<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Quarterly Period Ended September 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 1-13884
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Cooper Cameron Corporation
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(Exact Name of Registrant in its Charter)
Delaware 76-0451843
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
515 Post Oak Blvd., Suite 1200, Houston, Texas 77027
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(Address of Principal Executive Offices) (Zip Code)
713/513-3300
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(Registrant's Telephone Number, Including Area Code)
N/A
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(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
Number of shares outstanding of issuer's common stock as of October 31, 1996 was
25,595,227.
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
COOPER CAMERON CORPORATION
CONSOLIDATED RESULTS OF OPERATIONS
Three Months Ended
September 30,
-------------------
(dollars in millions, except per share data) 1996 1995/(1)/
-------- --------
REVENUES.................................................... $378.8 $335.2
------ ------
COSTS AND EXPENSES
Cost of sales (exclusive of depreciation and amortization).. 277.7 257.6
Depreciation and amortization............................... 15.9 15.6
Selling and administrative expenses......................... 50.7 44.9
Interest expense............................................ 5.8 6.4
Nonrecurring/unusual charges................................ 1.0 1.8
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351.1 326.3
------ ------
Income before income taxes............................... 27.7 8.9
Income tax provision........................................ (8.4) (2.4)
------ ------
Net income.................................................. $ 19.3 $ 6.5
====== ======
Earnings per share -
Primary................................................... $0.72 $0.26
===== =====
Fully diluted............................................. $0.72 $0.26
===== =====
(1) Revised for consistency with the Company's full year 1995 presentation.
The accompanying notes are an integral part of these statements.
2
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COOPER CAMERON CORPORATION
CONSOLIDATED RESULTS OF OPERATIONS
Nine Months Ended
September 30,
------------------
(dollars in millions, except per share data) 1996 1995/(1)/
------- --------
REVENUES.................................................... $971.9 $ 858.3
------ --------
COSTS AND EXPENSES
Cost of sales (exclusive of depreciation and amortization).. 710.6 675.1
Depreciation and amortization............................... 46.0 56.5
Selling and administrative expenses......................... 140.3 132.6
Interest expense............................................ 14.5 18.2
Provision for impairment of goodwill........................ -- 441.0
Nonrecurring/unusual charges................................ 3.3 18.7
------ --------
914.7 1,342.1
------ --------
Income (loss) before income taxes........................ 57.2 (483.8)
Income tax (provision) benefit.............................. (17.4) 11.5
------ --------
Net income (loss)........................................... $ 39.8 $ (472.3)
====== ========
Earnings (loss) per share -
Primary................................................... $ 1.51 $ (18.76)
====== =========
Fully diluted............................................ $ 1.50 $ (18.76)
====== ========
(1) Revised for consistency with the Company's full year 1995 presentation.
The accompanying notes are an integral part of these statements.
3
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COOPER CAMERON CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
(dollars in millions, except shares and per share data) 1996 1995
-------------- -------------
<S> <C> <C>
ASSETS
Cash and cash equivalents................................................. $ 8.4 $ 12.1
Receivables, net.......................................................... 280.7 192.2
Inventories, net.......................................................... 393.6 308.5
Other..................................................................... 26.4 16.0
-------- --------
Total current assets........................................... 709.1 528.8
-------- --------
Plant and equipment, at cost.............................................. 723.2 675.4
Less: accumulated depreciation........................................... (364.7) (328.8)
Intangibles............................................................... 443.0 412.1
Less: accumulated amortization........................................... (192.4) (178.9)
Other assets.............................................................. 28.1 26.8
-------- --------
TOTAL ASSETS.............................................. $1,346.3 $1,135.4
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current maturities of long-term debt...................................... $ 44.6 $ 29.7
Accounts payable and accrued liabilities.................................. 345.3 284.0
Accrued income taxes...................................................... 1.6 3.0
-------- --------
Total current liabilities...................................... 391.5 316.7
-------- --------
Long-term debt............................................................ 322.6 234.8
Postretirement benefits other than pensions............................... 99.1 103.4
Deferred income taxes..................................................... 24.5 22.1
Other long-term liabilities............................................... 38.2 34.8
-------- --------
Total liabilities.............................................. 875.9 711.8
-------- --------
Stockholders' Equity:
Common stock, par value $.01 per share, 75,000,000 shares
authorized, 25,609,727 shares issued (25,146,232 at
December 31, 1995)................................................ .3 .3
Capital in excess of par value........................................ 873.7 859.7
Translation component and minimum pension liability................... 20.1 25.9
Retained deficit (including $441.0 charge on June 30, 1995
related to goodwill impairment)................................... (422.5) (462.3)
Less: Treasury stock (22,500 shares at September 30, 1996), at cost.. (1.2) --
-------- --------
Total stockholders' equity..................................... 470.4 423.6
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY................. $1,346.3 $1,135.4
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
4
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COOPER CAMERON CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended
September 30,
------------------
(dollars in millions) 1996 1995/(1)/
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<S> <C> <C>
Cash flows from operating activities:
Net income................................................................. $ 19.3 $ 6.5
Adjustments to reconcile net income to net cash (used for) provided
by operating activities:
Depreciation....................................................... 12.3 12.2
Amortization....................................................... 3.6 3.4
Nonrecurring/unusual charges....................................... 1.0 1.0
Deferred income taxes.............................................. 8.4 (1.8)
Changes in assets and liabilities, net of translation and effects
of acquisition:
Receivables................................................. (21.9) (5.9)
Inventories................................................. (15.0) 49.0
Accounts payable and accrued liabilities.................... (14.2) (4.5)
Other assets and liabilities, net........................... (4.0) (5.4)
------ --------
Net cash (used for) provided by operating activities..... (10.5) 54.5
------ --------
Cash flows from investing activities:
Capital expenditures....................................................... (7.5) (5.7)
Proceeds from sales of plant and equipment................................. .1 2.2
------ --------
Net cash used for investing activities................... (7.4) (3.5)
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Cash flows from financing activities:
Loan borrowings (repayments), net.......................................... 17.7 (49.1)
Activity under stock option and other benefit plans........................ 5.6 --
------ --------
Net cash provided by (used for) financing activities..... 23.3 (49.1)
------ --------
Effect of translation on cash.................................................. .1 (2.7)
------ --------
Increase (decrease) in cash and cash equivalents............................... 5.5 (0.8)
------ --------
Cash and cash equivalents, beginning of period................................. 2.9 13.6
------ --------
Cash and cash equivalents, end of period....................................... $ 8.4 $ 12.8
====== ========
</TABLE>
(1) Revised for consistency with the Company's full year 1995 presentation.
The accompanying notes are an integral part of these statements.
5
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COOPER CAMERON CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-----------------------
<S> <C> <C>
(dollars in millions) 1996 1995(1)
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Cash flows from operating activities:
Net income (loss)............................................................ $ 39.8 $(472.3)
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
Depreciation......................................................... 35.6 39.2
Amortization......................................................... 10.4 17.3
Provision for impairment of goodwill................................. -- 441.0
Nonrecurring/unusual charges......................................... 3.3 17.9
Allocation of interest and general and administrative expenses from
Cooper Industries, Inc. through June 30, 1995 (net of tax)....... -- 9.5
Deferred income taxes................................................ 9.5 (6.6)
Changes in assets and liabilities, net of translation and effects
of acquisition:
Receivables................................................... (60.8) 26.1
Inventories................................................... (44.8) 4.7
Accounts payable and accrued liabilities...................... 21.8 36.1
Other assets and liabilities, net............................. (6.1) (20.2)
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Net cash provided by operating activities.................. 8.7 92.7
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Cash flows from investing activities:
Capital expenditures......................................................... (19.7) (30.5)
Acquisition of Ingram Cactus Company......................................... (100.0) --
Proceeds from sales of plant and equipment................................... .4 5.5
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Net cash used for investing activities..................... (119.3) (25.0)
------- -------
Cash flows from financing activities:
Loan borrowings (repayments), net............................................ 2.7 (49.1)
Long-term borrowings......................................................... 100.0 334.1
Loan repaid to Cooper Industries, Inc........................................ -- (334.1)
Activity under stock option and other benefit plans.......................... 5.6 --
Transferred to Cooper Industries, Inc........................................ -- (3.8)
------- -------
Net cash provided by (used for) financing activities....... 108.3 (52.9)
------- -------
Effect of translation on cash.................................................... (1.4) (2.0)
------- -------
Increase (decrease) in cash and cash equivalents................................. (3.7) 12.8
------- -------
Cash and cash equivalents, beginning of period................................... 12.1 --
------- -------
Cash and cash equivalents, end of period......................................... $ 8.4 $ 12.8
======= =======
</TABLE>
(1) Revised for consistency with the Company's full year 1995 presentation.
The accompanying notes are an integral part of these statements.
6
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COOPER CAMERON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Adjustments
The financial information presented as of September 30, 1996 and for the
three-and nine-month periods ended September 30, 1996 and 1995 has been prepared
from the books and records without audit. Financial information as of December
31, 1995 has been derived from the audited financial statements of the Company,
but does not include all disclosures required by generally accepted accounting
principles. In the opinion of management, all adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation of the financial
information for the periods indicated, have been included. However, the
Company's results for the nine months ended September 30, 1995 reflect an
allocation of interest expense and certain general and administrative costs and
other items from its former parent Cooper Industries, Inc. ("Cooper") through
June 30, 1995. As a consequence, the information presented is not necessarily
indicative of the results of operations or financial position that the Company
would have achieved had it been a separate stand-alone company during the nine
months ended September 30, 1995. For further information regarding the Company's
accounting policies, refer to the consolidated financial statements and related
notes included in the Company's Annual Report to Stockholders for the year ended
December 31, 1995.
Note 2. Nonrecurring/Unusual Charges
During the nine months ended September 30, 1996, the Company recorded
approximately $2.4 million of restructuring charges related to the Cooper Energy
Services Division of the Compression and Power Equipment segment, including $.1
million recorded in the third quarter of 1996. The charges cover severance and
relocation costs associated with recently initiated changes both at the
division's manufacturing facility in Grove City, Pennsylvania and the division's
headquarters in Mt. Vernon, Ohio. Additionally, the Company recorded a $.9
million charge in the Petroleum Production Equipment segment related to certain
one-time costs of integrating the acquired Ingram Cactus operations with the
operations of the Cameron Division. Additional costs relating to both these
projects are expected to be incurred during the fourth quarter of 1996.
A charge of $18.7 million was recorded during the nine months ended
September 30, 1995 to establish a reserve for receivables associated with
certain of the Company's customers in high risk and/or politically unstable
countries and for accruals for employee severance in the Petroleum Production
Equipment segment. Although the Company has received payments related to these
receivables, substantially all such outstanding receivables continue to be fully
reserved at September 30, 1996. The Company will continue to evaluate this
reserve as its overall exposure and the political environment with respect to
these customers changes.
7
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Note 3. Retained Deficit
While the Company has a retained deficit, it is able to declare and pay
dividends 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 September 30,
1996, the Company had approximately $451.2 million from which dividends could be
paid.
Note 4. Change in Accounting Policies
Effective January 1, 1996, the Company adopted the provisions of Financial
Accounting Standards Board Statements No. 121 (Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of) and No. 123
(Accounting for Stock-Based Compensation). Since the Company's previous policy
for the evaluation of long-lived assets was more conservative than the approach
required under SFAS No. 121, there was 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 existing accounting requirements for stock options and stock-
based awards and will not change its current method of measuring compensation
expense to the method contained in SFAS No. 123. The pro forma disclosures
required by SFAS No. 123 will be included in the Company's year-end 1996
consolidated financial statements.
Note 5. Acquisitions and Divestitures
During the first quarter of 1996, the Company completed the divestiture of
the Cameron division's foundry located in Richmond, Texas. The loss on this sale
was fully reserved during 1995. While the Company did not receive any cash
consideration from this sale, it did eliminate a $2.7 million annual operating
deficit referred to in the 1995 Annual Report to Stockholders, while at the same
time maintaining a reliable source of castings at competitive prices.
Additionally, the buyer also assumed various liabilities of the foundry
including environmental, severance and others.
On June 14, 1996, the Company purchased the assets of Ingram Cactus Company
for approximately $100 million in cash (subject to an adjustment, yet to be
agreed upon by the parties, for the change in working capital) and the
assumption of certain operating liabilities. The acquired operations manufacture
and sell wellheads, surface systems, valves and actuators used primarily in
onshore oil and gas production operations. The acquisition, funded by additional
long-term borrowings, has been accounted for under the purchase method resulting
in goodwill at September 30, 1996 of approximately $25 million, subject to
adjustment upon finalization of the purchase price allocation. For 1995, Ingram
Cactus had revenues of approximately $105 million and earnings before taxes of
$7.5 million.
During October 1996, the Company made two acquisitions for a combined cost
of approximately $13.4 million. In the first, the Company acquired various
assets of ENOX Technologies, Inc., a Boston-based company, which will be
combined into the existing operations of the Compression and Power Equipment
segment. The second acquisition, which
8
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will be part of the Petroleum Production Equipment segment, involved certain
assets and liabilities of Tundra Valve & Wellhead Corp., a Canadian manufacturer
of wellheads, trees and valves. Both acquisitions will be accounted for under
the purchase method.
Note 6. Inventories
September 30, December 31,
(dollars in millions) 1996 1995
------------- -----------
Raw materials...................................... $ 65.6 $ 56.4
Work-in-process.................................... 195.6 147.8
Finished goods, including parts and subassemblies.. 256.5 242.3
Perishable tooling and supplies.................... 3.6 3.8
------- -------
521.3 450.3
Excess of current standard costs over LIFO costs... (100.0) (101.5)
Allowance for obsolete and slow-moving inventory... (27.7) (40.3)
------- -------
Net inventories.................................... $ 393.6 $ 308.5
======= =======
Note 7. Long-term Debt
On June 19, 1996, the Company amended its long-term Credit Agreement:
to postpone by one year, from June 30, 1996 to June 30, 1997, the beginning of
the scheduled annual step-downs in its maximum allowed total debt to total
capitalization ratio from 55% for the period through June 30, 1997 to 40% for
periods after June 30, 1999; to extend by one year the deadline for taking
restructuring charges that do not count against the minimum required interest
coverage ratio; to permit certain specified stock repurchases and dividend
payments, subject to certain limitations, primarily that the ratio of total debt
to total capitalization must be less than 40% considering such stock repurchases
or dividend payments; and, to make various other minor clarifications and
corrections to the original agreement. None of these changes were made as a
result of the Company being unable to meet any of its covenant requirements
based on current or anticipated future performance. The Company was in
compliance with all loan covenants at September 30, 1996.
At September 30, 1996, the Company has classified $44.6 million of its
outstanding indebtedness as current based on the scheduled maturities of its
Credit Facility term loans during the next twelve months. Other amounts
borrowed totaling $188.6 million, including $157.9 million borrowed as revolving
credit advances under the Credit Facility, which by their terms represent
current liabilities, have been reclassified to long-term debt reflecting the
Company's intention and ability to refinance such amounts under its long-term
Credit Agreement. At September 30, 1996, the Company had $117.1 million of
committed borrowing capacity available under its long-term Credit Agreement plus
additional uncommitted amounts available under various other borrowing
arrangements.
9
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Note 8. Earnings (Loss) Per Share
Earnings (loss) per share for the nine-month period ended September 30,
1995 has been calculated on a pro forma basis assuming that 25 million shares of
the Company's common stock had been outstanding during the first six months of
that period and actual shares outstanding thereafter. The weighted average
number of common shares and common stock equivalents outstanding for the three-
and nine-month periods ended September 30, 1996 and 1995 was as follows:
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
(amounts in millions) 1996 1995 1996 1995
-------- -------- ------ -------
Primary 26.7 25.5 26.3 25.2
==== ==== ==== ====
Fully diluted 26.8 25.6 26.5 25.2
==== ==== ==== ====
10
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Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition
Certain of the comments which follow represent forward-looking information
with respect to the Company's future results of operations and its related
capital resources and financial condition. The Company relies on a variety of
internal and external information as well as management judgment in order to
develop such forward-looking information. Because of the inherent limitations in
this process, as well as the relatively volatile nature of the industry in which
the Company operates, there can be no assurance that actual results will not
differ materially from this forward-looking information. Accordingly, evaluation
of the future prospects of the Company must be made with caution when relying on
this forward-looking information.
THIRD QUARTER 1996 COMPARED TO THIRD QUARTER 1995
Cooper Cameron Corporation had net income of $19.3 million, or $.72 per
share, for the third quarter of 1996. Included is a charge of $1.0 million ($.7
million after tax), or $.03 per share, associated with cost rationalization
efforts in the Compression and Power Equipment segment and certain one-time
costs of integrating the acquired Ingram Cactus operations in the Petroleum
Production Equipment segment (see Note 2 of the Notes to Consolidated Financial
Statements). The Company currently expects that an additional $4-5 million
charge will be incurred during the fourth quarter of 1996. In the Compression
and Power Equipment segment, the charge will include additional personnel
relocation costs and the cost of completing the reconfiguration of the plant in
Grove City, Pennsylvania, to more effectively provide customers with parts and
service. In the Petroleum Production Equipment segment, additional Ingram
Cactus integration costs will be incurred. The Company's projections indicate
that these anticipated changes, once fully implemented, should reduce annual
operating costs by between $6 and $8 million per year and allow the Company to
fully realize the benefits anticipated when the decision was made to acquire
Ingram Cactus. Because the preceding projection involves various estimates of
future events that the Company cannot completely control, the actual savings
could be different than the projection. Uncertainties affecting the estimates
include the level of order activity, labor relations and other factors.
The third quarter 1996 net income of $19.3 million, or $.72 per share,
compares with net income of $6.5 million, or $.26 per share, for the third
quarter of 1995. The third quarter 1995 net income included a charge of $1.8
million ($1.2 million after tax) for employee severance accruals. As discussed
further below, the improvement in net income was largely the result of increased
revenues in the Petroleum Production Equipment segment.
REVENUES
Revenues for the third quarter of 1996 totaled $378.8 million, an
increase of 13% from $335.2 million in the third quarter of 1995. Approximately
93% of this improvement occurred in the Petroleum Production Equipment segment
and 7% in the Compression and Power Equipment segment.
11
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The Petroleum Production Equipment segment's third quarter 1996 revenues
of $221.3 million represented an increase of 22% over the $180.8 million in the
third quarter of 1995. (The third quarter of 1995 included revenues of $4.4
million related to the Wheeling Machine Products Division, which was sold during
the fourth quarter of 1995.) Excluding the effect of Wheeling Machine Products,
the majority of the increase in revenues resulted from the Ingram Cactus
acquisition. The remaining revenue growth reflects the continued improvement in
general market conditions driven by higher and more stable oil and natural gas
prices and increased shipments associated with large subsea projects in the
North Sea.
Order activity for this segment in the third quarter of 1996 totaled
$284.7 million, an increase of 86% from the same period in 1995. This
improvement is due to the effect of Ingram Cactus, improved worldwide market
conditions, and increased subsea activity in both the North Sea and the Gulf of
Mexico. The subsea market continues to be very active, with several major
projects currently expected to generate orders during the remainder of 1996 and
1997. Due to the size and complex nature of these projects, however, the
specific timing of an order is very difficult to estimate.
Revenues for the Compression and Power Equipment segment of $157.5
million increased 2% from $154.4 million in the third quarter of 1995. This
improvement was largely the result of continued strong centrifugal air
compressor activity in both industrial and air separation applications,
particularly in the international market. Incoming orders for the segment were
$137.9 million in the third quarter of 1996, a decrease of 22% from the third
quarter of 1995 due primarily to several large international turbine and
compressor projects received in 1995 that did not recur in 1996. The timing of
these large projects can cause significant fluctuations in orders from period to
period. Despite the decline in orders for the quarter, the Compression and
Power Equipment segment's backlog at September 30, 1996, increased to $312.3
million, up $79.6 million, or 34%, from a year ago.
COSTS AND EXPENSES
Cost of sales (exclusive of depreciation and amortization) of $277.7
million in the third quarter of 1996 increased by $20.1 million, or 8%, compared
with $257.6 million in the same period of 1995. This increase is attributable
to the previously discussed revenue growth partially offset by several other
factors. Within the Petroleum Production Equipment segment, the gross margin
percentage (defined as revenues less cost of sales as a percentage of revenues)
was 27.5% in the third quarter of 1996 compared to 21.2% in the third quarter of
1995. This improvement was the result of some increase in prices, higher
production levels which result in a leveraging of various manufacturing support
costs that are relatively fixed in the short-term, and various cost reduction
programs. For the Compression and Power Equipment segment, the gross margin
percentage remained relatively constant at approximately 25% in the third
quarter of 1996 compared to the third quarter of 1995.
Selling and administrative expenses increased by $5.8 million, from $44.9
million in the third quarter of 1995 to $50.7 million in the third quarter of
1996. This increase was primarily in the Petroleum Production Equipment segment
and resulted from the Ingram Cactus acquisition and higher expenses reflecting
the Company's conscious effort to improve its market presence.
12
<PAGE>
Selling and administrative costs as a percentage of revenues, however, were
unchanged at 13.4% in both the third quarter of 1996 and the third quarter of
1995.
Depreciation and amortization expense increased by $.3 million, from
$15.6 million in the third quarter of 1995 to $15.9 million in the third quarter
of 1996. This small increase is primarily due to the Ingram Cactus acquisition
and relatively low levels of capital expenditures during the past year.
Interest expense decreased by $.6 million, or 9%, from $6.4 million in
the third quarter of 1995 to $5.8 million in the third quarter of 1996. This
decline was the result of a lower average interest rate partially offset by a
higher average debt level. Working capital requirements for several large gas
turbine and compressor projects to be delivered in late 1996 and early 1997
accounted for the increased debt level.
Income tax expense increased from $2.4 million in the third quarter of
1995 to $8.4 million in the third quarter of 1996 reflecting the higher earnings
and an increase in the Company's effective tax rate from 27.0% in the third
quarter of 1995 to 30.4% in the third quarter of 1996.
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1995
Cooper Cameron Corporation had net income of $39.8 million, or $1.50 per
share, for the nine months ended September 30, 1996, compared to a net loss of
$472.3 million, or $18.76 per share, for the same period in 1995. The results
for both periods include the charges described in Note 2 of the Notes to
Consolidated Financial Statements. Absent these charges, net income for the
first nine months of 1996 would have been $41.8 million, or $1.58 per share,
compared with a pro forma loss of $20.0 million, or $.79 per share, for the same
period in 1995. This improvement in net income as discussed further below was
the result of increased revenues and cost reductions in both segments.
REVENUES
Revenues for the nine months ended September 30, 1996, totaled $971.9
million, an increase of 13% from the $858.3 million in the first nine months of
1995. Approximately 67% of the $113.6 million improvement occurred in the
Petroleum Production Equipment segment and 33% in the Compression and Power
Equipment segment.
The Petroleum Production Equipment segment's revenues of $565.2 million
represented an increase of 16% over the $489.1 million in the first nine months
of 1995. (The nine months ended September 30, 1995, included revenues of $11.6
million related to the Wheeling Machine Products Division, which was sold during
the fourth quarter of 1995.) Excluding the effect of Wheeling Machine Products,
approximately 38% of the revenue increase resulted from the Ingram Cactus
acquisition. The remainder was due to generally improved worldwide market
conditions and increased subsea shipments in the North Sea discussed in the
quarterly comparison, as well as increased shipments of subsea equipment to the
Gulf of Mexico in the
13
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first quarter of 1996. Order activity for this segment for the first nine months
of 1996 totaled $665.5 million, an increase of 27% from the same period in 1995.
Revenues for the Compression and Power Equipment segment were $406.7
million for the first nine months of 1996, an increase of 10% from the $369.2
million in the nine months ended September 30, 1995. This improvement was
largely the result of increased international gas turbine and compressor project
revenues from the very low level experienced in the first nine months of 1995,
and continued strong centrifugal air compressor shipments. Order activity in
this segment for the first nine months of 1996 totaled $396.4 million, an
increase of 4% from the same period in 1995.
COSTS AND EXPENSES
Cost of sales (exclusive of depreciation and amortization) of $710.6
million in the first nine months of 1996 increased by $35.5 million, or 5%,
compared with $675.1 million in the same period of 1995. This increase was the
result of the revenue growth discussed previously, partially offset by several
other factors. The gross margin percentage (defined as revenues less cost of
sales as a percentage of revenues) in the Petroleum Production Equipment segment
improved to 27.5% for the nine months ended September 30, 1996, compared to
19.3% for the same period in 1995. This increase was the result of improved
pricing, several very low margin projects shipped during the first half of 1995
that did not recur in 1996, the leveraging of manufacturing support costs, and
cost reduction programs. Within the Compression and Power Equipment segment,
the gross margin percentage improved from 24.1% in the first nine months of 1995
to 26.1% in the first nine months of 1996. This improvement largely resulted
from increased production levels and the related leveraging of manufacturing
support costs. Additionally, continued strong market conditions in the
centrifugal air compressor business allowed the Company to increase prices
modestly.
Selling and administrative expenses increased by $7.7 million, or 6%,
from $132.6 million in the first nine months of 1995 to $140.3 million in the
first nine months of 1996. This increase was primarily the result of the Ingram
Cactus acquisition, higher expenses in the Petroleum Production Equipment
segment as discussed in the quarter comparison, relatively low levels of
inflation, and greater corporate expenses in the first nine months of 1996 than
those allocated from Cooper during the first half of 1995 and incurred by the
Company in the third quarter of 1995 as the corporate staff was being assembled.
As a percentage of revenues, selling and administrative costs decreased to 14.4%
in the nine months ended September 30, 1996, compared to 15.5% for the same
period in 1995.
Depreciation and amortization expense decreased by $10.5 million, from
$56.5 million in the first nine months of 1995 to $46.0 million in the first
nine months of 1996. This decline is primarily due to the effect on goodwill
amortization of the $441.0 million goodwill write-off recorded in the second
quarter of 1995 and relatively low capital expenditures during the past year.
Interest expense decreased by $3.7 million, or 20%, from $18.2 million in
the first nine months of 1995 to $14.5 million in the same period of 1996. This
decline was the result of a
14
<PAGE>
lower average debt level as well as a somewhat lower average interest rate. The
average debt level declined in spite of the June 14, 1996 acquisition of Ingram
Cactus for approximately $100 million and the current working capital
requirements for gas turbine and compressor projects discussed in the quarterly
comparison.
Income tax expense increased from a credit of $11.5 million for the nine
months ended September 30, 1995, to expense of $17.4 million for the nine months
ended September 30, 1996. The Company's estimated full-year 1996 effective tax
rate is 30.4% compared to a 27.0% estimated effective tax rate for 1995.
CASH FLOW, LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL POSITION
During the first nine months of 1996, the Company generated $8.7 million of
cash from operating activities. This positive cash flow, combined with a $3.7
million reduction in cash on hand (excluding the effect of translation) and
additional financing of $8.3 million from borrowings and equity issuances
relating to the Company's stock option and other benefit plans was used to pay
for $19.7 million of capital expenditures. The cash flow from operating
activities for the nine-month period ended September 30, 1996 was considerably
less than the amount generated during the same period last year despite higher
earnings due to increased working capital requirements, primarily in the
Compression and Power Equipment segment, associated with various large equipment
orders.
Because of the nature of the industry in which the Company competes and the
long time period from when a large equipment order is first received 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. At present, the Company anticipates an increase in debt during
the remainder of 1996 to meet the working capital requirements of various large
equipment orders, primarily in the Compression and Power Equipment segment.
Assuming no major deterioration in current market conditions or further
acquisitions, reductions in debt are then expected beginning in the first half
of 1997 as the receivables from these large equipment sales are collected.
At September 30, 1996, the Cooper Energy Services Division of the
Compression and Power Equipment segment had recorded $35.5 million (none at
December 31, 1995) of receivables under the percentage of completion method
which historically has been utilized by this business for large long lead time
unit orders. These units will be delivered in late 1996 and early 1997.
The remaining changes in receivables, inventories, accounts payable and
accrued liabilities and other asset and liability accounts from the comparable
amounts at December 31, 1995 reflect the acquisition of Ingram Cactus Company in
June 1996 and higher levels of operating activity during the nine-month period
ended September 30, 1996.
15
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 - Financial Data Schedule.
(b) Reports on Form 8-K
On August 23, 1996, the Company filed a Form 8-K relating to an
underwriting agreement entered into between the Company, Cooper and Salomon
Brothers Inc for the sale of 3,551,000 shares of Company Common Stock held by
Cooper. Additionally, the Company also filed, as an exhibit to this Form 8-K,
the First Amendment to its Credit Agreement with First National Bank of Chicago,
as Agent, and certain other lenders named therein, dated June 19, 1996.
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Cooper Cameron Corporation
---------------------------
(Registrant)
Date November 5, 1996 /s/ Thomas R. Hix
------------------------- ---------------------------------
Thomas R. Hix
Senior Vice President &
Chief Financial Officer
and authorized to sign on
behalf of the Registrant
16
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<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 8
<SECURITIES> 0
<RECEIVABLES> 281
<ALLOWANCES> 0
<INVENTORY> 394
<CURRENT-ASSETS> 709
<PP&E> 723
<DEPRECIATION> 365
<TOTAL-ASSETS> 1,346
<CURRENT-LIABILITIES> 391
<BONDS> 323
0
0
<COMMON> 0
<OTHER-SE> 470
<TOTAL-LIABILITY-AND-EQUITY> 1,346
<SALES> 972
<TOTAL-REVENUES> 972
<CGS> 711
<TOTAL-COSTS> 711
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14
<INCOME-PRETAX> 57
<INCOME-TAX> 17
<INCOME-CONTINUING> 40
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 40
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