Cameron International Corporation (Cameron or the Company) is a leading provider of flow equipment products, systems and services to worldwide oil, gas and process industries. See “Glossary of Terms” at the end of Item 1 for definitions of certain terms used in this section. Any reference to Cameron, its divisions or business units within this paragraph or elsewhere within this Form 10-K as being a leader, leading provider, leading manufacturer, or having a leading position is based on the amount of equipment installed worldwide and available industry data.
The Company’s operations are organized into three business segments – Drilling & Production Systems (DPS), Valves & Measurement (V&M) and Compression Systems (CS).
Cameron’s origin dates back to the mid-1800s with the manufacture of steam engines that provided power for plants and textile or rolling mills. By 1900, with the discovery of oil and gas, Cameron’s predecessor businesses over time became more focused on serving those companies involved in the exploration and production of oil and gas. This focus grew with the acquisition of various businesses including Cameron Iron Works (blowout preventers, ball valves, control equipment and McEvoy-Willis wellhead equipment and choke valves), The Bessemer Gas Engine Company (gas engines and compressors); Ajax Iron Works (compressors); Superior (engines and compressors); Joy Petroleum Equipment Group (valves, couplings and wellheads); and Joy Industrial Compressor Group (compressors).
Cameron is a Delaware corporation and was incorporated in its current form on November 10, 1994. The Company operated as a wholly-owned subsidiary of Cooper Industries, Inc. until June 30, 1995, when it was spun-off as a separate stand-alone company. Since then, Cameron has continued its acquisition strategy having made numerous acquisitions including the 1996 acquisition of Ingram Cactus Company, the 1998 acquisition of Orbit Valve International, Inc., 2004’s acquisition of Petreco International, Inc., the purchase of substantially all of the businesses within the Flow Control segment of Dresser, Inc. in 2005 and the acquisition of NATCO Group, Inc. (NATCO) in 2009.
The common stock of Cameron trades on the New York Stock Exchange under the symbol “CAM”. The Company’s Internet address is www.c-a-m.com. General information about Cameron, including its Corporate Governance Principles, charters for the committees of the Company’s board of directors, Standards of Conduct, and Codes of Ethics for Management Personnel, including Senior Financial Officers and Directors, can be found in the Ethics and Governance section of the Company’s website. The Company makes available on its website its annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities and Exchange Act of 1934, as amended (the Exchange Act) as soon as reasonably practicable after the Company electronically files or furnishes them to the United States Securities and Exchange Commission (the SEC). Information filed by the Company with the SEC is also available at www.sec.gov or may be read and copied at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. Information regarding operations of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330.
Market Issues
Cameron is one of the leaders in the global market for the supply of petroleum production equipment. Cameron believes that it is well-positioned to serve these markets. Plant and service center facilities around the world in major oil- and gas-producing regions provide a broad market coverage. Information relating to revenues generated from shipments to various geographic regions of the world is set forth on page 29 of “Management’s Discussion and Analysis of Financial Condition and Results of Operations of Cameron International Corporation” incorporated by reference in Part II, Item 7 of this Annual Report on Form 10-K and incorporated herein by reference.
The market beyond North America continues to be of greater importance to Cameron accounting for more than 60% of Cameron’s revenues for each of the three years in the period ended December 31, 2009. The desire to expand oil and gas resources and transmission capacity in developed and developing countries, for both economic and political reasons, continues to be a major factor affecting market demand. Additionally, establishment of industrial infrastructure in the developing countries will necessitate the growth of basic industries that require plant air and process compression equipment. Production and service facilities in North and South America, Europe, the Far and Middle East and West Africa provide the Company with the ability to serve the global marketplace.
In recent years, DPS has been expanding into the deepwater subsea systems market. This market is significantly different from the Company’s other markets since deepwater 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, the application of new technology. These projects accounted for approximately 16% of the Company’s consolidated revenues for the year ended December 31, 2009. To the extent the Company experiences unplanned efficiencies or difficulties in meeting the technical and/or delivery requirements of the projects, the Company’s earnings or liquidity could be positively or negatively impacted. As of December 31, 2009, the Company had a subsea systems project backlog of approximately $2.0 billion.
The public and private credit markets in the United States and around the world became severely constricted in late 2008 due to economic concerns about various world economies. This uncertainty and turmoil in the credit markets negatively impacted, in certain cases, the ability of customers to finance purchases of the Company’s equipment which may have contributed to a decline in sales, profitability and operating cash flows of the Company during a portion of 2009. While economic conditions have shown some improvement in recent months, significant uncertainty still exists over future economic conditions and lenders in many cases continue to exercise tighter lending standards than in recent previous years. Oil prices, which averaged $100 per barrel during 2008, declined from over $140 per barrel in mid-2008 to nearly $40 per barrel by the end of 2008. Prices recovered somewhat during 2009 moving back up to the $70 - $80 range for most of the second half of 2009. Additionally, natural gas prices which averaged around $9.00 per Mcf in 2008 fell to the $5.00 to $6.00 per Mcf range by the end of 2008 and have since stabilized in that range for much of 2009 reflecting currently high storage levels. Also, rig count levels have shown modest improvement in recent months. The significant declines in oil and natural gas prices and activity levels around the world negatively impacted the Company’s 2009 orders and results of operations compared to 2008. The decline in orders during 2009 has resulted in a decrease in backlog levels in the Company’s V&M and CS segments as of the end of 2009 as compared to the end of 2008 which may negatively impact 2010 revenues for those segments when compared to revenues reported for those segments in 2009.
New Product Development
For the years ended December 31, 2009, 2008 and 2007, the Company incurred research and product development costs, including costs incurred on projects designed to enhance or add to its existing product offerings, totaling approximately $78,115,000, $68,665,000 and $59,585,000, respectively. DPS accounted for 70%, 69% and 68% of each respective year’s total costs.
During 2009, Cameron’s Drilling Systems group introduced the world’s first 18¾” 20,000-psi BOP with significantly enhanced capability for high-pressure well drilling and completion. This new offering provides the characteristics of reduced height and weight found in the EVO™ BOP that was introduced in 2007 as a compact, lighter version of Cameron’s traditional subsea BOP. Also during 2008, the Company introduced the Sea Pressure Accumulator™ (SPA), a complement to the EVO BOP, which uses seawater pressure instead of traditional nitrogen-charged accumulator bottles to power the BOP rams.
The Drilling Systems group also introduced Cameron’s RoboSpider in 2009, the world’s first fully automated hydraulic drilling riser torque system and the NASMUX System, an acoustic controls system for subsea BOP’s that offers an alternative to traditional multiplexed control systems.
New 2009 offerings from Cameron’s Surface Systems group includes the EXACT-10™ (10,000-psi) and EXACT-15™ (15,000-psi) Adjustable Wellhead Systems suitable for both exploration and production drilling applications and a new DF-PA (Diver-Friendly Plug & Abandonment) System designed specifically for installation on hurricane-damaged wells in the Gulf of Mexico.
Cameron’s Subsea Systems group made the initial deployment of its new all-electric subsea production system, CameronDC™ in late 2008 in Total’s K5F field in the Dutch North Sea. The system has performed as expected and modifications are currently being made to extend its range of possible applications. One of the latest offerings from the Subsea Systems group is the Multiple Application Reinjection System (MARS™), a unique well intervention system that serves as an interface between subsea production trees and a variety of processing equipment.
With the November 2009 acquisition of NATCO, Cameron’s Process Systems group has added NATCO’s unique CO2 membrane separation technology to its current product offerings.
Employees
As of December 31, 2009, Cameron had approximately 18,100 employees, of which approximately 21% were represented by labor unions. Over 736 of these employees are covered by contracts expiring in 2010. In Romania, the Company has approximately 574 employees at its facilities with contracts expiring on various dates in the second half of 2010.
The Company entered into a number of new agreements during 2009, five of which cover a large number of employees. Two agreements renewed in 2009 cover approximately 700 employees at the Company’s facilities in Italy and expire December 31, 2012. A third agreement covers approximately 297 employees at the Company’s Buffalo, New York location and expires August 6, 2012. New agreements were also signed for the Company’s Leeds and Singapore facilities covering approximately 385 and 330 employees expiring October 2010 and June 2011, respectively.