In addition to the historical data contained herein, this document includes forward-looking statements regarding future cash flow from operationsmarket strength, customer spending and order levels, revenues and earnings of the Company, including those of OneSubsea. Also included areas well as expectations regarding future debt repayments,equipment deliveries, margins, profitability, the ability to control and reduce raw material, overhead and operating costs, cash generated from operations, capital expenditures and investments, as well asthe use of existing cash balances and future orders for the Company, including those from North America unconventional resource plays,anticipated cash flows made in reliance upon the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
Because the information herein is based solely on data currently available, it is subject to change as a result of, among other things, changes in conditions over which the Company has no control or influence, and should not therefore be viewed as assurance regarding the Company’sCompany's future performance. Additionally, the Company is not obligated to make public disclosure of such changes unless required under applicable disclosure rules and regulations.
As a percent of revenues, cost of sales (exclusive of depreciation and amortization) increased from 70.7%70.9% during the thirdsecond quarter of 20122013 to 71.3%71.7% for the thirdsecond quarter of 2013,2014, mainly as a result of lower marginshigher costs in relation to revenues in the DPS segment primarily in the Drilling Systems product line.as described further below under "Segment Results".
As a percent of revenues, cost of sales (exclusive of depreciation and amortization) were up modestly from72.1% for the first six months of 2014 as compared to 70.7% for the first ninesix months of 2012 to 71.0% for2013. The increase was mainly the first nine months of 2013, mainly as a result of lower marginshigher costs in relation to revenues in the DPS segment, primarily in the Drilling Systems product line.and PCS segments as described further below under "Segment Results".
The effective income tax rate for the first ninesix months of 20132014 was 24.4%25.1% as compared to 19.9%25.6% for the first ninesix months of 2012.2013. The increase in the tax rate was mainly due to recognition of various foreign taxes and an increase in certain foreign valuation allowances, largely arising as a resultcomponents of the formation of OneSubsea.effective tax rates for both periods were as follows (dollars in millions):
| | Six Months Ended June 30, | |
| | 2014 | | | 2013 | |
| | Tax Provision | | | Tax Rate | | | Tax Provision | | | Tax Rate | |
| | | | | | | | | | | | |
| Forecasted tax expense by jurisdiction | | $ | 109 | | | | 24.0 | % | | $ | 91 | | | | 23.8 | % |
| Adjustments to income tax provision: | | | | | | | | | | | | | | | | |
| Recognition of certain historical tax benefits as prior uncertainty regarding those benefits has been resolved | | | – | | | | – | | | | (1 | ) | | | (0.1 | ) |
| Tax effect of goodwill impairment | | | 10 | | | | 2.1 | | | | – | | | | – | |
| Finalization of prior year returns | | | (4 | ) | | | (0.9 | ) | | | 9 | | | | 2.4 | |
| Tax effects of changes in legislation | | | – | | | | – | | | | (7 | ) | | | (1.9 | ) |
| Changes in valuation allowances | | | – | | | | – | | | | 5 | | | | 1.4 | |
| Accrual adjustments and other | | | (1 | ) | | | (0.1 | ) | | | – | | | | – | |
| Tax provision | | $ | 114 | | | | 25.1 | % | | $ | 97 | | | | 25.6 | % |
Segment Results
DPS Segment –
| | Nine Months Ended September 30, | | | Increase (Decrease) | | | Six Months Ended June 30, | | | Increase (Decrease) | |
| ($ in millions) | | 2013 | | | 2012 | | | $ | | | % | | | 2014 | | | 2013 | | | $ | | | | % | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Revenues | | $ | 4,344.2 | | | $ | 3,477.6 | | | $ | 866.6 | | | | 24.9 | % | | $ | 3,608 | | | $ | 2,707 | | | $ | 901 | | | | 33.3 | % |
| Income before income taxes | | $ | 566.3 | | | $ | 510.2 | | | $ | 56.1 | | | | 11.0 | % | |
| Income before income taxes as a percent of revenues | | | 13.0 | % | | | 14.7 | % | | | N/ | A | | | (1.7 | )% | |
| Income from continuing operations before income taxes | | | $ | 418 | | | $ | 350 | | | $ | 68 | | | | 19.4 | % |
Income from continuing operations before income taxes as a percent of revenues | | | | 11.6 | % | | | 12.9 | % | | | N/A | | | | (1.3 | )% |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Orders | | $ | 6,450.8 | | | $ | 4,782.2 | | | $ | 1,668.6 | | | | 34.9 | % | | $ | 3,449 | | | $ | 4,246 | | | $ | (797 | ) | | | (18.8 | )% |
Revenues
The increase in revenues during the first nine monthswas due to:
an increase of 2013 as compared to the first nine months47% in subsea equipment revenues, over two-thirds of 2012which was due to double-digit sales increases in each major product line:
drilling equipmentbusinesses acquired during the last twelve months, along with higher revenues were up 28%, primarily related to (i) the impact of newly acquired businesses, which accounted for approximately 31% of the increase, and (ii) higher activity levels on major rig construction projects asassociated with a result of higher beginning-of-period backlog,
subsea equipment revenues rose almost 24% mainly as a result of (i) the impact of newly acquired businesses which accounted for approximately 64% of the increase, and (ii)large project offshore West Africa, higher project activity levels particularly in the Asia PacificEurope/Africa region and increased aftermarket sales,
an increase of 37% in drilling equipment revenues, primarily related to increased shipments associated with higher beginning-of-the-year backlog levels and production efficiency improvements, and
growth of 16% in surface equipment revenues, increased approximately 23%, largely as a result of increased activity levels in unconventional resource regions of North America, as well as increased international customer demanddeliveries to customers operating in the Caspian Sea, the North Sea and the Middle East andimpact of businesses acquired during the last twelve months.
Income from continuing operations before income taxes as a percent of revenues
The decrease in the Asia Pacific region.ratio of income from continuing operations before income taxes as a percent of revenues was due primarily to a 1.2 percentage-point increase in the ratio of cost of sales to revenues resulting mainly from:
a mix shift to a higher proportion of subsea project revenues, which inherently carry lower margins than non-project related businesses, during the first six months of 2014 as compared to the same period in 2013, and
lower margins in the drilling equipment product line due to higher project costs, as well as higher warranty costs.
Orders
The decrease in orders was primarily due to:
a 62% decrease in subsea orders, mainly as a result of an award received during the first six months of 2013 from Petrobras for subsea trees and associated equipment for use in Pre- and Post-Salt basins offshore Brazil, as well as a large booking in the same period to supply subsea production systems to a project offshore Nigeria, with no similar-sized large awards received in the first six months of 2014, and
a 5% decrease in orders for surface equipment due mainly to a slowdown in 2014 in the pace of orders from customers operating in Saudi Arabia and Iraq as compared to the record level of orders received in 2013. This decline was largely offset by continued strength in activity levels in the unconventional resource regions in North America.
Offsetting these decreases were nearly $200 million of orders added from businesses acquired during the last twelve months and a 9% increase in orders for drilling equipment reflecting several large rig project awards received early in 2014.
V&M Segment –
| | Six Months Ended June 30, | | | Decrease | |
| ($ in millions) | | 2014 | | | 2013 | | | $ | | | | % | |
| | | | | | | | | | | | | |
| Revenues | | $ | 1,028 | | | $ | 1,056 | | | $ | (28 | ) | | | (2.7 | )% |
| Income from continuing operations before income taxes | | $ | 201 | | | $ | 222 | | | $ | (21 | ) | | | (9.5 | )% |
Income from continuing operations before income taxes as a percent of revenues | | | 19.6 | % | | | 21.0 | % | | | N/A | | | | (1.4 | )% |
| | | | | | | | | | | | | | | | |
| Orders | | $ | 1,053 | | | $ | 1,062 | | | $ | (9 | ) | | | (0.8 | )% |
Revenues
Overall segment sales were down modestly for the six months ended June 30, 2014 when compared to the same period last year. Project slippage and recent order weakness for pipeline valves and the timing of valve deliveries due to various customer changes contributed to sales declines of 15% and 9% for engineered valves and process valves, respectively. Partially offsetting these declines were increases of 8% and 19% for sales of distributed valves and measurement products, respectively, as a result of current strength in the North American market.
Income before income taxes as a percent of revenues
The decrease in the ratio of income from continuing operations before income taxes as a percent of revenues was primarily attributable to a 0.5 percentage-point increase in the ratio of selling and administrative costs to revenues, due mainly to higher employee-related costs in relation to the decline in revenues, and a 0.8 percentage-point increase in the ratio of depreciation and amortization expense to revenues due to higher depreciation from higher recent capital spending levels mainly in the engineered valve product line and the impact of businesses acquired during the last twelve months.
Orders
Overall, total segment orders were relatively flat when compared to the same period last year. Project slippage contributed to declines of approximately 10% and 20% in both engineered and process valve orders, respectively. This was mostly offset by a 17% increase in orders for distributed valves resulting from higher North American activity levels.
PCS Segment –
| | Six Months Ended June 30, | | | Decrease | |
| ($ in millions) | | 2014 | | | 2013 | | | $ | | | | % | |
| | | | | | | | | | | | | |
| Revenues | | $ | 436 | | | $ | 507 | | | $ | (71 | ) | | | (14.0 | )% |
| Income from continuing operations before income taxes | | $ | 28 | | | $ | 37 | | | $ | (9 | ) | | | (24.3 | )% |
Income from continuing operations before income taxes as a percent of revenues | | | 6.4 | % | | | 7.3 | % | | | N/A | | | | (0.9 | )% |
| | | | | | | | | | | | | | | | |
| Orders | | $ | 416 | | | $ | 480 | | | $ | (64 | ) | | | (13.3 | )% |
Revenues
The decrease in revenues was due primarily to:
a 13% decline in custom process systems revenues largely as a result of the timing of manufacturing activity on large projects,
a 19% decline in wellhead and midstream processing equipment sales mainly to customers in North America, and
a 16% decrease in sales of centrifugal air separation and engineered air equipment due to recent weak order rates.
Income from continuing operations before income taxes as a percent of revenues
The decrease in the ratio of income before income taxes as a percent of revenues was primarily due primarily to:
a decline of 1.4 percentage-points in product margins, mainly associated with lower margins in the Drilling Systems product line, and
higher selling and administrative expenses, nearly 80% of which were attributable to (i) higher employee-related costs associated with headcount increases and (ii) higher facility costs, as well as higher depreciation and amortization expense (which in total accounted for approximately a 0.20.6 percentage-point decrease in the ratio).
Orders
The growth in orders was primarily attributable to:
a 96% increase in subsea orders, mainly as a result of (i) an award received during the first nine months of 2013 from Petrobras for subsea trees and associated equipment for use in Pre- and Post-Salt basins offshore Brazil, (ii) a large booking in the same period to supply subsea production systems to a project offshore Nigeria, and (iii) increased demand for trees in the U.K. North Sea, as well as
a 28% increase in orders for surface equipment due to higher activity levels in most major regions of the world, with increased demand from customers in unconventional resource regions of North America, the North Sea, and the Middle East accounting for the majority of the improvement.
Drilling orders were down modestly as a lower level of major project awards during the first nine months of 2013 more than offset increased demand for aftermarket parts and services and the impact on current period orders of newly acquired businesses.
V&M Segment –
| | Nine Months Ended September 30, | | | Increase (Decrease) | |
| ($ in millions) | | 2013 | | | 2012 | | | $ | | | % | |
| | | | | | | | | | | | | |
| Revenues | | $ | 1,558.3 | | | $ | 1,585.5 | | | $ | (27.2 | ) | | | (1.7 | )% |
| Income before income taxes | | $ | 320.2 | | | $ | 309.3 | | | $ | 10.9 | | | | 3.5 | % |
| Income before income taxes as a percent of revenues | | | 20.5 | % | | | 19.5 | % | | | N/ | A | | | 1.0 | % |
| | | | | | | | | | | | | | | | |
| Orders | | $ | 1,559.6 | | | $ | 1,563.6 | | | $ | (4.0 | ) | | | (0.3 | )% |
Revenues
Overall segment revenues were relatively flat for the period when compared to the same period in the prior year. A double-digit increase in aftermarket sales coupled with a 6% increase in process valve sales were offset by lower measurement, distributed and engineered valve sales.
Income before income taxes as a percent of revenues
The increase in the ratio of income before income taxes as a percent of revenues was attributable to:
a 2.9% percentage-point decrease in the ratio of cost of sales to revenues resulting from a favorable mix change related to project shipments and an increase in engineered valve product line margins, partially offset by:
a 1.9% percentage-point increase in the ratio of selling and administrative costs to revenue due to higher employee-related costs.
Orders
Total segment orders were relatively flat when compared to the same period last year. An 18% increase in orders for distributed valves, resulting from distributors continuing to replenish the lower inventory levels from year-end coupled with higher U.S. activity levels, was more than offset by declines of approximately 7% and 11% in both engineered and process valve orders, respectively,primarily due to lower worldwide project activity levels.
PCS Segment –
| | Nine Months Ended September 30, | | | Increase (Decrease) | |
| ($ in millions) | | 2013 | | | 2012 | | | $ | | | % | |
| | | | | | | | | | | | | |
| Revenues | | $ | 998.4 | | | $ | 1,013.2 | | | $ | (14.8 | ) | | | (1.5 | )% |
| Income before income taxes | | $ | 79.4 | | | $ | 79.2 | | | $ | 0.2 | | | | 0.3 | % |
| Income before income taxes as a percent of revenues | | | 8.0 | % | | | 7.8 | % | | | N/ | A | | | 0.2 | % |
| | | | | | | | | | | | | | | | |
| Orders | | $ | 999.6 | | | $ | 1,097.7 | | | $ | (98.1 | ) | | | (8.9 | )% |
Revenues
The decreaseproduct margins in revenues was due primarily to:
a 26% decrease in demand for North Americanthe wellhead and midstream processing equipment product line, and
higher depreciation and amortization expense in relation to a nearly 51% decreasedecline in Superior compressor sales due to the lack of large unit shipments occurring in the first nine months of 2013 as compared to the first nine months of 2012 as a result of weak order rates in recent periods.
These product line sales decreases were almost entirely offset by:
a 24% increase in sales of centrifugal compression equipment, mainly reflecting large multi-unit shipments of air separation and process gas equipment, along with higher demand for aftermarket parts, mainly associated with new unit sales, and increased demand for repair and upgrade services, as well as
a nearly 10% increase in custom engineered process systems revenues, mainly reflecting higher activity levels on major projects underway.
Income before income taxes as a percent of revenues
The increase in the ratio of income before income taxes as a percent of revenues was primarily due to a 0.7 percentage-point decreaseincreased capital spending in recent periods, the ratioimpact of cost of sales to revenues, mainly as a result of improved margins in the custom engineered processing equipment product line.
Partially offsetting this effect was a 0.6 percentage-point increasewhich has been partially offset by an improvement in the ratio of selling and administrative costs to revenues resulting mainly from higher facility-related costs, primarily for rent and insurance, in relationdue to a modest decline in revenues.the effect of cost control efforts implemented during 2014.
Orders
Overall, segment orders decreased across allmost major product lines, except custom engineered processing equipment and plant air equipment.lines. The decreases arewere primarily athe result of:
a 37%15% decline in centrifugal engineered equipment orders due mainlyfor custom process systems largely related to weaker international demand for new process gas and air separation equipment,slippage of project timelines,
a 12%15% decline in orders for reciprocatingcentrifugal compression equipment asorders driven mainly by a result of large project awards received45% decrease in the first nine months of 2012demand for Ajax units and Superior compressors that did not reoccur during the first nine months of 2013,plant air machines, primarily from international customers, and
a 24%7% decline in demand for North American wellhead and midstream processing equipment.equipment, mainly from customers in North America.
These decreased order rates were partially offset by:
a 37% increase in orders for new plant air equipment reflecting stronger domestic and international demand, and
a 7% increase in project awards, mainly from international customers, for new custom engineered processing equipment solutions.
Corporate Segment –
The $95.1$38 million increasedecrease in the loss before income taxes in the Corporate segment during the nine-monthsix-month period ended SeptemberJune 30, 20132014 as compared to the nine-monthsix-month period ended SeptemberJune 30, 20122013 (see Note 10 of the Notes to Consolidated Condensed Financial Statements) was due primarily to (i) to:
a $68.4$22 million increasedecrease in other costs, net of credits, as described above under “Consolidated Results”further in Note 3 of the Notes to Consolidated Condensed Financial Statements, and (ii) an $18.3
a $15 million increasedecrease in selling and administrative expenses, due mainly to higher salariesreflecting the effects of cost control efforts put in place in 2014 which have lowered employee-related costs, including travel, and benefits associated with headcount increases, higher maintenance fees for new data processing software and increased rent expense.certain facility costs.
Liquidity and Capital Resources
Consolidated Condensed Statements of Cash Flows
During the first ninesix months of 2013,2014, net cash provided by operations totaled $206.5$39 million, an increase of $68.3$32 million from the $138.2$7 million of cash provided by operations during the first ninesix months of 2012. Most of the increase was due to lower cash needs for working capital in the first nine months of 2013 as compared to the same period last year.2013.
Cash totaling $463.9$588 million was used to increase working capital during the first ninesix months of 20132014 compared to $582.7$404 million during the first ninesix months of 2012, a decrease2013, an increase of $118.8$184 million. During the first ninesix months of 2013, $449.92014, increased collections due to the high level of year end receivables added $111 million in cash. Offsetting this was $228 million of cash was used to build inventory levels, primarily in the DPS segment, in order to meet the demands from increased bookingsthe high backlog and activity levels.levels in that business segment. The timing of payments to third parties and annual employee incentive payouts made in the first half of 2014 also contributed to a use of cash totaling $471 million for the period.
Cash provided by investing activities was $312.8$346 million for the first six months of 2014. In June 2014, the Company received $547 million of cash, net of transaction costs, from the sale of the Reciprocating Compression business to General Electric. Additionally, capital spending during the first ninesix months of 2013 compared to $504.8 million of cash used for investing activities during the first nine months of 2012. Most of this increase is related to cash received2014 totaled $178 million. Capital needs in the second quarter from Schlumberger in connection withSurface Systems and OneSubsea divisions of the formation of OneSubsea. In the same period of 2012, the Company paid $309.6 million for acquisitions in its DPS segment, and incurred $280.4 million in capital expenditures. Capital expendituresalong with continued development of the Company's enhanced business information systems, accounted for the first nine monthsmajority of 2013 totaled $305.9 million.the 2014 capital spending.
Net cash used for financing activities totaled $436.4$677 million for the first ninesix months of 2013, mainly due2014. Approximately $1.2 billion of cash was used to the purchaseacquire nearly 20 million shares of treasury shares atstock during the first half of 2014. In 2014, the Board of Directors authorized the Company to initiate a commercial paper program with authority to issue up to $500 million in short-term debt. Under this program, the Company issued commercial paper totaling $263 million in principal amount for use in funding the treasury stock purchases referred to above and for other corporate needs. The average term of the outstanding commercial paper as of June 30, 2014 was approximately 62 days. The Company currently anticipates being able to continue to issue new commercial paper to fund or extend outstanding commercial paper as it comes due for payment. During June 2014, the Company repaid $250 million of floating rate notes upon maturity and issued a total cash cost of $557.9 million. This was partially offset by proceeds from stock option exercises, net$500 million of tax, totaling $30.0 millionnew senior notes split equally between 3- and net cash received from transactions with noncontrolling interest owners10-year maturities.
Future liquidity requirements
At SeptemberJune 30, 2013,2014, the Company had nearly $1.8$1.6 billion of cash, cash equivalents and short-term investments. Approximately $493 million of the Company's cash, cash equivalents and short-term investments approximately 29%at June 30, 2014 were in the OneSubsea venture. Dividends of available cash from OneSubsea to the venture partners, 40% of which werewould go to Schlumberger, require approval of the OneSubsea Board of Directors prior to payment. On July 11, 2014, a dividend of €75 million was paid to the venture partners with Cameron's non-U.S. partnership receiving €45 million and Schlumberger receiving €30 million. Of the remaining cash, cash equivalents and short-term investments not held by OneSubsea, $657 million was located in the United States. Using cash, cash equivalents or short-term investment balances domiciled outsideOf this amount, approximately $253 million, which included a make-whole premium plus accrued interest, was used to redeem early the United States for investing activity in the United States and/or shareholder return actions could incur additional tax expense. Company's $250 million principal amount of 1.6% Senior Notes on July 21, 2014.
Total debt at SeptemberJune 30, 20132014 was $2.1nearly $3.4 billion, most of which was in the United States. Excluding capital leases, over $500.0 millionapproximately $1.0 billion of the debt obligations have maturities within the next three-year period. The remainder of the Company’sCompany's long-term debt is due in varying amounts between 2018 and 2041. The Company also accepts advance payments from customers against orders in process and, at September 30, 2013, we had approximately $436 million of unexpired bank guarantees securing such customer advances.2043.
The Company’sExcluding discontinued operations, the Company's backlog is at a record level, up almost 30.0%decreased slightly from December 31, 2012, and orders for2013, mainly due to the cancellation of a large drilling project award in the first ninequarter of 2014 totaling nearly $243 million, but was still at a near record high at June 30, 2014. Orders during the first six months of 2014 were down nearly 15% from the same period in 2013 due mainly to certain large subsea project awards received in the first six months of 2013 were 21.0% higher than orders forthat did not repeat during the first nine monthshalf of 2012.2014. The timing of such large project awards are inconsistent period over period. The Company views its backlog of unfilled orders, current order rates, current rig count levels and current and future expected oil and gas prices to be, in varying degrees, leading indicators of and factors in determining its estimates of future revenues, cash flows and profitability levels. Information regarding actual 20132014 and 20122013 average rig count and commodity price levels for the current quarter and the first nine months of each period and forward-looking twelve-month market-traded futures prices for crude oil and natural gas are shown in more detail under the caption “Market Conditions”captions "Market Conditions" above. A more detailed discussion of second quarter and year-to-date orders and June 30 backlog levels by segment may be found under “Third Quarter 2013 Compared to Third Quarter 2012 - Segment Results”"Segment Results" for each period above. As a result of these and other factors, theThe Company currently anticipates further growth in consolidated orders, backlog and revenues during the remaindersecond half of 2013, although certain shorter cycle businesses may be negatively impacted2014 in relation to the near term by the recent weakeningsame period in activity levels in certain regions of North America and economic uncertainty in various other parts of the world. This growth is2013. The Company also expected to lead to increased needs for the use of cash forexpects full year capital spending on new equipment and facilities currentlyto be between $450 million to $500 million for 2014, as compared to $520 million during 2013. The high backlog levels and expected to approximate $500.0 million in 2013, and togrowth however, may increase working capital needs in certain businesses in order in order to meet the increased demand from its customers.customer demand.
The Company believes, based on its current financial condition, existing backlog levels and current expectations for future market conditions, that it will be able to meet its short- and longer-term liquidity needs with existing cash, cash equivalents and short-term investments on hand, expected cash flow from future operating activities and amounts available for borrowing under its $835.0$835 million five-year multi-currency Revolving Credit Facility, which ultimately expiresmatures on June 6, 2016. At September 30, 2013, the amount available for borrowing under the2016, and its new three-year $750 million Revolving Credit Facility, totaled $809.6 million.described further in Note 8 of the Notes to Consolidated Condensed Financial Statements. Up to $200 million of this new facility may be used for letters of credit. The Company also has a three-year $250.0bi-lateral $40 million committed multi-currency revolving letter of credit facility with a third partythird-party bank, expiring on February 2, 2015. At SeptemberJune 30, 2013,2014, no amounts had been borrowed under the $835.0 million facility. The Company had issued letters of credit totaling $185.0$77 million under this revolving creditthe new $750 million Revolving Credit Facility and $29 million under the $40 million bi-lateral facility, leaving a remaining amount of $65.0$673 million and $11 million, respectively, available for future use.
In addition, the Company announced in January 2014 that it was exploring strategic alternatives for its Centrifugal Compression business.
The Company has an authorized stock repurchase program whereby the Company may purchase shares directly or indirectly by way of open market transactions or structured programs, including the use of derivatives, for the Company's own account or through commercial banks or financial institutions. The program, initiated in October 2011, has had a series of authorizations by the Board of Directors totaling $3.2 billion since inception. At June 30, 2014, the Company had remaining authority for future stock purchases totaling approximately $456 million.
Factors That May Affect Financial Condition and Future Results
The inability of the Company to deliver its backlog or future orders on time could affect the Company's future sales and profitability and its relationships with its customers.
At June 30, 2014, the Company's backlog was approximately $11 billion, excluding discontinued operations. The ability to meet customer delivery schedules for this backlog, as well as future orders, is dependent on a number of factors including, but not limited to, access to the raw materials required for production, an adequately trained and capable workforce, project engineering expertise for large subsea projects, sufficient manufacturing plant capacity and appropriate planning and scheduling of manufacturing resources. Many of the contracts the Company enters into with its customers require long manufacturing lead times and contain penalty clauses relating to on-time delivery. A failure by the Company to deliver in accordance with customer expectations could subject the Company to financial penalties or loss of financial incentives and may result in damage to existing customer relationships. Additionally, the Company bases its earnings guidance to the financial markets on expectations regarding future order rates and the timing of delivery of product currently in backlog. Failure to deliver equipment in accordance with expectations could negatively impact the market price performance of the Company's common stock and other publicly-traded financial instruments.
Expansion of the Company's offerings in the drilling market creates additional risks not previously present.
The Company's acquisitions of LeTourneau Technologies Drilling Systems, Inc. and the TTS Energy Division of TTS Group ASA (TTS) expanded the Company's portfolio of products and services available to customers involved in oil and gas drilling activities. These acquisitions brought large drilling rig construction projects not previously offered and a record backlog. As a result of both, the complexity of execution within this business has increased from that of the past. Also, the Company has recently struggled to increase production capacity to deliver its record backlog.
Large drilling rig projects are accounted for using accounting rules for production-type and construction-type contracts. In accordance with this guidance, the Company estimates the expected margin on these projects and recognizes this margin as units are completed. These projects (i) require significantly more engineering and project management expertise than are needed for projects involving the supply of drilling stacks and associated equipment to customers, (ii) are larger in financial scope and (iii) require longer lead times than many other projects involving the Company's Drilling Systems business. Additionally, unplanned difficulties in engineering and managing the construction of such major projects could result in cost overruns and financial penalties which could negatively impact the Company's margins and cash flow. Similar to subsea systems projects described below, a reduction in expected margins on these projects from such unplanned events would result in a cumulative adjustment to reduce margins previously recognized in the period a change in estimate is determined.
Execution of subsea systems projects exposes the Company to risks not present in its other businesses.
Cameron, through OneSubsea, is a significant participant in the subsea systems projects market. This market is different from most of the Company's other markets since subsea systems projects are larger in scope and complexity, in terms of both technical and logistical requirements. Subsea projects typically (i) involve long lead times, (ii) are larger in financial scope, (iii) require substantial engineering resources to meet the technical requirements of the project and (iv) often involve the application of existing technology to new environments and, in some cases, may require the development of new technology. The Company's OneSubsea business has a backlog of approximately $4 billion for subsea systems projects at June 30, 2014. To the extent the Company experiences unplanned difficulties in meeting the technical and/or delivery requirements of the projects or has difficulty fully integrating the businesses contributed by Schlumberger to OneSubsea into its operations, the Company's earnings or liquidity could be negatively impacted. As the integration of the Schlumberger and Cameron businesses continues, issues may arise as we continue to refine the technologies and scale up the combined operations to meet customer demand. The Company accounts for its subsea projects, as it does its separation and drilling projects, using accounting rules for construction-type and production type contracts. Factors that may affect future project costs and margins include the ability to properly execute the engineering and design phases consistent with our customers' expectations, production efficiencies obtained, and the availability and costs of labor, materials and subcomponents. These factors can impact the accuracy of the Company's estimates and materially impact the Company's future period earnings. If the Company experiences cost overruns, the expected margin could decline. Were this to occur, in accordance with the accounting guidance, the Company would record a cumulative adjustment to reduce the margin previously recorded on the related project in the period a change in estimate is determined. Subsea systems projects accounted for approximately 14.9% of total revenues in the first six months of 2014.
As a designer, manufacturer, installer and servicer of oil and gas pressure control equipment, the Company may be subject to liability, personal injury, property damage and environmental contamination should such equipment fail to perform to specifications.
Cameron provides products and systems to customers involved in oil and gas exploration, development and production, as well as in certain other industrial markets. Some of the Company's equipment is designed to operate in high-temperature and/or high-pressure environments on land, on offshore platforms and on the seabed and some equipment is designed for use in hydraulic fracturing operations. Cameron also provides aftermarket parts and repair services at numerous facilities located around the world or at customer sites for this and other equipment. Because of applications to which the Company's products and services are put, particularly those involving the high temperature and/or pressure environments, a failure of such equipment, or a failure of our customer to maintain or operate the equipment properly, could cause damage to the equipment, damage to the property of customers and others, personal injury and environmental contamination, onshore or offshore, leading to claims against Cameron.
The implementation of an upgraded business information system may disrupt the Company's operations or its system of internal controls.
The Company has a project underway to upgrade its SAP business information systems worldwide. The first stage of this multi-year effort was completed at the beginning of the third quarter of 2011 with the deployment of the upgraded system for certain businesses within the Company's PCS segment. Certain other businesses began operating on the upgraded system during 2012. As of December 2013, nearly all businesses within the V&M segment were utilizing the upgraded system and, effective July 1, 2014; the Surface Systems division of the DPS segment began operating on the upgraded system. The Drilling Systems and OneSubsea divisions of the DPS segment and the corporate office functions are expected to be migrated to the upgraded system during the remainder of 2014 and beyond, with completion anticipated in 2016. The DPS and V&M segments are major contributors to the Company's consolidated revenues and income before income taxes.
As this system continues to be deployed throughout the Company, delays or difficulties may be encountered in effectively and efficiently processing transactions and conducting business operations until such time as personnel are familiar with all appropriate aspects and capabilities of the upgraded systems.
The Company's operations and information systems are subject to cybersecurity risks.
Cameron continues to increase its dependence on digital technologies to conduct its operations. Many of the Company's files are digitized and more employees are working in almost paperless environments. Additionally, the hardware, network and software environments to operate SAP, the Company's main enterprise-wide operating system, have been outsourced to third parties. Other key software products used by the Company to conduct its operations either reside on servers in remote locations or are operated by the software vendors or other third parties for the Company's use as "Cloud-based" or "Web-based" applications. The Company has also outsourced certain information technology development, maintenance and support functions. As a result, the Company is exposed to potentially severe cyber incidents at both its internal locations and outside vendor locations that could result in a theft of intellectual property and/or disruption of its operations for an extended period of time resulting in the loss of critical data and in higher costs to correct and remedy the effects of such incidents, although no such material incidents have occurred to date.
Fluctuations in currency markets can impact the Company's profitability.
The Company has established multiple "Centers of Excellence" facilities for manufacturing such products as subsea trees, subsea chokes, subsea production controls and blowout preventers. These production facilities are located in the United Kingdom, Brazil, Romania, Italy, Norway and other European and Asian countries. To the extent the Company sells these products in U.S. dollars, the Company's profitability is eroded when the U.S. dollar weakens against the British pound, the euro, the Brazilian real and certain Asian currencies, including the Singapore dollar. Alternatively, profitability is enhanced when the U.S. dollar strengthens against these same currencies. For further information on the use of derivatives to mitigate certain currency exposures, see Item 3, "Quantitative and Qualitative Disclosures about Market Risk" below and Note 14 of the Notes to Consolidated Condensed Financial Statements.
The Company's operations expose it to risks of non-compliance with numerous countries' import and export laws and regulations, and with various nations' trade regulations including U.S. sanctions.
The Company's operations expose it to trade and import and export regulations in multiple jurisdictions. In addition to using "Centers of Excellence" for manufacturing products to be delivered around the world, the Company imports raw materials, semi-finished goods and finished products into many countries for use in country or for manufacturing and/or finishing for re-export and import into another country for use or further integration into equipment or systems. Most movement of raw materials, semi-finished or finished products by the Company involves exports and imports. As a result, compliance with multiple trade sanctions and embargoes and import and export laws and regulations pose a constant challenge and risk to the Company. The Company has received a number of inquiries from U.S. governmental agencies, including the U.S. Securities and Exchange Commission and the Office of Foreign Assets Control, regarding compliance with U.S. trade sanction and export control laws, the most recent of which was received in December 2012 and replied to by the Company in January 2013. The Company has undergone and will likely continue to undergo governmental audits to determine compliance with export and customs laws and regulations.
The Company's operations expose it to political and economic risks and instability due to changes in economic conditions, civil unrest, foreign currency fluctuations, and other risks, such as local content requirements, inherent to international businesses.
The political and economic risks of doing business on a worldwide basis include the following:
| • | volatility in general economic, social and political conditions; |
| • | the effects of civil unrest and sanctions imposed by the United States and other governments on transactions with various countries, such as Iran; |
| • | the effects of civil unrest and, in some cases, military action on the Company's business operations, customers and employees, such as that recently occurring in several countries in the Middle East, in Ukraine and in Venezuela; |
| • | exchange controls or other similar measures that result in restrictions on repatriation of capital and/or income, such as those involving the currencies of, and the Company's operations in, Angola and Nigeria; and |
| • | reductions in the number or capacity of qualified personnel. |
In recent months, civil unrest and military action have increased in Iraq which may impact the ability of that country to continue to produce and export oil at current levels. Such unrest may also jeopardize the Company's in-country investments and on-going business activities supporting Iraq's oil and gas production infrastructure. At June 30, 2014, less than 1% of the Company's backlog related to future deliveries to customers doing business in Iraq. Additionally, less than 1% of the Company's property, plant and equipment was located in Iraq and less than 1% of the Company's receivables were for sales into Iraq to multinational operators and to Iraqi drilling and production companies. The Company is also evaluating its options under the force majeure clauses of each of the major contracts with its customers doing business in Iraq in the event the current situation in that country continues to deteriorate.
Cameron also has manufacturing and service operations that are essential parts of its business in other developing countries and volatile areas in Africa, Latin America, Russia and other countries that were part of the Former Soviet Union, the Middle East, and Central and South East Asia. Recent increases in activity levels in certain of these regions have increased the Company's risk of identifying and hiring sufficient numbers of qualified personnel to meet increased customer demand in selected locations. The Company also purchases a large portion of its raw materials and components from a relatively small number of foreign suppliers in China, India and other developing countries. The ability of these suppliers to meet the Company's demand could be adversely affected by the factors described above.
In addition, customers in countries such as Angola and Nigeria increasingly are requiring the Company to accept payments in the local currencies of these countries. These currencies do not currently trade actively in the world's foreign exchange markets. The Company also has various manufacturing and aftermarket operations in Venezuela that contributed $37 million in revenues during the first six months of 2014. The economy in Venezuela is highly inflationary and becoming more regulated. These factors, along with recent civil unrest, create political and economic uncertainty with regard to their impact on the Company's continued operations in this country.
The Venezuelan government has maintained currency controls and a fixed official exchange rate since February 2003. In February 2013, the Venezuelan government devalued its currency from 4.3 bolivars to the U.S. dollar to an official rate of 6.3 bolivars to the U.S. dollar. Since then, the Company has used the official rate of 6.3 bolivars to the U.S. dollar to remeasure non-functional currency transactions in its financial statements. Due to the highly inflationary status of the Venezuelan economy, the Company's operations in Venezuela are accounted for as U.S. dollar functional currency entities. In addition, the Company considers its earnings in Venezuela to be permanently reinvested. In early 2014, Venezuelan government officials indicated that this official rate will increasingly be reserved only for settlement of U.S. dollar denominated obligations related to purchases of "essential goods and services." Through the end of the second quarter of 2014, Petroleos de Venezuela (PDVSA), the Company's primary customer, has continued to pay its U.S. dollar denominated obligations to the Company at the official rate. Recent events, however, create uncertainty as to whether this will continue. First, in January 2014, the Venezuelan government significantly expanded the use of the Supplementary Foreign Currency Administration System (SICAD) auction rate and indicated this rate (SICAD 1) would be used for certain transactions and activities. In February 2014, the Venezuelan government signed into law a plan to open a new exchange control mechanism (SICAD 2) which may be available to all entities for all transactions. At June 30, 2014, the published SICAD 1 rate was 10.6 bolivars to the U.S. dollar and the published SICAD 2 rate was approximately 49.98 bolivars to the U.S. dollar. Recently, Rafael Ramirez, the Venezuelan Vice President for the Economy and Oil Minister announced that the three exchange rates would progressively converge, with a new system involving a single unified rate that could be in place by the end of 2014. The Company is currently evaluating the impact of these changes on its business and is monitoring the payment practices of its primary customer to determine what effect there may be on its non-functional currency assets and liabilities. A foreign exchange loss during 2014 may ultimately result from this evaluation or from changes in the payment practices of the Company's primary customer.
Increasingly, some of the Company's customers, particularly the national oil companies, have required a certain percentage, or an increased percentage, of local content in the products they buy directly or indirectly from the Company. This requires the Company to add to or expand manufacturing capabilities in certain countries that are presently without the necessary infrastructure or human resources in place to conduct business in a manner as typically done by Cameron. This increases the risk of untimely deliveries, cost overruns and defective products.
The Company's operations expose it to risks resulting from differing and/or increasing tax rates.
Economic conditions around the world have resulted in decreased tax revenues for many governments, which have led and could continue to lead to changes in tax laws in countries where the Company does business, including further changes in the United States. Changes in tax laws could have a negative impact on the Company's future results.
The Company's operations require it to deal with a variety of cultures, as well as agents and other intermediaries, exposing it to anti-corruption compliance risks.
Doing business on a worldwide basis necessarily involves exposing the Company and its operations to risks inherent in complying with the laws and regulations of a number of different nations. These laws and regulations include various anti-bribery and anti-corruption laws.
The Company does business and has operations in a number of developing countries that have relatively underdeveloped legal and regulatory systems compared to more developed countries. Several of these countries are generally perceived as presenting a higher than normal risk of corruption, or as having a culture in which requests for improper payments are not discouraged. Maintaining and administering an effective anti-bribery compliance program under the U.S. Foreign Corrupt Practices Act (FCPA), the United Kingdom's Bribery Act of 2010, and similar statutes of other nations, in these environments presents greater challenges to the Company than is the case in other, more developed countries.
Additionally, the Company's business involves the use of agents and other intermediaries, such as customs clearance brokers, in these countries as well as others. As a result, the risk to the Company of compliance violations is increased because actions taken by any of them when attempting to conduct business on our behalf could be imputed to us by law enforcement authorities.
The Company is subject to environmental, health and safety laws and regulations that expose the Company to potential liability and proposed new regulations that would restrict activities to which the Company currently provides equipment and services.
The Company's operations are subject to a variety of national and state, provincial and local laws and regulations, including laws and regulations relating to the protection of the environment. The Company is required to invest financial and managerial resources to comply with these laws and expects to continue to do so in the future. To date, the cost of complying with governmental regulation has not been material, but the fact that such laws or regulations are frequently changed makes it impossible for the Company to predict the cost or impact of such laws and regulations on the Company's future operations. The modification of existing laws or regulations or the adoption of new laws or regulations imposing more stringent environmental restrictions could adversely affect the Company.
The Company provides equipment and services to companies employing hydraulic fracturing or "fracking" and could be adversely impacted by additional regulations of this enhanced recovery technique.
Environmental concerns have been raised regarding the potential impact on underground water supplies of hydraulic fracturing which involves the pumping of water and certain chemicals under pressure into a well to break apart shale and other rock formations in order to increase the flow of oil and gas embedded in these formations. Recently, a number of U.S. states have proposed regulations regarding disclosure of chemicals used in fracking operations or have temporarily suspended issuance of permits for such operations. Additionally, the United States Environmental Protection Agency (EPA) issued rules, which become effective in January 2015, that are designed to limit the release of volatile organic compounds, or pollutants, from natural gas wells that are hydraulically fractured. The EPA has published draft permitting guidance for oil and gas hydraulic fracturing activities using diesel fuels and is continuing to study whether the fracking process has any negative impact on underground water supplies. A draft of the final report on the results of the study is expected in 2014. Should these regulations, or additional regulations, restrict or curtail hydraulic fracturing activities, the Company's revenues and earnings could be negatively impacted.
Enacted and proposed climate protection regulations and legislation may impact the Company's operations or those of its customers.
The EPA has made a finding under the United States Clean Air Act that greenhouse gas emissions endanger public health and welfare and the EPA has enacted regulations requiring monitoring and reporting by certain facilities and companies of greenhouse gas emissions. In June 2014, the U.S. Supreme Court prohibited the EPA from being able to require limits on carbon dioxide and other heat trapping gases from sources that would otherwise not need an air pollution permit.
Also, in June 2014, the EPA, acting under President Obama's Climate Action Plan, proposed its Clean Power Plan, which would set U.S. state-by-state guidelines for power plants to meet by 2030 to cut their carbon emissions by 30% nationwide from 2005 levels. The guidelines are also intended to cut pollution, nitrogen oxides and sulfur dioxide by more than 25% during the same period. Under the Clean Power Plan, states are to develop plans to meet state-specific goals to reduce carbon pollution and submit those plans to the EPA by June 2016, with a later deadline provided under certain circumstances. While these proposed rules may hasten the switch from coal to cleaner burning fuels such as natural gas, the overall long-term economic impact of the plan is uncertain at this point.
Carbon emission reporting and reduction programs have also expanded in recent years at the state, regional and national levels with certain countries having already implemented various types of cap-and-trade programs aimed at reducing carbon emissions from companies that currently emit greenhouse gases.
To the extent the Company's customers are subject to these or other similar proposed or newly enacted laws and regulations, the Company is exposed to risks that the additional costs by customers to comply with such laws and regulations could impact their ability or desire to continue to operate at current or anticipated levels in certain jurisdictions, which could negatively impact their demand for the Company's products and services.
To the extent Cameron becomes subject to any of these or other similar proposed or newly enacted laws and regulations, the Company expects that its efforts to monitor, report and comply with such laws and regulations, and any related taxes imposed on companies by such programs, will increase the Company's cost of doing business in certain jurisdictions, including the United States, and may require expenditures on a number of its facilities and possibly on modifications of certain of its products.
The Company could also be impacted by new laws and regulations establishing cap-and-trade and those that might favor the increased use of non-fossil fuels, including nuclear, wind, solar and bio-fuels or that are designed to increase energy efficiency. If the proposed or newly executed laws have the effect of dampening demand for oil and gas production, they could lower spending by customers for the Company's products and services.
Downturns in the oil and gas industry have had, and will likely in the future have, a negative effect on the Company’sCompany's sales and profitability.
Demand for most of the Company’sCompany's products and services, and therefore its revenue, depends to a large extent upon the level of capital expenditures related to oil and gas exploration, development, production, processing and transmission. Declines, as well as anticipated declines, in oil and gas prices could negatively affect the level of these activities, or could result in the cancellation, modification or rescheduling of existing orders. As an example, natural gas spot prices in the United States declined during the first half of 2012 to less than $2 per MMBtu, the lowest level in the last decade. Although natural gas prices have subsequently increased, current rig count levels associated with dry gas extraction activities have not fully recovered to previous levels. This hasprice decline negatively impacted 2012 order levels by certain of the Company’sCompany's customers which will affectaffected the Company’s futureCompany's 2012 and 2013 revenues and profitability. See also the discussion in “Market Conditions” and “Outlook”"Market Conditions" above.
Environmental Remediation
The inability of the Company to deliver its backlog or future orders on time could affect the Company’s future sales and profitability and its relationships with its customers.
At September 30, 2013, the Company’s backlog was approximately $11.2 billion. The ability to meet customer delivery schedules for this backlog, as well as future orders, is dependent on a number of factors including, but not limited to, access to the raw materials required for production, an adequately trained and capable workforce, project engineering expertise for large subsea projects, sufficient manufacturing plant capacity and appropriate planning and scheduling of manufacturing resources. As an example, the Company’s drilling business has recently acquired two large businesses and has a record backlog to deliver. As a result, the complexity of execution within this business has increased from that of the past. Many of the contracts the Company enters into with its customers require long manufacturing lead times and contain penalty or incentive clauses relating to on-time delivery. A failure by the Company to deliver in accordance with customer expectations could subject the Company to financial penalties or loss of financial incentives and may result in damage to existing customer relationships. Additionally, the Company bases its earnings guidance to the financial markets on expectations regarding future order rates and the timing of delivery of product currently in backlog. Failure to deliver equipment in accordance with expectations could negatively impact the market price performance of the Company’s common stock and other publicly-traded financial instruments.
A deterioration in future expected profitability or cash flows could result in an impairment of the Company’s goodwill.
Total goodwill was approximately $2.9 billion at September 30, 2013, approximately 29.0% of which was allocated to the Company’s PCS segment, which includes the majority of the NATCO operations acquired in 2009. The majority of PCS goodwill resides in the separation businesses. Total goodwill associated with these businesses was approximately $798.7 million at September 30, 2013 ($800.7 million at December 31, 2012). Profitability within these businesses has been below historical levels due to several factors, including competitive pressures, production inefficiencies and market slowdowns. The Company’s evaluation of the fair value of these businesses assumes future improvements in these businesses over time and improvement in the gas production and separation markets. If the financial performance of these businesses does not show improvement, or if a future evaluation determines that such improvements are not likely to occur due to continued weakness in the markets, or if the Company chooses to reorganize its reporting unit structure involving various components of these businesses, an impairment of goodwill could be necessary.
In addition, the formation of OneSubsea added $994.7 million of goodwill to the Company’s subsea reporting unit for a total reporting unit goodwill balance of $1.1 billion at September 30, 2013. Should a future evaluation of the profitability and cash flows of this business fall significantly below current expectations, a future impairment of goodwill may also be necessary for this reporting unit.
Execution of subsea systems projects exposes the Company to risks not present in its other businesses.
Cameron, through OneSubsea, is a significant participant in the subsea systems projects market. This market is significantly different from most of the Company’s other markets since subsea systems projects are significantly larger in scope and complexity, in terms of both technical and logistical requirements. Subsea projects (i) typically involve long lead times, (ii) typically are larger in financial scope, (iii) typically require substantial engineering resources to meet the technical requirements of the project and (iv) often involve the application of existing technology to new environments and, in some cases, may require the development of new technology. The Company’s subsea business unit received orders in the amount of $2.8 billion during the first nine months of 2013. Total backlog for OneSubsea at September 30, 2013 was approximately $4.2 billion, of which approximately $2.2 billion was for subsea systems projects. To the extent the Company experiences unplanned difficulties in meeting the technical and/or delivery requirements of the projects or has difficulty fully integrating the businesses contributed by Schlumberger to OneSubsea into its operations, the Company’s earnings or liquidity could be negatively impacted. The Company accounts for its subsea projects, as it does its separation and drilling projects, using accounting rules for construction-type and production-type contracts. In accordance with this guidance, the Company estimates the expected margin on these projects and recognizes this margin as units are completed. Factors that may affect future project costs and margins include the ability to properly execute the engineering and design phases consistent with our customers’ expectations, production efficiencies obtained, and the availability and costs of labor, materials and subcomponents. These factors can significantly impact the accuracy of the Company’s estimates and materially impact the Company’s future period earnings. If the Company experiences cost overruns, the expected margin could decline. Were this to occur, in accordance with the accounting guidance, the Company would record a cumulative adjustment to reduce the margin previously recorded on the related project in the period a change in estimate is determined. As an example, the Company incurred a $51.0 million charge in 2011 for cost overruns on a large subsea project in Nigeria. Subsea systems projects accounted for approximately 11.0% of total revenues in the first nine months of 2013.
Expansion of the Company’s offerings in the drilling market creates additional risks not previously present.
The Company’s acquisitions of LeTourneau Technologies Drilling Systems, Inc. and the TTS Energy Division of TTS Group ASA (TTS) have expanded the Company’s portfolio of products and services available to customers involved in oil and gas drilling activities. In particular, TTS has brought additional capabilities for the Company to offer expanded engineering and project management expertise on large drilling rig construction projects that were not previously available. Such projects however, (i) require significantly more engineering and project management expertise than are needed for projects involving the supply of drilling stacks and associated equipment to customers, (ii) are larger in financial scope and (iii) require longer lead times than many other projects involving the Company’s Drilling Systems business. Additionally, unplanned difficulties in engineering and managing the construction of such major projects could result in cost overruns and financial penalties which could negatively impact the Company’s margins and cash flow. These projects are accounted for using accounting rules for production-type and construction-type contracts. Similar to subsea systems projects described above, a reduction in expected margins on these projects from such unplanned events would result in a cumulative adjustment to reduce margins previously recognized in the period a change in estimate is determined.
As a designer, manufacturer, installer and servicer of oil and gas pressure control equipment, the Company may be subject to liability, personal injury, property damage and environmental contamination should such equipment fail to perform to specifications.
Cameron provides products and systems to customers involved in oil and gas exploration, development and production, as well as in certain other industrial markets. Some of the Company’s equipment is designed to operate in high-temperature and/or high-pressure environments on land, on offshore platforms and on the seabed. Some of the Company’s equipment is also designed for use in hydraulic fracturing operations. Cameron also provides aftermarket parts and repair services at numerous facilities located around the world or at customer sites for this and other equipment. Because of applications to which the Company’s products and services are put, particularly those involving the high temperature and/or pressure environments, a failure of such equipment, or a failure of our customer to maintain or operate the equipment properly, could cause damage to the equipment, damage to a customer’s other property, personal injury and environmental contamination, onshore or offshore leading to claims made against Cameron.
Cameron is currently party to litigation involving personal injury, property damage and environmental contamination alleged to have been caused by failures of the Company’s equipment. For example, see Deepwater Horizon Matter and Other Litigation in Note 13 of the Notes to Consolidated Condensed Financial Statements. For a discussion of the risks of and regulatory responses to hydraulic fracturing, see the risk factor “The Company is subject to environmental, health and safety laws and regulations that expose the Company to potential liability and proposed new regulations that would restrict activities to which the Company currently provides equipment and services”, below.
The implementation of an upgraded business information system may disrupt the Company’s operations or its system of internal controls.
The Company has underway a project to upgrade its SAP business information systems worldwide. The first stage of this multi-year effort was completed at the beginning of the third quarter of 2011 with the deployment of the upgraded system for certain businesses within the Company’s PCS segment. Certain other businesses began operating on the upgraded system during 2012. As of October 2013, nearly all businesses within the V&M segment are now utilizing the upgraded system. The V&M segment is a major contributor to the Company’s consolidated revenues and income before income taxes.
As this system continues to be deployed throughout the rest of the Company, delays or difficulties may initially be encountered in effectively and efficiently processing transactions and conducting business operations until such time as personnel are familiar with all appropriate aspects and capabilities of the upgraded systems.
Fluctuations in currency markets can impact the Company’s profitability.
The Company has established multiple “Centers of Excellence” facilities for manufacturing such products as subsea trees, subsea chokes, subsea production controls and blowout preventers (BOPs). These production facilities are located in the United Kingdom, Brazil and other European and Asian countries. To the extent the Company sells these products in U.S. dollars, the Company’s profitability is eroded when the U.S. dollar weakens against the British pound, the euro, the Brazilian real and certain Asian currencies, including the Singapore dollar. Alternatively, profitability is enhanced when the U.S. dollar strengthens against these same currencies. For further information on the use of derivatives to mitigate certain currency exposures, see Item 3, “Quantitative and Qualitative Disclosures about Market Risk” below and Note 14 of the Notes to Consolidated Condensed Financial Statements.
The Company’s operations expose it to risks of non-compliance with import/export laws and regulations and with multiple trade regulations, including U.S. sanctions.
The Company’s operations expose it to trade and import/export regulations in multiple jurisdictions. In addition to using “Centers of Excellence” for manufacturing products to be delivered around the world, the Company imports raw materials, semi-finished goods as well as finished products into many countries for use in country or for manufacturing and/or finishing for re-export and import into another country for use or further integration into equipment or systems. Most movement of raw materials, semi-finished or finished products by the Company involves exports and imports. As a result, compliance with multiple trade sanctions and embargoes and import and export laws and regulations pose a constant challenge and risk to the Company. The Company regularly undergoes governmental audits to determine compliance with export and customs laws and regulations.Certain of the Company’s non-U.S. subsidiaries have in the past conducted business with Iran and Syria. The Company adopted a policy in 2006 forbidding any subsidiary or affiliate from accepting any new business from a U.S. sanctioned country. By the end of 2009, all contracts in existence at the time of the adoption of this policy were completed. Neither the Company nor any of its subsidiaries or affiliates have knowingly conducted any business with any sanctioned country or party since the end of 2009. As a result of our non-U.S. subsidiaries’ prior business dealings with Iran and Syria, the Company received a number of inquiries from U.S. governmental agencies, including the U.S. Securities and Exchange Commission and the Office of Foreign Assets Control, regarding compliance with U.S. trade sanction and export control laws, the most recent of which was received in December 2012 and replied to by the Company in January 2013.
The Company’s operations expose it to political and economic risks and instability due to changes in economic conditions, civil unrest, foreign currency fluctuations, and other risks, such as local content requirements, inherent to international businesses.
The political and economic risks of doing business on a worldwide basis include the following:
volatility in general economic, social and political conditions;
the effects of civil unrest and sanctions imposed by the United States and other governments on transactions with various countries, such as Iran;
the effects of civil unrest on the Company’s business operations, customers and employees, such as that recently occurring in several countries in the Middle East;
differing tax rates and/or increasing tax rates. Economic conditions around the world have resulted in decreased tax revenues for many governments, which have led and could continue to lead to changes in tax laws in countries where the Company does business, including further changes in the United States. Changes in tax laws could have a negative impact on the Company’s future results;
exchange controls or other similar measures that result in restrictions on repatriation of capital and/or income, such as those involving the currencies of, and the Company’s operations in, Angola and Nigeria; and
reductions in the number or capacity of qualified personnel.
Cameron has manufacturing and service operations that are essential parts of its business in developing countries and volatile areas in Africa, Latin America, Russia and other countries that were part of the Former Soviet Union, the Middle East, and Central and South East Asia. Recent increases in activity levels in certain of these regions have increased the Company’s risk of identifying and hiring sufficient numbers of qualified personnel to meet increased customer demand in selected locations. The Company also purchases a large portion of its raw materials and components from a relatively small number of foreign suppliers in China, India and other developing countries. The ability of these suppliers to meet the Company’s demand could be adversely affected by the factors described above.
In addition customers in countries such as Angola and Nigeria increasingly are requiring the Company to accept payments in the local currencies of these countries. These currencies do not currently trade actively in the world’s foreign exchange markets. The Company also has various manufacturing and aftermarket operations in Venezuela that contributed more than $82.5 million in revenues during the first nine months of 2013. The economy in Venezuela is highly inflationary and becoming more regulated and politically unstable due to election of a new President following the death of his long-time predecessor. These factors create political and economic uncertainty with regard to their impact on the Company’s continued operations in this country. As an example, it was announced in February 2013 that Venezuela had devalued its currency from 4.3 bolivars per dollar to 6.3 bolivars per dollar. This resulted in an approximate $9.5 million foreign exchange loss for the Company that was recorded in “Other costs” during the first nine months of 2013.
Increasingly, some of the Company’s customers, particularly the national oil companies, have required a certain percentage, or an increased percentage, of local content in the products they buy directly or indirectly from the Company. This requires the Company to add to or expand manufacturing capabilities in certain countries that are presently without the necessary infrastructure or human resources in place to conduct business in a manner as typically done by Cameron. This increases the risk of untimely deliveries, cost overruns and defective products.
The Company’s operations require it to deal with a variety of cultures, as well as agents and other intermediaries, exposing it to anti-corruption compliance risks.
Doing business on a worldwide basis necessarily involves exposing the Company and its operations to risks inherent in complying with the laws and regulations of a number of different nations. These laws and regulations include various anti-bribery and anti-corruption laws.
The Company does business and has operations in a number of developing countries that have relatively underdeveloped legal and regulatory systems compared to more developed countries. Several of these countries are generally perceived as presenting a higher than normal risk of corruption, or as having a culture in which requests for improper payments are not discouraged. Maintaining and administering an effective anti-bribery compliance program under the U.S. Foreign Corrupt Practices Act (FCPA), the United Kingdom’s Bribery Act of 2010, and similar statutes of other nations, in these environments presents greater challenges to the Company than is the case in other, more developed countries.
Additionally, the Company does business through agents and other intermediaries, such as customs clearance brokers, in these countries as well as others. As a result, the risk to the Company of compliance violations is increased because actions taken by any of them when attempting to conduct business on our behalf could be imputed to us by law enforcement authorities.
The Company is subject to environmental, health and safety laws and regulations that expose the Company to potential liability and proposed new regulations that would restrict activities to which the Company currently provides equipment and services.
The Company’s operations are subject to a variety of national and state, provisional and local laws and regulations, including laws and regulations relating to the protection of the environment. The Company is required to invest financial and managerial resources to comply with these laws and expects to continue to do so in the future. To date, the cost of complying with governmental regulation has not been material, but the fact that such laws or regulations are frequently changed makes it impossible for the Company to predict the cost or impact of such laws and regulations on the Company’s future operations. The modification of existing laws or regulations or the adoption of new laws or regulations imposing more stringent environmental restrictions could adversely affect the Company.
The Company provides equipment and services to companies employing hydraulic fracturing or “fracking” and could be adversely impacted by new regulations of this enhanced recovery technique. Environmental concerns have been raised regarding the potential impact on underground water supplies of fracturing which involves the pumping of water and certain chemicals under pressure into a well to break apart shale and other rock formations in order to increase the flow of oil and gas embedded in these formations. Recently, certain U.S. states have proposed regulations regarding disclosure of chemicals used in fracking operations or have temporarily suspended issuance of permits for conducting such operations. Additionally, the United States Environmental Protection Agency (EPA) issued rules which become effective in January 2015 and which are designed to limit the release of volatile organic compounds, or pollutants, from natural gas wells that are hydraulically fractured. The EPA has published draft permitting guidance for oil and gas hydraulic fracturing activities using diesel fuels and is continuing to study whether the fracking process has any negative impact on underground water supplies. A draft of the final report on the results of the study is expected in 2014. Should additional governmental regulations ultimately be imposed that further restrict or curtail hydraulic fracturing activities, the Company’s revenues and earnings could be negatively impacted.
Enacted and proposed climate protection regulations and legislation may impact the Company’s operations or those of its customers.
The EPA has made a finding under the United States Clean Air Act that greenhouse gas emissions endanger public health and welfare and the EPA has enacted regulations requiring monitoring and reporting by certain facilities and companies of greenhouse gas emissions. Carbon emission reporting and reduction programs have also expanded in recent years at the state, regional and national levels with certain countries having already implemented various types of cap-and-trade programs aimed at reducing carbon emissions from companies that currently emit greenhouse gases.
Additionally, in September 2013, the EPA proposed Clean Air Act standards to cut carbon pollution from new power plants. The EPA is also continuing to seek input for the development of emission guidelines for existing power plants.
To the extent the Company’s customers are subject to these or other similar proposed or newly enacted laws and regulations, the Company is exposed to risks that the additional costs by customers to comply with such laws and regulations could impact their ability or desire to continue to operate at current or anticipated levels in certain jurisdictions, which could negatively impact their demand for the Company’s products and services.
To the extent Cameron becomes subject to any of these or other similar proposed or newly enacted laws and regulations, the Company expects that its efforts to monitor, report and comply with such laws and regulations, and any related taxes imposed on companies by such programs, will increase the Company’s cost of doing business in certain jurisdictions, including the United States, and may require expenditures on a number of its facilities and possibly on modifications of certain of its compression products, which involve use of power generation equipment.
The Company could also be impacted by new laws and regulations establishing cap-and-trade and those that might favor the increased use of non-fossil fuels, including nuclear, wind, solar and bio-fuels or that are designed to increase energy efficiency. If the proposed or newly executed laws dampen demand for oil and gas production, they could lower spending by the Company’s customers for the Company’s products and services.
The Company’s operations and information systems are subject to cybersecurity risks.
Cameron continues to increase its dependence on digital technologies to conduct its operations, to collect monies from customers and to pay vendors and employees. Many of the Company’s files are digitized and more employees are working in almost paperless environments. Additionally, the hardware, network and software environments to operate SAP, the Company’s main enterprise-wide operating system, have been outsourced to third parties. Other key software products used by the Company to conduct its operations either reside on servers in remote locations or are operated by the software vendors or other third parties for the Company’s use as “Cloud-based” or “Web-based” applications. The Company has also outsourced certain information technology development, maintenance and support functions. As a result, the Company is exposed to potentially severe cyber incidents at both its internal locations and outside vendor locations that could disrupt its operations for an extended period of time and result in the loss of critical data and in higher costs to correct and remedy the effects of such incidents, although no such material incidents have occurred to date.
Environmental Remediation
The Company’sCompany's worldwide operations are subject to domestic and international regulations with regard to air, soil and water quality as well as other environmental matters. The Company, through its environmental management system and active third-party audit program, believes it is in substantial compliance with these regulations.
The Company is heir to a number of older manufacturing plants that conducted operations in accordance with the standards of the time, but which have since changed. The Company has undertaken clean-up efforts at these sites and now conducts its business in accordance with today’stoday's standards. The Company’sCompany's clean-up efforts have yielded limited releases of liability from regulators in some instances, and have allowed sites with no current operations to be sold. The Company conducts environmental due diligence prior to all new site acquisitions. For further information, refer to Note 13 of the Notes to Consolidated Condensed Financial Statements.
Environmental Sustainability
The Company has pursued environmental sustainability in a number of ways. Processes are monitored in an attempt to produce the least amount of waste. All of the waste disposal firms used by the Company are carefully selected in an attempt to prevent any future Superfund involvements. Actions are taken in an attempt to minimize the generation of hazardous wastes and to minimize air emissions. Recycling of process water is a common practice. Best management practices are used in an effort to prevent contamination of soil and ground water on the Company’sCompany's sites.
Cameron has implemented a corporate “HSE"HSE Management System”System" based on the principles of ISO 14001 and OHSAS 18001. The HSE Management System contains a set of corporate standards that are required to be implemented and verified by each business unit. Cameron has also implemented a corporate regulatory compliance audit program to verify facility compliance with environmental, health and safety laws and regulations. The compliance program employs or uses independent third-party auditors to audit facilities on a regular basis specific to country, region, and local legal requirements. Audit reports are circulated to the senior management of the Company and to the appropriate business unit. The compliance program requires corrective and preventative actions be taken by a facility to remedy all findings of non-compliance which are tracked on the corporate HSE data base.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The Company is currently exposed to market risk from changes in foreign currency exchange rates, changes in the value of its equity instruments and changes in interest rates. A discussion of the Company’sCompany's market risk exposure in financial instruments follows.
Foreign Currency Exchange Rates
A large portion of the Company’sCompany's operations consist of manufacturing and sales activities in foreign jurisdictions, principally in Europe, Canada, West Africa, the Middle East, Latin America and the Pacific Rim. As a result, the Company’sCompany's financial performance may be affected by changes in foreign currency exchange rates in these markets. Overall, for those locations where the Company is a net receiver of local non-U.S. dollar currencies, Cameron generally benefits from a weaker U.S. dollar with respect to those currencies. Alternatively, for those locations where the Company is a net payer of local non-U.S. dollar currencies, a weaker U.S. dollar with respect to those currencies will generally have an adverse impact on the Company’sCompany's financial results. The impact on the Company’sCompany's financial results of gains or losses arising from foreign currency denominated transactions, if material, have been described under “Results"Results of Operations”Operations" in this Management’sManagement's Discussion and Analysis of Financial Condition and Results of Operations for the periods shown.
Capital Markets and Interest Rates
The Company is subject to interest rate risk on its variable-interest rate and commercial paper borrowings. Variable-rate debt, where the interest rate fluctuates periodically, exposes the Company’sCompany's cash flows to variability due to changes in market interest rates. Additionally, the fair value of the Company’sCompany's fixed-rate debt changes with changes in market interest rates.
The Company manages its debt portfolio to achieve an overall desired position of fixed and floating rates and employs from time to time interest rate swaps as a tool to achieve that goal. The major risks from interest rate derivatives include changes in the interest rates affecting the fair value of such instruments, potential increases in interest expense due to market increases in floating interest rates and the creditworthiness of the counterparties in such transactions.
The fair values of the 1.6%1.15% and 1.4% 3-year Senior Notes, the 3.6%, 3.7%, 4.0%, 4.5% and 6.375% 10-year Senior Notes and the 5.125%, 5.95% and 7.0% 30-year Senior Notes are principally dependent on prevailing interest rates. The fair value of the floating rate notes due June 2, 2014commercial paper is expected to approximate its book value.
The Company has various other long-term debt instruments, but believes that the impact of changes in interest rates in the near term will not be material to these instruments.
Item 4. Controls and Procedures
In accordance with Exchange Act Rules 13a-15 and 15d-15, the Company carried out an evaluation, under the supervision and with the participation of the Company’sCompany's Sarbanes-Oxley Disclosure Committee and the Company’sCompany's management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of the Company’sCompany's disclosure controls and procedures, as of the end of the period covered by this report. Based upon that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the Company’sCompany's disclosure controls and procedures were effective as of SeptemberJune 30, 20132014 to ensure that information required to be disclosed by the Company that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’sSEC's rules and forms and that information required to be disclosed in the reports that the Company files or submits under the Exchange Act is accumulated and communicated to the Company’sCompany's management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. There were no material changes in the Company’sCompany's internal control over financial reporting during the quarter ended SeptemberJune 30, 2013.2014.
PART II — OTHER INFORMATION
Item 1. Legal Proceedings
Deepwater Horizon Matter
A blowout preventer (“BOP”) originally manufactured by the Company and delivered in 2001 was deployed by the drilling rig Deepwater Horizon which in 2010 experienced an explosion and fire resulting in bodily injuries and loss of life, the loss of the rig, and discharge of hydrocarbons into the Gulf of Mexico.
The Company was named as one of a number of defendants in over 400 suits asserting claims for personal injury, wrongful death, property damage, pollution and economic damages. Most of these suits were consolidated into a single proceeding under rules governing multi-district litigation. The consolidated case is styled: In Re: Oil Spill by the Oil Rig Deep Water Horizon in the Gulf of Mexico on April 20, 2010, MDL Docket No. 2179.
On December 15, 2011, the Company entered into an agreement with BP Exploration and Production Inc. (BPXP), guaranteed by BP Corporation North America Inc., pursuant to which BPXP agreed to indemnify the Company for any and all current and future compensatory claims, and to pay on behalf of the Company any and all such claims, associated with or arising out of the Deepwater Horizon incident the Company otherwise would have been obligated to pay, including claims arising under the Oil Pollution Act of 1990 (OPA) and Clean Water Act, claims for natural resource damages and associated damage-assessment costs, clean-up costs, and other claims arising from third parties. The agreement does not provide indemnification of the Company for punitive damages.
On March 20, 2013, the Court in the MDL proceeding granted the Company’s motion for a judgment in its favor denying recovery for punitive damages. On April 3, 2013, the Court granted the Company’s motion for a judgment in its favor denying recovery for all other claims asserted in the MDL proceeding.
Not all suits arising out of the Deepwater Horizon Matter were consolidated into the MDL proceeding and a number of suits have been filed recently which have not yet been consolidated into the MDL proceeding. The Company has been and continues to be named as a defendant in over 50a number of multi-defendant, multi-plaintiff tort lawsuits. At June 30, 2014, the Company's Consolidated Condensed Balance Sheet included a liability of approximately $16 million for such suits, all of which allege substantially the same facts, make substantially the same allegations and seek substantially the same relief as the cases consolidated into the MDL proceeding.cases. The Company currently anticipates that all claims against the Company in the cases filed, or any more that may be filed in connection with the Deepwater Horizon Matter, will either be dismissed as a resultbelieves, based on its review of the rulingsfacts and law, that the potential exposure from these suits will not have a material adverse effect on its consolidated results of the Court in the MDL proceedingoperations, financial condition or on their own merits or lack thereof. In any event, all damages, other than punitive damages, that could be imposed against the Company in such cases would be covered by the Company's agreement with BPXP.liquidity.
The agreement with BPXP also does not provide indemnification of the Company for any fines, penalties, or certain other potential non-compensatory claims levied on it individually. The Company, however, does not consider any of these, singly or cumulatively, to pose a significant financial risk to it because, while the United States brought suit against BP and certain other parties associated with this incident for recovery under statutes such as OPA and the Clean Water Act, the United States did not name the Company as a defendant. Certain state and local governmental entities have asserted the right to levy fines and penalties as a result of the discharge of hydrocarbons, but the Federal District Court in which the MDL action is pending has ruled that they do not have this right as a result of Federal preemption. This issue is currently on appeal to the Fifth Circuit Court of Appeals.
A shareholder derivative suit, Berzner vs. Erikson, et al., Cause No. 2010-71817, 190th District Court of Harris County, Texas, was filed in October 2010 against the Company’s directors in connection with this incident and its aftermath alleging the Company’s directors failed to exercise their fiduciary duties regarding the safety and efficacy of its products, but is presently in abeyance.
No accruals have been recorded as of September 30, 2013 as the Company does not consider losses to be probable for any of these matters at this time.
The information set forth under the caption “Factors"Factors That May Affect Financial Condition and Future Results”Results" on pages 33 – 38 of this Quarterly Report on Form 10-Q is incorporated herein by reference.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Treasury share purchases
Under a resolution adopted in December 2011, the Board of Directors granted the Company the authority to repurchase shares of its common stock up to a total amount of $500.0 million. The Board increased this authority by $150.0 million in August 2013 and added another $1 billion in October 2013 to the amount authorized. The Company under these authorizations,has an authorized stock repurchase program whereby the Company may purchase shares directly or indirectly by way of open market transactions or structured programs, including the use of derivatives, for the Company’sCompany's own account or through commercial banks or financial institutions. The program, initiated in October 2011, has had a series of authorizations by the Board of Directors totaling $3.2 billion since inception. At June 30, 2014, the Company had remaining authority for future stock purchases totaling approximately $456 million.
Shares of common stock purchased and placed in treasury during the three months ended SeptemberJune 30, 20132014 under the Board’sBoard's authorization program described above were as follows:
Period | | Total number of shares purchased during the period | | | Average price paid per share | | | Cumulative number of shares purchased as part of repurchase program | | | Maximum number of shares that may yet be purchased under repurchase program(1),(2) | |
| 7/1/13 – 7/31/13 | | | 1,352,306 | | | $ | 59.36 | | | | 3,927,561 | | | | 4,473,850 | |
| 8/1/13 – 8/31/13 | | | 3,987,658 | | | $ | 56.98 | | | | 7,915,219 | | | | 3,311,604 | |
| 9/1/13 – 9/30/13 | | | 2,337,318 | | | $ | 59.07 | | | | 10,252,537 | | | | 856,598 | |
| Total | | | 7,677,282 | | | $ | 58.04 | | | | 10,252,537 | | | | 856,598 | |
Period | | Total number of shares purchased during the period | | | Average price paid per share | | | Cumulative number of shares purchased as part of repurchase program | | | Maximum number of shares that may yet be purchased under repurchase program(1) | |
| 4/1/14 – 4/30/14 | | | 3,788,207 | | | $ | 62.73 | | | | 46,362,733 | | | | 2,815,393 | |
| 5/1/14 – 5/31/14 | | | 452,100 | | | $ | 63.62 | | | | 46,814,833 | | | | 7,416,387 | |
| 6/1/14 – 6/30/14 | | | 276,361 | | | $ | 65.76 | | | | 47,091,194 | | | | 6,736,137 | |
| Total | | | 4,516,668 | | | $ | 63.00 | | | | 47,091,194 | | | | 6,736,137 | |
(1) | Based upon actual approved authority available at each month end using the month-end stock price. |
(2) | Subsequent to September At June 30, 2013,2014, the Company’s Board of Directors increased the share repurchase authority by an additional $1 billion.closing stock price was $67.71 per share. |
Item 3. Defaults Upon Senior Securities
None
Item 4. Mine Safety Disclosures
Item 5. Other Information
| (a) | Information Not Previously Reported in a Report on Form 8-K |
None
| (b) | Material Changes to the Procedures by Which Security Holders May Recommend Board Nominees. |
There have been no material changes to the procedures enumerated in the Company’sCompany's definitive proxy statement filed on Schedule 14A with the Securities and Exchange Commission on March 28, 2013April 1, 2014 with respect to the procedures by which security holders may recommend nominees to the Company’sCompany's Board of Directors.
Exhibit 31.1 –
Certification
Exhibit 31.2 –
Certification
Exhibit 32.1 –
Certification of the CEO and CFO Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Exhibit 101.INS –
XBRL Instance Document
Exhibit 101.SCH –
XBRL Taxonomy Extension Schema Document
Exhibit 101. CAL –
XBRL Taxonomy Extension Calculation Linkbase Document
Exhibit 101.DEF
XBRL Taxonomy Extension Definition Linkbase Document
Exhibit 101.LAB –
XBRL Taxonomy Extension Label Linkbase Document
Exhibit 101.PRE –
XBRL Taxonomy Extension Presentation Linkbase Document
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: October 29, 2013 July 24, 2014 | CAMERON INTERNATIONAL CORPORATION |
| (Registrant) |
| |
| By: /s/ Charles M. Sledge | |
| (Registrant) |
| | |
| By: | /s/ Charles M. Sledge |
| | Charles M. Sledge |
| | Senior Vice President and Chief Financial Officer and authorized to sign on behalf of the Registrant |
EXHIBIT INDEX
| Exhibit Number | Description |
| |
| Certification |
| |
| Certification |
| |
| Certification of the CEO and CFO Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| |
| 101.INS | XBRL Instance Document |
| |
| 101.SCH | XBRL Taxonomy Extension Schema Document |
| |
| 101.CAL | XBRL Extension Calculation Linkbase Document |
| |
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document |
| |
| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document |
| |
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document |
44