(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 3,915,282 on May 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
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 14 Item 2. Changes in Securities 14 Item 4. Submission of Matters to a Vote of Security Holders 14 Item 6. Exhibits and Reports on Form 8-K 15 SIGNATURE PAGE 16 |
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Three Months Ended Six Months Ended
May 31, May 31,
------------------------- -------------------------
2002 2001 2002 2001
----------- ----------- ----------- -----------
Sales $ 138,099 $ 143,670 $ 258,801 $ 265,275
Cost of Sales (102,535) (108,904) (192,798) (200,610)
----------- ----------- ----------- -----------
Gross Profit 35,564 34,766 66,003 64,665
Selling, General and
Administrative Expenses (28,138) (26,943) (55,376) (53,441)
Equity in Earnings of Joint Ventures 4,006 2,889 4,820 3,888
Other Income, Net 1,294 1,987 2,271 2,796
----------- ----------- ----------- -----------
Income before Interest
and Income Taxes 12,726 12,699 17,718 17,908
Interest Income 67 52 85 105
Interest Expense (1,672) (2,925) (4,078) (5,993)
----------- ----------- ----------- -----------
Income before Income Taxes 11,121 9,826 13,725 12,020
Provision for Income Taxes (3,559) (2,752) (4,392) (3,366)
----------- ----------- ----------- -----------
Net Income $ 7,562 $ 7,074 $ 9,333 $ 8,654
=========== =========== =========== ===========
Net Income per Share (Basic) $ 1.95 $ 1.83 $ 2.41 $ 2.24
=========== =========== =========== ===========
Net Income per Share (Diluted) $ 1.82 $ 1.78 $ 2.25 $ 2.20
=========== =========== =========== ===========
Weighted Average Shares (Basic) 3,874,345 3,870,107 3,873,676 3,869,732
=========== =========== =========== ===========
Weighted Average Shares (Diluted) 4,165,128 3,963,523 4,152,257 3,928,746
=========== =========== =========== ===========
Cash Dividends per Share $ .32 $ .32 $ .64 $ .64
=========== =========== =========== ===========
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May 31, November 30,
2002 2001
( Unaudited )
----------- -----------
ASSETS
Current Assets
Cash and Cash Equivalents $ 7,293 $ 11,315
Receivables, Less Allowances of $7,232
in 2002 and $6,699 in 2001 141,313 135,963
Inventories 90,624 92,534
Deferred Income Taxes 19,242 19,242
Prepaid Expenses and Other Current Assets 7,724 6,654
--------- ---------
Total Current Assets 266,196 265,708
Investments, Advances and Equity in
Undistributed Earnings of Joint Ventures 20,012 18,780
Property, Plant and Equipment, Net 144,582 145,801
Intangible assets, Net of Accumulated Amortization
of $8,107 in 2002 and $7,623 in 2001 13,071 13,158
Other Assets 41,847 41,633
--------- ---------
Total Assets $ 485,708 $ 485,080
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Short-Term Borrowings $ 1,292 $ 4,080
Current Portion of Long-Term Debt 100,757 8,597
Trade Payables 38,872 46,703
Accrued Liabilities 44,279 47,486
Income Taxes Payable 1,657 2,352
--------- ---------
Total Current Liabilities 186,857 109,218
Long-Term Debt, Less Current Portion 52,288 137,197
Other Long-Term Liabilities 29,728 34,418
--------- ---------
Total Liabilities 268,873 280,833
--------- ---------
Stockholders' Equity
Common Stock, Par Value $2.50 a Share,
Authorized 12,000,000 Shares, Outstanding
3,915,282 Shares in 2002 and 3,873,007
in 2001, Net of Treasury Shares 13,122 13,017
Additional Paid-In Capital 20,887 19,457
Retained Earnings 254,248 247,406
Accumulated Other Comprehensive Loss (22,763) (26,974)
Treasury Stock (1,333,655 Shares
in 2002 and 2001) (48,659) (48,659)
--------- ---------
Total Stockholders' Equity 216,835 204,247
--------- ---------
Total Liabilities and Stockholders' Equity $ 485,708 $ 485,080
========= =========
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Six Months Ended
May 31,
-----------------------
2002 2001
-------- --------
Cash Flows from Operating Activities
Net Income $ 9,333 $ 8,654
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation 8,915 8,815
Amortization 329 561
Provision for Deferred Income Taxes 1,598 210
Equity in Earnings of Joint Ventures (4,820) (3,888)
Dividends from Joint Ventures 4,125 4,230
Gain from Sale of Assets (57) --
Stock Compensation Expense 1,433 1,252
Changes in Operating Assets and Liabilities:
Receivables (3,580) 536
Inventories 3,130 (6,513)
Prepaid Expenses and Other Current Assets (971) (351)
Other Assets (214) (3,844)
Trade Payables (8,504) 5,392
Other Current Liabilities (4,304) (8,729)
Other Long-Term Liabilities (6,246) 1,986
-------- --------
Net Cash Provided by
Operating Activities 167 8,311
-------- --------
Cash Flows from Investing Activities
Proceeds from Sale of Property, Plant and Equipment 232 221
Additions to Property, Plant and Equipment (6,079) (12,467)
-------- --------
Net Cash Used in Investing Activities (5,847) (12,246)
-------- --------
Cash Flows from Financing Activities
Net Change in Short-Term Borrowings (3,194) 364
Issuance of Debt 7,040 8,617
Repayment of Debt, Net -- (273)
Dividends on Common Stock (2,491) (2,477)
Issuance of Common Stock 102 111
Purchase of Treasury Stock -- 13
-------- --------
Net Cash Provided By Financing Activities 1,457 6,355
-------- --------
Effect of Exchange Rate Changes
on Cash and Cash Equivalents 201 (100)
-------- --------
Net Change in Cash and Cash Equivalents (4,022) 2,320
Cash and Cash Equivalents at Beginning of Period 11,315 11,514
-------- --------
Cash and Cash Equivalents at End of Period $ 7,293 $ 13,834
======== ========
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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 May 31, 2002, and its consolidated results of operations and cash flows for the three and six months ended May 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 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:
May 31, November 30,
2002 2001
--------- ---------
Finished Products $ 56,824 $ 58,397
Materials and Supplies 20,788 22,084
Products in Process 13,012 12,053
--------- ---------
$ 90,624 $ 92,534
========= =========
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Note 4. Supplemental Disclosure of Cash Flow Information
Six Months Ended
May 31,
------------------------
2002 2001
--------- ---------
Interest Paid $ 3,842 $ 6,065
Income Taxes Paid $ 3,592 $ 3,850
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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 Six Months Ended
May 31, May 31,
------------------------ ------------------------
2002 2001 2002 2001
--------- --------- --------- ---------
Net Sales $ 52,105 $ 57,958 $ 103,834 $ 110,888
Gross Profit $ 13,476 $ 14,025 $ 28,403 $ 29,596
Net Income $ 6,137 $ 7,150 $ 13,442 $ 13,868
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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 six months ended March 31, 2002 and 2001 and TAMCO for the three and six months ended May 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 issued during the quarter ended May 31, 2002. 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. All outstanding common stock equivalents were dilutive for the three months ended May 31, 2002, while options to purchase 10,500 common shares were anti-dilutive for the six months ended May 31, 2002. For the three and six months ended May 31, 2001, options to purchase 116,000 common shares were anti-dilutive.
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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 Six Months Ended
May 31, May 31,
------------------------ ------------------------
2002 2001 2002 2001
--------- --------- --------- ---------
Basic Average Common
Shares Outstanding 3,874,345 3,870,107 3,873,676 3,869,732
Dilutive Effect of
Common Stock Equivalents 290,783 93,416 278,581 59,014
--------- --------- --------- ---------
Diluted Average Common
Shares Outstanding 4,165,128 3,963,523 4,152,257 3,928,746
========= ========= ========= =========
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Note 7. Comprehensive Income
Comprehensive income was computed as follows:
Three Months Ended Six Months Ended
May 31, May 31,
------------------------ ------------------------
2002 2001 2002 2001
--------- --------- --------- ---------
Net Income $ 7,562 $ 7,074 $ 9,333 $ 8,654
Foreign Currency Translation
Adjustment 4,228 (4,443) 3,674 (2,204)
Comprehensive Income from Joint Venture 517 -- 537 --
--------- --------- --------- ---------
Comprehensive Income $ 12,307 $ 2,631 $ 13,544 $ 6,450
========= ========= ========= =========
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Note 8. Debt
The Company's long-term debt consisted of the following:
May 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 May 31, 2002) 7,200 7,200
Variable-rate industrial development bonds,
Payable in 2021 (1.70% at May 31, 2002) 8,500 8,500
Variable-rate unsecured bank revolving credit
facilities; payable in 2003 (2.54% at May 31, 2002) 92,424 84,910
Variable-rate unsecured bank loan,
Payable in 2004 (18.67% at May 31, 2002) 3,255 3,254
Variable-rate unsecured bank loan, payable
in Euros -- 264
--------- ---------
153,045 145,794
Less Current portion (100,757) (8,597)
--------- ---------
$ 52,288 $ 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 Six Months Ended
May 31, May 31,
----------------------- ------------------------
2002 2001 2002 2001
--------- --------- --------- ---------
Sales
Performance Coatings & Finishes $ 48,691 $ 51,799 $ 86,916 $ 94,544
Fiberglass-Composite Pipe 19,633 30,450 41,226 54,142
Water Transmission 40,500 33,654 73,879 61,752
Infrastructure Products 29,551 27,962 57,300 55,480
Eliminations (276) (195) (520) (643)
--------- --------- --------- ---------
Total Sales $ 138,099 $ 143,670 $ 258,801 $ 265,275
========= ========= ========= =========
Income Before Interest
and Income Taxes
Performance Coatings & Finishes $ 2,916 $ 4,277 $ 2,216 $ 4,381
Fiberglass-Composite Pipe 2,981 5,291 5,383 7,532
Water Transmission 7,381 4,329 12,003 7,771
Infrastructure Products 3,620 2,663 6,596 5,750
Corporate & Unallocated (4,172) (3,861) (8,480) (7,526)
--------- --------- --------- ---------
Total Income Before Interest
and Income Taxes $ 12,726 $ 12,699 $ 17,718 $ 17,908
========= ========= ========= =========
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May 31, November 30,
2002 2001
--------- ---------
Assets
Performance Coatings & Finishes $ 135,661 $ 133,332
Fiberglass-Composite Pipe 131,284 133,267
Water Transmission 120,862 123,175
Infrastructure Products 70,971 65,518
Corporate & Unallocated 154,240 168,697
Eliminations (127,310) (138,909)
--------- ---------
Total Assets $ 485,708 $ 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 1,588 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. 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
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 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 to ensure that the most recent information
available is being considered. 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 six months ended May 31, 2002, the Company generated $0.2 million of cash
in operating
activities compared to $8.3 million generated from operations for the same period in 2001.
The lower operating cash flow in 2002 was due principally to
Condition
and Results of Operations
May 31, 2002
Net cash of $5.8 million was used in investing activities for the six months ended May 31, 2002, compared to $12.2 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 $15.0 million and $25.0 million. Capital expenditures are expected to be funded by existing cash balances, cash generated from operations and additional borrowings.
Net cash provided by financing activities was $1.5 million in 2002, compared with $6.4 million in 2001. Net borrowings of $3.8 million in 2002 were used to finance operations, for capital expenditures and for payment of common stock dividends of $2.5 million.
Cash and cash equivalents at May 31, 2002 totaled $7.3 million, a decrease of $4.0 million from November 30, 2001. At May 31, 2002 the Company had total debt outstanding of $154.3 million and approximately $96.8 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 $80 million was utilized as of May 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 May 31, 2002 are summarized as follows (in thousands):
Payments Due by Period
-------------------------------------------------
Less than 1 - 3 4 - 5 After 5
Contractual Obligations Total 1 year years years years
-----------------------------------------------------------------------------------------------------------
Long-Term Debt (a) $153,045 $100,757 $ 28,254 $ 8,334 $15,700
Operating Leases 42,587 4,986 7,818 4,430 25,353
--------------------------------------------------
Total Contractual Obligations (b) $195,632 $105,743 $ 36,072 $12,764 $41,053
==================================================
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) $ 1,292 $ 1,292 $ -- $ -- $ --
Standby Letters of Credit (c) 2,975 2,975 -- -- --
Guarantees (d) 4,692 4,692 -- -- --
--------------------------------------------------
Total Commercial Commitments (b) $ 8,959 $ 8,959 $ -- $ -- $ --
==================================================
(a) Included in long-term debt is $92,424 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 $3,255
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 $7.6 million, or $1.82 per diluted share, on sales of $138.1 million for the second quarter of 2002, compared to earnings of $7.1 million, or $1.78 per diluted share, on sales of $143.7 million for the same period in 2001. Sales improvements by both the Water Transmission and Infrastructure Products businesses were not sufficient to offset declines by the Performance Coatings & Finishes Group and, to a greater extent, the Fiberglass-Composite Pipe Group. The slight, overall improvement in net income came principally from higher operating margins, higher equity income and lower interest expense.
Net income totaled $9.3 million, or $2.25 per diluted share, on sales of $258.8 million for the six months ended May 31, 2002, compared to earnings of $8.7 million, or $2.20 per diluted share, on sales of $265.3 million for the same period in 2001. Improvements by the Water Transmission Group and the Infrastructure Products Group offset lower results 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 increased $6.8 million in the second quarter and $12.1 million in the six months ended May 31, 2002, compared to the same periods of 2001. Sales were higher due to the continued demand for water and waste water piping in California and Arizona. Segment income increased $3.1 million in the second quarter and $4.2 million in the six months ended May 31, 2002, compared to the same periods of 2001, as a result of higher sales and improved product mix. The outlook for the Water Transmission Group is positive, due to the strong order backlog. During the second quarter, the Water Transmission Group was awarded a $57 million contract for the fabrication of steel pilings for the San Francisco/Oakland Bay Bridge. Ameron's share of the project will extend through the end of 2003.
Sales of the Company's worldwide Fiberglass-Composite Pipe Group decreased $10.8 million in the second quarter and $12.9 million in the six months ended May 31, 2002, compared to the same periods of 2001. Sales decreased because of the continued sluggishness in domestic and European industrial and fuel-handling markets, as well as softening in the worldwide oilfield market. Demand for oilfield piping decreased dramatically during the second 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 $2.3 million in the second quarter and $2.1 million in the six months ended May 31, 2002, compared to the same periods of 2001, due to lower sales. 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 $3.1 million in the second quarter and $7.6 million in the six months ended May 31, 2002, compared to the same periods of 2001. Sales of high-performance protective coatings declined in both Europe and the U.S. while sales of light-industrial finishes in the U.K., Australia and New Zealand were flat in the first quarter and higher in the second quarter. Segment income decreased $1.4 million in the second quarter and $2.2 million in the six months ended May 31, 2002, compared to the same periods of 2001, as a result of lower sales. 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 $1.6 million in the second quarter and $1.8 million in the six months ended May 31, 2002, compared to the same periods of 2001. Segment income increased by $1.0 million for the second quarter and $.8 million in the six months ended May 31, 2002, compared to the same periods of 2001 as a result of improved Hawaiian operations. Sales of pole products increased as low interest rates continued to drive the strong U.S. housing market. The outlook for the Infrastructure Products Group appears to be improving due to the pace of military and residential construction in Hawaii.
The Company's gross profit increased $.8 million for the second quarter and $1.3 million in the six months ended May 31, 2002, despite reduced sales. Gross profit margins for the Company as a whole improved slightly in both the second quarter and six months ended May 31, 2002, compared to the same periods in 2001 primarily due to improved project and product mix within the Water Transmission and Fiberglass-Composite Pipe Groups and lower raw material prices for both the Fiberglass-Composite Pipe and Performance Coatings & Finishes Groups.
Selling, General and Administrative expenses were slightly higher in the second quarter and six months ended May 31, 2002, compared to the same periods of 2001, primarily due to higher insurance and benefit costs.
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Interest expense decreased $1.3 million for the second quarter and $1.9 million in the six months ended May 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 32% in the second quarter and six months ended May 31, 2002, compared to 28% for the same periods in 2001. The higher effective tax rate reflected 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.
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 1,588 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 $23.0 million of consolidated retained earnings were not restricted at May 31, 2002.
Item 4. Submission of Matters to a Vote of Security Holders
The Company's Annual Meeting of Stockholders was held on March 20, 2002. Represented at the meeting, in person or by proxy, were 3,650,598 shares of common stock (94.3% of the total shares outstanding). Stockholders voted on the following matters at this meeting:
1. Election of Directors
The two nominees named in the Company's proxy statement, Messrs. Foss and Marlen, having received the greatest number of votes cast, were re-elected to serve for another term with each
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receiving not less than 3,287,248 votes on a cumulative basis.
Other directors whose terms of office continued after the meeting are: Peter K. Barker, J. Michael Hagan, Terry L. Haines, John F. King, Alan L. Ockene and John E. Peppercorn.
2. Proposal to Ratify the Appointment of Auditors
3,542,055 shares (97.0% of the shares represented at the meeting and 91.5% of the shares outstanding) voted in favor of the proposal to ratify the appointment of Deloitte & Touche LLP as independent public accountants of the Company for fiscal year 2002. Of the shares represented at the meeting, 95,048 shares (2.6%) voted against the proposal.
Item 6. Exhibits and Reports on Form 8-K
A form 8-K was filed on May 7, 2002 to report, under Item 5, the award of a $57 million contract for supply of steel pilings for the San Francisco/Oakland Bay Bridge.
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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:
June 20, 2002
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By: /s/ Gary Wagner
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Gary Wagner
Senior Vice President, Chief Financial Officer