Exhibit 13.1
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION OF COOPER CAMERON CORPORATION
The following discussion of Cooper Cameron Corporation's (the Company)
historical results of operations and financial condition should be read in
conjunction with the Company's consolidated financial statements and notes
thereto included elsewhere in this Annual Report. All per share amounts included
in this discussion are based on diluted shares outstanding.
Overview
The Company's operations are organized into three business
segments--Cameron, Cooper Cameron Valves (CCV) and Cooper Compression. Cameron
is one of the world's leading providers of systems and equipment used to control
pressures and direct flows of oil and gas wells. Cameron's products are employed
in a wide variety of operating environments including basic onshore fields,
highly complex onshore and offshore environments, deepwater subsea applications
and ultra-high temperature geothermal operations. Cameron's products include
surface and subsea production systems, blowout preventers, drilling and
production control systems, gate valves, actuators, chokes, wellheads, drilling
risers and aftermarket parts and services. Cameron's customers include oil and
gas majors, independent producers, engineering and construction companies,
drilling contractors, rental companies and geothermal energy producers. CCV is a
leading provider of valves and related systems primarily used to control
pressure and direct the flow of oil and gas as they are moved from individual
wellheads through flow lines, gathering lines and transmission systems to
refineries, petrochemical plants and industrial centers for processing. CCV's
products include ball valves, gate valves, butterfly valves, Orbit valves,
rotary process valves, block and bleed valves, plug valves, globe valves, check
valves, actuators, chokes and aftermarket parts and service. CCV's customers
include oil and gas majors, independent producers, engineering and construction
companies, pipeline operators, drilling contractors and major chemical,
petrochemical and refining companies. Cooper Compression is a leading provider
of reciprocating and integrally geared centrifugal compression equipment and
related aftermarket parts and services. Reciprocating compression equipment is
used throughout the energy industry by gas transmission companies, compression
leasing companies, oil and gas producers and independent power producers.
Integrally geared compression equipment is used in a variety of industries
around the world.
In addition to the historical data contained herein, this Annual Report,
including the information set forth in the Company's Management's Discussion and
Analysis and elsewhere in this report, includes forward-looking statements
regarding the future revenues and earnings of the Company, as well as
expectations regarding North American rig activity, customer spending levels,
pricing levels and capital expenditures made in reliance upon the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. The
Company's actual results may differ materially from those described in
forward-looking statements. These statements are based on current expectations
of the Company's performance and are subject to a variety of factors, some of
which are not under the control of the Company, which can affect the Company's
results of operations, liquidity or financial condition. Such factors may
include overall demand for, and pricing of, the Company's products; the size and
timing of orders; the Company's ability to successfully execute large subsea
projects it has been awarded; changes in the price of and demand for oil and gas
in both domestic and international markets; political and social issues
affecting the countries in which the Company does business; fluctuations in
currency and financial markets worldwide; and variations in global economic
activity. In particular, current and projected oil and gas prices have
historically affected customers' spending levels and their related purchases of
the Company's products and services; however, recently there has been less
linkage between commodity prices and spending. Additionally, the Company may
change its cost structure, staffing or spending levels due to changes in oil and
gas price expectations and the Company's judgment of how such changes might
impact customers' spending, which may impact the Company's financial results.
See additional factors discussed in "Factors That May Affect Financial Condition
and Future Results" contained herein.
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's future performance.
Additionally, the Company is not obligated to make public indication of such
changes unless required under applicable disclosure rules and regulations.
The Company's discussion and analysis of its financial condition and
results of operations are based upon the Company's consolidated financial
statements, which have been prepared in accordance with accounting principles
generally accepted in the United States. The preparation of these financial
statements requires the Company to make estimates and judgments that affect the
reported amounts of assets, liabilities, revenues and expenses, and related
disclosure of contingent assets and liabilities. On an ongoing basis, the
Company evaluates its estimates, including those related to warranty
obligations, bad debts, inventories, intangible assets, income taxes, pensions
and other postretirement benefits, other employee benefit plans, and
contingencies and litigation. The Company bases its estimates on historical
experience and on various other assumptions that the Company believes are
reasonable under the circumstances. Actual results may differ from these
estimates under different assumptions or conditions.
25
Critical Accounting Policies
The Company believes the following critical accounting policies affect the
more significant judgments and estimates used in the preparation of its
consolidated financial statements. These policies and the other sections of the
Company's Management's Discussion and Analysis of Results of Operations and
Financial Condition have been reviewed with the Company's Audit Committee of the
Board of Directors.
The Company recognizes revenue in accordance with invoice or contractual
terms, which generally results in revenue recognition at the time of shipment or
the performance of services.
The Company maintains allowances for doubtful accounts for estimated losses
that may result from the inability of its customers to make required payments.
Such allowances are based upon several factors including, but not limited to,
historical experience and the current and projected financial condition of each
specific customer. Were the financial condition of a customer to deteriorate,
resulting in an impairment of its ability to make payments, additional
allowances may be required.
The Company's aggregate inventories are carried at cost or, if lower, net
realizable value. Inventories located in the United States and Canada are
carried on the last-in, first-out (LIFO) method. Inventories located outside of
the United States and Canada are carried on the first-in, first-out (FIFO)
method. The Company writes down its inventory for estimated obsolescence or
excess quantities on hand equal to the difference between the cost of the
inventory and its estimated realizable value. If future conditions cause a
reduction in the Company's estimate of realizable value, additional provisions
may be required.
The Company provides for the estimated cost of product warranties at the
time of sale, or, in some cases, when specific warranty problems are
encountered. Should actual product failure rates or repair costs differ from the
Company's current estimates, revisions to the estimated warranty liability would
be required.
The Company records a valuation allowance to reduce its deferred tax assets
to the amount that is more likely than not to be realized, considering future
taxable income and ongoing prudent and feasible tax planning strategies. As of
December 31, 2002, the Company had a net operating loss carryforward for U.S.
tax purposes of approximately $249 million, which does not begin to expire until
2020. Currently, the Company believes it is more likely than not that it will
generate sufficient future taxable income to fully utilize this net operating
loss carryforward. Accordingly, the Company has not recorded a valuation
allowance against this net operating loss carryforward. In the event the North
American natural gas market deteriorates over an extended period of time, the
Company may determine that it would not be able to fully realize this deferred
tax asset in the future. Should this occur, an adjustment to the deferred tax
assets would be charged to income in the period such determination was made.
Through December 31, 2001, the Company reviewed the carrying value of
intangible assets, including goodwill, at least annually or whenever there were
indications that the intangible might be impaired. In assessing the
recoverability of these intangible assets and goodwill, the Company made
assumptions regarding estimated future cash flows and other factors to determine
the estimated fair value of the respective assets. Effective January 1, 2002,
the Company adopted Statement of Financial Accounting Standards No. 142,
Goodwill and Other Intangible Assets (FAS 142) which requires that the Company
estimate the fair value of each of its businesses annually and compare such
amounts to their respective book values to determine if an impairment of
intangibles is required.
The Company accounts for its defined benefit pension plans in accordance
with Statement of Financial Accounting Standards No. 87, Employers' Accounting
for Pensions (FAS 87), which requires that amounts recognized in the financial
statements be determined on an actuarial basis. A significant element in
determining the Company's pension income or expense in accordance with FAS 87 is
the expected return on plan assets. The assumed long-term rate of return on
assets is applied to a calculated value of plan assets, which results in an
estimated return on plan assets that is included in current year pension income
or expense. The difference between this expected return and the actual return on
plan assets is deferred and amortized against future pension income or expense.
A substantial portion of the Company's pension amounts relate to its defined
benefit plans in the United States and the United Kingdom. During 2000, 2001 and
2002, the Company assumed that the expected long-term rate of return on plan
assets for these plans would be between 8.5% and 9.25%. Prior to 2001, the
Company's actual cumulative long-term rate of return on the pension assets of
these plans was in excess of these amounts; however, these plans' assets have
recently earned substantially less than the assumed rates of return. As a
result, pension expense for 2002 increased approximately $15.5 million from
2001's level. For 2003, the Company has lowered the assumed rates of return to
between 8.0% and 8.9%, depending on the plan. As a result of this and other
factors, the Company believes there will be an additional increase in pension
expense of approximately $5.0-$6.0 million for 2003.
26
Financial Summary
The following table sets forth the consolidated percentage relationship to
revenues of certain income statement items for the periods presented:
Year Ended December 31,
- --------------------------------------------------------------------------------------------------------------------------
2002 2001 2000
- --------------------------------------------------------------------------------------------------------------------------
Revenues 100.0% 100.0% 100.0%
- --------------------------------------------------------------------------------------------------------------------------
Costs and expenses:
Cost of sales (exclusive of depreciation and amortization) 71.0 69.1 70.3
Depreciation and amortization 5.0 5.3 5.4
Selling and administrative expenses 16.3 14.8 14.2
Interest, net -- 0.4 1.3
Special items 2.2 1.3 5.6
- --------------------------------------------------------------------------------------------------------------------------
Total costs and expenses 94.5 90.9 96.8
- --------------------------------------------------------------------------------------------------------------------------
Income before income taxes 5.5 9.1 3.2
Income tax provision (1.6) (2.8) (1.2)
- --------------------------------------------------------------------------------------------------------------------------
Net income 3.9% 6.3% 2.0%
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2002 Compared to 2001
The Company had net income of $60.5 million, or $1.10 per share, for the
twelve months ended December 31, 2002 compared with $98.3 million, or $1.75 per
share in 2001. The results for 2002 and 2001 included pre-tax charges of $33.3
million and $20.2 million, respectively, for special items which consisted
primarily of costs related to (i) facility closings and disposals, (ii) exiting
a product line, and (iii) other cost rationalization programs. See Note 2 of the
Notes to Consolidated Financial Statements for a discussion of these charges.
Revenues
Revenues for 2002 totaled $1.538 billion, a decrease of 1.6% from 2001
revenues of $1.564 billion. Increased subsea deliveries in Cameron were more
than offset by weak market conditions in domestic natural gas and compression
and transmission markets, which negatively impacted sales in Cameron's North
American surface and aftermarket business and the CCV and Cooper Compression
divisions.
Cameron's revenues for 2002 totaled $918.7 million, an increase of 2.3%
from 2001 revenues of $898.3 million. Revenue increases in the subsea and
international surface markets more than offset declines in North American
surface and aftermarket revenues. The increase in subsea revenues was
attributable to the large increase in subsea orders received during 2001,
primarily related to projects located offshore West Africa. North American
surface and aftermarket revenues declined primarily as a result of the continued
weakness in the rig count in this region.
CCV's revenues for 2002 totaled $273.5 million, a decrease of 6.4% from
2001 revenues of $292.3 million. Increased revenues in the Cameron Ball Valve
product line were more than offset by declines in the distributor, Orbit and
aftermarket product lines. The increase in the Cameron Ball Valve product line
was attributable to the significant pipeline backlog that existed at December
31, 2001. The decline in the distributor product line resulted from weakness in
the North American gas market. The decline in the Orbit product line was due to
both weakness in the specialty valve market and intense competitive pressures in
this market during 2002. Finally, the decline in the aftermarket product line
resulted from softness in the pipeline, refining and petrochemical markets
during the latter part of 2002.
Cooper Compression's revenues for 2002 totaled $345.9 million, a decrease
of 7.3% from 2001 revenues of $373.1 million. Increases in aftermarket revenues
in the gas compression market were more than offset by a significant decline in
new unit sales in this market. The air compression portion of Cooper
Compression's business was relatively flat in 2002 as compared to 2001. The
increase in aftermarket revenues in the gas compression market was attributable
primarily to the acquisitions Cooper Compression made in 2001. The decrease in
new unit sales in the gas compression market resulted from a lack of demand in
this market attributable to, among other things, the financial difficulties that
Cooper Compression's customers experienced throughout the year and a lack of
significant development projects that would require Cooper Compression's
equipment.
27
Cost and Expenses
Gross margin (exclusive of depreciation and amortization) for 2002 was
$446.8 million, a decrease of 7.4% from 2001 gross margin of $482.6 million.
Gross margin as a percentage of revenue for 2002 was 29.0% as compared to 30.9%
for 2001. The gross margin percentage declined in both the Cameron and CCV
divisions and increased in Cooper Compression.
Cameron's gross margin percentage for 2002 was 28.0% as compared to 31.6%
for 2001. The decrease in the gross margin percentage resulted from pricing
pressures in the North American surface and aftermarket businesses and the
increased subsea shipments during 2002, which typically carry a lower margin
percentage as compared to the Company's traditional surface products.
CCV's gross margin percentage for 2002 was 30.5% as compared to 31.1% for
2001. The decline in the gross margin percentage was attributable to the effect
of spreading relatively fixed overhead costs over a lower activity level.
Cooper Compression's gross margin percentage for 2002 was 30.8% as compared
to 28.9% for 2001. The increase in the gross margin percentage resulted from
manufacturing efficiencies and a higher percentage of aftermarket revenues,
which typically carry higher margins.
Depreciation and amortization expense for 2002 was $77.9 million, a
decrease of 6.2% from 2001 depreciation and amortization expense of $83.1
million. The decrease in depreciation and amortization expense was attributable
to the lack of goodwill amortization for 2002 due to the implementation of FAS
142 (approximately $10.7 million), partially offset by increased depreciation
and amortization on capital additions made during 2002 and 2001.
Selling and administrative expenses for 2002 were $251.0 million, an
increase of 8.6% from 2001 selling and administrative expenses of $231.1
million. As a percentage of revenues, selling and administrative expenses for
2002 were 16.3% as compared to 14.8% for 2001. The increase in selling and
administrative expenses as a percentage of revenues resulted primarily from
increased investment associated with the Company's expansion into the subsea
markets, decreased sales leverage at Cooper Compression due to the reduced new
unit sales in the gas compression market and significantly higher postretirement
benefit plan costs, associated primarily with lower returns on pension assets.
Special items for 2002 were $33.3 million as compared to $20.2 million for
2001. Of the $33.3 million in special items recorded in 2002, $25.8 million
related to the Cooper Compression division and $7.5 million related to the
Company's other divisions. The special items attributable to Cooper Compression
were generally related to the closure of 13 facilities in the gas compression
business and was comprised primarily of: (i) $1.6 million of severance expenses,
(ii) $8.2 million of facility exit costs, including lease termination payments,
and (iii) $16.0 million of facility and inventory write-downs. The $7.5 million
of special items related to the Company's other divisions was comprised of: (i)
$1.1 million of severance, (ii) $5.2 million of facility write-downs and losses
on property disposals, and (iii) $1.2 million of costs associated with the
Company's international tax restructuring activities.
Interest for 2002 was income of $0.6 million as compared to expense of $5.6
million in 2001. The decline in interest expense was primarily attributable to
the retirement of outstanding higher-cost debt with the proceeds from the
lower-cost convertible debentures which were issued in May 2001.
The effective tax rate for 2002 was 29.0% compared to 31.0% for 2001. The
reduction in the effective tax rate for 2002 was primarily attributable to the
discontinuance of amortizing goodwill, which has historically been a permanent
tax difference.
2001 Compared to 2000
The Company had net income of $98.3 million, or $1.75 per share, for the
twelve months ended December 31, 2001 compared with $27.7 million, or $0.50 per
share in 2000. The results for 2001 and 2000 included pre-tax charges of $20.2
million and $77.4 million, respectively, for the cost of exiting a product line
and other cost rationalization programs. See Note 2 of the Notes to Consolidated
Financial Statements for a discussion of these charges.
Revenues
Revenues for 2001 totaled $1.564 billion, an increase of 12.8% from 2000
revenues of $1.387 billion. Strong market conditions in the energy industry
during the first half of 2001 resulted in revenue increases in the Cameron, CCV
and the gas compression portion of Cooper Compression's business while the
overall weakness in the worldwide industrial manufacturing environment during
2001 resulted in a decline in revenues for the air compression portion of Cooper
Compression's business.
Cameron's revenues for 2001 totaled $898.3 million, an increase of 7.2%
from 2000 revenues of $838.3 million. Revenue increases in both surface and
aftermarket products more than offset a significant decline in drilling and a
smaller decline in subsea products. The increase in revenue for the surface and
aftermarket products was primarily due to strong drilling and development
activities in the energy industry during the first half of 2001. Drilling
revenues declined in 2001 as results in 2000 included deliveries of several
large projects which were not replaced in 2001. Subsea revenues declined
slightly in 2001 due to deliveries related to an offshore project in the
Philippines in 2000 which did not reoccur in 2001.
28
CCV's revenues for 2001 totaled $292.3 million, an increase of 32.2% from
2000 revenues of $221.1 million. Revenue increased in all product lines as
strong conditions in the energy industry during the first half of 2001 drove
overall demand increases for the year.
Cooper Compression's revenues for 2001 totaled $373.1 million, an increase of
14.0% from 2000 revenues of $327.3 million. Increases in Ajax units, Superior
compressors and aftermarket parts and services more than offset a decline in the
Superior engine line (which was discontinued in early 2001). The increase in
aftermarket parts and service was attributable to both Cooper Compression's
traditional business as well as two aftermarket suppliers acquired in 2001. The
revenues in the air compression portion of the business declined slightly from
2000 due to weakness in the worldwide industrial manufacturing environment
during 2001.
Cost and Expenses
Gross margin (exclusive of depreciation and amortization) for 2001 was $482.6
million, an increase of 17.2% from 2000 gross margin of $411.9 million. Gross
margin as a percentage of revenue for 2001 was 30.9% as compared to 29.7% for
2000. The increase in gross margin percentage is attributable to an increase at
Cameron partially offset by declines at CCV and Cooper Compression.
Cameron's gross margin percentage for 2001 was 31.6% as compared to 29.1% for
2000. The increase in the gross margin percentage occurred across all product
lines due to, among other things, improved pricing in the domestic surface,
aftermarket and drilling businesses. The drilling business also benefited from
reduced warranty costs in 2001 as compared to 2000.
CCV's gross margin percentage for 2001 was 31.1% as compared to 32.2% for
2000. The decline in the gross margin percentage was attributable to a shift in
the mix of products sold during 2001 towards lower margin product lines.
Cooper Compression's gross margin percentage for 2001 was 28.9% as compared
to 29.7% for 2000. The decrease was due primarily to a significant decline in
the gross margin percentage associated with integrally geared centrifugal
compression equipment as a result of lower pricing on new units due to the
overall weakness in the worldwide industrial manufacturing environment during
2001. This decline was partially offset by an increase in the gross margin
percentage associated with reciprocating gas compression equipment due primarily
to the elimination of costs and lower margin product lines (i.e., the Superior
engine line) as a result of the rationalization of Cooper Compression's
manufacturing activities, which occurred during 2000 and early 2001.
Depreciation and amortization expense for 2001 was $83.1 million, an increase
of 10.3% from 2000 depreciation and amortization expense of $75.3 million. The
increase in depreciation and amortization expense was attributable to:
accelerated amortization of existing software systems that will be replaced by
new business systems software, the implementation of which began in late 2002;
accelerated depreciation expense associated with facilities closed during 2002;
additional amortization expense associated with certain intangible assets; and
higher capital expenditures. These increases were offset by reduced depreciation
associated with the write-off of long-term assets at Cooper Compression in
connection with the decision to discontinue the Superior brand natural gas
engine line and close its Springfield, Ohio manufacturing facility.
Selling and administrative expenses for 2001 were $231.1 million, an increase
of 17.1% from 2000 selling and administrative expenses of $197.4 million. As a
percentage of revenues, selling and administrative expenses for 2001 were 14.8%
as compared to 14.2% for 2000. The increase in selling and administrative
expenses as a percentage of revenues resulted primarily from increased
investment associated with the Company's expansion into the subsea markets,
decreased sales leverage in the air compression portion of Cooper Compression's
business attributable to the soft industrial manufacturing environment
encountered in 2001 and increased postretirement benefit plan costs associated
primarily with lower returns on pension assets and decreased amortization of
actuarial gains.
Special items for 2001 were $20.2 million as compared to $77.4 million for
2000. All of the $20.2 million in special items recorded in 2001 were related to
the consolidation of the gas compression portion of Cooper Compression's
business. These items were comprised primarily of: (i) $4.5 million related to
severance and relocation expenses, (ii) $2.5 million of contract cancellation
costs, (iii) $7.5 million of facility exit costs, including lease termination
payments, and (iv) $4.1 million of costs incurred by the Superior engine
business during the shutdown period.
Net interest expense declined from $18.0 million in 2000 to $5.6 million in
2001. This decline was attributable to the replacement of higher-cost borrowings
with the issuance of $450.0 million of convertible securities which bear low
rates of interest. Additionally, the issuance of the convertible securities in
2001 generated excess cash which was invested in income-bearing securities.
The effective tax rate for 2001 was 31.0% compared to 36.8% for 2000. The
2000 rate reflected a full-year rate on operational earnings, including special
items, of 30.5%, and the absence of a tax deduction on $9.1 million of
translation component write-offs included in pre-tax earnings that were not
deductible for tax purposes.
29
Recent Pronouncements
Effective January 1, 2002, the Company adopted FAS 142. Under FAS 142,
goodwill and intangible assets with indefinite lives are no longer amortized but
are reviewed at least annually for impairment. As a result of the adoption of
FAS 142, the Company discontinued amortizing goodwill effective January 1, 2002.
Amortization of goodwill during 2001 was approximately $10.7 million. Pursuant
to FAS 142, the Company tested its goodwill for impairment upon adoption and
during the year, and no impairment was indicated.
Since mid-2001, the Financial Accounting Standards Board ("FASB") has issued
Statements of Financial Accounting Standards Nos. 143-148. Certain provisions of
these standards, including new disclosure requirements, are effective for 2002,
whereas other provisions became effective January 1, 2003. There was no material
impact on the Company's financial condition or results of operations from
adoption of those provisions effective in 2002 nor is any expected upon adoption
of the remaining provisions in 2003.
Outlook for 2003
Primarily as a result of the continued weakness in North American natural gas
exploration and development activity and its negative impact on the Company's
North American surface, valve and compression businesses, the Company remains
cautious in its near-term outlook. First quarter earnings per share, before
special items, are expected to be approximately $0.20 to $0.25. Special items
for the first quarter are expected to be approximately $3 to $5 million,
comprised primarily of additional severance and facility closure costs
associated with the restructuring activities in Cooper Compression. Earnings for
the full year 2003 are expected to be approximately $1.80 to $2.00 per share,
before special items, with approximately 60 to 65 percent of the year's earnings
generated in the second half as Cameron begins to deliver portions of the large
subsea orders that were booked in 2001 and 2002.
Liquidity and Capital Resources
The Company's combined cash and short-term investment balances increased to
$299.1 million at December 31, 2002 from $213.7 million at December 31, 2001,
due primarily to free cash flow generated during 2002. During 2002, the
Company's operating activities generated $177.8 million of cash as compared to
$124.9 million in 2001. Cash flow from operations in 2002 was comprised
primarily of net income of $60.5 million, adjusted for depreciation and
amortization of $77.9 million, and $40.7 million of working capital decreases.
The most significant decreases in working capital were in inventory and
receivables as the Company focused on reducing working capital throughout the
year. Working capital associated with other assets and liabilities increased
$33.3 million during 2002 due primarily to the contribution of $26.4 million to
the Company's pension plans.
During 2002, the Company's investing activities consumed $25.3 million of
cash as compared to $271.6 million in 2001. Capital expenditures in 2002 of
$82.1 million decreased significantly from expenditures in 2001 of $125.0
million as the Company's 2001 expenditures included $36.0 million for the
construction of a new headquarters for the Cameron division and $20.0 million
for the Company's enterprise-wide software system, which the Company began
implementing in late 2002. The Company spent an additional $24.3 million for its
enterprise-wide software system during 2002, bringing the cumulative
expenditures to date on this system to approximately $44.3 million. Cash spent
on acquisitions totaled $67.8 million for 2002 and was comprised of the
acquisition of a Canadian valve manufacturer, a wellhead business located in
West Texas and certain drilling and riser-related assets from another oilfield
equipment supplier. Cash spent on acquisitions totaled $51.8 million for 2001
and consisted primarily of two aftermarket parts and service suppliers in the
Cooper Compression division and a supplier of motion compensation solutions in
the Cameron division. During 2002, the Company entered into a sale-leaseback
transaction for its Cameron headquarters and sold land formerly used by the
Cameron division. The Company realized net proceeds from these transactions of
$39.5 million.
During 2002, the Company's financing activities consumed $2.3 million of
cash, as compared to generating $243.8 million of cash in 2001. The 2001
activity reflects the issuance of the convertible securities, as more fully
described in Note 10 of the Notes to Consolidated Financial Statements, which
generated gross proceeds of $450.0 million. These proceeds were used to repay
amounts outstanding under the Company's revolving credit facility and other
borrowings of $179.1 million and for other purposes, including share repurchases
of $25.1 million and acquisitions.
During the third quarter of 2002, the Company reached an agreement with a
joint-venture partner whereby the partner has the option to purchase certain
specialized fixed assets, with a net book value of $3.8 million as of December
31, 2002, and certain other assets by March 31, 2003 for a cash payment of $4.3
million and certain other consideration. Should the joint venture partner not
purchase these assets, the Company will find alternative uses or otherwise
dispose of these assets, which could result in a write-down of all or a portion
of the net book value of these assets.
During March 2002, the Company entered into a revolving credit agreement (the
"Revolving Credit Agreement"). This agreement provides the Company with up to
$150.0 million of floating-rate credit advances maturing on March 5, 2003 (all
of which was available for borrowing at December 31, 2002). The Revolving Credit
Agreement currently provides for unsecured borrowings at the London Interbank
Offered Rate (LIBOR) plus 0.50%. In addition to certain up-front costs, the
agreement carries a facility fee of 0.10% per annum on the committed amount of
the facility plus a usage fee of 0.10% per annum on the total amount of
outstanding borrowings, provided such borrowings exceed $50.0 million.
30
The Revolving Credit Agreement contains certain covenants, including maintaining
specific interest coverage and debt-to-total capitalization ratios. The Company
currently intends to extend this facility prior to its expiration and
concurrently reduce the size of the facility to $100 million.
The Company expects to fund capital expenditures, estimated to be $65.0 to
$70.0 million in 2003, as well as general liquidity needs, from its cash and
short-term investment balances, internally generated funds and financing
arrangements.
At December 31, 2002, the Company was party to two forward purchase
agreements with a third-party financial institution for the purchase of a total
of 1,006,500 shares of the Company's common stock. The key terms of these
agreements are as follows:
Forward Agreement Dated
August 2002 March 2002
- --------------------------------------------------------------------------------
Underlying shares 350,500 656,000
Average price per share $39.24 $36.46
Settlement required by August 12, 2004 March 15, 2004
Maximum issuable shares 2,103,000 3,600,000
Based on the closing market price of $49.82 per share at December 31, 2002,
the Company was in a position to acquire these shares at a savings of
approximately $12.5 million over current open market purchases.
The carrying cost inherent in these contracts is 3-month LIBOR plus 0.70%.
The Company could be required to settle these agreements prematurely if the
Company's stock price falls below $16.50 per share and in certain other limited
circumstances. In the event the Company chooses not to settle these transactions
in cash, the maximum number of shares the Company could be required to deliver
to settle each agreement is reflected above. In accordance with the consensus
reached by the FASB's Emerging Issues Task Force in Issue No. 00-19, Accounting
for Derivative Financial Instruments Indexed to, and Potentially Settled in, a
Company's Own Stock, these forward purchase agreements have not been included as
a liability in the Company's December 31, 2002 Consolidated Balance Sheet.
The following summarizes the Company's significant cash contractual
obligations for the next three years as of December 31, 2002 (dollars in
thousands).
Years Two and
Total Year One Three
- ------------------------------------------------------------------------------------------------------
Significant contractual obligations:
Debt/1/ $ 3,652 $ 639 $ 3,013
Capital lease obligations 8,917 4,301 4,616
Non-cancelable operating lease obligations 27,991 12,113 15,878
- ------------------------------------------------------------------------------------------------------
Total significant contractual cash obligations during
next three years $ 40,560 $ 17,053 $ 23,507
======================================================================================================
/1/ The holders of the Zero-Coupon Debentures have the right to require the
Company to repurchase the debentures on the third, eighth and thirteenth
anniversaries of the issue. Such amounts have not been included in the
categories above.
The Company secures certain contractual obligations under various agreements
with its customers or other parties through the issuance of letters of credit or
bank guarantees. The Company has various agreements with financial institutions
to issue such instruments. As of December 31, 2002, the Company had $91.9
million of letters of credit and bank guarantees outstanding. Should these
facilities become unavailable to the Company, the Company's operations and
liquidity could be negatively impacted. Circumstances which could result in the
withdrawal of such facilities include, but are not limited to, deteriorating
financial performance of the Company, deteriorating financial condition of the
financial institutions providing such facilities, overall constriction in the
credit markets or rating downgrades of the Company.
Factors That May Affect Financial Condition and Future Results
Downturns in the oil and gas industry have had, and may in the future have, a
negative effect on the Company's sales and profitability.
Demand for most of the Company's products and services, and therefore its
revenues, depend to a large extent upon the level of capital expenditures
related to oil and gas exploration, production, development, processing and
transmission. Declines, as well as anticipated declines, in oil and gas prices
could negatively affect the level of these activities. Factors that contribute
to the volatility of oil and gas prices include the following:
. the demand for oil and gas, which is impacted by economic and political
conditions and weather;
31
. the ability of the Organization of Petroleum Exporting Countries ("OPEC")
to set and maintain production levels and pricing;
. the level of production from non-OPEC countries;
. governmental policies regarding exploration and development of oil and gas
reserves;
. the political environments of oil and gas producing regions, including the
Middle East and, in particular, Iraq;
. the depletion rates of gas wells in North America; and
. advances in exploration and development technology.
The Company's international operations expose it to instability and changes in
economic and political conditions, foreign currency fluctuations, changes in
foreign regulations and other risks inherent to international business.
The Company has manufacturing and service operations that are essential parts
of its business in developing countries and economically and politically
volatile areas in Africa, Latin America, the Middle East and the Asia-Pacific
region. The risks of international business that the Company is exposed to
include the following:
. volatility in general economic, social and political conditions;
. differing tax rates, tariffs, exchange controls or other similar
restrictions;
. changes in currency rates;
. inability to repatriate income or capital;
. changes in, and compliance with, domestic and foreign laws and regulations
which impose a range of restrictions on operations, trade practices, trade
partners and investment decisions;
. reductions in the number or capacity of qualified personnel; and
. seizure of equipment.
The Company also purchases a large portion of its raw materials and
components from a relatively small number of foreign suppliers in countries such
as India, South Korea, Taiwan and China. The ability of these suppliers to meet
the Company's demand could be adversely affected by the factors described above.
The Company is subject to environmental, health and safety laws and regulations
that expose the Company to potential liability.
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.
Excess cash can be invested in marketable securities, which may subject the
Company to potential losses.
The Company has invested in publicly-traded debt and equity securities from
time to time. Changes in the financial markets, including interest rates, as
well as the performance of the issuing companies can affect the market value of
the Company's short-term investments.
Implementation of a new enterprise-wide software system could disrupt the
Company's business processes.
The Company is in the process of implementing a new enterprise-wide software
system. During October 2002, the Company converted the U.S. and Canadian
operations of Cameron and CCV onto the new system. The majority of the Company's
remaining operations are expected to be converted to the new system during 2003.
Although the Company believes it has developed an overall implementation plan
which will allow for a successful transition to the new system, any disruption
in this plan could negatively affect the Company's ability to develop, procure,
manufacture and/or deliver products, and could disrupt the Company's financial
reporting system. Senior management is not aware of any material problems with
the conversion.
Changes in the financial condition of the Company's customers could impact the
Company's business.
Erosion of the financial condition of customers could adversely affect the
Company's business with regard to both receivables exposure and future revenue
realization. In both the Cooper Compression and CCV divisions, a significant
portion of revenues for 2001 and 2002 were derived from a relatively
concentrated group of customers in the pipeline and gas compression business,
some of which are reported to be experiencing financial and/or other
difficulties related to their capitalization. The Company believes that these
difficulties have negatively impacted the Company's business with these
customers, particularly in the Cooper Compression division. To the extent these
customers' difficulties continue, worsen, and/or result in curtailments of their
expenditures, the Company's revenues and earnings could continue to be
negatively affected.
32
The Company's deepwater subsea projects expose the Company to new risks.
The Company continues to expand into the deepwater subsea systems market.
These projects are significantly larger in scope and complexity (both in terms
of technical and logistical requirements) than projects in the Company's surface
and shallow-water subsea markets. To the extent the Company experiences
difficulties in meeting the technical and/or delivery requirements of the
projects, the Company's earnings or liquidity could be negatively impacted. As
of December 31, 2002, the Company had a deepwater subsea backlog of
approximately $278 million.
Changes in the equity and debt markets impact pension expense and funding
requirements for the Company's defined benefit plans.
The Company accounts for its defined benefit pension plans in accordance with
FAS 87, which requires that amounts recognized in the financial statements be
determined on an actuarial basis. A significant element in determining the
Company's pension income or expense in accordance with FAS 87 is the expected
return on plan assets. The assumed long-term rate of return on assets is applied
to a calculated value of plan assets, which results in an estimated return on
plan assets that is included in current year pension income or expense. The
difference between this expected return and the actual return on plan assets is
deferred and amortized against future pension income or expense. Due to the
weakness in the overall equity markets since 2000, the plan assets have earned a
rate of return substantially less than the assumed long-term rate of return. As
a result, expense associated with the Company's pension plans has increased, and
will continue to increase, significantly from the level recognized historically.
Additionally, FAS 87 requires the recognition of a minimum pension liability
to the extent the assets of the plans are below the accumulated benefit
obligation of the plans. In order to avoid recognizing this minimum pension
liability, the Company contributed approximately $26.4 million to its pension
plans during 2002. If the Company's pension assets continue to perform poorly,
the Company may be required to recognize a minimum pension liability in the
future or fund additional amounts in the pension plans.
Environmental Remediation
The cost of environmental remediation and compliance has not been a material
expense for the Company during any of the periods presented. The Company has
been identified as a potentially responsible party with respect to five sites
designated for cleanup under the Comprehensive Environmental Response
Compensation and Liability Act ("CERCLA") or similar state laws. The Company's
involvement at two of the sites has been settled by de minimis payments and
involvement at two of the other sites is believed to be at a de minimis level.
The fifth site is Osborne, Pennsylvania (a landfill into which the Cooper
Compression operation in Grove City, Pennsylvania deposited waste), where
remediation is complete and remaining costs relate to ongoing ground water
treatment and monitoring. The Company is also engaged in site cleanup under the
Voluntary Cleanup Plan of the Texas Commission on Environmental Quality at
former manufacturing locations in Houston and Missouri City, Texas. The Company
believes, based on its review and other factors, that the estimated costs
related to these sites will not have a material adverse effect on the Company's
results of operations, financial condition or liquidity. However, no assurance
can be given that the actual cost will not exceed the estimates of the cleanup
costs, once determined. Additionally, the Company has discontinued operations at
a number of other sites which had previously been in existence for many years.
The Company does not believe, based upon information currently available, that
there are any material environmental liabilities existing at these locations. As
of December 31, 2002, the Company's consolidated financial statements included
$11.1 million of environmental reserves.
Market Risk Information
A large portion of the Company'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's financial performance may be affected by changes in foreign currency
exchange rates or weak economic conditions in these markets. Overall, the
Company generally is a net receiver of Pounds Sterling and Canadian dollars and,
therefore, benefits from a weaker U.S. dollar with respect to these currencies.
Typically, the Company is a net payer of euros and Norwegian krone as well as
other currencies such as the Singapore dollar and the Brazilian real. A weaker
U.S. dollar with respect to these currencies may have an adverse effect on the
Company. For each of the last three years, the Company's gain or loss from
foreign currency-denominated transactions has not been material.
In order to mitigate the effect of exchange rate changes, the Company will
often attempt to structure sales contracts to provide for collections from
customers in the currency in which the Company incurs its manufacturing costs.
In certain limited instances, the Company has historically entered into forward
foreign currency exchange contracts to hedge specific, large, non-U.S. dollar
anticipated receipts or large anticipated receipts in currencies for which the
Company does not traditionally have fully offsetting local currency
expenditures. As of December 31, 2002, there were no outstanding forward foreign
currency exchange contracts.
33
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders
Cooper Cameron Corporation
We have audited the accompanying consolidated balance sheets of Cooper
Cameron Corporation as of December 31, 2002 and 2001 and the related statements
of consolidated results of operations, consolidated changes in stockholders'
equity and consolidated cash flows for each of the three years in the period
ended December 31, 2002. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Cooper Cameron Corporation at December 31, 2002 and 2001, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 2002, in conformity with accounting principles
generally accepted in the United States.
/s/ Ernst & Young LLP
Houston, Texas
January 27, 2003
34
CONSOLIDATED RESULTS OF OPERATIONS
(dollars in thousands, except per share data)
Year Ended December 31,
- ------------------------------------------------------------------------------------------------------------------
2002 2001 2000
- ------------------------------------------------------------------------------------------------------------------
Revenues $ 1,538,100 $ 1,563,678 $ 1,386,709
- ------------------------------------------------------------------------------------------------------------------
Costs and expenses:
Cost of sales (exclusive of depreciation
and amortization) 1,091,290 1,081,078 974,797
Depreciation and amortization 77,907 83,095 75,321
Selling and administrative expenses 251,000 231,144 197,381
Interest, net (561) 5,620 18,038
Special items 33,319 20,159 77,399
- ------------------------------------------------------------------------------------------------------------------
Total costs and expenses 1,452,955 1,421,096 1,342,936
- ------------------------------------------------------------------------------------------------------------------
Income before income taxes 85,145 142,582 43,773
Income tax provision (24,676) (44,237) (16,113)
- ------------------------------------------------------------------------------------------------------------------
Net income $ 60,469 $ 98,345 $ 27,660
==================================================================================================================
Earnings per share:
Basic $ 1.12 $ 1.82 $ 0.52
Diluted $ 1.10 $ 1.75 $ 0.50
==================================================================================================================
The Notes to Consolidated Financial Statements are an integral part of these
statements.
35
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except shares and per share data)
December 31,
- -------------------------------------------------------------------------------------------------------
2002 2001
- -------------------------------------------------------------------------------------------------------
Assets
Cash and cash equivalents $ 273,800 $ 111,640
Short-term investments 25,290 102,071
Receivables, net 304,821 306,205
Inventories, net 387,218 423,819
Other 26,732 21,251
- -------------------------------------------------------------------------------------------------------
Total current assets 1,017,861 964,986
Plant and equipment, at cost less accumulated
depreciation 475,914 490,264
Goodwill, less accumulated amortization 301,882 259,829
Other assets 202,013 159,973
- -------------------------------------------------------------------------------------------------------
Total assets $ 1,997,670 $ 1,875,052
=======================================================================================================
Liabilities and stockholders' equity
Short-term debt $ 4,870 $ 10,487
Accounts payable and accrued liabilities 354,377 349,236
Accrued income taxes 15,563 18,048
- -------------------------------------------------------------------------------------------------------
Total current liabilities 374,810 377,771
Long-term debt 462,942 459,142
Postretirement benefits other than pensions 45,161 47,759
Deferred income taxes 45,641 41,665
Other long-term liabilities 27,813 25,434
- -------------------------------------------------------------------------------------------------------
Total liabilities 956,367 951,771
- -------------------------------------------------------------------------------------------------------
Stockholders' equity:
Common stock, par value $.01 per share, 150,000,000
shares authorized, 54,566,054 shares issued 546 546
Preferred stock, par value $.01 per share, 10,000,000
shares authorized, no shares issued or outstanding -- --
Capital in excess of par value 949,188 951,441
Retained earnings 108,147 47,678
Accumulated other elements of comprehensive income (14,789) (53,050)
Less: Treasury stock at cost, 54,954 shares at December 31, 2002
(571,320 shares at December 31, 2001) (1,789) (23,334)
- -------------------------------------------------------------------------------------------------------
Total stockholders' equity 1,041,303 923,281
- -------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 1,997,670 $ 1,875,052
========================================================================================================
The Notes to Consolidated Financial Statements are an integral part of these
statements.
36
CONSOLIDATED CASH FLOWS
(dollars in thousands)
Year Ended December 31,
- ----------------------------------------------------------------------------------------------------------------------
2002 2001 2000
- ----------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income $ 60,469 $ 98,345 $ 27,660
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 67,053 63,073 59,797
Amortization 10,854 20,022 15,524
Deferred income taxes and other (1,283) 27,446 739
Changes in assets and liabilities, net of translation and effects of
acquisitions, dispositions and non-cash items:
Receivables 15,632 (36,511) (11,562)
Inventories 67,960 (40,277) 17,009
Accounts payable and accrued liabilities (9,579) 23,342 (50,394)
Other assets and liabilities, net (33,281) (30,518) (38,587)
- ----------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 177,825 124,922 20,186
- ----------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Capital expenditures (82,148) (125,004) (66,599)
(Acquisitions) dispositions, net (67,750) (51,778) 8,171
Sales (purchases) of short-term investments, net 78,533 (99,932) --
Proceeds from sale of Cameron division headquarters
building and other property 39,460 -- --
Other 6,588 5,106 15,703
- ----------------------------------------------------------------------------------------------------------------------
Net cash used for investing activities (25,317) (271,608) (42,725)
- ----------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Loan repayments, net (7,448) (179,080) (17,830)
Debentures issued -- 450,000 --
Debenture issuance costs -- (8,364) --
Purchase of treasury stock -- (25,082) --
Activity under stock option plans and other 5,156 6,316 55,446
- ----------------------------------------------------------------------------------------------------------------------
Net cash provided by (used for) financing activities (2,292) 243,790 37,616
- ----------------------------------------------------------------------------------------------------------------------
Effect of translation on cash 11,944 (2,030) (6,726)
- ----------------------------------------------------------------------------------------------------------------------
Increase in cash and cash equivalents 162,160 95,074 8,351
- ----------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, beginning of year 111,640 16,566 8,215
- ----------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 273,800 $ 111,640 $ 16,566
======================================================================================================================
The Notes to Consolidated Financial Statements are an integral part of these
statements.
37
CONSOLIDATED CHANGES IN STOCKHOLDERS' EQUITY
(dollars in thousands)
Accumulated
other
Capital in Retained elements of
Common excess of earnings comprehensive Treasury
stock par value (deficit) income stock Total
- ------------------------------------------------------------------------------------------------------------------------
Balance - December 31, 1999 $ 540 $ 899,978 $ (78,327) $ (12,039) $ (96,074) $ 714,078
----------
Net income 27,660 27,660
Foreign currency translation (25,313) (25,313)
Change in fair value of short-term
investments 247 247
----------
Comprehensive income 2,594
----------
Common stock issued under stock option
and other employee benefit plans (30,091) 96,074 65,983
Tax benefit of employee stock benefit
plan transactions 59,624 59,624
- ------------------------------------------------------------------------------------------------------------------------
Balance - December 31, 2000 540 929,511 (50,667) (37,105) -- 842,279
----------
Net income 98,345 98,345
Foreign currency translation (15,681) (15,681)
Minimum pension liability, net of
$35 in taxes 57 57
Change in fair value of short-term
investments (321) (321)
----------
Comprehensive income 82,400
----------
Purchase of treasury stock (25,082) (25,082)
Common stock issued under stock option
and other employee benefit plans 6 14,828 1,748 16,582
Tax benefit of employee stock benefit
plan transactions 7,129 7,129
Costs related to forward stock purchase
agreement (27) (27)
- ------------------------------------------------------------------------------------------------------------------------
Balance - December 31, 2001 546 951,441 47,678 (53,050) (23,334) 923,281
----------
Net income 60,469 60,469
Foreign currency translation 38,005 38,005
Minimum pension liability, net of
$56 in taxes 91 91
Change in fair value of short-term
investments, net of $56 in taxes 165 165
----------
Comprehensive income 98,730
----------
Common stock issued under stock option
and other employee benefit plans (4,729) 21,545 16,816
Tax benefit of employee stock benefit
plan transactions 2,944 2,944
Costs related to forward stock purchase
agreements and other (468) (468)
- ------------------------------------------------------------------------------------------------------------------------
Balance - December 31, 2002 $ 546 $ 949,188 $ 108,147 $ (14,789) $ (1,789) $1,041,303
========================================================================================================================
The Notes to Consolidated Financial Statements are an integral part of these
statements.
38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1: Summary of Major Accounting Policies
Principles of Consolidation -- The consolidated financial statements include
the accounts of the Company and all majority-owned subsidiaries. Investments
from 20% to 50% in affiliated companies are accounted for using the equity
method. The Company's operations are organized into three separate business
segments. The segments are Cameron, Cooper Cameron Valves (CCV) and Cooper
Compression. Additional information regarding each segment may be found in Note
13 of the Notes to Consolidated Financial Statements.
Estimates in Financial Statements -- The preparation of the financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from these
estimates.
Revenue Recognition -- Revenue is generally recognized in accordance with
invoice or contractual terms which generally results in revenue recognition at
the time of shipment or the performance of services.
Short-term Investments -- Investments in available for sale marketable debt
and equity securities are carried at market value, based on quoted market
prices. Differences between cost and market value are reflected as a component
of accumulated other elements of comprehensive income until such time as those
differences are realized.
Receivables -- The Company maintains allowances for doubtful accounts for
estimated losses that may result from the inability of its customers to make
required payments. Such allowances are based upon several factors including, but
not limited to, historical experience and the current and projected financial
condition of the specific customer.
Inventories -- Aggregate inventories are carried at cost or, if lower, net
realizable value. On the basis of current costs, 64% of inventories in 2002 and
68% in 2001 are carried on the last-in, first-out (LIFO) method. The remaining
inventories, which are located outside the United States and Canada, are carried
on the first-in, first-out (FIFO) method. The Company writes down its inventory
for estimated obsolescence or excess quantities on hand equal to the difference
between the cost of the inventory and its estimated realizable value.
Plant and Equipment -- Depreciation is provided over the estimated useful
lives of the related assets, or in the case of assets under capital leases, over
the related lease term, if less, using primarily the straight-line method. The
range of estimated useful lives are: buildings - 10 to 40 years; machinery and
equipment - 3 to 18 years; and capitalized software, tooling, dies, patterns and
all other - 3 to 10 years.
Goodwill -- Prior to 2002, goodwill arising from purchase acquisitions was
being amortized over 40 years from respective acquisition dates, with minor
exceptions. The Company considered this amortization period to be appropriate
due to the long-lived nature of the businesses acquired and the lack of rapid
technological change or obsolescence associated with these operations. Through
December 31, 2001, the carrying value of the Company's goodwill was reviewed at
the division level at least annually or whenever there were indications that the
goodwill might be impaired. With the adoption of Statement of Financial
Accounting Standards No. 142, Goodwill and Other Intangible Assets (FAS 142),
effective January 1, 2002, the Company no longer amortizes goodwill and reviews
goodwill at least annually for impairment. The initial evaluation upon adoption,
as well as the 2002 annual evaluation, indicated that no impairment of goodwill
was required.
Income Taxes -- The asset and liability approach is used to account for
income taxes by recognizing deferred tax assets and liabilities for the expected
future tax consequences of temporary differences between the carrying amounts
and the tax bases of assets and liabilities. Income tax expense includes U.S.
and foreign income taxes, including U.S. federal taxes on undistributed earnings
of foreign subsidiaries to the extent such earnings are planned to be remitted.
Taxes are not provided on the translation component of comprehensive income
since the effect of translation is not considered to modify the amount of the
earnings that are planned to be remitted. The Company records a valuation
allowance to reduce its deferred tax assets to the amount that is more likely
than not to be realized.
Environmental Remediation and Compliance -- Environmental remediation and
postremediation monitoring costs are accrued when such obligations become
probable and reasonably estimable. Such future expenditures are not discounted
to their present value.
Product Warranty -- Estimated warranty expense is accrued either at the time
of sale or, in some cases, when specific warranty problems are encountered.
Adjustments to the accruals are made periodically to reflect actual experience.
39
Stock-Based Compensation -- At December 31, 2002, the Company had two
stock-based employee compensation plans and one stock-based compensation plan
for its outside directors. These plans are described in further detail in Note 9
of the Notes to Consolidated Financial Statements. The Company measures
compensation expense for its stock-based compensation plans using the intrinsic
value method. The following table illustrates the effect on net income and
earnings per share if the Company had used the alternative fair value method to
recognize stock-based employee compensation expense.
Year Ended December 31,
- -----------------------------------------------------------------------------------------------------------
(dollars in thousands, except per share data) 2002 2001 2000
- -----------------------------------------------------------------------------------------------------------
Net income, as reported $ 60,469 $ 98,345 $ 27,660
Deduct: Total stock-based employee compensation
expense determined under the fair value method
for all awards, net of tax (22,753) (31,270) (32,594)
- -----------------------------------------------------------------------------------------------------------
Pro forma net income (loss) $ 37,716 $ 67,075 $ (4,934)
===========================================================================================================
Earnings (loss) per share:
Basic - as reported $ 1.12 $ 1.82 $ 0.52
Basic - pro forma $ 0.70 $ 1.24 $ (0.09)
Diluted - as reported $ 1.10 $ 1.75 $ 0.50
Diluted - pro forma $ 0.68 $ 1.21 $ (0.09)
Derivative Financial Instruments -- Effective January 1, 2001, the Company
recognizes all derivative financial instruments as assets and liabilities and
measures them at fair value. For derivative financial instruments that are
designated and qualify as a cash flow hedge, the effective portions of changes
in fair value of the derivative are recorded in other comprehensive income, net
of tax, and are recognized in the income statement when the hedged item affects
earnings. Ineffective portions of changes in the fair value of cash flow hedges
are recognized currently in earnings. Changes in the fair value of derivatives
that do not qualify for hedge treatment are recognized currently in earnings.
The Company had no outstanding derivatives at December 31, 2002 or 2001.
Cash Equivalents -- For purposes of the Consolidated Cash Flows statement,
the Company considers all investments purchased with original maturities of
three months or less to be cash equivalents.
Reclassifications -- Certain prior year amounts have been reclassified to
conform to the current year presentation.
New Accounting Pronouncements -- Since mid-2001, the Financial Accounting
Standards Board ("FASB") has issued Statements of Financial Accounting Standards
Nos. 143-148. Certain provisions of these standards, including new disclosure
requirements, are effective for 2002 whereas other provisions became effective
January 1, 2003. There was no material impact on the Company's financial
condition or results of operations from adoption of those provisions effective
in 2002 nor is any expected upon adoption of the remaining provisions in 2003.
In November 2002, the FASB issued Interpretation No. 45, Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others. This interpretation will significantly
change current practice in the accounting for and disclosure of guarantees. Each
guarantee issued or modified after December 31, 2002 and meeting the
characteristics described in the Interpretation is to be recognized and
initially measured at fair value. In addition, guarantors are required to make
significant new disclosures, even if the likelihood of the guarantor making
payments under the guarantee is remote. Disclosures applicable to the Company
have been included in Note 14 of the Notes to Consolidated Financial Statements.
Note 2: Special Items
Special items by segment for the last three years were as follows:
Year Ended December 31,
- -----------------------------------------------------------------------
(dollars in thousands) 2002 2001 2000
- -----------------------------------------------------------------------
Cameron $ 6,275 $ -- $ 8,121
CCV -- -- 1,448
Cooper Compression 25,851 20,159 67,830
Corporate 1,193 -- --
- -----------------------------------------------------------------------
$ 33,319 $ 20,159 $ 77,399
=======================================================================
40
During 2002, the Company recorded $33,319,000 of costs related to various
actions taken in the fourth quarter. Of this amount, Cooper Compression recorded
$25,851,000 of costs related generally to the closure of 13 facilities in the
gas compression business. This amount was comprised of: (i) $1,632,000 million
related to severance and relocation expenses, (ii) $8,177,000 of facility exit
costs, including lease termination payments, and (iii) $16,042,000 of facility
and inventory write-downs. The $7,468,000 of costs related to the Company's
other divisions consisted of: (i) $1,082,000 related to severance, (ii)
$5,193,000 of facility write-downs and losses on property disposals, and (iii)
$1,193,000 related to the Company's international tax restructuring activities.
During 2001, Cooper Compression recorded $20,159,000 of costs incurred in
connection with the consolidation of the manufacturing operations, closing
obsolete facilities and discontinuing the manufacture of new Superior engines in
its gas compression business. The charges during 2001 consisted primarily of:
(i) $4,516,000 of employee severance and various relocation costs, (ii)
$2,544,000 of contract cancellation costs, and (iii) $11,579,000 of plant
shutdown costs. Included in the plant shutdown costs were $4,088,000 of costs
incurred by the Superior engine business during the shutdown period.
During 2000, the Company recorded $77,399,000 of special items. Of this
amount, $36,966,000 represented non-cash write-offs or write-downs of assets and
$40,433,000 reflected either cash expenditures or accruals for cash that will be
spent in future periods. Of the cash total, $12,168,000 related to employee
severance and other employee costs including workmen's compensation, medical,
pay-to-stay agreements and similar items, $8,841,000 related to personnel and
equipment relocation, $5,378,000 related to facility clean-up (including
environmental) and rearrangement, $6,356,000 related to operating costs for
redundant facilities being held for sale and $7,690,000 related to productivity
degradation, including outsourcing during phase-out and other costs. The major
projects included $32,659,000 related to the discontinuance of Cooper
Compression's manufacturing of Superior engines and the resulting shutdown of
its manufacturing facility in Springfield, Ohio; $14,126,000 related to
remaining costs associated with the discontinuance of all manufacturing and
foundry operations in Grove City, Pennsylvania; $13,503,000 resulting from the
relocation of all manufacturing, warehousing and other operations from Mt.
Vernon, Ohio (original headquarters for the gas compression business of Cooper
Compression) to other locations pursuant to the 1999 sale of Cooper
Compression's rotating compressor business to Rolls-Royce plc; $6,634,000
related to the write-off of the Canadian translation component in connection
with the sale of this business; $4,058,000 related to the relocation of
Cameron's drilling BOP stack and subsea "Christmas tree" manufacturing from
Ville Platte, Louisiana to Liberty, Texas (subsea trees) and Beziers, France
(BOPs); $2,826,000 related to the shutdown of Cameron's manufacturing facility
in Vienna, Austria and relocation of this capacity to other European locations;
and $3,593,000 associated with various facility shutdown and realignment costs
and other actions for each of the divisions.
The cash flow effect of the above actions was an inflow of approximately
$2,558,000 in 2002 (including proceeds from the sale of certain idle property)
and outflows of $27,245,000 in 2001 and $37,488,000 in 2000. The aggregate
ending accruals at December 31, 2002 and 2001 for the above activities were
$19,132,000 and $6,187,000, respectively.
Note 3: Acquisitions
During 2002, the Company's acquisitions consisted of a Canadian valve
manufacturer, a wellhead business located in West Texas and certain drilling and
riser-related assets from another oilfield equipment supplier. Cash and debt
consideration for these acquisitions totaled $70,250,000 and resulted in
preliminary goodwill of approximately $31,176,000, the majority of which resides
in the CCV segment. As the Canadian valve manufacturer was acquired in late
December, the purchase price allocation included in the December 31, 2002
financial statements was based on preliminary information available at the time
and is subject to future revision.
During 2001, the Company's acquisitions consisted primarily of two
aftermarket parts and service suppliers in the Cooper Compression division and a
supplier of motion compensation solutions in the Cameron division. Cash and debt
consideration for these acquisitions totaled $55,350,000 and resulted in
goodwill of approximately $27,168,000.
The acquisitions in 2000 were not significant. All acquisitions have been
accounted for under the purchase method of accounting and their results of
operations since the date of acquisition have been included in the Company's
consolidated results of operations.
Note 4: Receivables
Receivables consisted of the following:
December 31,
- ------------------------------------------------------------------------
(dollars in thousands) 2002 2001
- ------------------------------------------------------------------------
Trade receivables $ 297,571 $ 300,565
Other receivables 9,420 9,633
Allowance for doubtful accounts (2,170) (3,993)
- ------------------------------------------------------------------------
$ 304,821 $ 306,205
========================================================================
41
Note 5: Inventories
Inventories consisted of the following:
December 31,
- ---------------------------------------------------------------------------------------------
(dollars in thousands) 2002 2001
- ---------------------------------------------------------------------------------------------
Raw materials $ 32,787 $ 35,470
Work-in-process 121,878 139,793
Finished goods, including parts and subassemblies 310,981 323,783
Other 1,818 1,982
- ---------------------------------------------------------------------------------------------
467,464 501,028
Excess of current standard costs over LIFO costs (44,891) (52,477)
Allowance for obsolete and excess inventory (35,355) (24,732)
- ---------------------------------------------------------------------------------------------
$ 387,218 $ 423,819
=============================================================================================
Note 6: Plant and Equipment, Goodwill and Other Assets
Plant and equipment consisted of the following:
December 31,
- ---------------------------------------------------------------------------------------------
(dollars in thousands) 2002 2001
- ---------------------------------------------------------------------------------------------
Land and land improvements $ 38,140 $ 39,950
Buildings 185,267 215,267
Machinery and equipment 493,876 438,429
Tooling, dies, patterns, etc. 48,119 58,565
Assets under capital leases 21,940 23,551
Capitalized software 110,538 82,670
All other 105,307 108,931
Construction in progress 27,799 26,917
- ---------------------------------------------------------------------------------------------
1,030,986 994,280
Accumulated depreciation (555,072) (504,016)
- ---------------------------------------------------------------------------------------------
$ 475,914 $ 490,264
=============================================================================================
During the fourth quarter of 2002, the Company entered into a
sale-leaseback transaction involving the Cameron division headquarters building.
The sale of the building resulted in net proceeds to the Company of
approximately $31,000,000. The building is being leased back from the purchaser
over a 22-year period (with options for renewals totaling an additional 15
years) at an initial rate of approximately $2,400,000 per year. This transaction
was accounted for as a sale and subsequent operating lease, resulting in the
removal of the building from the Company's records and a deferral of the related
$0.6 million gain, which will be amortized over the life of the lease.
Goodwill consisted of the following:
December 31,
- ---------------------------------------------------------------------------------------------
(dollars in thousands) 2002 2001
- ---------------------------------------------------------------------------------------------
Goodwill $ 503,296 $ 454,674
Accumulated amortization (201,414) (194,845)
- ---------------------------------------------------------------------------------------------
$ 301,882 $ 259,829
=============================================================================================
42
Other assets consisted of the following:
December 31,
- --------------------------------------------------------------------------------------------------------
(dollars in thousands) 2002 2001
- --------------------------------------------------------------------------------------------------------
Long-term prepaid benefit costs of defined benefit pension plans $ 107,151 $ 80,267
Deferred income taxes 67,517 61,998
Intangible assets related to pension plans 175 243
Other intangibles:
Gross 11,004 9,483
Accumulated amortization (7,619) (5,807)
Other 23,785 13,789
- --------------------------------------------------------------------------------------------------------
$ 202,013 $ 159,973
========================================================================================================
In June 2001, the FASB issued FAS 142. Under FAS 142, goodwill and
intangible assets with indefinite lives are no longer amortized, but are
reviewed at least annually for impairment. The Company incurred approximately
$10,719,000 and $10,088,000 of amortization of goodwill during 2001 and 2000,
respectively. Following are the pro forma amounts that would have been reported
had FAS 142 been effective as of January 1, 2000:
Year Ended December 31,
- ---------------------------------------------------------------------------------------------------------
(dollars in thousands) 2002 2001
- ---------------------------------------------------------------------------------------------------------
Pro forma net income $ 109,064 $ 37,748
Pro forma earnings per share:
Basic $ 2.01 $ 0.71
Diluted $ 1.93 $ 0.69
Note 7: Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities consisted of the following:
December 31,
- ---------------------------------------------------------------------------------------------------------
(dollars in thousands) 2002 2001
- ---------------------------------------------------------------------------------------------------------
Trade accounts and accruals $ 206,002 $ 207,020
Salaries, wages and related fringe benefits 59,059 58,340
Payroll and other taxes 20,170 16,978
Product warranty 5,912 8,932
Deferred income taxes 32,904 32,024
Accruals related to special items 11,705 4,322
Other 18,625 21,620
- --------------------------------------------------------------------------------------------------------
$ 354,377 $ 349,236
========================================================================================================
Activity during the year associated with the Company's warranty accruals
was as follows (dollars in thousands):
Warranty Charges
Balance Provisions During Against Translation Balance
December 31, 2001 the Year Accrual and Other December 31, 2002
- --------------------------------------------------------------------------------------------------------------------
$8,932 5,826 (9,162) 316 $5,912
====================================================================================================================
43
Note 8: Employee Benefit Plans
Total net benefit (income) expense associated with the Company's defined
benefit pension and postretirement benefit plans consisted of the following:
Postretirement
Pension Benefits Benefits
- --------------------------------------------------------------------------------------------------------------------------
(dollars in thousands) 2002 2001 2000 2002 2001 2000
- --------------------------------------------------------------------------------------------------------------------------
Service cost $ 6,359 $ 5,971 $ 7,569 $ 13 $ 48 $ 67
Interest cost 20,021 18,721 17,825 2,936 3,090 3,123
Expected return on plan assets (25,572) (29,543) (31,921) -- -- --
Amortization of prior service cost (346) (351) (188) (137) (136) (200)
Amortization of (gains) losses and other 4,322 (5,466) (9,442) (500) (200) (10,100)
- --------------------------------------------------------------------------------------------------------------------------
Net periodic benefit (income) expense 4,784 (10,668) (16,157) 2,312 2,802 (7,110)
Curtailment (gain) loss -- (577) 53 -- -- (300)
Settlement gain -- -- (1,484) -- -- --
Termination benefit expense -- 839 304 -- -- --
- --------------------------------------------------------------------------------------------------------------------------
Total net benefit (income) expense $ 4,784 $ (10,406) $ (17,284) $ 2,312 $ 2,802 $ (7,410)
==========================================================================================================================
The change in the benefit obligations associated with the Company's defined
benefit pension and postretirement benefit plans consisted of the following:
Postretirement
Pension Benefits Benefits
- --------------------------------------------------------------------------------------------------------------------------
(dollars in thousands) 2002 2001 2002 2001
- --------------------------------------------------------------------------------------------------------------------------
Benefit obligation at beginning of year $ 299,997 $ 273,657 $ 41,680 $ 41,911
Service cost 6,359 5,971 13 48
Interest cost 20,021 18,721 2,936 3,090
Plan participants' contributions 751 721 -- --
Amendments 31 -- -- --
Actuarial (gains) losses (14,970) 24,640 7,754 247
Exchange rate changes 14,018 (3,069) -- --
Curtailment results -- (1,591) -- --
Termination benefit results -- 839 -- --
Benefits paid directly or from plan assets (19,898) (19,892) (4,911) (3,616)
- --------------------------------------------------------------------------------------------------------------------------
Benefit obligation at end of year $ 306,309 $ 299,997 $ 47,472 $ 41,680
==========================================================================================================================
The change in the plan assets associated with the Company's defined benefit
pension and postretirement benefit plans consisted of the following:
Postretirement
Pension Benefits Benefits
- --------------------------------------------------------------------------------------------------------------------------
(dollars in thousands) 2002 2001 2002 2001
- --------------------------------------------------------------------------------------------------------------------------
Fair value of plan assets at beginning of year $ 295,074 $ 355,819 $ -- $ --
Actual return on plan assets (32,687) (29,546) -- --
Actuarial gains (losses) 2,969 (8,602) -- --
Company contributions 27,124 340 4,911 3,616
Plan participants' contributions 751 721 -- --
Exchange rate changes 12,617 (4,027) -- --
Benefits paid from plan assets (19,698) (19,631) (4,911) (3,616)
- --------------------------------------------------------------------------------------------------------------------------
Fair value of plan assets at end of year, primarily
debt and equity securities $ 286,150 $ 295,074 $ -- $ --
=========================================================================================================================
44
The net assets (liabilities) associated with the Company's defined benefit
pension and postretirement benefit plans recognized on the balance sheet
consisted of the following:
Postretirement
Pension Benefits Benefits
- -------------------------------------------------------------------------------------------------------------------
(dollars in thousands) 2002 2001 2002 2001
- -------------------------------------------------------------------------------------------------------------------
Plan assets in excess of (less than) benefit
obligations at end of year $ (20,159) $ (4,923) $ (47,472) $ (41,680)
Unrecognized net (gain) loss 124,734 83,350 2,477 (5,776)
Unrecognized prior service cost (2,380) (2,764) (166) (303)
Unrecognized net transition obligation 50 98 -- --
- -------------------------------------------------------------------------------------------------------------------
Prepaid (accrued) pension cost 102,245 75,761 (45,161) (47,759)
Underfunded plan adjustments recognized:
Accrued minimum liability (563) (932) -- --
Intangible asset 175 243 -- --
Accumulated other comprehensive income, net of tax 240 331 -- --
- -------------------------------------------------------------------------------------------------------------------
Net assets (liabilities) recognized on balance
sheet at end of year $ 102,097 $ 75,403 $ (45,161) $ (47,759)
===================================================================================================================
The weighted-average end of year assumptions associated with the Company's
defined benefit pension and postretirement benefit plans were as follows:
Postretirement
Pension Benefits Benefits
- --------------------------------------------------------------------------------------------
2002 2001 2002 2001
- --------------------------------------------------------------------------------------------
Domestic plans:
- --------------
Discount rate 7.0% 7.25% 6.75% 7.25%
Expected return on plan assets 9.25% 9.25%
Rate of compensation increase 4.5% 4.5%
Health care cost trend rate 12.0% 7.0%
International plans:
- -------------------
Discount rate 6.0% 6.0-6.25%
Expected return on plan assets 6.0-8.0% 6.0-8.5%
Rate of compensation increase 2.75-4.0% 3.5-4.5%
The rate of compensation increase for the domestic plans is based on an
age-grade scale ranging from 7.5% to 3.0% with a weighted-average rate of
approximately 4.5%.
The health care cost trend rate is assumed to decrease gradually from 12.0%
to 5.0% by 2010 and remain at that level thereafter. A one-percentage-point
change in the assumed health care cost trend rate would have the following
effects:
One-percentage- One-percentage-
(dollars in thousands) point Increase point Decrease
- ---------------------------------------------------------------------------------------
Effect on total of service and interest
cost components in 2002 $ 192 $ (170)
Effect on postretirement benefit obligation
as of December 31, 2002 $ 3,237 $ (2,849)
45
Amounts applicable to the Company's pension plans with projected and
accumulated benefit obligations in excess of plan assets were as follows:
Projected Benefit Accumulated Benefit
Obligation in Excess Obligation in Excess
of Plan Assets of Plan Assets
- -------------------------------------------------------------------------------------------------------------------
(dollars in thousands) 2002 2001 2002 2001
- -------------------------------------------------------------------------------------------------------------------
Fair value of applicable plan assets $ 286,150 $ 122,568 $ 3,512 $ 2,786
Projected benefit obligation of applicable plans $ (306,309) $ (132,679)
Accumulated benefit obligation of applicable plans $ (8,903) $ (7,738)
The Company sponsors the Cooper Cameron Corporation Retirement Plan
(Retirement Plan) covering all salaried U.S. employees and certain domestic
hourly employees, as well as separate defined benefit pension plans for
employees of its U.K. and German subsidiaries, and several unfunded defined
benefit arrangements for various other employee groups.
In addition, the Company's domestic employees who are not covered by a
bargaining unit are also eligible to participate in the Cooper Cameron
Corporation Retirement Savings Plan. Under this plan, employees' savings
deferrals are partially matched with shares of the Company's Common stock. In
addition, the Company makes cash contributions for hourly employees who are not
covered under collective bargaining agreements. The Company's expense under this
plan for the years ended December 31, 2002, 2001 and 2000 amounted to
$8,192,000, $7,581,000 and $7,349,000, respectively. In addition, the Company
provides various savings plans for employees under collective bargaining
agreements and certain international employees, which provide for, among other
things, Company matching contributions in cash based on specified formulas.
Expense with respect to these various defined contribution plans for the years
ended December 31, 2002, 2001, and 2000 amounted to $10,723,000, $8,642,000 and
$7,783,000, respectively.
Certain of the Company's employees participate in various domestic employee
welfare benefit plans, including medical, dental and prescriptions. Certain
employees will receive retiree medical, prescription and life insurance
benefits.
All of the welfare benefit plans, including those providing postretirement
benefits, are unfunded.
Note 9: Stock Options and Employee Stock Purchase Plan
The following table summarizes stock option activity for each of the three
years ended December 31:
Number of Shares
---------------------------------
Long-term and
Broad Based Non-employee Weighted
Incentive Director Average
Plans Plan Exercise Prices
- ------------------------------------------------------------------------------------------------------------
Stock options outstanding at December 31, 1999 7,584,181 380,280 $ 34.38
Options granted 2,472,205 72,548 $ 58.24
Options cancelled (206,242) -- $ 31.74
Options exercised (4,382,012) (128,054) $ 31.80
- -----------------------------------------------------------------------------------------------------------
Stock options outstanding at December 31, 2000 5,468,132 324,774 $ 46.96
Options granted 2,110,390 67,740 $ 36.57
Options cancelled (166,262) (10,290) $ 48.13
Options exercised (555,385) (45,000) $ 32.01
- -----------------------------------------------------------------------------------------------------------
Stock options outstanding at December 31, 2001 6,856,875 337,224 $ 45.03
Options granted 1,627,602 42,000 $ 47.20
Options cancelled (223,565) (10,808) $ 51.74
Options exercised (356,828) (54,946) $ 32.34
- -----------------------------------------------------------------------------------------------------------
Stock options outstanding at December 31, 2002 7,904,084 313,470 $ 45.92
============================================================================================================
46
Information relating to selected ranges of exercise prices for outstanding
and exercisable options at December 31, 2002 was as follows:
Options Outstanding Options Exercisable
- ------------------------------------------------------------------------------------------------------------------
Weighted
Number Average Years Weighted Number Weighted
Range of Outstanding as Remaining on Average Exercisable as Average
Exercise Prices of 12/31/2002 Contractual Life Exercise Price of 12/31/2002 Exercise Price
- ------------------------------------------------------------------------------------------------------------------
$24.19 -- $24.19 435,672 5.78 $24.19 435,672 $24.19
$29.25 -- $33.00 1,774,447 8.03 $32.94 471,234 $32.79
$34.34 -- $46.91 3,027,737 8.08 $43.70 1,438,771 $40.38
$47.06 -- $60.25 1,964,299 6.37 $54.19 1,375,535 $54.66
$60.69 -- $79.94 1,015,399 3.54 $68.53 979,737 $68.57
- ------------------------------------------------------------------------------------------------------------------
$24.19 -- $79.94 8,217,554 6.98 $45.92 4,700,949 $48.17
==================================================================================================================
Options are granted to key employees under the Long-term and Broad Based
Incentive Plans and generally become exercisable on the first anniversary date
following the date of grant in one-third increments each year. Certain key
executives also elected in 2001 and 2000 to receive options in lieu of salary
for the service years ending December 31, 2002 and 2001, respectively. The
options granted under the Options in Lieu of Salary Program generally become
exercisable at the end of the related salary period and expire five years after
the beginning of the salary period. The Options in Lieu of Salary Program has
been discontinued effective January 1, 2003.
Under the Company's Non-employee Director Stock Option Plan, non-employee
directors receive a grant of 6,000 stock options annually and, for new
directors, upon first joining the Board. The options generally expire five years
after the date of grant and become exercisable one year following the date of
grant. In addition, directors have been permitted to take either a portion of or
their full annual retainer in cash ($30,000) or receive, in lieu of cash,
additional stock options. Prior to 2003, all directors elected to receive their
retainer in stock options. These retainer option shares, totaling 25,740 for the
service years 2002 and 2001, were granted in each of the preceding years. The
retainer options become exercisable one year following the beginning of the
retainer period and expire five years following the beginning of the retainer
period. The exercise price for all option grants is equal to the fair market
value of the Company's stock at the date of grant. Like the Options in Lieu of
Salary Program, this program has been discontinued effective January 1, 2003.
As of December 31, 2002, shares reserved for future grants under the
Long-term Incentive, Broad Based Incentive, and Non-employee Director Stock
Option Plans were 1,241,748, 153,794 and 306,496, respectively.
Had the Company followed the alternative fair value method of accounting for
stock-based compensation, the weighted-average fair value per share of options
granted during 2002, 2001 and 2000 would have been $17.09, $15.42 and $24.29,
respectively. The weighted-average fair value per share of stock purchases under
the Employee Stock Purchase Plan during 2002, 2001 and 2000 would have been
$14.52, $18.82 and $18.98, respectively. The fair values were estimated using
the Black-Scholes model with the following weighted-average assumptions:
Year Ended December 31,
- --------------------------------------------------------------------
2002 2001 2000
- --------------------------------------------------------------------
Expected life (in years) 3.3 3.3 3.4
Risk-free interest rate 2.4% 4.5% 5.8%
Volatility 47.6% 53.3% 48.8%
Dividend yield 0.0% 0.0% 0.0%
Employee Stock Purchase Plan
Under the Cooper Cameron Employee Stock Purchase Plan, the Company is
authorized to sell up to 2,000,000 shares of Common stock to its full-time
employees in the United States, U.K., Ireland, Norway, Singapore and Canada,
nearly all of whom are eligible to participate. Under the terms of the Plan,
employees may elect each year to have up to 10% of their annual compensation
withheld to purchase the Company's Common stock. The purchase price of the stock
is 85% of the lower of the beginning-of-plan year or end-of-plan year market
price of the Company's Common stock. Under the 2002/2003 plan, more than 1,600
employees elected to purchase approximately 179,000 shares of the Company's
Common stock at $35.85 per share, or 85% of the market price of the Company's
Common stock on July 31, 2003, if lower. A total of 132,394 shares were
purchased at $36.64 per share on July 31, 2002 under the 2001/2002 plan.
47
Note 10: Long-term Debt
The Company's debt obligations were as follows:
December 31,
- ---------------------------------------------------------------------------------------------------------
(dollars in thousands) 2002 2001
- ---------------------------------------------------------------------------------------------------------
Convertible debentures, net of $65,643 of unamortized original issue
discount ($68,801 at December 31, 2001) $ 455,113 $ 451,955
Floating-rate revolving credit advances -- 5,151
Other debt 3,652 3,124
Obligations under capital leases 9,047 9,399
- ---------------------------------------------------------------------------------------------------------
467,812 469,629
Current maturities (4,870) (10,487)
- ---------------------------------------------------------------------------------------------------------
Long-term portion $ 462,942 $ 459,142
=========================================================================================================
On May 16, 2001, the Company issued two series of convertible debentures with
aggregate gross proceeds to the Company of $450,000,000. The first series
consisted of twenty-year zero-coupon convertible debentures (the "Zero-Coupon
Convertible Debentures") with an aggregate principal amount at maturity of
approximately $320,756,000. The debentures were priced at $779.41 per debenture,
which represents a yield-to-maturity of approximately 1.25%. The Company has the
right to redeem the Zero-Coupon Convertible Debentures anytime after three years
at the issue price plus the accrued original issue discount, and the debenture
holders have the right to require the Company to repurchase the debentures on
the third, eighth and thirteenth anniversaries of the issue. The Zero-Coupon
Convertible Debentures are convertible into the Company's common stock at a rate
of 8.1961 shares per debenture, representing an initial conversion price of
$95.095 per share.
The second series consisted of twenty-year convertible debentures in an
aggregate amount of $200,000,000, with an interest rate of 1.75%, payable
semi-annually on May 15 and November 15 (the "1.75% Convertible Debentures").
The Company has the right to redeem the 1.75% Convertible Debentures anytime
after five years at the principal amount plus accrued and unpaid interest, and
the debenture holders have the right to require the Company to repurchase the
debentures on the fifth, tenth and fifteenth anniversaries of the issue. The
1.75% Convertible Debentures are convertible into the Company's common stock at
a rate of 10.5158 shares per debenture, or $95.095 per share.
The net proceeds from the debentures were used to repay amounts outstanding
under the Company's then existing revolving credit agreement and other
borrowings and other purposes, including share repurchases and acquisitions.
As of December 31, 2002, the Company was party to a 364-day credit agreement
(the "Credit Agreement") with various banks which provided for an aggregate
borrowing capacity of $150,000,000 of floating-rate credit advances, expiring
March 5, 2003. The Credit Agreement provides for unsecured borrowings at the
London Interbank Offered Rate (LIBOR) plus 0.50%. In addition to certain
up-front costs, the agreement carries a facility fee of 0.10% per annum on the
committed amount of the facility plus a usage fee of 0.10% per annum on the
total amount of outstanding borrowings, provided such borrowings exceed
$50,000,000. The agreement also contains certain covenants, including
maintaining specific interest coverage and debt-to-total capitalization ratios.
The Company is in compliance with all loan covenants. The entire amount of the
facility was available for borrowing at December 31, 2002.
In addition to the above, the Company also has other unsecured and
uncommitted credit facilities available both domestically and to its foreign
subsidiaries. Certain of these facilities also include annual facility fees.
Other debt, which mainly consists of acquisition related notes, has a
weighted-average interest rate of 3.87% at December 31, 2002 (3.24% at December
31, 2001).
During January 2001, the Company entered into interest rate swaps which
effectively converted $155,000,000 of outstanding floating rate debt to fixed
rate debt at a weighted-average interest rate of 5.24%. These swaps were
terminated during the second quarter of 2001 resulting in a pre-tax loss of
$1,238,000.
Future maturities of the Company's debt (excluding the Zero-Coupon
Convertible Debentures which can be put to the Company during 2004 and capital
lease obligations) are $639,000 in 2003 and $3,013,000 in 2004.
For the years 2002, 2001 and 2000, total interest expense was $7,981,000,
$13,481,000 and $18,038,000, respectively. Interest paid by the Company in 2002,
2001 and in 2000 is not materially different from the amounts expensed (except
for capitalized interest of $371,000 and $1,847,000 and amortization of the
original issue discount and related issue costs on the convertible debentures of
$3,576,000 and $2,216,000 for 2002 and 2001, respectively).
48
The Company leases certain facilities, office space, vehicles and office,
data processing and other equipment under capital and operating leases. Future
minimum lease payments with respect to capital leases and operating leases with
terms in excess of one year were as follows:
Capital Operating
(dollars in thousands) Lease Payments Lease Payments
- --------------------------------------------------------------------------------------
Year ended December 31:
2003 $ 4,301 $ 12,113
2004 2,837 8,300
2005 1,779 7,578
2006 399 7,161
2007 11 5,984
Thereafter -- 53,696
- --------------------------------------------------------------------------------------
Future minimum lease payments 9,327 94,832
Less: amount representing interest (280) --
- --------------------------------------------------------------------------------------
Lease obligations at December 31, 2002 $ 9,047 $ 94,832
======================================================================================
Note 11: Income Taxes
The components of income (loss) before provision for income taxes were as
follows:
Year Ended December 31,
- ---------------------------------------------------------------------------------------------
(dollars in thousands) 2002 2001 2000
- ---------------------------------------------------------------------------------------------
Income (loss) before income taxes:
U.S. operations $ (1,958) $ 62,785 $ (26,137)
Foreign operations 87,103 79,797 69,910
- ---------------------------------------------------------------------------------------------
Income before income taxes $ 85,145 $ 142,582 $ 43,773
=============================================================================================
The provisions for income taxes charged to operations were as follows:
Year Ended December 31,
- ---------------------------------------------------------------------------------------------
(dollars in thousands) 2002 2001 2000
- ---------------------------------------------------------------------------------------------
Current:
U.S. federal $ 2,559 $ 6,696 $ 54,242
U.S. state and local and franchise 1,835 2,432 9,432
Foreign 21,962 14,509 16,375
- ---------------------------------------------------------------------------------------------
26,356 23,637 80,049
- ---------------------------------------------------------------------------------------------
Deferred:
U.S. federal (4,768) 8,541 (61,318)
U.S. state and local (717) 1,285 (9,221)
Foreign 3,805 10,774 6,603
- ---------------------------------------------------------------------------------------------
(1,680) 20,600 (63,936)
- ---------------------------------------------------------------------------------------------
Income tax provision $ 24,676 $ 44,237 $ 16,113
=============================================================================================
Items giving rise to deferred income taxes were as follows:
Year Ended December 31,
- ---------------------------------------------------------------------------------------------
(dollars in thousands) 2002 2001 2000
- ---------------------------------------------------------------------------------------------
Reserves and accruals $ 3,463 $ 3,887 $ 12,895
Inventory (4,805) 2,590 5,842
Pension and postretirement benefit income not
currently taxable -- 2,828 9,234
U.S. tax deductions less than (in excess of) amounts
currently deductible (3,358) 5,571 (85,635)
Other 3,020 5,724 (6,272)
- ---------------------------------------------------------------------------------------------
Deferred income taxes $ (1,680) $ 20,600 $ (63,936)
=============================================================================================
49
The reasons for the differences between the provision for income taxes and
income taxes using the U.S. federal income tax rate were as follows:
Year Ended December 31,
- --------------------------------------------------------------------------------------------------------------------------
(dollars in thousands) 2002 2001 2000
- --------------------------------------------------------------------------------------------------------------------------
U.S. federal statutory rate 35.00% 35.00% 35.00%
Nondeductible goodwill 0.47 2.07 7.32
State and local income taxes 0.20 1.63 (0.03)
Tax exempt income (3.08) (3.70) (1.60)
Foreign statutory rate differential (6.36) (3.22) (11.61)
Change in valuation of prior year tax assets -- -- (4.34)
Foreign losses (receiving) not receiving a tax benefit 0.81 (1.89) (1.08)
Translation write-offs not deductible for tax -- -- 7.27
Nondeductible expenses 1.03 0.61 2.40
All other 0.91 0.53 3.48
- --------------------------------------------------------------------------------------------------------------------------
Total 28.98% 31.03% 36.81%
- --------------------------------------------------------------------------------------------------------------------------
Total income taxes paid $ 25,821 $ 15,111 $ 14,724
==========================================================================================================================
Components of deferred tax assets (liabilities) were as follows:
December 31,
- --------------------------------------------------------------------------------------------------------------------------
(dollars in thousands) 2002 2001
- --------------------------------------------------------------------------------------------------------------------------
Deferred tax liabilities:
Plant and equipment $ (28,901) $ (32,473)
Inventory (48,236) (53,041)
Pensions (37,485) (28,192)
Other (38,544) (30,928)
- -------------------------------------------------------------------------------------------------------------------------
Total deferred tax liabilities (153,166) (144,634)
- -------------------------------------------------------------------------------------------------------------------------
Deferred tax assets:
Postretirement benefits other than pensions 17,274 18,268
Reserves and accruals 32,658 36,121
Net operating losses and related deferred tax assets 115,386 101,140
Other 1,366 1,366
- -------------------------------------------------------------------------------------------------------------------------
Total deferred tax assets 166,684 156,895
- -------------------------------------------------------------------------------------------------------------------------
Valuation allowance (18,121) (17,427)
- -------------------------------------------------------------------------------------------------------------------------
Net deferred tax assets (liabilities) $ (4,603) $ (5,166)
=========================================================================================================================
During each of the last three years, certain of the Company's international
operations have incurred losses that have not been tax benefited, while others
that had losses in a prior year generated earnings in a subsequent year that
utilized the prior year unrecorded benefit of the loss. In addition, during
2000, $1,900,000 of deferred tax assets that had been reserved in prior years
were realized and the related reserves were reversed. The effect of these items
on the Company's overall effective tax rate are included in the rate
reconciliation captions: "Change in valuation of prior year tax assets" and
"Foreign losses (receiving) not receiving a tax benefit". As a result of all of
the foregoing, the valuation allowances established in prior years were
increased in 2002 and 2001, respectively, by $694,000 and $1,226,000 and reduced
in 2000 by $2,494,000, with a corresponding increase or reduction in the
Company's income tax expense. In addition, a tax benefit of $3,800,000 was
recorded in 2001 relating to certain other foreign losses.
At December 31, 2002, the Company had a deferred tax asset of $104,610,000
related to net operating loss carryforwards which, if not utilized, will
generally expire in 2020. The Company had a valuation allowance of $9,353,000 as
of December 31, 2002 against the net operating loss and credit carryforwards as
well as a valuation allowance of $8,768,000 against certain other deferred tax
assets. The Company has considered future taxable income and ongoing prudent and
feasible tax planning strategies in assessing the need for the valuation
allowance. In the event the Company were to determine that it would not be able
to realize all or part of its net deferred tax asset in the future, an
adjustment to the deferred tax asset would be charged to income in the period
such determination was made.
50
Note 12: Stockholders' Equity
Common Stock
Under its Amended and Restated Certificate of Incorporation, the Company is
authorized to issue up to 150,000,000 shares of Common stock, par value $.01 per
share. Additionally, in November 1998, the Company's board of directors approved
the repurchase of up to 10,000,000 shares of Common stock for use in the
Company's various employee stock ownership, option and benefit plans.
Changes in the number of shares of the Company's outstanding stock for the
last three years were as follows:
- -----------------------------------------------------------------------------------------------------------------
Common Treasury Shares
Stock Stock Outstanding
- -----------------------------------------------------------------------------------------------------------------
Balance - December 31, 1999 54,001,507 (3,433,548) 50,567,959
Stock issued under stock option and other
employee benefit plans 10,422 3,433,548 3,443,970
- -----------------------------------------------------------------------------------------------------------------
Balance - December 31, 2000 54,011,929 -- 54,011,929
Purchase of treasury stock (611,000) (611,000)
Stock issued under stock option and other
employee benefit plans 554,125 39,680 593,805
- -----------------------------------------------------------------------------------------------------------------
Balance - December 31, 2001 54,566,054 (571,320) 53,994,734
Stock issued under stock option and other
employee benefit plans -- 516,366 516,366
- -----------------------------------------------------------------------------------------------------------------
Balance - December 31, 2002 54,566,054 (54,954) 54,511,100
=================================================================================================================
At December 31, 2002, 10,863,842 shares of unissued Common stock were
reserved for future issuance under various employee benefit plans.
At December 31, 2002, the Company was party to two forward purchase
agreements with a third party financial institution for the purchase of a total
of 1,006,500 shares of the Company's common stock. The key terms of these
agreements are as follows:
Forward Agreement Dated
- -----------------------------------------------------------------------------------------------------------------
August 2002 March 2002
- -----------------------------------------------------------------------------------------------------------------
Underlying shares 350,500 656,000
Average price per share $39.24 $36.46
Settlement required by August 12, 2004 March 15, 2004
Maximum issuable shares 2,103,000 3,600,000
Based on the closing market price of $49.82 per share at December 31, 2002,
the Company was in a position to acquire these shares at a savings of
approximately $12,474,000 over current open market purchases.
The carrying cost inherent in these contracts is 3-month LIBOR plus 0.70%.
The Company could be required to settle these agreements prematurely if the
Company's stock price falls below $16.50 per share and in certain other limited
circumstances. In the event the Company chooses not to settle these transactions
in cash, the maximum number of shares the Company could be required to deliver
to settle each agreement is reflected above. In accordance with the consensus
reached by the FASB's Emerging Issues Task Force in Issue No. 00-19, Accounting
for Derivative Financial Instruments Indexed to, and Potentially Settled in, a
Company's Own Stock, these forward purchase agreements have not been included as
a liability in the Company's December 31, 2002 Consolidated Balance Sheet.
Preferred Stock
The Company is authorized to issue up to 10,000,000 shares of preferred
stock, par value $.01 per share. At December 31, 2002, no preferred shares were
issued or outstanding. Shares of preferred stock may be issued in one or more
series of classes, each of which series or class shall have such distinctive
designation or title as shall be fixed by the Board of Directors of the Company
prior to issuance of any shares. Each such series or class shall have such
voting powers, full or limited, or no voting powers, and such preferences and
relative, participating, optional or other special rights and such
qualifications, limitations or restrictions thereof, as shall be stated in such
resolution or resolutions providing for the issuance of such series or class of
preferred stock as may be adopted by the Board of Directors prior to
51
the issuance of any shares thereof. A total of 1,500,000 shares of Series A
Junior Participating Preferred Stock has been reserved for issuance upon
exercise of the Stockholder Rights described below.
Stockholder Rights Plan
On May 23, 1995, the Company's Board of Directors declared a dividend
distribution of one Right for each then-current and future outstanding share of
Common stock. Each Right entitles the registered holder to purchase one
one-hundredth of a share of Series A Junior Participating Preferred Stock of the
Company, par value $.01 per share, for an exercise price of $300. Unless earlier
redeemed by the Company at a price of $.01 each, the Rights become exercisable
only in certain circumstances constituting a potential change in control of the
Company, described below, and will expire on October 31, 2007.
Each share of Series A Junior Participating Preferred Stock purchased upon
exercise of the Rights will be entitled to certain minimum preferential
quarterly dividend payments as well as a specified minimum preferential
liquidation payment in the event of a merger, consolidation or other similar
transaction. Each share will also be entitled to 100 votes to be voted together
with the Common stockholders and will be junior to any other series of Preferred
Stock authorized or issued by the Company, unless the terms of such other series
provides otherwise.
Except as otherwise provided in the Plan, in the event any person or group
of persons acquire beneficial ownership of 20% or more of the outstanding shares
of Common stock, each holder of a Right, other than Rights beneficially owned by
the acquiring person or group (which will have become void), will have the right
to receive upon exercise of a Right that number of shares of Common stock of the
Company, or, in certain instances, Common stock of the acquiring person or
group, having a market value equal to two times the current exercise price of
the Right.
Retained Earnings
The Company's retained earnings includes a $441,000,000 charge related to
the goodwill write-down that occurred concurrent with the Company becoming a
separate stand-alone entity on June 30, 1995 in connection with the split-off
from its former parent, Cooper Industries, Inc. Delaware law, under which the
Company is incorporated, provides that dividends may be declared by the
Company's Board of Directors from a current year's earnings as well as from the
total of capital in excess of par value plus the retained earnings. Accordingly,
at December 31, 2002, the Company had approximately $1,057,335,000 from which
dividends could be paid.
Note 13: Business Segments
The Company's operations are now organized into three separate business
segments--Cameron, CCV and Cooper Compression. Prior to 2002, the Company had
four separate segments. In connection with an internal restructuring completed
during the second quarter of 2002, the Company combined its Cooper Energy
Services and Cooper Turbocompressor divisions into one segment, known as Cooper
Compression. The restructuring reflects the common management team of both
divisions and the decision to share manufacturing and aftermarket facilities as
well as service personnel in order to improve utilization and customer
responsiveness. Prior period financial information relating to these two
divisions has been combined for consistency with the current period
presentation.
Cameron is one of the world's leading providers of systems and equipment
used to control pressures and direct flows of oil and gas wells. Cameron's
products include surface and subsea production systems, blowout preventers,
drilling and production control systems, gate valves, actuators, chokes,
wellheads, drilling risers and aftermarket parts and services. CCV is a leading
provider of valves and related systems primarily used to control pressure and
direct the flow of oil and gas as they are moved from individual wellheads
through flow lines, gathering lines and transmission systems to refineries,
petrochemical plants and industrial centers for processing. CCV's products
include ball valves, gate valves, butterfly valves, Orbit valves, rotary process
valves, block and bleed valves, plug valves, globe valves, check valves,
actuators, chokes and aftermarket parts and service. Cooper Compression is a
leading provider of reciprocating compression equipment and related aftermarket
parts and services for the energy industry as well as integrally geared
centrifugal compressors and related aftermarket products and services for
manufacturing companies and chemical process industries worldwide.
The Company's primary customers are major and independent oil and gas
exploration and production companies, foreign national oil and gas companies,
drilling contractors, pipeline companies, refiners and other industrial and
petrochemical processing companies. Cooper Compression's customers also include
manufacturers and companies in the chemical process industry.
The Company markets its equipment through a worldwide network of sales and
marketing employees supported by agents and distributors in selected
international locations. Due to the extremely technical nature of many of the
products, the marketing effort is further supported by a staff of engineering
employees.
52
For the years ended December 31, 2002, 2001 and 2000, the Company incurred
research and development costs, including costs incurred on projects designed to
enhance or add to its existing product offerings, totaling $28,020,000,
$27,388,000 and $27,276,000, respectively. Cameron accounted for 85%, 76% and
78% of each respective year's total costs.
Summary financial data by segment follows:
For the Year Ended December 31, 2002
- --------------------------------------------------------------------------------------------------------------------------
Cooper Corporate
(dollars in thousands) Cameron CCV Compression & Other Consolidated
- --------------------------------------------------------------------------------------------------------------------------
Revenues $ 918,677 $ 273,507 $ 345,916 $ -- $ 1,538,100
==========================================================================================================================
EBITDA/1/ $ 128,576 $ 47,412 $ 36,590 $ (16,768) $ 195,810
Depreciation and amortization 46,040 10,122 19,216 2,529 77,907
Interest, net -- -- -- (561) (561)
Special items 6,275 -- 25,851 1,193 33,319
- --------------------------------------------------------------------------------------------------------------------------
Income (loss) before taxes $ 76,261 $ 37,290 $ (8,477) $ (19,929) $ 85,145
==========================================================================================================================
Capital expenditures $ 39,253 $ 9,266 $ 9,689 $ 23,940 $ 82,148
==========================================================================================================================
Total assets $ 1,067,598 $ 303,506 $ 300,665 $ 325,901 $ 1,997,670
==========================================================================================================================
For the Year Ended December 31, 2001
- --------------------------------------------------------------------------------------------------------------------------
Cooper Corporate
(dollars in thousands) Cameron CCV Compression & Other Consolidated
- --------------------------------------------------------------------------------------------------------------------------
Revenues $ 898,294 $ 292,268 $ 373,116 $ -- $ 1,563,678
==========================================================================================================================
EBITDA/1/ $ 172,675 $ 52,484 $ 40,648 $ (14,351) $ 251,456
Depreciation and amortization 48,811 14,198 18,458 1,628 83,095
Interest, net -- -- -- 5,620 5,620
Special items -- -- 20,159 -- 20,159
- --------------------------------------------------------------------------------------------------------------------------
Income (loss) before taxes $ 123,864 $ 38,286 $ 2,031 $ (21,599) $ 142,582
==========================================================================================================================
Capital expenditures $ 71,056 $ 6,985 $ 13,011 $ 33,952 $ 125,004
==========================================================================================================================
Total assets $ 1,038,322 $ 247,864 $ 346,390 $ 242,476 $ 1,875,052
==========================================================================================================================
For the Year Ended December 31, 2000
- --------------------------------------------------------------------------------------------------------------------------
Cooper Corporate
(dollars in thousands) Cameron CCV Compression & Other Consolidated
- --------------------------------------------------------------------------------------------------------------------------
Revenues $ 838,341 $ 221,097 $ 327,271 $ -- $ 1,386,709
==========================================================================================================================
EBITDA/1/ $ 148,730 $ 37,069 $ 43,697 $ (14,965) $ 214,531
Depreciation and amortization 45,711 11,379 17,371 860 75,321
Interest, net -- -- -- 18,038 18,038
Special items 8,121 1,448 67,830 -- 77,399
- --------------------------------------------------------------------------------------------------------------------------
Income (loss) before taxes $ 94,898 $ 24,242 $ (41,504) $ (33,863) $ 43,773
==========================================================================================================================
Capital expenditures $ 38,615 $ 5,981 $ 21,912 $ 91 $ 66,599
==========================================================================================================================
Total assets $ 884,187 $ 245,653 $ 278,461 $ 85,572 $ 1,493,873
==========================================================================================================================
/1/ Earnings before interest, taxes, depreciation and amortization and special
items.
53
Geographic revenue and long-lived assets related to operations as of and
for the years ended December 31 were as follows:
(dollars in thousands) 2002 2001 2000
- --------------------------------------------------------------------------------------------------------------
Revenues:
United States $ 836,264 $ 932,534 $ 750,383
United Kingdom 256,213 221,274 204,638
Other foreign countries 445,623 409,870 431,688
- --------------------------------------------------------------------------------------------------------------
Total $ 1,538,100 $ 1,563,678 $ 1,386,709
==============================================================================================================
Long-lived assets:
United States $ 505,069 $ 529,803 $ 429,611
United Kingdom 117,752 102,989 112,149
Other foreign countries 158,535 121,220 123,060
- --------------------------------------------------------------------------------------------------------------
Total $ 781,356 $ 754,012 $ 664,820
==============================================================================================================
For internal management reporting, and therefore the above segment
information, consolidated interest is treated as a Corporate item because
short-term investments and debt, including location, type, currency, etc., are
managed on a worldwide basis by the Corporate Treasury Department. In addition,
the Company's enterprise-wide software upgrade is being reflected as a Corporate
asset. Amortization expense on this asset is reflected in each segment's
results.
Note 14: Off-Balance Sheet Risk and Guarantees, Concentrations of Credit Risk
and Fair Value of Financial Instruments
Off-Balance Sheet Risk and Guarantees
At December 31, 2002, the Company was contingently liable with respect to
approximately $78,474,000 of standby letters of credit ("letters") issued on its
behalf by financial institutions in connection with the delivery, installation
and performance of the Company's products under contracts with customers
throughout the world. The Company was also liable for approximately $13,467,000
of bank guarantees and letters of credit used to secure certain financial
obligations of the Company. While certain of the letters do not have a fixed
expiration date, the majority expire within the next one to two years and the
Company would expect to issue new or extend existing letters in the normal
course of business. In addition, the Company has provided third parties with
guarantees of a portion of the outstanding bank loans of its joint ventures, as
well as other matters, totaling $2,916,000 at December 31, 2002.
The Company's other off-balance sheet risks were not material.
Concentrations of Credit Risk
Apart from its normal exposure to its customers, who are predominantly in
the energy industry, the Company had no significant concentrations of credit
risk at December 31, 2002.
Fair Value of Financial Instruments
The Company's financial instruments consist primarily of cash and cash
equivalents, short-term marketable debt and equity securities, trade
receivables, trade payables and debt instruments. The book values of cash and
cash equivalents, trade receivables and trade payables and floating-rate debt
instruments are considered to be representative of their respective fair values.
The primary portion of the Company's debt consists of fixed-rate
convertible debentures. Based on quoted market prices, the book value for this
debt at December 31, 2002 was $2,257,000 higher than the market value. The
difference between book value and market value on the Company's other fixed-rate
debt was not material.
54
Note 15: Summary of Noncash Investing and Financing Activities
The effect on net assets of noncash investing and financing activities was
as follows:
Year Ended December 31,
- ---------------------------------------------------------------------------------------------------------
(dollars in thousands) 2002 2001
- ---------------------------------------------------------------------------------------------------------
Common stock issued for employee stock ownership plans $ 4,944 $ 4,185
Tax benefit of certain employee stock benefit plan transactions 2,944 7,129
Other (3) 30
Note 16: Earnings Per Share
The calculation of basic and diluted earnings per share for each period
presented was as follows:
Year Ended December 31,
- ---------------------------------------------------------------------------------------------------------
(amounts in thousands, except per share data) 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------
Net income $ 60,469 $ 98,345 $ 27,660
Add back interest on debentures, net of tax 5,024 3,032 --
- ---------------------------------------------------------------------------------------------------------
Net income (assuming conversion of convertible debentures) $ 65,493 $ 101,377 $ 27,660
=========================================================================================================
Average shares outstanding (basic) 54,215 54,170 52,800
Common stock equivalents 862 936 2,213
Incremental shares from assumed conversion of
convertible debentures 4,732 2,969 --
- ---------------------------------------------------------------------------------------------------------
Shares utilized in diluted earnings per share calculation 59,809 58,075 55,013
=========================================================================================================
Earnings per share:
Basic $ 1.12 $ 1.82 $ 0.52
Diluted $ 1.10 $ 1.75 $ 0.50
=========================================================================================================
Note 17: Accumulated Other Elements of Comprehensive Income
Accumulated other elements of comprehensive income comprised the following:
December 31,
- ---------------------------------------------------------------------------------------------------------
(dollars in thousands) 2002 2001
- ---------------------------------------------------------------------------------------------------------
Accumulated foreign currency translation loss $ (14,640) $ (52,645)
Accumulated adjustments to record minimum
pension liabilities (240) (331)
Change in fair value of short-term investments 91 (74)
- ---------------------------------------------------------------------------------------------------------
$ (14,789) $ (53,050)
=========================================================================================================
55
Note 18: Unaudited Quarterly Operating Results
Unaudited quarterly operating results were as follows:
2002 (by quarter)
- -------------------------------------------------------------------------------------------------------------
(dollars in thousands, except per share data) 1 2 3 4
- -------------------------------------------------------------------------------------------------------------
Revenues $ 366,901 $ 402,583 $ 383,847 $ 384,769
Gross margin/1/ 106,982 115,907 112,060 111,861
Special items/2/ -- -- -- 33,319
Net income (loss) 19,489 22,667 20,683 (2,370)
Earnings (loss) per share:
Basic 0.36 0.42 0.38 (0.04)
Diluted 0.35 0.40 0.37 (0.04)
2001 (by quarter)
- -------------------------------------------------------------------------------------------------------------
(dollars in thousands, except per share data) 1 2 3 4
- -------------------------------------------------------------------------------------------------------------
Revenues $ 334,835 $ 404,625 $ 417,218 $ 407,000
Gross margin/1/ 103,885 120,415 128,779 129,521
Special items/2/ 7,131 13,028 -- --
Net income 14,255 19,807 34,400 29,883
Earnings per share:
Basic 0.26 0.36 0.63 0.55
Diluted 0.26 0.35 0.60 0.53
/1/ Gross margin equals revenues less cost of sales before depreciation and
amortization.
/2/ See Note 2 of the Notes to Consolidated Financial Statements for further
information relating to special items incurred during 2002 and 2001 and
included herein.
56
SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA OF COOPER CAMERON CORPORATION
The following table sets forth selected historical financial data for the
Company for each of the five years in the period ended December 31, 2002. This
information should be read in conjunction with the consolidated financial
statements of the Company and notes thereto included elsewhere in this Annual
Report.
Year Ended December 31,
- -------------------------------------------------------------------------------------------------------------------
(dollars in thousands, except per share data) 2002 2001 2000 1999 1998
- -------------------------------------------------------------------------------------------------------------------
Income Statement Data:
Revenues $ 1,538,100 $ 1,563,678 $ 1,386,709 $ 1,475,061 $ 1,893,311
- -------------------------------------------------------------------------------------------------------------------
Costs and expenses:
Cost of sales (exclusive of
depreciation and amortization) 1,091,290 1,081,078 974,797 1,076,276 1,340,722
Depreciation and amortization 77,907 83,095 75,321 83,716 72,474
Selling and administrative expenses 251,000 231,144 197,381 205,734 229,710
Interest, net (561) 5,620 18,038 27,834 32,721
Special items/1/ 33,319 20,159 77,399 10,585 21,956
- -------------------------------------------------------------------------------------------------------------------
Total costs and expenses 1,452,955 1,421,096 1,342,936 1,404,145 1,697,583
- -------------------------------------------------------------------------------------------------------------------
Income before income taxes 85,145 142,582 43,773 70,916 195,728
Income tax provision (24,676) (44,237) (16,113) (27,914) (59,572)
- -------------------------------------------------------------------------------------------------------------------
Net income $ 60,469 $ 98,345 $ 27,660 $ 43,002 $ 136,156
===================================================================================================================
Earnings per share:
Basic $ 1.12 $ 1.82 $ 0.52 $ 0.81 $ 2.58
Diluted $ 1.10 $ 1.75 $ 0.50 $ 0.78 $ 2.48
===================================================================================================================
Balance Sheet Data (at the end of period):
Total assets $ 1,997,670 $ 1,875,052 $ 1,493,873 $ 1,470,719 $ 1,823,603
Stockholders' equity 1,041,303 923,281 842,279 714,078 780,285
Long-term debt 462,942 459,142 188,060 195,860 364,363
Other long-term obligations 118,615 114,858 117,503 138,955 149,113
/1/ See Note 2 of the Notes to Consolidated Financial Statements for further
information relating to the special items incurred during 2002, 2001 and
2000. Information on similar charges in 1999 and 1998 may be found in the
Company's 1999 Annual Report to Stockholders.
57