Notes One: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The consolidated financial statements include the accounts of Ameron International Corporation and all wholly - owned subsidiaries (“Ameron” or 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 certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses. Significant estimates include revenue and costs recorded under percentage of completion accounting, assumptions related to benefit plans, goodwill, and reserves associated with management incentives, receivables, inventories, income taxes, self insurance and environmental and legal contingencies. Actual results could differ from those estimates.

Revenue Recognition

Revenue for the Performance Coatings & Finishes, Fiberglass - Composite Pipe and Infrastructure Products segments is recognized when risk of ownership and title pass, primarily at the time goods are shipped, provided that an agreement exists between the customer and the Company, the price is fixed or determinable and collection is reasonably assured. In limited circumstances within the Performance Coatings & Finishes Group, revenue recognition associated with shipment of coatings for marine dry dockings is delayed until product returns are processed. Revenue is recognized for the Water Transmission Group primarily under the percentage-of-completion method, typically based on completed units of production, since products manufactured under enforceable and binding construction contracts typically are designed for specific applications, are not interchangeable between projects, and are not manufactured for stock. In some cases, if products are manufactured for stock or are not related to specific construction contracts, revenue is recognized under the same criteria used by the other three segments. Revenue under the percentage-of-completion method is subject to a greater level of estimation, which affects the timing of revenue recognition, costs and profits. Estimates are reviewed on a consistent basis and are adjusted periodically to reflect current expectations.

Research and Development Costs

Research and development costs, which relate primarily to the development, design and testing of products, are expensed as
incurred. Such costs, which are included in selling, general and administrative expenses, were approximately $5,653,000 in 2003, $4,356,000 in 2002, and $5,550,000 in 2001.

Environmental Clean-up Costs

The Company expenses environmental clean-up costs related to existing conditions resulting from pastor current operations. The Company determines its liability on a site-by-site basis and records a liability at the time when assessments and / or
remediation are probable and can be reasonably estimated.

Income Taxes

Deferred income tax assets and liabilities are computed for differences between the financial statement and income tax bases
of assets and liabilities. Such defer red income tax asset and liability computations are based on enacted tax laws and rates
applicable to periods in which the differences are expected to reverse. Valuation allowances are established to reduce deferred
income tax assets to the amounts expected to be realized.

Net Income Per Share

Basic net income per share is computed on the basis of the weighted average number of common shares outstanding during the periods presented. Diluted net income per share is computed on the basis of the weighted average number of common shares outstanding plus the effect of outstanding stock options and restricted stock, using the treasury stock method.

Cash and Cash Equivalents

Cash equivalents represent liquid investments with maturities of three months or less when purchased.

Inventory Valuation

Inventories are stated at the lower of cost or market with cost determined principally on the first-in, first-out (FIFO) method.
Certain steel inventories used by the Water Transmission Group are valued using the last-in, first-out (LIFO) method. Reserves are established for excess, obsolete and rework inventories based on age, estimates of salability and forecasted future demand.

Joint Ventures

Investments in unconsolidated joint ventures or affiliates (“joint ventures”) over which t he Company has significant influence are
accounted for under the equity method of accounting, whereby the investment is carried at the cost of acquisition, plus the Company’s equity in undistributed earnings or losses since acquisition. Investments in joint ventures over which t he Company does not have the ability to exert significant influence over the investee’s operating and financing activities are accounted for under the cost method of accounting. The Company’s investment in TAMCO is accounted for under the equity method. Investments in Ameron Saudi Arabia, Ltd., Bondstrand, Ltd. and Oasis-Ameron, Ltd. are accounted for under the cost method due to management’s current assessment of the Company’s influence over these joint ventures.

Property, Plant and Equipment

Items capitalized as property, plant and equipment, including improvements to existing facilities, are recorded at cost. Construction in progress represents capital expenditures incurred for assets not yet placed in service. Capitalized interest was not material for the periods presented.

Depreciation is computed principally using the straight-line method based on estimated useful lives of the assets. Leasehold
improvements are amortized over the shorter of the life of the improvement or the term of the lease. Useful lives are as follows:

Goodwill and Intangible Assets

Intangible assets are amortized on a straight-line basis over periods ranging from three to 15 years.

The cost of an acquired business is allocated to the net assets acquired based on the estimated fair values at the date of acquisition. The excess of the cost of an acquired business over the aggregate fair value is recorded as goodwill. Goodwill is not amortized, but instead tested for impairment at least annually. Such tests require management to make estimates about future cash flows and other factors to determine the fair value of the respective assets. Prior to 2003, goodwill was amortized using the straight-line method over periods ranging up to 40 years.

The Company reviews the recoverability of intangible and other long-lived assets for impairment whenever events or changes in
circumstances indicate that the carrying value of such assets may not be recoverable. If the estimated future, undiscounted cash flows from the use of an asset are less than its carrying value, a writedown is recorded to reduce the related asset to estimated fair value.

Self Insurance

The Company typically utilizes third party insurance subject to varying retention levels or self insurance. The Company is self
insured for a portion of the losses and liabilities primarily associated with workers’ compensation claims and general,
product and vehicle liability. Losses are accrued based upon the Company’s estimates of the aggregate liability for claims incurred using historical experience and certain actuarial assumptions followed in the insurance industry. The estimate of self insurance liability includes an estimate of incurred but not reported claims, based on data compiled from historical experience.

Foreign Currency Translation

The functional currencies for the Company’s foreign operations are the applicable local currencies. 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 in accumulated other comprehensive loss. The Company advances funds to
certain foreign subsidiaries that are not expected to be repaid in the foreseeable future. Translation adjustments arising from these
advances are also included in accumulated other comprehensive loss. 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, primarily foreign exchange contracts, 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. As of November 30, 2003 and
2002 the Company had foreign currency forward contracts with an aggregate face value of approximately $9,367,000 and
$6,623,000, respectively.

Fair Value of Financial Instruments

The fair value of financial instruments,other than long-term debt, approximates the carrying value because of the short-term nature of such instruments.

Concentration of Credit Risk

Financial instruments that subject the Company to credit risk consist primarily of cash equivalents, trade accounts receivable, and forward foreign exchange contracts. Credit risk with respect to trade accounts receivable is generally distributed over a large number of entities comprising the Company’s customer base and is geographically dispersed. The Company performs ongoing credit evaluations of its customers, maintains an allowance for potential credit losses and, in certain instances, maintains credit insurance. The Company actively evaluates the credit worthiness of the financial institutions with which it conducts business.

Stock-Based Compensation

The Company recognizes compensation expense associated with stock-based awards under the recognition and measurement
principles of Accounting Principles Board (“A P B”) No. 25, “Accounting for Stock Issued to Employees”, and related
interpretations. Accordingly, compensation cost is measured by the excess of the quoted market price of the stock over the option price on the grant date. No compensation expense associated with a stock-based award is recorded if the stock option exercise price equals the market price of the Company’s stock on the date of the grant.

In December 2002, the Financial Accounting Standards Board ( “FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 148, “Accounting for Stock - Based Compensation - Transition and Disclosures.” SFAS No. 148 amends SFAS No. 123, “Accounting for Stock-Based Compensation,”and provides alternative methods of transition for a voluntary change to the fair-value-based method of accounting for stock-based employee compensation. SFAS No. 148 also amends the disclosure requirements of SFAS No. 123 to include pro forma presentation of net income and earnings per share as if the Company recorded compensation expense based on the fair value of stock-based awards. The Company has adopted the disclosure-only provisions of SFAS No. 123. (See Note 12.)

Accounting Changes

Effective December 1, 2002, the Company adopted SFAS No. 142, “Goodwill and Other Intangible Assets.” In accordance with SFAS No. 142, goodwill is no longer amortized, but instead tested for impairment at least annually. Prior to 2003, goodwill was amortized using the straight-line method over its estimated period of benefit.

Effective December 1, 2002, the Company adopted SFAS No. 143, “Accounting for Asset Retirement obligations.” The standard applies to legal obligations associated with the retirement of long-lived assets that result from the acquisition , construction, development and/or normal use of the assets. The statement requires that the fair value of the liability for an asset retirement obligation be recorded when incurred if a reasonable estimate of fair value can be made. The fair value of the liability is added to the carrying amount of the associated asset and this additional carrying amount is depreciated over the life of the asset. If the liability is settled for an amount other than the recorded balance, either a gain or loss will be recognized at settlement.The adoption of SFAS No. 143 did not have a material impact on the Company’s consolidated financial statements.

Effective December 1, 2002, the Company adopted SFAS No. 144, “Impairment or Disposal of Long-Lived Assets.” SFAS No. 144 addresses financial accounting and reporting for the Impairment or disposal of long-lived assets, provides guidance on implementation issues related to SFAS No. 121,“Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,” and addresses the accounting for a segment of a business accounted for as a discontinued operation. The adoption of SFAS No. 144 did not have a material impact on the Company’s consolidated financial statements.

Effective December 1, 2002, the Company adopted SFAS No. 145, “Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections.” SFAS No. 145 rescinds both SFAS No. 4, “Reporting Gains and Losses from Extinguishment of Debt” and SFAS No. 64, “Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements.” In so doing, SFAS No. 145 eliminates the requirement that gains and losses from the Extinguishment of debt be aggregated, and, if material, classified as an extraordinary item, net of the related income tax effect, unless the criteria in APB Opinion No. 30, “Reporting the Results of Operations-Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions” are met. SFAS No. 145 amends SFAS No. 13, “Accounting for Leases,” to require that certain lease modifications that have economic effects similar to sale-leaseback transactions are accounted for in the same manner as sale-lease back transactions. The adoption of SFAS No. 145 did not have a material impact on the Company’s consolidated financial statements.

The Company adopted SFAS No. 146, “Accounting for Exit or Disposal Activities,” during the quarter ended February 28, 2003. SFAS No. 146 addresses issues regarding the recognition, measurement and reporting of costs that are associated with exit and disposal activities, including restructuring activities that are currently accounted for pursuant to the guidance that the Emerging Issues Task Force has set forth in Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring).”The provisions of SFAS No. 146 are effective for Exit or disposal activities that are initiated after December 31, 2002. The adoption of SFAS No. 146 did not have a material impact on the Company’s consolidated financial statements.

In November 2002, the FASB issued FASB Interpretation (“FIN”) No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.” FIN No. 45 elaborates on the disclosures to be made by a guarantor about its obligations under certain guarantees. FIN No. 45 also clarifies that a guarantor is required to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. FIN No. 45 specifically identifies certain obligations that are excluded from the provisions related to recognizing a liability at inception; however, these guarantees are subject to the disclosure requirements of FIN No. 45. The initial recognition and measurement provisions of FIN No. 45 are applicable on a prospective basis to guarantees issued or modified after December 31, 2002. The Company’s disclosure of guarantees is included in Note 7, herein. The adoption of the recognition and measurement provisions of FIN No. 45 did not have a material impact on the Company’s consolidated financial statements.

New Accounting Pronouncements

FIN No. 46, “Consolidation of Variable Interest Entities” was issued in January 2003 and revised in December 2003. FIN clarifies the application of Accounting Research Bulletin No. 51, “Consolidated Financial Statements,” and addresses consolidation by business enterprises of variable interest entities. FIN No. 46 requires existing unconsolidated variable interest entities to be consolidated by their primary beneficiaries if the entities do not effectively disperse risk among the parties involved. FIN No. 46 also enhances the disclosure requirements related to variable interest entities. This statement is effective for the Company for variable interest entities in the quarter ending May 31, 2004. The adoption of FIN No. 46 is not expected to have a material impact on the Company’s consolidated financial statements.

In April 2003, the FASB issued SFAS No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities.” SFAS No. 149 amends and clarifies financial accounting and reporting for derivative instruments under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities.” SFAS No. 149 requires that contracts with comparable characteristics be accounted for similarly. In particular, SFAS No. 149 (1) clarifies under what circumstances a contract with an initial net investment meets the characteristic of a derivative discussed in paragraph 6(b) of Statement No. 133, (2) clarifies when a derivative contains a financing component, (3) amends the definition of an underlying to conform it to language used in FIN No. 45,“Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others,” and (4) amends certain other existing pronouncements. SFAS No. 149 will result in more consistent reporting of contracts as either derivatives or hybrid instruments. SFAS No. 149 is effective prospectively for contracts entered into or modified after June 30, 2003, except in certain circumstances, and for hedging relationships designated after June 30, 2003. The adoption of SFAS No. 149 did not have a material impact on the Company’s consolidated financial statements.

On May 15, 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity,” which was effective May 31, 2003 for all new and modified financial instruments. SFAS No. 150 changes the accounting for certain financial instruments that, under previous guidance, issuers could account for as equity. SFAS No. 150 requires that those instruments be classified as liabilities (or assets in some circumstances). The adoption of SFAS No. 150 did not have a material impact on the Company’s consolidated financial statements.