Water Transmission Group

The Water Transmission Group had sales of $165.5 million in 2003, an increase of $20.5 million from last year. Segment income of $26.6 million in 2003 was down slightly from last year's income of $27.3 million. The decline in segment income was attributable to higher pension and insurance costs, increased product development costs and a change in product mix, with the lower-margin San Francisco-Oakland Bay Bridge project representing a greater portion of total Group sales in 2003. The increase in product development cost represents research and engineering costs to develop a new sand-filled fiberglass pipe for the national sewer rehabilitation market. The sales increase is an example of the Group's diversification program into products other than water piping such as specialized bridge pilings.

The short-term outlook for the Water Transmission Group is cautious in that, although sales should remain high due to continued production for the San Francisco-Oakland Bay Bridge project, the temporary slowdown in bid activity for major core-market projects in California will impact product mix. The order backlog at the end of 2003 was $100 million which was down from the $152 million at the end of 2002, reflecting the recent lull in bidding activity for water projects in the western U.S. Longer term, the market should recover as there will continue to be a strong need to expand and upgrade the water infrastructure system in the western U.S. to meet the population growth.

Fiberglass-Composite Pipe Group

Fiberglass-Composite Pipe Group sales totaled $114.6 million in 2003, compared to $88.4 million in 2002, an increase of $26.2 million. Segment income improved to $21.9 million in 2003, an increase of $11.0 million from 2002. All fiberglass pipe operations had higher sales and segment income in 2003, with the most significant gains occurring in Ameron's Asian operations based in Singapore and Malaysia. European operations improved significantly due to higher sales, improved margins from lower raw material costs, and the benefits of restructuring actions implemented late in 2002 and early 2003. U.S. operations, including Centron International, had higher segment income as a result of the sales improvement, which occurred both in the onshore oilfield market and the offshore market. U.S. operations also benefited from improved margins due to lower raw material costs. The Asian operations served the growing demand of the marine and offshore markets, primarily in Korea, as well as strong industrial demand in the region. Segment income increased significantly in Asia due to the sales volume gains, improved manufacturing productivity and lower raw material costs.

The outlook for the Fiberglass-Composite Pipe Group is favorable due to the steadily improving oilfield demand, recovery of chemical and industrial markets in the U.S. and Europe, and the continued growth in the marine and offshore markets.

Infrastructure Products Group

The Infrastructure Products Group had sales of $130.5 million in 2003, compared to $123.6 million in 2002, an increase of $6.9 million. Both the Pole Products operation and the Hawaiian operation achieved higher sales. Pole Products had higher decorative concrete pole sales for street lighting applications in the southeastern U.S. and in California, which more than offset lower sales of steel poles used primarily in highway lighting and traffic control signal applications. The increase in concrete pole sales was attributable to the continued strength in the residential housing market, which has been favorably impacted by the low interest rate environment and market expansion progress made in the southeastern U.S. In Hawaii, the increase in sales also reflected the continued strength of the residential housing market, improved commercial construction activity and increased government and military construction spending, primarily for base housing requirements. The Infrastructure Products Group had lower segment income, $15.5 million in 2003, compared to $17.0 million in 2002. The decline was attributable principally to higher insurance and pension costs, which offset the increase in earnings associated with the higher sales level.

The outlook for both the Pole Products operation and the Hawaiian operation is favorable as the near-term forecast of construction activity in Oahu and Maui is solid, and the continued strength expected in the U.S. housing market should benefit pole sales.

Performance Coatings & Finishes Group

The Performance Coatings & Finishes Group had sales of $190.3 million in 2003, compared to $183.3 million in 2002, an increase of $7.0 million. Segment income of $9.4 million was slightly higher than the $9.1 million earned in 2002. The sales increase was due to the favorable effect of exchange rates; primarily the weak U.S. dollar versus the euro. Excluding the exchange rate impact, sales declined in local currencies. European operations' sales volume was relatively flat, U.S. operations were lower than in 2002, and Australasia operations' sales were also lower. The lower sales were attributable principally to the weak chemical and industrial markets worldwide, while the key marine and offshore markets outside the U.S. improved. In spite of the increased sales, segment income, although higher, was constrained by lower European margins due to competition in certain U.S. dollar-denominated markets served by European operations, and higher insurance and pension costs. Lower SG&A expenses associated with restructuring programs in both the U.S. and Europe more than offset the increased pension and insurance costs.

The outlook for the Performance Coatings & Finishes Group is dependent on recovery of capital spending and maintenance programs in the chemical and industrial markets in the U.S. and Europe. The business should benefit from the economic recovery, and the marine and offshore markets should strengthen worldwide.

Joint Ventures

Ameron's primary joint-venture companies had higher sales in 2003, increasing from $208.4 million in 2002 to $228.8 million. The increase was due primarily to higher volume and selling prices at TAMCO, higher fiberglass pipe sales by Bondstrand, Ltd., and higher performance coatings sales at oasis-Ameron, Ltd., offset partially by lower concrete pipe sales by Ameron Saudi Arabia, Ltd. Income from joint-venture companies was down primarily as a result of lower earnings at TAMCO, due to higher energy costs and rapidly rising scrap costs. Selling price increases continue to be implemented by TAMCO to offset the escalating scrap cost caused by heavy offshore demand.