Water Transmission Group

The Water Transmission Group had sales of $154.2 million in 2004 compared to $165.5 million in 2003. The $11.3 million sales decrease was due to the completion of a number of major projects in 2003, government financing constraints which has affected the scheduling of projects and soft market conditions for water infrastructure systems in the western U.S. In addition, sales of protective lining products for concrete sewer pipe declined due to competitive pressures from alternative suppliers and products. Also, the business had labor strikes at two Southern California plants that caused disruption of production scheduling. During 2004, the San Francisco/Oakland Bay Bridge project, for which the Water Transmission Group supplied approximately $65 million of specialized steel bridge pilings over a two-year period, was completed.

Segment income in 2004 totaled $13.5 million, compared to $26.6 million in 2003. The $13.1 million decline in segment income is attributable to the lower sales volume, margin pressures due to the soft market environment, underutilization of capacity, inefficiencies attributable to the labor strike, and higher workers' compensation costs. In addition, dividends received from Ameron Saudi Arabia, Ltd., ASAL, Ameron's 30%-owned concrete pipe venture in Saudi Arabia, were down $2.6 million in 2004, compared to 2003.

Late in 2004, a series of phases for a large project in Northern California were successfully bid, resulting in a year-end backlog of $155 million, compared to a backlog of $100 million at the beginning of 2004. The backlog provides a strong base entering 2005; however, the overall market in the western U.S. remains soft. Longer term, the need to expand and upgrade the water infrastructure in the western U.S. should provide for stronger market conditions.

Fiberglass-Composite Pipe Group

The Fiberglass-Composite Pipe Group had sales of $116.3 million in 2004, compared with $114.6 million in 2003. The $1.7 million increase in sales was due to the impact of foreign exchange rates and improved sales from Ameron's Asian operations, which partially offset the lower sales in the U.S. and Europe. The Asian operations, located in Singapore and Malaysia and which serve the marine construction markets in Korea, China, Japan and Singapore, have benefited from the continued strong demand for oil tankers and offshore production vessels. The industrial markets in the U.S. and Europe remained slow due to general economic conditions and the shift of new chemical and industrial manufacturing to Asia and other developing countries. The onshore oilfield market demand for fiberglass pipe and tubing worldwide was flat despite the high oil price environment as the major oil companies concentrated capital spending on larger offshore projects.

Segment income in 2004 was $21.4 million, compared with $21.9 million in 2003. Segment income in 2003 included $3.0 million of income from Bondstrand, Ltd., Ameron's 40%-owned fiberglass pipe venture in Saudi Arabia, while no such income was recognized in 2004, as dividend payments were not received. Segment income from core operations increased $2.5 million in 2004 due principally to higher sales and margins from better product mix and improving conditions in worldwide oilfield markets.

The Fiberglass-Composite Pipe Group outlook is positive due to the strength of worldwide marine and offshore construction, anticipated recovery of industrial markets, growth prospects in the oilfield markets and internal strategies to further penetrate onshore markets in Asia and the Middle East.

Infrastructure Products Group

The Infrastructure Products Group had sales of $136.3 million in 2004, compared with $130.5 million in 2003. The increased sales of $5.8 million were due primarily to higher sales of concrete and steel pole products and slightly higher sales at Ameron's Hawaiian operation. The Pole Products operation had higher sales in both the decorative concrete pole line and the steel pole line. The increase was derived principally from improved sales in Southern California due to the continued strength in the housing market and the Southeast market region where the business continues to make good progress in penetrating the market. The Hawaiian operation was adversely affected by a two-month labor strike on Oahu that shut down all quarry operations and most ready-mix operations, and also by extremely wet weather early in the year.

Segment income totaled $14.5 million in 2004, a decrease of $1.0 million from 2003. The Pole Products operation had higher segment income as a result of the increased sales volume, while the Hawaiian operation had lower segment income due to weather and the two-month strike which caused inefficiencies in quarry operations.

The outlook for the Infrastructure Products Group is positive based on the forecasted construction market in Hawaii and the continued strong housing market forecasted for the West and Southeast regions.

Performance Coatings & Finishes Group

The Performance Coatings & Finishes Group had sales of $199.6 million in 2004, compared with $190.3 million in 2003. The sales increase of $9.3 million is attributable to the effects of the strengthening of foreign currencies (primarily the Euro) versus the U.S. dollar. Excluding the impact of foreign exchange rates, sales declined in Europe and the U.S., while sales by the Australasian operations increased. Australasian operations achieved higher sales principally on the strength of the coil coatings business in New Zealand. Operations in the U.S. and Europe continued to struggle with demand from chemical and industrial markets.

Segment income totaled $4.5 million in 2004, compared with $9.4 million in 2003. The $4.9 million decrease in segment income was attributable to margin pressures in Europe on sales into U.S. dollar-denominated markets, lower plant utilization in the U.S., higher selling, general and administrative expenses and margin pressure associated with the competitive market conditions and rising raw material costs. Operations in New Zealand continued to perform well. In response to business conditions, restructuring programs in the U.S. and in Europe were initiated early in 2005. In addition, given the increasing cost of key raw materials, selling price increases were announced worldwide.

The outlook for the business is uncertain as chemical and industrial markets have not yet demonstrated any major recovery trend.

Joint Ventures

Ameron's primary joint-venture companies had sales of approximately $280 million in 2004, compared with $228 million in 2003. The significant increase ($52 million or 22.8%) was due principally to higher shipments and higher selling prices at TAMCO, a 50%-owned steel mini-mill in California.

TAMCO had net income of $23.4 million in 2004, compared to earnings of $1.3 million in 2003. Ameron's share of TAMCO's 2004 earnings, which is accounted for under the equity method, totaled $10.8 million after taxes. The joint-venture companies based in Saudi Arabia are accounted for under the cost method. From an operating standpoint, Bondstrand, Ltd. and Oasis-Ameron, Ltd., a 40%-owned coatings venture in Saudi Arabia, performed well due to the strength of oilfield and infrastructure markets in Saudi Arabia. ASAL experienced a cyclical lull and increased competition from alternative products.

Business conditions are expected to moderate at TAMCO but should still be solid, while market conditions in Saudi Arabia should be steady.