<PAGE> 1
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, 1997
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)
<TABLE>
<S> <C>
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)
</TABLE>
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 July 31, 1997 was
52,336,362.
<PAGE> 2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
COOPER CAMERON CORPORATION
CONSOLIDATED RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------ ------------------------
(dollars in millions, except per share data) 1997 1996 1997 1996
------- ------- ------- -------
<S> <C> <C> <C> <C>
REVENUES . . . . . . . . . . . . . . . . . . . $441.3 $312.4 $817.4 $593.1
------ ------ ------ ------
COSTS AND EXPENSES
Cost of sales (exclusive of
depreciation and amortization) . . . . . . 317.5 227.0 592.7 432.9
Depreciation and amortization . . . . . . . . 16.3 15.0 32.6 30.2
Selling and administrative expenses . . . . . 51.9 45.1 101.9 89.6
Interest expense . . . . . . . . . . . . . . . 7.3 4.4 14.3 8.6
Nonrecurring/unusual charges . . . . . . . . . - 2.3 - 2.3
------ ------ ------ -------
393.0 293.8 741.5 563.6
------ ------ ------ -------
Income before income taxes . . . . . . . 48.3 18.6 75.9 29.5
Income tax provision . . . . . . . . . . . . . (14.2) (5.7) (22.4) (9.0)
------- ------- ------- -------
Net income . . . . . . . . . . . . . . . . . . $ 34.1 $ 12.9 $ 53.5 $ 20.5
======= ======= ======= =======
Primary and fully diluted
earnings per share . . . . . . . . . . . . $ 0.62 $ 0.24 (1) $ 0.98 $ 0.39 (1)
======= ======= ======= =======
</TABLE>
(1) Adjusted to reflect the 2-for-1 stock split described in Note 2 of the
Notes to Consolidated Financial Statements.
The accompanying notes are an integral part of these statements.
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COOPER CAMERON CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
(dollars in millions, except shares and per share data) 1997 1996
------------ ------------
<S> <C> <C>
ASSETS
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . $ 9.9 $ 9.1
Receivables, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 371.4 360.8
Inventories, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 500.0 404.2
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.6 24.1
---------- ----------
Total current assets . . . . . . . . . . . . . . . . . . . . . . 893.9 798.2
---------- ----------
Plant and equipment, at cost . . . . . . . . . . . . . . . . . . . . . . . . 751.9 743.0
Less: accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . (385.4) (373.5)
Intangibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 447.1 454.8
Less: accumulated amortization . . . . . . . . . . . . . . . . . . . . . . . (199.3) (195.5)
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42.4 41.9
---------- ----------
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . $ 1,550.6 $ 1,468.9
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current maturities of long-term debt . . . . . . . . . . . . . . . . . . . . $ 47.0 $ 47.1
Accounts payable and accrued liabilities . . . . . . . . . . . . . . . . . . 418.4 391.3
Accrued income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.1 6.5
---------- ----------
Total current liabilities . . . . . . . . . . . . . . . . . . . . 471.5 444.9
---------- ----------
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 364.1 347.5
Postretirement benefits other than pensions . . . . . . . . . . . . . . . . 93.3 97.2
Deferred income taxes and other long-term liabilities . . . . . . . . . . . 58.9 63.2
---------- ----------
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . 987.8 952.8
---------- ----------
Stockholders' Equity:
Common stock, par value $.01 per share, 75,000,000 shares
authorized, 52,005,526 shares issued (25,617,727 at
December 31, 1996) . . . . . . . . . . . . . . . . . . . . . . . . . .5 .3
Capital in excess of par value . . . . . . . . . . . . . . . . . . . . . 890.7 873.9
Minimum pension liability . . . . . . . . . . . . . . . . . . . . . . . (.4) (2.6)
Translation component . . . . . . . . . . . . . . . . . . . . . . . . . 16.6 43.2
Retained deficit (including $441.0 charge on June 30, 1995
related to goodwill impairment) . . . . . . . . . . . . . . . . . . (344.6) (398.1)
Less: Treasury stock (688 shares at June 30, 1997 and
11,349 shares at December 31, 1996), at cost . . . . . . . . . . . . - (.6)
----------- ----------
Total stockholders' equity . . . . . . . . . . . . . . . . . . . 562.8 516.1
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY . . . . . . . . . . . . . . . . . . . . . . . . $ 1,550.6 $ 1,468.9
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
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<PAGE> 4
COOPER CAMERON CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------- -----------------------
(dollars in millions) 1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income . . . . . . . . . . . . . . . . . . . . $ 34.1 $ 12.9 $ 53.5 $ 20.5
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation . . . . . . . . . . . . . . . 12.4 11.6 24.9 23.3
Amortization . . . . . . . . . . . . . . . 3.9 3.4 7.7 6.9
Nonrecurring/unusual charges . . . . . . . - 2.3 - 2.3
Deferred income taxes . . . . . . . . . . 2.1 1.3 5.3 1.1
Changes in assets and liabilities, net of
translation and effects of acquisitions:
Receivables . . . . . . . . . . . . . . . (8.2) (25.6) (17.4) (38.9)
Inventories . . . . . . . . . . . . . . . (42.6) (17.0) (101.3) (29.9)
Accounts payable and accrued
liabilities . . . . . . . . . . . . . 18.7 20.0 29.5 36.0
Other assets and liabilities, net . . . . (2.8) (2.4) 5.1 (2.1)
------- ------- ---------- --------
Net cash provided by
operating activities . . . . . 17.6 6.5 7.3 19.2
------- ------- ---------- --------
Cash flows from investing activities:
Capital expenditures and proceeds from
sales of plant and equipment, net . . . . . . (12.8) (5.8) (19.8) (11.8)
Acquisitions . . . . . . . . . . . . . . . . . . . (5.3) (100.0) (6.3) (100.0)
------- ------- -------- --------
Net cash used for investing
activities . . . . . . . . . . (18.1) (105.8) (26.1) (111.8)
------- ------- -------- --------
Cash flows from financing activities:
Long-term borrowings . . . . . . . . . . . . . . . - 100.0 - 100.0
Loan borrowings (repayments), net . . . . . . . . (5.2) (7.5) 12.8 (15.0)
Activity under stock option plans
and other . . . . . . . . . . . . . . . . . . 7.6 - 7.8 -
------- -------- -------- --------
Net cash provided by financing
activities . . . . . . . . . . 2.4 92.5 20.6 85.0
------- ------- -------- --------
Effect of translation on cash . . . . . . . . . . . . (.1) (1.5) (1.0) (1.6)
------- ------- -------- --------
Increase (decrease) in cash and cash equivalents . . . 1.8 (8.3) .8 (9.2)
------- ------- -------- --------
Cash and cash equivalents, beginning of period . . . . 8.1 11.2 9.1 12.1
------- ------- -------- --------
Cash and cash equivalents, end of period . . . . . . . $ 9.9 $ 2.9 $ 9.9 $ 2.9
======= ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
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<PAGE> 5
COOPER CAMERON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Adjustments
The financial information presented as of June 30, 1997 and for the
three- and six-month periods ended June 30, 1997 and 1996 has been prepared
from the books and records without audit. Financial information as of December
31, 1996 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. For
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, 1996.
Note 2. Stock Split
On May 8, 1997, the Company's Board of Directors declared a 2-for-1
split of the Company's common stock which was effected in the form of a
dividend paid to stockholders on June 13, 1997. As a result, the earnings per
share amounts for the three- and six-month periods ended June 30, 1996 have
been restated to reflect the stock split.
Note 3. Inventories
<TABLE>
<CAPTION>
June 30, December 31,
(dollars in millions) 1997 1996
------------ ------------
<S> <C> <C>
Raw materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 65.3 $ 64.4
Work-in-process . . . . . . . . . . . . . . . . . . . . . . . . . . . . 228.5 192.9
Finished goods, including parts and subassemblies . . . . . . . . . . . 310.3 261.3
Perishable tooling and supplies . . . . . . . . . . . . . . . . . . . . 2.6 2.7
------- -------
606.7 521.3
Allowances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (106.7) (117.1)
------- -------
Net inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 500.0 $ 404.2
======= =======
</TABLE>
Note 4. Long-term Debt
Effective March 20, 1997, the Company amended and restated its $475
million long-term credit agreement with various banks (the Credit Agreement).
As a result, the final maturity of all committed facilities provided under the
Credit Agreement was extended twenty-one months, to March 31, 2002, all
outstanding term loans were converted into revolving credit advances, and
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<PAGE> 6
the interest rate was reduced by approximately .125%. In addition, the
modifications resulted in various changes to financial covenants. Such changes
included, among other things, elimination of (i) a minimum net worth test, (ii)
the annual tightening of the maximum debt to capitalization and minimum interest
coverage ratios and (iii) certain of the restrictions on dividends and share
repurchases.
Of the Company's $47.0 million of short-term debt, $45.0 million
represents debt that has been classified as short-term based on management's
intention to repay this amount during the next twelve months. At June 30, 1997,
the Company had $96.4 million of committed borrowing capacity available under
the Credit Agreement plus additional uncommitted amounts available under
various other borrowing arrangements.
Note 5. 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 June 30,
1997, the Company had approximately $546.1 million from which dividends could
be paid.
Note 6. Acquisitions
During the six months ended June 30, 1997, the Company made three
small product line acquisitions totaling $6.3 million, all of which have been
accounted for under the purchase method of accounting. Additional goodwill
added as a result of these acquisitions was approximately $1.7 million.
Note 7. Earnings Per Share
The weighted average number of common shares and common stock
equivalents outstanding for each period presented was as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------- ---------------------
(amounts in millions) 1997 1996 (1) 1997 1996 (1)
---- ---- ---- ----
<S> <C> <C> <C> <C>
Average shares outstanding . . . . . . . . . . 51.6 50.4 51.4 50.3
Common stock equivalents . . . . . . . . . . . 3.7 2.3 3.3 2.2
---- ---- ---- ----
Number of shares utilized in
earnings per share calculation . . . . . . 55.3 52.7 54.7 52.5
==== ==== ==== ====
</TABLE>
(1) Adjusted for the 2-for-1 stock split described in Note 2 of the Notes to
Consolidated Financial Statements.
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<PAGE> 7
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, Earnings per Share, which is required to be adopted on
December 31, 1997. At that time, the Company will be required to change the
method currently used to compute earnings per share and to restate all prior
periods. Under the new requirements for calculating "basic earnings per share"
(which calculation replaces the current "primary earnings per share"), the
dilutive effect of stock options will be excluded. The impact is expected to
result in an increase (adjusted for the 2-for-1 split) in earnings per share
for the quarters ended June 30, 1997 and 1996 of $.04 and $.02, respectively,
and an increase in earnings per share for the six months ended June 30, 1997
and 1996 of $.06 and $.02, respectively. Statement 128 is not expected to
result in any change in the Company's fully diluted earnings per share.
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<PAGE> 8
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition
In addition to the historical data contained herein, this
document includes forward-looking statements regarding the future revenues and
profitability of the Company. Such information is based on current
expectations regarding overall demand for the Company's products and other
factors which can affect the Company's results of operations, liquidity
or financial condition. Such factors may include changes in the price of (and
demand for) oil and gas in both domestic and international markets;
political and social issues affecting the countries in which the Company
does business; fluctuations in market currencies worldwide; and
variations in global economic activity. 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
Company is not obligated to make public indication of such changes
unless required under applicable disclosure rules and regulations.
SECOND QUARTER 1997 COMPARED TO SECOND QUARTER 1996
The Company had net income of $34.1 million, or $.62 per share, for the
second quarter of 1997 compared to $12.9 million, or $.24 per share (adjusted
for the 2-for-1 stock split), for the same period in 1996. The second quarter
of 1996 included a nonrecurring charge of $2.3 million ($1.4 million after
income tax effect), or $.03 per share, associated with cost rationalization
efforts in the Compression and Power Equipment segment. The improvement in
earnings was largely the result of continued strong performance in the
Petroleum Production Equipment segment, where second quarter 1997 earnings more
than tripled from the same period in 1996.
REVENUES
Revenues for the second quarter of 1997 totaled $441.3 million, an
increase of 41% from the $312.4 million in the second quarter of 1996. This
increase was due to strong market fundamentals, driven largely by increasing
worldwide demand for oil and natural gas and the June 1996 acquisition of
Ingram Cactus Company. Although periodic fluctuations were experienced, oil
and natural gas prices remained at levels acceptable to the marketplace, and
continued to provide the impetus for increased spending by national oil
companies and major and independent producers. Approximately 83% of the
improvement in revenues was from the Petroleum Production Equipment segment and
17% from the Compression and Power Equipment segment. The effect of the
favorable market conditions was also reflected in 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,
which ended the period at the highest level since early 1992. Backlog at June
30, 1997 was $852.4 million, an increase of 17% from year-end 1996 and 35% from
June 30, 1996.
The Petroleum Production Equipment segment's revenues of $279.9 million
increased by 62% over second quarter 1996 revenues of $172.5 million. The
segment's revenue growth was
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<PAGE> 9
across all geographical areas and product lines. This increase was due
primarily to improved market conditions, which resulted in volume growth as
well as favorable pricing, and the Ingram Cactus acquisition, for which
revenues were not included until the third quarter of 1996. Because the
acquired Ingram Cactus operations have been substantially integrated into the
Cameron business, separate data on revenues and earnings attributable to the
acquisition are not available. Second quarter revenues associated with several
small product line acquisitions were minimal. Contributing to this improvement
were shipments associated with drilling projects in the Gulf of Mexico and
generally stronger activity in Canada, the North Sea, and the Asia Pacific
region. Order activity for the segment reached $306.2 million, an increase of
40% from the second quarter 1996 level. This improvement was primarily in
drilling and surface products, while subsea products declined slightly due to
the timing of major projects. Backlog for the segment ended the second quarter
of 1997 at $540.3 million, an increase of 23% from year-end 1996 and 81% from
the June 30, 1996 level.
Revenues for the Compression and Power Equipment segment of $161.4
million improved by 15% from the $139.9 million in the second quarter of 1996.
This improvement resulted primarily from an increase in international gas
turbine and compressor project revenues. Reciprocating natural gas compression
equipment shipments also improved due to increased orders for the Company's new
high-speed products. Gas compression equipment parts and service revenues were
only slightly higher than prior year as customers continued to delay preventive
maintenance, outsource inventory management, and purchase non-OEM parts or
refurbished parts. Second quarter 1997 centrifugal air compressor revenues
increased slightly from the second quarter of 1996 with strong demand in both
industrial and air separation applications, driven by economic growth,
particularly in Southeast Asia and the Pacific Rim. Order activity in the
Compression and Power Equipment segment totaled $164.9 million, an increase of
25% from the second quarter of 1996. This increase was due to large
international gas turbine and compressor projects, improved gas compression
equipment parts and service activity, and continued strong demand for
centrifugal air compressors, particularly in air separation applications. Due
to the size and complex nature of major gas turbine and compressor projects,
the specific timing of an order is very difficult to predict and can cause
significant fluctuations in the year-to-year revenue, order and backlog
comparisons for this segment. Backlog for the segment was $312.1 million at
June 30, 1997, an increase of 8% from year-end 1996 and a decline of 7% from
the second quarter of 1996.
COSTS AND EXPENSES
Cost of sales (exclusive of depreciation and amortization) of $317.5
million in the second quarter of 1997 increased by $90.5 million, or 40%,
compared with $227.0 million in the same period of 1996. The increase was
largely the result of the previously discussed 41% revenue growth. As
discussed above, revenues increased by 62% in the Petroleum Production
Equipment segment and 15% in the Compression and Power Equipment segment, while
cost of sales increased by 56% and 19%, respectively. This resulted in a gross
margin percentage (defined as revenues less cost of sales as a percentage of
revenues) of 30.1% for the Petroleum Production Equipment segment, compared to
27.5% in the second quarter of 1996. This increase resulted from improved
pricing, the leveraging of various manufacturing support costs that are
relatively fixed in the short-term, and cost reduction programs. For the
Compression and Power
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<PAGE> 10
Equipment segment, the gross margin percentage declined from 27.2% in the
second quarter of 1996 to 24.6% in the second quarter of 1997. While the 27.2%
experienced in the second quarter of 1996 was somewhat above normal levels
because of a favorable product mix, the second quarter of 1997 has been
adversely affected by pricing pressure in the very competitive gas turbine and
compressor project business and in the aftermarket for gas compression
equipment. Also contributing to the percentage decline was the increase in
relatively lower margin revenues from the segment's energy-related products and
only a slight increase in higher margin centrifugal air compressor revenues.
Providing a partial offset were increased production levels, which allowed for
the leveraging of various manufacturing support costs, and the benefits of the
cost rationalization program in late 1996 at the Grove City, Pennsylvania
facility. The Company currently anticipates that third quarter margins will be
comparable to those achieved in the second quarter, while the fourth quarter
should reflect a meaningful improvement. Such improvement reflects the
seasonal changes typically experienced in the segment with the best margins
experienced in the fourth quarter and the weakest in the first quarter.
Depreciation and amortization increased by $1.3 million, from $15.0
million in the second quarter of 1996 to $16.3 million in the second quarter of
1997, primarily in the Petroleum Production Equipment segment. This increase
was due to the Ingram Cactus acquisition and higher capital spending levels
beginning in the second half of 1996 in response to improved market conditions.
Selling and administrative expenses increased by $6.8 million, or 15%,
from $45.1 million in the second quarter of 1996 to $51.9 million in the second
quarter of 1997, primarily in the Petroleum Production Equipment segment. This
increase was due to the higher revenue level, the Ingram Cactus acquisition,
and the Company's conscious effort to improve its market presence. As an
example, Cameron has established separate management teams and focused
additional marketing resources on the controls and choke businesses, where
there is believed to be significant growth potential. As a percentage of
revenues, selling and administrative costs for the Company decreased from 14.4%
in the second quarter of 1996 to 11.8% in the second quarter of 1997, with both
segments showing improvements in this relationship. Because most of this
improvement results from a leveraging of costs, this favorable relationship
will continue, but is not expected to improve dramatically unless revenues grow
dramatically.
Reflecting the various factors discussed above, operating income
(defined as earnings before nonrecurring/unusual charges, corporate expenses,
interest, and taxes) totaled $59.3 million for the Company, an increase of
$31.3 million from the second quarter of 1996. The Petroleum Production
Equipment segment improved from $13.6 million to $41.5 million, while the
Compression and Power Equipment segment increased from $14.4 million to $17.8
million.
Interest expense increased from $4.4 million in the second quarter of
1996 to $7.3 million in the second quarter of 1997, primarily due to an
increase in the average debt level. The second quarter average debt level
increased from $303.3 million in 1996 to $414.6 million in 1997 due to
acquisitions and increased working capital requirements in support of the
revenue and backlog growth.
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<PAGE> 11
Income taxes were $14.2 million in the second quarter of 1997, an
increase of $8.5 million from the same period in 1996. This increase was the
result of the year-to-year improvement in earnings. The estimated effective tax
rate declined from 30.6% in the second quarter of 1996 to 29.5% in the second
quarter of 1997, primarily as a result of an estimated change in the mix of
domestic and foreign earnings for 1997 versus 1996.
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996
Cooper Cameron Corporation had net income of $53.5 million, or $.98 per
share (adjusted for the 2-for-1 stock split), for the six months ended June 30,
1997 compared to $20.5 million, or $.39 per share (adjusted for the 2-for-1
stock split), for the same period in 1996. The results for 1996 include the
nonrecurring charge previously discussed in the second quarter comparison. The
improvement in net income was largely the result of the strong performance of
the Petroleum Production Equipment segment, where earnings for the six months
ended June 30, 1997 increased by 168% from the same period last year.
REVENUES
Revenues for the six months ended June 30, 1997 totaled $817.4 million,
an increase of 38% over the $593.1 million in the first six months of 1996.
The Ingram Cactus acquisition and strong market fundamentals discussed in the
quarterly comparison were also evident during the six-month period.
Approximately 78% of the improvement in revenues were from the Petroleum
Production Equipment segment and 22% from the Compression and Power Equipment
segment.
The Petroleum Production Equipment segment's revenues of $519.0 million
increased by 51% from the $343.9 million in the first six months of 1996. The
segment's revenue growth was across all geographical regions and product lines.
As discussed in the quarterly comparison, this increase was primarily due to
improved market conditions and the Ingram Cactus acquisition, for which
revenues were included beginning in the third quarter of 1996. Of particular
note were higher levels of shipments associated with large drilling projects in
the Gulf of Mexico and generally stronger activity in Canada, the North Sea,
and the Asia Pacific region. Order activity for this segment for the first six
months of 1997 totaled $632.3 million, an increase of 66% from the same period
in 1996, due to the same general factors discussed in the revenue comparison.
Revenues for the Compression and Power Equipment segment were $298.4
million for the first half of 1997, an increase of 20% from the $249.2 million
in the six months ended June 30, 1996. This improvement was largely the result
of increased international gas turbine and compressor project revenues.
Reciprocating natural gas compression equipment shipments also improved due to
increased orders in the second half of 1996 as the Company's new high-speed
products gained greater market acceptance. Gas compression equipment parts and
service revenues declined slightly from prior year due to the same fundamental
changes in customer behavior discussed in the quarterly comparison.
Centrifugal air compressor revenues for the six months ended June 30, 1997
increased by 13% from the same period in 1996. This improvement resulted from
strong demand in both industrial and air separation applications, driven by
economic growth, particularly in Southeast Asia and the Pacific Rim. Order
activity in this
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<PAGE> 12
segment for the first six months of 1997 totaled $324.0 million, an increase of
25% from the same period in 1996.
COSTS AND EXPENSES
Cost of sales (exclusive of depreciation and amortization) of $592.7
million in the first six months of 1997 increased by $159.8 million, or 37%,
compared with the same period of 1996. The increase was largely the result of
the previously discussed 38% revenue growth. As discussed above, revenues
increased by 51% in the Petroleum Production Equipment segment and 20% in the
Compression and Power Equipment segment, while cost of sales increased by 46%
and 24%, respectively. This resulted in a gross margin percentage (defined as
revenues less cost of sales as a percentage of revenues) of 29.7% in the
Petroleum Production Equipment segment, compared to 27.5% in the first six
months of 1996. This improvement resulted from the same factors discussed in
the quarterly comparison. For the Compression and Power Equipment segment, the
gross margin percentage declined from 26.4% in the first six months of 1996 to
23.7% for the same period in 1997. Contributing to this deterioration was very
competitive pricing in the gas turbine and compressor project business and in
the aftermarket for gas compression equipment. Additionally, the increase in
the traditionally lower margin gas turbine and compressor project revenues and
the slight decline in higher margin aftermarket business resulted in an
unfavorable mix effect on the gross margin percentage. Providing a partial
offset were higher production levels, which allowed for the leveraging of
manufacturing support costs, and the effect of the cost rationalization program
in late 1996 at the Grove City, Pennsylvania facility.
Depreciation and amortization increased by $2.4 million, from $30.2
million in the first half of 1996 to $32.6 million in the first six months of
1997, primarily in the Petroleum Production Equipment segment. This increase
was due to the same factors discussed in the quarterly comparison.
Selling and administrative expenses increased by $12.3 million, or 14%,
from $89.6 million in the first six months of 1996 to $101.9 million in the
first half of 1997, primarily in the Petroleum Production Equipment segment.
This increase was due to the same factors discussed in the quarterly
comparison. As a percentage of revenues, selling and administrative costs for
the Company decreased from 15.1% in the first six months of 1996 to 12.5% in
the six months ended June 30, 1997, with both segments showing improvements in
this relationship.
Reflecting the various factors discussed above, operating income
(defined as earnings before nonrecurring/unusual charges, corporate expenses,
interest, and taxes) totaled $96.5 million for the Company, an increase of
$51.1 million from the first half of 1996. The Petroleum Production Equipment
segment improved from $26.4 million to $70.6 million, while the Compression and
Power Equipment segment increased from $19.0 million to $25.9 million.
Interest expense increased from $8.6 million in the six months ended
June 30, 1996 to $14.3 million for the same period in 1997, primarily due to an
increase in the average debt level. The average debt level increased from
$290.3 million in 1996 to $407.9 million in 1997 due to
-12-
<PAGE> 13
acquisitions and higher working capital requirements in support of the revenue
and backlog growth.
Income taxes were $22.4 million in the six months ended June 30, 1997,
an increase of $13.4 million from the same period in 1996. This increase was
due to the year-to-year improvement in earnings. The estimated effective tax
rate declined from 30.4% in the first half of 1996 to 29.5% in the first six
months of 1997, mainly due to a change in the mix of domestic and foreign
earnings for 1997 versus 1996.
OUTLOOK
Given the strength in the Company's markets, the improved results
discussed above are currently anticipated to be sustainable over the next
several quarters and should lead to continued improvement in the Company's
overall profitability. The current level of operations and backlog indicates
that the Company's full year 1997 earnings per share should be approximately
double the 1996 total of $1.21, adjusted for the stock split.
CASH FLOW, LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL POSITION
During the first six months of 1997, the Company generated $7.3 million
of cash from operations. The Compression and Power Equipment segment was
responsible for the generation of this cash flow as current year earnings and
collections of outstanding receivables more than offset cash utilized to build
inventories. Current year earnings of the Petroleum Production Equipment
segment were offset by the cash required to fund increased levels of inventory
and receivables as a result of record levels of orders and higher sales and
backlog.
The cash flow generated from operations, as well as approximately $12.8
million of cash provided by additional borrowings and $9.9 million of proceeds
from sales of plant and equipment and activity under the Company's stock option
and other plans, was used to finance capital expenditures totaling $21.9
million (approximately two-thirds of which relate to the Petroleum Production
Equipment segment) as well as $6.3 million for three small product line
acquisitions made by the Petroleum Production Equipment segment.
As described in Note 4 - Long-term Debt, effective March 20, 1997, the
Company amended and restated its $475 million long-term credit agreement with
various banks (the Credit Agreement). Management believes these changes have
increased the Company's flexibility in the conduct and financing of its
worldwide operations.
In addition, on November 8, 1996, the Company's Board of Directors
approved the repurchase of up to 5,000,000 shares of the Company's Common Stock
in the open market from time to time in order to satisfy the Company's
obligations to issue stock under its various employee stock ownership, option
and benefit plans. Any such purchases will be made from the Company's free
cash flow and are not expected to adversely impact the Company's liquidity or
capital resources.
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<PAGE> 14
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Stockholders of the Company was held in Houston,
Texas on May 8, 1997 for the purpose of (i) electing two members of the Board
of Directors, (ii) approving an amendment to the Amended and Restated 1995
Stock Option Plan for Non-employee Directors, (iii) approving the Amended and
Restated Cooper Cameron Long-Term Incentive Plan and (iv) approving the Cooper
Cameron Corporation Management Incentive Compensation Plan, as amended. Proxies
for the meeting were solicited pursuant to Regulation 14 of the Securities
Exchange Act of 1934 and there was no solicitation in opposition to
management's solicitation. Stockholders approved both of management's nominees
to the Board and approved each of the plans or plan amendments by the following
votes:
<TABLE>
<CAPTION>
Amendment
Board Nominees to 1995 Stock Management
--------------------------- Option Plan for Long-Term Incentive
Sheldon R. C. Baker Non-Employee Incentive Compensation
Erikson Cunningham Directors Plan Plan
------------ ------------- --------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Shares "For" 22,062,533 22,061,207 20,773,324 13,551,770 21,519,219
Shares "Against" - - 1,176,232 6,405,566 435,596
Shares "Abstaining" - - 189,003 172,377 183,744
Shares Withheld 77,352 76,026 - - -
Broker Non-Votes - - - 2,008,846 -
</TABLE>
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, 1997.
-14-
<PAGE> 15
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 11, 1997 /s/ Thomas R. Hix
----------------------- -----------------------------------
Thomas R. Hix
Senior Vice President &
Chief Financial Officer
and authorized to sign on
behalf of the Registrant
-15-
<PAGE> 16
EXHIBIT INDEX
Exhibit
No. Description
------- -----------
27 -- Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 10
<SECURITIES> 0
<RECEIVABLES> 371
<ALLOWANCES> 0
<INVENTORY> 500
<CURRENT-ASSETS> 894
<PP&E> 752
<DEPRECIATION> 385
<TOTAL-ASSETS> 1,551
<CURRENT-LIABILITIES> 472
<BONDS> 364
0
0
<COMMON> 1
<OTHER-SE> 562
<TOTAL-LIABILITY-AND-EQUITY> 1,551
<SALES> 817
<TOTAL-REVENUES> 817
<CGS> 593
<TOTAL-COSTS> 593
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14
<INCOME-PRETAX> 76
<INCOME-TAX> 22
<INCOME-CONTINUING> 54
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 54
<EPS-PRIMARY> .98
<EPS-DILUTED> .98
</TABLE>
