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, 1996
/ / 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 26, 1996 there were 10,155,134 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
March 31, 1996, and the results of their operations for the six
months ended March 31, 1996 and 1995 and their cash flows for
the six months ended March 31, 1996 and 1995 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, 1996 AND SEPTEMBER 30, 1995
(000'S OMITTED)
<CAPTION>
March 31, September 30,
1996 1995
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents . . . . . . . . $ 638 $ 985
Marketable securities . . . . . . . . . . 202 202
Receivables:
Sales and services, net of reserve of
$172 at March 31, 1996 and $159 at
September 30, 1995 . . . . . . . . . . 18,458 16,492
Construction work in progress . . . . . 1,590 6,835
Inventories - at cost:
Compressor parts and supplies . . . . . 4,773 4,852
Construction work in progress . . . . . 1,432 2,452
Prepaid expenses and other. . . . . . . . 5,472 4,956
Current tax benefit . . . . . . . . . . . 2,323 2,785
Net assets of discontinued operations . . 8,121 8,981
Total current assets . . . . . . . . 43,009 48,540
Property and equipment, at cost, net of
accumulated depreciation and
amortization of $99,201 at March 31,
1996 and $91,386 at September 30, 1995 . . 166,478 162,995
Long-term receivable and other assets . . . 7,804 8,697
$217,291 $220,232
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Current liabilities:
Accounts payable. . . . . . . . . . . . . $ 5,550 $ 9,967
Accrued liabilities . . . . . . . . . . . 8,689 7,829
Total current liabilities. . . . . . 14,239 17,796
Senior term notes . . . . . . . . . . . . . 36,283 46,005
Deferred income taxes . . . . . . . . . . . 20,377 17,781
Stockholders' investment:
Common stock. . . . . . . . . . . . . . . 10,259 10,259
Additional paid-in capital. . . . . . . . 71,515 71,156
Retained earnings . . . . . . . . . . . . 68,373 61,601
Deferred compensation - ESOP. . . . . . . (2,708) (3,202)
Treasury stock. . . . . . . . . . . . . . (1,047) (1,164)
Total stockholders' investment . . . . 146,392 138,650
$217,291 $220,232
</TABLE>
<PAGE> 4
<TABLE>
PRODUCTION OPERATORS CORP AND SUBSIDIARY
CONSOLIDATED INCOME STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED MARCH 31, 1996 AND 1995
(UNAUDITED-000'S OMITTED EXCEPT PER SHARE AMOUNTS)
<CAPTION>
Quarter Ended Six Months Ended
March 31, March 31,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Net revenues from sales and
services and other income . . . . $21,743 $17,465 $43,867 $34,275
Costs and expenses:
Cost of sales and services . . . 9,362 8,040 19,131 15,900
Depreciation and amortization. . 3,890 2,646 7,617 5,188
General and administrative
expenses. . . . . . . . . . . . 1,790 1,787 3,596 3,331
Interest and debt expenses . . . 603 176 1,191 120
15,645 12,649 31,535 24,539
Income before income taxes . . . . 6,098 4,816 12,332 9,736
Provision for income taxes . . . . 1,985 1,664 4,162 3,417
Income from continuing operations. 4,113 3,152 8,170 6,319
Loss from discontinued operations. -- (115) -- (204)
Net income . . . . . . . . . . . . $ 4,113 $ 3,037 $ 8,170 $ 6,115
Net income per share:
Primary and fully diluted:
Income from continuing
operations. . . . . . . . . . . $ .40 $ .31 $ .80 $ .62
Loss from discontinued
operations. . . . . . . . . . . -- (.01) -- (.02)
Net income . . . . . . . . . . . $ .40 $ .30 $ .80 $ .60
Weighted average shares
outstanding . . . . . . . . . . . 10,282 10,171 10,270 10,169
Dividends per share. . . . . . . . $ .07 $ .06 $ .14 $ .12
Average shares outstanding upon
which dividends were accrued. . . 10,149 10,078 10,148 10,078
</TABLE>
<PAGE> 5
<TABLE>
PRODUCTION OPERATORS CORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED MARCH 31, 1996 AND 1995
(UNAUDITED-000'S OMITTED)
<CAPTION>
Six Months Ended
March 31,
1996 1995
<S> <C> <C>
Cash flows from operating activities:
Cash received from customers. . . . . . . . . . $ 45,813 $ 35,454
Cash paid to suppliers and employees. . . . . . (25,063) (19,208)
Interest paid . . . . . . . . . . . . . . . . . (1,078) (354)
Income tax paid . . . . . . . . . . . . . . . . (1,016) (1,619)
Interest and dividends received . . . . . . . . 253 393
Other income. . . . . . . . . . . . . . . . . . 365 377
19,274 15,043
Cash flows from investing activities:
Net additions to property and equipment . . . . (12,486) (35,813)
Proceeds from sale of securities. . . . . . . . -- 720
Proceeds from sale of property and equipment. . 3,978 1,044
Purchase of securities. . . . . . . . . . . . . -- (677)
Additions to other long-term assets . . . . . . (647) (1,086)
(9,155) (35,812)
Cash flows from financing activities:
Additions to (reduction of) net borrowings
on long-term senior notes. . . . . . . . . . . (9,722) 22,737
Dividends paid. . . . . . . . . . . . . . . . . (1,421) (1,209)
(Additions to) reduction of deferred
compensation under Company's ESOP Plan . . . . 495 (167)
Cash received upon exercise of stock options. . 279 10
Cash bonus paid upon exercise of stock options. (49) (2)
Repurchases of stock awards . . . . . . . . . . (48) (19)
(10,466) 21,350
Net increase (decrease) in cash and cash
equivalents. . . . . . . . . . . . . . . . . . . (347) 581
Cash and cash equivalents at beginning of year. . 985 1,037
Cash and cash equivalents at end of quarter . . . $ 638 $ 1,618
</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, 1996 AND 1995
(UNAUDITED-000'S OMITTED)
<CAPTION>
Six Months Ended
March 31,
1996 1995
<S> <C> <C>
Net income. . . . . . . . . . . . . . . . . . . . . $ 8,170 $ 6,115
Adjustments:
Depreciation, depletion and amortization. . . . . 7,617 6,963
Provision for deferred income tax . . . . . . . . 2,596 1,453
Provision for tax benefits on stock option
exercises and ESOP dividends . . . . . . . . . . 88 21
Issuance of stock awards. . . . . . . . . . . . . 228 74
Provision for bad debts . . . . . . . . . . . . . 13 12
Gain on sale of property and equipment. . . . . . (1,241) (188)
Gain on sale of marketable securities,
net of reserve . . . . . . . . . . . . . . . . . -- (25)
(Increase) decrease in receivables . . . . . . . 3,011 (3,619)
Decrease in inventories . . . . . . . . . . . . . 1,099 3,294
Increase in prepaid expenses and other. . . . . . (516) (816)
Decrease in long-term receivable and
other assets . . . . . . . . . . . . . . . . . . 1,568 964
Increase (decrease) in accounts payable . . . . . (4,417) 2,828
Increase (decrease) in accrued liabilities. . . . 596 (2,247)
Decrease in current tax benefit . . . . . . . . . 462 --
Increase in income taxes payable. . . . . . . . . -- 214
11,104 8,928
Net cash provided by operating activities . . . . . $19,274 $15,043
</TABLE>
<PAGE> 7
MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
The Company reported net revenues for the three and six months ended March
31, 1996 of $21,743,000 and $43,867,000, respectively, reflecting increases
of $4,278,000 (24%) and $9,592,000 (28%) over the same periods in the prior
year.
Revenues from contract gas handling services increased $4,573,000 (27%) to
$21,465,000 and $9,722,000 (29%) to $43,201,000, respectively, during the
second quarter and six months ended March 31, 1996 as compared to the year
ago periods. The Company's revenue producing compression fleet, including
contract operated units, averaged 393,000 and 387,000 horsepower,
respectively, during the second quarter and six months of the current
fiscal year as compared to 314,000 and 305,000 horsepower last year,
increases of 25% and 27%, respectively, for the comparative periods. The
increased revenue reflected the growth in revenue producing compression
equipment which was at a record 406,000 horsepower as of March 31, 1996
with a backlog of 35,000 horsepower. Revenues from construction,
installation and equipment sales declined as compared to last year's second
quarter. Average realized prices per horsepower increased 6.5% and 7.9%,
respectively, during the second quarter and six months ended March 31, 1996
as compared to the year ago periods due to an increase in international
horsepower where the revenue per horsepower is greater than in the domestic
market.
As disclosed in the Company's annual report for its most recent fiscal year
ended September 30, 1995, oil and gas producing activities have been
classified as discontinued operations. In connection with this
discontinuance, the Company adopted a plan for exiting the oil and gas
production business and recorded a fiscal 1995 fourth quarter charge that
included a writedown of oil and gas properties to their estimated net
realizable value along with a provision for disposing of these operations,
less applicable tax benefits. No further adjustments to the fourth quarter
charge were recorded in the first six months of fiscal 1996.
Other income, comprised principally of rents, interest and dividends
totaled $278,000 and $666,000, respectively, for the three and six months
ended March 31, 1996 as compared to $573,000 and $796,000 for the
comparable periods last year. The decline was due primarily to the
reduction in the Company's holdings of marketable securities as compared to
the previous year.
Operating income from contract gas handling services (revenues less cost of
sales and services and depreciation) for the three and six month periods
ended March 31, 1996 increased $2,007,000 (32%) to $8,213,000 and
$4,062,000 (33%) to $16,453,000, respectively, compared to the year ago
periods. These increases were due to the growth in horsepower and price
per horsepower previously noted. This growth was driven by the continued
expansion of our domestic alliance relationships, the launch of Argentine
operations and expansion in Venezuela. An additional strong area of growth
has been contract operation of client-owned equipment in the domestic
market.
<PAGE> 8
The provision for depreciation and amortization increased $1,244,000 (47%)
to $3,890,000 and $2,429,000 (47%) to $7,617,000, respectively, for the
second quarter and six months ended March 31, 1996 primarily due to the
increase in revenue producing horsepower previously noted and a waterflood
project in Venezuela that is being depreciated substantially more rapidly
than typical compression equipment due to contract terms that include a
purchase option.
General and administrative expenses of $1,790,000 were relatively unchanged
in the second quarter ended March 31, 1996 as compared to the same period
last year. For the six months ended March 31, 1996, general and
administrative expenses increased $265,000 (8%) to $3,596,000 which is
reflective of changes in the Company's infrastructure to support the rapid
business growth, principally in engineering and technical support.
Interest expense for the second quarter and six months ended March 31, 1996
was $603,000 and $1,191,000, respectively, compared to $176,000 and
$120,000 a year ago. These changes are the result of higher bank
borrowings to fund increased capital spending that occurred at record
levels during the prior fiscal year ended September 30, 1995.
Income tax expense for the second quarter was $1,985,000 at an average
effective tax rate of 33% as compared to $1,664,000 at an average effective
tax rate of 35% in the prior fiscal year. Income tax expense for the six
months ended March 31, 1996 was $4,162,000 at an average effective tax rate
of 34% as compared to $3,417,000 at an average effective tax rate of 35% in
the prior fiscal year. Slightly lower effective tax rates were recorded
for the current fiscal periods as compared to the prior year due primarily
to tax benefits realized from international operations.
Liquidity and Capital Resources
As of March 31, 1996 the Company had cash and cash equivalents in the
amount of $638,000 versus $985,000 at September 30, 1995, the end of its
preceding fiscal year. The principal sources of cash during the current
year's first six months were $19,274,000 from operations and $3,978,000 on
sales of property and equipment. The principal uses of cash were
$12,486,000 in capital additions, $9,722,000 of payments on long term bank
debt and $1,421,000 for dividend payments.
Accounts receivable from sales and service increased $1,966,000 during the
first six months of fiscal 1996 to $18,458,000 and accounts receivable from
construction decreased $5,245,000 to $1,590,000. Inventories of compressor
parts and supplies decreased $79,000 to $4,773,000 during the first six
months of fiscal 1996 while inventories related to construction decreased
$1,020,000 to $1,432,000 during the same period. Net assets of
discontinued operations decreased $860,000 to $8,121,000 due to the sale of
oil and gas properties during the fiscal 1996 second quarter. Sales of the
remaining oil and gas properties were closed subsequent to the end of the
second fiscal quarter. Property, plant and equipment, net of accumulated
depreciation and amortization, increased $3,483,000 in the first half of
the year. Accounts payable decreased $4,417,000 due to the collection of
construction receivables and inventories previously noted and lower capital
spending. The Company expects cash requirements for the remainder of fiscal
1996 to be satisfied principally from cash on hand, operating cash flows
and additional bank borrowings as required.
<PAGE> 9
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, 1996
and March 31, 1996.
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: John B. Simmons
John B. Simmons
Principal Financial and
Accounting Officer
Date: May 8, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> MAR-31-1996
<CASH> 638
<SECURITIES> 202
<RECEIVABLES> 20,220
<ALLOWANCES> 172
<INVENTORY> 6,205
<CURRENT-ASSETS> 43,009
<PP&E> 265,679
<DEPRECIATION> 99,201
<TOTAL-ASSETS> 217,291
<CURRENT-LIABILITIES> 14,239
<BONDS> 36,283
0
0
<COMMON> 10,259
<OTHER-SE> 136,133
<TOTAL-LIABILITY-AND-EQUITY> 217,291
<SALES> 43,201
<TOTAL-REVENUES> 666
<CGS> 19,131
<TOTAL-COSTS> 19,131
<OTHER-EXPENSES> 11,213
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,191
<INCOME-PRETAX> 12,332
<INCOME-TAX> 4,162
<INCOME-CONTINUING> 8,170
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,170
<EPS-PRIMARY> .80
<EPS-DILUTED> .80
</TABLE>
