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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal year ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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Commission File Number 1-13884
COOPER CAMERON CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 76-0451843
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
515 Post Oak Boulevard
Suite 1200
Houston, Texas
(Address of principal 77027
executive offices) (Zip Code)
Registrant's telephone number, including area code (713) 513-3300
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
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Name of Each Exchange on
Title of Each Class Which Registered
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Common Stock, Par Value $0.01 Per Share New York Stock Exchange
Junior Participating Preferred Stock New York Stock Exchange
Purchase Rights
Par Value $0.01 Per Share
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Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the Registrant's knowledge, in a definitive proxy or information
statement incorporated by reference in Part III of this Form 10-K of any
amendment to this Form 10-K. [ ]
The number of shares of Common Stock, par value $.01 per share,
outstanding as of March 20, 1998 was 52,465,009. The aggregate market value of
the Common Stock, par value $0.01 per share, held by non-affiliates of
Registrant as of March 20, 1998 was approximately $3,242,993,369. For the
purposes of the determination of the above statement amount only, all directors
and executive officers of the Registrant are presumed to be affiliates.
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of Registrant's Annual Report to Stockholders for 1997 are
incorporated by reference into Part II. Portions of Registrant's
1998 Proxy Statement for the Annual Meeting of Stockholders to be
held May 14, 1998 are incorporated by reference into Part III.
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TABLE OF CONTENTS
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PAGE
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1997 1997 MARCH 25, 1998
ITEM FORM 10-K ANNUAL REPORT PROXY STATEMENT
PART I
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1. BUSINESS ................................................................. 1 - -
Markets and Products ................................................. 2 - -
Aftermarket Services ................................................. 8 - -
Market Issues ........................................................ 9 - -
New Product Development .............................................. 9 - -
Competition .......................................................... 11 - -
Manufacturing ........................................................ 12 - -
Backlog .............................................................. 13 - -
Patents, Trademarks and Other Intellectual Property .................. 13 - -
Employees ............................................................ 13 - -
2. PROPERTIES ............................................................... 14 - -
3. LEGAL PROCEEDINGS ........................................................ 14 - -
Environmental Matters ................................................ 14 - -
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ...................... 16 - -
PART II
5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS .................................................. 16 - -
6. SELECTED FINANCIAL DATA .................................................. 17 51 -
7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS ................................................ 17 21-27 -
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA .............................. 17 28-50
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE ............................................. 18 - -
PART III
10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT ....................... 18 - 3-5,25
11. EXECUTIVE COMPENSATION ................................................... 19 - 17-20
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT ........................................................... 19 - 2,15-16
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ........................... 20 - -
PART IV
14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K ............................................................. 20 - -
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PART I
ITEM 1. BUSINESS.
Cooper Cameron Corporation ("Cooper Cameron" or the "Company") is a
leading international manufacturer of oil and gas pressure control equipment,
including valves, wellheads, chokes, blowout preventers and assembled systems
for oil and gas drilling, production and transmission used in onshore, offshore
and subsea applications. Cooper Cameron is also a leading manufacturer of gas
turbines, centrifugal gas and air compressors, integral and separable
reciprocating engines, compressors and turbochargers.
Cooper Cameron, a Delaware corporation, was incorporated on November
10, 1994. The Company operated as a wholly-owned subsidiary of Cooper
Industries, Inc. ("Cooper") until June 30, 1995, the effective date of the
completion of an exchange offer with Cooper's stockholders resulting in the
Company becoming a separate stand-alone company. The common stock of Cooper
Cameron is trading on the New York Stock Exchange under the symbol "RON".
In June 1996, Cooper Cameron purchased the assets and assumed certain
operating liabilities of Ingram Cactus Company for approximately $100 million in
cash. The business acquired manufactures and sells wellheads, surface systems,
valves and actuators used primarily in onshore oil and gas production
operations, and owned manufacturing facilities in Oklahoma City, Oklahoma and
Broussard, Louisiana, as well as in the United Kingdom and Austria. The
Company also acquired interests in the Ingram Cactus joint ventures in
Venezuela and Malaysia. The operations have now been integrated into those of
the Cameron division.
In October 1996, Cooper Cameron acquired for its Cameron division
certain assets and assumed certain liabilities of Tundra Valve & Wellhead Corp.,
a Canadian manufacturer of wellheads, trees and valves, for approximately
Canadian $9.8 million. Also during October 1996, Cooper Cameron acquired for its
Cooper Energy Services division, for approximately $6.1 million, certain assets
of ENOX Technologies, Inc., a developer and provider of ignition systems for gas
engines, particularly those used in large-scale gas transmission installations.
During 1997, the Company's Petroleum Production Equipment segment made
three small product line acquisitions totaling $6.3 million and, in February
1998, announced the acquisition of Orbit Valve International, Inc. ("Orbit") for
approximately $100 million in cash and notes. Orbit will become part of the
Cooper Cameron Valves organization upon close of the acquisition which is
expected during the second quarter of 1998. Orbit manufactures and sells
high-performance valves and actuators for the oil and gas and petrochemical
industries. Orbit's primary manufacturing facility is located in Little Rock,
Arkansas with a sales, marketing, assembly, test and warehousing base at
Ashchurch, Gloucestershire in the United Kingdom.
Cooper Cameron's business of manufacturing petroleum production
equipment and compression and power equipment began in the mid-1800's with the
manufacture of steam engines that provided power for plants and textile or
rolling mills. By 1900, with the discovery of oil and gas, Cooper Cameron moved
into the production of natural gas internal combustion
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engines and gas compressors. The Company added to its product offering through
various acquisitions, in particular the acquisitions of The Bessemer Gas Engine
Company (gas engines and compressors); Pennsylvania Pump and Compressor
(reciprocating air and gas compressors); Ajax Iron Works (compressors); Superior
(engines and compressors); Joy Petroleum Equipment Group (valves, couplings and
wellheads); Joy Industrial Compressor Group (compressors); and Cameron Iron
Works (blowout preventers, ball valves, control equipment and McEvoy-Willis
wellhead equipment and choke valves).
BUSINESS SEGMENTS
MARKETS AND PRODUCTS
The Company operates in two industry segments, petroleum production
equipment and compression and power equipment.
For additional industry segment information for each of the three years
in the three-year period ended December 31, 1997, see Note 15 of the Notes to
Consolidated Financial Statements, which Notes are incorporated herein by
reference in Part II, Item 8 hereof ("Notes to Consolidated Financial
Statements.")
Petroleum Production Equipment Segment
The Company manufactures pressure control equipment used at the
wellhead in the drilling for and production and transmission of oil and gas,
both onshore and offshore. The primary products include wellheads, gate valves
and ball valves, blowout preventers ("BOPs") and control systems and are
marketed under the well-known brand names Cameron(R), W-K-M(R), McEvoy(R),
Demco(R), Willis(TM), Ingram Cactus(R), Foster(R) and Thornhill Craver(TM). The
equipment is manufactured in a variety of sizes and to various specifications
with working pressure ratings up to 30,000 pounds per square inch ("p.s.i.").
The wellhead equipment is designed to support the casing and production tubulars
and includes casing head housings, casing heads and tubing heads. Valves of
different sizes and design are assembled with other components into an assembly
known as a "christmas tree," which is mounted on the wellhead equipment and is
used to control the flow of oil and gas from a producing well. Most christmas
trees are custom designed to meet individual customer requirements.
The Company also manufactures subsea production systems, which consist
of equipment used to complete an oil or gas well on the sea floor. Subsea
systems tend to be sophisticated and generally require a high degree of
technological innovation.
In 1993, the Company introduced its patented SpoolTree(TM) subsea
production system for use in oil and gas fields with subsea completions that
require frequent retrieval of downhole equipment. With the SpoolTree(TM) system,
well completion and workover activities can be performed without a workover
riser and removal of the christmas tree and under conventional blowout preventer
control, thereby reducing the time and equipment needed to perform such
activities.
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Cooper Cameron's drilling-related equipment includes ram and annular
BOPs. The drilling of an oil or gas well is done through BOPs located under the
rig floor and on top of the wellhead. The primary function of a BOP is to
maintain well control under all conditions. Ram-type preventers have two
hydraulically actuated steel rams with rubber inserts that are designed to close
around the drill pipe, sealing off the space below or, in the case of blind
rams, to close off the open hole. The annular-type BOP is attached above the ram
BOPs and is used to close off the well-bore using a donut-shaped rubber packer
with steel inserts that are compressed together by a hydraulically actuated
piston. The workover-type preventer is attached to the top of completed oil or
gas wells to control pressures when a variety of work is being performed through
christmas trees. Cooper Cameron manufactures BOPs to meet pressure requirements
of up to 25,000 p.s.i. and in diameters from 4 1/16 to 26 3/4 inches. Cooper
Cameron has experienced a dramatic increase in its BOP sales over the past two
years due to an increased market focus on and improving fundamentals in the
drilling business.
Cooper Cameron also produces other drilling-related equipment, the most
important of which are choke manifolds, drilling risers and control systems.
Choke manifolds are arrangements of piping, valves and special valves, called
chokes, which control pressures during drilling and, in the event of BOP
closure, bleed off excessive pressures. Control systems monitor well pressures
and activate the chokes, valves and BOPs.
Cooper Cameron also manufactures ball valves and underwater pipeline
tie-in and pipeline repair equipment. A ball valve consists of a spherical plug,
or ball, with a hole running axially through it to allow the passage of gas or
liquids. Sealing surfaces are arranged so that a 90-degree turn of the plug will
shut off the flow. Ball valve sizes range from 1/4 inch to 60 inches in diameter
with working pressures of up to 5,000 p.s.i. Large diameter valves are used
primarily in natural gas transmission lines. Smaller valves are used in oil and
gas gathering and processing systems and in various types of industrial
processes in refineries and petrochemical plants. Subsea pipeline tie-in systems
are used in the connection of subsea pipelines to one another and to offshore
platforms. Pipeline repair systems are used in the repair of subsea pipelines.
Cooper Cameron manufactures gate valves and butterfly valves for use in
oil and gas gathering and processing systems such as refineries and
petrochemical plants. Sizes range from 2 to 56 inches and pressures range up to
5,000 p.s.i. Cooper Cameron recently introduced the Cameron(R) Hi-Lo Trip
Mechanical Pilot for Emergency Shutdown valves that are designed for use in oil
and gas production, pipelines, plants and other areas where emergency shutdown
is required.
The Cameron Willis Chokes business was formed in late 1997 to focus
resources on the choke product line with the goal of enhancing Cameron's
performance in this product line. Cooper Cameron manufactures production chokes,
control valves, drilling choke systems, actuators, and pigging and production
automation systems. A choke is a type of valve which restricts and regulates the
flow of a product through a flowline or pipeline. Designs include a multiple
orifice valve, needle and seat chokes, cage style control chokes, rotary chokes
and
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subsea chokes and actuators. The unique multiple orifice valve design uses
two adjacent discs, each with a pair of openings. Cage style control chokes are
used to solve erosion problems while improving the precision of flow control. In
1995, Cooper Cameron introduced its new Willis(TM) Stepping Linear Control
Actuator, which is designed to provide remote operation of certain Willis(TM)
control chokes. Cooper Cameron produces subsea chokes and actuators used on
subsea production equipment, including state-of-the-art subsea retrievable
chokes. Choke sizes range from 1 inch to 6 inches in diameter with working
pressures of up to 20,000 p.s.i. Cooper Cameron recently introduced two new
actuators, the Cameron(R) AP and Compact Modular Actuators, designed for use on
its line of subsea gate valves. These valves are fail-close hydraulically
activated and are manufactured for operating pressures between 1,500 p.s.i. and
3,000 p.s.i.
Cooper Cameron provides complete integrated elastomer research,
development and manufacturing. These products are used in pressure and flow
control equipment in the Petroleum Production Equipment segment. This technology
also supports the petroleum, petrochemical, rubber molding and plastics
industries in the development and testing of elastomer and plastic products.
The Cameron Controls business was created in late 1996 with a primary
goal of expanding Cameron's role as a provider of controls equipment. Drilling
and production equipment used on the ocean floor operates from a platform or
other remote location through hydraulic or electronic connections that allow the
operator to measure and control the pressures and throughput associated with
these installations.
Cooper Cameron markets in excess of 90% of its petroleum production
equipment products directly to end-users through a worldwide network of sales
and marketing employees, supported by agents in some international locations.
Due to the extremely technical nature of many of the products, the marketing
effort is further supported by a staff of engineering employees. The balance of
Cooper Cameron's products are sold through established independent distributors.
The Petroleum Production Equipment segment's primary customers include
major oil and gas exploration and production companies, independent oil and gas
exploration and production companies, foreign national oil and gas companies,
engineering and construction companies, pipeline companies, drilling contractors
and rental equipment companies. Some valves are sold to various types of process
plants, such as refining and petrochemical, chemical and power generation.
Compression and Power Equipment Segment
Cooper Cameron's Compression and Power Equipment segment provides
products and services to the oil and gas production and transmission,
industrial, process and non-utility power generation markets. The primary
products include engines, reciprocating compressors, centrifugal air and gas
compressors, gas turbines, turbochargers, control systems and aftermarket parts
and service. Cooper Cameron markets its products worldwide under the well-known
brand
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names Ajax(R), Superior(R), Cooper-Bessemer(R), Coberra(R), C-B Turbocharger(R),
Pennsylvania Process(TM), Enterprise (TM), En-Tronic(R) ENOX(R), MSG(R), Service
Solutions(TM), Texcentric(R), TurboAir(R) and Joy(R).
Manufactured under the Cooper-Bessemer(R), Ajax(R) and Superior(R)
brand names, Cooper Cameron's reciprocating products include both "integral" and
"separable" units. The integral gas engine-compressor concept, pioneered by the
Company in the 1930s, is a unique two-cycle design that combines the unit's
engine and compressor on a single crankshaft. Integral engine-compressors can
accommodate wide swings in gas transmission pressure conditions and are
frequently used in single-stage transmission, multiple-stage boosting or gas
injection/withdrawal applications. Cooper Cameron's Cooper-Bessemer(R) and
Ajax(R) integral units range in power from 150 to 30,000 horsepower. Over the
past 50 years, more than 4,400 Cooper-Bessemer(R) integral engine-compressors,
totaling over 6,500,000 horsepower, have been installed in 35 countries
worldwide.
Cooper Cameron manufactures four-cycle reciprocating power engines
ranging from small, six-cylinder "in-line" units, to large, 16-cylinder "V"
configuration models. They are available in spark-ignited (gas-fueled), diesel
and dual-fuel (gas and diesel-fueled) versions. Marketed under the
Cooper-Bessemer(R) and Superior(R) brand names, Cooper Cameron power engines are
used to drive reciprocating separable compressors in natural gas gathering,
boosting, injecting, processing and storage/withdrawal applications. Cooper
Cameron's four-cycle engines range in power from 500 to 3,200 horsepower. Cooper
Cameron also manufactures its own lines of Superior(R) and Pennsylvania
Process(TM) reciprocating separable gas compressors. In addition, Cooper Cameron
power engines drive electric generators in industrial, commercial, municipal and
government-operated independent power (non-utility) applications, and pumps in
both oil and gas related services. In 1988, the Company acquired the
Enterprise(TM) engine aftermarket product line from IMO Delaval Inc., and today
provides parts, maintenance, overhaul and engineering services for previously
installed Enterprise(TM) power engines in nuclear, oil and gas, marine and
municipal power applications.
During 1997, Cooper Cameron introduced a new line of rotary screw
compressor packages. Ranging in power from 95 to 1,200 horsepower, the new
packages feature a compact and portable design for quick installation and
economical operation in well head gas boosting, vapor recovery, gas gathering,
air drilling, fuel gas boosting, air injection storage/withdrawal and helium
production services.
All Cooper Cameron integral gas engine-compressors and power engines
are available with state-of-the-art technology designed for reduced emissions to
meet or exceed government-regulated clean air standards. The CleanBurn(TM)
concept features a pre-ignition firing chamber to reduce engine exhaust
emissions without sacrificing fuel economy. CleanBurn(TM) "conversion kits" are
also available to enable Cooper Cameron customers to maximize their original
equipment investment by incorporating these latest technological advancements
into their previously installed Ajax(R), Cooper-Bessemer(R), Enterprise(TM) and
Superior(R) engines.
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In July 1996, Cooper Cameron announced the discontinuation of
development work related to new designs of the large Cooper-Bessemer(R)
reciprocating power engines and integral engine-compressors. This decision was
made due to the long-term decline in demand in this market segment caused by the
advent of aeroderivative gas turbines and centrifugal compressors. By February
1997, the Grove City, Pennsylvania, business unit was restructured to be a
component supplier for other Cooper Energy Services products and a parts
manufacturing facility focused on the profitable aftermarket business for the
large installed base of Cooper-Bessemer(R) reciprocating equipment. As a result,
all assembly operations were eliminated and engineering resources were
reallocated to other product lines.
For natural gas applications, Cooper Cameron manufactures two types of
rotating gas compressors under the Cooper-Bessemer(R) brand name: pipeline
centrifugal compressors, which handle pressures up to 2,250 p.s.i.; and
multi-stage barrel compressors, designed for pressures to 6,500 p.s.i. The
Cooper-Bessemer(R) pipeline centrifugal compressor is recognized worldwide as
one of the most efficient high-flow compressors in gas transmission service.
Cooper-Bessemer(R) multi-stage barrel compressors are vertically split and sized
to meet a wide combination of flow and pressure requirements at continuous,
full-load operation in natural gas gathering, production, storage, artificial
lift and re-injection applications.
Cooper Cameron provides gas turbines and gas turbine-driven compression
and power generation packages to the worldwide oil and gas related markets
through Cooper Rolls, its joint venture company with Rolls-Royce plc of London,
England. Marketed under the Coberra(R) brand name, Cooper Rolls(TM) gas turbines
combine a Rolls-Royce jet engine gas generator and a Cooper-Bessemer(R) power
turbine to provide a compact, aero-derivative power source with high
horsepower-to-weight ratios. With over 30,000,000 hours of operating experience,
Coberra(R) gas turbines are one of the world market leaders in their size range
for oil and gas related applications. They provide up to 42,600 horsepower with
high, simple-cycle thermal efficiencies and are commonly installed both onshore
and offshore as drivers for Cooper-Bessemer(R) rotating gas compressors, water
and oil pumps and electric generators. Cooper Rolls also markets gas turbines
featuring the Rolls-Royce Trent areoderivative industrial gas generator. These
largest Cooper Rolls units feature horsepowers to 70,000. The newest Cooper
Rolls(TM) product offering, Allison engine-powered gas turbines, extend the
company's product offering to the smaller 5,500 to 11,000 horsepower range. The
Allison Engine Company is owned by Rolls-Royce plc.
In 1997, Cooper Cameron announced a 50/50 joint venture company with
the Russian aero engine company, Lyulka-Saturn, Inc. The new company,
Lyulka-Cooper, will incorporate Cooper Cameron product packaging and compressor
technology, in combination with the Lyulka Rolls Royce AL31ST industrial
aeroderivative gas turbine, to produce power and compression units for the
global oil, gas and power generation industries.
Cooper Cameron manufactures turbochargers under the Cooper-Bessemer(R)
brand name for new Cooper Cameron reciprocating engines and also provides
factory repair of its own and other manufacturers' turbochargers in a dedicated
facility. High performance turbochargers are necessary to achieve required
exhaust emissions while maintaining desired efficiency and
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operations flexibility. Cooper Cameron is one of the few engine manufacturers to
design, produce and repair turbochargers.
Cooper Cameron manufactures En-Tronic(R) control and analysis equipment
for many of its compression and power products, as well as for products produced
by other manufacturers. En-Tronic(R) controls provide state-of-the-art solutions
to advanced system requirements such as calculating and controlling low
emissions on gas turbines and engines, and all-electronic fuel control of gas
turbine and engine packages. En-Tronic(R) products use advanced, field-proven
hardware and software technology, to optimize equipment reliability, safety and
efficiency.
Cooper Cameron also markets technology acquired from ENOX Technologies,
Inc. ENOX(R) technology provides patented electrical plasma discharge ignition
systems and engine management systems for large internal combustion engines
used, for example, in the natural gas pipeline industry.
Cooper Cameron manufactures integrally geared centrifugal air
compressors from its acquisition of the Joy Industrial Compressor Group. The
compressors are used by industrial plants as a source of power for the operation
of hand tools, actuation of control devices and to power automatic and
semi-automatic production equipment. These compressors are used in industries
such as automotive, container, textile, chemical, food and beverage and general
manufacturing. Cooper Cameron serves the plant air market with two product lines
of compressors. The C-8 series covers the 300 to 1,250 horsepower range at
discharge pressures from 50 to 125 p.s.i. The Turbo-Air(R) 2000, was introduced
in 1994. This machine provides the advantages of centrifugal compressor
technology at lower horsepower than ever before. These advantages include higher
efficiency, minimal maintenance with reliable and unattended operation. The
Turbo-Air 2000 covers the 150 to 350 horsepower range at discharge pressures
from 50 to 150 p s i. The larger Turbo-Air(R) series covers a range from 350 to
6,000 horsepower and is for plant air applications above 1,250 horsepower or
where the customer requires greater customization to meet particular
specifications. All components of the Turbo-Air(R) and C-8 series machines,
including the compressor, driver, lubrication system, control system and
intercoolers, are grouped on a common base into a ready-to-install package. This
configuration provides easy installation on a simple slab foundation at the
customer's plant location.
Cooper Cameron's Compression and Power Equipment segment manufactures
integral gear centrifugal compressors for process applications where the air is
used for its content of oxygen, nitrogen, argon or other elements. In these
cases, the compressor is an integral part of the manufacturing process in
industries such as air separation, pharmaceutical, fermentation, petrochemical,
refining and synthetic fuel. Cooper Cameron services the process air market with
two product lines of centrifugal compressors. The MSG(R) or Multi Stage
Geared(TM) series covers a range of 700 to 25,000 horsepower, handling air or
nitrogen to pressures up to 1,100 p.s.i.g. and volume flows up to 70,000 cubic
feet per minute. The MSG(R) series is a flexible modular design that can be
customized in aerodynamic components, materials of construction and packaging
scope, thereby providing an optimized compressor to meet a customer's unique
requirements. The Turbo-Air(R) series is a fully packaged unit that uses the
modular and customizing concepts of the MSG(R) series in the process air market
from 350 to 6,000 horsepower.
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The process and plant air centrifugal compressors manufactured by
Cooper Cameron deliver oil-free compressed air to the customer, thus preventing
oil contamination of the manufactured products. Industrial markets worldwide
increasingly prefer oil-free air for safety, operational and environmental
reasons.
Cooper Cameron primarily sells its compression and power equipment
direct to end-users through a worldwide network of sales and marketing employees
supported by agents in some international locations. Due to the extremely
technical nature of many of the products, the marketing effort is further
supported by a staff of engineers. In addition, Ajax(R) integral
engine-compressor units are sold through independent distributors in North
America and to rental companies. Superior(R) engines and compressors are sold to
independent packagers and distributors in North America. Some Turbo-Air(R)
industrial compressors are sold through sales representatives and independent
distributors.
Cooper Cameron's primary customers for compression and power equipment
include the major oil and gas companies, large independent oil and gas
producers, gas transmission companies, equipment leasing companies,
petrochemical and refining divisions of oil companies independent power
producers and chemical companies. Industrial and process compressors are sold to
durable goods manufacturers and process industries.
AFTERMARKET SERVICES
The Petroleum Production Equipment segment has established an
Aftermarket business unit with a comprehensive worldwide aftermarket
organization that provides replacement parts, field service, major repairs and
overhauls, unit installation assistance and Total Vendor Management contracts.
Customer requirements are satisfied around the clock through a worldwide network
of service and repair centers and parts warehouses. As customers have
drastically reduced their staffing and shifted more responsibility to vendors,
Total Vendor Management contracts have become increasingly popular and the
Aftermarket business has responded. All maintenance services for a customer's
equipment in a particular area are provided from one service center. Cooper
Cameron also provides an inventory of repair parts, service personnel, planning
services and inventory and storage of customers' idle equipment.
The CES Division has established the Customer Integrated Services
business group (CIS) to enhance strategic growth, product development, technical
support and operational focus for all of the aftermarket product offerings
related to its worldwide power and compression markets. CIS controls its own
marketing and business strategy, along with the service shops, parts
manufacturing facilities, warehouses, and service resources associated with
aftermarket activities. The goal of this new organization is to promote the
speed and agility required to satisfy customer requirements for aftermarket
services while providing the quality of an original equipment manufacturer.
Within CIS, the Compression Services Business Unit provides complete
operations and maintenance service contracts, principally to oil and natural gas
production and transmission
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companies. Service contracts can include equipment installation, scheduled and
unscheduled maintenance, minor and major overhauls, integration of customer
personnel, assimilation of customer inventory and inventory management.
To meet changing customer equipment requirements, the CIS business
group offers several innovative programs. Included are remanufactured equipment
and unit and parts exchange programs that provide customers with cost-effective
alternatives to new equipment purchases. In 1998, the group also introduced a
state-of-the-art gas turbine repair facility specifically dedicated to the
overhaul and repair of Allison engine-powered gas turbines.
Cooper Cameron's large population of installed equipment results in
aftermarket services constituting approximately 29% of Cooper Cameron's total
revenues in 1997.
MARKET ISSUES
Cooper Cameron is one of the market leaders in the global market for
petroleum production equipment. Cooper Cameron believes that it is well
positioned to serve these markets. Plant and service center facilities around
the world in major oil producing regions provide a broad, global breadth of
market coverage.
The international market is expected to be a major source of growth for
the Cooper Cameron Compression and Power Equipment segment. The desire of both
the developed and the developing countries to expand their respective oil and
gas transmission capacity for both economic and political reasons will be one of
the primary factors affecting market demand. Additional establishment of
industrial infrastructure in the developing countries will necessitate the
growth of basic industries that require process compression equipment for air
separation facilities. Production and service facilities in North and South
America, Europe and the Far East provide this business segment with the ability
to serve the global marketplace.
In both of Cooper Cameron's business segments, a large population of
installed engines, compression, and gas and oil production equipment exists in
both the U.S. and international market segments. The rugged, long-lived nature
of the equipment that exists in the field provides a predictable and profitable
repair parts and service business. The Company expects that as increasing
quantities of new units are sold into the international markets, there should be
a continuing growth in market demand for aftermarket parts and service.
NEW PRODUCT DEVELOPMENT
As petroleum exploration activities have increasingly been focused on
subsea locations, Cooper Cameron's Petroleum Production Equipment segment has
directed much of its new product development efforts toward this market. In
subsea exploration, customers are particularly concerned about safety,
environmental protection and ease of installation and maintenance. Cooper
Cameron's reputation for high quality and high dependability has given it a
competitive advantage in the areas of safety and environmental protection. A
patented subsea production system called the SpoolTree(TM), which was introduced
in 1993, offers substantial cost
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reduction to the customer as it is based upon a novel concept that eliminates
the need for a workover riser or removal of the christmas tree during workover.
Cooper Cameron has pioneered this concept and has developed similar products for
land and platform applications, which significantly reduce customer costs.
Cooper Cameron has also introduced the MOSAIC (Modular Subsea And
Integrated Completions) system. MOSAIC includes a suite of pre-engineered
elements with standard interfaces that can be combined in a fashion to allow
customers to configure a system to meet their specific needs. Cooper Cameron
believes that it has chosen to standardize components at a level low enough to
give customers the required customization while providing engineering and
manufacturing efficiencies. Cooper Cameron has realigned its engineering and
marketing resources to further develop and market the MOSAIC subsea system and
other stand-alone standardized subsea products, such as christmas trees and
wellheads.
Several new drilling products will be introduced in 1998. These include
the 3.5 million-pound load capacity "LoadKing" riser system, which will set the
industry standard for drilling in 10,000-foot water depths; a new lightweight
and lower-cost locking mechanism for subsea BOPs; and a new generation of
variable-bore ram packers.
In May 1998, Cameron will open a new Research Center in Houston, Texas.
The 55,000 sq. ft. Research Center will be one of the largest product
development facilities in the oil service sector. The facility will have 10
specially designed test bays to test and evaluate Cameron's products under
realistic conditions. These include environmental test chambers to simulate
extreme pressures and temperatures, high-strength fixtures for the application
of multi-million pound tensile and bending loads, high pressure gas compressors
and test enclosures, a hyperbaric chamber to simulate the external pressures of
deep water environments, and two circulation loops for erosion and flow testing.
This Research Center will be instrumental in providing Cameron's customers with
innovative and cost-effective products.
In 1997, Cameron Controls successfully launched a new electro-hydraulic
drilling control system that is being favorably received in the market. A new
subsea production control system is also being developed and will be launched in
1998. Cooper Cameron believes that a successful product launch will
significantly enhance the subsea systems offerings for the company.
In the Compression and Power Equipment segment, Cooper Cameron has
developed a number of new products to serve the oil and gas transmission market
and the industrial air compression market.
Cooper Rolls will ship its first Allison 501 and 601 power turbines in
1998. These products extend the company's gas turbine product line into a lower
horsepower range suitable for small pipeline compression and power generation
applications both on and offshore, and floating production storage and
offloading vessels.
10
<PAGE> 13
In 1998, the Lyulka-Cooper joint venture will finalize a demonstrator
unit equipped with Dry Low Emission gas turbine combustors, a Cooper-Bessemer(R)
pipeline compressor and an En-Tronics(R) engine controls management system. The
unit will be installed at a gas compression station near Moscow. Manufacturing
of the unit will start in mid-1998, with delivery scheduled for mid-1999.
An area of increasing importance in the oil and gas transmission market
is the reduction of environmentally harmful emissions from engines and turbines
that drive compression equipment. Building on its experience with its
CleanBurn(TM) technology, and in conjunction with Rolls-Royce plc, Cooper
Cameron is marketing new Dry Low Emissions gas turbines, as well as conversion
kits for existing Cooper Rolls(TM) units in the field. This technology
significantly reduces the level of emissions produced by gas turbine drivers.
Additionally, in 1995, a new line of En-Tronic(R) performance and monitoring
control systems was introduced to aid in optimizing the performance and emission
parameters of engines and turbines. Over the past three years, Cooper Cameron
has also introduced new high speed reciprocating engines and compressors with
improved reliability, fuel efficiency and emissions performance. These new units
utilize En-Tronic(R) state-of-the-art CleanBurn(TM) III microprocessor-based
control systems.
Cooper Cameron added two new models, the Turbo-Air(R) 3000 and the
TAS-70, to its centrifugal air compressor product line in 1997. The Turbo-Air(R)
3000 builds off of the success of the Turbo-Air(R) 2000 as a pre-engineered,
neatly packaged air compressor for plant air applications. The Turbo-Air(R) 3000
will be used in 400 to 800 horsepower applications with discharge pressures from
50 to 150 p s i, while the Turbo-Air(R) 2000 serves the 150 to 350 horsepower
range. The value-engineered design utilizing state-of-the-art technology
delivers low energy consumption, low cost package installation and maintenance,
ease of automation and environmentally friendly oil-free air. The Turbo-Air(R)
3000 should aid Cooper Cameron in continuing its share growth in the plant air
market. The TAS-70 extends the standard plant air line to nearly 10,000 cfm.
COMPETITION
Cooper Cameron competes in all areas of its operations with a number of
other companies, some of which have financial and other resources comparable to
or greater than those of Cooper Cameron.
Cooper Cameron believes it has a leading position in the petroleum
production equipment markets, particularly with respect to its high-pressure
products. In these markets, Cooper Cameron competes principally with Vetco Gray
Inc. (a subsidiary of Asea Brown Boveri), Kvaerner Oil and Gas, Dril-Quip, Inc.,
Dresser Industries, Inc., Varco International, Inc., Hydril Company, and FMC
Corp. The principal competitive factors in the petroleum production equipment
markets are technology, quality, service and price. Cooper Cameron believes that
several factors give it a strong competitive position in these markets. Most
significant are Cooper Cameron's broad product offering, its worldwide presence
and reputation, its service and repair capabilities, its expertise in high
pressure technology and its experience in alliance and partnership arrangements
with customers and other suppliers.
11
<PAGE> 14
Cooper Cameron believes it also has a leading position in the
compression and power equipment markets. In these markets, Cooper Cameron
competes principally with Nuovo Pignone, Dresser-Rand Company, European Gas
Turbines Inc., Ariel Corporation, Caterpillar Inc., Waukesha Engine Division of
Dresser Industries, Atlas-Copco AB, Mannesmann Demag AG and Ingersoll-Rand
Company. The principal competitive factors in the compression and power
equipment markets are engineering and design capabilities, product performance,
reliability and quality, service and price. Cooper Cameron believes that its
competitive position is based on several factors. Cooper Cameron has a broad
product offering and, unlike many of its competitors, manufactures and sells
both engines and compressors (both as separate units and packaged together as a
single unit). Cooper Cameron led the industry in the introduction of low engine
emission technology and continues today as an industry leader in this
technology. Cooper Cameron has a highly competent engineering staff and skilled
technical and service representatives, with service centers located throughout
the world.
In all of its markets, Cooper Cameron has strong brand recognition and
an established reputation for quality and service. Cooper Cameron has a
significant base of previously-installed products, which provides a strong
demand for aftermarket parts and service. Cooper Cameron has modern
manufacturing facilities and state-of-the-art testing capabilities.
MANUFACTURING
Cooper Cameron has manufacturing facilities worldwide that conduct a
broad variety of processes, including machining, fabrication, assembly and
testing using a variety of forged and cast alloyed steels and stainless steel as
the primary raw materials. In recent years, Cooper Cameron has rationalized
plants and products, closed six manufacturing facilities, moved product lines to
achieve economies of scale, and upgraded the remaining facilities. Manufacturing
processes have been improved and significant capital expenditures have been made
since 1991. Cooper Cameron maintains advanced manufacturing, quality assurance
and testing equipment geared to the specific products that it manufactures and
uses extensive process automation in its manufacturing operations. The
manufacturing facilities utilize computer aided numerical control tools and
manufacturing techniques that concentrate the equipment necessary to produce
similar products in one area of the plant in a configuration commonly known as a
manufacturing cell. One operator in a manufacturing cell can monitor and operate
several machines, as well as assemble and test products made by such machines,
thereby improving operating efficiency and product quality while reducing the
amount of work-in-process and finished product inventories.
Cooper Cameron believes that its test capabilities are critical to its
overall process. Cooper Cameron has capabilities to test most equipment at full
load, measuring all operating parameters, efficiency and emissions. All process
compressors for air separation and all plant air compressors are given a
mechanical and aerodynamic test in a dedicated test center prior to shipment.
12
<PAGE> 15
All of Cooper Cameron's European manufacturing plants are ISO certified
and API licensed. Most of the U.S. plants are ISO certified or, if not, such
certification is in process. ISO is an internationally recognized verification
system for quality management.
BACKLOG
Cooper Cameron's backlog was approximately $786 million at December 31,
1997, as compared to $728 million at December 31, 1996 and $588 million at
December 31, 1995. Backlog consists of firm customer orders for which a purchase
order has been received, satisfactory credit or financing arrangements exist and
delivery is scheduled.
PATENTS, TRADEMARKS AND OTHER INTELLECTUAL PROPERTY
Cooper Cameron believes that the success of its business depends more
on the technical competence, creativity and marketing abilities of its employees
than on any individual patent, trademark or copyright. Nevertheless, as part of
its ongoing research, development and manufacturing activities, Cooper Cameron
has a policy of seeking patents when appropriate on inventions concerning new
products and product improvements. Cooper Cameron owns 382 unexpired United
States patents and 707 unexpired foreign patents.
Although in the aggregate these patents and Cooper Cameron's trademarks
are of considerable importance to the manufacturing and marketing of many of its
products, Cooper Cameron does not consider any single patent or trademark or
group of patents or trademarks to be material to its business as a whole, except
the Cameron(R), Cooper-Bessemer(R), Coberra(R) and Cooper Rolls(TM) trademarks.
Other important trademarks used by Cooper Cameron include Ajax(R), Superior(R),
C-B Turbocharger(R), En-Tronic(R), Enterprise(TM), ENOX(R), Enterprise(TM),
Texcentric(R), Service Solutions(TM), W-K-M(R), McEvoy(R), Willis(TM), Demco(R),
Pennsylvania Process(TM), Thornhill Craver(TM), Ingram Cactus(R) and Foster(R).
Cooper Cameron has the right to use the trademark Joy(R) on aftermarket parts
until November 2027. Cooper Cameron has registered its trademarks in the
countries where such registration is deemed material.
Cooper Cameron also relies on trade secret protection for its
confidential and proprietary information. Cooper Cameron routinely enters into
confidentiality agreements with its employees and suppliers. There can be no
assurance, however, that others will not independently obtain similar
information or otherwise gain access to Cooper Cameron's trade secrets.
EMPLOYEES
As of December 31, 1997, Cooper Cameron had approximately 9,600
employees, of which approximately 2,478 were represented by labor unions. Cooper
Cameron believes its current relations with employees are good. The only
significant labor contracts expiring during 1998 cover employees at the Cameron
plant in Brookshire, Texas (July) and the Cooper Energy Services plant in Grove
City, Pennsylvania (September).
13
<PAGE> 16
ITEM 2. PROPERTIES
The Company operates manufacturing plants ranging in size from
approximately 14,000 square feet to approximately 858,000 square feet of
manufacturing space. The Company also owns and leases warehouses, distribution
centers, aftermarket and storage facilities, and sales offices. The Company
leases its corporate headquarters and Cameron division headquarters office space
in Houston, Texas.
The Company manufactures, markets and sells its products and provides
services throughout the world, operating facilities in over 30 countries. On
December 31, 1997, the significant facilities used by Cooper Cameron throughout
the world for manufacturing, distribution, aftermarket services, machining,
storage and warehousing contained an aggregate of approximately 6,676,100 square
feet of space, of which approximately 6,022,900 square feet (90%) was owned and
653,200 (10%) was leased. Of this total, approximately 4,834,082 square feet
(72%) are located in the United States and 1,395,400 square feet (21%) are
located in Europe. The table below lists the significant manufacturing,
warehouse and distribution facilities by industry segment and geographic area.
<TABLE>
<CAPTION>
Asia/Pacific
Western Eastern and
Hemisphere Hemisphere Mideast Total
---------- ---------- ------- -----
<S> <C> <C> <C> <C>
Petroleum Production Equipment 14 9 3 26
Compression and Power Equipment 16 3 0 19
</TABLE>
Cooper Cameron believes its facilities are suitable for their present
and intended purposes and are adequate for the Company's current and anticipated
level of operations.
ITEM 3. LEGAL PROCEEDINGS
Cooper Cameron is a party to various legal proceedings and
administrative actions, including certain environmental matters discussed below,
all of which are of an ordinary or routine nature incidental to the operations
of Cooper Cameron. In the opinion of Cooper Cameron's management, such
proceedings and actions should not, individually or in the aggregate, have a
material adverse effect on Cooper Cameron's results of operations or financial
condition.
Environmental Matters
Cooper Cameron is subject to numerous federal, state, local and foreign
laws and regulations relating to the storage, handling, emission and discharge
of materials into the environment, including the Comprehensive Environmental
Response Compensation and
14
<PAGE> 17
Liability Act ("CERCLA"), the Clean Water Act, the Clean Air Act (including the
1990 Amendments) and the Resource Conservation and Recovery Act. Cooper Cameron
believes that its existing environmental control procedures are adequate and it
has no current plans for substantial capital expenditures in this area. Cooper
Cameron has an active environmental management program aimed at compliance with
existing environmental regulations and elimination or significant reduction in
the generation of pollutants in its manufacturing processes. Cooper Cameron
management intends to continue these policies and programs.
Cooper Cameron has been identified as a potentially responsible party
("PRP") with respect to five sites designated for cleanup under CERCLA or
similar state laws, which impose liability for cleanup of certain waste sites
and for related natural resource damages without regard to fault or the legality
of waste generation or disposal. Persons liable for such costs and damages
generally include the site owner or operator and persons that disposed or
arranged for the disposal of hazardous substances found at those sites. Although
CERCLA imposes joint and several liability on all PRPs, in application, the PRPs
typically allocate the investigation and cleanup costs based upon the volume of
waste contributed by each PRP. Settlements often can be achieved through
negotiations with the appropriate environmental agency or the other PRPs. PRPs
that contributed less than one percent of the waste are often given the
opportunity to settle as a "de minimis" party, resolving liability for a
particular site.
Cooper Cameron does not own any of the sites with respect to which it
has been identified as a PRP; in each case, Cooper Cameron is identified as a
party that disposed of waste at the site. With respect to three of the sites,
Cooper Cameron's share of the waste volume is estimated to be less than one
percent. At one site, Cooper Cameron's share is still to be determined, but is
believed to be less than ten percent. Cooper Cameron is the major PRP at one
site which it operates, the Osborne Landfill in Grove City, Pennsylvania. Cooper
Cameron's facility in Grove City disposed of wastes at the Osborne Landfill from
the early 1950s until 1978. The EPA issued an order in 1991 and remediation is
now in process. Cooper Cameron has responsibility for the remediation compliance
with the EPA order.
Cooper Cameron has accruals in its balance sheet to the extent costs
are known for the five sites. Although estimates of the cleanup costs have not
yet been made for certain of these sites, Cooper Cameron believes, based on its
preliminary review and other factors, that the costs to Cooper Cameron relating
to these sites will not have a material adverse effect on its results of
operations, financial condition or liquidity. However, no assurance can be given
that the actual costs will not exceed the estimates of the cleanup costs once
determined.
Cooper Cameron does not currently anticipate any material adverse
effect on its results of operations, financial condition or competitive position
as a result of compliance with Federal, state, local or foreign environmental
laws or regulations or cleanup costs of the sites discussed above. However, some
risk of environmental liability and other costs is inherent in the nature of
Cooper Cameron's business, and there can be no assurance that material
environmental costs will not arise. Moreover, it is possible that future
developments, such as promulgation of regulations implementing the
1990 amendments to the Clean Air Act and other increasingly strict
15
<PAGE> 18
requirements of environmental laws and enforcement policies thereunder, could
lead to material costs of environmental compliance and cleanup by Cooper
Cameron.
The cost of environmental remediation and compliance generally has not
been an item of material expense for Cooper Cameron during any of the periods
presented, other than with respect to the Osborne Landfill described above.
Cooper Cameron's balance sheet at December 31, 1997, includes accruals totaling
approximately $4.6 million for environmental remediation activities.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during
the fourth quarter of 1997.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
The common stock of Cooper Cameron, par value $.01 per share (together
with the associated Rights to Purchase Series A Junior Participating Preferred
Stock), is traded on The New York Stock Exchange ("NYSE"). A 2-for-1 split of
the Company's common stock in the form of a stock dividend was paid effective
June 13, 1997. No other dividends were paid during 1997.
16
<PAGE> 19
The following table indicates the range of trading prices on the NYSE from
January 2 through December 31, 1997.
<TABLE>
<CAPTION>
Price Range
---------------------------------------
High Low Last
---- --- ----
<S> <C> <C> <C>
First Quarter....................................$37 15/16 30 1/4 34 1/4
Second Quarter...................................$48 31 13/16 46 3/4
Third Quarter....................................$72 5/8 44 1/4 71 13/16
Fourth Quarter...................................$81 3/4 52 1/8 61
</TABLE>
The approximate number of holders of Cooper Cameron common stock was 35,000 as
of March 20, 1998. The number of record holders as of the same date was 1,903.
ITEM 6. SELECTED FINANCIAL DATA
The information set forth under the caption "Selected Consolidated
Historical Financial Data of Cooper Cameron Corporation" on page 51 in the 1997
Annual Report to Stockholders is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
The information set forth under the caption "Management's Discussion
and Analysis of Results of Operations and Financial Condition of Cooper Cameron
Corporation" on pages 21-27 in the 1997 Annual Report to Stockholders is
incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The following consolidated financial statements of the Company and the
independent auditors' report set forth on pages 28-50 in the 1997 Annual Report
to Stockholders are incorporated herein by reference:
Report of Independent Auditors.
Consolidated Results of Operations for each of the three years in the
period ended December 31, 1997.
Consolidated Balance Sheets as of December 31, 1997 and 1996.
Consolidated Cash Flows for each of the three years in the period ended
December 31, 1997.
17
<PAGE> 20
Consolidated Changes in Stockholders' Equity for the period from June
30, 1995 to December 31, 1995, and the two years ended December 31,
1997.
Notes to Consolidated Financial Statements.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information on Directors of the Company is set forth in the section
entitled "Election of Directors" on pages 3-5 in the Proxy Statement of the
Company for the Annual Meeting of Stockholders to be held May 14, 1998, which
section is incorporated herein by reference. Information regarding executive
officers of the Company is set forth below. There was no failure by an insider
to file a report required by Section 16 of the Exchange Act.
There are no family relationships among the officers listed, and there
are no arrangements or understandings pursuant to which any of them were elected
as officers. Officers are appointed or elected annually by the Board of
Directors at its first meeting following the Annual Meeting of Stockholders,
each to hold office until the corresponding meeting of the Board in the next
year or until a successor shall have been elected, appointed or shall have
qualified.
Section 16(a) Beneficial Ownership Reporting Compliance
The information concerning compliance with Section 16(a) is set forth
in the section entitled "Compliance with Section 16 of the Exchange Act" on page
25 in the Proxy Statement of the Company for the Annual Meeting of Stockholders
to be held on May 14, 1998, which section is incorporated herein by reference.
CURRENT EXECUTIVE OFFICERS OF THE REGISTRANT
<TABLE>
<CAPTION>
Present Principal Position and Other Material Positions
Name and Age Held During Last Five Years
- ------------ -------------------------------------------------------
<S> <C>
Sheldon R. Erikson (56) President and Chief Executive Officer since January 1995. Chairman of the Board from
1988 to 1995 and President and Chief Executive Officer from 1987 to 1995 of The Western
Company of North America.
</TABLE>
18
<PAGE> 21
<TABLE>
<S> <C>
Thomas R. Hix (50) Senior Vice President of Finance and Chief Financial Officer since January 1995. Senior Vice
President of Finance, Treasurer and Chief Financial Officer of The Western Company of North
America from 1993 to 1995. Executive Vice President and Chief Financial Officer from 1992 to
1993 and Vice President, Finance and Chief Financial Officer from 1986 to 1992 of Oceaneering
International.
Franklin Myers (45) Senior Vice President, General Counsel and Secretary since April 1995. Vice President
and General Counsel from 1988 to 1994, Secretary from 1988 to 1992, and Senior Vice President
and General Counsel from 1994 to April 1995 of Baker Hughes Incorporated.
Joseph D. Chamberlain (51) Vice President and Corporate Controller since April 1995. Controller - Financial Reporting from
1994 to 1995, Assistant Controller and Manager-Financial Reporting from 1979 to 1994 of Cooper
Industries, Inc.
Michael L. Grimes (47) Vice President since November 1996. President, Cooper Energy Services Division since April 1996.
General Manager, Quality and Information Management of GE Power Systems from 1995 to 1996,
General Manager, Apparatus Service Department from 1994 to 1995, General Manager, Power
Generation Services Department from 1993 to 1994 and General Manager of Marketing, GE Power
Generation from 1992 to 1993 of General Electric Company.
E. Fred Minter (62) Vice President since November 1996. President, Cooper Turbocompressor since 1988.
</TABLE>
ITEM 11. EXECUTIVE COMPENSATION.
The information for this item is set forth in the section entitled
"Director and Executive Management Compensation" on pages 17-20 in the Proxy
Statement of the Company for the Annual Meeting of Stockholders to be held May
14, 1998, which section is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT.
The information concerning security ownership of certain beneficial
owners and management is set forth in the sections entitled "Voting Securities
and Principal Holders Thereof" on page 2 and "Security Ownership of Management"
on pages 15-16 in the Proxy Statement of the Company for the Annual Meeting of
Stockholders to be held May 14, 1998, which sections are incorporated herein by
reference.
19
<PAGE> 22
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
None
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K.
(a) THE FOLLOWING DOCUMENTS ARE FILED AS PART OF THIS REPORT:
(1) FINANCIAL STATEMENTS:
All financial statements of the Registrant as set forth under
Item 8 of this Annual Report on Form 10-K.
(2) FINANCIAL STATEMENT SCHEDULES:
Financial statement schedules are omitted because of the
absence of conditions under which they are required or because
all material information required to be reported is included
in the consolidated financial statements and notes thereto.
(3) EXHIBITS:
3.1 Amended and Restated Certificate of Incorporation of
Cooper Cameron Corporation, dated June 30, 1995,
filed as Exhibit 4.2 to the Registration Statement on
Form S-8 of Cooper Cameron Corporation (Commission
File No. 33-94948), and incorporated herein by
reference.
3.2 First Amended and Restated Bylaws of Cooper Cameron
Corporation, as amended December 12, 1996, filed as
Exhibit 3.2 to the Annual Report on Form 10-K for
1996 of Cooper Cameron Corporation, and incorporated
herein by reference.
4.1 Form of Rights Agreement, dated as of May 1, 1995,
between Cooper Cameron Corporation and First Chicago
Trust Company of New York, as Rights Agent, filed as
Exhibit 4.1 to the Registration Statement on Form S-8
of Cooper Cameron Corporation (Commission File No.
33-94948), and incorporated herein by reference.
4.2 First Amendment to Rights Agreement between Cooper
Cameron Corporation and First Chicago Trust Company
of New York, as Rights Agent, dated November 1, 1997.
20
<PAGE> 23
10.1 Cooper Cameron Corporation Long-Term Incentive Plan
(Registration Statement No. 33-95004), incorporated
herein by reference.
10.2 Amended and Restated Cooper Cameron Corporation
Long-Term Incentive Plan, as amended, incorporated
herein by reference to the Cooper Cameron Corporation
Proxy Statement for the Annual Meeting of
Stockholders held on May 8, 1997.
10.3 Cooper Cameron Corporation Amended and Restated 1995
Stock Option Plan for Non-Employee Directors
(Registration Statement No. 33-95000), incorporated
herein by reference.
10.4 First Amendment to the Cooper Cameron Corporation
Amended and Restated 1995 Stock Option Plan for
Non-Employee Directors, incorporated herein by
reference to the Cooper Cameron Corporation Proxy
Statement for the Annual Meeting of Stockholders held
on May 8, 1997.
10.5 Second Amendment to the Cooper Cameron Corporation
Amended and Restated 1995 Stock Option Plan for
Non-Employee Directors, filed as Exhibit 10.3 to the
Annual Report on Form 10-K for 1996 of Cooper Cameron
Corporation, and incorporated herein by reference.
10.6 Third Amendment to the Cooper Cameron Corporation
Amended and Restated 1995 Stock Option Plan for
Non-Employee Directors.
10.7 Fourth Amendment to the Cooper Cameron Corporation
Amended and Restated 1995 Stock Option Plan for
Non-Employee Directors.
10.8 Fifth Amendment to the Cooper Cameron Corporation
Amended and Restated 1995 Stock Option Plan for
Non-Employee Directors.
10.9 Cooper Cameron Corporation Retirement Savings Plan
(Registration Statement No. 33-95002), incorporated
herein by reference.
10.10 Cooper Cameron Corporation Retirement Savings Plan,
as Amended and Restated, effective April 1, 1996.
10.11 Cooper Cameron Corporation Employee Stock Purchase
Plan (Registration Statement No. 33-94948),
incorporated herein by reference.
10.12 Cooper Cameron Corporation Supplemental Excess
Defined Benefit Plan, filed as Exhibit 10.4 to the
Registration Statement on Form S-4 of Cooper Cameron
Corporation (Commission File No. 33-90288), and
incorporated herein by reference.
21
<PAGE> 24
10.13 First Amendment to Cooper Cameron Corporation
Supplemental Excess Defined Benefit Plan, effective
as of January 1, 1996, filed as Exhibit 10.7 to the
Annual Report on Form 10-K for 1996 of Cooper Cameron
Corporation, and incorporated herein by reference.
10.14 Cooper Cameron Corporation Supplemental Excess
Defined Contribution Plan, filed as Exhibit 10.5 to
the Registration Statement on Form S-4 of Cooper
Cameron Corporation (Commission File No. 33-90288),
and incorporated herein by reference.
10.15 First Amendment to Cooper Cameron Corporation
Supplemental Excess Defined Contribution Plan,
effective April 1, 1996, filed as Exhibit 10.9 to the
Annual Report on Form 10-K for 1996 of Cooper Cameron
Corporation, and incorporated herein by reference.
10.16 Cooper Cameron Corporation Compensation Deferral Plan
(formerly the Cooper Cameron Corporation Management
Incentive Compensation Deferral Plan), effective
January 1, 1996, filed as Exhibit 10.10 to the Annual
Report on Form 10-K for 1996 of Cooper Cameron
Corporation, and incorporated herein by reference.
10.17 Cooper Cameron Corporation Directors Deferred
Compensation Plan, filed as Exhibit 10.7 to the
Registration Statement on Form S-4 of Cooper Cameron
Corporation (Commission File No. 33-90288), and
incorporated herein by reference.
10.18 Employment Agreement by and between Sheldon R.
Erikson and Cooper Cameron Corporation, effective as
of November 30, 1995, filed as Exhibit 10.9 to the
Annual Report on Form 10-K for 1995 of Cooper Cameron
Corporation, and incorporated herein by reference.
10.19 Employment Agreement by and between Thomas R. Hix and
Cooper Cameron Corporation, effective as of November
30, 1995, filed as Exhibit 10.10 to the Annual Report
on Form 10-K for 1995 of Cooper Cameron Corporation,
and incorporated herein by reference.
10.20 Employment Agreement by and between Franklin Myers
and Cooper Cameron Corporation, effective as of
November 30, 1995, filed as Exhibit 10.11 to the
Annual Report on Form 10-K for 1995 of Cooper Cameron
Corporation, and incorporated herein by reference.
10.21 1995 Management Incentive Compensation Plan of Cooper
Cameron Corporation, dated as of November 14, 1995,
as amended, filed as Exhibit 10.15 to the Annual
Report on Form 10-K for 1996 of Cooper Cameron
Corporation, and incorporated herein by reference.
22
<PAGE> 25
10.22 1996 Management Incentive Compensation Plan of Cooper
Cameron Corporation, dated as of February 19, 1996,
filed as Exhibit 10.16 to the Annual Report on Form
10-K for 1996 of Cooper Cameron Corporation, and
incorporated herein by reference.
10.23 1997 Management Incentive Compensation Plan of Cooper
Cameron Corporation, dated as of December 9, 1996,
filed as Exhibit 10.17 to the Annual Report on Form
10-K for 1996 of Cooper Cameron Corporation, and
incorporated herein by reference.
10.24 Cooper Cameron Corporation Management Incentive
Compensation Plan, as amended, incorporated herein by
reference to the Cooper Cameron Corporation Proxy
Statement for the Annual Meeting of Stockholders held
on May 8, 1997.
10.25 1998 Management Incentive Compensation Plan for
Cooper Cameron Corporation, dated as of January 1,
1998.
10.26 Change in Control Policy of Cooper Cameron
Corporation, approved February 19, 1996, filed as
Exhibit 10.18 to the Annual Report on Form 10-K for
1996 of Cooper Cameron Corporation, and incorporated
herein by reference.
10.27 Executive Severance Program of Cooper Cameron
Corporation, approved February 19, 1996, filed as
Exhibit 10.19 to the Annual Report on Form 10-K for
1996 of Cooper Cameron Corporation, and incorporated
herein by reference.
10.28 Credit Agreement, dated as of June 30, 1995, among
Cooper Cameron Corporation and certain of its
subsidiaries and the banks named therein and First
National Bank of Chicago, as agent, filed as Exhibit
4.5 to the Registration Statement on Form S-8 of
Cooper Cameron Corporation (Commission File No.
33-94948), and incorporated herein by reference.
10.29 Amended and Restated Credit Agreement dated as of
March 20, 1997, among Cooper Cameron Corporation and
certain of its subsidiaries and the banks named
therein and First National Bank of Chicago, as agent,
filed as Exhibit 10.21 to the Annual Report on Form
10-K for 1996 of Cooper Cameron Corporation, and
incorporated herein by reference.
23
<PAGE> 26
13.1 Portions of the 1997 Annual Report to Stockholders
are included as an exhibit to this report and have
been specifically incorporated by reference elsewhere
herein.
21 Subsidiaries of registrant.
23 Consent of Independent Auditors.
27 Financial Data Schedule.
27.l Restated Financial Data Schedule for the three months
ended March 31, 1997.
27.2 Restated Financial Data Schedule for the six months
ended June 30, 1997.
27.3 Restated Financial Data Schedule for the nine months
ended September 30, 1997.
27.4 Restated Financial Data Schedule for the year ended
December 31, 1996.
27.5 Restated Financial Data Schedule for the three months
ended March 31, 1996.
27.6 Restated Financial Data Schedule for the six months
ended June 30, 1996.
27.7 Restated Financial Data Schedule for the nine months
ended September 30, 1996.
(b) REPORTS ON FORM 8-K
The Company filed no reports on Form 8-K during the fourth quarter of
1997 and through March 20, 1998.
24
<PAGE> 27
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, ON THIS 27TH DAY OF
MARCH, 1998.
COOPER CAMERON CORPORATION
REGISTRANT
BY: /s/ JOSEPH D. CHAMBERLAIN
----------------------------------------
(JOSEPH D. CHAMBERLAIN)
Vice President and Corporate Controller
(Principal Accounting Officer)
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934,
THIS REPORT HAS BEEN SIGNED ON THIS 27TH DAY OF MARCH, 1998, BELOW BY THE
FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND IN THE CAPACITIES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ C. BAKER CUNNINGHAM Director
- ----------------------------------------
(C. Baker Cunningham)
/s/ GRANT A. DOVE Director
- ----------------------------------------
(Grant A. Dove)
/s/ SHELDON R. ERIKSON Chairman, President and Chief Executive
- ---------------------------------------- Officer (principal executive officer)
(Sheldon R. Erikson)
/s/ MICHAEL E. PATRICK Director
- ----------------------------------------
(Michael E. Patrick)
/s/ DAVID ROSS III Director
- ----------------------------------------
(David Ross III)
/s/ MICHAEL J. SEBASTIAN Director
- ----------------------------------------
(Michael J. Sebastian)
/s/ THOMAS R. HIX Senior Vice President of Finance and
- ---------------------------------------- Chief Financial Officer
(Thomas R. Hix) (principal financial officer)
</TABLE>
25
<PAGE> 28
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NO.
- ------ ---------------------------------------------------------------------------------------- --------
<S> <C> <C>
3.1 Amended and Restated Certificate of Incorporation of Cooper Cameron Corporation,
dated June 30, 1995, filed as Exhibit 4.2 to the Registration Statement on Form S-8
of Cooper Cameron Corporation (Commission File No. 33-94948), and incorporated herein
by reference.
3.2 First Amended and Restated Bylaws of Cooper Cameron Corporation, as amended December
12, 1996, filed as Exhibit 3.2 to the Annual Report on Form 10-K for 1996 of Cooper
Cameron Corporation, and incorporated herein by reference.
4.1 Form of Rights Agreement, dated as of May 1, 1995, between Cooper Cameron Corporation
and First Chicago Trust Company of New York, as Rights Agent, filed as Exhibit 4.1
to the Registration Statement on Form S-8 of Cooper Cameron Corporation (Commission
File No. 33-94948), and incorporated herein by reference.
4.2 First Amendment to Rights Agreement between Cooper Cameron Corporation and First
Chicago Trust Company of New York, as Rights Agent, dated November 1, 1997.
10.1 Cooper Cameron Corporation Long-Term Incentive Plan (Registration Statement No.
33-95004), incorporated herein by reference.
10.2 Amended and Restated Cooper Cameron Corporation Long-Term Incentive Plan, as amended,
incorporated herein by reference to the Cooper Cameron Corporation Proxy Statement
for the Annual Meeting of Stockholders held on May 8, 1997.
10.3 Cooper Cameron Corporation Amended and Restated Stock Option Plan for Non-Employee
Directors (Registration Statement No. 33-95000), incorporated herein by reference.
10.4 First Amendment to the Cooper Cameron Corporation Amended and Restated 1995 Stock
Option Plan for Non-Employee Directors, incorporated herein by reference to the
Cooper Cameron Corporation Proxy Statement for the Annual Meeting of Stockholders
held on May 8, 1997.
10.5 Second Amendment to the Cooper Cameron Corporation Amended and Restated 1995 Stock
Option Plan for Non-Employee Directors, filed as Exhibit 10.3 to the Annual Report on
Form 10-K for 1996 of Cooper Cameron Corporation, and incorporated herein by
reference.
</TABLE>
<PAGE> 29
<TABLE>
<S> <C>
10.6 Third Amendment to the Cooper Cameron Corporation Amended and Restated 1995 Stock
Option Plan for Non-Employee Directors.
10.7 Fourth Amendment to the Cooper Cameron Corporation Amended and Restated 1995 Stock
Option Plan for Non-Employee Directors.
10.8 Fifth Amendment to the Cooper Cameron Corporation Amended and Restated 1995 Stock
Option Plan for Non-Employee Directors.
10.9 Cooper Cameron Corporation Retirement Savings Plan (Registration Statement No.
33-95002), incorporated herein by reference.
10.10 Cooper Cameron Corporation Retirement Savings Plan, as Amended and Restated,
effective April 1, 1996.
10.11 Cooper Cameron Corporation Employee Stock Purchase Plan (Registration Statement No.
33-94948), incorporated herein by reference.
10.12 Cooper Cameron Corporation Supplemental Excess Defined Benefit Plan, filed as Exhibit
10.4 to the Registration Statement on Form S-4 of Cooper Cameron Corporation
(Commission File No. 33-90288), and incorporated herein by reference.
10.13 First Amendment to Cooper Cameron Corporation Supplemental Excess Defined Benefit
Plan, effective as of January 1, 1996, filed as Exhibit 10.7 to the Annual Report on
Form 10-K for 1996 of Cooper Cameron Corporation, and incorporated herein by
reference.
10.14 Cooper Cameron Corporation Supplemental Excess Defined Contribution Plan, filed as
Exhibit 10.5 to the Registration Statement on Form S-4 of Cooper Cameron Corporation
(Commission File No. 33-90288), and incorporated herein by reference.
10.15 First Amendment to Cooper Cameron Corporation Supplemental Excess Defined
Contribution Plan, effective April 1, 1996, filed as Exhibit 10.9 to the Annual
Report on Form 10-K for 1996 of Cooper Cameron Corporation, and incorporated herein
by reference.
</TABLE>
<PAGE> 30
<TABLE>
<S> <C>
10.16 Cooper Cameron Corporation Compensation Deferral Plan (formerly the Cooper Cameron
Corporation Management Incentive Compensation Deferral Plan), effective January 1,
1996, filed as Exhibit 10.10 to the Annual Report on Form 10-K for 1996 of Cooper
Cameron Corporation, and incorporated herein by reference.
10.17 Cooper Cameron Corporation Directors Deferred Compensation Plan, filed as Exhibit
10.7 to the Registration Statement on Form S-4 of Cooper Cameron Corporation
(Commission File No. 33-90288), and incorporated herein by reference.
10.18 Employment Agreement by and between Sheldon R. Erikson and Cooper Cameron
Corporation, effective as of November 30, 1995, filed as Exhibit 10.9 to the Annual
Report on Form 10-K for 1995 of Cooper Cameron Corporation, and incorporated herein
by reference.
10.19 Employment Agreement by and between Thomas R. Hix and Cooper Cameron Corporation,
effective as of November 30, 1995, filed as Exhibit 10.10 to the Annual Report on
Form 10-K for 1995 of Cooper Cameron Corporation, and incorporated herein by
reference.
10.20 Employment Agreement by and between Franklin Myers and Cooper Cameron Corporation,
effective as of November 30, 1995, filed as Exhibit 10.11 to the Annual Report on
Form 10-K for 1995 of Cooper Cameron Corporation, and incorporated herein by
reference.
10.21 1995 Management Incentive Compensation Plan of Cooper Cameron Corporation, dated as
of November 14, 1995, as amended, filed as Exhibit 10.15 to the Annual Report on Form
10-K for 1996 of Cooper Cameron Corporation, and incorporated herein by reference.
10.22 1996 Management Incentive Compensation Plan of Cooper Cameron Corporation, dated as
of February 19, 1996, filed as Exhibit 10.16 to the Annual Report on Form 10-K for
1996 of Cooper Cameron Corporation, and incorporated herein by reference.
10.23 1997 Management Incentive Compensation Plan of Cooper Cameron Corporation, dated as
of December 9, 1996, filed as Exhibit 10.17 to the Annual Report on Form 10-K for
1996 of Cooper Cameron Corporation, and incorporated herein by reference.
</TABLE>
<PAGE> 31
<TABLE>
<S> <C>
10.24 Cooper Cameron Corporation Management Incentive Compensation Plan, as amended,
incorporated herein by reference to the Cooper Cameron Corporation Proxy Statement
for the Annual Meeting of Stockholders held on May 8, 1997.
10.25 1998 Management Incentive Compensation Plan for Cooper Cameron Corporation, dated as
of January 1, 1998.
10.26 Change in Control Policy of Cooper Cameron Corporation, approved February 19, 1996,
filed as Exhibit 10.18 to the Annual Report on Form 10-K for 1996 of Cooper Cameron
Corporation, and incorporated herein by reference.
10.27 Executive Severance Program of Cooper Cameron Corporation, approved February 19,
1996, filed as Exhibit 10.19 to the Annual Report on Form 10-K for 1996 of Cooper
Cameron Corporation, and incorporated herein by reference.
10.28 Credit Agreement, dated as of June 30, 1995, among Cooper Cameron Corporation and
certain of its subsidiaries and the banks named therein and First National Bank of
Chicago, as agent, filed as Exhibit 4.5 to the Registration Statement on Form S-8 of
Cooper Cameron Corporation (Commission File No. 33-94948), and incorporated herein by
reference.
10.29 Amended and Restated Credit Agreement dated as of March 20, 1997, among Cooper
Cameron Corporation and certain of its subsidiaries and the banks named therein and
First National Bank of Chicago, as agent, filed as Exhibit 10.21 to the Annual Report
on Form 10-K for 1996 of Cooper Cameron Corporation, and incorporated herein by
reference.
13.1 Portions of the 1997 Annual Report to Stockholders are included as an exhibit to this
report and have been specifically incorporated by reference elsewhere herein.
21 Subsidiaries of registrant.
23 Consent of Independent Auditors.
27 Financial Data Schedule.
</TABLE>
<PAGE> 32
<TABLE>
<S> <C>
27.l Restated Financial Data Schedule for the three months ended March 31, 1997.
27.2 Restated Financial Data Schedule for the six months ended June 30, 1997.
27.3 Restated Financial Data Schedule for the nine months ended September 30, 1997.
27.4 Restated Financial Data Schedule for the year ended December 31, 1996.
27.5 Restated Financial Data Schedule for the three months ended March 31, 1996.
27.6 Restated Financial Data Schedule for the six months ended June 30, 1996.
27.7 Restated Financial Data Schedule for the nine months ended September 30, 1996.
</TABLE>
<PAGE> 1
EXHIBIT 4.2
FIRST AMENDMENT TO RIGHTS AGREEMENT
This First Amendment to Rights Agreement (this "Amendment") is executed
to be effective as of November 1, 1997, between Cooper Cameron Corporation, a
Delaware corporation (the "Company") and First Chicago Trust Company of New
York, a New York company (the "Rights Agent"). WITNESSETH
WHEREAS, the Company and the Rights Agent entered into the Rights
Agreement dated as of May 1, 1995 (the "Agreement"), and the parties desire to
amend the Agreement in the manner authorized in Section 26 thereof.
NOW THEREFORE, in consideration of the premises, and other valuable
consideration the receipt and sufficiency of which is hereby acknowledged, the
Company and the Rights Agent hereby agree as follows:
1. DEFINITIONS. All terms used in this Amendment which are not
defined in this Amendment have the meaning given those terms in the Agreement.
2. AMENDMENTS TO THE AGREEMENT. The Agreement is hereby amended as
follows:
(a) Section 1.(a) "Acquiring Person" shall be amended to read in
its entirety as follows:
(a) "Acquiring Person" shall mean any Person who or which,
together with all Affiliates and Associates of such Person, shall
be the Beneficial Owner of 20% or more of the shares of Common
Stock then outstanding, but shall not (i) include the Company,
any Subsidiary of the Company, any employee benefit plan of the
Company or of any Subsidiary of the Company, or any Person or
entity organized, appointed or established by the Company for or
pursuant to the terms of any such plan, (ii) any Person who
becomes an Acquiring Person solely as a result of a reduction in
the number of shares of Common Stock outstanding due to the
repurchase of shares of Common Stock by the Company.
(b) Section 7. (a) shall be amended to change the Final
Expiration Date from April 30, 2005 to October 31, 2007.
(c) Section 7.(b) shall be amended to change the Purchase Price
from $75 to $300.
<PAGE> 2
(d) Section 11. (a) (ii) (A) shall be amended to read in its
entirety as follows:
(A) (1) any Acquiring Person or any Associate or Affiliate
of any Acquiring Person, at any time after the date of this
Agreement, directly or indirectly, shall merge into the Company
or otherwise combine with the Company and the Company shall be
the continuing or surviving corporation of such merger or
combination and the Common Stock of the Company shall remain
outstanding and unchanged, or (2) subject to the right of
redemption granted in Section 23 hereof, any Person (other than
the Company, any Subsidiary of the Company, any employee benefit
plan of the Company or of any Subsidiary of the Company, or any
Person or entity organized, appointed or established by the
Company for or pursuant to the terms of any such plan), alone or
together with its Affiliates and Associates, shall, at any time
after the Rights Dividend Declaration Date, become the Beneficial
Owner of more than 20% of the shares of Common Stock then
outstanding, other than (x) pursuant to any transaction set forth
in Section 13(a) hereof, or (y) pursuant to an offer for all
outstanding shares of Common Stock at a price and upon such terms
and conditions as a majority of the Continuing Directors
determines to be in the best interests of the Company and its
stockholders, other than such Acquiring Person, its Affiliates
and its Associates, or
(e) Exhibit A to the Agreement [Form of Rights Certificate] shall
be amended to change the Final Expiration Date in the first line of the
opening legend and the seventh line of the first paragraph following
the opening legend from April 30, 2005 to October 31, 2007, and to
change the Purchase Price and the as of date related to the Purchase
Price in the tenth and sixteenth line, respectively, of the first
paragraph following the opening legend from $75 to $300 and from May
23, 1995 to November 1, 1997, respectively.
3. HEADINGS. The headings of Sections in this Amendment have been
included for convenience only and should not be construed in interpreting this
Amendment.
4. SEVERABILITY. If any part of this Amendment is for any reason
found to be unenforceable, all other portions nevertheless remain enforceable.
5. SUCCESSORS. This Amendment binds and inures to the benefit of the
parties in respect of successors and assigns.
6. COUNTERPARTS. This Amendment may be executed in any number of
counterparts, each of which when executed and delivered shall be deemed to be an
original and all of which counterparts taken together shall constitute the same
instrument.
7. GOVERNING LAW. This Amendment must be construed--and its
performance enforced--under Delaware law.
2
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and their respective corporate seals to be hereunto affixed and
attested, all as of the day and year first above written.
Attest: COOPER CAMERON CORPORATION
By: /s/ Grace L. Hughes By: /s/ Franklin Myers
-------------------------------- -----------------------------
Name: Grace L. Hughes Name: Franklin Myers
------------------------------- -----------------------------
Title: Assistant Secretary Title: Senior Vice President,
------------------------------ -----------------------------
General Counsel and
-----------------------------
Secretary
-----------------------------
(SEAL)
Attest: FIRST CHICAGO TRUST COMPANY OF NEW YORK
By: /s/ George Dalton By: /s/ James Kurmich
---------------------------------- --------------------------------
Name: George Dalton Name: James Kurmich
------------------------------- ------------------------------
Title: Assistant Vice President Title: Assistant Vice President
------------------------------ -----------------------------
(SEAL)
3
<PAGE> 1
EXHIBIT 10.6
THIRD AMENDMENT TO
COOPER CAMERON CORPORATION
AMENDED AND RESTATED 1995 STOCK OPTION PLAN FOR
NON-EMPLOYEE DIRECTORS
WHEREAS, COOPER CAMERON CORPORATION (THE "Company") has hereto fore
adopted the COOPER CAMERON CORPORATION AMENDED AND RESTATED 1995 STOCK OPTION
PLAN FOR NON-EMPLOYEE DIRECTORS (THE "Plan"); and
WHEREAS, The Company desires to amend the Plan in certain respects;
NOW, THEREFORE, THE Plan shall be amended as follows, effective as of
May 8, 1997:
1. The following sentences shall be added to Section 8 of the
Plan:
(c) If the Optionee ceases to be an Eligible Director for any
reason other than death or disability, (i) with respect to Automatic
Options, the Optionee shall have the right to exercise the Option for a
period of three (3) years from the date the Optionee ceases to be an
Eligible Director or for the remaining term of the Option, if a shorter
period of time, and (ii) with respect to Elective Options, the Optionee
shall have the right to exercise the Option for the remaining term of
the Option.
2. As amended hereby, the Plan is specifically ratified and
reaffirmed.
<PAGE> 1
EXHIBIT 10.7
FOURTH AMENDMENT TO
COOPER CAMERON CORPORATION
AMENDED AND RESTATED 1995 STOCK OPTION PLAN
FOR NON-EMPLOYEE DIRECTORS
WHEREAS, COOPER CAMERON CORPORATION (the "Company") has heretofore
adopted the COOPER CAMERON CORPORATION AMENDED AND RESTATED 1995 STOCK OPTION
PLAN FOR NON-EMPLOYEE DIRECTORS (the "Plan"); and
WHEREAS, the Company desires to amend the Plan in certain respects;
NOW, THEREFORE, the Plan shall be amended as follows, effective as of
November 6, 1997:
1. Sections 5 and 6 of the Plan shall be deleted and the
following shall be substituted therefor:
"5. Automatic Options. An Eligible Director shall receive
Options in accordance with the provisions of this Section 5. An initial
Option grant for 6,000 shares of Common Stock shall be made to an
Eligible Director on the first trading date on which such individual
becomes an Eligible Director. An additional Option for 6,000 shares of
Common Stock shall be granted to Eligible Directors in each subsequent
year during the term of the Plan on the first trading date following
the Annual Meeting of Company stockholders. Notwithstanding the
foregoing, if the Company has a non-executive (non-full time employed)
Chairman of the Board of Directors, in lieu of the Option grants set
forth above, such Chairman shall receive an initial Option grant for
20,000 shares of Common Stock on the first trading date such individual
becomes Chairman and an additional Option grant for 6,000 shares of
Common Stock in each subsequent year during the term of the Plan on the
first trading date following the Annual Meeting of Company
stockholders. Except as provided in Sections 7 and 8 below with respect
to the exercisability of an Option, no adjustment shall be made to such
Option to reflect a termination of service as an Eligible Director.
"6. Elective Options. In addition to the Options granted under
Section 5 above, an Eligible Director may make an annual election to
receive either the Eligible Director's annual cash retainer or one of
(a) an Option for 8,700 shares of Common Stock under this Section 6 (on
the same dates as the Options granted under Section 5) in lieu of all
of the Eligible Director's annual cash retainer, (b) an Option for
5,800 shares in lieu of two-thirds of the Eligible Director's annual
cash retainer, or (c) an Option for 2,900 shares in lieu of one-third
of the Eligible Director's annual cash retainer, otherwise payable
during the period beginning on the Option grant date and ending on the
next subsequent Option grant date. Each such annual election under this
Section 6 shall be in writing and filed with the Secretary of the
Company, shall be irrevocable, and shall be made at least six months
prior to the date as of which it is to become effective. No such Option
shall be granted if the Eligible Director ceases to be an Eligible
Director after the date of his or her annual Option election but prior
to the date as of which the Option is granted."
2. As amended hereby, the Plan is specifically ratified and
reaffirmed.
<PAGE> 1
EXHIBIT 10.8
FIFTH AMENDMENT TO
COOPER CAMERON CORPORATION
AMENDED AND RESTATED
1995 STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS
WHEREAS, COOPER CAMERON CORPORATION (the "Company") has heretofore
adopted the COOPER CAMERON CORPORATION 1995 STOCK OPTION PLAN FOR NON-EMPLOYEE
DIRECTORS (the "Plan"); and
WHEREAS, the Company desires to amend the Plan in certain respects;
NOW, THEREFORE, the Plan shall be amended as follows, effective as of
February 12, 1998:
1. The phrase "for more than six months" shall be deleted from
the second sentence of Section 7(f) of the Plan.
2. The following shall be added to Section 4 of the Plan:
"Shares of Common Stock related to Options that are forfeited or
terminated, expire unexercised, are settled in cash in lieu of shares
of Common Stock or in a manner such that all or some of the shares of
Common Stock covered by an Option are not issued to an Eligible
Director, shall immediately become available for Options hereunder."
3. The following shall be added at the end of Section 7(f) of the
Plan:
"The Committee may provide in an Option Agreement that, if an Eligible
Director pays the Option exercise price in shares of Company Common
Stock, upon the date of such payment a new option shall be granted and
the number of shares of Common Stock subject to such new option shall
be equal to the number of shares of Common Stock tendered in payment;
provided that such new option shall not be exercisable in any event
after the original term of the exercised option."
4. As amended hereby, the Plan is specifically ratified and
reaffirmed.
<PAGE> 1
Exhibit 10.10
COOPER CAMERON CORPORATION
RETIREMENT SAVINGS PLAN
AS AMENDED AND RESTATED
EFFECTIVE APRIL 1, 1996
<PAGE> 2
ii
COOPER CAMERON CORPORATION
RETIREMENT SAVINGS PLAN
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section Page No.
- ------- --------
<S> <C> <C>
ARTICLE I
DEFINITIONS AND CONSTRUCTION
1.1 Definitions 2
1.2 Construction 11
ARTICLE II
ELIGIBILITY TO PARTICIPATE
2.1 Commencement of Participation 12
2.2 Changes in Employment Status 12
2.3 Election Form 12
ARTICLE III
CONTRIBUTIONS
3.1 Basic Contributions 13
3.2 Matching Contributions 13
3.3 Rollover Contributions 13
3.4 Transferred Contributions 13
3.5 Company Retirement Contributions 14
3.6 Effect of Plan Termination or Withdrawal 14
ARTICLE IV
ADMINISTRATION OF CONTRIBUTIONS
4.1 Limitations on Basic Contributions 15
4.2 Excess Elective Deferrals 17
4.3 Limitation on Matching Contributions 18
4.4 Delivery of Contributions 18
4.5 Allocation of Matching Contributions 19
4.6 Allocation of Company Retirement Contributions 19
4.7 Crediting of Contributions 19
4.8 Changes in Reduction and Deduction Authorizations 19
ARTICLE V
DEPOSIT AND INVESTMENT OF CONTRIBUTIONS
5.1 Deposit of Contributions 20
5.2 Investment of Basic, Supplemental, IAR, and Rollover/Transfer
Accounts 20
5.3 Election to Transfer Matching Contributions 20
5.4 Elimination of Funds 21
</TABLE>
(i)
<PAGE> 3
<TABLE>
<S> <C> <C>
ARTICLE VI
ESTABLISHMENT OF FUNDS AND MEMBERS' ACCOUNTS
6.1 Investment Responsibility 22
6.2 Establishment and Maintenance of Funds 22
6.3 Company Stock Fund 22
6.4 Cooper Stock Fund 22
6.5 Income on Trust Funds 22
6.6 Separate Accounts 23
6.7 Voting of Company Stock in the Company Stock Fund 23
ARTICLE VII
VESTING
7.1 Vesting in Basic, Supplemental, Matching, and Rollover/Transfer
Accounts 24
7.2 Vesting in Company Retirement Contributions 24
7.3 Forfeitures 24
7.4 Election of Former Vesting Schedule 25
7.5 Vesting Service 26
7.6 Transfers 26
7.7 Loss and Reinstatement of Years of Vesting Service 26
7.8 Finality of Determinations 27
ARTICLE VIII
WITHDRAWALS WHILE EMPLOYED
8.1 Withdrawals Prior to Age 59 1/2 28
8.2 Withdrawals After Age 59 1/2 28
8.3 Form of Withdrawals 29
ARTICLE IX
LOANS
9.1 Eligibility for Loan 30
9.2 Maximum Loan 30
9.3 Restrictions 30
9.4 Operation of Article 30
ARTICLE X
DISTRIBUTION ON RETIREMENT OR OTHER
TERMINATION OF EMPLOYMENT
10.1 Eligibility for Distribution 31
10.2 Distribution of Separate Accounts 31
10.3 Form of Distribution 34
10.4 Limitation on Commencement of Distribution 34
10.5 Restriction on Alienation 36
10.6 Payments to Incompetents or Minors 36
10.7 Commercial Annuities 36
10.8 Actuarial Equivalency 37
10.9 Eligible Rollover Distributions 37
10.10 Transfer to Cooper Cameron Salaried Plan 37
10.11 Deferral of Payments 37
</TABLE>
(ii)
<PAGE> 4
<TABLE>
<S> <C> <C>
ARTICLE XI
BENEFICIARIES AND DEATH BENEFITS
11.1 Designation of Beneficiary 38
11.2 Beneficiary in the Absence of Designated Beneficiary 38
11.3 Spousal Consent to Beneficiary Designation 38
11.4 Death Benefits From Basic, Supplemental,
Matching, and Rollover/Transfer Accounts 38
11.5 Death Benefits From IAR Accounts 38
11.6 Commencement of Death Benefits 40
ARTICLE XII
ADMINISTRATION
12.1 Plan Administrator 41
12.2 Authority of the Company 41
12.3 Action of the Company 41
12.4 Claims Review Procedure 42
12.5 Qualified Domestic Relations Orders 42
12.6 Indemnification 42
ARTICLE XIII
AMENDMENT AND TERMINATION
13.1 Amendment 44
13.2 Limitation of Amendment 44
13.3 Termination 44
13.4 Withdrawal of an Employer 45
13.5 Corporate Reorganization 45
ARTICLE XIV
ADOPTION BY SUBSIDIARIES: EXTENSION
TO NEW BUSINESS OPERATIONS
ARTICLE XV
ESOP
15.1 Purpose 47
15.2 Suspense Fund 47
15.3 Exempt Loans 47
15.4 Limitation on Allocations of Matching Contributions 47
15.5 Allocations of Matching Contributions from the ESOP 48
15.6 Dividends on Company Stock 48
15.7 Restrictions on Company Stock 48
</TABLE>
(iii)
<PAGE> 5
<TABLE>
<S> <C> <C>
ARTICLE XVI
MISCELLANEOUS PROVISIONS
16.1 No Commitment as to Employment 49
16.2 Benefits 49
16.3 No Guarantees 49
16.4 Exclusive Benefit 49
16.5 Duty to Furnish Information 49
16.6 Merger, Consolidation, or Transfer of Plan Assets 49
16.7 Return of Contributions to Employers 49
16.8 Addenda 50
16.9 Validity of Agreement 50
ARTICLE XVII
SECTION 415 LIMITATIONS
17.1 Compliance with TRA `86 51
17.2 Section 415 Definitions 51
17.3 Limitations on Allocations for Single Plan Participation 55
17.4 Limitations on Allocations for Multiple Plan Participation 55
17.5 Grandfathered Defined Benefit Plan Limitation 56
17.6 Limitations on Allocations for Defined Contribution Plan 56
17.7 Limitation for Multiple Defined Contribution Plan Participation 57
17.8 Limitation for Multiple Defined Benefit Plan Participation 58
17.9 Multiple Plans; Overall Limitations 58
ARTICLE XVIII
TOP-HEAVY PLAN RULES
18.1 Application 60
18.2 Top-Heavy Definitions 60
18.3 Top-Heavy Minimum Allocation Rules 63
18.4 Top-Heavy Compensation Limitation 63
18.5 Top-Heavy Vesting Provisions 63
18.6 Top-Heavy Plan/Benefit Limitations 64
Appendix A Covered Employment Classifications
of IAR Members A-1
Addenda
Liberty Texas Plant AD-1
Patterson, Louisiana Plant AD-2
Ville Platte, Louisiana Plant AD-4
Houston, Texas Plant AD-5
Oklahoma City, Oklahoma (Demco) Plant AD-7
Oklahoma City, Oklahoma (Carson Machine) AD-10
Pine Bluff, Arkansas Plant AD-11
</TABLE>
(iv)
<PAGE> 6
COOPER CAMERON CORPORATION
RETIREMENT SAVINGS PLAN
WHEREAS, Cooper Cameron Corporation (the "Company") has
heretofore adopted the Cooper Cameron Corporation Retirement Savings Plan,
hereinafter referred to as the "Plan," for the benefit of certain of its
employees; and
WHEREAS, the Company desires to restate the Plan and to amend
the Plan in several respects, intending thereby to provide an uninterrupted and
continuing program of benefits;
NOW, THEREFORE, the Plan is hereby restated in its entirety as
follows with no interruption in time, effective as of April 1, 1996, except as
otherwise indicated herein.
ARTICLE I
DEFINITIONS AND CONSTRUCTION
1.1 DEFINITIONS.
The following words and phrases as used herein shall have the meanings
hereinafter set forth, unless a different meaning is plainly required
by the context:
(1) The term "ADDENDUM" shall mean the overriding provisions
which are applicable to certain Employees in accordance with the
provisions of Section 16.8 and which shall constitute for all purposes
a part of the Plan and in the event of conflict with any other
provision of the Plan shall control.
(2) The term "AFFILIATE" shall mean any member of a controlled
group of corporations (as determined under Section 414(b) of the Code)
of which the Company is a member; any member of a group of trades or
businesses under common control (as determined under Section 414(c) of
the Code) with the Company; and any member of an affiliated service
group (as determined under Section 414(m) of the Code) of which the
Company is a member.
(3) The term "ALLOCATION MONTH" shall mean each calendar month
for which an Employer makes Company Retirement Contributions in
accordance with the provisions of Section 3.5.
(4) The term "ALLOCATION YEAR" shall mean each Plan Year.
-1-
<PAGE> 7
(5) The term "BASIC ACCOUNT" shall mean the Separate Account
of a Member to which Basic Contributions are credited in accordance
with the provisions of Section 4.7.
(6) The term "BASIC CONTRIBUTION" shall mean any cash or
deferred arrangement contribution made to the Plan by an Employer on
behalf of a Member in accordance with the provisions of Sections 2.3
and 3.1.
(7) The term "BENEFICIARY" shall mean the person or persons
who, in accordance with the provisions of Article XI hereof, shall be
entitled to receive distribution hereunder in the event a Member or
Inactive Member dies before his interest shall have been distributed to
him in full.
(8) The term "BREAK IN SERVICE" shall mean any Plan Year
during which an Employee completes not more than 500 Hours of Service;
provided, however, that for purposes of Section 7.7(b), no Employee
shall incur a Break in Service solely by reason of an absence due to
(i) the birth of a child of the Employee, (ii) the pregnancy of the
Employee, (iii) the placement of a child with the Employee on account
of the adoption of such child by such Employee, or (iv) the caring for
a child of an Employee for a period beginning following the birth or
placement of such child, with respect to the Plan Year in which such
absence begins, if the Employee otherwise would have incurred a Break
in Service or, in any other case, in the immediately following Plan
Year; and provided further, that although an Employee may not receive
credit for vesting or benefit accrual purposes, a Break in Service
shall not be deemed to occur with respect to any layoff or sick leave
not in excess of the period of time during which his seniority is
retained.
(9) The term "CODE" shall mean the Internal Revenue Code of
1986, as amended from time to time. Reference to a section of the Code
shall include such section and any comparable section or sections of
any future legislation that amends, supplements, or supersedes such
section.
(10) The term "COMPANY" shall mean Cooper Cameron Corporation,
its successors, and the surviving corporation resulting from any merger
or consolidation of Cooper Cameron Corporation with any other
corporation or corporations.
(11) The term "COMPANY RETIREMENT CONTRIBUTIONS" shall mean
the contributions made to the Plan by an Employer in accordance with
the provisions of Section 3.5.
(12) The term "COMPANY STOCK" shall mean the common stock of
Cooper Cameron Corporation.
(13) The term "COMPANY STOCK FUND" shall mean the investment
fund established to invest in Company Stock and maintained pursuant to
the provisions of Section 6.3.
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<PAGE> 8
(14) The term "COMPENSATION" shall mean the compensation
within the meaning of Section 415(c)(3) of the Code, subject to the
provisions of Section 414(q)(6), paid during a Plan Year by the
Employer to a Member while a Member, including all wages and salary,
commissions and bonuses, and overtime pay and any Basic Contributions
contributed under the Plan with respect to such Member during such Plan
Year and elective Employer Contributions made on behalf of a Member
that are not includable in gross income under Sections 125, 402(a)(8),
402(h), and 403(b) of the Code, but excluding relocation expense
reimbursements (including mortgage interest differentials) or other
expense allowances, fringe benefits, accrued or unused vacation pay
which is paid with respect to a period following termination of
employment, automobile allowance income and foreign service premiums,
deferred compensation (other than Before-Tax Contributions), and
allowances or any other extraordinary income, and welfare benefits.
Further, notwithstanding the foregoing, in no event shall the annual
Compensation of a Member taken into account under the Plan exceed the
OBRA `93 annual compensation limit of $150,000, as adjusted for
increases in the cost of living in accordance with the provisions of
Section 401(a)(17)(B) of the Code. The cost of living in effect for a
calendar year applies to any period, not exceeding 12 months, over
which Compensation is determined (a "determination period") beginning
in such calendar year. If a determination period consists of fewer than
12 months, the OBRA `93 annual compensation limit will be multiplied by
a fraction, the numerator of which is the number of months in the
determination period and the denominator of which is 12. Compensation
of a Member's "family members" shall be treated as Compensation of the
Member in accordance with Section 414(q)(6) of the Code, as modified by
Section 401(a)(17) of the Code. If, as a result of the application of
such rules, the adjusted Compensation limitation is exceeded, then the
limitation shall be prorated among the affected individuals in
proportion to each such individual's Compensation as determined under
this paragraph prior to the application of this limitation.
(15) The term "CONTRIBUTION HOUR" shall mean an hour of active
employment while an IAR Member in an employment classification listed
on Appendix A for which such IAR Member is credited pursuant to an
applicable Addendum for purposes of determining his Company Retirement
Contributions.
(16) The term "CONTRIBUTION RATE" shall mean the contribution
rate set forth in each Addendum with respect to Company Retirement
Contributions for the applicable Participating Unit with respect to IAR
Members.
(17) The term "CONTROLLED ENTITY" shall mean each corporation
that is a member of a controlled group of corporations, within the
meaning of Section 1563(a) of the Code determined without regard to
Section 1563(a)(4) and Section 1563(e)(3)(C), of which the Company is a
member, each trade or business (whether or not incorporated) with which
the Company is under common control and each corporation that is a
member of an affiliated service group, within the meaning of Section
414(m) of the Code, of which the Company is a member.
-3-
<PAGE> 9
(18) The term "COOPER SAVINGS PLAN" shall mean the Cooper
Industries, Inc. Retirement and Savings Plan, the Cooper Industries,
Inc. Savings Plan, and Cooper Industries, Inc. Stock Ownership Plan.
(19) The term "COOPER STOCK FUND" shall mean the investment
fund established to invest in the common stock of Cooper Industries,
Inc. and maintained pursuant to the provisions of Section 6.4.
(20) The term "EFFECTIVE DATE" shall mean April 1, 1996.
(21) The term "ELIGIBLE EMPLOYEE" shall mean any salaried or
hourly Employee of the Employer who is (i) a common law employee who is
paid in United States dollars from a payroll maintained in the United
States, (ii) a non-United States citizen who is a lawful, permanent
resident of the United States and who is subject to United States
federal income taxes on his worldwide income, or (iii) an Eligible
Foreign Employee. In no event shall the term "Eligible Employee" mean
(i) any person who is rendering service to an Employer solely as a
director or an independent contractor, (ii) any person who is covered
by a collective bargaining agreement unless such agreement specifically
provides for coverage by the Plan, or (iii) any person who is a
nonresident alien and who receives no earned income within the meaning
of Section 911(b) of the Code from an Employer which constitutes income
from sources within the United States as defined in Section 861(a)(3)
of the Code, or (iv) an Employee who is a Leased Employee or who is
designated, compensated, or otherwise classified by the Employer as a
Leased Employee. Notwithstanding any provision of the Plan to the
contrary, no individual who is designated, compensated, or otherwise
classified or treated by the Employer as an independent contractor
shall be eligible to become a Member of the Plan.
(22) The term "ELIGIBLE FOREIGN EMPLOYEE" shall mean any
individual who (i) is a citizen of the United States or a permanent,
lawful resident of the United States, (ii) is an employee of an
Included Foreign Affiliate, and (iii) is not covered by any other
funded plan of deferred compensation under which contributions are
provided by any other person, firm, or corporation with respect to the
remuneration paid to such individual by the Included Foreign Affiliate.
(23) The term "ELIGIBLE RETIREMENT PLAN" shall mean:
(a) any individual retirement account described
in Section 408(a) of the Code;
(b) any individual retirement annuity described
in Section 408(b) of the Code;
(c) any trust maintained pursuant to a plan
described in Section 414(i) of the Code that
meets the requirements of Section 401(a) of
the Code; and
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<PAGE> 10
(d) any annuity plan described in Section 403(a)
of the Code.
In the case of an Eligible Rollover distribution to a beneficiary who
is the Member's surviving spouse, an Eligible Retirement Plan is only
an individual retirement account or individual retirement annuity
described in (a) or (b) above.
(24) The term "ELIGIBLE ROLLOVER DISTRIBUTION" shall mean all
or any portion of a Plan distribution to a Member or a Beneficiary who
is a deceased Member's surviving spouse or an alternate payee under a
qualified domestic relations order who is a Member's spouse or former
spouse; provided, however, that such distribution is not (i) one of a
series of substantially equal periodic payments made at least annually
for over a specified period of ten or more years or the life of the
Member or Beneficiary or the joint lives of the Member and a designated
beneficiary, (ii) a distribution to the extent such distribution is
required under Section 401(a)(9) of the Code; or (iii) the portion of
any distribution which is not includable in gross income (determined
without regard to any exclusion of net unrealized appreciation with
respect to employer securities).
(25) The term "EMPLOYEE" shall mean each (A) individual
employed by the Employer or a Controlled Entity and (B) Leased Worker.
(26) The term "EMPLOYER" shall mean the Company or any
Affiliate of the Company which adopts the Plan as herein provided so
long as the Affiliate has not withdrawn from the Plan.
(27) The term "EMPLOYMENT COMMENCEMENT DATE" shall mean the
first date on which an Employee completes an Hour of Service.
(28) The term "ERISA" shall mean the Employee Retirement
Income Security Act of 1974, as amended from time to time. Reference to
a section of ERISA shall include such section and any comparable
section or sections of any future legislation that amends, supplements,
or supersedes such section.
(29) The term "FOREIGN AFFILIATE" shall mean a "foreign
affiliate" as defined in Section 3121(1)(8) of the Code.
(30) The term "FUND" shall mean any of the investment funds
established and maintained in accordance with the provisions of Section
6.2.
(31) The term "HIGHLY-COMPENSATED EMPLOYEE" prior to January
1, 1997 shall mean any Employee who during such Plan Year or during the
immediately preceding Plan Year:
(a) received compensation (as defined in Article
XVII of the Plan without regard to Sections
125, 402(e)(3), and 402(h)(1)(B) of the
Code, and in the case of contributions made
pursuant to a salary reduction agreement,
without regard to Section 403(b) of the
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<PAGE> 11
Code), in excess of $75,000 (such dollar
limitation shall be adjusted automatically
in accordance with the maximum amount
permitted under Code Section 414(q)); or
(b) received compensation (as defined in Article
XVII of the Plan without regard to Sections
125, 402(e)(3), and 402(h)(1)(B) of the
Code, and in the case of contributions made
pursuant to a salary reduction agreement,
without regard to Section 403(b) of the
Code), in excess of $50,000 (such dollar
limitation shall be adjusted automatically
in accordance with the maximum amount
permitted under Section 414(q) of the Code)
and was in the Top-Paid Group which is the
group consisting of the top 20 percent of
the employees when ranked by compensation
paid during such year; or
(c) was at any time an officer of an Affiliate
and received compensation in excess of 50
percent of the amount in effect under
Section 415(b)(1)(A) of the Code, except as
otherwise hereinafter provided; or
(d) owned directly or indirectly 5% or more of
an Affiliate (so that he is a "5% owner" as
defined in Section 416(i)(1) of the Code);
provided, however, if an Employee was not a "Highly-Compensated
Employee" during the immediately preceding Plan Year, he shall not be a
Highly Compensated Employee pursuant to subparagraph (a), (b), or (c)
unless he is one of the 100 Employees with the highest compensation (as
defined in Article XVII of the Plan without regard to Sections 125,
402(e)(3), and 402(h)(1)(B) of the Code, and in the case of
contributions made pursuant to a salary reduction agreement, without
regard to Section 403(b) of the Code) for such Plan Year.
For purposes of subparagraph (c) the number of employees who shall be
counted as officers shall be limited as follows:
<TABLE>
<CAPTION>
Total Number of Employees of Maximum Number of Officers
the Affiliated Group to be Counted
---------------------------- --------------------------
<S> <C>
30 or less 3
30 - 500 10% of total number of
Employees (fractions to
be rounded to next
highest whole number)
Over 500 50
</TABLE>
-6-
<PAGE> 12
If the number of officers for any Plan Year exceeds the maximum number
that may be counted, the officers shall be ranked in order of
compensation (as defined in Article XVII of the Plan without regard to
Sections 125, 402(e)(3), and 402(h)(1)(B) of the Code, and in the case
of contributions made pursuant to a salary reduction agreement, without
regard to Section 403(b) of the Code) for the Plan Year, and only the
maximum number with the highest such compensation shall be counted as
officers. If for any Plan Year no Affiliate has an officer with
compensation greater than the compensation specified in subparagraph
(c) above, the highest-paid officer among the Affiliates shall
nevertheless be treated as a Highly-Compensated Employee.
If during any Plan Year an Employee is a "family member" of a
Highly-Compensated Employee described above in subparagraph (d) or of a
Highly-Compensated Employee in the group consisting of the ten
Highly-Compensated Employees paid the greatest compensation during the
Plan Year, then such "family member" shall not be considered to be a
separate Employee and the compensation paid to such "family member" and
any applicable employer contribution under the Plan paid to or on
behalf of such "family member" shall be treated as if it were paid to
(or on behalf of) the related Highly-Compensated Employee. As used
herein, the term "family member" means with respect to any Employee,
the Employee's spouse, grandparent (and spouse), great grandparent (and
spouse), child (and spouse), great grandchild (and spouse) and any
other lineal ascendants or descendants and their spouses and for
purposes of applying the limitation of Section 401(a)(17) to paragraph
(14) of this Section 1.1 shall mean the spouse of any Employee and any
lineal descendant thereof who has not attained age 19 before the close
of the Plan Year. In addition, a former Employee shall be considered a
Highly-Compensated Employee if he was a Highly-Compensated Employee at
the time his employment terminated or at any time after attaining age
55. Notwithstanding the foregoing provisions of this paragraph (31),
the sole purpose of this paragraph (31) is to define and apply the term
Highly-Compensated Employee strictly (and only) to the extent necessary
to satisfy the minimum requirements of Section 414(q) of the Code
relating to "highly-compensated employees." This paragraph shall be
interpreted, applied and, if and to the extent necessary, deemed
modified without formal amendments of language, so as to satisfy solely
the minimum requirements of Section 414(q) of the Code.
From and after January 1, 1997, the term "HIGHLY-COMPENSATED
EMPLOYEE" shall mean each Employee who performs services during the
Plan Year for which the determination of who is highly compensated is
being made (the "Determination Year") and who:
(A) is a five-percent owner of the Employer (within the
meaning of section 416(i)(1)(A)(iii) of the Code) at
any time during the Determination Year or the
twelve-month period immediately preceding the
Determination Year (the "Look-Back Year"); or
(B) For the Look-Back Year
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<PAGE> 13
(i) receives compensation (within the meaning of
section 414(q)(4) of the Code;
"compensation" for purposes of this
Paragraph) in excess of $80,000 (with such
amount to be adjusted automatically to
reflect any cost-of-living adjustments
authorized by section 414(q)(1) of the Code)
during the Look-Back Year; and
(ii) if the Committee elects the application of
this clause in such Look-Back Year, is a
member of the top 20% of Employees for the
Look-Back Year (other than Employees
described in section 414(q)(5) of the Code)
ranked on the basis of compensation received
during the year.
For purposes of the preceding sentence, (i) all employers
aggregated with the Employer under section 414(b), (c), (m),
or (o) of the Code shall be treated as a single employer, (ii)
a former Employee who had a separation year (generally, the
Determination Year such Employee separates from service) prior
to the Determination Year and who was an active Highly
Compensated Employee for either such separation year or any
Determination Year ending on or after such Employee's
fifty-fifth birthday shall be deemed to be a Highly
Compensated Employee, and (iii) the Committee may elect, in
accordance with the provisions of applicable Treasury
regulations, rulings and notices, to make the Look-Back Year
calculation for a Determination Year on the basis of the
calendar year ending with or within the applicable
Determination Year (or, in the case of a Determination Year
that is shorter than twelve months, the calendar year ending
with or within the twelve-month period ending with the end of
the applicable Determination Year). To the extent that the
provisions of this Paragraph are inconsistent or conflict with
the definition of a "highly compensated employee" set forth in
section 414(q) of the Code and the Treasury regulations
thereunder, the relevant terms and provisions of section
414(q) of the Code and the Treasury regulations thereunder
shall govern and control.
(32) The term "HOUR OF SERVICE" shall mean an hour for which
an employee is paid, or entitled to be paid, with respect to the
performance of duties for an Employer or a Controlled Entity either as
regular wages, salary or commissions, or pursuant to an award or
agreement requiring an Employer or a Controlled Entity to pay back
wages. Hours under this paragraph shall be calculated and credited
pursuant to Section 2530.200b-2(b) and (c) of the Department of Labor
regulations which are incorporated herein by reference.
(33) The term "IAR ACCOUNT" shall mean the Separate Account of
a Member to which the Company Retirement Contributions are credited in
accordance with the provisions of Section 4.7.
(34) The term "IAR MEMBER" shall mean an Employee who is
employed in an employment classification and facility listed on
Appendix D and to whom Company Retirement Contributions are allocated
pursuant to the provisions of Section 3.5.
-8-
<PAGE> 14
(35) The term "INACTIVE MEMBER" shall mean any Member who
ceases to be an Employee and whose Separate Accounts have not been
distributed in accordance with the provisions of the Plan.
(36) The term "INCLUDED FOREIGN AFFILIATE" means a "Foreign
Affiliate" with respect to which there shall be in effect between the
Company and the Secretary of the Treasury or his delegate an agreement
pursuant to Section 3121(1) of the Code, whereby coverage under Title
II of the federal Social Security Act has been extended to service
performed outside the United States by United States citizens employed
by such "Foreign Affiliate."
(37) The term "LEASED WORKER" shall be a person (other than a
person who is an employee without regard to this paragraph (37))
engaged in performing services for a Controlled Entity (the
"recipient") pursuant to an agreement between the recipient and any
other person ("Leasing Organization") who meets the following
requirements:
(a) he has performed services for one or more
Controlled Entities (or for any other
"related persons" determined in accordance
with Section 414(n)(6) of the Code) on a
substantially full-time basis for a period
of at least one year;
(b) such services are of a type historically
performed in the business field of the
recipient, in the United States, by
employees (or, from and after January 1,
1997, such services are performed under
primary direction or control by the Employer
or a Controlled Entity); and
(c) he is not participating in a "safe harbor
plan" of the Leasing Organization. (For this
purpose, a "safe harbor plan" is a plan that
satisfies the requirements of Section
414(n)(5) of the Code, which will generally
be a money purchase pension plan with a
non-integrated employer contribution rate of
at least ten percent of compensation and
which provides for immediate participation
and full and immediate vesting).
A person who is a Leased Worker during any taxable year beginning after
December 31, 1983, shall also be considered an employee of a Controlled
Entity during such period (and solely for the purpose of determining
length of service for participation and vesting purposes, and shall
also be considered to have been an employee for any earlier period in
which he was a Leased Worker) but shall not be a Member and shall not
otherwise be eligible to become covered by the Plan during any period
in which he is a Leased Worker. Notwithstanding the foregoing, the sole
purpose of this paragraph (37) is to define and apply the term "Leased
Worker" strictly (and only) to the extent necessary to satisfy the
minimum requirements of Section 414(n) of the Code relating to "leased
employees." This paragraph (37) shall be interpreted, applied and, if
and to the extent
-9-
<PAGE> 15
necessary, deemed modified without formal amendment of language, so as
to satisfy solely the minimum requirements of Section 414(n) of the
Code.
(38) The term "MATCHING ACCOUNT" shall mean the Separate
Account of a Member to which Matching Contributions are credited in
accordance with the provisions of Section 4.7.
(39) The term "MATCHING CONTRIBUTION" shall mean the
contributions which an Employer contributes to the Plan in accordance
with the provisions of Section 3.2.
(40) The term "MEMBER" shall mean an Eligible Employee who
participates in the Plan in accordance with the provisions of Article
II.
(41) The term "PARTICIPATING UNIT" shall mean an employment
unit or a location of an Employer to which the Plan is extended.
(42) The term "PAY PERIOD" shall mean the periodic payroll
period for which a Member receives compensation from an Employer.
(43) The term "PERMANENT AND TOTAL DISABILITY" shall mean a
physical or mental condition which has resulted in an Employee being
eligible for benefits under the Employer's long-term disability income
plan. An Employee shall cease to be Permanently and Totally Disabled
for purposes of the Plan as of the date he ceases to be eligible for
benefits under the Employer's long-term disability income plan.
(44) The term "PLAN" shall mean the profit-sharing plan set
forth herein, which is called the "Cooper Cameron Corporation
Retirement Savings Plan," with all amendments, modifications, and
supplements hereafter made.
(45) The term "PLAN YEAR" shall mean the period from January
1, 1996 to December 30, 1996, and thereafter each twelve-month period
beginning each December 31 and terminating each subsequent December 30.
(46) The term "REEMPLOYMENT DATE" shall mean the first date on
which an Employee completes an Hour of Service after a Severance Date.
(47) The term "RETIREMENT AGE" shall mean age 65 unless
otherwise specified in an Addendum.
(48) The term "ROLLOVER/TRANSFER ACCOUNT" shall mean the
Separate Account of a Member to which Rollover Contributions or
Transfer Contributions are credited in accordance with the provisions
of Section 3.3 or 3.4.
(49) The term "ROLLOVER CONTRIBUTION" shall mean any
contribution made to the Plan by a Member in accordance with the
provisions of Section 3.3 and described in Section 402(c), 403(a)(4),
403(b)(8), or 408(d)(3)(A) of the Code.
-10-
<PAGE> 16
(50) The term "SEPARATE ACCOUNT" shall mean any of the
accounts established and maintained in accordance with the provisions
of Section 6.6 by the Company which reflects the interest of the Basic
Account, Supplemental Account, Matching Account, IAR Account, and
Rollover/Transfer Account of a Member.
(51) The term "SEVERANCE DATE" shall mean the later of (a) the
date on which contributions to the Plan on behalf of a person cease, or
(b) the date on which an Employee retires, becomes totally and
permanently disabled, dies, or otherwise terminates employment;
provided, however, that if an Employee is absent from employment while
in active service in the Armed Forces of the United States, his
Severance Date shall be the date on which he terminated his employment,
unless he returns to employment with an Employer or a Controlled Entity
during the time period prescribed by federal law; and provided further,
that no Employee shall incur a Severance Date until the second
anniversary of the first date on which such Employee is absent from
employment with an Employer or a Controlled Entity for maternity or
paternity reasons. For purposes of this paragraph, an absence for
maternity or paternity reasons means an absence due to the pregnancy of
the Employee, the birth of a child of the Employee, the placement of a
child with the Employee in connection with the adoption of such child
by the Employee, or the caring of such child for a period beginning
immediately following such birth or placement. Notwithstanding the
foregoing, if an Employee retires or dies, or his employment otherwise
is terminated during a period of absence from employment for any reason
other than retirement or termination, his Severance Date shall be the
date of such retirement, death, or other termination of employment. In
any case where an Employee receives severance pay upon his termination
of active employment as an Employee, the Employee's Severance Date
shall be the date after his termination of active employment as an
Employee and prior to any resumption of such active employment on which
the earlier occurs: (i) his death, or (ii) the date on which he is last
paid severance pay.
(52) The term "SUPPLEMENTAL ACCOUNT" shall mean the Separate
Account for each Member which is credited with his Supplemental
Contributions, if any.
(53) The term "SUPPLEMENTAL CONTRIBUTION" shall mean any
contribution made to the Plan prior to April 1, 1996, by a Member as a
"Supplemental Contribution" in accordance with the provisions of the
Plan in effect prior to April 1, 1996.
(54) The term "TRANSFERRED CONTRIBUTIONS" shall mean any
assets which are transferred to the Trustee of the Plan in accordance
with the provisions of Section 3.4.
(55) The term "TRUST" shall mean the trust established under
the Trust Agreement to hold and invest contributions made under the
Plan.
(56) The term "TRUST AGREEMENT" shall mean the agreement
between the Company and the Trustee establishing the Trust.
-11-
<PAGE> 17
(57) The term "TRUSTEE" shall mean the trustee or trustees
qualified and acting under the Trust Agreement at any time.
(58) The term "VALUATION DATE" shall mean each business day
for purposes of the New York Stock Exchange of each year.
(59) The term "VESTING SERVICE" shall mean the period of
employment used in determining a Member's vested interest in his IAR
Account in accordance with the provisions of Sections 7.5, 7.6, and
7.7.
1.2 CONSTRUCTION.
Where necessary or appropriate to the meaning hereof, the singular
shall be deemed to include the plural and the masculine pronoun to
include the feminine.
ARTICLE II
ELIGIBILITY TO PARTICIPATE
2.1 COMMENCEMENT OF PARTICIPATION.
Except as specified otherwise in an applicable Addendum, each Eligible
Employee shall become a Member and, if applicable, an IAR Member and
participate in the Plan as of his Employment Commencement Date.
2.2 CHANGES IN EMPLOYMENT STATUS.
If a Member ceases to be an Eligible Employee but continues in the
employment of an Employer as an Employee he shall continue as a Member
until his participation is otherwise terminated in accordance with the
provisions of the Plan; provided, however, that such Member shall share
in Matching Contributions for any month of such continued participation
only to the extent and on the basis of his Basic Contributions made
during such month; and provided further that each Member who is an IAR
Member shall share in Company Retirement Contributions for any month of
such continued participation only to the extent and on the basis of his
Contribution Hours during such month. If a Member ceases to be an
Eligible Employee and ceases to be an Employee but continues in the
employment of an Employer or a Controlled Entity, he shall become an
Inactive Member until his participation in the Plan is otherwise
terminated in accordance with the provisions of the Plan or he again
becomes an Employee and an active Member.
2.3 ELECTION FORM.
Each Member shall file with his Employer a written election in
accordance with procedures established by the Company with respect to
his participation in the Plan which shall contain his authorization for
his Employer to reduce his Compensation in order to make Basic
Contributions on his behalf pursuant to the provisions of Section 3.1
-12-
<PAGE> 18
and his election as to the investment of his Basic Contributions
pursuant to the provisions of Section 5.2; provided, however, that such
election must be filed with his Employer at least 20 days prior to the
first day of the payroll period as of which he is eligible to make
Basic Contributions unless a shorter period of time is acceptable to
the Company.
ARTICLE III
CONTRIBUTIONS
3.1 BASIC CONTRIBUTIONS.
Commencing with the date as of which he becomes a Member, each Member
may elect to defer an integral percentage of from 1% to 16% (or such
lesser percentage as may be prescribed from time to time by the
Company) of his Compensation for a Plan Year by having his Employer
contribute the amount so deferred to the Plan; provided, however, that
in no event shall such Basic Contributions when added to the elective
deferrals (within the meaning of Section 402(g) of the Code) under all
other plans, contracts, and arrangements of the Company or any
Controlled Entity on behalf of any Member for any calendar year exceed
$9,500 (or such higher dollar limit as shall be in effect for such
calendar year in accordance with the adjusted factor prescribed under
Section 402(g)(5) and 415(d) of the Code). If a Member elects to have
such Basic Contributions made on his behalf, his Compensation shall be
reduced by the percentage he elects pursuant to the terms of the
Compensation reduction authorization described in Section 2.3 or 4.8.
Unless specifically provided otherwise in the Plan, each Member who is
an Eligible Employee may elect to have Basic Contributions made on his
behalf to the Plan. Notwithstanding the foregoing provisions of this
Section 3.1, Basic Contributions made with respect to a Plan Year on
behalf of Highly Compensated Employees shall not exceed the limitations
set forth in Section 4.1.
3.2 MATCHING CONTRIBUTIONS.
Each Employer shall cause to be paid to the Trustee as its Matching
Contribution hereunder for each month an amount which equals the sum of
(i) 100 percent of the Basic Contributions for such month which are
attributable to the first three percent of the Compensation of each
Member, and (ii) 50 percent of the Basic Contributions for such month
which are attributable to amounts in excess of three percent, but not
in excess of six percent, of the Compensation of each Member.
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<PAGE> 19
3.3 ROLLOVER CONTRIBUTIONS.
With the approval of the Company and in accordance with procedures
established by the Company, a Member may elect to make a Rollover
Contribution to the Plan by delivering, or causing to be delivered, to
the Trustee the assets in cash which constitute such Rollover
Contribution at such time or times and in such manner as shall be
specified by the Company. Upon receipt by the Trustee, such assets
shall be credited to a Rollover/Transfer Account established on behalf
of such Member and shall be deposited in the Fund or Funds selected by
the Member as indicated on his investment election filed with the
Company by the Member. Such election shall specify a combination of
investment selections among such Funds, in increments of integral
percentages which, in the aggregate, equal 100 percent. A Rollover
Contribution by a Member pursuant to this Section 3.3 shall not be
deemed to be a contribution of such Member for any purpose of the Plan
and shall be fully vested in the Member at all times.
3.4 TRANSFERRED CONTRIBUTIONS.
The Company may cause the transfer to the Trustee of funds representing
the vested account balances (hereinafter referred to as "Transferred
Contributions") of Members held by a funding agent of a tax-qualified
plan (hereinafter referred to as a "transferor plan") in which such
Members previously participated; provided, however, that (i) such
transfer shall be made at such time or times and in such manner as
shall be specified by the Company in accordance with procedures
established by the Company; (ii) no such transfer shall be permitted
from a transferor plan on behalf of a Member who was at any time a five
percent owner of the employer maintaining such transferor plan; and
(iii) no portion of such transfer shall be composed of assets
attributable to deductible employee contributions. The Trustee shall
credit the Rollover/Transfer Account of any Member on whose behalf such
funds were transferred and shall deposit such funds in the Fund or
Funds selected by the Member as indicated on his investment election
filed with his Employer by such Member. Such election shall specify a
combination of investment selections among the Funds, in increments of
integral percentages which, in the aggregate, equal 100 percent. The
portion of the Rollover/Transfer Account of a Member attributable to
Transferred Contributions shall be fully vested in such Member at all
times.
3.5 COMPANY RETIREMENT CONTRIBUTIONS.
Each Employer shall cause to be paid to the Trustee as its Company
Retirement Contribution hereunder for each month an amount equal to the
sum of the product of each Participating Unit IAR Member's Contribution
Hours during each Pay Period that ends within such month multiplied by
the applicable Contribution Rate minus the forfeitures applicable to
such Participating Unit pursuant to Section 7.3.
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<PAGE> 20
3.6 EFFECT OF PLAN TERMINATION OR WITHDRAWAL.
Notwithstanding any other provision of the Plan to the contrary, the
termination of the Plan or the withdrawal of an Employer from the Plan
shall terminate the liability of the Employers or such Employer,
respectively, to make further Matching Contributions and Company
Retirement Contributions hereunder.
ARTICLE IV
ADMINISTRATION OF CONTRIBUTIONS
4.1 LIMITATIONS ON BASIC CONTRIBUTIONS.
Notwithstanding any other provision of the Plan to the contrary, the
Company shall take such action as it deems appropriate to limit the
amount of Basic Contributions under the Plan made on behalf of each
Highly Compensated Employee for each Plan Year to the extent necessary
to insure that the actual deferral percentage requirement under Section
401(k) of the Code is not exceeded. This Section 4.1 shall be
interpreted, applied, and to the extent necessary, deemed modified
without formal amendment thereto so as to satisfy solely the minimum
requirements of Section 401(k) of the Code. Consequently, in the event
during any Plan Year the Basic Contributions made on behalf of Highly
Compensated Employees exceed the greater of the following (calculated
to the nearest 1/100th of one percent), calculating the actual deferral
ratio separately for each Member who is a participant in the Plan as
follows:
(i) the actual deferral percentage of the non-Highly Compensated
Employees multiplied by 1.25, or
(ii) the actual deferral percentage of the non-Highly Compensated
Employees multiplied by 2.0; provided, however, that the
actual deferral percentage for Highly Compensated Employees
does not exceed the actual deferral percentage of the
non-Highly Compensated Employees by more than 2 percent
(hereinafter referred to as the "401(k) test"),
the following steps shall be taken by the Company to meet the
requirements of said Section 401(k). For any Highly Compensated
Employee who has a family member aggregated with him, any amount
reduced shall be prorated in direct proportion to the Basic
Contributions.
(a) The Company shall reduce or suspend all Basic
Contributions of each Highly Compensated Employee for
the remainder of the Plan Year, in such amount as is
required for the 401(k) test to be met. Any such
reduction shall be made by reducing uniformly the
Basic Contributions for those Highly Compensated
Employees who elected the highest contribution
percentage for the Plan Year in 1/100ths of one
percentage point until their contribution percentage
equals the contribution percentage of Highly
Compensated Employees with the next highest
contribution
-15-
<PAGE> 21
percentage and the 401(k) test is met. If the 401(k)
test still is not met, such procedure shall be
repeated and the contribution percentages of the
Highly Compensated Employees shall be reduced
uniformly in order of actual contribution percentages
beginning with the highest of such percentages, until
the 401(k) test is met.
(b) To the extent that the 401(k) test is not met after
the application of paragraph (a) above, the Company
shall distribute from the Basic Contribution Account
of each Member who is a Highly Compensated Employee
and who made Basic Contributions during the Plan Year
to such Participant such amount (plus income
allocable thereto) as is required for the 401(k) test
to be met; provided, however, that any previous
distribution of Basic Contributions with respect to a
Highly Compensated Employee for his taxable year
ending with or within the Plan Year shall be deemed
to have been a distribution of excess Basic
Contributions for the purpose of this Section (and
will therefore reduce the amount distributable under
this Section). If such Basic Contributions are
distributed more than 2 1/2 months after the end of
such Plan Year, an excise tax equal to 10 percent of
such excess Basic Contributions will be imposed on
the Employer. Notwithstanding the foregoing, Basic
Contributions will be treated as Annual Additions for
purposes of Article XVII of the Plan. Excess Basic
Contributions shall be allocated to Highly
Compensated Employees who are subject to the family
member aggregation rules of Section 414(q)(6) of the
Code in accordance with regulations under such
Section and Section 401(k) of the Code. Such amounts
shall be distributed to all affected Highly
Compensated Employees by no later than the March 15th
following the Plan Year in which such contributions
were made, under the following method (which method
may be modified by the Company to comply with
Treasury Regulations prescribed under Section
401(k)(8) of the Code):
An amount of Basic Contributions for those Highly Compensated Employees
who elected the highest actual deferral percentage for the Plan Year
shall be distributed to such Employees in 1/100ths of one percentage
point until the 401(k) test is met. If the 401(k) test still is not
met, such procedure shall be repeated and the Basic Contributions of
the Highly Compensated Employees shall be distributed so as to reduce
the actual deferred percentage of such Highly Compensated Employees in
order of actual contribution percentages beginning with the highest of
such percentages, until the 401(k) test is met.
As used herein, "actual deferral percentage" means for each specified
group of Members, the average percentage for the group that is derived
by calculating separately for each Member who is a participant in the
Plan:
(1) Basic Contributions allocated to his Separate Account
for the Plan Year, divided by
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<PAGE> 22
(2) Such Member's compensation as defined in Paragraph
1.1(14) of Section 1.1 for the Plan Year, as
determined before giving effect to any Eligible
Compensation reduction agreement.
Notwithstanding any other provision to the contrary, any excess Basic
Contributions distributed to any Member shall be included in the 401(k)
test.
(iii) For purposes of the 401(k) test, the following rules
shall apply:
(a) The Plan will take into account the actual
deferral ratios of all Eligible Employees
for purposes of the actual deferral
percentage (ADP) test in Section 401(k). For
this purpose, an Eligible Employee is any
Employee who is directly or indirectly
eligible to make a cash or deferred election
under the Plan for all or a portion of a
Plan Year and includes: an Employee who
would be a Member but for the failure to
make required contributions; an Employee
whose eligibility to make elective
contributions has been suspended because of
an election (other than certain one-time
elections) not to participate, a
distribution, or a loan; and an Employee who
cannot defer because of the Section 415
limits on annual additions. In the case of
an Eligible Employee who makes no elective
contributions, the deferral ratio that is to
be included in determining the ADP is zero.
(b) A Basic Contribution will be taken into
account under the actual deferral percentage
test of Section 401(k)(3)(A) of the Code for
a Plan Year only if it relates to
compensation that either would have been
received by the Member in the Plan Year (but
for the deferral election) or is
attributable to services performed by the
Member in the Plan Year and would have been
received by the Member within 2 1/2 months
after the close of the Plan Year (but for
the deferral election).
(c) A Basic Contribution will be taken into
account under the actual deferral percentage
test of Section 401(k)(3)(A) of the Code for
a Plan Year only if it is allocated to the
Member as of a date within the Plan Year.
For this purpose, a Basic Contribution is
considered allocated as of a date within a
Plan Year if the allocation is not
contingent on participation or performance
of services after such date and the Basic
Contribution is actually paid to the trust
no later than 12 months after the Plan Year
to which the contribution relates.
(d) For purposes of determining whether the Plan
satisfies the actual deferral percentage
test of Section 401(k), all elective
contributions
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<PAGE> 23
that are made under two or more plans that
are aggregated for purposes of Section
401(a)(4) or 410(b) (other than Section
410(b)(12)(A)(ii) are to be treated as made
under a single plan and that if two or more
plans are permissively aggregated for
purposes of Section 401(k), the aggregated
plans must also satisfy Sections 401(a)(4)
and 410(b) as though they were a single
plan. Plus, however, a plan that benefits a
unit of Employment covered by a collective
bargaining agreement is treated as
comprising a separate plan (i.e., not
aggregated).
(e) In calculating the actual deferral
percentage for purposes of Section 401(k),
the actual deferral ratio of a Highly
Compensated Employee will be determined by
treating all cash or deferred arrangements
under which the Highly Compensated Employee
is eligible (other than those that may not
be permissively aggregated as a single
arrangement). However, allocations made to a
collective bargaining plan and made to plan
(not collective bargained) will be treated
as two separate arrangements. However,
allocations made to an ESOP and non-ESOP
plan will be treated as two separate
arrangements.
(f) The amount of excess contributions to be
distributed shall be reduced by excess
deferrals previously distributed for the
taxable year ending in the same Plan Year
and excess deferrals to be distributed for a
taxable year will be reduced by excess
contributions previously distributed for the
plan beginning in such taxable year.
4.2 EXCESS ELECTIVE DEFERRALS.
If a Member who had Basic Contributions made on his behalf for a Plan
Year files with the Company, within the time limit prescribed by the
Company after the end of such Plan Year, a written statement, on a form
acceptable to the Company, that he has elective deferrals within the
meaning of Section 402(g) of the Code for the taxable year in excess of
the dollar limitation on elective deferrals in effect for such taxable
year, and specifying the amount of such excess the Member claims as
allocable to the Plan, the amount of such excess, adjusted for income
or loss attributable to such excess elective deferral, shall be
distributed to the Member by April 15 of the year following the year of
the excess elective deferral and Matching Contributions thereon shall
be forfeited. Distributions pursuant to this Section 4.2 shall be made
proportionately from the Separate Accounts to which Basic Contributions
were made for such Plan Year.
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<PAGE> 24
4.3 LIMITATION ON MATCHING CONTRIBUTIONS.
Notwithstanding any other provision of the Plan to the contrary, the
Company shall take such action as it deems appropriate to limit the
amount of Matching Contributions and qualified nonelective
contributions made by or on behalf of each Highly Compensated Employee
each Plan Year to the Plan to the extent necessary to insure that the
contribution percentage requirement under Section 401(m) of the Code is
not exceeded. Such Code Section and regulations relating thereto,
including the regulation regarding the Multiple Use Test, are hereby
incorporated in the Plan by reference. If the aggregate amount of
Matching Contributions and qualified nonelective contributions for the
Plan Year made by or on behalf of Members who are Highly Compensated
Employees exceeds the maximum amount permitted under the limits of this
Section 4.3 (determined by reducing contributions on behalf of Highly
Compensated Employees in order of contribution percentages as defined
in Section 401(m)(3) of the Code beginning with the highest of such
percentages) then the amount of such excess (hereinafter referred to as
"Excess Aggregate Contributions"), plus any income or minus any loss
allocable thereto, shall be forfeited to the extent not vested or, if
vested, distributed no later than the last day of the succeeding Plan
Year to the Members on whose behalf such Excess Aggregate Contributions
were made. Corrections to the maximum amount shall be made by (i)
reducing the actual contribution ratio (ACR) of the Highly Compensated
Employee with the highest ACR to the extent necessary to cause such
ratio to equal the ACR of the Highly Compensated Employee with the next
highest ratio; and (ii) by repeating this process until the ACP test is
satisfied. If a Highly Compensated Employee's ACR ratio is determined
under the family aggregation rules, the amount of excess aggregate
contributions shall be made as follows: the ACR is reduced in
accordance with the "leveling" method described in Section
1.401(m)-1(e)(2) of the regulations and the excess aggregate
contributions are allocated among the family members in proportion to
the contributions of each family member that have been combined. The
amount of Excess Aggregate Contributions to be distributed to each such
Member shall be determined on the basis of the portion, if any, of the
Excess Aggregate Contributions attributable to each of such Members.
Distribution of the portion of Excess Aggregate Contributions allocable
to a Member under the Cooper Savings Plan shall be made from
contributions for the Plan Year allocated to the Member's Matching
Account. The amount of any income or loss allocable to Excess Aggregate
Contributions shall be determined by the Company in accordance with
applicable rules and regulations. Notwithstanding any distributions
pursuant to the foregoing provisions, Excess Aggregate Contributions
shall be treated as Annual Additions for purposes of Article XVII.
Distributions pursuant to this Section 4.3 shall be made
proportionately from Separate Accounts to which Excess Aggregate
Contributions were made for such Plan Year.
-19-
<PAGE> 25
4.4 DELIVERY OF CONTRIBUTIONS.
Each Employer shall cause to be delivered to the Trustee all Basic,
Matching, Company Retirement, Rollover Contributions, and Transferred
Contributions made in accordance with the provisions of Article III as
soon as reasonably practicable; provided, however, that Basic
Contributions elected by each Member shall be deducted from his
Compensation for each payroll period and shall be paid by the Employer
to the Trust as of the earliest date on which such contributions can
reasonably be segregated from the Employer's general assets; and
further provided, however, that in no event shall such date occur later
than the fifteenth (15th) business day of the month following the month
in which such contribution amounts would otherwise have been payable to
the Member in cash.
4.5 ALLOCATION OF MATCHING CONTRIBUTIONS.
The Matching Contribution of an Employer for any month shall be
allocated as of the date such contribution is received by the Trust to
the Matching Accounts of the Members for whom such contribution is
made.
4.6 ALLOCATION OF COMPANY RETIREMENT CONTRIBUTIONS.
The Company Retirement Contributions of an Employer for any month shall
be allocated as of the date such contribution is received by the Trust
to the IAR Accounts of the Members for whom such contribution is made.
4.7 CREDITING OF CONTRIBUTIONS.
Subject to the provisions of Article VII, contributions made to the
Plan shall be credited to the Separate Accounts of a Member in the
following manner:
(a) The amount of Basic Contributions made on behalf of a
Member shall be credited to such Member's Basic Account as of the date
such contribution is received by the Trust and shall be invested in the
Fund or Funds selected by the Member in accordance with the provisions
of Section 5.2.
(b) The amount of Matching Contributions allocated to a Member
shall be credited to such Member's Matching Account as of the date such
contribution is received by the Trust and shall be invested in the
Company Stock Fund subject to the provisions of Section 5.3.
(c) The amount of Company Retirement Contributions allocated
to an IAR Member shall be credited to such Member's IAR Account as of
the date such contribution is received by the Trust and shall be
invested in the Fund or Funds selected by the Member in accordance with
the provisions of Section 5.2.
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<PAGE> 26
4.8 CHANGES IN REDUCTION AND DEDUCTION AUTHORIZATIONS.
Effective as of any payroll period, any Member may suspend his Basic
Contributions or change the percentage of his Compensation which is
contributed as Basic Contributions by filing with his Employer an
amended Compensation reduction authorization, or an amended payroll
deduction authorization, at least 20 days prior to the first day of
such payroll period, unless a shorter period of time is acceptable to
the Company. Notwithstanding the foregoing, any Member who changes the
percentage of his contributions shall be limited in the following
manner:
(a) he may only select a percentage of his Compensation which
does not exceed the applicable limitations set forth in Section 3.1;
and
(b) he may only change the percentage of his Basic
Contributions once in any three-month period.
ARTICLE V
DEPOSIT AND INVESTMENT OF CONTRIBUTIONS
5.1 DEPOSIT OF CONTRIBUTIONS.
Any Basic Contributions of a Member which are credited to such Member's
Basic Account and any Company Retirement Contributions which are
credited to an IAR Member's IAR Account shall be deposited by the
Trustee in such Fund or Funds selected by each Member in accordance
with the provisions of Section 5.2. Any Matching Contributions which
are credited to a Member's Matching Account shall be deposited by the
Trustee in the Company Stock Fund. The Trustee shall have no duty to
collect or enforce payment of contributions or inquire into the amount
or method used in determining the amount of contributions, and shall be
accountable only for contributions received by it.
5.2 INVESTMENT OF BASIC, SUPPLEMENTAL, IAR, AND ROLLOVER/TRANSFER ACCOUNTS.
(a) Each Member shall designate, in accordance with the procedures
established by the Company, the manner in the amounts
allocated to his Basic, IAR, and Rollover/Transfer Accounts
shall be invested from among the Funds made available from
time to time by the Company pursuant to Section 6.2; provided,
however, that no such designation may be made to the Cooper
Stock Fund or the Cooper Debenture Fund. A Member may
designate one of such Funds for all of the contributions to
his Basic, IAR, and Rollover/Transfer Accounts, or he may
split the investment of the amounts allocated to such Accounts
among such Funds in such increments as the Company may
prescribe. If a Member fails to make a designation of 100% of
the contributions to his Basic, IAR, and Rollover/Transfer
Accounts, such nondesignated contributions shall be invested
in the Fund or Funds designated by the Company from time to
time in a uniform and nondiscriminatory manner.
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<PAGE> 27
(b) A Member may change his investment designation for future
contributions to be allocated to his Basic, IAR, and
Rollover/Transfer Accounts; provided, however, that no such
designation may be made to the Cooper Stock Fund or the Cooper
Debenture Fund. Any such change shall be made in accordance
with the procedures established by the Company, and the
frequency of such changes may be limited by the Company.
(c) A Member or Inactive Member may convert his investment
designation with respect to amounts already allocated to his
(i) Basic, Supplemental, IAR, and Rollover/Transfer Accounts
that are invested in one of the Funds or (ii) Matching Account
that are invested in one of the Funds, if the provisions of
Section 5.3 are applicable; provided, however, that such
conversion may be made only to one or more of those Funds made
available by the Company pursuant to Section 6.2; and,
provided further that no such conversion may be made to the
Cooper Stock Fund or the Cooper Debenture Fund. Any such
conversion shall be made in accordance with the procedures
established by the Company, and the frequency of such
conversions may be limited by the Company.
5.3 ELECTION TO TRANSFER MATCHING CONTRIBUTIONS.
A Member or Inactive Member who has attained age 55 may elect, in
accordance with procedures established by the Company, to irrevocably
transfer any integral percentage of the amounts in his Matching Account
that are invested in the Company Stock Fund (or in the Cooper Stock
Fund prior to its liquidation as of November 29, 1996, pursuant to
Section 6.4 of the Plan), as applicable, to one or more of the Funds
made available by the Company pursuant to Section 6.2; provided that no
such transfer may be made to the Cooper Stock Fund or the Cooper
Debenture Fund.
5.4 ELIMINATION OF FUNDS.
Notwithstanding any provision in this Article V to the contrary, in the
event any one or more of the Funds is eliminated as an investment fund
by the Company, each Member and Inactive Member who has an investment
election in effect which designates such investment fund for the
investment of amounts allocated to such individual's Separate Accounts,
shall designate a continuing Fund or Funds made available by the
Company pursuant to Section 6.2 for the investment of such amounts;
provided, however, that in the event such individual fails to make such
a designation, such contributions or amounts shall be invested in a the
Fund or Funds designated by the Company in a uniform and
nondiscriminatory manner.
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<PAGE> 28
ARTICLE VI
ESTABLISHMENT OF FUNDS AND MEMBERS' ACCOUNTS
6.1 INVESTMENT RESPONSIBILITY.
The Plan is intended to constitute a plan described in Section 404(c)
of ERISA and DOL Regs. Section 2550.404c-1 and insofar as the Plan
complies with said Section 404(c), Plan fiduciaries shall be relieved
of liability for any losses which are the direct result of investment
instructions given by Members, Inactive Members, and Beneficiaries.
6.2 ESTABLISHMENT AND MAINTENANCE OF FUNDS.
The Company shall cause at least three Funds, other than the Company
Stock Fund and the Cooper Stock Fund, to be established and maintained
at all times. Each such Fund shall be diversified and shall have
different risk and return characteristics from the other Funds. Any
Fund which invests primarily in investments with restrictions regarding
Funds to which investment transfers may be made or to which a minimum
investment period is applicable shall not be considered as one of such
requisite three Funds. Effective November 29, 1996, the Cooper Stock
Fund was liquidated pursuant to Section 6.4.
6.3 COMPANY STOCK FUND.
Except as specifically provided otherwise, the assets of the Company
Stock Fund shall be invested by the Trustee primarily in Company Stock.
The Trustee shall receive Company Stock from the Company or purchase
Company Stock in the market; provided, however, that any such purchase
shall be made only in exchange for fair market value as determined by
the Trustee. The Company Stock Fund may, from time to time, be invested
in a short-term investment fund managed by the Trustee.
6.4 COOPER STOCK FUND.
The assets of the Cooper Stock Fund shall remain invested by the
Trustee in the common stock of Cooper Industries, Inc. until the Cooper
Stock Fund is liquidated by the Trustee in accordance with the
directions of the Company. The Cooper Stock Fund may, from time to
time, be invested in a short-term investment fund managed by the
Trustee. The Company may direct the Trustee to, and upon such
direction, the Trustee shall, liquidate the Cooper Stock Fund in an
orderly and nondiscriminatory manner. Upon such liquidation, assets of
each Member's Separate Accounts that are invested in the Cooper Stock
Fund shall be invested in accordance with the provisions of Section
5.4. The Company directed that effective November 29, 1996, the Cooper
Stock Fund be liquidated in an orderly and nondiscriminatory manner.
Upon such liquidation, assets of each Member's Separate Accounts that
were invested in the Cooper Stock Fund were invested in accordance with
the provisions of Section 5.4.
6.5 INCOME ON TRUST FUNDS.
Unless specifically provided otherwise in the Plan or the Trust
Agreement, any dividends, interest, distributions, or other income
received by the Trustee in respect of a Fund shall be reinvested by the
Trustee in the Fund with respect to which such income was received by
it.
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<PAGE> 29
6.6 SEPARATE ACCOUNTS.
Each Member shall have established in his name Separate Accounts which
shall be dependent upon the manner in which the assets of his Basic,
Supplemental, Matching, IAR, and Rollover/Transfer Accounts are
invested.
6.7 VOTING OF COMPANY STOCK IN THE COMPANY STOCK FUND.
Each Member or Beneficiary who has shares of Company Stock allocated to
his Matching Account shall be a named fiduciary with respect to the
voting of Company Stock held thereunder and shall have the following
powers and responsibilities:
(a) Prior to each annual or special meeting of the
shareholders of the Company, the Company shall cause to be sent to each
Member and Beneficiary who has Company Stock allocated to his Matching
Account and invested in the Company Stock Fund under the Plan a copy of
the proxy solicitation material therefor, together with a form
requesting confidential voting instructions, with respect to the voting
of such Company Stock as well as the voting of Company Stock for which
the Trustee does not receive instructions. Each such Member and/or
Beneficiary shall instruct the Trustee to vote the number of such
uninstructed shares of Company Stock equal to the proportion that the
number of shares of Company Stock allocated to his Matching Account and
invested in the Company Stock Fund bears to the total number of shares
of Company Stock in the Plan for which instructions are received. Upon
receipt of such a Member's or Beneficiary's instructions, the Trustee
shall then vote in person, or by proxy, such shares of Company Stock as
so instructed.
(b) The Company shall cause the Trustee to furnish to each
Member and Beneficiary who has Company Stock allocated to his Matching
Account and invested in the Company Stock Fund under the Plan notice of
any tender or exchange offer for, or a request or invitation for
tenders or exchanges of, Company Stock made to the Trustee. The Trustee
shall request from each such Member and Beneficiary instructions as to
the tendering or exchanging of Company Stock allocated to his Matching
Account and invested in the Company Stock Fund and the tendering or
exchanging of Company Stock for which the Trustee does not receive
instructions. Each such Member shall instruct the Trustee with respect
to the tendering or exchanging of Company Stock for which the Trustee
does not receive instructions. Each such Member shall instruct the
Trustee with respect to the tendering or exchanging of the number of
such uninstructed shares of Company Stock equal to the proportion that
the number of the shares of Company Stock allocated to his Matching
Account and invested in the Company Stock Fund bears to the total
number of shares of Company Stock in the Plan for which instructions
are received. The Trustee shall provide Members and Beneficiaries with
a reasonable period of time in which they may consider any such tender
or exchange offer for, or request or invitation for tenders or
exchanges of, Company Stock made to the Trustee. Within the time
specified by the Trustee, the Trustee shall tender or exchange such
Company Stock as to
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<PAGE> 30
which the Trustee has received instructions to tender or exchange from
Members and Beneficiaries.
(c) Instructions received from Members and Beneficiaries by
the Trustee regarding the voting, tendering, or exchanging of Company
Stock shall be held in strictest confidence and shall not be divulged
to any other person, including officers or employees of the Company,
except as otherwise required by law, regulation or lawful process.
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<PAGE> 31
ARTICLE VII
VESTING
7.1 VESTING IN BASIC, SUPPLEMENTAL, MATCHING, AND ROLLOVER/TRANSFER
ACCOUNTS.
A Member shall be 100 percent vested in the balance of his Basic,
Supplemental, Matching, and Rollover/Transfer Accounts.
7.2 VESTING IN COMPANY RETIREMENT CONTRIBUTIONS.
Except as specified otherwise in an applicable Addendum, an IAR Member
shall be vested in the balance of his IAR Account in accordance with
the following schedule:
<TABLE>
<CAPTION>
Years of Vesting Service Vested Percentage
------------------------ -----------------
<S> <C>
Less than 3 years 0%
3 years but less than 4 years 33%
4 years but less than 5 years 67%
5 or more years 100%
</TABLE>
Notwithstanding the foregoing, upon the occurrence of one of the events
hereinafter listed, an IAR Member shall be 100% vested in the balance
of his IAR Account:
(i) attainment of Retirement Age;
(ii) death; or
(iii) Permanent and Total Disability.
7.3 FORFEITURES.
At the time a Member or Inactive Member terminates employment with the
Company and its Controlled Entities prior to attaining Retirement Age
for any reason other than Total and Permanent Disability, only his
vested interest in his IAR Account shall be distributable pursuant to
the provisions of Sections 10.2, 10.3, and 10.4 and his unvested
interest shall be governed by the following provisions.
(a) The unvested portion of such a Member's IAR Account
shall be forfeited at the earlier of the following:
(i) the date on which the Member's entire vested
interest in his IAR Account is distributed
in a single sum or is considered distributed
under paragraph (c) below; or
(ii) the end of the fifth consecutive Break in
Service.
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<PAGE> 32
(b) Forfeitures shall be applied against the Company's
next contribution obligation with respect to Company
Retirement Contributions under the Plan applicable to
the Participating Unit of such Member.
(c) A zero invested balance of a Member or Inactive
Member shall be treated as though it were distributed
immediately when employment terminates.
(d) If a Member or Inactive Member is reemployed prior to
five consecutive Breaks in Service but after a
forfeiture under paragraph (a) above because of an
imputed or full distribution, the forfeited amount,
unadjusted for interim gains or losses, shall be
subject to restoration under paragraphs (f) and (g).
No restoration shall occur, if reemployment occurs
after five consecutive Breaks in Service or repayment
does not occur under paragraph (g).
(e) If a Member or Inactive Member who is not 100% vested
in his IAR Account, receives a distribution of the
vested portion of his IAR Account prior to incurring
five consecutive Breaks in Service with the exception
of distributions under paragraph (a)(i) or (c) above,
the vested portion of his IAR Account at any time
prior to five consecutive Breaks in Service shall not
be less than an amount (X) determined in the
following manner: X = P(AB + D) - D. For purposes
hereof, P is the vested percentage at the relevant
time; AB is the IAR Account balance at the relevant
time; and D is the amount of distributions.
(f) An amount subject to restoration under paragraph (d)
shall be credited to the Member's IAR Account upon
reemployment and shall be made from the assets of a
special contribution of the Company which shall not
constitute an "annual addition" within the meaning of
Section 415 of the Code.
(g) A reemployed Member who is rehired under the
conditions set forth in paragraph (d) may repay the
full amount previously distributed from his partially
vested IAR Account as follows:
(1) Repayment shall be made in a single sum.
(2) Repayment may only be made while the Member
remains employed and may not be made later
than five years after reemployment.
(3) Repayment cannot be made in whole or in part
by rollover from another plan or individual
retirement account.
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7.4 ELECTION OF FORMER VESTING SCHEDULE.
In the event the Company adopts an amendment to the Plan that directly
or indirectly affects the computation of a Member's nonforfeitable
interest in his Matching Account, any Member who is credited with three
or more years of Vesting Service shall have a right to have his
nonforfeitable interest in such account as of the effective date of the
amendment continue to be determined under the vesting schedule in
effect prior to such amendment rather than under the new vesting
schedule, unless the nonforfeitable interest of such Member in such
account under the Plan, as amended, at any time is not less than such
account interest determined without regard to such amendment. A Member
shall exercise such right by giving written notice of his exercise
thereof to the Company within 60 days after the latest of (i) the date
he received notice of such amendment from the Company, (ii) the
effective date of the amendment, or (iii) the date the amendment is
adopted. Notwithstanding the foregoing provisions of this Section 7.5,
the vested interest of each Member on the effective date of such
amendment shall not be less than his vested interest under the Plan
through the later of the effective date or the date the Plan amendment
is adopted.
7.5 VESTING SERVICE.
Vesting Service shall be credited to a Member in accordance with the
following provisions:
(a) Vesting Service prior to April 1, 1995. Each Eligible Employee
shall be credited with years of Vesting Service for purposes
of the Plan with respect to any periods of employment prior to
April 1, 1995 in an amount equal to the years of Vesting
Service, with which he had been credited in accordance with
the Cooper Savings Plan with respect to his IAR Account in
effect on April 1, 1995.
(b) Vesting Service on and after April 1, 1995. Subject to the
provisions of Sections 7.7 and 7.8, each person who is an
Eligible Employee on or after April 1, 1995, shall be credited
with a year of Vesting Service for each Plan Year on and after
such date for which he is credited with at least 1,000 Hours
of Service; provided, however, that if he is credited with
less than 1,000 Hours of Service for any Plan Year, he shall
not be credited with a partial year of Vesting Service.
7.6 TRANSFERS.
Notwithstanding the provisions of Section 7.1, years of Vesting Service
credited to a person shall be subject to the following:
(a) Any person who transfers or re-transfers to employment with an
Employer as an Eligible Employee directly from other
employment (i) with the Employer in a capacity other than as
an Employee or (ii) with a Controlled Entity, shall be
credited with years of Vesting Service, for such other
employment as if such other
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employment were employment with an Employer as an Eligible
Employee for the entire period of employment.
(b) Any person who transfers from employment with an Employer as
an Eligible Employee directly to other employment (i) with an
Employer in a capacity other than as an Eligible Employee or
(ii) with a Controlled Entity, shall be deemed by such
transfer not to lose his credited years of Vesting Service,
and shall be deemed not to retire or otherwise terminate his
employment until such time as he is no longer in the
employment of a Controlled Entity, at which time he shall
become entitled to benefits, if he is otherwise eligible
therefor under the provisions of the Plan; provided, however,
that up to such time he shall receive credit for years of
Vesting Service for such other employment as if such other
employment were employment with the Employer as an Eligible
Employee.
(c) Any person who transfers to employment with an Employer as an
Eligible Employee directly from employment with Cooper
Industries, Inc. in a capacity covered by the Cooper Savings
Plan shall be credited with the Hours of Service with which he
was credited under the Cooper Savings Plan for the period from
January 1, 1995 through March 31, 1995 with respect to his IAR
Account for the 1995 Plan Year under the Plan with respect to
his IAR Account.
7.7 LOSS AND REINSTATEMENT OF YEARS OF VESTING SERVICE.
Except as otherwise specifically provided in this Section 7.8, an IAR
Member's years of Vesting Service shall be lost if he retires or if his
employment with an Employer and its Controlled Entities terminates for
any other reason and, if he thereafter returns to employment as an
Eligible Employee, he shall be treated for Plan purposes as a new
Eligible Employee. Notwithstanding the foregoing provisions, a retired
or former IAR Member who returns to employment with an Employer or a
Controlled Entity shall be reinstated with the years of Vesting Service
with which he was credited at the time of his prior retirement or other
termination of employment if:
(a) he was eligible for a benefit from his IAR Account at the time
of his previous retirement or other termination of employment,
or
(b) he terminated his employment before satisfying the conditions
of eligibility for a benefit from his IAR Account and the
number of his consecutive one-year Breaks in Service is less
than five or the aggregate number of his years of Vesting
Service at the time of such prior termination of employment
was greater than the number of his consecutive one-year Breaks
in Service (the aggregate number of years of Vesting Service
not to include any years of Vesting Service not required to be
taken into account due to previous Breaks in Service);
provided, however, that if he should return to employment with
an Employer or a Controlled Entity in a capacity other than as
an Eligible Employee, his period of employment shall be
treated for purposes of the Plan in accordance with the
provisions of Section 7.6(b).
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Years of Vesting Service which are reinstated under this Section 7.7
shall be reinstated in accordance with and subject to all applicable
provisions of the Plan with respect to reemployment.
7.8 FINALITY OF DETERMINATIONS.
Notwithstanding anything to the contrary contained in this Article VII,
there shall be no duplication of years of Vesting Service credited to
an Employee for any one period of his employment with an Employer or a
Controlled Entity. All determinations with respect to the crediting of
years of Vesting Service under the Plan shall be made on the basis of
the records of the Employers, and all determinations so made shall be
final and conclusive upon Eligible Employees, former Eligible
Employees, and all other persons claiming a benefit interest under the
Plan. In addition, the Company shall have the exclusive responsibility
with respect to determining the amount of Basic or Matching
Contributions, and any adjustment thereto to comply with the terms of
the Plan or the Code. A determination so made shall be final and
conclusive upon the Employer, all Members, and Beneficiaries.
ARTICLE VIII
WITHDRAWALS WHILE EMPLOYED
8.1 WITHDRAWALS PRIOR TO AGE 59 1/2.
Subject to the provisions of this Section 8.1, a Member or an Inactive
Member who is receiving compensation from a Controlled Entity and who
has not attained age 59 1/2, may file a written request with the
Company in the form and within the time period prescribed by the
Company for a withdrawal of an amount credited to his Separate Accounts
attributable to Basic, Supplemental, Rollover, and Transferred
Contributions. Such withdrawal shall be permitted only if (i) the
reason for the withdrawal is to enable the Member to meet an immediate
and heavy financial need which cannot be met from other sources,
including but not limited to sources outside the Plan and all other
accounts and available loans under the Plan, and which meet the
requirements of Section 401(k) of the Code and regulations thereunder,
and (ii) would not exceed the lesser of the balance of such Separate
Accounts or the amount required to meet the need for which the
withdrawal is requested. The amount required to meet the immediate and
heavy financial need may include any amounts necessary to pay any
federal, state, or local income taxes or penalties reasonably
anticipated to result from the distribution. If the Company approves
such request, such withdrawal shall be made from a Member's Separate
Accounts in accordance with procedures established by the Company. A
withdrawal shall be deemed to be made on account of an immediate and
heavy financial need of a Member if the withdrawal is for:
(1) Expenses for medical care described in section
213(d) of the Code previously incurred by the Member, the Member's
spouse, or any dependents of the Member (as defined in section 152 of
the Code) or necessary for those persons to obtain
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<PAGE> 36
medical care described in section 213(d) of the Code and not reimbursed
or reimbursable by insurance;
(2) Costs directly related to the purchase of a
principal residence of the Member (excluding mortgage payments);
(3) Payment of tuition and related educational fees,
and room and board expenses, for the next twelve months of
post-secondary education for the Member or the Member's spouse,
children, or dependents (as defined in section 152 of the Code);
(4) Payments necessary to prevent the eviction of the
Member from his principal residence or foreclosure on the mortgage of
the Member's principal residence; or
(5) Such other financial needs that the Commissioner
of Internal Revenue may deem to be immediate and heavy financial needs
through the publication of revenue rulings, notices, and other
documents of general applicability.
The above notwithstanding, (1) withdrawals under this Paragraph from a
Member's Basic Account shall be limited to the sum of the Member's
Basic Contributions to the Plan, plus income allocable thereto and
credited to the Member's Basic Account as of the Valuation Date
coincident with or next preceding December 31, 1988, less any previous
withdrawals of such amounts.
8.2 WITHDRAWALS AFTER AGE 59 1/2.
Subject to the provisions of this Section 8.2, a Member or an Inactive
Member who is receiving compensation from a Controlled Entity and who
has attained at least age 59 1/2, may file a written request with his
Employer in the form and within the time period prescribed by the
Company for a withdrawal of an amount credited to his Separate
Accounts. A withdrawal made pursuant to this Section 8.2 must be at
least $500.00 (unless the aggregate value of the Member's Separate
Accounts is less) and may only be made once in a calendar year, and
shall be made from a Member's or Inactive Member's Separate Accounts as
elected by such Member or Inactive Member.
8.3 FORM OF WITHDRAWALS.
All withdrawals made from Separate Accounts invested in the Funds,
other than the Company Stock Fund, shall be in the form of cash. All
withdrawals made from Separate Accounts invested in the Company Stock
Fund shall be in the form of Company Stock or cash, as elected by the
Member; provided, however, that the value of any fractional shares of
Company Stock shall be distributed in the form of cash.
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ARTICLE IX
LOANS
9.1 ELIGIBILITY FOR LOAN.
Upon application by (1) any Member who (a) is on the United States
payroll of the Employer, (b) is receiving compensation other than
severance pay from a Controlled Entity, (c) has been participating in
the Plan for at least one year (provided, however, that the
participation requirement of this Clause (c) shall apply only for loans
granted prior to January 1, 1998), and (d) has not had an outstanding
loan from the Plan for at least one month (an individual who is
eligible to apply for a loan under this Article being hereinafter
referred to as a "Member" for purposes of this Article), the Company
may in its discretion direct the Trustee to make a loan or loans to
such Member. Such loans shall be made pursuant to the provisions of the
Company's written loan procedure, which procedure is hereby
incorporated by reference as a part of the Plan.
9.2 MAXIMUM LOAN.
(a) A loan to a Member may not exceed 50% of the nonforfeitable
balance of such Member's Separate Accounts (excluding his IAR
Account).
(b) Paragraph (a) above to the contrary notwithstanding, the
amount of a loan made to a Member under this Article shall not
exceed an amount equal to the difference between:
(i) The lesser of $50,000 (reduced by the excess, if any, of
(A) the highest outstanding balance of loans from the Plan
during the one-year period ending on the day before the date
on which the loan is made over (B) the outstanding balance of
loans from the Plan on the date on which the loan is made) or
one-half of the present value of the Member's total
nonforfeitable accrued benefit under all qualified plans of
the Employer or a Controlled Entity; minus
(ii) The total outstanding loan balance of the Member under
all other loans from all qualified plans of the Employer or a
Controlled Entity.
9.3 RESTRICTIONS.
Any loan application shall be subject to the time of payment
requirements of Section 10.2(b) and to the election and consent
requirements of Section 10.2(b)(5) respecting repayment from the
pledged Separate Accounts of the Member upon default of the loan. Such
requirements shall be contained in the loan application and must be
made and obtained within the ninety-day period prior to making the
loan.
9.4 OPERATION OF ARTICLE.
The provisions of this Article shall be applicable to loans granted on
or renewed on or after April 1, 1996. Loans granted or renewed on or
prior to such date shall be governed by the provisions of the Plan as
in effect prior to this amendment and restatement of the Plan.
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ARTICLE X
DISTRIBUTION ON RETIREMENT OR OTHER TERMINATION OF EMPLOYMENT
10.1 ELIGIBILITY FOR DISTRIBUTION.
Upon termination of employment with the Controlled Entities, each
Member and Inactive Member shall be entitled to receive the entire
interest of his Basic, Supplemental, Matching, and Rollover/Transfer
Accounts and the vested interest of his IAR Account, if any, in
accordance with his provisions of Sections 10.2 and 10.3.
10.2 DISTRIBUTION OF SEPARATE ACCOUNTS.
Subject to the provisions of Section 10.3, the Company shall direct the
Trustee to make distribution to a Member or Inactive Member, who
becomes eligible to receive the vested interest of his Separate
Accounts pursuant to the provisions of Section 10.1 in the manner
hereinafter set forth.
a. Distributions of $3500 or Less. If the value of the vested interest
of a Member, Inactive Member, or IAR Member, as the case may be, in his
Basic, Supplemental, Matching, IAR, and Rollover/Transfer Accounts is
$3500 ($5000 from and after January 1, 1998) or less, distribution
thereof shall be made to such a Member as soon as practicable in a
single sum payment.
b. Distributions of Over $3500. If the value of the vested interest of
a Member, Inactive Member, or IAR Member, as the case may be, in his
Basic, Supplemental, Matching, IAR, and Rollover/Transfer Accounts is
in excess of $3500 ($5000 from and after January 1, 1998), such Member
may elect to receive distribution of his Basic, Supplemental, Matching,
and Rollover/Transfer Accounts in a single sum payment at any time
prior to attainment of age 70 1/2. Notwithstanding the foregoing, no
such distribution may be made to a Member, Inactive Member, or IAR
Member prior to Retirement Age, unless such an IAR Member and his
spouse consent in writing to such distribution. In the event that the
vested interest of an IAR Member in his IAR Account is in excess of
$3500 ($5000 from and after January 1, 1998), such IAR Member may elect
to receive distribution of his IAR Account in a single sum payment at
any time prior to attainment of age 70 1/2; provided, however, that
such IAR Member waives distribution of the standard form of benefit set
forth below in paragraphs (1) and (2) of this Section 10.2(b) and if
such Member is married, his spouse consents in writing to such election
and waiver and such consent acknowledges the effect of such action and
is witnessed by a notary public or a Plan representative, unless a Plan
representative finds that such consent cannot be obtained because the
spouse cannot be located or because of other circumstances set forth in
Section 401(a)(11) of the Code and regulations issued thereunder. If
the Basic, Supplemental, Matching, IAR and Rollover/Transfer Accounts
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of such a Member are not distributed pursuant to the foregoing
provisions, such Separate Accounts shall be distributed with his IAR
Account in the following manner:
(1) Married IAR Members. The standard form of benefit payment
of an IAR Account for any IAR Member who is married on the
date his Plan interest is to be distributable to him under the
provisions of Section 10.1 and the foregoing provisions of
Section 10.2(b) shall be a 50 percent joint and survivor
annuity. Such joint and survivor annuity shall be a commercial
annuity which is payable for the life of the IAR Member with a
survivor annuity for the life of the IAR Member's surviving
spouse equal to 50 percent of the amount of the annuity
payable during the joint lives of the IAR Member and such IAR
Member's surviving spouse. The standard joint and survivor
annuity shall be paid automatically as provided hereunder
unless the IAR Member elects to receive his benefit payments
in another form during the election period described in
Section 10.2(b)(4)(iii); provided, however, that if
distribution is to be made prior to Retirement Age, it shall
be made only with the consent of the IAR Member and his
spouse, if any; provided further that the IAR Member's spouse
consents in writing to such election and the time of benefit
commencement thereof pursuant to the provisions of Section
10.2(b)(5). Any such election may be revoked and subsequent
elections may be made, or revoked, at any time during such
election period. If the IAR Member has elected not to receive
the standard joint and survivor annuity as provided herein,
such IAR Member's benefit shall be paid in one of the benefit
payment forms under Section 10.2(b)(3), as selected by such
IAR Member.
(2) Unmarried IAR Members. The standard form of benefit
payment of an IAR Account for any IAR Member who is not
married on the date his Plan interest is to be distributable
to him under the provisions of Section 10.1 and the foregoing
provisions of Section 10.2(b), shall be a single life annuity
under Section 10.2(b)(3)(i), unless such IAR Member selects
another benefit payment form provided in Section 10.2(b)(3);
provided, however, that if distribution is to be made prior to
Retirement Age, it shall be made only with the consent of the
IAR Member.
(3) Optional Forms. Subject to the provisions of paragraphs
(a) and (b) of this Section 10.2(b), an IAR Member may elect
to receive his Separate Account in one of the following forms:
(i) A commercial annuity in the form of a single life
annuity for the life of such IAR Member;
(ii) A commercial annuity in the form of a single life
cash refund annuity;
(iii) A commercial annuity for a term certain of ten
years and continuous for the life of the IAR Member if he
survives such term certain;
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(iv) A commercial annuity payable for the life of such
Member with a survivor annuity for the life of his Beneficiary
which shall be equal to 50 percent, 75 percent, or 100 percent
of the annuity payable during the joint lives of the IAR
Member and such IAR Member's Beneficiary;
(v) A lump sum payment regardless of age; or
(vi) A single life annuity commencing prior to the
earliest age as of which such IAR Member will become eligible
for an "old-age insurance benefit" under the federal Social
Security Act, adjusted so that an increased amount will be
paid prior to such age and a reduced amount thereafter; the
purpose of this adjustment is to enable the IAR Member to
receive, from this Plan and under the federal Social Security
Act, an aggregate income in approximately a level amount for
life. Moreover, in the event the IAR Member so elects, if such
IAR Member dies before receiving payments aggregating the
vested amount of his Separate Accounts at his benefit
commencement date, the difference shall be paid in a single
lump sum to his Beneficiary or if there is none, to the
executor or administrator of his estate.
(4) Notwithstanding the foregoing provisions of this
Section 10.2(b), the following additional
requirements must be satisfied in order for a benefit
to be paid pursuant to Section 10.2(b)(3):
(i) The benefit payment form described in
Section 10.2(b)(3) above shall only be available if
the present value of the total payments actuarially
expected to be made to the IAR Member shall be more
than 50 percent of the present value of the total
payments actuarially expected to be made to the IAR
Member and his Beneficiary.
(ii) The form of payment to the IAR Member
or to the IAR Member and his Beneficiary must be
payable over a period of time which does not exceed
the longer of the life expectancy of the IAR Member,
or the joint and last survivor life expectancy of the
IAR Member and his Beneficiary.
(iii) Subject to the provisions of Section
10.2(b)(5) with respect to any election described in
Section 10.2(b)(3), the Company shall furnish certain
information, pertinent to such election, to each IRA
Member no less than thirty days (unless such
thirty-day period is waived by an affirmative
election in accordance with applicable Treasury
regulations) and no more than ninety days before his
Annuity Starting Date. The furnished information
shall include an explanation of (1) the terms and
conditions of the joint and survivor annuity, (2) the
IAR Member's right to waive the standard joint and
survivor annuity and the effect of such election, (3)
the rights of the IAR Member's spouse, if any, (4)
the right to revoke such election and the effect of
such revocation, (5) a general
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description of the eligibility conditions and other
material features of the alternative forms of benefit
available pursuant to Section 10.2(b)(3), and (6)
sufficient additional information to explain the
relative values of such alternative forms of benefit.
The period during which an IAR Member may make or
revoke such election shall be the ninety day period
ending on such IAR Member's Annuity Starting Date
provided that such Election may also be revoked at
any time prior to the expiration of the seven-day
period that begins the day after the information
required to be furnished to the IAR Member.
(5) In the event a benefit is subject to payment under
the standard joint and survivor annuity form set
forth in Section 10.2(b)(1) and such IAR Member
elects another form of benefit payment which will not
provide his spouse with a lifetime survivor annuity
which is at least 50 percent of the amount of the
annuity payable during the joint lives of the IAR
Member and the spouse, such benefit shall be paid in
such form only if such IAR Member's spouse consents
the form and time thereof in writing. Any spousal
consent given pursuant to this provision shall
acknowledge the effect of such form and time of
payment and shall be witnessed by a Plan
representative or a notary public, unless a Plan
representative finds that such consent cannot be
obtained because the spouse cannot be located or
because of other circumstances set forth in Section
401(a)(11) of the Code and regulations issued
thereunder.
(6) A Member who has elected to have his benefit under
the Cooper Cameron Corporation Salaried Employees'
Retirement Plan (the "Salaried Plan") distributed in
an annuity form or an IAR Member may elect to have
his entire Plan interest or his IAR Account, if any,
transferred to the Salaried Plan as of the date
benefits are payable thereunder to be held and
distributed in accordance with the terms thereof.
10.3 FORM OF DISTRIBUTION.
Unless the Member or Inactive Member otherwise elects (or is deemed to
elect otherwise because the present value of such Member's
nonforfeitable benefit exceeds $3,500 and he fails to consent to a
distribution while his benefit is immediately distributable within the
meaning of Treasury Regulations), the payment of benefits under the
Plan to such Member shall begin no later than the 60th day after the
close of the Plan Year in which the latest of the following events
occurs:
(i) The date on which such Member attains age 65;
(ii) The tenth anniversary of the date on which such Member
commenced participation in the Plan; and
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(iii) The date on which such Member terminates service with
the Controlled entities.
All single sum distributions shall be made in cash other than
distributions from Company Stock Fund Accounts and Cooper Stock Fund
Accounts which shall be made in the form of Company Stock or Cooper
common stock with respect to whole shares and cash with respect to
partial shares. Effective November 29, 1996, the Cooper Stock Fund
Accounts of all Members were liquidated pursuant to Section 6.4.
10.4 LIMITATION ON COMMENCEMENT OF DISTRIBUTION.
Notwithstanding any provision in the Plan to the contrary, all
distributions required under this Article X shall be determined and
made in accordance with the proposed regulations under Section
401(a)(9) of the Code, including the minimum distribution incidental
benefit requirements of Section 1.401(a)(9)-2 of the proposed
regulations. Accordingly, the entire interest of a Member or Inactive
Member in his Separate Accounts must be distributed, or must begin to
be distributed, no later than such Member's Mandatory Distribution
Date. The Mandatory Distribution Date of a Member or Inactive Member
shall be determined as follows:
(i) The Mandatory Distribution Date of such a Member who
attains age 70 1/2 on or after January 1, 1988, but prior to January 1,
1999, shall be April 1, 1990, or the first day of April following the
calendar year in which such Member attains age 70 1/2, whichever is
later.
(ii) The Mandatory Distribution Date of such a Member who
attains age 70 1/2 on or after January 1, 1999, shall be the first day
of April of the calendar year following the later of (A) the calendar
year in which such Member attains age 70 1/2 or (B) the calendar year
in which such Member terminates his employment with the Employer
(provided, however, that Clause (B) of this sentence shall not apply in
the case of a Member who is a "five-percent Owner" (as defined in
section 416 of the Code) with respect to the Plan Year ending in the
calendar year in which such Member attains age 70 1/2).
(iii) The Mandatory Distribution Date of such a Member who has
attained age 70 1/2 before January 1, 1988, shall be the first day of
April of the calendar year following the calendar year in which the
later of such Member's termination of employment or attainment of age
70 1/2 occurs.
Distributions to a Member or Inactive Member who has attained age 70
1/2 and who has not terminated employment with the Controlled Entities
shall be made as of his Mandatory Distribution Date and shall be
subject to the following minimum distribution rules:
(1) If the value of the Member's Separate Accounts are to
be distributed in installments while such Member is
still employed by the Controlled
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Entities it must be paid over (i) a period not
extending beyond the life expectancy of the Member or
the joint life and last survivor expectancy of the
Member and his Beneficiary, or (ii) a period not
extending beyond the life expectancy of his
Beneficiary, and the amount of the Required Minimum
Distribution for each calendar year beginning with
distributions for the first distribution calendar
year, must at least equal the quotient obtained by
dividing the Mandatory Distribution Value of the
Member's Separate Accounts by the lesser of (1) the
applicable life expectancy or (2) if the Member's
spouse is not the Beneficiary, the applicable divisor
determined from the table set forth in Q&A-4 of
Section 1.401(a)(9)-2 of the proposed regulations (as
in effect on the Effective Date). Distributions after
the death of the Member shall be distributed using
the applicable life expectancy referred to in clause
(1), above as the relevant divisor without regard to
clause (2).
(2) The Required Minimum Distribution for the Member's
first distribution calendar year must be made on or
before the Member's Mandatory Distribution Date. The
Required Minimum Distribution for other calendar
years, including the Required Minimum Distribution
for the calendar year in which the Member's Mandatory
Distribution Date occurs, must be made on or before
December 31 of such calendar year.
(3) Payments under an annuity option must be made in
accordance with the requirements of Section 401(a)(9)
of the Code, and payments commence not later than one
year after the date of the Member's death.
If the Members dies on or after the Member's Mandatory
Distribution Date, the remaining portion of the Member's
Separate Accounts must continue to be distributed at least as
rapidly as under the method of distribution in effect at the
Member's death. If, however, the Member dies before the
Member's Mandatory Distribution Date, distribution of the
Member's Account must be completed by December 31 of the
calendar year containing the fifth anniversary of the Member's
death. For purposes of this Section 11.4, the words and
phrases hereinafter set forth shall have the following
meanings:
(a) Distribution Calendar Year; First Distribution
Calendar Year. A distribution calendar year is a
calendar year for which a minimum distribution is
required. For distributions beginning before the
Member's death, the first distribution calendar year
is the calendar year immediately preceding the
calendar year which contains the Member's Mandatory
Distribution Date. For distributions beginning after
the Member's death, the first distribution calendar
year is the calendar year in which distributions are
required to begin.
(b) Life Expectancy. Life expectancy and joint and last
survivor expectancy shall be computed by use of the
expected return multiples in Tables V and
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VI of Treas. Reg. Section 1.72-9. Except as may be
required pursuant to regulations under Section
401(a)(9) of the Code in the case where a new
Beneficiary is designated, life expectancies shall
not be recalculated after the first distribution
calendar year.
(c) Mandatory Distribution Values of a Member's Separate
Accounts.
(i) The balance of the Member's Separate
Accounts as of the last Valuation Date in the
calendar year immediately preceding the distribution
calendar year (the "valuation calendar year")
increased by the amount of any contributions or
forfeitures allocated to the Separate Accounts as of
dates in the valuation calendar year after the
Valuation Date and decreased by distributions made in
the valuation calendar year after the Valuation Date.
(ii) For purposes of subparagraph (i),
above, if any portion of the minimum distribution for
the first distribution calendar year is made in the
second distribution calendar year on or before the
Mandatory Distribution Date, the amount of such
minimum distribution made in the second distribution
calendar year shall be treated as if it had been made
in the immediately preceding distribution calendar
year.
10.5 RESTRICTION ON ALIENATION.
Except as provided in Sections 401(a)(13)(B) and 414 (p) of the Code
relating to qualified domestic relations orders, no benefit under the
Plan at any time shall be subject in any manner to anticipation,
alienation, assignment (either at law or in equity), encumbrance,
garnishment, levy, execution, or other legal or equitable process. No
person shall have power in any manner to anticipate, transfer, assign
(either at law or in equity), alienate, or subject to attachment,
garnishment, levy, execution, or other legal or equitable process, or
in any way encumber his benefits under the Plan, or any part thereof,
and any attempt to do so shall be void.
10.6 PAYMENTS TO INCOMPETENTS OR MINORS.
In the event that it shall be found that any individual to whom an
amount is payable hereunder is incapable of attending to his financial
affairs because of any mental or physical condition, including the
infirmities of advanced age, or is a minor, such amount (unless prior
claim therefor shall have been made a duly qualified guardian or other
legal representative) may, in the discretion of the Company, be paid to
a duly appointed guardian or to another person for the use or benefit
of the individual found incapable of attending to his financial affairs
or in satisfaction of legal obligations incurred by or on behalf of
such individual. The Trustee shall make such payment only upon receipt
of written instructions to such effect from the Company. Any such
payment shall be charged to the Separate Accounts from which any such
payment would otherwise have
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been paid to the individual found to be a minor or incapable of
attending to his financial affairs and shall be a complete discharge or
any liability therefor under the Plan.
10.7 COMMERCIAL ANNUITIES.
In any case where a benefit payable under the Plan is to be paid in the
form of a commercial annuity, a commercial annuity contract shall be
purchased and distributed to the Member, Inactive Member, or
Beneficiary, as the case may be. Upon the distribution of any such
contract, the Plan shall have no further liability with respect to the
amount used to purchase the annuity contract and the company issuing
such contract shall be solely responsible to the recipient of the
contract for the annuity payments thereunder. All certificates for
commercial annuity benefits shall be non-transferable, and no benefit
thereunder may be sold, assigned, discounted, or pledged. Any
commercial annuity purchased under the Plan shall contain such terms
and provisions as may be necessary to satisfy the requirements under
the Plan.
10.8 ACTUARIAL EQUIVALENCY.
With respect to any benefit payment pursuant to the Plan, whichever
form of payment is selected, the value of such benefit shall be the
actuarial equivalent of the value of the vested balance of the Separate
Accounts to which the particular Member, Inactive Member, or
Beneficiary, as the case may be, is entitled.
10.9 ELIGIBLE ROLLOVER DISTRIBUTIONS.
Each Member and Beneficiary who receives an Eligible Rollover
Distribution may elect in the time and in a manner prescribed by the
Company to have all or any portion of such Eligible Rollover
Distribution transferred to an Eligible Retirement Plan; provided,
however, that only one such transfer may be made with respect to an
Eligible Rollover distribution to an Eligible Retirement Plan.
Notwithstanding the foregoing, the Member may elect, after receiving
the notice required under Section 402(f) of the Code, to receive such
Eligible Rollover Distribution prior to the expiration of the 30-day
period beginning on the date such Member is issued such notice;
provided that the Member or Beneficiary is permitted to consider his
decision for at least 30 days and is advised of such right in writing.
10.10 TRANSFER TO COOPER CAMERON SALARIED PLAN.
In accordance with procedures established by the Company, any Member
who wishes to receive distribution of the vested balance of his
Separate Accounts in the form of an annuity, may elect to transfer such
balance to the Cooper Cameron Corporation Salaried Employees'
Retirement Plan (the "Cooper Cameron Salaried Plan") as of his benefit
commencement date to be held and distributed in accordance with the
terms thereof.
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10.11 DEFERRAL OF PAYMENTS.
Subject to the provisions of Section 10.4, but notwithstanding the
provisions of any other Section of the Plan to the contrary, a Member
whose Plan interest is determined to have a present value of $3,500 or
more shall not receive payment of such interest prior to the later of
normal retirement age or age 62, unless consented to by the Member in
writing.
ARTICLE XI
BENEFICIARIES AND DEATH BENEFITS
11.1 DESIGNATION OF BENEFICIARY.
In the event of the death of a Member or Inactive Member prior to
distribution in full of his interest under the Plan, the spouse, if
any, of such Member shall be his Beneficiary and receive distribution
of his remaining interest in accordance with the provisions of Section
11.4; provided, however, that a Member or Inactive Member, may
designate a person or persons other than his spouse as his Beneficiary
if the requirements of Section 11.3 are met.
11.2 BENEFICIARY IN THE ABSENCE OF DESIGNATED BENEFICIARY.
If a Member or Inactive Member who dies does not have a surviving
spouse and if no Beneficiary has been designated pursuant to the
provisions of Section 11.1, or if no Beneficiary survives such Member,
then the Beneficiary shall be the estate of such Member. If any
Beneficiary designated pursuant to Section 11.1 dies after becoming
entitled to receive distribution hereunder and before such
distributions are made in full, and if no other person or persons have
been designated to receive the balance of such distributions upon the
happening of such contingency, the estate of such deceased Beneficiary
shall become the Beneficiary as to such balance.
11.3 SPOUSAL CONSENT TO BENEFICIARY DESIGNATION.
An election to designate a Beneficiary other than the spouse of such
Member or Inactive Member shall not be effective unless (A) such spouse
has consented thereto in writing and such consent (i) acknowledges the
effect of such election, (ii) either consents to the specific
designated beneficiary (which designation may not be subsequently
changed by the Member or Inactive Member without spousal consent) or
expressly permits such designation by the Member or Inactive Member
without the requirement of further consent by the spouse, and (iii) is
witnessed by a Plan representative (other than the Member, or Inactive
Member, as applicable) or a notary public, or (B) the consent of such
spouse cannot be obtained because the spouse cannot be located or
because of other circumstances described by applicable Treasury
regulations. Any such consent by such spouse shall be irrevocable.
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11.4 DEATH BENEFITS FROM BASIC, SUPPLEMENTAL, MATCHING, AND
ROLLOVER/TRANSFER ACCOUNTS.
In the event of the death of a Member or Inactive Member prior to
distribution in full of his interest in the Plan, the Beneficiary of
such Member shall receive distribution of such Member's remaining
interest in his Basic, Supplemental, Matching, and Rollover/Transfer
Accounts in a single sum to such Member's Beneficiary, unless such
Beneficiary elects to receive such interest with his IAR Account
interest, if any, in the form of a single life annuity.
11.5 DEATH BENEFITS FROM IAR ACCOUNTS.
(a) The interest in the IAR Account of any deceased IAR Member or
Inactive Member whose surviving spouse is his Beneficiary
shall be a survivor annuity. Such survivor annuity shall be a
commercial annuity which is payable for the life of such
surviving spouse.
(b) Any Member or Inactive Member who would otherwise have his
death benefit from his IAR Account paid in the form of a
survivor annuity payable to his surviving spouse may elect not
to have his benefit paid in such form by electing to receive
such death benefit in a single sum or by designating a person
other than his spouse as his Beneficiary. Any election may be
revoked and subsequent elections may be made or revoked at any
time prior to the death of the Member or Inactive Member.
(c) Paragraph (b) above to the contrary notwithstanding, an
election not to have the death benefit paid in the form of a
survivor annuity payable to the surviving spouse may be made
before the first day of the Plan Year in which a Member or
Inactive Member attains the age of thirty-five only (A) after
the Member or Inactive Member separated from service and only
with respect to benefits accrued under the Plan before the
date of such separation or (B) in the case of a Member who has
not separated from service, if the Member has been furnished
the information in Paragraph (c) below, with such election to
become invalid upon the first day of the Plan Year in which
the Member attains the age of thirty-five, whereupon a new
election may be made by such Member.
(d) The Company shall furnish certain information, pertinent to
the Paragraph (b) election to each Member within the period
beginning with the first day of the Plan Year in which he
attains the age of thirty-two (but not earlier than the date
such Member begins participation in the Plan) and ending with
the later of (1) the last day of the Plan Year preceding the
Plan Year in which the Member attains the age of thirty-five,
or (2) a reasonable time after the Employee becomes a Member.
If a Member separated from service before attaining the age of
thirty-five, such information shall be furnished to such
Member within the period beginning one year before the Member
separates from service and ending one year after such
separation. Such information shall also be furnished to a
Member who has not attained the age of thrifty-five or
terminated employment, within a reasonable time after written
request by such Member. The furnished information shall
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include an explanation of (1) the terms and conditions of the
survivor annuity, (2) the Member's right to elect to waive the
survivor annuity and the effect of such election, (3) the
rights of the Member's surviving spouse, (4) the right to
revoke such election and the effect of such revocation, (5) a
general description of the eligibility conditions and other
material features of the alternative forms of benefit
available pursuant to Paragraph (f) below, and (6) sufficient
additional information to explain the relative value of such
alternative forms of benefit.
(f) For purposes of this Section 11.5 the IAR Account death
benefit of a deceased Member or Inactive Member who is not
survived by his spouse or who has elected not to have his IAR
Account death benefit paid in the survivor annuity form set
forth in Section 11.5(a) shall be paid to his Beneficiary in
one of the following alternative forms to be selected by such
Member or Inactive Member (or his Beneficiary if authorized by
such Member or Inactive Member) or, in the absence of such
selection, in a single sum payment; provided, however, that
the period and the methods of payment of any such form shall
be in compliance with the provisions of section 401(a)(9) of
the Code and applicable Treasury regulations thereunder:
(i) A single lump payment; or
(ii) A commercial annuity in the form of a single life
annuity.
(g) Notwithstanding any other provisions of the Plan to the
contrary, payment of a survivor annuity pursuant to this
Section 11.5 shall not be made without the consent of the
surviving spouse prior to the time the deceased Member or
Inactive Member would have attained Retirement Age except that
if the entire interest payable hereunder to a Beneficiary is
$3,500 or less, such interest shall be paid in a single
lump-sum payment form within a reasonable period of time after
the death of the Member or Inactive Member.
11.6 COMMENCEMENT OF DEATH BENEFITS.
A survivor benefit shall be paid to the surviving spouse of a deceased
Member or deceased former Member upon termination of employment
thereafter regardless of the age at which such Member's death occurs,
and shall be payable monthly thereafter during the life of the
surviving spouse, the last payment being for the month in which the
death of the surviving spouse occurs. Notwithstanding the foregoing, in
no event shall a survivor benefit be paid to the surviving spouse of a
deceased Member or deceased former Member prior to the later of the
date on which such deceased Member or deceased former Member would have
attained normal retirement age or age 62, unless such surviving spouse
consents thereto not more than 90 days before the annuity starting date
of such survivor benefit. In the event of the death of the surviving
spouse prior to the commencement of the payment of the survivor
benefit, no survivor benefit shall be payable pursuant to the
provisions of this Article IX with respect to such deceased Member or
deceased former Member.
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ARTICLE XII
ADMINISTRATION
12.1 PLAN ADMINISTRATOR.
For purposes of ERISA, the Company shall be the Plan Administrator and,
as such, shall be responsible for the compliance of the Plan with the
reporting and disclosure provisions of ERISA.
12.2 AUTHORITY OF THE COMPANY.
The Company shall have all the powers and authority expressly conferred
upon it herein and, further, shall have the sole right to interpret and
construe the Plan, and to determine any disputes arising thereunder,
subject to the provisions of Section 7.9. In exercising such powers and
authority, the Company at all times shall exercise good faith, apply
standards of uniform application, and refrain from arbitrary action.
Any decision of the Company in such exercise of its powers, authorities
and duties shall be final and binding upon all affected parties. The
Company may employ such attorneys, agents, and accountants as it may
deem necessary or advisable to assist it in carrying out its duties
hereunder. The Company shall be a "named fiduciary" as that term is
defined in Section 402(a)(2) of ERISA. The Company may:
(a) allocate any of the powers, authorities, or
responsibilities for the operation and administration
of the Plan, which are retained by it or granted to
it by this Article III, to the Trustee; and
(b) designate a person or persons other than itself to
carry out any of such powers, authorities, or
responsibilities;
provided, however, that no powers, authorities, or responsibilities of
the Trustee shall be subject to the provisions of paragraph (b) of this
Section 12.2; and provided further, that no allocation or delegation by
the Company of any of its powers, authorities, or responsibilities to
the Trustee shall become effective unless such allocation or delegation
first shall be accepted by the Trustee in a writing signed by it and
delivered to the Company.
12.3 ACTION OF THE COMPANY.
Any act authorized, permitted, or required to be taken by the Company
under the Plan, which has not been delegated in accordance with Section
12.2, may be taken by a majority of the members of the Board of
Directors of the Company, either by vote at a meeting, or in writing
without a meeting. All notices, advices, directions, certifications,
approvals, and instructions required or authorized to be given by the
Company under the Plan shall be in writing and signed by either (i) a
majority of the members of the Board of Directors of the Company, or by
such member or members as may be designated by an
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instrument in writing, signed by all the members thereof, as having
authority to execute such documents on its behalf, or (ii) a person who
becomes authorized to act for the Company in accordance with the
provisions of paragraph (b) of Section 12.2. Subject to the provisions
of Section 12.4, any action taken by the Company which is authorized,
permitted, or required under the Plan shall be final and binding upon
the Company and the Trustees, all persons who have or who claim an
interest under the Plan, and all third parties dealing with any Trustee
or the Company.
12.4 CLAIMS REVIEW PROCEDURE.
Whenever the Company decides for whatever reason to deny, whether in
whole or in part, a claim for benefits filed by any person (hereinafter
referred to as the "Claimant"), the Company shall transmit to the
Claimant a written notice of its decision, which notice shall be
written in a manner calculated to be understood by the Claimant and
shall contain a statement of the specific reasons for the denial of the
claim and a statement advising the Claimant that, within 60 days of the
date on which he receives such notice, he may obtain review of the
decision of the Company in accordance with the procedures hereinafter
set forth. Within such 60-day period, the Claimant or his authorized
representative may request that the claim denial be reviewed by filing
with the Company a written request therefor, which request shall
contain the following information:
(a) the date on which the Claimant's request was filed
with the Company; provided that the date on which the
Claimant's request for review was in fact filed with
the Company shall control in the event that the date
of the actual filing is later than the date stated by
the Claimant pursuant to this paragraph (a);
(b) the specific portions of the denial of his claim
which the Claimant requests the Company to review;
(c) a statement of the Claimant setting forth the basis
upon which he believes the Company should reverse its
previous denial of his claim for benefits and accept
his claim as made; and
(d) any written material (offered as exhibits) which the
Claimant desires the Company to examine in its
consideration of his position as stated pursuant to
paragraph (c) of this Section 12.4.
Within 60 days of the date determined pursuant to paragraph (a) of this
Section 12.4, the Company shall conduct a full and fair review of its
decision denying the Claimant's claim for benefits. Within 60 days of
the date of such hearing, the Company shall render its written decision
on review, written in a manner calculated to be understood by the
Claimant, specifying the reasons and Plan provisions upon which its
decision was based.
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12.5 QUALIFIED DOMESTIC RELATIONS ORDERS.
The Company shall establish reasonable procedures to determine the
status of domestic relations orders and to administer distributions
under domestic relations orders which are deemed to be qualified
orders. Such procedures shall be in writing and shall comply with the
provisions of Section 414(p) of the Code and regulations issued
thereunder.
12.6 INDEMNIFICATION.
In addition to whatever rights of indemnification the members of the
Board of Directors of the Company, or any other person or persons
(other than the Trustees) to whom any power, authority, or
responsibility of the Company is allocated or delegated pursuant to
paragraph (b) of Section 12.2, may be entitled under the articles of
incorporation, regulations, or bylaws of the Company, under any
provision of law, or under any other agreement, the Company shall
satisfy such liability actually and reasonably incurred by any such
member or such other person or persons, including expenses, attorneys'
fees, judgments, fines, and amounts paid in settlement, in connection
with any threatened, pending, or completed action, suit, or proceeding
which is related to the exercise, or failure to exercise, by such
member or such other person or persons of any of the powers,
authorities, responsibilities, or discretion of the Company as provided
under the Plan and the Trust Agreement, or reasonably believed by such
member or such other person or persons to be provided thereunder, and
any action taken by such member or such other person or persons in
connection therewith.
ARTICLE XIII
AMENDMENT AND TERMINATION
13.1 AMENDMENT.
Subject to the provisions of Section 13.2, the Company may at any time
and from time to time, amend the Plan.
13.2 LIMITATION OF AMENDMENT.
The Company shall make no amendment to the Plan which shall result in
the forfeiture or reduction of the interest of any Member, Inactive
Member, Beneficiary, or person claiming under or through any one or
more of them pursuant to the Plan; provided, however, that nothing
herein contained shall restrict the right to amend the provisions
hereof relating to the administration of the Plan and Trust. Moreover,
no amendment shall be made hereunder which shall permit any part of the
Trust property to revert to any Employer or be used for or be diverted
to purposes other than the exclusive benefit of Members, Inactive
Members, Beneficiaries, and persons claiming under or through them
pursuant to the Plan.
13.3 TERMINATION.
The Company reserves the right, by action of its Board of Directors, to
terminate the Plan as to all Employers at any time. The Plan shall
terminate automatically if there shall be a
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complete discontinuance of contributions hereunder by all Employers. In
the event of the termination of the Plan, written notice thereof shall
be given to all Members and Beneficiaries having an interest under the
Plan, and to the Trustee. Upon any such termination of the Plan, the
Trustee and the Company shall take the following actions for the
benefit of Members and Beneficiaries:
(a) As of the termination date, the Trustee shall value
the Funds hereunder and the Company shall adjust all
accounts accordingly. The termination date shall
become a Valuation Date. In determining the net worth
of the Funds hereunder, the Trustee shall include as
a liability such amounts as in its judgment shall be
necessary to pay all expenses in connection with the
termination of the Trust and the liquidation and
distribution of the Trust property, as well as other
expenses, whether or not accrued, and shall include
as an asset all accrued income.
(b) The Trustee, upon instructions from the Company,
shall then segregate and distribute an amount equal
to the entire interest of each Member, Inactive
Member, and Beneficiary in the Funds to or for the
benefit of each Member, Inactive Member, or
Beneficiary in accordance with the provisions of
Sections 10.2 and 10.3.
Notwithstanding anything to the contrary contained in the Plan, upon
any such Plan termination or discontinuance of contributions by the
Employers, the interest of each Member, Inactive Member, and
Beneficiary shall become fully vested and nonforfeitable; and, if there
is a partial termination of the Plan, the interest of each Member,
Inactive Member, and Beneficiary who is affected by such partial
termination shall become fully vested and nonforfeitable.
13.4 WITHDRAWAL OF AN EMPLOYER.
An Employer other than the Company may, by action of its Board of
Directors, withdraw from the Plan, such withdrawal to be effective upon
notice in writing to the Company (the effective date of such withdrawal
being hereinafter referred to as the "withdrawal date"), and shall
thereupon cease to be an Employer for all purposes of the Plan. An
Employer shall be deemed automatically to withdraw from the Plan in the
event of its complete discontinuance of contributions, or in the event
it ceases to be a Subsidiary.
13.5 CORPORATE REORGANIZATION.
The merger, consolidation, or liquidation of the Company or any
Employer with or into the Company or any other Employer shall not
constitute a termination of the Plan as to the Company or such
Employer.
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ARTICLE XIV
ADOPTION BY SUBSIDIARIES: EXTENSION
TO NEW BUSINESS OPERATIONS
Any Subsidiary of the Company which at the time is not an Employer may,
with the consent of the Board of Directors of the Company, adopt the
Plan and become an Employer hereunder by causing an appropriate written
instrument evidencing such adoption to be executed pursuant to the
authority of its Board of Directors and to be filed with the Company.
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ARTICLE XV
ESOP
15.1 PURPOSE.
The Company Stock Fund portion of the Plan constitutes an employee
stock ownership plan under Section 4975(e)(7) of the Code and Section
407(a)(6) of ERISA (the "ESOP"). Such ESOP is established and
maintained to enable Members to share in the growth and prosperity of
the Company and to provide such Members with an additional opportunity
to accumulate capital for their future economic security.
15.2 SUSPENSE FUND.
The Trustee shall establish a subfund, herein referred to as the
Suspense Fund, to hold and administer any Company Stock which is
pledged or held as collateral for any Exempt Loan made to the Trustee
for purposes of the ESOP. In the event more than one class of Company
Stock is held in the Suspense Fund, any release thereof shall be made
on a pro rata basis as shall allocations thereof to the Separate
Accounts of Members.
15.3 EXEMPT LOANS.
The Trustee may finance or refinance the acquisition of Company Stock
for purposes of the ESOP through one or more Exempt Loans. An
installment obligation incurred in connection with the purchase of
Company Stock shall constitute an Exempt Loan and shall be for a
specific term, bear a reasonable rate of interest, and shall not be
payable on demand except in the event of default. An Exempt Loan may be
secured by a collateral pledge of the shares of Company Stock so
acquired. Any such pledged Company Stock shall be placed in the
Suspense Fund. No other Plan assets may be pledged as collateral for an
Exempt Loan, and no lender shall have recourse against the Plan other
than the Company Stock subject to pledge. All Exempt Loans which are
made or guaranteed by a disqualified person must satisfy all
requirements applicable to exempt loans set forth in Treas. Reg.
Section 54.4975-7(b)(8) and Department of Labor Reg. Section
2550.408b-3. Any pledge of Company Stock must provide for the release
of shares so pledged on a pro rata basis as the Exempt Loan is repaid
by the Trustee and such shares of Company Stock are allocated to
Members' Separate Accounts as provided in the Plan. Repayments of
principal and interest on any Exempt Loan shall be made by the Trustee
only from Matching Contributions to enable the Trustee to repay such
Exempt Loan, from earnings attributable to such Matching Contributions,
and from any cash dividends received by the Trustee on Company Stock
held in the Suspense Fund.
15.4 LIMITATION ON ALLOCATIONS OF MATCHING CONTRIBUTIONS.
Notwithstanding any other provision of the Plan to the contrary,
Company Stock held in the Suspense Fund shall be allocated to the
Separate Accounts of Members only as Matching Contributions to pay
principal and interest with respect to an Exempt Loan are made to the
Trustee. As of each Valuation Date, Company Stock which is released
from
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the Suspense Fund shall be allocated to the Company Stock Fund Account
of each eligible Member as needed to provide Matching Contributions
pursuant to Section 3.3. The number of shares of Company Stock to be
released from the Suspense Fund for allocation to Separate Accounts
shall be calculated in accordance with Treas. Reg. 54.4975-7(b)(8).
Principal and interest payable under an Exempt Loan shall be satisfied
out of (i) Matching Contributions (other than contributions of Company
Stock) that are made hereunder for purposes of being applied by the
Trustee to satisfy its obligations under the Exempt Loan; (ii) earnings
attributable to the investment of such contributions; and (iii)
earnings attributable to Company Stock purchased with the proceeds of
the Exempt Loan; provided, however, that the payments made under the
Exempt Loan by the Trustee during any Plan Year shall not exceed an
amount equal to the sum of such contributions and earnings received
during the Plan Year and Prior Plan Years minus payments made under the
Exempt Loan in such Plan Years. Matching Contributions and earnings
that may be used by the Trustee to make payments under the Exempt Loan
shall be accounted for separately in the books and records of the
Trustee until the Exempt Loan is repaid in full. Notwithstanding any
provision contained herein to the contrary, all Matching Contributions
(except contributions of Company Stock) made hereunder during the term
of an Exempt Loan shall be deemed to be made for purposes of being used
by the Trustee to satisfy its obligations under the Exempt Loan.
Furthermore, all payments made by the Trustee under the Exempt Loan
shall be first charged against Matching Contributions available for
making such payments. Earnings that may be used to make payments under
the Exempt Loan shall be deemed to have been used for that purpose only
to the extent that payments made under the Exempt Loan during any Plan
Year are in excess of the total Matching Contributions which are not
utilized by the Trustee to pay principal and interest of an Exempt Loan
shall be allocated to the Separate Accounts of eligible Members.
15.5 ALLOCATIONS OF MATCHING CONTRIBUTIONS FROM THE ESOP.
Matching Contributions allocated and credited to Members' Separate
Accounts pursuant to Section 4.5 in the form of Company Stock which is
released from the Suspense Fund, contributed by the Employer, or
purchased by the Trustee, shall be valued for such allocation purposes
on the basis of the average closing price of such Company Stock on the
New York Stock Exchange with respect to the month for which the
Matching Contributions are made.
15.6 DIVIDENDS ON COMPANY STOCK.
Except as specified in the Trust Agreement, cash dividends received
with respect to the shares of Company Stock acquired with the proceeds
of an Exempt Loan and held in the Suspense Fund shall be applied to the
payment of principal and/or interest on any outstanding Exempt Loan and
any other dividends received with respect to any other shares of
Company Stock held in the ESOP shall be applied, invested, or
distributed in accordance with the directions of the Company, including
the payment thereof to Members either currently or in periodic
payments.
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15.7 RESTRICTIONS ON COMPANY STOCK.
No Company Stock shall be subject to a put, call, or other option, or
any buy-sell arrangement while held by and when distributed from the
ESOP, whether or not such plan is an ESOP at such time.
ARTICLE XVI
MISCELLANEOUS PROVISIONS
16.1 NO COMMITMENT AS TO EMPLOYMENT.
Nothing herein contained shall be construed as a commitment or
agreement upon the part of any Employee hereunder to continue his
employment with an Employer, and nothing herein contained shall be
construed as a commitment on the part of any Employer to continue the
employment or rate of compensation of any Employee hereunder for any
period.
16.2 BENEFITS.
Nothing in the Plan shall be construed to confer any right or claim
upon any person other than the parties hereto, Members and
Beneficiaries.
16.3 NO GUARANTEES.
Neither any Employer, including the Company, nor the Trustee guarantees
the Trust from loss or depreciation, nor the payment of any amount
which may become due to any person hereunder. All benefits payable
under the Plan shall be paid or provided for solely from the Plan
assets and neither the Company nor the Trustee assumes any liability or
responsibility for the adequacy thereof.
16.4 EXCLUSIVE BENEFIT.
No part of the Plan assets shall be used for any purpose other than the
exclusive purpose of providing benefits which Members and Beneficiaries
are entitled to under the Plan, and for the purpose of defraying the
reasonable expenses of administering the Plan.
16.5 DUTY TO FURNISH INFORMATION.
Each of the Employers, the Company, or the Trustee shall furnish to any
of the others any documents, reports, returns, statements, or other
information that any other reasonably deems necessary to perform its
duties imposed hereunder or otherwise imposed by law.
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16.6 MERGER, CONSOLIDATION, OR TRANSFER OF PLAN ASSETS.
The Plan shall not be merged or consolidated with any other plan, nor
shall any of its assets or liabilities be transferred to another plan,
unless, immediately after such merger, consolidation, or transfer of
assets or liabilities, each Member, Inactive Member, and Beneficiary in
the Plan would receive a benefit under the Plan which is at least equal
to the benefit he would have received immediately prior to such merger,
consolidation, or transfer of assets or liabilities (assuming in each
instance that the Plan had then terminated).
16.7 RETURN OF CONTRIBUTIONS TO EMPLOYERS.
Notwithstanding any other provision of the Plan to the contrary, Basic,
Matching and Company Retirement Contributions are contingent upon the
deductibility of such contributions under Section 404 of the Code. In
the event a Basic, Matching or Company Retirement Contribution (or any
portion thereof) is made under a mistake of fact, such a contribution
shall be returned to the Employers within one year after the payment of
the contribution. Since Basic, Matching, and Company Retirement
Contribution (or any portion thereof) are conditioned upon the
deductibility of the contribution under Section 404 of the Code as set
forth above, in the event such deduction is disallowed, any such
contribution shall be returned to the Employers within one year after
the disallowance of the deduction.
16.8 ADDENDA.
In the event that it is deemed necessary to accommodate any transition
of coverage under other benefit plans to coverage under the Plan with
respect to certain groups of Employees, an Addendum setting forth
special overriding provisions applicable to such Employees may be added
to the Plan. Each Addendum shall for all purposes constitute a part of
the Plan and in the event of conflict with any other provision of the
Plan, shall control.
16.9 VALIDITY OF AGREEMENT.
Except as provided under federal law, the provisions of the Plan shall
be governed by and construed in accordance with the laws of the State
of Texas.
ARTICLE XVII
SECTION 415 LIMITATIONS
17.1 COMPLIANCE WITH TRA `86.
The provisions set forth in this Article XVII are intended solely to
comply with the requirements of Section 415 of the Code, as amended by
the Tax Reform Act of 1986, and shall be interpreted, applied, and if
and to the extent necessary, deemed modified without further formal
language so as to satisfy solely the minimum requirements of said
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Section, subject, however, to the provisions of Section 1106(i)(3) of
the Tax Reform Act of 1986. For such purpose, the limitations of
Section 415 of the Code, as amended by the Tax Reform Act of 1986, are
hereby incorporated, effective as of July 1, 1989, by reference and
made part hereof as though fully set forth herein, but shall be applied
only to particular Plan benefits in accordance with the provisions of
this Article XVII to the extent such provisions are not consistent with
said Article.
17.2 SECTION 415 DEFINITIONS.
The following definitions shall be applicable to this Article XVII:
(a) The term "ANNUAL ADDITIONS" shall mean the sum of the
following amounts credited to a Member's Separate
Accounts for a Limitation Year:
(i) Employer contributions;
(ii) for Limitation Years beginning prior to
January, 1987, the lesser of (i) one-half of
the non-deductible employee contributions,
or (ii) the non-deductible employee
contributions in excess of six percent of
the Member's compensation for the Limitation
Year (excluding any rollover contributions),
and for Limitation Years beginning on and
after January 1, 1987, the amount of such
Member's contributions (excluding any
rollover contributions) for such year;
(iii) the amount, if any, of Employer
contributions and forfeitures which are
credited to the Member under any other
defined contribution plan (whether or not
terminated) maintained by the Employer
concurrently with the Plan;
(iv) reallocated forfeitures;
(v) contributions to an individual medical
account established pursuant to the
requirements of Section 401(h) of the Code
under the Plan or any other defined
contribution plan or under any defined
benefit plan maintained by the Employer on
behalf of a participant who is a key
employee within the meaning of Article XVIII
of the Plan.
(vi) any amount derived from contributions paid
after December 31, 1985, in taxable years
ending after such date, which are
attributable to post-retirement medical
benefits allocated to a separate account of
a key employee (as defined in Article XVIII
of the Plan) under a welfare benefit fund
(as defined in Section 419A of the Code)
maintained by the Employer.
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For purposes of this Paragraph (a) any excess amount
applied under Section 17.4 in the Limitation Year to
reduce Employer contributions will be considered
Annual Additions for such Limitation Year.
(b) The term "ANNUAL BENEFIT" shall mean a retirement
benefit under the plan which is payable annually in
the form of a straight-life annuity. Except as
provided below, a benefit payable in a form other
than a straight-life annuity must be adjusted to an
actuarially equivalent straight-life annuity before
applying the limitations in this Article XVII. The
interest rate assumption used to determine actuarial
equivalence will be the greater of the interest rate
specified in the Plan or five percent. The Annual
Benefit does not include any benefits attributable to
employee contributions or rollover contributions, or
the assets transferred from a qualified plan that was
not maintained by the Employer. No actuarial
adjustment to the benefit is required for (i) the
value of a qualified joint and survivor annuity, (ii)
the value of benefits that are not directly related
to retirement benefits (such as disability benefits,
pre-retirement death benefits and post-retirement
medical benefits), and (iii) the value of
post-retirement cost-of-living increases made in
accordance with Code regulations.
(c) The term "COMPENSATION" shall mean compensation as
defined in Code regulations Section 1.415-2(d).
Compensation for any Limitation Year is the
compensation actually paid or includable in gross
income during such year. Notwithstanding the
preceding sentence, Compensation for a Member in a
profit-sharing plan who is permanently and totally
disabled (as defined in Section 37(e)(3) of the Code)
is the compensation such Member would have received
for the Limitation Year if the Member had been paid
at the rate of compensation paid immediately before
becoming permanently and totally disabled; such
imputed compensation for the disabled Member may be
taken into account only if the Member is not an
officer, an owner, or highly compensated, and
contributions made on behalf of such Member are
nonforfeitable when made.
(d) The term "DEFINED BENEFIT FRACTION" shall mean a
fraction, the numerator of which is the sum of the
Member's Projected Annual Benefit under all defined
benefit plans (whether or not terminated) maintained
by the Employer, and the denominator of which is the
lesser of 125 percent of the dollar limitation in
effect for the Limitation Year under Section
415(b)(1)(A) of the Code, or 140 percent of the
Member's Highest Average Compensation.
Notwithstanding the preceding sentence, if the Member
was a participant in one or more defined benefit
plans maintained by the Employer which were in
existence on July 1, 1982, the denominator of this
fraction will not be less than 125 percent of the sum
of the annual benefits under such plans which the
Member had accrued as of the later of September 30,
1983 or the end of the last Limitation Year beginning
before January 1, 1983. The preceding sentence
applies only if the defined
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benefit plans individually and in the aggregate
satisfied the requirements of Section 415 of the Code
as in effect at the end of the 1982 Limitation Year.
(e) The term "DEFINED CONTRIBUTION FRACTION" shall mean a
fraction, the numerator of which is the sum of the
Annual Additions to the Member's Accounts under all
defined contribution plans (whether or not
terminated) maintained by the Employer for the
current and all prior Limitation Years (including the
Annual Additions attributable to the Member's
non-deductible employee contributions to all defined
benefit plans, whether or not terminated, maintained
by the Employer), and the denominator of which is the
sum of the maximum aggregate amounts for the current
and all prior Limitation Years of service with the
Employer (regardless of whether a defined
contribution plan was maintained by the Employer).
The maximum aggregate amount in any Limitation Year
is the lesser of 125 percent of the dollar limitation
in effect under Section 415(c)(1)(A) of the Code, or
25 percent of the Member's compensation for such
year. If the Member was a participant in one or more
defined contribution plans maintained by the Employer
which were in existence on July 1, 1982, the
numerator of this fraction will be adjusted if the
sum of this fraction and the defined benefit fraction
would otherwise exceed 1.0 under the terms of the
Plan. Under the adjustment, an amount equal to the
product of (i) the excess of the sum of the fractions
over 1.0 times (ii) the denominator of this fraction,
which will be permanently subtracted from the
numerator of this fraction. The adjustment is
calculated using the fractions as they would be
computed as of the later of September 30, 1983, or
the end of the last limitation year beginning before
January 1, 1983. This adjustment will also be made if
at the end of the last Limitation Year beginning
before January 1, 1984, the sum of the fractions
exceeds 1.0 because of accruals or additions that
were made before the limitations of this Article XVII
became effective to any plans of the Employer in
existence on July 1, 1982.
(f) The term "EMPLOYER" shall mean the Company and all
members of a controlled group of corporations (as
defined in Section 414(b) of the Code, as modified by
Section 415(h) of the Code), commonly controlled
trades or businesses (as defined in Section 414(c) of
the Code, as modified by Section 415(h) of the Code),
or affiliated service groups (as defined in Section
414(m) of the Code) of which the Company is a part.
(g) The term "EXCESS AMOUNT" shall mean the excess of the
Member's Annual Additions for the Limitation Year
over the Defined Contribution Maximum Permissible
Amount.
(h) The term "HIGHEST AVERAGE COMPENSATION" shall mean
the average compensation for-the three consecutive
years of service with the Employer
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that produces the highest average. A year of service
with the Employer shall be any 12-consecutive month
period of service.
(i) The term "LIMITATION YEAR" shall mean the
12-consecutive month period corresponding with the
calendar year. If the Limitation Year is amended to a
different 12-consecutive month period, the new
Limitation Year must begin on a date within the
Limitation Year in which the amendment is made.
(j) "DEFINED CONTRIBUTION MAXIMUM PERMISSIBLE AMOUNT"
shall mean the lessor of (i) $30,000 (adjusted in
accordance with regulations prescribed by the
Secretary of the Treasury for increases in the cost
of living) or if greater,1/4 of the dollar limitation
in effect under Section 415(b)(1)(A) of the Code, or
(ii) 25 percent of such Participant's Compensation
paid for such Limitation Year. If a short Limitation
Year is created because of an amendment changing the
Limitation Year to a different 12-month consecutive
period, such Annual Additions shall not exceed
$30,000 multiplied by a fraction, the numerator of
which is the number of months in the short Limitation
Year and the denominator of which is 12.
(k) The term "DEFINED BENEFIT MAXIMUM PERMISSIBLE AMOUNT"
shall mean the lesser of $90,000 or 100 percent of
the Member's Highest Average Compensation. If the
annual benefit commences before age 62 (on and after
January 1, 1987, the Social Security Retirement Age),
the Defined Benefit Maximum Permissible Amount may
not exceed the lessor of the actuarial equivalent of
a $90,000 annual benefit beginning at age 62 (on and
after January 1, 1987, the Social Security Retirement
Age), or the Member's Highest Average Compensation.
This actuarial adjustment will not reduce the $90,000
limitation below (a) for Limitation Years beginning
prior to January 1, 1987, $75,000, if the benefit
begins at or after age 55 or if the annual benefit
commences before age 55, the greater of (i) the
actuarial equivalent of a $75,000 annual benefit
commencing at age 55, or (ii) the actuarial
equivalent of a $90,000 annual benefit beginning at
age 62, or (b) for Limitation Years beginning on and
after January 1, 1987, the equivalent of a $90,000
Annual Benefit commencing at the Social Security
Retirement Age. To determine actuarial equivalence,
prior to January 1, 1987, the interest rate
assumption shall be the greater of the rate specified
in the Plan or five percent and on and after January
1, 1987, the manner prescribed by the Secretary of
the Treasury. If the annual benefit commences after
age 65, the benefit may not exceed the lesser of the
actuarial equivalent of a $90,000 annual benefit
beginning at age 65 or the Member's highest average
compensation. To determine actuarial equivalence
after age 65, the interest rate assumption shall not
exceed the greater of the rate specified in the Plan
or five percent. Effective on January 1, 1988, and
each January 1 thereafter, the $90,000 limitation
above will be automatically adjusted to the new
dollar limitation
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for that calendar year, determined under applicable
Code provisions. The new limitation will apply to
Limitation Years beginning within the calendar year
of the date of adjustment. Notwithstanding the
foregoing provisions, if the Member was a participant
in a plan in existence on July 1, 1982, the defined
benefit maximum permissible amount shall not be less
than the Member's current accrued benefit. If the
Annual Benefit commences when the Member has
participated in the Plan less than ten years, the
defined benefit maximum permissible amount otherwise
defined herein shall be reduced by l/10th for each
year his participation is less than ten.
(1) The term "CURRENT ACCRUED BENEFIT" shall mean a
Member's Annual Benefit (including optional benefit
forms) accrued as of the later of the end of the last
Limitation Year beginning before January 1, 1983, or
September 30, 1983, but determined without regard to
changes in the Plan or the cost-of-living increases
occurring after July 1, 1982.
(m) The term "PROJECTED ANNUAL BENEFIT" shall mean the
Annual Benefit, as defined in Paragraph (b), to which
the Member would be entitled under the terms of the
Plan assuming:
(i) the Member continued employment until normal
retirement age under the Plan (or current
age, if later); and
(ii) the Member's compensation for the current
Limitation Year and all relevant factors
used to determine benefits under the Plan
will remain constant for all future
Limitation Years.
(n) The term "SOCIAL SECURITY RETIREMENT AGE" shall mean
the age used as the retirement age under Section
216(1) of the Social Security Act, without regard to
any age increase factor and as if the early
retirement age under said Section 216(1)(2) were 62.
17.3 LIMITATIONS ON ALLOCATIONS FOR SINGLE PLAN PARTICIPATION.
The provisions of this Section 17.3 shall apply for each Limitation
Year, if the Member is not covered, and never has been covered, by
another qualified plan maintained by the Employer.
(a) If the Member does not participate in, and has never
participated in another qualified plan maintained by
the Employer, the amount of Annual Additions which
may be credited to the Member's Separate Accounts for
any Limitation Year shall not exceed the lesser of
the Defined
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Contribution Maximum Permissible Amount or any other
limitation contained in the Plan. If the Employer
contributions that would otherwise be contributed or
allocated to the Member's Separate Accounts would
cause the Annual Additions for the Limitation Year to
exceed the Defined Contribution Maximum Permissible
Amount, the amount contributed or allocated shall be
reduced so that the Annual Additions for the
Limitation Year will equal the Defined Contribution
Maximum Permissible Amount.
(b) If a Member makes non-deductible employee
contribution under the terms of the plan, for
Limitation Years beginning prior to January 1, 1987,
the lesser of (i) the amount of such contributions in
excess of six percent of the Member's Compensation,
or (ii) one-half of such contributions, which are
credited for the Limitation Year, and for Limitation
Years beginning on and after January 1, 1987, the
amount of such Member's contributions (excluding any
rollover contributions) for such year, shall be
treated as an Annual Addition to a qualified defined
contribution plan, for purposes of Paragraph (a)
above of this Section 17.3 and Paragraph (b) of
Section 17.4.
(c) The limitation in Paragraph (a) above shall be deemed
satisfied if the Annual Benefit payable to a Member
is not more than $1,000.00 multiplied by the
participant's number of years of service (not to
exceed 10) with the Employer, and the Employer has
not at any time maintained a defined contribution
plan in which such Member participated.
17.4 LIMITATIONS ON ALLOCATIONS FOR MULTIPLE PLAN PARTICIPATION.
This Section 17.4 shall apply if the Member is covered, or has been
covered at any time, by another qualified plan maintained by the
Employer.
(a) If the Member is, or has ever been, covered under
more than one defined benefit plan maintained by the
Employer, the sum of the Member's Annual Benefits
from all such plans may not exceed the Defined
Benefit Maximum Permissible Amount; and, the
provisions of Paragraph (c) of Section 17.9 shall
apply.
(b) If the Employer maintains, or at any time maintained,
one or more qualified defined contribution plans
covering any Member, the sum of the Member's Defined
Contribution Fraction and Defined Benefit Fraction
shall not exceed 1.0 in any Limitation Year, and the
Annual Benefit otherwise payable to the Member under
the Plan shall be limited in accordance with the
provisions of Paragraph (d) of Section 17.9.
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17.5 GRANDFATHERED DEFINED BENEFIT PLAN LIMITATION.
In the case of an individual who was a participant in one or more
defined benefit plans of the Employer before September 30, 1983, the
application of the limitations in Sections 17.3 and 17.4 shall not
cause the Defined Benefit Maximum Permissible Amount for such
individual under all such defined benefit plans to be less than the
individual's accrued benefit under all such defined benefit plans as of
September 30, 1983. The preceding sentence applies only if all such
defined benefit plans met the requirements of Section 415 of the Code,
as in effect on July 1, 1982, for all Limitation Years beginning before
September 30, 1983.
17.6 LIMITATIONS ON ALLOCATIONS FOR DEFINED CONTRIBUTION PLAN.
Since the Plan is a defined contribution plan, the following provisions
shall apply:
(a) If the Member does not participate in, and has never
participated in another qualified plan maintained by
the Employer, the amount of Annual Additions which
may be credited to the Member's account for any
Limitation Year shall not exceed the lesser of the
Defined Contribution Maximum Permissible Amount or
any other limitation contained in the Plan. If the
Employer contributions that would otherwise be
contributed or allocated to the Member's Separate
Account would cause the Annual Additions for the
Limitation Year to exceed the Defined Contribution
Maximum Permissible Amount, the amount contributed or
allocated shall be reduced so that the Annual
Additions for the Limitation Year will equal the
Defined Contribution Maximum Permissible Amount.
(b) Prior to determining the Member's actual compensation
for the Limitation Year, the Employer may determine
the Defined Contribution Maximum Permissible Amount
for a Member on the basis of a reasonable estimation
of the Member's Compensation for the Limitation Year,
uniformly determined for all Members similarly
situated. As soon as is administratively feasible
after the end of the Limitation Year, the Defined
Contribution Maximum Permissible Amount for the
Limitation Year shall be determined on the basis of
the Member's actual Compensation for the Limitation
Year.
(c) If there is an Excess Amount, the excess shall be
disposed of as follows:
(1) Any non-deductible voluntary employee
contributions, to the extent they would
reduce the excess amount, shall be returned
to the Member;
(2) If after the application of subparagraph (1)
above, an Excess Amount still exists, and
the Member is covered by the Plan at the end
of the Limitation Year, the excess amount in
the Member's Separate Accounts shall be used
to reduce Employer contributions
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(including any allocations of forfeitures)
for such Member in the next Limitation Year,
and each succeeding year, if necessary;
(3) If after the application of subparagraph (1)
above, an Excess Amount still exists, and
the Member is not covered by the Plan at the
end of the Limitation Year, the Excess
Amount shall be held unallocated in a
suspense account. The suspense account shall
be applied to reduce future Employer
contributions (including allocation of any
forfeitures) for all remaining Members in
the next Limitation Year, and each
succeeding Limitation Year, if necessary.
(4) If a suspense account is in existence at any
time during the Limitation Year pursuant to
this Section 17.6, it will not participate
in the allocation of the investment gains
and losses on the Plan's assets.
(5) In applying the provisions in the preceding
paragraphs of this Paragraph (c), whenever
it is necessary to reduce contributions to
eliminate an Excess Amount, such reduction
shall be made (i) first, from the
contributions as provided in subparagraph
(1) above, (ii) second, from any
non-deductible employee contributions other
than those in (i) and any matching Employer
contribution associated therewith, to the
extent they would reduce the excess amount,
(iii) third, from any Employer contributions
other than those described in the following
(iv), (v) and (vi), (iv) fourth, from any
Employer contributions to an employee stock
ownership plan maintained by the Employer,
(v) fifth, from any Employer contributions
which are matching contributions for
contributions described in the following
(vi), and (vi) sixth, from any Employer
contributions which are pay-deferral
contributions elected by the participant
under a cash or deferred plan described in
Section 401(k) of the Code.
17.7 LIMITATION FOR MULTIPLE DEFINED CONTRIBUTION PLAN PARTICIPATION.
This Section 17.7 applies if, in addition to the Plan, the Member is
covered under another defined contribution plan maintained by the
Employer during any Limitation Year. The Annual Additions which may be
credited to a Member's Separate Accounts under the Plan for any such
Limitation Year shall not exceed the Defined Contribution Maximum
Permissible Amount reduced by the Annual Additions credited to a
Member's accounts under the other plans for the same Limitation Year.
If the Annual Additions with respect to the Member under other defined
contribution plans maintained by the Employer are less than the Defined
Contribution Maximum Permissible Amount, and the Employer contribution
that would otherwise be contributed or allocated to the Member's
Separate Accounts under the Plan would cause the Annual Additions for
the Limitation Year to
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exceed this limitation, the amount contributed or allocated shall be
reduced so that the Annual Additions under all such plans for the
Limitation Year shall equal the Defined Contribution Maximum
Permissible Amount. If the Annual Additions with respect to the Member
under such other defined contribution plans in the aggregate are equal
to or greater than the Defined Contribution Maximum Permissible Amount,
no amount shall be contributed or allocated to the Member's Separate
Accounts under the Plan for the limitation year.
(a) Prior to determining the Member's actual Compensation
for the Limitation Year, the Employer may determine
the Defined Contribution Maximum Permissible Amount
for a Member in the manner described in Paragraph (b)
of Section 17.6. As soon as is administratively
feasible after the end of the Limitation Year, the
Defined Contribution Maximum Permissible Amount for
the Limitation Year shall be determined on the basis
of the Member's actual Compensation for the
Limitation Year.
(b) If, pursuant to Paragraph (a) above, a Member's
Annual Additions under the Plan and such other plans
will result in an Excess Amount for a Limitation
Year, the Excess Amount shall be deemed to consist of
the Annual Additions last allocated.
(c) If an Excess Amount was allocated to a Member on an
allocation date of the Plan which coincides with an
allocation date of another plan, the Excess Amount
attributable to the Plan shall be the product of:
(1) The total Excess Amount allocated as of such
date, times
(2) The ratio of (i) the Annual Additions
allocated to the Member for the Limitation
Year as of such date under the Plan to (ii)
the total Annual Additions allocated to the
Member for the Limitation Year as of such
date under this and all other qualified
defined contribution plans.
(d) Any excess amount attributable to the Plan shall be
disposed of in the manner described in Paragraph (c)
of Section 17.6.
17.8 LIMITATION FOR MULTIPLE DEFINED BENEFIT PLAN PARTICIPATION.
If the Employer maintains or at any time maintained one or more
qualified defined benefit plans covering any Member in the Plan, the
sum of the Member's Defined Benefit Plan Fraction and Defined
Contribution Fraction shall not exceed 1.0 in any Limitation Year. The
Annual Additions which may be credited to the Member's Separate
Accounts under the Plan for any Limitation Year shall be limited in
accordance with Paragraph (d) of Section 17.9.
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17.9 MULTIPLE PLANS; OVERALL LIMITATIONS.
For any Member who is covered by the Plan and who is also covered, or
has ever been covered, by another qualified plan maintained by the
Employer, the following provisions shall apply in addition to the
otherwise applicable provisions in Sections 17.3 and 17.4:
(a) For purposes of the benefit limitations in this
Article XVII all defined benefit plans maintained by
the Employer, whether or not terminated, shall be
treated as one defined benefit plan, and all defined
contribution plans maintained by the Employer,
whether or not terminated, are to be treated as one
defined contribution plan.
(b) If a Member is covered by more than one defined
contribution plan maintained by the Employer, the
contribution allocation provisions under Section 17.7
and Paragraph (c) of Section 17.6 shall be applied,
where applicable, so as to satisfy the contribution
allocation limitations stated therein. In any case
where it is necessary to reduce an Excess Amount for
a Limitation Year, reduction shall be made as among
the defined contribution plans in the manner as
provided in such Section 17.7 and Paragraph (c) of
Section 17.6.
(c) If a Member is, or has ever been, covered under more
than one defined benefit plan maintained by the
Employer, the provisions of Sections 17.3 and
Paragraph (a) of Section 17.4 shall apply to his
Annual Benefit. The reduction in the rate of benefit
accrual that is necessary to reduce the Member's
Annual Benefit, as provided in Section Paragraph (a)
of Section 17.3 and Paragraph (a) of Section 17.4 or
Paragraph (d) below, shall be made as among the
defined benefit plans in a manner as determined by
the Employer so as to satisfy the benefit limitations
in this Article XVII and maximize the benefit payable
to the Member.
(d) In any case where it is necessary to limit a benefit
or allocation as provided in Paragraph (b) of Section
17.4 or Section 17.8, such limitations shall be
satisfied by reducing the rate of benefit accruals
under the defined benefit plan or plans to the extent
necessary to satisfy the applicable limitation.
ARTICLE XVIII
TOP-HEAVY PLAN RULES
18.1 APPLICATION.
For any Plan Year in which the Plan is a Top-Heavy Plan (as defined in
Section 2), the provisions set forth in this Article XVIII shall be
applied in accordance with Section 416 of the Code.
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18.2 TOP-HEAVY DEFINITIONS.
The following definitions shall be applicable to this Article XVIII:
(a) The term "COMPENSATION" shall mean the annual
Compensation to be taken into account under the Plan
during any Plan Year in which the Plan is determined
to be a top-heavy plan; provided, however, that such
Compensation shall not exceed $150,000, or such
adjusted amount determined by the Secretary of the
Treasury pursuant to Section 416(d)(2) of the Code.
(b) The term "DETERMINATION DATE" shall mean for any Plan
Year subsequent to the first Plan Year, the last day
of the preceding Plan Year and for the first Plan
Year of the Plan, the last day of that Year.
(c) The term "EMPLOYER" shall mean the Company and each
Controlled Entity.
(d) The term "KEV EMPLOYEE" shall mean any Employee or
former Employee (and the beneficiaries of such
Employer) who at any time during the Plan Year
containing the determination period or the four
preceding Plan Years is or was (i) an officer of the
Employer having annual compensation in excess of 50
percent of the dollar limitation under Section
415(b)(1)(A) of the Code for the calendar year in
which such Plan Year ends; (ii) one of the ten
employees having annual compensation from the
Employer of more than the limitation in effect under
Section 415(c)(1)(A) of the Code and owning (or
considered as owning within the meaning of Section
318 of the Code) the largest interests of the
Employer; (iii) a 5 percent owner of the Employer; or
(iv) a 1 percent owner of the Employer who has an
annual compensation of more than $150,00.
(e) The term "PERMISSIVE AGGREGATION GROUP" shall mean
the Required Aggregation Group of plans plus any
other plan or plans of the Employer which, when
considered as a group with the Required Aggregation
Group, would continue to satisfy the requirements of
Section 401(a)(4) and 410 of the Code.
(f) The term "PRESENT VALUE" shall mean for purposes of
computing present value calculations in determining
the Top-Heavy Ratio, present value calculations based
on the actuarial assumptions as stated in the
applicable plan.
(g) The term "REQUIRED AGGREGATION GROUP" shall mean (a)
each tax qualified plan of the Employer in which at
least one Key Employee participates or participated
at any time during the determination period
(regardless of whether the plan terminated), and (b)
any other tax qualified
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plan of the Employer which enables a plan described
in clause (a) to meet the requirements of Section
401(a)(4) or 410 of the Code.
(h) The term "SUPER TOP-HEAVY GROUP" with respect to a
particular Plan Year shall mean a Required or
Permissive Aggregation Group that, as of the
Determination Date, would qualify as a Top-Heavy
Group under the definition in Paragraph (j) of this
Article XVIII with "90 percent" substituted for "60
percent" each place where "60 percent" appears in
such definition.
(i) The term "SUPER TOP-HEAVY PLAN" with respect to a
particular Plan Year shall mean a plan that, as of
the Determination Date, would qualify as a Top-Heavy
Plan under the definition in Paragraph (k) of this
Article XVIII with "90 percent" substituted for "60
percent" each place where "60 percent" appears in
such definition. A plan is also a "Super Top-Heavy
Plan" if it is part of a Super Top-Heavy Group.
(j) The term "TOP-HEAVY GROUP" with respect to a
particular Plan Year shall mean a Required or
Permissive Aggregation Group if the sum, as of the
Determination Date, of the present value of the
cumulative accrued benefits for Key Employees under
all defined benefit plans included in such group and
the aggregate of the account balances of Key
Employees under all defined contribution plans
included in such group exceeds 60 percent of a
similar sum determined for all employees covered by
the plans included in such group.
(k) The term "TOP-HEAVY PLAN" for any Plan Year beginning
after December 31, 1983, the Plan shall be a
Top-Heavy Plan if any of the following conditions
exist:
(i) If the Top-Heavy Ratio for the Plan exceeds
60 percent and the Plan is not part of any
Required Aggregation Group or Permissive
Aggregation Group of plans.
(ii) If the Plan is a part of a Required
Aggregation Group of plans but not part of a
Permissive Aggregation Group and the
Top-Heavy Ratio for the group of plans
exceeds 60 percent.
(iii) If the Plan is a part of a Required
Aggregation Group and part of a Permissive
Aggregation Group of plans and the Top-Heavy
Ratio for the Permissive Aggregation Group
exceeds 60 percent.
(1) The term "TOP-HEAVY RATIO" shall mean:
(i) While the Employer maintains one or more
defined contribution plans (including any
simplified employee pension plan) and the
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<PAGE> 70
Employer has not maintained any defined
benefit plan which during the 5-year period
ending on the Determination Date(s) has or
has had accrued benefits, the Top-Heavy
Ratio for the Plan alone or for the Required
or Permissive Aggregation Group, as
appropriate, is a fraction, the numerator of
which is the sum of the account balances of
all Key Employees as of the Determination
Date(s) (including any part of any account
balance distributed in the 5-year period
ending on the Determination Date(s)), and
the denominator of which is the sum of all
account balances (including any part of any
account balance distributed in the 5-year
period ending on the Determination Date(s)),
both computed in accordance with Section 416
of the Code. Both the numerator and
denominator of the Top-Heavy Ratio are
adjusted to reflect any contribution not
actually made as of the Determination Date,
but which is required to be taken into
account on that date under Section 416 of
the Code.
(ii) While the Employer maintains one or more
defined contribution plans (including any
simplified employee pension plans) and the
Employer maintains or has maintained one or
more defined benefit plans which during the
5-year period ending on the Determination
Date(s) has or has had any accrued benefits,
the Top-Heavy Ratio for any Required or
Permissive Aggregation Group as appropriate
is a fraction, the numerator of which is the
sum of account balances under the aggregated
defined contribution plan or plans for all
Key Employees, determined in accordance with
Subparagraph (i) above, and the present
value of accrued benefits under the
aggregated defined benefit plan or plans for
all Key Employees as of the Determination
Date(s), and the denominator of which is the
sum of the account balances under the
aggregated defined contribution plan or
plans for all participants, determined in
accordance with Subparagraph (i) above, and
the present value of accrued benefits under
the defined benefit plan or plans for all
participants as of the Determination
Date(s), all determined in accordance with
Section 416 of the Code. The accrued
benefits under a defined benefit plan in
both the numerator and denominator of the
Top-Heavy Ratio are adjusted for any
distribution of an accrued benefit made in
the five-year period ending on the
Determination Date.
(iii) For purposes of subparagraphs (i) and (ii)
above, the value of account balances and the
present value of accrued benefits will be
determined as of the most recent valuation
date that falls within or ends with the
12-month period ending on the Determination
Date, except as provided in Section 416 of
the Code for the first and second plan years
of a defined benefit plan. The account
balances
-65-
<PAGE> 71
and accrued benefits of a participant (1)
who is not a Key Employee but who was a Key
Employee in a prior year, or (2) who has not
performed services for the Employer
maintaining the Plan at any time during the
5-year period ending on the Determination
Date will be disregarded. The calculation of
the Top-Heavy Ratio, and the extent to which
distributions, rollovers and transfers are
taken into account will be made in
accordance with Section 416 of the Code.
Deductible employee contributions shall not
be taken into account for purposes of
computing the Top-Heavy Ratio. When
aggregating plans the value of account
balances and accrued benefits will be
calculated with reference to the
Determination Date that falls within the
same calendar year.
(m) The term "VALUATION DATE" shall mean for purposes of
computing the Top-Heavy Ratio, the Determination
Date.
(n) The term "NON-KEV EMPLOYEE" shall mean any Employee
who is not a Key Employee.
18.3 TOP-HEAVY MINIMUM ALLOCATION RULES.
The following Top-Heavy Plan minimum allocation rules shall apply:
(a) Except as otherwise provided in Paragraphs (b) and
(c) below, the Employer contributions and forfeitures
allocated on behalf of any Member who is not a Key
Employee shall be the lesser of three percent of the
non-Key Employee's compensation or in the case where
the Employer has no defined benefit plan which
designates the Plan to satisfy Section 401 of the
Code, the largest percentage of the first $150,000 of
the Key Employee's compensation, allocated on behalf
of any Key Employee for the Plan Year. Basic
Contributions cannot be used to satisfy the minimum
Section 416 contributions for non-key employees.
Further, in making the determination of the
percentage at which contributions are made for the
Key Employee with the highest percentage, Basic
Contributions on behalf of Key Employees are taken
into account.
(b) The provisions in Paragraph (a) shall not apply to
any Member who is not actively employed as an
Eligible Employee by the Employer on the last day of
the Plan Year for which the minimum allocation is to
be made.
(c) The provisions in Paragraph (a) shall not apply to
any Member to the extent the Member is covered under
any other plan or plans of the Employer, and by the
terms of such plan or plans it is provided that the
minimum allocation or benefit requirements applicable
to Top-Heavy Plans shall be met in such other plan or
plans. If such other plan is, or if one of such other
plans is, a defined benefit plan maintained by the
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<PAGE> 72
Employer, and such plan is a Top-Heavy Plan, the
minimum benefit requirements applicable to Top-Heavy
Plans shall be met under such defined benefit plan as
provided therein, to the extent such benefit can be
provided under such plan or plans. If such other plan
is, or if one of such other plans is, a defined
contribution plan maintained by the Employer, and
such plan is a Top-Heavy Plan, the minimum allocation
requirements shall be met under such plan, except as
may be otherwise provided in such other plan. The
application and administration of the minimum
allocation or benefit requirements for Top-Heavy
Plans shall be satisfied in a manner so as to only
satisfy the minimum allocation/benefit requirements
as permissible and so as to avoid any duplication of
minimum allocation/benefits for non-Key Employees, as
provided under Section 416 of the Code.
18.4 TOP-HEAVY COMPENSATION LIMITATION.
The annual compensation of any Member to be taken into account under
the Plan during any Plan Year in which the Plan is determined to be a
Top-Heavy Plan shall not exceed $150,000 (or such adjusted amount
determined by the Secretary of the Treasury pursuant to Section
416(d)(2) of the Code).
18.5 TOP-HEAVY VESTING PROVISIONS.
In the event that the Plan is determined to be a Top-Heavy Plan with
respect to any Plan Year, a Member who is eligible to receive the
vested interest of his IAR Account in accordance with the provisions of
Section 7.2 shall be vested in a portion of IAR Account which shall be
no less than it would be under following vesting schedule:
<TABLE>
<CAPTION>
Years of Service Vested Percentage
---------------- -----------------
<S> <C>
Less than two years 0%
Two but less than three years 20%
Three but less than four years 40%
Four but less than five years 60%
Five but less than six years 80%
Six or more years 100%
</TABLE>
18.6 TOP-HEAVY PLAN/BENEFIT LIMITATIONS.
In any Plan Year in which the Plan is a Top-Heavy Plan, the
denominators of the defined benefit fraction and the defined
contribution fraction (as such terms are used in applying the benefit
limitation provisions of Section 415 of the Code) shall be computed
using 100 percent of the dollar limitation instead of 125 percent.
Executed at Houston, Texas, this 31st day of July, 1997.
-67-
<PAGE> 73
COOPER CAMERON CORPORATION
By /s/ FRANKLIN MYERS
----------------------------
Title: Senior Vice President
-----------------------
-68-
<PAGE> 1
EXHIBIT 10.25
COOPER CAMERON CORPORATION
1998 MANAGEMENT INCENTIVE COMPENSATION PLAN
I. PURPOSE
The Cooper Cameron Management Incentive Compensation Plan (the "Plan"),
has been designed to motivate and reward key management employees whose
efforts impact the performance of Cooper Cameron Corporation (the
"Company") and its subsidiaries through the achievement of
pre-established financial and individual objectives.
Performance under the Plan is measured on the fiscal (calendar) year and
payments under the Plan are made annually.
II. ELIGIBILITY
Officers and key management employees may be eligible to participate in
the plan, upon the recommendation of their manager and approval by the
Chief Executive Officer of the Company. An employee who is eligible to
participate in any other cash incentive plan of the company is not
eligible to participate in this Plan.
III. AWARD CRITERIA
The Compensation Committee of the Board of Directors is responsible for
approving the Company performance objectives that are used to determine
awards paid for Company objectives under this plan. Performance
objectives for operating units below the corporate level will be
established by the appropriate manager subject to overall approval of the
Chief Executive Officer. For 1998, performance under the Plan will be
determined based on:
Earnings Before Interest, Taxes and Depreciation (EBITDA)
Return on Equity (ROE)
The basic measure of financial performance under this Plan will be
EBITDA. In addition, ROE will be used as an attainment hurdle, which must
be reached before bonuses are paid in full. For 1998, the Board has
established a 15% ROE hurdle. If this ROE target is not achieved for the
year, bonuses, to the extent earned, will be reduced by 50%. The Chief
Executive Officer may also implement additional division specific payout
hurdles from time to time.
In addition, up to 25% of an individual's award may, at the discretion of
the individual's immediate manager, be based on individual objectives
established at the beginning of the calendar year.
IV. TARGET AWARDS
A target award percentage is established for each position eligible to
participate in the Plan. Target awards (TA's) may range from 10% to 75%,
depending on position, of each participant's January 1 base pay (or pay
at the time of becoming a participant, if later).
Generally, the participating employee receives the Target Award when
performance under the plan meets, but does not exceed, the
pre-established performance objectives.
<PAGE> 2
V. AWARD CATEGORIES
A participant may have Company Objectives, Division Objectives, Operating
Unit Objectives and/or Individual Objectives, each of which is assigned
by the immediate manager and provided a weighting in determining the
Target Award.
VI. PERFORMANCE MEASUREMENT
Minimum This is the lowest level of performance at which
an award will be generated for this particular
objective of the plan. The award paid for
performance at the minimum level is 50% of Target
Award. There will be no payment for performance
below the minimum level.
Target Performance This is the expected level of performance based
on the current year's financial plan.
Maximum This is the performance level for which the
maximum award under the plan will be paid. The
maximum award under the plan is limited to 200% of
the Target Award.
VII. AWARD CALCULATION
Attainment on the financial objectives of the Plan is measured based on
actual results versus Plan targets, with performance above or below Plan
targets prorated up/down to the maximum/minimum levels established for
each financial objective.
For example, assume the following hypothetical objectives:
Minimum Level $180 million
Company EBITDA Target $200 million
Maximum Level $230 million
At EBITDA performance of $220 million, attainment = 166.6% (Prorated
between $200 million objective and $230 million maximum).
At EBITDA performance of $185 million, attainment = 62.5% (Prorated
between $200 million objective and $180 million minimum objective).
Following are examples of how payouts are determined under the Plan once
attainment has been calculated:
A. Corporate Participant:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
EBITDA ATTAINMENT ROE HURDLE ACHIEVED PARTICIPANT AWARD
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
110% YES 110.0%
- -----------------------------------------------------------------------------------------------------------
110% NO 55.0%
- -----------------------------------------------------------------------------------------------------------
85% YES 85.0%
- -----------------------------------------------------------------------------------------------------------
85% NO 42.5%
- -----------------------------------------------------------------------------------------------------------
180% YES 180.0%
- -----------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 3
B. Division Operating Unit Participant without Individual Objectives:
Assume ROE hurdle is achieved
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
ATTAINMENT WEIGHT PERFORMANCE LEVEL
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Division EBITDA 110% 30% 33.0%
- ---------------------------------------------------------------------------------------------------
Operating Unit EBITDA 85% 50% 42.5%
- ---------------------------------------------------------------------------------------------------
Individual Objective 100% 20% 20.0%
- ---------------------------------------------------------------------------------------------------
PARTICIPANT AWARD 95.5%
- ---------------------------------------------------------------------------------------------------
</TABLE>
C. Division Operating Unit Participant with Individual Objectives:
Assume ROE hurdle is achieved
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
EBITDA ATTAINMENT WEIGHT PERFORMANCE LEVEL
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Division 110% 40% 44.0%
- -------------------------------------------------------------------------------------------------------
Operating Unit 85% 40% 34.0%
- -------------------------------------------------------------------------------------------------------
INDIVIDUAL OBJECTIVE ATTAINMENT
- -------------------------------------------------------------------------------------------------------
Working Capital 40% 10% 4.0%
- -------------------------------------------------------------------------------------------------------
Bookings 100% 10% 10.0%
- -------------------------------------------------------------------------------------------------------
PARTICIPANT AWARD 92.0%
- -------------------------------------------------------------------------------------------------------
</TABLE>
For example, if the participant's salary is $80,000, target award is 20%
($16,000) = payout of $16,000 x 92% = $14,720.
VIII. DISCRETIONARY AWARDS
There may be unusual situations where a manager feels that the reward
generated under this plan does not properly reflect the contribution of
the participant. In this situation, the participant's immediate manager
has the right to recommend an adjustment, either up or down, of up to 25%
of the participant's Target Award.
IX. INDIVIDUAL OBJECTIVES
A participant's immediate manager has the discretion to set individual
objectives as part of the employee's performance criteria under the
incentive plan. The use of individual objectives is subject to the
following requirements:
The manager must specify the weighting of the individual objectives in
the overall Target Award, not to exceed 25% of the total award
Individual objectives must be specifically identified at the beginning of
the plan year and must be quantifiable in terms of both the targeted
achievement and the time frame in which the objective is to be completed.
The portion of the award payment generated from individual objectives may
be adjusted up or down based on the manager's assessment of the
individual's results on the established objectives.
<PAGE> 4
X. ALTERNATIVE CALCULATIONS
There may be circumstances under which the financial performance of the
Company does not generate an award under this program. The nature and
scope of the Company's operations are such that at times unanticipated
economic and market conditions may render pre-established financial
objectives unattainable in any given plan year. If, in the opinion of the
Committee, such circumstances should arise, an alternative bonus
calculation may be performed. Such calculation will rank the Company's
EBITDA against a pre-established peer group of companies. If the
Company's performance is at or above 60th percentile, then a bonus
payment equal to 50% of target award may be paid.
XI. MODIFICATIONS
If, during a Plan Year, there has occurred or should occur, in the
opinion of the Company, a significant beneficial or adverse change in
economic conditions, the indicators of growth or recession in the
Company's business segments, the nature of the operations of the Company,
or applicable laws, regulations or accounting practices, or other matters
which were not anticipated by the Company when it approved Company and
Division Objectives for the Plan Year and which, in the Company's
judgment, had, have, or are expected to have a substantial positive or
negative effect on the performance of the Company as a whole, the
Compensation Committee, subject to ratification by the Board, may modify
or revise the Performance Objectives for the Plan Year in such manner as
it may deem appropriate in its sole judgment. By way of illustration, and
not limitation, such significant changes might result from sales of
assets, or mergers, acquisitions, divestitures, or spin-offs.
XII. PAYMENT
Any awards generated under the 1998 MICP must be approved by the
Compensation Committee of the Board of Directors. It is anticipated that
any MICP awards generated in 1998 will be paid during February 1999.
Employees terminating prior to the end of the fiscal year are not
eligible for payment of any award under this plan unless termination is
due to retirement or economic reduction in force. In such cases, any
bonus payments will be prorated to the date of termination and determined
on the basis of bonuses actually paid to similarly situated employees.
<PAGE> 1
EXHIBIT 13.1
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION OF COOPER CAMERON CORPORATION
The following discussion of the Company's historical results of operations
and financial condition should be read in conjunction with the Company's
consolidated financial statements and notes thereto included elsewhere in this
Annual Report. All per share amounts included in this discussion are based on
"diluted" shares outstanding.
OVERVIEW
The Company's operations are organized into two separate and distinct
business segments -- Petroleum Production Equipment and Compression and Power
Equipment. Petroleum Production Equipment, which includes the Cameron division
and Wheeling Machine (through November 1995), manufactures and markets a wide
variety of equipment for use in oil and natural gas production, transmission and
drilling including valves, wellhead equipment, blowout preventers ("BOPs") and
control systems for land, platform and subsea applications. Compression and
Power Equipment, which includes Cooper Energy Services and Cooper
Turbocompressor, manufactures and markets engines, gas turbines and centrifugal
gas and air compressors for use in oil and natural gas production and
transmission as well as a wide variety of other industrial applications.
The following table sets forth the percentage relationship to revenues of
certain income statement items for the periods presented.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
- -----------------------------------------------------------------------------------------------------
1997 1996 1995
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues 100.0% 100.0% 100.0%
- -----------------------------------------------------------------------------------------------------
Costs and expenses:
Cost of sales (exclusive of depreciation and amortization) 71.8 72.8 77.1
Depreciation and amortization 3.7 4.5 6.3
Selling and administrative expenses 11.9 14.1 15.8
Interest expense 1.6 1.5 2.0
Provision for impairment of goodwill -- -- 38.6
Nonrecurring/unusual charges -- 0.5 3.6
- -----------------------------------------------------------------------------------------------------
Total costs and expenses 89.0 93.4 143.4
- -----------------------------------------------------------------------------------------------------
Income (loss) before income taxes 11.0 6.6 (43.4)
Income tax provision (3.2) (2.0) (0.3)
- -----------------------------------------------------------------------------------------------------
Net income (loss) 7.8% 4.6% (43.7)%
=====================================================================================================
</TABLE>
1997 COMPARED TO 1996
Cooper Cameron Corporation had net income of $140.6 million, or $2.53 per
share, for the twelve months ended December 31, 1997. This compares to $64.2
million, or $1.21 per share (adjusted for a 2-for-1 stock split), for the same
period in 1996. The improvement was largely the result of strong performance in
the Petroleum Production Equipment segment, where operating income increased by
123%. Full year 1997 pre-tax income includes a $5.7 million charge, or $.07 per
share, for a settlement with a customer and a $2.6 million charge, or $.03 per
share, for cost rationalization, both in the Compression and Power Equipment
segment. The settlement with a customer related to a commercial R&D compression
project undertaken by Cooper Energy Services. The charge was for an order taken
during the fourth quarter of 1995, which called for the development of a new
high-performance barrel compressor for use on an offshore platform. Since the
newly designed compressor did not meet the customer's specifications, the
Company agreed to provide a replacement compressor from another source to be
used with the Cooper Rolls turbine, and to absorb the costs related to the delay
in delivery of the equipment. The Company has no other orders of this type. The
$2.6 million covers further cost rationalization efforts at Cooper Energy
Services, including approximately $1.1 million of severance or relocation costs
for a total of 23 people and $1.5 million related to the closure of certain
sales and distribution facilities as well as one small manufacturing facility.
The full year 1996 pre-tax income includes nonrecurring or unusual charges
totaling $7.3 million, or $.10 per share (see Note 3 of the Notes to
Consolidated Financial Statements).
REVENUES
Revenues for 1997 totaled $1.81 billion, an increase of 30% from the $1.39
billion in 1996. The June 1996 Ingram Cactus acquisition, which is included for
twelve months in 1997 and six months in 1996, and strong market fundamentals,
driven largely by increasing worldwide demand for oil and natural gas, were the
primary factors in this improvement. Although periodic fluctuations were
experienced, particularly in the fourth quarter of 1997, oil and natural gas
prices remained at levels acceptable to the
21
<PAGE> 2
marketplace, and continued to provide the impetus for increased spending by
national oil companies and major and independent producers. While the economic
and financial unrest in Southeast Asia and uncertainty regarding the quantity
and timing of oil shipments from Iraq have affected the short-term price of oil,
there has been no indication to date that the Company's oil and gas customers
have reduced their spending plans. Further declines in oil prices, however,
particularly if viewed by the market as being a long-term trend, or declines in
the price of natural gas, depending on severity and perceived duration, could
result in either a reduction in the market growth which the Company currently
anticipates or even a reduction in current activity levels. Approximately 77% of
the improvement in total revenues was from the Petroleum Production Equipment
segment and 23% 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.
Backlog at December 31, 1997 was $786.1 million, an increase of 8% from year-end
1996.
The Petroleum Production Equipment segment's revenues totaled $1.11
billion, an increase of 39% over 1996 revenues of $798.6 million. The segment's
revenue growth was across all geographic areas and product lines. This increase
was primarily due to the improved market conditions discussed above, which
resulted in volume growth as well as favorable pricing, and the Ingram Cactus
acquisition. Revenues from several small product line acquisitions were minimal.
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 the
segment exceeded $300 million in each quarter of 1997 and totaled $1.28 billion
for the year, an increase of 36% from the 1996 level. This improvement was
across all product lines, with significant growth in drilling, subsea and
surface, which increased by 80% (from $126.5 million to $227.2 million), 34%
(from $172.0 million to $230.0 million), and 33% (from $434.8 million to $576.8
million), respectively. Backlog for the segment ended the year at $576.9
million, an increase of 31% from year-end 1996.
Revenues for the Compression and Power Equipment segment of $686.2 million
improved by 17% from the $588.5 million in 1996. Improvements of 16% and 17%,
respectively, were reflected in the natural gas compression equipment and
centrifugal air compressor businesses. The most significant increases in the
natural gas compression equipment business were in large international gas
turbine and compressor project revenues and parts and service activity. Of
particular note was the improvement in parts and service, which increased by 12%
from the 1996 level, including benefits derived from various marketing and
pricing programs that were initiated in late 1996 and during 1997. Reflecting
these factors, as well as normal seasonality, the most dramatic increase was in
the fourth quarter of 1997, where parts and service revenues increased by 35%
from the fourth quarter of 1996 and by 28% from the next largest quarter of
1997. Centrifugal air compressor shipments reflected year-to-year improvement in
each quarter of 1997 from strong demand in both industrial and air separation
applications, particularly in international markets. Order activity for the
Compression and Power Equipment segment increased by 11% from 1996 primarily due
to the effect of large gas turbine and compressor project orders received in the
first half of 1997 and improved natural gas compression equipment parts and
service activity. Due to the size and complex nature of major 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. Centrifugal air compressor
orders continued at a historically high level and were virtually unchanged from
prior year. While orders slowed from Southeast Asia during the fourth quarter of
1997 and have continued to be soft in early 1998, no significant cancellations
have been received, and the effect is not currently expected to be material.
Backlog for the segment ended 1997 at $209.2 million, a decline of 27% from
year-end 1996, due primarily to the timing of major gas turbine and compressor
projects and the addition of manufacturing capacity for centrifugal air
compressors during the past two years, which increased throughput and shortened
lead times to customers.
COSTS AND EXPENSES
Cost of sales (exclusive of depreciation and amortization) of $1.30 billion
in 1997 increased by $286.4 million, or 28%, compared with $1.01 billion in
1996. This increase was largely the result of the previously discussed 30%
revenue growth and the two 1997 charges. As discussed above, revenues increased
by 39% in the Petroleum Production Equipment segment and 17% in the Compression
and Power Equipment segment, while cost of sales increased by 37% and 18%,
respectively. This resulted in a gross margin percentage (defined as revenues
less cost of sales as a percentage of revenues) of 30.0% in the Petroleum
Production Equipment segment, compared to 28.6% in 1996. This increase resulted
from improved pricing, the leveraging of various manufacturing support costs
that are relatively fixed in the short-term, and cost reductions including
benefits from capital expenditures. For the Compression and Power Equipment
segment, the gross margin percentage declined from 25.2% in 1996 to 24.4% in
1997. Contributing to the deterioration from the prior year were the charges
discussed previously as well as very competitive pricing in the gas turbine and
compressor project business and in the aftermarket for gas compression equipment
replacement parts. Additionally, the significant increase in the lower margin
gas turbine and compressor project revenues, partially offset by higher parts
sales, 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.
22
<PAGE> 3
Depreciation and amortization expense increased by $3.4 million, from $62.5
million in 1996 to $65.9 million in 1997, primarily in the Petroleum Production
Equipment segment. This increase was due to the mid-year 1996 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 $20.3 million, or 10%,
from $195.0 million in 1996 to $215.3 million in 1997, primarily in the
Petroleum Production Equipment segment. This increase was due to the Ingram
Cactus acquisition, higher revenues, 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.
Despite conscious increases in selling and marketing costs, as a percentage of
revenues, these costs for the Company decreased from 14.1% in 1996 to 11.9% in
1997 due to the leveraging effect of the increased volume, 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 $234.4 million for the Company, an increase of $105.2 million
from 1996. The Petroleum Production Equipment segment improved from $71.6
million in 1996 to $159.8 million in 1997, while the Compression and Power
Equipment segment increased from $57.6 million in 1996 to $74.6 million in 1997.
Interest expense increased from $20.9 million in 1996 to $28.6 million in
1997 primarily due to an increase in the average debt level related to
acquisitions and higher working capital requirements in support of the revenue
and backlog growth. Average interest rates in 1997 were 6.6% compared to 6.4% in
1996.
Income taxes were $58.8 million in 1997, an increase of $31.0 million from
1996. This increase was due to the year-to-year improvement in earnings. The
Company's effective tax rate declined from 30.2% in 1996 to 29.5% in 1997 mainly
due to a change in the mix of domestic and foreign earnings for 1997 versus
1996.
1996 COMPARED TO 1995
Cooper Cameron Corporation had net income of $64.2 million, or $1.21 per
share (adjusted for a 2-for-1 stock split), for the twelve months ended December
31, 1996, compared to a net loss of $500.1 million, or $9.98 per share on a pro
forma basis (adjusted for a 2-for-1 stock split), for the same period in 1995.
The full year 1996 income includes nonrecurring or unusual charges totaling $7.3
million ($5.1 million after tax), or $.10 per share (see Note 3 of the Notes to
Consolidated Financial Statements). Included in the 1995 net loss were
nonrecurring or unusual charges totaling $482.5 million pre-tax (also see Note
3), and several unusual items affecting the tax provision as explained in Note
13. Excluding these items, the net income for 1996 would have been $69.3
million, or $1.31 per share, compared to a 1995 net loss of $13.5 million, or
$.27 per share. The remainder of this discussion is based on the Company's
results exclusive of these nonrecurring or unusual items.
REVENUES
Revenues for 1996 totaled $1,388.2 million, an increase of 21% from the
$1,144.0 million in 1995. This increase was due to generally improved market
fundamentals, driven largely by increasing worldwide demand for oil and natural
gas, and the June 1996 acquisition of Ingram Cactus Company. Although some
fluctuations were experienced, oil and natural gas prices improved during the
period, providing the impetus for increased exploration and production spending
by major and independent producers. Approximately 61% of the improvement in
revenues was in the Petroleum Production Equipment segment and 39% in the
Compression and Power Equipment segment. The favorable market conditions
continued throughout the year and the Company's backlog, defined as firm
customer orders for which a purchase order has been received, satisfactory
credit or financing arrangements exist and delivery is scheduled, ended 1996 at
$728.3 million, an increase of 24% from the $588.1 million at year-end 1995.
The Petroleum Production Equipment segment's revenues of $798.6 million
increased 23% over 1995 revenues of $648.1 million. (Full year 1995 revenues
included $14.0 million related to the Wheeling Machine Products Division, which
was sold during the fourth quarter of 1995.) Because the acquired Ingram Cactus
operations have been substantially integrated into the Cameron business,
separate data on the revenues and earnings attributable to the acquisition are
not available. Management estimates, however, that the revenues would have been
approximately $65 million for the six-month period following the acquisition
date with a resulting impact on earnings essentially proportionate to the
remainder of the Cameron business. The effect of the fourth quarter Tundra Valve
& Wellhead acquisition on revenues was minimal. The remainder of the revenue
increase was due to the generally improved market conditions discussed
previously and shipments associated with large subsea projects in the North Sea.
Order activity for the segment increased by 42% from the 1995 level, with the
second half of 1996 up by 48% over the first half of 1996. This improvement was
across all lines of the business and not the result of large subsea projects
that can cause significant fluctuations from period to period. Year-end 1996
backlog was $440.4 million, an increase of 67% from year-end 1995.
Revenues for the Compression and Power Equipment segment of $588.5 million
improved by 19% from $493.6 million in 1995. This improvement resulted from
increased international gas turbine and compressor project revenues and strong
centrifugal air compressor activity. The increased international gas turbine and
compressor project revenues were the result of several large orders received in
the second half of 1995, which, due to the lead time for this equipment, did not
generate revenues until the second half of 1996. Revenues from reciprocating
natural gas compression equipment were virtually unchanged from
23
<PAGE> 4
1995, as the Company's new high-speed products were slow to be accepted by the
market. This began to improve in the third quarter of 1996 and orders for this
product line increased sharply during the second half of the year. The majority
of this equipment was not shipped until 1997 due to the lead time for these
products. Gas compression equipment parts and service revenues declined somewhat
in 1996 as customers experiencing record demand levels delayed preventive
maintenance, outsourced inventory management, and purchased non-OEM or
refurbished parts. These changes placed additional pressure on price and lead
times. In response, several programs were initiated during 1996, including the
cost rationalization reflected in the nonrecurring/unusual charges. On a
favorable note, centrifugal air compressor revenues increased by 24% from 1995.
Continued strong demand in both industrial and air separation applications was
driven by economic growth, particularly in Southeast Asia and the Pacific Rim.
Order activity for the Compression and Power Equipment segment declined by 7%
from 1995 primarily due to the effect of large gas turbine and compressor
projects discussed previously. Due to the size and complex nature of these
projects, the specific timing of an order is very difficult to predict and can
cause significant fluctuations in the year-to-year order level for this segment.
Year-end backlog was $287.9 million, down 11% from year-end 1995.
COSTS AND EXPENSES
Cost of sales (exclusive of depreciation and amortization) of $1,010.6
million in 1996 increased by $128.8 million, or 15%, compared with $881.8
million in 1995. This increase was primarily the result of the previously
discussed revenue growth, partially offset by several factors. As discussed
above, revenues increased by 23% in the Petroleum Production Equipment segment
and 19% in the Compression and Power Equipment segment, while cost of sales
increased 11% and 20%, respectively. This resulted in a gross margin percentage
(defined as revenues less cost of sales as a percentage of revenues) of 28.6%
for the Petroleum Production Equipment segment, compared to 20.6% in 1995. This
increase resulted from improved pricing, several very low margin projects
shipped during the first half of 1995 that did not recur in 1996, the leveraging
of various manufacturing support costs that are relatively fixed in the
short-term, and cost reduction programs. For the Compression and Power Equipment
segment, the gross margin percentage remained essentially flat at 25.2% in 1996
versus 25.6% in 1995. This was the result of several offsetting factors. Pricing
pressure in the very competitive gas turbine and compressor project business and
in the aftermarket for gas compression equipment replacement parts was only
partially offset by modest price increases in the centrifugal air compressor
business. Also contributing to the decline was the year-to-year decrease in
higher margin gas compression equipment aftermarket parts and service revenues.
Providing an offset were increased production levels during 1996 which allowed
the leveraging of various manufacturing support costs and the fourth quarter
effect of the cost rationalization program that will fully benefit 1997.
Depreciation and amortization decreased by $9.3 million, from $71.8 million
in 1995 to $62.5 million in 1996, primarily in the Petroleum Production
Equipment segment. This decline was largely due to the effect on amortization of
the $441.0 million goodwill write-off recorded in 1995, as discussed in Note 3
of the Notes to Consolidated Financial Statements, and relatively low capital
expenditures during the second half of 1995 and the first three quarters of
1996. Providing a partial offset is the additional depreciation and amortization
related to the Ingram Cactus acquisition.
Selling and administrative expenses increased by $13.9 million, or 8%, from
$181.1 million in 1995 to $195.0 million in 1996. This increase was in the
Petroleum Production Equipment segment and related to the higher revenue levels,
the Ingram Cactus acquisition and the Company's conscious effort to improve its
market presence. Providing a partial offset were ongoing cost control programs,
including lower employment levels, in the Compression and Power Equipment
segment. General corporate expenses declined slightly from 1995 to 1996. As a
percentage of revenues, selling and administrative costs for the Company
decreased from 15.8% in 1995 to 14.1% in 1996. The Petroleum Production
Equipment segment decreased from 15.3% to 14.9%, while the Compression and Power
Equipment segment declined from 14.4% to 11.3%.
Reflecting the various factors discussed above, operating income (defined
as earnings before nonrecurring/unusual items, corporate expenses, interest and
taxes) totaled $129.2 million for the Company, an increase of $111.8 million
from 1995. The Petroleum Production Equipment segment improved from a loss of
$12.6 million in 1995 to income of $71.6 million in 1996, while the Compression
and Power Equipment segment improved from $30.0 million in 1995 to $57.6 million
in 1996.
Interest expense decreased from $23.3 million in 1995 to $20.9 million in
1996 due to a reduction in the average debt level and lower interest rates.
During 1995 debt declined from a fixed $375.0 million allocation from Cooper for
the first half of the year to $264.5 million at year-end. Debt increased to
$394.6 million at year-end 1996 due to acquisitions totaling $113.9 million for
various assets of Ingram Cactus Company, Tundra Valve & Wellhead, and ENOX
Technologies, Inc., and additional working capital requirements in support of
the revenue growth. Average interest rates in 1996 were 6.4% compared to 6.7% in
1995.
Income taxes, excluding the effect on taxes of the nonrecurring/unusual
pre-tax charges, was an expense of $30.0 million in 1996. This compares to a
credit of $0.4 million in 1995, which excludes both the effect on taxes of the
nonrecurring or unusual charges as well as the unusual provision adjustments
which are discussed in Note 13 of the Notes to Consolidated Financial
Statements. The Company's effective tax rate for 1996 was 30.2% compared with
overall U.S., including state and local, and foreign statutory rates of
approximately 38%. The Company's favorable rate primarily reflects the absence
of tax expense on the 1996 earnings of several international operations. In
years prior to 1996, these same operations had taxable losses which were not
tax-benefited. The recognition of these benefits in 1996 then eliminated the tax
expense that would otherwise have occurred.
24
<PAGE> 5
PRICING AND VOLUME
The Company believes that during 1997 and 1996 unit volumes increased in
both the Petroleum Production Equipment and the Compression and Power Equipment
segments.
In the Petroleum Production Equipment segment, moderate price increases in
excess of cost increases were implemented during 1997, while price increases
slightly in excess of cost increases were realized in 1996. In the Compression
and Power Equipment segment, prices declined slightly during 1997 and 1996 due
to the competitive condition of the natural gas compression equipment markets in
both years.
LIQUIDITY AND CAPITAL RESOURCES
During 1997, the Company reduced total indebtedness by $17.7 million. The
significant improvement in earnings discussed previously and activity under the
Company's stock option and other employee benefit plans was largely offset by
increases in working capital, capital expenditures, and the purchase of treasury
stock. The increase in working capital was associated with improved revenues and
the significantly higher year-end backlog in the Petroleum Production Equipment
segment. At December 31, 1997, the Compression and Power Equipment segment had
$43.2 million of receivables recognized under the percentage of completion
method, of which $34.6 million had not yet been billed to customers. The
Company's liquidity can be susceptible to fairly large swings in relatively
short periods of time. This is largely because of the cyclical nature of the
industry in which the Company competes and the long time period from when the
Company first receives a large equipment order until the product can be
manufactured, delivered, and the receivable collected. As a result, while the
Company believes that its operating results will again improve during 1998 and
that this should allow for year-over-year debt reductions, the Company has
substantially increased its planned 1998 capital spending, may continue to buy
back stock, and continues to actively seek opportunities to grow the business
through acquisitions. As a consequence, unanticipated growth in large orders
with long lead times, further overall market expansion, additional stock
repurchases, or acquisitions could change the timing and magnitude of the
reductions that are currently expected. As described in Note 11 of the Notes to
Consolidated Financial Statements, 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.
Prior to June 30, 1995, the Company's operations participated in the
consolidated worldwide debt and cash management system of Cooper Industries,
Inc. (Cooper). As a result, the Company's financial statements reflected up
through June 30, 1995 the transfer to Cooper of all funds not otherwise utilized
in the business and a constant $375 million of allocated indebtedness. At the
time of the Exchange Offer with Cooper stockholders, the Company entered into a
third party Credit Agreement which is described in Note 11 of the Notes to
Consolidated Financial Statements. Subsequent to June 30, 1995, the Company's
liquidity and capital resources reflect its stand-alone operations. During its
first six months of stand-alone operations, the Company was able to
substantially improve its overall liquidity by reducing total indebtedness from
$375 million to $264.5 million. Aided by improving earnings, and prior to the
mid-June 1996 acquisition of Ingram Cactus, the Company continued to generate
excess cash flows and reduced debt by a further $15 million. In the balance of
1996, in addition to the $100 million cost of the Ingram Cactus acquisition and
in spite of continued earnings growth, the company's total debt increased by
approximately $45 million. This increase is primarily attributable to working
capital requirements associated with long lead time equipment orders within the
Compression and Power Equipment segment. At December 31, 1996, this segment had
over $65 million of receivables recognized under the percentage of completion
method, of which $37 million had not yet been billed to customers.
WORKING CAPITAL
Operating working capital is defined as receivables and inventories less
accounts payable and accrued liabilities, excluding the effect of foreign
currency translation, acquisitions and divestitures, and the effect of the
nonrecurring/unusual charges discussed above.
During 1997, operating working capital increased $88.7 million. Receivables
increased as a result of higher revenues. Receivables recognized under the
percentage of completion method of accounting declined from $65.4 million at
year-end 1996 to $43.2 million at year-end 1997. This relates to the timing of
orders received for large gas turbine and compressor projects in the Compression
and Power Equipment segment. Inventories increased largely in the Petroleum
Production Equipment segment in support of the significantly higher year-end
backlog level and general improvement in activity. The increase in accounts
payable and accrued liabilities reflected the higher business levels, an
increase in cash advances and progress payments received from customers on
orders in backlog, as well as continuing focus on managing the Company's
payments to vendors.
During 1996, operating working capital increased $121.8 million.
Receivables increased as a result of higher revenues, including $65.4 million
recognized under the percentage of completion method of accounting at year-end
1996. This relates to large gas turbine and compressor projects in the
Compression and Power Equipment segment. At year-end 1995, there was no revenue
recognized under percentage of completion accounting. Inventories increased
largely in the Petroleum Production Equipment segment as a result of the Ingram
Cactus acquisition and in support of the significantly higher year-end backlog
level. The increase in accounts payable and accrued liabilities reflected the
higher business levels, as well as continuing focus on managing the Company's
payments to vendors.
25
<PAGE> 6
During 1995, operating working capital decreased $99.4 million. Because of
various reclassifications during the year, including the large increase in
excess, obsolete and slow-moving inventory reserves discussed in Note 3 of the
Notes to Consolidated Financial Statements, only a portion of the year-to-year
decrease reflects actual cash flows. A $21.2 million receivable decline,
exclusive of a reclassification of $10.3 million of receivables from customers
in Iran as long-term, resulted from lower revenues in December of 1995 than in
1994 and improved collections during the year. The decrease in inventories
largely resulted from the reclassifications noted above, while the increase in
accounts payable and accrued liabilities reflected increased cash advances and
progress payments received from customers against orders in backlog as well as
increases in certain normal trade payables and operating accruals.
CASH FLOWS
During 1997, cash flows from operating activities totaled $115.7 million,
proceeds from the sales of plant and equipment totaled $4.9 million, and funds
received from the exercise of stock options and other employee benefit plans
totaled $23.5 million. The Company expended $6.3 million on several small
product line acquisitions, $72.3 million on capital projects, $2.3 million for
principal payments on capital leases, and $33.7 million on the purchase of
treasury stock. This resulted in a decrease in outstanding debt of $26.7
million, and an increase in cash of $2.5 million.
During 1996, cash flows from operating activities totaled $13.2 million,
proceeds from the sales of plant and equipment totaled $2.6 million, and funds
received from the exercise of stock options and other employee benefit plans
totaled $6.0 million. The Company expended $113.9 million on the acquisition of
certain assets of Ingram Cactus Company, Tundra Valve & Wellhead and ENOX
Technologies, Inc., $37.1 million on capital projects, and $1.2 million on the
purchase of treasury stock. This resulted in an increase in outstanding debt of
$130.1 million and a decrease in cash of $3.0 million.
During 1995, cash flows from operating activities totaled $142.3 million,
proceeds from sales of plant and equipment totaled $5.5 million, and proceeds
from the sale of Wheeling were $14.2 million. The Company expended $39.5 million
on capital projects and reduced outstanding debt by $110.5 million, leaving a
cash residual of approximately $12.1 million.
CAPITAL EXPENDITURES AND COMMITMENTS
Capital projects to reduce product costs, improve product quality, increase
manufacturing efficiency and operating flexibility, or expand production
capacity resulted in expenditures of $72.3 million in 1997 compared to $37.1
million in 1996 and $39.5 million in 1995.
At December 31, 1997, internal commitments for capital expenditures
amounted to approximately $100.0 million compared to $58.2 million at year-end
1996. The commitments for 1998 include approximately $53.8 million for capacity
expansion, $32.1 million for machinery and equipment modernization and
enhancement, $8.6 million for various computer hardware and software projects,
$1.7 million for environmental projects, and $3.8 million for other items.
Expenditures in 1997 and commitments for 1998 are focused on generating
near-term returns by increasing factory throughput and improving delivery times
for customers.
EFFECT OF INFLATION
During each year, inflation has had a relatively minor effect on the
Company's reported results of operations. This is true for three reasons. First,
in recent years, the rate of inflation in the Company's primary markets has been
fairly low. Second, the Company makes extensive use of the LIFO method of
accounting for inventories. The LIFO method results in current inventory costs
being matched against current sales dollars, such that inflation affects
earnings on a current basis. Finally, many of the assets and liabilities
included in the Company's Consolidated Balance Sheets were recorded in business
combinations that were accounted for as purchases. At the time of such
acquisitions, the assets and liabilities were adjusted to a fair market value
and, therefore, the cumulative long-term effect of inflation is reduced.
ENVIRONMENTAL REMEDIATION
The cost of environmental remediation and compliance has not been an item
of material expense for the Company during any of the periods presented, other
than with respect to the Osborne Landfill in Grove City, Pennsylvania. The
Company's facility in Grove City disposed of wastes at the Osborne Landfill from
the early 1950s until 1978. Cooper, on behalf of the Company, developed a
remediation plan, which was accepted by the U. S. Environmental Protection
Agency as the preferred remedy for the site. Substantial amounts were expended
for this cleanup during 1996 in compliance with the remediation plan and the
order issued by the EPA in 1991. The construction phase of the cleanup was
completed during 1997 and the remaining costs relate to ground water treatment
and monitoring. The Company's balance sheet at December 31, 1997 includes
accruals totaling $4.6 million for environmental matters ($5.6 million at
December 31, 1996). Cooper Cameron has been identified as a potentially
responsible party with respect to five sites designated for cleanup under the
Comprehensive Environmental Response Compensation and Liability Act ("CERCLA")
or similar state laws. Although estimated cleanup costs have not yet been
determined for certain of these sites, the Company believes, based on its review
and other factors, that the costs related to these sites will not have a
material adverse effect on the Company's results of operations, financial
condition or liquidity. However, no assurance can be given that the actual cost
will not exceed the estimates of the cleanup costs once determined.
26
<PAGE> 7
YEAR 2000
During 1997, and continuing in 1998, the Company began an evaluation of its
internal processes, including data processing systems, for issues that could
arise as a result of what is commonly known as the Year 2000 problem. The
Company is also working with its primary customers and vendors to ensure they
have addressed these issues as well. Costs to be incurred as a result of these
efforts, including the cost of any changes that may be required in either
processes or systems, are not expected to be material.
OTHER
In various places in this Annual Report, including the information set
forth above in the Company's Management Discussion and Analysis, there may be
indications of management's current expectations regarding the future results of
operations or financial condition of the Company. Such information, if any, is
based on current expectations regarding the markets affecting the Company and
other matters that can affect the Company's results of operations, liquidity or
financial condition. Because such information is based solely on data currently
available, it is subject to change as a result of changes in conditions and
should not therefore be viewed as assurance regarding the Company's future
performance. Additionally, the reader of this information should be aware that
the Company is not obligated to inform the reader of such changes as they occur
or make public indication of changes unless obliged under applicable disclosure
rules and regulations.
27
<PAGE> 8
REPORT OF INDEPENDENT AUDITORS
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS
COOPER CAMERON CORPORATION
We have audited the accompanying consolidated balance sheets of Cooper
Cameron Corporation as of December 31, 1997 and 1996, the related statements of
consolidated results of operations, and consolidated cash flows for each of the
three years in the period ended December 31, 1997 and the statement of
consolidated changes in stockholders' equity for the period from June 30, 1995
to December 31, 1995 and for each of the two years in the period ended December
31, 1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Cooper Cameron Corporation at December 31, 1997 and 1996, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1997, in conformity with generally accepted accounting
principles.
As discussed in Note 3 of the Notes to Consolidated Financial Statements,
upon separating from its former parent in 1995, the Company adopted a new method
of evaluating goodwill for impairment.
/s/ ERNST & YOUNG LLP
Houston, Texas
January 29, 1998
28
<PAGE> 9
CONSOLIDATED RESULTS OF OPERATIONS
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
- -----------------------------------------------------------------------------------------------
1997 1996 1995
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues $ 1,806,109 $ 1,388,187 $ 1,144,035
- -----------------------------------------------------------------------------------------------
Costs and expenses:
Cost of sales (exclusive of depreciation
and amortization) 1,296,947 1,010,558 881,798
Depreciation and amortization 65,862 62,480 71,754
Selling and administrative expenses 215,331 194,983 181,097
Interest expense 28,591 20,878 23,273
Provision for impairment of goodwill -- -- 441,000
Nonrecurring/unusual charges -- 7,274 41,509
- -----------------------------------------------------------------------------------------------
1,606,731 1,296,173 1,640,431
- -----------------------------------------------------------------------------------------------
Income (loss) before income taxes 199,378 92,014 (496,396)
Income tax provision (58,796) (27,830) (3,657)
- -----------------------------------------------------------------------------------------------
Net income (loss) $ 140,582 $ 64,184 $ (500,053)
===============================================================================================
Earnings (loss) per share (pro forma
prior to June 30, 1995):
Basic $ 2.70 $ 1.27 $ (9.98)
Diluted $ 2.53 $ 1.21 $ (9.98)
===============================================================================================
</TABLE>
The Notes to Consolidated Financial Statements are an integral part of these
statements.
29
<PAGE> 10
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except shares and per share data)
<TABLE>
<CAPTION>
DECEMBER 31,
- --------------------------------------------------------------------------------------------
1997 1996
- --------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 11,599 $ 9,057
Receivables, net 428,630 360,814
Inventories, net 495,539 404,268
Other 25,021 24,092
- --------------------------------------------------------------------------------------------
Total current assets 960,789 798,231
- --------------------------------------------------------------------------------------------
Plant and equipment, at cost less accumulated
depreciation 395,545 369,528
Intangibles, less accumulated amortization 240,420 259,317
Other assets 46,476 41,846
- --------------------------------------------------------------------------------------------
Total assets $ 1,643,230 $ 1,468,922
- --------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current maturities of long-term debt $ 48,131 $ 47,100
Accounts payable and accrued liabilities 470,927 391,294
Accrued income taxes 9,737 6,447
- --------------------------------------------------------------------------------------------
Total current liabilities 528,795 444,841
- --------------------------------------------------------------------------------------------
Long-term debt 328,824 347,548
Postretirement benefits other than pensions 85,465 97,232
Deferred income taxes 34,965 31,268
Other long-term liabilities 23,130 31,905
- --------------------------------------------------------------------------------------------
Total liabilities 1,001,179 952,794
- --------------------------------------------------------------------------------------------
Stockholders' equity:
Common stock, par value $.01 per share, 75,000,000
shares authorized, 53,235,292 shares issued
(25,617,727, pre 2-for-1 split, at December 31, 1996) 532 256
Preferred stock, par value $.01 per share, 10,000,000
shares authorized, no shares issued or outstanding -- --
Capital in excess of par value 922,975 873,933
Minimum pension liability (293) (2,642)
Translation component 8,092 43,274
Retained deficit (including $441,000 charge on
June 30, 1995 related to goodwill impairment) (257,485) (398,067)
Less: Treasury stock - 477,149 shares at cost
(11,349, pre 2-for-1 split, at December 31, 1996) (31,770) (626)
- --------------------------------------------------------------------------------------------
Total stockholders' equity 642,051 516,128
- --------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 1,643,230 $ 1,468,922
============================================================================================
</TABLE>
The Notes to Consolidated Financial Statements are an integral part of these
statements.
30
<PAGE> 11
CONSOLIDATED CASH FLOWS
(dollars in thousands)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
- -------------------------------------------------------------------------------------------------------------
1997 1996 1995
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 140,582 $ 64,184 $(500,053)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation 50,234 48,129 51,120
Amortization 15,628 14,351 20,634
Provision for impairment of goodwill -- -- 441,000
Nonrecurring/unusual charges -- 7,274 38,634
Allocation of interest and general and administrative
expenses from Cooper Industries, Inc. through
June 30, 1995 (net of tax) -- -- 9,539
Deferred income taxes 15,077 17,449 2,338
Changes in assets and liabilities, net of translation and
effects of acquisitions:
Receivables (77,216) (131,423) 31,473
Inventories (100,485) (45,458) 36,994
Accounts payable and accrued liabilities 89,013 55,073 29,617
Other assets and liabilities, net (17,127) (16,365) (18,949)
- -------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 115,706 13,214 142,347
- -------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Capital expenditures and proceeds from sales of plant and
equipment, net (67,396) (34,459) (33,996)
Acquisitions (6,278) (113,942) --
Net proceeds from the sale of Wheeling Machine Products -- -- 14,191
- -------------------------------------------------------------------------------------------------------------
Net cash used for investing activities (73,674) (148,401) (19,805)
- -------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Long-term borrowings -- 100,000 334,062
Loan repaid to Cooper Industries, Inc. -- -- (334,062)
Loan borrowings (repayments), net (26,712) 30,107 (110,459)
Activity under stock option plans and other 21,131 5,989 --
Purchase of treasury stock (33,723) (1,240) --
Transferred from Cooper Industries, Inc. -- -- 971
- -------------------------------------------------------------------------------------------------------------
Net cash provided by (used for) financing activities (39,304) 134,856 (109,488)
- -------------------------------------------------------------------------------------------------------------
Effect of translation on cash (186) (2,686) (980)
- -------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents 2,542 (3,017) 12,074
- -------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, beginning of year 9,057 12,074 --
- -------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 11,599 $ 9,057 $ 12,074
=============================================================================================================
</TABLE>
The Notes to Consolidated Financial Statements are an integral part of these
statements.
31
<PAGE> 12
CONSOLIDATED CHANGES IN STOCKHOLDERS' EQUITY
For the period from June 30, 1995 to December 31, 1995 and the two years ended
December 31, 1997
(dollars in thousands)
<TABLE>
<CAPTION>
CAPITAL IN MINIMUM
COMMON EXCESS OF PENSION TRANSLATION RETAINED TREASURY
STOCK PAR VALUE LIABILITY COMPONENT DEFICIT STOCK
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Opening equity balances following
split-off on June 30, 1995(1) $ 250 $ 856,713 $ (3,683) $ 37,901 $ -- $ --
Charge to operations on June 30, 1995
related to goodwill impairment (441,000)
Operating loss from July 1, 1995 through
December 31, 1995 (21,251)
Common stock issued for
employee retirement savings plan 1 2,958
Adjustment for minimum pension liability (1,917)
Translation loss (6,384)
- ---------------------------------------------------------------------------------------------------------------------------------
Balance - December 31, 1995 251 859,671 (5,600) 31,517 (462,251) --
Net income 64,184
Purchase of treasury stock (1,240)
Common stock issued under stock option
and other employee benefit plans 5 12,397 614
Tax benefit of employee stock benefit
plan transactions 1,865
Adjustment for minimum pension liability 2,958
Translation gain 11,757
- ---------------------------------------------------------------------------------------------------------------------------------
Balance - December 31, 1996 256 873,933 (2,642) 43,274 (398,067) (626)
Net income 140,582
Purchase of treasury stock (33,723)
Common stock issued under stock option
and other employee benefit plans 16 26,935 2,579
Tax benefit of employee stock benefit
plan transactions 22,367
Effect of stock split on equity balances 260 (260)
Adjustment for minimum pension liability 2,349
Translation loss (35,182)
- ---------------------------------------------------------------------------------------------------------------------------------
Balance - December 31, 1997 $ 532 $ 922,975 $ (293) $ 8,092 $(257,485) $ (31,770)
=================================================================================================================================
</TABLE>
(1) Reflects the effect of the final settlement reached with Cooper during the
fourth quarter of 1995. See Note 19 of the Notes to Consolidated Financial
Statements for additional information related to periods prior to July 1,
1995.
The Notes to Consolidated Financial Statements are an integral part of these
statements.
32
<PAGE> 13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: COOPER CAMERON CORPORATION
Cooper Cameron Corporation, hereinafter referred to as "the Company",
became a separate public company effective June 30, 1995 when Cooper Industries,
Inc. ("Cooper") completed an exchange offer, pursuant to which 21,375,000 shares
(pre-split) of the Company's Common stock were issued to those holders of Cooper
Common stock who had elected to participate in the exchange offer. Cooper
retained 3,625,000 shares (pre-split) of the Company's Common stock and was one
of the Company's principal stockholders until the third quarter of 1996 when
Cooper sold essentially all shares it retained. The Company's operations are
comprised of two segments -- the Petroleum Production Equipment segment and the
Compression and Power Equipment segment (see Note 15 of the Notes to
Consolidated Financial Statements for further segment information).
Although the Company was not a separate public company prior to June 30,
1995, the financial statements for periods prior to this date are presented as
if the Company had existed as an entity separate from its parent, Cooper, and
include the assets, liabilities, revenues and expenses that were directly
related to the Company's operations.
Because the majority of the Company's domestic results and, in certain
cases, foreign results were included in the consolidated financial statements of
Cooper on a divisional basis, there are no separate meaningful historical equity
accounts for the Company prior to June 30, 1995. Additionally, for periods prior
to June 30, 1995, amounts of Cooper's general corporate, accounting, tax, legal
and other administrative costs that were not directly attributable to the
operations of the Company were allocated to the Company. Management believes the
allocation method used provided the Company with a reasonable amount of such
expenses.
For periods prior to June 30, 1995, because the Company was fully
integrated into Cooper's worldwide cash management system, all of its cash
requirements were provided by Cooper and any excess cash generated by the
Company was transferred to Cooper. As a result, $375,000,000 of total
indebtedness was held constant from year-to-year in the Company's consolidated
financial statements. The financial information included herein for periods
prior to June 30, 1995 may not necessarily be indicative of the results of
operations or cash flows of the Company in the future or what the results of
operations or cash flows of the Company would have been if it had been a
separate, stand-alone company during all periods presented.
NOTE 2: SUMMARY OF MAJOR ACCOUNTING POLICIES
Estimates in Financial Statements -- The preparation of financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Principles of Consolidation -- The consolidated financial statements
include the accounts of the Company and all majority-owned subsidiaries.
Investments of 50% or less in affiliated companies are accounted for on the
equity method.
Revenue Recognition -- Revenue is recognized at the time of shipment or the
performance of services except in the case of certain larger, long lead time
orders in the Compression and Power Equipment segment which are accounted for
using the percentage of completion method. Under this method, revenue is
recognized as work progresses in the ratio that costs incurred bear to estimated
total costs. Expected losses on contracts in progress are charged to operations
currently. The aggregate of costs incurred reduces net inventories while the
revenue recognized is shown as a receivable.
Inventories -- Inventories are carried at cost or, if lower, net realizable
value. On the basis of current costs, 67% of inventories in 1997 and 65% in 1996
are carried on the last-in, first-out (LIFO) method. The remaining inventories
are carried on the first-in, first-out (FIFO) method.
Plant and Equipment -- Depreciation is provided over the estimated useful
lives of the related assets, or in the case of assets under capital lease, over
the related lease term, if less, using primarily the straight-line method. This
method is applied to group asset accounts which in general have the following
lives: buildings - 10 to 40 years; machinery and equipment - 3 to 18 years; and
tooling, dies, patterns, etc. - 5 to 10 years.
33
<PAGE> 14
Intangibles -- Intangibles consist primarily of goodwill related to
purchase acquisitions. With minor exceptions, the goodwill is being amortized
over 40 years from respective acquisition dates. The carrying value of the
Company's goodwill is reviewed by division at least annually or whenever there
are indications that the goodwill may be impaired. See Note 3 for information
regarding a change during 1995 in the Company's method of calculating goodwill
for impairment.
Income Taxes -- Income taxes for 1995 were provided as if the Company was a
stand-alone business filing a separate tax return during the period prior to
June 30, 1995. Income tax expense includes U.S. and foreign income taxes,
including U.S. federal taxes on undistributed earnings of foreign subsidiaries
to the extent such earnings are planned to be remitted.
Environmental Remediation and Compliance -- Environmental remediation and
postremediation monitoring costs are accrued when such obligations become
probable and reasonably estimable. Such future expenditures are not discounted
to their present value. Environmental costs that are capitalizable are
depreciated generally utilizing a 15-year life.
Product Warranty -- Estimated warranty expense is accrued either at the
time of sale or in certain cases where specific warranty problems are
encountered. Adjustments to the accruals are made periodically to reflect actual
experience.
Stock Options -- Options to purchase Common stock are granted to certain
executive officers and key management personnel at 100% of the market value of
the Company's stock at the date of grant. As permitted, the Company is
continuing to follow Accounting Principles Board Opinion No. 25 and, as a
result, no compensation expense is recognized under its stock option plans or
the Employee Stock Purchase Plan.
Earnings (Loss) Per Share -- As required by Statement of Financial
Accounting Standards (SFAS) No. 128 (Earnings per Share), the financial
statements now disclose both basic and diluted earnings per share for all
periods presented. Additionally, 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, earnings (loss) per share amounts for each period presented prior to
June 30, 1997 have also been adjusted to reflect the stock split.
Derivative Financial Instruments -- The Company uses interest rate swap
agreements to modify the interest characteristics of its outstanding debt.
Interest rate differentials to be paid or received as a result of interest rate
swap agreements are recognized over the lives of the swaps as an adjustment to
interest expense. Gains and losses on early terminations of these agreements are
deferred and amortized as an adjustment to interest expense over the remaining
term of the original life of the swap agreement. The fair value of swap
agreements and changes in fair value as a result of changes in market interest
rates are not recognized in the financial statements. Additionally, Treasury
Locks, or forward rate agreements, are utilized to hedge the interest rate on
prospective long-term debt issuances. Such agreements are accounted for on a
deferral basis in which the realized gain or loss upon termination of the
agreement is reported as an adjustment to the carrying amount of long-term debt
and amortized to interest expense over the term of the related debt.
The Company also uses foreign currency forward contracts to hedge its cash
flow exposure on significant transactions denominated in currencies other than
the U.S. dollar. These contracts are entered into for periods consistent with
the terms of the underlying transactions. The Company does not engage in
speculation. Unrealized gains and losses on foreign currency forward contracts
are deferred and recognized as an adjustment to the basis of the underlying
transaction at the time the foreign currency transaction is completed.
Cash Equivalents -- For purposes of the Consolidated Cash Flows statement,
the Company considers all investments purchased with original maturities of
three months or less to be cash equivalents.
New Accounting Pronouncements -- In June 1997, the Financial Accounting
Standards Board issued SFAS No. 130 (Reporting Comprehensive Income) and SFAS
No. 131 (Disclosures About Segments of an Enterprise and Related Information).
Both statements will be adopted by the Company, as required, beginning in 1998.
The only items of significance that are expected to result in differences
between comprehensive income and reported net income for each period presented
are gains and losses resulting from translation of foreign currency financial
statements currently included in the Translation Component of Stockholders'
Equity and adjustments to the Minimum Pension Liability component of
Stockholders' Equity.
The Company has not yet completed its analysis of the impact of SFAS No.
131 on its segment reporting but anticipates certain additional disclosures may
be required beginning in 1998 upon adoption of the new standard.
34
<PAGE> 15
NOTE 3: NONRECURRING/UNUSUAL CHARGES
During the year ended December 31, 1996, the Cooper Energy Services
division of the Compression and Power Equipment segment recorded restructuring
charges covering severance, relocation and other costs associated with changes
both at the division's manufacturing facility in Grove City, Pennsylvania and
the division's headquarters in Mt. Vernon, Ohio. Additionally, the Petroleum
Production Equipment segment incurred during 1996 certain one-time costs of
integrating newly acquired operations with the operations of the Cameron
division. Although the Cooper Energy Services division incurred charges related
to cost rationalization during 1997, the size and nature of these charges was
such that recognition of them as "nonrecurring/unusual charges" was not
considered to be appropriate.
During 1995, the Company recorded approximately $482,509,000 of unusual
charges including a $441,000,000 write-down of goodwill and $41,509,000 of other
items. The goodwill write-down, which was recorded concurrent with the Company
becoming a separate stand-alone entity on June 30, 1995, resulted from a change
in the Company's accounting method of evaluating long-lived assets, including
goodwill, for impairment. Prior to that date, long-lived assets were evaluated
utilizing undiscounted cash flows in accordance with the practice followed by
the Company's former parent. Upon becoming a separate entity, the Company began
evaluating its long-lived assets for impairment based on discounted cash flows.
This write-down was related entirely to the Cameron division of the Petroleum
Production Equipment segment. Recorded goodwill with respect to the other
divisions and the remaining goodwill with respect to the Cameron division is not
impaired.
Nonrecurring/unusual charges other than the goodwill write-down consist of
the following:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
- --------------------------------------------------------------------------------------------------------
(dollars in thousands) 1996 1995
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Reorganization and restructuring of various operations $ 4,169 $ 10,109
Acquisition integration costs 3,105 --
Receivable reserve related to customers in Iran -- 16,890
Loss on sale of Richmond foundry -- 7,310
Translation loss from currency devaluation in Venezuela -- 5,709
Loss on sale of Wheeling Machine Products -- 1,491
- --------------------------------------------------------------------------------------------------------
Total $ 7,274 $ 41,509
========================================================================================================
</TABLE>
The 1995 reorganization and restructuring charge includes $4,823,000 of
severance, $4,026,000 of reduction in the carrying value of various fixed assets
which will no longer be utilized in the Company's operations and $1,260,000 of
various other costs.
The receivable reserve, which was established in May 1995, reflected the
Company's desire to conservatively value these receivables in light of the
Clinton Administration's May 8, 1995 implementation of an economic embargo
against Iran. Although the Company has received payments from customers in Iran,
the political and economic environment continues to be unstable and, as a
result, a large portion of the uninsured receivables outstanding at December 31,
1997 continue to be fully reserved.
In late December 1995, the Company entered into a definitive agreement
regarding the sale of the Cameron division's Richmond, Texas, foundry. In
contemplation of this sale, which was consummated during the first quarter of
1996, the Company wrote-down the assets covered by the sale agreement and
recorded other costs associated with the sale. During 1995, the foundry had an
operating loss of approximately $2,700,000.
The 1995 currency devaluation loss resulted from the December 1995
government-announced devaluation of the Bolivar. Further declines in the value
of the Bolivar during 1997 and 1996 were not material and were charged against
operations.
In November 1995, the Company consummated the sale of its Wheeling Machine
Products division. This business, which was included in the Company's Petroleum
Production Equipment segment, had 1995 sales of approximately $14,000,000 and a
small operating profit. The $14,191,000 of net cash sales proceeds were utilized
to reduce outstanding indebtedness.
Of the $41,509,000 charge described above for 1995, only approximately
$7,796,000 required the utilization of cash, of which approximately $2,875,000
was expended during 1995 and the balance in 1996. In addition to the above
items, the Company also reviewed all reserves and accruals that were recorded as
of June 30, 1995 in accordance with Cooper's various policies, procedures and
practices. This review identified a number of accruals related to plant or other
facility shutdowns, reorganizations or restructurings which the Company will not
be undertaking, a severance accrual recorded in connection with the Company's
adoption of SFAS No. 112 which was no longer appropriate, an excess pension
accrual and various other items which were no longer appropriate. The Company
also reviewed all of its inventories on a worldwide basis and determined that,
while the inventories net of LIFO reserves were appropriately stated at the
lower of cost or market, a significant amount of inventories existed which were
in excess of levels which current management believed to be appropriate. As a
result, the various excess reserves and accruals described above, plus an
additional charge of approximately $4,000,000 against the Company's fourth
quarter 1995 results, were utilized to establish approximately $34,500,000 of
additional obsolete, excess and slow-moving inventory reserves at December 31,
1995. During 1997 and 1996, the Company disposed of a large portion of this
inventory either by sale at reduced prices or, in certain instances, physical
scrapping. None of this reserve was credited back to earnings in either year.
35
<PAGE> 16
NOTE 4: ACQUISITIONS
During the year ended December 31, 1997, the Company made three small
product line acquisitions totaling $6.3 million, all of which pertain to the
Petroleum Production Equipment segment and have been accounted for under the
purchase method of accounting. Additional goodwill added as a result of these
acquisitions was approximately $1.6 million.
On June 14, 1996, the Company purchased the assets of Ingram Cactus Company
for approximately $100,511,000 in cash, including acquisition costs, and the
assumption of certain operating liabilities. The acquired operations, which have
been integrated into Cameron, manufacture and sell wellheads, surface systems,
valves and actuators used primarily in onshore oil and gas production
operations. The acquisition, funded primarily by long-term borrowings, has been
accounted for under the purchase method and, therefore, the results of the
acquired business are combined with the Company's results only from the
acquisition date forward. Goodwill of approximately $26,196,000 was recorded in
connection with the acquisition. During 1995, Ingram Cactus had revenues and
earnings before taxes of approximately $105,000,000 and $7,500,000,
respectively.
During October 1996, the Company made two acquisitions for a combined cost
of approximately $13,431,000. In the first, the Company acquired various assets
of ENOX Technologies, Inc., a Boston-based manufacturer of ignition systems,
which has been combined into the existing operations of the Compression and
Power Equipment segment. The second acquisition, which is 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 were accounted for under the purchase method and resulted in
additional goodwill of $8,763,000.
NOTE 5: RECEIVABLES
<TABLE>
<CAPTION>
DECEMBER 31,
- -------------------------------------------------------------------------------------------------------------
(dollars in thousands) 1997 1996
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Trade receivables $387,817 $294,519
Receivables under the percentage of completion method
($8,614 and $28,770 billed at December 31, 1997
and 1996, respectively) 43,219 65,370
Other receivables 11,240 12,666
Allowance for doubtful accounts (13,646) (11,741)
- -------------------------------------------------------------------------------------------------------------
$428,630 $360,814
=============================================================================================================
</TABLE>
Trade receivables include $39,015,000 and $819,000 at December 31, 1997 and
1996, respectively, of amounts which have not as yet been billed because of
contractual provisions providing for a delay in the billing until various
post-delivery conditions have been met. All of these amounts should be billed
and collected in less than one year.
Additions to the allowance for doubtful accounts of $4,079,000, $373,000
and $18,511,000 have been charged to earnings for the years ended December 31,
1997, 1996 and 1995, respectively. A total of $16,890,000 of the expense charged
during 1995 is reflected on the Consolidated Results of Operations statement as
a nonrecurring/unusual charge (see Note 3 of the Notes to Consolidated Financial
Statements).
NOTE 6: INVENTORIES
<TABLE>
<CAPTION>
DECEMBER 31,
- ----------------------------------------------------------------------------------------------------------
(dollars in thousands) 1997 1996
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Raw materials $ 60,258 $ 64,384
Work-in-process 203,336 192,889
Finished goods, including parts and subassemblies 327,280 261,315
Other 3,064 2,739
- ----------------------------------------------------------------------------------------------------------
593,938 521,327
Excess of current standard costs over LIFO costs (85,969) (92,114)
Allowance for obsolete and slow-moving inventory (12,430) (24,945)
- ----------------------------------------------------------------------------------------------------------
$495,539 $404,268
==========================================================================================================
</TABLE>
36
<PAGE> 17
NOTE 7: PLANT AND EQUIPMENT AND INTANGIBLES
<TABLE>
<CAPTION>
DECEMBER 31,
- --------------------------------------------------------------------------------
(dollars in thousands) 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Plant and equipment:
Land and land improvements $ 31,748 $ 30,408
Buildings 172,593 163,118
Machinery and equipment 393,204 387,339
Tooling, dies, patterns, etc. 44,825 41,547
Assets under capital leases 14,984 --
All other 122,684 99,095
Construction in progress 11,254 21,478
- --------------------------------------------------------------------------------
791,292 742,985
Accumulated depreciation (395,747) (373,457)
- --------------------------------------------------------------------------------
$ 395,545 $ 369,528
================================================================================
Intangibles:
Goodwill $ 388,983 $ 402,013
Assets related to pension plans 498 585
Other 56,314 52,262
- --------------------------------------------------------------------------------
445,795 454,860
Accumulated amortization (205,375) (195,543)
- --------------------------------------------------------------------------------
$ 240,420 $ 259,317
================================================================================
</TABLE>
NOTE 8: ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
<TABLE>
<CAPTION>
DECEMBER 31,
- --------------------------------------------------------------------------------------------
(dollars in thousands) 1997 1996(1)
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Trade accounts and accruals $329,420 $265,640
Salaries, wages and related fringe benefits 48,937 29,358
Deferred taxes 30,601 25,137
Other (individual items less than 5% of total current liabilities) 61,969 71,159
- --------------------------------------------------------------------------------------------
$470,927 $391,294
============================================================================================
</TABLE>
(1) Revised for comparability with 1997.
37
<PAGE> 18
NOTE 9: EMPLOYEE BENEFIT PLANS
<TABLE>
<CAPTION>
COMPONENTS OF DEFINED BENEFIT
PLAN PENSION (INCOME) EXPENSE
- --------------------------------------------------------------------------------------
(dollars in thousands) 1996 1995 1997
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost-benefits earned during the year $ 7,835 $ 8,462 $ 7,728
Interest cost on projected benefit obligation 17,838 16,613 15,587
Actual return on assets (41,366) (34,597) (45,321)
Net amortization and deferral 11,772 11,770 26,745
- --------------------------------------------------------------------------------------
Net pension (income) expense $ (3,921) $ 2,248 $ 4,739
======================================================================================
</TABLE>
<TABLE>
<CAPTION>
FUNDED STATUS OF DEFINED BENEFIT PLANS
PLANS WITH
PLANS WITH ASSETS IN EXCESS ACCUMULATED BENEFITS
OF ACCUMULATED BENEFITS IN EXCESS OF ASSETS
- --------------------------------------------------------------------------------------------------------------
(dollars in thousands) 1997 1996 1997 1996
- --------------------------------------------------------------------------------------------------------------
Actuarial present value of:
<S> <C> <C> <C> <C>
Vested benefit obligation $(228,883) $(189,742) $ (7,531) $ (26,973)
==============================================================================================================
Accumulated benefit obligation $(241,799) $(201,767) $ (7,672) $ (27,236)
==============================================================================================================
Projected benefit obligation $(253,255) $(210,645) $ (8,666) $ (28,465)
Plan assets at fair value 309,952 262,656 3,109 21,980
- --------------------------------------------------------------------------------------------------------------
Plan assets in excess of (less than)
projected benefit obligation 56,697 52,011 (5,557) (6,485)
Unrecognized net (gain) loss (15,905) (24,113) 1,255 5,455
Unrecognized net (asset) obligation from
adoption date (1,021) (951) 306 138
Unrecognized prior service cost (4,974) (1,216) 228 270
Other -- (194) -- (41)
Adjustment required to recognize
minimum liability -- -- (973) (4,864)
- --------------------------------------------------------------------------------------------------------------
Pension asset (liability) at end of year $ 34,797 $ 25,537 $ (4,741) $ (5,527)
==============================================================================================================
</TABLE>
<TABLE>
<CAPTION>
COMPUTATIONAL ASSUMPTIONS
PROJECTED BENEFIT
NET PENSION COST OBLIGATION
- ------------------------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Discount rate:
Domestic 7.75% 7.25% 8% 7.25 - 7.75% 7.75%
International 6.5 - 8.25 6.5 - 8.25 7.5 -9 6 - 7.25 6.5 - 8.25
Rate of increase in compensation levels:
Domestic 4.5 4.5 - 5 5 4.5 - 4.75 4.5
International 4 - 6 4 - 6 4 - 6 4 - 6 4 - 6
Expected long-term rate of return on assets:
Domestic 9.25 8.5 8.5 -- --
International 6.5 - 10 6.5 - 10 6.5 - 10 -- --
Benefit basis:
Salaried plans - earnings during career
Hourly plans - dollar units, multiplied by years of service
Funding policy: 5-30 years
</TABLE>
38
<PAGE> 19
The Company sponsors the Cooper Cameron Corporation Retirement Plan
(Retirement Plan) for all salaried U.S. employees as well as separate defined
benefit pension plans for employees of its U.K. and German subsidiaries and
several unfunded defined benefit arrangements for various other employee groups.
During 1997, four funded defined benefit pension plans covering various hourly
collective bargaining employees were merged into the Retirement Plan. Aggregate
pension expense amounted to $7,002,000 in 1997, $12,167,000 in 1996 and
$13,572,000 in 1995. The Company's (income) expense with respect to the defined
benefit pension plans is set forth in the table above. Expense with respect to
various defined contribution plans for the years ended December 31, 1997, 1996
and 1995 amounted to $10,923,000, $9,919,000 and $8,833,000, respectively. Gains
and losses on curtailments and settlements were not material in any of the last
three years. The assets of the domestic and foreign plans are maintained in
various trusts and consist primarily of equity and fixed income securities.
The Company's minimum liability for pension plans with accumulated
benefits in excess of assets totaled $973,000 in 1997 ($4,864,000 in 1996) and
has been recorded in the Company's Consolidated Balance Sheets as a long-term
liability with a $498,000 offsetting intangible asset ($585,000 in 1996) and a
$293,000 reduction in stockholders' equity, net of taxes ($2,642,000 in 1996).
The Company's full-time domestic employees who are not covered by a
bargaining unit are also eligible to participate in the Cooper Cameron
Corporation Retirement Savings Plan. Under this plan, which is essentially the
same as the Cooper plan in which employees participated prior to April 1, 1995,
employees' savings deferrals are partially matched with shares of the Company's
Common stock. Through March 1995, contributions were partially matched with
Cooper Common stock. The Company's expense under this plan since April 1995
equals the matching contribution under the Plan's formula, while the expense
prior to April 1995 equalled such matching expense adjusted to reflect the
Company's proportionate participation in Cooper's Employee Stock Ownership Plan
(ESOP). No assets or liabilities with respect to Cooper's ESOP were included in
the Company's financial statements for 1995. Expense for the years ended
December 31, 1997, 1996 and 1995 amounted to $7,683,000, $6,393,000 and
$5,753,000, respectively. For 1997, the Company issued or sold 92,218 shares of
Common stock to the Trustee of the Retirement Savings Plan to meet matching and
other obligations under the plan.
NOTE 10: STOCK OPTIONS AND EMPLOYEE STOCK PURCHASE PLAN
<TABLE>
<CAPTION>
NUMBER OF SHARES(1)
-----------------------------
LONG-TERM NON-EMPLOYEE WEIGHTED
INCENTIVE DIRECTOR AVERAGE
PLAN PLAN EXERCISE PRICES(1)
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Stock options outstanding at January 1, 1995 -- -- --
Options granted 3,178,370 104,842 $ 8.47
Options cancelled (84,044) -- $ 8.329
- --------------------------------------------------------------------------------------------------------------
Stock options outstanding at December 31, 1995 3,094,326 104,842 $ 8.47
Options granted 2,105,292 146,000 $ 25.635
Options cancelled (70,040) -- $ 8.329
Options exercised (209,148) (4,000) $ 8.42
- --------------------------------------------------------------------------------------------------------------
Stock options outstanding at December 31, 1996 4,920,430 246,842 $ 15.955
Options granted 2,865,982 144,000 $ 34.98
Options cancelled (146,795) -- $ 11.70
Options exercised (1,592,970) (147,250) $ 12.84
- --------------------------------------------------------------------------------------------------------------
Stock options outstanding at December 31, 1997(2) 6,046,647 243,592 $ 26.02
==============================================================================================================
Stock options exercisable at December 31, 1997(3) 1,247,827 99,592 $ 17.13
==============================================================================================================
</TABLE>
(1) Amounts adjusted to reflect the 2-for-1 stock split described in Note 2.
(2) Exercise prices range from $8.329 to $79.41 per share.
(3) Exercise prices range from $8.329 to $35.25 per share.
Options are granted to key employees under the Long-term Incentive Plan
and generally become exercisable on the first anniversary date following the
date of grant in one-third increments each year or in annual increments of
one-sixth, one-third, one-third and one-sixth. These options generally expire
ten years after the date of grant. Certain key executives also elected to
receive options in lieu of salary for periods that extend through December 31,
1998. The options granted under the Options in Lieu of Salary Program generally
become exercisable at the end of the related salary period and expire five years
after the beginning of the salary period.
39
<PAGE> 20
Under an amendment to the Company's Non-employee Director Stock Option
Plan approved by the Board of Directors on November 6, 1997, non-employee
directors receive a grant of 6,000 stock options annually. In addition directors
are permitted to take either a portion of or their full annual retainer in cash
($30,000) or receive, in lieu of cash, additional stock options for up to 8,700
shares of stock. All directors elected to receive the additional stock options
for 1997 and 1996. The exercise price of each option is based on the fair market
value of the Company's stock at the date of grant. The options expire five years
and one day after the date of grant and become exercisable one year following
the date of grant. As of December 31, 1997, shares reserved for future grants
under the Long-term Incentive and Non-employee Director Stock Option Plans were
462,464 and 105,158, respectively. The weighted average remaining contractual
life of all options at December 31, 1997 is approximately 7 years.
Pro forma information is required by SFAS No. 123 to reflect the
estimated effect on net income and earnings per share as if the Company had
accounted for the stock option grants and the Employee Stock Purchase Plan
(ESPP) using the fair value method described in that Statement. The fair value
was estimated at the date of grant using a Black-Scholes option pricing model
with the following weighted average assumptions for 1997, 1996 and 1995,
respectively: risk-free interest rates of 5.9%, 5.9% and 5.3%; dividend yields
of 0.8%, 1% and 0.7%; volatility factors of the expected market price of the
Company's common stock of .349, .302 and .221; and a weighted-average expected
life of the options of 3.5, 2.2 and 3.5 years. These assumptions resulted in a
weighted average grant date fair value for options and the ESPP of $10.83 and
$14.49, respectively for 1997, $5.51 and $5.46, respectively for 1996 and $1.89
and $2.34, respectively for 1995. For purposes of the pro forma disclosures, the
estimated fair value is amortized to expense over the vesting period. Reflecting
the amortization of this hypothetical expense for 1997, 1996 and 1995 results in
pro forma net income and diluted earnings per share of $128,875,000 and $2.32,
respectively, for 1997, $59,147,000 and $1.12, respectively, for 1996 and pro
forma net loss and diluted loss per share of $501,212,000 and $10.00,
respectively, for 1995.
EMPLOYEE STOCK PURCHASE PLAN
Under the Cooper Cameron Employee Stock Purchase Plan, the Company is
authorized to sell up to 1,000,000 shares of Common stock to its full-time
domestic, U.K. and Canadian employees, nearly all of whom are eligible to
participate. Under the terms of the Plan, employees may elect each year to have
up to 10% of their annual compensation withheld to purchase the Company's Common
stock. The purchase price of the stock is 85% of the lower of the
beginning-of-plan year or end-of-plan year market price of the Company's Common
stock. Under the 1997/1998 plan, nearly 2,900 employees have elected to purchase
approximately 171,000 shares of the Company's Common stock at $50.15 per share,
or 85% of the market price of the Company's Common stock on July 31, 1998, if
lower. A total of 230,931 shares were purchased at post-split prices of $20.00
per share on July 31, 1997 under the 1996/1997 plan.
NOTE 11: LONG-TERM DEBT
<TABLE>
<CAPTION>
DECEMBER 31,
- -----------------------------------------------------------------------------------------
(dollars in thousands) 1997 1996
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Floating-rate term loans $ -- $ 168,700
Floating-rate revolving credit advances 322,559 190,068
Other long-term debt 43,418 35,880
Obligations under capital leases 10,978 --
- -----------------------------------------------------------------------------------------
376,955 394,648
Current maturities (48,131) (47,100)
- -----------------------------------------------------------------------------------------
Long-term portion $ 328,824 $ 347,548
=========================================================================================
</TABLE>
On June 30, 1995, the Company entered into a $475,000,000 Credit
Agreement with various lenders to repay the $375,000,000 of outstanding bank
indebtedness guaranteed by Cooper and to provide for the Company's general
borrowing requirements. The Credit Agreement, which was amended effective March
20, 1997, provides the Company with an aggregate unsecured borrowing capacity
consisting of $475,000,000 of floating rate revolving credit advances maturing
March 31, 2002. The 1997 amendment provided for, among other things, the
conversion of all previously outstanding term loans into revolving credit
advances, lower interest rates on the remaining outstanding debt and the
modification of certain financial covenants.
At December 31, 1997, the weighted average interest rate on the
revolving credit advances was 6.24%. The weighted average interest rates on the
term loans and revolving credit advances were 6.125% and 6.08%, respectively, at
December 31, 1996 (6.51% and 5.93%, respectively, at December 31, 1995). As
described further in Note 17, the Company has entered into interest rate swaps
with a notional value of $100,000,000 at December 31, 1997, resulting in an
effective fixed rate of 5.64% plus a variable margin of 0.225% to 0.65% on that
portion of the Company's outstanding debt through December 31, 1998 and
$75,000,000 at a similar rate thereafter until the expiration of all outstanding
agreements on June 30, 2000. The Company is also required to pay a facility fee,
which at December 31, 1997 equalled 0.11% annually, on the committed amount
under the Credit Agreement.
40
<PAGE> 21
Up through and including January 31, 1998, the Company was also a party
to various Treasury Locks, or forward rate agreements, which have the effect of
locking in a weighted average interest rate of 5.71% on the "Treasury component"
of a $150,000,000 prospective debt issuance through June 15, 1998. (See Note 17
of the Notes to Consolidated Financial Statements for further information).
In addition to the Credit Agreement, the Company has $43,418,000 of
unsecured debt outstanding at the end of 1997 under other credit facilities
which are available both domestically and to its foreign subsidiaries. The
average interest rate on the majority of this debt at December 31, 1997 was 5.9%
(5.55% and 6.59% at December 31, 1996 and 1995, respectively). At December 31,
1996, the Company had reclassified as long term $35,880,000 (none at December
31, 1997) of indebtedness which by its terms represent a current liability
reflecting the Company's intention and ability to refinance such amounts under
its long-term Credit Agreement. At December 31, 1997, the Company had
$152,441,000 of committed borrowing capacity available under its long-term
Credit Agreement plus additional uncommitted amounts available under various
other borrowing arrangements.
Under the terms of the Credit Agreement, the Company is required to
maintain certain financial ratios including a debt to capitalization ratio of
not more than 50%, except in certain instances involving a specified
acquisition, and a coverage ratio of earnings before interest, taxes,
depreciation and amortization (EBITDA) less capital expenditures equal to at
least 2.5 times interest expense. The Credit Agreement also specifies certain
limitations regarding additional indebtedness outside the Credit Agreement and
the amounts invested in the Company's foreign subsidiaries. The Company has
been, throughout all periods reported, and was, at December 31, 1997, in
compliance with all loan covenants.
For the years 1997, 1996 and 1995, total interest expense was
$28,591,000, $20,878,000 and $23,273,000, respectively, including $11,858,000 of
interest allocated to the Company by Cooper for the six-month period ended June
30, 1995. Interest paid by the Company and paid on the Company's behalf by
Cooper is not materially different from the amounts expensed.
At December 31, 1997, the Company had two long-term leases extending out
14 and 19 years and involving annual rentals of approximately $4,240,000. The
Company also leases certain facilities, office space, vehicles, and office, data
processing and other equipment under capital and operating leases. The
obligations with respect to these leases are generally for five years or less
and are not considered to be material individually or in the aggregate.
NOTE 12: POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Company's salaried employees participate in various domestic
employee welfare benefit plans, including medical, dental and prescriptions
among other benefits for active employees. These plans are essentially the same
as the plans which employees participated in as part of Cooper prior to June 30,
1995. Salaried employees who retired prior to 1989, as well as certain other
employees who were near retirement and elected to receive certain benefits, have
retiree medical, prescription and life insurance benefits, while active salaried
employees will not have postretirement health care benefits.
The hourly employees have separate plans with varying benefit formulas.
In all cases, however, currently active employees, except for certain employees
who are near retirement and previously elected to receive certain benefits, will
not receive health care benefits after retirement. All of these plans were and
continue to be unfunded.
The amounts reflected in the table that follows represent the effect on
the Company's earnings and the liability as actuarially determined under SFAS
No. 106. The Company has recorded income during each of the last three years due
to accumulated actuarial gains in excess of benefits costs which have resulted
primarily from the Company's actual medical claims experience being less than
expected at the time of the Company's adoption of SFAS No. 106 in 1992.
41
<PAGE> 22
<TABLE>
<CAPTION>
AMOUNTS PER CONSOLIDATED
ACCUMULATED ITEMS NOT YET RECORDED FINANCIAL STATEMENTS
POST- IN CONSOLIDATED LIABILITY FOR NET
RETIREMENT BENEFIT FINANCIAL STATEMENTS POSTRETIREMENT ANNUAL
OBLIGATION PRIOR ACTUARIAL BENEFITS OTHER EXPENSE
(dollars in thousands) (APBO) SERVICE COST NET GAIN THAN PENSIONS (INCOME)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance - December 31, 1994 $(64,199) $(2,900) $(40,618) $(107,717)
Benefit payments 4,035 4,035
Actuarial net gains 6,500 (6,500)
Plan expense:
Service cost (200) $ 200
Interest cost (5,200) 5,200
Amortization of
prior service cost 600 (600)
Amortization of
actuarial net gain 5,100 (5,100)
--------
Net annual income 300 $ (300)
- -----------------------------------------------------------------------------------------------------------========
Balance - December 31, 1995 (59,064) (2,300) (42,018) (103,382)
Plan amendments 800 (800)
Benefit payments 3,850 3,850
Actuarial net gains 9,300 (9,300)
Plan expense:
Service cost (200) $ 200
Interest cost (4,000) 4,000
Amortization of
prior service cost 600 (600)
Amortization of
actuarial net gain 5,900 (5,900)
-------
Net annual income 2,300 $ (2,300)
- -----------------------------------------------------------------------------------------------------------=========
Balance - December 31, 1996 (49,314) (2,500) (45,418) (97,232)
Benefit payments 4,634 4,634
Actuarial net loss (1,074) 1,074
Plan expense:
Service cost (225) $ 225
Interest cost (3,442) 3,442
Amortization of
prior service cost 700 (700)
Amortization of
actuarial net gain 10,100 (10,100)
--------
Net annual income 7,133 $ (7,133)
- -----------------------------------------------------------------------------------------------------------========
Balance - December 31, 1997 $(49,421) $(1,800) $(34,244) $ (85,465)
======================================================================================================
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
- -------------------------------------------------------------------------------------------------------------
(dollars in thousands) 1997 1996
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Amount of APBO related to:
Retired employees $(44,778) $(43,714)
Employees eligible to retire (2,765) (2,900)
Other employees (1,878) (2,700)
Actuarial assumptions:
Discount rate 7.03% 7.59%
Ensuing year to 2002-healthcare cost trend rate 7.0% 8.5%
ratable to ratable to
5.0% 5.0%
Effect of 1% change in healthcare cost trend rate:
Increase in year-end APBO $ 4,100 $ 3,600
Increase in expense $ 300 $ 300
</TABLE>
42
<PAGE> 23
NOTE 13: INCOME TAXES
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
- ------------------------------------------------------------------------------------------------------------------------------
(dollars in thousands) 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income (loss) before income taxes:
U.S. operations $ 97,024 $ 53,267 $(181,285)
Foreign operations 102,354 38,747 (315,111)
- ------------------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes $ 199,378 $ 92,014 $(496,396)
==============================================================================================================================
Income taxes:
Current:
U.S. federal $ 23,914 $ 2,084 $ (2,111)
U.S. state and local and franchise 3,905 2,054 1,170
Foreign 15,900 6,243 2,260
- ------------------------------------------------------------------------------------------------------------------------------
43,719 10,381 1,319
- ------------------------------------------------------------------------------------------------------------------------------
Deferred:
U.S. federal 9,558 13,697 (6,168)
U.S. state and local 1,567 1,519 (927)
Foreign 3,952 2,233 1,051
- ------------------------------------------------------------------------------------------------------------------------------
15,077 17,449 (6,044)
- ------------------------------------------------------------------------------------------------------------------------------
Other:
Reserve for prior year deferred tax assets -- -- 8,382
- ------------------------------------------------------------------------------------------------------------------------------
-- -- 8,382
- ------------------------------------------------------------------------------------------------------------------------------
Income tax provision $ 58,796 $ 27,830 $ 3,657
==============================================================================================================================
Items giving rise to deferred income taxes:
Reserves and accruals $ (4,266) $ 7,813 $ (2,309)
Inventory allowances, full absorption and LIFO 15,196 1,913 (8,111)
Percentage of completion income (recognized) not
recognized for tax (808) 5,703 --
Prepaid medical and dental expenses (4,511) 3,158 1,529
Postretirement benefits other than pensions 4,501 2,352(2) 1,658(2)
U.S. tax deductions in excess of amounts currently deductible (1,694) (8,123) --
Other 6,659 4,633(2) 1,189(2)
- ------------------------------------------------------------------------------------------------------------------------------
Deferred income taxes $ 15,077 $ 17,449 $ (6,044)
==============================================================================================================================
The differences between the provision for income taxes and income
taxes using
the U.S. federal income tax rate were as follows:
U.S. federal statutory rate 35.00% 35.00% 35.00%
Nondeductible goodwill 1.43 2.85 (0.97)
Provision for impairment of goodwill -- -- (31.09)
State and local income taxes 1.69 0.76 (0.23)
Tax exempt income (0.88) (1.90) 0.34
Foreign statutory rate differential (1.14) (0.82) 0.02
Change in valuation of prior year tax assets (7.10) (8.90) (1.69)
Losses not receiving a tax benefit 0.59 2.36 (2.18)
All other (0.10) 0.90 0.06
- ------------------------------------------------------------------------------------------------------------------------------
Total 29.49% 30.25% (0.74)%
==============================================================================================================================
Total income taxes paid(1) $ 12,929 $ 9,366 $ 4,248
==============================================================================================================================
</TABLE>
(1) For periods prior to June 30, 1995, the Company paid taxes to Cooper, who in
turn paid the taxes to the various taxing authorities. The amount shown for
1995 represents tax actually paid by the Company since June 30, 1995 and
foreign taxes paid by Cooper on the Company's behalf through June 30, 1995.
Information regarding U.S. taxes paid or refunds received by Cooper on the
Company's behalf during the first half of 1995 is not available.
(2) Revised for comparability with 1997.
43
<PAGE> 24
<TABLE>
<CAPTION>
DECEMBER 31,
- ----------------------------------------------------------------------------------------------------
(dollars in thousands) 1997 1996
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Components of deferred tax balances:
Deferred tax liabilities:
Plant and equipment $ (43,080) $ (41,912)
Inventory (47,947) (33,105)
Pensions (8,817) (8,817)
Percentage of completion (4,895) (5,703)
Other (15,121) (12,854)
- ----------------------------------------------------------------------------------------------------
Total deferred tax liabilities (119,860) (102,391)
- ----------------------------------------------------------------------------------------------------
Deferred tax assets:
Postretirement benefits other than pensions 32,690 37,191
Reserves and accruals 32,495 24,290
Net operating losses and related deferred tax assets 19,761 30,430
Other 708 3,959
- ----------------------------------------------------------------------------------------------------
Total deferred tax assets 85,654 95,870
- ----------------------------------------------------------------------------------------------------
Valuation allowance (24,321) (37,307)
- ----------------------------------------------------------------------------------------------------
Net deferred tax liabilities $ (58,527) $ (43,828)
====================================================================================================
</TABLE>
During 1997 and 1996, certain of the Company's international operations,
which had incurred losses for several years, generated earnings which exceeded
the losses related to several other operations. As a result, the valuation
allowance established during 1995 was reduced in 1997 and 1996 by $12,986,000
and $6,017,000, respectively, with a corresponding reduction in the Company's
income tax expense. In addition, while the Company was profitable on a book
basis domestically during 1996, it had tax deductions in excess of those which
could be utilized currently as a reduction of the actual taxes payable. The
result was the recognition of an $8,123,000 current deferred tax asset. During
1997 the Company's taxable income, including return to provision adjustments
related to 1996, was such that the $8,123,000 recorded in 1996 was increased by
an additional $1,694,000. While the Company presently anticipates that this
asset will be utilized during 1998, under present U.S. tax rules the Company has
until the year 2010-2011 to utilize these excess deductions. The primary item
giving rise to the difference between taxes currently payable with respect to
1997 and income taxes paid in 1997 is the tax deduction which the Company
receives with respect to certain employee stock benefit plan transactions. This
benefit, which is credited to capital in excess of par value, amounted to
$22,367,000 in 1997.
The Company's tax provision includes U.S. tax expected to be payable on
the foreign portion of the Company's income before income taxes when such
earnings are remitted. The Company's accruals are sufficient to cover the
additional U.S. taxes estimated to be payable on the earnings that the Company
anticipates will be remitted. Through December 31, 1997, this amounted to
essentially all unremitted earnings of the Company's foreign subsidiaries except
certain unremitted earnings in the U.K. and Ireland which are considered to be
permanently reinvested.
Although prior to June 30, 1995 the Company's operations were included
in the consolidated U.S. federal and certain combined state income tax returns
of Cooper, the tax provisions and tax liabilities through that date were
determined as if the Company was a stand-alone business filing a separate tax
return. Under the agreement between Cooper and the Company pursuant to which the
Company's assets and liabilities were legally transferred, the U.S. federal and
state and local income and franchise tax liability for periods prior to June 30,
1995 was retained by Cooper and accordingly, the Company does not have any
non-deferred tax accruals with respect to these liabilities. For periods after
June 30, 1995, the Company has responsibility and has provided for its tax
liabilities on a worldwide basis.
As described in Note 3, the Company had a $441,000,000 non-deductible
goodwill write-off as well as $41,509,000 of nonrecurring/unusual charges during
1995. Of the $41,509,000, approximately $18,600,000 was treated as a
non-deductible expense because it related to the Company's international
operations in countries where the operations had experienced losses over several
years. In addition to the nonrecurring/unusual charges, these same international
operations also had operating losses during 1995 which aggregated $12,300,000
that were treated as non-deductible. Lastly, in 1994 and prior years, deferred
tax assets totaling $17,518,000 had been recorded with respect to these
operations and the Company established a valuation allowance against these
deferred tax assets during 1995. Of this last amount, approximately $9,136,000
was recorded through a reclassification of long-term tax accruals covering
pre-1987 unremitted earnings with respect to the Company's operations in the
U.K. The Company has determined that these earnings are permanently invested and
that, therefore, these long-term accruals are no longer required. The remainder,
or $8,382,000, was charged against 1995's tax expense. In total, these items
resulted in a $28,324,000 increase in the Company's valuation allowance with
respect to deferred tax assets during 1995.
44
<PAGE> 25
NOTE 14: COMMON STOCK, PREFERRED STOCK AND RETAINED DEFICIT
COMMON STOCK
At December 31, 1997, 75,000,000 shares of Common stock, par value $.01 per
share, were authorized of which 53,235,292 were issued (25,617,727, pre-split,
at December 31, 1996). In November 1996, the Company's board of directors
approved the repurchase of up to 5,000,000 shares of Common stock for use in the
Company's various employee stock ownership, option and benefit plans. During the
fourth quarter of 1997, the Company purchased approximately 503,000 shares with
another 709,700 shares acquired during January 1998. As of year-end, a total of
477,149 shares were held in treasury, net of shares re-issued during 1997 to
satisfy stock option exercises. Additionally, at December 31, 1997, 8,616,237
shares of unissued Common stock were reserved for future issuance under various
employee benefit plans.
PREFERRED STOCK
The Company is authorized to issue up to 10,000,000 shares of preferred
stock, par value of $.01 per share. At December 31, 1997, no preferred shares
were issued or outstanding. Shares of preferred stock may be issued in one or
more series of classes, each of which series or class shall have such
distinctive designation or title as shall be fixed by the Board of Directors of
the Company prior to issuance of any shares. Each such series or class shall
have such voting powers, full or limited, or no voting powers, and such
preferences and relative, participating, optional or other special rights and
such qualifications, limitations or restrictions thereof, as shall be stated in
such resolution or resolutions providing for the issuance of such series or
class of preferred stock as may be adopted by the Board of Directors prior to
the issuance of any shares thereof. A total of 750,000 shares of Series A Junior
Participating Preferred Stock has been reserved for issuance upon exercise of
the Stockholder Rights described below.
STOCKHOLDER RIGHTS PLAN
On May 23, 1995, the Company's Board of Directors declared a dividend
distribution of one Right for each outstanding share of Common stock. Each Right
entitles the registered holder to purchase one one-hundredth of a share of
Series A Junior Participating Preferred Stock of the Company, par value $.01 per
share, for an exercise price of $300. The Rights were attached to all
outstanding shares of the Company's Common stock immediately following
completion of the exchange offer with Cooper (see Note 1). Unless earlier
redeemed by the Company at a price of $.01 each, the Rights become exercisable
only in certain circumstances constituting a potential change in control of the
Company and will expire on October 31, 2007.
Each share of Series A Junior Participating Preferred Stock purchased upon
exercise of the Rights will be entitled to certain minimum preferential
quarterly dividend payments as well as a specified minimum preferential
liquidation payment in the event of a merger, consolidation or other similar
transaction. Each share will also be entitled to 100 votes to be voted together
with the Common stockholders and will be junior to any other series of Preferred
Stock authorized or issued by the Company, unless the terms of such other series
provides otherwise.
In the event of a potential change in control, each holder of a Right,
other than Rights beneficially owned by the acquiring party (which will have
become void), will have the right to receive upon exercise of a Right that
number of shares of Common stock of the Company, or, in certain instances,
Common stock of the acquiring party having a market value equal to two times the
current exercise price of the Right.
RETAINED DEFICIT
The Company's retained deficit as of December 31, 1997 and 1996 includes a
$441,000,000 charge related to the goodwill write-down described in Note 3 of
the Notes to Consolidated Financial Statements. Delaware law, under which the
Company is incorporated, provides that dividends may be declared by the
Company's board of directors from a current year's earnings as well as from the
net of capital in excess of par value less the retained deficit. Accordingly, at
December 31, 1997, the Company had approximately $665,490,000 from which
dividends could be paid.
45
<PAGE> 26
NOTE 15: INDUSTRY SEGMENTS
<TABLE>
<CAPTION>
REVENUES OPERATING EARNINGS IDENTIFIABLE ASSETS
YEARS ENDED DECEMBER 31, YEARS ENDED DECEMBER 31, DECEMBER 31,
- -----------------------------------------------------------------------------------------------------------------------------------
(dollars in thousands) 1997 1996 1995 1997 1996 1995 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Petroleum Production
Equipment $1,112,556 $ 798,607 $ 648,141 $159,800 $ 71,590 $ (12,557) $1,132,543 $ 991,726 $ 775,353
Compression and
Power Equipment 686,185 588,536 493,602 74,554 57,629 30,010 490,091 450,408 348,295
- -----------------------------------------------------------------------------------------------------------------------------------
1,798,741 1,387,143 1,141,743 234,354 129,219 17,453 1,622,634 1,442,134 1,123,648
Other income 7,368 1,044 2,292 7,368 1,044 2,292
- -----------------------------------------------------------------------------------------------------------------------------------
Total revenues $1,806,109 $1,388,187 $1,144,035
===================================================================================================================================
Goodwill write-down -- -- (441,000)
Nonrecurring/
unusual charges -- (7,274) (41,509)
Interest expense (28,591) (20,878) (23,273)
General corporate (13,753) (10,097) (10,359) 12,044 21,159 10,027
- -----------------------------------------------------------------------------------------------------------------------------------
Consolidated income
(loss) before income
taxes $199,378 $ 92,014 $(496,396)
===================================================================================================================================
Investment in uncon-
solidated subsidiaries 8,552 5,629 1,730
- -----------------------------------------------------------------------------------------------------------------------------------
Total assets $1,643,230 $1,468,922 $1,135,405
===================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
REVENUES OPERATING EARNINGS IDENTIFIABLE ASSETS
YEARS ENDED DECEMBER 31, YEARS ENDED DECEMBER 31, DECEMBER 31,
- -----------------------------------------------------------------------------------------------------------------------------------
(dollars in thousands) 1997 1996 1995 1997 1996 1995 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Domestic $1,177,197 $ 897,533 $ 736,079 $130,953 $ 92,440 $ 8,566 $ 966,976 $ 823,461 $ 638,245
- -----------------------------------------------------------------------------------------------------------------------------------
International:
Europe 581,203 443,957 336,133 86,694 42,719 4,988 586,287 562,425 449,508
Canada 135,586 64,326 60,250 3,743 2,203 94 54,788 43,995 26,585
Other 137,632 100,246 108,423 17,555 538 2,207 132,675 102,431 83,284
- -----------------------------------------------------------------------------------------------------------------------------------
Sub-total
International 854,421 608,529 504,806 107,992 45,460 7,289 773,750 708,851 559,377
- -----------------------------------------------------------------------------------------------------------------------------------
Eliminations:
Transfers to
International (183,552) (93,364) (82,061) (23,465) (23,816) (16,265)
Transfers to Domestic (49,325) (25,555) (17,081) (73,216) (49,540) (49,569)
Other (4,591) (8,681) 1,598 (21,411) (16,822) (8,140)
- -----------------------------------------------------------------------------------------------------------------------------------
1,798,741 1,387,143 1,141,743 234,354 129,219 17,453 1,622,634 1,442,134 1,123,648
Other income 7,368 1,044 2,292 7,368 1,044 2,292
- -----------------------------------------------------------------------------------------------------------------------------------
Total revenues $1,806,109 $1,388,187 $1,144,035
===================================================================================================================================
Goodwill write-down -- -- (441,000)
Nonrecurring/
unusual charges -- (7,274) (41,509)
Interest expense (28,591) (20,878) (23,273)
General corporate (13,753) (10,097) (10,359) 12,044 21,159 10,027
- -----------------------------------------------------------------------------------------------------------------------------------
Consolidated income
(loss) before income
taxes $199,378 $ 92,014 $(496,396)
===================================================================================================================================
Investment in uncon-
solidated subsidiaries 8,552 5,629 1,730
- -----------------------------------------------------------------------------------------------------------------------------------
Total assets $1,643,230 $1,468,922 $1,135,405
===================================================================================================================================
</TABLE>
46
<PAGE> 27
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
- --------------------------------------------------------------------------------
(dollars in thousands) 1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Research and development expense:
Petroleum Production Equipment $ 3,878 $ 1,944 $ 1,347
Compression and Power Equipment 5,985 5,192 7,201
- --------------------------------------------------------------------------------
Total $ 9,863 $ 7,136 $ 8,548
================================================================================
Depreciation and amortization:
Petroleum Production Equipment $ 40,810 $ 37,467 $ 46,615
Compression and Power Equipment 24,346 24,518 25,071
Corporate 706 495 68
- --------------------------------------------------------------------------------
Total $ 65,862 $ 62,480 $ 71,754
================================================================================
Capital expenditures:
Petroleum Production Equipment $ 51,420 $ 16,373 $ 23,132
Compression and Power Equipment 19,572 18,939 14,603
Corporate 1,305 1,833 1,791
- --------------------------------------------------------------------------------
Total $ 72,297 $ 37,145 $ 39,526
================================================================================
Goodwill write-down:
Domestic $ -- $ -- $ 144,719
Europe -- -- 259,879
Canada -- -- 7,330
Other -- -- 29,072
- --------------------------------------------------------------------------------
Total $ -- $ -- $ 441,000(1)
================================================================================
Nonrecurring/unusual charges:
Domestic $ -- $ 4,724 $ 15,584
Europe -- 1,926 19,494
Canada -- 359 720
Other -- 265 5,711
- --------------------------------------------------------------------------------
Total $ -- $ 7,274(2) $ 41,509(3)
================================================================================
</TABLE>
(1) All related to Petroleum Production Equipment.
(2) $4,169 related to Compression and Power Equipment and the balance to
Petroleum Production Equipment.
(3) $2,242 related to Compression and Power Equipment and the balance to
Petroleum Production Equipment.
The Company's operations are organized into two segments, Petroleum
Production Equipment and Compression and Power Equipment.
The Petroleum Production Equipment segment manufactures, markets and
services valves, wellhead equipment, blowout preventers, chokes and control
systems, and other components for oil and gas drilling, production and
transmission activities.
The Compression and Power Equipment segment manufactures, markets and
services engines and centrifugal gas and air compressors used in the production,
transmission, storage and processing of natural gas and oil as well as a variety
of other industrial applications.
Intersegment sales and related receivables for each of the years shown were
immaterial and have been eliminated.
Export sales to unaffiliated companies were $308,960,000 in 1997,
$277,426,000 in 1996 and $184,390,000 in 1995. Of total export sales,
approximately 49% in 1997, 60% in 1996 and 60% in 1995 were to Asia, Africa,
Australia and the Middle East; 12% in 1997, 17% in 1996 and 13% in 1995 were to
Canada and Europe; and 39% in 1997, 23% in 1996 and 27% in 1995 were to Latin
America. Foreign currency transaction gains and losses were insignificant for
all of the years shown. See Note 3 of the Notes to Consolidated Financial
Statements for information regarding 1995 translation losses related to the
Company's operations in Venezuela.
47
<PAGE> 28
NOTE 16: RELATED PARTY TRANSACTIONS
The Company received services provided by Cooper including employee
benefits administration, cash management, risk management, certain legal
services, public relations, domestic tax reporting and internal and domestic
external audit through June 30, 1995. The costs associated with these services
allocated to the Company amounted to $4,042,000 for the six-month period in
1995.
For purposes of the Company's consolidated financial statements, the
intercompany account between the Company and Cooper was included as an element
of the Company's net assets for periods prior to June 30, 1995. All free cash
flows and cash requirements of the Company through June 30, 1995 were considered
to be transferred to or provided by Cooper and have been included in this
intercompany account.
Transactions with other related parties, are not material to the Company.
NOTE 17: OFF-BALANCE SHEET RISK, CONCENTRATIONS OF CREDIT RISK AND FAIR VALUE OF
FINANCIAL INSTRUMENTS
OFF-BALANCE SHEET RISK
The table below summarizes the contractual amounts of the Company's forward
foreign currency exchange contracts to (buy) sell the following currencies at
December 31, 1997 and 1996. These contracts generally have maturities that do
not exceed one to two years.
<TABLE>
<CAPTION>
DECEMBER 31,
- -----------------------------------------------------------------------
(DOLLARS IN THOUSANDS) 1997 1996(1)
- -----------------------------------------------------------------------
<S> <C> <C>
Pound Sterling:
- Buy $ (8,004) $ --
Canadian Dollar:
- Sell 4,767 44,695
- Buy (4,559) --
Deutsche Marks:
- Sell -- 487
- Buy (1,695) --
Italian Lira:
- Sell 747 5,526
- Buy (106) --
Japanese Yen:
- Buy -- (166)
- -----------------------------------------------------------------------
Net (purchase) selling position $ (8,850) $ 50,542
=======================================================================
</TABLE>
(1) Revised for comparability with 1997.
Counterparties to the forward foreign currency exchange contracts are
typically large, stable financial institutions. Accordingly, the Company's
exposure to credit loss in the event of nonperformance by these counterparties
is considered to be minimal. Deferred gains and losses on forward foreign
currency exchange contracts based upon anticipated transactions were not
material at December 31, 1997 and 1996.
At December 31, 1997, the Company was contingently liable with respect to
approximately $55,926,000, ($74,079,000 at December 31, 1996) of standby letters
of credit ("letters") issued in connection with the delivery, installation and
performance of the Company's products under contracts with customers throughout
the world. Of the outstanding total, approximately 46% relates to the Petroleum
Production Equipment segment and the balance, or 54%, to the Compression and
Power Equipment segment. The Company was also liable for approximately
$9,806,000 of bank guarantees and letters of credit used to secure certain
financial obligations of the Company ($8,770,000 at December 31, 1996). While
certain of the letters do not have a fixed expiration date, the majority expire
within the next one to two years and the Company would expect to issue new or
extend existing letters in the normal course of business.
The Company's other off-balance sheet risks are not material.
CONCENTRATIONS OF CREDIT RISK
See Note 3 for a discussion of the Company's receivables and related
reserves with respect to customers in the country of Iran. The Company's other
concentrations of credit risk are not significant.
48
<PAGE> 29
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist primarily of cash and cash
equivalents, trade receivables, trade payables, debt instruments, interest rate
swap contracts, forward rate agreements and foreign currency forward contracts.
The book values of cash and cash equivalents, trade receivables and trade
payables and floating-rate debt instruments are considered to be representative
of their respective fair values. Based on the spread between the contract
forward rate and the spot rate as of year-end on contracts with similar terms to
existing contracts, the fair value of the Company's foreign currency forward
contracts was not material at December 31, 1997 and 1996.
As described in Note 11 of the Notes to Consolidated Financial Statements,
the Company has entered into various interest rate swap agreements.
Additionally, during 1997, and continuing in January 1998, the Company entered
into Treasury Locks, or forward rate agreements, to hedge its interest rate
exposure on $150,000,000 of a prospective long-term debt issuance. These
agreements, which lock in a weighted average interest rate of 5.71% on the
"Treasury component" of any such issuance, expire June 15, 1998. If
marked-to-market at December 31, 1997 the interest rate swaps and Treasury Locks
would have resulted in a small pre-tax gain.
NOTE 18: SUMMARY OF NONCASH INVESTING AND FINANCING ACTIVITIES
Increase in net assets:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
- ---------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS) 1997 1996
- ---------------------------------------------------------------------------------------
<S> <C> <C>
Common stock issued for employee stock ownership and
retirement savings plans $ 6,058 $7,027
Adjustment of minimum pension liability 2,349 2,958
Tax benefit of certain employee stock benefit plan transactions 22,367 1,865
</TABLE>
NOTE 19: NET ASSETS
Prior to June 30, 1995, the Company was not a separate stand-alone entity
and, therefore, it did not have any meaningful amounts of Common stock, capital
in excess of par value or retained earnings. Accordingly, the equity was
reflected as a single amount titled "Net Assets." The table below shows the
items which have resulted in increases or decreases to this Net Asset total for
the period from December 31, 1994 through June 30, 1995. The Company's
stockholders' equity activity for the period from July 1, 1995 through December
31, 1997 is shown in the Consolidated Changes in Stockholders' Equity statement.
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS) NET ASSETS
- -----------------------------------------------------------------------------------------
<S> <C>
Balance at December 31, 1994 $878,129
Translation adjustment 27,106
Allocation of interest and general and administrative expenses, net of tax,
from Cooper 9,539
Net loss from January 1, 1995 through June 30, 1995 (37,802)
Adjustment of equity balances to reflect split-off
from Cooper at June 30, 1995(1) 14,209
- -----------------------------------------------------------------------------------------
Balance on June 30, 1995 at time of split-off $891,181
=========================================================================================
</TABLE>
(1) Includes the effect of the final settlement with Cooper reached during the
fourth quarter of 1995.
Intercompany transactions are principally cash transfers between the Company and
Cooper.
49
<PAGE> 30
NOTE 20: EARNINGS (LOSS) PER SHARE
The weighted average number of common shares (utilized for basic earnings per
share presentation) and common stock equivalents outstanding for each period
presented was as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
- ----------------------------------------------------------------------------------------
(amounts in thousands) 1997 1996 1995
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Average shares outstanding 52,145 50,690 50,098
Common stock equivalents 3,461 2,289 --
- ----------------------------------------------------------------------------------------
Shares utilized in diluted earnings per share presentation 55,606 52,979 50,098
========================================================================================
</TABLE>
For periods prior to June 30, 1995, earnings (loss) per share amounts have been
computed on a pro forma basis based on the assumption that 50,000,000
(post-split) shares of Common stock were outstanding during each period
presented.
NOTE 21: UNAUDITED QUARTERLY OPERATING RESULTS
<TABLE>
<CAPTION>
1997 (BY QUARTER)
- -----------------------------------------------------------------------------------------------
(dollars in thousands, except per share data) 1 2 3 4
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $376,045 $441,344 $474,451 $514,269
Gross margin(1) 100,798 123,893 134,067 150,404
Net income 19,419 34,063 39,799 47,301
Earnings per share:
Basic 0.38 0.66 0.76 0.89
Diluted 0.36 0.62 0.70 0.83
</TABLE>
<TABLE>
<CAPTION>
1996 (BY QUARTER)
- -----------------------------------------------------------------------------------------------
(dollars in thousands, except per share data) 1 2(2) 3(2) 4(2)
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $280,648 $312,444 $378,793 $416,302
Gross margin(1) 74,782 85,399 101,094 116,354
Net income 7,664 12,869 19,253 24,398
Earnings per share:
Basic 0.15 0.26 0.38 0.48
Diluted 0.15 0.24 0.36 0.45
</TABLE>
1 Gross margin equals revenues less cost of sales before depreciation and
amortization.
2 See Note 3 of the Notes to Consolidated Financial Statements for further
information relating to nonrecurring/unusual charges incurred during 1996.
50
<PAGE> 31
SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA OF COOPER CAMERON CORPORATION
The following table sets forth selected historical financial data for the
Company for each of the five years in the period ended December 31, 1997. The
financial information included herein may not necessarily be indicative of the
financial position or results of operations of the Company in the future or of
the financial position or results of operations of the Company that would have
been obtained if the Company had been a separate, stand-alone entity during the
periods presented. This information should be read in conjunction with the
consolidated financial statements of the Company and notes thereto included
elsewhere in this Annual Report.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
- -----------------------------------------------------------------------------------------------------------------------------
(dollars in thousands, except per share) 1997 1996 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Income Statement Data(1):
Revenues $ 1,806,109 $ 1,388,187 $ 1,144,035 $ 1,110,076 $ 1,340,778
- -----------------------------------------------------------------------------------------------------------------------------
Costs and expenses:
Cost of sales (exclusive of
depreciation and amortization) 1,296,947 1,010,558 881,798 838,575 970,944
Depreciation and amortization 65,862 62,480 71,754 70,233 70,413
Selling and administrative
expenses 215,331 194,983 181,097 177,902 194,242
Interest expense 28,591 20,878 23,273 20,023 15,852
Provision for impairment of
goodwill -- -- 441,000 -- --
Nonrecurring/unusual charges(2) -- 7,274 41,509 -- --
- -----------------------------------------------------------------------------------------------------------------------------
1,606,731 1,296,173 1,640,431 1,106,733 1,251,451
- -----------------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes 199,378 92,014 (496,396) 3,343 89,327
Income tax provision (58,796) (27,830) (3,657) (7,089) (38,138)
- -----------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 140,582 $ 64,184 $ (500,053) $ (3,746) $ 51,189
=============================================================================================================================
Earnings (loss) per share (pro forma prior
to June 30, 1995)(3):
Basic $ 2.70 $ 1.27 $ (9.98) $ (0.07) $ 1.02
Diluted $ 2.53 $ 1.21 $ (9.98) $ (0.07) $ 1.02
=============================================================================================================================
Balance Sheet Data (at the end of period)(1):
Total assets $ 1,643,230 $ 1,468,922 $ 1,135,405 $ 1,710,380(4) $ 1,713,668
Stockholders' equity/net assets 642,051 516,128 423,588 878,129(4) 841,955
Long-term debt 328,824 347,548 234,841 374,800 374,815
Other long-term obligations 143,560 160,405 160,267 181,043 193,666
</TABLE>
1 For the historical periods presented prior to June 30, 1995, all of the
excess cash generated by the Company's operations was regularly remitted to
Cooper pursuant to Cooper's centralized cash management program. As a
result, total indebtedness has been held constant from year-to-year for
such periods. See Note 11 of the Notes to Consolidated Financial Statements
of the Company for further information regarding long-term debt.
2 See Note 3 of the Notes to Consolidated Financial Statements for further
information relating to the nonrecurring/unusual charges incurred during
1996 and 1995.
3 See Note 20 of the Notes to the Consolidated Financial Statements for
further information relating to the calculation of earnings (loss) per
share amounts for periods prior to June 30, 1995.
4 Includes a $36,607,000 receivable from Cooper at December 31, 1994.
51
<PAGE> 1
EXHIBIT 21
COOPER CAMERON CORPORATION -- SUBSIDIARIES
(AS OF MARCH 26, 1998)
<TABLE>
<CAPTION>
COOPER CAMERON CORPORATION (DELAWARE) - PARENT % OWNED % OWNED
BY SUBSIDIARY BY CCC
------------- -------
<S> <C> <C>
Cameron Algerie (Algeria)(1) 100%
Cameron Argentina S.A.I.C. (Argentina)(1) 100%
Cameron Australasia Pty. Ltd. (Australia) 100%
Cooper Cameron Pensions Australia. Pty. Ltd. (Australia) 100% 100%
Cameron France, S.A. (France) 100%
Cameron France E.U.R.L. 100%
Cameron France S.N.C. 100%
Cameron Gabon, S.A. (Gabon) 100%
Cameron GmbH (Germany) 100%
Cameron Inchcape Middle LLC (Oman Joint Venture) 24%
Cameron Ireland Limited (Ireland)(1) 100%
Cameron Norge AS (Norway) 100%
Cameron Venezolana, S.A. (Venezuela) 49%
Cameron Cactus Cayman Ltd. (Grand Cayman) 100%
Servicious Cameron, C.A. (Venezuela) 100%
Camercay, Ltd. (Grand Cayman) 100%
Compression Services Company (Ohio) 100%
Cooper Cameron do Brasil Ltda. (Brazil)(1) 100%
Cooper Cameron Foreign Sales Company Ltd. (Barbados) 100%
Cooper Cameron (U.K.) Limited (United Kingdom) 100%
Cameron Offshore Engineering Limited (United Kingdom) 100%
Cooper Cameron Pensions Limited (United Kingdom) 100%
Cameron Integrated Services Limited (United Kingdom) 100%
Cooper Cameron (Malaysia) Sdn Bhd (Malaysia Joint Venture) 49%
Cooper Cameron Holding B.V. (Netherlands) 100%
Cooper Energy Services B.V. (Netherlands) 100%
Cameron B.V. (Netherlands) 100%
Cooper Cameron Limited (Canada) 100%
Cooper, Rolls Corporation (Canada)(3) 50%
Cooper Cameron Corporation Nigeria Limited (Nigeria) 60%
Cooper Energy Services de Venezuela, S.A. (Venezuela) 100%
Cooper Energy Services International, Inc. (Ohio) 100%
Canada Tiefbohrgerate und Maschinenfabrik GmbH (Austria) 100%
Cooper Cameron (Singapore) Pte. Ltd. (Singapore) 39%
Cooper Flow Control Australia Pty. Ltd. (Australia)(1) 50%
Cooper Cameron de Mexico S.A. de C.V. (Mexico)(1) 100%
Cooper Cameron (Singapore) Pte. Ltd. (Singapore)(4) 61%
Cameron-Excel Sdn Bhd (Malaysia - Joint Venture) 49%
Cameron (B) Sendirian Berhad (Brunei) 100%
Cooper Cameron Petroleum Equipment Group, Inc. (Delaware) 100%
Cooper Flow Control Australia Pty. Ltd. (Australia) 50%
Cooper Rolls Incorporated (Ohio)(2) 50%
Cooper Rolls Limited (United Kingdom) 100%
Cooper Turbocompressor, Inc. (Delaware) 100%
Ingram Cactus (Malaysia) Sdn. Bhd. 49%
Ingram Cactus de Venezuela, S.A. (Venezuela Joint Venture) 49%
Lyulka-Cooper (Russian Federation Joint Venture) 50%
SamaraVolgomash (Russia) 50%
Wellhead Holdings Malaysia, Inc. (Malaysia) 100%
</TABLE>
- ------------------------
(1) Also partially owned by Cooper Cameron Petroleum Equipment Group, Inc.
(2) Joint Venture Interest with Rolls-Royce Plc
(3) Joint Venture Interest with Rolls-Royce Industries Canada Inc.
(4) Also partially owned by Cooper Energy Services International, Inc.
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of Cooper Cameron Corporation of our report dated January 29, 1998, included in
the 1997 Annual Report to Stockholders of Cooper Cameron Corporation.
We also consent to the incorporation by reference in the Registration Statement
(Form S-8 Nos. 333-26923 and 33-95004) pertaining to the Amended and Restated
Cooper Cameron Corporation Long-Term Incentive Plan, the Registration Statement
(Form S-8 No. 33-94948) pertaining to the Cooper Cameron Corporation Employee
Stock Purchase Plan, the Registration Statement (Form S-8 No. 33-95000)
pertaining to the Cooper Cameron Corporation Amended and Restated 1995 Stock
Option Plan for Non-Employee Directors, and the Registration Statement (Form S-8
No. 33-95002) pertaining to the Cooper Cameron Corporation Retirement Savings
Plan of Cooper Cameron Corporation of our report dated January 29, 1998, with
respect to the consolidated financial statements of Cooper Cameron Corporation
incorporated by reference in the Annual Report (Form 10-K) for the year ended
December 31, 1997.
ERNST & YOUNG LLP
Houston, Texas
March 26, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 11,599
<SECURITIES> 0
<RECEIVABLES> 387,817
<ALLOWANCES> 13,646
<INVENTORY> 495,539
<CURRENT-ASSETS> 960,789
<PP&E> 791,292
<DEPRECIATION> 395,747
<TOTAL-ASSETS> 1,643,230
<CURRENT-LIABILITIES> 528,795
<BONDS> 328,824
0
0
<COMMON> 532
<OTHER-SE> 641,519
<TOTAL-LIABILITY-AND-EQUITY> 1,643,230
<SALES> 1,806,109
<TOTAL-REVENUES> 1,806,109
<CGS> 1,296,947
<TOTAL-COSTS> 1,296,947
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 4,079
<INTEREST-EXPENSE> 28,591
<INCOME-PRETAX> 199,378
<INCOME-TAX> 58,796
<INCOME-CONTINUING> 140,582
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 140,582
<EPS-PRIMARY> 2.70
<EPS-DILUTED> 2.53
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 8
<SECURITIES> 0
<RECEIVABLES> 362
<ALLOWANCES> 0
<INVENTORY> 453
<CURRENT-ASSETS> 839
<PP&E> 739
<DEPRECIATION> 376
<TOTAL-ASSETS> 1,492
<CURRENT-LIABILITIES> 652
<BONDS> 371
0
0
<COMMON> 1
<OTHER-SE> 511
<TOTAL-LIABILITY-AND-EQUITY> 1,492
<SALES> 376
<TOTAL-REVENUES> 376
<CGS> 275
<TOTAL-COSTS> 275
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7
<INCOME-PRETAX> 27
<INCOME-TAX> 8
<INCOME-CONTINUING> 19
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 19
<EPS-PRIMARY> .38<F1>
<EPS-DILUTED> .36<F1>
<FN>
<F1>EPS HAS BEEN RESTATED TO REFLECT THE ADOPTION OF SFAS NO. 128 (EARNINGS PER
SHARE) DURING 1997.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<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> 1.04<F1>
<EPS-DILUTED> .98<F1>
<FN>
<F1>EPS HAS BEEN RESTATED TO REFLECT THE ADOPTION OF SFNS NO. 128 (EARNINGS PER
SHARE) DURING 1997.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 7
<SECURITIES> 0
<RECEIVABLES> 391
<ALLOWANCES> 0
<INVENTORY> 499
<CURRENT-ASSETS> 918
<PP&E> 766
<DEPRECIATION> 394
<TOTAL-ASSETS> 1,578
<CURRENT-LIABILITIES> 447
<BONDS> 356
0
0
<COMMON> 0
<OTHER-SE> 625
<TOTAL-LIABILITY-AND-EQUITY> 1,578
<SALES> 1,292
<TOTAL-REVENUES> 1,292
<CGS> 933
<TOTAL-COSTS> 933
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 21
<INCOME-PRETAX> 132
<INCOME-TAX> 39
<INCOME-CONTINUING> 93
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 93
<EPS-PRIMARY> 1.80<F1>
<EPS-DILUTED> 1.69<F1>
<FN>
<F1>EPS HAS BEEN RESTATED TO REFLECT THE ADOPTION OF SFAS NO. 128 (EARNINGS PER
SHARE) DURING 1997.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 9,057
<SECURITIES> 0
<RECEIVABLES> 294,519
<ALLOWANCES> 11,741
<INVENTORY> 404,268
<CURRENT-ASSETS> 798,231
<PP&E> 742,985
<DEPRECIATION> 373,457
<TOTAL-ASSETS> 1,468,922
<CURRENT-LIABILITIES> 444,841
<BONDS> 347,548
0
0
<COMMON> 256
<OTHER-SE> 515,872
<TOTAL-LIABILITY-AND-EQUITY> 1,468,922
<SALES> 1,388,187
<TOTAL-REVENUES> 1,388,187
<CGS> 1,010,558
<TOTAL-COSTS> 1,010,558
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 373
<INTEREST-EXPENSE> 20,878
<INCOME-PRETAX> 92,014
<INCOME-TAX> 27,830
<INCOME-CONTINUING> 64,184
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 64,184
<EPS-PRIMARY> 1.27<F1>
<EPS-DILUTED> 1.21<F1>
<FN>
<F1>EPS HAS BEEN RESTATED FOR 2-FOR-1 STOCK SPLIT, EFFECTIVE JUNE 13, 1997 AND THE
ADOPTION OF SFAS NO. 128 (EARNINGS PER SHARE) DURING 1997.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 11
<SECURITIES> 0
<RECEIVABLES> 203
<ALLOWANCES> 0
<INVENTORY> 318
<CURRENT-ASSETS> 547
<PP&E> 683
<DEPRECIATION> 345
<TOTAL-ASSETS> 1,140
<CURRENT-LIABILITIES> 341
<BONDS> 217
0
0
<COMMON> 0
<OTHER-SE> 421
<TOTAL-LIABILITY-AND-EQUITY> 1,140
<SALES> 281
<TOTAL-REVENUES> 281
<CGS> 206
<TOTAL-COSTS> 206
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4
<INCOME-PRETAX> 11
<INCOME-TAX> 3
<INCOME-CONTINUING> 8
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8
<EPS-PRIMARY> 0.15<F1>
<EPS-DILUTED> 0.15<F1>
<FN>
<F1>EPS HAS BEEN RESTATED FOR A 2-FOR-1 STOCK SPLIT, EFFECTIVE JUNE 13, 1997 AND
THE ADOPTION OF SFAS NO. 128 (EARNINGS PER SHARE) DURING 1997.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 3
<SECURITIES> 0
<RECEIVABLES> 258
<ALLOWANCES> 0
<INVENTORY> 378
<CURRENT-ASSETS> 665
<PP&E> 716
<DEPRECIATION> 353
<TOTAL-ASSETS> 1,309
<CURRENT-LIABILITIES> 399
<BONDS> 307
0
0
<COMMON> 0
<OTHER-SE> 440
<TOTAL-LIABILITY-AND-EQUITY> 1,309
<SALES> 593
<TOTAL-REVENUES> 593
<CGS> 433
<TOTAL-COSTS> 433
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9
<INCOME-PRETAX> 29
<INCOME-TAX> 9
<INCOME-CONTINUING> 20
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 20
<EPS-PRIMARY> 0.41<F1>
<EPS-DILUTED> 0.39<F1>
<FN>
<F1>EPS HAS BEEN RESTATED FOR A 2-FOR-1 STOCK SPLIT, EFFECTIVE JUNE 13, 1997 AND
THE ADOPTION OF SFAS NO. 128 (EARNINGS PER SHARE) DURING 1997.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<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
<EPS-PRIMARY> 0.79<F1>
<EPS-DILUTED> 0.76<F1>
<FN>
<F1>EPS HAS BEEN RESTATED FOR A 2-FOR-1 STOCK SPLIT, EFFECTIVE JUNE 13, 1997 AND
THE ADOPTION OF SFAS NO. 128 (EARNINGS PER SHARE) DURING 1997.
</FN>
</TABLE>
