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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal year ended December 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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Commission File Number 1-13884
COOPER CAMERON CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 76-0451843
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
515 Post Oak Boulevard
Suite 1200
Houston, Texas
(Address of principal 77027
executive offices) (Zip Code)
Registrant's telephone number, including area code (713) 513-3300
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Name of Each Exchange on
Title of Each Class Which Registered
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Common Stock, Par Value $0.01 Per Share New York Stock Exchange
Junior Participating Preferred Stock New York Stock Exchange
Purchase Rights
Par Value $0.01 Per Share
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the Registrant's knowledge, in a definitive proxy or information
statement incorporated by reference in Part III of this Form 10-K of any
amendment to this Form 10-K. [X]
The number of shares of Common Stock, par value $.01 per share,
outstanding as of March 15, 1999 was 53,274,157. The aggregate market value of
the Common Stock, par value $0.01 per share, held by non-affiliates of
Registrant as of March 15, 1999 was approximately $1,521,637,685. For the
purposes of the determination of the above statement amount only, all directors
and executive officers of the Registrant are presumed to be affiliates.
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of Registrant's Annual Report to Stockholders for 1998 are
incorporated by reference into Part II.
Portions of Registrant's 1999 Proxy Statement for the Annual
Meeting of Stockholders to be held May 13, 1999 are
incorporated by reference into Part III.
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PART I
ITEM 1. BUSINESS.
Cooper Cameron Corporation ("Cooper Cameron" or the "Company") is a
leading international manufacturer of oil and gas pressure control equipment,
including valves, wellheads, chokes, blowout preventers and assembled systems
for oil and gas drilling, production and transmission used in onshore, offshore
and subsea applications. Cooper Cameron is also a leading provider of gas
turbine packages, centrifugal gas and air compressors, integral and separable
reciprocating engines, reciprocating compressors and turbochargers.
Cooper Cameron, a Delaware corporation, was incorporated on November
10, 1994. The Company operated as a wholly-owned subsidiary of Cooper
Industries, Inc. ("Cooper") until June 30, 1995, the effective date of the
completion of an exchange offer with Cooper's stockholders resulting in the
Company becoming a separate stand-alone company. The common stock of Cooper
Cameron is trading on the New York Stock Exchange under the symbol "CAM".
In June 1996, Cooper Cameron purchased the assets and assumed certain
operating liabilities of Ingram Cactus Company for approximately $100.5 million
in cash. The business acquired manufactures and sells wellheads, surface
systems, valves and actuators used primarily in onshore oil and gas production
operations, and owned manufacturing facilities in Oklahoma City, Oklahoma and
Broussard, Louisiana, as well as in the United Kingdom and Austria. The Company
also acquired interests in the Ingram Cactus joint ventures in Venezuela and
Malaysia. The operations have now been integrated into those of the Cameron
division.
In October 1996, Cooper Cameron acquired, for its Cameron division,
certain assets and assumed certain liabilities of Tundra Valve & Wellhead Corp.,
a Canadian manufacturer of wellheads, trees and valves, for approximately
Canadian $9.8 million. Also, during October 1996, Cooper Cameron acquired, for
its Cooper Energy Services division, certain assets of ENOX Technologies, Inc.
for approximately $6.1 million. ENOX is a developer and provider of ignition
systems for gas engines, particularly those used in large-scale gas transmission
installations.
During 1997, the Company's Cameron division made three small product
line acquisitions totaling $6.3 million.
During 1998, the Company made four acquisitions of companies offering
aftermarket products and services at a cash cost of approximately $15 million.
In April 1998, the Company acquired Orbit Valve International, Inc.
("Orbit(R)") for approximately $104 million in cash and debt. Orbit became part
of the Cooper Cameron Valves organization. Orbit manufactures and sells
high-performance valves and actuators for the oil and gas and petrochemical
industries. Orbit's primary manufacturing facility is located in Little Rock,
Arkansas with a sales, marketing, assembly, test and warehousing base at
Livingston, Scotland in the United Kingdom.
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Cooper Cameron's business of manufacturing petroleum production
equipment and compression and power equipment began in the mid-1800's with the
manufacture of steam engines that provided power for plants and textile or
rolling mills. By 1900, with the discovery of oil and gas, Cooper Cameron moved
into the production of natural gas internal combustion engines and gas
compressors. The Company added to its product offering through various
acquisitions, in particular the acquisitions of The Bessemer Gas Engine Company
(gas engines and compressors); Pennsylvania Pump and Compressor (reciprocating
air and gas compressors); Ajax Iron Works (compressors); Superior (engines and
compressors); Joy Petroleum Equipment Group (valves, couplings and wellheads);
Joy Industrial Compressor Group (compressors); and Cameron Iron Works (blowout
preventers, ball valves, control equipment and McEvoy-Willis wellhead equipment
and choke valves).
BUSINESS SEGMENTS
MARKETS AND PRODUCTS
The Company's operations are organized into four separate business
segments which are Cameron, Cooper Cameron Valves, Cooper Energy Services and
Cooper Turbocompressor, each of which is also a division. For additional
industry segment information for each of the three years in the period ended
December 31, 1998, see Note 13 of the Notes to Consolidated Financial
Statements, which Notes are incorporated herein by reference in Part II, Item 8
hereof ("Notes to Consolidated Financial Statements.")
Cameron Division
Cameron manufactures pressure control equipment used at the wellhead in
the drilling for and production and transmission of oil and gas, both onshore
and offshore. The primary products include wellheads, drilling valves, blowout
preventers ("BOPs") and control systems and are marketed under the well-known
brand names Cameron(R), W-K-M(R), McEvoy(R), Willis(R), and Ingram Cactus(R).
The equipment is manufactured in a variety of sizes and to various
specifications with working pressure ratings up to 30,000 pounds per square inch
("p.s.i."). The wellhead equipment is designed to support the casing and
production tubulars and includes casing head housings, casing heads and tubing
heads. Valves of different sizes and design are assembled with other components
into an assembly known as a "christmas tree," which is mounted on the wellhead
equipment and is used to control the flow of oil and gas from a producing well.
Most christmas trees are custom designed to meet individual customer
requirements.
Cameron also manufactures subsea production systems, which consist of
equipment used to complete an oil or gas well on the sea floor. Subsea systems
tend to be sophisticated and generally require a high degree of technological
innovation.
In 1993, Cameron introduced its patented SpoolTree(TM) subsea
production system for use in oil and gas fields with subsea completions that
require frequent retrieval of downhole equipment. With the SpoolTree system,
well completion and workover activities can be
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performed without a workover riser or removal of the christmas tree and under
conventional blowout preventer control, thereby reducing the time and equipment
needed to perform such activities.
Cameron's drilling-related equipment includes ram and annular BOPs.
Cameron has experienced a dramatic increase in its BOP sales over the past two
years due to an increased market focus on and, up until the second half of 1998,
improving fundamentals in the drilling business. Cameron also produces other
drilling-related equipment, the most important of which are choke manifolds,
drilling risers and control systems.
Additionally, Cameron provides complete integrated elastomer research,
development and manufacturing. These products are used in pressure and flow
control equipment. This technology also supports the petroleum, petrochemical,
rubber molding and plastics industries in the development and testing of
elastomer and plastic products.
The Cameron Willis Chokes business unit was formed in late 1997 to
focus resources on the choke product line with the goal of enhancing Cameron's
performance in this product line. Cameron Willis manufactures production chokes,
control valves, drilling choke systems, actuators, and pigging and production
automation systems.
The Cameron Controls business unit was created in late 1996 with a
primary goal of expanding Cameron's role as a provider of controls equipment.
Drilling and production equipment used on the ocean floor operates from a
platform or other remote location through hydraulic or electronic connections
that allow the operator to measure and control the pressures and throughput
associated with these installations.
The Cameron division has established an Aftermarket business unit with
a comprehensive worldwide aftermarket organization that provides replacement
parts, field service, major repairs and overhauls, unit installation assistance
and Total Vendor Management contracts. Cameron also provides an inventory of
repair parts, service personnel, planning services and inventory and storage of
customers' idle equipment.
Cameron primarily markets its petroleum production equipment products
directly to end-users through a worldwide network of sales and marketing
employees, supported by agents in some international locations. Due to the
extremely technical nature of many of the products, the marketing effort is
further supported by a staff of engineering employees. The balance of Cameron's
products are sold through established independent distributors.
Cameron's primary customers include major oil and gas exploration and
production companies, independent oil and gas exploration and production
companies, foreign national oil and gas companies, engineering and construction
companies, drilling contractors and rental equipment companies.
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Cooper Cameron Valves Division
Cooper Cameron Valves ("CCV") manufactures valves ranging in sizes from
1/4 inch to 60 inches in diameter and related systems primarily used to control
pressures and direct oil and gas as they are moved from individual wellheads
through flow lines, gathering lines and transmission systems to refineries,
petrochemical plants and industrial centers for processing. Large diameter
valves are used primarily in natural gas transmission lines. Smaller valves are
used in oil and gas gathering and processing systems and in various types of
industrial processes in refineries and petrochemical plants. CCV also
manufactures valves for use in oil and gas gathering and processing systems such
as refineries and petrochemical plants.
Gate valves, ball valves, butterfly valves, Orbit valves, rotary
process valves, block and bleed valves, plug valves, actuators, chokes and
aftermarket parts are marketed under the brand names Cameron(R), W-K-M(R),
Orbit(R), Demco(R), Foster(R) and Thornhill Craver(TM).
CCV markets its equipment and services through a worldwide network of
combined sales and marketing employees, carefully selected distributors and
agents in selected international locations. Due to the extremely technical
nature of many of the products, the marketing effort is further supported by a
staff of engineering employees. CCV's primary customers include major and
independent oil and gas exploration and production companies, foreign national
oil and gas companies, pipeline companies, refining companies and a wide range
of industrial, petrochemical and processing industry companies.
Cooper Energy Services Division
Cooper Energy Services ("CES") provides products and services to the
oil and gas production and transmission, process and power generation markets.
The primary products include engines, integral engine compressors, reciprocating
compressors, gas turbines, turbochargers, control systems and aftermarket parts
and service. CES markets its products worldwide under the well-known brand names
Ajax(R), Cooper-Bessemer(R), Superior(R), Enterprise(R), C-B Turbocharger(R),
PPC(R), En-Tronic(R), ENOX(R), Service Solutions(TM), Texcentric(R), Coberra(R)
and Cooper Rolls(TM).
Manufactured under the Cooper-Bessemer, Ajax and Superior brand names,
CES's reciprocating products include engines and compressors in both "integral"
and "separable" configurations. CES also manufactures four-cycle reciprocating
power engines in both "in-line" and "V" configurations. They are available in
spark-ignited (gas-fueled), diesel and dual-fuel (gas and diesel-fueled)
versions. Marketed under the Cooper-Bessemer and Superior brand names, these
power engines are used to drive reciprocating separable compressors in natural
gas gathering, boosting, transmission, injecting, processing and
storage/withdrawal applications. Additionally, CES manufactures its own lines of
Superior and Pennsylvania Process(TM) reciprocating separable gas compressors.
In addition, CES power engines drive electric generators in industrial,
commercial, municipal and government-operated independent power (non-utility)
applications, and pumps in both oil and gas related services.
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During 1997, CES introduced a new line of rotary screw compressor
packages. The new packages feature a compact and portable design for quick
installation and economical operation in wellhead gas boosting, vapor recovery,
gas gathering, air drilling, fuel gas boosting, air injection storage/withdrawal
and helium production services.
In July 1996, the Company announced the discontinuation of development
work related to new designs of the large Cooper-Bessemer reciprocating power
engines and integral engine-compressors. This decision was made due to a shift
in customer preference to lower cost gas turbine or high speed reciprocating
packages, both of which CES provides with its Cooper Rolls and Superior
products. By February 1997, the Grove City, Pennsylvania plant was restructured
to be a component supplier for other Cooper Energy Services products and a parts
manufacturing facility focused on the profitable aftermarket business for the
large installed base of Cooper-Bessemer, Pennsylvania Pump and Compressor and
Enterprise reciprocating equipment. As a result, all assembly operations were
eliminated and engineering resources were reallocated to other product lines.
For natural gas applications, CES manufactures two types of rotating
gas compressors under the Cooper-Bessemer brand name: pipeline centrifugal
compressors and multi-stage barrel compressors.
CES provides gas turbines and gas turbine-driven compression and power
generation packages to the worldwide oil and gas related markets through Cooper
Rolls, its joint venture company with Rolls-Royce plc of London, England.
Marketed under the Coberra brand name, Cooper Rolls gas turbine sets combine a
Rolls-Royce jet engine gas generator and a Cooper-Bessemer power turbine to
provide a compact, aero-derivative power source with high horsepower-to-weight
ratios. The newest Cooper Rolls product offering, Allison engine-powered gas
turbines, extend the company's product offering to a smaller horsepower range.
The Allison Engine Company is owned by Rolls-Royce plc.
CES manufactures turbochargers under the Cooper-Bessemer brand name for
new CES and non-CES reciprocating engines and also provides factory repair of
its own and other manufacturers' turbochargers in a dedicated facility. High
performance turbochargers are necessary to achieve required exhaust emissions
while maintaining desired efficiency and operations flexibility. CES is one of
the few engine manufacturers to design, produce and repair turbochargers.
CES manufactures En-Tronic control and analysis equipment for many of
its compression and power products, as well as for products produced by other
manufacturers. En-Tronic controls provide state-of-the-art solutions to advanced
system requirements such as calculating and controlling low emissions on gas
turbines and engines, and all-electronic fuel control of gas turbine and engine
packages. En-Tronic products use advanced, field-proven hardware and software
technology, to optimize equipment reliability, safety and efficiency.
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The Cooper Energy Services division has established the Customer
Integrated Services business unit (CIS) to enhance strategic growth, product
development, technical support and operational focus for all of the aftermarket
product offerings related to its worldwide power and compression markets. CIS
controls its own marketing and business strategy, along with the service shops,
parts manufacturing facilities, warehouses, and service resources associated
with aftermarket activities.
CES primarily sells its compression and power equipment direct to
end-users through a worldwide network of sales and marketing employees supported
by agents in some international locations. In addition, Ajax and Superior units
are sold through independent distributors in North America and to rental
companies.
The primary customers for compression and power equipment include the
major oil and gas companies, large independent oil and gas producers, gas
transmission companies, equipment leasing companies, petrochemical and refining
divisions of oil companies, independent power producers and chemical companies.
Cooper Turbocompressor Division
Cooper Turbocompressor ("CTC") markets its products under the brand
names of TurboAir(R), Quad 2000(R), Joy(R), and MSG(R). This division
manufactures integrally geared centrifugal air compressors from its acquisition
of the Joy Industrial Compressor Group. The compressors are used by industrial
plants as a source of power for the operation of hand tools, actuation of
control devices and to power automatic and semi-automatic production equipment.
These compressors are used in industries such as automotive, container, textile,
chemical, food and beverage and general manufacturing.
CTC also manufactures integral gear centrifugal compressors for process
applications where the air is used for its content of oxygen, nitrogen, argon or
other elements. In these cases, the compressor is an integral part of the
manufacturing process in industries such as air separation, pharmaceutical,
fermentation, petrochemical, refining and synthetic fuel.
The process and plant air centrifugal compressors manufactured by CTC
deliver oil-free compressed air to the customer, thus preventing oil
contamination of the manufactured products. Industrial markets worldwide
increasingly prefer oil-free air for safety, operational and environmental
reasons.
CTC provides aftermarket service and repairs on all equipment it
produces through a worldwide network of field service technicians utilizing an
extensive inventory of parts, including Genuine Joy parts. Replacement parts are
made to the same high quality standards as those used in new compressors.
CTC expanded its service organization with added training and
certification of its domestic and international distributors in the plant air
market. CTC provides installation and maintenance service labor, parts and
factory repairs and upgrades to its worldwide customers for plant and process
air compressors. Aero performance and microprocessor-based control system
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upgrades, as well as refurbishing and re-warranting used compressors, was a
significant area of CTC's aftermarket business in 1998.
CTC primarily sells its products through sales representatives and
independent distributors supported by a staff of engineering employees.
The primary customers for industrial compressors include durable goods
manufacturers and chemical process industries worldwide.
CTC substantially completed a multi-year expansion of its Buffalo, New
York manufacturing facilities in 1998 with the implementation of a 6,500
horsepower test stand. Major machine tool additions ordered in 1998 will be
installed in 1999.
MARKET ISSUES
Cooper Cameron, through its four segments, is one of the market leaders
in the global market for petroleum production equipment. Cooper Cameron believes
that it is well positioned to serve these markets. Plant and service center
facilities around the world in major oil producing regions provide a broad,
global breadth of market coverage.
The international market is expected to be a major source of growth for
Cooper Cameron. The desire of both the developed and the developing countries to
expand their respective oil and gas transmission capacity for both economic and
political reasons will be one of the primary factors affecting market demand.
Additional establishment of industrial infrastructure in the developing
countries will necessitate the growth of basic industries that require process
compression equipment for air separation facilities. Production and service
facilities in North and South America, Europe and the Far East provide the
Company with the ability to serve the global marketplace.
In each of Cooper Cameron's business segments, a large population of
installed engines, compression, and gas and oil production equipment exists in
both the U.S. and international market segments. The rugged, long-lived nature
of the equipment that exists in the field provides a predictable and profitable
repair parts and service business. The Company expects that as increasing
quantities of new units are sold into the international markets, there will be a
continuing growth in market demand for aftermarket parts and service.
NEW PRODUCT DEVELOPMENT
As petroleum exploration activities have increasingly been focused on
subsea locations, the Cameron division has directed much of its new product
development efforts toward this market. In subsea exploration, customers are
particularly concerned about safety, environmental protection and ease of
installation and maintenance. Cameron's reputation for high quality and high
dependability has given it a competitive advantage in the areas of safety and
environmental protection. A patented subsea production system called the
SpoolTree, which was introduced in 1993, offers substantial cost reduction to
the customer as it is based upon a novel concept
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that eliminates the need for a workover riser or removal of the christmas tree
during workover. Cameron has pioneered this concept and has developed similar
products for land and platform applications, which significantly reduce customer
costs.
Cameron has also introduced the MOSAIC(TM) (Modular Subsea And
Integrated Completions) system. MOSAIC includes a suite of pre-engineered
elements with standard interfaces that can be combined in a fashion to allow
customers to configure a system to meet their specific needs. Cameron believes
that it has chosen to standardize components at a level low enough to give
customers the required customization while providing engineering and
manufacturing efficiencies. Cameron has realigned its engineering and marketing
resources to further develop and market the MOSAIC subsea system and other
stand-alone standardized subsea products, such as christmas trees and wellheads.
Several new drilling products were introduced in 1998. These new
products included the 3.5 million-pound load capacity LoadKing(TM) riser system,
which set the industry standard for drilling in 10,000-foot water depths; a new
lightweight and lower-cost locking mechanism for subsea BOPs; and a new
generation of variable-bore ram packers.
In May 1998, Cameron opened a new Research Center in Houston, Texas.
The 55,000 sq. ft. Research Center is one of the largest product development
facilities in the oil service sector. The facility has 10 specially designed
test bays to test and evaluate Cameron's products under realistic conditions.
These include environmental test chambers to simulate extreme pressures and
temperatures, high-strength fixtures for the application of multi-million pound
tensile and bending loads, high pressure gas compressors and test enclosures, a
hyperbaric chamber to simulate the external pressures of deep water
environments, and two circulation loops for erosion and flow testing. This
Research Center is instrumental in providing Cameron's customers with innovative
and cost-effective products.
In 1997, Cameron Controls successfully launched a new electro-hydraulic
drilling control system that was favorably received in the market. A new subsea
production control system was developed and launched in 1998. This successful
product launch has significantly enhanced the subsea systems offerings for the
company.
CES also has developed a number of new products to serve the oil and
gas transmission market.
Cooper Rolls shipped its first Allison 501 and 601 power turbines in
1998. These products extend the company's gas turbine product line into a lower
horsepower range suitable for small pipeline compression and power generation
applications both on and offshore, and floating production storage and
offloading vessels.
An area of increasing importance in the oil and gas transmission market
is the reduction of environmentally harmful emissions from engines and turbines
that drive compression equipment. Building on its experience with its CleanBurn
technology, and in conjunction with Rolls-Royce plc, CES is marketing new Dry
Low Emissions gas turbines, as well as conversion
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kits for existing Cooper Rolls units in the field. This technology significantly
reduces the level of emissions produced by gas turbine drivers. Additionally, in
1995, a new line of En-Tronic performance and monitoring control systems was
introduced to aid in optimizing the performance and emission parameters of
engines and turbines. Over the past three years, CES has also introduced new
high speed reciprocating engines and compressors with improved reliability, fuel
efficiency and emissions performance. These new units utilize En-Tronic
state-of-the-art CleanBurn III microprocessor-based control systems.
CTC focused product development resources to further expand its high
efficiency plant air compressor line and to provide custom compressors matched
to the latest requirements of its industrial gas customers. The latter is being
achieved by advances in aerodynamic and rotordynamic analytical design
capability.
COMPETITION
Cooper Cameron competes in all areas of its operations with a number of
other companies, some of which have financial and other resources comparable to
or greater than those of Cooper Cameron.
Cooper Cameron believes it has a leading position in the petroleum
production equipment markets, particularly with respect to its high-pressure
products. In these markets, Cooper Cameron competes principally with Vetco Gray
Inc. (a subsidiary of Asea Brown Boveri), Kvaerner Oil and Gas, Dril-Quip, Inc.,
the Dresser Equipment Group of Halliburton Company, Varco International, Inc.,
Hydril Company, and FMC Corp. The principal competitive factors in the petroleum
production equipment markets are technology, quality, service and price. Cooper
Cameron believes that several factors give it a strong competitive position in
these markets. Most significant are Cooper Cameron's broad product offering, its
worldwide presence and reputation, its service and repair capabilities, its
expertise in high pressure technology and its experience in alliance and
partnership arrangements with customers and other suppliers.
Cooper Cameron believes it also has a leading position in the
compression and power equipment markets. In these markets, Cooper Cameron
competes principally with Nuovo Pignone, Dresser-Rand Company, European Gas
Turbines Inc., Ariel Corporation, Caterpillar Inc., Waukesha Engine Division of
Halliburton Company's Dresser Equipment Group, Atlas-Copco AB, Mannesmann Demag
AG and Ingersoll-Rand Company. The principal competitive factors in the
compression and power equipment markets are engineering and design capabilities,
product performance, reliability and quality, service and price. Cooper Cameron
believes that its competitive position is based on several factors. Cooper
Cameron has a broad product offering and, unlike many of its competitors,
manufactures and sells both engines and compressors (both as separate units and
packaged together as a single unit). Cooper Cameron led the industry in the
introduction of low emission engine technology and continues today as an
industry leader in this technology. Cooper Cameron has a highly competent
engineering staff and skilled technical and service representatives, with
service centers located throughout the world.
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In all of its markets, Cooper Cameron has strong brand recognition and
an established reputation for quality and service. Cooper Cameron has a
significant base of previously-installed products, which provides a strong
demand for aftermarket parts and service. Cooper Cameron has modern
manufacturing facilities and state-of-the-art testing capabilities.
MANUFACTURING
Cooper Cameron has manufacturing facilities worldwide that conduct a
broad variety of processes, including machining, fabrication, assembly and
testing using a variety of forged and cast alloyed steels and stainless steel as
the primary raw materials. In recent years, Cooper Cameron has rationalized
plants and products, closed various manufacturing facilities, moved product
lines to achieve economies of scale, and upgraded the remaining facilities.
Manufacturing processes have been improved and significant capital expenditures
have been made. Cooper Cameron maintains advanced manufacturing, quality
assurance and testing equipment geared to the specific products that it
manufactures and uses extensive process automation in its manufacturing
operations. The manufacturing facilities utilize computer aided numerical
control tools and manufacturing techniques that concentrate the equipment
necessary to produce similar products in one area of the plant in a
configuration commonly known as a manufacturing cell. One operator in a
manufacturing cell can monitor and operate several machines, as well as assemble
and test products made by such machines, thereby improving operating efficiency
and product quality while reducing the amount of work-in-process and finished
product inventories.
Cooper Cameron believes that its test capabilities are critical to its
overall process. The Company has the capability to test most equipment at full
load, measuring all operating parameters, efficiency and emissions. All process
compressors for air separation and all plant air compressors are given a
mechanical and aerodynamic test in a dedicated test center prior to shipment.
All of Cooper Cameron's European manufacturing plants are ISO certified
and API licensed. Most of the U.S. plants are ISO certified or, if not, such
certification is in process. ISO is an internationally recognized verification
system for quality management.
BACKLOG
Cooper Cameron's backlog was approximately $790 million at December 31,
1998 (approximately $92 million of which will not be delivered until after
December 31, 1999), as compared to $786 million at December 31, 1997, and $728
million at December 31, 1996. Backlog consists of firm customer orders for which
a purchase order has been received, satisfactory credit or financing
arrangements exist and delivery is scheduled.
PATENTS, TRADEMARKS AND OTHER INTELLECTUAL PROPERTY
Cooper Cameron believes that the success of its business depends more
on the technical competence, creativity and marketing abilities of its employees
than on any individual patent,
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trademark or copyright. Nevertheless, as part of its ongoing research,
development and manufacturing activities, Cooper Cameron has a policy of seeking
patents when appropriate on inventions concerning new products and product
improvements. Cooper Cameron owns 303 unexpired United States patents and 710
unexpired foreign patents.
Although in the aggregate these patents and Cooper Cameron's trademarks
are of considerable importance to the manufacturing and marketing of many of its
products, Cooper Cameron does not consider any single patent or trademark or
group of patents or trademarks to be material to its business as a whole, except
the Cameron, Cooper-Bessemer, Coberra and Cooper Rolls trademarks. Other
important trademarks used by Cooper Cameron include Ajax, Superior, C-B
Turbocharger, En-Tronic, Enterprise, ENOX, Texcentric, Orbit, W-K-M, McEvoy,
Willis, Demco, PPC, Thornhill Craver, Ingram Cactus and Foster. Cooper Cameron
has the right to use the trademark Joy on aftermarket parts until November 2027.
Cooper Cameron has registered its trademarks in the countries where such
registration is deemed material.
Cooper Cameron also relies on trade secret protection for its
confidential and proprietary information. Cooper Cameron routinely enters into
confidentiality agreements with its employees and suppliers. There can be no
assurance, however, that others will not independently obtain similar
information or otherwise gain access to Cooper Cameron's trade secrets.
EMPLOYEES
As of December 31, 1998, Cooper Cameron had approximately 9,300
employees, of which approximately 2,250 were represented by labor unions. Cooper
Cameron believes its current relations with employees are good. The only
significant labor contract expiring during 1999 covers employees at the Cooper
Energy Services plant in Mt. Vernon, Ohio (March).
ITEM 2. PROPERTIES
The Company operates manufacturing plants ranging in size from
approximately 3,500 square feet to approximately 858,000 square feet of
manufacturing space. The Company also owns and leases warehouses, distribution
centers, aftermarket and storage facilities, and sales offices. The Company
leases its corporate headquarters, its Cameron division headquarters office
space in Houston, Texas and its CES manufacturing facilities in the United
Kingdom.
The Company manufactures, markets and sells its products and provides
services throughout the world, operating facilities in numerous countries. On
December 31, 1998, the significant facilities used by Cooper Cameron throughout
the world for manufacturing, distribution, aftermarket services, machining,
storage and warehousing contained an aggregate of approximately 7,172,827 square
feet of space, of which approximately 6,259,297 square feet (87%) was owned and
913,530 (13%) was leased. Of this total, approximately 5,071,873 square feet
(71%) are located in the United States and 1,548,025 square feet (22%) are
located in Europe. The table below lists the significant manufacturing,
warehouse and distribution facilities
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by industry segment and geographic area. Cameron and Cooper Cameron Valves share
space in certain facilities and, thus, are being reported together.
<TABLE>
<CAPTION>
Asia/Pacific
Western Eastern and
Hemisphere Hemisphere Mideast Total
---------- ---------- ------- -----
<S> <C> <C> <C> <C>
Cameron and Cooper
Cameron Valves 14 12 3 29
Cooper Energy Services 21 2 0 23
Cooper Turbocompressor 1 1 0 2
</TABLE>
Cooper Cameron believes its facilities are suitable for their present
and intended purposes and are adequate for the Company's current and anticipated
level of operations.
ITEM 3. LEGAL PROCEEDINGS
Cooper Cameron is a party to various legal proceedings and
administrative actions, including certain environmental matters discussed below,
all of which are of an ordinary or routine nature incidental to the operations
of the Company. In the opinion of Cooper Cameron's management, such proceedings
and actions should not, individually or in the aggregate, have a material
adverse effect on the Company's results of operations or financial condition.
Environmental Matters
Cooper Cameron is subject to numerous federal, state, local and foreign
laws and regulations relating to the storage, handling, emission and discharge
of materials into the environment, including the Comprehensive Environmental
Response Compensation and Liability Act ("CERCLA"), the Clean Water Act, the
Clean Air Act (including the 1990 Amendments) and the Resource Conservation and
Recovery Act. Cooper Cameron believes that its existing environmental control
procedures are adequate and it has no current plans for substantial capital
expenditures in this area. Cooper Cameron has an active environmental management
program aimed at compliance with existing environmental regulations and
elimination or significant reduction in the generation of pollutants in its
manufacturing processes. Cooper Cameron management intends to continue these
policies and programs.
Cooper Cameron has been identified as a potentially responsible party
("PRP") with respect to five sites designated for cleanup under CERCLA or
similar state laws, which impose liability for cleanup of certain waste sites
and for related natural resource damages without
12
<PAGE> 14
regard to fault or the legality of waste generation or disposal. Persons liable
for such costs and damages generally include the site owner or operator and
persons that disposed or arranged for the disposal of hazardous substances found
at those sites. Although CERCLA imposes joint and several liability on all PRPs,
in application, the PRPs typically allocate the investigation and cleanup costs
based upon the volume of waste contributed by each PRP. Settlements often can be
achieved through negotiations with the appropriate environmental agency or the
other PRPs. PRPs that contributed less than one percent of the waste are often
given the opportunity to settle as a "de minimis" party, resolving liability for
a particular site.
Cooper Cameron does not own any of the sites with respect to which it
has been identified as a PRP; in each case, Cooper Cameron is identified as a
party that disposed of waste at the site. With respect to three of the sites,
Cooper Cameron's share of the waste volume is estimated to be less than one
percent. At one site, Cooper Cameron's share is still to be determined, but is
believed to be less than one percent. Cooper Cameron is the major PRP at one
site, the Osborne Landfill in Grove City, Pennsylvania. Cooper Cameron's
facility in Grove City disposed of wastes at the Osborne Landfill from the early
1950s until 1978. A remediation plan was developed and then accepted by the U.S.
Environmental Protection Agency as the preferred remedy for the site. The
construction phase of the remediation was completed during 1997 and the
remaining costs relate to ground water treatment and monitoring.
Cooper Cameron has accruals in its balance sheet to the extent costs
are known for the five sites. Although estimates of the cleanup costs have not
yet been made for certain of these sites, Cooper Cameron believes, based on its
preliminary review and other factors, that the Company's share of the costs
relating to these sites will not have a material adverse effect on its results
of operations, financial condition or liquidity. However, no assurance can be
given that the actual costs will not exceed the estimates of the cleanup costs
once determined.
Cooper Cameron does not currently anticipate any material adverse
effect on its results of operations, financial condition or competitive position
as a result of compliance with Federal, state, local or foreign environmental
laws or regulations or cleanup costs of the sites discussed above. However, some
risk of environmental liability and other costs is inherent in the nature of
Cooper Cameron's business, and there can be no assurance that material
environmental costs will not arise. Moreover, it is possible that future
developments, such as promulgation of regulations implementing the 1990
amendments to the Clean Air Act and other increasingly strict requirements of
environmental laws and enforcement policies thereunder, could lead to material
costs of environmental compliance and cleanup by Cooper Cameron.
The cost of environmental remediation and compliance generally has not
been an item of material expense for Cooper Cameron during any of the periods
presented, other than with respect to the Osborne Landfill described above.
Cooper Cameron's balance sheet at December 31, 1998, includes accruals totaling
approximately $1.4 million for environmental remediation activities.
13
<PAGE> 15
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during
the fourth quarter of 1998.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
The common stock of Cooper Cameron, par value $.01 per share (together
with the associated Rights to Purchase Series A Junior Participating Preferred
Stock), is traded on The New York Stock Exchange ("NYSE"). No dividends were
paid during 1998.
The following table indicates the range of trading prices on the NYSE from
January 2, 1997 through December 31, 1997 and January 4 through December 31,
1998 (all prices adjusted to reflect a 2-for-1 stock split effective June 13,
1997).
<TABLE>
<CAPTION>
Price Range
-----------
High Low Last
---- --- ----
<S> <C> <C> <C> <C>
1998
First Quarter....................................$66 45 60 3/8
Second Quarter...................................$71 49 3/4 51
Third Quarter....................................$53 3/4 20 1/8 28 1/2
Fourth Quarter...................................$38 1/8 21 15/16 24 1/2
1997
First Quarter....................................$37 15/16 30 1/4 34 1/4
Second Quarter...................................$48 31 13/16 46 3/4
Third Quarter....................................$72 5/8 44 1/4 71 13/16
Fourth Quarter...................................$81 3/4 52 1/8 61
</TABLE>
The approximate number of holders of Cooper Cameron common stock was 26,000 as
of February 26, 1999. The number of record holders as of the same date was
2,968.
ITEM 6. SELECTED FINANCIAL DATA
The information set forth under the caption "Selected Consolidated
Historical Financial Data of Cooper Cameron Corporation" on page 55 in the 1998
Annual Report to Stockholders is incorporated herein by reference.
14
<PAGE> 16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
The information set forth under the caption "Management's Discussion
and Analysis of Results of Operations and Financial Condition of Cooper Cameron
Corporation" on pages 25-34 in the 1998 Annual Report to Stockholders is
incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK.
The information for this item is set forth in the section entitled
"Market Risk Information" on pages 31-33 in the 1998 Annual Report to
Stockholders and is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The following consolidated financial statements of the Company and the
independent auditors' report set forth on pages 35-54 in the 1998 Annual Report
to Stockholders are incorporated herein by reference:
Report of Independent Auditors.
Consolidated Results of Operations for each of the three years
in the period ended December 31, 1998.
Consolidated Balance Sheets as of December 31, 1998 and 1997.
Consolidated Cash Flows for each of the three years in the
period ended December 31, 1998.
Consolidated Changes in Stockholders' Equity for each of the
three years in the period ended December 31, 1998.
Notes to Consolidated Financial Statements.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
15
<PAGE> 17
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information on Directors of the Company is set forth in the section
entitled "Election of Directors" on pages 3-5 in the Proxy Statement of the
Company for the Annual Meeting of Stockholders to be held on May 13, 1999, which
section is incorporated herein by reference. Information regarding executive
officers of the Company is set forth below. There was no failure by an insider
to file a report required by Section 16 of the Exchange Act.
There are no family relationships among the officers listed, and there
are no arrangements or understandings pursuant to which any of them were elected
as officers. Officers are appointed or elected annually by the Board of
Directors at its first meeting following the Annual Meeting of Stockholders,
each to hold office until the corresponding meeting of the Board in the next
year or until a successor shall have been elected, appointed or shall have
qualified.
Section 16(a) Beneficial Ownership Reporting Compliance
The information concerning compliance with Section 16(a) is set forth
in the section entitled "Compliance with Section 16 of the Exchange Act" on page
21 in the Proxy Statement of the Company for the Annual Meeting of Stockholders
to be held on May 13, 1999, which section is incorporated herein by reference.
CURRENT EXECUTIVE OFFICERS OF THE REGISTRANT
<TABLE>
<CAPTION>
Name and Age Present Principal Position and Other Material Positions
- - ------------ -------------------------------------------------------
Held During Last Five Years
---------------------------
<S> <C>
Sheldon R. Erikson (57) President and Chief Executive Officer since January 1995. Chairman of the
Board from 1988 to 1995 and President and Chief Executive Officer from 1987 to
1995 of The Western Company of North America.
Thomas R. Hix (51) Senior Vice President of Finance and Chief Financial Officer since January
1995. Senior Vice President of Finance, Treasurer and Chief Financial Officer
of The Western Company of North America from 1993 to 1995. Executive Vice
President and Chief Financial Officer from 1992 to 1993 and Vice President,
Finance and Chief Financial Officer from 1986 to 1992 of Oceaneering
International.
</TABLE>
16
<PAGE> 18
<TABLE>
<S> <C>
Franklin Myers (46) Senior Vice President, General Counsel and Secretary since April 1995.
President of the Cooper Energy Services division since August 1998. Vice
President and General Counsel from 1988 to 1994, Secretary from 1988 to 1992,
and Senior Vice President and General Counsel from 1994 to April 1995 of Baker
Hughes Incorporated.
Joseph D. Chamberlain (52) Vice President and Corporate Controller since April 1995. Controller -
Financial Reporting from 1994 to 1995, Assistant Controller and
Manager-Financial Reporting from 1979 to 1994 of Cooper Industries, Inc.
A. John Chapman (57) Vice President since May 1998. President, Cooper Cameron Valves division
since 1995. Managing director of Joy Manufacturing Co. Australia Pty. Ltd., a
subsidiary of Joy Technologies Inc. from February 1990 to June 1995.
E. Fred Minter (63) Vice President since November 1996. President, Cooper Turbocompressor
division since 1988.
Dalton L. Thomas (49) Vice President since July 1998. President, Cameron division since July 1998.
Vice President, Eastern Hemisphere for Cameron from 1995 until July 1998.
Vice President of Manufacturing and Support Services, Western Company of North
America from 1989 to 1995.
</TABLE>
ITEM 11. EXECUTIVE COMPENSATION.
The information for this item is set forth in the section entitled
"Director and Executive Management Compensation" on pages 12-16 in the Proxy
Statement of the Company for the Annual Meeting of Stockholders to be held on
May 13, 1999, which section is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT.
The information concerning security ownership of certain beneficial
owners and management is set forth in the sections entitled "Voting Securities
and Principal Holders Thereof" on pages 2-3 and "Security Ownership of
Management" on pages 10-11 in the Proxy Statement of the Company for the Annual
Meeting of Stockholders to be held on May 13, 1999, which sections are
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
None
17
<PAGE> 19
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K.
(a) THE FOLLOWING DOCUMENTS ARE FILED AS PART OF THIS REPORT:
(1) FINANCIAL STATEMENTS:
All financial statements of the Registrant as set forth under
Item 8 of this Annual Report on Form 10-K.
(2) FINANCIAL STATEMENT SCHEDULES:
Financial statement schedules are omitted because of the
absence of conditions under which they are required or because
all material information required to be reported is included
in the consolidated financial statements and notes thereto.
(3) EXHIBITS:
3.1 Amended and Restated Certificate of Incorporation of
Cooper Cameron Corporation, dated June 30, 1995,
filed as Exhibit 4.2 to the Registration Statement on
Form S-8 of Cooper Cameron Corporation (Commission
File No. 33-94948), and incorporated herein by
reference.
3.2 Certificate of Amendment to the Restated Certificate
of Incorporation of Cooper Cameron Corporation, filed
as Exhibit 4.3 to the Registration Statement on Form
S-8 of Cooper Cameron Corporation (Commission File
No. 333-57995), and incorporated herein by reference.
3.3 First Amended and Restated Bylaws of Cooper Cameron
Corporation, as amended December 12, 1996, filed as
Exhibit 3.2 to the Annual Report on Form 10-K for
1996 of Cooper Cameron Corporation, and incorporated
herein by reference.
4.1 Form of Rights Agreement, dated as of May 1, 1995,
between Cooper Cameron Corporation and First Chicago
Trust Company of New York, as Rights Agent, filed as
Exhibit 4.1 to the Registration Statement on Form S-8
of Cooper Cameron Corporation (Commission File No.
33-94948), and incorporated herein by reference.
4.2 First Amendment to Rights Agreement between Cooper
Cameron Corporation and First Chicago Trust Company
of New York, as Rights Agent, dated November 1, 1997,
filed as Exhibit 4.2 to the Annual Report on Form
10-K for 1997 of Cooper Cameron Corporation, and
incorporated herein by reference.
18
<PAGE> 20
4.3 Registration Statement on Form S-3 filed with the
Securities and Exchange Commission on May 4, 1998
(Registration Statement No. 333-51705) incorporated
herein by reference.
10.1 Cooper Cameron Corporation Long-Term Incentive Plan,
filed as Exhibit 10.1 to Amendment No. 2 to the
Registration Statement on Form S-4 of Cooper Cameron
Corporation (Commission File No. 33-90288), and
incorporated herein by reference.
10.2 Amended and Restated Cooper Cameron Corporation
Long-Term Incentive Plan, as amended, incorporated by
reference to the Cooper Cameron Corporation Proxy
Statement for the Annual Meeting of Stockholders held
on May 8, 1997.
10.3 Cooper Cameron Corporation Amended and Restated 1995
Stock Option Plan for Non-Employee Directors, filed
as Exhibit 99.3 to the Registration Statement on Form
S-8 (Commission File No. 33-95000), and incorporated
herein by reference.
10.4 First Amendment to the Cooper Cameron Corporation
Amended and Restated 1995 Stock Option Plan for
Non-Employee Directors, incorporated herein by
reference to the Cooper Cameron Corporation Proxy
Statement for the Annual Meeting of Stockholders held
on May 8, 1997.
10.5 Second Amendment to the Cooper Cameron Corporation
Amended and Restated 1995 Stock Option Plan for
Non-Employee Directors, filed as Exhibit 10.3 to the
Annual Report on Form 10-K for 1996 of Cooper Cameron
Corporation, and incorporated herein by reference.
10.6 Third Amendment to the Cooper Cameron Corporation
Amended and Restated 1995 Stock Option Plan for
Non-Employee Directors, filed as Exhibit 10.6 to the
Annual Report on Form 10-K for 1997 of Cooper Cameron
Corporation, and incorporated herein by reference.
10.7 Fourth Amendment to the Cooper Cameron Corporation
Amended and Restated 1995 Stock Option Plan for
Non-Employee Directors, filed as Exhibit 10.7 to the
Annual Report on Form 10-K for 1997 of Cooper Cameron
Corporation, and incorporated herein by reference.
10.8 Fifth Amendment to the Cooper Cameron Corporation
Amended and Restated 1995 Stock Option Plan for
Non-Employee Directors, filed as Exhibit 10.8 to the
Annual Report on Form 10-K for 1997 of Cooper Cameron
Corporation, and incorporated herein by reference.
19
<PAGE> 21
10.9 Sixth Amendment to the Cooper Cameron Corporation
Amended and Restated 1995 Stock Option Plan for
Non-Employee Directors.
10.10 Cooper Cameron Corporation Retirement Savings Plan
(Registration Statement No. 33-95002), incorporated
herein by reference.
10.11 Cooper Cameron Corporation Retirement Savings Plan,
as Amended and Restated, effective April 1, 1996,
filed as Exhibit 10.10 to the Annual Report on Form
10-K for 1997 of Cooper Cameron Corporation, and
incorporated herein by reference.
10.12 Cooper Cameron Corporation Employee Stock Purchase
Plan (Registration Statement No. 33-94948),
incorporated herein by reference.
10.13 Cooper Cameron Corporation Supplemental Excess
Defined Benefit Plan, filed as Exhibit 10.4 to the
Registration Statement on Form S-4 of Cooper Cameron
Corporation (Commission File No. 33-90288), and
incorporated herein by reference.
10.14 First Amendment to Cooper Cameron Corporation
Supplemental Excess Defined Benefit Plan, effective
as of January 1, 1996, filed as Exhibit 10.7 to the
Annual Report on Form 10-K for 1996 of Cooper Cameron
Corporation, and incorporated herein by reference.
10.15 Cooper Cameron Corporation Supplemental Excess
Defined Contribution Plan, filed as Exhibit 10.5 to
the Registration Statement on Form S-4 of Cooper
Cameron Corporation (Commission File No. 33-90288),
and incorporated herein by reference.
10.16 First Amendment to Cooper Cameron Corporation
Supplemental Excess Defined Contribution Plan,
effective April 1, 1996, filed as Exhibit 10.9 to the
Annual Report on Form 10-K for 1996 of Cooper Cameron
Corporation, and incorporated herein by reference.
10.17 Cooper Cameron Corporation Compensation Deferral Plan
(formerly the Cooper Cameron Corporation Management
Incentive Compensation Deferral Plan), effective
January 1, 1996, filed as Exhibit 10.10 to the Annual
Report on Form 10-K for 1996 of Cooper Cameron
Corporation, and incorporated herein by reference.
10.18 Cooper Cameron Corporation Directors Deferred
Compensation Plan, filed as Exhibit 10.7 to the
Registration Statement on Form S-4 of Cooper Cameron
Corporation (Commission File No. 33-90288), and
incorporated herein by reference.
20
<PAGE> 22
10.19 Employment Agreement by and between Sheldon R.
Erikson and Cooper Cameron Corporation, effective as
of November 30, 1995, filed as Exhibit 10.9 to the
Annual Report on Form 10-K for 1995 of Cooper Cameron
Corporation, and incorporated herein by reference.
10.20 Employment Agreement by and between Thomas R. Hix and
Cooper Cameron Corporation, effective as of November
30, 1995, filed as Exhibit 10.10 to the Annual Report
on Form 10-K for 1995 of Cooper Cameron Corporation,
and incorporated herein by reference.
10.21 Employment Agreement by and between Franklin Myers
and Cooper Cameron Corporation, effective as of
November 30, 1995, filed as Exhibit 10.11 to the
Annual Report on Form 10-K for 1995 of Cooper Cameron
Corporation, and incorporated herein by reference.
10.22 1995 Management Incentive Compensation Plan of Cooper
Cameron Corporation, dated as of November 14, 1995,
as amended, filed as Exhibit 10.15 to the Annual
Report on Form 10-K for 1996 of Cooper Cameron
Corporation, and incorporated herein by reference.
10.23 1996 Management Incentive Compensation Plan of Cooper
Cameron Corporation, dated as of February 19, 1996,
filed as Exhibit 10.16 to the Annual Report on Form
10-K for 1996 of Cooper Cameron Corporation, and
incorporated herein by reference.
10.24 1997 Management Incentive Compensation Plan of Cooper
Cameron Corporation, dated as of December 9, 1996,
filed as Exhibit 10.17 to the Annual Report on Form
10-K for 1996 of Cooper Cameron Corporation, and
incorporated herein by reference.
10.25 Cooper Cameron Corporation Management Incentive
Compensation Plan, as amended, incorporated herein by
reference to the Cooper Cameron Corporation Proxy
Statement for the Annual Meeting of Stockholders held
on May 8, 1997.
10.26 1998 Management Incentive Compensation Plan for
Cooper Cameron Corporation, dated as of January 1,
1998, filed as Exhibit 10.25 to the Annual Report on
Form 10-K for 1997 of Cooper Cameron Corporation, and
incorporated herein by reference.
10.27 1999 Management Incentive Compensation Plan for
Cooper Cameron Corporation, dated as of January 1,
1999.
21
<PAGE> 23
10.28 Change in Control Policy of Cooper Cameron
Corporation, approved February 19, 1996, filed as
Exhibit 10.18 to the Annual Report on Form 10-K for
1996 of Cooper Cameron Corporation, and incorporated
herein by reference.
10.29 Executive Severance Program of Cooper Cameron
Corporation, approved February 19, 1996, filed as
Exhibit 10.19 to the Annual Report on Form 10-K for
1996 of Cooper Cameron Corporation, and incorporated
herein by reference.
10.30 Credit Agreement, dated as of June 30, 1995, among
Cooper Cameron Corporation and certain of its
subsidiaries and the banks named therein and First
National Bank of Chicago, as agent, filed as Exhibit
4.5 to the Registration Statement on Form S-8 of
Cooper Cameron Corporation (Commission File No.
33-94948), and incorporated herein by reference.
10.31 Amended and Restated Credit Agreement dated as of
March 20, 1997, among Cooper Cameron Corporation and
certain of its subsidiaries and the banks named
therein and First National Bank of Chicago, as agent,
filed as Exhibit 10.21 to the Annual Report on Form
10-K for 1996 of Cooper Cameron Corporation, and
incorporated herein by reference.
10.32 Individual Account Retirement Plan for Hourly-Paid
Employees at the Cooper Cameron Corporation Mount
Vernon Plant, filed as Exhibit 4.6 to the
Registration Statement on Form S-8 (Registration No.
333-58005), incorporated herein by reference.
10.33 Individual Account Retirement Plan for Bargaining
Unit Employees at the Cooper Cameron Corporation
Missouri City, Texas Facility, filed as Exhibit 4.6
to the Registration Statement on Form S-8
(Registration No. 333-57995), incorporated herein by
reference.
10.34 Individual Account Retirement Plan for Bargaining
Unit Employees at the Cooper Cameron Corporation
Buffalo, New York Plant, filed as Exhibit 4.6 to the
Registration Statement on Form S-8 (Registration No.
333-57991), incorporated herein by reference.
10.35 Individual Account Retirement Plan for Cooper Cameron
Corporation Hourly Employees, UAW, at the Superior
Plant, filed as Exhibit 4.6 to the Registration
Statement on Form S-8 (Registration No. 333-57997),
incorporated herein by reference.
10.36 Individual Account Retirement Plan for Bargaining
Unit Employees at the Cooper Cameron Corporation
Grove City Facility, filed as Exhibit 4.6 to the
Registration Statement on Form S-8 (Registration No.
333-58003), incorporated herein by reference.
22
<PAGE> 24
13.1 Portions of the 1998 Annual Report to Stockholders
are included as an exhibit to this report and have
been specifically incorporated by reference elsewhere
herein.
21 Subsidiaries of registrant.
23 Consent of Independent Auditors.
27 Financial Data Schedule.
(b) REPORTS ON FORM 8-K
The Company filed no reports on Form 8-K during the fourth quarter of
1998 and through March 29, 1999.
23
<PAGE> 25
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, ON THIS 29TH DAY OF
MARCH, 1999.
COOPER CAMERON CORPORATION
REGISTRANT
BY: /s/ JOSEPH D. CHAMBERLAIN
-----------------------------------------
(JOSEPH D. CHAMBERLAIN)
Vice President and Corporate Controller
(Principal Accounting Officer)
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934,
THIS REPORT HAS BEEN SIGNED ON THIS 29TH DAY OF MARCH, 1999, BELOW BY THE
FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND IN THE CAPACITIES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ C. Baker Cunningham Director
- - -----------------------------------------
(C. Baker Cunningham)
/s/ Grant A. Dove Director
- - -----------------------------------------
(Grant A. Dove)
/s/ Sheldon R. Erikson Chairman, President and Chief Executive
- - ----------------------------------------- Officer (principal executive officer)
(Sheldon R. Erikson
/s/ Michael E. Patrick Director
- - -----------------------------------------
(Michael E. Patrick)
/s/ David Ross III Director
- - -----------------------------------------
(David Ross III)
/s/ Michael J. Sebastian Director
- - -----------------------------------------
(Michael J. Sebastian)
/s/ Thomas R. Hix Senior Vice President of Finance and
- - ----------------------------------------- Chief Financial Officer
(Thomas R. Hix) (principal financial officer)
</TABLE>
24
<PAGE> 26
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NO.
------ ----------- --------
<S> <C> <C>
3.1 Amended and Restated Certificate of Incorporation of
Cooper Cameron Corporation, dated June 30, 1995,
filed as Exhibit 4.2 to the Registration Statement on
Form S-8 of Cooper Cameron Corporation (Commission
File No. 33-94948), and incorporated herein by
reference.
3.2 Certificate of Amendment to the Restated Certificate
of Incorporation of Cooper Cameron Corporation, filed
as Exhibit 4.3 to the Registration Statement on Form
S-8 of Cooper Cameron Corporation (Commission File
No. 333-57995), and incorporated herein by reference.
3.3 First Amended and Restated Bylaws of Cooper Cameron
Corporation, as amended December 12, 1996, filed as
Exhibit 3.2 to the Annual Report on Form 10-K for
1996 of Cooper Cameron Corporation, and incorporated
herein by reference.
4.1 Form of Rights Agreement, dated as of May 1, 1995,
between Cooper Cameron Corporation and First Chicago
Trust Company of New York, as Rights Agent, filed as
Exhibit 4.1 to the Registration Statement on Form S-8
of Cooper Cameron Corporation (Commission File No.
33-94948), and incorporated herein by reference.
4.2 First Amendment to Rights Agreement between Cooper
Cameron Corporation and First Chicago Trust Company
of New York, as Rights Agent, dated November 1, 1997,
filed as Exhibit 4.2 to the Annual Report on Form
10-K for 1997 of Cooper Cameron Corporation, and
incorporated herein by reference.
4.3 Registration Statement on Form S-3 filed with the
Securities and Exchange Commission on May 4, 1998
(Registration Statement No. 333-51705) incorporated
herein by reference.
10.1 Cooper Cameron Corporation Long-Term Incentive Plan,
filed as Exhibit 10.1 to Amendment No. 2 to the
Registration Statement on Form S-4 of Cooper Cameron
Corporation (Commission File No. 33-90288), and
incorporated herein by reference.
10.2 Amended and Restated Cooper Cameron Corporation
Long-Term Incentive Plan, as amended, incorporated by
reference to the Cooper Cameron Corporation Proxy
Statement for the Annual Meeting of Stockholders held
on May 8, 1997.
</TABLE>
<PAGE> 27
<TABLE>
<S> <C> <C>
10.3 Cooper Cameron Corporation Amended and Restated 1995
Stock Option Plan for Non-Employee Directors, filed
as Exhibit 99.3 to the Registration Statement on Form
S-8 (Commission File No. 33-95000), and incorporated
herein by reference.
10.4 First Amendment to the Cooper Cameron Corporation
Amended and Restated 1995 Stock Option Plan for
Non-Employee Directors, incorporated herein by
reference to the Cooper Cameron Corporation Proxy
Statement for the Annual Meeting of Stockholders held
on May 8, 1997.
10.5 Second Amendment to the Cooper Cameron Corporation
Amended and Restated 1995 Stock Option Plan for
Non-Employee Directors, filed as Exhibit 10.3 to the
Annual Report on Form 10-K for 1996 of Cooper Cameron
Corporation, and incorporated herein by reference.
10.6 Third Amendment to the Cooper Cameron Corporation
Amended and Restated 1995 Stock Option Plan for
Non-Employee Directors, filed as Exhibit 10.6 to the
Annual Report on Form 10-K for 1997 of Cooper Cameron
Corporation, and incorporated herein by reference.
10.7 Fourth Amendment to the Cooper Cameron Corporation
Amended and Restated 1995 Stock Option Plan for
Non-Employee Directors, filed as Exhibit 10.7 to the
Annual Report on Form 10-K for 1997 of Cooper Cameron
Corporation, and incorporated herein by reference.
10.8 Fifth Amendment to the Cooper Cameron Corporation
Amended and Restated 1995 Stock Option Plan for
Non-Employee Directors, filed as Exhibit 10.8 to the
Annual Report on Form 10-K for 1997 of Cooper Cameron
Corporation, and incorporated herein by reference.
10.9 Sixth Amendment to the Cooper Cameron Corporation
Amended and Restated 1995 Stock Option Plan for
Non-Employee Directors.
10.10 Cooper Cameron Corporation Retirement Savings Plan
(Registration Statement No. 33-95002), incorporated
herein by reference.
</TABLE>
<PAGE> 28
<TABLE>
<S> <C> <C>
10.11 Cooper Cameron Corporation Retirement Savings Plan,
as Amended and Restated, effective April 1, 1996,
filed as Exhibit 10.10 to the Annual Report on Form
10-K for 1997 of Cooper Cameron Corporation, and
incorporated herein by reference.
10.12 Cooper Cameron Corporation Employee Stock Purchase
Plan (Registration Statement No. 33-94948),
incorporated herein by reference.
10.13 Cooper Cameron Corporation Supplemental Excess
Defined Benefit Plan, filed as Exhibit 10.4 to the
Registration Statement on Form S-4 of Cooper Cameron
Corporation (Commission File No. 33-90288), and
incorporated herein by reference.
10.14 First Amendment to Cooper Cameron Corporation
Supplemental Excess Defined Benefit Plan, effective
as of January 1, 1996, filed as Exhibit 10.7 to the
Annual Report on Form 10-K for 1996 of Cooper Cameron
Corporation, and incorporated herein by reference.
10.15 Cooper Cameron Corporation Supplemental Excess
Defined Contribution Plan, filed as Exhibit 10.5 to
the Registration Statement on Form S-4 of Cooper
Cameron Corporation (Commission File No. 33-90288),
and incorporated herein by reference.
10.16 First Amendment to Cooper Cameron Corporation
Supplemental Excess Defined Contribution Plan,
effective April 1, 1996, filed as Exhibit 10.9 to the
Annual Report on Form 10-K for 1996 of Cooper Cameron
Corporation, and incorporated herein by reference.
10.17 Cooper Cameron Corporation Compensation Deferral Plan
(formerly the Cooper Cameron Corporation Management
Incentive Compensation Deferral Plan), effective
January 1, 1996, filed as Exhibit 10.10 to the Annual
Report on Form 10-K for 1996 of Cooper Cameron
Corporation, and incorporated herein by reference.
10.18 Cooper Cameron Corporation Directors Deferred
Compensation Plan, filed as Exhibit 10.7 to the
Registration Statement on Form S-4 of Cooper Cameron
Corporation (Commission File No. 33-90288), and
incorporated herein by reference.
10.19 Employment Agreement by and between Sheldon R.
Erikson and Cooper Cameron Corporation, effective as
of November 30, 1995, filed as Exhibit 10.9 to the
Annual Report on Form 10-K for 1995 of Cooper Cameron
Corporation, and incorporated herein by reference.
</TABLE>
<PAGE> 29
<TABLE>
<S> <C> <C>
10.20 Employment Agreement by and between Thomas R. Hix and
Cooper Cameron Corporation, effective as of November
30, 1995, filed as Exhibit 10.10 to the Annual Report
on Form 10-K for 1995 of Cooper Cameron Corporation,
and incorporated herein by reference.
10.21 Employment Agreement by and between Franklin Myers
and Cooper Cameron Corporation, effective as of
November 30, 1995, filed as Exhibit 10.11 to the
Annual Report on Form 10-K for 1995 of Cooper Cameron
Corporation, and incorporated herein by reference.
10.22 1995 Management Incentive Compensation Plan of Cooper
Cameron Corporation, dated as of November 14, 1995,
as amended, filed as Exhibit 10.15 to the Annual
Report on Form 10-K for 1996 of Cooper Cameron
Corporation, and incorporated herein by reference.
10.23 1996 Management Incentive Compensation Plan of Cooper
Cameron Corporation, dated as of February 19, 1996,
filed as Exhibit 10.16 to the Annual Report on Form
10-K for 1996 of Cooper Cameron Corporation, and
incorporated herein by reference.
10.24 1997 Management Incentive Compensation Plan of Cooper
Cameron Corporation, dated as of December 9, 1996,
filed as Exhibit 10.17 to the Annual Report on Form
10-K for 1996 of Cooper Cameron Corporation, and
incorporated herein by reference.
10.25 Cooper Cameron Corporation Management Incentive
Compensation Plan, as amended, incorporated herein by
reference to the Cooper Cameron Corporation Proxy
Statement for the Annual Meeting of Stockholders held
on May 8, 1997.
10.26 1998 Management Incentive Compensation Plan for
Cooper Cameron Corporation, dated as of January 1,
1998, filed as Exhibit 10.25 to the Annual Report on
Form 10-K for 1997 of Cooper Cameron Corporation, and
incorporated herein by reference.
10.27 1999 Management Incentive Compensation Plan for
Cooper Cameron Corporation, dated as of January 1,
1999.
</TABLE>
<PAGE> 30
<TABLE>
<S> <C> <C>
10.28 Change in Control Policy of Cooper Cameron
Corporation, approved February 19, 1996, filed as
Exhibit 10.18 to the Annual Report on Form 10-K for
1996 of Cooper Cameron Corporation, and incorporated
herein by reference.
10.29 Executive Severance Program of Cooper Cameron
Corporation, approved February 19, 1996, filed as
Exhibit 10.19 to the Annual Report on Form 10-K for
1996 of Cooper Cameron Corporation, and incorporated
herein by reference.
10.30 Credit Agreement, dated as of June 30, 1995, among
Cooper Cameron Corporation and certain of its
subsidiaries and the banks named therein and First
National Bank of Chicago, as agent, filed as Exhibit
4.5 to the Registration Statement on Form S-8 of
Cooper Cameron Corporation (Commission File No.
33-94948), and incorporated herein by reference.
10.31 Amended and Restated Credit Agreement dated as of
March 20, 1997, among Cooper Cameron Corporation and
certain of its subsidiaries and the banks named
therein and First National Bank of Chicago, as agent,
filed as Exhibit 10.21 to the Annual Report on Form
10-K for 1996 of Cooper Cameron Corporation, and
incorporated herein by reference.
10.32 Individual Account Retirement Plan for Hourly-Paid
Employees at the Cooper Cameron Corporation Mount
Vernon Plant, filed as Exhibit 4.6 to the
Registration Statement on Form S-8 (Registration No.
333-58005), incorporated herein by reference.
10.33 Individual Account Retirement Plan for Bargaining
Unit Employees at the Cooper Cameron Corporation
Missouri City, Texas Facility, filed as Exhibit 4.6
to the Registration Statement on Form S-8
(Registration No. 333-57995), incorporated herein by
reference.
10.34 Individual Account Retirement Plan for Bargaining
Unit Employees at the Cooper Cameron Corporation
Buffalo, New York Plant, filed as Exhibit 4.6 to the
Registration Statement on Form S-8 (Registration No.
333-57991), incorporated herein by reference.
10.35 Individual Account Retirement Plan for Cooper Cameron
Corporation Hourly Employees, UAW, at the Superior
Plant, filed as Exhibit 4.6 to the Registration
Statement on Form S-8 (Registration No. 333-57997),
incorporated herein by reference.
</TABLE>
<PAGE> 31
<TABLE>
<S> <C> <C>
10.36 Individual Account Retirement Plan for Bargaining
Unit Employees at the Cooper Cameron Corporation
Grove City Facility, filed as Exhibit 4.6 to the
Registration Statement on Form S-8 (Registration No.
333-58003), incorporated herein by reference.
13.1 Portions of the 1998 Annual Report to Stockholders
are included as an exhibit to this report and have
been specifically incorporated by reference elsewhere
herein.
21 Subsidiaries of registrant.
23 Consent of Independent Auditors.
27 Financial Data Schedule.
</TABLE>
<PAGE> 1
EXHIBIT 10.9
SIXTH AMENDMENT TO
COOPER CAMERON CORPORATION
AMENDED AND RESTATED 1995 STOCK OPTION PLAN
FOR NON-EMPLOYEE DIRECTORS
WHEREAS, COOPER CAMERON CORPORATION (the "Company") has heretofore
adopted the COOPER CAMERON CORPORATION AMENDED AND RESTATED 1995 STOCK OPTION
PLAN FOR NON-EMPLOYEE DIRECTORS (the "Plan"); and
WHEREAS, the Company desires to amend the Plan in certain respects;
NOW, THEREFORE, the Plan shall be amended as follows, effective as of
November 14, 1998:
1. The third sentence of Section 5 of the Plan shall be deleted and
the following shall be substituted therefor:
"An additional Option for 6,000 shares of Common Stock shall
be granted to Eligible Directors in each subsequent year during the
term of the Plan on a date following the Annual Meeting of Company
stockholders to be set by the Board of Directors."
2. Section 6 of the Plan shall be deleted and the following shall be
substituted therefor:
"In addition to the Options granted under Section 5 above, an
Eligible Director may make an annual election to receive either the
Eligible Director's annual cash retainer or options as described below.
The election shall be made by January 1 each year beginning in 2000.
Prior to such date, and on the annual meeting date of the board of
directors for 1998, each Eligible Director may elect either (a) an
Option for 5,800 shares of Common Stock under this Section 6 (on the
same date for 1998 Options are granted under Section 5) in lieu of all
of the Eligible Director's annual cash retainer which is to be paid pro
rata portion of the year but ending on December 31, 1998 (the
"remaining 1998 Retainer"), (b) an Option for 3,866 shares in lieu of
two-thirds of the Eligible Director Remaining 1998 Retainer, or (c) an
Option for 1,933 shares in lieu of the Eligible Director's Remaining
1998 Retainer. Also on the annual meeting date of the board of
directors for 1998, each of the Eligible Directors may elect, for 1999,
either (a) an Option for 4,290 shares of Common Stock under this
Section 6 (issued at the closing price of the Common Stock as
determined for the option in the preceding sentence) in lieu of all of
the Eligible Director's annual cash retainer, (b) an Option for 2,860
shares in lieu of two-thirds of the Eligible Director's annual cash
retainer, or (c) an Option for 1,430 shares in lieu of one-third of the
Eligible Director's annual cash retainer, payable for 1999. Beginning
in 2000 and in each year thereafter, each Eligible Director may elect
either (a) an Option for 4,290 shares of Common Stock under this
Section 6 (issued at the closing price of the Common Stock on the last
trading day of the prior year) in lieu of all of the Eligible
Director's annual cash retainer, (b) an Option for 2,860 shares in lieu
of two-thirds of the Eligible Director's annual cash retainer, or (c)
an Option for 1,430 shares in lieu of one-third of the Eligible
Director's annual cash retainer, payable for the calendar year so
elected. Each such election under this Section 6 shall be made in
writing, filed with the Secretary of the Company and shall be
irrevocable.
<PAGE> 1
EXHIBIT 10.27
COOPER CAMERON CORPORATION
1999 MANAGEMENT INCENTIVE COMPENSATION PLAN
I. PURPOSE
The Cooper Cameron Management Incentive Compensation Plan (the "Plan"),
has been designed to motivate and reward key management employees whose
efforts impact the performance of Cooper Cameron Corporation (the
"Company") and its subsidiaries through the achievement of
pre-established financial and individual objectives.
Performance under the Plan is measured on the fiscal (calendar) year and
payments under the Plan are made annually.
II. ELIGIBILITY
Officers and key management employees may be eligible to participate in
the plan, upon the recommendation of their manager and approval by the
Chief Executive Officer of the Company. An employee who is eligible to
participate in any other cash incentive plan of the company is not
eligible to participate in this Plan.
III. AWARD CRITERIA
The Compensation Committee of the Board of Directors is responsible for
approving the Company performance objectives that are used to determine
awards paid for Company objectives under this plan. Performance
objectives for operating units below the corporate level will be
established by the appropriate manager subject to overall approval of the
Chief Executive Officer. For 1999, performance under the Plan will be
determined based on:
Earnings Before Interest, Taxes, Depreciation and Amortization
(EBITDA)
Return on Equity (ROE)
The basic measure of financial performance under this Plan will be
EBITDA. In addition, ROE will be used as an attainment hurdle, which must
be reached before bonuses are paid in full. For 1999, the Board has
established a 7% ROE hurdle. If this ROE target is not achieved for the
year, bonuses, to the extent earned, will be reduced by 50%. The Chief
Executive Officer may also implement additional division specific payout
hurdles from time to time.
In addition, up to 25% of an individual's award may, at the discretion of
the individual's immediate manager, be based on individual objectives
established at the beginning of the calendar year.
IV. TARGET AWARDS
A target award percentage is established for each position eligible to
participate in the Plan. Target awards (TA's) may range from 10% to 75%,
depending on position, of each participant's January 1 base pay (or pay
at the time of becoming a participant, if later).
Generally, the participating employee receives the Target Award when
performance under the plan meets, but does not exceed, the
pre-established performance objectives.
<PAGE> 2
V. AWARD CATEGORIES
A participant may have Company Objectives, Division Objectives, Operating
Unit Objectives and/or Individual Objectives, each of which is assigned
by the immediate manager and provided a weighting in determining the
Target Award.
VI. PERFORMANCE MEASUREMENT
Minimum This is the lowest level of performance at
which an award will be generated for this
particular objective of the plan. The award paid
for performance at the minimum level is 50% of
Target Award. There will be no payment for
performance below the minimum level.
Target Performance This is the expected level of performance based
on the current year's financial plan.
Maximum This is the performance level for which the
maximum award under the plan will be paid. The
maximum award under the plan is limited to 200% of
the Target Award.
VII. AWARD CALCULATION
Attainment on the financial objectives of the Plan is measured based on
actual results versus Plan targets, with performance above or below Plan
targets prorated up/down to the maximum/minimum levels established for
each financial objective.
For example, assume the following hypothetical objectives:
Minimum Level $180 million
Company EBITDA Target $200 million
Maximum Level $230 million
At EBITDA performance of $220 million, attainment = 166.6% (Prorated
between $200 million objective and $230 million maximum).
At EBITDA performance of $185 million, attainment = 62.5% (Prorated
between $200 million objective and $180 million minimum objective).
Following are examples of how payouts are determined under the Plan once
attainment has been calculated:
A. Corporate Participant:
<TABLE>
<CAPTION>
EBITDA ATTAINMENT ROE HURDLE ACHIEVED PARTICIPANT AWARD
----------------- ------------------- -----------------
<S> <C> <C>
110% YES 110.0%
110% NO 55.0%
85% YES 85.0%
85% NO 42.5%
180% YES 180.0%
</TABLE>
<PAGE> 3
B. Division Operating Unit Participant without Individual Objectives:
Assume ROE hurdle is achieved
<TABLE>
<CAPTION>
ATTAINMENT WEIGHT PERFORMANCE LEVEL
---------- ------ -----------------
<S> <C> <C> <C>
Division EBITDA 110% 30% 33.0%
Operating Unit EBITDA 85% 50% 42.5%
Individual Objective 100% 20% 20.0%
PARTICIPANT AWARD 95.5%
</TABLE>
C. Division Operating Unit Participant with Individual Objectives:
Assume ROE hurdle is achieved
<TABLE>
<CAPTION>
EBITDA ATTAINMENT WEIGHT PERFORMANCE LEVEL
----------------- ------ -----------------
<S> <C> <C> <C>
Division 110% 40% 44.0%
Operating Unit 85% 40% 34.0%
INDIVIDUAL OBJECTIVE ATTAINMENT
Working Capital 40% 10% 4.0%
Bookings 100% 10% 10.0%
PARTICIPANT AWARD 92.0%
</TABLE>
For example, if the participant's salary is $80,000, target award is
20% ($16,000) = payout of $16,000 x 92% = $14,720.
VIII. DISCRETIONARY AWARDS
There may be unusual situations where a manager feels that the reward
generated under this plan does not properly reflect the contribution of
the participant. In this situation, the participant's immediate manager
has the right to recommend an adjustment, either up or down, of up to 25%
of the participant's Target Award.
IX. INDIVIDUAL OBJECTIVES
A participant's immediate manager has the discretion to set individual
objectives as part of the employee's performance criteria under the
incentive plan. The use of individual objectives is subject to the
following requirements:
The manager must specify the weighting of the individual objectives in
the overall Target Award, not to exceed 25% of the total award
Individual objectives must be specifically identified at the beginning of
the plan year and must be quantifiable in terms of both the targeted
achievement and the time frame in which the objective is to be completed.
The portion of the award payment generated from individual objectives may
be adjusted up or down based on the manager's assessment of the
individual's results on the established objectives.
<PAGE> 4
X. ALTERNATIVE CALCULATIONS
There may be circumstances under which the financial performance of the
Company does not generate an award under this program. The nature and
scope of the Company's operations are such that at times unanticipated
economic and market conditions may render pre-established financial
objectives unattainable in any given plan year. If, in the opinion of the
Committee, such circumstances should arise, an alternative bonus
calculation may be performed. Such calculation will rank the Company's
EBITDA against a pre-established peer group of companies. If the
Company's performance is at or above 60th percentile, then a bonus
payment equal to 50% of target award may be paid.
XI. MODIFICATIONS
If, during a Plan Year, there has occurred or should occur, in the
opinion of the Company, a significant beneficial or adverse change in
economic conditions, the indicators of growth or recession in the
Company's business segments, the nature of the operations of the Company,
or applicable laws, regulations or accounting practices, or other matters
which were not anticipated by the Company when it approved Company and
Division Objectives for the Plan Year and which, in the Company's
judgment, had, have, or are expected to have a substantial positive or
negative effect on the performance of the Company as a whole, the
Compensation Committee, subject to ratification by the Board, may modify
or revise the Performance Objectives for the Plan Year in such manner as
it may deem appropriate in its sole judgment. By way of illustration, and
not limitation, such significant changes might result from sales of
assets, or mergers, acquisitions, divestitures, or spin-offs.
XII. PAYMENT
Any awards generated under the 1999 MICP must be approved by the
Compensation Committee of the Board of Directors. It is anticipated that
any MICP awards generated in 1999 will be paid during February 2000.
Employees terminating prior to the end of the fiscal year are not
eligible for payment of any award under this plan unless termination is
due to retirement or economic reduction in force. In such cases, any
bonus payments will be prorated to the date of termination and determined
on the basis of bonuses actually paid to similarly situated employees.
<PAGE> 1
EXHIBIT 13.1
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION OF COOPER CAMERON CORPORATION
The following discussion of the Company's historical results of operations
and financial condition should be read in conjunction with the Company's
consolidated financial statements and notes thereto included elsewhere in this
Annual Report. All per share amounts included in this discussion are based on
"diluted" shares outstanding.
OVERVIEW
The Company's operations are organized into four separate business
segments -- Cameron, Cooper Cameron Valves (CCV), Cooper Energy Services (CES)
and Cooper Turbocompressor (CTC). Cameron is a leading international
manufacturer of oil and gas pressure control equipment, including wellheads,
chokes, blowout preventers and assembled systems for oil and gas drilling,
production and transmission used in onshore, offshore and subsea applications.
CCV provides a full range of ball valves, gate valves, butterfly valves and
accessories to customers across a wide range of the energy industry and
industrial market. CES designs, manufactures, markets and services compression
and power equipment, primarily for the energy industry and CTC provides
centrifugal air compressors and aftermarket products to manufacturing companies
and chemical process industries worldwide.
The following table sets forth the consolidated percentage relationship to
revenues of certain income statement items for the periods presented.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------
1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
Revenues 100.0% 100.0% 100.0%
Costs and expenses:
Cost of sales (exclusive of depreciation and amortization) 70.6 71.8 72.8
Depreciation and amortization 3.9 3.7 4.5
Selling and administrative expenses 12.2 11.9 14.1
Interest expense 1.7 1.6 1.5
Nonrecurring/unusual charges 1.2 -- 0.5
----- ----- -----
Total costs and expenses 89.6 89.0 93.4
----- ----- -----
Income before income taxes 10.4 11.0 6.6
Income tax provision (3.2) (3.2) (2.0)
----- ----- -----
Net income 7.2% 7.8% 4.6%
===== ===== =====
</TABLE>
1998 COMPARED TO 1997
Cooper Cameron Corporation had net income of $136.2 million, or $2.48 per
share, for the twelve months ended December 31, 1998. This compares to $140.6
million, or $2.53 per share, for the same period in 1997. Included in the 1998
results were $15.5 million, or $.28 per share, in after-tax
nonrecurring/unusual charges ($22.0 million pre-tax). Of the $22 million,
approximately $15 million related to severance and resulting relocation costs
for employees in all four segments (all of whom have been notified regarding
their termination and benefits), with the remainder covering incurred costs
related to the shutdown of CCV's manufacturing facility in Missouri City,
Texas, as well as a further restructuring of CES's operations in Grove City,
Pennsylvania, Mt. Vernon, Ohio and Liverpool, United Kingdom. Small amounts of
costs related to the Company's April 1998 acquisition of Orbit Valve
International, Inc. (Orbit Valve) were also included. Approximately $7 million
remains to be expensed, under existing accounting rules, regarding the above
actions. Since the majority of these actions were not initiated until the
fourth quarter of 1998, only a small amount of cost savings were realized
during 1998. See Note 2 of the Notes to Consolidated Financial Statements for
further information regarding these nonrecurring/unusual charges. Excluding
these nonrecurring/unusual charges, the Company earned $2.76 per share in 1998,
a 9% improvement from 1997. This increase was due primarily to the strong
performance of Cameron and the Orbit Valve acquisition in CCV (see Note 3 of
the Notes to Consolidated Financial Statements).
REVENUES
Revenues for 1998 totaled $1.88 billion, an increase of 4% from the $1.81
billion in 1997. Orbit Valve, included since April 2, 1998, contributed
approximately $71 million in revenues during the year. Excluding the effect of
this acquisition, increased revenues in Cameron were more than offset by
weakness in CCV, CES and CTC.
Natural gas and oil prices and the expectations for future price levels
heavily influence the energy-related markets served by the Company. While
natural gas prices remained relatively stable during most of 1998, and at
levels that were reasonably high from a historical perspective, oil prices
declined significantly. Weaker demand, largely from the economic and financial
unrest in Asia, and excess production fueled this price decline. While lower
oil prices did not have a significant effect on Cameron's overall results
during most of 1998, there was an increasing effect on CCV, excluding the
effect of Orbit, particularly during the fourth
25
<PAGE> 2
quarter. Of the Company's four segments, CCV's products tend to have the
shortest "order to delivery cycle", such that short-term changes in demand
affect this segment's results more rapidly.
Confidence that worldwide demand for oil and natural gas would grow over
the longer-term appeared to provide the impetus for continued spending by
national oil companies and major and independent producers through the second
quarter of 1998. In response to declining oil prices, customers began to delay
spending in the third quarter and implemented significant spending cuts in the
fourth quarter. These actions were reflected in the Company's backlog, defined
as firm customer orders for which a purchase order has been received,
satisfactory credit or financing arrangements exist and delivery is scheduled.
Backlog at December 31, 1998 was $790.4 million, a slight increase from
year-end 1997, but down 20% from the historical high of $982.5 million at June
30, 1998.
Revenues for Cameron totaled $1.02 billion, an increase of 17% over 1997
revenues of $874.7 million. Revenue increased for drilling and subsea products,
while surface product revenues declined slightly. Drilling and subsea product
activity is heavily influenced by major projects, while surface products have a
shorter delivery cycle and respond more quickly to changes in order activity.
Of particular note were increased drilling and subsea equipment shipments for
deep-water projects in the Gulf of Mexico and installations in the North Sea.
Also contributing to the revenue growth was improved aftermarket activity, as
demand for spare parts and refurbished equipment increased. Orders totaled
$1.07 billion for 1998, a 4% increase from the 1997 level. Drilling and subsea
products improved largely due to major project orders received in the first
half of the year, while surface products declined, particularly in the fourth
quarter. Cameron ended 1998 with backlog at $592.6 million, an increase of 15%
from year-end 1997, but a decline of 16% from the June 30, 1998 level.
CCV's revenues of $309.0 million improved by 26% from the $244.9 million
in 1997. This increase was due to nine months of revenues from the Orbit Valve
acquisition, totaling approximately $71 million. The remaining CCV revenue
decline of 3% reflected weaker oilfield distributor products, particularly in
the fourth quarter. Orders, including those for Orbit, totaled $279.5 million,
an increase of 12% from the 1997 level, due to the same factors discussed in
the revenue comparison. Despite a backlog total for Orbit of approximately $15
million at December 31, 1998, CCV's overall backlog ended the year at $54.4
million, an 11% decline from the $61.0 million at December 31, 1997 and a 32%
decline from June 30, 1998, which included approximately $24 million for Orbit.
Revenues for CES of $417.7 million declined by 21% from the $527.3 million
in 1997. The energy-related markets served by this segment were very
competitive during 1998, with industry-wide overcapacity. The most significant
revenue decline was in gas turbine and compressor projects, where new major
projects were delayed as Asian oil and gas demand lessened. Aftermarket
activity also declined as customers delayed maintenance programs and reduced
their spare parts inventories. Orders for CES decreased by 18% from 1997 due to
the same factors discussed in the revenue comparison. Backlog ended 1998 at
$93.4 million, a decline of 28% from year-end 1997, due primarily to the timing
of major gas turbine and compressor projects.
CTC, which tends to be more tied to worldwide industrial development as
opposed to oil and gas prices, had revenues of $134.3 million, or a decrease of
16% from $159.1 million in 1997. This decline was across all lines of the
business and resulted primarily from the so-called "Asian crisis". The slowdown
in the Southeast Asian markets worsened during the year and caused industrial
development projects in other parts of the world to be pushed out and, when
undertaken, to be more price competitive. Orders totaled $107.3 million in
1998, a decline of 27% from the 1997 level, while backlog ended 1998 at $50.0
million, a 37% decrease from year-end 1997.
COST AND EXPENSES
Cost of sales (exclusive of depreciation and amortization) of $1.33
billion in 1998 increased by $32.6 million, or 3%, compared with $1.30 billion
in 1997. The increase was largely due to the previously discussed 4% revenue
growth. Cost of sales increased at a rate less than the revenue increase for
both Cameron and CCV, such that these segments had a positive flow-through
effect on earnings. Conversely, CES and CTC both had revenue declines that
exceeded cost of sales decreases. This result is discussed below for each
segment.
Cameron's gross margin percentage (defined as revenues less cost of sales
as a percentage of revenues) was 32.7% in 1998, compared to 30.8% in 1997. This
increase resulted from improved pricing, the leveraging of various
manufacturing support costs that are relatively fixed in the short-term, and
cost reductions, including benefits from capital expenditures. Pricing pressure
began to increase late in the year as market conditions weakened, but improved
pricing on shipments from backlog minimized the effect on 1998.
CCV's gross margin percentage increased from 29.5% in 1997 to 31.5% in
1998 due to improved pricing and the addition of the Orbit Valve products,
which carry somewhat higher margins than other CCV products. Pricing pressure,
however, also increased in this segment during the second half of 1998,
particularly in the domestic oilfield distribution market.
The gross margin percentage for CES declined from 21.1% in 1997 to 18.4% in
1998. Pricing pressure throughout the business and cost reduction efforts that
did not keep pace with the revenue decline were the primary factors contributing
to this decrease.
26
<PAGE> 3
CTC's gross margin percentage was 33.1% in 1998, compared to 35.6% in
1997. Pricing pressure intensified during the year, as competitors became more
aggressive with the continued absence of orders from Southeast Asia. This was a
major growth market for much of 1997 that virtually disappeared in 1998,
resulting in more competition for orders from the remaining markets.
Additionally, cost reductions that did not keep pace with the revenue decline
also contributed to this decrease.
In the case of all four segments, the Company is committed to
appropriately adjusting its costs to match current order and sales activity,
while not impairing its ability to respond to a future upturn.
Depreciation and amortization expense increased by $6.6 million, from
$65.9 million in 1997 to $72.5 million in 1998. This increase was primarily due
to higher capital spending in Cameron and CTC, and the Orbit Valve acquisition
in CCV.
Selling and administrative expenses increased by $14.4 million, or 7%,
from $215.3 million in 1997 to $229.7 million in 1998. This increase was, in
Cameron, due to the higher revenues and, in CCV, due to the Orbit Valve
acquisition. These expenses decreased in both CES and CTC in response to the
revenue declines. As a percentage of revenues, these costs increased from 11.9%
in 1997 to 12.2% in 1998. Cameron achieved a leveraging effect on their
increased volume, showing an improvement in this relationship, while CES and
CTC were, in the near term, unable to reduce costs in line with the revenue
decline. CCV was affected by the Orbit Valve acquisition, which carried
proportionately greater selling and administrative costs than 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 $261.8 million, an increase of $20.1 million from 1997.
Cameron improved from $129.5 million in 1997 to $180.2 million in 1998, and CCV
increased from $37.4 million to $48.4 million. CES declined from $35.3 million
to $6.8 million, and CTC decreased from $39.5 million to $26.4 million.
Interest expense increased from $28.6 million in 1997 to $32.7 million in
1998, primarily due to an increase in the average debt level related to the
Orbit Valve acquisition and increased capital expenditures. While working
capital declined from year-end 1997 to year-end 1998, the improvement was all
in the fourth quarter. During the remainder of the year, higher working capital
levels were required to support the revenue and backlog in Cameron. Average
interest rates in 1998 were 6.5% compared to 6.6% in 1997.
Income taxes were $59.6 million in 1998, an increase of $0.8
million from 1997 due to a slightly higher effective tax rate. The Company's
effective tax rate increased to 30.4% in 1998 from 29.5% in 1997 mainly due to
a change in the mix of domestic and foreign earnings.
1997 COMPARED TO 1996
Cooper Cameron Corporation had net income of $140.6 million, or $2.53 per
share, for the twelve months ended December 31, 1997. This compared to $64.2
million, or $1.21 per share (adjusted for a 2-for-1 stock split), for the same
period in 1996. The improvement was across all four business segments, with
particularly strong performance in Cameron and CCV, where operating income
increased by 127% and 145%, respectively. Full year 1997 pre-tax income
included a $5.7 million charge, or $.07 per share, for a settlement with a
customer and a $2.6 million charge, or $.03 per share, for cost
rationalization, both in CES. The settlement with a customer related to a
commercial R&D compression project for an order taken during the fourth quarter
of 1995, which called for the development of a new high-performance barrel
compressor for use on an offshore platform. Since the newly designed compressor
did not meet the customer's specifications, the Company agreed to provide a
replacement compressor from another source to be used with the Cooper Rolls
turbine, and to absorb the costs related to the delay in delivery of the
equipment. The Company has no other orders of this type. The $2.6 million
covered further cost rationalization efforts, including approximately $1.1
million of severance or relocation costs for a total of 23 people and $1.5
million related to the closure of certain sales and distribution facilities as
well as one small manufacturing facility. The full year 1996 pre-tax income
included nonrecurring or unusual charges totaling $7.3 million, or $.10 per
share (see Note 2 of the Notes to Consolidated Financial Statements).
REVENUES
Revenues for 1997 totaled $1.81 billion, an increase of 30% from the $1.39
billion in 1996. The June 1996 Ingram Cactus acquisition, which was included
for twelve months in 1997 and six months in 1996, and strong market
fundamentals, driven largely by increasing worldwide demand for oil and natural
gas, were the primary factors in this improvement. Although periodic
fluctuations were experienced, particularly in the fourth quarter of 1997, oil
and natural gas prices remained at reasonably high levels, and continued to
provide the impetus for increased spending by national oil companies and major
and independent producers. While the economic and financial unrest in Southeast
Asia and uncertainty regarding the quantity and timing of oil shipments from
Iraq affected the short-term price of oil, there was no indication at that time
that the Company's oil and gas customers would reduce their spending plans.
Further declines in oil prices, however, particularly if viewed by the market
as being a long-term trend, or declines in the price of natural gas, depending
on severity and perceived duration, would likely result in either a reduction
in the market growth which the Company anticipated at the end of 1997 or even a
reduction in current activity levels. Approximately 64% of the improvement in
total revenues was from Cameron, 12% from CCV, 18% from CES, and 6% from CTC.
The effect of the favorable market conditions was also reflected in the
Company's backlog. Backlog at December 31, 1997 was $786.1 million, an increase
of 8% from year-end 1996.
27
<PAGE> 4
Revenues for Cameron totaled $874.7 million, an increase of 45% over 1996
revenues of $605.3 million, with growth across all geographic areas and product
lines. This increase was primarily due to the improved market conditions
discussed above, which resulted in volume growth as well as favorable pricing,
and the Ingram Cactus acquisition. Revenues from several small product line
acquisitions were minimal. Of particular note were higher levels of shipments
associated with large drilling projects in the Gulf of Mexico and generally
stronger activity in Canada, the North Sea, and the Asia Pacific region. Orders
totaled $1.03 billion for the year, an increase of 41% from the 1996 level.
This improvement was across all product lines, with significant growth in
drilling, subsea and surface, which increased by 80% (from $126.5 million to
$227.2 million), 34% (from $172.0 million to $230.0 million), and 33% (from
$434.8 million to $576.8 million), respectively. Backlog for the segment ended
the year at $515.9 million, an increase of 36% from year-end 1996.
CCV's revenues of $244.9 million improved by 26% from the $194.1 million
in 1996. This increase was also due primarily to the strong market conditions
discussed above and increased shipments of ball valves for pipeline projects in
both the domestic and international markets. Orders totaled $248.6 million, an
increase of 18% from the 1996 level, with particular strength in oilfield
distributor products. Backlog at December 31, 1997 was $61.0 million, a slight
decrease from the $62.2 million at December 31, 1996.
Revenues for CES of $527.3 million improved by 16% from the $453.2 million
in 1996. The most significant increases were in large international gas turbine
and compressor project revenues and parts and service activity. Of particular
note was the improvement in parts and service, which increased by 12% from the
1996 level, including benefits derived from various marketing and pricing
programs that were initiated in late 1996 and during 1997. Reflecting these
factors, as well as normal seasonality, the most dramatic increase was in the
fourth quarter of 1997, where parts and service revenues increased by 35% from
the fourth quarter of 1996 and by 28% from the next largest quarter of 1997.
Orders for CES increased by 15% from 1996 primarily due to the effect of large
gas turbine and compressor project orders received in the first half of 1997
and improved parts and service activity. Due to the size and complex nature of
major turbine and compressor projects, the specific timing of an order is very
difficult to predict and can cause significant fluctuations in the year-to-year
revenue, order, and backlog comparisons for this segment. Backlog for CES ended
1997 at $129.9 million, a decline of 33% from year-end 1996, due primarily to
the timing of major gas turbine and compressor projects.
CTC's revenues totaled $159.1 million, an increase of 17% from the $135.6
million in 1996. Shipments reflected year-to-year improvement in each quarter of
1997 from strong demand in both industrial and air separation applications,
particularly in international markets. Orders continued at historically high
levels and were virtually unchanged from prior year. Orders slowed from
Southeast Asia during the fourth quarter of 1997 and continued to be soft in
1998. CTC backlog declined by 16%, primarily due to the addition of
manufacturing capacity during the past two years, which increased throughput and
shortened lead times to customers.
COSTS AND EXPENSES
Cost of sales (exclusive of depreciation and amortization) of $1.30
billion in 1997 increased by $286.4 million, or 28%, compared with $1.01
billion in 1996. This increase was largely the result of the previously
discussed 30% revenue growth and the two 1997 charges. As discussed above,
revenues increased by 45% in Cameron, 26% in CCV, 16% in CES, and 17% in CTC,
while cost of sales increased by 42%, 20%, 17%, and 20%, respectively.
Cameron's gross margin percentage was 30.8% in 1997, compared to 29.5% in
1996. This increase resulted from improved pricing, the leveraging of various
manufacturing support costs that are relatively fixed in the short-term, and
cost reductions including benefits from capital expenditures.
CCV's gross margin percentage increased from 26.0% in 1996 to 29.5% in
1997 due largely to the same factors affecting Cameron.
Gross margin for CES declined from 21.7% in 1996 to 21.1% in 1997. This
decline was the result of the charges discussed previously, a significant
increase in lower margin gas turbine and compressor project revenues, and very
competitive pricing. Providing a partial offset were increased higher margin
spare parts sales, higher production levels, which allowed for the leveraging of
manufacturing support costs, and the effect of the cost rationalization program
in late 1996 at the Grove City Pennsylvania facility.
CTC's gross margin percentage was 35.6% in 1997, compared to 37.3% in
1996. This decline was due to a significant increase in lower margin machine
shipments, which combined with a smaller increase in the higher margin
aftermarket business to produce an unfavorable mix effect on the gross margin
percentage.
Depreciation and amortization expense increased by $3.4 million, from
$62.5 million in 1996 to $65.9 million in 1997, primarily in Cameron. This
increase was due to the mid-year 1996 Ingram Cactus acquisition and higher
capital spending levels beginning in the second half of 1996 in response to
improved market conditions.
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<PAGE> 5
Selling and administrative expenses increased by $20.3 million, or 10%,
from $195.0 million in 1996 to $215.3 million in 1997, primarily in Cameron.
This increase was due to the Ingram Cactus acquisition, higher revenues, and the
Company's effort to improve its market presence. As an example, Cameron
established separate management teams and focused additional marketing resources
on the controls and choke businesses, where there was believed to be significant
growth potential. Despite increases in selling and marketing costs, these costs
for the Company decreased as a percentage of revenues from 14.1% in 1996 to
11.9% in 1997 due to the leveraging effect of the increased volume, with all
segments showing improvements in this relationship.
Reflecting the various factors discussed above, operating income totaled
$241.7 million for the Company, an increase of $111.4 million from 1996.
Cameron improved from $57.1 million in 1996 to $129.5 million in 1997, CCV
increased from $15.2 million to $37.4 million, CES improved from $25.0 million
to $35.3 million, and CTC increased from $33.0 million to $39.5 million.
Interest expense increased from $20.9 million in 1996 to $28.6 million in
1997, primarily due to an increase in the average debt level related to
acquisitions and higher working capital requirements in support of the revenue
and backlog growth. Average interest rates in 1997 were 6.6% compared to 6.4%
in 1996.
Income taxes were $58.8 million in 1997, an increase of $31.0 million from
1996. This increase was due to the year-to-year improvement in earnings. The
Company's effective tax rate declined from 30.2% in 1996 to 29.5% in 1997,
mainly due to a change in the mix of domestic and foreign earnings.
OUTLOOK FOR 1999
In the Company's January 28, 1999 press release covering its results for
the fourth quarter of 1998, it was acknowledged that if order activity remained
at the relatively low levels experienced recently, earnings for 1999, before
non-recurring/unusual charges, could be approximately fifty percent ($1.25 per
diluted share) lower than 1998's net income. Thus far, the relatively low order
trend has continued, such that this outlook for the future continues to be
appropriate. As a consequence, the Company currently anticipates that it will
recognize, during the first half of 1999, additional amounts associated with
the actions described earlier in this discussion and in Note 2 of the Notes to
Consolidated Financial Statements, as well as with further personnel reductions
and facility realignments currently under review. When these actions are
completed, the Company expects to have reduced total employment by at least 10%
from the mid-year 1998 level of 10,600.
The Company currently estimates that the future cash charges could total
approximately $15 million plus additional non-cash amounts, should additional
facilities be closed. The Company believes that it will generate cost savings
that are significantly in excess of the costs being incurred, and these
anticipated savings are appropriately included in the outlook for 1999. Should
the Company continue to experience declines in order levels and resulting
backlog, then additional actions could be required which could result in a
further increase in the current estimate of these one-time costs.
PRICING AND VOLUME
The Company believes that during 1998 unit volumes increased at Cameron
and CCV, but decreased at CES and CTC, while increasing in all four segments
during 1997. Excluding the effect of the Orbit Valve acquisition on unit
volumes, CCV would have had a unit volume decline for 1998.
In Cameron and CCV, moderate price increases in excess of cost increases
were realized in 1998 and 1997. In CES, prices declined slightly during 1998
and 1997 due to the competitive condition of the natural gas compression
equipment markets in both years. In CTC, prices declined slightly during 1998
in response to weaker market conditions, while price increases roughly in line
with cost increases were realized in 1997.
LIQUIDITY AND CAPITAL RESOURCES
During 1998, total indebtedness increased by $37.0 million. In spite of
this increase, the Company achieved its lowest debt to capitalization ratio
since inception -- 34.7% at December 31, 1998. The combination of strong
earnings and improved working capital management largely offset over $207
million of cash utilized for capital expenditures and acquisitions, in addition
to over $20 million of debt assumed in the Orbit acquisition, as well as $36
million of cash used to repurchase Company stock early in the year. At December
31, 1998, CES had $19.5 million of receivables recognized under the percentage
of completion method, of which $14.8 million had not yet been billed to
customers.
During the third quarter of 1998, the Company entered into agreements with
five banks providing for additional credit facilities, totaling $155 million,
which supplement the Company's existing $475 million long-term credit
agreement. These new agreements allow the Company to borrow funds on an
unsecured basis at floating or negotiated fixed rates of interest and expire on
various dates during the third quarter of 1999. The combination of these credit
facilities resulted in the Company having $279.1 million of committed borrowing
capacity at December 31, 1998, in addition to uncommitted amounts available
under various other borrowing arrangements.
29
<PAGE> 6
In addition, during May 1998, the Company filed a traditional "shelf"
registration statement with the U.S. Securities and Exchange Commission in
connection with the possible issuance, from time to time, in one or more
offerings, of up to $500 million in securities, consisting of either (1)
unsecured debt securities, (2) shares of preferred stock, (3) shares of common
stock or (4) warrants for the purchase of debt securities, preferred stock or
common stock. In connection with this registration statement, the Company
entered into treasury locks, or forward rate agreements, which locked in a
weighted average interest rate of 5.83% on $175 million of a prospective
long-term debt issuance. These agreements expire March 15, 1999. The Company
currently anticipates that these treasury locks will be replaced upon
expiration with a long-term interest rate swap agreement which would
effectively convert $175 million of the Company's variable rate debt to a fixed
rate until the Company actually issues long-term debt. Any gain or loss
associated with the treasury locks will be amortized over the life of the swap
agreement and ultimately the actual long-term debt when issued. See Note 14 of
the Notes to Consolidated Financial Statements for further information.
In connection with the shelf registration, the Company received
preliminary ratings on its senior unsecured debt of A- from Standard &Poor's
and Baa1 from Moody's.
During 1997, the Company reduced total indebtedness by $17.7 million. The
significant improvement in 1997 earnings and activity under the Company's stock
option and other employee benefit plans was largely offset by increases in
working capital, capital expenditures, and the purchase of treasury stock. The
increase in working capital during 1997 was associated with improved revenues
and the significantly higher year-end backlog level for Cameron. At December
31, 1997, CES had $43.2 million of receivables recognized under the percentage
of completion method, of which $34.6 million had not yet been billed to
customers.
The Company's liquidity can be susceptible to fairly large swings in
relatively short periods of time. This is largely because of the cyclical
nature of the industry in which the Company competes and the long time period
from when the Company first receives a large equipment order until the product
can be manufactured, delivered, and the receivable collected.
WORKING CAPITAL
Operating working capital is defined as receivables and inventories less
accounts payable and accrued liabilities, excluding the effect of foreign
currency translation, acquisitions and divestitures.
During 1998, operating working capital decreased $13.9 million. This
result was comprised of a $58 million increase during the first nine months of
1998 followed by a fourth quarter decline of $71.9 million. Of the fourth
quarter decline, approximately $44 million came from receivables and $43
million from inventories, partially offset by lower accounts payable and
accrued liabilities of approximately $15 million. The receivable and inventory
declines reflected some initial slowing of activity, and for receivables,
unusually strong fourth quarter collections. On a year-to-year basis,
receivables declined by nearly $80 million, including a nearly $24 million
decline in receivables recognized by CES under the percentage of completion
method, which reflected the completion of large gas turbine and compressor
projects. Despite the fourth quarter decrease, inventories increased on a
year-to-year basis by $23 million, with small declines in Cameron and CCV
(excluding Orbit) offset by an increase at CES and CTC. While the declines
reflected normal operating activity, the increase at CES resulted from a
decision to maintain production levels despite delays in the receipt of
anticipated orders. This decision has, to a large degree, now been validated by
the receipt in late 1998 and thus far in 1999 of nearly $57 million of gas
turbine and compressor project business. The $42 million year-to-year decrease
in accounts payable and accrued liabilities reflected a decline in inventory
purchases as well as the lower overall year-end 1998 business levels, partially
offset by an increase in cash advances and progress payments received from
customers on major project orders in Cameron's backlog.
During 1997, operating working capital increased $88.7 million.
Receivables increased as a result of higher revenues. Receivables recognized
under the percentage of completion method of accounting declined from $65.4
million at year-end 1996 to $43.2 million at year-end 1997. This relates to the
timing of orders received for large gas turbine and compressor projects in CES.
Inventories increased largely in Cameron in support of the significantly higher
year-end backlog level and general improvement in activity. The increase in
accounts payable and accrued liabilities reflected the higher business levels,
an increase in cash advances and progress payments received from customers on
orders in backlog, as well as continuing focus on managing the Company's
payments to vendors.
During 1996, operating working capital increased $114.5 million.
Receivables increased as a result of higher revenues, including $65.4 million
recognized under the percentage of completion method of accounting at year-end
1996. This relates to large gas turbine and compressor projects in CES. At
year-end 1995, there was no revenue recognized under percentage of completion
accounting. Inventories increased largely in Cameron and in support of the
significantly higher year-end backlog level. The increase in accounts payable
and accrued liabilities reflected the higher business levels, as well as
continuing focus on managing the Company's payments to vendors.
CASH FLOWS
During 1998, cash flows from operating activities totaled $235.6 million,
more than twice the level of the previous year. This cash flow, along with net
proceeds from sales of plant and equipment of $7.4 million, stock option
exercises and other activities of $3.4 million and additional borrowings of
$15.7 million, was utilized to fund capital spending of $115.5 million, the
cash cost of acquisitions totaling $99.4 million and repurchases of Company
stock totaling $36.1 million. The Company's available cash balance
30
<PAGE> 7
also increased by nearly $10 million. The $119.9 million increase in cash flow
from operating activities compared to the prior year was virtually all due to
working capital changes, predominantly at Cameron and CES. The decline in
working capital requirements in 1998 and the increase in 1997 are discussed in
the Working Capital section immediately above. With regard to capital spending,
over 70% of expenditures in both 1998 and 1997 were attributable to Cameron and
CCV, primarily for projects to increase factory throughput and improve delivery
times. With the recent decline in market conditions, capital spending during
1999 is expected to decline to approximately $80 million, much of which
represents the completion of projects committed to during 1998.
During 1997, cash flows from operating activities totaled $115.7 million,
proceeds from the sales of plant and equipment totaled $4.9 million, and funds
received from the exercise of stock options and other employee benefit plans
totaled $23.5 million. The Company expended $6.3 million on several small
product line acquisitions, $72.3 million on capital projects, $2.3 million for
principal payments on capital leases, and $33.7 million on the purchase of
treasury stock. This resulted in a decrease in outstanding debt of $26.7
million, and an increase in cash of $2.5 million.
During 1996, cash flows from operating activities totaled $13.2 million,
proceeds from the sales of plant and equipment totaled $2.6 million, and funds
received from the exercise of stock options and other employee benefit plans
totaled $6.0 million. The Company expended $113.9 million on the acquisition of
certain assets of Ingram Cactus Company, Tundra Valve & Wellhead and ENOX
Technologies, Inc., $37.1 million on capital projects, and $1.2 million on the
purchase of treasury stock. This resulted in an increase in outstanding debt of
$130.1 million and a decrease in cash of $3.0 million.
CAPITAL EXPENDITURES AND COMMITMENTS
Capital projects to reduce product costs, improve product quality,
increase manufacturing efficiency and operating flexibility, or expand
production capacity resulted in expenditures of $115.5 million in 1998 compared
to $72.3 million in 1997 and $37.1 million in 1996.
At December 31, 1998, internal commitments for new capital projects
amounted to approximately $32.0 million compared to $100.0 million at year-end
1997. The commitments for 1999 include approximately $12.2 million for
machinery and equipment modernization and enhancement, $11.3 million for
capacity expansion, $2.9 million for various computer hardware and software
projects, $1.9 million for environmental projects, and $3.7 million for other
items. Expenditures in 1998 and commitments for 1999 are focused on generating
near-term returns by increasing factory throughput and improving delivery times
for customers.
EFFECT OF INFLATION
During each year, inflation has had a relatively minor effect on the
Company's reported results of operations. This is true for three reasons.
First, in recent years, the rate of inflation in the Company's primary markets
has been fairly low. Second, the Company makes extensive use of the LIFO method
of accounting for inventories. The LIFO method results in current inventory
costs being matched against current sales dollars, such that inflation affects
earnings on a current basis. Finally, many of the assets and liabilities
included in the Company's Consolidated Balance Sheets are recorded in business
combinations that are accounted for as purchases. At the time of such
acquisitions, the assets and liabilities were adjusted to a fair market value
and, therefore, the cumulative long-term effect of inflation is reduced.
ENVIRONMENTAL REMEDIATION
The cost of environmental remediation and compliance has not been an item
of material expense for the Company during any of the periods presented, other
than with respect to the Osborne Landfill in Grove City, Pennsylvania. The
Company's facility in Grove City disposed of wastes at the Osborne Landfill from
the early 1950s until 1978. A remediation plan was developed and then accepted
by the U. S. Environmental Protection Agency as the preferred remedy for the
site. The construction phase of the remediation was completed during 1997 and
the remaining costs relate to ground water treatment and monitoring. The
Company's balance sheet at December 31, 1998 includes accruals totaling $1.4
million for environmental matters ($4.6 million at December 31, 1997). Cooper
Cameron has been identified as a potentially responsible party with respect to
five sites designated for cleanup under the Comprehensive Environmental Response
Compensation and Liability Act ("CERCLA") or similar state laws. The Company's
involvement at three of the sites is at a de minimis level, with a fourth, as
yet undesignated, expected to also be at a de minimis level. The fifth site is
Osborne. Although estimated cleanup costs have not yet been totally determined,
the Company believes, based on its review and other factors, that the costs
related to these sites will not have a material adverse effect on the Company's
results of operations, financial condition or liquidity. However, no assurance
can be given that the actual cost will not exceed the estimates of the cleanup
costs, once determined.
MARKET RISK INFORMATION
A large portion of the Company's operations consist of manufacturing and
sales activities in foreign jurisdictions, principally in Europe, Canada, Latin
America and the Pacific Rim. As a result, the Company's financial performance
may be affected by changes in foreign currency exchange rates or weak economic
conditions in these markets. Overall, the Company generally is a net receiver
of Pounds Sterling and Canadian dollars and, therefore, benefits from a weaker
dollar with respect to these currencies. Typically, the Company is a net payer
of other European currencies such as the French franc, German mark, Dutch
guilder, Irish punt and
31
<PAGE> 8
Norwegian krone as well as other currencies such as the Singapore dollar and,
more recently, the Brazilian real. A weaker dollar with respect to these
currencies, including the euro starting in 1999, may have an adverse effect on
the Company. For each of the last three years, the Company's gain or loss from
foreign currency-denominated transactions has not been material.
In order to mitigate the effect of exchange rate changes, the Company will
often structure sales contracts to provide for collections from customers in
U.S. dollars. In certain specific instances, the Company may enter into forward
foreign currency exchange contracts to hedge specific, large, non-U.S. dollar
anticipated receipts or large anticipated receipts in currencies for which the
Company does not traditionally have fully offsetting local currency
expenditures. During 1998, the Company was a party only to forward foreign
currency exchange contracts related to certain large Canadian dollar receipts.
The Company's interest expense is most sensitive to changes in the general
level of U.S. interest rates, particularly in regard to debt instruments with
rates pegged to the London Interbank Offered Rate (LIBOR). As a result, the
Company has entered into interest rate swaps and treasury lock agreements, which
effectively have fixed the LIBOR or U.S. Treasury component of its borrowing
cost on a total of $250 million of outstanding or to be issued indebtedness.
Further details concerning these interest rate derivatives is set forth
elsewhere in this discussion, as well as in Notes 10 and 14 of the Notes to
Consolidated Financial Statements. At December 31, 1998, the Company had $10.9
million of Canadian dollar-denominated debt, $13.3 million of debt denominated
in Brazilian reals and approximately $5.4 million denominated mostly in other
European currencies. With the exception of a small portion of debt in Brazil,
all foreign debt is short-term in nature.
During 1998, the Company entered into forward purchase agreements pursuant
to which third parties acquired over 3.5 million shares, or approximately $92.3
million, of Cooper Cameron stock in open market transactions during the year.
Further information regarding these agreements is set forth in Note 14 of the
Notes to Consolidated Financial Statements. At the present time, it is the
Company's intention to purchase the shares under these agreements either on or
before the expiration dates that occur during the third and fourth quarters of
2001.
The following is a summary of the Company's outstanding financial
instruments with exposure to changes in interest rates, exchange rates or
market rates as of December 31, 1998:
<TABLE>
<CAPTION>
Fair value
difference
Maturity at
(dollars in millions, except stock prices) 1999 2000 2001 2002 2003 Total 12/31/98
- - ------------------------------------------ ---- ---- ---- ---- ---- ----- --------
<S> <C> <C> <C> <C> <C> <C> <C>
INTEREST RATE SENSITIVE INSTRUMENTS:
Brazilian real variable rate indebtedness $ 13.3 $ 13.3 $ --
Average interest rate 31.6%
Other short- and long-term
variable rate indebtedness - $ 31.7 $ 10.9 $ 0.8 $344.6 $ 0.4 $ 388.4 $ --
Average interest rate 5.8% 5.8% 5.8% 5.8% 14.6%
Interest rate swaps -
Pay fixed/receive variable notional amount $ 75.0 $ (0.6)
Average fixed pay rate 5.62%
Average 12/31/98 receive rate (LIBOR) 5.31%
Treasury locks - (1)
Pay fixed notional amount $ 175.0 $ (14.9)
Average fixed pay rate 5.83%
10-year treasury yield at 12/31/98 4.65%
EXCHANGE RATE SENSITIVE INSTRUMENTS:
Debt denominated in foreign currencies -
Canadian dollar variable rate $ 10.9 $ 10.9 $ --
Average interest rate 5.3%
Brazilian real variable rate $ 13.3 $ 13.3 $ --
Average interest rate 31.6%
Other (mostly Europe) variable rate $ 2.6 $ 0.8 $ 0.8 $ 0.8 $ 0.4 $ 5.4 $ --
Average interest rate 7.0% 14.6% 14.6% 14.6% 14.6%
</TABLE>
32
<PAGE> 9
<TABLE>
<CAPTION>
Fair value
Maturity difference
------------------------------------------------------ at
(dollars in millions, except stock prices) 1999 2000 2001 2002 2003 Total 12/31/98
- - ------------------------------------------ ---- ---- ---- ---- ---- ----- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Forward contracts to buy/sell foreign
currencies -
Sell Canadian dollars $ 7.4 $ 7.4 $ 0.3
Average U.S. to Canadian dollar
contract rate 1.47
12/31/98 U.S. to Canadian dollar
exchange rate 1.54
Buy Canadian dollars $ 3.2 $ 3.2 $ (0.2)
Average U.S. to Canadian dollar
contract rate 1.45
12/31/98 U.S. to Canadian dollar
exchange rate 1.54
MARKET RATE SENSITIVE INSTRUMENTS:
Forward contract to purchase Company
stock -
Cost of Company stock $ 92.3 $ (6.2)
Average price paid $26.26
12/31/98 market price of Company stock $24.50
</TABLE>
(1) See the Liquidity and Capital Resources section of this discussion
regarding the Company's intentions with respect to the treasury locks.
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 will be modified or
replaced in an attempt to ensure that they are "Year 2000 compliant".
The process of identifying the Company's date-sensitive systems has
largely been completed and testing and remediation work is now under way. The
Company currently estimates that the overall project is approximately 85%
complete and that the vast majority of the remaining testing and remediation
will be completed by the middle of 1999. Estimated costs, of which
approximately one-half had been spent through December 31, 1998, are expected
to total approximately $2.2 million, excluding internal personnel costs. This
includes new capital assets that are required because of Year 2000 issues. All
non-capital costs are being expensed as incurred.
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 will continue to monitor the progress of their Year
2000 programs. On a worst-case basis, it may become necessary to develop
alternative suppliers and contingency plans to deal with those third party
vendors and suppliers who will not be Year 2000 compliant in a timely manner.
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.
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<PAGE> 10
EURO CURRENCY
Effective January 1, 1999, eleven participating European Union member
countries introduced a new common currency (the euro) and, at that time,
established a fixed conversion rate between their legacy currencies and the
euro. The legal currency of each country will continue to be used as legal
tender along with the euro through June 30, 2002. Thereafter, the legacy
currencies will be cancelled and the euro will be used for all financial
transactions in the participating countries. During this three and one-half
year dual-currency environment, special rules apply for converting among legacy
currencies. The Company does not anticipate any material adverse consequences
to its operations or its financial results from participating in euro
currency-denominated transactions.
OTHER
In addition to the historical data contained herein, this Annual Report,
including the information set forth above in the Company's Management's
Discussion and Analysis, includes forward-looking statements regarding the
future revenues and profitability of the Company as well as an estimate of
future levels of capital spending 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 customer's
spending levels and their related purchases of the Company's products and
services; as a result, changes in price expectations may impact the Company's
financial results due to changes in cost structure, staffing or spending
levels.
Because the information herein is based solely on data currently available,
it is subject to change as a result of changes in conditions over which the
Company has no control or influence, and should not therefore be viewed as
assurance regarding the Company's future performance. Additionally, the Company
is not obligated to make public indication of such changes unless required under
applicable disclosure rules and regulations.
34
<PAGE> 11
REPORT OF INDEPENDENT AUDITORS
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS
COOPER CAMERON CORPORATION
We have audited the accompanying consolidated balance sheets of Cooper
Cameron Corporation as of December 31, 1998 and 1997 and the related statements
of consolidated results of operations, consolidated changes in stockholders'
equity and consolidated cash flows for each of the three years in the period
ended December 31, 1998. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Cooper Cameron Corporation at December 31, 1998 and 1997, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1998, in conformity with generally accepted accounting
principles.
/s/ ERNST & YOUNG LLP
Houston, Texas
January 28, 1999
35
<PAGE> 12
CONSOLIDATED RESULTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Revenues $1,882,111 $1,806,109 $1,388,187
---------- ---------- ----------
Costs and expenses:
Cost of sales (exclusive of depreciation
and amortization) 1,329,522 1,296,947 1,010,558
Depreciation and amortization 72,474 65,862 62,480
Selling and administrative expenses 229,710 215,331 194,983
Interest expense 32,721 28,591 20,878
Nonrecurring/unusual charges 21,956 -- 7,274
---------- ---------- ----------
1,686,383 1,606,731 1,296,173
Income before income taxes 195,728 199,378 92,014
Income tax provision (59,572) (58,796) (27,830)
---------- ---------- ----------
Net income $ 136,156 $ 140,582 $ 64,184
========== ========== ==========
Earnings per share:
Basic $ 2.58 $ 2.70 $ 1.27
Diluted $ 2.48 $ 2.53 $ 1.21
========== ========== ==========
</TABLE>
The Notes to Consolidated Financial Statements are an integral part of these
statements.
36
<PAGE> 13
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARES AND PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1998 1997
------------ ----------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 21,296 $ 11,599
Receivables, net 366,396 428,630
Inventories, net 548,053 495,539
Other 30,515 25,021
------------ ----------
Total current assets 966,260 960,789
------------ ----------
Plant and equipment, at cost less accumulated
depreciation 490,579 395,545
Intangibles, less accumulated amortization 293,461 240,420
Other assets 73,303 46,476
------------ ----------
Total assets $ 1,823,603 $1,643,230
============ ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current maturities of long-term debt $ 49,599 $ 48,131
Accounts payable and accrued liabilities 453,664 470,927
Accrued income taxes 26,579 9,737
------------ ----------
Total current liabilities 529,842 528,795
Long-term debt 364,363 328,824
Postretirement benefits other than pensions 73,884 85,465
Deferred income taxes 51,148 34,965
Other long-term liabilities 24,081 23,130
------------ ----------
Total liabilities 1,043,318 1,001,179
------------ ----------
Stockholders' equity:
Common stock, par value $.01 per share, 150,000,000
shares authorized, 53,259,620 shares issued
(53,235,292, at December 31, 1997) 533 532
Preferred stock, par value $.01 per share, 10,000,000
shares authorized, no shares issued or outstanding -- --
Capital in excess of par value 883,626 922,975
Accumulated other elements of comprehensive income 17,455 7,799
Retained deficit (including $441,000 charge on
June 30, 1995 related to goodwill impairment) (121,329) (257,485)
Less: Treasury stock - 477,149 shares at cost -- (31,770)
------------ ----------
Total stockholders' equity 780,285 642,051
------------ ----------
Total liabilities and stockholders' equity $ 1,823,603 $1,643,230
=========== ==========
</TABLE>
The Notes to Consolidated Financial Statements are an integral part of these
statements.
37
<PAGE> 14
CONSOLIDATED CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 136,156 $ 140,582 $ 64,184
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 54,735 50,234 48,129
Amortization 17,739 15,628 14,351
Deferred income taxes 6,037 15,077 17,449
Changes in assets and liabilities, net of
translation and effects of acquisitions:
Receivables 79,574 (77,216) (131,423)
Inventories (23,517) (100,485) (45,458)
Accounts payable and accrued liabilities (42,147) 89,013 62,347
Other assets and liabilities, net 7,031 (17,127) (16,365)
---------- ---------- ----------
Net cash provided by operating activities 235,608 115,706 13,214
---------- ---------- ----------
Cash flows from investing activities:
Capital expenditures and proceeds from sales
of plant and equipment, net (108,077) (67,396) (34,459)
Acquisitions (99,353) (6,278) (113,942)
---------- ---------- ----------
Net cash used for investing activities (207,430) (73,674) (148,401)
---------- ---------- ----------
Cash flows from financing activities:
Long-term borrowings -- -- 100,000
Loan borrowings (repayments), net 15,743 (26,712) 30,107
Activity under stock option plans and other 3,432 21,131 5,989
Purchase of treasury stock (36,050) (33,723) (1,240)
---------- ---------- ----------
Net cash provided by (used for) financing activities (16,875) (39,304) 134,856
---------- ---------- ----------
Effect of translation on cash (1,606) (186) (2,686)
---------- ---------- ----------
Increase (decrease) in cash and cash equivalents 9,697 2,542 (3,017)
---------- ---------- ----------
Cash and cash equivalents, beginning of year 11,599 9,057 12,074
---------- ---------- ----------
Cash and cash equivalents, end of year $ 21,296 $ 11,599 $ 9,057
========== ========== ==========
</TABLE>
The Notes to Consolidated Financial Statements are an integral part of these
statements.
38
<PAGE> 15
CONSOLIDATED CHANGES IN STOCKHOLDERS' EQUITY
(dollars in thousands)
<TABLE>
<CAPTION>
ACCUMULATED
OTHER
CAPITAL IN ELEMENTS OF
COMMON EXCESS OF COMPREHENSIVE COMPREHENSIVE RETAINED TREASURY
STOCK PAR VALUE INCOME INCOME DEFICIT STOCK
- - ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance - December 31, 1995 $ 251 $859,671 $ 25,917 $(462,251) $ --
Net income $ 64,184 64,184
---------
Other comprehensive income:
Foreign currency translation 11,757
Minimum pension liability, net of
$1,832 in taxes 2,958
---------
Total other comprehensive income 14,715 14,715
---------
Comprehensive income $ 78,899
=========
Purchase of treasury stock
(1,240)
Common stock issued under stock option
and other employee benefit plans 5 12,397 614
Tax benefit of employee stock benefit
plan transactions 1,865
- - ---------------------------------------------------------------------------------------------------------------------------
Balance - December 31, 1996 256 873,933 40,632 (398,067) (626)
Net income $ 140,582 140,582
---------
Other comprehensive income (loss):
Foreign currency translation (35,182)
Minimum pension liability, net of
$1,455 in taxes 2,349
---------
Total other comprehensive income (loss) (32,833) (32,833)
---------
Comprehensive income $ 107,749
=========
Purchase of treasury stock
(33,723)
Common stock issued under stock option
and other employee benefit plans 16 26,935 2,579
Tax benefit of employee stock benefit
plan transactions 22,367
Effect of stock split on equity balances 260 (260)
- - ---------------------------------------------------------------------------------------------------------------------------
Balance - December 31, 1997 532 922,975 7,799 (257,485) (31,770)
Net income $ 136,156 136,156
---------
Other comprehensive income:
Foreign currency translation 9,736
Minimum pension liability, net of
$49 in taxes (80)
---------
Total other comprehensive income 9,656 9,656
---------
Comprehensive income $ 145,812
=========
Purchase of treasury stock
(36,050)
Common stock issued under stock option
and other employee benefit plans 1 (53,305) 67,820
Tax benefit of employee stock benefit
plan transactions 15,223
Cost of forward stock purchase agreements (1,267)
- - ---------------------------------------------------------------------------------------------------------------------------
Balance - December 31, 1998 $ 533 $ 883,626 $ 17,455 $(121,329) $ --
</TABLE>
The Notes to Consolidated Financial Statements are an integral part of these
statements.
39
<PAGE> 16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: SUMMARY OF MAJOR ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION -- The consolidated financial statements
include the accounts of the Company and all majority-owned subsidiaries.
Investments of 50% or less in affiliated companies are accounted for using the
equity method.
ESTIMATES IN FINANCIAL STATEMENTS -- The preparation of the financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from these
estimates.
REVENUE RECOGNITION -- Revenue is recognized at the time of shipment or the
performance of services except in the case of certain larger, long lead time
orders at Cooper Energy Services which are accounted for using the percentage of
completion method. Under this method, revenue is recognized as work progresses
in the ratio that costs incurred bear to estimated total costs. The aggregate of
costs incurred reduces net inventories while the revenue recognized is shown as
a receivable. Expected losses on contracts in progress are charged to operations
currently.
INVENTORIES -- Inventories are carried at cost or, if lower, net realizable
value. On the basis of current costs, 70% of inventories in 1998 and 67% in 1997
are carried on the last-in, first-out (LIFO) method. The remaining inventories,
which are located outside the United States, are carried on the first-in,
first-out (FIFO) method.
PLANT AND EQUIPMENT -- Depreciation is provided over the estimated useful
lives of the related assets, or in the case of assets under capital lease, over
the related lease term, if less, using primarily the straight-line method. This
method is applied to group asset accounts which in general have the following
lives: buildings - 10 to 40 years; machinery and equipment - 3 to 18 years; and
tooling, dies, patterns and all other - 5 to 10 years.
INTANGIBLES -- Intangibles consist primarily of goodwill related to
purchase acquisitions. With minor exceptions, the goodwill is being amortized
over 40 years from respective acquisition dates. The carrying value of the
Company's goodwill is reviewed by division at least annually or whenever there
are indications that the goodwill may be impaired.
INCOME TAXES -- Income tax expense includes U.S. and foreign income taxes,
including U.S. federal taxes on undistributed earnings of foreign subsidiaries
to the extent such earnings are planned to be remitted. Taxes are not provided
on the translation component of comprehensive income since the effect of
translation is not considered to modify the amount of the earnings that are
planned to be remitted.
ENVIRONMENTAL REMEDIATION AND COMPLIANCE -- Environmental remediation and
postremediation monitoring costs are accrued when such obligations become
probable and reasonably estimable. Such future expenditures are not discounted
to their present value. Environmental costs that are capitalized are depreciated
generally utilizing a 15-year life.
PRODUCT WARRANTY -- Estimated warranty expense is accrued either at the
time of sale or, in most cases, when specific warranty problems are encountered.
Adjustments to the accruals are made periodically to reflect actual experience.
STOCK OPTIONS AND EMPLOYEE STOCK PURCHASE PLAN -- Options to purchase
Common stock are granted to certain executive officers and key management
personnel at 100% of the market value of the Company's stock at the date of
grant. As permitted, the Company follows Accounting Principles Board Opinion No.
25 and, as a result, no compensation expense is recognized under its stock
option plans or the Employee Stock Purchase Plan.
DERIVATIVE FINANCIAL INSTRUMENTS -- The Company has interest rate swap
agreements that modify the interest characteristics of its outstanding debt.
Interest rate differentials to be paid or received as a result of interest rate
swap agreements are recognized over the lives of the swaps as an adjustment to
interest expense. Gains and losses on early terminations of these agreements
would be deferred and amortized as an adjustment to interest expense over the
remaining term of the original life of the swap agreement. The fair value of
swap agreements and changes in fair value as a result of changes in market
interest rates are not recognized in the financial statements. Additionally,
treasury locks, or forward rate agreements, are being utilized to hedge the
interest rate on prospective long-term debt issuances. Unrealized gains or
losses related to these agreements are deferred pending issuance of the
long-term debt. Once the long-term debt has been issued, the realized gain or
loss will be amortized over the life of the debt.
The Company also has foreign currency forward contracts to hedge its cash
flow exposure on significant transactions denominated in currencies other than
the U.S. dollar. These contracts are entered into for periods consistent with
the terms of the underlying transactions. The Company does not engage in
speculation. Unrealized gains and losses on foreign currency forward contracts
are deferred and recognized as an adjustment to the basis of the underlying
transaction at the time the foreign currency transaction is completed.
40
<PAGE> 17
CASH EQUIVALENTS -- For purposes of the Consolidated Cash Flows statement,
the Company considers all investments purchased with original maturities of
three months or less to be cash equivalents.
NEW ACCOUNTING PRONOUNCEMENTS -- Effective January 1, 1998, the Company
adopted Statement of Financial Accounting Standards (SFAS)No. 130 (Reporting
Comprehensive Income). SFAS 130 establishes new rules for the reporting and
display of comprehensive income and its components; however, the adoption of
this new Standard had no impact on the Company's consolidated results of
operations or total stockholders' equity. Accumulated foreign currency
translation adjustments and adjustments to recognize minimum pension
liabilities, which prior to adoption were reported separately in stockholders'
equity, are now included in a caption entitled "Accumulated other elements of
comprehensive income" on the Company's Consolidated Balance Sheets. Prior year
financial statements have been restated to conform to the requirements of SFAS
130. Additional information regarding comprehensive income may be found in the
Statement of Consolidated Changes in Stockholders' Equity and in Note 17 of the
Notes to Consolidated Financial Statements.
Effective December 31, 1998, the Company adopted SFAS No. 131 (Disclosures
About Segments of an Enterprise and Related Information). SFAS 131 establishes
standards for the way that public business enterprises report information about
operating segments in annual and interim financial statements. Although not
affecting the Company's consolidated results of operations or financial
position, the adoption of this new standard did result in the Company changing
its previous segment disclosures from two segments as reported in prior years
to four segments beginning in 1998. These four segments are Cameron, Cooper
Cameron Valves (CCV), Cooper Energy Services (CES) and Cooper Turbocompressor
(CTC) (see Note 13 of the Notes to Consolidated Financial Statements for further
information).
In June 1998, the Financial Accounting Standards Board issued SFAS
No. 133 (Accounting for Derivative Instruments and Hedging Activities). This
new standard, which is not required to be adopted by the Company until
January 1, 2000, will change current accounting rules relating to derivatives
and hedging activities. Although the Company's only derivative and hedging
activities currently relate to interest rate swap agreements, including
treasury locks, a forward stock purchase agreement and certain foreign
currency hedges related to specific transactions, the impact of the new
standard on the Company cannot be fully determined until it is adopted.
NOTE 2: NONRECURRING/UNUSUAL CHARGES
During the third and fourth quarters of 1998, the Company recorded
$21,956,000 of nonrecurring/unusual charges covering severance, idle facility
and other costs mainly associated with the first phase of various cost reduction
initiatives in each of the Company's four segments. The cash flow effect of
these charges during the year was approximately $10,406,000, primarily for
employee severance. The majority of the remaining spending should occur during
1999, although certain idle facility costs are anticipated to extend beyond
1999.
CCV recorded charges of $7,796,000 related to the shutdown of the
division's manufacturing facility in Missouri City, Texas, personnel reductions
in Beziers, France and certain one-time costs associated with the acquisition of
Orbit Valve International, Inc. (see Note 3 of the Notes to Consolidated
Financial Statements). Production from the Missouri City facility, which has
declined over the last several years, has been transferred to a facility in
Oklahoma City, Oklahoma.
Cameron and CTC recorded combined charges of $6,350,000 associated with the
termination of specific employees in connection with the current decline in
market activity being experienced by these segments of the business.
Finally, approximately $7,810,000 of costs were recorded by CES, primarily
for severance and related relocation costs for salaried personnel in the
division's Mount Vernon, Ohio and Grove City, Pennsylvania facilities.
CES also incurred charges related to cost rationalization during 1997, but
the size and nature of these charges was such that recognition of them as
"nonrecurring/unusual charges" was not considered to be appropriate.
With regard to the year ended December 31, 1996, CES recorded restructuring
charges totaling $4,169,000 covering severance, relocation and other costs
associated with changes both at the division's manufacturing facility in Grove
City, Pennsylvania and the division's headquarters in Mount Vernon, Ohio.
Additionally, Cameron incurred approximately $3,105,000 of certain one-time
costs of integrating newly acquired operations with its existing operations.
41
<PAGE> 18
NOTE 3: ACQUISITIONS
Effective April 2, 1998, the Company acquired Orbit Valve International,
Inc. for approximately $104,000,000 in cash and assumed indebtedness. Orbit,
which has been integrated into CCV, is based in Little Rock, Arkansas and
manufactures and sells high-performance valves for the oil and gas and
petrochemical industries. Since its inclusion in April 1998, Orbit generated
revenues of approximately $71,000,000. Additionally, during July 1998, the
Company acquired certain assets and assumed certain liabilities of Brisco
Engineering Ltd., a U.K. company, for approximately $12,400,000 in cash and
debt. The acquired operations, which participate in the repair and aftermarket
parts business for control systems, have been consolidated into the Cameron
organization. On a preliminary basis, the two purchase acquisitions resulted in
additional goodwill of approximately $57,000,000. Three other small product line
acquisitions were also made during 1998 to supplement the Company's aftermarket
operations. The results of operations from all acquisitions have been included
with the Company's results for the year ended December 31, 1998 from the
respective acquisition dates forward.
During the year ended December 31, 1997, the Company made three small
product line acquisitions totaling $6,278,000, all of which pertain to Cameron
and have been accounted for under the purchase method of accounting. Additional
goodwill added as a result of these acquisitions was approximately $1,600,000.
On June 14, 1996, the Company purchased the assets of Ingram Cactus Company
for approximately $100,511,000 in cash, including acquisition costs, and the
assumption of certain operating liabilities. The acquired operations, which have
been integrated into Cameron, manufacture and sell wellheads, surface systems,
valves and actuators used primarily in onshore oil and gas production
operations. Goodwill of approximately $26,196,000 was recorded in connection
with this acquisition. Additionally, during October 1996, the Company made two
acquisitions for a combined cost of approximately $13,431,000. Both acquisitions
were accounted for under the purchase method and resulted in additional goodwill
of $8,763,000.
NOTE 4: RECEIVABLES
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1998 1997
-------- --------
<S> <C> <C>
(dollars in thousands)
Trade receivables $336,854 $387,817
Receivables under the percentage of completion method
($4,626 and $8,614 billed at December 31, 1998
and 1997, respectively) 19,457 43,219
Other receivables 14,152 11,240
Allowance for doubtful accounts (4,067) (13,646)
-------- --------
$366,396 $428,630
======== ========
</TABLE>
Trade receivables include $10,561,000 and $39,015,000 at December 31, 1998
and 1997, respectively, of amounts which have not as yet been billed because of
contractual provisions providing for a delay in the billing until various
post-delivery conditions have been met. All of these amounts should be billed
and collected in less than one year.
NOTE 5: INVENTORIES
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1998 1997
-------- --------
<S> <C> <C>
(dollars in thousands)
Raw materials $ 60,265 $ 60,258
Work-in-process 205,870 203,336
Finished goods, including parts and subassemblies 364,954 327,280
Other 3,491 3,064
-------- --------
634,580 593,938
Excess of current standard costs over LIFO costs (79,076) (85,969)
Allowance for obsolete and slow-moving inventory (7,451) (12,430)
-------- --------
$548,053 $495,539
======== ========
</TABLE>
42
<PAGE> 19
NOTE 6: PLANT AND EQUIPMENT AND INTANGIBLES
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
(dollars in thousands) 1998 1997
------------ ------------
<S> <C> <C>
Plant and equipment:
Land and land improvements $ 35,290 $ 31,748
Buildings 197,278 172,593
Machinery and equipment 467,837 393,204
Tooling, dies, patterns, etc 64,480 44,825
Assets under capital leases 21,292 14,984
All other 123,091 122,684
Construction in progress 29,573 11,254
------------ ------------
938,841 791,292
Accumulated depreciation (448,262) (395,747)
------------ ------------
$ 490,579 $ 395,545
============ ============
Intangibles:
Goodwill $ 455,662 $ 388,983
Assets related to pension plans 434 498
Other 62,938 56,314
------------ ------------
519,034 445,795
Accumulated amortization (225,573) (205,375)
------------ ------------
$ 293,461 $ 240,420
============ ============
</TABLE>
NOTE 7: ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
(dollars in thousands) 1998 1997(1)
------------ ------------
<S> <C> <C>
Trade accounts and accruals $ 290,310 $ 307,863
Salaries, wages and related fringe benefits 48,054 52,588
Product warranty, late delivery, and similar costs 37,518 39,260
Deferred income taxes 26,414 30,601
Nonrecurring/unusual charges 10,345 --
Other (individual items less than 5% of total current liabilities) 41,023 40,615
------------ ------------
$ 453,664 $ 470,927
============ ============
</TABLE>
(1) Restated for consistency with 1998 presentation.
NOTE 8: EMPLOYEE BENEFIT PLANS
<TABLE>
<CAPTION>
POSTRETIREMENT
PENSION BENEFITS BENEFITS
(dollars in thousands) 1998 1997(1) 1996(1) 1998 1997 1996
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Service cost $ 9,287 $ 7,835 $ 8,462 $ 189 $ 225 $ 200
Interest cost 17,929 17,838 16,613 3,254 3,442 4,000
Expected return on plan assets (28,425) (27,649) (25,195)
Amortization of prior service cost (404) (419) (91) (700) (700) (600)
Amortization of (gains) losses and other (4,320) (1,526) 2,459 (9,700) (10,100) (5,900)
-------- -------- -------- -------- -------- --------
Net benefit (income) expense $ (5,933) $ (3,921) $ 2,248 $ (6,957) $ (7,133) $ (2,300)
======== ======== ======== ======== ======== ========
</TABLE>
43
<PAGE> 20
<TABLE>
<CAPTION>
POSTRETIREMENT
PENSION BENEFITS BENEFITS
(dollars in thousands) 1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year $ 261,921 $ 239,110 $ 49,421 $ 49,314
Service cost 9,287 7,835 189 225
Interest cost 17,929 17,838 3,254 3,442
Plan participants' contributions 1,057 1,126 -- --
Change in discount rate 11,239 7,747 -- --
Actuarial (gains) losses 17,641 4,326 3,058 1,074
Exchange rate changes (406) (1,697) -- --
Benefits paid directly or from plan assets (29,121) (14,364) (4,624) (4,634)
--------- --------- --------- ---------
Benefit obligation at end of year $ 289,547 $ 261,921 $ 51,298 $ 49,421
========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
POSTRETIREMENT
PENSION BENEFITS BENEFITS
(dollars in thousands) 1998 1997(1) 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Change in plan assets:
Fair value of plan assets at beginning of year $ 313,061 $ 284,636 $ -- $ --
Actual return on plan assets 56,322 40,939 -- --
Company contributions 1,224 2,193 4,624 4,634
Plan participants' contributions 1,057 1,126 -- --
Exchange rate changes (815) (2,060) -- --
Benefits paid from plan assets (28,719) (13,773) (4,624) (4,634)
--------- --------- --------- ---------
Fair value of plan assets at end of year $ 342,130 $ 313,061 $ -- $ --
========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
POSTRETIREMENT
PENSION BENEFITS BENEFITS
(DOLLARS IN THOUSANDS) 1998 1997(1) 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Plan assets in excess of (less than) benefit
obligations at end of year $ 52,583 $ 51,140 $(51,298) $(49,421)
Unrecognized net (gain) loss (9,781) (14,650) (21,486) (34,244)
Unrecognized prior service cost (4,344) (4,746) (1,100) (1,800)
Unrecognized net transition (asset) (224) (715) -- --
-------- -------- -------- --------
Prepaid (accrued) pension cost 38,234 31,029 (73,884) (85,465)
Underfunded plan adjustments recognized:
Accrued minimum liability (1,038) (973) -- --
Intangible asset 434 498 -- --
Accumulated other comprehensive income, net of tax 373 293 -- --
-------- -------- -------- --------
Net assets (liabilities) recognized on balance
sheet at end of year $ 38,003 $ 30,847 $(73,884) $(85,465)
======== ======== ======== ========
</TABLE>
(1) Restated for consistency with 1998 presentation.
44
<PAGE> 21
<TABLE>
<CAPTION>
POSTRETIREMENT
PENSION BENEFITS BENEFITS
1998 1997 1998 1997
------- ------- ----------- -------
<S> <C> <C> <C> <C>
Weighted average assumptions as of December 31:
DOMESTIC PLANS:
Discount rate 6.5% 7.75% 6.19% 7.03%
Expected return on plan assets 9.25% 9.25%
Rate of compensation increase 4.5% 4.5%
Health care cost trend rate 7.5% 7%
INTERNATIONAL PLANS:
Discount rate 5.5 - 6.25% 6.5 - 8.25%
Expected return on plan assets 6 - 9% 6.5 - 10%
Rate of compensation increase 3.5 - 5% 4 - 6%
</TABLE>
The health care cost trend is assumed to decrease gradually from 7.5%
to 5% for 2004 and remain at that level thereafter. A one-percentage-point
change in the assumed health care cost trend rate would have the following
effects:
<TABLE>
<CAPTION>
1 - PERCENTAGE 1 - PERCENTAGE
(DOLLARS IN THOUSANDS) POINT INCREASE POINT DECREASE
-------------- --------------
<S> <C> <C>
Effect on total of service and interest
cost components in 1998 $ 293 $ (258)
Effect on postretirement benefit obligation
as of December 31, 1998 $ 4,392 $ (3,860)
</TABLE>
Amounts applicable to the Company's pension plans with projected and
accumulated benefit obligations in excess of plan assets are as follows:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
1998 1997
------------ ------------
<S> <C> <C>
Projected benefit obligation $ (9,237) $ (8,666)
Accumulated benefit obligation $ (8,149) $ (7,672)
Fair value of plan assets $ 2,810 $ 3,109
</TABLE>
The Company sponsors the Cooper Cameron Corporation Retirement Plan
(Retirement Plan) covering all salaried U.S. employees and certain domestic
hourly employees as well as separate defined benefit pension plans for employees
of its U.K. and German subsidiaries and several unfunded defined benefit
arrangements for various other employee groups. During 1997, four funded defined
benefit pension plans covering various hourly collective bargaining employees
were merged into the Retirement Plan.
Aggregate pension expense amounted to $5,121,000 in 1998, $7,002,000 in
1997 and $12,167,000 in 1996. The Company's (income) expense with respect to the
defined benefit pension plans is set forth in the table above. Expense with
respect to various defined contribution plans for the years ended December 31,
1998, 1997 and 1996 amounted to $11,054,000, $10,923,000 and $9,919,000,
respectively. Gains and losses on curtailments and settlements were not material
in any of the last three years. The assets of the domestic and foreign plans are
maintained in various trusts and consist primarily of equity and fixed income
securities.
In addition, the Company's full-time domestic employees who are not
covered by a bargaining unit are also eligible to participate in the Cooper
Cameron Corporation Retirement Savings Plan. Under this plan, employees' savings
deferrals are partially matched with shares of the Company's Common stock. The
Company's expense under this plan equals the matching contribution under the
Plan's formula. Expense for the years ended December 31, 1998, 1997 and 1996
amounted to $8,432,000, $7,683,000 and $6,393,000, respectively. For 1997, the
Company issued or sold 92,218 shares of Common stock to the Trustee of the
Retirement Savings Plan to meet a portion of its matching and other obligations
under the plan.
45
<PAGE> 22
The Company's salaried employees also participate in various domestic
employee welfare benefit plans, including medical, dental and prescriptions,
among other benefits for active employees. Salaried employees who retired prior
to 1989, as well as certain other employees who were near retirement at that
date, and elected to receive certain benefits, have retiree medical,
prescription and life insurance benefits, while active salaried employees do not
have postretirement health care benefits.
The hourly employees have separate plans with varying benefit formulas,
but currently active employees, except for certain employees similar to those
described above, will not receive health care benefits after retirement.
All of the welfare benefit plans, including those providing
postretirement benefits, are unfunded.
NOTE 9: STOCK OPTIONS AND EMPLOYEE STOCK PURCHASE PLAN
<TABLE>
<CAPTION>
NUMBER OF SHARES
--------------------------
LONG-TERM NON-EMPLOYEE WEIGHTED
INCENTIVE DIRECTOR AVERAGE
PLAN PLAN EXERCISE PRICES
------------ ------------ ---------------
<S> <C> <C> <C>
Stock options outstanding at December 31, 1995 3,094,326 104,842 $ 8.47
Options granted 2,105,292 146,000 $ 25.635
Options cancelled (70,040) -- $ 8.329
Options exercised (209,148) (4,000) $ 8.42
---------- -------- ------------
Stock options outstanding at December 31, 1996 4,920,430 246,842 $ 15.955
Options granted 2,865,982 144,000 $ 34.98
Options cancelled (146,795) -- $ 11.70
Options exercised (1,592,970) (147,250) $ 12.84
---------- -------- ------------
Stock options outstanding at December 31, 1997 6,046,647 243,592 $ 26.02
Options granted 2,485,019 96,540 $ 35.32
Options cancelled (154,352) -- $ 33.00
Options exercised (1,324,498) (21,592) $ 16.65
---------- -------- ------------
Stock options outstanding at December 31, 1998(1) 7,052,816 318,540 $ 30.84
========== ======== ============
Stock options exercisable at December 31, 1998(1) 2,002,409 222,000 $ 26.56
========== ======== ============
</TABLE>
(1) Exercise prices range from $8.329 to $70.625 per share.
Options are granted to key employees under the Long-term Incentive Plan
and generally become exercisable on the first anniversary date following the
date of grant in one-third increments each year or in annual increments of
one-sixth, one-third, one-third and one-sixth. In 1998, options that will fully
vest at the end of 1999 were also granted to a limited number of employees.
These options all expire ten years after the date of grant. Certain key
executives also elected to receive options in lieu of salary for periods that
extend through December 31, 1999. The options granted under the Options in Lieu
of Salary Program generally become exercisable at the end of the related salary
period and expire five years after the beginning of the salary period.
Under the Company's Non-employee Director Stock Option Plan,
non-employee directors receive a grant of 6,000 stock options annually. In
addition, directors are permitted to take either a portion of or their full
annual retainer in cash ($30,000) or receive, in lieu of cash, additional stock
options. All directors elected to receive all of their retainer in stock options
for 1998, 1997 and 1996. In addition, during 1998, all directors elected to
receive their entire retainer in stock options for the year 1999. The shares
granted during 1998 in lieu of the retainer amounted to 34,800 for the period
through December 31, 1998 and 25,740 for the year 1999. The exercise price of
each option is based on the fair market value of the Company's stock at the date
of grant. The options generally expire five years and one day after the date of
grant and become exercisable one year following the date of grant. In the case
of options granted in lieu of retainer, the options become exercisable one year
following the beginning of the retainer period and expire five years and one day
following the beginning of the retainer period.
As of December 31, 1998, shares reserved for future grants under the
Long-term Incentive and Non-employee Director Stock Option Plans were 1,809,325
and 18,618, respectively. The weighted average remaining contractual life of all
options at December 31, 1998 is approximately 7.15 years.
Pro forma information is required by SFAS No. 123 to reflect the
estimated effect on net income and earnings per share as if the Company had
accounted for the stock option grants and the Employee Stock Purchase Plan
(ESPP) using the fair value method described in that Statement. The fair value
was estimated at the date of grant using a Black-Scholes option pricing model
with the
46
<PAGE> 23
following weighted average assumptions for 1998, 1997 and 1996, respectively:
risk-free interest rates of 5.2%, 5.9% and 5.9%, dividend yields of zero, 0.8%
and 1%; volatility factors of the expected market price of the Company's Common
stock of .482, .349 and .302; and a weighted-average expected life of the
options of 4.0, 3.5 and 2.2 years. These assumptions resulted in a weighted
average grant date fair value for options and the ESPP of $15.18 and $10.11,
respectively for 1998, $10.83 and $14.49, respectively for 1997, and $5.51 and
$5.46, respectively for 1996. For purposes of the pro forma disclosures, the
estimated fair value is amortized to expense over the vesting period. Reflecting
the amortization of this hypothetical expense for 1998, 1997 and 1996 results in
pro forma net income and diluted earnings per share of $118,562,000 and $2.11,
respectively, for 1998, $128,875,000 and $2.32, respectively, for 1997, and
$59,147,000 and $1.12, respectively, for 1996.
EMPLOYEE STOCK PURCHASE PLAN
Under the Cooper Cameron Employee Stock Purchase Plan, the Company is
authorized to sell up to 2,000,000 shares of Common stock to its full-time
domestic, U.K., Ireland, Singapore and Canadian employees, nearly all of whom
are eligible to participate. Under the terms of the Plan, employees may elect
each year to have up to 10% of their annual compensation withheld to purchase
the Company's Common stock. The purchase price of the stock is 85% of the lower
of the beginning-of-plan year or end-of-plan year market price of the Company's
Common stock. Under the 1998/1999 plan, nearly 2,700 employees have elected to
purchase approximately 271,000 shares of the Company's Common stock at $30.23
per share, or 85% of the market price of the Company's Common stock on July 31,
1999, if lower. A total of 144,202 shares were purchased at $30.23 per share on
July 31, 1998 under the 1997/1998 plan.
NOTE 10: LONG-TERM DEBT
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
(DOLLARS IN THOUSANDS)
1998 1997
--------- ---------
<S> <C> <C>
Floating-rate revolving credit advances $ 350,939 $ 322,559
Other long-term debt 50,756 43,418
Obligations under capital leases 12,267 10,978
--------- ---------
413,962 376,955
Current maturities (49,599) (48,131)
--------- ---------
Long-term portion $ 364,363 $ 328,824
========= =========
</TABLE>
The Company is party to a long-term credit agreement (the Credit
Agreement) with various banks which provides for an aggregate unsecured
borrowing capacity of $475,000,000 of floating-rate revolving credit advances
maturing March 31, 2002. The Company is required to pay a facility fee on the
committed amount under the Credit Agreement, which at December 31, 1998 equalled
.075% annually.
During the third quarter of 1998, the Company also entered into
agreements with five banks providing for additional committed credit facilities
totaling $155,000,000. The agreements allow the Company to borrow funds on an
unsecured basis at floating or negotiated fixed rates of interest. The
agreements expire at various dates during the third quarter of 1999 and provide
for the payment of facility fees at varying rates based on the amount of each
credit facility.
In addition to the above, the Company also has other unsecured and
uncommitted credit facilities available both domestically and to its foreign
subsidiaries.
At December 31, 1998, the weighted average interest rate on the
revolving credit advances was 5.72% (6.24% at December 31, 1997). Excluding
approximately $13,276,000 of dollar equivalent local currency indebtedness in
Brazil at a notional rate (before currency effects) of 31.6% annually, the
average interest rate on the remaining debt was 6.60% at December 31, 1998 (5.9%
at December 31, 1997).
Future maturities of the floating-rate revolving credit advances and
other long-term debt are $45,000,000, $10,852,000, $821,000, $344,611,000 and
$411,000 for the years 1999, 2000, 2001, 2002 and 2003, respectively.
As described further in Note 14, the Company has entered into interest
rate swaps with a notional value of $75,000,000, resulting in an effective fixed
rate of 5.62% on that portion of the Company's outstanding debt for the period
from January 1, 1999 until the expiration of all outstanding agreements on June
30, 2000.
The Company is also a party to various treasury locks, or forward rate
agreements, which have the effect of locking in a weighted average interest rate
of 5.83% on the "Treasury component" of a $175,000,000 prospective debt issuance
through March 15, 1999. (See Note 14 of the Notes to Consolidated Financial
Statements for further information).
At December 31, 1998, the Company had $279,061,000 of committed
borrowing capacity available plus additional uncommitted amounts available under
various other borrowing arrangements.
Under the terms of the Credit Agreement, the Company is required to
maintain certain financial ratios including a debt-to-capitalization ratio of
not more than 50%, except in certain instances involving acquisitions, and a
coverage ratio of earnings before interest, taxes, depreciation and amortization
(EBITDA) less capital expenditures equal to at least 2.5 times interest expense.
The
47
<PAGE> 24
Credit Agreement also specifies certain limitations regarding additional
indebtedness outside the Credit Agreement and the amounts invested in the
Company's foreign subsidiaries. The Company has been, throughout all periods
reported, and was, at December 31, 1998, in compliance with all loan covenants.
For the years 1998, 1997 and 1996, total interest expense was
$32,721,000, $28,591,000 and $20,878,000, respectively. Interest paid by the
Company in 1998, after considering $2,187,000 of interest capitalized during the
year, and in 1997 and 1996 is not materially different than the amounts
expensed.
At December 31, 1998, the Company had two long-term leases extending out
13 and 18 years (inclusive of renewal options) and involving annual rentals of
approximately $4,240,000. The Company also leases certain facilities, office
space, vehicles, and office, data processing and other equipment under capital
and operating leases. The obligations with respect to these leases are generally
for five years or less and are not considered to be material individually or in
the aggregate.
NOTE 11: INCOME TAXES
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------
(dollars in thousands) 1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Income before income taxes:
U.S. operations $ 58,976 $ 97,024 $ 53,267
Foreign operations 136,752 102,354 38,747
------------ ------------ ------------
Income before income taxes $ 195,728 $ 199,378 $ 92,014
============ ============ ============
Income taxes:
Current:
U.S. federal $ 14,973 $ 23,914 $ 2,084
U.S. state and local and franchise 3,934 3,905 2,054
Foreign 34,628 15,900 6,243
------------ ------------ ------------
53,535 43,719 10,381
------------ ------------ ------------
Deferred:
U.S. federal 126 9,558 13,697
U.S. state and local 19 1,567 1,519
Foreign 5,892 3,952 2,233
------------ ------------ ------------
6,037 15,077 17,449
------------ ------------ ------------
Income tax provision $ 59,572 $ 58,796 $ 27,830
============ ============ ============
Items giving rise to deferred income taxes:
Reserves and accruals $ 812 $ (4,266) $ 7,813
Inventory allowances, full absorption and LIFO 3,906 15,196 1,913
Percentage of completion income (recognized) not
recognized for tax (2,877) (808) 5,703
Prepaid medical and dental expenses 35 (4,511) 3,158
Postretirement benefits other than pensions 4,429 4,501 2,352
U.S. tax deductions in excess of amounts currently deductible (5,927) (1,694) (8,123)
Other 5,659 6,659 4,633
------------ ------------ ------------
Deferred income taxes $ 6,037 $ 15,077 $ 17,449
============ ============ ============
The differences between the provision for income
taxes and income taxes using the U.S. federal
income tax rate were as follows:
U.S. federal statutory rate 35.00% 35.00% 35.00%
Nondeductible goodwill 1.52 1.43 2.85
State and local income taxes 0.93 1.69 0.76
Tax exempt income (1.43) (0.88) (1.90)
Foreign statutory rate differential (2.30) (1.14) (0.82)
Change in valuation of prior year tax assets (3.57) (7.10) (8.90)
Losses not receiving a tax benefit 0.91 0.59 2.36
All other (0.62) (0.10) 0.90
Total 30.44% 29.49% 30.25%
============ ============ ============
Total income taxes paid $ 22,166 $ 12,929 $ 9,366
============ ============ ============
</TABLE>
48
<PAGE> 25
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
(dollars in thousands) 1998 1997
--------- ---------
<S> <C> <C>
Components of deferred tax balances:
Deferred tax liabilities:
Plant and equipment $ (42,571) $ (43,080)
Inventory (53,757) (47,947)
Pensions (10,592) (8,817)
Percentage of completion (2,018) (4,895)
Other (27,576) (15,121)
--------- ---------
Total deferred tax liabilities (136,514) (119,860)
--------- ---------
Deferred tax assets:
Postretirement benefits other than pensions 28,261 32,690
Reserves and accruals 35,100 32,495
Net operating losses and related deferred tax assets 22,865 19,761
Other 637 708
--------- ---------
Total deferred tax assets 86,863 85,654
--------- ---------
Valuation allowance (19,120) (24,321)
--------- ---------
Net deferred tax liabilities $ (68,771) $ (58,527)
========= =========
</TABLE>
During 1995, the Company established valuation allowances related to
accumulated losses in several international operations, as well as valuation
allowances pertaining to certain domestic and international deferred tax assets
because of uncertainty regarding the Company's ability to generate sufficient
taxable income in future years to realize those losses and deductions. During
1998, 1997 and 1996, those same international operations generated earnings that
have now fully utilized the losses accumulated through 1995. In addition,
$2,032,000 of the domestic valuation allowances relating to certain deferred tax
assets were determined during 1998 to no longer be required. As a result, the
valuation allowance established during 1995 was reduced in 1998, 1997 and 1996
by $5,201,000, $12,986,000 and $6,017,000, respectively, with a corresponding
reduction in the Company's income tax expense. While the Company has had
substantial amounts of book income in both its domestic and international
operations during each of the last three years, domestically it has had tax
deductions, including those relating to stock options discussed below, which
have been greater than the amounts that could be utilized currently as a
reduction of actual taxes payable. As a result, through December 31, 1998, the
Company has recorded $15,744,000 (including $5,927,000 generated during 1998) of
current deferred tax assets which will require taxable income in future years in
order to be realized. Because under current U.S. tax rules the Company has until
the years 2011-2018 to utilize these excess deductions, in management's
judgement there is presently essentially no risk that this asset will not be
realized.
A primary item giving rise to the difference between taxes currently
payable with respect to 1998 and 1997 and income taxes paid in 1998 and 1997 is
the tax deduction which the Company receives with respect to certain employee
stock benefit plan transactions. This benefit, which is credited to capital in
excess of par value, amounted to $15,223,000 and $22,367,000 in 1998 and 1997,
respectively.
The Company's tax provision includes U.S. tax expected to be payable on
the foreign portion of the Company's income before income taxes when such
earnings are remitted. The Company's accruals are sufficient to cover the
additional U.S. taxes estimated to be payable on the earnings that the Company
anticipates will be remitted. Through December 31, 1998, this amounted to
essentially all unremitted earnings of the Company's foreign subsidiaries except
certain unremitted earnings in the U.K., Ireland, and Singapore which are
considered to be permanently reinvested.
49
<PAGE> 26
NOTE 12: COMMON STOCK, PREFERRED STOCK AND RETAINED DEFICIT COMMON STOCK
During the Annual Meeting of Stockholders held on May 14, 1998, an
Amended and Restated Certificate of Incorporation was approved resulting in an
increase in the amount of Common stock the Company is authorized to issue from
75,000,000 shares to 150,000,000 shares, par value $.01 per share.
In November 1998, the Company's board of directors approved the
repurchase of up to 10,000,000 shares of Common stock for use in the Company's
various employee stock ownership, option and benefit plans. In addition to
shares purchased during 1998 by a third party under a forward purchase agreement
(see Note 14 of the Notes to Consolidated Financial Statements), the Company
also purchased approximately 503,000 shares during the fourth quarter of 1997
and 709,700 shares during January 1998. By year-end 1998, all treasury shares
held by the Company had been re-issued to satisfy stock option exercises and
stock issuances under the Employee Stock Purchase Plan. Additionally, at
December 31, 1998, 10,742,222 shares of unissued Common stock were reserved for
future issuance under various employee benefit plans.
PREFERRED STOCK
The Company is authorized to issue up to 10,000,000 shares of preferred
stock, par value $.01 per share. At December 31, 1998, no preferred shares were
issued or outstanding. Shares of preferred stock may be issued in one or more
series of classes, each of which series or class shall have such distinctive
designation or title as shall be fixed by the Board of Directors of the Company
prior to issuance of any shares. Each such series or class shall have such
voting powers, full or limited, or no voting powers, and such preferences and
relative, participating, optional or other special rights and such
qualifications, limitations or restrictions thereof, as shall be stated in such
resolution or resolutions providing for the issuance of such series or class of
preferred stock as may be adopted by the Board of Directors prior to the
issuance of any shares thereof. A total of 1,500,000 shares of Series A Junior
Participating Preferred Stock has been reserved for issuance upon exercise of
the Stockholder Rights described below.
STOCKHOLDER RIGHTS PLAN
On May 23, 1995, the Company's Board of Directors declared a dividend
distribution of one Right for each then-current and future outstanding share of
Common stock. Each Right entitles the registered holder to purchase one
one-hundredth of a share of Series A Junior Participating Preferred Stock of the
Company, par value $.01 per share, for an exercise price of $300. Unless earlier
redeemed by the Company at a price of $.01 each, the Rights become exercisable
only in certain circumstances constituting a potential change in control of the
Company and will expire on October 31, 2007.
Each share of Series A Junior Participating Preferred Stock purchased
upon exercise of the Rights will be entitled to certain minimum preferential
quarterly dividend payments as well as a specified minimum preferential
liquidation payment in the event of a merger, consolidation or other similar
transaction. Each share will also be entitled to 100 votes to be voted together
with the Common stockholders and will be junior to any other series of Preferred
Stock authorized or issued by the Company, unless the terms of such other series
provides otherwise.
In the event of a potential change in control, each holder of a Right,
other than Rights beneficially owned by the acquiring party (which will have
become void), will have the right to receive upon exercise of a Right that
number of shares of Common stock of the Company, or, in certain instances,
Common stock of the acquiring party, having a market value equal to two times
the current exercise price of the Right.
RETAINED DEFICIT
The Company's retained deficit as of December 31, 1998 and 1997
includes a $441,000,000 charge related to the goodwill write-down which occurred
concurrent with the Company becoming a separate stand-alone entity on June 30,
1995 in connection with the split-off from its former parent, Cooper Industries,
Inc. Delaware law, under which the Company is incorporated, provides that
dividends may be declared by the Company's board of directors from a current
year's earnings as well as from the net of capital in excess of par value less
the retained deficit. Accordingly, at December 31, 1998, the Company had
approximately $762,297,000 from which dividends could be paid.
50
<PAGE> 27
NOTE 13: INDUSTRY SEGMENTS
The Company's operations are organized into four separate business
segments, each of which is also a division with a President who reports to the
Company's Chairman and Chief Executive Officer. The four segments are Cameron,
CCV, CES and CTC. In 1997 and prior periods, before adoption of SFAS No. 131,
the Company had two segments - Petroleum Production Equipment (which included
Cameron and CCV) and Compression and Power Equipment (which included CES and
CTC). Cameron is a leading international manufacturer of oil and gas pressure
control equipment, including wellheads, chokes, blowout preventers and assembled
systems for oil and gas drilling, production and transmission used in onshore,
offshore and subsea applications. Split out from Cameron as a separately managed
business in mid-1995, CCV provides a full range of ball valves, gate valves,
butterfly valves and accessories used primarily to control pressures and direct
oil and gas as they are moved from individual wellheads through transmission
systems to refineries, petrochemical plants and other processing centers. CES
designs, manufactures, markets and services compression and power equipment
including engines, integral engine compressors, reciprocating and centrifugal
compressors, gas turbines, turbochargers and ignition and control systems.
The primary customers of Cameron, CCV and CES are major and independent
oil and gas exploration and production companies, foreign national oil and gas
companies, drilling contractors, pipeline companies, refiners and other
industrial and petrochemical processing companies.
Finally, CTC provides centrifugal air compressors and aftermarket
products to manufacturing companies and chemical process industries worldwide.
The Company markets its equipment through a worldwide network of sales
and marketing employees supported by agents and distributors in selected
international locations. Due to the extremely technical nature of many of the
products, the marketing effort is further supported by a staff of engineering
employees.
For the years ended December 31, 1998, 1997 and 1996, the Company
incurred research and development costs designed to enhance or add to its
existing product offerings totaling $33,034,000, $25,371,000 and $19,176,000,
respectively (prior year data restated for consistency with 1998 accumulation
methodology). Cameron accounted for 79%, 72% and 69% of each respective year's
total costs.
With the adoption of SFAS No. 131 for 1998 reporting, the Company has
also restated its 1997 and 1996 segment disclosures shown below to conform with
the "management approach" required by this statement.
<TABLE>
<CAPTION>
(dollars in thousands) FOR THE YEAR ENDED DECEMBER 31, 1998
-----------------------------------------------------------------------------
CORPORATE
CAMERON CCV CES CTC & OTHER CONSOLIDATED
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Revenues $1,021,088 $ 309,021 $ 417,663 $ 134,339 $ -- $1,882,111
---------- ---------- ---------- ---------- ---------- ----------
EBITDA(1) $ 214,969 $ 60,906 $ 24,694 $ 32,691 $ (10,381) $ 322,879
Depreciation and amortization 34,795 12,509 17,884 6,253 1,033 72,474
Interest expense -- -- -- -- 32,721 32,721
Nonrecurring/unusual charges 6,063 7,796 7,810 287 -- 21,956
---------- ---------- ---------- ---------- ---------- ----------
Income (loss) before taxes $ 174,111 $ 40,601 $ (1,000) $ 26,151 $ (44,135) $ 195,728
---------- ---------- ---------- ---------- ---------- ----------
Capital expenditures $ 82,028 $ 5,563 $ 20,696 $ 6,291 $ 891 $ 115,469
---------- ---------- ---------- ---------- ---------- ----------
Total assets $1,041,738 $ 295,327 $ 359,739 $ 112,261 $ 14,538 $1,823,603
========== ========== ========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
(dollars in thousands)
FOR THE YEAR ENDED DECEMBER 31, 1997
-----------------------------------------------------------------------------
CORPORATE
CAMERON CCV CES CTC & OTHER CONSOLIDATED
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 874,747 $ 244,910 $ 527,325 $ 159,127 $ -- $1,806,109
---------- ---------- ---------- ---------- ---------- ----------
EBITDA(1) $ 160,547 $ 47,164 $ 54,513 $ 44,654 $ (13,047) $ 293,831
Depreciation and amortization 31,008 9,802 19,241 5,105 706 65,862
Interest expense -- -- -- -- 28,591 28,591
---------- ---------- ---------- ---------- ---------- ----------
Income (loss) before taxes $ 129,539 $ 37,362 $ 35,272 $ 39,549 $ (42,344) $ 199,378
---------- ---------- ---------- ---------- ---------- ----------
Capital expenditures $ 47,072 $ 4,348 $ 9,243 $ 10,329 $ 1,305 $ 72,297
---------- ---------- ---------- ---------- ---------- ----------
Total assets $ 951,569 $ 188,246 $ 377,051 $ 114,320 $ 12,044 $1,643,230
========== ========== ========== ========== ========== ==========
</TABLE>
51
<PAGE> 28
<TABLE>
<CAPTION>
(dollars in thousands) FOR THE YEAR ENDED DECEMBER 31, 1996
----------------------------------------------------------------------------
CORPORATE
CAMERON CCV CES CTC & OTHER CONSOLIDATED
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 605,307 $ 194,081 $ 453,239 $ 135,560 $ -- $1,388,187
---------- ---------- ---------- ---------- ---------- ----------
EBITDA(1) $ 83,883 $ 25,955 $ 45,125 $ 37,285 $ (9,602) $ 182,646
Depreciation and amortization 26,751 10,716 20,177 4,341 495 62,480
Interest expense -- -- -- -- 20,878 20,878
Nonrecurring/unusual charges 3,105 -- 4,169 -- -- 7,274
---------- ---------- ---------- ---------- ---------- ----------
Income (loss) before taxes $ 54,027 $ 15,239 $ 20,779 $ 32,944 $ (30,975) $ 92,014
========== ========== ========== ========== ========== ==========
Capital expenditures $ 15,078 $ 1,295 $ 12,202 $ 6,737 $ 1,833 $ 37,145
========== ========== ========== ========== ========== ==========
Total assets $ 806,624 $ 189,746 $ 343,636 $ 107,757 $ 21,159 $1,468,922
========== ========== ========== ========== ========== ==========
</TABLE>
Geographic Information:
<TABLE>
<CAPTION>
DECEMBER 31, 1998 DECEMBER 31, 1997 DECEMBER 31, 1996
----------------------- ----------------------- -----------------------
LONG-LIVED LONG-LIVED LONG-LIVED
REVENUES ASSETS REVENUES ASSETS REVENUES ASSETS
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
United States $ 991,738 $ 510,482 $1,001,103 $ 405,674 $ 805,200 $ 387,519
United Kingdom 368,945 140,759 330,011 128,757 281,747 135,283
Other foreign countries 521,428 132,799 474,995 101,534 301,240 106,043
---------- ---------- ---------- ---------- ---------- ----------
Total $1,882,111 $ 784,040 $1,806,109 $ 635,965 $1,388,187 $ 628,845
========== ========== ========== ========== ========== ==========
</TABLE>
(1) Earnings before interest, taxes, depreciation and amortization
(excluding nonrecurring/unusual charges).
Intersegment sales and related receivables for each of the years shown
were immaterial and have been eliminated.
For normal management reporting and therefore the above segment
information, consolidated interest expense is treated as a Corporate expense
because debt, including location, method, currency, etc., is managed on a
worldwide basis by the Corporate Treasury Department.
NOTE 14: OFF-BALANCE SHEET RISK, CONCENTRATIONS OF CREDIT RISK AND FAIR
VALUE OF FINANCIAL INSTRUMENTS
OFF-BALANCE SHEET RISK
At December 31, 1998, the Company was contingently liable with respect
to approximately $86,055,000, ($55,926,000 at December 31, 1997) of standby
letters of credit ("letters") issued in connection with the delivery,
installation and performance of the Company's products under contracts with
customers throughout the world. Of the outstanding total, approximately 29%
relates to Cameron and 66% to CES. The Company was also liable for approximately
$20,994,000 of bank guarantees and letters of credit used to secure certain
financial obligations of the Company ($9,806,000 at December 31, 1997). While
certain of the letters do not have a fixed expiration date, the majority expire
within the next one to two years and the Company would expect to issue new or
extend existing letters in the normal course of business.
Except for certain financial instruments as described below, the
Company's other off-balance sheet risks are not material.
CONCENTRATIONS OF CREDIT RISK
Apart from its normal exposure to its customers who are predominantly in
the energy industry, the Company has no significant concentrations of credit
risk at December 31, 1998.
52
<PAGE> 29
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist primarily of cash and cash
equivalents, trade receivables, trade payables, debt instruments, interest rate
swap contracts, forward rate and forward purchase agreements and foreign
currency forward contracts. The book values of cash and cash equivalents, trade
receivables and trade payables and floating-rate debt instruments are considered
to be representative of their respective fair values. Based on the spread
between the contract forward rate and the spot rate as of year-end on contracts
with similar terms to existing contracts, the fair value difference associated
with the Company's foreign currency forward contracts was not material at
December 31, 1998 and 1997.
As described in Note 10 of the Notes to Consolidated Financial
Statements, the Company has entered into various interest rate swap agreements
covering existing debt and treasury locks, or forward rate agreements, to hedge
its interest rate exposure on $175,000,000 of a prospective long-term debt
issuance. The treasury locks, which locked in a weighted average interest rate
of 5.83% on the "Treasury component" of such future issuance, expire March 15,
1999. On a mark-to-market basis at December 31, 1998, the interest rate swaps
and treasury locks had a current value that was $15,524,000 lower than their
nominal value.
During 1998, the Company entered into forward purchase agreements
pursuant to which third parties acquired Cooper Cameron stock in open market
transactions. During the third and fourth quarters of 2001, or such earlier
termination date as the Company may elect, the Company has the option to pay the
third party the total cost of the acquired shares and record the shares as
treasury stock or to receive or pay net cash or net Cooper Cameron stock equal
to the market gain or loss following an orderly disposition of such shares.
These agreements are being accounted for as equity transactions with no effect
on the balance sheet except, as and when funds are paid or shares are actually
issued, and will not result in any income or expense in the Company's
consolidated results of operations. As of December 31, 1998, a total of
3,515,900 shares of Company stock had been acquired by third parties at a total
cost of approximately $92,332,000. No additional shares can be purchased under
these agreements. The market value at December 31, 1998 of Company stock
purchased under these agreements was $6,188,000 less than the cost incurred by
third parties based on a year-end market price for the Company's stock of $24.50
per share.
NOTE 15: SUMMARY OF NONCASH INVESTING AND FINANCING ACTIVITIES
Increase (decrease) in net assets:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------
(dollars in thousands) 1998 1997
-------- --------
<S> <C> <C>
Common stock issued for employee stock ownership and
retirement savings plans $ 4,359 $ 6,058
Adjustment of minimum pension liability (80) 2,349
Tax benefit of certain employee stock benefit plan transactions 15,223 22,367
Other (549) --
</TABLE>
NOTE 16: EARNINGS PER SHARE
The weighted average number of common shares (utilized for basic earnings
per share presentation) and common stock equivalents outstanding for each period
presented was as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
(amounts in thousands) 1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Average shares outstanding 52,857 52,145 50,690
Common stock equivalents 2,045 3,461 2,289
------ ------ ------
Shares utilized in diluted earnings per share presentation 54,902 55,606 52,979
====== ====== ======
</TABLE>
53
<PAGE> 30
NOTE 17: ACCUMULATED OTHER ELEMENTS OF COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
DECEMBER 31,
-------- --------
(dollars in thousands) 1998 1997
-------- --------
<S> <C> <C>
Accumulated foreign currency translation
adjustments $ 17,828 $ 8,092
Accumulated adjustments to record minimum
pension liabilities (373) (293)
-------- --------
$ 17,455 $ 7,799
======== ========
</TABLE>
NOTE 18: UNAUDITED QUARTERLY OPERATING RESULTS
<TABLE>
<CAPTION>
1998 (BY QUARTER)
-----------------------------------------
(dollars in thousands, except per share data) 1 2 3(2) 4(2)
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues $426,896 $502,706 $477,213 $475,296
Gross margin (1) 128,564 153,828 140,639 129,558
Net income 33,223 45,064 31,153 26,716
Earnings per share:
Basic .63 .86 .59 .50
Diluted .60 .81 .58 .49
</TABLE>
<TABLE>
<CAPTION>
1997 (BY QUARTER)
-----------------------------------------
(dollars in thousands, except per share data) 1 2 3 4
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues $376,045 $441,344 $474,451 $514,269
Gross margin (1) 100,798 123,893 134,067 150,404
Net income 19,419 34,063 39,799 47,301
Earnings per share:
Basic 0.38 0.66 0.76 0.89
Diluted 0.36 0.62 0.70 0.83
</TABLE>
(1) Gross margin equals revenues less cost of sales before depreciation and
amortization.
(2) See Note 2 of the Notes to Consolidated Financial Statements for further
information relating to nonrecurring/unusual charges incurred during 1998.
54
<PAGE> 31
SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA OF COOPER CAMERON CORPORATION
The following table sets forth selected historical financial data for
the Company for each of the five years in the period ended December 31, 1998.
The financial information included herein may not necessarily be indicative of
the financial position or results of operations of the Company in the future or
of the financial position or results of operations of the Company that would
have been obtained if the Company had been a separate, stand-alone entity during
all periods presented. This information should be read in conjunction with the
consolidated financial statements of the Company and notes thereto included
elsewhere in this Annual Report.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------------------------------
(dollars in thousands, except per share) 1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Income Statement Data(1):
Revenues $ 1,882,111 $ 1,806,109 $ 1,388,187 $ 1,144,035 $ 1,110,076
----------- ----------- ----------- ----------- -----------
Costs and expenses:
Cost of sales (exclusive of
depreciation and amortization) 1,329,522 1,296,947 1,010,558 881,798 838,575
Depreciation and amortization 72,474 65,862 62,480 71,754 70,233
Selling and administrative
expenses 229,710 215,331 194,983 181,097 177,902
Interest expense 32,721 28,591 20,878 23,273 20,023
Provision for impairment of
goodwill -- -- -- 441,000 --
Nonrecurring/unusual charges(2) 21,956 -- 7,274 41,509 --
----------- ----------- ----------- ----------- -----------
1,686,383 1,606,731 1,296,173 1,640,431 1,106,733
----------- ----------- ----------- ----------- -----------
Income (loss) before income taxes 195,728 199,378 92,014 (496,396) 3,343
Income tax provision (59,572) (58,796) (27,830) (3,657) (7,089)
----------- ----------- ----------- ----------- -----------
Net income (loss) $ 136,156 $ 140,582 $ 64,184 $ (500,053) $ (3,746)
=========== =========== =========== =========== ===========
Earnings (loss) per share (pro
forma prior to June 30, 1995)(3):
Basic $ 2.58 $ 2.70 $ 1.27 $ (9.98) $ (0.07)
Diluted $ 2.48 $ 2.53 $ 1.21 $ (9.98) $ (0.07)
=========== =========== =========== =========== ===========
Balance Sheet Data (at the end of period)(1):
Total assets $ 1,823,603 $ 1,643,230 $ 1,468,922 $ 1,135,405 $1,710,380(4)
Stockholders' equity/net assets 780,285 642,051 516,128 423,588 878,129(4)
Long-term debt 364,363 328,824 347,548 234,841 374,800
Other long-term obligations 149,113 143,560 160,405 160,267 181,043
</TABLE>
(1) The Company became a separate public company effective June 30, 1995 in
connection with the completion of an exchange offer involving the
stockholders of its former parent, Cooper Industries, Inc. (Cooper). The
financial information for periods prior to this date are presented as if
the Company had been a separate entity from Cooper and include the assets,
liabilities, revenues and expenses that were directly related to the
Company's operations. Because the majority of the Company's domestic
results and, in certain cases, foreign results were included in the
consolidated financial statements of Cooper on a divisional basis, there
are no separate meaningful historical equity accounts for the Company prior
to June 30, 1995. Additionally, for periods prior to June 30, 1995, all of
the excess cash generated by the Company's operations was regularly
remitted to Cooper pursuant to Cooper's centralized cash management
program. As a result, total indebtedness prior to June 30, 1995 has been
held constant at $375,000,000.
(2) See Note 2 of the Notes to Consolidated Financial Statements for further
information relating to the nonrecurring/unusual charges incurred during
1998 and 1996. Information relating to the nonrecurring/unusual charges
incurred during 1995 may be found in the 1995 Annual Report to
Stockholders.
(3) For periods prior to June 30, 1995, earnings (loss) per share amounts have
been computed on a pro forma basis based on the assumption that 50,000,000
shares of Common stock were outstanding during each period presented.
(4) Includes a $36,607,000 receivable from Cooper at December 31, 1994.
55
<PAGE> 1
EXHIBIT 21
COOPER CAMERON CORPORATION -- SUBSIDIARIES & JOINT VENTURES
(AS OF MARCH 26, 1999)
<TABLE>
<CAPTION>
COOPER CAMERON CORPORATION (DELAWARE) - PARENT % OWNED % OWNED STATE/COUNTRY OF
BY SUBSIDIARY BY CCC INCORPORATION OR
------------- -------- ORGANIZATION
--------------
<S> <C> <C> <C>
Cameron Algerie (1 share owned by CCPEG)(1) 100% Algeria
Cameron Argentina S.A.I.C.(1) 100% Argentina
Cameron Australasia Pty. Ltd. 100% Australia
Cooper Cameron Pensions Australia. Pty. Ltd. 100% Australia
Cameron France, S.A. (6 shares owned by directors) 100% France
Cameron France E.U.R.L. 100% France
Cameron France S.N.C.(5) 100% France
Cameron Gabon, S.A. (7 shares owned by directors) 100% Gabon
Cameron GmbH 100% Germany
Cameron Inchcape Middle East LLC (Joint Venture)(9) 24% Oman
Cameron Ireland Limited (1 share owned by CCPEG)(1) 100% Ireland
Cameron Norge AS 100% Norway
Cameron Venezolana, S.A.(6) 49% Venezuela
Servicios Cameron, C.A. 100% Venezuela
Camercay, Ltd. 100% Grand Cayman
Compression Services Company 100% Ohio
Cooper Cameron do Brasil Ltda. (1 share owned by CCPEG)1 100% Brazil
Cooper Cameron Foreign Sales Company Ltd. 100% Barbados
Cooper Cameron (U.K.) Limited 100% United Kingdom
Cameron Offshore Engineering Limited 100% United Kingdom
Cooper Cameron Pensions Limited 100% United Kingdom
Cameron Integrated Services Limited 100% United Kingdom
Cooper Cameron Holding B.V. 100% Netherlands
Cooper Energy Services B.V. 100% Netherlands
Cameron B.V. 100% Netherlands
Cooper Cameron Limited 100% Canada
Cooper, Rolls Corporation (3) 50% Canada
Cooper Cameron Corporation Nigeria Limited (7) 60% Nigeria
Cooper Cameron (Malaysia) Sdn Bhd(10) (Joint Venture) 49% Malaysia
Cooper Energy Services de Venezuela, S.A. 100% Venezuela
Cooper Energy Services International, Inc. 100% Ohio
Canada Tiefbohrgerate und Maschinenfabrik GmbH 100% Austria
(1 share owned by CCPEG)(1)
Cooper Cameron (Singapore) Pte. Ltd. 39% 61% Singapore
Cameron (B) Sendirian Berhad (except 1 share owned by Lai Yue Kee) 100% Brunei
Cooper Cameron de Mexico S.A. de C.V. (1 share owned by CCPEG)(1) 100% Mexico
Cooper Cameron Petroleum Equipment Group, Inc. 100% Delaware
Cooper Flow Control Australia Pty. Ltd. 50% 50% Australia
Cooper Rolls Incorporated(4) 50% Ohio
Cooper Rolls Limited (except 1 share by Alan West for Cooper Rolls Inc.) 100% United Kingdom
</TABLE>
<PAGE> 2
Page 2 - Cooper Cameron Corporation
Subsidiaries and Joint Ventures
as of March 26, 1999
<TABLE>
<CAPTION>
COOPER CAMERON CORPORATION (DELAWARE) - PARENT % OWNED % OWNED STATE/COUNTRY OF
BY SUBSIDIARY BY CCC INCORPORATION OR
------------- -------- ORGANIZATION
--------------
<S> <C> <C> <C>
Cooper Turbocompressor, Inc. (Delaware) 100% Delaware
Ingram Cactus de Venezuela , S.A. (Venezuela Joint Venture)(2) 49% Venezuela
Cameron Cactus Cayman Ltd. (Grand Cayman) 100% Grand Cayman
Lyulka-Cooper (Russian Federation Joint Venture)(8) 50% Russia
Orbit Valve International, Inc. (Arkansas) 100% Arkansas
Orbit Valve Company (Arkansas) 100% Arkansas
Orbit Valve Asia, Inc. (Arkansas) 100% Arkansas
Orbit Valve Australia, Inc. (Arkansas) 100% Arkansas
Orbit Valve Company Europe (Arkansas) 100% Arkansas
Orbit Valve PLC (U.K.) 100% United Kingdom
Orbit Valve Canada Ltd. (Alberta, Canada) 100% Alberta, Canada
Wellhead Holdings Malaysia, Inc. (Nevada) 100% Nevada
</TABLE>
1 Partially owned by Cooper Cameron Petroleum Equipment Group, Inc.
2 Partially owned by Carmelo Antonio Moschella Carnabuci.
3 Partially owned by Rolls-Royce Industries Canada, Inc.
4 Partially owned by Rolls-Royce Plc.
5 Partially owned by Cameron France E.U.R.L.
6 Partially owned by Siderurgico Venezolana, S.A.
7 Partially owned by various Nigerian entities and individuals.
8 Partially owned by Lyulka-Saturn.
9 Partially owned by United Engineering Services LLC.
10 Partially owned by Wembley Industries Sdn Bhd.
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of Cooper Cameron Corporation of our report dated January 28, 1999, included in
the 1998 Annual Report to Stockholders of Cooper Cameron Corporation.
We also consent to the incorporation by reference in the following Registration
Statements on Forms S-8 or Form S-3 of Cooper Cameron Corporation of our report
dated January 28, 1999, with respect to the consolidated financial statements
incorporated herein by reference in the Annual Report (Form 10-K) for the year
ended December 31, 1998.
<TABLE>
<CAPTION>
Registration
Statement No. Purpose
- - ------------- -------
<S> <C>
No. 333-26923 and Form S-8 Registration Statement pertaining to the
No. 33-95004 Amended and Restated Cooper Cameron Corporation
Long-Term Incentive Plan
No. 33-94948 Form S-8 Registration Statement pertaining to the Cooper
Cameron Corporation Employee Stock Purchase Plan
No. 33-95000 Form S-8 Registration Statement pertaining to the Cooper
Cameron Corporation Amended and Restated 1995 Stock
Option Plan for Non-Employee Directors
No. 33-95002 Form S-8 Registration Statement pertaining to the Cooper
Cameron Corporation Retirement Savings Plan
No. 333-58005 Form S-8 Registration Statement pertaining to the Individual Account
Retirement Plan for Hourly-Paid Employees at the Cooper Cameron
Corporation Mount Vernon Plant
No. 333-57995 Form S-8 Registration Statement pertaining to the Individual Account
Retirement Plan for Bargaining Unit Employees at the Cooper Cameron
Corporation Missouri City, Texas Facility
No. 333-57991 Form S-8 Registration Statement pertaining to the Individual Account
Retirement Plan for Bargaining Unit Employees at the Cooper Cameron
Corporation Buffalo, New York Plant
</TABLE>
<PAGE> 2
<TABLE>
<S> <C>
No. 333-57997 Form S-8 Registration Statement pertaining to the Individual Account
Retirement Plan for Cooper Cameron Corporation Hourly Employees, UAW,
at the Superior Plant
No. 333-58003 Form S-8 Registration Statement pertaining to the Individual Account
Retirement Plan for Bargaining Unit Employees at the Cooper Cameron
Corporation Grove City Facility
No. 333-51705 Form S-3 Registration Statement pertaining the Cooper Cameron
Corporation shelf registration of debt securities
</TABLE>
/s/ Ernst & Young LLP
ERNST & YOUNG LLP
Houston, Texas
March 26, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 21,296
<SECURITIES> 0
<RECEIVABLES> 336,854
<ALLOWANCES> 4,067
<INVENTORY> 548,053
<CURRENT-ASSETS> 966,260
<PP&E> 938,841
<DEPRECIATION> 448,262
<TOTAL-ASSETS> 1,823,603
<CURRENT-LIABILITIES> 529,842
<BONDS> 364,363
0
0
<COMMON> 533
<OTHER-SE> 779,752
<TOTAL-LIABILITY-AND-EQUITY> 1,823,603
<SALES> 1,882,111
<TOTAL-REVENUES> 1,882,111
<CGS> 1,329,522
<TOTAL-COSTS> 1,329,522
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 32,721
<INCOME-PRETAX> 195,728
<INCOME-TAX> 59,572
<INCOME-CONTINUING> 136,156
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 136,156
<EPS-PRIMARY> 2.58
<EPS-DILUTED> 2.48
</TABLE>
