SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1995
/ / TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File No.
0-3919
PRODUCTION OPERATORS CORP
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
59-0827174
(IRS Employer Identification No.)
11302 Tanner Road
Houston, Texas 77041
(Address of principal executive offices)
(713) 466-0980
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding twelve months (or for such
shorter period that the Registrant was required to file such reports)
and (2) has been subject to such filing requirements for the past 90
days.
YES X NO
On April 27, 1995 there were 10,077,559 shares of the Company's
common stock, $l.00 par value, outstanding (exclusive of treasury
shares).
1 of 10 pages
<PAGE> 2
PART I. FINANCIAL INFORMATION
FINANCIAL STATEMENTS
PRODUCTION OPERATORS CORP AND SUBSIDIARY
The condensed consolidated financial statements included herein have
been prepared by Production Operators Corp, without audit, pursuant to
the rules and regulations of the Securities and Exchange Commission.
The term "Company" as used herein refers to Production Operators Corp
and its operating subsidiary, Production Operators, Inc., together with
its subsidiaries, unless the context otherwise indicates. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the disclosures are
adequate to make the information presented not misleading. It is
suggested that these condensed consolidated financial statements be read
in conjunction with the consolidated financial statements and the notes
thereto included in the Company's latest annual report on Form l0-K. In
the opinion of the Company all adjustments, consisting only of normal
recurring adjustments, necessary to present fairly the financial
position of the Company as of March 31, 1995, and the results of their
operations for the six months ended March 31, 1995 and 1994 and their
cash flows for the six months ended March 31, 1995 and 1994 have been
included. The results of operations for such interim periods are not
necessarily indicative of the results for the full year.
<PAGE> 3
<TABLE>
PRODUCTION OPERATORS CORP AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 1995 AND SEPTEMBER 30, 1994
(000'S OMITTED)
<CAPTION>
March 31, September 30,
1995 1994
__________ _____________
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents . . . . . . . . $ 1,618 $ 1,037
Marketable securities . . . . . . . . . . 2,571 2,589
Receivables, net of reserve of $147 at
March 31, 1995 and $135 at
September 30, 1994 . . . . . . . . . . . 20,702 16,279
Inventories - at cost:
Compressor parts and supplies . . . . . 4,688 4,171
Construction work in progress . . . . . 727 3,524
________ ________
Total current assets . . . . . . . . 30,306 27,600
Property and equipment, at cost, net of
accumulated depreciation, depletion and
amortization of $139,289 at March 31,
1995 and $133,037 at September 30, 1994. . 161,418 134,466
Long-term receivable and other assets . . . 6,201 6,051
________ ________
$197,925 $168,117
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Current liabilities:
Accounts payable. . . . . . . . . . . . . $ 9,155 $ 6,327
Accrued liabilities . . . . . . . . . . . 3,465 5,712
Income taxes payable. . . . . . . . . . . 493 279
________ ________
Total current liabilities. . . . . . 13,113 12,318
Senior term notes . . . . . . . . . . . . . 28,737 6,000
Deferred income taxes . . . . . . . . . . . 17,546 16,093
Stockholders' investment:
Common stock. . . . . . . . . . . . . . . 10,259 10,259
Additional paid-in capital. . . . . . . . 71,039 70,988
Retained earnings . . . . . . . . . . . . 62,286 57,362
Deferred compensation - ESOP. . . . . . . (3,456) (3,289)
Treasury stock. . . . . . . . . . . . . . (1,599) (1,614)
________ ________
Total stockholders' investment . . . . 138,529 133,706
________ ________
$197,925 $168,117 <PAGE>
</TABLE>
<PAGE> 4
<TABLE>
PRODUCTION OPERATORS CORP AND SUBSIDIARY
CONSOLIDATED INCOME STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED MARCH 31, 1995 AND 1994
(UNAUDITED-000'S OMITTED EXCEPT PER SHARE AMOUNTS)
Quarter Ended Six Months Ended
March 31, March 31,
1995 1994 1995 1994
_______ _______ _______ _______
<S> <C> <C> <C> <C>
Net revenues from sales and
services and other income . . . . $19,862 $18,891 $39,294 $38,092
Costs and expenses:
Cost of sales and services . . . 9,589 9,189 19,133 18,904
Depreciation, depletion and
amortization. . . . . . . . . . 3,510 3,663 6,963 7,062
General and administrative
expenses. . . . . . . . . . . . 1,787 1,591 3,331 3,183
Interest and debt expenses . . . 337 64 445 97
_______ _______ _______ _______
15,223 14,507 29,872 29,246
Income before income taxes and
cumulative effect of change in
accounting principle. . . . . . . 4,639 4,384 9,422 8,846
Provision for income taxes . . . . 1,602 1,542 3,307 3,153
Income before cumulative effect
of change in accounting
principle . . . . . . . . . . . . 3,037 2,842 6,115 5,693
Cumulative effect of change in
accounting principle (SFAS
No. 109). . . . . . . . . . . . . -- -- -- 200
_______ _______ _______ _______
Net income . . . . . . . . . . . . $ 3,037 $ 2,842 $ 6,115 $ 5,893
Net income per share:
Primary and fully diluted:
Income before cumulative
effect of change in
accounting principle. . . . . . $ .30 $ .28 $ .60 $ .56
Cumulative effect of change in
accounting principle. . . . . . -- -- -- .02
Net income . . . . . . . . . . . $ .30 $ .28 $ .60 $ .58
Weighted average shares
outstanding . . . . . . . . . . . 10,171 10,181 10,169 10,181
Dividends per share. . . . . . . . $ .06 $ .06 $ .12 $ .12
Average shares outstanding upon
which dividends were accrued. . . 10,078 10,071 10,078 10,071 <PAGE>
</TABLE>
<PAGE> 5
<TABLE>
PRODUCTION OPERATORS CORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED MARCH 31, 1995 AND 1994
(UNAUDITED-000'S OMITTED)
Six Months Ended
March 31,
1995 1994
________ ________
<S> <C> <C>
Cash flows from operating activities:
Cash received from customers. . . . . . . . . . $ 35,454 $ 32,242
Cash paid to suppliers and employees. . . . . . (19,208) (28,153)
Interest paid . . . . . . . . . . . . . . . . . (354) (97)
Income tax paid . . . . . . . . . . . . . . . . (1,619) (1,264)
Interest and dividends received . . . . . . . . 393 516
Other income. . . . . . . . . . . . . . . . . . 377 273
________ ________
15,043 3,517
Cash flows from investing activities:
Net additions to property and equipment . . . . (35,813) (23,984)
Proceeds from sale of securities. . . . . . . . 720 7,411
Proceeds from sale of property and equipment. . 1,044 2,258
Purchase of securities. . . . . . . . . . . . . (677) --
Additions to other long-term assets . . . . . . (1,086) (84)
________ ________
(35,812) (14,399)
Cash flows from financing activities:
Additions to net borrowings on long-term senior
notes. . . . . . . . . . . . . . . . . . . . . 22,737 8,970
Dividends paid. . . . . . . . . . . . . . . . . (1,209) (1,208)
(Additions to) reduction of deferred
compensation under Company's ESOP Plan . . . . (167) 296
Reduction of Company's ESOP bank loan . . . . . -- (250)
Cash received upon exercise of stock options. . 10 130
Cash bonus paid upon exercise of stock options. (2) (79)
Repurchases of stock awards . . . . . . . . . . (19) (15)
________ ________
21,350 7,844
Net increase (decrease) in cash and cash
equivalents. . . . . . . . . . . . . . . . . . . 581 (3,038)
Cash and cash equivalents at beginning of year. . 1,037 3,453
________ ________
Cash and cash equivalents at end of quarter . . . $ 1,618 $ 415
</TABLE>
<PAGE> 6
<TABLE>
PRODUCTION OPERATORS CORP AND SUBSIDIARY
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES
FOR THE SIX MONTHS ENDED MARCH 31, 1995 AND 1994
(UNAUDITED-000'S OMITTED)
Six Months Ended
March 31,
1995 1994
_______ _______
<S> <C> <C>
Net income. . . . . . . . . . . . . . . . . . . . .$ 6,115 $ 5,893
_______ _______
Adjustments:
Depreciation, depletion and amortization. . . . . 6,963 7,062
Provision for deferred income tax . . . . . . . . 1,453 746
Provision for tax benefits on stock option
exercises and ESOP dividends . . . . . . . . . . 21 116
Issuance of stock awards. . . . . . . . . . . . . 74 85
Provision for bad debts . . . . . . . . . . . . . 12 2
Gain on sale of property and equipment. . . . . . (188) (958)
Gain on sale of marketable securities,
net of reserve . . . . . . . . . . . . . . . . . (25) (2)
Increase in receivables . . . . . . . . . . . . . (4,435) (6,161)
Decrease in inventories . . . . . . . . . . . . . 3,294 6,380
(Increase) decrease in long-term receivable and
other assets . . . . . . . . . . . . . . . . . . 964 (5,997)
Increase (decrease) in accounts payable . . . . . 2,828 (4,057)
Decrease in accrued liabilities . . . . . . . . . (2,247) (419)
SFAS No. 109 adjustment . . . . . . . . . . . . . -- (200)
Increase in income taxes payable. . . . . . . . . 214 1,027
_______ _______
8,928 (2,376)
_______ _______
Net cash provided by operating activities . . . . .$15,043 $ 3,517
</TABLE>
<PAGE> 7
MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations - Net revenues for the three and six months ended
March 31, 1995 were $19.9 million and $39.3 million, respectively,
reflecting increases of $971,000 (5%) and $1.2 million (3%) over the
same periods in the prior year.
Revenues from contract gas handling services increased $1,932,000 (13%)
and $3,342,000 (11%), respectively, during the second quarter and six
months ended March 31, 1995 as compared to the year ago periods. The
Company's revenue producing compression fleet, including contract
operated units, averaged 314,000 and 305,000 horsepower, respectively,
during the second quarter and six months of the current fiscal year as
compared to 274,000 and 265,000 horsepower last year, increases of 15%
for both comparative periods. The increased revenue reflected the
growth in revenue producing compression equipment which was at a record
329,000 horsepower with an order backlog of owned equipment totaling
53,000 horsepower as of March 31, 1995. Construction, installation,
demobilization, enhanced oil recovery and associated asset sales were
essentially unchanged from the preceding year. Subsequent to quarter
end, 18,000 horsepower started up in Argentina and Venezuela resulting
in revenue producing horsepower of 347,000 and a backlog of 43,000.
Average realized price per horsepower remained virtually unchanged from
the prior year.
Revenues from oil and gas operations declined $1,282,000 (37%) and
$2,101,000 (32%) for the three and six months of the current fiscal
year, respectively, compared to the preceding year. Oil production for
the second quarter was 107,164 barrels at an average price of $16.01 per
barrel versus 150,434 barrels at $12.59 per barrel during the fiscal
1994 second quarter. Gas production for the three months ended March
31, 1995 was 337,457 Mcf at an average price of $1.41 per Mcf compared
to 730,595 Mcf at $2.16 a year ago. For the six months ended March 31,
1995 oil production totaled 220,623 barrels at an average price of
$15.78 per barrel as compared to 299,721 barrels at $13.27 during the
same period last year. Gas production during the first six months of
the current year was 720,638 Mcf at $1.49 as compared to 1,246,083 Mcf
at $2.15 a year ago. As noted in the Company's fiscal 1995 first
quarter report, the decline in production is related to a combination of
lower gas well development efforts in light of unfavorable market
conditions, natural production decline rates and the sale of a producing
property at yearend fiscal 1994.
Other revenues, comprised principally of rents, interest, dividends and
net gains on the sales of equipment and marketable securities totaled
$572,000 and $801,000, respectively, for the three and six months ended
March 31, 1995 as compared to $251,000 and $840,000 for the comparable
periods last year.
Total operating income from sales and services (revenues less cost of
sales and services and depreciation, depletion and amortization) for the
three and six month periods ended March 31, 1995 increased $403,000 (7%)
and $1,111,000 (10%), respectively, compared to the year ago periods. <PAGE>
Operating income from contract gas handling services increased $901,000
(17%) and $1,892,000 (18%), respectively, for the second quarter and
first half of the current fiscal year versus the same periods a year
ago. During the second quarter, the Company began engineering and
design work in connection with a 16,000 horsepower compression facility
in Argentina. In April the construction of eight sites and the shipment
of equipment and materials commenced with operations currently scheduled
to begin gradual phase in during the fourth quarter. In addition, the
Company's Venezuelan subsidiary substantially completed construction and
installation of a large water injection plant which began operations in
April. Management believes prospects continue to be favorable for
additional expansion in both the United States and South America for our
primary business segment as the large integrated petroleum and pipeline
companies seek outsourcing solutions to their gas handling requirements.
Oil and gas operating income declined $498,000 (93%) and $781,000 (89%)
for the second quarter and first six months ended March 31, 1995,
respectively, as compared to the prior year periods. The erosion of
profits in this operating segment are due to the continued negative
impact of the various factors mentioned in the preceding discussion of
revenues.
Interest expense for the second quarter and six months ended March 31,
1995 was $337,000 and $445,000, respectively, compared to $64,000 and
$97,000 a year ago. These changes are the result of higher bank
borrowings to fund increased capital spending as further discussed in
the following section on liquidity and capital resources.
The provision for depreciation, depletion and amortization declined
$153,000 (4%) and $99,000 (1%), respectively, for the second quarter and
six months ended March 31, 1995 reflecting a reduction in oil and gas
depletion expense as a result of substantially lower production volumes.
Depreciation expense related to compression equipment increased
significantly primarily due to the increase in revenue producing
horsepower.
Liquidity and Capital Resources - As of March 31, 1995 the Company had
cash and cash equivalents in the amount of $1,618,000
versus $1,037,000 at September 30, 1994, the end of its preceding fiscal
year. The principal sources of cash during the current year's first six
months were $15,043,000 from operations, $22,737,000 in bank borrowings
and $1,764,000 on sales of property, equipment and marketable
securities. The chief uses of cash were $35,813,000 in capital
additions and $1,209,000 for dividend payments. Accounts receivable
increased $4,423,000 during the first six months of fiscal 1995 to
$20,702,000 primarily related to two construction projects. The
inventory balance during the same period declined $2,280,000 principally
due to the start up of a project which included equipment fabrication
and construction work that had been carried in the construction-work in
progress inventory account. Property, plant and equipment, net of
accumulated depreciation, depletion and amortization, showed an increase
of $26,952,000 in the first half of the year as capital spending in the
Company's core contract gas handling services segment remained at record
levels. Capital expenditures for the six months totaled $35,813,000
with $33,805,000 applied to contract gas handling services; $910,000
for our oil and gas production segment and $1,098,000 for additions to
all other areas. During the first six months of 1995, the Company
mobilized a very large amount of horsepower. The additional capital
expenditures required to mobilize our present backlog are estimated at
$10,000,000 to $12,000,000.
During the most recent quarter, the Company renegotiated its revolving
credit agreement with two banks increasing the available line from
$20,000,000 to $50,000,000. Additionally, a credit facility with
another bank was increased from $5,000,000 to $10,000,000. The
Company's liquidity requirements for the remainder of its current fiscal
year are expected to be satisfied principally from operating cash flows
and additional bank borrowings.
Other Items
On April 26, 1995 Production Operators Corp announced that Production
Operators, Inc. (POI) and Amoco Production Company's U.S. operating
group (Amoco) have agreed to form an alliance for domestic field
compression operations. Under the alliance Amoco and Production
Operators will work together to maximize efficiency for Amoco's field
compression assets and operations covering units up to 2,500 horsepower.
The goal of this strategic alliance is to make Amoco and POI more
competitive and profitable, while building a unique infrastructure to
meet Amoco's compression needs for the future.
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
The Registrant made no filing on Form 8-K during the period January
1, 1995 and March 31, 1995.
All other items are inapplicable or have negative answers and are
therefore omitted from this report.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PRODUCTION OPERATORS CORP
(Registrant)
/s/ D. John Ogren
D. John Ogren
President
/s/ William S. Robinson, Jr.
William S. Robinson, Jr.
Treasurer
Chief Financial Officer
Date: May 9, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> MAR-31-1995
<CASH> 1,618
<SECURITIES> 2,571
<RECEIVABLES> 20,849
<ALLOWANCES> 147
<INVENTORY> 5,415
<CURRENT-ASSETS> 30,306
<PP&E> 300,707
<DEPRECIATION> 139,289
<TOTAL-ASSETS> 197,925
<CURRENT-LIABILITIES> 13,113
<BONDS> 28,737
<COMMON> 10,259
0
0
<OTHER-SE> 128,270
<TOTAL-LIABILITY-AND-EQUITY> 197,925
<SALES> 38,493
<TOTAL-REVENUES> 39,294
<CGS> 19,133
<TOTAL-COSTS> 19,133
<OTHER-EXPENSES> 10,294
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 445
<INCOME-PRETAX> 9,422
<INCOME-TAX> 3,307
<INCOME-CONTINUING> 6,115
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,115
<EPS-PRIMARY> .60
<EPS-DILUTED> .60
</TABLE>
