-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DD3GCskGTyTxzif9htXdoqXOStzJO09C1iPKFar67e+FCmZJEiw2ZNLIzs2nx4IS /3XmOrdKKC0AipD2sTj6yw== 0000912057-96-002996.txt : 19960227 0000912057-96-002996.hdr.sgml : 19960227 ACCESSION NUMBER: 0000912057-96-002996 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19951130 FILED AS OF DATE: 19960223 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERON INC/DE CENTRAL INDEX KEY: 0000790730 STANDARD INDUSTRIAL CLASSIFICATION: CONCRETE PRODUCTS, EXCEPT BLOCK & BRICK [3272] IRS NUMBER: 770100596 STATE OF INCORPORATION: DE FISCAL YEAR END: 1130 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 001-09102 FILM NUMBER: 96524910 BUSINESS ADDRESS: STREET 1: 245 S LOS ROBLES AVE CITY: PASADENA STATE: CA ZIP: 91101 BUSINESS PHONE: 8186834000 10-K405 1 10-K405 United States SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) [x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended November 30, 1995 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number 1-9102 AMERON, INC. (Exact name of registrant as specified in its charter) Delaware 77-0100596 (State of incorporation) (I.R.S. Employer Identification No.) 245 South Los Robles Avenue Pasadena, CA 91101 (Address and Zip Code of principal executive offices) Registrant's telephone number, including area code: (818) 683-4000 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: Name of each exchange Title of each class on which registered ---------------------------- --------------------- Common Stock $2.50 par value New York Stock Exchange SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x ----- The Registrant estimates that as of February 9, 1996 the aggregate market value of the shares of its Common Stock, $2.50 par value, held by non-affiliates of the Registrant (that is, shares beneficially owned by other than executive officers and directors) was in excess of $141 million. On February 9, 1996 there were 3,956,497 shares of Common Stock, $2.50 par value outstanding. This is the only class of Common Stock outstanding. DOCUMENTS INCORPORATED BY REFERENCE 1. PORTIONS OF AMERON'S 1995 ANNUAL REPORT TO STOCKHOLDERS (PARTS I, II AND IV). 2. PORTIONS OF AMERON'S PROXY STATEMENT FOR THE 1996 ANNUAL MEETING OF STOCKHOLDERS (PART III). PART I AMERON, INC. AMERON, INC., a Delaware corporation, and its consolidated subsidiaries are collectively referred to herein as "Ameron", the "Company", the "Registrant" or the "Corporation" unless the context clearly indicates otherwise. The business of the Company has been divided into business segments in Item 1(c)(1). Substantially all activities relate to the manufacture and supply of goods and services to the industrial, utility, marine and construction markets. All references to "the year" or "the fiscal year" pertain to the twelve months ended November 30, 1995. All references to the "Annual Report" pertain to the Company's 1995 Annual Report to Stockholders. ITEM 1 - BUSINESS (a) GENERAL DEVELOPMENT OF BUSINESS. Although the Company's antecedents date back to 1907, it evolved directly from the merger of two separate firms in 1929, resulting in the incorporation of American Concrete Pipe Co. on April 22, 1929. Various name changes occurred between that time and 1942, at which time the Company's name became American Pipe and Construction Co. By the late 1960s the Company was almost exclusively engaged in manufacturing and had expanded its product lines to include not only concrete and steel pipe but also high-performance protective coatings, ready-mix concrete, aggregates and reinforced thermosetting resin pipe and fittings. At the beginning of 1970, the Company's name was changed to Ameron, Inc. In the meantime, other manufactured products had been added to its product lines. These included concrete and steel poles for street and area lighting, and tapered steel vertical and cantilevered poles for traffic signals. In 1984, the Company acquired a major domestic fiberglass pipe business, including a manufacturing plant in Burkburnett, Texas. In 1988, the Company expanded its ability to serve the water transmission and distribution market through the acquisition of a major steel pipe fabricating facility in Fontana, California. Further details or commentary on the year's operations can be found in the Annual Report, which is Exhibit 13 to this report on Form 10-K, and which should be read in conjunction with this report. (b) FINANCIAL INFORMATION AS TO INDUSTRY SEGMENTS. The information contained in Notes (1), (4) and (14) of Notes to Consolidated Financial Statements on pages 44, 45, 50, 52 and 53 of the Annual Report is incorporated herein by reference. (c) NARRATIVE DESCRIPTION OF BUSINESS. (1) For geographical and operational convenience, the Company is organized into divisions. These divisions are combined into the following groups serving the following-described industry segments. a) The Protective Coatings Group develops, manufactures and markets high-performance coatings and surfacer systems on a world-wide basis. These products are utilized for the preservation of major structures, such as metallic and concrete facilities and equipment, to prevent their degradation by corrosion, abrasion, marine fouling and other forms of chemical and physical attack. The primary markets served include marine, offshore, petrochemical, power generation, petroleum, chemical, steel, pulp and paper, railroad, bridges, mining, metal processing and original equipment manufacturing. These products are marketed by direct sales, as well as through manufacturers' representatives, distributors and licensees. Competition is based upon quality, price and service. Manufacture of these products is carried out in the Company's plant in Arkansas, by a wholly-owned subsidiary in The Netherlands, by jointly-owned operations in Mexico and Saudi Arabia and by various third party licensees. The Company licenses its patents, trademarks, know-how and technical assistance to various of its subsidiary and affiliated companies and to various third-party licensees. b) The Fiberglass Pipe Group develops, manufactures and markets filament-wound and molded fiberglass pipe and fittings. These products are used by a wide range of process industries, including industrial, petroleum, chemical processing and petrochemical industries, for service station replacement piping systems, aboard marine vessels and on offshore oil platforms, and are marketed as an alternative to metallic piping systems which ultimately fail under corrosive operating conditions. These products are marketed by direct sales, as well as through manufacturers' representatives, distributors and licensees. Competition is based upon quality, price and service. Manufacture of these products is carried out in the Company's plants in Texas and South Carolina, by wholly-owned subsidiaries in The Netherlands and Singapore, and by a jointly-owned affiliate in Saudi Arabia. c) The Concrete & Steel Pipe Group supplies products and services used in the construction of pipeline facilities for various utilities. Eight plants are located in three of the continental western states. Also included within this group is American Pipe & Construction International, a wholly-owned subsidiary, with two plants in Colombia. These plants manufacture concrete cylinder pipe, prestressed concrete cylinder pipe, steel pipe and reinforced concrete pipe for water transmission, storm and industrial waste water and sewage collection. These products are marketed by direct selling using the Company's own personnel and by competitive bidding. Customers include local, state and federal agencies, developers and general contractors. Normally no one customer or group of customers will account for sales equal to or greater than 10 percent of the Company's consolidated revenue. However, occasionally, when more than one unusually large project is in progress, combined sales to all U.S. government agencies and/or general contractors for those agencies can reach those proportions. Besides competing with several other concrete pipe manufacturers located in the market area, alternative products such as ductile iron, asbestos cement, and clay pipe compete with the Company's concrete and steel pipe products, but ordinarily these other materials do not offer the full diameter range produced by the Company. Principal methods of competition are price, delivery schedule and service. The Company's technology is used in the Middle East through affiliated companies whose activities are not reflected in the amounts reported for this industry segment. This segment also includes the manufacturing and marketing on a world-wide basis through direct sales of polyvinyl chloride and polyethylene sheet lining for the protection of concrete pipe and cast-in-place concrete structures from the corrosive effects of sewer gases, acids and industrial chemicals. Competition is based on quality, price and service. Manufacture of this product is carried out in the Company's plant in California. This segment also includes engineered design, fabrication and direct sale of specialized proprietary equipment which is outside the regular business of the other segments of the Company's businesses. Competition for such work is based upon quality, price and service. Manufacture of such equipment is carried out in the Company's plant in California. d) The Construction & Allied Products Group includes the Hawaii Division, which supplies ready-mix concrete, crushed and sized basaltic aggregates, dune sand, concrete pipe and box culverts, primarily to the construction industry in Hawaii. These products are marketed through direct sales. Ample raw materials are available locally in Hawaii and, as to rock products, the Company has exclusive rights to a quarry containing many years' reserves. Within the market area there are competitors for each of the segment's products. No single competitor offers the full range of products sold by the Company in Hawaii. The principal methods of competition 2 are in price and service, since an appreciable portion of the segment's business is obtained through competitive bidding. This segment also includes the operations of the Pole Products Division, which manufactures and markets concrete and steel poles for highway, street and outdoor area lighting and for traffic signals. Sales are nationwide, but with a stronger concentration in the western states. Marketing is handled by the Company's own sales force and by outside sales agents. Competition for such products is mainly based on price, but with some consideration for service and delivery. Manufacture of these products is carried out in two plants in California, as well as plants in Washington and Oklahoma. e) Except as individually shown in the above descriptions of industry segments, the following comments or situations apply to all segments: (i) Because of the number of manufacturing locations and the variety of raw materials essential to the business, no critical situations exist with respect to supply of materials. The Company has multiple sources for raw materials. The effects of increases in costs of energy are being mitigated to the extent practical through conservation and through addition or substitution of equipment to manage the use and reduce consumption of energy. (ii) The Company owns certain patents and trademarks, both U.S. and foreign, related to its products. It licenses these proprietary items to some extent in the U.S., and to a greater degree abroad. These patents, trademarks, and licenses do not constitute a material portion of the Company's business. No franchises or concessions exist. (iii) Many of the Company's products are used in connection with capital goods, water and sewage transmission and construction of capital facilities. Favorable or adverse effects on general sales volume and earnings can result from weather conditions. Normally, sales volume and earnings will be lowest in the first fiscal quarter. Seasonal effects simply accelerate or slow the business volume and normally do not bring about severe changes in full-year activity. (iv) With respect to working capital items, the Company does not encounter any requirements which are not common to other companies engaged in the same industries. No unusual amounts of inventory are required to meet seasonal delivery requirements. All of the Company's industry segments turn their inventory between three and ten times annually. Average days' sales in accounts receivable range between 38 and 94 for all segments. (v) The value of backlog orders at November 30, 1995 and 1994 by industry segment is shown below. A substantial portion of the November 30, 1995 backlog is expected to be billed and recorded as sales during the fiscal year 1996.
Industry Segment 1995 1994 ---------------- -------- -------- (in thousands) Protective Coatings Group $ 6,139 $ 7,558 Fiberglass Pipe Group 20,691 20,666 Concrete & Steel Pipe Group 96,864 103,185 Construction & Allied Products Group 15,581 11,566 ------- ------- Total $139,275 $142,975 -------- -------- -------- --------
3 (vi) There was no significant change in competitive conditions or the competitive position of the Company in the industries and localities in which it operates. There is no knowledge of any single competitive situation which would be material to an understanding of the business. (vii) Sales contracts in all of the Company's business segments normally consist of purchase orders, which in some cases are issued pursuant to master purchase agreements. Longer term contracts seldom involve commitments of more than one year by the Company, and exceptions are not deemed material by management. Payment is normally due from 30 to 60 days after shipment, with progress payments prior to shipment in some circumstances. It is the Company's practice to require letters of credit prior to shipment of foreign orders, subject to limited exceptions. The Company does not typically extend long-term credit to purchasers of its products. (2) a) Approximate expense during each of the last three fiscal years for Research and Development costs is shown under the caption in Note (1) of Notes to Consolidated Financial Statements on page 44 of the Annual Report, which information is incorporated herein by reference. b) The Company's business is not dependent on any single customer or few customers, the loss of any one or more of whom would have a material adverse effect on its business. c) For many years the Company has been consistently installing or improving devices to control or eliminate the discharge of pollutants into the environment. Accordingly, compliance with federal, state, and locally enacted provisions relating to protection of the environment is not having, and is not expected to have, a material effect upon the Company's capital expenditures, earnings, or competitive position. d) At year-end the Company and its consolidated subsidiaries employed approximately 2,816 persons. Of those, approximately 1,434 were covered by labor union contracts, and there are five separate bargaining agreements subject to renegotiation in 1996. Management does not presently anticipate a strike or other labor disturbance in connection with renegotiation of these agreements; however, the possibility of such an occurrence exists. (d) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES. The information contained in Notes (4) and (14) of Notes to Consolidated Financial Statements on pages 45, 50, 52 and 53 of the Annual Report is incorporated herein by reference. Export sales in the aggregate from domestic operations during the last three fiscal years were:
In thousands ------------ 1995 $15,552 1994 13,648 1993 12,687
4 ITEM 2 - DESCRIPTION OF PROPERTY (a) The location and general character of principal plants and other materially important physical properties used in the Company's operations is tabulated below. Property is owned in fee except where otherwise indicated by footnote. In addition to the property shown, the Company owns vacant land adjacent to or in the proximity of some of its operating locations and holds this property available for use when it may be needed to accommodate expanded or new operations. Property listed does not include any temporary project sites which are generally leased for the duration of the respective projects. With the exception of the Kailua, Oahu property, shown under the Construction & Allied Products industry segment, there are no material leases with respect to which expiration or inability to renew would have any material adverse effect on the Company's operations. The lease term on the Kailua property extends to the year 2012. This is the principal source of quarried rock and aggregates for the Company's operations on Oahu, Hawaii and, in management's opinion, reserves are adequate for its requirements during the term of the lease. (b) The Company believes that its existing facilities are adequate for current and presently foreseeable operations. Because of the cyclical nature of certain of the Company's operations, and the substantial amounts involved in some individual orders, the level of utilization of particular facilities may vary significantly from time to time in the normal course of operations. INDUSTRY SEGMENT - GROUP Division - Location Description ------------------- ----------- PROTECTIVE COATINGS GROUP Protective Coatings division - USA Brea, CA Office, Laboratory Little Rock, AR Office, Plant Ameron B.V. Geldermalsen, The Netherlands Office, Plant FIBERGLASS PIPE GROUP Fiberglass Pipe division - USA Burkburnett, TX Office, Plant Spartanburg, SC Plant Ameron B.V. Geldermalsen, The Netherlands Office, Plant Ameron (Pte) Ltd. Singapore *Office, Plant 5 CONCRETE AND STEEL PIPE GROUP Southern division Rancho Cucamonga, CA *Office Etiwanda, CA Plant Lakeside, CA Plant South Gate, CA Plant Palmdale, CA Plant Phoenix, AZ Office, Plant Northern division Tracy, CA Office, Plant Portland, OR Office, Plant Steel Fabrication division Fontana, CA *Office, Plant Protective Linings division Brea, CA Office, Plant Fabrication Plant South Gate, CA Office, Plant American Pipe & Construction International Bogota, Colombia Office, Plant Cali, Colombia Plant CONSTRUCTION & ALLIED PRODUCTS GROUP Hawaii division Honolulu, Oahu, HI *Office, Plant Kailua, Oahu, HI *Plant, Quarry Barbers Point, Oahu, HI *Plant Puunene, Maui, HI *Office, Plant, Quarry Pole Products division Fillmore, CA Office, Plant Oakland, CA *Plant Everett, WA *Office, Plant Tulsa, OK *Office, Plant CORPORATE Corporate Headquarters Pasadena, CA *Office Corporate Research & Engineering South Gate, CA Office, Laboratory *Leased 6 ITEM 3 - LEGAL PROCEEDINGS An action was filed in 1992 in the U.S. District for the District of Arizona by the Central Arizona Water Conservation District ("CAWCD") seeking damages against several parties, including the Company and the Company's customer, Peter Kiewit Sons' Company ("Kiewit"), in connection with six prestressed concrete pipe siphons furnished and installed in the 1970's as part of the Central Arizona Project ("CAP"), a federal project to bring water from the Colorado River to Arizona. The CAWCD also filed separate actions against the U.S. Bureau of Reclamation ("USBR") in the U.S. Court of Claims and with the Arizona Projects Office of the USBR in connection with the CAP siphons. The CAWCD alleged that the six CAP siphons were defective and that the USBR and the defendants in the U.S. District Court action were liable for the repair or replacement of those siphons at a claimed estimated cost of $146.7 million. On September 14, 1994 the U.S. District granted the Company's motion to dismiss the CAWCD action and entered judgment against the CAWCD and in favor of the Company and its co-defendants. CAWCD has filed a notice of appeal with the Ninth Circuit Court of Appeals. Separately, on September 28, 1995 the Contracting Officer for the USBR issued a final decision claiming for the USBR approximately $40 million in damages against Kiewit, based in part on the Contracting Officer's finding that the siphons supplied by the Company were defective. That claim amount is considered by the Company to be duplicative of the damages sought by the CAWCD for the repair or replacement of the siphons in its aforementioned action in the U.S. District for the District of Arizona. The Contracting Officer's final decision has been appealed by Kiewit to the U.S. Department of the Interior Board of Contract Appeals ("IBCA"). The Company is actively cooperating with, and assisting, Kiewit in the administrative appeal of that final decision before the IBCA. The Company internally, as well as through independent third party consultants, has conducted engineering analyses regarding the allegations that the CAP siphons were defective and believes that the siphons were manufactured in accordance with the project specifications and other contract requirements, and therefore it is not liable for any claims relating to the siphons, whether by the CAWCD or by the USBR. The Company has recorded provisions deemed adequate by the Company to permit it to continue to vigorously defend its position in this matter. The Company believes that it has meritorious defenses to these actions and that resultant liability, if any, should not have a material adverse effect on the financial position of the Company. In July 1992 the Company was served with a complaint in an action brought by the City & County of San Francisco in Superior Court of the State of California against the Company and two co-defendants, in connection with a pipeline referred to as San Andreas Pipeline No. 3, a water transmission pipeline which was installed between 1980 and 1982. The Company furnished the pipe used in that pipeline. Plaintiff alleges that the pipeline is defective. Plaintiff originally sought damages of $43.95 million to replace the entire pipeline, but in June 1994 it filed its third amended complaint which alleges damages according to proof and in excess of the jurisdictional minimum of $25,000. The Company has recorded provisions deemed adequate by the Company to permit it to continue to vigorously defend its position in this matter. The Company believes that it has meritorious defenses to this action and that resultant liability, if any, should not have a material adverse effect on the financial position of the Company. In addition, certain other claims, suits and complaints, which arise in the ordinary course of business, have been filed or are pending against the Company. Management believes that these matters, and the matters discussed above, are either adequately reserved, covered by insurance, or would not have an adverse material effect on the financial position of the Company and its results of operations if disposed of unfavorably. 7 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. It is difficult to estimate with any certainty the total cost of remediation, the timing and extent of remedial actions required by governmental authorities, and the amount of the Company's liability, if any, in proportion to that of other potentially responsible parties. While the Company finds it difficult to estimate with any certainty the total cost of remediation at the several sites which are subject to environmental regulatory proceedings, on the basis of currently available information, the Company does not believe it likely that the outcome of such environmental regulatory proceedings will have a material adverse effect on the Company's financial position or its results of operations. This conclusion is based on the location and type of contamination of each site, potential recovery from insurance carriers and existing reserves. When it has been possible to reasonably estimate the Company's liability with respect to these matters, provisions have been made as appropriate. ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS (Not Applicable) ITEM 4A - EXECUTIVE OFFICERS OF THE REGISTRANT The following sets forth information with respect to individuals who served as executive officers as of November 30, 1995 and who are not directors of the Company. All executive officers are appointed by the Board of Directors to serve at the discretion of the Board of Directors. Name Age Title and Year Elected as Officer - ------------------- --- -------------------------------------------------- George J. Fischer 61 Senior Vice President, Human Resources 1992 Gordon G. Robertson 56 Senior Vice President, Technology 1992 Javier Solis 49 Senior Vice President of Administration, Secretary & General Counsel 1984 S. Daniel Stracner 49 Vice President, Communications & Public Affairs 1993 Gary Wagner 44 Senior Vice President & Chief Financial Officer, Treasurer 1990 Allen R. Wilkie 45 Vice President 1994 All of the executive officers named above have held high level managerial or executive positions with the Company for more than the past five years except Mr. Wilkie, who joined the Company in 1994. Prior to joining the Company, he was Corporate Director of Information Systems with GenCorp in Akron, Ohio. 8 PART II ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Common Stock, $2.50 Par Value, of the Company, its only outstanding class of common equity, is traded on the New York Stock Exchange, the only exchange on which it is presently listed. On February 9, 1996, there were 1,830 stockholders of record of such stock. Dividends have been paid each quarter during the prior two years and for many years in the past. Information as to the amount of dividends paid during the reporting period and the high and low sales prices of the Company's Common Stock during that period are set out under the caption Per Share Data shown on page 50 of the Annual Report, which information is incorporated herein by reference. Terms of lending agreements which place restrictions on cash dividends are discussed in Note (9) of Notes to Consolidated Financial Statements on page 48 of the Annual Report, which is incorporated herein by reference. ITEM 6 - SELECTED FINANCIAL DATA The information required by this item is contained in the Selected Consolidated Financial Information shown on page 34 of the Annual Report, which information is incorporated herein by reference. ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information required by this item with respect to fiscal years 1995 and 1994 is shown under Ameron 1995 Financial Review on pages 35-38 of the Annual Report, which information is incorporated herein by reference. The information required for 1993 is as follows: Results of Operations: 1993 Compared with 1992 GENERAL. Ameron recorded a loss in 1993 of $24.3 million, compared to net income of $5.9 million in 1992. During the fourth quarter of 1993, the Company charged to costs and expenses $45.8 million ($31.5 million after tax) for restructuring and related activities. Of the $45.8 million, $33.8 million related directly to restructuring and the write-down of related assets. An additional $9 million provision was recorded for estimated costs related to certain environmental and legal matters. A $3 million charge was also recorded against cost of sales in the fourth quarter for the write-down of selected inventories identified as part of the restructuring efforts. The total effect of these actions resulted in a net loss of $6.28 per share for the year. However, excluding the additional fourth quarter charges, net of their applicable tax benefits, net income per share for the year would have been $1.87, an improvement over the $1.53 per share earned in the prior year. SALES. Sales in 1993 increased $6.9 million over the prior year due to higher shipments of fiberglass pipe and protective coatings to projects in North Africa. These improvements were partially offset by reduced sales of concrete and steel pipe and construction products. 9 Sales of protective coatings declined $2.2 million from 1992. In the United States, sales of industrial coatings improved over 1992, while revenues from marine coatings declined due to a reduction in defense spending that impacted government orders. Sales in Europe were lower because of recessionary trends, but shipments to North Africa and the Middle East improved from Ameron B.V. Significant shipments of fiberglass pipe from the Company's European operation to several large crude oil projects in North Africa were the principal reason for the $19.2 million increase in sales over 1992 in the Fiberglass Pipe segment. Additionally, sales in the United States improved throughout all market areas, with the biggest increase coming from fuel-handling systems used for service station rehabilitation. Partially offsetting these improvements were lower sales to industrial customers in Europe. Concrete & Steel Pipe sales declined $3.2 million from 1992. Improved deliveries of concrete and steel pipe to projects in Northern California and Nevada were offset by reduced sales in Southern California. This business segment was impacted by reduced public spending for large water transmission projects and a low level of construction activity in the Company's geographic markets. The decline in construction activity resulted in increased price competition among producers of non-pressure concrete pipe. Construction & Allied Products sales fell $7.0 million from 1992 as privately- funded construction activity continued to decline on the Hawaiian Islands. However, deliveries of ready-mix concrete, sand and aggregates to publicly-funded projects remained strong, while deliveries to residential construction markets improved because of increased housing starts. GROSS PROFIT. The gross profit margin remained unchanged from 1992. Sales of fiberglass pipe and protective coatings to North Africa and improved operating efficiencies favorably impacted the overall gross profit margin. However, price competition in Europe and in certain concrete pipe markets partially offset these gains. As part of the restructuring process, a $3 million charge was recorded in the fourth quarter to write down selected inventories, which had the effect of decreasing the gross profit margin from 27.1% to 26.4%. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Despite increased insurance costs, added expenses related to the North African sales and the higher expenses of the Company's South American operations, overall selling, general and administrative expenses changed little from 1992. This was principally the result of salaried staff reductions at the beginning of the fourth quarter. Environmental and legal claims increased $7.8 million over 1992. As part of management's restructuring efforts, an additional $9 million was added to reserves. RESTRUCTURING CHARGES AND WRITE-DOWN OF ASSETS. During 1993, the Company charged $33.8 million against pretax earnings for restructuring and the write-down of assets. The restructuring actions included closing two and mothballing two concrete pipe plants in the western United States; consolidating and scaling back Protective Coatings production facilities, distribution facilities and sales offices in the United States, Canada and Europe; closing a coatings plant in England; and eliminating several product lines within the Fiberglass Pipe and Construction & Allied Products groups. Also included in the restructuring was the company-wide elimination of approximately 330 salaried staff positions, the planned divestiture of a non-strategic steel fabricator in South America and the write-down of the Company's investments in selected affiliated companies, as well as other related assets. OTHER INCOME. Royalty, fee and other income from affiliated companies and licensees increased over 1992, due largely to a special dividend received from a Mexican affiliate. INTEREST EXPENSE. The $1.7 million increase in interest expense in 1993 is attributable mainly to accrued interest on income tax obligations related to prior years. 10 PROVISION FOR INCOME TAXES. Overall, the effective tax benefit rate in 1993 was 27.2% of the pretax loss. The tax benefit attributable to the restructuring and related charges of $45.8 million was approximately $14.3 million; thus, taxes attributable to pretax income, excluding the restructuring and related charges, were $4.5 million, a 45% effective rate. The significant difference in effective rate in 1993, compared to 30% in 1992, was due primarily to losses generated by certain foreign subsidiaries for which no tax benefit was generated. EQUITY IN EARNINGS OF AFFILIATED COMPANIES. Equity in earnings of jointly-owned affiliated companies declined slightly from 1992. Sales and earnings of the Company's Saudi Arabian affiliates were equal to or higher than prior year's results. Gifford-Hill-American, Inc., the Company's pressure pipe affiliate in Texas, returned to profitability in 1993, while Tamco, a steel mini-mill, reported a loss due to increased material costs and price competition. As part of the Company's restructuring efforts, the Company recorded a write-down of the investments in certain affiliates to their estimated net realizable value. ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Consolidated Financial Statements, the report thereon of Arthur Andersen LLP dated January 19, 1996 and Notes to Consolidated Financial Statements comprising pages 39 through 51 of the Annual Report, are incorporated herein by reference. ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE (Not applicable) PART III ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information with respect to the directors is contained under the section entitled, "Election of Directors" in the Company's Proxy Statement which was filed on February 20, 1996 in connection with the Annual Meeting of Stockholders to be held on March 25, 1996. Such information is incorporated herein by reference. Information with respect to the executive officers of the Company is located in Part I, Item 4A of this report. ITEM 11 - EXECUTIVE COMPENSATION* ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT* ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS* *The information required by Items 11, 12 and 13 is contained in the Company's Proxy Statement which was filed on February 20, 1996 in connection with the 1996 Annual Meeting of Stockholders to be held on March 25, 1996. Such information is incorporated herein by reference. 11 PART IV ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) (1) FINANCIAL STATEMENTS: The financial statements to be filed hereunder are cross-referenced, in the index immediately following, to the Annual Report, as to sections incorporated herein by reference. INDEX TO FINANCIAL STATEMENTS Statement Page Reference --------- to Annual Report ---------------- Consolidated Statements of Operations for the years ended November 30, 1995, 1994 and 1993 39 Consolidated Balance Sheets at November 30, 1995 and 1994 40-41 Consolidated Statements of Cash Flows for the years ended November 30, 1995, 1994 and 1993 42 Consolidated Statements of Stockholders' Equity for the years ended November 30, 1995, 1994 and 1993 43 Notes to Consolidated Financial Statements 44-50 (i) Summarized information as to the financial condition and results of operations for Gifford-Hill-American, Inc., Ameron Saudi Arabia, Ltd., Bondstrand, Ltd, Oasis-Ameron, Ltd. and Tamco are presented in Note (4) of Notes to Consolidated Financial Statements on page 45 of the Annual Report, which information is incorporated herein by reference. (a) (2) FINANCIAL STATEMENT SCHEDULES: The following additional financial data should be read in conjunction with the consolidated financial statements in the 1995 Annual Report. Schedules not included with this additional financial data have been omitted because they are either not applicable, not required, not significant, or the required information is provided in the consolidated financial statements or notes thereto. Pages of Schedule Schedules of Ameron, Inc. and Subsidiaries This Report -------- ------------------------------------------ ----------- Report of Independent Public Accountants 13 II Valuation and Qualifying Accounts and Reserves 14-16 12 (a) (3) EXHIBITS This Report ----------- 3(i) Certificate of Incorporation 18 3(ii) Bylaws 19 4 Instrument Defining the Rights of Security Holders, Including Indentures 20 10 Material Contracts 21 13 Annual Report 22 21 Subsidiaries of the Registrant 23 23 Consent of Independent Public Accountants 24 (b) REPORTS ON FORM 8-K A report on Form 8-K was filed by the Corporation on September 26, 1995 reporting under Item 5 the financial results for the Company's third quarter ended August 31, 1995. REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Stockholders and the Board of Directors, Ameron, Inc.: We have audited in accordance with generally accepted auditing standards, the consolidated financial statements included in Ameron, Inc.'s Annual Report to Stockholders incorporated by reference in this Form 10-K, and have issued our report thereon dated January 19, 1996. Our audits were made for the purpose of forming an opinion on those statements taken as a whole. The schedule listed in the index above is the responsibility of the Company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. ARTHUR ANDERSEN LLP Los Angeles, California January 19, 1996 13 AMERON, INC. AND SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES FOR THE YEAR ENDED NOVEMBER 30, 1995 (In thousands)
Addi- Deduc- tions tions, Balance Charged Pay- Reclas- at to ments sifica- Balance Begin- Costs and tions at ning and Write- and End Classification of Year Expense offs Others of Year Deducted from asset accounts Allowance for doubtful accounts $ 4,135 $ 1,710 $ 1,138 $ 93 $ 4,800 Reserve for investments in affiliates $ 9,748 $ 0 $ 0 $ (389)(1) $ 9,359 Reserve for write-down of assets related to certain foreign affiliates $ 3,216 $ 3 $ 0 $ 0 $ 3,219 Included in current liabilities Reserve for pending claims and litigation $ 6,218 $ 1,109 $ 1,894 $ (2,347) $ 3,086 Restructuring reserve $ 3,646 $ 0 $ 1,846 $ (1,261) $ 539 Other reserves $ 1,336 $ 62 $ 633 $ (1) $ 764 Reserve for self-insured programs $ 4,392 $ 5,413 $ 3,931 $ 0 $ 5,874 Included in long-term liabilities Reserve for pending claims and litigation $ 10,429 $ 1,330 $ 387 $ 2,416 $ 13,788 Restructuring reserve $ 0 $ 0 $ 0 $ 1,261 $ 1,261 Reserve for self-insured programs $ 6,771 $ 0 $ 0 $ 0 $ 6,771
(1) Included as equity in earnings of affiliated companies in Consolidated Statement of Operations. 14 AMERON, INC. AND SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES FOR THE YEAR ENDED NOVEMBER 30, 1994 (In thousands)
Addi- Deduc- tions tions, Balance Charged Pay- Reclas- at to ments sifica- Balance Begin- Costs and tions at ning and Write- and End Classification of Year Expense offs Others of Year Deducted from asset accounts Allowance for doubtful accounts $ 4,315 $ 1,314 $ 1,793 $ 299 $ 4,135 Reserve for investments in affiliates $ 7,323 $ 2,425 0 0 $ 9,748 Reserve for write-down of assets related to certain foreign affiliates $ 11,990 $ 236 9,259 $ 249 $ 3,216 Included in current liabilities Reserve for pending claims and litigation $ 7,188 $ 2,232 $ 2,844 $ (358) $ 6,218 Restructuring reserve $ 7,643 0 $ 3,997 $ 0 $ 3,646 Other reserves $ 1,797 $ 732 $ 493 $ (700) $ 1,336 Reserve for self-insured programs $ 7,541 $ 5,997 $ 8,782 $ (364) $ 4,392 Included in long-term liabilities Reserve for pending claims and litigation $ 9,484 $ 120 $ 963 $ 1,788 $ 10,429 Other reserves $ 1,722 $ 0 771 $ (951) $ 0 Reserve for self-insured programs $ 4,867 0 0 $ 1,904 $ 6,771
15 AMERON, INC. AND SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES FOR THE YEAR ENDED NOVEMBER 30, 1993 (In thousands)
Addi- Deduc- tions tions, Balance Charged Pay- Reclas- at to ments sifica- Balance Begin- Costs and tions at ning and Write- and End Classification of Year Expense offs Others of Year Deducted from asset accounts Allowance for doubtful accounts $ 5,614 $ 1,458 $ 2,296 $ (461) $ 4,315 Reserve for realization of investments in affiliates 0 $ 7,323 0 0 $ 7,323 Reserve for write-down of assets related to certain foreign affiliates $ 8,632 $ 3,392 $ 278 $ 244 $ 11,990 Included in current liabilities Reserve for pending claims and litigation $ 6,060 $ 6,523 $ 5,107 $ (288) $ 7,188 Restructuring reserve 0 $ 9,864 $ 2,221 $ 0 $ 7,643 Other reserves 0 $ 1,221 $ 339 $ 915 $ 1,797 Reserve for self-insured programs $ 4,653 $ 11,432 $ 8,659 $ 115 $ 7,541 Included in long-term liabilities Reserve for pending claims and litigation $ 2,257 $ 7,790 $ 842 $ 279 $ 9,484 Other reserves 0 $ 951 0 $ 771 $ 1,722 Reserve for self-insured programs $ 4,867 0 0 0 $ 4,867
16 Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. AMERON, INC. By: /s/ JAVIER SOLIS _______________________________________________ Javier Solis, Senior Vice President & Secretary Date: February 23, 1996 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Date: 2-13-96 /s/ JAMES S. MARLEN ____________________________________ Director, Chairman of the Board, James S. Marlen President and Chief Executive Officer (Principal Executive Officer) Date: 2-13-96 /s/ GARY WAGNER ____________________________________ Senior Vice President & Chief Gary Wagner Financial Officer, Treasurer (Principal Financial & Accounting Officer) Date: 2-16-96 /s/ DONALD H. ALBRECHT ____________________________________ Director Donald H. Albrecht Date: 2-15-96 /s/ VICTOR K. ATKINS ____________________________________ Director Victor K. Atkins Date: 2-16-96 /s/ STEPHEN W. FOSS ____________________________________ Director Stephen W. Foss Date: 2-15-96 /s/ A. FREDERICK GERSTELL ____________________________________ Director A. Frederick Gerstell Date: 2-15-96 /s/ J. MICHAEL HAGAN ____________________________________ Director J. Michael Hagan Date: 2-22-96 /s/ JOHN F. KING ____________________________________ Director John F. King Date: 2-16-96 /s/ ALAN L. OCKENE ____________________________________ Director Alan L. Ockene Date: 2-16-96 /s/ RICHARD J. PEARSON ____________________________________ Director Richard J. Pearson Date: 2-19-96 /s/ F. H. FENTENER VAN VLISSINGEN ____________________________________ Director F. H. Fentener van Vlissingen
17 EX-3.I 2 EXHIBIT 3(I) - CERTIFICATE OF INCORPORATION CERTIFICATE OF INCORPORATION Incorporated by reference to Annual Report on Form 10-K filed with the Commission for Registrant's fiscal year ended November 30, 1988. EXHIBIT 3(i) EX-3.II 3 EXHIBIT 3(II) - BYLAWS AMERON, INC. (a Delaware corporation) BYLAWS (Restated with amendments through January 30, 1996) ARTICLE I Offices SECTION 1.01. Registered Office. The registered office of AMERON, INC. (hereinafter called the Corporation) in the State of Delaware shall be at 1209 Orange Street, City of Wilmington, County of New Castle, and the name of the registered agent in charge thereof shall be The Corporation Trust Company. SECTION 1.02. Other Offices. The Corporation may also have an office or offices at such other place or places, either within or without the State of Delaware, as the Board of Directors (hereinafter called the Board) may from time to time determine or as the business of the Corporation may require. ARTICLE II Meetings of Stockholders SECTION 2.01. Annual Meetings. Annual Meetings of the stockholders of the Corporation for the purpose of electing directors and for the transaction of such other proper business as may come before such meetings may be held at such time, date and place as the Board shall determine by resolution. SECTION 2.02. Special Meetings. Special meetings of the stockholders of the Corporation for any purpose may only be called in accordance with the provisions of the Certificate of Incorporation. SECTION 2.03. Place of Meetings. All meetings of the stockholders shall be held at such places, within or without the State of Delaware, as may be designated by the Board. SECTION 2.04. Notice of Meetings. Except as otherwise required by law, notice of each meeting of the stockholders, whether annual or special, shall be given not less than ten (10) nor more than sixty (60) days before the date of the meeting to each stockholder of record entitled to vote at such meeting by delivering a typewritten or printed notice thereof to him personally, or by depositing such notice in the United States mail, in a postage prepaid envelope, directed to him at his post office address furnished by him to the Secretary of the Corporation for such purpose or, if he shall not have furnished to the Secretary his address for such purpose, then at his post office address last known to the Secretary, or by transmitting a notice thereof to him at such address by telegraph, cable, or wireless. Except as otherwise expressly required by law, no publication of any notice of a meeting of the stockholders shall be required. Every notice of a meeting of the stockholders shall state the place, date and hour of the meeting, and, in the case of a special meeting, shall also state the purpose or purposes for which the meeting is called. Notice of any meeting of stockholders shall not be required to be given to any stockholder to whom notice may be omitted pursuant to applicable Delaware law or who shall have waived such notice and such notice shall be deemed waived by any stockholder who shall attend such meeting in person or by proxy, except as a stockholder who shall attend such meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Except as otherwise expressly required by law, notice of any adjourned meeting of the stockholders need not be given if the time and place thereof are announced at the meeting at which the adjournment is taken. SECTION 2.05. Quorum. Except as otherwise required by law, the holders of record of a majority in voting interest of the shares of stock of the Corporation entitled to be voted thereat, present in person or by proxy, shall constitute a quorum for the transaction of business at any meeting of the stockholders of the Corporation or any adjournment thereof. In the absence of a quorum at any meeting or any adjournment thereof, a majority in voting interest of the stockholders present in person or by proxy and entitled to vote thereat or, in the absence therefrom of all the stockholders, any officer entitled to preside at, or to act as secretary of, such meeting may adjourn such meeting from time to time. At any such adjourned meeting at which a quorum is present any business may be transacted which might have been transacted at the meeting as originally called. SECTION 2.06. Voting. (a) Each stockholder shall, at each meeting of the stockholders, be entitled to vote in person or by proxy each share or fractional share of the stock of the Corporation having voting rights on the matter in question and which shall have been held by him and registered in his name on the books of the Corporation: (i) on the date fixed pursuant to Section 6.05 of these Bylaws as the record date for the determination of stockholders entitled to notice of and to vote at such meeting, or (ii) if no such record date shall have been so fixed, then (a) at the close of business on the day next preceding the day on which notice of the meeting shall be given or (b) if notice of the meeting shall be waived, at the close of business on the day next preceding the day on which the meeting shall be held. (b) Shares of its own stock belonging to the Corporation or to another corporation, if a majority of the shares entitled to vote in the election of directors in such other corporation is held, directly or indirectly, by the Corporation, shall neither be entitled to vote nor be counted for quorum purposes. Persons holding stock of the Corporation in a fiduciary capacity shall be entitled to vote such stock. Persons whose stock is pledged shall be entitled to vote, unless in the transfer by the pledgor on the books of the Corporation he shall have expressly empowered the pledges to vote thereon, in which case only the pledges, or his proxy, may represent such stock and vote thereon. Stock having voting power standing of record in the names of two or more persons, whether fiduciaries, members of a partnership, joint tenants in common, tenants by entirety or otherwise, or with respect to which two or more persons have the same fiduciary relationship, shall be voted in accordance with the provisions of the General Corporation Law of the State of Delaware. (c) Any such voting rights may be exercised by the stockholder entitled thereto in person or by his proxy appointed by an instrument in writing, subscribed by such stockholder or by his attorney thereunto authorized and delivered to the secretary of the meeting; provided, however, that no proxy shall be voted or acted upon after three years from its date unless said proxy shall provide for a longer period. The attendance at any meeting of a stockholder who may theretofore have given a proxy shall not have the effect of revoking the same unless he shall in writing so notify the secretary of the meeting prior to the voting of the proxy. At any meeting of the stockholders all matters, except as otherwise provided in the Certificate of Incorporation, in these Bylaws or by law, shall be decided by the vote of a majority in voting interest of the stockholders present in person or by proxy and entitled to vote thereat and thereon, a quorum being present. The vote at any meeting of the stockholders on any question need not be by ballot, unless so directed by the chairman of the meeting. On a vote by ballot each ballot shall be signed by the stockholder voting, or by his proxy, if there be such proxy, and it shall state the number of shares voted. SECTION 2.07. List of Stockholders. The Secretary of the Corporation shall prepare and make, at least ten (10) days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. SECTION 2.08. Judges. If at any meeting of the stockholders a vote by written ballot shall be taken on any question, the chairman of such meeting may appoint a judge or judges to act with respect to such vote. Each judge so appointed shall first subscribe an oath faithfully to execute the duties of a judge at such meeting with strict impartiality and according to the best of his ability. Such judges shall decide upon the qualifications of the voters and shall report the number of shares represented at the meeting and entitled to vote on such question, shall conduct and accept the votes, and, when the voting is completed, shall ascertain and report the number of shares voted respectively for and against the question. Reports of judges shall be in writing and subscribed and delivered by them to the Secretary of the Corporation. The judges need not be stockholders of the Corporation, and any officer of the Corporation may be a judge on any question other than a vote for or against a proposal in which he shall have a material interest. SECTION 2.09. Action Without Meeting. No action shall be taken by the stockholders except at an annual or special meeting of stockholders. No action shall be taken by stockholders by written consent. SECTION 2.10 Notice of Stockholder Business. At any annual stockholders' meeting, only such business shall be conducted as shall have been properly brought before the meeting. To be properly brought before an annual stockholders' meeting, business must be (i) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors; (ii) otherwise properly brought before the meeting by or at the direction of the Board of Directors; or (iii) otherwise properly brought before the meeting by a stockholder. For business to be properly brought before an annual meeting by a stockholder, the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation. To be timely, a stockholder's notice must be received at the principal office of the Corporation not less than sixty (60) days nor more than one hundred and twenty (120) days prior to the meeting; provided, however, that in the event that the first public disclosure (whether by mailing of a notice to shareholders, press release or otherwise) of the date of the meeting is made less than sixty-five (65) days prior to the date of the meeting, notice by the stockholder will be timely if received not later than the close of business on the tenth day following the day on which such first public disclosure was made. A stockholder's notice to the Secretary shall set forth, as to each matter the stockholder proposes to bring before the annual meeting, (i) the reasons for conducting such business at the annual meeting; (ii) the name and address as they appear on the Corporation's stock register, of the stockholder proposing such business; (iii) the number of shares of capital stock of the Corporation which are beneficially owned by the stockholder; and (iv) any material interest of the stockholder in such business. Notwithstanding any other provision of these Bylaws, no business shall be conducted at an annual stockholders' meeting except in accordance with the procedures set forth in this Section 2.10. If the presiding officer of an annual stockholders' meeting determines and declares that business was not properly brought before the meeting in accordance with this Section 2.10, any such business shall not be transacted. ARTICLE III Board of Directors SECTION 3.01. General Powers. The property, business and affairs of the Corporation shall be managed by the Board. SECTION 3.02. Number and Term of Office. The number of directors shall not be less than six (6) nor more than ten (11), the exact number of which shall be fixed by Bylaw duly adopted by the Board. The number of directors of the Corporation shall be ten (10). The Board shall be divided into three classes, Class I, Class II and Class III. Such classes shall be as nearly equal in number of directors as possible. Each director shall serve for a term ending on the third annual meeting following the annual meeting at which such director was elected; provided, however, that the directors first elected to Class I shall serve for a term ending at the annual meeting to be held in 1987, the directors first elected to Class II shall serve for a term ending at the annual meeting to be held in 1988 and the directors first elected to Class III shall serve for a term ending at the annual meeting to be held in 1989. Directors need not be stockholders. Each of the directors of the Corporation shall hold office until his successor shall have been duly elected and shall qualify or until he shall resign or shall have been removed in the manner hereinafter provided. SECTION 3.03. Election of Directors. In any election of directors of the Corporation, a holder of any class or series of stock then entitled to vote in such election shall be entitled to as many votes as shall equal (i) the number of votes which (except for this Section as to cumulative voting) he would be entitled to cast for the election of directors with respect to his shares of stock multiplied by (ii) the number of directors to be elected in the election in which his class or series of shares is entitled to vote, and each stockholder may cast all of such votes for a single director or for any two or more of them as he may see fit. SECTION 3.04. Resignations. Any director of the Corporation may resign at any time by giving written notice to the Board or to the Secretary of the Corporation. Any such resignation shall take effect at the time specified therein, or, if the time be not specified, it shall take effect immediately upon its receipt; and unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. SECTION 3.05. Vacancies. Except as otherwise provided in the Certificate of Incorporation, any vacancy in the Board, whether because of death, resignation, disqualification, an increase in the number of directors, or any other cause, may be filled by vote of the majority of the remaining directors, although less than a quorum. Each director so chosen to fill a vacancy shall hold office for the unexpired term of his predecessor or until his successor shall have been elected and shall qualify or until he shall resign or shall have been removed in the manner hereinafter provided. SECTION 3.06. Place of Meeting, Etc. The Board may hold any of its meetings at such place or places within or without the State of Delaware as the Board may from time to time by resolution designate or as shall be designated by the person or persons calling the meeting or in the notice or a waiver of notice of any such meeting. Directors may participate in any regular or special meeting of the Board by means of conference telephone or similar communications equipment pursuant to which all persons participating in the meeting of the Board can hear each other, and such participation shall constitute presence in person at such meeting. SECTION 3.07. First Meeting. The Board shall meet as soon as practicable after each annual election of directors and notice of such first meeting shall not be required. SECTION 3.08. Regular Meetings. Regular meetings of the Board may be held at such times as the Board shall from time to time by resolution determine. If any day fixed for a regular meeting shall be a legal holiday at the place where the meeting is to be held, then the meeting shall be held at the same hour and place on the next succeeding business day not a legal holiday. Except as provided by law, notice of regular meetings need not be given. SECTION 3.09. Special Meetings. Special meetings of the Board shall be held whenever called by the Chairman of the Board, the President or a majority of the authorized number of directors. Except as otherwise provided by law or by these Bylaws, notice of the time and place of each such special meeting shall be mailed to each director, addressed to him at his residence or usual place of business, at least five (5) days before the day on which the meeting is to be held, or shall be sent to him at such place by telegraph or cable or be delivered personally not less than twenty-four (24) hours before the time at which the meeting is to be held. Except where otherwise required by law or by these Bylaws, notice of the purpose of a special meeting need not be given. Notice of any meeting of the Board shall not be required to be given to any director who is present at such meeting, except a director who shall attend such meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. SECTION 3.10. Quorum and Manner of Acting. Except as otherwise provided in these Bylaws or by law, the presence of a majority of the number of directors then currently specified as the size of the Board pursuant to Section 3.02 of these Bylaws shall be required to constitute a quorum for the transaction of business at any meeting of the Board, and all matters shall be decided at any such meeting, a quorum being present, by the affirmative votes of a majority of the directors present. In the absence of a quorum, a majority of directors present at any meeting may adjourn the same from time to time until a quorum shall be present. Notice of any adjourned meeting need not be given. The directors shall act only as a Board, and the individual directors shall have no power as such. SECTION 3.11. Action by Consent. Any action required or permitted to be taken at any meeting of the Board or of any committee thereof may be taken without a meeting if a written consent thereto is signed by all members of the Board or of such committee, as the case may be, and such written consent is filed with the minutes of proceedings of the Board or committee. SECTION 3.12. Removal of Directors. Subject to the provisions of the Certificate of Incorporation, a director may be removed at any time, for cause only. SECTION 3.13. Compensation. The directors shall receive only such compensation for their services as directors as may be allowed by resolution of the Board. The Board may also provide that the Corporation shall reimburse each such director for any expense incurred by him on account of his attendance at any meetings of the Board or Committees of the Board. Neither the payment of such compensation nor the reimbursement of such expenses shall be construed to preclude any director from serving the Corporation or its subsidiaries in any other capacity and receiving compensation therefor. SECTION 3.14. Committees. The Board may, by resolution passed by a majority of the whole Board, designate one or more committees, each committee to consist of one or more of the directors of the Corporation. Any such committee, to the extent provided in the resolution of the Board and except as otherwise limited by law, shall have and may exercise all the powers and authority of the Board in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it. Any such committee shall keep written minutes of its meetings and report the same to the Board at the next regular meeting of the Board. In the absence or disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of such absent or disqualified member. SECTION 3.15. Notice of Director Nominations. Only persons who are nominated in accordance with the procedures set forth in this Section 3.15 shall be eligible for election as Director at annual meeting of the stockholders. Nominations of candidates for election to the Board of Directors of the Corporation at any annual meeting may be made only by or at the direction of the Board of Directors or by a stockholder entitled to vote at such annual meeting. All such nominations, except those made by or at the direction of the Board of Directors, shall be made pursuant to timely notice in writing to the Secretary of the Corporation of the stockholder's intention to make such nomination. To be timely, any such notice must be received at the principal office of the Corporation not less than sixty (60) no more than one hundred twenty (120) days prior to the date of such annual meeting; provided, however, that in the event that the first public disclosure (whether by mailing of a notice to stockholders, press release or otherwise) of the date of such annual meeting is made less than sixty-five (65) days prior to the date of such annual meeting, notice by the stockholder will be timely if received not later than the close of business on the tenth day following the day on which such first public disclosure was made. Such stockholder's notice with respect to a proposed nomination shall set forth (i) the name, age, business and residence address and principal occupation or employment of each nominee proposed in such notice; (ii) the name and address of the stockholder giving the notice as the same appears in the Corporation's stock register; (iii) the number of shares of capital stock of the Corporation which are beneficially owned by each such nominee and by such stockholder; and (iv) such other information concerning each such nominee as would be required, under the rules of the Securities and Exchange Commission, in a proxy statement soliciting proxies for the election of such nominee. Such notice must also include a signed consent of each such nominee to serve as a director of the Corporation, if elected. In the event that a person is validly designated as a nominee in accordance with the procedures specified above and shall thereafter become unable or unwilling to stand for election to the Board of Directors, the Board of Directors or the stockholder who proposed such nominee, as the case may be, may designate a substitute nominee; provided, however, that in the case of persons not nominated by the Board of Directors, such a substitution may only be made if notice as provided above in this Section 3.15 is received at the principal office of the Corporation not later than the later of (i) thirty (30) days prior to the date of the annual meeting or (ii) five (5) days after the stockholder proposing the original nominee first learned that such original nominee has become unable or unwilling to stand for election. ARTICLE IV Officers SECTION 4.01. Officers, Election and Removal. The officers of the Corporation shall be a President, a Vice President, a Secretary, and a Treasurer. The Corporation may also have at the discretion of the Board of Directors an Executive Vice President, one or more additional Vice Presidents, one or more Assistant Secretaries, one or more Assistant Treasurers, and such other officers as may be elected by the Board of Directors. Any two or more offices may be held by the same person except that the office of President and the office of Secretary may not be held by the same person. The officers of the Corporation shall be elected annually by the Board of Directors at their first meeting after the annual meeting of the stockholders and, unless they shall sooner resign, be removed or become disqualified, shall hold office until their respective successors shall be elected and qualify. The Chairman of the Board and the President shall be elected from among the Directors but the other officers need not be Directors. Any officer may be removed either with or without cause by a majority of the Directors at the time in office at any regular or special meeting of the Board of Directors. SECTION 4.02. Chairman of the Board. The Chairman of the Board, if there shall be one, shall preside at all meetings of the stockholders and of the Board of Directors. He shall, ex officio, be a member of all committees appointed or constituted by the Board of Directors, including the Executive Committee. SECTION 4.03. President, Executive Vice President and Vice President. The President shall be responsible to the Board of Directors for all actions and activities of the Corporation. The Executive Vice President, if there shall be one, shall act for the President in the President's absence. He shall have such other powers and be required to perform such other duties as the President and the Board of Directors shall prescribe. The Vice President, or if there shall be more than one such officer elected, shall have such powers and perform such duties as may be delegated to him or them by the President or the Board of Directors. SECTION 4.04. Secretary. The Secretary shall issue notices for all meetings, shall keep their minutes, shall have charge of the seal and the Corporate books, and shall make such reports and perform such other duties as are incident to his office, or are properly required of him by the Board of Directors. He shall also keep at the principal office of the corporation or cause to be kept at the office of the Corporation's transfer agent, a stock transfer book, and he shall keep or cause to be kept by the Corporation's registrar, a share registry book. The Secretary may be required to perform such duties of the Treasurer as may be assigned to him from time to time. SECTION 4.05. Treasurer. The Treasurer shall have the custody of all moneys and securities of the Corporation and shall keep regular books of account. He shall disburse the funds of the Corporation in payment of the just demands against the Corporation or as may be ordered by the Board of Directors, taking proper vouchers for such disbursements, and shall render to the President and to the Board of Directors from time to time as may be required of him, an account of all his transactions as Treasurer and of the financial condition of the Corporation. He shall perform all other duties incident to his office or that are properly required of him by the Board. He shall give the Corporation a bond, if required by the Board of Directors, in a sum, and with one or more sureties, satisfactory to the Board of Directors, for the faithful performance of the duties of his office, and for the restoration to the Corporation, in case of his death, resignation, retirement, or removal from office, of all books, papers, vouchers, money and other property of whatever kind in his possession or under his control belonging to the Corporation. SECTION 4.06. Incapacity. In case of the absence or inability of any officer of the Corporation to act and of any person herein authorized to act in his place, the Board of Directors may from time to time delegate the powers or duties of such officer to any other officer or any Director or other person whom they may select. SECTION 4.07. Vacancies. Vacancies in any office arising from any cause may be filled by the Directors at any regular or special meeting. SECTION 4.08. Other officers. The Board of Directors may appoint such other officers and agents as it shall deem necessary or expedient, who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the Board of Directors. SECTION 4.09. Salaries. The salaries of all officers and agents of the Corporation shall be fixed by the Board of Directors. Nothing contained herein shall preclude any officer from serving the Corporation, or any subsidiary corporation, in any other capacity and receiving proper compensation therefor. ARTICLE V Contracts, Checks, Drafts, Bank Accounts, Etc. SECTION 5.01. Execution of Contracts. The Board, except as in these Bylaws otherwise provided, may authorize any officer or officers, agent or agents, to enter into any contract or execute any instrument in the name of and on behalf of the Corporation, and such authority may be general or confined to specific instances; and unless so authorized by the Board or by these Bylaws, no officer, agent or employee shall have any power or authority to bind the Corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or in any amount. SECTION 5.02. Checks, Drafts, Etc. All checks, drafts or other orders for payment of money, notes or other evidence of indebtedness, issued in the name of or payable to the Corporation, shall be signed or endorsed by such person or persons and in such manner as, from time to time, shall be determined by resolution of the Board. Each such officer, assistant, agent or attorney shall give such bond, if any, as the Board may require. SECTION 5.03. Deposits. All funds of the Corporation not otherwise employed shall be deposited from time to time to the credit of the Corporation in such banks, trust companies or other depositories as the Board may select, or as may be selected by any officer or officers, assistant or assistants, agent or agents, or attorney or attorneys of the Corporation to whom such power shall have been delegated by the Board and shall be drawn out only by check signed by persons designated, from time to time, by resolution of the Board of Directors. SECTION 5.04. General and Special Bank Accounts. The Board may from time to time authorize the opening and keeping of general and special bank accounts with such banks, trust companies or other depositories as the Board may select or as may be selected by any officer or officers, assistant or assistants, agent or agents, or attorney or attorneys of the Corporation to whom such power shall have been delegated by the Board. The Board may make such special rules and regulations with respect to such bank accounts, not inconsistent with the provisions of these Bylaws, as it may deem expedient. ARTICLE VI Shares and Their Transfer SECTION 6.01. Certificates for Stock. Every owner of stock of the Corporation shall be entitled to have a certificate or certificates, to be in such form as the Board shall prescribe, certifying the number and class of shares of the stock of the Corporation owned by him. The certificates representing shares of such stock shall be numbered in the order in which they shall be issued and shall be signed in the name of the Corporation by the President or a Vice President, and by the Secretary or an Assistant Secretary or by the Treasurer or an Assistant Treasurer. Any of or all of the signatures on the certificates may be a facsimile. In case any officer, transfer agent or registrar who has signed, or whose facsimile signature has been placed upon, any such certificate, shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, such certificate may nevertheless be issued by the Corporation with the same effect as though the person who signed such certificate, or whose facsimile signature shall have been placed thereupon, were such officer, transfer agent or registrar at the date of issue. A record shall be kept of the respective names of the persons, firms or corporations owning the stock represented by such certificates, the number and class of shares represented by such certificates, respectively, and the respective dates thereof, and in case of cancellation, the respective dates of cancellation. Every certificate surrendered to the Corporation for exchange or transfer shall be cancelled, and no new certificate or certificates shall be issued in exchange for any existing certificate until such existing certificate shall have been so cancelled, except in cases provided for in Section 6.04. SECTION 6.02. Transfers of Stock. Transfers of shares of stock of the Corporation shall be made only on the books of the Corporation by the registered holder thereof, or by his attorney thereunto authorized by power of attorney duly executed and filed with the Secretary, or with a transfer clerk or a transfer agent appointed as provided in Section 6.03, and upon surrender of the certificate or certificates for such shares properly endorsed and the payment of all taxes thereon. The person in whose name shares of stock stand on the books of the Corporation shall be deemed the owner thereof for all purposes as regards the Corporation. Whenever any transfer of shares shall be made for collateral security, and not absolutely, such fact shall be so expressed in the entry of transfer if, when the certificate or certificates shall be presented to the Corporation for transfer, both the transferor and the transferee request the Corporation to do so. SECTION 6.03. Regulations. The Board may make such rules and regulations as it may deem expedient, not inconsistent with these Bylaws, concerning the issue, transfer and registration of certificates for shares of the stock of the Corporation. It may appoint, or authorize any officer or officers to appoint, one or more transfer clerks or one or more transfer agents and one or more registrars, and may require all certificates for stock to bear the signature or signatures of any of them. SECTION 6.04. Lost, Stolen, Destroyed, and Mutilated Certificates. In any case of loss, theft, destruction, or mutilation of any certificate of stock, another may be issued in its place upon proof of such loss, theft, destruction, or mutilation and upon the giving of a bond of indemnity to the Corporation in such form and in such sum as the Board may direct; provided, however, that a new certificate may be issued without requiring any bond when, in the judgment of the Board, it is proper so to do. SECTION 6.05. Fixing Date for Determination of Stockholders of Record. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any other change, conversion or exchange of stock or for the purpose of any other lawful action, the Board may fix, in advance, a record date, which shall not be more than sixty (60) nor less than ten (10) days before the date of such meeting, nor more than sixty (60) days prior to any other action. If in any case involving the determination of stockholders for any purpose other than notice of or voting at a meeting of stockholders, the Board shall not fix such a record date, the record date for determining stockholders for such purpose shall be the close of business on the day on which the Board shall adopt the resolution relating thereto. A determination of stockholders entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of such meeting; provided, however, that the Board may fix a new record date for the adjourned meeting. ARTICLE VII Indemnification SECTION 7.01. (DELETED MARCH 30, 1987) ARTICLE VIII Executive Committee SECTION 8.01. Members and Powers. The Board, by resolution adopted by majority of its total number, may annually elect three or more of its number to constitute an Executive Committee of the Board to have authority to exercise to the extent permitted by law, in the intervals between meetings of the Board, all powers of the Board, except to amend or repeal these Bylaws, or to fill vacancies in its own membership or in the Board, or to declare dividends. The actions of the Executive Committee shall be ratified at the next succeeding meeting of the Board. SECTION 8.02. Meetings. The Executive Committee may adopt rules governing the method of the notice of the time and place of its meetings and the conduct of the proceedings thereat; but, in the absence of such rules, meetings of the Executive Committee may be called by any member of the Committee. Notice to each member, regarding the time and place of holding the proposed meeting, shall be given to each member verbally or by mail at least twenty-four (24) hours before the time of the meeting. No notice of a meeting will be required if all members of the Committee are in attendance, or if notice is waived. The Executive Committee shall keep a record of its acts and proceedings. SECTION 8.03. Quorum. To constitute a quorum of the Executive Committee for the transaction of business at any meeting, a majority shall be present and the act of a majority of the whole Committee shall be necessary to constitute the act of the Committee. SECTION 8.04. Removal of Members. Any member of the Executive Committee may be removed with or without cause by resolution of the Board, adopted by a majority of its total number then in office. SECTION 8.05. Vacancies. Vacancies in the Executive Committee shall be filled in the same manner as for the original appointment to membership. ARTICLE IX Miscellaneous SECTION 9.01. Seal. The Corporate seal of the Corporation shall consist of two concentric circles, between which is the name of the Corporation, and in the center shall be inscribed the year of its incorporation and the words, "Corporate Seal, Delaware." SECTION 9.02. Waiver of Notices. Whenever notice is required to be given by these Bylaws or the Certificate of Incorporation or by law, the person entitled to said notice may waive such notice in writing, either before or after the time stated therein, and such waiver shall be deemed equivalent to notice. SECTION 9.03. Amendments. Except as otherwise provided herein or in the Certificate of Incorporation, these Bylaws or any of them, may be altered, amended, repealed or rescinded and new Bylaws may be adopted, (i) by the Board, or (ii) by the stockholders, at any annual meeting of stockholders, or at any special meeting of stockholders, provided that notice of such proposed alteration, amendment, repeal, rescission or adoption is given in the notice of meeting. EXHIBIT 3(ii) EX-4 4 EXHIBIT 4 - INSTRUMENTS DEFINING RIGHTS INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING INDENTURES 1. Note Agreement dated September 1, 1990 re: Senior Notes due September 15, 2000, which document is incorporated by reference to Annual Report on Form 10-K filed with the Commission for Registrant's fiscal year ended November 30, 1990. 2. Note Agreement dated November 15, 1991 re: Senior Notes due November 15, 1998, which document is incorporated by reference to Annual Report on Form 10-K filed with the Commission for Registrant's fiscal year ended November 30, 1991. EXHIBIT 4 EX-10 5 EXHIBIT 10 - MATERIAL CONTACTS MATERIAL CONTRACTS Exhibit 10 is an Employment Agreement between James S. Marlen and the Company which document is incorporated by reference to Annual Report on Form 10-K filed with the Commission for Registrant's fiscal year ended November 30, 1993. EXHIBIT 10 EX-13 6 ANNUAL REPORT FINANCIALS ANNUAL REPORT Exhibit 13 is the Corporation's 1995 Annual Report to Stockholders. This 10-K Report should be read only in conjunction with that Annual Report. In the event you do not already have a copy of the Annual Report, one may be obtained by contacting the Corporate Secretary, Post Office Box 7007, Pasadena, California 91109-7007. The telephone number is (818) 683-4000. EXHIBIT 13 SELECTED CONSOLIDATED FINANCIAL INFORMATION
YEAR ENDED NOVEMBER 30 (DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA) 1995 1994 1993 1992 1991 - ------------------------------------ ------------- ------------- ------------- ------------- ------------- PER COMMON SHARE DATA Net income (loss) $ 3.15 $ 2.75(1) $ (6.28)(2) $ 1.53 $ 2.01(3) Net income excluding restructuring and related charges and unusual items 3.15 2.29 1.87 1.53 1.91 Dividends 1.28 1.28 1.28 1.28 1.28 Average shares(4) 3,954,544 3,924,456 3,861,872 3,827,540 3,805,781 Stock price - high 37 7/8 43 1/8 38 3/4 36 1/2 47 1/8 Stock price - low 29 31 7/8 31 29 31 3/4 Price/earnings ratio (range) 12-9 16-12 NA 24-19 23-16 - ------------------------------------ ------------- ------------- ------------- ------------- ------------- OPERATING RESULTS Sales $ 481,405 $ 417,682 $ 453,357 $ 446,477 $ 465,136 Gross profit 116,731 103,975 119,869 118,528 118,399 Interest expense 11,715 11,191 12,689 10,990 14,105 Provision (benefit) for income taxes 4,940 6,971 (9,732) 1,649 5,052 Equity in earnings (losses) of affiliated companies, net of taxes 3,594 1,359 1,821 2,011 (976) Net income (loss) 12,452 10,790(1) (24,255)(2) 5,859 7,635(3) Net income/sales 2.6% 2.6% -5.4% 1.3% 1.6% Return on equity 9.6% 9.0% -18.6% 4.1% 5.4% - ------------------------------------ ------------- ------------- ------------- ------------- ------------- FINANCIAL CONDITION AT YEAR END Working capital $ 114,458 $ 103,104 $ 85,990 $ 107,086 $ 104,228 Property, plant and equipment, net 114,116 112,953 113,199 128,130 122,201 Investments, advances and equity in affiliated companies 36,197 37,315 39,984 47,882 45,901 Total assets 371,381 350,856 337,842 379,480 384,472 Long-term debt, less current portion 91,565 92,847 89,590 105,874 99,304 - ------------------------------------ ------------- ------------- ------------- ------------- ------------- PROPERTY, PLANT AND EQUIPMENT Expenditures $ 6,154 $ 14,934 $ 14,697 $ 21,027 $ 26,527 Depreciation 16,065 15,855 16,444 15,649 16,704
- ------------------------ (1) INCLUDES $1.8 MILLION GAIN, NET OF INCOME TAXES, OR $.46 PER SHARE, ON THE SALE OF A COLOMBIAN SUBSIDIARY. (2) INCLUDES $31.5 MILLION, NET OF INCOME TAXES, IN FOURTH QUARTER CHARGES, OR $8.15 PER SHARE, FOR RESTRUCTURING AND OTHER RELATED ITEMS. (3) INCLUDES $360,000, NET OF INCOME TAXES, OR $.10 PER SHARE, RELATED TO THE SALE OF THE COMPANY'S CORPORATE HEADQUARTERS FACILITY, REDUCED BY RESTRUCTURING CHARGES AND ASSET WRITE-DOWNS. (4) INCLUDES COMMON STOCK EQUIVALENTS IN PERIODS IN WHICH THEY HAVE A DILUTIVE EFFECT. 34 AMERON 1995 FINANCIAL REVIEW MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - ------------------------------------------------------------------------------- LIQUIDITY AND CAPITAL RESOURCES During 1995, the Company generated $20.2 million of cash from operations. These funds, along with additional net borrowings of $5.0 million, were used for investment in new property, plant and equipment of $16.2 million and payment of common dividends of $5.1 million. Cash and cash equivalents at November 30, 1995 totaled $12.9 million, an increase of $3.9 million from the prior year. Cash provided by operating activities increased due to improved earnings after adjusting for depreciation and higher affiliate dividends in excess of equity income. This was partially offset by increased working capital requirements. The increase in working capital included higher receivable balances due to greatly improved sales by the Concrete & Steel Pipe business segment. Inventories rose as a result of future delivery commitments to water transmission pipelines in California. Cash used in investing activities consisted principally of capital expenditures to support major water transmission contracts being supplied by the Concrete & Steel Pipe business segment. Capital expenditures also included normal replacement and upgrades of machinery and equipment and the completion of a protective coatings warehouse in The Netherlands. Management estimates that capital spending by the Company during the year ending November 30, 1996 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. During the third quarter, the Company replaced its $35.0 million revolving credit facility with a new $75.0 million revolving credit facility. The new agreement expires in June 1998. The Company had $81.8 million in unused credit available to fund operating and investing activities worldwide at November 30, 1995. Management believes that cash flows from operations and current cash balances, together with currently available lines of credit, will be sufficient to meet future operating requirements. - ------------------------------------------------------------------------------- RESULTS OF OPERATIONS: 1995 COMPARED WITH 1994 GENERAL Net income in 1995 was $12.5 million or $3.15 per share on sales of $481.4 million, compared to net income of $10.8 million or $2.75 per share on sales of $417.7 million in 1994. Results in 1994 included a gain on the sale of a non-strategic steel fabrication subsidiary in Colombia, which resulted in a net after-tax gain of $1.8 million or $.46 per share. After adjusting for the gain on the sale of this subsidiary, earnings per share for 1994 were $2.29. The increase in 1995 earnings over equivalent 1994 earnings was 38%. The sales and earnings improvement over the prior year reflects a significant increase in concrete and steel pipe deliveries in California, as well as improved performance by the Fiberglass Pipe business segment. Net income in 1995 also benefitted from improved performance at certain affiliated companies. SALES Compared to 1994, sales increased $63.7 million or 15% in 1995, primarily because of significantly improved deliveries of concrete and steel pipe in California and increased shipments of fiberglass pipe to Central Africa, the Middle East, Europe and the Pacific Rim. These sales increases were partially offset by lower Protective Coatings shipments to North Africa from the Company's subsidiary in The Netherlands. Protective Coatings sales were $130.5 million in 1995 compared to $134.2 million in 1994. Sales of protective coatings and product finishes in the U.S. increased over 1994 record sales. Ameron's product line based on proprietary PSX-Registered Trademark- technology continues to grow as an important component of its high-performance product sales. The primary product in that series, PSX 700, tripled sales in 1995 compared to 1994 and is among the segment's top five products in sales volume. Modest gains were made in key U.S. market segments, notably rail, marine and offshore. Sales in Europe, while adversely affected by the reduction in shipments to North Africa, showed improvements in core industrial segments in Western and Eastern Europe and in the Middle East. The Company anticipates continued sales growth worldwide. Fiberglass Pipe sales improved to $82.8 million in 1995, versus $66.2 million in the prior year. The increase in sales can be attributed to strong oilfield, industrial, offshore and marine markets in Europe, Central Africa, the Middle East and the Pacific Rim. Sales in the U.S. declined during the year. The outlook for Europe and the Pacific Rim continues favorable in all market segments. The U.S. market is expected to remain weak, but exports from the U.S. should increase. Concrete and Steel Pipe sales totaled $153.2 million in 1995, compared to $101.6 million in 1994. The primary reason for the $51.6 million increase was the commencement of several major water transmission pipelines in California, including the Coastal Aqueduct, the Eastside pipeline and the Los Vaqueros pipeline -- the largest concrete pipe contract in Ameron's history. The outlook for Concrete & Steel Pipe is positive since the business entered fiscal 1996 with a backlog of approximately $97 million compared to $103 million at the beginning of fiscal 1995. 35 Construction & Allied Products sales totaled $115.0 million in 1995 compared to $115.6 million in 1994. The Pole Products business enjoyed significant growth in traffic signal, highway lighting and street lighting applications due to broader geographic coverage. The Company's Hawaiian operation, which is the largest supplier of ready-mix concrete on the Islands continued to experience a downturn in sales due to reduced construction spending in Hawaii. Growth should continue in the Pole Products business, but economic conditions in Hawaii are expected to remain weak in the near term. GROSS PROFIT Gross profit of $116.7 million in 1995 was higher than the $104.0 million reported in 1994. The improvement in gross profit in 1995 was due mainly to the increase in sales volume in 1995, as discussed above. Gross profit as a percent of sales declined from 24.9% in 1994 to 24.2% in 1995. The decrease in margin resulted principally from a change in the product mix caused by higher sales of lower margin concrete and steel pipe, coupled with decreased margins due to higher raw material costs and competitive pricing in the Protective Coatings segment. This decline was partially offset by improved gross profit margins in the Company's other business segments as a result of improved pricing and increased capacity utilization. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and administrative expenses totaled $95.8 million in 1995 or 19.9% of sales, compared to $86.8 million or 20.8% of sales in 1994. The $9.0 million increase was attributable primarily to the substantial increase in business activity over the prior year. Selling, general and administrative expenses include charges for environmental and legal claims. For a discussion on pending environmental and legal claims, refer to Note 11: "Contingencies and Commitments." Given recorded reserves, the Company does not expect these matters to have a material adverse effect on the Company's present and future financial position or its results of operations. In the early 1970s, 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. Ameron waste accounted for less than one percent of the total waste deposited at the site. In 1993, the State of California was found to be 75% to 85% liable for the remediation costs of this Superfund site. However, the State of California has appealed this finding. Ameron maintains reserves that it believes to be adequate to cover expected future costs associated with this matter. The Company is subject to federal, state and local laws and regulations concerning the environment and, in addition to the Stringfellow site, is currently participating in administrative proceedings at several sites under these laws. While the Company finds it difficult to estimate with any certainty the total cost of remediation at the several sites, on the basis of currently available information and reserves provided, the Company believes it unlikely that the outcome of such environmental regulatory proceedings will have a material adverse effect on the Company's financial position or its results of operations. GAIN ON THE SALE OF ASSETS The gain from the sale of assets in 1994 was realized principally from the divestiture of a wholly-owned non-strategic steel fabrication subsidiary in Colombia. OTHER INCOME Royalty and fee income from affiliated companies and licensees declined from the prior year as a result of decreased sales reported by affiliated companies. Foreign currency losses were incurred by the Company's Colombian and European operations. Miscellaneous income includes sublease rental income and other income from various sources. INTEREST Interest expense totaled $11.7 million in 1995, an increase of $.5 million from 1994 due to higher borrowing levels maintained throughout the year. PROVISION FOR INCOME TAXES The Company's effective tax rate declined from 42.5% in 1994 to 35.8% in 1995. The lower effective rate was attributable to a reduction of deemed dividends from foreign subsidiaries and improved availability of foreign tax credits on the Federal tax return. The Company adopted Financial Accounting Standards Board Statement No. 109, "Accounting for Income Taxes," in 1994. The requirements and impact of this statement are discussed in Note 8 of the financial statements. EQUITY IN EARNINGS OF AFFILIATED COMPANIES Equity in earnings of affiliated companies recorded in 1995 totaled $3.6 million, an increase of $2.2 million from 1994. During 1994, the Company refined its method for recognizing equity in earnings from affiliated companies to a more conservative approach under which income is recognized only to the extent that cash dividends are anticipated. During 1995, dividends were received from all the Company's principal investments. Two affiliates, Tamco, which operates a steel mini-mill in Southern California, and Bondstrand, Ltd., a fiberglass pipe manufacturer in Saudi Arabia, reported higher sales and earnings in 1995. Sales and earnings of the Company's concrete pipe producing affiliates, Gifford-Hill-American, Inc. in Texas and Ameron Saudi Arabia, Ltd. were lower in 1995 than in the previous year. 36 - ------------------------------------------------------------------------------- RESULTS OF OPERATIONS: 1994 COMPARED WITH 1993 GENERAL Ameron earned $2.75 per share ($10.8 million after taxes) on sales of $417.7 million for 1994, compared to a net loss of $6.28 per share (loss of $24.3 million after taxes) in 1993 on sales of $453.4 million. During 1993, Ameron recognized costs totaling $45.8 million ($31.5 million after taxes) associated with a comprehensive restructuring of the Company. Excluding the after-tax effect of restructuring charges, earnings per share for 1993 would have been $1.87. During 1994, a non-strategic steel fabrication subsidiary in Colombia was sold as part of the restructuring program; the sale resulted in a net after-tax gain of $1.8 million or $.46 per share. Adjusting for the gain on the sale of this subsidiary, earnings per share for 1994 were $2.29, a 22% increase over equivalent 1993 earnings of $1.87 per share. The earnings improvement was due principally to the positive impact of the restructuring on Ameron's business segments, as well as continued growth of the Protective Coatings business and the Construction & Allied Products segment. The Concrete & Steel Pipe business had lower earnings as a result of project delays, and the Fiberglass Pipe business declined because of completion of major fiberglass pipe projects in North Africa during 1993. SALES Compared to 1993, sales declined $35.7 million or 8% in 1994, primarily because of completion of major fiberglass pipe projects in North Africa; lower shipments of protective coatings from Ameron B.V., the Company's subsidiary in The Netherlands; and project delays in California that reduced shipments of concrete and steel pipe. The sales decline was offset partially by stronger Protective Coatings sales in the United States and improved market penetration by the Pole Products business within the Construction & Allied Products Group. Total Protective Coatings sales were $134.2 million in 1994, compared to $137.8 million in 1993. The modest decline of $3.6 million reflects relatively flat market conditions in Europe and lower shipments to North Africa. Sales of industrial coatings and product finishes in the United States reached record high levels in 1994. The favorable sales performance resulted in part from the successful introduction of PSX, Ameron's proprietary new polysiloxane technology. Also contributing were market share gains in product finishes for the original equipment manufacturer market and several large protective coatings projects. Total Fiberglass Pipe segment sales were $66.2 million in 1994, compared with $92.9 million in 1993. The sales decrease ($26.7 million) was attributable to completion of several major crude oil projects in North Africa in 1993. Sales in the United States were down in 1994, mostly due to the general softness in oilfield markets and reduced demand for fuel-handling systems used for service station rehabilitation. Concrete & Steel Pipe segment sales totaled $101.6 million in 1994, compared to $110.3 million in 1993. The sales decline ($8.7 million) occurred primarily because of delivery delays on several major projects in California. Construction & Allied Products sales totaled $115.6 million in 1994, compared with $112.4 million in 1993. The main reason for the $3.2 million increase was sales growth achieved by the Pole Products business, which more than offset a slight sales decline at the Company's Hawaiian operations. The growth in the Pole Products business was due to market share gains in the steel pole product line for traffic and street lighting applications, generally stronger market demand and successful market expansion programs. Continued softness in the private construction sector accounted for the modest sales decline in Hawaii. GROSS PROFIT Gross profit margin of $104.0 million or 24.9% of sales in 1994 was lower than the $119.9 million or 26.4% of sales reported in 1993. The decline in gross profit ($15.9 million) in 1994 was due principally to the lower sales volume in 1994, particularly in the European Fiberglass Pipe operations. The lower gross profit margin rate resulted mainly from the completion of Fiberglass Pipe projects in North Africa that had favorably affected 1993 operations. The gross profit of the Concrete & Steel Pipe segment was unfavorably impacted by price competition, product mix and project delivery delays in California. Protective Coatings had a slightly lower gross profit margin due to product mix, while Construction & Allied Products had a higher gross profit margin because of productivity gains and favorable pricing. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and administrative expenses totaled $86.8 million in 1994, compared with $115.4 million in 1993. The $28.6 million decrease was attributable to the significant reduction in the Company's overhead structure resulting from the comprehensive restructuring in 1993. In addition, charges to income for environmental and legal claims decreased $12.2 million in 1994 compared to 1993. In 1993 an additional $9.0 million was reserved for environmental and legal matters as part of the restructuring. The decrease in selling, general and administrative expenses also reflects reduced selling expenses as a result of lower sales volume. RESTRUCTURING During 1994, the Company disbursed approximately $3.5 million for plant consolidation and employee severance costs in connection with its 1993 restructuring plan. At November 30, 1994, $1.9 million of accrued liabilities related to the 1993 restructuring remained in the Company's balance sheet. 37 GAIN ON THE SALE OF ASSETS The gains from the sale of assets in 1994 were realized principally from the divestiture of a wholly-owned non-strategic steel fabrication subsidiary in Colombia. OTHER INCOME Other income consisted of royalties and fees received from affiliated companies and licensees, as well as miscellaneous income earned from various sources. INTEREST Interest expense totaled $11.2 million in 1994, a decrease of $1.5 million from 1993. Interest in 1993 was higher because of the recording of accrued interest on income tax obligations related to prior years. PROVISION FOR INCOME TAXES Income tax expense aggregated $7.0 million in 1994, which represents an overall effective tax rate of 42.5% of pretax income. This compares to the effective tax rate of 45.0% in 1993 after adjusting for restructuring and related charges. EQUITY IN EARNINGS OF AFFILIATED COMPANIES Equity in earnings of affiliated companies recorded in 1994 totaled $1.4 million, a slight decline from the $1.8 million recorded in 1993. During 1994, the Company refined its method for equity income recognition to a more conservative approach under which equity income is recognized only to the extent that cash dividends are anticipated. Two affiliates, Gifford-Hill- American, Inc., a pressure pipe operation in Texas, and Tamco, a steel mini-mill in Southern California, reported sizable improvements in sales and earnings in 1994. Sales and earnings of the Company's Saudi Arabian affiliates, Oasis-Ameron, Ltd., Bondstrand, Ltd. and Ameron Saudi Arabia, Ltd., were lower than in 1993. 38 CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED NOVEMBER 30 (DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA) 1995 1994 1993 - ------------------------------------------------------------------------ ----------- ----------- ----------- Sales $ 481,405 $ 417,682 $ 453,357 Cost of sales 364,674 313,707 333,488 ----------- ----------- ----------- Gross profit 116,731 103,975 119,869 Selling, general and administrative expenses 95,786 86,767 115,420 Restructuring charges and write-down of assets -- -- 33,797 Gain from sale of assets 730 4,188 547 Other income 3,494 5,513 4,846 ----------- ----------- ----------- Income (loss) before interest and income taxes 25,169 26,909 (23,955) Interest income 344 684 836 Interest expense 11,715 11,191 12,689 ----------- ----------- ----------- Income (loss) before income taxes 13,798 16,402 (35,808) Provision (benefit) for income taxes 4,940 6,971 (9,732) ----------- ----------- ----------- Income (loss) of consolidated companies 8,858 9,431 (26,076) Equity in earnings of affiliated companies, net of taxes 3,594 1,359 1,821 ----------- ----------- ----------- Net income (loss) $ 12,452 $ 10,790 $ (24,255) =========== =========== =========== Net income (loss) per share $ 3.15 $ 2.75 $ (6.28) =========== =========== ===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS. 39 CONSOLIDATED BALANCE SHEETS
AS OF NOVEMBER 30 (DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA) 1995 1994 - ---------------------------------------------------------------------------------------- ----------- ----------- ASSETS Current assets Cash and cash equivalents $ 12,923 $ 9,030 Receivables, less allowance of $4,800 in 1995 and $4,135 in 1994 105,019 97,519 Inventories 76,426 71,644 Deferred income tax benefits 7,315 4,706 Prepaid expenses and other 5,155 5,192 ----------- ----------- Total current assets 206,838 188,091 Investments, advances and equity in undistributed earnings of affiliated companies 36,197 37,315 Property, plant and equipment Land 22,068 21,589 Buildings 50,256 43,991 Machinery and equipment 203,282 192,483 Construction in progress 8,980 10,028 ----------- ----------- Total property, plant and equipment at cost 284,586 268,091 Less -- accumulated depreciation (170,470) (155,138) Total property, plant and equipment, net 114,116 112,953 Other assets 14,230 12,497 ----------- ----------- Total assets $ 371,381 $ 350,856 =========== ===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED BALANCE SHEETS. 40
AS OF NOVEMBER 30 ------------------------ 1995 1994 ----------- ----------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Short-term borrowings $ 1,718 $ 2,931 Current portion of long-term debt 17,803 9,674 Trade payables 32,219 25,507 Accrued liabilities Taxes, interest and other 14,303 17,952 Compensation and benefits 12,998 11,382 Insurance and claims 10,126 11,928 Income taxes 3,213 4,813 ----------- ----------- Total current liabilities 92,380 84,187 Deferred income taxes 4,040 5,759 Long-term debt, less current portion 91,565 92,847 Other long-term liabilities 48,824 43,256 ----------- ----------- Total liabilities 236,809 226,049 Commitments and contingencies Stockholders' equity Common stock, par value $2.50 a share Authorized 12,000,000 shares Outstanding 3,956,497 shares in 1995 and 3,935,711 shares in 1994, net of treasury shares 12,823 12,772 Additional paid-in capital 15,322 14,658 Retained earnings 146,987 139,586 Cumulative foreign currency translation adjustments 2,219 570 Less treasury stock (1,172,900 shares in 1995 and 1994), at cost (42,779) (42,779) ----------- ----------- Total stockholders' equity 134,572 124,807 ----------- ----------- Total liabilities and stockholders' equity $ 371,381 350,856 =========== ===========
41 CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED NOVEMBER 30 ------------------------------- (DOLLARS IN THOUSANDS) 1995 1994 1993 - ------------------------------------------------------------------------------- --------- --------- --------- OPERATING ACTIVITIES Net income (loss) $ 12,452 $ 10,790 $ (24,255) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation 16,065 15,855 16,444 Provision (benefit) for deferred income taxes (1,072) 9,414 (17,759) Equity in earnings of affiliated companies (3,594) (1,359) (1,821) Dividends from affiliated companies 6,186 1,755 3,670 Gain from sale of assets (730) (4,188) (547) Stock contributed to employee benefit plan 681 967 958 Non-cash restructuring and asset write-downs -- -- 28,668 Other, net (537) (479) (189) Other changes in operating assets and liabilities: (Increase) decrease in receivables (8,483) (17,109) 3,744 Increase in inventories (4,182) (9,383) (2,489) (Increase) decrease in other current assets (3,274) 3,374 357 (Increase) decrease in long-term assets (279) (2,390) 332 Increase (decrease) in trade payables, accrued liabilities and income taxes (2,511) (9,899) 7,468 Increase in long-term liabilities 9,445 6,184 10,466 --------- --------- --------- Net cash provided by operating activities 20,167 3,532 25,047 --------- --------- --------- INVESTING ACTIVITIES Proceeds from sale of assets 1,126 4,688 1,850 Additions to property, plant and equipment (16,154) (14,934) (14,697) Investment in life insurance policies (1,452) (2,872) (1,613) Other -- (420) (30) --------- --------- --------- Net cash used in investing activities (16,480) (13,538) (14,490) --------- --------- --------- FINANCING ACTIVITIES Net change in debt with maturities of three months or less (1,061) 395 (221) Issuance of debt 15,897 13,041 -- Repayment of debt (9,849) (5,953) (15,728) Dividends on common stock (5,051) (5,016) (4,950) Issuance of common stock 34 401 70 --------- --------- --------- Net cash provided by (used in) financing activities (30) 2,868 (20,829) --------- --------- --------- Effect of exchange rate changes on cash and cash equivalents 236 430 (437) --------- --------- --------- Net change in cash and cash equivalents 3,893 (6,708) (10,709) Cash and cash equivalents at beginning of year 9,030 15,738 26,447 --------- --------- --------- Cash and cash equivalents at end of year $ 12,923 $ 9,030 $ 15,738 ========= ========= =========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS. 42 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
COMMON STOCK ---------------------- ADDITIONAL SHARES PAID-IN RETAINED (DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA) OUTSTANDING AMOUNT CAPITAL EARNINGS OTHER - ----------------------------------------------------- ----------- --------- ----------- ----------- --------- BALANCE, NOVEMBER 30, 1992 3,841,630 $ 12,536 $ 12,007 $ 163,017 $ 105 Net loss -- 1993 (24,255) Exercise of stock options and issuance of stock to employee savings plan 44,835 112 1,407 Dividends on common stock of $1.28 a share (4,950) Foreign currency translation adjustments (net of deferred income tax benefit of $644) (966) Minimum pension liability adjustment (720) ----------- --------- ---------- ----------- --------- BALANCE, NOVEMBER 30, 1993 3,886,465 12,648 13,414 133,812 (1,581) Net income -- 1994 10,790 Exercise of stock options and issuance of stock to employee savings plan 49,246 124 1,244 Dividends on common stock of $1.28 a share (5,016) Foreign currency translation adjustments (net of deferred income tax of $954) 1,431 Minimum pension liability adjustment 720 ----------- --------- ---------- ----------- --------- BALANCE, NOVEMBER 30, 1994 3,935,711 12,772 14,658 139,586 570 Net income -- 1995 12,452 Exercise of stock options and issuance of stock to employee savings plan 20,786 51 664 Dividends on common stock of $1.28 a share (5,051) Foreign currency translation adjustments (net of deferred income tax of $1,100) 1,649 ----------- --------- ---------- ----------- --------- BALANCE, NOVEMBER 30, 1995 3,956,497 $ 12,823 $ 15,322 $ 146,987 $ 2,219 =========== ========= ========= =========== =========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS. 43 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of Ameron, Inc. and all wholly-owned subsidiaries (the Company). All material intercompany accounts and transactions have been eliminated. Investments in significant 30- to 50-percent-owned affiliates are accounted for by the equity method, whereby the investment is carried at cost of acquisition, plus the Company's equity in undistributed earnings or losses since acquisition, less reserves. The Company provides technical services and receives fees, royalties and other income from several of its affiliates and licensees, which are included in other income. Certain prior year balances have been reclassified to conform with the current year presentation. CASH AND CASH EQUIVALENTS Cash equivalents include time deposits with maturities of three months or less when purchased. The Company had no cash equivalents at November 30, 1995. At November 30, 1994, the Company had approximately $22,000 invested in such securities. The carrying value of cash and cash equivalents approximates their fair value. INVENTORIES Inventories are valued at the lower of cost or market. Cost is principally determined by either the first-in, first-out or average cost methods. Such cost includes raw materials, direct labor and manufacturing overhead. Certain steel inventories are valued using the last-in, first-out cost method. PROPERTY, PLANT AND EQUIPMENT Items capitalized as property, plant and equipment, including improvements to existing facilities, are recorded at cost. Upon sale or retirement, the cost and related accumulated depreciation are removed from the respective accounts, and any gain or loss is included in income. Maintenance and repair costs are expensed as incurred. Interest costs applicable to the construction of major plant and expansion projects were immaterial for the periods presented. Depreciation is computed principally using the straight-line method based on estimated useful lives of the assets. Annual rates of depreciation are as follows: PERCENTAGE OF COST ------------------ Buildings 2-1/2 - 10 Machinery and equipment Autos, trucks and trailers 6-2/3 - 50 Cranes and tractors 10 - 15 Manufacturing equipment 6-2/3 - 33-1/3 Other 5 - 66-2/3 In March 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." The Statement requires that long-lived assets and certain identifiable intangibles to be held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Statement must be adopted by the Company no later than the fiscal year ending November 30, 1997. The Company does not expect implementation of this statement to have a material effect on its financial position or its results of operations. FOREIGN CURRENCY TRANSLATION The functional currency for the majority of the Company's foreign operations is the applicable local currency. The translation from the applicable foreign currencies to U.S. dollars is performed for balance sheet accounts using current exchange rates in effect at the balance sheet date and for revenue and expense accounts using a weighted average exchange rate during the period. The gains or losses, net of applicable deferred income taxes, resulting from such translation are included in stockholders' equity. Gains or losses resulting from foreign currency transactions are included in other income. REVENUE RECOGNITION Revenue from sales of protective coatings, fiberglass pipe, construction products and certain other products is recorded at the time the goods are shipped or when title passes. Revenue from sales of concrete and steel pipe is recorded at the time the pipe is inspected and accepted by the customer. RESEARCH AND DEVELOPMENT COSTS Research and development costs are expensed as incurred. Such costs were approximately $4,300,000 in 1995, $4,700,000 in 1994 and $4,100,000 in 1993. INCOME TAXES In December 1993, the Company adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes." The adoption of this Statement changes the Company's method of accounting for income taxes from the deferred method (APB 11) to an asset and liability approach. Previously the Company deferred the past tax effects of timing differences between financial reportings and taxable income. The asset and liability approach requires the recognition of deferred tax liabilities and assets for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. NET INCOME PER SHARE Net income per share is computed on the basis of the weighted average number of common shares outstanding each year, plus common stock equivalents related to dilutive stock options. The number of shares used in the computation of per share data was 3,954,544 in 1995, 3,924,456 in 1994 and 3,861,872 in 1993. CASH FLOW INFORMATION (IN THOUSANDS) 1995 1994 1993 - -------------- ------ ------- ------- Interest paid $9,849 $10,365 $11,903 Income taxes paid, net $2,448 $ 1,581 $ 3,535 NOTE 2 OTHER INCOME Other income for the years ended November 30 included the following: (IN THOUSANDS) 1995 1994 1993 - -------------- ------ ------ ------ Royalties and fees from affiliated companies and licensees $3,297 $4,018 $3,967 Foreign currency loss (928) (205) (147) Miscellaneous 1,125 1,700 1,026 ------ ------ ------ $3,494 $5,513 $4,846 ====== ====== ====== 44 - ------------------------------------------------------------------------------- NOTE 3 INVENTORIES Inventories at November 30, were as follows:
(IN THOUSANDS) 1995 1994 - ------------------------- ------- -------- Finished products $32,210 $34,664 Products in process 26,128 20,175 Materials and supplies 18,088 16,805 -------- ------- $76,426 $71,644 ======== =======
Certain steel inventories are valued using the last-in, first-out cost method. These items comprised 8.7% and 9.2% of consolidated inventories at November 30, 1995 and 1994, respectively. If such inventories had been valued using the first-in, first-out cost method, total inventories would have increased by $2,469,000 and $2,265,000 at November 30, 1995 and 1994, respectively. - ------------------------------------------------------------------------------- NOTE 4 AFFILIATED COMPANIES The Company's principal investments, which have been accounted for by the equity method, are summarized as follows:
OWNERSHIP PRODUCTS AFFILIATE INTEREST - ----------------------- --------------------------- -------- Concrete pipe products Gifford-Hill-American, Inc. 50% Ameron Saudi Arabia, Ltd. 30% Steel products Tamco 50% Other Bondstrand, Ltd. 40% Oasis-Ameron, Ltd. 40%
CONCRETE STEEL (IN THOUSANDS) PIPE PRODUCTS PRODUCTS OTHER TOTAL - ----------------------------- ------------- -------- ------- -------- Investment, November 30, 1995 Cost $ 6,194 $ 8,482 $3,706 $18,382 Accumulated equity in undistributed earnings 15,258 9,335 2,581 27,174 Reserves (8,116) (1,042) (201) (9,359) --------- ------- ------ ------- $13,336 $16,775 $6,086 $36,197 ========= ======= ====== ======= Investment, November 30, 1994 Cost $6,194 $8,482 $3,706 $18,382 Accumulated equity in undistributed earnings 17,112 8,760 2,809 28,681 Reserves (9,281) (467) -- (9,748) --------- ------- ------ ------- $14,025 $16,775 $6,515 $37,315 ========= ======= ====== =======
The Company provides income taxes on its equity in earnings of affiliated companies to the extent that such earnings are expected to be distributed or repatriated. Summarized financial information for affiliates in the concrete pipe products business follows:
FINANCIAL CONDITION (IN THOUSANDS) 1995 1994 - -------------------------------------- --------- -------- Current assets $ 63,360 $ 70,100 Noncurrent assets 39,604 39,802 --------- -------- $102,964 $109,902 ========= ======== Current liabilities $ 35,554 $ 39,125 Noncurrent liabilities 7,303 3,371 Stockholders' equity 60,107 67,406 --------- -------- $102,964 $109,902 ========= ========
RESULTS OF OPERATIONS (IN THOUSANDS) 1995 1994 1993 - ------------------------------------ -------- ------- -------- Net sales $41,861 $80,230 $81,144 ======== ======= ======= Gross profit $ 8,087 $23,715 $21,305 ======== ======= ======= Net income (loss) $(1,924) $ 5,688 $ 5,367 ======== ======= =======
The Company's investment in Gifford-Hill-American, Inc., which manufactures concrete pressure pipe, was recorded based on audited financial statements as of June 30, 1995 and unaudited financial statements as of October 31, 1995. The Company's investments in Ameron Saudi Arabia, Ltd., Bondstrand, Ltd. and Oasis-Ameron, Ltd. were recorded based on audited financial statements as of December 31, 1994 and unaudited financial statements as of September 30, 1995. The investment in Tamco was based on audited financial statements as of November 30, 1995. Summarized financial information for Tamco, Bondstrand, Ltd. and Oasis-Ameron, Ltd. follows:
FINANCIAL CONDITION (IN THOUSANDS) 1995 1994 - ----------------------------------- -------- ------- Current assets $65,392 $48,074 Noncurrent assets 27,787 28,131 -------- ------- $93,179 $76,205 ======== ======= Current liabilities $36,718 $18,768 Noncurrent liabilities 3,588 4,312 Stockholders' equity 52,873 53,125 -------- ------- $93,179 $76,205 ======== =======
RESULTS OF OPERATIONS (IN THOUSANDS) 1995 1994 1993 - ----------------------------------- --------- -------- -------- Net sales $140,568 $136,790 $118,845 ========= ======== ======== Gross profit $ 26,387 $ 17,637 $ 10,953 ========= ======== ======== Net income $ 7,870 $ 3,886 $ 2,805 ========= ======== ========
The amount of investments and accumulated equity in the undistributed earnings in the Middle Eastern affiliates was approximately $18,000,000 and $19,000,000 at November 30, 1995 and 1994, respectively. Sales and technical services provided by the Company to affiliates in the Middle East totaled approximately $1,700,000 in 1995, $3,500,000 in 1994 and $4,100,000 in 1993, and related receivables aggregated approximately $1,300,000 at November 30, 1995 and $2,400,000 at November 30, 1994. Receivables from all affiliated companies approximated $1,500,000 at November 30, 1995 and $2,800,000 at November 30, 1994. - ------------------------------------------------------------------------------- NOTE 5 SALES OF ASSETS During the third quarter of 1994, the Company completed the sale of a non-strategic steel fabrication subsidiary in Colombia. This sale resulted in an after tax gain of $1.8 million or $.46 per share, for the year. - ------------------------------------------------------------------------------- NOTE 6 RESTRUCTURING CHARGES AND WRITE-DOWN OF ASSETS In the fourth quarter of fiscal 1993, the Company recorded a pretax restructuring charge of $31.9 million and wrote down related fixed assets of $1.9 million. The restructuring charges included facility and product line consolidation, severance of approximately 330 salaried employees, revaluation of underperforming assets to their expected 45 realizable value and provision for elimination of several non-strategic and unprofitable operations. These costs reflect management's efforts to redeploy the Company's capital to those core businesses that are expected to yield returns consistent with management's expectations and objectives. The following is a summary of restructuring charges and asset write-downs recorded by the Company:
(IN THOUSANDS) 1993 - ------------------------------------------------------------------------------- --------- Facility and product line consolidation $ 11,367 Revalue investments and related assets 9,403 Elimination of non-strategic operations 7,494 Employee severance costs 3,430 Fixed asset write downs 1,937 Other 166 --------- Total $ 33,797 =========
The following is a summary of restructuring charges and asset write-downs by business segment:
(IN THOUSANDS) 1993 - ----------------------------------------------------------------------------- ----------- Protective Coatings $ 5,128 Fiberglass Pipe 1,909 Concrete & Steel Pipe 10,604 Construction & Allied Products 3,723 Corporate 12,433 ----------- Total $ 33,797 ===========
During the fiscal years ended November 30, 1993, 1994 and 1995, the Company utilized $2,019,000, $4,758,000 and $1,846,000, respectively, of reserves for restructuring activities. At November 30, 1995, $1,800,000 of restructuring reserves remained on the Company's balance sheet. NOTE 7 EMPLOYEE BENEFIT PLANS The Company has a qualified, defined benefit, noncontributory pension plan for employees not covered by union pension plans, which is accounted for in accordance with Financial Accounting Standards Board Statement No. 87. Benefits paid to retirees are based upon age at retirement, years of credited service and average compensation or negotiated benefit rates. The Company's funding policy is to make contributions to the plan sufficient to meet the minimum funding requirements of applicable laws and regulations, plus such additional amounts, if any, as the Company's actuarial consultants recommend. Assets of the defined benefit plan are invested in a directed trust. Assets in the trust are invested in equity securities of corporations (including $3,604,000 of the Company's common stock at November 30, 1995), U.S. government obligations, derivative securities, corporate bonds and money market funds. During 1994, the overfunded and underfunded pension plans were combined so that the assets of each predecessor pension plan are available to satisfy the previously existing obligations of the other. The Company has a supplemental non-qualified, non-funded retirement plan, for which the Company has purchased cost recovery life insurance on the lives of the participants. The Company is the sole owner and beneficiary of such policies. The amount of the coverage is designed to provide sufficient revenues to cover all costs of the plan if assumptions made as to mortality experience, policy earnings and other factors are realized. On November 30, 1995 and 1994, the cash surrender value of these policies was $3,775,000 and $3,314,000, respectively. Net periodic pension cost for the years ended November 30, consists of the following:
(IN THOUSANDS) 1995 1994 1993 - ------------------------------------------------------ ---------- --------- ---------- Service cost: Defined benefit plans $ 1,822 $ 2,111 $ 2,452 Supplemental plan 26 25 26 Interest cost: Defined benefit plans 8,333 7,663 7,744 Supplemental plan 213 186 146 Return on plan assets (17,466) 508 (20,847) Net(amortization) deferral: Defined benefit plans 7,860 (9,701) 11,962 Supplemental plan 273 268 202 ---------- --------- ---------- Net periodic pension cost $ 1,061 $ 1,060 $ 1,685 ========== ========= ==========
The following table sets forth the funding status of the qualified, defined benefit plan and the amount recognized in the Company's balance sheet at November 30:
(IN THOUSANDS) 1995 1994 - ---------------------------------------------------------------- ----------- ----------- Actuarial present value of: Vested benefit obligation $ 104,666 $ 88,108 Non-vested benefits 738 621 ----------- ----------- Accumulated benefit obligation 105,404 88,729 Effect of salary increases 8,669 8,349 ----------- ----------- Actuarial present value of projected benefit obligation 114,073 97,078 Less plan assets at market value 115,204 104,381 ----------- ----------- Plan assets in excess of projected benefit obligation (1,131) (7,303) Unrecognized asset 6,196 11,820 ----------- ----------- Accrued pension cost in consolidated balance sheets $ 5,065 $ 4,517 =========== ===========
The following table sets forth the status of the supplemental plan as of November 30:
(IN THOUSANDS) 1995 1994 - --------------------------------------------------------------------- --------- --------- Actuarial present value of: Vested benefit obligation $ 2,618 $ 2,172 Non-vested benefits 3 5 --------- --------- Accumulated benefit obligation 2,621 2,177 Effect of salary increases 259 124 Actuarial present value of projected benefit obligation 2,880 2,301 Unrecognized obligation (729) (965) Unrecognized net gain (loss) (135) 353 --------- --------- Accrued pension cost in consolidated balance sheets $ 2,016 $ 1,689 ========= =========
The 1995 actuarial computations for both the qualified, defined benefit plan and the supplemental plan assumed a discount rate of 7.5% and annual salary increases of 5.0%. The qualified, defined benefit plan assumed an expected long-term rate of return of 9.75%. Approximately 18% of the Company's employees are covered by union sponsored, collectively bargained, multi-employer pension plans. The Company contributed and charged to expense $2,700,000 in 1995 and $2,400,000 and $1,900,000 in 1994 and 1993, respectively. These contributions are determined in accordance with the provisions of negotiated labor contracts and generally are based on the number of 46 hours worked. Information from the plans' administrators is not available to permit the Company to determine its share of unfunded vested benefits, if any. The Company has no intention of withdrawing from any of these plans, nor is there any intention to terminate such plans. Effective December 1, 1993, the Company adopted Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions." The Statement requires the Company to accrue the estimated cost of retiree benefit payments during the years the employees provide services. The Statement allows recognition of the cumulative effect of the liability in the year of the adoption or the amortization of the obligation over a period of up to 20 years. The Company has elected to recognize the initial postretirement benefit obligation of $1,330,000 over a period of 20 years. The accumulated postretirement benefit obligation in the Company's balance sheet at November 30, follows: (IN THOUSANDS) 1995 1994 - -------------------------------------------------- ------- ------- Retirees $ 356 $ 297 Actives eligible 563 462 All others 632 571 ------- ------- Postretirement benefit obligation 1,551 1,330 Unrecognized net transition obligation (1,282) (1,353) Unrecognized gains (losses) (20) 154 ------- ------- Accrued postretirement cost in the balance sheet $ 249 $ 131 ======= ======= Net periodic postretirement benefit cost for the year ended November 30, consisted of the following components: (IN THOUSANDS) 1995 1994 - ------------------------------------------------- ---- ---- Service cost $ 52 $ 55 Interest cost 113 111 Net amortization 69 71 ---- ---- Net periodic postretirement benefit expense $234 $237 ==== ==== The assumed health care cost trend rate used in measuring the accumulated postretirement benefit obligation was 9.5% in 1995; it is assumed that the rate will decline gradually to 6% by the year 2001. The assumed discount rate used in determining the accumulated postretirement benefit obligation was 7.5% at November 30, 1995. The salary increase rate used was 5.0%. The Company has a deferred compensation plan providing key executives with the opportunity to participate in an unfunded, deferred compensation program. Under the program, participants may defer base compensation and bonuses and earn interest on their deferred amounts. The program is not qualified under Section 401 of the Internal Revenue Code. The total of net participant deferrals, which is reflected in accrued liabilities was $3,911,000 at November 30, 1995 and $3,208,000 at November 30, 1994. The expense for this plan was $346,000 in 1995, $136,000 in 1994 and $362,000 in 1993. The Company has a life insurance plan wherein eligible executives are provided with life insurance protection based upon three times base salary. Upon retirement, the executive is provided with life insurance protection based upon final base salary. Benefits may be paid as a lump sum or as an annual income to the identified survivor over ten years. The expense for this plan was $46,000 in 1995, $60,000 in 1994 and $50,000 in 1993. In connection with the above two plans, whole life insurance contracts were purchased on the related participants. At November 30, 1995 and 1994, the cash surrender value of these policies was $5,682,000 and $4,690,000, net of loans of $2,043,000. The Company provides to certain employees a savings plan under Section 401(k) of the Internal Revenue Code. The savings plan allows for deferral of income up to a certain percentage through contributions to the plan and, within certain restrictions, Company matching contributions in the form of the Company's common stock. In 1995, 1994 and 1993, the Company recorded expenses for matching contributions of $681,000, $967,000 and $958,000, respectively, while 19,761 and 25,996 and 27,635 shares of common stock were issued by the Company to the savings plan. In December 1994, the Company adopted Statement of Financial Accounting Standards No. 112 "Employers' Accounting for Postemployment Benefits--An Amendment of FASB Statements No. 5 and 43." This statement requires employers to recognize obligations to provide postemployment benefits if certain criteria are met. Implementation of this statement did not have a material effect on the Company's financial position or its results of operations. NOTE 8 INCOME TAXES The provision (benefit) for income taxes for the years ended November 30, included the following: (IN THOUSANDS) 1995 1994 1993 - ----------------------------- ------- ------- -------- Current Federal $ 2,833 $(3,730) $ 1,340 Foreign 2,516 1,287 6,542 State 663 -- 145 ------- ------- -------- 6,012 (2,443) 8,027 Deferred Federal (1,243) 8,566 (15,918) Foreign 396 (157) (25) State (225) 1,005 (1,816) ------- ------- -------- (1,072) 9,414 (17,759) ------- ------- -------- $ 4,940 $ 6,971 $ (9,732) ======= ======= ======== The principal types of timing differences and the tax effect of each, which give rise to the deferred tax provision (benefit), for the years ended November 30, follow: (IN THOUSANDS) 1995 1994 1993 - --------------------------------- ------- ------ -------- Accelerated depreciation $ (377) $ (150) $ 33 Change in nondeductible reserves (2,310) 8,799 (12,163) Investment tax credits, net -- -- (42) Write down of fixed assets -- -- (3,472) Federal alternative minimum tax and State loss carryforwards 1,379 (314) (1,099) Other, net 236 1,079 (1,016) ------- ------ -------- $(1,072) $9,414 $(17,759) ======= ====== ======== 47 Deferred tax liabilities (assets) are comprised of the following as of November 30:
(IN THOUSANDS) 1995 1994 - -------------------------------------------------------------------- --------- --------- Non-current deferred taxes Self insurance/claims reserves $ (8,242) $ (8,738) Investments 2,675 4,795 Employee benefits (8,399) (6,741) Fixed assets 20,577 20,225 Federal and State tax credit and loss carryforwards (2,347) (3,612) Other (224) (170) --------- --------- Net non-current deferred liability 4,040 5,759 Current deferred taxes Self-insurance/claims reserves (1,309) -- Employee benefits (1,685) (1,420) Accounts receivable (1,481) (1,926) Inventory (2,728) (2,064) Other (112) 704 --------- --------- Net current deferred asset (7,315) (4,706) --------- --------- Net deferred taxes $ (3,275) $ 1,053 ========= =========
The tax provision represents effective tax rates of 35.8%, 42.5% and 27.2% of pretax income for the years ended November 30, 1995, 1994 and 1993, respectively. A reconciliation of income taxes provided at the effective income tax rate and the amount computed at the federal statutory income tax rate of 35% for the years ended November 30, 1995 and November 30, 1994 and 34% for the year ended November 30, 1993 follows:
(IN THOUSANDS) 1995 1994 1993 - ------------------------------------------------------ --------- --------- ---------- Domestic pretax income (loss) $ 9,571 $ 14,438 $ (45,011) Foreign pretax income 4,227 1,964 9,203 --------- --------- ---------- $ 13,798 $ 16,402 $ (35,808) ========= ========= ========== Taxes at federal statutory rate $ 4,829 $ 5,741 $ (12,175) State taxes (net of federal tax benefit) 285 653 (1,103) Foreign losses with no federal benefit 630 199 2,591 Percentage depletion (512) (457) (486) Investment tax credit amortization -- -- (42) Write down affiliate investment -- -- 1,130 Foreign branch/withholding taxes 226 481 807 Other, net (518) 354 (454) --------- --------- ---------- $ 4,940 $ 6,971 $ (9,732) ========= ========= ==========
The Company has filed an appeal with respect to a portion of the Internal Revenue Service audit assessment relating to the Company's 1987 through 1989 Federal income tax returns. The appeal is currently being reviewed by the Internal Revenue Service. The resolution of this matter is not expected to have a material effect on the Company's results of operations. NOTE 9 DEBT Short-term borrowings consist of loans payable to banks by foreign subsidiaries totaling $1,718,000 and $2,931,000 as of November 30, 1995 and 1994 respectively. The average interest rate on these loans was approximately 16.9% in 1995 and 19.5% in 1994. The high interest rates relate to borrowings by the Company's Colombian subsidiary. Domestically, the Company has uncommitted, short-term, bank credit lines totaling $12,000,000 with interest at various money market rates. Long-term debt as of November 30, consisted of the following:
(IN THOUSANDS) 1995 1994 - ---------------------------------------------------------------- ----------- ----------- Unsecured notes payable to insurance companies: 8.63%, payable in annual installments of $5,000, plus accrued interest $ 15,000 $ 20,000 9.79%, payable in annual installments of $12,000 commencing in 1996, plus accrued interest 60,000 60,000 Variable-rate unsecured bank revolving credit facilities (6.4% at November 30, 1995) 29,148 13,041 10% mortgage loan, secured by land with a book value of $3,478 -- 3,888 Variable-rate unsecured bank loan, payable by a consolidated subsidiary in Dutch guilders, with annual installments of approximately $803 plus accrued interest through 2002 (4.48% at November 30, 1995) 5,220 5,545 Other indebtedness with various interest rates and maturities -- 47 ----------- ----------- 109,368 102,521 Less -- Current portion 17,803 9,674 ----------- ----------- $ 91,565 $ 92,847 =========== ===========
The Company maintains a $75,000,000 revolving credit facility with five banks. The Company may at its option borrow at interest rates based on specified margins over money market rates, at any time until June 1998, when all borrowings under the facility must be repaid. Additionally, a consolidated subsidiary maintains revolving credit facilities with three banks. The subsidiary may at its option borrow in various currencies, at interest rates based on specified margins over money market rates. The subsidiary is able to borrow up to the equivalent of $8,000,000 at any time through September 1996 under one facility, and $4,000,000 through August 1998 under a second facility. A third arrangement permits borrowings up to $3,000,000; this availability declines by $741,000 semi-annually. At November 30, 1995, $3,649,000 was borrowed under these bank facilities. Future payments due on long-term debt total $17,803,000 in 1996, $17,803,000 in 1997, $46,951,000 in 1998, $12,803,000 in 1999, and $12,803,000 in 2000. The lending agreements contain various restrictive covenants including the requirement to maintain specified amounts of working capital and net worth and restrictions on cash dividends, borrowings, liens, investments and guarantees. Under the most restrictive provisions of the Company's lending agreements, approximately $12,000,000 of retained earnings was not restricted at November 30, 1995. Certain note agreements contain provisions regarding the Company's ability to grant security interests or liens in association with other debt instruments. If the Company grants such a security interest or lien, then such notes will be secured equally and ratably as long as such other debt shall be secured. The following disclosure of the estimated fair value of the Company's debt is made in accordance with the requirements of Financial Accounting Standards Board Statement No. 107 "Disclosures about Fair Value of Financial Instruments." The estimated fair value amounts have been determined by the Company using available market information and appropriate valuation methodologies. Considerable judgment is required to develop the estimates of fair value, thus the estimates provided herein are not necessarily indicative of the amounts that could be realized in a current market exchange. 48
(IN THOUSANDS) NOVEMBER 30, 1995 - ------------------------------ --------------------------- CARRYING FAIR AMOUNT VALUE --------- ------- Short-term borrowings $ 1,718 $ 1,718 Fixed-rate long-term debt 75,000 80,000 Variable-rate long-term debt 34,368 34,368
The carrying values of short-term and variable-rate long-term debt are a reasonable estimate of their fair value. The estimated fair value of the Company's fixed-rate long-term debt is based on U.S. government notes plus an estimated spread at November 30, 1995 for similar securities with similar remaining maturities. The Company has guaranteed obligations of various unconsolidated foreign affiliated and nonaffiliated companies of $1,412,000 as of November 30, 1995. - ------------------------------------------------------------------------------- NOTE 10 LEASE COMMITMENTS Rental expense under long-term operating leases of property, vehicles and other equipment was $7,225,000 in 1995, $6,532,000 in 1994 and $6,068,000 in 1993. At November 30, 1995, future rental commitments under these leases totaled $67,350,000. Future rental commitments are payable as follows:
YEAR ENDING (IN THOUSANDS) NOVEMBER 30 AMOUNT - ---------------------- ----------- -------- 1996 $ 6,738 1997 5,758 1998 5,112 1999 5,117 2000 4,432 2001-Beyond 40,193 -------- $67,350 ========
Minimum payments for leases have not been reduced by minimum noncancelable sublease rentals aggregating $4,776,000 for operating leases. - ------------------------------------------------------------------------------- NOTE 11 CONTINGENCIES AND COMMITMENTS An action was filed in 1992 in the U.S. District for the District of Arizona by the Central Arizona Water Conservation District ("CAWCD") seeking damages against several parties, including the Company and the Company's customer, Peter Kiewit Sons' Company ("Kiewit"), in connection with six prestressed concrete pipe siphons furnished and installed in the 1970's as part of the Central Arizona Project ("CAP"), a federal project to bring water from the Colorado River to Arizona. The CAWCD also filed separate actions against the U.S. Bureau of Reclamation ("USBR") in the U.S. Court of Claims and with the Arizona Projects Office of the USBR in connection with the CAP siphons. The CAWCD alleged that the six CAP siphons were defective and that the USBR and the defendants in the U.S. District Court action were liable for the repair or replacement of those siphons at a claimed estimated cost of $146.7 million. On September 14, 1994 the U.S. District granted the Company's motion to dismiss the CAWCD action and entered judgment against the CAWCD and in favor of the Company and its co-defendants. CAWCD has filed a notice of appeal with the Ninth Circuit Court of Appeals. Separately, on September 28, 1995 the Contracting Officer for the USBR issued a final decision claiming for the USBR approximately $40 million in damages against Kiewit, based in part on the Contracting Officer's finding that the siphons supplied by the Company were defective. That claim amount is considered by the Company to be duplicative of the damages sought by the CAWCD for the repair or replacement of the siphons in its aforementioned action in the U.S. District for the District of Arizona. The Contracting Officer's final decision has been appealed by Kiewit to the U.S. Department of the Interior Board of Contract Appeals ("IBCA"). The Company is actively cooperating with, and assisting Kiewit in the administrative appeal of that final decision before the IBCA. The Company internally, as well as through independent third party consultants, has conducted engineering analyses regarding the allegations that the CAP siphons were defective and believes that the siphons were manufactured in accordance with the project specifications and other contract requirements, and therefore it is not liable for any claims relating to the siphons, whether by the CAWCD or by the USBR. The Company has recorded provisions deemed adequate by the Company to permit it to continue to vigorously defend its position in this matter. The Company believes that it has meritorious defenses to these actions and that resultant liability, if any, should not have a material adverse effect on the financial position of the Company or its results of operations. In July 1992 the Company was served with a complaint in an action brought by the City & County of San Francisco in Superior Court of the State of California against the Company and two co-defendants, in connection with a pipeline referred to as San Andreas Pipeline No. 3, a water transmission pipeline, which was installed between 1980 and 1982. The Company furnished the pipe used in that pipeline. Plaintiff alleges that the pipeline is defective. Plaintiff originally sought damages of $43.95 million to replace the entire pipeline, but in June 1994 it filed its third amended complaint, which alleges damages according to proof and in excess of the jurisdictional minimum of $25,000. The Company has recorded provisions deemed adequate by the Company to permit it to continue to vigorously defend its position in this matter. The Company believes that it has meritorious defenses to this action and that resultant liability, if any, should not have a material adverse effect on the financial position of the Company. 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 adverse effect on the financial position of the Company or its results of operations if disposed of unfavorably. The Company is also subject to federal, state and local laws and regulations concerning the environment and is currently participating in administrative proceedings at several sites under these laws. While the Company finds it difficult to estimate with any certainty the total cost of remediation at the several sites, on the basis of currently available information and reserves provided, the Company believes that the outcome of such environmental regulatory proceedings will not have a material adverse effect on the Company's financial position or its results of operations. At November 30, 1995, the Company had reserves of approximately $8,100,000 for potential environmental liabilities and approximately $8,800,000 associated with product liability and other legal claims. The Company insures for property loss, workers' compensation, general liability and automotive liability, subject to specific retention levels. Consulting actuaries assist the Company in determining its liability for retained claims. - ------------------------------------------------------------------------------- NOTE 12 CAPITAL STOCK The certificate of incorporation in Delaware authorizes 12,000,000 shares of $2.50 par value common stock, 1,000,000 shares of $1.00 par value preferred stock and 100,000 shares of $1.00 par value series A junior participating cumulative preferred stock. The preferred stock may be issued in series, with the rights and preferences of each series to 49 be established by the Board of Directors. As of November 30, 1995, the Company had no shares of preferred stock or series A junior participating cumulative preferred stock outstanding. The Company has a Stockholders' Rights Agreement, which entitles stockholders to purchase common stock if a party acquires 15% or more of the Company's common shares or announces a tender offer for at least 15% of its common shares outstanding. NOTE 13 INCENTIVE STOCK COMPENSATION PLAN On January 27, 1992, the Board of Directors of the Company adopted the Incentive Stock Compensation Plan (the "1992 Incentive Plan"). Under the terms of the 1992 Incentive Plan, 1.5% of the total number of shares of Common Stock outstanding on the preceding December 31 are available for grant of awards in the following calendar year to key employees. The Company has reserved 176,634 shares of common stock for sale to employees under the 1992 Incentive Plan at November 30, 1995. The plan provides for the issuance of options to purchase not more than 250,000 shares of common stock in the form of incentive options under the provisions of Section 422 of the Internal Revenue Code. Options can be incentive stock options or nonqualified options and may be granted for up to ten years. Awards under the 1992 Incentive Plan may include but are not limited to stock bonuses, stock options, convertible securities and restricted stock grants. Restrictions may limit the sale, transfer, voting rights and dividends on these shares. At November 30, 1995, 7,500 restricted shares were outstanding, and 40,054 shares were available for future grants. On June 27, 1994 the Board of Directors of the Company adopted the 1994 Nonemployee Director Stock Option Plan (Nonemployee Director Plan). On March 27, 1995, the Nonemployee Director Plan was approved by the stockholders at the Annual Stockholders' Meeting. Under the terms of the Nonemployee Director Plan, each Nonemployee Director shall automatically be granted 1,000 options on the first business day following the date of the annual meeting of stockholders of the Company at which the directors of the Company are elected. The aggregate number of common shares issued and issuable shall not exceed 120,000. As of November 30, 1995, the Company had reserved 8,000 shares of common stock for sale under the Nonemployee Director Plan. The Company accounts for the above plans under APB Opinion No. 25, under which no compensation cost has been recognized. A summary of all stock option transactions for 1995, 1994 and 1993 is as follows: NUMBER OF SHARES OPTION PRICE PER SHARE ---------------- ---------------------- Outstanding at November 30, 1992 136,725 $14.63 to $43.75 Granted 40,700 31.00 to 32.75 Exercised (2,200) 32.00 Expired (28,375) 32.00 to 43.75 ------- Outstanding at November 30, 1993 146,850 14.63 to 43.75 Granted 121,184 37.00 to 42.00 Exercised (23,250) 14.63 t0 34.75 Expired (34,450) 31.00 to 43.75 ------- Outstanding at November 30, 1994 210,334 31.00 to 43.75 Granted 36,575 31.63 to 33.75 Exercised (1,025) 31.00 to 34.75 Expired (17,550) 31.00 to 43.75 ------- Outstanding at November 30, 1995 228,334 31.00 to 42.00 ======= Options for 66,950 shares were exercisable at November 30, 1995. The remaining outstanding options become exercisable in varying amounts through 2005. In November 1995, the Financial Accounting Standards Board issued statement of Financial Accounting Standards No. 123 "Accounting for Stock-Based Compensation." The Statement recommends changes in accounting for employee stock-based compensation plans, and requires certain disclosures with respect to these plans. The Statement's disclosure requirements must be adopted by the company no later than the fiscal year ending November 30, 1997. NOTE 14 BUSINESS SEGMENTS AND GEOGRAPHIC AREAS Financial information for 1995, 1994 and 1993, with respect to the various business segments of the Company, appears on pages 52 and 53. NOTE 15 SUBSEQUENT EVENT On January 8, 1996 the Company acquired substantially all the assets of Centron Corporation (Centron) of Mineral Wells, Texas. Centron is a manufacturer of fiberglass pipe for the worldwide oil field market. Any amount of the purchase price greater than the fair market value of the tangible assets will be allocated to intangible assets and amortized over their economic life, not to exceed 40 years. The acquisition will be accounted for as a purchase and the results of operations of the acquired business will be included in the Company's consolidated financial statements commencing January 1996. NOTE 16 QUARTERLY FINANCIAL DATA Summarized quarterly financial data for the years ended November 30, 1995 and 1994 follow: 1995 ---------------------------------------------- (IN THOUSANDS EXCEPT FIRST SECOND THIRD FOURTH PER SHARE DATA) QUARTER QUARTER QUARTER QUARTER - -------------------- ------- ------- ------- ------- Sales $98,031 $118,526 $137,421 $127,427 Gross Profit 24,011 29,563 33,431 29,726 Net Income 116 4,002 4,577 3,757 Net Income per Share .03 1.01 1.16 .95 1994 ----------------------------------------------- (IN THOUSANDS EXCEPT FIRST SECOND THIRD FOURTH PER SHARE DATA) QUARTER QUARTER QUARTER QUARTER - -------------------- ------- ------- ------- ------- Sales $93,330 $100,612 $108,376 $115,364 Gross Profit 23,166 27,003 26,364 27,442 Net Income(1) 89 3,134 4,072 3,495 Net Income per Share(1) .02 .80 1.04 .89 The Company traditionally experiences seasonal patterns associated with weather and contractor schedules, which result in lower sales during the first quarter. (1) Includes $1.8 million gain, net of income taxes, or $.46 per share on the sale of a Colombian subsidiary. PER SHARE DATA STOCK PRICE DIVIDENDS ---------------- ---------------- QUARTERS ENDED 1995 1994 1995 1994 - -------------- ---- ---- ---- ---- February 28 --High $34 $43-1/8 $.32 $.32 --Low 29 35-5/8 May 31 --High 37-7/8 42-3/4 .32 .32 --Low 33-5/8 35-5/8 August 31 --High 36-5/8 38 .32 .32 --Low 33-3/4 34-5/8 November 30 --High 36-7/8 37-7/8 .32 .32 --Low 33-7/8 31-7/8 50 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Stockholders and the Board of Directors, Ameron, Inc.: We have audited the accompanying consolidated balance sheets of Ameron, Inc. (a Delaware corporation) and subsidiaries as of November 30, 1995 and 1994, and the related consolidated statements of operations, cash flows and stockholders' equity for each of the three years in the period ended November 30, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the financial statements of Gifford-Hill-American, Inc. as of November 30, 1995, the investment in which is reflected in the accompanying financial statements using the equity method of accounting (see Note 4). The investment in this company is insignificant to consolidated assets. The equity in its net income represents 8 percent of consolidated net income for 1995. Those statements were audited by other auditors whose report has been furnished to us and our opinion, insofar as it relates to the amounts included for Gifford-Hill-American, Inc., is based solely on the report of the other auditors. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the report of other auditors provide a reasonable basis for our opinion. In our opinion, based on our audits and the report of other auditors, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Ameron, Inc. and subsidiaries as of November 30, 1995 and 1994, and the results of their operations and their cash flows for each of the three years in the period ended November 30, 1995, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP LOS ANGELES, CALIFORNIA JANUARY 19, 1996 REPORT OF MANAGEMENT We have prepared the accompanying consolidated financial statements and related financial information of Ameron, Inc. and subsidiaries in conformity with generally accepted accounting principles appropriate in the circumstances. Management is primarily responsible for the integrity of the financial information included in this Annual Report. In preparing the financial statements, management makes estimates as necessary based upon currently available information and judgments of current conditions and circumstances. Ameron maintains a system of internal accounting controls supported by documentation to provide reasonable assurance that assets are safeguarded and the accounting records reflect the authorized transactions of the Company. We believe the Company's system provides this appropriate balance in accordance with established policies and procedures as implemented by qualified personnel. The independent auditors, Arthur Andersen LLP, appointed by the Board of Directors, are responsible for expressing their opinion as to whether the consolidated financial statements present fairly in all material respects the financial position, operating results and cash flows of the Company. In this process, they evaluate the system of internal accounting controls to establish the audit procedures. Their opinion appears on this page. The Audit Committee of the Board of Directors is composed of four directors who are not officers or employees of the Company. They meet periodically with management, Arthur Andersen LLP and the internal auditors to review the audit scope and results, discuss internal control and financial reporting subjects, and review management actions on these matters. Arthur Andersen LLP and the internal auditors have full and free access to the members of the Audit Committee. /s/ JAMES S. MARLEN CHAIRMAN OF THE BOARD, PRESIDENT & CHIEF EXECUTIVE OFFICER /s/ GARY WAGNER SENIOR VICE PRESIDENT & CHIEF FINANCIAL OFFICER, TREASURER 51 BUSINESS SEGMENTS Ameron classifies its business operations into four segments: PROTECTIVE COATINGS GROUP - high-performance coatings and product finishes; FIBERGLASS PIPE GROUP - filament-wound fiberglass pipe, tubing and fittings; CONCRETE & STEEL PIPE GROUP - concrete and steel pressure pipe, concrete non-pressure pipe, protective linings for pipe, and fabricated products; CONSTRUCTION & ALLIED PRODUCTS GROUP - ready-mix concrete, sand and aggregates, concrete pipe, and concrete and steel lighting and traffic poles. Intersegment sales were not significant. Income (loss) for reportable segments is exclusive of certain unallocated corporate income and expense. Identifiable assets by segment are those assets that are used exclusively by such segment. Corporate assets are principally cash, receivables, property and equipment, and investments. Capital expenditures do not include plant and equipment from business acquisitions. A summary of sales, income (loss), assets, depreciation and capital expenditures by segment follows.
BUSINESS SEGMENTS --------------------------------------------------------------------------------------------- PROTECTIVE FIBERGLASS CONCRETE & CONSTRUCTION & CORPORATE & (DOLLARS IN THOUSANDS) COATINGS PIPE STEEL PIPE ALLIED PRODUCTS ADJUSTMENTS CONSOLIDATED - -------------------------------------------------------------------------------------------------------------------------------- 1995 SALES $130,543 $82,752 $153,155 $114,955 $ -- $481,405 INCOME (LOSS) BEFORE INTEREST AND INCOME TAXES 3,248 8,777 10,496 15,178 (12,530) 25,169 IDENTIFIABLE ASSETS 71,432 63,892 107,092 54,228 74,737 371,381 CAPITAL EXPENDITURES 3,894 2,534 5,375 2,856 1,495 16,154 DEPRECIATION 2,359 4,027 4,091 4,928 660 16,065 - -------------------------------------------------------------------------------------------------------------------------------- 1994 Sales $134,201 $66,228 $101,644 $115,609 $ -- $417,682 Income (loss) before interest and income taxes 13,338 2,987 3,271(1) 16,687 (9,374) 26,909(1) Identifiable assets 64,493 60,731 94,393 56,062 75,177 350,856 Capital expenditures 3,605 2,127 5,161 2,701 1,340 14,934 Depreciation 2,208 3,943 4,159 4,913 632 15,855 - -------------------------------------------------------------------------------------------------------------------------------- 1993 Sales $137,776 $92,947 $110,261 $112,373 $ -- $453,357 Income (loss) before interest and income taxes(2) 1,494 14,207 (15,067) 6,607 (31,196) (23,955) Identifiable assets 66,958 58,481 72,838 58,973 80,592 337,842 Capital expenditures 3,202 4,302 2,581 3,864 748 14,697 Depreciation 2,350 3,774 4,871 4,852 597 16,444 - --------------------------------------------------------------------------------------------------------------------------------
(1) INCLUDES $3.2 MILLION GAIN, BEFORE INCOME TAXES, ON THE SALE OF A COLOMBIAN SUBSIDIARY. (2) INCLUDES $45.8 MILLION, BEFORE INCOME TAXES, IN FOURTH QUARTER CHARGES FOR RESTRUCTURING AND OTHER RELATED CHARGES. 52 GEOGRAPHIC AREAS The PROTECTIVE COATINGS GROUP and the FIBERGLASS PIPE GROUP are worldwide in scope. The CONCRETE & STEEL PIPE GROUP operates primarily in the western United States; AMERON HAWAII operates exclusively in the State of Hawaii; and the POLE PRODUCTS DIVISION operates in the continental United States. AMERON HAWAII and the POLE PRODUCTS DIVISION together comprise the CONSTRUCTION & ALLIED PRODUCTS GROUP. Sales for export or to any individual customer did not exceed 10% of consolidated sales. Information with respect to the Company's geographic segments is as follows:
Geographic Areas ---------------------------------------------------------------------------- United Investments & (Dollars in thousands) States Europe Other Eliminations Consolidated - ------------------------------------------------------------------------------------------------------------------------------- 1995 SALES TO UNAFFILIATED CUSTOMERS $372,589 $73,528 $35,288 $ -- $481,405 INTERCOMPANY SALES BETWEEN GEOGRAPHIC AREAS 4,180 1,411 6,448 (12,039) -- -------------------------------------------------------------------------- TOTAL SALES $376,769 $74,939 $41,736 $(12,039) $481,405 ========================================================================== INCOME BEFORE INTEREST AND INCOME TAXES $ 15,915 $ 1,006 $ 8,248 $ -- $ 25,169 IDENTIFIABLE ASSETS 253,734 56,315 25,135 36,197 371,381 - ------------------------------------------------------------------------------------------------------------------------------- 1994 Sales to unaffiliated customers $334,688 $55,286 $27,708 $ -- $417,682 Intercompany sales between geographic areas 2,519 1,716 5,507 (9,742) -- -------------------------------------------------------------------------- Total sales $337,207 $57,002 $33,215 $ (9,742) $417,682 ========================================================================== Income before interest and income taxes $ 19,112(1) $ 1,489 $ 6,308 $ -- $ 26,909(1) Identifiable assets 239,652 49,053 24,836 37,315 350,856 - ------------------------------------------------------------------------------------------------------------------------------- 1993 Sales to unaffiliated customers $339,993 $90,634 $22,730 $ -- $453,357 Intercompany sales between geographic areas 3,416 1,075 6,284 (10,775) -- -------------------------------------------------------------------------- Total sales $343,409 $91,709 $29,014 $(10,775) $453,357 ========================================================================== Income (loss) before interest and income taxes(2) $(33,234) $11,247 $(1,968) $ -- $(23,955) Identifiable assets 225,168 53,479 19,211 39,984 337,842 - -------------------------------------------------------------------------------------------------------------------------------
(1) INCLUDES $3.2 MILLION GAIN, BEFORE INCOME TAXES, ON THE SALE OF A COLOMBIAN SUBSIDIARY. (2) INCLUDES $45.8 MILLION, BEFORE INCOME TAXES, IN FOURTH QUARTER CHARGES FOR RESTRUCTURING AND OTHER RELATED CHARGES. 53 EX-21 7 EXHIBIT 21 - SUBSIDIARIES OF THE REGISTRANT SUBSIDIARIES OF THE REGISTRANT PARENTS None JURISDICTION OF PERCENT OF SUBSIDIARIES CONSOLIDATED INCORPORATION STOCK OWNED American Pipe & Construction International California 100 Ameron B.V. The Netherlands 100 Ameron FSC Guam 100 Ameron (Hong Kong) Ltd. Hong Kong 100 Ameron (Pte) Ltd. Singapore 100 SUBSIDIARIES NOT CONSOLIDATED AND FIFTY-PERCENT OR LESS OWNED COMPANIES Gifford-Hill-American, Inc. Texas 50 Tamco California 50 Bondstrand, Ltd. Saudi Arabia 40 Oasis-Ameron, Ltd. Saudi Arabia 40 Ameron Saudi Arabia, Ltd. Saudi Arabia 30 Names of other subsidiaries not consolidated and fifty-percent or less owned companies are omitted because when considered in the aggregate as a single subsidiary they do not constitute a significant subsidiary. EXHIBIT 21 EX-23 8 EXHIBIT 23 - CONSENT OF INDEPENDENT ACCOUNTANTS CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent of the incorporation of our reports included and incorporated by reference in this Form 10-K, into Ameron, Inc.'s previously filed Registration Statements File No. 33-3400 and 33-57308. ARTHUR ANDERSEN LLP Los Angeles, California February 23, 1996 EXHIBIT 23 EX-27 9 EXHIBIT 27
5 1,000 YEAR NOV-30-1995 NOV-30-1995 12,923 0 109,819 (4,800) 76,426 206,838 284,586 (170,470) 371,381 92,380 91,565 0 0 12,823 121,749 371,381 481,405 481,405 364,674 364,674 95,786 0 11,715 13,798 4,940 12,452 0 0 0 12,452 3.15 3.15
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