FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 / X / QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended August 31, 2000 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from...............to.................. Commission File No. 1 - 9102 AMERON INTERNATIONAL CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 77-0100596 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 245 South Los Robles Avenue Pasadena, California 91101-2820 (Address of principal executive offices) Telephone Number (626) 683-4000 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes / X / No The number of shares outstanding of Common Stock, $2.50 par value, was 3,885,357 on September 30, 2000. No other class of Common Stock exists. Page 1 AMERON INTERNATIONAL CORPORATION INDEX Page ---- PART I. FINANCIAL INFORMATION Item 1. Consolidated Financial Statements Consolidated Statements of Income 3 Consolidated Balance Sheets 4 Consolidated Statements of Cash Flows 5 Notes to Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10 Item 3. Quantitative & Qualitative Market Risk Disclosure 11 PART II. OTHER INFORMATION Item 2. Changes in Securities 12 Item 6. Exhibits and Reports on Form 8-K 12 SIGNATURE PAGE 13 Page 2 PART I. FINANCIAL INFORMATION Item 1. Financial Statements Ameron International Corporation and Subsidiaries Consolidated Statements of Income (In thousands, except share and per share data) (Unaudited) Three Months Ended Nine Months Ended August 31, August 31, ------------------ ------------------ 2000 1999 2000 1999 -------- -------- -------- -------- Sales $133,094 $138,795 $394,630 $411,162 Cost of Sales (100,280) (100,708) (296,567) (302,635) -------- -------- -------- -------- Gross Profit 32,814 38,087 98,063 108,527 Selling, General and Administrative Expenses (25,774) (26,700) (84,668) (86,003) Other Income, net 6,515 3,804 15,768 9,923 -------- -------- -------- -------- Income before Interest and Income Taxes 13,555 15,191 29,163 32,447 Interest Income 422 53 464 151 Interest Expense (3,336) (3,499) (9,466) (10,524) -------- -------- -------- -------- Income before Income Taxes 10,641 11,745 20,161 22,074 Provision for Income Taxes (2,660) (3,759) (5,040) (7,064) -------- -------- -------- -------- Net Income $ 7,981 $ 7,986 $ 15,121 $ 15,010 ======== ======== ======== ======== Net Income per Share (Basic) $ 2.02 $ 2.00 $ 3.81 $ 3.75 ======== ======== ======== ======== Net Income per Share (Diluted) $ 2.02 $ 1.98 $ 3.81 $ 3.74 ======== ======== ======== ======== Weighted Average Shares (Basic) 3,929,342 3,991,912 3,968,244 3,997,679 ========= ========= ========= ========= Weighted Average Shares (Diluted) 3,935,857 4,024,412 3,975,344 4,016,818 ========= ========= ========= ========= Cash Dividends per Share $ .32 $ .32 $ .96 $ .96 ======== ======== ======== ======== See accompanying notes to consolidated financial statements. Page 3 Ameron International Corporation and Subsidiaries Consolidated Balance Sheets (In thousands, except share and per share data) Aug. 31, Nov. 30, 2000 1999 (Unaudited) -------- -------- ASSETS Current Assets Cash and Cash Equivalents $ 9,542 $ 10,521 Receivables, Less Allowances of $7,897 in 2000 and $6,937 in 1999 134,441 118,900 Inventories 91,881 95,488 Deferred Income Taxes 10,933 11,054 Prepaid Expenses and Other Current Assets 6,897 6,691 -------- -------- Total Current Assets 253,694 242,654 Investments, Advances and Equity in Undistributed Earnings of Affiliated Companies 21,633 23,046 Property, Plant and Equipment, Net 145,675 149,597 Other Assets 46,645 43,670 -------- -------- Total Assets $467,647 $458,967 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Short-Term Borrowings $ 4,141 $ 3,479 Current Portion of Long-Term Debt 12,527 12,595 Trade Payables 36,591 36,667 Accrued Liabilities 44,852 43,552 Income Taxes Payable 12,867 18,848 -------- -------- Total Current Liabilities 110,978 115,141 Long-Term Debt, Less Current Portion 147,892 135,237 Other Long-Term Liabilities 30,472 30,469 -------- -------- Total Liabilities 289,342 280,847 -------- -------- Stockholders' Equity Common Stock, Par Value $2.50 a Share, Authorized 12,000,000 Shares, Outstanding 3,910,407 Shares at August 31, 2000 and 3,991,912 Shares at November 30, 1999, Net of Treasury Shares 13,007 13,007 Additional Paid-In Capital 17,857 17,857 Retained Earnings 215,646 204,336 Accumulated Other Comprehensive Loss (21,126) (12,886) Less Treasury Stock (1,292,605 Shares at August 31, 2000 and 1,211,100 Shares at November 30, 1999) (47,079) (44,194) -------- -------- Total Stockholders' Equity 178,305 178,120 -------- -------- Total Liabilities and Stockholders' Equity $467,647 $458,967 ======== ======== See accompanying notes to consolidated financial statements. Page 4 Ameron International Corporation and Subsidiaries Consolidated Statements of Cash Flows (In thousands) (Unaudited) Nine Months Ended August 31, ------------------- 2000 1999 -------- -------- Cash Flows from Operating Activities Net Income $ 15,121 $ 15,010 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Depreciation 12,583 13,506 Amortization 648 1,431 Deferred Income Taxes 1,726 - Equity in Earnings of Affiliated Companies (11,071) (5,772) Dividends from Affiliated Companies 13,651 5,731 Gain from Sale of Assets (12) (130) Other, Net - 1,711 Changes in Operating Assets and Liabilities: Receivables (21,107) 5,401 Inventories 1,446 5,576 Prepaid Expenses and Other Current Assets (492) (2,534) Trade Payables, Accrued Liabilities and Income Taxes Payable (1,916) (13,895) Other Long-Term Assets and Liabilities (5,954) 8,024 -------- -------- Net Cash Provided by Operating Activities 4,623 34,059 -------- -------- Cash Flows from Investing Activities Proceeds from Sale of Property, Plant and Equipment 309 1,790 Additions to Property, Plant and Equipment (13,479) (11,901) Other - (3,755) -------- -------- Net Cash Used in Investing Activities (13,170) (13,866) -------- -------- Cash Flows from Financing Activities Net Change in Short-Term Borrowings 1,147 1,268 Issuance of Debt 16,100 1,283 Repayment of Debt (2,351) (23,718) Dividends on Common Stock (3,811) (3,835) Purchase of Treasury Stock (2,885) (1,415) -------- -------- Net Cash Provided by (Used in) Financing Activities 8,200 (26,417) -------- -------- Effect of Exchange Rate Changes on Cash and Cash Equivalents (632) (477) -------- -------- Net Change in Cash and Cash Equivalents (979) (6,701) Cash and Cash Equivalents at Beginning of Period 10,521 16,376 -------- -------- Cash and Cash Equivalents at End of Period $ 9,542 $ 9,675 ======== ======== See accompanying notes to consolidated financial statements. Page 5 Ameron International Corporation and Subsidiaries Notes to Consolidated Financial Statements (In Thousands) (Unaudited) Note 1. Basis Of Presentation Consolidated financial statements for the interim periods included herein are unaudited; however, they contain all adjustments, including normal recurring accruals, which in the opinion of management, are necessary to present fairly the consolidated financial position of Ameron International Corporation (the "Company" or "Ameron") at August 31, 2000, and its consolidated results of operations for the three and nine months ended August 31, 2000 and 1999, and cash flows for the nine months ended August 31, 2000 and 1999. Accounting measurements at interim dates inherently involve greater reliance on estimates than at year-end. Results of operations for the periods presented are not necessarily indicative of the results to be expected for the full year. The consolidated financial statements do not include certain footnote disclosures and financial information normally included in consolidated financial statements prepared in accordance with generally accepted accounting principles and, therefore, should be read in conjunction with the consolidated financial statements and notes included in Ameron's Annual Report on Form 10-K for the year ended November 30, 1999. Note 2. New Accounting Pronouncements In 1998, Statement of Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting for Derivative Instruments and Hedging Activities," was issued. This standard was amended by Statement of Financial Accounting Standards No. 137 ("SFAS 137"), "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133." SFAS 137 changed the effective date for SFAS 133 to all fiscal quarters of fiscal years beginning after June 15, 2000. In June 2000, Statement of Financial Accounting Standards No. 138 ("SFAS 138"), "Accounting for Certain Derivative Instruments and Certain Hedging Activities, an amendment of SFAS 133," was issued. Ameron is required to adopt SFAS 133 and 138 beginning December 1, 2000. The Company is currently evaluating the impact of adopting SFAS 133 and 138. In 1999, the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB 101"), and further amended it to defer the effective date. SAB 101 summarized certain of the SEC Staff's views on applying generally accepted accounting principles to revenue recognition. The Company is required to adopt the provisions of SAB 101 no later than November 30, 2001. The Company is currently evaluating the impact of adopting SAB 101. Page 6 Note 3. Inventories Inventories are stated at the lower of cost (principally first-in, first-out)or market. Inventories were comprised of the following: Aug. 31, Nov. 30, 2000 1999 -------- -------- Finished Products $ 56,879 $ 56,122 Products in Process 12,353 17,382 Materials and Supplies 22,649 21,984 -------- -------- Total Inventories $ 91,881 $ 95,488 ======== ======== Note 4. Supplemental Disclosure of Cash Flow Information Nine Months Ended August 31, ------------------- 2000 1999 -------- -------- Interest Paid $ 7,140 $ 8,187 Income Taxes Paid $ 6,008 $ 14,344 Note 5. Unconsolidated Affiliated Companies Operating results of affiliated companies, which were accounted for by the equity method, were as follows: Three Months Ended Nine Months Ended August 31, August 31, ------------------- ------------------- 2000 1999 2000 1999 -------- -------- -------- -------- Net Sales $ 68,621 $ 52,408 $181,127 $152,632 Gross Profit $ 19,524 $ 18,310 $ 51,932 $ 48,955 Net Income $ 9,967 $ 8,983 $ 24,386 $ 25,511 Amounts shown above were the operating results of Ameron Saudi Arabia, Ltd., Bondstrand, Ltd. and Oasis-Ameron, Ltd. for the three and nine months ended June 30, 2000 and 1999 and TAMCO for the three and nine months ended August 31, 2000 and 1999. Ameron's equity in earnings of affiliated companies is included in other income. Note 6. Earnings Per Share ("EPS") Net income per basic share is computed on the basis of the weighted average number of common shares outstanding each period. Net income per diluted share is computed on the basis of the weighted average total of common shares outstanding each period plus the effect of outstanding stock options, excluding those that would be anti-dilutive, using the treasury stock method. Page 7 Following is a reconciliation of the weighted average number of shares used in the computation of basic and diluted EPS: Three Months Ended Nine Months Ended August 31, August 31, -------------------- -------------------- 2000 1999 2000 1999 --------- --------- --------- --------- Basic Average Common Shares Outstanding 3,929,342 3,991,912 3,968,244 3,997,679 Dilutive Effect of Stock Options 6,515 32,500 7,100 19,139 --------- --------- --------- --------- Diluted Average Common Shares Outstanding 3,935,857 4,024,412 3,975,344 4,016,818 ========= ========= ========= ========= Note 7. Other Comprehensive Income Comprehensive income was computed as follows: Three Months Ended Nine Months Ended August 31, August 31, ------------------- ------------------- 2000 1999 2000 1999 -------- -------- -------- -------- Net Income $ 7,981 $ 7,986 $ 15,121 $ 15,010 Foreign Currency Translation Adjustment, Net of Tax (1,553) (100) (8,240) (3,883) -------- -------- -------- -------- Comprehensive Income $ 6,428 $ 7,886 $ 6,881 $ 11,127 ======== ======== ======== ======== Note 8. Debt The Company's long-term debt consisted of the following: Aug. 31, Nov. 30, 2000 1999 -------- -------- Fixed-rate unsecured notes payable: 9.79%, payable in annual principal installments of $12,000 $ 12,000 $ 12,000 7.92%, payable in annual principal installments of $8,333, commencing in 2001 50,000 50,000 Variable-rate Industrial Development Bonds, Payable in 2016 (4.35% at August 31, 2000) 7,200 7,200 Variable-rate unsecured bank revolving credit facilities (approximately 7.02% at August 31, 2000) 90,297 77,144 Variable-rate unsecured bank loan, payable by a consolidated subsidiary in Dutch guilders, with annual principal installments of approximately $527 (5.43% at August 31, 2000) 922 1,488 -------- -------- Total Long-Term Debt 160,419 147,832 Less Current portion ( 12,527) ( 12,595) -------- -------- Long-Term Debt, Less Current Portion $147,892 $135,237 ======== ======== Page 8 Note 9. Segment Information The Company provides certain information about operating segments in accordance with Statement of Financial Accounting Standards No. 131 ("SFAS 131"), "Disclosure about Segments of an Enterprise and Related Information." In accordance with SFAS 131, the Company has determined that is has four operating segments: The Performance Coatings & Finishes Group, the Fiberglass-Composite Pipe Group, the Water Transmission Group, and the Infrastructure Products Group. Each of these segments has a dedicated management team and is managed separately, primarily because of differences in products. Following is information related to each operating segment included in, and in a manner consistent with, internal management reports: Three Months Ended Nine Months Ended August 31, August 31, ------------------- ------------------- 2000 1999 2000 1999 -------- -------- -------- -------- Sales Performance Coatings & Finishes $ 48,649 $ 52,545 $138,107 $151,094 Fiberglass-Composite Pipe 24,176 21,329 73,256 71,030 Water Transmission 31,866 38,821 102,866 110,811 Infrastructure Products 28,505 26,317 80,637 78,943 Eliminations (102) (217) (236) (716) -------- -------- -------- -------- Total Sales $133,094 $138,795 $394,630 $411,162 ======== ======== ======== ======== Income (Loss) Before Interest and Income Taxes Performance Coatings & Finishes $ 933 $ 3,369 $ 2,498 $ 7,038 Fiberglass-Composite Pipe 3,189 3,816 10,478 12,212 Water Transmission 6,047 9,181 13,757 18,438 Infrastructure Products 4,426 3,904 11,624 11,035 Corporate & Unallocated (1,040) (5,079) (9,194) (16,276) -------- -------- -------- -------- Total Income Before Interest and Income Taxes $ 13,555 $ 15,191 $ 29,163 $ 32,447 ======== ======== ======== ======== Aug. 31, Nov. 30, 2000 1999 -------- -------- Assets Performance Coatings & Finishes $137,948 $148,436 Fiberglass-Composite Pipe 127,146 117,561 Water Transmission 108,541 100,177 Infrastructure Products 60,545 57,208 Corporate & Unallocated 161,469 159,077 Eliminations (128,002) (123,492) -------- -------- Total Assets $467,647 $458,967 ======== ======== Investments Performance Coatings & Finishes $ 2,203 $ 2,136 Fiberglass-Composite Pipe 3,784 3,784 Water Transmission - - Infrastructure Products - - Corporate & Unallocated 15,646 17,126 -------- -------- Total Investments $ 21,633 $ 23,046 ======== ======== Page 9 PART I. FINANCIAL INFORMATION Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Ameron International Corporation and Subsidiaries August 31, 2000 INTRODUCTION Management's Discussion and Analysis should be read in conjunction with the same discussion included in the Company's 1999 Annual Report on Form 10-K. Reference should also be made to the financial statements included in this Form 10-Q for comparative consolidated balance sheets and statements of income and cash flows. LIQUIDITY AND CAPITAL RESOURCES During the nine months ended August 31, 2000, the Company generated $4.6 million of cash from operating activities, compared to $34.1 million generated during the same period in 1999. Lower cash was generated in 2000 because of higher working capital requirements. Cash used in investing activities consisted of capital expenditures for normal replacement and upgrades of machinery and equipment. Management estimates that capital expenditures during fiscal 2000 will be between $15.0 million and $25.0 million. Capital expenditures will be funded from existing cash balances, cash generated from operations and existing lines of credit. Cash and additional net borrowings of $14.9 million were used to finance operations, for capital expenditures, for payment of common stock dividends of $3.8 million and to purchase treasury stock of $2.9 million. Cash and cash equivalents at August 31, 2000 totaled approximately $9.5 million, a decrease of $1.0 million from November 30, 1999. At August 31, 2000 the Company had approximately $105.0 million in unused committed and uncommitted credit lines available from foreign and domestic banks. The Company believes that cash and cash equivalents on hand, anticipated cash flows from operations and funds from existing lines of credit will be sufficient to meet future operating requirements. RESULTS OF OPERATIONS Net sales for the quarter ended August 31, 2000 were $133.1 million, down from $138.8 million in the third quarter of 1999. Net sales for the nine months ended August 31, 2000 were $394.6 million, down from $411.2 million for the same period in 1999. The decline in sales was principally due to lack of activity in certain segments within the coatings and water transmission industries. Earnings per diluted share for the quarter increased to $2.02, compared to $1.98 for the third quarter of 1999. Earnings per diluted share for the nine months ended August 31, 2000 totaled $3.81, compared to $3.74 for the same period of 1999. Higher earnings were due primarily to the strength of Ameron's joint-venture companies and lower interest expense and taxes. Sales of the Water Transmission Group decreased about $7.1 million in the third quarter and $7.9 million in the nine months ended August 31, 2000, compared to the same periods of 1999. Sales decreased because of a short-term decline in activity of the water pressure-pipe market in the western United States. Profitability decreased $3.1 million in the third quarter and $4.7 million in the nine months ended August 31, 2000, compared to the same periods of 1999, as a result of lower sales and unfavorable product mix and plant utilization. The fourth quarter is expected to improve based on current backlog and the scheduled timing of projects. Bidding activity is increasing, and backlogs are forecasted to increase early in 2001. Page 10 Sales of the Company's worldwide Fiberglass-Composite Pipe business increased $2.8 million in the third quarter and $2.2 million in the nine months ended August 31, 2000, compared to the same periods of 1999. Sales increased because of the strong demand for oil field piping. Profits from consolidated operations increased $0.6 million in the third quarter, compared to the third quarter of 1999, due to higher sales. Total Fiberglass-Composite Pipe profits, including equity income, declined in the third quarter of 2000 because of higher equity income in the third quarter of 1999. Total profits declined $1.7 million in the first nine months of 2000 primarily because of higher sales of higher-margin, fuel-handling piping associated with government-mandated conversions of gas stations in 1999. Additionally, profits in 2000 were impacted by costs of ramping up production to meet the sharp rise in demand for oil field piping. Sales of the Performance Coatings & Finishes Group declined $3.8 million in the third quarter and $13.0 million in the nine months ended August 31, 2000, compared to the same periods of 1999. The decrease was due primarily to the prolonged lack of activity in offshore and marine markets and the decline of the British manufacturing sector. Profits were lower primarily due to lower sales. Sales of the Infrastructure Products Group increased $2.2 million in the third quarter and $1.7 million in the nine months ended August 31, 2000, compared to the same periods of 1999. Sales and profits increased because of an improvement in Hawaiian operations. Ameron's pole products business declined as construction slowed due to higher interest rates. Selling, General and Administrative Expenses were lower in the third quarter and nine months ended August 31, 2000, compared to the same periods of 1999, primarily due to higher insurance and employee benefit costs in 1999. Equity income totaled $5.4 million in the third quarter and $11.1 million in the nine months ended August 31, 2000, compared to $2.4 million and $5.8 million, respectively, for the same periods of 1999. The increase reflected the continued strong performances of the Company's joint ventures. The effective tax rate was 25% in the third quarter and nine months ended August 31, 2000, compared to 32% for the same periods in 1999. The lower effective tax rate was based on the mix of income from domestic and foreign operations and joint ventures. Income from certain foreign and joint-venture operations is taxed at rates substantially lower than U.S. statutory tax rates. Item 3. Quantitative and Qualitative Market Risk Disclosure No material changes have occurred in the quantitative and qualitative market risk disclosure of the Company as presented in Ameron's Annual Report on Form 10-K for the year ended November 30, 1999. CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 Any of the above statements that refer to the Company's estimated or anticipated future results are forward-looking and reflect the Company's current analysis of existing trends and information. Actual results may differ from current expectations based on a number of factors affecting Ameron's businesses, including competitive conditions and changing market conditions. Matters affecting the economy generally, including the state of economies worldwide, can affect the Company's results. These forward-looking statements represent the Company's judgment only as of the date of this report. Since actual results could differ materially, the reader is cautioned not to rely on these forward-looking statements. Moreover, the Company disclaims any intent or obligation to update these forward looking statements. Page 11 Part II. OTHER INFORMATION Item 2. Changes in Securities Terms of lending agreements place restrictions on cash dividends, stock repurchases, borrowings, investments and guarantees and require maintenance of specified minimum working capital. Under the most restrictive provisions of these agreements, approximately $6.9 million of consolidated retained earnings were not restricted at August 31, 2000. Item 6. Exhibits and Reports on Form 8-K A Form 8-K was filed on June 30, 2000 to report the Company's financial results for the second quarter ended May 31, 2000, as reported in a press release dated June 21, 2000. Page 12 Signature Page Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Ameron International Corporation Date: October 13, 2000 /s/ Gary Wagner --------------------------------- Gary Wagner Senior Vice President, Chief Financial Officer Page 13