CONDITION AND RESULTS OF OPERATIONS

Ameron International Corporation ("Ameron", the "Company", the “Registrant” or the “Corporation”) is a multinational manufacturer of highly-engineered products and materials for the chemical, industrial, energy, transportation and infrastructure markets. Ameron is a leading producer of water transmission lines; fiberglass-composite pipe for transporting oil, chemicals and corrosive fluids and specialized materials; and products used in infrastructure projects. The Company operates businesses in North America, South America, Europe and Asia. The Company has three reportable segments. The Fiberglass-Composite Pipe Group manufactures and markets filament-wound and molded composite fiberglass pipe, tubing, fittings and well screens. The Water Transmission Group manufactures and supplies concrete and steel pressure pipe, concrete non-pressure pipe, protective linings for pipe and fabricated steel products, such as large-diameter wind towers. The Infrastructure Products Group consists of two operating segments, which are aggregated: the Hawaii Division which manufactures and sells ready-mix concrete, sand and aggregates, concrete pipe and culverts and the Pole Products Division which manufactures and sells concrete and steel lighting and traffic poles. The markets served by the Fiberglass-Composite Pipe Group are worldwide in scope. The Water Transmission Group serves primarily the western U.S. for pipe and sells wind towers primarily west of the Mississippi River. The Infrastructure Products Group's quarry and ready-mix business operates exclusively in Hawaii, and poles are sold throughout the U.S. Ameron also participates in several joint-venture companies, directly in the U.S. and Saudi Arabia, and indirectly in Egypt.

During the third quarter of 2006, the Company sold its Performance Coatings & Finishes business ("Coatings Business"). The results from this segment are reported as discontinued operations for all the reporting periods. Accordingly, the following discussions generally reflect summary results from continuing operations unless otherwise noted. However, the net income and net income per share discussions include the impact of discontinued operations.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Management's Discussion and Analysis of Liquidity and Capital Resources and Results of Operations are based upon the Company's consolidated financial statements, which are prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires Management to make certain estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities during the reporting periods. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates.

A summary of the Company's significant accounting policies is provided in Note (1) of the Notes to Consolidated Financial Statements, in the Company’s 2009 Annual Report. In addition, Management believes the following accounting policies affect the more significant estimates used in preparing the consolidated financial statements.

The consolidated financial statements include the accounts of Ameron and all wholly-owned subsidiaries. All material intercompany accounts and transactions are eliminated. 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 income/(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 income/(loss). The timing of repayments of intercompany advances could materially impact the Company's consolidated financial statements. Additionally, earnings of foreign subsidiaries are often permanently reinvested outside the U.S. Unforeseen repatriation of such earnings could result in significant unrecognized U.S. tax liability. Gains or losses resulting from foreign currency transactions are included in other income, net.

Revenue for the 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. Revenue is recognized for the Water Transmission Group primarily under the percentage-of-completion method, typically based on completed units of production, since products are manufactured under enforceable and binding construction contracts, typically are designed for specific applications, are not interchangeable between projects, and are not manufactured for stock. Revenue for the period is determined by multiplying total estimated contract revenue by the percentage-of-completion of the contract and then subtracting the amount of previously recognized revenue. Cost of earned revenue is computed by multiplying estimated contract completion cost by the percentage-of completion of the contract and then subtracting the amount of previously recognized cost. 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 two 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. Costs attributable to unpriced change orders are treated as costs of contract performance in the period, and contract revenue is recognized if recovery is probable. Disputed or unapproved change orders are treated as claims. Recognition of amounts of additional contract revenue relating to claims occurs when amounts have been received or awarded with recognition based on the percentage-of-completion methodology.

The Company expenses environmental clean-up costs related to existing conditions resulting from past or current operations on a site-by-site basis. Liabilities and costs associated with these matters, as well as other pending litigation and asserted claims arising in the ordinary course of business, require estimates of future costs and judgments based on the knowledge and experience of Management and its legal counsel. When the Company's exposures can be reasonably estimated and are probable, liabilities and expenses are recorded. The ultimate resolution of any such exposure to the Company may differ from expectations due to subsequent developments.

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. Significant changes in steel levels or steel prices could materially impact the Company's financial statements. Reserves are established for excess, obsolete and rework inventories based on estimates of salability and forecasted future demand. Management records an allowance for doubtful accounts receivable based on historical experience and expected trends. A significant reduction in demand or a significant worsening of customer credit quality could materially impact the Company’s consolidated financial statements.

Investments in unconsolidated joint ventures or affiliates ("joint ventures") over which the Company has significant influence are accounted for under the equity method of accounting, whereby the investment is carried at the cost of acquisition, including subsequent capital contributions and loans from the Company, plus the Company's equity in undistributed earnings or losses since acquisition. Investments in joint ventures which the Company does not have the ability to exert significant influence over the investees' operating and financing activities are accounted for under the cost method of accounting. The Company's investment in TAMCO, a steel mini-mill in California, is accounted for under the equity method. Investments in Ameron Saudi Arabia, Ltd. and Bondstrand, 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 is stated on the basis of cost and depreciated principally using a straight-line method based on the estimated useful lives of the related assets, generally three to 40 years. The Company reviews 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 write-down is recorded to reduce the related asset to estimated fair value. Actual cash flows may differ significantly from estimated cash flows. Additionally, current estimates of future cash flows may differ from subsequent estimates of future cash flows. Changes in estimated or actual cash flows could materially impact the Company's consolidated financial statements.

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. Actual experience could differ significantly from these estimates and could materially impact the Company's consolidated financial statements. The Company typically purchases varying levels of third-party insurance to cover losses subject to retention levels (deductibles or primary self-insurance) and aggregate limits. Currently, the Company's retention levels are $1.0 million per workers' compensation claim, $.1 million per general, property or product liability claim, and $.25 million per vehicle liability claim.

When accounting for pension and other post retirement benefits, assumptions are made regarding the valuation of benefit obligations and the performance of plan assets that are controlled and invested by third-party fiduciaries. Delayed recognition of differences between actual results and expected or estimated results is a guiding principle of these standards. Such delayed recognition provides a gradual recognition of benefit obligations and investment performance over the working lives of the employees who benefit under the plans, based on various assumptions. Assumed discount rates are used to calculate the present values of benefit payments which are projected to be made in the future, including projections of increases in employees' annual compensation and health care costs. Management also projects the future returns on invested assets based principally on prior performance. These projected returns reduce the net benefit costs the Company records in the current period. Actual results could vary significantly from projected results, and such deviations could materially impact the Company's consolidated financial statements. Management consults with the Company’s actuaries when determining these assumptions. Program changes, including termination, freezing of benefits or acceleration of benefits, could result in an immediate recognition of unrecognized benefit obligations; and such recognition could materially impact the Company's consolidated financial statements.

The discount rate is based on market interest rates. At November 30, 2009, the Company decreased the annual discount rate from 7.29% to 5.70% as a result of the then-current market interest rates on long-term, fixed-income debt securities of highly-rated corporations. In estimating the expected return on assets, the Company considers past performance and future expectations for various types of investments as well as the expected long-term allocation of assets. At November 30, 2009, the Company maintained the long-term annual rate of return on assets assumption of 8.50% reflecting current expectations for future returns in the investment markets. In projecting the rate of increase in compensation levels, the Company considers movements in inflation rates as reflected by market interest rates. At November 30, 2009, the Company decreased the assumed annual rate of compensation from 4.25% to 3.50%. In selecting the rate of increase in health care costs, the Company considers past performance and forecasts of future health care cost trends. At November 30, 2009, the Company retained the annual rate of increase in health care costs at 9%, decreasing ratably until reaching 5.00% in 2013 and beyond.

Different assumptions would impact the Company’s projected benefit obligations and annual net periodic benefit costs related to pensions and the accrued other benefit obligations and benefit costs related to post retirement benefits. The following reflects the impact associated with a change in certain assumptions:

Additional information regarding pensions and other post retirement benefits is disclosed in Note (16) of Notes to Consolidated Financial Statements, in the Company’s 2009 Annual Report.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The Company utilizes market data or assumptions that the Company believes market participants would use in pricing assets or liabilities, including assumptions about risk and the risks inherent in the inputs to valuation techniques. These inputs can be readily observable, market corroborated or generally unobservable. The Company primarily applies the market and income approaches for recurring fair value measurements and endeavors to utilize the best available information. Accordingly, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. The Company classifies fair value balances based on the observability of those inputs. The ultimate exit price could be significantly different than currently estimated by the Company.

Management incentive compensation is accrued based on current estimates of the Company's ability to achieve short-term and long-term performance targets. The Company’s actual performance could be significantly different than currently estimated by the Company.

Deferred income tax assets and liabilities are computed for differences between the financial statement and income tax bases of assets and liabilities. Such deferred 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, when necessary, to reduce deferred income tax assets to the amounts expected to be realized. Quarterly income taxes are estimated based on the mix of income by jurisdiction forecasted for the full fiscal year. The Company believes that it has adequately provided for tax-related matters. Actual income, the mix of income by jurisdiction and income taxes could be significantly different than currently estimated.

The amount of income taxes the Company pays is subject to ongoing audits by federal, state and foreign tax authorities. The Company’s estimate of the potential outcome of any uncertain tax issue is subject to Management’s assessment of relevant risks, facts, and circumstances existing at that time, with a more-likely-than-not threshold for financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. A liability is recorded for the difference between the measured benefit recognized and the tax position taken or expected to be taken on the tax return. To the extent that the Company’s assessment of such tax positions changes, the change in estimate is recorded in the period in which the determination is made. The Company reports tax-related interest and penalties as a component of income tax expense.

LIQUIDITY AND CAPITAL RESOURCES

The following discussion of liquidity and capital resources combines the impact of both continuing and discontinued operations unless otherwise noted.

As of November 30, 2009, the Company's working capital, including cash and cash equivalents and current portion of long-term debt, totaled $287.5 million, a decrease of $9.9 million from working capital of $297.4 million as of November 30, 2008. The decrease resulted from a decrease in receivables, inventories and deferred taxes, partially offset by an increase in cash and cash equivalents and decreases in all current liabilities. The reductions in receivables and inventories were primarily due to a slowdown in business activity compared to the prior year. Cash and cash equivalents totaled $181.1 million as of November 30, 2009, compared to $143.6 million as of November 30, 2008.

During 2009, net cash of $125.9 million was generated from operating activities compared to $88.4 million generated in 2008. In 2009, cash from operating activities included net income of $33.3 million, plus non-cash adjustments (depreciation, amortization, deferred income taxes, loss from joint venture, gain from sale of assets and stock compensation expense) of $44.9 million, plus changes in operating assets and liabilities of $47.7 million. In 2008, cash from operating activities included net income of $58.6 million, plus similar non-cash adjustments of $22.5 million, plus changes in operating assets and liabilities of $7.4 million. Non-cash adjustments in 2009 were higher due primarily to the Company’s equity in losses of TAMCO. The lower net operating assets in 2009 were primarily due to a decline in accounts receivable and inventory, which reflected the decreased business activity in 2009. In 2007, the Company’s cash from operating activities included net income of $67.2 million, less loss on sale of assets and gain from sale of discontinued operations of $5.9 million, plus non-cash adjustments (depreciation, amortization, deferred taxes, dividends from joint ventures less than equity income, stock compensation expense and asset write down) of $28.3 million, offset by changes in operating assets and liabilities of $26.4 million. The higher operating cash flow in 2008, compared to 2007, was primarily due to lower growth in operating assets, partially offset by lower liabilities and earnings.

Net cash used in investing activities totaled $69.9 million in 2009, compared to $59.1 million used in 2008. In 2009, net cash used in investing activities consisted of capital expenditures of $46.9 million, which included the normal replacement and upgrades of machinery and expenditures for construction of new fiberglass pipe plants in Texas and Brazil, and $25.0 million of capital and loans to support TAMCO, the Company’s 50%- owned steel mini-mill in California. Net cash used in investing activities in 2009 was offset by net proceeds of $2.0 million from the sale of assets. In 2008, net cash used in investing activities included capital expenditures of $60.7 million, which included the normal replacement and upgrades of machinery, the expansion of a wind tower manufacturing facility and expenditures for construction of new fiberglass pipe plants in Brazil. Net cash used in investing activities in 2008 was offset by net proceeds of $1.6 million from the sale of assets. In 2007, net cash used in investing activities included capital expenditures of $47.7 million, for normal replacement and upgrades of machinery and the expansion of a wind tower manufacturing facility. Net cash used in investing activities in 2007 was offset by net proceeds of $16.6 million from the sale of assets, including the sale of certain properties used by the former Coatings Business. Also in 2007, the Company acquired the business of Polyplaster, Ltda. (“Polyplaster”), a Brazilian fiberglass-pipe operation, for approximately $6.0 million. Normal replacement expenditures are typically equal to depreciation. During the year ending November 30, 2010, the Company anticipates spending between $40.0 and $50.0 million on capital expenditures. Capital expenditures are expected to be funded by existing cash balances, cash generated from operations or additional borrowings.

During 2009, the Company contributed capital of $10.0 million to TAMCO, and provided $15.0 million in loans to TAMCO as part of a $40.0 million senior secured credit facility provided by TAMCO’s shareholders. In 2009, TAMCO entered into a senior secured credit facility with TAMCO’s shareholders which provided TAMCO up to $40.0 million for operating needs and to replace an existing bank line. The shareholder credit facility bears interest at a rate of LIBOR plus 3.25% per annum and is scheduled to mature January 31, 2011. As of November 30, 2009, TAMCO borrowed $30.0 million under the facility, of which $15.0 million was provided by the Company. The Company continues to have a 50% ownership interest in TAMCO and accounts for its investment under the equity method of accounting.

Net cash used in financing activities totaled $28.8 million during 2009, compared to $32.5 million in 2008. Net cash used in 2009 consisted of net payment of debt of $16.5 million, payment of Common Stock dividends of $11.1 million, payments for debt issuance costs of $1.1 million and treasury stock purchases of $1.0 million, related to the payment of taxes associated with the vesting of restricted shares. Also in 2009, the Company recognized tax benefits related to stock-based compensation of $.8 million. Net cash used in 2008 consisted of net payments of debt of $21.1 million, payment of Common Stock dividends of $10.5 million and similar treasury stock purchases of $2.6 million. Also in 2008, the Company received $.4 million from the issuance of Common Stock related to exercised stock options and recognized tax benefits related to stock-based compensation of $1.3 million. Net cash used in 2007 consisted of net payment of debt of $10.2 million, payment of Common Stock dividends of $8.2 million and similar treasury stock purchases of $1.6 million. Also in 2007, the Company received $1.6 million from the issuance of Common Stock related to exercised stock options and recognized tax benefits related to stock-based compensation of $2.0 million.

In 2009, the Company extended a $100.0 million revolving credit facility with six banks (the “Revolver”). Under the Revolver, the Company may, at its option, borrow up to the available amount at floating interest rates (at a rate of LIBOR plus a spread ranging from 2.75% to 3.75%, determined based on the Company’s financial condition and performance) or utilize for letters of credit, at any time until August 2012, when all borrowings under the Revolver must be repaid and letters of credit cancelled. At November 30, 2009, $82.1 million was available under the Revolver.

The Revolver contains various restrictive covenants, including the requirement to maintain specified amounts of net worth and restrictions on cash dividends, borrowings, liens, investments, capital expenditures, guarantees, and financial covenants. The Company is required to maintain consolidated net worth of $375.5 million plus 50% of net income and 75% of proceeds from any equity issued after November 30, 2008. The Company's consolidated net worth exceeded the covenant amount by $149.7 million as of November 30, 2009. The Company is required to maintain a consolidated leverage ratio of consolidated funded indebtedness to earnings before interest, taxes, depreciation and amortization ("EBITDA") of no more than 2.50 times. At November 30, 2009, the Company maintained a consolidated leverage ratio of .53 times EBITDA. The Revolver requires the Company to maintain qualified consolidated tangible assets at least equal to the outstanding secured funded indebtedness. At November 30, 2009, qualifying tangible assets equaled 4.56 times funded indebtedness. Under the most restrictive fixed charge coverage ratio, the sum of EBITDA and rental expense less cash taxes must be at least 1.30 times the sum of interest expense, rental expense, dividends and scheduled funded debt payments. At November 30, 2009, the Company maintained such a fixed charge coverage ratio of 2.08 times. Under the most restrictive provisions of the Company's lending agreements, $20.1 million of retained earnings were not restricted at November 30, 2009, as to the declaration of cash dividends or the repurchase of Company stock. At November 30, 2009, the Company was in compliance with all covenants.

Cash and cash equivalents at November 30, 2009 totaled $181.1 million, an increase of $37.6 million from November 30, 2008. At November 30, 2009, the Company had total debt outstanding of $38.3 million, compared to $52.8 million at November 30, 2008, and approximately $110.9 million in unused committed and uncommitted credit lines available from foreign and domestic banks. Debt outstanding declined due to the scheduled amortization of term debt. The Company's highest borrowing and the average borrowing levels during 2009 were $55.4 million and $52.6 million, respectively.

Cash balances are held throughout the world, including $111.7 million held outside of the U.S. at November 30, 2009. Most of the amounts held outside of the U.S. could be repatriated to the U.S. but, under current law, would be subject to U.S. federal income taxes, less applicable foreign tax credits. The Company currently plans to indefinitely maintain significant cash balances outside the U.S.

The Company contributed $8.5 million to the U.S. defined-benefit pension plan and $1.7 million to the non-U.S. defined-benefit pension plans in 2009. The Company expects to contribute approximately $12.0 million to its U.S. defined-benefit pension plan and $2.4 million to the non-U.S. defined-benefit pension plans in 2010. The increased contribution is due to increased plan liabilities associated with declining interest rates and returns on plan assets.

Management believes that cash flow from operations and current cash balances, together with currently available lines of credit, will be sufficient to meet operating requirements in 2010. Cash available from operations could be affected by any general economic downturn or any decline or adverse changes in the Company's business, such as a loss of customers, competitive pricing pressures or significant raw material price increases. The Company's contractual obligations and commercial commitments at November 30, 2009 are summarized as follows (in thousands):

(a) Future interest payments related to debt obligations, excluding the Revolver.
(b) The Company has no capitalized lease obligations, unconditional purchase obligations or standby repurchases obligations.
(c) Not included are standby letters of credit totaling $16,067 supporting industrial development bonds with principal of $15,700. The principal amount of the industrial development bonds is included in long-term debt. The standby letters of credit are issued under the Revolver.

RESULTS OF OPERATIONS: 2009 COMPARED WITH 2008

General

Net income totaled $33.3 million, or $3.63 per diluted share, on sales of $546.9 million in the year ended November 30, 2009, compared to $58.6 million, or $6.39 per diluted share, on sales of $667.5 million in 2008. The Fiberglass-Composite Pipe Group had lower sales and profits due primarily to continued soft market conditions and foreign exchange. Water Transmission Group’s sales declined due to weak demand, but profitability improved due principally to better project cost control and plant efficiencies. The Infrastructure Products Group had lower sales and income due to the decline in both the Pole Products Division and the Hawaii Division associated with continued weak construction spending throughout the U.S. Equity in earnings of TAMCO, Ameron’s 50%-owned steel mini-mill in California, decreased by $15.8 million in 2009, compared to 2008, due to the decline in the steel rebar market in California, Arizona and Nevada.

Sales

Sales decreased $120.6 million, or 18.1%, in 2009, compared to 2008. Sales decreased due to generally weaker economic conditions affecting all of the Company’s businesses.

Fiberglass-Composite Pipe's sales decreased $48.7 million, or 17.8%, in 2009, compared to 2008. Sales from operations in the U.S. decreased $21.7 million in 2009 primarily due to weaker oilfield piping demand and weak industrial markets. Sales from Asian subsidiaries decreased $13.7 million in 2009, driven by weaker conditions in Middle Eastern industrial markets and the impact of foreign exchange. Sales from European operations decreased $8.7 million in 2009 primarily due to softer market conditions in Europe, North Africa and Russia and weaker foreign currencies in 2009 than in 2008. Sales from Brazilian operations decreased $4.6 million in 2009, due to the impact of foreign exchange, project delays in municipal water markets, and a halt in activity in the pulp and paper market. Worldwide demand declined in key onshore oilfield, chemical and industrial market segments. However, marine and offshore markets remained strong, sustained by new vessel construction at Asian shipyards. Onshore oilfield demand remains weak due to the lack of financing and volatile energy prices. Chemical and industrial markets continue to be impacted by the recessionary environment. Marine and offshore markets remain relatively healthy. While the total Group is operating at historically high levels, the Fiberglass-Composite Pipe Group will continue to be impacted by the economic environment in 2010.

Water Transmission Group's sales decreased $38.0 million, or 17.7%, in 2009, compared to 2008. The sales decrease was primarily due to weaker demand for water pipe in the western United States and completion of large orders in Colombia during 2008. Wind tower sales remained steady in 2009, compared to prior year. Sales of wind towers remain challenged by the lack of project financing available to wind farm developers. Until more financing becomes available to the wind energy industry, wind tower activity is expected to remain depressed. Near term, the water pipe business is also expected to continue to experience soft market demand as order backlogs remain well below historical levels. The timing of bid activity has been negatively affected by the economy, municipal budgets and availability of financing.

Infrastructure Products' sales decreased $34.8 million, or 19.4%, in 2009, compared to 2008. The Company’s Hawaii Division had lower sales as residential and commercial construction markets in Hawaii contracted. Demand for aggregates and ready-mix concrete on both Oahu and Maui declined as construction spending continued to soften due to the recessionary economy. Military and governmental spending held steady in Hawaii. The Pole Products Division continued to be impacted by the decline in U.S. housing markets and reduced demand for concrete lighting poles and steel traffic poles. The Infrastructure Products Group is expected to continue to be impacted by the slowdown in construction spending in Hawaii and the low residential construction spending throughout the U.S. Housing starts and permits in the U.S. remain at historically low levels, and recovery of the residential market is not expected in the short term.

Gross Profit

Gross profit in 2009 was $145.5 million, or 26.6% of sales, compared to $153.6 million, or 23.0% of sales, in 2008. Gross profit decreased $8.2 million in 2009, compared to 2008, due to lower sales offset by better cost control, improved plant efficiencies, lower LIFO reserves, favorable product mix and lower raw material costs.

Fiberglass-Composite Pipe Group's gross profit decreased $14.8 million in 2009, compared to 2008. Profit margins improved to 41.4% in 2009, compared to 39.5% in 2008. Margins were higher in 2009 due to favorable product mix, plant efficiencies and lower raw material costs. Decreased sales, from lower volume and prices, reduced gross profit by $19.2 million, offset by favorable product mix and operating efficiencies of $4.4 million in 2009.

Water Transmission Group's gross profit increased $17.3 million in 2009, compared to 2008. Profit margins increased to 11.9% in 2009, compared to 1.8% in 2008. Improved profit margins resulted from plant efficiencies with the completion of newly-constructed wind tower facility, cost controls and completion of low-margin pipe projects in 2008.

Gross profit in the Infrastructure Products Group decreased $11.5 million in 2009, compared to 2008. Profit margins declined to 19.2% in 2009, compared to 21.9% in 2008. Margins were lower in 2009 due to pricing pressures related to challenging market conditions. Lower sales negatively impacted gross profit by $7.6 million in 2009, while lower margins primarily related to unfavorable plant utilization decreased gross profit by an additional $3.9 million in 2009.

Consolidated gross profit was $2.1 million higher in 2009 than in 2008 due to decreased reserves in 2009 associated with LIFO accounting of certain steel inventories used by the Water Transmission Group due to lower LIFO inventory quantities and a decrease in steel prices. LIFO reserves are not allocated to the operating segments.

Selling, General and Administrative Expenses

Selling, general and administrative ("SG&A") expenses totaled $100.0 million, or 18.3% of sales, in 2009, compared to $98.2 million, or 14.7% of sales, in 2008. The $1.8 million increase in SG&A was due to higher pension expense of $8.0 million, higher legal expenses of $1.9 million, due primarily to the U.S. Treasury Department’s Office of Foreign Assets Control (“OFAC”) inquiry, offset by lower stock compensation costs of approximately $2.2 million, favorable foreign exchange impact of $1.8 million, lower insurance premiums of $1.6 million and lower other expenses of $2.5 million.

Other Income, Net

Other income totaled $7.4 million in 2009, compared to $8.2 million in 2008. The decrease in other income in 2009 was due primarily to higher dividends from joint ventures of $.8 million, higher gains on asset sales of $.5 million, and lower foreign currency losses of $.2 million, more than offset by $.5 million lower royalties and $1.8 million lower scrap inventory sales.

Interest

Net interest totaled $.6 million in 2009, compared to $1.5 million in 2008. Interest income was $1.1 million in 2009, a decrease of $2.7 million compared to 2008, due to lower interest rates on short-term investments. Interest expense declined from $.5 million in 2009 to $2.3 million in 2008, due to lower debt levels.

Provision for Income Taxes

Income taxes decreased to $15.5 million in 2009, from $17.0 million in 2008. The effective tax rate on income from continuing operations increased to 29.0% in 2009, from 26.0% in 2008. The effective tax rate in 2009 was reduced by tax benefits of $1.2 million associated with the adjustment to a deferred tax liability related to earnings and profits from the Company’s former New Zealand subsidiary. The $1.2 million adjustment represented a correction of an amount recorded in prior period financial statements. Management believes this amount to be immaterial to prior interim and annual financial statements. The effective tax rate in 2008 was reduced by tax benefits of $2.9 million associated with tax years no longer subject to audit and settlement of the 2005-2006 Internal Revenue Service (“IRS”) examinations. Income from certain foreign operations and joint ventures is taxed at rates that are lower than the U.S. statutory tax rates. For both 2008 and 2009, the Company provided a full valuation allowance for the net operating loss carry-overs of its foreign subsidiaries except its subsidiary in the Netherlands. The Company released $1.3 million in 2009 and $1.1 million in 2008 of valuation allowance for deferred tax assets related to the Netherlands subsidiary due to profitability in 2008 and projected future profitability.

Equity in Earnings of Joint Venture, Net of Taxes

Equity in earnings of joint venture, which consists of the Company’s share of the net income or loss of TAMCO, decreased to a loss of $5.5 million in 2009, compared to income of $10.3 million in 2008. Equity income is shown net of income taxes at an effective rate of 7.8% and 9.6% in 2009 and 2008, respectively, reflecting the dividend exclusion provided to the Company under tax laws. The decline in TAMCO’s earnings was due to the collapse of infrastructure spending for steel rebar in California, Arizona and Nevada. TAMCO halted production in the first quarter of 2009 and had limited production during the remainder of 2009. Given the low level of demand, TAMCO will continue to operate its plant intermittently as incoming orders and inventory levels warrant. Demand for steel rebar in TAMCO’s key markets in the western U.S. is not expected to recover in the short term.

Income from Discontinued Operations, Net of Taxes

Income from discontinued operations totaled $.8 million in 2009, net of taxes. In 2006, the Company completed the sale of the Coatings Business to PPG Industries, Inc. ("PPG"). As part of the sale, PPG agreed to pay to the Company future dividends from Oasis-Ameron, Ltd. (“OAL”), a former joint venture of the Company held by the Coatings Business, up to the amount of OAL’s unremitted earnings at the time of the sale of the Coatings Business to PPG. In 2009, the Company recorded $1.2 million, net of tax, from PPG in exchange for any claims on OAL’s dividends. Also in 2009, the Company wrote down by $.4 million, net of tax, real property formerly used by the Coatings Business and currently held for sale. The write down was due to declining real estate values.

RESULTS OF OPERATIONS: 2008 COMPARED WITH 2007

General

Income from continuing operations totaled $58.6 million, or $6.39 per diluted share, on sales of $667.5 million in the year ended November 30, 2008, compared to $61.1 million, or $6.73 per diluted share, on sales of $631.0 million in 2007. Income from continuing operations was lower in 2008 due principally to $5.3 million of tax benefits recognized in 2007 associated with the dissolution of the Company’s wholly owned United Kingdom subsidiary. The Fiberglass-Composite Pipe Group had higher sales and income due to continued strength in energy and marine markets and the acquisition of the business of Polyplaster. The Water Transmission Group had higher sales primarily due to wind towers and larger losses due to the weak pipe market and inefficient pipe and wind tower production. The Infrastructure Products Group had lower sales and income due to declines by both the Hawaii division and the Pole Products division due to declining construction markets. Equity in earnings of TAMCO, Ameron's 50%-owned steel mini-mill in California, decreased by $5.0 million in 2008, compared to 2007, due to the decline in the steel market.

Income from discontinued operations, net of taxes, totaled $6.1 million, or $.67 per diluted share, in 2007. In 2007, the Company completed disposition of several retained properties formerly used by the Coatings Business and recognized a net gain of $5.3 million. Also in 2007, the Company recognized a net gain of $.1 million from the final settlement of the sale of the Coatings Business, $.2 million of research and development credits and $.7 million of tax benefits.

Sales

Sales increased $36.5 million in 2008, compared to 2007. Sales increased due to higher demand for fiberglass piping, the impact of foreign exchange rates on the Company’s Asian and European operations and expansion of the Company’s capabilities to manufacture large diameter wind towers, offset by lower sales into weak residential construction markets. Fiberglass-Composite Pipe's sales increased $36.3 million, or 15.3%, in 2008, compared to 2007. Sales from operations in the U.S. increased $10.2 million in 2008 primarily due to increase demand for onshore oilfield piping which more than offset a decline in demand for industrial piping. Sales from Asian subsidiary operations increased $22.8 million in 2008, driven by activity in the industrial, marine and offshore segments and the impact of foreign exchange. Sales from European operations decreased $12.2 million in 2008 primarily due to a decline in onshore oilfield and industrial piping, partially offset by favorable foreign exchange. The Brazilian business acquired at the end of 2007 contributed sales of $16.8 million in 2008, compared to $1.3 million in 2007. The strong demand for onshore oilfield, offshore, industrial and marine piping continued to be driven by high oil prices and the high cost of steel piping, the principal substitute for fiberglass pipe, during most of the year.

Water Transmission’s sales increased $25.0 million, or 13.2%, in 2008, compared to 2007. The sales increase was driven by the Company’s expansion into the market for large-diameter wind towers and by its operation in South America, which benefited from increased demand for water pipe in Colombia. Sales of water pipe into domestic markets were slightly higher. Sales of wind towers increased $19.7 million, or 42%, in 2008, compared to 2007. The water infrastructure market in the western U.S., including California, Arizona and Nevada, remained weak, with bid activity in some markets at the lowest levels in recent history. The slow market was adversely affected by a number of factors including the normal cycle for large diameter, high pressure water transmission pipelines, governmental budget problems and overall project costs.

Infrastructure Products' sales decreased $26.7 million, or 13.0%, in 2008, compared to 2007. The Company’s Hawaiian division had lower sales as construction markets in Hawaii began to weaken. Pole Products was impacted by the decline in U.S. housing markets and reduced demand for concrete lighting poles.

Gross Profit

Gross profit in 2008 was $153.6 million, or 23.0% of sales, compared to $146.0 million, or 23.1% of sales, in 2007. Gross profit increased $7.6 million due to higher sales, as the negative impact of production inefficiencies in 2008 was offset in large part by lower LIFO reserves than in 2007. The gross profit margin decrease related to under utilization of pole production, competitive pricing pressures caused by soft market conditions and inefficient production by the Water Transmission Group, substantially offset by the Fiberglass-Composite Pipe Group’s profit margin improvement.

Fiberglass-Composite Pipe Group's gross profit increased $22.5 million in 2008, compared to 2007. Profit margins improved to 39.5% in 2008, compared to 36.0% in 2007. Higher margins resulted from improvements in product and market mix, price increases and improved plant utilization. Increased sales, from higher volume and prices, generated additional gross profit of $13.1 million, while favorable product mix and operating efficiencies generated additional gross profit of $9.4 million in 2008.

Water Transmission Group's gross profit decreased $10.1 million in 2008, compared to 2007. Profit margins declined to 1.8% in 2008, compared to 7.3% in 2007. Higher sales increased profit by $1.8 million in 2008. Lower margins reduced gross profit by $11.9 million due to an unfavorable mix of projects, start-up costs associated with the expansion into wind towers, underutilization of plant capacity, production inefficiencies and pricing pressures due to market condition.

Gross profit in the Infrastructure Products Group decreased $12.4 million in 2008, compared to 2007. Profit margins declined to 21.9% in 2008, compared to 25.1% in 2007. Lower sales reduced gross profit by $6.7 million, while unfavorable plant utilization and pricing pressures due to market conditions lowered gross profit by $5.7 million in 2008.

Consolidated gross profit was $5.5 million higher in 2008 than in 2007 due to decreased reserves in 2008 associated with LIFO accounting of certain steel inventories used by the Water Transmission Group.

Selling, General and Administrative Expenses

SG&A expenses totaled $98.2 million, or 14.7% of sales, in 2008, compared to $97.9 million, or 15.5% of sales, in 2007. The $.3 million increase in SG&A included $3.5 million from Polyplaster and other Brazilian operations, higher stock compensation expense of $2.2 million and higher insurance expense of $1.4 million, offset by lower pension expense of $3.9 million, primarily due to improved funding of the pension plans, lower management incentive compensation of $1.5 million and lower auditing and consulting fees of $1.4 million. The reduction in SG&A as a percent of sales was due to spending controls and the leverage achieved from higher sales.

Other Income, Net

Other income was $8.2 million in 2008, compared to $6.0 million in 2007. The increase in other income in 2008 was due primarily to $1.5 million higher dividend income from affiliates and $2.7 million proceeds from insurance reimbursements, offset by $1.4 million of foreign exchange loss and $.6 million lower miscellaneous income. Other income also included royalties and fees from licensees, foreign currency transaction losses and other miscellaneous income.

Interest

Net interest income totaled $1.5 million in 2008, compared to net interest income of $1.9 million in 2007. Net interest income was lower due to lower interest on short-term investments due to lower overall interest rates, partially offset by lower outstanding debt during 2008.

Provision for Income Taxes

Income taxes increased to $17.0 million in 2008, from $10.4 million in 2007. The effective tax rate on income from continuing operations increased to 26.0% in 2008, from 18.5% in 2007. The effective tax rate in 2008 was reduced by tax benefits of $2.9 million associated with tax years no longer subject to audit and settlement of the 2005-2006 IRS examinations. The effective tax rate in 2007 was reduced by tax benefits of $5.3 million associated with the decision to dissolve the Company’s wholly-owned United Kingdom subsidiary. For both 2007 and 2008, the Company provided a full valuation allowance for the net operating loss carry-overs of its foreign subsidiaries except its subsidiary in the Netherlands. The Company released $1.1 million in 2008 and $3.2 million in 2007 of valuation allowance for deferred tax assets related to the Netherlands subsidiary due to profitability in 2008 and 2007 and projected future profitability.

Equity in Earnings of Joint Venture, Net of Taxes

Equity income decreased to $10.3 million in 2008, compared to $15.4 million in 2007. Dividends from TAMCO were taxed at an effective rate of 9.6% in 2008 and 2007, reflecting the dividend exclusion provided to the Company under current tax laws. The decline in TAMCO’s earnings was due to the difficult conditions in the steel market.

Income from Discontinued Operations, Net of Taxes

Income from discontinued operations totaled $6.1 million in 2007. In 2007, the Company completed disposition of several retained properties formerly used by the Coatings Business and recognized a net gain of $5.3 million. In 2007, the Company recognized a net gain of $.1 million from the final settlement of the sale of the Coatings Business. In addition, in 2007 the Company recognized $.2 million of research and development tax credits related to the retroactive application of tax legislation and $.6 million of net tax benefit due to an adjustment in tax expense related to the gain on sale of the business.

CAUTIONARY STATEMENT FOR PURPOSES OF THE “SAFE HARBOR” PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

All statements and assumptions contained in this Annual Report that do not directly and exclusively relate to historical facts constitute “forward-looking statements” within the meaning of the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements represent current expectations and beliefs of the Company, and no assurance can be given that the results described in such statements will be achieved.

Forward-looking information contained in these statements include, among other things, statements with respect to the Company’s financial condition, results of operations, cash flows, business strategies, operating efficiencies or synergies, competitive positions, growth opportunities, plans and objectives of management, and other matters. Such statements are subject to numerous assumptions, risks, uncertainties and other factors, many of which are outside of the Company’s control, which could cause actual results to differ materially from the results described in such statements. These factors include without limitation those listed under Item 1A. Risk Factors in the Company’s Annual Report on Form 10K for the year ended November 30, 2009. Forward-looking statements in this Annual Report speak only as of the date of this Annual Report. The Company does not undertake any obligation to update or release any revisions to any forward looking statement or to report any events or circumstances after the date of this Annual Report or to reflect the occurrence of unanticipated events, except as required by law.