JAMES S. MARLEN

Chairman of the Board,
President and Chief
Executive Officer

“Total consolidated and non-consolidated sales exceeded $1 billion for the first time in Company history. Ameron has been successful in building and sustaining earnings momentum. This has translated into value creation and total returns to shareholders of nearly 200% over the last five years.”

Ameron achieved record sales, net income and earnings per share in 2005. Consolidated sales reached $704.6 million in 2005, an increase of $98.7 million or 16%, compared to 2004. In addition, sales of our non-consolidated joint-venture companies totaled $308 million and, therefore, total consolidated and non-consolidated sales exceeded $1 billion for the first time in Company history. The record earnings performance included net income of $32.6 million and earnings per share of $3.80. These results compared to net income of $13.5 million and earnings per share of $1.59 in 2004. The financial results in 2004 included a special, one-time charge of $14.9 million after taxes, or $1.77 per share, related to the termination of two executive benefit plans.

Building and sustaining earnings momentum is our key strategic mission as it translates into greater shareholder returns and the creation of shareholder value. Ameron has achieved a consistent upward trend in earnings and, since 1992 when earnings totaled $0.77 per share, earnings have grown at a compounded average annual rate of 13%. Similarly, Ameron shareholders have been rewarded as total shareholder returns over the past five years have totaled nearly 200%, which far outpaces major market indices and our peer group of companies.

Importantly, the record performance in 2005 was broad-based as all operating units made positive contributions. Sales increased in all businesses and reached record levels in the Water Transmission, Fiberglass-Composite Pipe and Infrastructure Products Groups. TAMCO, Ameron's 50%-owned steel mini-mill located in Southern California, also achieved record sales. Below is a brief recap of the operational performance by business:

The Water Transmission Group had an outstanding year with a significant year-over-year improvement in both sales and segment income. The improved financial performance was attributable principally to supplying a large, high value-added water project in Northern California and to the increased demand for the Company's T-Lock® polyvinyl chloride protective linings. The increase in segment income was due to the record sales, and also 2004 results had been negatively impacted by short-term labor strikes. "Total consolidated and non-consolidated sales exceeded $1 billion for the first time in Company history. Ameron has been successful in building and sustaining earnings momentum. This has translated into value creation and total returns to shareholders of nearly 200% over the last five years."

Water projects in the western U.S. have slowed, due primarily to a cyclical decline in the market, but the slow market conditions are expected to be short lived. Longer term, the demand for upgraded and expanded water infrastructure systems, which are driven by population growth, demographics and the aging national water system, is expected to be positive. To counter the cyclical market lull, the Water Transmission Group has focused on product diversification programs and selective geographic expansion. Near-term opportunities include potential major water transmission projects in Northern Mexico and the introduction of large-diameter wind towers to support the growing wind-energy market. While the backlog entering 2006 is solid, the business is not expected to repeat the recent historically high level of financial performance; but the fundamentals for continued strong performance are sound.

The Infrastructure Products Group had significantly higher sales and income as both Ameron's Hawaiian and Pole Products operations had strong performances. Both businesses benefited from the continued strength of the construction sector. In addition, the Hawaiian operations also benefited in the year-overyear comparison, as it had been adversely impacted by a labor strike in 2004 that affected operating efficiencies and sales volume.

There are a number of positive market indicators entering 2006 that should bode well for our operations. In Hawaii, the construction sector is strong, and it includes most segments such as residential, military and commercial. As a market leader in ready-mix concrete and aggregates on Oahu and Maui, Ameron's Hawaiian operations should have another good performance in 2006. The Pole Products operation depends on the housing market and infrastructure spending, especially in California. The housing market remains solid in California and in the southeastern U.S. where the Pole Products business has made excellent strides in penetrating the market for decorative concrete lighting poles. It is noteworthy that the Ameron concrete pole plant recently constructed in Anniston, Alabama to serve the southeastern U.S. region is operating at capacity, and plans are being developed to expand the operation. Expansion of the facility would provide the capacity, added manufacturing capabilities and customer service to support the growth anticipated in the region. All in all, the Infrastructure Products Group should continue to achieve profitable growth.

The Fiberglass-Composite Pipe Group had record sales and segment income in 2005. The improved financial performance was driven primarily by increased demand for onshore oilfield piping, primarily in the U.S. and Canada, continued strength in the marine market and growth in industrial projects in the Middle East. While segment income increased, the improvement was not commensurate with the sales gain due partly to product and market mix conditions.

The primary drivers of the Fiberglass-Composite Pipe Group are oil prices and the effect the price level has on exploration and production spending by the oil companies worldwide. With the continued high price of oil, the Fiberglass-Composite Pipe Group has experienced increased demand in their primary market segments-marine, offshore, onshore oilfield and the fuel-handling market in the U.S. These conditions are expected to continue and, in addition, progress is being made in penetrating the large Middle East market for industrial-related projects. For further growth opportunities, the business will be focusing on the introduction of a new product line designed to penetrate the U.S. water and wastewater market. Additional investment opportunities are being pursued in South America, the Middle East and North Africa. To support the growth, we have constructed a new fiberglass pipe plant in Malaysia. The plant is undergoing final qualification tests and will begin full production in the second quarter of 2006. The outlook for the Fiberglass-Composite Pipe Group is favorable.

The Performance Coatings & Finishes Group had higher sales and income in 2005. The sales growth was concentrated in the U.S. and Australasia while the European operation was flat. The sales gain in the U.S. was due primarily to higher demand for protective coatings from the industrial maintenance sector and higher average selling prices. Income in 2005 included gains on two small properties in the U.K. Excluding the properties, segment income was down.

The Performance Coatings & Finishes Group should benefit from improving market conditions, especially in the U.S. The improvement is expected to be broad-based as key market segments such as rail, light industrial, marine and offshore are experiencing increased demand. The U.S. coatings operation experienced year-over-year improvement during the second half of 2005, and the incoming order rate continues strong. European and Australasian markets are expected to be stable. The top priority for the Performance Coatings & Finishes Group is to improve profitability. In this regard, the Group will focus on increasing volume worldwide and will aggressively increase selling prices and improve margins with valued- added products. In addition, the Company is formulating plans to implement restructuring programs to improve the quality of this business globally. These plans would include the consolidation of facilities to streamline operations. Given the improving market situation and the focus on margin-improvement plans, the business should achieve profitable growth in 2006.

TAMCO had higher sales although income was down from the record level of 2004, but it still represents an outstanding performance. Business conditions at Ameron's joint-venture companies in Saudi Arabia were mixed as the fiberglass pipe market continued strong, the concrete pipe market in Saudi Arabia was lower, and the coatings market was stable.

Looking to 2006, we expect another excellent year at TAMCO as market conditions remain stable and metal spreads are still favorable. The joint ventures in Saudi Arabia should have improved results in 2006, primarily from a stronger market for fiberglass pipe.

The Company's financial condition remains strong and is supported by the positive cash flow generated from operations. Financial leverage, as measured by the debt-to-capital ratio, was further reduced to a moderate 24% in 2005, which compares to levels as high as 50% in past years. Available cash and unused committed credit lines total approximately $150 million and are sufficient to finance the growth initiatives of the Company. During 2005, Ameron's wholly-owned subsidiary in Singapore issued approximately $30 million of senior secured notes, denominated in Singapore dollars, to partly finance the repatriation of accumulated earnings under the provisions of the 2004 American Jobs Creation Act. The Company repatriated approximately $36 million of earnings that qualified for the one-time, 85% tax exclusion provided by the special regulations.

Two executive management appointments were made in 2005. Gary Wagner was named Executive Vice President and Chief Operating Officer. Gary had been Ameron's Chief Financial Officer and general manager of Ameron's joint-venture companies. Also, James R. McLaughlin was appointed Senior Vice President-Chief Financial Officer & Treasurer. Jim had responsibility for Ameron's financial planning, operational analysis and treasury functions and, since 2000, had been Ameron's Vice President- Controller & Treasurer. Peter K. Barker, an Ameron Director for six years, will retire from the Board of Directors in March 2006. I want to extend our appreciation to Peter for his distinguished service to the Board of Directors, the Company and our shareholders.

I am optimistic about the future of the Company. We have the capital resources to support the exciting opportunities that are being pursued and that will form the foundation to complement and expand our businesses. Over the long term, we will be successful in continuing the Company's history of achieving steady earnings growth and creating value for our shareholders.

JAMES S. MARLEN

Chairman of the Board,
President and Chief Executive Officer