SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1995
/ / TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File No.
0-3919
PRODUCTION OPERATORS CORP
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
59-0827174
(IRS Employer Identification No.)
11302 Tanner Road
Houston, Texas 77041
(Address of principal executive offices)
(713) 466-0980
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding twelve
months (or for such shorter period that the Registrant was
required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
YES X
NO
On July 27, 1995 there were 10,122,329 shares of the
Company's common stock, $l.00 par value, outstanding (exclusive
of treasury shares).
The index to Exhibits is on page 11.
2
PART I. FINANCIAL INFORMATION
FINANCIAL STATEMENTS
PRODUCTION OPERATORS CORP AND SUBSIDIARY
The condensed consolidated financial statements included herein
have been prepared by Production Operators Corp, without audit,
pursuant to the rules and regulations of the Securities and
Exchange Commission. The term "Company" as used herein refers to
Production Operators Corp and its operating subsidiary,
Production Operators, Inc., together with its subsidiaries,
unless the context otherwise indicates. Certain information and
footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules
and regulations, although the Company believes that the
disclosures are adequate to make the information presented not
misleading. It is suggested that these condensed consolidated
financial statements be read in conjunction with the consolidated
financial statements and the notes thereto included in the
Company's latest annual report on Form l0-K. In the opinion of
the Company all adjustments, consisting only of normal recurring
adjustments, necessary to present fairly the financial position
of the Company as of June 30, 1995, and the results of their
operations for the nine months ended June 30, 1995 and 1994 and
their cash flows for the nine months ended June 30, 1995 and 1994
have been included. The results of operations for such interim
periods are not necessarily indicative of the results for the
full year.
3
PRODUCTION OPERATORS CORP AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 1995 AND SEPTEMBER 30, 1994
(000'S OMITTED)
June 30, September 30,
1995 1994
----------- -------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents . . . . . . . . $ 739 $ 1,037
Marketable securities . . . . . . . . . . 803 2,589
Receivables, net of reserve of $153 at
June 30, 1995 and $135 at
September 30, 1994:
Sales and services . . . . . . . . . . 16,512 15,137
Construction work in progress. . . . . 8,020 1,142
Inventories - at cost:
Compressor parts and supplies . . . . . 4,954 4,171
Construction work in progress . . . . . 2,550 3,524
-------- --------
Total current assets . . . . . . . . 33,578 27,600
Property and equipment, at cost, net of
accumulated depreciation, depletion and
amortization of $141,231 at June 30,
1995 and $133,037 at September 30, 1994. . 173,515 134,466
Long-term receivable and other assets . . . 7,367 6,051
-------- --------
$214,460 $168,117
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Current liabilities:
Accounts payable. . . . . . . . . . . . . $ 7,776 $ 6,327
Accrued liabilities . . . . . . . . . . . 3,724 5,712
Income taxes payable. . . . . . . . . . . 213 279
-------- --------
Total current liabilities. . . . . . 11,713 12,318
Senior term notes . . . . . . . . . . . . . 43,000 6,000
Deferred income taxes . . . . . . . . . . . 17,918 16,093
Stockholders' investment:
Common stock. . . . . . . . . . . . . . . 10,259 10,259
Additional paid-in capital. . . . . . . . 71,112 70,988
Retained earnings . . . . . . . . . . . . 65,122 57,362
Deferred compensation - ESOP. . . . . . . (3,456) (3,289)
Treasury stock. . . . . . . . . . . . . . (1,208) (1,614)
-------- --------
Total stockholders' investment . . . . 141,829 133,706
-------- --------
$214,460 $168,117
4
PRODUCTION OPERATORS CORP AND SUBSIDIARY
CONSOLIDATED INCOME STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED JUNE 30, 1995 AND 1994
(UNAUDITED-000'S OMITTED EXCEPT PER SHARE AMOUNTS)
Quarter Ended Nine Months Ended
June 30, June 30,
1995 1994 1995 1994
------- ------- ------- -------
Net revenues from sales and
services and other income . . . . $20,970 $18,968 $60,264 $57,060
Costs and expenses:
Cost of sales and services . . . 9,579 8,800 28,712 27,704
Depreciation, depletion and
amortization. . . . . . . . . . 3,771 3,861 10,734 10,923
General and administrative
expenses. . . . . . . . . . . . 1,707 1,686 5,038 4,869
Interest and debt expenses . . . 545 87 990 184
------- ------- ------- -------
15,602 14,434 45,474 43,680
Income before income taxes and
cumulative effect of change in
accounting principle. . . . . . . 5,368 4,534 14,790 13,380
Provision for income taxes . . . . 1,834 1,505 5,141 4,658
Income before cumulative effect
of change in accounting
principle . . . . . . . . . . . . 3,534 3,029 9,649 8,722
Cumulative effect of change in
accounting principle (SFAS
No. 109). . . . . . . . . . . . . -- -- -- 200
------- ------- ------- -------
Net income . . . . . . . . . . . . $ 3,534 $ 3,029 $ 9,649 $ 8,922
Net income per share:
Primary and fully diluted:
Income before cumulative
effect of change in
accounting principle. . . . . . $ .35 $ .30 $ .95 $ .86
Cumulative effect of change in
accounting principle. . . . . . -- -- -- .02
Net income . . . . . . . . . . . $ .35 $ .30 $ .95 $ .88
Weighted average shares
outstanding . . . . . . . . . . . 10,231 10,179 10,189 10,180
Dividends per share. . . . . . . . $ .07 $ .06 $ .19 $ .18
Average shares outstanding upon
which dividends were accrued. . . 10,122 10,071 10,094 10,071
5
PRODUCTION OPERATORS CORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED JUNE 30, 1995 AND 1994
(UNAUDITED-000'S OMITTED)
Nine Months Ended
June 30,
1995 1994
-------- --------
Cash flows from operating activities:
Cash received from customers. . . . . . . . . . $ 52,357 $ 53,477
Cash paid to suppliers and employees. . . . . . (34,245) (39,946)
Income tax paid . . . . . . . . . . . . . . . . (2,998) (2,146)
Interest paid . . . . . . . . . . . . . . . . . (869) (184)
Interest and dividends received . . . . . . . . 551 732
Other income. . . . . . . . . . . . . . . . . . 542 408
-------- --------
15,338 12,341
Cash flows from investing activities:
Net additions to property and equipment . . . . (51,121) (34,094)
Proceeds from sale of securities. . . . . . . . 2,537 10,099
Proceeds from sale of property and equipment. . 1,371 2,177
Purchase of securities. . . . . . . . . . . . . (677) (640)
Additions to other assets . . . . . . . . . . . (2,762) (83)
-------- --------
(50,652) (22,541)
Cash flows from financing activities:
Additions to net borrowings on long-term senior
notes. . . . . . . . . . . . . . . . . . . . . 37,000 9,000
Dividends paid. . . . . . . . . . . . . . . . . (1,918) (1,813)
(Additions to) reduction of deferred
compensation under Company's ESOP Plan . . . . (167) 464
Reduction of Company's ESOP bank loan . . . . . -- (395)
Cash received upon exercise of stock options. . 413 169
Cash bonus paid upon exercise of stock options. (293) (88)
Repurchases of stock awards . . . . . . . . . . (19) (19)
-------- -------
35,016 7,318
Decrease in cash and cash equivalents . . . . . . (298) (2,882)
Cash and cash equivalents at beginning of year. . 1,037 3,453
-------- --------
Cash and cash equivalents at end of quarter . . . $ 739 $ 571
6
PRODUCTION OPERATORS CORP AND SUBSIDIARY
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES
FOR THE NINE MONTHS ENDED JUNE 30, 1995 AND 1994
(UNAUDITED-000'S OMITTED)
Nine Months Ended
June 30,
1995 1994
------- -------
Net income. . . . . . . . . . . . . . . . . . . . . $ 9,649 $ 8,922
------- -------
Adjustments:
Depreciation, depletion and amortization. . . . . 10,734 10,923
Provision for deferred income tax . . . . . . . . 1,825 1,002
Provision for tax benefits on stock option
exercises and ESOP dividends . . . . . . . . . . 384 137
Issuance of stock awards. . . . . . . . . . . . . 74 85
Provision for bad debts . . . . . . . . . . . . . 18 --
Gain on sale of property and equipment. . . . . . (530) (998)
Gain on sale of marketable securities,
net of reserve . . . . . . . . . . . . . . . . . (74) (184)
Increase in receivables . . . . . . . . . . . . . (8,271) (2,843)
Decrease in inventories . . . . . . . . . . . . . 647 3,522
(Increase) decrease in long-term receivable . . . 1,487 (5,279)
Increase (decrease) in accounts payable . . . . . 1,449 (3,589)
Decrease in accrued liabilities . . . . . . . . . (1,988) (530)
SFAS No. 109 adjustment . . . . . . . . . . . . . -- (200)
Increase (decrease) in income taxes payable . . . (66) 813
Decrease in refundable taxes. . . . . . . . . . . -- 560
------- -------
5,689 3,419
------- -------
Net cash provided by operating activities . . . . . $15,338 $12,341
7
MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations - Net revenues for the three and six months
ended March 31, 1995 were $19.9 million and $39.3 million,
respectively, reflecting increases of $971,000 (5%) and $1.2 million
(3%) over the same periods in the prior year.
Revenues from contract gas handling services increased $1,932,000
(13%) and $3,342,000 (11%), respectively, during the second quarter
and six months ended March 31, 1995 as compared to the year ago
periods. The Company's revenue producing compression fleet, including
contract operated units, averaged 314,000 and 305,000 horsepower,
respectively, during the second quarter and six months of the current
fiscal year as compared to 274,000 and 265,000 horsepower last year,
increases of 15% for both comparative periods. The increased revenue
reflected the growth in revenue producing compression equipment which
was at a record 329,000 horsepower with an order backlog of owned
equipment totaling 53,000 horsepower as of March 31, 1995.
Construction, installation, demobilization, enhanced oil recovery and
associated asset sales were essentially unchanged from the preceding
year. Subsequent to quarter end, 18,000 horsepower started up in
Argentina and Venezuela resulting in revenue producing horsepower of
347,000 and a backlog of 43,000. Average realized price per
horsepower remained virtually unchanged from the prior year.
Revenues from oil and gas operations declined $1,282,000 (37%) and
$2,101,000 (32%) for the three and six months of the current fiscal
year, respectively, compared to the preceding year. Oil production
for the second quarter was 107,164 barrels at an average price of
$16.01 per barrel versus 150,434 barrels at $12.59 per barrel during
the fiscal 1994 second quarter. Gas production for the three months
ended March 31, 1995 was 337,457 Mcf at an average price of $1.41 per
Mcf compared to 730,595 Mcf at $2.16 a year ago. For the six months
ended March 31, 1995 oil production totaled 220,623 barrels at an
average price of $15.78 per barrel as compared to 299,721 barrels at
$13.27 during the same period last year. Gas production during the
first six months of the current year was 720,638 Mcf at $1.49 as
compared to 1,246,083 Mcf at $2.15 a year ago. As noted in the
Company's fiscal 1995 first quarter report, the decline in production
is related to a combination of lower gas well development efforts in
light of unfavorable market conditions, natural production decline
rates and the sale of a producing property at yearend fiscal 1994.
Other revenues, comprised principally of rents, interest, dividends
and net gains on the sales of equipment and marketable securities
totaled $572,000 and $801,000, respectively, for the three and six
months ended March 31, 1995 as compared to $251,000 and $840,000 for
the comparable periods last year.
Total operating income from sales and services (revenues less cost of
sales and services and depreciation, depletion and amortization) for
the three and six month periods ended March 31, 1995 increased
8
$403,000 (7%) and $1,111,000 (10%), respectively, compared to the year
ago periods.
Operating income from contract gas handling services increased
$901,000 (17%) and $1,892,000 (18%), respectively, for the second
quarter and first half of the current fiscal year versus the same
periods a year ago. During the second quarter, the Company began
engineering and design work in connection with a 16,000 horsepower
compression facility in Argentina. In April the construction of eight
sites and the shipment of equipment and materials commenced with
operations currently scheduled to begin gradual phase in during the
fourth quarter. In addition, the Company's Venezuelan subsidiary
substantially completed construction and installation of a large water
injection plant which began operations in April. Management believes
prospects continue to be favorable for additional expansion in both
the United States and South America for our primary business segment
as the large integrated petroleum and pipeline companies seek
outsourcing solutions to their gas handling requirements.
Oil and gas operating income declined $498,000 (93%) and $781,000
(89%) for the second quarter and first six months ended March 31,
1995, respectively, as compared to the prior year periods. The
erosion of profits in this operating segment are due to the continued
negative impact of the various factors mentioned in the preceding
discussion of revenues.
Interest expense for the second quarter and six months ended March 31,
1995 was $337,000 and $445,000, respectively, compared to $64,000 and
$97,000 a year ago. These changes are the result of higher bank
borrowings to fund increased capital spending as further discussed in
the following section on liquidity and capital resources.
The provision for depreciation, depletion and amortization declined
$153,000 (4%) and $99,000 (1%), respectively, for the second quarter
and six months ended March 31, 1995 reflecting a reduction in oil and
gas depletion expense as a result of substantially lower production
volumes. Depreciation expense related to compression equipment
increased significantly primarily due to the increase in revenue
producing horsepower.
Liquidity and Capital Resources - As of March 31, 1995 the Company had
cash and cash equivalents in the amount of $1,618,000
versus $1,037,000 at September 30, 1994, the end of its preceding
fiscal year. The principal sources of cash during the current year's
first six months were $15,043,000 from operations, $22,737,000 in bank
borrowings and $1,764,000 on sales of property, equipment and
marketable securities. The chief uses of cash were $35,813,000 in
capital additions and $1,209,000 for dividend payments. Accounts
receivable increased $4,423,000 during the first six months of fiscal
1995 to $20,702,000 primarily related to two construction projects.
The inventory balance during the same period declined $2,280,000
principally due to the start up of a project which included equipment
fabrication and construction work that had been carried in the
construction-work in progress inventory account. Property, plant and
equipment, net of accumulated depreciation, depletion and
amortization, showed an increase of $26,952,000 in the first half of
9
the year as capital spending in the Company's core contract gas
handling services segment remained at record levels. Capital
expenditures for the six months totaled $35,813,000 with $33,805,000
applied to contract gas handling services; $910,000 for our oil and
gas production segment and $1,098,000 for additions to all other
areas. During the first six months of 1995, the Company mobilized a
very large amount of horsepower. The additional capital expenditures
required to mobilize our present backlog are estimated at $10,000,000
to $12,000,000.
During the most recent quarter, the Company renegotiated its revolving
credit agreement with two banks increasing the available line from
$20,000,000 to $50,000,000. Additionally, a credit facility with
another bank was increased from $5,000,000 to $10,000,000. The
Company's liquidity requirements for the remainder of its current
fiscal year are expected to be satisfied principally from operating
cash flows and additional bank borrowings.
Other Items
On April 26, 1995 Production Operators Corp announced that Production
Operators, Inc. (POI) and Amoco Production Company's U.S. operating
group (Amoco) have agreed to form an alliance for domestic field
compression operations. Under the alliance Amoco and Production
Operators will work together to maximize efficiency for Amoco's field
compression assets and operations covering units up to 2,500
horsepower. The goal of this strategic alliance is to make Amoco and
POI more competitive and profitable, while building a unique
infrastructure to meet Amoco's compression needs for the future.
10
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The exhibits filed as part of this report are listed in the
Exhibits Index submitted as a separate section to this
report.
(b) The Registrant made no filing on Form 8-K during the period
April 1, 1995 and June 30, 1995.
All other items are inapplicable or have negative answers and
are therefore omitted from this report.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
PRODUCTION OPERATORS CORP
(Registrant)
/s/ D. John Ogren
D. John Ogren
President
/s/ William S. Robinson, Jr.
William S. Robinson, Jr.
Treasurer
Chief Financial Officer
Date: August 10, 1995
11
Index to Exhibits
Exhibit
No. Description
(4)(d) Loan Agreement dated June 2, 1995 and the Second Amended
and Restated Credit Agreement with the Bank of New York
individually and as agent for the First National Bank of
Chicago.