form10-q.htm
UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON,
DC 20549
FORM
10-Q
|
(Mark
One)
|
|
|
R
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
|
For
the Quarterly Period Ended June 30, 2008
|
|
OR
|
|
£
|
TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
Commission
File Number 1-13884
Cameron
International Corporation
(Exact
Name of Registrant as Specified in its Charter)
|
Delaware
|
76-0451843
|
|
(State
or Other Jurisdiction of
|
(I.R.S.
Employer
|
|
Incorporation
or Organization)
|
Identification
No.)
|
|
|
|
|
1333
West Loop South, Suite 1700, Houston, Texas
|
77027
|
|
(Address
of Principal Executive Offices)
|
(Zip
Code)
|
713/513-3300
(Registrant’s
Telephone Number, Including Area Code)
N/A
(Former Name, Former Address and
Former Fiscal Year, if Changed Since Last Report)
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes R No £
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of
the Exchange Act. (check one)
Large
accelerated filer R Accelerated
filer £
Non-accelerated filer £ Smaller
reporting company £
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes £ No R
Number of
shares outstanding of issuer’s common stock as of July 23, 2008 was
217,682,711.
TABLE
OF CONTENTS
|
PART I
— FINANCIAL INFORMATION
|
3
|
|
Item
1. Financial Statements
|
3
|
|
Consolidated
Condensed Results of Operations
|
3
|
|
Consolidated
Condensed Balance Sheets
|
4
|
|
Consolidated
Condensed Statements of Cash Flows
|
5
|
|
Notes
to Consolidated Condensed Financial Statements
|
6
|
|
Item
2. Management’s Discussion and Analysis of Financial Condition and Results
of Operations
|
14
|
|
Item
3. Quantitative and Qualitative Disclosures About Market
Risk
|
27
|
|
Item
4. Controls and Procedures
|
29
|
|
PART II
— OTHER INFORMATION
|
29
|
|
Item
1. Legal Proceedings
|
29
|
|
Item
1A. Risk Factors
|
31
|
|
Item
2. Unregistered Sales of Equity Securities and Use of
Proceeds
|
31
|
|
Item
3. Defaults Upon Senior Securities
|
32
|
|
Item
4. Submission of Matters to a Vote of Security Holders
|
32
|
|
Item
5. Other Information
|
32
|
|
Item
6. Exhibits
|
32
|
|
SIGNATURES
|
33
|
PART
I — FINANCIAL INFORMATION
CAMERON
INTERNATIONAL CORPORATION
(dollars
and shares in thousands, except per share data)
|
|
|
Three
Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
REVENUES
|
|
$ |
1,480,633 |
|
|
$ |
1,139,042 |
|
|
$ |
2,819,887 |
|
|
$ |
2,136,092 |
|
|
COSTS
AND EXPENSES
Cost
of sales (exclusive of depreciation and amortization shown separately
below)
|
|
|
1,063,245 |
|
|
|
792,130 |
|
|
|
2,028,603 |
|
|
|
1,486,046 |
|
|
Selling
and administrative expenses
|
|
|
161,855 |
|
|
|
143,226 |
|
|
|
319,201 |
|
|
|
269,329 |
|
|
Depreciation
and amortization
|
|
|
31,309 |
|
|
|
27,134 |
|
|
|
63,215 |
|
|
|
52,985 |
|
|
Interest
income
|
|
|
(6,401 |
) |
|
|
(6,284 |
) |
|
|
(12,544 |
) |
|
|
(17,268 |
) |
|
Interest
expense
|
|
|
7,167 |
|
|
|
6,031 |
|
|
|
12,156 |
|
|
|
12,805 |
|
|
Total
costs and expenses
|
|
|
1,257,175 |
|
|
|
962,237 |
|
|
|
2,410,631 |
|
|
|
1,803,897 |
|
|
Income
before income taxes
|
|
|
223,458 |
|
|
|
176,805 |
|
|
|
409,256 |
|
|
|
332,195 |
|
|
Income
tax provision
|
|
|
(71,507 |
) |
|
|
(53,577 |
) |
|
|
(130,962 |
) |
|
|
(107,963 |
) |
|
Net
income
|
|
$ |
151,951 |
|
|
$ |
123,228 |
|
|
$ |
278,294 |
|
|
$ |
224,232 |
|
|
Earnings
per common share:
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
0.70 |
|
|
$ |
0.56 |
|
|
$ |
1.28 |
|
|
$ |
1.02 |
|
|
Diluted
|
|
$ |
0.65 |
|
|
$ |
0.54 |
|
|
$ |
1.20 |
|
|
$ |
0.98 |
|
|
Shares
used in computing earnings per common share:
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
216,634 |
|
|
|
218,730 |
|
|
|
216,662 |
|
|
|
220,376 |
|
|
Diluted
|
|
|
233,107 |
|
|
|
228,814 |
|
|
|
231,800 |
|
|
|
229,546 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Prior
year earnings per common share and shares used in computing earnings per
common share amounts have been revised to reflect the 2-for-1 stock split
effective December 28, 2007.
|
The
accompanying notes are an integral part of these statements.
CAMERON
INTERNATIONAL CORPORATION
(dollars
in thousands, except shares and per share data)
|
|
|
June 30,
2008
|
|
|
December
31,
2007
|
|
|
|
|
(unaudited)
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
1,534,117 |
|
|
$ |
739,916 |
|
|
Receivables,
net
|
|
|
950,894 |
|
|
|
797,471 |
|
|
Inventories,
net
|
|
|
1,467,195 |
|
|
|
1,413,403 |
|
|
Other
|
|
|
141,489 |
|
|
|
121,141 |
|
|
Total
current assets
|
|
|
4,093,695 |
|
|
|
3,071,931 |
|
|
Plant
and equipment, net
|
|
|
893,720 |
|
|
|
821,104 |
|
|
Goodwill
|
|
|
685,632 |
|
|
|
647,819 |
|
|
Other
assets
|
|
|
205,870 |
|
|
|
189,965 |
|
|
TOTAL
ASSETS
|
|
$ |
5,878,917 |
|
|
$ |
4,730,819 |
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
Current
portion of long-term debt
|
|
$ |
327,681 |
|
|
$ |
8,766 |
|
|
Accounts
payable and accrued liabilities
|
|
|
1,712,962 |
|
|
|
1,677,054 |
|
|
Accrued
income taxes
|
|
|
44,135 |
|
|
|
7,056 |
|
|
Total
current liabilities
|
|
|
2,084,778 |
|
|
|
1,692,876 |
|
|
Long-term
debt
|
|
|
1,255,723 |
|
|
|
745,128 |
|
|
Postretirement
benefits other than pensions
|
|
|
15,948 |
|
|
|
15,766 |
|
|
Deferred
income taxes
|
|
|
80,300 |
|
|
|
68,646 |
|
|
Other
long-term liabilities
|
|
|
109,973 |
|
|
|
113,439 |
|
|
Total
liabilities
|
|
|
3,546,722 |
|
|
|
2,635,855 |
|
|
Commitments
and contingencies
|
|
|
— |
|
|
|
— |
|
|
Stockholders’
Equity:
|
|
|
|
|
|
|
|
|
|
Common
stock, par value $.01 per share, 400,000,000 shares authorized,
232,341,726 shares issued at June 30, 2008 and December 31,
2007
|
|
|
2,324 |
|
|
|
2,324 |
|
|
Capital
in excess of par value
|
|
|
1,167,637 |
|
|
|
1,160,814 |
|
|
Retained
earnings
|
|
|
1,535,116 |
|
|
|
1,256,822 |
|
|
Accumulated
other elements of comprehensive income
|
|
|
155,488 |
|
|
|
101,004 |
|
|
Less:
Treasury stock, 15,880,501 shares at June 30, 2008 (14,332,927 shares at
December 31, 2007)
|
|
|
(528,370 |
) |
|
|
(426,000 |
) |
|
Total
stockholders’ equity
|
|
|
2,332,195 |
|
|
|
2,094,964 |
|
|
TOTAL
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
$ |
5,878,917 |
|
|
$ |
4,730,819 |
|
The accompanying notes are
an integral part of these statements.
CAMERON
INTERNATIONAL CORPORATION
(dollars
in thousands)
|
|
|
Three
Months
Ended June 30,
|
|
|
Six
Months
Ended June 30,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
151,951 |
|
|
$ |
123,228 |
|
|
$ |
278,294 |
|
|
$ |
224,232 |
|
|
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
24,202 |
|
|
|
20,050 |
|
|
|
47,465 |
|
|
|
39,400 |
|
|
Amortization
|
|
|
7,107 |
|
|
|
7,084 |
|
|
|
15,750 |
|
|
|
13,585 |
|
|
Non-cash
stock compensation expense
|
|
|
5,961 |
|
|
|
7,651 |
|
|
|
15,956 |
|
|
|
14,189 |
|
|
Tax
benefit of employee stock compensation plan transactions and deferred
income taxes
|
|
|
3,305 |
|
|
|
(7,902 |
) |
|
|
2,507 |
|
|
|
11,784 |
|
|
Changes
in assets and liabilities, net of translation, acquisitions and non-cash
items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables
|
|
|
(81,755 |
) |
|
|
(61,803 |
) |
|
|
(142,952 |
) |
|
|
(50,966 |
) |
|
Inventories
|
|
|
24,416 |
|
|
|
(124,409 |
) |
|
|
(18,560 |
) |
|
|
(271,539 |
) |
|
Accounts
payable and accrued liabilities
|
|
|
60,070 |
|
|
|
81,184 |
|
|
|
29,381 |
|
|
|
113,851 |
|
|
Other
assets and liabilities, net
|
|
|
9,746 |
|
|
|
(27,609 |
) |
|
|
21,539 |
|
|
|
(40,279 |
) |
|
Net
cash provided by operating activities
|
|
|
205,003 |
|
|
|
17,474 |
|
|
|
249,380 |
|
|
|
54,257 |
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
expenditures
|
|
|
(50,904 |
) |
|
|
(55,014 |
) |
|
|
(96,046 |
) |
|
|
(107,973 |
) |
|
Acquisitions,
net of cash acquired
|
|
|
— |
|
|
|
(31,714 |
) |
|
|
(57,512 |
) |
|
|
(75,658 |
) |
|
Proceeds
from sale of plant and equipment
|
|
|
632 |
|
|
|
1,953 |
|
|
|
925 |
|
|
|
3,624 |
|
|
Net
cash used for investing activities
|
|
|
(50,272 |
) |
|
|
(84,775 |
) |
|
|
(152,633 |
) |
|
|
(180,007 |
) |
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term
loan (repayments) borrowings, net
|
|
|
(90,187 |
) |
|
|
(207,155 |
) |
|
|
80,348 |
|
|
|
(199,148 |
) |
|
Issuance
of long-term senior notes
|
|
|
747,922 |
|
|
|
— |
|
|
|
747,922 |
|
|
|
— |
|
|
Debt
issuance costs
|
|
|
(5,550 |
) |
|
|
— |
|
|
|
(5,550 |
) |
|
|
— |
|
|
Purchase
of treasury stock
|
|
|
(34,059 |
) |
|
|
(126,491 |
) |
|
|
(154,478 |
) |
|
|
(277,362 |
) |
|
Proceeds
from stock option exercises
|
|
|
9,167 |
|
|
|
13,056 |
|
|
|
10,095 |
|
|
|
22,282 |
|
|
Excess
tax benefits from employee stock compensation plan
transactions
|
|
|
7,586 |
|
|
|
6,601 |
|
|
|
14,445 |
|
|
|
11,635 |
|
|
Principal
payments on capital leases
|
|
|
(1,572 |
) |
|
|
(1,623 |
) |
|
|
(3,298 |
) |
|
|
(2,621 |
) |
|
Net
cash provided by (used for) financing activities
|
|
|
633,307 |
|
|
|
(315,612 |
) |
|
|
689,484 |
|
|
|
(445,214 |
) |
|
Effect
of translation on cash
|
|
|
1,717 |
|
|
|
1,378 |
|
|
|
7,970 |
|
|
|
4,820 |
|
|
Increase
(decrease) in cash and cash equivalents
|
|
|
789,755 |
|
|
|
(381,535 |
) |
|
|
794,201 |
|
|
|
(566,144 |
) |
|
Cash
and cash equivalents, beginning of period
|
|
|
744,362 |
|
|
|
848,928 |
|
|
|
739,916 |
|
|
|
1,033,537 |
|
|
Cash
and cash equivalents, end of period
|
|
$ |
1,534,117 |
|
|
$ |
467,393 |
|
|
$ |
1,534,117 |
|
|
$ |
467,393 |
|
The
accompanying notes are an integral part of these statements.
CAMERON
INTERNATIONAL CORPORATION
Unaudited
Note
1: Basis of Presentation
The
accompanying Unaudited Consolidated Condensed Financial Statements of Cameron
International Corporation (the Company) have been prepared in accordance with
Rule 10-01 of Regulation S-X and do not include all the information and
footnotes required by generally accepted accounting principles for complete
financial statements. Those adjustments, consisting of normal recurring
adjustments that are, in the opinion of management, necessary for a fair
presentation of the financial information for the interim periods, have been
made. The results of operations for such interim periods are not necessarily
indicative of the results of operations for a full year. The Unaudited
Consolidated Condensed Financial Statements should be read in conjunction with
the Audited Consolidated Financial Statements and Notes thereto filed by the
Company on Form 10-K for the year ended December 31, 2007.
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States 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. Such estimates include, but are not limited to, estimated
losses on accounts receivable, estimated realizable value on excess or obsolete
inventory, contingencies, including tax contingencies, estimated liabilities for
litigation exposures and liquidated damages, estimated warranty costs, estimates
related to pension accounting, estimates related to contracts accounted for
under Statement of Position 81-1, Accounting for Performance of
Construction-Type and Certain Production-Type Contracts, estimated proceeds from
assets held for sale and estimates related to deferred tax assets and
liabilities, including valuation allowances on deferred tax assets. Actual
results could differ materially from these estimates.
Note
2: Acquisitions
On
February 5, 2008, the Company acquired the assets of Baker Hughes
International Oil Tools Division’s Surface Safety Systems (SSS) business at a
cash cost of approximately $31,000,000. The acquisition of SSS
enhances the Company’s flow control product offerings within the
Drilling & Production Systems (DPS) segment by providing hydraulic and
pneumatic actuators for surface wellhead applications, wire cutting actuators,
quick disconnect features, and arctic and high temperature service
products.
On
February 19, 2008, the Company acquired the stock of SBS Oilfield Equipment
GmbH (SBS), an artificial lift systems manufacturer in Austria, at a cash cost
of approximately $10,846,000. SBS designs, builds and installs in-well rod lift
pumping and progressive cavity pumping systems and associated
services. These systems include sucker rods, pony rods, rod guides,
pumps and anchors associated with artificial lift in producing
wells. Management believes SBS will enhance the DPS segment’s
existing artificial lift businesses and will broaden the scope of products and
services currently offered to also include progressive cavity pump
systems.
Additionally,
on March 26, 2008, the Company acquired the stock of Jiskoot Holdings
Limited (Jiskoot), a UK-based company that engineers and manufactures hardware
packages for crude oil sampling, blending and other related applications, for a
cash cost of approximately $15,666,000. The acquisition of Jiskoot
strengthens the Valves and Measurement (V&M) segment’s ability to deliver a
broader range of solutions to its customers.
All
acquisitions were included in the Company’s consolidated condensed financial
statements for the period subsequent to each acquisition. Preliminary goodwill
recorded as a result of these acquisitions totaled approximately $46,049,000 at
June 30, 2008, approximately 60% of which will be deductible for income tax
purposes. The Company is still awaiting significant information relating to the
fair value of the assets and liabilities of the acquired businesses in order to
finalize the purchase price allocations.
Note
3: Receivables
Receivables
consisted of the following (in thousands):
|
|
|
June
30,
2008
|
|
|
December
31,
2007
|
|
|
Trade
receivables
|
|
$ |
904,409 |
|
|
$ |
747,006 |
|
|
Other
receivables
|
|
|
57,983 |
|
|
|
58,709 |
|
|
Allowances
for doubtful accounts
|
|
|
(11,498 |
) |
|
|
(8,244 |
) |
|
Total
receivables
|
|
$ |
950,894 |
|
|
$ |
797,471 |
|
Note
4: Inventories
Inventories
consisted of the following (in thousands):
|
|
|
June
30,
2008
|
|
|
December
31,
2007
|
|
|
Raw
materials
|
|
$ |
119,511 |
|
|
$ |
121,071 |
|
|
Work-in-process
|
|
|
474,798 |
|
|
|
454,309 |
|
|
Finished
goods, including parts and subassemblies
|
|
|
1,003,705 |
|
|
|
947,254 |
|
|
Other
|
|
|
9,898 |
|
|
|
8,528 |
|
|
|
|
|
1,607,912 |
|
|
|
1,531,162 |
|
|
Excess
of current standard costs over LIFO costs
|
|
|
(85,532 |
) |
|
|
(67,704 |
) |
|
Allowances
|
|
|
(55,185 |
) |
|
|
(50,055 |
) |
|
Total
inventories
|
|
$ |
1,467,195 |
|
|
$ |
1,413,403 |
|
Note
5: Plant and Equipment and Goodwill
Plant and
equipment consisted of the following (in thousands):
|
|
|
June
30,
2008
|
|
|
December
31,
2007
|
|
|
Plant
and equipment, at cost
|
|
$ |
1,763,500 |
|
|
$ |
1,626,636 |
|
|
Accumulated
depreciation
|
|
|
(869,780 |
) |
|
|
(805,532 |
) |
|
Total
plant and equipment
|
|
$ |
893,720 |
|
|
$ |
821,104 |
|
Changes
in goodwill during the six months ended June 30, 2008 were as follows (in
thousands):
|
Balance
at December 31, 2007
|
|
$ |
647,819 |
|
|
Acquisitions
|
|
|
46,049 |
|
|
Adjustment
to goodwill for the Dresser Acquired Businesses, DES Operations Limited
and other prior year acquisitions
|
|
|
(16,322 |
) |
|
Translation
and other
|
|
|
8,086 |
|
|
Balance
at June 30, 2008
|
|
$ |
685,632 |
|
Note
6: Accounts Payable and Accrued Liabilities
Accounts
payable and accrued liabilities consisted of the following (in
thousands):
|
|
|
June
30,
2008
|
|
|
December
31,
2007
|
|
|
Trade
accounts payable and accruals
|
|
$ |
493,394 |
|
|
$ |
517,692 |
|
|
Salaries,
wages and related fringe benefits
|
|
|
120,408 |
|
|
|
155,048 |
|
|
Advances
from customers
|
|
|
849,027 |
|
|
|
756,441 |
|
|
Sales
related costs and provisions
|
|
|
78,769 |
|
|
|
87,253 |
|
|
Payroll
and other taxes
|
|
|
44,262 |
|
|
|
35,904 |
|
|
Product
warranty
|
|
|
31,475 |
|
|
|
29,415 |
|
|
Other
|
|
|
95,627 |
|
|
|
95,301 |
|
|
Total
accounts payable and accrued liabilities
|
|
$ |
1,712,962 |
|
|
$ |
1,677,054 |
|
Activity during the six months
ended June 30, 2008 associated with the Company’s product warranty accruals was
as follows (in thousands):
|
Balance
December
31,
2007
|
|
|
Net
warranty
provisions
|
|
|
Charges
against
accrual
|
|
|
Translation
and other
|
|
|
Balance
June
30,
2008
|
|
| $ |
29,415 |
|
|
|
14,521 |
|
|
|
(13,037 |
) |
|
|
576 |
|
|
$ |
31,475 |
|
Note
7: Debt
The
Company’s debt obligations were as follows (in thousands):
|
|
|
June
30,
2008
|
|
December 31,
2007
|
|
|
Short-term
borrowings under revolving credit facility
|
|
$
|
79,736
|
|
$
|
—
|
|
|
Senior
notes, net of $2,078 of unamortized original issue discount at June 30,
2008
|
|
747,922
|
|
—
|
|
|
Convertible
debentures
|
|
738,000
|
|
738,000
|
|
|
Other
debt
|
|
4,437
|
|
3,671
|
|
|
Obligations
under capital leases
|
|
13,309
|
|
12,223
|
|
|
|
|
1,583,404
|
|
753,894
|
|
|
Current
maturities
|
|
(327,681)
|
|
(8,766
|
)
|
|
Long-term
portion
|
|
$
|
1,255,723
|
|
$
|
745,128
|
|
On
June 26, 2008, the Company issued $450,000,000 in aggregate principal
amount of 6.375% Senior Notes due July 15, 2018 (the “2018 Notes”) and
$300,000,000 in aggregate principal amount of 7.0% Senior Notes due July 15,
2038 (the “2038
Notes” and, together with the 2018 Notes, the “Notes”). The Company will pay
interest on the Notes on January 15 and July 15 of each year,
beginning on January 15, 2009. The Company may redeem some of the
Notes from time to time or all of the Notes at any time at redemption prices
that include accrued and unpaid interest and a make-whole premium as defined in
the respective supplemental indentures (the Supplemental
Indentures). In the event of the occurrence of a Change of Control
Repurchase Event, as defined in the Supplemental Indentures, the holders of the
Notes may require the Company to repurchase the Notes at a purchase price equal
to 101% of their principal amount, plus accrued and unpaid
interest. The Notes are senior unsecured obligations of the Company
and rank equally with all of the Company’s other existing unsecured and
unsubordinated debt.
On
April 14, 2008, the Company entered into a new multicurrency revolving
credit facility providing for borrowings up to $585,000,000. The new facility,
which replaced the existing $350,000,000 multicurrency revolving credit
facility, expires on April 14, 2013. The facility allows the Company to
borrow funds, based on its current debt rating, at the London Interbank Offered
Rate (LIBOR) plus 40 basis points (including a facility fee) and, if aggregate
outstanding credit exposure exceeds one-half of the total facility amount, an
additional 10-basis-point fee is incurred. The Company, at its option, may also
borrow at other specified rates as defined in the credit facility. Additionally,
the Company is required to maintain a total debt-to-capitalization ratio of no
more than 60% during the term of the agreement.
As of
June 30, 2008, the Company had Pound Sterling borrowings outstanding totaling
$79,736,000, under its $585,000,000 multicurrency revolving credit facility at
an interest rate of 5.82% with a maturity date of July 16, 2008.
As
described more fully in Note 14 of the Notes to the Consolidated Condensed
Financial Statements, on July 10, 2008, the Company notified the holders of its
1.5% and 2.5% convertible debentures of their rights under the terms of the
debentures to request conversion of those debentures during the third quarter of
2008. The Company has classified its $500,000,000 2.5% convertible
debentures as long-term debt in the Consolidated Condensed Balance Sheet as of
June 30, 2008. The $238,000,000 1.5%
convertible debentures have been included in the current portion of long-term
debt in the Consolidated Condensed Balance Sheet as of June 30,
2008.
Note
8: Employee Benefit Plans
Total net
benefit (income) expense associated with the Company’s defined benefit pension
plans consisted of the following (in thousands):
|
|
|
Three
Months Ended
June 30,
|
|
|
Six
Months Ended
June 30,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
Service
cost
|
|
$ |
1,607 |
|
|
$ |
2,891 |
|
|
$ |
3,214 |
|
|
$ |
5,782 |
|
|
Interest
cost
|
|
|
4,466 |
|
|
|
7,545 |
|
|
|
8,932 |
|
|
|
15,090 |
|
|
Expected
return on plan assets
|
|
|
(5,944 |
) |
|
|
(10,312 |
) |
|
|
(11,888 |
) |
|
|
(20,624 |
) |
|
Amortization
of prior service cost
|
|
|
(96 |
) |
|
|
(172 |
) |
|
|
(192 |
) |
|
|
(344 |
) |
|
Amortization
of losses and other
|
|
|
2,500 |
|
|
|
3,668 |
|
|
|
5,000 |
|
|
|
7,336 |
|
|
Total
net benefit expense
|
|
$ |
2,533 |
|
|
$ |
3,620 |
|
|
$ |
5,066 |
|
|
$ |
7,240 |
|
Total net
benefit (income) expense associated with the Company’s postretirement benefit
plans consisted of the following (in thousands):
|
|
|
Three
Months Ended
June 30,
|
|
|
Six
Months Ended
June 30,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
Service
cost
|
|
$ |
1 |
|
|
$ |
1 |
|
|
$ |
2 |
|
|
$ |
2 |
|
|
Interest
cost
|
|
|
269 |
|
|
|
303 |
|
|
|
538 |
|
|
|
606 |
|
|
Amortization
of prior service cost
|
|
|
(96 |
) |
|
|
(96 |
) |
|
|
(192 |
) |
|
|
(192 |
) |
|
Amortization
of gains and other
|
|
|
(371 |
) |
|
|
(270 |
) |
|
|
(742 |
) |
|
|
(540 |
) |
|
Total
net benefit income
|
|
$ |
(197 |
) |
|
$ |
(62 |
) |
|
$ |
(394 |
) |
|
$ |
(124 |
) |
On April
8, 2008, the Company received a favorable determination letter from the Internal
Revenue Service (IRS) on the qualified status of the Cameron International
Corporation Retirement Plan (Retirement Plan) and, on this same date, received
notice from the IRS that the Company’s intention to terminate the Retirement
Plan will not adversely affect its qualification for federal tax
purposes. It is expected that the Company will finalize the
settlement of its remaining obligations under the Retirement Plan during the
fourth quarter of 2008.
Note
9: Business Segments
The
Company’s operations are organized into three separate business segments - DPS,
V&M and Compression Systems (CS). Summary financial data by segment is as
follows (in thousands):
|
|
|
Three
Months Ended
June
30,
|
|
|
Six Months Ended
June
30,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DPS
|
|
$ |
951,808 |
|
|
$ |
682,899 |
|
|
$ |
1,816,626 |
|
|
$ |
1,296,622 |
|
|
V&M
|
|
|
366,917 |
|
|
|
315,546 |
|
|
|
711,418 |
|
|
|
611,389 |
|
|
CS
|
|
|
161,908 |
|
|
|
140,597 |
|
|
|
291,843 |
|
|
|
228,081 |
|
|
|
|
$ |
1,480,633 |
|
|
$ |
1,139,042 |
|
|
$ |
2,819,887 |
|
|
$ |
2,136,092 |
|
|
Income
(loss) before income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DPS
|
|
$ |
153,147 |
|
|
$ |
109,329 |
|
|
$ |
282,171 |
|
|
$ |
212,737 |
|
|
V&M
|
|
|
70,836 |
|
|
|
65,122 |
|
|
|
137,050 |
|
|
|
126,894 |
|
|
CS
|
|
|
25,732 |
|
|
|
22,996 |
|
|
|
44,421 |
|
|
|
30,278 |
|
|
Corporate
& other
|
|
|
(26,257 |
) |
|
|
(20,642 |
) |
|
|
(54,386 |
) |
|
|
(37,714 |
) |
|
|
|
$ |
223,458 |
|
|
$ |
176,805 |
|
|
$ |
409,256 |
|
|
$ |
332,195 |
|
Corporate &
other includes expenses associated with the Company’s Corporate office in
Houston, Texas, as well as all of the Company’s interest income, interest
expense, certain litigation expense managed by the Company’s General Counsel,
foreign currency gains and losses from certain intercompany lending activities
managed by the Company’s centralized Treasury function and all of the Company’s
stock compensation expense.
Note
10: Earnings Per Share
The
calculation of basic and diluted earnings per share for each period presented
was as follows (dollars and shares in thousands, except per share amounts; prior
year amounts have been revised to reflect the 2-for-1 stock split effective
December 28, 2007):
|
|
|
Three
Months Ended
June 30,
|
|
|
Six
Months Ended
June 30,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
Net
income
|
|
$ |
151,951 |
|
|
$ |
123,228 |
|
|
$ |
278,294 |
|
|
$ |
224,232 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
shares outstanding (basic)
|
|
|
216,634 |
|
|
|
218,730 |
|
|
|
216,662 |
|
|
|
220,376 |
|
|
Common
stock equivalents
|
|
|
2,915 |
|
|
|
3,240 |
|
|
|
2,930 |
|
|
|
3,110 |
|
|
Incremental
shares from assumed conversion of convertible debentures
|
|
|
13,558 |
|
|
|
6,844 |
|
|
|
12,208 |
|
|
|
6,060 |
|
|
Diluted
shares
|
|
|
233,107 |
|
|
|
228,814 |
|
|
|
231,800 |
|
|
|
229,546 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings per share
|
|
$ |
0.70 |
|
|
$ |
0.56 |
|
|
$ |
1.28 |
|
|
$ |
1.02 |
|
|
Diluted
earnings per share
|
|
$ |
0.65 |
|
|
$ |
0.54 |
|
|
$ |
1.20 |
|
|
$ |
0.98 |
|
The
Company’s 1.5% Convertible Debentures have been included in the calculation of
diluted earnings per share for the three and six months ended June 30, 2008 and
2007, since the average market price of the Company’s common stock exceeded the
conversion value of the debentures during both periods. The Company’s
2.5% Convertible Debentures have been included in the calculation of diluted
earnings per share for the three and six months ended June 30, 2008 for the same
reason. The 2.5% Convertible Debentures have not been included in the
calculation of diluted earnings per share for the three and six months ended
June 30, 2007 as the conversion price of the debentures was in excess of the
average market price of the Company’s common stock during those
periods. During the three and six months ended June 30, 2008, the
Company acquired 755,600 and 2,920,475 treasury shares at an average cost of
$50.12 and $47.52 per share, respectively. A total of 640,832 and 1,372,901
treasury shares were issued during the three- and six-month periods ended June
30, 2008, respectively, in satisfaction of stock option exercises and vesting of
restricted stock units.
Note
11: Comprehensive Income
The
amounts of comprehensive income for the three and six months ended June 30, 2008
and 2007 were as follows (in thousands):
|
|
|
Three
Months Ended
June 30,
|
|
|
Six
Months Ended
June 30,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
Net
income per Consolidated Condensed Results of Operations
|
|
$ |
151,951 |
|
|
$ |
123,228 |
|
|
$ |
278,294 |
|
|
$ |
224,232 |
|
|
Foreign
currency translation gain 1
|
|
|
9,938 |
|
|
|
23,944 |
|
|
|
51,824 |
|
|
|
33,055 |
|
|
Amortization
of net prior service credits related to the Company’s pension and
postretirement benefit plans, net of tax
|
|
|
(119 |
) |
|
|
(166 |
) |
|
|
(237 |
) |
|
|
(331 |
) |
|
Amortization
of net actuarial losses related to the Company’s pension and
postretirement benefit plans, net of tax
|
|
|
1,315 |
|
|
|
2,099 |
|
|
|
2,629 |
|
|
|
4,196 |
|
|
Change
in fair value of derivatives accounted for as cash flow hedges, net of tax
and other
|
|
|
881 |
|
|
|
2,110 |
|
|
|
268 |
|
|
|
2,001 |
|
|
Comprehensive
income
|
|
$ |
163,966 |
|
|
$ |
151,215 |
|
|
$ |
332,778 |
|
|
$ |
263,153 |
|
1The “Foreign currency
translation gain” relates primarily to the Company’s operations in Brazil,
Canada, Norway, Luxembourg, France, Germany, Ireland and Italy.
The components of accumulated
other elements of comprehensive income at June 30, 2008 and December 31, 2007
were as follows (in thousands):
|
|
|
June
30,
2008
|
|
|
December
31,
2007
|
|
|
Accumulated
foreign currency translation gain
|
|
$ |
216,129 |
|
|
$ |
164,305 |
|
|
Prior
service credits, net, related to the Company’s pension and postretirement
benefit plans
|
|
|
1,144 |
|
|
|
1,381 |
|
|
Actuarial
losses, net, related to the Company’s pension and postretirement benefit
plans
|
|
|
(67,180 |
) |
|
|
(69,809 |
) |
|
Change
in fair value of derivatives accounted for as cash flow hedges, net of tax
and other
|
|
|
5,395 |
|
|
|
5,127 |
|
|
Accumulated
other elements of comprehensive income
|
|
$ |
155,488 |
|
|
$ |
101,004 |
|
Note
12: Contingencies
The
Company is subject to a number of contingencies, including environmental
matters, litigation and tax contingencies.
Environmental
Matters
The
Company’s worldwide operations are subject to regulations with regard to air,
soil and water quality as well as other environmental matters. The Company,
through its environmental management system and active third-party audit
program, believes it is in substantial compliance with these regulations. The
Company is currently identified as a potentially responsible party (PRP) with
respect to two sites designated for cleanup under the Comprehensive
Environmental Response Compensation and Liability Act (CERCLA) or similar state
laws. One of these sites is Osborne, Pennsylvania (a landfill into which a
predecessor of the CS operation in Grove City, Pennsylvania deposited waste),
where remediation is complete and remaining costs relate to ongoing ground water
treatment and monitoring. The other is believed to be a de minimis exposure. 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. Additionally, the Company has discontinued
operations at a number of other sites which had been active for many years. The
Company does not believe, based upon information currently available, that there
are any material environmental liabilities existing at these locations. At June
30, 2008, the Company’s consolidated balance sheet included a noncurrent
liability of approximately $6,989,000 for environmental matters.
Legal
Matters
In 2001,
the Company discovered that contaminated underground water from the former
manufacturing site in Houston referenced above had migrated under an adjacent
residential area. Pursuant to applicable state regulations, the Company notified
the affected homeowners. Concerns over the impact on property values of the
underground water contamination and its public disclosure led to a number of
claims by homeowners.
The
Company has entered into a number of individual settlements and has settled a
class action lawsuit. The individual settlements were made in the form of
agreements with homeowners that obligated the Company to reimburse them for any
estimated decline in the value of their homes at time of sale due to potential
buyers’ concerns over contamination or, in the case of some agreements, to
purchase the property after an agreed marketing period. All but three of these
agreements have been closed out. In addition, the Company has settled
Valice v. Cameron Iron Works, Inc. (80th Jud. Dist. Ct., Harris County,
filed June 21, 2002), which was filed and settled as a class action.
Pursuant to the settlement, the 258 homeowners in the class are entitled to
receive a cash payment of approximately 3% of the 2006 appraised value of their
property or reimbursement of any diminution in value of their property due to
contamination concerns at the time of any sale. To date, 68 homeowners have
elected the cash payment and 21 opted out of the class settlement.
There are
two suits currently pending and one threatened regarding this matter filed by
homeowners who opted out of the class settlement. Moldovan v. Cameron Iron
Works, Inc. (165th Jud. Dist. Ct., Harris County, filed October 23,
2006), was filed by six such homeowners. The other suit was filed by individual
homeowners, Tuma v. Cameron Iron Works, Inc. (334th Judicial District Court
of Harris County, Texas, filed on November 27, 2006). A suit has
been threatened by a group of nine homeowners but has not yet been
filed. The complaints in these actions make or threaten to make the
claim that the contaminated underground water has reduced property values and
seek recovery of alleged actual and exemplary damages for the loss of property
value.
While one
suit related to this matter involving health risks has been filed, the Company
is of the opinion that there is no health risk to area residents and that the
suit is without merit.
The
Company believes, based on its review of the facts and law, that any potential
exposure from existing agreements, the class action settlement or other actions
that have been or may be filed, will not have a material adverse effect on its
financial position or results of operations. The Company’s consolidated balance
sheet included a liability of $13,164,000 for these matters as of June 30,
2008.
The
Company has been named as a defendant in a number of multi-defendant,
multi-plaintiff tort lawsuits since 1995. At June 30, 2008, the Company’s
consolidated balance sheet included a liability of approximately $2,924,000 for
such cases, including estimated legal costs. The Company believes, based on its
review of the facts and law, that the potential exposure from these suits will
not have a material adverse effect on its consolidated results of operations,
financial condition or cash flow from operations.
Regulatory
Contingencies
In
January 2007, the Company underwent a Pre-Assessment Survey as part of a
Focused Assessment initiated by the Regulatory Audit Division of the U.S.
Customs and Border Protection, Department of Homeland Security. The
Pre-Assessment Survey resulted in a finding that the Company had deficiencies in
its U.S. Customs compliance processes. The Company is taking corrective action
and will undergo Assessment Compliance Testing in the second half of
2008.
In
July 2007, the Company was one of a number of companies to receive a letter
from the Criminal Division of the U.S. Department of Justice (DOJ) requesting
information on its use of a customs clearance broker. The DOJ is inquiring into
whether certain of the services provided to the Company by the customs clearance
broker may have involved violations of the U.S. Foreign Corrupt Practices Act
(FCPA). The Company is conducting an internal investigation in response, as
discussed below, and is providing the requested information to the
DOJ.
The
Company engaged special counsel reporting to the Audit Committee of the Board of
Directors to conduct an investigation into its dealings with the customs
clearance broker in Nigeria and Angola to determine if any payment made to or by
the customs clearance broker on the Company’s behalf constituted a violation of
the FCPA. The investigation is also looking into activities of Company employees
and agents with respect to immigration matters and importation permitting in
Nigeria. To date, the special counsel has found that the Company utilized
certain services in Nigeria offered by the customs clearance broker that appear
to be similar to services that have been under review by the DOJ. Similar issues
do not appear to be present in Angola. Special counsel is reviewing
these and other services and activities to determine whether they were conducted
in compliance with all applicable laws and regulations. Special counsel is also
reviewing the extent, if any, of the Company’s knowledge and involvement in the
performance of these services and activities, and whether the Company fulfilled
its obligations under the FCPA.
In
addition, the U.S. Securities and Exchange Commission (SEC) is conducting an
informal inquiry into the same matters currently under review by the DOJ. As
part of this inquiry the SEC has requested that the Company provide to them the
information and documents that have been requested by and are being provided to
the DOJ. The Company is cooperating fully with the SEC, as it is doing with the
DOJ, and is providing the requested materials. Both agencies have requested an
extension of the statute of limitations with respect to matters under review
until January 2009. At this stage of the internal investigation,
the Company cannot predict the ultimate outcome of either the internal
investigation or the government inquiries. The Company has also undertaken an
enhanced compliance training effort for its personnel, including foreign
operations personnel dealing with customs clearance regulations.
Tax
Contingencies
The
Company has legal entities in over 35 countries. As a result, the Company is
subject to various tax filing requirements in these countries. The Company
prepares its tax filings in a manner which it believes is consistent with such
filing requirements. However, some of the tax laws and regulations which the
Company is subject to are subject to interpretation and/or judgment. Although
the Company believes that the tax liabilities for periods ending on or before
the balance sheet date have been adequately provided for in the financial
statements, to the extent that a taxing authority believes that the Company has
not prepared its tax filings in accordance with the authority’s interpretation
of the tax laws/regulations, the Company could be exposed to additional taxes.
There were no material changes in the Company’s liabilities for unrecognized tax
benefits during the three or six months ended June 30, 2008.
In May
2008, the Financial Accounting Standards Board (FASB) issued FASB Staff Position
(FSP) APB 14-1 that clarifies the accounting for convertible debt instruments
that may be settled in cash upon conversion (including partial cash
settlements). This FSP requires the issuer of a convertible debt
instrument within its scope to separately account for the liability and equity
components of the instrument in a manner that will reflect the entity’s
nonconvertible debt borrowing rate when interest cost is recognized in
subsequent periods. This standard applies to the Company’s existing
1.5% convertible debentures due 2024 and 2.5% convertible debentures due 2026,
totaling in aggregate $738,000,000 at June 30, 2008, as well as certain
convertible debentures outstanding in prior periods. This FSP will be
applied retrospectively to all periods presented once it becomes effective
January 1, 2009. Due to the potential for future conversions of the Company’s
outstanding convertible debentures during the third quarter of 2008 (see Note 14
of the Notes to Consolidated Condensed Financial Statements for additional
information), the actual impact on the Company’s Consolidated Balance Sheet as
of December 31, 2008 cannot be computed at this time. However, the
Company expects this FSP will have a significant impact on both its debt and
equity balances upon adoption.
In
March 2008, the FASB issued Statement of Financial Accounting Standards
No. 161, Disclosures about Derivative Instruments and Hedging Activities,
an amendment of FASB Statement No. 133 (SFAS 161). SFAS 161 requires
entities to provide greater transparency about (a) how and why an entity
uses derivative instruments, (b) how derivative instruments and related
hedged items are accounted for under Statement 133 and its related
interpretations and (c) how derivative instruments and related hedged items
affect an entity’s financial position, results of operations, and cash flows.
The Company will provide the level of required disclosures regarding its use of
derivative instruments upon adoption of this new standard, effective
January 1, 2009.
In
December 2007, the FASB issued Statement of Financial Accounting Standards
No. 141R, Business Combinations (SFAS 141R) and Statement of Financial
Accounting Standards No. 160, Accounting and Reporting of Noncontrolling
Interest in Consolidated Financial Statements, an amendment of ARB No. 51
(SFAS 160). These two standards must be adopted in conjunction with each other
on a prospective basis. The most significant changes to business combination
accounting pursuant to SFAS 141R and SFAS 160 are the following:
(a) recognize, with certain exceptions, 100 percent of the fair values of
assets acquired, liabilities assumed and noncontrolling interests in
acquisitions of less than a 100 percent controlling interest when the
acquisition constitutes a change in control of the acquired entity,
(b) acquirers’ shares issued in consideration for a business combination
will be measured at fair value on the closing date, not the announcement date,
(c) recognize contingent consideration arrangements at their acquisition
date fair values, with subsequent changes in fair value generally reflected in
earnings, (d) the expensing of all transaction costs as incurred and most
restructuring costs, (e) recognition of pre-acquisition loss and gain
contingencies at their acquisition date fair values, with certain exceptions,
(f) capitalization of acquired in-process research and development rather
than expense recognition and (g) recognize changes that result from a business
combination transaction in an acquirer’s existing income tax valuation
allowances and tax uncertainty accruals as adjustments to income tax expense.
The Company anticipates these new standards will significantly affect the
Company’s accounting for future business combinations following adoption on
January 1, 2009.
In
February 2007, the FASB issued Statement of Financial Accounting Standards
No. 159, The Fair Value Option for Financial Assets and Financial
Liabilities (SFAS 159). SFAS 159 provides entities with an option to measure
many financial assets and liabilities and certain other items at fair value as
determined on an instrument-by-instrument basis. SFAS 159 became effective for
the Company as of January 1, 2008; however, the Company did not elect to
measure any additional financial instruments at fair value as a result of
adopting SFAS 159. Therefore, there was no impact on the Company’s financial
statements at the time of adoption.
In
September 2006, the FASB issued Statement of Financial Accounting Standards
No. 157, Fair Value Measurements (SFAS 157), which defines fair value,
establishes a framework for measuring fair value and expands the level of
disclosures regarding fair value. SFAS 157 also emphasizes that fair value is a
market-based measurement rather than an entity-specific measurement. The Company
adopted the provisions of SFAS 157 relating to financial assets and liabilities
and other assets and liabilities carried at fair value on a recurring basis
effective on January 1, 2008, as required. As allowed by FASB
Staff Position FAS 157-2, Effective Date of FASB Statement No. 157, the
Company has elected to defer the adoption of SFAS 157 with respect to all
remaining nonfinancial assets and liabilities until January 1,
2009. There was no material impact on the Company’s financial
statements at the time of adoption; however, the Company does expect that this
new standard will impact certain aspects of its accounting for business
combinations on a prospective basis, including the determination of fair values
assigned to certain purchased assets and liabilities.
With
respect to the January 1, 2008 adoption of SFAS 157, the Company determines the
fair value of its outstanding foreign currency forward contracts based on quoted
forward exchange rates for the respective currencies applicable to similar
instruments (Level 2 observable market inputs as defined in SFAS
157).
Note
14: Subsequent Events
On July
10, 2008, the Company notified the holders of its 1.5% and 2.5% convertible
debentures of their rights under the terms of the debentures to request
conversion of those debentures during the third quarter of 2008.
As of
July 23, 2008, the Company had been notified by holders of $58,790,000 of face
value of the 1.5% convertible debentures of their intent to exercise their
conversion rights. As a result, during the third quarter of 2008, the
Company currently anticipates repaying 100% of the principal of the debentures
to be converted, including accrued but unpaid interest, in cash with the
conversion value of the debentures in excess of the principal value to be
satisfied through the issuance of additional shares of the Company’s common
stock. Based on an average price of the Company’s common stock during
a 10-day period following notification by the holders of the debentures, the
Company currently expects to issue an additional 2,306,000 shares during the
third quarter of 2008 to satisfy the conversion value of these
debentures. The final amounts ultimately to be recognized during the
third quarter of 2008 will be based on the actual amount of debentures submitted
for conversion during that time period.
Item
2. Management’s Discussion and Analysis of Financial Condition and Results of
Operations
In addition to the historical data
contained herein, this document includes “forward-looking
statements” regarding future market strength, order levels, revenues and earnings of the
Company, as well as expectations regarding cash flows, future capital spending
and the estimated remaining pension assets and pre-tax settlement charge to be
incurred upon final settlement of the Company's obligations under its U.S.
defined benefit pension plans, 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 and drilling systems projects
it has been awarded; the Company’s ability to convert backlog into revenues on a timely and
profitable basis; the Company’s ability to successfully implement its capital
expenditures program; the impact of acquisitions the Company has made or
may make; changes in the price of (and demand for) oil and gas in both
domestic and international markets; raw material costs and availability;
political and social issues affecting the countries in which the Company does
business; fluctuations in currency markets worldwide; and variations in global
economic activity. In particular, current and projected oil and gas prices
historically have generally affected customers’ spending levels and their
related purchases of the Company’s products and
services. Additionally, changes in oil and gas price
expectations may impact
the Company’s financial results due to changes in cost structure, staffing or spending
levels. 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 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.
SECOND
QUARTER 2008 COMPARED TO SECOND QUARTER 2007
Consolidated Results
-
The
Company’s net income for the second quarter of 2008 totaled $152.0 million, or
$0.65 per diluted share, compared to $123.2 million, or $0.54 per diluted share,
for the second quarter of 2007. Higher earnings in each of the
Company’s business segments, particularly in the Drilling and Production Systems
segment (DPS) where earnings were impacted by higher demand in each of its major
product lines, was the primary driver in the 20.4% increase in earnings per
share for the three months ended June 30, 2008 compared to the same period in
2007. Income before income taxes for the DPS, Valves &
Measurement (V&M) and Compression Systems (CS) segments is discussed in more
detail below.
Revenues
Revenues
for the second quarter of 2008 totaled $1.5 billion, an increase of $341.6
million, or 30.0%, from $1.1 billion for the second quarter of
2007. Nearly 80% of the increase was related to the DPS segment,
which was largely impacted by higher revenues in its drilling and subsea product
lines.
During
the second quarter of 2008, over 55% of the Company’s revenue was reflected in
entities with functional currencies other than the U.S. dollar. In
translating these entities’ functional currency income statements to U.S.
dollars for consolidation purposes, a decline in the value of the U.S. dollar
compared to the applicable functional currency will result in a higher amount of
U.S. dollar revenues and costs for the same amount of functional currency
revenues and costs. Accordingly, approximately 10% of the increase in
consolidated revenues for the second quarter of 2008 compared to the second
quarter of 2007 was attributable to the net effects of a weaker U.S. dollar
against these other foreign currencies. A further
discussion of revenues by segment may be found below.
Costs
and Expenses
Cost of
sales (exclusive of depreciation and amortization) for the second quarter of
2008 totaled $1.1 billion, an increase of $271.1 million, or 34.2%, from $792.1
million for the second quarter of 2007. Cost of sales as a percent of
revenues increased from 69.5% for the three months ended June 30, 2007 to 71.8%
for the three months ended June 30, 2008. References to margins in this
Management’s Discussion and Analysis of Financial Condition and Results of
Operations refers to Revenues minus Cost of Sales (exclusive of depreciation and
amortization) as shown separately on the Company’s Consolidated Condensed
Results of Operations statement for the three- and six-month periods ended June
30, 2008 and 2007. The increase in the ratio of cost of sales to
revenues was attributable primarily to (i) a 1.5 percentage-point increase in
the ratio on major subsea projects and projects related to oil, gas and water
separation applications, which typically carry lower margins as compared to the
Company’s base businesses and (ii) an increase in the ratio of certain indirect
production costs compared to revenues resulting mainly from higher headcount
levels and higher overhead costs associated with the expansion of the Company’s
business (approximately a 1.2 percentage-point increase). These increases are
partially offset by lower subcontracting costs in the current year (a 0.5
percentage-point decrease).
Selling
and administrative expenses for the three months ended June 30, 2008 were $161.9
million as compared to $143.2 million for the three months ended June 30, 2007,
an increase of $18.7 million, or 13.0%. As a percentage of revenues,
selling and administrative costs declined from 12.6% for the second quarter of
2007 to 10.9% for the second quarter of 2008. Excluding the effects
of a weaker U.S. dollar against certain other foreign currencies as described
below, nearly 75% of the increase was due to higher employee-related costs
associated with increased headcount and higher activity levels needed to support
the expansion of the Company’s business. On a consolidated basis,
over 12% of the increase for the second quarter of 2008 compared to the same
period in 2007 was attributable to the effects of a weaker U.S. dollar against
certain other foreign currencies for the same reasons mentioned
above.
Depreciation
and amortization expense for the second quarter of 2008 was $31.3 million, an
increase of $4.2 million from $27.1 million for the second quarter of
2007. The increase is due largely to higher levels of capital
spending for machinery and equipment and the impact of the Company’s new subsea
facility in Malaysia, which opened during the second half of 2007.
Interest
income totaled $6.4 million for the three months ended June 30, 2008 compared to
$6.3 million for the three months ended June 30, 2007. Interest
income for the second quarter of 2008 includes $1.3 million associated with a
refund received upon settlement by the Company of an international tax
contingency. This increase has mostly been offset by a decline in
short-term interest rates from the second quarter of 2007.
Interest
expense was $7.2 million for the three months ended June 30, 2008 compared to
$6.0 million for the three months ended June 30, 2007, an increase of $1.2
million. The increase is due primarily to (i) $1.8 million of
additional expense on international obligations, primarily borrowings in the
United Kingdom under the Company’s revolving credit agreement, and (ii) $0.6
million associated with the Company’s $750.0 million long-term debt offering in
June 2008. Partially offsetting these increases was a reduction in
interest expense of $1.0 million relating to an adjustment of certain tax
accruals, including the related interest, to reflect a favorable settlement
reached by the Company during the three months ended June 30, 2008 relating to
an international tax contingency.
The
income tax provision for the three months ended June 30, 2008 was $71.5 million
compared to $53.6 million for the three months ended June 30,
2007. The effective tax rates during the second quarters of 2008 and
2007 were 32.0% and 30.3%, respectively. The effective tax rate for
the second quarter of 2007 reflected the effect of a reduction in income tax
expense of $6.5 million due to a decrease in valuation allowances that had
previously been established for deferred tax assets. The reduction in
the Company’s valuation allowances was based on changes in facts which occurred
during that quarter resulting in the removal of the uncertainty surrounding the
future utilization of certain international income tax
deductions. Excluding the impact of this reduction, the effective tax
rate for the second quarter of 2008 has declined from the second quarter of 2007
primarily as the result of an increase in the amount of estimated full-year
income in lower tax rate jurisdictions in 2008 as compared to 2007.
Segment Results
-
DPS
Segment
|
|
|
Quarter
Ended
June 30,
|
|
|
Increase
|
|
|
(dollars
in millions)
|
|
2008
|
|
|
2007
|
|
|
$ |
|
|
|
%
|
|
|
Revenues
|
|
$ |
951.8 |
|
|
$ |
682.9 |
|
|
$ |
268.9 |
|
|
|
39.4 |
% |
|
Income
before income taxes
|
|
$ |
153.1 |
|
|
$ |
109.3 |
|
|
$ |
43.8 |
|
|
|
40.1 |
% |
DPS
segment revenues for the three months ended June 30, 2008 totaled $951.8
million, an increase of $268.9 million, or 39.4%, from $682.9 million for the
three months ended June 30, 2007. A 55% increase in subsea equipment
sales and a 33% increase in drilling equipment sales accounted for nearly
two-thirds of the increase in the segment’s total revenues for the second
quarter of 2008 compared to the second quarter of 2007. The increase
in subsea equipment sales was almost entirely due to increased shipments for
major projects offshore West Africa, Egypt, Eastern Canada, Western Australia
and Brazil. Approximately 55% of the increase in drilling equipment
sales was due to shipments associated with major deepwater rig construction
projects with the remaining increase largely due to higher shipments of blowout
preventers (BOPs) for land and jack-up rigs and higher service and repair
work. Surface equipment sales increased 19%, due largely to higher
activity levels resulting from robust commodity prices which drove increases in
the Asia Pacific/Middle Eastern region, Eastern Europe, the Caspian Sea and the
United States. These increases were partially offset by lower
shipments to customers in Latin America and Canada. Revenues
associated with oil, gas and water separation applications increased 115% in the
second quarter of 2008 compared to the second quarter of 2007 as various large
projects awarded during 2007 reached completion milestones as of June 30,
2008.
Income
before income taxes totaled $153.1 million for the three months ended June 30,
2008 compared to $109.3 million for the three months ended June 30, 2007, an
increase of $43.8 million, or 40.1%. Cost of sales as a percent of
revenues increased from 72.4% in the second quarter of 2007 to 74.3% in the
second quarter of 2008. The increase in the ratio of cost of sales to
revenues was due primarily to (i) a 2.8 percentage-point increase in the ratio
on major subsea projects and projects related to oil, gas and water separation
applications, as well as a mix shift to more such project related revenues,
which typically carry lower margins as compared to the segment’s base
businesses, and (ii) an increase in the ratio of certain indirect production
costs compared to revenues resulting mainly from higher headcount levels and
higher overhead costs associated with the expansion of the segment’s business
(approximately a 0.7 percentage-point increase). These increases were
partially offset by (i) improved margins for surface equipment due largely to
better pricing (approximately a 0.5 percentage-point decrease) and (ii) lower
subcontracting costs (approximately a 1.0 percentage-point
decrease).
Selling
and administrative expenses for the second quarter of 2008 totaled $74.7
million, an increase of $9.1 million, or 13.9%, from $65.6 million during the
comparable period of 2007. Over 50% of the increase was attributable
to higher employee-related costs due mainly to increased headcount levels with
the remainder due largely to other costs associated with expansion of the
segment’s business.
Depreciation
and amortization increased $2.5 million, from $13.8 million for the three months
ended June 30, 2007 to $16.3 million for the three months ended June 30,
2008. The increase was primarily the result of higher depreciation
expense associated with increased levels of capital spending in recent periods
for new machinery and equipment and a new subsea facility in Malaysia, which
opened in the second half of 2007.
V&M
Segment
|
|
|
Quarter
Ended
June
30,
|
|
|
Increase
|
|
|
(dollars
in millions)
|
|
2008
|
|
|
2007
|
|
|
$
|
|
|
|
%
|
|
|
Revenues
|
|
$ |
366.9 |
|
|
$ |
315.5 |
|
|
$ |
51.4 |
|
|
|
16.3 |
% |
|
Income
before income taxes
|
|
$ |
70.8 |
|
|
$ |
65.1 |
|
|
$ |
5.7 |
|
|
|
8.8 |
% |
Revenues
of the V&M segment for the second quarter of 2008 totaled $366.9 million as
compared to $315.5 million in the second quarter of 2007, an increase of $51.4
million, or 16.3%. Over 30% of the increase is attributable to the
effects of a weaker U.S. dollar against certain other foreign currencies for the
same reasons as mentioned under “Consolidated Results – Revenues”
above. Increases in all product lines contributed to the remaining
revenue increase. Absent the effects of a weaker U.S. dollar, sales
of process valves, which accounted for over 40% of the remaining revenue
increase, were up 22% as a result of higher demand from domestic and
international customers for valves designed for refining, gas processing and
storage applications. Sales of engineered valves increased 7% due
largely to higher international pipeline construction project
activity. Sales of distributed products were up 8% based primarily on
the strength of demand in the U.S. market. Additionally, strong
demand in the U.S. market led to a 27% increase in measurement product sales in
the current year.
Income
before income taxes totaled $70.8 million for the second quarter of 2008, an
increase of $5.7 million, or 8.8%, compared to $65.1 million for the second
quarter of 2007. Cost of sales as a percent of revenues increased
from 64.0% in the second quarter of 2007 to 66.0% in the second quarter of
2008. The increase in the ratio was due primarily to (i) an increase
in indirect manufacturing and production costs, net of absorption, due largely
to higher headcount and activity levels needed to support the expansion of the
Company’s business, which had the effect of increasing the cost of sales to
revenue ratio by 1.3 percentage-points and (ii) higher costs in relation to
revenues in the distributed product line due largely to the impact of increased
material costs (approximately a 0.7 percentage-point increase).
Selling
and administrative expenses for the second quarter of 2008 were $46.1 million,
an increase of $5.2 million, or 12.7%, as compared to $40.9 million in the
second quarter of 2007. Excluding the effects of a weaker U.S. dollar
against certain other foreign currencies as described below, over 61% of the
increase was due to higher employee-related costs associated with increased
headcount, largely due to expansion of the segment’s international sales force,
and higher activity levels needed to support the expansion of the segment's
business, as well as the incremental cost impact of newly acquired
businesses. On a total segment basis, nearly 30% of the increase was
attributable to the effects of a weaker U.S. dollar for the same reasons as
mentioned under “Consolidated Results – Revenues” above.
Depreciation
and amortization increased $0.3 million from $7.5 million in the second quarter
of 2007 to $7.8 million in the second quarter of 2008. The increase
was due largely to higher depreciation associated with additional capital
spending for new machinery and equipment and higher depreciation of information
technology assets.
CS Segment
|
|
|
Quarter
Ended
June 30,
|
|
|
Increase
|
|
|
(dollars
in millions)
|
|
2008
|
|
|
2007
|
|
|
$
|
|
|
|
% |
|
|
Revenues
|
|
$ |
161.9 |
|
|
$ |
140.6 |
|
|
$ |
21.3 |
|
|
|
15.2 |
% |
|
Income
before income taxes
|
|
$ |
25.7 |
|
|
$ |
23.0 |
|
|
$ |
2.7 |
|
|
|
11.9 |
% |
CS
segment revenues for the three months ended June 30, 2008 totaled $161.9
million, an increase of $21.3 million, or 15.2%, from $140.6 million for the
three months ended June 30, 2007. Sales of reciprocating compression
equipment were up 14% in the second quarter of 2008, which accounted for over
40% of the total increase in the segment’s revenues, while sales of centrifugal
compression equipment accounted for the remaining increase, and were up 16% as
compared to the second quarter of 2007. Higher levels of shipments to
customers in the Far East and South America largely contributed to a 30%
increase in sales of Ajax units and a nearly 76% increase in sales of Superior
Compressors in the reciprocating compression product line. Over 60%
of the increase in centrifugal compression equipment sales was due to (i) a 20%
increase in shipments of plant air equipment due to strong demand across most
product lines, including improved acceptance of a new product line, and (ii) an
11% increase in demand for engineered units primarily for machines designed for
engineered air and gas applications. The remainder of the increase
was due to higher activity levels in the centrifugal aftermarket parts and
service business.
Income
before income taxes for the CS segment totaled $25.7 million for the second
quarter of 2008 compared to $23.0 million for the second quarter of 2007, an
increase of $2.7 million, or 11.9%. Cost of sales as a percent of
revenues was flat at 69.2% for both quarters.
Selling
and administrative expenses for the three months ended June 30, 2008 totaled
$20.4 million, an increase of $3.3 million, or 19.2%, from $17.1 million during
the comparable period of 2007. Over 80% of the increase was
attributable to higher employee-related costs due mainly to increased headcount
levels needed to support expansion of the segment’s business.
Depreciation
and amortization increased $0.4 million, from $3.3 million for the second
quarter of 2007 to $3.7 million for the second quarter of 2008. The
increase was primarily the result of higher levels of capital spending in recent
periods.
Corporate
Segment
The
Corporate segment’s loss before income taxes was $26.3 million in the second
quarter of 2008 as compared to $20.6 million in the second quarter of
2007.
For the
three months ended June 30, 2007, a gain of $1.5 million was recognized in the
Corporate segment relating to the changing value of the U.S. dollar in relation
to short-term intercompany loans the Company has with various foreign
subsidiaries that are denominated in currencies other than the U.S.
dollar. No similar size gain was recognized during the three months
ended June 30, 2008.
Selling
and administrative expenses for the second quarter of 2008 totaled $20.7
million, an increase of $1.1 million, or 5.4%, from $19.6 million during the
comparable period of 2007. The primary reasons for the increase were
additional salary and employee incentive costs due to higher headcount and
improved company performance.
Depreciation
and amortization expense totaled $3.6 million for the three months ended June
30, 2008 as compared to $2.6 million for the same period in 2007, an increase of
$1.0 million. The increase is due primarily to increased amortization
from higher capital spending on the Company’s enterprise-wide information
technology assets as well as additional amortization of certain other acquired
intangible assets.
Increases
in interest income and interest expense during the second quarter of 2008 as
compared to the same period in 2007 are discussed in “Consolidated Results”
above.
ORDERS
Orders
were as follows (dollars in millions):
|
|
|
Quarter
Ended
June 30,
|
|
|
Increase
|
|
|
|
|
2008
|
|
|
2007
|
|
|
$
|
|
|
|
%
|
|
|
DPS
|
|
$ |
1,165.9 |
|
|
$ |
828.6 |
|
|
$ |
337.3 |
|
|
|
40.7 |
% |
|
V&M
|
|
|
418.6 |
|
|
|
345.6 |
|
|
|
73.0 |
|
|
|
21.1 |
% |
|
CS
|
|
|
217.3 |
|
|
|
139.9 |
|
|
|
77.4 |
|
|
|
55.3 |
% |
|
|
|
$ |
1,801.8 |
|
|
$ |
1,314.1 |
|
|
$ |
487.7 |
|
|
|
37.1 |
% |
Orders
for the second quarter of 2008 increased $487.7 million, or 37.1%, from the
second quarter of 2007.
Orders in
the DPS segment for the second quarter of 2008 totaled $1.2 billion, an increase
of 40.7% from $828.6 million in the second quarter of 2007. Orders for drilling,
subsea and surface equipment were up 184%, 46%, and 14%, respectively. Drilling
equipment orders increased primarily as a result of two large awards for new
deepwater rig construction projects totaling nearly $150 million in the second
quarter of 2008. The increase in subsea equipment orders was due largely to new
awards for major projects offshore West Africa, Eastern Canada and
Brazil. Surface equipment orders increased in North America and the
Asia Pacific/Middle East region mainly as a result of higher activity levels
resulting from robust commodity prices. Orders for oil, gas and water
separation applications were down 63% in the second quarter of 2008 as compared
to the same period in 2007 primarily as a result of two large awards received in
the second quarter of 2007 that did not repeat in 2008.
The
V&M segment had orders of $418.6 million in the second quarter of 2008, an
increase of 21.1% from $345.6 million in the comparable period of 2007 as a
result of an increase in orders across all product lines in
2008. Distributed product orders were up 39% due to higher activity
levels resulting from robust commodity prices. Orders for engineered products
increased 17% due to a significant order received in the second quarter of 2008
relating to a new pipeline construction project in the Middle
East. Process orders were up 11% reflecting strong demand for valves
for use in aviation fuel and ethanol storage applications as well as gas
processing and refinery applications. Higher activity levels in the
United States and new service locations in the United States and in the Far East
led to an 14% increase in aftermarket orders. Additionally, stronger
activity levels in the United States also drove a 26% increase in demand for
measurement equipment during the second quarter of 2008 as compared to the
second quarter of 2007.
Orders in
the CS segment for the second quarter of 2008 totaled $217.3 million, an
increase of 55.3% from $139.9 million in the second quarter of 2007.
Reciprocating equipment orders were up 26% in the second quarter of 2008
compared to the second quarter of 2007 largely due to a 163% increase in Ajax
orders and an 89% increase in orders for Superior compressors mainly from
domestic packagers. Centrifugal equipment orders increased 82%
primarily as a result of (i) a 110% increase in awards largely from European
customers for equipment designed for air separation applications as well as
engineered air and gas compression units and (ii) a 79% increase in demand for
plant air equipment from Asia and European customers.
SIX
MONTHS ENDED JUNE 30, 2008 COMPARED TO SIX MONTHS ENDED JUNE 30,
2007
Consolidated Results
-
The
Company’s net income for the six months ended June 30, 2008 totaled $278.3
million, or $1.20 per diluted share, compared to $224.2 million, or $0.98 per
diluted share, in the six months ended June 30, 2007. Higher earnings
in each of the Company’s business segments driven by strong demand for the
Company’s products was the primary driver in the 22.4% increase in earnings per
share for the first six months of 2008 as compared to the same period last
year. Income before income taxes for the DPS, V&M and CS segments
is discussed in more detail below.
Revenues
Revenues
for the six months ended June 30, 2008 totaled $2.8 billion, an increase of
$683.8 million, or 32.0%, from $2.1 billion for the six months ended June 30,
2007. Approximately 76% of the increase was related to the DPS
segment, which was largely impacted by higher revenues in the segment’s drilling
and subsea product lines.
For the
first six months of 2008, over 55% of the Company’s revenue was reflected in
entities with functional currencies other than the U.S. dollar. As
described previously, in translating these entities’ functional currency income
statements to U.S. dollars for consolidation purposes, a decline in the value of
the U.S. dollar compared to the applicable functional currency will result in a
higher amount of U.S. dollar revenues and costs for the same amount of
functional currency revenues and costs. Accordingly, approximately 6%
of the consolidated increase in revenues for the first six months of 2008
compared to the first six months of 2007 was attributable to the net effects of
a weaker U.S. dollar against these other foreign currencies. A
further discussion of revenues by segment may be found below.
Costs
and Expenses
Cost of
sales (exclusive of depreciation and amortization) for the first six months of
2008 totaled $2.0 billion, an increase of $542.6 million, or 36.5%, from $1.5
billion in the first six months of 2007. Cost of sales as a percent
of revenues increased from 69.6% for the six months ended June 30, 2007 to 71.9%
for the six months ended June 30, 2008. The increase in the ratio of
cost of sales to revenues was attributable primarily to (i) a 2.2
percentage-point increase in the ratio on major subsea projects, as well as a
change in sales mix, primarily to more sales of drilling, subsea and other
project-related equipment in the DPS segment, which typically carry lower
margins as compared to the Company’s base businesses, and (ii) an increase in
the ratio of certain indirect production costs compared to revenues resulting
mainly from higher headcount levels and higher overhead costs associated with
the expansion of the Company’s business (approximately a 0.3 percentage-point
increase). These increases are partially offset by a decline in the
provision for obsolete inventory as strong activity levels in the current year
have resulted in consumption of previously slow-moving inventory (a 0.2
percentage-point decrease).
Selling
and administrative expenses for the six months ended June 30, 2008 were $319.2
million as compared to $269.3 million for the six months ended June 30, 2007, an
increase of $49.9 million, or 18.5%. As a percentage of revenues,
selling and administrative costs declined from 12.6% for the first six months of
2007 to 11.3% for the first six months of 2008. Excluding the effects
of a weaker U.S. dollar against certain other foreign currencies as described
below, nearly two-thirds of the increase was attributable to higher
employee-related costs associated with increased headcount and higher activity
levels needed to support the expansion of the Company’s
business. Additionally, a charge taken in the first six months of
2008 related to a dispute on an historical acquisition, additional third-party
consulting fees and higher litigation costs and additional non-cash stock
compensation expense added $12.7 million in incremental costs during the first
six months of 2008. On a consolidated basis, over 9% of the increase
for the first six months of 2008 compared to the same period in 2007 was
attributable to the effects of a weaker U.S. dollar against certain other
foreign currencies for the same reasons mentioned above.
Depreciation
and amortization expense for the first six months of 2008 was $63.2 million, an
increase of $10.2 million from $53.0 million for the first six months of
2007. Amortization expense increased $2.1 million, primarily related
to acquired intangibles from a recent acquisition. Depreciation
expense increased $8.1 million due largely to higher levels of capital spending
for machinery and equipment and the impact of the Company’s new subsea facility
in Malaysia, which opened during the second half of 2007.
Interest
income totaled $12.5 million for the six months ended June 30, 2008 compared to
$17.3 million for the six months ended June 30, 2007. The decrease is
primarily due to a decline in short-term interest rates from the first six
months of 2007 and a slightly lower level of invested cash balances during the
first six months of 2008 compared to the same period in
2007. Interest income for the first six months of 2008 also includes
$1.3 million associated with a refund received upon settlement by the Company of
an international tax contingency.
Interest
expense was $12.2 million for the first six months of 2008 compared to $12.8
million for the first six months of 2007, a decrease of $0.6
million. Interest expense was reduced by $1.0 million as certain tax
accruals, including the related interest, were adjusted to reflect the favorable
settlement reached by the Company of an international tax contingency as
mentioned above. Additionally, the first six months of 2008 were
favorably impacted by the absence of approximately $2.1 million of interest
recognized in the first six months of 2007 relating to $200.0 million of 2.65%
senior notes that were repaid in April 2007. These amounts were
partially offset by (i) $2.4 million of additional expense on international
obligations, primarily borrowings in the United Kingdom under the Company’s
revolving credit agreement, and (ii) $0.6 million associated with the Company’s
$750.0 million long-term debt offering in June 2008.
The
income tax provision for the six months ended June 30, 2008 was $131.0 million
compared to $108.0 million for the six months ended June 30,
2007. The effective tax rates during the first six months of 2008 and
2007 were 32.0% and 32.5%, respectively. The effective tax rate for
the first six months of 2007 reflected the effect of a reduction in income tax
expense of $6.5 million due to a decrease in valuation allowances that had
previously been established for deferred tax assets. The reduction in
the Company’s valuation allowances was based on changes in facts which occurred
during that period resulting in the removal of the uncertainty surrounding the
future utilization of certain international income tax
deductions. Excluding the impact of this reduction, the effective tax
rate for the first six months of 2008 has declined from the first six months of
2007 primarily as the result of an increase in the amount of estimated full-year
income in lower tax rate jurisdictions in 2008 as compared to 2007.
Segment Results
-
DPS
Segment
|
|
|
Six
Months Ended
June 30,
|
|
|
Increase
|
|
|
(dollars
in millions)
|
|
2008
|
|
|
2007
|
|
|
$
|
|
|
|
%
|
|
|
Revenues
|
|
$ |
1,816.6 |
|
|
$ |
1,296.6 |
|
|
$ |
520.0 |
|
|
|
40.1 |
% |
|
Income
before income taxes
|
|
$ |
282.2 |
|
|
$ |
212.7 |
|
|
$ |
69.5 |
|
|
|
32.6 |
% |
DPS
segment revenues for the six months ended June 30, 2008 totaled $1.8 billion, an
increase of $520.0 million, or 40.1%, from $1.3 billion for the six months ended
June 30, 2007. A 50% increase in subsea equipment sales and a 52%
increase in drilling equipment sales accounted for over 70% of the increase in
the segment’s total revenues year over year. The increase in subsea
equipment sales was almost entirely due to increased shipments for major
projects offshore West Africa, Egypt, Eastern Canada, Western Australia and the
Gulf of Mexico. Nearly two-thirds of the increase in drilling
equipment sales was due to shipments associated with major deepwater rig
construction projects with the remaining increase largely due to higher
shipments of blowout preventers (BOPs) for land and jack-up
rigs. Surface equipment sales increased 18% largely due to higher
activity levels resulting from robust commodity prices which drove increases in
the Asia Pacific/Middle Eastern region, Eastern Europe and the United
States. These increases were partially offset by lower shipments to
customers in Latin America. Revenues associated with oil, gas and
water separation applications increased 68% in the first six months of 2008
compared to the first six months of 2007 as various large projects awarded in
the second half of 2007 were nearing completion as of June 30,
2008.
Income
before income taxes totaled $282.2 million for the six months ended June 30,
2008 compared to $212.7 million for the six months ended June 30, 2007, an
increase of $69.5 million, or 32.6%. Cost of sales as a percent of
revenues increased from 72.0% in the first six months of 2007 to 74.5% for the
first six months of 2008. The increase in the ratio of cost of sales
to revenues was due primarily to (i) a 3.0 percentage-point increase in the
ratio on major subsea projects, as well as a mix shift to a higher percentage of
drilling and subsea project revenues, which typically carry lower margins as
compared to the segment’s base businesses, and (ii) increased costs in the
drilling product line, primarily associated with certain lower-margin
aftermarket services provided (approximately a 0.3 percentage-point
increase). These increases were partially offset by (i)
improved margins in the surface product line due to better aftermarket service
personnel utilization and increased parts sales (approximately a 0.2
percentage-point decrease) and (ii) the application of relatively fixed
manufacturing overhead to a larger revenue base (approximately a 0.4
percentage-point decrease).
Selling
and administrative expenses for the first six months of 2008 totaled $147.1
million, an increase of $23.5 million, or 19.0%, from $123.6 million during the
comparable period of 2007. Over 50% of the increase was attributable
to higher employee-related costs due mainly to increased headcount levels with
the remainder due largely to higher facility and other support costs related to
expansion of the segment’s business.
Depreciation
and amortization increased $6.9 million, from $27.0 million for the first six
months of 2007 to $33.9 million for the first six months of 2008. The
increase was primarily the result of higher amortization of recently acquired
intangible assets as well as higher depreciation expense associated with
increased levels of capital spending in recent periods for new machinery and
equipment and a new subsea facility in Malaysia, which opened in the second half
of 2007.
V&M
Segment
|
|
|
Six
Months Ended
June 30,
|
|
|
Increase
|
|
|
(dollars
in millions)
|
|
2008
|
|
|
2007
|
|
|
$
|
|
|
|
|
|
|
Revenues
|
|
$ |
711.4 |
|
|
$ |
611.4 |
|
|
$ |
100.0 |
|
|
|
16.4 |
% |
|
Income
before income taxes
|
|
$ |
137.1 |
|
|
$ |
126.9 |
|
|
$ |
10.2 |
|
|
|
8.0 |
% |
Revenues
of the V&M segment for the six months ended June 30, 2008 totaled $711.4
million as compared to $611.4 million for the six months ended June 30, 2007, an
increase of $100.0 million, or 16.4%. Nearly one-third of the
increase was attributable to the effects of a weaker U.S. dollar against certain
other foreign currencies for the same reasons as mentioned under “Consolidated
Results – Revenues” above. Increases in all product lines contributed
to the remaining revenue increase. Absent the effects of a weaker
U.S. dollar, sales of engineered valves, which accounted for almost one-half of
the remaining revenue increase, were up 19% compared to last year due to higher
international pipeline construction project activity. Sales of
distributed products increased 7% and aftermarket sales were up 15% based
primarily on the strength of demand in the U.S. market. Process valve
shipments increased 12% due to greater demand for valves both domestically and
internationally to be used in refining, gas processing and storage
applications. Measurement product sales were up 26% in the first six
months of 2008 compared to the first six months of 2007 due to higher demand for
equipment to be used in nuclear applications, higher U.S. market activity and
the impact of newly acquired product offerings.
Income
before income taxes totaled $137.1 million for the first six months of 2008, an
increase of $10.2 million, or 8.0%, compared to $126.9 million for the first six
months of 2007. Cost of sales as a percent of revenues increased from
64.3% in the first half of 2007 to 66.1% in the first half of
2008. The increase in the ratio was due primarily to a 1.8
percentage-point increase in the ratio of certain indirect production costs
compared to revenues resulting mainly from higher headcount levels and higher
overhead costs associated with the expansion of the segment’s
business.
Selling
and administrative expenses for the six months ended June 30, 2008 were $88.2
million, an increase of $11.6 million, or 15.1%, as compared to $76.6 million
for the six months ended June 30, 2007. Excluding the effects of a
weaker U.S. dollar against certain other foreign currencies as described below,
nearly 63% of the increase in selling and administrative expenses was due to
higher employee-related costs, largely as a result of higher employment levels
and the incremental cost impact of newly acquired entities. Over
one-fourth of the remaining increase was attributable to the effects of a weaker
U.S. dollar for the same reasons mentioned under “Consolidated Results –
Revenues” above.
Depreciation
and amortization increased $0.8 million from $14.8 million in the first half of
2007 to $15.6 million in the first half of 2008. The increase was due
largely to increased capital spending levels for new machinery and equipment in
recent periods and higher allocated depreciation for Company-wide information
technology assets.
CS
Segment
|
|
|
Six
Months Ended
June 30,
|
|
|
Increase
|
|
|
(dollars
in millions)
|
|
2008
|
|
|
2007
|
|
|
$
|
|
|
|
%
|
|
|
Revenues
|
|
$ |
291.8 |
|
|
$ |
228.1 |
|
|
$ |
63.7 |
|
|
|
28.0 |
% |
|
Income
before income taxes
|
|
$ |
44.4 |
|
|
$ |
30.3 |
|
|
$ |
14.1 |
|
|
|
46.7 |
% |
CS
segment revenues for the six months ended June 30, 2008 totaled $291.8 million,
an increase of $63.7 million, or 28.0%, from $228.1 million for the six months
ended June 30, 2007. Sales of reciprocating compression equipment
were up 19% in the first six months of 2008, which accounted for over one-third
of the total increase in the segment’s revenues, while sales of centrifugal
compression equipment accounted for the remaining increase, and were up 39% as
compared to the first six months of 2007. Higher levels of shipments
to customers in the U.S., the Far East and South America largely contributed to
a 38% increase in sales of Ajax units and a nearly 70% increase in sales of
Superior compressors in the reciprocating compression product
line. Nearly 60% of the increase in centrifugal compression equipment
sales was due to a 42% increase in demand for engineered units across all custom
product lines, including machines designed for engineered air, gas and air
separation applications. Strong order levels during the latter part
of 2007 and the first quarter of 2008 also contributed to 36% increase in
shipments of plant air equipment during the first six months of 2008 as compared
to the same period in 2007.
Income
before income taxes for the CS segment totaled $44.4 million for the six months
ended June 30, 2008 compared to $30.3 million for the six months ended June 30,
2007, an increase of $14.1 million, or 46.7%. Cost of sales as a
percent of revenues declined from 69.9% in the first six months of 2007 to 69.3%
for the first six months of 2008. The improvement in the ratio was
due primarily to a decline in the provision for obsolete inventory as strong
activity levels in the current year have resulted in consumption of previously
slow-moving inventory (a 0.6 percentage-point decrease).
Selling
and administrative expenses for the first six months of 2008 totaled $37.9
million, an increase of $6.1 million, or 19.2%, from $31.8 million during the
comparable period of 2007. Over 90% of the increase was attributable
to higher employee-related costs due mainly to increased headcount levels needed
to support expansion of the segment’s business.
Depreciation
and amortization increased $0.7 million, from $6.6 million for the first six
months of 2007 to $7.3 million for the first six months of 2008. The
increase was primarily the result of higher levels of capital spending in recent
periods.
Corporate
Segment
The
Corporate segment’s loss before income taxes was $54.4 million in the first six
months of 2008 as compared to $37.7 million in the first six months of
2007.
Included
in the Corporate segment’s results for the six months ended June 30, 2008 as
compared to the six months ended June 30, 2007 was an increased loss of $2.5
million relating to the changing value of the U.S. dollar in relation to
short-term intercompany loans the Company has with various foreign subsidiaries
that are denominated in currencies other than the U.S. dollar.
Selling
and administrative expenses for the first six months of 2008 totaled $45.9
million, an increase of $8.6 million, or 23.2%, from $37.3 million during the
comparable period of 2007. The primary reasons for the increase were
(i) a $3.6 million charge in the first six months of 2008 related to a dispute
on an historical acquisition, (ii) $3.3 million of additional salary and
employee incentive costs due to higher headcount levels and improved company
performance and (iii) $1.8 million of additional non-cash stock compensation
expense. Additionally, during the first six months of 2008, the
Company recorded a $5.8 million reduction in expense relating to one of its
non-U.S. defined benefit pension plans. A similar reduction in
expense was recorded in the first six months of 2007 relating to another of the
Company’s non-U.S. defined benefit pension plans.
Depreciation
and amortization expense totaled $6.4 million for the six months ended June 30,
2008 as compared to $4.6 million for the same period in 2007, an increase of
$1.8 million. The increase is due primarily to increased amortization
from higher capital spending on the Company’s enterprise-wide information
technology assets as well as additional amortization of certain other acquired
intangible assets.
The
decreases in interest income and interest expense during the first six months of
2008 as compared to the same period in 2007 are discussed in “Consolidated
Results” above.
ORDERS
& BACKLOG
Orders
were as follows (dollars in millions):
|
|
|
Six
Months Ended
June 30,
|
|
|
Increase
|
|
|
|
|
2008
|
|
|
2007
|
|
|
$
|
|
|
|
%
|
|
|
DPS
|
|
$ |
2,565.6 |
|
|
$ |
1,558.1 |
|
|
$ |
1,007.5 |
|
|
|
64.7 |
% |
|
V&M
|
|
|
785.1 |
|
|
|
700.3 |
|
|
|
84.8 |
|
|
|
12.1 |
% |
|
CS
|
|
|
405.6 |
|
|
|
307.0 |
|
|
|
98.6 |
|
|
|
32.1 |
% |
|
|
|
$ |
3,756.3 |
|
|
$ |
2,565.4 |
|
|
$ |
1,190.9 |
|
|
|
46.4 |
% |
Orders for the first six
months of 2008 were up $1.2 billion, or 46.4%, from $2.6 billion for the first
six months of 2007 to $3.8 billion for the six months ended June 30,
2008.
DPS segment orders for
the first six months of 2008 totaled $2.6 billion, up 64.7% from $1.6 billion
for the first six months of 2007. Subsea equipment orders increased 165% due
primarily to a $673 million award from Total SA for the Usan project
offshore West Africa, as well as awards received for certain other large
projects offshore Brazil and Eastern Canada during the first half of 2008.
Drilling equipment orders were up 66% during the first half of 2008 as compared
to the same period in 2007 due to various large awards received for new
deepwater rig construction projects. Surface equipment orders
increased 10% due largely to higher commodity prices and activity levels in
North America and the Asia Pacific region. Orders for oil, gas and water
separation applications were down 48% in the first half of 2008 as compared to
the same period in 2007 primarily due to certain large awards received in the
first six months of 2007 that did not repeat in 2008.
The V&M segment had
orders of $785.1 million in the first half of 2008, an increase of $84.8
million, or 12.1%, from $700.3 million in the comparable period of 2007. Orders
for distributed products and aftermarket parts and services were up 30% and 25%,
respectively, due mainly to higher activity levels in North America. Process
valve orders increased 18% due to strong demand for equipment designed for gas
processing, storage and refinery applications. Strength in the U.S. market and
demand from nuclear customers led to a 25% increase in orders for measurement
equipment during the first half of 2008. Finally, orders for engineered valves
were mostly flat in the first half of 2008 as compared to the same period in
2007.
Orders in the CS segment
for the first half of 2008 totaled $405.6 million, up $98.6 million, or 32.1%,
from $307.0 million in the first six months of 2007. Reciprocating orders were
up 11% for the six months ended June 30, 2008 compared to the six months ended
June 30, 2007 due primarily to (i) a 53% increase in orders for Superior
compressors from customers in the United States, South America and the Far East,
largely reflecting the impact of higher activity levels resulting from robust
natural gas prices in the current year, and (ii) a 41% increase in demand for
Ajax units mainly from customers in the Far East. Centrifugal orders
increased 52% in the first half of 2008 as compared to the same period in 2007
due to (i) a 63% increase in demand for machines designed to meet customers’ air
separation, engineered air and gas compression needs and (ii) a 35% increase in
demand for plant air equipment mainly from customers in North America, Europe
and Asia.
Backlog was as follows (dollars
in millions):
|
|
|
June
30,
2008
|
|
|
December 31,
2007
|
|
|
Increase
|
|
|
DPS
|
|
$ |
3,960.9 |
|
|
$ |
3,203.0 |
|
|
$ |
757.9 |
|
|
V&M
|
|
|
768.5 |
|
|
|
685.2 |
|
|
|
83.3 |
|
|
CS
|
|
|
488.1 |
|
|
|
380.1 |
|
|
|
108.0 |
|
|
|
|
$ |
5,217.5 |
|
|
$ |
4,268.3 |
|
|
$ |
949.2 |
|
Liquidity
and Capital Resources
The Company’s cash and
cash equivalents increased by $794.2 million to $1.5 billion at June 30, 2008 as
compared to $739.9 million at December 31, 2007. The main reasons for the
increase were positive cash flow from operations of $249.4 million, net proceeds
after issuance costs of approximately $742.4 million received from the Company’s
issuance of senior notes in June 2008 (see Note 7 of the Notes to the
Consolidated Condensed Financial Statements for additional information) and
borrowings primarily under the Company’s multicurrency revolving line of
credit totaling approximately $80.3 million. These cash inflows more
than offset cash outflows from (i) the purchase of treasury stock at a cash
cost of $154.5 million, (ii) the acquisition of certain assets and
liabilities of three businesses during the first six months of 2008 totaling
$57.5 million and (iii) capital expenditures of $96.0 million.
During the first six
months of 2008, the Company generated $249.4 million of cash from operations as
compared to $54.3 million for the same period in 2007. The primary reasons for
the increase were the higher level of earnings in 2008 and a moderation in
the increase in working capital during the first half of 2008 as compared to the
first half of 2007. Net income for the first six months of 2008 totaled
$278.3 million, an increase of $54.1 million from the comparable period in
2007. Cash totaling approximately $110.6 million was utilized in the first
half of 2008 to increase working capital, compared to $248.9 million utilized
during the same period in 2007. The increase in working capital in
the first half of 2008 primarily reflected higher levels of receivables due to
strong revenue growth and an increase in inventory levels and accounts payable
and accrued liabilities as a result of higher backlog and
orders. Backlog increased approximately $949.2 million, or 22.2%,
from December 31, 2007 and orders increased approximately $1.2 billion, or
46.4%, during the six months ended June 20, 2008 as compared to the same period
in 2007. An increased investment in inventory, higher receivables and
higher income tax payments, partially offset by higher accounts payable and
accrued liabilities, accounted for a majority of the cash utilized to increase
working capital during the first half of 2007.
The Company utilized
$152.6 million of cash for investing activities during the first six months of
2008 as compared to $180.0 million during the same period in 2007. Approximately
$96.0 million of cash was spent for capital expenditures in the first six months
of 2008 compared to $108.0 million in the first six months of
2007. Additionally, $57.5 million of cash was utilized in the first
half of 2008 in connection with the acquisition of certain assets and
liabilities of three businesses (see Note 2 of the Notes to the Consolidated
Condensed Financial Statements for additional information).
During the first six
months of 2008, the Company’s financing activities generated $689.5 million of
cash compared to $445.2 million of cash utilized during the first six months of
2007. During June 2008, the Company received net proceeds after issuance
costs totaling approximately $742.4 million from issuance of senior notes
with maturities of 10 and 30 years. Short-term borrowings of $80.3
million were also made during the six months ended June 30, 2008, most of
which was drawn under the Company’s $585.0 million multicurrency revolving
credit facility by the Company’s operations in the United Kingdom for working
capital purposes. Additionally, the Company spent $154.5 million of cash in the
first six months of 2008 to acquire treasury stock as compared to $277.4 million
spent in the first six months of 2007. Also, during the first six
months of 2007, the Company repaid $200.0 million of 2.65% senior notes upon
maturity in April 2007.
The Company expects to
spend an estimated $270.0 million for capital equipment and facilities during
2008 in connection with its program of improving manufacturing efficiency and
expanding capacity. The Company currently has underway a $63.5
million expansion of its manufacturing operations in Romania to increase the
Company’s capacity for high-pressure, high-specification wellheads and trees for
the surface equipment markets, particularly in Europe, Africa, Russia and the
Mediterranean and Caspian Seas. The majority of expenditures for this
new facility will occur in 2008. Cash on hand and future expected
operating cash flows will be utilized to fund the remainder of the Company’s
2008 capital spending program.
On a longer-term basis,
the Company issued $450.0 million of 6.375% 10-year Senior Notes and $300.0
million of 7.0% 30-year Senior Notes in June 2008. The Company also has
outstanding $238.0 million of 1.5% convertible debentures in addition to $500.0
million of 2.5% convertible debentures. Holders of the 1.5% convertible
debentures could require the Company to redeem them beginning in
May 2009. Holders of the Company’s 2.5% convertible debentures
could also require the Company to redeem them beginning in
June 2011.
As
described more fully in Note 14 of the Notes to the Consolidated Condensed
Financial Statements, the Company notified the holders of its 1.5% and 2.5%
convertible debentures of their rights under the terms of the debentures to
request conversion of those debentures during the third quarter of
2008. As of July 23, 2008, holders of $58.8 million face value of the
1.5% convertible debentures notified the Company of their intent to exercise
their conversion rights. Accordingly, the Company anticipates
repaying 100% of the principal of the debentures to be converted, including
accrued but unpaid interest, utilizing available cash on hand during the third
quarter of 2008. Additionally, during the third quarter of 2008, the
conversion value of the debentures in excess of the principal value will be
satisfied through the issuance of additional shares of the Company’s common
stock, currently estimated to be approximately 2.3
million shares. The final amounts ultimately to be recognized
during the third quarter of 2008 will be based on the actual amount of
debentures submitted for conversion during that time period. The
Company believes, based on its current financial condition, existing backlog
levels and current expectations for future market conditions, that it will be
able to meet its short- and longer-term liquidity needs with existing cash
balances on hand, cash generated from future operating activities and amounts
available under its $585.0 million five-year multicurrency revolving credit
facility, expiring April 14, 2013.
It is
expected that the Company will finalize the settlement of its remaining
obligations under its U.S. defined benefit pension plans during the fourth
quarter of 2008. Following settlement, the Company currently
anticipates that approximately $3.0 million of pension assets will
remain. These assets will be used by the Company to fund its future
matching obligations under its remaining U.S. defined contribution
plans. A final pre-tax settlement charge of $31.0 million is
currently expected in the fourth quarter of 2008 as payments are made to
beneficiaries under the defined benefit pension plans. These
estimates are based on current expectations of future market and interest rate
conditions and are subject to change until the time the final settlement
occurs.
Factors
That May Affect Financial Condition and Future Results
The
inability of the Company to deliver its backlog on time could affect the
Company’s future sales and profitability and its relationships with its
customers.
At June
30, 2008, the Company’s backlog was $5.2 billion, a record level for the
Company. The ability to meet customer delivery schedules for this backlog is
dependent on a number of factors including, but not limited to, access to the
raw materials required for production, an adequately trained and capable
workforce, project engineering expertise for certain large projects, sufficient
manufacturing plant capacity and appropriate planning and scheduling of
manufacturing resources. Many of the contracts the Company enters into with its
customers require long manufacturing lead times and contain penalty or incentive
clauses relating to on-time delivery. A failure by the Company to deliver in
accordance with customer expectations could subject the Company to financial
penalties or loss of financial incentives and may result in damage to existing
customer relationships. Additionally, the Company bases its earnings guidance to
the financial markets on expectations regarding the timing of delivery of
product currently in backlog. Failure to deliver backlog in accordance with
expectations could negatively impact the Company’s financial performance and
thus cause adverse changes in the market price of the Company’s outstanding
common stock and other publicly-traded financial instruments.
The
Company has embarked on a significant capital expansion program.
The
Company’s capital expenditures totaled $96.0 million for the six months ended
June 30, 2008. For 2008, the Company expects full-year capital
expenditures of approximately $270.0 million to continue its program of
upgrading its machine tools, manufacturing technologies, processes and
facilities in order to improve its efficiency and address current and expected
market demand for the Company’s products. To the extent this program causes
disruptions in the Company’s plants, or the needed machine tools or facilities
are not delivered and installed or in use as currently expected, the Company’s
ability to deliver existing or future backlog may be negatively impacted. In
addition, if the program does not result in the expected efficiencies, future
profitability may be negatively impacted.
Execution
of subsea systems projects exposes the Company to risks not present in its
surface business.
This
market is significantly different from the Company’s other markets since subsea
systems projects are significantly larger in scope and complexity, in terms of
both technical and logistical requirements. Subsea projects (i) typically
involve long lead times, (ii) typically are larger in financial scope,
(iii) typically require substantial engineering resources to meet the
technical requirements of the project, (iv) often involve the application
of existing technology to new environments and in some cases, new technology,
and (v) may require manufacturing and other activities in underdeveloped parts
of the world. These projects accounted for approximately 12.3% of total revenues
for the six months ended June 30, 2008. 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 June 30, 2008, the Company had a subsea systems project backlog of
approximately $1.6 billion.
Increases
in the cost of and the availability of metals used in the Company’s
manufacturing processes could negatively impact the Company’s
profitability.
Commodity
prices for items such as nickel, molybdenum and heavy metal scrap that are used
to make the steel alloys required for the Company’s products continue to
increase. Certain of the Company’s suppliers have passed these increases on to
the Company. The Company has implemented price increases intended to offset the
impact of the increase in commodity prices. However, if customers do not accept
these price increases, future profitability will be negatively impacted. In
addition, the Company’s vendors have informed the Company that lead times for
certain raw materials are being extended. To the extent such change negatively
impacts the Company’s ability to meet delivery requirements of its customers,
the financial performance of the Company may suffer.
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,
depends 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, or could result in the
cancellation, modification or rescheduling of existing orders. The
Company is typically protected against financial losses related to products and
services it has provided prior to any cancellation. However, if the
Company’s customers cancel existing purchase orders, future profitability could
be negatively impacted. Factors that contribute to the volatility of
oil and gas prices include the following:
|
·
|
demand
for oil and gas, which is impacted by economic and political conditions
and weather;
|
|
·
|
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;
|
|
·
|
policies
regarding exploration and development of oil and gas
reserves;
|
|
·
|
the
political environments of oil and gas producing regions, including the
Middle East;
|
|
·
|
the
depletion rates of gas wells in North America;
and
|
|
·
|
advances
in exploration and development
technology.
|
Fluctuations
in worldwide currency markets can impact the Company’s
profitability.
The
Company has established multiple “Centers of Excellence” facilities for
manufacturing such products as subsea trees, subsea chokes, subsea production
controls and BOPs. These production facilities are located in the United
Kingdom, Brazil and other European and Asian countries. To the extent the
Company sells these products in U.S. dollars, the Company’s profitability is
eroded when the U.S. dollar weakens against the British pound, the euro, the
Brazilian real and certain Asian currencies, including the Singapore
dollar.
The
Company’s worldwide operations expose it to instability and changes in economic
and political conditions, foreign currency fluctuations, trade and investment
regulations and other risks inherent to international business.
The
economic risks of doing business on a worldwide basis 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;
|
|
·
|
reductions
in the number or capacity of qualified personnel;
and
|
Cameron
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, Russia and other countries that were part of the
Former Soviet Union, the Middle East, and Central and South East Asia. The
Company also purchases a large portion of its raw materials and components from
a relatively small number of foreign suppliers in developing countries. 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 trade regulations that expose the Company to potential
liability.
Doing
business on a worldwide basis also puts the Company and its operations at risk
due to political risks and the need for compliance with the laws and regulations
of many jurisdictions. These laws and regulations impose a range of restrictions
and/or duties on importation and exportation, operations, trade practices, trade
partners and investment decisions. The Company has received certain
inquiries regarding its compliance with such laws and regulations from U.S.
federal agencies.
The
Company does business and has operations in a number of developing countries
that have relatively under-developed legal and regulatory systems when compared
to more developed countries. Several of these countries are generally
perceived as presenting a higher than normal risk of corruption, or a culture
where requests for improper payments are not discouraged. Maintaining
and administering an effective U.S. Foreign Corrupt Practices Act (FCPA)
compliance program in these environments presents greater challenges to the
Company than is the case in other, more developed countries. With
respect to FCPA compliance, the Company received a voluntary request for
information in September 2005 from the U.S. Securities and Exchange
Commission (SEC) regarding certain of the Company’s West African activities and
responded to this request.
As
discussed in Note 12 of the Notes to the Consolidated Condensed Financial
Statements, in July 2007, the Company was one of a number of companies to
receive a letter from the Criminal Division of the U.S. Department of Justice
(DOJ) requesting information on its use of a customs clearance broker. The DOJ
is inquiring into whether certain of the services provided to the Company by the
customs clearance broker may have involved violations of the U.S. Foreign
Corrupt Practices Act (FCPA). The Company is conducting an internal
investigation in response, as discussed below, and is providing the requested
information to the DOJ.
The
Company engaged special counsel reporting to the Audit Committee of the Board of
Directors to conduct an investigation into its dealings with the customs
clearance broker in Nigeria and Angola to determine if any payment made to or by
the customs clearance broker on the Company’s behalf constituted a violation of
the FCPA. The investigation is also looking into activities of Company employees
and agents with respect to immigration matters and importation permitting in
Nigeria. To date, the special counsel has found that the Company utilized
certain services in Nigeria offered by the customs clearance broker that appear
to be similar to services that have been under review by the DOJ. Similar issues
do not appear to be present in Angola. Special counsel is reviewing
these and other services and activities to determine whether they were conducted
in compliance with all applicable laws and regulations. Special counsel is also
reviewing the extent, if any, of the Company’s knowledge and involvement in the
performance of these services and activities, and whether the Company fulfilled
its obligations under the FCPA.
In
addition, the U.S. Securities and Exchange Commission (SEC) is conducting an
informal inquiry into the same matters currently under review by the DOJ. As
part of this inquiry the SEC has requested that the Company provide to them the
information and documents that have been requested by and are being provided to
the DOJ. The Company is cooperating fully with the SEC, as it is doing with the
DOJ, and is providing the requested materials. Both agencies have requested an
extension of the statute of limitations with respect to matters under review
until January 2009. At this stage of the
internal investigation, the Company cannot predict the ultimate outcome of
either the internal investigation or the government inquiries. The Company has
also undertaken an enhanced compliance training effort for its personnel,
including foreign operations personnel dealing with customs clearance
regulations.
Compliance
with U.S. trade sanctions and embargoes also pose a risk to the Company since it
deals with its business on a worldwide basis through various incorporated and
unincorporated entities. The U.S. Department of Treasury’s Office of
Foreign Assets Control made an inquiry regarding U.S. involvement in a United
Kingdom subsidiary’s commercial and financial activity relating to Iran in
September 2004 and the U.S. Department of Commerce made an inquiry
regarding sales by another United Kingdom subsidiary to Iran in
February 2005. The Company responded to these two inquiries and
has not received any additional requests related to these
matters. The Company’s policy is to not do business with, and has
restricted its non-U.S. subsidiaries and persons from doing business with,
countries with respect to which the United States has imposed sanctions, which
include Iran, Syria, Sudan, North Korea and Cuba.
In
January 2007, the Company underwent a Pre-Assessment Survey as part of a
Focused Assessment initiated by the Regulatory Audit Division of the U.S.
Customs and Border Protection, Department of Homeland Security. The
Pre-Assessment Survey resulted in a finding that the Company had deficiencies in
its U.S. Customs compliance processes. The Company is taking
corrective action and will undergo Assessment Compliance Testing in the second
half of 2008.
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.
Item
3. Quantitative and Qualitative Disclosures about Market Risk
The
Company is currently exposed to market risk from changes in foreign currency
rates and changes in interest rates. A discussion of the Company’s
market risk exposure in financial instruments follows.
Foreign
Currency Exchange Rates
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 in these markets. Overall, for those locations where
the Company is a net receiver of local non-U.S. dollar currencies, Cameron
generally benefits from a weaker U.S. dollar with respect to those
currencies. Alternatively, for those locations where the Company is a
net payer of local non-U.S. dollar currencies, a weaker U.S. dollar with respect
to those currencies will generally have an adverse impact on the Company’s
financial results. The impact on the Company’s financial results of
gains or losses arising from foreign currency-denominated transactions, if
material, have been described in Part I, Item 2, Management’s Discussion
and Analysis of Financial Condition and Results of Operations for the periods
covered by this report.
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
instances, the Company will enter into foreign currency forward contracts to
hedge specific large anticipated receipts or payments in currencies for which
the Company does not traditionally have fully offsetting local currency
expenditures or receipts. The Company was party to a number of
long-term foreign currency forward contracts at June 30, 2008. The
purpose of the majority of these contracts was to hedge large anticipated
non-functional currency cash flows on major subsea, drilling or valve contracts
involving the Company’s United States operations and its wholly-owned
subsidiaries in Brazil, Ireland, Italy, Romania, Singapore and the United
Kingdom. Information relating to the contracts, which have been
accounted for as cash flow hedges under Statement of Financial Accounting
Standards No. 133, Accounting for Derivative Instruments and Hedging Activities,
and the fair values recorded in the Company’s Consolidated Balance Sheets at
June 30, 2008 follows:
|
|
|
Year of Contract Expiration
|
|
|
(amounts in millions except exchange rates)
|
|
2008
|
|
2009
|
|
2010
|
|
2011
|
|
Total
|
|
|
Sell
USD/Buy GBP:
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional
amount to sell (in U.S. dollars)
|
|
$
|
89.1
|
|
$
|
116.0
|
|
$
|
37.8
|
|
$
|
2.3
|
|
$
|
245.2
|
|
|
Average
USD to GBP contract rate
|
|
1.9498
|
|
1.9238
|
|
1.8932
|
|
1.8721
|
|
1.9278
|
|
|
Average
USD to GBP forward rate at June 30, 2008
|
|
1.9776
|
|
1.9451
|
|
1.9064
|
|
1.8840
|
|
1.9501
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
value at June 30, 2008 in U.S. dollars
|
|
|
|
|
|
|
|
|
|
$
|
2.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sell
USD/Buy BRL:
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional
amount to sell (in U.S. dollars)
|
|
13.2
|
|
19.1
|
|
—
|
|
—
|
|
32.3
|
|
|
Average
BRL to USD contract rate
|
|
1.8501
|
|
1.9408
|
|
—
|
|
—
|
|
1.9038
|
|
|
Average
BRL to USD forward rate at June 30, 2008
|
|
1.6401
|
|
1.7500
|
|
—
|
|
—
|
|
1.7051
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
value at June 30, 2008 in U.S. dollars
|
|
|
|
|
|
|
|
|
|
$
|
1.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sell
RON/Buy USD:
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional
amount to sell (in RON)
|
|
38.2
|
|
9.5
|
|
—
|
|
—
|
|
47.7
|
|
|
Average
USD to RON contract rate
|
|
0.4213
|
|
0.4000
|
|
—
|
|
—
|
|
0.4170
|
|
|
Average
USD to RON forward rate at June 30, 2008
|
|
0.4268
|
|
0.4133
|
|
—
|
|
—
|
|
0.4241
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
value at June 30, 2008 in U.S. dollars
|
|
|
|
|
|
|
|
|
|
$
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Buy
Euro/Sell USD:
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional
amount to buy (in euros)
|
|
71.5
|
|
60.5
|
|
12.8
|
|
—
|
|
144.8
|
|
|
Average
USD to EUR contract rate
|
|
1.5194
|
|
1.5162
|
|
1.5248
|
|
—
|
|
1.5185
|
|
|
Average
USD to EUR forward rate at June 30, 2008
|
|
1.5684
|
|
1.5504
|
|
1.5330
|
|
—
|
|
1.5578
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
value at June 30, 2008 in U.S. dollars
|
|
|
|
|
|
|
|
|
|
$
|
5.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Buy
Euro/Sell GBP:
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional
amount to buy (in euros)
|
|
18.9
|
|
40.7
|
|
8.1
|
|
0.7
|
|
68.4
|
|
|
Average
EUR to GBP contract rate
|
|
1.2595
|
|
1.3359
|
|
1.2417
|
|
1.2316
|
|
1.3012
|
|
|
Average
EUR to GBP forward rate at June 30, 2008
|
|
1.2608
|
|
1.2552
|
|
1.2430
|
|
1.2342
|
|
1.2550
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
value at June 30, 2008 in U.S. dollars
|
|
|
|
|
|
|
|
|
|
$
|
(0.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Buy
NOK/Sell GBP:
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional
amount to buy (in Norwegian krone)
|
|
23.1
|
|
23.1
|
|
—
|
|
—
|
|
46.2
|
|
|
Average
NOK to GBP contract rate
|
|
10.2333
|
|
10.2786
|
|
—
|
|
—
|
|
10.2559
|
|
|
Average
NOK to GBP forward rate at June 30, 2008
|
|
10.1625
|
|
10.1994
|
|
—
|
|
—
|
|
10.1809
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
value at June 30, 2008 in U.S. dollars
|
|
|
|
|
|
|
|
|
|
$
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
Rates
The
Company is subject to interest rate risk on its long-term fixed interest rate
debt and, to a lesser extent, variable-interest rate
borrowings. Variable-rate debt, where the interest rate fluctuates
periodically, exposes the Company’s cash flows to variability due to changes in
market interest rates. Fixed-rate debt, where the interest rate is
fixed over the life of the instrument, exposes the Company to changes in the
fair value of its debt due to changes in market interest rates and to the risk
that the Company may need to refinance maturing debt with new debt at a higher
rate.
The
Company manages its debt portfolio to achieve an overall desired position of
fixed and floating rates and may employ interest rate swaps as a tool to achieve
that goal. The major risks from interest rate derivatives include
changes in the interest rates affecting the fair value of such instruments,
potential increases in interest expense due to market increases in floating
interest rates and the creditworthiness of the counterparties in such
transactions.
The fair
values of the 6.375% 10-year Senior Notes and the 7.0% 30-year Senior Notes are
principally dependent on prevailing interest rates. The fair values of the 1.5%
and 2.5% convertible debentures are principally dependent on both prevailing
interest rates and the Company’s current share price as it relates to the
initial conversion price of the respective instruments.
The
Company has various other short- and long-term borrowings, but believes that the
impact of changes in interest rates in the near term will not be material to
these instruments.
Item
4. Controls and Procedures
In
accordance with Exchange Act Rules 13a-15 and 15d-15, the Company carried
out an evaluation, under the supervision and with the participation of the
Company’s Disclosure Committee and the Company’s management, including the Chief
Executive Officer and the Chief Financial Officer, of the effectiveness of the
design and operation of the Company’s disclosure controls and procedures, as of
the end of the period covered by this report. Based upon that evaluation, the
Chief Executive Officer and the Chief Financial Officer concluded that the
Company’s disclosure controls and procedures were effective as of June 30, 2008
to ensure that information required to be disclosed by the Company that it files
or submits under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified in the SEC’s rules and forms and
that information required to be disclosed in the reports that the Company files
or submits under the Exchange Act is accumulated and communicated to the
Company’s management, including its Chief Executive Officer and Chief Financial
Officer, as appropriate, to allow timely decisions regarding required
disclosure. Except as noted below, there were no material changes in the
Company’s internal control over financial reporting during the quarter ended
June 30, 2008.
On
February 21, 2008, the Board of Directors approved the election, effective
April 1, 2008, of Jack B. Moore as Chief Executive Officer, Charles M.
Sledge as Chief Financial Officer, and Christopher A. Krummel as Vice President,
Chief Accounting Officer and Controller of the Company. Additionally, Richard A.
Steans was appointed as Vice President, Finance of DPS, succeeding Steven P.
Beatty who retired effective March 31, 2008. Jeffrey G. Altamari,
previously Vice President, Finance of CS, replaced Mr. Steans as Vice
President, Finance of V&M effective March 31, 2008. Mr.
Altamari was replaced as Vice President, Finance of CS by Greg L. Boane during
the second quarter of 2008.
The
Company is subject to a number of contingencies, including environmental
matters, litigation and tax contingencies.
Environmental
Matters
The
Company’s worldwide operations are subject to regulations with regard to air,
soil and water quality as well as other environmental matters. The Company,
through its environmental management system and active third-party audit
program, believes it is in substantial compliance with these regulations. The
Company is currently identified as a potentially responsible party (PRP) with
respect to two sites designated for cleanup under the Comprehensive
Environmental Response Compensation and Liability Act (CERCLA) or similar state
laws. One of these sites is Osborne, Pennsylvania (a landfill into which a
predecessor of the CS operation in Grove City, Pennsylvania deposited waste),
where remediation is complete and remaining costs relate to ongoing ground water
treatment and monitoring. The other is believed to be a de minimis exposure. 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. Additionally, the Company has discontinued
operations at a number of other sites which had been active for many years. The
Company does not believe, based upon information currently available, that there
are any material environmental liabilities existing at these locations. At June
30, 2008, the Company’s consolidated balance sheet included a noncurrent
liability of approximately $7.0 million for environmental matters.
Legal
Matters
In 2001,
the Company discovered that contaminated underground water from the former
manufacturing site in Houston referenced above had migrated under an adjacent
residential area. Pursuant to applicable state regulations, the Company notified
the affected homeowners. Concerns over the impact on property values of the
underground water contamination and its public disclosure led to a number of
claims by homeowners.
The
Company has entered into a number of individual settlements and has settled a
class action lawsuit. The individual settlements were made in the form of
agreements with homeowners that obligated the Company to reimburse them for any
estimated decline in the value of their homes at time of sale due to potential
buyers’ concerns over contamination or, in the case of some agreements, to
purchase the property after an agreed marketing period. All but three of these
agreements have been closed out. In addition, the Company has settled
Valice v. Cameron Iron Works, Inc. (80th Jud. Dist. Ct., Harris County,
filed June 21, 2002), which was filed and settled as a class action.
Pursuant to the settlement, the 258 homeowners in the class are entitled to
receive a cash payment of approximately 3% of the 2006 appraised value of their
property or reimbursement of any diminution in value of their property due to
contamination concerns at the time of any sale. To date, 68 homeowners have
elected the cash payment and 21 opted out of the class settlement.
There are
two suits currently pending and one threatened regarding this matter filed by
homeowners who opted out of the class settlement. Moldovan v. Cameron Iron
Works, Inc. (165th Jud. Dist. Ct., Harris County, filed October 23,
2006), was filed by six such homeowners. The other suit was filed by individual
homeowners, Tuma v. Cameron Iron Works, Inc. (334th Judicial District Court
of Harris County, Texas, filed on November 27, 2006). A suit has
been threatened by a group of nine homeowners but has not yet been
filed. The complaints in these actions make or threaten to make the
claim that the contaminated underground water has reduced property values and
seek recovery of alleged actual and exemplary damages for the loss of property
value.
While one
suit related to this matter involving health risks has been filed, the Company
is of the opinion that there is no health risk to area residents and that the
suit is without merit.
The
Company believes, based on its review of the facts and law, that any potential
exposure from existing agreements, the class action settlement or other actions
that have been or may be filed, will not have a material adverse effect on its
financial position or results of operations. The Company’s consolidated balance
sheet included a liability of $13.2 million for these matters as of June 30,
2008.
The
Company has been named as a defendant in a number of multi-defendant,
multi-plaintiff tort lawsuits since 1995. At June 30, 2008, the Company’s
consolidated balance sheet included a liability of approximately $2.9 million
for such cases, including estimated legal costs. The Company believes, based on
its review of the facts and law, that the potential exposure from these suits
will not have a material adverse effect on its consolidated results of
operations, financial condition or cash flow from operations.
Regulatory
Contingencies
In
January 2007, the Company underwent a Pre-Assessment Survey as part of a
Focused Assessment initiated by the Regulatory Audit Division of the U.S.
Customs and Border Protection, Department of Homeland Security. The
Pre-Assessment Survey resulted in a finding that the Company had deficiencies in
its U.S. Customs compliance processes. The Company is taking corrective action
and will undergo Assessment Compliance Testing in the second half of
2008.
In
July 2007, the Company was one of a number of companies to receive a letter
from the Criminal Division of the U.S. Department of Justice (DOJ) requesting
information on its use of a customs clearance broker. The DOJ is inquiring into
whether certain of the services provided to the Company by the customs clearance
broker may have involved violations of the U.S. Foreign Corrupt Practices Act
(FCPA). The Company is conducting an internal investigation in response, as
discussed below, and is providing the requested information to the
DOJ.
The
Company engaged special counsel reporting to the Audit Committee of the Board of
Directors to conduct an investigation into its dealings with the customs
clearance broker in Nigeria and Angola to determine if any payment made to or by
the customs clearance broker on the Company’s behalf constituted a violation of
the FCPA. The investigation is also looking into activities of Company employees
and agents with respect to immigration matters and importation permitting in
Nigeria. To date, the special counsel has found that the Company utilized
certain services in Nigeria offered by the customs clearance broker that appear
to be similar to services that have been under review by the DOJ. Similar issues
do not appear to be present in Angola. Special counsel is reviewing
these and other services and activities to determine whether they were conducted
in compliance with all applicable laws and regulations. Special counsel is also
reviewing the extent, if any, of the Company’s knowledge and involvement in the
performance of these services and activities, and whether the Company fulfilled
its obligations under the FCPA.
In
addition, the U.S. Securities and Exchange Commission (SEC) is conducting an
informal inquiry into the same matters currently under review by the DOJ. As
part of this inquiry the SEC has requested that the Company provide to them the
information and documents that have been requested by and are being provided to
the DOJ. The Company is cooperating fully with the SEC, as it is doing with the
DOJ, and is providing the requested materials. Both agencies have requested an
extension of the statute of limitations with respect to matters under review
until January 2009. At this stage of the internal investigation,
the Company cannot predict the ultimate outcome of either the internal
investigation or the government inquiries. The Company has also undertaken an
enhanced compliance training effort for its personnel, including foreign
operations personnel dealing with customs clearance regulations.
Tax
Contingencies
The
Company has legal entities in over 35 countries. As a result, the Company is
subject to various tax filing requirements in these countries. The Company
prepares its tax filings in a manner which it believes is consistent with such
filing requirements. However, some of the tax laws and regulations which the
Company is subject to are subject to interpretation and/or judgment. Although
the Company believes that the tax liabilities for periods ending on or before
the balance sheet date have been adequately provided for in the financial
statements, to the extent that a taxing authority believes that the Company has
not prepared its tax filings in accordance with the authority’s interpretation
of the tax laws/regulations, the Company could be exposed to additional taxes.
There were no material changes in the Company’s liabilities for unrecognized tax
benefits during the three or six months ended June 30, 2008.
The
information set forth under the caption “Factors That May Affect Financial
Condition and Future Results” on pages 24 – 27 of this quarterly report on
Form 10-Q is incorporated herein by reference.
Item
2. Unregistered Sales of Equity Securities and Use of Proceeds
In
February 2006, the Company’s Board of Directors changed the number of
shares of the Company’s common stock authorized for repurchase from the
5,000,000 shares authorized in August 2004 to 10,000,000 shares in order to
reflect the 2-for-1 stock split effective December 15, 2005. This
authorization was subsequently increased to 20,000,000 in connection with the
2-for-1 stock split effective December 28, 2007 and eventually to
30,000,000 by a resolution adopted by the Board of Directors on
February 21, 2008. Additionally, on May 22, 2006, the Company’s Board
of Directors approved repurchasing shares of the Company’s common stock with the
proceeds remaining from the Company’s 2.5% Convertible Debenture offering, after
taking into account a planned repayment of $200,000,000 principal amount of the
Company’s outstanding 2.65% senior notes due 2007. This authorization is in
addition to the 30,000,000 shares described above.
Purchases
pursuant to the 30,000,000-share Board authorization may be made by way of open
market purchases, directly or indirectly, for the Company’s own account or
through commercial banks or financial institutions and by the use of derivatives
such as a sale or put on the Company’s common stock or by forward or
economically equivalent transactions. Shares of common stock purchased and
placed in treasury during the three months ended June 30, 2008 under the Board’s
two authorization programs described above are as follows:
|
Period
|
|
Total
number
of
shares
purchased
|
|
|
Average
price
paid per share
|
|
|
Total
number
of
shares
purchased
as
part
of all
repurchase
programs (a)
|
|
|
Maximum
number
of
shares
that may
yet
be
purchased
under
all
repurchase
programs (b)
|
|
|
4/1/08
– 4/30/08
|
|
|
— |
|
|
|
— |
|
|
|
20,743,502 |
|
|
|
11,826,057 |
|
|
5/1/08
– 5/31/08
|
|
|
525,000 |
|
|
$ |
48.60 |
|
|
|
21,268,502 |
|
|
|
11,209,460 |
|
|
6/1/08
– 6/30/08
|
|
|
230,600 |
|
|
$ |
53.56 |
|
|
|
21,499,102 |
|
|
|
10,939,985 |
|
|
Total
|
|
|
755,600 |
|
|
$ |
50.12 |
|
|
|
21,499,102 |
|
|
|
10,939,985 |
|
____________
|
(a)
|
All
share purchases during the three months ended June 30, 2008 were done
through open market transactions.
|
|
(b)
|
At
June 30, 2008, 939,985 shares are yet to be purchased under the
$250,000,000 Board authorization, based on the closing price of the
Company’s common stock at that date of $55.35 per
share.
|
Item
3. Defaults Upon Senior Securities
None
Item
4. Submission of Matters to a Vote of Security Holders
The
Annual Meeting of Stockholders of the Company was held in Houston, Texas on May
14, 2008 for the purpose of (1) electing three Directors and (2) ratifying the
appointment of independent registered public accountants for 2008. Proxies for
the meeting were solicited pursuant to Regulation 14 of the Securities Exchange
Act of 1934 and there was no solicitation in opposition to management’s
solicitation. Results of the stockholder voting were as
follows:
|
|
|
Number
of Shares
|
|
|
Election
of Directors
|
|
For
|
|
|
Against
|
|
|
Abstaining
/ Withheld
|
|
|
Broker
non-Votes
|
|
|
Peter J. Fluor
|
|
|
98,806,267 |
|
|
|
— |
|
|
|
98,144,719 |
|
|
|
— |
|
|
Jack B. Moore
|
|
|
174,545,238 |
|
|
|
— |
|
|
|
17,405,748 |
|
|
|
— |
|
|
David Ross III
|
|
|
93,656,145 |
|
|
|
— |
|
|
|
98,294,841 |
|
|
|
— |
|
|
Ratify
the appointment of independent registered public accountants for
2008
|
|
|
187,123,592 |
|
|
|
3,358,265 |
|
|
|
1,469,429 |
|
|
|
— |
|
Item
5. Other Information
|
|
(a)
|
Information
Not Previously Reported in a Report on
Form 8-K
|
None
|
|
(b)
|
Material
Changes to the Procedures by Which Security Holders May Recommend
Board Nominees.
|
There
have been no material changes to the procedures enumerated in the Company’s
definitive proxy statement filed on Schedule 14A with the Securities and
Exchange Commission on March 27, 2008 with respect to the procedures by
which security holders may recommend nominees to the Company’s Board of
Directors.
Exhibit 31.1
-
Certification
Exhibit 31.2
-
Certification
Exhibit 32.1
-
Certification
of the CEO and CFO Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
|
Date:
July 31, 2008
|
Cameron
International Corporation
|
|
|
(Registrant)
|
|
|
|
|
|
/s/
Charles M.
Sledge
|
|
|
Charles
M. Sledge
|
|
|
Vice
President, Finance and Chief Financial Officer and authorized to sign on
behalf of the Registrant
|
EXHIBIT
INDEX
|
Exhibit
Number
|
|
Description
|
|
31.1
|
|
Certification
|
|
|
|
|
|
31.2
|
|
Certification
|
|
|
|
|
|
32.1
|
|
Certification of the
CEO and CFO Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant
to Section 906 of the Sarbanes-Oxley Act of
2002.
|
34