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Cameron International Corp. Reports Operating Results (10-Q)

November 02, 2012 | About:
10qk

10qk

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Cameron International Corp. (CAM) filed Quarterly Report for the period ended 2012-09-30.

Cameron International Corporation has a market cap of $12.62 billion; its shares were traded at around $50.85 with a P/E ratio of 18.1 and P/S ratio of 1.8. Cameron International Corporation had an annual average earning growth of 20.5% over the past 10 years. GuruFocus rated Cameron International Corporation the business predictability rank of 3-star.

Highlight of Business Operations:

Total revenues for the Company increased by $1.15 billion, or 23.3%, during the nine months ended September 30, 2012 as compared to the nine months ended September 30, 2011. Almost 35% of the revenue increase resulted from businesses acquired over the last 12 months with the remaining increase reflecting higher sales and activity levels in the existing operations of each of the Company s business segments.

Selling and administrative expenses increased $119.0 million, or 16.4%, during the nine months ended September 30, 2012 as compared to the nine months ended September 30, 2011. As a percent of revenues, selling and administrative expenses decreased from 14.7% during the first nine months of 2011 to 13.9% for the first nine months of 2012. Approximately 90% of the dollar increase was due to (i) higher employee-related costs due to headcount increases, higher incentive compensation and travel, as well as (ii) higher facility costs, resulting largely from aftermarket and international expansion activities and the impact of newly acquired businesses.

Cash used for investing activities increased by $251.4 million, from $253.4 million during the first nine months of 2011 to $504.8 million during the first nine months of 2012. This increase primarily resulted from the $248.1 million net cash purchase in June 2012 of TTS discussed further in Note 2 of the Notes to Consolidated Condensed Financial Statements and higher capital expenditures of $51.9 million. Net proceeds of $59.4 million from sales and maturities of short-term investments were added back to cash and cash equivalents during the nine month period ended September 30, 2012.

Total Company goodwill at September 30, 2012 was $1.9 billion, a large portion of which was allocated to the Company s PCS segment, which includes the majority of the NATCO operations acquired in 2009. The Company s determination of the fair value of its Custom Process Systems (CPS) business within the PCS segment included assumptions for continued long-term profitability improvements from current levels. As a result of competitive pressures during the economic downturn that began prior to the acquisition of the NATCO operations in 2009, the backlog of the CPS business has carried unusually low margins which have negatively impacted recent profitability. Additionally, the Company experienced operating inefficiencies during 2011 which continued into 2012. While management is taking steps to improve the financial results of CPS, should these efforts not result in performance improvements in the fourth quarter, the Company would have to re-evaluate its long-term profitability assumptions which could result in an impairment of goodwill for this reporting unit. Goodwill associated with the CPS business was approximately $572.7 million at September 30, 2012. Execution of subsea systems projects exposes the Company to risks not present in its other businesses. Cameron is a significant participant in the subsea systems projects market. This market is significantly different from most of the Company s other markets since subsea systems projects are significantly larger in scope and complexity, in terms of both technical and logistical requirements. Subsea projects (i) typically involve long lead times, (ii) typically are larger in financial scope, (iii) typically require substantial engineering resources to meet the technical requirements of the project and (iv) often involve the application of existing technology to new environments and, in some cases, may require the development of new technology. The Company s subsea business unit received orders in the amount of $1.4 billion during the nine months ended September 30, 2012. Total backlog for the subsea business unit at September 30, 2012 was approximately $2.2 billion. To the extent the Company experiences unplanned difficulties in meeting the technical and/or delivery requirements of the projects, the Company s earnings or liquidity could be negatively impacted. The Company accounts for its subsea projects, as it does its separation and drilling projects, using accounting rules for construction-type and production-type contracts. In accordance with this guidance, the Company estimates the expected margin on these projects and recognizes this margin as units are completed. Factors that may affect future project costs and margins include the ability to properly execute the engineering and design phases consistent with our customers expectations, production efficiencies obtained, and the availability and costs of labor, materials and subcomponents. These factors can significantly impact the accuracy of the Company s estimates and materially impact the Company s future period earnings. If the Company experiences cost overruns, the expected margin could decline. Were this to occur, in accordance with the accounting guidance, the Company would record a cumulative adjustment to reduce the margin previously recorded on the related project in the period a change in estimate is determined. As an example, the Company incurred a $51.0 million charge in the first quarter of 2011 for cost overruns on a large subsea project in Nigeria. Large subsea systems projects accounted for approximately 11.5% of total revenues for the nine-month period ended September 30, 2012 and represent a significant portion of the subsea business unit s total operations. As of September 30, 2012, the Company had a subsea systems project backlog of approximately $1.7 billion. 30

Cameron is a significant participant in the subsea systems projects market. This market is significantly different from most of the Company s other markets since subsea systems projects are significantly larger in scope and complexity, in terms of both technical and logistical requirements. Subsea projects (i) typically involve long lead times, (ii) typically are larger in financial scope, (iii) typically require substantial engineering resources to meet the technical requirements of the project and (iv) often involve the application of existing technology to new environments and, in some cases, may require the development of new technology. The Company s subsea business unit received orders in the amount of $1.4 billion during the nine months ended September 30, 2012. Total backlog for the subsea business unit at September 30, 2012 was approximately $2.2 billion. To the extent the Company experiences unplanned difficulties in meeting the technical and/or delivery requirements of the projects, the Company s earnings or liquidity could be negatively impacted. The Company accounts for its subsea projects, as it does its separation and drilling projects, using accounting rules for construction-type and production-type contracts. In accordance with this guidance, the Company estimates the expected margin on these projects and recognizes this margin as units are completed. Factors that may affect future project costs and margins include the ability to properly execute the engineering and design phases consistent with our customers expectations, production efficiencies obtained, and the availability and costs of labor, materials and subcomponents. These factors can significantly impact the accuracy of the Company s estimates and materially impact the Company s future period earnings. If the Company experiences cost overruns, the expected margin could decline. Were this to occur, in accordance with the accounting guidance, the Company would record a cumulative adjustment to reduce the margin previously recorded on the related project in the period a change in estimate is determined. As an example, the Company incurred a $51.0 million charge in the first quarter of 2011 for cost overruns on a large subsea project in Nigeria. Large subsea systems projects accounted for approximately 11.5% of total revenues for the nine-month period ended September 30, 2012 and represent a significant portion of the subsea business unit s total operations. As of September 30, 2012, the Company had a subsea systems project backlog of approximately $1.7 billion.

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