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 December 31, 1994
/ / 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 ncorporation 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 January 27, 1995 there were 10,078,084 shares of the Company's
common stock, $l.00 par value, outstanding (exclusive of treasury
shares).
<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 December 31, 1994, and the results of
their operations for the three months ended December 31, 1994 and 1993
and their cash flows for the three months ended December 31, 1994 and
1993 have been included. The results of operations for such interim
periods are not necessarily indicative of the results for the full year.<PAGE>
<PAGE> 3
<TABLE>
PRODUCTION OPERATORS CORP AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1994 AND SEPTEMBER 30, 1994
(000'S OMITTED)
<CAPTION>
December 31, September 30,
1994 1994
____________ _____________
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents . . . . . . . . $ 315 $ 1,037
Marketable securities . . . . . . . . . . 2,469 2,589
Receivables, net of reserve of $141 at
December 31, 1994 and $135 at
September 30, 1994 . . . . . . . . . . . 19,671 16,279
Inventories - at cost:
Compressor parts and supplies . . . . . 4,513 4,171
Construction work in progress . . . . . 1,219 3,524
________ _______
Total current assets . . . . . . . . 28,187 27,600
Property and equipment, at cost, net of
accumulated depreciation, depletion and
amortization of $135,934 at December 31,
1994 and $133,037 at September 30, 1994. . 142,200 134,466
Long-term receivable and other assets . . . 6,073 6,051
________ ________
$176,460 $168,117
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Current liabilities:
Accounts payable. . . . . . . . . . . . . $ 9,349 $ 6,327
Accrued liabilities 2,699 5,712
Income taxes payable. . . . . . . . . . . 1,426 279
________ ________
Total current liabilities. . . . . . 13,474 12,318
Senior term notes . . . . . . . . . . . . . 10,689 6,000
Deferred income taxes . . . . . . . . . . . 16,321 16,093
Stockholders' investment:
Common stock. . . . . . . . . . . . . . . 10,259 10,259
Additional paid-in capital. . . . . . . . 71,039 70,988
Retained earnings . . . . . . . . . . . . . 59,844 57,362
Deferred compensation - ESOP. . . . . . . . (3,580) (3,289)
Treasury stock. . . . . . . . . . . . . . . (1,586) (1,614)
________ ________
Total stockholders' investment . . . . 135,976 133,706
________ ________
$176,460 $168,117
</TABLE>
<PAGE> 4
<TABLE>
PRODUCTION OPERATORS CORP AND SUBSIDIARY
CONSOLIDATED INCOME STATEMENTS
FOR THE THREE MONTHS ENDED DECEMBER 31, 1994 AND 1993
(UNAUDITED-000'S OMITTED EXCEPT PER SHARE AMOUNTS)
Three Months Ended
December 31
1994 1993
_______ _______
<S> <C> <C>
Net revenues from sales and services
and other income . . . . . . . . . . . . . . $19,432 $19,201
_______ _______
Costs and expenses:
Cost of sales and services. . . . . . . . . 9,544 9,715
Depreciation, depletion and amortization. . 3,453 3,399
General and administrative expenses . . . . 1,544 1,592
Interest and debt expenses. . . . . . . . . 108 33
14,649 14,739
_______ _______
Income before income taxes and cumulative
effect of change in accounting principle . . 4,783 4,462
Provision for income taxes. . . . . . . . . . 1,705 1,611
Income before cumulative effect of change in
accounting principle . . . . . . . . . . . . 3,078 2,851
Cumulative effect of change in accounting
principle (SFAS No. 109) . . . . . . . . . . -- 200
_______ _______
Net income. . . . . . . . . . . . . . . . . . $ 3,078 $ 3,051
Net income per share:
Primary and fully diluted
Income before cumulative effect of change
in accounting principle. . . . . . . . . . $ .30 $ .28
Cumulative effect of change in accounting
principle. . . . . . . . . . . . . . . . . -- .02
Net income. . . . . . . . . . . . . . . . . $ .30 $ .30
Weighted average shares outstanding . . . . . 10,168 10,180
Dividends per share . . . . . . . . . . . . . $ .06 $ .06
Average shares outstanding upon which
dividends were accrued . . . . . . . . . . . 10,078 10,069
</TABLE>
<PAGE> 5
<TABLE>
PRODUCTION OPERATORS CORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED DECEMBER 31, 1994 AND 1993
(UNAUDITED-000'S OMITTED)
Quarter Ended
December 31,
1994 1993
<S> <C> <C>
Cash flows from operating activities:
Cash received from customers. . . . . . . . . . $ 17,062 $ 15,945
Cash paid to suppliers and employees. . . . . . (8,625) (12,479)
Interest paid . . . . . . . . . . . . . . . . . (133) (33)
Income tax paid . . . . . . . . . . . . . . . . (319) --
Interest and dividends received . . . . . . . . 203 277
Other income. . . . . . . . . . . . . . . . . . 141 132
________ _______
8,329 3,842
Cash flows from investing activities:
Net additions to property and equipment . . . . (12,913) (10,117)
Proceeds from sale of securities. . . . . . . . -- 2,441
Proceeds from sale of property and equipment. . 502 132
Other . . . . . . . . . . . . . . . . . . . . . (436) (360)
________ ________
(12,847) (7,904)
Cash flows from financing activities:
Additions to net borrowings on long-term
senior notes . . . . . . . . . . . . . . . . . 4,689 1,303
Dividends paid. . . . . . . . . . . . . . . . . (605) (604)
Reduction of Company's ESOP bank loan . . . . . -- (130)
Additions to (reduction of) deferred
compensation under Company's ESOP Plan . . . . (290) 153
Cash received upon exercise of stock options. . 10 130
Cash bonus paid upon exercise of stock options. (2) (79)
Repurchases of stock awards . . . . . . . . . . (6) (2)
________ ________
3,796 771
Net decrease in cash and cash equivalents . . . . (722) (3,291)
Cash and cash equivalents at beginning of year. . 1,037 3,453
________ ________
Cash and cash equivalents at end of quarter . . . $ 315 $ 162
</TABLE>
<PAGE> 6
<TABLE>
PRODUCTION OPERATORS CORP AND SUBSIDIARY
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES
FOR THE THREE MONTHS ENDED DECEMBER 31, 1994 AND 1993
(UNAUDITED-000'S OMITTED)
Quarter Ended
December 31,
1994 1993
<S> <C> <C>
Net income. . . . . . . . . . . . . . . . . . . . .$ 3,078 $ 3,051
_______ _______
Adjustments:
Depreciation, depletion and amortization. . . . . 3,453 3,399
Provision for deferred income tax . . . . . . . . 228 508
Provision for tax benefits on stock option
exercises and ESOP dividends . . . . . . . . . . 11 107
Issuance of stock awards. . . . . . . . . . . . . 74 85
Provision for bad debts . . . . . . . . . . . . . 6 6
Gain on sale of property and equipment. . . . . . (172) (84)
Gain on sale of marketable securities . . . . . . -- (163)
Increase in receivables . . . . . . . . . . . . . (2,899) (2,029)
(Increase) decrease in inventories. . . . . . . . 2,846 (1,176)
Decrease in long-term receivable and
other assets . . . . . . . . . . . . . . . . . . 428 53
Increase in valuation reserve for
unrealized losses on marketable securities . . . 120 --
Increase (decrease) in accounts payable . . . . . 3,022 (487)
Decrease in accrued liabilities . . . . . . . . . (3,013) (224)
SFAS No. 109 adjustment . . . . . . . . . . . . . -- (200)
Increase in income taxes payable. . . . . . . . . 1,147 996
_______ _______
5,251 791
_______ _______
Net cash provided by operating activities . . . . .$ 8,329 $ 3,842
</TABLE>
<PAGE> 7
MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTES OF OPERATIONS
Results of Operations - The Company reported net revenues from sales and
services and other income of $19,432,000 during its first fiscal quarter
ended December 31, 1994 as compared to $19,201,000 for the first quarter
of fiscal 1994.
Current year first quarter revenues from contract gas handling services
were $16,837,000, an improvement of $1,410,000 (9%) over the prior year
first quarter. Beginning with the first quarter of its fiscal 1995 year,
the Company will include revenues and operating income from enhanced oil
recovery (EOR) services, historically presented as a separate business
area, in its core contract gas handling services segment. As disclosed
in the Company's annual report for the most recent fiscal year ended
September 30, 1994, the expiration of the SACROC pipeline contract at
December 31, 1994, along with reduced carbon dioxide gas throughput at
the Comanche Creek pipeline, has essentially reduced EOR operations to an
insignificant level no longer warranting continued separate distinction
for financial reporting purposes. Revenue producing compression
equipment, including operation of customer owned units, averaged 297,000
horsepower for the three months ended December 31, 1994 versus 257,000 in
the same quarter a year ago, an increase of 16%. At its December 31,
1994 quarter end, the Company had 306,000 operating horsepower with a
contracted backlog of 61,000 horsepower. In the first fiscal quarter of
1995, average realized prices per horsepower declined 1.4% from the year
ago period which is primarily due to an increase in the compressor fleet
average unit size, as measured in horsepower. In general, revenue per
horsepower is inversely related to average unit size. In management's
view the continued record level of applied horsepower, as well as the
high backlog at December 31, 1994, is attributable to an ongoing secular
trend to outsource specialized production services, such as the type
provided by Production Operators, by the larger oil and gas producers and
pipeline gathering companies. During its most recent quarter, the
Company began construction of a compression facility in the Neuquen area
of western Argentina which will initially be equipped with seven units
totaling 10,500 horsepower. Startup of operations is anticipated during
the second fiscal quarter ending March 31, 1995. Subsequent to December
31, 1994, the Company was awarded a contract to install and operate a
second large facility in the Neuquen area requiring 16,000 additional
horsepower. This installation is tentatively planned to commence
operations during the fourth quarter of fiscal 1995.
Revenues related to the Company's oil and gas producing segment were
$2,366,000 for the 1995 first quarter, a decrease of $819,000 (26%) from
a year ago. For the most recent quarter, production totaled 113,459
barrels of oil, a decline of 24%, and 383,181 Mcf of gas, a reduction of
26%, as compared to 149,288 barrels of oil and 515,488 Mcf of gas in the
comparable year ago period. Approximately 40% of the decrease in oil
volumes was related to the sale of a producing property during the
preceding fiscal year. The remaining overall production dropoff is
attributable to a combination of natural decline rates and the
curtailment of gas well development due to unfavorable market prices for
natural gas. Average realized prices during the current year's first
quarter were $15.56 per barrel of oil and $1.57 per Mcf of gas as
compared to $13.95 and $2.14, respectively, a year earlier.
Other revenues, consisting principally of rents, interest, dividends and
gains and losses on sales of equipment and marketable securities amounted
to $229,000 for the fiscal 1995 first quarter as compared to $589,000 in
the fiscal 1994 first quarter. The decline was largely due to recording
a valuation reserve for marketable securities along with a greater level
of interest and dividends in the prior year from significantly higher
marketable securities holdings at that time.
Total operating income from sales and services (revenues less cost of
sales and services and depreciation, depletion and amortization) was
$6,206,000 for the first quarter of the current fiscal year representing
an increase of $708,000 (13%) above the prior year's first quarter.
In the Company's primary core business segment, operating income from
contract gas handling services increased $991,000 (19%) in the quarter
ended December 31, 1994 versus the same quarter of fiscal 1994.
Contributing to this improvement were the increase in the level of
applied compression horsepower and revenues associated with the design,
engineering and construction of the related compression facilities.
Operating income from oil and gas producing operations for the most
recent quarter was $59,000, a decline of $342,000 versus the same quarter
a year ago. The reduced results from this segment are principally
attributable to the sale of a property last year, an overall decline in
production volumes along with continued weakness in market prices for
both crude oil and natural gas as cited above.
During the fiscal 1995 first quarter, general and administrative expenses
decreased 3% while interest expense increased from $33,000 to $108,000 as
compared to the first quarter of the prior year.
For the December 31, 1994 quarter, the average effective income tax rate
of 35.6% remained about the same as compared to the first quarter a year
ago. During its fiscal 1994 first quarter ended December 31, 1993, the
Company recognized the cumulative effect of adopting Statement of
Financial Accounting Standards (SFAS) No. 109, "Accounting for Income
Taxes," which change was mandated in that period. The adoption of SFAS
No. 109 restated the Company's deferred income tax liability accounts in
accordance with the newly required accounting method and resulted in a
positive adjustment to earnings of $200,000 in the first quarter of the
prior year.
Liquidity and Capital Resources - As of December 31, 1994, the Company
had cash and cash equivalents on hand totaling $315,000 versus $1,037,000
at its September 30, 1994 yearend. Accounts receivable showed an
increase of $3,392,000 which was due to the increased level of
compression services and associated construction and installation
activities. The inventory-construction work in progress account
decreased from $3,524,000 to $1,219,000 during the most recent quarter as
a result of the successful completion of a large construction and
installation project. The combined balances in accounts payable and
accrued liabilities changed only slightly during the three months ended
December 31, 1994 while the current taxes payable balance increased to
$1,426,000 from $279,000 at September 30, 1994. Increased bank
borrowings during the 1995 first quarter caused a rise in the senior term
notes balance.
The principal sources of cash during the past quarter were $8,329,000
from business operations, 4,689,000 in bank borrowings and $502,000 of
proceeds on asset sales. The chief uses of cash were for capital
expenditures of $12,913,000 and the payment of dividends in the amount of
$605,000. Management expects cash requirements for the remainder of
fiscal 1995 to be satisfied from cash on hand, liquidation of marketable
securities, cash flow from operations and additional bank borrowings as
required.
<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 October 1,
1994 and December 31, 1994.
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)
By: D. John Ogren
D. John Ogren
President
By: William S. Robinson, Jr.
William S. Robinson, Jr.
Treasurer
Chief Financial Officer
Date: February 9, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1994
<PERIOD-END> DEC-31-1994
<CASH> 315
<SECURITIES> 2,469
<RECEIVABLES> 19,812
<ALLOWANCES> 141
<INVENTORY> 5,732
<CURRENT-ASSETS> 28,187
<PP&E> 278,134
<DEPRECIATION> 135,934
<TOTAL-ASSETS> 176,460
<CURRENT-LIABILITIES> 13,474
<BONDS> 10,689
<COMMON> 10,259
0
0
<OTHER-SE> 125,717
<TOTAL-LIABILITY-AND-EQUITY> 176,460
<SALES> 19,203
<TOTAL-REVENUES> 19,432
<CGS> 9,544
<TOTAL-COSTS> 9,544
<OTHER-EXPENSES> 4,997
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 108
<INCOME-PRETAX> 4,783
<INCOME-TAX> 1,705
<INCOME-CONTINUING> 3,078
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,078
<EPS-PRIMARY> .30
<EPS-DILUTED> .30
</TABLE>
