<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Quarterly Period Ended September 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 1-13884
-------
Cooper Cameron Corporation
--------------------------
(Exact Name of Registrant in its Charter)
Delaware 76-0451843
-------- ----------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
515 Post Oak Blvd., Suite 1200, Houston, Texas 77027
---------------------------------------------- -----
(Address of Principal Executive Offices) (Zip Code)
713/513-3300
------------
(Registrant's Telephone Number, Including Area Code)
N/A
---
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--------- ---------
Number of shares outstanding of issuer's common stock as of October 31, 2000 was
53,956,442.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
COOPER CAMERON CORPORATION
CONSOLIDATED RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
September 30, September 30,
---------------- --------------------
(dollars in millions, except per share data) 2000 1999 2000 1999
------- ------- ------- ---------
<S> <C> <C> <C> <C>
REVENUES................................... $347.9 $373.4 $1,032.4 $1,142.4
------ ------ -------- --------
COSTS AND EXPENSES
Cost of sales (exclusive of depreciation
and amortization)...................... 244.6 274.7 728.4 840.5
Depreciation and amortization.............. 18.6 21.9 56.9 64.1
Selling and administrative expenses........ 46.2 51.9 148.3 156.4
Interest expense........................... 4.4 7.7 13.2 22.5
Nonrecurring/unusual charges (credits)..... 19.2 (13.3) 29.2 (1.3)
------ ------ -------- --------
333.0 342.9 976.0 1,082.2
------ ------ -------- --------
Income before income taxes......... 14.9 30.5 56.4 60.2
Income tax provision....................... (6.6) (14.6) (19.2) (24.4)
------ ------ -------- --------
Net income................................. $ 8.3 $ 15.9 $ 37.2 $ 35.8
====== ====== ======== ========
Earnings per share:
Basic.................................. $ 0.16 $ 0.30 $ 0.71 $ 0.67
====== ====== ======== ========
Diluted................................ $ 0.15 $ 0.29 $ 0.68 $ 0.65
====== ====== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
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<PAGE>
COOPER CAMERON CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
(dollars in millions, except shares and per share data) 2000 1999
------------- ------------
<S> <C> <C>
ASSETS
Cash and cash equivalents........................................ $ 15.1 $ 8.2
Receivables, net................................................. 267.8 271.5
Inventories, net................................................. 391.5 400.0
Other............................................................ 53.9 24.8
-------- --------
Total current assets................................... 728.3 704.5
-------- --------
Plant and equipment, at cost..................................... 807.9 812.2
Less: accumulated depreciation.................................. (409.1) (392.6)
Intangibles...................................................... 496.7 508.8
Less: accumulated amortization.................................. (231.3) (227.8)
Other assets..................................................... 103.0 65.6
-------- --------
TOTAL ASSETS........................................... $1,495.5 $1,470.7
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current maturities of long-term debt............................. $ 3.8 $ 14.4
Accounts payable and accrued liabilities......................... 328.1 395.0
Accrued income taxes............................................. 13.5 12.4
-------- --------
Total current liabilities.............................. 345.4 421.8
-------- --------
Long-term debt................................................... 189.3 195.9
Postretirement benefits other than pensions...................... 52.0 60.8
Deferred income taxes............................................ 38.8 38.9
Other long-term liabilities...................................... 31.3 39.2
-------- --------
Total liabilities...................................... 656.8 756.6
-------- --------
Stockholders' Equity:
Common stock, par value $.01 per share, 150,000,000 shares
authorized, 54,001,955 shares issued (54,001,507 at
December 31, 1999)....................................... 0.5 0.5
Capital in excess of par value............................... 927.4 900.0
Retained deficit............................................. (41.1) (78.3)
Accumulated other elements of comprehensive income........... (45.9) (12.0)
Less: Treasury stock - 77,530 shares, at cost
(3,433,548 at December 31, 1999)....................... (2.2) (96.1)
-------- --------
Total stockholders' equity............................. 838.7 714.1
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY...................................... $1,495.5 $1,470.7
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
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<PAGE>
COOPER CAMERON CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
September 30, September 30,
----------------- ------------------
(dollars in millions) 2000 1999 2000 1999
------ ------- ------- -------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income............................................... $ 8.3 $ 15.9 $ 37.2 $ 35.8
Adjustments to reconcile net income to net cash
provided by (used for) operating activities:
Depreciation........................................... 14.6 17.2 45.2 49.5
Amortization........................................... 4.0 4.7 11.7 14.6
Deferred taxes and other............................... 6.0 3.2 9.9 (8.1)
Changes in assets and liabilities, net of translation,
acquisitions, dispositions and non-cash items:
Receivables............................................ (40.9) (5.4) (13.7) 42.0
Inventories............................................ 2.4 20.3 (5.0) 81.5
Accounts payable and accrued liabilities............... 5.9 22.0 (53.4) (42.4)
Other assets and liabilities, net..................... (9.7) (20.5) (38.5) (32.8)
------ ------- ------- -------
Net change in assets and liabilities................ (42.3) 16.4 (110.6) 48.3
------ ------- ------- -------
Exclude nonoperating gain from sale of
Rotating business, net of tax........................ -- (25.8) -- (25.8)
------ ------- ------- -------
Net cash provided by (used for)
operating activities............................. (9.4) 31.6 (6.6) 114.3
------ ------- ------- -------
Cash flows from investing activities:
Capital expenditures..................................... (15.5) (9.2) (39.0) (53.8)
Proceeds from sale of Rotating business.................. -- 203.2 -- 203.2
Other, net, including (acquisitions) and dispositions..... 24.0 2.6 18.9 4.7
------ ------- ------- -------
Net cash provided by (used for)
investing activities.............................. 8.5 196.6 (20.1) 154.1
------ ------- ------- -------
Cash flows from financing activities:
Loan borrowings (repayments), net........................ (12.5) (101.1) (19.3) (138.8)
Activity under stock option plans and other.............. 13.5 (3.3) 55.9 (15.8)
------ ------- ------- -------
Net cash provided by (used for)
financing activities.............................. 1.0 (104.4) 36.6 (154.6)
------ ------- ------- -------
Effect of translation on cash............................. 1.7 (1.5) (3.0) (0.3)
------ ------- ------- -------
Increase in cash and cash equivalents..................... 1.8 122.3 6.9 113.5
------ ------- ------- -------
Cash and cash equivalents, beginning of period............ 13.3 12.5 8.2 21.3
------ ------- ------- -------
Cash and cash equivalents, end of period.................. $ 15.1 $ 134.8 $ 15.1 $ 134.8
====== ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
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<PAGE>
COOPER CAMERON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Adjustments
The financial information presented as of September 30, 2000, and for the
three- and nine-month periods ended September 30, 2000 and 1999, has been
prepared from the books and records without audit. Financial information as of
December 31, 1999, as used herein, has been derived from the audited financial
statements of the Company, but does not include all disclosures required by
generally accepted accounting principles. In the opinion of management, all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the financial information for the periods indicated, have
been included. For information regarding the Company's accounting policies,
refer to the consolidated financial statements and related notes included in the
Company's Annual Report to Stockholders for the year ended December 31, 1999.
Note 2. Revenue Recognition
At the end of 1999, the United States Securities and Exchange Commission (SEC)
issued Staff Accounting Bulletin No. 101, setting forth the Staff's views
regarding various revenue recognition issues. The Company has reviewed this
release, which is required to be implemented by the fourth quarter of 2000, and
does not currently believe that any material changes are required in its current
revenue recognition policies, practices or procedures.
In addition, in September, the Emerging Issues Task Force (EITF) reached a
consensus on the income statement classification of shipping and handling costs.
This consensus, which is required to be applied beginning in the fourth quarter
of 2000, does not allow companies to net such costs against customer revenues,
which had been the Company's previous accounting policy. As a result, beginning
in the fourth quarter, and by reclassification in prior quarters and years, the
Company will account for freight billings to customers in revenues and costs
paid to shippers in cost of sales. The required modification for the periods
covered by this report will be as follows:
<TABLE>
<CAPTION>
Three Months Nine Months
Increase (Decrease) Ended Ended
September 30, September 30,
------------- -------------
<S> <C> <C> <C> <C>
(dollars in millions) 2000 1999 2000 1999
----- ----- ----- -----
Revenues $ 2.0 $ 3.4 $ 5.8 $ 8.2
Cost of sales $ 2.0 $ 3.4 $ 5.8 $ 8.2
Effect on earnings before tax -- -- -- --
</TABLE>
Note 3. New Accounting Pronouncements
The Company is continuing to evaluate the impact of adopting Statement of
Financial Accounting Standards (SFAS) No. 133 (Accounting for Derivative
Instruments and Hedging
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<PAGE>
Activities) and related Statement No. 138 (Accounting for Certain Derivative
Instruments and Certain Hedging Activities). The Company has very few pure
derivative instruments and is in the process of reviewing other contracts for
potentially embedded derivatives. Until all reviews are completed a final
determination of the impact of this new standard cannot be accurately
quantified.
Note 4. Segments
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
September 30, September 30,
---------------- --------------------
(dollars in millions) 2000 1999 2000 1999
------ ------ -------- --------
<S> <C> <C> <C> <C>
Revenues:
------------------------------
Cameron....................... $208.6 $200.0 $ 630.3 $ 639.2
Cooper Cameron Valves (CCV)... 56.5 60.3 161.5 173.1
Cooper Energy Services (CES).. 61.4 87.4 171.0 249.3
Cooper Turbocompressor (CTC).. 21.4 25.7 69.6 80.8
------ ------ -------- --------
$347.9 $373.4 $1,032.4 $1,142.4
====== ====== ======== ========
Income (loss) before taxes:
------------------------------
Cameron....................... $ 23.1 $ 12.5 $ 71.5 $ 67.4
CCV........................... 8.2 1.8 17.4 5.0
CES........................... (10.6) 24.2 (16.5) 8.2
CTC........................... 2.6 3.4 9.4 12.4
Corporate & Other (1)......... (8.4) (11.4) (25.4) (32.8)
------ ------ -------- --------
$ 14.9 $ 30.5 $ 56.4 $ 60.2
====== ====== ======== ========
</TABLE>
(1) Corporate & Other includes expenses associated with the Company's Corporate
office in Houston, Texas as well as all of the Company's interest expense.
Note 5. Inventories
<TABLE>
<CAPTION>
September 30, December 31,
(dollars in millions) 2000 1999
------------- ------------
<S> <C> <C>
Raw materials....................................... $ 40.8 $ 43.9
Work-in-process..................................... 136.1 126.9
Finished goods, including parts and subassemblies... 285.2 301.9
Perishable tooling and supplies..................... 2.1 2.7
------ ------
464.2 475.4
Allowances.......................................... (72.7) (75.4)
------ ------
Net inventories..................................... $391.5 $400.0
====== ======
</TABLE>
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<PAGE>
Note 6. Comprehensive Income
The amount of comprehensive income for each of the three- and nine-month
periods ended September 30, 2000 and 1999, and the components of accumulated
other elements of comprehensive income at September 30, 2000 and December 31,
1999, are as follows:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
September 30, September 30,
----------------- ------------------
(dollars in millions) 2000 1999 2000 1999
------- ----- -------- ------
<S> <C> <C> <C> <C>
Net income per Consolidated Results of
Operations...................................... $ 8.3(2) $15.9 $ 37.2(2) $ 35.8
Offset effect of translation loss charged against
comprehensive income previously................. 6.6 -- 6.6 --
Foreign currency translation gain (loss) (1)........ (14.6) 20.2 (41.7) (12.7)
Other............................................... (0.3) -- 1.2
------- ----- ------ --------
Comprehensive income ............................... $ -- $36.1 $ 3.3 $ 23.1
======= ===== ====== ========
</TABLE>
(1) The significant third quarter and year-to-date changes in the "Foreign
currency translation gain (loss)" relate primarily to the Company's
operations in the United Kingdom, Ireland, the Netherlands, France and
Germany.
(2) Includes a $6.6 million write-off of the translation component related to
the sale of a small CES business in Canada.
<TABLE>
<CAPTION>
September 30, December 31,
(dollars in millions) 2000 1999
------------ ------------
<S> <C> <C>
Amounts comprising accumulated other elements
of comprehensive income:
Accumulated foreign currency translation
adjustments.............................. $(46.7) $(11.6)
Accumulated adjustments to record
minimum pension liabilities.............. (0.4) (0.4)
Other...................................... 1.2 --
------ ------
Accumulated other elements of
comprehensive income............ $(45.9) $(12.0)
====== ======
</TABLE>
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<PAGE>
Note 7. Earnings Per Share
The weighted average number of common shares (utilized for the basic
earnings per share presentation) and common stock equivalents outstanding for
each period presented were as follows:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
September 30, September 30,
------------- -------------
(amounts in millions) 2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Average shares outstanding.......................... 53.4 53.7 52.4 53.4
Common stock equivalents............................ 2.2 1.7 2.5 1.4
---- ---- ---- ----
Number of shares utilized in diluted earnings per
share calculation............................... 55.6 55.4 54.9 54.8
==== ==== ==== ====
</TABLE>
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<PAGE>
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition
In addition to the historical data contained herein, this document includes
"forward-looking statements" regarding the future revenues, cash flows,
including capital expenditures, nonrecurring/unusual charges, and profitability
of the Company. All such forward-looking statements are 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,
and pricing of, the Company's products; the size and timing of orders; changes
in the price of (and demand for) oil and gas in both domestic and international
markets; political and social issues affecting the countries in which the
Company does business; fluctuations in currency markets worldwide; and
variations in global economic activity. In particular, current and projected oil
and gas prices directly affect customers' spending levels and their related
purchases of the Company's products and services: additionally, changes in oil
and gas 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.
THIRD QUARTER 2000 COMPARED TO THIRD QUARTER 1999
Cooper Cameron Corporation had net income of $8.3 million, or $.15 per
share, for the third quarter of 2000 compared to $15.9 million, or $.29 per
share, for the same period in 1999. Included in the third quarter results were
after-tax charges of $15.3 million ($19.2 million pre-tax), or $.28 per share,
due largely to previously initiated cost rationalization programs in Cooper
Energy Services (CES) and additional restructuring in Cameron. The third quarter
1999 results included similar after-tax charges of $21.4 million, or $.39 per
share, for cost rationalization in each of the Company's four segments. The 1999
charge was offset by an after-tax gain of $25.8 million, or $.47 per share, on
the sale of the CES rotating compressor business to Rolls Royce plc for $203
million in cash. These nonrecurring/unusual charges (credits) are discussed in
more detail below. Excluding these charges (credits), the Company earned $.43
per share in the third quarter of 2000 compared to $.21 per share in the third
quarter of 1999, an increase of 105%.
REVENUES
Revenues for the third quarter of 2000 totaled $347.9 million, a decrease of
7% from the $373.4 million in the third quarter of 1999. Excluding third
quarter 1999 revenues related to the divested rotating compressor business of
$29.8 million, revenues were up 1% from the prior
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<PAGE>
year. Increased revenues at Cameron and CES were partially offset by declines in
Cooper Cameron Valves (CCV) and Cooper Turbocompressor (CTC).
Revenues for Cameron totaled $208.6 million, an increase of 4% from the
$200.0 million recorded in the third quarter of 1999. Increases in subsea and
aftermarket sales were partially offset by a decrease in drilling sales.
Surface sales were relatively flat year-over-year. The increase in subsea sales
was primarily due to third quarter 2000 shipments on the Shell Malampaya project
(offshore Philippines) as well as the Triton Ceiba project (offshore West
Africa). Additionally, increased deliveries to Gulf of Mexico and offshore
Brazil projects also contributed to the year-over-year increase. Increased
aftermarket activity was primarily attributable to higher rig counts in the U.S.
and Canada associated with higher oil and gas prices. The low level of major
project orders booked in earlier periods impacted drilling sales.
Geographically, sales to customers in the Asia Pacific/Middle East regions
(primarily related to Malampaya) accounted for most of the sales increase in the
third quarter of 2000. Sales to customers in the Western Hemisphere were flat
while sales to Eastern Hemisphere customers declined, partly due to the strong
U.S. dollar versus the euro and the British pound.
CCV's revenues of $56.5 million declined 6% from $60.3 million in the third
quarter of 1999. Increases in distributor product and aftermarket revenues were
more than offset by a decline in Orbit Valve sales and, to a lesser extent, by a
decrease in Cameron ball valve sales. Although order activity has improved in
2000 compared to 1999, the overall decline in revenues was primarily the result
of a higher backlog level in the middle of 1999 compared to the middle of 2000
that impacted third quarter shipments in the respective periods.
Revenues for CES of $61.4 million declined by 30% from the $87.4 million in
the third quarter of 1999. Excluding third quarter 1999 rotating compressor
sales, CES revenues on a comparable basis increased 7% year-over-year. Most of
this increase was due to higher reciprocating parts shipments combined with
modest pricing improvements. Partially offsetting this increase were lower
engine sales. Ajax and Superior compressor shipments were relatively flat year-
over-year.
CTC revenues of $21.4 million were down 17% from $25.7 million in the third
quarter of 1999. Engineered process air machine shipments were down sharply as
deliveries of several large units were delayed until early in the fourth
quarter. This decrease was partially offset by higher plant air machine and
parts revenues.
Orders for the third quarter 2000 totaling $324.0 million were up 2% from
$317.6 million in the third quarter of 1999. Excluding orders relating to the
rotating compressor business of $39.0 million in the third quarter of 1999,
orders were up 16% year-over-year. Cameron accounted for $63.6 million of the
increase with higher orders in all product lines with the exception of surface
products, which were relatively flat, compared to the third quarter of 1999.
CCV orders were up 7% from $50.8 million in the third quarter of 1999 to $54.4
million in the third quarter of 2000. Higher order levels for distributor
products and aftermarket were partially offset by lower order levels for Cameron
ball valves and Orbit valves. CES orders for the third quarter 2000 totaled
$51.6 million, down 27% from $70.5 million in the third quarter of 1999
(excluding orders relating to the rotating compressor business). Declines in
all product lines
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<PAGE>
were slightly offset by higher levels of reciprocating parts orders. CTC orders
of $24.3 million were down 11% from $27.2 million in the third quarter 1999 as
increased plant air and aftermarket orders were more than offset by a decline in
orders for process air machines.
Backlog totaling $489.5 million has decreased 5% from $516.9 million at the
end of the second quarter 2000 and was down 7% from $527.4 million at the end of
the third quarter 1999. These amounts exclude any backlog related to the
rotating compressor business.
COSTS AND EXPENSES
The $25.5 million decrease in revenues in the third quarter of 2000 compared
to the third quarter of 1999 was accompanied by a decrease of $30.1 million in
cost of sales (exclusive of depreciation and amortization) resulting in a gross
margin improvement of $4.6 million or 3.3 percentage points. This result is
discussed below in more detail for each segment.
Cameron's gross margin percentage was 27.8% in the third quarter of 2000
compared to 28.3% in the third quarter of 1999. This small decrease reflects
the net effect of pricing pressure across all product lines partially offset by
the various cost reduction initiatives undertaken over the last two years. As
the anticipated recovery in the markets served by Cameron continues and as the
full benefit of cost savings are realized this trend should gradually reverse.
CCV's gross margin percentage increased from 28.5% in the third quarter of
1999 to 34.0% in the third quarter of 2000. This increase was primarily
attributable to reductions in material costs and productivity improvements.
CES improved their gross margin percentage in the third quarter 2000 to
30.2% from 19.9% in the third quarter 1999. A sales mix increase in higher
margin parts shipments compared to lower margin unit shipments, the sale of the
lower margin rotating compressor business in the third quarter of 1999 and
ongoing business restructuring initiatives all contributed to the margin
improvement.
CTC's gross margin percentage improved from 29.8% in the third quarter of
1999 to 35% in the third quarter of 2000 primarily due to a sales mix change to
higher levels of parts and plant air machine shipments that typically carry
better margins than engineered process air machines.
Depreciation and amortization expense decreased by $3.3 million from $21.9
million in the third quarter of 1999 to $18.6 million in the third quarter of
2000. This decrease is attributable to the sale of the rotating compressor
business, closure of the Grove City foundry (CES) and Missouri City, Texas
manufacturing facility (CCV) as well as other Cameron plant consolidations that
have been undertaken worldwide.
Selling and administrative expenses decreased by $5.7 million, or 11% from
$51.9 million in the third quarter of 1999 to $46.2 million in the third quarter
of 2000. As a percentage of revenues, selling and administrative expenses were
13.3% for the third quarter 2000 compared to 13.9% in the third quarter of 1999.
Most of the dollar decrease was in Cameron due mainly to
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<PAGE>
lower employee related expenses and in CES resulting from the 1999 sale of the
rotating compressor business.
Reflecting the various factors discussed above, operating income (defined as
earnings before the gain on sale, nonrecurring/unusual charges, corporate
expenses, interest and taxes) totaled $42.5 million, an increase of $13.9
million from the third quarter of 1999. Cameron increased from $19.4 million to
$25.5 million, CCV increased from $6.1 million to $8.2 million, CES increased
from a loss of $(.6) to $6.1 million and CTC decreased from $3.7 million to $2.7
million.
Interest expense was $4.4 million in the third quarter of 2000, a decrease
of $3.3 million from the same period in 1999. This decline was due to an average
debt level in the third quarter of 2000 that was over $200 million lower than
the average debt level for the same period in 1999. The decline in the debt
level was the result of utilizing the proceeds from the sale of the rotating
compressor business to pay down debt.
The nonrecurring/unusual charges (credits) by segment are as follows:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
September 30, September 30,
--------------- ---------------
(dollars in millions) 2000 1999 2000 1999
----- ------ ----- ------
<S> <C> <C> <C> <C>
Cameron......................................... $ 2.4 $ 6.9 $ 3.6 $ 11.3
CCV............................................. -- 4.3 0.9 8.4
CES............................................. 16.7 20.5 24.5 23.8
Gain on sale of Rotating compressor business.... -- (45.3) -- (45.3)
CTC............................................. 0.1 0.3 0.2 0.5
----- ------ ----- ------
$19.2 $(13.3) $29.2 $ (1.3)
===== ====== ===== ======
</TABLE>
In connection with the sale of the CES rotating compressor business to
Rolls Royce plc on September 30, 1999, the Company agreed to relocate all of its
non-rotating operations from Mt. Vernon, Ohio to other locations. In the same
quarter, the shutdown of CES' underutilized foundry and associated machining
operations in Grove City, Pennsylvania also commenced. During the first part of
2000 additional restructuring initiatives were undertaken with respect to
certain aspects of CES' reciprocating compressor operations in Springfield,
Ohio. While portions of these costs were able to be accrued in the third
quarter of 1999 and then in 2000 when decisions were made and announced to
affected employees, under existing accounting rules other costs could not be
recorded until actually incurred. Of the amounts reflected above in both 1999
and 2000 approximately $15 million in 1999 and $1 million in 2000 represented
non-cash write-offs or write-downs of various capital assets. The remaining
costs have consisted primarily of employee severance and relocation, inventory
and machinery relocation, facility rearrangement, facility clean-up, pay-to-stay
arrangements, productivity degradation and abnormal workmen's compensation and
medical costs. Additionally, in the third quarter of 2000, CES sold its small
Canadian aftermarket business for $10.8 million in cash. Because this sale
resulted in the
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<PAGE>
cessation of all of CES' operations in Canada, a $6.6 million non-cash, non-
deductible write-off of the accumulated translation component for the Canadian
legal entity was also recorded.
During this same two-year period Cameron, in response to decreased market
demand, has incurred the noted expenses for work force reductions and other
restructuring initiatives in the United States, France and the United Kingdom
and more recently in Austria, Holland, Australia and Germany. Lastly, CCV's
expenses were primarily related to the shutdown of its manufacturing operations
in Missouri City, Texas and relocation of people, inventory and equipment to its
facilities in Oklahoma and elsewhere.
Since December 31, 1998, the Company's headcount has been reduced by
approximately 2,000 employees or 21% as a result of the sale of the rotating
business, the actions described above and normal attrition. The Company
currently anticipates that it will recognize a further $10 million of expense in
the fourth quarter of 2000 as the last costs are incurred with respect to all of
the initiatives undertaken over the last two years.
The effective tax rate of 44% in the third quarter of 2000 reflects the non-
tax deductible $6.6 million translation component write-off from the sale by CES
of its Canadian business as well as a full-year 30.5% rate on normal earnings,
including other nonrecurring/unusual charges. The third quarter 1999 effective
tax rate of 47.9% reflects the combination of a 43.0% tax rate related to the
gain on the sale of the CES rotating compressor business combined with a full-
year expected rate on normal earnings, including nonrecurring/unusual charges,
of 32.9%. The difference between the normalized rates of 30.5% for 2000 and
32.9% for 1999 is due primarily to a change in the mix of domestic and foreign
earnings.
NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1999
Cooper Cameron Corporation had net income of $37.2 million, or $.68 per
share, for the nine months ended September 30, 2000 compared to $35.8 million,
or $.65 per share, for the same period in 1999. Included in the 2000 results
were after-tax charges of $22.3 million ($29.2 million pre-tax), or $.41 per
share, due largely to additional costs associated with previously initiated cost
rationalization programs in Cooper Energy Services (CES) and additional
restructuring in Cameron. The 1999 results included similar after-tax charges
of $29.5 million, or $.54 per share, for cost rationalization in each of the
Company's four segments. The 1999 charges were offset by an after-tax gain of
$25.8 million, or $.47 per share, on the sale of the CES rotating compressor
business to Rolls Royce plc. These nonrecurring/unusual charges (credits) are
discussed in more detail in the quarter-to-quarter discussion above. Excluding
these charges (credits), the Company earned $1.09 per share in 2000 compared to
$.72 per share in 1999, an increase of 51%.
REVENUES
Revenues for the nine months ended September 30, 2000 totaled $1,032.4
million, a decrease of 10% from $1,142.4 million for the nine months ended
September 30, 1999. Excluding year-to-date 1999 revenues related to the
rotating compressor business of $92.4
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million, revenues were down 2% from the prior year. The decreases were in all
segments except CES.
Revenues for Cameron totaled $630.3 million, a decrease of 1% from $639.2
million for the nine months ended September 30, 1999. Declines in drilling and
surface sales were mostly, but not totally, offset by an increase in subsea and
aftermarket sales. The increase in subsea sales was primarily due to shipments
on the Malampaya project (offshore Philippines) as well as for projects offshore
West Africa, partially offset by lower sales of subsea BOP stacks in the Gulf of
Mexico and offshore Brazil. Increased aftermarket activity was primarily
attributable to higher rig counts in the U.S. and Canada associated with higher
oil and gas prices. The low level of orders booked in earlier periods
negatively impacted drilling and surface sales. Geographically, sales to
customers during 2000 in the Asia Pacific/Middle East regions (primarily related
to Malampaya) were up 60% compared to the same period in 1999. Sales to
customers in the Western Hemisphere were down nearly 5% while sales to Eastern
Hemisphere customers declined 16%, largely due to lower drilling and surface
sales and the impact of the strong U.S. dollar versus the euro and the British
pound.
CCV's revenues of $161.5 million declined 7% from $173.1 million for the
nine months ended September 30, 1999. Increases in distributor product and
aftermarket revenues were more than offset by a decline in pipeline valve sales
and, to a lesser extent, by a decline in Orbit Valve sales. Although order
activity has improved in 2000 compared to 1999, the overall decline in revenues
was primarily the result of a higher backlog level in the beginning of 1999
compared to the beginning of 2000 that impacted shipments for the first nine
months of both years.
Revenues for CES of $171.0 million declined by 31% from $249.3 million in
the first nine months of 1999. Excluding 1999 rotating compressor revenues, CES
revenues on a comparable basis increased 9% year-over-year. Most of this
increase was due to higher reciprocating parts shipments combined with higher
shipments of Ajax units. Partially offsetting this increase were lower engine
and Superior compressor sales.
CTC revenues of $69.6 million in 2000 were down 14% from $80.8 million in
1999. Engineered process air machine shipments were down as delivery of several
large units was delayed until early in the fourth quarter 2000 and due to a
larger backlog of process air units at the beginning of 1999 as compared to the
beginning of 2000. Competitive pricing has also had a slight negative impact on
revenues in 2000. This decrease was partially offset by higher plant air
machine and parts revenues.
Orders for the nine months ended September 30, 2000 totaling $1,022.7
million were up 2% from $999.4 million for the same period in 1999. Excluding
orders relating to the rotating compressor business of $125.4 million in 1999,
orders were up 17% year-over-year. Cameron accounted for $178.8 million of the
increase with higher orders in all product lines and all geographic regions. CCV
orders were up 2% from $163.7 million in the first nine months of 1999 to $166.8
million for the corresponding period in 2000. Higher order levels for
distributor products and aftermarket were partially offset by lower order levels
for Cameron ball valves and Orbit valves. CES orders for the nine months ended
September 30, 2000 totaled $159.6 million, down 21% from $202.8 million for the
same period in 1999 (excluding orders relating to the
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rotating compressor business). Declines occurred in all product lines except for
reciprocating parts orders which were basically flat year-over-year. CTC orders
of $78.6 million were up 15% from $68.6 million for the first nine months of
1999 as increased plant air and parts and repair orders more than offset a 4%
decline in orders for process air machines.
Backlog totaling $489.5 million has decreased 5% from $516.9 million at the
end of the second quarter 2000 and is down 5% from $512.6 million at December
31, 1999. December 31, 1998 backlog totaled $790.4 million.
COSTS AND EXPENSES
The decrease of $110.0 million in revenues for the nine months ended
September 30, 2000 compared to the same period in 1999 was accompanied by a
decrease of $112.1 million in cost of sales (exclusive of depreciation and
amortization) resulting in gross margin improvement of $2.1 million or 3
percentage points. This result is discussed below in more detail for each
segment.
Cameron's gross margin percentage was 28.7% for the nine months ended
September 30, 2000 compared to 29.2% for the same period in 1999. This decline
reflects the same factors discussed in the quarterly comparison. The 2000 nine-
month gross margin percentage was .9 percentage points higher than the 2000
third quarter rate reflecting a more pronounced effect of the mix shift in the
third quarter than in the nine months.
CCV's gross margin percentage increased from 27.8% in the first nine months
of 1999 to 32.2% for the same period in 2000. This increase was primarily
attributable to material cost reductions and productivity enhancements, which
have improved steadily as the year has progressed, such that the third quarter's
gross margin percentage is 1.8 percentage points higher than the nine-month
result.
CES's gross margin percentage improved in the first nine months of 2000 to
27.6% from 16.4% for the same period in 1999. This increase reflects the same
factors discussed in the quarterly comparison.
CTC's gross margin percentage improved from 32.7% in 1999 to 35.2% in 2000
primarily due to a sales mix change to higher levels of parts and plant air
machine shipments, which typically carry better margins than the engineered
process air machines.
Depreciation and amortization expense decreased by $7.2 million from $64.1
million during the first nine months of 1999 to $56.9 million for the same
period in 2000. This decrease is primarily attributable to the sale of the
rotating compressor business and the closure of the Grove City foundry (CES) and
Missouri City, Texas manufacturing facility (CCV).
Selling and administrative expenses decreased by $8.1 million, or 5% from
$156.4 million in 1999 to $148.3 million for the first nine months of 2000. As
a percentage of revenues, selling and administrative expenses were 14.4% for the
first nine months of 2000 compared to 13.7% for the corresponding period in
1999. Most of the dollar decrease was in CES resulting from the
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1999 sale of the rotating compressor business. Cameron also contributed to the
decrease with lower employee-related expenses in 2000.
Reflecting the various factors discussed above, 2000 operating income
(defined as earnings before the gain on sale, nonrecurring/unusual charges,
corporate expenses, interest and taxes) totaled $111.1 million, an increase of
$19.4 million from the same period in 1999. Cameron decreased from $78.7
million to $75.1 million, CCV increased from $13.4 million to $18.3 million, CES
increased from a loss of $(13.3) to $8.0 million and CTC decreased from $12.9
million to $9.7 million.
Interest expense was $13.2 million for the nine months ended September 30,
2000, a decrease of $9.3 million from the same period in 1999. This decline was
due to an average debt level in 2000 that was over $200 million lower than the
average debt level for the same period in 1999. The decline in the debt level
was the result of utilizing the proceeds from the sale of the rotating
compressor business to pay down debt.
The effective tax rate of 34% for the first nine months of 2000 reflects the
non-tax deductible $6.6 million translation component write-off from the sale by
CES of its Canadian business as well as a full year 30.5% rate on normal
earnings, including other nonrecurring/unusual charges. The 1999 effective tax
rate of 40.5% reflects the combination of a 43.0% tax rate related to the gain
on the sale of the CES rotating compressor business combined with a full year
expected rate on normal earnings, including nonrecurring/unusual charges, of
32.9%. The difference between the 30.5% for 2000 and 32.9% for 1999 is due
primarily to a change in the mix of domestic and foreign earnings.
OUTLOOK FOR THE REMAINDER OF 2000
Based on current expectations, the Company's sequential improvement in
quarterly earnings during the year should continue in the fourth quarter, with
earnings per share of approximately $0.45 - $0.48, excluding
nonrecurring/unusual charges, on track toward the mid-point of the $1.50 to
$1.60 per share estimate previously provided for full year 2000.
CASH FLOW, LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL POSITION
During the first nine months of 2000, the Company's operating activities
utilized $6.6 million in cash compared to a cash generation of $114.3 million
for the same period in 1999. During the first nine months of 1999, the Company
(primarily Cameron and CCV) reduced inventory levels significantly as a result
of declining order and backlog levels adding $81.5 million to operating cash
flow. In addition, receivables were reduced from December 31, 1998 adding
another $42.0 million to operating cash flow in 1999. Cameron was primarily
responsible for this additional amount. In spite of increased order levels at
Cameron during 2000, this segment has managed to maintain relatively flat levels
of inventory compared to December 31, 1999 (excluding the effects of
translation). Most of the increase in inventory levels (excluding the effects
of translation) during the first nine months of 2000 occurred at CES and CTC.
An increase in receivables (excluding the effects of translation), reflecting
strong sales at the end of the third quarter, primarily at Cameron, compared to
December 31, 1999, had a
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negative effect on cash flow from operations for the nine months ended September
30, 2000. Cameron was also primarily responsible for the lower accounts payable
and accrued liability levels at September 30 compared to December 31 as customer
advances and progress payments have declined due to the lower number of major
projects in backlog at the end of September.
The Company spent $39.0 million for capital additions during the nine
months ended September 30, 2000. Over 80% of this amount was incurred by
Cameron and CES. While much of Cameron's capital spending has been associated
with new machinery and equipment, CES' spending has been tied largely to the
restructuring efforts underway in this segment, as discussed previously. It is
expected that with improved market conditions in oil and gas equipment markets,
along with the continuing restructuring efforts at CES, capital spending in the
fourth quarter of 2000 will be well above the $11.1 million incurred in the
fourth quarter of 1999.
The primary source of cash derived from "other" investing activities was
the sale of the CES Canadian aftermarket operation discussed earlier.
With the sharp increase in the Company's stock price beginning in the first
quarter of 2000, over $61 million in cash has been received in connection with
employee stock option exercises. Much of this cash has been utilized to fund
the capital expenditures mentioned above as well as pay down debt by $19
million. As a result of the reduced debt levels, the Company's debt to
capitalization ratio was 18.7% at September 30, 2000 compared to 22.8% at
December 31, 1999 and 24.8% at September 30, 1999.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no significant changes since December 31, 1999 in the
Company's exposure to market risk from its current holdings of financial
instruments other than the expiration, effective June 30, 2000, of its
outstanding pay fixed/receive variable interest rate swaps covering $75 million
of variable rate debt. The average fixed pay rate on these swaps was 5.77%.
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PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 - Financial Data Schedule.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the three months ended
September 30, 2000.
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Cooper Cameron Corporation
--------------------------
(Registrant)
Date November 13, 2000 /s/ Thomas R. Hix
---------------------------
Thomas R. Hix
Senior Vice President &
Chief Financial Officer
and authorized to sign on
behalf of the Registrant
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