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, 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 January 26, 1996 there were 10,146,230 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, 1995, and the results of their operations for the
three months ended December 31, 1995 and 1994 and their cash
flows for the three months ended December 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 DECEMBER 31, 1995 AND SEPTEMBER 30, 1995
(000'S OMITTED)
<CAPTION>
December 31, September 30,
1995 1995
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents . . . . . . . . $ 1,818 $ 985
Marketable securities . . . . . . . . . . 202 202
Receivables:
Sales and services, net of reserve of
$165 at December 31, 1995 and $159 at
September 30, 1995 . . . . . . . . . . 23,032 16,492
Construction work in progress . . . . . 1,840 6,835
Inventories - at cost:
Compressor parts and supplies . . . . . 3,855 4,852
Construction work in progress . . . . . 1,690 2,452
Prepaid expenses and other. . . . . . . . 5,302 4,956
Current tax benefit . . . . . . . . . . . 2,230 2,785
Net assets of discontinued operations . . 8,981 8,981
Total current assets . . . . . . . . 48,950 48,540
Property and equipment, at cost, net of
accumulated depreciation and
amortization of $94,938 at December 31,
1995 and $91,386 at September 30, 1995 . . 165,301 162,995
Long-term receivable and other assets . . . 8,311 8,697
$222,562 $220,232
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Current liabilities:
Accounts payable. . . . . . . . . . . . . $ 5,768 $ 9,967
Accrued liabilities . . . . . . . . . . . 7,523 7,829
Total current liabilities. . . . . . 13,291 17,796
Senior term notes . . . . . . . . . . . . . 47,234 46,005
Deferred income taxes . . . . . . . . . . . 19,310 17,781
Stockholders' investment:
Common stock. . . . . . . . . . . . . . . 10,259 10,259
Additional paid-in capital. . . . . . . . 71,459 71,156
Retained earnings . . . . . . . . . . . . 64,960 61,601
Deferred compensation - ESOP. . . . . . . (2,891) (3,202)
Treasury stock. . . . . . . . . . . . . . (1,060) (1,164)
Total stockholders' investment . . . . 142,727 138,650
$222,562 $220,232
</TABLE>
<PAGE> 4
<TABLE>
PRODUCTION OPERATORS CORP AND SUBSIDIARY
CONSOLIDATED INCOME STATEMENTS
FOR THE THREE MONTHS ENDED DECEMBER 31, 1995 AND 1994
(UNAUDITED-000'S OMITTED EXCEPT PER SHARE AMOUNTS)
<CAPTION>
Three Months Ended
December 31
1995 1994
<S> <C> <C>
Net revenues from sales and services
and other income . . . . . . . . . . . . . . $22,124 $16,810
Costs and expenses:
Cost of sales and services. . . . . . . . . 9,769 7,860
Depreciation and amortization . . . . . . . 3,727 2,542
General and administrative expenses . . . . 1,806 1,544
Interest and debt expenses. . . . . . . . . 588 (56)
15,890 11,890
Income before income taxes. . . . . . . . . . 6,234 4,920
Provision for income taxes. . . . . . . . . . 2,177 1,753
Income from continuing operations . . . . . . 4,057 3,167
Loss from discontinued operations . . . . . . -- (89)
Net income. . . . . . . . . . . . . . . . . . $ 4,057 $ 3,078
Net income per share:
Primary and fully diluted
Income from continuing operations . . . . . $ .40 $ .31
Loss from discontinued operations . . . . . -- (.01)
Net income. . . . . . . . . . . . . . . . . $ .40 $ .30
Weighted average shares outstanding . . . . . 10,258 10,168
Dividends per share . . . . . . . . . . . . . $ .07 $ .06
Average shares outstanding upon which
dividends were accrued . . . . . . . . . . . 10,147 10,078
</TABLE>
<PAGE> 5
<TABLE>
PRODUCTION OPERATORS CORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED DECEMBER 31, 1995 AND 1994
(UNAUDITED-000'S OMITTED)
<CAPTION>
Quarter Ended
December 31,
1995 1994
<S> <C> <C>
Cash flows from operating activities:
Cash received from customers. . . . . . . . . . $ 19,650 $ 17,062
Cash paid to suppliers and employees. . . . . . (14,235) (8,625)
Interest paid . . . . . . . . . . . . . . . . . (468) (133)
Income tax paid . . . . . . . . . . . . . . . . (15) (319)
Interest and dividends received . . . . . . . . 133 203
Other income. . . . . . . . . . . . . . . . . . 210 141
5,275 8,329
Cash flows from investing activities:
Net additions to property and equipment . . . . (6,905) (12,913)
Proceeds from sale of property and equipment. . 1,830 502
Other . . . . . . . . . . . . . . . . . . . . . (332) (436)
(5,407) (12,847)
Cash flows from financing activities:
Additions to net borrowings on long-term
senior notes . . . . . . . . . . . . . . . . . 1,229 4,689
Dividends paid. . . . . . . . . . . . . . . . . (710) (605)
(Increase) decrease in deferred
compensation under Company's ESOP Plan . . . . 311 (290)
Cash received upon exercise of stock options. . 216 10
Cash bonus paid upon exercise of stock options. (49) (2)
Repurchases of stock awards . . . . . . . . . . (32) (6)
965 3,796
Net increase (decrease) in cash and cash
equivalents. . . . . . . . . . . . . . . . . . . 833 (722)
Cash and cash equivalents at beginning of year. . 985 1,037
Cash and cash equivalents at end of quarter . . . $ 1,818 $ 315
</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, 1995 AND 1994
(UNAUDITED-000'S OMITTED)
<CAPTION>
Quarter Ended
December 31,
1995 1994
<S> <C> <C>
Net income. . . . . . . . . . . . . . . . . . . . . $ 4,057 $ 3,078
Adjustments:
Depreciation and amortization . . . . . . . . . . 3,727 3,453
Provision for deferred income tax . . . . . . . . 1,529 228
Provision for tax benefits on stock option
exercises and ESOP dividends . . . . . . . . . . 78 11
Issuance of stock awards. . . . . . . . . . . . . 206 74
Provision for bad debts . . . . . . . . . . . . . 6 6
Gain on sale of property and equipment. . . . . . (972) (172)
Increase in receivables . . . . . . . . . . . . . (1,551) (2,352)
Decrease in inventories . . . . . . . . . . . . . 1,759 2,846
Increase in prepaid expenses and other. . . . . . (346) (547)
Decrease in long-term receivable and
other assets . . . . . . . . . . . . . . . . . . 732 428
Increase in valuation reserve for
unrealized losses on marketable securities . . . -- 120
Increase (decrease) in accounts payable . . . . . (4,199) 3,022
Decrease in accrued liabilities . . . . . . . . . (306) (3,013)
Decrease in current tax benefit . . . . . . . . . 555 --
Increase in income taxes payable. . . . . . . . . -- 1,147
1,218 5,251
Net cash provided by operating activities . . . . . $ 5,275 $ 8,329
</TABLE>
<PAGE> 7
MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations - The Company reported net revenues from sales and
services and other income of $22,124,000 during its fiscal 1996 first
quarter ended December 31, 1995 as compared to $16,810,000 for the first
quarter of fiscal 1995.
Current year first quarter revenues from contract gas handling services
were $21,736,000, an improvement of $5,149,000 (31%) over the prior year
first quarter level of $16,587,000. These results include enhanced oil
recovery revenues which were reported separately prior to fiscal 1995.
The Company's fleet of revenue producing compression equipment, including
operations of customer owned units, averaged 381,000 horsepower for the
three months ended December 31, 1995, a 28% increase over the previous
year's same quarter average of 297,000 horsepower. At its December 31,
1995 quarter end, the Company had operating horsepower of 388,000 with a
backlog of 44,000 horsepower, including client owned units. Average
realized prices per horsepower increased 9% for the current fiscal
quarter as compared to the prior year first quarter primarily due to an
increase in international operations where the revenue per horsepower is
higher.
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 activity was
recorded in the fiscal 1996 first quarter.
Other revenues, consisting principally of rents, interest and dividends
were $388,000 for the fiscal 1996 first quarter as compared to $223,000
in the fiscal 1995 first quarter.
Operating income from contract gas handling services (revenues less cost
of services and depreciation) was $8,240,000 in the most recent quarter,
an improvement of $2,055,000 (33%) over the prior year quarter of
$6,185,000.
During the fiscal 1996 first quarter, depreciation expense increased
$1,185,000 to $3,727,000 as compared to the previous year's same quarter
due primarily to the increase in 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 $262,000 (17%) as compared to the prior year quarter due to
changes in the Company's infrastructure to support the rapid business
growth, principally in engineering and technical support. Interest
expense, net of amounts allocated to discontinued operations, was
$588,000 in the fiscal 1996 first quarter compared to $(56,000) in the
comparative prior year period.
Income tax expense for the fiscal 1996 first quarter was $2,177,000 at an
average effective tax rate of 35% as compared to $1,753,000 at an average
effective tax rate of 36% in the prior year's first quarter.
Liquidity and Capital Resources - As of December 31, 1995, the Company's
cash position was $1,818,000 versus $985,000 at the close of the prior
fiscal year ended September 30, 1995. The principal sources of cash
during the fiscal 1996 first quarter were internally generated funds from
operating activities of $5,275,000, proceeds from the sale of property
and equipment of $1,830,000 and additional bank borrowings totaling
$1,229,000. The primary uses of cash were capital expenditures of
$6,905,000 and payment of dividends amounting to $710,000.
Cash and cash equivalents increased $833,000 to $1,818,000 at December
31, 1995 due to cash collections on the last day of the quarter.
Accounts receivable for sales and services increased $6,540,000 to
$23,032,000 at December 31, 1995 principally due to a slowdown in the
collection of receivables from Venezuelan operations, increased revenue
from our international operations, and equipment sales. The slowdown in
collection of receivables in Venezuela was in large part due to the
recent monetary problems that country has experienced and subsequent to
the end of the fiscal 1996 first quarter, payments resumed on a normal
basis. Accounts receivable from construction work in progress decreased
$4,995,000 to $1,840,000 due to completion of a large project in
Argentina. Inventories of compressor parts and supplies decreased
$997,000 to $3,855,000 resulting from the timing of purchases as well as
an effort to minimize inventories. Construction work in progress
decreased $762,000 to $1,690,000 due to the previously mentioned project
completion. Current tax benefits totalled $2,230,000, the majority of
which are related to the discontinuance of the Company's oil and gas
operations and the related asset writedowns. Net assets of discontinued
operations at December 31, 1995 were $8,891,000, unchanged from the
balance as of September 30, 1995 as no sales of producing properties were
closed during the first 1996 fiscal quarter. Accounts payable decreased
$4,199,000 to $5,768,000 due to the completion of the project in
Argentina previously noted and the reductions in inventory and the level
of capital spending that occurred during the quarter. Management expects
cash requirements for the remainder of fiscal 1996 to be satisfied from
cash on hand, 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,
1995 and December 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)
By: D. John Ogren
D. John Ogren
President
By: John B. Simmons
John B. Simmons
Principal Financial and
Accounting Officer
Date: February 8, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> DEC-31-1995
<CASH> 1,818
<SECURITIES> 202
<RECEIVABLES> 25,037
<ALLOWANCES> 165
<INVENTORY> 5,545
<CURRENT-ASSETS> 48,950
<PP&E> 260,239
<DEPRECIATION> 94,938
<TOTAL-ASSETS> 222,562
<CURRENT-LIABILITIES> 13,291
<BONDS> 47,234
0
0
<COMMON> 10,259
<OTHER-SE> 132,468
<TOTAL-LIABILITY-AND-EQUITY> 222,562
<SALES> 21,736
<TOTAL-REVENUES> 22,124
<CGS> 9,769
<TOTAL-COSTS> 9,769
<OTHER-EXPENSES> 5,533
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 588
<INCOME-PRETAX> 6,234
<INCOME-TAX> 2,177
<INCOME-CONTINUING> 4,057
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,057
<EPS-PRIMARY> .40
<EPS-DILUTED> .40
</TABLE>
