<PAGE> 1
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, 1998
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
- ----- OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-10718
CAMCO INTERNATIONAL INC.
(Exact name of registrant as specified in its charter)
DELAWARE 13-3517570
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization Identification No.)
7030 ARDMORE, HOUSTON, TEXAS 77054
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (713) 747-4000
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 12 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
--- ---
Number of shares of common stock ($.01 par value) outstanding at
May 5, 1998: 37,843,413.
1
<PAGE> 2
CAMCO INTERNATIONAL INC.
INDEX
<TABLE>
<CAPTION>
Page
No.
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Condensed Statements of Income-
Three Months ended March 31, 1998 and 1997 3
Consolidated Condensed Balance Sheets -
March 31, 1998 and December 31, 1997 4
Consolidated Condensed Statements of Cash Flows -
Three Months ended March 31, 1998 and 1997 5
Consolidated Condensed Statements of Comprehensive Income-
Three Months ended March 31, 1998 and 1997 6
Notes to Consolidated Condensed Financial Statements 7-8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 9-10
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 11
ITEM 5. OTHER INFORMATION 11
ITEM 6. LISTING OF EXHIBITS AND REPORTS ON FORM 8-K 11
SIGNATURES 12
EXHIBITS: FINANCIAL DATA SCHEDULE FOR THE THREE MONTHS ENDED
MARCH 31, 1998 (included only in the copy of this report filed
electronically with the Commission).
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CAMCO INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended March 31
---------------------------
1998 1997
---- ----
<S> <C> <C>
REVENUES:
Sales $ 151,279 $ 123,432
Services 76,788 72,052
------------ -------------
228,067 195,484
------------ -------------
COSTS AND EXPENSES:
Cost of sales 74,385 62,223
Cost of services 54,071 51,015
------------ -------------
128,456 113,238
------------ -------------
Gross margin 99,611 82,246
Selling, general and administrative expenses 52,840 48,709
Amortization of intangible assets 2,170 1,894
------------ -------------
Operating income 44,601 31,643
Interest expense, net 1,593 1,454
------------ -------------
Income before provision for income taxes 43,008 30,189
Provision for income taxes 15,413 10,379
------------ -------------
Net income $ 27,595 $ 19,810
============ =============
Earnings Per Share:
Basic-
Net Income $ .73 $ .53
Average common shares outstanding 37,674 37,277
Diluted-
Net Income $ .72 $ .52
Average common and common equivalent shares outstanding 38,483 38,242
Cash dividends per common share $ .05 $ .05
</TABLE>
The accompanying notes are an integral part of
these consolidated condensed financial statements.
3
<PAGE> 4
CAMCO INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
March 31, 1998 December 31, 1997
-------------- -----------------
(unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 61,792 $ 57,255
Accounts receivable, net 209,089 177,112
Inventories 216,404 206,471
Prepaid expenses and other 68,878 65,663
-------------- ----------------
Total current assets 556,163 506,501
-------------- ----------------
PROPERTY, PLANT AND EQUIPMENT
Land 5,740 5,120
Buildings 77,786 77,279
Machinery and equipment 266,658 266,137
Service equipment 378,252 366,732
-------------- ----------------
728,436 715,268
Accumulated depreciation (372,613) (361,956)
-------------- ----------------
Property, plant and equipment, net 355,823 353,312
-------------- ----------------
INTANGIBLE ASSETS, net 225,371 212,749
OTHER 66,282 45,278
-------------- ----------------
Total assets $ 1,203,639 $ 1,117,840
============== ================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt $ 120 $ 120
Accounts payable 59,681 57,765
Accrued liabilities 154,924 159,085
Income taxes payable 36,578 31,832
-------------- ----------------
Total current liabilities 251,303 248,802
-------------- ----------------
LONG-TERM DEBT 155,300 110,300
DEFERRED INCOME TAXES 34,509 28,690
OTHER LONG-TERM LIABILITIES 44,959 43,803
-------------- ----------------
Total liabilities 486,071 431,595
-------------- ----------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock $.01 par value, 100,000,000 shares authorized,
38,697,701 and 38,583,393 shares issued 387 386
Additional paid-in capital 527,322 525,662
Retained earnings 229,622 203,911
Cummulative translation adjustment (13,336) (15,194)
Treasury stock, 887,018 and 1,046,372 shares at cost (26,427) (28,520)
-------------- ----------------
Total stockholders' equity 717,568 686,245
-------------- ----------------
Total liabilities and stockholders' equity $ 1,203,639 $ 1,117,840
============== ================
</TABLE>
The accompanying notes are an integral part
of these consolidated condensed financial statements.
4
<PAGE> 5
CAMCO INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended March 31
------------------------------
1998 1997
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 27,595 $ 19,810
Adjustments to reconcile net income to net cash
provided by operating activities, net of
effects of acquisitions -
Gain from sale of assets (506) (1,087)
Depreciation and amortization 15,456 14,927
Provision for deferred and other taxes 5,810 6,764
Increase in accounts receivable (30,197) (16,209)
Increase in inventories (9,119) (5,185)
Increase in accounts payable 1,916 4,105
Decrease in accrued liabilities (3,872) (2,779)
Increase (decrease) in income taxes payable 4,971 (3,085)
Decrease in other, net 60 1,388
------------- -------------
Net cash provided by operating activities 12,114 18,649
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (14,975) (19,994)
Proceeds from sale of property, plant and equipment 526 1,623
Business acquisitions, net of cash acquired (16,528) (9,490)
Investment in joint venture (23,617) -
Change in subsidiary year-end - (6,496)
Other - (4,777)
------------- -------------
Net cash used in investing activities (54,594) (39,134)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in borrowings under revolving credit facility 45,000 -
Increase in other debt - 11,448
Dividends paid to stockholders (1,844) (1,918)
Proceeds from exercise of stock options 3,614 463
Change in subsidiary year-end and other - 6,332
------------- -------------
Net cash provided by financing activities 46,770 16,325
------------- -------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS 247 (399)
------------- -------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 4,537 (4,559)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 57,255 42,645
------------- -------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 61,792 $ 38,086
============== =============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest $ 2,321 $ 2,245
Cash paid for income taxes $ 6,219 $ 9,304
</TABLE>
The accompanying notes are an integral part
of these consolidated condensed financial statements.
5
<PAGE> 6
CAMCO INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended March 31
------------------------------
1998 1997
------------ -------------
<S> <C> <C>
Net income $ 27,595 $ 19,810
Other comprehensive income:
Foreign currency translation adjustments 1,858 (4,950)
------------ -------------
Comprehensive income $ 29,453 $ 14,860
============ =============
</TABLE>
The accompanying notes are an integral part
of these consolidated condensed financial statements.
6
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CAMCO INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
In the opinion of Camco International Inc. and subsidiaries ("Camco" or
the "Company") management, the accompanying unaudited consolidated condensed
financial statements include all adjustments necessary to present fairly the
Company's financial position as of March 31, 1998, and its results of operations
and cash flows for the three months ended March 31, 1998 and 1997. Although the
Company believes that the disclosures are adequate to make the information
presented not misleading, certain information and footnote disclosures normally
included in annual consolidated financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted pursuant
to the rules and regulations of the Securities and Exchange Commission. These
consolidated condensed financial statements should be read in conjunction with
the Company's Annual Report on Form 10-K for the year ended December 31, 1997.
The results of operations for the three months ended March 31, 1998 may not be
indicative of the results for the full year.
Merger with Production Operators Corp
On June 13, 1997, Camco acquired Production Operators Corp ("Production
Operators"), a market leader in total responsibility gas compression services.
The business combination was accounted for using the pooling-of-interests method
of accounting. Accordingly, these financial statements have been prepared as if
Camco and Production Operators were combined as of the beginning of the earliest
period presented.
Other Comprehensive Income
The Company adopted Statement of Financial Accounting Standards
("SFAS") No. 130, "Reporting Comprehensive Income," in the first quarter of
1998. The only current difference between net income and comprehensive income is
the change in the cumulative translation adjustment for foreign currency, a
separate component of stockholders' equity in the accompanying consolidated
condensed balance sheets.
Earnings Per Share
SFAS No. 128, "Earnings Per Share," was adopted by the Company in the
fourth quarter of 1997 and all earnings per share previously reported have been
restated. Basic earnings per share is computed by dividing net income by the
weighted average common shares outstanding. Diluted earnings per share is
computed by dividing net income by the weighted average number of common and
common equivalent shares outstanding. The computation of diluted earnings per
share includes the dilutive effects of options to purchase common stock and
restricted stock grants, which aggregated 809,000 and 965,000 for the three
months ended March 31, 1998 and 1997, respectively.
2. BUSINESS ACQUISITIONS
During the first quarter of 1998, the Company acquired two well service
businesses in the United States for $16.5 million in cash. The results of
operations of these businesses are included in the accompanying financial
statements from the dates of acquisition.
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CAMCO INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (CONTINUED)
3. INVENTORIES
Consolidated inventories, net of allowances, are summarized as follows
(in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
-------------- ---------------
(Unaudited)
<S> <C> <C>
Raw materials $ 21,660 $ 19,916
Parts and components 66,153 69,656
Work-in-process 24,552 24,079
Finished goods 104,039 92,820
-------------- ---------------
$ 216,404 $ 206,471
============== ===============
</TABLE>
Work-in-process and finished goods inventories include the cost of
materials, labor and plant overhead. The excess of current costs, determined
using the first-in, first-out basis, over the carrying values of those
inventories accounted for on a last-in, first-out basis was approximately $11.8
million and $10.0 million at March 31, 1998 and December 31, 1997, respectively.
4. COMMITMENTS AND CONTINGENCIES - LEGAL PROCEEDINGS
The Company is involved in certain lawsuits and claims arising in the
normal course of business, including claims by federal and local authorities
under various environmental protection laws. In the opinion of management,
uninsured losses, if any, resulting from the ultimate resolution of these
matters will not have a material adverse effect on the financial position or
results of operations of the Company.
8
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
General
The Company is one of the world's leading providers of oilfield
equipment and services for numerous specialty applications in key phases of the
oil and gas drilling, completion and production sectors of the oilfield service
industry. Many of the Company's products and services have recognized names in
the industry and are associated with technological innovation and quality. Camco
operates on a worldwide basis with its equipment and services being sold or used
in approximately 50 countries. Demand for and pricing of Camco's equipment and
services is particularly affected by the number of oil and gas wells drilled,
the depth and condition of such wells, the number of well completions and the
level of well service activity worldwide. Drilling, completion and workover
activity in turn is largely dependent on the level and volatility of oil and
natural gas prices, worldwide economic trends, seasonal trends and political
stability in oil producing countries.
On June 13, 1997, Camco acquired Production Operators, a market leader
in total responsibility gas compression services. The business combination was
accounted for using the pooling-of-interests method of accounting. Accordingly,
the financial information reflected in this document has been prepared as if
Camco and Production Operators were combined as of the beginning of the earliest
period presented.
Current Industry Conditions
While the Company's long-term outlook for drilling, completion and
production activity is very positive based on the supply and demand fundamentals
for crude oil and natural gas, short-term uncertainty exists with respect to the
outlook for the industry, particularly in North America, given the recent
volatility in the price of crude oil. The price of West Texas Intermediate
("WTI") crude oil averaged slightly below $16 per barrel during the first three
months of 1998, and declined to below $14 per barrel on two occasions in March
and April of 1998. The Company has observed a recent decline in drilling, well
service and workover activity in the United States, particularly on land, as a
result of the decline in crude oil prices. Drilling activity in Canada has also
declined from first quarter levels, primarily as a result of the normal spring
thaw which increases the cost of moving drilling rigs to new locations.
Additionally, the Canadian rig count is lower compared to last year when
relatively high crude oil prices and a shortage of drilling rigs provided
incentive for some producers to continue drilling through the spring thaw. U.S.
natural gas prices and gas drilling activity has remained relatively high this
year, somewhat mitigating the impact of the decline of crude oil prices. The
Company believes that if WTI crude oil prices remain low for a prolonged period
or if U.S. natural gas prices were to decline substantially, drilling,
completion and production activity in North America, particularly in land-based
markets, could decline further. The Company expects international drilling,
completion and production activities to remain relatively stable as most
international projects do not fluctuate based on short-term changes in commodity
prices.
QUARTER ENDED MARCH 31, 1998 COMPARED TO QUARTER ENDED MARCH 31, 1997
Consolidated revenues for the first quarter 1998 increased $32.6
million, or 16.7%, to $228.1 million from $195.5 million in the same quarter of
1997. This increase reflects higher sales of electrical submersible pumps
("ESPs") and an increase in drilling activity from the first quarter of 1997.
Product revenues increased $27.8 million, or 22.6%, to $151.3 million for the
first three months of 1998, from $123.4 million for the same period in 1997,
primarily due to higher sales of ESPs and drill bits in all geographic regions
of the world. Service revenues increased $4.7 million to $76.8 million in the
first quarter of 1998, with improvements in ESP and drilling related services
offset by a decline in completion and well service revenues in the United States
and Nigeria.
Revenues in the United States and Canada increased $4.6 million, or
5.4%, to $90.2 million in the first quarter of 1998 from $85.6 million in the
first quarter of 1997. The increase is principally due to increases in sales of
drill bits and ESPs and was partially offset by a slight decrease in completion
product and well service revenues. On the strength of higher sales of ESPs,
completion products and contract gas compression services, Mexico and Central
and South American revenues for the first quarter of 1998 were $44.1 million,
40.9% higher than in the same period in 1997. Revenues were up 19.8%, in Europe
to $38.9 million for the 1998 quarter, reflecting increased
9
<PAGE> 10
sales of ESPs in the Former Soviet Union and improved sales of drill bits and
completion products and services. Revenues in the Middle East and Africa
improved by 14.7% over 1997 levels to $34.2 million, due to higher sales of
drill bits and increased ESP sales and related services, partially offset by a
decline in completion and well service revenues in Nigeria, where market
activity has decreased significantly due to continued political and economic
instability. Far East revenues improved to $20.6 million in the first quarter of
1998, 26.7% higher than the first quarter 1997, reflecting significantly higher
sales of ESPs.
Gross margins increased $17.4 million to $99.6 million, or 43.7% of
revenues in the first quarter of 1998, from $82.2 million, or 42.1% of revenues
in the same period 1997. This margin increase in 1998 reflects higher volume and
favorable shifts in geographic and product sales mix along with modest pricing
improvement in drill bits and ESPs.
Selling, general and administrative expenses ("SG&A") increased $4.1
million to $52.8 million in the first quarter of 1998, in conjunction with the
revenue increase. SG&A as a percentage of revenues declined to 23.2% in the
first quarter of 1998 from 24.9% in the same period in 1997, as a portion of
these expenses are not directly variable with revenues.
Operating income increased $13.0 million, or 41.0%, in the first
quarter of 1998 to $44.6 million, or 19.6% of revenues, from $31.6 million, or
16.2% of revenues in the first quarter of 1997, as a result of the significant
increase in revenues combined with improved gross margin and SG&A as a
percentage of revenues.
Net interest expense increased slightly to $1.6 million for the first
quarter of 1998 reflecting an increase in outstanding debt.
FINANCIAL CONDITION
Capital Resources and Liquidity
Cash provided by operating activities was $12.1 million during the
three months ended March 31, 1998, a decrease of $6.5 million from the prior
year comparable period. This decrease in cash flows from operating activities is
primarily a result of the substantial increase in activity levels from the prior
year and the resulting increase in working capital requirements. During the
first three months of 1998, cash was also used to fund $15.0 million in capital
expenditures, pay $16.5 million for business acquisitions, invest an additional
$23.6 million in its 33 1/3%-owned Venezuelan joint venture and pay dividends to
stockholders of $1.8 million. Financing activities provided $46.8 million of
cash during the first three months of 1998, of which $45.0 million was
attributable to borrowings under the Company's revolving credit facility.
Borrowing availability under the revolving credit facility was $65.0
million as of March 31, 1998. The Company believes that cash flow from
operations combined with the unused portion of the revolving credit facility
should provide it with sufficient capital resources and liquidity to meet its
debt service requirements and manage its business needs.
10
<PAGE> 11
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is involved in certain lawsuits and claims arising in the
normal course of business, including claims by federal and local authorities
under various environmental protection laws. In the opinion of management,
uninsured losses, if any, resulting from the ultimate resolution of these
matters will not have a material adverse effect on the financial position or
results of operations of the Company.
ITEM 5. OTHER INFORMATION
DISCLOSURES REGARDING FORWARD-LOOKING STATEMENTS
This document contains forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995 concerning, among other
things, the Company's prospects, developments and business strategies for its
operations, all of which are subject to certain risks, uncertainties and
assumptions. These forward-looking statements are identified by their use of
terms and phrases such as "expect," "estimate," "project," "believe" and similar
terms and phrases. These risks include changes in market conditions in the oil
and gas industry, declines in prices of oil and gas, political instability in
foreign countries in which the Company operates, currency fluctuations and
contracts, in particular those in Nigeria, South America and Southeast Asia,
increased competition in the Company's markets, governmental restrictions
affecting oil and gas exploration, the ability of the Company to integrate and
realize anticipated synergies for its acquisitions, including that of Production
Operators, the ability of the Company to achieve and execute internal business
plans, and the impact of any economic downturns and inflation and other market
factors affecting the demand and supply of oil and gas and the products and
services relating thereto. Should one or more of these risks or uncertainties
materialize, or should underlying assumptions prove incorrect, actual results
may vary materially from those expected, estimated or projected.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27.1 Financial Data Schedule
(b) Reports on Form 8-K
None.
11
<PAGE> 12
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.
By: /s/ GARY D. NICHOLSON
----------------------------------------------
Gary D. Nicholson
Chairman of the Board of Directors
President and Chief Executive Officer
(Principal Executive Officer)
May 6, 1998
By: /s/ BRUCE F. LONGAKER, JR.
----------------------------------------------
Bruce F. Longaker, Jr.
Vice-President Finance and
Corporate Controller
(Principal Accounting Officer)
May 6, 1998
12
<PAGE> 13
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
No. Description
- ------- -----------
<S> <C>
27.1 Financial Data Schedule.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 61,792
<SECURITIES> 0
<RECEIVABLES> 225,763
<ALLOWANCES> (16,674)
<INVENTORY> 216,404
<CURRENT-ASSETS> 556,163
<PP&E> 728,436
<DEPRECIATION> (372,613)
<TOTAL-ASSETS> 1,203,639
<CURRENT-LIABILITIES> 251,303
<BONDS> 0
0
0
<COMMON> 387
<OTHER-SE> 717,181
<TOTAL-LIABILITY-AND-EQUITY> 1,203,639
<SALES> 228,067
<TOTAL-REVENUES> 228,067
<CGS> 128,456
<TOTAL-COSTS> 181,296
<OTHER-EXPENSES> 2,170
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,593
<INCOME-PRETAX> 43,008
<INCOME-TAX> 15,413
<INCOME-CONTINUING> 27,595
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 27,595
<EPS-PRIMARY> .73
<EPS-DILUTED> .72
</TABLE>
