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EX-31.1 - EXHIBIT 31.1 - CAMERON INTERNATIONAL CORPcam-93015xexhibit311.htm
EX-31.2 - EXHIBIT 31.2 - CAMERON INTERNATIONAL CORPcam-93015xexhibit312.htm
EX-32.1 - EXHIBIT 32.1 - CAMERON INTERNATIONAL CORPcam-93015xexhibit321.htm
10-Q - PDF FORM 10-Q - CAMERON INTERNATIONAL CORPcic9301510qfinal.pdf

 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
 
þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
 
For the Quarterly Period Ended September 30, 2015
OR
o
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 þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes þ No o
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 the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer þ Accelerated filer o
Non-accelerated filer o (Do not check if a smaller reporting company) Smaller reporting company o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o No þ
Number of shares outstanding of issuer’s common stock as of October 15, 2015 was 190,921,638.
 



TABLE OF CONTENTS
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
 
 
Item 1.
 
 
 
Item 1A. 
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
Item 5.
 
 
 
Item 6.
 
 
 



PART I — FINANCIAL INFORMATION
Item 1. Financial Statements
Cameron International Corporation
Consolidated Condensed Statements of Comprehensive Income
(dollars and shares in millions, except per share data)
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
2015
 
2014
 
2015
 
2014
 
(unaudited)
 
 
 
 
 
 
 
 
REVENUES
$
2,208

 
$
2,678

 
$
6,703

 
$
7,577

COSTS AND EXPENSES:
 

 
 

 
 

 
 

Cost of sales (exclusive of depreciation and amortization shown separately below)
1,530

 
1,915

 
4,723

 
5,456

Selling and administrative expenses
256

 
320

 
821

 
970

Depreciation and amortization
86

 
83

 
264

 
256

Interest, net
34

 
36

 
105

 
98

Asset charges (see Note 4)
18

 

 
581

 
44

Other costs (gains), net (see Note 4)
26

 
19

 
77

 
18

Total costs and expenses
1,950

 
2,373

 
6,571

 
6,842

 
 
 
 
 
 
 
 
Income from continuing operations before income taxes
258

 
305

 
132

 
735

Income tax provision
(44
)
 
(70
)
 
(144
)
 
(179
)
Income (loss) from continuing operations
214

 
235

 
(12
)
 
556

Income (loss) from discontinued operations, net of income taxes
(1
)
 
3

 
431

 
31

Net income
213

 
238

 
419

 
587

 
 
 
 
 
 
 
 
Less: Net income attributable to noncontrolling interests
26

 
13

 
43

 
29

Net income attributable to Cameron stockholders
$
187

 
$
225

 
$
376

 
$
558

 
 
 
 
 
 
 
 
Amounts attributable to Cameron stockholders:
 

 
 

 
 

 
 

Income (loss) from continuing operations
$
188

 
$
222

 
$
(55
)
 
$
527

Income (loss) from discontinued operations
(1
)
 
3

 
431

 
31

Net income attributable to Cameron stockholders
$
187

 
$
225

 
$
376

 
$
558

 
 
 
 
 
 
 
 
Earnings (loss) per common share attributable to Cameron stockholders:
 

 
 

 
 

 
 

Basic -
 

 
 

 
 

 
 

Continuing operations
$
0.99

 
$
1.11

 
$
(0.29
)
 
$
2.55

Discontinued operations
(0.01
)
 
0.01

 
2.25

 
0.15

Basic earnings per share
$
0.98

 
$
1.12

 
$
1.96

 
$
2.70

 
 
 
 
 
 
 
 
Diluted -
 

 
 

 
 

 
 

Continuing operations
$
0.98

 
$
1.10

 
$
(0.29
)
 
2.53

Discontinued operations
(0.01
)
 
0.01

 
2.25

 
0.15

Diluted earnings per share
$
0.97

 
$
1.11

 
$
1.96

 
$
2.68

Shares used in computing earnings per common share:
 

 
 

 
 

 
 

Basic
191

 
201

 
192

 
207

Diluted
192

 
203

 
192

 
208

 
 
 
 
 
 
 
 
Comprehensive income (loss)
$
(8
)
 
$
29

 
$
14

 
$
389

Less: Comprehensive loss attributable to noncontrolling interests
(41
)
 
(40
)
 
(55
)
 
(17
)
Comprehensive income attributable to Cameron stockholders
$
33

 
$
69

 
$
69

 
$
406

The accompanying notes are an integral part of these statements.

1


Cameron International Corporation
Consolidated Condensed Balance Sheets
(dollars in millions, except shares and per share data)
 
September 30,
2015
 
December 31,
2014
 
(unaudited)
 
 
ASSETS
 
 
 
Cash and cash equivalents
$
1,627

 
$
1,513

Short-term investments
321

 
113

Receivables, net
2,088

 
2,389

Inventories, net
2,659

 
2,929

Other current assets
481

 
391

Assets of discontinued operations

 
217

Total current assets
7,176

 
7,552

Plant and equipment, net
1,733

 
1,964

Goodwill
1,796

 
2,461

Intangibles, net
613

 
728

Other assets
291

 
187

TOTAL ASSETS
$
11,609

 
$
12,892

 
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
 

 
 

Short-term debt
$
38

 
$
263

Accounts payable and accrued liabilities
2,786

 
3,748

Accrued income taxes
342

 
168

Liabilities of discontinued operations

 
90

Total current liabilities
3,166

 
4,269

Long-term debt
2,794

 
2,819

Deferred income taxes
227

 
193

Other long-term liabilities
162

 
167

Total liabilities
6,349

 
7,448

Stockholders’ Equity:
 

 
 

Common stock, par value $.01 per share, 400,000,000 shares authorized,
    263,111,472 shares issued at September 30, 2015 and December 31, 2014
3

 
3

Capital in excess of par value
3,253

 
3,255

Retained earnings
6,007

 
5,631

Accumulated other elements of comprehensive income (loss)
(847
)
 
(540
)
Less: Treasury stock, 72,298,711 shares at September 30, 2015
    (68,139,027 shares at December 31, 2014)
(3,987
)
 
(3,794
)
Total Cameron stockholders’ equity
4,429

 
4,555

Noncontrolling interests
831

 
889

Total equity
5,260

 
5,444

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
$
11,609

 
$
12,892

The accompanying notes are an integral part of these statements.

2


Cameron International Corporation
Consolidated Condensed Statements of Cash Flows
(dollars in millions)
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
2015
 
2014
 
2015
 
2014
 
(unaudited)
 
 
 
 
 
 
 
 
Cash flows from operating activities:
 
 
 
 
 
 
 
Net income
$
213

 
$
238

 
$
419

 
$
587

Adjustments to reconcile net income to net cash provided by operating activities:
 

 
 

 
 

 
 

Asset impairment and other charges
18

 

 
581

 
44

Loss on disposal of non-core assets
6

 

 
6

 

Pre-tax gain on sale of Compression businesses

 

 
(681
)
 
(95
)
Depreciation
74

 
74

 
226

 
217

Amortization
12

 
11

 
38

 
49

Non-cash stock compensation expense
13

 
13

 
35

 
43

Gain from remeasurement of prior interest in equity
method investment

 

 

 
(8
)
Deferred income taxes and tax benefit of employee stock
compensation plan transactions
(53
)
 
(74
)
 
(68
)
 
(57
)
Changes in assets and liabilities, net of translation, and non-cash items:
 

 
 

 
 

 
 

Receivables
(6
)
 
(69
)
 
245

 
42

Inventories
176

 
(55
)
 
106

 
(283
)
Accounts payable and accrued liabilities
(115
)
 
152

 
(869
)
 
(291
)
Other assets and liabilities, net
38

 
(74
)
 
173

 
7

Net cash provided by operating activities
376

 
216

 
211

 
255

Cash flows from investing activities:
 

 
 

 
 

 
 

Proceeds received from sale of Compression businesses, net

 

 
832

 
547

Proceeds from sales and maturities of short-term investments
274

 
18

 
674

 
41

Purchases of short-term investments
(159
)
 
(78
)
 
(883
)
 
(115
)
Capital expenditures
(60
)
 
(80
)
 
(190
)
 
(259
)
Other dispositions (acquisitions), net

 
10

 

 
(7
)
Proceeds from sales of plant and equipment
2

 
1

 
11

 
11

Net cash provided by (used for) investing activities
57

 
(129
)
 
444

 
218

Cash flows from financing activities:
 

 
 

 
 

 
 

Issuance of senior notes

 

 

 
500

Debt issuance costs

 

 

 
(4
)
Early retirement of senior notes

 
(253
)
 

 
(253
)
Short-term loan borrowings (repayments), net
(7
)
 
94

 
(220
)
 
104

Purchase of treasury stock
(45
)
 
(351
)
 
(240
)
 
(1,556
)
Contributions from (distributions to) noncontrolling interest owners, net
(21
)
 
(40
)
 
(3
)
 
(40
)
Proceeds from stock option exercises, net of tax payments from stock compensation plan transactions
10

 
14

 
5

 
39

Excess tax benefits from employee stock compensation plan transactions

 
1

 
1

 
6

Principal payments on capital leases
(6
)
 
(6
)
 
(15
)
 
(15
)
Net cash used for financing activities
(69
)
 
(541
)
 
(472
)
 
(1,219
)
Effect of translation on cash
(32
)
 
(13
)
 
(69
)
 
(9
)
Increase (decrease) in cash and cash equivalents
332

 
(467
)
 
114

 
(755
)
Cash and cash equivalents, beginning of period
1,295

 
1,525

 
1,513

 
1,813

Cash and cash equivalents, end of period
$
1,627

 
$
1,058

 
$
1,627

 
$
1,058

The accompanying notes are an integral part of these statements.

3


Cameron International Corporation
Consolidated Condensed Statement of Changes in Equity
(dollars in millions)
 
Cameron Stockholders
 
 
Common Stock
Capital in Excess of Par Value
Retained Earnings
Accumulated Other
Elements of Comprehensive Income (Loss)
Treasury Stock
Noncontrolling Interests
 
(Unaudited)
 
 
 
 
 
 
 
Balance at December 31, 2014
$
3

$
3,255

$
5,631

$
(540
)
$
(3,794
)
$
889

Net income


376



43

Other comprehensive income (loss), net of tax



(307
)

(98
)
Non-cash stock compensation expense

35





Purchase of treasury stock




(236
)

Treasury stock issued under stock compensation plans

(38
)


43


Tax benefit of stock compensation plan transactions

1





Contributions from noncontrolling interest owners





18

Distributions to noncontrolling interest owners





(21
)
Balance at September 30, 2015
$
3

$
3,253

$
6,007

$
(847
)
$
(3,987
)
$
831

The accompanying notes are an integral part of these statements.

4


Cameron International Corporation
Notes to Consolidated Condensed Financial Statements
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 U.S. 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, 2014.
Preparation of the financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Such estimates include, but are not limited to, estimates of total contract profit or loss on certain long-term production contracts, estimated losses on accounts receivable, estimated realizable value on excess and obsolete inventory, contingencies (including tax contingencies, estimated liabilities for litigation exposures and liquidated damages), estimated warranty costs, estimates related to pension accounting, estimates used to determine fair values in purchase accounting, estimates related to the fair value of reporting units for purposes of assessing goodwill and long-lived assets for impairment and estimates related to deferred tax assets and liabilities, including valuation allowances on deferred tax assets. Actual results could differ materially from these estimates.
Certain prior year amounts have been reclassified to conform to the current year presentation.

Note 2: Merger of Cameron with Schlumberger

On August 26, 2015, Cameron and Schlumberger Limited "Schlumberger" announced that the companies had entered into an Agreement and Plan of Merger (the “Merger Agreement”) whereby a U.S. subsidiary of Schlumberger would acquire all of the issued and outstanding stock of Cameron. Under the terms of the agreement, Cameron shareholders will receive 0.716 shares of Schlumberger common stock and a cash payment of $14.44 in exchange for each Cameron common share. The Merger Agreement was unanimously approved by the board of directors of both companies. Consummation of the Merger is subject to customary closing conditions, including (a) approval by a majority of the Cameron stockholders of the Merger Agreement and (b) receipt of required regulatory consents and approvals. Schlumberger stockholders are not required to vote on the Merger Agreement. Should Cameron terminate the Merger Agreement in specified circumstances, the Company would be required to pay Schlumberger a termination fee equal to $321 million. This transaction is currently expected to close during the first quarter of 2016.

Note 3: Discontinued Operations
The Company completed the sale of its Reciprocating Compression business to General Electric, effective June 1, 2014, and the sale of its Centrifugal Compression business to Ingersoll Rand on January 1, 2015. The gross cash consideration from the sale of both businesses was $1.4 billion, subject to pending closing adjustments.

5


Summarized financial information showing the results of operations of these discontinued operations was as follows:
 
Three Months Ended 
 September 30,
Nine Months Ended 
 September 30,
(dollars in millions)
2015
2014
2015
2014
 
 
 
 
 
Revenues
$

$
64

$

$
348

Cost of sales (excluding depreciation and amortization)

(43
)

(246
)
All other (costs) gains
(1
)
(17
)
(2
)
(75
)
Gain on sale of Compression businesses, before tax


681

95

 
 
 
 
 
Income before income taxes
(1
)
4

679

122

Income tax provision

(1
)
(248
)
(91
)
Income from discontinued operations, net of income taxes
$
(1
)
$
3

$
431

$
31

The gain on the sale of the Compression businesses was determined as follows:
(dollars in millions)
Sale of Centrifugal Compression
Sale of Reciprocating Compression
Sales price
$
850

$
550

Net assets sold
(160
)
(442
)
Transaction and other costs associated with the sale
(9
)
(13
)
Pre-tax gain
681

95

Tax provision
(248
)
(85
)
Gain on sale
$
433

$
10

The tax provision associated with the pre-tax gain on the Reciprocating Compression business was impacted by nondeductible goodwill of approximately $192 million included in the total net assets sold.

6


Note 4: Asset Charges and Other Costs (Gains), Net
Asset charges and other costs (gains) consisted of the following:
 
Three Months Ended 
 September 30,
Nine Months Ended 
 September 30,
(dollars in millions)
2015
2014
2015
2014
 
 
 
 
 
Asset charges -
 
 
 
 
Goodwill impairment
$

$

$
517

$
40

Other long-lived asset impairments
18


54

4

Accelerated depreciation on underutilized assets


10


Total
$
18

$

$
581

$
44

 
 
 
 
 
Other costs (gains) -
 

 

 

 

Loss on disposal of non-core assets
6

10

6

10

Facility closures and severance
10

2

43

10

Merger costs
6


6


Mark-to-market impact on currency derivatives not designated as accounting hedges

4

11

4

Net loss from currency devaluations
2


7


Gain from remeasurement of prior interest in equity method investment



(8
)
All other costs, net
2

3

4

2

Total
26

19

77

18

Total asset charges and other costs (gains), net
$
44

$
19

$
658

$
62

Asset charges
The Company tests the carrying value of goodwill in accordance with accounting rules on impairment of goodwill, which require that the Company estimate the fair value of each of its reporting units annually, or when impairment indicators exist, and compare such amounts to their respective carrying values to determine if an impairment of goodwill is required.
In connection with our annual goodwill impairment test as of March 31, 2015, we tested the goodwill for each of our six reporting units. With the exception of the Process Systems reporting unit, no goodwill impairments were indicated. As described further in our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2015, we recorded a goodwill impairment charge of $517 million at March 31, 2015 for the Process Systems reporting unit, leaving a remaining balance of goodwill in this reporting unit at September 30, 2015 of $52 million.
During the first quarter of 2014, goodwill totaling $40 million relating to the Company’s Process Systems and Equipment (PSE) reporting unit was considered to be fully impaired during the annual goodwill impairment test.
The Company also recognized impairment charges of $54 million during the nine months ended September 30, 2015 relating to certain underutilized facilities resulting from weak market conditions and the write-down of assets retained in the agreement to sell the LeTourneau Offshore Products business, of which $18 million was recorded in the third quarter of 2015 (see further discussion below). Charges of $4 million were recognized during the first nine months of 2014 for impairment of certain intangible assets.

Loss on disposal of non-core assets
On August 27, 2015, Cameron entered into an agreement to sell the LeTourneau Offshore Products business within the Drilling Systems division to Keppel Offshore & Marine USA, Inc. for $100 million. In connection with this transaction, the Company recorded an estimated pre-tax loss of $6 million during the third quarter of 2015 to write-down the carrying value of the business to its fair value including certain other accrued liabilities associated with the sale. This was in addition to the $18 million write-down of retained assets discussed above. The sale is currently expected to close during the second quarter of 2016.

7



Assets and liabilities, including goodwill associated with this business, totaling $105 million and $1 million, respectively, have been presented as held for sale and included in other current assets or accounts payable and accrued liabilities as of September 30, 2015.

All other costs (Gains)
As a result of current market conditions and the impact on the Company’s operations, charges of $53 million were recognized during the nine months ended September 30, 2015 related to the impact of accelerated depreciation on underutilized assets, pending facility closures and severance for workforce reductions.
Merger costs includes costs related directly to activities to support and facilitate Cameron's merger with Schlumberger.
In May 2014, the Company increased its prior ownership interest in Cameron Services Middle East LLC from 49% to 90%, for approximately $18 million. The Company recognized a pre-tax gain of nearly $8 million as a result of remeasuring its prior interest, which had been accounted for under the equity method, to fair value upon obtaining control of this entity.
Note 5: Receivables
Receivables consisted of the following:
(dollars in millions)
September 30,
2015
December 31,
2014
 
 
 
Trade receivables
$
1,267

$
1,678

Costs and estimated earnings in excess of billings on uncompleted contracts
739

621

Other receivables
136

122

Allowance for doubtful accounts
(54
)
(32
)
Total receivables
$
2,088

$
2,389

Note 6: Inventories
Inventories consisted of the following:
(dollars in millions)
September 30,
2015
December 31,
2014
 
 
 
Raw materials
$
125

$
159

Work-in-process
688

827

Finished goods, including parts and subassemblies
2,022

2,150

Other
23

24

Total gross inventories
2,858

3,160

Excess of current standard costs over LIFO costs
(70
)
(86
)
Allowances
(129
)
(145
)
Total net inventories
$
2,659

$
2,929


8


Note 7: Plant and Equipment and Goodwill
Plant and equipment consisted of the following (in millions):
(dollars in millions)
September 30,
2015
December 31,
2014
 
 
 
Plant and equipment, at cost
$
3,478

$
3,580

Accumulated depreciation
(1,745
)
(1,616
)
Total plant and equipment
$
1,733

$
1,964

Changes in goodwill during the nine months ended September 30, 2015 were as follows (dollars in millions):
Balance at December 31, 2014
$
2,461

Impairment of goodwill (Note 4)
(517
)
Goodwill associated with assets held for sale
(14
)
Adjustments to the purchase price allocation for prior year acquisitions
(12
)
Translation effect of currency changes and other
(122
)
Balance at September 30, 2015
$
1,796


Note 8: Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities consisted of the following:
(dollars in millions)
September 30,
2015
December 31,
2014
 
 
 
Trade accounts payable and accruals
$
521

$
1,084

Advances from customers
1,165

1,576

Other accruals
1,100

1,088

Total accounts payable and accrued liabilities
$
2,786

$
3,748


9


Note 9: Debt
The Company’s debt obligations were as follows (in millions):
(dollars in millions)
September 30,
2015
December 31,
2014
 
 
 
Commercial paper (0.49% weighted average rate at December 31, 2014)
$

$
201

Senior notes:
 

 

1.15% notes due December 15, 2016
250

250

1.40% notes due June 15, 2017
250

250

6.375% notes due July 15, 2018
450

450

4.5% notes due June 1, 2021
250

250

3.6% notes due April 30, 2022
250

250

4.0% notes due December 15, 2023
250

250

3.7% notes due June 15, 2024
250

250

7.0% notes due July 15, 2038
300

300

5.95% notes due June 1, 2041
250

250

5.125% notes due December 15, 2043
250

250

Unamortized original issue discount
(7
)
(7
)
Other debt
27

67

Obligations under capital leases
62

71

 
2,832

3,082

Current maturities
(38
)
(263
)
Long-term maturities
$
2,794

$
2,819

Commercial paper program
The Company has in place a commercial paper program for general corporate purposes which allows for issuances of up to $500 million of commercial paper with maturities of no more than 364 days.
Credit agreements and revolving credit facilities
In order to extend the length of its currently available credit facilities, the Company, including certain of its subsidiaries, entered into an amended and restated multi-currency credit agreement (the “Credit Agreement”) with various banks and other financial institutions on May 14, 2015. The Credit Agreement is for $750 million, has a term of five years, expiring on May 14, 2020, and replaces a previously existing $835 million multi-currency credit agreement due to expire in June 2016. The Credit Agreement will be used to finance working capital needs and for other general corporate purposes, including acquisitions, capital expenditures, repurchases of common stock, repayment of debt and issuances of letters of credit. At September 30, 2015, no letters of credit had been issued under the Credit Agreement, leaving $750 million available for future use.
The Company also has a $750 million multi-currency syndicated Revolving Credit Facility expiring April 11, 2017. Up to $200 million of this facility may be used for letters of credit. The Company has issued letters of credit totaling $36 million under the Revolving Credit Facility, leaving $714 million available for future use at September 30, 2015.

10


Note 10: Income Taxes
The Company’s effective income tax rate on income from continuing operations for the first nine months of 2015 was 109.1% as compared to 24.4% for the first nine months of 2014. The components of the effective tax rates for both periods were as follows:
 
Nine Months Ended September 30,
  
2015
2014
(dollars in millions)
Tax Provision
Tax Rate
Tax Provision
Tax Rate
 
 
 
 
 
Provision (benefit) based on international income (loss) distribution
$
27

20.5
 %
$
167

22.7
 %
Adjustments to income tax provision:






 

Impairments with no tax benefit
113

86.0

9

1.3

Asset impairments
(5
)
(3.8
)


Finalization of prior year returns


4

0.5

Changes in valuation allowances
8

6.3

3

0.4

Accrual adjustments and other
1

0.1

(4
)
(0.5
)
Tax provision
$
144

109.1
 %
$
179

24.4
 %

11


Note 11: Business Segments
The Company’s operations are organized into four separate business segments – Subsea, Surface, Drilling and Valves and Measurement (V&M). Summary financial data by segment follows:
    
Three Months Ended 
 September 30,
Nine Months Ended 
 September 30,
(dollars in millions)
2015
2014
2015
2014
 
 
 
 
 
Revenues:
 
 
 
 
Subsea
$
758

$
779

$
2,047

$
2,195

Surface
446

600

1,499

1,751

Drilling
673

800

2,118

2,233

V&M
376

558

1,185

1,597

Elimination of intersegment revenues
(45
)
(59
)
(146
)
(199
)
Total revenues
$
2,208

$
2,678

$
6,703

$
7,577

 
 
 
 
 
Segment income before interest and income taxes:
 

 

 

 

Subsea
$
120

$
44

$
244

$
119

Surface
49

105

210

304

Drilling
146

159

400

323

V&M
58

104

147

312

Elimination of intersegment earnings
(9
)
(17
)
(32
)
(53
)
Segment income before interest and income taxes
364

395

969

1,005

 
 
 
 
 
Corporate items:
 

 

 

 

Corporate expenses
(28
)
(35
)
(74
)
(110
)
Interest, net
(34
)
(36
)
(105
)
(98
)
Other (costs) gains, net (see Note 4)
(44
)
(19
)
(658
)
(62
)
Income from continuing operations before income taxes
$
258

$
305

$
132

$
735

Corporate items include governance expenses associated with the Company’s corporate office, as well as all of the Company’s interest income and interest expense, goodwill and asset impairment charges, severance and restructuring expenses, the impact of currency devaluations, stock-based compensation, foreign currency gains and losses from certain derivative and intercompany lending activities managed by the Company’s centralized treasury function and various other unusual or one-time costs or gains that are not considered a component of segment operating income. Consolidated interest income and expense are treated as corporate items because cash equivalents, short-term investments and debt, including location, type, currency, etc., are managed on a worldwide basis by the corporate treasury department.
Note 12: Earnings Per Share
The calculation of basic and diluted earnings per share for each period presented was as follows (dollars and shares in millions, except per share amounts):

12


  
Three Months Ended 
 September 30,
Nine Months Ended 
 September 30,
(dollars and shares in millions, except per share amounts)
2015
2014
2015
2014
 
 
 
 
 
Net income (loss) from continuing operations
$
214

$
235

$
(12
)
$
556

Less:   Net income attributable to noncontrolling interests
26

13

43

29

Net income (loss) from continuing operations attributable to Cameron
188

222

(55
)
527

Income (loss) from discontinued operations, net of taxes
(1
)
3

431

31

Net income attributable to Cameron
$
187

$
225

$
376

$
558

 
 
 
 
 
Average shares outstanding (basic)
191

201

192

207

Common stock equivalents
1

2


1

Diluted shares
192

203

192

208

 
 
 
 
 
Basic earnings (loss) per share:
 

 

 

 

Continuing operations
0.99

1.11

(0.29
)
2.55

Discontinued operations
(0.01
)
0.01

2.25

0.15

Basic earnings per share
0.98

1.12

1.96

2.70

 
 
 
 
 
Diluted earnings (loss) per share:
 

 

 

 

Continuing operations
0.98

1.10

(0.29
)
2.53

Discontinued operations
(0.01
)
0.01

2.25

0.15

Diluted earnings per share
0.97

1.11

1.96

2.68

Activity in the Company’s treasury shares were as follows:
 
Three Months Ended 
 September 30,
Nine Months Ended 
 September 30,
 
2015
2014
2015
2014
 
 
 
 
 
Treasury shares at beginning of period
71,671,246

60,027,350

68,139,027

41,683,164

Purchases of treasury shares
905,100

4,915,044

5,130,334

24,588,815

Net change in treasury shares owned by participants in nonqualified deferred compensation plans
(1,920
)
(1,440
)
(2,652
)
36,708

Treasury shares issued in satisfaction of stock option exercises and vesting of restricted stock units
(275,715
)
(132,881
)
(967,998
)
(1,500,614
)
Treasury shares at end of period
72,298,711

64,808,073

72,298,711

64,808,073

Average cost per share
$
49.48

$
71.43

$
46.11

$
63.38

At September 30, 2015, the Company had remaining authority for future stock purchases totaling approximately $240 million.
Note 13: Accumulated Other Comprehensive Income (Loss)
The changes in the components of accumulated other elements of comprehensive income (loss) attributable to Cameron stockholders for the three months ended September 30, 2015 and 2014 were as follows:

13


 
Three Months Ended September 30, 2015
 
(dollars in millions)
Accumulated Foreign Currency Translation
Gain (Loss)
Prior Service Credits and Net Actuarial Losses
Accumulated Gain (Loss) on Cash Flow Hedge Derivatives
Total
Three Months Ended September 30, 2014
 
 
 
 
 
 
Balance at beginning of period
$
(575
)
$
(78
)
$
(40
)
$
(693
)
$
(76
)
 
 
 
 
 
 
Other comprehensive income (loss) before reclassifications:
 

 

 

 

 

Pre-tax
(155
)

(18
)
(173
)
(167
)
Tax effect


8

8

12

 
 
 
 
 
 
Amounts reclassified from accumulated other comprehensive income to:
 

 

 

 

 

Revenues


9

9

(2
)
Cost of sales


8

8

1

Tax effect


(6
)
(6
)

Net current period other comprehensive income (loss)
(155
)

1

(154
)
(156
)
Balance at end of period
$
(730
)
$
(78
)
$
(39
)
$
(847
)
$
(232
)
The changes in the components of accumulated other elements of comprehensive income (loss) attributable to Cameron stockholders for the nine months ended September 30, 2015 and 2014 were as follows:
 
Nine Months Ended September 30, 2015
 
(dollars in millions)
Accumulated Foreign Currency Translation
Gain (Loss)
Prior Service Credits and Net Actuarial Losses
Accumulated Gain (Loss) on Cash Flow Hedge Derivatives
Total
Nine Months Ended September 30, 2014
 
 
 
 
 
 
Balance at beginning of period
$
(428
)
$
(78
)
$
(34
)
$
(540
)
$
(80
)
 
 
 
 
 
 
Other comprehensive income (loss) before reclassifications:
 

 

 

 

 

Pre-tax
(302
)

(61
)
(363
)
(157
)
Tax effect


12

12

10

 
 
 
 
 
 
Amounts reclassified from accumulated other comprehensive income to:
 

 

 

 

 

Revenues


38

38

(7
)
Cost of sales


25

25

(1
)
Tax effect


(19
)
(19
)
3

Net current period other comprehensive income (loss)
(302
)

(5
)
(307
)
(152
)
Balance at end of period
$
(730
)
$
(78
)
$
(39
)
$
(847
)
$
(232
)

14


Note 14: Contingencies
The Company is subject to a number of contingencies, including litigation, tax contingencies and environmental matters.
Litigation
The Company has been and continues to be named as a defendant in a number of multi-defendant, multi-plaintiff tort lawsuits. At September 30, 2015, the Company’s Consolidated Condensed Balance Sheet included a liability of approximately $20 million for such cases. 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 liquidity.
Tax and Other Contingencies
The Company has legal entities in approximately 50 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, the tax laws and regulations to which the Company is subject often require interpretation and/or the application of judgment. Although the Company believes 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 a taxing authority believes the Company has not prepared its tax filings in accordance with the authority’s interpretation of the tax laws and regulations, the Company could be exposed to additional taxes.
The Company has been assessed customs duties and penalties by the government of Brazil following a customs audit for the years 2003-2010 totaling a U.S. dollar equivalent of approximately $34 million at September 30, 2015, including interest accrued at local country rates. The Company has filed an administrative appeal and believes a majority of this assessment will ultimately be proven to be incorrect because of numerous errors in the assessment, and because the government has not provided appropriate supporting documentation for the assessment. As a result, the Company currently expects no material adverse impact on its results of operations or cash flows as a result of the ultimate resolution of this matter. No amounts have been accrued for this assessment as of September 30, 2015 as no loss is considered probable.
Environmental Matters
The Company is currently identified as a potentially responsible party (PRP) for one site designated for cleanup under the Comprehensive Environmental Response Compensation and Liability Act (CERCLA) or similar state law. The Osborne site is a landfill into which a predecessor of the Company’s former Reciprocating Compression operation in Grove City, Pennsylvania deposited waste, where remediation was completed in 2011 and remaining costs relate to ongoing ground water monitoring. The Company is also a party with de minimis exposure at other CERCLA sites.
The Company is engaged in site cleanup under the Voluntary Cleanup Plan of the Texas Commission on Environmental Quality ("TCEQ") at a former manufacturing location in Houston, Texas. In 2001, the Company discovered that contaminated underground water had migrated under an adjacent residential area. Pursuant to applicable state regulations, the Company notified the affected homeowners. Concerns over the impact of the underground water contamination and its public disclosure on property values led to a number of claims by homeowners. The Company settled these claims, primarily through the settlement of a class action lawsuit which obligates the Company to reimburse approximately 190 homeowners for any diminution in value of their property due to contamination concerns at the time of the property's sale. Test results of monitoring wells on the southeastern border of the plume indicate that the plume is moving in a new direction, likely as a result of a ground water drainage system completed as part of an interstate highway improvement project. As a result, the Company notified 39 additional homeowners, and may provide notice to additional homeowners, whose property is adjacent to the class area that their property may be affected. The Company continues to monitor the situation to determine whether additional remedial measures would be appropriate. The Company believes, based on its review of the facts and law, that any potential exposure from existing agreements as well as any possible new claims that may be filed with respect to this underground water contamination will not have a material adverse effect on its financial position or results of operations. The Company's Consolidated Condensed Balance Sheet included a noncurrent liability of approximately $7 million for these matters as of September 30, 2015.
Additionally, the Company has ceased operations at a number of other sites which had been active for many years and which may have yet undiscovered contamination. The Company does not believe, based upon information currently available, that there are any material environmental liabilities existing at these locations. At September 30, 2015, the Company's Consolidated Condensed Balance Sheet included a noncurrent liability of approximately $3 million for these environmental matters.

15


Note 15: Fair Value of Financial Instruments
Fair Value of Financial Instruments
The Company’s financial instruments consist primarily of cash and cash equivalents, short-term investments, trade receivables, trade payables, derivative instruments and debt instruments. The book values of trade receivables, trade payables and floating-rate debt instruments are considered to be representative of their respective fair values.
Following is a summary of the Company’s financial instruments which have been valued at fair value in the Company’s Consolidated Balance Sheets at September 30, 2015 and December 31, 2014:
  
Fair Value Based on Quoted Prices in Active Markets for Identical Assets
(Level 1)
Fair Value Based on Significant Other Observable Inputs
(Level 2)
Total
(dollars in millions)
2015
2014
2015
2014
2015
2014
 
 
 
 
 
 
 
Cash and cash equivalents:
 
 
 
 
 
 
Cash
$
703

$
616

$

$

$
703

$
616

Money market funds
827

842



827

842

Commercial paper


48

13

48

13

U.S. Treasury securities

5




5

U.S. corporate obligations
10

4



10

4

Non-U.S. bank and other obligations
39

33



39

33

Short-term investments:
 

 

 

 

 

 

Commercial paper


96

11

96

11

U.S. Treasury securities
32

51



32

51

U.S. corporate obligations
140

51



140

51

U.S. non-governmental agency asset-backed securities


53


53


Non-qualified plan assets:
 

 

 

 

 

 

Money market funds

1




1

Domestic bond funds
3

3



3

3

Domestic equity funds
5

5



5

5

International equity funds
3

3



3

3

Blended equity funds
5

5



5

5

Common stock
2

2



2

2

Derivatives, net asset (liability):
 

 

 

 

 

 

Foreign currency contracts


(58
)
(99
)
(58
)
(99
)
Total
$
1,769

$
1,621

$
139

$
(75
)
$
1,908

$
1,546

Fair values for financial instruments utilizing level 2 inputs were determined from information obtained from third party pricing sources, broker quotes or calculations involving the use of market indices.
At both September 30, 2015 and December 31, 2014, the fair value of the Company’s fixed-rate debt (based on Level 1 quoted market rates) were approximately $2.9 billion as compared to the $2.7 billion face value of the debt recorded, net of discounts, in the Company’s Consolidated Condensed Balance Sheet.

16


Derivative Contracts
In order to mitigate the effect of exchange rate changes, the Company will often 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 disbursements in currencies for which the Company does not expect to have fully offsetting local currency expenditures or receipts. The Company was party to a number of short- and long-term foreign currency forward contracts at September 30, 2015. The purpose of the majority of these contracts was to hedge large anticipated non-functional currency cash flows on major subsea, drilling, valve or other equipment contracts. Many of these contracts have been designated as and are accounted for as cash flow hedges for accounting purposes with changes in the fair value of those contracts recorded in accumulated other comprehensive income (loss) in the period such change occurs. Certain other contracts, many of which are centrally managed, are intended to offset other foreign currency exposures but have not been designated as hedges for accounting purposes and, therefore, any change in the fair value of those contracts is reflected in earnings in the period such change occurs. The Company determines the fair value of its outstanding foreign currency forward contracts based on quoted exchange rates for the respective currencies applicable to similar instruments.
Total gross volume bought (sold) by notional currency and maturity date on open derivative contracts at September 30, 2015 was as follows:
 
Notional Amount - Buy
Notional Amount - Sell
(amounts in millions)
2015
2016
2017
Total
2015
2016
2017
2018
Total
Foreign exchange forward contracts -
 
 
 
 
 
 
 
 
 
Notional currency in:
 
 
 
 
 
 
 
 
 
Euro
65

69

37

171

(23
)
(10
)


(33
)
Malaysian ringgit
143

76


219

(16
)



(16
)
Norwegian krone
187

598

32

817

(51
)
(74
)
(4
)

(129
)
Pound Sterling
94

22

2

118

(5
)
(1
)


(6
)
U.S. dollar
16

44

4

64

(282
)
(327
)
(101
)
(1
)
(711
)
While the Company reports and generally settles its individual derivative financial instruments on a gross basis, the agreements between the Company and its third party financial counterparties to the derivative contracts generally provide both the Company and its counterparties with the legal right to net settle contracts that are in an asset position with other contracts that are in an offsetting liability position. The fair values of derivative financial instruments recorded in the Company’s Consolidated Condensed Balance Sheets at September 30, 2015 and December 31, 2014 were as follows:
 
September 30, 2015
December 31, 2014
(dollars in millions)
Assets
Liabilities
Assets
Liabilities
 
 
 
 
 
Derivatives designated as hedging instruments:
 
 
 
 
Current
$
10

$
62

$
8

$
83

Non-current
4

4

1

12

Total derivatives designated as hedging instruments
14

66

9

95

 
 
 
 
 
Derivatives not designated as hedging instruments:
 

 

 

 

Current

6

1

14

Non-current




Total derivatives not designated as hedging instruments

6

1

14

 
 
 
 
 
Total derivatives
$
14

$
72

$
10

$
109


17


The amount of pre-tax loss from the ineffective portion of derivatives designated as hedging instruments and from derivatives not designated as hedging instruments was:
 
Three Months Ended 
 September 30,
Nine Months Ended 
 September 30,
(dollars in millions)
2015
2014
2015
2014
 
 
 
 
 
Derivatives designated as hedging instruments -
 
 
 
 
Cost of sales
$
1

$
4

$

$
3

 
 
 
 
 
Derivatives not designated as hedging instruments -
 

 

 

 

Cost of sales
11

6

20

4

Other costs

4

11

4

Total pre-tax loss
$
12

$
14

$
31

$
11

Note 16: Recently Issued Accounting Pronouncements
Revenue
In May 2014, the U.S. Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) jointly issued a comprehensive new revenue recognition standard that will supersede nearly all existing revenue recognition guidance under U.S. GAAP and International Financial Reporting Standards (IFRS).
The core principle of Accounting Standards Update 2014-09, Revenue from Contracts with Customers (ASU 2014-09), is that a company will recognize revenue when it transfers promised goods and services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods and services. In order to comply with this new standard, companies will need to:
identify performance obligations in each contract,
estimate the amount of variable consideration to include in the transaction price, and
allocate the transaction price to each separate performance obligation.
ASU 2014-09, as amended, will be effective for Cameron beginning in the first quarter of 2018. In May 2015, the FASB issued further proposed amendments to this standard that would address accounting for licenses of intellectual property and identifying performance obligations. The FASB has also indicated they are planning to issue other proposed amendments that would clarify the collectibility criterion and provide practical expedients to ease transition, among other things. The Company has begun evaluating the impact of the new standard on its business and will ultimately determine after further analysis whether it will select the full retrospective or the modified retrospective implementation method.
Debt Issuance Costs

The FASB issued ASU 2015-03, Interest-Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs (ASU 2015-03) in April 2015. ASU 2015-03 requires that debt issuance costs related to a recognized liability in the balance sheet be presented as a direct deduction to that liability rather than as an asset. This will align the presentation of debt issuance costs with that of debt discounts and premiums. Final guidance on this standard, issued as ASU 2015-15 in August 2015, includes an SEC staff announcement that the SEC staff will not object to an entity presenting the cost of securing a revolving line of credit as an asset, regardless of whether a balance is outstanding. The original standard, as issued, did not address revolving lines of credit, which may not have outstanding balances. The Company expects to adopt this new standard beginning January 1, 2016, with the guidance applied retrospectively to all prior periods presented in financial statements issued after that date. The Company does not currently anticipate a material impact on its Consolidated Balance Sheet at the time of adoption of this new standard.


18


Inventory

The FASB issued ASU 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory (ASU 2015-11) in July 2015. ASU 2015-11 requires companies to measure inventory at the lower of cost or net realizable value rather than at the lower of cost or market. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. This guidance is effective for the Company’s FIFO inventories beginning January 1, 2016. The Company does not currently anticipate a material impact on its consolidated financial statements at the time of adoption of this new standard.

Business Combinations

The FASB issued ASU 2015-16, Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments (ASU 2015-16) in September 2015. This new standard specifies that an acquirer should recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined, eliminating the current requirement to retrospectively account for these adjustments. Additionally, the full effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts should be recognized in the same period as the adjustments to the provisional amounts. The Company expects to adopt this new standard beginning January 1, 2016.


19



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, customer spending and order levels, revenues and earnings of the Company, as well as expectations regarding equipment deliveries, margins, profitability, the ability to control and reduce raw material, overhead and operating costs, cash generated from operations, capital expenditures and the use of existing cash balances and future anticipated cash flows 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 any forward-looking statements. Any such 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 projects it has been awarded; the possibility of cancellations of orders in backlog; the Company’s ability to convert backlog into revenues on a timely and profitable basis; 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 directly affected customers’ spending levels and their related purchases of the Company’s products and services. As a result, changes in oil and gas price expectations may impact the demand for the Company’s products and services and the Company’s financial results due to changes in cost structure, staffing and spending levels the Company makes in response thereto. See additional factors discussed in “Factors That May Affect Financial Condition and Future Results” contained herein.
Because the information herein is based solely on data currently available, it is subject to change as a result of, among other things, changes in conditions over which the Company has no control or influence, and should not therefore be viewed as assurance regarding the Company’s future performance. Additionally, the Company is not obligated to make public disclosure of such changes unless required under applicable disclosure rules and regulations.

Merger of Cameron with Schlumberger

On August 26, 2015, Cameron and Schlumberger Limited (Schlumberger) announced that the companies had entered into an Agreement and Plan of Merger (the “Merger Agreement”) whereby a U.S. subsidiary of Schlumberger would acquire all of the issued and outstanding stock of Cameron. Under the terms of the agreement, Cameron shareholders will receive 0.716 shares of Schlumberger common stock and a cash payment of $14.44 in exchange for each Cameron common share. The Merger Agreement was unanimously approved by the board of directors of both companies. Consummation of the Merger is subject to customary closing conditions, including (a) approval by a majority of the Cameron stockholders of the Merger Agreement and (b) receipt of required regulatory consents and approvals. Schlumberger stockholders are not required to vote on the Merger Agreement. Should Cameron terminate the Merger Agreement in specified circumstances, the Company would be required to pay Schlumberger a termination fee equal to $321 million. This transaction is currently expected to close during the first quarter of 2016.


20


THIRD QUARTER 2015 COMPARED TO THIRD QUARTER 2014

Market Conditions
Information related to a measure of drilling activity and certain commodity spot and futures prices during each quarter and the number of deepwater floaters and semis under contract at the end of each period follows:
 
Three Months Ended September 30,
 
Increase (Decrease)
 
2015
 
2014
 
Amount
 
%
Drilling activity (average number of working rigs during period)(1):
 
 
 
 
 
 
 
United States
866

 
1,903

 
(1,037
)
 
(54.5
)%
Canada
191

 
385

 
(194
)
 
(50.4
)%
Rest of world
1,132

 
1,348

 
(216
)
 
(16.0
)%
Global average rig count
2,189

 
3,636

 
(1,447
)
 
(39.8
)%
 
 
 
 
 
 
 
 
Commodity prices (average of daily U.S. dollar prices per unit during period)(2):
 

 
 

 
 

 
 

West Texas Intermediate (WTI) Cushing, OK crude spot price (per barrel)
$
46.48

 
$
97.60

 
$
(51.12
)
 
(52.4
)%
Brent crude oil spot price (per barrel)
$
54.57

 
$
104.30

 
$
(49.73
)
 
(47.7
)%
Henry Hub natural gas spot price (per MMBtu)
$
2.75

 
$
3.93

 
$
(1.18
)
 
(30.0
)%
 
 
 
 
 
 
 
 
Twelve-month futures strip price (U.S. dollar amount at period end)(2):
 

 
 

 
 

 
 

West Texas Intermediate (WTI) Cushing, OK crude oil contract (per barrel)
$
47.83

 
$
88.68

 
$
(40.85
)
 
(46.1
)%
Brent crude oil contract (per barrel)
$
48.37

 
$
94.67

 
$
(46.30
)
 
(48.9
)%
Henry Hub natural gas contract (per MMBtu)
$
2.75

 
$
4.01

 
$
(1.26
)
 
(31.4
)%
 
 
 
 
 
 
 
 
Contracted drillships and semi-submersibles by location at period-end(3):
 

 
 

 
 

 
 

U.S. Gulf of Mexico
46

 
48

 
(2
)
 
(4.2
)%
Central and South America
55

 
66

 
(11
)
 
(16.7
)%
Northwestern Europe
38

 
44

 
(6
)
 
(13.6
)%
West Africa
32

 
46

 
(14
)
 
(30.4
)%
Far East, Southeast Asia and Australia
28

 
39

 
(11
)
 
(28.2
)%
Indian Ocean
7

 
16

 
(9
)
 
(56.3
)%
Other
20

 
24

 
(4
)
 
(16.7
)%
Total
226

 
283

 
(57
)
 
(14.7
)%
(1) 
Based on average monthly rig count data from Baker Hughes
(2) 
Source: Bloomberg
(3) 
Source: IHS Energy – IHS Petrodata World Rig Forecast
Third quarter 2015 average worldwide rig count levels were down significantly from the same period in 2014, largely due to lower activity levels in the United States, mainly reflecting (i) the continued low commodity prices that began during the latter half of 2014 and (ii) the resulting 2015 capital spending cuts announced by many oil and gas production companies. Average worldwide working rig count levels for the month of September 2015 decreased approximately 39% from December 2014 but

21


were approximately the same as during June 2015. The current worldwide working rig count levels continue to be at their lowest levels since mid-2009. Although the Company has a backlog of work that is scheduled to be executed during the remainder of 2015, these declines in commodity prices and drilling activity levels have already had and will continue to have a negative impact on future demand for our products and services and our future revenues and earnings. Based on the Company’s long history in the energy sector, we believe such declines in commodity prices and the level of demand are typically cyclical in nature. During such cyclical downturns, we take steps to adjust our commercial, manufacturing and support operations as appropriate to ensure that the Company remains competitive. The Company cannot predict the duration or depth of this down cycle.

In the United States, the average number of rigs drilling for oil during the third quarter of 2015 decreased approximately 59% from the same period in 2014 and, at the end of September 2015, decreased approximately 2% from the end of the second quarter of 2015, to its lowest level since August 2010. Rigs drilling for oil accounted for approximately 77% of total U.S. rig count levels at the end of September 2015, compared to 82% at the end of September 2014. The number of rigs drilling for gas in the United States during the third quarter of 2015 was approximately 36% less than the third quarter of 2014. Based on data from Baker Hughes, gas rig count levels in the United States during the third quarter of 2015 declined to their lowest levels in more than a quarter of a century.

The decrease in the Canadian rig count during the third quarter of 2015 as compared to the same period in 2014 was due largely to a decrease of approximately 61% in the number of rigs drilling for oil. Rigs drilling for gas decreased approximately 38% during those same periods.

Average crude oil and natural gas prices were significantly lower during the third quarter of 2015 as compared to the same period last year. Both WTI and Brent crude prices at the end of the third quarter of 2015 have declined approximately 51% and 46%, respectively, since September 30, 2014. The twelve-month futures price for WTI crude oil at September 30, 2015 was approximately 6% higher than spot prices at the end of the quarter. The twelve-month futures price for Brent crude oil at September 30, 2015 was approximately 7% lower than spot prices at the end of the third quarter.

Average natural gas prices during the third quarter of 2015 were down approximately 30% from the same period in 2014 and increased slightly when compared to average prices during the second quarter of 2015. Spot prices at the end of September 2015 were approximately 40% lower than at the end of September 2014. At September 30, 2015, the twelve-month futures strip price for natural gas at Henry Hub was $2.75 per MMBtu, which was 10% higher than the spot price at that date of $2.47 per MMBtu. 

The total number of drillships and semi-submersibles under contract at September 30, 2015 was down from September 30, 2014 due to the decline in commodity prices and drilling activity that began in the latter half of 2014. Based on data from IHS Energy, the contracted utilization rates for drillships was 75.8% in September 2015 compared to 92.7% in September 2014 and the contracted utilization rate for semi-submersibles was 70.2% in September 2015 compared to 81.9% in September 2014. At September 30, 2015, the supply of available semi-submersibles and drillships currently exceeds demand with additional supply expected to come on-line during the remainder of 2015 and beyond. Many of the newbuild drillships and semi-submersibles that are currently on order, planned or under construction do not currently have contracts in place. In connection with this, and in response to current market conditions, certain drilling contractors are making efforts to defer delivery of newbuild units and have begun to cold stack or scrap certain older rigs in their existing portfolios.

Consolidated Results
Net income attributable to Cameron stockholders for the third quarter of 2015 totaled $187 million, compared to $225 million for the same period in 2014. Earnings from continuing operations per diluted share totaled $0.98 for the third quarter of 2015, compared to $1.10 per diluted share for the same period in 2014. Included in the third quarter 2015 results were certain costs totaling $0.20 per diluted share, primarily associated with:

the estimated loss and asset write-downs of $24 million associated with the expected sale of the Company’s LeTourneau Offshore Products business, and

merger, severance and restructuring activities.

Included in the results for the third quarter of 2014 were after-tax costs, totaling $0.07 per diluted share, primarily related to a loss on disposal of non-core assets, costs associated with the early retirement of certain Senior Notes and severance, restructuring and various other costs.

22



Total revenues for the Company decreased $470 million, or 17.6%, during the three months ended September 30, 2015 as compared to the three months ended September 30, 2014. Revenues declined in all reporting segments due to weak market conditions resulting from the decrease in commodity prices and activity levels described above.

The Company’s margins (defined as revenues minus cost of sales, excluding depreciation and amortization, divided by revenues) increased to 30.7% during the third quarter of 2015 from 28.5% during the same period in 2014 mainly as a result of continuing improvements in project execution coupled with favorable margin mix compared to prior year in the Subsea and Drilling segments partially offset by pricing pressures and volume declines in Surface and V&M as described further below under “Segment Results”.

Selling and administrative expenses decreased $64 million, or 20.0%, during the three months ended September 30, 2015 as compared to the three months ended September 30, 2014. This decrease reflects the results of the Company’s internal transformation which began in 2014. The goal of this transformation effort is to permanently lower the Company’s operating cost structure. Selling and administrative expenses were 11.6% of revenues for the third quarter of 2015, down from 11.9% for the third quarter of 2014.

Other costs totaled $44 million for the three months ended September 30, 2015, largely related to the estimated loss and asset write-downs of $24 million associated with the expected sale of the Company’s LeTourneau Offshore Products business anticipated to close in the second quarter of 2016 and various acquisition and restructuring activities. The loss on disposal of certain non-core assets, costs associated with the early retirement of certain Senior Notes and severance, restructuring and various other costs accounted for the majority of the $19 million of costs recognized in the third quarter of 2014. See Note 4 of the Notes to Consolidated Condensed Financial Statements for further information.

The Company’s effective tax rate on income from continuing operations for the third quarter of 2015 was 16.9% compared to 23.0% for the third quarter of 2014. The components of the effective tax rates for both periods were as follows:

 
Three Months Ended September 30,
  
2015
2014
(dollars in millions)
Tax Provision
Tax Rate
Tax Provision
Tax Rate
 
 
 
 
 
Provision (benefit) based on international income (loss) distribution
$
43