<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, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 1-13884
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Cooper Cameron Corporation
- --------------------------------------------------------------------------------
(Exact Name of Registrant in its Charter)
Delaware 76-0451843
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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 30, 1999 was
53,657,770.
<PAGE> 2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
COOPER CAMERON CORPORATION
CONSOLIDATED RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Six Months
Ended Ended
June 30, June 30,
(dollars in millions, except per share data) 1999 1998(1) 1999 1998(1)
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
REVENUES ............................... $ 385.0 $ 502.7 $ 769.0 $ 929.6
---------- ---------- ---------- ----------
COSTS AND EXPENSES
Cost of sales (exclusive of depreciation
and amortization) ................... 285.7 348.9 565.8 647.2
Depreciation and amortization .......... 21.2 18.1 42.1 35.2
Selling and administrative expenses .... 51.0 61.4 104.6 117.5
Interest expense ....................... 7.5 9.0 14.8 16.2
Nonrecurring/unusual charges ........... 5.8 -- 12.0 --
---------- ---------- ---------- ----------
371.2 437.4 739.3 816.1
---------- ---------- ---------- ----------
Income before income taxes ....... 13.8 65.3 29.7 113.5
Income tax provision ................... (4.7) (20.2) (9.8) (35.2)
---------- ---------- ---------- ----------
Net income ............................. $ 9.1 $ 45.1 $ 19.9 $ 78.3
========== ========== ========== ==========
Earnings per share:
Basic ............................... $ 0.17 $ 0.86 $ 0.37 $ 1.49
========== ========== ========== ==========
Diluted ............................. $ 0.17 $ 0.81 $ 0.36 $ 1.41
========== ========== ========== ==========
</TABLE>
(1) Includes the revenues and earnings of Orbit Valve from April 3, 1998.
The accompanying notes are an integral part of these statements.
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<PAGE> 3
COOPER CAMERON CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
(dollars in millions, except shares and per share data) 1999 1998
---------- ------------
<S> <C> <C>
ASSETS
Cash and cash equivalents ............................................ $ 12.5 $ 21.3
Receivables, net ..................................................... 310.4 366.4
Inventories, net ..................................................... 475.1 548.1
Other ................................................................ 28.8 30.5
---------- ----------
Total current assets ...................................... 826.8 966.3
---------- ----------
Plant and equipment, at cost ......................................... 942.7 938.9
Less: accumulated depreciation ...................................... (460.8) (448.3)
Intangibles .......................................................... 517.7 519.0
Less: accumulated amortization ...................................... (230.3) (225.6)
Other assets ......................................................... 83.4 73.3
---------- ----------
TOTAL ASSETS ......................................... $ 1,679.5 $ 1,823.6
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current maturities of long-term debt ................................. $ 60.6 $ 49.6
Accounts payable and accrued liabilities ............................. 364.9 453.6
Accrued income taxes ................................................. 32.9 26.6
---------- ----------
Total current liabilities ................................. 458.4 529.8
---------- ----------
Long-term debt ....................................................... 312.3 364.4
Postretirement benefits other than pensions .......................... 67.8 73.9
Deferred income taxes ................................................ 51.7 51.1
Other long-term liabilities .......................................... 22.0 24.1
---------- ----------
Total liabilities ......................................... 912.2 1,043.3
---------- ----------
Stockholders' Equity:
Common stock, par value $.01 per share, 150,000,000 shares
authorized, 53,391,774 shares issued (53,259,620 at
December 31, 1998) ........................................... .5 .5
Capital in excess of par value ................................... 883.6 883.6
Retained deficit (including $441.0 charge on June 30, 1995
related to goodwill impairment) .............................. (101.4) (121.3)
Accumulated other elements of comprehensive income ............... (15.4) 17.5
---------- ----------
Total stockholders' equity ................................ 767.3 780.3
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY .......................................... $ 1,679.5 $ 1,823.6
========== ==========
</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) 1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income ........................................ $ 9.1 $ 45.1 $ 19.9 $ 78.3
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation .............................. 16.2 13.6 32.2 26.8
Amortization .............................. 5.0 4.5 9.9 8.4
Deferred income taxes ..................... (7.2) 10.6 (11.3) 11.8
Changes in assets and liabilities, net of
translation and effects of acquisitions:
Receivables ............................... 26.6 (44.1) 47.4 13.0
Inventories ............................... 34.9 (7.8) 61.2 (60.0)
Accounts payable and accrued liabilities .. (27.3) (26.5) (64.4) (31.1)
Other assets and liabilities, net ......... (7.8) 5.9 (20.5) 9.2
-------- -------- -------- --------
Net cash provided by operating
activities ........................... 49.5 1.3 74.4 56.4
-------- -------- -------- --------
Cash flows from investing activities:
Capital expenditures and proceeds from
sales of plant and equipment, net ............. (17.0) (30.3) (42.5) (55.5)
Acquisitions ...................................... -- (83.9) -- (90.2)
-------- -------- -------- --------
Net cash used for investing activities ... (17.0) (114.2) (42.5) (145.7)
-------- -------- -------- --------
Cash flows from financing activities:
Loan borrowings (repayments), net ................. (37.3) 94.1 (37.7) 121.7
Purchase of treasury stock ........................ -- -- -- (36.1)
Activity under stock option plans and other ....... (1.6) 4.1 (4.2) 7.1
-------- -------- -------- --------
Net cash provided by (used for)
financing activities ................. (38.9) 98.2 (41.9) 92.7
-------- -------- -------- --------
Effect of translation on cash ......................... 2.4 (.1) 1.2 --
-------- -------- -------- --------
Increase (decrease) in cash and cash equivalents ...... (4.0) (14.8) (8.8) 3.4
-------- -------- -------- --------
Cash and cash equivalents, beginning of period ........ 16.5 29.8 21.3 11.6
-------- -------- -------- --------
Cash and cash equivalents, end of period .............. $ 12.5 $ 15.0 $ 12.5 $ 15.0
======== ======== ======== ========
</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, 1999 and for the
three- and six-month periods ended June 30, 1999 and 1998 has been prepared from
the books and records without audit. Financial information as of December 31,
1998 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, 1998.
Note 2. Nonrecurring/unusual charges
During the first half of 1999, all four segments of the Company
incurred additional charges relating to various cost reduction initiatives, most
of which were started in 1998. These charges, which totaled $12.0 million ($8.0
million, net of taxes), mostly covered the severance of additional employees
during 1999 as well as continuation of facility closure and restructuring costs
arising from actions begun last year. The cash flow effect of these actions
during the six months to date, including disbursements made relating to items
expensed in 1998, totaled approximately $14.9 million.
Cameron and Cooper Turbocompressor (CTC) incurred approximately $4.6
million, primarily for employee severance, including employees notified in
connection with the Company's recent decision to close its Austrian
manufacturing facility, which was a part of Cameron's 1996 acquisition of Ingram
Cactus. Cooper Cameron Valves (CCV) incurred approximately $4.1 in costs related
primarily to the shut-down of it's Missouri City, Texas manufacturing facility
and the transfer of that location's production to another facility, as well as
additional one-time acquisition costs relating to the 1998 purchase of Orbit
Valve International, Inc. Finally, approximately $3.3 million of costs relating
to the ongoing realignment of Cooper Energy Services (CES) manufacturing
facilities, as well as employee severance associated with the closure of a small
facility in Europe, were recorded during the year-to-date period.
See Management's Discussion and Analysis for information regarding
additional charges that will be recorded in the third quarter of 1999.
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<PAGE> 6
Note 3. Segments
The segment information for 1998 has been revised to reflect the
segment structure which the Company began reporting in connection with its
adoption of Statement of Financial Accounting Standards (SFAS) No. 131,
effective December 31, 1998.
<TABLE>
<CAPTION>
(dollars in millions) For the Three Months Ended June 30, 1999
-------------------------------------------------------------------------------------------
Corporate
Cameron CCV CES CTC & Other Consolidated
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues .......................... $ 211.6 $ 58.7 $ 84.2 $ 30.5 $ -- $ 385.0
========== ========== ========== ========== ========== ==========
Income (loss) before taxes ........ $ 23.3 $ 3.3 $ (7.0) $ 5.4 $ (11.2) $ 13.8
========== ========== ========== ========== ========== ==========
<CAPTION>
(dollars in millions) For the Six Months Ended June 30, 1999
-------------------------------------------------------------------------------------------
Corporate
Cameron CCV CES CTC & Other Consolidated
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues .......................... $ 439.2 $ 112.8 $ 161.9 $ 55.1 $ -- $ 769.0
========== ========== ========== ========== ========== ==========
Income (loss) before taxes ........ $ 54.9 $ 3.2 $ (16.0) $ 9.0 $ (21.4) $ 29.7
========== ========== ========== ========== ========== ==========
<CAPTION>
(dollars in millions) For the Three Months Ended June 30, 1998
-------------------------------------------------------------------------------------------
Corporate
Cameron CCV CES CTC & Other Consolidated
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues .......................... $ 259.0 $ 87.6 $ 114.3 $ 41.8 $ -- $ 502.7
========== ========== ========== ========== ========== ==========
Income (loss) before taxes ........ $ 48.0 $ 16.2 $ 4.3 $ 9.3 $ (12.5) $ 65.3
========== ========== ========== ========== ========== ==========
<CAPTION>
(dollars in millions) For the Six Months Ended June 30, 1998
-------------------------------------------------------------------------------------------
Corporate
Cameron CCV CES CTC & Other Consolidated
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues .......................... $ 500.7 $ 151.3 $ 206.0 $ 71.6 $ -- $ 929.6
========== ========== ========== ========== ========== ==========
Income (loss) before taxes ........ $ 89.8 $ 27.6 $ 3.6 $ 15.3 $ (22.8) $ 113.5
========== ========== ========== ========== ========== ==========
</TABLE>
Note 4. Inventories
<TABLE>
<CAPTION>
June 30, December 31,
(dollars in millions) 1999 1998
---------- ------------
<S> <C> <C>
Raw materials ........................................................ $ 51.7 $ 60.3
Work-in-process ...................................................... 195.9 205.9
Finished goods, including parts and subassemblies .................... 314.0 364.9
Perishable tooling and supplies ...................................... 3.2 3.5
---------- ----------
564.8 634.6
Allowances ........................................................... (89.7) (86.5)
---------- ----------
Net inventories ...................................................... $ 475.1 $ 548.1
========== ==========
</TABLE>
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<PAGE> 7
Note 5. Retained Deficit
While the Company has a retained deficit, it is able to declare and pay
dividends from a current year's earnings, as well as from the net of capital in
excess of par value less the retained deficit. Accordingly, at June 30, 1999,
the Company had approximately $782.2 million from which dividends could be paid.
Note 6. Comprehensive Income
The amount of comprehensive income (loss) for each of the three- and
six-month periods ended June 30, 1999 and 1998 and the components of accumulated
other elements of comprehensive income at June 30, 1999 and December 31, 1998
are as follows:
<TABLE>
<CAPTION>
Three Months Six Months
Ended Ended
(dollars in millions) June 30, June 30,
---------------- ----------------
1999 1998 1999 1998
----- ----- ----- -----
<S> <C> <C> <C> <C>
Net income per Consolidated Results of
Operations ......................... $ 9.1 $45.1 $ 19.9 $78.3
Foreign currency translation loss ...... (11.9) (.6) (32.9) (.1)
----- ----- ----- -----
Comprehensive income (loss) ............ $(2.8) $44.5 $(13.0) $78.2
===== ===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
(dollars in millions) June 30, December 31,
1999 1998
-------- ------------
<S> <C> <C>
Amounts comprising accumulated other elements of
comprehensive income:
Accumulated foreign currency translation
adjustments ........................ $ (15.1) $ 17.8
Accumulated adjustments to record
minimum pension liabilities ........ (.3) (.3)
-------- --------
Accumulated other elements of
comprehensive income ....... $ (15.4) $ 17.5
======== ========
</TABLE>
Note 7. Treasury Locks
During March 1999, the Company entered into interest rate swaps with
various financial institutions to effectively convert $175 million of
outstanding floating rate debt to fixed rate debt. This transaction replaced the
existing treasury locks, or forward rate agreements. The Company
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<PAGE> 8
paid $8.2 million to the counterparties to the treasury locks in connection with
the termination of these agreements. This payment is being amortized to interest
expense over the 10-year life of the newly-entered-into interest rate swaps,
resulting in a total weighted average interest rate of 6.46% (including the
Company's normal spread over LIBOR, which is currently .15%) on the $175
million.
Note 8. Earnings Per Share
The weighted average number of common shares (utilized for the basic
earnings per share presentation) and common stock equivalents outstanding for
each period presented were as follows:
<TABLE>
<CAPTION>
Three Months Six Months
Ended Ended
June 30, June 30,
(amounts in millions) 1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Average shares outstanding ............. 53.3 52.7 53.3 52.6
Common stock equivalents ............... 1.7 3.0 1.3 3.1
-------- -------- -------- --------
Number of shares utilized in diluted
earnings per share calculation ..... 55.0 55.7 54.6 55.7
======== ======== ======== ========
</TABLE>
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<PAGE> 9
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, capital
expenditures, nonrecurring/unusual charges, and profitability of the Company, as
well as expectations regarding savings from future restructuring activities,
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 lead to changes in the Company's financial results.
Because the information herein is based solely on data currently
available, it is subject to change as a result of changes in conditions such as
those described above, 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 1999 COMPARED TO SECOND QUARTER 1998
Cooper Cameron Corporation had net income of $9.1 million, or $.17 per
share, for the second quarter of 1999, compared to $45.1 million, or $.81 per
share, for the same period in 1998, with a decline in earnings in all four
segments. (All per share amounts are based on diluted shares.) Included in the
second quarter 1999 results were $3.8 million, or $.07 per share, in after-tax
nonrecurring/unusual charges ($5.8 million pre-tax).
Of the $5.8 million, approximately $3 million covered severance for
employees in all four segments. The remaining costs related to the previously
announced shutdown of Cooper Cameron Valves (CCV) Missouri City, Texas
manufacturing facility and realignment of Cooper Energy Services (CES)
facilities. See Note 2 of the Notes to Consolidated Financial Statements for
further information regarding these nonrecurring/unusual charges.
Late in the second quarter, the Company announced several potential
actions involving its CES business that would further reduce costs, realign
several functions and better utilize Company-wide manufacturing capacity.
Actions being considered included the closure of CES's Grove City, Pennsylvania
foundry and manufacturing operations and the relocation of certain Reciprocating
Products aftermarket, parts and manufacturing operations from Mt. Vernon, Ohio
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<PAGE> 10
to existing facilities in Oklahoma and Texas. Due to ongoing discussions with
labor representatives, final decisions were not made and announced until late
July. As a result, the charges associated with these actions, which are
currently anticipated to aggregate approximately $40 million, including $15-20
million of non-cash facility writedowns, will be recorded starting in the third
quarter of 1999 and, for those costs that are required to be recognized as
incurred, through as long as the second quarter of 2000. The Company currently
anticipates that, when fully implemented, all of these actions should generate
approximately $9 million per year in savings.
REVENUES
Revenues for the second quarter of 1999 totaled $385.0 million, a
decrease of 23% from the $502.7 million in the second quarter of 1998, with
declines in all four segments.
Revenues for Cameron totaled $211.6 million, a decrease of 18% from the
second quarter 1998 revenues of $259.0 million. Revenues decreased in surface
and subsea products, while drilling products increased. Drilling and subsea
product revenues were heavily influenced by major project orders booked in
previous periods, while surface products, which have a shorter delivery cycle
and respond more quickly to changes in orders, reflected the current low levels
of activity in this market area. On a geographical basis, revenues declined in
the Asia-Pacific and Eastern Hemisphere regions, and were relatively flat in the
Western Hemisphere, as drilling product shipments for deep-water projects in the
Gulf of Mexico offset weaker surface product activity.
CCV's revenues of $58.7 million declined by 33% from the $87.6 million
in the second quarter of 1998. The weakness in revenues was particularly evident
in oilfield distributor products, where customers have excess inventories to be
worked off before new orders will be placed with CCV, and in pipeline valves,
where major projects have been delayed. On a geographical basis, the
Asia-Pacific region and Latin America were particularly weak.
Revenues for CES of $84.2 million declined by 26% from the $114.3
million in the second quarter of 1998, with shortfalls in all product lines. The
energy-related markets served by this segment remained very competitive in the
second quarter, with industry-wide over capacity. The most significant revenue
decline was in gas turbine and compressor projects, where a lack of major
project orders during 1998 limited 1999 revenues.
Cooper Turbocompressor (CTC) had revenues of $30.5 million, or a
decrease of 27% from $41.8 million in the second quarter of 1998. The most
significant decline was in process air machines, where the second quarter of
1998 was a record shipment quarter. Large air separation customers have delayed
placing new orders for the last several quarters, and the overall low activity
level for products sold directly to Southeast Asian markets continued to be a
factor during the quarter. As a secondary effect, stagnant growth in the Asian
markets has also caused industrial development projects in other parts of the
world to be pushed out and, when undertaken, to be more price competitive.
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<PAGE> 11
COSTS AND EXPENSES
While revenues decreased $117.7 million in comparison to the second
quarter of 1998, cost of sales (exclusive of depreciation and amortization)
decreased only $63.2 million, leading to a gross margin shortfall of $54.5
million. As a result, the gross margin percentage (defined as revenues less cost
of sales as a percentage of revenues) declined by 4.8 percentage points. This
result is discussed below in more detail for each segment.
Cameron's gross margin percentage was 28.7% in the second quarter of
1999, compared to 33.6% for the same period in 1998. The decrease resulted from
the increase in relatively lower-margin drilling product revenues and the
decrease in higher-margin surface and subsea products. Pricing pressure, which
began to increase late in 1998, also continued, but the effect on second quarter
results was minimized by shipments from backlog at favorable pricing levels.
Providing a partial offset were the benefits of various ongoing cost reductions.
CCV's gross margin percentage decreased from 34.4% in the second
quarter of 1998 to 26.8% in the second quarter of 1999. This decline was caused
by increased pricing pressure, as competitors fought to retain share in the
severely depressed markets, and manufacturing period cost reductions which were
unable to keep pace with the rapid revenue decline.
The gross margin percentage for CES declined from 20.2% in the second
quarter of 1998 to 15.1% in the second quarter of 1999. Pricing pressure
throughout the business, cost reductions that could not keep pace with the
revenue decline, and weakness in the higher-margin parts business were the
primary factors contributing to this decrease. Management is continuing to
evaluate alternatives and implement actions to address these problems, including
the actions discussed above.
Depreciation and amortization expense increased by $3.1 million, from
$18.1 million in the second quarter of 1998 to $21.2 million in the second
quarter of 1999. This increase was due to higher capital spending during 1998 in
Cameron.
Selling and administrative expenses decreased by $10.4 million, or 17%,
from $61.4 million in the second quarter of 1998 to $51.0 million in the second
quarter of 1999. Cameron, CCV, and CES decreased by $6.7 million, $2.3 million,
and $1.7 million, respectively, due to cost reductions in response to revenue
declines.
Reflecting the various factors discussed above, operating income
(defined as earnings before nonrecurring/unusual charges, corporate expenses,
interest and taxes) totaled $30.9 million, a decrease of $46.9 million from the
second quarter of 1998. Cameron decreased from $48.0 million to $26.2 million,
CCV declined from $16.2 million to $4.3 million, CES decreased from $4.3 million
to a loss of $(5.0) million, and CTC declined from $9.3 million to $5.4 million.
Interest expense was $7.5 million in the second quarter of 1999, a
decrease of $1.5 million from the same period in 1998. This decline was due to a
lower average debt level, achieved primarily from working capital reductions.
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<PAGE> 12
Income taxes were $4.7 million in the second quarter of 1999, a
decrease of $15.5 million from the second quarter of 1998, due to lower
earnings, partially offset by a higher effective tax rate. The effective tax
rate increased to 34.0% in the second quarter of 1999 from 31.0% in the second
quarter of 1998, mainly due to a change in the mix of domestic and foreign
earnings, which increased the full year rate estimate.
SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS ENDED JUNE 30, 1998
The Company had net income of $19.9 million, or $.36 per share, for the six
months ended June 30, 1999, compared to $78.3 million, or $1.41 per share, for
the same period in 1998, with a decline in earnings in all four segments. (All
per share amounts are based on diluted shares.) Included in the 1999 results
were $8.0 million, or $.15 per share, in after-tax nonrecurring/ unusual charges
($12.0 million pre-tax). See Note 2 of the Notes to Consolidated Financial
Statements for further information regarding these nonrecurring/unusual charges.
REVENUES
Revenues for the six months ended June 30, 1999 totaled $769.0 million,
a decrease of 17% from the $929.6 million in the first six months of 1998, with
declines in all four segments.
Revenues for Cameron totaled $439.2 million, a decrease of 12% from the
first half 1998 revenues of $500.7 million. As discussed in the
quarter-to-quarter comparison, revenues declined in surface and subsea products,
while drilling products increased. The factors affecting these product lines
were the same as discussed in the quarterly comparison. On a geographical basis,
revenues declined in the Asia-Pacific and Eastern Hemisphere regions, and
increased slightly in the Western Hemisphere, as drilling product shipments for
deep-water projects in the Gulf of Mexico more than offset the weak surface
product activity.
CCV's revenues of $112.8 million declined by 25% from the $151.3
million in the first six months of 1998. The weakness in revenues was
particularly evident in oilfield distributor products, where customers have
excess inventories to be worked off before new orders will be placed with CCV,
and in pipeline valves, where major projects have been delayed. On a
geographical basis, the Asia-Pacific region and Latin America were particularly
weak. Providing a partial offset was the Orbit Valve acquisition, which closed
on April 2, 1998, resulting in six months of revenues in 1999 compared with only
three months in 1998. Excluding the incremental effect of Orbit Valve, revenues
declined by approximately 30%.
Revenues for CES of $161.9 million declined by 21% from the $206.0
million in the six months ended June 30, 1998. As noted in the
quarter-to-quarter discussion, the energy-related markets served by this segment
remained very competitive during 1999, with industry-wide over capacity. The
most significant revenue decline was in gas turbine and compressor projects,
where a lack of major project orders during 1998 limited first half 1999
revenues.
CTC had revenues of $55.1 million, a decrease of 23% from $71.6 million
in the first six months of 1998. This decline was across all lines of the
business, but was most significant in
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<PAGE> 13
process air machines. The factors causing this decline were the same as those
discussed in the quarter-to-quarter comparison.
COSTS AND EXPENSES
While revenues decreased $160.6 million in comparison to the first six
months of 1998, cost of sales (exclusive of depreciation and amortization)
decreased only $81.4 million, leading to a gross margin shortfall of $79.2
million. As a result, the gross margin percentage (defined as revenues less cost
of sales as a percentage of revenues) declined by 4.0 percentage points. This
result is discussed below in more detail for each segment.
Cameron's gross margin percentage was 29.6% in the six months ended
June 30, 1999, compared to 33.3% for the same period in 1998. The decrease
resulted from the same factors discussed in the quarterly comparison.
CCV's gross margin percentage decreased from 33.1% in the first six
months of 1998 to 27.5% in the first six months of 1999, in spite of the
favorable effect of the higher margin Orbit Valve products. This decline was
caused by the same factors included in the quarter-to-quarter discussion.
The gross margin percentage for CES declined from 20.0% in the first
six months of 1998 to 14.5% in the same period of 1999. As discussed in the
quarterly comparison, pricing pressure throughout the business, cost reductions
that could not keep pace with the revenue decline, and weakness in the
higher-margin parts business were the primary factors contributing to this
decrease.
Depreciation and amortization expense increased by $6.9 million, from
$35.2 million in the period ended June 30, 1998 to $42.1 million in the same
period of 1999. This increase was due to higher capital spending during 1998 in
Cameron and the Orbit Valve acquisition in CCV.
Selling and administrative expenses decreased by $12.9 million, or 11%,
from $117.5 million in the first half of 1998 to $104.6 million in the first six
months of 1999. Cameron and CES decreased by $10.9 million and $2.6 million,
respectively, due to cost reductions in response to revenue declines. CCV
increased slightly from the Orbit Valve acquisition offset by cost reductions in
the remainder of the business.
Reflecting the various factors discussed above, operating income
(defined as earnings before nonrecurring/unusual charges, corporate expenses,
interest and taxes) totaled $63.2 million, a decrease of $73.1 million from the
six months ended June 30, 1998. Cameron decreased from $89.8 million to $59.3
million, CCV declined from $27.6 million to $7.4 million, CES decreased from
$3.6 million to a loss of $(12.8) million, and CTC declined from $15.3 million
to $9.3 million.
Interest expense was $14.8 million in the first six months of 1999, a
decrease of $1.4 million from the same period in 1998. This decline was due to a
lower average debt level, achieved primarily from working capital reductions.
-13-
<PAGE> 14
Income taxes were $9.8 million in the first half of 1999, a decrease of
$25.4 million from the same period in 1998 due to lower earnings, partially
offset by a higher effective tax rate. The effective tax rate increased to 33.0%
in the six months ended June 30, 1999 from 31.0% in the first six months of
1998, mainly due to a change in the mix of domestic and foreign earnings.
CASH FLOW, LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL POSITION
During the first six months of 1999, the Company generated
approximately $74.4 million of cash from operating activities, $18 million
better than the prior year. Of this year-to-date improvement, over $48 million
occurred in the second quarter of 1999, due mainly to lower levels of
receivables and inventory, primarily in the Cameron and CCV businesses,
partially offset by the lower earnings levels in all four segments.
Excluding translation, inventory levels since the prior year-end
declined for all businesses with the exception of CES, which had a modest
increase due to the timing of gas turbine and compressor projects. Over 74% of
the total decline in inventory levels occurred at Cameron as a result of lower
backlog and order levels and an increased emphasis in this segment, as well as
throughout the Company, on better management of working capital during the
current business downturn.
The cash generated from operations, as well as $3.7 million from sales
of plant and equipment and stock option exercises, allowed the Company to fund
$44.6 million of capital expenditures, pay $5.8 million for other financing
activities, over half of which related to capital lease payments, and pay down
debt by $37.7 million during the current year. Capital expenditures have
declined over $13 million from the prior year, virtually all of which relates to
lower spending by Cameron. Full year 1999 capital spending is expected to be
significantly lower than the prior year as the Company continues to focus on
cash generation until signs of an increase in orders and business activity
warrant higher levels of capital investment.
The additional debt reduction noted above has allowed the Company to
achieve a record low debt-to-capitalization ratio of 32.7% at June 30, 1999,
compared to 34.7% at December 31, 1998 (the previous record low) and 34.8% at
March 31, 1999.
YEAR 2000
The Company has in place a program, dating back to 1997, which is
designed to address the ability of the Company's worldwide internal business,
financial, engineering, manufacturing, facility and other systems (including
date-sensitive equipment as well as computer hardware and software) to handle
transactions beyond 1999. Where necessary, such systems are being modified or
replaced in an attempt to ensure that they are "Year 2000 compliant". The
Company currently estimates that the overall project is over 95% complete.
Estimated costs for the project, excluding internal personnel costs, are
approximately $2.3 million, of which approximately two-thirds had been spent
through June 30, 1999. This total includes new capital assets that are required
because of Year 2000 issues. All non-capital costs are being expensed as
incurred.
-14-
<PAGE> 15
The Company has completed inventories of its date-sensitive operating
systems and has upgraded and satisfactorily tested all core operating systems
for Year 2000 (Y2K) compliance. The Company has also taken corrective action,
where necessary, to deal with certain desktop PCs, servers and network equipment
that have been identified as not being Y2K compliant, as well as non-compliant
manufacturing equipment (such as machine tools and calibration/ measuring
devices) and facility control systems (e.g. cooling/environmental controls,
elevators, electronic locks, etc.) In most cases, compliance has been obtained
through vendor-supplied upgrades or replacement.
A second phase of the Company's Year 2000 program involves the products
that the Company produces and sells. Although the nature of the Company's
products does not involve a significant number of date-sensitive components, the
Company believes that all products currently being sold will perform properly
beyond the year 1999. The Company is currently working with customers on an
individual basis to help them ensure that products purchased prior to 1998 will
also perform properly beyond 1999.
The third phase of the Company's Year 2000 program involves third-party
vendors and suppliers who provide materials and components utilized in the
products which the Company sells, as well as those such as banks, utilities,
insurance companies, etc. who provide services the Company directly or
indirectly relies on. The Company has contacted each of its key third party
vendors and suppliers and has received close to 100% response from each
regarding the status of their internal Y2K programs. Based on these responses,
the Company has further identified those vendors which are considered to be
critical, sole-source vendors and those who have been deemed as providing
products which are considered to be of "high risk" for non-Y2K compliance. Each
of these vendors have been asked to provide additional assurances that their
products are Y2K compliant. To date, responses have been received from the vast
majority and the Company is currently in the process of following up with those
vendors who have not yet responded or those whose response was considered
unsatisfactory. Contingency plans are being developed in the event a vendor is
considered to be unable to provide compliant products or services on or after
January 1, 2000.
The Company realizes that even with complete Y2K testing and compliance
of all its business systems and sites, possible situations could occur that
would require activation of contingency plans. Accordingly, a contingency
planning process is under way based on the Company's global risk analysis and
industry standard priority definitions to ensure that in the event of a
Y2K-related interruption, business activities can be restored as quickly as
possible. This contingency planning process will be completed by September 30,
1999.
The Company's Year 2000 program is being reviewed and monitored on a
proactive basis by the Company's senior management as well as the Board of
Directors. Due to the complexity of the problem and the necessary reliance on
parties and factors which may be outside the control of or currently unknown to
the Company, complete Year 2000 compliance cannot be guaranteed. However, based
on information currently available, the Company believes it will achieve a level
of compliance such that any unforeseen problems will not have a material adverse
effect on the Company's results of operations, liquidity or financial condition.
-15-
<PAGE> 16
Item 3. Quantitative and Qualitative Disclosures About Market Risk
See Note 7 of the Notes to Consolidated Financial Statements in Part I,
Item 1, for information on significant changes since December 31, 1998 in the
Company's exposure to market risk from its current holdings of financial
instruments.
-16-
<PAGE> 17
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 13, 1999 for the purpose of (i) electing two members of the Board
of Directors and (ii) approving the Company's Second Amended and Restated 1995
Stock Option Plan for Non-Employee Directors. 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
the Second Amended and Restated 1995 Stock Option Plan for Non-Employee
Directors by the following votes:
<TABLE>
<CAPTION>
Board Nominees Second Amended and Restated
----------------------------------- 1995 Stock Option Plan
Grant A. Dove David Ross, III for Non-Employee Directors
------------- --------------- ---------------------------
<S> <C> <C> <C>
Shares "For" 49,246,853 49,265,390 40,206,763
Shares "Against" -0- -0- 9,110,480
Shares "Abstaining" -0- -0- 110,035
Shares "Withheld" 180,425 161,888 -0-
Broker Non-Votes -0- -0- -0-
</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, 1999.
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Cooper Cameron Corporation
(Registrant)
Date August 11, 1999 /s/ Thomas R. Hix
------------------------------ -------------------------------
Thomas R. Hix
Senior Vice President &
Chief Financial Officer
and authorized to sign on
behalf of the Registrant
-17-
<PAGE> 18
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
27 - FDS
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 12
<SECURITIES> 0
<RECEIVABLES> 310
<ALLOWANCES> 0
<INVENTORY> 475
<CURRENT-ASSETS> 827
<PP&E> 943
<DEPRECIATION> 461
<TOTAL-ASSETS> 1,680
<CURRENT-LIABILITIES> 458
<BONDS> 312
0
0
<COMMON> 1
<OTHER-SE> 766
<TOTAL-LIABILITY-AND-EQUITY> 1,680
<SALES> 769
<TOTAL-REVENUES> 769
<CGS> 566
<TOTAL-COSTS> 566
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15
<INCOME-PRETAX> 30
<INCOME-TAX> 10
<INCOME-CONTINUING> 20
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 20
<EPS-BASIC> .37
<EPS-DILUTED> .36
</TABLE>
