, the Company
anticipates spending between $40.0 and $50.0 million on capital
expenditures. Capital expenditures are expected to be funded by existing
cash balances, cash generated from operations or additional
borrowings.
During 2009, the Company contributed capital of $10.0 million to TAMCO, and provided $15.0 million in loans to TAMCO as part of a $40.0 million senior secured credit facility provided by TAMCO’s shareholders. In 2009, TAMCO entered into a senior secured credit facility with TAMCO’s shareholders which provided TAMCO up to $40.0 million for operating needs and to replace an existing bank line. The shareholder credit facility bears interest at a rate of LIBOR plus 3.25% per annum and is scheduled to mature January 31, 2011. As of November 30, 2009, TAMCO borrowed $30.0 million under the facility, of which $15.0 million was provided by the Company. The Company continues to have a 50% ownership interest in TAMCO and accounts for its investment under the equity method of accounting.
Net cash
used in financing activities totaled $28.8 million during 2009, compared to
$32.5 million in 2008. Net cash used in 2009 consisted of net payment
of debt of $16.5 million, payment of Common Stock dividends of $11.1 million,
payments for debt issuance costs of $1.1 million and treasury stock purchases of
$1.0 million, related to the payment of taxes associated with the vesting of
restricted shares. Also in 2009, the Company recognized tax benefits
related to stock-based compensation of $.8 million. Net cash used in
2008 consisted of net payments of debt of $21.1 million, payment of Common Stock
dividends of $10.5 million and similar treasury stock purchases of $2.6 million.
Also in 2008, the Company received $.4 million from the issuance of Common Stock
related to exercised stock options and recognized tax benefits related to
stock-based compensation of $1.3 million. Net cash used in 2007
consisted of net payment of debt of $10.2 million, payment of Common Stock
dividends of $8.2 million and similar treasury stock purchases of $1.6
million. Also in 2007, the Company received $1.6 million from the
issuance of Common Stock related to exercised stock options and recognized tax
benefits related to stock-based compensation of $2.0 million.
In 2009,
the Company extended a $100.0 million revolving credit facility with six banks
(the “Revolver”). Under the Revolver, the Company may, at its option,
borrow up to the available amount at floating interest rates (at a rate of LIBOR
plus a spread ranging from 2.75% to 3.75%, determined based on the Company’s
financial condition and performance) or utilize for letters of credit, at any
time until August 2012, when all borrowings under the Revolver must be repaid
and letters of credit cancelled. At November 30, 2009, $82.1 million
was available under the Revolver.
The
Revolver contains various restrictive covenants, including the requirement to
maintain specified amounts of net worth and restrictions on cash dividends,
borrowings, liens, investments, capital expenditures, guarantees, and financial
covenants. The Company is required to maintain consolidated net worth of $375.5
million plus 50% of net income and 75% of proceeds from any equity issued after
November 30, 2008. The Company's consolidated net worth exceeded the
covenant amount by $149.7 million as of November 30, 2009. The
Company is required to maintain a consolidated leverage ratio of consolidated
funded indebtedness to earnings before interest, taxes, depreciation and
amortization ("EBITDA") of no more than 2.50 times. At November 30,
2009, the Company maintained a consolidated leverage ratio of .53 times
EBITDA. The Revolver requires the Company to maintain qualified
consolidated tangible assets at least equal to the outstanding secured funded
indebtedness. At November 30, 2009, qualifying tangible assets
equaled 4.56 times funded indebtedness. Under the most restrictive
fixed charge coverage ratio, the sum of EBITDA and rental expense less cash
taxes must be at least 1.30 times the sum of interest expense, rental expense,
dividends and scheduled funded debt payments. At November 30, 2009,
the Company maintained such a fixed charge coverage ratio of 2.08 times.
Under the most restrictive provisions of the Company's lending agreements, $20.1
million of retained earnings were not restricted at November 30, 2009, as to the
declaration of cash dividends or the repurchase of Company stock. At
November 30, 2009, the Company was in compliance with all
covenants.
Cash and
cash equivalents at November 30, 2009 totaled $181.1 million, an increase of
$37.6 million from November 30, 2008. At November 30, 2009, the Company
had total debt outstanding of $38.3 million, compared to $52.8 million at
November 30, 2008, and approximately $110.9 million in unused committed and
uncommitted credit lines available from foreign and domestic banks. Debt
outstanding declined due to the scheduled amortization of term
debt. The Company's highest borrowing and the average borrowing
levels during 2009 were $55.4 million and $52.6 million,
respectively.
Cash
balances are held throughout the world, including $111.7 million held outside of
the U.S. at November 30, 2009. Most of the amounts held outside of
the U.S. could be repatriated to the U.S. but, under current law, would be
subject to U.S. federal income taxes, less applicable foreign tax
credits. The Company currently plans to indefinitely maintain
significant cash balances outside the U.S.
The
Company contributed $8.5 million to the U.S. defined-benefit pension plan and
$1.7 million to the non-U.S. defined-benefit pension plans in 2009. The
Company expects to contribute approximately $12.0 million to its U.S.
defined-benefit pension plan and $2.4 million to the non-U.S. defined-benefit
pension plans in 2010. The increased contribution is due to increased
plan liabilities associated with declining interest rates and returns on plan
assets.
Management
believes that cash flow from operations and current cash balances, together with
currently available lines of credit, will be sufficient to meet operating
requirements in 2010. Cash available from operations could be affected by
any general economic downturn or any decline or adverse changes in the Company's
business, such as a loss of customers, competitive pricing pressures or
significant raw material price increases.
The
Company's contractual obligations and commercial commitments at November 30,
2009 are summarized as follows (in thousands):
|
Payments
Due by Period
|
||||||||||||||||||||
|
Less
than
|
After
5
|
|||||||||||||||||||
|
Contractual
Obligations
|
Total
|
1
year
|
1-3
years
|
3-5
years
|
years
|
|||||||||||||||
|
Long-term
debt
|
$ | 38,299 | $ | 7,366 | $ | 15,233 | $ | - | $ | 15,700 | ||||||||||
|
Interest
payments on debt (a)
|
2,709 | 1,074 | 1,110 | 173 | 352 | |||||||||||||||
|
Operating
leases
|
36,080 | 4,224 | 6,168 | 2,617 | 23,071 | |||||||||||||||
|
Pension
funding
|
14,400 | 14,400 | - | - | - | |||||||||||||||
|
Uncertain
tax positions
|
390 | 390 | - | - | - | |||||||||||||||
|
Total
contractual obligations (b)
|
$ | 91,878 | $ | 27,454 | $ | 22,511 | $ | 2,790 | $ | 39,123 | ||||||||||
|
Commitments
Expiring Per Period
|
||||||||||||||||||||
|
Less
than
|
After
|
|||||||||||||||||||
|
Contractual
Commitments
|
Total
|
1
year
|
1-3
years
|
3-5
years
|
5
years
|
|||||||||||||||
|
Standby
letters of credit (c)
|
$ | 1,865 | $ | 1,865 | $ | - | $ | - | $ | - | ||||||||||
|
Total
commercial commitments
|
$ | 1,865 | $ | 1,865 | $ | - | $ | - | $ | - | ||||||||||
(a)
Future interest payments related to debt obligations, excluding the
Revolver.
(b) The
Company has no capitalized lease obligations, unconditional purchase obligations
or standby repurchases obligations.
(c) Not
included are standby letters of credit totaling $16,067 supporting industrial
development bonds with principal of $15,700. The principal amount of the
industrial development bonds is included in long-term debt. The standby
letters of credit are issued under the Revolver.
RESULTS
OF OPERATIONS: 2009 COMPARED WITH 2008
General
Net
income totaled $33.3 million, or $3.63 per diluted share, on sales of $546.9
million in the year ended November 30, 2009, compared to $58.6 million, or $6.39
per diluted share, on sales of $667.5 million in 2008. The
Fiberglass-Composite Pipe Group had lower sales and profits due primarily to
continued soft market conditions and foreign exchange. Water
Transmission Group’s sales declined due to weak demand, but profitability
improved due principally to better project cost control and plant
efficiencies. The Infrastructure Products Group had lower sales and
income due to the decline in both the Pole Products Division and the Hawaii
Division associated with continued weak construction spending throughout the
U.S. Equity in earnings of TAMCO, Ameron’s 50%-owned steel
mini-mill in California, decreased by $15.8 million in 2009, compared to 2008,
due to the decline in the steel rebar market in California, Arizona and
Nevada.
Sales
Sales
decreased $120.6 million, or 18.1%, in 2009, compared to 2008. Sales
decreased due to generally weaker economic conditions affecting all of the
Company’s businesses.
Fiberglass-Composite
Pipe's sales decreased $48.7 million, or 17.8%, in 2009, compared to
2008. Sales from operations in the U.S. decreased $21.7 million in
2009 primarily due to weaker oilfield piping demand and weak industrial markets.
Sales from Asian subsidiaries decreased $13.7 million in 2009, driven by weaker
conditions in Middle Eastern industrial markets and the impact of foreign
exchange. Sales from European operations decreased $8.7 million in
2009 primarily due to softer market conditions in Europe, North Africa and
Russia and weaker foreign currencies in 2009 than in 2008. Sales from
Brazilian operations decreased $4.6 million in 2009, due to the impact of
foreign exchange, project delays in municipal water markets, and a halt in
activity in the pulp and paper market. Worldwide demand declined in
key onshore oilfield, chemical and industrial market
segments. However, marine and offshore markets remained strong,
sustained by new vessel construction at Asian shipyards. Onshore
oilfield demand remains weak due to the lack of financing and volatile energy
prices. Chemical and industrial markets continue to be impacted by
the recessionary environment. Marine and offshore markets remain
relatively healthy. While the total Group is operating at historically
high levels, the Fiberglass-Composite Pipe Group will continue to be impacted by
the economic environment in 2010.
Water
Transmission Group's sales decreased $38.0 million, or 17.7%, in 2009, compared
to 2008. The sales decrease was primarily due to weaker demand for
water pipe in the western United States and completion of large orders in
Columbia during 2008. Wind tower sales remained steady in 2009,
compared to prior year. Sales of wind towers remain challenged by the
lack of project financing available to wind farm developers. Until
more financing becomes available to the wind energy industry, wind tower
activity is expected to remain depressed. Near term, the water pipe
business is also expected to continue to experience soft market demand as order
backlogs remain well below historical levels. The timing of bid
activity has been negatively affected by the economy, municipal budgets and
availability of financing.
Infrastructure
Products' sales decreased $34.8 million, or 19.4%, in 2009, compared to
2008. The Company’s Hawaii Division had lower sales as residential
and commercial construction markets in Hawaii contracted. Demand for
aggregates and ready-mix concrete on both Oahu and Maui declined as construction
spending continued to soften due to the recessionary
economy. Military and governmental spending held steady in
Hawaii. The Pole Products Division continued to be impacted by the
decline in U.S. housing markets and reduced demand for concrete lighting poles
and steel traffic poles. The Infrastructure Products Group is
expected to continue to be impacted by the slowdown in construction spending in
Hawaii and the low residential construction spending throughout the
U.S. Housing starts and permits in the U.S. remain at historically
low levels, and recovery of the residential market is not expected in the short
term.
Gross
Profit
Gross
profit in 2009 was $145.5 million, or 26.6% of sales, compared to $153.6
million, or 23.0% of sales, in 2008. Gross profit decreased $8.2
million in 2009, compared to 2008, due to lower sales offset by better cost
control, improved plant efficiencies, lower LIFO reserves, favorable product mix
and lower raw material costs.
Fiberglass-Composite
Pipe Group's gross profit decreased $14.8 million in 2009, compared to
2008. Profit margins improved to 41.4% in 2009, compared to 39.5% in
2008. Margins were higher in 2009 due to favorable product mix, plant
efficiencies and lower raw material costs. Decreased sales, from lower volume
and prices, reduced gross profit by $19.2 million, offset by favorable product
mix and operating efficiencies of $4.4 million in 2009.
Water
Transmission Group's gross profit increased $17.3 million in 2009, compared to
2008. Profit margins increased to 11.9% in 2009, compared to 1.8% in
2008. Improved profit margins resulted from plant efficiencies with
the completion of newly-constructed wind tower facility, cost controls and
completion of low-margin pipe projects in 2008.
Gross
profit in the Infrastructure Products Group decreased $11.5 million in 2009,
compared to 2008. Profit margins declined to 19.2% in 2009, compared
to 21.9% in 2008. Margins were lower in 2009 due to pricing pressures
related to challenging market conditions. Lower sales negatively
impacted gross profit by $7.6 million in 2009, while lower margins primarily
related to unfavorable plant utilization decreased gross profit by an additional
$3.9 million in 2009.
Consolidated
gross profit was $2.1 million higher in 2009 than in 2008 due to decreased
reserves in 2009 associated with LIFO accounting of certain steel inventories
used by the Water Transmission Group due to lower LIFO inventory quantities and
a decrease in steel prices. LIFO reserves are not allocated to the
operating segments.
Selling,
General and Administrative Expenses
Selling,
general and administrative ("SG&A") expenses totaled $100.0 million, or
18.3% of sales, in 2009, compared to $98.2 million, or 14.7% of sales, in
2008. The $1.8 million increase in SG&A was due to higher pension
expense of $8.0 million, higher legal expenses of $1.9 million, due primarily to
the U.S. Treasury Department’s Office of Foreign Assets Control (“OFAC”)
inquiry, offset by lower stock compensation costs of approximately $2.2 million,
favorable foreign exchange impact of $1.8 million, lower insurance premiums of
$1.6 million and lower other expenses of $2.5 million.
Other
Income, Net
Other
income totaled $7.4 million in 2009, compared to $8.2 million in
2008. The decrease in other income in 2009 was due primarily to
higher dividends from joint ventures of $.8 million, higher gains on asset sales
of $.5 million, and lower foreign currency losses of $.2 million, more than
offset by $.5 million lower royalties and $1.8 million lower scrap inventory
sales.
Interest
Net
interest totaled $.6 million in 2009, compared to $1.5 million in 2008. Interest
income was $1.1 million in 2009, a decrease of $2.7 million compared to 2008,
due to lower interest rates on short-term investments. Interest
expense declined from $.5 million in 2009 to $2.3 million in 2008, due to lower
debt levels.
Provision
for Income Taxes
Income
taxes decreased to $15.5 million in 2009, from $17.0 million in
2008. The effective tax rate on income from continuing operations
increased to 29.0% in 2009, from 26.0% in 2008. The effective tax
rate in 2009 was reduced by tax benefits of $1.2 million associated with the
adjustment to a deferred tax liability related to earnings and profits from the
Company’s former New Zealand subsidiary. The $1.2 million adjustment
represented a correction of an amount recorded in prior period financial
statements. Management believes this amount to be immaterial to prior
interim and annual financial statements. The effective tax rate in
2008 was reduced by tax benefits of $2.9 million associated with tax years no
longer subject to audit and settlement of the 2005-2006 Internal Revenue Service
(“IRS”) examinations. Income from certain foreign operations and
joint ventures is taxed at rates that are lower than the U.S. statutory tax
rates. For both 2008 and 2009, the Company provided a full valuation
allowance for the net operating loss carry-overs of its foreign subsidiaries
except its subsidiary in the Netherlands. The Company released $1.3
million in 2009 and $1.1 million in 2008 of valuation allowance for deferred tax
assets related to the Netherlands subsidiary due to profitability in 2008 and
projected future profitability.
Equity
in Earnings of Joint Venture, Net of Taxes
Equity in
earnings of joint venture, which consists of the Company’s share of the net
income or loss of TAMCO, decreased to a loss of $5.5 million in 2009, compared
to income of $10.3 million in 2008. Equity income is shown net of
income taxes at an effective rate of 7.8% and 9.6% in 2009 and 2008,
respectively, reflecting the dividend exclusion provided to the Company under
tax laws. The decline in TAMCO’s earnings was due to the collapse of
infrastructure spending for steel rebar in California, Arizona and
Nevada. TAMCO halted production in the first quarter of 2009 and had
limited production during the remainder of 2009. Given the low level
of demand, TAMCO will continue to operate its plant intermittently as incoming
orders and inventory levels warrant. Demand for steel rebar in
TAMCO’s key markets in the western U.S. is not expected to recover in the short
term.
Income
from Discontinued Operations, Net of Taxes
Income
from discontinued operations totaled $.8 million in 2009, net of
taxes. In 2006, the Company completed the sale of the Coatings
Business to PPG Industries, Inc. ("PPG"). As part of the sale, PPG
agreed to pay to the Company future dividends from Oasis-Ameron, Ltd. (“OAL”), a
former joint venture of the Company held by the Coatings Business, up to the
amount of OAL’s unremitted earnings at the time of the sale of the Coatings
Business to PPG. In 2009, the Company recorded $1.2 million, net of
tax, from PPG in exchange for any claims on OAL’s dividends. Also in
2009, the Company wrote down by $.4 million, net of tax, real property formerly
used by the Coatings Business and currently held for sale. The write
down was due to declining real estate values.
RESULTS
OF OPERATIONS: 2008 COMPARED WITH 2007
General
Income
from continuing operations totaled $58.6 million, or $6.39 per diluted share, on
sales of $667.5 million in the year ended November 30, 2008, compared to $61.1
million, or $6.73 per diluted share, on sales of $631.0 million in 2007.
Income from continuing operations was lower in 2008 due principally to $5.3
million of tax benefits recognized in 2007 associated with the dissolution of
the Company’s wholly-owned United Kingdom subsidiary. The
Fiberglass-Composite Pipe Group had higher sales and income due to continued
strength in energy and marine markets and the acquisition of the business of
Polyplaster. The Water Transmission Group had higher sales primarily
due to wind towers and larger losses due to the weak pipe market and inefficient
pipe and wind tower production. The Infrastructure Products Group had
lower sales and income due to declines by both the Hawaii division and the Pole
Products division due to declining construction markets. Equity in
earnings of TAMCO, Ameron's 50%-owned steel mini-mill in California, decreased
by $5.0 million in 2008, compared to 2007, due to the decline in the steel
market.
Income
from discontinued operations, net of taxes, totaled $6.1 million, or $.67 per
diluted share, in 2007. In 2007, the Company completed disposition of
several retained properties formerly used by the Coatings Business and
recognized a net gain of $5.3 million. Also in 2007, the Company
recognized a net gain of $.1 million from the final settlement of the sale of
the Coatings Business, $.2 million of research and development credits and $.7
million of tax benefits.
Sales
Sales
increased $36.5 million in 2008, compared to 2007. Sales increased due to
higher demand for fiberglass piping, the impact of foreign exchange rates on the
Company’s Asian and European operations and expansion of the Company’s
capabilities to manufacture large-diameter wind towers, offset by lower sales
into weak residential construction markets.
Fiberglass-Composite
Pipe's sales increased $36.3 million, or 15.3%, in 2008, compared to 2007.
Sales from operations in the U.S. increased $10.2 million in 2008 primarily due
to increase demand for onshore oilfield piping which more than offset a decline
in demand for industrial piping. Sales from Asian subsidiary operations
increased $22.8 million in 2008, driven by activity in the industrial, marine
and offshore segments and the impact of foreign exchange. Sales from
European operations decreased $12.2 million in 2008 primarily due to a decline
in onshore oilfield and industrial piping, partially offset by favorable foreign
exchange. The Brazilian business acquired at the end of 2007 contributed
sales of $16.8 million in 2008, compared to $1.3 million in 2007. The
strong demand for onshore oilfield, offshore, industrial and marine piping
continued to be driven by high oil prices and the high cost of steel piping, the
principal substitute for fiberglass pipe, during most of the year.
Water
Transmission’s sales increased $25.0 million, or 13.2%, in 2008, compared to
2007. The sales increase was driven by the Company’s expansion into the
market for large-diameter wind towers and by its operation in South America,
which benefited from increased demand for water pipe in
Colombia. Sales of water pipe into domestic markets were slightly
higher. Sales of wind towers increased $19.7 million, or 42%, in
2008, compared to 2007. The water infrastructure market in the
western U.S., including California, Arizona and Nevada, remained weak, with bid
activity in some markets at the lowest levels in recent history. The
slow market was adversely affected by a number of factors including the normal
cycle for large diameter, high pressure water transmission pipelines,
governmental budget problems and overall project costs.
Infrastructure
Products' sales decreased $26.7 million, or 13.0%, in 2008, compared to
2007. The Company’s Hawaiian division had lower sales as construction
markets in Hawaii began to weaken. Pole Products was impacted by the
decline in U.S. housing markets and reduced demand for concrete lighting
poles.
Gross
Profit
Gross
profit in 2008 was $153.6 million, or 23.0% of sales, compared to $146.0
million, or 23.1% of sales, in 2007. Gross profit increased $7.6 million
due to higher sales, as the negative impact of production inefficiencies in 2008
was offset in large part by lower LIFO reserves than in 2007. The
gross profit margin decrease related to under utilization of pole production,
competitive pricing pressures caused by soft market conditions and inefficient
production by the Water Transmission Group, substantially offset by the
Fiberglass-Composite Pipe Group’s profit margin improvement.
Fiberglass-Composite
Pipe Group's gross profit increased $22.5 million in 2008, compared to
2007. Profit margins improved to 39.5% in 2008, compared to 36.0% in
2007. Higher margins resulted from improvements in product and market
mix, price increases and improved plant utilization. Increased sales, from
higher volume and prices, generated additional gross profit of $13.1 million,
while favorable product mix and operating efficiencies generated additional
gross profit of $9.4 million in 2008.
Water
Transmission Group's gross profit decreased $10.1 million in 2008, compared to
2007. Profit margins declined to 1.8% in 2008, compared to 7.3% in
2007. Higher sales increased profit by $1.8 million in
2008. Lower margins reduced gross profit by $11.9 million due to an
unfavorable mix of projects, start-up costs associated with the expansion into
wind towers, underutilization of plant capacity, production inefficiencies and
pricing pressures due to market condition.
Gross
profit in the Infrastructure Products Group decreased $12.4 million in 2008,
compared to 2007. Profit margins declined to 21.9% in 2008, compared to
25.1% in 2007. Lower sales reduced gross profit by $6.7 million, while
unfavorable plant utilization and pricing pressures due to market conditions
lowered gross profit by $5.7 million in 2008.
Consolidated
gross profit was $5.5 million higher in 2008 than in 2007 due to decreased
reserves in 2008 associated with LIFO accounting of certain steel inventories
used by the Water Transmission Group.
Selling,
General and Administrative Expenses
SG&A
expenses totaled $98.2 million, or 14.7% of sales, in 2008, compared to $97.9
million, or 15.5% of sales, in 2007. The $.3 million increase in SG&A
included $3.5 million from Polyplaster and other Brazilian operations, higher
stock compensation expense of $2.2 million and higher insurance expense of $1.4
million, offset by lower pension expense of $3.9 million, primarily due to
improved funding of the pension plans, lower management incentive compensation
of $1.5 million and lower auditing and consulting fees of $1.4
million. The reduction in SG&A as a percent of sales was due to
spending controls and the leverage achieved from higher sales.
Other
Income, Net
Other
income was $8.2 million in 2008, compared to $6.0 million in
2007. The increase in other income in 2008 was due primarily to $1.5
million higher dividend income from affiliates and $2.7 million proceeds from
insurance reimbursements, offset by $1.4 million of foreign exchange loss and
$.6 million lower miscellaneous income. Other income also included
royalties and fees from licensees, foreign currency transaction losses and other
miscellaneous income.
Interest
Net
interest income totaled $1.5 million in 2008, compared to net interest income of
$1.9 million in 2007. Net interest income was lower due to lower interest
on short-term investments due to lower overall interest rates, partially offset
by lower outstanding debt during 2008.
Provision
for Income Taxes
Income
taxes increased to $17.0 million in 2008, from $10.4 million in
2007. The effective tax rate on income from continuing operations
increased to 26.0% in 2008, from 18.5% in 2007. The effective tax
rate in 2008 was reduced by tax benefits of $2.9 million associated with tax
years no longer subject to audit and settlement of the 2005-2006 IRS
examinations. The effective tax rate in 2007 was reduced by tax
benefits of $5.3 million associated with the decision to dissolve the Company’s
wholly-owned United Kingdom subsidiary. For both 2007 and 2008, the
Company provided a full valuation allowance for the net operating loss
carry-overs of its foreign subsidiaries except its subsidiary in the
Netherlands. The Company released $1.1 million in 2008 and $3.2
million in 2007 of valuation allowance for deferred tax assets related to the
Netherlands subsidiary due to profitability in 2008 and 2007 and projected
future profitability.
Equity
in Earnings of Joint Venture, Net of Taxes
Equity
income decreased to $10.3 million in 2008, compared to $15.4 million in
2007. Dividends from TAMCO were taxed at an effective rate of 9.6% in 2008
and 2007, reflecting the dividend exclusion provided to the Company under
current tax laws. The decline in TAMCO’s earnings was due to the
difficult conditions in the steel market.
Income
from Discontinued Operations, Net of Taxes
Income
from discontinued operations totaled $6.1 million in 2007. In 2007,
the Company completed disposition of several retained properties formerly used
by the Coatings Business and recognized a net gain of $5.3
million. In 2007, the Company recognized a net gain of $.1 million
from the final settlement of the sale of the Coatings Business. In
addition, in 2007 the Company recognized $.2 million of research and development
tax credits related to the retroactive application of tax legislation and $.6
million of net tax benefit due to an adjustment in tax expense related to the
gain on sale of the business.
OFF-BALANCE
SHEET FINANCING
The
Company does not have any off-balance sheet financing, other than listed in the
Liquidity and Capital Resources section herein. All of the Company's
subsidiaries are included in the financial statements, and the Company does not
have relationships with any special purpose entities.
CONTINGENCIES
In April
2004, Sable Offshore Energy Inc. ("Sable"), as agent for certain owners of the
Sable Offshore Energy Project, brought an action against various coatings
suppliers and application contractors, including the Company and its subsidiary,
Ameron B.V., in the Supreme Court of Nova Scotia, Canada. Sable seeks
damages allegedly sustained by it resulting from performance problems with
several coating systems used on the Sable Offshore Energy Project, including
coatings products furnished by the Company and Ameron B.V. Sable's
originating notice and statement of claim alleged a claim for damages in an
unspecified amount; however, Sable has since alleged that its claim for damages
against all defendants is approximately 440.0 million Canadian dollars, a figure
which the Company and Ameron B.V. contest. This matter is in
discovery, and no trial date has yet been established. The Company is
vigorously defending itself in this action. Based upon the information
available to it at this time, the Company is not able to estimate the possible
range of loss with respect to this case.
In May
2003, Dominion Exploration and Production, Inc. and Pioneer Natural Resources
USA, Inc. (collectively "Dominion") brought an action against the Company in
Civil District Court for the Parish of Orleans, Louisiana as owners of an
offshore production facility known as a SPAR. Dominion seeks damages
allegedly sustained by it resulting from delays in delivery of the SPAR caused
by the removal and replacement of certain coatings containing lead and/or lead
chromate for which the manufacturer of the SPAR alleged the Company was
responsible. Dominion contends that the Company made certain
misrepresentations and warranties to Dominion concerning the lead-free nature of
those coatings. Dominion's petition as filed alleged a claim for damages
in an unspecified amount; however, Dominion's economic expert has since
estimated Dominion's damages at approximately $60.0 million, a figure which the
Company contests. This matter is in discovery, and trial is currently
scheduled to commence on April 12, 2010. The Company is vigorously
defending itself in this action. Based upon the information available
to it at this time, the Company is not able to estimate the possible range of
loss with respect to this case.
In July
2004, BP America Production Company (“BP America”) brought an action against the
Company in the 24th
Judicial District Court, Parish of Jefferson, Louisiana in connection with
fiberglass pipe sold by the Company for installation in four offshore platforms
constructed for BP America. The plaintiff seeks damages allegedly
sustained by it resulting from claimed defects in such pipe. BP
America’s petition as filed alleged a claim against the Company for rescission,
products liability, negligence, breach of contract and warranty and for damages
in an amount of not less than $20.0 million, a figure which the Company
contests. This matter is in discovery, and no trial date has yet been
established. The Company is vigorously defending itself in this
action. Based upon the information available to it at this time, the
Company is not able to estimate the possible range of loss with respect to this
case.
In June
2006, the Cawelo, California Water District (“Cawelo”) brought an action against
the Company in Kern County Superior Court, California in connection
with concrete pipe sold by the Company in 1995 for a wastewater
recovery pipeline in such county. Cawelo seeks damages allegedly
sustained by it resulting from the failure of such pipe in
2004. Cawelo’s petition as filed alleged a claim against the Company
for products liability, negligence, breach of express warranty and breach of
written contract and for damages in an amount of not less than $8.0 million, a
figure which the Company contests. This matter is in discovery, and
trial is currently scheduled to commence on October 12, 2010. The
Company is vigorously defending itself in this action. Based upon the
information available to it at this time, the Company is not able to estimate
the possible range of loss with respect to this case.
The
Company is a defendant in a number of asbestos-related personal injury
lawsuits. These cases generally seek unspecified damages for
asbestos-related diseases based on alleged exposure to products previously
manufactured by the Company and others. As of November 30, 2009, the
Company was a defendant in 20 asbestos-related cases, compared to 23 cases as of
August 30, 2009. During the quarter ended November 30, 2009, there
were four new asbestos-related cases, seven cases dismissed, no cases settled,
no judgments and aggregate net costs and expenses of $.1
million. Based upon the information available to it at this time, the
Company is not able to estimate the possible range of loss with respect to these
cases.
In
December, 2008, the Company received from the U.S. Treasury Department’s Office
of Foreign Assets Control (“OFAC”) a Requirement to Furnish Information
regarding transactions involving Iran. The Company intends to
cooperate fully with OFAC on this matter. With the assistance of
outside counsel, the Company conducted an internal inquiry and responded to
OFAC. In the year ended November 30, 2009, the Company incurred $3.8
million for legal and professional fees in connection with this
matter. Based upon the information available to it at this time, the
Company is not able to predict the outcome of this matter. If the
Company violated governmental regulations, material fines and penalties could be
imposed.
The
Company is 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, cash flows, or
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 are either adequately
reserved, covered by insurance, or would not have a material effect on the
Company's financial position, cash flows or results of operations if disposed of
unfavorably.
NEW
ACCOUNTING PRONOUNCEMENTS
In July
2006, the Financial Accounting Standards Board (“FASB”) clarified the accounting
for uncertainty in income taxes recognized in an entity’s financial statements
and prescribes a recognition threshold and measurement attribute for financial
statement disclosure of tax positions taken or expected to be taken on a tax
return. The minimum threshold is defined as a tax position that is more
likely than not to be sustained upon examination by the applicable taxing
authority, including resolution of any related appeals or litigation processes,
based on the technical merits of the position. The tax benefit to be
recognized is measured as the largest amount of benefit that is greater than 50
percent likely of being realized upon ultimate settlement. The
guidance must be applied to all existing tax positions upon initial
adoption. The cumulative effect of applying the guidance at adoption
is to be reported as an adjustment to beginning retained earnings for the year
of adoption. The accounting for uncertainty in income taxes was effective
for the first quarter of 2008. Prior to December 1, 2007, the Company
recorded reserves related to uncertain tax positions as a current
liability. Upon adoption, the Company reclassified tax reserves related to
uncertain tax positions for which a cash payment was not expected within the
next 12 months to noncurrent liabilities. The Company’s adoption of
accounting for uncertainty in income taxes did not require a cumulative
adjustment to the opening balance of retained earnings.
In
September 2006, the FASB established a framework for measuring fair value
in accordance with United States Generally Accepted Accounting Principles
(“GAAP”) and expanded disclosure about fair value measurements including valuing
securities in markets that are not active. The Company adopted the
framework for measuring fair value effective December 1, 2007 with the exception
of the application of the framework to non-recurring, non-financial assets and
non-financial liabilities which was adopted as of December 1,
2008. The adoption of the framework for measuring fair value did not
have a significant impact on the Company’s results of operations or financial
position.
In
September 2006, the FASB issued guidance for accounting for deferred
compensation and postretirement benefit aspects of endorsement split-dollar life
insurance arrangements, effective for fiscal years beginning after
December 15, 2007. The guidance requires that, for split-dollar
life insurance arrangements providing a benefit to an employee extending to
postretirement periods, an employer should recognize a liability for future
benefits. Recognition of the effects of adoption should be either by
(a) a change in accounting principle through a cumulative-effect adjustment
to retained earnings as of the beginning of the year of adoption or (b) a
change in accounting principle through retrospective application to all prior
periods. The adoption of the guidance related to accounting for
deferred compensation and postretirement benefit aspects of endorsement
split-dollar life insurance arrangements did not have a material effect on the
Company’s consolidated financial statements.
In
September 2006, the FASB required companies to recognize the overfunded or
underfunded status of a defined benefit postretirement plan (other than a
multiemployer plan) as an asset or liability in its financial statements and to
recognize changes in that status in the year in which the changes
occur. The guidance also requires a company to measure the funded
status of a plan as of the date of its year-end financial statements. The
Company adopted the recognition provisions in 2008 and the measurement
provisions in 2009. See Note (16) of the Notes to Consolidated
Financial Statements, under Item 8, for information regarding the impact of
adopting the recognition and measurement provisions when accounting for defined
benefit pension and other postretirement plans.
In March
2008, the FASB amended and expanded the disclosure requirements for derivative
instruments and hedging activities by requiring enhanced disclosures about how
and why the Company uses derivative instruments, how derivative instruments and
related hedged items are accounted for, and how derivative instruments and
related hedged items affect the Company’s financial position, financial
performance and cash flows. These requirements were effective for
fiscal years beginning after November 15, 2008. The Company adopted the
amended and expanded disclosure requirements for derivatives instruments and
hedging activities as of December 1, 2008, and adoption did not have a material
effect on the Company’s consolidated financial statements.
In June
2008, the FASB issued guidance requiring that unvested instruments granted in
share-based payment transactions that contain nonforfeitable rights to dividends
or dividend equivalents are participating securities subject to the two-class
method of computing earnings per share. This guidance is effective
for financial statements issued for fiscal years, and interim periods within
those fiscal years, beginning on or after December 15,
2008. Earlier adoption is prohibited, and the Company will adopt as
of the fiscal year beginning December 1, 2009. The adoption is not
expected to have a material effect on the Company’s consolidated financial
statements.
In
December 2008, the FASB issued revised guidance for employers’ disclosures about
postretirement benefit plan assets effective for fiscal years ending after
December 15, 2009. The FASB requires an employer to disclose
investment policies and strategies, categories, fair value measurements, and
significant concentration of risk among its postretirement benefit plan
assets. The Company will adopt the revised guidance as of the fiscal
year ending November 30, 2010. Adoption is not expected to have a
material effect on the Company’s consolidated financial statements.
In April
2009, the FASB required disclosures about fair value of financial instruments
for interim reporting periods of publicly traded companies as well as in annual
financial statements, effective for interim reporting periods ending after June
15, 2009, and required those disclosures in summarized financial information at
interim reporting periods. The Company adopted the new disclosure guidance
over fair value of financial instruments, and adoption did not have a material
effect on the Company’s consolidated financial statements.
In April
2009, the FASB issued guidance which establishes general standards of accounting
for and disclosures of events that occur after the balance sheet date but before
financial statements are issued or are available to be issued (“subsequent
events”). Under the new guidance, entities are required to disclose
the date through which subsequent events were evaluated, as well as the
rationale for why that date was selected. The guidance is effective
for interim and annual periods ending after June 15, 2009. The
Company adopted the provisions of this new guidance as of June 1, 2009, and
adoption did not have a material effect on our consolidated financial
statements. The Company evaluated subsequent events through January
29, 2010.
In June
2009, the FASB issued guidance to revise the approach to determine when a
variable interest entity (“VIE”) should be consolidated. The new
consolidation model for VIE’s considers whether the Company has the power to
direct the activities that most significantly impact the VIE’s economic
performance and shares in the significant risks and rewards of the
entity. The guidance on VIE’s requires companies to continually
reassess VIE’s to determine if consolidation is appropriate and provide
additional disclosures. The guidance is effective for the Company’s
2010 fiscal year. The Company is assessing the potential effect of
this guidance on the consolidated financial statements.
In June
2009, the FASB established the Accounting Standards
Codification ("Codification") as the single source of authoritative
GAAP to be applied by nongovernmental entities, except for the rules
and interpretive releases of the Securities and Exchange Commission (“SEC”)
under authority of federal securities laws, which are sources of
authoritative GAAP for SEC registrants. While not intended to change
GAAP, the Codification significantly changes the way in which the accounting
literature is referenced and organized. The Codification is effective for
financial statements issued for interim and annual periods ending after
September 15, 2009. The Codification was adopted as of August 31,
2009. Adoption did not have a material effect on the Company’s
consolidated financial statements.
ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
Foreign
Currency Risk
The
Company operates internationally, giving rise to exposure to market risks from
changes in foreign exchange rates. From time to time, the Company
borrows in various currencies to reduce the level of net assets subject to
changes in foreign exchange rates or 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. At November 30, 2009,
the Company had three foreign currency forward contracts expiring at various
dates through September 8, 2010 with a fair value loss of
$16,000. Such instruments are carried at fair value, with related
adjustments recorded in other income.
Debt
Risk
The
Company has variable-rate, short-term and long-term debt as well as fixed-rate,
long-term debt. The fair value of the Company's fixed-rate debt is
subject to changes in interest rates. The estimated fair value of the Company's
variable-rate debt approximates the carrying value of such debt since the
variable interest rates are market-based and the Company believes such debt
could be refinanced on materially similar terms. The Company is
subject to the availability of credit to support new requirements and to
refinance long-term and short-term debt.
At
November 30, 2009, the estimated fair value of notes payable by the Company's
wholly-owned subsidiary in Singapore totaling approximately $22.1 million, with
a fixed rate of 4.25% per annum, was $22.7 million. These notes must be
repaid in installments of approximately $7.4 million per year, and payments
began in 2008. The Company had $7.2 million of variable-rate industrial
development bonds payable at an interest rate of .55% per annum at November 30,
2009, payable in 2016. The Company also had $8.5 million of
variable-rate industrial development bonds payable at an interest rate of .55%
per annum at November 30, 2009, payable in 2021. The industrial
revenue bonds are supported by standby letters of credit issued under the
Revolver, which has a scheduled maturity of August 2012.
|
Total
Outstanding
|
||||||||||||||||||||||||||||||||
|
As
of November 30, 2009
|
||||||||||||||||||||||||||||||||
|
Expected
Maturity Date
|
Recorded
|
Fair
|
||||||||||||||||||||||||||||||
|
(Dollars
in thousands)
|
2010
|
2011
|
2012
|
2013
|
2014
|
Thereafter
|
Value
|
Value
|
||||||||||||||||||||||||
|
Liabilities
|
||||||||||||||||||||||||||||||||
|
Long-term
debt:
|
||||||||||||||||||||||||||||||||
|
Fixed-rate
secured notes, payable in Singapore dollars
|
$ | 7,366 | $ | 7,366 | $ | 7,366 | $ | - | $ | - | $ | - | $ | 22,098 | $ | 22,741 | ||||||||||||||||
|
Average
interest rate
|
4.25 | % | 4.25 | % | 4.25 | % | - | - | - | 4.25 | % | |||||||||||||||||||||
|
Variable-rate
bank revolving credit facilities, payable in Colombian
pesos
|
- | - | 501 | - | - | - | 501 | 501 | ||||||||||||||||||||||||
|
Average
interest rate
|
- | - | 7.10 | % | - | - | - | 7.10 | % | |||||||||||||||||||||||
|
Variable-rate
industrial development bonds, payable in US$
|
- | - | - | - | - | 7,200 | 7,200 | 7,200 | ||||||||||||||||||||||||
|
Average
interest rate
|
- | - | - | - | - | .55 | % | .55 | % | |||||||||||||||||||||||
|
Variable-rate
industrial development bonds, payable in US$
|
- | - | - | - | - | 8,500 | 8,500 | 8,500 | ||||||||||||||||||||||||
|
Average
interest rate
|
- | - | - | - | - | .55 | % | .55 | % | |||||||||||||||||||||||
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA
CONSOLIDATED
STATEMENTS OF INCOME
|
Year
ended November 30,
|
||||||||||||
|
(Dollars
in thousands, except per share data)
|
2009
|
2008
|
2007
|
|||||||||
|
Sales
|
$ | 546,944 | $ | 667,543 | $ | 631,010 | ||||||
|
Cost
of sales
|
(401,492 | ) | (513,922 | ) | (484,981 | ) | ||||||
|
Gross
profit
|
145,452 | 153,621 | 146,029 | |||||||||
|
Selling,
general and administrative expenses
|
(99,976 | ) | (98,166 | ) | (97,870 | ) | ||||||
|
Other
income, net
|
7,448 | 8,222 | 6,030 | |||||||||
|
Income
from continuing operations before interest, income taxes and equity in
(loss)/earnings of joint venture
|
52,924 | 63,677 | 54,189 | |||||||||
|
Interest
income, net
|
588 | 1,533 | 1,927 | |||||||||
|
Income
from continuing operations before income taxes and equity in
(loss)/earnings of joint venture
|
53,512 | 65,210 | 56,116 | |||||||||
|
Provision
for income taxes
|
(15,517 | ) | (16,955 | ) | (10,359 | ) | ||||||
|
Income
from continuing operations before equity in (loss)/earnings of joint
venture
|
37,995 | 48,255 | 45,757 | |||||||||
|
Equity
in (loss)/earnings of joint venture, net of taxes
|
(5,512 | ) | 10,337 | 15,383 | ||||||||
|
Income
from continuing operations
|
32,483 | 58,592 | 61,140 | |||||||||
|
Income
from discontinued operations, net of taxes
|
817 | - | 6,099 | |||||||||
|
Net
income
|
$ | 33,300 | $ | 58,592 | $ | 67,239 | ||||||
|
Basic
earnings per share:
|
||||||||||||
|
Income
from continuing operations
|
$ | 3.54 | $ | 6.42 | $ | 6.77 | ||||||
|
Income
from discontinued operations, net of taxes
|
.09 | - | .68 | |||||||||
|
Net
income
|
$ | 3.63 | $ | 6.42 | $ | 7.45 | ||||||
|
Diluted
earnings per share:
|
||||||||||||
|
Income
from continuing operations
|
$ | 3.54 | $ | 6.39 | $ | 6.73 | ||||||
|
Income
from discontinued operations, net of taxes
|
.09 | - | .67 | |||||||||
|
Net
income
|
$ | 3.63 | $ | 6.39 | $ | 7.40 | ||||||
|
Weighted-average
shares (basic)
|
9,166,558 | 9,124,557 | 9,029,487 | |||||||||
|
Weighted-average
shares (diluted)
|
9,184,771 | 9,169,056 | 9,090,846 | |||||||||
The
accompanying notes are an integral part of these consolidated financial
statements.
CONSOLIDATED
BALANCE SHEETS - ASSETS
|
As
of November 30,
|
||||||||
|
(Dollars
in thousands)
|
2009
|
2008
|
||||||
|
ASSETS
|
||||||||
|
Current
assets
|
||||||||
|
Cash
and cash equivalents
|
$ | 181,114 | $ | 143,561 | ||||
|
Receivables,
less allowances of $5,351in 2009 and $7,009 in 2008
|
151,210 | 181,961 | ||||||
|
Inventories
|
62,700 | 95,645 | ||||||
|
Deferred
income taxes
|
19,795 | 25,582 | ||||||
|
Prepaid
expenses and other current assets
|
11,585 | 10,053 | ||||||
|
Total
current assets
|
426,404 | 456,802 | ||||||
|
Investments
|
||||||||
|
Equity
method venture
|
30,626 | 14,428 | ||||||
|
Cost
method ventures
|
3,784 | 3,784 | ||||||
|
Property,
plant and equipment
|
||||||||
|
Land
|
46,029 | 38,679 | ||||||
|
Buildings
|
100,583 | 85,555 | ||||||
|
Machinery
and equipment
|
345,604 | 306,177 | ||||||
|
Construction
in progress
|
32,306 | 37,386 | ||||||
|
Total
property, plant and equipment at cost
|
524,522 | 467,797 | ||||||
|
Accumulated
depreciation
|
(286,014 | ) | (261,635 | ) | ||||
|
Total
property, plant and equipment, net
|
238,508 | 206,162 | ||||||
|
Deferred
income taxes
|
14,321 | 4,763 | ||||||
|
Goodwill
and intangible assets, net of accumulated amortization of $1,257 in 2009
and $1,197 in 2008
|
2,088 | 2,108 | ||||||
|
Other
assets
|
46,818 | 38,275 | ||||||
|
Total
assets
|
$ | 762,549 | $ | 726,322 | ||||
The
accompanying notes are an integral part of these consolidated financial
statements.
CONSOLIDATED
BALANCE SHEETS - LIABILITIES AND STOCKHOLDERS' EQUITY
|
As
of November 30,
|
||||||||
|
(Dollars
in thousands, except per share data)
|
2009
|
2008
|
||||||
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
||||||||
|
Current
liabilities
|
||||||||
|
Current
portion of long-term debt
|
$ | 7,366 | $ | 16,763 | ||||
|
Trade
payables
|
44,052 | 52,613 | ||||||
|
Accrued
liabilities
|
77,515 | 79,538 | ||||||
|
Income
taxes payable
|
10,004 | 10,443 | ||||||
|
Total
current liabilities
|
138,937 | 159,357 | ||||||
|
Long-term
debt, less current portion
|
30,933 | 35,989 | ||||||
|
Deferred
income taxes
|
1,710 | 3,806 | ||||||
|
Other
long-term liabilities
|
99,379 | 50,050 | ||||||
|
Total
liabilities
|
270,959 | 249,202 | ||||||
|
Commitments
and contingencies
|
||||||||
|
Stockholders'
equity
|
||||||||
|
Common
Stock, par value $2.50 per share, authorized 24,000,000 shares,
outstanding 9,209,836 shares in 2009 and 9,188,692 shares in 2008, net of
treasury shares
|
29,920 | 29,805 | ||||||
|
Additional
paid-in capital
|
59,531 | 54,447 | ||||||
|
Retained
earnings
|
500,224 | 478,968 | ||||||
|
Accumulated
other comprehensive loss
|
(42,036 | ) | (31,475 | ) | ||||
|
Treasury
Stock (2,758,356 shares in 2009 and 2,733,300 shares in
2008)
|
(56,049 | ) | (54,625 | ) | ||||
|
Total
stockholders' equity
|
491,590 | 477,120 | ||||||
|
Total
liabilities and stockholders' equity
|
$ | 762,549 | $ | 726,322 | ||||
The
accompanying notes are an integral part of these consolidated financial
statements.
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS' EQUITY
|
Common
Stock
|
Accumulated
|
|||||||||||||||||||||||||||
|
Additional
|
Other
|
|||||||||||||||||||||||||||
|
Shares
|
Paid-in
|
Retained
|
Comprehensive
|
Treasury
|
||||||||||||||||||||||||
|
(Dollars
in thousands)
|
Outstanding
|
Amount
|
Capital
|
Earnings
|
Loss
|
Stock
|
Total
|
|||||||||||||||||||||
|
Balance,
November 30, 2006
|
9,075,094 | $ | 29,431 | $ | 39,500 | $ | 371,894 | $ | (27,232 | ) | $ | (50,368 | ) | $ | 363,225 | |||||||||||||
|
Net
Income - 2007
|
- | - | - | 67,239 | - | - | 67,239 | |||||||||||||||||||||
|
Exercise
of stock options
|
49,125 | 106 | 1,456 | - | - | - | 1,562 | |||||||||||||||||||||
|
Foreign
currency translation adjustment
|
- | - | - | - | 8,210 | - | 8,210 | |||||||||||||||||||||
|
Minimum
pension liability adjustment, net of tax
|
- | - | - | - | 15,237 | - | 15,237 | |||||||||||||||||||||
|
Adjustment
for initial adoption of SFAS No. 158, net of tax
|
- | - | - | - | (6,035 | ) | - | (6,035 | ) | |||||||||||||||||||
|
Comprehensive
loss from joint venture
|
- | - | - | - | (50 | ) | - | (50 | ) | |||||||||||||||||||
|
Cash
dividends on Common Stock
|
- | - | - | (8,208 | ) | - | - | (8,208 | ) | |||||||||||||||||||
|
Stock
compensation expense
|
- | - | 103 | - | - | - | 103 | |||||||||||||||||||||
|
Issuance
of restricted stock
|
34,550 | 86 | (86 | ) | - | - | - | - | ||||||||||||||||||||
|
Excess
tax benefit related to stock-based compensation
|
- | - | 1,955 | - | - | - | 1,955 | |||||||||||||||||||||
|
Restricted
stock compensation expense
|
- | - | 3,747 | - | - | - | 3,747 | |||||||||||||||||||||
|
Treasury
stock purchase
|
(20,206 | ) | - | - | - | - | (1,612 | ) | (1,612 | ) | ||||||||||||||||||
|
Balance,
November 30, 2007
|
9,138,563 | 29,623 | 46,675 | 430,925 | (9,870 | ) | (51,980 | ) | 445,373 | |||||||||||||||||||
|
Net
Income - 2008
|
- | - | - | 58,592 | - | - | 58,592 | |||||||||||||||||||||
|
Exercise
of stock options
|
28,750 | 72 | 348 | - | - | - | 420 | |||||||||||||||||||||
|
Foreign
currency translation adjustment
|
- | - | - | - | (11,860 | ) | - | (11,860 | ) | |||||||||||||||||||
|
Defined
benefit pension plans, net of tax
|
||||||||||||||||||||||||||||
|
Net
prior service cost
|
- | - | - | - | (200 | ) | - | (200 | ) | |||||||||||||||||||
|
Net
actuarial loss
|
- | - | - | - | (8,666 | ) | - | (8,666 | ) | |||||||||||||||||||
|
Forfeiture
of restricted stock
|
- | - | 91 | - | - | (91 | ) | - | ||||||||||||||||||||
|
Comprehensive
loss from joint venture
|
- | - | - | - | (879 | ) | - | (879 | ) | |||||||||||||||||||
|
Cash
dividends on Common Stock
|
- | - | - | (10,549 | ) | - | - | (10,549 | ) | |||||||||||||||||||
|
Stock
compensation expense
|
- | - | 76 | - | - | - | 76 | |||||||||||||||||||||
|
Issuance
of restricted stock
|
44,200 | 110 | (110 | ) | - | - | - | - | ||||||||||||||||||||
|
Excess
tax benefit related to stock-based compensation
|
- | - | 1,330 | - | - | - | 1,330 | |||||||||||||||||||||
|
Restricted
stock compensation expense
|
- | - | 6,037 | - | - | - | 6,037 | |||||||||||||||||||||
|
Treasury
stock purchase
|
(22,821 | ) | - | - | - | - | (2,554 | ) | (2,554 | ) | ||||||||||||||||||
|
Balance,
November 30, 2008
|
9,188,692 | 29,805 | 54,447 | 478,968 | (31,475 | ) | (54,625 | ) | 477,120 | |||||||||||||||||||
|
Net
Income – 2009
|
- | - | - | 33,300 | - | - | 33,300 | |||||||||||||||||||||
|
Foreign
currency translation adjustment
|
- | - | - | - | 18,557 | - | 18,557 | |||||||||||||||||||||
|
Defined
benefit pension plans, net of tax
|
||||||||||||||||||||||||||||