<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 September 30, 1999
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
- -------------------------------------------------------------------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
515 Post Oak Blvd., Suite 1200, Houston, Texas 77027
- -------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
713/513-3300
- -------------------------------------------------------------------------------
(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 October 29, 1999
was 53,928,076.
<PAGE> 2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
COOPER CAMERON CORPORATION
CONSOLIDATED RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
September 30, September 30,
----------------------------- -----------------------------
(dollars in millions, except per share data) 1999 1998 1999 1998(1)
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUES ......................................... $ 373.4 $ 477.2 $ 1,142.4 $ 1,406.8
------------ ------------ ------------ ------------
COSTS AND EXPENSES
Cost of sales (exclusive of depreciation
and amortization) ............................. 274.7 336.6 840.5 983.8
Depreciation and amortization .................... 21.9 18.0 64.1 53.3
Selling and administrative expenses .............. 51.9 59.4 156.4 176.9
Interest expense ................................. 7.7 8.6 22.5 24.8
Nonrecurring/unusual charges (credits) ........... (13.3) 9.4 (1.3) 9.4
------------ ------------ ------------ ------------
342.9 432.0 1,082.2 1,248.2
------------ ------------ ------------ ------------
Income before income taxes ................. 30.5 45.2 60.2 158.6
Income tax provision ............................. (14.6) (14.0) (24.4) (49.2)
------------ ------------ ------------ ------------
Net income ....................................... $ 15.9 $ 31.2 $ 35.8 $ 109.4
============ ============ ============ ============
Earnings per share:
Basic ......................................... $ 0.30 $ 0.59 $ 0.67 $ 2.08
============ ============ ============ ============
Diluted ....................................... $ 0.29 $ 0.58 $ 0.65 $ 1.98
============ ============ ============ ============
</TABLE>
(1) Includes the revenues and earnings of Orbit Valve from April 3, 1998.
The accompanying notes are an integral part of these statements.
-2-
<PAGE> 3
COOPER CAMERON CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
(dollars in millions, except shares and per share data) 1999 1998
------------ ------------
<S> <C> <C>
ASSETS
Cash and cash equivalents ...................................................... $ 134.8 $ 21.3
Receivables, net ............................................................... 266.3 366.4
Inventories, net ............................................................... 391.2 548.1
Other .......................................................................... 28.3 30.5
------------ ------------
Total current assets ................................................ 820.6 966.3
------------ ------------
Plant and equipment, at cost ................................................... 790.6 938.9
Less: accumulated depreciation ................................................ (368.6) (448.3)
Intangibles .................................................................... 509.2 519.0
Less: accumulated amortization ................................................ (225.3) (225.6)
Other assets ................................................................... 82.8 73.3
------------ ------------
TOTAL ASSETS ................................................... $ 1,609.3 $ 1,823.6
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current maturities of long-term debt ........................................... $ 60.2 $ 49.6
Accounts payable and accrued liabilities ....................................... 366.6 453.6
Accrued income taxes ........................................................... 21.0 26.6
------------ ------------
Total current liabilities ........................................... 447.8 529.8
------------ ------------
Long-term debt ................................................................. 208.0 364.4
Postretirement benefits other than pensions .................................... 63.7 73.9
Deferred income taxes .......................................................... 42.0 51.1
Other long-term liabilities .................................................... 35.9 24.1
------------ ------------
Total liabilities ................................................... 797.4 1,043.3
------------ ------------
Stockholders' Equity:
Common stock, par value $.01 per share, 150,000,000 shares authorized,
53,923,095 shares issued (53,259,620 at
December 31, 1998) ..................................................... .5 .5
Capital in excess of par value ............................................. 892.1 883.6
Retained deficit (including $441.0 charge on June 30, 1995
related to goodwill impairment) ........................................ (85.5) (121.3)
Accumulated other elements of comprehensive income ......................... 4.8 17.5
------------ ------------
Total stockholders' equity .......................................... 811.9 780.3
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY .................................................... $ 1,609.3 $ 1,823.6
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
-3-
<PAGE> 4
COOPER CAMERON CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
September 30, September 30,
--------------------- ---------------------
(dollars in millions) 1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income ............................................................ $ 15.9 $ 31.2 $ 35.8 $ 109.4
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation .................................................. 17.2 13.6 49.5 40.4
Amortization .................................................. 4.7 4.4 14.6 12.9
Deferred income taxes ......................................... 3.2 3.8 (8.1) 15.6
Changes in assets and liabilities, net of translation and effects of
acquisitions, dispositions and non-cash items:
Receivables ................................................... (5.4) 22.2 42.0 35.2
Inventories ................................................... 20.3 (6.1) 81.5 (66.1)
Accounts payable and accrued liabilities ...................... 22.0 4.1 (42.4) (27.0)
Other assets and liabilities, net ............................. (20.5) (2.7) (32.8) 6.5
-------- -------- -------- --------
Net change in assets and liabilities .................. 16.4 17.5 48.3 (51.4)
-------- -------- -------- --------
Exclude nonoperating gain from sale of
rotating business, net of tax ............................. (25.8) -- (25.8) --
-------- -------- -------- --------
Net cash provided by operating activities ............ 31.6 70.5 114.3 126.9
-------- -------- -------- --------
Cash flows from investing activities:
Capital expenditures and proceeds from
sales of plant and equipment, net ................................. (6.6) (23.1) (49.1) (78.7)
Proceeds from sale of rotating business ............................... 203.2 -- 203.2 --
Acquisitions .......................................................... -- (9.2) -- (99.4)
-------- -------- -------- --------
Net cash provided by (used for)
investing activities ............................... 196.6 (32.3) 154.1 (178.1)
-------- -------- -------- --------
Cash flows from financing activities:
Loan borrowings (repayments), net ..................................... (101.1) (29.8) (138.8) 91.9
Purchase of treasury stock ............................................ -- -- -- (36.1)
Activity under stock option plans and other ........................... (3.3) (1.8) (15.8) 5.3
-------- -------- -------- --------
Net cash provided by (used for)
financing activities .............................. (104.4) (31.6) (154.6) 61.1
-------- -------- -------- --------
Effect of translation on cash ............................................. (1.5) .1 (0.3) .2
-------- -------- -------- --------
Increase in cash and cash equivalents ..................................... 122.3 6.7 113.5 10.1
-------- -------- -------- --------
Cash and cash equivalents, beginning of period ............................ 12.5 15.0 21.3 11.6
-------- -------- -------- --------
Cash and cash equivalents, end of period .................................. $ 134.8 $ 21.7 $ 134.8 $ 21.7
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
-4-
<PAGE> 5
COOPER CAMERON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Adjustments
The financial information presented as of September 30, 1999 and for
the three- and nine-month periods ended September 30, 1999 and 1998 has been
prepared from the books and records without audit. Financial information as of
December 31, 1998, as used herein, 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 (credits)
On September 30, 1999, the Company completed the sale of the Cooper
Energy Services division's rotating compressor product line which included
centrifugal compressors, power turbines and En-Tronic(R) controls to
Rolls-Royce plc. The operations that were sold had primary facilities in Mt.
Vernon, Ohio, Liverpool, United Kingdom and Hengelo in the Netherlands. The
Company received $203.2 million in cash in connection with the sale, which is
subject to adjustment based on a final balance sheet for the business. Included
in the sale was the Company's 50% interest in Cooper Rolls, Inc., a marketing
joint venture company equally owned with Rolls-Royce prior to the transaction.
The Company recorded a preliminary pre-tax gain from the sale totaling $45.3
million.
In addition, the Company has recorded nonrecurring/unusual charges
related to both on-going costs of previously initiated cost rationalization
programs, as well as additional programs that were initiated during the third
quarter of 1999. The nonrecurring/unusual charges by segment are as follows:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
September 30, September 30,
------------------------ ------------------------
(dollars in millions) 1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Cooper Cameron Valves (CCV) .... $ 4.3 $ 5.8 $ 8.4 $ 5.8
Cameron ........................ 6.9 -- 11.3 --
Cooper Energy Services (CES) ... 20.5 3.6 23.8 3.6
Cooper Turbocompressor (CTC) ... .3 -- .5 --
---------- ---------- ---------- ----------
$ 32.0 $ 9.4 $ 44.0 $ 9.4
========== ========== ========== ==========
</TABLE>
-5-
<PAGE> 6
The $14.2 million of nonrecurring/unusual charges recorded for CCV
during the third quarter of 1998 and thus far in 1999 relate to: the shut-down
(including severance, relocation and other costs) of a manufacturing facility
in Missouri City, Texas (announced in the third quarter of 1998), one-time
acquisition costs relating to the 1998 acquisition of Orbit Valve
International, Inc. and, in the third quarter of 1999, $3.5 million of
severance, primarily associated with employment reductions at this segment's
operations in France. The transfer of production from the Missouri City
facility to another facility in Oklahoma City, Oklahoma was substantially
completed during the early part of 1999 and the Missouri City facility will be
sold in due course.
Cameron recorded approximately $9.1 million during the nine months
ended September 30, 1999 (approximately two-thirds of which was recorded during
the third quarter) for employee severance, primarily associated with
rationalizing its operations in the U.S., the U.K. and France in response to
decreased market demand during this period. The remaining nonrecurring charges
relate primarily to employee severance and other costs associated with the
closure of this segment's manufacturing facility in Austria.
Cooper Energy Services has recorded approximately $21 million during
the nine months ended September 30, 1999 (including nearly $15 million of
non-cash asset impairment charges) relating to the announced shutdown of the
Company's underutilized foundry and associated machining operations in Grove
City, Pennsylvania and the relocation of its Compressor plant in Mount Vernon,
Ohio. The remaining costs primarily relate to employee relocations and various
facility/warehouse consolidations. The costs incurred during 1998 were
associated with the severance and relocation of salaried personnel in the Mt.
Vernon and Grove City facilities.
All the CTC nonrecurring charges are related to employee severance.
Since December 31, 1998, the Company's headcount has been reduced by
approximately 2,000 employees, or 21%, as a result of the sale of the rotating
business, the actions described above and normal attrition. The cash flow
effect of the above actions during the nine months to date, including
disbursements made relating to items expensed in 1998, but excluding the
proceeds from the sale of the rotating business, was approximately $22 million.
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. The segment results include the effect of the
"nonrecurring/unusual charges (credits)" discussed in Note 2.
<TABLE>
<CAPTION>
(dollars in millions) For the Three Months Ended September 30, 1999
------------------------------------------------------------------------
Corporate
Cameron CCV CES CTC & Other Consolidated
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues .................... $ 200.0 $ 60.3 $ 87.4 $ 25.7 $ -- $ 373.4
======== ======== ======== ======== ======== ========
Income (loss) before taxes .. $ 12.5 $ 1.8 $ 24.2 $ 3.4 $ (11.4) $ 30.5
======== ======== ======== ======== ======== ========
</TABLE>
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<PAGE> 7
<TABLE>
<CAPTION>
(dollars in millions) For the Nine Months Ended September 30, 1999
---------------------------------------------------------------------------------
Corporate
Cameron CCV CES CTC & Other Consolidated
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues ............................... $ 639.2 $ 173.1 $ 249.3 $ 80.8 $ -- $ 1,142.4
========== ========== ========== ========== ========== ==========
Income (loss) before taxes ............. $ 67.4 $ 5.0 $ 8.2 $ 12.4 $ (32.8) $ 60.2
========== ========== ========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
(dollars in millions) For the Three Months Ended September 30, 1998
---------------------------------------------------------------------------------
Corporate
Cameron CCV CES CTC & Other Consolidated
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues ............................... $ 246.8 $ 92.0 $ 106.5 $ 31.9 $ -- $ 477.2
========== ========== ========== ========== ========== ==========
Income (loss) before taxes ............. $ 43.8 $ 10.7 $ (3.6) $ 5.7 $ (11.4) $ 45.2
========== ========== ========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
(dollars in millions) For the Nine Months Ended September 30, 1998
---------------------------------------------------------------------------------
Corporate
Cameron CCV CES CTC & Other Consolidated
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues ............................... $ 747.5 $ 243.3 $ 312.5 $ 103.5 $ -- $ 1,406.8
========== ========== ========== ========== ========== ==========
Income (loss) before taxes ............. $ 133.6 $ 38.2 $ -- $ 21.0 $ (34.2) $ 158.6
========== ========== ========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------
Corporate
Cameron CCV CES CTC & Other Consolidated
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total Assets at September 30, 1999 ..... $ 922.7 $ 254.0 $ 187.6 $ 104.0 $ 141.0 $ 1,609.3
========== ========== ========== ========== ========== ==========
Total Assets at December 31, 1998 ...... $ 1,041.7 $ 295.3 $ 359.8 $ 112.3 $ 14.5 $ 1,823.6
========== ========== ========== ========== ========== ==========
</TABLE>
Note 4. Inventories
<TABLE>
<CAPTION>
September 30, December 31,
(dollars in millions) 1999 1998
------------ ------------
<S> <C> <C>
Raw materials ......................................... $ 44.1 $ 60.3
Work-in-process ....................................... 134.7 205.9
Finished goods, including parts and subassemblies ..... 298.3 364.9
Perishable tooling and supplies ....................... 2.9 3.5
------------ ------------
480.0 634.6
Allowances ............................................ (88.8) (86.5)
------------ ------------
Net inventories ....................................... $ 391.2 $ 548.1
============ ============
</TABLE>
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
September 30, 1999, the Company had approximately $806.6 million from which
dividends could be paid.
-7-
<PAGE> 8
Note 6. Comprehensive Income
The amount of comprehensive income for each of the three- and
nine-month periods ended September 30, 1999 and 1998 and the components of
accumulated other elements of comprehensive income at September 30, 1999 and
December 31, 1998 are as follows:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
September 30, September 30,
-------------------- ---------------------
(dollars in millions) 1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net income per Consolidated Results of
Operations ................................... $ 15.9 $ 31.2 $ 35.8 $ 109.4
Foreign currency translation gain (loss) (1) ..... 20.2 16.1 (12.7) 16.0
-------- -------- -------- --------
Comprehensive income ............................. $ 36.1 $ 47.3 $ 23.1 $ 125.4
======== ======== ======== ========
</TABLE>
(1) The significant third quarter changes in the "Foreign currency translation
gain (loss)" relate primarily to the Company's operations in the United
Kingdom, France and Germany.
<TABLE>
<CAPTION>
September 30, December 31,
(dollars in millions) 1999 1998
------------- ------------
<S> <C> <C>
Amounts comprising accumulated other elements
of comprehensive income:
Accumulated foreign currency translation
adjustments ............................... $ 5.1 $ 17.8
Accumulated adjustments to record
minimum pension liabilities ............... (.3) (.3)
---------- ----------
Accumulated other elements of
comprehensive income .............. $ 4.8 $ 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 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.
-8-
<PAGE> 9
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 Nine Months
Ended Ended
September 30, September 30,
-------------------- --------------------
(amounts in millions) 1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Average shares outstanding ............. 53.7 53.1 53.4 52.7
Common stock equivalents ............... 1.7 1.0 1.4 2.5
-------- -------- -------- --------
Number of shares utilized in diluted
earnings per share calculation ..... 55.4 54.1 54.8 55.2
======== ======== ======== ========
</TABLE>
-9-
<PAGE> 10
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
and expectations regarding the status of the Company's business systems,
computers, equipment and products being Year 2000 compliant, 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.
THIRD QUARTER 1999 COMPARED TO THIRD QUARTER 1998
Cooper Cameron Corporation had net income of $15.9 million, or $.29
per share, for the third quarter of 1999, compared to $31.2 million, or $.58
per share, for the same period in 1998. Earnings declined in all four segments.
(All per share amounts are based on diluted shares.)
Included in the third quarter 1999 results was a preliminary after-tax
gain of $25.8 million, or $.47 per share, on the sale of the Cooper Energy
Services (CES) rotating compressor business to Rolls-Royce plc for
approximately $203 million in cash. Providing a partial offset was an after-tax
charge of $21.4 million, or $.39 per share, for cost rationalization in both
the remaining CES business, as well as for Cameron, Cooper Cameron Valves (CCV)
and Cooper Turbocompressor (CTC). The charges included both non-cash asset
write-downs as well as severance costs for additional staff reductions. The
third quarter 1998 results included an after-tax charge of $6.5 million, or
$.12 per share, related to a plant closing and staff reductions. See Note 2 of
the Notes to Consolidated Financial Statements for further information
regarding the nonrecurring/unusual items.
-10-
<PAGE> 11
Because of current accounting rules regarding when certain types of
charges can be recognized in the financial statements, the Company currently
anticipates that it will incur approximately $22 million of additional
nonrecurring expense related to actions undertaken to date. This is in addition
to a total of $66 million recorded during the second half of 1998 and thus far
in 1999.
REVENUES
Revenues for the third quarter of 1999 totaled $373.4 million, a
decrease of 22% from the $477.2 million in the third quarter of 1998, with
declines in all four segments.
Revenues for Cameron totaled $200.0 million, a decrease of 19% from
the third quarter 1998 revenues of $246.8 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 all regions. The Western Hemisphere declined due to the slowdown in
major Gulf of Mexico project orders during the past year and weaker surface
product activity related to the generally sluggish market conditions. The
Eastern Hemisphere declined primarily due to the weak activity in the North
Sea, while Asia-Pacific declined slightly due to delayed gas development
projects.
CCV's revenues of $60.3 million declined by 34% from the $92.0 million
in the third quarter of 1998. The weakness in revenues was across all products
and markets, including 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.
Revenues for CES of $87.4 million declined by 18% from the $106.5
million in the third quarter of 1998, with declines in all product lines. The
energy-related markets served by this segment remained very competitive in the
third quarter, with industry-wide over-capacity. The most significant revenue
decline was in rotating compressor projects, where a lack of major project
orders during 1998 limited 1999 revenues. This will be the last quarter to
include revenues for the rotating compressor business, which was sold to
Rolls-Royce plc on September 30, 1999. During the quarter, the rotating
compressor business had revenues of $31.5 million.
Cooper Turbocompressor (CTC) had revenues of $25.7 million, or a
decrease of 19% from $31.9 million in the third quarter of 1998. The most
significant decline was in process air machines, where large air separation
customers have delayed placing new orders for the last several quarters. The
overall low activity level for products sold directly to Southeast Asian
markets continued to be a factor in the plant air machine market 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.
-11-
<PAGE> 12
COSTS AND EXPENSES
While revenues decreased $103.8 million in comparison to the third
quarter of 1998, cost of sales (exclusive of depreciation and amortization)
decreased $61.9 million, leading to a gross margin shortfall of $41.9 million.
As a result, the gross margin percentage (defined as revenues less cost of
sales as a percentage of revenues) declined by 3.1 percentage points. This
result is discussed below in more detail for each segment.
Cameron's gross margin percentage was 28.3% in the third quarter of
1999, compared to 33.1% for the same period in 1998. The decline resulted from
the increase in relatively lower-margin drilling product revenues and the
decrease in higher-margin surface and subsea products. Additionally, pricing
pressure, which began to increase late in 1998, also continued; however, the
effect on third quarter results was somewhat 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 32.6% in the third
quarter of 1998 to 28.5% in the third 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, in the near term, with the rapid revenue decline.
The gross margin percentage for CES improved from 17.5% in the third
quarter of 1998 to 19.9% in the third quarter of 1999. Improved margins on
rotating compressor revenues and a favorable product mix shift between
higher-margin parts shipments and lower-margin units were partially offset by
pricing pressure throughout the business.
CTC's gross margin percentage declined from 32.5% in the third quarter
of 1998 to 29.8% in the third quarter of 1999. The decline resulted from
pricing pressure in all product lines, but particularly in process air
machines.
Depreciation and amortization expense increased by $3.9 million, from
$18.0 million in the third quarter of 1998 to $21.9 million in the third
quarter of 1999. This increase was due primarily to higher capital spending
during 1998, largely in Cameron.
Selling and administrative expenses decreased by $7.5 million, or 13%,
from $59.4 million in the third quarter of 1998 to $51.9 million in the third
quarter of 1999. Cameron, CCV, and CES decreased by $3.8 million, $2.5 million,
and $1.3 million, respectively, due to cost reductions in response to revenue
declines.
Reflecting the various factors discussed above, operating income
(defined as earnings before the gain on sale, nonrecurring/unusual charges,
corporate expenses, interest and taxes) totaled $28.6 million, a decrease of
$37.4 million from the third quarter of 1998. Cameron decreased from $43.8
million to $19.4 million, CCV declined from $16.5 million to $6.1 million, CES
decreased from breakeven to a loss of $(.6) million, and CTC declined from $5.7
million to $3.7 million.
-12-
<PAGE> 13
Interest expense was $7.7 million in the third quarter of 1999, a
decrease of $.9 million from the same period in 1998. This decline was due to a
lower average debt level, primarily from working capital reductions.
The third quarter 1999 effective tax rate of 47.9% reflects the
combination of a 43.0% tax rate related to the gain on the sale of the CES
rotating compressor business, combined with a current full year expected rate
on normal earnings, including nonrecurring expenses, of 32.9%. This 1999 rate
compares to 1998's rate of 31.0% and is higher primarily due to a change in the
mix of domestic and foreign earnings.
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1998
The Company had net income of $35.8 million, or $.65 per share, for
the nine months ended September 30, 1999, compared to $109.4 million, or $1.98
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 the $25.8 million, or $.47 per share, in after-tax gain on
the sale of the rotating compressor business, offset by after-tax
nonrecurring/unusual charges of $29.5 million, or $.54 per share. See Note 2 of
the Notes to Consolidated Financial Statements for further information
regarding these nonrecurring/unusual charges.
REVENUES
Revenues for the nine months ended September 30, 1999 totaled $1,142.4
million, a decrease of 19% from the $1,406.8 million in the first nine months
of 1998, with declines in all four segments.
Revenues for Cameron totaled $639.2 million, a decrease of 14% from
the first nine months of 1998 revenues of $747.5 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 significantly in Asia-Pacific and Eastern
Hemisphere, and decreased slightly in the Western Hemisphere, as drilling and
subsea product shipments for deep-water projects in the Gulf of Mexico and
Brazil nearly offset the weak surface product activity.
CCV's revenues of $173.1 million declined by 29% from the $243.3
million in the first nine months of 1998. The weakness in revenues was
particularly evident in oilfield distributor products and in pipeline valves,
where major projects have been delayed. On a geographical basis, Asia-Pacific
and Latin America were particularly weak. Providing a partial offset was the
Orbit Valve acquisition, which closed on April 2, 1998, resulting in nine
months of revenues in 1999 compared with only six months in 1998.
Revenues for CES of $249.3 million declined by 20% from the $312.5
million in the nine months ended September 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 rotating compressor
projects,
-13-
<PAGE> 14
where a lack of major project orders during 1998 limited 1999 revenues. The
rotating compressor business, which was sold to Rolls-Royce plc on September
30, 1999, had revenues of $92.4 million during the first three quarters of
1999.
CTC had revenues of $80.8 million, a decrease of 22% from $103.5
million in the first nine months of 1998. This decline was across all lines of
the business, but was most significant in 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 $264.4 million in comparison to the first
nine months of 1998, cost of sales (exclusive of depreciation and amortization)
decreased $143.3 million, leading to a gross margin shortfall of $121.1
million. As a result, the gross margin percentage (defined as revenues less
cost of sales as a percentage of revenues) declined by 3.7 percentage points,
or .6 percentage points more than in the quarter-to-quarter comparison. The
higher year-to-date decrease reflects the accelerating benefit of cost
reduction efforts throughout 1999. The comparative gross margin percentages are
discussed below in more detail for each segment.
In the case of both Cameron, where the gross margin percentage was
29.2% in the nine months ended September 30, 1999, compared to 33.2% for the
same period in 1998, and CCV, where the gross margin percentage decreased from
32.9% to 27.8%, the decline was caused by the same factors included in the
quarter-to-quarter discussion.
The gross margin percentage for CES declined from 19.1% in the first
nine months of 1998 to 16.4% in the same period 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.
CTC's gross margin percentage declined from 33.4% in the first three
quarters of 1998 to 32.7% for the same period in 1999. This decline resulted
from the same factors discussed in the quarterly comparison.
Depreciation and amortization expense increased by $10.8 million, from
$53.3 million in the period ended September 30, 1998 to $64.1 million in the
same period of 1999. This increase was due mainly to higher capital spending
during 1998, primarily in Cameron.
Selling and administrative expenses decreased by $20.5 million, or
12%, from $176.9 million in the first nine months of 1998 to $156.4 million in
the first nine months of 1999. Cameron and CES decreased by $14.7 million and
$3.9 million, respectively, due to cost reductions in response to revenue
declines. CCV decreased by $2.2 million as the inclusion of Orbit Valve was
more than offset by cost reductions in the remainder of the business.
Reflecting the various factors discussed above, operating income
(defined as earnings before the gain on sale, nonrecurring/unusual charges,
corporate expenses, interest and taxes) totaled $91.7 million, a decrease of
$110.5 million from the nine months ended September 30,
-14-
<PAGE> 15
1998. Cameron decreased from $133.6 million to $78.7 million, CCV declined from
$44.0 million to $13.4 million, CES decreased from $3.6 million to a loss of
$(13.3) million, and CTC declined from $21.0 million to $12.9 million.
Interest expense was $22.5 million in the first nine months of 1999, a
decrease of $2.3 million from the same period in 1998. This decline was due to
a lower average debt level, primarily from working capital reductions.
The tax rate for the nine months ended September 30, 1999 was 40.5%,
reflecting the combination of a 43.0% tax rate on the gain on sale, combined
with a full year expected rate on normal earnings, including nonrecurring
expenses, of 32.9%. This 1999 rate compares to a 1998 rate of 31.0% and is
higher primarily due to a change in the mix of domestic and foreign earnings.
CASH FLOW, LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL POSITION
As described further in Note 2 of the Notes to Consolidated Financial
Statements, effective September 30, 1999, the Company completed the sale of its
rotating business to Rolls-Royce plc. The cash proceeds from this sale,
totaling approximately $203 million, along with $114 million of cash generated
from operations and nearly $5 million of proceeds from the sale of plant and
equipment were used to fund nearly $139 million of debt reduction (most of
which occurred in the third quarter) as well as $54 million of capital
expenditures leaving a cash balance on hand at the end of the quarter of nearly
$135 million, an increase of over $113 million since December 31, 1998. Other
large disbursements during the nine month period primarily consisted of an $8
million payment during the first quarter of 1999 associated with the
termination of outstanding Treasury Lock agreements (see Note 7 of the Notes to
Consolidated Financial Statements) and approximately $5 million for capital
lease payments in connection with certain data processing and transportation
equipment. The Company intends to use the remaining cash on hand for further
debt reduction and general corporate purposes.
In spite of sharply lower earnings, the Company was able to achieve a
level of cash flow from operations that approximated 90% of the amount
generated last year. This was due primarily to significant reductions in
inventory levels during the nine-month period by Cameron and CCV. Nearly 70% of
the decline in inventory occurred at Cameron as a result of lower backlog and
order levels and a continuing emphasis in this segment, as well as throughout
the Company, on working capital management during the recent business downturn.
Capital expenditures have declined nearly $30 million from last year,
most of which is attributable to lower spending by Cameron, as the Company
continues to focus on cash generation until signs of a sustained increase in
orders and business activity warrant higher levels of capital investment.
The reduction in debt noted above has resulted in a record low
debt-to-capitalization ratio of 24.8% at September 30, 1999 compared to 32.7%
(the previous record low) at June 30, 1999 and 34.7% at December 31, 1998. In
addition to nearly $135 million of cash on hand at September 30, the Company
also has almost $240 million of committed long-term borrowing
-15-
<PAGE> 16
capacity available at quarter-end under its $475 million credit facility. The
Company had entered into short-term credit agreements with five banks during
the third quarter of 1998, providing for additional committed borrowing
facilities totaling $155 million. Those agreements were allowed to expire
during the third quarter of 1999 without being renewed.
YEAR 2000
As of September 30, 1999, the Company believes its critical and all
other reasonably significant business systems as well as computers, equipment
and products are Year 2000 (Y2K) compliant and will not result in any failures
that could have a material adverse effect on the Company's operations. The Year
2000 issue is the risk that information systems, computers, equipment and
products using date-sensitive software or containing chips with two-digit date
fields will misinterpret the year 2000 as the year 1900 based on the last two
digits of "00" and therefore malfunction or provide unreliable information.
The Company has reached this conclusion as a result of an extensive
program, dating back to 1997, that involved personnel from the Company's
accounting, engineering, manufacturing, purchasing, sales and marketing,
facilities management, and information systems departments, as well as outside
consultants. This program was conducted in various phases.
The first phase involved an inventory of the Company's date-sensitive
operating systems, hardware and products. As a result of this inventory, the
Company has upgraded and satisfactorily tested all core operating systems. Many
of these systems are large division or enterprise-wide systems that were made
compliant through vendor supplied upgrades. Additionally, corrective action was
taken to upgrade or replace certain desktop PC's, servers and network equipment
that were identified as not being Y2K compliant, as well as non-compliant
manufacturing equipment (such as machine tools and calibration/measuring
devices) and facility controls systems (e.g. cooling/environmental controls,
elevators, electronic locks, etc.).
A second phase of the Company's Year 2000 program involved 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 has been and will continue
to work with customers on an individual basis to help them ensure that products
purchased prior to 1998 will also perform properly beyond 1999.
A third phase of the Year 2000 program involved 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 contacted each of its key third party vendors and suppliers and
received responses that were adequate to allow the Company to determine the
status of their internal Y2K programs. Certain suppliers' Y2K programs were
also audited by the Company. Additional focus was made during this phase on
those vendors who were critical sole-source suppliers of products that were
considered to be of "high risk" for non-Y2K compliance.
-16-
<PAGE> 17
Finally, the Company has developed contingency plans to deal with
"worst case" scenarios involving the Company's own business systems as well as
the ability of its vendors to continue business activities without
interruption. These plans include the scheduling of additional information
systems personnel at critical times near year-end and during the first few days
of the new year. In addition, the Company has made arrangements with third
parties for information systems disaster recovery services and off-site storage
of key data files. Also, near year-end, the Company plans to create hard copy
reports of key databases and distribute this hard copy information as part of
"care packages" that will be sent to various domestic and international
locations to allow them to continue operations in the event of any unforeseen
circumstances. The Company will also have available, in certain cases,
emergency numbers for customers to call if necessary and will, in isolated
instances involving critical sole source vendors, add a small amount of
additional inventory from these suppliers to its stocks prior to year-end.
During the fourth quarter of 1999, the Company will continue to refine the
specifics of these contingency plans.
The Company's Year 2000 program has been, and continues to be,
reviewed and monitored on a proactive basis by senior management as well as the
Board of Directors. Excluding internal personnel costs, the Company estimates
that the final cost it will incur as a result of this program, including new
capital assets required, will be less than $2.5 million, most of which has been
spent to date. All non-capital costs have been expensed as incurred.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1999, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 137 which had the effect
of deferring the implementation of SFAS No. 133 (Accounting for Derivative
Instruments and Hedging Activities) until no later than January 1, 2001 for
calendar year companies. The Company will undertake an evaluation of the impact
of SFAS No. 133 on its derivative and hedging activities beginning in early
2000.
-17-
<PAGE> 18
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.
-18-
<PAGE> 19
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 - Financial Data Schedule.
(b) Reports on Form 8-K
The Company filed a Form 8-K dated August 20, 1999 including,
as an exhibit, its press release dated August 20, 1999
announcing that it had entered into an agreement to sell its
rotating (centrifugal) compressor, power turbine and
En-Tronic(R) controls business to Rolls-Royce plc.
The Company filed a Form 8-K dated October 1, 1999 including,
as an exhibit, a press release dated October 1, 1999 issued
by Rolls-Royce plc announcing that Rolls-Royce plc had
completed the purchase of the rotating products interests of
Cooper Energy Services, a part of Cooper Cameron Corporation.
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 November 12, 1999 /s/ Thomas R. Hix
-------------------------- ---------------------------
Thomas R. Hix
Senior Vice President &
Chief Financial Officer
and authorized to sign on
behalf of the Registrant
<PAGE> 20
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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 135
<SECURITIES> 0
<RECEIVABLES> 266
<ALLOWANCES> 0
<INVENTORY> 391
<CURRENT-ASSETS> 821
<PP&E> 791
<DEPRECIATION> 369
<TOTAL-ASSETS> 1,609
<CURRENT-LIABILITIES> 448
<BONDS> 208
0
0
<COMMON> 1
<OTHER-SE> 811
<TOTAL-LIABILITY-AND-EQUITY> 1,609
<SALES> 1,142
<TOTAL-REVENUES> 1,142
<CGS> 841
<TOTAL-COSTS> 841
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 22
<INCOME-PRETAX> 60
<INCOME-TAX> 24
<INCOME-CONTINUING> 36
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 36
<EPS-BASIC> .67
<EPS-DILUTED> .65
</TABLE>
