SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
/ / QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 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 January 24, 1997 there were 10,206,770 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, 1996 and the results of their
operations for the three months ended December 31, 1996 and 1995 and
their cash flows for the three months ended December 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 DECEMBER 31, 1996 AND SEPTEMBER 30, 1996
(000'S OMITTED)
[CAPTION]
<TABLE>
December 31, September 30,
1996 1996
------------ -------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents . . . . . . . . $ 1,470 $ 1,466
Marketable securities . . . . . . . . . . 201 201
Receivables:
Sales and services, net of reserve of
$163 at December 31, 1996 and $156 at
September 30, 1996 . . . . . . . . . . 21,393 20,388
Construction work in progress . . . . . 3,925 4,592
Inventories - at cost:
Compressor parts and supplies . . . . . 7,215 6,486
Construction work in progress . . . . . 3,137 2,433
Prepaid expenses and other. . . . . . . . 6,766 5,866
-------- --------
Total current assets . . . . . . . . 44,107 41,432
Property and equipment, at cost, net of
accumulated depreciation and
amortization of $103,531 at December 31,
1996 and $100,940 at September 30, 1996 . 177,219 173,307
Long-term receivable and other assets . . . 8,175 7,952
-------- --------
$229,501 $222,691
======== ========
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Current liabilities:
Accounts payable. . . . . . . . . . . . . $ 7,884 $ 8,361
Accrued liabilities . . . . . . . . . . . 6,948 13,084
Income taxes payable. . . . . . . . . . . 1,748 1,283
-------- --------
Total current liabilities. . . . . . 16,580 22,728
Senior term notes . . . . . . . . . . . . . 29,636 23,131
Deferred income taxes . . . . . . . . . . . 22,458 21,178
-------- --------
Stockholders' investment:
Common stock. . . . . . . . . . . . . . . 10,259 10,259
Additional paid-in capital. . . . . . . . 72,485 72,223
Retained earnings . . . . . . . . . . . . 80,854 76,294
Deferred compensation - ESOP. . . . . . . (2,110) (2,340)
Treasury stock. . . . . . . . . . . . . . (661) (782)
-------- --------
Total stockholders' investment . . . . 160,827 155,654
-------- --------
$229,501 $222,691
======== ========
</TABLE>
<PAGE> 4
<TABLE>
PRODUCTION OPERATORS CORP AND SUBSIDIARY
CONSOLIDATED INCOME STATEMENTS
FOR THE THREE MONTHS ENDED DECEMBER 31, 1996 AND 1995
(UNAUDITED-000'S OMITTED EXCEPT PER SHARE AMOUNTS)
<CAPTION>
Three Months Ended
December 31
------- -------
1996 1995
------- -------
<S> <C> <C>
Net revenues from sales and services
and other income . . . . . . . . . . . . . . $26,747 $22,124
------- -------
Costs and expenses:
Cost of sales and services. . . . . . . . . 11,946 9,769
Depreciation and amortization . . . . . . . 4,398 3,727
General and administrative expenses . . . . 1,903 1,806
Interest and debt expenses. . . . . . . . . 404 588
------- -------
18,651 15,890
------- -------
Income before income taxes. . . . . . . . . . 8,096 6,234
Provision for income taxes. . . . . . . . . . 2,832 2,177
------- -------
Net income. . . . . . . . . . . . . . . . . . $ 5,264 $ 4,057
======= =======
Net income per share:
Primary and fully diluted $ .51 $ .40
Weighted average shares outstanding . . . . . 10,371 10,258
Dividends per share . . . . . . . . . . . . . $ .07 $ .07
Average shares outstanding upon which
dividends were accrued . . . . . . . . . . . 10,195 10,147
</TABLE>
<PAGE> 5
<TABLE>
PRODUCTION OPERATORS CORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED DECEMBER 31, 1996 AND 1995
(UNAUDITED-000'S OMITTED)
Quarter Ended
December 31,
--------------------
1996 1995
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Cash received from clients. . . . . . . . . . . $ 23,684 $ 19,650
Cash paid to suppliers and employees. . . . . . (22,194) (14,235)
Interest paid . . . . . . . . . . . . . . . . . (388) (468)
Income tax paid . . . . . . . . . . . . . . . . (1,014) (15)
Interest and dividends received . . . . . . . . 103 133
Other income. . . . . . . . . . . . . . . . . . 151 210
-------- --------
342 5,275
-------- --------
Cash flows from investing activities:
Net additions to property and equipment . . . . (9,145) (6,905)
Proceeds from sale of property and equipment. . 3,687 1,830
Other . . . . . . . . . . . . . . . . . . . . . (1,038) (332)
-------- --------
(6,496) (5,407)
-------- --------
Cash flows from financing activities:
Additions to net borrowings on long-term
senior notes . . . . . . . . . . . . . . . . . 6,505 1,229
Dividends paid. . . . . . . . . . . . . . . . . (714) (710)
Decrease in deferred compensation under
Company's ESOP Plan. . . . . . . . . . . . . . 230 311
Cash received upon exercise of stock options. . 161 216
Cash bonus paid upon exercise of stock options. (23) (49)
Repurchases of stock awards . . . . . . . . . . (1) (32)
-------- --------
6,158 965
-------- --------
Net increase in cash and cash equivalents . . . . 4 833
Cash and cash equivalents at beginning of year. . 1,466 985
-------- --------
Cash and cash equivalents at end of quarter . . . $ 1,470 $ 1,818
======== ========
</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, 1996 AND 1995
(UNAUDITED-000'S OMITTED)
<CAPTION>
Quarter Ended
December 31,
-------------------
1996 1995
------- -------
<S> <C> <C>
Net income. . . . . . . . . . . . . . . . . . . . .$ 5,264 $ 4,057
------- -------
Adjustments:
Depreciation and amortization . . . . . . . . . . 4,398 3,727
Provision for deferred income tax . . . . . . . . 1,280 1,529
Provision for tax benefits on stock option
exercises and ESOP dividends . . . . . . . . . . 73 78
Issuance of stock awards. . . . . . . . . . . . . 183 206
Provision for bad debts . . . . . . . . . . . . . 7 6
Gain on sale of property and equipment. . . . . . (1,278) (972)
Increase in receivables . . . . . . . . . . . . . (1,933) (1,551)
(Increase) decrease in inventories. . . . . . . . (1,433) 1,759
Increase in prepaid expenses and other. . . . . . (900) (346)
Decrease in long-term receivable and
other assets . . . . . . . . . . . . . . . . . . 829 732
Decrease in accounts payable. . . . . . . . . . . (477) (4,199)
Decrease in accrued liabilities . . . . . . . . . (6,136) (306)
Decrease in current tax benefit . . . . . . . . . -- 555
Increase in income taxes payable. . . . . . . . . 465 --
------- -------
(4,922) 1,218
------- -------
Net cash provided by operating activities . . . . .$ 342 $ 5,275
======= =======
</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 $26,747,000 during its fiscal 1997 first
quarter ended December 31, 1996 as compared to $22,124,000 for the first
quarter of fiscal 1996.
Current year first quarter revenues from contract gas handling services
were $26,620,000, an improvement of $4,884,000 (22%) over the prior year
first quarter level of $21,736,000. The Company's fleet of revenue
producing compression equipment, including operations of client owned
units, averaged 458,000 horsepower for the three months ended December
31, 1996, a 20% increase over the previous year's same quarter average of
381,000 horsepower. At its December 31, 1996 quarter end, the Company
had operating horsepower of 470,000 with a backlog, including client
owned units, of 73,000 horsepower. Average realized price per horsepower
for domestically owned equipment increased slightly for the current
fiscal quarter as compared to the prior year first quarter while total
fleet average realized price per horsepower decreased 3% due to a
substantial increase in client owned revenue producing horsepower where
the revenue per horsepower is lower. Revenues from installation,
demobilization, construction and equipment sales grew more rapidly than
horsepower principally due to increased activity with domestic alliances.
Other income consisting principally of rents, interest and sales of
miscellaneous assets were $127,000 for the fiscal 1997 first quarter as
compared to $388,000 in the fiscal 1996 first quarter. The decrease in
other income was due to a charge related to the retirement of certain
computer hardware during the fiscal 1997 first quarter.
Operating income from contract gas handling services (revenues less cost
of services and depreciation) was $10,276,000 in the most recent quarter,
an improvement of $2,036,000 (25%) over the prior year quarter of
$8,240,000. 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 growth in international operations
and improvement in operating expense margins.
During the fiscal 1997 first quarter, depreciation expense increased
$671,000 (18%) to $4,398,000 as compared to the previous year's same
quarter due primarily to the increase in horsepower previously noted.
General and administrative expenses increased $97,000 (5%) to $1,903,000
as compared to the prior year quarter. Interest expense improved to
$404,000 in the fiscal 1997 first quarter as compared to $588,000 in the
prior year period due to lower average borrowings.
Income tax expense for the fiscal 1997 first quarter was $2,832,000 as
compared to $2,177,000 in the prior year's first quarter, an effective
tax rate of 35% for both periods.
<PAGE> 8
Liquidity and Capital Resources - As of December 31, 1996, the Company's
cash position was unchanged at $1,470,000 versus $1,466,000 at the close
of the prior fiscal year ended September 30, 1996. The principal sources
of cash during the period resulted from the sale of property and
equipment of $3,687,000 and bank borrowings totaling $6,505,000. The
primary uses of cash were capital expenditures of $9,145,000 and payment
of dividends amounting to $714,000. Net cash flow from operations during
the fiscal 1997 first quarter was not a principal source of funds as cash
received from clients was used to satisfy vendor obligations, some of
which were related to certain contractual arrangements for the
fabrication of client owned units for which prepayment was received in
earlier fiscal quarters. Cash flow from operations for the remainder of
the fiscal year is expected to provide the principal source of cash.
Accounts receivable for sales and services increased $1,005,000 to
$21,393,000 at December 31, 1996 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 $667,000 to $3,925,000 as certain
domestic projects were completed and collected during the quarter.
Inventories of compressor parts and supplies increased $729,000 to
$7,215,000 primarily due to continued expansion internationally and
construction work in progress increased $704,000 to $3,137,000 due to
activity related to fabrication of client owned units which will be
billed during the fiscal 1997 second quarter. Accounts payable decreased
$477,000 to $7,884,000 and accrued liabilities decreased $6,136,000 to
$6,948,000 due to the completion of obligations under certain contractual
arrangements for the fabrication of client owned units. Bank borrowings
increased $6,505,000 to $29,636,000 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.
<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 October 1,
1996 and December 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)
/s/ D. John Ogren
D. John Ogren
President
/s/ John B. Simmons
John B. Simmons
Principal Financial and
Accounting Officer
Date: February 7, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> DEC-31-1996
<CASH> 1,470
<SECURITIES> 201
<RECEIVABLES> 25,481
<ALLOWANCES> 163
<INVENTORY> 10,352
<CURRENT-ASSETS> 44,107
<PP&E> 280,750
<DEPRECIATION> 103,531
<TOTAL-ASSETS> 229,501
<CURRENT-LIABILITIES> 16,580
<BONDS> 29,636
0
0
<COMMON> 10,259
<OTHER-SE> 150,568
<TOTAL-LIABILITY-AND-EQUITY> 229,501
<SALES> 26,620
<TOTAL-REVENUES> 26,747
<CGS> 11,946
<TOTAL-COSTS> 11,946
<OTHER-EXPENSES> 6,301
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 404
<INCOME-PRETAX> 8,096
<INCOME-TAX> 2,832
<INCOME-CONTINUING> 5,264
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,264
<EPS-PRIMARY> .51
<EPS-DILUTED> .51
</TABLE>
