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, 1997
/ / 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 24 1997 there were 10,219,464 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,
1997, and the results of their operations for the six months
ended March 31, 1997 and 1996 and their cash flows for the
six months ended March 31, 1997 and 1996 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, 1997 AND SEPTEMBER 30, 1996
(000'S OMITTED)
March 31, September 30,
1997 1996
--------- -------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents . . . . . . . . $ 2,226 $ 1,466
Marketable securities . . . . . . . . . . 201 201
Receivables:
Sales and services, net of reserve of
$203 at March 31, 1997 and $156 at
September 30, 1996 . . . . . . . . . . 20,801 20,388
Construction work in progress . . . . . 4,185 4,592
Inventories - at cost:
Compressor parts and supplies . . . . . 6,635 6,486
Construction work in progress . . . . . 1,721 2,433
Prepaid expenses and other. . . . . . . . 6,530 5,866
--------- --------
Total current assets . . . . . . . . 42,299 41,432
Property and equipment, at cost, net of
accumulated depreciation and
amortization of $107,372 at March 31,
1997 and $100,940 at September 30, 1996. . 187,428 173,307
Long-term receivable and other assets . . . 12,323 7,952
-------- --------
$242,050 $222,691
======== ========
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Current liabilities:
Accounts payable. . . . . . . . . . . . . $ 7,705 $ 8,361
Accrued liabilities . . . . . . . . . . . 6,795 13,084
Income taxes payable. . . . . . . . . . . 997 1,283
-------- --------
Total current liabilities. . . . . . 15,497 22,728
Senior term notes . . . . . . . . . . . . . 36,084 23,131
Deferred income taxes . . . . . . . . . . . 24,106 21,178
------- --------
Stockholders' investment:
Common stock. . . . . . . . . . . . . . . 10,259 10,259
Additional paid-in capital. . . . . . . . 72,646 72,223
Retained earnings . . . . . . . . . . . . 85,913 76,294
Deferred compensation - ESOP. . . . . . . (1,860) (2,340)
Treasury stock. . . . . . . . . . . . . . (595) (782)
-------- --------
Total stockholders' investment . . . . 166,363 155,654
-------- --------
$242,050 $222,691
========= ========
</TABLE>
<PAGE> 4
<TABLE>
PRODUCTION OPERATORS CORP AND SUBSIDIARY
CONSOLIDATED INCOME STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED MARCH 31, 1997 AND 1996
(UNAUDITED-000'S OMITTED EXCEPT PER SHARE AMOUNTS)
Quarter Ended Six Months Ended
March 31, March 31,
----------------- -----------------
1997 1996 1997 1996
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net revenues from sales and
services and other income . . . . $28,181 $21,743 $54,928 $43,867
------- ------- ------- -------
Costs and expenses:
Cost of sales and services . . . 12,294 9,362 24,240 19,131
Depreciation and amortization. . 4,590 3,890 8,988 7,617
General and administrative
expenses. . . . . . . . . . . . 1,874 1,790 3,777 3,596
Interest and debt expenses . . . 517 603 921 1,191
------- ------- ------- -------
19,275 15,645 37,926 31,535
------- ------- ------- -------
Income before income taxes . . . . 8,906 6,098 17,002 12,332
Provision for income taxes . . . . 3,143 1,985 5,975 4,162
------- ------- ------- -------
Net income . . . . . . . . . . . . $ 5,763 $ 4,113 $11,027 $ 8,170
======= ======= ======= =======
Net income per share:
Primary and fully diluted: $ .56 $ .40 $ 1.07 $ .80
Weighted average shares
outstanding . . . . . . . . . . . 10,342 10,282 10,327 10,270
Dividends per share. . . . . . . . $ .07 $ .07 $ .14 $ .14
Average shares outstanding upon
which dividends were accrued. . . 10,205 10,149 10,204 10,148
</TABLE>
<PAGE> 5
<TABLE>
PRODUCTION OPERATORS CORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED MARCH 31, 1997 AND 1996
(UNAUDITED-000'S OMITTED)
Six Months Ended
March 31,
--------------------
1997 1996
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Cash received from customers. . . . . . . . . . $ 51,140 $ 45,813
Cash paid to suppliers and employees. . . . . . (33,938) (25,063)
Interest paid . . . . . . . . . . . . . . . . . (920) (1,078)
Income tax paid . . . . . . . . . . . . . . . . (3,156) (1,016)
Interest and dividends received . . . . . . . . 94 253
Other income. . . . . . . . . . . . . . . . . . 387 365
-------- --------
13,607 19,274
-------- --------
Cash flows from investing activities:
Net additions to property and equipment . . . . (24,200) (12,486)
Proceeds from sale of property and equipment. . 5,144 3,978
Other . . . . . . . . . . . . . . . . . . . . . (6,066) (647)
-------- --------
(25,122) (9,155)
-------- --------
Cash flows from financing activities:
Additions to (reduction of) net borrowings
on long-term senior notes. . . . . . . . . . . 12,953 (9,722)
Dividends paid. . . . . . . . . . . . . . . . . (1,429) (1,421)
Reduction of deferred compensation under
Company's ESOP Plan. . . . . . . . . . . . . . 480 495
Cash received upon exercise of stock options. . 363 279
Cash bonus paid upon exercise of stock options. (59) (49)
Repurchases of stock awards . . . . . . . . . . (33) (48)
-------- --------
12,275 (10,466)
-------- --------
Net increase (decrease) in cash and 760 (347)
cash equivalents . . . . . .
Cash and cash equivalents at beginning of year. . 1,466 985
-------- --------
Cash and cash equivalents at end of quarter . . . $ 2,226 $ 638
======== ========
</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, 1997 AND 1996
(UNAUDITED-000'S OMITTED)
Six Months Ended
March 31,
--------------------
1997 1996
------- -------
<S> <C> <C>
Net income. . . . . . . . . . . . . . . . . . . . .$11,027 $ 8,170
------- -------
Adjustments:
Depreciation, depletion and amortization. . . . . 8,988 7,617
Provision for deferred income tax . . . . . . . . 2,928 2,596
Provision for tax benefits on stock option
exercises and ESOP dividends . . . . . . . . . . 177 88
Issuance of stock awards. . . . . . . . . . . . . 183 228
Provision for bad debts . . . . . . . . . . . . . 47 13
Gain on sale of property and equipment. . . . . . (2,365) (1,241)
Increase (decrease) in receivables. . . . . . . . (1,768) 3,011
Decrease in inventories . . . . . . . . . . . . . 563 1,099
Increase in prepaid expenses and other. . . . . . (664) (516)
Decrease in long-term receivable and
other assets . . . . . . . . . . . . . . . . . . 1,722 1,568
Decrease in accounts payable. . . . . . . . . . . (656) (4,417)
Increase (decrease) in accrued liabilities. . . . (6,289) 596
Decrease in current tax benefit . . . . . . . . . -- 462
Decrease in income taxes payable. . . . . . . . . (286) --
------- -------
2,580 11,104
------- -------
Net cash provided by operating activities . . . . .$13,607 $19,274
======= =======
</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 for the three and six months
ending March 31, 1997 of $28,181,000 and $54,928,000
respectively, reflecting increases of $6,438,000 (30%) and
$11,061,000 (25%) over the same periods in the prior year.
Revenues from contract gas handling services increased $6,480,000
(30%) to $27,945,000 and $11,364,000 (26%) to $54,565,000,
respectively, during the second quarter and six months ended
March 31, 1997 as compared to the year ago periods. Revenues from
installation, demobilization, construction and equipment sales
grew at a more rapid rate than horsepower as activity continued
to increase with domestic alliances, especially client owned
equipment.
The Company's fleet of revenue producing compression equipment,
including operations of customer owned units, averaged 487,000
and 473,000 horsepower during the second quarter and six months
of the current fiscal year, as compared to 393,000 and 387,000
horsepower last year, increases of 24% and 22%, respectively, for
the comparative periods. At its March 31, 1997 quarter end, the
Company had operating horsepower of 507,000 with a backlog,
including client owned units, of 72,000 horsepower which compares
to 406,000 and 35,000, respectively, a year ago. Average
realized price per horsepower decreased 1.8% and 2.4%,
respectively, during the second quarter and six months ended
March 31, 1997 as compared to the year ago periods due to a
substantial increase in client owned revenue producing horsepower
where the revenue per horsepower is lower. Average realized price
per horsepower on company owned units increased modestly.
Other income, consisting principally of rents, interest and sales
of miscellaneous assets was $236,000 and $363,000 for the three
and six months ended March 31, 1997 as compared to $278,000 and
$666,000 for the comparable periods last year. The decrease in
other income was due primarily to a charge related to the
retirement of computer hardware during the fiscal 1997 first
quarter.
Operating income from contract gas handling services (revenues
less cost of services and depreciation) for the three and six
month periods ended March 31, 1997 increased $2,848,000 (35%) to
$11,061,000 and $4,884,000 (30%) to $21,337,000, respectively,
compared to the year ago periods. This growth continues to be
driven by the growth in revenue producing horsepower from the
expansion of the Company s domestic alliance relationships, the
continued expansion of international operations and improvement
in operating expense margins.
<PAGE> 8
The provision for depreciation and amortization increased
$700,000 (18%) to $4,590,000 and $1,371,000 (18%) to $8,988,000
respectively, for the second quarter and six months ended March
31, 1997 primarily due to the increase in horsepower previously
noted. General and administrative expenses increased $84,000
(5%) to $1,874,000 and $181,000 (5%) to $3,777,000, respectively
for the second quarter and six months ended March 31, 1997.
Interest expense for the second quarter and six months ended
March 31, 1997 improved to $517,000 and $921,000, respectively,
compared to $603,000 and $1,191,000 a year ago.
Income tax expense for the second quarter was $3,143,000, an
average effective tax rate of 35% as compared to $1,985,000, an
average effective tax rate of 33% in the comparable quarter a
year ago. Income tax expense for the six months ended March 31,
1997 was $5,975,000, an average effective tax rate of 35% as
compared to $4,162,000, an average effective tax rate of 34% for
the year ago period.
On February 7, 1997, the Company announced the award and signing
of a service contract by Lagoven, S.A., a subsidiary of Petroleos
de Venezuela, to Williams International Company ( Williams ) and
the Company, which is to be the largest outsourced natural gas
injection project in Venezuela. The project involves the design,
construction, and twenty year total responsibility operation of
facilities to provide gas compression, transmission and injection
services into Lagoven s prolific El Furrial reservoir in
northeastern Venezuela. The facilities will handle over 600
million cubic feet of natural gas per day and require 112,000
horsepower of compression equipment. Williams and the Company
will construct and manage the project through a joint venture
with ownership interests of two-thirds and one-third,
respectively. Funding for a significant portion of the
approximate $200 million in investment costs is expected to be
provided by limited or non-recourse, project based financing with
the remainder to be provided by equity investments from the two
companies.
On February 27, 1997, the Company announced a definitive
agreement to be acquired by Camco International Inc. ( Camco ), a
company focused on providing high quality, value added oilfield
products and services in over fifty foreign countries. Under the
terms of the agreement, each common share of the Company will be
exchanged for 1.3 common shares of Camco in a transaction
expected to be tax free and that will be accounted for as a
pooling of interests. Management believes the acquisition of the
Company by Camco will enhance the Company s international
expansion opportunities because of Camco s existing
infrastructure of offices, clients and business relationships.
The merger is subject to regulatory approvals and the approval of
the shareholders of both companies. Closing is expected to take
place by the end of the second calendar quarter of 1997.
<PAGE> 9
Liquidity and Capital Resources - As of March 31, 1997, the
Company's cash position was $2,226,000 versus $1,466,000 at the
close of the prior fiscal year ended September 30, 1996. The
principal sources of cash during the period were internally
generated funds from operating activities of $13,607,000,
proceeds from the sale of property and equipment of $5,144,000
and additional bank borrowings totaling $12,953,000. The primary
uses of cash were capital expenditures of $24,200,000, payment of
dividends amounting to $1,429,000, and additions to other long-
term assets of $6,066,000. Additions to other long-term assets
consisted primarily of investments in the El Furrial project
previously discussed, international importation and installation,
and information system development.
Accounts receivable for sales and services increased $413,000 to
$20,801,000 at March 31, 1997 as compared to yearend 1996
principally due to the increased revenue during the quarter from
the additional revenue producing horsepower previously noted.
Accounts receivable from construction work in progress decreased
$407,000 to $4,185,000 as certain domestic projects were
completed and collected during the quarter. Inventories of
compressor parts and supplies increased $149,000 to $6,635,000
primarily due to continued expansion internationally.
Construction work in progress decreased $712,000 to $1,721,000
due to the completion of certain projects previously noted.
Long-term receivable and other assets increased $4,371,000 to
$12,323,000 as previously discussed above under uses of cash.
Accounts payable decreased $656,000 to $7,705,000 and accrued
liabilities decreased $6,289,000 to $6,795,000 due to the
completion of obligations under certain contractual arrangements
for the fabrication of client owned units. Since year end, bank
borrowings increased $12,953,000 to $36,084,000 to meet cash
requirements for operating expenditures and capital expenditures
not provided by cash flow from operations. Management expects
cash requirements for the remainder of fiscal 1997 to be
satisfied from cash on hand, cash flow from operations and
additional bank borrowings as required, including project based
financing for the El Furrial project previously discussed.
<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 January 1, 1997 and March 31, 1997.
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/ John B. Simmons
John B. Simmons
Principal Financial and
Accounting Officer
Date: May 14, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> MAR-31-1997
<CASH> 2,226
<SECURITIES> 201
<RECEIVABLES> 25,189
<ALLOWANCES> 203
<INVENTORY> 8,356
<CURRENT-ASSETS> 42,299
<PP&E> 294,800
<DEPRECIATION> 107,372
<TOTAL-ASSETS> 242,050
<CURRENT-LIABILITIES> 15,497
<BONDS> 36,084
0
0
<COMMON> 10,259
<OTHER-SE> 156,104
<TOTAL-LIABILITY-AND-EQUITY> 242,050
<SALES> 54,565
<TOTAL-REVENUES> 54,928
<CGS> 24,240
<TOTAL-COSTS> 24,240
<OTHER-EXPENSES> 12,765
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 921
<INCOME-PRETAX> 17,002
<INCOME-TAX> 5,975
<INCOME-CONTINUING> 11,027
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,027
<EPS-PRIMARY> 1.07
<EPS-DILUTED> 1.07
</TABLE>
