<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 1-13884
----------------------------------------------------------
Cooper Cameron Corporation
- --------------------------------------------------------------------------------
(Exact Name of Registrant in its Charter)
Delaware 76-0451843
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
515 Post Oak Blvd., Suite 1200, Houston, Texas 77027
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(Address of Principal Executive Offices) (Zip Code)
713/513-3300
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(Registrant's Telephone Number, Including Area Code)
N/A
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(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Number of shares outstanding of issuer's common stock as of July 31, 1998 was
53,068,529.
<PAGE> 2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
COOPER CAMERON CORPORATION
CONSOLIDATED RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
----------------------- ----------------------
(dollars in millions, except per share data) 1998 1997 1998 1997
------- ------- ------- ------
<S> <C> <C> <C> <C>
REVENUES............................................. $ 502.7 $ 441.3 $ 929.6 $ 817.4
------- ------- -------- --------
COSTS AND EXPENSES
Cost of sales (exclusive of depreciation
and amortization) ................................ 348.9 317.5 647.2 592.7
Depreciation and amortization ....................... 18.1 16.3 35.2 32.6
Selling and administrative expenses ................. 61.4 51.9 117.5 101.9
Interest expense .................................... 9.0 7.3 16.2 14.3
------- ------- -------- --------
437.4 393.0 816.1 741.5
------- ------- -------- --------
Income before income taxes .................... 65.3 48.3 113.5 75.9
Income tax provision ................................ (20.2) (14.2) (35.2) (22.4)
------- ------- -------- --------
Net income .......................................... $ 45.1 $ 34.1 $ 78.3 $ 53.5
======= ======= ======== ========
Earnings per share:
Basic ............................................ $ 0.86 $ 0.66 $ 1.49 $ 1.04
======= ======= ======== ========
Diluted .......................................... $ 0.81 $ 0.62 $ 1.41 $ 0.98
======= ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
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COOPER CAMERON CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
(dollars in millions, except shares and per share data) 1998 1997
--------- -----------
<S> <C> <C>
ASSETS
Cash and cash equivalents ............................................ $ 15.0 $ 11.6
Receivables, net ..................................................... 427.3 428.6
Inventories, net ..................................................... 574.0 495.6
Other ................................................................ 23.9 25.0
--------- ---------
Total current assets ...................................... 1,040.2 960.8
--------- ---------
Plant and equipment, at cost ......................................... 877.9 791.3
Less: accumulated depreciation ...................................... (420.3) (395.8)
Intangibles .......................................................... 515.7 445.8
Less: accumulated amortization ...................................... (214.8) (205.4)
Other assets ......................................................... 55.6 46.5
--------- ---------
TOTAL ASSETS ......................................... $ 1,854.3 $ 1,643.2
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current maturities of long-term debt ................................. $ 49.8 $ 48.1
Accounts payable and accrued liabilities ............................. 476.1 470.9
Accrued income taxes ................................................. 8.7 9.8
--------- ---------
Total current liabilities ................................. 534.6 528.8
--------- ---------
Long-term debt ....................................................... 471.2 328.8
Postretirement benefits other than pensions .......................... 79.7 85.5
Deferred income taxes ................................................ 38.2 35.0
Other long-term liabilities .......................................... 23.5 23.1
--------- ---------
Total liabilities ......................................... 1,147.2 1,001.2
--------- ---------
Stockholders' Equity:
Common stock, par value $.01 per share, 150,000,000 shares
authorized, 53,235,292 shares issued ......................... .5 .5
Capital in excess of par value ................................... 899.0 923.0
Retained deficit (including $441.0 charge on June 30, 1995
related to goodwill impairment) .............................. (179.2) (257.5)
Accumulated other elements of comprehensive income ............... 7.7 7.8
Less: Treasury stock, 405,746 shares at June 30, 1998 and
477,149 shares at December 31, 1997, at cost ................. (20.9) (31.8)
--------- ---------
Total stockholders' equity ................................ 707.1 642.0
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY .......................................... $ 1,854.3 $ 1,643.2
========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
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<PAGE> 4
COOPER CAMERON CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Six Months
Ended Ended
June 30, June 30,
---------------------- -----------------------
(dollars in millions) 1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income ................................................. $ 45.1 $ 34.1 $ 78.3 $ 53.5
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation ....................................... 13.6 12.4 26.8 24.9
Amortization ....................................... 4.5 3.9 8.4 7.7
Deferred income taxes .............................. 10.6 2.1 11.8 5.3
Changes in assets and liabilities, net of translation
and effects of acquisitions:
Receivables ........................................ (44.1) (8.2) 13.0 (17.4)
Inventories ........................................ (7.8) (42.6) (60.0) (101.3)
Accounts payable and accrued liabilities ........... (26.5) 18.7 (31.1) 29.5
Other assets and liabilities, net .................. 5.9 (2.8) 9.2 5.1
-------- ------- -------- --------
Net cash provided by operating
activities ............................. 1.3 17.6 56.4 7.3
-------- ------- -------- --------
Cash flows from investing activities:
Capital expenditures and proceeds from
sales of plant and equipment, net ...................... (30.3) (12.8) (55.5) (19.8)
Acquisitions ............................................... (83.9) (5.3) (90.2) (6.3)
-------- ------- -------- --------
Net cash used for investing activities ..... (114.2) (18.1) (145.7) (26.1)
-------- ------- -------- --------
Cash flows from financing activities:
Loan borrowings (repayments), net .......................... 94.1 (5.2) 121.7 12.8
Purchase of treasury stock ................................. -- -- (36.1) --
Activity under stock option plans and other ................ 4.1 7.6 7.1 7.8
-------- ------- -------- --------
Net cash provided by financing
activities ............................. 98.2 2.4 92.7 20.6
-------- ------- -------- --------
Effect of translation on cash .................................. (.1) (.1) -- (1.0)
-------- ------- -------- --------
Increase (decrease) in cash and cash equivalents ............... (14.8) 1.8 3.4 .8
-------- ------- -------- --------
Cash and cash equivalents, beginning of period ................. 29.8 8.1 11.6 9.1
-------- ------- -------- --------
Cash and cash equivalents, end of period ....................... $ 15.0 $ 9.9 $ 15.0 $ 9.9
======== ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
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<PAGE> 5
COOPER CAMERON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Adjustments
The financial information presented as of June 30, 1998 and for the
three and six-month periods ended June 30, 1998 and 1997 has been prepared from
the books and records without audit. Financial information as of December 31,
1997 has been derived from the audited financial statements of the Company, but
does not include all disclosures required by generally accepted accounting
principles. In the opinion of management, all adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation of the financial
information for the periods indicated have been included. For information
regarding the Company's accounting policies, refer to the consolidated financial
statements and related notes included in the Company's Annual Report to
Stockholders for the year ended December 31, 1997.
Note 2. Acquisitions
Effective April 2, 1998, the Company acquired Orbit Valve
International, Inc. for approximately $100 million in cash and debt. Orbit,
which has been integrated into the Cooper Cameron Valves organization in the
Petroleum Production Equipment (PPE) segment, is based in Little Rock, Arkansas
and manufactures and sells high-performance valves for the oil and gas and
petrochemical industries. During 1997, Orbit generated revenues of approximately
$85 million.
The acquisition is being accounted for under the purchase method and
therefore, the results of the acquired business are included with the Company's
results for the three and six-month periods ended June 30, 1998 from the
acquisition date forward. The Company is awaiting certain information from
various sources to finalize the Orbit purchase price allocation. As a result,
the preliminary estimate of goodwill totaling approximately $64 million will
likely change as this information is subsequently received.
Additionally, during July 1998, the Company acquired certain assets and
assumed certain liabilities of Brisco Engineering Ltd., a U.K. company, for
approximately $12.6 million in cash and debt. The acquired operations, which
participate in the repair and aftermarket parts business for control systems,
will be accounted for under the purchase method and consolidated into the
Cameron organization in the PPE segment.
Note 3. Inventories
<TABLE>
<CAPTION>
June 30, December 31,
(dollars in millions) 1998 1997
---------- ------------
<S> <C> <C>
Raw materials ......................................... $ 67.4 $ 60.3
Work-in-process ....................................... 245.6 203.3
Finished goods, including parts and subassemblies ..... 345.0 327.3
Perishable tooling and supplies ....................... 3.0 3.1
-------- --------
661.0 594.0
Allowances ............................................ (87.0) (98.4)
-------- --------
Net inventories ....................................... $ 574.0 $ 495.6
======== ========
</TABLE>
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<PAGE> 6
Note 4. Stockholder Actions
During the Annual Meeting of Stockholders held on May 14, 1998, an
Amended and Restated Certificate of Incorporation was approved resulting in an
increase in the amount of Common stock the Company is authorized to issue from
75,000,000 shares to 150,000,000 shares. Additionally, stockholders gave their
approval to an amendment to the Amended and Restated Cooper Cameron Long-Term
Incentive Plan (the Plan) which had the effect of increasing by 3,000,000 the
number of shares of Common stock reserved for issuance under the Plan.
Note 5. Retained Deficit
While the Company has a retained deficit, it could declare and pay
dividends from its current surplus. Under Delaware Law the amount potentially
available for dividends equals the net of capital in excess of par value less
the retained deficit, or approximately $719.8 million at June 30, 1998.
Note 6. New Accounting Pronouncements
Effective, January 1, 1998, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 130 (Reporting Comprehensive Income). As a
result, the Company has modified its Consolidated Balance Sheets to include a
caption entitled "Accumulated other elements of comprehensive income". The
amount of comprehensive income for each of the three and six-month periods ended
June 30, 1998 and 1997 and the components of accumulated other elements of
comprehensive income at June 30, 1998 and December 31, 1997 are as follows:
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
------------------ ------------------
(dollars in millions) 1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income per Consolidated Results of
Operations ............................ $ 45.1 $ 34.1 $ 78.3 $ 53.5
Foreign currency translation loss ......... (.6) (1.2) (.1) (26.6)
Minimum pension liability adjustment ...... -- 2.2 -- 2.2
------- ------- ------- -------
Comprehensive income ...................... $ 44.5 $ 35.1 $ 78.2 $ 29.1
======= ======= ======= =======
</TABLE>
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<TABLE>
<CAPTION>
(dollars in millions) June 30, 1998 December 31, 1997
------------- -----------------
<S> <C> <C>
Amounts comprising accumulated other elements
of comprehensive income:
Accumulated foreign currency translation
adjustments ............................... $ 8.0 $ 8.1
Accumulated adjustments to record
minimum pension liabilities ............... (.3) (.3)
------ ------
Accumulated other elements of
comprehensive income .................. $ 7.7 $ 7.8
====== ======
</TABLE>
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 133 (Accounting for Derivative
Instruments and Hedging Activities). This new standard, which is not required to
be adopted by the Company until January 1, 2000, will change current accounting
rules relating to derivatives and hedging activities. Because the Company's only
derivative and hedging activities currently relate to interest rate swap
agreements and certain foreign currency hedges related to specific transactions,
the impact of the new standard on the Company is expected to be minimal.
Note 7. Earnings 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>
Three Months Six Months
Ended June 30, Ended June 30,
---------------- ----------------
(amounts in millions) 1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Average shares outstanding .................................... 52.7 51.6 52.6 51.4
Common stock equivalents ...................................... 3.0 3.0 3.1 3.0
---- ---- ---- ----
Number of shares utilized in diluted
earnings per share calculation ............................ 55.7 54.6 55.7 54.4
==== ==== ==== ====
</TABLE>
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<PAGE> 8
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition
In addition to the historical data contained herein, this document
includes forward-looking statements regarding the future revenues and
profitability of the Company made in reliance upon the safe harbor provisions of
the Private Securities Litigation Reform Act of 1995. The Company's actual
results may differ materially from those described in forward-looking
statements. Such statements are based on current expectations of the Company's
performance and are subject to a variety of factors, not under the control of
the Company, which can affect the Company's results of operations, liquidity or
financial condition. Such factors may include overall demand for the Company's
products; changes in the price of (and demand for) oil and gas in both domestic
and international markets; political and social issues affecting the countries
in which the Company does business; fluctuations in currency markets worldwide;
and variations in global economic activity. In particular, current and projected
oil and gas prices directly affect customers' spending levels and their related
purchases of the Company's products and services; as a result, changes in price
expectations may impact the Company's financial results due to changes in cost
structure, staffing or spending levels.
Because the information herein is based solely on data currently
available, it is subject to change as a result of changes in conditions over
which the Company has no control or influence, and should not therefore be
viewed as assurance regarding the Company's future performance. Additionally,
the Company is not obligated to make public indication of such changes unless
required under applicable disclosure rules and regulations.
SECOND QUARTER 1998 COMPARED TO SECOND QUARTER 1997
Cooper Cameron Corporation had net income of $45.1 million, or $.81 per
share, for the second quarter of 1998 compared to $34.1 million, or $.62 per
share, for the same period in 1997. (All per share amounts are based on diluted
shares.) This improvement was the result of the strong performance of the
Petroleum Production Equipment (PPE) segment, where second quarter 1998 earnings
increased by 55% from the second quarter 1997 level, partially offset by a 23%
decline in the Compression & Power Equipment (CPE) segment.
REVENUES
Revenues for the second quarter of 1998 totaled $502.7 million, an
increase of 14% from the $441.3 million in the second quarter of 1997 due to the
strong markets in the PPE segment and the April 2, 1998, acquisition of Orbit
Valve International, Inc. The Orbit Valve acquisition is discussed further in
Note 2 of the Notes to Consolidated Financial Statements.
Natural gas and oil commodity prices and expectations for future price
levels heavily influence the energy-related markets served by the Company. While
natural gas prices have remained relatively stable during 1998 and at levels
that are reasonably high from a historical perspective, oil prices have declined
significantly. The economic and financial unrest in Asia
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<PAGE> 9
and excess production concerns inside and outside of OPEC have fueled these
reductions. Thus far however, such lower oil prices have not had a significant
effect on the Company's financial performance.
Confidence that worldwide demand for oil and natural gas will grow over
the longer-term has, at least to date, provided impetus for continued spending
by national oil companies and major and independent producers. The effect of the
favorable market conditions has also benefited 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 the
end of the second quarter of 1998 was $982.5 million, an increase of 25% from
year-end 1997 and 15% from the second quarter 1997 level. See section entitled
"Outlook" for information regarding the Company's current expectations regarding
the balance of 1998.
The PPE segment's revenues of $346.6 million increased by 24% over
second quarter 1997 revenues of $279.9 million. The segment's revenue growth was
across all geographic areas, with the exception of the Asia-Pacific region,
which began to feel the effects of the so- called "Asian crisis", and all
product lines. This increase was primarily due to the market conditions
discussed above, which resulted in volume growth as well as favorable pricing,
and the Orbit Valve acquisition, which contributed revenues of approximately $24
million in the quarter. Of particular note were increased subsea and drilling
equipment shipments to the North Sea, and drilling equipment for deep-water
projects in the Gulf of Mexico. Also contributing to the revenue growth was
improved aftermarket activity, as demand for spare parts and refurbished
equipment increased. Order activity for the segment grew by 31% from the second
quarter 1997 level. This improvement was across all lines of the business, with
the exception of new surface equipment, which declined by 18% and began to show
the effects of weaker oil prices. The strength in orders was due to the Orbit
Valve acquisition, the continued strong market for drilling and related controls
equipment, driven by rig upgrades and new construction, and in the case of
subsea equipment due to a large project totaling approximately $50 million. As a
result of the increase in the longer cycle time drilling and subsea projects, a
significant portion of the higher second quarter 1998 order level is not
scheduled for delivery to customers until after year-end 1998 and now includes
deliveries extending into the year 2000. Backlog for the segment ended the
quarter at a new high of $788.9 million, an increase of 37% from year-end 1997
and 46% from the second quarter 1997 level.
Revenues for the CPE segment of $156.1 million decreased by 3% from
$161.4 million in the second quarter of 1997, with a decline in the sales of
natural gas compression equipment partially offset by an increase in sales of
centrifugal air compressors. The energy-related markets served by the natural
gas compression equipment business continue to be very competitive with the
timing of new major projects being pushed further into the future. The most
significant revenue decline was in gas turbine and compressor projects, while
aftermarket activity was virtually unchanged and reciprocating units improved
slightly. The increase in centrifugal air compressor sales was largely the
result of timing of large process air machine shipments. Order activity in the
CPE segment declined by 19% from the second quarter of 1997, due largely to the
effect of gas turbine and compressor projects as well as lower levels of Asian
activity for centrifugal air compressors. Due to the size and complex nature of
gas turbine and compressor projects, the specific timing of an order is very
difficult to predict and can cause significant
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<PAGE> 10
fluctuations in the year-to-year revenue, order, and backlog comparisons for
this segment. Backlog for the segment ended the second quarter of 1998 at $193.6
million, a decrease of 7% from year-end 1997 and 38% from the second quarter
1997 level.
COSTS AND EXPENSES
Cost of sales (exclusive of depreciation and amortization) of $348.9
million in the second quarter of 1998 increased by $31.4 million, or 10%,
compared with $317.5 million in the same period of 1997. This increase was
largely the result of the previously discussed 14% revenue growth. The gross
margin percentage (defined as revenues less cost of sales as a percentage of
revenues) was 33.8% for the PPE segment, compared to 30.1% in the second quarter
of 1997. This increase resulted from improved pricing, the leveraging of various
manufacturing support costs that are relatively fixed in the short-term, and
manufacturing cost reductions, including benefits from capital expenditures. For
the CPE segment, the gross margin percentage declined from 24.6% in the second
quarter of 1997 to 23.5% in the second quarter of 1998. This decrease was
primarily due to factors affecting the energy-related portion of the segment.
Pricing pressure in all lines of the business continued during the period and
cost reduction efforts were not able to keep pace with the revenue decline.
Depreciation and amortization increased by $1.8 million, from $16.3
million in the second quarter of 1997 to $18.1 million in the second quarter of
1998, with both segments reflecting increases. This was due primarily to the
Orbit Valve acquisition, and increased capital spending in the PPE segment in
response to improved market conditions and in the centrifugal air compressor
business to increase assembly and test capacity and improve manufacturing
throughput on large process air machines.
Selling and administrative expenses increased by $9.5 million, or 18%,
from $51.9 million in the second quarter of 1997 to $61.4 million in the second
quarter of 1998, primarily in the PPE segment. This increase was due to the
Orbit Valve acquisition, higher revenue levels, and the Company's effort to
improve its market presence. As an example, during 1997 Cameron established
separate management teams and focused additional marketing resources on the
controls and choke businesses, where there is believed to be significant growth
potential. The CPE segment increased slightly year-to-year due to new product
introduction initiatives. As a percentage of revenues, selling and
administrative costs for the Company increased from 11.8% in the second quarter
of 1997 to 12.2% in the second quarter of 1998. In the PPE segment, these costs
increased from 11.6% to 11.9% of revenues, due primarily to the acquired Orbit
Valve operations, which historically had higher levels of such costs. Various
initiatives are in process which should bring these costs in line with the rest
of Cameron, as well as derive the benefit of planned synergies with existing
Cooper Cameron Valve operations. The CPE segment increased from 10.0% of
revenues to 10.9%, as costs that are relatively fixed in the short-term were not
reduced at the rate of the revenue decline.
Reflecting the various factors discussed above, operating income
(defined as earnings before corporate expenses, interest, and taxes) totaled
$77.8 million for the Company, an increase of $18.5 million from the second
quarter of 1997. The PPE segment improved from $41.5 million to $64.2 million,
while the CPE segment decreased from $17.8 million to $13.6 million.
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<PAGE> 11
Interest expense increased from $7.3 million in the second quarter of
1997 to $9.0 million in the second quarter of 1998. This increase was due to a
higher average debt level related to the Orbit Valve acquisition and greater
working capital requirements in support of the revenue and backlog growth in the
PPE segment.
Income taxes were $20.2 million in the second quarter of 1998, an
increase of $6.0 million from the same period in 1997. This increase was
primarily the result of the year-to-year improvement in earnings. The effective
tax rate increased from 29.5% in the second quarter of 1997 to 31.0% in the
second quarter of 1998 due to an estimated change in the mix of domestic and
foreign earnings for 1998 versus 1997.
SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO SIX MONTHS ENDED JUNE 30, 1997
The Company had net income of $78.3 million, or $1.41 per share, for
the six months ended June 30, 1998, compared to $53.5 million, or $.98 per
share, for the same period in 1997. (All per share amounts are based on diluted
shares.) This improvement was the result of the strong performance of the
Petroleum Production Equipment (PPE) segment, where earnings increased by 66%,
partially offset by a 27% decline in the Compression & Power Equipment (CPE)
segment.
REVENUES
Revenues for the six months ended June 30, 1998 totaled $929.6 million,
an increase of 14% from the $817.4 million in the first six months of 1997. The
Orbit Valve acquisition and market fundamentals discussed in the quarterly
comparison were essentially the same for the Company throughout the six-month
period.
The PPE segment's revenues of $652.0 million increased by 26% over the
$519.0 million in the first half of 1997. The segment's revenue growth was
across all geographic areas and product lines. As discussed in the quarterly
comparison, this increase was primarily due to improved market conditions and
the Orbit Valve acquisition, for which revenues of $24 million were included
beginning in the second quarter of 1998. Order activity for this segment
increased by 31% from the first six months of 1997. This improvement was across
all geographical areas and product lines, with the exception of surface
equipment, which declined slightly due to the effect of lower oil prices. The
strength in orders is most apparent in the market for drilling and related
controls equipment, driven by rig upgrades and new construction.
Revenues for the CPE segment were $277.6 million for the first half of
1998, a decrease of 7% from the $298.4 million in the six months ended June 30,
1997, with a decline in sales of both natural gas compression equipment and
centrifugal air compressors. As noted in the quarter-to-quarter discussion, the
energy-related markets served by the natural gas compression equipment business
continued to be very competitive, with industry-wide over capacity. The most
significant revenue decline was in gas turbine and compressor projects, while
reciprocating units decreased slightly and aftermarket activity was virtually
unchanged. The decrease in centrifugal air compressor shipments was the result
of weaker demand for industrial air
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<PAGE> 12
compressors primarily due to the "Asian crisis". Order activity in this segment
for the first six months of 1998 totaled $263.3 million, a decrease of 19% from
the same period in 1997. This decline was primarily due to the large gas turbine
and compressor project business and the centrifugal air compressor business,
both of which were affected by the weakness in Asia.
COSTS AND EXPENSES
Cost of sales (exclusive of depreciation and amortization) of $647.2
million in the first six months of 1998 increased by $54.5 million, or 9%,
compared with the same period of 1997. The increase was largely the result of
the previously discussed 14% revenue growth. The gross margin percentage
(defined as revenues less cost of sales as a percentage of revenues) was 33.3%
for the PPE segment, compared to 29.7% in the first six months of 1997. This
improvement resulted from the same factors discussed in the quarterly
comparison. For the CPE segment, the gross margin percentage remained virtually
unchanged in the first six months of 1998 compared to the same period in 1997.
Depreciation and amortization increased by $2.6 million, from $32.6
million in the first half of 1997 to $35.2 million in the first six months of
1998, with both segments reflecting increases. This increase was due to the same
factors discussed in the quarterly comparison.
Selling and administrative expenses increased by $15.6 million, or 15%,
from $101.9 million in the first half of 1997 to $117.5 million in the first
half of 1998, primarily in the PPE segment. This increase was due to the same
factors discussed in the quarterly comparison. As a percentage of revenues,
selling and administrative costs for the Company remained virtually unchanged
from the first six months of 1997 to the first six months of 1998. The PPE
segment reflected a slight improvement in this relationship due to the
leveraging effect of the increased volume, while the CPE segment increased, as
costs that are relatively fixed in the short-term were not reduced at the rate
of the revenue decline.
Reflecting the various factors discussed above, operating income
(defined as earnings before corporate expenses, interest, and taxes) totaled
$136.2 million for the Company, an increase of $39.8 million from the first half
of 1997. The PPE segment improved from $70.6 million to $117.3 million, while
the CPE segment decreased from $25.8 million to $18.9 million.
Interest expense increased from $14.3 million in the first six months
of 1997 to $16.2 million for the same period in 1998 due to the factors
discussed in the quarterly comparison.
Income taxes were $35.2 million in the six months ended June 30, 1998,
an increase of $12.8 million from the same period in 1997 due to the
year-to-year improvement in earnings. The effective tax rate increased from
29.5% in the first half of 1997 to 31.0% in the first six month of 1998 due to
an estimated change in the mix of domestic and foreign earnings for 1998 versus
1997.
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<PAGE> 13
OUTLOOK
Given the current level of uncertainty in the Company's markets and the
continued softness in the gas compression equipment business, the results for
the second half of 1998 are not expected to reach the level anticipated three
months ago. The very weak gas turbine and compressor project business and lower
than planned growth in the Company's share of aftermarket activity will likely
prevent Cooper Energy Services (CES) from achieving the previously expected
level of performance. The Company currently anticipates that increased revenue
in the PPE segment and relatively flat results in the centrifugal air compressor
business should allow full year 1998 earnings per share to increase by 25 to 30
percent from the $2.53 per diluted share achieved in 1997. Cost reduction
efforts are ongoing at CES and benefits should begin to be realized during the
second half of the year. Current expectations for 1998 and beyond are based on
current market fundamentals; further declines or even a longer
term expectation for no improvement in oil prices or reductions in natural gas
prices could cause the Company's customers to reduce their spending plans and
further adversely affect the Company's performance.
CASH FLOW, LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL POSITION
During the first six months of 1998, after considering the $69 million
of cash utilized for increased working capital requirements, the Company's
operating activities generated a net of $56 million of cash. The increased
working capital requirements occurred primarily in the Petroleum Production
Equipment (PPE) segment as a result of record levels of backlog. Working capital
levels in the Compression and Power Equipment (CPE) segment declined modestly
from year-end 1997. The $56 million of cash generated by operations, along with
$122 million of additional borrowings under the Company's credit facilities and
$7 million from stock option exercises and other sources, was utilized to fund
the $84 million cash cost of Orbit Valve International Inc. (see Note 2 of the
Notes to Consolidated Financial Statements), $56 million of net capital
additions, $36 million (710,000 shares) of treasury stock repurchases and three
small product line acquisitions totaling $6 million. Over 75% of the Company's
capital expenditures were directed toward the PPE segment, primarily for
projects to increase factory throughput and improve delivery times within the
Cameron business. Of the product line acquisitions, two were in the PPE segment
totaling approximately $4 million and the other was made by the Cooper Energy
Services Division in the CPE segment.
At June 30, 1998, the Company had nearly $130 million available for
borrowing under its long-term credit facility. Subsequent to June 30, the
Company has entered into other short-term loan commitments with various banks
providing for an additional $75 million in committed short-term borrowing
capacity.
On May 4, 1998 the Company filed a traditional "shelf" registration
statement with the U.S. Securities and Exchange Commission in connection with
the possible issuance, from time to time, in one or more offerings, of up to
$500 million in securities, consisting of either (1) unsecured debt securities,
(2) shares of preferred stock, (3) shares of common stock or (4) warrants for
the purchase of debt securities, preferred stock or common stock.
-13-
<PAGE> 14
Effective January 1, 1999, eleven participating European Union member
countries plan to introduce a new common currency (the euro) and will, at that
time, establish a fixed conversion rate between their legacy currencies and the
euro. The legal currency of each country will continue to be used as legal
tender along with the euro through January 1, 2002. Thereafter, the legacy
currencies will be cancelled and the euro will be used for all financial
transactions in the participating countries. During this three-year
dual-currency environment, special rules apply for converting among legacy
currencies. Based on information currently available, the Company does not
anticipate any material adverse consequences to its operations or its financial
results from participating in euro currency-denominated transactions.
-14-
<PAGE> 15
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Stockholders of the Company was held in Houston,
Texas on May 14, 1998 for the purpose of (i) electing two members of the Board
of Directors, (ii) approving an amendment to the Company's Amended and Restated
Certificate of Incorporation, (iii) approving an amendment to the Company's 1995
Amended and Restated Stock Option Plan for Non-Employee Directors and (iv)
approving an amendment to the Amended and Restated Cooper Cameron Corporation
Long-Term Incentive Plan. Proxies for the meeting were solicited pursuant to
Regulation 14 of the Securities Exchange Act of 1934 and there was no
solicitation in opposition to management's solicitation. Stockholders approved
both of management's nominees to the Board and approved each of the amendments
by the following votes:
<TABLE>
<CAPTION>
Amendment
to 1995
Amended Amendment
Amendment and Restated to Amended
Board Nominees to Amended Stock Option and Restated
-------------------------- and Restated Plan for Non- Long-Term
Michael E. Michael J. Certificate of Employee Incentive
Patrick Sebastian Incorporation Directors Plan
---------- ---------- -------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Shares "For" 49,700,122 49,556,092 48,607,264 46,547,080 31,726,899
Shares "Against" -- -- 1,707,202 3,675,307 12,871,268
Shares "Abstaining" -- -- 204,171 296,250 452,456
Shares "Withheld" 818,515 962,545 -- -- --
Broker Non-Votes -- -- -- -- 5,468,014
</TABLE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 - Financial Data Schedule.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the three months
ended June 30, 1998.
-15-
<PAGE> 16
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Cooper Cameron Corporation
--------------------------
(Registrant)
Date August 13, 1998 /s/ Thomas R. Hix
-------------------------- -------------------------------------
Thomas R. Hix
Senior Vice President &
Chief Financial Officer
and authorized to sign on
behalf of the Registrant
-16-
<PAGE> 17
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 15
<SECURITIES> 0
<RECEIVABLES> 427
<ALLOWANCES> 0
<INVENTORY> 574
<CURRENT-ASSETS> 1,040
<PP&E> 878
<DEPRECIATION> 420
<TOTAL-ASSETS> 1,854
<CURRENT-LIABILITIES> 535
<BONDS> 471
0
0
<COMMON> 0
<OTHER-SE> 707
<TOTAL-LIABILITY-AND-EQUITY> 1,854
<SALES> 930
<TOTAL-REVENUES> 930
<CGS> 647
<TOTAL-COSTS> 647
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 16
<INCOME-PRETAX> 113
<INCOME-TAX> 35
<INCOME-CONTINUING> 78
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 78
<EPS-PRIMARY> 1.49
<EPS-DILUTED> 1.41
</TABLE>
