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 June 30, 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 July 25, 1996 there were 10,184,279 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 June 30, 1996, and the results of their
operations for the nine months ended June 30, 1996 and 1995 and their
cash flows for the nine months ended June 30, 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 JUNE 30, 1996 AND SEPTEMBER 30, 1995
(000'S OMITTED)
<CAPTION>
June 30, September 30,
1996 1995
------------ -------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents . . . . . . . . $ 3,203 $ 985
Marketable securities . . . . . . . . . . 202 202
Receivables:
Sales and services, net of reserve of
$179 at June 30, 1996 and $159 at
September 30, 1995 . . . . . . . . . . 19,434 16,492
Construction work in progress . . . . . 4,536 6,835
Inventories - at cost:
Compressor parts and supplies . . . . . 4,942 4,852
Construction work in progress . . . . . 2,321 2,452
Prepaid expenses and other. . . . . . . . 5,971 4,956
Current tax benefit . . . . . . . . . . . 1,447 2,785
Net assets of discontinued operations . . -- 8,981
-------- --------
Total current assets . . . . . . . . 42,056 48,540
Property and equipment, at cost, net of
accumulated depreciation and
amortization of $97,616 at June 30,
1996 and $91,386 at September 30, 1995 . . 170,914 162,995
Long-term receivable and other assets . . . 9,445 8,697
-------- --------
$222,415 $220,232
======== ========
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Current liabilities:
Accounts payable. . . . . . . . . . . . . $ 7,068 $ 9,967
Accrued liabilities . . . . . . . . . . . 18,802 7,829
-------- --------
Total current liabilities. . . . . . 25,870 17,796
Senior term notes . . . . . . . . . . . . . 24,714 46,005
Deferred income taxes . . . . . . . . . . . 20,648 17,781
-------- --------
Stockholders' investment:
Common stock. . . . . . . . . . . . . . . 10,259 10,259
Additional paid-in capital. . . . . . . . 72,098 71,156
Retained earnings . . . . . . . . . . . . 72,204 61,601
Deferred compensation - ESOP. . . . . . . (2,560) (3,202)
Treasury stock. . . . . . . . . . . . . . (818) (1,164)
-------- --------
Total stockholders' investment . . . . 151,183 138,650
-------- --------
$222,415 $220,232
======== ========
</TABLE>
<PAGE> 4
<TABLE>
PRODUCTION OPERATORS CORP AND SUBSIDIARY
CONSOLIDATED INCOME STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED JUNE 30, 1996 AND 1995
(UNAUDITED-000'S OMITTED EXCEPT PER SHARE AMOUNTS)
<CAPTION>
Quarter Ended Nine Months Ended
June 30, June 30,
----------------- -----------------
1996 1995 1996 1995
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net revenues from sales and
services and other income . . . . $22,868 $18,658 $66,735 $52,933
------- ------- ------- -------
Costs and expenses:
Cost of sales and services . . . 9,602 8,202 28,733 24,102
Depreciation and amortization. . 4,108 2,934 11,725 8,122
General and administrative
expenses. . . . . . . . . . . . 1,886 1,707 5,482 5,038
Interest and debt expenses . . . 398 383 1,589 503
------- ------- ------- -------
15,994 13,226 47,529 37,765
------- ------- ------- -------
Income before income taxes . . . . 6,874 5,432 19,206 15,168
Provision for income taxes . . . . 2,340 1,856 6,502 5,273
------- ------- ------- -------
Income from continuing operations. 4,534 3,576 12,704 9,895
Loss from discontinued operations. -- (42) -- (246)
------- ------- ------- -------
Net income . . . . . . . . . . . . $ 4,534 $ 3,534 $12,704 $ 9,649
======= ======= ======= =======
Net income per share:
Primary and fully diluted:
Income from continuing
operations. . . . . . . . . . . $ .44 $ .35 $ 1.24 $ .97
Loss from discontinued
operations. . . . . . . . . . . -- -- -- (.02)
------- ------- ------- -------
Net income . . . . . . . . . . . $ .44 $ .35 $ 1.24 $ .95
======= ======= ======= =======
Weighted average shares
outstanding . . . . . . . . . . . 10,305 10,231 10,282 10,189
Dividends per share. . . . . . . . $ .07 $ .07 $ .21 $ .19
Average shares outstanding upon
which dividends were accrued. . . 10,183 10,122 10,159 10,094
</TABLE>
<PAGE> 5
<TABLE>
PRODUCTION OPERATORS CORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED JUNE 30, 1996 AND 1995
(UNAUDITED-000'S OMITTED)
<CAPTION>
Nine Months Ended
June 30,
--------------------
1996 1995
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Cash received from customers. . . . . . . . . . $ 75,511 $ 52,357
Cash paid to suppliers and employees. . . . . . (37,385) (34,245)
Interest paid . . . . . . . . . . . . . . . . . (1,488) (2,998)
Income tax paid . . . . . . . . . . . . . . . . (2,026) (869)
Interest and dividends received . . . . . . . . 386 551
Other income. . . . . . . . . . . . . . . . . . 510 542
-------- --------
35,508 15,338
-------- --------
Cash flows from investing activities:
Net additions to property and equipment . . . . (19,992) (51,121)
Proceeds from sale of securities. . . . . . . . -- 2,537
Proceeds from sale of property and equipment. . 10,285 1,371
Purchase of securities. . . . . . . . . . . . . -- (677)
Additions to other long-term assets . . . . . . (1,622) (2,762)
-------- --------
(11,329) (50,652)
-------- --------
Cash flows from financing activities:
Additions to (reduction of) net borrowings
on long-term senior notes. . . . . . . . . . . (21,291) 37,000
Dividends paid. . . . . . . . . . . . . . . . . (2,133) (1,918)
(Additions to) reduction of deferred
compensation under Company's ESOP Plan . . . . 642 (167)
Cash received upon exercise of stock options. . 989 413
Cash bonus paid upon exercise of stock options. (114) (293)
Repurchases of stock awards . . . . . . . . . . (54) (19)
-------- --------
(21,961) 35,016
-------- --------
Net increase (decrease) in cash and cash
equivalents. . . . . . . . . . . . . . . . . . . 2,218 (298)
Cash and cash equivalents at beginning of year. . 985 1,037
-------- --------
Cash and cash equivalents at end of quarter . . . $ 3,203 $ 739
======== ========
</TABLE>
<PAGE> 6
<TABLE>
PRODUCTION OPERATORS CORP AND SUBSIDIARY
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES
FOR THE NINE MONTHS ENDED JUNE 30, 1996 AND 1995
(UNAUDITED-000'S OMITTED)
<CAPTION>
Nine Months Ended
June 30,
--------------------
1996 1995
-------- --------
<S> <C> <C>
Net income. . . . . . . . . . . . . . . . . . . . . $12,704 $ 9,649
------- -------
Adjustments:
Depreciation, depletion and amortization. . . . . 11,725 10,734
Provision for deferred income tax . . . . . . . . 2,867 1,825
Provision for tax benefits on stock option
exercises and ESOP dividends . . . . . . . . . . 271 384
Issuance of stock awards. . . . . . . . . . . . . 228 74
Provision for bad debts . . . . . . . . . . . . . 20 18
Gain on sale of property and equipment. . . . . . (2,243) (530)
Gain on sale of marketable securities,
net of reserve . . . . . . . . . . . . . . . . . -- (74)
Increase in receivables . . . . . . . . . . . . . (918) (7,359)
Decrease in inventories . . . . . . . . . . . . . 41 647
Increase in prepaid expenses and other. . . . . . (1,015) (912)
Decrease in long-term receivable and
other assets . . . . . . . . . . . . . . . . . . 2,416 1,487
Increase (decrease) in accounts payable . . . . . (2,899) 1,449
Increase (decrease) in accrued liabilities. . . . 10,973 (1,988)
Decrease in current tax benefit . . . . . . . . . 1,338 --
Increase in income taxes payable. . . . . . . . . -- (66)
------- -------
22,804 5,689
------- -------
Net cash provided by operating activities . . . . . $35,508 $15,338
======= =======
</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 nine months ended June 30,
1996 of $22,868,000 and $66,735,000, respectively, reflecting increases of
$4,210,000 (23%) and $13,802,000 (26%) over the same periods in the prior
year.
Revenues from contract gas handling services increased $4,279,000 (23%) to
$22,590,000 and $14,001,000 (27%) to $65,791,000, respectively, during the
third quarter and nine months ended June 30, 1996 as compared to the year ago
periods. The Company's revenue producing compression fleet, including
contract operated units, averaged 417,000 and 397,000 horsepower,
respectively, during the third quarter and nine months of the current fiscal
year as compared to 345,000 and 319,000 horsepower last year, increases of
21% and 25%, respectively, for the comparative periods. The increased revenue
reflected the growth in revenue producing compression equipment which was at a
record 429,000 horsepower as of June 30, 1996 with a backlog of 66,000
horsepower. Average realized prices per horsepower increased 5% and 7%,
respectively, during the third quarter and nine months ended June 30, 1996 as
compared to the year ago periods resulting primarily from increases in
international horsepower where the revenue per horsepower is greater than in
the domestic market.
The Company announced late in the third quarter, the acquisition of 24,000
horsepower from a privately held compressor packaging and rental company
consisting of thirty-four units with an average unit size of 706 horsepower.
One-half of this fleet was revenue producing at the time of acquisition and
the remainder was added to the existing fleet for reapplication. This
acquisition was made at a cost significantly under replacement cost for new
horsepower which should improve returns in future periods.
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 nine months of fiscal 1996.
Other income, comprised principally of rents and interest totaled $278,000 and
$944,000, respectively, for the three and nine months ended June 30, 1996 as
compared to $347,000 and $1,143,000 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 nine month periods
ended June 30, 1996 increased $1,705,000 (24%) to $8,880,000 and $5,767,000
(29%) to $25,333,000, 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 the
Company's domestic alliance relationships and the continued growth of
Argentine and Venezuelan operations.
<PAGE> 8
The provision for depreciation and amortization increased $1,174,000 (40%) to
$4,108,000 and $3,603,000 (44%) to $11,725,000, respectively, for the third
quarter and nine months ended June 30, 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 increased $179,000 (10%) to $1,886,000
during the third quarter as compared to the year ago period. For the nine
months ended June 30, 1996, general and administrative expenses increased
$444,000 (9%) to $5,482,000. This growth is reflective of changes in the
Company's infrastructure to support the rapid business growth of the Company,
principally in engineering and technical support.
Interest expense for the third quarter and nine months ended June 30, 1996 was
$398,000 and $1,589,000, respectively, compared to $383,000 and $503,000 a
year ago. These increases are the result of higher average 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 third quarter was $2,340,000 at an average
effective tax rate of 34% as compared to $1,856,000 at an average effective
tax rate of 34% in the prior fiscal year. Income tax expense for the nine
months ended June 30, 1996 was $6,502,000 at an average effective tax rate of
34% as compared to $5,273,000 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 June 30, 1996 the Company had cash and cash equivalents in the amount of
$3,203,000 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
nine months were $35,508,000 from operations and $10,285,000 on sales of
property and equipment,including proceeds from the sale of oil and gas
properties included in net assets of discontinued operations. The principal
uses of cash were $19,992,000 in capital additions, $21,291,000 of payments on
long term bank debt and $2,133,000 for dividend payments. Long term bank debt
was significantly lower at June 30, 1996 compared to the end of the preceding
fiscal year due to lower capital expenditures for the period as well as the
timing of collections and prepayments of certain contractual arrangements for
the fabrication of customer owned units.
<PAGE> 9
Accounts receivable from sales and service increased $2,942,000 during the
first nine months of fiscal 1996 to $19,434,000 and accounts receivable from
construction decreased $2,299,000 to $4,536,000. Inventories of compressor
parts and supplies increased $90,000 to $4,942,000 during the first nine
months of fiscal 1996 while inventories related to construction decreased
$131,000 to $2,321,000 during the same period. Net assets of discontinued
operations declined as the sales of remaining oil and gas properties were
concluded during the third quarter. Property, plant and equipment, net of
accumulated depreciation and amortization, increased $7,919,000 in the first
nine months of the year. Accounts payable decreased $2,899,000 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> 10
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 April 1, 1996 and
June 30, 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: August 8, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> JUN-30-1996
<CASH> 3,203
<SECURITIES> 202
<RECEIVABLES> 24,149
<ALLOWANCES> 179
<INVENTORY> 7,263
<CURRENT-ASSETS> 42,056
<PP&E> 268,530
<DEPRECIATION> 97,616
<TOTAL-ASSETS> 222,415
<CURRENT-LIABILITIES> 25,870
<BONDS> 24,714
0
0
<COMMON> 10,259
<OTHER-SE> 140,924
<TOTAL-LIABILITY-AND-EQUITY> 222,415
<SALES> 65,971
<TOTAL-REVENUES> 66,735
<CGS> 28,733
<TOTAL-COSTS> 28,733
<OTHER-EXPENSES> 17,207
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,589
<INCOME-PRETAX> 19,206
<INCOME-TAX> 6,502
<INCOME-CONTINUING> 12,704
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,704
<EPS-PRIMARY> 1.24
<EPS-DILUTED> 1.24
</TABLE>
