-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GUaDfN/dOLbAfN3Vr+zj8tLZ9zR2upEz2/lgS5SsJaqtHCPnMetKmzuy2kRxJnQc lIheeeTQACxAnBmqngMrpA== 0000950129-99-001333.txt : 19990409 0000950129-99-001333.hdr.sgml : 19990409 ACCESSION NUMBER: 0000950129-99-001333 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990331 DATE AS OF CHANGE: 19990408 FILER: COMPANY DATA: COMPANY CONFORMED NAME: COOPER CAMERON CORP CENTRAL INDEX KEY: 0000941548 STANDARD INDUSTRIAL CLASSIFICATION: 3533 IRS NUMBER: 760451843 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-13884 FILM NUMBER: 99583777 BUSINESS ADDRESS: STREET 1: 515 POST OAK BLVD STREET 2: STE 1200 CITY: HOUSTON STATE: TX ZIP: 77027 BUSINESS PHONE: 7135133322 MAIL ADDRESS: STREET 1: 515 POST OAK BOULEVARD CITY: HOUSTON STATE: TX ZIP: 77027 10-K405 1 COOPER CAMERON CORPORATION - 12/31/98 1 =============================================================================== 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 ------------------------ 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 ------------------- ------------------------ 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. ------------------------- 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. =============================================================================== 2 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. 1 3 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 2 4 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. 3 5 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. 4 6 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. 5 7 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 6 8 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 7 9 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 8 10 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. 9 11 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, 10 12 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 11 13 by industry segment and geographic area. Cameron and Cooper Cameron Valves share space in certain facilities and, thus, are being reported together.
Asia/Pacific Western Eastern and Hemisphere Hemisphere Mideast Total ---------- ---------- ------- ----- Cameron and Cooper Cameron Valves 14 12 3 29 Cooper Energy Services 21 2 0 23 Cooper Turbocompressor 1 1 0 2
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 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 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).
Price Range ----------- High Low Last ---- --- ---- 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
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 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 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
Name and Age Present Principal Position and Other Material Positions - - ------------ ------------------------------------------------------- Held During Last Five Years --------------------------- 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.
16 18 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.
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 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 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 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 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 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 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 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.
SIGNATURE TITLE --------- ----- /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)
24 26 EXHIBIT INDEX
EXHIBIT SEQUENTIAL NUMBER DESCRIPTION PAGE NO. ------ ----------- -------- 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.
27 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.
28 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.
29 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.
30 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.
31 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.
EX-10.9 2 6TH AMEND. TO 1995 STOCK OPTION PLAN NON-EMP DIR. 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. EX-10.27 3 1999 MANAGEMENT INCENTIVE COMPENSATION PLAN 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. 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:
EBITDA ATTAINMENT ROE HURDLE ACHIEVED PARTICIPANT AWARD ----------------- ------------------- ----------------- 110% YES 110.0% 110% NO 55.0% 85% YES 85.0% 85% NO 42.5% 180% YES 180.0%
3 B. Division Operating Unit Participant without Individual Objectives: Assume ROE hurdle is achieved
ATTAINMENT WEIGHT PERFORMANCE LEVEL ---------- ------ ----------------- Division EBITDA 110% 30% 33.0% Operating Unit EBITDA 85% 50% 42.5% Individual Objective 100% 20% 20.0% PARTICIPANT AWARD 95.5%
C. Division Operating Unit Participant with Individual Objectives: Assume ROE hurdle is achieved
EBITDA ATTAINMENT WEIGHT PERFORMANCE LEVEL ----------------- ------ ----------------- 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%
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. 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. EX-13.1 4 PORTIONS OF THE 1998 ANNUAL REPORT 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.
YEARS ENDED DECEMBER 31, ----------------------------------- 1998 1997 1996 ----- ----- ----- 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% ===== ===== =====
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 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 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 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. 28 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 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 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 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:
Fair value difference Maturity at (dollars in millions, except stock prices) 1999 2000 2001 2002 2003 Total 12/31/98 - - ------------------------------------------ ---- ---- ---- ---- ---- ----- -------- 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%
32 9
Fair value Maturity difference ------------------------------------------------------ at (dollars in millions, except stock prices) 1999 2000 2001 2002 2003 Total 12/31/98 - - ------------------------------------------ ---- ---- ---- ---- ---- ----- -------- 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
(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. 33 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 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 12 CONSOLIDATED RESULTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
YEARS ENDED DECEMBER 31, -------------------------------------------- 1998 1997 1996 ---------- ---------- ---------- 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 ========== ========== ==========
The Notes to Consolidated Financial Statements are an integral part of these statements. 36 13 CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS, EXCEPT SHARES AND PER SHARE DATA)
DECEMBER 31, ------------------------------ 1998 1997 ------------ ---------- 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 =========== ==========
The Notes to Consolidated Financial Statements are an integral part of these statements. 37 14 CONSOLIDATED CASH FLOWS (DOLLARS IN THOUSANDS)
YEARS ENDED DECEMBER 31, -------------------------------------------- 1998 1997 1996 ---------- ---------- ---------- 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 ========== ========== ==========
The Notes to Consolidated Financial Statements are an integral part of these statements. 38 15 CONSOLIDATED CHANGES IN STOCKHOLDERS' EQUITY (dollars in thousands)
ACCUMULATED OTHER CAPITAL IN ELEMENTS OF COMMON EXCESS OF COMPREHENSIVE COMPREHENSIVE RETAINED TREASURY STOCK PAR VALUE INCOME INCOME DEFICIT STOCK - - --------------------------------------------------------------------------------------------------------------------------- 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) $ --
The Notes to Consolidated Financial Statements are an integral part of these statements. 39 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 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 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
DECEMBER 31, -------------------------- 1998 1997 -------- -------- (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 ======== ========
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
DECEMBER 31, -------------------------- 1998 1997 -------- -------- (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 ======== ========
42 19 NOTE 6: PLANT AND EQUIPMENT AND INTANGIBLES
DECEMBER 31, ---------------------------- (dollars in thousands) 1998 1997 ------------ ------------ 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 ============ ============
NOTE 7: ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
DECEMBER 31, ------------------------------ (dollars in thousands) 1998 1997(1) ------------ ------------ 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 ============ ============
(1) Restated for consistency with 1998 presentation. NOTE 8: EMPLOYEE BENEFIT PLANS
POSTRETIREMENT PENSION BENEFITS BENEFITS (dollars in thousands) 1998 1997(1) 1996(1) 1998 1997 1996 -------- -------- -------- -------- -------- -------- 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) ======== ======== ======== ======== ======== ========
43 20
POSTRETIREMENT PENSION BENEFITS BENEFITS (dollars in thousands) 1998 1997 1998 1997 --------- --------- --------- --------- 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 ========= ========= ========= =========
POSTRETIREMENT PENSION BENEFITS BENEFITS (dollars in thousands) 1998 1997(1) 1998 1997 --------- --------- --------- --------- 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 $ -- $ -- ========= ========= ========= =========
POSTRETIREMENT PENSION BENEFITS BENEFITS (DOLLARS IN THOUSANDS) 1998 1997(1) 1998 1997 -------- -------- -------- -------- 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) ======== ======== ======== ========
(1) Restated for consistency with 1998 presentation. 44 21
POSTRETIREMENT PENSION BENEFITS BENEFITS 1998 1997 1998 1997 ------- ------- ----------- ------- 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%
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:
1 - PERCENTAGE 1 - PERCENTAGE (DOLLARS IN THOUSANDS) POINT INCREASE POINT DECREASE -------------- -------------- 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)
Amounts applicable to the Company's pension plans with projected and accumulated benefit obligations in excess of plan assets are as follows:
(DOLLARS IN THOUSANDS) 1998 1997 ------------ ------------ Projected benefit obligation $ (9,237) $ (8,666) Accumulated benefit obligation $ (8,149) $ (7,672) Fair value of plan assets $ 2,810 $ 3,109
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 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
NUMBER OF SHARES -------------------------- LONG-TERM NON-EMPLOYEE WEIGHTED INCENTIVE DIRECTOR AVERAGE PLAN PLAN EXERCISE PRICES ------------ ------------ --------------- 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 ========== ======== ============
(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 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
DECEMBER 31, ---------------------- (DOLLARS IN THOUSANDS) 1998 1997 --------- --------- 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 ========= =========
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 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
YEARS ENDED DECEMBER 31, ---------------------------------------------- (dollars in thousands) 1998 1997 1996 ------------ ------------ ------------ 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 ============ ============ ============
48 25
DECEMBER 31, ---------------------- (dollars in thousands) 1998 1997 --------- --------- 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) ========= =========
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 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 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.
(dollars in thousands) FOR THE YEAR ENDED DECEMBER 31, 1998 ----------------------------------------------------------------------------- CORPORATE CAMERON CCV CES CTC & OTHER CONSOLIDATED ---------- ---------- ---------- ---------- ---------- ---------- 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 ========== ========== ========== ========== ========== ==========
(dollars in thousands) FOR THE YEAR ENDED DECEMBER 31, 1997 ----------------------------------------------------------------------------- CORPORATE CAMERON CCV CES CTC & OTHER CONSOLIDATED ---------- ---------- ---------- ---------- ---------- ---------- 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 ========== ========== ========== ========== ========== ==========
51 28
(dollars in thousands) FOR THE YEAR ENDED DECEMBER 31, 1996 ---------------------------------------------------------------------------- CORPORATE CAMERON CCV CES CTC & OTHER CONSOLIDATED ---------- ---------- ---------- ---------- ---------- ---------- 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 ========== ========== ========== ========== ========== ==========
Geographic Information:
DECEMBER 31, 1998 DECEMBER 31, 1997 DECEMBER 31, 1996 ----------------------- ----------------------- ----------------------- LONG-LIVED LONG-LIVED LONG-LIVED REVENUES ASSETS REVENUES ASSETS REVENUES ASSETS ---------- ---------- ---------- ---------- ---------- ---------- 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 ========== ========== ========== ========== ========== ==========
(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 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:
YEARS ENDED DECEMBER 31, -------------------- (dollars in thousands) 1998 1997 -------- -------- 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) --
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:
YEARS ENDED DECEMBER 31, ------------------------ (amounts in thousands) 1998 1997 1996 ------ ------ ------ 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 ====== ====== ======
53 30 NOTE 17: ACCUMULATED OTHER ELEMENTS OF COMPREHENSIVE INCOME
DECEMBER 31, -------- -------- (dollars in thousands) 1998 1997 -------- -------- Accumulated foreign currency translation adjustments $ 17,828 $ 8,092 Accumulated adjustments to record minimum pension liabilities (373) (293) -------- -------- $ 17,455 $ 7,799 ======== ========
NOTE 18: UNAUDITED QUARTERLY OPERATING RESULTS
1998 (BY QUARTER) ----------------------------------------- (dollars in thousands, except per share data) 1 2 3(2) 4(2) -------- -------- -------- -------- 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
1997 (BY QUARTER) ----------------------------------------- (dollars in thousands, except per share data) 1 2 3 4 -------- -------- -------- -------- 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
(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 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.
YEARS ENDED DECEMBER 31, ----------------------------------------------------------------------- (dollars in thousands, except per share) 1998 1997 1996 1995 1994 ----------- ----------- ----------- ----------- ----------- 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
(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 EX-21 5 SUBSIDIARIES OF REGISTRANT 1 EXHIBIT 21 COOPER CAMERON CORPORATION -- SUBSIDIARIES & JOINT VENTURES (AS OF MARCH 26, 1999)
COOPER CAMERON CORPORATION (DELAWARE) - PARENT % OWNED % OWNED STATE/COUNTRY OF BY SUBSIDIARY BY CCC INCORPORATION OR ------------- -------- ORGANIZATION -------------- 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
2 Page 2 - Cooper Cameron Corporation Subsidiaries and Joint Ventures as of March 26, 1999
COOPER CAMERON CORPORATION (DELAWARE) - PARENT % OWNED % OWNED STATE/COUNTRY OF BY SUBSIDIARY BY CCC INCORPORATION OR ------------- -------- ORGANIZATION -------------- 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
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. EX-23 6 CONSENT OF INDEPENDENT AUDITORS 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.
Registration Statement No. Purpose - - ------------- ------- 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
2 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
/s/ Ernst & Young LLP ERNST & YOUNG LLP Houston, Texas March 26, 1999 EX-27 7 FINANCIAL DATA SCHEDULE
5 1,000 YEAR DEC-31-1998 JAN-01-1998 DEC-31-1998 21,296 0 336,854 4,067 548,053 966,260 938,841 448,262 1,823,603 529,842 364,363 0 0 533 779,752 1,823,603 1,882,111 1,882,111 1,329,522 1,329,522 0 0 32,721 195,728 59,572 136,156 0 0 0 136,156 2.58 2.48
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