-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VWzyl0+ha/7/TbnwYjLIlK9nHDh5qHRCWmoXKW8GiKlYz2eZh777h+MH5RwFiH1n P6f7EwGm4rGD6J2AYRvKMQ== 0000950129-97-003157.txt : 19970811 0000950129-97-003157.hdr.sgml : 19970811 ACCESSION NUMBER: 0000950129-97-003157 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970808 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: BJ SERVICES CO CENTRAL INDEX KEY: 0000864328 STANDARD INDUSTRIAL CLASSIFICATION: OIL, GAS FIELD SERVICES, NBC [1389] IRS NUMBER: 630084140 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 033-58639 FILM NUMBER: 97654536 BUSINESS ADDRESS: STREET 1: 5500 NW CENTRAL DR CITY: HOUSTON STATE: TX ZIP: 77210 BUSINESS PHONE: 713-462-4239 MAIL ADDRESS: STREET 1: 5500 NORTHWEST CENTRAL DR STREET 2: 5500 NORTHWEST CENTRAL DR CITY: HOUSTON STATE: TX ZIP: 77092 10-Q 1 BJ SERVICES COMPANY - DATED 06/30/97 1 =============================================================================== SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q |X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997 OR |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition Period From _______ to _______. COMMISSION FILE NUMBER 1-10570 BJ SERVICES COMPANY (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 63-0084140 (STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION) (I.R.S. EMPLOYER IDENTIFICATION NO.) 5500 NORTHWEST CENTRAL DRIVE, HOUSTON, TEXAS 77092 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (713) 462-4239 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 [X] NO [ ] There were 38,428,207 shares of the registrant's common stock, $.10 par value, outstanding as of August 7, 1997. =============================================================================== 2 BJ SERVICES COMPANY INDEX PART I - FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Condensed Statement of Operations (Unaudited) - Three and nine months ended June 30, 1997 and 1996 3 Consolidated Condensed Statement of Financial Position - June 30, 1997 (Unaudited) and September 30, 1996 4 Consolidated Condensed Statement of Cash Flows (Unaudited) - Nine months ended June 30, 1997 and 1996 5 Notes to Unaudited Consolidated Condensed Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 18 PART II - OTHER INFORMATION 24
2 3 PART I FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS BJ SERVICES COMPANY CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED NINE MONTHS ENDED JUNE 30, JUNE 30, 1997 1996 1997 1996 --------- --------- ----------- --------- Revenue $ 368,619 $ 220,960 $ 1,052,697 $ 628,255 Operating expenses: Cost of sales and services 284,516 178,415 828,967 512,664 Research and engineering 6,367 3,992 18,359 11,594 Marketing 13,291 9,837 37,092 27,720 General and administrative 12,734 9,027 37,407 25,749 Goodwill amortization 3,515 1,354 10,900 4,025 Unusual charge 3,539 3,539 --------- --------- ----------- --------- Total operating expenses 320,423 206,164 932,725 585,291 --------- --------- ----------- --------- Operating income 48,196 14,796 119,972 42,964 Interest expense (7,780) (5,654) (24,078) (16,749) Interest income 300 217 603 543 Other income - net 27 1,664 879 3,003 --------- --------- ----------- --------- Income before income taxes 40,743 11,023 97,376 29,761 Income taxes 12,632 1,951 29,094 7,121 --------- --------- ----------- --------- Net income $ 28,111 $ 9,072 $ 68,282 $ 22,640 ========= ========= =========== ========= Net income per share Primary $ .68 $ .31 $ 1.67 $ .79 Fully diluted $ .68 $ .31 $ 1.65 $ .77 Average shares outstanding Primary 41,170 29,651 40,853 28,705 Fully diluted 41,354 29,663 41,291 29,573
SEE NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS 3 4 BJ SERVICES COMPANY CONSOLIDATED CONDENSED STATEMENT OF FINANCIAL POSITION (IN THOUSANDS)
JUNE 30, SEPTEMBER 30, 1997 1996 ---------- ------------- (UNAUDITED) ASSETS Current assets: Cash and cash equivalents $ 3,483 $ 2,897 Receivables - net 294,817 271,583 Inventories: Finished goods 67,897 59,926 Work in process 8,084 9,479 Raw materials 20,682 17,696 ---------- ---------- Total inventories 96,663 87,101 Deferred income taxes 12,364 19,349 Other current assets 21,243 37,217 ---------- ---------- Total current assets 428,570 418,147 Property - net 576,321 558,156 Deferred income taxes 190,041 132,666 Goodwill - net 522,305 567,260 Other assets 14,094 32,931 ---------- ---------- $1,731,331 $1,709,160 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 143,684 $ 141,966 Short-term borrowings and current portion of long-term debt 92,902 34,358 Accrued employee compensation and benefits 35,247 32,227 Income and other taxes 16,877 13,698 Accrued insurance 14,105 13,282 Other accrued liabilities 53,527 56,494 ---------- ---------- Total current liabilities 356,342 292,025 Long-term debt 412,224 523,004 Deferred income taxes 7,031 11,740 Accrued post retirement benefits and other 33,907 40,688 Stockholders' equity 921,827 841,703 ---------- ---------- $1,731,331 $1,709,160 ========== ==========
SEE NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS 4 5 BJ SERVICES COMPANY CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS (UNAUDITED) (IN THOUSANDS)
NINE MONTHS ENDED JUNE 30, 1997 1996 --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 68,282 $ 22,640 Adjustments to reconcile net income to cash provided by operating activities: Amortization of unearned compensation 1,125 819 Unusual charge (noncash) 3,539 Depreciation and amortization 67,364 44,288 Deferred income taxes 19,962 697 Changes in: Receivables (21,273) (9,448) Inventories (6,222) (2,246) Accounts payable (595) (47) Other current assets and liabilities 4,477 (23,187) Other - net (38,954) (16,673) --------- --------- Net cash provided by operating activities 94,166 20,382 CASH FLOWS FROM INVESTING ACTIVITIES: Property additions (60,043) (34,372) Proceeds from disposal of assets 26,126 4,458 Acquisition of business, net of cash acquired (13,464) (586,535) --------- --------- Net cash used for investing activities (47,381) (616,449) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from borrowings - net 591,701 Reduction of borrowings - net (52,236) Proceeds from issuance of stock 6,037 4,536 --------- --------- Net cash provided by (used for) financing activities (46,199) 596,237 Increase in cash and cash equivalents 586 170 Cash and cash equivalents at beginning of period 2,897 1,842 --------- --------- Cash and cash equivalents at end of period $ 3,483 $ 2,012 ========= =========
SEE NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS 5 6 BJ SERVICES COMPANY NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS NOTE 1 GENERAL In the opinion of management, the unaudited consolidated condensed financial statements for BJ Services Company (the "Company") include all adjustments (consisting solely of normal recurring adjustments) necessary for a fair presentation of the financial position as of June 30, 1997, the results of operations for each of the three-month and nine-month periods ended June 30, 1997 and 1996 and the results of cash flows for each of the nine-month periods ended June 30, 1997 and 1996. The consolidated condensed statement of financial position at September 30, 1996 is derived from the September 30, 1996 audited consolidated financial statements. Although management believes the disclosures in these financial statements are adequate to make the information presented not misleading, certain information and footnote disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. The results of operations and the cash flows for the three and nine-month periods ended June 30, 1997 are not necessarily indicative of the results to be expected for the full year. Supplemental Cash Flow Disclosure -- In 1997, the Company increased its estimate of the amount of pre-acquisition losses of Western and Nowsco for which it is more likely than not that tax benefits will ultimately be realized. Accordingly, the Company has recorded a $69.4 million increase in the deferred tax asset along with a corresponding decrease in goodwill. Certain amounts for fiscal 1996 have been reclassified in the accompanying consolidated condensed financial statements to conform to the current year presentation. NOTE 2 EARNINGS PER SHARE Primary earnings per share are based on the weighted average number of shares outstanding during each period and the assumed exercise of dilutive stock options and warrants less the number of treasury shares assumed to be purchased from the proceeds using the average market price of the Company's common stock for each of the periods presented. Fully diluted earnings per share are based on the weighted average number of shares outstanding during each period and the assumed exercise of dilutive stock options and warrants less the number of treasury shares assumed to be purchased from the proceeds using the closing market price of the Company's common stock at the end of each of the periods presented if greater than the average market price during the period. 6 7 The following table presents information necessary to calculate earnings per share for the periods presented (in thousands except earnings per share):
THREE MONTHS ENDED NINE MONTHS ENDED JUNE 30, JUNE 30, 1997 1996 1997 1996 ----------- ----------- ----------- ----------- Net income $ 28,111 $ 9,072 $ 68,282 $ 22,640 =========== =========== =========== =========== Average primary common and common equivalent shares outstanding: Common stock 38,355 28,190 38,292 28,100 Common stock equivalents from assumed exercise of stock options 857 771 815 605 Common stock equivalents from assumed exercise of warrants 1,958 690 1,746 ----------- ----------- ----------- ----------- 41,170 29,651 40,853 28,705 =========== =========== =========== =========== Primary earnings per share $ .68 $ .31 $ 1.67 $ .79 =========== =========== =========== =========== Average fully diluted common and common equivalent shares outstanding: Common stock 38,355 28,190 38,292 28,100 Common stock equivalents from assumed exercise of stock options 887 774 887 774 Common stock equivalents from assumed exercise of warrants 2,112 699 2,112 699 ----------- ----------- ----------- ----------- 41,354 29,663 41,291 29,573 =========== =========== =========== =========== Fully diluted earnings per share $ .68 $ .31 $ 1.65 $ .77 =========== =========== =========== ===========
In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128 ("SFAS 128") "Earnings Per Share." SFAS 128 establishes standards for computing and presenting earnings per share ("EPS") and applies to entities with publicly held common stock or potential common stock. This statement simplifies the standards for computing EPS previously found in Accounting Principles Board Opinion No. 15 ("APB 15"), "Earnings Per Share," and makes them comparable to international EPS standards. The statement replaces the presentation of primary EPS and fully diluted EPS, and requires presentation of basic EPS and diluted EPS. Basic EPS excludes dilution and is computed by dividing income available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted EPS is computed similarly to fully diluted EPS pursuant to APB 15. This statement is effective for financial statements issued for periods ending after December 15, 1997, including interim periods; earlier application is not permitted. Proforma basic EPS for the three months ended June 30, 7 8 1997 and 1996 is $.73 and $.32, respectively. Proforma basic EPS for the nine months ended June 30, 1997 and 1996 is $1.78 and $.81, respectively. Based on the Company's current capital structure, proforma diluted EPS is the same as primary EPS for all periods presented. NOTE 3 ACQUISITION OF BUSINESS Effective December 1, 1996, the Company acquired the remaining 51% ownership of its previously unconsolidated joint venture in Argentina, for total consideration of $13.5 million which was funded through borrowings under existing credit facilities. This acquisition was accounted for as a purchase and, accordingly, the acquired assets and liabilities have been recorded at their estimated fair values at the date of acquisition. The consolidated statement of operations includes operating results of the subsidiary acquired since the date of acquisition. This acquisition is not material to the Company's financial statements and therefore pro forma information is not presented. NOTE 4 NEW ACCOUNTING PRONOUNCEMENTS In June 1997, the Financial Accounting Standards Board issued Statement No. 130, "Reporting Comprehensive Income," (SFAS No. 130) and Statement No. 131, "Disclosures About Segments of an Enterprise and Related Information," (SFAS No. 131). SFAS No. 130 and SFAS No. 131 are effective for periods beginning after December 15, 1997. SFAS No. 130 establishes standards for the reporting and displaying of comprehensive income and its components. SFAS No. 131 establishes standards for the way that public business enterprises report information about operating segments in interim and annual financial statements. These two statements will have no effect on the Company's 1997 financial statements, but management is currently evaluating what, if any, additional disclosures may be required when these two statements are adopted in the first quarter of fiscal 1999. 8 9 NOTE 5 SUPPLEMENTAL GUARANTOR INFORMATION In August 1996, the Company exchanged unsecured 7% Series B Notes due 2006 (the "7% Series B Notes") for its then outstanding unsecured 7% Notes due 2006. Three of the Company's subsidiaries, BJ Services Company, U.S.A., BJ Service International, Inc. and BJ Services Company Middle East (collectively, the "Guarantor Subsidiaries"), are guarantors of the 7% Series B Notes. Each of the Guarantor Subsidiaries has fully and unconditionally guaranteed, on a joint and several basis, the Company's obligation to pay principal and interest with respect to the 7% Series B Notes. Substantially all of the Company's operating income and cash flow is generated by its subsidiaries. As a result, funds necessary to meet the Company's debt service obligations are provided in part by distributions or advances from its subsidiaries. Under certain circumstances, contractual and legal restrictions, as well as the financial condition and operating requirements of the Company's subsidiaries, could limit the Company's ability to obtain cash from its subsidiaries for the purpose of meeting its debt service obligations, including the payment of principal and interest on the 7% Series B Notes. Although holders of the 7% Series B Notes are direct creditors of the Company's principal direct subsidiaries by virtue of the guarantees, the Company has subsidiaries ("NonGuarantor Subsidiaries") that are not included among the Guarantor Subsidiaries, and such subsidiaries are not obligated with respect to the 7% Series B Notes. As a result, the claims of creditors of the Non-Guarantor Subsidiaries will effectively have priority with respect to the assets and earnings of such companies over the claims of creditors of the Company, including the holders of the 7% Series B Notes. The following supplemental consolidating condensed financial statements present: 1. Consolidating condensed statements of financial position as of June 30, 1997 and September 30, 1996, consolidating condensed statements of operations for each of the three-month and nine-month periods ended June 30, 1997 and 1996 and consolidating condensed statements of cash flows for each of the nine-month periods ended June 30, 1997 and 1996. 2. BJ Services Company (the "Parent"), combined Guarantor Subsidiaries and combined Non-Guarantor Subsidiaries with their investments in subsidiaries accounted for using the equity method. 3. Elimination entries necessary to consolidate the Parent and all of its subsidiaries. Management does not believe that separate financial statements of the Guarantor Subsidiaries of the 7% Series B Notes are material to investors in the 7% Series B Notes. 9 10 SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS (IN THOUSANDS) THREE MONTHS ENDED JUNE 30, 1997
COMBINED COMBINED GUARANTOR NONGUARANTOR PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED -------------- ------------- ------------- ----------- ------------- Revenue $ $ 212,038 $ 167,704 $ (11,123) $ 368,619 Operating expenses: Cost of sales and services 162,816 132,823 (11,123) 284,516 Research and engineering 2,172 4,195 6,367 Marketing 10,314 2,977 13,291 General and administrative 6,369 6,365 12,734 Goodwill amortization 951 2,564 3,515 -------------- ------------- ------------- ----------- ------------- Total operating expenses 182,622 148,924 (11,123) 320,423 -------------- ------------- ------------- ----------- ------------- Operating income 29,416 18,780 48,196 Interest income 1,339 205 (1,244) 300 Interest expense (5,353) (3,671) 1,244 (7,780) Income from equity investees 28,111 9,932 (38,043) Other income (expense) - net 218 (191) 27 -------------- ------------- ------------- ----------- ------------- Income before income taxes 28,111 35,552 15,123 (38,043) 40,743 Income tax expense 7,441 5,191 12,632 -------------- ------------- ------------- ----------- ------------- Net income $ 28,111 $ 28,111 $ 9,932 $ (38,043) $ 28,111 ============== ============= ============= =========== =============
10 11 SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS (IN THOUSANDS) THREE MONTHS ENDED JUNE 30, 1996
COMBINED COMBINED GUARANTOR NONGUARANTOR PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED -------------- ------------- ------------- -------------- ------------- Revenue $ $ 144,063 $ 83,991 $ (7,094) $ 220,960 Operating expenses: Cost of sales and services 121,775 63,734 (7,094) 178,415 Research and engineering 3,789 203 3,992 Marketing 7,567 2,270 9,837 General and administrative 5,731 3,296 9,027 Goodwill amortization 1,179 175 1,354 Unusual charge 3,539 3,539 -------------- ------------- ------------- -------------- ------------- Total operating expenses 143,580 69,678 (7,094) 206,164 -------------- ------------- ------------- -------------- ------------- Operating income 483 14,313 14,796 Interest income 348 217 (348) 217 Interest expense (6,392) 390 348 (5,654) Income from equity investees 9,072 13,203 (22,275) Other income-net 329 1,335 1,664 -------------- ------------- ------------- -------------- ------------- Income before income taxes 9,072 7,971 16,255 (22,275) 11,023 Income tax expense (benefit) (1,101) 3,052 1,951 -------------- ------------- ------------- -------------- ------------- Net income $ 9,072 $ 9,072 $ 13,203 $ (22,275) $ 9,072 ============== ============= ============= ============== =============
11 12 SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS (IN THOUSANDS) NINE MONTHS ENDED JUNE 30, 1997
COMBINED COMBINED GUARANTOR NONGUARANTOR PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED -------------- ------------- ------------- -------------- ------------- Revenue $ $ 590,111 $ 487,912 $ (25,326) $ 1,052,697 Operating expenses: Cost of sales and services 468,884 385,409 (25,326) 828,967 Research and engineering 6,020 12,339 18,359 Marketing 27,626 9,466 37,092 General and administrative 18,998 18,409 37,407 Goodwill amortization 3,332 7,568 10,900 -------------- ------------- ------------- -------------- ------------- Total operating expenses 524,860 433,191 (25,326) 932,725 -------------- ------------- ------------- -------------- ------------- Operating income 65,251 54,721 119,972 Interest income 3,571 688 (3,656) 603 Interest expense (16,688) (11,046) 3,656 (24,078) Income from equity investees 68,282 26,299 (94,581) Other income (expense) - net 1,066 (187) 879 -------------- ------------- ------------- -------------- ------------- Income before income taxes 68,282 79,499 44,176 (94,581) 97,376 Income tax expense 11,217 17,877 29,094 -------------- ------------- ------------- -------------- ------------- Net income $ 68,282 $ 68,282 $ 26,299 $ (94,581) $ 68,282 ============== ============= ============= ============== =============
12 13 SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS (IN THOUSANDS) NINE MONTHS ENDED JUNE 30, 1996
COMBINED COMBINED GUARANTOR NONGUARANTOR PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED -------------- ------------- ------------- -------------- ------------- Revenue $ $ 417,185 $ 236,038 $ (24,968) $ 628,255 Operating expenses: Cost of sales and services 358,415 179,217 (24,968) 512,664 Research and engineering 10,985 609 11,594 Marketing 21,214 6,506 27,720 General and administrative 15,829 9,920 25,749 Goodwill amortization 3,501 524 4,025 Unusual charge 3,539 3,539 -------------- ------------- ------------- -------------- ------------- Total operating expenses 413,483 196,776 (24,968) 585,291 -------------- ------------- ------------- -------------- ------------- Operating income 3,702 39,262 42,964 Interest income 1,077 537 (1,071) 543 Interest expense (16,001) (1,819) 1,071 (16,749) Income from equity investees 22,640 29,776 (52,416) Other income-net 1,949 1,054 3,003 -------------- ------------- ------------- -------------- ------------- Income before income taxes 22,640 20,503 39,034 (52,416) 29,761 Income tax expense (benefit) (2,137) 9,258 7,121 -------------- ------------- ------------- -------------- ------------- Net income $ 22,640 $ 22,640 $ 29,776 $ (52,416) $ 22,640 ============== ============= ============= ============== =============
13 14 SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENT OF FINANCIAL POSITION (IN THOUSANDS) JUNE 30, 1997
COMBINED COMBINED GUARANTOR NONGUARANTOR PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED -------------- ------------- ------------- ---------------- -------------- ASSETS Current assets: Cash and cash equivalents $ $ 3,483 $ $ $ 3,483 Receivables - net 123,785 171,032 294,817 Inventories - net 44,626 52,037 96,663 Deferred income taxes 12,364 12,364 Other current assets 6,985 14,258 21,243 -------------- ------------- ------------- ---------------- -------------- Total current assets 191,243 237,327 428,570 Investment in subsidiaries 282,751 181,389 (464,140) Intercompany advances 639,659 (639,659) Property - net 299,550 276,771 576,321 Deferred income taxes 162,038 28,003 190,041 Goodwill - net 100,487 421,818 522,305 Other assets 10,390 3,704 14,094 -------------- ------------- ------------- ---------------- -------------- $ 922,410 $ 945,097 $ 967,623 $ (1,103,799) $ 1,731,331 ============== ============= ============= ================ ============== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ $ 81,712 $ 61,972 $ $ 143,684 Short-term borrowings and current portion of long-term debt 25,154 67,748 92,902 Accrued employee compensation and benefits 19,336 15,911 35,247 Income and other taxes 4,280 12,597 16,877 Other accrued liabilities 583 30,517 37,004 (472) 67,632 -------------- ------------- ------------- ---------------- -------------- Total current liabilities 583 160,999 195,232 (472) 356,342 Long-term debt 232,523 179,701 412,224 Deferred income taxes 7,031 7,031 Accrued post retirement benefits and other 33,896 11 33,907 Intercompany advances-net 234,928 404,259 (639,187) Stockholders' equity 921,827 282,751 181,389 (464,140) 921,827 -------------- ------------- ------------- ---------------- -------------- $ 922,410 $ 945,097 $ 967,623 $ (1,103,799) $ 1,731,331 ============== ============= ============= ================ ==============
14 15 SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENT OF FINANCIAL POSITION (IN THOUSANDS) SEPTEMBER 30, 1996
COMBINED COMBINED GUARANTOR NONGUARANTOR PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED ------------- ---------------- ------------- ---------------- -------------- ASSETS Current assets: Cash and cash equivalents $ $ 2,897 $ $ $ 2,897 Receivables - net 109,110 162,473 271,583 Inventories - net 39,222 47,879 87,101 Deferred income taxes 19,349 19,349 Other current assets 5,379 31,838 37,217 ------------- ---------------- ------------- ---------------- -------------- Total current assets 175,957 242,190 418,147 Investment in subsidiaries 213,404 150,339 (363,743) Intercompany advances - net 628,979 (628,979) Property - net 292,075 266,081 558,156 Deferred income taxes 112,574 20,092 132,666 Goodwill - net 171,551 395,709 567,260 Other assets 13,467 19,464 32,931 ------------- ---------------- ------------- ---------------- -------------- $ 842,383 $ 915,963 $ 943,536 $ (992,722) $ 1,709,160 ============= ================ ============= ================ ============== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ $ 78,740 $ 63,226 $ $ 141,966 Short-term borrowings and current portion of long-term debt 6,015 28,343 34,358 Accrued employee compensation and benefits 20,548 11,679 32,227 Income and other taxes 2,635 11,063 13,698 Other accrued liabilities 680 35,428 33,668 69,776 ------------- ---------------- ------------- ---------------- -------------- Total current liabilities 680 143,366 147,979 292,025 Long-term debt 276,461 246,543 523,004 Deferred income taxes 11,740 11,740 Accrued post retirement benefits and other 39,343 1,345 40,688 Intercompany advances - net 243,389 385,590 (628,979) Stockholders' equity 841,703 213,404 150,339 (363,743) 841,703 ------------- ---------------- ------------- ---------------- -------------- $ 842,383 $ 915,963 $ 943,536 $ (992,722) $ 1,709,160 ============= ================ ============= ================ ==============
15 16 SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS (IN THOUSANDS) NINE MONTHS ENDED JUNE 30, 1997
COMBINED COMBINED GUARANTOR NONGUARANTOR PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED -------------- ------------- ------------- -------------- ------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 68,282 $ 68,282 $ 26,299 $ (94,581) $ 68,282 Adjustments to reconcile net income to cash provided by (used for) operating activities: Depreciation and amortization 29,305 38,059 67,364 Recognition of unearned compensation 1,125 1,125 Deferred income taxes 19,962 19,962 Income of equity investees (68,282) (26,299) 94,581 Changes in: Receivables (14,675) (6,598) (21,273) Accounts payable 2,972 (3,567) (595) Inventories (5,404) (818) (6,222) Other current assets and liabilities (97) 901 4,145 (472) 4,477 Advances, net (5,940) (82,205) 87,673 472 Other, net 59,309 (98,263) (38,954) -------------- ------------- ------------- -------------- ------------- Net cash provided by (used for) operating activities (6,037) 33,311 66,892 94,166 CASH FLOWS FROM INVESTING ACTIVITIES: Property additions (31,043) (29,000) (60,043) Proceeds from disposal of assets 23,117 3,009 26,126 Acquisition of business, net of cash acquired (13,464) (13,464) -------------- ------------- ------------- -------------- ------------- Net cash used for investing activities (7,926) (39,455) (47,381) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of stock 6,037 6,037 Proceeds from borrowings-net (24,799) (27,437) (52,236) -------------- -------------- ------------- -------------- ------------- Net cash provided by (used for) financing activities 6,037 (24,799) (27,437) (46,199) Increase in cash and cash equivalents 586 586 Cash and cash equivalents at beginning of period 2,897 2,897 -------------- ------------- ------------- -------------- ------------- Cash and cash equivalents at end of period $ $ 3,483 $ $ $ 3,483 ============== ============= ============= ============== =============
16 17 SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS (IN THOUSANDS) NINE MONTHS ENDED JUNE 30, 1996
COMBINED COMBINED GUARANTOR NONGUARANTOR PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED -------------- ------------- ------------- -------------- ------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 22,640 $ 22,640 $ 29,776 $ (52,416) $ 22,640 Adjustments to reconcile net income to cash provided by operating activities: Depreciation and amortization 27,153 17,135 44,288 Net gain on disposal of assets (10) (2,256) (2,266) Recognition of unearned compensation 819 819 Deferred income taxes (benefit) 697 697 Unusual charge 3,539 3,539 Income of equity investees (22,640) (29,776) 52,416 Changes in: Receivables (2,889) (6,559) (9,448) Accounts payable (317) 270 (47) Inventories 551 (2,797) (2,246) Other current assets and liabilities (222) 6,257 (32,262) 3,040 (23,187) Advances, net (4,314) (432,732) 440,086 (3,040) Other, net (15,280) 873 (14,407) -------------- ------------- ------------- -------------- ------------- Net cash provided by (used for) operating activities (4,536) (420,045) 444,963 20,382 CASH FLOWS FROM INVESTING ACTIVITIES: Property additions (12,591) (21,781) (34,372) Proceeds from disposal of assets 1,632 2,826 4,458 Acquisition of business, net of cash acquired (586,535) (586,535) -------------- ------------- ------------- -------------- ------------- Net cash used for investing activities (10,959) (605,490) (616,449) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of stock 4,536 4,536 Proceeds from (reduction of) borrowings-net 431,174 160,527 591,701 -------------- ------------- ------------- -------------- ------------- Net cash provided by financing activities 4,536 431,174 160,527 596,237 Increase in cash and cash equivalents 170 170 Cash and cash equivalents at beginning of period 1,842 1,842 -------------- ------------- ------------- -------------- ------------- Cash and cash equivalents at end of period $ $ 2,012 $ $ $ 2,012 ============== ============= ============= ============== =============
17 18 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL The Company's operations are primarily driven by the number of oil and gas wells being drilled, the depth and drilling conditions of such wells, the number of well completions and the level of workover activity worldwide. Drilling activity, in turn, is largely dependent on the price of oil and natural gas. This is especially true in the United States, where the Company is expected to generate approximately one-half of its revenues during fiscal 1997. Due to "aging" U.S. oilfields and lower-cost sources of oil internationally, drilling activity in the United States has declined more than 75% from its peak in 1981. Record low drilling activity levels were experienced in 1986 and 1992. As a result, pumping service companies have been unable to recapitalize their aging United States fleets due to the inability, under current market conditions, to generate adequate returns on new capital investments. The Company believes it is important to operate with a greater "critical mass" in the key U.S. markets to improve returns in this environment. This conclusion led to the decision in April 1995 to consolidate its U.S. operations with those of The Western Company of North America ("Western"), which had a larger presence in the United States. The Company's U.S. critical mass was further increased through the acquisition of Nowsco Well Service Ltd. ("Nowsco") in June 1996 which added operations in the mid-continental and northeastern U.S., the latter being an area in which the Company did not have an existing presence. Relatively stronger oil and gas prices have recently caused U.S. operators to be more optimistic about the industry. As a result, the normal seasonal decline did not occur during the first half of 1997 and drilling activity exceeded 900 rigs for the first time since 1993. U.S. exploration and production spending is forecast to increase 15 to 20% during 1997 compared with the previous year. The rig count in the United States averaged 934 and 878 active drilling rigs during the respective three and nine-month periods ended June 30, 1997. Such activity represents a 23% and 18% increase over the same three and nine-month periods of the prior fiscal year, respectively. The activity increase during the quarter was due to an increase in both oil and natural gas drilling. With the exception of Canada, international drilling activity has historically been less volatile than domestic drilling activity. International drilling activity increased by 13% and 11% compared with the prior year's three and nine-month periods, respectively, primarily on the strength of development work in Canada. In both the U.S. and internationally, there has been a continuing trend by oil and gas companies toward alliances with service companies. These alliances take various forms including packaged or integrated services, single source suppliers and turnkey agreements. More than 20% of the Company's revenues are generated under such alliances. 18 19 EXPANSIONS AND ACQUISITIONS The Company's expansion and acquisition efforts over the past several years have been focused on adding critical mass to its U.S. operations and international geographic expansions of its existing product lines. The acquisition of Nowsco in June 1996 (the "Nowsco Acquisition") contributed towards both these efforts by giving the Company the number one pumping services market position in Canada, where the Company had not operated since 1992, and adding to the Company's existing market positions in several key U.S. and international markets. The Nowsco Acquisition added approximately 40% to the Company's existing revenue base. The Company strengthened its market position in Argentina in December 1996 by acquiring the remaining 51% interest in its Argentine joint venture, NASA. The Company's original 49% share was acquired through the Nowsco Acquisition. RESULTS OF OPERATIONS Revenue: Revenue increased by 67% and 68% over the same three and nine-month periods of the previous fiscal year, primarily as a result of the acquisition of Nowsco and a strong recovery in the U.S. oil and gas markets. The Company's U.S. pressure pumping operations continued its strong year-over-year improvement with a 48% revenue increase over prior year's third quarter. Taking into account prior year's Nowsco revenues, these operations showed a pro forma revenue increase of 25%, benefiting from a 23% increase in the active rig count. For the nine-month period ended June 30, 1997, U.S. revenues increased 47% over the same period of the prior year. Revenues in most of the central U.S. regions were up sharply, most significantly in Texas and Oklahoma. Management expects U.S. drilling activity to remain strong during the remainder of 1997 in comparison to the prior year. The Company's international pressure pumping operations continued their strong growth with revenues increasing by 92% (30% on a pro forma basis) from prior year's third quarter and 96% for the first nine-month period. This represents the eighteenth consecutive quarter of international revenue improvement. The Company's newly acquired Canadian operations achieved their highest ever third quarter revenue figures increasing 51% and 45% on a pro forma basis over the prior year's three and nine-month periods, respectively. Such activity increase was primarily a result of a less pronounced spring breakup (the period at the beginning of spring when municipalities place restrictions on vehicle weights to prevent damage to the roads during the spring thaw) and particularly strong fracturing and coiled tubing activity. Other international areas showing significant revenue increases during these periods included the UK (mainly coiled tubing), Indonesia and Thailand. The Company's Middle East region also had another strong quarter reflecting new contracts in India, Egypt and Saudi Arabia. The Company's operations in Venezuela continued to benefit from increased coiled tubing revenues resulting from the addition of a coiled tubing barge since the previous year. Partially offsetting these gains were pro forma revenue declines in Argentina, due to a slowdown in drilling activity by YPF, and in Malaysia. 19 20 Management expects the year-over-year international revenue to continue to increase over the next several quarters. The Company's other service lines, which include tubular services, commissioning and pipeline inspection and production chemical businesses showed an overall revenue increase of 85% for both the three and nine-month periods ended June 30, 1997 over the same periods of the previous year due mainly to the Nowsco acquisition, as well as activity gains in each of these service lines on a pro forma basis. Operating Income: Operating income more than doubled for both the three and nine-month periods as a result of the revenue increase and higher operating margins resulting from efficiencies derived from the combination of the Company's and former Nowsco operations and the operating leverage that results from increased U.S. activity. The cost of sales and services as a percentage of revenue during the three and nine-month periods was 3.5% and 2.9% lower, respectively, than in the same periods of the prior year primarily as a result of cost reduction efforts implemented after the acquisition of Nowsco, U.S. net price improvement of 4 to 5% and the economies of scale in having a larger U.S. operation. Other operating expenses, excluding goodwill amortization, increased by 42% and 43% over the same three and nine-month periods of fiscal 1996 primarily as a result of additional overhead from the former Nowsco operations. The increase in goodwill amortization resulted from the Nowsco Acquisition, which was accounted for under the purchase method of accounting. The unusual charge in 1996 consisted of $1.9 million in interest relating to borrowings incurred to finance the Nowsco Acquisition and a $1.6 million write-off of bank fees in connection with the Company's previous bank facility. Interest expense increased by $2.1 million and $7.3 million, respectively, over the same three and nine-month periods of the previous year due to increased borrowings to fund the Nowsco Acquisition. See "Capital Resources and Liquidity." The year-to-date effective tax rate increased to 30% from 24% due to the higher U.S. profitability which is taxed at the 35% statutory rate. CAPITAL RESOURCES AND LIQUIDITY Net cash provided from operating activities for the nine months ended June 30, 1997 increased by $73.8 million from the prior year's figure. Higher profitability, depreciation and amortization and deferred income taxes were partially offset by higher receivable balances. Net cash used for investing activities for the nine-month period was $47.4 million, a $569.1 million decrease from the first nine months of the prior year due to the Company's acquisition of Nowsco in June 1996 and the receipt of $20.3 million in cash in 1997 on the sale of the hull from the Renaissance, partially offset by higher capital spending and the acquisition of the remaining 51% ownership of the Company's previously unconsolidated joint venture in Argentina. Because net cash flows from operating activities were sufficient to cover the Company's capital requirements, the Company was able to reduce net borrowings by $52.2 million during the current nine-month period. 20 21 Management strives to maintain low cash balances while utilizing available credit facilities to meet the Company's capital needs. Excess cash generated is used to pay down outstanding borrowings. In June 1996, the Company replaced its existing credit facility with a committed, unsecured bank credit facility (the "New Bank Credit Facility") executed to accommodate the Nowsco Acquisition. The New Bank Credit Facility consists of a Canadian $320.0 million (approximately U.S. $230 million) six-year term loan, which is repayable in 22 quarterly installments which began in March 1997, and a five-year U.S. $325.0 million revolving facility. At June 30, 1997, borrowings outstanding under the New Bank Credit Facility amounted to $313.3 million consisting of $213.3 million under the term loan and $100.0 million borrowed under the revolver. At June 30, 1997, principal reductions of term loans under the New Bank Credit Facility are due in aggregate installments of $8,468,082; $33,872,327; $43,308,190; $46,453,477; $46,453,477 and $34,789,297 in the years ending September 30, 1997, 1998, 1999, 2000, 2001 and 2002, respectively. The outstanding balance of the Company's 9.2% Notes, issued in 1991, was $12.0 million at June 30, 1997. Principal reductions of $6.0 million are required annually each August until maturity on August 1, 1998. In addition to the committed facility, the Company had $143.0 million in various unsecured, discretionary lines of credit at June 30, 1997 which expire at various dates in 1998. There are no requirements for commitment fees or compensating balances in connection with these lines of credit. Interest on borrowings is based on prevailing market rates. At June 30, 1997 and September 30, 1996, there were $53.3 million and $2.5 million, respectively, in outstanding borrowings under these lines of credit. The Company's interest-bearing debt represented 35.4% of its total capitalization at June 30, 1997, a decrease from 39.8% at the previous fiscal year-end. The Company's New Bank Credit Facility and 9.2% Notes contain various customary covenants, including the maintenance of certain profitability and solvency ratios and restrictions on dividend payments. Management believes that the New Bank Credit Facility, combined with other discretionary credit facilities and cash flow from operations, will provide the Company with sufficient capital resources and liquidity to manage its routine operations and fund projected capital expenditures. In a transaction entered into subsequent to June 30, 1997 involving the transfer of certain pumping service equipment assets, the Company expects to receive approximately $100 million in the fourth fiscal quarter which will be used to reduce outstanding bank debt. As a result of the reduced debt, the Company will realize a reduction in future interest expense of approximately $6 million per year. The equipment will be used to provide services to the Company for its customers for which the Company will pay a service fee over a period of at least eight, but not more than fourteen years. The transaction generated a book gain of approximately $37 million which will be amortized over twelve years. The taxable gain of approximately $91 million will be completely offset with net operating loss carryforwards that are available to the Company as a result of the Western acquisition. The 21 22 expected tax benefit of the net operating loss utilization has been recorded as a reduction to goodwill in the quarter ended June 30, 1997. At June 30, 1997, the Company had approximately $540 million of United States tax net operating loss carryforwards expiring between 2000 and 2011; approximately $115 million of non-U.S. tax net operating loss carryforwards expiring in varying amounts beginning in 1997; and approximately $7 million in non-U.S. tax credits which expire in varying amounts between 1999 and 2009. Under Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"), the Company is required to record a deferred tax asset for the future tax benefit of these tax net operating loss carryforwards, as well as other items, if realization is "more likely than not." The 1995 acquisition of The Western Company of North America (the "Western Acquisition") provided the Company with a greater critical mass with which to compete in the United States as it more than doubled the Company's United States revenue base. In addition, with the combination of Nowsco and Western, the Company has realized significant consolidation benefits. Management estimates that in excess of $64 million of overhead and redundant operating costs have been eliminated annually as a result of the combination of the three companies. Net tax benefits resulting from the acquisitions approximate $189 million and have been included as a deferred tax asset recognized in the purchase price allocation. Valuation allowances have been established for the benefits of the tax net operating loss carryforwards that are estimated to expire prior to their utilization. In 1997, the Company increased its estimate of the amount of pre-acquisition losses of Western and Nowsco for which it is more likely than not that tax benefits will ultimately be realized. Accordingly, the Company has recorded a $69.4 million increase in the deferred tax asset along with a corresponding decrease in goodwill. Management estimates that the utilization of net operating loss carryforwards will result in cash taxes of less than one-half of the book tax rate over the next several years. Excluding acquisitions, capital expenditures during the first nine months of the fiscal year were $60.0 million, or $25.7 million higher than the spending in the comparable period of the prior year. The current year's spending relates primarily to the construction of two additional pumping service vessels (both in Latin America), expansion of cementing and stimulation capacity in the Gulf of Mexico and Latin America, and upgrades of the Company's information systems. Other investing activities included the acquisition of the remaining 51% interest in the Company's joint venture in Argentina for total consideration of $13.5 million. Capital expenditures for fiscal 1998 are expected to exceed 1997 levels, and are expected to include spending for coiled tubing growth opportunities, additional capacity in certain high margin locations and higher levels of replacement capital. The actual amount of fiscal 1998 capital expenditures (excluding acquisitions) will be primarily dependent upon the availability of expansion opportunities and are expected to be funded by cash flows from operating activities and available credit facilities. Management believes cash flows from operating activities and available lines of credit, if necessary, will be sufficient to fund projected capital expenditures. 22 23 This document contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 concerning, among other things, the Company's prospects, developments and business strategies for its operations, all of which are subject to certain risks, uncertainties and assumptions. These forward-looking statements are identified by their use of terms and phrases such as "expect," "estimate," "project," "believe," and similar terms and phrases. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those expected, estimated or projected. 23 24 PART II OTHER INFORMATION Item 1. Legal Proceedings None Item 2. Changes in Securities None Item 3. Defaults upon Senior Securities None. Item 4. Submission of Matters to a Vote of Security Holders None. Item 5. Other Information None Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits. 27.1 Financial Data Schedule (b) Reports on Form 8-K. None 24 25 SIGNATURES 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. BJ Services Company (Registrant) Date: August 8, 1997 BY /s/ J. W. STEWART -------------------------------- J. W. Stewart Chairman of the Board, President, and Chief Executive Officer Date: August 8, 1997 BY /s/ MATTHEW D. FITZGERALD -------------------------------- Matthew D. Fitzgerald Controller and Chief Accounting Officer 25 26 INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION - -------------- ----------- 27.1 Financial Data Schedule
EX-27 2 FINANCIAL DATA SCHEDULE
5 9-MOS SEP-30-1997 OCT-01-1996 JUN-30-1997 3,483 0 294,817 5,561 96,663 428,570 988,653 412,332 576,321 356,342 0 0 0 3,838 917,989 1,731,331 1,052,697 1,052,697 0 828,967 103,758 1,398 24,078 97,376 29,094 68,282 0 0 0 68,282 1.67 1.65
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