<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
(Amendment No. 1)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal year ended December 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-13884
COOPER CAMERON CORPORATION
(Exact name of Registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C>
Delaware 76-0451843
State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
515 Post Oak Boulevard
Houston, Texas
(Address of principal 77027
executive offices) (Zip Code)
</TABLE>
Registrant's telephone number,
including area code
(713) 513-3300
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
<TABLE>
<CAPTION>
<S> <C>
Name of Each Exchange on
Title of Each Class Which Registered
- ---------------------------------------- ------------------------
Common Stock, Par Value $0.01 Per Share New York Stock Exchange
Junior Participating Preferred Stock New York Stock Exchange
Purchase Rights
Par Value $0.01 Per Share
</TABLE>
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 Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [x] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in a definitive proxy or information
statement incorporated by reference in Part III of this Form 10-K of any
amendment to this Form 10-K. [x]
The number of shares of Common Stock, par value $.01 per share, outstanding
as of March 8, 1996 was 25,146,232.
The aggregate market value of the Common Stock, par value $0.01 per share,
held by non-affiliates of the Registrant as of March 8, 1996 was approximately
$826,502,000. For the purposes of the determination of the above statement
amount only, all directors and executive officers of the Registrant are presumed
to be affiliates.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Registrant's Annual Report to Stockholders for 1995 are
incorporated by reference into Part II.
Portions of Registrant's 1995 Proxy Statement for the Annual Meeting of
Stockholders to be held May 2, 1996 are incorporated by reference into Part III.
<PAGE>
The purpose of this filing is to amend Part II, Item 7, Management's
Discussion and Analysis of Results of Operations and Financial Condition to add
certain explanatory language under the caption "1995 Compared to 1994"
describing the estimated impact on future results of the charge for
nonrecurring/unusual items described in Note 3 of the Notes to Consolidated
Financial Statements and to provide further information as to the basis of the
goodwill impairment charge.
Additionally, the Company is amending Part II, Item 8, Financial
Statements and Supplementary Data, to reclassify the $441,000,000 charge taken
on June 30, 1995 related to the impairment of goodwill from the opening value of
net assets transferred to the Company by its former parent, Cooper Industries,
Inc., (capital in excess of par value) to the Company's opening retained deficit
as shown in the 1995 Consolidated Balance Sheet. Related changes have also been
made to the Statement of Consolidated Changes in Stockholders' Equity as well as
Notes 13 and 14 of the Notes to Consolidated Financial Statements.
The above changes, which have no impact on total stockholders' equity,
were made at the request of the Staff of the U.S. Securities and Exchange
Commission following a review of the Company's recent 1934 Exchange Act filings.
Also included with this filing as Exhibit 23 is an updated consent of
the Company's independent auditors, Ernst & Young, LLP.
<PAGE>
Part II - Item 7 - Management's Discussion and Analysis of Results of Operations
and Financial Condition
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION OF COOPER CAMERON CORPORATION
The following discussion of the Company's historical results of
operations and financial condition should be read in conjunction with the
Company's consolidated financial statements and notes thereto included elsewhere
in this Annual Report.
Overview
The Company's operations are organized into two separate and distinct
business segments --- Petroleum Production Equipment and Compression and Power
Equipment. Petroleum Production Equipment, which includes the Cameron division
and Wheeling Machine (through November 1995), manufactures and markets a wide
variety of equipment for use in oil and natural gas production, transmission and
drilling including valves, wellhead equipment, blowout preventers ("BOPs") and
control systems for land, platform and subsea applications. Compression and
Power Equipment, which includes Cooper Energy Services and Cooper
Turbocompressor, manufactures and markets engines, gas turbines and centrifugal
gas and air compressors for use in oil and natural gas production and
transmission as well as a wide variety of other industrial applications.
The following table sets forth the percentage relationship to revenues
of certain income statement items for the periods presented.
<TABLE>
YEARS ENDED DECEMBER 31,
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1995 1994 1993
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<S> <C> <C> <C>
Revenues 100.0% 100.0% 100.0%
- ------------------------------------------------------------------------------------------------------------------------------------
Cost and expenses:
Cost of sales, exclusive of depreciation and amortization 77.1 75.6 72.3
Depreciation and amortization 6.3 6.3 5.3
Selling and administrative expenses 15.8 16.0 14.5
Interest expense 2.0 1.8 1.2
Provision for impairment of goodwill 38.6 -- --
Nonrecurring/unusual charges 3.6 -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total costs and expenses 143.4 99.7 93.3
- ------------------------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes (43.4) 0.3 6.7
Income taxes (0.3) (0.6) (2.9)
- ------------------------------------------------------------------------------------------------------------------------------------
Net income (loss) (43.7)% (0.3)% 3.8%
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</TABLE>
<PAGE>
1995 COMPARED TO 1994
Cooper Cameron Corporation had a net loss of $500.1 million, or $19.87
per share, for the twelve months ended December 31, 1995 compared to a net loss
of $3.7 million, or $.15 per share on a pro forma basis, for the same period in
1994. The full year 1995 loss includes $482.5 million pre-tax of nonrecurring
or unusual charges explained in Note 3 of the Notes to Consolidated Financial
Statements. The largest item included in the $482.5 million charge was a $441
million reduction in goodwill recorded with respect to the Cameron portion of
the Company's Petroleum Production Equipment Segment. Although this reduction
occurred as a direct result of a change in the Company's method of testing for
goodwill impairment, the change was made because management believed that the
amount of goodwill reflected with respect to Cameron was in excess of the fair
market value of this business' actual going concern goodwill. The Cameron
business had a large operating loss in 1994 and a smaller loss in 1995. While
the projections indicated that Cameron would return to profitability in 1996 and
improve further in future years, the cyclical nature of the business suggested
that future down-turns could also be expected. As a result, cash flow
projections based on an assumed 4% annual growth rate applied to average actual
and projected earnings or losses for 1994 through 1999 were developed which
indicated that, while the goodwill was not impaired on an undiscounted basis,
utilizing a more conservative discounted cash flow evaluation resulted in a
reduced goodwill amount that was more nearly in line with management's
assessment of current actual going concern values. The various items comprising
the $41.5 million residual charge are described in detail in Note 3 of the Notes
to Consolidated Financial Statements. While certain of the items such as the
receivable reserve related to customers in Iran and the Venezuelan translation
loss are not expected to have any direct future earnings benefit, the goodwill
write-down and the reduction in the carrying value of certain fixed assets is
expected to reduce future years' depreciation and amortization expense by
approximately $13.8 million, while the $4.8 million of severance and the $1.3
million of other costs are expected to generate annual earnings and cash flow
savings of approximately $12.9 million per year in addition to approximately
$2.8 million of annual operating and interest savings which will result from the
sales of the Richmond Foundry and Wheeling Machine Products. While the majority
of the actions to which the reorganization and restructuring charges relate were
completed during 1995, all of the actions will be completed by the end of 1996.
Additionally, the Company's tax provision reflects several unusual items as
described in Note 12 of the Notes to Consolidated Financial Statements.
Excluding these nonrecurring/unusual items and the tax provision adjustment, the
net loss for 1995 would have been $13.5 million, or $.54 per share. The
remainder of this discussion will be based on the Company's results exclusive of
these nonrecurring/unusual items.
Operating income (defined as earnings before nonrecurring/unusual items,
corporate expenses, interest, and taxes) totaled $17.4 million for the year,
reflecting a loss of $12.6 million in the Petroleum Production Equipment segment
and income of $30.0 million in the Compression and Power Equipment segment. Due
to the lead time of many of the Company's products, the improvement in market
conditions which began in the second half of 1994 and continued through 1995
was largely not reflected in Cooper Cameron's 1995 financial performance until
the second half of the year. Operating results for the first half of 1995 was a
loss of $19.8 million, comprised of a loss of $21.6 million in the Petroleum
Production Equipment segment and income of $1.8 million in the Compression and
Power Equipment segment. For the second half of the year, operating income
improved to $37.2 million, with $9.0 million of income in Petroleum Production
Equipment and $28.2 million in Compression and Power Equipment. The discussion
of full year 1995 results compared to full year 1994 follows.
REVENUES
Revenues for 1995 totaled $1,144.0 million, an increase of 3% from the
$1,110.1 million in 1994. This increase was due primarily to the effect of oil
prices, which improved during the second half of 1994 and then remained
relatively stable during most of 1995. This trend in oil prices resulted in
stronger international markets in the Petroleum Production Equipment segment.
Providing a partial offset was a steep decline in natural gas prices during the
second half of 1994 followed by stable although relatively low prices during the
first three quarters of 1995. This trend resulted in weaker North American
markets in the Compression and Power Equipment segment. Market conditions
improved with increased natural gas prices in the fourth quarter of 1995 and
strong international gas turbine and compressor project business which began
late in the third quarter, but there was little effect on 1995's revenues due to
the manufacturing lead time of the Company's products. The Company's backlog,
defined as firm customer orders for which a purchase order has been received,
satisfactory credit or financing arrangements exist and delivery is scheduled,
ended the year at $588.1 million, an increase of 27% from the $464.6 million at
year-end 1994.
The Petroleum Production Equipment segment's revenues of $648.1 million
increased 15% over 1994 revenues of $562.7 million. In addition to the oil
price-related improvement in international markets, this segment is also
participating in several large development and production projects in the Gulf
of Mexico. The North American markets, excluding major Gulf of Mexico projects,
was slower to improve, however, due to relatively low natural gas prices during
most of 1995. Major project order activity was strongest in the first quarter of
1995, particularly in the North Sea, but delivery of these orders did not begin
until late in the year, with most of the equipment to be delivered in 1996.
Although major project orders slowed after the first quarter, order activity for
the year was still 13% above the 1994 level. Year-end 1995 backlog for this
segment was $264.5 million, an increase of 8% from year-end 1994.
2
<PAGE>
Revenues for the Compression and Power Equipment segment of $493.6
million declined by 10% from $546.0 million in 1994. This decline was the
result of the weak natural gas prices discussed above and customer delays in
placing international gas turbine and compressor project orders. The U.S. and
Canadian markets for natural gas compression equipment, which tend to be largely
driven by the price of natural gas, were very weak through the first three
quarters of 1995. Additionally, many of the domestic projects in 1995 were in
lower horsepower ranges where certain of the Company's newer product offerings
did not gain full market acceptance until the second half of the year. Also,
major international gas turbine and compressor project orders were very slow to
close until late in the third quarter of 1995. Providing a partial offset to
this decline was continuing strong demand for centrifugal air compressors in
both the air separation and industrial air compressor applications. As a
result, sales of these products increased by approximately $20 million
year-to-year. Segment backlog ended the year at $323.6 million, an improvement
of 47% from 1994 year-end.
COSTS AND EXPENSES
Cost of sales (exclusive of depreciation and amortization) of $881.8
million in 1995 increased by $43.2 million, or 5% compared with $838.6 million
in 1994. This increase was primarily the result of higher revenues and a
product mix shift between segments. As discussed above, revenues increased by
15% in the relatively lower-margin Petroleum Production Equipment segment while
there was a 10% revenue decline in the higher-margin Compression and Power
Equipment segment. For the Petroleum Production Equipment segment, the gross
margin percent (defined as revenues less cost of sales as a percentage of
revenues) increased from 19.3% in 1994 to 20.6% in 1995. This improvement was
largely the result of cost reduction programs and some firming in pricing during
1995 after the very weak market conditions experienced in 1994. For the
Compression and Power Equipment segment, the gross margin percent decreased from
29.6% in 1994 to 25.6% in 1995. This decline reflects lower production levels
caused by reduced orders in the second half of 1994 and the first half of 1995,
resulting in less absorption of manufacturing costs that are relatively fixed in
the short-term. Also contributing to the decline was lower replacement parts
margins caused by a reduction in higher-margin international parts shipments and
very competitive pricing in the North American market.
Depreciation and amortization increased by $1.5 million from $70.2
million in 1994 to $71.7 million in 1995 with both segments reflecting
increases. This increase results not only from the effect of normal capital
additions but also from the classification, for all of 1995 and future periods,
of rental equipment amortization as depreciation rather than cost of sales and
an acceleration of depreciation charges related to certain fixed asset fair
market value adjustments recorded at the time of the acquisition of Cameron Iron
Works, Inc. by Cooper. Providing a partial offset is the reduction in third and
fourth quarter 1995 amortization resulting from the goodwill write-off in the
second quarter of 1995. (See Note 3 of the Notes to Consolidated Financial
Statements for further information).
Selling and administrative expenses increased by $3.2 million, or 2%,
from $177.9 million in 1994 to $181.1 million in 1995. The increase results
primarily from the effects of inflation and some additional costs associated
with the higher revenues, including commissions, which vary with revenue levels.
Providing a partial offset were ongoing cost control programs, including lower
employment levels. As a percentage of sales, selling and administrative costs
for the Company declined from 16.0% in 1994 to 15.8% in 1995. The Petroleum
Production Equipment segment decreased from 17.4% of revenues to 15.3%, while
the Compression and Power Equipment segment increased from 13.1% of revenues to
14.4% as cost reductions were unable to match the revenue decline.
Reflecting the various factors discussed above, operating income for the
Petroleum Production Equipment segment improved from a loss of $35.6 million in
1994 to a loss of $12.6 million in 1995, while the Compression and Power
Equipment segment declined from $66.1 million of income in 1994 to $30.0 million
in 1995.
Interest expense increased from $20.0 million in 1994 to $23.3 million
in 1995. This increase was the result of higher interest rates on the Company's
debt, partially offset by a reduction in the average debt level during the
second half of 1995. For all of 1994 and the first half of 1995, interest
expense was based on a fixed $375 million debt allocation from Cooper, while
debt was reduced from the initial $375 million level at the beginning of the
third quarter of 1995 to $264.5 million at year-end. Average interest rates in
1995 were 6.7% compared to 5.2% in 1994.
Income taxes, excluding both the effect on taxes of the
nonrecurring/unusual pre-tax charges as well as the unusual provision
adjustments which are discussed in Note 12 of the Notes to Consolidated
Financial Statements, was a credit of $0.4 million in 1995. This compares with
$7.1 million of expense in 1994. Because the Company had a pre-tax loss of
$13.9 million in 1995 (excluding the nonrecurring/unusual pre-tax charges)
compared with a profit of $3.3 million in 1994, the effect of items, such as
goodwill, which are not deductible in computing tax expense is less significant
in 1995 than 1994. Also affecting the change in taxes was a lower amount of
goodwill amortization in 1995 than in 1994 as a result of the goodwill write-off
recorded in June of 1995.
While Cooper Cameron did not become a separate, publicly-traded company
until June 30, 1995, the earnings per share amounts for 1994 have been
determined based on a pro forma assumption that 25 million shares would have
been outstanding at each date. Similarly, earnings per share amounts for the
year ended December 31, 1995 are based on actual common and common equivalent
shares outstanding during the third and fourth quarters combined with a constant
25 million shares up through June 30, 1995.
3
<PAGE>
1994 COMPARED TO 1993
REVENUES
Revenues for 1994 totaled $1,110.1 million, a decrease of 17% from
$1,340.8 million in 1993. This decline was due primarily to the weakness in
worldwide petroleum markets, generally during the latter half of 1993 and in
1994. The decline in oil prices beginning in the latter half of 1993 had a
negative impact on orders that typically would have shipped during the 1994
period. The generally lower order rates during the latter half of 1993 and
early 1994, coupled with customer delays in placing several major orders,
resulted in lower revenues during the 1994 period. Also contributing to the
revenue decline was the steep drop in natural gas prices during the second half
of 1994 and the resulting impact on the Company's shorter-cycle products. In
addition, 1993's revenues included approximately $80 million relating to
shipments of turbine-compression equipment for government-sponsored oil and gas
production projects in India that did not recur in 1994. The order related to
these sales in India was received in June 1992 and involved 16 large units that
were produced during the balance of 1992 and throughout 1993 with deliveries and
related sales primarily in the first, second and fourth quarters of 1993. The
Company historically has bid on large multi-unit projects and participated in
similar large projects which benefited 1990 and 1991. During 1994, however,
there were no comparable large multi-unit sales.
Revenues in the Petroleum Production Equipment segment of $562.7 million
in 1994 declined 17% from 1993 revenues of $679.5 million. Although market
activity increased in the North Sea and the Gulf of Mexico during the latter
part of the year, much of the equipment was not delivered until after 1994. The
Company's sales of oil-related petroleum equipment, particularly for delivery in
international markets, were negatively affected by the late-1993 decline in oil
prices and political instability in some areas. Outside of major project
activity, demand for valves and wellheads continued to weaken in 1994 as
customers utilized existing inventories and used equipment, and gas prices
declined during the second half of the year.
Revenues in the Compression and Power Equipment segment also declined
17% from $660.4 million in 1993 to $546.0 million in 1994 and represented about
half of the Company's consolidated revenues. The single largest cause of lower
revenues in 1994 was the 1993 completion and shipment of approximately $80
million of projects in India noted above. This reduction in revenues also
resulted from order delays due to uncertainty in international petroleum markets
and the decline in natural gas prices. During 1994, demand for industrial air
compressors was mixed as strong demand for large air separation equipment more
than offset the effects of sluggish demand for plant air applications. The
North American air separation business was particularly active, with industrial
gas companies adding capacity in response to steel industry demand.
International markets for centrifugal air compressors improved during 1994,
particularly in developing economic areas of the world.
COSTS AND EXPENSES
Cost of sales (exclusive of depreciation and amortization) of $838.6
million in 1994 decreased $132.3 million or 14% compared with cost of sales of
$970.9 million in 1993. The decline was primarily a result of the revenue
declines discussed above. For the Petroleum Production Equipment segment, the
year-to-year cost of sales change resulted in a gross margin percentage (defined
as revenues less cost of sales as a percentage of revenues) of 19.3% in 1994
compared with 24.1% in 1993. This result reflects a combination of less
favorable product mix and competitive pricing pressure as companies struggled to
maintain market share in a declining and uncertain market. For the Compression
and Power Equipment segment, this decrease translated into a 1994 gross margin
percentage of 29.6% compared to 31.1% in 1993. Excluding the effects of lower
LIFO income in 1994 compared to 1993 and the favorable effects resulting from
employee benefit plan changes that did not recur in 1994, this percentage
relationship would have remained essentially unchanged year-to-year.
Depreciation and amortization remained essentially unchanged
year-to-year at approximately $70 million. This result reflects lower
depreciation expense offset by higher amortization expense. The lower
depreciation expense reflects the Company's change in the depreciable life for
machinery and equipment from 10 to 12 years effective mid-year 1993. Higher
amortization expense is related to capitalized software and higher goodwill
amortization as a result of translation effects on goodwill denominated in other
than U.S. dollars. The lower depreciation expense occurred in both segments,
while the higher amortization expense was almost entirely related to the
Petroleum Production Equipment segment.
Selling and administrative expenses declined 8% to $177.9 million in
1994 compared with $194.2 million in 1993. Both segments had year-to-year
declines in absolute dollars, but did not reduce costs to match the steep
revenue declines such that these costs as a percentage of revenues increased by
approximately 1.5 percentage points.
Overall operating income in the Petroleum Production Equipment segment
declined from a profit of $9.6 million in 1993 to a loss of $35.6 million in
1994 while the Compression and Power Equipment segment had a $37.1 million or
36% decrease in 1994 compared with 1993. These results reflect the various
factors discussed above.
Interest expense increased from $15.9 million in 1993 to $20.0 million
in 1994. This increase resulted entirely from higher interest rates on the debt
allocated to the Company (as discussed in the Notes to Consolidated Financial
Statements of the Company, all cash flows were transferred to Cooper such that
outstanding debt, other than with respect to a minor amount of industrial
revenue bonds, remained unchanged from year-to-year). Average interest rates in
1994 were 5.2% compared to 4.2% in 1993.
Income taxes declined from $38.1 million in 1993 to $7.1 million in
1994. Tax expense measured as a percentage of pre-tax income, however,
increased from 42.7% in 1993 to 212% in 1994. This result primarily reflects
the increasing effect, as income becomes lower, of relatively fixed amounts of
nondeductible goodwill.
4
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PRICING AND VOLUME
The Company believes that during 1995 unit volumes increased in the
Petroleum Production Equipment segment and decreased in the Compression and
Power Equipment segment. During 1994, unit volumes are estimated to have
decreased in both the Petroleum Production Equipment and Compression and Power
Equipment segment.
In the Petroleum Production Equipment segment, small price increases
that generally recovered cost increases were implemented during 1995, but during
1994 prices deteriorated slightly due to the very competitive condition of
the markets. In the Compression and Power Equipment segment, prices declined
slightly during 1995 due to the weak natural gas compression equipment markets
throughout most of the year, while small price increases that generally
recovered cost increases were implemented in 1994.
LIQUIDITY AND CAPITAL RESOURCES
Prior to June 30, 1995, the Company's operations participated in
Cooper's consolidated worldwide debt and cash management system. As a result,
the Company's financial statements reflected up through June 30, 1995 the
transfer to Cooper of all funds not otherwise utilized in the business and a
constant $375 million of allocated indebtedness. At the time of the Exchange
Offer, the Company entered into a third party Credit Agreement which is
described in Note 10 of the Notes to Consolidated Financial Statements.
Subsequent to June 30, 1995, the Company's liquidity and capital resources
reflect its stand-alone operations. During its first six months of stand-alone
operations, the Company has been able to substantially improve its overall
liquidity by reducing total indebtedness from $375 million to $264.5 million.
At December 31, 1995, the Company had $210.5 million of committed borrowing
capacity available under the Credit Agreement plus additional uncommitted
amounts under various other borrowing arrangements entered into subsequent to
June 30, 1995. Because of the cyclical nature of the industry in which the
Company competes and the long time period from when the Company first receives a
large equipment order until the product can be manufactured, delivered and the
receivable collected, the Company's liquidity is susceptible to fairly large
swings in relatively short periods of time. As a result, although the Company
believes that its operating results will improve during 1996 as discussed
elsewhere in this Annual Report, the Company does not currently expect further
reductions and may well have an increase in its outstanding indebtedness during
the ensuing year.
WORKING CAPITAL
Operating working capital is defined as receivables and inventories less
accounts payable and accrued liabilities, excluding the effect of foreign
currency translation, acquisitions and divestitures, and the effect of the
nonrecurring/unusual charges discussed above.
During 1995, operating working capital decreased $99.4 million. Because
of various reclassifications during the year, including the large increase in
excess, obsolete and slow-moving inventory reserves discussed in Note 3 of the
Notes to Consolidated Financial Statements, only a portion of the year-to-year
decrease reflects actual cash flows. A $21.2 million receivable decline,
exclusive of a reclassification of $10.3 million of receivables from customers
in Iran as long-term, resulted from lower revenues in December of 1995 than in
1994 and improved collections during the year. The decrease in inventories
largely resulted from the reclassifications noted above, while the increase in
accounts payable and accrued liabilities reflected increased cash advances and
progress payments received from customers against orders in backlog as well as
increases in certain normal trade payables and operating accruals.
During 1994, operating working capital decreased $5.7 million. The
decline in receivables was the result of lower revenues discussed above and an
unusually high receivable balance in 1993 due to the completion in the latter
part of that year of shipments of compression equipment for government-sponsored
oil and gas production projects in India. This decline more than offset
increases in inventories and decreases in accounts payable and accrued
liabilities. The increases in inventories and decreases in accounts payable and
accrued liabilities were due to the timing and stage of completion of various
customer orders.
During 1993, operating working capital increased $2.9 million. A
decrease in inventories partially offset an increase in receivables while
accounts payable and accrued liabilities were relatively unchanged. The
decrease in inventories was due to the decline in backlog experienced by the
Company between 1992 and 1993, whereas the increase in receivables was due to
the significant sale discussed in the preceding paragraph.
CASH FLOWS
During 1995, cash flows from operating activities totaled $142.3
million, proceeds from sales of plant and equipment totaled $5.5 million, and
proceeds from the sale of Wheeling were $14.2 million. The Company expended
$39.5 million on capital projects and reduced outstanding debt by $110.5
million, leaving a cash residual of approximately $12 million.
During 1994, cash flows from operating activities totaled $99.0 million
and proceeds from sales of plant and equipment totaled $5.8 million. The Company
expended $63.5 million on capital projects and transferred $42.6 million to
Cooper.
During 1993, cash flows from operating activities totaled $85.9 million
and proceeds from sales of plant and equipment totaled $4.5 million. The
Company expended $74.4 million on capital projects and transferred $13.8 million
to Cooper.
5
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In connection with accounting for purchase business combinations, the
Company records, to the extent appropriate, accruals for the costs of closing
duplicate facilities, severing redundant personnel and integrating the acquired
business into existing operations. Cash flow from operating activities for each
of the three years in the period ended December 31, 1995 is reduced by the
amounts actually expended and charged against the various accruals established
in connection with these activities. The following table reflects the
remaining accruals at the end of each period and the activity in the three-year
period ended December 31,1995 with respect to Cooper Industries' acquisition of
Cameron Iron Works in 1989, which included the Cameron Oil Tool operations that
represent the major portion of the business constituting the Cameron Division of
Cooper Cameron Corporation:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
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(dollars in millions) 1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Systems Integration:
Beginning of period $ 1.3 $ 1.3 $ 0.8
Spending (0.8) (1.6) (2.7)
Reclassifications (0.5) 1.5 3.4
Translation - 0.1 (0.2)
- --------------------------------------------------------------------------------
End of Period $ - $ 1.3 $ 1.3
================================================================================
Plant Shut-down and Realignment:
Beginning of Period $10.4 $22.3 $38.0
Spending (3.7) (14.7) (20.0)
Reclassifications (7.2) 0.3 4.1
Translation 0.5 2.5 0.2
- --------------------------------------------------------------------------------
End of Period $ - $10.4 $22.3
================================================================================
Other Facility Relocations and Severance:
Beginning of period $ 0.4 $ 1.2 $ 8.9
Spending (0.2) (0.9) (0.8)
Reclassifications (0.2) 0.1 (5.1)
Translation - - (1.8)
- --------------------------------------------------------------------------------
End of Period $ - $ 0.4 $ 1.2
================================================================================
Other Realignment and Integration:
Beginning of period $ 0.1 $ 0.4 $ 1.1
Spending - (0.6) (1.5)
Reclassifications (0.1) 0.3 0.8
Translation - - -
- -------------------------------------------------------------------------------
End of Period $ - $ 0.1 $ 0.4
================================================================================
</TABLE>
Systems Integration accruals represent costs for consolidation and
integration of the Cameron Division's computer hardware and software systems
into existing systems. Spending since acquisition has been for contract
programming, education and training, consulting and other implementation-related
projects. Capitalized costs, including purchased and internally developed
software, are amortized or depreciated over their useful lives. Such costs are
not included in the above table .
Plant Shut-down and Realignment accruals represent the cost for
consolidating facilities in order to eliminate excess manufacturing capacity in
both North America and Europe. The North American consolidation included
facilities in Mexico; Tyler, Texas; and Houston, Texas. In Europe, two
facilities were closed in the United Kingdom and consolidated into a third
facility as well as into operations in France. Spending since acquisition has
primarily been for employee severance or relocation, equipment and inventory
relocation and costs associated with plant closure and preparation for sale of
the associated redundant property.
Other Facility Relocations and Severance accruals primarily represent the
cost of employee severance or relocation relating to sales and marketing staff
and other headquarters personnel of the Cameron Division, including expatriates
and sales agents. Other realignment and integration costs during the three-year
period were not material. Amounts with respect to other acquisitions during the
three-year period were not material to the Company.
During the three-year period ended December 31, 1995, none of these
accruals were reversed to income. Reclassifications through the end of 1994
represent revisions to the initial accruals based on updated estimates of the
actual costs to be incurred in each project. The reclassifications include
excess amounts of $3.2 million in 1993 and $2.2 million in 1994 reclassified
from other accrued liability accounts. At the end of 1995, as discussed in Note
3 of the Notes to Consolidated Financial Statements, the remaining accruals were
reclassified to a reserve for excess, obsolete, and slow-moving inventory.
6
<PAGE>
Over the last three years, the Company spent $47.5 million in the
consolidation and integration of its domestic and international operations.
These expenditures, as well as amounts spent in prior years, have significantly
reduced excess capacity and positioned the business to be able to profitably
participate in the growth of its primary markets.
CAPITAL EXPENDITURES AND COMMITMENTS
Capital projects to reduce product costs, improve product quality,
increase manufacturing efficiency and operating flexibility, or expand
production capacity resulted in expenditures of $39.5 million in 1995 compared
with $63.5 million in 1994 and $74.4 million in 1993.
At December 31, 1995, commitments for capital expenditures amounted to
$21 million compared to $34 million at year-end 1994. The actual 1995
expenditures in excess of year-end 1994 commitments relate to projects carried
over from 1994. The commitments for 1996 include approximately $.5 million for
capacity expansion, $12 million for machinery and equipment modernization and
enhancement, $5 million for various computer hardware and software projects,
$1.5 million for environmental projects, and $2 million for other items.
EFFECT OF INFLATION
During each year, inflation has had a relatively minor effect on the
Company's reported results of operations. This is true primarily for three
reasons. First, in recent years, the rate of inflation in the Company's primary
markets has been fairly low. Second, the Company makes extensive use of the
LIFO method of accounting for inventories. The LIFO method results in current
inventory costs being matched against current sales dollars, such that inflation
affects earnings on a current basis. Finally, many of the assets and
liabilities included in the Company's Consolidated Balance Sheets were recorded
in business combinations that were accounted for as purchases. At the time of
such acquisitions, the assets and liabilities were adjusted to a fair market
value and, therefore, the cumulative long-term effect of inflation is reduced.
ENVIRONMENTAL REMEDIATION
The cost of environmental remediation and compliance has not been an
item of material expense for the Company during any of the periods presented,
other than with respect to the Osborne Landfill in Grove City, Pennsylvania.
The Company's facility in Grove City disposed of wastes at the Osborne Landfill
from the early 1950s until 1978. Cooper, on behalf of the Company, developed a
remediation plan, which was accepted by the U.S. Environmental Protection Agency
as the preferred remedy for the site. Cleanup is in process and the Company has
assumed responsibility for the remediation plan and compliance with the order
issued by the EPA in 1991. The Company's balance sheet at December 31, 1995,
includes accruals totaling $11.4 million for environmental matters. Cooper
Cameron has been identified as a potentially responsible party with respect to
ten sites designed for cleanup under the Comprehensive Environmental Response
Compensation and Liability Act ("CERCLA") or similar state laws. Although
estimated cleanup costs have not yet been made for certain of these sites, the
Company believes, based on its review and other factors, that the costs relating
to these sites will not have a material adverse effect on the Company's results
of operations, financial condition, or liquidity. However, no assurance can be
given that the actual cost will not exceed the estimates of the cleanup costs
once determined.
OTHER
In various places in this Annual Report, including the information set
forth above in the Company's Management's Discussion and Analysis, there may be
indications of management's current expectations regarding the future results of
operations or financial condition of the Company. Such information, if any, is
based on current expectations regarding the markets affecting the Company and
other matters which can affect the Company's results of operations, liquidity or
financial condition. Because such information is based solely on data currently
available, it is subject to change as a result of changes in conditions and
should not therefore be viewed as assurance regarding the Company's future
performance. Additionally, the reader of this information should be aware that
the Company is not obliged to inform the reader of such changes as they occur or
make public indication of changes unless obliged under applicable disclosure
rules and regulations.
7
<PAGE>
Part II-Item 8-Financial Statements and Supplementary Data
<PAGE>
REPORT OF INDEPENDENT AUDITORS
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS
COOPER CAMERON CORPORATION
We have audited the accompanying consolidated balance sheets of Cooper
Cameron Corporation as of December 31, 1995 and 1994, the related statements of
consolidated results of operations, and consolidated cash flows for each of the
three years in the period ended December 31, 1995 and the statement of
consolidated changes in stockholders' equity for the period from June 30, 1995
to December 31, 1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Cooper Cameron Corporation at December 31, 1995 and 1994, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1995, in conformity with generally accepted accounting
principles.
As discussed in Note 3 of the Notes to Consolidated Financial
Statements, upon separating from its former parent in 1995, the Company adopted
a new method of evaluating goodwill for impairment.
/s/ Ernst & Young LLP
Houston, Texas
January 31, 1996
<PAGE>
CONSOLIDATED RESULTS OF OPERATIONS
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Years Ended December 31,
- --------------------------------------------------------------------------------
1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues $1,144,035 $1,110,076 $1,340,778
- --------------------------------------------------------------------------------
Costs and expenses
Cost of sales (exclusive of
depreciation and amortization) 881,798 838,575 970,944
Depreciation and amortization 71,754 70,233 70,413
Selling and administrative expenses 181,097 177,902 194,242
Interest expense 23,273 20,023 15,852
Provision for impairment of
goodwill 441,000 - -
Nonrecurring/unusual charges 41,509 - -
- --------------------------------------------------------------------------------
1,640,431 1,106,733 1,251,451
- --------------------------------------------------------------------------------
Income (loss) before income taxes (496,396) 3,343 89,327
Income tax provision (3,657) (7,089) (38,138)
- --------------------------------------------------------------------------------
Net income (loss) $(500,053) $(3,746) $51,189
================================================================================
Earnings (loss) per share (pro forma
prior to June 30, 1995) $ (19.87) $ (0.15) $ 2.05
================================================================================
</TABLE>
The Notes to Consolidated Financial Statements are an integral part of these
statements.
2
<PAGE>
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except shares and per share data)
<TABLE>
<CAPTION>
December 31,
- -----------------------------------------------------------------------------------
1995 1994
- -----------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 12,074 $ -
Receivables, net 192,170 230,647
Receivable from Cooper Industries, Inc. - 36,607
Inventories 308,456 352,420
Other 16,056 8,734
- -----------------------------------------------------------------------------------
Total current assets 528,756 628,408
- -----------------------------------------------------------------------------------
Plant and equipment, at cost less accumulated
depreciation 346,583 384,098
Intangibles, less accumulated amortization 233,257 668,249
Other assets 26,809 29,625
- -----------------------------------------------------------------------------------
Total assets $1,135,405 $1,710,380
===================================================================================
LIABILITIES AND STOCKHOLDERS'
EQUITY/NET ASSETS
Current maturities of long-term debt $ 29,700 $ 200
Accounts payable and accrued liabilities 283,973 274,207
Accrued income taxes 3,036 2,001
- -----------------------------------------------------------------------------------
Total current liabilities 316,709 276,408
- -----------------------------------------------------------------------------------
Long-term debt 234,841 374,800
Postretirement benefits other than pensions 103,382 107,717
Deferred income taxes 22,066 21,253
Other long-term liabilities 34,819 52,073
- -----------------------------------------------------------------------------------
Total liabilities 711,817 832,251
- -----------------------------------------------------------------------------------
Stockholders' equity/net assets:
Net assets - 878,129
Common stock, par value $.01 per share,75,000,000
shares authorized, 25,146,232 shares issued and
outstanding 251 -
Preferred stock, par value $.01 per share, 10,000,000
shares authorized, no shares issued or outstanding - -
Capital in excess of par value 859,671 -
Minimum pension liability (($6,139)included in net
assets at December 31, 1994) (5,600) -
Translation component ($10,795 included in net
assets at December 31, 1994) 31,517 -
Retained deficit (including $441,000 charge on
June 30, 1995 related to goodwill impairment) (462,251) -
- -----------------------------------------------------------------------------------
Total stockholders' equity/net assets 423,588 878,129
- -----------------------------------------------------------------------------------
Total liabilities and stockholders' equity/net assets $1,135,405 $1,710,380
===================================================================================
</TABLE>
The Notes to Consolidated Financial Statements are an integral part of these
statements.
3
<PAGE>
CONSOLIDATED CASH FLOWS
(dollars in thousands)
[CAPTION]
<TABLE>
Years Ended December 31,
- --------------------------------------------------------------------------------
1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (500,053) $ (3,746) $ 51,189
Adjustments to reconcile net income (loss)
to cash provided by operating activities:
Depreciation 51,120 43,505 46,426
Amortization 20,634 26,728 23,987
LIFO liquidation income (1,272) (2,675) (11,653)
Provision for impairment of goodwill 441,000 - -
Nonrecurring/unusual charges 38,634 - -
Allocation of interest and general and
administrative expenses from Cooper
Industries, Inc. through June 30, 1995
(net of tax) /1/ 9,539 17,130 14,588
Deferred income taxes 2,338 24,828 20,433
Changes in assets and liabilities net of
translation, reclassifications related to
pending divestitures and other non-cash
activities:
Receivables 31,473 76,110 (57,253)
Inventories 38,266 (23,839) 49,346
Accounts payable and accrued liabilities 29,617 (46,522) 5,049
Other assets and liabilities, net (18,949) (12,480) (56,247)
- --------------------------------------------------------------------------------
Net cash provided by operating activities 142,347 99,039 85,865
- --------------------------------------------------------------------------------
Cash flows from investing activities:
Capital expenditures (39,526) (63,510) (74,404)
Proceeds from sales of plant and equipment 5,530 5,754 4,497
Net proceeds from the sale of Wheeling 14,191 - -
- --------------------------------------------------------------------------------
Net cash used for investing activities (19,805) (57,756) (69,907)
- --------------------------------------------------------------------------------
Cash flows from financing activities:
Borrowings 334,062 - -
Loan repaid to Cooper Industries, Inc. (334,062) - -
Loan repayments, net (110,459) - -
Transferred (to) from Cooper
Industries, Inc. /1/ 971 (42,627) (13,753)
- --------------------------------------------------------------------------------
Net cash used for financing activities (109,488) (42,627) (13,753)
- --------------------------------------------------------------------------------
Effect of translation on cash (980) 1,344 (2,205)
- --------------------------------------------------------------------------------
Increase in cash and cash equivalents 12,074 - -
- --------------------------------------------------------------------------------
Cash and cash equivalents, beginning of year - - -
- --------------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 12,074 $ - $ -
================================================================================
</TABLE>
/1/Revised for comparability with 1995 presentation.
The Notes to Consolidated Financial Statements are an integral part of these
statements.
4
<PAGE>
CONSOLIDATED CHANGES IN STOCKHOLDERS' EQUITY
For the period from June 30, 1995 to December 31, 1995
(dollars in thousands)
[CAPTION]
<TABLE>
CAPITAL IN MINIMUM
COMMON EXCESS OF PENSION TRANSLATION RETAINED
STOCK PAR VALUE LIABILITY COMPONENT DEFICIT
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Opening equity
balances following
split-off on June
30, 1995 /1/ $ 250 $856,713 $ (3,683) $ 37,901 $ -
Charge to operations
on June 30,
1995 related to
goodwill impairment (441,000)
Operating loss from
July 1, 1995 through
December 31, 1995 (21,251)
Common stock issued for
employee retirement
savings plan 1 2,958
Adjustment for
minimum pension
liability (1,917)
Translation loss (6,384)
- --------------------------------------------------------------------------------
Balance-December
31, 1995 $ 251 $859,671 $ (5,600) $ 31,517 $(462,251)
- --------------------------------------------------------------------------------
</TABLE>
/1/Restated to reflect the effect of the final settlement reached with Cooper
during the fourth quarter of 1995. See Note 14 of the Notes to Consolidated
Financial Statements for addditional information related to periods prior to
July 1, 1995.
The Notes to Consolidated Financial Statements are an integral part of these
statements.
5
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: COOPER CAMERON CORPORATION
Cooper Cameron Corporation, hereinafter referred to as "the Company",
became a separate public company effective June 30, 1995 when Cooper Industries,
Inc. ("Cooper") completed an exchange offer, pursuant to which 21,375,000 shares
of the Company's Common stock were issued to those holders of Cooper Common
stock who had elected to participate in the exchange offer. Cooper retained
3,625,000 shares of the Company's Common stock and is one of the Company's
principal stockholders. Prior to completion of the exchange offer, the Company
was comprised of four separate operating divisions which comprised the Petroleum
& Industrial Equipment segment of Cooper. Following the sale of Wheeling
Machine Products, as discussed in Note 3 of the Notes to Consolidated Financial
Statements, the Company is now comprised of three divisions grouped into two
segments as follows: Cameron, headquartered in Houston, Texas which, following
the sale of Wheeling Machine Products, is the only division in the Petroleum
Production Equipment segment; Cooper Energy Services, headquartered in Mt.
Vernon, Ohio and Cooper Turbocompressor, headquartered in Buffalo, New York
which together comprise the Compression and Power Equipment segment.
Although the Company was not a separate public company prior to June 30,
1995, the financial statements for periods prior to this date are presented as
if the Company had existed as an entity separate from its parent, Cooper, and
include the assets, liabilities, revenues and expenses that were directly
related to the Company's operations. All transactions among the four previous
divisions and the three current divisions have been eliminated.
Because the majority of the Company's domestic results and, in certain
cases, foreign results were included in the consolidated financial statements of
Cooper on a divisional basis, there are no separate meaningful historical equity
accounts for the Company prior to June 30, 1995. Additionally, for periods
prior to June 30, 1995, amounts of Cooper's general corporate, accounting, tax,
legal and other administrative costs that are not directly attributable to the
operations of the Company have been allocated to the Company based on (1)
appropriate percentages of certain departments that comprised Cooper's Corporate
Office and (2) a ratio of the Company's revenues to the consolidated revenues of
Cooper (including the Company) for other Corporate departments. Management
believes this allocation method provided the Company with a reasonable amount of
such expenses. The difference for each of the years presented between the
selling and administrative expenses calculated utilizing the method described
above and the actual cost of such expenses that the Company has incurred on a
stand-alone basis since June 30, 1995 is not material.
For periods prior to June 30, 1995, in addition to a small amount of
domestic debt related to industrial revenue bonds, approximately $370,685,000 of
Cooper's long-term debt and related interest were allocated to the Company in
its historical financial statements. Because the Company was fully integrated
into Cooper's worldwide cash management system, all of its cash requirements
were provided by Cooper and any excess cash generated by the Company was
transferred to Cooper. As a result, $375,000,000 of total indebtedness was held
constant from year-to-year in the Company's consolidated financial statements.
The financial information included herein for periods prior to June 30, 1995 may
not necessarily be indicative of the balance sheet, results of operations or
cash flows of the Company in the future or what the balance sheet, results of
operations or cash flows of the Company would have been if it had been a
separate, stand-alone company during all periods presented.
In connection with the exchange offer, Cooper, on behalf of the Company,
executed an agreement between the Company and Cooper pursuant to which all of
the Company's assets and liabilities were legally transferred from Cooper to the
Company. As part of this agreement there was a required cash settlement between
the two companies that was intended to reflect the approximate net amount of
cash which the Company either used (which needed to be refunded to Cooper) or
generated (which needed to be reimbursed to the Company) during the period from
October 1, 1994 through the completion of the exchange offer on June 30, 1995.
This required cash settlement was completed by the two companies during the
fourth quarter of 1995 and resulted in the Company receiving approximately
$4,750,000. In addition, approximately $9,518,000 of third party liabilities
which had been paid by Cooper on the Company's behalf were not required to be
reimbursed by the Company. The difference between these amounts and the
Company's estimate of the net amount due from Cooper, which was recorded in the
Company's financial statements at June 30, 1995, was approximately $8,817,000
and has been reflected as a reduction in the opening balance of the Company's
stockholders' equity.
NOTE 2: SUMMARY OF MAJOR ACCOUNTING POLICIES
Estimates in Financial Statements - The preparation of financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Principles of Consolidation - The consolidated financial statements
include the accounts of the Company and all majority-owned subsidiaries.
Investments of 50% or less in affiliated companies are accounted for on the
equity method.
Inventories - Inventories are carried at cost or, if lower, net
realizable value. On the basis of current costs, 64% of inventories in 1995 and
66% in 1994 are carried on the last-in, first-out (LIFO) method. The remaining
inventories are carried on the first-in, first-out (FIFO) method.
6
<PAGE>
Plant and Equipment -- Depreciation is provided over the estimated useful
lives of the related assets using primarily the straight-line method. This
method is applied to group asset accounts which in general have the following
lives: buildings - 10 to 40 years; machinery and equipment - 3 to 18 years; and
tooling, dies, patterns, etc: - 5 to 10 years. Effective with the third quarter
of 1993, the Company changed the depreciable life of most existing and future
machinery and equipment additions from 10 years to 12 years. This change, which
reflected a return to the 12-year depreciable life used until the mid-1980s,
resulted from a review by the Company that indicated the useful life of its
machinery and equipment was longer than ten years for a number of reasons,
including lower utilization rates and maturing technology for computer
numerically controlled machinery and equipment. Consequently, the depreciable
life was changed to more nearly reflect the actual period of time during which
the machinery and equipment will be utilized by the business.
Intangibles -- Intangibles consist primarily of goodwill related to purchase
acquisitions. With minor exceptions, the goodwill is being amortized over 40
years from respective acquisition dates. The carrying value of the Company's
goodwill is reviewed by division at least annually or whenever there are
indications that the goodwill may be impaired. Prior to June 30, 1995, the
determination of goodwill recoverability was based on undiscounted cash flows
over the remaining amortization periods. As described further in Note 3,
concurrent with becoming a separate stand-alone entity, the Company changed to a
method of using discounted cash flows to evaluate long-lived assets, including
goodwill, for impairment. Under this new method, the carrying value of goodwill
was reduced by $441,000,000 at June 30, 1995, representing the estimated
shortfall in cash flows.
Income Taxes -- Income taxes are provided as if the Company was a stand-alone
business filing a separate tax return during each period presented prior to June
30, 1995. The Company determines tax expense and other deferred tax information
in compliance with Statement of Financial Accounting Standards (SFAS) No. 109
(Accounting for Income Taxes). Income tax expense includes U.S. and foreign
income taxes, including U.S. federal taxes on undistributed earnings of foreign
subsidiaries to the extent such earnings are planned to be remitted.
Environmental Remediation and Compliance -- Environmental remediation costs
are accrued, except to the extent costs can be capitalized, based on estimates
of known environmental remediation exposures. Environmental compliance costs
include maintenance and operating costs with respect to pollution control
facilities, costs of ongoing monitoring programs and similar costs. Such costs
are expensed as incurred. Capitalized environmental costs are depreciated
generally utilizing a 15-year life.
Product Warranty -- Estimated warranty expense is accrued either at the time
of sale or in certain cases where specific warranty problems are encountered.
Adjustments to the accruals are made periodically to reflect actual experience.
Earnings (Loss) Per Share -- Earnings (loss) per share amounts are based on
the weighted average number of shares and common stock equivalents outstanding
during the period. For periods prior to June 30, 1995, earnings (loss) per
share amounts have been computed on a pro forma basis based on the assumption
that 25,000,000 shares of common stock were outstanding during each period
presented. For the year ended December 31, 1995, the number of shares utilized
in the calculation of the loss per share was 25,166,000.
Cash Equivalents -- For purposes of the Statement of Consolidated Cash Flows,
the Company considers all investments purchased with original maturities of
three months or less to be cash equivalents.
Pending Changes in Accounting Principles -- During 1995, the Financial
Accounting Standards Board issued Statement No. 121 (Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of) and
Statement No. 123 (Accounting for Stock-Based Compensation). As required by the
standards, the Company will adopt both SFAS No. 121 and SFAS No. 123 during
1996. Since the Company's current policy for the evaluation of long-lived
assets, including goodwill, is more conservative than the approach required
under SFAS No. 121, there will be no effect on the Company at the time of
adopting this new standard. As permitted by SFAS No. 123, the Company will
continue to follow the existing accounting requirements for stock options and
stock-based awards contained in APB Opinion No. 25 (Accounting for Stock Issued
to Employees)and related Interpretations and Consensuses of the Emerging Issues
Task Force in terms of measuring compensation expense. Beginning in 1996,
however, the Company will provide the pro forma disclosures required by SFAS No.
123 for entities electing not to adopt the fair value accounting method
specified in the new standard.
7
<PAGE>
NOTE 3: NONRECURRING/UNUSUAL ITEMS
During 1995, the Company recorded approximately $482,509,000 of unusual
charges including a $441,000,000 write-down of goodwill and $41,509,000 of other
items. The goodwill write-down, which was recorded concurrent with the Company
becoming a separate stand-alone entity on June 30, 1995, resulted from a change
in the Company's accounting method of evaluating long-lived assets, including
goodwill, for impairment. Prior to that date, long-lived assets were evaluated
utilizing undiscounted cash flows in accordance with the practice followed by
the Company's former parent. Under the Company's new practice, long-lived
assets are evaluated based on discounted cash flows (See Note 2 for further
information regarding the Company's accounting policies). This write-down was
related entirely to the Cameron division of the Petroleum Production Equipment
segment. Recorded goodwill with respect to the other divisions and the
remaining goodwill with respect to the Cameron division is not impaired under
the new evaluation policy.
The other unusual items included the following:
<TABLE>
<CAPTION>
Thousands
- -------------------------------------------------------------------------------
<S> <C>
Receivable reserve related to customers in Iran $16,890
Reorganization and restructuring of various operations 10,109
Loss on pending sale of Richmond foundry 7,310
Translation loss from currency devaluation in Venezuela 5,709
Loss on sale of Wheeling Machine 1,491
- -------------------------------------------------------------------------------
Total $41,509
===============================================================================
</TABLE>
The receivable reserve, which was established in May 1995, reflected the
Company's desire to conservatively value these receivables in light of the
Clinton Administration's May 8, 1995 implementation of an economic embargo
against Iran. Although the Company has received some payments from customers in
Iran, none of the Company's reserves with respect to Iran have been reversed and
all of the receivables outstanding at December 31, 1995 are fully reserved. It
is the Company's intention, given the current political environment with respect
to Iran, to carefully evaluate this reserve as the Company's overall exposure
with respect to Iran changes.
The reorganization and restructuring charge includes $4,823,000 of
severance with respect to employees, all of whom have been notified regarding
the terms of their severance arrangements, $4,026,000 of reduction in the
carrying value of various fixed assets which will no longer be utilized in the
Company's operations following the completion of various projects currently in
process and $1,260,000 of various other costs. Following completion of the
Company's separation from Cooper, management's focus has been primarily on the
Cameron division. During 1996, the Company intends to continue its review of
marketing, manufacturing and other business processes which may result in
additional restructuring costs being incurred.
In late December 1995, the Company entered into a definitive agreement
regarding the sale of the Cameron division's Richmond, Texas, foundry. In
contemplation of this sale, which should be consummated in early March 1996, the
Company wrote-down the assets covered by the sale agreement and recorded other
costs associated with the sale. During 1995, the foundry had an operating loss
of approximately $2,700,000.
The currency devaluation loss resulted from the December 1995
government-announced devaluation of the Bolivar. Following the devaluation, the
remaining net assets and equity investment with respect to the Venezuelan
operations aggregated approximately $4,366,000.
In November 1995, the Company consummated the sale of its Wheeling
Machine Products division. This business, which was included in the Company's
Petroleum Production Equipment segment, had 1995 sales of approximately
$14,000,000 and a small operating profit. The $14,191,000 of net cash sales
proceeds were utilized to reduce outstanding indebtedness.
Of the $41,509,000 charge described above, only approximately $7,796,000
requires the utilization of cash, of which approximately $2,875,000 was expended
during 1995. In addition to the above items, the Company has also reviewed all
reserves and accruals that were recorded as of June 30, 1995 in accordance with
Cooper's various policies, procedures and practices. This review identified a
number of accruals related to plant or other facility shutdowns, reorganizations
or restructurings which the Company will not be undertaking, a severance accrual
recorded in connection with the Company's adoption of SFAS No. 112 which no
longer appears appropriate, an excess pension accrual and various other items
which are no longer appropriate. The Company also reviewed all of its
inventories on a worldwide basis and determined that, while the inventories net
of LIFO reserves were appropriately stated at the lower of cost or market, a
significant amount of inventories exist which are in excess of levels which
current management believes are appropriate. As a result, the various excess
reserves and accruals described above, plus an additional charge of
approximately $4,000,000 against the Company's fourth quarter 1995 results, have
been utilized to establish approximately $34,500,000 of additional obsolete,
excess and slow-moving inventory reserves. During 1996, it is the Company's
intention to actively pursue the disposition of a large portion of this
inventory either by sale at reduced prices or, in certain instances, physical
scrapping.
8
<PAGE>
NOTE 4: RECEIVABLES
Current and long-term receivables consist of the following:
[CAPTION]
<TABLE>
DECEMBER 31,
- --------------------------------------------------------------------------------
(dollars in thousands) 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Trade receivables $194,893 $219,202
Other receivables 11,642 22,686
Allowance for doubtful accounts (12,886) (9,688)
Unearned interest income (1,479) (1,553)
- --------------------------------------------------------------------------------
$192,170 $230,647
================================================================================
Noncurrent Assets:
Long-term receivables $ 10,809 $ 577
Allowance for doubtful accounts (10,336) -
- --------------------------------------------------------------------------------
$ 473 $ 577
================================================================================
</TABLE>
Additions to the allowance for doubtful accounts of $18,511,000, $525,000,
and $497,000 have been charged to expense for the years ended December 31,
1995, 1994, and 1993, respectively. A total of $16,890,000 of the expense
charged during 1995 is reflected on the Statement of Consolidated Results of
Operations as a nonrecurring/unusual charge (see Note 3 of the Notes to
Consolidated Financial Statements).
NOTE 5: INVENTORIES
[CAPTION]
<TABLE>
DECEMBER 31,
- --------------------------------------------------------------------------------
(dollars in thousands) 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Raw materials $ 56,381 $ 60,496
Work-in-process 147,827 144,262
Finished goods, including parts and subassemblies 242,251 242,749
Other 3,808 4,908
- --------------------------------------------------------------------------------
450,267 452,415
Excess of current standard costs over LIFO costs (101,482) (90,994)
Allowance for obsolete and slow-moving inventory (40,329) (9,001)
- -------------------------------------------------------------------------------
Net inventories $308,456 $352,420
================================================================================
</TABLE>
See Note 3 of the Notes to Consolidated Financial Statements for a
discussion of the increase in the allowance for obsolete and slow-moving
inventory. During 1995, 1994 and 1993, reductions in inventory quantities
resulted in liquidations of LIFO inventory layers carried at lower costs
prevailing in prior years. The effect was to increase net income by $785,000,
$1,605,000 and $6,992,000 in 1995, 1994 and 1993, respectively.
9
<PAGE>
NOTE 6: PLANT AND EQUIPMENT AND INTANGIBLES
<TABLE>
<CAPTION>
DECEMBER 31,
- ------------------------------------------------------------------------------------------------------------------------------------
(dollars in thousands) 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Plant and equipment:
Land and land improvements $ 28,534 $ 31,521
Buildings 150,570 165,920
Machinery and equipment 355,250 350,963
Tooling, dies, patterns, etc. 35,186 28,956
All other 91,740 89,103
Construction in progress 14,102 23,011
- ------------------------------------------------------------------------------------------------------------------------------------
675,382 689,474
Accumulated depreciation (328,799) (305,376)
- ------------------------------------------------------------------------------------------------------------------------------------
$ 346,583 $ 384,098
====================================================================================================================================
Intangibles:
Goodwill $ 361,811 $ 783,221
Assets related to pension plans 1,408 1,564
Other 48,897 40,542
- ------------------------------------------------------------------------------------------------------------------------------------
412,116 825,327
Accumulated amortization (178,859) (157,078)
- ------------------------------------------------------------------------------------------------------------------------------------
$ 233,257 $ 668,249
====================================================================================================================================
</TABLE>
10
<PAGE>
NOTE 7: ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
<TABLE>
<CAPTION>
December 31,
- -------------------------------------------------------------------------------------------------
(dollars in thousands) 1995 1994
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Trade accounts and accruals $ 174,517 $ 171,896
Salaries, wages and related fringe benefits 27,520 28,616
Payroll and other taxes 16,521 13,557
Product and environmental liability accruals 15,571 17,208
Accrued warranty 19,879 14,511
Deferred taxes 16,059 13,478
Other (individual items less than 5% of total current liabilities) 13,906 14,941 /1/
- -------------------------------------------------------------------------------------------------
$ 283,973 $ 274,207
=================================================================================================
</TABLE>
/1/ Revised for comparability with 1995.
At December 31, 1995, the Company had accruals totaling $6,287,000 with
respect to potential product liability claims and accruals of $11,380,000 with
respect to potential environmental liabilities based on the current estimate of
the most likely amount of liabilities that it believes will be incurred.
Of the $6,287,000 of total product liability accruals, $4,191,000
relates to known claims with respect to ongoing operations and are reflected as
a current liability at December 31, 1995, while $2,096,000 relates to an
estimate of claims that have been incurred but not yet reported and are
reflected as a long-term liability at December 31, 1995. While the Company is
generally self-insured with respect to product liability claims, insurance
coverage was in place on July 1, 1995 for individual claims received in excess
of $1,000,000. Prior to July 1, 1995, insurance coverage was in place for
individual claims in excess of $1,000,000 for products utilized in oilfield
applications and in excess of $3,000,000 for all other products. At December
31, 1995, there were no claims where any insurance recovery has been assumed,
and the one claim over $1,000,000 at December 31, 1994 was settled during 1995.
Of the $11,380,000 of environmental liability accruals, $3,403,000
relates to sites owned by the Company and $7,977,000 relates to third party
sites where the Company was a contributor. Third party sites usually involve
multiple contributors where the Company's liability will be determined based on
an estimate of the proportionate responsibility for the total cleanup. The
amount actually accrued for such sites is based on these estimates as well as an
assessment of the financial capacity of the other potentially responsible
parties. Environmental liabilities are not generally subject to insurance
recovery and no amounts of insurance recovery have been deducted in arriving at
the Company's accruals. In addition, the Company has capitalized a total of
$2,217,000 with respect to environmental remediation (net book value of
$2,045,000) at December 31, 1995.
11
<PAGE>
NOTE 8: EMPLOYEE BENEFIT PLANS
<TABLE>
<CAPTION>
COMPONENTS OF DEFINED BENEFIT
PLAN PENSION EXPENSE
- -----------------------------------------------------------------------------------------------------------------------------------
(dollars in thousands) 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost-benefits earned during the year $ 7,728 $ 9,042 $ 8,767
Interest cost on projected benefit obligation 15,587 15,068 16,634
Actual return on assets (45,321) 204 (25,050)
Net amortization and deferral 26,745 (19,055) 5,767
- ------------------------------------------------------------------------------------------------------------------------------------
Net pension cost $ 4,739 $ 5,259 $ 6,118
===================================================================================================================================
FUNDED STATUS OF DEFINED BENEFIT PLANS
PLANS WITH
PLANS WITH ASSETS IN EXCESS ACCUMULATED BENEFITS
OF ACCUMULATED BENEFITS IN EXCESS OF ASSETS
- -----------------------------------------------------------------------------------------------------------------------------------
(dollars in thousands) 1995 1994 1995 1994
- -----------------------------------------------------------------------------------------------------------------------------------
Actuarial present value of:
Vested benefit obligation $(170,048) $(149,080) $(39,181) $(36,393)
====================================================================================================================================
Accumulated benefit obligation $(179,501) $(157,519) $(41,670) $(38,992)
===================================================================================================================================
Projected benefit obligation $(187,777) $(165,206) $(42,715) $(39,556)
Plan assets at fair value 218,701 182,293 30,340 29,279
- -----------------------------------------------------------------------------------------------------------------------------------
Plan assets in excess of (less than)
projected benefit obligation 30,924 17,087 (12,375) (10,277)
Unrecognized net (gain) loss (4,440) 10,444 9,557 6,611
Unrecognized net (asset) obligation from
adoption date (2,713) (3,441) 1,312 1,549
Unrecognized prior service cost (1,187) (1,306) 74 70
Other __ __ (290) (345)
Adjustment required to recognize
minimum liability __ __ (10,477) (7,703)
- ------------------------------------------------------------------------------------------------------------------------------------
Pension asset (liability) at end of year $ 22,584 $ 22,784 $(12,199) $(10,095)
====================================================================================================================================
COMPUTATIONAL ASSUMPTIONS
PROJECTED BENEFIT
NET PENSION COST OBLIGATION
- ------------------------------------------------------------------------------------------------------------------------------------
1995 1994 1993 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
Discount rate:
Domestic 8% 7% 8.5% 7.25% 8%
International 7.5-9 6-7.75 7.5-9 6.5-9 7.5-9
Rate of increase in compensation levels:
Domestic 5 5 5.5 5 5
International 4-6 4-5.5 4-6 4-6 4-6
Expected long-term rate of return on assets:
Domestic 8.5 8.5 9 -- --
International 6.5-10 6-9.5 7.5-10 -- --
Benefit basis:
Salaried plans - earnings during career
Hourly plans - dollar units, multiplied by years of service
Funding policy: 5-30 years
</TABLE>
12
<PAGE>
During 1994 and prior years, when the Company was a part of Cooper, the
domestic salaried employees participated in the Salaried Employees' Plan of
Cooper Industries, Inc., while the United Kingdom (U.K.) salaried and hourly
employees participated in a combined plan along with certain other employees in
the U.K. The domestic hourly employees generally participated in various hourly
plans that were specific to the Company. Under one of the hourly plans,
employee savings deferrals were partially matched with company contributions of
cash. For the year 1995, in connection with the split-off from Cooper, a
separate Cooper Cameron Salaried Employees' Pension Plan was established as well
as a separate plan in the U.K. These new plans assumed the liabilities with
respect to all active, inactive and retired employees of the Company and were
transferred a pro-rata share of the assets contained in the respective Cooper
plans. The amounts shown in the preceding tables for 1994 and 1993 reflect an
allocation to the Company calculated by Cooper's actuaries while the amounts
shown for 1995 have been determined by separate actuarial valuations of the
newly established plans. Aggregate pension expense amounted to $13,572,000 in
1995, $13,737,000 in 1994 and $13,628,000 in 1993. The Company's expense with
respect to defined benefit pension plans is set forth in the table above.
Expense with respect to the domestic defined contribution plans for the years
ended December 31, 1995, 1994 and 1993 amounted to $8,833,000, $8,383,000 and
$7,510,000, respectively. Gains and losses on curtailments and settlements were
not material in any of the last three years. The assets of the domestic and
foreign plans are maintained in various trusts and consist primarily of equity
and fixed income securities.
The Company's minimum liability for pension plans with accumulated
benefits in excess of assets totaled $10,477,000 in 1995 and $7,703,000 in 1994
and has been recorded in the Company's Consolidated Balance Sheets as a
long-term liability with a $1,408,000 offsetting intangible asset in 1995 and
$1,564,000 in 1994. In addition, the Company recorded a $5,600,000 reduction in
stockholders' equity in 1995 ($6,139,000 in 1994).
The Company's full-time domestic employees who are not covered by a
bargaining unit are also eligible to participate in the Cooper Cameron
Corporation Retirement Savings Plan. Under this plan, which is essentially the
same as the Cooper plan in which employees participated prior to April 1, 1995,
employee's savings deferrals are partially matched with shares of the Company's
Common stock. Through March 1995, contributions were partially matched with
Cooper Common stock. At the time of the split-off from Cooper, the Company's
employees participating in the plan were permitted to specify the extent to
which they wanted the Cooper Common shares held on their behalf to be eligible
for participation in the exchange offer. As a consequence, employees may have
shares of the Company's Common stock being held on their behalf in excess of the
shares issued under the plan since April 1, 1995. The Company's expense under
this plan since April 1995 equals the matching contribution under the Plan's
formula, while the expense prior to April 1995 and in 1994 and 1993 equalled
such matching expense adjusted to reflect the Company's proportionate
participation during those years in Cooper's Employee Stock Ownership Plan
(ESOP). No assets or liabilities with respect to Cooper's ESOP were included in
the Company's financial statements for either 1994 or 1993. Expense for the
years ended December 31, 1995, 1994 and 1993 amounted to $5,753,000, $6,983,000
and $4,211,000, respectively. For 1995, the Company issued 146,232 shares of
Common stock and purchased in the open market an additional 33,411 shares to
meet the matching obligations under the plan.
During 1993, for the domestic operations of the Compression and Power
Equipment segment, the Company changed its salaried and hourly vacation policies
to eliminate carryover vacation rights. No approval was required in the case of
the salaried employees and appropriate labor union approvals were obtained in
the case of hourly employees. This change resulted in a one-time expense
reduction of $3,500,000 in 1993.
13
<PAGE>
NOTE 9: STOCK OPTIONS AND EMPLOYEE STOCK PURCHASE PLAN
LONG-TERM INCENTIVE PLAN
<TABLE>
<CAPTION>
Shares Range of Option Prices
- ---------------------------------------------------------------------------------------
<S> <C> <C>
Stock options outstanding at January 1, 1995 --- ---
Options granted to employees 1,589,185 $16.657 - $26.25
Options cancelled (42,022) $16.657
- --------------------------------------------------------------------------------------
Stock options outstanding at December 31, 1995 1,547,163 $16.657 - $26.25
======================================================================================
</TABLE>
Options to purchase Common stock are granted to certain executive
officers and key management personnel at not less than 100% of the market value
of the Company's stock at the date of grant. The options issued during 1995
expire ten years from the date of grant and generally become one-sixth
exercisable one year after the date of grant, one-third on each of the second
and third anniversary dates following the date of grant and one-sixth at the end
of four years. Certain key executives also elected to receive options in lieu
of salary for the period beginning July 1, 1995. The options granted under the
Options in Lieu of Salary Program are exercisable one year after the date of
grant and expire on June 30, 2000. As of December 31, 1995, none of the options
granted were exercisable and 952,837 shares of Common stock were reserved for
future grants.
NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
Each year, non-employee directors receive one-third of their annual
retainer in stock options and may elect to receive the remainder in cash or
additional options. The number of options granted to each director is
determined using a specified formula. The exercise price of each option is
based on the fair market value of the Company's stock at the date of grant. The
options expire five years and one day after the date of grant and become
exercisable one year following the date of grant. During 1995, options covering
52,421 shares of Common stock were granted at an exercise price of $16.657 per
share. As of December 31, 1995, none of the options granted were exercisable
and 197,579 shares of Common stock were reserved for future grants.
EMPLOYEE STOCK PURCHASE PLAN
Under the Cooper Cameron Employee Stock Purchase Plan, the Company is
authorized to issue up to 1,000,000 shares of Common stock to its full-time
domestic and Canadian employees, nearly all of whom are eligible to participate.
Under the terms of the Plan, employees may elect each year to have up to 10% of
their annual compensation withheld to purchase the Company's Common stock. The
purchase price of the stock is 85% of the lower of the beginning-of-plan year or
end-of-plan year market price of the Company's Common stock. In the first
offering under the plan, approximately 1,600 employees have elected to purchase
235,000 shares of the Company's Common stock at $18.965 per share, or 85% of the
market price of the Company's Common stock on July 31, 1996, if lower.
14
<PAGE>
NOTE 10: LONG-TERM DEBT
<TABLE>
<CAPTION>
December 31,
- ----------------------------------------------------------------------------
(dollars in thousands) 1995 1994
- ----------------------------------------------------------------------------
<S> <C> <C>
Floating-rate term loans $198,400 $ --
Floating-rate revolving credit advances 31,553 --
Debt allocated from Cooper -- 370,685
Other long-term debt 34,588 4,315
- ----------------------------------------------------------------------------
264,541 375,000
Current maturities (29,700) (200)
- ----------------------------------------------------------------------------
Long-term portion $234,841 $374,800
============================================================================
</TABLE>
On June 30, 1995, the Company entered into a $475,000,000 Credit
Agreement with various lenders to repay the $375,000,000 of outstanding bank
indebtedness guaranteed by Cooper and to provide for the Company's general
borrowing requirements. The Credit Agreement provided the Company with an
aggregate unsecured borrowing capacity consisting of $200,000,000 of floating-
rate term loans with scheduled quarterly principal payments through March 31,
2000 and $275,000,000 of floating-rate revolving credit advances ultimately
maturing on June 30, 2000. At December 31, 1995, the weighted average interest
rates on the term loans and revolving credit advances were 6.51% and 5.93%,
respectively. As described further in Note 17, the Company has entered into
interest rate swaps with an average maturity of 2.25 years and with a notional
value of $125,000,000 at December 31, 1995, resulting in an effective fixed rate
of 6.275% beginning January 1, 1996 on a portion of the Company's outstanding
debt. The Credit Agreement specifies certain financial covenants which the
Company must meet on a quarterly basis and includes other covenants limiting the
payment of dividends, repurchase of stock and various other activities. The
Company is also required to pay a commitment fee, which at December 31, 1995
equalled .20% annually, on the unused portion of the credit facility.
In addition to the Credit Agreement, the Company has $34,588,000 of
unsecured debt outstanding at the end of 1995 under other credit facilities
which are available primarily to its foreign subsidiaries. The average interest
rate on this debt at December 31, 1995 was 6.59%. These additional amounts
borrowed, including the revolving credit advances, which by their terms
represent current liabilities, have been reclassified to long-term debt,
reflecting the Company's ability and intention to refinance such amounts under
the long-term Credit Agreement.
Prior to June 30, 1995, the Company's cash and debt were managed on a
worldwide basis through Cooper's consolidated cash and debt management system.
As a result, the actual amounts of cash or debt historically related to the
businesses now making up the Company were not previously determinable.
Accordingly, the Asset Transfer Agreement between Cooper and the Company
specified a fixed amount of $375,000,000 of debt be allocated to the Company for
periods through June 30, 1995 with all positive or negative cash flows being
treated as transferred to or from Cooper.
For the years 1995, 1994 and 1993, total interest expense was
$23,273,000, $20,023,000 and $15,852,000, respectively, including $11,858,000 of
interest allocated to the Company by Cooper for the six-month period ended June
30, 1995. Interest expense for periods prior to June 30, 1995 is based on a
Cooper interest rate that includes both domestic and foreign interest costs
believed to be reflective of where the Company carried out its primary business
functions. For the six months ended June 30, 1995 and the years 1994 and 1993,
aggregate interest rates amounted to 6.3%, 5.2% and 4.2%, respectively.
Interest paid by the Company and paid on the Company's behalf by Cooper is not
materially different from the amounts expensed.
Maturities of long-term debt, which are based primarily on the scheduled
payments of the term loans for the five years subsequent to December 31, 1995,
are $29,700,000, $47,100,000, $49,600,000, $57,100,000 and $81,041,000,
respectively.
At December 31, 1995, the Company had two long-term leases extending out
16 and 21 years and involving annual rental payments of approximately
$4,000,000. The Company also has numerous other operating leases pertaining to
sales offices, office equipment, data processing equipment and other items. The
obligations with respect to these leases are generally for less than three years
and are not considered to be material individually or in the aggregate.
15
<PAGE>
NOTE 11: POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
Following the split-off from Cooper, the Company's salaried employees have
participated in various domestic employee welfare benefit plans, including
medical, dental and prescriptions among other benefits for active employees.
These plans are essentially the same as the plans which employees participated
in as part of Cooper. Salaried employees who retired prior to 1989, as well as
certain other employees who were near retirement and elected to receive certain
benefits, have retiree medical, prescription and life insurance benefits, while
active salaried employees will not have postretirement health care benefits.
The hourly employees had under Cooper, and continue to have under the
Company, separate plans with varying benefit formulas. In all cases, however,
currently active employees, except for certain employees who are near
retirement and previously elected to receive certain benefits, will not receive
health care benefits after retirement. All of these plans were and continue to
be unfunded.
The amounts reflected in the table that follows represent the Company's
expense and liability as actuarially determined under SFAS No. 106 for the plan
year beginning January 1, 1995, and in the case of prior years, the Company's
proportionate amounts in various plan groupings actuarially evaluated in
arriving at Cooper's overall expense for these plans. The 1995 separate
actuarial valuation did not result in any significant changes in the 1995
amounts by comparison with prior years. The decrease in postretirement benefit
expense from 1994 to 1995 is primarily attributable to an increase in the
amortization of accumulated actuarial gains. These accumulated actuarial gains
have resulted primarily from the Company's actual medical claims experience
being less than expected at the time of the Company's adoption of SFAS No. 106.
<TABLE>
<CAPTION>
Amounts Per Consolidated
Accumulated Items Not Yet Recorded Financial Statements
Post- in Consolidated Liability for
retirement Benefit Financial Statements Postretirement Net
Obligation Prior Actuarial Benefits Other Annual
(dollars in thousands) (APBO) Service Cost Net Gain Than Pensions Expense
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance-December 31, 1992 $(111,694) $ - $ - $(111,694) $ -
Benefit payments 3,887 3,887
Plan amendments 1,000 (1,000)
Actuarial net gain 20,500 (20,500)
Plan expense:
Service cost (200) 200
Interest cost (6,100) 6,100
Amortization of prior
service cost 100 (100)
Curtailment gains
(three plans) 5,400 (5,400)
-------
Net annual expense (800) $ 800
- ---------------------------------------------------------------------------------------------------------
Balance-December 31, 1993 (87,207) (900) (20,500) (108,607)
Plan amendments 2,600 (2,600)
Benefit payments 3,908 3,908
Actuarial net gains 21,800 (21,800)
Plan expense:
Service cost (300) $ 300
Interest cost (5,000) 5,000
Amortization of prior
service cost 600 (600)
Amortization of
actuarial net gain 1,682 (1,682)
--------
Net annual expense (3,018) $ 3,018
- ---------------------------------------------------------------------------------------------------------
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
Amounts Per Consolidated
Accumulated Items Not Yet Recorded Financial Statements
Post- in Consolidated Liability for
retirement Benefit Financial Statements Postretirement Net
Obligation Prior Actuarial Benefits Other Annual
(dollars in thousands) (APBO) Service Cost Net Gain Than Pensions Expense
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance-December 31,1994 (64,199) (2,900) (40,618) (107,717)
Benefit payments 4,035 4,035
Actuarial net gains 6,500 (6,500)
Plan expense:
Service cost (200) $ 200
Interest cost (5,200) 5,200
Amortization of
prior service cost 600 (600)
Amortization of
actuarial net gain 5,100 (5,100)
-------
Net annual income 300 $ (300)
- --------------------------------------------------------------------------------------------------------
Balance-December 31, 1995 $(59,064) $(2,300) $(42,018) $(103,382)
========================================================================================================
December 31,
- --------------------------------------------------------------------------------------------------------
1995 1994
- --------------------------------------------------------------------------------------------------------
Amount of APBO related to:
Retired employees $(50,364) $(55,699)
Employees eligible to retire (5,600) (4,400)
Other employees (3,100) (4,100)
Actuarial assumptions:
Discount rate 7.18% 8.52%
Ensuing year to 2002-healthcare cost trend rate 10.0% 14.5%
ratable to ratable to
5.0% 5.5%
Effect of 1% change in healthcare cost trend rate:
Increase year-end APBO $ 3,800 $ 4,900
Increase expense $ 400 $ 400
</TABLE>
17
<PAGE>
NOTE 12: INCOME TAXES
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
- -----------------------------------------------------------------------------------------------------------------------------------
(dollars in thousands) 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income (loss) before income taxes:
U.S. operations $(181,285) $ 348 $ 62,606
Foreign operations (315,111) 2,995 26,721
- ------------------------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes $(496,396) $ 3,343 $ 89,327
====================================================================================================================================
Income taxes:
Currently payable (receivable):
U.S. federal $ (2,111) $ (15,740) $ 14,212
U.S. state and local and franchise 1,170 (2,168) 5,021
Foreign 2,260 169 (828)
- ------------------------------------------------------------------------------------------------------------------------------------
1,319 (17,739) 18,405
- ------------------------------------------------------------------------------------------------------------------------------------
Deferred:
U.S. federal (6,168) 17,221 6,216
U.S. state and local (927) 4,026 1,453
Foreign 1,051 3,581 12,764
- ------------------------------------------------------------------------------------------------------------------------------------
(6,044) 24,828 20,433
- ------------------------------------------------------------------------------------------------------------------------------------
Other:
Effect of change in U.S. federal tax rate on recorded tax balances -- -- (700)
Reserve for prior year deferred tax assets 8,382 -- --
- ------------------------------------------------------------------------------------------------------------------------------------
8,382 -- (700)
- ------------------------------------------------------------------------------------------------------------------------------------
Income tax expense $ 3,657 $ 7,089 $ 38,138
====================================================================================================================================
Items giving rise to deferred income taxes:
Tax depreciation in excess of (less than) book depreciation $ (1,549) $ (298) $ 5,269
Reserves and accruals (2,309) 17,775 22,008
Inventory allowances, full absorption and LIFO (8,111) 8,509 (3,837)
Other 5,925 (1,158) (3,007)
- ------------------------------------------------------------------------------------------------------------------------------------
Deferred income taxes $ (6,044) $ 24,828 $ 20,433
====================================================================================================================================
The differences between the provision for income taxes and income
taxes using the U.S. federal income tax rate were as follows:
U.S. federal statutory rate 35.00% 35.00% 35.00%
Nondeductible goodwill (0.97) 241.24 8.93
Provision for impairment of goodwill (31.09) -- --
State and local income taxes (0.23) 13.25 3.97
Tax exempt income 0.34 (58.35) (2.78)
Foreign statutory rate differential 0.02 (17.67) (1.15)
Change in valuation of prior year tax assets (1.69) -- --
Losses not receiving a tax benefit (2.18) -- --
All other 0.06 (1.41) (1.28)/2/
- -----------------------------------------------------------------------------------------------------------------------------------
Total (0.74)% 212.06% 42.69%
===================================================================================================================================
Total income taxes paid/1/ $ 4,248 $ 7,201 $ 12,724
===================================================================================================================================
/1/ For periods prior to June 30, 1995, the Company paid taxes to Cooper, who in turn paid the taxes to the various taxing
authorities. The amount shown for 1995 represents tax actually paid by the Company since June 30, 1995 and foreign taxes paid by
Cooper on the Company's behalf through June 30, 1995. Information regarding U.S. taxes paid or refunds received by Cooper on the
Company's behalf during the first half of 1995 is not available.
/2/ Revised for comparability with 1995.
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
December 31,
- -------------------------------------------------------------------------------
(dollars in thousands) 1995 1994/1/
- -------------------------------------------------------------------------------
<S> <C> <C>
Components of deferred tax balances:
Deferred tax liabilities:
Plant and equipment $(45,669) $ (47,218)
Inventory (34,203) (42,314)
Pensions ( 7,648) ( 6,676)
Other ( 6,553) (12,861)
- -------------------------------------------------------------------------------
Total deferred tax liabilities (94,073) (109,069)
- -------------------------------------------------------------------------------
Deferred tax assets:
Postretirement benefits other than pensions 39,222 43,086
Reserves and accruals 32,495 26,717
Net operating losses and related deferred tax assets 28,324 17,518
Other 4,126 2,017
- -------------------------------------------------------------------------------
Total deferred tax assets 104,167 89,338
- -------------------------------------------------------------------------------
Valuation allowance (43,324) (15,000)
- -------------------------------------------------------------------------------
Net deferred tax liabilities $(33,230) $ (34,731)
===============================================================================
/1/ Revised for comparability with 1995.
</TABLE>
Although prior to June 30, 1995 the Company's operations were included
in the consolidated U.S. federal and certain combined state income tax returns
of Cooper, the tax provisions and tax liabilities through that date were
determined as if the Company was a stand-alone business filing a separate tax
return. Under the agreement between Cooper and the Company pursuant to which the
Company's assets and liabilities were legally transferred, the U.S. federal and
state and local income and franchise tax liability for periods prior to June 30,
1995 was retained by Cooper and accordingly, the Company does not have any non-
deferred tax accruals with respect to these liabilities. Except for the
Company's foreign subsidiaries in Germany, Norway and Canada, where the
Company's assets and liabilities were transferred pursuant to agreements with
Cooper comparable to the domestic agreement referred to above, prior year
foreign tax liabilities are the responsibility of the Company. For periods after
June 30, 1995, the Company has responsibility for its tax liabilities on a
worldwide basis.
The tax provision includes U.S. tax expected to be payable on the
foreign portion of the Company's income before income taxes when such earnings
are remitted. The Company's accruals for continuing operations are sufficient
to cover the additional U.S. taxes estimated to be payable on the earnings that
the Company anticipates will be remitted. Through December 31, 1995, this
amounted to essentially all unremitted earnings of the Company's foreign
subsidiaries except certain unremitted earnings in the U.K. and Ireland.
As described in Note 3, the Company had a $441,000,000 non-deductible
goodwill write-off as well as $41,509,000 of nonrecurring/unusual charges during
1995. Of the $41,509,000, approximately $18,600,000 was treated as a
non-deductible expense because it related to the Company's international
operations in countries where the operations have experienced losses over the
last several years. In addition to the nonrecurring/unusual charges, these same
international operations also had operating losses during 1995 which aggregated
$12,300,000 that were treated as non-deductible. Lastly, in 1994 and prior
years, deferred tax assets totaling $17,518,000 had been recorded with respect
to these operations and the Company has established a valuation allowance
against these deferred tax assets. Of this last amount, approximately
$9,136,000 was recorded through a reclassification of long-term tax accruals
covering pre-1987 unremitted earnings with respect to the Company's operations
in the U.K. The Company has determined that these earnings are permanently
invested and that, therefore, these long-term accruals are no longer required.
The remainder, or $8,382,000, was charged against 1995's tax expense. In total,
these items resulted in a $28,324,000 increase in the Company's valuation
allowance with respect to deferred tax assets. While the Company is optimistic
that these international operations will generate income in future years which
will utilize these losses, the income tax accounting rules pertaining to loss
recognition as such that the Company believes that the unusual tax provision
adjustments described above are appropriate in the circumstances. In general,
these losses do not have an expiration date.
19
<PAGE>
NOTE 13: COMMON STOCK, PREFERRED STOCK AND RETAINED DEFICIT
COMMON STOCK
At December 31, 1995, 75,000,000 shares of Common stock, par value $.01
per share, were authorized of which 25,146,232 were issued and outstanding. In
addition, at year end, a total of 4,131,582 shares of Common stock was reserved
for issuance under various employee benefit plans.
PREFERRED STOCK
The Company is authorized to issue up to 10,000,000 shares of preferred
stock, par value of $.01 per share. At December 31, 1995, no preferred shares
were issued or outstanding. Shares of preferred stock may be issued in one or
more series of classes, each of which series or class shall have such
distinctive designation or title as shall be fixed by the Board of Directors of
the Company prior to issuance of any shares. Each such series or class shall
have such voting powers, full or limited, or no voting powers, and such
preferences and relative, participating, optional or other special rights and
such qualifications, limitations or restrictions thereof, as shall be stated in
such resolution or resolutions providing for the issuance of such series or
class of preferred stock as may be adopted by the Board of Directors prior to
the issuance of any shares thereof. A total of 750,000 shares of Series A
Junior Participating Preferred Stock has been reserved for issuance upon
exercise of the Stockholder Rights described below.
STOCKHOLDER RIGHTS PLAN
On May 23, 1995, the Company's Board of Directors declared a dividend
distribution of one Right for each outstanding share of Common stock. Each Right
entitles the registered holder to purchase one one-hundredth of a share of
Series A Junior Participating Preferred Stock of the Company, par value $.01 per
share, for a purchase price of $75, subject to adjustment. The Rights were
attached to all outstanding shares of the Company's Common stock immediately
following completion of the exchange offer with Cooper (see Note 1). Unless
earlier redeemed by the Company at a price of $.01 each, the Rights become
exercisable only in certain circumstances constituting a potential change in
control of the Company and will expire on April 30, 2005, or such later date as
determined by the Board of Directors.
Each share of Series A Junior Participating Preferred Stock purchased
upon exercise of the Rights will be entitled to certain minimum preferential
quarterly dividend payments as well as a specified minimum preferential
liquidation payment in the event of a merger, consolidation or other similar
transaction. Each share will also be entitled to 100 votes to be voted together
with the Common stockholders and will be junior to any other series of Preferred
Stock authorized or issued by the Company, unless the terms of such other series
provides otherwise.
Under certain circumstances, the Rights may be subject to exercise for
additional shares of Common stock or other consideration at a predefined ratio
rather than for shares of Series A Junior Participating Preferred Stock.
RETAINED DEFICIT
The Company's retained deficit as of December 31, 1995 includes a
$441,000,000 charge related to the goodwill write-down described in Note 3 of
the Notes to Consolidated Financial Statements as well as a $21,251,000 loss
from operations during the period from July 1, 1995 through December 31, 1995.
Should the Company decide to pay dividends on its Common stock in future periods
this deficit would not prohibit such payments. This is the case since under the
laws of the State of Delaware in which the Company is incorporated, dividends
may be declared by the Company's Board of Directors from a current year's
earnings as well as from the net of capital in excess of par value less the
retained deficit. Accordingly, at December 31, 1995 the Company had
approximately $397,000,000 from which dividends could be paid.
20
<PAGE>
NOTE 14: NET ASSETS
Prior to June 30, 1995, the Company was not a separate stand-alone
entity and, therefore, it did not have any meaningful amounts of Common stock,
capital in excess of par value or retained earnings. Accordingly, the equity
was reflected as a single amount titled "Net Assets." The table below shows the
items which have resulted in increases or decreases to this Net Asset total for
the period from December 31, 1992 through the time of the split-off on June 30,
1995. The Company's stockholders' equity activity for the period from June 30,
1995 through December 31, 1995 is shown in the Statement of Consolidated Changes
in Stockholders' Equity.
<TABLE>
<CAPTION>
(dollars in thousands) NET ASSETS
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Balance at December 31, 1992 $ 807,167
Adjustment required to recognize minimum pension liability 6,097
Translation adjustment (23,333)
Free cash flow transferred to Cooper /1/ (13,753)
Allocation of interest and general and administrative expenses, net of tax, from Cooper/1/ 14,588
Net income 51,189
- ---------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1993 841,955
Adjustment required to recognize minimum pension liability (179)
Translation adjustment 28,989
Receivable from Cooper 36,607
Free cash flow transferred to Cooper /1/ (42,627)
Allocation of interest and general and administrative expenses, net of tax, from Cooper /1/ 17,130
Net loss (3,746)
- ---------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1994 878,129
Translation adjustment 27,106
Allocation of interest and general and administrative expenses, net of tax, from Cooper 9,539
Operating loss from January 1, 1995 through June 30, 1995 (37,802)
Adjustment of equity balances to reflect split-off from Cooper at June 30, 1995 /2/ 14,209
- ---------------------------------------------------------------------------------------------------------------------------------
Balance on June 30, 1995 at time of split-off $ 891,181
- ---------------------------------------------------------------------------------------------------------------------------------
/1/ Revised for comparability with 1995.
/2/ Includes, on a restated basis at June 30, 1995, the effect of the final settlement with Cooper reached during the fourth quarter
of 1995. (See Note 1 of the Notes to Consolidated Financial Statements).
</TABLE>
Intercompany transactions are principally cash transfers between the Company and
Cooper.
21
<PAGE>
NOTE 15: INDUSTRY SEGMENTS
<TABLE>
<CAPTION>
REVENUES OPERATING EARNINGS
YEARS ENDED DECEMBER 31, YEARS ENDED DECEMBER 31,
- ----------------------------------------------------------------------------------------------------
(dollars in thousands) 1995 1994 1993 1995 1994 1993
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Petroleum Production
Equipment $ 648,141 $ 562,680 $ 679,461 $ (12,557) $ (35,553) $ 9,575
Compression and
Power Equipment 493,602 546,028 660,361 30,010 66,060 103,110
- ----------------------------------------------------------------------------------------------------
1,141,743 1,108,708 1,339,822 17,453 30,507 112,685
Other income 2,292 1,368 956 2,292 1,368 956
- ----------------------------------------------------------------------------------------------------
Total revenues $1,144,035 $1,110,076 $1,340,778
- ----------------------------------------------------------------------------------------------------
Goodwill write-down (441,000)
Nonrecurring/
unusual charges (41,509)
Interest expense (23,273) (20,023) (15,852)
General corporate (10,359) (8,509) (8,462)
- ----------------------------------------------------------------------------------------------------
Consolidated income
(loss) before income
taxes $(496,396) $ 3,343 $ 89,327
- ----------------------------------------------------------------------------------------------------
Investments in uncon-
solidated subsidiaries
- ----------------------------------------------------------------------------------------------------
Total assets
- ----------------------------------------------------------------------------------------------------
REVENUES OPERATING EARNINGS
YEARS ENDED DECEMBER 31, YEARS ENDED DECEMBER 31,
- ----------------------------------------------------------------------------------------------------
(dollars in thousands) 1995 1994 1993 1995 1994 1993
- ----------------------------------------------------------------------------------------------------
Domestic $ 736,079 $ 769,676 $ 860,139 $ 8,566 $ 24,448 $ 85,526
- ----------------------------------------------------------------------------------------------------
International:
Europe 336,133 302,933 433,324 4,988 (3,140) 30,630
Canada 60,250 108,106 76,475 94 154 (2,257)
Other 108,423 87,035 104,036 2,207 4,612 2,297
- -----------------------------------------------------------------------------------------------------
Sub-total
International 504,806 498,074 613,835 7,289 1,626 30,670
- -----------------------------------------------------------------------------------------------------
Eliminations:
Transfers to
International (82,061) (148,639) (118,158)
Transfers to Domestic (17,081) (10,403) (15,994)
Other 1,598 4,433 (3,511)
- -----------------------------------------------------------------------------------------------------
1,141,743 1,108,708 1,339,822 17,453 30,507 112,685
Other income 2,292 1,368 956 2,292 1,368 956
- -----------------------------------------------------------------------------------------------------
Total revenues $1,144,035 $1,110,076 $1,340,778
- -----------------------------------------------------------------------------------------------------
Goodwill write-down (441,000)
Nonrecurring/
unusual charges (41,509)
Interest expense (23,273) (20,023) (15,852)
General corporate (10,359) (8,509) (8,462)
- -----------------------------------------------------------------------------------------------------
Consolidated income
(loss) before income
taxes $ (496,396) $ 3,343 $ 89,327
- -----------------------------------------------------------------------------------------------------
Investment in uncon-
solidated subsidiaries
- -----------------------------------------------------------------------------------------------------
Total assets
- -----------------------------------------------------------------------------------------------------
IDENTIFIABLE ASSETS
DECEMBER 31,
- -------------------------------------------------------------
(dollars in thousands) 1995 1994 1993
- -------------------------------------------------------------
Petroleum Production
Equipment $ 775,353 $1,286,749 $1,252,563
Compression and
Power Equipment 348,295 379,933 441,186
- -------------------------------------------------------------
1,123,648 1,666,682 1,693,749
Other income
- -------------------------------------------------------------
Total revenues
- -------------------------------------------------------------
Goodwill write-down
Nonrecurring/
unusual charges
Interest expense
General corporate 10,027 36,607 11,708
- -------------------------------------------------------------
Consolidated income
(loss) before income
taxes
- -------------------------------------------------------------
Investments in uncon-
solidated subsidiaries 1,730 7,091 8,211
- -------------------------------------------------------------
Total assets $1,135,405 $1,710,380 $1,713,668
- -------------------------------------------------------------
IDENTIFIABLE ASSETS
DECEMBER 31,
- -------------------------------------------------------------
(dollars in thousands) 1995 1994 1993
- -------------------------------------------------------------
Domestic $ 638,245 $ 902,895 $ 949,510
- -------------------------------------------------------------
International:
Europe 449,508 692,880 664,354
Canada 26,585 46,096 38,655
Other 83,284 118,983 101,618
- -------------------------------------------------------------
Sub-total
International 559,377 857,959 804,627
- -------------------------------------------------------------
Eliminations:
Transfers to
International (16,265) (49,681) (23,481)
Transfers to Domestic (49,569) (32,095) (28,475)
Other (8,140) (12,396) (8,432)
- -------------------------------------------------------------
1,123,648 1,666,682 1,693,749
Other income
- -------------------------------------------------------------
Total revenues
- -------------------------------------------------------------
Goodwill write-down
Nonrecurring/
unusual charges
Interest expense
General corporate 10,027 36,607 11,708
- -------------------------------------------------------------
Consolidated income
(loss) before income
taxes
- -------------------------------------------------------------
Investment in uncon-
solidated subsidiaries 1,730 7,091 8,211
- -------------------------------------------------------------
Total assets $1,135,405 $1,710,380 $1,713,668
- -------------------------------------------------------------
</TABLE>
22
<PAGE>
<TABLE>
YEARS ENDED DECEMBER 31,
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(dollars in thousands) 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------
LIFO income:
Petroleum Production Equipment $ -- $ -- $ 49
Compression and Power Equipment 1,272 2,675 11,604
- ------------------------------------------------------------------------------------------------------------
Total $ 1,272 $ 2,675 $ 11,653
============================================================================================================
Research and development expense:
Petroleum Production Equipment $ 1,347 $ 1,266 $ 2,395
Compression and Power Equipment 7,201 7,280 7,357
- ------------------------------------------------------------------------------------------------------------
Total $ 8,548 $ 8,546 $ 9,752
============================================================================================================
Depreciation and amortization:
Petroleum Production Equipment $ 46,615 $ 46,118 $ 44,181
Compression and Power Equipment 25,071 24,115 26,232
Corporate 68 -- --
- ------------------------------------------------------------------------------------------------------------
Total $ 71,754 $ 70,233 $ 70,413
============================================================================================================
Capital expenditures:
Petroleum Production Equipment $ 23,132 $ 43,156 $ 47,214
Compression and Power Equipment 14,603 20,354 27,190
Corporate 1,791 -- --
- ------------------------------------------------------------------------------------------------------------
Total $ 39,526 $ 63,510 $ 74,404
============================================================================================================
Goodwill write-down:
Domestic $144,719 $ -- $ --
Europe 259,879 -- --
Canada 7,330 -- --
Other 29,072 -- --
- ------------------------------------------------------------------------------------------------------------
Total $441,000/1/ $ -- $ --
============================================================================================================
Nonrecurring/unusual expense:
Domestic $ 15,584 $ -- $ --
Europe 19,494 -- --
Canada 720 -- --
Other 5,711 -- --
- ------------------------------------------------------------------------------------------------------------
Total $ 41,509/2/ $ -- $ --
============================================================================================================
</TABLE>
/1/ All related to Petroleum Production Equipment.
/2/ $2,242 related to Compression and Power Equipment and the balance to
Petroleum Production Equipment.
The Company's operations are organized into two segments, Petroleum
Production Equipment and Compression and Power Equipment.
The Petroleum Production Equipment segment manufactures, markets and
services valves, wellhead equipment, blowout preventers, chokes and control
systems, and other components for oil and gas drilling, production and
transmission activities.
The Compression and Power Equipment segment manufactures, markets and
services engines and centrifugal gas and air compressors used in the production,
transmission, storage and processing of natural gas and oil as well as a variety
of other industrial applications.
Intersegment sales and related receivables for each of the years shown
were immaterial and have been eliminated.
Export sales to unaffiliated companies were $184,390,000 in 1995,
$172,436,000 in 1994, and $297,631,000 in 1993. Of total export sales,
approximately 60% in 1995, 60% in 1994, and 71% in 1993 were to Asia, Africa,
Australia and the Middle East; 13% in 1995, 11% in 1994, and 12% in 1993 were
to Canada and Europe; and 27% in 1995, 29% in 1994, and 17% in 1993 were to
Latin America. Foreign currency transaction gains and losses were insignificant
for all of the years shown. See Note 3 of the Notes to Consolidated Financial
Statements for information regarding 1995 translation losses related to the
Company's operations in Venezuela.
23
<PAGE>
NOTE 16: RELATED PARTY TRANSACTIONS
The Company received services provided by Cooper including employee
benefits administration, cash management, risk management, certain legal
services, public relations, domestic tax reporting and internal and domestic
external audit through June 30, 1995. The costs associated with these services
allocated to the Company amounted to $4,042,000, $8,509,000 and $8,462,000 in
1995, 1994 and 1993, respectively.
For purposes of the Company's consolidated financial statements, the
intercompany account between the Company and Cooper was included as an element
of the Company's net assets for periods prior to June 30, 1995. All free cash
flows and cash requirements of the Company through June 30, 1995 were considered
to be transferred to or provided by Cooper and have been included in this
intercompany account.
The Company reflected a receivable of $36,607,000 at December 31, 1994
due from Cooper representing the excess of free cash flows of the Company, which
were transferred to Cooper, over the Company's net loss for the period October
1, 1994 to December 31, 1994. As described further in Note 1, the Company
settled the outstanding receivable from Cooper during the fourth quarter of
1995 which resulted in a decrease of $8,817,000 to the Company's equity balance
transferred from Cooper at June 30, 1995.
The Company sells, on third-party terms, small amounts of its products
to Cooper. The amount involved in these transactions, as well as transactions
with other related parties, are not material to the Company.
NOTE 17: OFF-BALANCE SHEET RISK, CONCENTRATIONS OF CREDIT RISK AND FAIR VALUE
OF FINANCIAL INSTRUMENTS
Off-Balance Sheet Risk
As a result of having sales and purchases denominated in currencies
other than the functional currencies used by the Company's divisions and foreign
subsidiaries, the Company is exposed to the effect of foreign exchange rate
fluctuations on the U.S. dollar value of its cash flows. To the extent
possible, the Company utilizes natural hedges to minimize the effect on cash
flows of fluctuating foreign currencies. When natural hedges are not sufficient,
generally it is the Company's policy to enter into forward foreign exchange
contracts to hedge significant transactions for periods consistent with the
terms of the underlying transactions. The Company does not engage in speculation
or hedge nontransaction-related balance sheet exposure. While forward contracts
affect the Company's results of operations, they do so only in connection with
the underlying transactions. As a result, they do not subject the Company to
uncertainty from exchange rate movements, because gains and losses on these
contracts offset losses and gains on the transactions being hedged. The volume
of forward activity engaged in by the Company from year to year fluctuates in
proportion to the level of worldwide cross-border transactions, and contracts
generally have maturities that do not exceed one year.
The table below summarizes, by currency, the contractual amounts of the
Company's forward exchange contracts at December 31, 1995 and 1994.
<TABLE>
<CAPTION>
December 31,
- -------------------------------------------------------------------------------
(dollars in thousands) 1995 1994
- -------------------------------------------------------------------------------
<S> <C> <C>
Pound Sterling $ 1,020 $ 10,900
French Franc 8,861 13,300
Canadian Dollar -- 20,000
Other 1,751 3,400
- -------------------------------------------------------------------------------
$ 11,632 $ 47,600
===============================================================================
</TABLE>
Deferred gains and losses on forward foreign exchange contracts based
upon anticipated transactions were not material at December 31, 1995 and 1994.
At December 31, 1995, the Company was contingently liable with respect
to approximately $83,536,000 ($93,000,000 at December 31, 1994) of standby
letters of credit ("letters") issued in connection with the delivery,
installation and performance of the Company's products under contracts with
customers throughout the world. Of the outstanding total, approximately 42%
relates to the Petroleum Production Equipment segment and the balance, or 58%,
to the Compression and Power Equipment segment. The Company was also liable for
approximately $2,579,000 in financial letters of credit. While certain of the
letters do not have a fixed expiration date, 50% expire in 1996 and the Company
would expect to issue new letters in the normal course of business.
The Company's other off-balance sheet risks are not material.
CONCENTRATIONS OF CREDIT RISK
See Note 3 for a discussion of the Company's receivables and related
reserves with respect to customers in the country of Iran. The Company's other
concentrations of credit risk are not significant.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist primarily of cash and cash
equivalents, trade receivables, trade payables, debt instruments, interest rate
swap contracts and foreign currency forward contracts. The book values of cash
and cash equivalents, trade receivables and trade payables and floating-rate
debt instruments are considered to be representative of their respective fair
values. The Company had $4,315,000 of fixed-rate debt instruments at December
31, 1994, with a fair value of approximately $4,328,000. Based on year-end
exchange rates and the various maturity dates of the foreign currency forward
contracts, the Company estimates that the contract value is representative of
the fair value of these items at December 31, 1995 and 1994.
The Company enters into interest rate swaps with various financial
counterparties as a means of fixing the interest rate on a portion of the
Company's floating-rate bank debt. The interest rate differential to be received
or paid on the swaps is recognized over the lives of the swaps as an adjustment
to interest expense. At December 31, 1995, the Company had entered into swaps
with a notional principal value of $125,000,000. The average interest rate on
bank debt fixed via these swaps is 6.275% effective January 1, 1996, while the
average maturity was 2.25 years. If marked-to-market at December 31, 1995, the
interest rate swaps would result in a pre-tax loss of $692,000. However, the
Company intends to maintain these swaps through their maturity as long-term
hedges of floating-rate bank debt and has therefore not recognized the losses
implied by the mark-to-market calculation.
NOTE 18: PRO FORMA RESULTS OF OPERATIONS
Because the Company did not become a separate stand-alone entity until
June 30, 1995, its results for the first six months of 1995 included allocations
from Cooper with respect to interest, insurance and Corporate general and
administrative costs. While these allocated amounts are somewhat lower than the
amounts actually being incurred by the Company subsequent to June 30, 1995, the
differences are not material.
24
<PAGE>
NOTE 19: SUMMARY OF NONCASH INVESTING AND FINANCING ACTIVITIES
Increase (decrease) in net assets:
<TABLE>
<CAPTION>
Year Ended
(dollars in thousands) December 31, 1995
- ------------------------------------------------------------------------------------------------
<S> <C>
Common stock issued for employee retirement savings plan $ 2,959
Adjustment of minimum pension liability (July 1, 1995 to December 31, 1995) (1,917)
Adjustment of equity balances to reflect split-off
from Cooper at June 30, 1995 (14,209)
</TABLE>
25
<PAGE>
NOTE 20: UNAUDITED QUARTERLY OPERATING RESULTS
<TABLE>
1994 (BY QUARTER)
- ----------------------------------------------------------------------------------------------------------
(dollars in thousands) 1 2 3 4/2/
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $240,208 $ 291,970 $283,403 $294,495
Gross margin/1/ 54,095 72,487 69,610 75,309
Net income (loss) 8,725 (7,968) (2,958) (1,545)
Earnings (loss) per share/4/ 0.35 (0.32) (0.12) (0.06)
1995 (BY QUARTER)
- ----------------------------------------------------------------------------------------------------------
(dollars in thousands) 1 2/3/ 3/3/ 4/2,3/
- ----------------------------------------------------------------------------------------------------------
Revenues $254,576 $ 268,539 $335,225 $285,695
Gross margin/1/ 53,079 52,481 77,648 79,029
Net income (loss) (4,252) (474,550) 6,546 (27,797)
Earnings (loss) per share/4/ (0.17) (18.98) 0.26 (1.11)
</TABLE>
- -----------------------
/1/ Gross margin equals revenues less cost of sales before depreciation and
amortization.
/2/ Includes after-tax income of $785,000 in 1995 and $1,605,000 in 1994 related
to LIFO inventory liquidations.
/3/ See Note 3 of the Notes to Consolidated Financial Statements for further
information relating to nonrecurring/unusual charges incurred during 1995.
/4/ Earnings (loss) per share amounts for periods prior to June 30, 1995 have
been computed on a pro forma basis based on the assumption that 25,000,000
shares of Common stock were outstanding during each period presented.
26
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Cooper Cameron Corporation
--------------------------
(Registrant)
Date July 19, 1996 /s/ Thomas R. Hix
------------- -----------------
Thomas R. Hix
Senior Vice President &
Chief Financial Officer
and authorized to sign on
behalf of the Registrant
27
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 33-94948) pertaining to the Cooper Cameron Corporation Employee
Stock Purchase Plan, the Registration Statement (Form S-8 No. 33-95000)
pertaining to the Cooper Cameron Corporation 1995 Stock Option Plan for Non-
Employee Directors, the Registration Statement (Form S-8 No. 33-95002)
pertaining to the Cooper Cameron Corporation Retirement Savings Plan and the
Registration Statement (Form S-8 No. 33-95004) pertaining to the Cooper Cameron
Corporation Long-Term Incentive Plan of Cooper Cameron Corporation of our report
dated January 31, 1996, with respect to the consolidated financial statements of
Cooper Cameron Corporation included in the Annual Report (Form 10-K/A (Amendment
No. 1)) for the year ended December 31, 1995.
/s/ Ernst & Young LLP
Houston, Texas
July 18, 1996
