(Mark One)
Commission File No. 1 - 9102
|
DELAWARE (State or other jurisdiction of incorporation or organization) |
77-0100596 (I.R.S. Employer Identification No.) |
245
South Los Robles Avenue
Pasadena, California 91101-2820
(Address of principal executive offices)
(626) 683-4000
(Registrant's telephone number,
including area code)
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 3,943,912 on August 31, 2002. No other class of Common Stock exists.
1
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 and Qualitative Market Risk Disclosure 14
Item 4. Controls and Procedures 14 PART II. OTHER INFORMATION Item 1. Legal Proceedings 14 Item 2. Changes in Securities 14 Item 6. Exhibits and Reports on Form 8-K 15 SIGNATURE PAGE 16 CERTIFICATIONS 17 |
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Three Months Ended Nine Months Ended
August 31, August 31,
------------------------- -------------------------
2002 2001 2002 2001
----------- ----------- ----------- -----------
Sales $ 138,813 $ 144,864 $ 397,614 $ 410,139
Cost of Sales (102,260) (108,354) (295,058) (308,964)
----------- ----------- ----------- -----------
Gross Profit 36,553 36,510 102,556 101,175
Selling, General and
Administrative Expenses (25,312) (23,906) (80,688) (77,347)
Equity in Earnings of Joint Ventures 4,192 1,114 9,012 5,002
Other (Expense) Income, Net (143) 390 2,128 3,186
----------- ----------- ----------- -----------
Income before Interest
and Income Taxes 15,290 14,108 33,008 32,016
Interest Income 50 51 135 156
Interest Expense (1,726) (2,535) (5,804) (8,528)
----------- ----------- ----------- -----------
Income before Income Taxes 13,614 11,624 27,339 23,644
Provision for Income Taxes (4,903) (3,254) (9,295) (6,620)
----------- ----------- ----------- -----------
Net Income $ 8,711 $ 8,370 $ 18,044 $ 17,024
=========== =========== =========== ===========
Net Income per Share (Basic) $ 2.24 $ 2.16 $ 4.65 $ 4.40
=========== =========== =========== ===========
Net Income per Share (Diluted) $ 2.12 $ 2.09 $ 4.36 $ 4.30
=========== =========== =========== ===========
Weighted Average Shares (Basic) 3,892,507 3,872,907 3,879,953 3,870,790
=========== =========== =========== ===========
Weighted Average Shares (Diluted) 4,114,537 4,014,293 4,139,684 3,957,261
=========== =========== =========== ===========
Cash Dividends per Share $ .32 $ .32 $ .96 $ .96
=========== =========== =========== ===========
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August 31, November 30,
2002 2001
( Unaudited )
----------- -----------
ASSETS
Current Assets
Cash and Cash Equivalents $ 10,356 $ 11,315
Receivables, Less Allowances of $7,069
in 2002 and $6,699 in 2001 132,137 135,963
Inventories 85,289 92,534
Deferred Income Taxes 19,242 19,242
Prepaid Expenses and Other Current Assets 8,199 6,654
--------- ---------
Total Current Assets 255,223 265,708
Investments, Advances and Equity in
Undistributed Earnings of Joint Ventures 19,949 18,780
Property, Plant and Equipment, Net 145,621 145,801
Intangible assets, Net of Accumulated Amortization
of $8,380 in 2002 and $7,623 in 2001 13,069 13,158
Other Assets 42,442 41,633
--------- ---------
Total Assets $ 476,304 $ 485,080
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Short-Term Borrowings $ 1,206 $ 4,080
Current Portion of Long-Term Debt 71,758 8,597
Trade Payables 43,279 46,703
Accrued Liabilities 47,761 47,486
Income Taxes Payable 4,653 2,352
--------- ---------
Total Current Liabilities 168,657 109,218
Long-Term Debt, Less Current Portion 52,120 137,197
Other Long-Term Liabilities 28,968 34,418
--------- ---------
Total Liabilities 249,745 280,833
--------- ---------
Stockholders' Equity
Common Stock, Par Value $2.50 a Share,
Authorized 12,000,000 Shares, Outstanding
3,943,912 Shares in 2002 and 3,873,007
in 2001, Net of Treasury Shares 13,194 13,017
Additional Paid-In Capital 21,099 19,457
Retained Earnings 261,696 247,406
Accumulated Other Comprehensive Loss (20,771) (26,974)
Treasury Stock (1,333,655 Shares
in 2002 and 2001) (48,659) (48,659)
--------- ---------
Total Stockholders' Equity 226,559 204,247
--------- ---------
Total Liabilities and Stockholders' Equity $ 476,304 $ 485,080
========= =========
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Nine Months Ended
August 31,
-----------------------
2002 2001
-------- --------
Cash Flows from Operating Activities
Net Income $ 18,044 $ 17,024
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation 13,372 13,288
Amortization 419 631
Provision for Deferred Income Taxes 1,611 3,561
Equity in Earnings of Joint Ventures (9,012) (5,002)
Dividends from Joint Ventures 8,598 4,368
Gain from Sale of Assets (70) (25)
Stock Compensation Expense 540 1,451
Changes in Operating Assets and Liabilities:
Receivables 6,976 1,062
Inventories 7,875 (10,163)
Prepaid Expenses and Other Current Assets (1,373) (1,179)
Other Assets (880) (6,234)
Trade Payables (4,541) (441)
Other Current Liabilities 2,247 (12,114)
Other Long-Term Liabilities (7,027) 2,960
-------- --------
Net Cash Provided by
Operating Activities 36,779 9,187
-------- --------
Cash Flows from Investing Activities
Proceeds from Sale of Property, Plant and Equipment 370 830
Additions to Property, Plant and Equipment (10,570) (15,593)
-------- --------
Net Cash Used in Investing Activities (10,200) (14,763)
-------- --------
Cash Flows from Financing Activities
Net Change in Short-Term Borrowings (3,165) (503)
Issuance of Debt 785 9,583
Repayment of Debt, Net (22,600) (398)
Dividends on Common Stock (3,754) (3,716)
Issuance of Common Stock 1,279 130
Purchase of Treasury Stock -- 13
-------- --------
Net Cash (Used in) Provided By Financing Activities (27,455) 5,109
-------- --------
Effect of Exchange Rate Changes
on Cash and Cash Equivalents (83) 149
-------- --------
Net Change in Cash and Cash Equivalents (959) (318)
Cash and Cash Equivalents at Beginning of Period 11,315 11,514
-------- --------
Cash and Cash Equivalents at End of Period $ 10,356 $ 11,196
======== ========
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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 and all wholly-owned subsidiaries (the "Company" or "Ameron") at August 31, 2002, and its consolidated results of operations and cash flows for the three and nine months ended August 31, 2002 and 2001. 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 accounting principles generally accepted in the United States of America 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, 2001 ("2001 Annual Report").
Note 2. New Accounting Pronouncements
In July 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets." SFAS No. 142 requires, among other things, the discontinuance of goodwill amortization. In addition, the standard includes provisions for the reclassification of certain existing recognized intangibles as goodwill, reassessment of the useful lives of existing recognized intangibles, reclassification of certain intangibles out of previously reported goodwill and the identification of reporting units for purposes of assessing potential future impairments of goodwill. SFAS No. 142 also requires the Company to complete a transitional goodwill impairment test six months from the date of adoption. SFAS No. 142 is effective for the Company and will be adopted beginning December 1, 2002. The Company is currently evaluating the impact of adopting SFAS No. 142.
SFAS No. 143, "Accounting for Asset Retirement Obligations," which becomes effective for the Company on December 1, 2002, addresses the obligations and asset retirement costs associated with the retirement of tangible long-lived assets. SFAS No. 143 requires that the fair value of the liability for an asset retirement obligation be recorded when incurred. The asset retirement costs must be capitalized as part of the carrying value of the long-lived asset. If the liability is settled for an amount other than the recorded balance, either a gain or loss will be recognized at settlement. The Company is currently assessing the impact of adopting SFAS No. 143.
SFAS No. 144, "Impairment or Disposal of Long-Lived Assets," will become effective for the Company on December 1, 2002. SFAS No. 144 addresses financial accounting and reporting for the impairment or disposal of long-lived assets and provides guidance on implementation issues related to SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," and addresses the accounting for a segment of a business accounted for as a discontinued operation. The Company is currently assessing the impact of adopting SFAS No. 144.
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Note 3. Inventories
Inventories are stated at the lower of cost or market. Inventories were comprised of the following:
August 31, November 30,
2002 2001
--------- ---------
Finished Products $ 52,526 $ 58,397
Materials and Supplies 22,061 22,084
Products in Process 10,702 12,053
--------- ---------
$ 85,289 $ 92,534
========= =========
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Note 4. Supplemental Disclosure of Cash Flow Information
Nine Months Ended
August 31,
------------------------
2002 2001
--------- ---------
Interest Paid $ 4,705 $ 7,831
Income Taxes Paid $ 5,214 $ 7,523
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Note 5. Joint Ventures
Operating results of joint ventures, which
were accounted for by the equity method, were as follows:
Three Months Ended Nine Months Ended
August 31, August 31,
------------------------ ------------------------
2002 2001 2002 2001
--------- --------- --------- ---------
Net Sales $ 54,647 $ 57,402 $ 158,481 $ 168,290
Gross Profit $ 10,972 $ 13,756 $ 39,375 $ 43,352
Net Income $ 4,365 $ 6,977 $ 17,807 $ 20,845
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Amounts shown above include the operating results of Ameron Saudi Arabia, Ltd., Bondstrand, Ltd. and Oasis-Ameron, Ltd. for the three and nine months ended June 30, 2002 and 2001 and TAMCO for the three and nine months ended August 31, 2002 and 2001.
Note 6. Net Income Per Share
Basic net income per share is computed on the basis of the weighted average number of common shares outstanding during the periods presented. Common shares outstanding includes 40,000 restricted shares. Unvested restricted shares that are forfeitable are excluded from the basic share calculation. Diluted net income per share is computed on the basis of the weighted average number of common shares outstanding plus the effect of outstanding stock options and other common stock equivalents, using the treasury stock method. For the three and nine months ended August 31, 2002, options to purchase 10,500 common shares were anti-dilutive. All outstanding common stock equivalents were dilutive for the three months ended August 31, 2001, while options to purchase 74,500 common shares were anti-dilutive for the nine months ended August 31, 2001.
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Following is a reconciliation of the weighted average number of shares used in the computation of basic and diluted net income per share:
Three Months Ended Nine Months Ended
August 31, August 31,
------------------------ ------------------------
2002 2001 2002 2001
--------- --------- --------- ---------
Basic Average Common
Shares Outstanding 3,892,507 3,872,907 3,879,953 3,870,790
Dilutive Effect of
Common Stock Equivalents 222,030 141,386 259,731 86,471
--------- --------- --------- ---------
Diluted Average Common
Shares 4,114,537 4,014,293 4,139,684 3,957,261
========= ========= ========= =========
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Note 7. Comprehensive Income
Comprehensive income was computed as follows:
Three Months Ended Nine Months Ended
August 31, August 31,
------------------------ ------------------------
2002 2001 2002 2001
--------- --------- --------- ---------
Net Income $ 8,711 $ 8,370 $ 18,044 $ 17,024
Foreign Currency Translation
Adjustment 1,774 4,407 5,448 2,203
Comprehensive Income from Joint Venture 218 -- 755 --
--------- --------- --------- ---------
Comprehensive Income $ 10,703 $ 12,777 $ 24,247 $ 19,227
========= ========= ========= =========
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Note 8. Debt
The Company's long-term debt consisted of the following:
August 31, November 30,
2002 2001
--------- ---------
Fixed-rate unsecured notes payable, bearing
interest at 7.92%, in annual principal
installments of $8,333 $ 41,666 $ 41,666
Variable-rate industrial development bonds,
Payable in 2016 (1.55% at August 31, 2002) 7,200 7,200
Variable-rate industrial development bonds,
Payable in 2021 (1.70% at August 31, 2002) 8,500 8,500
Variable-rate unsecured bank revolving credit
facilities; payable in 2003 (2.58% at August 31, 2002) 63,425 84,910
Variable-rate unsecured bank loan,
Payable in 2004 (16.08% at August 31, 2002) 3,087 3,254
Variable-rate unsecured bank loan, payable
in Euros -- 264
--------- ---------
Total long-term debt 123,878 145,794
Less current portion (71,758) (8,597)
--------- ---------
Long-term debt, less current portion $ 52,120 $ 137,197
========= =========
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Note 9. Segment Information
The Company provides certain information about operating segments in accordance with SFAS No. 131, "Disclosure about Segments of an Enterprise and Related Information." In accordance with SFAS No. 131, the Company has determined that it
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has four operating segments: Performance Coatings & Finishes, Fiberglass-Composite Pipe, Water Transmission, and Infrastructure Products. Each of these segments has a dedicated management team and is managed separately, primarily because of differences in products. Inter-segment sales were not significant. The Company allocates certain selling, general and administrative expenses to operating segments utilizing assumptions believed to be appropriate in the circumstances. 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,
----------------------- ------------------------
2002 2001 2002 2001
--------- --------- --------- ---------
Sales
Performance Coatings & Finishes $ 47,409 $ 49,362 $ 134,325 $ 143,906
Fiberglass-Composite Pipe 22,705 29,038 63,931 83,180
Water Transmission 34,296 36,980 108,175 98,732
Infrastructure Products 34,582 29,489 91,882 84,969
Eliminations (179) (5) (699) (648)
--------- --------- --------- ---------
Total Sales $ 138,813 $ 144,864 $ 397,614 $ 410,139
========= ========= ========= =========
Income Before Interest
and Income Taxes
Performance Coatings & Finishes $ 2,912 $ 3,383 $ 5,128 $ 7,764
Fiberglass-Composite Pipe 1,989 2,229 7,372 9,761
Water Transmission 9,285 7,173 21,288 14,944
Infrastructure Products 4,750 3,020 11,346 8,770
Corporate & Unallocated (3,646) (1,697) (12,126) (9,223)
--------- --------- --------- ---------
Total Income Before Interest
and Income Taxes $ 15,290 $ 14,108 $ 33,008 $ 32,016
========= ========= ========= =========
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August 31, November 30,
2002 2001
--------- ---------
Assets
Performance Coatings & Finishes $ 135,756 $ 133,332
Fiberglass-Composite Pipe 136,989 133,267
Water Transmission 110,883 123,175
Infrastructure Products 72,417 65,518
Corporate & Unallocated 153,953 168,697
Eliminations (133,694) (138,909)
--------- ---------
Total Assets $ 476,304 $ 485,080
========= =========
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Note 10. Commitments & Contingencies
An action was filed in 1992 in the U.S. District
Court for the District of Arizona by the Central Arizona Water Conservation District ("CAWCD")
seeking damages against several parties, including the Company and the Company's
customer, Peter Kiewit Sons Company ("Kiewit"), in connection with
six prestressed concrete pipe siphons furnished and installed in the 1970's as
part of the Central Arizona Project ("CAP"), a federal project to
bring water from the Colorado River to Arizona. The CAWCD also filed
separate actions against the U.S. Bureau of Reclamation ("USBR") in
the U.S. Court of Claims and with the Arizona Projects Office of the USBR in
connection with the CAP siphons. The CAWCD alleged that the six CAP
siphons were defective and that the USBR and the defendants in the U.S. District
Court action were liable for damages for the repair or replacement of those siphons. On September 14, 1994, the U.S.
District Court granted the Company's motion to dismiss the CAWCD action
and entered judgement against the CAWCD and in favor of the Company and its
co-defendants. CAWCD filed a notice of appeal with the Ninth Circuit
Court of Appeals. Separately, on September 28, 1995, the Contracting
Officer for the USBR issued a final decision claiming for the USBR approximately
$40 million in damages against Kiewit, based in part on the Contracting
Officer's finding that the siphons supplied by the Company were defective.
That claim amount is considered by the Company to be duplicative of the damages
sought by the CAWCD for the repair or replacement of the siphons in its
aforementioned action in the U.S. District Court for 9 the District of Arizona.
The Contracting Officer's final decision was appealed by Kiewit to the U.S.
Department of the Interior Board of Contract Appeals ("IBCA").
The Company is actively cooperating with and assisting Kiewit in the
administrative appeal of that final decision before the IBCA. Trial on
that appeal commenced in November 2000; however, the proceeding was stayed with
the concurrence of the parties pending efforts aimed at a possible settlement of
the matter. Settlement efforts involving the USBR, Kiewit, the Company and
various insurance carriers are continuing. In the meantime, activity on
the IBCA appeal, as well as the aforementioned CAWCD appeal, continues to be
suspended. The Company internally, as well as through
independent third-party consultants, has conducted engineering analyses
regarding the allegations that the CAP siphons were defective and believes that
the siphons were manufactured in accordance with the project specifications and
other contract requirements; and, therefore, it is not liable for any claims
relating to the siphons, whether by the CAWCD or by the USBR. The Company
believes that it has meritorious defenses to these actions and that resultant
liability, if any, should not have a material effect on the financial position
of the Company or its results of operations. In addition, certain other claims, suits and
complaints that arise in the ordinary course of business, have been filed or are
pending against the Company. Management believes that these matters, and
the matters discussed above, are either adequately reserved, covered by
insurance, or would not have a material effect on the Company's financial position
or its results of operations if disposed of unfavorably. The Company is also subject to federal, state and
local laws and regulations concerning the environment and is currently
participating in administrative proceedings at several sites under these
laws. In the early 1970's, the Company disposed of certain quantities of
waste at the Stringfellow Hazardous Waste Site in Riverside County, California,
which is one of several priority sites on the Superfund list established by the
U.S. Environmental Protection Agency. During 2001 the Company settled the
only current action against it in connection with the remediation of that
site. The settlement did not have a material impact on the Company's
financial position or its results of operations. While the Company finds it difficult to estimate with any
certainty the total cost of remediation at the several sites, on the basis of
currently available information and reserves provided, the Company believes that
the outcome of such environmental regulatory proceedings will not have a
material effect on the Company's financial position or its results of
operations. The Company is one of numerous defendants in various pending
lawsuits involving 4,093 individuals or their representatives alleging personal injury from exposure
to asbestos-containing products. None of such lawsuits specifies any
dollar amount sought as damages by such individuals or their representatives, and at this time the Company
is not aware of the extent of injuries allegedly suffered by the individuals or
the facts supporting the claim that such injuries were caused by the Company's
products. Based upon the information available to it at this time, the
Company is not in a position to evaluate its potential exposure, if any, as a
result of these claims. The Company intends to vigorously defend all
asbestos-related lawsuits. Item
2. Management's Discussion and Analysis of Financial Ameron
International Corporation and Subsidiaries INTRODUCTION Management's Discussion and Analysis should
be read in conjunction with the same discussion included in the Company's 2001 Annual Report. 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. 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 have been 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
10 The Company's significant accounting policies are disclosed in Note 1 of
Notes to Consolidated Financial Statements in the Company's 2001 Annual
Report. Management believes the following accounting policies affect the
more significant estimates used in preparing the consolidated financial
statements. Revenue for the Performance Coatings & Finishes, Fiberglass-Composite
Pipe and Infrastructure Products segments is recognized primarily at the time
goods are shipped. Revenue is recognized for the Water Transmission Group
primarily under the percentage of completion method or, in some cases, at
shipment or at the time the goods are inspected and accepted by the customer. Revenue under the percentage of completion method is subject to
a greater level of estimation, which affects the timing of revenue, costs and
profits. Estimates are reviewed on a consistent basis and are adjusted
periodically to reflect current expectations. The Company expenses environmental clean-up costs related to existing
conditions resulting from past or current operations and from which no current
or future benefit is anticipated. The Company determines its liability on a
site-by-site basis and records a liability at the time when it is probable and
can be reasonably estimated. The estimated liability of the Company is not
discounted or reduced for possible recoveries from insurance carriers. 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 are valued using the last-in, first-out (LIFO) method.
Reserves are established for excess, obsolete and rework inventories based on
age, estimates of salability and forecasted future demand. Management records an allowance for doubtful accounts receivable based on
historical experience and expected trends. Property, plant and equipment
is stated on the basis of cost and depreciated principally on a straight-line
method based on the estimated useful lives of the related assets, generally 3 to
40 years. Investments in 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, plus the Company's equity in undistributed earnings or losses
since acquisition. Reserves are provided where management determines that
a portion of the investment or earnings are estimated not to be realizable. All long-lived assets, including property, plant and equipment, long-term
investments, goodwill and other intangible assets are reviewed by the Company
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 assets to
estimated fair value. 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 certain actuarial assumptions
followed in the insurance industry and historical experience. Defined benefit pension plans and postretirement health care and life
insurance benefits require estimating the cost of benefits to be provided well
into the future and attributing that cost to the time period each covered
employee works. To record these net assets and obligations, management
uses estimates relating to assumed inflation, investment returns, mortality,
employee turnover, rate of compensation increases, medical costs and discount
rates. Management along with third-party actuaries review all of these
assumptions on an ongoing basis. Management incentive compensation is accrued based on current estimates of
the Company's ability to achieve short-term and long-term performance targets. 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. 11 LIQUIDITY AND CAPITAL RESOURCES During the nine months ended August 31, 2002, the Company generated $36.8 million of cash
from operating
activities compared to $9.2 million generated from operations for the same period in 2001.
The higher operating cash flow in 2002 was due principally to higher income
and lower working capital requirements, primarily lower receivables and lower inventories. Net cash of $10.2 million was used in investing activities for the nine months ended
August 31, 2002, compared to $14.8 million used in the same
period in 2001. Cash used in investing activities consisted primarily of capital expenditures for normal replacement and upgrades of machinery and
equipment. Cash used in investing activities in 2001 also included capital expenditures for a
new concrete pole plant in Alabama. Management estimates that capital expenditures during fiscal
2002
will be between $13.0 million and $18.0 million. Capital
expenditures are expected to be funded by existing cash balances, cash generated from
operations and additional borrowings.
Net cash used in financing activities was $27.5 million in 2002, compared to
$5.1 million provided by financing activities in 2001. During 2002, $25.0
million was used to repay debt, and $3.8 million was used for payment of common stock dividends.
In 2002, $1.3 million was received from the issuance of common stock related to
the exercise of stock options. Cash and cash equivalents at August 31, 2002 totaled $10.4 million, a decrease of
$1.0 million from November 30, 2001. At August 31, 2002, the Company had
total debt outstanding of $125.1 million and approximately $127 million in unused committed and uncommitted credit
lines available from foreign and domestic banks. The Company is
currently negotiating with its banks to obtain a new revolving credit facility to
replace the Company's principal bank facility, a $150 million revolving credit
facility of which $51 million was utilized as of August 31, 2002. The
Company is able to borrow under the existing facility through April 3, 2003. Management believes that cash flows from operations and current cash
balances, together with currently available lines of credit will be sufficient to meet
operating requirements in 2002. Cash available from operations could be affected by any
general economic downturn or any downturn or adverse changes in the Company's
business, such as loss of customers or significant material price increases.
The availability of credit could also affect the Company's ability to
fund operations. The Company's contractual obligations and commercial commitments at August 31, 2002 are summarized as follows (in thousands):
Condition
and Results of Operations
August 31, 2002
Payments Due by Period
-------------------------------------------------
Less than 1 - 3 4 - 5 After 5
Contractual Obligations Total 1 year years years years
- -----------------------------------------------------------------------------------------------------------
Long-Term Debt (a) $123,878 $ 71,758 $ 28,086 $ 8,334 $15,700
Operating Leases 41,383 5,085 7,218 4,158 24,922
--------------------------------------------------
Total Contractual Obligations (b) $165,261 $ 76,843 $ 35,304 $12,492 $40,622
==================================================
Amount of Commitment
Expiration Per Period
---------------------------------------------------
Total Amounts Less than 1 - 3 4 - 5 After 5
Commercial Commitments Committed 1 year years years years
- -----------------------------------------------------------------------------------------------------------
Line of Credit (a) $ 1,206 $ 1,206 $ -- $ -- $ --
Standby Letters of Credit (c) 1,664 1,664 -- -- --
Guarantees (d) 4,692 4,692 -- -- --
--------------------------------------------------
Total Commercial Commitments (b) $ 7,562 $ 7,562 $ -- $ -- $ --
==================================================
(a) Included in long-term debt is $63,425 outstanding under unsecured bank lines supported by a revolving
credit facility, due in April, 2003. Lines of credit represent short-term borrowings by the Company's
foreign subsidiaries.
(b) The Company has no capitalized lease obligations, unconditional purchase obligations, or standby
repurchase obligations.
(c) Not included are standby letters of credit of $15,700 supporting industrial development bonds and $3,087
supporting a bank loan, which are included in long-term debt.
(d) The Company guarantees bank credit facilities for a joint venture.
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12
RESULTS OF OPERATIONS
Net income totaled $8.7 million, or $2.12 per diluted share, on sales of $138.8 million for the third quarter of 2002, compared to earnings of $8.4 million, or $2.09 per diluted share, on sales of $144.9 million for the same period in 2001. All operating groups, except Infrastructure Products Group, had lower sales. The slight, overall improvement in net income came principally from higher operating margins, higher equity income and lower interest expense.
Net income totaled $18.0 million, or $4.36 per diluted share, on sales of $397.6 million for the nine months ended August 31, 2002, compared to earnings of $17.0 million, or $4.30 per diluted share, on sales of $410.1 million for the same period in 2001. Higher segment income from the Water Transmission Group and the Infrastructure Products Group offset lower segment income from the Performance Coatings & Finishes Group and the Fiberglass-Composite Pipe Group. The overall improvement in net income came primarily from higher operating margins, higher equity income and lower interest expense.
Sales of the Water Transmission Group decreased $2.7 million in the third quarter and increased $9.4 million in the nine months ended August 31, 2002, compared to the same periods of 2001. Sales were lower in the third quarter due to the anticipated slowdown of operations in Northern California, which contributed to the sales increase in the first half of 2002, and production delays associated with the San Francisco/Oakland Bay Bridge project. Segment income increased $2.1 million in the third quarter and increased $6.3 million in the nine months ended August 31, 2002, compared to the same periods of 2001. Segment income in the third quarter was higher in spite of lower sales as a result of equity income of $3.3 million in 2002, compared to none in the same period of 2001, from Ameron's Saudi Arabian concrete-pipe affiliate. The long-term outlook for the Water Transmission Group remains positive based on current backlog.
Sales of the Company's worldwide Fiberglass-Composite Pipe Group decreased $6.3 million in the third quarter and $19.2 million in the nine months ended August 31, 2002, compared to the same periods of 2001. Sales decreased during the quarter and year to date because of the sluggishness in domestic and European industrial and fuel-handling markets, as well as softening in the worldwide oilfield market. Demand for oilfield piping remained lower during the third quarter because of uncertainty regarding the sustainability of oil prices. Additionally, Ameron's U.S. industrial business completed deliveries of a large water pipeline for a project in California during 2001. Segment income decreased by $.2 million in the third quarter and $2.4 million in the nine months ended August 31, 2002, compared to the same periods of 2001, due to lower sales. The profit reduction caused by lower sales was partially offset by higher margins associated with a change in product mix and lower raw materials costs. The near-term outlook for the Fiberglass-Composite Pipe Group remains uncertain; however, increased activity in Asian markets should offset the current slowdown in markets served by Ameron's U.S. and European operations.
Sales of the Performance Coatings & Finishes Group decreased $2.0 million in the third quarter and $9.6 million in the nine months ended August 31, 2002, compared to the same periods of 2001. Throughout 2002, sales of high-performance protective coatings declined in both Europe and the U.S., while sales of light-industrial finishes in Australia and New Zealand were higher. Segment income decreased $.5 million in the third quarter and $2.6 million in the nine months ended August 31, 2002, compared to the same periods of 2001, as a result of lower sales. Margins improved slightly throughout 2002 due to lower raw material costs. The outlook for the Performance Coatings & Finishes Group is dependent on the timing and strength of the economic recovery and improvements in the markets for high performance coatings.
Sales of the Infrastructure Products Group increased $5.1 million in the third quarter and $6.9 million in the nine months ended August 31, 2002, compared to the same periods of 2001, due to higher sales by Hawaiian and pole operations. Segment income increased by $1.7 million for the third quarter and $2.6 million in the nine months ended August 31, 2002, compared to the same periods of 2001. Sales of pole products increased as low interest rates continued to drive the strong U.S. housing market. Hawaiian operations benefited from the continued strength of residential, military and road construction in Hawaii. The outlook for the Infrastructure Products Group continues to improve due to the pace of construction in Hawaii and the rest of the U.S.
The Company's gross profit was flat for the third quarter and increased $1.4 million in the nine months ended August 31, 2002, despite reduced sales. Gross profit margins for the Company as a whole improved for the third quarter and the nine months ended August 31, 2002, compared to the same periods in 2001, primarily due to improved project and product mix within the Fiberglass-Composite Pipe Group and lower raw material costs for both the Fiberglass-Composite Pipe and Performance Coatings & Finishes Groups.
Selling, General and Administrative expenses were slightly higher in the third quarter and nine months ended August 31, 2002, compared to the same periods of 2001, primarily due to higher legal, insurance and pension costs.
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Interest expense decreased $.8 million for the third quarter and $2.7 million in the nine months ended August 31, 2002, compared to the same periods in 2001. The lower interest expense resulted primarily from lower interest rates on the Company's variable-rate debt.
The effective tax rate was 36% in the third quarter and 34% in the nine months ended August 31, 2002, compared to 28% for the same periods in 2001. The higher effective tax rate reflects the anticipated mix of income from domestic operations, foreign operations and joint ventures. Income from certain foreign operations and joint ventures 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 2001 Annual Report.
Item 4. Controls and Procedures
Within the 90 days prior to the date of this report, the Company carried out an evaluation, under the supervision and with the participation of the Company's management, including the Company's Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures pursuant to Exchange Act Rule 13a-14. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures are effective in timely alerting them to material information relating to the Company (including its consolidated subsidiaries) required to be included in the Company's periodic Securities and Exchange Commission filings. No significant changes were made in the Company's internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation.
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.
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is one of numerous defendants in various pending lawsuits involving 4,093 individuals or their representatives alleging personal injury from exposure to asbestos-containing products. None of such lawsuits specifies any dollar amount sought as damages by such individuals or their representatives, and at this time the Company is not aware of the extent of injuries allegedly suffered by the individuals or the facts supporting the claim that such injuries were caused by the Company's products. Based upon the information available to it at this time, the Company is not in a position to evaluate its potential exposure, if any, as a result of these claims. The Company intends to vigorously defend all asbestos-related lawsuits.
Item 2. Changes in Securities
Terms of lending agreements place restrictions on cash dividends, stock repurchases, borrowings, investments and guarantees. Under the most restrictive provisions of these agreements, approximately $28.4 million of consolidated retained earnings were not restricted at August 31, 2002.
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Item 6. Exhibits and Reports on Form 8-K
For the third quarter of 2002, a Form 8-K is being filed simultaneously for the Company related to the certification required under Section 906 of the Sarbanes-Oxley Act of 2002.
15
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:
September 26, 2002
16
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:
September 26, 2002
16 CERTIFICATIONS I, Gary Wagner, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Ameron
International Corporation; 2. Based on my knowledge, this quarterly
report does not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with
respect to the period covered by this quarterly report; 3. Based on my
knowledge, the financial statements, and other financial information included
in this quarterly report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this quarterly report; 4. The
registrant's other certifying officers and I are responsible for establishing
and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such
disclosure controls and procedures to ensure that material information
relating to the registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period in
which this quarterly report is being prepared; b) evaluated the
effectiveness of the registrant's disclosure controls and procedures as of a
date within 90 days prior to the filing date of this quarterly report (the
"Evaluation Date"); and c) presented in this quarterly report our
conclusions about the effectiveness of the disclosure controls and procedures
based on our evaluation as of the Evaluation Date; 5 The registrant's
other certifying officers and I have disclosed, based on our most recent
evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
function): a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified for
the registrant's auditors any material weaknesses in internal controls; and b)
any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls;
and 6. The registrant's other certifying officers and I have indicated
in this quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect internal
controls subsequent to the date or our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses. Date: September 26, 2002
17
CERTIFICATIONS
I, James S. Marlen, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Ameron
International Corporation; 2. Based on my knowledge, this quarterly
report does not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with
respect to the period covered by this quarterly report; 3. Based on my
knowledge, the financial statements, and other financial information included
in this quarterly report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this quarterly report; 4. The
registrant's other certifying officers and I are responsible for establishing
and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such
disclosure controls and procedures to ensure that material information
relating to the registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period in
which this quarterly report is being prepared; b) evaluated the
effectiveness of the registrant's disclosure controls and procedures as of a
date within 90 days prior to the filing date of this quarterly report (the
"Evaluation Date"); and c) presented in this quarterly report our
conclusions about the effectiveness of the disclosure controls and procedures
based on our evaluation as of the Evaluation Date; 5. The registrant's
other certifying officers and I have disclosed, based on our most recent
evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
function): a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified for
the registrant's auditors any material weaknesses in internal controls; and b)
any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls;
and 6. The registrant's other certifying officers and I have indicated
in this quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect internal
controls subsequent to the date or our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses. Date: September 26, 2002
18
By:
---------------------------------
Gary Wagner
Senior Vice President, Chief Financial Officer
By: /s/ Gary Wagner
---------------------------------
Gary Wagner
Senior Vice President, Chief Financial Officer
/s/ Gary Wagner
---------------------------------
Gary Wagner
Senior Vice President, Chief Financial Officer
/s/ James S. Marlen
---------------------------------
James S. Marlen
Chairman of the Board, President & Chief Executive Officer