SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q/A
/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.
7
MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations - Net revenues for the three and nine months
ended June 30, 1995 were $21.0 million and $60.3 million,
respectively, constituting increases of $2.0 million (11%) and $3.2
million (6%) over the same periods in fiscal 1994.
Revenues from contract gas handling services increased $3,524,000
(24%) and $6,866,000 (15%), respectively, for the third quarter and
nine months ended June 30, 1995 as compared to the year ago periods.
The increased revenue reflected the growth in applied compression
equipment which was at a record 356,000 horsepower with an order
backlog of 50,000 horsepower at June 30, 1995. The Company's revenue
producing compression fleet, including contract operated units,
averaged 345,000 and 319,000 horsepower, respectively, during the
third quarter and nine months of the current fiscal year as compared
to 281,000 and 270,000 horsepower for comparative increases of 23% and
18% over the same fiscal 1994 periods. Average realized prices were
up two percent (2%), as compared to the third quarter a year ago,
primarily attributable to increased foreign business. Significant
revenue contributions were realized in the current fiscal year, as
well as the most recent quarter, from operations in South America. In
the most recent quarter, the Company's wholly owned Venezuelan
affiliate commissioned its recently installed water injection plant in
eastern Venezuela. Management believes that prospects for continued
growth in the Company's contract gas handling services business
segment are highly favorable as large oil and gas producers and
pipeline companies recognize the significant value added contributions
to be realized from outsourcing solutions for their gas handling
requirements.
Revenues from oil and gas operations decreased $1,321,000 (38%) and
$3,422,000 (34%) for the three and nine months, respectively, of the
current fiscal year compared to the preceding year. Oil production
for the third quarter was 94,493 barrels at an average price of $17.21
per barrel versus 149,375 barrels at $15.11 per barrel during the
fiscal 1994 third quarter. Gas production for the three months ended
June 30, 1995 was 346,497 Mcf at an average price of $1.62 per Mcf
compared to 651,085 Mcf at $1.92 a year ago. For the nine months
ended June 30, 1995 oil production totaled 315,115 barrels at an
average price of $16.21 per barrel as compared to 449,096 barrels at
$13.88 per barrel during the same period last year. Gas production
during the first nine months of the current year was 1,067,135 Mcf at
$1.53 per Mcf as compared to 1,897,168 Mcf at $2.07 per Mcf a year
ago. As noted in previous reports, the decline in production is
attributable in part to the sale of two producing properties over the
past year and to a combination of lower gas well development efforts,
in light of unfavorable market conditions, and natural production
decline rates. The Company has not been successful in adding to its
8
reserves through property acquisitions during the past several years.
Subsequent to June 30, 1995 the Company announced that, in view of
these disappointing results, management was evaluating plans to exit
from oil and gas producing operations in order to focus exclusively on
its gas handling services business.
Other revenues, comprised principally of rents, interest, dividends
and net gains on the sales of equipment and marketable securities
amounted to $372,000 and $1,173,000, respectively, for the three and
nine months ended June 30, 1995 as compared to $573,000 and $1,413,000
for the comparable periods last year. These comparative decreases
were mainly the result of reduced gains on the sales of marketable
securities in the fiscal 1995 periods.
Total operating income from sales and services (revenues less cost of
sales and services and depreciation, depletion and amortization) for
the three and nine month periods ended June 30, 1995 increased
$1,514,000 (26%) and $2,625,000 (15%), respectively, compared to the
same periods a year ago.
Operating income from contract gas handling services increased
$1,986,000 (39%) and $3,878,000 (25%), respectively, for the third
quarter and first nine months of the current fiscal year versus the
same periods a year ago. As noted in the previous discussion of
revenues, the Company realized a significant operating horsepower
increase during the current fiscal year and quarter with a
correspondingly greater relative impact on operating income. The
Company also benefitted from expanded operations in South America as
noted above. Management believes prospects continue to be very
favorable for expansion both domestically and in South America for
this core business segment.
Oil and gas operating income fell $472,000 (79%) and $1,253,000 (85%)
for the third quarter and first nine months ended June 30, 1995 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 third quarter and nine months ended June 30,
1995 was $545,000 and $990,000, respectively, compared to $87,000 and
$184,000 a year ago. These changes are the result of higher bank
borrowings to finance increased capital spending needs as further
discussed in the following section on liquidity and capital resources.
The provision for depreciation, depletion and amortization declined
$90,000 (2%) and $189,000 (2%), respectively, for the third quarter
and nine months ended June 30, 1995 reflecting a reduction in oil and
gas depletion expense as a result of the substantially lower
production volumes. Depreciation expense related to compression
equipment was significantly higher primarily because of the increase
in revenue producing horsepower.
Liguidity and Capital Resources - As of June 30, 1995 the Company had
cash and cash equivalents in the amount of $739,000 versus $1,037,000
at September 30, 1994, the end of its preceding fiscal year. The
9
principal sources of cash during the current year's first nine months
were $15,338,000 from operations, $37,000,000 in bank borrowings and
$3,908,000 from the sale of equipment and marketable securities. The
chief uses of cash were $51,121,000 in capital additions, $2,762,000
in additions to other assets and $1,918,000 for dividend payments.
Accounts receivable increased $8,253,000 (net of reserve changes)
during the first nine months of fiscal 1995 to $24,532,000 largely
because of a $6,878,000 increase in construction billings which were
issued during the last two months of the quarter. The increase in
construction billings occurred primarily in the Company's South
American operations where multiple construction projects were in
progress. The inventory balance during the same period was relatively
flat with a decrease of $191,000. This change was caused by a
combination of reduced inventories from the completion of construction
work offset by a lesser increase in inventories of compressor parts
and supplies. Property, plant and equipment, net of accumulated
depreciation, depletion and amortization, showed an increase of
$39,049,000 for the first nine months of the year as capital spending
remained at very high levels.
As noted in the Company's fiscal 1995 second quarter report, the
Company renegotiated its revolving credit agreement with two banks
increasing the available credit line from $20,000,000 to $50,000,000.
As noted above, one of the principal sources of cash during the
current fiscal quarter were borrowings against these lines of credit
to fund capital expenditures and other working capital needs. 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 announced that
Production Operators, Inc. and Amoco Production Company's U.S.
Operating Group have agreed to form an alliance for domestic field
compression operations. The goal of this alliance is to make Amoco
and Production Operators, Inc. more competitive and profitable, while
building a unique infrastructure to meet Amoco's compression needs for
the future. On June 30, 1995, Production Operators announced an
increase in the dividend rate on its common shares from six cents to
seven cents per share. The new rate will commence with the August 15,
1995 distribution which is payable to stockholders of record on July
14, 1995.
11
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 22, 1995