<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 June 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
- --------------------------------------------------------------------------------
(Exact Name of Registrant in its Charter)
Delaware 76-0451843
- --------------------------------------------------------------------------------
(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
- --------------------------------------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
N/A
- --------------------------------------------------------------------------------
(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 July 31, 1996 was
25,261,548.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
COOPER CAMERON CORPORATION
CONSOLIDATED RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
Second Quarter Ended
June 30,
--------------------
(dollars in millions, except per share data) 1996 1995 /(1)/
------- --------
<S> <C> <C>
REVENUES.................................................... $312.4 $ 268.5
------ -------
COSTS AND EXPENSES
Cost of sales (exclusive of depreciation and amortization).. 227.0 216.0
Depreciation and amortization............................... 15.0 23.5
Selling and administrative expenses......................... 45.1 47.6
Interest expense............................................ 4.4 5.9
Provision for impairment of goodwill........................ - 441.0
Nonrecurring/unusual charges................................ 2.3 16.9
------ -------
293.8 750.9
------ -------
Income (loss) before income taxes........................ 18.6 (482.4)
Income tax (provision) benefit.............................. (5.7) 7.8
------ -------
Net income (loss)........................................... $ 12.9 $(474.6)
====== =======
Earnings (loss) per share................................... $ .49 $(18.98)
====== =======
</TABLE>
(1) Revised for consistency with the Company's full year 1995 presentation.
The accompanying notes are an integral part of these statements.
2
<PAGE>
COOPER CAMERON CORPORATION
CONSOLIDATED RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
Six Months Ended
June 30,
---------------------------
(dollars in millions, except per share data) 1996 1995/(1)/
------- ---------
<S> <C> <C>
REVENUES.................................................... $593.1 $ 523.1
------ --------
COSTS AND EXPENSES
Cost of sales (exclusive of depreciation and amortization).. 432.9 417.6
Depreciation and amortization............................... 30.2 40.8
Selling and administrative expenses......................... 89.6 87.7
Interest expense............................................ 8.6 11.9
Provision for impairment of goodwill........................ - 441.0
Nonrecurring/unusual charges................................ 2.3 16.9
------ --------
563.6 1,015.9
------ --------
Income (loss) before income taxes........................ 29.5 (492.8)
Income tax (provision) benefit.............................. (9.0) 14.0
------ --------
Net income (loss)........................................... $ 20.5 $ (478.8)
====== ========
Earnings (loss) per share................................... $ .78 $ (19.15)
====== ========
</TABLE>
(1) Revised for consistency with the Company's full year 1995 presentation.
The accompanying notes are an integral part of these statements.
3
<PAGE>
COOPER CAMERON CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
(dollars in millions, except shares and per share data) 1996 1995
--------- -------------
<S> <C> <C>
ASSETS
Cash and cash equivalents....................................... $ 2.9 $ 12.1
Receivables, net................................................ 258.0 192.2
Inventories, net................................................ 378.2 308.5
Other........................................................... 26.4 16.0
-------- --------
Total current assets................................. 665.5 528.8
-------- --------
Plant and equipment, at cost.................................... 716.4 675.4
Less: accumulated depreciation................................. (353.4) (328.8)
Intangibles..................................................... 437.2 412.1
Less: accumulated amortization................................. (184.5) (178.9)
Other assets.................................................... 27.9 26.8
-------- --------
TOTAL ASSETS.................................... $1,309.1 $1,135.4
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current maturities of long-term debt............................ $ 42.1 $ 29.7
Accounts payable and accrued liabilities........................ 352.6 284.0
Accrued income taxes............................................ 4.8 3.0
-------- --------
Total current liabilities............................ 399.5 316.7
-------- --------
Long-term debt.................................................. 307.4 234.8
Postretirement benefits other than pensions..................... 100.4 103.4
Deferred income taxes........................................... 24.4 22.1
Other long-term liabilities..................................... 37.6 34.8
-------- --------
Total liabilities.................................... 869.3 711.8
-------- --------
Stockholders' Equity:
Common stock, par value $.01 per share, 75,000,000 shares
authorized, 25,216,583 shares issued and outstanding
(25,146,232 at December 31, 1995)....................... .3 .3
Capital in excess of par value.............................. 862.8 859.7
Translation component and minimum pension liability......... 18.5 25.9
Retained deficit (including $441.0 charge on June 30, 1995
related to goodwill impairment)......................... (441.8) (462.3)
-------- --------
Total stockholders' equity........................... 439.8 423.6
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY...................................... $1,309.1 $1,135.4
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
COOPER CAMERON CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Second Quarter Ended
June 30,
--------------------
(dollars in millions) 1996 1995
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss).......................................................... $ 12.9 $(474.6)
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
Depreciation....................................................... 11.6 16.2
Amortization....................................................... 3.4 7.3
Provision for impairment of goodwill............................... - 441.0
Nonrecurring/unusual charges....................................... 2.3 16.9
Allocation of interest and general and administrative expenses
from Cooper Industries, Inc. (net of tax)...................... - 8.4
Deferred income taxes.............................................. 1.3 3.4
Changes in assets and liabilities, net of translation and effects
of acquisition:
Receivables................................................. (25.6) 36.7
Inventories................................................. (17.0) (25.8)
Accounts payable and accrued liabilities.................... 20.0 31.3
Other assets and liabilities, net........................... (2.4) (6.8)
------- -------
Net cash provided by operating activities................ 6.5 54.0
------- -------
Cash flows from investing activities:
Capital expenditures....................................................... (6.0) (10.7)
Acquisition of Ingram Cactus Company....................................... (100.0) -
Proceeds from sales of plant and equipment................................. .2 .3
------- -------
Net cash used for investing activities................... (105.8) (10.4)
------- -------
Cash flows from financing activities:
Long-term borrowings....................................................... 100.0 334.1
Loan repaid to Cooper Industries, Inc...................................... - (334.1)
Net loan repayments........................................................ (7.5) -
Transferred to Cooper Industries, Inc...................................... - (30.2)
------- -------
Net cash provided by (used for) financing activities..... 92.5 (30.2)
------- -------
Effect of translation on cash.................................................. (1.5) .2
------- -------
Increase (decrease) in cash and cash equivalents............................... (8.3) 13.6
------- -------
Cash and cash equivalents, beginning of period................................. 11.2 -
------- -------
Cash and cash equivalents, end of period....................................... $ 2.9 $ 13.6
======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE>
COOPER CAMERON CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended
June 30,
------------------
(dollars in millions) 1996 1995
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss).......................................................... $ 20.5 $(478.8)
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
Depreciation....................................................... 23.3 27.0
Amortization....................................................... 6.9 13.8
Provision for impairment of goodwill............................... - 441.0
Nonrecurring/unusual charges....................................... 2.3 16.9
Allocation of interest and general and administrative expenses
from Cooper Industries, Inc. (net of tax)...................... - 9.5
Deferred income taxes.............................................. 1.1 (4.7)
Changes in assets and liabilities, net of translation and effects
of acquisition:
Receivables................................................. (38.9) 32.1
Inventories................................................. (29.9) (44.3)
Accounts payable and accrued liabilities.................... 36.0 40.5
Other assets and liabilities, net........................... (2.1) (14.8)
------- -------
Net cash provided by operating activities................ 19.2 38.2
------- -------
Cash flows from investing activities:
Capital expenditures....................................................... (12.1) (24.8)
Acquisition of Ingram Cactus Company....................................... (100.0) -
Proceeds from sales of plant and equipment................................. .3 3.3
------- -------
Net cash used for investing activities................... (111.8) (21.5)
------- -------
Cash flows from financing activities:
Long-term borrowings....................................................... 100.0 334.1
Loan repaid to Cooper Industries, Inc...................................... - (334.1)
Net loan repayments........................................................ (15.0) -
Transferred to Cooper Industries, Inc...................................... - (3.8)
------- -------
Net cash provided by (used for) financing activities..... 85.0 (3.8)
------- -------
Effect of translation on cash.................................................. (1.6) .7
------- -------
Increase (decrease) in cash and cash equivalents............................... (9.2) 13.6
------- -------
Cash and cash equivalents, beginning of period................................. 12.1 -
------- -------
Cash and cash equivalents, end of period....................................... $ 2.9 $ 13.6
======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
6
<PAGE>
COOPER CAMERON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Adjustments
-----------
The financial information presented as of June 30, 1996 and for the
three- and six-month periods ended June 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 three and six months ended June 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"). 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 three and six months ended
June 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 second quarter of 1996, the Company recorded approximately
$2.3 million of restructuring charges related to the Cooper Energy Services
Division of the Compression and Power Equipment segment. 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.
A charge of $16.9 million was recorded during the second quarter of
1995 to establish a reserve for receivables associated with certain of the
Company's customers in high risk and/or politically unstable countries. Although
the Company has received some payments related to these receivables,
substantially all such outstanding receivables continue to be fully reserved at
June 30, 1996. The Company will continue to evaluate this reserve as its overall
exposure and the political environment with respect to these customers changes.
Note 3. Retained Deficit
----------------
The Company's retained deficit as of June 30, 1996 and December 31,
1995 includes a $441.0 million charge made on June 30, 1995 related to the
goodwill write-down described in Note 3 of the Notes to Consolidated Financial
Statements included in the Company's Annual Report to Stockholders for the year
ended December 31, 1995. While the deficit affects the amount of dividends the
Company can pay, the Company 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 June 30, 1996, the Company had
approximately $421 million from which dividends could be paid.
7
<PAGE>
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 providing itself with 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 for the
change in working capital yet to be agreed upon by the parties) and the
assumption of certain operating liabilities. Ingram Cactus manufactures and
sells 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
additional goodwill at June 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. Due to the timing of the acquisition and the resulting
availability of earnings data in accordance with the Company's normal practices
and procedures, the results of operations for the three- and six-month periods
ended June 30, 1996 do not contain any revenues or earnings for Ingram Cactus
Company. Based on information now available, such revenues and earnings are not
material to the Company's results of operations for those periods.
8
<PAGE>
<TABLE>
<CAPTION>
Note 6. Inventories
-----------
June 30, December 31,
(dollars in millions) 1996 1995
--------- -------------
<S> <C> <C>
Raw materials...................................... $ 63.0 $ 56.4
Work-in-process.................................... 181.2 147.8
Finished goods, including parts and subassemblies.. 269.4 242.3
Perishable tooling and supplies.................... 3.8 3.8
------- -------
517.4 450.3
Excess of current standard costs over LIFO costs... (102.3) (101.5)
Allowance for obsolete and slow-moving inventory... (36.9) (40.3)
------- -------
Net inventories.................................... $ 378.2 $ 308.5
======= =======
</TABLE>
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% both before and after 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 June 30, 1996.
At June 30, 1996, the Company has classified $42.1 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 $161.0 million, including $135.5 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 June 30, 1996, the Company had $139.5 million of committed
borrowing capacity available under its long-term Credit Agreement plus
additional uncommitted amounts available under various other borrowing
arrangements.
9
<PAGE>
Note 8. Earnings (Loss) Per Share
-------------------------
Earnings (loss) per share for the three- and six-month periods ended
June 30, 1995 has been calculated on a pro forma basis as if 25 million shares
of the Company's common stock were outstanding during that period. The weighted
average number of common shares and common share equivalents outstanding for the
three- and six-month periods ended June 30, 1996, was 26.3 million and 26.2
million, respectively.
10
<PAGE>
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.
SECOND QUARTER 1996 COMPARED TO SECOND QUARTER 1995
Cooper Cameron Corporation had net income of $12.9 million, or $.49 per
share, for the second quarter of 1996. Included is a charge of $2.3 million
($1.4 million after tax), or $.05 per share, associated with cost
rationalization efforts, including staff reductions and relocations, in the
Compression and Power Equipment segment (see Note 2 of the Notes to Consolidated
Financial Statements). The Company expects that an additional $3-4 million,
including additional personnel relocation costs as well as the cost of
reconfiguring the plant in Grove City, Pennsylvania to more effectively provide
customers with parts and service, will be incurred in connection with these
changes during the balance of 1996 and the first part of 1997. 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.
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 for this operation, labor relations and other
factors.
The second quarter 1996 net income compares with a net loss of $474.6
million, or $18.98 per share on a pro forma basis, for the second quarter of
1995. The second quarter 1995 loss included a noncash goodwill write-off of
$441.0 million and a charge of $16.9 million ($10.1 million after tax) related
to certain high risk accounts receivable. Excluding the above charges, net
income for the quarter ended June 30, 1996, would have been $14.3 million, or
$.54 per share, compared with a net loss of $23.5 million, or $.94 per share,
for the second quarter of 1995. This improvement in net income was the result of
increased revenues and cost reductions in both the Petroleum Production
Equipment and Compression and Power Equipment segments.
REVENUES
Revenues for the second quarter of 1996 totaled $312.4 million, an
increase of 16% from $268.5 million in the second quarter of 1995.
Approximately 27% of this improvement occurred in the Petroleum Production
Equipment segment and 73% in the Compression and Power Equipment segment.
11
<PAGE>
The Petroleum Production Equipment segment's second quarter 1996 revenues
of $172.5 million represented an increase of 7% over the $160.5 million in the
second quarter of 1995. (The second quarter of 1995 included revenues of $3.6
million related to the Wheeling Machine Products Division, which was sold during
the fourth quarter of 1995.) The revenue increase primarily reflected an
improvement in general market conditions driven by higher and more stable oil
and natural gas prices. Additionally, increased shipments associated with large
subsea projects in the North Sea contributed to the higher revenue level.
Order activity for this segment in the second quarter of 1996 totaled
$218.7 million, an increase of 48% from the same period in 1995 due to 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 or early 1997. Due to the value 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 $139.9
million increased 30% from $108.0 million in the second quarter of 1995. This
improvement was the result of increased natural gas compression equipment
shipments in the North American market, gas turbine and compressor projects in
the international market, and continued strong centrifugal air compressor
activity. The increase in revenues associated with gas compression equipment
and turbine and compressor projects was the result of the improved order
activity which began in the second half of 1995 as market fundamentals improved.
Strong demand for centrifugal air compressors continued for both industrial and
air separation applications, and in both domestic and international markets.
Incoming orders for the segment were $132.1 million in the second quarter of
1996, an increase of 27% from the second quarter of 1995.
COSTS AND EXPENSES
Cost of sales (exclusive of depreciation and amortization) of $227.0
million in the second quarter of 1996 increased by $11.0 million, or 5%,
compared with $216.0 million in the same period of 1995. This increase is
attributable to the previously discussed revenue improvement partially offset by
several other factors. Within the Petroleum Production Equipment segment, the
gross margin percent (defined as revenues less cost of sales as a percentage of
revenues) increased to 27.5% in the second quarter of 1996 from 16.7% in the
second quarter of 1995. This improvement was the result of some increase in
prices, very low margin projects shipped in the second quarter of 1995 that did
not recur in 1996, 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 percent increased from 23.8% in the second quarter of
1995 to 27.2% in the second quarter of 1996. This improvement resulted from
higher production levels resulting in the leveraging of manufacturing support
costs and improved pricing in the centrifugal air compressor business.
Selling and administrative expenses decreased by $2.5 million, from $47.6
million in the second quarter of 1995 to $45.1 million in the second quarter of
1996. This reduction was primarily a result of benefits being derived from
earlier cost rationalization actions combined
12
<PAGE>
with efforts to control costs as the business expands. Selling and
administrative costs as a percentage of revenues improved from 17.7% in the
second quarter of 1995 to 14.4% in the second quarter of 1996.
Reflecting the various factors discussed above, EBITDA (defined as
earnings before interest, taxes, depreciation and amortization, and
nonrecurring/unusual charges) was $40.3 million in the second quarter of 1996,
an increase of $35.4 million from the second quarter of 1995, with $21.9 million
of the improvement in the Petroleum Production Equipment segment and $13.8
million in the Compression and Power Equipment segment. EBITDA is a performance
measurement that is commonly used in the oilfield equipment and service industry
and its presentation is intended to supplement, not replace, other measurements
of financial performance, including net income and cash flows.
Depreciation and amortization expense decreased by $8.5 million, from
$23.5 million in the second quarter of 1995 to $15.0 million in the second
quarter 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 several adjustments also recorded in the second quarter of
1995 to reflect changes in depreciation expense for the first six months of
1995.
Interest expense decreased by $1.5 million, or 25%, from $5.9 million in
the second quarter of 1995 to $4.4 million in the second quarter of 1996. This
decline was the result of a lower average debt level as well as a slightly lower
average interest rate. During the first two quarters of 1995 debt was constant
at $375.0 million, representing an allocated amount from Cooper Industries, Inc.
prior to the split-off. Debt increased from $257.0 million at March 31, 1996,
to $349.5 million at June 30, 1996, including approximately $100.0 million
related to the purchase of the assets of Ingram Cactus Company on June 14, 1996.
See Note 5 of the Notes to Consolidated Financial Statements for further
information.
Income taxes increased from a credit of $7.8 million in the second
quarter of 1995 to expense of $5.7 million in the second quarter of 1996. The
Company's effective tax rate for the second quarter of 1996 was 30.6%, compared
to 18.8% in the second quarter of 1995. The second quarter of 1995 included the
effect of adjusting the full year estimated effective tax rate from 59.1% in the
first quarter of 1995 to 27.0% at June 30, 1995.
SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX MONTHS ENDED JUNE 30, 1995
Cooper Cameron Corporation had net income of $20.5 million, or $.78 per
share, for the six months ended June 30, 1996, compared to a net loss of $478.8
million, or $19.15 per share, for the same period in 1995. The results for both
periods include the charges previously discussed in the second quarter
comparison and further described in Note 2 of the Notes to Consolidated
Financial Statements. Absent these charges, net income for the first six months
of 1996 would have been $21.9 million, or $.84 per share, compared with a pro
forma loss of $27.7 million, or $1.11 per share, for the same period in 1995.
This improvement in net income was largely the result of increased revenues in
both segments and cost reductions in the Petroleum Production Equipment segment.
13
<PAGE>
REVENUES
Revenues for the six months ended June 30, 1996, totaled $593.1 million,
an increase of 13% from the $523.1 million in the first six months of 1995.
This $70.0 million increase in revenues was split fairly evenly between the two
segments.
The Petroleum Production Equipment segment's revenues of $343.9 million
represented an increase of 12% over the $308.3 million in the first six months
of 1995. (The six months ended June 30, 1995, included revenues of $7.2 million
related to the Wheeling Machine Products Division, which was sold during the
fourth quarter of 1995.) This increase in revenues 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 first quarter of 1996. Order
activity for this segment for the first six months of 1996 totaled $380.8
million, an increase of 3% from the same period in 1995, which included two
large subsea projects in the North Sea totaling in excess of $70 million. No
orders of this magnitude have been recorded thus far in 1996.
Revenues for the Compression and Power Equipment segment were $249.2
million for the first half of 1996, an increase of 16% from the $214.8 million
in the six months ended June 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 half of 1995, and continued strong
centrifugal air compressor shipments. Order activity in this segment for the
first six months of 1996 totaled $258.5 million, an increase of 27% from the
same period in 1995.
COSTS AND EXPENSES
Cost of sales (exclusive of depreciation and amortization) of $432.9
million in the first six months of 1996 increased by $15.3 million, or 4%,
compared with $417.6 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 six months ended June 30, 1996, compared to 18.1% for
the same period in 1995. This improvement 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, gross
margin percentage improved from 23.1% in the first six months of 1995 to 26.4%
in the first six 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 have provided the opportunity for improvement in pricing.
Selling and administrative expenses increased by $1.9 million, or 2%,
from $87.7 million in the first six months of 1995 to $89.6 million in the first
six months of 1996. This small increase was primarily the result of relatively
low levels of inflation and greater corporate
14
<PAGE>
expenses in the first half of 1996 than those allocated from Cooper in the first
half of 1995, partially offset by cost control efforts. As a percentage of
revenues, selling and administrative costs decreased to 15.1% in the six months
ended June 30, 1996, compared to 16.8% for the same period in 1995.
As a result of the various factors discussed above, EBITDA (defined as
earnings before interest, taxes, depreciation and amortization, and
nonrecurring/unusual charges) was $70.6 million for the six months ended June
30, 1996, an increase of $52.8 million from the same period in 1995, with $37.6
million of the improvement in the Petroleum Production Equipment segment and
$15.8 million in the Compression and Power Equipment segment. EBITDA is a
performance measurement that is commonly used in the oilfield equipment and
service industry and its presentation is intended to supplement, not replace,
other measurements of financial performance, including net income and cash
flows.
Depreciation and amortization expense decreased by $10.6 million, from
$40.8 million in the first half of 1995 to $30.2 million in the first six 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 $3.3 million, or 28%, from $11.9 million in
the first six months of 1995 to $8.6 million in the same period of 1996. This
decline was the result of a lower average debt level as well as a somewhat lower
average interest rate. During the first two quarters of 1995 debt was constant
at $375.0 million, representing an allocated amount from Cooper Industries, Inc.
Debt increased from $264.5 million at December 31, 1995, to $349.5 million at
June 30, 1996, including approximately $100.0 million related to the purchase of
the assets of Ingram Cactus Company on June 14, 1996.
Income taxes increased from a credit of $14.0 million for the six months
ended June 30, 1995, to expense of $9.0 million for the six months ended June
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 six months of 1996, the Company generated $19.2 million
of cash from operations. This positive cash flow, combined with a $9.2 million
reduction of cash on hand (excluding the effect of translation), was used to
reduce long-term debt by $15.0 million and to pay for $12.1 million of capital
expenditures. In June 1996, the Company funded the $100.0 million purchase
price of Ingram Cactus Company through additional long-term borrowings, raising
the Company's total debt to capitalization ratio to 44.3%, well below the
maximum allowed ratio of 55% contained in the covenants of the Company's long-
term Credit Agreement. The Ingram Cactus purchase price is subject to an
adjustment for the change in working capital from December 31, 1995 to the
closing date on June 14, 1996. Although no adjustment has yet been agreed to by
the parties involved, the Company currently anticipates making an additional
payment which will be funded by additional borrowings.
15
<PAGE>
On June 19, 1996, the Company amended various provisions of its long-term
Credit Agreement. These changes, which were designed in part to more readily
accommodate the Ingram Cactus acquisition, also provided the Company with
additional flexibility regarding share repurchases and dividend payments and
served to clarify and correct various provisions in the original agreement.
These changes are described in further detail in Note 7 of the Notes to
Consolidated Financial Statements. None of these changes were made in
anticipation of the Company being unable to meet the existing requirements and
covenants of the original agreement.
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 second half of 1996 to meet the working capital requirements of various
large equipment orders, primarily in the Compression and Power Equipment
segment. Additional reductions in debt are then expected beginning in the first
half of 1997 as the receivables from these large equipment sales are collected,
assuming no major deterioration in current market conditions. The Company
currently anticipates being able to meet all of its existing loan covenants
during the foreseeable future.
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 normal operating activity during the six-month period ended June 30,
1996.
16
<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
No reports on Form 8-K were filed during the three months ended
June 30, 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 August 14, 1996 /s/ Thomas R. Hix
----------------------------- ------------------------------------
Thomas R. Hix
Senior Vice President &
Chief Financial Officer
and authorized to sign on
behalf of the Registrant
17
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<PERIOD-TYPE> 6-MOS
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<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
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0
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