-----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, TUGXdA7BcGwWgkY7QwGDe+v6KkcjNHjqEikemEbJQuFIhjTRMRSxWJzySeGvl0AI M8gV4pAoVkpl7VPphA15Ew== 0001047469-98-007680.txt : 19980227 0001047469-98-007680.hdr.sgml : 19980227 ACCESSION NUMBER: 0001047469-98-007680 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19971130 FILED AS OF DATE: 19980226 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERON INTERNATIONAL CORP CENTRAL INDEX KEY: 0000790730 STANDARD INDUSTRIAL CLASSIFICATION: CONCRETE GYPSUM PLASTER PRODUCTS [3270] IRS NUMBER: 770100596 STATE OF INCORPORATION: DE FISCAL YEAR END: 1130 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-09102 FILM NUMBER: 98549637 BUSINESS ADDRESS: STREET 1: 245 S LOS ROBLES AVE CITY: PASADENA STATE: CA ZIP: 91101 BUSINESS PHONE: 8186834000 FORMER COMPANY: FORMER CONFORMED NAME: AMERON INC/DE DATE OF NAME CHANGE: 19920703 10-K 1 10-K 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, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number 1-9102 AMERON INTERNATIONAL CORPORATION (Exact name of registrant as specified in its charter) Delaware 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: (626) 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. ------ The Registrant estimates that as of February 20, 1998 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 $222 million. On February 20, 1998 there were 4,006,362 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 1997 ANNUAL REPORT TO STOCKHOLDERS (PARTS I, II AND IV). 2. PORTIONS OF AMERON'S PROXY STATEMENT FOR THE 1998 ANNUAL MEETING OF STOCKHOLDERS (PART III). PART I AMERON INTERNATIONAL CORPORATION AMERON INTERNATIONAL CORPORATION, a Delaware corporation, and its consolidated subsidiaries are collectively referred to herein as "Ameron", the "Company", the "Registrant" or the "Corporation" unless the context clearly indicates otherwise. The business of the Company has been divided into business segments in Item 1(c)(1). Substantially all activities relate to the manufacture of highly engineered products for sale to the industrial, chemical, energy and construction markets. All references to "the year" or "the fiscal year" pertain to the twelve months ended November 30, 1997. All references to the "Annual Report" pertain to the Company's 1997 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 1996, the Company's name was changed to Ameron International Corporation in order to better reflect its expanded, global focus. Also in 1996, the Company acquired assets of Centron, a leading manufacturer of fiberglass pipe for the worldwide oil field market. In late 1996, the Company acquired the worldwide Devoe marine coatings business of Imperial Chemical Industries PLC. 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), (6) and (17) of Notes to Consolidated Financial Statements on pages 52,53,54,58,60 and 61 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. 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. 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. 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 plant in Texas, by its wholly-owned domestic subsidiary, Centron International Inc., at its plant in Texas, by wholly-owned subsidiaries in The Netherlands, Singapore, and Malaysia, by a jointly-owned affiliate in Saudi Arabia and by a licensee in Indonesia. c) The Concrete & Steel Pipe Group supplies products and services used in the construction of pipeline facilities for various utilities. Five plants are operated in Arizona and California. 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 by affiliated companies in Saudi Arabia and by a licensee in Abu Dhabi. 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. 2 d) The Construction & Allied Products Group includes the Ameron 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 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 eight times annually. Average days' sales in accounts receivable range between 44 and 93 for all segments. (v) The value of backlog orders at November 30, 1997 and 1996 by industry segment is shown below. A substantial portion of the November 30, 1997 backlog is expected to be billed and recorded as sales during the fiscal year 1998. 3
Industry Segment 1997 1996 ---------------- ------- -------- (in thousands) Protective Coatings Group $ 6,580 $ 10,291 Fiberglass Pipe Group 25,440 19,819 Concrete & Steel Pipe Group 71,463 59,718 Construction & Allied Products Group 21,899 14,978 --------- -------- Total $125,382 $104,806 --------- -------- --------- --------
(vi) The results of uncontrolled affiliated companies are not reflected in the amounts reported for each industry segment. (vii) 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. (viii) 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 52 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 2,761 persons. Of those, approximately 900 were covered by labor union contracts, and there are four separate bargaining agreements subject to renegotiation in 1998. (d) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES. The information contained in Notes (6) and (17) of Notes to Consolidated Financial Statements on pages 53, 54, 58, 60 and 61 of the Annual Report is incorporated herein by reference. 4 Export sales in the aggregate from domestic operations during the last three fiscal years were:
In thousands ------------ 1997 $38,815 1996 30,980 1995 15,552
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 Houston, TX *Office Burkburnett, TX Office, Plant Centron International, Inc. Mineral Wells, TX Office, Plant 5 Ameron B.V. Geldermalsen, The Netherlands Office, Plant Ameron (Pte) Ltd. Singapore *Office, Plant Ameron Malaysia Sdn. Bhd. Malaysia *Office,Plant CONCRETE AND STEEL PIPE GROUP Southern division Rancho Cucamonga, CA *Office Etiwanda, CA Plant Fontana, CA *Office, Plant Lakeside, CA Plant Phoenix, AZ Office, Plant Northern division Tracy, 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 Ventura, CA *Office 6 CORPORATE Corporate Headquarters Pasadena, CA *Office Corporate Research & Engineering South Gate, CA Office, Laboratory *Leased
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 or its results of operations. 7 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. 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, 1997 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 63 Senior Vice President, Human Resources 1992 Raymond E. Foscante 55 Senior Vice President, Technology and Business Development 1996 Thomas P. Giese 53 Vice President; Group President Concrete & Steel Pipe Group 1997 James R. McLaughlin 50 Vice President & Treasurer 1997 Dewey H. Norton 53 Vice President, Controller 1997 Gordon G. Robertson 58 Vice President; Group President Fiberglass Pipe Group 1997 Javier Solis 51 Senior Vice President of Administration, Secretary & General Counsel 1984
8 S. Daniel Stracner 51 Vice President, Communications & Public Affairs 1993 Michael J. Tornberg 50 Vice President; Group President Protective Coatings Group 1997 Gary Wagner 46 Senior Vice President & Chief Financial Officer 1990 Robert F. Wilkinson 58 Vice President; President Ameron Hawaii 1997
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 Messrs. McLaughlin, Norton, Tornberg and Wilkinson. Mr. McLaughlin joined the Company in 1994 as Director of Financial Planning and Analysis. In 1997 he was named Vice President and Treasurer. Prior to joining the Company, he was Director of Operational Analysis for GenCorp Polymer Products, a division of GenCorp Inc. Prior to joining the Company in 1997 as Vice President, Controller, Mr. Norton was Vice President, Finance with Baldwin Filters since 1993. Mr. Tornberg joined the Company in 1995 as Vice President, Business Development. In 1996 he was named Group President, Protective Coatings Group. Prior to coming to the Company, he was with GenCorp Inc. where he served as Director of Operations for the Coated Fabrics and Wallcovering businesses and Vice President of the Residential Wallcoverings Division from 1988. Mr. Wilkinson joined the Company in mid-1996 and was named President of Ameron Hawaii in December. Prior to that time he served as President and Chief Executive Officer of Sinclair Paint Company and as President and Chief Operating Officer of Frazee Paint Company. 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 20, 1998, there were 1,617 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 prices of the Company's Common Stock during that period are set out under the caption Per Share Data shown on page 58 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 (12) of Notes to Consolidated Financial Statements on page 56 of the Annual Report, which is incorporated herein by reference. 9 ITEM 6 - SELECTED FINANCIAL DATA The information required by this item is contained in the Selected Consolidated Financial Information shown on page 42 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 1997 and 1996 is shown under Ameron 1997 Financial Review on pages 43-46 of the Annual Report, which information is incorporated herein by reference. The information required for 1995 is as follows: 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 1994 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 benefited 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 continued 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 was 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. Fiberglass Pipe sales improved to $82.8 million in 1995, versus $66.2 million in 1994. 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 1995. 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. 10 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. 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 1994. 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. Equity in earnings of affiliated companies recorded in 1995 totaled $3.8 million, an increase of $2.2 million from 1994. 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. Royalty and fee income from affiliated companies and licensees declined in 1995 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 included sublease and property rental income as well as 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. ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Consolidated Financial Statements, the report thereon of Arthur Andersen LLP dated January 19, 1998 and Notes to Consolidated Financial Statements comprising pages 47 through 59 of the Annual Report, are incorporated herein by reference. ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE (Not applicable) 11 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 25, 1998 in connection with the Annual Meeting of Stockholders to be held on March 25, 1998. Such information is incorporated herein by reference. Information with respect to the executive officers who are not directors 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 2-, 1998 in connection with the 1998 Annual Meeting of Stockholders to be held on March 25, 1998. Such information is incorporated herein by reference. 12 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, 1997, 1996 and 1995 47 Consolidated Balance Sheets at November 30, 1997 and 1996 48-49 Consolidated Statements of Cash Flows for the years ended November 30, 1997, 1996 and 1995 50 Consolidated Statements of Stockholders' Equity for the years ended November 30, 1997, 1996 and 1995 51 Notes to Consolidated Financial Statements 52-58
(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 (6) of Notes to Consolidated Financial Statements on pages 53-54 the Annual Report, which information is incorporated herein by reference. 13 (a) (2) FINANCIAL STATEMENT SCHEDULES: The following additional financial data should be read in conjunction with the consolidated financial statements in the 1997 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 International and Subsidiaries This Report -------- -------------------------------------------------- ----------- Report of Independent Public Accountants 14 II Valuation and Qualifying Accounts and Reserves 15-17 (a) (3) EXHIBITS 3(i) 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, 1996.] 3(ii) Bylaws 4 Instrument 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. 3. Note Purchase Agreement dated August 28, 1996 re: Senior Notes due September 1, 2006, 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, 1996. The Company agrees to provide to the Securities and Exchange Commission, on request, copies of instruments defining the rights of security holders of long-term debt of the Company. 10 Material Contracts 13 Annual Report 21 Subsidiaries of the Registrant 23 Consent of Independent Public Accountants
(b) REPORTS ON FORM 8-K A report on Form 8-K was filed by the Corporation on September 25, 1997 reporting under Item 5 the financial results for the Company's third quarter ended August 31, 1997. REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ---------------------------------------- To the Stockholders and the Board of Directors, Ameron International Corporation: We have audited in accordance with generally accepted auditing standards, the consolidated financial statements included in Ameron's Annual Report to Stockholders incorporated by reference in this Form 10-K, and have issued our report thereon dated January 19, 1998. 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, 1998 14 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 INTERNATIONAL CORPORATION By:/s/ Javier Solis ----------------------------------------------- Javier Solis, Senior Vice President & Secretary Date: February 26, 1998 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: 2-26-98 /s/ James S. Marlen Director, Chairman of the Board, President and --------------------------------- Chief Executive Officer (Principal Executive James S. Marlen Officer) Date: 2-24-98 /s/ Gary Wagner Senior Vice President & Chief Financial Officer --------------------------------- (Principal Financial & Accounting Officer) Gary Wagner Date: 2-24-98 /s/ Stephen W. Foss Director --------------------------------- Stephen W. Foss Date: Director --------------------------------- A. Frederick Gerstell Date: Director --------------------------------- J. Michael Hagan Date: 2-24-98 /s/ Terry L. Haines Director --------------------------------- Terry L. Haines Date: 2-24-98 /s/ John F. King Director --------------------------------- John F. King Date: 2-16-98 /s/ Alan L. Ockene Director --------------------------------- Alan L. Ockene Date: 2-24-98 /s/ Richard J. Pearson Director --------------------------------- Richard J. Pearson Date: 2-24-98 /s/ David L. Sliney Director --------------------------------- David L. Sliney Date: 2-13-98 /s/ F. H. Fentener van Vlissingen Director --------------------------------- F. H. Fentener van Vlissingen
18 AMERON INTERNATIONAL CORPORATION AND SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES FOR THE YEAR ENDED NOVEMBER 30, 1997 (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 $ 5,939 $ 1,798 $ (1,692) $ (643) $ 5,402 Reserve for realization of investments in affiliates $ 9,595 $ 1,700 $ - $ - $ 11,295 Reserve for write-down of assets related to certain foreign affiliates $ 3,853 $ - $ - $ - $ 3,853 Included in current liabilities Reserve for pending claims and litigation $ 5,188 $ 1,409 $ (3,140) $ (115) $ 3,342 Restructuring reserve $ 346 $ 62 $ (410) $ 2 $ - Other reserves $ 679 $ 620 $ (938) $ 15 $ 376 Reserve for self-insured programs $ 6,317 $ 443 $ (4,010) $ (697) $ 2,053 Included in long-term liabilities Reserve for pending claims and litigation $ 14,927 $ 1,850 $ (947) $ 57 $ 15,887 Other Reserves $ - $ 125 $ (84) $ - $ 41 Reserve for self-insured programs $ 6,771 $ - $ - $ 900 $ 7,671
15 AMERON INTERNATIONAL CORPORATION AND SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES FOR THE YEAR ENDED NOVEMBER 30, 1996 (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 $ 4,800 $ 2,583 $ (1,325) $ (119) $ 5,939 Reserve for realization of investments in affiliates $ 9,359 $ 1,408 $ (1,172) $ - $ 9,595 Reserve for write-down of assets related to certain foreign affiliates $ 3,219 $ 694 $ (60) $ - $ 3,853 Included in current liabilities Reserve for pending claims and litigation $ 3,086 $ 3,864 $ (1,718) $ (44) $ 5,188 Restructuring reserve $ 539 $ (94) $ (99) $ - $ 346 Other reserves $ 764 $ 616 $ (761) $ 60 $ 679 Reserve for self-insured programs $ 5,874 $ 6,564 $ (6,121) $ - $ 6,317 Included in long-term liabilities Reserve for pending claims and litigation $ 13,788 $ 2,174 $ (1,035) $ - $ 14,927 Restructuring reserve $ 1,261 $ (430) $ (831) $ - $ - Reserve for self-insured programs $ 6,771 $ - $ - $ - $ 6,771
16 AMERON INTERNATIONAL CORPORATION 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 $ - $ - $ (389) $ 9,359 Reserve for write-down of assets related to certain foreign affiliates $ 3,216 $ 3 $ - $ - $ 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 $ - $ (1,846) $ (1,261) $ 539 Other reserves $ 1,336 $ 62 $ (633) $ (1) $ 764 Reserve for self-insured programs $ 4,392 $ 5,413 $ (3,931) $ - $ 5,874 Included in long-term liabilities Reserve for pending claims and litigation $ 10,429 $ 1,330 $ (387) $ 2,416 $ 13,788 Restructuring reserve $ - $ - $ - $ 1,261 $ 1,261 Reserve for self-insured programs $ 6,771 $ - $ - $ - $ 6,771 (1) Included as equity in earnings of affiliated companies in Consolidated Statement of Income
17 EX-3.II 2 EX 3(II) AMERON INTERNATIONAL CORPORATION (a Delaware corporation) BYLAWS (Restated with amendments through February 1, 1997 ) ARTICLE I Offices SECTION 1.01. Registered Office. The registered office of AMERON INTERNATIONAL CORPORATION (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: -2- (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 -3- 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 -4- 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 eleven (10), 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 -5- 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 -6- 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. -7- 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. -8- 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. -9- 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. -10- 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 -12- 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. -13- 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. -14- 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. -15- EX-10 3 EX10 EXH. 10 AMENDED AND RESTATED EMPLOYMENT AGREEMENT This amended and restated employment agreement ("Agreement") is made effective as of June 11, 1996, by and between Ameron International Corporation, a Delaware corporation (the "Company"), and James S. Marlen ("Employee"). It supersedes and replaces the Employment Agreement previously entered into between the Company and Employee which was effective as of June 11, 1996. In consideration of the mutual promises and agreements set forth herein, the Company and Employee agree as follows: 1. TERM. 1.1 The term of this Agreement shall commence on June 11, 1996, and shall be automatically extended from day to day so that it always has a remaining term of three years and six months or until Employee attains age 67-1/2, if sooner (the "Term"), subject to earlier termination in accordance with the provisions of section 10 hereinbelow. In no event shall the Term of this Agreement extend beyond the date when Employee attains age 67-1/2, unless the Company and Employee hereafter expressly agree in writing to extend the Term of this Agreement beyond such date. 2. POSITION AND TITLE. 2.1 The Company hereby employs Employee as its Chairman of the Board, President and Chief Executive Officer, and Employee hereby accepts such employment. 2.2 Employee shall devote substantially all of his efforts on a full time basis to the business and affairs of the Company and to its subsidiaries and affiliates. Employee shall not engage in any business or perform any services in any capacity whatsoever adverse to the interests of the Company. 2.3 Employee shall at all times faithfully, industriously, and to the best of his ability, experience and talents, perform all of the duties of the office of Chairman of the Board, President and Chief Executive Officer of the Company. 2.4 As President and Chief Executive Officer, Employee shall be responsible to the Board of Directors for all actions and activities of the Company. 3. (Deleted) 4. BASE SALARY. 4.1 As of June 11, 1996, Employee's base salary is $515,000 per year. Employee's base salary and performance shall be reviewed annually during the Term, by the Board of Directors of the Company and may be increased from time to time at the discretion of, and by, such Board based on merit or such other considerations as such Board shall deem appropriate. 5. SHORT-TERM INCENTIVE BONUS. 5.1 The Company has adopted a management incentive bonus plan for its executives, which plan is currently known as the "Management Incentive Compensation Plan" (herein the "MIC Plan"), and a Key Executive Long-Term Cash Incentive Plan (herein the "LTIP"). 5.2 Employee shall be deemed to be a participant under the MIC Plan and the LTIP, as well as any successor management incentive bonus plans adopted by the Company for its executives. Individual goals and guidelines for bonus payable to Employee under the MIC Plan and the LTIP, and any successor plans, shall be subject to review and approval by the Board of Directors of the Company. 5.3 Employee's participation in the MIC Plan and the LTIP shall be in accordance with the terms and conditions of those plans and other compensation arrangements as agreed to herein. In the event of Employee's termination of employment other than for cause (as defined in paragraph 10.1 hereinbelow) Employee shall be entitled to a pro-rata portion of the award he would have been entitled to receive under the MIC Plan in respect of the fiscal year in which Employee's termination date occurs had he continued in employment until the end of such fiscal year. 5.4 The Company shall consider in good faith any recommendations of Employee with respect to any management incentive bonus plans subsequent to the MIC Plan and the LTIP. 6. STOCK GRANTS & OPTIONS. 6.1 (Deleted) 2 6.2 As promptly as possible, with due consideration to the limitations on shares of the Company's stock available for award under the Company's 1992 Incentive Stock Compensation Plan, the Company shall cause Employee to be granted stock options of 100,000 shares of the Company's common stock in the form of non-qualified stock options with terms of 10 years from the dates of actual grant, with vesting in four installments, each of which shall equal twenty-five percent of the shares subject to the option during each of the succeeding four annual periods. The option price for such 100,000 shares shall be $39.50, that being the New York Stock Exchange closing market price of the Company's common stock (par value $2.50) as of June 24, 1996, as agreed to by the Company's Board of Directors at its meeting held on June 24, 1996. 6.3 Except as noted in paragraph 6.2 hereinabove, Employee hereby waives any rights to claim any additional stock option grants during calendar years 1996, 1997, and 1998. Notwithstanding the foregoing additional stock grants may be granted from time to time at the sole discretion of, an by, the Board of Directors of the Company. The Board of Directors of the Company shall consider in good faith any recommendations of Employee with respect to any alternative formulas or plans for stock options. 7. (Deleted) 8. PENSION. 8.1 During the Term, the Company shall provide pensions benefits to Employee in accordance with the terms and conditions of Company's Pension Plan for Salaried Employees and its Supplemental Executive Retirement Plan as in effect as of June 11, 1993. 8.2 In addition to the pension benefits described in paragraph 8.1 hereinabove, the Company shall provide the following additional pension benefits to Employee. Those additional benefits shall be calculated by crediting two years of service for each actual year of service during the first 9-1/2 years of his employment by the Company under the Supplemental Executive Retirement Plan described in paragraph 8.1 hereinabove, provided however that in no event shall Employee's vested pension benefits from the Company at age 65 be less than $114,302 in the event of Employee's voluntary or involuntary termination before age 65. 8.3 Vesting of the pension benefits described in paragraphs 8.1 and 8.2 hereinabove began as of June 11, 1993. 3 8.4 In the event that Employee's employment is terminated by the Company without cause (as defined in paragraph 10.2 hereinbelow) and/or due to or following a Change of Control (as defined in paragraph 10.5 hereinbelow) during the Term, Employee shall be entitled to continue to accrue the pension benefits described in paragraphs 8.1, 8.2 and 8.3 hereinabove for the additional period starting from the date of such termination of employment with the Company and continuing until the effective date of his obtaining of new employment, if any; provided however that such additional period for the accrual of those pension benefits shall not exceed three (3) years from the date of termination of employment with the Company. 9. ADDITIONAL EMPLOYEE BENEFITS. 9.1 The Company shall provide Employee the right to participate in its Executive Life Insurance plan, together with all other fringe benefit programs in which executive officers of the Company generally participate so long as such programs are continued by the Company, and all other fringe benefit programs which may hereafter be adopted by the Company for its executive officers. 9.2 The Company shall provide Employee the right to participate in its medical and dental insurance plans. 9.3 In the event that Employee should voluntarily resign or is terminated without cause (as defined in paragraph 10.2 hereinbelow) by the Company during the Term, the Company shall provide Employee with substantially the same level of health and medical benefits in effect for Employee as of the date of such resignation or termination, with Employee remaining obligated to continuing to pay employee contributions towards such coverage at the same level as in effect as of such date, until the earlier of (1) the second anniversary of such date of resignation or termination, or (2) the date Employee becomes employed by another party. 9.4 The Company shall provide Employee the right to participate in its long-term disability insurance plan, which as of this date generally provides that in the event of total disability, the plan will provide a benefit equal to 60% of base monthly salary less any income received by Employee from other sources, such as by way of example and not limitation, Social Security and worker's compensation. 9.5 The Company shall provide Employee the right to participate in its 401(k) Savings Plan. 4 9.6 The Company shall reimburse Employee for dues and assessments for membership at the Annandale Country Club and the California Club. 9.7 The Company shall provide Employee with the use of a company car substantially equivalent to a Cadillac STS, together with normal maintenance, insurance and operating expenses. 9.8 Employee shall be entitled to vacation in accordance with the customary practice of the company with regard to its executives, which is currently four (4) weeks annually. 9.9 Employee shall be reimbursed for financial/tax consulting services actually incurred, not to exceed $5,000 annually. 9.10 The Company shall reimburse Employee for fees actually paid by Employee to his legal counsel in connection with legal review of this employment agreement, provided that such reimbursement shall not exceed $5,000.00. 9.11 The Company agrees that in the event of an audit of Employee's tax returns by the Internal Revenue Service with respect to issues arising under this Agreement (including, but not limited to, Section 10.5 hereof), Employee will have the right to select his own professional advisors to represent Employee in the audit proceedings, and the reasonable expenses thereof shall be borne by the Company. 10. TERMINATION; EXTENSION. 10.1 During the Term of this Agreement, the Company's Board of Directors may terminate Employee's employment herein at any time for cause as contemplated by Section 2924 of the California Labor Code (copy of which in effect as of the date hereof is attached hereto as Exhibit "E" and made a part hereof), or as a result of a material breach by Employee of his obligations under this Agreement, provided however that Company shall provide Employee with not less than sixty (60) days prior written notice describing the behavior or conduct which is alleged by the Company to constitute cause for termination and Employee shall be provided with reasonable opportunity to correct such behavior or conduct within that notice period. 10.2 In the event that the Company terminates Employee's employment for any cause other than the causes set forth in paragraph 10.1 hereinabove, such shall be considered to be termination "without cause." Removal from Employee of the title of "President, Chief Executive Officer and 5 Chairman of the Board" during the Term, without Employee's consent, shall be deemed to be termination without cause. 10.3 In the event that the Company terminates Employee's employment without cause at any time during the Term of this Agreement, except for termination without cause due to or following a Change of Control (as that term is defined in paragraph 10.5 hereinbelow), then: (1) the Company shall pay Employee a lump-sum severance amount within thirty (30) days following termination equal to 3.5 (or the number of years and fractional years remaining in the Term, if the remaining Term of this Agreement is less than three years and six months as of the date of the termination) times the sum of (i) Employee's annual base salary in effect as of the date of termination, and (ii) the highest management incentive bonus paid to Employee during the three and one-half years preceding termination (but not less than sixty percent (60%) times Employee's annual base salary determined as of the date of termination); (2) all unvested restricted stock grants and stock options granted to Employee shall automatically vest in full; and (3) Employee shall be entitled to the benefits described in paragraphs 8.3, 8.4 and 9.3 hereinabove. Employee shall not be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to Employee under any of the provisions of this Agreement. 10.4 The Term of this Agreement shall be automatically extended from day to day so that it always has a remaining term of three years and six months (or until Employee attains age 67-1/2, if sooner) until the Company or Employee shall give written notice to the other that the Term shall not be further extended. In such event the Term shall end three years and six months after delivery of such written notice in the manner provided in paragraph 12.3 hereinbelow (or when Employee attains age 67-1/2, if sooner). If the Company notifies Employee that the Term shall not be further extended, then Employee may elect within 90 days after receipt of such notice to terminate employment and consider his employment to have been terminated by the Company without cause, in which case Employee shall be entitled to those termination benefits described in paragraph 10.3 hereinabove. 6 10.5 In the event of a Change of Control at any time during the Term of this Agreement: (1) All unvested restricted stock grants and stock options granted to Employee shall automatically vest in full upon a Change of Control. (2) In the event that the Company terminates Employee's employment without cause at any time during the Term of this Agreement within the period of twelve (12) months following the date of a Change of Control, then Employee shall be entitled to the termination benefits described in paragraph 10.3 hereinabove; provided that the lump-sum severance amount paid to Employee under this paragraph 10.5(2) which is calculated based on paragraph 10.3(1) hereinabove (i) shall be reduced to equal the present value, determined in accordance with IRC 280G(d)(4), of the lump-sum severance amount which would otherwise be payable under paragraph 10.3(1), and (ii) shall be reduced to offset compensation and other earned income earned by Employee in the manner provided in paragraphs 10.5(3) and (4) below. (3) The amount of the lump-sum severance amount payable to Employee under paragraph 10.5(2) which is calculated based on paragraph 10.3(1) shall be reduced by one hundred percent (100%) of any compensation and other earned income (within the meaning of Section 911(d)(2)(A) of the Internal Revenue Code ("IRC")) which is earned by Employee for services rendered to persons or entities other than the Company or its affiliates during the remaining Term of this Agreement as of the date of termination. Health and medical benefits shall be offset as provided in paragraph 9.3. (4) Not less frequently than annually (by December 31 of each year), Employee shall account to the Company with respect to all compensation and other earned income earned by Employee which is required hereunder to be offset against the lump-sum severance amount received by Employee from the Company under paragraph 10.5(2) which is calculated based on paragraph 10.3(1). If the Company has paid a lump-sum severance amount in excess of the amount to which Employee is entitled (after giving effect to the offsets provided above), Employee shall reimburse the Company for such excess by December 31 of such year. The requirements imposed under this paragraph shall terminate on December 31 of the last calendar 7 year which begins during the remaining term of this Agreement as of the date of termination. Notwithstanding any other provisions in this Agreement or any other agreement, plan or arrangement (except as provided in paragraph I of Exhibit "T" herein, the provisions of which Exhibit are hereby fully incorporated by reference), if any payment or benefit received or to be received by Employee, whether under the terms of this Agreement, or any other agreement, plan or arrangement with the Company, or any other plan, arrangement or agreement with any person whose actions result in a Change of Control or any person affiliated with the Company (all such payments and benefits being hereinafter referred to as "Total Payments") would be subject, in whole or in part, to taxes imposed by IRC Section 4999, then the portion of the Total Payments payable under this Agreement shall be reduced as provided in accordance with the provisions of Exhibit "T." As used herein, the term "Change of Control" means either: (1) the dissolution or liquidation of the Company; (ii) a reorganization, merger or consolidation of the Company with one or more corporations as a result of which the Company is not the surviving corporation; (iii) approval by the stockholders of the Company of any sale, lease, exchange or other transfer (in one or a series of transactions) of all or substantially all of the assets of the Company; (iv) approval by the stockholders of the Company of any merger or consolidation of the Company in which the holders of voting stock of the Company immediately before the merger or consolidation will not own fifty percent (50%) or more of the outstanding voting shares of the continuing or surviving corporation immediately after such merger or consolidation; or (v) a change of 25% (rounded to the next whole person) in the membership of the Board of Directors of the Company within a 12-month period, unless the election or nomination for election by stockholders of each new director within such period was approved by the vote of 85% (rounded to the next whole person) of the directors then still in office who were in office at the beginning of the 12-month period. 10.6 In the event that Employee should voluntarily resign or is terminated for cause by the Company during the Term, Employee shall not be entitled to any of the termination benefits described in this section 10, other than any payment which may be due pursuant to paragraph 9.3 or 10.5 hereinabove. 10.7 In the event that Employee should die or become disabled or incapacitated for an uninterrupted period in excess of six (6) months 8 during the Term, then (1) all unvested restricted stock grants and stock options granted to Employee shall automatically vest in full, and (2) Employee shall remain eligible (or entitled as the case may be) for a prorated management incentive or bonus award for the period prior to Employer's death or disability. 11. COVENANTS. 11.1 Employee agrees that any and all confidential knowledge or information, including but not limited to customer lists, books, records, data, formulae, specifications, inventions, processes and methods, developments and improvements, which has or have been or may be obtained or learned by him in the course of his employment with the Company, will be held confidential by him and that he will not disclose the same to any person outside of the Company either during his employment or after his employment by the Company has terminated. 11.2 Employee agrees that upon termination of his employment with the Company he will immediately surrender and turn over to the Company all books, records, forms specifications, formulae, data and all papers and writings relating to the business of the Company and all other property belonging to the Company, it being understood and agreed that the same are the sole property of the Company and that Employee will not make or retain any copies thereof. 11.3 Employee agrees that all inventions, development or improvements which he may make, conceive, invent, discover or otherwise acquire during his employment by the Company in the scope of his responsibilities or otherwise shall become the sole property of the Company. 12. MISCELLANEOUS. 12.1 All terms and conditions of this Agreement are set forth herein, and there are no warranties, agreements or understandings, express or implied, except those expressly set forth herein. 12.2 Any modification of this Agreement shall be binding only if evidenced in writing signed by both parties hereto. 12.3 Any notice or other communication required or permitted to be given hereunder shall be deemed properly given if personally delivered or deposited in the United States mail, registered or certified and postage prepaid, address to the Company at 245 S. Los Robles Ave., Pasadena, CA 91101, or to Employee at 437 South Orange Grove Boulevard #5, 9 Pasadena, CA 91105, or at such other addresses as may from time to time be designated by the respective parties in writing. 12.4 The laws of the State of California shall govern the validity of this Agreement, the construction of its terms and the interpretation of the rights and duties of the parties. 12.5 In the event that any one or more of the provisions contained in this Agreement shall for any reason be held to be invalid, illegal or unenforceable, the same shall not affect any other provisions of this Agreement, but this Agreement shall be construed as if such invalid, illegal or unenforceable provisions had never been contained herein. 12.6 This Agreement shall be binding upon, and inure to the benefit of, the successors and assigns of the Company and the personal representatives, heirs and legatees of Employee. IN WITNESS WHEREOF, the parties have executed this Agreement effective as of the date first above written. AMERON INTERNATIONAL CORPORATION By: ------------------------------ A. Frederick Gerstell Chairman, Compensation & Stock Option Committee Board of Directors EMPLOYEE - --------------------------------- James S. Marlen 10 EXHIBIT E DEERING'S CALIFORNIA CODES LABOR CODE ANNOTATED OF THE STATE OF CALIFORNIA ADOPTED APRIL 24, 1937 with amendments through the First Extraordinary Session of the 1989-1990 Legislature Section 2924. Employment for specified term; Grounds for termination by employer An employment for a specified term may be terminated at any time by the employer in case of any willful breach of duty by the employee in the course of his employment, or in case of his habitual neglect of his duty or continued incapacity to perform it. Enacted 1937. Amended Stats 1969, ch 1529 Section 3; Stats 1971, ch 1580 Section 2, ch 1607 Section 3. EXHIBIT T Exhibit "T" (Page of 2) I. The Total Payments payable under this Agreement shall be reduced to the extent necessary so that no portion of the Total Payments shall be subject to the parachute excise tax (the "Excise Tax") imposed by IRC Section 4999 (after taking into account any reduction in the Total Payments provided by reason of IRC Section 280G in any other plan, arrangement or agreement) but only if the amount determined under the following subparagraph I.(1) is greater than the amount determined under the following subparagraph I.(2). (1) The amount determined hereunder shall be the net amount of such Total Payments, as so reduced (and after deduction of the net amount of Federal, state and local income taxes on such reduced Total Payments computed at Employee's highest marginal tax rate). (2) The amount determined hereunder shall be the excess of: (i) the net amount of such Total Payments, without reduction (but after deduction of the net amount of Federal, state and local income taxes on such Total Payments computed at Employee's highest marginal tax rate), over (ii) the amount of Excise Tax to which Employee would be subject in respect of such Total Payments. Any reduction of the Total Payments shall be made under one of the two alternative methods described in the following section II. For purposes of this Exhibit "T" and the calculations hereunder, Total Payments shall not include any amounts which are not considered a "parachute payment" under IRC Section 280G in the opinion of Arthur Andersen LLP (or suitable experts selected by the Company's Board of Directors). II. If the Total Payments all become payable at approximately the same time: (1) the payments under section 10.3(1)(ii) of the Agreement shall first be reduced (if necessary, to zero); (2) the payments under section 10.3(1)(i) of the Agreement shall next be reduced (if necessary, to zero); (3) the other portions of the Total Payments shall next be reduced (if necessary, to zero); and (4) the acceleration of vesting of awards under stock options shall be reduced as necessary. If the Total Payments do not become due and payable at approximately the same time, the respective Total Payments shall be paid in full in the order in which they become payable until any portion thereof would not be deductible, and such portion (and any subsequent portions) of the Total Payments shall be reduced to zero. In such case, the Company shall make every reasonable effort to make such payments in the order that results in the most favorable tax treatment and financial results for Employee. III. For purposes of determining whether and the extent to which the Total Payments would be subject to the Excise Tax: (1) no portion of the Total Payments the receipt or enjoyment of which Employee shall have effectively waived in writing prior to the date of termination shall be taken into account; (2) no portion of the Total Payments shall be taken into account which in the opinion of Arthur Andersen LLP (or suitable experts selected by the Company's Board of Directors) does not constitute a "parachute payment" within the meaning of IRC Section 280G(b)(2), including by reason of IRC Section 280G(b)(4)(A); (3) in calculating the Excise Tax, the payments shall be reduced only to the extent necessary so that the Total Payments in their entirety constitute reasonable compensation for services actually rendered within the meaning of IRC Section 280G(b)(4) or are otherwise not subject to disallowance as deductions because of IRC Section 280G, in the opinion of Arthur Andersen LLP (or suitable experts selected by the Company's Board of Directors); and (4) the value of any noncash benefit or any deferred payment or benefit included in the Total Payments shall be determined by Arthur Andersen LLP (or suitable experts selected by the Company's Board of Directors) in accordance with the principles of IRC Section 280G(d)(3) and (4). The Company shall provide Employee with the calculation of the foregoing amounts and any supporting materials as are reasonably necessary for Employee to evaluate the calculations. All calculations hereunder shall be performed by Arthur Andersen LLP (or suitable experts selected by the Company's Board of Directors). EX-13 4 EXHIBIT 13 AMERON 1997 FINANCIALS TO ANNUAL REPORT SELECTED CONSOLIDATED FINANCIAL INFORMATION
Year ended November 30 (DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA) 1997 1996 1995 1994 1993 - ------------------------------------------------------------------------------------------------------------------------------- PER COMMON SHARE DATA Net income (loss) $ 4.73 $ 3.87 $ 3.15 $ 2.75 (1) $ (6.28) (2) Net income excluding restructuring and related charges, and unusual items 4.73 3.87 3.15 2.29 1.87 Dividends 1.28 1.28 1.28 1.28 1.28 Average shares (3) 4,094,885 3,982,006 3,954,544 3,924,456 3,861,872 Stock price-high 70 50 37 7/8 43 1/8 38 3/4 Stock price-low 46 3/8 34 1/8 29 31 7/8 31 Price/earnings ratio (range) 15-10 13-9 12-9 16-12 NA - ------------------------------------------------------------------------------------------------------------------------------- OPERATING RESULTS Sales $ 533,506 $ 496,940 $ 481,405 $ 417,682 $ 453,357 Gross profit 135,683 129,263 116,731 103,975 119,869 Interest expense 12,433 11,134 11,715 11,191 12,689 Provision (benefit) for income taxes 11,874 8,297 5,190 7,297 (7,674) Net income (loss) 19,372 15,410 12,452 10,790 (1) (24,255) (2) Net income/sales 3.6% 3.1% 2.6% 2.6% (5.4)% Return on equity 13.0% 11.0% 9.6% 9.0% (18.6)% - ------------------------------------------------------------------------------------------------------------------------------- FINANCIAL CONDITION AT YEAR END Working capital $ 154,027 $ 121,858 $ 114,458 $ 103,904 $ 85,990 Property, plant and equipment, net 127,678 125,687 114,116 112,953 113,199 Investments, advances and equity in affiliated companies 33,777 33,722 36,197 37,315 39,984 Total assets 433,225 411,666 371,381 350,856 337,842 Long-term debt, less current portion 140,917 112,598 91,565 92,847 89,590 - ------------------------------------------------------------------------------------------------------------------------------- CASH FLOW Expenditures for property, plant and equipment $ 24,860 $ 25,227 $ 16,154 $ 14,934 $ 14,697 Depreciation 15,729 16,078 16,065 15,855 16,444
(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, OR $8.15 PER SHARE, FOR RESTRUCTURING AND OTHER RELATED CHARGES. (3) INCLUDES COMMON STOCK EQUIVALENTS IN THE PERIODS IN WHICH THEY HAVE A DILUTIVE EFFECT. AMERON 1997 FINANCIAL OVERVIEW MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF OPERATIONS LIQUIDITY & CAPITAL RESOURCES During 1997, the Company used $8.1 million of cash for operations, compared to $44.6 million that was generated in 1996. Net borrowings for the year were $29.7 million. These funds were used for capital expenditures of $24.9 million. Additionally, the Company paid common dividends of $5.1 million. Cash and cash equivalents at November 30, 1997, totaled $9.8 million, a decrease of $8.5 million from the prior year. Cash used in operating activities increased over the previous year due to an increase in working capital requirements that was due primarily to increased inventories and receivables associated with an expanded coatings business. Cash used in investing activities consisted principally of capital expenditures of $24.9 million, which included investment in a new fiberglass pipe plant in Malaysia. Remaining expenditures were primarily for the replacement and refurbishment of machinery and equipment at existing facilities. During the fiscal year ending November 30, 1998, the Company anticipates spending approximately $15 million to $30 million for capital expenditures for current operations, which will be funded from existing cash balances and lines of credit, as well as funds generated from operations. The Company maintains various credit facilities with lines of credit totaling $129 million. At November 30, 1997, the Company had $69 million in unused credit available to fund worldwide operating and investing activities. 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: 1997 COMPARED WITH 1996 GENERAL Earnings per share for the fiscal year ended November 30, 1997, were $4.73 on sales of $533.5 million, compared to $3.87 per share on sales of $496.9 million in 1996. Earnings per share in 1997 improved 22% over the prior year, while sales in 1997 were the highest in the Company's history. Return on average stockholder's equity increased to 13% in 1997 from 11% in the prior year. The significant increase in earnings over the prior year mainly reflects higher sales and earnings from the Company's worldwide protective coatings business. SALES Sales increased by $36.6 million to $533.5 million in 1997, primarily due to an increase in sales of the Protective Coatings Group. Partially offsetting the protective coatings increase were lower sales of construction products because of the continued economic slowdown in Hawaii. Deliveries of fiberglass, concrete and steel pipe were also down slightly from the prior year. Protective Coatings Group sales improved to $190.7 million in 1997, versus $142.6 million in the prior year. Sales in domestic and European markets were up over last year, due principally to the acquisition of the worldwide Devoe marine business from Imperial Chemical Industries PLC (ICI) late in fiscal 1996. During the second quarter of 1997, the Company exchanged its product finishes business for a slightly larger maintenance coatings business of The Valspar Corporation. The Company anticipates continued growth in the coming year, although not at the same level achieved through the Devoe acquisition. Fiberglass Pipe Group sales decreased to $102.5 million in 1997 from $104.1 million in 1996. The decrease was attributable to increased competition and lower sales from European operations into the Middle East. Asian operations posted slightly lower sales versus the prior year. Centron, acquired by the Company in 1996, posted higher sales because of exports to worldwide oilfield markets. The Company expects Centron's growth to continue and overall fiberglass pipe sales to increase in 1998. Concrete & Steel Pipe Group sales were $145.6 million in 1997, down slightly from the $148.5 million posted in 1996. The decrease was due primarily to weather-related and customer-requested delays that affected the timing of deliveries. Total order backlog for this segment at November 30, 1997, was $71.5 million, compared to $59.7-million backlog at the end of fiscal 1996. The Company anticipates that backlog will increase in the first half of fiscal 1998 and that sales will improve slightly for the coming year. Construction & Allied Products Group sales totaled $94.8 million in 1997, versus $101.8 million in the prior year. The Company's construction products business in Hawaii reported substantially lower sales in 1997 compared to 1996. Construction spending in 1997 for large public and private building projects continued to decline in the Islands; spending for residential construction also declined. Hawaii is not expected to boost construction activity in 1998. Sales for the Company's Pole Products Division improved slightly compared to last year. The Company continues to expect moderate sales growth from this operation. GROSS PROFIT Gross profit in 1997 was $135.7 million or 25.4% of sales, compared to gross profit of $129.3 million or 26.0% of sales in 1996. The increase in gross profit dollars can be attributed mainly to the higher sales of the Protective Coatings Group and improved productivity from the Fiberglass Pipe Group. The decline in gross profit margin resulted from higher integration costs associated with the Devoe acquisition and competitive pressures. SELLING, GENERAL & ADMINISTRATIVE EXPENSES Selling, general and administrative expenses totaled $103.1 million in 1997 or 19.3% of sales, compared to $103.3 million or 20.8% of sales in 1996. The percent of sales decrease was due partly to lower workers' compensation costs in 1997 and higher expenses related to the Centron acquisition and increased provisions for doubtful accounts and pending claims in 1996. Selling, general and administrative expenses include charges for environmental and legal claims. For a discussion on pending environmental and legal claims, see Note 15: "Contingencies and Commitments." Given recorded reserves, the Company does not expect these matters to have a material 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 1% 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 effect on the Company's financial position or its results of operations. OTHER INCOME Other income includes equity in earnings of affiliated companies (see Note 2: "Other Income"). Equity in earnings of affiliated companies totaled $4 million, increasing by $1.7 million from the previous year. Tamco, Gifford-Hill-American, Inc., Bondstrand, Ltd. and Oasis-Ameron, Ltd. all reported improved earnings over the prior year. Ameron Saudi Arabia, Ltd. reported its third consecutive year of losses. Other income also includes royalties and fees from affiliated companies and licensees, currency gains and losses and other miscellaneous income. Royalty and fee income rose $1.5 million in 1997 over 1996 due to new protective coatings licensing agreements and improved results from fiberglass pipe and protective coatings licensees. Foreign currency losses of $.5 million were incurred by the Company's international operations in 1997. INTEREST Interest expense was $12.4 million in 1997 compared to $11.1 million in 1996. The increase was the result of higher borrowing levels throughout 1997. NEW ACCOUNTING POLICIES In 1997, the Company adopted Statement of Financial Accounting Standards No. 123 (SFAS 123), "Accounting for Stock-Based Compensation." As permitted under this standard, the Company has elected to follow Accounting Principles Board Opinion No. 25, "Accounting For Stock Issued to Employees," in accounting for its stock options and other stock-based employee awards. Pro forma information regarding net income and earnings per share, as calculated under the provisions of SFAS 123, is disclosed in Note 14. In 1997, the Company adopted Statement of Financial Accounting Standards No. 121 (SFAS 121), "Accounting for the Impairment of Long-Lives Assets and Long-Lived Assets to be Disposed of" which requires impairment losses to be recorded on long-lived assets used in operations when indications of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amount. The adoption of SFAS 121 did not have a material effect on the Company's financial position or results of operations. In 1997, Statement of Financial Accounting Standards No. 128 (SFAS 128), "Earnings per Share," was issued. The Company is required to adopt SFAS 128 for annual and interim periods ending after December 15, 1997. The Company will be required to restate earnings per share for all prior periods reported. YEAR 2000 The Company has conducted a review of its computer and other operating systems to identify those systems that could be affected by the "Year 2000" issue and is developing an implementation plan to resolve any issues. Anticipated spending for this plan is not expected to have a significant impact on the Company's ongoing results of operations. RESULTS OF OPERATIONS: 1996 COMPARED WITH 1995 GENERAL Earnings per share for the fiscal year ended November 30, 1996 were $3.87 on sales of $496.9 million, compared to $3.15 per share on sales of $481.4 million in 1995. Earnings per share in 1996 improved 23% over the prior year. Return on stockholders' equity increased to 11.0% in 1996 from 9.6% in the prior year. The significant increase in earnings over the prior year reflects mainly the improved profitability of Ameron's concrete and steel pipe operations in the western United States and higher sales and earnings from the Company's worldwide protective coatings and fiberglass pipe businesses. SALES Sales increased by $15.5 million to $496.9 million in 1996, due partly to increased shipments of fiberglass pipe to oilfield and offshore platform markets in the United States and Latin America. Sales of protective coatings worldwide also improved over the prior year. Partially offsetting these increases were lower sales of construction products in Hawaii due to the continued slowdown in construction spending in the Islands. Sales of concrete and steel pipe were down slightly from the record level in 1995. Protective Coatings sales improved to $142.6 million in 1996 versus $130.5 million in the prior year. Sales in domestic markets were up as deliveries of protective coatings improved over last year. European operations benefited from the introduction of Ameron's unique PSX polysiloxane-based coatings. Sales in Asian markets also improved over the previous year. In October 1996, the Company completed the acquisition of the worldwide Devoe marine coatings business from ICI. The acquisition made Ameron the largest supplier of high-performance marine and offshore coatings in the United States and greatly expanded the Company's sales and service network and global presence in these markets. The Devoe business acquired by Ameron generated sales of approximately $50 million in 1995 when part of ICI. The acquisition had a minor impact on Ameron's sales in 1996. Fiberglass Pipe sales increased to $104.1 million in 1996, compared to $82.8 million in 1995. The increase was attributed to higher sales of oilfield and offshore platform products in the United States and Latin America. European sales were down because of sluggish markets and major order delays. Asian operations reported higher sales than the prior year. In January 1996, the Company acquired the assets of Centron Corporation, a privately-held, Texas-based manufacturer of fiberglass pipe for oilfield applications. Concrete & Steel Pipe sales were $148.5 million in 1996, down slightly from the $153.2 million posted in 1995. During 1996, the Company completed work on several major water transmission pipelines in California, including the Coastal Aqueduct, the Eastside pipeline and the Los Vaqueros pipeline. Ameron continued to benefit from the strong demand for water-transmission piping throughout the western United States as water agencies expanded water storage and distribution systems. Construction & Allied Products sales totaled $101.8 million in 1996 versus $115.0 million in the prior year. The Company's construction products business in Hawaii reported substantially lower sales in 1996 compared to 1995. Construction spending in 1996 for large public and private building projects continued to decline in the Islands. Spending for residential construction declined as well. Sales from the Company's Pole Products Division improved slightly over last year. The division further penetrated new markets in the Midwest and South with its prestressed concrete lighting and traffic poles. GROSS PROFIT Gross profit in 1996 was $129.3 million or 26.0% of sales, an improvement over 1995 performance of $116.7 million or 24.2% of sales. The improved gross profit dollars and margin can be attributed mainly to the Company's Concrete & Steel Pipe operations. Strong demand for water transmission piping, coupled with manufacturing cost reductions and improved productivity, resulted in higher margins in this segment. In addition, margins in Protective Coatings increased as a result of lower raw material costs, improved manufacturing productivity and a favorable product mix. SELLING, GENERAL & ADMINISTRATIVE EXPENSES Selling, general and administrative expenses totaled $103.3 million in 1996 or 20.8% of sales, compared to $95.8 million or 19.9% of sales in 1995. The $7.5 million increase was attributable partly to the acquisition of Centron early in 1996 and partly to increased provisions for doubtful accounts and pending claims. Selling, general and administrative expenses as a percent of sales increased because, despite slightly lower sales from the concrete and steel pipe segment, expenses rose somewhat to maintain marketing and engineering support for expected future business activity. OTHER INCOME Equity in earnings of affiliated companies totaled $2.3 million, declining $1.5 million from the previous year. Tamco's sales improved in 1996, but net income was down slightly. Gifford-Hill-American, Inc., Bondstrand, Ltd. and Oasis-Ameron, Ltd. all reported improved earnings over the prior year. Ameron Saudi Arabia, Ltd. reported its second consecutive year of losses. Other income also includes royalties and fees from affiliated companies and licensees, currency gains and losses, and other miscellaneous income. Royalty and fee income rose $1.3 million in 1996 over 1995 due to new protective coatings licensing agreements and improved results from existing fiberglass pipe and protective coatings licensees. Foreign currency losses of $.9 million were incurred by the Company's Colombian and European operations in 1995 as compared to gains of $.6 million realized in 1996. Miscellaneous income includes sublease and property rental income, which was lower than last year. INTEREST Interest expense was $11.1 million in 1996 compared to $11.7 million in 1995. The decrease was the result of lower borrowing levels during the second and third fiscal quarters of 1996. CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 Any of the above statements that refer to the Company's estimated or anticipated future results are forward looking and reflect the Company's current analysis of existing trends and information. Actual results may differ from current expectations based on a number of factors affecting Ameron's businesses, including competitive conditions and changing market conditions. In addition, matters affecting the economy generally, including the state of economies worldwide, can affect the Company's results. These forward looking statements represent the Company's judgment only as of the date of this Annual Report. Actual results could differ materially, and, as a result, the reader is cautioned not to rely on these forward looking statements. The Company disclaims, however, any intent or obligation to update these forward looking statements. CONSOLIDATED STATEMENTS OF INCOME
Year ended November 30 (DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA) 1997 1996 1995 - ----------------------------------------------------------------------------------------------------- Sales $533,506 $496,940 $481,405 Cost of sales 397,823 367,677 364,674 ----------------------------------------------- Gross profit 135,683 129,263 116,731 Selling, general and administrative expenses 103,075 103,320 95,786 Other income 10,493 8,516 8,068 ----------------------------------------------- Income before interest and income taxes 43,101 34,459 29,013 Interest income 578 382 344 Interest expense 12,433 11,134 11,715 ----------------------------------------------- Income before income taxes 31,246 23,707 17,642 Provision for income taxes 11,874 8,297 5,190 ----------------------------------------------- Net income $ 19,372 $ 15,410 $ 12,452 ----------------------------------------------- ----------------------------------------------- Net income per share $ 4.73 $ 3.87 $ 3.15 ----------------------------------------------- ----------------------------------------------- THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
CONSOLIDATED BALANCE SHEETS
As of November 30 (DOLLARS IN THOUSANDS) 1997 1996 - ------------------------------------------------------------------------------------------------ ASSETS Current assets Cash and cash equivalents $ 9,848 $ 18,381 Receivables, less allowance of $5,402 in 1997 and $5,939 in 1996 122,352 105,534 Inventories 95,752 84,971 Deferred income tax benefits 9,083 9,741 Prepaid expenses and other 4,257 4,996 ------------------------ Total current assets 241,292 223,623 Investments, advances and equity in undistributed earnings of affiliated companies 33,777 33,722 Property, plant and equipment Land 34,911 33,780 Buildings 49,792 50,450 Machinery and equipment 216,958 211,652 Construction in progress 12,255 7,958 ------------------------ Total property, plant and equipment at cost 313,916 303,840 Less accumulated depreciation (186,238) (178,153) ------------------------ Total property, plant and equipment, net 127,678 125,687 Intangible assets, net of accumulated amortization of $4,149 in 1997 and 3,269 in 1996 11,282 12,061 Other assets 19,196 16,573 ------------------------ Total assets $ 433,225 $ 411,666 ------------------------ ------------------------ THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
As of November 30 (DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA) 1997 1996 - ---------------------------------------------------------------------------------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Short-term borrowings $ 715 $ 1,242 Current portion of long-term debt 17,654 17,753 Trade payables 31,988 36,715 Accrued liabilities 32,561 41,102 Income taxes 4,347 4,953 ------------------------------- Total current liabilities 87,265 101,765 Deferred income taxes 2,907 2,727 Long-term debt, less current portion 140,917 112,598 Other long-term liabilities 49,154 49,778 ------------------------------- Total liabilities 280,243 266,868 Commitments and contingencies Stockholders' equity Common stock, par value $2.50 a share, authorized 12,000,000 shares, outstanding 4,005,487 shares in 1997 and 3,985,112 shares in 1996, net of treasury shares 12,946 12,895 Additional paid-in capital 16,969 16,212 Retained earnings 171,569 157,321 Cumulative foreign currency translation adjustments (5,723) 1,149 Less treasury stock (1,172,900 shares in 1997 and 1996), at cost (42,779) (42,779) ------------------------------- Total stockholders' equity 152,982 144,798 ------------------------------- Total liabilities and stockholders' equity $433,225 $411,666 ------------------------------- -------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended November 30 (DOLLARS IN THOUSANDS) 1997 1996 1995 - --------------------------------------------------------------------------------------------------------------- OPERATING ACTIVITIES Net income $ 19,372 $ 15,410 $ 12,452 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 15,729 16,078 16,065 Amortization 947 367 161 Provision (benefit) for deferred income taxes 809 (4,414) (822) Equity in earnings of affiliated companies (3,990) (2,298) (3,844) Dividends from affiliated companies 5,056 4,152 6,186 (Gain) loss from sale of assets 64 (576) (730) Other, net 1,789 884 144 Other changes in operating assets and liabilities, excluding business acquisitions: (Increase) decrease in receivables (22,801) 2,405 (8,483) Increase in inventories (13,825) (667) (4,182) (Increase) decrease in other current assets 1,151 (2,211) (3,274) Increase in long-term assets (191) (536) (440) Increase (decrease) in trade payables, accrued liabilities and income taxes (11,264) 10,415 (2,511) Increase (decrease) in long-term liabilities (965) 5,570 9,445 ----------------------------------- Net cash (used in) provided by operating activities (8,119) 44,579 20,167 ----------------------------------- INVESTING ACTIVITIES Proceeds from sale of assets 2,287 1,371 1,126 Additions to property, plant and equipment (24,860) (25,227) (16,154) Business acquisitions -- (29,032) -- Investment in life insurance policies (2,645) (2,995) (1,452) ----------------------------------- Net cash used in investing activities (25,218) (55,883) (16,480) ----------------------------------- FINANCING ACTIVITIES Net change in debt with maturities of three months or less (525) (471) (1,061) Issuance of debt 47,201 65,022 15,897 Repayment of debt (17,000) (43,277) (9,849) Dividends on common stock (5,124) (5,076) (5,051) Issuance of common stock 808 776 34 ----------------------------------- Net cash provided by (used in) financing activities 25,360 16,974 (30) ----------------------------------- Effect of exchange rate changes on cash and cash equivalents (556) (212) 236 ----------------------------------- Net change in cash and cash equivalents (8,533) 5,458 3,893 Cash and cash equivalents at beginning of year 18,381 12,923 9,030 ----------------------------------- Cash and cash equivalents at end of year $ 9,848 $ 18,381 $ 12,923 ----------------------------------- -----------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Common Stock ------------------------- Shares Additional Retained (DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA) Outstanding Amount Paid-in Capital Earnings Other - ---------------------------------------------------------------------------------------------------------------------------------- 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 1,649 -------------------------------------------------------------------- Balance, November 30, 1995 3,956,497 12,823 15,322 146,987 2,219 Net income -- 1996 15,410 Exercise of stock options and issuance of stock to employee savings plan 28,615 72 890 Dividends on common stock of $1.28 a share (5,076) Foreign currency translation adjustments (1,070) -------------------------------------------------------------------- Balance, November 30, 1996 3,985,112 12,895 16,212 157,321 1,149 Net income -- 1997 19,372 Exercise of stock options 20,375 51 757 Dividends on common stock of $1.28 a share (5,124) Foreign currency translation adjustments (6,872) -------------------------------------------------------------------- BALANCE, NOVEMBER 30, 1997 4,005,487 $ 12,946 $ 16,969 $ 171,569 $ (5,723) -------------------------------------------------------------------- --------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE ONE: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of Ameron International Corporation and all wholly-owned subsidiaries (the Company). All material intercompany accounts and transactions have been eliminated. RECLASSIFICATIONS Certain prior year balances have been reclassified to conform with the current year presentation. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 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 & DEVELOPMENT COSTS Research and development costs are expensed as incurred. Such costs were approximately $5,534,000 in 1997, $4,400,000 in 1996 and $4,300,000 in 1995. ENVIRONMENTAL CLEAN-UP COSTS The Company expenses environmental clean-up costs related to existing conditions resulting from past or current operations and from which no current or future benefit is discernible. Expenditures that extend the life of the related property or mitigate or prevent future environmental contamination are capitalized. The Company determines its liability on a site by site basis and records a liability at the time when it is probable and can be reasonably estimated. The estimated liability of the Company is not discounted or reduced for possible recoveries from insurance carriers. INCOME TAXES The Company follows Statement of Financial Accounting Standards No. 109 (SFAS 109), "Accounting for Income Taxes." Under the asset and liability method of SFAS 109, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. 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 4,094,885 in 1997, 3,982,006 in 1996 and 3,954,544 in 1995. CASH & CASH EQUIVALENTS Cash equivalents include time deposits with maturities of three months or less when purchased. INVENTORY VALUATION 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. EQUITY METHOD OF ACCOUNTING Investments in significant 30- to 50-percent-owned affiliates are accounted for by the equity method of accounting, whereby the investment is carried at cost of acquisition, plus the Company's equity in undistributed earnings or losses since acquisition. Reserves are provided where management determines that the investment or equity in earnings is not realizable. PROPERTY, PLANT & EQUIPMENT Items capitalized as property, plant and equipment, including improvements to existing facilities, are recorded at cost. The book value of obsolete assets is charged to depreciation expense when they are scrapped. 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 METHOD 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 2.50-10.00 Machinery and equipment Autos, trucks and trailers 6.67-50.00 Cranes and tractors 10.00-15.00 Manufacturing equipment 6.67-33.33 Other 5.00-66.67
Depreciation expense was $15,729,000 in 1997, $16,078,000 in 1996 and $16,065,000 in 1995. AMORTIZATION OF INTANGIBLES Goodwill and other intangible assets are amortized on a straight-line basis over periods ranging up to 40 years. SELF INSURANCE The Company utilizes third-party insurance subject to varying retention levels or self insurance. Such self insurance relates to losses and liabilities primarily associated with workers' compensation claims and general, product and vehicle liability. Losses are accrued based upon the Company's estimates of the aggregate liability for claims incurred using certain actuarial assumptions followed in the insurance industry and based on Company experience. 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 resulting translation adjustments are recorded as a component of shareholders' equity. Gains or losses resulting from foreign currency transactions are included in other income. DERIVATIVE FINANCIAL INSTRUMENTS AND RISK MANAGEMENT The Company operates internationally, giving rise to exposure to market risks from changes in foreign exchange rates. Derivative financial instruments are used by the Company to reduce those risks. The Company does not hold or issue financial or derivative financial instruments for trading or speculative purposes. The magnitude and volume of such transactions were not material for the periods presented. STOCK OPTIONS In 1997, the Company adopted Statement of Financial Accounting Standards No. 123 (SFAS 123), "Accounting for Stock-Based Compensation." As permitted under this standard, the Company has elected to follow Accounting Principles Board Opinion No. 25, "Accounting For Stock Issued to Employees" in accounting for its stock options and other stock-based employee awards. Pro forma information regarding net income and earnings per share, as calculated under the provisions of SFAS 123, are disclosed in Note 14. LONG-LIVED ASSETS In 1997, the Company adopted Statement of Financial Accounting Standards No. 121 (SFAS 121), "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of," which requires impairment losses to be recorded on long-lived assets used in operations when indications of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amount. As of November 30, 1997, the carrying value of the Company's assets held for sale, in aggregate, was $3,400,000. The fair market value of these assets total $7,300,000. The adoption of SFAS 121 did not have a material effect on the Company's financial position or results of operations. PENDING ACCOUNTING CHANGES In 1997, Statement of Financial Accounting Standards No. 128 (SFAS 128), "Earnings per Share," was issued. The Company is required to adopt SFAS 128 for annual and interim periods ending after December 15, 1997. The Company will be required to restate earnings per share for all prior periods reported. In 1997, Statement of Financial Accounting Standards No. 130 (SFAS 130), "Reporting Comprehensive Income," was issued. The statement must be adopted by the Company no later than the fiscal year ending November 30, 1998.
CASH FLOW INFORMATION (IN THOUSANDS) 1997 1996 1995 - ----------------------------------------------------------------------- Interest paid $12,428 $ 9,545 $ 9,849 Income taxes paid, net $16,919 $ 9,010 $ 2,448
NOTE TWO: OTHER INCOME Other income for the years ended November 30 included the following:
(IN THOUSANDS) 1997 1996 1995 - ----------------------------------------------------------------------- Royalties and fees from affiliated companies and licensees $ 6,051 $ 4,557 $ 3,297 Equity in earnings of affiliated companies 3,990 2,298 3,844 Foreign currency gain (loss) (481) 558 (928) Gain (loss) from sale of assets (64) 576 730 Miscellaneous 997 527 1,125 ----------------------------------- $10,493 $ 8,516 $ 8,068 ----------------------------------- -----------------------------------
The Company provides technical services and receives fees, royalties and other income from several of its affiliates and licensees, which are included above. NOTE THREE: CASH & CASH EQUIVALENTS At November 30, 1997, the Company had approximately $270,000 invested in time deposits. The Company had $3,978,000 in cash equivalents at November 30, 1996. The carrying value of cash and cash equivalents approximates their fair value. NOTE FOUR: RECEIVABLES Receivables at November 30 were as follows:
(IN THOUSANDS) 1997 1996 - ------------------------------------------------------------------------ Trade $115,740 $102,683 Affiliated companies 2,574 2,205 Dividends from affiliated companies -- 1,138 Other 9,440 5,447 Reserve (5,402) (5,939) -------------------------- $122,352 $105,534 -------------------------- --------------------------
The Company's provision for bad debt was $1,798,000 in 1997, $2,583,000 in 1996 and $1,710, 000 in 1995. NOTE FIVE: INVENTORIES Inventories at November 30 were as follows:
(IN THOUSANDS) 1997 1996 - ------------------------------------------------------------------------ Finished products $56,989 $44,577 Products in process 18,791 17,467 Materials and supplies 19,972 22,927 --------------------------- $95,752 $84,971 --------------------------- ---------------------------
Certain steel inventories are valued using the last-in, first-out cost method. These items comprised 2.5% and 10.1% of consolidated inventories at November 30, 1997 and 1996, respectively. If such inventories had been valued using the first-in, first-out cost method, total inventories would have increased by $1,776,000 and $1,597,000 at November 30, 1997 and 1996, respectively. NOTE SIX: 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%
Investments in affiliated companies and the amount of undistributed retained earnings included in the Company's consolidated retained earnings at November 30 were as follows:
Concrete pipe Steel (IN THOUSANDS) products products Other Total - ---------------------------------------------------------------------------------------------------- INVESTMENT, NOVEMBER 30, 1997 COST $ 6,194 $ 8,482 $ 3,706 $ 18,382 ACCUMULATED EQUITY IN UNDISTRIBUTED EARNINGS 13,292 11,034 2,364 26,690 RESERVES (7,981) (2,741) (573) (11,295) ------------------------------------------------ $ 11,505 $ 16,775 $ 5,497 $ 33,777 ------------------------------------------------ ------------------------------------------------ DIVIDENDS RECEIVED IN FISCAL 1997 $ 1,062 $ 3,025 $ 969 $ 5,056 ------------------------------------------------ ------------------------------------------------ Investment, November 30, 1996 Cost $ 6,194 $ 8,482 $ 3,706 $ 18,382 Accumulated equity in undistributed earnings 13,175 9,918 1,842 24,935 Reserves (7,145) (2,450) -- (9,595) ------------------------------------------------ $ 12,224 $ 15,950 $ 5,548 $ 33,722 ------------------------------------------------ ------------------------------------------------ Dividends Received in Fiscal 1996 $ 750 $ 1,925 $ 1,477 $ 4,152 ------------------------------------------------ ------------------------------------------------
The Company has provided income taxes on the undistributed earnings of its affiliated companies. The Company's investment in Gifford-Hill-American, Inc., which manufactures concrete pressure pipe, was recorded based on audited financial statements as of November 30, 1996, and unaudited financial statements as of October 31, 1997. 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, 1996, and unaudited financial statements as of September 30, 1997. The investment in Tamco was based on audited financial statements as of November 30, 1997. Summarized and combined financial information for affiliates in the concrete pipe products business follows:
Financial Condition (IN THOUSANDS) 1997 1996 - ---------------------------------------------------------------- Current assets $ 70,719 $ 61,483 Noncurrent assets 35,076 37,178 ------------------------ $105,795 $ 98,661 ------------------------ ------------------------ Current liabilities $ 36,088 $ 38,993 Noncurrent liabilities 14,798 3,191 Stockholders' equity 54,909 56,477 ------------------------ $105,795 $ 98,661 ------------------------ ------------------------
Results of Operations (IN THOUSANDS) 1997 1996 1995 - ----------------------------------------------------------------------- Net sales $ 56,295 $ 38,753 $ 41,861 --------------------------------------- --------------------------------------- Gross profit $ 12,151 $ 8,987 $ 8,087 --------------------------------------- --------------------------------------- Net income (loss) $ 207 $ (2,397) $ (1,924) --------------------------------------- ---------------------------------------
Summarized and combined financial information for Tamco, Bondstrand, Ltd. and Oasis-Ameron, Ltd. follows:
Financial Condition (IN THOUSANDS) 1997 1996 - ----------------------------------------------------------------- Current assets $58,504 $65,877 Noncurrent assets 30,538 30,525 -------------------- $89,042 $96,402 -------------------- -------------------- Current liabilities $26,442 $38,700 Noncurrent liabilities 5,024 3,607 Stockholders' equity 57,576 54,095 -------------------- $89,042 $96,402 -------------------- --------------------
Results of Operations (IN THOUSANDS) 1997 1996 1995 - -------------------------------------------------------------------------------- Net sales $173,041 $150,116 $140,568 ------------------------------------------ ------------------------------------------ Gross profit $ 29,949 $ 26,711 $ 26,387 ------------------------------------------ ------------------------------------------ Net income $ 10,017 $ 8,432 $ 7,870 ------------------------------------------ ------------------------------------------
The amount of investments and accumulated equity in the undistributed earnings in the Middle Eastern affiliates was approximately $16,000,000 and $17,000,000 at November 30, 1997 and 1996, respectively. Sales and technical services provided by the Company to affiliates in the Middle East totaled approximately $2,300,000 in 1997, $1,200,000 in 1996 and $1,700,000 in 1995, and related receivables aggregated approximately $2,300,000 at November 30, 1997, and $900,000 at November 30, 1996. NOTE SEVEN: BUSINESS ACQUISITIONS In the first quarter of fiscal 1996, the Company acquired for cash substantially all the assets of Centron Corporation (Centron). Centron, located in Mineral Wells, Texas is a manufacturer of fiberglass pipe for the worldwide oilfield market. The acquisition was accounted for as a purchase and Centron's results of operations have been included in the Company's consolidated financial statements since January 1996. During the fourth quarter of fiscal 1996, the Company acquired for cash the worldwide Devoe marine coatings business of Imperial Chemical Industries PLC, (ICI). The acquisition was accounted for as a purchase and its results of operations were included in the Company's consolidated financial statements beginning in the fourth quarter of fiscal 1996. During the first quarter of fiscal 1997, the Company acquired the maintenance coatings business of The Valspar Corporation for cash and the assets of the Company's product finishes business. The transaction was accounted for as a purchase, and its results of operations were included in consolidated financial statements beginning in the second quarter of fiscal 1997. The above acquisitions were completed for a total of $31,419,000. The excess of the purchase price over the fair value of the assets acquired was $11,329,000. The Company recorded $8,096,000 as goodwill and $3,233,000 as other intangibles. Goodwill is being amortized on a straight-line basis over a period not to exceed 40 years. Other intangible assets are being amortized on a straight-line basis over periods ranging from 3 to 10 years. NOTE EIGHT: ACCRUED LIABILITIES Accrued liabilities at November 30 were as follows:
(IN THOUSANDS) 1997 1996 - ------------------------------------------------------------------- Reserves for pending claims and litigation $ 3,342 $ 5,188 Compensation and benefits 12,879 12,653 Self-insurance reserves 2,053 6,317 Interest 4,330 3,753 Commissions and royalties 1,314 2,927 Taxes (other than income taxes) 3,181 2,816 Other 5,462 7,448 -------------------- $32,561 $41,102 -------------------- --------------------
NOTE NINE: OTHER LONG-TERM LIABILITIES Other long-term liabilities at November 30 were as follows:
(IN THOUSANDS) 1997 1996 - ------------------------------------------------------------------- Reserves for pending claims and litigation $15,887 $14,927 Compensation and benefits 13,955 14,693 Interest and self-insurance reserves 11,114 10,289 Other 8,198 9,869 -------------------- $49,154 $49,778 -------------------- --------------------
NOTE TEN: 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 SFAS 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 deems appropriate based on actuarial consultants' recommendations. Assets of the defined benefit plan are invested in a directed trust. Assets in the trust are invested in equity securities of corporations (including $8,197,000 of the Company's common stock at November 30, 1997), U.S. government obligations, derivative securities, corporate bonds and money market funds. 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. As of November 30, 1997 and 1996, the cash surrender value of these policies was $5,899,000 and $4,871,000, respectively. Net periodic pension cost for the years ended November 30 consists of the following:
(IN THOUSANDS) 1997 1996 1995 - ---------------------------------------------------------------------- Service cost: Defined benefit plan $ 1,912 $ 1,953 $ 1,822 Supplemental plan 246 217 26 Interest cost: Defined benefit plan 8,707 8,292 8,333 Supplemental plan 300 250 213 Return on plan assets (35,281) (14,996) (17,466) Net deferral: Defined benefit plan 23,670 4,560 7,860 Supplemental plan 339 346 273 ---------------------------------- Net periodic pension (benefit)cost $ (107) $ 622 $ 1,061 ---------------------------------- ----------------------------------
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) 1997 1996 - ------------------------------------------------------------------- Actuarial present value of: Vested benefit obligation $112,632 $103,724 Non-vested benefits 452 522 ----------------------- Accumulated benefit obligation 113,084 104,246 Effect of salary increases 8,121 7,722 ----------------------- Actuarial present value of projected benefit obligation 121,205 111,968 Less plan assets at market value 150,454 122,571 ----------------------- ----------------------- Plan assets in excess of projected benefit obligation (29,249) (10,603) Unrecognized asset 33,130 15,477 ----------------------- Accrued pension cost in consolidated balance sheets $ 3,881 $ 4,874 ----------------------- -----------------------
The following table sets forth the status of the supplemental plan as of November 30:
(IN THOUSANDS) 1997 1996 - ------------------------------------------------------------------- Actuarial present value of: Vested benefit obligation $3,581 $3,007 Non-vested benefits 7 3 ---------------------- Accumulated benefit obligation 3,588 3,010 Effect of salary increases 751 548 ---------------------- Actuarial present value of projected benefit obligation 4,339 3,558 Unrecognized obligation (503) (841) Unrecognized net loss (552) (73) ---------------------- Accrued pension cost in consolidated balance sheets $3,284 $2,644 ---------------------- ----------------------
The 1997 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 17% 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, $2,600,000 and $2,700,000 in 1997, 1996 and 1995, respectively. These contributions are determined in accordance with the provisions of negotiated labor contracts and generally are based on the number of 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. 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 participant deferrals, which is reflected in long-term liabilities, was $6,297,000 at November 30, 1997, and $4,668,000 at November 30, 1996. The participant deferrals earn interest at a rate based on U.S. Government Treasury rates. The interest expense related to this plan was $550,000 in 1997, $392,000 in 1996 and $340,000 in 1995. 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 related to this plan was $361,000 in 1997, $350,000 in 1996 and, $355,000 in 1995. In connection with the above two plans, whole life insurance contracts were purchased on the related participants. At November 30, 1997 and 1996, the cash surrender value of these policies was $9,197,000 and $7,581,000, respectively, 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 are in the form of cash. In 1996, contributions were in the form of the Company's common stock and cash. In 1995 , matching contributions were solely in the form of the Company's common stock. In 1997, 1996 and 1995, the Company recorded expenses for matching contributions of $286,000, $433,000 and $681,000, respectively, while 4,840 and 19,761 shares of common stock were issued by the Company to the savings plan in 1996 and 1995, respectively. NOTE ELEVEN: INCOME TAXES The provision for income taxes for the years ended November 30 included the following:
(IN THOUSANDS) 1997 1996 1995 - ----------------------------------------------------------- Current Federal $9,875 $9,320 $2,833 Foreign (82) 1,730 2,516 State 1,272 1,661 663 ----------------------------------- 11,065 12,711 6,012 Deferred Federal 676 (3,755) (993) Foreign (63) (46) 396 State 196 (613) (225) ----------------------------------- 809 (4,414) (822) ----------------------------------- $1,874 $8,297 $5,190 ----------------------------------- -----------------------------------
The principal types of temporary 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) 1997 1996 1995 - -------------------------------------------------------------------------- Accelerated depreciation $ (306) $ (6) $ (377) Change in nondeductible reserves 1,601 (3,801) (2,310) Write down of fixed assets -- (410) -- Federal alternative minimum tax and State loss carryforwards -- 32 1,379 Equity in earnings of affiliated companies (482) (343) 250 Other, net (4) 114 236 ------------------------------ $ 809 $(4,414) $ (822) ------------------------------ ------------------------------
Deferred tax assets (liabilities) are comprised of the following as of November 30:
(IN THOUSANDS) 1997 1996 - -------------------------------------------------------------------------- Non-current deferred taxes Self insurance/claims reserves $ 7,979 $ 7,993 Investments (2,696) (2,234) Employee benefits 9,394 9,352 Fixed assets (19,571) (20,437) Federal and State tax credit and loss carryforwards 2,347 2,347 Other (360) 252 --------------------- Net non-current deferred liability (2,907) (2,727) Current deferred taxes Self-insurance/claims reserves 1,435 1,442 Employee benefits 2,732 2,497 Accounts receivable 1,401 2,937 Inventory 3,273 2,935 Other 242 (70) --------------------- Net current deferred asset 9,083 9,741 --------------------- Net deferred taxes $ 6,176 $ 7,014 --------------------- ---------------------
The tax provision represents effective tax rates of 38.0%, 35% and 29.4% of pretax income for the years ended November 30, 1997, 1996 and 1995, 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, 1997, 1996 and 1995 follows:
(IN THOUSANDS) 1997 1996 1995 - ------------------------------------------------------------------------------ Domestic pretax income $24,746 $17,534 $12,771 Foreign pretax income 6,500 6,173 4,871 -------------------------------- 31,246 $23,707 $17,642 -------------------------------- -------------------------------- Taxes at federal statutory rate $10,936 $ 8,297 $ 6,175 State taxes (net of federal tax benefit) 954 681 285 Foreign losses with no federal benefit 87 11 630 Percentage depletion (379) (484) (512) Foreign branch/withholding taxes 571 (20) 226 Equity in earnings of affiliated companies (1,484) (948) (1,096) Other, net 1,189 760 (518) -------------------------------- $11,874 $ 8,297 $ 5,190 -------------------------------- --------------------------------
In 1996, the Internal Revenue Service completed the examination of the Company's 1990 through 1992 Federal income tax returns, and issued an assessment. The Company agreed and paid the tax on a portion of the assessment, and filed an appeal with respect to the portion that is in dispute. The Company also has an appeal pending 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 resolution of these matters are not expected to have a material effect on the Company's financial position or its results of operations. NOTE TWELVE: DEBT Short-term borrowings consist of loans payable to banks by foreign subsidiaries totaling $715,000 and $1,242,000 as of November 30, 1997, and 1996, respectively. The average interest rate on these loans was approximately 9.51% in 1997 and 9.12% in 1996. Domestically, the Company has uncommitted, short-term bank credit lines totaling $24,000,000 with interest at various money market rates. Long-term debt as of November 30 consisted of the following:
(IN THOUSANDS) 1997 1996 - ------------------------------------------------------------------- Fixed-rate unsecured notes payable: 8.63%, payable in annual principal installments of $5,000 $ 5,000 $ 10,000 9.79%, payable in annual principal installments of $12,000 36,000 48,000 7.92%, payable in annual principal installments of $8,333, commencing in 2001 50,000 50,000 Variable-rate industrial development bonds, payable in 2016 (3.90% at November 30, 1997) 7,200 7,200 Variable-rate unsecured bank revolving credit facilities (approximately 6.12 % at November 30, 1997) 57,429 11,009 Variable-rate unsecured bank loan, payable by a consolidated subsidiary in Dutch guilders, with annual principal installments of approximately $654 (4.01% at November 30, 1997) 2,942 4,142 ------------------ 158,571 130,351 Less current portion 17,654 17,753 ------------------ $140,917 $112,598 ------------------ ------------------
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 2000, when all borrowings under the facility must be repaid. At November 30, 1997, $40,000,000 was borrowed under this facility. 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 $7,000,000 at any time through October 2001 under one facility, and $3,000,000 through August 1998 under a second facility. A third arrangement permits borrowings up to $6,000,000; this availability declines by $600,000 semi-annually. At November 30, 1997, $4,800,000 was available under this arrangement. At November 30, 1997, $9,626,000 was borrowed under these bank facilities. Future payments due on long-term debt total $17,654,000 in 1998, $12,654,000 in 1999, $12,654,000 in 2000, $13,010,000 in 2001, and $8,660,000 in 2002. 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 $7,650,000 of retained earnings was not restricted at November 30, 1997, as to the declaration of cash dividends and the repurchase of Company stock. At November 30, 1997, the Company was in compliance with all financial covenants. 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 Statement of Financial Accounting Standards 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.
NOVEMBER 30, 1997 ----------------------- Carrying Fair (IN THOUSANDS) Amount Value - ------------------------------------------------------------------- Short-term borrowings $ 715 $ 715 Fixed-rate long-term debt 91,000 95,444 Variable-rate long-term debt 67,571 67,571
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, 1997, for similar securities with similar remaining maturities. NOTE THIRTEEN: LEASE COMMITMENTS Rental expense under long-term operating leases of property, vehicles and other equipment was $6,170,000 in 1997, $7,201,000 in 1996 and $7,225,000 in 1995. At November 30, 1997, future rental commitments under these leases totaled $48,904,000. Future rental commitments are payable as follows:
Year ending (IN THOUSANDS) November 30 Amount - --------------------------------------------------------------- 1998 $ 6,036 1999 5,580 2000 4,769 2001 3,468 2002 2,763 2003 - Beyond 26,288 -------- $ 48,904 -------- --------
Minimum payments for leases have not been reduced by minimum noncancelable sublease rentals aggregating $4,631,000 for operating leases. NOTE FOURTEEN: INCENTIVE STOCK COMPENSATION PLANS At November 30, 1997, the Company has various stock option plans, which are described below. The Company applies Accounting Principles Board Opinion No. 25 (APB 25), "Accounting for Stock Issued to Employees," and related interpretations in accounting for its various stock option plans. In 1997, the Company adopted Statement of Financial Accounting Standards No. 123 (SFAS 123), "Accounting for Stock-Based Compensation." On January 27, 1992, the Board of Directors of the Company adopted the Incentive Stock Compensation Plan ("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 292,734 shares of common stock for sale to employees under the 1992 Incentive Plan at November 30, 1997. The plan provides for the issuance of additional 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 options or non-qualified options and may be granted for up to 10 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, 1997, 19,818 were available for future grants. Also at November 30, 1997, the Company reserved 6,000 shares of common stock for sale to employees under the 1982 Stock Option Plan. The 1982 Stock Option Plan expired in January 1992, and no further options will be granted under that plan. 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 Stockholder's 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 the stockholders of the Company at which the directors of the Company are elected. The aggregate number of shares issued and issuable shall not exceed 120,000. As of November 30, 1997, the Company had reserved 23,000 shares of common stock for sale under the Nonemployee Director Plan. For both the 1992 Incentive Plan and the Nonemployee Director Plan, the exercise price of each option equals the market price of the Company's stock on the date of grant, and an option's maximum term is 10 years. Options are granted at various periods during the fiscal year under both plans and vest over 5 years. SFAS 123 requires the Company to provide pro forma information regarding net income and earnings per share as if compensation cost for the Company's stock option plans had been determined in accordance with the fair value based method prescribed in SFAS 123. The Company estimates the fair value of stock options at the grant date by using the Black Scholes option pricing model with the following weighted average assumptions used for grants in 1996 and 1997, respectively: dividend yield of .19% for all years; an expected volatility of 20%; risk-free rates of 5.28%, 6.63%, 6.22% and 6.36% for the 1992 plan and risk-free rates of 6.08%, and 6.66% for the 1994 plan; an expected life of 5 years for the 1992 plan and an expected life of 5 years for the 1994 plan. Under the accounting provisions of SFAS 123, the Company's net income and earnings per share would have been reduced by the following pro forma amounts indicated below:
(IN THOUSANDS EXCEPT PER SHARE DATA) 1997 1996 - ---------------------------------------------------------------- Impact Net Income As Reported $19,372 $15,410 Pro Forma 19,087 15,234 Earnings Per Share As Reported $ 4.73 $ 3.87 Proforma 4.66 3.83
A summary of the Company's two fixed stock option plans as of November 30, 1996 and 1997, and changes during the years ending on those dates is presented below:
Number of Weighted Average Shares Exercise Price - ----------------------------------------------------------------------------- Outstanding at November 30, 1995 228,334 $37.07 Granted 107,000 39.32 Exercised (23,775) 32.65 Forfeited (19,300) 36.40 ------- Outstanding at November 30, 1996 292,259 37.47 ------- ------- Options Exercisable at Year-end 49,975 36.65 ------- ------- Weighted-Average Fair Value of Options Granted During the Year $12.63 OUTSTANDING AT NOVEMBER 30, 1996 292,259 $39.22 GRANTED 55,000 48.54 EXERCISED (20,375) 33.86 FORFEITED (5,150) 38.60 ------- OUTSTANDING AT NOVEMBER 30, 1997 321,734 39.57 ------- ------- OPTIONS EXERCISABLE AT YEAR-END 172,359 36.96 ------- ------- WEIGHTED-AVERAGE FAIR VALUE OF OPTIONS GRANTED DURING THE YEAR $15.27
The following table summarizes information about stock options outstanding as of November 30, 1997:
Number Weighted Average Weighted Range of Exercisable at Remaining Average Exercised Prices November 30, 1997 Contractual Life Exercise Price - ------------------------------------------------------------------------------------------- $ 0 to $35.00 46,300 6.27 $32.39 35 to 45.00 226,934 7.34 38.35 45 to 55.00 48,500 9.20 49.75 -------- 0 to 55.00 321,734 7.47 39.21 -------- --------
Number Weighted Range of Outstanding at Average Exercised Prices November 30, 1997 Exercise Price - ------------------------------------------------------------------------------------------- $ 0 to $35.00 39,800 $32.33 35 to 45.00 132,559 38.35 45 to 55.00 -- -- -------- 0 to 55.00 172,359 36.96 -------- --------
NOTE FIFTEEN: CONTINGENCIES & 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 Court 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 analysis 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 effect on the financial position of the Company or its results of operations. In addition, certain other claims, suits and complaints that arise in the ordinary course of business, have been filed or are pending against the Company. Management believes that these matters, and the matters discussed above, are either adequately reserved, covered by insurance, or would not have a material effect on the 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 effect on the Company's financial position or its results of operations. At November 30, 1997, the Company had reserves of $11,805,000 for potential environmental liabilities and $7,424,000 associated with product liability and other legal claims. NOTE SIXTEEN: 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 be established by the Board of Directors. As of November 30, 1997, 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 SEVENTEEN: BUSINESS SEGMENTS & GEOGRAPHIC AREAS Financial information for 1997, 1996 and 1995, with respect to the various business segments of the Company, appears on pages 60 and 61. QUARTERLY FINANCIAL DATA (UNAUDITED) Summarized quarterly financial data for the years ended November 30, 1997 and 1996, follow:
1997 ----------------------------------------- (IN THOUSANDS First Second Third Fourth EXCEPT PER SHARE DATA) Quarter Quarter Quarter Quarter - -------------------------------------------------------------------- SALES $108,261 $131,525 $146,323 $147,397 GROSS PROFIT 27,683 35,208 38,490 34,302 NET INCOME 938 5,270 7,050 6,114 NET INCOME PER SHARE .23 1.30 1.72 1.48
1996 ----------------------------------------- (IN THOUSANDS First Second Third Fourth EXCEPT PER SHARE DATA) Quarter Quarter Quarter Quarter - -------------------------------------------------------------------- Sales $111,752 $120,632 $133,622 $130,934 Gross Profit 25,363 30,852 36,220 36,828 Net Income 475 4,350 5,972 4,613 Net Income per Share .12 1.09 1.50 1.16
The Company traditionally experiences lower sales during the first fiscal quarter because of seasonal patterns associated with weather and contractor schedules. PER SHARE DATA
Stock Price Dividends ------------------------------------------------ Quarter Ended 1997 1996 1997 1996 - -------------------------------------------------------------------------- February 28 & 29 -High $52 1/2 $39 1/8 $ .32 $ .32 -Low 46 3/8 36 May 31 -High 55 1/2 41 3/4 .32 .32 -Low 47 5/8 37 3/8 August 31 -High 58 5/8 41 5/8 .32 .32 -Low 54 34 1/8 November 30 -High 70 50 .32 .32 -Low 58 1/8 36 1/8
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS TO THE STOCKHOLDERS & THE BOARD OF DIRECTORS, AMERON INTERNATIONAL CORPORATION: We have audited the accompanying consolidated balance sheets of Ameron International Corporation (a Delaware corporation) and subsidiaries as of November 30, 1997 and 1996, and the related consolidated statements of income, cash flows and stockholders' equity for each of the three years in the period ended November 30, 1997. 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 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 provide a reasonable basis for our opinion. In our opinion, based on our audits, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Ameron International Corporation and subsidiaries as of November 30, 1997 and 1996, and the results of their operations and their cash flows for each of the three years in the period ended November 30, 1997, in conformity with generally accepted accounting principles. /s/ ARTHUR ANDERSEN LLP ARTHUR ANDERSEN LLP Los Angeles, California January 19, 1998 REPORT OF MANAGEMENT We have prepared the accompanying consolidated financial statements and related financial information of Ameron International Corporation 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 three 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 /s/ GARY WAGNER JAMES S. MARLEN GARY WAGNER Chairman of the Board, Senior Vice President President & Chief Executive Officer & Chief Financial Officer BUSINESS SEGMENTS Ameron classifies its business operations into four segments. The Protective Coatings Group manufactures and markets high-performance industrial and marine coatings. The Fiberglass Pipe Group manufactures and markets filament-wound and molded composite fiberglass pipe, tubing, fittings and well screens. The Concrete & Steel Pipe Group manufactures and supplies concrete and steel pressure pipe, concrete non-pressure pipe, protective linings for pipe, and fabricated products. The Construction & Allied Products Group manufactures and sells ready-mix concrete, sand and aggregates, concrete pipe, and concrete and steel lighting and traffic poles. Intersegment sales were not significant. Income from reportable segments is exclusive of certain unallocated income and expense. Identifiable assets by segment are those assets that are used exclusively by such segment. Unallocated assets are principally cash, corporate property and equipment, and investments. Capital expenditures do not include plant and equipment for business acquisitions. A summary of sales, income (loss), assets, depreciation and capital expenditures by segment follows:
BUSINESS SEGMENTS ------------------------------------------------------------------------------------------ Protective Fiberglass Concrete & Construction & (DOLLARS IN THOUSANDS ) Coatings Pipe Steel Pipe Allied Products Unallocated Consolidated - ------------------------------------------------------------------------------------------------------------------------------- 1997 SALES $190,690 $102,453 $145,599 $ 94,764 $ -- $533,506 INCOME (LOSS) BEFORE INTEREST AND INCOME TAXES 16,775 12,293 15,172 9,919 (11,058) 43,101 IDENTIFIABLE ASSETS 119,716 78,683 91,088 60,954 82,784 433,225 CAPITAL EXPENDITURES 4,259 8,466 7,383 3,253 1,499 24,860 DEPRECIATION 2,698 3,706 3,935 4,200 1,190 15,729 - ------------------------------------------------------------------------------------------------------------------------------- 1996 Sales $142,562 $104,056 $148,528 $ 101,794 $ -- $496,940 Income (loss) before interest and income taxes 10,073 10,052 17,936 10,680 (14,282) 34,459 Identifiable assets 106,917 76,610 82,811 60,906 84,422 411,666 Capital expenditures 4,475 2,876 2,411 14,490 975 25,227 Depreciation 2,435 3,804 4,072 4,487 1,280 16,078 - ------------------------------------------------------------------------------------------------------------------------------- 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 (8,686) 29,013 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 - -------------------------------------------------------------------------------------------------------------------------------
GEOGRAPHIC AREAS The markets served by the Protective Coatings Group and the Fiberglass Pipe Group are worldwide in scope. The Concrete & Steel Pipe Group serves primarily the western United States. Ameron Hawaii operates exclusively in the State of Hawaii, and the Pole Products Division sells mainly 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 areas is as follows:
GEOGRAPHIC AREAS ----------------------------------------------------------------------- United Investments & (DOLLARS IN THOUSANDS ) States Europe Other Eliminations Consolidated - ------------------------------------------------------------------------------------------------------------------------------ 1997 SALES TO UNAFFILIATED CUSTOMERS $434,839 $67,328 $31,339 $ -- $533,506 INTERCOMPANY SALES BETWEEN GEOGRAPHIC AREAS 1,829 7,189 2,507 (11,525) -- ----------------------------------------------------------------------- TOTAL SALES $436,668 $74,517 $33,846 $(11,525) $533,506 ----------------------------------------------------------------------- ----------------------------------------------------------------------- INCOME BEFORE INTEREST AND INCOME TAXES $ 29,638 $ 2,838 $ 6,635 $ 3,990 $ 43,101 IDENTIFIABLE ASSETS 315,776 55,839 27,833 33,777 433,225 - ------------------------------------------------------------------------------------------------------------------------------ 1996 Sales to unaffiliated customers $396,904 $64,634 $35,402 $ -- $496,940 Intercompany sales between geographic areas 4,705 932 5,637 (11,274) -- ----------------------------------------------------------------------- Total sales $401,609 $65,566 $41,039 $(11,274) $496,940 ----------------------------------------------------------------------- ----------------------------------------------------------------------- Income before interest and income taxes $ 22,556 $ 1,579 $ 8,026 $ 2,298 $ 34,459 Identifiable assets 288,017 61,951 27,976 33,722 411,666 - ------------------------------------------------------------------------------------------------------------------------------ 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 $ 3,844 $ 29,013 Identifiable assets 253,734 56,315 25,135 36,197 371,381 - ------------------------------------------------------------------------------------------------------------------------------
EX-21 5 EX21 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 Amercoat Japan Company, Limited Japan 100 Ameron Malaysia Sdn. Bhd. Malaysia 100 Ameron (Pte) Ltd. Singapore 100 Centron International, Inc. Delaware 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.
EX-23 6 EX23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our reports included and incorporated by reference in this Form 10-K, into the Company's previously filed Registration Statements (File No. 33-3400, 33-57308, 33-59697 and 333-36497). ARTHUR ANDERSEN LLP Los Angeles, California February 26, 1998 EX-27 7 EX27
5 1,000 YEAR NOV-30-1997 DEC-01-1996 NOV-30-1997 9,848 0 122,352 0 95,752 241,292 127,678 0 433,225 87,265 0 0 0 12,946 0 433,225 533,506 533,506 397,823 0 103,075 0 12,433 31,246 11,874 19,372 0 0 0 19,372 4.73 0
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