-----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, C9CEK9HRltQcrVJdtdrUm82I6Q2XGHYZH2t5n+6CjGdMhNQCO32geilQf5c1MmHr 7s2CvbgGlM6h9hsiiwW7Ig== 0000950129-98-000569.txt : 19980217 0000950129-98-000569.hdr.sgml : 19980217 ACCESSION NUMBER: 0000950129-98-000569 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980212 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: SEC FILE NUMBER: 033-58639 FILM NUMBER: 98534695 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 - 12/31/97 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 DECEMBER 31, 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 38,672,357 shares of the registrant's common stock, $.10 par value, outstanding as of February 10, 1998. - -------------------------------------------------------------------------------- ================================================================================ 2 BJ SERVICES COMPANY INDEX PART I - FINANCIAL INFORMATION: Item 1. Financial Statements Consolidated Condensed Statement of Operations (Unaudited) - Three months ended December 31, 1997 and 1996 3 Consolidated Condensed Statement of Financial Position - December 31, 1997 (Unaudited) and September 30, 1997 4 Consolidated Condensed Statement of Cash Flows (Unaudited) - Three months ended December 31, 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 8 PART II - OTHER INFORMATION 13
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 DECEMBER 31, 1997 1996 ------------ ------------ Revenue $ 415,360 $ 340,380 Operating expenses: Cost of sales and services 304,884 272,208 Research and engineering 7,539 5,912 Marketing 14,572 11,631 General and administrative 12,937 10,717 Goodwill amortization 3,527 3,784 ------------ ------------ Total operating expenses 343,459 304,252 ------------ ------------ Operating income 71,901 36,128 Interest expense (6,006) (8,320) Interest income 380 41 Other income (expense) - net (489) 143 ------------ ------------ Income before income taxes 65,786 27,992 Income taxes 21,709 8,018 ------------ ------------ Net income $ 44,077 $ 19,974 ============ ============ Earnings per share: Basic $ .57 $ .26 Diluted $ .52 $ .25 Weighted average shares outstanding: Basic 77,198 76,418 Diluted 85,036 81,252
SEE NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS 3 4 BJ SERVICES COMPANY CONSOLIDATED CONDENSED STATEMENT OF FINANCIAL POSITION (IN THOUSANDS)
DECEMBER 31, SEPTEMBER 30, 1997 1997 ------------ ------------ (UNAUDITED) ASSETS Current assets: Cash and cash equivalents $ 8,157 $ 3,900 Receivables - net 343,117 332,851 Inventories: Finished goods 73,268 73,343 Work in process 4,951 6,969 Raw materials 25,649 23,922 ------------ ------------ Total inventories 103,868 104,234 Deferred income taxes 11,521 12,986 Other current assets 22,556 20,773 ------------ ------------ Total current assets 489,219 474,744 Property - net 546,969 540,356 Deferred income taxes 175,219 183,076 Goodwill - net 509,830 513,388 Other assets 15,346 15,204 ------------ ------------ $ 1,736,583 $ 1,726,768 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 153,811 $ 162,467 Short-term borrowings and current portion of long-term debt 114,213 102,698 Accrued employee compensation and benefits 32,552 38,807 Income and other taxes 23,987 21,126 Accrued insurance 15,849 15,486 Other accrued liabilities 55,024 44,760 ------------ ------------ Total current liabilities 395,436 385,344 Long-term debt 282,970 298,634 Deferred income taxes 9,270 7,598 Accrued postretirement benefits and other 74,467 74,965 Stockholders' equity 974,440 960,227 ------------ ------------ $ 1,736,583 $ 1,726,768 ============ ============
SEE NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS 4 5 BJ SERVICES COMPANY CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS (UNAUDITED) (IN THOUSANDS)
THREE MONTHS ENDED DECEMBER 31, 1997 1996 ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 44,077 $ 19,974 Adjustments to reconcile net income to cash provided by operating activities: Amortization of unearned compensation 3,600 375 Depreciation and amortization 21,517 22,799 Deferred income taxes 13,504 4,455 Changes in: Receivables (10,266) (10,337) Inventories 366 5,521 Accounts payable (8,656) (3,596) Other current assets and liabilities 4,405 (2,011) Other - net 4,647 (10,052) ------------ ------------ Net cash provided by operating activities 73,194 27,128 CASH FLOWS FROM INVESTING ACTIVITIES: Property additions (28,148) (14,538) Proceeds from disposal of assets 1,641 1,599 Acquisition of business, net of cash acquired (13,464) ------------ ------------ Net cash used for investing activities (26,507) (26,403) CASH FLOWS FROM FINANCING ACTIVITIES: Reduction of borrowings - net (4,149) (2,838) Purchase of treasury stock (42,632) Proceeds from issuance of stock 4,351 4,431 ------------ ------------ Net cash provided by (used for) financing activities (42,430) 1,593 Increase in cash and cash equivalents 4,257 2,318 Cash and cash equivalents at beginning of period 3,900 2,897 ------------ ------------ Cash and cash equivalents at end of period $ 8,157 $ 5,215 ============ ============
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 December 31, 1997, and the results of operations and cash flows for each of the three month periods ended December 31, 1997 and 1996. The consolidated condensed statement of financial position at September 30, 1997 is derived from the September 30, 1997 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-month period ended December 31, 1997 are not necessarily indicative of the results to be expected for the full year. Certain amounts for fiscal 1997 have been reclassified to conform to the current year presentation. NOTE 2 EARNINGS PER SHARE In October 1997, the Company adopted Statement of Financial Accounting Standards No. 128 "Earnings Per Share ("EPS")". In accordance with this standard, the Company has replaced the presentation of primary EPS and fully diluted EPS with the presentation of basic EPS and diluted EPS for all periods presented. 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 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. At the annual meeting of stockholders on January 22, 1998, the Company's stockholders approved an amendment to the Company's charter increasing the number of authorized shares of common stock from 80 million to 160 million shares. As a result, a 2 for 1 stock split approved by the Board of Directors on December 11, 1997 (to be effected in the form of a stock dividend) was approved by the stockholders to be distributed on or about February 20, 1998 to stockholders of record as of January 30, 1998. Accordingly, all references in the financial statements to number of shares outstanding and earnings per share amounts have been retroactively restated for all periods presented to reflect the increased number of common shares outstanding resulting from the stock split. 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 DECEMBER 31, 1997 1996 ---------- ---------- Net income $ 44,077 $ 19,974 Average common shares outstanding: 77,198 76,418 ---------- ---------- Basic earnings per share $ .57 $ .26 ========== ========== Average common and dilutive potential common shares outstanding: Average common shares outstanding 77,198 76,418 Assumed exercise of stock options 1,950 1,628 Assumed exercise of warrants 5,888 3,206 ---------- ---------- 85,036 81,252 Diluted earnings per share $ .52 $ .25 ========== ==========
7 8 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 and Canada, where the Company expects to generate over 60% of its revenues during fiscal 1998. Published industry surveys have estimated 1998 spending will exceed 1997 levels by 10 to 12%. Such estimates, however, were predicated on oil prices which exceed current levels. If oil prices remain at current levels for a prolonged period, such budgets are likely to be reduced. Due to "aging" 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. Until recently, excess capacity among pumping service companies resulted in the inability to generate adequate returns on new capital investments. To improve returns in this environment, the Company believes it is important to operate with a greater "critical mass" in the key U.S. markets. This conclusion led to the decision in April 1995 to consolidate its 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. operations were 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 and improved oilfield technology and equipment have recently led to more favorable drilling conditions in the United States. As a result, during August 1997 the U.S. active rig count exceeded 1,000 rigs for the first time since 1991. The U.S. active rig count averaged 997 rigs during the quarter ended December 31, 1997, an 18% increase over the prior year's first fiscal quarter. The increase in activity occurred primarily in drilling for natural gas which was up 27% compared with the prior year. While U.S. drilling activity is expected to continue to be relatively strong during fiscal 1998, the rate of increase is expected to decline in the second half of the fiscal year. With the exception of Canada, international drilling activity has historically been less volatile than domestic drilling activity. Active international drilling rigs averaged 1,260 during the first fiscal quarter, an increase of 13% over the first quarter of 1997, primarily on the strength of development work in Canada. Calendar 1997 was a record year in terms of the number of wells drilled in Canada. Canadian drilling activity is expected to remain strong during the next several years due to the completion of additional pipeline capacity. 8 9 In both the United States and internationally, there has been a continuing trend by oil and gas companies toward "alliances" with the 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. While the Company's service line offerings are not as comprehensive as some of its major competitors, management believes the trend towards alliances has not had a material adverse impact on the Company's operating results to date. RESULTS OF OPERATIONS The following table sets forth selected key operating statistics reflecting industry rig count and the Company's financial results:
QUARTER ENDED DECEMBER 31 1998 1997 ------ ------ Rig Count: (1) U.S 997 845 International 1,260 1,115 Revenue per rig (in thousands) $184.0 $173.7 Revenue per employee (in thousands) $ 47.9 $ 45.4 Percentage of gross profit to revenue (2) 26.6% 20.0% Percentage of research and engineering expense to revenue 1.8% 1.7% Percentage of marketing expense to revenue 3.5% 3.4% Percentage of general and administrative expense to revenue 3.1% 3.1%
- -------- (1) Industry estimate of average active rigs. (2) Gross profit represents revenue less cost of sales and services. Revenue: The Company's revenue increased by 22% compared with the first quarter of the previous year due primarily to strong worldwide drilling activity and to improved pricing. While the relatively stronger drilling activity is expected to continue into at least the Company's second and third fiscal quarters, recent weakness in oil prices could impact comparisons as early as the latter half of calendar 1998. As yet, however, the Company has not experienced any significant reduction in business as a result of the lower oil prices. United States The Company's U.S. revenues increased by 27% during the quarter due primarily to strong pressure pumping activity across all regions and from a large gel pigging job by its pipeline inspection business. The Company's U.S. pressure pumping revenues were up 26%, exceeding the 18% increase in the active rig count due to better pricing for its services. With the U.S. rig count 9 10 averaging 997 active rigs during the quarter, the Company was operating at near full capacity in most of its regions. The Company's U.S. coiled tubing, acidizing and downhole tool revenues were especially strong; however, fracturing revenue increased only 14% due to relatively flat workover activity. Activity in the Gulf of Mexico was also strong, with the Company operating a record number of offshore cementing skid units and experiencing increased revenue from its offshore stimulation vessels. International The Company's international revenues increased by 16% over prior year's first fiscal quarter. Led by a strong increase in stimulation activity, the Company's international operations generated their twentieth consecutive quarter of year over year revenue improvement. Stimulation activity was particularly strong in the North Sea, Canada, Indonesia and Latin America. Revenues generated from the Company's well kill operations in Bangladesh also contributed to the revenue improvement. Operating Income: Operating income almost doubled from the prior year's first fiscal quarter, with operating income margins exclusive of goodwill amortization increasing to 18.2% of revenues from 11.7%. The gross margin improvement was due to the Company's North American pumping operations running at high utilization levels, along with continued strength in international markets. Although increasing on an absolute basis, each of the other cash operating expenses (research and engineering, marketing, and general and administrative) were relatively constant as a percentage of revenue. The increases are reflective of increased support costs from the higher activity levels, as well as increased spending on coiled tubing research, international commissions, information systems and incentives. Other: Interest expense decreased by $2.3 million from the prior year's first quarter due to a reduction in borrowing from strong operating cash flows, and a financing transaction in the fourth quarter of the prior fiscal year. Other expense increased to $.5 million primarily as a result of minority interest in higher profitability from the Company's international joint ventures. The Company's effective tax rate increased to 33% from 29% in prior year's first quarter as a result of the higher U.S. profitability. CAPITAL RESOURCES AND LIQUIDITY Net cash provided from operating activities for the three months ended December 31, 1997 increased by $46.1 million from the prior year's figure due primarily to higher profitability, deferred income taxes and changes in other net. Net cash used for investing activities for the three-month period was $26.5 million, relatively flat with the prior year. Capital spending, which increased by $13.6 million, or 94% this quarter compared to the same quarter of the previous year, was offset by the acquisition in fiscal 1997 of the remaining 51% ownership of the Company's previously unconsolidated joint venture in Argentina. The current quarter's spending relates primarily to additional fracturing capacity for Canada and Latin America and upgrades to the Company's 10 11 information systems. The Company utilized net cash flows from operating activities to repurchase $42.6 million of its common stock and reduced outstanding borrowings by $4.1 million during the quarter ended December 31, 1997. The common stock was purchased under a stock repurchase program approved by the Company's Board of Directors in December 1997 authorizing purchases up to $150 million at the discretion of the Company's management. Management strives to maintain low cash balances while utilizing available credit facilities to meet the Company's capital needs. Any excess cash generated is used to pay down outstanding borrowings. The Company has a committed, unsecured bank credit facility (the "Bank Credit Facility") which consists of a Canadian $320 million (approximately U.S. $232 million) six-year term loan, that is repayable in 22 quarterly installments which began in March 1997, and a five year U.S. $225 million revolving credit facility. At December 31, 1997, borrowings outstanding under the Bank Credit Facility totaled $190.5 million, consisting wholly of borrowings under the term loan. Principal reductions of term loans under the Bank Credit Facility are due in aggregate annual installments of $24.6 million; $42.0 million; $45.1 million; $45.1 million; and $33.7 million in the years ending September 30, 1998, 1999, 2000, 2001 and 2002, respectively. In addition to the Bank Credit Facility, the Company had $97.9 million in various unsecured, discretionary lines of credit at December 31, 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 December 31, 1997, there were $82.3 million in outstanding borrowings under these lines of credit. The Company has issued and outstanding $125.0 million principal amount of unsecured 7% Notes due 2006 (the "7% Notes"). The net proceeds from the issuance of the 7% Notes ($123.3 million) were used by the Company to repay indebtedness outstanding under the term loan portion of the Company's then existing bank credit facility. The guarantees of the 7% Notes by certain subsidiaries of the Company were released in accordance with their terms in December 1997. The $6.0 million outstanding balance of the Company's 9.2% Notes and the $2.2 million outstanding balance of the Company's 12 7/8% Notes were repaid in December 1997. The Company's interest-bearing debt represented 29.0% of its total capitalization at December 31, 1997, compared to 29.5% at September 30, 1997. The Bank Credit Facility includes various customary covenants and other provisions including the maintenance of certain profitability and solvency ratios and restrictions on dividend payments. Management believes that the Bank Credit Facility, combined with other discretionary credit facilities and cash flow from operations, provides the Company with sufficient capital resources and liquidity to manage its routine operations and fund projected capital expenditures. 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, 11 12 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. 12 13 PART II OTHER INFORMATION Item 1. Legal Proceedings None Item 2. Changes in Securities The Company has issued and outstanding, $125.0 million of unsecured 7% Notes due 2006. The guarantees of the 7% Notes by three of the Company's subsidiaries, BJ Services Company, U.S.A., BJ Service International, Inc. and BJ Services Company Middle East, were released in accordance with their terms in December 1997. 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 13 14 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: February 12, 1998 BY /s/ Michael McShane ------------------------------------ Michael McShane Senior Vice President, Finance and Chief Financial Officer Date: February 12, 1998 BY /s/ Matthew D. Fitzgerald ------------------------------------ Matthew D. Fitzgerald Vice President and Controller and Chief Accounting Officer 15 INDEX TO EXHIBITS EXHIBIT NUMBER DESCRIPTION - ------ ----------- 27.1 FINANCIAL DATA SCHEDULE EX-27 2 FINANCIAL DATA SCHEDULE
5 3-MOS SEP-30-1998 OCT-01-1997 DEC-31-1997 8,157 0 343,117 6,441 103,868 489,219 941,692 394,723 1,736,583 395,436 0 0 0 3,867 970,573 1,736,583 415,360 415,360 304,884 304,884 38,575 299 6,006 65,786 21,709 44,077 0 0 0 44,077 .57 .52
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